TaxTMI 
TaxTMI 
2016 (10) TMI 537
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....ed 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 of the Association and at any rate cannot be a ground for cancellation o....
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....de 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 the assessee submitted that the object of the assessee society was to promote the game of cric....
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....a 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 sponsorships and the income therefrom is utilized for the objects of the assessee only. Therefore, according to him, since the assessee has s....
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....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 conduct cricket matches only for men, it was submitted that the conducting of the cricket tournament is in keeping with the overall objects of the association and the women's cricket match ....
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.... (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 has undergone a change. Earlier, the definition of charitable activity included "the activity in the advancement of any object of general public utility", whereas by insertion of the proviso, advancement of any object of general public utility shall not be a charitable purpos....
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....t 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 for promotion and development of the game of cricket in Tamil Nadu; there was no commercial activity 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 su....
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....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 assessee contended before the Income Tax Appellate Tribunal that since its inception and the date of granting of the registration under the Act, 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 activi....
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....09 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 towards maximising the revenue. Citing IPL matches held and the manner of selection of players, the Income Tax Appellate Tribunal held that the matches 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 t....
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.... 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 objects of the Association and pointed out to the clear distinct words used in Section 12AA(1) and 12AA(3) of the Act as well as the first proviso to Section 2(15) of the Act 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 (....
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.... 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 as early as 2011 and 2012. He further pointed out to the unreported decision of this Court in the case of Gowri Ashram v. DIT (Exemptions) [2013] 356 ITR 325/217 Taxman 97/36 taxmann.com 15 (Mad.) as well as in the case of CITv. National Institute of Aeronautical Engg. Educational Society [2009] 315 ITR 428/184 Taxman 264 (Uttaranchal) and submitted that they stand on a different line, they being the decisions rendered on the r....
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....ble 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: '2. Definitions. .... (15) "charitable purpose" includes relief of the poor, education, medical relief, preservation of environment (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 ....
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....stitution 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, 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. 25. 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 ....
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....d 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 opportunity of being heard." 31. After amendment in the year 2010, Section 12AA(3) of the Income Tax Act reads as follows: "Section 12AA(3):- Where a trust or an institution 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 tru....
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.... 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 the Act. 36. In the decision reported in Sinhagad Technical Education Society v.CIT [2012] 343 ITR 23/206 Taxman 314/19 taxmann.com 136 (Bom.) the Bombay High Court held as follows: "As a result of the amendment, which has been brought about by the Finance Act of 2010, Sub-section (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. Sub- section (3) was inserted into the provisions of Section 12AA by the Finance (No.2) Act, 2004 with effect from 1 Octob....
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....r 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 genuineness of the activities of the trust. However, the Commissioner is empowered to revoke the certificate in terms of Section 12AA(3) of the Income Tax Act, 1961. As Commissioner is empowered to revoke 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." ....
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....red 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 cancellation under Section 12AA of the Act does not arise. We further hold that at the 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(15) 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 s....
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....essing 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 that charitable purpose includes relief of the poor, education, medical relief and advancement of any 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 the case ofHiralal Bhagwati v. CIT [2000] 246 ITR 188 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 examin....
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.... 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 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 the case of National Institute of Aeronautical Engg. Educational Society (supra), 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. 50. As far as unreported decision of this Court in Gowri Ashram (supra) is concerned, while rejecting the appeal filed by the assessee on the rejection of the application for registration, this Court observed that it ....
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....e 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 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 ....
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....er 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 activity is commercial. The Income Tax Appellate Tribunal's view that it is an entertainment and hence offended Section 2(15) of the Act does not appear to be correct and the same is based on its own impression on free ticket, payment of entertainment tax and presence of cheer group and given the irrelevant consideration. These considerations are not germane in considering the question as to whether the activities are genuine or carried on in accordance with the objects of the Association. We can only say that the Income Tax Appellate Tribunal rested its decision on consideration which are not relevant for considering the test specified under Section 12AA(3) to impose commercial character to the activity of the Association. In the circumstances, we agree with the assessee that th....
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....ging 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 the trust or institution. Hence, section 13 of the-Act has been amended vide Finance Act, 2012 by inserting a new sub-section (8) therein to provide that such organization would not get benefit of tax exemption in the particular year in which its receipts from commercial activities exceed the threshold whether or not the registration granted is cancelled. This amendment has taken effect retrospectively from 1"1 April. 2009 and accordingly applies in relation to the assessment year 2009-10 onwards. 4. In view of the aforesaid position, it is clarified that it shall not be mandatory to cancel the registration already granted u/s 12.AA to a charitable institution merely on the ground that the cut-off specified in the proviso to section 2{15) of the Act is exceeded in a particu.lar year without there being any....