JUHU VILE PARLE GYMKHANA CLUB,MUMBAI vs. ADDL DIT (E) RG II, MUMBAI

Since all the three appeals pertain to the same assessee involving common issue arising out of identical set of facts and circumstances, therefore, as a matter of convenience, these appeals were heard together and are being disposed off by way of this consolidated order. However, in order to understand the implication, it would be necessary to take note of the facts of one appeal. We are accordingly narrating the facts, as they appear in the appeal being for assessment year 2011–12. ./2016 Assessment Year – 2011–12 3. At the time of hearing, the learned Counsel for the assessee had made a reference to the appeal papers and the paper book relating to the year under consideration. Grounds no.1, 2 and 3, raised by the assessee in the present appeal relates to the entitlement to the claim of exemption under section 11 of the Income Tax Act, 1961 (for short "the Act"). Rest of the grounds no.4, 5, 6, 7, 8 and 9 being alternative in nature, hence if the decision in grounds no.1 to 3, is in favour of the assessee, then the status of grounds no.4 to 9 will be infructuous. Accordingly, we not proceed to dispose off the main issue which arose out of grounds no.1 to 3.

In the present case, the Assessing Officer has denied exemption basically on two grounds viz., (i) the assessee’s membership is restricted to the residents of the Fourteen Co–operative Housing Societies in the Juhu Vile Parle area and not to the public at large; and (ii) proviso below section 2(15) of the Act has been invoked on the ground that the assessee is having receipts from the caterers who is running the restaurant, receipts by way of sale of liquor, for use of banquet hall, guest receipts and miscellaneous income which 3 Juhu Vile Parle Gymkhana Club Ors. includes hire charges of halls in the club, penalty from members, sale of forms, printing of identity cards, supply of chair tables to decorator and sale of scrap. The objects of the assessee trust are as under:– "(1) To encourage, develop, extend and promote SPORTS AND RECREATIONAL ACTIVITIES as well as SOCIAL AND FRIENDLY ASSOCIATION, generally amongst the residents of Juhu Vile Pane and other parts of MUMBAI, and elsewhere, and in particular amongst the members of the following 14 Co-operative Housing Society Ltd viz. : -

The assessee trust was formed on 25th May 1979 and continued to get exemption under section 11 of the Act till the assessment year 2010–11. On a perusal of the assessment orders for all the preceding assessment years since inception of the assessee trust, it can be gathered that the Assessing Officer has granted exemption after considering the objects of the assessee trust and the activities perused by it as reflected in its Income & Expenditure Account filed by the assessee regularly. Thereafter, the Assessing Officer applying the principles of mutuality, the aforesaid receipts including interest income has been brought to tax on the ground that the said receipts are non–mutual in character.

On appeal, the learned CIT(A) upheld the conclusion reached by the Assessing Officer.

