MATUNGA GYMKHANA,MUMBAI vs. ADIT (E) -I-(1), MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “B”, MUMBAI BEFORE SHRI G.S.PANNU, ACCOUNTANT MEMBER AND SHRI AMARJIT SINGH, JUDICIAL MEMBER ITA No.1809/Mum/2010(A.Y. 2005-06) ITA No.4768/Mum/2013(A.Y. 2006-07) ITA No.6723/Mum/2010(A.Y. 2007-08) ITA No.7376/Mum/2011(A.Y. 2008-09) The DDIT(E) 1(1), Room No.504, Piramal Chambers, 5th Floor, Parel, Mumbai ...... Appellant Vs. Matunga Gymkhana, Lakhamsey Napoo Road, Matunga, Mumbai- 400018 PAN: AAATM 1035F ..... Respondent ITA No.4468/Mum/2013(A.Y. 2009-10)

Matunga Gymkhana, Lakhamsey Napoo Road, Matunga, Mumbai- 400018 ....... Appellant

Vs.

The ADIT(E) 1(1), Room No.504, Piramal Chambers, 5th Floor, Parel, Mumbai ...... Respondent Revenue by : Shri M.Rajan Assessee by : S/ Shri Arvind Sonde/ Paresh Shaparia Date of hearing : 27/09/2016 Date of pronouncement : 30/11/2016

2 Matunga Gymkhana

ORDER PER G.S.PANNU,A.M:

The captioned are five appeals, which relate to the same assessee involving common issues, therefore, they have been clubbed and heard together and a consolidated order is being passed for the sake of convenience and brevity.

3 Matunga Gymkhana

Mumbai dated 30/10/2009 which in turn arises out of an order passed by the Assessing Officer under section 143(3) of the Income Tax Act, 1961 (in short ‘the Act’) dated 31/12/2007. In this appeal, Revenue has raised the following Grounds of appeal:-

“1. "On the facts and in the circumstances of the case, and in law, the Ld. CIT (A) erred in holding that the assessee trust is not covered by the principle of mutuality thereby violating provisions of sec.13 which dis-entitles the trust from claiming exemption u/s.11. 2. "On the facts and in the circumstances of the case, and in law, the Ld. CIT(Appeals) erred in treating the assessee as charitable organization instead of mutual organization ignoring the ratio laid down in the judgement of the Apex Court in the case of CIT vs. Bankipur Club Ltd. 226 ITR 97". 3. "On the facts and in the circumstances of the case, and in law, the Ld. CIT(Appeals) erred in ignoring the fact that the assessee had violated the provisions of sec.13 of the IT Act wherein undue benefit is endured on the persons specified u/s.13(1) of the Act and also such activities of the trust are not incidental objects of the trust and hence the assessee has not complied with the requirements of sec.11(4) of the Act". 4. "On the. facts and in the circumstances of the case, and in law, the Ld. CIT(Appeals) erred in granting relief to the assessee on interest income, restaurant compensation and gymkhana function income, ignoring the fact that such income are earned from non-members". 5. "On the facts and in the circumstances of the case, and in law, the Ld. CIT(Appeals) erred in relying on the decision in the case of Surat City Gymkhana vs. ACIT reported in 300 ITR 214 wherein the decision has been mis-interpreted as the said judgement does not bar the AO from looking into the activities of the trust and whether the same pertains to objectives of the trust for which specific registration u/s.12A was granted". 6. The Appellant prays that the order of the Ld. Commissioner of Income- tax (Appeals)-I, Mumbai be set aside and that of the Assessing Officer be restored.” 4. In assessment year 2005-06, the assessee filed a return of income on 30/10/2005 declaring ‘Nil’ income. The assessee had shown a deficit of Rs.1,43,65,631/- after considering an expenditure of Rs.2,74, 59,377/-, and in addition, assessee returned carried forward deficit from earlier assessment years amounting in all to Rs.4,65,54,994/-. The income received was by way of

