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Income Tax Appellate Tribunal, “C” BENCH, MUMBAI
Before: SHRI SAKTIJIT DEY & SHRI G. MANJUNATHA
Date of Hearing – 08.11.2017 Date of Order – 23.11.2017
O R D E R PER SAKTIJIT DEY, J.M.
This is an appeal by the Department against the order dated 10th November 2015, passed by the learned Commissioner (Appeals)–1, Mumbai, for the assessment year 2011–12.
We have heard the rival contentions and perused the material on record. The issue arising for consideration in the present appeal is whether assessee’s claim of exemption under section 11 of the 2 The Chembur Gymkhana Income-tax Act, 1961 (for short "the Act") as Charitable Institution is allowable or not.
The assessee a trust is registered with the Charity Commissioner, Mumbai, as well as with Director of Income Tax (Exemption), Mumbai, under section 12A of the Act. For the assessment year under dispute, the assessee filed its return of income on 30th September 2011, claiming exemption under section 11 of the Act. In the course of assessment proceedings, the Assessing Officer after verifying the claim of the assessee in the context of facts and material available before him took a view that the assessee being a mutual concern, only the income received from members would not be taxable by applying the principle of mutuality. He observe, the income from canteen fees, coaching fees, guest entrance fees, interest income, etc., having been received from non–members are taxable. Accordingly, he completed the assessment by determining the total income at ` 70,44,961. Being aggrieved of the assessment order so passed, assessee preferred appeal before the first appellate authority.
The first appellate authority following his order passed for the assessment year 2010–11, directed the Assessing Officer to follow the directions given by him in assessment year 2010–11. As could be seen, while deciding the Department’s appeal for assessment year
3 The Chembur Gymkhana 2010–11, in ITA no.3033/Mum./2015, dated 8th March 2017, the Tribunal has upheld the order of the learned Commissioner (Appeals) holding as under:–
“7. We have considered the submissions of the parties and perused the material available on record in the light of the decisions relied upon. Undisputedly, the assessee has been registered as a charitable trust not only with the Charity Commissioner but also under section 12A of the Act. Though, the registration granted under section 12A, was subsequently cancelled by the DIT(E) under section 12AA(3) of the Act, however, the 29th Tribunal in order dated September 2014, in ITA no.1193/Mum./2012, while setting aside the order of the DIT(E) restored the registration granted under section 12A of the Act. 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 concern, as it does not treat the members and non–members at par. He has also stated that since it extends benefit to the persons specified under section 13(1)(c) of the Act, the conditions of the said provisions have been violated, hence, the assessee is not eligible for exemption under section 11 of the Act. 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, as noted by us, 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 year 1996–97 and continued in the subsequent assessment years. It is necessary to observe, while completing assessment for these assessment years, the Assessing Officer took a completely identical view by holding that the assessee is 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 year 1996–97 to 2000–01, in ITA no.1564/Mum./2006 and others, dated 24th August 2009, held that as per the object of the trust, it is to be considered as a charitable organisation as the objects show that the trust is engaged in the broad areas of games and sports as well as in promotion and/or management of social intercourse or athletic
4 The Chembur Gymkhana sport and cultural and educational activities for its members. Considering the objects and activities of the assessee, the Tribunal held that it is in the nature of general public utility as it is for the well being of a section of public at large. While dealing with the objection of the Revenue that there is restriction on the membership admission, the Tribunal held that so long as members admission into the club is not arbitrary, the committee’s discretion to restrict the membership does not interfere with the object of public utility. The Tribunal, while dealing with the allegation of the Department that the assessee is a mutual concern, concluded that the object of the trust of providing for land and building as well as for promotion or management of social. intercourse or athletic sports and cultural and educational activities for its members constitute object of general public utility. Hence, the trust is charitable organisation. The Tribunal further observed, the members of the trust represent a cross 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 challenged by the Revenue before the Hon'ble Jurisdictional High Court. However, the Hon'ble Jurisdictional High Court while dismissing the appeal of the Revenue upheld the view of the Tribunal. For better appreciation, the observations of the Hon'ble Jurisdictional High Court is reproduced herein below:–
