TaxTMI 
TaxTMI 
2015 (10) TMI 2162
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....ances of the case and in law, the ld. CIT(A) has failed to appreciate the fact that the AO denied the claim of exemption to the assessee u/s 11 & 12 of the Income Tax Act, 1961. 4. The appellant craves leave to add, to alter or amend any ground of appeal raised above at the time of hearing." 2. Brief facts of the case are that the Respondent Assessee had filed its return on 09.03.2010, for the year under consideration at Nil income and claimed exemption u/s 11 & 12 of the Act. The Respondent Assessee is a federation of six football association which was established in 1937. The case for the assessment year under consideration was taken up for scrutiny and the AO denied exemption u/s 11 & 12 by invoking first proviso to section 2(15) of the Act. It was alleged by the ld. AO that the income from sponsorship and telecasting, are in the nature of business and the activities of the appellant do not qualify for charitable purpose by virtue of the amendment brought in by Finance Act, 2008 in the form of insertion to proviso to section 2(15) of the Act. The ld. AO also disallowed the claim of depreciation amounting as debited to the income and expenditure account. It was conten....
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....he nature of business and the activities of the Respondent Assessee do not qualify for charitable purposes. He further emphasized on the amendment brought in by Finance Act by insertion of proviso to section 2(15) w.e.f. 01/04/2009 in respect of the claim of depreciation. 7. On the contrary the ld. AR contends that the Respondent Assessee is carrying out its objective of promotion of football sports at national and international level. Its activities are in nature of advancement of general public utility and will qualify as charitable purposes "in terms of definition contained in section 2(15) of the Act". The ld. AR further contends that the proviso to section 2(15) of the Act as inserted by the Finance Act, 2015 w.e.f. 01.04.2009 provides for certain circumstances, where advancement of any general public utility shall not be treated as charitable purposes and the same do not get attracted to the facts and circumstances of appellant's case. 8. The ld. AR submits that the receipt of fees from sponsorship rights and grant of telecasting rights do not amount to any activity in the nature of trade, commerce or business as contemplated under first limb of the proviso to section 2....
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....he federation shall be opened to all irrespective of cast/creed/religion. The fund and the income of the federation shall be solely utilized for the achievements of its object and no portion of it shall be utilized for payment to executive committee/subcommittee/ general body Members by way of profits, interest and dividend." 10.3 From the above, it is very clear that the activities carried out by the Respondent Assessee certainly amounts to charitable purpose as it is being covered under the limb "the advancement of any other object of general public utility" to the definition of charitable purpose is contained in section 2(15) of the Act. The activities under taken by the trust are undisputedly for the well being of the section of public at large, it meets the requirements of both the expression i.e. "general public and the general public utility". 10.4 The receipts from sponsorship rights and telecasting rights does not constitute any activity. S. No. Particulars Amount Amount 1. Income from Sponsorship & Grant of Commercial Rights 23,24,46,625 Grant of Telecasting and master rights 21,60,00,000 Sponsorship 1,64,46,625 2....
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.... of the income from such activity; "(Emphasis supplied) 15. The intention of the legislature behind introduction of the aforesaid proviso in the definition of "charitable purpose" in section 2(15) of the Act can be gathered from CBDT Circular No. 11 dated 19th December, 2008 reported in 221 CTR (St) 1, wherein scope of the said amendment has been elaborated in the following words: "3. The newly amended section 2(15) will apply only to the entities whose purpose is 'advancement of any other object of general public utility' i.e. the fourth limb of definition of 'charitable purpose' contained in Section 2(15). Hence, such entities will not be eligible for exemption under Section 11 or under Section 10(23C) of the Act' if they carry on commercial activities. Whether such an entity is carrying on an activity in the nature of trade, commerce or business is a question of fact which will be decided based on the nature, scope, extent and frequency of activity. 3.1 There are industry and trade associations who claim exemption from tax under section 11 or on the ground that their objects are for charitable purposes as these are covered under ....
