2022 (10) TMI 79 - AT - Income Tax

Denial of exemption u/s 11 r.w.s. 2 (15) - CIT(A) held that the assessee earns revenue from activities, which are in the nature of trade, commerce or business and therefore proviso to section 2(15) of the Act is applicable to the assessee s case - HELD THAT - In the present case, there is no dispute regarding the object of the assessee club, as noted above from the Memorandum of Association. Only basis on which exemption under section 11 of the Act has been denied is that assessee has undertaken certain activities, different from its object, which are in nature of trade, commerce or business. Further, in the present case, assessee has also agreed to the fact that certain income has been earned by it from non-sporting activities. All the details pertaining to same are not available on record. It is also not evident that whether the receipts which are held to be eligible for exemption under section 11 of the Act, in assessee s own case for preceding assessment years, are similar to the receipts earned by the assessee in the assessment years under consideration and whether those receipts were also from non-sporting activities. It is no doubt true that the receipts from non-sporting activities earned by the assessee are covered under the proviso to section 2(15) of the Act and the same are also not covered under its objects as mentioned in the Memorandum of Association. Therefore, in view of the above, we deem it appropriate to remand the issue of determination of income eligible for exemption under section 11 of the Act to the file of AO for de novo adjudication. We also direct the assessee to provide the clear breakup of the revenue which it has earned in relation to sporting activities and the revenue which has no relation whatsoever to the sporting activities undertaken at assessee s premises. Since, in preceding assessment years, assessee was held to be eligible for exemption under section 11, therefore, the aforesaid adjudication be made in light of decisions in the case of the assessee, after determining which receipts are similar in nature to the receipts held to be eligible for exemption under section 11 of the Act in preceding years and relief be granted to the assessee to that extent. With the above directions, we remand the issue to the file of AO for consideration afresh. Needless to mention that no order shall be passed without affording opportunity of hearing to the assessee. Accordingly, grounds no. 1 and 2 raised in assessee s appeal are allowed for statistical purpose. Carry forward and set off of deficit of earlier years - We find that Hon'ble Supreme Court in CIT v/s Subros Educational Society, 2018 (4) TMI 1622 - SC ORDER held that any excess expenditure incurred by the trust / charitable institution in earlier assessment year would be allowed to be set off against income of the subsequent years by invoking the provisions of section 11 of the Act. Since, the issue of exemption under section 11 of the Act has been remanded to the AO for de novo adjudication, therefore, we direct the AO to allow carry forward and set off of deficit of earlier years after determination of income eligible for exemption under section 11 of the Act. Accordingly, ground No. 3 raised in assessee s appeal is allowed for statistical purpose.

Issues Involved:

1. Denial of exemption under section 11 read with section 2(15) of the Income Tax Act.
2. Set off of deficits of the current year and earlier years.

Detailed Analysis:

1. Denial of exemption under section 11 read with section 2(15) of the Income Tax Act:

The appeals pertain to the assessment years 2013-14 and 2014-15, where the assessee, a charitable trust registered under section 12A of the Act, challenged the denial of exemption under section 11. The Assessing Officer (AO) observed that the assessee's main operational activity involved letting its assets on hire to non-members for non-sporting purposes, such as marriages and corporate events, which led to significant income from hiring charges, royalty, and other fees. Consequently, the AO disallowed the exemption under section 11, citing the proviso to section 2(15) of the Act, which excludes activities in the nature of trade, commerce, or business from being considered as charitable purposes.

The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the AO's decision, stating that the assessee's activities were in the nature of trade, commerce, or business, thus attracting the proviso to section 2(15).

During the hearing, the assessee argued that the non-sport activities were incidental and constituted less than 20% of the total receipts, hence satisfying the conditions of the proviso to section 2(15). However, the Tribunal noted that these conditions were applicable only from 01/04/2016 and not relevant for the assessment years under consideration.

The Tribunal emphasized that the primary objective was to determine whether the income from non-sporting activities was in the nature of trade, commerce, or business. It observed that the assessee had previously been granted exemption under section 11 for similar activities, but the details of income from those years were not available on record.

Therefore, the Tribunal remanded the issue to the AO for fresh adjudication, directing the AO to segregate the income from sporting and non-sporting activities and determine the eligibility for exemption under section 11 accordingly. The AO was instructed to exclude income from trade, commerce, or business activities for the purpose of allowing exemption and to provide an opportunity for the assessee to present relevant details.

2. Set off of deficits of the current year and earlier years:

The assessee also sought the set off of deficits from earlier years against the income of the subsequent years. The Tribunal referred to the Supreme Court's decision in CIT v/s Subros Educational Society, which allowed the set off of excess expenditure incurred by a trust in earlier years against the income of subsequent years under section 11.

Given that the issue of exemption under section 11 was remanded for fresh adjudication, the Tribunal directed the AO to allow the carry forward and set off of deficits after determining the income eligible for exemption under section 11.

Conclusion:

Both appeals were allowed for statistical purposes, with the Tribunal remanding the issues to the AO for fresh consideration, ensuring that the assessee is given an opportunity to present necessary details and evidence. The AO was instructed to adjudicate the matters in light of the Tribunal's directions and relevant judicial precedents.

← Previous Next →