NAVI MUMBAI MERCHANT'S GYMKHANA, NAVI MUMBAI V. ADIT (EXEMPTION) -II (2), MUMBAI

ITA 4968/MUM/2016

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 7149 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 9 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-05-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2011-2012
• Appeal Filed On: 03-08-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: POOJA SWAROOP
• Assessee Lawyers: PRADEEP KAPASI
• Keywords: Business income; Depreciation; Charitable institution; Opportunity of being heard
• Section: 143(3); 234B; 12AA; 32

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH F MUMBAI BEFORE SHRI SAND EE P GOSAIN (JUDICIAL MEMBER) AND SHRI N.K. PRADHAN (ACCOUNTANT MEMBER) ITA NO. 4969/MUM/2016 ASSESSMENT YEAR: 2010 - 11 & ITA NO. 4968/MUM/2016 ASSESSMENT YEAR: 2011 - 12 NAVI MUMBAI MERCHANTS GYMKHANA PLOT NO. 49/50, SECTOR - 14, VASHI, NAVI MUMBAI, MAHARASHTRA - 400703 VS. ADIT (EXEMPTION) - II(2) PIRAMAL CHAMBERS, LALBAUG MUMBAI - 400012. PAN NO. AAATN2965P APPELLANT RESPONDENT ASSESSEE BY : MR. PRADEEP KAPASI, AR REVENUE BY : MS. POOJA SWAROOP, DR DATE OF HEARING : 23/04/2018 DATE OF PRONOUNCEMENT: 31/05/2018 ORDER PER N.K. PRADHAN, AM THE CAPTIONED APPEALS FILED BY THE ASSESSEE ARE DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) - 1, MUMBAI [IN SHORT CIT(A) ] AND ARISE OUT OF THE ASSESSMENT COMPLETED U/S 143(3) OF THE INCOME TAX ACT 1961 (THE ACT). AS COMMON ISSU ES ARE INVOLVED, WE ARE PROCEEDING TO DISPOSE THEM OFF THROUGH A CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. THERE HAS BEEN A DELAY OF 263 DAYS ON THE PART OF THE ASSESSEE TO FILE THE APPEAL BEFORE THE TRIBUNAL FOR THE ASSESSMENT NAVI MUMBAI MERCHANTS GYMKHANA ITA NOS. 4969 & 4968/MUM/2016 2 YEAR (AY) 2010 - 11 AND 225 DAYS FOR AY 2011 - 12. WE FIND THAT THE DELAY HAS OCCURRED DUE TO GENUINE DIFFICULTY FACED BY THE ASSESSEE. ALSO THE GROUNDS OF APPEAL IN THE IMPUGNED ASSESSMENT YEARS ARE COVERED BY THE ORDER OF THE CO - ORDINATE BENCH FOR THE AY 2009 - 10. IN VIEW OF THE A BOVE FACTS, WE CONDONE THE DELAY OF THE PART OF THE ASSESSEE TO FILE THIS APPEAL. FACTS BEING IDENTICAL WE BEGIN WITH THE AY 2010 - 11. 2. THE GROUNDS OF APPEALS FILED BY THE ASSESSEE READ AS UNDER: 1. THE ID CIT(A) ERRED IN LAW AND ON FACTS IN DENYING EXEMPT ION U/S11 OF THE INCOME TAX ACT BY IGNORING THE FACT THAT YOUR APPELLANT IS A CHARITABLE INSTITUTION U/S 12AA AND IS CREATED/ ESTABLISHED FOR CHARITABLE PURPOSE WITHIN THE MEANING OF THE PROVISIONS OF S. 2(15] OF THE INCOME TAX ACT. 2. THE LD. CIT(A) ERRED IN LAW IN ON FACTS IN NOT ADJUDICATING THE CLAIM FOR THE DEDUCTION OF EXPENSES OF RS.66,01,833 INCURRED WHOLLY AND EXCLUSIVELY FOR THE ACTIVITIES CARRIED BY IT AND AS A RESULT ERRED IN LAW IN DENYING THE BENEFIT OF CARRY FORWARD THE DEFICIT OF RS.25,15,387 F OR THE YEAR. 3. THE ID CIT(A) HAS FAILED TO ADJUDICATE THE APPELLANT'S GROUND CONTESTING THE TAXATION OF THE INCOME OF THE APPELLANT IN THE STATUS OF THE AOP IGNORING THE FACT THAT THE APPELLANT WAS AN INCORPORATED BODY . 