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Before: SHRI INTURI RAMA RAO & SMT. BEENA PILLAI
ORDER
PER BEENA PILLAI, JUDICIAL MEMBER:
1. This is an appeal filed by the Revenue arising from the order of the of ld. CIT(A)’s- XXI, New Delhi dated 16.09.2013 for A.Y. 2009- 10 on the following grounds:
1. “On the facts and in the circumstances of the case and in law, the ld. CIT(A) has erred in deleting the addition of Rs. 44,69,445/- on account of income assessed by the AO while invoking the proviso to section 2(15) of the Income Tax Act, 1961.
2. On the facts and in the circumstances of the case and in law, the ld. CIT(A) has erred in deleting the addition of Rs.
15,29,325/- made by the AO on account of disallowance of depreciation. 3. On the facts and in the circumstances 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.”
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 contended by the AO 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 secondly by way of claiming depreciation as amortization of written down value.
Aggrieved by the order of the AO the Respondent Assessee preferred appeal before the ld. CIT(A).
4. The ld. CIT(A) deleted the entire additions made by the ld. AO in view of his findings as under: “The assessee is involved in the promotion of football games and sports and as such it is a charitable work and the assessee is eligible for exemption u/s 11. The case of the sports and its promotion comes under the definition of charitable purposes as provided in the sixth limb of section 2(15) which specifies as advancement of any other object of general public utility as part of the charitable purposes. The mere fact that the assessee receives sponsorship fees and the telecasting rights fees does not mean that the assessee is involved in any business activity. The case laws of the assessee relied on by the assessee is also applicable. It is seen that in the case of Hamsadhwani vs. DIT(E) (2012) 19 Taxmann.com 10 ITAT Chennai, the assessee was promoting music in Tamil Nadu for which it was receiving sponsorship and coaching fees and the Hon’ble Tribunal did not accept the argument of DIT(E) that the assessee was involved in any business activity and the exemption was allowed. After considering all the facts and circumstances of the case, I am of the view that the assessee is a charitable institution and accordingly the aO is directed to allow exemption u/s 11 to the assessee. The AO has disallowed the depreciation on the ground that the assessee is claiming double deduction vide the order of the AO. The assessee is in appeal against the order of the AO and it is submitted that the assessee is eligible for depreciation as the same is claimed and is allowable. After considering all the facts and circumstances of the case, I am of the view that the assessee is eligible for depreciation and accordingly the AO is directed to allow the same and as such the appeal of the assessee is allowed.”
Aggrieved by the order passed by the ld. CIT(A) the Revenue is in appeal before us.
The ld. DR contends that the AO has correctly disallowed income from sponsorship and telecasting are in the 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(15). For the above proposition, the ld. AR relies upon the following judgments:
Director of Supplies and Disposes vs. Member Board of Revenue reported in AIR (1967) (SC) (1826); 2. State of Andhra Pradesh vs. H. Abdul Baki Brothers reported in AIR (1965) SC 531; 3. Delhi & District Cricket Association vs. DIT(E) reported in
Hamsadhwani vs. DIT(E) reported in [2012] 19 taxmann.com 10 (Chennai Trib.); 5. Tamilnadu Cricket Association vs. DIT(E) reported in [2013] 40 taxmann.com 250.
The ld. AR submitted that the income from sponsorship and grant of commercial rights/telecasting rights received by the appellant are in order to ensure the enforcement of its object, of promotion of game of football for which appellant society was formed and no profit motive was involved.
