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TMI Blog2013 (12) TMI 833X X X X Extracts X X X X X X X X Extracts X X X X ..... o its activities in earlier years, merely on account of the amendment to the definition of 'charitable purpose' in the Act ? 3. Whether the Tribunal was right in not following the decisions of the jurisdictional High Court and coordinate benches of the Tribunal, on the ground that certain aspects had not been high-lighted before the Hon'ble High Court and the coordinate Benches ?" 2. The assessee is a Society registered under the Tamil Nadu Societies Registration Act. The said Society was granted registration under Section 12AA of the Income Tax Act, 1961 on 28.03.2003. As is evident from the reading of the Memorandum of Association, the objects of the Association are as follows:- (a) to maintain a general control of the game of cricket in the State and the Union Territory of Pondicherry and give its decision on all matters concerning the game either when referred to or suo moto. (b) to spread the game throughout the State by organizing tournaments, including Inter-University, Inter-School and Inter-Association matches, to educate young sportsmen in the game generally and also in the field of physical culture and the spirit of sportsmanship. The benefits would be available to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s in such manner as the General Body may consider desirable for the fulfillment of the objects of the Association; to invest monies and funds of the Association as per the provisions of the Income Tax Act, 1961; to maintain a panel of approved cricket umpires and to do such acts as may be necessary for this purpose including holding of prescribed periodical tests with a view to enable them to qualify themselves as first class umpires; to organise a proper coaching scheme for the benefit of cricketers in the City and in the Districts under the supervision of coaches from India and abroad; to take such action as may be necessary to coordinate the activities of affiliated club, District Associations and institutions and their members in relation to the Association and amongst themselves. 5. To achieve the objects, the assessee takes steps to arrange, supervise, regulate and finance visits of State teams or Foreign teams under the auspices of bodies like the Board of Control for Cricket in India; to draw up and organise a proper coaching scheme for the benefit of young and promising cricketers within the State and the Union Territory of Pondicherry, to draw up a scheme of net practice ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erce or business; the TV subsidy was given to all State Associations and was part of the scheme of BCCI, being a voluntary donation, there was no commercial character attached to these receipts; so too, the donations and contributions and the sale of tickets in conducting matches organised by BCCI. Pointing out that the Association was not running any canteen or restaurant,the assesse submitted that as far as fee for providing services to IPL is concerned, the entire income from the sale of tickets belonged to the franchisee, and therefore, there was no service rendered or charges made by the assessee. 8. Referring to the satisfaction recorded as to the genuineness of the objects of the association under the provision contained in Section 12AA of the Act, the assessee pointed out that the genuineness of the objects of the trust, thus not being in question and the objects of the trust thus remaining the same as before and the activities also being in accordance with the objects of the trust, there was no case made out for cancelling the Registration. 9. After hearing the assessee, the respondent passed the order under Section 12AA (3) rejecting the claim of the assessee and thereb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n charitable activity as per Section 2(15) of the Act is erroneous in law; in any event, all that Section 12AA(3) of the Act prescribes for cancellation is the genuineness of the activities of the trust or that the activities are not carried on in accordance with the objects of the trust. The assessee contended that it conducts National and International matches including the District League. In addition to the income arrived by sale of tickets, income out of advertisement revenue arising out of the telecast rights auctioned to different visual media, obtained from BCCI in India was distributed among the different States in India and this is in the nature of grant/subsidy from BCCI which had been confined by BCCI. 14. The Income Tax Appellate Tribunal pointed out that the physical play of cricket game was not the sole point which would decide as to whether the asssessee association was carrying on its activities as stated in the memorandum of association or the activities were genuine or not. The Tribunal pointed out that the activities were genuine; however the matches conducted did not go to the extent of "advancement of any other object of general public utility". The Tribunal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd of the nature of activity undertaken, the entire activity of commercial nature were oriented towards earning hyper profits and these activities contributed 86.5% of the receipts of the assessee in the Financial Year 2008-09. In this background, the Income Tax Appellate Tribunal referred to the decision reported in 77 ITR 435 in the case of Bangalore Race Club Vs. Commissioner of Income Tax, which related to the case of horse racing and held the same could not be held to be of public utility or interest. After referring to the decision of this Court reported in 343 ITR 300 in the case of CIT Vs. Sarvodaya Ilakkiya Pannai, wherein, this Court considered the effect of Section 12AA(3) of the Act, the Income Tax Appellate Tribunal held that this Court had not considered the effect of Section 2(15) proviso and the necessary facts of the case relating to charitable purpose was not highlighted. It also referred to the decision of the Ahmedabad Bench-A rendered in the case of Gujarat Cricket Association Vs. DIT (Exemption) in ITA.No.93(Ahd)/2011 dated 31.01.2012 as well as other decision of the Nagpur Bench rendered in the case of M/s.Vidarbha Cricket Association Vs. Commissioner of Inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nted out that the cancellation of registration granted is possible only under the stated circumstances, viz., on the Commissioner recording his satisfaction that the activities of the trust are not genuine or are not being carried out in accordance with the objects of the trust or institution; thus unless and until the show cause notice issued contained the grounds and materials as prescribed under Section 12AA(3) of the Act, the question of cancellation of registration, per se, does not arise. 