4 Matunga Gymkhana

interest, income from other sources, which included income from members and other income which included Gymkhana function income, compensation of restaurant, miscellaneous income, etc. The income from members included membership fees, guest entrance fees, coaching fees, reservation charges, etc. As per the Assessing Officer, the entire spectrum of income and expenditure of the assessee showed that there was no charity for public at large and most of the expenditure is spent on the benefits provided to the members of the assessee-trust. As per the Assessing Officer the activities undertaken by the assessee showed that the dominant object of the Trust was to provide service to its members, though to some extent the facilities were also being provided to non-members. As per the Assessing Officer, since assessee was existing for the benefit of its members, its true nature and character was that of a mutual concern and, therefore, any income arising to it in dealing with non-members will naturally be taxable. Ultimately the Assessing Officer held that “assessee is not an association created/established for charitable purpose within the meaning of the Provisions of Section 2(15) of the I.T.Act”. In this manner, the Assessing Officer computed the income of the assessee by denying exemption under section 11 of the Act. Accordingly, total income was assessed at Rs.79,04,208/-.

5 Matunga Gymkhana

section 12A of the Act and the Assessing Officer himself accepting that assessee’s activity of development of sports was a charitable objective. The CIT(A) considered the detailed submissions of the assessee and disagreed with the Assessing Officer and upheld the plea of the assessee for grant of exemption under section 11 of the Act. The final conclusion of the CIT(A) can be appreciated from para 7.18 of his order, which reads as under:-

7.18 For the reasons mentioned above, I am of the opinion that A.O has wrongly assumed jurisdiction to examine whether the trust or insitutions is created wholly for charitable and religious purpose and whether the Registration granted u/s. 12A is right or wrong. In my view, the A.O has no such authority. Even on merits the case laws cited by the A.O to hold the appellant as mutual association are not applicable as the facts of the case of the appellant are different. The case laws cited by the A/R of the appellant are on similar facts and hence applicable. Based on the above arguments, submission and observation, and also considering that the facts and circumstances of the case are identical and similar to that of the A.Y 2004-05, where my predecessor CIT(A) has also examined the said issue and decided the matter in favour of the appellant vide order No CIT(A)XXXII/IT-69/06-07 dated 19.8.2008. Therefore, I hold that the appellant is entitled to exemption u/s. of the Act. The A.O is directed to directly accordingly to grant exemption u/s 11 of the Act. The aforesaid would reveal that as per CIT(A), the Assessing Officer had no jurisdiction to examine whether or not assessee was an institution created/established for charitable purposes because the registration granted under section 12A of the Act was valid. The CIT(A) has also disagreed with the Assessing Officer in holding the assessee as a mutual association. Further, the CIT(A) relied upon the order of his predecessor in assessee’s own case for assessment year 2004-05 dated 19/08/2005, wherein similar issue was decided in favour of the assessee. In this background, Revenue is in appeal before the Tribunal against the decision of CIT(A).

6 Matunga Gymkhana

effect has been accepted by the Revenue as it has not filed any further appeal before the Tribunal. There is no rebuttal to the aforesaid assertion made by the Ld. Representative for the assessee. In this context, we have perused the order of the CIT(A) dated 19/08/2008 for assessment year 2004-05 a copy of which is placed in the Paper Book at pages 95 to 114. The controversy dealt with by the CIT(A) in 2004-05 is on the same lines as the controversy in the instant assessment year. In assessment year 2004-05 also, the Assessing Officer had treated the assessee as a mutual association and treated the income from transactions with non-members as taxable, while holding the assessee ineligible for exemption under sections 11& 12 of the Act on the ground that assessee could not be treated as an institution created/established for charitable purposes within the meaning of section 2(15) of the Act. In assessment year 2004-05, the CIT(A) disagreed with the Assessing Officer on this count and based on his stand for assessment year 2004-05, in the instant year also, the CIT(A) has held the assessee is entitled for exemption under sections 11& 12 of the Act. Considering that there is complete similarity of facts as well as the objections of the Assessing Officer, in both the years, the action of the CIT(A) in allowing exemption under section 11 of the Act, following his decision for assessment year 2004-05, which has been accepted by the Department, cannot be considered as erroneous. Apart therefrom, it has also been pointed out that for assessment year 2004-05, assessment was reopened by the Assessing Officer by issuance of notice under section 148 of the Act, on the ground that exemption under section 11 was deniable as the activities of the assessee Trust contravened the provisions of section 13(1)(c) and 11(4A) of the Act. It has been pointed out that the said action of the Assessing Officer reopening the assessment was quashed by the CIT(A) vide

