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DIT (E) vs. Gujarat Cricket Association (Gujarat High Court)

COURT:
CORAM: ,
SECTION(S): , ,
GENRE:
CATCH WORDS:
COUNSEL: , , ,
DATE: September 27, 2019 (Date of pronouncement)
DATE: October 25, 2019 (Date of publication)
AY: 2004-05
FILE: Click here to download the file in pdf format
CITATION:
S. 2(15)/11 "Charitable Purpose": The fact that the carrying on of charitable activities results in a surplus does not mean that assessee exists for profit. “Profit” means that owners have a right to withdraw the surplus for any purpose including personal purpose. However, if the surplus is ploughed back into the same charitable activities, the assessee cannot be said to be carrying out commercial activities in the nature of trade, commerce or business. The fact that the assessee has dealings with, & share of profits from, BCCI (a commercial entity) does not affect its charitable status

C/TAXAP/268/2012 JUDGMENT
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/TAX APPEAL NO. 268 of 2012
With
R/TAX APPEAL NO. 152 of 2019
With
R/TAX APPEAL NO. 317 of 2019
With
R/TAX APPEAL NO. 318 of 2019
With
R/TAX APPEAL NO. 319 of 2019
With
R/TAX APPEAL NO. 375 of 2019
With
R/TAX APPEAL NO. 358 of 2019
With
R/TAX APPEAL NO. 359 of 2019
With
R/TAX APPEAL NO. 360 of 2019
With
R/TAX APPEAL NO. 333 of 2019
With
R/TAX APPEAL NO. 334 of 2019
With
R/TAX APPEAL NO. 335 of 2019
With
R/TAX APPEAL NO. 336 of 2019
With
R/TAX APPEAL NO. 337 of 2019
With
R/TAX APPEAL NO. 338 of 2019
With
R/TAX APPEAL NO. 339 of 2019
With
R/TAX APPEAL NO. 340 of 2019
With
R/TAX APPEAL NO. 320 of 2019
With
R/TAX APPEAL NO. 321 of 2019
With
R/TAX APPEAL NO. 374 of 2019
With
R/TAX APPEAL NO. 675 of 2019
With
Page 1 of 205
C/TAXAP/268/2012 JUDGMENT
R/TAX APPEAL NO. 123 of 2014
FOR APPROVAL AND SIGNATURE:
HONOURABLE MR.JUSTICE J.B.PARDIWALA Sd/-
and
HONOURABLE MR.JUSTICE A.C. RAO Sd/-
==========================================================
1 Whether Reporters of Local Papers may be allowed to
see the judgment ?
Yes
2 To be referred to the Reporter or not ? Yes
3 Whether their Lordships wish to see the fair copy of the
judgment ?
No
4 Whether this case involves a substantial question of law
as to the interpretation of the Constitution of India or any
order made thereunder ?
No
===============================================================
DIRECTOR OF INCOME TAX (EXEMPTION)
Versus
GUJARAT CRICKET ASSOCIATION
===============================================================
Appearance:
MR. M.R. BHATT, LD. SR. COUNSEL WITH MS MAUNA M BHATT, LD.
COUNSEL for the Appellants in all the Tax Appeals.
MR. J. P. SHAH, LD. SR. COUNSEL WITH MR.MANISH J SHAH, LD.
COUNSEL for the Gujarat Cricket Association
MR. S.N. SOPARKAR, LD. SR. COUNSEL WITH MR. B.S. SOPARKAR, LD.
COUNSEL for the Baroda Cricket Association
MR. TUSHAR HEMANI, LD. SR. COUNSEL WITH MS. VAIBHAVI PARIKH,
LD. COUNSEL for the Saurashtra Cricket Association.
===============================================================
CORAM: HONOURABLE MR.JUSTICE J.B.PARDIWALA
and
HONOURABLE MR.JUSTICE A.C. RAO
Date : 27/09/2019
Page 2 of 205
C/TAXAP/268/2012 JUDGMENT
COMMON ORAL JUDGMENT
(PER : HONOURABLE MR.JUSTICE J.B.PARDIWALA)
1. Since the issues raised in all the captioned tax appeals
preferred at the instance of the Revenue are the same,those
were heard analogously and are being disposed of by this
common judgment and order.
2. In the tax appeals captioned above, the respondentassessee
are the three Cricket Associations, namely, (I) Gujarat
Cricket Association (ii) Baroda Cricket Association and (iii)
Saurashtra Cricket Association.
3. In the following tax appeals, the respondent-assessee is
the Gujarat Cricket Association;
“(i) Tax Appeal No.268 of 2012;
(ii) Tax Appeal No.317 of 2019;
(iii) Tax Appeal No.318 of 2019;
(iv) Tax Appeal No.319 of 2019;
(v) Tax Appeal No.375 of 2019;
(vi) Tax Appeal No.333 of 2019;
(vii) Tax Appeal No.334 of 2019;
(viii) Tax Appeal No.335 of 2019;
(ix) Tax Appeal No.336 of 2019;
(x) Tax Appeal No.337 of 2019;
(xi) Tax Appeal No.338 of 2019;
(xii) Tax Appeal No.339 of 2019;
(xiii) Tax Appeal No.340 of 2019;”
4. In the following tax appeals, the respondent-assessee is
Page 3 of 205
C/TAXAP/268/2012 JUDGMENT
the Baroda Cricket Association.
“(i) Tax Appeal No.320 of 2019
(ii) Tax Appeal No.321 of 2019
(iii) Tax Appeal No.374 of 2019
(iv) Tax Appeal No.675 of 2019
5. In the following tax appeals, the respondent-assessee is
the Saurashtra Cricket Association;
“(I) Tax Appeal No.152 of 2019;
(I) Tax Appeal No.358 of 2019;
(II) Tax Appeal No.359 of 2019;
(III) Tax Appeal No.360 of 2019;
(IV) Tax Appeal No.123 of 2014;”
Tax Appeal No.268 of 2012
6. We propose to first take up the Tax Appeal No.268 of
2012.
7. This tax appeal under Section 260A of the Income Tax
Act, 1961 (for short “the Act, 1961”) is at the instance of the
Revenue and is directed against the order passed by the
Income Tax Appellate Tribunal, ‘A’ Bench, Ahmedabad in the
ITA No.93/Ahd/2011 for the A.Y.2004-05. This tax appeal was
admitted vide order passed by this Court dated 19th July, 2012
on the following substantial question of law;
“Whether the Hon’ble ITAT has erred in not taking
cognizance of the latest amendment in the nature of the
proviso to section 2(15) of the I.T. Act inserted with effect
from 01/04/2009?”
Page 4 of 205
C/TAXAP/268/2012 JUDGMENT
8. The facts giving rise to this tax appeal may be
summarized as under;
8.1 The assessee, namely, Gujarat Cricket Association (for
short “the GCA”) is a society registered under the Societies
Registration Act, 1860. The GCA came to be registered with
the Registrar of Societies vide the Registration Certificate
dated 10th July, 1984. Later, the GCA was notified under
Section 10(23) of the Act, 1961 vide notification dated 30th
March, 1999 from A.Y. 1999-2000 to 2001-2002 by the
Government of India, Ministry of Finance, Department of
Revenue.
8.2 In the absence of renewal of the notification under
Section 10(23) of the Act, the GCA preferred an application for
registration under Section 12AA of the Act, 1961. The
registration under Section 12AA of the Act came to be granted
by the DIT (Exemption), Ahmedabad vide its order dated 16th
April, 2003, i.e., from A.Y.2004-05 onwards.
8.3 A show-cause notice dated 26th September, 2010 came
to be issued upon the GCA under Section 12AA(3) of the Act,
calling upon the GCA to show cause why the registration
granted under Section 12AA of the Act should not be cancelled
from 2004-05 onwards.
8.4 The Commissioner, after hearing the assessee,
cancelled the registration under Section 12AA for the period
from A.Ys.2004-05 till the date of his order, i.e. 6th December,
2010 in exercise of his powers under Section 12AA(3) by
invoking the Proviso to Section 2(15) of the Act, 1961 inserted
by the Finance Act, 2010 with effect from 1st April, 2009. The
Page 5 of 205
C/TAXAP/268/2012 JUDGMENT
Commissioner, while cancelling the registration of the assessee
held that the activities of the trust were commercial in nature.
The relevant observations in the order passed by the Director
of Income Tax (Exemption), Ahmedabad are quoted herein
below;
“The legislature in its wisdom has introduced section
12AA of the I.T. Act, 1961 by the Finance Act No.2, 1996
w.e.f 1.4.1997 i.e. A.Y.1997-98 onwards which requires
the Commissioner to be satisfied with the objects of the
Trust and the genuineness of its activities. As a logical
corollary of the provisions of Section 12AA of the Act, the
Commissioner has to examine the objects of the Trust by
their reference to the definition of “charitable purpose”
along with the newly inserted proviso to charitable
purpose in Section 2(15) of the Act w.e.f 1.4.2009. In fact
there is a mutual, symbiotic relationship between the two
provisions, namely section 2(15) and section 12AA of the
I.T. Act, 1961. The definition of “charitable purpose” in
section 2(15) of the Act is the engine which drives the
machinery of the provisions of Section 12AA of the Act.
Thus it is clear that even as per pre-amended section
2(15) of the I.T. Act, the GCA is not entitled for
registration u/s 12A of the I.T. Act as per ratio of
judgments of Hon. Courts as discussed above. When this
is the position even as per pre-amended section 2(15) of
the I.T. Act, there remains no case at all for continuation
of registration u/s 12A after the amendment of section
2(15) by Finance Act 2008 as applicable from A.Y.2009-
10 which, inter alia, clearly applicable to sports
associations and is not applicable to educational
institutions. In view of this, registration allowed to GCA
u/s 12A of the I.T. Act stands withdrawn from A.Y.2004-
05 onwards.
The Ld. Counsel has further submitted that GCA has no
contract with any party from which the funds are credited
by BCCI coupled with the fact that GCA has no
enforceable rights to receive any portion of TV rights
which have been received by BCCI and the corpus
donation received at the sweet will of BCCI may be in
furtherance of the objects of that Institution namely BCCI.
Page 6 of 205
C/TAXAP/268/2012 JUDGMENT
I am constrained to state that there is no merit in the
argument of the Id. Counsel. It goes without saying that
BCCI is a huge money spinning machine in the field of
Cricket. It is following practice of giving some portion of
its TV rights to certain Cricket Associations in the country
including the GCA. BCCI also has commercial
transactions like receipts of TV rights, IPL matches etc.
This commercial chain further percolates down to the
State Associations like GCA which shows the receipts of
TV rights as corpus donations. This accounting procedure
is incorrect as it is purely commercial receipt which falls
within the ambit and scope of newly inserted proviso to
section 2(15) of the I.T. Act w.e.f. 1/4/2009. It partakes
the character of tax avoidance device clearly attracting
the decision of Constitution Bench (5 Judges) of the Apex
Court in McDowell and Co. Ltd. Vs. CTO (1985) 154 ITR
148 (SC) which fortifies the cancellation of registration of
GCA. In this landmark case, their Lordships have held
that tax planning may be legitimate provided it is within
the framework of law. Colourable devices cannot be part
of tax planning (Per Ranganath Misra at Pg.171 of the
order).
A critical analysis of Receipts and Expenditure of GCA
shows that there Is huge generation of income of
Rs.16,37,747.54, (-) Rs.70,50,486.28 and (-)
Rs.5,91,708.94 in F.Ys. 2006-07, 2007-08 and 2008-09
respectively after meeting out only a nominal
expenditure on promotion of sports of Rs.67,76,530/-,
Rs.15,16,311/and Rs.24,90,579/ in F.Y.2006-07, 2007-08
and 2008-09 respectively. There is capital expenditure of
Rs. 11,37,64,313/~, Rs.6,63,80,215.80 and
Rs.1,99,23,701/ in F.Y. 2006-07, 2007-08 and 2008-09
respectively. It is reiterated that this capital expenditure
cannot be considered as charitable expenditure for
promotion of sports as It is simply an act of business
organization to enhance its Infrastructure and income
earning apparatus. Thus the expenditure on promotion of
sports as percentage .of total receipts has further
declined further in F.Y.2008-09. If GCA was really a
charitable organization, it should have acted as such and
instead of earning huge income, it should have ensured
as under:
(a) There should have been no ticket for watching cricket
Page 7 of 205
C/TAXAP/268/2012 JUDGMENT
matches so that more and more youth, students and
common man are able to watch these matches. Instead
there are costly tickets for general public for watching
these important Cricket Matches and true to its character
as an out and out commercial organisation.
(b) GCA should have allowed the free use of its Cricket
ground for conducting tournaments and also popularizing
the game of Cricket in the state of Gujarat for the
common man.
viii) It is further seen from the Auditor’s Report for F.Y.
2006-07 dated 20/8/07 (Page 2), 2007-08 dated 11/8/98
(Page 11) and 2008-09 dated 23/7/09 (Page 7) that TV
rights received from BCCI are amounting to
Rs.17,58,00,000/-,Rs.6,83,46,038/ and Rs.20,69,60,338/-
respectively have been shown as CORPUS. The
accounting practice followed by GCA by treating TV rights
received from BCCI as corpus is incorrect. This is purely
a commercial receipt which falls within the ambit and
scope of aforesaid proviso to section 2(15) of the I.T. Act,
1961.
From the above discussion, it is quite clear that there is
huge generation of revenue of Rs.2,52,96,831/-,
Rs.1,80,04,862/- and RS.3,98,07,027/- in F.Ys.2006-07,
2007-08 and 2008-09 respectively after meeting out
small expenditure on promotion of Sports of
Rs.67,76,530/-, Rs.15,16,311/- and Rs.24,90,796/- in
F.Ys.2006-07, 2007-08 and 2008-09 respectively giving a
percentage of expenditure on promotion of Sports at
26.78%, 8.42% and 6.25% for the aforesaid three
financial years respectively. In other words, GCA is not
spending much of the revenue generated for the
promotion of Sports. This is a clear violation of the
educative object of GCA as is seen from the
submission of the Id. Counsel above.
From the reasons mentioned above, it is quite manifestly
and palpably evident that the entire character and focus
of GCA has become totally commercial with the object of
earning revenue and it is no more a charitable
organization. As stated above, the facts and ratio of the
decision of the Uttarakhand High Court in the case of
Queens’ Educational Society (supra) call for withdrawal of
registration allowed to GCA u/s 12AA of the I.T. Act, 1961
Page 8 of 205
C/TAXAP/268/2012 JUDGMENT
even with pre-amended section 2(15) of the I.T. Act,
1961. Furthermore, a fortiori, with the amendment u/s
2(15) of the I.T. Act, 1961 by the Finance Act, 2008 w.e.f.
A.Y.2009~10, GCA has lost the status of charitable
organisation. Its activities, proprio vigore, are being
carried on commercial lines. GCA, though, was granted
registration in principle by this Office Order dated
16/4/03, did not carry out any activity which has
charitable object and also by invoking Doctrine of Just
Cause in the light of the observations of Hon Supreme
Court in 259 ITR, 1 (SC) (supra), I strongly conclude that
the activities of GCA are not genuine charities and are
being carried out with Pure commercial considerations
bereft of any element of charity. Accordingly, the
registration granted earlier vide this Office Order dated
16.4.2003 is cancelled w.e.f 16.4.2003 i.e. A.Y.2004-05
onwards.”
8.5 The assessee, being dissatisfied with the order passed
by the Director of Income Tax (Exemption), cancelling the
registration, preferred an appeal before the Income Tax
Appellate Tribunal, ‘A’ Bench, Ahmedabad. The ITAT allowed
the appeal preferred by the GCA. While allowing the appeal,
the ITAT observed as under;
“We have considered the rival submissions, perused the
material on record and have gone through the orders of
authorities below and the tribunal decision cited by the
Ld. A.R. In the present case, the registration of the
assessee was cancelled by the DIT(E) on this basis that
the main source of income of the assessee is derived
form sponsorship, bank interest, annual subscription,
income from ICC matches, income from
trophy/tournament matches, scrap sale, rental income
and sale of tickets. It is observed by him that none of
these sources of income has any nexus with the
education of the cricketers. He also observed that in fact,
the assessee has been engaged itself in transaction of
commercial nature. He also observed that the assessee
has been carrying its activities with a commercial motive.
He has decided the issue on this basis that as per the
amended provisions of Section 2(15) of the Income Tax
Page 9 of 205
C/TAXAP/268/2012 JUDGMENT
Act, 1961. In the case of Vidarbha Cricket Association
(supra) also, registration was cancelled u/s.12AA(3) of
the Act on the basis of amended provisions of Section
2(15) of the Act and under these facts, the issue has
been decided by the tribunal in favour of the assessee.
The relevant para is para 7, 8 & 9 of the Tribunal
decision which are reproduced below:
“7. In this view of the matter, we may now examine the
reasons put forth by the Commissioner in this case to
cancel registration already granted to the assessee under
section 12A of the Act. In this direction, we have carefully
perused the impugned order, wherein the Commissioner
has primarily examined the application of revised
definition of charitable purpose under section 2(15) as
amended by the Finance Act, 2003 with effect from
1.4.2009. The ultimate conclusion of the Commissioner in
paragraph 17 of the impugned order is pertinent, which
is reproduced as under-
“17. In view of the amended provisions of sec. 2(15), it Is
seen that assessee’s activities can no longer be regarded
as charitable activities. Especially the proviso to sec.
2(15) is violated by assessee and hence, it cannot be
regarded as a charitable society engaged In charitable
purposes. I have duly considered the nature of activities,
the sources of income, the activities on which
expenditure was made, surplus generated existence of
profit motive, commercial exploitation of assets, fees and
Charges collected, nature of other income and other
activities and case law before coming to a final
conclusion, the assessee Vidarbha Cricket Association
cannot be held to be an organization meant for charitable
purposes in view of the above findings.
18. In the result, the deemed registration benefit under
section 12AA as claimed and enjoyed by the assessee is
hereby withdrawn/cancelled from assessment year 2009-
10 onwards.
8. On a perusal of the aforesaid, It is clearly
established that as per the Commissioner, the activities
of the assessee do not qualify to fall within the meaning
of charitable purpose as per proviso to section 2(15)
inserted with effect from 1.4.2009. Quite clearly, as we
have observed earlier, such an objection cannot be the
Page 10 of 205
C/TAXAP/268/2012 JUDGMENT
basis of invoke section 12AA(3) so as to cancel the
registration already granted to the assessee under
section 12A of the Act. In our considered opinion
registration already granted to the assessee could not
have been re-visited by the Commissioner on the basis of
the reasoning aforesaid, since his power to cancel
registration under section 12AA(3) was confined to the
examination as to whether the activities of the assessee
society/association are genuine or that the same are not
being carried out in accordance with the stated objects.
In the light of the discussion emerging form the order of
the Commissioner in our considered opinion, action taken
by the Commissioner does not fall within the parameters
of section 12AA(3) of the Act and, therefore, the
impugned order is bad in law.
9. At this stage, we may hasten to add that we are not
commenting on the merits of the issue as to whether the
activities of the assessee fall within the meaning of
expression charitable purpose as per section 2(15) as
amended with effect from 1.4.2009. The only point
decided in the appeal is to the effect that it was not
within the scope and ambit of section 12AA(3) for the
Commissioner to have examined the applicability of the
amended section 2(15) of the purposes of invoking his
powers of cancellation provided in section 12AA(3) of the
Act. At this stage, we may also state that the issues
raised by the Commissioner in the impugned order are
not beyond the powers of the revenue to examine, so
however, the same can only be examined in the
appropriate proceedings, such as assessment
proceedings in the present case. Our decision is resting
only on the foundation that the impugned order passed
by the Commissioner is not permissible in view of the
limited powers available to him under section 12AA(3) of
the Act. However it would be open for the A.O. to
consider the issues raised in the impugned order, if so
advised, in the course of the relevant assessment
proceedings.”
5. Since the present case also, registration has been
cancelled by DIT(E) on the basis of amended provisions
of Section 2(15) of the Income tax Act,1961, we are of
the considered opinion that the action taken by DIT(E)
does not fall within the permissible limits of Section
12AA(3) of the Income tax Act, 1961 and therefore, the
Page 11 of 205
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impugned order is bad in law. We also add that we are
not commenting on the merits of the issue as to whether
the activities of the assessee falls within the meaning of
charitable purpose as per Section 2(15) of the Income tax
Act, 1961 as amended and we are only deciding this
aspect of matter that the order passed by the DIT(E) u/s
12AA(3) is bad in law. This issue raised by the DIT(E) is
not permissible in view of the limited powers available to
him U/s. 12AA(3) of the Income tax Act, 1961. However,
it would be open for the A.O. to consider all the issues
raised in the impugned order, if so advised, in the course
of relevant assessment proceedings
6. In view of our discussion in the above para, we set
aside the order of DIT(E) u/s. 12AA(3) of the Income Tax
Act, 1961 and restore the registration granted to the
assessee u/s.12A of the Income tax Act, 1961.”
8.6 The Revenue, being dissatisfied with the order passed
by the ITAT has come up with the present appeal.
Submissions on behalf of the Revenue:-
9. Mr. M.R. Bhatt, the learned senior counsel appearing for
the Revenue vehemently submitted that the ITAT committed a
serious error in disturbing the order passed by the Director of
Income Tax (Exemption), cancelling the registration of the GCA
under Section 12AA of the Act. According to Mr. Bhatt, in view
of the amendment under Section 2(15) of the Act, the DIT
(Exemption) was justified in taking the view that the activities
of the GCA cannot be termed as charitable and such activities
were commercial in nature with the element of earning profit
from the income of sale of tickets, income from the ICC,
income from hosting the international cricket matches etc. Mr.
Bhatt would submit that the DIT (Exemption) was justified in
taking the view that though the BCCI confirmed the payment
to the assessee as grant of subsidy, the same was not in the
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nature of grant. Mr. Bhatt would submit that most of the
advertisements through TV telecasting are received by the
BCCI, it being the apex body,thus the so-called subsidy given
by the BCCI is nothing but some sort of sharing of the
advertisement income on account of holding of international
test matches and one-day international matches, due to which,
the BCCI has amassed huge advertisement income. Mr. Bhatt
would submit that the nature of receipt, even though called
subsidy by the assessee, was necessarily in the nature of
income received by the activity of the assessee.
10. Referring to Section 12AA(3) read with Section 2(15) of
the Act, 1961, Mr. Bhatt submitted that even if the activities
were carried on in accordance with the arrangement with the
other party,the activities, being not charitable, it was hit by
Section 12AA(3) of the Act, 1961. Reading genuineness into
the activities of the trust and considering the objects of the
trust, Mr. Bhatt submitted that the term “genuineness” has
been used only to find out whether the institution was
charitable or not. Once the institution was held as not for
charitable purpose, Section 12AA registration came to be
rightly cancelled by the DIT (Exemption).
11. In such circumstances, referred to above, Mr. Bhatt prays
that there being merit in this appeal, the same be allowed and
the substantial question of law be answered in favour of the
Revenue and against the assessee.
Submissions on behalf of the respondent-assessee:
12. On the other hand, this appeal has been vehemently
opposed by Mr. J.P. Shah, the learned senior counsel appearing
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for the GCA. Mr. Shah would submit that no error, not to speak
of any error of law, could be said to have been committed by
the ITAT in quashing and setting aside the order passed by the
DIT (Exemption). Mr. Shah would submit that since the
inception of the GCA and the date of grant of the registration
under the Act, the objects of the Association have remained
the same and have not undergone any change to question its
genuineness. Mr. Shah would submit that the view of the DIT
(Exemption) that the assessee could not be said to be carrying
on the charitable activity as per Section 2(15) of the Act is
erroneous in law. Mr. Shah would submit that in any event all
that the Section 12AA(3) of the Act prescribes for cancellation
is the genuineness of the activities of the trust or that the
activities are not carried on in accordance with the objects of
the trust.
13. Mr. Shah took us through the various objects of the
Association and pointed out to the clear distinct words used in
Section12AA(1) and 12AA(3) of the Act as well as the first
Proviso to Section 2(15) of the Act. Mr. Shah submitted that
the grant of registration originally as early as in 2003 clearly
indicates the satisfaction of the authorities that the assessee is
a public charitable trust under Section 12AA of the Act. Mr.
Shah would submit, referring to Section12AA(3) of the Act, that
the cancellation of registration granted is permissible in law
only under the following circumstances;
(I) On the Commissioner recording his satisfaction that the
activities of the trust are not genuine or are not being carried
out in accordance with the objects of the trust or institution,;
thus unless and until the show cause notice issued contained
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the grounds and materials as prescribed under Section
12AA(3) of the Act, the question of cancellation of registration,
per se, does not arise.
14. Mr. Shah, thereafter, took us through the Circular No.11
of 2008 issued by the Central Board of Direct Taxes dated 19th
December, 2008. The circular was issued in the wake of the
insertion of the Proviso to Section 2(15) of the Act, 1961. Mr.
Shah would submit that from the reading of the circular, it is
evident that the question of rejection of registration under
Section 12AA(3) of the Act would arise only in those cases
where an entity uses this status of charitable institution with a
charitable object of general public utility as a mask or a device
to hide the true purpose and that object is nothing other then
trade, commerce or business or the rendering of any service in
relation to trade, commerce or business. Mr. Shah would
submit that in the case on hand, the Revenue has not been
able to substantiate with any cogent material to indicate the
absence of the genuineness of the activities. Mr. Shah would
submit that the erroneous misconception in the mind of the
Revenue is that by conduct of matches, the GCA could be said
to have exhibited a sense of business or commercial character.
In such circumstances, referred to above, Mr. Shah prays that
there being no merit in this appeal, the same be dismissed and
the substantial question of law, on which, this tax appeal has
been admitted, may be answered in favour of the assessee
and against the Revenue.
15. Mr. Shah in support of his submissions, has placed
strong reliance on a decision of the Madras High Court in the
case of Tamil Nadu Cricket Association vs. Director of
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Income Tax (Exemptions) & Ors., (2014) 360 ITR 633
(Mad.).
16. Mr. Bhatt, the learned senior counsel appearing for the
Revenue, in rejoinder, brought to the notice of this Court that
the decision of the Madras High Court in the case of Tamil
Nadu Cricket Association (supra), on which strong reliance is
sought to be placed on behalf of the assessee, has been
challenged by the Revenue before the Supreme Court . The
Supreme Court is yet to hear the appeal preferred by the
Revenue.
ANALYSIS
17. Having heard the learned counsel appearing for the
parties and having gone through the materials on record, the
only question that falls for our consideration is whether the
ITAT committed any error in passing the impugned order.
18. Section 12AA of the Act prescribes the procedure for
registration. As per this, on receipt of the application for
registration, the Commissioner is to call for such documents or
information from the trust or institution in order to satisfy
himself about the genuineness of the activities of the trust or
institution. The Section further empowers the Commissioner to
make such enquiry as he deems necessary in this regard. Once
the Commissioner is satisfied or convinced about the objects of
the trust or institution and the genuineness of the activities of
the trust, he has to pass an order in writing registering the
trust or institution; if he is not so satisfied, he has to pass an
order in writing refusing to register the trust or institution.
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19. Section 12AA(3) of the Act inserted with effect from
01.10.2004 under the Finance (No.2) Act, 2004 and the
amendment inserted by Finance Act, 2010, with effect from
01.06.2010 therein empowering the Commissioner to cancel
the registration granted under the stated circumstances, reads
as under:-
“Provision inserted under Finance Act, 2004:
Section 12AA(3):- Where a trust or an institution has
been granted registration under clause (b) of sub-section
(1) and subsequently the Commissioner is satisfied that
the activities of such 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 sub-section shall be
passed unless such trust or institution has been given a
reasonable opportunity of being heard.“
20. After the amendment in the year 2010, Section 12AA(3)
of the Income Tax Act reads as follows:
“Section 12AA(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 the
Commissioner is satisfied that the activities of such 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 sub-section shall be
passed unless such trust or institution has been given a
reasonable opportunity of being heard.”
21. Thus in contrast to Section 12AA(1)(b) of the Income Tax
Act, 1961, where the grant of registration requires the
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satisfaction about the objects of the trust as well as the
genuineness of the activities, for the cancellation of the
registration under Section 12AA(3), all that it is insisted upon is
the satisfaction as to whether the activities of the trust or
institution are genuine or not and whether the activities are
being carried on in accordance with the objects of the trust.
Thus, even if the trust is a genuine one i.e., the objects are
genuine, if the activities are not genuine and the same not
being carried on in accordance with the objects of the trust,
this will offer a good ground for cancellation. Thus, in every
case, the grant of registration as well as the cancellation of
registration rests on the satisfaction of the Commissioner on
findings given on the parameters given in Sections 12AA(1)
and 12AA(3) of the Act, as the case may be.
22. The registration of the trust under the Act, confers certain
benefits from taxation under the provisions of the Act. The
conditions under which the income of the trust would be
exempted under the provisions of the Act are clearly laid down
under Section 11 as well as in Section 12 of the Act. Section 11
of the Act specifically points out the circumstances under
which the income of the trust is not to be included in the total
income of the previous year of the person. So too, Section 12
of the Act on the income derived from the property held for the
charitable or religious purposes.
23. Thus, when the assessee is in receipt of income from the
activities, which fits in with Sections 11 and 12 of the Act as
well as from the sources which do not fall strictly with the
objects of the trust, would not go for cancellation of
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registration under Section 12AA of the Act on the sole ground
that the assessee is in receipt of income which does not qualify
for exemption straight away by itself. All that ultimately would
arise in such cases is the question of considering whether
Section 11 of the Act would at all apply to exempt these
income from liability. These are matters of assessment and has
nothing to do with the genuineness of the activity or the
activities not in conformity with the objects of the trust. As
rightly pointed out by learned Senior counsel appearing for the
assessee, as is evident from the reading of Circular No.11 of
2008 dated 19.12.2008, the object of the insertion of the first
proviso to Section 2(15) of the Act was only to curtail the
institution, which under the garb of ‘general public utility’,
carry on business or commercial activity only to escape the
liability under the Act thereby gain unmerited exemption under
Section 11 of the Act.
24. The sum and substance of the submissions canvassed by
Mr. J.P. Shah, the learned senior counsel appearing for the
assessee, may be summed up thus;
(I) The Gujarat Cricket Association is an affiliated member of
the BCCI which controls and regulates all the cricket activities
in India.
(ii) The only source of income for the Gujarat Cricket
Association is the receipt of some amount from the BCCI on
account of the tournament subsidy.
(iii) The Gujarat Cricket Association is a non-profit
organization and applies its surplus for the promotion of the
game of cricket, and that its objects prohibit the distribution of
any surplus amongst its members.
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(iv) All the members of the Executive Committee hold
honorary position in the Gujarat Cricket Association.
(v) The Gujarat Cricket Association has produced a number
of excellent cricketers of international repute and the same
was achieved by nurturing the talent irrespective of the cast,
creed, status, religion etc. It also provides support to one
another facet of the game of cricket, i.e. umpiring.
(vi) The Gujarat Cricket Association has a self-sustaining
model and promotes cricket in the State of Gujarat without any
support, aid, grant or subsidy from any Government.
(vii) The Gujarat Cricket Association has constructed a world
class infrastructure facility by modernizing the entire Motera
Stadium at Ahmedabad.
(viii) The Gujarat Cricket Association provides medical aid to
its players, remuneration to Coaches, Physiotherapists, Doctors
etc.
(ix) It organizes various programmes to encourage the game
of cricket.
(x) On the ground booking charges, it was submitted that
only in the special cases, it has charged exclusively for the
purpose of playing cricket matches.
(xi) The Ranji Trophy and other matches are open to public
viewing and no tickets are sold.
(xii) On the international matches, charge is levied, but the
same would be a nominal charge as it would be impossible to
manage the affairs if the viewing is free of cost.
25. The aforesaid indicates that there is no profit motive.
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26. On income from the advertisement etc., it was submitted
that the assessee has to maintain the stadium for the whole
year and whereas, the international matches are played only
once or twice in a year or may be in two years, the cost of
maintenance of the stadium is as high as compared to the
charges for transfer of interstate rights.
27. All the funds are used for building up infrastructure for
promotion of cricket and for the purpose of development of
players and for the promotion of the game and no funds are
being utilized for personal purpose of any of the members of
the Association.
28. The activities of the Association are not carried out on
commercial basis.
29. The Registration could not have been cancelled on an
erroneous ground that the activities of the assessee are
commercial in nature. For invoking Section 12AA read with
Section 2(15) of the Act, the Revenue has to show that the
activities are not in accordance with the objects of the
Association.
30. For achieving its main charitable object, if an institution
carries on some commercial activity and there is profit, it
cannot be considered to be a business activity, with profit
motive, so long as, the profit earned is utilized for the purpose
of achieving the main charitable object.
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31. The sum and substance of the submissions canvassed on
behalf of the Revenue may be summed up thus;
(i) It is only logical to hold that the activities of the assessee
are no longer falling within the definition of charitable
purposes after the amendment of Section 2(15) of the Act w.e.f
1st January, 2019.
(ii) The assessee, in the name of general public utility, is
engaged in business.
(iii) Once the activities ceases to qualify as charitable, the
same cannot be said to be genuine for the purpose of charity.
(iv) Instead of promoting and developing the game of cricket,
the assessee could be said to be promoting and developing the
game of cricket as an entertainment and the tickets of the
international matches are highly priced. The assessee, in such
circumstances, could be said to have shifted the activities of
the general public utility to commercial activity for generating
revenue.
32. We have gone through the entire judgment of the Madras
High Court in the case of Tamil Nadu Cricket Association
(supra). We are convinced with the line of reasoning assigned
by the Madras High Court and the view taken on the subject. It
is true that the decision of the Madras High Court has been
challenged before the Supreme Court. The Supreme Court has
yet to look into the issue and consider whether the view taken
by the Madras High Court is the correct proposition of law or
not?. However, as on date, the view taken by the Madras High
Court on the subject holds the field. We may quote the
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relevant observations made by the High Court of Madras.
“Going by the objects , we find that the trust falls under
the head of “any other object of general public utility”
and hence falls within the meaning of charitable purpose
under Section 2(15) of the Act. Section 2(15) of the Act
defines “charitable purpose” as it originally stood at the
time of grant of registration as under:-
” ‘charitable purpose’ includes relief of the poor,
education, medical relief and the advancement of any
other object of general public utility.”
23. Section 2(15) was amended under Finance Act,2008,
with effect form 1.4.2009 by substituting the following
provision which reads s under:
“2. Definitions. …. (15) “charitable purpose” includes
relief of the poor, education, medical relief, preservation
of environment (including waterheds, 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;)
24. Section 2(15) as it stood prior to 1983 defined
‘charitable purpose’ to include relief of the poor,
education, medical relief, and the advancement of any
other object of general public utility not involving the
carrying on of any activity for profit. The phrase “not
involving the carrying on of any activity for profit” was
omitted from the Section by the Finance Act 1983, with
effect from 01.04.1984, consequent on the amendment
to Section 11, where under profits and gains of business
in the case of charitable or religious trust and institutions
would not be entitled to exemption under that Section,
except in cases where the business fulfilled the
conditions under Section 11 (4). The Section was once
again amended by substitution in the year 2008 under
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the Finance Act, 2008, with effect from 01.04.2009,
streamlining the definition of ‘charitable purpose’,
considering the fact that taking advantage of the phrase
‘advancement of any other object of general public
utility’, number of entities operating on commercial lines
claimed exemption on their income either under Section
20(23c) or under Section 11 of the Act. Thus, to limit the
scope of this expression, Section was amended in the
year 2008 that the advancement of any other object of
general public utility shall not be a charitable purpose, if
the object involved 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. Though the
section as it stood prior to the substitution in 2008
contained no provision as in the proviso under the 2008
amendment, yet the Supreme Court held that that if the
primary or dominant purpose of a trust or institution is
charitable, another object which by itself may not be
charitable but which is merely ancillary or incidental to
the primary or dominant purpose would not prevent the
trust or institution from being a valid charity: vide CIT v.
Andhra Chamber of Commerce [1965] 55 ITR 722 (SC)
(referred to in the decision reported in (1980) 121 ITR
1(Addl. Commissioner of Income-tax v. Surat Art Silk
Cloth Manufacturers Association). Thus if the dominant
object or the primary object was charitable, the
subsidiary object for the purpose of securing the
fulfillment of the dominant object would not militate
against its charitable character and the purpose would
not be any the less charitable. The amendment in the
year 2008 made a drastic amendment to deny the status
of a charitable purpose to an institution with the object of
general public utility, having 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.
25. Proviso to Section 2(15) of the Income Tax Act states
that if the objects involve the carrying on any activity in
the nature of 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, the status of the institution will not be one
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for ‘charitable purpose’.
26. The Central Board of Direct Taxes, in paragraph 3.2
pointed out to the scope of the circular as under:-
” In such a case, the object of ‘general public utility’ will
be only a mask or a device to hide the true purpose,
which is trade, commerce or business or the rendering of
any service in relation to trade, commerce or business.
Each case would, therefore, be decided on its own facts
and no generalization is possible. Assessees, who claim
that their object is ‘charitable purpose’ within the
meaning of Section 2(15), would be well advised to
eschew any activity which is in the nature of trade,
commerce or business or the rendering of any service in
relation to any trade, commerce or business.”
27. Thus, the anxiety of the Parliament in introducing the
proviso to Section 2(15) of the Act is only to check those
institution, which attempt to gain exemption under the
cloak of a trust.
28. Section 11 of the Act states that income from
property held for religious or charitable purposes shall
not be included in the total income of the previous year.
Section 12 deals with income of trusts or institutions from
contributions. Section 12A deals with making application
for registration of the trust/association so that the said
institution will have the benefit of exemption under
Section 11 and 12 of the Act.
29. Section 12AA of the Act prescribes procedure for
registration. As per this, on receipt of the application for
registration, the Commissioner is to call for such
documents or information from the trust or institution in
order to satisfy himself about the genuineness of
activities of the trust or institution. The Section further
empowers the Commissioner to make such enquiry as he
deems necessary in this regard. Once the Commissioner
is satisfied himself about the objects of the trust or
institution and the genuineness of the activities of the
trust, he has to pass an order in writing registering the
trust or institution; if he is not so satisfied, he has to pass
an order in writing refusing to register the trust or
institution.
30. Section 12AA(3) of the Act inserted with effect from
01.10.2004 under the Finance (No.2) Act, 2004 and the
amendment inserted by Finance Act, 2010, with effect
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from 01.06.2010 therein empowering the Commissioner
to cancel the registration granted under the stated
circumstances, reads as under:-
Provision inserted under Finance Act, 2004:
Section 12AA(3):- Where a trust or an institution has
been granted registration under clause (b) of sub-section
(1) and subsequently the Commissioner is satisfied that
the activities of such 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 sub-section shall be
passed unless such trust or institution has been given a
reasonable opportunity of being heard.
31. After amendment in the year 2010, Section 12AA(3)
of the Income Tax Act reads as follows:
“Section 12AA(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 the
Commissioner is satisfied that the activities of such 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 sub-section shall be
passed unless such trust or institution has been given a
reasonable opportunity of being heard.”
32. Thus in contrast to Section 12AA(1)(b) of the Income
Tax Act, 1961, where the grant of registration requires
satisfaction about the objects of the trust as well as
genuineness of the activities, for the cancellation of the
registration under Section 12AA(3), all that it is insisted
upon is the satisfaction as to whether the activities of the
trust or institution are genuine or not and whether the
activities are being carried on in accordance with the
objects of the trust. Thus, even if the trust is a genuine
one i.e., the objects are genuine, if the activities are not
genuine and the same not being carried on in accordance
with the objects of the trust, this will offer a good ground
for cancellation. Thus, in every case, grant of registration
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as well as cancellation of registration rests on the
satisfaction of the Commissioner on findings given on the
parameters given in Section 12AA(1) and 12AA(3) of the
Act, as the case may be.
33. Registration of the trust under the Act, confers
certain benefits from taxation under the provisions of the
Act. The conditions under which the income of the trust
would be exempted under the provisions of the Act are
clearly laid down under Section 11 as well as in Section
12 of the Act. Section 11 of the Act specifically points out
the circumstances under which income of the trust is not
to be included in the total income of the previous year of
the person. So too, Section 12 of the Act on the income
derived from property held for charitable or religious
purposes.
