TaxTMI 
TaxTMI 
2017 (11) TMI 560
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....lly when the assessee has received substantial amount from different parties towards sponsorships. 3. On the facts and in the circumstances of the case and in law, the ld CIT(A) has erred in holding that the activities of the assessee are chartiable in nature and not in the nature of trade, business and commerce specifically when the assessee has given these parties the sole and exclusive rights to sponsor the match and also the right to reassign the complete team sponsorship rights." 3. The brief facts of the case is that assessee is a sports Federation who filed its return of income on 07/09/2011 declaring nil income. Along with the audit report in form No. 10 B. And also balance sheet income expenditure account etc. The assessee is recognised as a charitable trust under section 12 A of the income tax act, 1961 and is also recognised under section 80 G (5)(vi) of the act. Its main object are to promote and maintain high standard of the game of the basketball all over the country. During the course of assessment proceedings it was noted by the Ld. AO that assessee is in receipt of sponsorship income from Asia Tanjania China as well as sponsorship for NBC, Ludhiana. Therefore,....
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....to 8 are against denial of exemptions and computation of income as business income since the ground nos. 2 to 8 inter-related are taken up together for the disposal. The ld. Counsel for the assessee reiterated the submissions as made in the written submissions. The submissions of the ld. Counsel for the assessee are reproduced as under: 'Brief facts of the case are that assessee is an association registered under Rajasthan Sports (Registration, Recognition and regulation of Association) Act, 2005 and formed with the objective of promoting the sport of Cricket within the State of Rajasthan. RCA, under a Memorandum of Understanding with Rajasthan State Council has exclusive use and possession of Sawai Mansingh Stadium for the purposes of organizing national and international cricket matches. The main object of the association is to control, supervise, regulate or encourage, promote and develop the game of cricket in the areas under the jurisdiction of Association on no profit no loss basis. Assessee was holding registration u/s 12A w.e.f. 25.11.1988 and thus was claiming exemption u/s 11. For the year relevant to appeal, assessee filed return of income on 29.09.2008 declari....
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....re the Hon'ble Rajasthan High Court, who has allowed the assessee's prayer and directed to consider the application afresh without influencing any of the observation made by the appellate authority. The assessee has been provided reasonable opportunity of being heard by the ld. CIT. The assessee trust made it clear that this amendment in object of memorandum in 2005 was due to change made in the Rajasthan Sports (registration, Recognition and Regulation of Association) Act, 2005. The amended objects were not voluntary change. The assessee has to follow the said laws related to sports activities. The comparison given by the ld. CIT in his order dated 28.03.2013 does not show any fundamental deviation from the original charitable activities to non-charitable activities. The assessee's object to promote the cricket in State by providing / involving various activities at the district level to state level through coaching provided by coaches, ground and facilities etc. Therefore, the assessee's activities are charitable. The other activities are incidental or conductive of the main activity. The case laws referred by the assessee particularly the Hon'ble Delhi High C....
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....emption u/s 11. Further, for claiming exemption u/s 11, preconditions are that: (i) assessee holds a valid registration u/s 12A (ii) income is applied in accordance with the provisions of section 11 and (iii) there is no violation in terms with section 13. In the instant case, so far as registration u/s 12A is concerned, the same is restored by Hon'ble ITAT, thus assessee can claim exemption u/s 11 subject to the fulfilment of conditions prescribed u/s 11 r.w.s.13. Section 11 of the Income Tax Act provides exemption in respect of income of charitable or religious trusts if the same is applied towards the objects of the trusts. A summary of provisions of section 11 is as under: (i) If income is "applied" to charitable/ religious purposes in India (11(1)(a) &11(1)(b): to the extent it is actually applied to such purposes during the financial year. Even courts have held that if the expenditure is on capital account on object(s) contained in the object clause, the expenditure will amount to application of income. Further, to be eligible to claim exemption, at least 85 % of income has to applied towards charitable/ religious purposes, however certain relaxat....
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....section 2(15), wherein the word "charitable purpose" is defined as to include: (a) relief of the poor, (b) education, (c) medical relief, and (d) advancement of any other object of general public utility. However, with effect from 01.04.2009 (i.e., from assessment year 2009-10 onwards), section 2(15) has been amended to the extent that, the "advancement of any other object of general public utility" shall not qualify as a "charitable purpose" if the same involves the carrying on of any activity in the nature of trade, commerce or business, or rendering of any service in relation to any trade, commerce or business, for a consideration. Now coming to the merits of the case, at the outset, brief background of assessee association is submitted as under: Rajasthan Cricket Association (RCA) is duly registered under the provision of Rajasthan Sports (Registration, Recognition and Regulation of Association) Act, 2005. The Association was formed solely with the objective of promoting the sport of cricket within the State of Rajasthan. The State Government through this law regulates, recognizes and facilitates sport activities in the State. Rajasthan Sports (Registration,....
