TaxTMI 
TaxTMI 
2026 (1) TMI 812
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....not satisfy the conditions of advancement of any other object of general public utility as envisaged under section 2(15) of the Act and is hit by the first proviso to section 2(15); hence, exemption u/s 11 is not allowable. 3. On the facts and circumstances of the case and in law, the learned Commissioner of Income Tax (Appeals) has erred in relying upon the principle of mutuality despite clear findings of the Assessing Officer that the assessee's activities benefit specified members and big business houses/jewellers and are not of charitable nature. 4. On the facts and circumstances of the case and in law, the learned Commissioner of Income Tax (Appeals) has erred in relying on the ratio of the Hon'ble Bombay High Court's decision in the case of CIT us Bombay Presidency Golf Club Ltd (ITA No 235 of 2017) which is distinguishable on facts and not applicable to the present case. 5. On the facts and circumstances of the case and in law, the learned Commissioner of Income Tax (Appeals) has failed to appreciate that the interest income earned by the assessee is from surplus funds placed in banks and de not partake the character of voluntary contri....
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....held that: * the assessee is a registered charitable institution, * earning of interest on bank deposits mandated under section 11(5) cannot be regarded as an activity in the nature of business, * the proviso to section 2(15) has no application, and * corpus donations, duly supported by confirmations, are capital receipts exempt under section 11(1)(d). 3.1 The Ld. CIT(A) also noted that in earlier years the assessee had been granted exemption under section 11 in assessments where the AO had accepted substantial interest income without treating the assessee as a mutual concern or business entity. The relevant finding of the Ld. CIT(A) is reproduced as under: 5. Decision I have carefully perused grounds of appeal, statement of facts, assessment order, submissions made by the Appellant and other details/evidences on records. 5.1 The Appellant has raised the following two vide various grounds of appeal: i. The AO has erred in concluding that the Appellant is indulging in business activities since it has earned interest income and, therefore, it is covered by the 1st proviso to section 2(15). ii. The AO ....
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....365 (SC) e. CIT vs Madras Jewelers & Diamond Merchants Associations 129 ITR 214 f. CIT vs Andhra Chambers of Commerce 55 ITR 722 (SC) [Appellant has placed reliance on several other case laws as well] Without prejudice, the Appellant has submitted that even if it is considered a mutual organization, the interest from bank deposits cannot be taxed. In support the same, the Appellant has placed reliance on various case laws: d. CIT vs Delhi Gymkhana e. CIT vs Standing Conference of public Enterprise 319 ITR 179 (Del) f. Canara Bank Golden Jubilee Staff Welfare Fund vs DCIT 308 ITR 202(Kar) [Appellant has placed reliance on several other case laws as well] The Appellant has also given details of charitable activities carried on by it. Accordingly, the Appellant has submitted that it is squarely covered by the decision of Bombay High Court in the case of CIT vs Bombay Presidency Golf Club, ITA No.235 of 2017, dated02/04/2019. The Appellant has further submitted that complete details of Corpus donation were submitted before the AO. This being capital receipt, cannot be taxed. Appellant has placed reliance o....
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....e interest income as business income and has denied exemption u/s 11. The AO has, further, added corpus donation and denied exemption u/s 11 (1)(d) of the Act. 5.1.2 On consideration of above facts, submissions of the Appellant and findings of the AO, I am of the considered vide that the AO has erred in denying exemption to the Appellant ^u/s 11 on the ground that it is established to serve the interest of members only and not public at large. Thus, it is not a charitable organization and its activities are in the nature of business activities, hit by the 1st proviso to section 2(15) of the Act. In this regard, I find that on similar facts, Hon'ble Jurisdictional ITAT Mumbai in the case of Bombay Presidency Golf Club Ltd vs ITO(E), ITA No.4843/Mum/2012, dated 29/02/2016, has held the activities to be charitable in nature and has allowed exemption u/s11 of the Act. Relevant part of the decision is reproduced below: 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 assessee was registered as a charitable organisation with DIT (E), Mumbai, under Section ....
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....entity does not exist for a 'charitable purpose. In view of the above, the income of the assessee was computed as under: ............... 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." ............... 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) 328ITR 362 hold that the int....