34. Thus, when the assessee is in receipt of income from
activities, which fits in with Sections 11 and 12 of the Act
as well as from sources which do not fall strictly with the
objects of the trust, would not go for cancellation of
registration under Section 12AA of the Act on the sole
ground that the assessee is in receipt of income which
does not qualify for exemption straight away by itself. All
that ultimately would arise in such cases is the question
of considering whether Section 11 of the Act would at all
apply to exempt these income from liability. These are
matters of assessment and has nothing to do with the
genuineness of the activity or the activities not in
conformity with the objects of the trust. As rightly
pointed out by learned Senior counsel appearing for the
assessee, as is evident from the reading of Circular No.11
of 2008 dated 19.12.2008, the object of the insertion of
first proviso to Section 2(15) of the Act was only to curtail
institution, which under the garb of ‘general public
utility’, carry on business or commercial activity only to
escape the liability under the Act thereby gain unmerited
exemption under Section 11 of the Act.
35. In the decision reported in (2012) 343 ITR 23 (Bom)
(Sinhagad Technical Education Society V. Commissioner
of Income Tax (Central), Pune & Anr), the Bombay High
Court held as follows:
“As a result of the amendment, which has been brought
about by the Finance Act of 2010, Subsection (3) of
Section 12AA has been amended specifically to empower
the Commissioner to cancel a registration obtained under
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Section 12A as it stood prior to its amendment by the
Finance (No.2) Act, 1996. SubSection (3) was inserted
into the provisions of Section 12AA by the Finance (No.2)
Act, 2004 with effect from 1 October 2004. As it originally
stood, under subsection (3), a power to cancel
registration was conferred upon the Commissioner where
a trust or an institution had been granted registration
under clause (b) of subsection (1) of Section 12AA. The
Commissioner, after satisfying himself that the objects of
the trust or an 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, was vested with
the power to pass an order in writing cancelling the
registration of such trust or institution. By the Finance
Act of 2010, subsection (3) was amended so as to
empower the Commissioner to cancel the registration of
a trust or an institution which has obtained registration at
any time under Section 12A (as it stood before its
amendment by the Finance (No.2) Act, 1996). As a result
of the amendment, a regulatory framework is now sought
to be put in place so as to cover also a trust or an
institution which has obtained registration under Section
12A as it stood prior to its amendment in 1996.
………..
power under Section 12AA(3) can be exercised by the
Commissioner in respect of a trust registered prior to 1
June 2010. The mere fact that a part of the requisites for
the action under Section 12AA (3) is drawn from a time
prior to its passing namely registration as a charitable
trust under Section 12A prior to 2010 would not make the
amendment retrospective in operation. The amendment
does not take away any vested right nor does it create
new obligations in respect of past actions.”
36. As already pointed out earlier, the question as to
whether the particular income of trust is eligible for
exemption under Section 12 of the Act is a matter of
assessment and this Court had pointed out in the
decision reported in 343 ITR 300 in the case of CIT Vs.
Sarvodaya Ilakkiya Pannai, as under:-
” In order to avail the benefit of exemption under Section
11 of the Income Tax Act, 1961, a Trust can make an
application to the Commissioner for registration under
Section 12A of the Income Tax Act, 1961. On receipt of
the said application for registration of a trust or
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institution, the Commissioner should satisfy himself
about the genuineness of the activities of the trust or
institution. In order to satisfy himself, the Commissioner
may also make such enquiry as he may deem necessary
in that behalf. In the event the Commissioner satisfies
himself that the trust is entitled to registration keeping in
mind the objects, shall grant registration in writing in
terms of Section 12AA(1)(b)(i) of the Income Tax Act,
1961. In the event the Commissioner is not satisfied, he
shall refuse such registration in terms of Section 12AA(1)
(b)(ii) of the Income Tax Act, 1961. Once such a
satisfaction is arrived at by the Commissioner to grant,
such registration cannot be cancelled by following the
very same provision of section 12AA(b)(i) of the Income
Tax Act, 1961 to go into the genuineness of the activities
of the trust. However, the Commissioner is empowered to
revoke the certificate in terms of Section 12AA(3) of the
Income Tax Act, 1961. As Commissioner is empowered to
revoke the certificate in terms of section 12AA(3) of the
Income Tax Act, 1961. As per the said provision, in the
event the Commissioner is satisfied subsequently i.e.,
after registration that the activities of such trust or
institution are not genuine or not being carried out in
accordance with the objects of the trust or the institution
as the case may be, he shall pass an order in writing
cancelling the registration of such trust or institution.”
37. After the grant of registration, if the Commissioner is
satisfied subsequently that the activities of the institution
are not genuine or they are not carried on in accordance
with the trust/ institution, he could pass an order in
writing cancelling the registration of such trust or
institution.
38. Referring to Section 11 and 12A of the Act, this Court
pointed out that the act of granting registration under
Section 12AA(1) itself is a result of a satisfaction
recorded by the Commissioner as regards the
genuineness of the objects of the trust as well as the
activities of the trust and once a satisfaction is arrived at
by the Commissioner, the cancellation could only be in
terms of Section 12AA(3) of the Income Tax Act, 1961.
39. This Court pointed out that the cancellation made in
the case of assessee therein was not on the ground that
the activities were not genuine, but the activities of the
trust in publication and sale and spread of Sarvodaya
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Literature and Gandhian Ideologies was not the objects of
the trust. This Court pointed out that the cancellation was
made not on the ground that the activities of the trust
were not genuine but the activities of the trust were not
in accordance with the objects of the trust; when the
trust was registered with definite objects, carrying on
such activities would be in terms of the objects for which
registration was granted.
40. Referring to Section 12AA of the Income Tax Act,
1961, this Court has held as under:-
” 9. Under section 12AA, the Commissioner is empowered
to grant or refuse the registration and after granting
registration, would be empowered to cancel and that too,
only on two conditions laid down under Section 12AA(3)
of the Income Tax Act, 1961. Whether the income
derived from such transaction would be assessed for tax
and also whether the trust would be entitled to
exemption under section 11 are entirely the matters left
to the assessing officer to decide as to whether it should
be assessed or exempted.”
41. In the light of the law declared by this Court in the
above said decision, we do not find that the scope of
Section 12AA(3) of the Act is of any doubt for a fresh
look. It is relevant herein to point out that in two other
assessee’s case, the Income Tax Appellate Tribunal,
Ahmedabad Bench-A rendered in the case of Gujarat
Cricket Association Vs. DIT (Exemption) in
ITA.No.93(Ahd)/2011 dated 31.01.2012 and that 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, considered
the said decision reported in 343 ITR 300 in the case of
CIT Vs. Sarvodaya Ilakkiya Pannai rendered under Section
12AA(3) of the Act. On appeal before the respective High
Courts, the decision of the Income Tax Appellate Tribunal
was confirmed.
42. Leaving that aside, there being no dispute raised by
the Revenue as to the genuineness of the trust, or as to
the activities of the trust not being in accordance with
the objects of the trust, the question of cancellation
under Section 12AA of the Act does not arise. We further
hold that at the time of grant of registration on
28.3.2003, the same was made taking into consideration
the objects of the institution fitting in with the definition
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of ‘charitable purpose’ defined under Section 2(150 of the
Act and the substitution of the Section itself came only
2008, with effect from 01.04.2009. As rightly pointed out
by the learned senior counsel appearing for the assessee,
the circular clearly brings out the object of the
amendment and the amended provision has no relevance
to the case . The power regarding cancellation, hence
has to be seen with reference to the registration and the
object satisfying the definition on ‘charitable purpose’, as
it stood at the time of registration and not by the
subsequent amendment to Section 2(15) of the Income
Tax Act.
43. Learned Standing counsel appearing for the Revenue
placed heavy reliance on the proviso to Section 12AA(3)
of the Act and submitted that when the assessee has
income received from conduct of the matches, which are
commercial in nature, as had been found by the Income
Tax Appellate Tribunal, the objects of the trust ceased to
be charitable. He submitted that going by the definition
of Section 2(15) of the Act, rightly, the Commissioner
assumed jurisdiction under Section 12AA(3) of the Act to
cancel the registration. He further pointed out that for
the finding to be recorded that the activities of the trust
are not genuine, one must necessarily look into the
objects of the association; if the objects of the
association reveal commercial nature in the conduct of
matches, the association cannot be one for charitable
purpose as defined under Section 2(15) of the Act. Thus,
there could be no inhibition for the Commissioner to
assume jurisdiction to issue show cause notice calling
upon the assessee to state whether the association is
genuine or not. He further submitted that on looking at
the activities of the association, the Commissioner had
rightly come to the conclusion that the assessee’s
registration was liable to be withdrawn.
44. We do not accept the submission of learned Standing
counsel appearing for the Revenue. As rightly observed
by learned Senior counsel appearing for the assessee,
the Revenue granted registration under Section 12AA of
the Act satisfying itself as to the objects of the
association befitting the status as charitable purpose as
defined under Section 2(15), as it stood in 2003 and after
granting the registration, if the registration is to be
cancelled, it must be only on the grounds stated under
Section 12AA(3) of the Act with reference to the objects
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accepted and registered under Section 12AA, as per the
law then stood under the definition of Section 2(15) of
the Income Tax Act. Even therein, Courts have defined as
to when an institution could be held as one for
advancement of any other object of general public utility.
Thus, if a particular activity of the institution appeared to
be commercial in character, and it is not dominant, then
it is for the Assessing Officer to consider the effect of
Section 11 of the Act in the matter of granting exemption
on particular head of receipt. The mere fact that the said
income does not fit in with Section 11 of the Act would
not, by itself, herein lead to the conclusion that the
registration granted under Section 12AA is bad and
hence, to be cancelled.
45. 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
12AA registration 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 institution eligible for
registration; the object beneficial to a section of the
public is an object of “general public utility”. The Gujarat
High Court held that to serve as a charitable purpose, it is
not necessary that the object must be to serve the whole
of mankind or all persons living in a country or province;
it is required to be noted that if a section of the public
alone are given the benefit, it cannot be said that it is not
a trust for charitable purpose in the interest of the public;
it is not necessary that the public at large must get the
benefit; the criteria here is the objects of general public
utility. Thus, the Gujarat High Court held that in order to
be charitable, the purpose must be directed to the
benefit of the community or a section of the community;
the expression “object of general public utility”, however,
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is not restricted to the objects beneficial to the whole of
mankind; an object beneficial to a section of the public is
an object of general public utility; the section of the
community sought to be benefited must undoubtedly be
sufficiently defined and identifiable by some common
quality of a public or impersonal nature.
46. The above said decision (2000) 246 ITR 188 – Hiralal
Bhagwati Vs. Commissioner of Income Tax) came up on
April 18, 2000. Evidently, the Revenue has not gone on
appeal as against this judgment. In the decision reported
in (2008) 300 ITR 214(SC) in the case of Assistant
Commissioner of Income Tax Vs. Surat City Gymkhana,
reference was made about this decision and the Apex
Court pointed out that the Revenue did not challenge this
case and it attained finality.
47. It is no doubt true that the decision reported in
(2008) 300 ITR 214(SC) in the case of Assistant
Commissioner of Income Tax Vs. Surat City Gymkhana,
was in the context of Section 10(23) of the Income Tax
Act, 1961, nevertheless, the fact remains that the
understanding of the scope of the expression “general
public utility” would nevertheless is of relevance herein.
Admittedly when the assessee was granted registration,
the Revenue recorded its satisfaction that the objects are
of charitable purpose. Thus only possible enquiry under
Section 12AA of the Act for cancellation is to find out
whether the activities of the trust are genuine or in
accordance with the objects of the trust. If any of the
income arising on the activities are not in accordance
with 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.
48. As far as the unreported decision of this Court in
T.C(A).No.91 of 2013 dated 29.04.2013 (Gowri Ashram
Vs. Director of Income Tax (Exemptions) is concerned, on
which heavy reliance was placed by the Revenue, the
said decision relates to the rejection of the registration at
the threshold of the application filed for registration. So
too the decision of the Apex court reported in 315 ITR
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428 in the case of Commissioner of Income Tax Vs.
National Institute of Aeronautical Engineering Educational
Society, wherein, rejection was made on the threshold of
application for registration made by the assessee. The
decisions relied on is thus distinguishable and has no
relevance to the facts of the present case.
49. As far as unreported decision of this Court in
T.C(A).No.91 of 2013 dated 29.04.2013 (Gowri Ashram
Vs. Director of Income Tax (Exemptions) is concerned,
while rejecting the appeal filed by the assessee on the
rejection of the application for registration, this Court
observed that it was open for the assessee Society to
renew its application as and when it expanded the
objects of the Society and were approved by the
competent Court. The rejection order passed by the
Revenue was on the ground that the objects of the trust
were not charitable in character. This decision also has
no relevance to the case on hand.
50. As already noted in the preceding paragraphs,
considering the provision under Section 12AA(3) of the
Act, the cancellation or registration in a given case could
be done only under the stated circumstances under
Section 12AA(3) of the Act and in the background of the
definition relevant to the particular year of registration.
As rightly pointed out by the assessee, Revenue does not
allege anything against the genuineness of the objects of
the assessee or its activities. It rests its order only on the
ground of the assessee receiving income from holding of
matches which according to the assessee were not held
by it. Thus, as regards the question as to whether the
particular income qualified under Section 11 of the Act or
not is not the same as activity being genuine or not. In
the circumstances, we do not agree with the view of the
Income Tax Appellate Tribunal that the order passed by
the Director of Income Tax (Exemptions) was in
accordance with the provisions of the Income Tax Act,
1961. He viewed that the conduct of test matches and
ODI are in the nature of commerce or business. Though
the assessee claimed their activities for promotion of
sports, he held that the dominant feature is evident from
the huge profits received and hence the amount received
from BCCI as subsidy are commercial. As regards
conducting of IPL Matches, he pointed out that though no
services are rendered by the assessee for conducting the
matches, the ground where the matches are played are
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given for rent which is a commercial venture. The subsidy
received from BCCI included mainly TV Advertisements
sold by BCCI for the conduct of IPL and their commercial
receipts arising for IPL transactions. Therefore, the nature
of receipt was important than the name of account under
which it was accounted. Thus he viewed that the objects
and activities would no longer come within the definition
of Section 2(15) of the Act after the amendment come in
effect from 01.04.2009.
51. As rightly pointed out by the assessee, the Revenue
does not question the objects of the Association as not
genuine or are in accordance with the objects. All that
the Revenue stated was that the nature of receipt could
not be called a subsidy. Thus Revenue came to the
conclusion that the objects and activities could not come
within the meaning of ‘charitable purpose’ under Section
2(15) of the Act.
52. On going through the materials, the Income Tax
Appellate Tribunal pointed out that instead of promoting
and developing the game of cricket, the assessee was
promoting and developing cricket as an entertainment
and the tickets are highly priced; here, the assessee has
shifted the activities of general public utility to
commercial activity for generating revenue; the public
merely participate to view costly matches; hence the
conditions of Section 12AA(3) were satisfied. The Income
Tax Appellate Tribunal agreed with the Director of
Income Tax (Exemptions) that the expression ‘subsidy
from BCCI’ was a misleading nomenclature and it was a
share from the revenue collected by BCCI from the sale
of telecast rights. The surplus from IPL Season-I worked
out to 8.5% of the total receipts. It further held that 78%
of the total receipt came out of advertisement revenue.
53. The Income Tax Appellate Tribunal pointed out that
the physical aspect of the game was one in accordance
with the objects of the assessee and the activities are
genuine. However, the matches held were not in
advancement of any specific object of general public
utility. The pattern of receipt is commercial in character
and the matches conducted are not in accordance with
the objects of the Association. Thus, it rejected the
assessee’s case and held that both the conditions under
Section 12AA(3) of the Act stood attracted.
54. As seen from the observation of the Income Tax
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Appellate Tribunal, although generally it accepted the
case of the assessee that the physical aspect of the
game was one in accordance with the objects, the
quantum of receipt apparently led the Income Tax
Appellate Tribunal and the Revenue to come to the
conclusion that the activities are commercial and hence
by Section 2(15) proviso to the Act, the receipt from BCCI
could not be called as subsidy. As for the observation of
the Income Tax Appellate Tribunal that the twin
conditions stood satisfied is concerned, it is not denied by
the Revenue that at the time of granting registration, the
Commissioner had satisfied himself about the objects of
the trust and the genuineness of the activities as falling
within the meaning of ‘charitable purpose’, as it stood in
2003. The Revenue does not deny as a matter of fact
that the objects remain as it was in 2003 and there is no
change in its content to call the assessee’s object as not
genuine. There are no materials to indicate that the grant
of registration was not based on materials indicating
objects of general public utility.
55.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 in-stadia 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 the recipient of the revenue. Thus, for invoking
Section 12AA read with Section 2(15) of the Act, Revenue
has to show that the activities are not fitting with the
objects of the Association and that the dominant
activities are in the nature of trade, commerce and
business. We do not think that by the volume of receipt
one can draw the inference that the activity is
commercial. The Income Tax Appellate Tribunal’s view
that it is an entertainment and hence offended Section
2(15) of the Act does not appear to be correct and the
same is based on its own impression on free ticket,
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payment of entertainment tax and presence of cheer
group and given the irrelevant consideration. These
considerations are not germane in considering the
question as to whether the activities are genuine or
carried on in accordance with the objects of the
Association. We can only say that the Income Tax
Appellate Tribunal rested its decision on consideration
which are not relevant for considering the test specified
under Section 12AA(3) to impose commercial character
to the activity of the Association. In the circumstances,
we agree with the assessee that the Revenue has not
made out any ground to cancel the registration under
Section 12AA(3) of the Act.
56. As regards the observation of the Income Tax
Appellate Tribunal that IPL Matches and Celebrity Cricket
Matches are also being held by the Association and
hence it is an entertainment industry, we need not go
into these aspects, for, the order of the Director of
Income Tax (Exemptions) casts no doubt on the
genuineness of the objects of the trust. Hence, it is for
the Assessing Officer to take note of all facts, while
considering the same under Section 11 of the Income Tax
Act, 1961. We disapprove the approach of the Tribunal in
this regard. In the above said circumstances, we set
aside the order of the Income Tax Appellate Tribunal. “
33. The Delhi High Court, in the case of M/s. GST India vs.
DIT, Delhi, reported in 360 ITR 138, held that:
“Section 2(15) of the Income-tax Act, 1961, was
amended by the Finance Act, 2008, with effect from April
1, 2009, and a proviso was added to it. A second proviso
was inserted to section 2(15) by the Finance Act, 2010,
with retrospective effect from April 1, 2009. There are
four main factors that need to be taken into
consideration before classifying the activity of the
assesseee as “charitable” under the residuary category,
i.e.,” advancement of any other object of general public
utility” under section 2(15) of the Act. The four factors
are (i) the activity should be for advancement of general
public utility; (ii) the activity should not involve any
activity in the nature of trade, commerce and business;
(iii) the activity should not involve rendering any service
in relation to any trade, commerce, or business; and (iv)
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the activities in clauses (ii) and (iii) should not be for fee,
cess or other consideration and if for fee, cess or
consideration the aggregate value of the receipts from
the activities under (ii) and (iii) should not exceed the
amount specified in the second proviso. The earlier test
of business feeding or application of income earned
towards charity because of the statutory amendment is
no longer relevant and apposite. It is evident from
Circular No. 11 of2008 that a new proviso to section
2(15) of the Act is applicable to assessees who are
engaged in commercial activities, i.e., carrying on
business, trade or commerce, in the garb of “public
utility” to avoid tax liability. The legal terms “trade,
commerce, or business” in section 2(15) mean activity
undertaken with a view to make or earn profit. Profit
motive is determinative and a critical factor to discern
whether an activity is business, trade or commerce.
Business activity has an important pervading element of
self-interest, though fair dealing should and can be
present, whilst charity or charitable activity is the antithesis
of activity undertaken with profit motive or activity
undertaken on sound or recognised business principles.
The quantum of fee charged, the economic status of the
beneficiaries who pay commercial value of benefits, in
comparison to the fee, the purpose and object behind the
fee, etc., are several factors which will decide the
seminal question, is it business? Charitable activities
require operational/running expenses as well as capital
expenses to be able to sustain and continue in the long
run. There is no statutory mandate that a charitable
institution falling under the last clause should be wholly,
substantially or in part must be funded by voluntary
contributions. A practical and pragmatic view is required
to examine the data, which should be analysed
objectively and a narrow and coloured view will be
counter-productive and contrary to the language of
section 2(15). The second proviso applies when business
was/is conducted and the quantum of receipts exceeds
the specified sum. The proviso does not seek to
disqualify a charitable organization covered by the last
limb, when a token fee is collected from the beneficiaries
in the course of activity which is not a business but
clearly charity for which it is established and it
undertakes.”
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34. The principles of law discernible from the aforesaid two
decisions may be summed up thus:-
(a) For the purpose of cancellation of the registration u/s
12AA(3), the Commissioner should record a satisfaction that
the activities of the Trust or Institution are not genuine or that
the activities are not being carried on in accordance with the
objects of the Trust. In the absence of such a finding, the
registration granted u/s 12A or u/s 12AA cannot be cancelled.
Cancellation of registration of a charitable Trust, in a given
case, is permissible, only under the circumstances stated u/s
12AA(3) of the Act.
(b) For an assessee to be classified as charitable under the
residuary category i.e. “advancement of any other object of
general public utility” u/s 2(15) of the Act, the following four
factors need to be satisfied.
i) Activity should be for the advancement of the ‘general
public utility’.
ii) Activity should not be in the nature of trade, commerce
or business.
iii) Activity should not involve rendering of services in
relation to any trade, commerce or business.
iv) Activities in Clauses b and c above, should not be for
fees, cess or other consideration, the aggregate value of which
should not exceed the amount specified in the Second Proviso
to S.2(15).
(c) The earlier test that if the income so collected, is applied
towards the charitable activity, then the trust cannot be held
as non-charitable, is no longer relevant after the statutory
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amendment.
(d) The scope of the term “activity in the nature of trade,
commerce or business” would mean that:
i) It is undertaken with a profit motive;
ii) The activity is continued on sound and recognized
business principles and is pursued with reasonable continuity;
iii) There should be facts and other circumstances which
justify and indicate that the activity undertaken is in fact, in
the nature of business;
iv). The five tests propounded in the case of Customs and
Excise Commissioner vs. Lord Fisher (1981) STC 238 and the
propositions in the case of CST vs. Sai Publication Fund 258 ITR
70 (SC) apply.
v). Business activity is an important prevailing element of self
interest.
(e) From a perusal of the Circular no.11 of 2008 issued by the
CBDT, it is clear that the new Proviso of S.2(15) of the Act, is
applicable to the assesses who are engaged in commercial
activities i.e. carrying of trade, commerce or business in the
garb of “public utility” to avoid tax liability, and where the
object of the “general public utility” is only a mask or device to
hide the true purpose, which was “trade, commerce or
business.”
(f) Charitable activity is the anti-thesis of activity having an
element of self interest. Charity is driven by altruism and
desire to serve others, though the element of self preservation
may be present. For charity, benevolence should be
omnipresent and demonstratable but it is not equivalent to self
sacrifice and abnegation.
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(g) The antiquated definition of the term charity, which entails
giving and receiving nothing in return is outdated.
(h) Enrichment of oneself or self-gain should be missing and
the predominant purpose of the activity should be to serve and
benefit others, the mandatory features being, selflessness or
illiberal spirit.
(i) The quantum of fee charged, the economic status of the
beneficiaries who pay, commercial values in comparison to the
fee, purpose and object behind the fee etc. are several factors
which decide the seminal question, is it business?
(j) The Revenue cannot take a contradictory stand that, the
assessee carries on charitable activity under the residuary
head “general public utility”, but, simultaneously record the
said activity as business.
(k) There is no statutory mandate that a charitable Institution
falling under the residuary Clauses, should be wholly,
substantially or in part be funded by voluntary contributions.
(l) A pragmatic view is required to be taken while examining
the data and the same should be analysed objectively. A
narrow and coloured view may prove to be counter productive
and contrary to S.2(15) of the Act.
(m) Accumulation of money/funds over a period of two to three
years may not be relevant in determining the nature and
character of the activity and whether the same should be
treated indicative of profit motive i.e. the desire or intention to
carry on business or commerce.
(n) The so called business activities, when intrinsically woven
into and is part of the charitable activity undertaken, the
business activity is not feeding charitable activities, as they
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are integral to the charity/charitable activity.
(o) What has to be seen is, as to what is the core/main activity
of the assessee. The predominant activity shall be the basis of
the decision making.
ANALYSIS
35. It appears from the line of reasoning adopted by the
Assessing Officer and the CIT(A) that both are absolutely
mesmerized or rather hypnotized by the word “BCCI” The
corpus with the BCCI may be huge and the BCCI may be
indulging in commercial transactions like TV rights, IPL
matches etc. However, we fail to understand what has the
BCCI to do directly with the assessee. The assessee is a
registered charitable trust. It has its own objects. It has its
own activities for the purpose of promoting the game of
cricket, or in other words, imparting education in the game of
cricket. The BCCI may ask the Association to host a cricket
match at the international level once in a year or two.
However, that by itself, is not sufficient to draw an inference
that the assessee-Association is indulging in commercial
activity with an element of profit motive.
36. We are quite amazed with some of the findings recorded
by the Assessing Officer as well as the CIT(A). One of the
findings recorded is that the Association should not sell tickets
for watching the cricket matches. Are the authorities trying to
convey that the Association should not sell tickets even when it
comes to international matches. How does the Revenue expect
the Association to distribute the tickets in such circumstances.
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37. Having regard to the materials on record, we are
convinced that the main and predominant object and activity
of the assessee is to promote, regulate and control the game
of cricket in the State of Gujarat. The undisputed fact is that
over a period of years, this activity has been recognized by the
Income Tax Department as a charitable activity and the
registration under Section 12A of the Act was granted to the
assessee. A number of assessment orders under Section
143(3) were passed, wherein the assessee was held eligible for
the exemption under Sections 11 and 12 of the Act. It appears
that it is only after the Proviso came to be inserted that, all of a
sudden, the department now believes that the activity of the
assessee is commercial in nature and no longer charitable. It
is difficult for us to take the view that the assessee could be
said to be carrying on “trade, commerce or business” under
the garb of the activity being “general public utility”. Merely
because an activity is performed in an organized manner, that
alone, will not make such activities as business/commercial
activity. The profit motive is one essential ingredient which is
apparently missing in the case on hand. In carrying out an
activity, one may earn profit or one may incur loss. But for
making it as a business activity, the presence of the profit
motive is sine qua non.
38. In the case on hand, the ultimate beneficiary is either the
cricketer or the game of cricket. The assessee is not charging
any fees or revenue from the cricketer who is the ultimate
beneficiary. Thus there is no quid pro quo relationship with the
cricketer. The assessee is promoting cricket on the charitable
basis as far as real beneficiary is concerned. Whenever the
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revenue is earned, the same is not on commercial lines and
the same could be said to be earned without any commercial
attributes. The revenue is generated for recovering the cost, at
least partly if not in full.
39. Mr. Shah also invited our attention to the observations
made by this High Court in the case of Commissioner of
Income Tax vs. Sarabhai Sons Ltd., (1983) 143 ITR 473
(Guj.). Mr. Shah seeks to rely upon this decision, more
particularly, the observations we shall quote hereinafter to
make good his submission that the view taken by the Madras
High Court should be accepted in conformity with the uniform
policy as laid down in the Income Tax matters. We quote the
observations upon which Mr. Shah would like to rely upon;
“Under the circumstances, as observed by Chagla, CJ, in
Maneklal Chunilal & Sons Ltd. vs. CIT (1953) 24 ITR 375
(Bom.) in conformity with the uniform policy, which has
been laid down in income tax matters, whatever our
view may be, we must accept the view taken by the
another High Court on the interpretation of the section of
a statute which is in all India statute. Similar view has
expressed by the Bombay High Court in Ramanlal
Amarnath (Agency) Ltd. vs. CIT (1973) 91 ITR 250, while
following a decision of this Court in Baroda Traders Ltd.
vs. CIT (1965) 57 ITR 490. Even though, we may be
persuaded to take a different view, we are not inclined to
do so in view of the settled practice referred to in the
decision of the Madras High Court and the decision of
Bombay High Court and the Madhya Pradesh High Court
adverted to above. Therefore, respectfully following the
decisions of the Madras High Court and the Madhya
Pradesh High Court, we must answer the third question
referred to us also in the affirmative and against the
revenue.”
40. However, Mr. Bhatt would submit, by placing reliance on
the decision of this Court in the case of N.R. Paper & Board
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Limited vs. Deputy Commissioner of Income Tax, 1998
(234) ITR 733 that while the decision of any other High Court is
entitled to highest esteem and respect by this Court, the
system of law should not be evolved by such mechanical
process of following the dictum as laid. According to Mr. Bhatt,
if it becomes impossible to agree with the decisions of the
other High Courts, this Court should be free to give its reasons
which may not coincide with the conclusions reached in the
persuasive precedent relied upon. Mr. Bhatt seeks to rely upon
the following observations of this Court, as contained in para-
27;
“27. While the decision of any other High Court is entitled
to our highest esteem and respect, the constitutional
powers of the High Court in its writ jurisdiction cannot be
reduced to simply matching the colours of the case at
hand against the colours of many sample cases spread
out upon its desk and accept the sample nearest in
shade as the applicable rule. The system of law cannot
be evolved by such mechanical process and no judge of a
High Court worthy of his office, views the function of his
place so narrowly. If that were all there was to our calling
there will be little of intellectual interest about it.
The choice of a path for us cannot be made so blind and
unintelligent, to be followed without a survey of the route
which has been travelled and of the place where it would
lead. Necessarily therefore, reasons that are given in the
decisions of other High Courts relied upon for the
petitioners, which have great persuasive value as
precedent are required to be considered and the
consequences are to be noted and if it becomes
impossible to agree with them, or if there are no reasons
at all and only announcements of legal precepts, the
court would be free to give its reasons, which may not
coincide with the conclusions reached in the persuasive
precedent relied upon. The decisions of any High Court
are after all not intended to be “gag orders” for other
High Courts and do not have the effect of freezing judicial
thinking on the points covered by them. This is why in
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Arvind Boards and Paper Products Ltd. [1982] 137 ITR
635 (Guj), the court after reviewing the authorities on the
subject, clearly spelt out exceptions, such as where the
decision is sub-silentio, per incuriam, obiter dicta or
based on a concession or takes a view which it is
impossible to arrive at, etc., which would justify the High
Court from taking its own view and not just follow the
precedent which may otherwise have a persuasive value,
though not binding.”
41. Mr. Bhatt, the learned senior counsel appearing for the
Revenue may be right in his submission that if this Court is not
persuaded to follow the view taken by the High Court of
Madras in the case of Tamil Nadu Cricket Association (supra),
then by only following the principle as laid down in the case of
Maneklal (supra), this Court may not adopt or follow the view
of the High Court of Madras for the purpose of consistency.
We may only say that having regard to the materials on
record, we are not persuaded to take a different view than the
one taken by the High Court of Madras. Therefore, we are not
going much into the issue as regards the dictum as laid down
in Maneklal (supra). We find the view taken by the ITAT in its
impugned order quite reasonable and in accordance with law.
The Tribunal, in its impugned order, has made itself very clear
that it was not expressing any opinion on the merits of the
issue as to whether the activities of the GCA would fall within
the meaning of charitable purpose in accordance with Section
2(15) of the Act as amended. The ITAT has also clarified that
the issue with regard to registration under Section 12AA of the
Act can be examined in the assessment proceedings.
42. In the aforesaid view of the matter, we are not convinced
with the case put up by the Revenue. It is not the case of the
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Revenue that the objects of the Trust are not charitable, but
the case of the Revenue is that the activities undertaken by
the Association are not charitable in nature.
43. In the result, this appeal fails and is hereby dismissed.
The substantial question of law, as formulated by this Court, is
answered in favour of the assessee and against the Revenue.
Tax Appeal No.317 of 2019
44. We shall now take up the Tax Appeal No.317 of 2019.
This tax appeal under Section 260A of the Income Tax Act,
1961 is at the instance of the Revenue and is directed against
the order passed by the Income Tax Appellate Tribunal,
Ahmedabad, Bench ‘D’, Ahmedabad in the ITA
No.1257/Ahd/2013 for the A.Y.2009-10. This tax appeal came
to be admitted by this Court vide order dated 15th July, 2019 on
the following substantial questions of law;
“[A]. Whether, on the facts and in the circumstances of
the case the Appellate Tribunal was justified in allowing
the benefit of Sections 11 and 12 when the Assessing
Officer has clearly brought on record that assessee is
covered under the proviso to Section 2(15) r.w.s 13(8) of
the Act?
[B]. Whether, on the facts and in the circumstances of
the case the Appellate Tribunal has erred in holding that
the assessee is not covered under the proviso to section
2(15) when the Officer has clearly brought on record that
assessee is engaged in the activity of “advancement of
objects of general public utility?”
[C]. Whether on the facts and circumstances of the case
and in law, the Appellate Tribunal was justified in deleting
the addition made in respect of corpus donations
u/s.11(l)(d) of the Act without appreciating that the
assessee failed to discharge its onus by not bringing
anything on record in support of its claim of corpus
donation?”
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[D]. Whether on the facts and circumstances of the case
and in law, the Appellate Tribunal was justified in deleting
the addition made on account of infrastructure subsidy of
Rs.2,13,34,033/-, treating it as capital receipts without
appreciating the findings of the Assessing Officer?”
45. We may borrow the facts giving rise to this appeal from
the memorandum of the appeal. The pleadings in the memo of
the appeal are as under;
“(A) In the present case, the assessee filed its return of
income on 14/09/2009 declaring total loss of
Rs.3,45,54,247/-. The summary assessment u/s.143(1) of
the Act was resulted in Refund of Rs.46,14,500/-. The
assessment u/s.143(3) of the Act was completed on
30/12/2011 determining total income at
Rs.22,77,02,663/-.
(B) Disallowance of benefit of section 11 of the Act.
1) During the assessment proceedings, the Assessing
Officer observed that the activity of the assessee was
held as in the nature of trade, business or commerce for
a cess or fees in the form of tickets with profit motive
and the receipt from the BCCI in the form of TV rights
was not voluntary contribution but price paid for hosting
cricket tournament on assessee’s stadium and therefore,
it was not educational activity of the assessee. The
activity of the assessee was running of its business of
entertainment of the people at large for a fee of cess by
arranging cricket tournament at various levels. Further,
the DlT(E), Ahmedabad had passed speaking order
considering all the relevant legal and actual position
cancelling the registration u/s.12AA(3) of the Act on
06/12/2010 w.e.f. A.Y. 2004-05 onwards. The Assessing
Officer relied upon the decision of Hon. Supreme Court in
the case of Sole Trustee Loka Shikshana Trust Vs CIT
(1975) 101 ITR 234 (SC). The Assessing Officer held that
the BCCI is the richest Sport Authority in India. Arranging
national and international level cricket tournament and
its allocation to various affiliated Associations like the
assessee and preparation for conduct of such cricket
matches, selection of players, coaches, venue, TV
Broadcasting rights, Audio & Video Publicity, sale of
tickets, issue of license for parking lots, sale of edibles
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and drinking water in stadium during tournament, five
star arrangement of lodging and boarding for players,
arrangement of security for players and in stadium a lot
of other ancillary squarely fit in the definition of trade or
services for profit as defined by the Apex Courts.
Therefore, the Assessing Officer held that the activities
carried out by the assessee were in the nature of
advancement of any other object of general public utility.
Accordingly, the Assessing Officer had invoked provisions
of section 2(15) of the Act and thereby denying benefit of
section 11(1)(a) or 11(1)(b) of the Act.
2) Being aggrieved, the assessee filed appeal before
CIT(A). The CIT(A) had held that the assessee was not
doing any charitable/educational activity by promoting
game of cricket but it was in the business of
entertainment of people at large by arranging/hosting
national and international levels cricket tournaments and
thereby received approximately 3 crores which indicate
that the activities of the assessee was carrying out
activities in the nature of trade, commerce or business.
The C1T(A) relied on the decision of Hon. Supreme Court
in the case of Sole Trustee Loka Shikshana Trust Vs CIT
101 ITR 234 (SC) and Hon. High Court of Calcutta in the
case of Cricket Association of Bengal Vs CIT 37 ITR 277
(Calcutta). The C1T(A) held that with the introduction of
Section 13(8) of the Act w.e.f. 01/04/2009 (Finance Act,
2012) it was clear that the assessee was covered by the
proviso to section 2(15) of the Act. Accordingly, the
C1T(A) had dismissed the appeal of the assessee.
3) Being aggrieved, the assessee preferred appeal
before the Appellate Tribunal. The Appellate Tribunal
relied on co-ordinate bench’s decision in the case of
Hoshiarpur Improvement Trust Vs ACIT (2015) 155 ITD
570 (Asr) which were approved by the Hon. Punjab &
Haryana high Court in the case of C1T(E) Vs
Improvement Trust Monga in TA No. 147 of 2016
reported as Tribune Trust Vs C1T(2017) 390 ITR 547
(P&H). Further, Appellate Tribunal has relied on the
decision of this Hon’ble Court in the case of Sabarmati
Gaushala Trust and held that accrual of profit cannot be
held that the assessee is not covered by the section
2(15) of the Act. The receipts in the hands of the cricket
associations are nothing but appropriation of profits and
that are not taxable. Further, the Department has not
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been able to point out a single object of the assessee
which is in the nature of trade, commerce or business.
On perusal of the annual reports and annual financial
statements of the assessee, the objects of the assessee
exist and operate purely for the purpose of promoting
cricket. The Appellate Tribunal held that the assessee
cricket associations were not really engaged in the
activities in the nature of trade, commerce or business.
Accordingly, the Appellate Tribunal held that the
assessee has covered by the section 2(15) of the Act and
thus the assessee is entitled to relief u/s.11l of the Act.
4) The decision of the Appellate Tribunal is erroneous.
It is seen that control of cricket is in a few powerful hands
and that cricket is completely monopolized by the Board
of Cricket Control in India. The BCCI is not a rank outsider
for these cricket associations but the apex bodies of
these cricket associations. These cricket associations act
in tandem with the BCCI and the cricket is pursued in as
commercial a manner as it can be pursued auction of
players for playing matches and the format of the
matches being improvised as per the requirements of
commercial interests. It is submitted that cricket as it is
pursued by the BCCI and its affiliates is pure
entertainment, and these are the dictates of its
entertainment value that decides the form and
presentation of cricket. If it is a noble activity of
education in a gentleman’s sport, where is the need of
auctioning of the players. The commerce is glaring in
each facet of cricket today. It is also submitted that even
imparting cricket coaching is a big business rather than a
selfless education. What is being pursued by these
associations is pure commercial exploitation of cricket
and that is the reason that the profits of these
associations needs to be brought to tax. The financial
relationship between the assessees and the BCCI cannot
be without quid pro quo between the BCCI and these
cricket associations, or else why would anyone share
such huge amounts with cricket associations. BCCI
organizes the events on pure commercial lines, makes
huge monies on organizing these events, and share the
monies with the local cricket associations. What the
associations get is on account of fruits of the commercial
operations, and that precisely is the reason these monies
should be brought to tax. Learned Commissioner then
takes us through the legislative amendments to Section
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2(15) and links the same to how the sports have been
exploited commercially in the last few decades. It is an
admitted position that the cricket associations were all
along treated as involved in “advancement of an object
of general public utility” and, effective 1st April 2009, the
proviso to Section 2(15) came in force which made it
clear that if the activities of such institutions is in the
nature of trade, commerce or business or rendition of
services, for a cess, fee or any other consideration, to the
business entities. The principle is clear. When you are
here to make money from such activities on commercial
lines, in the garb pursuing advancement of an object of
general public utility, you may as well pay tax on the
earnings from such activities. There is no dispute that the
cricket is now biggest source of making money and,
therefore, the income of the entities organizing cricket
events should also be taxed. It is pertinent to mention
that as per the CBDT Circular No.395 dated 24/09/1984,
it was held that promotion of sports and games is
“advancement of objects of general public utility’. Thus,
in the instant case, the Assessee is clearly engaged in an
activity that is of “advancement of objects of general
public utility”. Since the Assessee is covered by the last
limb of the definition of Section 2(15), now it is to be
seen whether the conditions in the proviso 1 of the
Section 2(15) are applicable to the facts of the case. It is
very clear from the audited accounts of the assessee that
it earns income out of sale of tickets, sale of space, A/C
Cabin Ticket sale etc. out of the cricket matches
conducted at the grounds of cricket association which is
nothing but a business activity carried out by the
Assessee. Thus, it is clearly evident that the Assessee is
engaged in business activity, thereby satisfying the
conditions prescribed in the proviso 1 to Section 2(15) of
the I.T Act. Since the gross receipts of the Assessee
exceed the amount decided in the provisos, the
provisions of the second proviso to Section 2(15) of the
I.T Act are also satisfied. Thus, the Assessee is clearly
covered by the provisions of Section 2(15) read with the
proviso 1 & 2 to the said section.
