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2015 (10) TMI 2162 - ITAT DELHI

2015 (10) TMI 2162 - ITAT DELHI - [2015] 43 ITR (Trib) 656 (ITAT [Del]) - Exemption u/s 11 & 12 - whether assessee is involved in the promotion of football games and sports and as such it is a charitable work and the assessee is eligible for exemption u/s 11 - CIT(A) deleted the addition - Held that:- What needs to be emphasized is whether the receipt of amounts by way of sponsorship from various parties would make the activity ‘commercial’ as held by the Assessing Officer. The mere fact that th .....

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in any activity which is in the nature of trade, commerce and business. Accordingly, we direct the Assessing Officer to allow the exemption 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 t .....

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. - 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 by the Revenue arising from the order of the of ld. CIT(A) s- XXI, New Delhi dated 16.09.2013 for A.Y. 2009- 10 on the following grounds: 1. On the facts and in the circumstances of t .....

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reciate the fact that the AO denied the claim of exemption to the assessee u/s 11 & 12 of the Income Tax Act, 1961. 4. The appellant craves leave to add, to alter or amend any ground of appeal raised above at the time of hearing. 2. Brief facts of the case are that the Respondent Assessee had filed its return on 09.03.2010, for the year under consideration at Nil income and claimed exemption u/s 11 & 12 of the Act. The Respondent Assessee is a federation of six football association which .....

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f the Act. The ld. AO also disallowed the claim of depreciation amounting as debited to the income and expenditure account. It was contended by the AO that the Respondent Assessee has claimed double deduction of depreciation in the form of application of income at the time of purchase of fixed assets and secondly by way of claiming depreciation as amortization of written down value. 3. Aggrieved by the order of the AO the Respondent Assessee preferred appeal before the ld. CIT(A). 4. The ld. CIT .....

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ere 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 .....

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is eligible for depreciation as the same is claimed and is allowable. After considering all the facts and circumstances of the case, I am of the view that the assessee is eligible for depreciation and accordingly the AO is directed to allow the same and as such the appeal of the assessee is allowed. 5. Aggrieved by the order passed by the ld. CIT(A) the Revenue is in appeal before us. 6. The ld. DR contends that the AO has correctly disallowed income from sponsorship and telecasting are in the n .....

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ility and will qualify as charitable purposes in terms of definition contained in section 2(15) of the Act . The ld. AR further contends that the proviso to section 2(15) of the Act as inserted by the Finance Act, 2015 w.e.f. 01.04.2009 provides for certain circumstances, where advancement of any general public utility shall not be treated as charitable purposes and the same do not get attracted to the facts and circumstances of appellant s case. 8. The ld. AR submits that the receipt of fees fr .....

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vs. DIT(E) reported in ITA No. 3095/Del/2012; 4. Hamsadhwani vs. DIT(E) reported in [2012] 19 taxmann.com 10 (Chennai Trib.); 5. Tamilnadu Cricket Association vs. DIT(E) reported in [2013] 40 taxmann.com 250. 9. The ld. AR submitted 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 involve .....

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deration 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 Government of India. All India football federation has been notified sports .....

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able and the benefits of the federation shall be opened to all irrespective of cast/creed/religion. The fund and the income of the federation shall be solely utilized for the achievements of its object and no portion of it shall be utilized for payment to executive committee/subcommittee/ general body Members by way of profits, interest and dividend. 10.3 From the above, it is very clear that the activities carried out by the Respondent Assessee certainly amounts to charitable purpose as it is b .....

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rs Amount Amount 1. Income from Sponsorship & Grant of Commercial Rights 23,24,46,625 Grant of Telecasting and master rights 21,60,00,000 Sponsorship 1,64,46,625 2. Grants and Aids Received 66,30,424 3. Fees and Levies 20,29,100 4. Other Income 73,09,944 Total 24,84,16,093 11. A bare perusal of the aforesaid detail would reveal that if the Respondent Assessee had not received income form sponsorship/grant of rights, then the Respondent Assessee would not have possessed a fraction of funds wh .....

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e 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 .....

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ral public utility: Proviso inserted thereto by the Finance Act, 2008, with effect from 01.04.2009, reads as under: Provided that the advancement of any other object of general public utility shall not be a charitable purpose, if it involves the carrying on of 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, for a cess or fee or any other consideration, irrespective of the nature of use or applicat .....

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ose is 'advancement of any other object of general public utility' i.e. the fourth limb of definition of 'charitable purpose' contained in Section 2(15). Hence, such entities will not be eligible for exemption under Section 11 or under Section 10(23C) of the Act' if they carry on commercial activities. Whether such an entity is carrying on an activity in the nature of trade, commerce or business is a question of fact which will be decided based on the nature, scope, extent an .....

