2022 (9) TMI 1308 - AT - Income Tax

Exemption u/s 11 - assessee received substantial amounts from big corporate houses as sponsorship money on the condition of naming the cricket ground/portion of the stadium in their names - means of revenue generation adopted by the assessee are purely commercial activity which are not authorized by the rules of the Association - HELD THAT - The grants received by the assessee from BCCI represents sharing of advertisement income and is in the nature of income received by the activity of the assessee. According to the AO, the assessee is a full-fledged member of the BCCI and as per the Memorandum of Association the subsidy received by the assessee is not a voluntary contribution. According to AO, the sponsorship received in respect of corporate boxes cannot constitute charity. Further, the conduct of the matches of Celebrity Cricket League Matches are in the nature of business and hit by the provisions of section 2(15) - IPL matches conducted by the assessee are purely on commercial basis. Even though the AO while denying the claim of exemption u/s 11 has given various observations as to why the assessee is not entitled to the exemption, we find the learned CIT (A), in a very cryptic order, has directed the AO to allow the exemption u/s 11 of the Act, merely on the basis of Registration u/s 12AA available to the assessee. A perusal of the order of the learned CIT (A), which have already been reproduced in the preceding paragraph shows that the CIT (A) has not addressed the various observations made by the Assessing Officer while denying the claim of exemption u/s 11. A perusal of the same would show that the Tribunal has categorically held that the receipt of income from activities are subject matter of assessment and has nothing to do with the genuineness of the activities or the activities not in conformity with the objects of the Trust - CIT (A) without properly understanding the directions of the Tribunal while granting registration u/s 12AA of the Act was carried away by the arguments advanced by the assessee and has directed the AO to allow exemption u/s 11 of the I.T.Act, which, in our opinion, is not correct. We, therefore, deem it proper to restore the issue to the file of the learned CIT (A) with a direction to decide the issue afresh after giving due opportunity of being heard to the assessee and pass a speaking order on this issue. Since the issue of exemption u/s 11 is restored to the file of the CIT (A) for fresh adjudication, the issue relating to disallowance u/s 40A(3) is also restored to his file for fresh adjudication. The grounds raised by the Revenue are accordingly allowed for statistical purposes.

Summary

Issues Involved:
1. Eligibility for exemption under Section 11 of the Income Tax Act.
2. Applicability of Section 40A(3) regarding cash payments exceeding Rs. 20,000.
3. Nature of activities carried out by the assessee and their classification under Section 2(15) of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Eligibility for exemption under Section 11 of the Income Tax Act:
The primary issue revolves around whether the assessee, a Cricket Association, is entitled to claim exemption under Section 11 of the Income Tax Act. The Assessing Officer (AO) denied the exemption, arguing that the revenue generation methods adopted by the assessee were purely commercial activities not authorized by the association's rules. Specifically, the AO noted that substantial amounts were received from corporate sponsors for naming rights and advertising, which he classified as commercial activities. The AO also highlighted that the grants received from the BCCI were akin to sharing advertisement income, thus constituting income from commercial activities.

The CIT (A) allowed the exemption under Section 11, referencing the Tribunal's earlier decision to restore the registration under Section 12AA. However, the Tribunal found that the CIT (A) did not adequately address the AO's observations and directed the CIT (A) to re-examine the issue, emphasizing that the mere availability of registration under Section 12AA does not automatically entitle the assessee to exemption under Section 11.

2. Applicability of Section 40A(3) regarding cash payments exceeding Rs. 20,000:
The AO noted that the assessee made cash payments exceeding Rs. 20,000 on various occasions, violating Section 40A(3) of the Income Tax Act. The AO added Rs. 1,28,55,646 to the assessee's income due to this violation. The CIT (A) directed the deletion of this addition, stating that once the income is computed under Sections 11 to 13, the provisions of Section 40A(3) do not apply. The Tribunal, however, restored this issue to the CIT (A) for fresh adjudication, contingent on the re-examination of the exemption under Section 11.

3. Nature of activities carried out by the assessee and their classification under Section 2(15) of the Income Tax Act:
The AO classified the activities of the assessee as trade, commerce, or business, thus invoking the proviso to Section 2(15) which disallows exemption if the activities are commercial in nature. The AO pointed out that the income from sponsorships, corporate boxes, and matches like the Celebrity Cricket League and IPL were purely commercial. The CIT (A) did not adequately address these points and allowed the exemption based on the registration under Section 12AA.

The Tribunal highlighted that the assessment of whether Section 11 applies is separate from the genuineness of activities or conformity with the trust's objects. It directed the CIT (A) to re-examine the issue, considering the AO's observations and the Tribunal's earlier directions.

Conclusion:
The Tribunal restored the issues to the CIT (A) for fresh adjudication, emphasizing the need for a detailed examination of the AO's observations regarding the commercial nature of the assessee's activities and the applicability of exemptions under Sections 11 and 40A(3). The appeals filed by the Revenue were allowed for statistical purposes, requiring the CIT (A) to pass a speaking order after giving due opportunity to the assessee.