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March, 08th 2014
$~6 to 8

%                                       Date of decision: 3rd March, 2014

+      ITA 262/2013
+      ITA 264/2013
+      ITA 265/2013

       TAX (E) INV. CIRCLE-II                      ..... Appellant
                        Through: Mr. N.P. Sahni, Sr. Standing
                                 Counsel with Mr. Nitin Gulati, Jr.
                                 Standing Counsel.

                    Through: Dr. Rakesh Gupta with Ms. Rani
                             Kiyala   and    Ms.   Khushbu
                             Upadhaya, Advocates.



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

               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


       (b)     The full details of the expenditure showing their purpose

       were submitted before the AO and the books of accounts were also


       (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)

                                              (S. RAVINDRA BHAT)
MARCH 3, 2014

ITA Nos.262/2013, 264/2013 & 265/2013                       Page 9 of 9
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