2021 (11) TMI 675 - AT - Income Tax

Exemption u/s 11 - Registration u/s 12A(1)(ab) r.w.s. 12AA rejected - IPL activities are in the nature of commercial activities and cross the threshold limit specified in exceptions to the proviso to Section 2(15) - object of the assessee institution as the promotion of cricket game - whether the IPL matches can indeed be said to be commercial in nature in the sense that the entire orientation of these matches is aimed at making money in the garb of promotion of cricket? - as per revenue the registration granted under section 12A and the benefits flowing therefrom, cannot be extended to the amended objects of the society unless the DIT examines the same and comes to a conclusion that the registration under section 12A, can be extended to the revised objects, memorandum and by-laws - HELD THAT - Where a trust or an institution has been granted registration under section 12AA or has obtained registration at any time under section 12A and, subsequently, it has adopted or undertaken modifications of the objects which do not conform to the conditions of registration , such a person has to make an application to the Commissioner or the Principal Commissioner in the prescribed form and manner, within a period of thirty days from the date of said adoption or modification. The true trigger for an application under section 12A(1)(b) has to be the modification of objects which do not conform to the conditions of the registration . In our considered view, therefore, unless such modifications are demonstrated, mere is no occasion for the Principal Commissioner to assume jurisdiction. This aspect of the matter is thus a foundational aspect to the entire proceedings in question. The registration granted vide order dated 12th February 1996, was on the basis of memorandum of association dated 28th November 1940 . Unless, therefore, there are significant variations in the aforesaid memorandum of association and the amended memorandum of association, the provisions of Section 12A(1)(ab) will not come into play inasmuch these provisions come into play only when the assessee has adopted or undertaken modifications of the objects which do not conform to the conditions of registration . As indeed the object clauses in the two sets of memorandum of association, does not show any change in the present MoA which is contrary to the corresponding clause in the earlier MoA. It is not a change simpliciter in the memorandum of association, which was basis of the earlier registration granted to the assessee, that triggers the provisions of Section 12A(1))(ab) being invoked, the change has to be such that it does not conform to the original objects of the trust or institution based on which registration was granted. Any changes to bring out reforms in the functioning of the BCCI and specifically approved by Hon'ble Supreme Court to be for that purpose, cannot be termed to be the changes that dilute the fundamental objective of promoting the game of cricket, or said to be not in conformity with the objects of promoting the game of cricket all along espoused by the BCCI and as set out in the pre-amendment MoA. In this view of the matter, the condition precedent for invoking section 12A(1)(ab), in our humble understanding, is not fulfilled on the facts of the present case. It cannot even be in dispute that the object of the assessee institution is the promotion of cricket game, and, at best, the assessee has powers to hold IPL tournament for achieving this object. Whether this power of conducting IPL tournament is exercised with predominantly pecuniary gains in mind or not is a different aspect as of now, but then this is a 'power' not an 'object'. So far as the provisions of Section 12A(1)(ab) are concerned, the Principal Commissioner was only required to examine the objects of the institution and not to extend her considerations to the powers vested in the institution. Unless the bridge of finding variations in objects of pre-amendment or post-amendment objects is crossed, there is no occasion to examine anything else. It is this foundational requirement that triggers the application of Section 12A(1)(ab). That is not satisfied on the facts of the present case. When there are any other reasons for cancellation of registration, such as lack of genuineness of activities or any other factors, it is open to the Principal Commissioner to cancel the registration under section 12AA(3), but then those proceedings, having been initiated by the Principal Commissioner, did not lead to cancellation of registration under section 12AA(3). We are, therefore, not really concerned with that aspect of the matter as on now. Principal Commissioner erred in declining registration under section 12AA on the facts of this case; she ought to have held that the registration under section 12A dated 12 February 1996 not having been withdrawn or cancelled still holds good in law and in force. Entire basis of declining registration is invoking the proviso to Section 2(15) on the ground that the IPL activities are in the nature of commercial activities and cross the threshold limit specified in exceptions to the proviso to Section 2(15). It is, however, well-settled in law that so far as registration under section 12 AA is concerned, Section 2(15) has no application in the matter. No conflict in the cricket becoming more popular and the cricket becoming more entertaining. It results in providing significant economic opportunities to those associated with the holding of the IPL tournament and, in the process, enriching the resources of the assessee trust. As long as the object of promoting cricket remains intact, and that continues to be the predominant object, the assessee cannot be said to be not following the object of promoting cricket, just because the operational model of a cricket tournament, whether IPL or any other tournament, is more entertaining, more economically viable, provides greater economic opportunities to all those associated with that tournament, and mobilizes greater financial resources for popularising cricket. The purpose for which all the funds at the disposal of the assessee trust, including the additional funds generated by holding the IPL tournament, are employed is certainly for promoting cricket, and that is what really matters. Improvising the rules of the game, adding entertainment value to it and making it economically attractive, may be a purist's nightmare but the same factors can also be viewed as radical and innovative ideas to popularise a game - the very raison d'etre of an institution like this assessee, and that is how we view it. We hold that the assessee was entitled to the continuance of its registration under section 12A dated 12th February 1996 and that, accordingly, the impugned order passed by the learned Principal Commissioner stands quashed. The assessee gets the relief accordingly.

