An entity advancing objects of general public utility qualifies for charitable exemption under Section 11 if its activities are not profit-oriented or primarily commercial. Providing facilities on a cost-recovery basis does not constitute trade, commerce, or business, and thus does not trigger the exclusionary proviso under Section 2(15).

आदेश / O R D E R

PER PRABHASH SHANKAR [A.M.] :-

The present appeal emanating from the appellate order dated 20.06.2025 is preferred by the Revenue against the order passed by the Learned Commissioner of Income-tax (Appeals)/National Faceless Appeal Centre, Delhi [hereinafter referred to as “CIT(A)”] pertaining to assessment order passed u/s. 143(3) of the Income-tax Act, 1961 [hereinafter referred to as “Act”] dated 18.12.2018 for the Assessment Year [A.Y.] 2016-17.

2. The grounds of appeal are as under:-

1. “On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in holding that the assessee is a charitable organization within the meaning of section 2(15) of the Income-tax Act, 1961, despite the assessee’s activities being restricted to a limited group of members and involving substantial commercial components such as sale of liquor, catering, and sports facilities.”

2. “On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in granting exemption under section 11 of the Act, overlooking the fact that the assessee was hit by the proviso to section 2(15) owing to the commercial nature of its activities and that its receipts exceeded the threshold prescribed for charitable institutions”.

3. “On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred by treating the assessee as a charitable trust and not a mutual concern, despite clear findings that benefits were extended exclusively to members, and surplus was generated from controlled access and fee-based activities.”

4. “On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in allowing deduction of capital expenditure as application of income under section 11, without establishing whether such expenditure was made out of current year income or accumulated funds/corpus, thus permitting double deduction in contravention of settled principles”.

5. “On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in treating interest income earned from fixed deposits and bank accounts to the extent of Rs. 6,55,74,896/- as exempt under section 11, ignoring the ratio laid down by the Hon’ble Supreme Court in Bangalore Club v. CIT ((2013) 350 ITR 509 (SC)] that such interest income is not covered by the principle of mutuality and is taxable”.

6. “On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in treating the income from other club activities of Rs. 1,45,44,755/- i.e. subscription and contribution from members, game charges, sports activities, social activities and income from non members i.e. guest fees as exempt under section 11 ignoring the ratio of decision of Hon’ble Patna High Court in the case of Ranchi Club Ltd. (1992) (196 ITR 137).”

7. “On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in placing undue emphasis on intent rather than actual conduct, ignoring evidence that public outreach activities are minimal, selective, and often fee based, thereby negating the requirement of benefit to the public at large.

8. “On the facts and in the circumstances of the case and in law The Ld. CIT(A) erred in allowing the carry forward of excess expenditure/deficit of Rs.30,04,71,616/-, ignoring that section 11 does not provide for computation of loss and that such allowance results in unintended double benefit.”

9. “On the facts and circumstances of the case and in law and in light of the law laid down by Hon’ble Supreme Court in the case of New Noble Educational Society us Chief Commissioner of Income Tax [2022] 143 taxmann.com 276 (SC) and in Civil Appeal No.21762 of 2017 in various batch of appe