We have perused the records, the paper book filed and the decisions relied upon by the parties. We heard the rival submissions and perused the material on record. In this case, the question that comes up for adjudication is whether the Respondent Assessee is engaged in the activities, which are in the nature of educational or advancement of any other objects of general public utility. Therefore, it is necessary to consider the objects of the Appellant society. The main objective of the federation is to promote football game, to organize tournaments, to organize training for players, trainees and coaches etc. 10.1 The Respondent Assessee is a Registered Society under the Societies Registration Act, 1860. It is the Apex Administrative body governing the sport of football in India and has been recognized as National Sports Federation for the discipline of football by the Ministry of Youth Affairs and Sports Government of India. All India football federation has been notified sports body u/s 10(23) and, therefore, its income was exempt till the said section was repealed. Subsequently Respondent Assessee got itself registered u/s 12AA of the Act w.e.f. 01/04/2001. 10.2 The fact that the Respondent Assessee has carried out his activities for promotion of the aforesaid charitable objectives has not been disputed by the ld. AO at any stage. As per clause (5) of Article 63 of the Constitution of the Respondent Assessee it is provided that; “The federation form shall be irrecoverable and the benefits of the 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/sub- committee/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 23,24,46,625 Sponsorship & Grant of Commercial Rights Grant of Telecasting and 21,60,00,000 master rights Sponsorship 1,64,46,625 2. Grants and Aids 66,30,424 Received 3. Fees and Levies 20,29,100 4. Other Income 73,09,944 Total 24,84,16,093 11. A bare perusal of the aforesaid detail would reveal that if the Respondent Assessee had not received income form sponsorship/grant of rights, then the Respondent Assessee would not have possessed a fraction of funds which it requires for advancement of its objectives. The other grants received by the appellant are from Government or FIFA. These other grants in aid are not even 3% of the income from sponsorship/grant of rights. Further in the relevant period if AIFF had not received any income by way of sponsorship or grant of rights it would have sustained a huge deficit and would have been compelled to drastically reduced its sports promotion activity.
Thus, it is noticed that the receipt of fees from the sponsorship rights and telecasting rights do not amount to carrying out of any activity in the nature of trade, commerce or business but is incidental to carrying on of the main objective of the Respondent Assessee.
Moreover, it is further observed that no part of its surplus could be distributed to the board of its members in the form of dividend or profit. Therefore, the Respondent Assessee has to be necessarily considered a genuine charitable organization eligible to claim exemption u/s 11 & 12 of the Act and the provisions of the first proviso to section 2(15) do not apply to the case of the appellant.
Section 2(15) of the Act defines "charitable purpose" as under:— (15) "charitable purpose" includes relief of the poor, education, medical relief, preservation of environment (including watersheds, forests and wildlife) and preservation of monuments or places or objects of artistic or historic interest, and the advancement of any other object of general public utility:
Proviso inserted thereto by the Finance Act, 2008, with effect from 01.04.2009, reads as under:
Provided that the advancement of any other object of general public utility shall not be a charitable purpose, if it involves the carrying on of 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 of use or application, or retention, 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 the 'any other object of public utility'. Under the principle of mutuality, if trading takes place between the persons who are associated together and contribute to a common fund for the financing of some venture or object, and in this respect have no dealings or relations with any outside body, then the surplus returned to such persons is not chargeable to tax. Therefore, where industry or trade association claims both to be charitable institutions as well as mutual members, these would not fall under the purview of Section 2(15) owing to the principle of mutuality. However, if such organizations have dealings with the non-members, their claim for charitable institution would now be governed by the additional conditions stipulated in proviso to Section 2(15). 3.2 In the final analysis, whether the assessee has for its object, the advancement of any other object of general public utility, is a question of fact. If such assessee is engaged in any activity in the nature of trade, commerce or business or renders any service in connection to trade, commerce or business, it would not be entitled to claim that its object is for charitable purposes. In such a case, the object of 'general public utility' will only be a mask or a device to hide the true purpose which is trade, commerce, or business or rendering of any service in relation to trade, commerce or business. Each case would therefore, have to be decided on its own facts, and generalizations are not possible. An assessee who claims that their object is 'charitable purpose' within the meaning of section 2(15) would be well advised to eschew any activity which is in the nature of trade, commerce or business or rendering of any service in relation to any trade commerce or business." (Emphasis supplied). 