TMI Blog2015 (1) TMI 608X X X X Extracts X X X X X X X X Extracts X X X X ..... r 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. 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. Regarding sale of tickets the assessee explained that no tickets are sold for Ranji Trophy and only in case of international matches, ₹ 200/- per ticket are levied, with a sole intention to control the crowds and that the cost incurred per ticket is much more than the amount which is charged for ticket. Under these circumstances, the sale of tickets cannot be considered as an activity of “trade, commerce or business”. We agree with the submissions of the assessee. Regarding playing cards, it is an incidental recreation activity undertaken in most Clubs and what is charged by the assessee, goes to recover the costs for providing such recreational facility to its member. The receipts are miniscule and hence negligib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9, issued a show cause notice to the assessee proposing withdrawal of registration granted under Section 12A of the Act. 2.1. The notice is extracted for ready reference. Registration under Section 12A was granted to you by this office vide order dt. 6.3.1997. In view of the latest amendment a following insertion has been made to the s.2(15) of the Act from the AY 2009-10 which is reproduced as under: (15) charitable purpose includes relief of the poor, education, medical relief, and the advancement of any other object of general public utility: Provided that the advancement of any other object of general public utility shall not be a charitable purposes, if it involves the carrying on of any activity in the nature of 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. The Association has been engaged in the activities of conducting cricket matches at national as well as international levels in Delhi. The activities which are for the promotion of sports comes under the category of last limb of the s.2(15) of the Act i.e. the advancement of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... DDCA, organizes approximately 1400 league matches among these Clubs, every year by bearing all the expenditure. (3). DDCA provides financial help to all the Clubs and there is no commercial angle in organizing matches. (4). DDCA participates in all the tournaments and matches being played, as per the schedule and it pays all travelling cost, boarding and lodging costs, pays prescribed fees to players, provides balls, grounds, refreshment on ground etc. and there is no commercial angle. (5). the only source for the DDCA is receipt of some amount from the BCCI on account of tournament subsidy. (6). The DDCA is a non-profit organization and applies its surplus for promotion of the game of cricket and that its Objects prohibit distribution of any surplus to its Members. (7). All the Members of the Executive Committee hold honorary position in DDCA; (8). Being registered under Section 25 of the Companies Act, it is a Non- Profit Organisation and is not allowed to work on profit making basis or commercial basis. (9). DDCA has produced a number of excellent cricketers of international repute and this was achieved by nurturing talent irrespective of cast, creed, statu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... DDCA. (20) On Sponsorship money, it was submitted that it is basically a Contribution by the Sponsorers for meeting the expenditure incurred by the Ranji Team. It was pointed out that despite money received from BCCI and money received from sponsorers of ₹ 14.20 lakhs and ₹ 13.01 lakhs respectively, DCCA has to incur an amount of ₹ 29.85 lakhs as the total expenditure incurred by the DDCA during the F.Y. 2008-09 on Ranji matches was ₹ 75.06 lakhs. (21) On sale of tickets, advertisement, souveners etc. it was submitted that: (a) Ranji Trophy and other matches are open to public viewing and no tickets are sold. (b) On international matches, nominal charge is levied, as it would be impossible to control the crowd, if the viewing is free of cost. Tickets are being sold only to restricted public. The cost per ticket is much more than the amount which is charged for ticket and thus there is only a partial recovery. Examples were given. (22). When matches are abandoned, DDCA had to incur additional cost without any receipts. (23) All of this demonstrates that there is no profit motive. (24) On income from advertisement and souveniers, it was s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cannot be considered as charitable activity. Organising IPL matches is in no way connected to promotion and development of the sport of cricket by any logic. Conducting and hosting these type of cricket matches was never in the Objects of Memorandum of Association. 3.3. Reliance was placed by the Ld.DIT(E), on number of case laws. At para 9, he concluded as follows. 9. I have considered the entire facts and circumstances of the case. As per the provisions of section 12AA(3), registration of an Institution can be cancelled if the Commissioner/Director is satisfied that the activities of such Institution are not genuine. In view of the facts narrated in foregoing paragraphs, it is only logical to hold that the activities of the assessee are no longer coming within the definition of charitable purposes after amendment of sec.2(15) of the IT Act, with effect from 1.1.2009. The assessee is pursuing the objects of general public utility and conducting a business, the turnover of which far exceeds the threshold limit as per amended s.2(15) of the IT Act. Once the activity ceases to qualify as charitable, the same cannot be said to be genuine for the purpose of charity. Accordingly, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the decision of Hon ble Madras High Court in the case of Tamil Nadu Cricket Association vs. DIT(E) reported in 360 ITR 633 (Madras) and it is submitted that the case of the assessee is squarely covered by this judgement, as the objects, activities and other facts are para materia. 5.2. Mere charging of fees does not mean that the assessee is carrying out its activity in the nature of trade, commerce and business and thus the Proviso to S.2(15) is not automatically attracted. Reliance was placed on the following judgements. GSI vs.DIT (Del) dt. 26.9.13 Writ Petition no. 7797/2009 reported in 360 ITR 138 (Delhi) ICAI vs. DIT (Del) reported in 35 Taxmann.com 140 5.3. The adverse observations made by the DIT(E) are based on incorrect facts and contrary to the evidences placed on record. The assessee s submissions before the Ld.DIT(E) meet the various allegations made by the DIT(E), pointwise and issue wise and contradict the adverse observations therein. 