[C] Disallowance of corpus donation.
(1) During the assessment proceedings, the Assessing
Officer observed that the assessee claimed to have been
received amount of Rs.20,69,60,338/being corpus from
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BCCI and sponsorship money of Rs.20,00,000/ from
Reliance Industries Ltd. The assessee was asked to
submit documentary evidences to support its claim for
corpus donation. The assessee failed to discharge its
onus either by bringing anything on records or producing
representative of BCCI as its witness in support of its
claim of corpus donation that can be considered as
corpus donation on instruction of BCCI. The auditor was
also of the opinion that the amount of Rs.20,69,60,338/
considered as corpus was not in consonance with
provisions of law and facts of the case. The Assessing
Officer held that the assessee had not complied with the
requirements of section 11(1)(d) of the Act. Accordingly,
the claim of corpus donation of Rs.20,69,60,338/- of the
assessee was rejected by the Assessing Officer.
2) Being aggrieved, the assessee filed appeal before the
CIT(A). The CIT(A) held that no written specific direction
was available with the respective amounts for the
respective A.Ys. Accordingly, the CIT(A) held that the
Assessing Officer has rightly treated the donation
received from the BCCI as income of the assessee and
thereby had confirmed the addition of Rs.20.69,60,338/-.
3) Being aggrieved. the assessee preferred appeal before
the Appellate Tribunal. The Appellate Tribunal held that
there was specific confirmation to the effect that
amounts were corpus donations. Further, on perusal of
the BCCI resolution No. 5 which specifically stated that
the TV subsidies should henceforth be sent to the
member association towards corpus funds. Therefore,
any payments made by the BCCI, without a legal
obligation and with a specific direction that shall be form
corpus fund. Thus, the condition u/s.l 11(1)(d) of the Act
are satisfied. The Appellate Tribunal has relied on the
decisions in assessee’s own case in orders for A.Ys. 2004-
05 to 2007-08 and thus directed the Assessing Officer to
treat the TV subsidy of Rs.20,69,60,338/received from
BCCI as a corpus donation.
4) The decision of the Appellate Tribunal is erroneous. As
per provisions of section 11(1)(d) of the Act voluntary
contributions with a specific direction that can be used as
a corpus donation. However, in the instant case there is
no specific direction from the BCCI to treat the said
amounts as towards the ‘corpus fund’. If the intention of
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the donor was to donate this amount towards the ‘corpus
fund’ of the assesee, then it has to be specifically
mentioned. In the absence of written direction, a
particular donation cannot be considered as ‘corpus
donation’. In this case, as the specific direction was
clearly missing, said receipt of subsidy had to be
considered as the income of the assessee trust and it
cannot be exempt u/s.11(1)(d) of the Act.
[D] Disallowance of infrastructure subsidy
1) During the assessment proceedings, the Assessing
Officer observed that the activity of the assessee was
held as in the nature of trade, business or commerce for
a cess or fees in the form of tickets with profit motive
and the receipt from the BCCI in the form of TV rights
was not voluntary contribution but price paid for hosting
cricket tournament on assessee’s stadium and therefore,
it was not educational activity of the assessee. The
activity of the assessee was running of its business of
entertainment of the people at large for a fee of cess by
arranging cricket tournament at various levels. Further,
the DIT(E), Ahmedabad had passed speaking order
considering all the relevant legal and actual position
cancelling the registration u/s.12AA(3) of the Act on
06/12/2010 w.e.f. A.Y. 2004-05 onwards. On perusal of
Income & Expenditure A/c., the assessee had received
amount of Rs.3,98,07,028/-. The Assessing Officer relied
upon the decision of Hon. Supreme Court in the case of
Sole Trustee Loka Shikshana Trust Vs CIT (1975) 101 ITR
234 (SC). The Assessing Officer held that the BCCI is the
richest Sport Authority in India. Arranging national and
international level cricket tournament and its allocation
to various affiliated Associations like the assessee and
preparation for conduct of such cricket matches,
selection of players, coaches, venue, TV Broadcasting
rights, Audio & Video Publicity, sale of tickets, issue of
license for parking lots, sale of edibles and drinking water
in stadium during tournament, five star arrangement of
lodging and boarding for players, arrangement of
security for players and in stadium a lot of other ancillary
squarely flt in the definition of trade or services for profit
as defined by the Apex courts. Therefore, the Assessing
Officer held that the activities carried out by the
assessee were in the nature of advancement of any other
object of general public utility. Accordingly, Assessing
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Offlcer had invoked provisions of section 2(15) of the Act
and thereby denying benefit of section 11(1)(a) or 11(1)
(b) of the Act. The assessee, during the year under
consideration, had received infrastructure subsidy from
BCCI of Rs.3,52,86,521/- and had utilized of
Rs.1,39,52,488/- by way of payment of District Cricket
Association. Therefore, differential amount of
Rs.2,13,34,033lwas added to the total income of the
assessee.
2) Being aggrieved, the assessee preferred appeal
before CIT(A). The CIT(A) held that the assessee was not
an educational institution within the meaning of section
2(15) of the Act. The CIT(A) partly allowed the appeal of
the assessee.
3) Being aggrieved, the assessee preferred appeal before
Appellate Tribunal. The Appellate Tribunal held that the
Assessing Officer has not justified in holding that
infrastructure subsidy as revenue in nature. The assessee
was made claim for subsidy only after the expenditure
having been incurred which is relatable to capital assets.
The infrastructure subsidy was given to the assessee for
the reimbursement of 50% of expenditure which was
incurred on infrastructure related to the capital assets
and therefore it was not revenue receipt. Accordingly,
the Appellate Tribunal has deleted the addition of
Rs.2,13,34,033/-.
4) The decision of the Appellate Tribunal erroneous. In
the cases of trusts, the trust is eligible to claim both
revenue as well as capital expenses as application of
income, so all expenses claimed as application of income
should be first treated as income and be routed through
the profit and loss accounts.
The tax effect involved is Rs.7,72,84,442/- which is above
the prescribed monetary limit under the Board’s Circular
No.03/2018 dated 11/07/2018.”
46. The assessee is a Society registered under the Societies
Registration Act, 1860. It came to be registered with the
Registrar of Societies vide the Registration Certificate dated
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10th July, 1984. The assessee was granted registration under
Section 12AA of the Act, 1961 vide order dated 16th April, 2003
by the then DIT (Exemption), Ahmedabad. The registration
under Section 12AA of the Act was granted on the premise that
the assessee-Association is carrying on the charitable activities
like promotion of sports.
47. The objects of the assessee-Association are as follows;
“1. To control, supervise, regulate or encourage,
promote and develop the game of cricket in the area
under the jurisdiction of the Association. The Association
can also undertake any other and all activities which may
be beneficial to the Association.
2. To create, foster and maintain friendly and cordial
relationship through sports tournaments and
competitions connected therewith and to create a
healthy spirit through the medium of sports in general
and cricket in particular.
3. To instill the spirit of sportsmanship in students
attending schools, colleges and members of other
institutions and other citizens and to foster the spirit of
sportsmanship and instill the ideal of cricket and educate
them in the same.
4. To maintain a panel of approved Umpires who
qualify themselves by passing the prescribed tests for
purpose of officiating as such in the matches conducted
by the Association.
5. To select teams to represent the Association in any
tournaments, championship or fixture local or otherwise.
6. To arrange, supervise, hold, encourage and finance
visits of teams.
7. To arrange, and/or manage among other things
league and/or any other tournaments.
8. To promote and hold either alone or jointly with any
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other Association. Club or persons, sports, meetings,
competitions and matches and to offer, give or distribute
towards prizes, medals and awards.
9. To make provision for coaching deserving persons
in the various departments of the game in general and
cricket in particular.
10. To impart physical education through the medium
of Cricket and take all steps to assist to the citizens to
develop their physique.
11. To organize matches in aid of public charities and
Relief Funds.
12. To lay out such ground or grounds for playing the
game and for other purposes and to provide pavilion,
stadiums, other conveniences and amenities in
connection therewith.
13. To introduce a Scheme of professionalism and to
implement the same.
14. To start and maintain a journal devoted to sports in
general and cricket in particular.
15. To maintain a library of books, periodicals and other
literature on sports i.e. general and cricket in particular
and to start journal or journals on sports in general
and/or cricket in particular.
16. To engage person or persons and professional
cricketers, coaches, umpires, groundsmen and to pay
remuneration or honorarium to them.
17. To start, sponsor and/or to subscribe to any fund for
the benefit of players, umpires, coaches, groundsmen,
employees or their families.
18. To collect funds for the purpose of the Association
and to utilize such in such a manner as the Managing
Committee of the Association consider desirable for the
fulfillment of the objects of the Association.
19. To hold and maintain the Laws of Cricket and The
Rules and Regulations of the Board of Control for Cricket
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in India.
20. To take such action as may be necessary to
coordinate the activities of affiliated district Cricket
Association institutions and their members in to the
Association and amongst themselves.
21. To stage or sponsor and/or to subscribe funds to
stage a match for benefit of the Cricketers or persons
who may have rendered service game of cricket or for
their families or to denote towards the develop
promotion of the game.
22. To appoint representative or representatives on the
Cricket conference and other conferences, seminars,
talent events, symposiums connected with the game of
cricket.
23. To invest moneys and funds of the Association in
such a manner as may be decided upon by the Managing
Committee of the Association capable of being
conveniently carried on in connection with objects of the
Association.
24. To carry on any other activity which may seem to
the Association capable of being conveniently carried on
in connection with objects of the Association.
25. To carry on any other activity for promoting the
objects of the Association which are calculated directly or
indirectly, to protect and/or to enhance the value of its
properties or its rights and is conductive to the objects of
the Association.
26. To acquire movable and immovable property and to
apply both the capital and income thereof and the
proceeds of the sale or mortgage thereof, for or towards,
ail or any of the objects of the Board.
27. To start, assist, encourage or promote for training
Cricketers and to provide for such amenities and
facilities, usually provided in boarding schools.
28. To appoint Committee or Committees from time to
time to organize matches for the achievement of the
objects of the association and to utilize the net proceeds
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thereof towards the implementation of these objects.
29. To purchase, repair, make, supply, take on lease,
hire or otherwise acquire any movable and/or immovable
property, rights or privileges necessary or convenient for
the purpose of carrying out the objects of the Association
on such terms and conditions as the Managing
Committee may at its discretion deem fit.
30. To sell, mortgage, exchange, lease, dispose of or
otherwise deal with, all or any part of the property or
funds of the Association it may at its discretion deem fit.
31. To borrow, whenever necessary by and mode with
or without security, with or without interest and to
purchase, redeem or pay off any such securities.
32. To employ, appoint executive secretaries and
assistant secretaries, clerks, managers, coaches,
professional cricketers, umpires, scorers, statisticians,
groundsmen, peons, servants and other service
personnel and staff and to pay to them and other
persons in return for their services to the Association
salaries, wages, gratuities, pensions, honorariums,
compensations, any ex-gratia payments and/or provident
funds, other funds and to remove or dismiss such
employees.
33. To promote such benevolent or other funds and to
donate such sum or sums for
1. such causes as would be deem ed fit by the
Association conducive to the promotion of the game of
cricket;
2. the benefit of a Cricketer or his widow or children as
the Association may deem fit;
3. any other person who has served cricket or his widow
or his children as the Association considers fit.
34. Generally to do all such other acts and things as
may seem to the Association to be convenient and/or
conductive to the carrying out of the objects of the
Association.
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48. The Assessing Officer took the view that the activities of
the Association cannot be termed as “charitable activities”.
The Assessing Officer took the view that the objects of the
trust may be to promote the game of cricket, but the activities
are covered by the Proviso to the fourth limb of Section 2(15)
of the Act. The Assessing Officer also took the view that the
activities of the Association cannot even be termed as the
educational activities. In short, the Assessing Officer took the
view that the Association is engaged in business. It derives
profit from its so-called charitable activities. In such
circumstances, according to the Assessing Officer, the
Association is not entitled to seek exemption under Section 11
of the Act. The Assessing Officer, in its order, has observed as
under;
“iv) The legal position as contained in the amended
definition of ‘Charitable Purpose’ u/s 2(15) of the Act and
explained vide Clause 4.3 of CBDT Circular No. 1 of 2009
dt. 27-05-2009 on I.T. Act 2008, Finance Minister’s
Speech, the Notes on Clauses, Memorandum Explaining
the provisions of Finance Bill, CBDT circular No. 11 of
2008 dt. 19/12/2008, as well as the alternative
submission of the assessee is considered but not found
acceptable for the reasons stated below.
(a) The assessee has claimed that it is an Educational
Institute. The claim of the assessee is not acceptable in
view ‘Education’ defined by H’ble Apex Court has in the
case of Sole Trustee Loka Shikshana Trust Vs.
Commissioner of Income Tax [1975] 101 ITR 234(SC) has
defined ‘Education’ as under:
”Per Khanna J. The sense in which the word ‘education
has been used in section 2(15) is the systematic
instruction, schooling or training given to the young is
preparation for the work of life. It also connotes the
whole course of scholastic instruction which a person has
received The word ’education’ has not been used in that
wide and extended sense, according to which every
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acquisition of further knowledge constitutes education.
What education connotes in that clause is the process of
training and developing the knowledge, skill, mind and
character of students by normal schooling.”
The so called “Educational Activity” of the assessee is not
the education activity but an activity directed at to keep
the flow of future cricketers uninterrupted for smooth
running of its business of entertainment of the people at
large for a fee or cess by arranging cricket tournament at
various levels by it as well as hosting them arranged by
BCCI, irrespective of the use of money. It is pertinent to
note that the assessee is imparting only cricket related
training. Hence the claim of the assesse that it is an
‘Educational Institution’ is not acceptable and hence
rejected.
(b) the receipt of the previous year of the assessee as
reported in the Income & Expenditure Account is
Rs.3,98,07,028/- which is not less than Rs. 10 lakh,
(c) The assessee is in the business of entertainment of
public at large by arranging/hosting/managing/executing
cricket matches at national and international level 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. This issue is discussed below at
length.
(d) The analysis of its activities and justification of
applicability of amended definition of “Charitable
Purpose’ i.e. Carrying on activity, engaged in carrying on
Trade, Commerce or Business etc. and the activities
should be carried out for any fee, cess etc. as analyzed in
the tabular form is misleading and contrary to the
interpretation of any activity, document, agreement or
law as settled by various judicial pronouncements. The
activities and object of the trust should be seen as a
whole. The above referred activities are ancillary to the
main activities of the business of entertainment of people
at large for a fee or cess by arranging/hosting cricket
tournaments on commercial basis with profit motive. The
assessee during year under assessment has earned fee
income of Rs.1,51,97,741/- for India Vs. South Africa Test
Match in Income & Expenditure Account and hence,
assessee’s claim of non collecting of fees is incorrect.
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(e) As discussed above, the assessee was given ample
opportunities right from the issue and service of first
notice issued u/s 143(2) of the Act dated 24/09/2010,
which provides an opportunities to the assessee to
submit any account, document, statement or evidences
relying upon which it has made its return of income till
last opportunity offered to it vide letter dated 8/12/2011.
The assessee has avoided defining its relation with BCCI,
revenue sharing with BCCI in respect of TV broadcasting
rights of cricket matches played on its ground, nature of
agreements made with RIL for sponsorship, nature of
receipt of income from sale of tickets. The assessee has
failed to discharge its onus to establish the nature of the
income earned in the form of ‘Sponsorship Money’
‘Sharing of TV Broadcasting Income with BCCI. It has
tried ‘to conceal the revenue income in the garb of
‘Corpus Donation’. It has failed to establish why and how
BCCI is giving “Corpus Donation” It is to bring on record
that as against the receipt of ‘Sponsorship Money’ of RS.
20,00,000/- from Reliance Industries Ltd., the assessee
has claimed expenses of Rs: 25,84,636/- for Reliance
Inter District Tournaments. Shri Parimal Nathwani holding
a very senior position in Reliance Industries Ltd. is also
Vice
President of the assessee.
It is very well known fact that BCCI is the richest ‘Sport
Authority‘ in India. Arranging national and international
level cricket tournament and its allocation to various
affiliated Associations like the assessee, and preparation
for conduct of such cricket matches, selection of Players,
Coaches, venue, TV Broadcasting rights, Audio & Video
Publicity, sale of tickets, issue of license for parking lots,
sale of edibles and drinking water in stadium during
tournament, five star arrangement of lodging and
boarding for players, arrangement of security for players
and in stadium a lot of other ancillary activities squarely
flt in the definition of trade or service for profit as defined
by the Apex court. Even by stretch of imagination it
cannot be considered that the BCCI had its affiliated
bodies who are represented on its board through elected
representative is doing any sort of chaele or educational
activity. The expenses claimed by the assessee in the
Income & Expenditure Account for arranging various
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cricket tournaments in various levels round the year
proves that it is a business activity as defined by Ho’ble
Apex Court by the above referred judgement. “
49. The assessee, being dissatisfied with the order passed by
the Assessing Officer preferred an appeal before the
Commissioner of Income Tax (Appeals). The Commissioner of
Income Tax partly allowed the appeal. However, the
Commissioner of Income Tax (Appeals) also took the view that
the activities of the Association are not charitable in nature
and the Association is not entitled to claim any exemption
under Sections 11 and 12 of the Act. The CIT (A), while partly
allowing the appeal, held as under;
“26. It is clear from the above that to claim exemption
u/s 11 & 12 of the Income tax Act there must exist
educational institution. Secondly the educational institute
must exist solely for the purpose of education and not for
the purpose of profit.
27. Considering the elaboration on education above
including that of the judgment by the hons court in the
case of Sole Trustee Loka Shikshana Trust Vs. CIT 101
ITR 234 (SC), it is clear that education in clause 2(15)
refers to the process of training and development of
knowledge, skill, mind and character of student by
normal schooling. It is also clear that the term ‘education’
has a very specific meaning and is not used in a wide and
extended sense and to be within the definition of
education u/s. 2(15), the trust should be an educational
institution which primarily engaged in education activity
and if such trust does not have education activity as
primary activity, it cannot avail examination on the basis
of incidental training activity
28. In the instant case, the appellant trust is admittedly
in promotion of cricket as a game in the state of Gujarat.
Even the plain reading of objects of appellant does not
support the view that the appellant trust is an education
institution. The argument that cricket is a subject in
school under the broad subject of ‘Health and Physical
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Education’ cannot make such physical training as
education as it is not scholastic instruction as was held
by the Hon’ble apex court. To add this chapter is only for
class from Standard VI to Standard IX. Further, this
subject is an optional subject in higher classes as is
evident from both of the certificates from school
submitted by the appellant. I am inclined to state that
merely having a chapter on cricket and that too under a
broad subject ‘Health and Physical education’ will not be
suffice to make appellant as ‘education institute’. The A.O
on the other hand amply elaborate the fact that how
appellant is in the promotion of game cricket and has
also highlighted that gross receipt of about 3 crores from
the sale of tickets to general public. Considering the
above facts. I am not inclined to support this argument
with the appellant trust as an educational institution
within the meaning of Section 2(15) of the Incometax
Act.
29. Further, findings made by the A.0. indicates that
the appellant indeed is carrying out charitable activities
which are of the nature of ‘advancement of any other
objective of the general public utility’. During the course
of scrutiny by the A.O it was established that the
assessee was not doing any ‘charitable/educational
activity’ but it was in the business of entertainment of
people at large by arranging/hosting national and
international levels cricket tournaments for a fee/cess.
The A.O has rightly pointed out that the receipts by the
appellant predominantly from the sale of India Vs. Sri
Lanka match amounting to approximately Rs.3 crores
and also other activities indicate that the appellant is
carrying out activities in the nature of trade, commerce
or business.
30. At this point, it may be pointed out that CBDT has
clarified that promotion of sports and games is
considered to be general public utility vide Circular
No.395 dated 24.09.1984. The text of circular is
reproduced below:
SECTION 2(15) CHARITABLE PURPOSE
11. Whether promotion of sports and games can be
considered to be charitable purpose
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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
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 of the Act,
even if it is not approved under section 10(23) relating to
exemption from tax of sports associations and
institutions having their objects as the promotion,
control, regulation and, encouragement of specified
sports and games.
Circular No. 395 [F. No. 181(5) 82/IT(A-I)], dated 24.9.
1984.
31. I may hasten to add that in Cricket Association of
Bengal Vs. CIT 37 ITR 277 (Calcutta) wherein it was held
that a club formed for the development of promotion of
sports or games or entertainment are held to be not
charitable institution. The head note of the decision is
reproduced as under:
Section 11 of the Income-tax Act 1961 (Corresponding to
section 4(3)(i) of the Indian Income-tax Act 1922)-
Charitable or religious trust Exemption of income from
property held under-Assessment years 1950-51 to 1952-
53 Whether while promotion of games as a part of
education of those who participate in them may be a
charitable purpose, promotion of practice of game in
general either for entertainment of public or for
advancement of game itself could not be held to be
charitable- Held, yes Assessee was an association whose
main object was to promote game of cricket- Another
object authorized assessee to carry out any other
business or activity which might seem to assessee
capable of being carried on in connection with above
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Assessee merely held some demonstration or exhibition
matches and did not provide any training in game of
cricket to novices or any advanced training for persons
who were already practiced players its activities outside
holding matches was limited entirely to its own members
and only contact it had with public was by way of having
them as spectators, on payment of fee, of matches
arranged by it- Whether income that was derived from
fees charged for admission to games held under auspices
of association could not be said to be income derived
from any property- Held, yes Whether further, there was
no general public utility, so as to amount to charity, in
arranging cricket matches which public could see on
payment and hence, assessee was not entitled to
exemption conferred by sections 4(3)(i) and 4(3)(ia) of
1922 Act- Held, yes
32. Section 2(15) of the Act defines ‘charitable
purposes’. First proviso, thereto with effect from
assessment year 2009-10 laid down that, if any trust etc.
(a) is engaged in pursuing objects of general public utility
(‘other objects’) and (b) carries on any activity in the
nature of trade, business or commerce or provides any
services in relation to the trade, commerce services or
business and (c) aggregate receipts there from exceed
Rs.25 lacs, it shall be considered that other objects is not
a charitable purpose. If so, such a trust is not eligible for
the exemption inasmuch as the primary condition of
being existing for charitable purpose is not satisfied.
33. With the introduction of Sec. 13(8) of the Act, w.e.f
1/04/2009 (Finance Act 2012), it is clearly evident that
the appellant whose case is squarely covered by the
proviso to Sec 2(15) sha11 forfeit all the exemptions that
are otherwise available u/s 11 and 12 of the Act. The
relevant provisions are as under:
”(8) Nothing contained in section 11 or section 12 Shall
operate so as to exclude any income from the total
income of the previous year of the person in receipt
thereof if the provisions of the first proviso to clause (15)
of section 2 become applicable in the case of such
person in the said previous year.”
The new sub-section (8) provides that the exemption
under section 11 & 12 will not be available to a Trust, in a
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previous year, in which the First proviso to section 2(15)
becomes applicable, for that previous year.
34. Therefore, in the light of the provisions of Sec 13(8)
of the Act, the appellant loses all the exemptions claimed
u/s 11 & 12 of the Act. It is clear from the plain reading of
the said provision that once proviso to Sec 2(15)
becomes applicable to the facts of the case, all the
exemptions otherwise allowable u/s 11 and 12 are not
available to the appellant in that previous year.
35. Considering all the above, I am of the view that the
AO has rightly invoked proviso to Section 2(15) of the
Income-tax Act and denied exemptions u/s 11 & 12 of the
Income tax Act as the appellant trust was engaged in
pursuing objects of general public utility and it carried on
activities in the nature of trade, business or commerce
where the aggregate receipts exceeded Rs.25 lacs.
Accordingly, ground Nos. 1(a) & 1(b) and ground Nos. 2 &
3 are dismissed. “
50. The assessee carried the matter further in appeal before
the Income Tax Appellate Tribunal, Ahmedabad, Bench ‘D’,
Ahmedabad. The Tribunal, while allowing the appeal preferred
by the assessee-Association, has observed as under;
“34. What essentially follows from the above discussions
is that, even after the 2008 amendment and insertion of
proviso to Section 2(15), so far as ‘any other object of
general public utility’ is concerned, as long as profit
earning is not the predominant purpose of the activity of
the assessee, the benefit of Section 2(15) cannot be
declined. In other words, the accrual of profits to the
assessee, by itself, cannot, therefore, be reason enough
to hold that the assessee is not covered by the definition
of ‘charitable institution’ under section 2(15). Of course,
all these discussions are relevant only for the residuary
clause i.e. “any other object of general public utility”. In
case, therefore, where the objects being pursued by the
assessee is “relief of the poor”, “education” or “medical
relief”, it is not even material whether or not the
assessee is carrying on an activity in the nature of trade,
commerce or business in the course of such activities.
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The key factor is as to what are the activities of the
assessee institution and as to what these activities seek
to achieve.
35. Let us take a pause here and examine as to what
are the activities of the assessee cricket associations so
as to be brought within the ambit of trade, commerce or
business. We have seen objects of the association, which
are reproduced earlier in our order, and it is not even the
case of the revenue that these objects have anything to
do with any trade, commerce or business; these objects
are simply to promote cricket. The trigger for invoking
proviso to Section 2(15), as Shri Soparkar rightly
contends has to an activity of the assessee which is in
the nature of trade, commerce or business. However, the
case of the revenue authorities hinges on the allegation
that the way and manner in which cricket matches are
being organized, particularly the IPL matches, the activity
of organizing cricket matches is nothing but brute
commerce. Undoubtedly, it would appear that right from
the time Kerry Packer started his World Series Cricket in
1977, there has been no looking back in
commercialization of cricket and the impact of this
commercialization has not left Indian cricket intact. The
Indian Premier League and the rules of the game being
governed by the dictates of commercial considerations
may seem to be one such example of commercialization
of Indian cricket. The difficulty for the case of the
revenue before us, however, is that these matches are
not being organized by the local cricket associations. We
are told that the matches are being organized by the
Board of Cricket Control of India, but then, if we are to
accept this claim and invoke the proviso to Section 2(15)
for this reason, it will amount to a situation in which
proviso to Section 2(15) is being invoked on account of
activities of an entity other than the assesseessomething
which law does not permit. We are not really
concerned, at this stage, whether the allegations about
commercialization of cricket by the BCCI are correct or
not, because that aspect of the matter would be relevant
only for the purpose of proviso to Section 2(15) being
invoked in the hands of the BCCI. We do not wish to deal
with that aspect of the matter or to make any
observations which would prejudge the case of the BCCI.
Suffice to say that the very foundation of revenue’s case
is devoid of legally sustainable basis for the short reason
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that the commercialization of cricket by the BCCI, even if
that be so, cannot be reason enough to invoke the
proviso to Section 2(15). We are alive of the learned
Commissioner (DR)’s suggestion that the cricket
associations cannot be seen on standalone basis as the
BCCI is nothing but an apex body of these cricket
associations at a collective level and whatever BCCI does
is at the behest of or with the connivance of the local
cricket associations, and that it is not the case that
anyone can become a Member of the BCCI because only
a recognized cricket association can become a Member
of the BCCI. We are also alive to learned Commissioner’s
argument that what is being sought to be protected by
the Charitable status of these associations is the share of
these cricket associations from the commercial profits
earned by the BCCI by organizing the cricket matches.
The problem, however, is that the activities of the apex
body; as we have explained earlier, cannot be reason
enough to trigger proviso to Section 2(15) in these cases.
Whether these cricket associations collectively constitute
BCCI or not, in the event of BCCI being involved in
commercial activities, the taxability of such commercial
profits will arise in the hands of the BCCI and not the end
beneficiaries. Even in such a case the point of taxability
of these profits is the BCCI and not the cricket
associations, because, even going by learned
Commissioner’s arguments, these receipts in the hands
of the cricket associations is nothing but appropriation of
profits. What can be taxed is accrual of profits and not
appropriation of profits. In any event, distinction between
the cricket associations and the BCCI cannot be ignored
for the purposes of tax treatment. There is no dispute
that the matches were organized by the BCCI, and the
assessee cannot thus be faulted for the commercial
considerations said to be inherent in planning the
matches. As we make these observations, and as we do
not have the benefit of hearing the perspective of the
BCCI, we make it clear that these observations will have
no bearing on any adjudication in the hands of the BCCI.
Suffice to say that so far as the cricket associations are
concerned, the allegations of the revenue authorities
have no bearing on the denial of the status of ‘charitable
activities’ in the hands of the cricket associations before
us- particularly as learned Commissioner has not been
able to point out a single object of the assessee cricket
associations which is in the nature of trade, commerce or
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business, and, as it is not even in dispute that the objects
being pursued by the assessee cricket associations are
“objects of general public utility”under section 2(15). All
the objects of the assessee cricket associations, as
reproduced earlier in this order, unambiguously seek to
promote the cricket, and this object, as has been all
along accepted by the CBDT itself, an object of general
public utility.
36. Cricket is indeed an immensely popular game in
this part of the world, and anything to do with cricket
results 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.
These facts, by itself, and without the assessees before
us deviating from their objects or venturing into trade,
commerce or business, cannot require the activities to be
treated as commercial activities. When a cricket stadium
is to be built, it has to accommodate a very large number
of persons but the size of the stadium would not mean
that the activity is for anything other than promotion of
cricket.. When the numbers are large, the scale of
operations is large, and when scale of operations are
larger, even the surplus or deficit could be large, but then
the scale of operations may be a scale on which
commercial activities could be carried out but that fact
cannot convert an object of general public utility into a
commercial activity. We have carefully analyzed the
annual reports and the annual financial statements of the
assessee, and we do not find any objects, other than
objects of the cricket associations, being pursed by these
cricket associations. The objects of these cricket
associations clearly demonstrate that these cricket
associations exist and operate purely for the purpose of
promoting cricket. We are, therefore, of the considered
view that the proviso to Section 2(15) has been wrongly
invoked in these cases.
41. We have noted that all the learned representatives
have advanced detailed arguments on the proposition
that since the assessee cricket associations are engaged
in educational activities, it is not really material whether
or not the assessee has engaged itself in the activities in
the nature of trade, commerce or business. However, in
the light of our categorical finding that the assessee
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cricket associations were not really engaged in the
activities in the nature of trade, commerce or business, it
is not really necessary to adjudicate on this plea. We
leave the question open for adjudication in a flt case.
Conclusions on this issue:
42. For the detailed reasons set out above, we are of
the considered view that the authorities below were in
error in invoking the proviso to Section 2(15) and thus in
declining the benefit of Section 11 and 12 to the
appellant cricket associations. To this extent, plea of the
appellants must be upheld. We uphold the plea. “
51. Being dissatisfied with the order passed by the ITAT,
Ahmedabad, ‘D’ Bench, Ahmedabad, the Revenue is here
before this Court with the present tax appeal.
Submissions on behalf of the Revenue:-
52. Mr. M.R. Bhatt, the learned senior counsel appearing for
the Revenue vehemently submitted that the ITAT committed
a serious error in passing the impugned order. Mr. Bhatt would
submit that by any stretch of imagination, the activities of the
assessee do not fall within the definition of the term
“charitable purpose” as defined under Section 2(15) of the
Act. Mr. Bhatt submitted that the activities, in no manner,
could be said to be for the purpose of promotion of sports
(game of cricket). Mr. Bhatt would submit that the activities
of the Association are in the nature of business. The
Association derives huge profit by hosting international cricket
matches in the stadium. Mr. Bhatt would submit that the
Association receives a huge amount from the BCCI for the
purpose of organizing the international matches. Mr. Bhatt
would submit that the registration of the Association under
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Section 12A of the Act will not make the assessee
automatically eligible to seek exemption under Section 11 of
the Act. Mr. Bhatt submitted that howsoever laudable the
objects of the trust may be, but the activities undertaken by
such trust are to be looked into for the purpose of deciding
whether such trust is entitled to be called a charitable trust
within the meaning of Section 2(15) of the Act and is liable to
claim exemption under Sections 11 and 12 of the Act or not.
53. According to Mr. Bhatt, the Tribunal has not discussed
the relevant issues in their true perspective and, therefore, the
matters should be remitted to the Tribunal for fresh
consideration of all the relevant aspects. According to Mr.
Bhatt, although the Income Tax Appellate Tribunal is a fact
finding Tribunal and if it arrives at its own conclusions of fact
after due consideration of the evidence before it, this Court
may not interfere, yet it is necessary, however, that every fact
for and against the assessee must have been considered with
due care and the Tribunal is obliged to give its finding in a
manner which would clearly indicate what were the questions
which arose for determination, what was the evidence pro and
contra in regard to each one of them and what were the
findings recorded on the evidence on record before it.
According to Mr. Bhatt, when the Assessing Officer and the CIT
(A) have assigned cogent reasons for the purpose of coming to
the conclusion that the activities of the assessee cannot be
termed as charitable and the case of the assessee is covered
within the Proviso to the fourth limb of Section 2(15) of the Act,
then to upset such findings, the Tribunal was expected to
assign cogent reasons. Mr. Bhatt, in support of this submission,
has placed reliance on a decision of the Supreme Court in the
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case of Omar Salay Mohamed Sait vs. CIT, reported in
(1959) 371 ITR 151 (SC), in which the Supreme Court
succinctly expressed the expectation from a Tribunal while
deciding such appeals. The following observations of the
Supreme Court have been relied upon by Mr. Bhatt;
“We are aware that the Income Tax Appellate-Tribunal is
a fact finding Tribunal and if it arrives at its own
conclusion of fact after due consideration of the evidence
before it this court will not interfere. It is necessary,
however, that every fact for and against the assessee
must have been considered with due care and the
Tribunal must have given its finding in a manner which
would clearly indicate what were the questions which
arose for determination, what was the evidence pro and
contra in regard to each one of them and what were the
findings reached on the evidence on record before it. The
conclusions reached by the Tribunal should not be
coloured by any irrelevant considerations or matters of
prejudice and if there are any circumstances which
required to be explained by the assessee, the assessee
should be given an opportunity of doing so. On no
account whatever should the Tribunal base its findings on
suspicions, conjectures or surmises nor should it act on
no evidence at all or on improper rejection of material
and relevant evidence or partly on evidence and partly
on suspicions, conjectures or surmises and if it does
anything of the sort, its findings, even though on
questions of fact, will be liable to be set aside by this
court.”
54. Mr. Bhatt, in support of his submissions, has placed
reliance on the following decisions;
Sr. No. Issue Particulars Page Nos.
1 Section 2(15) Director of Income Tax
(Exemption) vs. Tamil Nadu
Cricket Association, 57
taxmann.com 136 (SC)
1
2 Commissioner of Income Tax vs.
Truck Operators Association, 328
02/05/19
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ITR 636 (Punjab & Haryana)
3 Commissioner of Income Tax,
Dehradun vs. National Institute of
Aeronautical Engg. Educational
Society, 315 ITR 428 (Uttranchal)
06/09/19
4 Hyderabad Race Club vs.
Commissioner of Income Tax,
153 ITR 521 (Andhra Pradesh)
10/19/19
5 Dharmaposhanam Co. vs.
Commissioner of Income Tax,
114 ITR 463 (SC)
20-25
6 Sole Trustee Loka Shikshana
Trust vs. Commissioner of
Income Tax, 101 ITR 234 (SC)
26-43
7 Cricket Association of Bengal vs.
Commissioner of Income Tax, 37
ITR 277 (Cal.)
44-53
8 Education Travancore Education Society vs.
Commissioner of Income Tax,
369 ITR 534 (Kerala)
54-55
9 Dawn Educational Charitable
Trust vs. Commissioner of
Income Tax, 370 ITR 724
(Kerala)
56-57
10 Dawn Educational Charitable
Trust vs. Commissioner of
Income Tax, 73 taxmann.com 61
(SC)
58
11 Saurashtra Education Foundation
vs. Commissioner of Income Tax,
273 ITR 139 (Gujarat)
59-67
12 Actual activities to
be seen
N.N. Desai Charitable Trust vs.
Commissioner of Income Tax,
246 ITR 452 (Gujarat)
68-74
13 Reasons to be
given by ITAT on
each fact
Ramesh Chandra M. Lutra vs.
Assistant Commissioner of
Income Tax, 257 ITR 460
(Gujarat)
75-77
14 Decision of another
High Court,
persuasive and not
N.R. Paper & Board Ltd. vs.
Deputy Commissioner of Income
Tax, 234 ITR 733 (Gujarat)
78-92
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binding
Submissions on behalf of the assessee:
55. On the other hand, Mr. J.P. Shah, the learned senior
counsel appearing on behalf of the assessee has vehemently
opposed this tax appeal. Mr. Shah submitted that no error,
not to speak of any error of law, could be said to have been
committed by the ITAT in passing the impugned order. Mr.
Shah submitted that the assessee is engaged in the activities
of promoting the game of cricket. In other words, according to
Mr. Shah, the assessee is engaged in promotion of sports. Mr.
Shah brought to our notice the following relevant facts;
“1, GCA has given following renowned players to Indian
Cricket:
Mr. Jashubhai Patel,
Mr. Parthiv Patel,
Mr.Jasprit Bumrah,
Mr. Axar Patel
The above named cricketers have been rendered
coaching and training by GCA.
Mr. Jashubhai Patel, Mr. Parthiv Patel and Mr. Axar Patel
have played as the members of the Indian Cricket Team
in Cricket matches against Foreign Teams in the past.
Mr. Jasprit Bumrah is currently a star Cricketer in Indian
Cricket Team in International Cricket and is ranked as
World No.1 bowler.
Apart from the above players, Mr. Priyank Panchal is a
renowned Ranji Trophy player playing for the GCA at
present and is knocking on the doors of International
cricket.
All the above players have been coached by the GCA.
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2. GCA has the following Cricket teams for Men.
(a) Under 14 years
(b) Under 16 years
(c) Under 19 years
(d) Under 23 years
(e) Seniors Ranji Trophy Team, Duleep Trophy, etc.
There are cricket teams for women also.
4. GCA has employed former national level cricketers
as coaches for each of all the above stated segments of
cricket teams, i.e. a coach appointed for under 14 team
would look after coaching of that team only.
5. GCA looks after the cricketing activities in the following
eleven districts/provinces of the Gujarat State.
(I) Ahmedabad
(ii) Ghandhinagar
(iii) Kheda
(iv) Surat
(v) Bulsar(Balsad)
(vi) Bharuch I
(vii) Anand
(viii) Banaskantha
(ix) Daman
(x) Dadar Nagar Haveli
(xi) Panchmahal.
6. Currently the GCA has employed former Indian Team
Cricketer, Mr. Sairaj Bhautule, as coach for the Seniors
i.e. GCA Ranji Trophy Team Players etc. He is also
responsible for co-ordinating with the coaches of other
age group segment teams of GCA.
7. Coaching of Cricketers encompasses the following
aspects :
(a) Skill development in nuances of Cricketing.
(b) Physical development,
(c) Mental development,
(d) Building Personality of a Cricketer.
8. It is a known fact that each large size school has its
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own cricket team where the players are mostly under 14
years in age.
These schools play inter-school cricket and compete with
each other for cricket shield for best school team. From
these championships, talent is spotted by GCA and
invited for coaching and training. The budding cricketers
are coached by renowned past cricketers and their talent
is nurtured.
9. The coach monitors the progress of players and
trains them for overcoming their deficiencies so that
each one of them progresses and is able to shine at
national level.
In Physical development, generally the following tests
are done as an ongoing process.
(a) Fitness Test under which the MSK is done, i.e.,
Muscular, Skeleton Test.
