Income from organizing Davis Cup Tie is Business Income: ITAT denies Relief to CLTA [Read Order]

Davis Cup - Taxscan

The Chandigarh bench of the Income Tax Appellate Tribunal ( ITAT ) has held that the Chandigarh Lawn Tennis Association is liable to pay tax on the income over and above amount for Rs. 25 lacs received from organizing of Davis Cup Tie as the same can be treated as ‘business activity’.

Assessee, M/s Chandigarh Lawn Tennis Association is a society having registration under section 12AA of the Income Tax Act, 1961. The main object of the assessee is 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 the relevant year, the assessee hosted an international event ‘Davis Cup Tie’ for which separate income and expenditure account had been maintained. The 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 the advertisement for the souvenir, corporate box income, sale of tickets, sponsorship etc.

The Assessing Officer held that the above activity was commercial in nature and thus, denied the tax exemptions being enjoyed by the assessee.

The assessee contended 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 bench noted that except the above commercial exploitation of rights during the holding of Davis Cup match, 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.

“We, therefore, do not think that 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 bench 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 Income Tax 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), 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 u/s 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 assessing officer, therefore, is directed to bifurcate the income from commercial activity and non-commercial activity and assess the income of the assessee as directed above,” the bench said.

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