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Income Tax Appellate Tribunal, DELHI BENCH ‘B’ : NEW DELHI
Before: SHRI R.K. PANDA & SHRI KULDIP SINGH
PER KULDIP SINGH, JUDICIAL MEMBER :
Appellant, DCIT (E), Circle 1 (1), New Delhi (hereinafter referred to as the ‘assessee’) by filing the present appeal sought to set aside the impugned order dated 25.10.2016 passed by the Commissioner of Income-tax (Appeals) - 40, New Delhi qua the assessment year 2012-13 on the grounds inter alia that :- “On the facts and in the circumstances of the case and in law, the Ld. CIT (A) has erred in directing the AO to allow exemption u/s. 11 (1) of the Act particularly when the assessee has shown receipts from Sponsorship Income Sale of Liquor, Income from Corporate Boxes, Sale of Tickets and Advertising/Contractual Receipts which are purely commercial in nature.”
Briefly stated the facts necessary for adjudication of the controversy at hand are : Assessee, an association established to encourage and promote the game of Cricket in the Province of Delhi and District of Karnal which was registered under section 12A of the Income-tax Act, 1961 (for short ‘the Act’), but the registration was withdrawn w.e.f. 01.04.2009 for AY 2009-10 onwards. However, the registration u/s 12AA of the Act was subsequently restored by the Tribunal vide order dated 13.01.2015. Assessee is also registered u/s 25 of the Companies Act, 1956. Assessing Officer, in scrutiny proceedings, denied exemption u/s 11 of the Act on the ground that the assessee is involved in the business activities as per Proviso 1 & 2 of section 2(15) of the Act because the assessee has received sponsorship fees, casual membership fee, permanent membership fee, rent from the ground, collection from the health club, ticket sale from public and the corporate house, restaurant and telecasting right fees etc. and thereby assessed the income by passing the following order :-
“7. In view of the above the activities of the assessee during A.Y.2009-10 , A.Y. 2010-11 and A.Y. 2011-12 have been held to be commercial in nature and provisions of proviso to section 2( 15) r/w section 13(8) were invoked in its case and the income of the assessee was assessed without giving it benefit of exemption u/s 11 & 12 of the Income Tax Act. 1961, Therefore, in view of the above discussion exemption u/s 11 & 12 is denied to the assessee in the A.Y 2012-13 also in view of provisions of proviso 1 & 2 to section 2(15) r/w section 13(8) of the Income Tax Act, 1961. Further since registration u/s 12AA has also been withdrawn in assessee's case, no benefit of section II & 12 of Income-Tax Act, 1961 can be given to the assessee in the current assessment year i.e. A. Y. 2012-13.
8. Only depreciation on assets purchased during FY 2009-10 and onwards will be allowed, as capital expenditure for earlier years has already been allowed as Application of Income in the assessment years prior to A.Y.2009-10. The depreciation from A.Y. 2009-10 to AY 2011-12 has already been allowed to the assessee. Further, the depreciation allowable during the year i.e. for F.Y. 2011-12 (A.Y. 2012-13) is as under: Assets Rate of Dep. on assets Depreciation added during AY 2012-13 Building/Stadium 10% 121349243 Furniture & Fixture 10% 704110 Electronic/Electrical 15% 6909543 Office Items, P&M Vehicles 15% 96487 Computer H/W & S/W 60% 793730 Total Dep. 12,98,53,113
During the year the assessee has incurred expenditure of Rs.1,37,66,227/- in cash. Out of this expenditure some payments have been made to employees as ex-gratia or other benefits, D.A. to Directors on tour, diesel expenses etc. which are considered outside purview of section 40A(3) of Income-Tax Act, 1961 r/w Rule 6DD of Income-Tax Rules, 1962. After taking into consideration all the facts it is held that still a sum of Rs.l,37,66,227/- has been incurred in cash so that the each payment exceeds Rs.20,000/- and is thus in contravention of provisions of section 40A(3) of the Income Tax Act, 1961.
During the year the assessee has received a sum of Rs.61,67,0001- as membership fee, which has been shown as receipt in its corpus fund and not routed through its Income & Expenditure Alc. This income is of revenue nature and added to total income of the assessee. 11. During the year the assessee made a provision for gratuity of Rs.17,48,920/- (net) and prior period expenses Rs.39,13,766/- which are disallowed and added to the total income of the assessee.
