9911796707
TMI Blog2009 (8) TMI 839X X X X Extracts X X X X X X X X Extracts X X X X ..... uting the total income of your petitioners at Rs. 13,64,110 by denying exemption under section 11 and in holding that your petitioners are a mutual concern." 2. Further, the assessee also filed an additional ground before us and it reads that "The learned CIT(A) has erred in upholding the validity of intention of reassessment proceedings by the Assessing Officer." Considering the fact that the ground raises a legal issue, which does not call for any investigation on facts, the same is admitted and adjudicated in the following paragraphs. Before going into the adjudication of the grounds, brief facts of the case are given as under. 3. The facts in brief are that the assessee is a Trust registered under Bombay Public Trust (BPT) Act, 1950 in February 1975 and also under section 12A of the Income-tax Act in April 1981. Assessee did not file the return of income for the assessment years 1996-97 and 1997-98 and also for the earlier years. Assessee filed the returns for assessment years 1998-99, 1999-2000 and 2000-01 on 30-3-2001. This led to issue of notice under section 148 for assessment year 1996-97 and there was no immediate compliance from the assessee to the said notice. Finally ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ii) Providing free coaching; (iv) Providing halls to Government during selection and other functions; (v) Honorary Membership to eminent sportsmen; (vi) Allowing educational institutions to avail the facilities free of cost; (vii) Sports facilities are provided to physically and handicapped children free of cost; (viii) Holding of Major Tournaments etc. All these activities are named to demonstrate that the objects of the club are to promote or encourage and the advancement of the sports, games and athletic activities and other social and cultural activities and they are charitable in nature for the general public utility. 5. Assessing Officer considered the above submissions and he is of the opinion that the assessee restricts the benefits of the club only to the club members, their family and their guests and held that the club is not meant for general public. His finding in this regard is mentioned on page 3 of the assessment order and it reads that "The only relaxation the club makes is that the senior citizens are permitted to enter the club without identity card for jogging purpose. Other than that, the assessee has not carried out any activity which can be said to be of cha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent, the assessee filed an appeal before the CIT(A). During the first appellate proceedings, the assessee questioned the validity of the reopening proceedings and denial of exemption under sections 11 to 13 of the Income-tax Act. Assessee filed the written submissions on these issues:- (a)Briefly, regarding validity of the notice under section 148, the assessee objected to the basis for issue of notice and argued that the assessee is a charitable organisation and there is no issue of escapement of the concealed income as whole of the trust's income is tax exempt under section 11 of the Act. As per the assessee, once the club is registered under section 12A of the Income-tax Act the income of the club is exempt from income-tax and Assessing Officer cannot disturb the same during the assessment proceedings. (b)Regarding charitable status of the assessee, it is mentioned that the assessee club is for general public utility and relied on the objects of the club. He also mentioned that the object of the club is (a) to provide as far as possible for general public utility grounds and buildings, convenient, desirable or necessary for games and sports generally both indoor and outdoor an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... registration under section 12A. Further, the CIT(A) held that registration of the trust under section 12A does not mean that Assessing Officer is precluded from looking into details coming to the conclusion relating to grant of exemption or otherwise. The CIT(A) held that the claim of the assessee cannot be allowed merely on the reason that assessee is registered under BPT Act and under section 12A of the Income-tax Act. (b)Elaborating on the provisions of section 2(15) of the Income-tax Act relating to the definition of 'charitable purpose', in general, and the expression 'general public utility', in particular, the CIT(A) is of the opinion that the said charitable activities for the assessee's case are not directed towards general public but only towards itself i.e., its members and the relatives and guests. In this regard, the CIT(A) relied on the Apex Court judgment in the case of Ahmedabad Rana Cast Association v. CIT [1971] 82 ITR 704. After analysing the membership structure and after analysing the minutes of the meetings of the AGM and the Managing Committee, the CIT(A) held that the assessee has not carried out any charitable work for the general public with exception to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accepting the above arguments of the assessee's counsel, the additional ground is admitted. After the admission of the said additional ground, in connection with the issue of the validity of notice under section 148 of the Act, the learned Counsel made various arguments and they are that: (1) the notice is bad in law as the proceedings are initiated only for verification only, (2) the Apex Court judgment in the case of Bankipur Club Ltd. (supra) is not applicable to the facts of the case of the assessee, and (3) having issued the notice for making a particular additions, Assessing Officer is not allowed to make addition on other accounts, for which the reasons were not recorded as held by the Bombay High Court judgment in the case of Hindustan Lever Ltd. v. Asstt. CIT [2004] 268 ITR 332 . The Counsel referred to the certain portions of the judgment that "it is needless to mention that reasons are required to be read as they were recorded by the Assessing Officer. No substitution or deletion is permissible. No additions can be made to those reasons. No inference can be allowed to be drawn based on reasons not recorded". He further mentioned that "the reasons recorded by the Assessin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the issue of the validity of the notice under section 148, we find it absolutely necessary to examine minutely the 'reasons recorded by the Assessing Officer' which are reproduced in Para 3 of this order. From the expressions used in the said reasons such as 'income derived from the mutual activities is only exempt', 'income from the non-members', 'other income derived by the club is taxable', 'assessee has income from interest and club house activity amounting to Rs. 19,24,225', it is evident that the Assessing Officer is under the belief that the club has taxable income over and above the prescribed limits and the same has escaped assessment. His opinion that the club is meant only for its members and their guest and not for public is also obvious. The 'verification purpose' is only limited to for the purposes of segregating the income of the 'mutual activity' of the members of the club from income of the 'other activity' of the club relatable to the non-members. Further, it is noticed from the records that there is no dispute on ( i) the non-filing of the return of income for the assessment year 1996-97; (ii) the assessee's income for this assessment year exceeded the taxable l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r opinion the same is misplaced for the reason that the said verification is aimed as qualifying the extent of concealment. Therefore, we differ with this part of the argument of the Counsel for the assessee. Under these circumstances, in our opinion, the reasons recorded by the Assessing Officer are in order and issue of notice under section 148 is not bad in law. The decision of the CIT(A) in this regard does not call for any interference. Accordingly, additional ground filed in this regard is dismissed. 14. Second issue relates to the denial of the exemption under section 11 of the Income-tax Act and holding the assessee as a mutual concern against the assessee's claim of charitable trust. Relevant facts are already narrated in the opening paragraphs of this order. Therefore, the same are not reproduced to avoid repetition and however, the arguments of the parties in this regard are as follows :- A.Essentially, the counsel for assessee reiterated all the arguments, which were put forwarded before the revenue authorities during the assessment and first appellate proceedings. Further, Learned Counsel for the assessee strongly relied on the aims and objects of the club, which is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case, the Counsel relied on the decision of the Cochin Bench of the Tribunal in the case of Calicut Islamic Cultural Society v. Asstt. CIT [2009] 28 SOT 148 for the proposition that the registration granted under section 12A was not mere an empty formality as same is an essential requirement for claiming the exemption of section 11 of the Income-tax Act. He mentioned that the said decision was taken after considering the Apex Court's finding in the case of Surat City Gymkhana (supra). 15. On the other hand, the Learned DR for revenue argued stating that the assessee did not do anything charitable in nature in order to qualify the status of the charitable institution. Referring the meagre amounts of the expenditure and income spent on account of the sport related activities, the DR stated that assessee did nothing substantial to qualify for the status club engaged in the sports & games related activities. What all that the club did during the year is mere catering to the needs of the members of the club in matters of eating, drinking etc. and they are exclusively for the mutual benefit of the members at large. Referring to the judgments cited by the Counsel, the DR mentioned that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s to the members of the club, which is a characte-ristic feature of a mutual organisation. Regarding the activities enlisted above by the assessee, the revenue considers all of them as tall-claims and factually, the assessee did not carry out any activity which can be described as charitable nature. As per the revenue, the club did nothing extraordinary to qualify the charitable nature, which is not done by other agencies considered mutual organisations. As per the revenue, under the circumstances of the diversion of funds to the building funds and trading on alcohol to the members and their guest, the club does not become charitable entity and such activities are not of general public utility. Sports activities are not the dominant activity of the club. To become entitled for exemption under section 11 of the Act, the trust must exist wholly for charitable purposes. 17. We have considered the above rival views and also examined the annual accounts of trust which are placed at pages 22 to 44 of the paper book. For deciding the issue whether the assessee is the charitable organisation or the mutual organisation, the following aspects require detailed analysis and they are: (A) the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cope of the expression 'general public utility', it is relevant to mention that this phrase has two shades i.e., what constitutes the 'general public' and the 'general public utility'. In this regard, there is lot of information in the form of judicial pronouncements. Insofar as 'general public' is concerned, it is a decided issue that, where a section of people alone are benefited, the requirements of said expression are met and the judgment in the case of CIT v. Andhra Pradesh Police Welfare Society [1984] 148 ITR 287 (AP) is relevant. The AP High Court ruled that "to serve a charitable purpose, it is not necessary that the object should be to benefit the whole of the mankind or all persons living in a particular country or province. It is sufficient if the intention is to benefit a section of the public as distinguished from specified individuals (page 295)". On the issue of 'general public utility', the Bombay High Court held that in the case of CIT v. Breach Candy Swimming Bath Trust [1955] 27 ITR 279, it is held that the object of setting up swimming pool for European public satisfies the condition of general public as well as the charitable purpose. Thus, the general public ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... providing alcohol to the members and their guests and (iii) sports activities are very marginal and negligible. A.Regarding the arguments on the issue at (i) above, it is relevant to mention that the club has variety of members namely, old and young, men and women, rural and metropolitan, corporate and non-corporate, public servants and private, permanent and temporary, service membership or otherwise etc. The club is not meant for a group of private families. In our opinion, such variety of members represents a cross section of the public at large. Under these circumstances, it cannot be held that club's object of general public is faulty. On the issue of restriction on the membership admission, it is a decided issue and so long as the members' admission into the club is not arbitrary, the committee's discretion to restrict the membership does not interfere with the object of general public utility. It is so held in the case of Andhra Pradesh Riding Club (supra) and the relevant paragraphs at page 400 read as under. "The immediate question, therefore, is whether the club restricted its membership only to a specified class of the public. It is true that there is a discretion give ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... venue has not gathered any evidences to demonstrate that the sports and games related activities and their promotion for the members of the club are not in the nature of 'general public utility'. It is also relevant to mention that the clause 98 of the trust provides for the transfer of the assets of the trust on dissolution to the entity with similar objects i.e., charitable objects. Therefore, we find no reason to deny the benefits available to any club for charitable purpose to the assessee. B.Regarding the other issue at (ii) above that the activities of the club are essentially not for advancement of the sport & games activities and it is merely for providing eatable and providing alcohol to the members and their guests, we have examined the settled position of law on the subject. As already stated, the object of constructing a swimming pool for European public, object of advancement or promotion of trade, commerce and industry which results into the economic prosperity, object of participation in equestrian games by discerning sections of the public constitutes an object of 'general public utility'. Pages 5 to 29 of the paper book have been perused and found they demonstrate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent year 1996-97 reflect that the value of the total assets of the assessee is Rs. 8.59 lakhs. Total gross income is Rs. 19,24,225 and source of the income is interest income from the FDRs. Out of the same, Rs. 10.27 lakhs was diverted towards various funds and the balance was spent on sports activities and the various overheads. The expenditure on account of sports activities is above Rs. 66,000. Further, as mentioned above, the assessee spent Rs. 52,00,588 during the assessment year 1996-97 and Rs. 96,15,780 for the assessment year 1997-98 (page 11 of the paper book) on the construction of swimming pool. The above figures demonstrate that the assessee is factually engaged in the objects of the Trust. Therefore, it cannot be said that the club has not spent for the object of sport's activities of the club. Thus, relevant argument of the revenue is not approved. D.Whether the assessee is mutual concern or not is the other limb of the ground. It is obvious from the above discussion that the assessee, with the trust's object of providing for land and building as well as for promotion or management of social intercourse or athletic sports and cultural and educational activities for i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the trust's object, (iii) taxability of the interest income on FDRs and NSCs. These issues are identical to the ones raised, discussed and adjudicated in connection with the said appeal ITA No. 1567/Mum./2006. Thus, our decisions given in the said appeal are equally relevant for the present appeal. Accordingly, the additional ground raised on the issue of validity of notice is dismissed. The other grounds relating to charitable nature of the objects and the status of the club as charitable organisation, which is eligible for exemption under section 11 of the Act in respect of the income disclosed by the assessee, are allowed. 22. In the result, the appeal of the assessee is partly allowed. ITA No. 3899/Mum./2006 - Revenue's Appeal - Assessment year : 1997-98 23. The only ground in this appeal of revenue refers to the finding of the CIT(A) on the issue of the taxability of the sectional income and other income from the non-members. Our findings given in connection with the assessee's appeal vide ITA No. 1567/Mum./2006 on the issue of the status of the assessee club as a charitable organisation, and not the mutual organisation, answers the present ground of this appeal. Accord ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
