Tamil Nadu Cricket Association v Director of IncomeTax (Exemptions)

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The Tax PublishersITA No. 396/Mds/2012 2013 TaxPub(DT) 0849 (Chen-Trib) : (2013) 057 SOT 0439 : (2013) 022 ITR (Trib) 0673 Income Tax Act, 1961 --Charitable trust--Cancellation of registration Charitable nature vis-a-vis activities of commercial nature/business nature--Assessee was a registered society and its main object was to maintain a general control of game of cricket in State of Tamil Nadu and in union territory of Puducherry and give its decision on all matters concerning game either when referred to or suo motu. Assessee-society was granted registration under section 12AA. In background of law, as it stood amended by Finance Act, 2008 with effect from 1-4-2009, assessing officer called for details of activities of assessee to examine whether activities carried on by it are hit by restraint inserted in proviso to section 2(15). Assessing officer, after examining details available before him, came to a conclusion that assessee had deviated from its declared objects and that at present, it was carrying on activities of commercial nature and as such, there was no justification in continuing registration granted under section 12AA. Assessing officer, therefore, submitted a proposal to DIT (Exemptions) to initiate proceedings for cancellation of registration under section 12AA(3). DIT (Exemptions) accordingly cancelled registration of assessee-society under section 12AA(3). *Held:* Rightly so. Assessee was carrying on commercial activities/business activities and huge/super profit was earned, genuineness of objects of general public utility was, thus, deviated. As such cancellation of registration granted earlier was therefore, justified. The Director of Income Tax (Exemptions) has examined the nature of the receipts in a very meticulous manner. The assessee always argued before him that the subsidy given by the BCCI are grants towards compensation for advertisement right for the telecast of international matches, IPL, ODIs, etc. The assessee argued that all these receipts were in the nature of grants given by the apex body BCCI. But, on the basis of the detailed examination of the case, the Director of Income Tax (Exemptions) has come, to a conclusion that the receipt totalling to Rs. 26,82,38,072 was not, in fact, in the form of any subsidy or grant, but was the share of the assessee in the advertisement revenue collected by the BCCI while conducting different cricket matches. [Para 36] The IPL matches were also examined by the Director (Exemptions). He held that the entire activities carried on by the assessee in conducting the IPL matches are commercial in nature. In short, the Director (Exemptions) found that even though the assessee is entrusted with the development of the sport of cricket in the State of Tamil Nadu and in the Union Territory of Puducherry, the assessee has gone very much beyond those objectives and that the assessee is more engaged in playing different types of matches with wide publicity and thereby earning huge revenue from advertisements. All the activities of the assessee are tuned in such a way that maximum advertisement revenue is derived from any type of match conducted by the assessee. [Para 37] The above paradigm shift in the activities carried on by the assessee has been treated by the Director (Exemptions) as a deviation from the objects for which the assessee was formed earlier. The assessee was formed and registration under section 12AA was granted on the proclaimed object of developing the sports of cricket, whereas at present the assessee is carrying on revenue earning exercise by arranging international matches, IPL matches, etc., and focusing its efforts on maximizing the revenue. Therefore; he held that the activities carried on by the assessee are not genuine, inasmuch as the activities are not in accordance with the real objects for which the assessee was formed and registration under section 12AA was granted. In that way, the Director (Exemptions) held that the case of the assessee has satisfied the requirement of first limb of section 12AA(3) so as to justify the cancellation of 12AA, registration. The Director (Exemptions) also held that as a consequence, the second limb is also satisfied. [Para 38] There cannot be a dispute that the IPL matches conducted by cricket associations are nothing but commercial ventures. IPL teams are owned by different sponsors including industrial houses and film stars. They are selecting the players on auction. They quote the highest price for the best player according to them. Every team is trying to bring in maximum number of prominent cricketers so that they have a better chance of winning the IPL matches. The capital invested by the owners of the teams is redeemed by advertisement revenue. The owners of the IPL teams are conducting these matches for the purpose of harvesting profits out of their investments. By any stretch of imagination, it is not possible to call IPL matches as activities of public utility tarried on by the assessee. IPL match is a big game of big money. In fact it is an entertainment industry by itself. [Para 40] Now, in addition to IPL matches;. Celebrity Cricket Matches are also being held all order India. All the players in Celebrity Cricket Tests are film stars. The associations like the assessee are conducting all these Celebrity Cricket Matches. In Celebrity Cricket Matches, there is no element of public utility. All these activities are either for money or for fame or for market image. [Para 41] Even though the circular issued by the CBDT has clarified that activities to promote sports and games are objects of general public utility and therefore to be treated as charitable purpose, the same is not applicable to the present case, as the assessee is not carrying on any object of general public utility, but an object of general public entertainment. The game of cricket has grown into an industry by itself. Different people are investing money in different teams to earn super profit. Maximum revenue is generated through different marketing strategies. Tickets are sold for high prices which are not normally accessible to the general public. When all these features are taken together, it is seen that assessee has become a profit centre. [Para 48] It is necessary for the purpose of section 2(15) that the objects are carried out not only in their physical aspect but also in their conceptual framework, so as to claim the benefit of registration under section 12AA. In the present case, the conceptual framework has not been followed. [Para 54] The Director (Exemptions) has clearly stated that the activities of the association are not in the nature of activities for advancement of any object of general public utility. But, the activities involve carrying on activity in the nature of trade, commerce or business or any other activity of rendering any service for a cess or fee. Therefore, it is clear that the first proviso inserted under section 2(15) hits the case of the assessee. [Para 55] There cannot be a conflict between the first proviso inserted under section 2(15) and the conditions laid down in section 12AA(3) for cancelling the registration. If there is a conflict between the two, the law stated in the proviso will be defeated. So also, the law stated in section 12AA(3) will be defeated. Therefore, when the assessee is hit by the proviso to section 2(15), its consequential reflection is automatic on section 12AA(3), which prima facie establishes that the activities carried on by the assessee are not genuine, inasmuch as it is not for advancement of any object of public utility. The two conditions laid down in section 12AA(3) cannot be read and understood in disregard of the proviso to section 2(15). [Para 56] Therefore, the two conditions stated in section 12AA(3) have reference to the de facto nature of the activities carried on by the assessee. The assessee was given registration under section 12AA on the ground that it is a charitable institution inasmuch as it is engaged in the advancement of an object of general public utility in the form of developing and promoting the game of cricket in Tamil Nadu and Puducherry. But, now it is seen that its activities are oriented towards generating income and revenue by converting the sport of cricket into a celebrated industry. It means, the present activities carried on by the assessee are not genuine, when compared to the objects stated at the time of getting registration under section 12AA. It is not the physical factor as to whether the assessee is conducting cricket matches or not, which is the issue to be looked into. It is the purpose for which those physical activities are carried out. There is no case, as far as physical activities are concerned, that the game conducted by the assessee is not genuine. It becomes not genuine when one looks into the objects for which the association is formed and registered under section 12AA. [Para 57] Likewise, it is further seen that the object of the assessee was to carry on an activity for advancement of an object of general public utility by promoting the cricket game. But, it has deviated from the stated objective by carrying out the game of cricket as an entertainment industry, generating huge revenue. [Para 58] Therefore, in the facts and circumstances of the case, the case of the assessee is covered by both the limbs stated in section 12AA(3). Order of the Director (Exemptions) passed under section 12AA(3) is upheld. The registration of the assessee granted under section 12AA has been rightly cancelled. [Para 59] SUBSCRIBE FOR FULL CONTENT

