TMI Blog1999 (12) TMI 95X X X X Extracts X X X X X X X X Extracts X X X X ..... ase which should form a backdrop for the ensuing discussion about the controversies involved in these appeals. 4. The assessee under the name and style as 'Surat Tennis Club' was established in the city of Surat on 25-11-1974 and it was registered with the Registrar of Societies under the Society Registration Act, 1860 vide No. Guj./471/SRT dated 6-1-1984. The club has been granted registration under section 12A of the Income-tax Act by the Commissioner of Income-tax, Surat on 8-4-1993 and the registration has been granted w.e.f. 20-12-1983 i.e., date of creation of the trust, the delay in filing the registration is seen condoned by the Commissioner. The objects of the club as narrated in para 3 of the assessment order read as under :--- a. To provide facilities for different games and sports to the members and family with the object to develop physical strength. b. To encourage and promote the sports and games organise coaching camps, exhibition matches, tournaments and competition. c. To encourage love, brotherhood and unity among members, organize collectively programme such as picnic, dinners, cinema show etc., d. To participate in activity of other institutions havin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her that the Central Government may, before notifying the association or institution under this clause, call for such documents (including audited annual accounts) or information from the association or institution as it thinks necessary in order to satisfy itself about the genuineness of the activities of the association or institution and that Government may also make such inquiries as it may deem necessary in this behalf : Provided also that the association or institution,--- (a) applies its income or accumulates it for application, wholly and exclusively to the objects for which it is established and the provisions of sub-section (2) and sub-section (3) of section 11 shall apply in relation to such accumulation subject to the following modifications, namely :--- (i) in sub-section (2), --- (1) the words, brackets, letters and figure "referred to in clause (a) or clause (b) of sub-section (1) read with the Explanation to that sub-section" shall be omitted; (2) for the words "to charitable or religious purposes", the words "for the purposes of games or sports" shall be substituted; (3) the reference to "Assessing Officer" in clause (a) thereof shall be construed as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g profits and gains of business, unless the business is incidental to the attainment of its objectives and separate books of account are maintained by it in respect of such business: Provided also that any notification issued by the Central Government under this clause in relation to any association or institution shall, at any one time, have affect for such assessment year or years, not exceeding three assessment years (including an assessment year or years commencing before the date on which such notification is issued), as may be specified in the notification: Admittedly the assessee has not so far received any approval from the prescribed authority and is not able to produce copy of any Gazette Notification in support of the claim. In the circumstances we are of the view that the action of the Assessing Officer and of the Dy. CIT(A) in denying the claim of exemption under section 10(23) cannot be faulted as one of the essential procedural requirements has not been fulfilled in the present case, however, legitimate and justified the assessee's claim may be. 6. The alternative submission of the assessee is to the effect that the Assessing Officer ought to have granted exemp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s us through the detailed order passed by the Assessing Officer wherein the claim of the assessee has been examined at length. He points out that the assessee club caters to only a group of persons who happen to be members of the club and its activities are not meant for the benefit of the public at large. In the circumstances, the assessee club cannot be treated as a charitable eligible for exemption under section 11. The ld. D.R. has also drawn support from the observation of the Dy. CIT(A) confirming the finding of the Assessing Officer on this point. 8. We have considered the rival submissions and the evidence on record with regard to the assessee's claim of exemption under section 11. We have also carefully studied the impact of the judgments relied on by the ld. counsel for the assessee and those referred to by the Assessing Officer and the first appellate authority in their respective orders. With regard to the assessee's contention that registration under section 12A automatically entitles the assessee to exemption under section 11, we have to observe that such registration is depending on the fulfilment of certain conditions as laid down in that section. While registerin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 984. Subject : Promotion of Sports - Whether a charitable purpose --- Clarification Regarding: The expression "charitable purpose" is defined in section 2(15) of the Income-tax Act, 1961, to include relief of the poor, education, medical relief and the advancement of any other object of general public utility. The question whether promotion of sports and games can be considered s being a charitable purpose has been examined. The Board are advised that the advancement of any object beneficial to the public or a section of the public as distinguished from an individual or group of