Case Law Details
IN THE ITAT CHENNAI BENCH ‘B’
Madras Motor Sports Club
Versus
Director of Income-tax (Exemptions)
I T APPEAL NO. 777 (MDS.) OF 2012
[ASSESSMENT YEAR 2009-10]
DECEMBER 21, 2012
ORDER
Abraham P. George, Accountant Member
In this appeal filed by the assessee, its grievance is that DIT(E) cancelled the registration granted to it under Section 12A(a) of Income-tax Act, 1961 (in short ‘the Act’).
2. Facts apropos are that assessee motor sports club, registered as a society, was also having registration under Section 12A(a) of the Act since 1977, with Registration No.C.No.1212(154)/77. Objects of the assessee, inter alia, was to promote sports of motor car and motor cycle and conduct motor races, competitions, etc. During the scrutiny proceedings, for assessment year 2009-10, the A.O. of the assessee sent a proposal to the DIT(E) recommending cancellation of registration granted to assessee under Section 12A(a) of the Act. A show cause notice was issued for this, by the DIT(E). As per DIT(E), though the objects and activities were covered under the category of “advancement of general public utility” coming within the ambit of Section 2(15) of the Act, assessee had, during the previous year ended 31.3.2009, receipts of Rs. 1,52,79,521/-. As per ld. DIT(E), such receipts were in the nature of business receipts and was therefore, hit by first and second provisos to Section 2(15) of the Act. Reply of the assessee on the show cause notice issued was that it was a society running motor car and motor cycle races since last many years. Entry fees received from participants and sponsorship fees received from main sponsors of the events were only for the purpose of effectuating the objects of the society. To a question as to whether any benefits were derived by the sponsors on account of advertisement, assessee submitted that the championship races were conducted over five rounds and that through this, various components used by various engine manufacturers, were tested. As per ld. DIT(E), the championship races conducted by the assessee were to test durability and performance of components and this resulted in direct benefit to the sponsors. The sponsors of various events of assessee like MRF, UAM, UCAL and JK Tyres derived benefit from the assessee as per the ld. DIT(E). Therefore, in the opinion of ld. DIT(E), the motor sports were for the purpose of promotion of business of sponsors. The sponsorship proceeds were commercial receipts in the hands of the assessee. Contention of the assessee that the surplus earned were used for objects of the assessee, was not accepted by the ld. DIT(E). Ld. DIT(E) was of the opinion that assessee was hit by proviso to Section 2(15) inserted from 1.4.2009. Therefore, according to him, the objects and activities of the assessee could no more be considered charitable in nature. In this view of the matter, he cancelled registration granted to the assessee under Section 12A(a) of the Act.
3. Now before us, learned A.R. strongly assailing the order of DIT(E), submitted that assessee had been granted registration under Section 12A(a) from the year 1977 and also granted benefit under Section 80G of the Act. According to learned A.R., just because sponsorship fees were received on the races conducted by the assessee, it could not be held that assessee was doing something which was not of the nature mentioned under Section 2(15) of the Act. According to him, ld. DIT(E) had accepted that objects of the assessee came within the ambit of advancement of general public utility. He cancelled the registration only for a reason that sponsorship fees, during the relevant previous year, exceeded the amount specified under second proviso to Section 2(15) of the Act. Relying on the decision of Jaipur Bench of this Tribunal in the case of Rajasthan Housing Board v. CIT [2012] 51 SOT 383, learned A.R. submitted that just because receipts exceeded Rs. 10 lakhs, grant of registration under Section 12A(a) could not be cancelled. Reliance was also placed on the decision of Ahmedabad Bench of this Tribunal in the case of Gujarat Cricket Association v. DIT (Exemption) [2012] 19 ITR (Trib) 520 (Ahd.).
4. Per contra, learned D.R. submitted that DIT(E) was justified in cancelling the registration granted to assessee under Section 12A(a) of the Act. According to him, Section 2(15) was substituted by Finance Act, 2008 with effect from 1.4.2009 and after such substitution, advancement of objects of general public utility, if it involved carrying on activity of trade, commerce, or business or collection of any fees or cess in connection with such trade, commerce or business, then it ceased to be a charitable purpose. Learned D.R. pointed out that second proviso to Section 2(15) inserted by Finance Act, 2010 with retrospective effect from 1.4.2009 excluded application of first proviso only where aggregate value of the receipts of the nature mentioned in the first proviso was less than Rs. 10 lakhs. Here, admittedly, assessee had received sponsorship fees and entry fees which exceeded the sum of Rs. 10 lakhs. Therefore, it could not argue that any object of the general public utility was being carried on by it. Though the objects were in the nature of general public utility, earlier, by virtue of proviso to Section 2(15), introduced by Finance Act, 2008, it ceased to be so. Therefore, according to him, ld. DIT(E) was justified in cancelling the registration.
