ITO (E), NEW DELHI vs. M/S. INDIAN OLYMPIC ASSOCIATION, NEW DELHI

Grievances of the Revenue read as under:

The representatives of both the sides were heard at length. The case records carefully perused and with the assistance of the ld. Counsel, we have considered the documentary evidences brought on record in the form of Paper Book in light of Rule 18(6) of ITAT Rules. Judicial decisions relied upon were carefully perused.

Briefly stated, the facts of the case are that the assessee was registered under the Societies Act, 1860 on 12.06.1965. The assessee- society is also granted registration u/s 12A of the Income-tax Act, 1961 [hereinafter referred to as 'the Act'] vide order dated 20.08.2002 and also u/s 80G(vi) of the Act from 01.04.2008 to 31.3.2011. The assessee is an Apex sports body for selecting athletes to represent India at Olympic Games, Asian Games and other international athlete meets at these events. The activities of the assessee include organizing sports activities under the aegis of Ministry of Youth Affairs and Sports, Government of India and International Olympic Association. Utilisation certificates were regularly submitted by IOA in connection with such grants. While scrutinising the return of income for the year under consideration, the AO was of the firm belief that there has been significant amendment w.e.f. 1.4.2009 in the definition of ‘charitable purposes’ laid down in section 2(15) of the Act. The AO was also of the firm belief that promotion of sports per se did not find direct mention in the definition of ‘charitable purposes’ in section 2(15) of the Act.

The AO was of the opinion that the assessee has carried out the activities for the purposes of general public utility in the nature of trade, commerce or business. The basis for this belief is the receipt of

The AO further formed a belief that this transaction of the assessee is in the nature of rendering services in relation to business of Samsung in lieu of consideration from Samsung India Electronics Pvt. Ltd.

After considering the agreement with M/s Samsung India Electronics Pvt Ltd, the AO was convinced that proviso to section 2(15) of the Act squarely applies and hence does not fall within the category of ‘charitable organization’. Accordingly, benefit u/s 11/12 of the Act was denied to the assessee.

On further probe, the AO noticed that the assessee has claimed depreciation on the assets which have already been claimed as an application of income. The AO was of the belief that this amounts to double deduction and accordingly denied claim of depreciation.

Aggrieved, the assessee carried the matter before the first appellate authority and reiterated that the proviso to section 2(15) of the Act does not apply in the case of the assessee and the AO has wrongly denied claim of exemption u/s 11/12 of the Act.

After considering the facts and submissions and after drawing support from various judicial decisions, the CIT(A) was convinced that the assessee is a ‘charitable organization’ and proviso to section 2(15) of the Act do not apply. The CIT(A), accordingly, directed the AO to allow benefit u/s 11/12 of the Act.

On the denial of depreciation, the CIT(A) was once again convinced with the contention of the assessee and directed the AO to allow depreciation.

Aggrieved by this, the Revenue is before us.

The ld. DR strongly supported the findings of the AO and through his written submissions, the ld. DR explained the history of section 2(15) of the Act since its inception i.e., from the Act of 1922. It is the say of the ld. DR that in the earlier years, the dominant and prime object was relevant but post amendment, the dominant object is no

Per contra, the ld. AR supporting the findings of the CIT(A) reiterated what has been stated before the lower authorities.

We have given thoughtful consideration to the orders of the authorities below. The only reason for denying the claim of exemption is proviso to section 2(15) of the Act.

Section 2(15) as it stood in the statute after the repeal of the 1922 Act read as under:

Now let us consider the provisions of Sec. 2(15) as they stand now.

This proviso was added only in respect of the last limb of the provisions of Sec. 2(15) which relates to the advancement of any other object of general public utility shall not be a charitable purpose if it involves carrying on of an activity in the nature of trade, commerce or business for a cess or fee. The second limb is not relevant to the fact under consideration. A close perusal of the aforementioned proviso shows that the spirit of the section is same as per the section 2(15) as it stood prior to the amendment brought by Finance Act, 1983 as mentioned hereinabove.

All that has to be decided now is whether the sponsorship contract with Samsung India Electronics Pvt. Ltd constitutes carrying on of any activity in the nature of trade, commerce or business, which activities the trust is carrying on prior to the amendment brought by Finance Act, 1983.

Therefore, the advancement of any object of benefit to the public or a section of the public as distinguished from individual and group of individuals would be a charitable purpose. An object of public utility need not be an object in which the whole of the public is interested. It is sufficient if well defined section of the public benefits by the objects which means that the expression “object of general public utility” is not restricted to objects beneficial to the whole mankind. An object beneficial to a section of the public is an object of general public utility. In the case of CIT Vs Swastik Trading Co. Ltd. 113 ITR 852, the Hon’ble Gujarat High Court has held that establishing and maintaining Gaushalas and Panjrapole constitutes charitable purpose.

The Hon’ble Finance Minister while presenting the Finance Act 2008 in his budget speech stated as follows:

Thus, the intention of the Hon’ble Finance Minister was only to exclude from exemption, entities carrying on business and earning incomes for which exemption was claimed on the basis that the purpose would fall under charitable purpose.

The CBDT Circular No. 11/2008 dated 19.12.2008 has explained the implications arising from the amendment brought to the provisions of Sec 2(15) of the Act. The CBDT clarifies that the newly inserted proviso to Sec. 2(15) will not apply in respect of the first three limbs of Sec. 2(15) i.e. relief of the poor, education or medical relief. Consequently where the purpose of a trust or institution is relief of the poor, education or medical relief, it will constitute charitable purpose, even if it is incidentally involves the carrying on of commercial activity. The Board further clarified that “the newly inserted proviso to Sec. 2(15) will apply only to entities whose purpose is advancement of any other object of general public utility i.e. 4th limb of the definition of the charitable purpose contained in Sec. 2(15). The Circular further clarified “in the final analysis, whether the assessee has for its objects

Thus, even the CBDT does not lay down any guidelines for determining whether the entity is carrying on any commercial activity. Each case would therefore to be decided on its own facts and as the CBDT has clarified generalization is not possible.

Coming back to the objects of the impugned association, the fundamental or dominant function of the association is to represent the country in international forums. Associations of different disciplines in sports in India are members/affiliated to IOA. In furtherance of its activities, the association not only requires grants from the Government, but on many occasions sponsorships. This

In the case of Sole Trustee, Loka Shikshana Trust v. Commissioner of Income-tax 101 ITR 234, the Hon’ble Justice J. Baig speaking for the Apex Court thus said that:

The test for carrying on of any activity in the nature of trade, commerce or business as mentioned in the first proviso to Sec. 2(15) would be satisfied if profit making is not the real object. The Hon’ble Delhi High Court in the case of ICAI Vs Director General of Income Tax

Reliance by the ld. DR on various decisions to buttress his submissions are misplaced in as much as the dominant activity cannot be brushed aside lightly even after the amendment.

After considering the entire facts in totality in the light of discussion hereinabove and also drawing support from the speech of the Finance Minister and subsequent clarification issued by the CBDT within the framework of amended provisions of section 2(15) of the Act, in our considered opinion, there was no material which may

Next grievance relates to allowance of depreciation.

This issue is now well settled in favour of the assessee and against the Revenue by the judgment of the Hon'ble Supreme Court in the case of Rajasthan and Gujarat Charitable Foundation 402 ITR 441 wherein the Hon'ble Supreme Court has held that even though the expenditure incurred for acquisition of capital assets was treated as application of income for charitable purposes u/s 11A(1) of the Act, yet depreciation would be allowed on assets so purchased. Ground No. 2 is, accordingly, dismissed.

Grievance raised vide Ground No. 3 is related to and consequential to the grievance raised vide Ground No. 1.

Since vide Ground No. 1 we have directed the AO to allow benefit of exemption u/s 11/12 of the Act, the AO is directed accordingly.

In the result, the appeal of the Revenue in ITA No. 1130/DEL/2016 is dismissed.