2013 (11) TMI 67 - AT - Income Tax

Exemption available u/s 11 of the Income Tax Act Held that - business of Bar and Restaurant is property held under trust for a charitable object within the meaning of section 11(4), not affected in any way by section 11(4A) of the Act. Thus, the assessee trust is entitled to exemption u/s 11 for all its income except for income providing facilities of playing cards In the present case, assessee is entitled to exemption u/s 11 for its income except income providing facilities of playing cards and accordingly reject grounds of appeal taken by the department. Receipts for social functions, pavilion, board room and open terrace would not be eligible for exemption under section 11 of the Income-tax Act Held that - The activities of the assessee Club on Social Functions, Pavilion, Board Room, Terrace and Card Room were for personal purposes and are clearly not for the object of the Club. The only exception to this decision of ours is the functions organized on Independence Day, Republic Day, Diwali celebrations and likewise only. Therefore, the activities not covered by the decision of the Co-ordinate Bench would not qualify for exemption u/s 11 of the Act. In view of this, the decision of the ld. CIT(A), in respect of activities of the assessee not covered by the said decision of the Co-ordinate bench cannot be sustained. Therefore, the AO is directed to allow the expenses as per our directions on such activities of the assessee which are covered by the decision of the Hon ble Co-ordinate Bench Decided in favor of Assessee.

Summary

Issues:
1. Exemption u/s 11 of the IT Act for income from specific activities.
2. Classification of the assessee as a mutual association.
3. Eligibility of the assessee for exemption u/s 11 of the Act.

Analysis:

1. Exemption u/s 11 of the IT Act for income from specific activities:
The case involved cross-appeals filed by the department and the assessee against an order of the ld. CIT(A) directing the AO to allow exemption u/s 11 of the IT Act. The department argued that income from activities like providing food, liquor, and playing cards did not qualify for deduction under section 11. The assessee, a club registered as a Public Charitable Trust, provided various facilities including swimming pool, sports training, and bar services. The AO treated the assessee as a mutual association and denied exemption u/s 11. However, the ld. CIT(A) held that income from most activities, except playing cards, was eligible for exemption u/s 11. The Tribunal, following previous decisions, confirmed that the club was entitled to exemption u/s 11 for all income except that from playing cards.

2. Classification of the assessee as a mutual association:
The department contended that the club's income from non-members should be treated as commercial transactions, violating sections 13(1) and 13(3) of the Act. They argued that the club's benefits were limited to members, making it a profit-making entity. However, the assessee's representative highlighted that previous Tribunal and High Court decisions had upheld the club's entitlement to exemption u/s 11. The Tribunal observed that the club's main object was to provide facilities to its members, making it eligible for exemption u/s 11, except for income from playing cards.

3. Eligibility of the assessee for exemption u/s 11 of the Act:
The Tribunal considered the club's activities, noting that income from social functions, pavilion, board room, and open terrace could not be exempt under section 11. Citing previous decisions, the Tribunal rejected the appeal on these grounds. The Tribunal also dismissed the assessee's appeal regarding taxing net interest income, as it held that the club was entitled to the benefits of section 11. The Tribunal confirmed that the club's income, except from playing cards, was eligible for exemption under section 11, despite the department's arguments against it.

In conclusion, the Tribunal upheld the ld. CIT(A)'s order, confirming the club's entitlement to exemption u/s 11 for most income-generating activities, except for income from playing cards. The appeals by both the department and the assessee were dismissed, and the Tribunal pronounced its order on September 13, 2013.