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TMI Blog2015 (10) TMI 2162X X X X Extracts X X X X X X X X Extracts X X X X ..... ion under the provisions of Sec. 11 of the Act. - Decided in favour of assessee. Disallowance of depreciation - Held that:- It is observed that the Respondent Assessee is only claiming that depreciation should be reduced from the income for determining the percentage of funds which have to be applied for the purposes of trust. It is further observed that the Respondent Assessee has not claimed double deduction. The judgment of Indraprastha Cancer (2014 (11) TMI 733 - DELHI HIGH COURT) has considered the judgments of Charanjiv Charitable Trust [2014 (3) TMI 760 - DELHI HIGH COURT] and Indian Trade Promotion (2015 (8) TMI 89 - DELHI HIGH COURT) wherein decided to allow depreciation on capital asset in the computation of income apart from treatment of purchase of capital asset as application of income. - Decided in favour of assessee. - I.T.A. No. 6352/Del/2013 - - - Dated:- 23-9-2015 - Shri Inturi Rama Rao, Accountant Member And Smt. Beena Pillai, Judicial Member For the Appellant : Sh. K.K. Jaiswal, DR For the Respondent : Sh. Sunil Arora, CA Sh. Pankaj Jain, CA Ms. Ruchika Jain, CA ORDER Per Beena Pillai, Judicial Member This is an appeal filed b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rk and the assessee is eligible for exemption u/s 11. The case of the sports and its promotion comes under the definition of charitable purposes as provided in the sixth limb of section 2(15) which specifies as advancement of any other object of general public utility as part of the charitable purposes. The mere fact that the assessee receives sponsorship fees and the telecasting rights fees does not mean that the assessee is involved in any business activity. The case laws of the assessee relied on by the assessee is also applicable. It is seen that in the case of Hamsadhwani vs. DIT(E) (2012) 19 Taxmann.com 10 ITAT Chennai, the assessee was promoting music in Tamil Nadu for which it was receiving sponsorship and coaching fees and the Hon ble Tribunal did not accept the argument of DIT(E) that the assessee was involved in any business activity and the exemption was allowed. After considering all the facts and circumstances of the case, I am of the view that the assessee is a charitable institution and accordingly the aO is directed to allow exemption u/s 11 to the assessee. The AO has disallowed the depreciation on the ground that the assessee is claiming double deduction vi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the income from sponsorship and grant of commercial rights/telecasting rights received by the appellant are in order to ensure the enforcement of its object, of promotion of game of football for which appellant society was formed and no profit motive was involved. 10. We have perused the records, the paper book filed and the decisions relied upon by the parties. We heard the rival submissions and perused the material on record. In this case, the question that comes up for adjudication is whether the Respondent Assessee is engaged in the activities, which are in the nature of educational or advancement of any other objects of general public utility. Therefore, it is necessary to consider the objects of the Appellant society. The main objective of the federation is to promote football game, to organize tournaments, to organize training for players, trainees and coaches etc. 10.1 The Respondent Assessee is a Registered Society under the Societies Registration Act, 1860. It is the Apex Administrative body governing the sport of football in India and has been recognized as National Sports Federation for the discipline of football by the Ministry of Youth Affairs and Sports Go ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ad not received income form sponsorship/grant of rights, then the Respondent Assessee would not have possessed a fraction of funds which it requires for advancement of its objectives. The other grants received by the appellant are from Government or FIFA. These other grants in aid are not even 3% of the income from sponsorship/grant of rights. Further in the relevant period if AIFF had not received any income by way of sponsorship or grant of rights it would have sustained a huge deficit and would have been compelled to drastically reduced its sports promotion activity. 12. Thus, it is noticed that the receipt of fees from the sponsorship rights and telecasting rights do not amount to carrying out of any activity in the nature of trade, commerce or business but is incidental to carrying on of the main objective of the Respondent Assessee. 13. Moreover, it is further observed that no part of its surplus could be distributed to the board of its members in the form of dividend or profit. Therefore, the Respondent Assessee has to be necessarily considered a genuine charitable organization eligible to claim exemption u/s 11 12 of the Act and the provisions of the first proviso t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dealings or relations with any outside body, then the surplus returned to such persons is not chargeable to tax. Therefore, where industry or trade association claims both to be charitable institutions as well as mutual members, these would not fall under the purview of Section 2(15) owing to the principle of mutuality. However, if such organizations have dealings with the non-members, their claim for charitable institution would now be governed by the additional conditions stipulated in proviso to Section 2(15). 