1988-VIL-73-ITAT-PNE

Equivalent Citation: ITD 030, 016,

Income Tax Appellate Tribunal PUNE

Date: 10.02.1988

INCOME-TAX OFFICER.

Vs

DECCAN GYMKHANA.

BENCH

Member(s)  : K. R. DIXIT., N. Y. TAMHANE., V. S. GAITONDE., T. A. BUKTE.

JUDGMENT

Per Shri T.A. Bukte, Judicial Member - These appeals are filed by the revenue against the common order of the CIT(A) dt 8-10-1982. Ground Nos. 1 & 3 are common in all these appeals. Ground No. 2 is an incidental ground of appeal. There is ground No. 4 in ITA Nos. 2, 6 and 7/PN/83. Ground No. 4 in these appeals, i.e., ITA Nos. 2, 6 & 7/PN/83 are in respect of different disallowance. These grounds will be dealt with separately after the common grounds are dealt with.

2. The CIT(A) has held that the activities of the assessee association are charitable within the meaning of sec. 2(15) of the Income-tax Act, 1961 and therefore, the assessee's income is exempt under sec. 11(1) of the Act. Revenue's grievance is that the dominant objects of the assessee are to let out its properties on hire and derive income therefrom and thus the benefit of such activity enured only to its members. The CIT(A) has failed to take note of the fact that clause 1 of the Entrance Rules of the assessee association enables the committee to refuse admission to any person without assigning any reason and therefore the benefits do not endure for the cross section of the public identifiable with reference to public or impersonal character.

3. Ground No. 3 is in respect of holding that the income of the assessee association is also exempt on the ground of mutuality by the CIT(A). Revenue's grievance is that the CIT(A) has failed to appreciate that under the Articles of Association of the assessee there were two classes of members but only one of them was beneficiary and therefore, the test of mutuality was not satisfied and consequently income cannot be exempted on this ground also.

4. Ground No. 4 in ITA No. 2/PN/83 is regarding the allowance of depreciation of Rs. 19,226 and deletion of addition of Rs. 81,527 on account of increase in the specific funds. Revenue's grievance is that the assessee has not satisfied the conditions laid down allowing depreciation and moreover, exemption u/s 11 was not available and thus the addition by way of donation was to be taxed, as the income of the assessee.

5. Ground No. 4 in ITA No. 6/PN/83 is that the CIT(A) has erred in directing the ITO to take into account the notices regarding accumulation of income given under sec. 11(2) for the assessment year 1973-74 while determining income to be exempt u/s 11 for this assessment Year. Revenue's contention in this respect is that the income of the assessee was not exempt u/s 11 and therefore, question of taking into account the notice u/s 11(2) did not arise. Ground No. 4 in ITA No. 7/PN/83 is that the CIT(A) has erred in deleting the disallowance of Rs. 22,265 regarding the expenses incurred on annual tournaments and contribution towards training in Tennis. Revenue's contention is that the expenses incurred on annual tournaments and the contribution towards Tennis as claimed by the assessee are not verifiable and therefore, they have been rightly disallowed by the ITO. The CIT(A) would not have deleted this disallowance.

6. It would be better to deal with the common ground Nos. 1, 2 and 3 of the appeals. Regarding these common grounds, the learned departmental representative Shri K. A. Sathe as well as the learned advocate for the assessee Shri S.N. Inamdar have argued to a great length by taking help of the case law in support of their contentions. he points involved and necessary for our consideration are whether the assessee has a public character, whether its purpose is charitable and whether the principle of mutuality has cropped up in the hands of the assessee. Hence, each point is required to be discussed in detail to arrive to a correct conclusion.

7. The ITO held that the assessee trust is not a public charitable trust and it is not entitled for exemption u/s 11 of the Act. The CIT(A) held that it is entitled to exemption u/s 11 of the Act. To appreciate the aims and objects of the assessee, it would be better to reproduce some of the clauses from its Trust Deed. They are as under :

(a) To foster and develop (promote) Gymnastic (sports) games and sportsmanship,

(b) To make arrangements, as far as possible, for all kinds of Indian and foreign games and systems of sports,

(c) To make efforts in the direction that India should participate in International sports competition,

(d) To give systematic shape to Indian games and to foster and popularise them,

(e) To publish useful literature on gymnastics, games and sportsmanship and to circulate the same,

(f) To acquire and hold immovable property,

(g) To plan a colony for the members of the society and to make other arrangements ancillary to it,

(h) To raise funds and loan, to invest amounts and advance loans, etc.

(i) To do all other things helpful in the achievement of the above objects.

Question arose whether clauses (f) and (g) are ancillary clauses to clauses (a) to (e) and whether clauses (a) to (e) are dominant clauses and whether clauses (f) and (g) are subsidiary clauses To our minds, clauses (f) and (g) have equal force as that of clauses (a) to (e).

8. The facts pertaining to each point would be discussed while discussing them, but the issues for our consideration are as follows :

(1) Whether the decision of this Bench of Pune Tribunal for the assessment year 1973-74 holds good for all subsequent years, or otherwise does it at least hold good for the assessment year 1973-74 ?

(2) Whether the assessee trust is a members' club or it is a public trust ? If the assessee trust is a private trust, whether its benefits are available only to members, i.e., identifiable individuals, then question of holding it as a charitable trust does not arise as a charitable trust has to be for the benefit of members of the public.

(3) Even otherwise, whether the objects of the assessee can be said to be of charitable nature ?

(4) Whether the assessee can get exemption on the ground that it is a mutual association ?

(5) Even assuming that the assessee is a mutual-association, whether the entire income will be exempt on the ground of mutuality and if not, which income does not satisfy the test of mutuality ?

To answer the issues raised above, it has become necessary to see, to what extent the decision of this Bench for the assessment year 1973-74 holds the field for all subsequent years.

9. The assessee was assessed for the assessment year 1971-72 and its income was brought to charge. There was no assessment for the assessment year 1972-73. The original assessment for assessment year 1973-74, was made on 20-10-1975. In this assessment, the ITO held that the provisions of sec. 11 were applicable and he exempted the trust. The CIT took action u/s 263 of the Income-tax Act, 1961.

10. In the course of registration proceedings, the CIT had issued a letter to the assessee dt. 6-11-1975 asking specifically whether the facilities provided by the club were available to the general public or not. The assessee, by its letter dt. 22-12-1975, in very clear terms, replied that Deccan Gymkhana provided facilities to members only. This aspect was emphasised by the CIT in his order u/s 263 when he held that the assessee being a club existing for the members could not be considered to be a charitable trust. The Tribunal's order dt. 20-10-1978 has to be seen in the light of the CIT's letter and by reading both together it becomes quite clear that the Tribunal was referring to the objects of the trust only to high-light that the objects were for the benefit of the members. Reference to clause 3(G) which refers to planning of a colony for the members of the society was referred to by the Tribunal to illustrate that the objects are for the benefit of members and in view of this fact, the Tribunal was pleased to confirm that the CIT's order, by which he held the assessee to be a non-charitable institution, was correct.

11. Subsequent development of law which took place after the decision of the Supreme Court in the case of Sole Trustee, Lokashikshana Trust v. CIT [1975] 101 ITR 234 was in regard to the definition of charitable purpose in which the following expression was used at that time. "The advancement of any other object of general public utility not involving the carrying on of any activity for profit". The Tribunal was considering whether the objects were of general public utility. Since the Tribunal was satisfied that the benefits were not to the members of the public, but to the specific members of the club, it held that the assessee trust was not a charitable trust. This being the position, the decision of this Bench for the assessment year 1973-74 supports the department's view that the assessee trust exists only for members and therefore, it is not a charitable trust. Therefore, this decision is required to be followed for all the subsequent years, particularly when the matter is before the Bombay High Court. If the decision cannot be followed for all the years because the assessee wanted to rely on several other aspects of the question for subsequent years, the propriety would demand that the decision of the Tribunal should be followed for the assessment year 1973-74 for which additional ground was raised.

12. After the CIT passed the order which was confirmed by the Tribunal, the ITO passed a fresh assessment order on 22-9-1980 to give effect to the CIT's order. In this order, he rejected the assessee's contention regarding exemption u/s 10(22) by relying on the Supreme Court decision in the case of Sole Trustee, Lokashikshana Trust . According to the ITO, the tests laid down by the Supreme Court in the above decision were not satisfied and the assessee trust could not be considered to be for the purposes of education. The decision of the Supreme Court in the above case on the matter of education was not modified or disturbed by subsequent decisions of the Supreme Court, particularly of Addl. CIT v. Surat Art Silk Cloth Mfrs. Association [1980] 121 ITR 1 ; but even then, in appeal the CIT by his order dt. 16-1-1981 set aside the ITO's order. This order was confirmed by the Tribunal. The ITO again passed a fresh order repeating his conclusions by his order dt. 17-8-1980. The CIT(A), in the impugned order, did not notice that the Tribunal's decision for the assessment year 1973-74 was clearly against the assessee on the question of charitable purpose. He should have followed that decision at least for the assessment Year 1973-74. Not following the decision of the Tribunal for the assessment year 1973-74 would mean sitting over the judgment of the Tribunal for that year and would amount to totally negating the effect of that decision. It is for this reason that the decision of the Pune Bench of the Tribunal should be followed, for the assessment year 1973-74 and it should be held that the assessee is not a charitable trust.

13. The further issue which has arisen to consider is whether the trust is a members' club or it is a public trust. The evidence on record very clearly shows that the assessee is a members' club. There is a clear admission in the letter dt. 22-12-1975 written by the General Secretary in response to a specific question that the assessee trust provides facilities only to members. It is not the assessee's case that the letter was written mistakenly. That means, its benefits are available only to identifiable individuals called members. Apart from this evidence, there is also on record a report dt. 23-10-1966 filed by the assessee to give the brief history of the assessee trust as also its achievements. It is quite clear from page 2 of the report that the assessee trust started as a club known as Young Men's Cricket Club in 1906 which was subsequently divided into two. The one division was Poona Young Cricketeers Hindu Gymkhana (P.Y.C. Hindu Gymkhana) and the other was Deccan Gymkhana, Throughout the pages of this report, i.e., page Nos. 1, 2, 5, 6, 7, 8 and 11, there is abundant evidence to show that Deccan Gymkhana started as members' club and continued to be a members' club. The various branches of Deccan Gymkhana which subsequently started, i.e., Colony Panchayat started in 1922, Billiards Department started in 1928, Vanita Vishram started in 1932, were essentially for the benefit of the members.

14. The colony was established for the members of the Gymkhana Club. The assessee trust had given lease hold land to its members. The terms of this lease deed clearly show that the colony as envisaged had to be kept as a live institution to see whether the members of the colony were acting as per the terms of the lease deed. Secondly, as per clause 10 of the lease deed, the club had to decide from time to time the issue of succession of members on their death as the members were hereditary. As per clause 16 of the lease deed, the assessee trust had to return the deposits and also to give a bonus which was not to be less than five times of the deposits. For all these purposes, the Colony Panchayat was formed and later on the Colony Panchayat undertook to construct a marriage hall in 1956. This activity of Colony Panchayat was only to be for members and continues to be for members. The assessee wrongly claimed before the CIT(A) that this clause is a dead letter and the assessee is no longer planning colonies. This would appear to be incorrect. Clause 3(G) not only speaks of planning a colony but also speaks of making other arrangements aucillary to it. The assessee's activity of construction of marriage hall as part of Colony Panchayat activity can come only under clause 3(G). For this marriage hall, the rents are charged at concessional rates. It is also clear that the activity of Colony Panchayat Is neither subsidiary nor of insignificant nature. The assessment orders for every year would show that the income of Colony Panchayat was in the range of Rs. 50,000 to Rs. 60,000 which forms a substantial part of the total income. Thus, if an activity was carried on for a long period which was yielding substantial income and which was restricted to the members, it would clearly prove that the benefits of the assessee trust were going to its members.

