SAURASHTRA CRICKET ASSOCIATION vs. INCOME TAX OFFICER

Both

For   sake   of   convenience,   Special   Civil Application No. 2321 of 2014 is treated as lead matter.

The petitioner has challenged the notice dated 08.01.2013 issued under Section 148 of the Act, 1961 by the respondent seeking to reopen the assessment   for   the   A.Y.   2010­11   as   well   as assessment order dated 30.01.2013 passed by the respondent under Section 143 r/w. Section 147 of the   Act,   1961,   during   the   pendency   of   the petition before this Court.

The   Coordinate   Bench   of   this   Court passed the common order dated 17.02.2014 in both the petitions, which read thus:

10   However,   the   Respondent,   vide   order dated 16.04.2013 disposed off the objections raised by the Petitioner and inter alia held that   when   the   original   assessment   order   is framed due to oversight and inadvertence or a mistake,   the   reopening   is   valid.   A   copy   of the   order   dated   16.04.2013   passed   by   the Respondent   is   annexed   herewith   and   marked hereto as Annexure K to this petition.

The   learned   Sr.   Advocate,   then,   invited the   attention   of   this   Court   to   Paragraph­ 3.10, which reads as under;

10   The   Petitioner   further   submits   that whenever   an   assessment   order   is   framed   u/s 143(3)   of   the   Act,   the   Assessing   Officer builds an opinion about all the issues which are expressly and impliedly accepted by him. Under such circumstances, any variation from the opinion, already framed by the Assessing Officer  in absence of any tangible material would   amount   he   hierarchy   in   status   of   the Court in the country is not decisiveto change of opinion, and therefore, it is not open to the   Respondent   to   now,   change   his   opinion, and reopen the concluded assessment is sought to be done.

The learned Sr. Advocate  placed reliance on a decision of this Court in the matter of SIDDHI   VINAYAK   TRANSPORT

It thus clearly emerges from the record that   the   Assessing   Officer   now   wishes   to reexamine the petitioners claim of deduction on   the   premise   that   the   earlier   Assessing Officer   made   an   error   in   limiting   such allowance to 20% of the total expenditure. In his   opinion,   100%   disallowance   was   called for.   To   the   extent   that   the   Assessing Officer, in the scrutiny assessment, did not disallow  80% of the expenditure  and limited the   disallowance   to   20%,   had   committed   an observations :

From the above, it can be seen that the Assessing Officer was acutely conscious about the   petitioner   not   having   deducted   tax   on labour payment charges of Rs. 3.05 crores and the   petitioners   contention   that   it   was   so done   because   provision   for   TDS   was   not applicable.   He   was   not   convinced   by   such explanation.   He,   however,   for   some   strange reasons   did   not   apply   the   provision   of Section   40(a)(ia)   of   the   Act   instead   made adhoc disallowance of Rs. 25,60,000/@ 8% of India   Ltd.   reported   in   [2010]   320   ITR   561 (SC) the Apex Court observed as under: On going through  the changes, quoted  above, made to Section 147 of the Act, we find that, prior   to   Direct   Tax   Laws   (Amendment)   Act, 1987, reopening could be done under above two conditions   and   fulfillment   of   the   said conditions   alone   conferred   jurisdiction   on the   Assessing   Officer   to   make   a   back assessment,   but   in   section   147   of   the   Act [with effect from 1st April, 1989], they are given   a   goby   and   only   one   condition   has remained,   viz.,   that   where   the   Assessing Officer has reason to believe that income has escaped   assessment,   confers   jurisdiction   to reopen   the   assessment.   Therefore,   post   1st April, 1989, power to reopen is much wider. However,   one   needs   to   give   a   schematic interpretation to the words reason to believe failing   which,   we   are   afraid,   Section   147 would give arbitrary powers to the Assessing Officer to reopen assessments on the basis of mere change of opinion, which cannot be per se   reason   to   reopen.   We   must   also   keep   in mind the conceptual difference between power to   review   and   power   to   reassess.   The Assessing Officer has no power to review; he has the power to reassess. But reassessment has   to   be   based   on   fulfillment   of   certain precondition and if the concept of change of opinion is removed, as contended on behalf of the   Department,   then,   in   the   garb   of reopening   the   assessment,   review   would   take place. One must treat the concept of change of opinion as an inbuilt test to check abuse of   power   by   the   Assessing   Officer.   Hence, after 1st  April, 1989, Assessing Officer has power to reopen,  provided there  is tangible material to come to the conclusion that there is   escapement   of   income   from   assessment. Reasons   must   have   a   live   link   with   the formation   of   the   belief.   Our   view   gets support from the changes made to Section 147 of the Act, as quoted hereinabove. Under the Direct   Tax   Laws   (Amendment)   Act,   1987, Parliament not only deleted the words reason to believe but also inserted the word opinion in   Section   147   of   the   Act.   However,   on receipt of representations from the Companies against   omission   of   the   words   reason   to believe,   Parliament   reintroduced   the   said expression   and   deleted   the   word   opinion   on the   ground   that   it   would   vest   arbitrary powers in the Assessing Officer.