With these remarks, the income of the assessee is computed as under: Income as per Income & Expenditure A/c Rs.4,70,70,202/- Add: Depreciation(as per company Act) Rs.7,34,76,349/- separately treated Add: Admission/Membership Fees Rs. 61,67,000/- Add: Provision for gratuity Rs. 17,48,920/- Add: Prior period expenses Rs. 39,13,766/- Add: Disallowance u/s 40(A)(3) Rs.1,37,66,227/- Rs.14,61,42,464/-
Less: Depreciation as per I.T. Act Rs.12,98,53,113/- Net Income Rs. 1,62,89,351/- B/f losses A.Y.2010-11 Rs.3,19,56,121/- A.Y.2011-12 Rs. 76,83,655/- Rs.3,96,39,776/- C/f losses Rs.2,33,50,425/- Tax as per normal rate Nil Tax calculation as per section 115JB of I.T. Act, being company is registered under Company Act Book Profit Rs.4,70,70,202/- @ 18.5% Rs.87,07,987/- Assessed as above. Since the assessee has filed its return u/s 139(4) on 19-02-2013, it is not allowed to carry forward the above loss determined in the current assessment year.”
3. Assessee carried the matter by way of an appeal before the ld. CIT (A) who has partly allowed the appeal. Feeling aggrieved, the Revenue has come up before the Tribunal by way of filing the present appeal.
We have heard the ld. Authorized Representatives of the parties to the appeal, gone through the documents relied upon and orders passed by the revenue authorities below in the light of the facts and circumstances of the case.
At the very outset, it is brought to the notice of the Bench by ld. AR for the assessee that consequent upon the restoration of the registration u/s 12AA of the Act vide order dated 13.01.2015 passed by the Tribunal in assessee’s own case for AYs 2009-10 & 2010-11, the Tribunal have decided the issues in controversy in favour of the assessee vide order dated 19.09.2018 passed in for AY 2010-11 and order dated 23.06.2017 in ITA No.5809/Del/2014 for AY 2009-10, and now the present appeal is covered in favour of the assessee. This factual position has not been controverted by the ld. DR for the Revenue.
Perusal of the order passed by the coordinate Bench of the Tribunal in dated 19.09.2018 for AY 2010-11 (supra) goes to prove that the issue in controversy has been decided in favour of the assessee by relying upon the order passed by the Tribunal in ITA No.5809/Del/2014 for AY 2009-10 order dated 23.06.2017, the operative part of which is extracted for ready perusal as under:-
“6. We have heard the rival submissions and also perused the relevant finding given in the impugned order as well as order of the Tribunal as relied upon by the Learned Counsel. From the perusal of the assessment order, it is seen that the ld. Assessing Officer has denied the exemption u/s 11 ( 1) on the ground that now in wake of newly inserted proviso to section 2(15) with effect from 1.4.2009, the assessee's activities could no longer be held to be charitable in nature. He has analyzed the various sources of income and also various agreements through which the assessee was earning its income like sponsorship income, sale of liquor, income from corporate boxes, sale of tickets, advertising/ contractual receipts, income from IPL matches and television subsidy receipt from BCCI. While analyzing these nature of incomes / receipts earned by the assessee, he also examined the various agreements entered by the assessee. After analyzing these agreements and nature of income he came to the conclusion that the assessee's activities falls within the ambit of trade, commerce of business. After coming to such conclusion, it appears that he has made a proposal to DIT (Exemption) for withdrawal of registration u/s 12AA on the same very points. In pursuance thereof, ld. DIT (E) vide its order dated 23.5.2012 has withdrawn the registration u/s 12AA (3), precisely on the same issues which has been raised by the Assessing Officer in the impugned order: This is prima facie evident from the facts and issue discussed in detail by the Tribunal in its order dated 13.1.2015. On a plain reading of the decision of the Tribunal, we find that on exactly same points as, raised by the DIT (E) and also argued from the side of the Department, this Tribunal has taken note of all these objections raised by the revenue as well as the submissions made by the assessee and after relying upon the decision of Hon'ble Madras High Court in the case of Tamil Nadu Cricket Association vs. DIT
(E) reported in 360 ITR 633 and the decision of Hon'ble Delhi High Court in the case of GS 1 vs. DIT (supra), the Tribunal held that assessee's activities revolves around cricket only which falls within the ambit of 'charitable purpose'; and none of its activities fall in the nature of trade, commerce or business. The relevant observation and finding of the Tribunal in this regard reads as:- "10.6. Thus applying the principles laid down in the judgment of the Hon'ble Madras High Court in the case of Tamil Nadu Cricket Association (supra), the impugned order cancelling the registration u/s 12A quashed. 10.7. 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 a dispute.
