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2018 (8) TMI 2099 - AT - Income TaxExemption u/s 11 - denying the benefit of exemption u/s 12A as well as not allowing the claim for deprecation - test for carrying on of any activity in the nature of trade commerce or business as mentioned in the first proviso to Sec. 2(15) would be satisfied if profit making is not the real object - HELD THAT - As decided in own case 2018 (7) TMI 1478 - ITAT DELHI as drawing support from the speech of the Finance Minister and subsequent clarification issued by the CBDT within the framework of amended provisions of section 2(15) in our considered opinion there was no material which may suggest that the assessee association was conducting its affairs solely on commercial lines with the motive to earn profit. There is also no material which could suggest that the assessee association has deviated from its objects which it has been pursuing since past many decades. In our humble opinion and understanding of law proviso to section 2(15) is not applicable to the facts of the case and the assessee-association deserves benefit u/s 11/12 of the Act. We therefore do not find any reason to interfere with the findings of the first appellate authority. Appeal filed by the Revenue is dismissed.
Issues Involved:
1. Applicability of proviso to Section 2(15) of the Income Tax Act. 2. Allowance of depreciation for charitable or religious institutions under Chapter III of the Income Tax Act. 3. Deletion of addition on account of income in respect of depreciation. Issue-wise Detailed Analysis: 1. Applicability of Proviso to Section 2(15): The Revenue contended that the activities of the assessee involved rendering services related to commerce or business, thereby invoking the proviso to Section 2(15) of the Income Tax Act. The Assessing Officer (AO) observed that the assessee received grants, donations, and sponsorships, which he deemed as commercial activities. Consequently, the AO denied the benefit of exemption under Sections 11 and 12 of the Act, arguing that the assessee did not qualify as a charitable organization from the Assessment Year 2009-10 onwards. The Tribunal, referencing the assessee's case for Assessment Year 2011-12, reiterated that the fundamental function of the association was to represent the country in international sports forums. The primary and dominant activity was promoting sports, which does not lose its charitable character merely due to accepting sponsorships. The Tribunal emphasized that the proviso to Section 2(15) aims to exclude entities carrying on business for profit under the guise of charitable purposes. However, genuine charitable organizations, like the assessee, are not affected by this proviso. The Tribunal concluded that the assessee's activities did not constitute trade, commerce, or business, and thus, the proviso to Section 2(15) was not applicable. 2. Allowance of Depreciation: The Revenue argued against allowing depreciation, citing that charitable or religious institutions are governed by an independent code under Chapter III of the Income Tax Act, separate from Chapter IV, which includes Section 32. The AO disallowed the depreciation claim, referencing the Supreme Court decision in the case of Escorts Ltd. and the Delhi High Court decision in DIT(E) Vs. Charanjiv Charitable Trust. The Tribunal, however, upheld the CIT(A)'s decision to allow depreciation, referencing the Supreme Court judgment in the case of Rajasthan and Gujarat Charitable Foundation, which established that depreciation should be allowed even if the expenditure for acquiring capital assets was treated as application of income for charitable purposes under Section 11A(1). 3. Deletion of Addition on Account of Income in Respect of Depreciation: The Revenue's grievance regarding the deletion of the addition on account of income in respect of depreciation was considered consequential to the first issue. Since the Tribunal directed the AO to allow the benefit of exemption under Sections 11 and 12, the addition made by the AO was consequently deleted. Conclusion: The Tribunal dismissed the Revenue's appeal, affirming that the assessee's activities did not invoke the proviso to Section 2(15), allowing the benefit of exemption under Sections 11 and 12, and upholding the allowance of depreciation. The Tribunal found no reason to interfere with the CIT(A)'s findings, thereby dismissing all grounds raised by the Revenue. The order was pronounced in the Open Court on 28th August 2018.
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