TaxTMI 
TaxTMI 
2025 (5) TMI 683
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....tances of the case and in law, the Ld. CIT(A) was justified in directing the AO to allow the benefit of exemption u/s 11 of the I.T. Act ignoring the fact that the objects of assessee falls under the category of "advancement of any other object of general public utility"? 2. Whether, on the facts and in the circumstances of the case and in law, the Ld. CIT(A) was justified in directing the AO to allow the benefit of exemption u/s 11 of the Act ignoring the fact that once the assessee is hit by the proviso to section 2(15) of the I.T. Act, its objects are no more charitable objects. 3. Whether on the facts and circumstances of the case and in law and in light of the law laid down by Hon'ble Supreme Court in the case of New Noble Educational Society vs Chief Commissioner of Income Tax [2022] 143 taxmann.com 276 (SC) and in Civil Appeal No.21762 of 2017 in various batch of appeals and SLP's [lead case ACIT (Exemptions) Vs. Ahmedabad Urban Development Authority [2022] 143 taxmann.com 278 (SC)], the Ld. CIT(A) erred in not appreciating that even if the activities of the assessee are held to be covered under residuary part of section 2(15) as "advancement of any....
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....he claim of the assessee for exemption u/s. 11 of the Income Tax Act, 1961 ignoring that the assessee is basically an organization of members and therefore is a mutual organization with commercial objectives and hence no charitable benefits to the society ensure as such?" 3. In both the appeals, the issue involved is common. From the perusal of grounds of appeal, the core issue arising for consideration of the Tribunal is whether the proviso to section 2(15) of the Act, dis- entitles the assessee from availing exemption u/s. 11 and 12 despite it being registered u/s. 12A. 4. Before we delve on the issue raised before us, it would be appropriate to take note of the historical back ground of the assessee and its activities. Assessee was formed as a public charitable trust in the year 1970 with the following main objects: i. To construct, establish, operate and maintain swimming pools and other sports facilities for the benefit of persons of all communities and castes in such manner and subject to such terms and conditions as the trustees may decide; ii. To promote aquatic sports and pastimes of all kinds including swimming, diving, water skiing, boating, fishi....
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....ed 29.09.1982, passed in ITA no.1918/Bom/1981. Assessee's claim of exemption under section 11 of the Act was again rejected by the Assessing Officer in the Assessment Year 1985-86 and 1991-92. While deciding assessee's appeal in ITA no.5576/Bom/1993 and ITA no.6413/Bom/1994, dated 23.08.2001, the Coordinate Bench relying upon the decision of Hon'ble Special Bench decision in Breach Candy Swimming Bath Club held that assessee's income from Swimming Pool, other sports activities, Bar and Restaurants, etc. are from the activities carried out towards the object of the assessee, except, income from facilities provided for playing Cards for stakes. Thus, the Coordinate Bench ultimately concluded that the assessee is entitled for exemption under section 11 of the Act in respect of all of its income except the income from providing facilities of play cards. Similar view was expressed by the Coordinate Bench in the subsequent assessment years. Decision of the Coordinate Bench in Assessment Years 2004-05, 2006-07 and 2007-08, have also been upheld by the Hon'ble Jurisdictional High Court of Bombay, wherein appeals filed by the Revenue were dismissed. Even the SLP filed by the Revenue....
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....e activity of providing facilities for playing Cards at stake, all other income from Swimming Pool and other sport activities, Bar and Restaurants, etc., will be from the activities of carrying out the object of general public utility, hence, entitled exemption under section 11 of the Act. v. It is also relevant to observe, the decision of the Tribunal allowing assessee's claim of exemption under section 11 of the Act in the assessment years 2004- 05, 2006-07 and 2007-08, have also been upheld by the Hon'ble Jurisdictional High Court. vi. In fact, while deciding Revenue's appeal for the assessment year 2007-08 in Income Tax Appeal no. 200 of 2013, dated 19th January 2015, the Hon'ble Jurisdictional High Court expressed its displeasure with the approach of the Department in repeatedly filing appeals when the issue has been decided in favour of the assessee not only by the Tribunal, but by the Hon'ble Jurisdictional High Court in the preceding assessment years. years. vii. There is no dispute between the parties that the objects on the basis of which the assessee trust was created remained unchanged even in the impugned assessment year. ....
