2019 (4) TMI 1240 - HC - Income Tax

Exemption u/s 11 - assessee is a mutual concern OR charitable institution - application of the funds as per Section 11 - Whether assessee club is not covered by the principle of mutuality thereby violating provisions of Section 13 which disentitles the trust from claiming exemption under Section 11 ? - sports activities and other recreation amenities are mainly for members and not charity - HELD THAT - The fact that the membership of the club is open to a section of the community doesn't mean that the club has been constituted for the advancement of any other object of general public utility - AO did not have an occasion to consider the application of the funds as per Section 11, since he had come to the conclusion that the Assessee does not fulfill the charitable purpose as defined in Section 2(15) . As relying on DIRECTOR OF INCOME TAX (EXEMPTION) VERSUS GOREGAON SPORTS CLUB 2012 (4) TMI 214 - BOMBAY HIGH COURT question regarding exemption u/s 11 would stand remitted to the Assessing Officer in determining whether the requirement of Section 11 of the Income Tax Act, having duly fulfilled as regard to the application of fund. Such exercise may be carried out expeditiously.

Summary

Issues:
1. Exemption under Section 11 of the Income Tax Act, 1961.
2. Classification of the assessee as a mutual concern or charitable institution.
3. Application of the principle of mutuality.
4. Compliance with Section 13 disentitling the trust from claiming exemption.
5. Relevant case law on income from sports activities and taxability of income from non-members.

Analysis:

Exemption under Section 11:
The Revenue challenged the ITAT's direction to grant exemption under Section 11, arguing that the AO's detailed reasoning was ignored. The Tribunal upheld the exemption, emphasizing the promotion of sports as an object of general public utility under Section 2(15). The Commissioner (Appeals) also supported this view, noting the facilities provided to the general public and not limited to club members.

Classification of the Assessee:
The Revenue contended that the Assessee was a mutual concern due to sports activities mainly benefiting members, not a charitable institution. However, the Tribunal and Commissioner (Appeals) found the Assessee to be a charitable institution promoting sports for the general public, not just members.

Application of the Principle of Mutuality:
The Tribunal held that the Assessee club was not covered by the principle of mutuality, violating Section 13 and disentitling the trust from claiming exemption under Section 11. However, the High Court determined that the Assessee was indeed a charitable institution, rendering questions related to mutuality irrelevant.

Compliance with Relevant Case Law:
The Tribunal's decision to grant relief to the Assessee on income from other sources was challenged by the Revenue, citing taxability of income earned from non-members. The High Court referred to the Supreme Court's decision in CIT Vs. Bankipur Club Ltd, emphasizing the applicability of the principle of mutuality in cases involving income from sports activities and non-members.

Conclusion:
The High Court remitted the proceedings back to the Assessing Officer to ensure compliance with Section 11 regarding the application of funds. It held that the Assessee was a charitable institution, dismissing questions related to mutuality and other issues. The appeal was allowed in part, with the remaining questions dismissed, thereby disposing of the appeal accordingly.