C\/TAXAP\/268\/2012 JUDGMENT
\nIN THE HIGH COURT OF GUJARAT AT AHMEDABAD
\nR\/TAX APPEAL NO. 268 of 2012
\nWith
\nR\/TAX APPEAL NO. 152 of 2019
\nWith
\nR\/TAX APPEAL NO. 317 of 2019
\nWith
\nR\/TAX APPEAL NO. 318 of 2019
\nWith
\nR\/TAX APPEAL NO. 319 of 2019
\nWith
\nR\/TAX APPEAL NO. 375 of 2019
\nWith
\nR\/TAX APPEAL NO. 358 of 2019
\nWith
\nR\/TAX APPEAL NO. 359 of 2019
\nWith
\nR\/TAX APPEAL NO. 360 of 2019
\nWith
\nR\/TAX APPEAL NO. 333 of 2019
\nWith
\nR\/TAX APPEAL NO. 334 of 2019
\nWith
\nR\/TAX APPEAL NO. 335 of 2019
\nWith
\nR\/TAX APPEAL NO. 336 of 2019
\nWith
\nR\/TAX APPEAL NO. 337 of 2019
\nWith
\nR\/TAX APPEAL NO. 338 of 2019
\nWith
\nR\/TAX APPEAL NO. 339 of 2019
\nWith
\nR\/TAX APPEAL NO. 340 of 2019
\nWith
\nR\/TAX APPEAL NO. 320 of 2019
\nWith
\nR\/TAX APPEAL NO. 321 of 2019
\nWith
\nR\/TAX APPEAL NO. 374 of 2019
\nWith
\nR\/TAX APPEAL NO. 675 of 2019
\nWith
\nPage 1 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\nR\/TAX APPEAL NO. 123 of 2014
\nFOR APPROVAL AND SIGNATURE:
\nHONOURABLE MR.JUSTICE J.B.PARDIWALA Sd\/-
\nand
\nHONOURABLE MR.JUSTICE A.C. RAO Sd\/-
\n==========================================================
\n1 Whether Reporters of Local Papers may be allowed to
\nsee the judgment ?
\nYes
\n2 To be referred to the Reporter or not ? Yes
\n3 Whether their Lordships wish to see the fair copy of the
\njudgment ?
\nNo
\n4 Whether this case involves a substantial question of law
\nas to the interpretation of the Constitution of India or any
\norder made thereunder ?
\nNo
\n===============================================================
\nDIRECTOR OF INCOME TAX (EXEMPTION)
\nVersus
\nGUJARAT CRICKET ASSOCIATION
\n===============================================================
\nAppearance:
\nMR. M.R. BHATT, LD. SR. COUNSEL WITH MS MAUNA M BHATT, LD.
\nCOUNSEL for the Appellants in all the Tax Appeals.
\nMR. J. P. SHAH, LD. SR. COUNSEL WITH MR.MANISH J SHAH, LD.
\nCOUNSEL for the Gujarat Cricket Association
\nMR. S.N. SOPARKAR, LD. SR. COUNSEL WITH MR. B.S. SOPARKAR, LD.
\nCOUNSEL for the Baroda Cricket Association
\nMR. TUSHAR HEMANI, LD. SR. COUNSEL WITH MS. VAIBHAVI PARIKH,
\nLD. COUNSEL for the Saurashtra Cricket Association.
\n===============================================================
\nCORAM: HONOURABLE MR.JUSTICE J.B.PARDIWALA
\nand
\nHONOURABLE MR.JUSTICE A.C. RAO
\nDate : 27\/09\/2019
\nPage 2 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\nCOMMON ORAL JUDGMENT
\n(PER : HONOURABLE MR.JUSTICE J.B.PARDIWALA)
\n1. Since the issues raised in all the captioned tax appeals
\npreferred at the instance of the Revenue are the same,those
\nwere heard analogously and are being disposed of by this
\ncommon judgment and order.
\n2. In the tax appeals captioned above, the respondentassessee
\nare the three Cricket Associations, namely, (I) Gujarat
\nCricket Association (ii) Baroda Cricket Association and (iii)
\nSaurashtra Cricket Association.
\n3. In the following tax appeals, the respondent-assessee is
\nthe Gujarat Cricket Association;
\n\u201c(i) Tax Appeal No.268 of 2012;
\n(ii) Tax Appeal No.317 of 2019;
\n(iii) Tax Appeal No.318 of 2019;
\n(iv) Tax Appeal No.319 of 2019;
\n(v) Tax Appeal No.375 of 2019;
\n(vi) Tax Appeal No.333 of 2019;
\n(vii) Tax Appeal No.334 of 2019;
\n(viii) Tax Appeal No.335 of 2019;
\n(ix) Tax Appeal No.336 of 2019;
\n(x) Tax Appeal No.337 of 2019;
\n(xi) Tax Appeal No.338 of 2019;
\n(xii) Tax Appeal No.339 of 2019;
\n(xiii) Tax Appeal No.340 of 2019;\u201d
\n4. In the following tax appeals, the respondent-assessee is
\nPage 3 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\nthe Baroda Cricket Association.
\n\u201c(i) Tax Appeal No.320 of 2019
\n(ii) Tax Appeal No.321 of 2019
\n(iii) Tax Appeal No.374 of 2019
\n(iv) Tax Appeal No.675 of 2019
\n5. In the following tax appeals, the respondent-assessee is
\nthe Saurashtra Cricket Association;
\n\u201c(I) Tax Appeal No.152 of 2019;
\n(I) Tax Appeal No.358 of 2019;
\n(II) Tax Appeal No.359 of 2019;
\n(III) Tax Appeal No.360 of 2019;
\n(IV) Tax Appeal No.123 of 2014;\u201d
\nTax Appeal No.268 of 2012
\n6. We propose to first take up the Tax Appeal No.268 of
\n2012.
\n7. This tax appeal under Section 260A of the Income Tax
\nAct, 1961 (for short \u201cthe Act, 1961\u201d) is at the instance of the
\nRevenue and is directed against the order passed by the
\nIncome Tax Appellate Tribunal, ‘A’ Bench, Ahmedabad in the
\nITA No.93\/Ahd\/2011 for the A.Y.2004-05. This tax appeal was
\nadmitted vide order passed by this Court dated 19th July, 2012
\non the following substantial question of law;
\n\u201cWhether the Hon’ble ITAT has erred in not taking
\ncognizance of the latest amendment in the nature of the
\nproviso to section 2(15) of the I.T. Act inserted with effect
\nfrom 01\/04\/2009?\u201d
\nPage 4 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\n8. The facts giving rise to this tax appeal may be
\nsummarized as under;
\n8.1 The assessee, namely, Gujarat Cricket Association (for
\nshort \u201cthe GCA\u201d) is a society registered under the Societies
\nRegistration Act, 1860. The GCA came to be registered with
\nthe Registrar of Societies vide the Registration Certificate
\ndated 10th July, 1984. Later, the GCA was notified under
\nSection 10(23) of the Act, 1961 vide notification dated 30th
\nMarch, 1999 from A.Y. 1999-2000 to 2001-2002 by the
\nGovernment of India, Ministry of Finance, Department of
\nRevenue.
\n8.2 In the absence of renewal of the notification under
\nSection 10(23) of the Act, the GCA preferred an application for
\nregistration under Section 12AA of the Act, 1961. The
\nregistration under Section 12AA of the Act came to be granted
\nby the DIT (Exemption), Ahmedabad vide its order dated 16th
\nApril, 2003, i.e., from A.Y.2004-05 onwards.
\n8.3 A show-cause notice dated 26th September, 2010 came
\nto be issued upon the GCA under Section 12AA(3) of the Act,
\ncalling upon the GCA to show cause why the registration
\ngranted under Section 12AA of the Act should not be cancelled
\nfrom 2004-05 onwards.
\n8.4 The Commissioner, after hearing the assessee,
\ncancelled the registration under Section 12AA for the period
\nfrom A.Ys.2004-05 till the date of his order, i.e. 6th December,
\n2010 in exercise of his powers under Section 12AA(3) by
\ninvoking the Proviso to Section 2(15) of the Act, 1961 inserted
\nby the Finance Act, 2010 with effect from 1st April, 2009. The
\nPage 5 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\nCommissioner, while cancelling the registration of the assessee
\nheld that the activities of the trust were commercial in nature.