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....ii. In various decisions cited before us, the Tribunal has also held that income derived from sale of liquor, food stuff, etc., cannot be considered to be commercial activity without considering the predominant object of the assessee. It is not the case of the Department that the assessee is carrying on any business or commercial activity in organized manner. Rather the sale of liquor, food stuff, letting of rooms, etc., is incidental to its main activity of constructing, maintaining and providing facilities of swimming pool and other sports to general public at large. 4.5. It is important to note the findings of the Coordinate Bench in the Order for AY 2009-10 to 2013-14, wherein it is noted that "It is not the case of the Department that the assessee is carrying on any business or commercial activity in organized manner. Rather the sale of liquor, food stuff, letting of rooms, etc., is incidental to its main activity of constructing, maintaining and providing facilities of swimming pool and other sports to general public at large." Even in the current year the Assessing Officer has not disputed that the activities are not commercial and in fact held that they satisfy the test ....
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....ject falling in the category of "Object of General Public Utility (GPU)" holding it to be charitable in nature then, is it still to be seen whether the object and activity for which it has been granted registration, has any element of trade, commerce or business. 5.3. Before deciding this issue, it is incumbent to understand whether the activities of the assessee for which it has been granted registration u/s. 12A per se falls in the category of carrying out any activity in the nature of trade, commerce or business as contained in proviso to section 2(15), since only when assessee carries any other activity which falls in such nature of trade, commerce or business then, it would trigger proviso to section 2(15). 6. From the submission by the assessee in its written note, details of activities pursued by the assessee for year under consideration, including financial statistics are as under: i. The benefit of its sports facilities is also available to non-members as the assessee hosts camps with multiple batches in summer and autumn vacations. It also hosts competitions in various formats including the Inter-Club Swim meet. The schools in its locality use the swimming ....
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....lishment expenses of Rs. 2,19,29,503/- which has not been allocated to the said activities in the working. If the said expenditure is also allocated, then, the deficit would only further increase. A schedule providing the working of expenditure incurred for the aforesaid activities is at pages 34 and 35 of the Factual Paper book and Schedule relating to establishment expenses is at page 36 thereof all of which are also extracted below: 6.1. Fees/charges collected by the assessee, among other things, in respect of its sports activities as furnished in its written submission is as under: SWIMMING POOL Rate Period Member Nil Cap 10 per session Playing Member 200 per month Towel 10 each Soap 5 each GYMNASIUM Rate Period Members - 60 to 70 years 50% Members - Above 70 years Free Member - Gents & Ladies 40 per entry Maximum 400 per month SQUASH Rate Period Member 40 per 1/2 hrs Maximum 400 per month Marker fees 25 per 1/2 hrs Playing Member 200 per month BRIDGE ROOM Rate Period ....
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.... of the sports activities. To have refreshment and drinks after playing a sport is a common phenomenon. Further, its infrastructure, coaches and trainers as well as quite a few of its sportsmen are of an international repute. Hence, it is essential for it to provide the said facilities within the club. In fact, this position also stands accepted by the appellate authorities including the Tribunal in the earlier years, already noted in earlier paragraphs. 6.7. With respect to the facility for playing cards, it is submitted that the Tribunal by its consolidated appellate order dated 07.08.2019 for the Assessment Years 2009-10 to 2013-14 had remanded this issue to the ld. Assessing Officer to re-consider the assessee's claim for exemption under section 11 of the Act with respect to this activity. By order dated 19.07.2024 giving effect to the said appellate order of the Tribunal, ld. Assessing Officer has accepted the assessee's claim for exemption in respect of the fees collected for this facility. Observations of ld. Assessing Officer in the said order while accepting the claim are extracted below: "On perusal of the submissions made by the assessee and alter fac....
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....e reading of the proviso noted above, it carves out an exception in the sense that advancement of any other object of general public utility shall not be regarded as charitable purpose in the following situations: i. if it involves any activity in the nature of trade, commerce or business. ii. or it involves any activity of rendering of any service in relation to any trade, commerce or business, iii. the activities in item (i) and (ii) are for a fee or cess or any other consideration. 8.2. Meaning of the words 'trade', 'commerce' and "business' have to be understood in their ordinary sense and as known in common parlance. The word 'trade' would mean exchange of goods for goods or for money. The word 'business', though, has been defined under section 2(13) of the Act, however, is generic. 'Business' in its ordinary sense would mean an occupation, or profession which occupies time, attention or labour of a person and is generally undertaken with a profit motive. The word 'commerce' again is of same connotation as 'trade' or 'business'. 8.3. As could be seen from the main objects of th....
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.... of trade, commerce or business or b) any activity of rendering of any service in relation to any trade, commerce or business, for a fee or cess or any other consideration, irrespective of the nature of use or application of the income from such activity, or the retention of such income, by the concerned entity. This amendment will take effect from the 1st day of April, 2009 and will accordingly apply in relation to the assessment year 2009-10 and subsequent assessment years." 9.1. From the reading of above explanatory notes, it transpires that it was brought to the statute keeping in view the fact that in the garb of advancement of object of general public utility, many institutions/organizations are actually engaged in income generating commercial activities. Therefore, to prevent misuse of the exemption provision in the statute intended for genuine charitable institutions/organizations, the proviso was introduced. 10. It is further observed that as per the proviso to section 2(15), activity of trade, commerce or business or services related thereto, must be for a cess or fee or any other consideration. In the facts of the present case, admittedly....
