By TIOL News Service

NEW DELHI, JAN 22, 2015: THE issue before the Bench is - Whether mere charging of fees means that the assessee is carrying out its activity in the nature of trade, commerce and business and thus the Proviso to Section 2(15) is not automatically attracted. NO is the answer.

Facts of the case

The assessee is a section 25 company, incorporated with an aim to promote the game of Cricket in and around Delhi. It is affiliated to the Board of Control of Cricket in India (BCCI). It was registered u/s 12A. Subsequently, the DIT(E) had issued a show cause notice to the assessee proposing withdrawal of registration granted u/s 12A. It was observed from such notice that the association had been engaged in the activities of conducting cricket matches at national as well as international levels in Delhi. The activities which were for the promotion of sports comes under the category of last limb of the section 2(15) i.e. the advancement of the general public utility. But as per the DIT(E), assessee was engaged in the holding cricket matches at national as well as international levels which were purely commercial in nature and comes within the ambit of proviso to section 2(15). It was further pointed out that by insertion of the proviso in the latest amendment to section 2(15), the legislature have intended to make a point that those or institutions or funds which were engaged in the activities of trade, commerce, business or rendering of any service in relation to any trade, commerce or business, for cess or fees or any other consideration, irrespective of the nature of use or application or retention, or income for such activity shall be come under the mischief of proviso of section 2(15) and shall be denied exemption u/s 11 or 12. Thus, assessee was required to appear before the authorities with necessary explanations and also to produce the complete books of accounts with bills/vouchers, bank statements and other misc. records since inception.

In reply, the assessee submitted that the main object of the Association was to develop and promote the game of Cricket and thus it was submitted that it is a Charitable Association. The assessee filed submissions before the DIT(E) giving details of coaching and training expenses, physical training camp, pitch curator and various other activities for promotion of cricket including development of medical aid to players etc.

The DIT(E) has withdrew the registration granted u/s 12A on the basis that assessee had entered into commercial agreement, with profit motive with M/s Twenty First Media Pvt. Ltd., giving up the right to sponsor Delhi Ranji Trophy and also right to reassign complete team sponsorship rights and it had received Rs.1.18 crores by selling exclusively "in Stadia advertising rights" to this Agency. It had also sold liquor, provided playing cards and health club facilities, after charging fee. These activities were not charitable in nature at all. Sale of tickets, with pricing range too high, which was beyond the reach of the common man, demonstrated that there was no charitable purpose and activities in the organization. The highest heads of expenses include, lunch and catering expenses, which cannot be termed as charitable. Also advertisement and contractual receipts and agreements entered into, demonstrated that they were commercial contracts and the activity was a business activity. Income from IPL matches cannot be considered as charitable activity. Organising IPL matches was 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.

Thus, it was concluded by the DIT(E), that the assessee was pursuing the objects of general public utility and conducting a business, the turnover of which far exceeds the threshold limit as per amended section 2(15). Once the activity ceases to qualify as charitable, the same cannot be said to be genuine for the purpose of charity. Accordingly, the registration granted to the assessee, was cancelled w.e.f. 01.04.2009.

Having heard the matter, the Tribunal held that,

++ the first issue that comes for our consideration is whether the DIT(E) is correct in law in withdrawing the registration of the assessee with retrospective effect. This issue is no more res integra. The Delhi High Court in the case of DIT(E) vs. Mool Chand Khairati Ram Trust (2011) reported in 339 ITR 622 (Delhi), held that the power of cancellation of registration obtained u/s 12A came to be incorporated by way of amendment introduced u/s 12AA(3) by the Finance Act, 2010 wef 1st June,2010; Director of IT was not therefore justified in cancelling the registration u/s 12AA(3) wef Dec.2002-03 vide his order dt. 30th June,2009. In the case of Kapoor Educational Society vs. CIT (2010) reported in 134 TTJ 250 it was held that amendment of s.12AA(3) by the Finance Act, 2010 w.e.f. 1st June,2010 is prospective in nature and if any trust/institution has been registered prior to 1st Oct.2004, either u/s 12A or 12AA, CIT has no power to cancel the registration u/s 12AA(3). In the above case, the Lucknow "B" Bench of the Tribunal held that, amendment to S.12AA(3) by the Finance Act, 2010 w.e.f. 1st June, 2010 is prospective in nature and if any Trust is registered u/s 12AA or u/s 12A, the CIT has no power to cancel the registration under Section 12AA(3). Keeping in view the ratio laid down by the High Court in the case of Oxford Academy for Career Development and also the amendment of s.12AA(3) by the Finance Act, 2010 wef 1st June,2010, it is amply clear that s.12AA(3) is prospective in nature and if any trust/institution has been registered prior to 1st Oct.2004 either u/s 12A or 12AA, the CIT has no power to cancel the registration u/s 12AA(3). In this case the assessee challenged the constitutional validity of the amendment and the Court upheld the constitutional validity. While doing so it held that this amendment cannot be said to be retrospective in nature. It was held that the CIT has power to cancel the registration w.e.f. 1.6.2010. The Court held that the CIT can exercise power u/s 12AA(3) in respect of a Trust registered prior to 1.6.2010. This does not mean that the Court laid down that registration granted u/s 12A or u/s 12AA, prior to the amendment can be withdrawn retrospectively. In view of the above discussion, following the binding judgement of the Jurisdictional High Court, we uphold the contention of the assessee that the withdrawal of registration with retrospective effect from 1.4.2009 by the order passed u/s 12AA(3), is bad in law;