If the Revenue  was of the opinion  that the Assessing Officer erroneously and to the prejudice   of   the   interest   of   the   Revenue allowed certain claim, in a given situation, it would have been open for the appropriate authority   to   exercise   revisional   powers. However,  once the claim  was fully examined, power of reopening was simply not available.

Such   observations   would   apply   in   the present case also. We make it clear that it is   not   a   case   where   the   Assessing   Officer, while   framing   original   scrutiny   assessment, did   not   examine   the   petitioners   claim   of deduction. He was acutely conscious of such a claim and was also of the opinion that the entire claim was not required to be granted. He called for explanation of the assessee and after

In   view   of   the   above,   both   the   matters require consideration. Hence, RULE.

NOTICE as to interim relief, returnable on 3RD  MARCH,   2014. Ad­interim­relief   in   terms of  PARA­7(b),   till   then.   Direct   service   is permitted.

The Assessing Officer has issued notice under   Section   148   of   the   Act   by   recording   the following reasons for reopening the assessment: “REASONS FOR REOPENING THE ASSESSMENT In this case, the return of Income declaring total income of Rs.NIL has been filed by the assessee Trust. The said return was selected for scrutiny and assessment u/s. 143(3) of the Act was finalized on 20.04.2012, determining total Income at Rs.NIL.

On   scrutiny   of   the   case   records,   it reveals that During the F.Y. 2009­10 relevant to   AY   2010­11,   the   assessee­trust   has received   Rs.13.34   crore   from   BCCI   being   TV subsidy/subvention income i.e. sharing of TV broadcasting   right   income   from   BCCI.   This amount   has   been   credited   to   income   and expenditure   as   income   of   the   Trust.   This income   was   received   in   lieu   of   various tournaments  held by BCCI including  the one­ day   tournament   held   at   Rajkot.   It   is   also noticed that the assessee­trust had received TV subsidy of Rs.8.02 crore in AY 2007­08 & 13.81 crore during AY 2009­10. This indicates that   the     assessee­trust   is   in   business   of entertainment of public at large by arranging /   hosting   /   managing   cricket   matches   at national and international level and generate income out of such activity.

Secondly,   the     assessee­trust   had   also generated   advertisement   sales   income   of Rs.1,58,13,475/­   during   the   one   day   match held on 25.12.2009 at Rajkot. The   assessee has raised bills on various parties for sales of advertisement during the year.

The above activity of the   assessee is very much clear that the   assessee had been carrying   out   the   activity   in   the   nature   of trade, commerce or business, the activity by the     assessee   was   not   to   be   treated   as “charitable   purpose”   in   view   of   amended provision of Section 2(15).

I have, therefore, reason to believe that in   this   case   income   claimed   as   exempt   is requires   to   be   taxed.   Thus,   there   is   under assessment   of   income   for   A.Y.   2010­11. Accordingly, this is a fit case for reopening of the assessment u/s. 147 of the I.T. Act.”

It   appears   that   the   Assessing   Officer has issued notice under Section 148 in view of the   amended   provision   of   Section   2(15)   of   the Act, 1961 and the sole objection for reopening is such amendment.

In   view   of   the   above,   it   is   not necessary to advert to the facts of the case, as similar   issue   is   considered   by   the   Coordinate Bench including in case of the petitioner in Tax Appeal No. 268 of 2012 and other allied matters and has held in favour of the assessee, as under: “163. We sum up our final conclusions as under; (i) In carrying on the charitable activities, certain surplus may ensue. However, earning of surplus, itself, should not be construed as if the   assessee   existed   for   profit.   The   word “profit”  means that the owners of the entity have a right to withdraw the surplus for any purpose including the personal purpose. (ii) It   is   not   in   dispute   that   the   three Associations have not distributed any profits outside the organization. The profits, if any, are ploughed back into the very activities of promotion   and   development   of   the   sport   of cricket and, therefore, the assessees cannot be termed to be carrying out commercial activities in the nature of trade, commerce or business. (iii) It   is   not   correct   to   say   that   as   the assessees   received   share   of   income   from   the BCCI, their activities could be said to be the activities   of   the   BCCI.   Undoubtedly,   the activities   of   the   BCCI   are   commercial   in nature. The activities of the BCCI is in the form of exhibition of sports  and earn profit out of it. However, if the Associations  host any international match once in a year or two at the behest of the BCCI, then the income of the Associations from the sale of tickets etc., in   such   circumstances,   would   not   portray   the character of commercial nature. (iv) The   State   Cricket   Associations   and   the BCCI   are   distinct   taxable   units   and   must   be treated as such. It would not be correct to say that   a   member   body   can   be   held   liable   for taxation  on account  of the activities  of the apex body. (v) Irrespective   of   the   nature   of   the activities   of   the   BCCI   (commercial   or charitable), what is pertinent for the purpose of determining the nature of the activities of the assessees, is the object and the activities of the assessees and not that of the BCCI. The nature of the activities of the assessee cannot take   its   colour   from   the   nature   of   the activities of the donor.

