Introduction: In a pivotal ruling, the Income Tax Appellate Tribunal (ITAT) in Delhi has favored the Haryana Rifle Association in a case against the Commissioner of Income Tax (CIT). The case revolved around whether the association’s activities, particularly its charging of fees for conducting matches or tournaments and its sale of ammunition, were of a commercial nature. This verdict has important implications for similar sports associations seeking tax exemptions under the Income Tax Act.
Analysis: The CIT(E) in Chandigarh had rejected the Haryana Rifle Association’s applications under sections 12AA and 80G of the Income Tax Act, citing the organization’s revenue from match fees and ammunition sales. They argued that these activities bore a commercial aspect, which would make the association ineligible for the benefits sought.
However, the association contended that these sales were not profit-driven but rather necessary for conducting its tournaments. They underscored that the ammunition was provided to participants at subsidized rates, leading to a substantial loss that was offset by promotion money from the Haryana Government. Furthermore, the association argued that the match fees collected were used to further the organization’s core purpose: promoting and organizing rifle shooting events.
Upon examining the association’s income and expenditure statements, the ITAT Delhi sided with the association. The tribunal ruled that the Haryana Rifle Association was not profit-oriented and thus eligible for registration under sections 12AA and 80G.
Conclusion: This ruling affirms that sports associations, such as the Haryana Rifle Association, carrying out their core mission – in this case, promoting and conducting rifle shooting events – are not engaging in commercial activity, even when they charge fees or sell necessary equipment at subsidized rates. The judgment emphasizes the key factor of the organization’s motives: promoting sports rather than turning a profit. This precedent will likely benefit similar organizations in their quests for recognition under the Income Tax Act’s sections 12AA and 80G.
FULL TEXT OF THE ORDER OF ITAT DELHI
ITA No.22/Del/2021 and 23/Del/2021 are two separate appeals by the assessee preferred against two separate orders of CIT(E), Chandigarh dated 16.09.2020 and 17.09.2020 by which the CIT(E) rejected the application of the assessee u/s. 12AA and 80G respectively.
2. Both the appeals are decided by this common order for the sake of convenience and brevity.
3. Briefly stated the facts of the case are that the main objects of the society are to organize, promote, encourage, popularize games and sports specially rifle shooting in the state of Haryana to organize and conduct athletics meet/cross country/ marathon/ mini marathon race at least once a year of district/ state/ national / International level to organize and conduct sorts and games tournaments/ championships/ exhibition matches of district/ state/ national/ international level.
4. While examining the application of the assessee in form No.10A and on perusal of the evidences filed by the assessee, the CIT(E) observed that during the financial year 2016-17 the society has shown match fee received amounting to Rs.1210700/- and sale of ammunition amounting to Rs. 215400/-. Further during F.Y.2017-18 the sale of ammunition receipts are shown at Rs. 855554/- and during F.Y. 2018-19 receipts amounting to Rs.3376600/- are shown under Haryana State Champion ship fees.
5. The CIT(E) was of the opinion that sale of ammunition and charging of fees for conducting matches or tournaments is in the nature of commerce and there is no charitable aspect attached to it. The CIT(E) was of the firm belief that the activity of the applicant trust cannot be said to be charitable as there is commercial motive behind it. The CIT(E) went on to reject both the applications of the assessee.
6. Before us the Counsel for the assessee drew our attention to the financial statements of the association and pointed out that the observations of the CIT(E) are contrary to the facts in as much as the association is fully dependent upon the State of Haryana who provides ‘supports promotion money’. It is the say of the Counsel that whenever the association organize rifle shooting tournaments the participants are supplied with the ammunition by the association as the said bullets are not available in the open market. The Counsel concluded by saying that it is incorrect to say that the association is running with a commercial motive.
7. The DR strongly relied upon the order of the CIT(E).
8. We have given a thoughtful consideration to the orders of the authorities below. It would be better to examine the income and expenditure account for the year ending 31.03.2017 and the same is as under :-
9. It can be seen from the above statement that the association has purchased ammunition at Rs.1551816/- and sold the same at a subsidized amount of Rs.215400/- by incurring a substantial loss which has been recouped by receiving sports promotion money from Haryana Government. The association organises several tournaments of State/ National level for which it receives match fee and the same is spent on the furtherance the object of the association.
10. Considering the facts in totality in the light of the income and expenditure statement we are of the considered view that the appellant association is not running on profit motive and, therefore, is very much eligible or registration u/s. 12AA and 80 G of the Act. We accordingly direct the CIT(E) to grant registration.
11. In the result, both the appeals are allowed.
Order pronounced in the open court on 23.06.2023.