Assessee's Charitable Activities Upheld for Depreciation & Expenditure Set-off

The Tribunal upheld the CIT(A)'s decision that the assessee's activities were charitable, allowing depreciation on assets and permitting set-off of deficit/excess expenditure. The order was pronounced on 19.07.2018.

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Issues Involved:
1. Whether the activities of the assessee are charitable or commercial in nature.
2. Whether depreciation is allowable on assets already claimed as an application of income.
3. Whether the set-off of deficit/excess expenditure of earlier assessment years is permissible.

Issue-wise Detailed Analysis:

1. Charitable vs. Commercial Nature of Activities:
The primary issue was whether the activities of the assessee, an apex sports body, were charitable or commercial. The Assessing Officer (AO) believed that the assessee's activities were commercial due to the receipt of sponsorship income from Samsung India Electronics Pvt. Ltd., which amounted to Rs. 86 lakhs. The AO argued that this constituted an activity in the nature of trade, commerce, or business, thus invoking the proviso to section 2(15) of the Income-tax Act, 1961, and denying the benefit under sections 11 and 12 of the Act. However, the Commissioner of Income Tax (Appeals) [CIT(A)] found that the assessee's primary and dominant activity was promoting sports, which is a charitable purpose. The CIT(A) held that accepting sponsorships does not change the charitable nature of the organization. This view was supported by various judicial decisions and the intention of the Finance Minister and CBDT Circular No. 11/2008, which clarified that genuine charitable organizations would not be affected by the proviso to section 2(15). The Tribunal upheld the CIT(A)'s decision, emphasizing that the assessee's activities were not conducted solely on commercial lines with a profit motive.

2. Allowance of Depreciation:
The second issue was whether depreciation is allowable on assets that have already been claimed as an application of income. The AO denied the claim of depreciation, arguing it would amount to double deduction. However, the CIT(A) directed the AO to allow the depreciation claim. The Tribunal referenced the Supreme Court's judgment in the case of Rajasthan and Gujarat Charitable Foundation, where it was held that depreciation is allowable even if the expenditure for acquiring capital assets was treated as an application of income for charitable purposes. Consequently, the Tribunal dismissed the Revenue's ground on this issue.

3. Set-off of Deficit/Excess Expenditure:
The third issue was related to the set-off of deficit/excess expenditure of earlier assessment years. This issue was consequential to the first issue. Since the Tribunal directed the AO to allow the benefit of exemption under sections 11 and 12 of the Act, it also directed the AO to allow the set-off of deficit/excess expenditure accordingly.

Conclusion:
The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decision that the assessee's activities were charitable and not commercial, allowing the depreciation claim on assets, and permitting the set-off of deficit/excess expenditure of earlier years. The order was pronounced in the open court on 19.07.2018.

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