TMI Blog2018 (4) TMI 1267X X X X Extracts X X X X X X X X Extracts X X X X ..... ed 17-12-2015 and 02-11-2016. Since facts are identical and issues are common, these appeals were heard together and are disposed of by this common order, for the sake of convenience. 2. The assessee has raised more or less common grounds of appeal for all the three years. For the sake of brevity and convenience, grounds of appeal raised for AY 2010-11 in ITA No.1039/Mum/2016 are extracted below:- 1. The learned CIT(A) erred in law and on facts by confirming the order of the assessing officer denying exemption u/s 11 of the Act. 2. The learned CIT(A) erred in law and on facts dismissing the contention of the appellant that, as per CBDT circular 1 1/.2008 proviso to S.2(15) is not applicable to them, as they are charitable as well and held to be a mutual concern by the assessing officer. 3. The learned CIT{A) erred in law and on facts by confirming that allowing the guests accompanied by members was an activity in the nature of trade, commerce or business and the fees received form guests amounting to ₹ 35, 57,9607- was in the nature of business income, ignoring the facts that this activity is in furtherance to the objects of the trust and without any pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ratio of mutual income to non mutual income and expenditure and vice versa to non mutual income. In response to show cause notice, assessee, vide letter dated 01-03-2013 submitted that it is engaged in the activity of promotion of sports and mainly focused on swimming. The assessee further contended that even if these activities had been considered as business activities, yet, the provisions of sub section (4A) of section 11 of the Act would not be attracted as the activities were incidental to the main object and that as regards the Proviso to section 2(15), none of the activities of the club were in the nature of trade, commerce or business and as such, the Proviso was not applicable and since all the expenses were incurred for earning the income and also if the element of income had to be considered taxable, then the entire expense should be allowed against such income. The AO, after considering relevant submissions of the assessee rejected exemption claimed u/s 11 and computed income by applying the concept of mutuality and allowed benefit of mutuality to the extent of income received from its members; however, treated the activity of income generated from guests fee and lear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT(A) further observed that though the assessee relied upon circular No.11/2005 dated 19-10-2008 to argue that the entity claiming both as charitable and mutual is outside the purview of provisions of section 2(15), on perusal of the assessment order it is noted that the AO has applied the principles of mutuality in respect of its core activity; however, the interest income was held to be taxable, relying upon the judgement of the Hon ble Supreme Court in the case of Bangalore Club vs CIT Ors (supra), therefore, there is no merit in the contention of the assessee. The CIT(A) further observed that though the assessee claims that it is charging nominal amount under guest fee and learned to swim fee resulting into deficit. On perusal of the submissions of the assessee, it is noted that the working for the same involves assumptions and estimates and there is no exact working of the cost incurred has been provided by the assessee with reference to the services rendered by it to the members as well as non members. Further, there is no dispute that the assessee has rendered service for which the fee has been charged and hence, it is hit by the Proviso to section 2(15) and accordingly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n denying the benefit of exemption u/s 11 of the Act. The Ld.DR further argued that though the assessee is a public charitable trust registered u/s 12A, its activities are limited to its members but not open to general public. Therefore, the assessee cannot claim the status of public charitable trust and its benefits are open to general public without any limitation to caste, creed or community. The assessee s activities were in the nature of trade, commerce or business and as such, the Proviso is applicable and accordingly, the AO was right in computing income generated from the activity of trade, commerce or business. 8. We have heard both the parties, perused the material available on record and gone through the orders of authorities below. The assessee is a public charitable trust registered under Bombay Public Trust Act, 1950 in the year 1953 with the object of promoting sports activities. The trust is operating a separate swimming pool for gents and ladies. The trust was registered u/s 12A of the Income-tax Act, 1961 and allowed the benefit of exemption u/s 11 upto AY 2008-09. The DIT(Exemption) withdrew registration granted u/s 12A by invoking provisions of section 12AA w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... providing services which is in the nature of trade, commerce or business which is hit by the Proviso to section 2(15) of the Act. 10. The assessee is a public charitable trust registered u/s 12A of the Income-tax Act, 1961. Its main objects are promotion of sports and focused on swimming. The assessee is carrying out its activities in accordance with its objects. The assessee is operating a separate swimming pool for gents and ladies. There is no observation from the AO that the assessee s objects are not charitable in nature. The AO also not pointed out any activities which are