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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 ..... e ITAT was correct in law in restoring registration u/s 12AA notwithstanding assessee institution are having non-charitable/ commercial objects and activities contrary to the Sec. 2(15) of the Income Tax Act, which defines the charitable purpose in special, restricted and qualified sense? 2. Whether on the facts and the circumstances of the case the Hon'ble ITAT was correct in law in allowing 12AA registration notwithstanding that the fact that, the substantial changes were made in the original object more specifically in clause (s) and (u) which were absent at the time of granting registration u/s 12A and basis on which Registration Authority has approved the registration? 3. Whether on the facts and in the circumstances of the case the Hon'ble ITAT was correct in law in holding that the changes can be made in the objects as per the respective Governing act i.e., Rajasthan Sports (Registration, Recognition and Regulation of Association) Act, 2005 contrary to the provisions of the Income Tax Act 1961, i.r.o. 12AA registration?" Appeal No.252/2017 admitted on 29.8.2017 "i) Whether on the facts and in the circumstances of the case and in law, the Hon'ble ITAT is right in allo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and procedure for the expenses and income which is detrimental to the provisions of the Income Tax Act. 5.1 He further contended that after following procedure on 27.12.2010, registration under Section 12AA was cancelled, however same was set aside by the tribunal on 13.7.2012. However, Tax appeal No.255/2012 came to be disposed of on 23.1.2013 and department was allowed to proceed further afresh. 5.2 He has taken us to the provisions of Section 2 (15) of the Income Tax Act and the proviso which was amended w.e.f. 1.4.2009 which provides as under:- Section 2(15) of the Income Tax Act,1961 "charitable purpose" includes relief of the poor, education, yoga, medical relief, preservation of environment (including watersheds, forests and wildlife) and preservation of monuments or places or objects of artistic or historic interest, and the advancement of any other object of general public utility. Provided that the advancement of any other object of general public utility shall not be a charitable purpose, if it involves the carrying on of any activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or bus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... trust or institution are not genuine or are not being carried out in accordance with the objects of the trust or institution, as the case may be, he shall pass an order in writing cancelling the registration of such trust or institution: Provided that no order under this subsection shall be passed unless such trust or institution has been given a reasonable opportunity of being heard. (4) Without prejudice to the provisions of sub-section (3), where a trust or an institution has been granted registration under clause (b) of sub-section (1) or has obtained registration at any time under section 12A [as it stood before its amendment by the Finance (No. 2) Act, 1996 (33 of 1996)] and subsequently it is noticed that the activities of the trust or the institution are being carried out in a manner that the provisions of sections 11 and 12 do not apply to exclude either whole or any part of the income of such trust or institution due to operation of sub-section (1) of section 13, then, the Principal Commissioner or the Commissioner may by an order in writing cancel the registration of such trust or institution: Provided that the registration shall not be cancelled under this subsec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... main objects. The argument of the assessee is not acceptable as actual picture of the original objects and modified objects are as under:- Objects as per memorandum ad rules of Association-1999 Objects of 2005 Objects of the Association:- Following are the objections of this association:- (A) To create, foster ad maintain friendly and cordial relationship through tournaments and competitions connected therewith and to create a healthy spirit in the country through the medium of Cricket. (a) To promote, organize, manage and control the game of cricket within its jurisdiction. (B) To instill the spirit of sportsmanship deserving students at lending schools and colleges and members of other institutions and to develop a good standard physique of the students and to foster the apirit of sportsmanship and instill the ideal of Cricket amongst students of colleges and schools and members of affiliated clubs and other institutions and educate them in the game. (b) To select teams to represent the Association in any tournament, championship or fixture, local or otherwise, and to incur an pay the expenses thereof. (c) To select teams to represent the Association in a tournament cha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f approved cricket umpires and coaches and to take all such steps as may be necessary for efficient umpiring and coaching. (L) To hold and maintain the laws of Cricket and the regulations of the Board of Control for Cricket in India. (l.) To take such action as may be necessary t coordinate the activities of affiliated units/association and their members in relation to the Association and amongst themselves. (m) To arrange, stage participate in any match of cricket for the benefit of any cause as the association may deem fit. (n) To stage matches and to subscribe income to funds for philanthropic purposes i.e. for helping a disabled and/or diseased player of any game, athlete or any other deserving individual, for relief of a persons, localities village/villages, town suffered from natural calamities like flood, famine, fire etc. (o) To award scholarships to needy and promising young cricketers. (P) To stage or organize Test and/or other matches, official or unofficial, allotted to the association by the Board of Control for Cricket in India or by any other body controlling cricket in India as the association may deem expedient and on such grou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere are no merits in the contention of the assessee." 