5.4. For achieving its main charitable object, if an Institution carries on some commercial activity and there is profit, it cannot be considered to be a business activity, with profit motive, so long as, the profit earn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. 6.2. On income from corporate boxes, she submitted that the contracts provide that DDCA is to render various services to these boxes and that if these services are not provided, DDCA should reimburse to the end user and hence it has the attributes of business. On sale of tickets, she submitted that the pricing ranges from 200 to 7500 and this effectively excludes the common man from being a spectator. She pointed out that the maximum expenditure is incurred on lunch and catering and this demonstrates that no element of charity, in application of the Objects of the Association is involved. She reiterated the findings of the DIT(E), on the issue of contractual receipts and income from IPL matches. Written submissions were given citing case laws, which we would be dealing in due course, if necessary. 7. In reply Shri Ashwani Taneja, the Ld.Counsel for the assessee relied on the reply given point wise to the DIT(E), on each of these issues and argued that there is no commercial element in any of the activities and even if there is a commercial element, the profits therefrom were applied towards the objects of the assessee. It was reiterated his contention that the issue is cov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red on an authority to issue orders includes the power conferred on an authority to issue orders include the power to rescind such orders, and the CIT earlier granting the registration to a trust or institution. S.12AA(3) was incorporated wef 1st Oct.2004, to empower the CIT to cancel the registration granted to a trust or institution. The object of this provision is not clarificatory or explanatory. So prior to that date, the authorities granting registration had no inherent power to withdraw or revoke the registration already granted. (Emphasis ours). 9. In the above decision, the Hon ble High Court has clearly held that s.12AA(3) has no retrospective effect as it is neither explanatory nor clajrificatory in nature and the CIT has no power to rescind the order passed by the CIT prior to 1st Oct.2004. Now there is an amendment to s.12AA(3) by the Finance Act, 2010, which has inserted the phrase or has obtained registration at any time u/s 12A after the words sub-s.(1) as appearing in s.12AA(3). This amendment has been made applicable and effective from 1st June,2010. Keeping in view the ratio laid down by the Hon ble High Court in the case of Oxford Academy for Career Devel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (2012) 343 ITR 23 / 249 CTR 45 (Bom) (High Court) it was held as under: S.12AA : Trust or Institution-Registration-Charitable purposes-Registration- Constitutional validity-Amendment of section 12AA(3) is held to be valid. The Commissioner issued the notice under section 12AA(3) on 31 st July , 2007 for cancellation of the registration granted to the petitioner for the assessment year 1999- 2000 on the ground that the petitioner is charging capitation fee and donations in respect of admissions and diverting them in respect of personal gain of trustees. The proceedings were initiated and order was passed cancelling the registration. The said order was challenged before the Tribunal . The Tribunal allowed the appeal of assessee on the ground that the registration was granted under section 12A , which cannot be invoked by section 12AA(3) , which were brought on the statute book w.e.f 1st October, 2004. The appeal against the order of Tribunal is admitted and pending for final disposal before the High Court. Section 12AA(3) has been amended by the Finance Act of 2010 w.e.f. June 2010 giving the power to cancel the registration under section 12A. The Commissioner issued fresh show c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are four main factors that need to be taken into consideration before classifying the activity of the assesseee as charitable under the residuary category, i.e., advancement of any other object of general public utility under section 2(15) of the Act. The four factors are (i) the activity should be for advancement of general public utility; (ii) the activity should not involve any activity in the nature of trade, commerce and business; (iii) the activity should not involve rendering any service in relation to any trade, commerce, or business; and (iv) the activities in clauses (ii) and (iii) should not be for fee, cess or other consideration and if for fee, cess or consideration the aggregate value of the receipts from the activities under (ii) and (iii) should not exceed the amount specified in the second proviso. The earlier test of business feeding or application of income earned towards charity because of the statutory amendment is no longer relevant and apposite. It is evident from Circular No. 11 of2008 that a new proviso to section 2(15) of the Act is applicable to assessees who are engaged in commercial activities, i.e., carrying on business, trade or commerce, in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 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 October 1, 2004, under the Finance (No. 2) Act, 2004, and the amendment inserted by the Finance Act, 2010, with effect from June 1, 2010, therein empowering the Commissioner to cancel the registration granted under the stated circumstances, reads as under : Provision inserted under the Finance Act, 2004 : 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 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. 31. After ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Thus, as regards the question as to whether the particular income qualified under Section 11 of the Act or not is not the same as activity being genuine or not. In the circumstances, we do not agree with the view 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eipt from BCCI could not be called as subsidy. As for the observation of the Income Tax Appellate Tribunal that the twin conditions stood satisfied is concerned, it is not denied by the Revenue that at the time of granting registration, 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 sp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tamil Nadu Cricket Association and hence the case law applies on all fours. 