15. At one time, the assessee had taken a stand that its various departments, viz., Billiards, Vanita Vishram, Trustees, Deccan Gymkhana and the present assessee were different units and separate returns were filed in respect thereof. In these returns, Billiards department and Vanita Vishram claimed exemption on the ground that their activities were restricted to its members and they were claiming exemption on the ground of mutuality. In the returns filed by these departments, only that income which was not affected by mutuality was offered for taxation and this very income has been brought to charge in the assessments under appeal. Now the assessee has taken a stand that all these departments are one, but even then if some departments are only for the members and can exist under the present constitution, it would run counter to the assessee's claim that it is a public institution.

16. The law is well settled that if the benefits of the trust are available to only identifiable persons, then it cannot be regarded as a charitable trust. Reliance is placed on pages 282 and 271 of Palkhiwala (7th edition, Vol. 1). Page 282 of Palkhiwala refers to the decision in JR v. City of Glasgow Police Athletic Association 34 TC 76. It was held that an association formed to provide and expend its fund exclusively on sports and recreation for its own members was not established for charitable purpose only even though it was found that the activities of the association had tended to promote Incidentally the efficiency of the police force. The mutual association is not regarded charitable since charity has to be by way of bounty, but in mutual association, the benefits are derived by the members as a matter of right. Reliance is also placed on the following decisions of the Gujarat, Madras, Delhi and Calcutta High Courts:

Addl. CIT v. Ahmedabad Millowners' Association [1977] 106 ITR 725, Madras Hotels Association v. CIT [1978] 111 ITR 241, Truck Operators' Union v. CIT [1981] 132 ITR 62 and Indian Sugar Mills Association v. CIT [1984] 150 ITR 593 respectively.

In view of this clear position in law and in view of the evidence, i.e., (1) the assessee's letter dt. 22-12-1975, (2) report dt. 23-10-1966, and (3) the way in which the various departments of the assessee trust claimed exemption on the ground of mutuality, clearly indicate that the assessee is merely a club or mutual association and not a charitable trust. In this behalf, the assessee may claim that any member of the public can become the member but it has to be borne in mind that even if any person can make an application for membership, the governing body's decision of rejection is unfettered right and person cannot claim any right to be admitted. Thus, no member of the public can insist on being enrolled as a matter of right but apart from this, for determining the character of charitable trust, it is not material whether any member of the public can become a member. What is material is that the facilities of the club are available only to a person who can be identified as a member.

17. Now a question arises whether the objects of the trust are charitable in nature. The main object of the assessee is avowed to be for promotion of sports, games and sportsmanship. These objects are very wide and also vague. Sports and games either tend to improve the physical health of the society or are meant for recreation or amusement. Insofar as the sports are for promotion of physical well-being, they may be regarded as charitable objects but insofar as they promote more amusement or entertainment, they cannot be regarded as charitable. The sports, such as swimming, chess, bridge, wrestling, athletics, Indian games, Gymnastics, Yoga, provision of sports and games to all children will undoubtedly come under the category of sport which promote physical fitness and physical well-being.

18. The games like cricket and tennis or card games stand on different footing. Insofar as Deccan Gymkhana promotes the department where card games can be played (other than Bridge), it cannot be said to be a charitable purpose as it merely subserves the objects of amusement and recreation. This purpose would become clear if reference is made to first line in para 8 on page 14 of the constitution of the assessee.

19. Following observations of the Bombay High Court in the case of CIT v. Breach Candy Swimming Bath Trust [1955] 27 ITR 279, at page 298 are worth noting :

"Now here we have not a case where any sport is encouraged. Here we have not a case where activity is intended to amuse individuals or to lead to the recreation of the individuals."

In the later portion, the Bombay High Court has held that swimming bath advances public health and such an object is charitable. But the earlier clause insofar as it makes a distinction of sports which tends to amusement and recreation was obviously not considered as a charitable object.

20. Reliance is placed on the decision of the Calcutta High Court in Cricket Association of Bengal v. CIT [1959] 37 ITR 277, where it was held that the mere promotion of the practice of the game of cricket in general either for entertainment of the public or for advancement of the game itself was not a charitable purpose. Though it is true that the decision also considered other factual aspects, it cannot be overlooked that one of the reasons for holding promotion of cricket as not charitable was that it was for entertainment. The decision of the Madras High Court in CIT v. Saraswathi Viswanathan [1977] 107 ITR 208 is also to the same effect. Particular attention is invited to the last paragraph on page 116. It is stated as follows :

"Encouragement of mere entertainment, which is included in object number 1 cannot be called as charitable purpose. If the contentions of the learned counsel were to be accepted, then any cinema house or music hall or theatre staging plays could qualify for, exemption so long as some association ran them."

This observation also clearly underscores that the entertainment and recreation part of the sport is not regarded as charitable. The manner of carrying out the object is also relevant. In this behalf, reference can be made to the decision of the Supreme Court in the case of Surat Art Silk Cloth Mfrs. Association . The observations on page 23 are very relevant where the Supreme Court refers to promotion of sports. In that context, the Supreme Court has held that a trust established for promotion of sports without setting out any specific mode by which the purpose is intended to be achieved would fail for qualifying as a charitable institution because it is always possible in the absence of specific prohibition or restrictions as to how the purpose is to be carried out. The games of cricket and tennis are the sports for the affluent and by their own nature the facilities provided would exclude poor. Though it is true that charity need not be confined to the poor, at the same time, it should not exclude poor. For this Purpose, reliance is placed on para 5 on page 274 of Palkhiwala. The game of tennis in which the assessee trust lately has shown considerable amount of interest is an activity (a part from the fact that it is for members) by its nature excludes poor. The draft constitution of the Deccan Gymkhana Club House Department is also relied on to show how the objects of the club enabled the assessee to set up a club house equipped for the members and its facilities showed that the membership was limited to only 250 and that there was a plan even to establish the facilities like bar room in the said club house. This clearly shows that the objects of the trust are not only confined to the members, but they are wide enough to cover the activities of recreation and amusement.

21. The word 'games' is equally wide to cover even the video games which nobody would claim to be of charitable nature. Thus the assessee's so-called main purpose of promoting sports, games and sportsmanship by themselves cannot be considered to be of charitable nature as their link with the physical well-being is not laid down. Even otherwise, the' objects of the trust include objects of Colony Panchayat which is restricted to members. It is well settled that in a trust where there are several objects which are severable and are of equal importance and some of which are of non-charitable nature, the entire trust fails as a charitable trust.

22. The learned advocate for the assessee Shri S. N. Inamdar's contention is that a subsidiary object which subserves the main purpose may not by itself be charitable. According to him, the object of the colony is a subsidiary object. To our minds, this contention does not appear correct. The test to see whether the object is subsidiary or principal is to see whether the activity covered by the object can stand by itself apart from the so-called main object. In the present case, the colony panchayat can exist by itself whether or not Gymkhana carries on the object of promotion of sports. Thus, the objects of Deccan Gymkhana cannot be regarded as charitable objects.

23. Now, we have to see whether the CIT's decision on the question of the charitable nature of the assessee trust is proper and correct. The case of the assessee before the CIT(A) was based on the ruling of the Supreme Court in the cases of Surat Art Silk Cloth Mfrs. Association and CIT v. Andhra Chamber of Commerce [1965] 55 ITR 722. The assessee also made reference to the decisions of the Supreme Court in the cases of CIT v. Dharmodayam Co. [1977] 109 ITR 527 and Dharmoposhanam Co. v. CIT [1978] 114 ITR 463. The assessee's case, in short, was that its main object of promotion of sports was an object of charitable nature and clause regarding planning of colony for members was a subsidiary clause and not a main clause. According to the assessee, the fact the assessee-trust was enuring to the benefit of the members did not detract from the fact that it was essentially a charitable trust. The CIT(A) has accepted these contentions, but the CIT(A) failed to notice, firstly, the evidence on record which clearly indicated that the assessee-trust was mutual association and extended its facilities only to identified individuals, secondly, his conclusion that the clause regarding planning of colonies was a dead letter and that it was incidental and subsidiary object was clearly erroneous as has been brought by the evidence on record. The object regarding planning of colonies was not only, not a dead letter, it was a very active clause yielding substantial income. This clearly indicated that few of the assessee's activities, which were not subsidiary in nature, were not in the nature of charity at all. The CIT(A) also failed to notice that all sports and games will not be necessarily charitable object. Those sports and games which tend to promote entertainment, amusement, and recreation of the members was charitable in nature. In that behalf, the CIT(A) failed to notice the observations of the Bombay High Court in the case of Breach Candy Swimming Bath Trust, observation of the Calcutta High Court in Cricket Association of Bengal's case, observation of the Madras High Court in South Indian Athletic Association Ltd. v. CIT [1977] 107 ITR 108 and finally the observation of the Supreme Court in Surat Art Silk Cloth Mfrs. Association's case at page 23.

24. The assessee had raised alternate ground of mutuality which has been discussed by the CIT(A) in paras 15 and 16 of his order. Though the CIT(A) has held that the alternate contention does not survive in view of his decision that the assessee's case was that of a charitable trust, he still held on the merits that the assessee was a charitable trust. This finding of the CIT(A) is very clearly incompatible with his finding regarding charitable trust. If the assessee trust is charitable trust, it cannot be simultaneously a mutual association. Similarly, if the assessee is a mutual association, it cannot, at the same time, be a charitable trust. The CIT(A) in this behalf ought to have given a firm finding of fact based on clear evidence whether the assessee extended its benefits to its members alone or to the general public. The CIT(A), in any case, could not have given findings in favour of the assessee on both these issues.

25. The next question which arises for our consideration is whether the assessee is a mutual association, it has already been pointed out that the assessee existed for the benefits of its members. But still the question remains as to whether it could earn exemption on the ground of mutuality. In this behalf, attention is invited to the constitution of the assessee. Clause 2 in part II qualifies the members into various categories such as patrons, life members, beneficiaries, general members, basic members, branch members, student members, female members and temporary members. As per clause 16, student members, female members and temporary members do not have any voting right, though they might have contributed to the common fund. It is settled principle of law that in order to earn exemption on the ground of mutuality the persons who contribute should be identical with the persons who benefit. To illustrate the point, the following example call be taken.

26. A, B, C, D & E are five persons who collect Rs. 1.50 Ps. each by way of contribution for their tea club. Expenses on account of tea, which is consumed by all persons are to the extent of Rs. 5. The surplus of Rs. 2.50 ps. is contributed by A, B, C, D & E which might be either distributed among themselves or it might be utilised for further purchase of tea next time., Here, there is a complete identity between those who contributed and those who participated and there cannot be said to be any income of Rs. 2.50 Ps. to the association of A, B, C, D & E. But, on the other hand, after the contribution was collected from A, B, C, D & E, surplus of Rs. 2.50 ps. was divided only by A, B, C, D, it would be a case whether there is no identity among the contributors and participators. In such a case, the principle of mutuality cannot apply. The basic principle of mutuality is that no man can make profit out of oneself. But, this applies only if the person contributing and participating are one and the same.