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....urtherance of such activities of general public utility would not be hit by proviso to section 2(15)." 16. The Hon'ble Apex Court held in the case of CIT vs. Andhra Chamber of Commerce 55 ITR 722 that only the predominant object for which the organization was created is alone to be considered for the purpose for determining whether the nature of activities fall within the scope and ambit of 'charity'. The ratio laid down in this case was followed again in the case of Five Judges decision of the Hon'ble Supreme Court in the case of Additional Commissioner of Income-tax, Gujarat v. Surat Art Silk Cloth Manufacturers Association 121 ITR 1, which held as under vide pages Nos.11 and 12: "..........The law is well settled that if there are several objects of a trust or institution, some of which are charitable and some non charitable and the trustees or the managers in their discretion are to apply the income or property to any of those objects, the trust or institution would not be liable to be regarded as charitable and no part of its income would be exempt from tax. In other words, where the main or primary objects are distributive, each and everyone of the objects must be....
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.... of Inland Revenue [1931] 16 Tax Case 158 for reaching the conclusion that merely because some benefits incidentally arose to the members of the society or institution in the course of carrying out its main charitable purpose, it would not by itself prevent the association or institution from being a charity. It would be a question of fact' in such case "whether there is no such personal benefit, intellectual or professional, to the members of the society or body of persons as to be incapable of being disregarded." 17. The ratio laid down in the above cases are that in the case of an entity organization whose objects are several, some of which are charitable and non-charitable; the test of predominant object for which the organization was set up is alone to be applied. Therefore, in the present case, the main objective of the federation is to promote football game, to organize tournaments, to organize training for players, trainees and coaches etc The primary object of promoting the sport of football being the national game, falls within the ambit of expression 'education' as defined above, since the said activity involve systematic instruction, training given to the young. ....
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....eference can be made to the reply of the Hon'ble Finance Minister to the Debate in the Lok Sabha on the Finance Bill, 2008:- "6. Clause 3 of the Finance Bill, 2008 seeks to amend the definition of 'charitable purpose' so as to exclude any activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business, for a cess or fee or any other consideration, irrespective of the nature or use of application, or retention, of the income from such activity. The intention is to limit the benefit to entities which are engaged in activities such as relief of the poor, education, medical relief and any other genuine charitable purpose, and to deny it to purely commercial and business entities which wear the mask of a charity. A number of Hon'ble Members have written to me expressing their concern on the possible impact of the proposal on Agricultural Produce Market Committees (APMC) or State Agricultural Marketing Boards (SAMB). Since there is no intention to tax such committees or boards, and in order to remove any doubts, I propose to insert a new clause (26AAB) in section 10 of the Income tax Act to pr....
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....exception in cases where the aggregate value of the receipts from the activities mentioned therein is less than ten lakh rupees in the relevant previous year). The Bureau, it would appear at the first blush, renders service in relation to trade, commerce or business by granting certification/quality marks in return of license fee. Apparently, Parliament intended to clarify that not all activities of State agencies (some of which might be set up to carry on trading and commercial activities) can be considered charitable." Hon'ble Delhi High Court in the case of GSI India vs. Director General of Income-tax (Exemption) & anr. [2014] 360 ITR 138 held vide para 36 of the judgment as under: ".......The object of the proviso is to draw a distinction between charitable institutions covered by the last limb which conduct business or otherwise business activities are undertaken by them to feed charity. The proviso applies when business was/is conducted and the quantum of receipts exceeds the specified sum. The proviso does not seek to disqualify charitable organization covered by the last limb, when a token fee is collected from the beneficiaries in the course of activity which i....
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....p fees and fees from the telecasting rights. The only activity of the respondent is development and promotion of football at the national level which does not constitute any commercial activity. In the case of Indian Trade Promotion Organization reported in (2015) 53 taxmann.com 404, Hon'ble Delhi Tribunal has held as under: "53. From the said decision, it is apparent that merely because a fee or some other consideration is collected or received by an institution, it would not lose its character of having been established for a charitable purpose. It is also important to note that we must examine as to what is the dominant activity of the institution in question. If the dominant activity of the institution was not business, trade or commerce, then any such incidental or ancillary activity would also not fall within the categories of trade, commerce or business. It is clear from the facts of the present case that the driving force is not the desire to earn profits but, the object of promoting trade and commerce not for itself, but for the nation - both within India and outside India. Clearly, this is a charitable purpose, which has as its motive the advancement of an object....
