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TMI Blog2016 (5) TMI 1179X X X X Extracts X X X X X X X X Extracts X X X X ..... fore must be rejected. Accordingly, we hold that the interest earned on fixed deposit with banks complying with the provisions of Section 11(5) is exempt and the proviso to Section 2(15) has no application to the facts of the assessee's case. In view of the above, we set aside the order of both the lower authorities and direct the AO to delete the addition of interest so made which is exempt u/s.11(5) of the Act and the proviso to Section 2(15) has no application to the facts of instant case. - Decided in favour of assessee - ITA No.4843/Mum/2012 - - - Dated:- 29-2-2016 - SHRI R.C.SHARMA, AM AND SHRI RAM LAL NEGI, JM For The Assessee : Shri Arvind Sonde For The Revenue : Chandra Vijay PER R.C.SHARMA (A.M): This is an appeal filed by the assessee against the order of CIT(A)-Mumbai, dated 29-6-2012, for the assessment year 2009-2010, in the matter of order passed u/s.143(3) of the I.T.Act. 2. In this appeal the assessee is aggrieved for taxing the bank interest as income from other sources. 3. Facts in brief are that the assessee is a Club with the principal object of providing a Golf Course and allied facilities for the promotion of sport of Golf. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itution was hit by the aforesaid proviso, then it would follow that such an entity does not exist for a 'charitable purpose. In view of the above, the income of the assessee was computed as under: Income from interest (as discussed above) Rs.2,17,92,167/- TOTAL INCOME Rs.2,17,92,167/- 5. By the impugned order CIT(A) confirmed the action of the AO, against which the assessee is in further appeal before us and has taken the following grounds:- 1. The learned CIT(Appeals) has erred in law and on the facts of the case in sustaining the order of the assessing officer holding that the assessee company is not carrying on any charitable purpose within the meaning of the proviso to section 2(15) of the Income Tax Act. 2. The learned CIT(Appeals) has erred in law and on the facts of the case in sustaining the order of the assessing officer denying the benefit of section 11(1)(a) and section 11(2) of the Income Tax Act. 6. At the outset Ld. AR drew our attention to the order of the Tribunal in assessee s own case passed in ITA No.319/Mum/2012, dated 30-5-2012, wherein the order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s have been considered on record and perused. We have also deliberated on judicial pronouncements referred by lower authorities in their respective orders as well as cited by learned AR and DR before us, in the context of factual metrics of the case. From the record we found that the assessee company is incorporated u/s. 25 of the Companies Act, 1956 and is having object of promoting golf. The assessee is registered as a charitable trust u/s. 12A of the Income Tax Act. The assessee company used to receive contribution from its members in the shape of entrance fees and monthly subscription. The assessee deposits entrance fees as a fixed deposit in schedule banks and earns interest thereon. The interest earned is spent towards the object of the company i.e. promoting golf. Even after earning interest income, the company has a deficit of ₹ 10.97 crores. Thus, the interest so earned from banks helps the company to reduce its losses. The relevant Assessment Year under consideration is A.Y.2009-10. The assessing officer has taxed interest received from banks to the tune of ₹ 2,17,92,167/- relying on the decision of the Hon ble Bombay High Court in the case of CIT Vs. Common E ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cts correctly' and had not given 'a decisive finding' in this regard. The findings of CIT(A) are contained in paragraph 3.5 to paragraph 4.1 in his order. 12. We found that the AO has taxed interest income on the following three reasonings :- (i) the proviso to Section 2( 15) applies, (ii) the registration under Section 12A has been withdrawn by the OIT (E), and (iii) the decision of the Bombay High Court in Common Effluent Treatment Plant (2010) 328 ITR 362 hold that the interest received from non members is not exempt under the principle of mutuality. First we take the first objection of AO to the effect that proviso to Section 2(15) applies to the case of assessee. As per our considered view, the proviso denies an entity carrying on 'advancement of any other objects of general public utility' the benefit of the regime prescribed under Sections 11 to 13 of the Act if the entity concerned is involved in carrying on any activity in the nature of trade, commerce or business or any activity of rendering any service in relation to any trade, commerce or business for a cess or fee or any consideration irrespective of the nature of use or application o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 17,92,167. Thus according to the AO compliance by a entity set up for charitable purpose with the provisions of section 11 (5) of the Act would result in its status of 'charitable purposes' being denied on account of the proviso to section 2( 15) of the Act. The direct consequence of such an interpretation would be that an otherwise 'charitable institution' would lose its status as a 'charitable institution' if it complied with section 11 (5) of the Act and if it did not comply with section 11 (5) of the Act it would be denied the benefit on the grounds that the entity has not complied with section 11 (5) of the Act. 14. Several decisions have considered and interpreted the scope, purpose and limits of the proviso to Section 2(15). In GS 1 India Vs. DGIT 360 ITR 138 (Del), the term trade, commerce or business was interpreted, and in that case even though the assessee was charging a fee having regard to the economic status of the beneficiaries, it was held that it was necessary for the operation and running expenses and the sustenance of charitable activities, that a fee could be charged. In the case of the assessee on the other hand, there is no fee whats ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of registration for exemption has been withdrawn has no legs to stand in view of the decision of the Tribunal in assessee s own case in ITA No.311/Mum/2012, dated 30-5-2012, wherein the order passed by DIT(E) u/s.12A(3) of the Act cancelling registration granted u/s.12AA was set aside and appeal of the assessee was allowed. 16. The last objection of AO was that decision of Hon ble Bombay High Court in the case of Common Effluent Treatment Plant 328 ITR 362 was applicable and the interest received from non-members is not exempt under the principle of mutuality. From the record we found that the assessee has in fact complied and applied the decision of the Bombay High Court in Common Effluent in so far as in its return, the interest earned on fixed deposit with banks has not been claimed as exempt on the grounds of mutuality. That is the reason why the assessee offered income of ₹ 2,17,92,167 as income in the computation of total income for Assessment Year 2009-10 and thereafter claimed various deductions under section 11 of the Act. Thus, the AO has wrongly applied the proposition of law laid down by Hon ble Bombay High Court to the facts of the assessee which are quite dis ..... X X X X Extracts X X X X X X X X Extracts X X X X
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