TMI Blog2016 (10) TMI 537X X X X Extracts X X X X X X X X Extracts X X X X ..... Court ) to hold that if the primary or dominant purpose of the 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. DIT has no jurisdiction to cancel registration of a charitable institution on the ground that it is carrying on commercial activities which are in breach of the amended definition of “charitable purpose” in section 2(15) and that registration can be cancelled only if the activities of the trust are not genuine or are not being carried out in accordance with its objects and further that this is clarified by Circular No.21 of 2016. Thus, it can be seen that the registration withdrawn u/s 12AA(3) of the Act is not sustainable in the case of the assessee before us. Thus, it can be seen that the alleged commercial activities carried on by the assessee were also carried on by the Tamil Nadu Cricket Association and the above judgment is clearly applicable to the facts of the case before us. Therefore, on this ground, registration could not have been invoked u/s 12AA(3) of the Act. As r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2. The learned Director General of Income Tax (Exemptions), Hyderabad erred on facts and in law in failing to note that the leasing of Corporate Boxes for a fixed term has been done to meet the huge capital outlays in the development of the cricket stadium and that receipts of In-Stadia Advertising rights and Sponsorships relating to hosting of cricket matches bear a direct bearing to the development and promotion of the game, and thus represents intrinsic, incidental activities for the promotion and development of the game of Cricket. 3. The learned Director of Income Tax (Exemptions) erred on facts and in law in failing to note that the club facilities sought to be provided at the cricket stadium is primarily for the physical development and well being of the cricketers and the cricketing fraternity and represents a facility to further its object of developing and promoting the game of cricket. 4. The learned Director of Income Tax (Exemptions) erred on facts and in law in concluding that the absence of certain bills and vouchers cannot lead one to the conclusion that expenditure has not been incurred on the objects of the Association and at any rate cannot be a gr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee s submissions to decide the issue in accordance with law. Pursuant to the same, the DIT (E) reconsidered the issue. He was of the opinion that the assessee has been carrying on the activities of the commercial nature such as (i) running of Club (ii) issue in corporate sponsorship (ii) sale of corporate boxes (iv) awarding in-stadia advertising rights (v)receipts towards TV subsidy (vi) Income from IPL matches (vii) receipts from sale proceeds of World Cup 2007 (viii) receipts from sponsorship for other matches etc. It was observed that the assessee has also held a cricket match for women, though it is against the objects of the Trust and some of the expenses incurred by the assessee are not supported by vouchers. 4. The DIT (E) therefore, held that the assessee is carrying on activities not according to its objects and further that it is carrying on commercial activities and therefore, is not eligible for registration u/s 12AA of the Act. He accordingly u/s 12AA(3) of the Act withdrew the registration granted u/s 12A(a) of the Act against which the assessee is in appeal before us. 5. The learned Counsel for the assessee submitted that the object of the assessee s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion or by the Board of Control for Cricket in India or by State Govt. or by Central Govt. 1(2)(xxix) To provide the facility of a Club with such amenities in connection therewith as may be necessary within the Stadium Complex, for recreation and entertainment to its Members and for such other category or categories of Members, on such terms and conditions of Admission, as may be decided, framed and provided for in the Bye-laws of the Club by the Committee. 1(3)(vi) To employ clerks, Managers, Coaches, Umpires, Scorers, Groundsmen, Peons, Servants and Workmen and to pay them in return for services rendered to the Association Salaries, Wages, Gratuities, Pensions, honoraria, compensations, bonuses and/or provident fund and to remove such employees . Thus, according to him, the assessee is organizing the cricket matches strictly in accordance with its objectives and has also applied its income only for such objects. Thus, according to him, the construction of stadiums is also one of the objects of the assessee and in order to achieve the said object, the assessee has received donations and sponsorships and the income therefrom is utilized for the objects of the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . As regards the DIT (E) contention that the assessee is providing club facility which is not in accordance with the objects of the assessee society, it is stated that the club facility is covered by the general objects of the society and therefore, is not in contravention of any of the objects of the assessee. In support of the said contention, he placed reliance upon the decision of the Hon'ble Supreme Court in the case of CIT vs. Kamala Towns Trust (1996) reported in 217 ITR 699 (S.C). 10. As regards the absence of bills and vouchers for certain expenditure, he submitted that the absence of bills and vouchers cannot be a ground for cancellation, but at the most can only lead to disallowance of the same while granting exemption of the assessed income u/s 11 of the Act. In support of his contention, he placed reliance upon the decision of the Tribunal at Chandigarh in the case of Maharshi Markendeshwar Education Trust vs.CIT in ITA 277/CHD/2008. 11. As regards the assessees conducting of Women s Cricket Tournament, though one of the object of the assessee Trust is to conduct cricket matches only for men, it was submitted that the conducting of the cricket tournament is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oviso to section 2(15) of the Act, the assessee was not eligible for registration u/s 12A of the Act. He submitted that the DIT (E) has clearly brought out the facts and circumstances of the case and the commercial activities carried out by the assessee which clearly are not in accordance with the objects of the assessee society and therefore, submitted that the cancellation is justified. 