2019 (9) TMI 681 - AT - Income Tax

Eligibility of exemption u/s 11 12 - rendering of services in respect of Indian Premier League cricket (IPL) by the appellant - charitable activity u/s 2(15) - arrangement of conducting Indian Premier League cricket (IPL) matches agreed between BCCI and Kings XI Punjab - assessee cricket association is a society registered under the Societies Registration Act 1860. It was earlier granted registration u/s 12A which was cancelled by CIT and the cancellation was made from assessment year 2009-10 onwards in view of the amended provisions of section 2(15) - HELD THAT - If we go strictly by the provisions of the Act, since the BCCI in its books of accounts has booked the payments to the State Associations as expenditure, it is thus payment out of its gross receipts and not out of income and thus it should not qualify as application of income. However, as most of the charitable institutes do, the expenditure is generally booked as application of income e.g. educational institutions claiming charitable status, generally claim the salary to teachers as application of income whereas in the books of accounts, the same is treated as expenditure and hence under the circumstances, in our view, the claim of the BCCI in this respect is not an exception. In view of this, the alternate plea of the BCCI is not opposite or destructive to its primary plea. However, the question that whether the expenditure can be considered as application of income for the purpose of claiming exemption as per the provisions of section 11 of the Act is left open to be decided in appropriate case. Question arises that when the donor that is BCCI in its books of account has not treated the payments to State Associations as voluntary grants or largesse, can the donnee/recipient claim the same to be so. The answer to this question, in our view, is no . , there seems force in the contentions raised by the Ld. DR that the Tamil Nadu Societies Registration Act, primarily, has been enacted for registration and regulating the societies in the State of Tamil Nadu. The BCCI though, having itself registered with the Tamil Nadu Societies Registration Act, yet, does not operate in Tamil Nadu rather all its operations and functions are conducted from Mumbai and its highly doubtful that the Registrar of the Tamil Nadu Societies could exercise any jurisdictional power over the BCCI. Under the circumstances, it appears that BCCI has shielded itself behind veil of registration under the Tamil Nadu Societies Registration Act , whereas the entire activity of the BCCI is being run out of the State of Tamil Nadu. The assessee in the earlier years (before the introduction of the above revised object) might have claimed the application of income on capital assets/infrastructure as application for charitable purposes. However now with the amended objects, it may exploit the so created infrastructure for commercial purposes. This leads to a very peculiar situation. In our view, the introduction of the above object has brought clarity about the manner of operation and activities of the assessee. As established beyond doubt that that the BCCI which is constituted of the Assessee and other State associations has acted in monopolizing its control over the cricket and has also adopted restrictive trade practice by not allowing the other associations who may pose competition to the BCCI to hold and conduct cricket matches for the sole purpose of controlling and exclusively earning the huge revenue by way of exploiting the popularity of the cricket. The assessee cricket association being the constituent member of the BCCI has also adopted the same method and rules of the BCCI for maintaining its monopoly and complete domain over the cricket in the area under its control . As observed above, such an act of exclusion of others cannot be said to be purely towards the promotion of game rather the same can be said to be an act towards the depression and regression of the game. Hence the claim of the assessee that its activity is entirely and purely for the promotion of game cannot be accepted. In view of the above discussion, the contention of the Ld. Counsel that the payment by the BCCI to the appellant is a grant to Charitable Institution cannot be accepted. Even as discussed above, the nature of payment by the BCCI, is not voluntary grant or largesse rather the same is a payment in an arrangement of sharing of Revenue from commercial exploitation of the Cricket and infrastructure thereof, hence, the plea of the assessee that the income from BCCI be treated as a capital receipt in its hand is not tenable. The appellant cannot be granted exemption under section 11 of the Act as its activities no more fall under the definition of charitable purposes as per the provisions of section 2(15) of the Act. Taxation in the hands of the member of the AOP - amount paid by the BCCI to the appellant which has already been taxed at the hands of BCCI, cannot be now taxed in the hands of the member of the AOP i.e. the appellant State Association as it will amount to double taxation of the same amount. However, if the claim of the BCCI for treating the payments made to the State Association as deductible expenditure is accepted by any higher appellate authority in its case for the year under consideration, it will be open to the assessing officer of the appellant to reopen the case of the appellant and to decide whether the said payments received from BCCI can be taxed as income of the appellant which will be subject to our observations given on other issues raised in this appeal. The income received by the appellant/assessee otherwise, except the club income, which has not been taxed at the hands of the BCCI, will be assessed as per the normal provisions of the Act. Income from club facilities and from caterer is concerned, the plea of the assessee is that all the above facilities e.g. Gym, Lawn Tennis, Swimming pool etc. are interconnected and interwoven with the objects of the appellant i.e. promotion of sport and cannot be viewed separately. Without prejudice to above, it has been submitted that the appellant is maintaining separate books of accounts in respect of all above club activities. That these facilities are being provided on the principle of mutuality, accordingly, these cannot be termed as trade, commerce or business activity. That the receipts from the caterer for providing catering service during the matches is intrinsically linked with the activity of organizing matches and tournaments for the promotion of cricket. It has been submitted that the club facilities are being run for the benefits of members and cricketers as per the objects of the society on the principle of mutuality. AO observed that the assessee earned huge income of ₹ 123.03 lacs during the year from these facilities and this includes a sum of ₹ 14.97 lacs from caterer. That the assessee hosted these facilities for the purpose of recreation or one time booking for parties, functions etc. and these were commercial activities in nature as the assessee was charging fees for providing these facilities. This issue is required to be reexamined by the Assessing officer after verification of the accounts of the assessee as to ascertain which part of the club income and catering services has been generated from the members of the assessee association and which part of the income is earned from non-members. It is also to be looked into whether the income from the club house and other facilities is generated generally from the members only and the receipt from the non-members is an exception or the income is generated from members and non-members in normal course of business. Whether the catering services are limited to the members and their guests only or the same are also provided to non-members also on commercial basis. AO after thoroughly examining the above facts will decide if the principle of mutuality applies to the club income including catering contract in accordance with law. This issue is accordingly restored to the file of the Assessing officer. It is also made clear that our observations made above will not have any bearing as such on any adjudication in the cases of the BCCI and that the BCCI will have right and liberty to contest its cases irrespective of the observations given above as our findings rests on the pleadings of the parties before us though, the viewpoint of the BCCI has also been considered after giving due opportunity to the BCCI. Appeal of the assessee is treated as partly allowed for statistical purposes.

