ITO Vs Rajasthan Cricket Association (ITAT Jaipur)
Conclusion: Inter-trust donations from one charitable trust to another for utilization by the donee trust for charitable purposes was proper application of income for charitable purposes in the hands of the donee trust and it would not affect the exemption claimed as application by the Donor trust.
Held: During the year under consideration, assessee had given grants to various district cricket association in the nature of subsidy, grants for infrastructure development and for buying cricket equipments. AO disallowed the same primarily for the reason that assessee was not eligible for exemption under section 11 and 12 being not registered u/s 12A and the said expenditure was either in the nature of capital expenditure or in the nature of application of income. It was held that by incurring such expenditure by way of grants to the district cricket association, assessee society was contributing to creation of necessary infrastructure and purchase of equipment’s however such infrastructure and equipment’s resulted in creation/enhancement of existing/new infrastructure or acquisition of assets in the hands of the district cricket association, however as far as the assessee society was concerned, such an expenditure doesn’t result in creation of any asset or advantage of enduring benefit in the hands of the assessee society and therefore, the same could not be termed as capital expenditure. Further, there was no dispute that the assessee was duly registered u/s 12A of the Act and was eligible for exemption under section 11 and 12 and therefore, the said expenditure was clearly in nature of application of income as the same had a direct nexus with the objectives of the assessee society in terms of promotion of sport of cricket in the state of Rajasthan. Further, in view of the CBDT instruction No 1132 dated 05/01/1978 inter-trust donations from one charitable trust to another for utilization by the donee trust for charitable purposes was proper application of income for charitable purposes in the hands of the donee trust and it would not affect the exemption claimed as application by the Donor trust. In the result, the matter was decided in favour of the assessee and against the Revenue.
FULL TEXT OF THE ITAT JUDGEMENT
These are two appeals filed by the Revenue against two separate orders of the ld. CIT (A)-1, Jodhpur (camp at Jaipur) dated 20.09.2018 for the assessment years 2010-11 and 2011-12 respectively and the appeal filed by the assessee being ITA No. 284/JP/2020 against the said order dated 20/09/2018 for the A.Y. 2011-12.
2. Since all these appeals involved common issues and are connected, therefore, the same were heard together and are being disposed off by this consolidated order.
3. At the outset, it is noted that the appeals of the Revenue in ITA No. 1355 & 1356/JP/2018 were disposed off by the Tribunal vide its order dated 09/12/2019. Subsequently, the assessee moved a misc application seeking recall of the said order and the Tribunal vide its order dated 03/03/2020 in MA No. 13 & 14/JP/2020 has recalled its earlier order dated 09/12/2019. The relevant findings of the Tribunal while recalling the earlier order are contained in para 3 of its order, which read as under:
“3. We have considered the rival submissions as well as the relevant material on record. There is no dispute that these two appeals were filed by the revenue on 3rd December, 2018 and were fixed for hearing on 21st February, 2019 for which notices were issued to the respondent assessee. Thereafter, the hearing was deferred to 30th April, 2019 and on that date nobody appeared on behalf of the respondent assessee. The Bench accordingly ordered for issue of notice to the respondent assessee through RPAD for 30th May, 2019. Even on 30th May, 2019 none appeared on behalf of the assessee respondent and the hearing was adjourned to 26.07.2019. On 26.07.2019 again nobody appeared on behalf of the respondent assessee and the hearing was adjourned to 11.09.2019 with the direction that notice be issued and served through ld. DR/AO. In between the matter was again adjourned due to non-functioning of the Bench and the notices were issued to the assessee as directed by the Bench through the AO. Finally the matter was listed for hearing on 2nd December, 2019 and the ld. D/R has filed the report of service of notice duly acknowledged by the assessee respondent. Despite the service of notice of hearing, nobody appeared on behalf of the assessee, however, to grant one more opportunity to the respondent assessee, the hearing was again deferred to 4th December, 2019. Despite all these opportunities given to the assessee, nobody appeared even on 4th December, 2019 and the matter was accordingly heard and disposed