5. We have perused the orders and heard the rival submissions. There is no dispute that the assessee was granted registration under Section 12A(a) in the year 1977. Therefore, assessee was earlier considered to be charitable society eligible for claiming exemption under Sections 11 and 12 of the Act. Ld. DIT(E) has mentioned as under at para 3 and para 10(i) of his order:-
“3. A perusal of the objects clearly reveals that the objects can be termed as advancement of object of general public utility u/s 2(15) of the I.T. Act where charitable purpose includes such objects.”
“10.** ** **
(i) Undoubtedly, the objects and activities of the society comes within the advancement of any other object of general public utility. The same is not questioned either in the show cause letter or during the proceedings. In fact, application of the first and second proviso, after amendment w.e.f. 1.4.2009 is applicable for this kind of objects. Hence the reliance of learned A.R. on the Board’s Circular and the various contentions that the activities of the society are covered within the definition of charitable purpose under the category of advancement of any other object of general public utility no way help the assessee from invoking Sec.12AA(3) which has been issued on the basis of business or commercial receipts as provided in first and second proviso of the said clause (15) of Sec.2 of the I.T. Act.”
6. The only reason why the DIT(E) chose to cancel the registration was that assessee was hit by substituted Section 2(15) of the Act. By virtue of substitution of Section 2(15) by Finance Act, 2008, with effect from 01.04.2009, there was a change, which placed on an object for advancement of general public utility, certain constraints. The said Section 2(15) was further amended by Finance Act, 2010, with retrospective effect from 1.4.2009. Section 2(15) as it stands now reads as under:-
“2(15) “charitable purpose” includes relief of the poor, education, 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 business, for a cess or fee or any other consideration, irrespective of the nature of use or application, or retention, of the income from such activity:]
[Provided further that the first proviso shall not apply if the aggregate value of the receipts from the activities referred to therein is ten lakh rupees or less in the previous year;]”
Both provisos are applicable from 01.04.2009. If we look at first proviso, no doubt it can be said that advancement of object of general public utility shall not be a charitable purpose, if it involved activity of trade, commerce or business or any service rendered in relation to any trade, commerce or business for a consideration. However, the second proviso, which was added by Finance Act, 2010, again with retrospective effect from 1.4.2009, brought in certain limitations on the application of first proviso. First proviso, as it stood independently till the latter amendment was brought in, clearly indicated that a violation thereof would result in an otherwise charitable object of general public utility, not becoming so. However, by virtue of second proviso, the constraints placed on an object of general public utility, will come into play only if the aggregate value of the receipts of the nature mentioned therein exceeded Rs. 10 lakhs. In other words, the object continued to be one of general public utility, even if it involved carrying on an activity in the nature of trade, commerce or business but there was an upper limit specified. Thus, even if we presume that the sponsorship fees and entry fees received by the assessee were consideration received in relation to service rendered by virtue of trade, commerce or business, if the aggregate value of such receipts were less than Rs. 10 lakhs, it would still be considered as charitable purpose. A harmonious reading of both the provisos will only mean in the years in which the receipts of nature mentioned in first proviso exceeded Rs. 10 lakhs, assessee will not be eligible for exemption under Sections 11 and 12 of the Act. It will not mean that an otherwise charitable object of general public utility will become a non-charitable one only for a reason that the aggregate receipts exceeded Rs. 10 lakhs.
7. As already mentioned by us, order of ld. DIT(E) has clearly mentioned that assessee’s objects were in the nature of advancement of object of general public utility coming within the ambit of Section 2(15) of the Act. He had cancelled the registration only for the reason that the receipts exceeded Rs. 10 lakhs. If the receipts exceeded Rs. 10 lakhs and if such receipts were of nature mentioned in first proviso to Section 2(15) of the Act, the Assessing Officer would, no doubt, be justified in denying exemption under Sections 11 and 12 of the Act. However, this will not be a sufficient reason for cancelling the registration granted to the assessee under Section 12A(a) of the Act. If in the very next year, assessee’s receipts are less than Rs. 10 lakhs, then it will have to be granted the exemption available under Sections 11 and 12 of the Act, if other conditions are satisfied. In other words, nature of objects of the assessee cannot fluctuate in tandem with the quantum of receipts mentioned in the first proviso. Similar view had already been taken by the co-ordinate Bench of this Tribunal in the case of Rajasthan Housing Board (supra) and Gujarat Cricket Association (supra). We are, therefore, of the opinion that ld. DIT(E) fell in error in cancelling the registration granted to the assessee under Section 12A(a) of the Act.
8. In the result, order of DIT(E) is quashed and appeal of the assessee is allowed.
