ITO Vs Chembur Gymkhana (ITAT Mumbai)
These four appeals were filed by the revenue against orders of the National Faceless Appeal Centre (CIT(A)) for Assessment Years 2013-14, 2015-16, 2016-17 and 2018-19. The primary issue concerns whether the assessee, a sports trust registered as a public charitable trust since 1975 and registered under section 12A since 1981, is entitled to exemption under section 11 of the Income Tax Act. The assessee’s stated charitable object falls under “general public utility” (GPU), and it provides sports facilities and coaching on government-leased grounds, charging fees from members and non-members.
In past years, the department had treated the assessee as a mutual concern not entitled to section 11 exemption. However, coordinate benches of the Tribunal consistently held that the assessee’s activities constitute GPU and thus qualify for exemption. In the relevant assessment year, the Assessing Officer denied exemption on grounds of section 13 violations, alleging undue benefit to specified persons. The CIT(A) directed the AO to treat the assessee as an AOP, relying on a 2012 jurisdictional High Court decision, and allow expenditure after examination.
Meanwhile, the Supreme Court delivered a significant ruling in ACIT v. Ahmedabad Urban Development Authority (AUDA), interpreting the proviso to section 2(15) for GPU charitable entities. The judgment clarified that after amendments from 2008 to 2015, GPU entities cannot engage in trade, commerce, business, or related services for consideration unless such activity is intrinsically linked to their GPU objectives and receipts from such activities do not exceed statutory quantitative limits (₹10 lakh, ₹25 lakh, or 20% of total receipts depending on the year). It further held that the earlier “dominant object” test from Surat Art Silk is no longer applicable. Charging amounts at cost or nominally above cost may be permissible; however, significantly higher charges would constitute business activity falling under the prohibitory clause. The ruling also reaffirmed that ploughing back profits into charitable activities is no longer a relevant factor.