27. In the present case, though all the members contribute for the facilities provided by the assessee trust, only few of them have got voting rights end thereby the power to control these funds. It is true that the surplus arising is not distributed among these voting members, but they are exercising the powers of ownership over the surplus fund by deciding to whom it will go on winding up. In CIT v. Madras Race Club [1976] 105 ITR 433, it was held by the Madras High Court at page 443 of the judgment as follows :

"The participation envisaged in the principle of mutuality is not that the members should willy-nilly take the surplus to themselves. It is enough if they had a right of disposal over the surplus to show that they were the participators."

In the present case, as per clause 16, the only voting members could control the funds and could be said to be participators whereas the contributors were not only the voting members but also the other members like student members, female, members and temporary members. On this ground alone, it is quite clear that the principle of mutuality is not satisfied and the entire income of the assessee trust is liable to be taxed.

28. The next question which arises for our consideration is whether even if mutuality principle is acceptable, to what extent it will apply to the assessee's income. Reference may be made to the second compilation wherein the income of different branches has been shown. From this and from the computation for the assessment year 1974-75, it can be illustrated that even if the principle of mutuality is applicable, it applies only to part of the income. For example, for the assessment year 1974-75, the income from house property which is derived from non-members, income from colony panchayat, income from interest, income from Billiards and Vanita Vishram which is exclusively from interest, will be outside the purview of mutuality.

29. It has been held by the Allahabad High Court in the case of CIT v. Wheeler Club Ltd. [1963] 49 ITR 52 that income from house property is taxable even in a case of mutual association. It has been held that income from house property is notional income and taxed on the basis of ownership of the property. The fact that the assessee does not derive any income is totally immaterial while determining the income from property. In the present case, the assessee trust has extensive properties and they have been let out to non-members like Post Office, Hospitals, Vegetable vendors etc. That income is purely arising on account of ownership of the assets. The decision of the Allahabad High Court in Wheeler Club Ltd.'s case will, therefore, apply in the present case. The decision of the Bombay High Court in D.M. Vakil v. CIT [1946] 14 ITR 298 is also relevant for this purpose.

30. It is no doubt true that the Madras High Court in the case of Presidency Club Ltd. v. CIT [1981] 127 ITR 264 has dissented from Allahabad High Court in Wheeler Club Ltd.'s case . The case before the Madras High Court, however, was that of a club which had rented its premises to its members and it was a case where there was no dispute about the mutual aspect of the case. The Madras High Court pointed out that the interpretation of the Allahabad High Court of the decision of the Supreme Court in CIT v. Royal Western India Turf Club Ltd. [1953] 24 ITR 551 that the principle of mutuality applied only in respect of income from business was incorrect. The principle of mutuality applied, according to the Madras High Court, not only to income from business but also to the income arising under different heads. This dissenting judgment of the Madras High Court does not affect the decision of the Allahabad High Court in Wheeler Club Ltd.'s case, insofar as it held that the income from property which was a notional income was assessable even in the case of a mutual association. The decision of the Patna High Court in CIT v. Bankipur Club Ltd. [1981] 129 ITR 787 and that of the Allahabad High Court in CIT v. Cawnpore Club Ltd. [1984] 146 ITR 181 was in regard to income from other sources and in respect of income arising from members. These decisions will have no application as far as income from property is concerned. Similarly, income from colony panchayat which is mainly income from running the marriage hall is clearly in the nature of business with outsiders and outside the purview of mutuality. Income by way of interest from the bank or from others arises from a transaction with outsiders and has nothing to do with regard to transactions amongst the members. The principle of mutuality, if at all, would apply to the income of the club from sports activities alone.

31. The CIT(A) in paras 15 and 16 of his order has dealt with this aspect, but has only recorded the contentions of the assessee, wherein reliance was placed on CIT v. Delhi Race Club (1940) Ltd. [1970] 75 ITR 111 (Delhi), CIT v. Merchant Navy Club [1974] 96 ITR 261 (AP), Madras Race Club's case and Presidency Club Ltd.'s case . All these cases are distinguishable on facts inasmuch as there was a complete identity between the contributors and the participators. On this premise, the decisions proceeded to examine to what extent the income of different nature qualified for exemption. In the present case, it has been shown earlier that there being no identity between the contributors and participators the principle of mutuality does not apply in the first place and even assuming that it applies, only part of the income would enjoy exemption.

32. The next question which arises for our consideration is whether the disallowance of depreciation of Rs. 19,226 for the assessment year 1973-74 and addition, of Rs. 81,527 on account of increase in the funds is proper or not. According to the department, depreciation is allowable only if income is assessable under the head 'profits from the business.' In the present case, except the income of marriage hall no other income can be said to be income from business and depreciation is not therefore allowable. If the assessee trust is held to be a charitable trust in considering the application of its income u/s 11 of the Income-tax Act, 1961, the entire capital expenditure is usually considered as application of the income and therefore, if the Tribunal gives a finding that the trust is a charitable trust the question of depreciation will not arise in that case. If the trust is held to be mutual association, even then the question of depreciation would not arise.

33. For the assessment year 1973-74, there was increase of Rs. 81,527 in the specific funds which was on account of donations received by the assessee. If the assessee trust is held to be charitable trust, this increase in the form of donations will automatically be treated as income of the trust in view of the definition of income u/s 2(24)(iia). If on the other hand, the trust is held to be not a charitable trust, it will be difficult to say that donations per se are income as they are usually capital receipts. But here neither the ITO nor the CIT(A) has given any specific finding about the nature of donations. Sometimes donations are camouflaged receipts of the club. For example, for a cultural show or a cinema, show the regular tickets may be issued, but what is collected may be shown as donation. In such a case the amounts collected are not in the nature of donations but they are regular revenue receipts. In case the assessee trust is held to be not charitable, the question regarding character of the receipt will have to be gone into by the lower authorities and in this behalf, it is requested that the matter may be sent back to the ITO.

34. The next question which arises for our consideration is whether the disallowance of expenses for the assessment year 1979-80 is proper. In this year, the assessee claimed certain expenses of Rs. 22,265 on tournaments which were disallowed by the ITO on the ground that no evidence was furnished in support of these expenses. Before the CIT(A) the assessee only furnished the details which were before the ITO. But furnishing the details did not take the assessee's case any further in absence of verification of supporting evidence. The item was therefore rightly disallowed. The CIT(A), therefore, ought to have confirmed the disallowance.

35. The arguments advanced by the learned advocate for the assessee to the various points are as follows. The assessee's counsel Shri S.N. Inamdar has stated that the assessee trust is registered both under the Societies' Registration Act as well as under Bombay Public Trust Act. He agreed that definition of charitable purpose under the Income-tax Act is different from that under Bombay Public Trust Act and therefore, the registration under Bombay Public Trust Act may be only persuasive but not conclusive to decide whether the assessee trust is charitable or not. But according to the learned counsel, the above registration is conclusive on the point whether the trust is public or not.

36. The issues whether assessee is a public trust or not and whether it is a charitable trust or not are to be decided independently in the context of Income-tax Act. The registration under the Societies' Registration Act or under the Bombay Public Trust Act is relevant but certainly not conclusive. The decision of the Delhi High Court in the case of CIT v. All India Hindu Mahasabha [1983] 140 ITR 748 shows that though the assessee in that case was registered under Societies' Registration Act, the High Court held that it was not a charitable trust. The decision of the Bombay Bench in the case of Rajneesh Foundation v. ITO [1983] 4 ITD 409 was also illustrative of the fact that though (as seen from para 15 of the judgment) the trust was registered under the Bombay Public Trust Act and though the recognition was granted by the CIT u/s 80G of the Income-tax Act, 1961, this did not affect the ultimate conclusion of the Bench that it was not a charitable trust. In absence of any other material, registration may be relevant, but in this case, the factual evidence as regards non-public nature of the trust as also non-charitable character is too glaring and cannot be ignored.

37. The assessee' argument that the registration under the above two Acts is conclusive to show that the trust is a public trust is equally incorrect. The present trust was originally registered under the Societies' Registration Act. There is no provision in the said Act for any authority to decide whether the trust seeking registration is a public trust or not as contrasted to sec. 18 of the Bombay Public Trust Act. In this behalf, it may be mentioned that any trust which is registered under Societies' Registration Act first automatically becomes public trust under the definition of Public Trust as contained in sec. 2(13) of the Bombay Public Trust Act. Attention in this behalf is invited to page 4 of the commentary of K.N. Shah on Bombay Public Trust Act (5th edition). The following observations are to be found therein :

"The definition of 'public trust' has been widened so as to include societies registered under Societies' Registration Act and Dharmadas which were never included before."

This is also clear from the reading of the definition as contained in sec. 2(13) of the Bombay Public Trust Act. Thus for the purposes of registration under Bombay Public Trust Act, it is enough to show that the Trust was registered under Societies' Registration Act. In any case, the assessee should lead proper evidence leading to the registration of the assessee trust under the Bombay Public Trust Act. It appears that the disputes are still going on in the court and one group of members are still agitating as to whether the Charity Commissioner had any power to frame the scheme for management.

38. Alternately, it may be pointed out that the decision of the authorities under the Societies' Registration Act and Bombay Public Trust Act to register the trust as a public trust is not binding on the Income-tax authorities. In this behalf, the decision of the Madras High Court in the case of V. Datchina Murthy v. Assistant Director of Inspection. [1984] 149 ITR 341 may be referred to. In that case to prove the genuineness of certain credits, the assessee relied on certain decrees of the court and contended that once the decree was obtained by the creditor against the assessee, the question of genuineness could not be raised. The Madras High Court considered at length to what extent the orders of the court were binding on the ITO. In this behalf, the portion of the judgment at page 360 (second para) onwards is very relevant. On page 362, following observations are given :

"But to say that the ITO is bound to respect a court decree and he cannot proceed with his allotted task of investigating a fact relevant for the assessment of an assessee in Ms charge cannot be accepted even on the basis that a decree of court has to be shown the respect it deserves. The ITO has a job to do under the Income-tax Act and he cannot be prevented from doing it because a court might have passed a decree in a litigation between the assessee and a third party."

Again on page 363 following observations require to be seen :

"The two proceedings, namely an action at law before a court and a proceeding for assessment, are thus entirely different. One is adjudicatory, the other is investigative or inquisitorial. In any given case, the ITO may save himself the trouble of going into the issue of ownership and prefer to abide by the decision of the civil court on that question, if one is available. But he is not bound by the court's decision. The result is that on the basic question of title in any given case, it is quite possible that a court may take one view and the ITO another view, on the principle that one is not bound by the other's decision."

39. Thereafter, there is a reference to the judgment of Lord Denning in Vandervell's Trusts, In re. [1970] 46 TC 341 (HL) and then onwards the whole issue is examined by the Madras High Court in great details. Applying the above principles, it would appear that the decision of the authorities under the Bombay Public Trust Act was not binding either on the ITO or on the Tribunal. It is permissible to come to a conclusion different from what the authorities under different Acts have come to. In any case, this question would require going into the documents on the basis of which the Bombay Public Trust Authorities allowed registration and further frame the scheme of management. This material has not been placed before the Tribunal.

