2017 (11) TMI 673 - AT - Income Tax

Eligibility for exemption under section 11 - denial of claim by AO observing that the activities of the assessee are business activities - expenditure towards conducting various tournaments, grants to District associations for conducting league tournaments and development of game and other heads such as Administrative & Maintenance - what are the receipts of the assessee and how assessee has been incurred towards the objects - Held that - The assessee has already constructed a stadium at Visakhapatnam suitable for conducting test matches . During the year under consideration, the assessee has also commenced construction of stadiums at various places like Mangalagiri, Kurnool & Kadapa. During the year, it has also acquired land at Nellore for the purpose of constructing a stadium. The assessee has admitted the incomes under the major heads such as BCCI reimbursements of Rs. 20,64,17,339/- and interest of Rs. 1,26,10,435/- on FDR‟s & SB accounts. Out of these receipts, the assessee incurred expenditure towards conducting various tournaments, grants to District associations for conducting league tournaments and development of game and other heads such as Administrative & Maintenance. From the above, it is very clear that the receipts received by the assessee in relation to sports of cricket and also incurring expenses towards development of the stadiums, which is also related to sports of cricket and also clearing the land for the purpose of construction of stadium which is also related to the sports of a cricket. Certain funds are granted to the District Associations for the purpose of development of cricket sports. Therefore, all the receipts received by the assessee are incurred in connection with sports of the cricket. Therefore, the Assessing Officer is not justified in observing that the activities of the assessee are business activities. We find that the Assessing Officer simply observed that the activities of the assessee are converted into business activities without making any enquiry, which object is converted into business. Simply making observations without recording the reasons, is not a sufficient to constitute that the assessee is converted from charitable to business activity. Therefore, the observations of the Assessing Officer are not correct and it has to be rejected. Assessing Officer is not correct in rejecting exemption claimed by the assessee under section 11 of the Act also not correct in rejecting the claim of the assessee under section 10(23C)(iv) of the Act. - Decided in favour of assessee.

Issues Involved:
1. Eligibility for exemption under Section 11 of the Income Tax Act.
2. Validity of amendments to the Memorandum and Articles of Association without approval from the Commissioner of Income Tax.
3. Nature of activities conducted by the assessee (charitable vs. commercial).
4. Application of Section 10(23C)(iv) of the Income Tax Act.

Detailed Analysis:

1. Eligibility for Exemption under Section 11 of the Income Tax Act:
The primary issue was whether the Andhra Cricket Association (ACA) was eligible for exemption under Section 11 of the Income Tax Act. The Assessing Officer (AO) denied the exemption, arguing that the amendments to the Memorandum and Articles of Association were made without the approval of the Commissioner of Income Tax, thus invalidating the registration under Section 12A. However, the CIT(A) directed the AO to grant the exemption, noting that the amendments did not affect the main objects of the association and were only clarificatory in nature. The tribunal upheld this view, stating that the AO failed to provide specific reasons for rejecting the exemption and that the amendments were subsequently approved by the Commissioner.

2. Validity of Amendments to the Memorandum and Articles of Association:
The AO argued that the amendments made in 1994, 1995, and 2007 were not approved by the Commissioner of Income Tax, thus invalidating the registration under Section 12A. The tribunal found that the amendments did not significantly alter the original objects and were clarificatory. Furthermore, the Commissioner had dropped proceedings to cancel the registration after receiving a detailed reply from the assessee, indicating that the amendments did not affect the original objects. The tribunal concluded that the amendments, which were subsequently approved, did not justify denying the exemption under Section 11.

3. Nature of Activities Conducted by the Assessee (Charitable vs. Commercial):
The AO contended that the activities of ACA were commercial rather than charitable, citing income from BCCI reimbursements and interest on FDRs and SB accounts. The tribunal found that the receipts were related to cricket activities and were used for constructing stadiums, conducting tournaments, and developing cricket infrastructure. The tribunal noted that the AO failed to establish which specific activities were commercial and concluded that the activities were charitable, not commercial. The tribunal emphasized that the AO's observations were insufficient to prove that the activities had converted from charitable to commercial.

4. Application of Section 10(23C)(iv) of the Income Tax Act:
The tribunal noted that ACA had been granted approval under Section 10(23C)(iv) by the Chief Commissioner of Income Tax, effective from Assessment Year 2008-09 onwards. The AO did not consider this approval in the assessment order. The tribunal held that the AO's failure to consider the approval and the lack of specific reasons for rejecting the exemption under Section 11 or Section 10(23C)(iv) were unjustified. The tribunal upheld the CIT(A)'s direction to allow the exemption under Section 11, noting that the activities were related to the sport of cricket and aligned with the approved objects.

Separate Judgments for Assessment Years 2011-12 and 2012-13:
For the Assessment Years 2011-12 and 2012-13, the tribunal found that the facts were similar to those of the Assessment Year 2010-11. The AO denied the exemption for these years, arguing that the activities were commercial. However, the tribunal found that the activities were related to cricket and aligned with the approved objects. The CIT(A) had directed the AO to allow the exemption, and the tribunal upheld this decision, finding no reason to interfere with the CIT(A)'s orders.

Conclusion:
The tribunal dismissed all the appeals filed by the revenue, upholding the CIT(A)'s decisions to grant the exemption under Section 11 of the Income Tax Act for the Assessment Years 2010-11, 2011-12, and 2012-13. The tribunal concluded that the amendments to the Memorandum and Articles of Association did not affect the original objects, the activities were charitable, and the approval under Section 10(23C)(iv) was valid.

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