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TMI Blog2018 (8) TMI 196X X X X Extracts X X X X X X X X Extracts X X X X ..... to follow the procedure. The contention that non-communication of changes of purpose will automatically cancel the registration, in our considered opinion, is not a valid argument. However, in view of the specific clause which has been there under Form 10A, we are of the considered opinion that it will be open for the department while making assessment to follow provision of Section 11(5) and Section 13 to disallow the expenses of the income as the case may be, if the same is not income in expenses as per the approved bye-laws but nonetheless cancellation of registration is uncalled for. All the issues are answered in favour of the assessee and against the department. - D.B. Income Tax Appeal No. 236/2016, D.B. Income Tax Appeal No. 252/2017 And D.B. Income Tax Appeal No. 257/2017 - - - Dated:- 21-11-2017 - Mr. K.S. Jhaveri And Mr. Vijay Kumar Vyas JJ. For the Appellant(s) : Mr. Sameer Jain with Mr. Daksh Pareek For the Respondent(s) : Mr. Sanjay Jhanwar with Ms. Archana JUDGMENT 1. In all these appeals common question of law and facts are involved hence they are decided by this common judgment. 2. By way of appeal no.236/2016, the appellant has assaile ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e IT Act, 1961 in spite of the fact that the proviso to Section 2(15) is invoked in the case of assessee as the activities of the assessee being run on commercial basis and there being no element of charity? ii) Whether on the facts and in the circumstances of the case and in law, the Hon ble ITAT is right in allowing the expeses of ₹ 6,15,32,225/- incurred on the acquisition of the capital asset when the association has been held as noncharitable? holding that the assessee is liable to claim depreciation of ₹ 2,16,62,215/- on the assets which were claimed as application u/s 11 at the time of purchase? 4. The facts of the case are that a return declaring total of Rs.Nil for the assessment year 2008-09 was filed by the assessee on 29.9.2008. Thereafter, the case was selected for scrutiny and while framing the assessment under section 143(3) of the Income Tax Act 1961 (hereinafter referred to as the Act) the assessing officer denied exemption claimed under section 11 for want of fresh registration, thereby the assessing officer computed net income of ₹ 4,07,58,505/-. The assessing officer treated the gross receipts as income from business. Aggrieved by thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t or institution as he thinks necessary in order to satisfy himself about the genuineness of activities of the trust or institution and may also make such inquiries as he may deem necessary in this behalf; and ( b ) after satisfying himself about the objects of the trust or institution and the genuineness of its activities, he- ( i ) shall pass an order in writing registering the trust or institution; ( ii ) shall, if he is not so satisfied, pass an order in writing refusing to register the trust or institution, and a copy of such order shall be sent to the applicant : Provided that no order under sub-clause ( ii ) shall be passed unless the applicant has been given a reasonable opportunity of being heard. (1A) All applications, pending before the Principal Chief Commissioner or Chief Commissioner on which no order has been passed under clause ( b ) of subsection (1) before the 1st day of June, 1999, shall stand transferred on that day to the Principal Commissioner or Commissioner and the Principal Commissioner or Commissioner may proceed with such applications under that sub-section from the stage at which they were on that day. (2) Every order granting or r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1. The following particulars are furnished herewith: 1. Name of the *trust / institute in full [ in block letters] . 2. Address .. . 3. Name(s) and address(es) of author(s) / founder(s) .. . 4. Date of creation of the trust or establishment of the Institution . 5. Name(s) and address(es) of trustee(s) / manager(s) . I also enclosed the following documents: 1. (a) *Original / Certified copy of the instrument under which the trust / institution was created / established together with a copy thereof. (b) *Original / Certified copy of document evidencing the creation of the trust or the establishment of the institution, together with a copy thereof. [The original, if enclosed, will be returned]. 2. Two copies of the accounts of the *trust / institution for the latest *one/two/three years. I undertake to communicate forthwith any alteration in the terms of the trust, or in the rules governing the institution, made at any time hereunder. Date . . Signature .. Designation .. Address Address *Strike out whichever is not applicable. 