40. The circular of the Board dt. 24-9-1984 supports the assessee's claim that promotion of sports and games is a charitable object. According to the learned counsel, the Board has instructed by the above circular that a trust engaged in the promotion of sports and games will be eligible for claiming exemption u/s 11, though they are not approved under sec. 10(23). It was further contended by the learned counsel for the assessee that the Board's circular is applicable even in respect of the pending proceedings. Reliance in that behalf was placed on the decision of the Bombay High Court in the case of CIT v. Gulf Oil (Great Britain,) Ltd. [1977] 108 ITR 874 (the relevant observations at page 879). The counsel also relied on the decision of the Bombay High Court in the case of Madhusudan Dwarkadas Vora v. Suptd. of Stamps [1983] 141 ITR 802 and an unreported decision of the Bombay High Court in the case of J.M. Chhagla v. M.V. Subramanian [Writ Petition No. 2358 of 1983 dated 10-9-1984].

41. The Board's circular referred to by the assessee's learned counsel is not applicable to the facts of the present case. Following sentence in the circular is relevant.

"The Board are advised that the advancement of any object beneficial to the public or section of the public as distinguished from an individual or group of individuals would be an object of general public utility."

In the present case, even the assessee has admitted in his letter dt. 22-12-1975 that its benefits are available to the members only. Thus, there is no question of applying the circular of the Board to the present case.

42. The decision of the Bombay High Court in Gulf Oil (Great Britain) Ltd.'s case has no application to the facts of the present case. In the case before the Bombay High Court, there was a circular of the Board dt. 23-7-1969 issued by the Central Board of Direct Taxes. It was the departmental counsel in that case who conceded that the said circular applied to the facts of the case and that the guidelines therein regarding applicability of sec. 42 of the Income-tax Act, 1922 applied to the facts before the Bombay High Court and this is why the circular came to be applied. This is not the position here. In Madhusudan Dwarkadas Vora's case , the Bombay High Court held that rule 1BB of the Wealth-tax Rules applied, though made later, in the absence of provision to the contrary to determine the value of the property.

Similarly, in the Bombay High Court decision in the case of J.M. Chhagla, the issue again was in regard to the valuation of the property and as observed in para 11 of the judgment, the Bombay High Court did not think it necessary to consider the retrospective effect of the amendment to see. 36(3) of the Estate Duty Act.

43. Both these decisions related to valuation which is purely a matter of procedure. It is well-known that a decision, a rule, or a circular on a point of procedure may apply even in respect of the pending proceedings. But here the question whether the promotion of sports and games is charitable purpose or not involves interpretation and also a matter of policy. Such a question cannot be considered to be a procedural matter but it is indeed a matter of substance and substantial issue. Such a circular which was issued on 24-9-1984 would apply only for the assessment year 1985-86 onwards and not for any other earlier years. In this behalf, the decision of the Full Bench of the Kerala High Court in the case of CIT v. B.M. Edward, India Sea Foods [1979] 119 ITR 334 is referred to. In this decision, the Full Bench of the Kerala High Court has held that a circular which is in operation on the first day of the assessment year alone would apply.

44. It has been the contention of the assessee that the question raised in the present case should be seen in a broader perspective. The assessee has claimed that the departmental representative had presented his case with narrow approach. In deciding whether the case of the present assessee is that of a public or private trust or whether it is a charitable trust or not, one has to see why the trust was established and how it functioned for last 80 years or so. A small activity started 50 years after its existence like construction of a marriage hall would not detract from the fact that the assesses trust existed for the promotion of sports right through. The achievements of the trust in the field of sports are well-known. The assessee's counsel placed on record a resume of the activities of the trust in different fields. Basing himself on this note, he pointed out that the assessee trust has always taken keen interest in promoting the various sports activities. In replying to the departmental representative's contention that tennis by its nature excluded poor, the assessee's counsel pointed out that the assessee trust had selected boys from the slums to train them in tennis recently. There have been regular classes conducted to teach and train the boys in various sports activities. In this behalf, he relied on the decision of the Madras High Court in the case of CIT v. Ootacamund Gymkhana Club [1977] 110 ITR 392. He also relied on the decision of the Bombay High Court in Breach Candy Swimming Bar Trust's case . The assessee's learned counsel further referred to the restrictions on admission of members and stated that these restrictions on membership are necessary to protect the assessee's trust from undesirable elements and also to protect the property of the trust. The mere fact that the Board of Trustees had power to reject the application for membership did not mean that the trust existed only for the members. In this connection, he relied on the decision of the Bombay High Court in the case of Seksaria Biswan Sugar Factory Ltd. v. CIT [1975] 101 ITR 703 in which case the issue for consideration was whether the company was one in which public were substantially interested. He invited the attention to the observations of the Bombay High Court on page 715 of the judgment. He also relied on the decision of the Calcutta High Court in the case of Mercantile Bank of India (Agency) Ltd., In re. [1942] 10 ITR 512.

45. The learned counsel for the assessee stated that in order to decide whether the assessee trust is a charitable trust, one has to ask the question as to why Gymkhana is existing. Is it existing for the purpose of sports which is an activity of public benefit or is it existing for any other purpose ? He also stated that the departments in which card games are played are only a minor activity of the assessee trust intended mainly to benefit the senior members. But this activity was too small which will not affect the charitable nature of the trust.

46. In referring to the activity of Colony Panchayat, the learned counsel argued that clause 3(G) was not to be implemented like a builder and promoter and planning colonies was not like a business to be carried on by the trust. In any case, when the colonies came up, the purpose of the object was over and no further activity was even intended. Thus the clause regarding the Colony Panchayat was not operative and no adverse conclusion can be drawn on the basis of the sub-clause. In any case, the object was a subsidiary object and as pointed out by the Supreme Court in the case of Surat Art Silk Cloth Mfrs. Association , if the main purpose is charitable, a subsidiary purpose which is incidental or ancillary to the main purpose will not make the trust as non-charitable.

47. It has already come on record and pointed out that the trust does not extend its facilities to the public but it exists only for members. The activities thus are restricted to identifiable individuals who are called members. The decision of the Calcutta High Court in Mercantile Bank of India (Agency) Ltd.'s case cited by the assessee's learned counsel appears to support the department's case. In that case, the Calcutta High Court has held that in order to constitute a valid charitable trust, it should be for the benefit of the public or a specified section of it. A fluctuating body of private individuals such as the present and future officers and members of the staff and other employees of a company could not be a part of general public or of any section of the public and therefore, the income of the trust was held to be not exempt. Applying the same principles here, it is seen that the benefits of the trust are exclusively for the benefit of a body of the present and future members who are identifiable persons. They cannot be considered to be members of the public.

48. The restrictions on the membership contained in the constitution are in absolute terms and the governing body's decision to reject any application of membership is unfettered and cannot be challenged on any ground. It is also seen from the constitution of the club house that restrictions have been placed on the number of members that can be admitted. This will clearly show that the benefits of the trust are to go to a limited number of persons. The decision of the Bombay High Court in Seksaria Biswan Sugar Factory Ltd.'s case was relating to the Explanation to sec. 23A of the Income-tax Act, 1922. Under that Explanation, a company was considered to be a public company if its shares were allotted unconditionally to or acquired unconditionally by the public and further that its shares were freely transferable. On page 715 of the judgment, there is a reference to Article 37 which showed that there was no uncontrolled or unrestricted discretion upon the directors to refuse the register of transfer of shares in a given case. Thus, the case was essentially one regarding free transferability of the shares and it has to be distinguished as here the question is really not whether a member is admitted or not but the question is whether the benefits of the trust are available to identifiable number of individuals.

49. As regards the note of achievements given by the assessee at the time of hearing, it is not possible either to rebut it or to support it. Both the achievements and non-achievements of the trust will have to be really examined and no statement can be made that the assessee trust has or has not rendered any significant contribution to the cause of sport but mention must be made of a notorious fact which became clear at the time of Olympics that by and large the contribution of sports association to the cause of sport is dismal and no sport institution can boast of having made any substantial contribution in the sports.

50. Apart from this, the danger of mentioning only sports and games without mentioning that they are to be connected with the public health have already been stated. In Breach Candy Swimming Bath Trust's case , the Bombay High Court had specifically observed that they were not dealing with a case of sports or an activity to amuse individuals [reference to page 288 of 27 ITR 279]. In the case of Ootacamund Gymkhana Club , the Madras High Court held as under :

"An Organisation with the primary object of promoting social and physical well-being of the persons to enable them to participate in sports and games as a charitable purpose especially where the object is not restricted to its members and there is no inhibition of participation by members of the public in such sports and games."

51. No doubt the decision of the Madras High Court in some respects supports the assessee. On interpretation of the various clauses, the Madras High Court came to the conclusion that the objects were mainly of charitable nature and incidentally for the benefit of members. Here, in the present case, on the interpretation and consideration of all the evidence the benefits are restricted to the members, benefit to the public being of incidental nature only. It has already been stated that the words 'sports and games' would include the element of recreation, amusement and entertainment and promotion of games may include also promotion of games like card games or video games which are purely recreational in nature. There being thus no nexus between the object and the purpose of physical well-being, these objects cannot be considered to be charitable objects.

52. The learned advocate for the assessee, Shri S.N. Inamdar has referred to the broader outlook and broader perspective whereas the department insists on correct approach to the problem. In answer to the last question posed by the assessee as to why the Gymkhana is existing, the answer is obvious that it exists to extend sports and games facilities to its own members. This is the purpose for which the Gymkhana was established and continues to exist for the same purpose, as the assessee has not been able to rebut the evidence brought on record by the department.

53. As regards the training in sports, it has already been stated that some of these activities of Gymkhana like swimming, Indian games, children's games, athletics etc. are all relating to physical health but it has also been emphasised that a charitable trust having 100 objects which are charitable will fail as a charitable trust if there is one object which is not charitable. The fact that the assessee-trust could draft constitution for starting a club house equipped with bar under the same objects clearly indicates that the purpose of the trust is not entirely charitable.

54. On the point of mutuality, the learned counsel for the assessee relied on the same cases which were cited before the CIT(A) and he has invited our attention to para 15 of the CIT(A)'s order. He has also referred to the decision in CIT v. Darjeeling Club Ltd. [1984] 42 CTR (Cal.) 338 and the decision of the Pune Bench in the case of ITO v. Poona Club Ltd. [1984] 9 ITD 338. According to him, the decision of the Madras High Court in the case of Presidency Club Ltd. liberalised the principles of mutuality and that of participation. The various decisions to which reference was made by the departmental representative were, according to the learned counsel, considered by the Pune Bench in the case of Poona Club Ltd.

55. Coming to the specific items, he conceded that the principle of mutuality does not apply as regards income from marriage hall (item from colony panchayat) but he, however, stated that the surplus from fees, subscriptions, property, interest and other income of colony panchayat would all be exempt on the principle of mutuality. According to him, in respect of income from property, it is a notional income and there being no question of participation of the outsiders involved, the income was clearly required to be exempted. The interest was claimed to be only an accretion to the mutual fund and was, therefore, claimed to be exempt. The learned departmental representative, Shri K.A. Sathe, in his rejoinder has stated that it has already been stated that the assessee-trust can be either a charitable trust or can be a mutual association ; but it cannot be both at the same time. He has urged that how the principle of mutuality for the purpose of exemption was not satisfied was already stated in the main argument. The decision of Poona Club Ltd.'s case was relating to the activities relating to the members' activity, and on that ground if it is held that there is a complete identity between the participators and contributors, the only income that can be exempted is that from subscription and surplus from the sports sections. The income from Billiards Club and income from Vanita Vishram was taken by the ITO after excluding the income which was exempt on mutuality. Similarly, the income of the assessee, i.e., the oldest trust insofar as it related to interest from outsiders, no exemption was permissible as there was no activity with the members. The interest arose on account of the transaction with the outsiders and it would be wrong to treat it as exempt. As regards the income from property, it is admittedly from outsiders and the decision of Poona Club Ltd.'s case where letting was only to the members is clearly distinguishable.

