B)Whether On The Facts Of The Case And Inlaw The Itat Erred In Not Appreciating Thefact That In The Case Of Escorts Ltd v. Itxa 1764-17

Priya Soparkar IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION INCOME TAX APPEAL NO.1764 OF 2017 Commissioner of Income Tax-(Exemption), Mumbai.… AppellantV/s.Matunga Gymkhana… Respondent --- Mr.Sham Walve with Mr.Pritesh Chatterjee, Advocate forthe Appellant.Mr.Nitesh Joshi with Mr.A.K.Jasanni, Advocate for theRespondent. --- CORAM : UJJAL BHUYAN & MILIND N. JADHAV, JJ. DATE : JANUARY 22, 2020 P.C.:- 1. Heard Mr.Sham Walve, learned standing counsel, Revenue for the appellant; and Mr.Nitesh Joshi, learnedcounsel for the respondent/assessee. 2. This appeal has been preferred by the Revenue under Section 260A of the Income Tax Act, 1961 (briefly"the Act" hereinafter) assailing the order dated 30[th]November, 2016 passed by the Income Tax AppellateTribunal, “B” Bench, Mumbai (briefly “the Tribunal”hereinafter) in Income Tax Appeal No.4468/Mum/2013 forthe assessment year 2009-10. Priya Soparkar “(a) Whether, on the facts and in the circumstances of the case and in law, the ITATwas right in deleting the orders of A.O.without acknowledging the fact that once thetrust loses its character being hit by theproviso to section 2(15) of the Act, the onlyblanket available to it, was principle ofmutuality. Further the ITAT also failed toappreciate the fact that interest incomeearned from non-members could neither beexempted from tax u/s 11 of the Act, as it hadlost its charitable character being hit byproviso to section 2(15) nor could beexempted under the principle of mutuality asthe interest income was earned from non-members? (b)Whether on the facts of the case and inlaw the ITAT erred in not appreciating thefact that in the case of Escorts Ltd. Vs. UOI199 ITR 43 it was held that since section 11of the Income Tax Act provides for deductionof capital expenditure incurred on assetsacquired for the objects of the trust and doesnot specifically & expressly provide fordouble deduction on account of depreciationon the same very assets acquired from suchcapital expenditure, no deduction shall beallowed u/s.32 for the same or any otherprevious year in respect of that asset as itamounts to claiming a double deduction? (c) Whether, on the facts and in thecircumstances of the case and in law the ITATerred in relying upon the judgment of Instituteof Banking Personnel Selection withoutappreciating the fact that Department has notaccepted the said decision on merit, but dueto smallness of tax effect appeal was not filed before Supreme Court. Moreover, Departmenthas filed SLP on the issue of depreciation inthe case of G.D.Birla Medical Research &Educational Foundation in which leave hasbeen granted by the Apex Court- S.L.P.(C)No.24904 of 2016 (C.A. No.8294 of 2016) andis pending for adjudication? (d)Whether, on the facts and in thecircumstances of the case and in law, the ITATerred in relying upon the judgment ofBombay High Court in the case of Institute ofBanking Personnel Selection, ignoring thefact that the Department has not acceptedthe said decision of the jurisdictional HighCourt on merit of the case, but due tosmallness of tax effect appeal was not filedbefore Supreme Court. However, on thisissue the Department has filed SLP beforethe Apex Court in the case of MIDC(SLP) (Civil)9891 of 2014 in which leave has been grantedby the Apex Court after considering the factthat the SLP on this issue in the case of Gem& Jewellary Export Promotion Council wasdismissed by the Apex Court withoutdiscussion?” 4.Assessee is a Trust having registration under 4.Assessee is a Trust having registration under Section 12 of the Act. Object of the assessee is topromote, organize and popularize various outdoor andindoor games like cricket, tennis etc., besides providingcoaching and training facilities and organizingtournaments for the members as well as schools in thevicinity of the assessee. Priya Soparkar 421 itxa 1764-17 5. By the assessment order dated 28[th] December,2011 passed under Section 143(3) of the Act, theAssessing Officer added the following to the total income of the assessee:- (1) Interest income - Rs.2,36,07,023.00 (2) Compensation from Caterer - Rs.16,23,656.00 (3) Miscellaneous income - Rs.20,074.00 (4) Compensation from Decorator - Rs.1,65,630.00 Thus total income worked out was - Rs.2,54,16,380.00 6.Aggrieved by the said additions, respondentpreferred appeal before the first appellate authority i.e.Commissioner of Income Tax (Appeals), Mumbai.However, by the order dated 31[st] March, 2013, the firstappellate authority dismissed the appeal of the assessee.7.Thereafter, assessee preferred further appealbefore the Tribunal. Tribunal by the order dated 30[th]November, 2016, allowed the appeal of the assesseeand deleted the additions made by the Assessing Officeras affirmed by the Commissioner of Income Tax( Appeals). 