M/s Panchkula Golf Club, Panchkula V. ITO, Panchkula

ITA 813/CHANDI/2013

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 90122 (ITAT-CHANDIGARH)
• Duration Of Justice: 1 year(s) 9 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-05-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 27-04-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 05-08-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S K MITTAL
• Assessee Lawyers: RAKESH GUPTA
• Keywords: Charitable institution; Opportunity of being heard; Capital receipt
• Section: 143(3); 12A

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCHES A CHANDIGARH BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND SHRI T.R. SOOD, ACCOUNTANT MEMBER ITA NO.813/CHD/2013 ASSESSMENT YEAR: 2008-09 PANCHKULA GOLF CLUB, VS. THE ITO(TDS), SECTOR 3 WARD 2, PANCHKULA PANCHKULA PAN NO. AAAAP5757C (APPELLANT) (RESPONDENT) APPELLANT BY : SH. RAKESH GUPTA RESPONDENT BY : SH. S.K. MITTAL DATE OF HEARING : 27/04/2015 DATE OF PRONOUNCEMENT : 06/05/2015 ORDER PER T.R.SOOD, A.M. THE APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 20/05/2013 PASSED BY THE CIT(A) PANCHKULA. 2. IN THIS APPEAL ASSESSEE HAS RAISED THE FOLLOWING GROUNDS:- 1. THAT THE LD. CIT(A) HAS ERRED IN CONFIRMING THE ADD ITION OF RS. 81,94,632/- BY TREATING THE ONE TIME ENTRANCE FEE I.E. CONTRIBU TION FROM MEMBERS AS REVENUE RECEIPT AND REFUTING THE CONCEPT OF MUTUALI TY (ALTERNATIVE PLEA) WHEREAS AS PER THE ASSESSEE THE ISSUE WAS EXAMINED BY THIS HONBLE TRIBUNAL AND ISSUED SPECIFIC DIRECTORS TO THE A.O. WHICH WERE NOT ADHERED TO BY THE A.O. AND THE SAME HAS ALSO NOT BEEN APPRECIA TED BY THE CIT(A), THEREFORE THE ORDERS OF THE AUTHORITIES BELOW NEEDS TO BE SET ASIDE. 2. THAT THE LD. CIT(A) HAS ERRED IN NOT ADHERING TO TH E DIRECTIONS GIVEN BY THIS HONBLE TRIBUNAL WHEREIN THE ISSUE PERTAINING TO IS SUE OF MUTUALITY AND ONE 2 TIME ENTRANCE FEES WAS TO BE EXAMINED WHEREAS AS PE R THE ASSESSEE THE AUTHORITIES BELOW GOES BEYOND THE SCOPE AND DENIED THE BENEFIT TO THE ASSESSEE BY APPLYING THE PROVISIONS OF SECTION 12A, THEREFORE, THE CONCLUSIONS DRAWN BY THE AUTHORITIES BELOW NEEDS TO BE SET ASIDE. 3. THE BRIEF FACTS OF THE CASE ARE THAT ORIGINALLY THE ASSESSMENT WAS COMPLETED U/S 143(3) ON 20/12/2010 DETERMINING THE INCOME OF THE ASSESSEE AT RS. 33,93,740/-. THE MATTER TRAVELLED TO THE TRIBU NAL AND ULTIMATELY THE ORDER OF CIT(A) WAS SET ASIDE AND MATTER WAS RESTORED TO THE FILE OF ASSESSING OFFICER. THE FINDINGS OF THE TRIBUNAL ARE RECORDED IN PARA 7 OF ITA NO. 1179/CHD/2011 AND READS AS UNDER:- 7. HAVING REGARD TO THE ABOVE LEGAL AND FACTUAL DISCUSSIONS AND THE RIVAL SUBMISSIONS, WE ARE OF TH E CONSIDERED OPINION THAT THE ISSUE OF MUTUALITY AND ONE TIME CONTRIBUTION, RECEIVED AS ENTRANCE FEE FROM IT S MEMBERS, BE RESTORED TO THE FILE OF THE AO, FOR FRE SH ADJUDICATION, IN TERMS OF THE DECISIONS CITED BY TH E LD. 