17. Learned Senior Counsel appearing for the appellant further pointed out that the appellant was granted registration under Section 12AA of the Act only on the Commissioner satisfying himself on the objects of the trust and the genuineness of the activities. The nature of activity carried on by the assessee continues to be the same without any change till this date and if any of the activities carried on by the assessee resulted in an income not incidental and not connected with the main activity or main object of the Trust, it would be a matter for assessment. Thus what has to be a subject matter for assessment cannot be considered as a ground for cancelling the registration under Section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the rejection of the application for registration. He also referred to the decision of this Court reported in 343 ITR 300 in the case of CIT Vs. Sarvodaya Ilakkiya Pannai, wherein, under similar circumstances, this Court had held that when a trust is registered with definite objects to carry on its activities and under Section 12AA of the Income Tax Act, 1961, the Commissioner is empowered to cancel registration only on two conditions laid down under Section 12AA(3) of the Income Tax Act, 1961. He further pointed out that whether the income derived from such transaction would be assessed to tax or whether the trust would be entitled to exemption under Section 11 of the Income Tax Act, 1961 are entirely matters to be considered at the time of assessment. Thus, placing reliance on the decision of this Court reported in 343 ITR 300 (CIT Vs. Sarvodaya Ilakkiya Pannai), learned Senior Counsel appearing for the assessee submitted that the Income Tax Appellate Tribunal committed serious error in upholding the rejection order passed by the Director of Income Tax (Exemptions). 20. Countering the claim made by the learned Senior Counsel appearing for the assessee, learned Standing counsel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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;) 24. Section 2(15) as it stood prior to 1983 defined 'charitable purpose' to include relief of the poor, education, medical relief, and the advancement of any other object of general public utility not involving the carrying on of any activity for profit. The phrase "not involving the carrying on of any activity for profit" was omitted from the Section by the Finance Act 1983, with effect from 01.04.1984, consequent on the amendment to Section 11, where under profits and gains of business in the case of charitable or religious trust and institutions would not be entitled to exemption under that Section, except in cases where the business fulfilled the conditions under Section 11 (4). The Section was once again amended by substitution in the year 2008 under the Finance Act, 2008, with effect from 01.04.2009, streamlining the definition of 'charitable purpose', considering the fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able purpose'. 26. The Central Board of Direct Taxes, in paragraph 3.2 pointed out to the scope of the circular as under:- " In such a case, the object of 'general public utility' will be only a mask or a device to hide the true purpose, which is trade, commerce or business or the rendering of any service in relation to trade, commerce or business. Each case would, therefore, be decided on its own facts and no generalization is possible. Assessees, who claim that their object is 'charitable purpose' within the meaning of Section 2(15), would be well advised to eschew any activity which is in the nature of trade, commerce or business or the rendering of any service in relation to any trade, commerce or business." 27. Thus, the anxiety of the Parliament in introducing the proviso to Section 2(15) of the Act is only to check those institution, which attempt to gain exemption under the cloak of a trust. 28. Section 11 of the Act states that income from property held for religious or charitable purposes shall not be included in the total income of the previous year. Section 12 deals with income of trusts or institutions from contributions. Section 12A deals with making application f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hall 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." 32. Thus in contrast to Section 12AA(1)(b) of the Income Tax Act, 1961, where the grant of registration requires satisfaction about the objects of the trust as well as genuineness of the activities, for the cancellation of the registration under Section 12AA(3), all that it is insisted upon is the satisfaction as to whether the activities of the trust or institution are genuine or not and whether the activities are being carried on in accordance with the objects of the trust. Thus, even if the trust is a genuine one i.e., the objects are genuine, if the activities are not genuine and the same not being carried on in accordance with the objects of the trust, this will offer a good ground for cancellation. Thus, in every case, grant of registration as well as cancellation of registration rests on the satisfaction of the Commissioner on findings given on the parameters given in Section 12AA(1) and 12AA(3) of the Act, as the case may be. 33. Regis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (3), a power to cancel registration was conferred upon the Commissioner where a trust or an institution had been granted registration under clause (b) of subsection (1) of Section 12AA. The Commissioner, after satisfying himself that the objects of the trust or an 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, was vested with the power to pass an order in writing cancelling the registration of such trust or institution. By the Finance Act of 2010, subsection (3) was amended so as to empower the Commissioner to cancel the registration of a trust or an institution which has obtained registration at any time under Section 12A (as it stood before its amendment by the Finance (No.2) Act, 1996). As a result of the amendment, a regulatory framework is now sought to be put in place so as to cover also a trust or an institution which has obtained registration under Section 12A as it stood prior to its amendment in 1996. ........... power under Section 12AA(3) can be exercised by the Commissioner in respect of a trust registered prior to 1 June 2010. The mere fact that a part of the requisites for th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... if the Commissioner is satisfied subsequently that the activities of the institution are not genuine or they are not carried on in accordance with the trust/ institution, he could pass an order in writing cancelling the registration of such trust or institution. 