Summary

Issues Involved:
1. Whether the activities of the appellant cricket association qualify as charitable under Section 2(15) of the Income Tax Act, 1961.
2. Whether the income received from the Board of Control for Cricket in India (BCCI) can be treated as a voluntary grant or largesse.
3. Whether the income from commercial activities, including IPL matches, is incidental to the main charitable purpose.
4. Whether the income from club facilities and catering services falls under the principle of mutuality.
5. Whether double taxation applies if the income from BCCI is taxed at both BCCI and appellant levels.

Issue-wise Detailed Analysis:

1. Charitable Activities under Section 2(15):
The appellant cricket association claimed that its activities fall under the definition of "charitable purposes" as per Section 2(15) of the Income Tax Act, 1961, focusing on the promotion of cricket. However, the Tribunal observed that the appellant, being a member of BCCI, is involved in commercial activities, particularly the Indian Premier League (IPL), which is a highly commercialized event. The Tribunal noted that the appellant’s activities include generating substantial income from IPL matches, which involves commercial exploitation of cricket. Consequently, the Tribunal held that the appellant's activities do not qualify as charitable under Section 2(15) due to the involvement in commercial activities.

2. Income from BCCI as Voluntary Grant:
The appellant argued that the income received from BCCI should be treated as a voluntary grant or largesse. However, the Tribunal found that BCCI has consistently treated these payments as part of a revenue-sharing arrangement with State Associations, not as voluntary grants. BCCI’s stance before tax authorities was that these payments are either application of income under Section 11 or deductible expenditure under Section 37(1). The Tribunal concluded that since BCCI does not recognize these payments as voluntary grants, the appellant cannot claim them as such.

3. Incidental Commercial Activities:
The appellant contended that its commercial activities, including IPL matches, are incidental to its main charitable purpose of promoting cricket. The Tribunal, however, determined that the commercial exploitation of cricket and infrastructure is not merely incidental but a primary activity of the appellant. The Tribunal emphasized that the substantial income generated from IPL and other commercial activities indicates a profit motive, which disqualifies the appellant from claiming its activities as charitable. The Tribunal referred to the Supreme Court’s decision in the case of Surat Art Silk Cloth Manufacturers Association, which differentiates between incidental surplus and activities carried out with a profit motive.

4. Income from Club Facilities and Catering Services:
The appellant claimed that the income from club facilities and catering services is based on the principle of mutuality, serving its members. The Tribunal directed the Assessing Officer to re-examine this issue by verifying the accounts to distinguish income generated from members and non-members. The Tribunal instructed that the principle of mutuality should be applied only if the income is primarily from members and the services are not commercially exploited for non-members.

5. Double Taxation:
The Tribunal noted that the income from BCCI has already been taxed at the hands of BCCI, and taxing it again at the appellant's level would result in double taxation. However, the Tribunal allowed the Assessing Officer to reopen the case if higher appellate authorities accept BCCI’s claim of treating the payments as deductible expenditure. The Tribunal clarified that the appellant’s income from BCCI, except the club income, should be assessed as per normal provisions if not taxed at BCCI’s level.

Conclusion:
The Tribunal concluded that the appellant’s activities do not qualify as charitable under Section 2(15) due to the involvement in commercial activities. The income from BCCI is not a voluntary grant but part of a revenue-sharing arrangement. The income from commercial activities exceeds the prescribed limit, disqualifying the appellant from exemption under Section 11. The issue of club income and catering services was remanded for re-examination based on the principle of mutuality. The Tribunal partly allowed the appeal for statistical purposes, emphasizing that the observations would not affect adjudications in BCCI’s cases.