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I-T - If royalty and sponsorship fee received, are incidental income earned out of non-business activity and is used for charitable purpose, is not taxable income : ITAT

 

By TIOL News Service

NEW DELHI, JAN 07, 2019: THE ISSUE IS - Whether since royalty and sponsorship fee received, are incidental income raised from organizing the sports activity, which is not a regular business activity and is used for charitable purpose, is not taxable income of registered society. YES IS THE VERDICT.

Facts of the case

The assessee society, registered u/s 12A of the Act filed return for relevant AY, claiming exemption u/s 11 of Act. During assessment, the AO observed that the assessee had shown royalty income of Rs 2,45,000/- and sponsorship fee of Rs. 12,75,000/-. He also observed that these amounts were not been received from the members; therefore, it was in the nature of business receipts. The AO observed that the end use of business profit for charitable purpose was of no relevance due to amendment in Section 2(15) and the payer had also deducted TDS, since the main activity of the assessee falls under the category of general public utility, therefore, the first proviso to Section 2(15) of the Act was invoked and receipt on account of royalty and sponsorship fee was stated as business income of the assessee within the meaning of first proviso to Section 2 (15) of the Act. The addition was made accordingly. The CIT(A) allowed the appeal of the assessee. The revenue filed appeal before the Tribunal.

Tribunal held that,

++ the CIT (A) has done good reasoned order which needs no interference. The findings reached by the CIT(A) were that "It is evident that the assessee is not involved in any business activity as there is no apparent motive to earn profit. The royalty and sponsorship fees which are received are incidental for the fulfillment of the objectives of the assessee. The receipts are not being used as business receipts in order to be utilised as profit to any person but instead is used to promote the sport of wrestling. Though the assessee has objectives of general public utility, considering the activities and the objects of the federation as also going by the case laws quoted above, the proviso to Section 2(15) shall not apply to the assessee. The addition made on account of royalty and sponsorship fees may therefore be deleted.";

++ assessee has received royalty and sponsorship fee towards organizing of the sports activity it is not a regular business activity of the society which has been spent for the object of the Society. The CIT(A) has given cogent reasoning for holding that provision to section 2(15) would not apply in the facts of the present case, against which there is nothing on record from the side of the Revenue. In respect of the other issue the assessee has complied the procedures laid down by the Government of India for organizing the sports aboard. Accordingly, the appeal of the Revenue deserves to fail.

(See 2019-TIOL-50-ITAT-DEL)


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