Promotion of Sports is a Charitable Activity; Mere Insertion of Proviso Wouldn’t Change Its Nature | ITAT

Case Details: Deputy Commissioner Income-tax vs. Otters Club - [2025] 173 taxmann.com 621 (Mumbai-Trib.)

Judiciary and Counsel Details

• Amit Shukla, Judicial Member & Girish Agrawal, Accountant Member
• Porus Kaka, Sr. Adv., Nitesh Joshi, Adv. & Ms Sonakshi Jhunjhunwala, AR for the Appellant.
• Krishna Kumar, Sr. DR for the Respondent.

Facts of the Case

The assessee was a public charitable trust formed in 1970. Its main objectives are to construct, establish, operate, and maintain swimming pools and other sports facilities for the benefit of persons of all communities and castes. The assessee also promotes aquatic sports and pastimes of all kinds. The assessee was registered as a charitable trust with the office of the Charity Commissioner under section 12A of the Act.

The assessee has a litigation history from Assessment Year 1975-76, except for a few intermittent years. In the return of income filed for the assessment year 1975-76, the assessee claimed exemption under section 11 of the Act, which the Assessing Officer (AO) denied. When the issue returned to the AO after being set aside by the Tribunal, exemption was granted to the assessee under section 11, which continued continuously for ten years.

In the subsequent assessment years, the AO also allowed the assessee’s claim for exemption under section 11. However, the AO contended that the assessee is an association formed for the benefit of its members and, hence, is in the nature of a mutual association which cannot be regarded as charitable in nature. The AO invoked the proviso to section 2(15) by contending that the assessee was a mutual organisation.

On appeal, the CIT(A) allowed the claim of exemption under section 11. The matter then reached the Mumbai Tribunal.

ITAT Held

The Tribunal held that the assessee is pursuing these activities for charitable purposes, which are available for the benefit of persons of all communities and castes. It is undisputed that the promotion of sports falls within the charitable cause of the advancement of any other object of General Public Utility. Merely because the proviso has been inserted in Section 2(15), it does not render activities which have been consistently found to be charitable to become commercial in nature.

The AO considered the activities on the principles of mutuality. Once the activities are mutual, the same cannot be simultaneously held in the nature of trade, commerce, or business because a person cannot trade with oneself. The assessee’s activities are held not to be in the nature of trade, commerce, or business. The assessee adequately demonstrates that the fees/charges recovered by it for its activities are to meet its cost, which is not sufficient since the assessee incurs a deficit on a year-on-year basis, which is met from the interest earnings.

Thus, the assessee is not hit by the proviso to Section 2(15) of the Act, and the claim of exemption under Section 11 is allowed.

List of Cases Reviewed

• Asstt. CIT v. Ahmedabad Urban Development Authority [2022] 143 taxmann.com 278 (SC) (para 12)
• Media Research Users Council v. ADIT [2024] 205 ITD 170 (Mum.) (para 12) followed.

List of Cases Referred to

• New Noble Educational Society v. Chief CIT [2022] 143 taxmann.com 276/[2023] 290 Taxman 206/[2022] 448 ITR 594 (SC) (para 2)
• Asstt. CIT (Exemptions) v. Ahmedabad Urban Development Authority [2022] 143 taxmann.com 278/[2023] 291 Taxman 11/[2022] 449 ITR 1 (SC) (para 2)
• ACIT v. Ahmedabad Urban Development Authority [2022] 449 ITR 1 (SC) (para 5.1)
• Media Research Users Council v. Asstt. DIT (Exemption) [2023] 157 taxmann.com 470/[2024] 205 ITD 170 (Mumbai – Trib.) (para 11.2).