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2017 (11) TMI 560 - AT - Income TaxExemption u/s 11 and 12 denied - non charitable activities - whether the assessee s activity falls under the category of advancement of any other object of General Public Utility and the last proviso to Section 2(15) is clearly applicable to it as Income from Sponsorship/ Royalty is explicitly business receipt in nature? - Held that - Admittedly, the assessee is engaged in the activity of promotion of basketball and is carrying on charitable activities. Merely because it has received certain fund on account of royalty as well as on account of sponsorship it cannot be said that the activities of the trust are no more covered under section 2 (15) of the act. See Rajasthan Cricket Association versus additional CIT 2017 (4) TMI 346 - ITAT JAIPUR No infirmity in the order of the Ld. CIT A, in allowing exemption to the assessee trust under section 11 and 12 of the income tax act. - Decided in favour of assessee.
Issues Involved:
1. Applicability of Section 2(15) regarding the nature of activities (charitable vs. business). 2. Eligibility of exemption under Sections 11 and 12 of the Income Tax Act. 3. Interpretation of "advancement of any other object of general public utility." Issue-wise Detailed Analysis: 1. Applicability of Section 2(15): The Revenue argued that the assessee’s activities fall under "advancement of any other object of general public utility" and thus, the last proviso to Section 2(15) applies, considering the income from "Sponsorship/Royalty" as business receipts. The assessee, a sports federation, received sponsorship income and was recognized as a charitable trust under Section 12A and Section 80G(5)(vi) of the Income Tax Act. The Assessing Officer (AO) denied exemption under Sections 11 and 12, treating the surplus generated from business activities as taxable under Section 164 at the maximum marginal rate. 2. Eligibility of Exemption under Sections 11 and 12: The CIT(A) allowed the assessee's appeal, relying on the Delhi High Court's decision in the case of Indian Trade Promotion Organisation vs. DGIT(E) and a coordinate bench decision. The CIT(A) held that the activities of the assessee are charitable and not in the nature of trade, business, or commerce, despite receiving substantial amounts from sponsorships. The Tribunal upheld the CIT(A)'s decision, stating that merely receiving funds from royalty and sponsorship does not disqualify the trust from being covered under Section 2(15). 3. Interpretation of "Advancement of Any Other Object of General Public Utility": The Tribunal referred to the coordinate bench's decision in the case of Rajasthan Cricket Association vs. Additional CIT, which dealt with similar issues. The Tribunal emphasized that the primary object of the assessee is to promote basketball, which is a charitable activity. The receipt of sponsorship and royalty income is incidental to the main charitable purpose and does not convert the charitable activity into a business activity. The Tribunal also considered various judicial precedents, including the Delhi High Court's decision in the case of The Institute of Chartered Accountants of India vs. DGIT(E), which clarified that incidental activities generating income do not change the charitable nature of the organization if the predominant object remains charitable. Conclusion: The Tribunal dismissed the Revenue's appeal, affirming that the assessee's activities are charitable and eligible for exemption under Sections 11 and 12 of the Income Tax Act. The Tribunal reiterated that the receipt of sponsorship and royalty income does not transform the charitable activities into business activities, thereby upholding the CIT(A)'s order. The decision was pronounced in the open court on 21/08/2017.
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