TaxTMI 
TaxTMI 
2016 (10) TMI 537
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....es to obtain the said sponsorships. 2. The learned Director General of Income Tax (Exemptions), Hyderabad erred on facts and in law in failing to note that the leasing of Corporate Boxes for a fixed term has been done to meet the huge capital outlays in the development of the cricket stadium and that receipts of In-Stadia Advertising rights and Sponsorships relating to hosting of cricket matches bear a direct bearing to the development and promotion of the game, and thus represents intrinsic, incidental activities for the promotion and development of the game of Cricket. 3. The learned Director of Income Tax (Exemptions) erred on facts and in law in failing to note that the club facilities sought to be provided at the cricket stadium is primarily for the physical development and well being of the cricketers and the cricketing fraternity and represents a facility to further its object of developing and promoting the game of cricket. 4. The learned Director of Income Tax (Exemptions) erred on facts and in law in concluding that the absence of certain bills and vouchers cannot lead one to the conclusion that expenditure has not been incurred on the objects o....
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....essee to explain on those issues and after considering the assessee's submissions to decide the issue in accordance with law. Pursuant to the same, the DIT (E) reconsidered the issue. He was of the opinion that the assessee has been carrying on the activities of the commercial nature such as (i) running of Club (ii) issue in corporate sponsorship (ii) sale of corporate boxes (iv) awarding in-stadia advertising rights (v)receipts towards TV subsidy (vi) Income from IPL matches (vii) receipts from sale proceeds of World Cup 2007 (viii) receipts from sponsorship for other matches etc. It was observed that the assessee has also held a cricket match for women, though it is against the objects of the Trust and some of the expenses incurred by the assessee are not supported by vouchers. 4. The DIT (E) therefore, held that the assessee is carrying on activities not according to its objects and further that it is carrying on commercial activities and therefore, is not eligible for registration u/s 12AA of the Act. He accordingly u/s 12AA(3) of the Act withdrew the registration granted u/s 12A(a) of the Act against which the assessee is in appeal before us. 5. The learned Counsel for t....
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....a sporting cause or Institutions or to any fund sponsored by the Association or by the Board of Control for Cricket in India or by State Govt. or by Central Govt. 1(2)(xxix) To provide the facility of a Club with such amenities in connection therewith as may be necessary within the Stadium Complex, for recreation and entertainment to its Members and for such other category or categories of Members, on such terms and conditions of Admission, as may be decided, framed and provided for in the Bye-laws of the Club by the Committee. 1(3)(vi) To employ clerks, Managers, Coaches, Umpires, Scorers, Groundsmen, Peons, Servants and Workmen and to pay them in return for services rendered to the Association Salaries, Wages, Gratuities, Pensions, honoraria, compensations, bonuses and/or provident fund and to remove such employees". Thus, according to him, the assessee is organizing the cricket matches strictly in accordance with its objectives and has also applied its income only for such objects. Thus, according to him, the construction of stadiums is also one of the objects of the assessee and in order to achieve the said object, the assessee has received donations and sp....
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....(Kar.) (e) Tamil Nadu Cricket Association vs. DIT (E) reported in (2014) 360 ITR 633. 9. As regards the DIT (E) contention that the assessee is providing club facility which is not in accordance with the objects of the assessee society, it is stated that the club facility is covered by the general objects of the society and therefore, is not in contravention of any of the objects of the assessee. In support of the said contention, he placed reliance upon the decision of the Hon'ble Supreme Court in the case of CIT vs. Kamala Towns Trust (1996) reported in 217 ITR 699 (S.C). 10. As regards the absence of bills and vouchers for certain expenditure, he submitted that the absence of bills and vouchers cannot be a ground for cancellation, but at the most can only lead to disallowance of the same while granting exemption of the assessed income u/s 11 of the Act. In support of his contention, he placed reliance upon the decision of the Tribunal at Chandigarh in the case of Maharshi Markendeshwar Education Trust vs.CIT in ITA 277/CHD/2008. 11. As regards the assessees' conducting of Women's Cricket Tournament, though one of the object of the assessee Trust is to condu....