\nThe relevant observations in the order passed by the Director
\nof Income Tax (Exemption), Ahmedabad are quoted herein
\nbelow;
\n\u201cThe legislature in its wisdom has introduced section
\n12AA of the I.T. Act, 1961 by the Finance Act No.2, 1996
\nw.e.f 1.4.1997 i.e. A.Y.1997-98 onwards which requires
\nthe Commissioner to be satisfied with the objects of the
\nTrust and the genuineness of its activities. As a logical
\ncorollary of the provisions of Section 12AA of the Act, the
\nCommissioner has to examine the objects of the Trust by
\ntheir reference to the definition of \u201ccharitable purpose\u201d
\nalong with the newly inserted proviso to charitable
\npurpose in Section 2(15) of the Act w.e.f 1.4.2009. In fact
\nthere is a mutual, symbiotic relationship between the two
\nprovisions, namely section 2(15) and section 12AA of the
\nI.T. Act, 1961. The definition of \u201ccharitable purpose\u201d in
\nsection 2(15) of the Act is the engine which drives the
\nmachinery of the provisions of Section 12AA of the Act.
\nThus it is clear that even as per pre-amended section
\n2(15) of the I.T. Act, the GCA is not entitled for
\nregistration u\/s 12A of the I.T. Act as per ratio of
\njudgments of Hon. Courts as discussed above. When this
\nis the position even as per pre-amended section 2(15) of
\nthe I.T. Act, there remains no case at all for continuation
\nof registration u\/s 12A after the amendment of section
\n2(15) by Finance Act 2008 as applicable from A.Y.2009-
\n10 which, inter alia, clearly applicable to sports
\nassociations and is not applicable to educational
\ninstitutions. In view of this, registration allowed to GCA
\nu\/s 12A of the I.T. Act stands withdrawn from A.Y.2004-
\n05 onwards.
\nThe Ld. Counsel has further submitted that GCA has no
\ncontract with any party from which the funds are credited
\nby BCCI coupled with the fact that GCA has no
\nenforceable rights to receive any portion of TV rights
\nwhich have been received by BCCI and the corpus
\ndonation received at the sweet will of BCCI may be in
\nfurtherance of the objects of that Institution namely BCCI.
\nPage 6 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\nI am constrained to state that there is no merit in the
\nargument of the Id. Counsel. It goes without saying that
\nBCCI is a huge money spinning machine in the field of
\nCricket. It is following practice of giving some portion of
\nits TV rights to certain Cricket Associations in the country
\nincluding the GCA. BCCI also has commercial
\ntransactions like receipts of TV rights, IPL matches etc.
\nThis commercial chain further percolates down to the
\nState Associations like GCA which shows the receipts of
\nTV rights as corpus donations. This accounting procedure
\nis incorrect as it is purely commercial receipt which falls
\nwithin the ambit and scope of newly inserted proviso to
\nsection 2(15) of the I.T. Act w.e.f. 1\/4\/2009. It partakes
\nthe character of tax avoidance device clearly attracting
\nthe decision of Constitution Bench (5 Judges) of the Apex
\nCourt in McDowell and Co. Ltd. Vs. CTO (1985) 154 ITR
\n148 (SC) which fortifies the cancellation of registration of
\nGCA. In this landmark case, their Lordships have held
\nthat tax planning may be legitimate provided it is within
\nthe framework of law. Colourable devices cannot be part
\nof tax planning (Per Ranganath Misra at Pg.171 of the
\norder).
\nA critical analysis of Receipts and Expenditure of GCA
\nshows that there Is huge generation of income of
\nRs.16,37,747.54, (-) Rs.70,50,486.28 and (-)
\nRs.5,91,708.94 in F.Ys. 2006-07, 2007-08 and 2008-09
\nrespectively after meeting out only a nominal
\nexpenditure on promotion of sports of Rs.67,76,530\/-,
\nRs.15,16,311\/and Rs.24,90,579\/ in F.Y.2006-07, 2007-08
\nand 2008-09 respectively. There is capital expenditure of
\nRs. 11,37,64,313\/~, Rs.6,63,80,215.80 and
\nRs.1,99,23,701\/ in F.Y. 2006-07, 2007-08 and 2008-09
\nrespectively. It is reiterated that this capital expenditure
\ncannot be considered as charitable expenditure for
\npromotion of sports as It is simply an act of business
\norganization to enhance its Infrastructure and income
\nearning apparatus. Thus the expenditure on promotion of
\nsports as percentage .of total receipts has further
\ndeclined further in F.Y.2008-09. If GCA was really a
\ncharitable organization, it should have acted as such and
\ninstead of earning huge income, it should have ensured
\nas under:
\n(a) There should have been no ticket for watching cricket
\nPage 7 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\nmatches so that more and more youth, students and
\ncommon man are able to watch these matches. Instead
\nthere are costly tickets for general public for watching
\nthese important Cricket Matches and true to its character
\nas an out and out commercial organisation.
\n(b) GCA should have allowed the free use of its Cricket
\nground for conducting tournaments and also popularizing
\nthe game of Cricket in the state of Gujarat for the
\ncommon man.
\nviii) It is further seen from the Auditor\u2019s Report for F.Y.
\n2006-07 dated 20\/8\/07 (Page 2), 2007-08 dated 11\/8\/98
\n(Page 11) and 2008-09 dated 23\/7\/09 (Page 7) that TV
\nrights received from BCCI are amounting to
\nRs.17,58,00,000\/-,Rs.6,83,46,038\/ and Rs.20,69,60,338\/-
\nrespectively have been shown as CORPUS. The
\naccounting practice followed by GCA by treating TV rights
\nreceived from BCCI as corpus is incorrect. This is purely
\na commercial receipt which falls within the ambit and
\nscope of aforesaid proviso to section 2(15) of the I.T. Act,
\n1961.
\nFrom the above discussion, it is quite clear that there is
\nhuge generation of revenue of Rs.2,52,96,831\/-,
\nRs.1,80,04,862\/- and RS.3,98,07,027\/- in F.Ys.2006-07,
\n2007-08 and 2008-09 respectively after meeting out
\nsmall expenditure on promotion of Sports of
\nRs.67,76,530\/-, Rs.15,16,311\/- and Rs.24,90,796\/- in
\nF.Ys.2006-07, 2007-08 and 2008-09 respectively giving a
\npercentage of expenditure on promotion of Sports at
\n26.78%, 8.42% and 6.25% for the aforesaid three
\nfinancial years respectively. In other words, GCA is not
\nspending much of the revenue generated for the
\npromotion of Sports. This is a clear violation of the
\neducative object of GCA as is seen from the
\nsubmission of the Id. Counsel above.
\nFrom the reasons mentioned above, it is quite manifestly
\nand palpably evident that the entire character and focus
\nof GCA has become totally commercial with the object of
\nearning revenue and it is no more a charitable
\norganization. As stated above, the facts and ratio of the
\ndecision of the Uttarakhand High Court in the case of
\nQueens\u2019 Educational Society (supra) call for withdrawal of
\nregistration allowed to GCA u\/s 12AA of the I.T. Act, 1961
\nPage 8 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\neven with pre-amended section 2(15) of the I.T. Act,
\n1961. Furthermore, a fortiori, with the amendment u\/s
\n2(15) of the I.T. Act, 1961 by the Finance Act, 2008 w.e.f.
\nA.Y.2009~10, GCA has lost the status of charitable
\norganisation. Its activities, proprio vigore, are being
\ncarried on commercial lines. GCA, though, was granted
\nregistration in principle by this Office Order dated
\n16\/4\/03, did not carry out any activity which has
\ncharitable object and also by invoking Doctrine of Just
\nCause in the light of the observations of Hon Supreme
\nCourt in 259 ITR, 1 (SC) (supra), I strongly conclude that
\nthe activities of GCA are not genuine charities and are
\nbeing carried out with Pure commercial considerations
\nbereft of any element of charity. Accordingly, the
\nregistration granted earlier vide this Office Order dated
\n16.4.2003 is cancelled w.e.f 16.4.2003 i.e. A.Y.2004-05
\nonwards.\u201d
\n8.5 The assessee, being dissatisfied with the order passed
\nby the Director of Income Tax (Exemption), cancelling the
\nregistration, preferred an appeal before the Income Tax
\nAppellate Tribunal, ‘A’ Bench, Ahmedabad. The ITAT allowed
\nthe appeal preferred by the GCA. While allowing the appeal,
\nthe ITAT observed as under;
\n\u201cWe have considered the rival submissions, perused the
\nmaterial on record and have gone through the orders of
\nauthorities below and the tribunal decision cited by the
\nLd. A.R. In the present case, the registration of the
\nassessee was cancelled by the DIT(E) on this basis that
\nthe main source of income of the assessee is derived
\nform sponsorship, bank interest, annual subscription,
\nincome from ICC matches, income from
\ntrophy\/tournament matches, scrap sale, rental income
\nand sale of tickets. It is observed by him that none of
\nthese sources of income has any nexus with the
\neducation of the cricketers. He also observed that in fact,
\nthe assessee has been engaged itself in transaction of
\ncommercial nature. He also observed that the assessee
\nhas been carrying its activities with a commercial motive.