10.8. 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. As regards the various receipts of the assessee, we find that in the case of Tamii Nadu Cricket Association, the receipts were from: 1. Subscription 2. Renting for hiring cricket ground rooms and premises 3. Fee for providing services for IPL 4. Income from advertisement 5. Subsidy from BCCI 6. Sale of tickets for conducting the matches and 7. Restaurant and catering income. Such receipts of money by the Tamil Nadu Cricket Association were not considered by the Hon'ble Madras High' Court, as activities in the nature of "trade, commerce or business". There is no contrary decision cited by the Revenue. Thus none of the above streams of income, when received by the assessee would constitute business activity for the assessee. 10.9. Thus respectfully following the decision of Hon'ble Madras High Court in the case of Tamil Nadu Cricket Association (supra), we have to hold that the amounts received by the assessee from a) ground booking charges) b) health club charges, c) income from corporate boxes, d) lawn booking income, e) sponsorship money and sale of tickets, advertisement) souvenirs and other such receipts do not result in the assessee being held as undertaking activities in the nature of "trade, commerce or business. J) These receipts are intrinsically related, interconnected and interwoven with the charitable activity and cannot be viel.ued separately. The activities resulting in the said receipts are also charitable activities and not "trade, commerce or business" activities.
We now take up each of the issues raised by the Ld. DIT (E) in his order. 11.1 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. It was specifically argued by the Ld. D.R. that the agreement with “M/s Twenty First Century Media Pvt. Ltd." is commercial in nature. The reply of the assessee is that it should be appreciated that, for any organization to run and survive it is essential that it should augment some funds to meet the cost/ expenditure, as required to be incurred, to carry out the activities meant to achieve its object. We agree with the submissions of the assessee. 11.2. 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 activity, the presence of profit motive is a sin qua non i.e. condition precedent at the time of entering into transaction. In this case the facts demonstrate that despite the receipt of amount from sponsorship and subsidy from BCCI, there was deficit which was met by the assessee. Thus this adjustment resulted in subsidizing the cost of the assessee and hence there is no profit motto. This cannot be termed as business activity. Similar is the view of the Hon'ble Madras High Court in the case of Tamil Nadu Cricket Association (supra). 11.3. On the issue of sale of liquor, it was submitted that initially DDCA was formed as a Club to take over the assets and liabilities of the Association called, "Delhi Cricket Association". He referred to the objects and submitted as follows.
"One of the objects as given in the MOA of DDCA is to lay ground for playing game of cricket and to provide pavilion, refreshment rooms and other facilities in connection therewith. Therefore, an eatery was established which was eventually shaped as a canteen for the benefit of the members as well as few other persons associated with DDA e.g. players) coaches, staff, other guests etc." 11.4. In our view for the purpose of making this Canteen self sustainable, it has to follow global standards and international protocols, since cricket is played at international level. Canteen keeps various items as per menu. Liquor is just part of this menu. It is not sold independently as trading item. The eatery is available for the use only of members, players, staff and other guests of DDCA. It is not open for public. A walk in customer/ guest, cannot enjoy the facility of this eatery. The basic fact is that this canteen has direct and inextricable link with one of the core activities of DDCA i. e. maintaining such a huge cricket stadium and promoting the game of cricket. The Revenue, in this case is trying to project that the assessee as a liquor dealer. This is not correct. Internationally, when facilities are provided to players, liquor is part, of the menu. This is just incidental to providing food and Beverages in the canteen to the members, we cannot find fault with liquor being part of the menu card and being served as per international customs and requirements: 11.5. Hence to meet global standards these facilities are required and these are not independent of the activity of providing food and refreshments to Members and Associated Persons, Running of a canteen is an incidental and necessary activity as is in every organization. This cannot be termed as business activity, It is part and parcel of charitable activity and the receipt in question cannot be termed as exempt from activity which is in the nature of "trade, commerce or business",
11.6. On advertising and contractual receipts the same explanation as was given by the assessee, as in the case of sponsorship money. Consistent with the view expressed by us, when we were dealing with sponsorship money, we hold that these contractual receipts go to reduce part of the cost incurred by the assessee for its charitable activity and hence cannot be termed as business or that the assessee has undertaken activity in the nature of «trade, commerce or business",
11.7. On receipts from IPCL an elaborate explanation was given, the pith and substance is that expenditure has to be incurred by the DDCA on various items, as coordination has to be done and the aggregate of expenditure incurred for the same is Rs.238 lakhs. It was submitted that the DDCA, initially meets this expenditure out of its own sources and there after the BCCI and legal franchisee, contribute and compensate part of this expenses. The same arguments as were advanced by the assessee in the cases where sponsorship money received, were made here also. The summary of the submissions are as follows. "Our respectful submission is that, as we have given detailed submission in earlier part of our submissions wherein we have made analyses of receipts as well as of the expenses incurred by the assessee. The analysis of expenses have revealed that the expenses have been incurred on the promotion of the game of cricket. These expenses have been incurred either for the development of game of cricket or the development of players. There is no other cause or item for which any amount has been spent by the assessee. Similarly, when we analyse the receipt side, we would find that the receipts are directly or inextricably linked with the organizing of matches and Tournaments or for promotion of game of cricket in any other manner or for maintenance or building up the infrastructure meant for the promotion of the game of cricket. Thus, it can be safely said that the DDA exists for cricket and cricket only. The CBDT has already clarified that sports is a matter of general public utility. Therefore DDCA satisfies the condition of having a charitable object as mentioned in S.2 (15) of the Income Tax Act, 1961. It does not violate any condition as mentioned in pro viso to S.2 (l5).
