2016 (2) TMI 886 - AT - Income Tax

Entitlement to deduction u/s 11 - Held that - Merely because the assessee receives some recognition fees will not deviate the fact that the main object of the assessee is to promote sports which is apparently for the advancement of general public utility as provided in Section 2(15) of the Act which defines charitable purposes. The words advancement of any other object of general public utility would exclude objects of private gain; but this requirement is also stratified in the present case because the object of private profit is eliminated by the assessee under the objects as per Memorandum of Association of Society which was quoted in Assessment Order. The test to be applied is whether the predominant object of the activity involved in carrying out the object of general public utility is to subserve the charitable purpose or to earn profit. Where the predominant object of the activity is to carry out the charitable purpose and not to earn profit, it would not lose its character of a charitable purpose merely because some profit arises from the activity. The exclusionary clause does not require that the activity must be carried on in such a manner that it does not result in any profit. The restrictive condition that the purpose should not involve the carrying on of any activity for profit would be satisfied if profit making is not the real object. Therefore the assessee is entitled for the deduction under Section 11 of the Act. - Decided in favour of assessee.

Summary

Issues:
1. Deletion of addition under Section 2(15) of the Income Tax Act, 1961 for A.Y. 2009-10 and A.Y. 2010-11.
2. Deletion of disallowance of depreciation for A.Y. 2009-10 and A.Y. 2010-11.
3. Denial of exemption under Section 11 & 12 of the Act for A.Y. 2009-10 and A.Y. 2010-11.

Analysis:
1. The appeals were filed by the revenue challenging the orders passed by the ld. CIT(A) relating to A.Y. 2009-10 and A.Y. 2010-11. The primary issue for both assessment years was the deletion of additions made under Section 2(15) of the Income Tax Act, 1961. The revenue contended that the CIT(A) erred in deleting the additions. However, the CIT(A) found that the assessee, a sports federation promoting athletics in India, primarily aimed at promoting sports and athletics, which falls under the charitable purpose as defined in Section 2(15) of the Act. The CIT(A) held that receiving recognition fees did not alter the charitable nature of the organization, as profit-making was not its primary objective. The case laws submitted by the assessee further supported its charitable status, leading to the allowance of exemption under Section 11 for both assessment years.

2. Another issue raised in the appeals was the deletion of disallowance of depreciation for both A.Y. 2009-10 and A.Y. 2010-11. The revenue argued against the deletion, relying on the Assessing Officer's order. However, the ITAT Delhi, after considering all records and hearing the arguments, upheld the CIT(A)'s decision. The ITAT agreed that the primary purpose of the federation was charitable in nature, focusing on promoting sports and athletics. The ITAT emphasized that as long as the predominant object of the activity was charitable and not profit-making, any profit arising from the activity did not change its charitable character. Therefore, the ITAT concluded that the assessee was entitled to the deduction under Section 11 of the Act, and consequently, dismissed the appeals.

3. The final issue revolved around the denial of exemption under Section 11 & 12 of the Act for both A.Y. 2009-10 and A.Y. 2010-11 by the Assessing Officer. The CIT(A) found that the denial was unjustified as the assessee's main objective was promoting sports and athletics for the advancement of general public utility, aligning with the definition of charitable purposes under Section 2(15) of the Act. The CIT(A) highlighted that the receipt of recognition fees did not alter the charitable nature of the organization, as profit-making was not its primary goal. The ITAT Delhi concurred with the CIT(A)'s findings, emphasizing that the dominant purpose of the federation was charitable, and any profit generated was incidental to achieving the charitable objectives. Consequently, the ITAT upheld the CIT(A)'s decision to allow the exemption under Section 11 & 12 for both assessment years, leading to the dismissal of the appeals.