“7. In the present case, it is evident from the material before the Tribunal that the assessee under its memorandum as amended established that the aims and objects are to provide for general public utility, grounds and buildings, convenient, desirable or necessary for games and sports both indoor and outdoor and to promote, manage or assist in the promotion or management of all forms of social intercourse of athletic sports, pastimes and/or cultural and educational activities for its members. There is a finding of fact that the assessee is providing sports facilities as a part of its activities consisting of badminton, table tennis, billiards, cricket and skating among others. During the assessment year, the assessee had expended an amount of nearly Rs. 50 lakhs on constructing a swimming pool. The fact that the assessee provides service to its members does not detract from the position that it advances a general public utility. The advancement of any object of benefit to the public or a section of the public as distinguished from a benefit to an individual or a group of individuals would be a charitable purpose Gujarat Maritime Board case (supra). As the Tribunal noted, the membership of the society is drawn from a diverse cross-section of the society. The assessee does not exist only for an individual or a group of 5 The Chembur Gymkhana individuals. On these facts, the primary issue which has been decided by the Tribunal must be answered by holding that the assessee for the assessment year 1996-97 fulfilled the definition of the expression "charitable organization" in section 2(15). The first question of law would, accordingly, have to be answered in the affirmative.
8. 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 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.”
We have also noted that in assessment year 2007–08, 2008–09 and 2009–10, the Tribunal in ITA no.4964/Mum./ 2011, dated 23rd July 2012, ITA no.2527/Mum./2012, dated 7th August 2013, and ITA no.5915/Mum./2012 dated 12th March 201 respectively, has upheld the decision of the learned Commissioner (Appeals) in allowing assessee’s claim of exemption under section 11 of the Act. Neither the Assessing Officer in the assessment order nor the learned Departmental Representative at the time of hearing has 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, in our view, consistent with the view of the Tribunal and the Hon'ble Jurisdictional High Court in assessee’s own case it has to be held that the assessee is entitled to exemption under section 11 of the Act as a charitable trust.
6 The Chembur Gymkhana
At this stage, it is necessary to deal with the submissions of the learned Departmental Representative 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. We must observe that the Assessing Officer in the assessment order, has not recorded any factual finding that the assessee has derived 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, we must observe that the Assessing Officer has passed the impugned assessment order on 4th January 2013, thus, it has to be assumed that the Assessing Officer while completing the assessment was conscious of the first proviso to section 2(15) of the Act, 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 section 2(15) cannot be attracted. More so, when the Tribunal and the Hon'ble Jurisdictional High Court in the preceding assessment years have held that the objects of the assessee qualify the object of general public utility, hence, is existing for charitable purpose as per section 2(15) of the Act. As far as the decision in the case of Navi Mumbai Merchants Gymkhana (supra) relied upon the by learned Departmental Representative, on a careful reading of the said order of the Tribunal, we have noticed that in the said case, though, the decision of the present assessee was cited, however, the bench after examining the facts has expressed that facts in both cases are distinguishable as in case of Navi Mumbai Merchants Gymkhana (supra), the Assessing Officer has held that the assessee derives income from trading and business and commercial activity as per first proviso to section 2(15) and further he has also given factual finding that entry into the club for membership is restricted to a group of individuals only. Thus, in case of Navi Mumbai Merchants Gymkhana when the bench itself has expressed that the facts are distinguishable from the facts of the present assessee, the decision rendered therein cannot be made applicable to the assessee. In view of the aforesaid, we hold that the learned Commissioner
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(Appeals) was justified in allowing assessee’s claim of exemption under section 11 of the Act.”
There being no material difference in facts brought to our notice, respectfully following the aforesaid decision of the Tribunal, we uphold the order of the learned Commissioner (Appeals) by dismissing the ground raised.
In the result, Revenue’s appeal is dismissed. Order pronounced in the open Court on 23.11.2017