ITAT ‘E’ BENCH: MUMBAI Allowability of exemption under section 11 of IT Act, 1961 claimed by a trust/club engaged in, inter alia, advancement of sports, games and athletic activities.

Allowability of exemption under section 11 of IT Act, 1961 claimed by a trust/club engaged in, inter alia, advancement of sports, games and athletic activities.

If the activities undertaken by the trust are undisputably for the well being of a section of the public at large, it meets the requirements of both the expressions i.e. ‘general public’ and the ‘general public utility’ as per section 2(15) of the Act; so long as the public utility motive is disproved by the revenue, the claim of exemption under section 11 cannot be denied merely based on the filmsy grounds that the assessee-trust/club serves alcohol to the members and their friends in the club; serving alcohol is part and parcel of the activities of any club and it is an integral part of the activities of the club.

ITAT ‘E’ BENCH: MUMBAI

ADIT (Exemption)

v.

The Chembur Gymkhana

ITA No. 3899/Mum./2006
August 24, 2009

RELEVANT EXTRACTS:

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16. We heard both the parties and perused the orders of the revenue as well as other records available before us. The issue before us is whether the assessee is the charitable organisation and entitled to the benefits u/s 11 or alternatively the mutual organisation is controlled by the principles of mutuality. In brief, the case of the assessee is that he is a charitable organisation and the objects and the activities of the club confirm the same and rely on various judicial findings such as the AP High Courts judgment in the case Andhra Pradesh Riding Club (supra) for the proposition that the object to promote and popularise the equestrian games and to impart training in the art of horsemanship is of general public utility. On the other hand, the case of the revenue is that the assessee did nothing charitable and the dominant object of the assessee to provide amenities and facilities to the members of the club, which is a characteristic feature of a mutual organisation. Regarding the activities enlisted above by the assessee, the revenue considers all of them as tall-claims and factually, the assessee did not carry out any activity which can be described as charitable nature. As per the revenue, the dub did nothing extraordinary to qualify the charitable nature, which is not done by other agencies considered mutual organisations. As per the revenue, under the circumstances of the diversion of funds to the building funds and trading on alcohol to the members and their guest, the club does not become charitable entity and such activities are not of general public utility. Sports activities are not the dominant activity of the club. To become entitled for exemption u/s 11 of the Act, the trust must exist wholly for charitable purposes.

17. We have considered the above rival views and also examined the annual accounts of trust which are placed at pages 22 to 44 of the paper book. For deciding the issue whether the assessee is the charitable organisation or the mutual organisation, the following aspects require detailed analysis and they are: (A) the object of the trust, which is engaged in running a club to translate its objects; (B) the activities of the club; (C) restrictions on the admission of the members to the club; and (D) generation of income _ and application of income. The relevant discussion is given in the following paragraphs.

(A) (i) The assessee is registered under Bombay Public Trust (BPT) Act, 1950 since February, 1975 and also registered under old provisions of section 12A of the Income-tax Act I April 1981 and assessee claims that it is charitable club. Thus, the club is regulated by the trust's objects and the objects assume importance. Relevant objects of the club read as follows.

(a) to provide as far as possible for general public utility grounds and buildings, convenient, desirable or necessary for games and sports generally both indoor and outdoor and all things commonly or conveniently used for the same;

(b) to promote or manage or assist in the promotion or management of all forms of social intercourse or athletic sports, pastimes and of cultural and educational activities for its members.

The perusal of the above objects shows that the trust is engaged in the broad areas of games and sports as well as in promotion or management of social intercourse or athletic sports and cultural and educational activities for its members. Considering the fact that the above objects are undisputedly in existance, we proceed to examine whether the activities of the club are in tune with its objects and these activities constitute the general public utility as per section 2(15) of the Act.

