ITAT  -  MUMBAI
KHAR GYMKHANA, MUMBAI VS. CIT
DATED : 01/02/2013



Summarised Judgement (Scroll for Complete Judgement)

Grounds:

The assessee has raised the following grounds in this appeal:

i) The learned Chief Commissioner of Income Tax (Appeals) erred in upholding the order of the Assessing Officer in taxing the income of the appellant @ ` 68,45,200/- on the basis that it was not entitled to exemption u/s 11.  

Facts of the Case

The assessee trust is registered as a charitable u/s 12A as well as u/s 80G of the Income Tax Act. The registration u/s 12AA was cancelled/withdrawn by the DIT(E) vide order dated 8.12.2011 with effect from Assessment Year 2009-10. Subsequently, the Assessing Officer has held that the activities of the assessee from which it derived income from sale of liquor, canteen compensation, daily card games and guest fees are in the nature of trade, commerce and business. 

Accordingly, the Assessing Officer held that the activity of the assessee are hit by the provison to Section 2(15) of the Income Tax Act coupled with the withdrawal of the registration/exemption u/s 12A by the DIT(E). The A.O brought to tax the entire income of the assessee. On appeal, the CIT(A) has confirmed the action of the A.O by taking note of the fact that the exemption u/s 11 is contingent upon the grant of registration u/s 12A and once the ITA No.3290/M/2013 Khar Gymkhana registration is withdrawn the assessee no longer would be eligible for the exemption.

Observation of Court:

As it is clear from the finding of the CIT(A) that the issue was decided solely on the basis of withdrawal/cancellation of registration u/s 12A without going into the issue of applicability of proviso to Section 2(15) of the Act. Since, the registration u/s 12A has been restored by the Tribunal vide order dated 10.7.2013 therefore, we set aside the impugned order of the CIT(A) and remit the matter to the record of the CIT(A) to decide the issue on merits and particularly on the question of applicability of proviso to Section 2(15) of the Act.

Judgement

In the result, the appeal of the assessee is allowed for statistical purposes. 



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Complete Judgement

INCOME TAX APPELATE TRIBUNAL - MUMBAI
KHAR GYMKHANA, MUMBAI VS. CIT
DATED : 01/02/2013

  IN THE INCOME TAX APPELLATE TRIBUNAL "H  "H" BENCH, MUMBAI
             BEFORE SHRI VIJAY PAL RAO, JM & SHRI N. K. BILLAIYA,
                                                                        
                                     I.T.A . No.3290/Mum/2013
                                                No. 3290/Mum/2013

                                       Assessment Year :2009-10

Khar Gymkhana,                                      Income Tax Officer, (E)-II(1)
13 t h Road, Khar (West)                         Piramal Chambers, 4 t h Floor,
Mumbai-400052                    Vs.             Lalbaug, M. K. Road,
                                                                 Mumbai-400012

 (Appellant)                                               (Respondent)


Respondent/Assessee by : Shri A. H. Dalal
Revenue by : Shri Pitamber Das

Date of Hearing : 13th November 2013

Date Of Pronouncement: 27th November 2013

ORDER PER : VIJAY PAL RAO, JM This appeal by the assessee is directed against the order dated 01.02.2013 of Commissioner of Income Tax(Appeals) for the assessment year 2009-10.

2. The assessee has raised the following grounds in this appeal:

"1. i) The learned Chief Commissioner of Income Tax (Appeals) erred in upholding the order of the Assessing Officer in taxing the income of the appellant @ ` 68,45,200/- on the basis that it was not entitled to exemption u/s 11.

ii) The CIT(A) failed to appreciate that-

(a) The appellant was exclusively operating the Gymkhana for sports activities like swimming, squash, badminton, cricket and table tennis etc. as per detailed facts given in the statement of facts.

(b) The sports and recreation also fall within the meaning of modern concept of education.

(c) The appellant was therefore for the object of education as per the first three objects defined in charitable purpose and therefore the proviso to Section 2(15) applying only to 4th object of general public utility did not apply.

(d) The A.O therefore wrongly assessed the appellant under proviso to Section 2(15).

II. i) The A.O wrongly assessed the non mutual income determined @ ` 67,39,299/- and business income @ ` 1,05,901/-.

ii) The CIT(A) ignored the contention of the appellant that proviso to Section 2(15) was not applicable and merely dismissed the appeal on the ground that registration u/s 12A is withdrawn by the DIT(E) retrospectively with effect from Assessment Year 2009-10, in which even the CIT(A) should have awaited the outcome of the appeal filed with the Tribunal against the cancellation order by DIT(E) u/s 12A."

3. The assessee trust is registered as a charitable u/s 12A as well as u/s 80G of the Income Tax Act. The registration u/s 12AA was cancelled/withdrawn by the DIT(E) vide order dated 8.12.2011 with effect from Assessment Year 2009-10. Subsequently, the Assessing Officer has held that the activities of the assessee from which it derived income from sale of liquor, canteen compensation, daily card games and guest fees are in the nature of trade, commerce and business.

Accordingly, the Assessing Officer held that the activity of the assessee are hit by the proviso to Section 2(15) of the Income Tax Act coupled with the withdrawal of the registration/exemption u/s 12A by the DIT(E). The A.O brought to tax the entire income of the assessee. On appeal, the CIT(A) has confirmed the action of the A.O by taking note of the fact that the exemption u/s 11 is contingent upon the grant of registration u/s 12A and once the ITA No.3290/M/2013 Khar Gymkhana registration is withdrawn the assessee no longer would be eligible for the exemption.

4. Before us the Ld. A.R of the assessee has submitted that the assessee trust has been created with the object to provide its member the facility for games, sports, indoor and outdoor and to provide amenities associated therewith. Apart from this the object of the trust also include to provide its member all advantages, convenience and amenities of social nature to promote manage/assist in the promotion and management of all formations of sports and game, general advancement and physical culture and social activities. He has further submitted that the promotion of game and sport is considered to be a charitable purpose within the meaning of Section 2(15) of the income Tax Act. In support of his contention he has relied upon the CBDT Circular No. 395 dated 25.9.1984 as well as the decision of Hon'ble Madras High Court in case of CIT Vs Ootacamund Gymkhana Club 110 ITR 392.

The Ld. A.R has also relied upon the decision of Hon'ble M. P. High Court in case of Little Angels Shiksha Samiti Vs Union of India 199 Taxman 237 and submitted that the Hon'ble High Court has held that the education is not only to impart education through book reading but it also includes sports activities and other recreational activities, dance, theatre and even having educational tour so that the children can develop their overall talent. The Ld. A.R has pointed out that the registration u/s 12A by the DIT(E) has been restored by this Tribunal vide order dated 10.7.2013 in ITA No. 373/M/2012.

Thus, the Ld. A.R has submitted that the assessee's status of charitable trust has been restored ITA No.3290/M/2013 Khar Gymkhana by the Tribunal and therefore the exemption u/s 11 cannot be denied to the assessee when the assessee is using the entire income for the purpose of advancement of the objects of the trust. In support of his contention he has relied upon the decision of Special Bench of this Tribunal in case of Breach Candy Swimming Bath Trust Vs ITO and submitted that the Special Bench has held that running a bar and restaurant is a property held under the trust for a charitable object within the meaning of Section 11(4) and not affected by Section 11(4A) of Income Tax Act.

Therefore, it was held that the assessee trust is entitled to the exemption u/s 11. The Ld. A.R has further contended that the proviso to Section 2(15) is not applicable in the case of the assessee as the assessee is carrying out the charitable activity which falls under the term education. He has further contended that the object of the assessee trust itself is not business activity and the activities of bar and restaurant are only in advancement of the object of the trust, therefore, these activities are incidental to the main object. Alternatively, the Ld. A.R has submitted that the income from the activities which are treated as business are incidental to achieve objects of the trust falls u/s 11(4A) of the Income Tax Act.

5. On the other hand, the Ld. D.R has submitted that post amendment to Section 2(15) the activity of sell of liquor does not fall under the term charitable. He has further submitted that the assessee is hit by the proviso to Section 2(15) of the Income Tax Act. He has further submitted that the decision relied upon by the assessee are prior to the amendment ITA No.3290/M/2013 Khar Gymkhana of Section 2(15) of the Income Tax Act therefore, the same are not applicable in the case of the assessee.

6. We have considered the rival submissions as well as relevant material on record. The A.O denied the exemption by considering the fact that the registration u/s 12A was cancelled/withdrawn by the DIT(E) and further the activities of sale of liquor, canteen, daily card games, guest fees are in the nature of trade, business and commerce and therefore hit by the proviso of Section 2(15) of the Income Tax Act. On appeal, the CIT(A) has decided the issue in para 4.4 of the impugned order as under:

"4.4 I have carefully considered the submissions of the appellant, assessment order and facts of the case. The exemption u/s 11 is contingent upon the grant of registration u/s 12A. Once the registration is withdrawn the assessee no longer would be eligible for the exemption. Since, the exemption itself was withdrawn retrospectively w.e.f. A.Y. 2009-10 the question of granting exemption does not arise. In view of this, the A.O's action cannot be faulted. As regards the issue of DIT's power to withdraw retrospectively it is seen that the Hon'ble Bombay High Court in the case of Sinhagad Technical Education Society Vs CIT (central), 343 ITR 23 held that the DIT had such power. Therefore, this ground of appeal is dismissed."

7. As it is clear from the finding of the CIT(A) that the issue was decided solely on the basis of withdrawal/cancellation of registration u/s 12A without going into the issue of applicability of proviso to Section 2(15) of the Act. Since, the registration u/s 12A has been restored by the Tribunal vide order dated 10.7.2013 therefore, we set aside the impugned order of the CIT(A) and remit the matter to the record of the CIT(A) to decide the issue on merits and particularly on the question of applicability of proviso to Section 2(15) of the Act.

8. In the result, the appeal of the assessee is allowed for statistical purposes.

Order pronounced in the open Court on this 27th day of November



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