\nHe has decided the issue on this basis that as per the
\namended provisions of Section 2(15) of the Income Tax
\nPage 9 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\nAct, 1961. In the case of Vidarbha Cricket Association
\n(supra) also, registration was cancelled u\/s.12AA(3) of
\nthe Act on the basis of amended provisions of Section
\n2(15) of the Act and under these facts, the issue has
\nbeen decided by the tribunal in favour of the assessee.
\nThe relevant para is para 7, 8 & 9 of the Tribunal
\ndecision which are reproduced below:
\n\u201c7. In this view of the matter, we may now examine the
\nreasons put forth by the Commissioner in this case to
\ncancel registration already granted to the assessee under
\nsection 12A of the Act. In this direction, we have carefully
\nperused the impugned order, wherein the Commissioner
\nhas primarily examined the application of revised
\ndefinition of charitable purpose under section 2(15) as
\namended by the Finance Act, 2003 with effect from
\n1.4.2009. The ultimate conclusion of the Commissioner in
\nparagraph 17 of the impugned order is pertinent, which
\nis reproduced as under-
\n“17. In view of the amended provisions of sec. 2(15), it Is
\nseen that assessee\u2019s activities can no longer be regarded
\nas charitable activities. Especially the proviso to sec.
\n2(15) is violated by assessee and hence, it cannot be
\nregarded as a charitable society engaged In charitable
\npurposes. I have duly considered the nature of activities,
\nthe sources of income, the activities on which
\nexpenditure was made, surplus generated existence of
\nprofit motive, commercial exploitation of assets, fees and
\nCharges collected, nature of other income and other
\nactivities and case law before coming to a final
\nconclusion, the assessee Vidarbha Cricket Association
\ncannot be held to be an organization meant for charitable
\npurposes in view of the above findings.
\n18. In the result, the deemed registration benefit under
\nsection 12AA as claimed and enjoyed by the assessee is
\nhereby withdrawn\/cancelled from assessment year 2009-
\n10 onwards.
\n8. On a perusal of the aforesaid, It is clearly
\nestablished that as per the Commissioner, the activities
\nof the assessee do not qualify to fall within the meaning
\nof charitable purpose as per proviso to section 2(15)
\ninserted with effect from 1.4.2009. Quite clearly, as we
\nhave observed earlier, such an objection cannot be the
\nPage 10 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\nbasis of invoke section 12AA(3) so as to cancel the
\nregistration already granted to the assessee under
\nsection 12A of the Act. In our considered opinion
\nregistration already granted to the assessee could not
\nhave been re-visited by the Commissioner on the basis of
\nthe reasoning aforesaid, since his power to cancel
\nregistration under section 12AA(3) was confined to the
\nexamination as to whether the activities of the assessee
\nsociety\/association are genuine or that the same are not
\nbeing carried out in accordance with the stated objects.
\nIn the light of the discussion emerging form the order of
\nthe Commissioner in our considered opinion, action taken
\nby the Commissioner does not fall within the parameters
\nof section 12AA(3) of the Act and, therefore, the
\nimpugned order is bad in law.
\n9. At this stage, we may hasten to add that we are not
\ncommenting on the merits of the issue as to whether the
\nactivities of the assessee fall within the meaning of
\nexpression charitable purpose as per section 2(15) as
\namended with effect from 1.4.2009. The only point
\ndecided in the appeal is to the effect that it was not
\nwithin the scope and ambit of section 12AA(3) for the
\nCommissioner to have examined the applicability of the
\namended section 2(15) of the purposes of invoking his
\npowers of cancellation provided in section 12AA(3) of the
\nAct. At this stage, we may also state that the issues
\nraised by the Commissioner in the impugned order are
\nnot beyond the powers of the revenue to examine, so
\nhowever, the same can only be examined in the
\nappropriate proceedings, such as assessment
\nproceedings in the present case. Our decision is resting
\nonly on the foundation that the impugned order passed
\nby the Commissioner is not permissible in view of the
\nlimited powers available to him under section 12AA(3) of
\nthe Act. However it would be open for the A.O. to
\nconsider the issues raised in the impugned order, if so
\nadvised, in the course of the relevant assessment
\nproceedings.”
\n5. Since the present case also, registration has been
\ncancelled by DIT(E) on the basis of amended provisions
\nof Section 2(15) of the Income tax Act,1961, we are of
\nthe considered opinion that the action taken by DIT(E)
\ndoes not fall within the permissible limits of Section
\n12AA(3) of the Income tax Act, 1961 and therefore, the
\nPage 11 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\nimpugned order is bad in law. We also add that we are
\nnot commenting on the merits of the issue as to whether
\nthe activities of the assessee falls within the meaning of
\ncharitable purpose as per Section 2(15) of the Income tax
\nAct, 1961 as amended and we are only deciding this
\naspect of matter that the order passed by the DIT(E) u\/s
\n12AA(3) is bad in law. This issue raised by the DIT(E) is
\nnot permissible in view of the limited powers available to
\nhim U\/s. 12AA(3) of the Income tax Act, 1961. However,
\nit would be open for the A.O. to consider all the issues
\nraised in the impugned order, if so advised, in the course
\nof relevant assessment proceedings
\n6. In view of our discussion in the above para, we set
\naside the order of DIT(E) u\/s. 12AA(3) of the Income Tax
\nAct, 1961 and restore the registration granted to the
\nassessee u\/s.12A of the Income tax Act, 1961.\u201d
\n8.6 The Revenue, being dissatisfied with the order passed
\nby the ITAT has come up with the present appeal.
\nSubmissions on behalf of the Revenue:-
\n9. Mr. M.R. Bhatt, the learned senior counsel appearing for
\nthe Revenue vehemently submitted that the ITAT committed a
\nserious error in disturbing the order passed by the Director of
\nIncome Tax (Exemption), cancelling the registration of the GCA
\nunder Section 12AA of the Act. According to Mr. Bhatt, in view
\nof the amendment under Section 2(15) of the Act, the DIT
\n(Exemption) was justified in taking the view that the activities
\nof the GCA cannot be termed as charitable and such activities
\nwere commercial in nature with the element of earning profit
\nfrom the income of sale of tickets, income from the ICC,
\nincome from hosting the international cricket matches etc. Mr.
\nBhatt would submit that the DIT (Exemption) was justified in
\ntaking the view that though the BCCI confirmed the payment
\nto the assessee as grant of subsidy, the same was not in the
\nPage 12 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\nnature of grant. Mr. Bhatt would submit that most of the
\nadvertisements through TV telecasting are received by the
\nBCCI, it being the apex body,thus the so-called subsidy given
\nby the BCCI is nothing but some sort of sharing of the
\nadvertisement income on account of holding of international
\ntest matches and one-day international matches, due to which,
\nthe BCCI has amassed huge advertisement income. Mr. Bhatt
\nwould submit that the nature of receipt, even though called
\nsubsidy by the assessee, was necessarily in the nature of
\nincome received by the activity of the assessee.
\n10. Referring to Section 12AA(3) read with Section 2(15) of
\nthe Act, 1961, Mr. Bhatt submitted that even if the activities
\nwere carried on in accordance with the arrangement with the
\nother party,the activities, being not charitable, it was hit by
\nSection 12AA(3) of the Act, 1961. Reading genuineness into
\nthe activities of the trust and considering the objects of the
\ntrust, Mr. Bhatt submitted that the term \u201cgenuineness\u201d has
\nbeen used only to find out whether the institution was
\ncharitable or not. Once the institution was held as not for
\ncharitable purpose, Section 12AA registration came to be
\nrightly cancelled by the DIT (Exemption).
\n11. In such circumstances, referred to above, Mr. Bhatt prays
\nthat there being merit in this appeal, the same be allowed and
\nthe substantial question of law be answered in favour of the
\nRevenue and against the assessee.