5.7 He contended that unles ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s in a year and to arrange regular nets for practice. (e) To establish and maintain a library of books, periodicals and publications on sports in general and cricket in particular, and to diffuse knowledge of cricket and deals of sportsmanship. (F) To improve, control, regulate and manage all tournaments and matches. (f) To install keenness for the game of cricket and foster the apirit of sportsmanship in students of schools, colleges and universities and members of affiliated units and thus enable them to develop their ability and caliber. (G) To maintain a library. (g) To encourage the formation of District Cricket Association in such areas of Rajasthan as the Association may deem fit. (District as per Government Rules) (H) To engage coaches to coach deserving persons in the department of Cricket. (h) To acquire by all lawful means, movable and immovable properties on behalf of the Association and to sell, manage, hire, lease out, exchange, dispose of or otherwise deal with all or any of its properties and/or any income accruing there from. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r Cricket in India and in other conferences, Seminars and work shops connected with the game of Cricket. (r) To employ personnel and staff and to pay to them and other persons in return for their services rendered to the association, salaries, wages gratuities, pensions Honorarium, compensations, any ex-gratia payments and/ or provident fund and to remove or dismiss such employees. (s) To receive monies and donations from any persons clubs associations or institutions and tu utilize and/or invest the same in any manner and for any purpose as per the decision of the Executive Committee. (t) To give financial assistance to the member District for such purposes as may be decided upon by the Association from time to time. (u) To invest monies and funds of the association in authorized securities or in any way and manner as may be decided upon from time to time. (v) To maintain and enforce the spirit of impartially in formation of committees, selection players of the team/teams, places ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... egistered under IT Act. It can function without getting registered under the IT Act, 1961. It is only when an institution wants to avail exemption as charitable institution that registration is required under the IT Act, 1961. (iv) Most of the objects were amended and added many new objections were added as indicated in the above table. Perusal of the above amended/substituted objects shows that the change is very substantive. Objects clause (s) is as under:- To receive monies and donations from any persons clubs associations or institutions and to utilize and/or invest the same in any manner and for any purpose as per the decision of the Executive Committee. Further object clause (u) is as under:- To invest monies and funds of the association in authorized securities or in any way and manner as may be decided upon from time to time. The above two objects at S.No. (s) (u) are not covered by the definition of charitable as per provision of Section 2(15) of the I.T. Act, 1961. Further, assessee can invest or deposit the money as per provisions of section 11(5) only. But the above clauses of the assessee in any manner and in any way and manner as may be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... promoting cricket would be a charitable activity if it did not involve any element of trade, commerce or business. The conduct of certain activities and receipt of income from these activities clearly shows that these activities are totally commercial and there is no element of charity in the conduct of RCI. Perusal of the relevant details clearly shows that the activities fall in the definition of Business . The facts of A.Y. 2008-09 are indicative of the intention of the RCA that RCA is engaged in minting money in variety of ways. Annual Accounts for the F.Y. 2007-08 for income under following heads:- India V/s Pakistan (One day international) Income from Advertisement 2,92,50,000/- Income from Canteen 3,15,000/- Income from Tickets 4,66,32,500/- T.V. Subsidy 6,83,46,048/- Sale of Advertisement 10,00,000/- Further, during the course of assessment proceedings of A.Y. 2008-09, it is found by the A.O. that the assessee has let out hotel situated near SMS Stadium on following ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... perhaps merely to enable him to keep his (Commissioner's) records updated. If, for the sake of argument, it is assumed that the intimation is required to be given to enable the Commissioner to exercise the power of cancellation, even then where the petitioners had failed to give such intimation, they cannot be permitted, in the discretionary jurisdiction under Article 226 of the Constitution of India, to plead the defence that the Commissioner has not cancelled the registration. Further, in a situation where the objects of the trust or institution have been altered wholesale after the grant of registration and intimation of the alteration has not been given to the Commissioner the order of the assessing authority on the assumption that the registration, which was granted on the basis of a particular representation, held out by the assessee no longer survives or holds good, would not call for interference by this Court in exercise of its equitable and discretionary jurisdiction To sum up, we are unable to exercise our discretion to enable the assessee to continue to utilize and enjoy the registration despite the wholesale change in the objects without giving its immediate intim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cial principles, hence, the amount of depreciation has to be deducted to arrive at the income available. 