TMI Blog2013 (12) TMI 833X X X X Extracts X X X X X X X X Extracts X X X X ..... definition of Section 2(15) of the Income Tax Act. 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 the Revenue has not made out any ground to cancel the registration under Section 12AA(3) of the Act. - Decided in favor of assessee. - Tax Case (Appeal). No. 450 of 2013 and M.P.No.1 of 2013 - - - Dated:- 21-10-2013 - Sivagnanam,JJ. For the Appellant : Mr. P. S. Raman, Senior counsel for Mr. P. R. Raman For the Respondent : Mr. J. Narayanaswamy Standing Counsel for I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rds for the players, officials such as Managers, Coaches, Umpires, Selectors and others who are directly connected with the game. 3. Apart from this, yet another object is to afford required facilities for the cricketers, officials such as Managers, Coaches, Umpires, Selectors and others who are directly connected with the game, members to acquire by purchase, lease, hire or otherwise suitable playgrounds, stadia and any other property, movable and immovable, rights or privileges etc. 4. The objects further seek to impart physical education through the medium of cricket and take all steps to assist the citizens to develop their physique and have a healthy mind and a healthy body; to establish, promote or assist in establishing and promoting and to subscribe to and become a member of any other Association or Club whose objects are similar or in part to the objects of the Association; to create, foster and maintain friendly relations with and among the population of the area under its control through sports, tournaments and competitions connected therewith, to create, develop and foster a healthy spirit of sportsmanship and a broad and generous outlook devoid of all prejudices an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m; to start or sponsor charity or benefit matches and/or to subscribe to funds for the benefit of cricketers, coaches, umpires Staff of the Association or their families; to do all such other acts, deeds, and things as are incidental to or as the Association may deem conducive to the attainment of the objects of the Association. 6. After Considering the genuineness of these objects, as early as 2003 ,the assessee was granted registration as a Trust under Section 12AA of the Income Tax Act, 1961 (hereinafter called as the "Act"). However, on 19.07.2011. a notice was issued by the Director of Income Tax (Exemptions) under Section 12AA(3) of the Act that the statement of income and expenditure revealed that the assessee derived income from the following activities:- 1.Subscription 2.Rent for hiring cricket 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... but some sort of sharing of the advertisement income on account of holding of international test matches and ODI matches, due to which the BCCI has gathered huge advertisement income; thus, the nature of receipt, even though called subsidy by the assessee was necessarily in the nature of income received by the activity of the assessee. 11. As regards the entrance fee charged, the the Director of Income Tax (Exemptions) held that the receipts out of IPL matches by giving its ground for conducting those matches were commercial in nature. 12. Referring to Section 12AA(3) read with Section 2(15) of the Income Tax Act, 1961, the respondent/Director of Income Tax (Exemptions) viewed that even if the activities were carried on in accordance with the arrangement with the other party, the activities being 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 obj ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Tribunal, when the assessee's case was fully covered by the proviso, the proceedings taken under Section 12AA(3) were justified. Thus the Tribunal viewed that the provisions under Section 12 AA (3) could not be read in disregard of Section 2(15) first proviso. It further held that after the insertion of first proviso to Section 2(15) of the Income Tax Act, 1961, effective from 1st April, 2009, every activity on the advancement of the general public utility to be called as for "charitable purpose" has to qualify itself as charitable activity within the meaning of the expression 'charitable purpose'. As such, the activities of the assessee could not be considered as for a charitable purpose. The Income Tax Appellate Tribunal pointed out that the proviso inserted with effect from 01.04.2009 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, o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al public utility was concerned, the Income Tax Appellate Tribunal held that the activities of the assessee are all commercial activities. The Income Tax Appellate Tribunal held that the activities of the association are not in the nature of activities for advancement of any object of general public utility; consequently, the appeal has to be dismissed. The Income Tax Appellate Tribunal upheld the rejection order passed under Section 12AA of the Income Tax Act. The Income Tax Appellate Tribunal further viewed that there was no conflict between the first proviso to Section 2(15) of the Act and the conditions laid down under Section 12AA(3) of the Act for cancelling the registration; thus, when the assessee's case is hit by Section 2(15) of the Act, consequential 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 convert ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... only in those cases where an entity uses this status of charitable institution with a charitable object of general public utility as a mask or a device to hide the true purpose and that object is nothing other than trade, commerce or business or the rendering of any service in relation to trade, commerce or business; as far as the present case is concerned, Revenue has not substantiated with any material to show the absence of genuineness; all that the Revenue alleges is by conduct of matches, it has exhibited a sense of business or commercial character. This according to the assessee is not a good ground for cancelling the registration under Section 12AA of the Income Tax Act, 1961. 