(ii) Regarding the issue of the charitable nature of the object of the trust and the 'general public utility', we find that section 2(15) is the relevant one and the amended provisions after 1.4.1984 reads that *2(15) charitable purpose includes relief of the poor, education, medical relief, and the development of any other object of general public utility; "These provisions define the expression' charitable purpose' and area of interest for the present appeal is with regard to the expression 'the development of any other object of general public utility'. In the light of these basis facts on the objects of the club as well as the legal provisions, we need to examine the scope of the expression 'general public utility' as well as if the objects of the club are covered by the said expression.

(iii) On the scope of the expression "general public utility', it is relevant to mention that this phrase has two shades ie what constitutes the 'general public' and the 'general public utility'. In this regard, there is lot of information in the form of judicial pronouncements. In so for as 'general public' is concerned, it is a decided issue that, where a section of people alone are benefited, the requirements of said expression are met and the judgment in the case of Andhra Pradesh Police Welfare Society (148 ITR 287) (AP) is relevant. The AP High Court ruled that "to serve a charitable purpose, it is not necessary that the object should be to benefit the whole of the mankind or all persons living in a particular country or province. It is sufficient if the intention is to benefit a section of the public as distinguished from specified individuals (page 295) ". On the issue of 'general public utility', the Bombay High Court held that in the case of Breach Candy Swimming Bath Trust (27 ITR 279), it is held that the object of setting up swimming pool for European public satisfies the condition of general public as well as the charitable purpose. Thus, the general public does necessarily mean entire public Benefits to the members of the club are mere incidental and thus such benefits do not decide the issue of the meaning of the 'general public' as well as the charitable nature of the club. Now, we shall proceed to examine if the assessee's object of promotion of the sports, games, athletic activities, couching and trainings in these activities, allowing the assets of the club for such activities etc constitutes the 'object of the general public utility'. It is a settled issue that the object of advancement or promotion of trade, commerce and industry which results into the economic prosperity is an object of general public utility (55 ITR 722)(SC). AP High court held in the case of Andhra Pradesh Riding Club (168 ITR 393) held that the object of participation in games by discerning sections of the public leads to their physical well being which is a sine que non of a healthy society and so is of general public utility and in this regard, the ratio of the Madras High Court's judgment in the case of Ootacamund Gymkhana Club (HOUR 392) is also relevant and shares the views of the AP High Court. The games, sports and athletic activities for the general public and other related activities such as coaching or training by the charitable clubs are aimed at well being of their member in terms of the health needs, Jitness in physique and in mind etc. Thus, these activities enlisted by the assessee with the object to encourage or promote and to advance the games, sports, athletic activities and cultural activities etc are of general public utility.

18. From the above analyses of the scope of the expressions 'general public utility* and 'general public' it is inferred that if the activities under taken by the trust are undisputedly for the well being of a section of the public at large, it meets the requirements of both the expressions i.e. 'general public' and the 'general public utility'. We will proceed to consider the objection of the revenue and they are (i) the assessee is not meant for general public as the benefits are largely aimed at the members of the club along with the families and friends and guest of the members of the club, (ii) the activities of the club are essentially not for advancement of the sport & games activities and it is merely for providing eatable and providing alcohol to the members and their guests and (iii) sports activities are very marginal and negligible. A. Regarding the arguments on the issue at (i) above, it is relevant to mention that the club has variety of members namely, old and young, men and women, rural and metropolitan, corporate and non corporate, public servants and private, permanent and temporary, service membership or otherwise etc. The club is not meant for a group of private families. In our opinion, such variety of members represents a cross section of the public at large. Under these circumstances, it cannot be held that club's object of general public is faulty. On the issue of restriction on the membership admission, it is a decided issue and so long as the members' admission into the club is not arbitrary, the committee's discretion to restrict the membership does not interfere with the object of general public utility. It is so held in the case of Andhra Pradesh Riding Club (supra) and the relevant paragraphs at page 400 read as under.