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....tion 13(1)( d)(ii), if the funds of a trust or institutions is invested in assets other than those specified in Section 11 (5), the exemption under Sections 11 to 13 would be withdrawn. it is therefore not only inexplicable, but absurd as to why the Assessing Officer has taken the stand that interest received from deposits in banks falls foul of the proviso to Section 2(15). It is to be noted that all the other activities and income streams received by the assessee have been held to be not taxable by the Assessing Officer himself in making his order dated 30th December, 2012 on the grounds of mutuality and the only amount which has been assessed to tax as income of the assessee is income from interest of Rs.2,17,92,167. 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....
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....e nature of trade, commerce or business. 15. The second objection of AO was that the registration u/s.12A has been withdrawn by the DIT(E). At the time at which the Assessment Order was passed viz. 30th December, 2011, that fact was correct. However, the order withdrawing the registration under section 12A has been cancelled by the Tribunal and the Appeal of the assessee has been allowed by the Tribunal vide its order dated 30th May, 2012. Therefore, the second reason given by the Assessing Officer that the registration has been withdrawn is no longer valid as the registration, withdrawn by DIT(E) has been cancelled by the Tribunal vide its order dated 30-52012. Thus, the objection taken by the AO for declining 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....
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....Bombay has been upheld by Hon'ble High Court of Bombay in CIT(E) vs Bombay Presidency Golf Club, ITA No.235 of 2017, dated 02/04/2019. Relevant part of the decision is reprocured below: "2. Following question is presented for our consideration:- "Whether on the facts and in the circumstances of the case and in law, the Tribunal was justified in allowing the assessee's appeal and directing the Assessing Officer to delete the addition of interest holding that the income is exempt u/S. 11(5) and the proviso to Section 2(15) has no application to the facts of the case?" .................. 4. Having heard the learned counsel for the parties, we do not find any error in the view of the Tribunal. Section 2(15) of the Act defines term "charitable purpose" as to include activities such as relief of the poor, education, medical relief etc., and also "advancement of any other object of general public utility". Proviso to Section 2( 15) of the Act provides that the advancement of any other object of general public utility shall not be a charitable purpose, if it involves the carrying on of any activity in the nature of trade, commerce or business, or any....
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....the Appellant is not covered u/s 2(15) of the Act and, consequently erred in treating the interest income as business income not entitled to exemption u/s 11 and, further, in taxing corpus donation by denying exemption u/s11(1)(d). Accordingly, I direct that the additions of Rs.1,74,27,134/- (interest income) and Rs.1,60,30,000/-(corpus donation) be deleted. Appeal is, thus, allowed." 4. We have considered the rival submissions and perused the material available on record. The issue in dispute is whether the activity of the assessee is falling under the definition of the General Public Utility as defined u/s 2(15) of the Act. The AO's conclusion that the assessee is a "mutual organisation" and therefore not charitable is fundamentally misconceived. Once an institution is registered under section 12A, its objects and activities are presumed to be charitable unless shown to be contrary to section 2(15) or sections 13(1)(c)/(d). Mere earning of interest on surplus funds compulsorily invested in scheduled bank deposits as required under section 11(5), does not convert the institution into a commercial or mutual entity. 4.1 In opinion of the AO if the assessee was not entitled for....
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....ncil having similar activity on promotion of gems and jewellery industry at the international level has been held to be charitable u/s 2(15) of the Act by the Coordinate Bench of the Tribunal in ITA No. 3175/Mum/2023 and ITA No.3176/Mum/2023 for assessment year 2018-19 and 2017-18 respectively. The Tribunal (supra) has also examined the effect of the decision of the Hon'ble Supreme Court in the case of Ahmadabad Urban Development Authority (2022) 143 taxmann.com 278 (SC): "5.23 In view of the above discussion, we are of the opinion that assessee is not hit by the proviso to section 2(15) of the Act as far as activity of conducting or participating in exhibitions within India or overseas and therefore the disallowance of exemption claimed by the assess made by the Assessing Officer and the findings of the Ld CIT(A) on the issue in dispute are set aside and matter restore back to grant benefit of section 11 and 12 as per provisions of law." After elaborate discussion on this matter, the Hon'ble ITAT has come to a conclusion that in the instant case, there being no markup on consideration charged from the exporter, therefore in the broad principles laid down by t....