15.1 In this regard, the reliance has been placed on the judgment by Chandigarh Bench in the case of Himachal Pradesh Environment Protection and Pollution Control Board vs. CIT reported in (2010) 42 SOT 343. The observation of the Tribunal in this judgment is that; “where an object of general public utility is not merely a mask to hide true purpose or rendering of any service in relation thereto and where such services are being rendered as purely incidental to as sub-serviente to make objective of general public utility, carrying on bonafide activities in furtherance 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 charitable in order that the trust or institution might be upheld as a valid charity as held by Mohammed Ibrahim Riza v. CIT [1930] LR 57 IA 260 and East India Industries ( Madras)Pvt. Ltd. v. CIT [1967] 65 ITR 611(SC). But if the primary or dominant purpose of a trust or institution is charitable, another object which by itself may not be charitable but which is merely ancillary or incidental to the primary or dominant purpose would not prevent the trust or institution from being a valid charity— CIT v. Andhra Chamber of Commerce [1965] 55 ITR 722 . The test which has, therefore, to be applied is whether the object which is said to be non-charitable is a main or primary object of the trust or institution or it is ancillary or incidental to the dominant or primary object which is charitable. It was on an application of this test that in CIT v. Andhra Chamber of Commerce (supra), the Andhra Chamber of Commerce was held to be a valid charity entitled to exemption from tax. The Court held that the dominant or primary object of the Andhra Chamber of Commerce was to promote and protect trade, commerce and industry and to aid, stimulate and promote the development of trade, commerce and industry and to watch over and protect the general commercial interests of India or any part thereof and this was clearly an object of general public utility and though one of the objects included the taking of steps to urge or oppose legislation affecting trade, commerce or manufacture, which, standing by itself, may be liable to be condemned as non-charitable, it was merely incidental to the dominant or primary object and did not prevent the Andhra Chamber of Commerce from being a valid charity. The Court pointed out that if "the primary purpose be advancement of objects of general public utility, it would remain charitable even if an incidental entry into the political domain for achieving that purpose, e.g., promotion of or opposition to legislation concerning that purpose, was contemplated". The Court also held that the Andhra Chamber of Commerce did not cease to be charitable merely because the members of the Chamber were incidentally benefited in carrying out its main charitable purpose. The Court relied very strongly on the decisions in Commissioner of Inland Revenue v. Yorkeshire Agricultural Society [1920] 13 Tax Case 58 and Institution of Civil Engineers v. Commissioner 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.”
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. Therefore, these objects can be said to be for advancement of any other objects of general public utility, which is a fourth limb in the definition of ‘charitable purpose’ in Section 2(15) of the Act.
17.1 The principle enunciated by Hon’ble Apex Court in the case of Andhra Chamber of Commerce reported (supra) holds good, when an object seeks to promote or protect the interests of a particular trade or industry, that object becomes an object of public utility, but not so, if it seeks to promote the interests of those who conduct the said trade or industry. The distinction between the protection of the interests of individuals and the protection of interests of an activity which is of general public utility goes to the root of the whole problem as laid down in Andhra Chamber of Commerce(supra) and by Hon’ble Gujarat High Court in the case of Addl. CIT v. Ahmadabad Mill owners’ Association, reported in (1977) 106 ITR 725, 738 (Guj)]. Applying the ratio laid down in the above cases to the facts of the present case, we have no demur to hold that the objects of the Respondent Assessee are aimed at improving Football being the national game and aiming at building of world class teams having international standards. The question of private gain or profit motive cannot be attributed to the Respondent Assessee being a federation which promotes Football in association with FIFA. Therefore, undoubtedly, the objects of the trust fall within the ambit and scope of the expression “general public utility services”, which is a fourth limb of definition of word “charitable” as defined under Section 2(15) of the Act.
A reference can be made to the following extract from the Speech of the Minister of Finance on 29.02.2008:— . "180. 'Charitable purpose' includes relief of the poor, education, medical relief and any other object of general public utility. These activities are tax exempt, as they should be. However, some entities carrying on regular trade, commerce or business or providing services in relation to any trade commerce or business and earning income have sought to claim that their purpose would also fall under 'charitable purpose'. Obviously, this way not the intention of Parliament and, hence, I propose to amend the law to exclude the aforesaid cases. Genuine charitable organizations will not in any way be affected."
