TMI Blog2013 (5) TMI 155X X X X Extracts X X X X X X X X Extracts X X X X ..... order of the Director of Income-tax (Exemptions) passed under section 12AA(3) of the Income-tax Act, 1961 - The registration of the assessee granted under section 12AA has been rightly cancelled - Appeal is dismissed in favour of revenue. - IT Appeal No. 396 (Mds.) of 2012 - - - Dated:- 22-2-2013 - Dr. O.K. Narayanan AND V. Durga Rao, JJ. For the Appellant S. Sridhar. For the Respondent Guru Bashyam. ORDER :- Dr. O.K. Narayanan, Vice-President - This appeal is filed by the assessee. The appeal is directed against the order passed by the Director of Income-tax (Exemptions) at Chennai, dated December 29, 2011, wherein the Director of Income-tax (Exemptions) has cancelled section 12AA registration granted to The Tamil Nadu Cricket Association, exercising the powers conferred on him under sub-section (3) of section 12AA of the Income-tax Act, 1961. 2. The assessee, The Tamil Nadu Cricket Association, is a society registered under the Societies Registration Act, 1860, on 1st of May, 1953. The Memorandum of Association of the assessee has provided a set of main objects in Part IV of its Memorandum of Association and also a set of incidental objects for the purpose ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee. This is the organizational structure of the cricket bodies functioning in India. 6. As the assessee is established for the purpose of promoting and developing the game of cricket, it was registered under section 12AA of the Income-tax Act, 1961 on March 28, 2003. The registration was granted on the basis of the submissions made by the assessee that its activities are covered by Circular No. 395 of the Central Board of Direct Taxes, dated September 24, 1984. The said circular has clarified that promotion of sports and games is an object of general public utility and, therefore, covered under the definition of "charitable purpose" under section 2(15) of the Income-tax Act, 1961. 7. When the assessee was granted registration under section 12AA, section 2(15) read as follows : "'charitable purpose' includes relief of the poor, education, medical relief and the advancement of any other object of general public utility." The above inclusive definition, as amended by the Finance Act, 1983, stood effective from April 1, 1984. 8. Section 2(15) was again substituted by the Finance Act, 2008, with effect from April 1, 2009, whereby a proviso has been added to the m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... details available before him, came to a conclusion that the assessee has deviated from its declared objects and that at present it is carrying on activities of commercial nature and as such there is no justification in continuing the registration granted under section 12AA of the Act. The Assessing Officer, therefore, submitted a proposal to the Director of Income-tax (Exemptions) to initiate proceedings for cancellation of registration under section 12AA(3) of the Act. 12. In view of the above proposal, the Director of Income-tax (Exemptions) called for the details of the Association and examined them in detail. The Director of Income-tax (Exemptions), after examining the details and explanations offered by the assessee, came to a conclusion that the assessee is not pursuing objects of general public utility, but was carrying on activities in the nature of business, resulting in huge turnover year after year and, therefore, the object of the assessee is no longer coming within the definition of "charitable purpose" explained in section 2(15) with effect from April 1, 2009 in view of the proviso inserted under section 2(15) by Finance Act, 2008. He accordingly cancelled the regis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g of advertisement right by the appellant. 9. The Director of Income-tax (Exemption) erred in holding that miscellaneous receipts are commercial in nature. He further erred in observing that sharing of Rs. 2,50,000 from MCC for the advertisement received by the appellant is a commercial receipt." 15. Shri S. Sridhar, the learned counsel appearing for the assessee, argued the case at length. The learned counsel explained that promoting and developing of sports and games are essentially in the nature of general public utility and, therefore, charitable in nature within the meaning of section 2(15) of the Income-tax Act, 1961. It was on the basis of the above foundation that the assessee was granted registration under section 12AA on March 28, 2003. Throughout its existence and even now the assessee is carrying on the same activities in the nature of general public utility by promoting and developing the game of cricket in Tamil Nadu and Puducherry. It is not carrying on any other activity. The assessee is carrying on the very same activities, for which it is established and, therefore, the Director of Income-tax (Exemptions) has no reason to satisfy that the activities carri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ance with the stated objects. Except on the above two grounds, it is not permissible for the authority to cancel the registration under section 12AA(3). 19. The learned counsel for the assessee has relied on another decision rendered by the Income-tax Appellate Tribunal, Nagpur Bench, in the case of Vidarbha Cricket Association v. CIT, passed in ITA No. 3/Nag/10 on May 30, 2011. In the said decision the Tribunal has observed that the Commissioner of Income-tax cannot cancel the registration under section 12AA(3) on the ground that the assessee is not carrying on charitable activities. As per the provisions of section 12AA(3) registration can be cancelled only on two grounds. The first ground is that the activities carried on by the assessee are not genuine. The second ground is that the activities carried on by the assessee are not in accordance with its objects. But for the above two reasons, no other reason can be relied on to invoke the provisions of section 12AA(3) for the purpose of cancelling the registration. 20. We heard Shri Guru Bashyam, the learned Joint Commissioner of Income-tax, who appeared for the Revenue. 21. The learned officer explained that The Tamil Nadu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d of promoting and developing the game of cricket in Tamil Nadu and Puducherry, the assessee is in fact carrying on the activities of promoting and developing cricket as an entertainment. The price of tickets sold to the public is so high that tickets are as good as highly priced market products. 25. In these circumstances, the learned officer explained that the assessee has shifted from its earlier activities of general public utility to commercial activities of generating income and revenue. 26. This change of character proves that the activities of the assessee carried on at present are not in accordance with the objects proclaimed in its Memorandum of Association. The earlier objects for which the assessee was formed into a society were charitable in nature inasmuch as it focused on the promotion and development of the game of cricket as an object of public utility in the State of Tamil Nadu and in the Union Territory of Puducherry. There was the intention of participating the public in the development of the game of cricket, but now it is not so. The public are not participating in the development of the game. They are only spectators to view the costly matches played in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... concept and understanding of the expression "charitable purpose". 