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utside 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 fi .....

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ch 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 own facts, and generalizations are not possible. An assessee who claims that their object is 'charitable purpose' within the meaning of section 2(15) would be well advised to eschew any activity which is in the nature of trade, commerce or business or rendering of any service in relation to any trade commerce or business." (E .....

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to make objective of general public utility, carrying on bonafide activities in furtherance of such activities of general public utility would not be hit by proviso to section 2(15). 16. The Hon ble Apex Court held in the case of CIT vs. Andhra Chamber of Commerce 55 ITR 722 that only the predominant object for which the organization was created is alone to be considered for the purpose for determining whether the nature of activities fall within the scope and ambit of charity . The ratio laid .....

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the income or property to any of those objects, the trust or institution would not be liable to be regarded as charitable and no part of its income would be exempt from tax. In other words, where the main or primary objects are distributive, each and everyone of the objects must be charitable in order that the trust or institution might be upheld as a valid charity as held by Mohammed Ibrahim Riza v. CIT [1930] LR 57 IA 260 and East India Industries ( Madras)Pvt. Ltd. v. CIT [1967] 65 ITR 611(SC .....

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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 w .....

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ted out that if "the primary purpose be advancement of objects of general public utility, it would remain charitable even if an incidental entry into the political domain for achieving that purpose, e.g., promotion of or opposition to legislation concerning that purpose, was contemplated". The Court also held that the Andhra Chamber of Commerce did not cease to be charitable merely because the members of the Chamber were incidentally benefited in carrying out its main charitable purpos .....

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y. It would be a question of fact' in such case "whether there is no such personal benefit, intellectual or professional, to the members of the society or body of persons as to be incapable of being disregarded. 17. The ratio laid down in the above cases are that in the case of an entity organization whose objects are several, some of which are charitable and non-charitable; the test of predominant object for which the organization was set up is alone to be applied. Therefore, in the pr .....

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ich is a fourth limb in the definition of charitable purpose in Section 2(15) of the Act. 17.1 The principle enunciated by Hon ble Apex Court in the case of Andhra 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 in .....

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proving 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 of the expression general public utility services , which is a fourth limb of definition of word charitable as defined under Section 2(15) .....

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at their purpose would also fall under 'charitable purpose'. Obviously, this way not the intention of Parliament and, hence, I propose to amend the law to exclude the aforesaid cases. Genuine charitable organizations will not in any way be affected." 19. Further reference can be made to the reply of the Hon ble Finance Minister to the Debate in the Lok Sabha on the Finance Bill, 2008:- "6. Clause 3 of the Finance Bill, 2008 seeks to amend the definition of 'charitable purpo .....

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o deny it to purely commercial and business entities which wear the mask of a charity. A number of Hon ble Members have written to me expressing their concern on the possible impact of the proposal on Agricultural Produce Market Committees (APMC) or State Agricultural Marketing Boards (SAMB). Since there is no intention to tax such committees or boards, and in order to remove any doubts, I propose to insert a new clause (26AAB) in section 10 of the Income tax Act to provide exemption to any inco .....

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on 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 .....

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to business.´ 21. Hon ble Delhi High Court in the case of Bureau of Indian Standards vs. Director General of Income-tax (Exemptions) (2013) 358 ITR 78 held as follows vide para 16 of the judgment : 16. What survives to be determined is whether any of BIS's activities fall within the latter and larger category of "involved in the carrying on of any activity of rendering any service in relation to any trade, commerce or business". The expressions "any activity," " .....

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than ten lakh rupees in the relevant previous year). The Bureau, it would appear at the first blush, renders service in relation to trade, commerce or business by granting certification/quality marks in return of license fee. Apparently, Parliament intended to clarify that not all activities of State agencies (some of which might be set up to carry on trading and commercial activities) can be considered charitable. Hon ble Delhi High Court in the case of GSI India vs. Director General of Income .....

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t limb, when a token fee is collected from the beneficiaries in the course of activity which is not a business but clearly charity for which they are established and they undertake. Hon ble Delhi High Court in the case of India Trade Promotion Organization vs. Director General of Income-tax (Exemptions) & Ors. [2015] 371 ITR 333, held vide para 58 as follows:- 58. In conclusion, we may say that the expression "charitable purpose", as defined in Section 2(15) cannot be construed lit .....

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ection 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 c .....

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to any trade, commerce or business, then it would not be entitled to claim its object to be a 'charitable purpose'. On the flip side, where an institution is not driven primarily by a desire or motive to earn profits, but to do charity through the advancement of an object of general public utility, it cannot but be regarded as an institution established for charitable purposes. 22. Further it cannot be construed that the appellant is actively involved in raising the sponsorship fees and .....

