2019 (11) TMI 35 - HC - Income Tax

Registration u/s 12AA rejected of Gujarat Cricket Association[GCA] - According to revenue in view of the amendment under Section 2(15) DIT (Exemption) was justified in taking the view that the activities of the GCA cannot be termed as charitable and such activities were commercial in nature with the element of earning profit from the income of sale of tickets, income from the ICC, income from hosting the international cricket matches etc. - HELD THAT:- The main and predominant object and activity of the assessee is to promote, regulate and control the game of cricket in the State of Gujarat. The undisputed fact is that over a period of years, this activity has been recognized by the Income Tax Department as a charitable activity and the registration under Section 12A of the Act was granted to the assessee. A number of assessment orders under Section 143(3) were passed, wherein the assessee was held eligible for the exemption under Sections 11 and 12 of the Act. It appears that it is only after the Proviso came to be inserted that, all of a sudden, the department now believes that the activity of the assessee is commercial in nature and no longer charitable. It is difficult for us to take the view that the assessee could be said to be carrying on “trade, commerce or business” under the garb of the activity being “general public utility”. Merely because an activity is performed in an organized manner, that alone, will not make such activities as business/commercial activity. The profit motive is one essential ingredient which is apparently missing in the case on hand. In carrying out an activity, one may earn profit or one may incur loss. But for making it as a business activity, the presence of the profit motive is sine qua non.

In the case on hand, the ultimate beneficiary is either the cricketer or the game of cricket. The assessee is not charging any fees or revenue from the cricketer who is the ultimate beneficiary. Thus there is no quid pro quo relationship with the cricketer. The assessee is promoting cricket on the charitable basis as far as real beneficiary is concerned. Whenever the revenue is earned, the same is not on commercial lines and the same could be said to be earned without any commercial attributes. The revenue is generated for recovering the cost, at least partly if not in full

In the aforesaid view of the matter, we are not convinced with the case put up by the Revenue. It is not the case of the Revenue that the objects of the Trust are not charitable, but the case of the Revenue is that the activities undertaken by the Association are not charitable in nature.

In the result, this appeal fails and is hereby dismissed. The substantial question of law, as formulated by this Court, is answered in favour of the assessee and against the Revenue.

Benefit of Section 11 and 12 to the appellant cricket associations - Charitable activities u/s 2(15) - income of the Associations from the sale of tickets etc - HELD THAT:- In carrying on the charitable activities, certain surplus may ensue. However, earning of surplus, itself, should not be construed as if the assessee existed for profit. The word “profit” means that the owners of the entity have a right to withdraw the surplus for any purpose including the personal purpose.

It is not in dispute that the three Associations have not distributed any profits outside the organization. The profits, if any, are ploughed back into the very activities of promotion and development of the sport of cricket and, therefore, the assessees cannot be termed to be carrying out commercial activities in the nature of trade, commerce or business.

It is not correct to say that as the assessees received share of income from the BCCI, their activities could be said to be the activities of the BCCI. Undoubtedly, the activities of the BCCI are commercial in nature. The activities of the BCCI is in the form of exhibition of sports and earn profit out of it. However, if the Associations host any international match once in a year or two at the behest of the BCCI, then the income of the Associations from the sale of tickets etc., in such circumstances, would not portray the character of commercial nature.

The State Cricket Associations and the BCCI are distinct taxable units and must be treated as such. It would not be correct to say that a member body can be held liable for taxation on account of the activities of the apex body.

Irrespective of the nature of the activities of the BCCI (commercial or charitable), what is pertinent for the purpose of determining the nature of the activities of the assessees, is the object and the activities of the assessees and not that of the BCCI. The nature of the activities of the assessee cannot take its colour from the nature of the activities of the donor. - Decided in favour of assessee