2021 (4) TMI 359 - HC - Income Tax

Tax Appeal Dismissed: Exemptions under Income Tax Act Upheld

The Tax Appeal under Section 260A of the Income Tax Act, 1961 for the Assessment Year 2013-14, involving exemptions under sections 11 & 12, ... Charitable purpose and exemption under section 11 and 12 - commercial activity test and proviso to section 2(15) r.w.s. 13(8) - income in form of voluntary contributions and exemption under section 11(1)(d) - registration and recognition under section 12A - reasonableness of Tribunal's factual finding and appellate interference - reliance on co ordinate bench precedentCharitable purpose and exemption under section 11 and 12 - commercial activity test and proviso to section 2(15) r.w.s. 13(8) - Whether the assessee's activities were commercial so as to attract the proviso to section 2(15) r.w.s. 13(8) and disqualify it from exemptions under sections 11 and 12. - HELD THAT: - The Court adopted the reasoning in Director of Income Tax v. Gujarat Cricket Association, observing that the proper test is the object and activities of the assessee and not the commercial character of the donor or apex body. The Court noted the Tribunal's factual finding that profits, if any, were ploughed back into promotion and development of cricket and that the associations did not distribute profits outside the organisation. Given those findings, the activities could not be characterised as commercial so as to invoke the proviso to section 2(15) r.w.s. 13(8). The Tribunal's view was held to be a reasonable conclusion based on the material on record and not liable to interference. [Paras 5, 6]The Court answered the question in favour of the assessee and held that the proviso to section 2(15) r.w.s. 13(8) did not apply to disqualify the assessee from claiming exemption under sections 11 and 12.Income in form of voluntary contributions and exemption under section 11(1)(d) - Whether interest or income derived from contributions given with a direction to form part of the corpus qualifies for exemption under section 11(1)(d). - HELD THAT: - Relying on the reasoning in the cited Gujarat Cricket Association decision, the Court accepted that where donors have specifically directed that contributions and the interest thereon shall form part of the corpus, such interest partakes of the character of corpus voluntary contributions. The Tribunal's conclusion that such income qualified for exemption under section 11(1)(d) was upheld as a reasonable factual and legal conclusion. [Paras 3, 5, 6]The Court sustained the Tribunal's allowance of exemption for income forming part of corpus voluntary contributions under section 11(1)(d).Charitable purpose and exemption under section 11 and 12 - registration and recognition under section 12A - Whether the assessee's registration under section 12A and long recognition of its main object as promotion of cricket precluded cancellation and entitled it to exemption. - HELD THAT: - The Court noted that the assessee's predominant object was to promote, regulate and control cricket in the State and that over years the Income tax Department had recognised this activity as charitable by granting registration under section 12A. On these facts, and following the precedent, the Tribunal was right in setting aside cancellation of registration and allowing exemption claims. The Tribunal's factual findings and consequent legal effect were treated as reasonable and not susceptible to appellate interference. [Paras 3, 5, 6]The Court upheld the Tribunal's setting aside of cancellation of registration and allowed exemption consequent to recognition under section 12A.Reasonableness of Tribunal's factual finding and appellate interference - Whether the Tribunal erred in remitting the addition relating to infrastructure subsidy to the file of the Assessing Officer and in allowing related exemptions. - HELD THAT: - While the Tribunal had remitted the addition for further consideration, the High Court found that, on the whole, the Tribunal had taken a reasonable view of the matters on record. Having adopted the reasoning applied in the Gujarat Cricket Association decision and having recorded factual findings, the Tribunal's approach including the remittance was not interfered with. The Court declined to accede to Revenue's contention that once section 2(15) proviso applied the remittance and exemptions were impermissible. [Paras 5, 6]The Court did not interfere with the Tribunal's remit and its allowance of exemptions; the remittance was left intact and the Tribunal's approach was sustained.Reliance on co ordinate bench precedent - reasonableness of Tribunal's factual finding and appellate interference - Whether reliance by the Tribunal on a co ordinate bench decision (Gujarat Cricket Association) could be faulted because the Department had not accepted that decision and had proposed further appeal. - HELD THAT: - The High Court observed that similar issues had been decided against the Revenue in Director of Income Tax v. Gujarat Cricket Association and expressly adopted that reasoning. The Court held that the Tribunal had taken a reasonable view and recorded findings of fact based on materials on record; mere non acceptance of a co ordinate bench decision by the Department did not render the Tribunal's reliance unjustified. The Court therefore sustained the Tribunal's reliance on the precedent and its conclusions. [Paras 2, 3, 5, 6]The Court upheld the Tribunal's reliance on the co ordinate bench precedent and entertained no interference on that ground.Final Conclusion: The Tax Appeal is dismissed. The substantial questions of law raised by the Revenue for Assessment Year 2013-14 are answered in favour of the assessee; the Tribunal's factual findings and legal conclusions permitting exemption under the relevant provisions are sustained. Issues involved:Appeal under Section 260A of the Income Tax Act, 1961 for the Assessment Year 2013-14 regarding exemptions under sections 11 & 12, applicability of proviso to section 2(15) r.w.s. 13(8) of the Act, remittance of addition made on account of infrastructure subsidy, and benefit of exemptions under various sections.Analysis:1. The Revenue appealed under Section 260A of the Income Tax Act, 1961 for the Assessment Year 2013-14, questioning the Order passed by the Income Tax Appellate Tribunal, Ahmedabad, Bench 'C'. The substantial questions of law raised included the justification of allowing exemptions under sections 11 & 12 without considering the commercial nature of the assessee's activities covered under section 2(15) r.w.s. 13(8) of the Act.2. The Revenue argued against the Tribunal's decision to allow exemption under section 11 on the net surplus and subsidy received from BCCI, contending that the proviso to section 2(15) r.w.s. 13(8) of the Act was applicable, making the assessee ineligible for such exemptions.3. Another issue raised was the remittance of the addition made on account of infrastructure subsidy to the file of the Assessing Officer, which the Revenue opposed, stating that once the provisions of section 2(15) r.w.s. 13(8) applied, the assessee was not entitled to claim under section 11(1)(d) of the Act.4. The Tribunal's decision to allow the benefit of exemptions under various sections was challenged by the Revenue, highlighting the applicability of section 2(15) r.w.s. 13(8) of the Act to the assessee's activities, which, according to the Revenue, rendered the assessee ineligible for such benefits.5. In response, the Court referred to a similar case involving the Gujarat Cricket Association, where it was held that the associations involved were not engaged in commercial activities but rather in promoting and developing cricket. The Court emphasized that the nature of the activities of the associations should be considered independently of the apex body's activities, and the associations were entitled to exemptions under Section 11.6. Based on the precedent set in the case of the Gujarat Cricket Association, the Court concluded that the Tribunal had taken a reasonable view of the matter in the present case. Therefore, the Tax Appeal was dismissed, the substantial questions of law were answered in favor of the assessee, and against the Revenue.