2018 (12) TMI 325 - AT - Income Tax

Charitable activity u/s 2(15) - Exemption under Section 11/12 - Held that - The assessee has received royalty and sponsorship fee towards organizing of the sports activity it is not a regular business activity of the society which has been spent for the object of the Society. CIT(A) has given cogent reasoning for holding that provision to section 2(15) would not apply in the facts of the present case, against which there is nothing on record from the side of the Revenue. In respect of the other issue the assessee has complied the procedures laid down by the Government of India for organizing the sports aboard. The case laws cited by the AR of the assessee could also not be controverted on behalf of the Revenue. No justification to interfere with the impugned order. Accordingly, the appeal of the Revenue deserves to fail.

Issues Involved:
1. Whether the receipts from sponsorship fees and royalties constitute business income under Section 2(15) of the Income Tax Act.
2. Whether the expenditure incurred outside India for international championships without CBDT approval is allowable under Section 11(1)(c) of the Income Tax Act.
3. Whether the telephone expenses claimed by the assessee are in violation of Section 13(1)(c) read with Section 13(3) of the Income Tax Act.

Analysis:

1. Receipts from Sponsorship Fees and Royalties:

The Revenue contended that the receipts from sponsorship fees and royalties are business income under Section 2(15) of the Income Tax Act and thus, the assessee is not entitled to exemption under Sections 11/12. The Assessing Officer (AO) argued that these receipts are not from members and thus are business receipts. The AO invoked the first proviso to Section 2(15), treating these receipts as business income.

The CIT(A) and the Tribunal disagreed with the AO, stating that the assessee is a not-for-profit society promoted by the Government of India, registered under the Societies Registration Act, 1860, and engaged in promoting wrestling. The Tribunal noted that the receipts from sponsorship fees and royalties are incidental to the fulfillment of the assessee's objectives and not aimed at earning profits. Citing the case of All India Football Federation, the Tribunal held that such receipts do not alter the charitable nature of the assessee’s activities. Therefore, the proviso to Section 2(15) does not apply, and the receipts should not be treated as business income.

2. Expenditure Incurred Outside India:

The AO disallowed the expenditure of ?98,27,696 incurred for purchasing foreign currency used by team members for international championships, arguing that it was not approved by the CBDT as required under Section 11(1)(c).

The CIT(A) and the Tribunal found that the expenditure was incurred in India for purchasing foreign currency to be used by team members abroad, funded by grants from the Government of India. The Tribunal emphasized that the funds were used to promote sports at an international level, which aligns with the assessee’s charitable objectives. Referring to the case of NASSCOM, the Tribunal held that the expenditure did not violate Section 11(1)(c) as it was for the benefit of Indian participants and not for the assessee’s benefit. Hence, the disallowance was deleted.

3. Telephone Expenses:

The AO disallowed telephone expenses of ?42,480, claiming they were in violation of Section 13(1)(c) read with Section 13(3).

The CIT(A) and the Tribunal found that the expenses were related to the Federation Office and not for personal use. The Tribunal concluded that the expenses were legitimate and necessary for the functioning of the Federation, thus not violating any provisions of the Income Tax Act.

Conclusion:

The Tribunal upheld the CIT(A)’s decision, dismissing the Revenue’s appeals for both assessment years. It concluded that the receipts from sponsorship fees and royalties are not business income under Section 2(15), the expenditure incurred outside India is allowable under Section 11(1)(c), and the telephone expenses claimed are legitimate. The Tribunal found no infirmity in the CIT(A)’s order, affirming that the assessee’s activities are charitable and compliant with the provisions of the Income Tax Act.

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