Further reference 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 provide exemption to any income of an APMC or SAMB constituted under any law for the time being in force for the purpose of regulating the marketing of agricultural produce. I once again assure the House that genuine charitable organizations will not in any way be affected. The CBDT will, following the usual practice, issue an explanatory circular containing guidelines for determining whether an entity is carrying on 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. Whether the purpose is a charitable purpose will depend on the totality of the facts of the case. Ordinarily, Chambers of Commerce and similar organizations rendering services to their members would not be affected by the amendment and their activities would continue to be regarded as "advancement of any other object of general public utility." (Emphasis supplied) 20. A recent decision deals specifically with the newly amended section 2(15) of the Act, in the case of Institute of Chartered Accountants of India v. Director General of Income-tax (Exemptions) [2012] 347 ITR 99/202 Taxman 1/13 taxmann.com 175 Delhi HC, laying down the very same principle held as under:
"that the fundamental or dominant function of the Institute was to exercise overall control and regulate the activities of the members/enrolled chartered accountants. A very narrow view had been taken that the Institute was holding coaching classes and that this amounted to business.´ 21. Hon’ble Delhi High Court in the case of Bureau of Indian Standards vs. Director General of Income-tax (Exemptions) (2013) 358 ITR 78 held as follows vide para 16 of the judgment :
“16. What survives to be determined is whether any of BIS's activities fall within the latter and larger category of "involved in the carrying on of any activity of rendering any service in relation to any trade, commerce or business". The expressions "any activity," "rendering any service" and "in relation to any trade, commerce or business" imply that the intention of the legislature was to make the latter part of the exception broad and inclusive. It seems that the exception (the first proviso) is intended to catch with its ambit any and all commercial activity, except what falls within the second proviso (which bars application of the 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 is not a business but clearly charity for which they are established and they undertake.
Hon’ble Delhi High Court in the case of India Trade Promotion Organization vs. Director General of Income-tax (Exemptions) & Ors. [2015] 371 ITR 333, held vide para 58 as follows:-
“58. In conclusion, we may say that the expression "charitable purpose", as defined in Section 2(15) cannot be construed literally and in absolute terms. It has to take colour and be considered in the context of Section 10(23C)(iv) of the said Act. It is also clear that if the literal interpretation is given to the proviso to Section 2(15) of the said Act, then the proviso would be at risk of running fowl of the principle of equality enshrined in Article 14 of the Constitution of India. In order to save the Constitutional validity of the proviso, the same would have to be read down and interpreted in the context of Section 10(23C)(iv) because, in our view, the context requires such an interpretation. The correct interpretation of the proviso to Section 2(15) of the said Act would be that it carves out an exception from the charitable purpose of advancement of any other object of general public utility and that exception is limited to activities 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. In both the activities, in the nature of trade, commerce or business or the activity of rendering any service in relation to any trade, commerce or business, the dominant and the prime objective has to be seen. If the dominant and prime objective of the institution, which claims to have been established for charitable purposes, is profit making, whether its activities are directly in the nature of trade, commerce or business or indirectly in the rendering of any service in relation to any trade, commerce or business, then it would not be entitled to claim its object to be a 'charitable purpose'. On the flip side, where an institution is not driven primarily by a desire or motive to earn profits, but to do charity through the advancement of an object of general public utility, it cannot but be regarded as an institution established for charitable purposes.”
Further it cannot be construed that the appellant is actively involved in raising the sponsorship 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 of general public utility to which the exception carved out in the first proviso to Section 2(15) of the said Act would not apply….”
The ratio laid down by Delhi Tribunal in the case of Delhi and District Cricket Association Vs. DIT(E), reported in 38 ITR(Trib.) 326(ITAT Del) is under; “Thus respectfully following the decision of the hon'ble Madras High Court in the case of Tamil Nadu Cricket Association [2014] 360 ITR 633 (Mad), we have to hold that the amounts received by the assessee from (a) ground booking charges, (b) health club charges, (c) income from corporate boxes, (d) lawn booking income, (e) sponsorship money and sale of tickets, advertisement, souvenirs and other such receipts do not result in the assessee being held as undertaking activities in the nature of "trade, commerce or business". These receipts are intrinsically related, interconnected and interwoven with the charitable activity and cannot be viewed separately. The activities resulting in the said receipts are also charitable activities and not "trade, commerce or business" activities.” Chennai Bench of ITAT in the case of Hamsadhwani Vs. DIT(Exm.) reported in (2012) 19 taxmann.com 10 held as under; No doubt, it has been specifically provided in the first proviso that advancement of any other object of general public utility shall not be a charitable purpose if it involves any activity in the nature of trade, commerce or business, or rendering any service in connection with trade, for a cess or fee or any other consideration. The third proviso excludes from the restraints imposed by first proviso, where such receipts were less than Rs. 10 lakhs. The question here is whether sponsorship fee, which forms substantial part of the amounts listed above, can be considered as receipt from activity in the nature of trade, commerce and business. In our opinion, advancement of traditional musical culture of Tamil Nadu and conducting music programmes for that purpose, where such music and dance programmes were sponsored by various persons and sponsorship fee so received, distributed among the artists, can never be considered as an activity in the nature of trade, commerce or business. When a person sponsors a music programme and sponsorship fee is paid to artist concerned, we cannot say that sponsorship fee is a receipt in the hands of the assessee which is in the 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.