off ex parte. Thus as far as the opportunity of hearing to the assessee respondent is concerned, it is manifest from the record that the assessee respondent was given more than sufficient opportunities but nobody has appeared on the date of hearing. Even no authority/power of attorney was filed on record on behalf of the assessee respondent. Therefore, in those circumstances taking up the matter for ex parte hearing was in accordance with the rules and this itself would not constitute an apparent error on the face of the record. However, now the assessee respondent in its Miscellaneous Application has explained the cause of non appearance as due to the disputes and litigation regarding the Management of the assessee Association, the day to day functioning of the Association was disturbed until the order dated 10.07.2017 passed by the Hon’ble Sole Arbitrator. It is pertinent to note that once the said order dated 10.07.2017 was passed, there was no interruption or distraction in the day to day functioning of the assessee association and thereafter the new Office bearers assumed the Office on 4th October, 2019 i.e. two months prior to the date on which the appeals of the revenue were heard ex parte. Therefore, the reasons as explained by the assessee respondent in the Miscellaneous Application do not make out a reasonable cause for non appearance. Though the assessee has filed an Affidavit of Shri Rajendra Kumar who is working as Receptionist of the assessee Association stating that the notice was received on 28th October, 2019 relating to the hearing on 2nd December, 2019 before this Tribunal but the same was inadvertently forwarded to the Internal Auditor instead of Office Bearers of the Association. We fail to understand who is more familiar and competent to understand the tax matters than the auditors of the Association. Therefore, we do not find any substance in the explanation of the assessee. However, since the order was passed ex parte and the Tribunal was not having the privilege of hearing the assessee who would have presented its case along with the supporting decisions in its favour including the decision of this Tribunal in assessee’s own case for the preceding assessment years. We are conscious and aware that the principle of res judicata is not applicable in the matter of taxation, however, a decision in the assessee’s own case is certainly relevant material to be considered while deciding the issue in matter. Therefore, non consideration of the earlier decision of this Tribunal in assessee’s own case as well as the decisions as would have been relied upon by the assessee referred during the course of hearing of the Miscellaneous application would constitute an apparent mistake on the face of record as those decisions would certainly have some bearing on the adjudication of the matter. Therefore, without expressing any view on the merits and applicability of those decisions on the facts of the case for the assessment years under consideration, we are of the considered opinion that in the interest of justice the assessee be granted one more opportunity of hearing to present its case. Accordingly, in the facts and circumstances of the case, we recall the impugned order dated 9th December, 2019 and direct the Registry to fix the appeals of the revenue for fresh hearing and adjudication on 14th April, 2020. Notice of hearing be issued to the parties.”
4. We thus note that the earlier order so passed by the Tribunal was recalled to hear the assessee as the earlier order was passed ex-parte qua the assessee and to also consider on merits, while hearing the matter a fresh, the applicability of the earlier decision of the Tribunal in the assessee’s own case for the preceding assessment years as well as the decision of the Hon’ble Rajasthan High Court confirming the decision of the Tribunal as well as the decision of the Hon’ble Gujarat High Court in case of DIT (Exemptions) vs Gujarat Cricket Association 419 ITR 561(Guj), as referred during the course of hearing of the misc. application, which were held to be relevant material to be considered while deciding the issue under consideration.
ITA No. 1355/JP/2018
5. With the consent of both the parties, the appeal of the Revenue in ITA No. 1355/JP/2018 for the A.Y. 2010-11 is taken as a lead case for the purposes of present discussions wherein the ground of appeal so taken by the Revenue reads as under:-
“ 1. On the facts and the circumstances of the case and in law, the ld. CIT (Appeals) has erred in allowing exemption u/s 11 of the I.T. Act 1961 to the assessee despite the fact that the proviso to section 2(15) is invoked in the case of the assessee as the activities of the assessee are being run on commercial basis, there being no element of charity.”
