S.K. Choudhuri, J.
1. These five tax cases arise out of a reference made under Section 256(1) of the I.T. Act, 1961 ( " the Act" for brief), at the instance of the Commissioner of Income-tax, Bihar, Patna.
2. The following two questions of law have been referred to this court:
" (i) Whether, on the facts and in the circumstances of the case, the profits arising from the sales made to the regular members of the club is entitled to exemption on the doctrine of mutuality ?
(ii) Whether, on the facts and in the circumstances of the case, the directions given by the Tribunal are valid in law ? "
3. The assessee-respondent is known as the Bankipur Club Ltd. (" the club " for short), having its registered office at Bankipur, Patna, incorporated under the Companies Act, 1956, the liability of its shareholders being limited by guarantee. The main object of the club, as the memorandum of association shows, is to afford to its members all the usual privileges, advantages, conveniences and accommodation of a club. Clause 5 of the memorandum of association makes a provision that upon a winding-up or dissolution of the company, if there remains any property left after the satisfaction of all debts and liabilities, the same shall be paid to and distributed amongst the members of the company in equal shares. Articles of association under Article 6 reads : " Only permanent members shall be deemed to be members of the club."
4. Article 15 speaks of temporary members who may be elected for not exceeding three months in any calendar year. To become a temporary member the person would be a person not permanently residing at Patna or within ten miles of it. No entrance fee is payable by them, but they are to pay a fixed monthly subscription. Under Article 5, the Governor and the Chief Minister of the State may be invited by the committee to become honorary members of the club. Article 17 is a provision for giving to the temporary and the honorary members all the privileges of the club, subject to such restrictions and regulations as may be prescribed by the rules or bye-laws of the club; They have, however, no right to vote at a meeting or be elected on committees or bring any guest.
5. The ITO initiated proceedings under Section 147 of the Act for the assessment years 1960-61, 1961-62, 1962-63, 1963-64 and 1964-65 against the club. The club filed returns of income-tax for all these years along with profit and loss accounts and the balance-sheet of the company. The return showed " nil" income from the house property as also " nil" income from the business or profession. The ITO assessed the club under various heads including sale of drinks at the bar. The receipt under this head, namely, " Sale of drinks at the bar ", is only disputed in all the aforesaid five years. The ITO held that profit on the sale proceeds of the drinks by the club is also income and, therefore, liable to be taxed. Five appeals were preferred before the AAC against the five assessment orders passed by the ITO for the aforesaid years in question. They were heard together and disposed of by the AAC. He agreed with the ITO's decision and held that the profit from the Bar was not exempted as the principle of mutuality was not applicable. It is not necessary to state about assessability of the other heads determined in appeal as they are not disputed nor any of them has been referred to this court for determination.
6. Then the matter went up before the Appellate Tribunal at the instance of the club and the five appeals preferred by the club were disposed of by a common judgment. It agreed with the submission put forward on behalf of the club that the principle of mutuality would apply in regard to the transaction of sale of drinks at the bar. The Tribunal, therefore, after discussion of the relevant facts and law, passed an elaborate judgment, the operative portion of which reads thus:
" 23. Finally, there is one issue and the facts are insufficient to come to a decision. It will be observed that the principle we have deduced is that the activities, inter se, between the members are entitled to mutuality. We also expressly say that profit arising from any transaction with an outsider is liable to taxation."
" 24. The case has not been examined from this point of view and we, therefore, think that the Income-tax Officer may take steps to assess the profits of the drinking bar arising from service done to non-members. At this point we expressly leave open the question whether temporary members are taken to be outsiders for this purpose or not. The orders passed by the authorities below are set aside to this limited extent only. The total income should be recomputed and assessments made in the light of these directions."
7. Being aggrieved by the aforesaid decision of the Appellate Tribunal, the Commissioner moved the Appellate Tribunal under Section 256(1) of the Act for making a reference to this court. Accordingly, the present references have been made and the two questions which have already been quoted above have been referred.
