A,C.I.T. (EXEMPTION), NAGPUR vs. M/S VIDARBHA CRICKET ASSOCIATION, NAGPUR

PER BENCH :

These appeals by the Revenue for the assessment years 2009-10 to 2013-14 are directed against the order of learned CIT(A)-4, Nagpur dated 22nd June, 2016 and 28th June, 2016.

“1. On the facts and in the circumstances of the case and in law, even though the assessee was granted registration u/s 12AA of the I.T. Act, whether the CIT(A) was right in allowing the benefit of sec.11

2 ITA-500 to 504/Nag/2016 & 12 to the assessee, particularly since the Proviso to sec. 2(15) of the I.T. Act was applicable in the assessee’s case, as the assessee was involved in carrying out commercial activities?

3 ITA-500 to 504/Nag/2016 u/s 12A, the institution shall be deemed to have been granted registration u/s 12A as applied for. The Assessing Officer required the assessee vide questionnaire dated 10th September, 2012 on perusal of audit report and return of income along with computation filed by the assessee that it is not engaged in the activity which can be called as a charitable activity and therefore, does not fall within the ambit of charitable purpose as per the proviso to Section 2(15) of the Act. According to AO, even if the promotion of cricket is considered to be an object of general public utility, the other correlated activities are in the nature of carrying on of the business/trade/commerce with the object of earning of profits and, in view of proviso to Section 2(15) of the Act as introduced by the Finance Act, 2008 with effect from 1st April, 2009, the advancement of any other object of public utility shall not be charitable purpose if it involves carrying of any activity in the nature of trade, commerce or business or any activity of rendering any service in relation to trade, commerce or business for a cess or fee or for any other consideration, irrespective of the nature of use or application or retention of the income from such activity. The assessee before the Assessing Officer replied to the show cause notice vide reply dated 30th October, 2012 and the gist of submissions as reproduced by the CIT(A) in paragraph 6 reads as under :-

“i) Copy of memorandum and article of association were submitted to demonstrate that the assessee is engaged in the activities of development of cricket.

ii) As per the Board’s Circular No.395 dated 24.09.1984, it was clarified that promotion of sports and games is an object of general public utility and institutions engaged in such activity are eligible for exemption u/s 11 of I.T. Act.

iii) In the case of Tamil Nadu Cricket Association, Deputy Director of Income Tax (Exemption-1), Chennai had passed an order allowing exemption u/s 11 of I.T. Act to the institution. The objects of the said institution are identical to that of the assessee. Reliance is placed on the decision of Hon’ble Bombay

4 ITA-500 to 504/Nag/2016 High Court in the case of Tax Practitioner Benevolent Fund Vs. CIT reported in 266 ITR 561 in which it was held that when objects of two institutions are similar, then it’s not open to the Income Tax Department to apply different parameters to different trusts carrying similar objects and similar purposes seeking grant of exemption u/s 80G of I.T. Act.

iv) There is nothing adverse on record in the case of the assessee to deny the benefit of registration u/s 12A and income being not chargeable to tax u/s 11 of I.T. Act.

v) The assessee has no motive of earning any profit as can be seen from its activities of past more than seven decades. The assessee is developing sports and has set up a sports club at Jamtha wherein various sports activities like squash court, badminton, swimming and gymnastics. The entire receipts derived had been deployed in creating infrastructure for development of sports. The amount collected towards membership is utilized for the purpose of development of sports.

vi) As such the activities carried out by the assessee association such as are permissible u/s 2(15) of I.T. Act i.e. of charitable purpose.”

5 ITA-500 to 504/Nag/2016 case of DCIT Vs. Tamil Nadu Cricket Association – (2017) 50 CCH 0128 allowed the claim of the assessee vide paragraph Nos.6.3 to 6.13 as under :-

”6.3 I have considered the submissions made by counsel for the appellant and perused evidence on record. The appellant association engaged in the activity of development of cricket. The appellant association is registered under the Societies Registration Act 1860 and is affiliated to the Board of Cricket Control of India which is an Apex Body for development of cricket in India. The appellant a charitable institution has maintained regular books of account which are duly audited and audit report as prescribed has been submitted before the A.D. and copy of the same is placed before me. The appellant has constructed a Stadium at Jamtha on the lines of standard of International Stadiums which is utilized for playing various International cricket matches to be viewed by public at large.