6. The brief facts of the case are that the assessee is a society trust registered under Rajasthan Society Trust Registration Act, 1958 and also registered under Sport Association’s Registration Accreditation Act, 2005. The assessee society filed its return of income declaring total income at NIL after claiming the exemption U/s 11/12 of the Income Tax Act, 1961. The matter was taken up for scrutiny and thereafter after issuing notices U/s 143(2) and 142(1) of the Act calling for the necessary information/documents/explanation from the assessee, the Assessing officer denied the claim of exemption U/s 11 and 12 of the Act. As per the Assessing officer, the registration granted to the assessee society has been withdrawn by the ld CIT-I Jaipur vide order dated 28.03.2013 under section 12AA(3) of the Act from assessment year 2005-06 onwards and therefore, on this account, the assessee society is not entitled to exemption u/s 11 and 12 of the Act. Further, the Assessing officer held that the assessee society is involved in carrying on the activities in the nature of trade, commerce or business and having receipts in excess of Rs. 25,00,000/-, therefore, the first proviso to Section 2(15) of the Act is applicable in the case of the assessee. It was held by the A.O. that receipts from one day international matches are to the tune of Rs. 2,90,11,113/- which is far in excess of the quantum mentioned in the proviso to Section 2(15) of the Act. These receipts are mostly attributable to sale of tickets of cricket matches which is squarely covered under the first proviso to Section 2(15) of the Act. It was further held by the A.O. that the assessee has been found to be regularly indulging in commercial activities just like any other commercial enterprise as it is organizing matches, selling tickets, selling advertisement contracts etc. which have resulted in huge profits year after year. The surplus of the assessee has increased exponentially and without fail for the past several years. Therefore, even if the assessee’s activities are viewed independently of its objects, the taint of commerciality is all over. There is nothing charitable about assessee’s activities and even if it were registered u/s 12A, which although it is not, the benefit of Section 11 would still not be allowed to it. The AO accordingly held that all receipts are liable to be taxed as per normal provisions and surplus of income and expenditure account amounting to Rs 6,57,43,511/- was brought to tax at maximum marginal rate.
7. Being aggrieved, the assessee challenged the action of the AO before the ld. CIT (A) and relied upon various decisions of this Tribunal including the decision in its own case for the previous assessment years. The ld. CIT (A) held that the registration of the assessee society u/s 12A has been restored by the Tribunal vide its order dated 09.06.2016 and it is thus entitled to claim exemption under section 11 and 12 of the Act. Further, the ld CIT(A) held that the activities of the assessee are charitable in nature though the same are the objects of general public utility but the primary or dominant purpose is to carrying out the general public utility and not earning the profit. The relevant findings of the ld CIT(A) are contained at para 7.2 of his order which read as under:
“7.2 I have considered the assessment order, appellant’s submissions and documents on record. I find that appellant’s main object in the year 1988 was “advancement of Cricket”. Further the amendments made to the object of the appellant in the year 1999 and 2005 are within the purview of its main object. The AO made the question on nature of the activity of the appellant trust whether such promotion of sports and games carried out was a profit making activity or not and why the activities should not be treated as business activity and the exemption claimed should not be disallowed. This issue has been squarely covered within the decision of Hon’ble Supreme Court in the case of ACIT vs. Surat Art Silk Cloth Manufacturers Association reported in 121 TR 1 (SC) wherein it was held that the primary or dominant purpose of the trust or institution has to be examined to determine whether the said trust /institution is involved in carrying out any activity for the profit and (ii) if the “object” of the trust or institution is to carry out object of general public utility and this is the primary or dominant purpose and not carrying on any activity for profit, the same would satisfy the requirements of section 2(15) of the Act. Here, the main object of the appellant was providing financial help to all the clubs and there was no commercial angle in organizing matches. It organizes various programmes to encourage cricket and appellant has produced a number of excellent cricketers of international repute and this was achieved by nurturing talent irrespective of cast, creed, status, religion etc.
