2018 (8) TMI 196 - HC - Income Tax

Exemption u/s 11 - charitable purpose - Whether promotion of sports and games can be considered to be charitable purpose? - Held that - The contention which has been raised pursuant to the observations and amendment which is made under Section 12AA of the Income Tax Act and proviso which is impressed by the counsel for the department and Section 2(15) of the Act and proviso to Section 12AA which has been amended w.e.f. 1.4.2009 which has been introduced in the Finance Act w.e.f. 1.4.2012, will not apply in the present case inasmuch as all proceedings are for the financial year 2005-06, 2008-09 2009-10. It is true that in one of the case where it has been made effective from 1.4.2009 therefore, in one of the appeal for the assessment year 2009-10 the same will apply to proviso. While considering the matter, the real purpose of registration is to be seen that the object falls within the definition of Section 12AA and proviso. If there is any breach of any condition/s then they may cancel the registration, however, they have to follow the procedure. The contention that non-communication of changes of purpose will automatically cancel the registration, in our considered opinion, is not a valid argument. However, in view of the specific clause which has been there under Form 10A, we are of the considered opinion that it will be open for the department while making assessment to follow provision of Section 11(5) and Section 13 to disallow the expenses of the income as the case may be, if the same is not income in expenses as per the approved bye-laws but nonetheless cancellation of registration is uncalled for. All the issues are answered in favour of the assessee and against the department.

Issues Involved:

1. Restoration of registration under Section 12AA despite non-charitable/commercial activities.
2. Allowance of 12AA registration despite substantial changes in the original objects.
3. Validity of changes in objects under the Rajasthan Sports Act contrary to the Income Tax Act.
4. Exemption under Section 11 despite commercial activities.
5. Claim of depreciation on assets for which application was made under Section 11.

Issue-wise Analysis:

1. Restoration of registration under Section 12AA despite non-charitable/commercial activities:
The court examined whether the ITAT was correct in restoring the registration under Section 12AA despite the assessee institution having non-charitable/commercial objects. The department contended that the registration was initially granted based on the original objects, which were later amended to include commercial activities. According to Section 2(15) of the Income Tax Act, the advancement of any other object of general public utility shall not be considered a charitable purpose if it involves carrying on any activity in the nature of trade, commerce, or business. The court noted that the amendments to the objects were substantial and included clauses that allowed the institution to receive monies and donations and invest them in any manner, which were not in line with the definition of 'charitable' under Section 2(15).

2. Allowance of 12AA registration despite substantial changes in the original objects:
The court addressed whether the ITAT was correct in allowing 12AA registration despite substantial changes in the original objects. The department argued that the changes in the objects were significant and altered the original purpose of the trust. The court observed that the amendments included new objects that were not covered by the original registration and were contrary to the provisions of the Income Tax Act. The court referred to the decision in the case of the Board of Control for Cricket in India (BCCI) v/s Income Tax Officer, where it was held that the registration granted under Section 12A cannot be extended to the amended objects without re-examination by the registering authority.

3. Validity of changes in objects under the Rajasthan Sports Act contrary to the Income Tax Act:
The court considered whether the changes in the objects as per the Rajasthan Sports Act were valid under the Income Tax Act. The tribunal had observed that the amendments were mandatory under the Rajasthan Sports Act. However, the court noted that the amendments were substantial and altered the original purpose of the trust. The court referred to the decision in Allahabad Agricultural Institute vs. Union of India, where it was held that if the objects of the trust are altered after the grant of registration, the registration would not survive.

4. Exemption under Section 11 despite commercial activities:
The court examined whether the ITAT was correct in allowing exemption under Section 11 despite the assessee's activities being run on a commercial basis. The department argued that the assessee's activities were commercial and there was no element of charity. The court noted that the assessee had received significant income from commercial activities such as advertisements, canteen sales, ticket sales, and TV subsidies. The court referred to the decision in Tamil Nadu Cricket Association vs. Director of Income Tax (Exemptions), where it was held that the conduct of matches by cricket associations was commercial and not charitable.

5. Claim of depreciation on assets for which application was made under Section 11:
The court addressed whether the ITAT was correct in allowing the claim of depreciation on assets for which application was made under Section 11. The department argued that the assessee was not entitled to claim depreciation on assets that were already claimed as application under Section 11. The court referred to the decision in Commissioner of Income Tax-II, Jodhpur vs. Krishi Upaj Mandi Samiti, where it was held that depreciation on assets owned by a charitable institution is a necessary deduction on commercial principles. The court also referred to the decision in Director of Income Tax (Exemption) vs. Indraprastha Cancer Society, where it was held that depreciation should be allowed to determine the percentage of funds applied for charitable purposes.

Conclusion:
The court concluded that the amendments to the objects were substantial and altered the original purpose of the trust. The registration under Section 12AA could not be restored without re-examination of the amended objects. The court also held that the assessee's activities were commercial and not charitable, and therefore, the exemption under Section 11 was not applicable. However, the court allowed the claim of depreciation on assets for which application was made under Section 11. The appeals were dismissed, and the issues were answered in favor of the department and against the assessee.

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