2016 (2) TMI 886 - AT - Income Tax

Sports Federation Granted Tax Exemption for Promoting Athletics

The appeals were filed by the revenue challenging the deletion of additions under Section 2(15) of the Income Tax Act, 1961 for A.Y. 2009-10 and A.Y. ... Definition of 'charitable purpose' under Section 2(15) - exemption under Section 11 - dominant or primary object test - advancement of general public utility - incidental benefit to members - profit motive versus incidental profitDefinition of 'charitable purpose' under Section 2(15) - exemption under Section 11 - dominant or primary object test - advancement of general public utility - profit motive versus incidental profit - incidental benefit to members - Whether the assessee, a sports federation charging recognition fees, is a charitable organisation within the meaning of Section 2(15) and entitled to exemption under Section 11 - HELD THAT: - The Tribunal upheld the CIT(A)'s finding that the federation's dominant or primary object is the promotion of athletics and sports in India, which falls within the sixth limb of the definition of charitable purpose as advancement of general public utility. The Tribunal applied the dominant or primary object test: subsidiary powers or activities which benefit members do not negate charitable character if they are incidental to the main charitable purpose. Merely receiving recognition fees does not convert the activity into one carried on for profit where profit-making is not the real object; the exclusionary clause excludes objects of private gain but does not require zero profit from activities incidental to the charitable purpose. The Memorandum of Association, as quoted in the assessment order, eliminates private profit as the real object. Applying these principles, the Tribunal concluded that the assessee's activities are charitable and the assessee is entitled to deduction under Section 11. [Paras 3, 4, 7]The assessee is a charitable organisation under Section 2(15) and entitled to exemption under Section 11; the Revenue's appeals are dismissed.Final Conclusion: The appeals filed by the Revenue for A.Y. 2009-10 and A.Y. 2010-11 are dismissed as the Tribunal affirms that the federation's primary object is charitable (promotion of athletics) and that incidental recognition fees do not defeat entitlement to exemption under Section 11. Issues:1. Deletion of addition under Section 2(15) of the Income Tax Act, 1961 for A.Y. 2009-10 and A.Y. 2010-11.2. Deletion of disallowance of depreciation for A.Y. 2009-10 and A.Y. 2010-11.3. Denial of exemption under Section 11 & 12 of the Act for A.Y. 2009-10 and A.Y. 2010-11.Analysis:1. The appeals were filed by the revenue challenging the orders passed by the ld. CIT(A) relating to A.Y. 2009-10 and A.Y. 2010-11. The primary issue for both assessment years was the deletion of additions made under Section 2(15) of the Income Tax Act, 1961. The revenue contended that the CIT(A) erred in deleting the additions. However, the CIT(A) found that the assessee, a sports federation promoting athletics in India, primarily aimed at promoting sports and athletics, which falls under the charitable purpose as defined in Section 2(15) of the Act. The CIT(A) held that receiving recognition fees did not alter the charitable nature of the organization, as profit-making was not its primary objective. The case laws submitted by the assessee further supported its charitable status, leading to the allowance of exemption under Section 11 for both assessment years.2. Another issue raised in the appeals was the deletion of disallowance of depreciation for both A.Y. 2009-10 and A.Y. 2010-11. The revenue argued against the deletion, relying on the Assessing Officer's order. However, the ITAT Delhi, after considering all records and hearing the arguments, upheld the CIT(A)'s decision. The ITAT agreed that the primary purpose of the federation was charitable in nature, focusing on promoting sports and athletics. The ITAT emphasized that as long as the predominant object of the activity was charitable and not profit-making, any profit arising from the activity did not change its charitable character. Therefore, the ITAT concluded that the assessee was entitled to the deduction under Section 11 of the Act, and consequently, dismissed the appeals.3. The final issue revolved around the denial of exemption under Section 11 & 12 of the Act for both A.Y. 2009-10 and A.Y. 2010-11 by the Assessing Officer. The CIT(A) found that the denial was unjustified as the assessee's main objective was promoting sports and athletics for the advancement of general public utility, aligning with the definition of charitable purposes under Section 2(15) of the Act. The CIT(A) highlighted that the receipt of recognition fees did not alter the charitable nature of the organization, as profit-making was not its primary goal. The ITAT Delhi concurred with the CIT(A)'s findings, emphasizing that the dominant purpose of the federation was charitable, and any profit generated was incidental to achieving the charitable objectives. Consequently, the ITAT upheld the CIT(A)'s decision to allow the exemption under Section 11 & 12 for both assessment years, leading to the dismissal of the appeals.