8. I may state here at the outset that the statement of the case made by the Income-tax Appellate Tribunal, as printed in the paper book at pp. 42 and 43, is incomplete inasmuch as a major portion of the statement has been left out from printing. Accordingly, we got a copy typed from the original and we are using the same for the purpose of this case.
9. The Tribunal found that as regards sales to regular members, the profit arising from sales to them is not liable to be taxed on the principle of mutuality. As regards temporary members, it remanded the case to the ITO for a fresh decision and it left open the question as to whether temporary members will be taken as outsiders for the purpose of assessment for decision by the ITO.
10. Mr. B.P. Rajgarhiya, appearing for the revenue, strenuously contended that the principle of mutuality would not apply in the facts and circumstances of the case and in support of his contention he strongly relied upon a case of the Supreme Court in CIT v. Kumbakonam Mutual Benefit Fund Ltd.  53 ITR 241. Mr. K. P. Sinha, learned counsel for the club, on the other hand, contended that the decision of the Appellate Tribunal to the effect that the principle of mutuality would apply in the case of transactions of sale by the club to its members and is not liable to be taxed on the principle of mutuality, is correct. He contended that the sale of drinks at the bar of the club is open only to the members of the club and to nobody. According to the learned counsel, it does not make any difference if sale is made to permanent members as also to temporary members for the applicability of the principle of mutuality. However, he conceded that if sale of drinks at the bar was open to the outsiders, then, the principle of mutuality would not apply and the sale to such persons would be liable to tax. During the course of argument, he placed strong reliance upon a decision in CIT v. Merchant Navy Club  96 ITR 261 (AP). He pointed out that the decision cited by Mr. Rajgarhiya upon which he placed strong reliance, namely, the case of Kumbakonam Mutual Benefit Fund Ltd.  53 ITR 241 (SC) was also noticed in this case and discussed. Therefore, it is necessary to discuss these two cases for appreciating the contention put forward by the respective counsel.
11. Learned counsel of neither side has disputed the proposition laid, down by Lord Justice Macmillan in Municipal Mutual Insurance Ltd. v. Hills  16 TC 430, 448 (HL), namely:
" ......all the participators in the surplus must be contributors to the common fund. "
12. In other words, there must be complete identity between the " contributors " and the " participators ". It has also not been disputed that even in respect of the present I.T. Act the principle of mutuality would apply in the case of the Bankipur Club if the aforesaid cardinal requirements of mutuality are satisfied,
13. I have already pointed out above while stating the facts that nobody is allowed to enjoy the privileges of the club other than its members who may be either permanent members or temporary members. The bar in question where drinks are sold is open to its members, both permanent as well as temporary, and no outsider can purchase any drink from the said club. It cannot be disputed, therefore, that while selling drinks to these members, it does not do with a motive of profit earning which can be said to be tainted with commerciality. The members pay the monthly subscription and in addition they enjoy the benefit of this privilege of supply of drinks to them on additional payment. There cannot, therefore, be any profit-earning motive so far as these transactions are concerned. The club it is not disputed, is owned by the members and Clause 5 of the memorandum of association about which I have already stated above, speaks of distribution of the surplus assets amongst the members of the company in equal shares upon a winding-up and dissolution of the club. The difference between the members, who are permanent and the members who are temporary is only this that the temporary members have no right of voting or election on any of the committees.