'AR' AND ALSO ACCORDING TO THE RELEVANT PROVISIONS OF THE ACT. AO IS DIRECTED TO AFFORD PROPER AND REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESS EE . THEREAFTER, THE ASSESSING OFFICER ISSUED FRESH NOTI CE. DURING THE FRESH ASSESSMENT PROCEEDINGS ON BEHALF OF THE ASSESSEE A REFERENCE WAS MADE TO THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF CI T V BANKIPUR CLUB LTD 226 ITR 097 (SC). HOWEVER, ASSESSING OFFICER AFTER EXA MINING THIS JUDGEMENT WAS OF THE OPINION THAT THE ASSESSEE CLUB WAS BEING CON TROLLED BY THE GOVERNMENT OF HARYANA BECAUSE ONLY SENIOR OFFICIALS WERE THERE IN THE GOVERNING COUNCIL. THEREFORE, THE CLAIM OF THE MUTUALITY COULD NOT BE ACCEPTED. FURTHER, THE RECEIPT OF RS. 81,94,632 ON ACCOUNT OF ONE TIME ENTRANCE F EE WAS OF REVENUE NATURE AND ULTIMATELY ASSESSED THE INCOME OF THE ASSESSEE AT RS. 33,93,740/- AS UNDER:- CONTRIBUTION FROM THE MEMBERS RS. 81,94,632/- LESS: DEFICIT FOR THE YEAR BEING EXCESS OF EXPENDITURE OVER INCOME RS. 48,00,892/- TAXABLE INCOME RS. 33,93,740/- 3 4. ON APPEAL BEFORE CIT(A), THE DECISION IN THE CA SE OF CIT V BANKIPUR CLUB LTD. (SUPRA) WAS CITED IN RESPECT OF MUTUALIT Y. IN RESPECT OF ONE TIME ENTRANCE FEE IT WAS CONTENDED THAT SAME WAS OF CAPI TAL NATURE AND IN THIS REGARD HE RELIED ON THE DECISION OF HON'BLE BOMBAY HIGH CO URT IN THE CASE OF CIT VS. DINERS BUSINESS SERVICES PVT LTD 263 ITR 1 (BOM.). HOWEVER, LD. CIT(A) OBSERVED THAT FOR CLAIMING EXEMPTION U/S 11(1)(A) R EGISTRATION U/S 12A WAS NECESSARY WHICH HAS NOT BEEN GRANTED TO THE ASSESSE E, THEREFORE, INCOME WAS TAXABLE. 5. BEFORE US LD. COUNSEL FOR THE ASSESSEE SUBMITTED THE MUTUALITY WAS DENIED TO THE ASSESSEE BY OBSERVING THAT CLUB IS CO NTROLLED BY SENIOR OFFICERS OF THE GOVERNMENT AND FURTHER ON DISSOLUTION OF ASSET S OF THE ASSESSEE WERE TO BE TRANSFERRED TO SOME OTHER INSTITUTION AND FOR MUTUA LITY THERE SHOULD BE COMPLETE IDENTITY BETWEEN THE CONTRIBUTORS AND BENEFICIARIE S. FURTHER, ASSESSEE HAS NOT CONTESTED THE FINDINGS OF THE ASSESSING OFFICER IN THE EARLIER YEARS. 6. THE LD. COUNSEL SUBMITTED THAT IN THE EARLIER YE ARS THE ASSESSEE CLUB HAD INCURRED MORE EXPENDITURE THEN INCOME RESULTING INT O DEFICIT, THEREFORE, THERE WAS NOT TAX IMPLICATION I.E. WHY ASSESSMENT WAS NOT CHALLENGED. AS FAR AS THE ISSUE REGARDING DISTRIBUTION OF THE ASSETS IS CONCE RNED, HE SUBMITTED THAT IT IS DECIDED BY THE HON'BLE SUPREME COURT IN THE CASE OF CIT V BANKIPUR CLUB LTD (SUPRA) WHERE ONE OF THE ISSUE WAS WHETHER EXEMPTI ON CAN BE DENIED SIMPLY BECAUSE DISSOLUTION OF ASSETS WERE TO BE DISTRIBUTE D