MADRAS MOTOR SPORTS CLUB(AOB),CHENNAI vs. COMMISSIONER OF INCOME TAX, NUNGAMBAKKAM, CHENNAI

To acquire, build or otherwise provide race tracks, club houses, dormitories, pavilions, motor house, workshops and other conveniences in connection therewith and to furnish, alter, enlarge, repair, uphold and maintain the same 3 To acquire by purchase, lease or otherwise any race track, land, buildings or hereditaments which may be deemed by the club likely to advance or benefit indirectly the objects. 4. To hire and employ all classes of persons considered necessary for the purpose of the club and to pay to them and to other persons in return for services rendered to the club, salaries, wages, gratuities and pensions. 5. To organise, promote and hold either alone or jointly with any other Association, Club or persons motor race meetings, competitions and reliability trials for motor vehicles or any other athletic sports or pass times and to offer, give or contribute towards prizes, medals and awards therefore and to promote, give or support dinners, balls, concerts and other entertainments arranged in connection thereto. 6. To establish, promote or assist in establishing or promoting, to affiliate with and to subscribe to or become a member of any other Associations or clubs whose objects are similar or in part similar to the objects of the club, or the establishment or promotion of which may be beneficial to the club. Provided that no subscriptions be paid to any such other Associations or club out of the funds of the club except bona fide in furtherance of the objects of the club.

The assessee filed its return of income for the assessment year 2018-19 on 29.09.2018 which was subsequently revised on 06.10.2018. The assessee admitted gross receipt of Rs.9,13,87,929/- and application of income was declared at Rs.7,26,47,493/- and net income was declared at ‘nil’ by claiming exemption u/s.11 of the Act. Accordingly, the AO framed assessment u/s.143(3) r.w.s. 143(3A) & 143(3B) of the Act and verified the claim of exemption u/s.11 on the following issue:-

1. Increase in TDS/TCS claim in the revised return.

2. Continuous accumulation of profit in Trust. 3. High Refund claimed by Trust.

The AO while making computation of receipts and application of funds of the assessee, computed income as under:- Gross receipt as per Part-B-TI of ITR 9,13,87,929/- Add: Income from Other Source Nil 9,13,87,929 Less: Application of income: Revenue Expenditure 7,26,47,493/- Capital Expenditure Nil 7,26,47,493/- Available fund for accumulation 1,87,40,436/- Less : Accumulation allowed u/s 11(1)(a) 1,27,40,436/- (Maximum 15% of the gross receipt limited to available fund) Balance 60,00,00/- Less : Set-apart u/s 11(2) as per Form-10 & Sch-I of ITR for current year 60,00,000/- Total Income NIL

allowed u/s.11A of the Act and also examined each and every aspect of claim of exemption. The CIT(Exemption) only on the basis of the decision of Hon’ble Supreme Court in the case of Ahmedabad Urban Development Authority, supra, has issued show cause notice and finally passed revision order u/s.263 of the Act with a direction to decide the issue with reference to application proviso to the provision of section 2(15) of the Act in the light of the recent decision of Hon’ble Supreme Court in the case of Ahmedabad Urban Development Authority, supra. The ld.counsel for the assessee stated that the CIT(Exemption) apart from Ahmedabad Urban Development Authority, supra, has not examined any facet of the claim of exemption or applicability of proviso to provision of section 2(15) of the Act and simply set aside the assessment. The ld.counsel for the assessee filed copy of judgment of Hon’ble Supreme Court in the case of Ahmedabad Urban Development Authority, supra, i.e., Supreme Court clarifying its interpretation of the provisions of section 2(15) of the Act and applicability of judgment. The ld.counsel for the assessee took us through the judgment dated 03.11.2022, wherein they have clarified their own judgment and stated that how the judgment will be applied. He drew our attention to para 5, which reads as under:- “5. The reference to application of the law declared by this court’s judgment, therefore, has to be understood in the context, which is that they apply for the assessment years in question, which were before this court and were decided; wherever the appeals were decided against the revenue, they are to be treated as final. However, the reference to future application has to be understood in this context, which is that for the assessment years which this court was not called upon to decide, the concerned authorities will apply the law declared in the judgment, having regard to the facts of each such assessment year. In view of this discussion, no further clarification is necessary or called for.”

Subsequently, he took us through the para 8.1 which reads as under:- “8.1) To sum up, the assessee’s various activities as discussed above, are ‘commercial’ in nature and the same are conducted for a fees or consideration. For the A.Y.2018-19, the assessee trust has mainly generated income from collection of membership fee, entry fee, sponsorship, holding of events in different categories, etc. Thus, there is violation of Sec.2(15) of the Act. Hence, exemption u/s.11 of the Act claimed by the assessee for the A.Y.2018-19 ought to have been denied. Further, in this case, one more condition for denial of exemption u/s.11 of the Act, as per section 2(15) is also satisfied viz., the aggregate receipts from the activities of the assessee exceeds twenty per cent of the total receipts.” In view of the above, the ld.CIT-DR stated that CIT(Exemption) has not simply revised the assessment on the basis of decision of Hon’ble Supreme Court in the case of Ahmedabad Urban

Development Authority, supra, but he has given independent finding as regards to applicability and violation of proviso to the provision of section 2(15) of the Act. Hence, he urged the Bench to affirm the order of CIT(Exemption) revising the assessment.

which were not called upon and accordingly law declared in said judgment would be applicable, as per facts of each such assessment year. Hence simply on the judgment of Hon’ble Supreme Court in the case of Ahmedabad Urban Development Authority, supra, the revision is not possible. We also noted from the revision order apart from that the CIT(Exemption) has not at all deliberated how the assessee has violated the proviso to the provision of section 2(15) of the Act and how the AO has not examined the issue. We have gone through para 4 & 8.5 referred by CIT-DR but we could not find anything which proves that there is violation of the proviso to provision of section 2(15) of the Act. Hence, we quash the revision order and allow the appeal of assessee.