14. Before discussing the two cases cited at the Bar, I wish to refer to a decision of the Supreme Court in the case of CIT v. Royal Western India Turf Club Ltd.  24 ITR 551. In that decision, it has been observed as follows (p. 565):
" As already stated, in the instant case there is no mutual dealing between the members inter se and no putting up of a common fund for discharging the common obligations to each other undertaken by the contributors for their mutual benefit. On the contrary, we have here an incorporated company authorised to carry on an ordinary business of a race course company and that of licensed victuallers and refreshment purveyors and in fact carrying on such a business. There is no dispute that the dealings of the company with non-members take place in the ordinary course of business carried on with a view to earning profits as in any other commercial concern. It is further admitted that some of the dealings of the company with its members take place in the ordinary course of business and the profits arising out of those dealings, e.g., the fourth item of receipt of Rs. 82,490, are taxable. The company gives to its members the same or similar amenities as it gives to non-members, namely, the use of an unreserved seat in a stand, the facility to watch the races and to bet on the horses in the races, use of the totalizator in that stand and the facility for refreshment. In fact the daily ticket fee for admission into the members' enclosure is exactly the same as that for admission into the first enclosure to which the public have access. The only difference is that a separate enclosure with a separate totalizator is provided for the members where they can meet their fellow members and not be disturbed by the intrusion of non-members. This privilege is referable to their membership of the company for which they pay an entrance fee on their election as members and for which they pay the periodical subscriptions both of which are not sought to be brought to charge. The rest of the facilities mentioned above which the members get are in substance the same as those enjoyed by the public. Those facilities are given to members and non-members alike for a price. The character of the charges made on members is precisely the same as or is similar to that of the charges made on non-members, for the company receives moneys from both members and non-members in return for the same or similar facilities given to both in the course of one and the same business. The dealings in both cases disclose the same profit-earning motive and are alike tainted with commerciality. "
15. In the present case, the club does not deal with any outsiders in relation to the transaction for sale of drinks. It is confined only to the members. The club, as pointed out above, is also owned by the members and, therefore, the transaction in question would not amount to a sale by the members to its members. It is also not disputed that all the members are entitled to participate in this privilege and the income under this head is applied towards the club for cither re-purchasing drinks or adding further privileges for the members. The aforesaid Supreme Court decision has pointed out that what was liable to tax was the receipt in respect of dealings which disclosed the profit-earning motive and tainted with commerciality. In that case apart from entrance fee and periodical subscriptions, the members paid admission ticket fees for entrance in the race course stand just as the non-members paid. It has been held in that case that this was tainted with commerciality and, therefore, taxable.
16. Now, I come to the decision cited by Mr. Rajgarhiya, namely, Kumbakonam Mutual Benefit Fund Ltd.  53 ITR 241 (SC). The facts of this case were that the respondent-company limited by shares carried on banking business restricted to its shareholders, which received monthly contributions by way of recurring deposits from the shareholders and at the end of a fixed period returned an amount covering the deposits and guaranteed interest thereon for that period. Loans were granted to those shareholders who applied for them and interest was realised on those loans. A shareholder was entitled to participate in the profits as and when dividend was declared, even though he had not taken any loan from the respondent. The question was whether the respondent was assessable to tax on the profits derived from those transactions with its shareholders. In that case, it has been held that the essence of mutuality lies in the return of what one has contributed to a common fund. The case of Royal Western India Turf Club Ltd.  24 ITR 551 (SC) has also been relied upon. In the facts and circumstances of that case, it has been held that there was no complete identity between the contributors and the participators in a common fund. This case has also referred to another case in National Association of Local Government Officers v. Watkins  18 TC 499 (KB). It has been stated about that case as follows (p. 247 of 53 ITR):
" The learned counsel for the assessee, relying on National Association of Local Government Officers v. Watkins  18 TC 499, urged that it is not necessary that all must contribute to the common fund. But in that case it was an unincorporated association, and Finlay J, regarded that as a matter of fundamental importance, for, it followed from it, as held by Finlay J. that ' the property belongs to the members, and it is a fallacy, as has been pointed out in several cases, one at least of which was cited to me, to say in the case of such a club that, where a member orders a dinner and consumes it, there is any sale to him. There is not a sale. The fundamental thing is that the whole property is vested in the members '. He emphasizes this again when he says that 'it may be that where you have a separate entity, where you have a company, in a great many cases the test is that you have to look at the subscribers, look at the participants, and see if they are the same. Here it seems to me to lie at the root of the thing that the property was not the property of the association ; it was the property of the members themselves...... ' It is this feature of the case which Chagla C.J. failed to notice in Ismailia Grain Merchants Association v. Commissioner of Income-tax  31 ITR 433 (Bom)."
