Income Tax Appellate Tribunal - Mumbai
Breach Candy Swimming Bath Trust, ... vs Assessee on 30 December, 2014
अिधकरण मुंबई ई, Ûयायपीठ,
आयकर अपीलीय अिधकरण, Ûयायपीठ, मुंबई
IN THE INCOME TAX APPELLATE TRIBUNAL
MUMBAI BENCHES 'E' MUMBAI
ौी जोिग᭠दर ᳲसह, ᭠याियक सद᭭य एवं
ौी आर.सी. शमा[, लेखा सदःय, के सम¢
BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER AND
SHRI R.C.SHARMA, ACCOUNTANT MEMBER
आयकर अपील सं. / ITA No.3825/MUM/2013
िनधा[रण वष[ /Assessment Year: 2013-14
Breach Candy Swimming ITO(E)-1(1),
Bath Trust, Vs. 5th Floor, Piramal Chambers,
66, Bhulabhai Desai Road, Parel,
Mumbai-400026 Mumbai-400012
(िनधा[ǐरती /Assessee) (राजःव /Revenue)
P.A. NUMBER : AAATB0133F
िनधा[ǐरती कȧ ओर से / Assessee by: Shri Jayant Bhatt &
Shri H.N. Motiwalla
राजःव कȧ ओर से/Revenue by Shri Neil Philip
सुनवाई कȧ तारȣख / 17/12/2014
Date of Hearing :
घोषणा कȧ तारȣख / 30/12/2014
Date of Pronouncement :
ORDER
PER JOGINDER SINGH, JM:
The assessee is aggrieved by the impugned order dated 26/03/2013 of the ld. First Appellate Authority, Mumbai. The assessee has raised the following grounds:
i. Under the facts and circumstances of the case and in law the Ld. CIT(A) has erred in confirming the A.O.'s action of assessing the income at `.79,46,609/- as against `. Nil income declared by the assessee.
2 Breach Candy Swimming Bath Trust .
ii. Under the facts and circumstances of the case and in law the Ld. CIT(A) has erred in confirming the A.O.'s action of denying the exemption u/s 11 of the Income Tax Act, 1961 and thereby assessing the income at `.79,46,609/-.
iii. Under the facts and circumstances of the case and in law the Ld. CIT(A) has erred in confirming the A.O.'s action and not appreciating the fact that there had been no change in the activities carried out by the application trust either during the year under consideration i.e. A.Y. 2009- 2010 or in preceding previous years and that, neither its activities were found to be other than that of the object of the trust for which it was formed nor was the same found to be non genuine and hence the assessee should have been allowed exemption u/s 11.
iv. Under the facts and circumstances of the case and in law the Ld. CIT(A) has erred in confirming the A.O.'s action by treating the Income by way of interest as not eligible for exemption on the grounds of mutuality and as such the addition made deserves to be deleted.
Relief Claimed:
i. The assessee should be allowed exemption u/s 11 of the Income Tax Act, 1961 and accordingly the income be assessed as Nil.
ii. Without prejudice to the relief claimed for exemption allowable u/s 11, even on mutuality the addition of `.79,46,609/- made be deleted.
2. At the time of hearing, Shri Jayant Bhatt & Shri H.N. Motiwalla, ld. counsels for the assessee contended that registration u/s. 12A of the Income Tax Act, cancelled by the Department, was restored by the Tribunal vide order dated 30/06/2014 (ITA No.1100/Mum/2012), therefore, the ld.
3 Breach Candy Swimming Bath Trust .
Commissioner of Income tax (Appeals)/Assessing Officer may be directed accordingly. On the other hand, the ld. DR, Shri Neil Philip, though defended the conclusion arrived at by the ld. Commissioner of Income tax (Appeals) but did not controvert the factual matrix as arrived at by the Tribunal in its aforesaid order.