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....he nature of trade, commerce or business. Similarly, conducting music coaching for the purpose of advancement of various traditional music forms of State of Tamil Nadu, which is an integral part of cultural life of people of Tamil Nadu, cannot also be considered to be an activity in the nature of trade, commerce and business. This can at the best be considered as an educational pursuit. When there are colleges run for coaching music, we cannot say that training imparted in music is not education. In our opinion, the ld. DIT(E) took a very narrow view in this regard and came to a conclusion that the sponsorship fee and music coaching fee received by the assessee were from the activity in the nature of trade, commerce or business. Assessee, in our opinion, was not carrying on any activity in the nature of trade, commerce or business but was carrying on its avowed object of advancement of fine arts and traditional art forms, which cannot be considered as a commercial or business activity. 24. The Delhi High Court, in the case of Institute of Chartered Accountants of India v. DGIT (Exemptions) [2012] 347 ITR 99/[2011] 202 Taxman 1/13taxmann.com 175 concurred with the view taken in t....
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....hide the true purpose of trade, business or commerce, or rendering of any service in relation thereto, in other words, the Tribunal held that the proviso does not apply to cases where the services rendered are purely incidental to or subservient to the main objective of 'general public utility'. 24.2 The relevant observations of the Tribunal read as under: "14. As the above CBDT circular, which is binding on the Commissioner under section 119(1)(a) of the Act, aptly puts it, whether the assessee has, as its object, advancement of any other object of general public utility is essentially a question of law to be decided on the facts of the assessee's own case and where object of general public activity is only a mask or device to hide the true purpose of trade, business or commerce, or rendering of any service in relation thereto, the assessee cannot be said to be engaged in charitable activity within meanings of section 2(15) of the Act. As a corollary to this approach adopted by tax administration, in our considered view, it cannot be open to learned Commissioner to contend that where an object of general public utility is not merely a mask to hide true purp....
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....rds that they are to be understood in the same sense." A profit motive is surely the essence of trade, commerce or business, and, therefore, in a situation in which services are rendered without a profit motive, such rendering of service will not have anything is common with trade, business or commerce. The application of the principle of noscitor o sociis, therefore, will require that in order to invoke second limb of Explanation to Section 2(15), 'rendering of service to trade, commerce or business' must be such that it has a profit motive." (Emphasis supplied) Hyderabad Tribunal in the case of IDRBT Vs. Asst.DIT(E), reported in 42 ITR (Trib.) 219 has taken an similar view and held as under; The rational that can be culled out from the above decisions is that once the primary objects of an institution are established to be in the nature of charity, then the proviso to section 2(15) of the Act cannot be made applicable. In other words, the existence of the proviso in substance will not make any difference. The proviso will hit only such cases where the entity or organization is carrying on business activity with a profit motive in the garb of charitabl....
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...., commerce and business. Accordingly, we direct the Assessing Officer to allow the exemption under the provisions of Sec. 11 of the Act. 26. We therefore dismiss this ground of Revenue. 27. Ground no. 2 is relating to the disallowance of depreciation. The ld. DR contended that the Respondent Assessee has claimed double deduction of depreciation in the form of application of income at the time of purchase of fixed assets and by way of claiming depreciation as amortization of WDV. The ld. DR supported the findings of the ld. AO in the assessment order. The ld. AR submitted that the Respondent Assessee is not making any double claim of depreciation. The income of appellant is already exempt and the appellant is only claiming that the depreciation should be reduced from the income for the percentage of funds which have to be applied for the purposes of the trust. Therefore, there is no double deduction claimed by the Respondent Assessee as canvassed by the ld. AO. 28. For the above proposition, the ld. AR relies on the decision of; a) Punjab & Haryana High Court in the case of CIT vs. Tiny Tots Education Society in ITA No. 93/2010. b) Hon'ble Delhi High Court....