5 8.Aggrieved, revenue has preferred the present appealbefore us raising the above questions. 9.Submissions made have been considered. 10.In so far addition of interest income ofRs.2,36,07,023.00 is concerned, Tribunal found no meritin the stand taken by the lower revenue authorities.Relevant portion of the order passed by the Tribunal isas under :- 12.6 We have considered the rivalsubmissions. Sections 11 to 13 of the Act dealwith the provisions relating to income derivedproperties held for charitable or religiouspurposes. The assessee before us is a trustregistered under the Bombay Public Trust Act,1950 and also continues to hold theregistration granted to it by the Commissionerof Income Tax under section 12A of the Actsince 5/12/1997 as a charitable trust. Notably,the main objects of the assessee trust arestated to be the promotion of sports, gamesand recreation facilities to the public at largeand for the physical development and healthylife style as well as promotion of othercharitable objects. The factum of thepromotion of sports and games being a‘charitable purpose’ within the meaning ofsection 2(15) of the Act is not in dispute. Infact, the Assessing Officer also does notdispute the fact that the activities of thepromotion of sports and games carried out bythe assessee fall within the meaning of‘charitable purpose’. The assessee trustderives income by way of receipts from its members viz. Membership fee, entrance fee,identity card fee, locker rent, reservationcharges etc. The assessee trust is also earningincomes by way of compensation from catererfrom rent/leasing of premises and suchreceipts in the instant year are of a sum ofRs.16,23,656/-. Further, it has also receivedcompensation from Decorator of Rs.1,65,630/-and Miscellaneous income of Rs.20,074/-.Apart therefrom, assessee has earned interestincome of Rs.2,36,07,023/- on RBI Bonds andother permitted investments as per section11(5) of the Act. The aforesaid incomes,totaling to Rs.2,54,16,380/- have beenbrought to tax by the Assessing Officer asaccording to him the same are not eligible forthe benefits of section 11 & 12 of the Act andsince, they had been derived fromtransactions from non-members, the sameare also not exempt under the principle ofmutuality.” 11.From a reading of the order passed by the Tribunalas extracted above, it is seen that Tribunal has held thatthe interest income was earned from investments madeby the assessee in terms of the prescription containedin Section 11(5) of the Act. Stand of the lower revenueauthorities that benefit of such income cannot be grantedto the assessee in view of the proviso to Section 2(15) ofthe Act was not accepted by the Tribunal. Tribunal rightlyposed the question to itself as to whether the activityof keeping funds deposited in the manner mandated Priya Soparkar 721 itxa 1764-17 by Section 11(5) of the Act can be construed as anactivity in the nature of commerce or business so as tofall within the ambit of the proviso to Section 2(15) ofthe Act. 12.On appreciation of the provisions contained inSection 13 of the Act, Tribunal held that earning fromsuch deposits cannot be viewed as an activity in thenature of trade, commerce or business within themeaning of the proviso to Section 2(15) of the Act.Tribunal also relied upon a decision of its coordinatebench in the case of Bombay Presidency Golf Club Limitedand thereafter, allowed the contention of the assesseeby deleting the said addition. 13.In the course of hearing it has been brought to ournotice that against the order passed by the Tribunal inthe case of Bombay Presidency Golf Club Limited,Revenue had preferred an appeal before this courtbeing Income Tax Appeal No.235 of 2017. This court byorder dated 2[nd] April, 2019, dismissed the appeal of theRevenue by upholding the finding of the Tribunalholding that no question of law arose therefrom. Priya Soparkar 14.Coming to the other three additions, Tribunal heldas under :- “12.8 Likewise, the other three categoriesof income namely, compensation from thecaterer (restaurant), compensation fromdecorator for gymkhana functions andMiscellaneous income are concerned, hereinalso it cannot be said that the same involvecarrying on of any activity in the nature oftrade, commerce or business. It is quite clearthat the scope and ambit of the exemptionenvisaged in sections 11 & 12 of the Actrelate to the receipt of income derived fromthe property held under trust for charitable orreligious purposes to the extent to which suchincome is applied to such purposes in India.Before proceeding further, we may reiteratethat there is no charge against the assessee atany stage that there is an application ofincome for any purpose other than theobjects of the assessee trust. Much has beenmade out by the lower authorities to the factthat assessee has charged a fee for allowinguse of its spots grounds and therefore, it isasserted that such an activity is hit by thedisability contained in the proviso to