Tribunal instructs Assessing Officer to segregate income for exemption & allow deficit set-off

The Tribunal remanded the denial of exemption under section 11 to the Assessing Officer for fresh adjudication, instructing the AO to segregate income from sporting and non-sporting activities to determine eligibility for exemption. The Tribunal also directed the AO to allow the set off of deficits from earlier years against subsequent year's income once the exemption issue is resolved. Both appeals were allowed for statistical purposes, ensuring the assessee's opportunity to present relevant details and evidence during the fresh consideration by the AO.

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Issues Involved:

1. Denial of exemption under section 11 read with section 2(15) of the Income Tax Act.
2. Set off of deficits of the current year and earlier years.

Detailed Analysis:

1. Denial of exemption under section 11 read with section 2(15) of the Income Tax Act:

The appeals pertain to the assessment years 2013-14 and 2014-15, where the assessee, a charitable trust registered under section 12A of the Act, challenged the denial of exemption under section 11. The Assessing Officer (AO) observed that the assessee's main operational activity involved letting its assets on hire to non-members for non-sporting purposes, such as marriages and corporate events, which led to significant income from hiring charges, royalty, and other fees. Consequently, the AO disallowed the exemption under section 11, citing the proviso to section 2(15) of the Act, which excludes activities in the nature of trade, commerce, or business from being considered as charitable purposes.

The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the AO's decision, stating that the assessee's activities were in the nature of trade, commerce, or business, thus attracting the proviso to section 2(15).

During the hearing, the assessee argued that the non-sport activities were incidental and constituted less than 20% of the total receipts, hence satisfying the conditions of the proviso to section 2(15). However, the Tribunal noted that these conditions were applicable only from 01/04/2016 and not relevant for the assessment years under consideration.

The Tribunal emphasized that the primary objective was to determine whether the income from non-sporting activities was in the nature of trade, commerce, or business. It observed that the assessee had previously been granted exemption under section 11 for similar activities, but the details of income from those years were not available on record.

Therefore, the Tribunal remanded the issue to the AO for fresh adjudication, directing the AO to segregate the income from sporting and non-sporting activities and determine the eligibility for exemption under section 11 accordingly. The AO was instructed to exclude income from trade, commerce, or business activities for the purpose of allowing exemption and to provide an opportunity for the assessee to present relevant details.

2. Set off of deficits of the current year and earlier years:

The assessee also sought the set off of deficits from earlier years against the income of the subsequent years. The Tribunal referred to the Supreme Court's decision in CIT v/s Subros Educational Society, which allowed the set off of excess expenditure incurred by a trust in earlier years against the income of subsequent years under section 11.

Given that the issue of exemption under section 11 was remanded for fresh adjudication, the Tribunal directed the AO to allow the carry forward and set off of deficits after determining the income eligible for exemption under section 11.

Conclusion:

Both appeals were allowed for statistical purposes, with the Tribunal remanding the issues to the AO for fresh consideration, ensuring that the assessee is given an opportunity to present necessary details and evidence. The AO was instructed to adjudicate the matters in light of the Tribunal's directions and relevant judicial precedents.

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