19. Going by the tenor of the language in Section 12AA(3) of the Act and 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 Vs. DIT (Exemption) in ITA.No.93(Ahd)/2011 and in the case of M/s.Vidarbha Cricket Association Vs. Commissioner of Income Tax-I, Nagpur the Income Tax Appellate Tribunal Ahmedabad Bench-A dated 31.0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther pointed out that at the time of grant of registration, the Commissioner is empowered to look into the objects of the trust, for the purpose of grant of registration. However, after granting registration, if the Revenue finds that the activities of the trust are not genuine and that the advancement of the object of the general public utility is not in terms of the objects of the trust and that the objects are in the nature of carrying on trade, commerce or business, the grant of registration originally given may be cancelled; thus, rightly, the registration was cancelled, hence, no exception could be taken to the order of the Income Tax Appellate Tribunal. 21. Heard learned Senior counsel appearing for the assessee and learned Standing counsel appearing for the Revenue and perused the materials available 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 s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y shall not be a charitable purpose, if the object 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. Though the section as it stood prior to the substitution in 2008 contained no provision as in the proviso under the 2008 amendment, yet the Supreme Court held that that if the primary or dominant purpose of a trust or institution is charitable, another object which by itself may not be charitable but which is merely ancillary or incidental to the primary or dominant purpose would not prevent the trust or institution from being a valid charity: vide CIT v. Andhra Chamber of Commerce [1965] 55 ITR 722 (SC) (referred to in the decision reported in (1980) 121 ITR 1(Addl. Commissioner of Income-tax v. Surat Art Silk Cloth Manufacturers Association). 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 ag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... self about the genuineness of activities of the trust or institution. The Section further empowers the Commissioner to make such enquiry as he deems necessary in this regard. Once the Commissioner is satisfied himself about the objects of the trust or institution and the genuineness of the activities of the trust, he has to pass an order in writing registering the trust or institution; if he is not so satisfied, he has to pass an order in writing refusing to register the trust or institution. 30. Section 12AA(3) of the Act inserted with effect from 01.10.2004 under the Finance (No.2) Act, 2004 and the amendment inserted by Finance Act, 2010, with effect from 01.06.2010 therein empowering the Commissioner to cancel the registration granted under the stated 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot to be included in the total income of the previous year of the person. So too, Section 12 of the Act on the income derived from property held for charitable or religious purposes. 34. Thus, when the assessee is in receipt of income from activities, which fits in with Sections 11 and 12 of the Act as well as from sources which do not fall strictly with the objects of the trust, would not go for cancellation of registration under Section 12AA of the Act on the sole ground that the assessee is in receipt of income which does not qualify for exemption straight away by itself. All that ultimately would arise in such cases is the question of considering whether Section 11 of the Act would at all apply to exempt these income from liability. These are matters 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 pu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her the particular income of trust is eligible for exemption under Section 12 of the Act is a matter of assessment and this Court had pointed out in the decision reported in 343 ITR 300 in the case of CIT Vs. Sarvodaya Ilakkiya Pannai, as under:- " In order to avail the benefit of exemption under Section 11 of the Income Tax Act, 1961, a Trust can make an application to the Commissioner for registration under Section 12A of the Income Tax Act, 1961. On receipt of the said application for registration of a trust or institution, the Commissioner should satisfy himself about the genuineness of the activities of the trust or institution. In order to satisfy himself, the Commissioner may also make such enquiry as he may deem necessary in that behalf. In the event the Commissioner 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 reg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ould be empowered to cancel and that too, only on two conditions laid down under Section 12AA(3) of the Income Tax Act, 1961. Whether the income derived from such transaction would be assessed for tax and also whether the trust would be entitled to exemption under section 11 are entirely the matters left to the assessing officer to decide as to whether it should be assessed or exempted." 