56. Thus the department's case and contentions can be summarised as under :

(1) The assessee is not a charitable trust as it is not for the benefit of public, but for the benefit of identifiable members,

(2) The assessee-trust is not existing for a charitable purpose. In any case, some of its objects-- either because they are restricted to members or because they are not charitable-will make the entire trust non-charitable as such clauses are not severable. Moreover, none of the clauses are subsidiary to each other. Every clause in the constitution is independent and there is no dominant feature in some clauses or other clauses,

(3) Though the assessee-trust is a club existing for its members, there being no complete identity between participators and contributors, none of its income is exempt,

(4) Alternately and assuming that the assessee is a mutual association and that there is a complete identity between contributors and participators, the income from marriage hall, the income of property from the trustees, the income from interest earned by Billiards section and Vanita Vishram, all are taxable.

57. This summing of the items of the department are quite fair and acceptable and therefore, we accept them.

58. The principle of mutuality, of course is applicable to some of the items of the activities undertaken by the assessee such as games, sports etc. The principle of mutuality, in our view, is not applicable to other items, except the items which have been mentioned by us in above paragraphs.

59. In this view of the matter, in our opinion, the CIT(A)'s order requires to be set aside and that of the ITO restored. We have taken into consideration all the facts and factors urged before us and the arguments advanced on behalf of both the parties. We have also seen the legal position of the different claims of the assessee and arrived to a conclusion.

60. In the result, the department succeeds partly and the appeals are partly allowed.

Per Shri N.Y. Tamhane, Accountant Member - It is with deep anguish and regret that I find I am unable to agree with the order proposed by my learned brother. The order is a detailed one and I find it gives, though not all the relevant facts, most of the relevant facts. I further find that in paragraph 8 the issues that arise for consideration have properly been set out. in the circumstances, I consider it advisable not to repeat the facts but, to add to the facts those facts which are material, but have not been stated by the learned Judicial Member. Equally, I do not propose to deal in a detailed manner the submissions made by either of the parties. I will, however, refer to the more important submissions on which I am unable to agree with the conclusions drawn by the learned Judicial Member.

2. Issue No. 1 at page 4 concerns "whether the decision of this Bench of Pune Tribunal for the assessment year 1973-74 holds good for all the subsequent years, or otherwise does it at least hold good for the assessment year 1973-74 ?" One does not find, in the learned Judicial Member's order, a specific decision arrived at by him on this issue. In paragraph 56 while the learned Judicial Member has summed up the Department's case and the contentions, which he finds acceptable and, therefore, accepts the same, does not make a reference to the above referred issue No. 1. Manifestly, therefore, the learned Judicial Member has taken the view that the order of the Bench in the 1973-74 proceedings, being ITA No. 270/PN/77-78 dated 20th October, 1978 does not hold good for either the assessment year 1973-74 or the subsequent assessment years. I find that on this issue, unfortunately, the learned Judicial Member has not given any specific reasons to come to the decision he has done. Unless his decision was against the Department, it would not have been necessary for him to consider in details the submissions made by the Department. In the circumstances, I consider it proper to record reasons for which I agree with the learned Judicial Member on the first issue, the decision being that the earlier order of the Bench dated 20th October, 1978 is no bar to the hearing on merits of the Department's appeals for any of the years 1973-74 to 1979-80 and further that for the assessment year 1973-74 the Commissioner (Appeals) was not bound by the earlier order of the Tribunal dated the 20th October, 1978.

3. Appeal No. 270/PN/77-78, which was disposed of by the order dated 20th October, 1978 arose out of the assessee's appeal against the Commissioner of Income-tax's order under section 263 dated the 17th June, 1977. One has to appreciate the nature of this order passed by the Commissioner, which was the subject matter of appeal in ITA No. 270/PN/77-78. It is seen that the Commissioner of Income-tax has the jurisdiction to pass order under section 263 where an order passed by the Income-tax Officer is erroneous and prejudicial to the interests of Revenue. When a Commissioner of Income-tax finds that the order passed by the income-tax Officer is "erroneous in so far as it is prejudicial to the interests of the Revenue", he may pass any order having one or the other effect referred to in the subsequent part of section 263 of the Act The Commissioner may pass ''an order enhancing or modifying the assessment" or he may pass an order "cancelling the assessment and directing a fresh assessment". Where the Commissioner passes an order of the first type, the Commissioner himself has ordered an enhancement or modification of the assessment, which the Income-tax Officer is bound to carry out. However, when the Commissioner cancels the assessment and directs the fresh assessment, as a result of such order, the Income-tax Officer is not bound to make an assessment in enhancing the assessment as already made by an amount arising out of an issue on which in the Commissioner's opinion the Income-tax Officer's decision was erroneous and prejudicial to the interests of the Revenue. Properly understood, the Commissioner's order dated the 17th June, 1977 was not of the first type but of the second type. It was for this specific reason that towards the end of paragraph 4 of his order dated the 17th June, 1977 the Commissioner observed "I set aside the assessment made by the Income-tax Officer and direct him to make a fresh assessment according to law on the lines of the legal position discussed above".

4. As regards the two types of order earlier referred to and their effect, if one requires any authority, one finds it in the decision of the Delhi High Court in Gee Vee Enterprises v. Addl. CIT [1976] 99 ITR 375.

5. The second and the third issues raise the main dispute. The second issue as framed is covering more than one controversy, (i) whether the assessee-trust is a members' club or it is a public trust, (ii) if the assessee-trust is a private trust, whether its benefits are available only to members, i.e., identifiable individuals, then the question of holding it as a charitable trust does not arise as a charitable trust has to be for the benefit of members of the public ; and the third issue is even otherwise, whether the objects of the assessee can be said to be of charitable nature ?

6. These appeals were heard in the afternoon session on 16th, 17th and 18th January, 1985 and on Saturday, the 19th January, 1985 in both the sessions. The earlier effective hearing was almost two years earlier on 28th March, 1983. At that stage, the Bench was differently Constituted, the Judicial Member being a different incumbent. On 28th March, 1983, both the Departmental Representative, Mr. Sathe, and the assessee's representative, Mr. Inamdar, were heard. It was considered advisable that Mr. Inamdar should file the statement of facts and certain relevant documents. It appears that the assessee filed the relevant documents but not the statement of facts. Mr. Sathe, when the case was taken up for hearing in January, 1985, accepted that the assessee had filed the various documents. However, these documents were not seen on the record of the Tribunal. As such, Mr. Inamdar had filed the documents at the time of hearing in January, 1985. At that stage, Mr. Inamdar also filed a note on the activities carried out for sports by the assessee and its achievements. It is to this note that the learned Judicial Member has made a reference in paragraph 49 of his order. Mr. Inamdar had stated that the activities carried out by the assessee and its achievements are widely known and were specifically referred to at the time of the earlier hearing in March, 1983 and, among others, for the submission of which the hearing war, adjourned on that occasion. It may be added that Mr. Sathe, for the Revenue, did not challenge the activities carried out by the assessee and its achievements as brought to our notice. Diving the course of the hearing, Shri Sathe handed over to us one paper entitled "Constitution of the Deccan Gymkhana Club House Department".

7. As regards the Club House Department, on the earlier occasion in 1983, no submissions were made by Mr. Sathe and that on his making a reference to the Club House Department, Mr. Inamdar explained that it was sometime in 1970 that the members of the Gymkhana had considered it advisable to examine the feasibility of establishing one special Department to be called "Deccan Gymkhana Club House Department" but that even till date that particular Department has not been established and there is no present likelihood of such a Department being established. I, therefore, find that by referring to the special Department entitled "Deccan Gymkhana Club House Department" at late stage of hearing in 1985, Mr. Sathe was trying, unfortunately, to bring on record certain facts, which were not earlier brought to the notice of the Tribunal in 1983.

8. In order to appreciate what is the assessee-institute, one must have a certain background of educational, cultural, physical and social activities in Western India. During the hearing, Mr. Sathe had laid great stress on the decision of the Supreme Court in CIT v. Andhra Chamber of Commerce [1981] 130 ITR 184. In particular, Mr. Sathe laid great stress on the observations of Mr. Justice Sen at page 207 thus :

"It is the vagueness of the fourth head of charity, 'any other object of general public utility' that impelled Parliament to insert the restrictive words 'not involving the carrying on of any activity for profit'. In my minority opinion in the Surat Art Silk case, I had endeavoured to give reasons why the correctness of the majority decision was open to question. There is no point in traversing the same ground over again. It is clearly inconsistent with the settled principles to hold that if the dominant or primary object of a trust was 'charity' under the fourth head 'any other object of general public utility', it was permissible for such an object of general public utility, to augment its income by engaging in trading or commercial activities."

Based on this observation, it was the submission of Mr. Sathe that a, public charity should not be a means to achieve tax evasion and that any diversion of business profits to charity cannot be allowed so as to enable "such public charity to get the benefit of tax exemption". In reply to a question whether it was suggested by the Department that the present assessee is one of the trusts created by businessmen whose objects, prima facie, may be charitable but whose real objects may in fact be otherwise. Mr. Sathe immediately and promptly stated that that was not the Department's case.

9. In order to appreciate the frank statement by Mr. Sathe that it is not the Department's case that the present assessee was constituted as a vehicle of tax evasion, one has to give the necessary background, which, unfortunately, one does not find in the order of the learned Judicial Member.            

10. Being one interested, naturally, in the events which have taken place in our country in the last century, and particularly Western India, I will state the background of the institute, the present respondent, Deccan Gymkhana.

11. Fired by idealism, one, Krishna Shastri Chiplunkar collected around him a band of young men whose object was spread of education. Among others, the two persons who joined Chiplunkar, almost at the start, were Tilak and Agarkar. These three gentlemen were instrumental in bringing into existence the education society known as Deccan Education Society, the first school started by the institute being New English School, Poona. The society later set up Ferguson College, which is celebrating this year its centenary year. At the stage Ferguson College was set up, it was in the old part of Poona City. Later it went to its is now presently located. In Ferguson College, at a later stage joined a number of great persons, the towering among them being Gokhale. Tilak was interested not only in education as such but equally physical education, gymnastics, sports, games and sportsmanship. Tilak and the band of persons working with him considered it advisable to start an institute primarily with the object of fostering, developing and promoting gymnastics, sports, games and sportsmanship. Accordingly, on 5th October, 1906 was registered with the Registrar of Societies Deccan Gymkhana, Poona. This institute celebrated its Diamond Jubilee in October 1966. Mr. Inamdar has brought to our notice the Constitution and Rules of the society registered on 5th October, 1906 as modified and approved by the Ordinary General Meeting held on 23rd February, 1964 and the report published by the Chief Trustee and the General Secretary on the occasion of the celebration of the Diamond Jubilee.

12. To some of the facts stated in the report, the learned Judicial Member has made a reference in paragraph 13 of the order. However, I find that after stating the facts in paragraph 13, the manner in which Gymkhana developed from 1906 to 1932, when the learned Judicial Member stated in the opening sentence in Paragraph 14 that "the colony was established for the members of the Gymkhana Club", it is not a fully correct statement of facts.

