2019 (1) TMI 1522 - AT - Income Tax

Entitlement to exemption under section 11 to cricket associations - whether it is hit by the proviso to Section 2(15)? - charitable activity - Held that - So far as the cricket associations are concerned, the allegations of the revenue authorities have no bearing on the denial of the status of charitable activities in the hands of the cricket associations before us- particularly as learned Commissioner has not been able to point out a single object of the assessee cricket associations which is in the nature of trade, commerce or business, and, as it is not even in dispute that the objects being pursued by the assessee cricket associations are objects of general public utility under section 2(15). All the objects of the assessee cricket associations, as reproduced earlier in this order, unambiguously seek to promote the cricket, and this object, as has been all along accepted by the CBDT itself, an object of general public utility. Cricket is indeed an immensely popular game in this part of the world, and anything to do with cricket results in mass involvement of public at large. The sheer strength of these numbers results in higher visibility of cricketing activities and the scale of operations on which the work for development of cricket is to be carried out. These facts, by itself, and without the assessee before us deviating from their objects or venturing into trade, commerce or business, cannot require the activities to be treated as commercial activities. When a cricket stadium is to be built, it has to accommodate a very large number of persons but the size of the stadium would not mean that the activity is for anything other than promotion of cricket.. When the numbers are large, the scale of operations is large, and when scale of operations are larger, even the surplus or deficit could be large, but then the scale of operations may be a scale on which commercial activities could be carried out but that fact cannot convert an object of general public utility into a commercial activity. As analysed the annual reports and the annual financial statements of the assessee, and we do not find any objects, other than objects of the cricket associations, being pursed by these cricket associations. The objects of these cricket associations clearly demonstrate that these cricket associations exist and operate purely for the purpose of promoting cricket. We are, therefore, of the considered view that the proviso to Section 2(15) has been wrongly invoked in these cases. In the cases of various other cricket associations- details of which are set out earlier in this order, holding that the proviso to Section 2(15) cannot be invoked in the cases of such similarly placed cricket associations. Respectfully following the same, and also for the detailed reasons set out above, we uphold the plea of the assessee. We are not reproducing extracts from these decisions, for the sake of brevity, but we adopt, and concur with, the reasoning of these decisions. When proviso to Section 2(15) cannot be invoked on the facts of these cases, the benefits of Section 11 and 12, which were declined only by invoking the proviso to Section 2 (15), could not have been declined on the facts of these cases. We have noted that all the learned representatives have advanced detailed arguments on the proposition that since the assessee cricket associations are engaged in educational activities, it is not really material whether or not the assessee has engaged itself in the activities in the nature of trade, commerce or business. However, in the light of our categorical finding that the assessee cricket associations were not really engaged in the activities in the nature of trade, commerce or business, it is not really necessary to adjudicate on this plea. We leave the question open for adjudication in a fit case. The assessee is thus held to be carrying out charitable activity within the meanings of that expression under section 2(15) and, accordingly, the assessee is entitled to relief under section 11. As to whether the assessee is carrying out educational activities or not, given our above finding, that aspect of the matter is wholly academic as on now and we decline to address that issue. Corpus donation - Held that - We uphold the plea of the assessee and direct the Assessing Officer to treat the TV subsidy received from the BCCI as a corpus donation. The assessee gets the relief accordingly. As we have decided the main grievance of the assessee, as set out in ground no. 3 (a), we see no need to adjudicate on the alternative plea set out in ground 3 (b). That aspect of the matter is rendered academic and does not call for any adjudication as on now. Infrastructure subsidy received - capital or revenue receipt - Held that - As long as the subsidy is relatable to a capital asset created by the assessee on his own or by an eligible district cricket association, as the present subsidy undisputedly is, it is outside the ambit of revenue receipt and taxable income. The very foundation of the stand of the Assessing Officer is thus devoid of legally sustainable merits. As such, there can hardly be an occasion, in principle, to hold such a subsidy as a revenue receipt or taxable income. There is not even a whisper of a discussion by the Assessing Officer to the effect that infrastructure subsidy is revenue in nature. As a matter of fact, the claim is made for the subsidy only after the expenditure having been incurred. The authorities below have simply brushed aside the case and the submissions of the assessee and proceeded to hold it as an income. Looking to the nature of the subsidy, which is clearly relatable to the capital assets generated, we are unable to hold this receipt in the revenue field. Deprecation not to be allowed on assets purchased in prior years - Held that - This issue now stands concluded by Hon ble Supreme Court s judgment in the case of CIT Vs Rajasthani & Gujarati Charitable Foundation 2017 (12) TMI 1067 - SUPREME COURT wherein Grant of depreciation even upon full cost of the asset being allowed. The assessee gets the relief accordingly.