39. Referring to Section 11 and 12A of the Act, this Court pointed out that the act of granting registration under Section 12AA(1) itself is a result of a satisfaction recorded by the Commissioner as regards the genuineness of the objects of the trust as well as the activities of the trust and once a satisfaction is arrived at by the Commissioner, the cancellation could only be in terms of Section 12AA(3) of the Income Tax Act, 1961. 40. This Court pointed out that the cancellation made in the case of assessee therein was not on the ground that the activities were not genuine, but the activities of the trust in publication and sale and spread of Sarvodaya Literature and Gandhian Ideologies was not the objects of the trust. This Court pointed out that the cancellation was made not on the ground that the activities of the trust were not genuine but the activities of the trust were not in accordance with the objects of the t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r regarding cancellation, hence has to be seen with reference to the registration and the object satisfying the definition on 'charitable purpose', as it stood at the time of registration and not by the subsequent amendment to Section 2(15) of the Income Tax Act. 44. Learned Standing counsel appearing for the Revenue placed heavy reliance on the proviso to Section 12AA(3) of the Act and submitted that when the assessee has income received from conduct of the matches, which are commercial in nature, as had been found by the Income Tax Appellate Tribunal, the objects of the trust ceased to be charitable. He submitted that going by the definition of Section 2(15) of the Act, rightly, the Commissioner assumed jurisdiction under Section 12AA(3) of the Act to cancel the registration. He further pointed out that for the finding to be recorded that the activities of the trust are not genuine, one must necessarily look into the objects of the association; if the objects of the association reveal commercial nature in the conduct of matches, the association cannot be one for charitable purpose as defined under Section 2(15) of the Act. Thus, there could be no inhibition for the Commissioner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... empirical study of the past activities of the applicant; the Commissioner of Income-tax has to examine that it is really a charitable trust or institution eligible for registration; the object beneficial to a section of the public is an object of "general public utility". The Gujarat High Court held that to serve as a charitable purpose, it is not necessary that the object must be to serve the whole of mankind or all persons living in a country or province; it is required to be noted that if a section of the public alone are given the benefit, it cannot be said that it is not a trust for charitable purpose in the interest of the public; it is not necessary that the public at large must get the benefit; the criteria here is the objects of general public utility. Thus, the Gujarat High Court held that in order to be charitable, the purpose must be directed to the benefit of the community or a section of the community; the expression "object of general public utility", however, is not restricted to the objects beneficial to the whole of mankind; an object beneficial to a section of the public is an object of general public utility; the section of the community sought to be benefited m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 T.C(A).No.91 of 2013 dated 29.04.2013 (Gowri Ashram Vs. Director of Income Tax (Exemptions) is concerned, while rejecting the appeal filed by the assessee on the rejection of the application for registration, this Court observed that it was open for the assessee Society to renew its application as and when it expanded the objects of the Society and were approved by the competent Court. The rejection order passed by the Revenue was on the ground that the objects of the trust were not charitable in character. This decision also has no relevance to the case on hand. 51. As already noted in the preceding paragraphs, considering the provision under Section 12AA(3) of the Act, the cancellation or registration in a given case could be done only under the stated circumstances under Section 12AA(3) of the Act and in the background of the definition relevant to the particular year of registration. As rightly pointed out by the assessee, Revenue does not allege anything against the genuineness of the objects of the assessee or its activiti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 revenue. 54. The Income Tax Appellate Tribunal pointed out that the physical aspect of the game was one in accordance with the objects of the assessee and the activities are genuine. However, the matches held were not in advancement of any specific object of general public utility. The pattern of receipt is commercial in character and the matches conducted are not in accordance with the objects of the Association. Thus, it rejected the assessee's case and held that both the conditions under Section 12AA(3) of the Act stood attracted. 55. As seen from the observation of the Income Tax Appellate Tribunal, although generally it accepted the case of the assessee that the physical aspect of the game was one in accordance with the objects, the quantum of receipt apparently led the Income Tax Appellate Tribunal and the R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the Revenue has not made out any ground to cancel the registration under Section 12AA(3) of the Act. 57. As regards the observation of the Income Tax Appellate Tribunal that IPL Matches and Celebrity Cricket Matches are also being held by the Association and hence it is an entertainment industry, we need not go into these aspects, for, the order of the Director of Income Tax (Exemptions) casts no doubt on the genuineness of the objects of the trust. Hence, it is for the Assessing Officer to take note of all facts, while considering the same under Section 11 of the Income Tax Act, 1961. We disapprove the approach of the Tribunal in this regard. In the above said circumstances, we set aside the order of the Income Tax Appellate Tribunal. 58. In the result, the Tax Case (Appeal) stands allowed. No costs. Consequently, connected MP is closed.< ..... X X X X Extracts X X X X X X X X Extracts X X X X
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