5. In view of the discussions made above, we find ourselves in agreement with the view taken by Bombay High Court in Director of Income Tax v. Framjee Cawasjee Institute (supra) and in CIT v. Institute of Banking Personnel (supra). The substantial question framed in the instant matter, thus, is answered in the terms that the Income Tax Appellate Tribunal rightly allowed depreciation claimed by the assessee on capital assets for which capital expenditure was already given in the year under consideration. 14.1 Decision of Punjab and Haryana High Court in Commisioner of Income Tax vs. Market Committee, Pipli (2011) 330 ITR 16 wherein it has been held as under:- 7. The Karnataka High Court in Commissioner of Income Tax, Karnataka v. Society of the Sisters of St. Anne. MANU/KA/0045/1983MANU/KA/0045/1983 : [1984] 146 ITR 28 drawing support from Madras High Court in Rao Bahadur Calavala Cunnan Chetty Charities (supra) had recorded that if depreciation is not allowed as a necessary deduction for computing the income of a charitable institution then the corpus of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gard to the same business outgoing; and, if it is intended, it will be clearly expressed. In other words, in the absence of clear statutory indication to the contrary, the statute should not be read so as to permit an assessee two deductions. 9. In the present case, the assessee is not claiming double deduction on account of depreciation as has been suggested by learned Counsel for the Revenue. The income of the assessee being exempt, the assessee is only claiming that depreciation should be reduced from the income for determining the percentage of funds which have to be applied for the purposes of the trust. There is no double deduction claimed by the assessee as canvassed by the Revenue. Judgment of the Hon'ble Supreme Court in Escorts Ltd. and Anr. (supra) is distinguishable for the above reasons. It cannot be held that double benefit is given in allowing claim for depreciation for computing income for purposes of Section 11. The questions proposed have, thus, to be answered against the revenue and in favour of the assessee. 14.2 Decision of Delhi High Court in Director of Income Tax (Exemption) vs. Indraprastha Cancer Society (2015) 53 Taxman.com 463 wherein ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s been inserted and applicable with effect from 1st April, 2015 and not to the assessment years in question. The newly enacted subsection relates to application of income. 14.3 Decision of Punjab Haryana High Court in Commissioner of Income Tax vs. Tiny Tots Education Society (2011) 330 ITR 21 wherein it has been held as under:- 6. The matter was discussed in our recent judgment dated July 5, 2010 in I. T. A. No. 535 of 2009 CIT v. Market Committee, Pipli [2011] 330 ITR 16 (P and H). After referring to the judgments in CIT v. Sheth Manilal Ranchhoddas Vishram Bhavan Trust [1992]198 ITR 598 (Guj) and CIT v. Institute of Banking Personnel Selection (IBPS) [2003] 264 ITR 110 (Bom) : [2003] 131 Taxman 386 (Bom), CIT v. Rao Bahadur Calavala Cunnan Chetty Charities [1982]135 ITR 485 (Mad), CIT v. Society of the Sisters of St. Anne [1984] 146 ITR 28 (Kar)and CIT v. Raipur Pallottine Society [1989]180 ITR 579 (MP), the judgment of the hon'ble Supreme Court in Escorts Ltd. [1993]199 ITR 43, was held not to be applicable to the situation where depreciation was claimed by a charitable institution in determining percentage of funds applied for the purposes of charitable objects ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on, medical relief and the advancement of any other object of general public utility. 2.The question whether promotion of sports and games can be considered as being a charitable purpose has been examined. The Board are advised that the advancement of any object beneficial to the public or section of the public as distinguished from an individual or group of individuals would be an object of general public utility. In view thereof, promotion of sports and games is considered to be a charitable purpose within the meaning of section 2(15). Therefore, an association or institution engaged in the promotion of sports and games can claim exemption under section 11 of the Act, even if it is not approved under section 10( 23 ) relating to exemption from tax of sports associations and institutions having their objects as the promotion, control, regulation and, encouragement of specified sports and games. 