Cricket Club of India Pvt. Ltd. Vs CIT (ITAT Mumbai)
Held that activity of cricket by the club cannot be said to be in the nature of trade or business.
Facts-
The assessee club is incorporated under the Companies Act of 1913 and came into existence on 9.11.1933 as a company limited by guarantee, each member guaranteeing contribution of Re. 1 each towards debts and liabilities including expenses costs and charges in the event of the company being wound up. The assessee is claimed to be a ‘mutual concern’ income of which is not chargeable to tax on principles of mutuality. This claim has been accepted in the past by the revenue.
The ROI for the Asst Year 2010-11 was filed by the assessee on 15.10.2010 declaring a total income of Rs. 1,93,57,341/-. The assessment u/s. 143(3) was completed vide order dated 30.03.2013 assessing the total income at Rs. 5,98,30,570/-. During the assessment proceedings, the assessee has also submitted revised computation of total income of Rs. 5,71,00,430/- by offering interest income & capital gains to tax pursuant to decision of Hon’ble Supreme Court in Bangalore Club Vs CIT reported in 350 ITR 509 (SC).
AO after due application of mind has added catering income by treating the said receipt being not covered under principle of mutuality. Thus, AO has accepted the applicability of Principle of Mutuality in respect of the majority receipts claimed by the assessee. However, PCIT has issued vide show cause notice u/s. 263 dated 19.01.2015 for revision proceedings as in his view the assessment order was erroneous and prejudicial to the interest of the revenue.
Conclusion-
Held that the assessee is a mutual association and the income from property let out to members is exempt from tax on the principle of mutuality.
Held that the fundamental nature of transaction which was examined year after year, has remained the same, the Ld. CIT was not entitled to pass a revision order u/s 263 of the Act and take a different view.
Hon’ble SC in the case of Cricket Club of India Vs. Bombay Labour Union and another has held that an activity in the course of promotion of the game of cricket and it is incidental that the Club is able to make an income on these few occasions which income is later utilized for the purpose of fulfilling its other objects as incorporated in the Memorandum of Association. The holding of the Test Matches is primarily organized by the Club for the purpose of promoting the game of cricket. Accordingly, the Hon’ble Supreme Court held that this activity by the Club cannot, by itself lead to the inference that the Club is carrying on an industry.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
This appeal in ITA No.3282/Mum/2015 preferred by the order against the revision order of the ld. Commissioner of Income Tax-1, Mumbai u/s.263 of the Act dated 30/03/2015 for the A.Y.2010-11.
2. The assessee has raised the following grounds of appeal before us:-
“1.(a) On the facts and in the circumstances of the case and in law, the learned Commissioner of Income Tax erred in initiating proceedings u/s.263 of the Income Tax Act, 1961 vide show-cause notice dated 19.01.2015 and passing the order u/s. 263 of the Income Tax Act, 1961 and the reasons assigned by him for doing so are wrong and contrary to the facts of the case, the provisions of Income Tax Act, 1961, and the Rules made thereunder.
1. On the facts and in the circumstances of the case and in law, the appellant prays that the order of the learned CIT passed u/s.263 of the Income Tax Act, 1961 may be cancelled being void ab-initio and bad in law.
1. (c) The Id. Commissioner of Income Tax erred in invoking the provision of section 263(1) of the Income Tax Act, 1961 without appreciating the fact that the ld. Assessing officer action was in accordance with law as after making all possible enquiries, examination of facts and proper application of mind, completed the assessment of the assessee u/s 143(3) of the Income Tax Act, 1961 and thereby erred in presuming that the assessment has been passed under blind assumption of assessee being a mutual concern.
1.(d) On the facts and in the circumstances of the case and in law, the learned Commissioner of Income Tax erred in setting aside the assessment and directing the ld. Assessing Officer to make fresh assessment and the reasons assigned by him for doing so are wrong and contrary to the facts of the case, the provisions of Income Tax Act, 1961, and the Rules made thereunder.
1.(e) On the facts and in the circumstances of the case and in law, the learned Commissioner of Income Tax erred in passing the order u/s. 263 of the Income Tax Act, 1961 on a ground of complete absence of application of mind by assessing officer and thereby erred in treating order of assessment perverse erroneous and prejudicial to the interest of the revenue which is wrong an contrary to the facts of the case, the provisions of Income Tax Act, 1961, and the Rules made thereunder.
1.(f) On the facts and in the circumstances of the case and in law the learned CIT erred in not appreciating the position in law that the suo-moto revisional authority is not empowered to substitute his own judgement for that of the subordinate officer unless the decision of the subordinate officer held to be erroneous, perverse or contrary to law.
2.(a) On the facts and in the circumstances of the case and in law the learned CIT grossly erred in passing the order u/s.263 of the Income Tax Act 1961, by raising an entirely new issue which was never raised in any of the two show cause notices dated 19.01.2015 and 18.02.2015 issued to the appellant u/s.263 of the Income Tax Act, 1961. Hence, the learned CIT’s order dated 30.03.2015 is void ab-initio and not in conformity with the provisions of section 263 of the Income tax Act, 1961 and needs to be quashed in its entirely.
The following ‘new’ issues have been raised and made a basis of revision u/s 263:
(i) whether contributions made by members and their guests, including temporary members are covered by the principles of mutuality.
(ii) whether the activities of the appellant club are run so as to treat members and non-members at par in relation to provision of facilities.
(iii) whether the activities of the company are for the benefit of third party and outsiders as well.
(iv) whether income from flats is chargeable to tax as income from House Property in the facts of the case.