7 Matunga Gymkhana

his order dated 12/08/2011, which has been further affirmed by the Tribunal vide its order dated 30/10/2015 in ITA No.7375/Mum/2011, copy of which has been placed on record. Considering the aforesaid uncontroverted facts, it is quite clear that the stand of the Assessing Officer to deny exemption to the assessee under sections 11 & 12 of the Act in assessment year 2005-06 is untenable and that the CIT(A) made no mistake in allowing the claim of the assessee based on a similar decision for assessment year 2004-05 which stands accepted by the Department in the original assessment proceedings completed under section 143(3) of the Act and even the reopened proceedings, stand quashed by the Tribunal vide its order dated 30/10/2015(supra). It has been stated before us that the order of the Tribunal continues to hold the field, as it has not been altered by any higher authority. In view of the need to impart consistency and uniformity of approach on issues which permeate through more than one assessment year, we find no reason to interfere with the conclusion of the CIT(A) in allowing the claim of the assessee for exemption under sections 11& 12 of the Act based on his stand for assessment year 2004-05, especially considering that no change in facts or law has been brought out by the Revenue . Thus, the order of the CIT(A) is hereby affirmed and the appeal of the Revenue for assessment year 2005-06 is dismissed.

8 Matunga Gymkhana

9 Matunga Gymkhana

deficit of Rs.5,37,46,926/-; and, also claimed depreciation on assets, cost of which had already been claimed as an application of income towards the objects of the Trust in earlier years. According to the Assessing Officer, such claim of depreciation was not allowable as it would amount to double deduction, firstly as application of income and secondly on account of depreciation on the very same assets, whose cost have been claimed as deduction as an application of income. In the ensuing assessment finalized under section 143(3) r.w.s 147 of the Act, the Assessing Officer disallowed assessee’s claim for exemption under section 11 of the Act for the similar reasons noted by us while dealing with the appeal of the Revenue for earlier assessment year 2005-06. The Assessing Officer has also disagreed with the assessee on the issue of calculation and carry forward of deficit. The total income was assessed at Rs.99,80,482/- which comprised of interest income, compensation from caterer, Gymkhana Function Income, etc. The said assessment was carried in appeal before the CIT(A) both on facts and in law. On the plea of the assessee challenging the validity of the assessment reopened under section 147/148 of the Act, the CIT(A) held the action of the Assessing Officer as bad in law on the ground that there was no fresh material with the Assessing Officer to reopen the assessment. Further, in so far as the issue of allowing exemption under sections 11&12 of the Act was concerned, the CIT(A) followed the orders of his predecessor for the assessment years 2004-05, 2005-06 and 2007-08 and allowed the claim of the assessee. Thirdly, with regard to the issue of deficit of Rs.71,91,931/-, carry forward of deficit of Rs.5,35,46,926/- on account of deprecation on assets cost of which was already allowed as deduction, the CIT(A) disagreed with the Assessing Officer on the ground that the said issue was covered in favour of the assessee by the

10 Matunga Gymkhana

judgment of the Hon'ble Bombay High Court in the case of CIT vs. Institute of Banking, 264 ITR 110(Bom). In this manner, the CIT(A) allowed the pleas of the assessee, against which Revenue is in appeal before us.

9.1 At the time of hearing, the Ld. Representative for the assessee submitted that the order of the CIT(A) does not require any interference as it is based on the assessment year 2004-05, wherein the similar stand of the CIT(A) has been accepted by the Department and no appeal has been filed before the Tribunal. In so far as the dispute relates to initiation of proceedings under section 147/148 of the Act, the Ld. Representative for the assessee pointed out that similar dispute had come up before the Tribunal in assessment year 2005-06 and vide order dated 30/10/2000(supra) the initiation of proceedings under section 147/148 of the Act have been found to be unsustainable.

