HELD THAT The Mumbai Tribunal has allowed relief to BCCI and directed CIT to grant registration under Section 12A citing that BCCI is still promoting the game of cricket.
Section 2(15) of the Income-tax Act defines charitable purpose for the purpose of the Act and includes relief of the poor education, medical relief and the advancement of any other object of general public utility.
Accordingly, charitable purposes can be classified under four heads –
• relief to the poor
• medical relief
• preservation of environment (including water sheds, forests and wild life)
• preservation of monuments or places or objects of artistic or historic interest, and
• any other object of general public utility.
A purpose must, in order to be charitable, be directed to the benefit of the community or a section of the community, as distinguished from an individual or a group of individuals. Where the primary purpose of the settler is to benefit the members of his family and relations and only remotely and indirectly the general public, the trust is not a charitable trust. It has been held that a charitable purpose’ includes a ‘religious purpose’. Thus, the words ‘trust for charitable purposes’ would include even trust for advancement of religion.
The definition of the charitable purposes was enlarged by the Finance Act, 2011 by the addition of the following objects in its ambit:
• Preservation of environment (including water sheds, forests and wild life).
• Preservation of monuments or places or objects of artistic or historic interest.
It is defined to include relief to the poor, education, (with effect from the assessment year 2016-17) 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.
Sports or Games –
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 even if it is not approved under section 10(23) —
Advancement of any other Object of general Public Utility –
From the assessment year 2009-10, “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 business, for a cess or fee or any other consideration.
This restriction is, however, not applicable if the total receipts from any activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business does not exceed the limits given below –
From the assessment year 2016-17 onwards
20 % of total receipts of the relevant previous year of the trust undertaking such activities.
The above benefit (from the assessment year 2016-17) is available only if such activity is undertaken in the course of actual carrying out of such advancement or any other object of general public utility, regardless of nature of use or application, or retention, of the income from such activity.
SECTION 12A of Income Tax Act,1961 – Section 12A , registration is a one-time registration which is granted by the Income Tax Department to trusts and other not for profit organisations. The purpose of the registration is to be exempted from the payment of income tax. 12A registration is generally applied for immediately after incorporation. Section 8 Companies, Trusts and NGOs which have obtained 12A registration enjoy exemption from paying income tax on their surplus income.
The 12A registration facility is available for all non-profit entities. Hence, it is necessary for all Trusts, NGOs and other Not-for-Profit organisations to be aware of Section 12A of the Income Tax Act. The purpose of the present article is to discuss the procedure for obtaining 12A registration.
1. This appeal challenges correctness of the order dated 28th March 2019 passed by the learned Principal Commissioner of Income Tax, Central Charge 3, Mumbai (hereinafter referred to as the Commissioner), rejecting the application for registration under section 12A(1)(ab) r.w.s. 12AA of the Income Tax Act, 1961.
2. The registration of an institution is foundational, though not conclusive, a factor so far as tax exemption benefits under sections 11 and 12 of the Act to the assessee are concerned inasmuch as registration under section 12A or 12AA is a sine qua non for eligibility for the income tax exemption benefits under section 11 and 12 of the Act, but then such a registration per se does not confer any tax exemption benefit under section 11 and 12; the eligibility for exemption benefits is determined on a year to year basis depending upon on the actual activities of the assessee and other considerations germane to this context.
3. Granting registration as a charitable institution is usually a one-time exercise and the assessee institution has duly been granted registration under section 12A on 12th February 1996. That registration is yet to be cancelled or withdrawn. However, the assessee has applied for fresh registration, and the event triggering the present registration application is the amendment of its ‘memorandum of association, and rules and regulations’, to implement the recommendations of a Committee chaired by Justice R M Lodha, former Chief Justice of India (hereinafter referred to as ‘Justice Lodha Committee’) and as approved by Hon’ble Supreme Court of India, vide judgment dated 9th August 2018.
4. The assessee has taken as many as eleven grounds of appeal, which will be taken up together for our adjudication, as reproduced below:
i) The learned Principal Commissioner of Income Tax (PCIT) erred in facts and in law in rejecting the application under section 12A(1) (ab) of the Income Tax Act made by the Appellant.
ii) The learned PCIT erred in facts and in law in denying registration to the Appellant under section 12AA of the Income Tax Act.
iii) The learned at PCIT ought to have held that clause (ab) of section 12A(1) of the Income Tax Act had no application to the new constitution as made applicable by the Hon’ble Apex Court by its order dated 9th August 2018, as the preconditions in the said clause had not been fulfilled in its case.
iv) The learned at PCIT ought to have held that as per the said new constitution the Appellant’s objects continued to be promotion of the game of cricket which is for advancement of an object of general public utility. Further, the said Constitution also did not render its activities to be non-genuine in any manner as to be not in accordance with its objects.
v) The learned PCIT ought to have held that there is nothing in the said new constitution which would result in the activities of the Appellant becoming non- genuine and not in accordance with its objects.
vi) The learned PCIT erred in facts and in law in holding that the activities of the Appellant are in nature of “Business”.
vii) The learned PCIT erred in facts and in law in not appreciating that proviso to section 2(15) has no role to play at the time of granting registration under section 12AA of the Income Tax Act.
viii) The learned PCIT erred in facts and in law in placing undue reliance on the surplus generated from the activities pertaining to IPL, without considering overall activities of the Appellant in a holistic manner and in coming to a conclusion that the activities of the Appellant are not genuine.
ix) The learned PCIT erred in facts and in law in emphasizing on the surplus generated from the activities pertaining to IPL and completely disregarding the other activities, without appreciating that the such surplus is merely incidental to the primary objects of the Appellant.
x) The learned PCIT failed to appreciate the facts, material and the legal position applicable which were relevant for considering the appellant’s application under section 12A(1)(ab) of the Income Tax Act and instead erred in relying on facts and circumstances which were totally irrelevant thereby vitiating the impugned order on matters of facts and law.
xi) The appellant craves leave to add alter or amend any of the grounds of at any time before or at the time of hearing of the Appeal.
