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2019 (11) TMI 35 - HC - Income TaxRegistration u/s 12AA rejected of Gujarat Cricket Association GCA - According to revenue in view of the amendment under Section 2(15) DIT (Exemption) was justified in taking the view that the activities of the GCA cannot be termed as charitable and such activities were commercial in nature with the element of earning profit from the income of sale of tickets, income from the ICC, income from hosting the international cricket matches etc. - HELD THAT - The main and predominant object and activity of the assessee is to promote, regulate and control the game of cricket in the State of Gujarat. The undisputed fact is that over a period of years, this activity has been recognized by the Income Tax Department as a charitable activity and the registration under Section 12A of the Act was granted to the assessee. A number of assessment orders under Section 143(3) were passed, wherein the assessee was held eligible for the exemption under Sections 11 and 12 of the Act. It appears that it is only after the Proviso came to be inserted that, all of a sudden, the department now believes that the activity of the assessee is commercial in nature and no longer charitable. It is difficult for us to take the view that the assessee could be said to be carrying on trade, commerce or business under the garb of the activity being general public utility . Merely because an activity is performed in an organized manner, that alone, will not make such activities as business/commercial activity. The profit motive is one essential ingredient which is apparently missing in the case on hand. In carrying out an activity, one may earn profit or one may incur loss. But for making it as a business activity, the presence of the profit motive is sine qua non. In the case on hand, the ultimate beneficiary is either the cricketer or the game of cricket. The assessee is not charging any fees or revenue from the cricketer who is the ultimate beneficiary. Thus there is no quid pro quo relationship with the cricketer. The assessee is promoting cricket on the charitable basis as far as real beneficiary is concerned. Whenever the revenue is earned, the same is not on commercial lines and the same could be said to be earned without any commercial attributes. The revenue is generated for recovering the cost, at least partly if not in full In the aforesaid view of the matter, we are not convinced with the case put up by the Revenue. It is not the case of the Revenue that the objects of the Trust are not charitable, but the case of the Revenue is that the activities undertaken by the Association are not charitable in nature. In the result, this appeal fails and is hereby dismissed. The substantial question of law, as formulated by this Court, is answered in favour of the assessee and against the Revenue. Benefit of Section 11 and 12 to the appellant cricket associations - Charitable activities u/s 2(15) - income of the Associations from the sale of tickets etc - HELD THAT - In carrying on the charitable activities, certain surplus may ensue. However, earning of surplus, itself, should not be construed as if the assessee existed for profit. The word profit means that the owners of the entity have a right to withdraw the surplus for any purpose including the personal purpose. It is not in dispute that the three Associations have not distributed any profits outside the organization. The profits, if any, are ploughed back into the very activities of promotion and development of the sport of cricket and, therefore, the assessees cannot be termed to be carrying out commercial activities in the nature of trade, commerce or business. It is not correct to say that as the assessees received share of income from the BCCI, their activities could be said to be the activities of the BCCI. Undoubtedly, the activities of the BCCI are commercial in nature. The activities of the BCCI is in the form of exhibition of sports and earn profit out of it. However, if the Associations host any international match once in a year or two at the behest of the BCCI, then the income of the Associations from the sale of tickets etc., in such circumstances, would not portray the character of commercial nature. The State Cricket Associations and the BCCI are distinct taxable units and must be treated as such. It would not be correct to say that a member body can be held liable for taxation on account of the activities of the apex body. Irrespective of the nature of the activities of the BCCI (commercial or charitable), what is pertinent for the purpose of determining the nature of the activities of the assessees, is the object and the activities of the assessees and not that of the BCCI. The nature of the activities of the assessee cannot take its colour from the nature of the activities of the donor. - Decided in favour of assessee
Issues Involved:
1. Whether the activities of the Cricket Associations are charitable under Section 2(15) of the Income Tax Act, 1961. 2. Whether the income received from BCCI can be treated as corpus donations under Section 11(1)(d) of the Income Tax Act, 1961. 3. Whether the infrastructure subsidy received from BCCI can be treated as capital receipts. Issue-wise Detailed Analysis: 1. Charitable Activities under Section 2(15) of the Income Tax Act, 1961: The primary issue was whether the activities of the Cricket Associations (Gujarat Cricket Association, Baroda Cricket Association, and Saurashtra Cricket Association) could be classified as charitable under Section 2(15) of the Income Tax Act, 1961, particularly in light of the proviso inserted by the Finance Act, 2008, which excludes activities in the nature of trade, commerce, or business from being considered charitable. - Findings and Observations: - The Court noted that the associations were registered under Section 12AA of the Act, which indicates that their activities were initially considered charitable. - The Court emphasized that merely earning surplus from activities does not disqualify an entity from being charitable. The surplus must be ploughed back into the charitable activities. - The Court observed that the dominant activity of the associations was to promote cricket, which is considered an object of general public utility. The associations did not distribute any profits outside the organization, and all profits were used for the promotion and development of cricket. - The Court rejected the Revenue's argument that the associations' activities were commercial in nature due to the income received from BCCI for hosting international matches. The Court clarified that the activities of BCCI cannot be attributed to the state associations. - The Court held that the associations' activities were not in the nature of trade, commerce, or business, and the proviso to Section 2(15) was wrongly invoked. 2. Corpus Donations under Section 11(1)(d) of the Income Tax Act, 1961: The second issue was whether the income received from BCCI by the Cricket Associations could be treated as corpus donations under Section 11(1)(d) of the Act, which exempts voluntary contributions made with a specific direction that they shall form part of the corpus of the trust. - Findings and Observations: - The Court noted that the BCCI had passed a resolution stating that TV subsidies should be sent to member associations towards the corpus fund. - The Court observed that similar amounts received in earlier years had been treated as corpus donations. - The Court held that the contributions from BCCI were voluntary and came with a specific direction to form part of the corpus fund, satisfying the conditions under Section 11(1)(d). - The Court rejected the Revenue's argument that each donation must be accompanied by a separate written document, stating that the resolution and confirmations from BCCI were sufficient. 3. Infrastructure Subsidy as Capital Receipts: The third issue was whether the infrastructure subsidy received from BCCI could be treated as capital receipts, which are not taxable. - Findings and Observations: - The Court noted that the infrastructure subsidy was given to the associations as reimbursement of 50% of the expenditure incurred on infrastructure, which is inherently in the capital field. - The Court observed that the subsidy was related to capital assets created by the associations and was not revenue in nature. - The Court held that the infrastructure subsidy should be treated as capital receipts and not taxable income. Conclusion: The Court concluded that the activities of the Cricket Associations were charitable under Section 2(15) of the Income Tax Act, 1961, and the income received from BCCI could be treated as corpus donations under Section 11(1)(d). The infrastructure subsidy received from BCCI was to be treated as capital receipts. The appeals by the Revenue were dismissed, and the substantial questions of law were answered in favor of the assessees.
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