Tribunal affirms cricket association's tax exemption eligibility under Income Tax Act

The Tribunal dismissed the Revenue's appeals and allowed the assessee's appeal, confirming eligibility for exemption under Sections 11 and 12 of the Income Tax Act, 1961. It found the proviso to Section 2(15) not applicable, as the primary objective of promoting cricket qualified as "advancement of general public utility." Grants to district associations were deemed proper applications of income, supporting the promotion of cricket. The Tribunal's decision aligned with judicial precedents and CBDT instruction No 1132, emphasizing that surplus-generating incidental activities do not negate the charitable nature of the primary objective.

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Issues Involved:
1. Exemption under Section 11 of the Income Tax Act, 1961.
2. Applicability of the proviso to Section 2(15) of the Income Tax Act, 1961.
3. Disallowance of grants to district associations.

Issue-wise Detailed Analysis:

1. Exemption under Section 11 of the Income Tax Act, 1961:
The Tribunal noted that the assessee society is registered under Section 12A of the Income Tax Act, 1961, and is thus entitled to claim exemption under Sections 11 and 12 of the Act. The Assessing Officer (AO) had denied the exemption on the grounds that the registration granted under Section 12A was withdrawn and that the activities of the assessee were commercial in nature. However, the Tribunal observed that the registration of the assessee society under Section 12A had been restored by the Tribunal and affirmed by the Hon’ble Rajasthan High Court. Therefore, the primary condition for availing exemption under Sections 11 and 12 was satisfied.

2. Applicability of the Proviso to Section 2(15) of the Income Tax Act, 1961:
The AO had held that the activities of the assessee were in the nature of trade, commerce, or business, and thus, the proviso to Section 2(15) was applicable, denying the exemption under Sections 11 and 12. The Tribunal, however, noted that the predominant object of the assessee society was the promotion of cricket, which falls under the category of "advancement of general public utility." The Tribunal emphasized that the activities like organizing cricket matches, selling tickets, and receiving subsidies from BCCI were incidental to the primary objective of promoting cricket and could not be construed as commercial activities. The Tribunal relied on the decisions of the Hon’ble Supreme Court, Hon’ble Rajasthan High Court, and Hon’ble Gujarat High Court, which held that incidental activities generating surplus do not convert the primary charitable activity into a commercial one. The Tribunal concluded that the proviso to Section 2(15) was not applicable to the assessee society, and the exemption under Sections 11 and 12 could not be denied.

3. Disallowance of Grants to District Associations:
The AO disallowed grants to district associations amounting to Rs. 1,87,70,025 on the grounds that these expenses were not related to income-generating activities and were either capital in nature or an application of income. The Tribunal, however, found that the grants were for the promotion, organization, and management of cricket, aligning with the objectives of the assessee society. The Tribunal observed that such grants were essential for creating necessary infrastructure and purchasing cricket equipment, which were directly related to the promotion of cricket. The Tribunal held that these grants were in the nature of application of income and should be allowed as such. The Tribunal also referred to CBDT instruction No 1132 and judicial precedents which support the view that donations from one charitable trust to another for charitable purposes are proper applications of income.

Conclusion:
The Tribunal dismissed the appeals of the Revenue and allowed the appeal of the assessee. It held that the assessee society was eligible for exemption under Sections 11 and 12 of the Income Tax Act, 1961, as the proviso to Section 2(15) was not applicable. The grants to district associations were allowed as application of income, aligning with the objectives of the assessee society.

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