2.1. We have considered the rival submissions and perused the material available on record. The facts, in brief, are that the ld. Assessing Officer assessed the total income of the assessee at `.79,46,609/- in his order framed u/s 143(3) of the Income Tax Act, 1961(hereinafter the Act), denying claimed exemption u/s 11 of the Act treating the trust as mutual concern assessing the claimed income chargeable to tax. The reason for denying the claimed exemption u/s 11 has been discussed in paras 3.1 to 3.13 of the assessment order invoking the provisions of section 2(15) of the Act. The Assessing Officer made the addition amounting to `.79,46,609/-, being the interest, earned by the Trust.
2.2. On appeal, before the ld. Commissioner of Income tax (Appeals), broadly the view taken in the assessment order was affirmed. The relevant portion of the impugned order is reproduced hereunder for ready reference.
"4. The only effective ground .is denial of exemption u/s 11 of the Act.
4.1 The AO held that in view of the amendment to section 2(15) w.e.f. AY:2009-10 and in view of the cancellation of 4 Breach Candy Swimming Bath Trust .
registration by the DITCE), Mumbai, the assessee was not eligible exemption u/s 11 of the Act. "
4.2 The assessee made an alternative plea that in case exemption is not granted, the income should be completed as per mutuality. The AO taxed the interest received from banks and interest on income tax refund by holding that such income would not qualify for mutuality. The relevant portion of the AO's order is extracted below:
On the scrutiny of the above heads of income, it Is seen that the assessee has received income from interest `.79,21,208/- and Income from interest on Income tax refund `.25,401/-. The said income received by the assessee are not In the nature of mutuality and are from non-members. It is seen that the assessee has filed letter dtd.27.12.2011, wherein It has stated that based on mutuality principle, bank Interest may be subjected to tax, However, It has not mentioned the income received from Interest on Income tax refund `.25,401/-, as being offered for tax which Is being taken now.
4.2 The appellant submitted that the issue of cancellation of registration is disputed in appeal before the Hon. ITAT and requested that the appeal may kept In abeyance till its disposal. Alternatively it was submitted that their case was covered by ITAT decision, in the case of Brahman Sabha Trust Dombivli Vs. CIT-1, Thane, ITA No. 1944/M/2010 and Hon. Bombay High Court decision in the case of Goregaon Sports Club 21 Taxmann 479 and claimed that since the appellant was not found to be a non-genuine trust nor there is a deviation in its objects no adverse view should be taken.
5. 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
5 Breach Candy Swimming Bath Trust .
the assessee no longer would be eligible for the exemption. Since, the registration was cancelled w.e.f. A.Y. 2009-10 the question of granting exemption does not arise. In view of this, the AO's action cannot be faulted. Therefore, this ground of appeal is dismissed.
5.1 As regards the claim for mutuality, I find that the AO has taxed only non- mutual income, Therefore, this ground of appeal is dismissed.
6. In the result, appeal is dismissed."
2.3. We are also reproducing hereunder the relevant portion from the order of the Tribunal for ready reference: "3. The assessee is operating as a club, under the aegis of a Trust settled vide Trust Indenture dated February 3, 1876, incorporated with the main object to maintain a salt water swimming bath, and other Trust Premises (refer 'Constitution' I copy on record- which we take cognizance of even as the same is not authenticated, as this is not a' disputed fact). It is also affiliated to Maharashtra State Amateur Aquatic Association, with a view to encourage the sport of swimming. It is registered as a charitable institution under the Act since August, 1974, besides being also registered with the Charity Commissioner, Mumbai since the year 1959. The bath and other facilities of the trust are open for use by its members, various categories of which are provided for by its constitution. The membership is regulated by a Committee managing its affairs, and is further subject to payment of, inter alia, entrance fee and annual subscription. It also maintains a. restaurant, bar and a permit room, receipts from which activities for the previous year relevant to A.Y. 2009-10, were observed by the Id. DIT(E) to be at `.2.69 crores, `.18.26 lacs and `l.29 cr. respectively. Besides, it had 6 Breach Candy Swimming Bath Trust .
receipts by way of 'admission charges' and 'parties collection' (at a total of `.71.68 lacs) and from Gymnasium (at `.7.69 lacs) for the said year. These activities, in the view of the Revenue, were clearly in the nature of trade, commerce or business, and being in excess of `. 10 lacs, not saved from the first proviso to section 2(
15) by virtue of second proviso thereto. The assessee contended that these activities are only ancillary to its main objects, and not carried with the view to earn profit and, as such, do not fall to be considered as in the nature of trade, commerce or business, so as to attract, or be hit by, first proviso to section 2(15). Discussion! Analysis 4.1 The provision reads as under:
'Definitions.