Further, the Hon’ble High Court, Delhi in the case of M/s GSI India vs. DIT, Delhi reported in 360 ITR 138 elaborately differentiate the business, trade activity from charitable activity under the residuary category i.e. “advancement of any other object of general public utility”.
Apart from this, the Hon’ble ITAT, Delhi in the case of Delhi and District Cricket Association vs. CIT(E), ITA No.3095/Del/2012 held as under:-
” 10.9. Thus respectfully following the decision of Hon’ble Madras High Court in the case of Tamil Nadu Cricket Association (supra), we have to hold that the amounts received by the assessee from a) ground booking charges, b) health club charges, c) income from corporate boxes, d) lawn booking income, e) sponsorship money and sale of tickets, advertisement, souvenirs and other such receipts do not result in the assessee being held as undertaking activities in the nature of “trade, commerce or business.” These receipts are intrinsically related, interconnected and interwoven with the charitable activity and cannot be viewed separately. The activities resulting in the said receipts are also charitable activities and not “trade, commerce or business” activities.”
Therefore, respectfully following the ratio laid down by abovementioned decisions of various higher formation, I am of view that the appellant’s main object was “advancement of general public utility” and advancement of sports. Hence, question made on the activities of the appellant in terms of section 2(15) of the act is held to be invalid. The appellant succeeds on this ground and the same is treated as allowed.”
Hence the ld. CIT (A) has deleted the addition and accepted the claim of the assessee being eligible for exemption under Section 11 and 12 of the Act. Aggrieved by the order of the ld. CIT (A), the Revenue has filed the present appeal.
8. The ld. D/R has submitted that the AO has narrated the activity of the assessee as organizing the cricket matches including the international one day cricket matches and IPL matches, revenue from sale of tickets, advertisement contracts etc. which have resulted in huge profits year after year. The surplus of the assessee has increased exponentially and without fail for the past several years. Further, the assessee is earning income from these activities which has nothing to do with the activity of promotion of sports but these are pure commercial activities being IPL Subvention fees, TV subsidy, IPL income and income from One day International Matches. It was submitted that the true nature of revenue receipts of the assessee is nothing but the assessee’s shares in the total advertisement revenues of BCCI related to commercial ventures of organizing One day & twenty-twenty cricket matches specially IPL matches. Thus the assessee is earning the revenue from advertisement receipts from BCCI being its share in the advertisement receipts. When these IPL teams of various business houses, film stars and the entire activities are conducted in a commercial manner, then the income earned by the assessee from the said activities of conducting the IPL matches is only from activity of trade, commerce or business. Therefore, the first leg of proviso to section 2(15) is attracted in the case of the assessee. The ld. D/R has relied upon the decision of the Chandigarh Benches of the Tribunal in case of Punjab Cricket Association vs. ACIT in ITA No. 427/Chd/2017 dated 12.09.2019 and submitted that the Tribunal while deciding an identical issue in case of Punjab Cricket Association has discussed all the relevant facts and nature of activities of BCCI and State Cricket Association and found that the activities of organizing the cricket matches particularly IPL and other matches are in the nature of trade, commerce or business. Further even if these activities are considered as incidental business activities to the main objects and activities of the assessee, when the revenue earned from these activities is more than the threshold limit then the first proviso to section 2(15) is attracted. Thus the ld. CIT D/R has relied on the decision of Chandigarh Benches of the Tribunal. It was further submitted that the principle of res judicata doesn’t apply in case of income tax proceedings and facts of each year needs to be examined separately. It was further submitted that the department has not accepted the decision of the Coordinate Bench and that of Hon’ble Rajasthan High Court for the earlier years and an SLP has been filed before the Hon’ble Supreme Court. He accordingly supported the order and the findings of the Assessing officer.