individuals would be an object of general public utility. In view thereof, promotion of sports and games is considered to be a charitable purpose within the meaning of section 2(15). Therefore, an association or institution engaged in the promotion of sports and games can claim exemption under section 11 of the Act, even if it is not approved under section 10(23) relating to exemption from tax of sports associations and institutions having their objects as the promotion, control, regulation and encouragement of specified sports and games." Having conceded the point that promotion of sports and gam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is also conducting annual meets in riding, mounted sports, racing and polo. It is open to all persons of general public, who have the art of horsemanship, to participate in it. There is no prohibition for them to participate in the annual meets. Therefore, considered from any perspective, we are inclined to take the view that it is open to every member of the public to because a member of the club and as of right call upon the committee of the club to admit and impart training in the art of horsemanship in the equestrian games. The trust or association or club which ensures the development of sports can, therefore, legitimately be said to carry on an object of general public utility. Therefore, we have no hesitation in concluding that the object to promote and popularise equestrian games and to impart training in the art of horsemanship is of general public utility. In CIT v. Andhra Chamber of Commerce [1965] 55 ITR 722 (SC) it was held that advancement or promotion of trade, commerce and industry leads to economic prosperity and, therefore, it is an object of general public utility. Similarly, participation in games by discernible sections of the public leads to physical ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g of the society. As an additional factor it is found that it caters to the benefit of the public at large. But that does not mean that the learned judges intended to lay down that when admission into a club which imparts training in sports is thrown open to the public, it would be confined only to a specified section of the public but not to the general public. Each case is to be considered in the light of its own facts. The ratio in Cricket Association of Bengal's case [1959] 37 ITR 277 (Cal.) cannot be followed for varied reasons. The learned judges have heavily drawn sustenance from English dicta which cannot be bodily imported and applied in considering the claims under the Act. Section 10(23) itself recognises exemption of income derived from sports and thereby emasculates the effectivity of the ratio in the Cricket Association of Bengal's case [1959] 37 ITR 277 (Cal.). Moreover, in that case the ultimate proceeds would go to the benefit of the individuals as it is not a registered association. In CIT v. Andhra Pradesh Police Welfare Society [1984] 148 ITR 287, a Division Bench of the Andhra Pradesh High Court was called upon to consider whether the object is so general ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and by the Allahabad High Court in Surji Devi Kunji Lal Jaipuria Charitable Trust's case. 10. In view of the authorities cited above, it is clear that the reasons given by the Assessing Officer and the Dy. CIT(A) do not justify denial of exemption claimed by the assessee under section 11. It is not at all disputed that the object of the assessee club is promotion of sports and games and such object is a charitable one in terms of the circular issued by the CBDT and also in view of the unambiguous judicial pronouncements with respect to the term 'charitable purpose' as defined in section 2(15) of the Income-tax Act, 1961. By its very nature, a club exists mainly for the benefit of its members who are admitted to the membership of the club subject to certain terms and conditions including the payment of membership fees. Such terms and conditions, though restrictive in nature, cannot be regarded as excluding the public at large, because any member of the public can be admitted as a member subject to the terms and conditions prescribed in the Memorandum and Articles of Association of the Club which is open to public scrutiny and any violation of which is liable to be questioned in a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee's claim under section 11 is justified, the manner of computation of taxable income and the rate of tax on such income has to be considered in fresh light in view of the specific provisions of section 11 r.w.s. 12 and 13. In other words the assessee has to be treated as a charitable institution or trust eligible for exemption under section 11 and all income which is applied for charitable objects of the trust is to be held as exempted. In case of any surplus fund the assessee has to comply with the provisions relating to accumulation of such funds for specified purposes and investment of such funds in specified securities as per the relevant provisions in section 11(2) and other relevant provisions. Any income which has been applied or diverted for non-charitable purpose during the year under consideration will have to be brought to tax and in that case the correct rate of tax is to be applied under the provisions of section 164(2). Even the guest fees and interest income which have been considered separately by the Assessing Officer will have to be considered as part of the gross receipts of the assessee for the purpose of applying the test relating to application of income for ..... 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