We   shall   now   proceed   to   deal   with   the decisions, upon which, strong reliance has been placed on behalf of the Revenue.

In the case of Truck Operators Association (supra),   the   assessee   Truck   Operators Association   had   filed   an   application   in   Form No.10A   for   registration   of   the   Society   under Section   12AA   of   the   Act   along   with   the certificate   of   registration   granted   by   the Registrar of Societies and a copy of Memorandum and   By­Laws   of   the   Society.   The   Commissioner rejected   the   application   holding   that   the Association was not formed for advancement of object   of   general   public   utility   within   the meaning   of   Section   2(15)   of   the   Act.   The Tribunal   allowed   the   assessee's   appeal   and directed   the   Commissioner   to   grant   the registration under Section12AA to the assessee­ Society. The Revenue went in appeal before the High Court of Punjab & Haryana. The High Court thought fit to allow the appeal, observing as under; “9. On   examination   of   the   objects   and the   purpose   of   the   Association   in   the present   case,   it   emerges   that   the respondent­Association is union of Truck Operators   constituted   for   facilitating its   members   to   carry   on   the   trade   of transportation   and   not   to   allow   the outsider or non­member to undertake any business   activity   within   the   precincts of   Hansi   Town/village.   The   Association charges fees from its members before the transportation   on   the   basis   of   the distance   involved.   The   membership   and payment   of   fees   are   mandatory   and   the element   of   voluntary   contribution   is missing.   The   association   is   vigorously pursuing   transportation   business   by receiving   freight   charges   on   behalf   of its   members.   The   welfare   activities adopted for the truck drivers, cleaners and mechanics of the truck owners are in the nature of staff welfare activities, as   are   common   in   other   business organizations which cannot be termed for general public utility.

The   assessee   was   a   union   of transport   operators   registered   as   a Trade   Union   under   the  Indian   Trade Unions   Act,   1926. On   analysis   of   the objects   of   the   union   for   which   it   was constituted,   it   was   discerned   that   the surplus funds of the trade union could be distributed among the members at the time of its dissolution. In other words, it   was   held   that   the   rules   and regulations   do   not   impose   a   legal obligation   on   the   assessee   or   its members   to   hold   the   income   of   the assessee   only   for   charitable   purposes and   the   element   of   private   gain   could not   be   excluded.   The   union   was,   thus, held

Thus, on the facts of that case, the High Court took the view that the assessee was not carrying   on   the   activities   for   charitable purposes   and,   therefore,   was   not   entitled   to the benefit of registration under Section 12AA of   the   Act.   One   important   aspect   which   was noticed by the High Court was that the surplus funds of the Trade Union could be distributed among   the   members   at   the   time   of   its dissolution.   The   High   Court   noticed   that   the rules and regulations did not impose a legal obligation on the assessee  or its members to hold   the   income   of   the   assessee   only   for charitable purposes and the element of private gain could not be excluded. This decision, in our opinion, is of no avail to the Revenue.

In   National   Institute   of   Aeronautical Engg. Educational Society (supra), the assessee was   an   educational   society.   It   moved   an application before the Commissioner for grant of registration under Section12AA of the Act. The   Commissioner,   after   examining   the   record before him, concluded that the assessee was not carrying   any   charitable   activity   within   the meaning   of   Section   2(15)   as   it   was   charging substantial fees from the students and making huge profits from that business. Consequently, the   assessee's   application   was   rejected.   The Tribunal,   however,   allowed   the   appeal   of   the assessee. The Revenue went in appeal before the High   Court   of   Uttarakhand.   The   High   Court, while   allowing   the   appeal   preferred   by   the Revenue, observed as under; “10. Section 12AA of the Act provides the procedure   for   registration.   Clause   (a)   of sub Section (1) of Section 12AA empowers the CIT   to   call   for   such   documents   or information from the trust or institution as he   thinks   necessary   in   order   to   satisfy himself   about   the   genuineness   of   the activities of the trust or institution and may also make such inquiries, as he may deem necessary in this behalf. Said provision in Section 12AA makes it clear that CIT is not supposed   to   allow   registration   with   blind eyes.   In   the   present   case,   CIT   has considered the relevant papers before him, which   included   the   income   and   expenditure accounts   of   the   previous   years   after   the society   got   registered   with   the   Assistant Registrar   Firms,   Societies   and   Chits.   The CIT,   after   considering   the   record   before him, has observed that the society (present respondent)   is   charging   substantial   fees from the students and making huge profits.