42. In the light of the law declared by this Court in the above said decision, we do not find that the scope of Section 12AA(3) of the Act is of any doubt for a fresh look. It is relevant herein to point out that in two other assessee's case, the Income Tax Appellate Tribunal, Ahmedabad Bench-A rendered in the case of Gujarat Cricket Association Vs. DIT (Exemption) in ITA.No.93(Ahd)/2011 dated 31.01.2012 and that of the Nagpur Bench rendered in the case of M/s.Vidarbha Cricket Association Vs. Commissioner of Income-tax-I, Nagpur in ITA.No.3/Nag/10 dated 30.05.2011, considered the said decision reported in 343 ITR 300 in the case of CIT Vs. Sarvodaya Ilakkiya Pannai rendered under Section 12AA(3) of the Act. On appeal before the respective High Courts, the decision of the Income Tax Appellate Trib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing counsel appearing for the Revenue. As rightly observed by learned Senior counsel appearing for the assessee, the Revenue granted registration under Section 12AA of the Act satisfying itself as to the objects of the association befitting the status as charitable purpose as defined under Section 2(15), as it stood in 2003 and after granting the registration, if the registration is to be cancelled, it must be only on the grounds stated under Section 12AA(3) of the Act with reference to the objects accepted and registered under Section 12AA, as per the law then stood under the definition of Section 2(15) of the Income Tax Act. Even therein, Courts have defined as to when an institution could be held as one for advancement of any other object of general public utility. Thus, if a particular activity of the institution appeared to be commercial in character, and it is not dominant, then it is for the Assessing 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 gra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he case of Assistant Commissioner of Income Tax Vs. Surat City Gymkhana, reference was made about this decision and the Apex Court pointed out that the Revenue did not challenge this case and it attained finality. 48. It is no doubt true that the decision reported in (2008) 300 ITR 214(SC) in the case of Assistant Commissioner of Income Tax Vs. Surat City Gymkhana, was in the context of Section 10(23) of the Income Tax Act, 1961, nevertheless, the fact remains that the understanding of the scope of the expression "general public utility" would nevertheless is of relevance herein. Admittedly when the assessee was granted registration, the Revenue recorded its satisfaction that the objects are of charitable purpose. Thus only possible enquiry under Section 12AA of the Act for cancellation is to find out whether the activities of the trust are genuine or in accordance with the objects of the trust. If any of the income arising on the activities are not in accordance with the objects of the trust, the assessees income, at best, may not 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 Sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w of the Income Tax Appellate Tribunal that the order passed by the Director of Income Tax (Exemptions) was in accordance with the provisions of the Income Tax Act, 1961. He viewed that the conduct of test matches and ODI are in the nature of commerce or business. Though the assessee claimed their activities for promotion of sports, he held that the dominant feature is evident from the huge profits received and hence the amount received from BCCI as subsidy are commercial. As regards conducting of IPL Matches, he pointed out that though no services are rendered by the assessee for conducting the matches, the ground where the matches are played are given for rent which is a commercial venture. The subsidy received from BCCI included mainly TV Advertisements sold by BCCI for the conduct of IPL and their commercial receipts arising for IPL transactions. Therefore, the nature of receipt was important than the name of account under which it was accounted. Thus he viewed that the objects and activities would no longer come within the definition of Section 2(15) of the Act after the amendment come in effect from 01.04.2009. 52. As rightly pointed out by the assessee, the Revenue does no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Commissioner had satisfied himself about the objects of the trust and the genuineness of the activities as falling within the meaning of 'charitable purpose', as it stood in 2003. The Revenue does not deny as a matter of fact that the objects remain as it was in 2003 and there is no change in its content to call the assessee's object as not genuine. There are no materials to indicate that the grant of registration was not based on materials indicating objects of general public utility. 56.The assessee is a member of Board of Control for Cricket in India (BCCI), which in turn is a member of ICC(International Cricket Council). BCCI allots test matches with visiting foreign team and one day international matches to various member cricket association which organise the matches in their stadia. The franchisees conduct matches in the Stadia belonging to the State Cricket Association. The State Association is entitled to all in-stadia sponsorship advertisement and beverage revenue and it incurs expenses for the conduct of the matches. BCCI earns revenue by way of sponsorship and media rights as well as franchisee revenue for IPL and it distributes 70% of the revenue to the member cr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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