2017 (12) TMI 407 - AT - Income Tax

Denying benefit of exemption u/s. 11 - amended proviso to section 2 (15) applicability - scope of activities undertaken by assessee - Held that - The main object of the Trust is to promote the sports and games. The authorities below have drawn adverse inference and invoked the amended provisions of section 2(15) by holding that by engaging into coaching camps and obtaining receipts therefrom, the assessee is engaging into activities of commercial nature. This proposition is not at all sustainable. It is undeniable that the object or purpose of this trust is promotion of sports and games and thus charitable. The fact that the trust collects certain charges from coaching camps meant for promotion of sports and games cannot alter the character of the institution. To repeat the proposition as expounded above, it is not necessary that the Trust should provide something for nothing or for less than it cause or for less than the ordinary Trust. - Decided in favour of assessee.

Summary

Issues:
- Denial of exemption u/s. 11 of the Income Tax Act, 1961
- Applicability of amended provisions of section 2(15) of the Income Tax Act
- Interpretation of commercial nature of activities for exemption eligibility

Analysis:

Issue 1: Denial of exemption u/s. 11
The assessing officer denied the benefit of exemption u/s. 11 to the assessee, a trust promoting sports and games, citing amended provisions of section 2(15) of the Act. The assessing officer considered the receipts from coaching camps and garden activities as commercial, exceeding the threshold of ?25,00,000. The CIT(A) upheld this decision, emphasizing the profit generated from these activities and distinguishing relevant case laws. However, the ITAT overturned this decision, citing case laws where surplus from activities did not taint charitable nature, emphasizing that the trust's primary purpose was charitable, and incidental activities did not change its character. The ITAT held in favor of the assessee, setting aside the previous orders.

Issue 2: Applicability of amended provisions of section 2(15)
The assessing officer invoked the amended provisions of section 2(15) to deny exemption u/s. 11, considering the activities of the trust as commercial due to receipts exceeding ?25,00,000. The CIT(A) agreed with this interpretation, distinguishing case laws relied upon by the assessee. However, the ITAT disagreed, citing precedents where surplus from activities did not affect charitable nature, and the trust's primary objective was promotion of sports and games. The ITAT held that the amended provisions did not apply in this case and overturned the previous decisions.

Issue 3: Interpretation of commercial nature of activities for exemption eligibility
The assessing officer and CIT(A) viewed the trust's activities as commercial, triggering the proviso to section 2(15) and rendering them non-charitable. The CIT(A) distinguished case laws cited by the assessee, stating they were not applicable due to differing facts. In contrast, the ITAT considered case laws where surplus from activities did not affect charitable status, emphasizing the trust's primary objective and purpose. The ITAT held that the trust's activities were not commercial in nature and upheld the exemption u/s. 11, setting aside the previous decisions.

In conclusion, the ITAT ruled in favor of the assessee, overturning the denial of exemption u/s. 11 based on the interpretation of commercial activities and the applicability of amended provisions of section 2(15) of the Income Tax Act.