14. Having regard to the rival contentions and the material on record, we find that the assessee is affiliated to the BCCI and is conducting cricket matches in Hyderabad by sale of tickets and is also receiving contributions as well as getting revenue by advertisements, sponsorships etc, which have been utilized for construction of the stadium at Hyderabad. According to the DIT (E), all these activities are commercial in nature and therefore, the assessee falls within the proviso to section 2(15) of the I.T. Act and hence its activities are not charitable. By insertion of the proviso to section 2(15) of the Act, the definition of charitable activity has undergone a change. Earlier, the definition of charitable activity included the activity in the advancement of any object of general public ut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the Act ). In the circumstances, notice was issued proposing to withdraw the registration granted to the assessee under Section 12AA of the Income Tax Act, 1961. 7. Immediately, on the receipt of the notice, the assessee replied that the receipts were not in the nature of trade or commerce or business, since, the income of the assessee included interest income earned from Fixed Deposits with Banks; subsidy from BCCI was a voluntary grant from the parent body for promotion and development of the game of cricket in Tamil Nadu; there was no commercial activity involved in the conduct of the IPL matches for which only subsidy was received by the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pondent/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 objects of the trust, the Director of Income Tax (Exemptions) held that genuineness was a term used only to find out whether the institution was charitable or not; thus once the institution was held as not for charitable purpose, Section 12AA registration had to be necessarily cancelled. In the circumstances, the registration originally granted to the assessee stood cancelled with effect from 01.04.2009. 13. The assessee contended before the Income Tax Appellate Tribunal that since its inception and the date of granting of the registration under the Act, the objects of the Association ever remained same and it has not undergone ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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, or retention, of the income from such activity. Considering the said amendment and looking at the activities of the assessee, the Income Tax Appellate Tribunal held that the conduct of the matches by cricket associations could be nothing but in the nature of commercial ventures and the assessee was selling the game for the highest amount of revenue and the effect and the thrust of the assessee was towards maximising the revenue. Citing IPL matches held and the manner of selection of players, the Income Tax Appellate Tribunal held that the matches were big game with big money involved; in the words of the Income Tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct 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 converting the sport of cricket into a celebrated industry, the activities not being genuine, rightly, the Revenue had cancelled the registration granted under Section 12AA of the Income Tax Act, 1961. Aggrieved by the same, the present appeal has been preferred by the assessee. 16. Learned Senior counsel appearing for the assessee took us through the various objects of the Association and pointed out to the clear distinct words used in Section 12AA(1) and 12AA(3) of the Act as well as the first proviso to Section 2(15) of the Act and pointed out that the grant of registration ori ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 (supra) in the case of Vidarbha Cricket Association v. Commissioner of Income Tax-I, Nagpur the Income Tax Appellate Tribunal Ahmedabad Bench-A dated 31.01.2012 and in I.T.A.No.3/Nag/10 dated 30.05.2011 of the Nagpur Bench, respectively on the very same allegations for cancellation of registration under Section 12AA(3) had held that the cancellation of the registration under Section 12AA of the Income Tax Act, 1961 was contrary to law, the Chennai Bench of the ITAT ought to have followed these decisions, which were rendered as early as 2011 and 2012. He further pointed out to the unreported decision of this Court in the case of Gowri Ashram v. DIT (Exemptions) [2013] 356 ITR 325/217 Taxman 97/36 taxmann.com 15 (Mad.) as well as in the case of CITv. National ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 stood at the time of grant of registration as under: 'charitable purpose' includes relief of the poor, education, medical relief and the advancement of any other object of general public utility. 23. Section 2(15) was amended under Finance Act,2008, with effect form 1.4.2009 by substituting the following provision which reads s under: '2. Definitions. .... (15) charitable purpose includes relief of the poor, education, medical relief, preservation of environment (including waterheds, forests and wildlife) and preservation of monuments or places or objects of artistic or his ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... minant 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 Addl. CIT v. Surat Art Silk Cloth Mfrs. Association [1980] 121 ITR 1/[1979] 2 Taxman 501 (SC). 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 against its charitable character and the purpose would not be any the less charitable. The amendment in the year 2008 made a drastic amendment to deny the status of a charitable purpose to an institution with the object of general public utility, having 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. 25. Proviso to Section 2(15) of the Income Tax Act states that if the objects involve the carrying on any activity i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 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 amendment in the year 2010, Section 12AA(3) of the Income Tax Act reads as follows: Section 12AA(3):- Where a trust or an institution has been granted registration under clause (b) of sub-section (1) or has obtained registration at any time under section 12A as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 public utility', carry on business or commercial activity only to escape the liability under the Act thereby gain unmerited exemption under Section 11 of the Act. 36. In the decision reported in Sinhagad Technical Education Society v.CIT [2012] 343 ITR 23/206 Taxman 314/19 taxmann.com 136 (Bom.) the Bombay High Court held as follows: As a result of the amendment, which has been brought about by the Finance Act of 2010, Sub-section (3) of Section 12AA has been amended specific ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stration 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 registration cannot be cancelled by following the very same provision of section 12AA(b)(i) of the Income Tax Act, 1961 to go into the genuineness of the activities of the trust. However, the Commissioner is empowered to revoke the certificate in terms of Section 12AA(3) of the Income Tax Act, 1961. As Commissioner is empowered to revoke the certificate in terms of section 12AA(3) of the Income Tax Act, 1961. As per the said provision, in the event the Commissioner is satisfied subsequently i.e., ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 (supra) and that of the Nagpur Bench rendered in the case of Vidarbha Cricket Association (supra), considered the said decision reported in Sarvodaya Ilakkiya Pannai (supra) rendered under Section 12AA(3) of the Act. On appeal before the respective High Courts, the decision of the Income Tax Appellate Tribunal was confirmed. 