9.2 The Ld. Departmental Representative submitted that so far as the assessment year 2006-07 is concerned, the original assessment was not made under section 143(3) of the Act, but the return of income was only processed under section 143(1) of the Act; therefore, under these circumstances the reasons recorded by the Assessing Officer were sufficient to initiate proceedings under section 147/148 of the Act. In the course of hearing, reliance has been placed on the judgment of the Hon'ble Supreme Court in the case of ACIT v. Rajesh Jhaveri Stock Brokers Pvt. Ltd.,291 ITR 500(SC).

9.3 On this aspect of the matter, in our view, it is a settled position that even where a return is merely processed under section 143(1) of the Act, the assessment can be reopened under section 147 of the Act only subject to the

11 Matunga Gymkhana

fulfillment of the conditions prescribed therein. In other words, even in such a situation, where the return has been processed under section 143(1) of the Act, and no assessment under section 143(3) of the Act has been framed, the condition prescribed in section 147(1) of the Act for the existence of a ‘reason to believe’ that certain income chargeable to tax has escaped assessment, has to be complied with. In fact, at the time of hearing, Ld. Representative for the assessee had relied upon the judgment of the Hon'ble Delhi High Court in the case of CIT vs. Orient Craft Ltd., 354 ITR 536(Del), wherein it has been held that the finality of intimation under section 143(1) of the Act can be disturbed under section 147/148 of the Act only if the Assessing Officer has reason to believe that certain income chargeable to tax has been escaped. The Hon'ble Delhi High Court duly considered the judgment of the Hon'ble Supreme Court in the case of Rajesh Jhaveri Stock Brokers Pvt. Ltd. (supra) and held that the intimation under section 143(1) of the Act can be disturbed only after complying with the requirements of section 147(1) of the Act.

9.4 In the present case, it is quite evident that the reasons recorded to reopen the intimation under section 143(1) of the Act are similar to those recorded by the Assessing Officer while reopening the assessment for assessment year 2005-06. The validity of the proceedings initiated under section 147/148 of the Act for assessment year 2005-06 has already been adjudicated by the Tribunal in its order dated 30/10/2015(supra), whereby the same has been found to be untenable in law. In view of the said decision, the reopening of assessment in the present year has been rightly set-aside by the CIT(A). In fact, the conclusion of the CIT(A) is that there was no fresh material with the Assessing Officer to reopen the assessment, a finding which has not

12 Matunga Gymkhana

been repudiated by the Revenue before us on the basis of any cogent material. The fact that an assessment order under section 143(3) was not passed in this year and the return was merely processed under section 143(1) would not make any difference to the validity of the proceedings initiated under section 147/148 of the Act because the absence of a fresh tangible material to justify escapement of income is a condition precedent even in such cases, following the ratio of the judgment of the Hon'ble Delhi High Court in the case of Orient Craft Ltd.(supra). Thus, the stand of the CIT(A) is hereby affirmed and Revenue fails in its Ground of appeal No.1.

10.1 In the result, appeal of the Revenue for assessment year 2006-07 is hereby dismissed.

13 Matunga Gymkhana

point between the parties that the said appeals arise from the assessments finalized by the Assessing Officer under section 143(3) of the Act and the objections taken by the Assessing Officer to assessee’s claim for exemption under section 11& 12 of the Act are pari-materia to those considered by us in the appeal of the Revenue for assessment year 2005-06 in earlier paras. Similar is the situation with respect to the respective orders of the CIT(A) also. In this view of the matter, following our decision in the earlier paras in relation to the appeal of the Revenue for assessment year 2005-06, the appeals of the Revenue for the assessment years 2007-08 and 2008-09 are also dismissed.

