Interest Income Derived By Gujarat Sports Authority On Its Surplus Taxable As "Income From Other Sources": Ahmedabad ITAT

The Assessee Sports Authority of Gujarat, registered under the Society Registration Act, 1960 with the object of augmenting and promoting sports in the State of Gujarat, is funded by the Government of Gujarat by way of grants. The Assessing Officer (AO) on perusal of the objectives listed in the Sports Authority's Memorandum of Objectives noted that none of objectives in the memorandum mentioned carrying out any business or profession, or any other business ancillary to the said sporting activity. The AO therefore taxed the interest income earned by the Sports Authority from the surplus deposited by it with the Gujarat State Fertilizers and Chemicals Limited (GSFC) as "Income from Other Sources" instead of "Business Income" as claimed by the Sports Authority in the income tax return filed by it. The AO had also disallowed the claim of depreciation out of the interest income earned. The Commissioner of Income Tax (Appeals) (CIT (A)) had upheld the order of the AO. It had held that in the present case the Assessee Sports Authority had made deposits with GSFC Ltd with the prime object of earning interest on the surplus funds lying with it, therefore the interest income was rightly treated as "Income from Other Sources" by the AO. The CIT (A) had also held that since there was no business income and the Sports Authority had only earned interest income which was treated as "Income from Other Sources" by the AO, no claim of depreciation could be allowed under the Income Tax Act. The Sports Authority filed an appeal before the ITAT against the order of the CIT (A).

The Assessee Sports Authority before the ITAT submitted that the excess grants received by it from the State of Gujarat to carry out its objects, i.e., to encourage, promote and develop sports activities in Gujarat, were kept by it as deposits with GSFC Ltd on which it had earned interest income. The Sports Authority averred that this interest income was subsequently utilized by it for the purpose of its objects only and hence the interest income earned by it on such deposits should have been treated as business income in the relevant assessment year.

The ITAT observed that the Gujarat High Court in the case of Director of Income Tax (Exemptions) versus Gujarat Cricket Association (2020) had held that merely because the assessee Gujarat State Cricket Association, which was formed for the purpose of promoting cricket, had put up tickets of international cricket matches for sale and had earned some profit from the same which was used to promote the game, the assessee Cricket Association could not have been said to be carrying out commercial activities in the nature of trade or business.

The ITAT observed that in the present case the sole purpose of the Assessee Sports Authority was the promotion of sports in the State of Gujarat. The ITAT held that the Sports Authority was not engaged in any business activity, therefore the interest income earned by it on the deposit of surplus funds kept with GSFC Ltd would qualify as "Income from Other Sources" and not business income.

The ITAT ruled that the interest income earned on the surplus funds kept with GSFC Ltd was incidental to the Sports Authority's dominant objective of encouraging sports in the State of Gujarat, which by itself could not have been termed as a business activity. Therefore, the ITAT ruled that the interest income earned from the surplus fund could not qualify as business income.

Also, the ITAT observed that since in the present case the Assessee Sports Authority had not earned any business income and had only earned interest income which was assessable as "Income from Other Sources", depreciation claimed by it under Section 32 of the Act could not be allowed. The ITAT observed that Section 57(ii) of the Act provides that a claim of depreciation under Section 32 of the Act is allowed with respect to "Income from Other Sources" only if such income is derived from letting any machinery, plant or furniture on hire. The ITAT observed that since in the present case income was received from interest on investment of surplus fund and the same was assessable under the head "Income from Other Sources", depreciation under Section 32 of the Act could not be allowed to the Assessee Sports Authority.

The ITAT therefore upheld the order of the CIT (A) and dismissed the appeal of the Assessee.

Case Title: Sports Authority Of Gujarat Versus DCIT (Exemption)

Representative For The Assessee: Shri Suresh Gandhi

Representative For The Revenue Department: Shri Anshu Prakash, Cit-D.R.

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