"The immediate question, therefore, is whether the dub restricted its membership only to a specified class of the public. It is true that there is a discretion given, under article 20 of the constitution of the club, to the managing committee to reject application for membership if it finds that the person who applied for the membership is not a desirable person to be admitted and the discretion is absolute and final. But it is not an arbitrary discretion. If a person satisfies all the requirements prescribed under the _ constitution of the club and if he is unjustly refused admission to the membership or there is a colourable exercise of power, it is always open to him to go to a court of law and establish his right to admission subject to satisfying the bye-laws of the club. If the bye-laws are bad, it is always open to assail the legality thereof. There is no prohibit as such under the articles or the rules of the club to any member of the public to become a member of the club. Public need not mean the enure public. A section of the public would be enough but admission must be thrown open to the general public. We find no restriction. The club is also conducting annual meets in riding, mounted sports, racing and polo. It is open to all the persons of general public, who have the art of horsemanship, to participate in it There is no prohibition for them to participate in the annual meets. Therefore, considered from any perspective, we are inclined to take the view that it is open to every member of the public to become a member of the club and as of right call upon the committee of the club to admit and impart training in the art of horsemanship in the equestrian games. The trust or association or club which ensures the development of sports can, therefore, legitimately be said to carry on an object of general public utility. Therefore, we do not have hesitation in concluding that the object to promote the popularise equestrian games and to impart training in the art of horsemanship is of general public utility." (Emphasis supplied)

As such, the revenue has not made out any case to demonstrate that the objects of the club are bogus by advancing any sound reasoning and evidences. The revenue has not made out a case to say that the club and its assets, if any, are not meant for sports and games and the club has failed 'to promote or manage or assist in the promotion or management of all forms of social intercourse or athletic sports, pastimes and of cultural and educational activities for its members'. Further, the revenue has not gathered any evidences to demonstrate that the sports and games related activities and their promotion for the members of the club are not in the nature of 'general public utility'. It is also relevant to mention that the clause 98 of the trust provides for the transfer of the assets of the trust on dissolution to the entity with similar objects ie charitable objects.

Therefore, we find no reason to deny the benefits available to any club for charitable purpose to the assessee.

B. Regarding the other issue at (ii) above that the activities of the club are essentially not for advancement of the sport & games activities and it is merely for providing eatable and providing alcohol to the members and their guests, we have examined the settled position of law on the subject. As already stated, the object of constructing a swimming pool for European public, object of advancement or promotion of trade, commerce and industry which results into the economic prosperity, object of participation in equestrian games by discerning sections of the public constitutes an object of 'general public utility. Pages 5 to 29 of the paper book have been perused and found they demonstrate the section wise details of the sport activities and the relevant income and expenditure figures. It is noticed from these pages that the assessee is engaged in the activities for advancement of various sports activities such as ball badminton, shuttle badminton, Billiards, Cards, lawn tennis, cricket, table tennis, roller skating. During the year, assessee has couched number of participants in the above sports and games. Further, it is noticed that the assessee spent Rs 52,00,588/- during the AY 1996-97 and Rs 96,15,780/- for the AY 1997-98 (page 11 of the paper book) on the construction of swimming pool. Under these factual circumstances and also in the light of the above judicial findings, we are of the opinion that the assessee's object to provide for land & buildings for the broad areas of games and sports as well as for promotion or management of social intercourse or athletic sports and cultural and educational activities for its members and others constitute the object of general public utility. It is also relevant to mention that, to become charitable, the assessee is only to qualify the conditions specified in the provisions of section 2(15). Once the assessee club cross this gate, next issue is whether the assessee has met the conditions of section 11 of the Act to avail exemption. In order to avail exemption, one of the conditions to be satisfied by the assessee is the aspect of the "income derived from the property'. The club being the property of the Trust, the income when derived from such property is exempt from tax. So long as the public utility motive is disproved by the revenue, the claim of exemption u/s 11 cannot be denied merely based on the flimsy grounds that the assessee serves alcohol to the members and their friends in the club. Serving alcohol is part and parcel of the activities of any club and it is an integral part of the activities of the club. In the circumstances, when the club is not created for the object of promoting the alcoholism among the general public, the decision of the revenue in disqualifying the assessee - trust/club to the benefits of the provisions of section 2(15) of the Act is unapproved. Thus, this part of the argument of the revenue is dismissed.

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