The Tax PublishersITA No. 396/Mds/2012
2013 TaxPub(DT) 0849 (Chen-Trib) : (2013) 057 SOT 0439 : (2013) 022 ITR (Trib) 0673

Income Tax Act, 1961

--Charitable trust--Cancellation of registration Charitable nature vis-a-vis activities of commercial nature/business nature--Assessee was a registered society and its main object was to maintain a general control of game of cricket in State of Tamil Nadu and in union territory of Puducherry and give its decision on all matters concerning game either when referred to or suo motu. Assessee-society was granted registration under section 12AA. In background of law, as it stood amended by Finance Act, 2008 with effect from 1-4-2009, assessing officer called for details of activities of assessee to examine whether activities carried on by it are hit by restraint inserted in proviso to section 2(15). Assessing officer, after examining details available before him, came to a conclusion that assessee had deviated from its declared objects and that at present, it was carrying on activities of commercial nature and as such, there was no justification in continuing registration granted under section 12AA. Assessing officer, therefore, submitted a proposal to DIT (Exemptions) to initiate proceedings for cancellation of registration under section 12AA(3). DIT (Exemptions) accordingly cancelled registration of assessee-society under section 12AA(3). Held: Rightly so. Assessee was carrying on commercial activities/business activities and huge/super profit was earned, genuineness of objects of general public utility was, thus, deviated. As such cancellation of registration granted earlier was therefore, justified.