After considering the submissions of the learned Counsel for the parties, we are of the view that mere imparting education for primary purpose of earning profits cannot be said to be a charitable activity. We are of the   firm   view   that,   in   the   expression 'charitable purpose', 'charity' is the soul of the expression. Mere trade or commerce in the name of education cannot be said to be a charitable purpose. And Commissioner Income Tax has to satisfy itself as provided under Section 12AA of the Act before allowing the registration.   Question   of   law   stands answered.“

Thus,   in   the   aforesaid   case,   the   High Court   took   the   view   that   as   the   Society   was charging substantial fees from the students and making huge profits, it could not be said that the   assessee   was   carrying   on   any   charitable activity. This decision also is of no avail to the Revenue.

In   Hyderabad   Race   Club   (supra),   the assessee   was   a   Society   registered   under   the Societies   Registration   Act,   1860   and   the objects,   for   which,   the   assessee   was established were specified in Para No.3 of the Memorandum of Association. The objects were to encourage, promote the scientific breeding and training   of   horses,   ponies   and   mules   and   to carry on the business of a race club in all its branches etc. The ITO rejected the assessee's claim that it was a charitable institution and that its income was exempt under Section 11 on the ground that the assessee was carrying on a business   by   conducting   races   which   was   an activity for profit. On appeal by the assessee, the Tribunal upheld the ITO's order. The matter was   ultimately   heard   by   a   Full   Bench   of   the High Court of Andhra Pradesh. While answering the substantial question  of law in favour of the Revenue and against the assessee, the Full Bench observed as under; “9. It   would   thus   be   seen   that   the scientific breeding and training of horses and the imparting of instructions relating to horse breeding in all its aspects, is shown as an incidental or ancillary object in   the   memorandum   of   association   of   the assessee­company which was established in April   1971. Learned   counsel   submits   that in the memorandum

We are unable to agree with the learned counsel   that   the   dominant   or   primary object   for   which   the   assessee   is established   either   as   a   society   or   as   a company,   is   the   scientific   breeding   of horses,   and   not   for   the   purpose   of carrying on business in conducting races. Referring to the memorandum of association of   the   assessee   as   a   society   under   the Societies   Registration   Act,   we   see   no ground to regard the object specified in clause (c) of para 3 as a power conferred on the society to carry on the business to advance   and   promote   the   socalled   main object of scientific breeding and training of horses. In the first place, paragraph 3 specifically mention that carrying on the business of a race club is an object for which   the   society   is   established.   It   is not in the nature of a power conferred on the society. It is true that some of the objects   specified   in   para   3   of   the memorandum of association relate to powers conferred on the society and there is, to some extent, a mix­up of the objects and powers   in   pars.

We   have,   however,   no difficulty in regarding the carrying on of the business by conducting races as being in the nature of an objects rather than a power.   If   any   doubt   in   the   above   regard subsists   as   regards   the   memorandum   of association   of   the   society,   that   is clearly set at rest while setting out the objects   for   which   the   assessee   was established   as   a   company.   As   we   have already referred to above, the memorandum of association of the assessee after its incorporation in April, 1971, as a company clearly states that the main object to be pursued   by   the   assessee   company   on   its incorporation, is to carry on the business of a race club in all its branches. Even when the assessee was a society, carrying on   the   business   of   a   race   club   was obviously the main object although it was mixed up with other objects, as there was no   statutory   requirement   that   the   main objects   and   ancillary   objects   should   be separately   specified   in   the   case   of society. We are unable to appreciate the learned

Thus, on the facts of that case, the Full Bench, ultimately, held that the assessee was established with the dominant or primary object of carrying on the business of a race  club by conducting   races   which   cannot   be   termed   as charitable in character. This decision also is of no avail to the Revenue in the case at hand.

In Dharmaposhanam Co. (supra), the objects of the assessee Company were to raise funds by conducting   kuries   with   Company   as   foreman, receiving   donations   and   subscriptions   by lending   money   on   interest   and   by   such   other means as the Company would deem fit to do the needful   for   the   promotion   of   charity, industries   etc.   The   appellant   derived   income from the property, money lending and business in kuries or chit funds held under the trust and claimed exemption from tax in respect of the said income  under Section 11. The Tribunal held   that   the   assessee   was   not   entitled   to exemption.   The   matter   went   right   upto   the Supreme   Court.   The   Supreme   Court,   while dismissing the appeal of the assessee, observed as under; “On a consideration of the rival contentions of the parties, the position appears to be this. The     appellant   can   succeed   in   his   claim   to exemption under  section 1 1  (1)(a) of the Act if the income from the business of conducting kuries and of money lending can be said to be income derived from property held under trust wholly   for   charitable   purposes.   It   is   well settled that business is "property" within the meaning of section 11(1)(e). C.I.T. v. Krishna Warrier, (1964) 53 ITR 176 (SC). That is also evident from the provisions of section 11 (4), and reference may be made also to section 13(1) (bb). Further, it is apparent from the terms of the Memorandum of Association and the Articles of Association that the business of conducting kuries   and   of   money   lending   is   held   under trust. The question  is: Is the business  held under trust for charitable purposes ? There can be little doubt that when sub­clause (a)   of   clause   3   of   the   Memorandum   says   "To raise funds by conducting kuries, with company as foreman,

