Mere Providing stadium with all arrangements for Cricket matches conducted by BCCI is not a business activity carried out u/s 2(15)

Brief of the case:

In the case of M/s Tamil Nadu Cricket Association Vs. DDIT (Ex.) Madras Bench of ITAT have observed the activities carried out by assessee in nature of charitable or business. After detailed examination it was held that assessee did not engaged in any business or commercial activity and hence liable for the exemption u/s 11. Also in the AY 2008-09 assessee claimed deduction on account of depreciation which was rejected by ITAT. Tribunal after examining held that When the assessee claims the cost of the capital expenditure as exemption under Section 11 of the Act, then the cost of the capital asset becomes NIL. Hence, no depreciation can be claimed.

Facts of the case:

• Assessee is a registered society under the Tamil Nadu Societies Registration Act, was registered under Section 12AA as a charitable institution with a object of promoting the sport of cricket in the State of Tamil Nadu and in the Union Territory of Puducherry.
• Assessee conducts cricket tournaments and provides cricket coaching.
• The members of the assessee-society are the district associations and the cricket clubs in the city of Chennai.
• Assessee is a member of BCCI who is member of ICI.
• Assessee has constructed a modern cricket stadium at Chennai with state of art facilities for conducting international cricket matches.
• Assessee, being a State Cricket Association, is entitled to revenue on sale of tickets when it conducts international matches conducted by BCCI including IPL. Further assessee would also be entitled to all in-stadia sponsorships, advertisements and beverage revenue, etc.
• assessee earns income under the following heads:-

(1) Subscription from members

(2) Sale of tickets

(3) Revenue from advertisements

(4) Receipts from BCCI

(5) Interest from bank deposits

• Assessee had availed exemption under Section 11 to 13 upto assessment year 2008-09 and For the AYs 2009-10 and 2010-11, the assessee claimed exemption under Section 11 in respect of its entire income.
• AO found that promoting cricket may be charity provided it does not involve any activity which is in the nature of commercial.
• AO has also found that the assessee earns surplus profit on conducting test matches between India and England.
• The registration u/s 12AA was cancelled by DIT which was confirmed by ITAT. But later on set aside by HC by holding that Revenue has not made out any ground to cancel the registration granted under Section 12AA of the Act.
• In AY 2008-09 assessee claimed depreciation in respect of the capital asset to the extent of Rs. 1,61,75,931/-. However, in the revised return, the assessee claimed depreciation to the extent of Rs. 1,61,75,931/- and the capital expenditure to the extent of Rs. 1,32,74,928/- as application of income. However claim was rejected by AO.
• In connection to the AYs 2009-10 and 2010-11, AO found that the activity of the assessee-society falls within the purview of business.
• Referring to Indian Premier League (IPL), AO estimated the television audience more than 200 millions in India and Indian Premier League match has a global reach in respect of the advertisement pertaining to new production launch. Therefore, the AO found that it is a commercial venture.
• AO placed reliance on the order of ITAT cancelling the registration u/s 12AA.
• During the assessment year 2010-11, the assessee received Rs. 22,29,49,392/- from BCCI.
• The assessee has also received Indian Premier League subsidy to the extent Rs. 8.02 Crores which amounts to 25% of its gross receipts.

Contention of the revenue:

• The income was re-computed after taking into account the receipts and payments of South Africa Test Match and Afro Asia Cup Match separately.
• The assessee-society is conducting cricket matches like a trade/business. Sharing the revenue from BCCI in advertisement is definitely a commercial receipt.
• Indian Premier League matches are in the nature of entertainment industry. Therefore, the characteristic of the activity of the assessee-society is totally changed into a commercial venture.
• Assessee has received Rs. 14,27,16,192/- in the AY 2010-11 from TV subsidy. TV subsidy admittedly is a share received from BCCI on account of audit revenues arising from telecast of test matches.
• The share received by the assessee from BCCI in the form of subsidy / grant is nothing but a share of profit collected from BCCI from advertisements.
• The assessee is not eligible for deduction under Section 11 of the Act in view of proviso to Section 2(15) of the Act.
• The assessee in one hand is claiming as application of income while purchasing the asset and on the very asset, the assessee is claiming depreciation.
• Once the cost of the capital asset was allowed as application of income under Section 11 of the Act, the cost of the said asset becomes NIL. Hence, there is no question of allowing any depreciation.

Contention of assessee:

• In the assessee’s own case for assessment year 2007-08, this Tribunal granted depreciation after following its earlier order.
• Funds were nowhere diverted or used for any other purpose other than promoting the sports. No individual is benefiting out of the funds of the assessee-society. The entire funds generated in the course of its sport activity is re-invested in training the students and other players.
• IPL is conducted by BCCI and assessee’s role is only to provide stadium and making all arrangemnts, being a member of BCCI.
• The entire revenue earned out of Indian Premier League goes to BCCI and the assessee is allotted certain shares for meeting the expenditure.
• The surplus, if any, remains is re-invested for conducting the matches in the State of Tamil Nadu and in the Union Territory of Puducherry.

Held by ITAT:

• For AY 2008-09, In view of Section 32 of the Act, depreciation has to be allowed only in respect of an asset owned by the assessee and used for the purpose of business or profession.
• Once the assessee claims that it is a charitable organization and not engaged in business or profession, this Tribunal is of the considered opinion that the provisions of Section 32 have no application at all.
• The provisions of Section 32 in fact were not brought to the notice of this Tribunal while deciding the assessee’s own case for assessment year 2007-08.
• ITAT observed findings its co-ordinate bench in case of The Anjuman-E-Himayath-E-Islam v. ADIT in I.T.A. No.2271/Mds/2014 and found that when the assessee is eligible for exemption under Section 11 of the Act, it is not eligible for depreciation under Section 32 of the Act.
• When the assessee claims the cost of the capital expenditure as exemption under Section 11 of the Act, then the cost of the capital asset becomes NIL.
• Depreciation under Section 32 of the Act has to be allowed only on written down value of the asset.
• When the written down value of the asset becomes NIL since the entire cost was allowed as application of income under Section 11 of the Act, this Tribunal is of the considered opinion that there cannot be any further claim for deduction under Section 32 of the Act.
• Tribunal is of the considered opinion that the assessee is not eligible for deduction under Section 32 of the Act towards depreciation.
• The assessee is eligible for exemption under Section 11 of the Act for all the assessment years under consideration.
• In AYs 2009-10 and 2010-11, the claim of the assessee was rejected by the lower authorities on the ground that the registration under Section 12AA was cancelled and it was confirmed by this Tribunal. As per lower authorities assessee engaged in business activities.
• As regards the cancellation of registration, now the Madras High Court has set aside the order of this Tribunal and restored the registration under Section 12AA of the Act. Therefore, as on today, the registration under Section 12AA is restored.
• After going the objects of the assessee it is observed that the sole object of the assessee-society is to promote sport of cricket in the State of Tamil Nadu and in the Union Territory of Puducherry.
• It is BCCI who conducts the public auction for selling premier players at a huge premium rate and collects the money.
• The role of the assessee-society is only to provide stadium for conducting matches. Other than that, the assessee-society has no role in conducting the international matches and Indian Premier League matches.
• The AO got confused himself with the activity carried on by the BCCI as that of the activity carried on by the assessee-society.
• As it is observed that the assessee is not conducting any business activity and hence proviso to Section 2(15) of the Act is not applicable to the assessee.
• The assessee is eligible for exemption under Section 11 of the Act for all the assessment years under consideration.