13. As pointed out earlier, Tilak, more popularly known as Lokmanya Tilak, was fired with the idea of fostering, developing and promoting gymnastics, sports, games and sportsmanship and it was with that objective that the persons around him started this institute in 1906. The first General Secretary of the institute was equally a person of eminence, Mr. N.C. Kelkar. In the 1966 report, a reference has been made to the splitting up of the activities of an older club so far as cricket was concerned, to which a reference has been made by the learned Judicial Member in paragraph 13. Originally there was Young Men's Cricket Club, which was split up into two, one was known as Poona Young Cricketers' Hindu Gymkhana and the second Deccan Gymkhana. It is with this Deccan Gymkhana that Lokmanya Tilak was associated and, as observed at page 2 of the 1966 report, that branch of Young Men's Cricket Club, which is now known as Deccan Gymkhana was so named as Lokmanya Tilak was firmly of the view that the club should be open to members of all communities. There is thereafter a reference at pages 3 and 4 to the increased activities of Deccan Gymkhana and at page 5, it has been observed that by and by Deccan Gymkhana became a centre of attraction. It is, however, added that since Deccan Gymkhana was beyond the city limits and at that stage there were no lights provided even, it was very difficult for persons to take the facilities afforded by the Gymkhana. With a view to overcome these difficulties, the persons, then running the Gymkhana considered it advisable to have a colony so that the persons interested in gymnastics, sports, games and sportsmanship would be in a position to maximise the benefits given by the institute. Mr. Inamdar has stated that it was with this objective that the Housing Society was formed and that, as observed at page 5 of the very report, a number of houses then constructed were constructed from stone obtained from the quarry on the land taken on lease by the Gymkhana and the quarry at a later stage became the swimming pool. Mr. Inamdar further stated that at that stage Gymkhana did not come within the Municipal limits of Poona Municipality (just as the municipal limits of I.B.C. were extended from time to time) and, accordingly, Gymkhana was required to have Panchayat. Mr. Inamdar stated that Panchayat was essentially formed to carry out the functions, which are normally looked after by a municipal body.

14. Mr. Sathe at the outset had given the historical background of the development of law on two issues, one of charity and the other of mutuality. In the manner in which Mr. Sathe gave the development of law on charity, it appears to me that, according to the Department, it was for the first time in 1980 that emphasis was laid by the Supreme Court on what is the dominant object of a trust. Now, that is not the correct understanding of law. One recollects the decision of the Privy Council in All India Spinners' Association v. CIT [1944] 12 ITR 482, a decision given on 27th June, 1944. Now, the head-note at page 483 would show that the Privy Council has observed :

"If an Association is set on foot by a political organisation and is connected with it but still has for its real object the relief of poverty, its connection with the political organisation does not make its real object any the less charitable."

15. The real issue is now what is the real or the dominant object of the respondent. Mr. Inamdar explained that the dominant object of the respondent is "to foster and develop (promote) gymnastics (sports), games and sportsmanship". Mr. Inamdar stated that one cannot foster and develop or promote gymnastics, sports, games and sportsmanship unless one gives the necessary infrastructure. Mr. Inamdar stated that if one has to develop and promote gymnastics, sports, games and sportsmanship, one must create the necessary conditions where all those who are interested and others whose interest could be roused, do take part in gymnastics, sports and games. Mr. Inamdar stated that Deccan Gymkhana was formed on splitting up of Young Men's Cricket Club as certain members of that club wanted to restrict the benefit only to Hindus, Lokmanya Tilak and his lieutenants, who started the respondent institute, the present assessee, wanted it to be open to members of all communities. Mr. Inamdar then stated that this fact alone should establish the bona fides of the assessee that the assessee is a public institution.

16. Mr. Inamdar stressed the fact that if one had to achieve the objects with which a personage like Tilak was associated closely, one necessarily had to provide the infrastructure. It was submitted that infrastructure was provided by establishing the Gymkhana. It was added that, certainly, Gymkhana is a members' club. Mr. Inamdar accepted the fact that the Managing Committee has a right to refuse admission. However, it was stated that that right given to the Managing Committee to refuse membership to any particular person could only be exercised because such a person was an undesirable person. In this connection, Mr. Inamdar brought to our notice the decided cases wherein it is held that a company is a company in which public are substantially interested even if the Board of Directors is invested with the necessary authority, to refuse transfer of shares without assigning any reasons. As I have said above, I do not propose to deal in detail with any of the submissions made by either of the parties, except indicating the submissions so made, with a view to bring out the reasons on which I am, unfortunately, constrained to differ from the learned Judicial Member.

17. Mr. Inamdar laid great stress on the fact that if games and sports are to be encouraged, they must be played. He added that if games and sports are to be played, there must be an organisation providing the infrastructure, which would enable the persons interested to play such sports and games. Mr. Inamdar further stated that it is this infrastructure, which was provided by Deccan Gymkhana. He further added that whatever surplus that Deccan Gymkhana makes, the same is utilised in fostering and encouraging the love of sports and gymnastics. It is in that background that one has to appreciate, stated Mr. Inamdar, the achievements referred to at pages 6 and 7 of the report, namely, persons like Tulpule, Gokhale and Joshi captaining Maharashtra for Ranji Trophy, and Shinde, Joshi, Dani, Nimbalkar and Patil as cricketers provided to India by Gymkhana. Equally, Mr. Inamdar stated that Meena Parande and Dwarka Gore of Gymkhana were instrumental in enabling Maharashtra to be the first in National Table Tennis championships Mr. Inamdar then explained that when land was being sold in a comparable area at as low as one anna a sq. yd., the members of Gymkhana, who were called colonists, had deposited with the assessee one rupee a sq. yd. to enable the Gymkhana to tide over financial difficulties. Mr. Inamdar further pointed out that from the surplus of the income of colony panchayat, half is kept for the panchayat as such and the moiety is handed over for encouragement of sports. Now Mr. Sathe did not challenge any of the above statements made by Mr. Inamdar.

18. I find merit in Mr. Inamdar's submission that one cannot merely say that one wants to foster, develop and promote gymnastics, sports, games and sportsmanship by merely saying so but one must then provide the necessary infrastructure. Accordingly, I do not find anything objectionable in the assessee-trust running a Gymkhana as a members' club wherein the surplus is utilised for the purpose of fostering, developing and promoting gymnastics, sports, games and sportsmanship. I further find merit in Mr. Inamdar's submission that the assessee being registered as a society under the Societies Registration Act, under which only a public society could be registered, prima facie, the respondent is a public society. I find merit in the decision arrived at by the learned Judicial Member that concerning taxation a final decision on the issue regarding the character of the respondent has to be taken by the Income-tax Officer himself and that the decision taken by the appropriate authority either under the Societies Registration Act or the Bombay Public Charity Trusts Act, cannot be binding on the Income-tax Officer. However, that is one factor, which, one of necessity, has to take into consideration and cannot lightly brush aside.

19. In this background, I would like to refer to the observations of the Lord Wright in All India Spinners' Association's case . The relevant observations are at pages 487 to 489 thus :

"It is not really questioned that the practice has been to use the surplus income for the purposes of the Association and that the business has been carried on in pursuance of the primary purpose in addition mainly by beneficiaries of the Association. The practice however is not enough. The purpose is to be ascertained from the constitution. In their Lordships' judgment its provisions already quoted show a trust or binding obligation so to carry it on. The constitution is a written instrument, the terms of which bind not only the trustees and Council, but the members who by their application for membership accept its rules. Any departure either by the trustees or Council or members from the rules would be a breach of trust or legal obligation which the Court could restrain. A formal deed is not necessary to constitute a trust, still less to constitute a legal obligation binding the trustees, the Council and the members inter se. Their Lordships hold that there is such a trust or at least that there is a legal obligation, which is all that the section requires. It is true that the rules may be altered by the unanimous agreement of all the members. But that is immaterial so long as the rules remain unaltered." The second and more important point is whether the undertaking is a charity. Their Lordships are fully conscious of the importance of applying correct principles in such a matter and do not repeat the reasons for caution stated by the Board in the Tribune Press case. The limits fixed by the section must be strictly observed and its definition must be satisfied by the character of the Association and its activities. Whether that is so depends on the trust construction of the section and on the meaning and effect of the constitution which defines the character of the Association. The construction of the section is obviously a question of law, but so also is the question what is the real purpose of the Association. The Court must make its decision on the latter point on the basis of the facts found for it, but given the facts the question is one of law. In this particular case the principal fact is the constitution, the true construction of which is again a question of law."

and towards the end of page 488 :

"But private profit was eliminated in this case. Though the connexion in one sense of the Association with the Congress was relied on as not consistent with 'general public utility' because it might be for the advancement primarily of a particular party, it is sufficiently clear in this case that the Association's purposes were independent of and were not affected by the purposes or propaganda of Congress. Nor is there any ground for the Court holding that the scheme is not one which 'may be' for the public benefit. The Court might in proper cases refuse to admit as charitable schemes, purposes eccentric or impracticable. But though economists might differ about the wisdom of some aspect at least of the Association's purposes, the Court could not hold that it was beyond the pale of legitimate charitable trusts."

20. I am of the opinion that the facts of the present case have to be understood against the background of law as explained by their Lordships of the Privy Council. It need not be added that it was not the contention of Mr. Sathe that there was an element of private profit in the present case. As the italicised sentence would show, the Court would restrain any departure by the trustees or council or members. In the present case, there is such a dispute going on before the Charity Commissioner. Were it a private trust or were it a members' club, such a proceeding before the Charity Commissioner could never have arisen. I am, therefore, of the view that, considering the law and the facts, the assessee is a public trust whose case comes within the last of the clauses and who is entitled for exemption, subject to the satisfaction of the other conditions as directed by the CIT (Appeals). Accordingly, on the second question my answer would be that the assessee is a public trust. Primarily the assessee is a public trust but the infrastructure is provided by Members' Club, any surplus from whatever activity being impressed with the character of a trust for being utilised on the main objects of the trust, namely, fostering, developing and promoting gymnastics, sports, games and sportsmanship.

21. As such, the second of the second question referred to by the learned Judicial Member, namely, that the assessee is a private trust, must be answered in the negative.

22. As regards the third question "whether the objects of the assessee can be said to be of charitable nature", my answer is in the affirmative.

23. This takes me to the fourth question, namely, whether the assessee can get exemption on the ground that it is a mutual association. On this issue, the decision of the learned Judicial Member is to be seen in paragraph 27 of the order and the final summing up is to be seen at sub-para (3) of paragraph 56. The answer to the question given by the learned Judicial Member is that "though the assessee-trust is a club existing for its members, there being no complete identity between participators and contributors, none of its income is exempt". As I have said above, the reasoning is to be seen in paragraph 27. The reasoning is "in the present case, as per clause 16, the only voting members could control the funds and could be said to be participators whereas the contributors were not only the voting members but also the other members like student members, female members and temporary members. On this ground alone, it is quite clear that the principle of mutuality is not satisfied and the entire income of the assessee-trust is liable to be taxed". During the course of the hearing, Mr. Inamdar had relied on the decision of the Tribunal in the case of Poona Club Ltd. Now when one turns to the page 344 of the report, it would be seen that in Poona Club there were different classes of members, "a founder member, patron, life member and permanent member, the last category excluding a subsidiary member which is then defined as constituted of a corporate member, a gymkhana subscriber, an honorary member, lady subscriber and a playing member. According to the Commissioner, this variation in the definition of members did not overcome the infirmity which, in his view, was fatal to be club's claim for mutuality, because one or more classes of members who, although they were contributors to the common fund, were excluded from participating in the surplus". It would further be seen that there were two appeals by the Department for the years 1977-78 and 1978-79 and cross-objections by the assessee and two appeals filed by the assessee against the Commissioner's order under section 263 for the assessment years 1979-80 and 1980-81 (paragraph 1, page 340). When one turns to the final decision of the Bench in paragraph 16 at page 347, it would be seen that the Bench has observed :

"For the reasons discussed in the foregoing paragraphs, we would uphold the order of the Commissioner (Appeals) for the two years and dismiss the department's appeals for the years 1977-78 and 1978-79. On the same grounds, we set aside the order of the Commissioner under section 263 for the subsequent two years and allow the assessee's appeals for those two years."