TO THE OTHER SOCIETIES. THE COURT HELD THAT IF OTHER SOCIETIES HAD SIMILAR OBJE CTS THEN EXEMPTION COULD NOT BE DENIED AND IN THIS REGARD HE REFERRED TO VARIOUS OBSERVATIONS MADE IN THE JUDGMENT. HE ALSO REFERRED TO THE OBJECT OF CLAUSE 5(D) OF THE MEMORANDUM OF ASSOCIATION OF GOLF CLUB WHERE THE MANNER OF DISTRI BUTION OF ASSETS ON WINDING UP HAS BEEN PROVIDED. HE FURTHER SUBMITTED THAT IN SIMILAR CIRCUMSTANCES THE HON'BLE SUPREME COURT HELD THAT EXEMPTION CANNOT BE DENIED. 4 7. IN RESPECT OF THE ENTRANCE FEE HE STRONGLY RELIE D ON THE DECISION OF BOMBAY HIGH COURT IN THE CASE OF CIT VS. DINERS BUS INESS SERVICES PVT LTD (SUPRA) WHEREIN IT IS CLEARLY HELD THAT ENTRANCE F EE IS OF CAPITAL NATURE. 8. ON THE OTHER HAND LD. DR STRONGLY SUPPORTED THE ORDE OF CIT(A). 9. AFTER CONSIDERING THE RIVAL SUBMISSIONS WE FIND THAT LD. CIT(A) HAS UPHELD THE ORDER OF ASSESSING OFFICER DENYING EXEMP TION TO THE ASSESSEE ON THE BASIS OF MUTUALITY BECAUSE ASSESSEE IS NOT REGISTER ED U/S 12A. IN OUR OPINION, 12A REGISTRATION IS NOT REQUIRED IN A CASE WHERE EX EMPTION IS CLAIMED PRIMARILY ON THE BASIS OF MUTUALITY. THE CONCEPT OF MUTUALIT Y IS BASED ON THE FACT THAT NOBODY CAN EARN PROFIT FROM HIMSELF AND IN THE CAS E OF CLUBS OR CERTAIN TYPES OF ASSOCIATIONS WHERE MEMBERS MAKE CONTRIBUTION FOR PR OVIDING SERVICES TO THE MEMBERS AND IF SOME SURPLUS IS LEFT THEN SUCH SURPL US IS NOT TAXABLE ON THE BASIS OF MUTUALITY. THE HON'BLE SUPREME COURT IN THE CASE OF CIT V BANKIPUR CLUB LTD (SUPRA) HAS CONFIRMED THIS POSITION. ONE MORE I SSUE AROSE IN THAT CASE WHICH HAS BEEN DEALT AS UNDER:- IN AN EARLIER ASSESSMENT YEAR 1977-78 AN IDENTICAL QUESTION RELATING TO THE SAME ASSESSEE AROSE BEFORE THE HIGH COURT OF PU NJAB AND HARYANA IN I.T.R. NO. 69 OF 1981. THE DECISION THEREON DATED APRIL 27 , 1989 IS REPORTED IN CIT V. NORTHERN INDIA MOTION PICTURES ASSOCIATION [1989] 180 ITR 160 . THE FOLLOWING QUESTIONS WERE REFERRED TO THE HIGH COURT (PAGE 162 ): (1) WHETHER, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE PRINCIPLE OF MUTUALITY IS APPLICABLE TO THE ASSESSE ES RECEIPTS UNDER THE HEAD OTHERS ? (2) WHETHER, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE TRIBUNAL WAS RIGHT IN HOLDING THAT THE RECEIPTS UND ER THE HEAD OTHERS WERE NEITHER INCOME LIABLE TO BE TAXED UNDER THE HE AD BUSINESS NOR UNDER THE HEAD OTHER SOURCES ? THE FACTS IN THE SAID CASE AND THE DECISION BY THE HIGH COURT ARE NEATLY SUMMARISED IN THE HEADNOTE OF THE REPORTS AT PAGES 160-161: 5 THE ASSESSEE WAS AN ASSOCIATION AND ITS MEMBERS WE RE FILM DISTRIBUTORS AND EXHIBITORS. THE ASSOCIATION PROTECTED THE RIGHT S OF ITS MEMBERS IN RETURN FOR ADMISSION FEES AND PERIODICAL SUBSCRIPTI ON AND ALSO RENDERED SPECIFIC SERVICES IN RETURN