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 the above decision and observed as under:— (a) the activities undertaken by the institution amounted to “advancement of an object of general public utility” in the definition of charitable purpose in section 2(15) of the Act. Charging of amounts from the Government bodies for undertaking these research projects would not make the activity “commercial”. The projects were undertaken at the instance of the Government of India or the State Governments for improving the accounting and budgetary systems in these local bodies. The expertise of the Foundation in carrying out research in this field was sought to be utilized. Therefore, it could not constitute business/commercial activity. Merely because some remuneration was taken by the Foundation for undertaking these projects that would not alter the character of these projects, which remained research and consultancy work. Most of the amount received qua these projects was spent on the project and the surplus, if any, is used for advancement of the objectives for which the Foundation was established. (b) The projects undertaken on behalf of these local bodies were not a regular activity of the Foundation. The primary activity remained research in accounting related fields. Even these projects which were taken up on behalf of those local bodies fit in the description of “research projects” which could be termed ancillary activity only. (c) The amended definition of “charitable purpose” would not alter this position. Merely on understanding those three research projects at the instance of the Government/local bodies the essential character of the Foundation could not be converted into the one which carries on trade, commerce or business or activity of rendering any service in relation to trade, commerce or business.” 24.1 Chandigarh Bench of the Tribunal in the case of Himachal Pradesh Environment Protection & Pollution Control Board v. CIT [2010] 42 SOT 343, wherein the Tribunal held that proviso to s. 2(15) does not imply that in each and every case where an assessee receives payment for any activity, not being activity for trade, commerce or business, the same would be hit by the said proviso. According to the Tribunal, in accordance with CBDT Circular No.11 dated 19.12.2008 (221 CTR (St.)1), the proviso applies only where the object of general public activity is a mask or device to 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 purpose or rendering of any service in relation thereto, and where such ' services are being rendered as purely incidental to or as subservient to the main objective of 'general public utility', the carrying on of bona fide activities in furtherance of such objectives of 'general public utility' will also be hit by the proviso to Section 2(15).
As CBDT rightly puts it, sweeping 'generalizations are not possible' and 'each case will have to be decided on its facts'. The question then arises whether on the present set of facts it can be said that the assessee was engaged in trade, commerce or business or in rendering of a service to trade, commerce or business. As far as assessee being engaged in trade, commerce or business is concerned, it is not even learned Commissioner's case that running a organization, set up under the statute law, for controlling, preventing and abating pollution, is pursuing trade, commerce or business. Obviously, a trade, commerce or business implies an activity with profit motive even though public good may be a secondary benefit from such an activity. That is not the case before us. The legal framework under which the assessee is set up is quite clear and unambiguous and it reflects will of the lawmakers in no uncertain terms, which is to prevent pollution.
The next question is whether the learned Commissioner is justified in taking a stand that the assessee "earning income over the years in the nature of licence fees, consent fees, testing charges etc" and "since the basic objective of the protection of environment pursued by the Board involves the carrying on of such activities and the earning of such income", the assessee is hit by second limb of proviso to Section 2(15) i.e. "rendering of service to trade, commerce or business". It is important to bear in mind the fact the expressions 'rendering of any service to business, trade or commerce' are used in conjunction with the words 'business, trade or commerce' and, therefore, following the principles of nosciter o soccis, we must interpret these two expressions in their cognate sense and as if they take colour from each other. Broom's Legal Maxims (10th Edition) observes that " it is a rule laid down by Lord Bacon that copulation verborum indicat accepetationem in eodem sensu i.e. the coupling of words 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 charitable purpose. It will not however affect the case of institution which are genuinely carrying on charitable activities. The words used by the legislature in the proviso “In the nature of trade, commerce or business". If we give due importance to the above mentioned words, the only conclusion will be that the proviso will effect only such cases where the activities of a charitable institution can be considered to be in the nature of trade, commerce or business. In fact, the same controversy, which has been there in the past, whether a charitable institution is carrying on the activities only of charitable nature or is carrying on activities which are in the nature of business, is emerging from this proviso also. In other words, the proviso will not give rise to any new controversy which had not been in the past. The further words used in the proviso, that for a cess or fee or any other consideration, have to be read along with the nature of activities, i.e., trade, commerce or business. When an institution is carrying on activities in the nature of trade, , commerce or business obviously it will be charging fee, etc. It may be charging fee even when rendering/providing services as part of charitable activity in order to supplement its income for carrying on charitable activities. In that case the proviso will not have any implication as the activities would not be in the nature of trade, commerce or business. Accordingly, the proviso inserted in the definition of 'charitable purpose' will not substantially have any impact on the meaning of charitable purpose.”
