2022 (3) TMI 250 - AT - Income Tax

Denial of exemption u/s 11 - Assessee is claimed to be a trust carrying on activities of providing swimming pool facilities for aquatic events and training and facilities for other sports and squash, billiards and table tennis - AO denied the claim of exemption to the assessee on the ground that the exemption granted by the DIT(E) was subsequently withdrawn by him - CIT-A held that the activities of the assessee have been found to be hit by the newly inserted Proviso to section 2(15) of the Act - HELD THAT - As from the objects of the assessee trust it would be clear to us that the assessee trust was created with the charitable object to provide facilities for indoor and outdoor games. In addition to the aforesaid objects, the trust deed also provided for providing recreational activities. The charitable nature of the assessee can be appreciated from the fact that not only it is registered with Charity Commissioner, Mumbai, but was also granted registration as a Charitable Institution under section 12A of the Act immediately after its creation in the year 12A of the Act, the assessee started claiming exemption under section 11 of the Act. The assessing officer denied the exemption under section 11 of the Act primarily for the reason that the activities of the assessee included facility of permit room, which, according to him, cannot be considered to be for charitable purpose. Therefore, applying the Proviso to section 2(15), the assessing officer held that the activity of providing bar room cannot be considered to be objects of general public utility. Tribunal in Breach Candy Swimming Bath Trust v/s ITO 1986 (3) TMI 106 - ITAT BOMBAY-A concluded that except the income derived from the activity of providing facilities for playing Cards at stake, all other income from Swimming Pool and other sport activities, Bar and Restaurants, etc., will be from the activities of carrying out the object of general public utility, hence, entitled to exemption under section 11 Thus the assessee trust is a charitable trust within the meaning of section 2(15) of the Income-tax Act, 1961 - The income derived from the activity of providing facilities for providing bar facility, etc. except the income derived from the activity of providing facilities for playing cards at stake, all other activities are incidental to the main object of the assessee; hence, not covered by Proviso to section 2(15) of the Act - Decided in favour of assessee.

Summary

Issues:
- Denial of exemption under section 11 of the I.T. Act, 1961 by applying the provisions of section 2(15)
- Whether the assessee trust is a mutual concern
- Activities of the assessee trust being hit by the Proviso to section 2(15) of the I.T. Act, 1961
- Granting exemption under section 11 of the Act based on the trust's charitable nature

Analysis:

1. The three appeals were filed against independent orders passed by the Commissioner of Income-tax (Appeal)-1, Mumbai for different assessment years. The main issue raised by the assessee was the denial of exemption under section 11 of the I.T. Act, 1961, based on the provisions of section 2(15) and the contention that the income computed was not in accordance with law and lacked an understanding of the principle of mutuality.

2. The assessing officer observed that besides providing swimming pool facilities and training for sports, the assessee was also involved in activities like playing cards, permit room bar, and restaurant services. This led to the denial of exemption under section 11 based on the Proviso to section 2(15) of the Act. The Ld.CIT(A) upheld this decision.

3. The assessee argued that its activities were similar to those of MIG Cricket Club and cited various decisions to support its claim for exemption under section 11. The Department, on the other hand, relied on the Proviso to section 2(15) to argue against granting exemption.

4. The Tribunal considered the submissions and found that the trust's objects were primarily charitable, focusing on promoting sports, cultural, and social activities. It noted that the trust was registered with the Charity Commissioner and as a Charitable Institution under section 12A. The Tribunal also referred to precedents like Breach Candy Swimming Bath Trust v/s ITO to support granting exemption under section 11.

5. Referring to the decision in DIT(E) VS Chembur Gymkhana, the Tribunal held that the trust qualified as a charitable institution under section 2(15) of the Income-tax Act, 1961. It further concluded that the income derived from certain activities, excluding playing cards, fell under the object of general public utility and thus qualified for exemption under section 11.

6. Ultimately, the Tribunal allowed the appeal, emphasizing that the income derived from activities like providing bar facilities, except playing cards, was incidental to the trust's main charitable objectives and therefore not covered by the Proviso to section 2(15).