\nSubmissions on behalf of the respondent-assessee:
\n12. On the other hand, this appeal has been vehemently
\nopposed by Mr. J.P. Shah, the learned senior counsel appearing
\nPage 13 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\nfor the GCA. Mr. Shah would submit that no error, not to speak
\nof any error of law, could be said to have been committed by
\nthe ITAT in quashing and setting aside the order passed by the
\nDIT (Exemption). Mr. Shah would submit that since the
\ninception of the GCA and the date of grant of the registration
\nunder the Act, the objects of the Association have remained
\nthe same and have not undergone any change to question its
\ngenuineness. Mr. Shah would submit that the view of the DIT
\n(Exemption) that the assessee could not be said to be carrying
\non the charitable activity as per Section 2(15) of the Act is
\nerroneous in law. Mr. Shah would submit that in any event all
\nthat the Section 12AA(3) of the Act prescribes for cancellation
\nis the genuineness of the activities of the trust or that the
\nactivities are not carried on in accordance with the objects of
\nthe trust.
\n13. Mr. Shah took us through the various objects of the
\nAssociation and pointed out to the clear distinct words used in
\nSection12AA(1) and 12AA(3) of the Act as well as the first
\nProviso to Section 2(15) of the Act. Mr. Shah submitted that
\nthe grant of registration originally as early as in 2003 clearly
\nindicates the satisfaction of the authorities that the assessee is
\na public charitable trust under Section 12AA of the Act. Mr.
\nShah would submit, referring to Section12AA(3) of the Act, that
\nthe cancellation of registration granted is permissible in law
\nonly under the following circumstances;
\n(I) On the Commissioner recording his satisfaction that the
\nactivities of the trust are not genuine or are not being carried
\nout in accordance with the objects of the trust or institution,;
\nthus unless and until the show cause notice issued contained
\nPage 14 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\nthe grounds and materials as prescribed under Section
\n12AA(3) of the Act, the question of cancellation of registration,
\nper se, does not arise.
\n14. Mr. Shah, thereafter, took us through the Circular No.11
\nof 2008 issued by the Central Board of Direct Taxes dated 19th
\nDecember, 2008. The circular was issued in the wake of the
\ninsertion of the Proviso to Section 2(15) of the Act, 1961. Mr.
\nShah would submit that from the reading of the circular, it is
\nevident that the question of rejection of registration under
\nSection 12AA(3) of the Act would arise only in those cases
\nwhere an entity uses this status of charitable institution with a
\ncharitable object of general public utility as a mask or a device
\nto hide the true purpose and that object is nothing other then
\ntrade, commerce or business or the rendering of any service in
\nrelation to trade, commerce or business. Mr. Shah would
\nsubmit that in the case on hand, the Revenue has not been
\nable to substantiate with any cogent material to indicate the
\nabsence of the genuineness of the activities. Mr. Shah would
\nsubmit that the erroneous misconception in the mind of the
\nRevenue is that by conduct of matches, the GCA could be said
\nto have exhibited a sense of business or commercial character.
\nIn such circumstances, referred to above, Mr. Shah prays that
\nthere being no merit in this appeal, the same be dismissed and
\nthe substantial question of law, on which, this tax appeal has
\nbeen admitted, may be answered in favour of the assessee
\nand against the Revenue.
\n15. Mr. Shah in support of his submissions, has placed
\nstrong reliance on a decision of the Madras High Court in the
\ncase of Tamil Nadu Cricket Association vs. Director of
\nPage 15 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\nIncome Tax (Exemptions) & Ors., (2014) 360 ITR 633
\n(Mad.).
\n16. Mr. Bhatt, the learned senior counsel appearing for the
\nRevenue, in rejoinder, brought to the notice of this Court that
\nthe decision of the Madras High Court in the case of Tamil
\nNadu Cricket Association (supra), on which strong reliance is
\nsought to be placed on behalf of the assessee, has been
\nchallenged by the Revenue before the Supreme Court . The
\nSupreme Court is yet to hear the appeal preferred by the
\nRevenue.
\nANALYSIS
\n17. Having heard the learned counsel appearing for the
\nparties and having gone through the materials on record, the
\nonly question that falls for our consideration is whether the
\nITAT committed any error in passing the impugned order.
\n18. Section 12AA of the Act prescribes the procedure for
\nregistration. As per this, on receipt of the application for
\nregistration, the Commissioner is to call for such documents or
\ninformation from the trust or institution in order to satisfy
\nhimself about the genuineness of the activities of the trust or
\ninstitution. The Section further empowers the Commissioner to
\nmake such enquiry as he deems necessary in this regard. Once
\nthe Commissioner is satisfied or convinced about the objects of
\nthe trust or institution and the genuineness of the activities of
\nthe trust, he has to pass an order in writing registering the
\ntrust or institution; if he is not so satisfied, he has to pass an
\norder in writing refusing to register the trust or institution.
\nPage 16 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\n19. Section 12AA(3) of the Act inserted with effect from
\n01.10.2004 under the Finance (No.2) Act, 2004 and the
\namendment inserted by Finance Act, 2010, with effect from
\n01.06.2010 therein empowering the Commissioner to cancel
\nthe registration granted under the stated circumstances, reads
\nas under:-
\n\u201cProvision inserted under Finance Act, 2004:
\nSection 12AA(3):- Where a trust or an institution has
\nbeen granted registration under clause (b) of sub-section
\n(1) and subsequently the Commissioner is satisfied that
\nthe activities of such trust or institution are not genuine
\nor are not being carried out in accordance with the
\nobjects of the trust or institution, as the case may be, he
\nshall pass an order in writing cancelling the registration
\nof such trust or institution.
\nProvided that no order under this sub-section shall be
\npassed unless such trust or institution has been given a
\nreasonable opportunity of being heard.\u201c
\n20. After the amendment in the year 2010, Section 12AA(3)
\nof the Income Tax Act reads as follows:
\n“Section 12AA(3):- Where a trust or an institution has
\nbeen granted registration under clause (b) of sub-section
\n(1) or has obtained registration at any time under section
\n12A as it stood before its amendment by the Finance
\n(No.2) Act, 1996 (33 of 1996) and subsequently the
\nCommissioner is satisfied that the activities of such trust
\nor institution are not genuine or are not being carried out
\nin accordance with the objects of the trust or institution,
\nas the case may be, he shall pass an order in writing
\ncancelling the registration of such trust or institution:
\nProvided that no order under this sub-section shall be
\npassed unless such trust or institution has been given a
\nreasonable opportunity of being heard.”
\n21. Thus in contrast to Section 12AA(1)(b) of the Income Tax
\nAct, 1961, where the grant of registration requires the
\nPage 17 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\nsatisfaction about the objects of the trust as well as the
\ngenuineness of the activities, for the cancellation of the
\nregistration under Section 12AA(3), all that it is insisted upon is
\nthe satisfaction as to whether the activities of the trust or
\ninstitution are genuine or not and whether the activities are
\nbeing carried on in accordance with the objects of the trust.
\nThus, even if the trust is a genuine one i.e., the objects are
\ngenuine, if the activities are not genuine and the same not
\nbeing carried on in accordance with the objects of the trust,
\nthis will offer a good ground for cancellation. Thus, in every
\ncase, the grant of registration as well as the cancellation of
\nregistration rests on the satisfaction of the Commissioner on
\nfindings given on the parameters given in Sections 12AA(1)
\nand 12AA(3) of the Act, as the case may be.
\n22. The registration of the trust under the Act, confers certain
\nbenefits from taxation under the provisions of the Act. The
\nconditions under which the income of the trust would be
\nexempted under the provisions of the Act are clearly laid down
\nunder Section 11 as well as in Section 12 of the Act. Section 11
\nof the Act specifically points out the circumstances under
\nwhich the income of the trust is not to be included in the total
\nincome of the previous year of the person. So too, Section 12
\nof the Act on the income derived from the property held for the
\ncharitable or religious purposes.
\n23. Thus, when the assessee is in receipt of income from the
\nactivities, which fits in with Sections 11 and 12 of the Act as
\nwell as from the sources which do not fall strictly with the
\nobjects of the trust, would not go for cancellation of
\nPage 18 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\nregistration under Section 12AA of the Act on the sole ground
\nthat the assessee is in receipt of income which does not qualify
\nfor exemption straight away by itself. All that ultimately would
\narise in such cases is the question of considering whether
\nSection 11 of the Act would at all apply to exempt these
\nincome from liability. These are matters of assessment and has
\nnothing to do with the genuineness of the activity or the
\nactivities not in conformity with the objects of the trust. As
\nrightly pointed out by learned Senior counsel appearing for the
\nassessee, as is evident from the reading of Circular No.11 of
\n2008 dated 19.12.2008, the object of the insertion of the first
\nproviso to Section 2(15) of the Act was only to curtail the
\ninstitution, which under the garb of ‘general public utility’,
\ncarry on business or commercial activity only to escape the
\nliability under the Act thereby gain unmerited exemption under
\nSection 11 of the Act.
