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I-T - A club open to a section of community cannot be construed to be set up for benefit of an individual or class of individuals: ITAT


BY TIOL News Service

MUMBAI, JUNE 14, 2018: THE ISSUE AT HAND IS - Whether a club which is open to a section of the entire community can be construed to have been established for the benefit of an individual or a select group of individuals. NO IS THE ANSWER.

Facts of the case

The assessee is registered as a charitable organization u/s 12A of the Act. The assessee had filed returns for relevant AY claiming exemption u/s 11 of the Act. During assessment proceedings, the AO observed that the main object of the assessee is to impart training and coaching in various sports disciplines. The AO further observed that the assessee derived income from hiring and royalty & called upon the assessee to explain as to why the benefit of exemption claimed u/s 11 would not be denied as its activities came within the ambit of proviso to section 2(15) of the Act. Later, the AO dismissed the assessee's contentions and denied the benefit of exemption claimed u/s 11 but allowed the benefit of mutuality in respect of assessee's main activity. The assessee's income generated from hiring and royalty and other services was treated as business income. On appeal, the CIT(A) directed the AO to allow the benefit of exemption claimed u/s 11 of the Act. Hence the Revenue's appeal.

On hearing the matter, the Tribunal held,

++ the co-ordinate bench of ITAT, Mumbai G-Bench in ITA No.2139/M/2016 for assessment year 2011-12 has allowed the benefit of exemption under section 11 of the Income Tax Act, 1961; the Bombay High Court in the case of DIT (Exemption) vs. Goregaon Sports Club has held that providing sports facilities to general public without restriction of any caste, creed, religion or profession is eligible for exemption u/s 11 of the Act. The relevant portion of the order is " .. the membership of the club is open to a section of the community would not detract from the fact that the club has been constituted for the advancement of any other object of general public utility, and the Club is not formed for the benefit of an individual or a group of individuals as such. For affirming that the object of the Club falls within the purview of Section 2(15), the Assessing Officer should determine whether as regards the application of the funds, the requirements of section 11 have been duly fulfilled...." ; following the decision of Bombay High Court in assessee's own case for assessment year 2003-04, it was noted that the assessee was eligible for exemption u/s 11 of the Act. The AO was directed to allow the benefit of exemption under section 11 of the Income Tax Act, 1961.

(See 2018-TIOL-848-ITAT-MUM)