17. Thus, the principle laid down in the case of the Supreme Court discussed above does not go against the contention put forward on behalf of the club.
18. I shall now discuss the case cited by Mr. K. P. Sinha in Merchant Navy Club  96 ITR 261 (AP). The facts as argued by Mr. K. P. Sinha is similar to the present case. In. this case, the assessee was a club registered under the Societies Registration Act. One of the objects of the club was to provide such amenities to the members on payment of their cost plus some extra amount. The extra amount so realised was utilised by the club for the maintenance and improvement of the club. The amenities were provided to both paying and non-paying members, but only on payment. The amenities were not allowed to outsiders. For the assessment year 1961-62 there was a surplus after meeting all the expenditure of the club. The ITO relying upon Section 10(6) of the Indian I.T. Act, 1922, held that the surplus was assessable to tax. The AAC, on appeal, accepted the contention of the assessee, that the principle of mutuality would apply and decided that the income of the club was not liable to income-tax. The Appellate Tribunal, on further appeal, affirmed the order of the AAC and held that the assessee was not a trade association, but a social club inasmuch as all the members, whether they paid any subscription or not, paid for the amenities they enjoyed, and that there was complete identity between the contributors to the common fund and the participators in the surplus. On a reference, the A. P. High Court held that the supplies made by the club to its members for a price was not a sale for profit. Registration of the club as a society did not affect the nature of the transactions or the taxability of the surplus. The club in all such cases was acting as an agent of the members for making supplies to the members. In fact, the property, although, in law, belongs to the club, for all practical purposes, is the property of the members of the club. No sale was effected by the club and as such there was no trade or profit and the surplus received by the club was not a profit from business assessable under Section 10 of the Indian I.T. Act, 1922, or income from other sources under Section 12 of the said Act.
19. After discussion of the various decisions, the principle of mutuality that has emerged from the decided cases has been stated in that case as follows (p. 27 3 of 96 ITR):
" No person can trade with himself and make an assessable profit. If instead of one person more than one combine themselves into a distinct and separate legal entity for the purposes of rendering services to themselves or for the supply of refreshments, beverages, entertainment, etc., by over-charging themselves, the resulting surplus is not assessable to tax if the surplus is to be refunded to the members. The contributors to the common fund and the participators in the surplus must be an identical body. That does not mean that each member should contribute to the common fund or that each member should participate in the surplus or get back from the surplus precisely what he has paid. What is required is that the members as a class should contribute to the common fund and participators as a class must be able to participate in the surplus. It is immaterial whether the surplus is paid back to the members in cash or is put to reserve with the club for its development and for providing better amenities to its members. When the body of individuals is incorporated into a company or formed into a registered society, what is essential is that it should not have dealings with an outside body which results in surplus. The participation of the members in the surplus must be in their character as contributors to the common fund or as consumers, and not as shareholders getting dividends on their share amount or as debenture holders earning interest. In all cases of incorporation as a company or as a registered society, the proper mode of regarding the company or the registered society is that it is a convenient instrument or medium for enabling the members to conduct a social club, the objects of which are immune from every taint of commerciality. The property of the incorporated company or a registered society, for all practical purposes in this behalf, is considered as property of the members. A members' club formed for social intercourse and for either recreation or for cultural activities cannot be considered to trade for profit so as to make its surplus taxable in law when it over-charges its members for the supply of refreshments, beverages or amenities to its members. Such supplies are not sales as there is no element of transfer of property in them."
20. Thus, having considered all the aspects of the matter I accept the contention put forward on behalf of the club and answer both the questions under reference in the affirmative. In the circumstances of the case, I do not propose to award any costs.
U.C. Sharma, J.