The learned Counsel for the assessee submitted that during the year under consideration, out of total strength of its members of 6932, 4401 are not residing in the Fourteen Co-operative Housing Societies. Out of total 5 Juhu Vile Parle Gymkhana Club Ors. members of 114, who participated in the various committees and sub- committees of the assessee, almost 43% are not residents of the said societies. While considering admission to the membership of the assessee, preference is given to the residents of the said societies but that is for the reason that the plot of land on which the assessee’s facilities are situated has been donated to them by the said societies. Any member of the public fulfilling the requirement relating to eligibility conditions and agreeing to abide by the rules and regulations would qualify to become its member, subject of course to the maximum total number of members who can be admitted. Based on this factual position, the CIT(A) in the assessee’s own case by a consolidated order for assessment years 1991-92 to 1994-95 which is placed at Pages–5 to 14 of the Paper Book–1 has held that this is not a valid reason to deny exemption. The said order has become final as the Revenue has not filed any further appeal against the same before the Tribunal. The learned Counsel for the assessee further submitted that the facts and circumstances in the year under consideration vis–a–vis the facts and circumstances for the A.Y. 1991-92, 1992-93, 1993-94 and 1994-95, based on which the appeals for those years were decided in the assessee’s favour, has remained same and hence the order of the CIT(A) in assessee’s own case for A.Y. 1991-92, 1992-93, 1993-94 and 1994-95 referred to above will apply with full force. The learned Counsel further submitted that insofar as the year under consideration is concerned, the assessee’s Income and Expenditure Account a copy of which is placed at Page–51 of Paper-book–1. The Schedule relating to expenditure on the objects of the trust is placed at Page–54 of Paper Book–1. He submitted that a bare perusal of the same shows that the assessee is providing sports and other facilities by way of swimming, badminton, table-tennis, law-tennis, card-room, squash, billiards, cricket, health club, library and also holds certain functions and programmes. The learned Counsel further brought to our attention Report of the Table-tennis sub-committee being a part of the Annual Report 6 Juhu Vile Parle Gymkhana Club Ors. which is placed at Page–56 of Paper Book–1, Badminton subcommittee at Page–60, the Billiards and Snookers sub-committee at the backside of Page– 60, the Swimming-pool sub-committee at Page–61, the Health sub-committee at Page–61, the Card-room sub-committee at Page–62, the Lawn-tennis sub- committee at the back side of Page–62, the Cricket subcommittee at Page–63 and Squash sub-committee at the back at Page–63. A bare perusal of the said reports shows the efforts taken by the assessee towards holding coaching camps and training of the young generation in the aforesaid sports. It also brings out the various tournaments which were organised by the assessee in this regard. Further, information is also provided with respect to the members of the assessee who are of the stature of the State level or the National level. The learned Counsel submitted that emphasis has been laid on these facts to show that the predominant activities being pursued by the assessee is that of encouragement, development and promotion of sports and recreational activities. The learned Counsel further invited the attention of the Bench to Paper book–2 to clarify the nature of the receipt being miscellaneous income for which reference was made to Pages–231 and 232 of the said Paper-book and receipt from caterers for which reference was made to pages 248 to 250 of the said Paper- book. He submitted that the legal propositions as urged by the assessee before the Tribunal, each of which are in the alternative and without prejudice to each other, are as under:– “a. Proviso to section 2(15) of the Act, would apply only in a case where the advancement of any other object of general public utility involves the carrying on of any activity in the nature of trade, commerce or business. Therefore, for the proviso to apply, the pre-dominant object with which the activity which is alleged to be in the nature of business is being carried on is to be seen. If the predominant object is pursuing a charitable purpose, then, the said proviso cannot apply. This pre-dominant activity test has been upheld by the High Court at Bombay in DIT(E) v. Shree Nashik Panchavati Panjrapole 397 ITR 501(see pages 239 and 241-242 of the Case law Paper book) and CIT v. Matunga Gymkhana being Order dated 22.01.2020 in Income Tax appeal No. 1764 of 2017 (the relevant discussion is placed at Pages–270 to 275 of the case law Paper Book). The Hon’ble Bombay High Court has followed similar conclusion reached by the Delhi and the Gujarat High 7 Juhu Vile Parle Gymkhana Club Ors. Court in other cases. It is submitted that applying the said test the receipts from caterers, sale of liquor, for use of banquet halls, guest receipts and miscellaneous income are while pursuing the pre-dominant object of encouragement, development and promotion of sports and recreational activities.” b. In the present case, it is an undisputed position that encouraging, developing and promoting a sports is a charitable activity for which reliance is placed on Circular No.395 dated 24.09.1994 issued by the CBDT wherein this position has been clarified. This position has been consistently accepted by the Revenue in the past as exemption under section 11 of the Act has been granted upto assessment year 2010-11 i.e., even after insertion of proviso to section 2(15) of the Act by the Finance Act, 2010 w.r.e.f. 01.04.2009. Apart therefrom, the learned Counsel placed reliance on the Case law Paper-book, wherein out of the 18 judgments/orders relied upon, 15 are concerned with Gymkhanas or Sports Clubs. All the said cases relate to a period after the insertion of proviso to section 2(15) of the Act i.e., post assessment year 2009-10 and they have upheld the assessee's claim of exemption under section 11. c. The learned Counsel further brought to the notice of the Bench that the very receipts which have been held to be business in the present case, have been specifically considered in the following decisions, and a view taken that the proviso the section 2(15) of the Act shall not apply as pre–dominant activities in such case is pursuing the object of sports and the said receipts are incidental to the same. The name of assessee and its nature of receipt is tabulated below:– Sr. Name of the Assessee Nature of Receipts no. Chambur Gymkhana (80 Income from non–members – canteen 1. taxmann.com 354 (Mum.) (Trib.) fee, interest, coaching Income from playing cards and Permit Otters Club, Mumbai v/s ITO(E) 2. Room, Bar and Restaurants for Catering, (ITA no.648/Mum./2013) room rent The Pransukhlal Mafatlal Hindu Swimmking Bath & Boat Club Income from providing sports facility, 3. Trust v/s ITO (Exemp.)–2(4), coaching camps (Mum. Trib.) Income from interest income, restaurant Matunga Gymkhana v/s ADIT, compensation and gymkhana function 4. ITA no.4468/Mum./2013, A.Y. income, membership fees, guest entrance 2009–10 (Mum.Trib.) fees, coaching fees, reservation charges. DIT(E) v/s Chembur Gymkhana Providing sports facility, Receipts from 5. (346 ITR 86 (Bom.HC) sale of alcohol, interest receipts. DIT(E) v/s Shri Vile Parle Income from non–members – canteen 6. Kelavani Manda, [2015] 378 ITR fee, interest, coaching 593 (Bom.) 1. Interest income CIT(E) v/s Matunga Gymkhana, 2. Compensation from Caterer 7. of 2017, (Bom. HC) 3. Miscellaneous income 4. Compensation from Decorator CIT(E) v/s United Way of 8. Baroda, 423 ITR 596 (2020) Guj. Sale of tickets and issue of passes HC)