FOR SEPARATE CHARGES. T HE INCOME- TAX OFFICER WANTED TO SUBJECT THE ASSESSEE TO TAX ON THE INCOME DERIVED FROM THE ADMISSION FEE, PERIODICAL SUBSCRIPTIONS AND SPECIFI C SERVICE CHARGES RECEIVED FROM THE MEMBERS. THE ASSESSEE PLEADED THA T THE RECEIPTS WERE EXEMPT FROM TAX ON THE GENERAL PRINCIPLE OF MUTUALI TY. THE INCOME-TAX OFFICER DID NOT AGREE WITH THE PLEA ON THE GROUNDS THAT IN CLAUSE 7 OF THE MEMORANDUM OF ASSOCIATION, IT WAS PROVIDED THAT, UP ON WINDING-UP OR DISSOLUTION OF THE ASSOCIATION, THE REMAINING PROPE RTY, AFTER THE SATISFACTION OF ITS DEBTS AND LIABILITIES, SHALL NO T BE PAID OR DISTRIBUTED AMONGST THE MEMBERS BUT SHALL BE GIVEN OR TRANSFERRED TO SUCH OTHER INSTITUTION OR INSTITUTIONS HAVING SIMILAR OBJECTS TO BE DETERMINED BY THE MEMBERS AT OR BEFORE THE TIME OF DISSOLUTION, OR IN DEFAULT THEREOF BY THE PRIME MINISTER OF THE EAST PUNJAB AND IF THIS COULD NOT BE DONE, THEN, TO SOME CHARITABLE OBJECT AND HENCE THE AMOUNT WAS NOT TO GO BACK TO THE MEMBERS. THE TRIBUNAL, HOWEVER, HELD THAT THE INCOM E OF THE ASSESSEE WAS NOT TAXABLE. ON A REFERENCE: HELD, THAT THE CONTRIBUTORS BY INCORPORATING CLAUSE 7 DID NOT DEPRIVE THEMSELVES OF THE CONTROL ON THE DISPOSAL OF THE SURPLUS. ULTI MATELY, THEY COULD AGREE TO DIVIDE THE SURPLUS AMONG THEMSELVES OR TO CONTRIBUTE THE A MOUNT TO A SIMILAR ASSOCIATION OR TO A CHARITABLE TRUST. THE ASSESSEE WAS A MUTUAL BENEFIT ASSOCIATION AND ITS INCOME WAS NOT TAXABLE. THE SAID JUDGMENT WAS FOLLOWED SUBSEQUENTLY IN ALL MATTERS ARISING UNDER SECTIONS 256(1) AND 256(2) OF THE ACT. SO, FOR THE ASSESSMENT YEARS WHICH ARE THE SUBJECT-MATTER OF CASES FALLING UNDER GROUP-D STATE D HEREINABOVE, THE ABOVE DECISION IN CIT V. NORTHERN INDIA MOTION PICTURES A SSOCIATION [1989] 180 ITR 160 WAS FOLLOWED AND THE INCOME RECEIVED BY THE ASSESS EE UNDER THE HEAD OTHERS-ADMISSION FEES, READMISSION FEE, PERIODICA L SUBSCRIPTION FROM THE MEMBERS, ETC., WAS HELD TO BE EXEMPT OR NON-TAXABLE ON THE PRINCIPLE OF MUTUALITY. 10. FROM THE ABOVE AND PARTICULARLY FROM THE HIGHLI GHTED PORTION IT IS VERY CLEAR THAT EVEN IF SURPLUS REMAINING WITH THE CLUB OR AN ORGANIZATION AT THE TIME OF WINDING UP ARE DISTRIBUTED TO THE OTHER ORGANIZA TION HAVING SIMILAR OBJECTS EVEN THEN THE EXEMPTION IS ALLOWABLE. THE COURT HAS CLEARLY CONFIRMED THE DECISION OF HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS. 6 NORTHERN INDIA MOTION PICTURE ASSOCIATION 180 ITR 1 00 (P&H) 226 ITR (SUPRA). IN THE CASE BEFORE US, CLAUSE 5(D) READS AS UNDER:- (D) IF UPON THE WINDING UP OR DISSOLUTION OF THE SOCIET Y THERE REMAINS, AFTER SATISFACTION OF ALL ITS DEBTS AND LIABILITIES, ANY PROPERTY WHATSOEVER, THE SAME SHALL NOT BE PAID TO OR DISTRIBUTED AMONG THE MEMBERS OF THE SOCIETY, BUT SHALL BE GIVEN OR TRANSFERRED TO SOME OTHER INSTITUTION HAVING OBJECTS SIMILAR TO THE OBJECTS OF THE SOCIETY TO BE DETERMINED BY MEMBERS OF THE SOCIETY AT OR BEFORE THE TIME OF DISSOLUTION . 