++ the Madras HC in Tamil Nadu Cricket Association vs. DIT(E) (Madras) 2013-TIOL-1074-HC-MAD-IT, on identical facts held that section 12AA prescribes procedure for registration. Section 12AA(3) 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. In that case it was recorded that 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. Thus, in contrast to section 12AA(1)(b) where the grant of registration requires satisfaction about the objects of the trust as well as the 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 section 12AA(3), as the case may be;

++ the activities of the assessee, on facts, are similar to the activities of Tamil Nadu Cricket Association and hence the case law applies on all fours. Applying these propositions to the facts of this case, we observe that DIT(E) agrees that the assessee is carrying on activity of "general public utility", which means that the charitable nature of assessee's activity is not disputed by the Revenue. Thus the DIT(E) has contradicted himself by holding on one hand, that the assessee is a charitable Institution carrying out charitable activity and on another hand, coming to a conclusion that the assessee is doing business. It is also not the case of the DIT(E) that, the assessee is not carrying on its activities in accordance with the objects for which it is founded. No such finding is recorded in the order. Thus the twin conditions mandatorily required for invoking the jurisdiction u/s 12AA(3) by the DIT(E), to cancel the registration granted u/s 12AA i.e. the satisfaction of the DIT(E) that (a) the activities of the Trust or Institution are not genuine or (b) that the activities of Trust or Institution are not being carried out in accordance with the objects of the Trust or Institution are not existing in this order. Thus applying the principles laid down in the judgement of Madras High Court in the case of Tamilnadu Cricket Association, the impugned order cancelling the registration u/s 12A quashed. Even otherwise the main and predominant object and activity of the assessee is to promote, regulate and control the game of cricket in and around Delhi. The undisputed fact is that over the years this activity has been recognized by the Income Tax Dept. as a charitable activity and registration u/s 12A was granted to the assessee. A number of assessment orders u/s 143(3) were passed, wherein the assessee was held as eligible for exemption u/s 11/12 of the Act. Hence this fact of the assessee being a charitable institution is not in dispute. The core activity of the assessee is undisputedly, charitable in nature. Hence it is not the case of the Revenue that the assessee is carrying on "trade, commerce or business" under the garb of the activity being "general public utility;

++ receipts of money by the Tamil Nadu Cricket Association were not considered by the 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. Thus respectfully following the decision of Madras High Court in the case of Tamil Nadu Cricket Association, 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 receipts are also charitable activities and not "trade, commerce or business" activities;

++ on the issue of sponsorship income from M/s. Twenty First Century Media (P) Ltd. (TFCM), it was explained that, despite the receipt of sponsorship money during the year of Rs.31,01,038/- and receiving a sum of Rs.14,20,000/- from BCCI as subsidy, there was a short fall of Rs.29,84,835/-, which was met by the assessee. The assessee has to perform many activities and for this purpose it has to enter into transactions with various types of persons. These persons can be commercial or non-commercial organizations, professionals, vendors of goods, vendor of services and so forth and so on. Merely entering into such agreement does not tantamount to the assessee being a business entity. The question is whether the activity done by assessee, would tantamount to business activity or not. This has to be viewed, from view point of the assessee. The other person with whom the assessee has an agreement, may have its own object and reason for doing transaction and accordingly, the nature of transaction and the resultant activity would be determined in the other persons hands. However, that by itself, should not have any bearing at all on the nature of the transaction, as well as resultant activity in the hands of assessee. To carry out a transaction in an organized manner and to ensure that the transaction would help the assessee in achieving its charitable object, it is imperative that the terms and conditions of the transactions are clearly defined, to avoid any confusion or chaos. It will be further good, if these terms and conditions are reproduced in writing, in the form of an agreement. Merely because an activity is performed in an organized manner, that alone will not make these activities as business/commercial activity. Profit 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 Madras High Court in the case of Tamil Nadu Cricket Association;

++ all the receipts of the assessee are intrinsically linked with the activity of organizing matches and tournaments for the promotion of cricket. User charges are required for maintaining the facilities that are provided as part of the infrastructure, for conducting the activities of the assessee. On consideration of all the facts and circumstances of the case and when viewed in totality, we have to come to a conclusion that the assessee is not carrying of the activities with any profit motive or with any self interest. The contribution received by way of sponsorship, advertisement, sale of tickets etc. and user charges on the facts of this case, do not convert the charitable activity into "trade, commerce or business" activity. In view of the above discussion and in view of the binding judgements cited above, we have to necessarily quash the impugned order passed by the DIT(E) u/s 12AA(3) r.w.s. 12 , as it is bad in law. In the result the appeal of the assessee is allowed.

(See 2015-TIOL-80-ITAT-DEL)