(b) Endurance Test,
(c ) Agility Test.
Players are informed of their deficiencies and during the
training sessions, the coaches concentrate for removal of
such deficiencies e.g. If one of the shoulders is not strong
enough, the coach would suggest to and supervise the
player for undertaking specific exercises to strengthen
the shoulder.
In Skill development the player is shown videos of his
actions. Coach points out the deficiency and would
suggest corrective actions. e.g. if a batsman needs
improvement in his batting stance, the same will be
captured in the video first and thereafter it would be
shown to him for corrective action. There is one to one
discussion with each player for improvement in his game
and this is an on going process.
In Mental development, the coach has one to one
discussion with all the players to know about their
deficiencies like getting nervous while facing opening
bowling spell etc. Curative actions are taken by coach.
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Players are also trained to face media, e.g., if a cricketer
is awarded ‘Man of the match trophy’ then how to face
interview etc.
Coaching and Support Staff at present.
GCA has employed at present following personnel;
(a) Coaches 14
(b) Physios 6
(c ) Trainers 5
(d) Video Analyst 2
(e) Pitch Curator 1
______
Total 28”
56. Mr. Shah submitted that the Association received corpus
donation of Rs.20,69,60,338/- from the BCCI. The Assessing
Officer held that it is not corpus donation and added the same
to the income. Before the C.I.T (Appeals), the Association drew
the attention to a letter addressed to the Officer dated 28th
December, 2011 where two specific letters from the BCCI
dated 12th October, .2001 and 13th October, 2001 respectively
addressed to the Secretary of Gujarat Cricket Association were
produced. The letter dated 12th October, 2001 from the BCCI
draws attention to the decision in the Annual General Meeting,
and the resolution incorporating the said decision as follows
[reproduced at page 59 of the order of CIT (A)]
“5. Chairman suggested that as already decided in
working Committee henceforth the TV subsidies should
be sent towards ‘Corpus Fund’ and this decision can also
be approved by the members of this meeting. Thereafter
the members unanimously approved that henceforth the
TV subsidies should be sent by the Board to the Member
Associations towards “Corpus Fund” instead of subsidy
fund.”
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57. Mr. Shah submitted that the C.I.T.(Appeals), in his order,
in para-18 on page 65 noted that the above “donation of
Rs.1,38,36,800/- was treated as the Corpus donation in A.Y.
2002-03.”. The above resolution mentioned in the letter of
BCCI dated 12th October, 2001, which used the word
“henceforth”, which means in future also, was not considered
good enough by him as “a specific direction” as required by
section 11(1)(d) and only on that reasoning, he held that It Is
not the corpus donation. The Department did not file appeal
against the said decision but the Association did file an appeal
to the Tribunal against the finding of absence of specific
direction in every year. The Tribunal, on page 242, para-49
reproduced from their order in A.Ys. 2004-05 to 2007-08
pointing out that “similar amounts received in the earlier years
have been treated all along as the corpus donation”. ‘Earlier
Year’ means A.Ys. 2002-03 and 2003-04. On page 245, the
Tribunal reproduced para-15 of their order for A.Ys. 2004-05 to
2007-08 as follows:
“15. We find that, at pages 46 and 47 of the paperbook,
the assessee has filed specific confirmations to the effect
that these amounts were corpus donations. We have also
perused the BCCI resolution no 5 dated 29th September
2001 which specifically states that the TV subsidies
should henceforth be sent to the Member Associations
towards “corpus funds”. There is no dispute that the TV
subsidy in question is sent under this resolution. On
these facts, and In the light of the provisions of Section
11(1)(d) which only require the income to be “by way of
voluntary contributions made with a specific direction
that they shall form part of the corpus of the trust or the
institution”, we are of the considered view that any
payments made by the BCCI, without a legal obligation
and with a specific direction that it shall be for corpus
fund as admittedly the present receipt is, is required to
be treated as corpus donation not includible in total
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income. We are unable to find any legal support for
learned CIT(A)’s stand that each donation must be
accompanied by a separate written document. The
contribution has to be voluntary and it has to be with
specific direction that it will form corpus of the trust’.
These conditions are clearly satisfied. Any payment
which the assessee is not under an obligation to make,
whatever be the mode of its computation, is a voluntary
payment, and, any payment which is with a specific
direction that it for corpus fund is a corpus donation. In
our considered view, even without the two specific
confirmations filed by the assessee, in the light of the
BCCI resolution under which the payment is made and in
the light of the payment not being under any legal
obligation, the conditions under section 11(1)(d) are
satisfied. We, therefore, uphold the plea of the assessee.
The Assessing Officer is accordingly directed to delete
this addition of Rs.1,58,00,000.”
58. Mr. Shah submitted that in view of the fact that in the
A.Ys. 2002-03 and 2003-04, the Assessing Officer accepted on
the same facts and evidence of the above two letters and
resolution, the identical donations to be corpus donations, It
was not open for the revenue to take a contrary view and hold
to the contrary in the succeeding assessment years i.e. A.Ys.
2004-05 to 2012-13 in view of the Supreme Court decision of
CIT vs. Excel Industries Ltd. (2013) 358 ITR 295, which
applied the rule of consistency of approach to the same issue
arising in all other Assessment Years. The Supreme Court in
the aforesaid decision has observed “the Revenue cannot be
allowed to flip-flop on the issue”.
59. Mr. Shah further submitted that the Tribunal has rightly
construed the word “henceforth” used in the resolution as
covering up all the payments in the future years by citing the
decision of CIT (Exemption) vs. Mata Amrithanandamayi
Math- (2017) 85 taxmann.com 261 (Ker), holding that once
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the assessee donated the principal and the future interest to
the corpus account, every year, specific direction regarding
interest is not necessary.
60. Mr. Shah submitted that the following Question (D) is only
for the A.Y.2009-10:
“Whether on the facts and circumstances of the case and
in law, the Appellate Tribunal was justified in deleting the
addition made on account of infrastructure subsidy of
Rs.2,13,34,033/-, treating it as capital receipts without
appreciating the findings of the Assessing Officer”
61. Mr. Shah further submitted that in respect of the
aforesaid disallowance, the Assessing Officer in his order has
observed as follows:
“Corpus Donation under the heading “Infrastructure
Subsidy” received from BCCI: The assessee during the
year under assessment, has received infrastructure
subsidy from BCCI for Rs.3,52,86,521/- and has utilized
Rs.1,39,52,488/- by way of payment to District Cricket
Association and hence balance amount of
Rs.2,13,34,033/- is added to the assessee’s total income
in view of the detailed discussion made in para 5, 6 & 7
above.”
62. Mr. Shah also submitted that the C.I.T. (Appeals) agreed
with the Assessing Officer and the Tribunal on the appeal being
disposed off on the issue in favour of the Respondent in para-
55 at page 249 as follows:
“55. On a perusal of the BCCI Infrastructure Subsidy
rules, we find that what is given to the assessee as
infrastructure subsidy is reimbursement of 50% of costs
in respect of certain expenditure on infrastructure which
is inherently in the capital field. The mere fact that it is
not a reimbursement to an outside party, such as a
district cricket association, does not really matter. As
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long as the subsidy is relatable to a capital asset created
by the assessee on his own or by an eligible district
cricket association, as the present subsidy undisputedly
is, it is outside the ambit of revenue receipt and taxable
income. The very foundation of the stand of the
Assessing Officer is thus devoid of legally sustainable
merits. As such, there can hardly be an occasion, in
principle, to hold such a subsidy as a revenue receipt or
taxable income. There is not even a whisper of a
discussion by the Assessing officer to the effect that
infrastructure subsidy is revenue in nature. As a matter
of fact, the claim is made for the subsidy only after the
expenditure having been incurred. The authorities below
have simply brushed aside the case and the submissions
of the assessee and proceeded to hold it as an income.
Looking to the nature of the subsidy, which is clearly
relatable to the capital assets generated, we are unable
to hold this receipt in the revenue field. We, therefore,
uphold the plea of the assessee on this point as well and
delete the addition of Rs 2,13,34,033/-.”
63. Mr. Shah, in regard to the common question In the A.Ys.
2004-05 to 2008-09 pertaining to allowing of the benefit of
exemption u/s.11, submitted that if the Respondent succeeds
in the Tax Appeal No.268 of 2012, the aforesaid question in the
above appeals for the A.Ys 2004-05 to 2008-09 will have to be
answered in favour of the assessee
64. Mr. Shah further submitted that the activity other than
the International match for the A.Ys. 2009-10 to 2012-13
entrusted by the BCCI Invariably have resulted into deficit and
this activity goes on round the year without a break. It is only if
the activity is a one day International match or twenty-twenty
or five days test match that there may be a surplus but one or
two matches cannot convert the altruistic activity of the
Association into trade or business. The activities carried on by
the Gujarat Cricket Association are enumerated at para-19 of
the Tribunal’s order.
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65. Mr. Shah submitted that the findings of the Tribunal are
very clear on the controversy. The Tribunal, after due
consideration of all the relevant aspects, concludes; “We are,
therefore, of the considered view that the Proviso to section
2(15) had been wrongly Invoked In these cases.”
66. Mr. Shah submitted that even prior to the amendment of
section 2(15) w.e.f. 01.04.2019 i.e. the A.Y. 2009-10, the
following provision, sub-section (4A) in section 11, inserted
w.e.f. 01.04.1992 was in the statute book:
“11(4A) Sub-section (1) or sub-section (2) or subsection
(3) or sub-section (3A) shall not apply in relation to any
income of a trust or an institution, being profits and gains
of business, unless the business is incidental to the
attainment of the objectives of the trust or, as the case
may be, institution, and separate books of account are
maintained by such trust or institution in respect of such
business.”
67. Mr. Shah submitted that inspite of the facts being
identical in the years, A.Y. 2009-10 and preceding to A.Y. 2009-
10 and in A.Ys. 2008-09, 2007-08 backward upto 2002-03,
there is total absence of finding of application of sec.11(4A) or
finding of business in all these years prior to A.Y. 2009-10. This
very aspect goes to show that the Assessing Officer is not
consistent and the rule of consistency laid down by the
Supreme Court in CIT vs. Excel Industries Ltd. (2013) 358 ITR
295 very much applies in A.Ys. 2009-10 and onward.
68. Mr. Shah placed strong reliance on the following
documentary evidences also looked into by the ITAT.
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“(i) Note in the form of summary of activities other than
the international match entrusted by the BCCI;
(ii) List of matches played in A.Y.2009-10
(iii) Income & Expenditure for A.Y. 2009-10 including
the income of Rs.1,51,97,741/- from India vs. South
Africa Test Match, yet resulting into loss of Rs.5,91,708/-
accepted by the Assessing Officer in his assessment
order u/s. 143(3).
(iv) Break-up of remuneration of the support staff in
current years’ cricket season 2019-20 of Rs.49,20,000/-.
(v) Break-up of remuneration of coaches in current
years’ cricket season 2019-20 of Rs.95,00,000/-”
69. Mr. Shah has placed strong reliance on the following two
decisions;
“(i) In the case of Commissioner of Income Tax vs. Excel
Industries Ltd., (2013) 358 ITR 295 (SC);
(ii) In the case of Commissioner of Income Tax,
(Exemption) vs. Mata Amrithanandamayi Math, (2017)
85 taxmann.com 261 (Kerala);
70. Mr. Shah also brought to our notice the following;
“1(a) The learned Assessing Officer has not found any
defect in books of account. In his Assessment Order, he
starts with the figure of (-) Rs.5,91,708/against which he
has stated thus: “Excess of income over expenditure”.
(b) Analysis of Income and Expenditure account which is
accepted by AO is as follows.
2. GCA has incurred total expenditure of
Rs.4,03,98,737/- as per audited Income and Expenditure
A/c. GCA has receipts of Rs.3,98,07,028/-. The net result
is loss i.e. Excess of Expenditure over Income of
Rs.5,91,709/-, i.e. there is a deficit.
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3. The Receipt side comprises of following heads of
receipts as summarized from Income and Expenditure
A/c.
Rs.
(I) International Cricket Match Surplus 1,51,97,741/-
(ii) Bank FDR Interest 2,21,88,527/-
(iii) Other Income 24,20,760/
3,98,07,028/
4. The Expenditure side comprises of following heads
of Expenses as summarized:
(i) Match Expenses [Local Matches] 1,70,84,594/-
(ii)Cricketing Expenses as per Chart attached 1,53,90,325/-
(iii) Administration and Other Expenses 79,23,818/-
4,03,98,737/-
5. From the above summary, it is quite clear that;
Surplus income from International matches is less than
expense incurred for Local Matches.
(a) Cricketing expenses incurred by Rs.
GCA for domestic matches other than
International Matches where no fees
are charged.
[1,70,84,594 + 1,53,90,325/-] 3,24,74,919/-
(b) Surplus Income from International
Matches over all Deficit from Cricketing
activities. 1,51,97,741/-
Deficit (-)1,72,77,178/-”
71. Mr. Shah also brought to our notice the income and
expenditure account for the year ended on 31st March, 2009.
The same is as under;
Sr. No. EXPENDITURE AMOUNT (RS.)
1 Price Money to all Teams 27,86,796
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2 Ground Expense 20,06,228
3 Salary Expense 26,60,008
4 Security charges 11,67,279
5 Coaches Fee 10,06,040
6 Cricket Academy Expenses 9,51,067
7 Leaveling Expenses 9,26,080
8 Repairing & Maintenance Expenses 8,53,084
9 Municipal Tax 7,11,945
10 Senior & Junior Tournament Subsidy to
District Cr.
7,00,000
11 Coaches Seminar Expense 4,87,360
12 Labour Charges 2,08,930
13 Physio Fee Expense 1,75,500
14 Curator Fee Expense 1,39,333
15 Prize Distribution Function Expense 1,29,145
16 Gardening Expense 1,01,765
17 Level B Coaches course Expense 94560
18 Supervision Fee 91000
19 Level Trainer Exam Expense 82281
20 NCA Camp Expense 53435
21 Suspect Action Expense 18266
22 Balling Action Workshop Expense 17953
23 MRF Camp Expense 9087
24 Trainer fee Expense 6000
25 Umpire Medical Exam Expense 3780
26 Cricket Equipment Purchase 3403
Total 1,53,90,325
BARODA CRICKET ASSOCIATION:-
72. We shall now proceed to the Tax Appeals Nos.320 of
2019, 321 of 2019, 374 of 2019 and 675 of 2019 respectively.
73. In these tax appeals, the assessee is the Baroda Cricket
Association. In these appeals also Mr. Bhatt, the learned
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senior counsel has reiterated the very same submissions as
canvassed in the Tax Appeal No.317 of 2019.
74. The Tax Appeal No.320 of 2019 is treated as the lead
matter. This appeal was ordered to be admitted on the
following substantial questions of law;
“[A] Whether on the facts and circumstances of the case
and in law, the Appellate Tribunal was justified in
allowing the benefit of exemptions u/s.11 & 12 of the Act
without considering the fact that the assessee is involved
in widespread commercial activities in nature of business
and the activities of the assessee is covered under first
and second proviso to section 2(15) of the Act?
[B]. Whether on the facts and circumstances of the case
and in law, the Appellate Tribunal was justified in
deleting the addition made in respect of corpus donation
u/s.11(1)(d) of the Act without appreciating that the
assessee failed to discharge its onus by not bringing
anything on record in support of its claim of corpus
donation?”
75. Mr. Soparkar, the learned senior counsel appearing for
the Baroda Cricket Association, by an large, adopted all the
submissions of Mr. Shah, the learned senior counsel who has
argued on behalf of the Gujarat Cricket Association. However,
Mr. Soparkar has something to add over and above what has
been submitted by Mr.J.P. Shah, the learned senior counsel
appearing for the Gujarat Cricket Association.
76. Mr. Soparkar submitted that the objects as well as the
actual activities carried out by the Baroda Cricket Association
are for the education in the field of cricket as well as promotion
and development of the sport of cricket (object of general
public utility) not being in the nature of trade, commerce or
business. Mr. Soparkar invited our attention to the objects of
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the Baroda Cricket Association set out as per clause (4) of its
Memorandum of Association. The objects are as under;
“(a) To promote develop & encourage cricket within its
jurisdiction.
(b) To arrange and promote the establishment of Cricket
clubs within its jurisdiction.
(c) To directly control and manage all cricket activities
within its jurisdiction.
(d) To pay special attention and care to the
development of cricket at all levels within its jurisdiction.
(e) To arrange for good cricket ground and maintain the
pitch for practice and matches arranged by the
Association.
(f) To popularize the game of cricket within its jurisdiction
by organizing and/or conducting and/or controlling
tournaments and matches.
(g) To select teams to represent the Association in any
tournament Championship or fixture local or otherwise.
(h) To start or sponsor and/or to subscribe to funds or to
stage a match for the benefit of cricketers or persons
who have rendered services to the game of cricket or for
their families or to a sporting cause or institution.
(i) To borrow or raise money which may be required for
the purpose of the Association.
(j) To collect funds and to utilize the same in such
manner as may be considered fit for the fulfillment of the
objects of the Association.
(k) To invest moneys and funds of the Association in such
manner as may be decided upon from time to time.
(l) To train umpire and to form a panel of umpires.
(m) To collect all the cricket statistics of different players
and clubs so as to give guidance in the selection of
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players for important matches.
(n) To do any other acts in furtherance of the above
objects not inconsistent there with.”
77. Mr. Soparkar, thereafter, invited our attention to the fact
that to meet with the aforesaid objects, the Baroda Cricket
Association incurs the following types of expenditure.
“(i) Local tournament expense- cricketing tournament
(ii) District cricket expense- to promote game of cricket
in our jurisdictional districts.
(iii) Seminar, training, meetings, exhibition, etc. for
coaches, umpires, trainers, physics, scorers, and other
cricketing support staff.
(iv) Junior cricketing expense wherein kids from young
age of below 12 years, below 14 years
(v) sports material like balls, clothes, shoes, drinks. etc
are bought for cricketers during the year which are used
in various tournaments played over the year.
(vi) Medical, physical training, gym, fitness, etc
expenses are incurred for the players during the year.
(vii) Women cricketing expense are also incurred.
(viii) Prize distribution expenses are also incurred for
various tournaments organized by the association during
the year.
(ix) Cricketing ground maintenance expenses are
incurred for the upkeep of all the cricket ground in
Baroda and in the jurisdictional districts.
(x) Fees are paid to professionals like coaches,
trainers, physics, curators and so on whose services are
used by the association during the year.
(xi) All other establishment and other related
expenditure are incurred to run the association.”
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78. Mr. Soparkar, thereafter, invited our attention to the
details of income and expenditure of the assessee from the
paper-book furnished by him to this Court.
Assessment Year 2009-10 2010-11 2011-12
Income and Expenditure
Account
At Pg 57 At Pg.38 At Pg.60
Income and Expenditure from
One Day International
Schedule lX
At Pg 58 At Pg 39
Schedule E: Cricketing and
Tournament expenses
Schedule F: Property and
Ground Maintenance
Expenses
Schedule G tournaments and
other receipts
At Pg 61 At Pg 42 At Pg 63
79. Mr. Soparkar submitted that the Association is engaged
into the activities of seminar, training, meetings, exhibition,
etc. for the coaches, umpires, trainers, physics, scorers, and
other cricketing support staff for the purpose of promoting the
game of cricket. Mr. Soparkar also invited our attention to the
annual report of the Association. Mr. Soparkar, in support of his
submissions, has placed reliance on three decisions;.
(i) Ahmedabad Urban Development Authority, 2017
396 ITR 323 (Gujarat);
(ii) Gujarat Industrial Development Corporation, 2017
83 taxmann.com 366 (Gujarat)
(iii) Naroda Enviro Projects Limited (Gujarat), Tax
Appeal No. 189 of 2019;
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80. Mr. Soparkar submitted that in carrying on the activities,
certain surplus may ensue. The earning of surplus itself would
not mean that the appellant existed for profit. ‘Profits’ means
that surplus over which the owners of the entity have a right to
withdraw for any purpose including the personal purpose.
Profit making would therefore means private profit. Profit
making would not mean the surplus that results from certain
activities for which the organization is devoted is ploughed
back for the promotion of the very same activities.
81. Mr. Soparkar submitted that the Assessee Association has
not distributed any profits outside the organization. All the
profits are ploughed back into the very activities of education
and promotion and development of the sport of cricket and
therefore the Assessee cannot be termed to be carrying out
commercial activities in the nature of trade, commerce or
business:
82. Mr. Soparkar submitted that the case of the Revenue is
that the appellant is an alter ego of BCCI. Assessee receives
“share of income” from the BCCI and therefore the activities of
the BCCI are the activities of the assessee. Further the
activities of the BCCI are commercial in nature. The activities
of the BCCI is the exhibition of sports and to earn profit out of
it. It is only when such exhibition of substantial part of the
income of the assessee is coming from the BCCI and therefore
necessarily the receipts of the assessee partake character of
commercial nature.
83. Mr. Soparkar submitted that the state cricket associations
and the BCCI are distinct taxable units and must be treated as
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such, as there is no provision in the law that a member body
can be held liable for taxation on account of the activities of
the apex body.
84. Mr. Soparkar submitted that irrespective of the nature of
the activities of the BCCI (Commercial or Charitable) what is
pertinent for determining the nature of the activates of the
assessee is the object and activates of the assessee and not
that of the BCCI. The nature of the activities of the assessee
cannot take its colour from the nature of the activities of the
donor. Examples are plenty where a corporate house supports
activities of a Hospital or a School. Simply because the
corporate house is not a charitable organization, the Hospital
or the school doesn’t cease to remain charitable.
85. Mr. Soparkar submitted that even if the BCCI is held to be
involved in carrying out the commercial activities, the
disbursements from the BCCl to the cricket associations cannot
become commercial profits of the assessee cricket
associations liable to be taxed. It is again urged that the
trigger for denial of Section 2(15) benefit, or for the proviso to
Section 2 (15) being invoked, is the activity of the assessee
and not an outsider.
86. With respect to the question relating to the corpus
donation received by the Association from the BCCI and
claimed as exempt by the assessee under Section 11(1)(d) of
the Act, Mr. Soparkar submitted that according to the Revenue,
there is no specific direction from the BCCI to treat the said
amount towards the corpus donation and, in such
circumstances, the same cannot be considered as “corpus
donation” and the same should be treated as income of the
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assessee not exempt under Section 11(1)(d) of the Act.
According to Mr. Soparkar, such stance of the Revenue is not
sustainable in law.
87. Mr. Soparkar submitted that the ITAT has followed its
earlier decision in the case of Gujarat Cricket Association for
the A.Ys.2004-05 to 2007-08 (ITA 1253/Ahd/2013), wherein the
ITAT held as under;
“1. The assessee has filed specific confirmations to the
effect that these amounts were corpus donations.
2. BCCI resolution no 5 dated 29th September 2001
specifically states that the TV subsidies should
henceforth be sent to the Member Associations towards
“corpus funds”. There is no dispute that the TV subsidy in
question is sent under this resolution. This resolution
includes the present assessee-Baroda Cricket Association
as well.
3. On these facts, and in the light of the provisions of
Section 11(1)(d) which only require the income to be “by
way of voluntary contributions made with a specific
direction that they shall form part of the corpus of the
trust or the institution”, Tribunal was of the considered
view that any payments made by the BCCI, without a
legal obligation and with a specific direction that it shall
be for corpus fund as admittedly the present receipt is, is
required to be treated as corpus donation not includible
in total income.
4. There is no legal support for leamed CIT(A)’s stand
that each donation must be accompanied by a separate
written document.
5. The contribution has to be voluntary and it has to be
with specific direction that it will form corpus of the
trust’. These conditions are clearly satisfied. Any
payment which the assessee is not under an obligation to
make, whatever be the mode of its computation, is a
voluntary payment, and, any payment which is with a
specific direction that it for corpus fund is a corpus
donation.
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6. Therefore, even without the two specific
confirmations filed by the assessee, in the light of the
BCCI resolution under which the payment is made and in
the light of the payment not being under any legal
obligation, the conditions under section 11(1)(d) are
satisfied.”
88. In such circumstances, referred to above, Mr. Soparkar
submits that the Tribunal has correctly found on facts and in
law that the said amount is towards the corpus fund and,
therefore, the same will be exempted under Section 11(1)(d)
of the Act, 1961.
SAURASHTRA CRICKET ASSOCIATION:-
89. We shall now take up the Tax Appeals Nos.358-360 of
2019. In these two tax appeals, the respondent-assessee is
the Saurashtra Cricket Association.
90. The Tax Appeal No.358 of 2019 is treated as the lead
matter. This tax appeal was ordered to be admitted on the
following substantial questions of law;
“[A]. Whether, on the facts and in the circumstances of
the case the Appellate Tribunal was justified in allowing
the benefit of Sections 11 and 12 when the Assessing
Officer has clearly brought on record that assessee is
covered under the proviso to Section 2(15) r.w.s 13(8) of
the Act?
[B]. Whether on the facts and circumstances of the case
and in law, the Appellate Tribunal was justified in
directing the Assessing Officer to allow the claim of
accumulation of Rs.5,37,04,677/- under section 11(1)(a)
and Rs.23,44,45,000/- under section 11(2) of the Act
without appreciating the findings of the Assessing Officer
with regard to applicability of section 2(15) of the Act?
[C]. Whether on the facts and circumstances of the case
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and in law, the Appellate Tribunal was justified in
remitting the issue of infrastructure subsidy of
Rs.4,57,95,448/- back to the file of the Assessing Officer,
without appreciating the findings of the Assessing
Officer?”
91. Mr. Tushar Hemani, the learned senior counsel appearing
for the respondent-assessee has, by and large, adopted all the
submissions canvassed by Mr. J.P. Shah, the learned senior
counsel appearing for the Gujarat Cricket Association and Mr.
Soparkar, the learned senior counsel appearing for the Baroda
Cricket Association. However, Mr. Hemani added something
important of his own to what has been submitted on behalf of
the other two Associations. His submissions are broadly as
under;
“I) Imparting training in sports is an educational
activity and hence not an object of general public
utility. Hence, the proviso to Section 2(15) of the
Act is not applicable at all.
II) Alternatively and without prejudice:
a. The activities carried out by the Respondent
are in the nature of “general public utility.”
b. Mere generation of surplus does not add the
element of “trade, commerce or business” to
an otherwise charitable activity.
III) Where two views are possible, view in favour
of the assessee should be adopted.
The aforesaid is elaborated as follows:
I) Imparting training in sports is nothing but
education activity and therefore the Respondent
would fall in the first limb of definition of
“charitable purpose” as defined u/s.2(15) of the
Act and not under the residual clause of ‘the
advancement of any other object of general public
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utility’. If that be the situation, proviso to Section
2(15) would not apply at all.
Section 2(15):
“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
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 twenty-five lakh rupees or less in the previous
year;
It is submitted that it is a settled position that
“education” is a term with a very wide meaning,
going beyond traditional classroom teaching and
taking within its ambit training in sports:
[CIT vs. Secretary, Regional Committee, National
Sports Club of Assam [1989] 180 ITR 648 (Gauhati) is
squarely applicable:
“To satisfy us in this regard, we have been taken through
the order of the Tribunal passed in ITA Nos. 684 (Gauhati)
to 689 (Gauhati) of 1973-74 which related to the same
assessee. A perusal of that judgment shows that after
going through the aims and objects of the assessee, it was
held that the main object of the assessee is to
provide means for improving the health and
physique of the youth of Assam through the medium
of sports and games of all kinds. The learned
Tribunal, therefore, concluded that, in its considered
opinion, the main object of the institution falls
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within the head “Education”. In this context, our
attention has been invited by Shri Bhattacharjee to Addl.
CIT v. Surat Art Silk Cloth Manufacturers Association [1980]
121 ITR 1 (SC) in which it has been held that if the primary
or dominant purpose of a trust or institution is charitable,
the subsidiary object would not militate against its
charitable character and the purpose of the assessee would
not be any the less charitable. It thus seems that, to
decide whether the purpose of an assessee is
charitable or not within the meaning of section 2(15)
of the Act, attention has to be paid to the dominant
or primary purpose of the assessee. As, in this case,
it has been held by the learned Tribunal in its earlier
judgment which was followed in the present case
that the main object of the assessee falls within the
head “Education”, it has to be accepted that the
purpose of the assessee is charitable.
Shri Choudhury, however, contends that the assessee is
also carrying on an activity for profit by running a guesthouse.
As to this, it has been brought to our notice by Shri
Bhattacharjee that the words “not involving the carrying on
of any activity for profit” which found place in section 2(15)
of the Act at the relevant time are relatable to the last head
of charitable purpose of which mention has been made in
the section. We may note section 2(15) which at the
relevant time read as below:
” ‘Charitable purpose’ includes relief of the poor, education,
medical relief and the advancement of any other object of
general public utility not involving the carrying on of any
activity for profit.”
It has been held in Surat Art Silk’s case [1980] 121 ITR 1
(SC) that the words “not involving the carrying on of
any activity for profit” qualify or govern only the last
head of charitable purpose and not the earlier three
ones. It was, therefore, held that if the purpose of a
trust or institution be relief of the poor, education or
medical relief, the requirement of the definition of
“charitable purpose” would be fully satisfied, even if
an activity for profit is carried on in the course of
the actual carrying out of the primary purpose of the
trust or institution.
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This being the settled law by now and the finding of
the learned Tribunal being that the main object of
the institution falls within the head “Education”, and
the primary purpose being the criterion for deciding
whether the income has been earned for a charitable
purpose, it has to be held that the questions of law
involved in the present case are concluded by a
judgment of the highest court of the land. In such a
situation, any direction to make a reference would be
academic and the High Court would be right in refusing the
same as stated in Mathura Prasad v. CIT [1966] 60 ITR 428
(SC).”
(Emphasis supplied)]
[It has been held in Gujarat State Co-Operative Union
vs. CIT [1992] 195 ITR 279 (Gujarat) with reference to
the decision of the Hon’ble Supreme Court in Sole Trustee,
Loka Shikshana Trust v. CIT [1975] 101 ITR 234 that the
meaning of “education” is not to be narrowly construed:
“The observations of the Supreme Court only indicate the
proper confines of the word “education” in the context of
the provisions of section 2(15) of the Act. It will not be
proper to construe these observations in a manner in which
they are construed by the Tribunal when it infers from
these observations, in para 17 of its judgment, that the
word “education” is limited to schools, colleges and similar
institutions and does not extend to any other media for
such acquisition of knowledge. The observations of the
Supreme Court do not confine the word “education”
only to scholastic instructions but other forms of
education also are included in the word “education”.
As noticed above, the word “schooling” also means
instructing or educating. It, therefore, cannot be said that
the word “education” has been given an unduly restricted
meaning by the Supreme Court in the said decision.
Though, in the context of the provision of section 10(22),
the concept of education need not be given any wide or
extended meaning, it surely would encompass
systematic dissemination of knowledge and training
in specialised subjects as is done by the assessee.
The changing times and the ever widening horizons of
knowledge may bring in changes in the methodology of
teaching and a shift for the better in the institutional setup.
Advancement of knowledge brings within its fold
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suitable methods of its dissemination and though
the primary method of sitting in a classroom may
remain ideal for most of the initial education, it may
become necessary to have a different outlook for
further education. It is not necessary to nail down
the concept of education to a particular formula or
to flow it only through a defined channel. Its
progress lies in the acceptance of new ideas and
development of appropriate means to reach them to
the recipients.”
(Emphasis supplied)]
[Director of Income-tax (Exemption) v. Ahmedabad
Management Association [2014] 366 ITR 85 (Gujarat)
“5.6 Now applying the ratio of the decision of the Division
Bench of this Court in the case of Gujarat State Cooperative
Union (Supra) reproduced hereinabove and the
activities of the assessee such as Continuing
Education Diploma and Certificate Programme;
Management Development Programme; Public Talks
and Seminars and Workshops and Conferences etc.,
we are in complete agreement with the view taken
by the tribunal that the activities of the assessee is
educational activities and/or is in the field of
education.”
(Emphasis supplied)]
[Delhi Music Society vs. DGIT [2013] 357 ITR 265
(Delhi)
In the context of Section 10(23C)(vi) of the Act, it was held
that assessee society whose object clause “says that the
objects of the school are to teach western, classical music,
to promote musical knowledge and the appreciation among
the students as well as among the interested public by
means of workshops, lectures/demonstrations, recitals etc.,
to acquire and maintain instruments for teaching purposes,
to create and update a world class library of music
literature both audio and video to add more class rooms
and other required facilities for the purpose of musical
education and to construct and maintain concert
hall/auditorium for the school” was held to be an
educational institute under Section 10(23C)(vi) of the Act.]
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In light of these decisions, it is submitted that since the
objects of the Respondent include promoting the game of
cricket, imparting physical education through the medium
of cricket and maintaining a library and periodicals on
sports and cricket, Respondent’s activities pertain to
“education” and hence fall under “charitable purpose”
under Section 2(15) of the Act. The relevant objects are
as follows (pgs.57-58 of Paper book for AY 2012-13):
3.(e) To promote the game throughout Saurashtra and
Kutch by organising coaching schemes, Tournaments,
Exhibition Matches and by any other manner.
3. (f) To foster the spirit of sportsmanship and the ideals of
cricket amongst School, College and University students
and others and educate them for the same.
3. (l) To impart physical education through the medium of
cricket and take all steps to assist the citizens to develop
their physique.
3. (p) To start and maintain a library of books, periodicals
and museum on Sports in general and cricket in particular
and to start journal or journals in cricket.
Respondent has incurred expenses to hold various
tournaments including the Inter District tournaments for
the various age groups, Women’s matches and various
Trophy tournaments which squarely fall under the
educational activity. The Details of Tournament
Expenses are on pg.12 of the Paperbook for the
Assessment Year 2012-13. Further details of such
Tournament Expenses were submitted to the Assessing
Officer vide letter dated 07.03.2015. Copy of the same is at
pgs.72-76 and details are on pgs. 77-144 of the
Paperbook for Assessment Year 2012-13.
II Alternatively and without prejudice, the
activities carried out by the Respondent-Trust are
charitable in nature, being “general public utility”
and not in the nature of trade, commerce or
business in view of amended provisions of Section
2(15) of the Act :
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· It has been observed by the lower authorities that the
Respondent – Trust has arranged one day international
matches of cricket and in turn has received TV subsidy /
subvention income i.e sharing of TV broadcasting right
income from BCCI and Advertisement sales income, and
therefore, such activities are in the nature of trade,
commerce or business in view of first proviso to S.2(15).
· These observations by the lower authorities, as discussed
by the ITAT on pages 453-454, are factually incorrect in as
much as arranging of one day international matches of
cricket, sale and auction of TV broadcasting rights and
Advertisement sales income from holding one day
internationals are all carried out by BCCI and not by the
Respondent Cricket Association.
· The question then for the kind consideration of this Court
would be whether the activities of the Respondent Cricket
Association can be held to be charitable within the meaning
of S.2(15) so as to entitle it to claim exemption u/s 11 of
the Act.
· The entire issue has to be seen from the two limbs of
the provisions of Section 2(15) of the Act viz.:
(a) whether the promotion of sports and games, cricket in
the present case is charitable or not within the definition
as provided u/s 2(15) of the Act and
(b) whether such promotion of sports and games of
cricket are carried out with the profit – motive or not so
to be treated as in the nature of trade, commerce or
business or charitable purpose.
Promotion of cricket is an advancement of “general
public utility” and is hence a “charitable purpose” :
· Insofar as the first limb as mentioned in (a) above is
concerned, attention is invited to the Circular : No. 395 [F.
No. 181(5) 82/IT(A-I)], dated 24-9-1984, wherein the Board
has advised that promotion of sports and games is
considered to be a charitable purpose within the meaning
of section 2(15).
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It is not in dispute that the Respondent is involved only in
the activity of promoting the game of cricket. The
Assessing Officer himself has noted so in para 3.3 of the
order on page 61 of Tax Appeal that “the assessee is
admittedly involved in promotion of cricket as a game.”
Further, all of the objects of the assessee are related to
promotion of cricket.
Moreover, the Circular has also been held to be applicable
by the lower authorities (Assessment Order on pg.3 and
CIT(A) on pg.210-211 of Tax Appeal)
· It is submitted that all the expenses of the Respondent
have been incurred towards the object clause i.e.,
promotion of cricket:
The Expenses are as follows (pg.3 of Paperbook for
Assessment Year 2012-13):
Establishment Expenses : pg.11
Stadium Expenses : pg.12
Tournament Expenses : pg.12
Depreciation : pg.9
Cricket Infrastructure Fund* : pg.4, Resolution is
on pg.21
* Accumulation (pgs.20-21 of Paperbook for AY 2012-
13)
· Even from the Computation of Income on pg.15 of
Paperbook for AY 2012-13, it can be seen that none of the
expenses have been incurred for non-trust purposes.
· Moreover, details and evidences of all the various
incomes and expenses related to the objects of the
Respondent have been submitted to the Assessing Officer
vide letter dated 07.03.2015, reproduced on pgs. 72
to160 of Paperbook for AY 2012-13.
· Even after perusal of the same, it is not the case of the
lower authorities that the Respondent has conducted
activities or incurred expenses outside of the objects of the
Respondent.
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· Even the Income Tax Appellate Tribunal has held that the
Commissioner has not been able to point out a
single object of the Respondent which is in the
nature of trade, commerce or business and that it is
not even in dispute that the objects are “objects of general
public utility.” All objects unambiguously promote cricket.
(ITAT Order para 35., pg.456 of Tax Appeal)
Hence, the activity of the Respondent is a charitable
activity.
Once it is established that the objects of the trust
are of “general public utility” and that no activities
deviating from the objects have been carried out,
mere generation of surplus cannot turn it into an
activity in the nature of trade, commerce or
business.
· Now so far as the second limb i.e first proviso to S.2(15)
of the Act as inserted by the Finance Act, 2008 w.e.f
01/04/2009 is concerned, it is submitted that the law is
settled by the larger bench of Supreme Court in the case of
ACIT vs. Surat Art Silk Cloth Manufacturers
Association reported in 121 ITR 1 (SC) that (a) 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 profit
and (b) 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 S.2(15)
of the Act.
· Since the terms trade, commerce or business is not
defined under the scheme of the Act, general or dictionary
meaning has to be resorted to. In order to determine
whether an activity is in the nature of trade, commerce or
business OR charitable, the determining factor is profit
motive. The nature of activities may remain the same.
However, if they are carried out for profit motive, the same
are to be characterized as trade, commerce or business.
Conversely, if the profit motive is absent, these very
activities become charitable.
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· It is further submitted that (a) first proviso to S.2(15) of
the act should not be generalized to each and every facts
of the case where there is a surplus over the expenditure in
respect of the activities or objects carried out by the Trust
which are in any case of the charitable purpose, (b) the
cardinal principle is the predominant object of the Trust. If
the predominant object of the Trust is of charitable nature
and with no-profit motive, the said activities cannot be
treated as trade, commerce or business merely because
some surplus has remained left over the expenditure to
carry out such activities. The essence of trade, commerce
or business is profit motive and absence thereof makes
such activities charitable.
· It is further submitted that even after insertion of proviso
to S.2(15) of the Act wef 01/04/2009, the following
authorities, after following the law laid down by Apex Court
in Surat Art Silk (supra), have taken a view that if the
predominant object of the Trust is of charitable nature and
with no-profit motive, the said activities cannot be treated
as trade, commerce or business merely because some
surplus has remained left over the expenditure to carry out
such activities :
(a) CIT v. Gujarat industrial Development
Corporation [2017] 83 taxmann.com 366
(Gujarat)
Where collection of fees and cess was incidental to the
main charitable object of the trust, it would not fall under
the second part of the proviso to Section 2(15) of the Act.
(b) Sabarmati Ashram Gaushala Trust vs. ADIT
(Exemption) [2014] 362 ITR 539 (Gujarat)
“12. All these were the objects of the general public
utility and would squarely fall under section 2 (15) of the
Act. Profit making was neither the aim nor object of the
Trust. It was not the principal activity. Merely because
while carrying out the activities for the purpose of
achieving the objects of the Trust, certain incidental
surpluses were generated, would not render the
activity in the nature of trade, commerce or
business. As clarified by the CBDT in its Circular No.