\n24. The sum and substance of the submissions canvassed by
\nMr. J.P. Shah, the learned senior counsel appearing for the
\nassessee, may be summed up thus;
\n(I) The Gujarat Cricket Association is an affiliated member of
\nthe BCCI which controls and regulates all the cricket activities
\nin India.
\n(ii) The only source of income for the Gujarat Cricket
\nAssociation is the receipt of some amount from the BCCI on
\naccount of the tournament subsidy.
\n(iii) The Gujarat Cricket Association is a non-profit
\norganization and applies its surplus for the promotion of the
\ngame of cricket, and that its objects prohibit the distribution of
\nany surplus amongst its members.
\nPage 19 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\n(iv) All the members of the Executive Committee hold
\nhonorary position in the Gujarat Cricket Association.
\n(v) The Gujarat Cricket Association has produced a number
\nof excellent cricketers of international repute and the same
\nwas achieved by nurturing the talent irrespective of the cast,
\ncreed, status, religion etc. It also provides support to one
\nanother facet of the game of cricket, i.e. umpiring.
\n(vi) The Gujarat Cricket Association has a self-sustaining
\nmodel and promotes cricket in the State of Gujarat without any
\nsupport, aid, grant or subsidy from any Government.
\n(vii) The Gujarat Cricket Association has constructed a world
\nclass infrastructure facility by modernizing the entire Motera
\nStadium at Ahmedabad.
\n(viii) The Gujarat Cricket Association provides medical aid to
\nits players, remuneration to Coaches, Physiotherapists, Doctors
\netc.
\n(ix) It organizes various programmes to encourage the game
\nof cricket.
\n(x) On the ground booking charges, it was submitted that
\nonly in the special cases, it has charged exclusively for the
\npurpose of playing cricket matches.
\n(xi) The Ranji Trophy and other matches are open to public
\nviewing and no tickets are sold.
\n(xii) On the international matches, charge is levied, but the
\nsame would be a nominal charge as it would be impossible to
\nmanage the affairs if the viewing is free of cost.
\n25. The aforesaid indicates that there is no profit motive.
\nPage 20 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\n26. On income from the advertisement etc., it was submitted
\nthat the assessee has to maintain the stadium for the whole
\nyear and whereas, the international matches are played only
\nonce or twice in a year or may be in two years, the cost of
\nmaintenance of the stadium is as high as compared to the
\ncharges for transfer of interstate rights.
\n27. All the funds are used for building up infrastructure for
\npromotion of cricket and for the purpose of development of
\nplayers and for the promotion of the game and no funds are
\nbeing utilized for personal purpose of any of the members of
\nthe Association.
\n28. The activities of the Association are not carried out on
\ncommercial basis.
\n29. The Registration could not have been cancelled on an
\nerroneous ground that the activities of the assessee are
\ncommercial in nature. For invoking Section 12AA read with
\nSection 2(15) of the Act, the Revenue has to show that the
\nactivities are not in accordance with the objects of the
\nAssociation.
\n30. For achieving its main charitable object, if an institution
\ncarries on some commercial activity and there is profit, it
\ncannot be considered to be a business activity, with profit
\nmotive, so long as, the profit earned is utilized for the purpose
\nof achieving the main charitable object.
\nPage 21 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\n31. The sum and substance of the submissions canvassed on
\nbehalf of the Revenue may be summed up thus;
\n(i) It is only logical to hold that the activities of the assessee
\nare no longer falling within the definition of charitable
\npurposes after the amendment of Section 2(15) of the Act w.e.f
\n1st January, 2019.
\n(ii) The assessee, in the name of general public utility, is
\nengaged in business.
\n(iii) Once the activities ceases to qualify as charitable, the
\nsame cannot be said to be genuine for the purpose of charity.
\n(iv) Instead of promoting and developing the game of cricket,
\nthe assessee could be said to be promoting and developing the
\ngame of cricket as an entertainment and the tickets of the
\ninternational matches are highly priced. The assessee, in such
\ncircumstances, could be said to have shifted the activities of
\nthe general public utility to commercial activity for generating
\nrevenue.
\n32. We have gone through the entire judgment of the Madras
\nHigh Court in the case of Tamil Nadu Cricket Association
\n(supra). We are convinced with the line of reasoning assigned
\nby the Madras High Court and the view taken on the subject. It
\nis true that the decision of the Madras High Court has been
\nchallenged before the Supreme Court. The Supreme Court has
\nyet to look into the issue and consider whether the view taken
\nby the Madras High Court is the correct proposition of law or
\nnot?. However, as on date, the view taken by the Madras High
\nCourt on the subject holds the field. We may quote the
\nPage 22 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\nrelevant observations made by the High Court of Madras.
\n\u201cGoing by the objects , we find that the trust falls under
\nthe head of “any other object of general public utility”
\nand hence falls within the meaning of charitable purpose
\nunder Section 2(15) of the Act. Section 2(15) of the Act
\ndefines “charitable purpose” as it originally stood at the
\ntime of grant of registration as under:-
\n” ‘charitable purpose’ includes relief of the poor,
\neducation, medical relief and the advancement of any
\nother object of general public utility.”
\n23. Section 2(15) was amended under Finance Act,2008,
\nwith effect form 1.4.2009 by substituting the following
\nprovision which reads s under:
\n“2. Definitions. …. (15) “charitable purpose” includes
\nrelief of the poor, education, medical relief, preservation
\nof environment (including waterheds, forests and wildlife)
\nand preservation of monuments or places or objects of
\nartistic or historic interest, and the advancement of any
\nother object of general public utility.
\nProvided that the advancement of any other object of
\ngeneral public utility shall not be a charitable purpose, if
\nit involves the carrying on of any activity in the nature of
\ntrade, commerce or business, or any activity of rendering
\nany service in relation to any trade, commerce or
\nbusiness, for a cess or fee or any other consideration,
\nirrespective of the nature of use or application, or
\nretention, of the income from such activity;)
\n24. Section 2(15) as it stood prior to 1983 defined
\n‘charitable purpose’ to include relief of the poor,
\neducation, medical relief, and the advancement of any
\nother object of general public utility not involving the
\ncarrying on of any activity for profit. The phrase “not
\ninvolving the carrying on of any activity for profit” was
\nomitted from the Section by the Finance Act 1983, with
\neffect from 01.04.1984, consequent on the amendment
\nto Section 11, where under profits and gains of business
\nin the case of charitable or religious trust and institutions
\nwould not be entitled to exemption under that Section,
\nexcept in cases where the business fulfilled the
\nconditions under Section 11 (4). The Section was once
\nagain amended by substitution in the year 2008 under
\nPage 23 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\nthe Finance Act, 2008, with effect from 01.04.2009,
\nstreamlining the definition of ‘charitable purpose’,
\nconsidering the fact that taking advantage of the phrase
\n‘advancement of any other object of general public
\nutility’, number of entities operating on commercial lines
\nclaimed exemption on their income either under Section
\n20(23c) or under Section 11 of the Act. Thus, to limit the
\nscope of this expression, Section was amended in the
\nyear 2008 that the advancement of any other object of
\ngeneral public utility shall not be a charitable purpose, if
\nthe object involved the carrying on of any activity in the
\nnature of trade, commerce or business, or any activity of
\nrendering any service in relation to any trade, commerce
\nor business, for a cess or fee or any other consideration,
\nirrespective of the nature of use or application, or
\nretention, of the income from such activity. Though the
\nsection as it stood prior to the substitution in 2008
\ncontained no provision as in the proviso under the 2008
\namendment, yet the Supreme Court held that that if the
\nprimary or dominant purpose of a trust or institution is
\ncharitable, another object which by itself may not be
\ncharitable but which is merely ancillary or incidental to
\nthe primary or dominant purpose would not prevent the
\ntrust or institution from being a valid charity: vide CIT v.