Summary

Issues Involved:
1. Rejection of application for registration under section 12A(1)(ab) of the Income Tax Act.
2. Denial of registration under section 12AA of the Income Tax Act.
3. Applicability of clause (ab) of section 12A(1) concerning the new constitution mandated by the Supreme Court.
4. Determination of the genuineness of the appellant's activities.
5. Consideration of activities related to IPL as "Business."
6. Relevance of proviso to section 2(15) during the registration under section 12AA.
7. Emphasis on surplus generated from IPL activities.
8. Overall activities of the appellant in relation to the surplus from IPL.
9. Evaluation of facts, material, and legal position for the application under section 12A(1)(ab).
10. Right to amend or add grounds of appeal.

Detailed Analysis:

1. Rejection of Application for Registration under Section 12A(1)(ab):
The appeal challenges the order dated 28th March 2019 by the Principal Commissioner of Income Tax, rejecting the application for registration under section 12A(1)(ab) r.w.s. 12AA of the Income Tax Act, 1961. The registration is foundational for tax exemption benefits under sections 11 and 12 but does not confer tax exemption benefits per se, which are determined annually based on actual activities and other considerations.

2. Denial of Registration under Section 12AA:
The appellant was granted registration under section 12A on 12th February 1996, which has not been canceled or withdrawn. The fresh application for registration was triggered by amendments to its 'memorandum of association, and rules and regulations' following the recommendations of the Justice Lodha Committee, approved by the Supreme Court.

3. Applicability of Clause (ab) of Section 12A(1):
The appellant argued that clause (ab) of section 12A(1) had no application to the new constitution mandated by the Supreme Court, as the preconditions were not fulfilled. The new constitution continued to promote the game of cricket, which is an object of general public utility, and did not render its activities non-genuine.

4. Determination of Genuineness of Activities:
The Principal Commissioner concluded that the activities related to IPL were in the nature of trade, commerce, or business and thus did not qualify as charitable under the proviso to Section 2(15). The appellant argued that the proviso to section 2(15) should not be considered during the registration process under section 12AA, as it is an annual exercise and not relevant for one-time registration.

5. Consideration of Activities Related to IPL as "Business":
The Principal Commissioner emphasized the surplus generated from IPL activities, concluding that the appellant's activities were not genuine. The appellant contended that the surplus was incidental to its primary object of promoting cricket and that the overall activities should be considered holistically.

6. Relevance of Proviso to Section 2(15) During Registration:
The Principal Commissioner relied on the proviso to section 2(15) to deny registration, which the appellant argued was irrelevant at the registration stage. The proviso to section 2(15) applies annually to determine exemption under section 11, not during the one-time registration under section 12AA.

7. Emphasis on Surplus Generated from IPL Activities:
The Principal Commissioner placed undue emphasis on the surplus from IPL activities, disregarding other activities. The appellant argued that the surplus was incidental and that the overall activities were genuine and aligned with its charitable objects.

8. Overall Activities of the Appellant:
The appellant's overall activities, including IPL, were argued to be in furtherance of its primary object of promoting cricket. The Principal Commissioner’s focus on IPL's commercial aspects was challenged as overlooking the broader context of the appellant's activities.

9. Evaluation of Facts, Material, and Legal Position:
The Principal Commissioner failed to appreciate the relevant facts, material, and legal position, relying on irrelevant facts and circumstances. The appellant argued that the amendments to its memorandum of association were minor and did not affect its basic objects.

10. Right to Amend or Add Grounds of Appeal:
The appellant reserved the right to amend or add grounds of appeal before or during the hearing.

Conclusion:
The Tribunal found that the Principal Commissioner erred in declining registration under section 12AA and held that the original registration dated 12th February 1996 continued to hold good. The Tribunal emphasized that the proviso to Section 2(15) is relevant for annual exemption determination under section 11, not for the one-time registration under section 12AA. The appeal was allowed, and the impugned order was quashed.