2016 (2) TMI 598 - AT - Income Tax

Eligibility of exemption u/s 11 - whether collection of sponsorship fee for conducting tournament, green fee for allowing non-members to use the golf ground would be an activity in the nature of trade or commerce? - claim on the principles of mutuality - Held that - Sponsorship fee collected for conducting tournament and green fee for use of gold ground cannot be considered to be a commercial activity and therefore, it is not in the nature of trade or commerce. It may be a commercial advertisement for the individual or institution who is paying the sponsorship fee but as far as the assessee is concerned, the sponsorship fee received is an income incidental to the main activity of promoting golf in the state of Tamilnadu, therefore, at any stretch of imagination, the collection of sponsorship fee cannot be considered as commercial activity by the assessee. Similarly, the tournament fee, annual subscription fee, green fee, catering income, round charges etc. are incidental to the main activity of promoting the sport of golf. As rightly submitted by the ld. Representative for the assessee, the non-refundable membership fee collected at the time of admission is in the nature of capital receipt, therefore, it cannot be treated as income of the assessee. Therefore, the CIT(A) is not justified in saying that the assessee is engaged in activity which is similar to commerce or trade. This Tribunal is of the considered opinion that the assessee is engaged only in promoting the sport of golf and receiving subscription, tournament fee, sponsorship fees etc. are in the course of its carrying on the charitable activity. Therefore, the activity of the assessee is not similar to commerce or trade. In this case, the object of the assessee is to promote the game of golf in the State of Tamilnadu. The benefits can be available not only for the members of the assessee-society but also non-members. Therefore, the beneficiaries cannot be identified. In fact, the object of the society enables to provide training and financial assistance to all individuals. In those circumstances, this Tribunal is of the considered opinion that the principles of mutuality is not applicable to the facts of this case. In view of the above discussion, this Tribunal is of the considered opinion that the assessee is eligible for exemption u/s 11 of the Act as charitable institution in respect of the income generated in the course of its activities in furtherance of its objects. Accordingly, the orders of the lower authorities are set aside and the Assessing Officer is directed to grant exemption u/s 11 of the Act in respect of the income of the assessee which is utilized for the object of the society. - Decided in favour of assessee

Summary

Issues:
Interpretation of proviso to sec. 2(15) of the Act for charitable institutions engaging in commercial activities, applicability of principles of mutuality for tax exemption, eligibility for exemption u/s 11 of the Act based on activities promoting golf and preserving environment.

Analysis:
The appeal involved a dispute regarding the tax treatment of an assessee-society registered as a charitable institution under sec. 12AA of the Act, primarily engaged in promoting the sport of golf in Tamilnadu. The main contention was whether the society's activities, including collecting various fees like sponsorship fee, green fee, etc., constituted commercial activities under the proviso to sec. 2(15) of the Act. The assessee argued that its activities were not commercial but incidental to promoting golf, citing CBDT Circulars and judicial precedents supporting the charitable nature of sports promotion activities.

The assessee further claimed exemption based on the principles of mutuality, emphasizing that its members collectively funded and benefited from the society's facilities without profit motives. This claim was supported by references to relevant case law, including the principle that mutual associations' income should not be taxed. Additionally, the society argued for exemption under sec. 11 of the Act, asserting that its activities, such as maintaining a golf course and preserving the environment, aligned with charitable purposes.

On the other hand, the Departmental Representative contended that the society's receipt of contributions from non-members, like green fees, indicated commercial activities beyond the scope of mutuality principles. Referring to the proviso to sec. 2(15) and CBDT Circulars, the representative argued against granting tax exemption to the society, highlighting the collection of sponsorship fees and other commercial-like activities as grounds for disqualification.

After considering both sides' arguments and reviewing the society's activities and financial records, the Tribunal concluded that the society qualified for exemption under sec. 11 of the Act as a charitable institution. The Tribunal found that the society's primary objective of promoting golf, along with the incidental income from various fees, did not amount to commercial activities. Moreover, the Tribunal rejected the Department's arguments against applying mutuality principles, stating that the society's benefits extended to both members and non-members, making it eligible for tax exemption based on its charitable endeavors.

In the final judgment, the Tribunal allowed the appeal of the assessee, setting aside the lower authorities' orders and directing the Assessing Officer to grant exemption under sec. 11 of the Act for the society's income utilized in furthering its charitable objectives, particularly in promoting golf and maintaining environmental sustainability through its activities.