2. In this Act, unless the context otherwise requires,-
(1) ...................
(2) ...................
(15) "charitable purpose" includes relief of the poor, education, medical relief, preservation of environment (including watersheds, forests and wildlife) and preservation of monuments or places or objects of artistic or historic interest, and the advancement of any other object of general public utility:
Provided that the advancement of any other object of general public utility shall not be a charitable purpose, if it involves the carrying on of any activity in the nature of trade, commerce -, .or business, or any activity of rendering any service in relation to any trade, commerce or business, for a cess or fee or any other consideration, irrespective of the nature of use Of application, or retention, of the income from such activity.
7 Breach Candy Swimming Bath Trust .
Provided further that the first proviso shall not apply if the aggregate value of the receipts from the activities referred to therein, is ten lakh rupees or less in the previous year.' Clearly, the meaning and scope of the words 'trade, commerce or business' occurring in the first proviso is of prime relevance in determining if the assessee's activities are in the nature thereof, or constitute any service in relation thereto. This is as it is only in that case that the same (activities) would stand to be regarded as covered by the. said proviso to section 2(15) where a fee or other consideration is charged in its respect. The same stand considered, and in the context of section 2(15), by the hon'ble Delhi high court in the case of Institute of Chartered Accountants of India vs. Director General of Income-tax (Exemptions) [2012] 347 ITR 99 (Del), In its words:
'The most material and relevant words in the proviso arc "trade, business or commerce". The word "business" is a broad term and it encompasses trade, commerce and other activities. A business activity has lour essential characteristics. Firstly, a business must be a continuous and systematic exercise of activity. The second essential characteristic is profit motive or capacity of producing profit. Thirdly, the essential characteristic is that a business transaction must be between two persons. Business is not a unilateral act. It is brought about by a transaction between two or more persons. And, lastly, the business activity usually involves a twin activity. There is usually an element of reciprocity involved in a business transaction. A very broad and extended definition of the term "business" is not intended for the purpose of interpreting and applying the first proviso to section 2( 15) of the Act to include any transaction for a fee or money. An activity would be considered "business" if it is undertaken with a profit motive, but in some cases this may not be determinative. Normally, the profit motive test should be satisfied but in a given case activity may be regarded as business even when profit motive cannot be established/proved. In such cases, there should be evidence and material to show that the activity has continued on sound and recognised business principles, and pursued with reasonable continuity. There should be facts and other 8 Breach Candy Swimming Bath Trust .
circumstances which justify and show that the activity undertaken is in fact in the nature of business. ' [emphasis, ours] Coming to the facts of the case, our first observation in the matter is that apart from the receipts specified by the competent authority in the impugned order, the assessee also charges subscription to its Members, which would be either by way of an annual, mandatory charge, or toward specific services being availed of by its Members. That, in fact, at `.378.38 lacs (for A.Y. 2009-10), constitutes its principal source of revenue: The same would stand to be counted as much as the other receipts afore- noted, i.e., while considering the activities being carried on by the assessee, in-as-much as these are only for or toward either general or specific activities carried on by the assessee-trust, or the services provided to its Members thus, for a charge. That is, we find no basis to exclude the said receipt, which forms as much a part of the fees or other consideration charged by the assessee therefrom.
