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TMI Blog2018 (4) TMI 1267X X X X Extracts X X X X X X X X Extracts X X X X ..... ntention of the appellant that, as per CBDT circular 1 1/.2008 proviso to S.2(15) is not applicable to them, as they are charitable as well and held to be a mutual concern by the assessing officer. 3. The learned CIT{A) erred in law and on facts by confirming that allowing the guests accompanied by members was an activity in the nature of trade, commerce or business and the fees received form guests amounting to Rs. 35, 57,9607- was in the nature of business income, ignoring the facts that this activity is in furtherance to the objects of the trust and without any profit motive or even otherwise covered by principle of mutuality.. 4. The learned CIT{A) erred in law and on facts by confirming that learn to swim camps conducted by the appellant was an activity in the nature of trade, commerce or business and the fees received form learn to swim amounting to Rs. 5,10,136/- was in the nature of business income., ignoring the facts that this activity is in furtherance to the objects of the trust and without any profit motive. 5. Without prejudice to above grounds of appeal, the learned ClT{A) erred in law and on facts in not allowing deduction for the entire expenses incurred b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and as such, the Proviso was not applicable and since all the expenses were incurred for earning the income and also if the element of income had to be considered taxable, then the entire expense should be allowed against such income. The AO, after considering relevant submissions of the assessee rejected exemption claimed u/s 11 and computed income by applying the concept of mutuality and allowed benefit of mutuality to the extent of income received from its members; however, treated the activity of income generated from guests' fee and learn to swim fee as income generated from trade, commerce and business. Insofar as interest income, the AO held that even though the assessee has claimed the benefit of mutuality in respect of its core activity, yet, interest income earned from investments is taxable in view of law laid down by the Hon'ble Supreme Court in the case of Bangalore Club vs CIT & Ors in Civil Appeal No.124 of 2007 dated 14-01-2013 wherein it is held that income earned by the assessee from the banks would not fall within the ambit of the mutuality principle and will, therefore, exigible to income-tax in the hands of the assessee. 4. Aggrieved by the assessment order, a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... minal amount under 'guest fee and learned to swim fee' resulting into deficit. On perusal of the submissions of the assessee, it is noted that the working for the same involves assumptions and estimates and there is no exact working of the cost incurred has been provided by the assessee with reference to the services rendered by it to the members as well as non members. Further, there is no dispute that the assessee has rendered service for which the fee has been charged and hence, it is hit by the Proviso to section 2(15) and accordingly, the AO was right in denying exemption u/s 11 and computing income by applying the principle of mutuality. With these observations, the CIT(A) dismissed appeal filed by the assessee. Aggrieved by the order of CIT(A), the assessee is in appeal before us. 6. The Ld.AR for the assessee submitted that the Ld.CIT(A) erred in law and on facts confirming the order of the AO denying exemption u/s 11 of the Act, without appreciating the fact that the assessee is a charitable trust engaged in the activity of promotion of swimming. The Ld.AR further submitted that though the assessee's activities are limited to its members, such membership is open to genera ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es, perused the material available on record and gone through the orders of authorities below. The assessee is a public charitable trust registered under Bombay Public Trust Act, 1950 in the year 1953 with the object of promoting sports activities. The trust is operating a separate swimming pool for gents and ladies. The trust was registered u/s 12A of the Income-tax Act, 1961 and allowed the benefit of exemption u/s 11 upto AY 2008-09. The DIT(Exemption) withdrew registration granted u/s 12A by invoking provisions of section 12AA w.e.f. AY 2009-10 after newly inserted Proviso to section 21(15) on the ground that the assessee's activities are in the nature of trade, commerce or business, which is evident from the fact that the assessee is collecting fees from guests and learn to swim programmes which exceeds the limit prescribed in the Proviso to section 2(15) of the Act. The AO denied the benefit of exemption u/s 11, on the basis of withdrawal of registration granted earlier u/s 12A and also on the basis of Proviso to section 2(15). According to the AO, the assessee has collected fees from guests for rendering services which is in the nature of trade, commerce or business and whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the basis of collection of fees from non members on the allegation that the activities of the assessee are in the nature of trade, commerce or business which is hit by provisions to section 2(15) of the Act. The AOs action is based on the fact that the DIT (Exemption) has withdrawn registration granted u/s 12A of the Income-tax Act, 1961. The registration granted u/s 12A has been restored by the ITAT with the observations that there is no recording of satisfaction by the AO that the activities of the assessee are not genuine and are not being carried out in accordance with the objects of the trust. The assessee is continued to enjoy the benefit of registration 12A. Once the assessee continued to enjoy the benefit of registration, the benefit of exemption u/s 11 can be denied only when the objects of the assessee trust are not charitable in nature and its activities are not carried out in accordance with its objects. The Proviso to section 2(15) of the Income-tax Act is applicable to a case where the trusts are carrying out its activities on commercial basis with an intention to earn profit. In this case, on perusal of the details available on record, there is no finding from the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... granted under section 12A. Thus, the grant of registration under section 12A to the assessee pre-supposes that the objects of the assessee are for charitable purpose. * In other words, the assessee is a charitable trust. The Assessing Officer at the time of completion of assessment has not pointed out any change in the object of the assessee trust. As it appears, relying upon the assessment order passed in case of assessee for the assessment year 2007-08, the Assessing Officer concluded that the assessee is mutual concern, as it does not treat the members and non-members at par. He has also stated that since it extends benefit to the persons specified under section 13(l)(c), the conditions of the said provisions have been violated, hence, the assessee is not eligible for exemption under section 11. * Thus, in sum and substance, the Assessing Officer has denied assessee's claim of exemption under section 11 by treating it as a mutual concern of the members. However, this is not the first time the revenue has treated the assessee as a mutual concern while denying claim of exemption under section 11. The dispute arose for the first time in assessment years 1996-97 and contin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with the view of the Tribunal and the High Court in assessee's own case it has to be held that the assessee is entitled to exemption under section 11 as a charitable trust. [Para 8] * At this stage, it is necessary to deal with the submissions of the revenue that in view of the first proviso to section 2(15), as it existed in the statute book at the relevant time, the assessee cannot be considered to be existing for charitable purpose. Firstly, the Assessing Officer in the assessment order, has not recorded any factual finding that the assessee has derived income by engaging itself in any trade, business or commercial activity. The Assessing Officer has proceeded on the footing that the assessee being a mutual concern, the receipts derived from the members for user of facilities is not taxable, whereas, receipts from non-members for user or facilities is taxable. In this context, the Assessing Officer has passed the impugned assessment, order, thus, it has to be assumed that the Assessing Officer while completing the assessment was conscious of the first proviso to section 2(15), which has come to the statute book by that time. In spite of that the Assessing Officer has not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e law applies to all fours to the present case. Here also the authorities below have drawn adverse inference on the ground that amount received from the coaching camp being less than the expenditure incurred. Similarly, in the case of ICAI v. DGIT(E) [20131 358 ITR 91/217 Taxman 152/35 taxmann.com 140 (Delhi), the Hon'ble Delhi High Court has expounded as under: (a) There was no finding that the predominant object in doing their activities was to generate profits. (b) These activities were ancillary activities to the main activity/ object. (c) The surplus generated out of these activities is utilised towards the infrastructure development and other student/ members related activities. (d) Section 2 (15) defines the term "charitable purpose". Therefore, while construing the term "business" for the said section, the object and purpose of the section has to be kept in mind. We do not think that a very broad and extended definition of the term "business" is intended for the purpose of interpreting and applying the first proviso to section 2 (15) of the Act to include any transaction for a fee or money. An activity would be considered "business" if it is undertaken with ..... X X X X Extracts X X X X X X X X Extracts X X X X
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