In view of the above discussion and judicial pronouncements, what needs to be emphasized is whether the receipt of amounts by way of sponsorship from various parties would make the activity ‘commercial’ as held by the Assessing Officer. The mere fact that the appellant society had generated sponsorship funds, during the course of carrying on the ancillary objects, shall not alter the character of the main objects so long as the predominant object continues to be charitable and not to earn the profit.
25.1 Therefore, we hold that the Respondent Assessee is entitled to exemption of income under the provision of Section 11 of the Act. Further the proviso to Section 2(15) of the Act cannot be applied to the appellant society as it is not engaged in any activity which is in the nature of trade, commerce and business. Accordingly, we direct the Assessing Officer to allow the exemption under the provisions of Sec. 11 of the Act.
We therefore dismiss this ground of Revenue.
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.
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 in the case of DIT(E) vs. M/s Indraprastha Cancer Society in 463/2014, 464/2014 dated 18/11/2014. c) We have perused the records, order passed by the authorities below and the judgments relied upon by the parties. The income of the Respondent Assessee is already exempt and the Respondent Assessee is only claiming that depreciation should be reduced from the income for the percentage of funds which have to be applied for the purpose of trust. The judgments relied upon by the appellant and Punjab & Haryana High Court and Jurisdictional High Court covers the issue at length. The Hon’ble High Court in the case of DIT(E) vs. M/s Indian Trade Promotion Organisation reported in (2015) 53 taxman.com 404 (Del, held that: ‘Application of income may include purchase of a capital asset. The said purchase is valid and taken into consideration for the purpose for ensuring compliance, i.e. application of money or funds and is not a factor which determines and decides the quantum of income derived from property held under trust. Computation of income is separate and distinct and has to be made on commercial basis by applying the provisions of the Act’.
Similar issue came up for consideration before the Hon’ble Delhi High Court in DIT(E) vs. Indraprastha Cancer Society (2015) 53 taxman.com 463 (Del) held that; “A charitable institution, which has purchased capital asset and treated the amount spent as application of income, is further entitled to claim depreciation on the same capital asset utilized for business.” 29.1 In its later judgment of Indraprastha Cancer Society(supra) the Hon’ble Delhi High Court considered the judgment in the case of Charanjiv Charitable Trust reported in (2014) 43 taxmann.com 330(Del) and Indian Trade Promotion Organization(supra). On consideration of these two views, the Hon’ble High Court in the case of Indraprastha Cancer Society(supra), decided to allow depreciation on capital asset in the computation of income apart from treatment of purchase of capital asset as application of income.
We have perused the records and submissions by both the parties. It is observed that the Respondent Assessee is only claiming that depreciation should be reduced from the income for determining the percentage of funds which have to be applied for the purposes of trust. It is further observed that the Respondent Assessee has not claimed double deduction. 30.1 The judgment of Indraprastha Cancer (supra) has considered the judgments of Charanjiv Charitable Trust (supra) and Indian Trade Promotion (supra). On consideration of the two views that Hon’ble Jurisdictional High Court has decided to allow depreciation on capital asset in the computation of income apart from treatment of purchase of capital asset as application of income. 30.2 The ratio laid down by the Hon’ble Delhi High Court in Indraprastha Cancer (supra) has been followed by Delhi Tribunal in the case of Hon’ble International Goudiya Vedanta Trust vs. ADIT(E), vide order dated 25.08.2015. 30.3 Therefore, following the jurisdictional High court in the case of Indraprastha Cancer Society(supra), we uphold the order of the ld. CIT(A) and dismiss this ground of the Revenue. 31. The appeal filed by the Revenue is thereby dismissed. The order is pronounced in the open court on 23.09.2015 Sd/- Sd/- (INTURI RAMA RAO) (BEENA PILLAI) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated: 23.9.15 *Kavita, P.S.