4.3 Our second observation is that the assessee is admittedly a club. In fact, one of the arguments raised before us by the ld. Departmental Representative (DR) was that the assessee's rules and procedures with regard to the admission or new members are very restrictive, doing so very selectively, so much so that the same could be regarded as discriminatory and, in any case, exclude the assessee from being considered as a public body. That being the case, we wonder as to how the assessee's activities could be considered as or said to be in the nature of trade, commerce or business, which could only be with someone outside oneself. All the noted receipts, including subscription, which arise to it from year to year, are only from its Members and, thus, governed by the principle of mutuality. As explained 9 Breach Candy Swimming Bath Trust .
by the tribunal in the case of Hatkesh Co.op. Hsg. , Soc. Ltd. vs. Asst. CIT [2013] 27 ITR 494(Mum.)(Trib), with reference to a host of decisions, the concept of 'income' and 'mutuality' are mutually exclusive. That trade, commerce or business, or the activities comprising it, could be carried with one's own self, in-as-much as the 'members' are to be regarded as forming one composite body, is just as inconceivable and inherently contradictory as is the concept of 'mutuality' and income'. In fact, the activities comprising or liable to be construed as constituting or amounting to trade, commerce or business, are in fact toward and only with an underlying view to earn profit. The assessee's only receipt from non-members, as we gather from the assessment order for A.Y. 2009-10 (copy on record), is on account of interest, partly. from the Department itself (`.25,40l/-), and the balance from others (at `.79.21 lacs), and brought to tax by the Assessing Officer (A.O.) on that score, being not governed by mutuality, adverting to the decision in CIT vs. Common Effluent Treatment Plant (Thane Belapur) Association [2010] 328 ITR 362 (Born). Interest, as we observe, again constitutes a regular source of the assessee's receipts; it having accumulated and, thus, managing a sizeable fund of liquid assets in the form of 'cash and bank balances' and 'loans and advances', being in the sum of `. 940 lacs and ` 168 lacs respectively as at 31.03.2009. The same (interest), in the facts and circumstances of the case, could not be considered as arising from any activity in the nature of trade, commerce or business, or from any service in relation thereto. There is no whisper in the orders of the authorities below of the assessee engaging in or undertaking any financing business, assuming risk to generate a higher yield by way of interest. The same, therefore, as appears to us, is only by way of parking its 10 Breach Candy Swimming Bath Trust .
funds, deemed surplus for the time being, thereby augmenting its revenues to meet its regular costs or even to generate a surplus, but for which perhaps the assessee would have to consider charging a higher premia to its member-subscribers. The same, thus, cannot be considered as being in the nature of trade, commerce or business or toward any service in relation thereto, for a charge, attracting first proviso to section 2(15). In fact, i~ is nobody's case that it is so.
Findings 5.1 Under the circumstances, we are unable to see as to how; the assessee being admittedly a mutual concern, could any part of its activities be considered as amounting to or being in the nature of trade, commerce or business. The same, rather, is incapable of giving rise to income. Further and to the extent it is so, i.e., the activity yielding income, being interest on the deposit of liquid funds, in our view, as indeed in that of the Revenue itself is not in the nature, of trade, Commerce or business or constitutes a service in relation thereto. Accordingly, the first proviso to section 2(15) would not apply to the assessee. There is consequently no question of its activities, viz. running a restaurant, bar, permit room, etc., as constituting a trade or business, which could only be between two separate persons. :' 5.2 Further, even where the consideration of the assessee being a mutual concern, ousting its case from being viewed as involving any activity in the nature of trade, commerce or business, was absent, the matter would require being visited in a holistic and comprehensive manner. Each of its activities, including the user of the swimming bath by the public, letting its premises for parties, etc. would stand to be examined with reference to the dominant object and function inasmuch as what is to be seen is if 11 Breach Candy Swimming Bath Trust .