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been established for a charitable purpose. It is also important to note that we must examine as to what is the dominant activity of the institution in question. If the dominant activity of the institution was not business, trade or commerce, then any such incidental or ancillary activity would also not fall within the categories of trade, commerce or business. It is clear from the facts of the present case that the driving force is not the desire to earn profits but, the object of promoting trad .....

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owing 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 .....

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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 cess or fee or any other consideration. The third proviso excludes from the restraints imposed by first proviso, where such receipts were less than ₹ 10 lakhs. The question here is whether sponsorship fee, which forms substantial part of the amounts listed above, can be considered as receipt fro .....

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t say that sponsorship fee is a receipt in the hands of the assessee which is in the nature of trade, commerce or business. Similarly, conducting music coaching for the purpose of advancement of various traditional music forms of State of Tamil Nadu, which is an integral part of cultural life of people of Tamil Nadu, cannot also be considered to be an activity in the nature of trade, commerce and business. This can at the best be considered as an educational pursuit. When there are colleges run .....

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tional art forms, which cannot be considered as a commercial or business activity. 24. The Delhi High Court, in the case of Institute of Chartered Accountants of India v. DGIT (Exemptions) [2012] 347 ITR 99/[2011] 202 Taxman 1/13taxmann.com 175 concurred with the view taken in the above decision and observed as under:- (a) the activities undertaken by the institution amounted to advancement of an object of general public utility in the definition of charitable purpose in section 2(15) of the Act .....

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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 rel .....

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ring any service in relation to trade, commerce or business. 24.1 Chandigarh Bench of the Tribunal in the case of Himachal Pradesh Environment Protection & Pollution Control Board v. CIT [2010] 42 SOT 343, wherein the Tribunal held that proviso to s. 2(15) does not imply that in each and every case where an assessee receives payment for any activity, not being activity for trade, commerce or business, the same would be hit by the said proviso. According to the Tribunal, in accordance with CB .....

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d as under: 14. As the above CBDT circular, which is binding on the Commissioner under section 119(1)(a) of the Act, aptly puts it, whether the assessee has, as its object, advancement of any other object of general public utility is essentially a question of law to be decided on the facts of the assessee's own case and where object of general public activity is only a mask or device to hide the true purpose of trade, business or commerce, or rendering of any service in relation thereto, the .....

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'general public utility', the carrying on of bona fide activities in furtherance of such objectives of 'general public utility' will also be hit 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 serv .....

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e 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, consent fees, testing charges etc" and "since the basic objective of the protection of environment pursued by the Board involves the carryin .....

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their cognate sense and as if they take colour from each other. Broom's Legal Maxims (10th Edition) observes that " it is a rule laid down by Lord Bacon that copulation verborum indicat accepetationem in eodem sensu i.e. the coupling of words that they are to be understood in the same sense." A profit motive is surely the essence of trade, commerce or business, and, therefore, in a situation in which services are rendered without a profit motive, such rendering of service will not .....

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from the above decisions is that once the primary objects of an institution are established to be in the nature of charity, then the proviso to section 2(15) of the Act cannot be made applicable. In other words, the existence of the proviso in substance will not make any difference. The proviso will hit only such cases where the entity or organization is carrying on business activity with a profit motive in the garb of charitable purpose. It will not however affect the case of institution which .....

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arrying 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 tra .....

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ng of charitable purpose. 25. In view of the above discussion and judicial pronouncements, what needs to be emphasized is whether the receipt of amounts by way of sponsorship from various parties would make the activity commercial as held by the Assessing Officer. The mere fact that the appellant society had generated sponsorship funds, during the course of carrying on the ancillary objects, shall not alter the character of the main objects so long as the predominant object continues to be chari .....

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of Revenue. 27. Ground no. 2 is relating to the disallowance of depreciation. The ld. DR contended that the Respondent Assessee has claimed double deduction of depreciation in the form of application of income at the time of purchase of fixed assets and by way of claiming depreciation as amortization of WDV. The ld. DR supported the findings of the ld. AO in the assessment order. The ld. AR submitted that the Respondent Assessee is not making any double claim of depreciation. The income of appe .....

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ourt in the case of DIT(E) vs. M/s Indraprastha Cancer Society in ITA No. 384/2014, 463/2014, 464/2014 dated 18/11/2014. c) We have perused the records, order passed by the authorities below and the judgments relied upon by the parties. The income of the Respondent Assessee is already exempt and the Respondent Assessee is only claiming that depreciation 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 th .....

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ntum 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 depreciatio .....

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