The apprehension that certain income received by the assessee, during the year, partake the character of business income, is ill founded. In this regard we have submitted in detail that this apprehension is misplaced on account of various submissions as per details given below. 1. The entire receipts have been received for the promotion of game of cricket.
2. The assessee is not free to use it as per its convenience for any purpose other than for promotion of cricket. Thus, the amounts received in this manner cannot be characterized as business receipts.
The amount has been received as the voluntary contribution on discretion of the contributor (for e.g. BCCI). These have been received for raising the funds for meeting its costs and expenses.
4. In none of the cases there is any quid pro quo. The ultimate beneficiary is either the cricketer or the game of the cricket.
5. The assessee is not charging any fees or revenue from the cricketer who is ultimate beneficiary. Thus, there is no quid pro quo relationship with the cricketer. The assessee is promoting cricket on' charitable basis as far as real beneficiary is concerned.
6. Whenever the revenue is earned these are not earned on commercial lines and these are earned without any commercial attributes. The revenue is generated for recovering the cost, at least partly if not fully.
7. The assessee has not entered any transaction with any person on profit motive. The other person may be an entrepreneur or may be doing business but the assessee has entered the transaction only for the sole and dedicated purpose i.e. for the promotion of cricket.
These facts are worth noting that (a) the assessee has not diverted its funds for any purpose other than promotion of cricket; (b) the assessee has not done any activity or transaction with profit motive, (c) the assess has not done any activity beyond and outside its objects and (d) there is no change in facts so as to deviate from the stand taken by Ld. A. O. in all the past years accepting the claim of the assessee all along on facts as well as on law.
11.8. In view of our decision of sponsorship and such other receipts, we agree with the arguments made by the assessee. Regarding sale of tickets the assessee explained that no tickets are sold for Ranji Trophy and only in case of international matches, Rs.200/- per ticket are levied, with, a sale intention to control the crowds and that the cost incurred per ticket is much more than the amount which is charged for ticket. Under these circumstances, the sale of tickets cannot be considered as an activity of "trade, commerce or business". We agree with the submissions of the assessee.
11.9. Regarding playing cards, it is an incidental recreation activity undertaken in most Clubs and what is charged by the assessee, goes to recover the' costs for providing such recreational facility to, its member. The receipts are miniscule and hence negligible. 11.10. Similarly as far as receipts from health club is concerned, we find that, only a part of the expenditure incurred on health club is recovered by way of charges from Members, who are using the health club facility. These are all, at best be called user charges. In our view these receipts cannot be termed as an activity in the nature of «trade, commerce or business. In fact health Club facility is recognized to promote the game of cricket.
11.11. 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. 11.12. 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.
11.13. In view of the above discussion and in view of the binding judgments cited above, we have to necessarily quash the impugned order passed by the DIT (E) u/» 12AA (3) r.w.s. 12 of the Act, as it is bad in law.
On a plain reading of the aforesaid decision and conclusion of the Tribunal, we find that the Tribunal has addressed exactly similar kinds of objections raised by the revenue before us and after dealing with each and every issue Tribunal has come to conclusion that the assessee is not carrying out any business activities and none of its receipts can be termed as an activity in the nature of 'trade, commerce and business'. Once such a finding of fact has been given on similar set of facts, then we do not find any reason to deviate
from such a finding in assessee’s own case, therefore, following the aforesaid decision we reject the grounds raised by the revenue and uphold the order of the Learned CIT (Appeals) for restoring the exemption u/s 11(1) to the assessee for the A.Y. 2009-10.
8. In the result, the appeal of the revenue is dismissed.”
7. Following the aforesaid decisions rendered by the coordinate Bench of the Tribunal in AYs 2009-10 & 2010-11 in assessee’s own case wherein the AO had denied the benefit of sections 11 & 12 of the Act to the assessee by following AY 2009-10 which has already been decided in favour of the assessee by the Tribunal, we find no illegality or perversity in the impugned order passed by the ld. CIT (A) extending benefit of sections 11 & 12 of the Act, hence findings returned by the ld. CIT (A) in the impugned order are upheld. Consequently, the appeal filed by the Revenue is hereby dismissed. Order pronounced in open court on this 16th day of July, 2019.