7.2 Counsel for the respondent has relied upon the following decisions:- (i) In Assistant Commissioner of Income Tax vs. Surat City Gymkhana reported in (2008) 14 SCC 169, Supreme Court has been held as under:- 5. On a perusal of the judgment of the Gujarat High Court in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... connected therewith; undertaking housing activity in Jodhpur Region etc., are essentially the functions, which promote the welfare of the general public. Of course, while discharging the said functions, the JDA also discharges function to acquire, hold, manage and dispose of property movable or immovable as may be deemed necessary and also enters into contract, agreements or arrangements with any person or organization may deem necessary for performing its function and in this process, it might be earning income but the primary object of the JDA certainly does not involve any profit motive whatsoever. It is pertinent to note that as per the provisions of s. 51 of the JDA Act, for the purpose of discharging the statutory functions, The Jodhpur Region Development Fund is created to which all money received by the authority is credited including amount of contribution to be made by the State Government, such other money as may be paid to the authority by the State Government, Central Government or any other authority or agency by way of grant, loans advances or otherwise, income derived from premium on second and subsequent sale of vacant land, income from levy on vacant land, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the physical play of cricket game was not the sole point which would decide as to whether the asssessee association was carrying on its activities as stated in the memorandum of association or the activities were genuine or not. The Tribunal pointed out that the activities were genuine; however the matches conducted did not go to the extent of advancement of any other object of general public utility . The Tribunal also pointed out that the activities did not come within the conceptual framework of charity, vis-a-vis the activity of general public utility as given under Section 2(15) and the activities were all commercial in character. Thus the matches conducted were not conducted in accordance with the objects of the association and as explained in the proviso to the provision in Section 2(15) . Thus, according to the Tribunal, when the assessee's case was fully covered by the proviso, the proceedings taken under Section 12AA(3) were justified. Thus the Tribunal viewed that the provisions under Section 12 AA (3) could not be read in disregard of Section 2(15) first proviso. It further held that after the insertion of first proviso to Section 2(15) of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al held that this Court had not considered the effect of Section 2(15) proviso and the necessary facts of the case relating to charitable purpose was not highlighted. It also referred to the decision of the Ahmedabad Bench-A rendered in the case of Gujarat Cricket Association Vs. DIT (Exemption) in ITA.No.93(Ahd)/2011 dated 31.01.2012 as well as other decision of the Nagpur Bench rendered in the case of M/s.Vidarbha Cricket Association Vs. Commissioner of Income Tax-I, Nagpur in ITA.No.3/Nag/10 dated 30.05.2011, which were against the similar rejection order passed and reversed by the Income Tax Appellate Tribunal and held that these orders had considered only the physical aspect of the cricket game promoted by the assessee; however, all the assessee's activities centered around the celebrated game of cricket. 19. Going by the tenor of the language in Section 12AA(3) of the Act and Section 12AA(1) of the Act, the cancellation of the registration under Section 12AA of the Income Tax Act, 1961 is without any substance. He further pointed out that when in a similar assessee's case viz., Gujarat Cricket Association Vs. DIT (Exemption) in ITA.No.93(Ahd)/2011 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... definition general public utility . In the decision reported in (2000) 246 ITR 188 in the case of Hiralal Bhagwati Vs. Commissioner of Income Tax, the Gujarat High court considered the said phrase in the context of Section 12AA registration and held that registration of the charitable trust under Section 12AA of the Act is not an idle or empty formality; the Commissioner of Income-tax has to examine the objects of the trust as well as an empirical study of the past activities of the applicant; the Commissioner of Income-tax has to examine that it is really a charitable trust or institution eligible for registration; the object beneficial to a section of the public is an object of general public utility . The Gujarat High Court held that to serve as a charitable purpose, it is not necessary that the object must be to serve the whole of mankind or all persons living in a country or province; it is required to be noted that if a section of the public alone are given the benefit, it cannot be said that it is not a trust for charitable purpose in the interest of the public; it is not necessary that the public at large must get the benefit; the criteria here is the objects of ge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ternational Cricket Council). BCCI allots test matches with visiting foreign team and one day international matches to various member cricket association which organise the matches in their stadia. The franchisees conduct matches in the Stadia belonging to the State Cricket Association. The State Association is entitled to all instadia sponsorship advertisement and beverage revenue and it incurs expenses for the conduct of the matches. BCCI earns revenue by way of sponsorship and media rights as well as franchisee revenue for IPL and it distributes 70% of the revenue to the member cricket association. Thus the assessee is also the recipient of the revenue. Thus, for invoking Section 12AA read with Section 2(15) of the Act, Revenue has to show that the activities are not fitting with the objects of the Association and