It would be clear that the learned Judicial Member has apparently revised his view on this part of the controversy as manifestly there is a contradiction between what the learned Judicial Member has stated in paragraph 27 of the present order and the decision of the Bench in Poona Club Ltd.'s case referred to earlier, to which he was a party. It is further to be seen that for Poona Club that assessee's representative was Mr. Inamdar and for the Department the representative was Sathe, the very same representatives who argued the present appeals before us. In the circumstances, I do not consider it necessary to refer to the arguments of Mr. Inamdar on this issue of mutuality as manifestly there is a contradiction between the earlier order of the Bench and the decision of the learned Judicial Member in the present case. As such, on the fourth question at page 5, my answer is that the assessee entitled to get exemption on the ground that it is a mutual association. Incidentally, I may add here that Mr. Inamdar referred to the decision of the Calcutta High Court in Darjeeling Club Ltd.'s case.

24. This leaves for consideration the fifth and the last question referred to at paragraph 8, namely, even assuming that the assessee is a mutual association, whether the entire income will be exempt on the ground of mutuality and if not, which income does not satisfy the test of mutuality. The answer to this question is given by the learned Judicial Member at paragraph 56(4), namely, "alternatively and assuming that the assessee is a mutual association and that there is a complete identity between contributors and participators, the income from marriage hall, the income of property from the trustees, the income from interest earned by Billiards section and Vanita Vishram, are all taxable."

25. As I have said earlier, I do not propose to discuss in detail the submissions made by either of the parties. Now, as regards income from Marriage Hall, it has to be stated that Mr. Inamdar had brought to our notice that what was constructed was not a Marriage Hall but what was constructed was an indoor Badminton Hall. Mr. Inamdar stated that the use of the Badminton Hall for holding marriage reception was merely, incidental and that any income from that particular activity of Vanita Vishram had the same charge, namely, the utilisation of funds for furthering the main objects of the institute founded by Lokmanya Tilak. Accordingly, I am of the opinion that income from Marriage Hall is not taxable.

26. As regards "the income of property from the trustees", for the same reasons as given with reference to the immediately preceding issue, my decision is the same, namely, the income is not liable to charge. Concerning "the interest earned by Billiards section and Vanita Vishram". Mr. Inamdar pointed out that the interest income arose out of the utilisation of the temporary surplus funds and considering the fact that the initial source of the funds was the members as a body and the benefit was to accrue, to the members as a body, subject to the charge, this income is equally exempt.

27. In the final analysis, I would reject the Department's appeals for all the years.

REFERENCE UNDER SECTION 255(4) OF THE INCOME-TAX ACT, 1961

We, the Members of the Pune Bench of the Tribunal, have differed in the order to be passed in the appeals by the Department Nos. 2 to 7/PN/1983. The questions on which we have differed are referred to the learned President under section 255(4) of the Income-tax Act. The questions on which there is a difference between the Members of the Bench are as under :

(1) Whether the assessee-trust is a public charitable trust and as such entitled to exemption under the Income-tax Act, subject to the satisfaction of the other conditions laid down by the Income-tax Act, 1961?

(2) Whether the assessee-Gymkhana is entitled to exemption on the ground that it is a mutual association

(3) Whether the entire income of the assessee-Gymkhana is exempt on the ground of mutuality.

THIRD MEMBER ORDER

Per Shri K.R. Dixit, Judicial Member - The questions which have been referred to me are as follows :

(1) Whether the assessee-trust is a public charitable trust and as such entitled to exemption under the Income-tax Act, subject to the satisfaction of the other conditions laid down by the Income-tax Act, 1961 ?

(2) Whether the assessee-Gymkhana is entitled to exemption on the ground that it is a mutual association ?

(3) Whether the entire income of the assessee-Gymkhana is exempt on the ground of mutuality ?

2. The facts have been set out in the order of the learned Judicial Member. The learned Accountant Member has added to that the facts which he considers are important. He has stated that the Deccan Gymkhana was started by eminent persons and that it was open to all. He has also stated that the colony for the members was started because the Gymkhana was in a far off place and so that the sports amenities provided by the Gymkhana could be availed of by the members. According to him, the Gymkhana may have made some profit but that was used for promoting sports and so it was incidental to the main object to promote the sports and sportsmanship. He has also stated that the learned Judicial Member has not given any specific decision on the question whether the Tribunal's order for the assessment year 1978-74 should be followed or not, but I find from paras 11 and 12 of the opinion of the Judicial Member, that the said order of the Tribunal should be followed for all the years.

3. Before me, the arguments on behalf of the Revenue were as follows :

(a) Tribunal's order for the assessment year 1973-74 should be followed for all the years.

(b) the assessee was an amorphous body without any legal basis.

(c) the assessee was not entitled to the exemption under sec. 11 read with section 2(15) looking to its objects.

(d) the alternative claim of the assessee based on mutuality should not be accepted.

4. Regarding the first point, it was, emphasised by the learned Standing Counsel on behalf of the Revenue that the Tribunal should follow its own earlier decision particularly because it was in the case of the very same assessee and the very same issues were involved.

The learned counsel for the assessee replied that for the subsequent years the ITO had followed the Commissioner's revisional order for the assessment year 1973-74, but the CIT(A) had set aside that order directing the ITO to consider the matter in the light of the Supreme Court decision in the case of Surat Art Silk Cloth Mfrs. Association and that the Tribunal had upheld that order. He pointed out that according to the Tribunal the Tribunal's order for the assessment year 1973-74 need not be followed because the said decision of the Supreme Court had not been considered by the Tribunal for the assessment year 1973-74. Therefore, according to him, for all the years, the Tribunal was free not to treat its earlier decision for the assessment year 1973-74 even as a persuasive precedent. The Standing Counsel rejoined that the Supreme Court did not lay down anything new in the aforesaid Surat Art Silk Cloth Mfrs. Association's case and that its ratio was already contained in its decision in Yogiraj Charity Trust v. CIT [1976] 103 ITR 777 (SC). He also argued that the Tribunal's order confirming the order of the CIT(A) did not mean that it had approved the view taken in the appellate order.

5. Now these are appeals from the Commissioner's appellate orders. The Act itself provides for these appeals and so, if the earlier orders of the Tribunal from the Commissioner's revisional order was to be treated as a precedent, the value of this right of appeal in the present case would be considerably reduced if not rendered nugatory. The very fact that the right of appeal had been provided for the same year in the case of the same assessee, even after the revisional order has been given effect to would, on the contrary show that the Tribunal may consider the matter afresh. Moreover, the Tribunal had confirmed the Commissioner's order which only set aside the ITO's order asking him to make a fresh assessment. On a perusal of the Tribunal's order from the Commissioner's revisional order for the assessment year 1973-74 it does not appear that all the submissions which were made before the Members this time were made at that time. Such an order cannot be considered as a full precedent to be followed in appellate proceedings. Therefore, the Tribunal's order for the assmt. yr. 1973-74 need not be followed for any of the years.

6. Regarding the second point, the Standing Counsel brought to my notice the judgment of the Charity Commissioner in a revisional application filed by certain members of the colony against the assessee and others. In that judgment, it has been stated as follows :

". . . However, no evidence was produced by the original applicant to show the registration of Deccan Gymkhana under the Societies Registration Act. Apparently there is contradiction between the particulars submitted in the original application to the Asstt. Charity Commissioner in respect of the documents creating the trust. If the society is registered under the Societies Registration Act, then in that case there cannot be a trust deed creating the trust and if the trust deed has created the trust, there cannot be registration of the society under the Societies Registration Act. However, the Ld. Asstt. Charity Commissioner did not consider the said position which goes to the root of the matter."

On the basis of this judgment, he argued that the very existence and nature of the assessee was in doubt and so the question of any exemption being granted to it cannot arise. He also pointed out that the applicants before the Charity Commissioner has filed their returns in the name of Colony Panchayat showing the income from the property as their income for the assessment year 1973-74 onwards. The assessee's counsel objected to this document being produced at this stage and submitted that this was entirely a new case made out and that in any case, this was not referred to me and so I could not consider that question. He also submitted that the questions referred to me presumed the existence of the assessee as a trust. He also pointed out that the assessee had been assessed as a trust for several years and it was now too late in the day to raise this issue.

The Standing Counsel rejoined that the Third Member should consider this question relying upon the decision in Hanutram Chandanmal v. CIT [1953] 23 ITR 505 (Pat.) stating that the only restriction on the Third Member was that he had to choose between the ultimate conclusions of the two Members who had differed. I am of the view that since the jurisdiction of the Third Member arises only out of the difference between the two Members, he cannot go into any question which was not in issue before the two Members. The submission made here regarding the existence or status of the assessee is entirely new and therefore I cannot go into that question. The Standing Counsel emphasised that this went to the root of the question regarding the claim to exemption but even if that is so, I can express the opinion only on the controversy which existed between the two Members and not on any other point.

It is important to remember that if this point had been taken before the two Members, perhaps, they might have agreed on a conclusion which would have avoided the entire difference between them. It is on the basis of the existence of this difference that my jurisdiction arises and, therefore, I cannot go into that question, the decision of which might have resolved that difference of opinion. The Standing Counsel also emphasised the language of the first question which according to him implied a question regarding the existence of the trust, but I am afraid I cannot accept that contention. This question cannot be isolated from the controversy which exists between the two Members as seen from their opinions and those opinions as stated above do not show any such controversy.

Finally in Hanutram Chandanmal's case , the facts were that according to one Member the figure of liability was Rs. 12,800 while according to the other Member, the figure was Rs. 2,800. According to the Third Member, the figure was Rs. 8,143 and the High Court said that the Third Member could only choose between those figures and could not arrive at a figure different from both of them. He had to agree with one or the other of the two Members. This case does not decide that any issue other than that before the two Members could be entertained by the Third Member and that the only restriction placed on him was regarding the choice between the two. I am therefore of the view that this issue cannot be considered by me.

7. Coming to the third point above, the Standing Counsel submitted that none of the objects of the assessee were of public and charitable character. He submitted that each object was separate by itself and none was ancillary to any other. He relied upon the aforesaid decision of the Supreme Court in the case of Surat Art Silk Cloth Mfrs. Association and submitted that therefore the assessee-trust could not be regarded as a public charitable trust. He particularly emphasised the objects (f) to (h) and submitted that the assessee could spend its income on any one of these at its own discretion and therefore the claim to exemption must fail. He also submitted that sports and games were given a separate place under clause (23) of section 10 and that therefore they could not be the basis for exemption u/s. 11 read with section 2(15). He further submitted that the alternative argument based on mutuality showed that the assessee admitted that the benefits were available only to the members thus contradicting the assessee's claim that the benefits of the assessee-trust were available to the members of the public. He pointed out that the colony panchayat earned an income of Rs. 1 lakh and that therefore this was a commercial activity which disentitled the assessee to the claim as a public charitable trust. On the other hand, the assessee's counsel submitted that objects (a) to (e) were clearly charitable and that the other objects (f) to (h) were only powers and were ancillary to the aforesaid objects (a) to (e). For that purpose, he relied on the following authorities :

Yogiraj Charity Trust's case (observation at P. 782), Umaid Charitable Trust v. CIT [1980] 125 ITR 55 (Raj.), Andhra Chamber of Commerce's case and CIT v. Federation of Indian Chambers of Commerce & Industry [1981] 130 ITR 184 (SC) (observation at P. 189).