Thus,   in   the   facts   of   that   case,   the Supreme   Court,   ultimately,   held   that   the objects   “industries”   and   “common   good”   could not be described as “charitable purposes”. This decision also, in our opinion, is of no avail to the Revenue.

In the case of Sole Trustee Loka Shikshana Trust   (supra),   the   appellant   was   the   sole trusty of a trust. The object of the trust was to educate the people of India in general and of Karnataka in particular by (a) establishing, conducting and helping directly or indirectly institutions calculated to educate the people by   spread   of   knowledge   on   all   matters   of general interest and welfare; (b) founding and running reading rooms and libraries and keeping and conducting printing houses and publishing or aiding the publication of books, booklets, leaflets, pamphlets, magazines etc., in Kannada and other languages, all these activities being started,   conducted   and   carried   on   with   the object of educating the people; (c) supplying the Kannada speaking  people with an organ or organs   of   educated   public   opinion   and conducting   journals   in   Kannada   and   other language for the dissemination of useful news and   information   and   for   the   ventilation   of public   opinion   on   matters   of   general   public utility; and (d) helping directly or indirectly societies   and   institutions   which   have   all   or any of the aforesaid objects in view. The High Court held that the income of the trust was not entitled   to   exemption   under   Section   11   read with Section 2(15) of the Act. The assessee, went in appeal before  the Supreme  Court.  The Supreme Court, while dismissing the appeal of the assessee, observed as under; “In   addition   to   the   power   which   the   sole trustee   had   to   collect   donations   and subscriptions   for   the   trust.   he   had   all   the powers which the sole manager of a business may have in order to carry it on profitably. He had the power of transferring trust properties and funds   if   he   thought   "it   expedient   in   the interest   of   the   objects   of   the   Trust,   to transfer   the   assests   and   liabilities   of   this Trust   to   any   other   Charitable   Trust   or institution   conducted   by   such   Trust   which   in the   opinion   of   the   original   Trustee   or   the Board   of   Trustee   has   objects   similar   to   the objects   of   this   Trust   and   is   capable   of carrying out the objects and purposes of this Trust either fully or partially" (Paragraph 17 of   the   Trust   deed).   Although,   the   "original trustee" was not "to take any remuneration" for discharging  his duties as a trustee, yet, he was not precluded "from being paid out of the Trust fund such remuneration as may be deemed propellor   carrying   out   any   work   and   duty   in connection   with   the   conduct   or   management   of institutions of the Trust, or with the business of   printing,   publishing   or   other   activities carried  on by the  Trust".  He was to be paid expenses incurred in travelling or otherwise in connection   with   his   duties   as   a   trustee (paragraph 16 of the Trust deed). The   "original   trustee"   could   invest   trust monies   and   profits   "in   any   investment authorised by law for the investment of Trust funds or in shares, or securities or debentures of Limited Companies in India or outside" (para 4   of   the   Trust   deed).   He   had   the   "power   to mortgage, sell, transfer and give on lease or to otherwise deal with the Trust property or any   portion   thereof   for   the   purpose   of   the Trust and to borrow monies or raise loans for the purpose of the Trust whenever he may deem it necessary  to do so" (para 8 of the  Trust deed).  Furthermore, the Trustee had the "power and authority  to spend and utilise  the money and the property of the Trust for any of the purposes of this Trust in such manner as to him may appear proper". It appears to us that, with this profit making background   of   the   trust,   its   loosely   stated objects  the wide powers of the sole trustee, and   the   apparently   profitable   mode   of conducting business, just like any commercial concern, disclosed not only by the terms of the trust but by the statement of total expenditure and income by the trustee it is very difficult to   see   what   educational   or   other   charitable purpose   the   trust   was   serving   unless   the dissemination of information and expression of opinions through the publications of the trust was in itself treated as the really educational and charitable purpose. In the trust deed before us, as we have already indicated, the trustee had not only wide powers of utilisation of trust funds for purposes of the trust but could divert its assets as well as   any   of   the   funds   of   the   Trust   to   other institutions whose objects are "similar to the objects" of the trust and of "carrying out the objects and purposes of this trust either fully or partially". The whole deed appears to me to be cleverly drafted so as to make the purpose of clause 2(c) resemble the one which was held to be protected from income­tax in the Tribune case (supra). Indeed the very language used by the Privy Council in the Tribune case (supra), for describing the objects of the Trust in that case, seems to have been kept in view by the draftsman of the trust deed before us. And, we find that the power of diverting the assets and income   of   the   Trust   although   couched   in language which seems designed to counsel their real effect is decisive on the question whether the trust is either wholly or predominantly for a charitable purpose  or not. The trustees is given the power of deciding what 485 purpose is allowed   to   or   like   an   object   covered   by   the trust and how it is to be served by a diversion of trust properties and funds. If the trustee is given the power to determine the proportion of   such   diversion,   as   he   is   given   here,   the trust   could   not   be   said   to   be   wholly charitable. He could divert as much as to make the charitable part or aspect, if any, purely illusory. Indeed, this was the law even before the   qualifying   words   introduced   by   the   1961 Act. [See: East India Industries (Madras) Pvt. Ltd.   v.   Commissioner   of   Income­tax,   Madras, (1967) 65 ITR 611 (SC), Commissioner of Income­ tax,   Madras   v.   Andhra   Chamber   of   Commerce, (1965) 55 ITR 722 (SC) and Md. Ibrahim Riza v. Commissioner of Income­tax, Nagpur, AIR 1930 PC

