2018 (7) TMI 1478 - AT - Income Tax

Claim of exemption u/s 11/12 denied - whether the assessee is a charitable organization and proviso to section 2(15) do not apply? - whether the sponsorship contract with Samsung India Electronics Pvt. Ltd constitutes carrying on of any activity in the nature of trade, commerce or business? - Held that - The advancement of any object of benefit to the public or a section of the public as distinguished from individual and group of individuals would be a charitable purpose. An object of public utility need not be an object in which the whole of the public is interested. It is sufficient if well defined section of the public benefits by the objects which means that the expression object of general public utility is not restricted to objects beneficial to the whole mankind. An object beneficial to a section of the public is an object of general public utility After considering all and also drawing support from the speech of the Finance Minister and subsequent clarification issued by the CBDT within the framework of amended provisions of section 2(15) of the Act, in our considered opinion, there was no material which may suggest that the assessee association was conducting its affairs solely on commercial lines with the motive to earn profit. There is also no material which could suggest that the assessee association has deviated from its objects which it has been pursuing since past many decades. In our humble opinion and understanding of law, proviso to section 2(15) of the Act is not applicable to the facts of the case and the assessee-association deserves benefit u/s 11/12 of the Act. No reason to interfere with the findings of the first appellate authority. Ground No. 1 is accordingly dismissed. Allowance of depreciation - Held that - This issue is now well settled in favour of the assessee and against the Revenue as relying on the case of Rajasthan and Gujarat Charitable Foundation 2017 (12) TMI 1067 - SUPREME COURT as held that even though the expenditure incurred for acquisition of capital assets was treated as application of income for charitable purposes u/s 11A(1) of the Act, yet depreciation would be allowed on assets so purchased. Ground No. 2 is, accordingly, dismissed.

Summary

Issues Involved:
1. Whether the activities of the assessee are charitable or commercial in nature.
2. Whether depreciation is allowable on assets already claimed as an application of income.
3. Whether the set-off of deficit/excess expenditure of earlier assessment years is permissible.

Issue-wise Detailed Analysis:

1. Charitable vs. Commercial Nature of Activities:
The primary issue was whether the activities of the assessee, an apex sports body, were charitable or commercial. The Assessing Officer (AO) believed that the assessee's activities were commercial due to the receipt of sponsorship income from Samsung India Electronics Pvt. Ltd., which amounted to ?86 lakhs. The AO argued that this constituted an activity in the nature of trade, commerce, or business, thus invoking the proviso to section 2(15) of the Income-tax Act, 1961, and denying the benefit under sections 11 and 12 of the Act. However, the Commissioner of Income Tax (Appeals) [CIT(A)] found that the assessee's primary and dominant activity was promoting sports, which is a charitable purpose. The CIT(A) held that accepting sponsorships does not change the charitable nature of the organization. This view was supported by various judicial decisions and the intention of the Finance Minister and CBDT Circular No. 11/2008, which clarified that genuine charitable organizations would not be affected by the proviso to section 2(15). The Tribunal upheld the CIT(A)'s decision, emphasizing that the assessee's activities were not conducted solely on commercial lines with a profit motive.

2. Allowance of Depreciation:
The second issue was whether depreciation is allowable on assets that have already been claimed as an application of income. The AO denied the claim of depreciation, arguing it would amount to double deduction. However, the CIT(A) directed the AO to allow the depreciation claim. The Tribunal referenced the Supreme Court's judgment in the case of Rajasthan and Gujarat Charitable Foundation, where it was held that depreciation is allowable even if the expenditure for acquiring capital assets was treated as an application of income for charitable purposes. Consequently, the Tribunal dismissed the Revenue's ground on this issue.

3. Set-off of Deficit/Excess Expenditure:
The third issue was related to the set-off of deficit/excess expenditure of earlier assessment years. This issue was consequential to the first issue. Since the Tribunal directed the AO to allow the benefit of exemption under sections 11 and 12 of the Act, it also directed the AO to allow the set-off of deficit/excess expenditure accordingly.

Conclusion:
The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decision that the assessee's activities were charitable and not commercial, allowing the depreciation claim on assets, and permitting the set-off of deficit/excess expenditure of earlier years. The order was pronounced in the open court on 19.07.2018.