2021 (5) TMI 62 - AT - Income Tax

Tribunal Grants Exemption under Section 11, Rejects Tax on Interest Income

The Tribunal upheld the CIT(A)'s decision, granting the assessee exemption under Section 11 of the Income Tax Act. The Tribunal found the assessee's ... Exemption u/s.11 - assessee club is not covered by the principle of mutuality thereby violating provisions of section 13 which disentitles the trust from claiming exemption u/s. 11 - HELD THAT:- The Hon'ble Bombay High Court in the case of DIT vs Goregaon Sports Club [2012 (4) TMI 214 - BOMBAY HIGH COURT] held that providing sports facilities to general public without restriction to any caste, creed, religion or profession is eligible for exemption u/s 11 of Income-tax Act, 1961. In this view of the matter and respectfully following the ratio of The Pransukhlal Mafatlal Hindu Swimming Bath & Boat Club Trust [2018 (7) TMI 2043 - ITAT MUMBAI] assessee is eligible for exemption u/s 11 of the Income-tax Act, 1961. - Decided in favour of assessee. Issues Involved:1. Exemption under Section 11 of the Income Tax Act.2. Applicability of the principle of mutuality.3. Consideration of interest income under the principle of mutuality.4. Relevance of previous case laws and judgments.5. Validity of the CIT(A)'s decision based on prior Tribunal decisions.6. Restoration of the Assessing Officer's (A.O.) order.Detailed Analysis:1. Exemption under Section 11 of the Income Tax Act:The primary issue was whether the assessee was entitled to exemption under Section 11 of the Income Tax Act. The A.O. had denied this exemption, arguing that the assessee's activities were in the nature of trade, commerce, or business, thus falling under the first proviso to Section 2(15) of the Act. The CIT(A) reversed this decision, following the Tribunal's earlier rulings in the assessee's favor for previous assessment years (A.Y. 2010-11 to A.Y. 2012-13).2. Applicability of the Principle of Mutuality:The A.O. contended that the assessee was a mutual association and not a charitable trust, thereby applying the principle of mutuality to tax receipts from non-members and other sources like interest and dividends. The CIT(A) and the Tribunal found that the assessee's objects and activities were charitable, aimed at promoting swimming and other sports, and thus did not fall under the principle of mutuality.3. Consideration of Interest Income Under the Principle of Mutuality:The A.O. argued that interest income earned from banks did not fall under the principle of mutuality and was taxable. The CIT(A) and the Tribunal disagreed, noting that the assessee's activities were charitable and that the interest income was incidental to its main objectives. The Tribunal referenced its previous decisions, which had consistently ruled in favor of the assessee's exemption under Section 11.4. Relevance of Previous Case Laws and Judgments:The Tribunal and CIT(A) relied heavily on prior judgments, including:- Bangalore Club vs. CIT & Anr.: This case was cited by the A.O. to argue against the principle of mutuality for interest income.- CIT vs. Common Effluent Treatment Plant (Thane-Belapur) Association: This case was also cited by the A.O. to argue that interest on surplus funds was not covered by the principle of mutuality.- Chembur Gymkhana and Dahisar Sports Foundation cases: These were cited by the assessee to support their claim for exemption under Section 11, arguing that their activities were charitable and not commercial.5. Validity of the CIT(A)'s Decision Based on Prior Tribunal Decisions:The CIT(A) based its decision on the Tribunal's rulings in the assessee's own case for previous years, which had consistently upheld the assessee's entitlement to exemption under Section 11. The Tribunal affirmed this approach, noting that the facts and issues for A.Y. 2013-14 were identical to those in earlier years.6. Restoration of the Assessing Officer's (A.O.) Order:The revenue sought to restore the A.O.'s order, which denied the exemption under Section 11 and taxed interest income and entrance fees. The Tribunal, however, found no merit in the A.O.'s findings, emphasizing that the assessee's activities were charitable and not commercial. The Tribunal upheld the CIT(A)'s decision to allow the exemption under Section 11.Conclusion:The Tribunal concluded that the assessee was entitled to exemption under Section 11 of the Income Tax Act, as its activities were charitable and not commercial. The principle of mutuality did not apply to the assessee's interest income, and the CIT(A)'s decision, based on prior Tribunal rulings, was upheld. Consequently, the revenue's appeal was dismissed.