2017 (5) TMI 295 - AT - Income Tax

Denial of exemption under section 11 - AO treating the assessee as a mutual concern - proof of charitable purposes - Held that - 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. 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 (2014 (5) TMI 1115 - ITAT MUMBAI ) 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 (Appeals) was justified in allowing assessee s claim of exemption under section 11 of the Act. - Decided in favour of assessee.

Summary

Issues Involved:
1. Allowance of assessee's claim of deduction under section 11 of the Income Tax Act, 1961.
2. Whether the assessee can be denied exemption under section 11 as a mutual concern.
3. Applicability of the first proviso to section 2(15) of the Income Tax Act.

Detailed Analysis:

1. Allowance of Assessee's Claim of Deduction Under Section 11:
The primary issue raised by the Revenue concerns the allowance of the assessee's claim of deduction under section 11 of the Income Tax Act, 1961. The assessee, a charitable trust registered with the Charity Commissioner and under section 12A of the Act, filed its return for the assessment year 2010-11, claiming nil income after deduction under section 11. The Assessing Officer (AO) denied this claim, arguing that the assessee was a mutual concern, benefiting its members more than non-members, thus violating section 13(1) of the Act. Consequently, the AO taxed the income received from non-members, determining the total income at ?1,35,09,292. However, the learned Commissioner (Appeals) allowed the assessee's claim, referencing prior Tribunal decisions and the Hon'ble Jurisdictional High Court's upholding of these decisions.

2. Mutual Concern and Exemption Under Section 11:
The AO's denial of the exemption was based on the assertion that the assessee was a mutual concern, primarily benefiting its members. This view was previously taken in the assessment year 2007-08. However, the Tribunal and the Hon'ble Jurisdictional High Court had consistently held that the assessee's activities constituted general public utility, qualifying it as a charitable organization. The Tribunal noted that the assessee's objects included promoting sports and cultural activities, which benefited a section of the public at large, not just a closed group of individuals. Therefore, the principle of mutuality did not apply, and the assessee was entitled to exemption under section 11.

3. Applicability of the First Proviso to Section 2(15):
The Departmental Representative argued that the assessee was involved in trading/commercial activities, thus not existing for charitable purposes per the first proviso to section 2(15). However, the AO did not record any factual findings to support this claim. The Tribunal observed that the AO, aware of the first proviso at the time of assessment, did not find that the assessee engaged in trade, business, or commercial activities. The Tribunal reiterated that the assessee's activities were for general public utility and charitable purposes, as previously upheld by the Tribunal and the Hon'ble Jurisdictional High Court. The case of Navi Mumbai Merchants Gymkhana, cited by the Departmental Representative, was distinguished based on different facts, where the AO had found the assessee engaged in commercial activities and restricted membership to a specific group.

Conclusion:
The Tribunal concluded that the assessee was entitled to exemption under section 11 of the Act as a charitable trust. The appeal by the Revenue was dismissed, and the order pronounced on 08.03.2017 confirmed the learned Commissioner (Appeals)'s decision in favor of the assessee.