2022 (5) TMI 540 - AT - Income Tax

Exemption u/s 11 - Charitable activity u/s 2(15) - District Cricket Association - charging annual maintenance fees from members - Denial of deduction as receipt received by the assessee during the relevant period under consideration viz; being the receipt income under the head income from other sources - HELD THAT - There is no dispute that the assessee is registered society having object of promotion of cricket and other sports in State as well as at national level. The assessee is also having valid registration under section 12A(a) of Income tax Act. The registration under section 12A was granted way back in 1987. It is also settled legal position that the registration of institution or trust under section 12 is the foundation for seeking exemption of section 11 though not conclusive. Registration under section 12A is sine qua non for eligibility of benefit of section 11. It is also settled position under law that the eligibility of benefit is to be determined on year to year basis depending on the actual activities undertaken by the assessee. Thus, the assessing officer is entitled to determine the eligibility of exemption under section 11 on the basis of activities carried out by the assessee during the relevant financial year. The bone of contention on the eligibility between the assessee and the assessing officer are certain receipt received by the assessee during the relevant period under consideration viz; being the receipt income under the head income from other sources . .We find that the predominant object of promotion of Cricket and other sports are not doubted by the assessing officer. There is no allegation of the assessing officer that the receipt shown under the head income from other sources was not utilised on the promotion of sports. Or no activities for promotions of sports were undertaken by the assessee. Rather on careful examination of those disputed receipt we find that those receipt were generated from various by activities undertaken in furtherance of various sports. It is also matter of fact that prior to the impugned assessment year the assessee was granted exemption under section 11 of the Act. The assessing officer for the first time on the basis of certain receipt took his view that the activities undertook by the assessee are commercial in nature. When the assessee s main dominant and prime objective was to promote the sports was not desire to earn profits but, object of promoting sports for Nation, it was clearly a charitable purpose. The important elements of application of proviso are that the assessee should be involved in carrying on the activities of any trade, commerce or business or any activities of rendering service in relation to any trade, commerce or business, which is clearly missing in the present case. Thus, we affirms the order of ld CIT(A), with these additional findings. In the result, the grounds of appeal raised by the revenue are dismissed.

Issues Involved:
1. Allowance of benefit under Section 11 and 12 of the Income Tax Act.
2. Denial of exemptions under Section 11 by the Assessing Officer.
3. Treatment of subsidy as corpus donations under Section 11(1)(d).
4. Deletion of additions claimed as capital receipts.
5. Allowance of capital expenditure claims.

Issue-wise Detailed Analysis:

1. Allowance of Benefit under Section 11 and 12:
The Revenue challenged the CIT(A)'s decision to allow benefits under Section 11 and 12, arguing that the assessee's activities were commercial and fell under the proviso to Section 2(15) r.w.s. 13(8) of the Act. The assessee, a registered society under the Societies Registration Act, claimed exemption under Section 11 for promoting sports, particularly cricket. The Assessing Officer (AO) reopened the case under Section 147, asserting that the assessee's activities were commercial due to substantial income from various sources like membership fees, ground rent, and other related incomes. However, the CIT(A) found that the assessee's primary objective was the promotion of sports, which is a charitable purpose under Section 2(15).

2. Denial of Exemptions under Section 11 by the Assessing Officer:
The AO denied exemptions under Section 11, treating the assessee as an Association of Persons (AOP) and not as a trust. The AO argued that the assessee's activities were commercial, citing receipts from various sources exceeding Rs. 25 lakhs. The AO added these receipts to the assessee's income, asserting that they were commercial in nature. The CIT(A) overturned this, referencing the Gujarat High Court's decision in favor of similar cricket associations, affirming that the promotion of sports is a charitable activity, not a commercial one.

3. Treatment of Subsidy as Corpus Donations under Section 11(1)(d):
The AO added a subsidy of Rs. 50.27 lakhs from the Gujarat Cricket Association to the assessee's income, arguing that it was not directed to be used as a corpus fund by the donor. The assessee contended that this subsidy was for a specific purpose and should be treated as a corpus donation. The CIT(A) agreed with the assessee, referencing Tribunal decisions that subsidies for specific purposes are to be treated as corpus donations and not taxable income.

4. Deletion of Additions Claimed as Capital Receipts:
The AO added Rs. 67,03,176/- to the assessee's income, including membership fees and earmarked funds, treating them as commercial receipts. The CIT(A) deleted these additions, stating that these receipts were related to the promotion of sports, which is a charitable activity. The CIT(A) relied on jurisdictional High Court decisions that similar receipts by cricket associations are not commercial but charitable in nature.

5. Allowance of Capital Expenditure Claims:
The AO disallowed capital expenditure claims of Rs. 2.19 crores and Rs. 12.50 lakhs, treating the assessee as an AOP and not eligible for exemptions under Section 11. The CIT(A) allowed these claims, stating that the assessee's activities were charitable and not commercial. The CIT(A) referenced Tribunal and High Court decisions affirming that capital expenditures for promoting sports are eligible for exemptions under Section 11.

Conclusion:
The Tribunal upheld the CIT(A)'s decision, affirming that the assessee's primary objective was the promotion of sports, which is a charitable activity under Section 2(15). The Tribunal dismissed the Revenue's appeal, emphasizing that the assessee's activities did not constitute trade, commerce, or business. The Tribunal relied on various judicial precedents, including decisions from the Gujarat High Court and the Supreme Court, to conclude that the assessee's receipts and activities were intrinsically linked to its charitable purpose of promoting sports.

← Previous Next →