$~6 to 8
* IN THE HIGH COURT OF DELHI AT NEW DELHI
% Date of decision: 3rd March, 2014
+ ITA 262/2013
+ ITA 264/2013
+ ITA 265/2013
DEPUTY DIRECTOR OF INCOME
TAX (E) INV. CIRCLE-II ..... Appellant
Through: Mr. N.P. Sahni, Sr. Standing
Counsel with Mr. Nitin Gulati, Jr.
Standing Counsel.
versus
PETROLEUM SPORTS PROMOTION BOARD ..... Respondent
Through: Dr. Rakesh Gupta with Ms. Rani
Kiyala and Ms. Khushbu
Upadhaya, Advocates.
CORAM:
MR. JUSTICE S. RAVINDRA BHAT
MR. JUSTICE R.V. EASWAR
R.V. EASWAR, J. (OPEN COURT)
1. These three appeals filed by the revenue under Section 260A of the
Income Tax Act, 1961 (,,Act, for short) are directed against the
consolidated order dated 27.07.2012 passed by the Income Tax Appellate
Tribunal (,,Tribunal, for short) for the assessment years 2003-04, 2004-
05 and 2005-06.
ITA Nos.262/2013, 264/2013 & 265/2013 Page 1 of 9
2. For the sake of convenience the facts relating to the assessment
year 2003-04 are taken as illustrative. The assessee filed its return of
income on 24.08.2003 declaring Rs.nil as its income. Apparently the
return was processed under Section 143(1) of the Act. Later the
assessment was reopened under Section 148 of the Act and after scrutiny,
an assessment order was framed under Section 143(3) of the Act in
respect of the assessment year 2003-04. It would appear that in the return
the assessee claimed its entire income to be exempt under Section 11 of
the Act but the same was denied on the ground that the assessee did not
get itself registered under Section 12A of the Act. Accordingly, the
amount of Rs.1,52,62,956/- received by the assessee as grants from
various oil companies was brought to tax under the head "income from
other sources"; an estimated expenditure of Rs.1,20,000/ - was deducted
from the aforesaid amount as expenditure incurred in collecting the grant
and the balance of Rs.1,51,42,990/- was assessed to tax. Similar
assessments were made for the other two assessment years. The assessee
preferred an appeal before the CIT (Appeals) for all the three assessment
years. In the appeals the assessee challenged the jurisdiction of the
assessing officer to reopen the assessment under Section 148 of the Act
and the restriction of the allowance of expenses to Rs.1,20,000/- for all
ITA Nos.262/2013, 264/2013 & 265/2013 Page 2 of 9
the years. It was submitted that the assessee was a society formed for the
promotion of sports and was registered under the Societies Registration
Act, that registration under Section 12A has been granted w. e. f.
assessment year 2006-07, that the entire expenditure incurred by the
assessee was for the purpose of promotion of sports and should have
been, therefore, deducted in full while computing its income and that at
any rate the society having been notified by the CBDT under Section
10(23C) of the Act up to the assessment year 2002-03, there was no
justification for completing the assessments in the manner done by the
assessing officer.
3. The CIT (Appeals) obtained a remand report from the assessing
officer who reiterated his view that the expenditure incurred by applying
the income of the assessee on the activities for which it was constituted
i.e. sports promotion, cannot be allowed as a deduction in the absence of
any registration under Section 12(A) of the Act and further that the
estimate of allowable expenditure at Rs.1,20,000/- made for possible
expenditure incurred to collect the grants was fair and reasonable and
nothing more was allowable. After obtaining the remand report the CIT
(Appeals) placed it before the assessee for its comments. At that stage
ITA Nos.262/2013, 264/2013 & 265/2013 Page 3 of 9
the assessee filed an additional ground for all the three years which is as
follows: -
"That the learned DDIT (E) has grossly erred both in law
and on facts in taxing the income of assessee ignoring the
principle of mutuality. The Income of assessee is outside the
preview of levy of Income Tax and no tax is chargeable
under the provision of Section 4 of Income Tax Act, 1961"
4. After following the due procedure, the additional ground was
admitted being a pure legal ground. On merits, however, the additional
ground did not find favour with the CIT (Appeals) who held that principle
of mutuality was not applicable to the assessee. Thereafter he proceeded
to examine the merits of the disallowance of the expenditure claimed by
the assessee and held as follows: -
"6. The appellant also in the course of assessment
proceedings by the Assessing Officer submitted the details of
all expenditures incurred for the purpose of sports activities
as well as books of accounts. The Assessing Officer has not
brought out any adverse materials/ features in assessment
order that the expenses are not supported by documentary
evidences or not relating to the activities of the Board. In
fact, no adverse material was brought on record by
Assessing Officer. The assessee has furnished complete
particulars of its income and expenditure and the nature of
the expenditure incurred in the course of promotion of
sports activities. It is pertinent to mention here that PSPB
was notified u/s 10(23) (C) of the income Tax Act by Central
Board of Direct Tax till A.Y. 2002-03. The aforesaid
provision was omitted from statute. Therefore, activities
ITA Nos.262/2013, 264/2013 & 265/2013 Page 4 of 9
and expenditures is consistent with nature and extent of
expenditure incurred by it in the past years. In fact,
expenditure depends upon the number of sports events
organized by the Board every year, therefore, the
expenditure varies every year but its expenses are to
promote sports for which PSPB is in existence.