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....rned DR supported the orders of the DIT(E) and submitted that since the assessee has not been carrying on charitable activities by virtue of the proviso to section 2(15) of the Act, the assessee was not eligible for registration u/s 12A of the Act. He submitted that the DIT (E) has clearly brought out the facts and circumstances of the case and the commercial activities carried out by the assessee which clearly are not in accordance with the objects of the assessee society and therefore, submitted that the cancellation is justified. 14. Having regard to the rival contentions and the material on record, we find that the assessee is affiliated to the BCCI and is conducting cricket matches in Hyderabad by sale of tickets and is also receiving contributions as well as getting revenue by advertisements, sponsorships etc, which have been utilized for construction of the stadium at Hyderabad. According to the DIT (E), all these activities are commercial in nature and therefore, the assessee falls within the proviso to section 2(15) of the I.T. Act and hence its activities are not charitable. By insertion of the proviso to section 2(15) of the Act, the definition of charitable activity ....
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....owever, on 19.07.2011. a notice was issued by the Director of Income Tax (Exemptions) under Section 12AA(3) of the Act that the statement of income and expenditure revealed that the assessee derived income from the following activities:- 1. Subscription 2. Rent for hiring cricket ground, rooms and premises 3. Fees for providing services to IPL 4. Income from advertisement 5. Subsidy from BCCI 6. Sale of ticket for conducting of matches 7. Restaurant and catering income etc. Thus, these receipts were held to be in the nature of trade or commerce or business and hit by the proviso to Section 2(15) of the Income Tax Act, 1961 (hereinafter called as the "Act"). In the circumstances, notice was issued proposing to withdraw the registration granted to the assessee under Section 12AA of the Income Tax Act, 1961. 7. Immediately, on the receipt of the notice, the assessee replied that the receipts were not in the nature of trade or commerce or business, since, the income of the assessee included interest income earned from Fixed Deposits with Banks; subsidy from BCCI was a voluntary grant from the parent body f....
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.... receipts out of IPL matches by giving its ground for conducting those matches were commercial in nature. 12. Referring to Section 12AA(3) read with Section 2(15) of the Income Tax Act, 1961, the respondent/Director of Income Tax (Exemptions) viewed that even if the activities were carried on in accordance with the arrangement with the other party, the activities being not charitable, it was hit by Section 12AA(3) of the Income Tax Act, 1961; thus it was held that the activities were not carried on in accordance with the objects of the trust; the activities not being charitable, the same could not be held to be genuine and the institution was not a charitable institution. Reading genuineness into the activities of the trust and looking at the the objects of the trust, the Director of Income Tax (Exemptions) held that "genuineness" was a term used only to find out whether the institution was charitable or not; thus once the institution was held as not for charitable purpose, Section 12AA registration had to be necessarily cancelled. In the circumstances, the registration originally granted to the assessee stood cancelled with effect from 01.04.2009. 13. The assesse....
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....ty on the advancement of the general public utility to be called as for "charitable purpose" has to qualify itself as charitable activity within the meaning of the expression 'charitable purpose'. As such, the activities of the assessee could not be considered as for a charitable purpose. The Income Tax Appellate Tribunal pointed out that the proviso inserted with effect from 01.04.2009 clearly pointed out that advancement of any other object of general public utility shall not be a charitable purpose, if it involved 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. Considering the said amendment and looking at the activities of the assessee, the Income Tax Appellate Tribunal held that the conduct of the matches by cricket associations could be nothing but in the nature of commercial ventures and the assessee was selling the game for the highest amount of revenue and the effect and the thrust of the assessee was toward....
