Royalty & Sponsorship Receipts of ₹4.73 Cr Not Classified as Business Income: ITAT Upholds Exemption to Wrestling Federation of India [Read Order]

The Income Tax Appellate Tribunal (ITAT) Delhi Bench has held that royalty and sponsorship receipts amounting to ₹4.73 crore earned by the Wrestling Federation of India cannot be treated as business income thereby upholding its entitlement to exemption under Sections 11 and 12 of the Income Tax Act, 1961.

The assessee society was registered under Section 12A and had obtained approval under Section 80G and filed its returns reporting no income during Assessment Year 2017–18. During the process of verification of returns the AO noticed that there were some receipts from royalty of ₹4.03 crore and receipts from sponsorship fees of ₹92.61 lakh received by the society.

The AO considered these as commercial receipts above 20% of the total receipts and applied the provisions of the proviso to Section 2(15).The assessee argued that promoting sports was a purpose for which Section 2(15) provides, and the receipt was only an incident to its principal object.

Moreover, the assessee claimed that a similar point was considered in its favour in previous assessment years. In contrast, the department argued that the very large amount of the receipt showed commercial transactions.

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The Tribunal dismissed the Revenue’s appeal and upheld the order of the Commissioner of Income Tax (Appeals) [CIT(A)], confirming that the assessee is eligible for exemption. The ITAT held that Section 2(15) was not applicable as the receipts were incidental to the charitable objective of promoting sports and lacked any profit motive.

The Tribunal comprising Raj Kumar Chauhan (Judicial Member) and Brajesh Kumar Singh (Accountant Member) held that there was no profit motive and that the receipts were utilized for promoting wrestling.Accordingly,It was pointed out that the incidental receipt would not affect the charitable nature of the trust. In view of its earlier judgments, the Bench found that the provision to Section 2(15) did not apply.

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