5.9 He also contended that the clauses which are amended are very detrimental and is changing the original purpose of the object of the trust and now jurisdiction under the same cannot be misused in any manner whatsoever. 6. In that view of the matter, he contended that the view taken by the AO is required to be upheld. 6.1 He drew our attention to clause (iii) which reads as under:- "(iii) As regards the plea that there is no mandatory requirement to intimate the change, it is mentioned that it is for the assessee to take a decision to intimate the change and also apply for fresh registration. It is the basic principle of law that registration is granted on the basis of the objects of an institution. If there is change in the objects the registration would not survive. After such an event if the institution does not want to communicate the changes, the only consequences is that the benefit of registration will not be available. It is not necessary that every society should be registered under IT Act. It can function without getting registered under the IT Act, 1961. It is only when an institution wants to avail exemption a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... basis of registration has been removed. Further, some objects are not charitable at all as discussed above and therefore, the registration should not survive." 6.2 He contended that the following income which is received by the assessee through Commercial Activity reads as under:- (4) Commercial Activity:- Besides that, it is seen that the activities of the RCA is commercial. It is judicially accepted proposition that where profit making is the predominant object of the activity, the trust would lose exemption as a charitable trust. No doubt, it would be impossible for persons in charge of a trust or institution to so carry out activity that the expenditure balances the income and there is no resulting profit. But certainly, if the consideration is charged at market rate, than it can not be said that there is an element of charity. % of profit involved in the charging for the services is major factor which will decide whether the same is tainted with commerciality or charity. In the context of sports, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eived. The registration is granted by the Commissioner. It can be cancelled by the Commissioner under Section 12-AA(3) However, the words of that statutory provision show that it applies where the objects of the trust or institution remain the same on paper, but the actual activities of such trust or institution are contrary to the said objects or are fictitious or fraudulent or not genuine or not within the scope of those objects However, where the objects of the trust or institution, which were the basis of grant of registration, are altered after such grant of registration, the very foundation of the registration having been removed by a voluntary act of the assessee, the registration would not survive. The immediate intimation required to be given by the assessee to the Commissioner of Income Tax is 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by it against the asset concerned i.e. a building. Section 32(1) of the Act of 1961 provides for depreciation in respect of building, plant and machinery owned by the assessee and used for business purposes. Income of a charitable trust like the present assessee derived from the depreciable heads is also liable to be computed on commercial basis, however, while doing so it is to be kept in mind that ultimately assessee is a charitable institution and its income for tax purposes is required to be determined by taking into consideration provisions of Section 11 of the Act of 1961 after extending normal depreciation and deductions from its gross income. In computing the income of a charitable institution/trust depreciation of assets owned by such institution is a necessary deduction on commercial 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, thu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he asset. The apex Court observed: Where a capital asset used for scientific research related to the business of the assessee is also ipso facto an asset used for the purpose of the business, it is impossible to conceive of the Legislature having envisaged a double deduction in respect of the same expenditure, one by way of depreciation under Section 32 of the Income Tax Act, 1961 and other by way of allowance under Section 35(1) (iv) of a part of the capital expenditure on scientific research, even though the two heads of deduction do not completely overlap and there is some difference in the rationale of the two deductions....It was further recorded that: There is a fundamental, though unwritten, axiom that no Legislature could have at all intended a double deduction in regard 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ian Trade Promotion Organisation (supra) being prior in point of time would act as binding precedents and could not have been overruled or dissented from by a coordinate Division Bench. 11. By Finance (No. 2) Act of 2014, subsection (6) to Section 11 stands inserted with effect from 1st April, 2015 to the effect that where any income is required to be applied, accumulated or set apart for application, then for such purposes the income shall be determined without any deduction or allowance by way of depreciation or otherwise in respect of an asset, the acquisition of which has been claimed as application of income under this Section in the same or any other previous year. The legal position, therefore, would undergo a change in terms of Section 11(6) , which has 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e contrary to object of the legislature itself requires provision but that is not ground for cancelling the registration. After High Court order these are all procedures to be followed prior to the withdrawal i.e. 27.12.2010, therefore, after the withdrawal of the appeal on 23.1.2013, it will be open for them to apply for subsequent year not for previous year. 7.1 He also relied upon the Government Circular dt. 24.9.1984 wherein CBDT has issued circular and has explained charitable