The receipt of royalty and sponsorship fees by a sports federation is incidental to its charitable objective of promoting sports and does not constitute 'business' under Section 2(15) of the Income Tax Act, thereby maintaining the eligibility for tax exemptions under Sections 11 and 12.

ORDER

PER BRAJESH KUMAR SINGH, AM,

This appeal in ITA No.- 5170/Del/2025 by the Revenue and the Cross Objection (C.O.) in C.O. No.- 282/Del/2025 by the Assessee are directed against the order of National Faceless Appeal Centre (NFAC) [hereinafter referred to as the ‘Ld. CIT(A)] order dated 08.07.2025 arising out of the Assessment Order dated 28.12.2019 passed under section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as the ‘the Act’) by the ITO, Ward (Exemption.)-2(3), Delhi, (hereinafter referred to as the ‘AO’) pertaining to Assessment Year (A.Y.) 2017-18.

1.1 The appeal and the cross objection were heard together and are being disposed of by this common order for the sake of convenience and brevity.

2. The Assessee had filed original its return of income for AY 2017-18 on 05.11.2017 declaring Nil income and claiming TDS of Rs 1,85,229/- which was subsequently revised on 22.09.2018 declaring the NIL Income and claiming TDS of Rs 41,95,229/-. The case was selected for Complete Scrutiny through CASS. Therefore, notice u/s 143(2) was issued on 16.08.2018 which was duly served on the assessee. Thereafter, notice u/s 142(1) was issued to the assessee through ITBA system to furnish the requisite details. Assessee furnished the details through ITBA.

2. 1 The assessee society is registered u/s 12A of the Income Tax Act 1961 vide order dated 27-04-2004 passed by the Director of Income Tax (Exemptions). Delhi in No DIT(E)/2004-05/W-171/03/120. The assessee is also registered u/s 80G(5)(vi) of the Income Tax Act vide order dated 17-09-2008 passed by the Director of Income Tax (Exemptions), Delhi in No DIT(E)/2008-09/W-171/1670 and the assessee has claimed exemptions u/s 11 of the Income Tax Act.

3. On perusal of the income and expenditure account it was observed by the AO that the assessee had received ‘Royalty income’ of Rs 4,03,50,000/-, and ‘Sponsorship fee’ of Rs 92,61,459/-. The assessee was asked by the AO vide notice u/s 142(1) dated 20.11.2019 to show cause as to why the aforesaid receipts may not be treated as business receipts by invoking the proviso to section 2(15) of the Act, 1961 and benefit of exemption claimed u/s 11& 12 be not disallowed.

4. The assessee submitted its reply vide letter dated 26.11.2019 claiming that its activities were charitable and it was entitled to the exemption u/s 11 & 12 of the Act. The relevant extract of the assessee’s submission before the AO during the course of assessment proceedings are reproduced as under:

“5. In response to the showcause, the assessee vide letter dated 26.11.2019 has submitted reply as under

i. That Promotion of sports and games is considered to be a charitable purpose within the meaning of section 2(15). Therefore, an association of institution engaged in the promotion of sports and games can claim exemption u/s 11. Providing sports facilities to general public without restriction to any caste, creed, religion or profession is eligible for exemption u/s 11 DIT(Exemption) Vs Goregaon Sport Club (2012) 21 TAxmannn.com 479(Bom).]

ii. That we comes under 5th Limb of the charitable purpose ie. advancement of any other object of general public utility and all the activities and events carried out among the members for the promotion of sports & games is not considered commercial activities but Charitable purpose u/s 2(15) of the I.T. Act, 1961.

iii. That the proviso to section 2(15) inserted by the finance act 2008 will apply only to entities whose purpose is advancement of any other object of general public utility, i.e. the fifth limb of the definition of 'Charitable purpose' contained in section 2(15).. Hence, such entities will not be eligible for exemption u/s 11 if they carry on comme