32. The above spirit in the expression "charitable purpose" provided in the income-tax legislation was examined by the Privy Council in the case of All India Spinners' Association v. CIT, Bombay [1944] 12 ITR 482 (PC). The Privy Council held that the expression "object of general public utility" is very wide. The exact scope of this expression has not been and, perhaps, cannot be defined. However, this expression would exclude the object of private gain such as an undertaking for commercial profit although it would subserve general public utility. 33. The proviso inserted under section 2(15) with effect from April 1, 2009, subscribes the view expressed by the Privy Council in the above judgment. That is why the proviso has provided that 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t types of matches with wide publicity and thereby earning huge revenue from advertisements. All the activities of the assessee are tuned in such a way that maximum advertisement revenue is derived from any type of match conducted by the assessee. 38. The above paradigm shift in the activities carried on by the assessee has been treated by the Director of Income-tax (Exemptions) as a deviation from the objects for which the assessee was formed earlier. The assessee was formed and registration under section 12AA was granted on the proclaimed object of developing the sports of cricket, whereas at present the assessee is carrying on revenue-earning exercise by arranging international matches, IPL matches, etc., and focusing its efforts on maximizing the revenue. Therefore, he held that the activities carried on by the assessee are not genuine, inasmuch as the activities are not in accordance with the real objects for which the assessee was formed and registration under section 12AA was granted. In that way, the Director of Income-tax (Exemptions) held that the case of the assessee has satisfied the requirement of first limb of section 12AA(3) so as to justify the cancellation of 12A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee. IPL match is a big game of big money. In fact it is an entertainment industry by itself. 41. Now, in addition to IPL matches, Celebrity Cricket Matches are also being held all over India. All the players in Celebrity Cricket Tests are film stars. The associations like the assessee are conducting all these Celebrity Cricket Matches. In Celebrity Cricket Matches, there is no element of public utility. All these activities are either for money or for fame or for market image. 42. As already stated, 78 per cent of the total receipts came out of advertisement revenue. Advertisement revenue is collected to such an extent only because of the extensive marketing made by the assessee and the BCCI. 43. De facto speaking, except for a small amount of interest, subscription and rent, the entire income of the assessee is made out of advertisement revenue generated in the course of conducting different cricket matches. The costs of tickets are very high. It is not possible for a layman to buy a ticket and witness a cricket match. The advancement of an object of general public utility cannot be disassociated from general public which includes poor and laymen. 44. In the cour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ey in different teams to earn super profit. Maximum revenue is generated through different marketing strategies. Tickets are sold for high prices, which are not normally accessible to the general public. When all these features are taken together, it is seen that assessee has become a profit centre. 49. The learned counsel appearing for the assessee has relied on the judgment of the honourable Madras High Court rendered in the case of CIT v. Sarvodaya Ilakkiya Pannai [2012] 343 ITR 300 (Mad). In the said judgment their Lordships have held that under section 12AA(3) a Commissioner of Income-tax is empowered to cancel 12AA registration only on two conditions laid down in that section. Those two conditions are that after obtaining the registration, the activities of the assessee or institution are found to be not genuine or that after obtaining the registration the trust or institution is found not carrying on its activities in accordance with its objects. To support the same, the learned counsel has also relied on two decisions of the Income-tax Appellate Tribunal. The first decision is that of the Ahmedabad Bench-A rendered in the case of Gujarat Cricket Association v. DIT (Exempt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of any other object of general public utility". The activities of the assessee do not come within the conceptual framework of charity vis-a-vis activity of general public utility envisaged in the Income-tax Act as laid down in section 2(15). As already stated, it has become an industry by itself. The pattern of the receipts accounted by the assessee, shows that the revenue is generated from advertisement and special events like IPL matches, celebrity matches, etc. These are all commercial activities. Therefore, it is crystal clear that even though cricket matches are conducted by the assessee, they are not conducted in accordance with the objects as stated in its Memorandum of Association and those activities are not for "advancement of any other object of general public utility", as explained in the proviso to section 2(15) of the Act. 54. Therefore, we have to state that the above judgment and the decisions cited by the learned counsel are not applicable to the present case for the reason that only one aspect of the issue was presented before the honourable court and co-ordinate Benches of the Tribunal. The necessary link between charity and the activities has not been highli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ricket matches or not, which is the issue to be looked into. It is the purpose for which those physical activities are carried out. There is no case, as far as physical activities are concerned, that the game conducted by the assessee is not genuine. It becomes not genuine when we look into the objects for which the association is formed and registered under section 12AA of the Act. 58. Likewise, it is further seen that the object of the assessee was to carry on an activity for advancement of an object of general public utility by promoting the cricket game. But, it has deviated from the stated objective by carrying out the game of cricket as an entertainment industry, generating huge revenue. 59. Therefore, in the facts and circumstances of the case, we are of the considered opinion that the case of the assessee is covered by both the limbs stated in section 12AA(3) of the Act. We uphold the order of the Director of Income-tax (Exemptions) passed under section 12AA(3) of the Income-tax Act, 1961. The registration of the assessee granted under section 12AA has been rightly cancelled. 60. In result, this appeal filed by the assessee is dismissed. - - TaxTMI - TMITax - Inco ..... X X X X Extracts X X X X X X X X Extracts X X X X
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