Summary

Issues Involved:
1. Applicability of Proviso to Section 2(15) of the Income Tax Act, 1961.
2. Entitlement to exemption under Section 11 of the Income Tax Act, 1961.
3. Treatment of income received from the Board of Cricket Control of India (BCCI) as corpus donations.
4. Taxability of infrastructure subsidies received from BCCI.
5. Allowance of depreciation on assets.
6. Treatment of mutuality income from club activities.
7. Set-off of brought forward losses and unabsorbed depreciation.
8. Deduction of 15% of income under Section 11(1)(b).
9. Alternative claim of educational activity under Section 2(15).

Analysis of the Judgment:

1. Applicability of Proviso to Section 2(15):
The central issue was whether the cricket associations' entitlement to exemption under Section 11 is affected by the proviso to Section 2(15), which excludes entities from being considered as charitable if they engage in trade, commerce, or business. The Tribunal analyzed the activities of the cricket associations and concluded that the activities were primarily for promoting cricket, which is considered an object of general public utility. The Tribunal held that the proviso to Section 2(15) was wrongly invoked by the authorities as the associations were not engaged in trade, commerce, or business.

2. Entitlement to Exemption under Section 11:
The Tribunal found that the cricket associations were engaged in charitable activities under Section 2(15) and were entitled to exemption under Section 11. The activities of promoting cricket were considered charitable, and the income generated from such activities did not disqualify the associations from claiming exemption under Section 11.

3. Treatment of Income Received from BCCI as Corpus Donations:
The Tribunal upheld the plea of the cricket associations that the amounts received from BCCI as TV subsidies and IPL subventions were corpus donations. The Tribunal noted that BCCI had passed a resolution stating that such payments were to be treated as corpus funds. Therefore, these amounts were not taxable as income.

4. Taxability of Infrastructure Subsidies Received from BCCI:
The Tribunal held that infrastructure subsidies received from BCCI were in the nature of capital receipts and not taxable as income. The subsidies were given for the creation of capital assets, and hence, they were outside the ambit of revenue receipts.

5. Allowance of Depreciation on Assets:
The Tribunal allowed the claim for depreciation on assets, following the Supreme Court's judgment in CIT Vs Rajasthani & Gujarati Charitable Foundation, which held that depreciation is allowable even if the full cost of the asset has been allowed as an application of income in earlier years.

6. Treatment of Mutuality Income from Club Activities:
The Tribunal restored the matter to the file of the CIT(A) for adjudication on the claim of mutuality income from club activities, as there was no specific adjudication on this issue by the CIT(A).

7. Set-off of Brought Forward Losses and Unabsorbed Depreciation:
The Tribunal directed the Assessing Officer to consider the set-off of brought forward losses and unabsorbed depreciation while computing the income, as these claims are consequential to the main issue of exemption under Section 11.

8. Deduction of 15% of Income under Section 11(1)(b):
The Tribunal directed the Assessing Officer to compute the income as per the provisions of Section 11, allowing the deduction of 15% of income under Section 11(1)(b).

9. Alternative Claim of Educational Activity under Section 2(15):
The Tribunal did not find it necessary to adjudicate on the alternative claim that promoting cricket is an educational activity, as it had already concluded that the activities of the cricket associations were charitable under the object of general public utility.

Conclusion:
The Tribunal allowed the appeals of the cricket associations, holding that the proviso to Section 2(15) was not applicable, and the associations were entitled to exemption under Section 11. The amounts received from BCCI were treated as corpus donations, and infrastructure subsidies were considered capital receipts. The Tribunal also allowed the claims for depreciation and directed the Assessing Officer to consider the set-off of brought forward losses and unabsorbed depreciation, as well as the deduction of 15% of income under Section 11(1)(b). The matter of mutuality income from club activities was remitted to the CIT(A) for fresh adjudication.