10.4. From a reading of the above case laws, the following propositions emerge. (a) For the cancellation of registration u/s 12AA(3), the Commissioner should record a satisfaction that the activities of the Trust or Institution are not genuine or that the activities are not being carried on in accordance with the objects of the Trust. In the absence of such a finding registration granted u/s 12A or u/s 12AA cannot be cancelled. Cancellation of registration of a charitable Trust, in a given case, is permissible, only under the circumstances stated u/s 12AA(3) of the Act. (b) For an assessee to be classified as charitable under the residuary category i.e. advancement of any other object of general public utility u/s 2(15) of the Act, the following four factors have to be satisfied. i. Activity should be for advancement of general public utility . ii. Activity should not involve any activity in the nature of trade, commerce and business. iii. Activity should not involve rendering of services in relation to any trade, commerce or business. iv. Activities in Clauses b and c above, should ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ke a contradictory stand that, the assessee carries on charitable activity under the residuary head general public utility , but, simultaneously record the said activity as business. (k) There is no statutory mandate that a charitable Institution falling under the residuary Clauses, should be wholly, substantially or in part be funded by voluntary contributions. (l) A pragmatic view is required when we examine the data, which should be analysed objectively. A narrow and coloured view will be counter productive and contrary to S.2(15) of the Act. (m) Accumulation of money/funds over a period of two to three years may not be relevant in determining the nature and character of activity and whether the same should be treated indicative of profit motive i.e. desire or intention to carry on business or commerce. (n) The so called business activities, when intrinsically woven into and is part of the charitable activity undertaken, the business activity is not feeding charitable activities, as they are integral to the charity/charitable activity. (o) What has to be seen is, as to what is the core/main activity of the assessee. The predominant activity shall be the basis of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vices 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 the Hon ble Madras High Court, as activities in the nature of trade, commerce or business . There is no contrary decision cited by the Revenue. Thus none of the above streams of income, when received by the assessee would constitute business activity for the assessee. 10.9. Thus respectfully following the decision of Hon ble Madras High Court in the case of Tamil Nadu Cricket Association (supra), we have to hold that the amounts received by the assessee from a) ground booking charges, b) health club charges, c) income from corporate boxes, d) lawn booking income, e) sponsorship money and sale of tickets, advertisement, souvenirs and other such receipts do not result in the assessee being held as undertaking activities in the nature of trade, commerce or business. These receipts are intrinsically related, interconnected and interwoven with the charitable activity and cannot be viewed separately. The activities resulting in the said r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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 sin qua non i.e. condition precedent at the time of entering into transaction. In this case the facts demonstrate that despite the receipt of amount from sponsorship and subsidy from BCCI, there was deficit, which was met by the assessee. Thus this adjustment resulted in subsidizing the cost of the assessee and hence there is no profit motto. This cannot be termed as business activity. Similar is the view of the Hon ble Madras High Court in the case of Tamil Nadu Cricket Association (supra). 11. 3. On the issue of sale of liquor, it was submitted that initially DDCA was formed as a Club to take over the assets and liabilities of the Association called, Delhi Cricket Association . He referred to the objects and submitted as follows. One of the objects as given in the MOA of DDCA is to lay ground for playing game of cricket and to provide pavilion, refreshment rooms and other facilities in connection therewith. Therefore, an eatery was established whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ₹ 238 lakhs. It was submitted that the DDCA, initially meets this expenditure out of its own sources and there after the BCCI and legal franchisee, contribute and compensate part of this expenses. The same arguments as were advanced by the assessee in the cases where sponsorship money received, were made here also. The summary of the submissions are as follows. Our respectful submission is that, as we have given detailed submission in earlier part of our submissions wherein we have made analyses of receipts as well as of the expenses incurred by the assessee. The analysis of expenses have revealed that the expenses have been incurred on the promotion of the game of cricket. These expenses have been incurred either for the development of game of cricket or the development of players. There is no other cause or item for which any amount has been spent by the assessee. Similarly, when we analyse the receipt side, we would find that the receipts are directly or inextricably linked with the organizing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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.A.O. in all the past years accepting the claim of the assessee all along on facts as well as on law. 11.8. In view of our decision of sponsorship and such other receipts, we agree with the arguments made by the assessee. Regarding sale of tickets the assessee explained that no tickets are sold for Ranji Trophy and only in case of international matches, ₹ 200/- per ticket are levied, with a sole intention to control the crowds and that the cost incurred per ticket is much more than the amount which is charged for ticket. Under these circumstances, the sale of tickets cannot be considered as an activity of trade, commerce or business . We agree with the submissions of the assessee. 11.9. Regarding playing cards, it is an incidental recreation activity undertaken in most Clubs and what is charged by the assessee, goes to recover the costs for providing such recreational facility to its member. The receipts are miniscule and hence negligible. 11.10. Similarly as far as receipts from health club is concerned, we find that, onl ..... X X X X Extracts X X X X X X X X Extracts X X X X
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