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....pellate Tribunal upheld the rejection order passed under Section 12AA of the Income Tax Act. The Income Tax Appellate Tribunal further viewed that there was no conflict between the first proviso to Section 2(15) of the Act and the conditions laid down under Section 12AA(3) of the Act for cancelling the registration; thus, when the assessee's case is hit by Section 2(15) of the Act, consequential action is automatic to pass an order under Section 12AA(3) of the Income Tax Act, 1961. It further pointed out that when the assessee was given registration originally, it was on the ground that it was a charitable institution inasmuch as it engaged itself in the advancement of an object of general public utility; however, when the Revenue had found the assessee's activities were oriented towards generating income by converting the sport of cricket into a celebrated industry, the activities not being genuine, rightly, the Revenue had cancelled the registration granted under Section 12AA of the Income Tax Act, 1961. Aggrieved by the same, the present appeal has been preferred by the assessee. 16. Learned Senior counsel appearing for the assessee took us through the various o....
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....e is concerned, Revenue has not substantiated with any material to show the absence of genuineness; all that the Revenue alleges is by conduct of matches, it has exhibited a sense of business or commercial character. This according to the assessee is not a good ground for cancelling the registration under Section 12AA of the Income Tax Act, 1961. 19. Going by the tenor of the language in Section 12AA(3) of the Act and Section 12AA(1) of the Act, the cancellation of the registration under Section 12AA of the Income Tax Act, 1961 is without any substance. He further pointed out that when in a similar assessee's case viz., Gujarat Cricket Association (supra) in the case of Vidarbha Cricket Association v. Commissioner of Income Tax-I, Nagpur the Income Tax Appellate Tribunal Ahmedabad Bench-A dated 31.01.2012 and in I.T.A.No.3/Nag/10 dated 30.05.2011 of the Nagpur Bench, respectively on the very same allegations for cancellation of registration under Section 12AA(3) had held that the cancellation of the registration under Section 12AA of the Income Tax Act, 1961 was contrary to law, the Chennai Bench of the ITAT ought to have followed these decisions, which were rendered a....
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.... the trust and that the objects are in the nature of carrying on trade, commerce or business, the grant of registration originally given may be cancelled; thus, rightly, the registration was cancelled, hence, no exception could be taken to the order of the Income Tax Appellate Tribunal. 21. Heard learned Senior counsel appearing for the assessee and learned Standing counsel appearing for the Revenue and perused the materials available on record. 22. We had already extracted in the preceding paragraph, the objects of the association. Going by the objects, we find that the trust falls under the head of "any other object of general public utility" and hence falls within the meaning of charitable purpose under Section 2(15) of the Act. Section 2(15) of the Act defines "charitable purpose" as it originally stood at the time of grant of registration as under: " 'charitable purpose' includes relief of the poor, education, medical relief and the advancement of any other object of general public utility." 23. Section 2(15) was amended under Finance Act,2008, with effect form 1.4.2009 by substituting the following provision which reads s under: ....
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.... the nature of use or application, or retention, of the income from such activity. Though the section as it stood prior to the substitution in 2008 contained no provision as in the proviso under the 2008 amendment, yet the Supreme Court held that that if the primary or dominant purpose of a trust or institution is charitable, another object which by itself may not be charitable but which is merely ancillary or incidental to the primary or dominant purpose would not prevent the trust or institution from being a valid charity: vide CIT v. Andhra Chamber of Commerce [1965] 55 ITR 722 (SC) (referred to in the decision reported in Addl. CIT v. Surat Art Silk Cloth Mfrs. Association [1980] 121 ITR 1/[1979] 2 Taxman 501 (SC). Thus if the dominant object or the primary object was charitable, the subsidiary object for the purpose of securing the fulfillment of the dominant object would not militate against its charitable character and the purpose would not be any the less charitable. The amendment in the year 2008 made a drastic amendment to deny the status of a charitable purpose to an institution with the object of general public utility, having any activity in the nature of trade, commer....
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....ects of the trust or institution and the genuineness of the activities of the trust, he has to pass an order in writing registering the trust or institution; if he is not so satisfied, he has to pass an order in writing refusing to register the trust or institution. 30. Section 12AA(3) of the Act inserted with effect from 01.10.2004 under the Finance (No.2) Act, 2004 and the amendment inserted by Finance Act, 2010, with effect from 01.06.2010 therein empowering the Commissioner to cancel the registration granted under the stated circumstances, reads as under:- "Provision inserted under Finance Act, 2004: Section 12AA(3):- Where a trust or an institution has been granted registration under clause (b) of sub-section (1) 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 ....