not in the nature of charitable activities. The AO denied the benefit merely on the basis of collection of fees from non members on the allegation that the activities of the assessee are in the nature of trade, commerce or business which is hit by provisions to section 2(15) of the Act. The AOs action is based on the fact that the DIT (Exemption) has withdrawn registration granted u/s 12A of the Income-tax Act, 1961. The registration granted u/s 12A has been restored by the ITAT with the observations that there is no recording of satisfaction by the AO that the activities of the assessee are not genuine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AT, under similar set of facts has held that in order to invoke First Proviso to section 2(15), it is necessary and incumbent on the part of the AO to give a factual finding that assessee has derived income by engaging itself in trade, business or commercial activity. The relevant portion of the order is extracted below:- Undisputedly, the assessee has been registered as a charitable trust not only with the Charity Commissioner but also under section 12A. Though, the registration granted under section 12A was subsequently cancelled by the DIT(E) under section 12AA(3), however, the Tribunal, while setting aside the order of the DIT(E) restored the registration granted under section 12A. Thus, the grant of registration under section 12A to the assessee pre-supposes that the objects of the assessee are for charitable purpose. In other words, the assessee is a charitable trust. The Assessing Officer at the time of completion of assessment has not pointed out any change in the object of the assessee trust. As it appears, relying upon the assessment order passed in case of assessee for the assessment year 2007-08, the Assessing Officer concluded that the assessee is mutual ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oss section of public at large and it is not for group of private families or private members alone. Hence, the principle of - mutuality will not apply to the assessee's case. With the aforesaid observation, the Tribunal allowed assessee's claim of exemption under section 11. The aforesaid decision of the Tribunal was upheld by the High Court. [Para 7] The Assessing Officer in the assessment order nor has not brought any material to demonstrate that there is any change in the object of the trust in the impugned assessment year as compared to earlier assessment years, wherein, the issue has been decided in favour of the assessee. That being the case, consistent with the view of the Tribunal and the High Court in assessee's own case it has to be held that the assessee is entitled to exemption under section 11 as a charitable trust. [Para 8] At this stage, it is necessary to deal with the submissions of the revenue that in view of the first proviso to section 2(15), as it existed in the statute book at the relevant time, the assessee cannot be considered to be existing for charitable purpose. Firstly, the Assessing Officer in the assessment order, has n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ps and obtaining receipts therefrom, the assessee is engaging into activities of commercial nature. I find that this proposition is not at all sustainable. In the case of Tamil Nadu Cricket Association (Supra) in a case where the assessee is a Cricket Association was receiving income from holding of matches and was receiving sums therefrom was denied exemption on the ground that it was engaged in the activities in the nature of trade or commerce or business. The Hon'ble High Court reversed the order holding that substantial/regular surplus cannot taint receipts as arising from business/commerce. By the volume of receipt one cannot draw inference that the acivity is commercial. 1 find that this case law applies to all fours to the present case. Here also the authorities below have drawn adverse inference on the ground that amount received from the coaching camp being less than the expenditure incurred. Similarly, in the case of ICAI v. DGIT(E) [20131 358 ITR 91/217 Taxman 152/35 taxmann.com 140 (Delhi), the Hon'ble Delhi High Court has expounded as under: ( a) There was no finding that the predominant object in doing their activities was to generate profits. ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mbay High Court in the case of DIT vs Goregaon Sports Club (2012) 347 ITR 338 (Bom) held that providing sports facilities to general public without restriction to any caste, creed, religion or profession is eligible for exemption u/s 11 of Income-tax Act, 1961. 15. In this view of the matter and respectfully following the ratios of the case laws discussed above, we are of the considered view that the assessee is eligible for exemption u/s 11 of the Income-tax Act, 1961. Therefore, we direct the AO to allow exemption u/s 11 of the Act. 16. In the result, appeal filed by the assessee is allowed. ITAs No.1040/Mum/2016 510/Mum/2017 17. The grounds raised in these appeals are akin to grounds raised in appeal in ITA No.1039/Mum/2016 which has been decided by us above. We have already found and held that the assessee is running its activities in accordance with its main object and continued to provide services to its members by collecting nominal fee. We further observe that the assessee has deficits from its core activity for promoting swimming for all the years. The assessee s collections from its members is less than the amount spent for its objects. But for income ..... X X X X Extracts X X X X X X X X Extracts X X X X
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