2019 (10) TMI 647 - AT - Income Tax

Denying the claim of exemption to the assessee u/s 11 to section 13 - Whether assessee is carrying on the activity in the nature of trade, commerce or business or related activity in view of the proviso to section 2(15)? - taxability of one time membership fee - HELD THAT - Admittedly, the entrance fee received from members i.e. onetime fee from new members and same is being recorded under corpus fund is being in the nature of capital receipt and this issue has been decided favour of assessee in the case of CIT vs. W.I.A.A. Club Ltd. 1979 (1) TMI 5 - BOMBAY HIGH COURT held that entrance fee was a fee in the nature of return for vesting their right of membership and hence, the same would be in the nature of capital receipt not liable to tax. Similarly, the corpus donation taken towards corpus fund by the assessee and therefore eligible for the claim of exemption under section 11(1)(b) of the Act and hence, the corpus donation of ₹ 15,000/- cannot be taxed. Similarly, the entrance fee received by assessee being onetime membership fee of ₹ 5 lacs cannot be taxed. Hence, we hold that these two items are not taxable and assessee is allowable for exemption under section 11 of the Act. As we have already held in the first ground that the assessee is charitable institution and not hit by the provisions of section 2(15) of the Act i.e. the proviso, hence, we allow these grounds of assessee.

Summary

Issues:
1. Denial of exemption under sections 11 to 13 of the Income Tax Act based on the nature of activities conducted.
2. Taxability of one-time membership fee and amount paid towards corpus fund.

Issue 1: Denial of Exemption under Sections 11 to 13:
The appeal challenges the denial of exemption by the CIT(A) under sections 11 to 13 of the Income Tax Act, asserting that the activities do not constitute trade, commerce, or business. The Tribunal refers to the assessee's case for the AY 2011-12, where it was established that the objects of the assessee's trusts do not involve trade, commerce, or business activities. Specifically, the Tribunal noted that the Goa Fest event organized by the association aligns with its approved objects and does not amount to impermissible business activity. The surplus generated from the event was deemed to fall within the ambit of Section 2(15) of the Act, and since the assessee complied with Section 11 provisions, exemption was justified. Citing relevant legal precedents, including a decision by the Hon'ble Delhi High Court, the Tribunal upheld the assessee's claim for exemption, emphasizing the charitable nature of the activities and the absence of business motives.

Issue 2: Taxability of Membership Fee and Corpus Fund Amount:
The second set of issues pertains to the taxability of a one-time membership fee of ?5 lakhs and a corpus donation of ?15,000. The Tribunal ruled in favor of the assessee, considering the entrance fee as a capital receipt based on a precedent set by the Hon'ble Bombay High Court. The entrance fee was deemed a return for vesting membership rights and hence not subject to taxation. Similarly, the corpus donation towards the fund was held to be eligible for exemption under Section 11(1)(b) of the Act, and therefore not taxable. Given the charitable nature of the institution and its compliance with Section 2(15) provisions, the Tribunal allowed the assessee's appeal regarding the taxability of these amounts.

In conclusion, the Appellate Tribunal ITAT Mumbai, in its judgment, addressed the issues of denial of exemption under sections 11 to 13 and the taxability of specific receipts, ruling in favor of the assessee based on the charitable nature of the activities and compliance with relevant legal provisions and precedents. The judgment provides a detailed analysis of the factual and legal aspects involved in each issue, ensuring a comprehensive consideration of the relevant arguments and precedents.