\nAndhra Chamber of Commerce [1965] 55 ITR 722 (SC)
\n(referred to in the decision reported in (1980) 121 ITR
\n1(Addl. Commissioner of Income-tax v. Surat Art Silk
\nCloth Manufacturers Association). Thus if the dominant
\nobject or the primary object was charitable, the
\nsubsidiary object for the purpose of securing the
\nfulfillment of the dominant object would not militate
\nagainst its charitable character and the purpose would
\nnot be any the less charitable. The amendment in the
\nyear 2008 made a drastic amendment to deny the status
\nof a charitable purpose to an institution with the object of
\ngeneral public utility, having any activity in the nature of
\ntrade, commerce or business, or any activity of rendering
\nany service in relation to any trade, commerce or
\nbusiness, for a cess or fee or any other consideration.
\n25. Proviso to Section 2(15) of the Income Tax Act states
\nthat if the objects involve the carrying on any activity in
\nthe nature of trade, commerce or business, for a cess or
\nfee or any other consideration, irrespective of the nature
\nof use or application, or retention, of the income from
\nsuch activity, the status of the institution will not be one
\nPage 24 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\nfor ‘charitable purpose’.
\n26. The Central Board of Direct Taxes, in paragraph 3.2
\npointed out to the scope of the circular as under:-
\n” In such a case, the object of ‘general public utility’ will
\nbe only a mask or a device to hide the true purpose,
\nwhich is trade, commerce or business or the rendering of
\nany service in relation to trade, commerce or business.
\nEach case would, therefore, be decided on its own facts
\nand no generalization is possible. Assessees, who claim
\nthat their object is ‘charitable purpose’ within the
\nmeaning of Section 2(15), would be well advised to
\neschew any activity which is in the nature of trade,
\ncommerce or business or the rendering of any service in
\nrelation to any trade, commerce or business.”
\n27. Thus, the anxiety of the Parliament in introducing the
\nproviso to Section 2(15) of the Act is only to check those
\ninstitution, which attempt to gain exemption under the
\ncloak of a trust.
\n28. Section 11 of the Act states that income from
\nproperty held for religious or charitable purposes shall
\nnot be included in the total income of the previous year.
\nSection 12 deals with income of trusts or institutions from
\ncontributions. Section 12A deals with making application
\nfor registration of the trust\/association so that the said
\ninstitution will have the benefit of exemption under
\nSection 11 and 12 of the Act.
\n29. Section 12AA of the Act prescribes procedure for
\nregistration. As per this, on receipt of the application for
\nregistration, the Commissioner is to call for such
\ndocuments or information from the trust or institution in
\norder to satisfy himself about the genuineness of
\nactivities of the trust or institution. The Section further
\nempowers the Commissioner to make such enquiry as he
\ndeems necessary in this regard. Once the Commissioner
\nis satisfied himself about the objects of the trust or
\ninstitution and the genuineness of the activities of the
\ntrust, he has to pass an order in writing registering the
\ntrust or institution; if he is not so satisfied, he has to pass
\nan order in writing refusing to register the trust or
\ninstitution.
\n30. Section 12AA(3) of the Act inserted with effect from
\n01.10.2004 under the Finance (No.2) Act, 2004 and the
\namendment inserted by Finance Act, 2010, with effect
\nPage 25 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\nfrom 01.06.2010 therein empowering the Commissioner
\nto cancel the registration granted under the stated
\ncircumstances, reads as under:-
\nProvision inserted under Finance Act, 2004:
\nSection 12AA(3):- Where a trust or an institution has
\nbeen granted registration under clause (b) of sub-section
\n(1) and subsequently the Commissioner is satisfied that
\nthe activities of such trust or institution are not genuine
\nor are not being carried out in accordance with the
\nobjects of the trust or institution, as the case may be, he
\nshall pass an order in writing cancelling the registration
\nof such trust or institution.
\nProvided that no order under this sub-section shall be
\npassed unless such trust or institution has been given a
\nreasonable opportunity of being heard.
\n31. After amendment in the year 2010, Section 12AA(3)
\nof the Income Tax Act reads as follows:
\n“Section 12AA(3):- Where a trust or an institution has
\nbeen granted registration under clause (b) of sub-section
\n(1) or has obtained registration at any time under section
\n12A as it stood before its amendment by the Finance
\n(No.2) Act, 1996 (33 of 1996) and subsequently the
\nCommissioner is satisfied that the activities of such trust
\nor institution are not genuine or are not being carried out
\nin accordance with the objects of the trust or institution,
\nas the case may be, he shall pass an order in writing
\ncancelling the registration of such trust or institution:
\nProvided that no order under this sub-section shall be
\npassed unless such trust or institution has been given a
\nreasonable opportunity of being heard.”
\n32. Thus in contrast to Section 12AA(1)(b) of the Income
\nTax Act, 1961, where the grant of registration requires
\nsatisfaction about the objects of the trust as well as
\ngenuineness of the activities, for the cancellation of the
\nregistration under Section 12AA(3), all that it is insisted
\nupon is the satisfaction as to whether the activities of the
\ntrust or institution are genuine or not and whether the
\nactivities are being carried on in accordance with the
\nobjects of the trust. Thus, even if the trust is a genuine
\none i.e., the objects are genuine, if the activities are not
\ngenuine and the same not being carried on in accordance
\nwith the objects of the trust, this will offer a good ground
\nfor cancellation. Thus, in every case, grant of registration
\nPage 26 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\nas well as cancellation of registration rests on the
\nsatisfaction of the Commissioner on findings given on the
\nparameters given in Section 12AA(1) and 12AA(3) of the
\nAct, as the case may be.
\n33. Registration of the trust under the Act, confers
\ncertain benefits from taxation under the provisions of the
\nAct. The conditions under which the income of the trust
\nwould be exempted under the provisions of the Act are
\nclearly laid down under Section 11 as well as in Section
\n12 of the Act. Section 11 of the Act specifically points out
\nthe circumstances under which income of the trust is not
\nto be included in the total income of the previous year of
\nthe person. So too, Section 12 of the Act on the income
\nderived from property held for charitable or religious
\npurposes.
\n34. Thus, when the assessee is in receipt of income from
\nactivities, which fits in with Sections 11 and 12 of the Act
\nas well as from sources which do not fall strictly with the
\nobjects of the trust, would not go for cancellation of
\nregistration under Section 12AA of the Act on the sole
\nground that the assessee is in receipt of income which
\ndoes not qualify for exemption straight away by itself. All
\nthat ultimately would arise in such cases is the question
\nof considering whether Section 11 of the Act would at all
\napply to exempt these income from liability. These are
\nmatters of assessment and has nothing to do with the
\ngenuineness of the activity or the activities not in
\nconformity with the objects of the trust. As rightly
\npointed out by learned Senior counsel appearing for the
\nassessee, as is evident from the reading of Circular No.11
\nof 2008 dated 19.12.2008, the object of the insertion of
\nfirst proviso to Section 2(15) of the Act was only to curtail
\ninstitution, which under the garb of ‘general public
\nutility’, carry on business or commercial activity only to
\nescape the liability under the Act thereby gain unmerited
\nexemption under Section 11 of the Act.
\n35. In the decision reported in (2012) 343 ITR 23 (Bom)
\n(Sinhagad Technical Education Society V. Commissioner
\nof Income Tax (Central), Pune & Anr), the Bombay High
\nCourt held as follows:
\n“As a result of the amendment, which has been brought
\nabout by the Finance Act of 2010, Subsection (3) of
\nSection 12AA has been amended specifically to empower
\nthe Commissioner to cancel a registration obtained under
\nPage 27 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\nSection 12A as it stood prior to its amendment by the
\nFinance (No.2) Act, 1996. SubSection (3) was inserted
\ninto the provisions of Section 12AA by the Finance (No.2)
\nAct, 2004 with effect from 1 October 2004. As it originally
\nstood, under subsection (3), a power to cancel
\nregistration was conferred upon the Commissioner where
\na trust or an institution had been granted registration
\nunder clause (b) of subsection (1) of Section 12AA. The
\nCommissioner, after satisfying himself that the objects of
\nthe trust or an institution are not genuine or are not
\nbeing carried out in accordance with the objects of the
\ntrust or institution, as the case may be, was vested with
\nthe power to pass an order in writing cancelling the
\nregistration of such trust or institution. By the Finance
\nAct of 2010, subsection (3) was amended so as to
\nempower the Commissioner to cancel the registration of
\na trust or an institution which has obtained registration at
\nany time under Section 12A (as it stood before its
\namendment by the Finance (No.2) Act, 1996). As a result
\nof the amendment, a regulatory framework is now sought
\nto be put in place so as to cover also a trust or an
\ninstitution which has obtained registration under Section
\n12A as it stood prior to its amendment in 1996.
