2019 (9) TMI 341 - AT - Income Tax

Exemption u/s 11 - charitable activity u/s 2(15) - public charitable trust providing swimming pool facilities for training and for other aquatic events - assessee is also providing facilities of playing Cards and also having Permit Room, Bar and Restaurants for Catering and Soft Drinks - HELD THAT - No hesitation in holding that the assessee is carrying out objects of general public utility, hence, fulfills the condition of charitable purpose under section 2(15) of the Act. Therefore, the assessee is entitled for exemption under section 11 of the Act. It is worth mentioning, after introduction of proviso to section 2(15) DIT(E) cancelled the registration granted under section 12A of the Act by holding that as per the said proviso, the assessee is engaged in commercial activity. Tribunal while deciding assessee s appeal in 2018 (6) TMI 1656 - ITAT MUMBAI reversed the decision of the DIT(E) and restored the registration granted to the assessee by holding that since there is no change in the activity of the assessee from the past assessment years, registration cannot be cancelled merely because of proviso to section 2(15) of the Act. Assessee is entitled to exemption under section 11 of the Act in respect of income generated from all other activities except the income from playing Cards for stakes. As regards the income generated from playing Cards, it is the contention of the learned Sr. Counsel for the assessee before us that the assessee does not provide facilities for playing Card for stakes but it holds Bridge Tournaments. The aforesaid claim of the assessee has to be verified by the AO and the nature of income derived from playing Cards and its entitlement to exemption under section 11 can be decided after factually examining assessee s claim. Needless to say, the Assessing Officer shall provide adequate opportunity of being heard to the assessee before deciding the issue.

Summary

Issues Involved:
1. Disallowance of exemption claimed under section 11 of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Disallowance of Exemption under Section 11:

The appeals by the assessee pertain to disallowance of exemption claimed under section 11 of the Income Tax Act, 1961, for the assessment years 2009-10 to 2013-14. The primary issue revolves around whether the activities of the assessee, a public charitable trust, can be considered charitable under section 2(15) of the Act, and thus, eligible for exemption under section 11.

Facts and Background:
The assessee is a public charitable trust providing swimming pool facilities and other sports facilities. It is registered with the Charity Commissioner and has been granted registration under section 12A of the Act. The trust filed its return declaring a loss, but the Assessing Officer (AO) found that the trust also provides facilities for playing cards, a permit room, bar, and restaurants, which he considered commercial activities. The AO concluded that these activities do not align with the charitable objects of the trust and should be treated as business activities under section 11(4A) of the Act. Consequently, the AO denied the exemption under section 11 and treated the income as normal business income, determining the taxable income at ?3,89,29,816.

Assessee's Argument:
The assessee argued that its primary object is charitable, focusing on providing sports facilities, particularly swimming. The trust has produced national and international sports champions and conducts various public sports events and training camps. The assessee contended that the other activities like running a bar and restaurant are incidental and ancillary to its main charitable object. The assessee also highlighted that its claim for exemption under section 11 was allowed in previous years by the Tribunal and upheld by the High Court, and the SLP filed by the Revenue was dismissed by the Supreme Court.

Revenue's Argument:
The Revenue argued that the activities related to the sale of liquor, food, etc., are commercial in nature and fall under the proviso to section 2(15) of the Act. They contended that the facilities of the trust are predominantly for members and not open to the general public, making it a mutual concern rather than a charitable institution.

Tribunal's Analysis:
The Tribunal noted that the trust was created with the charitable object of establishing and maintaining sports facilities for all communities. It observed that the trust has been recognized as a charitable institution and granted exemption under section 11 in previous years. The Tribunal emphasized that the predominant object of the assessee is charitable, and the incidental activities of selling liquor, food, etc., do not change its charitable character. The Tribunal referred to various judicial precedents, including decisions of the High Court and the Tribunal, which supported the assessee's claim.

Conclusion:
The Tribunal concluded that the assessee's activities align with its charitable objects and that the income generated from incidental activities does not negate its charitable purpose. Therefore, the assessee is entitled to exemption under section 11 of the Act, except for the income from playing cards for stakes, which needs to be verified by the AO. The Tribunal directed the AO to examine the nature of income from playing cards and decide the exemption claim accordingly.

Outcome:
The appeals were partly allowed, granting the exemption under section 11 for all activities except the income from playing cards, which requires further verification by the AO. The decision applies mutatis mutandis to all the appeals under consideration.