After perusal of details and information placed by the
appellant, I hold that the appellant is entitled for claim of
legitimate expenses incurred for sports activities and
accordingly, the Assessing Officer is directed to allow the
expenditure for the following years as per details given
below and balance income can be taxed at the rate as
applicable.
Asstt. Year 2003-04 Rs.1,41,73,414.04
Asstt. Year 2004-05 Rs.1,25,51,863.35
Asstt. Year 2005-06 Rs.2,42,77,296.98
Thus the appellant will get relief to the extent stated in
paragraph 6 & 6.1 and balance amount of income over
expenditure will be taxable.
7. For statistical purpose, the appeal will be treated as
Partly Allowed for all the three years."
5. The revenue challenged the aforesaid order of the CIT (Appeals)
before the Tribunal. The Tribunal passed a consolidated order, recording
the following findings: -
(a) The assessing officer has not brought out any adverse
material to show that the expenditure claimed to have been
ITA Nos.262/2013, 264/2013 & 265/2013 Page 5 of 9
incurred by the assessee on the sports activities did not in fact
relate to those activities or were not supported by documentary
evidence;
(b) The full details of the expenditure showing their purpose
were submitted before the AO and the books of accounts were also
produced;
(c) Since the number of sports events organised by the assessee
varies from year to year, the expenditure also varies every year;
(d) The CIT (Appeals) has not given the benefit of exemption
under Section 11 to the assessee but has allowed the expenses
incurred on sports activity considering their genuineness.
6. On the basis of the aforesaid findings the Tribunal rejected the
appeals filed by the revenue.
7. The learned standing counsel for the revenue submitted that the
order of the Tribunal is untenable since it indirectly confers the benefit of
Section 11 upon the assessee. We are, however, not inclined to accept the
contention. The CIT (Appeals) has actually not held so. He never
examined the question whether the assessee was eligible for the
ITA Nos.262/2013, 264/2013 & 265/2013 Page 6 of 9
exemption under Section 11 since there was no ground before him, taken
by the assessee, to that effect. All that the assessee claimed before the
CIT (Appeals) was that the entire expenditure should be allowed as a
deduction since it was incurred for the very objects for which the assessee
was established in 1979 i.e. promotion of sports and, therefore, the
assessing officer was not justified in restricting the allowance of
expenditure to Rs.1,20,000/- only for all the three years. It was this claim
that was accepted by the CIT (Appeals). The objection of the learned
standing counsel for the revenue that since the grants were assessed under
the residual head, there was no scope for allowing the expenditure
incurred on the promotion of the sports activities is not acceptable since
even under Section 57(iii), any expenditure incurred for the purpose of
making or earning the income is allowable as a deduction. It is open to
the income-tax authorities to deny the exemption under Section 11 of the
Act in the absence of registration under Section 12A and if they do so,
then the assessment has to be completed in accordance with the
provisions of the Income Tax Act; if the income is assessed under the
residual head full play must be allowed to Section 57(iii). Though prima
facie it would appear that the phraseology employed in Section 57(iii) is
different from Section 37(1), it has been held by the Supreme Court in
ITA Nos.262/2013, 264/2013 & 265/2013 Page 7 of 9
CIT vs. Rajendra Prasad Moody, 115 ITR 519 that Section 57(iii) must
be construed broadly and the somewhat wider language of Section 37(i)
should not affect the interpretation of Section 57(iii). The assessee in the
present case was created in 1979 with the object of promoting sports;
there was no other object and all its constituents were giving grants/ funds
only for that purpose. In truth and reality the assessee was merely acting
as a custodian or conduit to the constituents for the purpose of promoting
sports activity inside and outside the country. The expenditure incurred
by the assessee is only for the purpose of promoting the sports events and
activities and in this respect there is no challenge to the finding of fact
recorded by the Tribunal. If such expenditure is not allowed, it may
amount to taxing the gross receipts of the assessee and not the income,
which is not permissible under the income tax law. Moreover, upto the
assessment year 2002-03 the assessee was exempt from tax under Section
10(23C); from the assessment year 2006-07 it has been granted
registration or a charitable institution under Section 12A making it
eligible for the exemption under Section 11.
8. For the aforesaid reasons we do not find any infirmity or error of
law in the decision of the Income Tax Appellate Tribunal. There is no
challenge to the findings of fact recorded by it. In the circumstances, no
ITA Nos.262/2013, 264/2013 & 265/2013 Page 8 of 9
substantial question of law arises for our consideration. The appeals are
accordingly dismissed with no order as to costs.
(R.V. EASWAR)
JUDGE
(S. RAVINDRA BHAT)
JUDGE
MARCH 3, 2014
hs
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