The learned Departmental Representative relied upon the order of the authorities below.

Considered the rival submissions and material placed on record. We observe from the record that from the date of inception assessee is getting exemption under section 11 of the Act. It is fact on record that the trust is established for the purpose of promoting sports and related activities. This fact was acknowledged by the assessing officer and CIT (A) in their respective orders. From the assessment order we observed that the AO opined in his report that the members of the club are limited to the 14 housing societies listed in the objects which are around the Juhu Vile Parle area. According to the AO the club membership is more restricted to particular housing society members and not for general public utility. As per the definition of section 2(15), the assessee falls under the category “the advancement of any other object of general public utility” and does not fall in other limbs of the said definition. The membership being restricted to few members of housing societies of Juhu area does not amount to advancement of general public utility. Therefore, it does not satisfy the criteria for section of public laid down by various courts as membership is limited to few societies in Juhu area and not all societies in that area. Contrary to this observation, the assessee submitted before Ld CIT(A) and before us that total strength of the members are 6932 and out of which 4401 are not from the 14 cooperative housing societies. Further it is submitted that members of the various committees and subcommittees which participates in various activities of the club, almost 43% of the members are not the residents of the above said societies. Even while considering admission to the membership of the club, preference is given to the residents of the said societies but that is for the reason that the plot of land on which the assessee’s facilities are situated has been donated by the said societies however any member of the public fulfilling the requirement 10 Juhu Vile Parle Gymkhana Club Ors. relating to eligibility conditions and agreeing to abide by the rules and regulations would qualify to become its members subject to the total No. of members who can be admitted. It is also brought to your notice that similar issue was raised by the revenue during the assessment years 1991 – 92 to 1994 – 95 and considering the factual position, the then CIT (A) decided the issue in favour of the assessee. Therefore, this issue was already considered and reached finality since revenue did not prefer further appeal, in our considered view, this issue once again need not be raised to deny the benefit available to the assessee. We should treat the issue of restricted membership is already addressed and resolved. 10.1 Coming to the next issue, whether the assessee’s activities are considered to be charitable in nature as per the provisions of section 2 (15), as observed before, the main activities and objects of the assessee are to promote sports and related sport activities. It is brought to our notice from the annual report which is placed in the paper book that the assessee has conducted through various committees and encouraged members of the society to participate in various sports activities and the relevant information are submitted in paper book from page 56 to page 63. From the perusal of the said reports shows that the assessee has conducted coaching camps, training of young members or family of members in the sports, conducted various tournaments like badminton, billiards, snooker’s and swimming pool etc., It clearly indicates that assessee’s main activities are to promote sports and related activities. Further we observe that all the facilities of the club including sports activities and other facilities are available to all the members irrespective of the category of members i.e., whether the members are from the housing societies (founder members) or other members, the facilities are available to all. This clearly satisfies the conditions to be recognised as charitable in nature. Considering the fact that the activities of the assessee’s 11 Juhu Vile Parle Gymkhana Club Ors. are charitable in nature when the assessee satisfies the conditions specified in the section 2 (15) of the Act, to come to this conclusion we take strength from the decision of the honourable jurisdictional High Court in the case of CIT(Exemp) Vs Matunga Gymkhana of 2017. For the sake of brevity it is reproduced below:

Section 11(1)(a) of the Act provides, inter alia, that income derived from property held under trust wholly for charitable purposes, to the extent to which such income is applied to such purposes in India ; and, where any such income is accumulated or set apart for application to such purposes in India to the extent to which the income so accumulated or set apart is not in excess of fifteen per cent. of the income from such property shall not be included in the total income of the previous year. The quantum of fifteen per cent. was substituted by the Finance Act, 2002, with effect from 1st April, 2003, prior to which the prescribed percentage was twenty-five per cent. The Assessing Officer, in the present case, did not determine whether the requirements of section 11 were fulfilled in view of the fact that he came to the conclusion that the assessee would be governed by the principle of mutuality and is not a charitable organization. The same finding was affirmed by the Commissioner (Appeals). In the view which we have taken, we have confirmed the finding of the Tribunal that the assessee for the relevant assessment year fulfilled the requirements of section 2(15). The Assessing 12 Juhu Vile Parle Gymkhana Club Ors. Officer would, however, have to determine whether the requirements of section 11 of the Income-tax Act, 1961, were duly fulfilled. In order to enable the Assessing Officer to do so, we remand the proceedings back to the Assessing Officer. The questions of law as framed shall stand answered accordingly. The appeal is accordingly disposed of. There shall be no order as to costs.” 10.2 Coming to the next issue of applicability of proviso to Section 2 (15) of the Act, we observe from the assessment order that the assessing officer observed from the documents submitted before him that assessee has a permit room, restaurant, banquet halls which are utilized by various members of the club and he came to the conclusion that are not for charitable activities and particularly after the introduction of two provisos’ in section 2 (15) of the Act. He observed that any activity in the nature of trade, commerce or business are carried on by any assessee, even rendering any services in relation to any trade, commerce our business and obtaining fees/cess or any consideration for the same would tantamount to non-charitable activity. He further observed that assessee has given a portion of its premises to a catering contractor and receives a percentage of gross receipts of the contractor, assessee also received guest receipts and earned miscellaneous receipts during this assessment year. With the above observation, he came to the conclusion that the services of health club, restaurant, liquor facilities, banquet halls were claimed to be primarily for members, the nature of these services are purely commercial and are for the purpose of obtaining surplus/profit. He rejected the contentions of the assessee that these facilities are leased out to restaurants under a contract and they manage the same and the assessee receives a percentage of gross receipts. Further he observed that the assessee also entertains guests and other third parties. He rejected the contentions of the assessee that the club deals only with the members and the outsiders are guests of the members. The banquet halls are also given only to the members and he rejected the same 13 Juhu Vile Parle Gymkhana Club Ors. with the observation that no proof were produced before him and observed that the guests are charged guest fee and charged higher than the regular members. Since the income from these activities are more than 25 lakhs, he came to the conclusion that assessee is carrying out business activity and is not held to be charitable and he invoked 1st proviso to section 2 (15) of the Act. 10.3 After considering the above observations of the assessing officer, we noticed that the provisos to section 2 (15) were introduced in Finance Act 2010 with effect from 1.4.2009, as per which the advancement of any other object of general public utility shall not be a charitable purpose, if it involves the carrying on of any activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business, for a cess or fee or any other consideration irrespective of the nature of use or application or retention of the income from such activity. From the above definition it is clear that the activities in the nature of trade, commerce or business or rendering of services in the nature of trade, commerce or business are not considered as charitable. We observe that assessing officer jumped into conclusion by observing that assessee is offering certain facilities to its members which are in the nature of health club, restaurant, liquor facilities and banquet halls. From the record submitted by the assessee we observe that these activities are not the main objective of the club and these are the activities available to the members in the nature of recreation and additional facilities in carrying out the main object of the club. The assessing officer did not bring on record any factual finding that the assessee has derived income by engaging itself in any trade, business or commercial activity. He merely observed that assessee shares a portion of gross receipts of the contractor and running the facilities professionally, it amounts to running the club on commercial basis in order to earn profit. We do not find 14 Juhu Vile Parle Gymkhana Club Ors. any merit in this perception of the assessing officer without there being any factual matrix. We observe from the record that assessee has allowed the contractor to utilise the existing facilities in the club without there being any charge on rent or any other charges in compensation towards the utilisation of the same. We observe from the section 11 of the Act, assessee is allowed to derive income from property held under the trust, in this case assessee has allowed the contractor to utilise the facility or property of the assessee and for the purpose of administrative convenience, it has decided to earn a portion of the gross receipts from the contractor without involving itself to run the facility. We noticed from the record that the assessing officer has not brought on record anything on fact, which can be perceived that assessee has indulged itself to earn profit. The assessing officer should have analysed whether the portion of gross receipt earned by the assessee is excessive compared to market condition or fair rent receivable on the properties given to them to run their operations. In absence of any factual finding by the assessing officer and merely on the observation that assessee earns a portion of receipts of contractor and running the facility professionally amounts to presumptions. The similar issue was raised before the coordinate bench in the case of ITO (exemption) versus The Chembur Gymkhana (ITA No. 3033/Mum/2015) dated 8.03.2017 and the coordinate bench has already addressed this issue, for the sake of clarity it is reproduced below:

In the net result, the appeals filed by the assessee are allowed.