2024 (7) TMI 1335 - AT - Income Tax

Exemption u/s 11 - activities of the Association are not charitable in nature - cancellation of registration u/s 12AA due to change in the definition of charitable purpose u/s 2(15) - assessee company is a section 25 company registered with Registrar of Companies and is a sports organization working for the advancement and promotion of games and sports, particularly, cricket in the State of Uttar Pradesh HELD THAT - As decided in Ahmedabad Urban Development Authority 2022 (10) TMI 948 - SUPREME COURT Court is of the opinion that the ITAT as well as the High Court fell into error in accepting at face value the submission that the amounts made over by BCCI to the cricket associations were in the nature of infrastructure subsidy. In each case, and for every year, the tax authorities are under an obligation to carefully examine and see the pattern of receipts and expenditure. Whilst doing so, the nature of rights conveyed by the BCCI to the successful bidders, in other words, the content of broadcast rights as well as the arrangement with respect to state associations (either in the form of master documents, resolutions or individual agreements with state associations) have to be examined. It goes without saying that there need not be an exact correlation or a proportionate division between the receipt and the actual expenditure. This is in line with the principle that what is an adequate consideration for something which is agreed upon by parties is a matter best left to them. Therefore, the issue is restored to the files of CIT(A) to decide afresh in the light of the Judgment of the Hon ble Supreme Court in the case of ACIT vs. Ahmedabad Urban Development Authority (supra).

Summary

Issues Involved:
1. Whether the activities of the assessee are charitable in nature.
2. Whether the assessee is entitled to exemption under sections 11 and 12 of the Income Tax Act.
3. Whether the income received from BCCI constitutes business income.

Issue-wise Detailed Analysis:

1. Whether the activities of the assessee are charitable in nature:

The Revenue contended that the activities of the assessee, a sports organization affiliated with BCCI, are not charitable. The AO argued that the assessee's activities fell under the definition of business activities due to the change in the definition of "charitable purpose" under section 2(15) of the Income Tax Act for AY 2010-11. The AO relied on section 13(8) of the Act, which states that the provisions of sections 11 and 12 shall not exclude any income from the total income if the first proviso to clause (15) of section 2 becomes applicable. The AO computed the income of the assessee under the head "Business & profession" at Rs. 25,73,17,761/-.

2. Whether the assessee is entitled to exemption under sections 11 and 12 of the Income Tax Act:

The assessee claimed exemption under sections 11 and 12 of the Act, arguing that their activities were for the advancement of sports, particularly cricket, which qualifies as a charitable purpose. The CIT(A) allowed the grounds of the assessee and deleted the addition made by the AO. The Revenue, however, appealed against this decision, arguing that the CIT(A) erred in law and facts by allowing the appeal without appreciating the AO's action of denying exemption under sections 11 and 12.

3. Whether the income received from BCCI constitutes business income:

The Tribunal referred to the judgment of the Hon'ble Supreme Court in the case of ACIT vs. Ahmedabad Urban Development Authority, which clarified that sports promotion does not fall under "education" as defined in section 2(15) of the Act. The Supreme Court emphasized that the activities of cricket associations, including the assessee, are run on business lines. The income from BCCI, including media rights and sponsorship fees, is substantial and commercial in nature. The Court highlighted the need for tax authorities to examine the pattern of receipts and expenditure to determine the true character of the income.

The Tribunal noted that the CIT(A)'s decision was based on judgments in DCIT (Exem) vs. Maharashtra Cricket Association and Chattisgarh State Cricket Sangh vs. DCIT (Exem), which were not sustainable in light of the Supreme Court's ruling. Therefore, the issue was remanded to the CIT(A) for fresh consideration in accordance with the Supreme Court's judgment.

Conclusion:

The Tribunal allowed the Revenue's appeal for statistical purposes, directing the CIT(A) to re-examine the issue in light of the Supreme Court's judgment in ACIT vs. Ahmedabad Urban Development Authority. The order pronounced on 23.07.2024, restored the matter to the files of the CIT(A) for a fresh decision.