9. In his submissions, the ld A/R submitted that from the order of the Assessing officer, it is apparent that the AO has passed the order on the basis that the registration u/s 12A of the Income Tax Act, 1961 granted to RCA was withdrawn u/s 12AA(3) on 28.12.2010 by the ld CIT-I, Jaipur and held that the benefits of section 11 and 12 could not be allowed to the assessee. In this regard, it was submitted that it is true that the registration u/s 12AA was withdrawn by the ld. CIT, however, the same was challenged and an appeal was filed before the Jaipur Bench of ITAT with a request to set aside the order of the Ld. CIT and issue direction for restoring the registration. The said appeal has since been decided in favor of the RCA by the order of Jaipur Bench of ITAT dated 09.06.2016. The department went before the Hon’ble Rajasthan High Court against the said order which was also decided in favor of the RCA vide their order dated 21.11.2017. It was accordingly submitted that RCA is a registered entity under section 12A of the IT Act & that it is eligible for the benefit of section 11 & 12 of the Act.
10. It was further submitted that the AO in the assessment order observed that the assessee has earned substantial income in the shape of subsidy from BCCI, advertisement income, membership fees etc and concluded that since assesse was earning huge surplus the same was in the nature of business, accordingly the assessment was completed by computing the total income of the association at Rs. 18,00,76,170/-. In this regard, it was submitted that RCA is not a business entity, it’s governing body is also elected by the members and is being run as per the constitution of RCA and its aims and objects are to promote the sport of cricket in the state of Rajasthan and not to earn profit or conducting any business activity. The RCA had a history of its operations in the field of promotion of cricket and there had been no activities beyond the constitution and it is a charitable institution duly covered under section 2(15) in the limb of advancement of General Public Utility without any intent of earning profit and distribution of any surplus directly or indirectly to its members. The members of the Association holding different post are providing honorary services and are not eligible for any salary or remuneration. The association has various cricket teams for men under 14 Years, under 16 Years, under 19 Years, under 23 Years and senior Team i.e for Ranji Trophy Team, Dilip Trophy etc. There are cricket teams for women also. Further the association looks after the cricket activities in 32 districts in the State of Rajasthan including Jaipur, Udaipur, Jodhpur, Alwar, Rajsamand and Sikar. The association employ former national level cricketer as coaches for the teams with the other cricket experts for training. The RCA provide coaching for skill development, physical development, mental development to build personality of the cricketers. The RCA had been able to organise various international Matches, One day matches & T20 Matches and the predominant object of these matches to promote the game of Cricket. The RCA has been able to produce various renowned players such as Salim Durrani, G.R. Sunderum, C.G. Joshi, Raj Singh Dungarpur, Hanumant Singh, Suryaveer Singh, Laxman Singh, Kailash Gattani, Parthsarthy Sharma, Gagan Khoda, Pankaj Singh and Ashok Maneria. Further, there are players like Khaleel Ahmed, Deepak Chahar, Rahul Chahar who are currently playing for Indian cricket team. The above renowned past and current cricketers provide their expert training/ guidance to the other players of the Rajasthan and thus, help promote the talent pool of cricketers in the state of Rajasthan.
11. It was further submitted that RCA organizes various National level tournaments like Ranji Trophy, Irani Trophy, Dilip Trophy, Maharana Bhagat Singh Trophy, Laxman Singh Dungar Trophy, Suryaveer Singh Trophy etc. Further RCA is utilizing a large sum of money in training and Coaching camp for which no fees is charged from the participants. The promotion is therefore directly of the players/cricketers. The international and IPL matches entrusted by BCCI are played for very few days in a year and help augment the resources in the hands of the RCA.
12. It was further submitted that Cricket is an immensely popular game in the country and anything to do with the cricket result in mass involvement of public at large. The sheer strength of these numbers resultS in higher visibility of cricketing activities and the scale of operations on which the work for development of cricket is to be carried out. When a cricket stadium is itself built, it has to accommodate a very number of persons, but the size of the stadium could not mean that the activity is for anything other than promotion of cricket. When the numbers are large the scale of operation is large and when scale of operation is large even the surplus or deficit could be large, but such figures never turn a fundamental object of general public utility into commercial activity as the surplus so generated is ploughed back for the promotion of sport of cricket and is never distributed directly/indirectly to any of its members/office bearers who are holding honorary positions.