“GROUNDS OF APPEAL I. TREATING OF THE CHARITABLE TRUST AS MUTUAL CONCERN AND THEREBY DENYING EXEMPTION U/S 11: 1. The Learned CIT(A) erred in confirming the appellant ,a Charitable Trust as a Mutual Association and applying the principles of mutuality for taxation and thereby denying exemption u/s 11. 2. The Learned CIT(A) failed to appreciate the fact that i) the trust is granted registration u/s 12A which is not withdrawn; ii) the activities of trust are covered u/s 2(15) of the I .T Act, 1961 iii) the trust is eligible for benefits u/s 11 iv) the CIT(A) in earlier years have accepted the appellant as Charitable Trust u/s 2( 15) and allowed the exemption u/s 11. v) the Department has not preferred an appeal in ITA T against the order of CJT(A) granting benefit u/s 11 for AY 2004-05. 3. Without prejudice to above, the expenses incurred for the object of the trust is not considered while determining the income

14 Matunga Gymkhana

II. ADDITION OF INTEREST INCOME OF RS.2,36,07,023/- AS TAXABLE INCOME: 1. The Learned CIT(A) erred in confirming the Interest Income of Rs. 2,36,07,023/- as taxable income 2. The appellant is required to be treated as a Charitable Trust and thereby the expenditure incurred as deemed to be treated as application of income for the object of the Trust.

Ill. ADDITION OF COMPENSATION FROM RESTAURANT OF RS. 16,23,565/- AS TAXABLE INCOME: 1. The Learned CIT (A) erred in confirming the amount received as Restaurant Compensation of Rs. 16,23,565/- as taxable income. 2. The appellant is required to be treated as a Charitable Trust and thereby the expenditure incurred as deemed to be treated as application of income for the object of the Trust. IV. ADDITION OF COMPENSATION FROM DECORATOR OF RS. 1,65,630/- AS TAXABLE INCOME: 1. The Learned CIT(A) erred in confirming the amount received as Compensation from Decorator of Rs. 1,65,630/- as taxable income. 2. The appellant is required to be treated as a Charitable Trust and thereby the expenditure incurred as deemed to be treated as application of income for the object of the Trust. V. ADDITION OF MISCELLANEOUS INCOME OF RS. 20,074/- AS TAXABLE INCOME: 1. The Learned CIT(A) erred in confirming the amount received as miscellaneous receipt of Rs.20,074/- as taxable income. 2. The appellant is required to be treated as a Charitable Trust and thereby the expenditure incurred as deemed to be treated as application of income for the object of the Trust. VI. CLAIM OF DEPRECIATION AS APPLICATION OF INCOME I. The Learned CIT(A) erred in confirming that appellant is not eligible for exemption u/s. 11 and directing the A.O. to determining the income as per provisions of Chapter IV of the Income Tax Act, 1961. 2. The Learned CIT(A) ought to have given specific direction to allow deduction of claim of depreciation.

VII. NON GRANTING OF SET OFF OF CARRIED FORWARD LOSSES & UNABSORBED DEPRECIATION. 1. The Learned CIT(A) erred in confirming that appellant is not eligible for exemption u/s 11 and directing the A.O. to determining the income as per provisions of Chapter IV of the Income Tax Act, 1961. 2. The Learned CIT(A) ought to have given specific direction to allow set off carried forward losses/ unabsorbed depreciation. VIII. NON ACCEPTANCE OF REVISED WORKING FOR COMPUTAION OF INCOME 1. The Learned CIT(A) erred in non-accepting the revised working for computation of income made during the course of assessment proceeding

15 Matunga Gymkhana

and directing the A.O. to determining the income as per provisions of Chapter IV of the Income Tax Act, 1961 2. The Learned CIT(A) ought to have given specific direction to consider the revised computation of income furnished during the course of assessment proceedings.”

12.1 Before we proceed to adjudicate the respective Grounds of appeal, a brief background of the dispute can be summarized as follows. In assessment year 2009-10 also, the Assessing Officer denied assessee’s claim for exemption under section 11 & 12 of the Act. In this assessment year, the Assessing Officer held that the assessee is a Mutual Association not eligible for exemption under section 11 & 12 of the Act and accordingly he had brought to tax incomes earned by the assessee from transactions with non-members as was the case in the earlier assessment years. So however, CIT(A) did not follow his orders for earlier assessment years allowing the claim of the assessee for exemption under section 11&12 of the Act and instead upheld the action of the Assessing Officer in denying exemption to the assessee under section 11 & 12 of the Act. This departure by the CIT(A) from his position in the earlier assessment years was primarily in view of the insertion of the proviso below section 2(15) of the Act w.e.f. 01/04/2009. Notably, after introduction of the proviso w.e.f. 01/04/2009, the provisions of section 2(15) of the Act read as under:- “charitable purpose includes relief of the poor, education medical relief, preservation of environment (including watersheds, forests and wildlife) and preservation of monuments or places or objects of artistic or historic interest,] and the advancement of any other object of general public utility; Provided that 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:

16 Matunga Gymkhana

The effect of the said amendment is that ‘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.