\n………..
\npower under Section 12AA(3) can be exercised by the
\nCommissioner in respect of a trust registered prior to 1
\nJune 2010. The mere fact that a part of the requisites for
\nthe action under Section 12AA (3) is drawn from a time
\nprior to its passing namely registration as a charitable
\ntrust under Section 12A prior to 2010 would not make the
\namendment retrospective in operation. The amendment
\ndoes not take away any vested right nor does it create
\nnew obligations in respect of past actions.”
\n36. As already pointed out earlier, the question as to
\nwhether the particular income of trust is eligible for
\nexemption under Section 12 of the Act is a matter of
\nassessment and this Court had pointed out in the
\ndecision reported in 343 ITR 300 in the case of CIT Vs.
\nSarvodaya Ilakkiya Pannai, as under:-
\n” In order to avail the benefit of exemption under Section
\n11 of the Income Tax Act, 1961, a Trust can make an
\napplication to the Commissioner for registration under
\nSection 12A of the Income Tax Act, 1961. On receipt of
\nthe said application for registration of a trust or
\nPage 28 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\ninstitution, the Commissioner should satisfy himself
\nabout the genuineness of the activities of the trust or
\ninstitution. In order to satisfy himself, the Commissioner
\nmay also make such enquiry as he may deem necessary
\nin that behalf. In the event the Commissioner satisfies
\nhimself that the trust is entitled to registration keeping in
\nmind the objects, shall grant registration in writing in
\nterms of Section 12AA(1)(b)(i) of the Income Tax Act,
\n1961. In the event the Commissioner is not satisfied, he
\nshall refuse such registration in terms of Section 12AA(1)
\n(b)(ii) of the Income Tax Act, 1961. Once such a
\nsatisfaction is arrived at by the Commissioner to grant,
\nsuch registration cannot be cancelled by following the
\nvery same provision of section 12AA(b)(i) of the Income
\nTax Act, 1961 to go into the genuineness of the activities
\nof the trust. However, the Commissioner is empowered to
\nrevoke the certificate in terms of Section 12AA(3) of the
\nIncome Tax Act, 1961. As Commissioner is empowered to
\nrevoke the certificate in terms of section 12AA(3) of the
\nIncome Tax Act, 1961. As per the said provision, in the
\nevent the Commissioner is satisfied subsequently i.e.,
\nafter registration that the activities of such trust or
\ninstitution are not genuine or not being carried out in
\naccordance with the objects of the trust or the institution
\nas the case may be, he shall pass an order in writing
\ncancelling the registration of such trust or institution.”
\n37. After the grant of registration, if the Commissioner is
\nsatisfied subsequently that the activities of the institution
\nare not genuine or they are not carried on in accordance
\nwith the trust\/ institution, he could pass an order in
\nwriting cancelling the registration of such trust or
\ninstitution.
\n38. Referring to Section 11 and 12A of the Act, this Court
\npointed out that the act of granting registration under
\nSection 12AA(1) itself is a result of a satisfaction
\nrecorded by the Commissioner as regards the
\ngenuineness of the objects of the trust as well as the
\nactivities of the trust and once a satisfaction is arrived at
\nby the Commissioner, the cancellation could only be in
\nterms of Section 12AA(3) of the Income Tax Act, 1961.
\n39. This Court pointed out that the cancellation made in
\nthe case of assessee therein was not on the ground that
\nthe activities were not genuine, but the activities of the
\ntrust in publication and sale and spread of Sarvodaya
\nPage 29 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\nLiterature and Gandhian Ideologies was not the objects of
\nthe trust. This Court pointed out that the cancellation was
\nmade not on the ground that the activities of the trust
\nwere not genuine but the activities of the trust were not
\nin accordance with the objects of the trust; when the
\ntrust was registered with definite objects, carrying on
\nsuch activities would be in terms of the objects for which
\nregistration was granted.
\n40. Referring to Section 12AA of the Income Tax Act,
\n1961, this Court has held as under:-
\n” 9. Under section 12AA, the Commissioner is empowered
\nto grant or refuse the registration and after granting
\nregistration, would be empowered to cancel and that too,
\nonly on two conditions laid down under Section 12AA(3)
\nof the Income Tax Act, 1961. Whether the income
\nderived from such transaction would be assessed for tax
\nand also whether the trust would be entitled to
\nexemption under section 11 are entirely the matters left
\nto the assessing officer to decide as to whether it should
\nbe assessed or exempted.”
\n41. In the light of the law declared by this Court in the
\nabove said decision, we do not find that the scope of
\nSection 12AA(3) of the Act is of any doubt for a fresh
\nlook. It is relevant herein to point out that in two other
\nassessee’s case, the Income Tax Appellate Tribunal,
\nAhmedabad Bench-A rendered in the case of Gujarat
\nCricket Association Vs. DIT (Exemption) in
\nITA.No.93(Ahd)\/2011 dated 31.01.2012 and that of the
\nNagpur Bench rendered in the case of M\/s.Vidarbha
\nCricket Association Vs. Commissioner of Income-tax-I,
\nNagpur in ITA.No.3\/Nag\/10 dated 30.05.2011, considered
\nthe said decision reported in 343 ITR 300 in the case of
\nCIT Vs. Sarvodaya Ilakkiya Pannai rendered under Section
\n12AA(3) of the Act. On appeal before the respective High
\nCourts, the decision of the Income Tax Appellate Tribunal
\nwas confirmed.
\n42. Leaving that aside, there being no dispute raised by
\nthe Revenue as to the genuineness of the trust, or as to
\nthe activities of the trust not being in accordance with
\nthe objects of the trust, the question of cancellation
\nunder Section 12AA of the Act does not arise. We further
\nhold that at the time of grant of registration on
\n28.3.2003, the same was made taking into consideration
\nthe objects of the institution fitting in with the definition
\nPage 30 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\nof ‘charitable purpose’ defined under Section 2(150 of the
\nAct and the substitution of the Section itself came only
\n2008, with effect from 01.04.2009. As rightly pointed out
\nby the learned senior counsel appearing for the assessee,
\nthe circular clearly brings out the object of the
\namendment and the amended provision has no relevance
\nto the case . The power regarding cancellation, hence
\nhas to be seen with reference to the registration and the
\nobject satisfying the definition on ‘charitable purpose’, as
\nit stood at the time of registration and not by the
\nsubsequent amendment to Section 2(15) of the Income
\nTax Act.
\n43. Learned Standing counsel appearing for the Revenue
\nplaced heavy reliance on the proviso to Section 12AA(3)
\nof the Act and submitted that when the assessee has
\nincome received from conduct of the matches, which are
\ncommercial in nature, as had been found by the Income
\nTax Appellate Tribunal, the objects of the trust ceased to
\nbe charitable. He submitted that going by the definition
\nof Section 2(15) of the Act, rightly, the Commissioner
\nassumed jurisdiction under Section 12AA(3) of the Act to
\ncancel the registration. He further pointed out that for
\nthe finding to be recorded that the activities of the trust
\nare not genuine, one must necessarily look into the
\nobjects of the association; if the objects of the
\nassociation reveal commercial nature in the conduct of
\nmatches, the association cannot be one for charitable
\npurpose as defined under Section 2(15) of the Act. Thus,
\nthere could be no inhibition for the Commissioner to
\nassume jurisdiction to issue show cause notice calling
\nupon the assessee to state whether the association is
\ngenuine or not. He further submitted that on looking at
\nthe activities of the association, the Commissioner had
\nrightly come to the conclusion that the assessee’s
\nregistration was liable to be withdrawn.
\n44. We do not accept the submission of learned Standing
\ncounsel appearing for the Revenue. As rightly observed
\nby learned Senior counsel appearing for the assessee,
\nthe Revenue granted registration under Section 12AA of
\nthe Act satisfying itself as to the objects of the
\nassociation befitting the status as charitable purpose as
\ndefined under Section 2(15), as it stood in 2003 and after
\ngranting the registration, if the registration is to be
\ncancelled, it must be only on the grounds stated under
\nSection 12AA(3) of the Act with reference to the objects
\nPage 31 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\naccepted and registered under Section 12AA, as per the
\nlaw then stood under the definition of Section 2(15) of
\nthe Income Tax Act. Even therein, Courts have defined as
\nto when an institution could be held as one for
\nadvancement of any other object of general public utility.