11/2008 dated 19th December 2008 the proviso aims to
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attract those activities which are truly in the nature of
trade, commerce or business but are carried out under the
guise of activities in the nature of ‘ public utility’.”
(Emphasis supplied)
(c) Ahmedabad Urban Development Authority vs.
ACIT (Exemption) [2017] 396 ITR 323
(Gujarat)
“13.
xxx…
Merely because under the statutory provisions and to meet
with the expenditure of Town Planning Scheme and/or
providing various services under the Town Planning
Scheme, such as road, drainage, electricity, water supply
etc. if the assessee is permitted to sale the plots (land) to
the extent of 15% of the total area under the Town
Planning Scheme and while selling the said plots they are
sold by holding the public auction, it cannot be said that
activities of the assessee is profiteering, to be in the nature
of trade, commerce and business.
xxx…
15. Now, so far as another question which is posed for the
consideration of this Court i.e. whether while collecting the
cess or fees, activities of the assessee can be said to be
rendering any services in relation to any trade, commerce
or business is concerned, for the reasons stated above,
merely because the assessee is collecting cess or fees
which is regulatory in nature, the proviso to Section 2(15)of
the Act shall not be applicable. As observed herein above
neither there is element of profiteering nor the same can
be said to be in the nature of trade, commerce or
business.”
XXX…
(d) Institute of Chartered Accountants of India vs.
DGIT reported in 347 ITR 99 (Delhi)
The Hon’ble High Court held that the fundamental or
dominant function of the Institute was to exercise overall
control and regulate the activities of the members/enrolled
chartered accountants and merely because the Institute
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was holding coaching classes which also generate income,
the Court held that proviso to Section 2 (15) of the Act
would not be applicable
In the present case, the main object of the Trust is to
promote and encourage the game of cricket in Saurashtra
and Kutch by organizing coaching schemes, tournaments,
exhibition matches and other matches etc. The attention is
further invited to the clause 3(j) of MOA which provides
“to organize matches for the achievements of the objects
of the Association and utilize the net proceeds thereof
towards the implementation of the object set therein”. It is
submitted that all the receipts arising or accruing to
the Respondent-Trust are on account of the
activities carried out to meet the object of the
Respondent i.e to promote and encourage the game of
cricket in Saurashtra and Kutch by organizing coaching
schemes, tournaments, exhibition matches and other
matches etc, and they are not with the intention to carry
out any trade, commerce or business with profit – motive.
Such receipts should be strictly confined to the attainment
of the objects of the Respondent-Trust and with the
intention to carry out any trade, commerce or business.
Details of all the receipts were submitted to the
Assessing Officer, as reproduced in the Assessment
Order on pgs. 4 to 9 of Tax Appeal. As can be seen
from the nature of the receipts, none of the incomes
pertain to any activity other than promoting the game of
cricket.
It is submitted that promotion of sports is itself not an
activity in the nature of trade, commerce or business and
on that count also the proviso is not applicable. The
Hon’ble High Court of Bombay in CIT (Exemptions) vs.
Bombay Presidency Golf Club Ltd. [2019] 106
taxmann.com 58 (Bombay) has held that:
“In the present case, the main object of the assessee club
as noted above is to provide golf facilities to the
members for promotion of the sport. The Tribunal
correctly held that there was no element of the
assessee’s activity being in the nature of trade,
commerce or business. Once the applicability of the
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proviso to Section 2(15) of the Act is ruled out, the question
of the exemption under Section 11 of the Act would arise.”
(Emphasis supplied)
Further reliance is also placed on the Supreme Court
decision in the case of CIT vs. Gujarat Maritime Board
reported in [2007] 295 ITR 561(SC), wherein the
question before the Apex Court was that whether the
Maritime Board was entitled to the status of a charitable
institution u/s 11 of the Act and in that context also, the
Apex Court observed that the Gujarat Maritime Board was
established for the predominant purpose of development of
minor ports within the State of Gujarat, the management
and control of Board was essentially with the State
Government and there was no profit motive and the
income including reserves and surplus earned by the Board
was deployed for the development of minor ports in the
State of Gujarat and accordingly the Apex Court held that
the Board was entitled to be registered as “Charitable
Trust” within the scheme of the Act
It is submitted that the insertion of proviso to s.
2(15) does not mean that in case an assessee is to
receive any payment for anything done for trade,
commerce or business, the assessee will be hit by
the said proviso. Elaborating the scope of this
amendment, CBDT, vide Circular No. 11, dt. 19th Dec.,
2008 [(2009) 221 CTR (St) 1], has observed as follows:
“3. The newly amended s. 2(15) will apply only to the
entities whose purpose is ‘advancement of any other object
of general public utility’ i.e., the fourth limb of definition of
‘charitable purpose’ contained in s. 2(15). Hence, such
entities will not be eligible for exemption under s. 11 or
under s. 10(23C) of the Act, if they carry on commercial
activities. Whether such an entity is carrying on an activity
in the nature of trade, commerce or business is a question
of fact which will be decided based on the nature, scope,
extent and frequency of activity.”
As long as the object of general public utility is not merely
a mask to hide true purpose or rendering of any service in
relation thereto, and where such services are being
rendered as purely incidental to or as subservient to the
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main objective of ‘general public utility’, the carrying on of
bonafide activities in furtherance of such objectives of
‘general public utility’ cannot be hit by the proviso to
Section 2(15).
Respondent also draws support from Circular no.194/16-
17 II(AI) in which the question referred to board is;
whether an educational institution existing solely for
educational purpose but which shows some surplus at the
end of the year is eligible for exemption? The board had
replied this question in the following manner:
“If the profit of the educational institution can be diverted
for the personal use of the proprietor thereof, then the
income of the educational institution will be subject to tax.
However, there may be cases where the educational
institutions may be owned by the trusts or societies to
whom the provisions of section 11 may be applicable.
Where all the objects of these trusts are educational, and
the surplus, if any, from running the educational institution
is used for educational purposes only, it can be held that
the institution is existing for educational purposes and not
for purposes of profit. However, if the surplus can be used
for non-educational purposes, it cannot be said that the
institution is existing solely for educational purposes and
such institutions will not be liable for exemption u/s 10(22).
But, in such cases, the applicability of section 11 can be
examined and if the conditions laid down therein are
satisfied, the income will be exempt u/s 11.”
The principle would also apply to the case of the
Respondent.
It is submitted that there are decisions of other
Hon’ble High Courts that are in favour of the
Respondent:
· Tamil Nadu Cricket Association v. DIT (Exemptions)
[2014] 360 ITR 633 (Mad)
· CIT (Exemptions) v. Rajasthan Cricket Association
[2018] 98 taxmann.com 425 (Raj)
III Legally it is well settled that while
adjudicating upon an appeal, where two views are
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possible, the view in favour of the assessee should
be adopted. In the facts of the present case, there
are large numbers of decisions which are in favour
of the assessee and therefore, even if the view
against the assessee is plausible and probable, the
view in favour may kindly be adopted:
(a) Mysore Minerals Ltd. V CIT 239 ITR 775 (SC)
(b) Orissa State Warehousing Corporation v CIT 237 ITR
589 (SC)
(c) CIT v. Podar Cement Pvt. Ltd. and Others. 226 ITR
625 (SC)
(d) CIT v Gwalier Rayon Silk Mfg. Co. Ltd. 196 ITR 149
(SC)
(e) CIT v Sahazada Nand 60 ITR 392 (SC)
(f) CIT v Kulu Valley Transport Co. Ltd. 77 ITR 518, 530
(SC)
(g) CIT v Vegetable Products Ltd. 88 ITR 192 (SC
(h) CIT v Naga Hills Tea Co. Ltd. 89 ITR 236, 240 (SC)
(i) Contr. ED v Kanakasabai 89 ITR 251, 257 (SC)
(j) CIT v Madho Jatia 105 ITR 179, 184 (SC)
In addition to the above, it is submitted with respect to
Question [C] that the Tribunal has remitted the issue of
infrastructure subsidy to the file of the Assessing Officer. It
is submitted that for this reason, no substantial question of
law arises.”
92. We propose to first deal with the submission of Mr. Bhatt,
the learned senior counsel appearing for the Revenue that the
matters deserve to be remitted to the ITAT for fresh
consideration of the issues in question. This submission of Mr.
Bhatt is canvassed in the wake of the fact that, according to
Mr. Bhatt, the ITAT ought to have assigned cogent reasons in
its impugned order for the purpose of disagreeing with the
concurrent findings recorded by the lower revenue authorities,
namely, the Assessing Officer and the CIT(A). We are not
impressed by such submission of Mr. Bhatt. We are of the view
that there is no good reason to remit the matters for fresh
consideration. As discussed above, the only circumstance that
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weighed with the CIT(A) is the revenue earned by the
Associations through the subsidy paid by the BCCI. We have
dealt with this issue at length while deciding the Tax Appeal
No.268 of 2012. We take notice of the fact that the issue with
regard to the Proviso to Section 2(15) of the Act has been
elaborately dealt with by the ITAT in its own way. The ITAT has
conveyed, in so many words, that for the purpose of invoking
the Proviso to Section 2(15) of the Act, many other aspects
need to be looked into and the subsidy paid by the BCCI
cannot be the sole factor for brining the case within the Proviso
to Section 2(15) of the Act.
93. At the cost of repetition, we, once again, reproduce the
findings recorded by the ITAT in this regard. We are
highlighting the findings to demonstrate why the ITAT
disagreed with the CIT(A) . The findings are as under;
“34. What essentially follows from the above discussions
is that, even after the 2008 amendment and insertion of
proviso to Section 2(15), so far as ‘any other object of
general public utility’ is concerned, as long as profit
earning is not the predominant purpose of the activity of
the assessee, the benefit of Section 2(15) cannot be
declined. In other words, the accrual of profits to the
assessee, by itself, cannot, therefore, be reason enough
to hold that the assessee is not covered by the definition
of ‘charitable institution’ under section 2(15). Of course,
all these discussions are relevant only for the residuary
clause i.e. “any other object of general public utility”. In
case, therefore, where the objects being pursued by the
assessee is “relief of the poor”, “education” or “medical
relief”, it is not even material whether or not the
assessee is carrying on an activity in the nature of trade,
commerce or business in the course of such activities.
The key factor is as to what are the activities of the
assessee institution and as to what these activities seek
to achieve.
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35. Let us take a pause here and examine as to what
are the activities of the assessee cricket associations so
as to be brought within the ambit of trade, commerce or
business. We have seen objects of the association, which
are reproduced earlier in our order, and it is not even the
case of the revenue that these objects have anything to
do with any trade, commerce or business; these objects
are simply to promote cricket. The trigger for invoking
proviso to Section 2(15), as Shri Soparkar rightly
contends has to an activity of the assessee which is in
the nature of trade, commerce or business. However, the
case of the revenue authorities hinges on the allegation
that the way and manner in which cricket matches are
being organized, particularly the IPL matches, the activity
of organizing cricket matches is nothing but brute
commerce. Undoubtedly, it would appear that right from
the time Kerry Packer started his World Series Cricket in
1977, there has been no looking back in
commercialization of cricket and the impact of this
commercialization has not left Indian cricket intact. The
Indian Premier League and the rules of the game being
governed by the dictates of commercial considerations
may seem to be one such example of commercialization
of Indian cricket. The difficulty for the case of the
revenue before us, however, is that these matches are
not being organized by the local cricket associations. We
are told that the matches are being organized by the
Board of Cricket Control of India, but then, if we are to
accept this claim and invoke the proviso to Section 2(15)
for this reason, it will amount to a situation in which
proviso to Section 2(15) is being invoked on account of
activities of an entity other than the assesseessomething
which law does not permit. We are not really
concerned, at this stage, whether the allegations about
commercialization of cricket by the BCCI are correct or
not, because that aspect of the matter would be relevant
only for the purpose of proviso to Section 2(15) being
invoked in the hands of the BCCI. We do not wish to deal
with that aspect of the matter or to make any
observations which would prejudge the case of the BCCI.
Suffice to say that the very foundation of revenue’s case
is devoid of legally sustainable basis for the short reason
that the commercialization of cricket by the BCCI, even if
that be so, cannot be reason enough to invoke the
proviso to Section 2(15). We are alive of the learned
Commissioner (DR)’s suggestion that the cricket
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associations cannot be seen on standalone basis as the
BCCI is nothing but an apex body of these cricket
associations at a collective level and whatever BCCI does
is at the behest of or with the connivance of the local
cricket associations, and that it is not the case that
anyone can become a Member of the BCCI because only
a recognized cricket association can become a Member
of the BCCI. We are also alive to learned Commissioner’s
argument that what is being sought to be protected by
the Charitable status of these associations is the share of
these cricket associations from the commercial profits
earned by the BCCI by organizing the cricket matches.
The problem, however, is that the activities of the apex
body; as we have explained earlier, cannot be reason
enough to trigger proviso to Section 2(15) in these cases.
Whether these cricket associations collectively constitute
BCCI or not, in the event of BCCI being involved in
commercial activities, the taxability of such commercial
profits will arise in the hands of the BCCI and not the end
beneficiaries. Even in such a case the point of taxability
of these profits is the BCCI and not the cricket
associations, because, even going by learned
Commissioner’s arguments, these receipts in the hands
of the cricket associations is nothing but appropriation of
profits. What can be taxed is accrual of profits and not
appropriation of profits. In any event, distinction between
the cricket associations and the BCCI cannot be ignored
for the purposes of tax treatment. There is no dispute
that the matches were organized by the BCCI, and the
assessee cannot thus be faulted for the commercial
considerations said to be inherent in planning the
matches. As we make these observations, and as we do
not have the benefit of hearing the perspective of the
BCCI, we make it clear that these observations will have
no bearing on any adjudication in the hands of the BCCI.
Suffice to say that so far as the cricket associations are
concerned, the allegations of the revenue authorities
have no bearing on the denial of the status of ‘charitable
activities’ in the hands of the cricket associations before
us- particularly as learned Commissioner has not been
able to point out a single object of the assessee cricket
associations which is in the nature of trade, commerce or
business, and, as it is not even in dispute that the objects
being pursued by the assessee cricket associations are
“objects of general public utility”under section 2(15). All
the objects of the assessee cricket associations, as
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reproduced earlier in this order, unambiguously seek to
promote the cricket, and this object, as has been all
along accepted by the CBDT itself, an object of general
public utility.
36. Cricket is indeed an immensely popular game in
this part of the world, and anything to do with cricket
results 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.
These facts, by itself, and without the assessees before
us deviating from their objects or venturing into trade,
commerce or business, cannot require the activities to be
treated as commercial activities. When a cricket stadium
is to be built, it has to accommodate a very large number
of persons but the size of the stadium would not mean
that the activity is for anything other than promotion of
cricket.. When the numbers are large, the scale of
operations is large, and when scale of operations are
larger, even the surplus or deficit could be large, but then
the scale of operations may be a scale on which
commercial activities could be carried out but that fact
cannot convert an object of general public utility into a
commercial activity. We have carefully analyzed the
annual reports and the annual financial
statements of the assessee, and we do not find
any objects, other than objects of the cricket
associations, being pursed by these cricket
associations. The objects of these cricket
associations clearly demonstrate that these cricket
associations exist and operate purely for the
purpose of promoting cricket. We are, therefore,
of the considered view that the proviso to Section
2(15) has been wrongly invoked in these cases.”
94. From the above, it is evident that the ITAT considered the
issue bearing in mind the activities of the assessee and what
such activities seek to achieve. The ITAT has observed that it
carefully analyzed the annual reports and the annual financial
statements of the assessee, and upon perusal of the same, the
ITAT reached to the conclusion that the activities undertaken
by the Associations were not contrary to the objects. This is a
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pure finding on a question of fact. In such circumstance,
referred to above, it cannot be said or argued that the ITAT
passed the impugned order in a very slipshod manner or
without assigning any cogent reasons.
95. We shall now proceed to examine the main issue on our
own.
96. Section 2(15) of the Act defines the term “Charitable
Purpose”. The definition reads as under:
‘Section 2(15):-“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
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, unless—
(i) such activity is undertaken in the course of actual
carrying out of such advancement of any other object of
general public utility; and
(ii) the aggregate receipts from such activity or activities
during the previous year, do not exceed twenty per cent
of the total receipts, of the trust or institution
undertaking such activity or activities, of that previous
year;”
97. S.2(15) of the 1961 Act::-
Charitable purpose, defined (upto 31-3-2009).-
According to section 2(15), the expression “charitable
purpose” has been defined by way of an inclusive definition so
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as to include-
-relief to the poor,
-education,
-medical relief, and
-the advancement of any other object of general public utility
[(upto 31-3-1984) not involving the carrying on of any activity
for profit].
98. The subject-matter of this definition has been dealt with
under section 11, post.
99. Charitable purpose, defined (operative from 1-4-
2009).-As per section 2(15), newly substituted (w.e.f. 1-4-
2009) by the Finance Act, 2008, the expression “charitable
purpose” has been defined by way of an inclusive definition so
as to include;
-relief to the poor,
-education,
medical relief,
-(w.e.f. 1-4-2009) preservation of environment (including
watersheds, forests and Wildlife) and Preservation of
monuments or places or objects of artistic of historic interest
and,
-the advancement of any other object of general public utility.
100. The first proviso to section 2(15) provides 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
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-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.
101. The second proviso to section 2(15) as newly inserted
(w..e.f. 1-4-2009) by the Finance Act, 2010, further provides
that the first proviso shall not apply if the aggregate value of
the receipts from the activities referred to therein is
-(between 1-4-2009 and 31-3-2012) Rs. 10 lakhs
-(w.e.f. 1-4-2012) Rs. 25 lakhs
or less in the previous year.
102. Legislative amendments.-
I. The Finance Act, 1983-By section 3(a) of Act 11 of 1983,
section 2(15) has been amended (w.e.f. 1-4-1984).
II The Finance Act, 2008.-The scope and effect of the
substitution (w.e.f. 1-4-2009) of section 2(15) by Act 18 of
2008, have been elaborated in the following portion of the
departmental circular No. 1/2009, dated 27-3-2009, as under:-
‘Streamlining the definition of “charitable purpose”.-
5.1 Sub-section (15) of section 2 of the Act defines
“charitable purpose” to include relief of the poor,
education, medical relief, and the advancement of any
other object of general public utility. It has been noticed
that a number of entities operating on commercial lines
are claiming exemption on their income either under subsection
(23C) of section 10 or section 11 of the Act on
the ground that they are charitable institutions. This is
based on the argument that they are engaged in the
“advancement of an object of general public utility” as is
included in the fourth limb of the current definition of
“charitable purpose” Such as claim, when made in
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respect of an activity carried out on commercial lines, is
is contrary to the intention of the provision.
5.2 With a view to limiting the scope of the phrase
“advancement of any other object of general public
utility”, sub-section (15) of section 2 has been amended
to provide 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. Scope of this
amendment has further been explained by the CBDT vide
its Circular 11/2008 dated December 19, 2008.
5.3 Applicability: This amendment has been made
applicable with effect from 1st April, 2009, and shall
accordingly apply for the assessment year 2009-10 and
subsequent assessment years.’.
III The Finance (No.2) Act, 2009-The scope and effect of the
substitution (w..e.f. 1-4-2009) of section 2(15) by Act 33 of
2009 have been elaborated in the following portion of the
departmental circular No.5/2010, dated 3-6-2010, as under:-
“Amendment to include certain activities within the ambit
of provisions relating to “charitable purpose” in the
Income-tax Act.
4.1 For the purposes of the Income-tax Act, “charitable
purpose” has been defined in section 2(15) of the
Income-tax Act and it includes
(a) relief to the poor,
(b) education,
(c) medical relief and,
(d) the advancement of any other object of general public
utility.
However, as per proviso to the section, the
“advancement of any other object of general public
utility” shall not be a charitable purpose, if it involves the
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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.
4.2 Clause (15) of section 2 has been amended so as to
provide that the preservation of environment (including
watersheds, forests and wildlife) and preservation of
monuments or places or objects of artistic or historic
interest would be excluded from the applicability of the
aforesaid proviso which is applicable to the
“advancement of any other object of general public
utility”.
4.3 Applicability:-These amendments have been made
applicable with effect from 1st April, 2009 and will
accordingly apply for assessment year 2009-10 and
subsequent assessment years..”
IV The Finance Act, 2010:–The scope and effect of the
insertion (w.e.f. 1-4-2009) of a new second proviso in section
2(15) have been elaborated in the following portion of the
departmental circular No.1/2011, dated 6-4~2011, as under:
‘Change in the definition of “charitable purpose”.-
4.1 For the purposes of the Income-tax Act, “charitable
purpose” has been defined in section 2(15) which, among
others, includes “the advancement of any other object of
general public utility”.
4.2 However, “the advancement of any other object of
general public utility” is not 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.
4.3 The absolute restriction on any receipt of
commercial nature may create hardship to the
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organizations which receive sundry considerations from
such activities. Therefore, section 2(15) has been
amended to provide that “the advancement of any other
object of general public utility” shall continue to be a
“charitable purpose” 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 do not exceed Rs.10 lakhs in the
previous year.
4.4 Applicability: This amendment has been made
effective retrospectively from 1st April, 2009 and will,
accordingly, apply in relation to the assessment year
2009-10 and subsequent years.’.
V. The Finance Act, 2011.-The second proviso to section
2(15) has been amended (w.e.f. 1-4-2012) by section 3 of Act 8
of 2011.
The scope and effect of the amendment made in section
2(15) by the Finance Act, 2011 have been elaborated in the
following portion of the departmental circular No.2 of of 2012
dated 22-05-012. as follows:
Definition of “charitable purpose”:-
4.1 For the purpose of the 1961 Act, “charitable
purpose“ has been determined in section 2(15) which,
among others, include “the advancement of any other
object of general public utility”.
4.2 However. “the advancement of any other object of
general public utility” is not considered as 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. if receipts from such activities is above the
specified limit in the previous year.
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4.3 Second proviso to section 2(15) of the 1961 Act has
been amended to provide that the specified monetary
limit in respect of receipts from such activities shall be 25
lakh rupees instead of 10 lakh rupees.
4.4 Applicability.–This amendment has been made
effective from [1st April. 20l2, and will, accordingly, apply
in relation to the assessment year 2012-13 and
subsequent years.”
Departmental circular.-1. Definition of “Charitable
purpose” under section 2(15) of the Income-tax Act, 1961-reg-
Section 2(15) of the Income-tax Act, 1961 (“the Act”), defines
“charitable purpose” to include the following:
(i) relief to the poor
(ii) education
(iii) medical relief, and
(iv) the advancement of any other object of general public
utility.
An entity with a charitable object of the above nature was
eligible for exemption from tax under section Section 11 or
alternatively under section 10(23C) of the Act. However. it was
seen that a number of entities who were engaged in
commercial activities were also claiming exemption on the
ground that such activities were for the advancement of
objects of general public utility in terms of the fourth limb of
the definition of “charitable purpose”. Therefore. section 2(15)
was amended, vide Finance Act. 2008, by adding a proviso
which states that the “advancement of any other object of
general public utility” shall not be a charitable purpose if it
involves the carrying on of –
(a) any activity in the nature of trade, commerce or business:
or
(b) any activity of rendering any service in relation to any
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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.
2. The following implications arise from this amendment –
2.1 The newly inserted proviso to section 2(15) will not apply in
respect of the first three limbs of section 2(15), i.e., relief of
the poor, education or medical relief. Consequently, where the
purpose of a trust or institution is relief of the poor, education
or medical relief, it will constitute ‘charitable purpose’ even if it
incidentally involves the carrying on of commercial activities.
2.2. ‘Relief of the poor’ encompasses a wide range of objects
for the welfare of the economically and socially disadvantaged
or needy. It will, therefore, include within its ambit purposes
such as relief to destitute, orphans or the handicapped,
disadvantaged women or children, small and marginal farmers,
indigent artisans or senior citizens in need of aid. Entities who
have these objects will continue to be eligible for exemption
even if they incidentally carry on a commercial activity,
subject, however, to the conditions stipulated under section
11(4A) or the seventh proviso to section 10(23C) which are
that
(i) the business should be incidental to the attainment of
the objectives of the entity,and
(ii) separate books of account should be maintained in
respect of such business.
Similarly, entities whose object is ‘education’ or ‘medical relief’
would also continue to be eligible for exemption as charitable
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institutions even if they incidentally carry on a commercial
activity subject to the conditions mentioned above.
3. The newly inserted proviso to section 2(15) will apply only to
entities whose purpose is ‘advancement of any other object of
general public utility’ i.e. the fourth limb of the definition of
‘charitable purpose’ contained in section 2(15). Hence, such
entities will not be eligible for exemption under section 11 or
under section 10(23C) of the Act if they carry on commercial
activities. Whether such an entity is carrying on an activity in
the nature of trade, commerce or business is a question of fact
which will be decided based on the nature, scope, extent and
frequency of the activity.
3.1. There are industry and trade associations who claim
exemption from tax u/s 11 on the ground that their objects are
for charitable purpose as these are covered under ‘any other
object of general public utility’. Under the principle of
mutuality, if trading takes place between persons who are
associated together and contribute to a common fund for the
financing of some venture or object and in this respect have no
dealings or relations with any outside body, then any surplus
returned to the persons forming such association is not
chargeable to tax. In such cases, there must be complete
identity between the contributors and the participants.
Therefore, where industry or trade associations claim both to
be charitable institutions as well as mutual organizations and
their activities are restricted to contributions from and
participation of only their members, these would not fall under
the purview of the proviso to section 2(15) owing to the
principle of mutuality. However, if such organizations have
dealings with non-members, their claim to be charitable
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organizations would now be governed by the additional
conditions stipulated in the proviso to section 2 (15).
3.2. In the final analysis, however, whether the assessee has
for its object ‘the advancement of any other object of general
public utility’ is a question of fact. If such assessee is engaged
in any activity in the nature of trade, commerce or business or
renders any service in relation to trade, commerce or business,
it would not be entitled to claim that its object is charitable
purpose. In such a case, the object of ‘general public utility’
will be only a mask or a device to hide the true purpose which
is trade, commerce or business or the rendering of any service
in relation to trade, commerce or business. Each case would,
therefore, be decided on its own facts and no generalization is
possible. Assessees, who claim that their object is ‘charitable
purpose’ within the meaning of Section 2(15), would be well
advised to eschew any activity which is in the nature of trade,
commerce or business or the rendering of any service in
relation to any trade, commerce or business.
103. In the course of the hearing of these appeals, our
attention was drawn to the following extract from the speech
of the Minister of Finance on 29th February, 2008.
“ 180. Charitable purpose’ includes ― relief of the poor,
education, medical relief and any other object of general
public utility. These activities are tax exempt, as they
should be. However, some entities carrying on regular
trade, commerce or business or providing services in
relation to any trade commerce or business and earning
income have sought to claim that their purpose would
also fall under ‘charitable purpose’. Obviously, this way
not the intention of Parliament and, hence, I propose to
amend the law to exclude the aforesaid cases. Genuine
charitable organizations will not in any way be affected.”
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104. Our attention was also drawn to the following extract
from the reply of the Finance Minister to the Debate in the Lok
Sabha on the Finance Bill, 2008:-
“ 6. Clause 3 of the Finance ― Bill, 2008 seeks to amend
the definition of charitable purpose’ so as to exclude 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 or use of
application, or retention, of the income from such activity.
The intention is to limit the benefit to entities which are
engaged in activities such as relief of the poor, education,
medical relief and any other genuine charitable purpose,
and to deny it to purely commercial and business entities
which wear the mask of a charity. A number of Honourable
Members have written to me expressing their concern on
the possible impact of the proposal on Agricultural
Produce Market Committees (APMC) or State Agricultural
Marketing Boards (SAMB). Since there is no intention to
tax such committees or boards, and in order to remove
any doubts, I propose to insert a new clause (26AAB) in
section 10 of the Income tax Act to provide exemption to
any income of an APMC or SAMB constituted under any
law for the time being in force for the purpose of
regulating the marketing of agricultural produce. I once
again assure the House that genuine charitable
organisations will not in any way be affected. The CBDT
will, following the usual practice, issue an explanatory
circular containing guidelines for determining whether an
entity is carrying on 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.
Whether the purpose is a charitable purpose will depend
on the totality of the facts of the case. Ordinarily,
Chambers of Commerce and similar organisations
rendering services to their members would not be affected
by the amendment and their activities would continue to
be regarded as ―advancement of any other object of
general public utility. (underlining added) “
105. Thus, prima facie, it appears from the above that the
object of the introduction of the Proviso to clause (15) of
Section 2 of the said Act was to deny the benefit of the Income
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Tax Act exemption to purely commercial and business entities
which wear the mask of a charity. The genuine charitable
organizations were not affected in any way.
106. The first and the foremost thing we want to clarify is that
the registration of the assessee as a Charitable Institution
would, prima facie, clothe the assesseee with the character of
a charitable institution. However, the game, by itself, is not
conclusive and the question whether the assessee is
established for a charitable purpose or not must be examined
independently with reference to the provisions of the Act. The
registration of the assessee as a charitable institution under
Section 12A of the Act, 1961 is a relevant factor in reaching an
appropriate conclusion. Unless the positive requirements of
law are satisfied, the assessee, only by virtue of the aforesaid
event, cannot be regarded as a Charitable Institution. The
objects, for which, the assessee is established either as a
Society or as a Association should spell out any charitable
purpose.
107. In the aforesaid context, it may be pertinent to refer to
the decision of this High Court in the case of Hiralal
Bhagwati v. Commissioner of Income Tax, [2000] 161
CTR (Guj) 401, wherein the Court has held as under:
“The registration of a charitable trust under section 12A
is not an empty formality. This is apparent from the tenor
of the provisions of section 12A. It requires that not only
an application should be filed in the prescribed form,
setting the details of the origin of the trust, but also
names and addresses of the trustees and/or managers
should be furnished. The CIT has to examine the objects
of creation as well as an empirical study of the past
activities of the applicant. The CIT has to examine that it
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is really a charitable trust or institution eligible for
registration. The Court further held that once the
registration under section 12A(a) of the Act is granted,
the Income Tax Officer is not justified in refusing the
benefit which would, otherwise, accrue under the
registration.”
108. In the case of Assistant Commissioner of Income Tax
v. Surat City Gymkhana, (2008) 300 ITR 214 (SC), the
Supreme Court was called upon to deal with the question as to
whether on the facts and circumstances of the said case,
Income Tax Appellate Tribunal was justified in law in holding
that registration under section 12A was a fiat accompli to hold
the Assessing Officer back from further probe into the objects
of the trust. On a perusal of the judgment of the Gujarat High
Court in the case of Hiralal Bhagwati, the Supreme Court
held that the question stood concluded by the said judgment,
which had attained finality since the revenue did not challenge
the decision in the said case. The relevant observations made
by the Supreme Court are as follows;
“The respondent assessee claimed exemption under
Section 10(23) of the Income Tax Act, 1961 for
Assessment Years 1991-1992 and 1992-1993. The said
exemption was claimed on the basis that the objects of
the respondent assessee are exclusively charitable. The
assessing officer rejected the claim. The appeals filed
before the Commissioner of Income Tax (Appeals) were
also dismissed. Aggrieved thereby, the assessee filed
further appeals before the Income Tax Appellate Tribunal
(the Tribunal). The Tribunal, by order dated 20-1-2000,
allowed the appeals filed by the respondent assessee.
The appellant filed appeals before the High Court of
Gujarat. The Revenue claimed that the following two
substantial questions of law arise from the order of the
Tribunal:
“(A) Whether, on the facts and circumstances of the
case, the Income Tax Appellate Tribunal was justified in
law in holding that the objects of the trust restricting
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benefit to the members of the club would fall within the
purview of the act of ‘general public utility’ under
Section 2(15) of the Income Tax Act constituting as a
section of public and not a body of individuals?
(B) Whether, on the facts and circumstances of the case,
the Income Tax Appellate Tribunal was justified in law in
holding that registration under Section 12-A was a fait
accompli to hold the assessing officer back from further
probe into the objects of the trust?”
2. By the impugned order, the High Court dismissed the
appeals, in limine, relying on a decision of the same
Court in Hiralal Bhagwati v. CIT 2000 246 ITR 188,
holding that the questions raised in the appeals are
covered by the aforesaid decision.
3. Being dissatisfied by the order of the High Court, the
Revenue has filed these appeals.
4. This Court, on 22-7-2002, granted leave in respect of
Question ‘B’ only. The appeals were not entertained in
respect of Question ‘A’ and it was noted that the appeals
were rightly dismissed by the High Court insofar as
Question ‘A’ is concerned as the appellant did not
challenge the correctness of the judgment in Hiralal
Bhagwati.
5. On a perusal of the judgment of the Gujarat High Court
in Hiralal Bhagwati we now find that Question ‘B’ is also
concluded by the said judgment (refer to the 1st
paragraph of ITR p. 196). Since the Revenue did not
challenge the decision in the said case, the same has
attained finality. Question ‘B’, therefore, is to meet the
same fate as Question ‘A’ as this Court had declined to
grant leave in respect of Question ‘A’ on the ground that
the Revenue did not challenge the correctness of the
decision in Hiralal Bhagwati. It appears that the fact, that
Question ‘B’ was also covered by the aforementioned
judgment, was not brought to the notice of Their
Lordships and, therefore, leave granted was restricted to
Question ‘B’.”
109. This High Court in the case of Ahmedabad Urban
Development Authority v. Deputy Director of Income
Tax (Exemption), (supra), has held thus:
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“9. Section 12AA of the Act lays down the procedure for
registration in relation to the conditions for applicability
of sections 11 & 12 as provided in section 12A of the Act.
Therefore, once the procedure is complete as provided in
sub-section (1) of section 12AA of the Act and a
Certificate is issued granting registration to the Trust or
Institution it is apparent that the same is a document
evidencing satisfaction about : (1) genuineness of the
activities of the Trust or institution, (2) about the objects
of the Trust or Institution. Section 12A of the Act
stipulates that provisions of sections 11 & 12 shall not
apply in relation to income of a Trust or an Institution
unless conditions stipulated therein are fulfilled. Thus
granting of registration under section 12AA of the Act
denotes, as per legislative scheme, that conditions laid
down in section 12A of the Act stand fulfilled.”
110. This High Court, in the case of Agricultural Produce
Market Committee vs. Income Tax Officer, reported in
(2013) 355 ITR 384, held as under;
“A perusal of the reasons recorded shows that the
assessment is sought to be reopened on the ground that
even if the petitioner has obtained registration under
section 12AA of the Act as an institution carrying on
charitable activities, the petitioner is not entitled to the
status of trust carrying out charitable activities since the
petitioner is conducting the business as an “Association
of Persons” and not as a “Trust”. Thus, though the
petitioner has been granted registration under section
12AA of the Act by the Commissioner of Income-tax, the
assessment is sought to be reopened on the basis of
revenue audit objection that the petitioner is not eligible
for exemption for the aforesaid reasons. The grounds for
reopening the assessment are clearly contrary to the
settled legal position as laid down by this Court in the
case of Hiralal Bhagwati v. Commissioner of Income Tax,
(supra) as well as in the case of Ahmedabad Urban
Development Authority v. Deputy Director of Income Tax
(Exemption), wherein the Court has held that section
12AA of the Act lays down the procedure for registration
in relation to the conditions for applicability of sections
11 and 12 as provided in section 12A of the Act.
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Therefore, once the procedure is complete as provided
under sub-section (1) of section 12AA of the Act and a
certificate is issued granting registration to the Trust or
Institution, it is apparent that the same is a document
evidencing satisfaction about: (1) genuineness of the
activities of the trust or Institution, and (2) about the
objects of the Trust or Institution. While framing the
assessment order, it is not open to the Assessing Officer
to ignore the certificate of registration granted under
section 12AA of the Act by the Director of Income Tax
(Exemption).
In the facts of the present case, the Assessing Officer
while framing the original assessment under section
143(3) of the Act, has, taken into consideration the
certificate granted by the Commissioner of Income Tax
under section 12AA of the Act, and has found that the
petitioner carries on charitable activities. In the return of
income filed by it, the petitioner had specifically claimed
deduction of Rs.32,40,212/- and Rs.45,00,000/- totalling
to Rs.77,40,212/- as a Charitable Trust registered under
section 12AA of the Act by the Commissioner of Income
Tax. During the course of assessment proceedings the
Assessing Officer had issued notice pursuant to which the
petitioner had given its reply explaining as to why it was
entitled to the said deductions. The Assessing Officer
after considering the explanation given by the petitioner
had passed a scrutiny assessment order under section
143(3) of the Act specifically allowing the above
deductions. From the reasons recorded, it is evident that
the Assessing Officer has not recorded any independent
opinion regarding income having escaped assessment for
the reasons stated therein. The sole ground for reopening
the assessment appears to be the observations of the
Revenue Audit Party that the assessee is not eligible for
exemption to the tune of Rs.77,40,212/- for the year
under reference since, the Assessing Officer has not
disallowed the exemption while finalizing the assessment
under section 143(3) of the Act. Thus, it appears that the
belief that income chargeable to tax escaped assessment
is that of the Revenue Audit Party and not of the
Assessing Officer. In the circumstances, the condition
precedent for exercise of powers under section 147 of
the Act, namely, that the Assessing Officer should have
reason to believe that income chargeable to tax has
escaped assessment, does not appear to be fulfilled in
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the present case.
Besides, in the light of the above referred decisions of
this Court, it is not permissible for the Assessing Officer
to go behind the registration obtained by the assessee
under section 12AA of the Act. The Assessing Officer
while framing original assessment having taking into
consideration the registration under section 12AA of the
Act as well as having examined the admissibility of the
claims made by the petitioner, has allowed the deduction
under section 11 of the Act. Under the circumstances, the
reopening of assessment appears to be based on a mere
change of opinion, that too, the opinion of the Revenue
Audit Party and not that of the Assessing Officer.”
111. The ratio discernible from the aforesaid decision is that
once the procedure is completed as provided under subsection
(1) of Section 12AA of the Act and a certificate is issued
granting registration to the trust or institution, it is apparent
that the same is a document evidencing satisfaction about (i)
the genuineness of the activities of the trust or institution and
(ii) about the objects of the trust or institution. While framing
the assessment order, it is not open to the Assessing Officer to
ignore the certificate of registration granted under Section
12AA of the Act by the Director of Income Tax (Exemption). It
is not permissible for the Assessing Officer to go behind the
registration obtained by the assessee under Section 12AA of
the Act.
112. It is apposite to state that the definition of the term
“charitable purpose” remains an inclusive one and is not an
exhaustive or exclusive one. In other words, the purposes
similar to those mentioned in the aforesaid definition could
also constitute ‘charitable purpose’ under the Act. The
expression ‘charitable purpose’ is sufficiently wide in scope to
include a variety of activities. For instance, promotion of sports
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and games is a charitable purpose, as is promotion of trade
and commerce, even when the beneficiaries are confined only
to a particular line of trade or commodity. However, at the
same time, the fact that remote and indirect benefits are
derived by the members of the public will not be sufficient to
make the purpose a “charitable purpose” under the Act.
113. The word ‘Charity’ connotes altruism in thought and
action. It involves an idea of benefiting others rather than
oneself.
114. For a trust to be accepted as a charitable trust for the
purposes of exemption, it is necessary that the objects should
be specific so as to confirm to the requirement of the income
tax law in this regard. Where they are too wide, the trust may
not qualify for exemption. However, a pragmatic view is
required to be taken while examining the data. The material on
record should be analysed objectively.
115. The onus to prove that the objects are of charitable
nature is on the assessee.
116. In our considered opinion, the principle of purposive
interpretation of the provision has to be adopted and when
such a construction is placed, it serves the legislative intent.
117. In this context we may refer to the decision in State of
T.N. v. Kodaikanal Motor Union (P) Ltd., (1986) 62 STC 272
(SC): (1989) 3 SCC 91, wherein the Supreme Court, after
referring to K.P. Varghese vs. Income Tax Officer and and Luke
v. Inland Revenue Commissioner, (1964) 54 ITR 692 (HL);
(1963) AC 557 (HL), observed thus:-
“The courts must always seek to find out the intention of
the legislature. Though the courts must find out the
intention of the statute from the language used, but
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language more often than not is an imperfect instrument
of expression of human thought. As Lord Denning said it
would be idle to expect every statutory provision to be
drafted with divine prescience and perfect clarity. As
Judge Learned Hand said, we must not make a fortress
out of dictionary but remember that statutes must have
some purpose or object, whose imaginative discovery is
judicial craftsmanship. We need not always cling to
literalness and should seek to endeavour to avoid an
unjust or absurd result. We should not make a mockery
of legislation. To make sense out of an unhappily worded
provision, where the purpose is apparent to the judicial
eye ‘some’ violence to language is permissible.”