13. It was further submitted that BCCI giving subsidy to RCA, the teams, the suppliers, the contractors and all other persons dealing with RCA may have their own objects even of business/commerce/to earn money; which however doesn’t mean under any law/facts that RCA is also covered as business entity. The fact has been considered by the Delhi Benches of Tribunal in case of Delhi & District association (ITA No. 3095/Del/2012) and the relevant findings are contained at para 11.2 of its order which read as under:
“the assesse has to perform many activities and for this purpose he has to enter into transactions with various types of persons. Those persons can be commercial or non commercial, professionals, venders of goods and services and so forth and so on, merely entering into such agreements does not tantamount to the assessee being a business entity. ……. To carry out a transaction in an organizational manner and to ensure that the transaction would help the assessee in achieving its charitable object it is imperative that the terms and conditions of the transactions are clearly defined to avoid any confusion or chaos.”
14. It was further submitted that the BCCI allot the international matches & ODI/T 20 matches to RCA & the AO erroneously concluded that huge money is collected & distributed by them and that the recipients of the subsidy/income from BCCI becomes business entity. He has completely failed to consider that the object of RCA is to educate, update, and inspire the state cricketers and the promotion of the game of cricket in Rajasthan. One of the main objects is also to hold matches as mentioned in its Memorandum which is part of the education & training having variety of benefits. The major benefit of organizing these matches are that the local team is being trained by RCA, it get opportunities to learn from the experiences of coaches of international level by assisting them during practice matches, by witnessing the matches played by international players, by spending time with them during the practice matches and after match hours. The RCA had been able to produce the national & international level cricketers who are part of the Indian Cricket Team & also part of other ODI/T 20 series. In view of the above, it is clearly justified that the receipts/surplus from the said matches never had any element at any stage of any business but the same is incidental to promote the game of Cricket. In support, reliance was placed on the Hon’ble Supreme Court decision in case of Commissioner of Sales Tax v. Sai Publication Fund (2002) 258 ITR 70 where while interpreting the word “Business” in the context of section 2(5A) of the Bombay Sales tax Act 1959, it was held that “the inclusion of the incidental or ancillary activity in the definition of business pre-supposes the existence of trade, commerce and business. Thus the dominant activity of the assessee was not business than any incidental or ancillary activity of the assessee would not fall within the definition of the business.” These facts are apparently very clear to justify that the association is a charitable institution entitled to claim the available benefits under section 11 & 12 of the Act, where the question of applicability of the proviso to section 2(15) does not arise.
15. It was further submitted that the matter is squarely covered by the earlier decision of the Tribunal in ITA No. 944/JP/2013 dated 23.03.2017 for Assessment Year 2009-10,wherein it was held that the proviso to section 2(15) is not applicable to RCA & that the benefits of section 11 & 12 cannot be denied. It was submitted that the said decision of the Tribunal has since been affirmed by the Hon’ble Rajasthan High Court in Appeal No. 257/2017 dated 21.11.2017. It was submitted that though the Revenue has filed an SLP before the Hon’ble Supreme Court, however, mere filing an SLP or its admittance is no bar against the binding nature of the decision of the Hon’ble jurisdictional High Court. It was submitted that the Department has failed to distinguish the activities of RCA from the earlier year i.e. A.Y 2009-10, where the matter was discussed in detail and decided on merits by the Jaipur Bench of Tribunal and which has since been affirmed by the Hon’ble Rajasthan High Court and the said decision therefore clearly applies in the instant case. In this regard, a comparative analysis of receipts and payments for AY 200910, 2010-11 and 2011-12 was submitted stating that there are no material changes in the revenue heads & nature of activities of the RCA in the Assessment year 2010-11 and 2011-12 as compared to Assessment year 2009-10:
