TaxTMI 
TaxTMI 
2013 (12) TMI 833
X X X X Extracts X X X X
X X X X Extracts X X X X
....ine", when the appellant was carrying on activities in accordance with its objects and similar to its activities in earlier years, merely on account of the amendment to the definition of 'charitable purpose' in the Act ? 3. Whether the Tribunal was right in not following the decisions of the jurisdictional High Court and coordinate benches of the Tribunal, on the ground that certain aspects had not been high-lighted before the Hon'ble High Court and the coordinate Benches ?" The assessee is a Society registered under the Tamil Nadu Societies Registration Act. The said Society was granted registration under Section 12AA of the Income Tax Act, 1961 on 28.03.2003. As is evident from the reading of the Memorandum of Association, the objects of the Association are as follows:- (a) to maintain a general control of the game of cricket in the State and the Union Territory of Pondicherry and give its decision on all matters concerning the game either when referred to or suo moto. (b) to spread the game throughout the State by organizing tournaments, including Inter-University, Inter-School and Inter-Association matches, to educate young sportsmen in....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ise charged upon all or any of the Association's property both or future and to purchase, redeem or payoff any such securities and to utilise such funds in such manner as the General Body may consider desirable for the fulfillment of the objects of the Association; to invest monies and funds of the Association as per the provisions of the Income Tax Act, 1961; to maintain a panel of approved cricket umpires and to do such acts as may be necessary for this purpose including holding of prescribed periodical tests with a view to enable them to qualify themselves as first class umpires; to organise a proper coaching scheme for the benefit of cricketers in the City and in the Districts under the supervision of coaches from India and abroad; to take such action as may be necessary to coordinate the activities of affiliated club, District Associations and institutions and their members in relation to the Association and amongst themselves. 4. To achieve the objects, the assessee takes steps to arrange, supervise, regulate and finance visits of State teams or Foreign teams under the auspices of bodies like the Board of Control for Cricket in India; to draw up and organise a proper c....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ivity involved in the conduct of the IPL matches for which only subsidy was received by the assessee from BCCI like other cricket associations; thus, the receipt of subsidy was not a payment for carrying on of any trade, commerce or business; the TV subsidy was given to all State Associations and was part of the scheme of BCCI, being a voluntary donation, there was no commercial character attached to these receipts; so too, the donations and contributions and the sale of tickets in conducting matches organised by BCCI. Pointing out that the Association was not running any canteen or restaurant,the assesse submitted that as far as fee for providing services to IPL is concerned, the entire income from the sale of tickets belonged to the franchisee, and therefore, there was no service rendered or charges made by the assessee. 7. Referring to the satisfaction recorded as to the genuineness of the objects of the association under the provision contained in Section 12AA of the Act, the assessee pointed out that the genuineness of the objects of the trust, thus not being in question and the objects of the trust thus remaining the same as before and the activities also being in accordan....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ct, the objects of the Association ever remained same and it has not undergone any change to question its genuineness. The assessee contended that the view of the Director of Income Tax (Exemptions) that the assessee was not carrying on charitable activity as per Section 2(15) of the Act is erroneous in law; in any event, all that Section 12AA(3) of the Act prescribes for cancellation is the genuineness of the activities of the trust or that the activities are not carried on in accordance with the objects of the trust. The assessee contended that it conducts National and International matches including the District League. In addition to the income arrived by sale of tickets, income out of advertisement revenue arising out of the telecast rights auctioned to different visual media, obtained from BCCI in India was distributed among the different States in India and this is in the nature of grant/subsidy from BCCI which had been confined by BCCI. 13. The Income Tax Appellate Tribunal pointed out that the physical play of cricket game was not the sole point which would decide as to whether the asssessee association was carrying on its activities as stated in the memorandum of assoc....
X X X X Extracts X X X X
X X X X Extracts X X X X
....atches were big game with big money involved; in the words of the Income Tax Appellate Tribunal, "In fact it is an entertainment industry by itself". It pointed out that 78% of the total receipts came out of advertisement revenue and in the background of the nature of activity undertaken, the entire activity of commercial nature were oriented towards earning hyper profits and these activities contributed 86.5% of the receipts of the assessee in the Financial Year 2008-09. In this background, the Income Tax Appellate Tribunal referred to the decision reported in 77 ITR 435 in the case of Bangalore Race Club Vs. Commissioner of Income Tax, which related to the case of horse racing and held the same could not be held to be of public utility or interest. After referring to the decision of this Court reported in 343 ITR 300 in the case of CIT Vs. Sarvodaya Ilakkiya Pannai, wherein, this Court considered the effect of Section 12AA(3) of the Act, the Income Tax Appellate Tribunal held that this Court had not considered the effect of Section 2(15) proviso and the necessary facts of the case relating to charitable purpose was not highlighted. It also referred to the decision of the Ahmedaba....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... and pointed out that the grant of registration originally as early as 2003 clearly pointed out the satisfaction of the authorities that the assessee was public charitable trust under Section 12AA of the Act. Referring to Section 12AA (3) of the Act, he further pointed out that the cancellation of registration granted is possible only under the stated circumstances, viz., on the Commissioner recording his satisfaction that the activities of the trust are not genuine or are not being carried out in accordance with the objects of the trust or institution; thus unless and until the show cause notice issued contained the grounds and materials as prescribed under Section 12AA(3) of the Act, the question of cancellation of registration, per se, does not arise. 16. Learned Senior Counsel appearing for the appellant further pointed out that the appellant was granted registration under Section 12AA of the Act only on the Commissioner satisfying himself on the objects of the trust and the genuineness of the activities. The nature of activity carried on by the assessee continues to be the same without any change till this date and if any of the activities carried on by the assessee resulte....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Exemptions) in T.C(A).No.91 of 2013 dated 29.04.2013 as well as 315 ITR 428 in the case of Commissioner of Income Tax Vs. National Institute of Aeronautical Engineering Educational Society and submitted that they stand on a different line, they being the decisions rendered on the rejection of the application for registration. He also referred to the decision of this Court reported in 343 ITR 300 in the case of CIT Vs. Sarvodaya Ilakkiya Pannai, wherein, under similar circumstances, this Court had held that when a trust is registered with definite objects to carry on its activities and under Section 12AA of the Income Tax Act, 1961, the Commissioner is empowered to cancel registration only on two conditions laid down under Section 12AA(3) of the Income Tax Act, 1961. He further pointed out that whether the income derived from such transaction would be assessed to tax or whether the trust would be entitled to exemption under Section 11 of the Income Tax Act, 1961 are entirely matters to be considered at the time of assessment. Thus, placing reliance on the decision of this Court reported in 343 ITR 300 (CIT Vs. Sarvodaya Ilakkiya Pannai), learned Senior Counsel appearing for the asse....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nment (including waterheds, forests and wildlife) and preservation of monuments or places or objects of artistic or historic interest, and the advancement of any other object of general public utility. Provided that the advancement of any other object of general public utility shall not be a charitable purpose, if it involves the carrying on of any activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business, for a cess or fee or any other consideration, irrespective of the nature of use or application, or retention, of the income from such activity;) 23. Section 2(15) as it stood prior to 1983 defined 'charitable purpose' to include relief of the poor, education, medical relief, and the advancement of any other object of general public utility not involving the carrying on of any activity for profit. The phrase "not involving the carrying on of any activity for profit" was omitted from the Section by the Finance Act 1983, with effect from 01.04.1984, consequent on the amendment to Section 11, where under profits and gains of business in the case of charitable or religious trust an....
X X X X Extracts X X X X
X X X X Extracts X X X X
..... 24. Proviso to Section 2(15) of the Income Tax Act states that if the objects involve the carrying on any activity in the nature of trade, commerce or business, for a cess or fee or any other consideration, irrespective of the nature of use or application, or retention, of the income from such activity, the status of the institution will not be one for 'charitable purpose'. 25. The Central Board of Direct Taxes, in paragraph 3.2 pointed out to the scope of the circular as under:- "In such a case, the object of 'general public utility' will be only a mask or a device to hide the true purpose, which is trade, commerce or business or the rendering of any service in relation to trade, commerce or business. Each case would, therefore, be decided on its own facts and no generalization is possible. Assessees, who claim that their object is 'charitable purpose' within the meaning of Section 2(15), would be well advised to eschew any activity which is in the nature of trade, commerce or business or the rendering of any service in relation to any trade, commerce or business." 26. Thus, the anxiety of the Parliament in introducing the proviso to Sec....
X X X X Extracts X X X X
X X X X Extracts X X X X
....has been granted registration under clause (b) of sub-section (1) or has obtained registration at any time under section 12A as it stood before its amendment by the Finance (No.2) Act, 1996 (33 of 1996) and subsequently the Commissioner is satisfied that the activities of such trust or institution are not genuine or are not being carried out in accordance with the objects of the trust or institution, as the case may be, he shall pass an order in writing cancelling the registration of such trust or institution: Provided that no order under this sub-section shall be passed unless such trust or institution has been given a reasonable opportunity of being heard." 31. Thus in contrast to Section 12AA(1)(b) of the Income Tax Act, 1961, where the grant of registration requires satisfaction about the objects of the trust as well as genuineness of the activities, for the cancellation of the registration under Section 12AA(3), all that it is insisted upon is the satisfaction as to whether the activities of the trust or institution are genuine or not and whether the activities are being carried on in accordance with the objects of the trust. Thus, even if the trust is a genuine on....
X X X X Extracts X X X X
X X X X Extracts X X X X
....result of the amendment, which has been brought about by the Finance Act of 2010, Subsection (3) of Section 12AA has been amended specifically to empower the Commissioner to cancel a registration obtained under Section 12A as it stood prior to its amendment by the Finance (No.2) Act, 1996. SubSection (3) was inserted into the provisions of Section 12AA by the Finance (No.2) Act, 2004 with effect from 1 October 2004. As it originally stood, under subsection (3), a power to cancel registration was conferred upon the Commissioner where a trust or an institution had been granted registration under clause (b) of subsection (1) of Section 12AA. The Commissioner, after satisfying himself that the objects of the trust or an institution are not genuine or are not being carried out in accordance with the objects of the trust or institution, as the case may be, was vested with the power to pass an order in writing cancelling the registration of such trust or institution. By the Finance Act of 2010, subsection (3) was amended so as to empower the Commissioner to cancel the registration of a trust or an institution which has obtained registration at any time under Section 12A (as it stood befor....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the certificate in terms of section 12AA(3) of the Income Tax Act, 1961. As per the said provision, in the event the Commissioner is satisfied subsequently i.e., after registration that the activities of such trust or institution are not genuine or not being carried out in accordance with the objects of the trust or the institution as the case may be, he shall pass an order in writing cancelling the registration of such trust or institution." 36. After the grant of registration, if the Commissioner is satisfied subsequently that the activities of the institution are not genuine or they are not carried on in accordance with the trust/ institution, he could pass an order in writing cancelling the registration of such trust or institution. 37. Referring to Section 11 and 12A of the Act, this Court pointed out that the act of granting registration under Section 12AA(1) itself is a result of a satisfaction recorded by the Commissioner as regards the genuineness of the objects of the trust as well as the activities of the trust and once a satisfaction is arrived at by the Commissioner, the cancellation could only be in terms of Section 12AA(3) of the Income Tax Act, 1961. 38. Th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e time of grant of registration on 28.3.2003, the same was made taking into consideration the objects of the institution fitting in with the definition of 'charitable purpose' defined under Section 2(150 of the Act and the substitution of the Section itself came only 2008, with effect from 01.04.2009. As rightly pointed out by the learned senior counsel appearing for the assessee, the circular clearly brings out the object of the amendment and the amended provision has no relevance to the case . The power regarding cancellation, hence has to be seen with reference to the registration and the object satisfying the definition on 'charitable purpose', as it stood at the time of registration and not by the subsequent amendment to Section 2(15) of the Income Tax Act. 42. Learned Standing counsel appearing for the Revenue placed heavy reliance on the proviso to Section 12AA(3) of the Act and submitted that when the assessee has income received from conduct of the matches, which are commercial in nature, as had been found by the Income Tax Appellate Tribunal, the objects of the trust ceased to be charitable. He submitted that going by the definition of Section 2(15) of ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....other object of general public utility. The assessee's case falls within the phrase of the definition general public utility . In the decision reported in (2000) 246 ITR 188 in the case of Hiralal Bhagwati Vs. Commissioner of Income Tax, the Gujarat High court considered the said phrase in the context of Section 12AA registration and held that registration of the charitable trust under Section 12AA of the Act is not an idle or empty formality; the Commissioner of Income-tax has to examine the objects of the trust as well as an empirical study of the past activities of the applicant; the Commissioner of Income-tax has to examine that it is really a charitable trust or institution eligible for registration; the object beneficial to a section of the public is an object of "general public utility". The Gujarat High Court held that to serve as a charitable purpose, it is not necessary that the object must be to serve the whole of mankind or all persons living in a country or province; it is required to be noted that if a section of the public alone are given the benefit, it cannot be said that it is not a trust for charitable purpose in the interest of the public; it is not necess....
X X X X Extracts X X X X
X X X X Extracts X X X X
....C(A).No.91 of 2013 dated 29.04.2013 (Gowri Ashram Vs. Director of Income Tax (Exemptions) is concerned, on which heavy reliance was placed by the Revenue, the said decision relates to the rejection of the registration at the threshold of the application filed for registration. So too the decision of the Apex court reported in 315 ITR 428 in the case of Commissioner of Income Tax Vs. National Institute of Aeronautical Engineering Educational Society, wherein, rejection was made on the threshold of application for registration made by the assessee. The decisions relied on is thus distinguishable and has no relevance to the facts of the present case. 48. As far as unreported decision of this Court in T.C(A).No.91 of 2013 dated 29.04.2013 (Gowri Ashram Vs. Director of Income Tax (Exemptions) is concerned, while rejecting the appeal filed by the assessee on the rejection of the application for registration, this Court observed that it was open for the assessee Society to renew its application as and when it expanded the objects of the Society and were approved by the competent Court. The rejection order passed by the Revenue was on the ground that the objects of the trust were not ch....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... meaning of 'charitable purpose' under Section 2(15) of the Act. 51. On going through the materials, the Income Tax Appellate Tribunal pointed out that instead of promoting and developing the game of cricket, the assessee was promoting and developing cricket as an entertainment and the tickets are highly priced; here, the assessee has shifted the activities of general public utility to commercial activity for generating revenue; the public merely participate to view costly matches; hence the conditions of Section 12AA(3) were satisfied. The Income Tax Appellate Tribunal agreed with the Director of Income Tax (Exemptions) that the expression 'subsidy from BCCI' was a misleading nomenclature and it was a share from the revenue collected by BCCI from the sale of telecast rights. The surplus from IPL Season-I worked out to 8.5% of the total receipts. It further held that 78% of the total receipt came out of advertisement revenue. 52. The Income Tax Appellate Tribunal pointed out that the physical aspect of the game was one in accordance with the objects of the assessee and the activities are genuine. However, the matches held were not in advancement of any specifi....