that the dominant activities are in the nature of trade, commerce and business. We do not think that by the volume of receipt one can draw the inference that the activity is commercial. The Income Tax Appellate Tribunal's view that it is an entertainment and hence offended Section 2(15) of the Act does not appear to be correct and the same is based on i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom the said decisions it emerges that the said expression is of the widest connotation. The word 'general' in the said expression means pertaining to a whole class. Therefore, advancement of any object of benefit to the public or a section of the public as distinguished from benefit to an individual or a group of individuals would be a charitable purpose--CIT vs. Ahmedabad Rana Caste Assn. MANU/SC/0293/1981 : (1982) 2 SCC 542. The said expression would prima facie include all objects which promote the welfare of the general public. It cannot be said that a purpose would cease to be charitable even if public welfare is intended to be served. If the primary purpose and the predominant object are to promote the welfare of the general public the purpose would be charitable purpose. When an object is to promote or protect the interest of a particular trade or industry that object becomes an object of public utility, but not so if it seeks to promote the interest of those who conduct the said trade or industry [CIT vs. Andhra Chamber of Commerce MANU/SC/0135/1964 : (1965) 55 ITR 722 (SC)]. If the primary or predominant object of an institution is charitable, any other ob ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om such property shall not be included in the total income of the previous year. The quantum of fifteen per cent was substituted by the Finance Act, 2002 w.e.f. 1st April, 2003, prior to which the prescribed percentage was twenty-five per cent. The AO in the present case, did not determine whether the requirements of s. 11 were fulfilled in view of the fact that he came to the conclusion that the assessee would be governed by the principle of mutuality and is not a charitable organization. The same finding was affirmed by the CIT(A). In the view which we have taken, we have confirmed the finding of the Tribunal that the assessee for the relevant assessment year fulfilled the requirements of s. 2(15) . The AO would, however, have to determine whether the requirements of s. 11 of the IT Act, 1961 were duly fulfilled. In order to enable the AO to do so, we remand the proceedings back to the AO. The questions of law as framed shall stand answered accordingly. The appeal is accordingly disposed of. There shall be no order as to costs. (v) In Director of Income Tax (Exemptions) vs. Khar Gymkhana (2016) 385 ITR 162 (Bom.), it has been held as under:- 10 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ine because it is hit by proviso to section 2(15) of the Act, is in fact, negatived by Circular No. 21 of 2016 : MANU/DTCR/0021/2016 . In fact, the above Circular No. 21 of 2016 : MANU/DTCR/0021/2016 clearly provides that mere receipts on account of business being in excess of the limits in the proviso would not result in cancellation of registration granted under section 12AA of the Act unless there is a change in nature of activities of the institution. Admittedly, there is no change in nature of activities of the institution during the subject assessment year. The further submission on behalf of the Revenue that looking at the quantum of receipts on account of commercial activities, it is unlikely/improbable that in the subsequent assessment years, the receipts would fall below ₹ 25 lakhs and therefore, the Commissioner is entitled to cancel the Registration. The aforesaid submission made on behalf of the Revenue is based not on facts as existing but on probability of future events. We are unable to accept the submission based on clairvoyance. Further, we are unable to understand what prejudice is caused to the Revenue since whenever the receipts on acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... due opportunity to present its case before it by the ld. CIT. We decide accordingly. 7.4 He contended that the appeals deserve to be dismissed. 8. We have heard counsel for the parties. 9. In our considered opinion, the contention which has been raised pursuant to the observations and amendment which is made under Section 12AA of the Income Tax Act and proviso which is impressed by the counsel for the department and Section 2(15) of the Act and proviso to Section 12AA which has been amended w.e.f. 1.4.2009 which has been introduced in the Finance Act w.e.f. 1.4.2012, will not apply in the present case inasmuch as all proceedings are for the financial year 2005-06, 2008-09 2009-10. 10. However, it is true that in one of the case where it has been made effective from 1.4.2009 therefore, in one of the appeal for the assessment year 2009-10 the same will apply to proviso. While considering the matter, the real purpose of registration is to be seen that the object falls within the definition of Section 12AA and proviso. 11. If there is any breach of any condition/s then they may cancel the registration, however, they have to follow the procedure. The contention that ..... 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