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....ith the primary motive to earn profit, whereas the Association never acted as a professional advertiser, TV producer etc. No matches of any game other than cricket or no other events are organized to attract audience rather only cricket matches are being organized whether the same result into profit or loss. Further, all the cricket matches do not attract audience, e.g. matches between India v. South Africa and India v. New-Zealand could not even reach upto 70-80% of the collection. However, during the year under consideration, assessee organized ODI match between India v. Pakistan from which substantial surplus was earned. Your honours would appreciate the popularity of India Pakistan matches. Hon'ble Madras High Court in the case of TamilNadu Cricket Association has held that volume should not be the sole consideration to decide the activity of the society rather the nature of activity vis-a-vis the predominant object is to be seen which in our case is charitable in nature. Further, being registered under Rajasthan Sports (Registration, Recognition and Regulation of Association) Act, 2005, assessee is authorized as well as well equipped for organizing all the cricket match....
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....ket and no other activity of whatsoever nature has been carried out and neither it is engaged in the systematic activity as hotelier, thus the said act of association is fully in the direction of achieving its basic object of promoting Cricket and cannot be viewed adversely. It is also to be noted that RCA is run by a Committee, which consists of members from different walks of the Society and such members are not professional managers or businessmen. Agreement with the players is only to control and monitor their activities to bring the same in accordance with the objects. RCA is providing technical and financial support to the all DCAs (District Cricket Association) i.e. providing Equipments, nets, balls, etc. without any consideration on other side RCA is getting only affiliation fee from them which is very nominal (Rs. 200/- only). It is pertinent to note that the RCA has provided Grants to Districts of a substantial amount Rs. 39,20,763/- (APB 5) i.e. Rs. 5,69,763/- on cricket equipment to DCA, Infrastructure Development in districts and Rs. 32,00,000/- on subsidy to Districts (APB 14). Also, RCA is organizing various matches of national level tournaments like Ranji Trop....
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.... business for the purpose of Section 2(15) of the Act the object and purpose of the Section must be kept in mind and a broad and extended definition of business would not be applicable for the purpose of interpreting and applying the first proviso to Section 2(15) of the Act. The relevant extract of the said judgment is as under:- "Section 2(15) defines the term "charitable purpose". Therefore, while construing the term "business" for the said section, the object and purpose of the section has to be kept in mind. We do not think that a very broad and extended definition of the term "business" is intended for the purpose of interpreting and applying the first proviso to section 2(15) of the Act to include any transaction for a fee or money. An activity would be considered "business" if it is undertaken with a profit motive, but in some cases this may not be determinative. Normally, the profit motive test should be satisfied but in a given case activity may be regarded as business even when profit motive cannot be established/ proved. In such cases, there should be evidence and material to show that the activity has continued on sound and recognized business principles, and pursue....
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....s for a consideration or a fee. The object of introducing the first proviso is to exclude organizations which are carrying on regular business from the scope of "charitable purpose". The purpose of introducing the proviso to Section 2(15) of the Act can be understood from the Budget Speech of the Finance Minister while introducing the Finance Bill 2008. The relevant extract to the Speech is as under: " "Charitable purpose" includes relief of the poor, education, medical relief and any other object of general public utility. These activities are tax exempt, as they should be. However, some entities carrying on regular trade, commerce or business or providing services in relation to any trade, commerce or business and earning incomes have sought to claim that their purposes would also fall under "charitable purpose". Obviously, this was not the intention of Parliament and, hence, I propose to amend the law to exclude the aforesaid cases. Genuine charitable organizations will not in any way be affected." The expressions "business", "trade" or "commerce" as used in the first proviso must, thus, be interpreted restrictively and where the dominant object of an organisation is charitab....