118. In Keshavji Ravji and Co. v. CIT, (1990) 183 ITR 1 (SC);
(1990) 2 SCC 231, it has been held by the Supreme Court that
when in a taxation statute where literal interpretation leads to
a result that does not sub-serve the object of the legislation
another construction in consonance with the object can be
adopted.
119. We now propose to examine the matter, keeping in mind
the fourth limb of Section 2(15) of the Act, i.e., “the
advancement of any other object of general public utility”.
120. The provision as it existed under the Act of 1922 was that
once the purpose of the trust was relief of the poor, education,
medical relief or advancement of any other object of general
public utility, the trust was considered to be for a charitable
purpose. As a result of the addition of the words “not involving
the carrying on of any activity for profit” at the end of the
definition in section 2(15) of the Act even if the purpose of the
trust is “advancement of any other object of general public
utility”, it would not be considered to be “charitable purpose”
unless it is shown that the above purpose does not involve the
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carrying of any activity for profit. The result, thus, of the
change in the definition is that in order to bring a case within
the fourth category of charitable purpose, it would be
necessary to show that :
(i) the purpose of the trust is advancement of any other object
of general public utility, and
(ii) the above purpose does not involve the carrying on of any
activity for profit.
121. Both the above conditions must be satisfied before the
purpose of the trust can be held to be charitable purpose.
122. A brief analysis of all the provisions would show that (i)
providing relief of the poor; (ii) establishing institution for
education; (ii) providing medical relief; and (iv) to advance any
other object of general public utility are included within the
definition of ‘charitable purposes’. With effect from
01.04.2009, a new definition has been substituted, in that, if
the advancement of object of general public utility involves
carrying on 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 cess or fee or any other
consideration, such activity shall not be a charitable purpose.
Except the addition of the proviso, restricting the purport of
the ‘advancement of any other object of general public utility’,
there is not much difference in section 2(15) as it existed prior
to 01.04.2009, and thereafter. After the amendment the
preservation of environment including the watersheds, forest
and wild life, and preservation of monuments or places/objects
of artistic or historic interest are also included in the definition
‘charitable purpose’. Be that as it is, what is important is any
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institution or organization or entity for the advancement of
object of general public utility is also considered as an
institution or trust for charitable purpose. Section 11 exempts
various categories of incomes as enumerated under section
11(1)(a) to (d) from the total income of the previous year.
Section 12 exempts the voluntary contributions received by a
trust created for charitable purposes from the total income.
The benefit of Section 11 and/or 12 can be claimed only when
the conditions as stipulated under Section 12A are satisfied.
One such condition is that a person in receipt of the income
has to apply for the registration of the trust or institution in the
prescribed form on or before the expiry of a period of one year
from the date of creation of the trust or establishment of
institution. The proviso to Section 12A(1) confers the power on
the Commissioner to entertain an application under Section
12A (1) even after the expiry of period of one year if he is
satisfied that the person was prevented from making an
application before the expiry of period of one year for sufficient
reasons.
123. Section 11(5) requires every trust or institution for a
charitable purpose to invest or deposit the money only in the
manner provided therein inter alia investment in Savings
Certificates as defined in Government Savings Certificates Act,
1959, deposit with the Post Office Savings Bank, deposit in any
account with the scheduled bank i.e., Reserve Bank of India or
its subsidiary bank or any scheduled bank under Section 3 of
the Banking Companies (Acquisition and Transfer of
Undertakings) Act, 1980 or any other bank being a bank
included in Second Schedule to Reserve Bank of India Act,
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1934 and the like. The breach of Section 11(5) would
attract Section 13(1)(d) of the IT Act and the benefit under
Sections 11 and 12 would not be available if funds are
deposited or invested contrary to Section 11(5) or in breach of
Section 13(1) generally and Section 13(1)(d) specifically.
124. In CIT vs. Andhra Chamber of Commerce, (1965) 55
ITR 722 (SC), the Supreme Court considered the question as to
whether the income of Andhra Chamber of Commerce is
exempt under Section 4(3)(i) of the Income tax Act, 1922.
While observing that the legislature had used language of
great amplitude in defining ‘charitable purpose’ and referring
to the Trustees of Tribune, the Court held that the Chamber of
Commerce is a charitable institution although it was promoting
the interest of trade and commerce, which were only ancillary
and subsidiary objects. While observing that the primary object
being, “to promote and protect trade, commerce and
industries, to aid, stimulate and promote the development of
trade, commerce and industries, and to watch over and protect
the general commercial interests of India”, the Court held as
under.
“The expression “object of general public utility” in
Section 4(3) 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 thereby if it
includes the taking of steps to urge or oppose legislation
affecting trade, commerce or manufacture. If the primary
purpose be advancement of objects of general public
utility, it would remain charitable even if an incidental
entry into the political domain for achieving that purpose,
e.g., promotion of or opposition to legislation concerning
that purpose, is contemplated. “
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125. In Addl. Commissioner of Income Tax vs. Surat Art
Silk, (1980) 121 ITR 1 (SC), a Constitution Bench of the
Supreme Court interpreting the words ‘not involving the
carrying on of any activity for profit’ occurring in section 2(15)
(as it existed), held that the test of predominant object has to
be applied while deciding whether an entity is a charitable
trust/institution and that profit making by such institution is
not excluded. The relevant observations are as follows.
“Therefore, for a purpose to fall under the fourth head of
“charitable purpose”, it must constitute the advancement
of an object of general public utility in which the activity
of advancement must not involve a profit making
activity. The word “involving” in the restrictive clause is
not without significance. An activity is involved in the
advancement of an object when it is enwrapped or
enveloped in the activity of advancement. In another
case, it may be interwoven into the activity of
advancement, so that the resulting activity has a dual
nature or is twin faceted. Since we are concerned with
the definition of “charitable purpose”, and the definition
defines in its entirety a “purpose” only, it will be more
appropriate to speak of the purpose of profit making
being enwrapped or enveloped in the purpose of the
advancement of an object of general public utility or, in
the other kind of case, the purpose of profit making being
interwoven into the purpose of the advancement of that
object giving rise to a purpose possessing a dual nature
or twin facets. Now, section 2(15) clearly says that to
constitute a “charitable purpose” the purpose of profit
making must be excluded. In my opinion, the
requirement is satisfied where there is either a total
absence of the purpose of profit making or it is so
insignificant compared to the purpose of advancement of
the object of general public utility that the dominating
role of the latter rendersthe former unworthy of account.
If the profit making purpose holds a dominating role or
even constitutes an equal component with the purpose of
advancement of the object of general public utility, then
clearly the definition in section 2(15) is not satisfied.
When applying Section 11, it is open to the tax authority
in an appropriate case to pierce the veil of what is
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proclaimed on the surface by the document constituting
the trust or establishing the institution, and enter into an
ascertainment of the true purpose of the trust or
institution. The true purpose must be genuinely and
essentially charitable. “
126. In CIT vs. Andhra Pradesh State Road Transport
Corporation, (1986) 159 ITR 1 (SC), the question was whether
the income of the APSRTC was exempt from income tax under
section 4(3)(i). On a reference by the Income Tax Appellate
Tribunal, the High Court answered the question in the
affirmative in favour of the assessee. Following Trustees of the
Tribune, the Supreme Court affirmed the High Court’s view
observing as under.
“It is admitted position, as pointed out by the High Court
in its judgment under appeal, that no share capital has
been raised under Section 23(2) and the entire capital
has been provided by the government under Section
23(1) and the Government is only paid interest thereon
under Section 28(1) just as interest would be paid on any
money due as a debt. That the activity of the respondent
Corporation is not carried on with the object of making
profit is made abundantly clear by the provisions of
section 30 under which, prior to the amendment of that
section by the Amendment Act of 1959, the balance
of income left, after utilization of the net profits for the
purpose set out in section 30, was to be made over to the
State Government for the purpose of road development
and after the Amendment Act of 1959 is to be utilized
for financing the expansion programmes of the
respondent corporation and the remainder, if any, is to
be made over to the State Government for the purpose of
road development. As pointed out by this Court in Andhra
Pradesh Road Transport Corporation v ITO (1964) 52 ITR
524 (SC), the amount handed over to the State
Government does not become a part of the general
revenues of the State but is impressed with an obligation
that it should be utilized only for the purpose for which it
is entrusted, namely, road development. It is not, and
cannot be, disputed that road development is an object
of general public utility.”
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127. CIT vs. Agricultural Produce and Market
Committee, (2007) 291 ITR 419 (Bom) is a case wherein the
Bombay High Court considered the question whether the
market committees constituted under the Maharashtra
Agricultural Produce Marketing (Regulation) Act, 1963
are established for charitable purposes and whether they can
be registered under section 12A/12AA of the Act. After
referring to the various provisions of the Maharashtra Act – the
preamble, the powers and duties of market committees, the
power to levy and collect fees and regulate the markets, the
Court relied on Surat Art Silk (supra) and held as under. (paras
22 and 24)
“Applying the tests laid down by the apex court in the
aforesaid cases to the facts of the present case, there
can be no doubt that the object of the market
committees (assessees) established under the 1963 Act
is to regulate the entire marketing of agricultural and
some other produce from the stage of procuring till it
reaches the ultimate consumer, which is squarely
covered within the meaning of the expression
“advancement of any object of general public utility”
contained in section 2(15) of the Act.
It is pertinent to note that prior to April 1,1984, the words
used in section 2(15) of the Act were “advancement of
any other object of general public utility not involving the
carrying on of any activity for profit”. By the Finance Act,
1983 with effect from April 1, 1984, Legislature has
omitted the words “not involving the carrying on of any
activity for profit” from section 2(15) of the Act. Thus,
after April 1, 1984, even if there is some profit in the
activity carried on by the trust/institution, so long as the
dominant object is of general public utility, it cannot be
said that the said trust/institution is not established for
charitable purposes. “
128. In CIT vs. Market Committee, (2007) 294 ITR 563
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(P&H), the Punjab and Haryana High Court, after considering
the provisions of the Punjab Agricultural Produce Markets Act,
1961 held that the market committee incorporated in terms of
Section 18 of the Punjab Act is a body corporate and that
its activities can be included within the definition of the term
charitable purposes. It was also held that the exemptions
under sections 10, 11 and 12 of the Act are independent of one
another and merely because an assessee is not entitled to
claim exemption under one of the aforesaid provisions that
cannot ipso facto lead to the conclusion that the claim of the
assessee cannot be considered for the grant of tax exemption
in some other provisions of the IT Act. The relevant
observations are as follows.
“It is apparent from the duties and responsibilities of the
market committees, delineated in the foregoing two
paragraphs, that a market committee, in the background
of the provisions of the Markets Act, should be treated as
a body, discharging “legal obligation”(s) within the
meaning of Section 13(7) of the Income Tax Act. The
duties and responsibilities discharged by a market
committee, envisaged under the provisions of the
Markets Act, referred to above, also lead us to conclude,
that the activities of a market committee can be included
within the definition of the term “charitable purpose”,
defined by Section 2(15) of the Income Tax Act. The
instant conclusion is inevitable from a cumulative reading
and interpretation of Sections 13, 26 and 28 of the
Markets Act (analysed in paragraphs 3, 4 and 5
hereinabove). Briefly stated, it may be noticed, that the
obligations discharged by a market committee include
the regulation of purchase, sale, storage and processing
of agricultural produce with the intention of benefiting
the producers, as well as, the consumers of agricultural
products. A market committee is also obliged to provide
for conveniences for the activities of a market area like
construction of buildings, sheds, plinths, etc. A market
committee is also obliged to provide conveniences for
persons visiting a market area, like providing for shelter,
shade and parking facilities. A market committee is also
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obliged to look after the safety, health and convenience
of persons visiting the market area. A market committee
is also obliged to construct and repair link roads,
approach roads, culverts, and bridges, etc. One of the
many specified activities of a market committee is to
extend loans to financially weak communities as well as
in the repayment of such loans and the interest thereon.
The market committee under reference, in the discharge
of its obligations, besides carrying out all the aforesaid
activities, is stated to have spent a huge sum of money
for the construction, development and repair of link
roads, culverts, bridges, etc “
129. In CIT vs. Gujarat Maritime Board, (2007) 295 ITR 561
(SC), the question before the Supreme Court was whether
Maritime Board is entitled to the status of charitable institution
under Section 11 of the Act. Maritime Board was constituted
under the Gujarat Maritime Board Act for the purpose of
development of minor ports in Gujarat. Under the statute, the
Board also renders stevedoring, transport and shipping
services besides maintaining the jetties, wharfs, roads, lights
etc. The management and control of the Board was with the
State Government. There was no profit motive and the income
earned by the Board has to be deployed for the development
of minor ports in Gujarat. It was registered as ‘local authority’
under Section 3(31) of the General Clauses Act, 1897.
Prior to 2002, it was availing exemption as local authority
under Section 10(20) of the IT Act and, therefore, was not
exigible to the income tax. After insertion of the explanation in
Section 10(20), the expression ‘local authority’ was confined to
Panchayats, Municipality, Municipal Committee, District Board
and Cantonment Board. Maritime Board did not come within
the definition of local authority. They, therefore, made an
application to the Commissioner for being registered as a
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charitable institution as defined under section 2(15). The
Commissioner rejected the application. The Tribunal as well as
the High Court of Gujarat held that the Maritime Board is a
charitable institution. The Supreme Court, while construing
Section 2(15) and Section 11(1), relied on the Andhra
Chamber of Commerce (supra), Surat Art Silk (supra) and
APSRTC (supra) and held that the Maritime Board is entitled to
be registered as a ‘charitable trust’ under Section 12A of the
Act. The relevant observations are as follows. ;
“For the purposes of this section ‘property held under
trust’ includes a business undertaking so held, and where
a claim is made that the income of any such undertaking
shall not be included in the total income of the persons in
receipt thereof, the assessing officer shall have power to
determine the income of such undertaking in accordance
with the provisions of this Act relating to assessment;
and where any income so determined is in excess of the
income as shown in the accounts of the undertaking,
such excess shall be deemed to be applied to purposes
other than charitable or religious purposes.
According to section 2(15), the expression “charitable
purpose” has been defined by way of an inclusive
definition so as to include relief to the poor, education,
medical relief and advancement of any other object of
general public utility. In this case we are concerned with
the interpretation of the expression “advancement of any
other object of general public utility.
Under Section 11(1), income from property held for
charitable purposes is not includible and does not form
part of total income.
Section 11(1) has three sub-sections, (a), (b) and (c). In
all the three sub-sections the words used are “income
derived from property held under trust wholly for
charitable purposes”. Under Section 11(4) the expression
“property held under trust” includes a business
undertaking so held. In other words, income from
business undertaking held for charitable purposes can fall
under Section 11 subject to such income fulfilling the
requisite conditions of that section …
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.. At the outset, we may point out that Section 10(20)
and Section 11 of the 1961 Act operate in totally
different spheres. Even if the Board has ceased to be a
“local authority”, it is not precluded from claiming
exemption under Section 11(1) of the 1961 Act.
Therefore we have to read Section 11(1) in the light of
the definition of the words “charitable purposes” as
defined under Section 2(15) of the 1961 Act.
We have perused number of decisions of this Court which
have interpreted the words in section 2(15), namely,
“any other object of general public utility”. 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 v. Ahmedabad Rana Caste Assn (1983) 140
ITR 1 (SC)). 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 predominant
object are to promote the welfare of the general public
the purpose would be charitable purpose. When an object
is to promote or protect the interest of a particular trade
or industry that object becomes an object of public utility,
but not so if it seeks to promote the interest of those who
conduct the said trade or industry (CIT v. Andhra
Chamber of Commerce (1965) 55 ITR 722 (SC). If the
primary or predominant object of an institution is
charitable, any other object which might not be
charitable but which is ancillary or incidental to the
dominant purpose, would not prevent the institution from
being a valid charity (CIT v. Surat Art Silk Cloth
Manufacturers’ Assn (1980) 121 ITR 1 (SC). “
130. The apex Court in the case of Surat Art Silk Cloth
Manufacturers Association (supra) has pointed out that the
restriction must be read with “the advancement of any other
object of general public utility” and not “object of general
public utility”. The Supreme Court, considering the English
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decisions and the Indian law, has pointed out in the aforesaid
decision that :
“……… There is no such limitation so far as Indian law is
concerned even if a purpose is not within the spirit and
intendment of the preamble to the statute of Elizabeth, it
would be charitable if it falls within the definition of
“charitable purpose” given in the statute Every object of
general public utility would, therefore, be charitable
under the Indian law, subject only to the condition
imposed by the carrying on of any activity for profit”
added in the present Act. ……”
131. The apex Court in the case of CIT vs. Federation of Indian
Chambers of Commerce & Industry (1981) 130 ITR 186 (SC),
after applying the principle laid down in the case of Surat Art
Silk Cloth Manufacturers Association (supra), held as under :
“………. the income derived by the respondent from the
activities, such as holding the Indian Trade Fair and
sponsoring the conference of the Afro-Asian Organisation,
were for the advancement of the dominant object and
purpose of the Federation, viz. promotion, protection and
development of trade, commerce and industry in India,
and were exempt from tax under s. 11(1)(a) r/w s.
2(15) ……”
132. The Apex Court in Ahmedabad Rana Caste Association vs.
CIT, (1971) 82 ITR 704 (SC) and CIT vs. Ahmedabad Rana
Caste Association (1983) 140 ITR 1 (SC) pointed out that the
law recognises no purpose as charitable unless it is for a public
charity. That is to say, a purpose must, in order to be
charitable, be directed to the benefit of the community or a
section of the community. The expression “object of general
public utility”, however, is not restricted to the objects
beneficial to the whole mankind. An object beneficial to a
section of the public is an object of general public utility. The
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section of the community sought to be benefited must
undoubtedly be sufficiently defined and identifiable ……..
quality of a public or impersonal nature.
133. The apex Court in the case of Kamla Town Trust (supra),
after considering the facts of that case, viz., the trust deed and
the rectification agreement, expressed an opinion as under :
“…………. On the contrary it becomes clear on a close
reading of relevant provisions of this clause that the
objects are specific and charitable in nature. The
beneficiaries are also clearly indicated. There is also no
ambiguity about the trustees or the trust properties. Thus
all the basic requirements for creation of a public
charitable trust do exist on the express language of the
relevant clauses of rectified deed. …..”
134. We may also refer to and rely upon the decision of this
Court in the case of Additional Commissioner of Income
Tax, Gujarat vs. Ahmedabad, Millowners Association,
reported in 1977 (106) ITR 725, wherein this Court held as
under;
“22. We now proceed to consider whether an object
which serves personal interest would fall within the scope
of section 2(15) of the Act. There is no dispute that the
charitable purposes of relief to poor and educational and
medical relief have no relevance to the facts of the
present case. It is, therefore, the fourth category of the
charitable purpose, namely, the object of general public
utility, with which we are concerned in this case. The
expression “object of general public utility ” appearing in
section 2(15) would include only those objects which
promote the welfare of general public and not the
personal and individual interests of some persons. It is
not uncommon to find the objects of general public utility
being in conflict with the object of personal welfare of
some specified individuals. It is true, as held by the
Supreme Court in the case of Andhra Chamber of
Commerce [1965] 55 ITR 722 (SC), that personal welfare
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of specified individuals would be incidental or
consequential to the main purpose of general public
utility, but a converse of this proposition is not always
true. Now, if we examine the objects contained in clauses
(a), (b) and (c) from this point of view, it will be at once
noticed that these objects seek to protect the interest of
“millowners and users of motive power” and also of those
concerned with them. Clause (b) contemplates the
promotion of good relations between the persons and
bodies using such powers and clause (c), which is
consequential to clause (a) and (b), contemplates doing
of those acts and things by which the objects covered by
clause (a) and (b) may be attained. Thus, all these three
clause aim at protecting personal interest and not public
interests. If this is so, the respondent-association is
bound to carry on its activity keeping in mind the
narrower concept of promoting the personal and selfserving
interests of individuals who are consider
“millowners and users of motive power” even when their
interest are in conflict with the interests of their own
trade or industry. If and when this happens, how can it be
said that the respondent-association has carried out an
object of general public utility ? General public is
undoubtedly interested in trade, commerce or industry
conducted by individuals, but it is surely not interested in
protecting the personal interests of these individuals if
they are in conflict with the interests of trade, commerce
and industry. Therefore, when an object seeks to
promote or protect the interests of a particular trade or
industry, that object becomes an object of public utility,
but not so, if it seeks to promote the interests of those
who conduct the said trade or industry.
23. This distinction between the protection of the
interests of individuals and the protection of interests of
an activity, which is of general public utility, goes to the
root of the whole problem, and, hence, the Supreme
Court has pointedly referred to this problem in
Commissioner of Income-tax v. Andhra Chamber of
Commerce [1965] 55 ITR 722 (SC) at page 727 of the
report by observing as under :
“It may be remembered that promotion and protection of
trade, commerce and industry cannot be equated with
promotion and protection of activities and interests
merely of persons engaged in trade, commerce and
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industry.”
24. In this case, the Supreme Court has pointed out that
even an object beneficial to a section of the public is an
object of public utility and that to serve a charitable
purpose, it is not necessary that the object should be to
benefit the whole mankind or person living in a particular
country or province. But, while making these
observations, the Supreme Court has been careful in
pointing out the distinction between ” a section of the
public ” and specified individuals. Even so far as “a
section of the public” is concerned, the Supreme Court
has been particular in identifying it in the following terms
(page 729) :
“The section of the community sought to be benefited
must undoubtedly be sufficiently defined and identifiable
by some common quality of a public or impersonal nature
: where there was no common quality uniting the
potential beneficiaries into a class, it might not be
regarded as valid.”
25. These observations are repeated by the Supreme
Court in the subsequent decision in Ahmedabad Rana
Caste Association v. Commissioner of Income-tax [1971]
82 ITR 704 (SC).
26. These observations supply a complete answer to the
contention of the learned Advocate-General that the
category of persons covered by the expression
“millowners and users of motive power” constitutes a
section of the public, which can legitimately form the
object of a charitable purpose. The observations make it
clear that the section of the public which is to be
benefited to make the purpose a charitable one should
have a common quality of either a “public” nature or an
“impersonal” nature. Can it be said that “millowners and
users of motive power” have a common quality of a
“public nature” ? If they have any common quality the
same is obviously of a “private” nature, as each one of
them is concerned with his own interest and shares
nothing in common with the public. It was contended that
their common quality is the fact that each one of them is
either a millowner or a user of motive power. Granting
that this is their common quality, it cannot be said that
the said common quality possesses the attributes of a
public or impersonal nature. If individuals, whose only
common quality is their profession or vocation, can
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legitimately be invested with the attributes of a public
nature, then every partnership, company or an
association of persons can be an object of charity, and
the trusts created for the benefit of such partnerships,
companies and associations would be charitable trusts
earning exemption under section 11. Absurdity of such a
situation cannot be over-emphasised.
27. What is the exact nature of “section of the public”
which can legitimately become an object of a charity, is
considered by Lord Greene M.R. in Powell v. Compton
[1945] 1 Ch 123, 129 (CA). In that case a bequest was
made for the education of a small number of individual
relatives of a testatrix. The question which arose was
whether these individuals formed a “section of the
public” so as to make the trust a charitable trust. Lord
Greene M. R. held that the trust was not a valid trust,
making the following observations :
“No definition of what is meant by a section of the public
has, so far as I am aware, been laid down, and I certainly
do not propose to be the first to make the attempt to
define it. In the case of many charitable gifts it is possible
to identify the individuals who are to benefit, or who at
any given moment constitute the class from which the
beneficiaries are to be selected. This circumstance does
not, however, deprive the gift of its public character.
Thus, if there is a gift to relieve the poor inhabitants of a
parish the class to benefit is readily ascertainable. But
they do not enjoy the benefit, when they receive it, by
virtue of their character as individuals but by virtue of
their membership of the specified class. In such case the
common quality which unites the potential beneficiaries
into a class is essentially an impersonal one. It is
definable by reference to what each has in common with
the others, and that is something into which their status
as individuals does not enter.”
28. Our Supreme Court has approved of this principle in
Ahmedabad Rana Caste Association’s case [1971] 82 ITR
704 (SC) and has held that members of Rana caste has a
relationship which was an impersonal one dependent
upon their status a members of that caste. No such
relationship of impersonal nature can be found amongst
the millowners and users of motive power, and, hence,
none of the objects mentioned in clause (a), (b) and (c)
can be treated as objects of public utility.
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29. We have already dealt with the object found in clause
(d). So far as the object contained in clause (e) is
concerned it consists of two parts. This first part
contemplates establishment or the creation of funds to
benefit employees of the association or the dependents
of such persons while the second part contemplates
subscriptions, donations or guarantees or “charitable or
benevolent” purposes at the discretion of the association.
Now, so far as the first part is concerned, it is covered by
the decision in Oppenheim v. Tobacco Securities Trust
Co. Ltd. [1951] AC 297 (HL), to which reference is made
by the Supreme Court in Ahmedabad Rana Caste
Association’s case [1971] 82 ITR 704 (SC) at page 710 of
the report. The facts of that English decision were that
the trustees were directed to apply certain income in
providing for the education of children of employees or
“former employees” of a British limited company or any
of its subsidiary or allied companies. The House of Lords
held in this case by majority that though the group of
persons indicated was numerous, the nexus between
them was employment by particular employers and,
accordingly, the trust did not satisfy the test of a public
benefit requisite to establish it as charitable. This
principle has been approved by our Supreme Court and,
therefore, the first part of the object clause (e) is also not
found to be for general public utility within the meaning
of section of section 2(15) of the Act. So far as the
second part is concerned, Shri Kaji’s contention was that
a benevolent purpose is not necessarily a charitable
purpose but if this clause is constructed liberally, it may
be said that it embodies within it the object of public
utility. Now, proceeding to clause (f) it contemplates
promotion of good relation between the employers and
the employees. So far as this object is concerned, the
matter is concluded by the decision of the Supreme Court
in the above referred case of Commissioner of Incometax
v. Indian Sugar Mills Association [1974] 97 ITR 486
(SC), wherein the relevant clause which the court
considered was “to promote good relations between the
employers and the employees”. This clause was exactly
similar to clause (f) with which we are concerned in this
reference. With regard to such a clause, the Supreme
Court has observed that even assuming that in some
remote and indirect manner such an object might be
some public utility, it cannot be called a charitable
purpose within the meaning of section 4(3)(i) of the
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Indian Income-tax Act, 1922. In view of this decision,
even the object mentioned in clause (f) cannot be
considered as the object serving any public utility.
30. If we closely scrutinise the objects contained in rule
3, we find that a substantial part of these objects benefit
the association’s own members, those connected with
them, and their employees. It is no doubt true that the
beneficiaries of these objects are also who are nonmembers
but who happen to be millowners or users of
motive power. But that aspect of the matter does not
detract from the fact all the members, and their
employees, and “those who are connected” with
members, from the substantial part of the recipients of
the benefits contemplated by the objects. In
Commissioner of Inland Revenue v. City of Glasgow
Police Athletic Association [1953] 34 TC 76 (HL) Lord
Cohen has summarised the legal position in such cases
as under at page 105 of the report :
“(1) If the main purpose of the body of persons is
charitable and the only elements in its constitution and
operations which are non-charitable are merely incidental
to that main purpose, that body of persons is a charity
notwithstanding the presence of those elements – Royal
College of Surgeons of England v. National Provincial
Bank [1952] AC 631 (HL).
(2) If, however, a non-charitable object is itself one of the
purposes of the body of persons and is not merely
incidental to the charitable purposes, the body of persons
is not a body of persons formed for charitable purposes
only, within the meaning of the Income Tax Acts – Oxford
Group v. Inland Revenue Commissioner [1949] 2 All ER
537; 31 TC 221 (CA).
(3) If a substantial part of the objects of the body of
person is to benefit its own members, the body of
persons is not established for charitable purposes only –
Inland Revenue Commissioner v. Yorkshire Agricultural
Society [1928] 1 KB 611 (CA).”
135. In our opinion, the case on hand falls within the first
category mentioned by Lord Cohent.”
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136. It is important to note that prior to the introduction of the
Proviso to Section 2(15) of the Act, the assessee-Association
was granted registration under Section 12A of the Act. From
this, it is clear that prior to the introduction of the Proviso to
Section 2(15) of the Act, the authority, upon due consideration
of all the relevant aspects, arrived at the satisfaction that the
assessee-Association was established for charitable purposes..
The Association continues to be recognised as a charitable
institution. The certificate issued under Section 12A, after due
inquiry, is still in force. If the Proviso had not been introduced
by virtue of the Finance Act, 2008 w.e.f 1st April, 2009, the
assessee Association would have been recognized as a charity
and would have been recognized as an institution established
for the purpose of advancement of an object of general public
utility. The argument of the learned senior counsel on behalf of
the Revenue is that in view of the introduction of the Proviso
to Section 2(15), the assessee-Association is not entitled to
seek exemption. The said proviso has two parts. The first part
has reference to the carrying on of any activity in the nature of
trade, commerce or business. The second part has reference to
any activity of rendering any service ―in relation to any trade,
commerce or business. Both these parts are further subject to
the condition that the activities so carried out are for a cess or
fee or any other consideration, irrespective of the nature or
use or application or retention of the income from such
activities. In other words, if, by virtue of a cess’ or fee’ or any
other consideration, income is generated by any of the two
sets of activities referred to above, the nature of use of such
income or application or retention of such income is irrelevant
for the purposes of construing the activities as charitable or
not.
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137. To be clear, if an activity in the nature of trade,
commerce or business is carried on and it generates income,
the fact that such income is applied for charitable purposes,
would not make any difference and the activity would
nonetheless not be regarded as being carried on for a
charitable purpose. We have seen that by virtue of Section 25
of the Companies Act, the petitioner is enjoined to plough back
its income in furtherance of its object and the declaration of
dividends is prohibited. If a literal interpretation is to be given
to the proviso, then it may be concluded that this fact would
have no bearing on determining the nature of the activity
carried on by the petitioner. But, we feel that in deciding
whether any activity is in the nature of trade, commerce or
business, it has to be examined whether there is an element of
profit making or not. Similarly, while considering whether any
activity is one of rendering any service in relation to any trade,
commerce or business, the element of profit making is also
very important.
138. The Delhi High Court in the case of Addl.
Commissioner of Income Tax, Delhi vs. Delhi Brick Kiln
Owners Association, reported in 1981 (130) ITR 55. In the
said case, M/s. Delhi Brick Kiln Owners Association was the
respondent assessee. The association had obtained a license
from the Central Government for its registration under Section
26 of the Indian Companies Act, 1913. The following were the
objects of the company;
“(a) To promote, develop and protect the brick kiln trade,
commerce and industries.
(b) To watch and protect the interest of brick kiln owners,
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contractors, customers and brick dealers, members of
the association and the interest of persons engaged in
brick trade, commerce or industries legally, morally and
socially.
(c) To consider all questions connected with brick trade,
commerce and industries and to initiate or support
necessary action in connection therewith.
(d) To protect the trade, with the co-operation of the
Government through legislative representation to get the
grievances and difficulties of Brick Kiln Association
redressed.”
139. The High Court took notice of the fact that the other
objects appeared to be incidental to the paramount objects
and were in the nature of powers to carry out the primary
purpose. The association derived its income from the
admission fee, membership subscription and rent realized by it
from the building belonging to it. The association asserted that
its income was entitled to exemption from tax under Section
11(1)(a) of the I.T. Act, 1961 as it was formed for a charitable
purpose, it objects being the advancement of general public
utility. The ITO, however, disallowed the claim. The ITO took
the view that as the assessment was confined to brick kiln
owners, it could not be said to have been formed for the
benefit of the general public and, therefore, was not entitled to
exemption. On appeal, the AAC, relying on the main objects of
the association, as laid down in the Memorandum of
Association, held that the association was entitled to
exemption. The AAC, relied on the decision of the Supreme
Court in CIT vs. Andhra Chamber of Commerce (supra) and the
decision of the Kerala High Court in CIT vs. Indian Chamber
of Commerce, 1971 80 ITR 645. The AAC came to the
conclusion that the association fulfilled the conditions as
required under Section 11(1)(a) of the Act. The department
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went up in appeal to the Income Tax Appellate Tribunal. It
contended, on the basis of the decision of the Mysore High
Court in CIT vs. Sole Trustee Loka Shikshana Trust, 1970
77 ITR 61 and the decision of the Calcutta High Court in CIT
vs. Indian Chamber of Commerce, 1971 81 ITR 147 that
the conclusions of the AAC were erroneous. On the other
hand, the respondent association relied on the decision of the
Keral High Court in CIT vs. Cochin Chamber of Commerce
& Industry, 1973 87 ITR 83. It also contended that the
decision of the Supreme Court in Andhra Chamber of
Commerce, 1965 55 ITR 722, despite the fact that it pertained
to the provisions of the Indian I.T. Act, 1922, was still good law
as there was no change in the substantive provisions relating
to the exemption of income from a trust in the I.T. Act, 1961.
The Tribunal dismissed the appeal of the department. The
department, being dissatisfied, preferred an appeal before the
High Court. The High Court took notice of the fact that the
Tribunal did not consider the matter relating to the dominant
intention but construed the words “not involving the carrying
on of any activity for profit” which had been added by the
1961, Act to the definition of the term “charitable purpose”.
The High Court also took notice of the fact that the Tribunal
held that an activity for profit would imply that there should be
a profit motive in the activities of the assessed. In other words,
the activities should be commercial in nature. Further, the
motive to make profit should be in the integrated activity of
the buying and disposal. The High Court of Delhi, while
dismissing the appeal of the department, held as under;
“12. The question referred for our opinion is dependent
on the construction and interpretation of “charitable
purpose” as defined in s. 2(15) of the I. T. Act, 1961.
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Section 2(15) reads :
“‘Charitable purpose’ includes relief of the poor,
education, medical relief, and the advancement of any
other object of general public utility not involving the
carrying on of any activity for profit.”
13. It is well settled that the words “not involving the
carrying on of any activity for profit” pertain only to the
fourth limb of charitable purpose, i.e., the advancement
of any other object of general public utility.
14. However, there has been a conflict of opinion with
regard to the meaning of these words. This conflict
appears to have been set at rest in view of a recent
decision of the Supreme Court in Addl. CIT v. Surat Art
Silk Cloth Manufacturing Association [1980] 121 ITR 1.
The assessed therein was a company incorporated under
the Indian Companies Act, 1913, and registered under s.
25 of the Companies Act, 1956; its objects were, inter
alia, to promote commerce and trade, in art silk, raw silk,
cotton yarn, art silk cloth, silk cloth and cotton and to
carry on all and any business of art silk, etc., belonging to
and on behalf of its members. The court held, inter alia,
that where the main or primary objects are distributive,
each and every one of the objects must be charitable in
order that the trust or institution be upheld as a valid
charity. But if the primary or dominant purpose of a trust
or institution is charitable, another object, which by itself
may not be charitable, but is merely ancillary or
incidental to the primary or dominant purpose, would not
prevent the trust or institution from being or valid charity.
15. The fact that the members of the assessed benefited
was merely incidental to the carrying out of the main or
primary purpose and if the primary purpose was
charitable, the subsidiary objects would not militate
against its charitable character not would it make the
purpose any the less charitable.
16. The Supreme Court referring to its earlier decision in
CIT v. Andhra Chamber of Commerce [1965] 55 ITR 722,
observed that the court had held that the dominant or
primary object of the Andhra Chamber of Commerce,
which was to promote and protect trade, commerce and
industry and to aid, stimulate and promote the
development of trade, commerce and industry and to
watch over and protect the general commercial interests
of India or any part thereof was clearly an object of
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general public utility. This was despite the fact that one
of the objects included in the memorandum was the
taking of steps to urge or oppose legislation affecting
trade, commerce or manufacture, which by itself, might
be considered non-charitable. However, as it was merely
incidental to the dominant or primary object, it did not
prevent the Andhra Chamber of Commerce from being a
valid charity. Therefore, if the primary purpose was the
advancement of an object of general public utility, it
would remain charitable, even if an incidental entry into
the political domain for achieving that purpose, such as
promotion of or opposition to legislation concerning that
purpose, was contemplated. Applying that very test, the
Supreme Court held that the Surat Art Silk Cloth
Manufacturers Association was also a valid charity.
17. The true meaning of the ten words “not involving the
carrying on of any activity for profit” was held to be, that
when the purpose of a trust or institution is the
advancement of an object of general public utility, it is
that object of general public utility, and not its
accomplishment or carrying out, which must not involve
the carrying on of any activity for profit. So long as the
purpose does not involve the carrying on of any activity
for profit, the requirement of the definition would be met
and it is immaterial how the monies for achieving or
implementing such purpose are found, whether by
carrying on an activity for profit or not. The decision of
the Supreme Court in Indian Chamber of Commerce v.
CIT [1975] 101 ITR 796 was overruled. It was observed
that the decisions of the Kerala High Court in CIT v.
Cochin Chamber of Commerce and Industry [1973] 87 ITR
83 and the Andhra Pradesh High Court in Andhra Pradesh
State Road Transport Corporation v. CIT [1975] 100 ITR
392 laid down the correct interpretation.
18. Applying these principles, it is clear that the dominant
intention of the assessed was to promote the brick kiln
trade. This purpose did not involve the carrying on of any
activity for profit, though its advancement might have. It
is thus a valid charity. For the relevant years, however, it
appears that even the advancement of the purpose did
not involve the carrying on of any activity for profit. The
assessed is clearly entitled to the exemption under s.
11(1)(a) of the Act. “
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140. The Delhi High Court, in the case of India Trade
Promotion Organization vs. Director General of Income
Tax (Exemptions) & Ors., Writ Petition (C) No.1872 of 2013,,
decided on 22nd January, 2015, in context with Section
10(23C)(iv) of the Act vis-a-vis Section 2(15) of the Act, had
observed as under;
“At this juncture, we may point out that we are in
agreement with the argument advanced by Mr Syali that
the proviso to Section 2(15) does not make any
distinction between entities carrying on regular trade,
commerce or business or providing services in relation to
any trade, commerce or business on the one hand and
genuine charitable organizations on the other. It must be
remembered that we are construing the expression
“charitable purpose” not in a vacuum, but in the specific
context of Section 10(23C)(iv) of the said Act. As pointed
out above, Section 10 deals with the incomes not
included in total income. And, Section 10(23C)(iv)
specifically deals with the income received by any person
on behalf of, inter alia, an institution established for
charitable purposes. We have to, therefore, examine the
meaning of the expression “charitable purposes” in the
context of Section 10(23C)(iv). Looking at the said
expression from this stand point, it becomes clear that it
has a reference to income. Because, it is only when such
an institution has an income that the question of not
including that income in its total income would arise.
Therefore, merely because an institution, which
otherwise is established for a charitable purpose,
receives income would not make it any less a charitable
institution. Whether that institution, which is established
for charitable purposes, will get the exemption under
Section 10(23C)(iv) would have to be determined by the
prescribed authority having regard to the objects of the
institution and its importance throughout India or
throughout any State or States. There is no denying that
having regard to the objects of the petitioner and its
importance throughout India in the field of advancement
of promotion of trade and commerce, the petitioner
would be entitled to be regarded as an institution which
would qualify for that exemption. The only thing that we
have to examine is – whether the petitioner had been
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established for charitable purposes? The fact that it
derives income does not, in any way, detract from the
position that it is an institution established for charitable
purposes. Therefore, in our view, merely because the
petitioner derives rental income, income out of sale of
tickets and sale of publications or income out of leasing
out food and beverages outlets in the exhibition grounds,
does not, in any way, affect the nature of the petitioner
as a charitable institution if it otherwise qualifies for such
a character.
