TMI Blog2021 (5) TMI 62X X X X Extracts X X X X X X X X Extracts X X X X ..... by the revenue is directed against the order passed by the CIT(A)-1, Mumbai dated 20.11.2018, which in turn arises from the order passed by the A.O under Sec. 143(3) of the Income Tax Act,1961 (for short Act ), dated 29.03.2016 for A.Y. 2013- 14. The revenue has assailed the impugned order on the following grounds of appeal before us: 1. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A), Mumbai was right in directing the AO to grant exemption u/s. 11 of the I.T. Act ignoring the detailed reasoning given by the AO. 2. Whether on the facts and circumstances of the case and in law, the Ld.CIT(A) was right in holding that the assessee club is not covered by the principle of mutuality thereby violating provisions of section 13 which disentitles the trust from claiming exemption u/s. 11 . 3. Whether on the facts and circumstances of the case and in law, the Ld.CIT(A) was right in ignoring the ratio involved in the case of Bangalore Club vs. CIT Anr. Being Civil Appeal No.124 of 2007 dated 14.01.2013 relied upon by the A.O., without even considering the same wherein the Hon'ble Apex Court has held that the interest earned by the assessee fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere in the nature of advancement of any other objects of general public utility and its activities were in the nature of trade, commerce, business etc. the DIT(Exemption), Mumbai, vide his order dated 16.12.2011 withdrew the registration granted to the assessee trust under Sec. 12AA of the Act w.e.f A.Y. 2009-10, and had also stated that the activities of the assessee trust were covered by the provision of Sec. 2(15) of the Act. On being queried as to why its interest income would not be hit by Sec. 2(15) of the Act and its claim for exemption under Sec.11 may not be disallowed as per the provisions of Sec.13(8) of the Act, it was submitted by the assessee that its activity of earning interest income fell within the realm of Sec.2(15) of the Act and was not in the nature of business, trade or commerce. Observing, that as per the post amended Sec.2(15) of the Act wherein the definition of the term advancement of any other object and general public utility was narrowed down a/w insertion of Sec.13(8) w.e.f 01.04.2009 as per which no exemption under Sec. 11 was to be allowed to such entities which were hit by the first proviso to Sec.2(15) of the Act, the A.O was of the view tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther noticed by the A.O that the assessee during the year in question had earned interest income of ₹ 1,51,72,750/-. Observing, that the assessee was an organisation which was limited to its members and the principle of mutuality applied, the A.O was of the view that the interest income could by no stretch of reasoning be said to have been received by the assessee from its members. As such, the A.O was of the view that the interest earned by the assessee from the bank would not fall within the ambit of the principle of mutuality and thus would be exigible to tax in its hands. Accordingly, the A.O subjected the interest income to tax in the hands of the assessee. It was further observed by the A.O that the assessee was in receipt of an entrance fee of ₹ 65,10,000/- during the year in question. On being queried, it was stated by the assessee that the aforesaid amount was received on account of entrance fee from new members during the year. Observing, that the fees raised by the assessee at the time of the entrance of new members was a receipt of a revenue nature and was chargeable to tax in its hands, the A.O brought the aforesaid amount to tax in the hands of the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tive (for short D.R ) had relied on the assessment order. 6. We have deliberated at length on the issue under consideration and concur with the view taken by the CIT(A) that the issue as regards the assessee s entitlement for exemption under Sec. 11 had been decided in its favour by the Tribunal while disposing off the appeals of the assessee for A.Y. 2010-11 and 2011-12 in ITA Nos. 1039 and 1040/Mum/2016, vide its order dated 21.03.2018. In fact, the Tribunal had thereafter followed the aforesaid order while disposing off the assessee s appeal for A.Y. 2012-13 in ITA No.511/Mum/2017, dated 30.07.2018. For the sake of clarity, we herein cull out the observations that were recorded by the Tribunal while disposing off the assessee s appeal for AYs. 2010-11, 2011-12 in ITA No. 1039 and 1040/Mum/2016, dated 21.03.2018, wherein the exemption under Sec.11 was restored to the assessee, as under: 11. Having considered relevant facts, we do not find any merit in the findings of the lower authorities for the reason that providing sports facilities to general public without restriction to any caste, creed, religion or profession is squarely comes within the definition of charitable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nds benefit to the persons specified under section 13(1)(c), the conditions of the said provisions have been violated, hence, the assessee is not eligible for exemption under section 11. Thus, in sum and substance, the Assessing Officer has denied assessee's claim of exemption under section 11 by treating it as a mutual concern of the members. However, this is not the first time the revenue has treated the assessee as a mutual concern while denying claim of exemption under section 11. The dispute arose for the first time in assessment years 1996-97 and continued in the subsequent assessment years. It is necessary to observe, while completing assessment for those assessment years, the Assessing Officer took a completely identical view by holding that the assessee was a mutual concern, hence, receipts from non-members by way of canteen fee, interest, coaching, etc., is taxable. However, the Tribunal while deciding the appeals of the assessee for assessment years 1996-97 to 2000-01, held that as per the object of the trust, it is to be considered as a charitable organisation as the objects show that the assessee-trust was engaged in the broad areas of games and sports a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed income by engaging itself in any trade, business or commercial activity. The Assessing Officer has proceeded on the footing that the assessee being a mutual concern, the receipts derived from the members for user of facilities is not taxable, whereas, receipts from non-members for user or facilities is taxable. In this context, the Assessing Officer has passed the impugned assessment, order, thus, it has to be assumed that the Assessing Officer while completing the assessment was conscious of the first proviso to section 2(15), which has come to the statute book by that time. In spite of that the Assessing Officer has not recorded any finding that the objects of the assessee are not for charitable purpose in view of the first proviso to section 2(15). On the contrary, the Assessing Officer by treating the assessee as a mutual concern, has brought to tax the receipt from non-members only. For invoking the first proviso to section 2(15), it is necessary and incumbent on the part of the Assessing Officer to give a factual finding that the assessee has derived income by engaging itself in trade, business or commercial activity. In the absence of any such finding the first proviso to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere ancillary activities to the main activity/ object. (c) The surplus generated out of these activities is utilised towards the infrastructure development and other student/ members related activities. (d) Section 2 (15) defines the term charitable purpose . Therefore, while construing the term business for the said section, the object and purpose of the section has to be kept in mind. We do not think that a very broad and extended definition of the term business is intended for the purpose of interpreting and applying the first proviso to section 2 (15) of the Act to include any transaction for a fee or money. An activity would be considered business if it is undertaken with a profit motive. There should be facts and other circumstances which justify and show that the activity undertaken is in fact in the nature of business. The expressions business , trade or commerce as used in the first proviso must, thus, be interpreted restrictively and where the dominant object of an organization is charitable any incidental activity for furtherance of the object would not fall within the expressions business , trade or commerce . (e) If the object or purpose of an ..... X X X X Extracts X X X X X X X X Extracts X X X X
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