6.4 In the case of appellant application for registration under section 12A of I.T. Act 1961 was submitted on 1/4/2003. The aforesaid application had not been disposed off within a period of six months as provided under the provisions of section 12AA of LT. Act 1961. In the regular assessments framed upto assessment year 2008-09 the benefit of section 11 of I.T. Act 1961 was denied by the A.O. in respective assessment proceedings. In the appeal filed in respect of assessment framed under section assessment year 2008-09 was upheld by Hon'ble ITAT Nagpur Bench, Nagpur. The revenue had filed appeal in respect to orders passed by Hon'ble ITAT, Nagpur Bench, Nagpur before Hon'ble Bombay High Court which are ITA Nos.13, 23 of2011, 111,114,115,117 of 2010 and 133, 136, 138 & 139 of 2010. The Hon'ble Bombay High Court in the appeals filed by revenue had directed to the Department to dispose of application of appellant filed for registration u/s 12AA of LT. Act 1961 on 1/4/2003 within three months from the date of its order. The Hon'ble Commissioner of Income Tax(Exemption), Pune pursuance to direction of Hon'ble Bombay High Court in the case of appellant has passed the order granting registration under section 12AA of LT. Act 1961 with effect from 1/4/1996. The aforesaid order passed by CIT(Exemption), Pune is obtained and

6 ITA-500 to 504/Nag/2016 placed on record. On above stated factual position and evidence on record the registration in the case of appellant under section 12AA of I.T. Act 1961 stands enjoyed by charitable institution and thus the appellant is eligible for consideration for benefit of exemption under section 11 of I.T. Act 1961.

6.4. The appellant institution is holding registration under section 12AA of I.T. Act 1961 effective from 1/4/1996. In the case of assessee in assessment year 2008-09 the CIT(A) has directed to grant benefit of section 11 of I.T. Act 1961 in Appeal No. CIT(A)- 1/651/2010-11 vide order dated 30/03/2012. In the appeal filed by revenue in respect to said order stands dismissed by Hon'ble ITAT, Nagpur Bench, Nagpur in ITA No. 206/Nag/2012 vide order dated 22/01/2014. In view of above fact the benefit of section 11 stood allowed in the case of appellant upto assessment year 2008-09 by the appellate authorities.

6.5. In assessment year 2010-11 for the first time benefit of section 11 has been denied to appellant and for denial of such exemption provisions of section 2(15) of I.T. Act 1961 as amended by Finance Act of 2008 have been considered. The various activities carried out by appellant are looked into to hold that appellant institution is carrying on activities with profit motive. In view of above A.O. has concluded that activities of the appellant can no longer be regarded as charitable activities in view of proviso to section 2(15) of I.T. Act 1961. The A.O. has further observed that the benefit of section 11 of I.T. Act 1961 is denied and the surplus is subjected to tax.

6.6. The appellant is association for development of Cricket and such similar associations are existing across the country in various States. In the case of Tamil Nadu Cricket Association the issue as to applicability of proviso to section 2(15) of I.T. Act 1961 introduced by Finance Act 2008 was considered by the Hon'ble ITAT, Chennai Bench. In the aforesaid case the benefit of section 11 of I.T. Act 1961 was denied by observing that the various activities carried on by the said institution is not charitable activity in view of the proviso to section 2(15) of I.T. Act 1961. The activities of the aforesaid institution are similar to that carried on by the appellant association in Vidarbha. The Hon'ble ITAT, Chennai after

7 ITA-500 to 504/Nag/2016 considering proviso to section 2(15) of I.T. Act 1961 has held that benefit of section 11 cannot be denied in the said case. The relevant finding as recorded in the order are reproduced hereunder:

“15. Now, let’s examine whether the activity of conducting one-day matches, T-20 matches and Indian Premier League matches would amount to doing business or trade. It is the case of the Revenue that the assessee-society is conducting or organizing T-20, one-day matches or Indian Premier League matches. In fact, BCCI, the parent organization which is a national body in India, is organizing and conducting the matches. The assessee-society, being a member of BCCI, hosts the matches which are conducted by BCCI. For the purpose of meeting its expenditure, the BCCI allocates funds from the revenue it collected from advertisement and other sources. The assessee-society is allowed to sell tickets to the cricket viewers. No doubt, the players of Indian Premier League are sold in public auction for very huge amount. But the question is who is conducting and who is auctioning, whether the assessee-society or BCCI? In fact, BCCI conducts the public auction for selling premier players at a huge premium rate. In fact, the BCCI collects the money. The role of the assessee-society is only to provide stadium for conducting matches. Other than that, the assessee-society has no role in conducting the international matches and Indian Premier League matches.

8 ITA-500 to 504/Nag/2016 host. Therefore, this Tribunal is of the considered opinion that at any stretch of imagination, it cannot be said that the assessee is conducting any business activity. The assessee is also not providing any service to any trade, commerce or industry. In those circumstances, this Tribunal is of the considered opinion that proviso to Section 2(15) of the Act is not applicable to the assessee. In view of the above discussion, the assessee is eligible for exemption under Section 11 of the Act for all the assessment years under consideration. Accordingly, the orders of the lower authorities for assessment years 2009-10 and 2010-11 are set aside and the Assessing Officer is directed to grant exemption under Section 11 of the Act. The Assessing Officer is also directed to grant exemption under Section 11 of the Act for the assessment year 2008-09 also."

The ratio laid down by the Hon'ble ITAT, Chennai squarely applies to the facts in the case of appellant and is binding precedent. There is no contrary view available. The ratio laid down by the Hon'ble ITAT, Chennai squarely applies to the facts in the case of appellant and considering the same benefit of section 11 of LT. Act 1961 cannot be denied to the appellant.

6.7. The appellant association is similar to that of Cricket Association of Bengal which is carrying out its activities in the State of Kolkatta. The Hon'ble Apex Court while considering the dispute between the Secretary Ministry of Information and Broadcasting and Cricket Association of Bengal, Kolkata in Civil Appeals Nos.1429-30 of 1995 vide judgement dated 09.02.1995 has observed at para 75 of the judgement as under:

“An organizer such as the BCCI or CAB in the present case which are indisputably devoted to the promotion of the game of cricket cannot be placed in the same scale as the business organizations whose only intention is to make as large a profit as can be made by telecasting the game. Whereas it can be said that there is hardly any free-speech element in the right to telecast when it is asserted by the latter, it will be a warped and cussed view to take when the former claim the same right and contend that in claiming the right to telecast the cricket matches organised by them, they are asserting the right to make business

9 ITA-500 to 504/Nag/2016 out of it. The sporting organizations such as BCCI/CAB which are interested in promoting the sport or sports are under an obligation to organize the sports events and can legitimately be accused of failing in their duty to do so. The promotion of sports also includes its popularization through all legitimate means. For this purpose, they are duty-bound to select the best means and methods to reach the maximum number of listeners and viewers. Since at present, radio and TV are the most efficacious methods, thanks to the technological development, the sports organizations like BCCI/CAB will be neglecting their duty in not exploring the said media and in not employing the best means available to them to popularize the game. That while pursuing their objective of popularizing the sports by selecting the best available means of doing so, they incidentally earn some revenue, will not convert either them into commercial organizations or the right claimed by them to explore the said means, into a commercial right or interest. It must further be remembered that sporting organizations such as BCCI/CAB in the present case, have not been established only to organize the sports events or to broadcast or telecast them. The organization of sporting events is only a part of their various objects, as pointed out earlier and even when they organize the events, they are primarily to educate the sportsmen to promote and popularize the sports and also to inform and entertain the viewers. The organization of such events involves huge costs. Whatever surplus is left after defraying all the expenses is ploughed back by them in the organization itself It will be taking a deliberately distorted view of the right claimed by such organizations to telecast the sporting event to call it an assertion of a commercial right. Yet the MIB has chosen to advance such contention which can only be described as most unfortunate. It is needless to state that we are, in the circumstances, unable to accept the ill-advised argument. It does no credit to the Ministry or to the Government as a whole to denigrate the sporting organizations such as BCCI/CAB by placing them on a par with business organizations sponsoring sporting events for profit and the access claimed by them to telecasting as assertion of commercial interest.”