3.2 In the final analysis, whether the assessee has for its object, the advancement of any other object of general public utility, is a question of fact. If such assessee is engaged in any activity in the nature of trade, commerce or business or renders any service in connection to trade, commerce or business, it would not be entitled to claim that its object is for charitable purposes. In such a case, the object of 'general public utility' will only be a mask or a device to hide the true purpose which is trade, commerce, or business or rendering of any service in relation to trade, commerce or business. Each case would therefore, have to be decided on its ow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itution is charitable, another object which by itself may not be charitable but which is merely ancillary or incidental to the primary or dominant purpose would not prevent the trust or institution from being a valid charity- CIT v. Andhra Chamber of Commerce [1965] 55 ITR 722 . The test which has, therefore, to be applied is whether the object which is said to be non-charitable is a main or primary object of the trust or institution or it is ancillary or incidental to the dominant or primary object which is charitable. It was on an application of this test that in CIT v. Andhra Chamber of Commerce (supra), the Andhra Chamber of Commerce was held to be a valid charity entitled to exemption from tax. The Court held that the dominant or primary object of the Andhra Chamber of Commerce was to promote and protect trade, commerce and industry and to aid, stimulate and promote the development of trade, commerce and industry and to watch over and protect the general commercial interests of India or any part thereof and this was clearly an object of general public utility and though one of the objects included the taking of steps to urge or oppose legislation affecting trade, commerce or m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a Chamber of Commerce reported (supra) holds good, when an object seeks to promote or protect the interests of a particular trade or industry, that object becomes an object of public utility, but not so, if it seeks to promote the interests of those who conduct the said trade or industry. The distinction between the protection of the interests of individuals and the protection of interests of an activity which is of general public utility goes to the root of the whole problem as laid down in Andhra Chamber of Commerce(supra) and by Hon ble Gujarat High Court in the case of Addl. CIT v. Ahmadabad Mill owners Association, reported in (1977) 106 ITR 725, 738 (Guj)]. Applying the ratio laid down in the above cases to the facts of the present case, we have no demur to hold that the objects of the Respondent Assessee are aimed at improving Football being the national game and aiming at building of world class teams having international standards. The question of private gain or profit motive cannot be attributed to the Respondent Assessee being a federation which promotes Football in association with FIFA. Therefore, undoubtedly, the objects of the trust fall within the ambit and scope ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll, following the usual practice, issue an explanatory circular containing guidelines for determining whether an entity is carrying on any activity in the nature of trade, commerce or business or any activity of rendering any service in relation to any trade, commerce or business. Whether the purpose is a charitable purpose will depend on the totality of the facts of the case. Ordinarily, Chambers of Commerce and similar organizations rendering services to their members would not be affected by the amendment and their activities would continue to be regarded as advancement of any other object of general public utility. (Emphasis supplied) 20. A recent decision deals specifically with the newly amended section 2(15) of the Act, in the case of Institute of Chartered Accountants of India v. Director General of Income-tax (Exemptions) [2012] 347 ITR 99/202 Taxman 1/13 taxmann.com 175 Delhi HC, laying down the very same principle held as under: that the fundamental or dominant function of the Institute was to exercise overall control and regulate the activities of the members/enrolled chartered accountants. A very narrow view had been taken that the Institute was holdi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... say that the expression charitable purpose , as defined in Section 2(15) cannot be construed literally and in absolute terms. It has to take colour and be considered in the context of Section 10(23C)(iv) of the said Act. It is also clear that if the literal interpretation is given to the proviso to Section 2(15) of the said Act, then the proviso would be at risk of running fowl of the principle of equality enshrined in Article 14 of the Constitution of India. In order to save the Constitutional validity of the proviso, the same would have to be read down and interpreted in the context of Section 10(23C)(iv) because, in our view, the context requires such an interpretation. The correct interpretation of the proviso to Section 2(15) of the said Act would be that it carves out an exception from the charitable purpose of advancement of any other object of general public utility and that exception is limited to activities in the nature of trade, commerce or business or any activity of rendering any service in relation to any trade, commerce or business for a cess or fee or any other consideration. In both the activities, in the nature of trade, commerce or business or the activity of r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctfully following the decision of the hon'ble Madras High Court in the case of Tamil Nadu Cricket Association [2014] 360 ITR 633 (Mad), we have to hold that the amounts received by the assessee from (a) ground booking charges, (b) health club charges, (c) income from corporate boxes, (d) lawn booking income, (e) sponsorship money and sale of tickets, advertisement, souvenirs