2006 (5) TMI 123 - AT - Income Tax

Summary

Issues Involved:
1. Exemption under Section 10(23) of the IT Act.
2. Applicability of the principle of mutuality.
3. Allowance of expenses claimed in the P&L account.
4. Registration under Section 12A of the IT Act and its effective date.
5. Exemption under Sections 11 and 12 of the IT Act.

Detailed Analysis:

1. Exemption under Section 10(23) of the IT Act:
The assessee argued that the income of the club is exempt under Section 10(23) of the IT Act as the main object of the club is the promotion of the game of golf. The CIT(A) upheld the AO's decision to deny the exemption on the grounds that the exemption had not been granted, and thus the income would stand exempted only from the date the exemption is granted.

2. Applicability of the Principle of Mutuality:
The assessee contended that the principle of mutuality should apply to the income of the club, citing the Supreme Court's decision in the case of CIT vs. Bankipur Club Ltd. The CIT(A) and AO did not accept the principle of mutuality for certain incomes such as interest income from banks, guest charges, green fees, and surplus on tournaments. The Tribunal directed the AO to re-work the income of the assessee following the Tribunal's earlier decision for the assessment years 1990-91, 1993-94, and 1997-98.

3. Allowance of Expenses Claimed in the P&L Account:
The assessee requested the allowance of expenses claimed in the P&L account, arguing that the accounts were audited and properly maintained. The CIT(A) restricted the expenses to 50% of the total receipts from guest charges, interest on bank deposits, and green fees, and did not allow any expenses against the surplus on tournaments. The Tribunal set aside the order of the CIT(A) and directed the AO to follow the Tribunal's earlier decision.

4. Registration under Section 12A of the IT Act and its Effective Date:
The assessee argued that the registration under Section 12A should be effective from 1st April 1989, as the delay in filing the application was condoned by the CIT. The CIT(A) and AO held that the registration was effective from 1st April 1997. The Tribunal found that the CIT had condoned the delay in filing the application and thus the registration should be effective from 1st April 1989. The Tribunal rejected the CIT's clarification issued in January 2005, stating that it was beyond the CIT's jurisdiction and contrary to the earlier order.

5. Exemption under Sections 11 and 12 of the IT Act:
The assessee claimed exemption under Sections 11 and 12, arguing that the registration under Section 12A should apply retrospectively from 1st April 1989. The CIT(A) and AO denied the exemption, stating that the registration was effective from 1st April 1997. The Tribunal held that the assessee, having been granted registration under Section 12A from 1st April 1989, is entitled to claim exemption under Sections 11 and 12. The Tribunal set aside the orders of the lower authorities and restored the assessments back to the AO for fresh consideration in accordance with the law.

Conclusion:
The Tribunal allowed the appeals of the assessee, directing the AO to re-work the income and consider the exemption claims under Sections 11 and 12, following the Tribunal's earlier decisions and the effective date of registration under Section 12A as 1st April 1989. The entire assessment was restored to the AO for fresh consideration.