43. Leaving that aside, there being no dispute raised by the Revenue as to the genuineness of the trust, or as to the activities of the trust not being in accordance with the objects of the trust, the question of cancellation under Section 12AA of the Act does not arise. We further hold that at the time of grant of registration on 28.3.2003, the same was made taking into consideration the objects of the institution fitting in with the definition of 'charitable purpose' defined under Section 2(15) of the Act and the substitution of the Section itself came only 2008, with effect from 01.04.20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 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 granted under Section 12AA is bad and hence, to be cancelled. 46. It may be of relevance to note the language used in the definition charitable purpose in Section 2(15) of the Act, which states that charitable purpose includes relief of the poor, education, medical relief and advancement of any other object of general public utility. The assessee's case falls within the phrase of the definition 'general public utility'. In the decision reported in the case ofHiralal Bhagwati v. CIT [2000] 246 ITR 188 the Gujarat High court considered the said phrase in the context of Section 12A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 assessee's 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 Section 12AA of the Act. Consequently, we reject the prayer of the Revenue that Section 12AA(1) of the Income Tax Act, 1961 must be read along with Section 12AA(3) of the Income Tax Act, 1961 before considering the cancellation. 49. As far as the unreported decision of this Court in Gowri Ashram (supra) is concerned, on which heavy reliance was placed by the Revenue, the said decision relates to the rejection of the registration at the threshold of the application filed for registration. So too the decision of the Apex court reported in the case of National Institute of Aeronautical Engg. Educational Society (supra), wherein, rejection was made on the threshold of application for registration made by the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 not question the objects of the Association as not genuine or are in accordance with the objects. All that the Revenue stated was that the nature of receipt could not be called a subsidy. Thus Revenue came to the conclusion that the objects and activities could not come within the meaning of 'charitable purpose' under Section 2(15) of the Act. 53. On going through the materials, the Income Tax Appellate Tribunal pointed out that instead of promoting and developing the game of cricket, the assessee was promoting and developing cricket as an entertainment and the tickets are highly priced; here, the assessee has shifted the activities of general public utility to commercial activity for generating revenue; the public merely participate to view costly matches; hence the conditions of Section 12AA(3) were satisfied. The Income Tax Appellate Tribunal agreed with the Director ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... adia 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 cricket association. Thus the assessee is also the recipient of the revenue. Thus, for invoking Section 12AA read with Section 2(15) of the Act, Revenue has to show that the activities are not fitting with the objects of the Association and that the dominant activities are in the nature of trade, commerce and business. We do not think that by the volume of receipt one can draw the inference that the activity is commercial. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... utility, could be treated as a charitable institution in one year and not a charitable institution in the other year depending on the- aggregate value of receipts from commercial activities. The position remains similar when the first and second provisos of section 2(15) get substituted by the new proviso introduced w.e.f 01-04-2016 vide Finance Act, 2015, changing the cut-off benchmark as 20'% of the total receipts instead of the fixed limit of ₹ 25,00,000/- as it existed earlier. 3. The temporary excess of receipts beyond the specified cut-off in one year may not necessarily be the outcome of alteration in the very nature of the activities of the trust or institution requiring cancellation of registration already granted to the trust or institution. Hence, section 13 of the-Act has been amended vide Finance Act, 2012 by inserting a new sub-section (8) therein to provide that such organization would not get benefit of tax exemption in the particular year in which its receipts from commercial activities exceed the threshold whether or not the registration granted is cancelled. This amendment has taken effect retrospectively from 1 1 April. 2009 and accordingly appli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... registration withdrawn u/s 12AA(3) of the Act is not sustainable in the case of the assessee before us. 18. As regards the other grounds i.e. holding of a cricket match for women in violation of the object No.(xxviii), we find that the main object of the assessee is to promote the game of cricket and particularly for men only as there is a separate cricketing body for women. The reason given by the assessee for holding women s cricket match is that it was held at the instance of the BCCI particularly since the women cricket association was not functioning. We find that this activity cannot be said to be exactly in contravention of the objects of the assessee society. Even if it is to be considered to be in violation of the object, it is a solitary deviation and the AO might consider disallowing the income derived by the assessee from conducting of such a match while computing the exempt income u/s 11 of the I.T. Act. 19. Further, as regards the expenditure which is not supported by bills and vouchers also, we are of the opinion that it can only lead to disallowance and not for withdrawal of registration u/s 12AA(3) of the Act. In view of the above, we set aside the order of t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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