11. CLEARLY, THE ABOVE CLAUSE IS ALMOST IDENTICAL A S OBSERVED BY HON'BLE SUPREME COURT WAS THE CASE BEFORE THE SUPREME COURT . THEREFORE, IN OUR OPINION, MERELY BECAUSE ASSETS LEFT AT THE TIME OF WINDING UP ARE REQUIRED TO BE DISTRIBUTED TO OTHER ORGANIZATIONS WILL NOT BAR PA RTICULAR CLUB OR ORGANIZATION FOR CLAIMING EXEMPTION. SECONDLY, THE ASSESSEE HAS NOT FILED ANY APPEAL IN THE EARLIER YEARS BECAUSE THERE WAS NO TAXABLE INCOME E VEN AFTER DENYING MUTUALITY. WHEN THERE IS NO TAX IMPLICATION IT IS NOT NECESSA RY THAT APPEAL SHOULD BE FILED. THEREFORE, IN OUR OPINION THE ASSESSEE IS CLEARLY E NTITLED TO EXEMPTION ON THE BASIS OF MUTUALITY. 12. WE FURTHER FIND FORCE IN THE CONTENTION THAT EN TRANCE FEE HAS TO BE TREATED AS CAPITAL RECEIPT. THE HON'BLE BOMBAY HIGH COURT W AS CORNERED WITH THIS QUESTION IN CIT VS. DINERS BUSINESS SERVICES PVT LT D (SUPRA) AND IT WAS HELD AS UNDER:- HELD, (I) THAT THE COMMISSIONER (APPEALS) FOUND TH AT THE ENTRANCE FEES WERE CHARGED BY THE ASSESSEE FOR ENROLMENT OF ITS C USTOMERS AS MEMBERS OF THE EXECUTIVE CENTRE. THE ENTRANCE FEE S WERE A ONE-TIME FEE AND ONLY MEMBERS WERE ELIGIBLE TO AVAIL OF THE FACILITIES AVAILABLE IN THE EXECUTIVE CENTRE. THE COMMISSIONER (APPEALS) FOUND THAT THE ENTRANCE FEES WERE NON-REFUNDABLE. THE TRIBUNAL WAS RIGHT IN ORDERING DELETION OF RS. 4,08,950 MADE BY THE ASSESSING OFFI CER ON ACCOUNT OF NON-REFUNDABLE ENTRANCE FEES. FROM THE ABOVE IT BECOMES CLEAR THAT ENTRANCE FEE H AS TO BE TREATED AS CAPITAL RECEIPT. THEREFORE, ON THIS ACCOUNT ALSO THE ASSESS EE DESERVES TO SUCCEED. 7 13. THOUGH WE HAVE CLEARLY HELD ABOVE THAT ASSESSEE IS ENTITLED TO EXEMPTION UNDER THE CONCEPT OF MUTUALITY AND THE ENTRANCE FEE HAS TO BE TREATED AS CAPITAL FEE BUT AT THE SAME TIME WE FIND THAT IT IS NOT CLE AR FROM RECORD THE NATURE OF RECEIPTS RECEIVED BY THE ASSESSEE WHETHER THE SAME IS FROM MEMBERS OR NOT AND THESE FACTS HAVE NOT BEEN EXAMINED BY THE ASSESSING OFFICER OR THE CIT(A), THEREFORE, WE SET ASIDE THE ORDER OF LD. CIT(A) AND REMIT THE MATTER BACK TO THE FILE OF ASSESSING OFFICER WITH A DIRECTION TO VERIF Y THE NATURE OF RECEIPT AND IF SAME IS FROM THE MEMBERS THEN ALLOW THE EXEMPTION UNDER THE CONCEPT OF MUTUALITY OTHERWISE THE CASE BE DECIDED IN ACCORDAN CE WITH LAW. 14. IN THE RESULT, ASSESSEES APPEAL IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 06/05/2015 SD/- SD/- (BHAVNESH SAINI) (T.R. SOOD) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 6 TH MAY, 2015 RKK COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR 8