Commissioner Of Income Tax (Exemptions v. The Bombay Presidency Gold Club Ltd

(Private Secretary) IN THE HIGH COURT OF JUDICATURE AT BOMBAYO.O.C.J. INCOME TAX APPEAL NO. 235 OF 2017 Commissioner of Income Tax (Exemptions)..Appellant Versus The Bombay Presidency Gold Club Ltd..Respondent ................... Mr. Suresh Kumar for the Appellant Mr. Suresh Kumar for the Appellant Mr. Percy Pardiwalla, Sr. Counsel a/w Mr. Atul Jasani for theRespondentMr. Percy Pardiwalla, Sr. Counsel a/w Mr. Atul Jasani for theRespondent ................... CORAM : AKIL KURESHI & SARANG V. KOTWAL, JJ. DATE : APRIL 2, 2019. P.C.: 1.Revenue is in the appeal against the judgment of theIncome Tax Appellate Tribunal (“the Tribunal” for short). 2.Following question is presented for our consideration:- "Whether on the facts and in the circumstances of the case and inlaw, the Tribunal was justified in allowing the assessee's appeal anddirecting the Assessing Officer to delete the addition of interestholding that the income is exempt u/S. 11(5) and the proviso toSection 2(15) has no application to the facts of the case?" 3.Brief facts are as under:- 3.1Respondent assessee is a Trust registered underSection 12A of the Income Tax Act, 1961 (“the Act” for short).The assessee filed return of income for the assessment year2009-10. The Assessing OfÏcer undertook scrutinyassessment of the return. He passed order under Section143(3) of the Act on 30.12.2011 holding that the assessee’sinterest income of Rs. 2.17 Crores was not exempt from tax.He was of the opinion that by virtue of the inserted proviso toSection 2(15) of the Act, defining the term “charitablepurpose”, the assessee would not satisfy the conditionscontained therein. 3.2 The issue eventually reached the Tribunal. TheTribunal while allowing the appeal of the assessee by theimpugned judgment, noted that the assessee’s principalobject and activity was of providing gold club and alliedfacilities to its members for promotion of the sport. Theassessee had invested its surplus funds in the banks therebyearning interest income of Rs. 2.17 Crores during the periodin question. The Tribunal noted that the Assessing OfÏcer had disallowed the claim on three grounds namely:- (i) Withreference to the proviso to Section 2(15) of the Act; (ii) Thatthe registration of the assessee under Section 12A waswithdrawn and (iii) by relying on the decision of the BombayHigh Court in case of CIT Vs. Common EfÒuent TreatmentPlant[1] to hold that the interest received from the non-members is not exempt on the principle of mutuality. TheTribunal noted that the assessee was incurring losses, theinterest income merely enabled the assessee to reduce theloss. The Tribunal further noted that under Section 11(5) andSection 13(1)(d)(ii), the assessee would be compelled toinvest its surplus funds in specified banks or financialinstitutions failing which the exemption would be withdrawn.The Tribunal was, therefore, of the opinion that the assesseewas under legal obligation to invest such funds in specifiedinstitutions. The Tribunal also noted that the order cancellingregistration under Section 12A of the Act was reversed. TheTribunal was of the opinion that the assessee did not carryout any activity in the nature of commerce or business. TheTribunal, thus, overruled all three objections of the AssessingOfÏcer and held that the interest income was exempt under1[2010] 328 ITR 362 (Bom) Section 11 of the Act. Section 11 of the Act. 4.Having heard the learned counsel for the parties, we donot find any error in the view of the Tribunal. Section 2(15)of the Act defines term "charitable purpose" as to includeactivities such as relief of the poor, education, medical reliefetc., and also "advancement of any other object of generalpublic utility". Proviso to Section 2(15) of the Act providesthat the advancement of any other object of general publicutility shall not be a charitable purpose, if it involves thecarrying on of any activity in the nature of trade, commere orbusiness,or any activity of rendering any service in relationto any trade, commerce or business, for a cess or fee or anyother consideration provided the same is not excluded byvirtue of clauses (i) and (ii) of the proviso with which we arenot concerned. In the present case, the main object of theassessee club as noted above is to provide golf facilities tothe members for promotion of the sport. The Tribunalcorrectly held that there was no element of the assessee'sactivity being in the nature of trade, commerce or business.Once the applicability of the proviso to Section 2(15) of the Act is ruled out, the question of the exemption under Section11 of the Act would arise. 5.Clause (a) of sub-section (1) of Section 11 provides thatsubject to the provisions of Sections 60 to 63, the incomederived from the property held under trust wholly forcharitable or religious purposes to the extent to which suchincome is applied to such purposes shall not be included inthe total income of the previous year of the person in receiptof the income. In the present case, as recorded by theTribunal, the assessee had invested its surplus funds inspecified deposits earning interest which reduced theassessee's loss. In terms of sub-section (1) of Section 11 ofthe Act, therefore, such income was exempt from tax. TheTribunal, therefore, correctly granted relief to the assessee.No question of law arises. 6.Before closing, we may record that we have not basedour reasoning of the principle of mutuality and therefore, thequestion of applicability of the decision of the Bombay HighCourt in case of Common EfÒuent Treatment Plant (Supra) need not be gone into. In the said case, the assessee was anAssociation incorporated under the Companies Act, 1956.The members of the Association were industries operating inThane-Belapur regime. The assessee was set up to providecommon treatment facility for industrial efÒuent. Theassessee therein was thus not a trust and therefore, questionof applicability of Section 11 of the Act to its income was notthe subject matter of examination. 7.In view of the above, the appeal is dismissed. [ SARANG V. KOTWAL, J. ] [ AKIL KURESHI, J ]