The observation of Hon’ble Apex Court reproduced hereinabove from the judgement dated 09.02.1995

10 ITA-500 to 504/Nag/2016 fully supports the submission of the appellant that the activities carried out by the appellant cannot be ascribed as activities of business for which the benefit of section 11 of I.T. Act 1961 can be denied. The ratio laid down fully supports the submission of appellant that it is eligible for benefit of exemption U/s 11 of I.T. Act, 1961.

6.8 In the case of the Andhra Cricket Association the activities carried out by the said association are similar to that carried out by appellant association in the region of Vidarbha. In the case of M/s. Andhra Cricket Association the benefit of exemption under section 11 of LT. Act 1961 was denied by A.O. which was challenged in appellate proceedings before Hon'ble CITCA), Vijaywada. The appeal of the said association for the assessment year 2012-13 has been disposed off vide order dated 28/9/2015 in Appeal No. 460/CITCA)/VJA/2014-15. In the aforesaid appeal the Hon'ble CITCA), Vijaywada has, following the decision of Hon'ble ITAT, Chennai Bench, Chennai in the case of Tamil Nadu Cricket Association held that the appellant in the aforesaid appeal is eligible for the benefit of exemption under the provisions of section 11, 12 and 13 of I.T. Act 1961. The case of the appellant being identical and similar to that in the case of Andhra Cricket Association, decision rendered in said appeal squarely supports the case of appellant for grant of benefit of income being exempt under section 11 of LT. Act 1961. For the detailed reasons given in the appellate order of CITCA), Vijaywada to which I agree, I am of the view that the benefit of section 11 of I.T. Act 1961 cannot be denied in the case of appellant association similarly placed.

6.9. The A.O. in the assessment order has tabulated the financial results at paras 11 at page 9 and has observed that appellant is spending on promotion of cricket, establishment expenses etc. of meager amount. The aforesaid chart as tabulated by A.O. would itself indicates that the total amount applied by the appellant association in the various years as is evident from the chart observed in the assessment order. The last column of the chart is percentage of amount spent on cricket including establishment expenses. It is seen from the chart that assessee in assessment year 2007-08 has spent 107.64% and in assessment year 2008-09 252.47% of the receipts. In the previous year under consideration appellant has

11 ITA-500 to 504/Nag/2016 spent 85.06% of the total receipts. The aforesaid amounts spent on activities of promotion of cricket including infrastructural expenses dearly depicts that the appellant association has applied the revenue derived on the objects of association and thus the observation of the A.O. that the appellant association is incurring meager expenses are unjustified and contrary to evidence on record. On above undisputed factual position denial of benefit of Sec. 11 to appellant institution is unjustified and unsustainable.

6.10. The A.O. at para 7 of the assessment order has given various reasons so as to conclude that the appellant is carrying on activities which are in the nature of trade, commerce or business. The perusal of the observations would show that the activities carried on by the appellant are similar to that prior to assessment year 2008-09. The appellant has not carried out any new activity which was not being carried out by the appellant association in the assessment year 2008-09. In the case of appellant upto assessment year 2008-09, the Hon'ble I TAT, Nagpur Bench, Nagpur has concluded that the appellant is eligible for the benefit of exemption under section 11 of LT. Act 1961. In the appellate orders for the past assessment years no where in the assessments as well as in the appellate orders ever there has been any allegation as to that the appellant association is carrying on activities which are in the nature of trade, commerce or business. On the face of the aforesaid factual position the various observations made at para 7 of the assessment order are unjustified and are without justification.