(v) whether guests of members are sufficiently limited in number so as to be treated as guests of members or are so large as to be qualified as outsiders permitted to use the facilities of the club.
(vi) whether temporary members can be categorized as outsiders admitted to benefits of the facilities provided by the assessee..
(vii) AO shall analyse whether receipts from members by way of entry fees and annual subscription etc. and remaining varieties of receipts are to be brought to charge of tax and under which head of income.
3.(b) On the facts and in the circumstances of the case and in law, the learned Commissioner of Income Tax erred in passing said order which is beyond the reasons mentioned in the two show cause notices issued u/s 263, which is wrong and contrary to the facts of the case, the provisions of Income Tax Act, 1961, and the Rules made thereunder.
3.(c) On the facts and in the circumstances of the case and in law, the learned Commissioner of Income Tax erred in giving a finding that the assessee company is not a mutual company being devoid of any mutuality by the very structure of membership, their contributions by way of entrance fee and annual and local subscription and, the limitations on the kind of and consequently number of members entitled to surplus on dissolution.
3.(d) On the facts and in the circumstances of the case and in law, the learned Commissioner of Income Tax erred in stating that class of temporary members is merely a surrogate membership for permitting outsiders to enjoy the benefit of amenities and facilities of the appellant club otherwise available to non temporary members.
3.(e) On the facts and in the circumstances of the case and in law, the learned Commissioner of Income Tax erred in giving a finding that none of the receipts of assessee whether in the form of contributions by members as fee or subscription or by way of charges for particular game or sports shall be exempt from taxation” which is wrong and contrary to the facts of the case, the provisions of Income Tax Act, 1961, and the Rules made thereunder:
2.(f) The ld.CIT failed to appreciate that existence of different classes of membership having varying subscription rates, rights and entitlements to facilities/surplus does not affect the principles of mutuality in term of Bombay High Court decision in case of CIT Vs. Willingdon Sports Club (302) ITR 279).
(i) On the facts and in the circumstances of the case and in law, the learned Commissioner of Income Tax failed to appreciate that entitlement of certain classes of members to sharing of surplus on dissolution cannot be the reason/ ground to deny the benefit of principle of mutuality.
3.(f) The ld. CIT failed to appreciate the following facts:
(i) Receipts generated from the members are not taxable on the principle of mutuality as upheld by Hon’ble SC in the case of Bankipur Club Ltd.and receipts from non-members which have been offered to tax will not affect the mutuality of receipts from members.
(ii) The said position has been accepted by the income tax department in all previous assessment year as such the action of Id.CIT to set aside the sustained position is not appropriate as per ruling of SC in case of Radhasoami Satsang (193 ITR 321).
3.(g) On the facts and in the circumstances of the case and in law, the learned Commissioner of Income Tax erred in observing that one to one identity between contributors and participators is altogether missing in appellant’s case, without appreciating the fact that the condition requiring that the contributors to the common fund and the participators in the surplus must be an identical body does not necessarily mean that each member should contribute to the common fund or that each member should participate in the surplus but should be understood to mean that the members as a class should contribute to the common fund and participators as a class must be able to participate in the surplus. This is precisely laid down by SC in case of Bankipur Club Ltd. 226 ITR 97.
3.(h) The Id.CIT failed to appreciate that for the principle of mutuality it is sufficient if the identify as a class is established between the
(i) contributors and the participators and it is not necessary to have one to one identity individually.
(ii) it is not necessary to establish whether the facility available to members is actually utilized or not by each of the members.
3.(i) The ld.CIT failed to appreciate that the fact that all the members may not contribute or that they may not share the surplus or benefit in the ratio of their contribution does not affect the principle of mutuality as laid down by SC in Bankipur Club Ltd.
4.(a) On the facts and in the circumstances of the case and in law, the learned Commissioner of Income Tax erred in taking a view that exponential growth in operational income and investment made by the appellant and its large quantum leads to existence of commercial motives in contrast to mutuality which is wrong and contrary to the facts of the case, the provisions of Income Tax Act, 1961, and the Rules made thereunder.
4.(b) On the facts and in the circumstances of the case and in law, the learned Commissioner of Income Tax erred in not appreciating the fact that assessee does not carry on any trade or commerce and is a sports/social club established with the object for mutual benefit among its members and for mutual interest.
4.(c) On the facts and in the circumstances of the case and in law, the learned Commissioner of Income Tax failed to appreciate that appellant club is mainly established for promotion of cricket in India and accordingly conducting international cricket matches and IPL matches at its own stadium i.e. the Brabourne stadium is in accordance with the objects of the appellant club.
4.(d) On the facts and in the circumstances of the case and in law, the learned Commissioner of Income Tax erred in stating that the appellant exists primarily for promotion of game of cricket and the running of club is a secondary object, without appreciating that international cricket matches have been hosted by the appellant club at its own venue after many years.
4.(e) The Id. CIT erred in observing that the AO failed to look into aspects of mutuality in relation to cricket matters without appreciating that the appellant has in its Return of Income, offered to tax, the receipts from cricket matches being not covered by principle of mutuality and thereby erred in stating that new activity has not been brought on record.
4.(f) The Id. Commissioner of Income Tax erred in observing that the AO ought to have analyzed the terms of agreement for Test match and IPL matches and the implication of the agreement terms to the principle of mutuality without appreciating that the appellant company has in its Return of Income offered to tax all the receipts from conducting such matches on its ground and as such the order of AO is not erroneous and also is not prejudicial to the interest of the Revenue.
5. The ld. CIT failed to appreciate that:
