2015 (4) TMI 472 - AT - Income Tax

Taxability of contributed to the conducting of events by way of sponsorship - principles of mutuality - no intention to earn income - contributing companies are nonmembers - Held that - assessee has been organizing various events for the mutual benefit of its members. The contributions, if any, received from the members were utilized for conducting the events and the surplus, if any, is accepted as exempt under the principles of mutuality. The above said companies have partly sponsored the events, apparently as a part of their respective sales promotion activities. Hence, the objective of the assessee in receiving these contributions, in our view, can only be considered to be to meet part of the expenditure incurred in organizing the events. Hence, in our view, there is no intention to earn any income out of the above said contributions, since it only goes to reduce the expenditure. - contribution cannot be subjected to tax as income in the hands of the assessee. It is an accepted fact that the complimentary liquor has been sold at a price, meaning thereby the intention of the assessee was to make profit out of sale of complimentary liquors. Thus the action of the assessee was commercial in nature. It was not shown to that the liquor companies, who have given complimentary liquors, are members of the assessee. Hence, we do not find any infirmity in the decision of the ld.CIT(A) on this issues. Assessment of interest income - Held that - Both the parties agreed that this issue has since been decided against the assessee by Hon ble Supreme Court in the case of Bangalore Club reported in 2013 (1) TMI 343 - SUPREME COURT . Accordingly, we set aside the order of Ld CIT(A) on this issue and confirm the assessment of interest income. - Decided partly in favour of Revenue.

Summary

Issues:
1. Addition of Rs. 1,25,000/- relating to Sponsorship contributions
2. Addition of Rs. 11,87,657/- relating to complimentary liquors received
3. Deletion of assessment of interest income of Rs. 7,08,931/-

Analysis:
1. The first issue pertains to the assessment of Rs. 1,25,000/- received as sponsorship contributions for events organized by the assessee. The AO treated these contributions as assessable income since they were received from non-members. The contention was that these contributions were meant to reduce event expenses, not generate income. The ITAT observed that the contributions were received to meet event expenses, not for profit, and were part of sales promotion activities by the contributing companies. Therefore, the ITAT held that these contributions were not taxable income and directed the AO to delete this addition.

2. The second issue revolved around the assessment of the value of complimentary liquors received as income. The AO assessed the value as income due to lack of details on liquor consumers and the possibility of non-members using the liquor. The ITAT upheld this assessment, noting that the sale of complimentary liquors indicated a profit-making intention by the assessee, as non-members could also have accessed the liquor. The ITAT found no fault in the CIT(A)'s decision on this issue, supporting the income assessment of complimentary liquors.

3. The final issue concerned the interest income assessment of Rs. 7,08,931/-. Both parties agreed that a Supreme Court ruling against the assessee in a similar case applied here. Consequently, the ITAT confirmed the assessment of interest income. Overall, the appeal by the assessee was partially allowed, while the revenue's appeal was dismissed, as per the ITAT's decision pronounced on 13-03-2015.