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....72. Yet another manner of looking at the definition together with sections 10(23) and 11 is that for achieving a general public utility object, if the charity involves itself in activities, that entail charging amounts only at cost or marginal mark up over cost, and also derive some profit, the prohibition against carrying on business or service relating to business is not attracted - if the quantum of such profits do not exceed 20% of its overall receipts. 173. It may be useful to conclude this section on interpretation with some illustrations. The example of Gandhi Peace Foundation disseminating Mahatma Gandhi's philosophy (in Surat Art Silk) through museums and exhibitions and publishing his works, for nominal cost, ipso facto is not business. Likewise, providing access to low-cost hostels to weaker segments of society, where the fee or charges recovered cover the costs (including administrative expenditure) plus nominal mark up; or renting marriage halls for low amounts, again with a fee meant to cover costs; or blood bank services, again with fee to cover costs, are not activities in the nature of business. Yet, when the entity concerned charges substantial amount....
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.... or significantly higher). If it is found that they are in the nature of "trade, commerce or business", then it must be examined whether the quantified limit (as amended from time to time) in proviso to section 2(15), has been breached, thus disentitling them to exemption." 11.1. From the above, it is noted that intention to earn profit is an essential ingredient for an activity to be considered in the nature of trade, commerce or business. If a charitable trust or institution charges a nominal profit above cost in respect of its activities, it would not fall within the vice of proviso to section 2(15). As elaborately dealt in the above paragraphs in the present case, assessee has not even covered its expenses in respect of activities offered by it, there being deficit in its income and expenditure statement. Furthermore, ld. Assessing Officer has also not disputed this fact, who has held these to be mutual activities. 11.2. We also take note of the decision of Coordinate Bench of ITAT, Mumbai in the case of Media Research Users Council vs. ADIT [2024] 205 ITD 170 (Mum) wherein the judgement of Hon'ble Supreme Court in the case of Ahmedabad Urban Development Authority (su....
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....rkup over cost and also derives from profit, the prohibition against carrying on business or service relating to business is not attracted (if the quantum of such profits did not exceed 20% of its overall receipts) has been adhered to." 12. Considering the factual matrix of the case, extensive documents placed on record, elaborate discussion made on the applicable provisions of the Act and the decisions in the assessee's own case as well as those by Hon'ble Supreme Court in the case of Ahmedabad Urban Development Authority (supra) and by Coordinate Bench of ITAT, Mumbai in the case of Media Research Users Council (supra), we summarise our conclusions on the core issue as stated above. We find that assessee has been held to be a charitable institution carrying on the object of General Public Utility which is primarily engaged in promotion of sports including swimming, squash, gymnasium, other sports activities like yoga, aqua aerobics, table tennis, bridge, billiards and snooker. Activities carried out by the assessee has led to nurturing of talent in all these sports fields, details of which are elaborately discussed by ld. CIT(A) in his order in paragraph 7.7. Assessee has ....
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....5 applies mutatis mutandis. Accordingly, appeal for Assessment Year 2015-16 is also dismissed. 15. In the result, both the appeals of the Revenue are dismissed. Order is pronounced in the open court on 21 March, 2025 ============= Document 1 OTTERS CLUB SCHEDULE ANNEXED TO AND FORMING PART OF THE INCOME AND EXPENDITURE ACCOUNT FOR THE YEAR ENDED 31ST MARCH. 2014 Amount in Rs Department Direct expenses Allocated " Depreciation Other expenses Total expenses Contribution from members SPORTS ACTIVITIES Swimming pool 4,589,354 80.003 2.468.159 7.144.116 1.137.873 Brige room 336.225 64.592 661.606 1,006.625 383.065 Squash 1,670,922 103.200 1.009.329 2,783.516 261.112 Heart club 2.351.593 625.417 1.017.210 3,994,220 728 535 528,290 151.996 $17,400 1,197,692 54.367 Others 2.216 2,210 406 950 Total 6,673,906 1,036.091 16,166.367 3,051.932 6,673,906 1,036.091 Amount in Rs Department Direct expenses Depreciation Allocated " Other expenses Total gaponses Contribution from SOCIAL ACTIVITIES Social functions 1,530,253 8.740 222.888 1.761.881 9.600 Library 1.307,756 165.621 530.727 2,004.103 216.582 Pavilon hall 60,5....