2020 (12) TMI 343 - AT - Income Tax

Exemption u/s 11 - proviso to section 2(15) is invoked in the case of the assessee as the activities of the assessee are being run on commercial basis - assessee is a society trust registered under Rajasthan Society Trust Registration Act, 1958 and also registered under Sport Association s Registration Accreditation Act, 2005 - CIT (A) held that the registration of the assessee society u/s 12A has been restored by the Tribunal vide its order dated 09.06.2016 and it is thus entitled to claim exemption under section 11 and 12 - CIT(A) held that the activities of the assessee are charitable in nature though the same are the objects of general public utility but the primary or dominant purpose is to carrying out the general public utility and not earning the profit - HELD THAT - It is not in dispute that the registration of the assessee society u/s 12A has been restored by the Tribunal and on appeal by the Revenue, the order so passed by the Tribunal has been affirmed by the Hon ble Rajasthan High Court. 2018 (8) TMI 196 - RAJASTHAN HIGH COURT . Primary condition for availing exemption under section 11 and 12 of the Act that the assessee society should be registered u/s 12A is satisfied in the instant case. Applicability of proviso to section 2(15) for the impugned assessment year 2010-11 to the assessee society by virtue of which, can it be denied the exemption claimed u/s 11 and 12 - Assessee has given grants to various district cricket association in the nature of subsidy, grants for infrastructure development and for buying cricket equipments. We find that by incurring such expenditure by way of grants to the district cricket association, the assessee society is contributing to creation of necessary infrastructure and purchase of equipments however such infrastructure and equipments results in creation/enhancement of existing/new infrastructure or acquisition of assets in the hands of the district cricket association, however as far as the assessee society is concerned, such an expenditure doesn t result in creation of any asset or advantage of enduring benefit in the hands of the assessee society and therefore, the same cannot be termed as capital expenditure. There is no dispute that the assessee is duly registered u/s 12A of the Act and is eligible for exemption under section 11 and 12 of the Act and therefore, the said expenditure is clearly in nature of application of income as the same has a direct nexus with the objectives of the assessee society in terms of promotion of sport of cricket in the state of Rajasthan.- Decided in favour of assessee.

Summary

Issues Involved:
1. Exemption under Section 11 of the Income Tax Act, 1961.
2. Applicability of the proviso to Section 2(15) of the Income Tax Act, 1961.
3. Disallowance of grants to district associations.

Issue-wise Detailed Analysis:

1. Exemption under Section 11 of the Income Tax Act, 1961:
The Tribunal noted that the assessee society is registered under Section 12A of the Income Tax Act, 1961, and is thus entitled to claim exemption under Sections 11 and 12 of the Act. The Assessing Officer (AO) had denied the exemption on the grounds that the registration granted under Section 12A was withdrawn and that the activities of the assessee were commercial in nature. However, the Tribunal observed that the registration of the assessee society under Section 12A had been restored by the Tribunal and affirmed by the Hon’ble Rajasthan High Court. Therefore, the primary condition for availing exemption under Sections 11 and 12 was satisfied.

2. Applicability of the Proviso to Section 2(15) of the Income Tax Act, 1961:
The AO had held that the activities of the assessee were in the nature of trade, commerce, or business, and thus, the proviso to Section 2(15) was applicable, denying the exemption under Sections 11 and 12. The Tribunal, however, noted that the predominant object of the assessee society was the promotion of cricket, which falls under the category of "advancement of general public utility." The Tribunal emphasized that the activities like organizing cricket matches, selling tickets, and receiving subsidies from BCCI were incidental to the primary objective of promoting cricket and could not be construed as commercial activities. The Tribunal relied on the decisions of the Hon’ble Supreme Court, Hon’ble Rajasthan High Court, and Hon’ble Gujarat High Court, which held that incidental activities generating surplus do not convert the primary charitable activity into a commercial one. The Tribunal concluded that the proviso to Section 2(15) was not applicable to the assessee society, and the exemption under Sections 11 and 12 could not be denied.

3. Disallowance of Grants to District Associations:
The AO disallowed grants to district associations amounting to ?1,87,70,025 on the grounds that these expenses were not related to income-generating activities and were either capital in nature or an application of income. The Tribunal, however, found that the grants were for the promotion, organization, and management of cricket, aligning with the objectives of the assessee society. The Tribunal observed that such grants were essential for creating necessary infrastructure and purchasing cricket equipment, which were directly related to the promotion of cricket. The Tribunal held that these grants were in the nature of application of income and should be allowed as such. The Tribunal also referred to CBDT instruction No 1132 and judicial precedents which support the view that donations from one charitable trust to another for charitable purposes are proper applications of income.

Conclusion:
The Tribunal dismissed the appeals of the Revenue and allowed the appeal of the assessee. It held that the assessee society was eligible for exemption under Sections 11 and 12 of the Income Tax Act, 1961, as the proviso to Section 2(15) was not applicable. The grants to district associations were allowed as application of income, aligning with the objectives of the assessee society.