section2(15) of the Act. In our considered opinion,mere charging of fee ipso-facto would notenable an activity to be governed by theproviso to section 2(15) of t he Act withoutestablishing any profit-motive in the chargingof fees. In this context, one may refer to thejudgment of the Hon’ble Delhi High Court inthe case of GS 1 India (supra), wherein theexpression trade, commerce or business wasbeing examined in the context of situationwhere assessee was charging a fee forrendering services. As per the Hon’ble HighCourt the charging of fee was necessary for carrying out the activities and the sustenancethereof, and, it would not reflect any profit-motive. The judgment of the Hon’ble GujaratHigh Court in the case of Sabarmati AshramGaushala Trust (supra) is also relevant wherethe income earned on account of productionand sale of milk was sought to be coveredwithin the scope of the proviso to section2(15) of the Act on the ground that it amountedto an activity in the nature of trade, commerceand business. The Hon’ble High Courtdisagreed with the view of Revenue and heldthat generation of income by way of sale ofmilk could not be regarded as activity oftrade, commerce and business, consideringthat the object of the trust were breeding ofcattle and cows and oxen. In fact, in the case ofAll India Football 1 Federation (supra), the DelhiBench of the Tribunal was considering receiptby way of sponsorship in the context of theproviso to section 2(15) of the Act. TheTribunal held that the main object of the trustbeing promotion of the game of football,organizing tournaments, training players etc. ,it would not lose its character of beingcharitable in nature merely because therewere receipts by way of sponsorshipbecause the activity of receiving sponsorshipfee could not be construed as an activity inthe nature of trade, commerce and business.In the present case too, objects of theassessee are undoubtedly the promotion ofsports, games and recreation facilities to thepublic at large and such like receipts onaccount of compensation from the Decoratoragainst gymkhana function, miscellaneousincome and compensation from caterer(restaurant) cannot be construed as activity inthe nature of trade, commerce or business forthe purposes of the proviso to section 2(15) ofthe Act. Therefore, having regard to the facts Priya Soparkar and circumstances of the case, in our view, theCIT (A) erred in departing from his stand inearlier years by wrongly relying on the provisoto section 2(15) of the Act in the instant yearbecause the activities in question cannot beconstrued to be in the nature of trade,commerce or business so as to fall within thepurview of the proviso to section 2(15) of theAct. Thus, on this aspect assessee succeeds.” 15. Thus Tribunal held that there was no charge or allegation against the assessee at any stage that therewas application of income for any purpose other than theobject of the Trust. Tribunal opined that mere chargingof fee ipso-facto would not enable an activity to begoverned by the proviso to Section 2(15) of the Act. Inthe present case, Tribunal held that object of theassessee is undoubtedly promotion of sports, games andproviding recreation facilities to the public at large andto the members in particular and therefore receipts onaccount of compensation from decorator againstgymkhana function, miscellaneous income andcompensation from caterer (restaurant) cannot beconstrued as activities in the nature of trade, commerceor business for the purpose of the proviso to Section2(15) of the Act. Priya Soparkar 1121 itxa 1764-17 16.This court in the case of Director of Income Tax(Exemptions) Vs. Shri Vile Parle Kelavani Mandal,(2015) 378 ITR 593 (Bom) has held that educationalinstitutions require funds; activity of letting out of hallsfor marriages, sale and advertisement rights is not aregular activity undertaken as part of business. Incomeis generated by giving various halls and properties ofthe institution on rental basis on holidays when thoseare not required for educational activities. Therefore,such activities cannot be construed to be businessactivities, such activity being an incidental activity; andthus income generated therefrom cannot be broughtto tax. Priya Soparkar 1121 itxa 1764-17 16.This court in the case of Director of Income Tax(Exemptions) Vs. Shri Vile Parle Kelavani Mandal,(2015) 378 ITR 593 (Bom) has held that educationalinstitutions require funds; activity of letting out of hallsfor marriages, sale and advertisement rights is not aregular activity undertaken as part of business. Incomeis generated by giving various halls and properties ofthe institution on rental basis on holidays when thoseare not required for educational activities. Therefore,such activities cannot be construed to be businessactivities, such activity being an incidental activity; andthus income generated therefrom cannot be broughtto tax. 17.This position has also been reiterated by