Such   a   "trust"   would   be   of   doubtful validity, but I refrain from further comment or any pronouncement upon the validity of such a trust as that was neither a question referred to   the   High   Court   in   this   case   nor   argued anywhere. “

Thus,  it appears that the Supreme  Court looked   into   the   trust   deed   of   the   trust   in details and noticed that the sole trustee had not   only   wide   powers   of   utilization   of   the trust funds for the purposes of the trust but he could divert its assets as well as any of the   funds   of   the   trust,   to   the   other institutions whose objects were “similar to the objects” of the trust and of “carrying out the objects and purposes of such trust either fully or partially.” The Supreme Court observed that the   whole   deed   appeared   to   be   very   cleverly drafted so as to make the purpose of clause (2) (c)   resemble   the   one   which   was   held   to   be protected from income tax in the Tribune case (1939)   7   ITR   415. (PC).   The   Supreme   Court observed that if the trustee is given the power to determine the proportion of such diversion, the   trust   could   not   be   said   to   be   wholly charitable. This decision also is of no avail to the Revenue in the case at hand.

In   the   case   of   Cricket   Association   of Bengal   (supra),   the   assessee   was   an unregistered   and   unincorporated   body.   Its membership   was   open   to   the   clubs,   District Associations, Universities, Indian States, and subject to certain conditions, individuals. Its objects were roughly summarized as promotion of the game of cricket played in accordance with the highest standard. The Association received payments by way of subscriptions and donations. The   ITO   did   not   accept   the   plea   of   the assessee, seeking exemption. The ITO held that the object  of the Association was merely  the promotion of a game and could not be termed as pursuing a charitable object. The order of the ITO   was   upheld   by   the   AAC   as   well   as   the Tribunal. The matter went in appeal before the High Court of Calcutta. The High Court, while rejecting the appeal of the assessee, observed as under; “12. The   question   we   have   to   consider   is whether   promotion   of   cricket   as   a   general purpose   or   more   particularly   promotion   of cricket  in the form in which the Association professes   to   promote   it   can   at   all   be   a charitable   purpose.   In   England,   it   has repeatedly been held that no gift or bequest made merely for the promotion of some game or pastime can be called a gift or bequest for a charitable purpose. An exception is to be found with respect to cases where provision is made for   training   in   a   game   as   a   part   of   the education of youth. In those cases, the gift or bequest is regarded as charitable on the ground that   it   advances   the   cause   of   education.   As instances   of   gifts   or   bequests   for   such purposes,  I may refer  to the case  of In re, Mariette   :   Mariette   v.   Governing   Body   of Aldenham   School,   (1915)   2   Ch.   284,   where   a bequest   was   made   to   the   Governing   Body   of   a school for the purpose of building some squash racket courts and a further bequest was made to the Head Master for the time being upon trust to use the interest for providing a prize for some event in the school athletic sports every year.   This   bequest   was   upheld   as   charitable, because it was considered essential in a school of   learning   that   there   should   be   organised games as a part of the daily routine in order that the boys might not be left to themselves and   that   their   bodily   welfare   might   be promoted.   Another   instance   is   the   case   of Dupree's  Deed Trusts, In re, Daley v. Lloyds Bank, Ltd., (1945) 114 LJ Ch L where a deed of gift, expressed to be for the encouragement of chess   playing   by   holding   an   annual   chess tournament limited to boys and, young­men under the age of 21 years resident in a particular area,   was   held   to   be   a   good   gift   for   a charitable purpose. It appears that Vaisey, J. who   decided   the   case   had   to   struggle   a   good deal against his own inclinations in order to arrive   at   the   conclusion   which   he   ultimately reached,   but   he   said   that   in   view   of   the evidence before him that chess was included in the school curriculum and that according to the experience   of   the   members   of   the   teaching profession   the   game   promoted   concentration, selfreliance   and   reasoning,   he   would   not condemn   the   gift   as   bad.   The   learned   Judge, however,   expressed   the   difficulty   he   felt   in the following words : "One   feels   perhaps   that   one   is   on   rather   a slippery slope. It chess, why not draughts? if draughts, why not bezique? and so on, through to bridge, whist, and by another route, stamp collecting and the acquisition of birds' eggs?" I need not, however, deal with this class of cases,   because   the   gifts   in   them   were   not merely   for   the   promotion   of   some   game   or sports, but they were for training of youth in some game of skill or in  athletic sports as a part of their education. Where, however, a gift or   bequest   has   been   made   solely   for   the promotion of a game or pastime, it has always been struck down as not charitable. To take the case of In re: Nottage: Jones v. Palmer, (1895) 2 Ch.  649  which  is so often  cited,  the four Judges who decided it, one in the High Court and three in the Court of Appeal, all held that a   bequest   for   the   encouragement   of   yacht racing, although it might be beneficial to the public,   could   not   be   upheld   as   charitable, because it was a bequest for the encouragement of a mere sport. Lindley, L. J. in the Court of Appeal made an observation in the course of his judgment which is peculiarly appropriate to the present case, since it mentions encouragement of the game of cricket : "Now,   I   should   say",   observed   the   learned Judge, "that every healthy  sport is good for the nation—cricket,

