2018 (7) TMI 2043 - AT - Income Tax

Charitable trust promoting sports qualifies for tax exemption under Section 11

The Tribunal held that the assessee, a charitable trust promoting swimming and providing sports facilities to the general public, was eligible for ... Charitable purpose - providing sports facilities to the general public - Exemption under section 11 - eligibility of a charitable trust - First proviso to section 2(15) - requirement of factual finding that assessee derived income by engaging in trade, business or commercial activity - Business/commercial activity test - presence of profit motive - Mutuality doctrine - applicability where members do not represent only private family group - Precedential weight of earlier Tribunal and High Court decisions in assessee's own caseCharitable purpose - providing sports facilities to the general public - Exemption under section 11 - eligibility of a charitable trust - Precedential weight of earlier Tribunal and High Court decisions in assessee's own case - Assessee is entitled to exemption under section 11 as a charitable trust providing sports facilities - HELD THAT: - The Tribunal, following its earlier decision in the assessee's own case and relevant High Court authority, held that provision of sports facilities to the general public without restriction falls within the definition of charitable purpose and sustains exemption under section 11. The authorities below had not demonstrated any change in the objects of the trust for the year under appeal; the trust continued to promote swimming and collect only nominal fees while incurring deficits from core activities. Prior findings that the trust's objects constitute general public utility and that members represent a cross-section of the public were treated as binding and persuasive. On this basis the Tribunal concluded that the assessee's activities retain charitable character and are entitled to the exemption claimed under section 11. [Paras 6, 7]Allow exemption under section 11; assessee is a charitable trust engaged in providing sports facilities to the general public.First proviso to section 2(15) - requirement of factual finding that assessee derived income by engaging in trade, business or commercial activity - Business/commercial activity test - presence of profit motive - Mutuality doctrine - applicability where members do not represent only private family group - First proviso to section 2(15) is not attracted in absence of any factual finding that the trust derived income from trade, business or commercial activity with profit motive - HELD THAT: - The Tribunal observed that invocation of the first proviso to section 2(15) requires the Assessing Officer to record a factual finding that the assessee derived income by engaging in trade, business or commercial activities. In the assessment impugned the AO treated the trust as a mutual concern and taxed certain receipts but did not make any finding of a change in objects or that the activities were undertaken with a profit motive. Given absence of such factual determination and in light of prior Tribunal and High Court findings that the trust's objects are charitable and for public utility, the Tribunal held that the proviso could not be applied to deny exemption. [Paras 6]First proviso to section 2(15) does not apply; denial of exemption on that ground is set aside.Final Conclusion: Appeal allowed; the assessee for A.Y.2012-13 is held to be a charitable trust providing sports facilities to the public and is entitled to exemption under section 11; the first proviso to section 2(15) was not attracted in the absence of any finding of business/commercial activity with profit motive. Issues Involved:1. Applicability of the proviso to Section 2(15) of the Income-tax Act.2. Eligibility for exemption under Section 11 of the Income-tax Act.Issue-wise Detailed Analysis:1. Applicability of the proviso to Section 2(15) of the Income-tax Act:The primary grievance of the assessee was the confirmation by the CIT(A) of the AO's decision that the proviso to Section 2(15) of the Income-tax Act was applicable, thereby declining the benefit of exemption under Section 11. The Tribunal noted that in the assessee’s own case for A.Y. 2009-10, under similar facts and circumstances, the issue was decided in favor of the assessee. The Tribunal observed that providing sports facilities to the general public without restriction to any caste, creed, religion, or profession squarely falls within the definition of 'charitable purpose' as defined under Section 2(15) of the Income-tax Act, 1961. Consequently, the assessee was deemed eligible for exemption under Section 11.The Tribunal further noted that the assessee had deficits from its core activity of promoting swimming for all the years and that the collections from its members were less than the amount spent for its objectives. The income from investments was the only source covering these deficits. Therefore, the Tribunal concluded that there was no merit in the AO's finding that the assessee was carrying out its activities on commercial lines with an intention to earn profit.2. Eligibility for exemption under Section 11 of the Income-tax Act:The Tribunal examined the case laws relied upon by the assessee, such as the ITAT, Mumbai Bench's decision in the case of Chembur Gymkhana. It was held that for invoking the First Proviso to section 2(15), it is necessary for the AO to provide a factual finding that the assessee derived income by engaging in trade, business, or commercial activity. The Tribunal emphasized that the assessee was registered as a charitable trust under section 12A and that the objects of the trust were for charitable purposes. The AO had not pointed out any change in the object of the assessee trust.The Tribunal also referred to the decision in the case of Dahisar Sports Foundation vs ITO, where it was held that the main object of the trust was the promotion of sports and games. The collection of certain charges from coaching camps meant for the promotion of sports and games did not alter its character of being charitable. The Tribunal reiterated that the object or purpose of the trust was charitable and that collecting charges did not change this character.Additionally, the Tribunal cited the Hon'ble Bombay High Court's decision in the case of DIT vs Goregaon Sports Club, which held that providing sports facilities to the general public without restriction to any caste, creed, religion, or profession is eligible for exemption under Section 11 of the Income-tax Act, 1961.Conclusion:The Tribunal concluded that the facts and circumstances during the year under consideration were the same as in the earlier years. Respectfully following the order of the Tribunal in the assessee’s own case, it was held that there was no merit in the decline of exemption under Section 11. Accordingly, the order of the lower authorities was set aside, and the assessee was allowed exemption under Section 11. The appeal filed by the assessee was allowed, and the order was pronounced in the open court on 30/07/2018.