12.2 According to the CIT(A), due to the above amendment to section 2(15) of the Act, the position of assessment in the case of the assessee would undergo a change. According to the CIT(A), the activities of the assessee fall under the category of advancement of any other object of general public utility and, assessee was charging fees from outsiders for allowing its play grounds for various games, etc. and, therefore, such activities are hit by the proviso to section 2(15) of the Act and the same cannot be treated as charitable in nature. In this manner, the CIT(A) upheld the stand of the Assessing Officer to deny assessee’s claim for exemption under section 11&12 of the Act and simultaneously also affirmed the action of the Assessing Officer in treating the assessee as a Mutual concern thereby implying that the following incomes out of transactions with the non-members were liable to be taxed:- (i) interest income - Rs.2,36,07,023/-; (ii)compensation from the restaurant - Rs.16,23,656/-; (iii) compensation from the decorator – Rs.1,65,630/-; and, (iv) miscellaneous - Rs.20,074/-.

12.3 In sum and substance, the action of the Assessing Officer in computing the total income of the assessee at Rs.2,54,16,380/-, after denying the

17 Matunga Gymkhana

exemption under section 11 & 12 of the Act and holding it to be a mutual concern was affirmed by the CIT(A). Against such a decision of the CIT(A), assessee is in further appeal before us. 12.4 Before us, the Ld. Representative for the assessee has explained the nature of the incomes on which the income tax authorities have denied the claim of exemption under section 11 & 12 of the Act. Firstly, it is pointed out that the interest income of Rs.2,36,07,023/- is earned on deposits kept with the banks and that it was a prescribed mode of investment in section 11(5)(iii) of the Act. It was, therefore, contended that so far as earnings by way of interest on such deposit is concerned, it cannot be characterized as activity in the nature of trade, commerce or business so as to be hit by the proviso to section 2(15) of the Act. Even with regard to the compensation from the caterer(restaurants), compensation from Decorator and Miscellaneous income, it has been pointed out that the same could not be characterized as activities in the nature of trade, commerce or business. The Ld. Representative for the assessee referred to the charge made by the income tax authorities that assessee was recovering fees for allowing use of its premises and referred to the Paper Book to point out that there was an overall deficit from the activities of sports and in any case the level of fee charged is so low that it cannot be seen as an activity in the nature of trade, commerce or business with the view of profit making. It is sought to be pointed out that the fee charged is nominal and it is intended to cover the expenses incurred by the assessee and rather there is an overall deficit. For instance, our attention was drawn to page 62 of the Paper Book, wherein a fee of Rs.4,000/- per month has been charged from a college as rent for the ground used for cricket practice. Apart therefrom, our attention has also been invited to pages 5 to 11

18 Matunga Gymkhana

of the Paper Book, wherein is placed the Balance Sheet and the Income and Expenditure Account for the year under consideration, which shows that so far as the sports activities are concerned, there is a deficit. At the time of hearing, reliance was also placed on the decision of the Mumbai Tribunal in the case of The Bombay Presidency Golf Club Ltd., in ITA No.4843/Mum/2012 dated 29/02/2016 to point out that earning of interest on deposits with the bank cannot be considered to be an activity in the nature of trade, commerce or business so as to fall within the scope of the proviso to section 2(15) of the Act.

12.5 On the other hand, Ld. Departmental Representative has relied upon the orders of the authorities below by contending that the impugned incomes earned by the assessee have been rightly taxed as they are hit by the proviso to section 2(15) of the Act and that the Assessing Officer has correctly brought to tax such incomes as the same were earned from transactions with non- members, and its taxability could not be governed by the principles of mutuality.