I do not think I should multiply citations in order to illustrate the point that a gift or bequest merely for the promotion of a game has never been considered charitable : Clifford, In re : Mallam v. McFie, (1911) 81 LJ Ch 220 was a case   of   angling;   Trustees   of   Warnher's Charitable   Trust   v.   Commissioners   of   Inland Revenue,   (1937)   21   Tax   Cas   137,   a   case   of playing fields. Scottish Flying Club, Ltd. v. Commissioners of Inland Revenue, (1936) 20 Tax. Cas 1, a case of an Aviation Club which held aerial pageants and charged fees for admission to the display and Inland Revenue Commissioners v. City of Glasgow Police Athletic Association, 1953 AC 380, a case of athletic  sports  of a police   club.   It   is   true   that   some   of   the decisions ultimately turned on the point that the beneficiary was not the public or a section of it, as understood in law, but incidentally observations   were   made   in   all   of   them   as regards   when   promotion   of   a   game   can   be   a charitable purpose and when it cannot be.

The facts of the present case are that the   assessee   Association   merely   held   certain demonstration   or   exhibition   matches.   It   does not provide any training in the game of cricket to novices or any advanced training for persons who   are   already   practiced   players.   Its activities   outside   the   holding   of   the exhibition matches is limited entirely to its own members. The only contact it has with the public is by way of having them as spectators, on payment of a fee, of matches arranged by it. I find it impossible to hold that any benefit or   entertainment   which   is   thus   paid   for   and which is availed of by only such members of the public as can or wish to pay for it can in any sense  be a purpose  of a charity.  It is true that charity in the income­tax sense need not have any eleemosynary element in it and that an object of general public utility is under the income­tax law a charitable object. Indeed, if the objects professed by the Association, are to   be   treated   as   charitable   objects   at   all, they   can   be   so   treated   only   if   they   can   be regarded as objects of general public utility. I find it impossible to hold  that there is any general public utility, so as to amount to a charity, in arranging for cricket matches which the public  can see on payment.  How untenable must be a contention that such an object is an object   of   general   public   utility   and, therefore, must be held to be charitable will appear if one considers certain parallel cases. Suppose a body of men bind themselves together into a club and collect annually some musicians from   all   parts   of   the   country   to   give demonstrations for a number of days and suppose the public are admitted to such demonstrations on payment of a fee. If the contention of the Association   in   the   present   case   is   to   be accepted, it must equally be held that the body of   men   in   the   hypothetical   case   I   have mentioned who derive a large income by selling admission   to   the   musical   demonstrations organised   by   them,   are   also   exercising themselves   for   a   charitable   purpose   and   that their earnings must be equally exempt from tax.