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....s purposes. 34-35. Thus, when the assessee is in receipt of income from activities, which fits in with Sections 11 and 12 of the Act as well as from sources which do not fall strictly with the objects of the trust, would not go for cancellation of registration under Section 12AA of the Act on the sole ground that the assessee is in receipt of income which does not qualify for exemption straight away by itself. All that ultimately would arise in such cases is the question of considering whether Section 11 of the Act would at all apply to exempt these income from liability. These are matters of assessment and has nothing to do with the genuineness of the activity or the activities not in conformity with the objects of the trust. As rightly pointed out by learned Senior counsel appearing for the assessee, as is evident from the reading of Circular No.11 of 2008 dated 19.12.2008, the object of the insertion of first proviso to Section 2(15) of the Act was only to curtail institution, which under the garb of 'general public utility', carry on business or commercial activity only to escape the liability under the Act thereby gain unmerited exemption under Section 11 of t....
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.... had pointed out in the decision reported in the case of Sarvodaya Ilakkiya Pannai (supra), as under: "In order to avail the benefit of exemption under Section 11 of the Income Tax Act, 1961, a Trust can make an application to the Commissioner for registration under Section 12A of the Income Tax Act, 1961. On receipt of the said application for registration of a trust or institution, the Commissioner should satisfy himself about the genuineness of the activities of the trust or institution. In order to satisfy himself, the Commissioner may also make such enquiry as he may deem necessary in that behalf. In the event the Commissioner satisfies himself that the trust is entitled to registration keeping in mind the objects, shall grant registration in writing in terms of Section 12AA(1)(b)(i) of the Income Tax Act, 1961. In the event the Commissioner is not satisfied, he shall refuse such registration in terms of Section 12AA(1)(b)(ii) of the Income Tax Act, 1961. Once such a satisfaction is arrived at by the Commissioner to grant, such registration cannot be cancelled by following the very same provision of section 12AA(b)(i) of the Income Tax Act, 1961 to go into the genuine....
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....ncome Tax Act, 1961. Whether the income derived from such transaction would be assessed for tax and also whether the trust would be entitled to exemption under section 11 are entirely the matters left to the assessing officer to decide as to whether it should be assessed or exempted." 42. In the light of the law declared by this Court in the above said decision, we do not find that the scope of Section 12AA(3) of the Act is of any doubt for a fresh look. It is relevant herein to point out that in two other assessee's case, the Income Tax Appellate Tribunal, Ahmedabad Bench-A rendered in the case of Gujarat Cricket Association (supra) and that of the Nagpur Bench rendered in the case of Vidarbha Cricket Association (supra), considered the said decision reported in Sarvodaya Ilakkiya Pannai (supra) rendered under Section 12AA(3) of the Act. On appeal before the respective High Courts, the decision of the Income Tax Appellate Tribunal was confirmed. 43. Leaving that aside, there being no dispute raised by the Revenue as to the genuineness of the trust, or as to the activities of the trust not being in accordance with the objects of the trust, the question of canc....
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....bjects of the association befitting the status as charitable purpose as defined under Section 2(15), as it stood in 2003 and after granting the registration, if the registration is to be cancelled, it must be only on the grounds stated under Section 12AA(3) of the Act with reference to the objects accepted and registered under Section 12AA, as per the law then stood under the definition of Section 2(15) of the Income Tax Act. Even therein, Courts have defined as to when an institution could be held as one for advancement of any other object of general public utility. Thus, if a particular activity of the institution appeared to be commercial in character, and it is not dominant, then it is for the Assessing Officer to consider the effect of Section 11 of the Act in the matter of granting exemption on particular head of receipt. The mere fact that the said income does not fit in with Section 11 of the Act would not, by itself, herein lead to the conclusion that the registration granted under Section 12AA is bad and hence, to be cancelled. 46. It may be of relevance to note the language used in the definition "charitable purpose" in Section 2(15) of the Act, which states tha....