this courtin Director of Income-Tax (Exemptions) Vs. ShreeNashik Panchvati Panjrapole, (2017) 397 ITR 501(Bom) wherein this court referred to the decision of theSupreme Court in Additional CIT Vs. Surat Art SilkCloth Manufacturers Association, (1980) 121 ITR 1(SC).InSurat Art Silk Cloth ManufacturersAssociation (supra), Supreme Court held as under :- “But we find it difficult to accept their thesisthat whenever an activity is carried on whichyields profit, the inference must necessarilybe drawn, in the absence of some indicationto the contrary, that the activity is for profitand the charitable purpose involves thecarrying on of an activity of profit. We do notthink the court would be justified in drawingany such inference merely because theactivity results in profit. It is in our opinionnot at all necessary that there must be aprovision in the constitution of the trust orinstitution that the activity shall be carried onno profit no loss basis or that profit shall beprescribed. Even if there is no such expressprovision, the nature of the charitablepurpose, the manner in which the activity foradvancing the charitable purpose is beingcarried on and the surrounding circumstancesmay clearly indicate that the activity is notpropelled by a dominant profit motive. Whatis necessary to be considered is whetherhaving regard to all the facts andcircumstances of the case, the dominantobject of the activity is profit making orcarrying out a charitable purpose. If it is theformer, the purpose would not be a charitablepurpose, but, if it is the latter, the charitablecharacter of the purpose would not be lost.” 18.Following the Supreme Court decision, this court in Shree Nahsik Panchvati Panjrapole (supra)emphasized that the test that should be applied whetherit was income earned from business or income earnedfrom incidental activity is the test of dominant object ofthe trust i.e., what is the dominant object of the activity. 1321 itxa 1764-17 If the dominant object of the activity is profit making, thepurpose would not be charitable but if the dominantobject of the activity is charitable then notwithstandingmaking of profit, the charitable character of the purposewould not be lost. 19. On careful consideration of the order of the Tribunal, we find that Tribunal has returned a finding of fact on allthe counts to the effect that the income under theabove heads were earned only as activity incidental tothe dominant activity of the Trust and held as under :- 1321 itxa 1764-17 If the dominant object of the activity is profit making, thepurpose would not be charitable but if the dominantobject of the activity is charitable then notwithstandingmaking of profit, the charitable character of the purposewould not be lost. 19. On careful consideration of the order of the Tribunal, we find that Tribunal has returned a finding of fact on allthe counts to the effect that the income under theabove heads were earned only as activity incidental tothe dominant activity of the Trust and held as under :- “Many activities of genuine charitablepurposes which are not in the nature of trade,commerce or business may still generatemarketable products. After setting off of thecost, for production of such marketableproducts from the sale consideration, theactivity may leave a surplus. The law doesnot expect the trust to dispose of its produceat any consideration less than the marketvalue. If there is any surplus generated at theend of the year, that by itself would not be thesole consideration for judging whether anyactivity is trade, commerce or businessparticularly if generating ‘surplus’ is whollyincidental to the principal activities of thetrust; which is otherwise for general publicutility, and therefore, of charitable nature…. Merely because while carrying out theactivities for the purpose of achieving theobjects of the trust, certain incidentalsurpluses were generated, would not render the activity in the nature of trade, commerceor business. As clarified by the Central Boardof Direct Taxes in its Circular No. 11 of 2008,dated December, 19, 2008(2009) 308 ITR(St.)5) the proviso aims to attract thoseactivities which are truly in the nature oftrade, commerce or business but are carriedout under the guise of activities in the natureof ‘public utility’. 20.Therefore, question No.(a) does not arise at all. 21.As to question Nos.(b),(c) and (d), those questionsare covered by the decision of the Supreme Court inCommissioner of Income Tax-III, Pune Vs. Rajasthan and Gujrat Charitable Foundation, Poona, 402 ITR441, whereby those questions have been answered infavour of the assessee and against the revenue. 22. Upon thorough consideration of the matter, we do not find any error or infirmity in the view taken by theTribunal. No substantial question of law arises from theimpugned order of the Tribunal. 23.Appeal is devoid of merit and is accordinglydismissed. No cost. (MILIND N. JADHAV, J.) (UJJAL BHUYAN, J.) ….