We have already noted that prior to the amendment
being introduced with effect from 01.04.2009, the
petitioner had been recognized as an institution
established for charitable purpose and this had been
done having regard to the objects of the institution and
its importance throughout India. It is only because of this
that the petitioner had been granted the exemption by
the respondent for the period prior to assessment year
2009-10. Therefore, insofar as the receiving of income is
concerned, that cannot be taken as an instance to deny
the petitioner its status as an institution established for
charitable purposes. Because, if that were to be so, then
there would be no necessity to take recourse to Section
10(23C)(iv) for the benefit of an exemption. To put it
plainly, if an institution established for charitable
purposes did not receive an income at all, then what
would be the need for taking any benefit under Section
10(23C)(iv) of the said Act. Therefore, if a meaning is
given to the expression charitable ― purpose so as to
suggest that in case an institution, having an objective of
advancement of general public utility, derives an income,
it would be falling within the exception carved out in the
first proviso to Section 2(15) of the said Act, then there
would be no institution whatsoever which would qualify
for the exemption under Section 10(23C)(iv) of the said
Act. And, the said provision would be rendered
redundant. This is so, because, if the institution had no
income, recourse to Section 10(23C)(iv) would not be
necessary. And, if such an institution had an income, it
would not, on the interpretation sought to be given by
the revenue, be qualified for being considered as an
institution established for charitable purposes. So, either
way, the provisions of Section 10(23C)(iv) would not be
available, either because it is not necessary or because it
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is blocked. The intention behind introducing the proviso
to Section 2(15) of the said Act could certainly not have
been to render the provisions of Section 10(23C)(iv)
redundant.
With this in mind, it is to be seen as to what is meant by
the expressions “trade”, “commerce” or “business”. The
word “trade” was considered by the Supreme Court in its
decision in the case of Khoday Distilleries Ltd and Others
v. State of Karnataka and Others: 1995 (1) SCC 574,
whereby the Supreme Court held that “the primary
meaning of the word ‘trade’ is the exchange of goods for
goods or goods for money”. Furthermore, in State of
Andhra Pradesh v. H. Abdul Bakhi and Bros: 1964 (5) STC
644 (SC), the Supreme Court held that ―the word
“business” was of indefinite import and in a taxing
statute, it is used in the sense of an occupation, or
profession which occupies time, attention or labour of a
person, and is clearly associated with the object of
making profit”. This court, in ICAI (I) (supra) held that,
while construing the term “business” as appearing in the
proviso to Section 2(15), the object and purpose of the
Section has to be kept in mind. It was observed therein
that a very broad and extended definition of the term
“business” was not intended for the purpose of
interpreting and applying the first proviso to Section
2(15) of the Act so as to include any transaction for a
cess, fee or consideration. The Court specifically held
that:-
―An activity would be considered ‘business’ if it is
undertaken with a profit motive, but in some cases, this
may not be determinative. Normally, the profit motive
test should be satisfied, but in a given case activity may
be regarded as a business even when profit motive
cannot be established / proved. In such cases, there
should be evidence and material to show that the activity
has continued on sound and recognized business
principles and pursued with reasonable continuity. There
should be facts and other circumstances which justify and
show that the activity undertaken is in fact in the nature
of business.”
141. From the aforesaid decisions, it is apparent that merely
because the Association puts up tickets of the international
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cricket matches for sale and earns some profit out of the same,
it would not lose its character of having been established for a
charitable purpose. It is also important to note that we must
examine as to what is the dominant activity of the institution in
question. If the dominant activity of the institution was not
business or trade or commerce, then any such incidental or
ancillary activity would also not fall within the categories of the
trade, commerce or business. It is clear from the facts of the
present case that the driving force is not the desire to earn
profit but the object is to promote the game of cricket and
nurture the best of the talent.
142. The Latin word utilis means ‘useful, beneficial, equitable,
available’. Chambers Dictionary of English defines ‘utility’ as
useful: power to satisfy the wants of people in general: a useful
thing, public utility: public service or a Association providing
such public service. According to ‘New Oxford Dictionary of
English’ (1998), as a Noun, utility is the status of being useful,
profitable or beneficial.
143. The Corpus Juris Secundum Volume 73 page 990
elucidates the following legal position.
“A public utility” has been described as a business
organization which regularly supplies the public with
some commodity or service, such as electricity, gas,
water, transportation or telephone or telegraph service.
While the term has not been exactly defined, and, as has
been said, it would be difficult to construct a definition
that would fit every conceivable case, the distinguishing
characteristic of a public utility is the devotion of private
property by the owner or person in control thereof to
such a use that the public generally, or that part of the
public which has been served and has accepted the
service, has the right to demand that the use or service, s
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long as it is continued shall be conducted with reasonable
efficiency and under proper charges. The term is
sometimes used in an extended sense to include a great
many matters of general welfare to the State and its
communities. “
144. The words ‘public utility’ or ‘general public utility’ are not
capable of a precise meaning. The question whether service is
public utility or not has to be discharged in the context of
different situations but it is, as considered infra, well settled
that public utility means public purpose depending upon the
context in which it is used in the statute or the Rules. Indeed,
in some decisions, public utility is considered very similar to
one for public purpose (Hunter v A.G. 1909 AC 323, Babu
Bankya Thakur v State of Bombay AIR 1960 SC 1203 and
Jhandu Lal v State of Punjab AIR 1961 SC 343).
145. In cases arising under the Income Tax Act, 1922 as well
as 1961 Act, it is held that the expression ‘object of general
public utility’ must be construed by applying the standard of
customary law and common knowledge amongst the
community to which the parties interested belong. This test,
applied in the Trustees of the Tribune, seems to have
influenced judicial thinking in the subsequent decisions as well.
The object of general public utility would include all objects
which promote the welfare of the general public even it
includes taking up steps effecting trade, commerce or
manufacture if the primary purpose is for advancement of
objects of general public utility [Andhra Chamber of
Commerce(supra)], even if in an insignificant manner the
person makes some profit in carrying out the objects [Surat Art
Silk (supra)]. In other words, any activity for the benefit of the
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public or a section of the public, as distinguished from the
benefit to an individual or a group of individuals, would be
charitable purpose as the object is for advancement of general
public utility. The expression includes all objects to promote
the welfare of the public, and when an object is to promote or
protect the interest of particular trade or industry that object
becomes an object of public utility and would be charitable
purpose (Gujarat Maritime Board (2007) 295 ITR 561 (SC) [see
Commissioner of Income Tax vs. Agricultural Market
Committee, (2011) 336 ITR 641 (AP)]
146. In our opinion, this could be termed as a charitable
purpose which has as its motive advancement of an object of
general public utility to which the exception carved out in the
first proviso to Section 2(15) of the Act would not apply.
147. We may refer to and rely upon the decision of this Court
in the case of Director of Income Tax (Exemption) vs.
Sabarmati Ashram Gaushala Trust, reported in (2014) 44
taxmann.com 141 (Gujarat), wherein this Court was called
upon to consider whether the activities of the respondent
assessee-Sabarmati Ashram Gaushala Trust could be termed
as charitable having regard to the object with which the trust
was constituted. We may quote the relevant observations;
“What thus emerges from the statutory provisions, as
explained in the speech of Finance Minister and the CBDT
Circular, is that the activity of a trust would be
excluded from the term ‘charitable purpose’ if it
is engaged in any activity in the nature of trade,
commerce or business or renders any service in relation
to trade, commerce or business for a cess, fee and/or
any other consideration. It is not aimed at
excluding the genuine charitable trusts of general
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public utility but is aimed at excluding activities in
the nature of trade, commerce or business which are
masked as ‘charitable purpose’.
Many activities of genuine charitable purposes which are
not in the nature of trade, commerce or business
may still generate marketable products. After setting
off of the cost, for production of such marketable
products from the sale consideration, the activity may
leave a surplus. The law does not expect the Trust
to dispose of its produce at any consideration
less than the market value. If there is any
surplus generated at the end of the year, that
by itself would not be the sole consideration for
judging whether any activity is trade, commerce
or business particularly if generating ‘surplus’ is wholly
incidental to the principal activities of the trust;
which is otherwise for general public utility, and
therefore, of charitable nature.
We are wholly in agreement with the view of
the Tribunal. The objects of the Trust clearly establish
that the same was for general public utility and where for
charitable purposes. The main objectives of the trust are
to breed the cattle and endeavour to improve the quality
of the cows and oxen in view of the need of
good oxen as India is prominent agricultural
country; to produce and sale the cow milk; to
hold and cultivate agricultural lands; to keep grazing
lands for cattle keeping and breeding; to rehabilitate
and assist Rabaris and Bharwads; to make
necessary arrangements for getting informatics and
scientific knowledge and to do scientific research with
regard to keeping and breeding of the cattle,
agriculture, use of milk and its various
preparations, etc.; to establish other allied institutions
like leather work and to recognize and help them in
order to make the cow keeping economically
viable; to publish study materials, books,
periodicals, monthlies etc., in order to publicize the
objects of the trust as also to open schools and hostels
for imparting eduction in cow keeping and agriculture
having regard to the trust objects.
All these were the objects of the general public utility and
would squarely fall under section 2 (15) of the Act. Profit
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making was neither the aim nor object of the Trust.
It was not the principal activity. Merely because
while carrying out the activities for the purpose of
achieving the objects of the Trust, certain incidental
surpluses were generated, would not render the activity
in the nature of trade, commerce or business. As clarified
by the CBDT in its Circular No. 11/2008 dated 19 th
December 2008 the proviso aims to attract those
activities which are truly in the nature of trade,
commerce or business but are carried out under the
guise of activities in the nature of ‘public utility’. ”
148. Carrying on an ‘activity in the nature of trade, commerce,
or business’ or rendering of any service in relation to trade etc.
is sine qua non for taking away the character of charitable
purpose. An activity in the nature of trade, commerce or
business is always carried on with the prior object of earning
income. What is relevant is the intention of the person before
undertaking such activity. A line of distinction needs to be
drawn between the activities undertaken by a society,
otherwise satisfying the prescription .of section 2(15) ‘prior to
the insertion of proviso, which are aimed at earning income
divorced from the objects for which it is charitable por una
parte and the activities which are aimed at the attainment of
the objects for which It was set up por otra parte. Whereas the
former fall within the mandate of the proviso to section 2(15),
the latter do not. The obvious reason is that the latter activities
are in furtherance of the charitable objects of such society and
income, if any, resulting from such activities and does not
convert the otherwise charitable activity [within the definition
of section 2(15)] into carrying on of a business, trade or
commerce. It can be understood with the help of a simple
illustration. Supposing an association set up for the promotion
of a particular trade, has its own premises‘ from which it
carries out the activities for the promotion of such trade. If the
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association lets out its premises from time to time for
enhancing its income, which letting out has no relation with
the objects for which it was set up as a charitable institution,
namely, the promotion of that particular trade, the resultant
activity will amount to carrying on trade, commerce or
business so as to fall within proviso to section 2(15). 0n the
other hand, if it uses its premises for undertaking activities for
which it was set up and is a charitable institution, and while
doing so, there results some income, such income will not
amount to carrying on any trade, commerce or business. The
crux of the matter is to understand the object of carrying on
the activity which resulted into income. If the object is to
simply earn income de hors the promotion of objects for which
it was set up, it will fall within the ambit of proviso to section
2(15) and if the object of the activity is to promote the objects
for which it was set up, then it will not be caught within the
sweep of the proviso notwithstanding the fact that there
results some income from carrying out such activity. The core
of the matter is to see whether the activity which resulted into
some income or loss was carried on with the object of doing
some trade, commerce or business, etc., or it was in
furtherance of the objects (non-business) etc., for which the
assessee was set up. In other words, the predominant object of
the activities should be seen as to whether it is aimed at
carrying on some business, trade or commerce or the
furtherance of the object for which it was set up. If it falls in
the first category, then, the case would be covered within the
proviso to section 2(15) and, in the otherwise scenario, the
assessee will be construed to have carried on its activities of
general public utility. (see Society of Indian Automobile
Manufactures vs. ITO, Delhi)
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149. The Delhi High Court in the Institute of Chartered
Accounts of India v. Director General of Income-tax
(Exemptions), 2013 358 lTR 91/217 Taxman 152/35
taxmann.com 140 (Delhi) , observed, while disposing of a writ
petition, that holding interviews for fees for the purpose of
campus placements of its students does not amount to
carrying on a business so as to deny exemption u/s 11 of the
Act. It further observed that if the object or purpose of an
institution is charitable, the fact that the institution collects
certain charges does not alter the character of the institution.
The Delhi High Court further observed in para 67 that “the
purport of the first proviso to section 2(15) of the Act is not to
exclude the entities which are essentially for charitable
purpose, but are conducting some activities for a consideration
or a fee. The object of introducing the first proviso is to
exclude the organizations which are carrying on regular
business from the scope of “charitable purpose'”. The High
Court also noticed the purpose of introducing the proviso to
section 2(15) of the Act from the Budget Speech of the Finance
Minister while introducing the Finance Bill 2008 and
reproduced the relevant extract to the Speech as under:’
“……..Charitable purpose” includes relief of the poor,
education, medical relief and any other object of general
public utility. These activities are tax exempt, as they
should be. However, some entities carrying on regular
trade, commerce or business or providing services in
relation to any trade, commerce or business and earning
incomes have sought to claim that their purposes would
also fall under “charitable purpose”. Obviously, this was
not the intention of Parliament and, hence, I propose to
amend the law to exclude the aforesaid cases. Genuine
charitable organizations will not in any way be affected.”
The expressions “business”, “trade“ or “commerce” as
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used in the first proviso must, thus, be interpreted
restrictively and where the dominant object of an
organization is charitable any incidental activity for
furtherance of the object would not fall within the
expressions ” business”. “trade” or “commerce”.
Question with regard to Section 11(1)(d) of the Act:
150. So far as the question with regard to Section 11(1)(d) of
the Act is concerned, we may only say that a charitable
institution is entitled to exemption under Section 11 of the
Income Tax Act. Such exemption is subject to the conditions
prescribed therein. A reading of Section 11 shows that subject
to the provisions of Sections 62 and 63 of the Act, the income
enumerated therein shall not be included in the total income of
the previous year of the person in receipt of the income. One
of the source of income that is enumerated in clause (d) of
sub-section (1) of Section 11 is the income in the form of
voluntary contributions made with a specific direction that they
shall form part of the corpus of the trust or institution. The fact
that the donors had instructed that the interest earned shall be
added to the corpus of the trust is not in dispute. If that be so,
the interest earned on the contributions already made by the
donors would also partake the character of income in the form
of voluntary contributions made with a specific direction that
they shall form part of the corpus of the trust. If that be so, the
conclusion is irresistible that the Tribunal has rightly held that
the interest earned would qualify for exemption under Section
11(1)(d) of the Act.
151. In the aforesaid context, the findings of the Tribunal are
as under;
“55. On a perusal of the BCCI Infrastructure Subsidy
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rules, we find that what is given to the assessee as
infrastructure subsidy is reimbursement of 50% of costs
in respect of certain expenditure on infrastructure which
is inherently in the capital field. The mere fact that it is
not a reimbursement to an outside party, such as a
district cricket association, does not really matter. As
long as the subsidy is relatable to a capital asset created
by the assessee on his own or by an eligible district
cricket association, as the present subsidy undisputedly
is, it is outside the ambit of revenue receipt and taxable
income. The very foundation of the stand of the
Assessing Officer is thus devoid of legally sustainable
merits. As such, there can hardly be an occasion, in
principle, to hold such a subsidy as a revenue receipt or
taxable income. There is not even a whisper of a
discussion by the Assessing officer to the effect that
infrastructure subsidy is revenue in nature. As a matter
of fact, the claim is made for the subsidy only after the
expenditure having been incurred. The authorities below
have simply brushed aside the case and the submissions
of the assessee and proceeded to hold it as an income.
Looking to the nature of the subsidy, which is clearly
relatable to the capital assets generated, we are unable
to hold this receipt in the revenue field. We, therefore,
uphold the plea of the assessee on this point as well and
delete the addition of Rs 2,13,34,033/-.”
152. The Gujarat Cricket Association received corpus donation
of Rs.20,69,60,338/- from the BCCI. The Assessing Officer held
that it is not corpus donation and added the same to the
income. Before the C.I.T (Appeals), the Association drew the
attention to a letter addressed to the Officer dated 28th
December, 2011 where two specific letters from the BCCI
dated 12th October, .2001 and 13th October, 2001 respectively
addressed to the Secretary of the Gujarat Cricket Association
were produced. The letter dated 12th October, 2001 from the
BCCI draws attention to the decision in the Annual General
Meeting, and the resolution incorporating the said decision as
follows
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“5. Chairman suggested that as already decided in
working Committee henceforth the TV subsidies should
be sent towards ‘Corpus Fund’ and this decision can also
be approved by the members of this meeting. Thereafter
the members unanimously approved that henceforth the
TV subsidies should be sent by the Board to the Member
Associations towards “Corpus Fund” instead of subsidy
fund.”
153. The C.I.T.(Appeals), in his order, in para-18 noted that the
above “donation of Rs.1,38,36,800/- was treated as the Corpus
donation in the A.Y. 2002-03.”. The aforesaid resolution
mentioned in the letter of the BCCI dated 12th October, 2001,
which used the word “henceforth”, which means in future also,
was not considered good enough by him as “a specific
direction” as required by section 11(1)(d) and only on that
reasoning, he held that It Is not the corpus donation. The
Department did not file appeal against the said decision but
the Association did file an appeal to the Tribunal against the
finding of absence of specific direction in every year. The
Tribunal, on page 242, para-49 reproduced from their order in
A.Ys. 2004-05 to 2007-08 pointing out that the “similar
amounts received in the earlier years had been treated all
along as the corpus donation”. ‘Earlier Year’ means A.Ys. 2002-
03 and 2003-04. On page 245, the Tribunal reproduced para-
15 of their order for the A.Ys. 2004-05 to 2007-08 as follows:
“15. We find that, at pages 46 and 47 of the paperbook,
the assessee has filed specific confirmations to the effect
that these amounts were corpus donations. We have also
perused the BCCI resolution no 5 dated 29th September
2001 which specifically states that the TV subsidies
should henceforth be sent to the Member Associations
towards “corpus funds”. There is no dispute that the TV
subsidy in question is sent under this resolution. On
these facts, and In the light of the provisions of Section
11(1)(d) which only require the income to be “by way of
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voluntary contributions made with a specific direction
that they shall form part of the corpus of the trust or the
institution”, we are of the considered view that any
payments made by the BCCI, without a legal obligation
and with a specific direction that it shall be for corpus
fund as admittedly the present receipt is, is required to
be treated as corpus donation not includible in total
income. We are unable to find any legal support for
learned CIT(A)’s stand that each donation must be
accompanied by a separate written document. The
contribution has to be voluntary and it has to be with
specific direction that it will form corpus of the trust’.
These conditions are clearly satisfied. Any payment
which the assessee is not under an obligation to make,
whatever be the mode of its computation, is a voluntary
payment, and, any payment which is with a specific
direction that it for corpus fund is a corpus donation. In
our considered view, even without the two specific
confirmations filed by the assessee, in the light of the
BCCI resolution under which the payment is made and in
the light of the payment not being under any legal
obligation, the conditions under section 11(1)(d) are
satisfied. We, therefore, uphold the plea of the assessee.
The Assessing Officer is accordingly directed to delete
this addition of Rs.1,58,00,000.”
154. In the course of the hearing of these tax appeals, the
learned counsel appearing for the respective assessee also
submitted that the promotion of sports and games would fall
within the ambit of the term “education” so as to fall in the
first limb of the definition of the term charitable purpose. In
this regard, our attention was drawn to the Circular No.395
dated 24th September, 1984 issued by the Central
Government in its Finance Department. The circular reads
thus;
“CIRCULAR:NO.395 [F.NO.181(5)82/IT(A-I)-SECTION
2(15) OF THE INCOME-TAX ACT, 1961-CHARITABLE
PURPOSE-WHETHER PROMOTION OF SPORTS AND
GAMES CAN BE CONSIDERED TO BE CHARITABLE
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PURPOSE.
SECTION 2(15) OF THE INCOME-TAX ACT, 1961-
CHARITABLE PURPOSE-WHETHER PROMOTION OF
SPORTS AND GAMES CAN BE CONSIDERED TO BE
CHARITABLE PURPOSE
Circular: No.395 [F.NO.181(5) 82/IT(A-I), DATED 24.9.1984.
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
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 of the Act, even if
it is not approved under section 10(23) relating to
exemption from tax of sports associations and institutions
having their objects as the promotion, control, regulation
and, encouragement of specified sports and games.”
155. Mr. Bhatt raised a strong objection as regards the
aforesaid issue. According to Mr. Bhatt, although the
submission in this regard was canvassed before the ITAT, the
ITAT thought fit not to touch the said issue for the reason
assigned in para-41 of the impugned judgment. Para-41 reads
thus;
“We have noted that all the learned representatives have
advanced detailed arguments on the proposition that
since the assessee cricket associations are engaged in
educational activities, it is not really material whether or
not the assessee has engaged itself in the activities in
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the nature of trade, commerce or business. However, in
the light of our categorical finding that the assessee
cricket associations were not really engaged in the
activities in the nature of trade, commerce or business, it
is not really necessary to adjudicate on this plea. We
leave the question open for adjudication in a flt case.”
156.. In such circumstances, referred to above, Mr. Bhatt, the
learned senior counsel, submitted that this Court may not go
into the issue whether the activities of the Association could be
termed as imparting education in sports. In other words,
imparting training in sports whether could be termed as an
educational activity falling within the ambit of Section 2(15) of
the Act. In this regard, the submission canvassed on behalf of
the assessees is that imparting training in sports is nothing but
an education activity and, therefore, the assessees would fall
in the first limb of the definition of “charitable purpose” as
defined under Section 2(15) of the Act and not under the
residual clause of “advancement of any other object of general
public utility”. The argument canvassed on behalf of the
assessee is that if that be the situation, the Proviso to Section
2(15) would not apply at all. At this stage, we deem it
appropriate to quote Section 260A(6) of the Act, 1961 which
reads thus;
“The High Court may determine any issue which-
(a) has not been determined by the Appellate Tribunal,
or
(b) has been wrongly determined by the Appellate
Tribunal, by reason of a decision on such question of law
as is referred to in sub-section(1).”
157. The plain reading of the aforesaid provision indicates that
the High Court may determine any issue which has not been
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determined by the Appellate Tribunal.
158. It is not in dispute that in none of the tax appeals, any
substantial question of law as regards whether training in
sports (game of cricket) would fall within the ambit of the term
“education” so as to fall in the first limb of the definition of the
term “charitable purpose” as defined under Section 2(15) of
the Act. In the absence of any substantial question of law being
formulated in this regard, whether we should go into this
question and express any opinion of our own is something we
should look into closely.
159. Clause (a) of sub-section (6) to Section 260A of the Act
states that the High Court may decide an issue, which is not
determined by the Appellate Tribunal. The word “determined”
means that the issue is not dealt with, though it was raised
before the Tribunal. The word “determined” presupposes an
issue was raised or argued but there is failure of the Tribunal
to decide or adjudicate the same. In a given case, a substantial
question of law may arise because of the facts and findings
recorded by the Tribunal, but the said issue/question is not
determined. In such cases, an appeal under Section 260A of
the Act can be entertained. This would depend upon the facts
of each case and the reasoning and findings recorded by the
Tribunal.
160. In the aforesaid context, we may refer to a decision of
the Supreme Court in the case of M. Janardhana Rao vs.
Joint Commissioner of Income Tax, 2005 (273) ITR 50,
wherein the Supreme Court has observed as under;
“Under Section 260A(2)(c) the appeal under Section 260A
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shall be (a) in the form of a memorandum of appeal and
(b) precisely stating therein the substantial question of
law involved. Under Section 260A(3) when the High Court
is satisfied that a substantial question of law is involved
in any case it shall formulate that question and under
section 260A(4) the appeal is to be heard only on the
question formulated under the preceding sub- section. It
has to be noted that in terms of Section 260A(4) the
respondent in the appeal is allowed to argue at the time
of hearing of the appeal that the case does not involve a
substantial question of law as formulated. However,
proviso to Section 260A(4) specifically lays down that
nothing in Section 260A(4) shall be deemed to take away
the power of the High Court to hear, for reasons to be
recorded, the appeal on any other substantial question of
law not formulated by it, in case it is satisfied that the
case involves such question. Section 260A(5) provides
that the High Court to decide the question of law as
formulated and to deliver the judgment thereon
containing grounds on which such decision is founded.
Sub-section (6) empowers the High Court to determine
any such issue which has not been determined by the
Appellate Tribunal or has been wrongly determined by
the Appellate Tribunal by reasons of a decision of such
question of law as is referred to in sub-section (1) It is
important to note that appeal to the High Court lies only
when a substantial question of law is involved. It is
essential for the High Court to first formulate question of
law and thereafter proceed in the matter.
Without insisting on the statement of substantial question
of law in the memorandum of appeal and formulating the
same at the time of admission, the High Court is not
empowered to generally decide the appeal under Section
260A without adhering to the procedure prescribed under
Section 260A. Further, the High Court must make every
effort to distinguish between a question of law and a
substantial question of law. In exercise of powers under
Section 260A, the findings of fact of the Tribunal cannot
be disturbed. It has to be kept in mind that the right of
appeal is neither a natural nor an inherent right attached
to the litigation. Being a substantive statutory right, it has
to be regulated in accordance with law in force at the
relevant time. The conditions mentioned in Section 260A
must be strictly fulfilled before an appeal can be
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maintained under Section 260A. Such appeal cannot be
decided on merely equitable grounds.
An appeal under Section 260A can be only in respect of a
`substantial question of law’. The expression `substantial
question of law’ has not been defined anywhere in the
statute. But it has acquired a definite connotation
through various judicial pronouncements. In Sir Chunilal
V. Mehta & Sons Ltd. v. Century Spinning & Mfg. Co. Ltd.,
AIR (1962) SC 1314, this court laid down the following
tests to determine whether a substantial question of law
is involved. The tests are: (1) whether directly or
indirectly it affects substantial rights of the parties, or (2)
the question is of general public importance, or (3)
whether it is an open question in the sense that issue is
not settled by pronouncement of this Court or Privy
Council or by the Federal Court, or (4) the issue is not
free from difficulty, and (5) it calls for a discussion for
alternative view. There is no scope for interference by the
High Court with a finding recorded when such finding
could be treated to be a finding of fact.
On reading of impugned judgment of the High Court it is
clear that no substantial question of the law was
formulated at the time of admission of the appeal.
Obviously, the High Court has formulated questions
subsequently after conclusion of arguments for the
purpose of adjudication. That is clearly against the
scheme of Section 260A. Additionally , grievance that
certain points which were urged have not been dealt with
by the High Court appears to be correct. “
161. The aforesaid decision of the Supreme Court has been
exhaustively discussed by a Division Bench of the Gauhati High
Court in the case of Meghalaya Steels Ltd. & Ors. vs.
Commissioner of Income Tax, 2013 (358) ITR 551, wherein
the following has been observed;
“It follows, therefore, that the satisfaction of the High
Court that the appeal involves substantial question of law
is sine qua non for the appeal to be admitted for hearing.
This position of law will not remain in doubt, when we
proceed to minutely examine the provisions embodied in
section 260A.
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Sub-section (2) of section 260A permits the Chief
Commissioner or Commissioner as well as an assessee,
who may feel aggrieved by the order passed by an
appellate Tribunal, to appeal to the High Court provided
that the appeal is filed within one hundred and twenty
days from the date on which the order, appealed against,
is received by the assessee or the Chief Commissioner or
the Commissioner, as the case may be. This apart, as
indicated above, the appeal has to be in the form of
memorandum of appeal precisely stating therein the
substantial question or questions of law involved.
Thus, apart from the period of limitation within which an
appeal has to be preferred and the form in which the
appeal has to be preferred, section 260A necessitates
that the memorandum of appeal clearly states the
substantial question or questions of law, which, according
to the appellant, is, or are, involved in the appeal.
Sub-section (3) of section 260A shows that when an
appeal is filed, as prescribed by sub-section (2), stating
the substantial question or questions of law involved, this
would not, automatically, make the appeal admissible in
law inasmuch as sub-sections (1) and (3) of section 260A
make it clear that if an appeal, preferred under section
260A, does not state the substantial question or
questions of law involved, then, the appeal may not be
admitted by the High Court.
Coupled with the above, sub-section (3) of section 260A
lays down that where the High Court is satisfied that a
substantial question of law is involved in an appeal, it
shall formulate that question. Conversely speaking, if the
High Court finds, on examination of a memorandum of
appeal, that the appeal does not give rise to a substantial
question of law, the High Court is duty bound to dismiss
the appeal in limine. If, however, the High Court takes
the view that appeal has given rise to substantial
question or questions of law, then, the High Court is
under legal obligation to formulate the substantial
question or questions of law, which, according to the
High Court, the appeal has raised, and, then, the High
Court shall hear the appeal on the question or questions
so formulated.
When an appeal is heard, in the light of sub-section (4) of
section 260A on the substantial question or questions of
law, which the court has formulated in the appeal, the
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respondents shall be allowed to argue, at the time of
hearing of the appeal, that no such substantial question
or questions of law, as formulated by the High Court, has
or have arisen for being answered in the appeal.
What further follows from a close reading, as a whole, of
section 260A is that if the High Court decides to give
notice to a respondent, in an appeal, before formulating
the substantial question or questions of law, the
respondent, in the appeal, shall have the right to satisfy
the
High Court that the substantial question or questions of
law, as contended by the appellant, is, or are, not really
involved; or else, there would be no meaning and
purpose in giving notice to the respondent, in the appeal,
before the appeal is admitted by formulating the
substantial question or questions of law on which, in the
view of the High Court, the appeal needs to be heard.
In other words, if a respondent, in appeal, made under
section 260A, is given notice before admission of the
appeal, it necessarily follows that the respondent has
been given an opportunity by the High Court to satisfy
the High Court that no substantial question or questions
of law, as contended by the appellant, has or have arisen
for determination and it would be thereafter that the
High Court would take a decision whether the appeal has
or has not given rise to any substantial question of law
and if the High Court finds that the substantial question
or questions of law has or have arisen, it shall admit the
appeal by formulating, for hearing, such substantial
question or questions of law, which, according to the
High Court, the appeal has given rise to for adjudication
and, then, answer the question or questions, so
formulated, by according opportunity of hearing to the
parties concerned on the substantial question or
questions of law, which the High Court may have
formulated.
Logically extended, what the above scheme of hearing of
the appeal conveys is that if the High Court, without
admitting the appeal, chooses to issue, in a given appeal,
notice to the respondent, in the appeal, to have the
latter’s say in the matter, the parties to the appeal would
have the right to address the court. Necessarily,
therefore, at the stage of admission, in such a situation,
while the appellant can address the court to show as to
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how a substantial question of law or more than one
substantial question of law can be said to have arisen, for
determination, in the appeal, the respondent would have
equally good right to try to satisfy the court on merit that
the substantial question or questions of law, which the
appellant contends to have arisen, has or have not
arisen. If, thereafter, the High Court is satisfied that a
substantial question or questions of law is, or are, indeed,
involved, notwithstanding the submissions made to the
contrary by the respondent, then, the High Court has to
formulate the substantial question or questions of law on
which, according to the High Court, the appeal needs to
be heard and it is only on the substantial question or
questions of law, so formulated, that hearing of the
appeal would take place and, on this hearing, both the
parties to the appeal would have the right to place their
arguments.
Obviously, while the appellant would try to show, at the
time of hearing of the appeal, on its admission, that the
substantial question or questions of law has or have
arisen for determination and needs or need to be
decided, the respondent would resist that substantial
question of law (as suggested by the appellant and/or
formulated by the High Court), does not really arise. In
short, hearing of an appeal, under section 260A, can, in a
given case, be in two different stages — once, before
admission of the appeal, and, once again, after admission
of the appeal.
We may, however, hasten to add that there is no
impediment, on the part of the High Court, to admit an
appeal without giving notice to the respondent; but if the
High Court decides to give a notice before admitting the
appeal and if it decides to hear the respondent on the
admission of the appeal, the High Court cannot straight
away allow the appeal on the basis of the substantial
question or questions of law, which the appellant may
have formulated inasmuch as section 260A provides ‘that
if the High Court finds that the appeal needs to be heard,
the High Court is legally bound to formulate the
substantial question or questions of law, which, according
to the High Court, has or have arisen for determination.
Put shortly, an appeal, under section 260A, can be heard
subsequent to the formulation of the substantial question
of questions of law, which, according to the High Court,
has or have arisen for determination.
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We may hastily add that the proviso to sub-section (4) of
section 260A empowers the High Court to formulate any
other substantial question of law if it is satisfied that the
case involves such a question, though the appellant may
not have raised such a substantial question of law.
Sub-section (5) of section 260A makes it crystal clear
that the appeal can be decided only on the substantial
question of law, which has been formulated by the High
Court, and not on the basis of the substantial question or
questions of law, which the appellant may have
mentioned in the memorandum of appeal, and the High
Court has to deliver the judgment not on the substantial
question or questions of law which an appellant may
have framed, but only on that substantial question of law
or those substantial questions of law, which the High
Court has already formulated.
It clearly follows, therefore, that no appeal can be heard,
as already pointed out above, until the time the High
Court is satisfied that the appeal involves a substantial
question of law for determination and no appeal can be
heard until the time the substantial question of law or
questions of law, as the case may be, has or have been
formulated by the High Court for the purpose of hearing
of the appeal.
Incidentally, one may also point out that the High Court,
under section 260A(6), has the power to determine an
issue, which has not been determined by an appellate
Tribunal or has been wrongly determined by the
appellate Tribunal.
Sub-section (7) makes it further clear that the provisions,
relating to second appeal, as embodied in section 100,
CPC, shall, as far as may be, applied to the appeals under
section 260A.
The Supreme Court has pointed out, at para 11, in M.
Janardana Rao v. Joint Commissioner of Incometax,
(2005) 2 SCC 324, which Mr. Bhattacharjee, learned
senior counsel, has relied upon, that under section
260A(c), the appeal, under section 260A, shall be — (a)
in the form of memorandum of appeal, and (b) the
memorandum of appeal must precisely state the
substantial question or questions of law involved and
section 260A(3) lays down that when the High Court is
satisfied that a substantial question of law is involved, in
a given appeal, it shall formulate that question and the
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appeal, in terms of the provisions of section 260A(4), has
to be heard only on the question formulated by the High
Court and that in terms of section 260A(4), the
respondent, in appeal, has to be allowed to argue, at the
time of hearing of the appeal, (wherein the substantial
question or questions of law-stands or stand already
formulated by the High Court), that the appeal does not
involve a substantial question or questions of law as has
been, or have been, formulated by the High Court.
In M. Janardana Rao (supra), the Supreme Court has also
clarified, at para 11, that the proviso to section 260A(4)
lays down that nothing in section 260A(4) shall be
deemed to take away the power of the High Court to
hear, for reasons to be recorded, an appeal on any
substantial question or questions of law not formulated
by it provided that the High Court is satisfied that the
case involves such a question. In no uncertain words, the
Supreme Court has held, at para 11, in M. Janardana Rao
(supra), that the High Court cannot, but decide the
substantial question of law, as formulated by it under
section 260A, and deliver judgment thereon containing
the grounds on which its decision is founded. The
observations, appearing at para 11, in’ M. Janardana Rao
(supra), read as under:
“11. Various essentials as culled out from the relevant
provisions of the Act are as follows:
Under section 260A(2)(c) the appeal under section 260A
shall be (a) in the form of a memorandum of appeal, and
(b) precisely stating therein the substantial question of
law involved. Under section 260A(3) when the High Court
is satisfied that a substantial question of law is involved
in any case, it shall formulate that question and under
section 260A(4) the appeal is to be heard only on the
question formulated under the preceding sub-section. It
has to be noted that in terms of section 260A(4) the
respondent in the appeal is allowed to argue at the time
of hearing of the appeal that the case does not involve a
substantial question of law as formulated. However, the
proviso to section 260A(4) specifically lays down that
nothing in section 260A(4) shall be deemed to take away
the power of the High Court to hear, for reasons to be
recorded, the appeal on any other substantial question of
law not formulated by it, in case it is satisfied that the
case involves such question. Section 260A(5) provides
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that the High Court is to decide the question of law as
formulated and to deliver the judgment thereon
containing grounds on which such decision is founded.”
(Emphasis is added)
Leaving none in doubt, the Supreme Court, in M.
Janardana Rao (supra), has laid down the scope of
section 260A by observing, in clear terms, that it is
essential for the High Court to, first, formulate a
substantial question of law and, thereafter, proceed in
the matter.
In other words, clarifying the scope of section 260A, the
Supreme Court, in M. Janardana Iiao v. Joint
Commissioner of Income-tax, (2005) 2 SCC 324, has
pointed out, at para 13, thus:
“13. It is important to note that the appeal to the High
Court lies only when a substantial question of law is
involved. It is essential for the High Court to first
formulate a question of law and thereafter proceed in the
matter.”
(emphasis is added)
The Supreme Court has pointed out, in M. Janardana Iiao
(supra), that the conditions, mentioned in section 260A,
must be strictly fulfilled before an appeal can be
maintained under section 260A meaning thereby that if
the appellant is unable to show that a substantial
question of law has arisen for determination, there is no
impediment, on the part of the High Court, to dismiss the
appeal without even admitting the appeal. Logically
extended, it would mean that if the respondent has been
given notice before the High Court decides to admit an
appeal, it would remain open to the respondent to show
that no substantial question of law has arisen and in
order to show that no substantial question of law has
arisen, it would be, ordinarily, necessary for the
respondent to make his submission on merit if the
respondent seeks to satisfy the High Court that no
substantial question of law for determination has arisen
in the appeal. The relevant observations, appearing in
this regard, in M. Janardana Iiao (supra), read as under:
“14. Without insisting on the statement of substantial
question of law in the memorandum of appeal and
formulating the same at the time of admission, the High
Court is not empowered to generally decide the appeal
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under section 260A without adhering to the procedure
prescribed under section 260A. Further, the High Court
must make every effort to distinguish between a
question of law and a substantial question of law. In
exercise of powers under section 260A, the findings of
fact of the Tribunal cannot be disturbed. It has to be kept
in mind that the right of appeal is neither a natural nor
an inherent right attached to the litigation. Being a
substantive statutory right, it has to be regulated in
accordance with law in force at the relevant time. The
conditions mentioned in section 260A must be strictly
fulfilled before an appeal can be maintained under
section 260A. Such appeal cannot be decided on merely
equitable grounds.”
(emphasis is added)
A three Judge Bench, in M. Janardana Rao (supra), culled
out the test to determine as to what question can be
treated as a substantial question of law. Having referred,
in this regard, to the case of Sir Chunilal V. Mehta and
Sons Ltd. v. Century Spg. and Mfg. Co. Ltd., (AIR 1962 SC
1314), the Supreme Court has hold, at para 15, in M.
Janardana Rao (supra), as under:
“15. An appeal under section 260 A can only be in
respect of a “substantial question of law”. The expression
“substantial question oflaw” has not been defined
anywhere in the statute. But it has acquired a definite
connotation through various judicial pronouncements. In
Sir Chunilal V. Mehta and Sons Ltd. v. Century Spg. and
Mfg. Co. Ltd., this court laid down the following tests to
determine whether a substantial question of law is
involved. The tests are: (1) whether directly or indirectly
it affects substantial rights of the parties, or (2) the
question is of general public importance, or (3) whether it
is an open question in the sense that the issue is not
settled by pronouncement of this court or Privy Council
or by the Federal Court, or (4) the issue is not free from
difficulty, and (5) it calls for a discussion for alternative
view. There is no scope for interference by the High Court
with a finding recorded when such finding could be
treated to be a finding of fact.”
(emphasis is added)
In M. Janardana Rao (supra), having found that the High
Court had not formulated any substantial question of law
at the time of admission of the appeal, but formulated,
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for the purpose of adjudication of the appeal, the
question subsequent to the conclusion of arguments, the
Supreme Court took the view that the procedure, so
adopted, is clearly against the scheme of section 260A.
In the face of the facts, as indicated above, the Supreme
Court, in M. Janardana Rao, (supra) interfered with the
order, which had been passed, in appeal, by the High
Court.
In the case at hand, too, if this court finds, in the light of
the clearly laid down position of law, in M. Janardana Rao
(supra), that this court formulated the substantial
question or questions of law for adjudication subsequent
to the admission of the appeal, as is contended by the
respondent-opposite party, then, such a breach by the
High Court would make its judgment and order open to
review if the power of review is, otherwise, found to be
available to the High Court in a case of present nature.
The relevant observations, appearing at para 1.6, in M.
Janardana Rao (supra), read as under:
“16. On reading of the impugned judgment of the High
Court it is clear that no substantial question of law was
formulated at the time of admission of the appeal.
Obviously, the High Court has formulated questions
subsequently after conclusion of arguments for the
purpose of adjudication. That is clearly against the
scheme of section 260A. Additionally, grievance that
certain points which were urged have not been dealt with
by the High Court appears to be correct.”
(emphasis is added)
Relying heavily on the case of Kanan (dead) by Lrs. v.
V.S Pandurangam (dead) by Lrs., (2007) 15 SCC 157,
Mr. Pathak, learned Additional Solicitor General, has
submitted that the mere omission to frame substantial
question of law before hearing of the appeal cannot be a
reason for interfering with the impugned, judgement and
order, dated 16.9.2010, unless prejudice is shown to
have been caused.
In Kanan (Dead) (supra), the Supreme Court has held
that when the parties, in appeal, go to appeal knowing
fully well the issue, the order, which is finally passed in
the second appeal, cannot be interfered with unless
prejudice is shown to have been caused as a result of
omission to frame a substantial question of law.
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While considering the case of Kanan (supra), it may be
noted that, while the decision, in Kanan (supra), has been
rendered by a two-Judge Bench of the Supreme Court,
the decision, in M. Janardana Rao v. Joint
Commissioner of Income-tax, (2005) 2 SCC 324, has
been rendered by a three-Judge Bench of the Supreme
Court. In M. Janardana Rao (supra), the Supreme Court
has emphasized, at para 13, that it is essential for the
High Court to, first, formulate a question of law and,
thereafter, proceed with the matter and, at para 14, the
Supreme Court has held, in M. Janardana Rao (supra),
that the conditions, mentioned in section 260A, must be
strictly fulfilled and that such an appeal cannot be
decided merely on equitable grounds. In fact, in M.
Janardana Rao (supra), the Supreme Court interfered
with the order, made in the appeal under section 260A,
on the ground that no substantial question of law had
been framed at the time of the admission of the appeal
and that the High Court had formulated, for the purpose
of adjudication, the questions subsequent to the
conclusion of the arguments, which procedure is against
the scheme, which section 260A propounds.
In the face of the decision, in M. Janardana Rao (supra),
there can be no escape from the conclusion that disposal
of an appeal without formulating the substantial
questions of law and without hearing the parties, on such
substantial questions of law, is illegal even if the High
Court formulates the question, for the purpose of
adjudication, subsequent to the conclusion of the
arguments.
The question, therefore, of prejudice having been caused
or not does not arise. This apart, in the case at hand, it is
the grievance of the review petitioners that as
substantial questions of law had not been formulated for
the purpose of hearing of the appeal, the review
petitioners could not make their submissions on the merit
of the substantial questions of law, which the High Court
has, subsequent to the admission hearing, ultimately,
decided inasmuch as one of the issues in the appeal has
been decided against the review petitioners without
according them an opportunity to have their say after
making it clear to them that the substantial questions of
law, which the memorandum of appeal had mentioned,
were the substantial questions of law, which, even
according to the High Court, had arisen for determination
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and these were the questions, which would be finally
taken up for adjudication by the court.
Coupled with the above, the decisions, which have been
referred to in Kanan (dead) by Lrs. v. VS.
Pandurangam (dead) by Lrs., (2007) 15 SCC 157, are
not on substantial questions of law, but on the question
of issues. It is trite that even if an issue was not framed,
it would not disable the court from refusing to interfere
with a decree if the parties were, otherwise, well aware
of the issues and if the omission to frame the issues has
not caused any prejudice to either of the parties.
In the face of the fact that no substantial question of law
was formulated by the High Court before the appeal was
heard for the purpose of disposal and this court had not
made it clear to the parties, in the appeal, that the
appeal would be disposed of on hearing the parties
concerned at the admission stage itself, it logically
follows that the decision, rendered in the appeal, was
contrary to, and in violation of, the mandatory
requirements as regards the procedure to be followed in
an appeal under section 260A. Consequently, the
impugned judgment and order, dated 16.9.2010, cannot
survive.”
162. In view of the aforesaid discussion, we are not going into
the question whether the assessees could be said to be
engaged in imparting education in the form of promoting the
game of cricket.
163. We sum up our final conclusions as under;
(i) In carrying on the charitable activities, certain surplus
may ensue. However, earning of surplus, itself, should not be
construed as if the assessee existed for profit. The word
“profit” means that the owners of the entity have a right to
withdraw the surplus for any purpose including the personal
purpose.
(ii) It is not in dispute that the three Associations have not
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distributed any profits outside the organization. The profits, if
any, are ploughed back into the very activities of promotion
and development of the sport of cricket and, therefore, the
assessees cannot be termed to be carrying out commercial
activities in the nature of trade, commerce or business.
(iii) It is not correct to say that as the assessees received
share of income from the BCCI, their activities could be said to
be the activities of the BCCI. Undoubtedly, the activities of the
BCCI are commercial in nature. The activities of the BCCI is in
the form of exhibition of sports and earn profit out of it.
However, if the Associations host any international match once
in a year or two at the behest of the BCCI, then the income of
the Associations from the sale of tickets etc., in such
circumstances, would not portray the character of commercial
nature.
(iv) The State Cricket Associations and the BCCI are distinct
taxable units and must be treated as such. It would not be
correct to say that a member body can be held liable for
taxation on account of the activities of the apex body.
(v) Irrespective of the nature of the activities of the BCCI
(commercial or charitable), what is pertinent for the purpose of
determining the nature of the activities of the assessees, is the
object and the activities of the assessees and not that of the
BCCI. The nature of the activities of the assessee cannot take
its colour from the nature of the activities of the donor.
Discussion of case law:
164. We shall now proceed to deal with the decisions, upon
which, strong reliance has been placed on behalf of the
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Revenue.
165. In the case of Truck Operators Association (supra), the
assessee Truck Operators Association had filed an application
in Form No.10A for registration of the Society under Section
12AA of the Act along with the certificate of registration
granted by the Registrar of Societies and a copy of
Memorandum and By-Laws of the Society. The Commissioner
rejected the application holding that the Association was not
formed for advancement of object of general public utility
within the meaning of Section 2(15) of the Act. The Tribunal
allowed the assessee’s appeal and directed the Commissioner
to grant the registration under Section12AA to the assessee-
Society. The Revenue went in appeal before the High Court of
Punjab & Haryana. The High Court thought fit to allow the
appeal, observing as under;
“9. On examination of the objects and the purpose of the
Association in the present case, it emerges that the
respondent-Association is union of Truck Operators
constituted for facilitating its members to carry on the
trade of transportation and not to allow the outsider or
non-member to undertake any business activity within
the precincts of Hansi Town/village. The Association
charges fees from its members before the transportation
on the basis of the distance involved. The membership
and payment of fees are mandatory and the element of
voluntary contribution is missing. The association is
vigorously pursuing transportation business by receiving
freight charges on behalf of its members. The welfare
activities adopted for the truck drivers, cleaners and
mechanics of the truck owners are in the nature of staff
welfare activities, as are common in other business
organizations which cannot be termed for general public
utility.
17. The assessee was a union of transport operators
registered as a Trade Union under the Indian Trade
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Unions Act, 1926. On analysis of the objects of the
union for which it was constituted, it was discerned that
the surplus funds of the trade union could be distributed
among the members at the time of its dissolution. In
other words, it was held that the rules and regulations do
not impose a legal obligation on the assessee or its
members to hold the income of the assessee only for
charitable purposes and the element of private gain
could not be excluded. The union was, thus, held not to
be a Charitable Institution.”
166. Thus, on the facts of that case, the High Court took the
view that the assessee was not carrying on the activities for
charitable purposes and, therefore, was not entitled to the
benefit of registration under Section 12AA of the Act. One
important aspect which was noticed by the High Court was that
the surplus funds of the Trade Union could be distributed
among the members at the time of its dissolution. The High
Court noticed that the rules and regulations did not impose a
legal obligation on the assessee or its members to hold the
income of the assessee only for charitable purposes and the
element of private gain could not be excluded. This decision,
in our opinion, is of no avail to the Revenue.
167. In National Institute of Aeronautical Engg. Educational
Society (supra), the assessee was an educational society. It
moved an application before the Commissioner for grant of
registration under Section12AA of the Act. The Commissioner,
after examining the record before him, concluded that the
assessee was not carrying any charitable activity within the
meaning of Section 2(15) as it was charging substantial fees
from the students and making huge profits from that business.
Consequently, the assessee’s application was rejected. The
Tribunal, however, allowed the appeal of the assessee. The
Revenue went in appeal before the High Court of Uttarakhand.
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The High Court, while allowing the appeal preferred by the
Revenue, observed as under;
“10. Section 12AA of the Act provides the procedure for
registration. Clause (a) of sub Section (1) of Section 12AA
empowers the CIT to call for such documents or
information from the trust or institution as he thinks
necessary in order to satisfy himself about the
genuineness of the activities of the trust or institution
and may also make such inquiries, as he may deem
necessary in this behalf. Said provision in Section 12AA
makes it clear that CIT is not supposed to allow
registration with blind eyes. In the present case, CIT has
considered the relevant papers before him, which
included the income and expenditure accounts of the
previous years after the society got registered with the
Assistant Registrar Firms, Societies and Chits. The CIT,
after considering the record before him, has observed
that the society (present respondent) is charging
substantial fees from the students and making huge
profits.
11. After considering the submissions of the learned
Counsel for the parties, we are of the view that mere
imparting education for primary purpose of earning
profits cannot be said to be a charitable activity. We are
of the firm view that, in the expression ‘charitable
purpose’, ‘charity’ is the soul of the expression. Mere
trade or commerce in the name of education cannot be
said to be a charitable purpose. And Commissioner
Income Tax has to satisfy itself as provided under Section
12AA of the Act before allowing the registration. Question
of law stands answered. “
168. Thus, in the aforesaid case, the High Court took the view
that as the Society was charging substantial fees from the
students and making huge profits, it could not be said that the
assessee was carrying on any charitable activity. This decision
also is of no avail to the Revenue.
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169. In Hyderabad Race Club (supra), the assessee was a
Society registered under the Societies Registration Act, 1860
and the objects, for which, the assessee was established were
specified in Para No.3 of the Memorandum of Association. The
objects were to encourage, promote the scientific breeding
and training of horses, ponies and mules and to carry on the
business of a race club in all its branches etc. The ITO rejected
the assessee’s claim that it was a charitable institution and
that its income was exempt under Section 11 on the ground
that the assessee was carrying on a business by conducting
races which was an activity for profit. On appeal by the
assessee, the Tribunal upheld the ITO’s order. The matter was
ultimately heard by a Full Bench of the High Court of Andhra
Pradesh. While answering the substantial question of law in
favour of the Revenue and against the assessee, the Full
Bench observed as under;
“9. It would thus be seen that the scientific breeding and
training of horses and the imparting of instructions
relating to horse breeding in all its aspects, is shown as
an incidental or ancillary object in the memorandum of
association of the assessee-company which was
established in April 1971. Learned counsel submits that
in the memorandum of association constituting the
assessee as a company in April, 1971, carrying on the
business of a race club in all its branches had to be
specified as the main object in order to meet the
requirements of the company law, although in point of
fact the main object for which the assessee-company was
established, was what was stated as an incidental or
ancillary object against sl. no. 4 referred to above. It is
pointed out that for the purpose of incorporating a
company, the business which the company carries on has
to be specified as the main object and all other objects
have to be specified as incidental or ancillary objects,
and this classification for the limited purpose of the
Companies Act should not, according to the learned
counsel, be confused with the real object for which the
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assessee-company was established. According to the
learned counsel, the basic or dominant object for which
the assessee was established, whether as a society prior
to April, 1971, or as a company from April, 1971, was to
encourage and promote the scientific breeding and
training of horses and to impart instructions in and to
diffuse useful and scientific knowledge of horse breeding
and to encourage horse breeding in all its aspects which,
according to the learned counsel, are objects of general
public utility. The other objects specified, whether in the
memorandum of association relating to the assessee as a
society or in the memorandum of association relating to
the assessee as a company, are all subservient to the
main object of “scientific horse breeding”. Consequently,
the doctrine of dominant or primary object should be
invoked in the present case in order to examine whether
the dominant or primary object for which the assessee is
established, is charitable in character.
10. We are unable to agree with the learned counsel
that the dominant or primary object for which the
assessee is established either as a society or as a
company, is the scientific breeding of horses, and not for
the purpose of carrying on business in conducting races.
Referring to the memorandum of association of the
assessee as a society under the Societies Registration
Act, we see no ground to regard the object specified in
clause (c) of para 3 as a power conferred on the society
to carry on the business to advance and promote the socalled
main object of scientific breeding and training of
horses. In the first place, paragraph 3 specifically
mention that carrying on the business of a race club is an
object for which the society is established. It is not in the
nature of a power conferred on the society. It is true that
some of the objects specified in para 3 of the
memorandum of association relate to powers conferred
on the society and there is, to some extent, a mix-up of
the objects and powers in pars. 3. We have, however, no
difficulty in regarding the carrying on of the business by
conducting races as being in the nature of an objects
rather than a power. If any doubt in the above regard
subsists as regards the memorandum of association of
the society, that is clearly set at rest while setting out the
objects for which the assessee was established as a
company. As we have already referred to above, the
memorandum of association of the assessee after its
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incorporation in April, 1971, as a company clearly states
that the main object to be pursued by the assesseecompany
on its incorporation, is to carry on the business
of a race club in all its branches. Even when the assessee
was a society, carrying on the business of a race club
was obviously the main object although it was mixed up
with other objects, as there was no statutory requirement
that the main objects and ancillary objects should be
separately specified in the case of society. We are unable
to appreciate the learned counsel’s contention that
notwithstanding the memorandum of association
specifying the carrying on of the business of a race club
as the main object for which the assessee-company was
incorporated, we should hold that the main object for the
purpose of the Companies Act is the carrying on of the
business of a race club, and the main object for the
purpose of the I.T. Act is the scientific breeding of horses.
We must reject the contention that the main objects for
which the assessee was established should be regarded
differently for the purpose of the companies Act and the
I.T. Act. The provision contained in the memorandum of
association is unlearned counsel. We have, therefore, no
difficulty in coming to the conclusion that the main object
for which the assessee was established whether as a
society or as a company, was to carry on the business of
a race club and all other objects are either incidental or
ancillary to the above main object. Thus, even invoking
the doctrine of dominant or primary object, we must hold
that the assessee was established with the dominant or
primary object of carrying on the business of a race club
by conducting a races which, on the own admission of
the learned counsel, is not charitable in character. This
itself is sufficient to demolish the assessee’s claim that it
must be regarded as having been established for
charitable purposes by invoking the doctrine of dominant
or primary object.”
170. Thus, on the facts of that case, the Full Bench, ultimately,
held that the assessee was established with the dominant or
primary object of carrying on the business of a race club by
conducting races which cannot be termed as charitable in
character. This decision also is of no avail to the Revenue in
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the case at hand.
171. In Dharmaposhanam Co. (supra), the objects of the
assessee Company were to raise funds by conducting kuries
with Company as foreman, receiving donations and
subscriptions by lending money on interest and by such other
means as the Company would deem fit to do the needful for
the promotion of charity, industries etc. The appellant derived
income from the property, money lending and business in
kuries or chit funds held under the trust and claimed
exemption from tax in respect of the said income under
Section 11. The Tribunal held that the assessee was not
entitled to exemption. The matter went right upto the Supreme
Court. The Supreme Court, while dismissing the appeal of the
assessee, observed as under;
“On a consideration of the rival contentions of the
parties, the position appears to be this. The appellant can
succeed in his claim to exemption under section 1 1 (1)(a)
of the Act if the income from the business of conducting
kuries and of money lending can be said to be income
derived from property held under trust wholly for
charitable purposes. It is well settled that business is
“property” within the meaning of section 11(1)(e). C.I.T.
v. Krishna Warrier, (1964) 53 ITR 176 (SC). That is also
evident from the provisions of section 11 (4), and
reference may be made also to section 13(1)(bb).
Further, it is apparent from the terms of the
Memorandum of Association and the Articles of
Association that the business of conducting kuries and of
money lending is held under trust. The question is : Is the
business held under trust for charitable purposes ?
There can be little doubt that when sub-clause (a) of
clause 3 of the Memorandum says “To raise funds by
conducting kuries, with company as foreman, receiving
donations and subscriptions by lending money on
interest and by such other means as the company deem
fit”. it refers to powers conferred on the appellant to raise
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money in aid of, and for the purpose of accomplishing,
the objects mentioned in sub-clause (b) of clause 3 of the
Memorandum. Upto June 6, 1965 sub-clause (b) read :
“To do the needful for the promotion of charity,
education, industries, etc. and public good”.
Can all the purposes mentioned in sub-clause (b) be
described as charitable purposes ? Section 2(15) of the
Act defines the expression “charitable purpose” as
including “relief of the poor, education, medical relief and
the advancement of any other object of general public
utility not involving the carrying on of any activity for
profit.” Two objects in sub-clause (b) of clause (3) of the
Memorandum need to be considered, “industries” and
“public good”. As regards the latter, the decision on what
should be the “purposes of common good” was left to the
general meeting by Article 58 of the Articles of
Association. Having regard to the context in which these
words appear in the Memorandum and the Articles, they
must evidently be referred to the residue general head in
the definition in section 2(15) of the Act, that is to say,
“the advancement of any other object of general public
utility………… But this head is qualified by the restrictive
words “not involving the carrying on of any activity for
profit.” The operation of an industry ordinarily envisages
a profit making activity, and so far as the advancement
of public good is concerned, it is open to the appellant to
pursue a profit making activity in the course of carrying
out that purpose, which of course depends on the nature
and purpose of the “public good. Nowhere do we find in
the material before us any limiting provision that if the
appellant carries on any activity in the course of actually
carrying out those purposes of the trust it should refrain
from adopting and pursuing a profit making activity. In
Sole Trustee, Loka Shikshana Trust v. Commissioner of
Income-Tax, Mysore, (1975) 101 ITR 234, 243 (SC),
Khanna and Gupta, JJ., dealing with a case in which the
assessee carried on a business in the course of the actual
carrying out of a primary purpose of the trust, rejected
the claim to exemption and declared :-
“The fact that the appellant trust is engaged in the
business of printing and publication of newspaper and
journals and the further fact that the aforesaid activity
yields or is one likely to yield profit and there are no
restrictions on the appellant-trust earning profits in the
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course of its business would go to show that the purpose
of the appellant- trust does not satisfy the requirement
that it should be one ‘not involving the carrying on of any
activity for profit…….. Ordinarily profit is a normal
incident of business activity and if the activity of a trust
consists of carrying on of a business and there are no
restrictions on its making profit, the Court would be well
justified in assuming in the absence of some indication to
the contrary that the object of the trust involves the
carrying on of an activity for profit.”
Beg, J., in the same case, observed
“The deed puts no condition upon the conduct of the
newspaper and publishing business from which we could
infer that it was to be on “no profit and no loss” basis ….
That character (i.e. of the deed) is determined far more
certainly and convincingly by the absence of terms which
could eliminate or prevent profit making from becoming
the real or dominant purpose of the trust. It is what the
provisions of the trust make possible or permit coupled
with what had been actually done without any illegality in
the ;Nay of profit making, in the case before us, under
the cover of the provisions of the deed, which enable us
to decipher the predominantly profit making character of
the trust.”
In a subsequent case, Commissioner of Income-Tax,
Kerala v. Cochin Chamber of Commerce and Industry,
(1975) 101 ITR 796 (SC), this Court extended the test to
income derived from activities carried on in aid of, and
incidental to, the primary object of the trust. We may
note that no attempt has been made by the appellant
before us to cast doubt on the validity of the
observations made in those two cases, and we proceed
on the footing that they convey the true content of the
law.
It is, therefore, apparent that among the objects
contained in the original unamended sub-clause (b) of
clause (3) of the Memorandum are objects which, while
referable to the residual general head in the definition of
“charitable purpose” in section 2(15) of the Act,
nonetheless do not satisfy the condition that they should
not involve “the carrying on of any activity for profit.” The
result is that the objects “industries” and “common good”
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cannot be described as “charitable purposes”. What
follows then is this, that the said sub-clause (b) can be
said to contain some objects which are charitable and
others which are non- charitable. They are all objects
which appear to enjoy an equal status. It is open to the
appellant, in its discretion, to apply the income derived
from conducting kuries and from money lending, to any
of the objects. No definite part of the business or of its
income is related to charitable purposes only.
Consequently, in view of Mohammed Ibrahim Raza v.
Commissioner of Income-‘Tax, (1930) LR 57 IA 260; AIR
1930 PC 226 and East India Industries (Madras) Private
Limited v. Commissioner of Income-Tax, (1967) 65 ITR
611 (SC), , the entire claim to exemption must fail and it
cannot be said that any part of the income under
consideration is exempt from tax. That is the position in
regard to the assessment years 1962-63 to 1965-66
before us”
172. Thus, in the facts of that case, the Supreme Court,
ultimately, held that the objects “industries” and “common
good” could not be described as “charitable purposes”. This
decision also, in our opinion, is of no avail to the Revenue.
173. In the case of Sole Trustee Loka Shikshana Trust (supra),
the appellant was the sole trusty of a trust. The object of the
trust was to educate the people of India in general and of
Karnataka in particular by (a) establishing, conducting and
helping directly or indirectly institutions calculated to educate
the people by spread of knowledge on all matters of general
interest and welfare; (b) founding and running reading rooms
and libraries and keeping and conducting printing houses and
publishing or aiding the publication of books, booklets, leaflets,
pamphlets, magazines etc., in Kannada and other languages,
all these activities being started, conducted and carried on
with the object of educating the people; (c) supplying the
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Kannada speaking people with an organ or organs of educated
public opinion and conducting journals in Kannada and other
language for the dissemination of useful news and information
and for the ventilation of public opinion on matters of general
public utility; and (d) helping directly or indirectly societies and
institutions which have all or any of the aforesaid objects in
view. The High Court held that the income of the trust was not
entitled to exemption under Section 11 read with Section 2(15)
of the Act. The assessee, went in appeal before the Supreme
Court. The Supreme Court, while dismissing the appeal of the
assessee, observed as under;
“In addition to the power which the sole trustee had to
collect donations and subscriptions for the trust. he had
all the powers which the sole manager of a business may
have in order to carry it on profitably. He had the power
of transferring trust properties and funds if he thought “it
expedient in the interest of the objects of the Trust, to
transfer the assests and liabilities of this Trust to any
other Charitable Trust or institution conducted by such
Trust which in the opinion of the original Trustee or the
Board of Trustee has objects similar to the objects of this
Trust and is capable of carrying out the objects and
purposes of this Trust either fully or partially” (Paragraph
17 of the Trust deed). Although, the “original trustee”
was not “to take any remuneration” for discharging his
duties as a trustee, yet, he was not precluded “from
being paid out of the Trust fund such remuneration as
may be deemed propellor carrying out any work and duty
in connection with the conduct or management of
institutions of the Trust, or with the business of printing,
publishing or other activities carried on by the Trust”. He
was to be paid expenses incurred in travelling or
otherwise in connection with his duties as a trustee
(paragraph 16 of the Trust deed).
The “original trustee” could invest trust monies and profits “in any
investment authorised by law for the investment of Trust funds or in
shares, or securities or debentures of Limited Companies in India or
outside” (para 4 of the Trust deed). He had the “power to mortgage,
sell, transfer and give on lease or to otherwise deal with the Trust
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property or any portion thereof for the purpose of the Trust and to
borrow monies or raise loans for the purpose of the Trust whenever he
may deem it necessary to do so” (para 8 of the Trust deed).
Furthermore, the Trustee had the “power and authority to spend and
utilise the money and the property of the Trust for any of the purposes
of this Trust in such manner as to him may appear proper”.
It appears to us that, with this profit making background of the trust, its
loosely stated objects the wide powers of the sole trustee, and the
apparently profitable mode of conducting business, just like any
commercial concern, disclosed not only by the terms of the trust but by
the statement of total expenditure and income by the trustee it is very
difficult to see what educational or other charitable purpose the trust
was serving unless the dissemination of information and expression of
opinions through the publications of the trust was in itself treated as the
really educational and charitable purpose.
In the trust deed before us, as we have already indicated,
the trustee had not only wide powers of utilisation of
trust funds for purposes of the trust but could divert its
assets as well as any of the funds of the Trust to other
institutions whose objects are “similar to the objects” of
the trust and of “carrying out the objects and purposes of
this trust either fully or partially”. The whole deed
appears to me to be cleverly drafted so as to make the
purpose of clause 2(c) resemble the one which was held
to be protected from income-tax in the Tribune case
(supra). Indeed the very language used by the Privy
Council in the Tribune case (supra), for describing the
objects of the Trust in that case, seems to have been
kept in view by the draftsman of the trust deed before
us. And, we find that the power of diverting the assets
and income of the Trust although couched in language
which seems designed to counsel their real effect is
decisive on the question whether the trust is either
wholly or predominantly for a charitable purpose or not.
The trustees is given the power of deciding what 485
purpose is allowed to or like an object covered by the
trust and how it is to be served by a diversion of trust
properties and funds. If the trustee is given the power to
determine the proportion of such diversion, as he is given
here, the trust could not be said to be wholly charitable.
He could divert as much as to make the charitable part or
aspect, if any, purely illusory. Indeed, this was the law
even before the qualifying words introduced by the 1961
Act. [See: East India Industries (Madras) Pvt. Ltd. v.
Commissioner of Income-tax, Madras, (1967) 65 ITR 611
(SC), Commissioner of Income-tax, Madras v. Andhra
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Chamber of Commerce, (1965) 55 ITR 722 (SC) and Md.
Ibrahim Riza v. Commissioner of Income-tax, Nagpur, AIR
1930 PC 226. Such a “trust” would be of doubtful validity,
but I refrain from further comment or any
pronouncement upon the validity of such a trust as that
was neither a question referred to the High Court in this
case nor argued anywhere. “
174. Thus, it appears that the Supreme Court looked into the
trust deed of the trust in details and noticed that the sole
trustee had not only wide powers of utilization of the trust
funds for the purposes of the trust but he could divert its
assets as well as any of the funds of the trust, to the other
institutions whose objects were “similar to the objects” of the
trust and of “carrying out the objects and purposes of such
trust either fully or partially.” The Supreme Court observed
that the whole deed appeared to be very cleverly drafted so as
to make the purpose of clause (2)(c) resemble the one which
was held to be protected from income tax in the Tribune case
(1939) 7 ITR 415. (PC). The Supreme Court observed that if
the trustee is given the power to determine the proportion of
such diversion, the trust could not be said to be wholly
charitable. This decision also is of no avail to the Revenue in
the case at hand.
175. In the case of Cricket Association of Bengal (supra), the
assessee was an unregistered and unincorporated body. Its
membership was open to the clubs, District Associations,
Universities, Indian States, and subject to certain conditions,
individuals. Its objects were roughly summarized as promotion
of the game of cricket played in accordance with the highest
standard. The Association received payments by way of
subscriptions and donations. The ITO did not accept the plea of
the assessee, seeking exemption. The ITO held that the object
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of the Association was merely the promotion of a game and
could not be termed as pursuing a charitable object. The
order of the ITO was upheld by the AAC as well as the Tribunal.
The matter went in appeal before the High Court of Calcutta.
The High Court, while rejecting the appeal of the assessee,
observed as under;
“12. The question we have to consider is whether
promotion of cricket as a general purpose or more
particularly promotion of cricket in the form in which the
Association professes to promote it can at all be a
charitable purpose. In England, it has repeatedly been
held that no gift or bequest made merely for the
promotion of some game or pastime can be called a gift
or bequest for a charitable purpose. An exception is to be
found with respect to cases where provision is made for
training in a game as a part of the education of youth. In
those cases, the gift or bequest is regarded as charitable
on the ground that it advances the cause of education. As
instances of gifts or bequests for such purposes, I may
refer to the case of In re, Mariette : Mariette v. Governing
Body of Aldenham School, (1915) 2 Ch. 284, where a
bequest was made to the Governing Body of a school for
the purpose of building some squash racket courts and a
further bequest was made to the Head Master for the
time being upon trust to use the interest for providing a
prize for some event in the school athletic sports every
year. This bequest was upheld as charitable, because it
was considered essential in a school of learning that
there should be organised games as a part of the daily
routine in order that the boys might not be left to
themselves and that their bodily welfare might be
promoted. Another instance is the case of Dupree’s Deed
Trusts, In re, Daley v. Lloyds Bank, Ltd., (1945) 114 LJ Ch
L where a deed of gift, expressed to be for the
encouragement of chess playing by holding an annual
chess tournament limited to boys and, young-men under
the age of 21 years resident in a particular area, was held
to be a good gift for a charitable purpose. It appears that
Vaisey, J. who decided the case had to struggle a good
deal against his own inclinations in order to arrive at the
conclusion which he ultimately reached, but he said that
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in view of the evidence before him that chess was
included in the school curriculum and that according to
the experience of the members of the teaching
profession the game promoted concentration, selfreliance
and reasoning, he would not condemn the gift as
bad. The learned Judge, however, expressed the difficulty
he felt in the following words :
“One feels perhaps that one is on rather a slippery slope.
It chess, why not draughts? if draughts, why not bezique?
and so on, through to bridge, whist, and by another
route, stamp collecting and the acquisition of birds’
eggs?”
I need not, however, deal with this class of cases,
because the gifts in them were not merely for the
promotion of some game or sports, but they were for
training of youth in some game of skill or in athletic
sports as a part of their education. Where, however, a gift
or bequest has been made solely for the promotion of a
game or pastime, it has always been struck down as not
charitable. To take the case of In re: Nottage: Jones v.
Palmer, (1895) 2 Ch. 649 which is so often cited, the four
Judges who decided it, one in the High Court and three in
the Court of Appeal, all held that a bequest for the
encouragement of yacht racing, although it might be
beneficial to the public, could not be upheld as
charitable, because it was a bequest for the
encouragement of a mere sport. Lindley, L. J. in the Court
of Appeal made an observation in the course of his
judgment which is peculiarly appropriate to the present
case, since it mentions encouragement of the game of
cricket :
“Now, I should say”, observed the learned Judge, “that
every healthy sport is good for the nation–cricket,
football, fencing, yachting, or any other healthy exercise
and recreation; but if it had been the idea of lawyers that
a gift for the encouragement of such exercises is
therefore charitable, we should have heard of it before
now.”
It will be noticed that the learned Lord Justice included
cricket among the games in the illustrations he gave. The
case was decided in 1895 and it may be said that ideas
have since changed and that cricket has grown so much
in popularity and the general public have come to be
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associated so much with the game that the observations
made so long ago are no longer valid. Any such
contention must be overruled because even the
recentmost cases have not expressed any dissent from
the view taken in the Nottage case(1895-2 Ch. 649). It
has often been cited and very recently it was cited in the
case of Baddeley v. Inland Revenue Commissioners,
(1953) 1 Ch 504 in the Court of Appeal and in the same
case, Baddeley v. Inland Revenue Commra., (1955) AC
572 in the House of Lords. “In re Nottage, 1895-2 Ch 649
was cited for the proposition” observed Jenkins L. J. in the
Court of Appeal.
“that the encouragement of mere sport is not a charitable
purpose. With regard to this authority, I need only say
that in my view, neither of the trust here in question is a
trust for the encouragement of mere sport”.
It is noticeable that the learned Lord Justice did not
dissent from the decision cited before him. A more
elaborate reference to the case was made in the House of
Lords and among the other Lords, Lord Reid made
comments on it. Referring to the view taken in the Court
of Appeal of the Nottage case, 1895-2 Ch 649, Lord Reid
observed as follows :
“In re Nottage, 1895-2 Ch 649 is clearly distinguishable :
money was bequeathed to provide annually a cup for
yacht racing, so the only possible beneficiaries were
yacht owners who would be somewhat strange objects of
charity. But what the appellants found on is the
reasoning in the Court of Appeal to the effect that
encouragement of a mere sport or game is not charitable
though the sport or game may be beneficial to the public.
No doubt that is true in the main, but it cannot apply to
the provision or support of playing fields: yacht racing is
far removed from the kind of recreation which Parliament
has declared to be charitable. And a charitable purpose
such as education may well be achieved in part at least
by promoting. sport or games. The emphasis is on mere
sport or games, and I cannot suppose that any of the
learned Judges had in mind the Acts of Parliament
dealing-with recreation or would have denied that the
encouragement of games, as a means to achieve a
charitable purpose for those who took part in them, was
quite a different matter.”
It will thus be seen that while promotion of games as a
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part of the education of those who participate in them
may be a charitable purpose, the promotion of the
practice of a game in general either for the
entertainment of the public or for an advancement of. the
game itself has never been held to be charitable. So far
as cricket is concerned, I shall content myself with citing
only one other case, In re Patten, Westminster Bank,
Limited v. Carlyon, 1929-2 Ch. 276. A trust was created
for the benefit of the Sussex County Cricket Club and in
order to bring the trust within the statute of Elizabeth, it
was said that the trust was “for the supportation aid and
help of young tradesmen handicraftsmen and persons
decayed”. Really, however, it was a trust for the
promotion of cricket among boys of the working and
lower middle classes who might not be well off
financially. Romer, J. who decided the case said that it
might be that with the aid of the assistance provided
from this trust, some boys would be enable to embark,
upon life as professional cricketers, but he continued. to
say : “It is, I think, reasonably clear that the object of the
fund is the encouragement of the game of cricket and
nothing else, and it has been held by authorities that are
binding upon me that such a bequest is not charitable.”
He then proceeded to refer to the case of In re Nottage,
1895-2 Ch 649 as laying down the proposition to which
he was giving effect.
13. I do not think I should multiply citations in order to
illustrate the point that a gift or bequest merely for the
promotion of a game has never been considered
charitable : Clifford, In re : Mallam v. McFie, (1911) 81 LJ
Ch 220 was a case of angling; Trustees of Warnher’s
Charitable Trust v. Commissioners of Inland Revenue,
(1937) 21 Tax Cas 137, a case of playing fields. Scottish
Flying Club, Ltd. v. Commissioners of Inland Revenue,
(1936) 20 Tax. Cas 1, a case of an Aviation Club which
held aerial pageants and charged fees for admission to
the display and Inland Revenue Commissioners v. City of
Glasgow Police Athletic Association, 1953 AC 380, a case
of athletic sports of a police club. It is true that some of
the decisions ultimately turned on the point that the
beneficiary was not the public or a section of it, as
understood in law, but incidentally observations were
made in all of them as regards when promotion of a
game can be a charitable purpose and when it cannot be.
14. The facts of the present case are that the assessee
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Association merely held certain demonstration or
exhibition matches. It does not provide any training in
the game of cricket to novices or any advanced training
for persons who are already practiced players. Its
activities outside the holding of the exhibition matches is
limited entirely to its own members. The only contact it
has with the public is by way of having them as
spectators, on payment of a fee, of matches arranged by
it. I find it impossible to hold that any benefit or
entertainment which is thus paid for and which is availed
of by only such members of the public as can or wish to
pay for it can in any sense be a purpose of a charity. It is
true that charity in the income-tax sense need not have
any eleemosynary element in it and that an object of
general public utility is under the income-tax law a
charitable object. Indeed, if the objects professed by the
Association, are to be treated as charitable objects at all,
they can be so treated only if they can be regarded as
objects of general public utility. I find it impossible to hold
that there is any general public utility, so as to amount to
a charity, in arranging for cricket matches which the
public can see on payment. How untenable must be a
contention that such an object is an object of general
public utility and, therefore, must be held to be charitable
will appear if one considers certain parallel cases.
Suppose a body of men bind themselves together into a
club and collect annually some musicians from all parts of
the country to give demonstrations for a number of days
and suppose the public are admitted to such
demonstrations on payment of a fee. If the contention of
the Association in the present case is to be accepted, it
must equally be held that the body of men in the
hypothetical case I have mentioned who derive a large
income by selling admission to the musical
demonstrations organised by them, are also exercising
themselves for a charitable purpose and that their
earnings must be equally exempt from tax.
15. It was contended that the game of cricket had a place
of its own among games and that it inculcated a spirit of
fairness and an honourable conduct to such ah extent
that the term ‘cricket’ had come to be a synonym for
fairness and honour. That may be so, but I am unable to
understand how fairness and honour can be inculcated by
the game of cricket in any person other than those who
actually take part in it. In the present case, we are not
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concerned with the players who play at the matches
arranged by the Association, for they are members of the
visiting teams or it might be local teams, but so far as the
Association is concerned they are mostly outsiders. The
Association is claiming to be advancing a charitable
purpose only by providing an opportunity to the public to
witness the games arranged by it. It can by no means be
said that any spirit of fairness and honour is inculcated in
the spectators of a game of cricket or perhaps any other
game, played not by individuals but by teams. Indeed,
there is a school of opinion, now growing in volume,
which thinks that games played by rival teams drawn
from different parts of the country or different countries
and witnessed by multitudes do not serve any beneficial
purpose, but, on the other hand cause a deterioration of
the mind by fostering fanatical partisanships or
generating mass hatreds. This, however, is a matter of
opinion. Whether this extreme view is right or wrong, I
find it impossible to hold that any benefit of a public
character is conferred on the society or a section of it
merely by the arrangement of exhibition games of cricket
or tournaments and the admission of the public thereto
for a fee, on the basis of which the purpose of arranging
for such matches can be said to be a charitable purpose.
16. There is another ground too upon which the
Association’s claim must fail. I have already hinted at it,
but will now point it out specifically. Among the objects
set out in the Rules is one which authorises the
Association to carry out any other business or activity
which may seem to the Association capable of being
carried on in connection with the above. Section 4 (3) (i)
(a) and (b) of the Act which I have already read
contemplate either a business carried on in the course of
the carrying out of a primary purpose of the Association
or a business, the work in connection with which is
mainly carried on by the beneficiaries. There is no
question of the business of playing cricket here being
carried on by the beneficiaries of the Association,
because the games are mainly played by outsiders. But
the authority which the Rules confer on the Association to
carry out any other business “in connection with the
above,” that is to say, in connection with the promotion
of the objects set out earlier, does not seem to me to
come within the terms of Section 4 (3) (i) (a) which
requires the business to be carried on in the course of
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carrying out one of the primary purposes of the
Association. If so, it appears to me that even assuming
that there is a property and even assuming that the
purpose of promoting the game of cricket is a charitable
purpose, the property is here held not wholly for that
purpose but it is held for other purposes as well.”
176. The High Court, in the aforesaid case, took notice of the
fact that the Association merely held certain demonstration or
exhibition matches. It did not provide any training in the game
of cricket to novices or any advanced training for the persons
who were already practiced players. The High Court further
noticed that the activities of the Association, outside the
holding of the exhibition matches, was limited entirely to its
own members. The High Court also noticed that the only
contact the Association had with the public was by way of
having them as spectators on payment of a fee of matches
arranged by it. Thus, having regard to what has been referred
to above, the High Court, ultimately, took the view that the
Association was engaged in any charitable objects. The facts in
the case on hand are altogether different.
177. In the case of N.N. Desai Charitable Trust (supra), this
Court ruled that howsoever laudable the objects of the trust
may be, and such objects may lead one to believe that the
activities of the trust are charitable in nature, but for the
purpose of seeking exemption under Section 11 of the Act, the
actual activities are to be seen and not just the objects. There
need not be any debate on this proposition of law. In the case
on hand, after a detailed scrutiny of the various activities, the
tribunal has recorded a finding of fact that the activities, in
fact, are charitable in nature.
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178. In such circumstances, referred to above, we are of the
view that the Tribunal could be said to have taken a
reasonable view of the matter, and having recorded a finding
of fact based on the material on record, we should not disturb
such finding of fact.
179. In the result, all the tax appeals fail and are hereby
dismissed. The substantial questions of law, formulated in all
the tax appeals, are answered in favour of the assessees and
against the Revenue.
(J. B. PARDIWALA, J)
(A. C. RAO, J)
Vahid
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