2019 (1) TMI 1522 - AT - Income Tax

Tribunal grants cricket associations tax exemption, deems BCCI income as donations, and allows asset depreciation.

Gujarat Cricket Association, Baroda Cricket Association And Saurashtra Cricket Association Versus Joint Commissioner of Income Tax (Exemptions), Ahmedabad, Deputy Commissioner of Income Tax, Circle 5, Vadodara And Deputy Commissioner of Income Tax Exemption, Circle 2, Ahmedabad

Gujarat Cricket Association, Baroda Cricket Association And Saurashtra Cricket Association Versus Joint Commissioner of Income Tax (Exemptions), ... Issues Involved:1. Applicability of Proviso to Section 2(15) of the Income Tax Act, 1961.2. Entitlement to exemption under Section 11 of the Income Tax Act, 1961.3. Treatment of income received from the Board of Cricket Control of India (BCCI) as corpus donations.4. Taxability of infrastructure subsidies received from BCCI.5. Allowance of depreciation on assets.6. Treatment of mutuality income from club activities.7. Set-off of brought forward losses and unabsorbed depreciation.8. Deduction of 15% of income under Section 11(1)(b).9. Alternative claim of educational activity under Section 2(15).Analysis of the Judgment:1. Applicability of Proviso to Section 2(15):The central issue was whether the cricket associations' entitlement to exemption under Section 11 is affected by the proviso to Section 2(15), which excludes entities from being considered as charitable if they engage in trade, commerce, or business. The Tribunal analyzed the activities of the cricket associations and concluded that the activities were primarily for promoting cricket, which is considered an object of general public utility. The Tribunal held that the proviso to Section 2(15) was wrongly invoked by the authorities as the associations were not engaged in trade, commerce, or business.2. Entitlement to Exemption under Section 11:The Tribunal found that the cricket associations were engaged in charitable activities under Section 2(15) and were entitled to exemption under Section 11. The activities of promoting cricket were considered charitable, and the income generated from such activities did not disqualify the associations from claiming exemption under Section 11.3. Treatment of Income Received from BCCI as Corpus Donations:The Tribunal upheld the plea of the cricket associations that the amounts received from BCCI as TV subsidies and IPL subventions were corpus donations. The Tribunal noted that BCCI had passed a resolution stating that such payments were to be treated as corpus funds. Therefore, these amounts were not taxable as income.4. Taxability of Infrastructure Subsidies Received from BCCI:The Tribunal held that infrastructure subsidies received from BCCI were in the nature of capital receipts and not taxable as income. The subsidies were given for the creation of capital assets, and hence, they were outside the ambit of revenue receipts.5. Allowance of Depreciation on Assets:The Tribunal allowed the claim for depreciation on assets, following the Supreme Court's judgment in CIT Vs Rajasthani & Gujarati Charitable Foundation, which held that depreciation is allowable even if the full cost of the asset has been allowed as an application of income in earlier years.6. Treatment of Mutuality Income from Club Activities:The Tribunal restored the matter to the file of the CIT(A) for adjudication on the claim of mutuality income from club activities, as there was no specific adjudication on this issue by the CIT(A).7. Set-off of Brought Forward Losses and Unabsorbed Depreciation:The Tribunal directed the Assessing Officer to consider the set-off of brought forward losses and unabsorbed depreciation while computing the income, as these claims are consequential to the main issue of exemption under Section 11.8. Deduction of 15% of Income under Section 11(1)(b):The Tribunal directed the Assessing Officer to compute the income as per the provisions of Section 11, allowing the deduction of 15% of income under Section 11(1)(b).9. Alternative Claim of Educational Activity under Section 2(15):The Tribunal did not find it necessary to adjudicate on the alternative claim that promoting cricket is an educational activity, as it had already concluded that the activities of the cricket associations were charitable under the object of general public utility.Conclusion:The Tribunal allowed the appeals of the cricket associations, holding that the proviso to Section 2(15) was not applicable, and the associations were entitled to exemption under Section 11. The amounts received from BCCI were treated as corpus donations, and infrastructure subsidies were considered capital receipts. The Tribunal also allowed the claims for depreciation and directed the Assessing Officer to consider the set-off of brought forward losses and unabsorbed depreciation, as well as the deduction of 15% of income under Section 11(1)(b). The matter of mutuality income from club activities was remitted to the CIT(A) for fresh adjudication.