2015 (1) TMI 608 - AT - Income Tax

Cancellation of the registration granted under Section 12A - assessee incorporated under Section 25 of the Companies Act, 1956 with an aim to promote the game of Cricket in and around Delhi - Held that - The entire receipts have been received for the promotion of game of cricket. 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. In none of the cases there is any quid pro quo. The ultimate beneficiary is either the cricketer or the game of the cricket. 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.vWhenever 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. 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. Regarding sale of tickets the assessee explained that no tickets are sold for Ranji Trophy and only in case of international matches, ₹ 200/- per ticket are levied, with a sole 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. 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. 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. Thus 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. Thus to conclude 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. Quash the impugned order passed by the DIT(E) u/s 12AA(3) r.w.s. 12 of the Act, as it is bad in law. - Decided in favour of assessee.

Summary

Issues Involved:
1. Retrospective cancellation of registration under Section 12A.
2. Nature of activities and whether they qualify as "trade, commerce, or business" under Section 2(15).
3. Specific activities and their implications on the charitable status.

Detailed Analysis:

Retrospective Cancellation of Registration:
The first issue addressed was whether the Director of Income Tax (Exemptions) [DIT(E)] could retrospectively cancel the registration granted to the assessee under Section 12A. The tribunal referred to several judgments, including the Hon'ble Delhi High Court in the case of *DIT(E) vs. Mool Chand Khairati Ram Trust* (2011) and the Hon'ble Allahabad High Court in *Oxford Academy for Career Development vs. Chief CIT* (2009), which held that the power to cancel registration under Section 12AA(3) introduced by the Finance Act, 2010, is prospective and cannot be applied retrospectively. The tribunal concluded that the withdrawal of registration with retrospective effect from 1.4.2009 was bad in law.

Nature of Activities and Section 2(15):
The second issue was whether the activities of the assessee were in the nature of trade, commerce, or business, thus disqualifying it from being considered charitable under Section 2(15). The tribunal referred to the decisions of the Hon'ble Delhi High Court in *GSI India vs. DIT* (2013) and the Hon'ble Madras High Court in *Tamil Nadu Cricket Association vs. DIT(E)* (2013). It was emphasized that for an activity to be considered business, it must be undertaken with a profit motive and continued on sound business principles. The tribunal found that the assessee's activities, such as organizing cricket matches and providing related facilities, were not driven by profit motives but were integral to its charitable purpose of promoting cricket.

Specific Activities and Their Implications:
1. Sponsorship Income: The tribunal noted that despite receiving sponsorship money, the assessee incurred a shortfall, indicating no profit motive. The agreements with sponsors were to meet costs and not for profit-making.
2. Sale of Liquor: The tribunal found that the sale of liquor was part of the canteen services provided to members and associated persons, not open to the public, and was incidental to the primary activity of promoting cricket.
3. Advertising and Contractual Receipts: These were seen as means to subsidize costs and not as business activities. The tribunal held that these receipts were intrinsically linked to the charitable activities.
4. Income from IPL Matches: The tribunal observed that the expenses incurred for organizing IPL matches were compensated by contributions from BCCI and franchisees, and there was no profit motive.
5. Sale of Tickets: For international matches, nominal charges were levied to control crowds, and the cost per ticket was more than the amount charged, indicating no commercial intent.
6. Playing Cards and Health Club Receipts: These were considered incidental recreational activities for members, with charges aimed at cost recovery, not profit-making.

The tribunal concluded that all these activities were interconnected with the charitable purpose of promoting cricket and did not constitute "trade, commerce, or business."

Conclusion:
The tribunal quashed the order of the DIT(E) canceling the registration under Section 12A, holding that the activities of the assessee were genuine and carried out in accordance with its charitable objects. The appeal of the assessee was allowed.