DCIT (Exemptions)-2(1) Vs Otters Club (ITAT Mumbai)
Assessee is a trust registered u/s 12A & has claimed exemption u/s 11 as its objects are covered by Sec. 2(15) under ‘advancement of any other object of general public utility’. However assessee also generated income from carrying out activities as part of achieving its objects. Revenue claims that since the assessee is hit by proviso to sec 2(15), its objects are no longer charitable & therefore exemption should be denied. It is important to note that the main objects of the trust have not undergone any change from its very inception.
Assessee has a litigation history with exception for a few intermittent years. Time & again, AO has contended that assessee is an association formed for the benefit of its members & hence cannot be regarded as charitable in nature & also since amount is received for sports activities, such activities are in the nature of trade, commerce or business.
Assessee contends that benefit of its activities is available to non-members too. Also, to recoup some of the recurring cost of maintaining the facilities, assessee charges nominal fees. It was pointed out that amount of consideration received was much below cost & therefore these activities cannot be held to be in the nature of trade, commerce or business. Tribunal refers to various judgments to note that pure charity in the sense that, performance of an activity without any consideration is not envisioned under the Act. Intention to earn profit is an essential ingredient for an activity to be considered to be in the nature of trade, commerce or business. Charging a nominal profit above cost will not lead to violation of the proviso.