4. WITHOUT PREJUDICE TO ITS CLAIM FOR EXEMPTION U/S 11, THE ID CIT(A) HAS ERRED IN L AW AND ON FACTS IN NOT ADJUDICATING THE CLAIM FOR DEDUCTION OF DEPRECIATION U/S 32 ON THE FIXED ASSETS INCLUDING BUILDING OWNED BY THE APPELLANT AND USED FOR THE PURPOSES OF T HE ALLEGED BUSINESS, THE RECE IPTS OF WHEREOF ARE BROUGHT TO TAX BY THE ID A.O . 5. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN CONFIRMING THE CHARGE OF INTEREST U/S 234B AND U/S 234D. 3. WE BEGIN WITH THE 1 ST GROUND OF APPEAL. BRIEFLY STATED, THE FACTS ARE THAT THE APPELLANT FILED ITS RETURN OF INCOME FOR THE IMPUGNED NAVI MUMBAI MERCHANTS GYMKHANA ITA NOS. 4969 & 4968/MUM/2016 3 ASSESSMENT YEAR ON 15.10.2010 DECLARING TOTAL INCOME AT RS. NIL. THE ASSESSING OFFICER (AO) CAME TO A FINDING THAT THE ENTRY TO THE CLUB IS NOT OPEN TO THE GENERAL PUBLIC, BUT RESTRICTED TO THE MEMBERS, THEIR FAMILY MEMBERS AND GUESTS ACCOMPANYING THEM. THE NON - MEMBERS ARE ADMITTED BY CHARGING COACHING FEES FOR THE GAMES IN WHICH THEY ARE INTERESTED. THE AO ALSO FOUND THAT THE CLUB IS ALSO RUNNING HOTELS, PERMIT ROO M AND MARRIAGE HALLS/GROUNDS AND DERIVING INCOME FROM CATERING SERVICES WHICH TURN OUT TO BE SYSTEMATIC PROFIT EARNING OF THE BUSINESS OF THE TRUST. THUS THE AO CAME TO A FINDING THAT THE APPELLANT WAS NOT AN ASSOCIATION CREATED FOR CHARITABLE PURPOSE WITH IN THE MEANING OF PROVISIONS OF SECTION 2(15) OF THE ACT AND HENCE NOT ENTITLED TO EXEMPTION U/S 11. HOWEVER, THE AO AT PARA 17 OF HIS ORDER DATED 25.03.2013 HELD THAT IT IS A MUTUAL ORGANIZATION SINCE IT IS RENDERING SERVICE S SUCH AS , RESIDENTIAL ROOMS, S WIMMING POOL, GARDEN TOOLS, SPORTS AND RELATED FACILITIES ETC. TO ITS MEMBERS ONLY. THE AO HE LD THAT THE APPELLANTS RECEIPTS FROM NON - MEMBERS AND OTHER SOURCES SUCH AS DIVIDEND, INTEREST ETC. ARE TO BE TAXED. THE AO DID NOT ALLOW EXEMPTION ON ACCOUNT OF R OYALTY INCOME AND INTEREST INCOME, HOLDING THE SAME TO BE BUSINESS INCOME U/S 2(15) OF THE ACT. THEREFORE, THE AO TREATED THE INCOME OF THE ASSESSEE OF RS.1,04,67,051/ - AND INTEREST OF RS.39,870 / - TOTALING TO RS.1,05,06,921/ - AS BUSINESS INCOME U/S 2(15) OF THE ACT AND BROUGHT TO TAX THE ABOVE AMOUNT. 4. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE FILED AN APPEAL BY THE LD. CIT(A). THE LD. CIT(A) FOLLOWED THE ORDER OF THE ITAT IN NAVI MUMBAI MERCHANTS GYMKHANA ITA NOS. 4969 & 4968/MUM/2016 4 ASSESSEES O WN CASE FOR THE AY 2009 - 10 AND DIRECTED THE AO TO FOLLOW THE SAME. 5. BEFORE US, THE LD. COUNSEL OF THE ASSESSEE FAIRLY AGREES THAT THE ISSUE IN THE 1 ST GROUND OF APPEAL HAS BEEN DECIDED AGAINST THE ASSESSEE BY THE ITAT B BENCH MUMBAI IN ASSESSEES OWN CASE FOR THE AY 2009 - 10. ALSO THE LD. DR RELIES ON THE ABOVE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE AY 2009 - 10. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIALS ON RECORD. WE FIND THAT THE CO - ORDINATE BENCH IN ASSE SSEES OWN CASE FOR THE AY 2009 - 10 (ITA NO. 196/M/2013) HAS HELD AS UNDER: 3. WE HAVE HEARD THE LD. REPRESENTATIVES OF BOTH THE PARTIES AND ALSO HAVE GONE THROUGH THE RECORDS. SO FAR THE QUESTION OF ELIGIBILITY OF THE ASSESSEE TRUST UNDER SECTION 11 OF THE ACT IS CONCERNED, WE MAY OBSERVE THAT THE ASSESSEE TRUST HAS BEEN INVOLVED IN PROVIDING SPORTS AND RECREATIONAL FACILITIES TO ITS MEMBERS ONLY. THE AO HAS GIVEN A CATEGORICAL FINDING THAT THOUGH THE MEMBERSHIP OF THE CLUB IS OPEN TO PUBLIC BUT IT HAS BEEN RESTRICTED IN MANY WAYS AND IT IS NOT EASY TO GET MEMBERSHIP OF THE CLUB EVEN FOR THE PERSONS WHO COUNT IN THE SOCIETY. EVEN THE MEMBERSHIP IS OFFERED ON PAYMENT OF VERY HIGH PREMIUM. HIGH CLASS PREMIUM SERVICES, SUCH AS FACILITY OF LIQUOR BAR, PLAYI NG CARDS, RESTAURANT, MARRIAGE HALL, CATERING SERVICES ETC. HAVE BEEN PROVIDED TO THE MEMBERS, WHICH CANNOT BE SAID TO CONSTITUTE ANY CHARITABLE ACTIVITY. SERVICES CAN BE AVAILED FOR CONSIDERATION ONLY BY MEMBERS WHO CONSTITUTE HIGH CLASS, INFLUENTIAL AND RICH PERSONS THAT TOO ON PAYMENT OF HIGH PREMIUM FOR GETTING MEMBERSHIP OF THE CLUB. THOUGH , THE ASSESSEE CLUB IS ALSO OFFERING THE FACILITY OF SPORTS TO ITS MEMBERS THAT ITSELF, CANNOT PARTAKE THE CHARACTER OF CHARITABLE ACTIVITY. IT IS NOT THE CASE OF THE NAVI MUMBAI MERCHANTS GYMKHANA ITA NOS. 4969 & 4968/MUM/2016 5 ASSESSEE TRUST THAT SUCH SPORTS ACTIVITIES ARE PROVIDED OR HAVE RESULTED INTO ANY BENEFIT TO THE PUBLIC AT LARGE OR ANY SECTION OF THE SOCIETY. THE SPORTS ACTIVITIES ACCOMPANIED BY FACILITIES LIKE LIQUOR BAR, PLAYING CARDS, RESTAURANT, MARRIAGE HALL, CATERING SERVICES ETC. LIMITED TO A CERTAIN GROUP OF PERSONS I.E. MEMBERS OF THE CLUB CANNOT BE SAID TO BE A CHARITABLE ACTIVITY FROM WHICH ANY BENEFIT IS DERIVED BY THE PUBLIC OR SECTION OF THE PUBLIC RATHER THE BENEFITS ARE LIMITED TO HIGH AND RICH DIST INGUISHABLE GROUP OF PERSONS I.E. MEMBERS OF THE CLUB ONLY. THERE IS NO ELEMENT OF CHARITY INVOLVED IN SUCH AN ACTIVITY RATHER THE ACTIVITIES OF THE CLUB ARE MEANT FOR LEISURE AND PLEASURE OF THE MEMBERS OF THE CLUB AND THE MEMBERSHIP HAS BEEN RESTRICTED TO CERTAIN INDIVIDUALS NOT TO ANY SECTION OF THE SOCIETY. WE THEREFORE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE AO IN HOLDING THAT THE ACTIVITIES OF THE ASSESSEE TRUST DO NOT FALL IN THE DEFINITION OF CHARITABLE PURPOSE AS DEFINED UNDER SECTION 2(15) OF THE ACT. 6.1 FACTS BEING IDENTICAL, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE AO AND CIT(A) IN HOLDING THAT THE ACTIVITIES OF THE APPELLANT - TRUST DO NOT FALL IN THE DEFINITION OF CHARITABLE PURPOSE AS DEFINED U/S 2(15) OF THE ACT. ACCORDINGLY, THE 1 ST GROUND OF APPEAL IS DISMISSED. 7. NOW WE TURN TO THE 2 ND , 3 RD AND 4 TH GROUND OF APPEAL. THE LD. COUNSEL OF THE ASSESSEE SUBMITS THAT THE ABOVE GROUNDS OF APPEAL WERE NOT ADJUDICATED BY THE LD. CIT(A) THOUGH FILE D BEFORE HIM . IT IS STATED THAT A DIRECTION MAY BE GIVEN EITHER TO THE AO OR THE LD. CIT(A) TO DECIDE THE ISSUES AS PER THE DIRECTION OF THE ITAT IN THE CASE OF THE ASSESSEE FOR THE AY 2009 - 10. THE LD. DR FAIRLY AGREES THAT THE ISSUES ARISING OUT OF THE ABOVE GROUND S OF APPEAL MAY BE DECIDED EITHER BY THE AO OR THE LD. CIT(A) BY NAVI MUMBAI MERCHANTS GYMKHANA ITA NOS. 4969 & 4968/MUM/2016 6 FOLLOWING THE ORDER OF THE ITAT IN ASSESSEES OWN CASE FOR THE AY 2009 - 10. 8. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIALS ON RECORD. WE FIND THAT THOUGH THE ABOVE GROUNDS OF APPEAL WERE FILED BEFORE THE LD. CIT(A), HE HAS FAILED TO DECIDE ON THEM. IN AY 2009 - 10, THE ITAT HAS RESTORED THE MATTER OF MUTUALITY, DEPRECIATION, SET - OFF AND CARRY FORWARD OF LOSSES TO THE FILE OF THE AO TO MAKE A FRESH ORDER. FACTS BEING ID ENTICAL, WE RESTORE THE ISSUES ARISING OUT OF THE 2 ND , 3 RD AND 4 TH GROUND OF APPEAL TO THE FILE OF THE AO TO MAKE A DE NOVO ORDER , AFTER GIVING REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. WE DIRECT THE APPELLANT TO FILE THE RELEVANT DOCUMENTS/EVIDENCE BEFORE THE AO. THUS THE 2 ND , 3 RD AND 4 TH GROUND S OF APPEAL ARE ALLOWED FOR STATISTICAL PURPOSES. 9. AS REGARDS THE 5 TH GRO UND OF APPEAL, WE HOLD THAT T HE CHARGE OF INTEREST IS MANDATORY THOUGH CONSEQUENTIAL . 10. FACTS BEING IDENTICAL, OUR DECISION FOR THE AY 2010 - 11 APPLIES MUTATIS MUTANDIS TO AY 2011 - 12. 11. IN THE RESULT, THE APPEALS ARE PARTLY ALLOWED. ORDER PRONOUNCED I N THE OPEN COURT 31/05/2018. SD/ - SD/ - ( SANDEE P GOSAIN ) (N.K. PRADHAN) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED: 31/05/2018 RAHUL SHARMA, SR. P.S. NAVI MUMBAI MERCHANTS GYMKHANA ITA NOS. 4969 & 4968/MUM/2016 7 COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A) - 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE . BY ORDER, //TRUE COPY// (DY./ASSTT. REGISTRAR) ITAT, MUMBAI