12.6 We have considered the rival submissions. Sections 11 to 13 of the Act deal with the provisions relating to income derived properties held for charitable or religious purposes. The assessee before us is a trust registered under the Bombay Public Trust Act, 1950 and also continues to hold the registration granted to it by the Commissioner of Income Tax under section 12A of the Act since 5/12/1997 as a charitable trust. Notably, the main objects of the assessee trust are stated to be the promotion of sports, games and recreation facilities to the public at large and for the physical development and

19 Matunga Gymkhana

healthy life style as well as promotion of other charitable objects. The factum of the promotion of sports and games being a ‘charitable purpose’ within the meaning of section 2(15) of the Act is not in dispute. In fact, the Assessing Officer also does not dispute the fact that the activities of the promotion of sports and games carried out by the assessee fall within the meaning of ‘charitable purpose’. The assessee trust derives income by way of receipts from its members viz. Membership fee, entrance fee, identity card fee, locker rent, reservation charges, etc. The assessee trust is also earning incomes by way of compensation from caterer for rent/leasing of premises and such receipts in the instant year are of a sum of Rs.16,23,656/-. Further, it has also received compensation from Decorator of Rs.1,65,630/- and Miscellaneous income of Rs.20,074/-. Apart therefrom, assessee has earned interest income of Rs.2,36,07,023/- on RBI Bonds and other permitted investments as per section 11(5) of the Act. The aforesaid incomes, totalling to Rs.2,54,16,380/- have been brought to tax by the Assessing Officer as according to him the same are not eligible for the benefits of section 11 & 12 of the Act and since, they had been derived from transactions from non-members, the same are also not exempt under the principle of mutuality.

12.7 Now, we may first take up the stand of the Assessing Officer with regard to the interest income earned of Rs.2,36,07,023/-. The said income has been earned from investments which have been made in terms of the prescription contained in section 11(5) of the Act. The CIT(A) has emphasized on the proviso to section 2(15) of the Act, which denies the entity carrying on advancement of any other objects of general public utility, the benefits of section 11 & 12 only if such activities involve carrying on of any activity in the

20 Matunga Gymkhana

nature of trade, commerce or business for a fee or cess or any other consideration irrespective of the nature of use or application or retention of such income from such activities. The moot question is, can the activity of keeping funds deposited in the manner mandated by the statute i.e. section 11(5) of the Act can be construed as an activity in the nature of trade, commerce or business so as to fall within the meaning of the proviso to section 2(15) of the Act. The answer is quite obvious because once an entity, which is governed by the regime of sections 11 to 13 of the Act is mandated to keep its funds in a prescribed manner, the earnings therefrom cannot be viewed as an activity of in the nature of trade, commerce or business within the meaning of the proviso to section 2(15) of the Act. Notably, in the present case, there is no charge made against the assessee at any stage that such earnings have not been spent towards the objects of the assessee i.e. promotion of sports, games and recreation facilities to the general public at large and physical development and healthy life style. The decision of the Co-ordinate Bench in the case of The Bombay Presidency Golf Club Ltd.(supra) is also directly on the point where bank interest earned by a Trust having an object of providing Golf course and allied facilities for the promotion of the sport of Golf was sought to be taxed by denying the exemption under sections 11 & 12 of the Act. The following discussion in the order of the Tribunal is 29/02/2016(supra) is relevant:-

21 Matunga Gymkhana

Section 2(15). It is to be noted that all the other activities and income streams received by the assessee have been held to be not taxable by the Assessing Officer himself in making his order dated 30th December, 2012 on the grounds of mutuality and the only amount which has been assessed to tax as income of the assessee is income from interest of Rs.2,17,92,167. Thus according to the AO compliance by a entity set up for charitable purpose with the provisions of section 11 (5) of the Act would result in its status of 'charitable purposes' being denied on account of the proviso to section 2( 15) of the Act. The direct consequence of such an interpretation would be that an otherwise 'charitable institution' would lose its status as a 'charitable institution' if it complied with section 11 (5) of the Act and if it did not comply with section 11 (5) of the Act it would be denied the benefit on the grounds that the entity has not complied with section 11 (5) of the Act.

