1988 (2) TMI 147 - AT - Income Tax

Issues Involved:

1. Whether the decision of the Pune Tribunal for the assessment year 1973-74 holds good for all subsequent years or at least for the assessment year 1973-74.
2. Whether the assessee trust is a members' club or a public trust.
3. Whether the objects of the assessee can be said to be of charitable nature.
4. Whether the assessee can get exemption on the ground that it is a mutual association.
5. Whether the entire income will be exempt on the ground of mutuality and if not, which income does not satisfy the test of mutuality.
6. Whether the disallowance of depreciation and addition to specific funds is proper.
7. Whether the disallowance of expenses for the assessment year 1979-80 is proper.

Issue-wise Detailed Analysis:

1. Decision of the Pune Tribunal for the Assessment Year 1973-74:

The Tribunal's order for the assessment year 1973-74 need not be followed for any of the years. The Tribunal had confirmed the Commissioner's order which only set aside the ITO's order asking him to make a fresh assessment. The Tribunal's order from the Commissioner's revisional order for the assessment year 1973-74 does not appear to be a full precedent to be followed in appellate proceedings.

2. Nature of the Assessee Trust:

The assessee trust is a public trust and not merely a members' club. The membership is open to the public, and the primary object is to foster and develop gymnastics, sports, games, and sportsmanship. The infrastructure provided by the Gymkhana, including the colony, was intended to support these activities.

3. Charitable Nature of the Assessee's Objects:

The objects (a) to (e) of the assessee are charitable in nature as they promote sports, games, gymnastics, and sportsmanship, which are considered objects of general public utility. The Circular from the CBDT dated 24-9-1984 supports this view, stating that the promotion of sports and games is a charitable purpose within the meaning of sec. 2(15).

4. Exemption on the Ground of Mutuality:

The assessee is entitled to exemption on the ground of mutuality for the income derived from activities involving its members. The principle of mutuality applies to the income from sports and games activities conducted for the members.

5. Extent of Income Exempt on the Ground of Mutuality:

The income from activities involving members, such as sports and games, is exempt on the ground of mutuality. However, income from outside sources, such as the marriage hall and colony panchayat, is not exempt on the ground of mutuality. The income from property, interest earned by Billiards section, and Vanita Vishram are taxable.

6. Disallowance of Depreciation and Addition to Specific Funds:

Depreciation is allowable only if the income is assessable under the head 'profits from the business.' In the present case, except for the income of the marriage hall, no other income can be said to be income from business. The increase in specific funds due to donations will be treated as income of the trust if it is held to be a charitable trust. If not, the nature of donations needs to be examined by the lower authorities.

7. Disallowance of Expenses for the Assessment Year 1979-80:

The disallowance of expenses for the assessment year 1979-80 is proper. The ITO disallowed the expenses on the ground that no evidence was furnished in support of these expenses. The CIT(A) should have confirmed the disallowance as the details furnished were not supported by verification of evidence.

Conclusion:

The appeals are partly allowed. The assessee trust is recognized as a public charitable trust entitled to exemption under the Income-tax Act, subject to the satisfaction of other conditions. The principle of mutuality applies to the income from activities involving members, but not to income from outside sources. The disallowance of depreciation and certain expenses is upheld.

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