The Director of Income Tax (Exemptions) has examined the nature of the receipts in a very meticulous manner. The assessee always argued before him that the subsidy given by the BCCI are grants towards compensation for advertisement right for the telecast of international matches, IPL, ODIs, etc. The assessee argued that all these receipts were in the nature of grants given by the apex body BCCI. But, on the basis of the detailed examination of the case, the Director of Income Tax (Exemptions) has come, to a conclusion that the receipt totalling to Rs. 26,82,38,072 was not, in fact, in the form of any subsidy or grant, but was the share of the assessee in the advertisement revenue collected by the BCCI while conducting different cricket matches. [Para 36] The IPL matches were also examined by the Director (Exemptions). He held that the entire activities carried on by the assessee in conducting the IPL matches are commercial in nature. In short, the Director (Exemptions) found that even though the assessee is entrusted with the development of the sport of cricket in the State of Tamil Nadu and in the Union Territory of Puducherry, the assessee has gone very much beyond those objectives and that the assessee is more engaged in playing different types of matches with wide publicity and thereby earning huge revenue from advertisements. All the activities of the assessee are tuned in such a way that maximum advertisement revenue is derived from any type of match conducted by the assessee. [Para 37] The above paradigm shift in the activities carried on by the assessee has been treated by the Director (Exemptions) as a deviation from the objects for which the assessee was formed earlier. The assessee was formed and registration under section 12AA was granted on the proclaimed object of developing the sports of cricket, whereas at present the assessee is carrying on revenue earning exercise by arranging international matches, IPL matches, etc., and focusing its efforts on maximizing the revenue. Therefore; he held that the activities carried on by the assessee are not genuine, inasmuch as the activities are not in accordance with the real objects for which the assessee was formed and registration under section 12AA was granted. In that way, the Director (Exemptions) held that the case of the assessee has satisfied the requirement of first limb of section 12AA(3) so as to justify the cancellation of 12AA, registration. The Director (Exemptions) also held that as a consequence, the second limb is also satisfied. [Para 38] There cannot be a dispute that the IPL matches conducted by cricket associations are nothing but commercial ventures. IPL teams are owned by different sponsors including industrial houses and film stars. They are selecting the players on auction. They quote the highest price for the best player according to them. Every team is trying to bring in maximum number of prominent cricketers so that they have a better chance of winning the IPL matches. The capital invested by the owners of the teams is redeemed by advertisement revenue. The owners of the IPL teams are conducting these matches for the purpose of harvesting profits out of their investments. By any stretch of imagination, it is not possible to call IPL matches as activities of public utility tarried on by the assessee. IPL match is a big game of big money. In fact it is an entertainment industry by itself. [Para 40] Now, in addition to IPL matches;. Celebrity Cricket Matches are also being held all order India. All the players in Celebrity Cricket Tests are film stars. The associations like the assessee are conducting all these Celebrity Cricket Matches. In Celebrity Cricket Matches, there is no element of public utility. All these activities are either for money or for fame or for market image. [Para 41] Even though the circular issued by the CBDT has clarified that activities to promote sports and games are objects of general public utility and therefore to be treated as charitable purpose, the same is not applicable to the present case, as the assessee is not carrying on any object of general public utility, but an object of general public entertainment. The game of cricket has grown into an industry by itself. Different people are investing money in different teams to earn super profit. Maximum revenue is generated through different marketing strategies. Tickets are sold for high prices which are not normally accessible to the general public. When all these features are taken together, it is seen that assessee has become a profit centre. [Para 48] It is necessary for the purpose of section 2(15) that the objects are carried out not only in their physical aspect but also in their conceptual framework, so as to claim the benefit of registration under section 12AA. In the present case, the conceptual framework has not been followed. [Para 54] The Director (Exemptions) has clearly stated that the activities of the association are not in the nature of activities for advancement of any object of general public utility. But, the activities involve carrying on activity in the nature of trade, commerce or business or any other activity of rendering any service for a cess or fee. Therefore, it is clear that the first proviso inserted under section 2(15) hits the case of the assessee. [Para 55] There cannot be a conflict between the first proviso inserted under section 2(15) and the conditions laid down in section 12AA(3) for cancelling the registration. If there is a conflict between the two, the law stated in the proviso will be defeated. So also, the law stated in section 12AA(3) will be defeated. Therefore, when the assessee is hit by the proviso to section 2(15), its consequential reflection is automatic on section 12AA(3), which prima facie establishes that the activities carried on by the assessee are not genuine, inasmuch as it is not for advancement of any object of public utility. The two conditions laid down in section 12AA(3) cannot be read and understood in disregard of the proviso to section 2(15). [Para 56] Therefore, the two conditions stated in section 12AA(3) have reference to the de facto nature of the activities carried on by the assessee. The assessee was given registration under section 12AA on the ground that it is a charitable institution inasmuch as it is engaged in the advancement of an object of general public utility in the form of developing and promoting the game of cricket in Tamil Nadu and Puducherry. But, now it is seen that its activities are oriented towards generating income and revenue by converting the sport of cricket into a celebrated industry. It means, the present activities carried on by the assessee are not genuine, when compared to the objects stated at the time of getting registration under section 12AA. It is not the physical factor as to whether the assessee is conducting cricket matches or not, which is the issue to be looked into. It is the purpose for which those physical activities are carried out. There is no case, as far as physical activities are concerned, that the game conducted by the assessee is not genuine. It becomes not genuine when one looks into the objects for which the association is formed and registered under section 12AA. [Para 57] Likewise, it is further seen that the object of the assessee was to carry on an activity for advancement of an object of general public utility by promoting the cricket game. But, it has deviated from the stated objective by carrying out the game of cricket as an entertainment industry, generating huge revenue. [Para 58] Therefore, in the facts and circumstances of the case, the case of the assessee is covered by both the limbs stated in section 12AA(3). Order of the Director (Exemptions) passed under section 12AA(3) is upheld. The registration of the assessee granted under section 12AA has been rightly cancelled. [Para 59]