2015 (10) TMI 2162 - AT - Income Tax

Exemption u/s 11 & 12 - whether assessee is involved in the promotion of football games and sports and as such it is a charitable work and the assessee is eligible for exemption u/s 11 - CIT(A) deleted the addition - Held that - What needs to be emphasized is whether the receipt of amounts by way of sponsorship from various parties would make the activity commercial as held by the Assessing Officer. The mere fact that the appellant society had generated sponsorship funds, during the course of carrying on the ancillary objects, shall not alter the character of the main objects so long as the predominant object continues to be charitable and not to earn the profit. Therefore, we hold that the Respondent Assessee is entitled to exemption of income under the provision of Section 11 of the Act. Further the proviso to Section 2(15) of the Act cannot be applied to the appellant society as it is not engaged in any activity which is in the nature of trade, commerce and business. Accordingly, we direct the Assessing Officer to allow the exemption under the provisions of Sec. 11 of the Act. - Decided in favour of assessee. Disallowance of depreciation - Held that - It is observed that the Respondent Assessee is only claiming that depreciation should be reduced from the income for determining the percentage of funds which have to be applied for the purposes of trust. It is further observed that the Respondent Assessee has not claimed double deduction. The judgment of Indraprastha Cancer (2014 (11) TMI 733 - DELHI HIGH COURT) has considered the judgments of Charanjiv Charitable Trust 2014 (3) TMI 760 - DELHI HIGH COURT and Indian Trade Promotion (2015 (8) TMI 89 - DELHI HIGH COURT) wherein decided to allow depreciation on capital asset in the computation of income apart from treatment of purchase of capital asset as application of income. - Decided in favour of assessee.

Issues Involved:
1. Deletion of addition on account of income assessed by invoking the proviso to section 2(15) of the Income Tax Act, 1961.
2. Deletion of addition made by disallowance of depreciation.
3. Denial of exemption claim under sections 11 and 12 of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Deletion of Addition on Account of Income Assessed by Invoking Proviso to Section 2(15) of the Income Tax Act, 1961:

The Respondent Assessee, a federation promoting football, filed its return claiming exemption under sections 11 and 12. The Assessing Officer (AO) denied this exemption by invoking the proviso to section 2(15), arguing that income from sponsorship and telecasting rights constituted business activities, thus disqualifying the activities as charitable. The CIT(A) overturned this decision, stating that the promotion of football is a charitable purpose under the "advancement of any other object of general public utility" as per section 2(15). The CIT(A) cited case laws, including Hamsadhwani vs. DIT(E), to support this view, emphasizing that receiving sponsorship fees does not equate to engaging in business activities. The Tribunal upheld the CIT(A)'s decision, noting that the federation's activities are inherently charitable and the income from sponsorship and telecasting rights is incidental to its main charitable objective. The Tribunal referenced multiple judgments, including those of the Supreme Court and various High Courts, to affirm that the dominant purpose of the federation is charitable and not profit-making.

2. Deletion of Addition Made by Disallowance of Depreciation:

The AO disallowed the depreciation claim, arguing that it resulted in a double deduction-once at the time of purchasing fixed assets and again as depreciation. The CIT(A) disagreed, allowing the depreciation claim. The Tribunal supported this view, referencing judgments from the Punjab & Haryana High Court and the Delhi High Court, which held that claiming depreciation does not constitute double deduction. The Tribunal emphasized that the depreciation should be reduced from the income to determine the percentage of funds applied for charitable purposes. The Tribunal cited the case of DIT(E) vs. Indraprastha Cancer Society, where it was established that a charitable institution is entitled to claim depreciation on capital assets, even if the purchase of those assets was treated as an application of income.

3. Denial of Exemption Claim Under Sections 11 and 12 of the Income Tax Act, 1961:

The AO denied the exemption claim under sections 11 and 12, asserting that the federation's activities were not charitable due to the income from sponsorship and telecasting rights. The CIT(A) reversed this decision, affirming that the federation's activities are charitable and eligible for exemption. The Tribunal upheld the CIT(A)'s decision, concluding that the federation's activities fall under the "advancement of any other object of general public utility" and are thus charitable. The Tribunal referenced the legislative intent behind section 2(15) and various judicial pronouncements to support its conclusion. The Tribunal emphasized that the federation's primary objective is the promotion of football, which qualifies as a charitable purpose, and the income from sponsorship and telecasting rights is incidental to this objective.

Conclusion:

The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decision to allow the exemption under sections 11 and 12 and the depreciation claim. The Tribunal concluded that the federation's activities are charitable and not in the nature of trade, commerce, or business, thus qualifying for the claimed exemptions. The order was pronounced in the open court on 23.09.2015.

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