6.11 The A.O. at para 7 at point (i) to (iii) has referred to activities of club and collecting charges by appellant for use of same from members. The Hon’ble Bombay High Court in the case of Director of Income Tax (Exemptions) v/s. The Chembur Gymkhana reported at 345 ITR 86 (Born) has upheld the decision of ITAT wherein activities of club including that of running a Bar and Sports activity were held to be eligible for benefit of exemption U/s 11 of I.T. Act, 1961. In view of above there remains nothing for which any adverse view can be considered for grant of exemption U/s. 11 of I.T. Act, 1961. The application of income for creating infrastructure is permissible in terms of provisions of Sec. 11 of I.T. Act, 1961. This is settled position of

12 ITA-500 to 504/Nag/2016 Law in terms of decision of Hon'ble Bombay High Court in the case of Director of Income Tax (Exemption) v/s The Chembur Gymkhana reported at 345 ITR 86 (Bom) and decision of Hon'ble Apex Court in the case of S.RM.M.C.T.M Tiruppani Trust v/s. CIT reported at 230 ITR 636 (SC). The A.O. has observed construction of shopping mall. The appellant institution has constructed shops beneath the stadium to effectively utilize the space and derive rental income to augment the revenue for incurring expenditure on objects of trust. This has been constructed in the year 1996. The property of the institution being stadium and shopping complex beneath is property held under trust. The bare perusal of sec. 11(1) of I.T. Act 1961 provides that income from property held in trust qualifies for income to be not exigible to tax u/s 11 of I.T. Act 1961. Deriving rent from property held in trust by institution can in no manner of consideration be considered as an activity of trade commerce or business as envisaged in proviso to sec. 2(15) of I.T. Act 1961. I do not see any thing wrong more so where revenue derived is being utilized for promotion of sports. There is nothing commercial in respect to same. The A.O. at para 7(vii) has omitted to consider capital expenditure and other expenditure of appellant institution as per Audit statements on its objects. Considering financial statements expenditure incurred by appellant institution can not be termed as meager as observed by A.O. more so where A.O. himself at para 11 of page 9 has observed in tabulation that percentage of amount spent on cricket including establishment expenses is 85.06%. Thus I am of considered opinion that conclusion of A.O. that appellant is engaged in activity of trade commerce or business is unjustified and unsustainable.

6.12. The A.O. at para 10 of the assessment order has made certain observation as regard to collecting of ticket money during the course of matches or amount collected from the members of the club. The A.O. has referred the decision of Uttarakhand High Court in the case of Queen Educational Society reported at 319 ITR 160. In the case of appellant it is evident that the various receipts from which the revenue is derived are applied on the objects of the association. In the case of appellant there is no allegation of any misuse of fund or any allegation as

13 ITA-500 to 504/Nag/2016 to application of money for other than the objects of the association. The expenditure incurred on objects of the appellant association are in the nature of expenses to that considered by the Hon'ble IT AT, Chennai Bench in the case of Tamil Nadu Cricket Association. In view of above factual position, various adverse observation in the assessment order at para 10 of the assessment order deserves no credence and are without justification. The decision of Hon'ble Uttarakhand High Court has been reversed by the Hon'ble Apex Court in appeal of Queens Educational Society in Civil Appeal No. 5167 of 2008 vide judgment dated 16.03.2015. In view of above I am of the considered opinion that various adverse observation at para 10 of the assessment order for denial of exemption under section 11 of LT. Act 1961 to the appellant association are not justified and deserve no credence.

6.13. Considering the totality of facts and circumstances in the case of appellant and respectfully following the decision of Hon'ble ITAT, Chennai in the case of Tamil Nadu Cricket Association detailed reasons and various judicial precedents given herein above. I hold that the appellant association is eligible for benefit of income being exempt under section 11 of I.T. Act 1961. The A.O. is directed to grant the benefit of income being exempt under section 11 of I.T. Act. 1961 as claimed. These grounds of appellant are allowed.”