It was contended that the game of cricket had a place of its own among games and that it inculcated   a   spirit   of   fairness   and   an honourable conduct to such ah extent that the term   'cricket'   had   come   to   be   a   synonym   for fairness and honour. That may be so, but I am unable   to   understand   how   fairness   and   honour can be inculcated by the game of cricket in any person other than those who actually take part in   it.   In   the   present   case,   we   are   not concerned   with   the   players   who   play   at   the matches arranged by the Association, for they are members of the visiting teams or it might be local teams, but so far as the Association is   concerned   they   are   mostly   outsiders.   The Association   is   claiming   to   be   advancing   a charitable   purpose   only   by   providing   an opportunity to the public to witness the games arranged by it. It can by no means be said that any spirit of fairness and honour is inculcated in   the   spectators   of   a   game   of   cricket   or perhaps   any   other   game,   played   not   by individuals  but by teams.  Indeed, there is a school of opinion, now growing in volume, which thinks that games played by rival teams drawn from   different   parts   of   the   country   or different countries and witnessed by multitudes do not serve any beneficial  purpose, but, on the   other   hand   cause   a   deterioration   of   the mind   by   fostering   fanatical   partisanships   or generating   mass   hatreds.   This,   however,   is   a matter of opinion. Whether this extreme view is right or wrong, I find it impossible to hold that   any   benefit   of   a   public   character   is conferred   on   the   society   or   a   section   of   it merely by the arrangement of exhibition games of cricket or tournaments and the admission of the public thereto for a fee, on the basis of which the purpose of arranging for such matches can be said to be a charitable purpose.

There   is   another   ground   too   upon   which the   Association's   claim   must   fail.   I   have already hinted at it, but will now point it out specifically. Among the objects set out in the Rules is one which authorises the Association to   carry   out   any   other   business   or   activity which may seem to the Association  capable of being carried on in connection with the above. Section 4 (3) (I) (a) and (b) of the Act which I   have   already   read   contemplate   either   a business   carried   on   in   the   course   of   the carrying   out   of   a   primary   purpose   of   the Association   or   a   business,   the   work   in connection with which is mainly carried on by the beneficiaries. There is no question of the business of playing cricket here being carried on   by   the   beneficiaries   of   the   Association, because   the   games   are   mainly   played   by outsiders.   But   the   authority   which   the   Rules confer   on   the   Association   to   carry   out   any other business "in connection with the above," that   is   to   say,   in   connection   with   the promotion of the objects set out earlier, does not   seem   to   me   to   come   within   the   terms   of Section   4  (3)   (i)   (a)   which   requires   the business   to   be   carried   on   in   the   course   of carrying out one of the primary purposes of the Association. If so, it appears to me that even assuming   that   there   is   a   property   and   even assuming that the purpose of promoting the game of   cricket   is   a   charitable   purpose,   the property   is   here   held   not   wholly   for   that purpose but it is held for other purposes as well.” 176. The   High   Court,   in   the   aforesaid   case, took notice of the fact that the Association merely held certain demonstration or exhibition matches. It did not provide any training in the game   of   cricket   to   novices   or   any   advanced training   for   the   persons   who   were   already practiced   players.   The   High   Court   further noticed that the activities of the Association, outside the holding of the exhibition matches, was limited entirely  to its own members.  The High Court also noticed that the only contact the Association had with the public was by way of having them as spectators on payment of a fee   of   matches   arranged   by   it.   Thus,   having regard to what has been referred to above, the High Court, ultimately, took the view that the Association   was   engaged   in   any   charitable objects.   The   facts   in   the   case   on   hand   are altogether different.

In the case of N.N. Desai Charitable Trust (supra),   this   Court   ruled   that   howsoever laudable the objects of the trust may be, and such objects may lead one to believe that the activities   of   the   trust   are   charitable   in nature,   but   for   the   purpose   of   seeking exemption   under   Section   11   of   the   Act,   the actual activities are to be seen and not just the objects. There need not be any debate on this proposition of law. In the case on hand, after   a   detailed   scrutiny   of   the   various activities, the tribunal has recorded a finding of   fact   that   the   activities,   in   fact,   are charitable in nature.

In such circumstances, referred to above, we are of the view that the Tribunal could be said   to   have   taken   a   reasonable   view   of   the matter, and having recorded a finding of fact based on the material on record, we should not disturb such finding of fact.

In the result, all the tax appeals fail and   are   hereby   dismissed.   The   substantial questions   of   law,   formulated   in   all   the   tax appeals,   are   answered   in   favour   of   the assessees and against the Revenue.”

In view of the aforesaid dictum of law, wherein,   it   is   held   that   the   activity   of   the petitioners cannot be said to be carrying on any activity   in   the   nature   of   trade,   commerce   or business, so as to apply proviso to Section 2(15) which   defines   'charitable   purpose'.   Therefore, the   impugned   notice   as   well   as   the   assessment order passed by the respondent are required to be quashed and set aside.

The   petitions,   therefore,   succeed   and are   accordingly   allowed.   The   impugned   notice dated 08.01.2013 issued by the respondent under Section 148 of the Act is therefore quashed and set   aside,   and   consequentially,   the   impugned assessment   order   dated   30.01.2013   passed   under Section 143 r/w. Section 147 of the Act is also quashed and set aside. Rule is made absolute to the aforesaid extent with no order as to costs. (J. B. PARDIWALA, J) (BHARGAV D. KARIA, J) Pradhyuman