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2016 (8) TMI 466 - AT - Income TaxRevision u/s 263 - Eligibility of exemption u/s.11 - Held that - Income from earned from use of the club facilities by non members for purpose of playing cards and use of permit room, catering etc., was held to be hit by the proviso to Sec.2(15) of the Act. In the present case, we have already seen that use of club facility by non members is prohibited by the Rules of the Assessee. The use by outsiders of the facilities of the club is in connection with promotion of sports which is a charitable purpose and which is well within the main objects of the Assessee. Therefore the decision relied upon by the learned DR before us is not of any assistance to the case of the revenue. The principle of res judicata is no doubt not applicable in income tax proceedings, but the admitted position in the past assessments have not been shown by the CIT in the impugned order as unsustainable. The whole approach of the CIT in the impugned order has been on the basis of decision in the case of Bangalore Club (2013 (1) TMI 343 - SUPREME COURT ). As we have already explained, that decision is applicable only in respect of income earned by the Assessee from investments. We have already held that the income in respect of which principle of mutuality is not applicable, would nevertheless be entitled to exemption u/s.11 of the Act, subject to satisfaction of other conditions laid down in that section. We have also held that predominant purpose for which the Assessee exists is for charitable purpose and that the proviso to Sec.2(15) of the Act would not be applicable in the facts and circumstances of the present case, which we have discussed in the earlier paragraphs. Thus we hold that the order passed by the AO u/s.143(3) of the Act dated 25.3.2014 for AY 011-12, which was revised by the CIT u/s.263 of the Act by the impugned order was not erroneous and prejudicial to the interest of the revenue and therefore the exercise of jurisdiction by the CIT u/s.263 of the Act is held to be not sustainable. Consequently, the order u/s.263 of the Act is hereby quashed and the appeal of the Assessee is allowed.
Issues Involved:
1. Whether the order passed by the Assessing Officer (AO) under section 143(3) of the Income Tax Act, 1961, was erroneous and prejudicial to the interest of the revenue. 2. Whether the assessee is entitled to exemption under section 11 of the Income Tax Act, 1961. 3. Whether the assessee's income from activities such as bar, catering, and events is exempt under the principle of mutuality. 4. Whether the principle of mutuality and exemption under section 11 can coexist for the assessee. 5. The applicability of the proviso to section 2(15) of the Income Tax Act, 1961, to the assessee's activities. Detailed Analysis: 1. Erroneous and Prejudicial Order by AO: The CIT exercised powers under section 263 of the Income Tax Act, 1961, to revise the AO's order, deeming it erroneous and prejudicial to the interest of the revenue. The CIT noted that the assessee had income from trade/commercial activities exceeding ?10 lakhs, making exemption under section 11 inapplicable. The CIT issued a show-cause notice, and despite the assessee's detailed explanation, the CIT was not convinced and directed the AO to pass a revised order. 2. Entitlement to Exemption under Section 11: The assessee argued that it was incorporated under section 25 of the Companies Act, 1956, as a not-for-profit entity promoting sports and games, and thus, entitled to exemption under section 11. The assessee highlighted its history of assessments where exemption under section 11 was consistently granted, including the assessment years 2008-09 and 2009-10, where the CIT(A) upheld the exemption, and the revenue accepted these orders. 3. Income from Bar, Catering, and Events: The assessee contended that the income from bar, catering, and events was mutual activity, not involving any sale, as the dining room was for members only and not a public place. The CIT, however, noted that receipts from these activities were from members, their guests, and outsiders, thus not qualifying for mutuality. The CIT relied on the Supreme Court's judgment in Bangalore Club v. CIT, which held that income from third parties does not qualify for mutuality. 4. Coexistence of Mutuality and Exemption under Section 11: The CIT argued that there cannot be an interplay between section 11 and the doctrine of mutuality. However, the Tribunal disagreed, citing CBDT Circular No. 11 of 2008, which clarified that mutuality and charity can coexist. The Tribunal held that income not exempt under mutuality could still be exempt under section 11 if the conditions were met. 5. Applicability of Proviso to Section 2(15): The CIT applied the first and second provisos to section 2(15), arguing that the assessee's activities were commercial and exceeded ?10 lakhs, thus disqualifying it from being a charitable entity. The Tribunal, however, referred to the Delhi High Court's judgment in India Trade Promotion Organization vs. DGIT(Exemption), which emphasized examining the dominant objective of the institution. The Tribunal found that the assessee's dominant objective was charitable, focusing on promoting sports and games, and not profit-making. Conclusion: The Tribunal held that the AO's order was not erroneous or prejudicial to the interest of the revenue. The assessee's income from mutual activities was exempt under the principle of mutuality, and income from investments and organizing sports events was exempt under section 11. The Tribunal quashed the CIT's order under section 263, allowing the assessee's appeal. The decision emphasized that mutuality and exemption under section 11 can coexist and that the assessee's activities were predominantly charitable, not commercial.
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