it involves carrying on a tirade, etc. Questions as: Is the activity integral 10 the functioning of the assessee, so as so be regarded as being involved in executing its object and satisfying its mandate, would assume significance. The second aspect is if it in the nature of business, implying it being carried Oil sound and recognized business principles, pursued with reasonable certainty and continuity, as explained in ICAI (supra). These and like issues, not arising in the present case due to we having found the assessee to be essentially a mutual concern, are stated to emphasize the parameters that would require to be looked into and examined for the purpose of deciding the issue. 5.3 Reliance was placed before us on the decision in the assessee's own case by the hon'ble jurisdictional high court (reported [1955] 27 ITR 279 (Born)) and by the Special Bench of the tribunal (in ITA Nos.9039/B0m/1992, 9325/B0m/1992 and 4627/B0m/1993 dated 26.12.2000/copy on record), holding it to be a charitable institution engaged in advancement of an object of general public utility and, further, despite it running a bar, etc. inasmuch as the said business would stand to be regarded as a property' held under trust. The said reliance, in our view, is not relevant in the context of the issue arising, i.e., the Application of first proviso to section 2(15) and, consequently, it on the withdrawal of the registration as a charitable institution under the Act. The question of application of the first proviso to s. 2(15) arises only for the reason that the entity is otherwise covered by the main provision of the said sub-section, so that its activities are regarded as charitable. • 'In fact, the argument with regard to the swimming bath being a monument, so that its preservation is, by definition, itself a charitable purpose, was also raised before us. The 'same 12 Breach Candy Swimming Bath Trust .
amounts to raising a fresh issue, not arising out of the order of the competent authority and not forming part of the Revenue's objection and, thus, its case. Accordingly, we find no reason or basis for examining the same. Rather, the same would, on the contrary, throw up another set of question for being answered, viz. Is the monument notified with the concerned authorities, having the mandate under law for its preservation, following the prescribed procedure in its respect?; Is not its' operating as a club, with private membership, inconsistent with the public character of the object?; How are the activities of running a restaurant, bar, etc., ancillary and in promotion of the object?, and so on. As we see it, the assessee, where claiming to be a charitable institution on that ground, would perhaps require complying with the procedure for being regarded as so. The said argument consequently is of no moment. The same reason/s would also hold for our disregarding the Revenue's argument made before us of the assessee, in view of its management practices, not qualifying to be a public body. Conclusion
6. In view of the foregoing, for the reasons afore-stated, in our view, the assessee is not hit by the first proviso to section 2(15) of the Act. The further question of it leading to, or not so, withdrawal of its registration as a charitable institution under the Act would, therefore, not arise in the facts and circumstances of the case. We decide accordingly.
7. In the result, the assessee's appeal is allowed. 2.4. We have considered the rival submissions and perused the material available on record. If the conclusion drawn in the assessment order/impugned order, material available on record, order of the Tribunal restoring registration u/s 12A of the Act 13 Breach Candy Swimming Bath Trust .
and the assertions made by the ld. respective counsel, if kept in juxtaposition and analyzed, we note that the Tribunal has dealt with the issue at length by concluding that the assessee is not hit by the first proviso to section 2(15) of the Act and further restoring the registration u/s 12A of the Act. In view of these uncontroverted facts, we direct the Assessing Officer to frame the assessment afresh considering the aforesaid order of the Tribunal dated 30th June, 2014 (supra). The assessee be given opportunity of being heard with further liberty to furnish evidence if any, in support of its claim. The appeal of the assessee is allowed for statistical purposes.
Finally, appeal of the assessee is allowed for statistical purposes.
This order was pronounced in the open court in the presence of ld. Representatives from both sides at the conclusion of the hearing on 17/12/2014.
Sd/- Sd/-
(R.C.SHARMA) (JOGINDER SINGH)
ACCOUNTANT MEMBER JUDICIAL MEMBER
MUMBAI, DATED - 30/12/2014
f{x~{tÜ? P.S/.िन.स.
आदे श कȧ ूितिलǒप अमेǒषत/Copy
षत of the Order forwarded to :
1. अपीलाथȸ / The Appellant
2. ू×यथȸ / The Respondent.
3. आयकर आयुƠ(अपील) / The CIT(A)-
14 Breach Candy Swimming Bath Trust
.
4. आयकर आयुƠ / CIT
5. ǒवभागीय ूितिनिध, आयकर अपीलीय अिधकरण, मुंबई / DR, ITAT, Mumbai
6. गाड[ फाईल / Guard file.
आदे शानुसार/ ार BY ORDER, स×याǒपत ूित //True Copy// उप/सहायक उप सहायक पंजीकार (Dy./Asstt. Registrar) आयकर अपीलीय अिधकरण, अिधकरण मुब ं ई / ITAT, Mumbai