22 Matunga Gymkhana

Following the aforesaid decision of the Tribunal, which has referred to the judgments of the Hon’ble Delhi High Court in the case of GS 1 India (supra), Institute of Chartered Accountants of India (supra) and Bureau of Indian Standards (supra) in coming to conclude that the activity of depositing money in the bank and earning interest would not constitute trade, commerce or business within the meaning of section 2(15) r.w. proviso thereof. Thus, in so far as interest income of Rs.2,36,07,023/- is concerned, we find no merit in the stand of the lower authorities.

12.8 Likewise, the other three categories of income namely, compensation from the Caterer(restaurant), compensation from Decorator for gymkhana functions and Miscellaneous income are concerned, herein also it cannot be said that the same involve carrying on of any activity in the nature of trade, commerce or business. It is quite clear that the scope and ambit of the exemption envisaged in sections 11 & 12 of the Act relate to the receipt of

23 Matunga Gymkhana

income derived from the property held under trust for charitable or religious purposes to the extent to which such income is applied to such purposes in India. Before proceeding further, we may reiterate that there is no charge against the assessee at any stage that there is an application of income for any purpose other than the objects of the assessee trust. Much has been made out by the lower authorities to the fact that assessee has charged a fee for allowing use of its sports grounds, and therefore, it is asserted that such an activity is hit by the disability contained in the proviso to section 2 (15) of the Act. In our considered opinion, mere charging of fee ipso-facto would not enable an activity to be governed by the proviso to section 2(15) of the Act without establishing any profit-motive in the charging of fees. In this context, one may refer to the judgment of the Hon’ble Delhi High Court in the case of GS 1 India(supra), wherein the expression trade, commerce or business was being examined in the context of situation where assessee was charging a fee for rendering services. As per the Hon’ble High Court the charging of fee was necessary for carrying out the activities and the sustenance thereof, and, it would not reflect any profit-motive. The judgment of the Hon’ble Gujarat High Court in the case of Sabarmati Ashram Gaushala Trust (supra) is also relevant where the income earned on account of production and sale of milk was sought to be covered within the scope of the proviso to section 2(15) of the Act on the ground that it amounted to an activity in the nature of trade, commerce or business. The Hon’ble High Court disagreed with the view of Revenue and held that generation of income by way of sale of milk could not be regarded as activity of trade, commerce or business, considering that the objects of the trust were breeding of cattle and cows and oxen. In fact, in the case of All India Football 1 Federation (supra), the Delhi Bench of the Tribunal

24 Matunga Gymkhana

was considering receipt by way of sponsorship in the context of the proviso to section 2(15) of the Act. The Tribunal held that the main object of the Trust being promotion of the game of football, organizing tournaments, training players, etc., it would not lose its character of being charitable in nature merely because there were receipts by way of sponsorship because the activity of receiving sponsorship fee could not be construed as an activity in the nature of trade, commerce or business. In the present case too, objects of the assessee are undoubtedly the promotion of sports, games and recreation facilities to the public at large and such like receipts on account of compensation from the Decorator against gymkhana function, miscellaneous income and compensation from caterer(restaurant) cannot be construed as activity in the nature of trade, commerce or business for the purposes of the proviso to section 2(15) of the Act. Therefore, having regard to the facts and circumstances of the case, in our view, the CIT(A) erred in departing from his stand in earlier years by wrongly relying on the proviso to section 2(15) of the Act in the instant year because the activities in question cannot be construed to be in the nature of trade, commerce or business so as to fall within the purview of the proviso to section 2(15) of the Act. Thus, on this aspect assessee succeeds.

25 Matunga Gymkhana

eligible for exemption under sections 11& 12 of the Act. The Assessing Officer is directed to rework the aforesaid claims of the assessee in accordance with law. 15. Resultantly, appeal of the assessee is allowed, as above.

Sd/- Sd/- (AMARJIT SINGH) (G.S. PANNU) JUDICIAL MEMBER ACCOCUNTANT MEMBER Mumbai, Dated 30/11/2016 Vm, Sr. PS Copy of the Order forwarded to : 1. The Appellant , 2. The Respondent. 3. The CIT(A)- 4. CIT 5. DR, ITAT, Mumbai 6. Guard file. BY ORDER, //True Copy// (Dy./Asstt. Registrar) ITAT, Mumbai