and other such receipts do not result in the assessee being held as undertaking activities in the nature of trade, commerce or business . These receipts are intrinsically related, interconnected and interwoven with the charitable activity and cannot be viewed separately. The activities resulting in the said receipts are also charitable activities and not trade, commerce or business activities. Chennai Bench of ITAT in the case of Hamsadhwani Vs. DIT(Exm.) reported in (2012) 19 taxmann.com 10 held as under; No doubt, it has been specifically provided in the first proviso that advancement of any other object of general public utility shall not be a charitable purpose if it involves any activity in the nature of trade, commerce or business, or rendering any service in connection with trade, for a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s would not make the activity commercial . The projects were undertaken at the instance of the Government of India or the State Governments for improving the accounting and budgetary systems in these local bodies. The expertise of the Foundation in carrying out research in this field was sought to be utilized. Therefore, it could not constitute business/commercial activity. Merely because some remuneration was taken by the Foundation for undertaking these projects that would not alter the character of these projects, which remained research and consultancy work. Most of the amount received qua these projects was spent on the project and the surplus, if any, is used for advancement of the objectives for which the Foundation was established. (b) The projects undertaken on behalf of these local bodies were not a regular activity of the Foundation. The primary activity remained research in accounting related fields. Even these projects which were taken up on behalf of those local bodies fit in the description of research projects which could be termed ancillary activity only. (c) The amended definition of charitable purpose would not alter this position. Merely on unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t by the proviso to Section 2(15). 15. As CBDT rightly puts it, sweeping 'generalizations are not possible' and 'each case will have to be decided on its facts'. The question then arises whether on the present set of facts it can be said that the assessee was engaged in trade, commerce or business or in rendering of a service to trade, commerce or business. As far as assessee being engaged in trade, commerce or business is concerned, it is not even learned Commissioner's case that running a organization, set up under the statute law, for controlling, preventing and abating pollution, is pursuing trade, commerce or business. Obviously, a trade, commerce or business implies an activity with profit motive even though public good may be a secondary benefit from such an activity. That is not the case before us. The legal framework under which the assessee is set up is quite clear and unambiguous and it reflects will of the lawmakers in no uncertain terms, which is to prevent pollution. 16. The next question is whether the learned Commissioner is justified in taking a stand that the assessee earning income over the years in the nature of licence fees, con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es where the activities of a charitable institution can be considered to be in the nature of trade, commerce or business. In fact, the same controversy, which has been there in the past, whether a charitable institution is carrying on the activities only of charitable nature or is carrying on activities which are in the nature of business, is emerging from this proviso also. In other words, the proviso will not give rise to any new controversy which had not been in the past. The further words used in the proviso, that for a cess or fee or any other consideration, have to be read along with the nature of activities, i.e., trade, commerce or business. When an institution is carrying on activities in the nature of trade, , commerce or business obviously it will be charging fee, etc. It may be charging fee even when rendering/providing services as part of charitable activity in order to supplement its income for carrying on charitable activities. In that case the proviso will not have any implication as the activities would not be in the nature of trade, commerce or business. Accordingly, the proviso inserted in the definition of 'charitable purpose' will not substantially have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... epreciation should be reduced from the income for the percentage of funds which have to be applied for the purpose of trust. The judgments relied upon by the appellant and Punjab Haryana High Court and Jurisdictional High Court covers the issue at length. The Hon ble High Court in the case of DIT(E) vs. M/s Indian Trade Promotion Organisation reported in (2015) 53 taxman.com 404 (Del, held that: Application of income may include purchase of a capital asset. The said purchase is valid and taken into consideration for the purpose for ensuring compliance, i.e. application of money or funds and is not a factor which determines and decides the quantum of income derived from property held under trust. Computation of income is separate and distinct and has to be made on commercial basis by applying the provisions of the Act . 29. Similar issue came up for consideration before the Hon ble Delhi High Court in DIT(E) vs. Indraprastha Cancer Society (2015) 53 taxman.com 463 (Del) held that; A charitable institution, which has purchased capital asset and treated the amount spent as application of income, is further entitled to claim depreciation on the same capital asset uti ..... X X X X Extracts X X X X X X X X Extracts X X X X
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