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....s to promote, regulate and control the game of cricket in and around Delhi. The undisputed fact is that over the years this activity has been recognized by the Income Tax Deptt. as a charitable activity and registration u/s 12A was granted to the assessee. A number of assessment orders u/s 143(3) were passed, wherein the assessee was held as eligible for exemption u/s 11/12 of the Act. Hence this fact of the assessee being a charitable institution is not in dispute. 10.8. The core activity of the assessee is undisputedly, charitable in nature. Hence it is not the case of the Revenue that the assessee is carrying on "trade, commerce or business" under the garb of the activity being "general public utility. As regards the various receipts of the assessee, we find that in the case of Tamil Nadu Cricket Association, the receipts were from: 1. Subscription 2. Renting for hiring cricket ground rooms and premises 3. Fee for providing services for IPL 4. Income from advertisement 5. Subsidy from BCCI 6. Sale of tickets for conducting the matches and 7. Restaurant and catering income. Such receipts of money by the Tamil Nadu Cricket Association were not considered by....
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....be viewed, from view point of the assessee. The other person with whom the assessee has an agreement, may have its own object and reason for doing transaction and accordingly, the nature of transaction and the resultant activity would be determined in the other persons hands. However, that by itself, should not have any bearing at all on the nature of the transaction, as well as resultant activity in the hands of assessee. To carry out a transaction in an organized manner and to ensure that the transaction would help the assessee in achieving its charitable object, it is imperative that the terms and conditions of the transactions are clearly defined, to avoid any confusion or chaos. It will be further good, if these terms and conditions are reproduced in writing, in the form of an agreement. Merely because an activity is performed in an organized manner, that alone will not make these activities as business/commercial activity. Profit motive is one essential ingredient, which is apparently missing in this case. In carrying out an activity, one may earn profit, or one may incur loss. But for making it as business activity, the presence of profit motive is a sine qua non i.e. condit....
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....f the activity of providing food and refreshments ITA No. 3095/Del/2012 Delhi & District Cricket Association, New Delhi to Members and Associated Persons. Running of a canteen is an incidental and necessary activity as is in every organization. This cannot be termed as business activity. It is part and parcel of the charitable activity and the receipt in question cannot be termed as exempt from activity which is in the nature of "trade, commerce or business". 11.6. On advertising and contractual receipts the same explanation as was given by the assessee, as in the case of sponsorship money. Consistent with the view expressed by us, when we were dealing with sponsorship money, we hold that these contractual receipts go to reduce part of the cost incurred by the assessee for its charitable activity and hence cannot be termed as business or that the assessee has undertaken activity in the nature of "trade, commerce or business". 11.7. On receipts from IPCL an elaborate explanation was given, the pith and substance is that expenditure has to be incurred by the DDCA on various items, as coordination has to be done and the aggregate of expenditure incurred for the same is Rs. 238 l....
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....e game of the cricket. 5. The assessee is not charging any fees or revenue from the cricketer who is ultimate beneficiary. Thus, there is no quid pro quo relationship with the cricketer. The assessee is promoting cricket on charitable basis as far as real beneficiary is concerned. 6. Whenever the revenue is earned these are not earned on commercial lines and these are earned without any commercial attributes. The revenue is generated for recovering the cost, at least partly if not fully. 7. The assessee has not entered any transaction with any person on profit motive. The other person may be an entrepreneur or may be doing business but the assessee has entered the transaction only for the sole and dedicated purpose i.e. for the promotion of cricket. 8. These facts are worth noting that (a) the assessee has not diverted its funds for any purpose other than promotion of cricket; (b) the assessee has not done any activity or transaction with profit motive, (c) the assess has not done any activity beyond and outside its objects and (d) there is no change in facts so as to deviate from the stand taken by ld. AO in all the past years accepting the claim of the assessee all along on facts....
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....f Society to promote football The main objective of the assessee was to promote the game of football in India which certainly amounts to charitable purpose, being covered under the limb "the advancement of any other object of general public utility" as contained in section 2(15). The receipt of fees from the sponsorship rights and telecasting rights do not amount to carrying out of any activity in the nature of trade, commerce or business but is incidental to carrying on of the main objective of the Respondent assessee. It was further observed that no part of its surplus could be distributed to the board of its members in the form of dividend or profit. The mere fact that the appellant society had generated sponsorship funds, during the course of carrying on the ancillary objects, shall not alter the character of the main objects so long as the predominant object continues to be charitable and not to earn the profit. Further the proviso to section 2(15) of the Act cannot be applied to the appellant society as it is not engaged in any activity which is in the nature of trade, commerce and business. Therefore, the society has to be necessarily considered a genuine charitable organiza....