Section 2(15) of the Income Tax Act, 1961( for short ‘the Act’) gives the inclusive definition of “charitable purpose”.
In this case assessee took the following grounds:-
1. That the CIT(A) was not justified in upholding the action of the Assessing Officer(AO) of denying the exemption of Rs. 1,06,14,830/- under section 11 of the Act on the grounds that the assessee is hit by section 13(8) of the Act.
2. That CIT(A) failed to consider the submissions made by the assessee and has wrongly given a finding that holding of the Davis Cup Tie was not the object of the assessee.
3. That the CIT(A) has shown gross indiscipline by not following the various judgments of High courts and also of Jurisdictional ITAT while upholding the disallowance of exemption under section 11 of the Act claimed by the assessee.
Facts & Decision in brief:
The assessee, Chandigarh Lawn Tennis Association (hereinafter referred to as ‘CLTA’) being a society registered under the Societies Registration Act was also registered as a charitable entity vide order dated 27.09.2006 of the CIT(E) under section 12AA of the Act. The main object of the assessee was for the promotion of game of lawn tennis by controlling the conduct of championships and other open and restricted competitions within its jurisdiction and holding coaching classes/schemes for players.
During relevant year under consideration, the assessee hosted an international event ‘Cloud India v/s New Zealand Davis Cup Tie’ for which separate income and expenditure account had been maintained. This event was hosted by providing various services and facilities like infrastructure, boarding and lodging, logistics, advertisement etc. These facilities were provided by receiving money for advertisement for souvenir, corporate box income, sale of tickets, sponsorship etc. and thus a surplus of Rs. 1,08,36,902/- was generated.
AO observed that the assessee society was registered under section 12AA of the Act on 27.09.2006 and the objects were charitable but after the amendment in section 2(15) of the Act, the definition of charitable purpose had undergone change and that the proviso to the said section laid down that advancement of any other object of general public utility would not be a charitable purpose if it involved 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.
AO further observed that holding of ‘Davis Cup Tie’ was not in accordance with the object of the society as it was an international event which had been exploited by the assessee for commercial purpose by allowing of private sponsors, selling tickets through private concerns, allowing of advertisement from various business entities. The assessee had surplus of Rs. 1,06,14,830/- as per consolidated income and expenditure statement. The AO held that the assessee was not eligible for exemption under section 2(15) read with section 13(8) of the Act and therefore the entire surpluses was brought to tax.
The Counsel for the assessee submitted that for the promotion of game of tennis, catching young talent, not only out of urban population, but also from rural population, imparting training in tennis to them and even financial help including the schooling of the economically weak players is also done. So far as the holding of Davis Cup and exploitation of the match rights was concerned, it was explained that the assessee society need funds for carrying out its activities and once and while it got right to organize match, which otherwise is part of main object of the society in the course of carrying out its objects, it got incidental income which is otherwise ploughed back for self- substance and for carrying the aims and objects of the assessee society, hence, it cannot be said that the assessee society’s pre-dominant object is changed or that it has been indulged in commercial activity.
The learned Members of the ITAT, Chandigarh observed that except the commercial exploitation of rights during the holding of Davis Cup match, there is no dispute that the pre-dominant object of the assessee society is promotion of game of tennis including the selection of players, training of players, and conduct of matches both domestic and international.
The other income of the assessee such as from nominal registration fees or nominal coaching fees which is charged so as to attract only the genuinely interested trainees / players can be said to be its business income as it sans the profit motive. The Counsel has explained in detail that the holding of matches for commercial purpose is not a regular feature or regular activity of the assessee. Even the Davis Cup was also organized as part of the objects of the assessee and even the incidental income has been ploughed back and applied for carrying the aims and objects of the assessee society.
The learned Members held that though the assessee Chandigarh Lawn Tennis Association is carrying out the activities towards the advancement of objects of general public utility, which is its dominant activity, however, it has also involved in carrying out the incidental activity in the nature of trade, commerce or business in the course of actual carrying out of advancement of object of general public utility by way of commercially exploiting the rights of hosting the “Davis Cup Match”.
However, as per the amended provisions of section 2(15),10(23C), 11(4), 11(4A), 13(8) and 143(3) of the Act and in view of our discussion and interpretation of the relevant provisions as given above, the income of the assessee from the incidental and commercial activity i.e. income from organizing of Davis Cup up to the limit prescribed as per the second proviso to section 2(15) of the Act, which for the assessment year under consideration is Rs. 25 lacs, will be treated as income from ‘charitable purposes’ and the assessee will be entitled to claim the exemption under section 11 of the Act up to that extent in respect of the said income along with other income, if any, from the non-business activity of the assessee.
However, the income over and above amount for Rs. 25 lacs from the business activity i.e. from the exploitation of its right to hold Davis Cup will be treated as ‘business income’ of the assessee and will be liable to include in its total income. The AO was directed to bifurcate the income from commercial activity and non-commercial activity and assess the income of the assessee as directed above. The appeal of the assessee was partly allowed.