ANALYSIS BY THE TRIBUNAL
1. To adjudicate on this appeal, only a few material facts need to be taken note of. The assessee before us is a society registered at Madras, on 28th November 1940, under Societies Registration Act 1880- now repealed and substituted, so far as the State of Tamilnadu is concerned, by the Tamilnadu Societies Registration Act 1975.
2. Until the assessment year 1996- 97, the assessee was granted an exemption, as a notified institution, under section 10(23) of the Act. Section 10(23), it may be mentioned, stands omitted as of now.
3. On 12th February 1996, the Director of Income Tax (Exemption) Mumbai issued a certificate of registration under section 12A to the assessee, with effect from 1st April 1995, i.e. financial year relevant to the assessment year 1996-97. On 1st June 2006, and then on 21st August 2007, certain amendments were made to the Memorandum of Association of the assessee society. These amendments were examined by the Director of Income Tax (Exemptions), and, vide communication dated 28th December 2012, he informed the assessee that
“(i) when the objects of the institution, which are the basis of grant of registration are altered after grant of such registration, the very foundation of registration having been removed by the voluntary act of the assessee, the registration would not survive;
(ii) the registration under section 12A, was granted vide order dated 12th February 1996, on the basis of the Memorandum and rules & regulations of the assessee as on the date of registration and that, admittedly, the amendments were made on 1st June 2006 and also on 21st August 2007, but this had not been informed to DIT, who had granted registration under section 12A of the Act and that this information on amendments had not been given the Department for more than three years and, hence, as the very foundation for grant of registration had been removed, the registration would not survive”.
4. Aggrieved, assessee carried the matter in appeal before a co-ordinate bench of this Tribunal. While the co-ordinate bench dismissed the appeal as non-maintainable on the ground that there was no cancellation of registration as such and the impugned communication was no more than an ‘advisory in nature’, without the force of law, the co-ordinate bench did observe that “the registration granted under section 12A, on 12th February 1996, 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” and that “the assessee society should approach the registering authority with the changes and amendments so that the authorities could examine as to whether the amendments in question meet the requirement of law”.
5. Subsequently, show cause notices were issued by the then Principal Commissioners on 30.11.2016, 13.11.2017 and 30.11.2017, requiring the assessee to show cause as to why the registration granted under section 12A not be cancelled or withdrawn.
6. Elaborate submissions were made by the assessee explaining the reasons as to why no such withdrawal or cancellation of registration is justified on the facts and in the circumstances of the case, and that the amendments made in 2006 and 2007 were minor amendments without any impact on the basic objects. Copies of these show cause notices, as also replies thereto, have been placed in Volume II of the paper-books filed before us.
7. One of the allegations against the assessee was that the assessee has not approached the Principal Commissioner with the amended memorandum of association etc and that the assessee does “not respect the Tribunal by carrying out their suggestions/ directions”. Implicit in these observations was the stand of the Commissioner that once there is an amendment in the memorandum of association, the assessee should approach the Principal Commissioner for re-examination of eligibility for registration.
8. Be that as it may, the matter was, as evident from the show cause notices and replies thereto, examined in detail, and the contention of the assessee all along was that these amendments were insignificant and had no impact whatsoever on the basic objects of the institution. It appears that the further proceedings were dropped in the matter, as the proposed action was not really taken by the Commissioner, and the registration obtained by the assessee under section 12 A remained intact.
9. It is in this backdrop that we has for the basic issue raised by the revenue authorities, which has witnessed vehement arguments from both sides, i.e. 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, strictly speaking, it is not necessary for us to go into this aspect of the matter at this stage, as the impugned order is held to be vitiated in law on account of factors discussed hereinabove.
10. We may, however, add that on the face of it merely because a sports tournament is structured in such a manner so as to make it more popular, resulting in more paying sponsorships and greater mobilization of resources, the basic character of the activity of popularizing cricket is not lost.
11. It is indeed possible that the predominant object remains the promotion of cricket but that activity is done in a more effective and financially optimal manner, and that there is 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.
12. 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.
13. 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’être of an institution like this assessee, and that is how we view it.
14. In view of the above discussions, as also bearing in mind the entirety of the case, we hold that the assessee was entitled to the continuance of its registration under section 12 A dated 12th February 1996 and that, accordingly, the impugned order passed by the learned Principal Commissioner stands quashed. The assessee gets the relief accordingly.
15. In the result, the appeal is allowed in the terms indicated above. Pronounced in the open court today on the 02nd day of November 2021.
DISCLAIMER: the case law produced above is only for information and knowledge of readers.