Aggrieved, now Revenue is in second appeal before the Tribunal.

14 ITA-500 to 504/Nag/2016 DIT(Exemptions) and Others – (2014) 360 ITR 633 (Mad), wherein Hon’ble High Court has considered the proviso to Section 2(15) of the Act taking into consideration the object of the institution which fits into the definition of charitable purpose defined under Section 2(15) of the Act and subsequent substitution of the Section itself with effect from 1st April, 2009. Hon’ble High Court has gone into the aspect of proviso to Section 2(15) of the Act and observed in paragraph 34 as under :-

“Thus, when the assessee is in receipt of income from activities, which fits in with sections 11 and 12 of the Act as well as from sources which do not fall strictly with the objects of the trust, would not go for cancellation of registration under section 12AA of the Act on the sole ground that the assessee is in receipt of income which does not qualify for exemption straightaway 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 December 19, 2008, the object of 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 (2012) 343 ITR 23 (Bom) (Sinhagad Technical Education Society V. Commissioner of Income Tax (Central), Pune & Anr), the Bombay High Court held as follows:

15 ITA-500 to 504/Nag/2016 "As a result of the amendment, which has been brought about by the Finance Act of 2010, Subsection (3) of Section 12AA has been amended specifically to empower the Commissioner to cancel a registration obtained under Section 12A as it stood prior to its amendment by the Finance (No.2) Act, 1996. Sub Section (3) was inserted into the provisions of Section 12AA by the Finance (No.2) Act, 2004 with effect from 1 October 2004. As it originally stood, under subsection (3), a power to cancel registration was conferred upon the Commissioner where a trust or an institution had been granted registration under clause (b) of subsection (1) of Section 12AA. The Commissioner, after satisfying himself that the objects of the trust or an 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, was vested with the power to pass an order in writing cancelling the registration of such trust or institution. By the Finance Act of 2010, subsection (3) was amended so as to empower the Commissioner to cancel the registration of a trust or an institution which has obtained registration at any time under Section 12A (as it stood before its amendment by the Finance (No.2) Act, 1996). As a result of the amendment, a regulatory framework is now sought to be put in place so as to cover also a trust or an institution which has obtained registration under Section 12A as it stood prior to its amendment in 1996......

power under Section 12AA(3) can be exercised by the Commissioner in respect of a trust registered prior to 1 June 2010. The mere fact that a part of the requisites for the action under Section 12AA (3) is drawn from a time prior to its passing namely registration as a charitable trust under Section 12A prior to 2010 would not make the amendment retrospective in operation. The amendment does not take away any vested right nor does it create new obligations in respect of past actions."

16 ITA-500 to 504/Nag/2016 “52. 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 of Income Tax (Exemptions) that the expression 'subsidy from BCCI' was a misleading nomenclature and it was a share from the revenue collected by BCCI from the sale of telecast rights. The surplus from IPL Season-I worked out to 8.5% of the total receipts. It further held that 78% of the total receipt came out of advertisement revenue.

17 ITA-500 to 504/Nag/2016 not based on materials indicating objects of general public utility.

18 ITA-500 to 504/Nag/2016 issue in favour of the assessee i.e., for assessment years 2003-04 to 2008-09 although the same is prior to introduction of proviso to Section 2(15) of the Act. In view of the earlier year’s decision of Hon’ble Bombay High Court, we are of the view that as regards to charitable activity, this aspect is covered. No contrary decision was brought to our notice during the course of hearing by the Revenue. Hence, respectfully following the decision of Coordinate Bench of ITAT, Chennai Bench in the case of Tamil Nadu Cricket Association (supra), we are of the view that the issue is squarely covered in favour of the assessee and hence, we confirm the order of learned CIT(A). The appeal of the Revenue is dismissed. Consequently, all the appeals of the Revenue, which are on identical issue, are dismissed.

Sd/- Sd/- (G.D. AGRAWAL) (MAHAVIR SINGH) PRESIDENT JUDICIAL MEMBER

Dated : 07.03.2018 VK.

Copy of the order forwarded to :