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....ted in the case of Surat City Gymkhana (supra) was in the context of Section 10(23) of the Income Tax Act, 1961, nevertheless, the fact remains that the understanding of the scope of the expression "general public utility" would nevertheless is of relevance herein. Admittedly when the assessee was granted registration, the Revenue recorded its satisfaction that the objects are of charitable purpose. Thus only possible enquiry under Section 12AA of the Act for cancellation is to find out whether the activities of the trust are genuine or in accordance with the objects of the trust. If any of the income arising on the activities are not in accordance with the objects of the trust, the assessee's income, at best, may not get the exemption under Section 11 of the Act. But this, by itself, does not result in straight rejection of the registration as 'trust' under Section 12AA of the Act. Consequently, we reject the prayer of the Revenue that Section 12AA(1) of the Income Tax Act, 1961 must be read along with Section 12AA(3) of the Income Tax Act, 1961 before considering the cancellation. 49. As far as the unreported decision of this Court in Gowri Ashram (supra) is ....
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..... As regards conducting of IPL Matches, he pointed out that though no services are rendered by the assessee for conducting the matches, the ground where the matches are played are given for rent which is a commercial venture. The subsidy received from BCCI included mainly TV Advertisements sold by BCCI for the conduct of IPL and their commercial receipts arising for IPL transactions. Therefore, the nature of receipt was important than the name of account under which it was accounted. Thus he viewed that the objects and activities would no longer come within the definition of Section 2(15) of the Act after the amendment come in effect from 01.04.2009. 52. As rightly pointed out by the assessee, the Revenue does not question the objects of the Association as not genuine or are in accordance with the objects. All that the Revenue stated was that the nature of receipt could not be called a subsidy. Thus Revenue came to the conclusion that the objects and activities could not come within the meaning of 'charitable purpose' under Section 2(15) of the Act. 53. On going through the materials, the Income Tax Appellate Tribunal pointed out that instead of promoting ....
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....ation was not based on materials indicating objects of general public utility. 56. The assessee is a member of Board of Control for Cricket in India (BCCI), which in turn is a member of ICC(International Cricket Council). BCCI allots test matches with visiting foreign team and one day international matches to various member cricket association which organise the matches in their stadia. The franchisees conduct matches in the Stadia belonging to the State Cricket Association. The State Association is entitled to all in-stadia sponsorship advertisement and beverage revenue and it incurs expenses for the conduct of the matches. BCCI earns revenue by way of sponsorship and media rights as well as franchisee revenue for IPL and it distributes 70% of the revenue to the member cricket association. Thus the assessee is also the recipient of the revenue. Thus, for invoking Section 12AA read with Section 2(15) of the Act, Revenue has to show that the activities are not fitting with the objects of the Association and that the dominant activities are in the nature of trade, commerce and business. We do not think that by the volume of receipt one can draw the inference that the activit....
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.... the previous year, the purpose of such trust/institution shall be deemed as "charitable" despite: it deriving consideration from such activities. However, if the aggregate value of these receipts exceeds the specified cut-off, the activity would no longer be considered as charitable and the income of the trust/institution 'would not be eligible for tax exemption in that year. Thus an entity, pursuing advancement of object of general public utility, could be treated as a charitable institution in one year and not a charitable institution in the other year depending on the- aggregate value of receipts from commercial activities. The position remains similar when the first and second provisos of section 2(15) get substituted by the new proviso introduced w.e.f 01-04-2016 vide Finance Act, 2015, changing the cut-off benchmark as 20'% of the total receipts instead of the fixed limit of Rs. 25,00,000/- as it existed earlier. 3. The temporary excess of receipts beyond the specified cut-off in one year may not necessarily be the outcome of alteration in the very nature of the activities of the trust or institution requiring cancellation of registration already granted to ....