He also relied upon the aforesaid decision of the Supreme Court in the case of Surat Art Silk Cloth Mfrs. Association . To support the argument that the objects (f) to (i) were subsidiary to the objects (a) to (e), he submitted that promotion of sports was a charitable purpose relying upon the decision in Ootacamund Gymkhana Club's case. He submitted that since the membership of the assessee was open to the public, it must be held that the assessee was a public trust. He submitted, relying upon that decision, that no inference could be drawn from the existence of clause (23) of section 10. He also relied upon the CBDT circular dated 24-9-1984 (Reference 150 ITR - Statutes at P. 74) to the effect that the promotion of sports was an activity of general public utility even if it is not approved under the said clause (23). Regarding the object clause (g), he submitted that if the object is not carried out for several years, the trust need not be regarded as non-charitable trust relying upon the following two Supreme Court decisions-Dharmodayam Co.'s case and Dharmaposhanam Co.'s case . He submitted that the colony was built giving plots to the members only in order that the sports facility of the Gymkhana may be available to the members because the Gymkhana was very far away from the Pune city in the earlier years. He pointed out that the last time, this clause (g) was acted upon was in the year 1922 and even at that time the land was given to the members at 8 annas per sq. yd. whereas the outside rate was only 1 anna per sq. yd. utilising the extra amount for the promotion of sports.

The Standing Counsel rejoined that so far as the circular was concerned, the assessee must show that the assessee was engaged in the Promotion of sports in general and that playing of games between members was not the promotion of sports.

8. There are several issues under this head of argument. The first question is whether the objects of the assessee are independent and distinct or some are main objects and others are ancillary to those main objects. It appears that objects (a) to (e) fall in one group. They are for the promotion of allied activities of games, gymnastics, sports and sportsmanship generally. It can fairly be said the above group of clauses (a) to (e) show the main or primary object of the assessee. It would also be fair to take the view that clauses (f), (h) and (i) are ancillary to the above group of main objects. In the promotion of sports, if it has to be done on a meaningful and significant way so as to make an impact on a wide scale it would be essential that the assessee should be able to acquire and hold property and to raise and invest funds giving loans etc.

The question then is whether the aforesaid main object can be called a 'charitable purpose' within the meaning of sec. 2(15). On that question, the Circular relied upon by the assessee's counsel does state that promotion of sports and games is considered to be a charitable purpose within the meaning of sec. 2(15). It also goes on to state that an institution engaged in this activity can claim exemption under sec. 11 even if it is not approved u/s 10(23). Further, the Andhra Pradesh High Court in CIT v. Riding Club [1987] 32 Taxman 295 has stated that if an assessee is otherwise entitled to exemption u/s. 11, a separate provision u/s 10(23) is not material.

The Standing Counsel submitted that sports and games were not of any utility because they were not a necessity. I am not inclined to accept this argument. In my view, utility first of all, means usefulness and not necessity. Secondly, it would be too narrow a view to take. For any community or society in general, sports and sportsmanship are definitely useful and are of great value. For these reasons I am of the view that the object of the assessee, i.e., promotion of sports, games, gymnastics and sportsmanship must be said to be an object of general and public utility i.e. a charitable purpose within the meaning of sec. 2(15). The learned Judicial Member has stated that in so far as amusement and recreation is provided by the games, they cannot be regarded as for charitable purposes. In my view, these objects have to be read as a whole, i.e., the promotion of sports and sportsmanship and it would not be fair to separate one particular item of games from the general activity of sports and games. Further, he has also considered whether the sports would promote, physical fitness and well-being. I am unable to agree with this criteria as stated above. Sports and sportsmanship are of general public utility irrespective of the physical well-being which they may promote.

9. Regarding the argument of the Standing Counsel that since the benefits are available to the members only, it must be said that the membership is not open to the public. It must be realised that the object of the assessee is promotion of sports etc. and it has to be done in an organised way. In doing so, the assessee has found a way i.e. establishment of an institution and carrying on that activity through that institution. It was therefore quite proper that the activity should be carried out by establishing a way, i.e., membership of that institution. Therefore, it is sufficient that the membership is open to the public.

It may be true that there are certain restrictions on membership, but that is found in many public companies. The Board has got power to restrict the membership but that does not make any difference. Moreover, in the case of Riding Club , it has been decided that public need not be general public and it is sufficient if a section of the public is benefited.

The Standing Counsel stated that the physical necessity restricted the membership of certain members. But that is not material, once the membership is open to the public.

The next argument on behalf of the Revenue that the alternative claim to mutuality was contrary to the claim of benefit to the public. To this, an effective answer has been given by the assessee's counsel that if the claim to public benefit is not granted, then the claim on the basis of mutuality may be entertained.

The next point is regarding the making of profit by the assessee. I do not agree that this by itself is sufficient to disqualify the assessee to claim the exemption. Since the main object is the promotion of sports and sportsmanship which, in my view, as stated above, is an object of general public utility. The making of profit is merely a means to carry out that object. It cannot be gainsaid that having positive income and making an income is not only desirable but necessary for carrying out of that object.

10. Be that as it may, there remains the consideration of clause 'g'.

I shall now refer to the two Supreme Court cases relied upon by the assessee's counsel regarding this clause. In Dharmodayam Co.'s case the Memorandum of Association of the assessee-company had as its objects, inter alia, "to do the needful for the promotion of charity, education and industry". It was held that since the assessee had never engaged itself in any industry, no importance could be attached to this object.

In the case of Dharmaposhanam Co. , there was a similar clause in the objects of the assessee-company, i.e. "to do the needful for the promotion of charity, education, industry etc. and public good. . .". The Supreme Court explained its earlier decision in the case of Dharmodayam Co. and observed as follows, at p. 470 :

"It has been urged on behalf of the appellant that what should be taken into consideration is the activity actually conducted by the assessee, and not what is open to it under the provisions of its memorandum of Association. We do not agree. Whether a trust is for charitable purpose falls to be determined by reference to all the objects for which the trust has been brought into existence. . . . "

In Rex v. Special CIT [1922] 8 TC 286 (CA) it was pointed by the Court of Appeal in England that if the settlor reserves himself the power of appointment under which he might appoint to non-charitable purpose, the trust cannot claim exemption even though the power of appointment is in fact exercised in favour of a charitable object. It would be a different case where one or more of the objects mentioned in the Memorandum of Association, although included therein, was never intended to be undertaken. If there is evidence pointing to that conclusion, clearly, the Court will ignore the object and proceed to consider the case as if it did not exist in the Memorandum. In CIT v. Dharmodayam Co. [1977] 109 ITR 527 (SC), it was that basis on which this Court proceeded when it observed "that the assessee had never engaged itself in any industry or in any other activity of public interest".

Thus the Court has laid down two propositions : (i) it is not the actual practice but the actual objects mentioned in the objects clause which is material ; (ii) if any object is to be ignored then it is necessary to prove that that object was never intended to be acted upon.

In the light of these two propositions, we have to consider clause 'g' separately irrespective of the question whether it has been acted upon or not. The learned counsel for the assessee has submitted that it has been acted upon only once, but the real question is whether it was ever intended to be acted upon or not. In this case, since it has actually been acted upon if only once, it cannot be said that it was not intended to be acted upon.

According to the first proposition above, the very existence of that object is sufficient. Now this object cannot be said to fulfil any of the requirements of sec. 2(15). It, may be true that in the earlier years, the colony was started in order to enable the members to make use of the Gymkhana and its sports activities etc., but that does not make the establishment of the colony an object of general public utility. It is not as if buildings were constructed in order that persons interested in the sports activities would stay there for limited periods. The clause enables the establishment of a colony of members. It is not open to the public and permanent residential facilities are given to the members there enabling them to own those properties. The assessee has derived considerable income from this colony. Therefore, it is not possible to ignore this nor is it possible to regard it as an object of general public utility. If the assessee makes further colonies of this nature it cannot be said that it is beyond its powers under the objects clause. This clause is quite independent of the main objects. The assessee's activity is in no way restricted to the other clauses. Moreover, it is necessary that the assessee should not carry on any activity for profit. Here the assessee has a large income from this colony panchayat. There is also income from the marriage hall. Further there is no restriction that the income from the Gymkhana should only be used for the sports activities or for the promotion of sports. Therefore it cannot be said that the assessee fulfils the requirement of sec. 2(15).

11. So ultimately, it is the existence of this clause 'g' which has proved fatal to the claim of the assessee, Temptation is great to take the view in the case of an institution of this kind which has been brought into existence by eminent men and patriots and which has produced great sportsmen who have brought honour to this country ; to hold that it is a charitable institution deserving of the exemption claimed by it. But judicial discipline requires that this temptation be resisted. The observations of the Supreme Court quoted above are clear and binding. Secondly, when once that clause has been acted upon, there is no objective criteria left to decide that it is no longer operative and no longer intended to be acted upon. Therefore the assessee's claim to exemption u/s. 11 fails.

12. That brings me to the last point, i.e., the claim on the ground of mutuality. The Standing Counsel emphasised the fact that there were various classes of members. He also pointed that the assessee had income from outside sources, i.e. such as the marriage hall, colony panchayat etc. and all these were not available to all the members. The assessee's counsel at the very beginning conceded that the entire income could not be exempt on the basis of mutuality, and that income from outside sources was not eligible to this exemption. His claim on the basis of mutuality was restricted to the income from the activities of the members only. The established principle in this regard is that the capacity of those who contribute and those who benefit should be the same. Therefore, for the purpose of exemption on the ground of mutuality, it is unnecessary that the very same persons should be contributories and beneficiaries. It is sufficient that the capacities are the same, i.e. membership. The learned Judicial Member has noted that there are various classes of members in connection with their voting rights, but that would be relevant only for the purpose of distribution on a winding up. In my view, it is an academic question because this institution had gone on for a very long time and the possibility of its being wound up are far too remote. Moreover, as stated above, the assessee's counsel has agreed that the income from outside sources cannot be exempt on the basis of mutuality. The learned Judicial Member has also taken the view (reference : para 58) that the principle of mutuality is applicable to some of the items of the activities undertaken by the assessee such as games, sports etc. Therefore, I am of the view that the assessee is entitled to the exemption on the basis of mutuality on all the income which comes from activities of the members and not from outside sources.

13. Consequently, I agree with the conclusion of the Judicial Member on all the above questions which have been referred to me. This matter may now be placed before the Bench to pass an order in accordance with the view of the majority.

ORDER UNDER SECTION 255(4) OF THE INCOME-TAX ACT, 1961

In conformity with the view of the learned Third Member dated 29th January, 1988, the appeals are partly allowed.

 

DISCLAIMER: Though all efforts have been made to reproduce the order accurately and correctly however the access, usage and circulation is subject to the condition that VATinfoline Multimedia is not responsible/liable for any loss or damage caused to anyone due to any mistake/error/omissions.