Charitable purpose test and depreciation on charitable assets upheld where sports promotion remained the dominant activity.

The proviso to section 2(15) was examined against the association's dominant objects and activities, with emphasis on whether they amounted to trade, commerce or business. As the primary function remained promotion of sports and representation in international forums, receipts from grants and sponsorships did not convert the activity into a commercial venture, so exemption under sections 11 and 12 was available. Depreciation was also treated as allowable on charitable assets even where the acquisition cost had earlier been regarded as application of income, following settled precedent against a double-deduction objection.

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Issues: (i) Whether the proviso to section 2(15) of the Income-tax Act, 1961 applied so as to deny exemption under sections 11 and 12 to the assessee association. (ii) Whether depreciation was allowable on assets whose cost had already been treated as application of income for charitable purposes.

Issue (i): Whether the proviso to section 2(15) of the Income-tax Act, 1961 applied so as to deny exemption under sections 11 and 12 to the assessee association.

Analysis: The assessee's objects and activities were examined in the light of the amended definition of charitable purpose, the budgetary intent behind the amendment, and CBDT Circular No. 11/2008. The decisive consideration was whether the association was carrying on trade, commerce or business, or rendering services in relation thereto, as a real or dominant activity. On the facts, the association's primary function remained promotion of sports and representation in international forums, and acceptance of grants and sponsorships did not by itself convert the activity into a commercial venture.

Conclusion: The proviso to section 2(15) was held inapplicable, and exemption under sections 11 and 12 was allowed to the assessee.

Issue (ii): Whether depreciation was allowable on assets whose cost had already been treated as application of income for charitable purposes.

Analysis: The depreciation question was treated as settled by binding precedent allowing depreciation even where the acquisition cost of the capital asset had been considered as application of income. The claim was therefore not rejected on the ground of double deduction.

Conclusion: Depreciation was held allowable in favour of the assessee.

Final Conclusion: The Revenue failed on both substantive grounds, and the order granting exemption and allowing depreciation was upheld, resulting in dismissal of the Revenue's appeal.

Ratio Decidendi: Where an assessee's dominant activity remains charitable and is not shown to be a genuine trade, commerce or business activity, the proviso to section 2(15) does not deny exemption; depreciation on charitable assets is also allowable even if the asset cost has been treated as application of income.

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