purpose as under:- "SECTION 2(15) CHARITABLE PURPOSE 10. Whether promotion of sports and games can be considered to be charitable purpose 1.The expression "charitable purpose" is defined in section 2(15) to include relief of the poor, education, 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 ga ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of projects or schemes for the development of Jodhpur Region supervision or otherwise ensuring adequate supervision over the planning and execution of any project or scheme the expenses of which in whole or in part are to be met from Jodhpur Region Development Funds; preparing schemes and advising the concerned authorities, department and agencies in formulating and undertaking schemes for development of agriculture horticulture, forestry, dairy development, transport, communication, schooling, cultural activities, sports, medicine, tourism and similar other activities; to prepare Master Plan for traffic control and management; devise policy and programmes of action for smooth flow of traffic and matters 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me is earned by ancillary and incidental activities, which as per the mandate of the relevant statute, is used for achieving or implementing such object. The genuineness of the activities of the JDA, which are regulated by the provisions of the JDA Act and the Rules made thereunder, cannot be doubted. Thus, the order passed by the Tribunal holding the JDA, Jodhpur entitled for registration under s. 12A r/w s. 12AA of the Act of 1961, does not suffer from any infirmity or illegality." (iii) In Tamil Nadu Circket Association vs. Director of Income Tax (Exemptions) (2013) 86 CCH 212 ChenHC, it has been held as under:- "14. The Income Tax Appellate Tribunal pointed out that 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, vi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re oriented towards earning hyper profits and these activities contributed 86.5% of the receipts of the assessee in the Financial Year 2008-09. In this background, the Income Tax Appellate Tribunal referred to the decision reported in 77 ITR 435 in the case of Bangalore Race Club Vs. Commissioner of Income Tax, which related to the case of horse racing and held the same could not be held to be of public utility or interest. After referring to the decision of this Court reported in 343 ITR 300 in the case of CIT Vs. Sarvodaya Ilakkiya Pannai, wherein, this Court considered the effect of Section 12AA(3) of the Act, the Income Tax Appellate Tribunal 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 simil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s Court reported in 343 ITR 300 (CIT Vs. Sarvodaya Ilakkiya Pannai), learned Senior Counsel appearing for the assessee submitted that the Income Tax Appellate Tribunal committed serious error in upholding the rejection order passed by the Director of Income Tax (Exemptions). 46. It may be of relevance to note the language used in the definition "charitable purpose" in Section 2(15) of the Act, which states that charitable purpose includes relief of the poor, education, medical relief and advancement of any other object of general public utility. The assessee's case falls within the phrase of the 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 12AAregistration 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 institu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th the objects of the trust, the assessees income, at best, may not get the exemption under Section 11 of the Act. But this, by itself, does not result in straight rejection of the registration as 'trust' under Section 12AA of the Act. Consequently, we reject the prayer of the Revenue that Section 12AA(1) of the Income Tax Act, 1961 must be read along with Section 12AA(3) of the Income Tax Act, 1961 before considering the cancellation. 56.The assessee is a member of Board of Control for Cricket in India (BCCI), which in turn is a member of ICC(International 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is ancillary to a dominant object. These principles were reiterated by the Supreme Court in Director of IT vs. Bharat Diamond Bourse MANU/SC/1153/2002 : (2003) 179 CTR (SC) 225 : (2003) 1 SCC 741. In CIT vs. Gujarat Maritime Board (2008) 1 DTR (SC) 1 : MANU/SC/8188/2007 : (2008) 214 CTR (SC) 81 : (2007) 14 SCC 704, the Supreme Court, after adverting to its earlier decision, interpreted the words "any other object of public general utility" in s. 2(15) and held that the following principle emerges : From 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 p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d, accordingly, have to be answered in the affirmative. 8. Sec. 11(1)(a) of the Act provides inter alia that income derived from property held under trust wholly for charitable purposes, to the extent to which such income is applied to such purposes in India; and, where any such income is accumulated or set apart for application to such purposes in India to the extent to which the income so accumulated or set apart is not in excess of fifteen per cent of the income from 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of a registration under section 12AA(3) of the Act, can only take place in case where the activities of the trust or institution are not genuine and/or not carried on in accordance with its objects. The aforesaid Circular No. 21 of 2016 : MANU/DTCR/0021/2016 is in line of the finding of the Tribunal in the impugned order. The submission on behalf of the Revenue that the trust is not genuine 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 Rs. 25 lakhs and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case, the Revenue would be well within its powers to examine the issue of continuation of the assessee's registration u/s. 12A for the assessment year commencing on or after 01-04-2009 with reference to the amended law. The ld. CIT shall adjudicate per a speaking order; his order being appealable. Needless to add, the assessee shall be allowed 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 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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