\nThus, if a particular activity of the institution appeared to
\nbe commercial in character, and it is not dominant, then
\nit is for the Assessing Officer to consider the effect of
\nSection 11 of the Act in the matter of granting exemption
\non particular head of receipt. The mere fact that the said
\nincome does not fit in with Section 11 of the Act would
\nnot, by itself, herein lead to the conclusion that the
\nregistration granted under Section 12AA is bad and
\nhence, to be cancelled.
\n45. It may be of relevance to note the language used in
\nthe definition “charitable purpose” in Section 2(15) of the
\nAct, which states that charitable purpose includes relief
\nof the poor, education, medical relief and advancement
\nof any other object of general public utility. The
\nassessee’s case falls within the phrase of the definition
\ngeneral public utility . In the decision reported in (2000)
\n246 ITR 188 in the case of Hiralal Bhagwati Vs.
\nCommissioner of Income Tax, the Gujarat High court
\nconsidered the said phrase in the context of Section
\n12AA registration and held that registration of the
\ncharitable trust under Section 12AA of the Act is not an
\nidle or empty formality; the Commissioner of Income-tax
\nhas to examine the objects of the trust as well as an
\nempirical study of the past activities of the applicant; the
\nCommissioner of Income-tax has to examine that it is
\nreally a charitable trust or institution eligible for
\nregistration; the object beneficial to a section of the
\npublic is an object of “general public utility”. The Gujarat
\nHigh Court held that to serve as a charitable purpose, it is
\nnot necessary that the object must be to serve the whole
\nof mankind or all persons living in a country or province;
\nit is required to be noted that if a section of the public
\nalone are given the benefit, it cannot be said that it is not
\na trust for charitable purpose in the interest of the public;
\nit is not necessary that the public at large must get the
\nbenefit; the criteria here is the objects of general public
\nutility. Thus, the Gujarat High Court held that in order to
\nbe charitable, the purpose must be directed to the
\nbenefit of the community or a section of the community;
\nthe expression “object of general public utility”, however,
\nPage 32 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\nis not restricted to the objects beneficial to the whole of
\nmankind; an object beneficial to a section of the public is
\nan object of general public utility; the section of the
\ncommunity sought to be benefited must undoubtedly be
\nsufficiently defined and identifiable by some common
\nquality of a public or impersonal nature.
\n46. The above said decision (2000) 246 ITR 188 – Hiralal
\nBhagwati Vs. Commissioner of Income Tax) came up on
\nApril 18, 2000. Evidently, the Revenue has not gone on
\nappeal as against this judgment. In the decision reported
\nin (2008) 300 ITR 214(SC) in the case of Assistant
\nCommissioner of Income Tax Vs. Surat City Gymkhana,
\nreference was made about this decision and the Apex
\nCourt pointed out that the Revenue did not challenge this
\ncase and it attained finality.
\n47. It is no doubt true that the decision reported in
\n(2008) 300 ITR 214(SC) in the case of Assistant
\nCommissioner of Income Tax Vs. Surat City Gymkhana,
\nwas in the context of Section 10(23) of the Income Tax
\nAct, 1961, nevertheless, the fact remains that the
\nunderstanding of the scope of the expression “general
\npublic utility” would nevertheless is of relevance herein.
\nAdmittedly when the assessee was granted registration,
\nthe Revenue recorded its satisfaction that the objects are
\nof charitable purpose. Thus only possible enquiry under
\nSection 12AA of the Act for cancellation is to find out
\nwhether the activities of the trust are genuine or in
\naccordance with the objects of the trust. If any of the
\nincome arising on the activities are not in accordance
\nwith the objects of the trust, the assessees income, at
\nbest, may not get the exemption under Section 11 of the
\nAct. But this, by itself, does not result in straight rejection
\nof the registration as ‘trust’ under Section 12AA of the
\nAct. Consequently, we reject the prayer of the Revenue
\nthat Section 12AA(1) of the Income Tax Act, 1961 must
\nbe read along with Section 12AA(3) of the Income Tax
\nAct, 1961 before considering the cancellation.
\n48. As far as the unreported decision of this Court in
\nT.C(A).No.91 of 2013 dated 29.04.2013 (Gowri Ashram
\nVs. Director of Income Tax (Exemptions) is concerned, on
\nwhich heavy reliance was placed by the Revenue, the
\nsaid decision relates to the rejection of the registration at
\nthe threshold of the application filed for registration. So
\ntoo the decision of the Apex court reported in 315 ITR
\nPage 33 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\n428 in the case of Commissioner of Income Tax Vs.
\nNational Institute of Aeronautical Engineering Educational
\nSociety, wherein, rejection was made on the threshold of
\napplication for registration made by the assessee. The
\ndecisions relied on is thus distinguishable and has no
\nrelevance to the facts of the present case.
\n49. As far as unreported decision of this Court in
\nT.C(A).No.91 of 2013 dated 29.04.2013 (Gowri Ashram
\nVs. Director of Income Tax (Exemptions) is concerned,
\nwhile rejecting the appeal filed by the assessee on the
\nrejection of the application for registration, this Court
\nobserved that it was open for the assessee Society to
\nrenew its application as and when it expanded the
\nobjects of the Society and were approved by the
\ncompetent Court. The rejection order passed by the
\nRevenue was on the ground that the objects of the trust
\nwere not charitable in character. This decision also has
\nno relevance to the case on hand.
\n50. As already noted in the preceding paragraphs,
\nconsidering the provision under Section 12AA(3) of the
\nAct, the cancellation or registration in a given case could
\nbe done only under the stated circumstances under
\nSection 12AA(3) of the Act and in the background of the
\ndefinition relevant to the particular year of registration.
\nAs rightly pointed out by the assessee, Revenue does not
\nallege anything against the genuineness of the objects of
\nthe assessee or its activities. It rests its order only on the
\nground of the assessee receiving income from holding of
\nmatches which according to the assessee were not held
\nby it. Thus, as regards the question as to whether the
\nparticular income qualified under Section 11 of the Act or
\nnot is not the same as activity being genuine or not. In
\nthe circumstances, we do not agree with the view of the
\nIncome Tax Appellate Tribunal that the order passed by
\nthe Director of Income Tax (Exemptions) was in
\naccordance with the provisions of the Income Tax Act,
\n1961. He viewed that the conduct of test matches and
\nODI are in the nature of commerce or business. Though
\nthe assessee claimed their activities for promotion of
\nsports, he held that the dominant feature is evident from
\nthe huge profits received and hence the amount received
\nfrom BCCI as subsidy are commercial. As regards
\nconducting of IPL Matches, he pointed out that though no
\nservices are rendered by the assessee for conducting the
\nmatches, the ground where the matches are played are
\nPage 34 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\ngiven for rent which is a commercial venture. The subsidy
\nreceived from BCCI included mainly TV Advertisements
\nsold by BCCI for the conduct of IPL and their commercial
\nreceipts arising for IPL transactions. Therefore, the nature
\nof receipt was important than the name of account under
\nwhich it was accounted. Thus he viewed that the objects
\nand activities would no longer come within the definition
\nof Section 2(15) of the Act after the amendment come in
\neffect from 01.04.2009.
\n51. As rightly pointed out by the assessee, the Revenue
\ndoes not question the objects of the Association as not
\ngenuine or are in accordance with the objects. All that
\nthe Revenue stated was that the nature of receipt could
\nnot be called a subsidy. Thus Revenue came to the
\nconclusion that the objects and activities could not come
\nwithin the meaning of ‘charitable purpose’ under Section
\n2(15) of the Act.
\n52. On going through the materials, the Income Tax
\nAppellate Tribunal pointed out that instead of promoting
\nand developing the game of cricket, the assessee was
\npromoting and developing cricket as an entertainment
\nand the tickets are highly priced; here, the assessee has
\nshifted the activities of general public utility to
\ncommercial activity for generating revenue; the public
\nmerely participate to view costly matches; hence the
\nconditions of Section 12AA(3) were satisfied. The Income
\nTax Appellate Tribunal agreed with the Director of
\nIncome Tax (Exemptions) that the expression ‘subsidy
\nfrom BCCI’ was a misleading nomenclature and it was a
\nshare from the revenue collected by BCCI from the sale
\nof telecast rights. The surplus from IPL Season-I worked
\nout to 8.5% of the total receipts. It further held that 78%
\nof the total receipt came out of advertisement revenue.
\n53. The Income Tax Appellate Tribunal pointed out that
\nthe physical aspect of the game was one in accordance
\nwith the objects of the assessee and the activities are
\ngenuine. However, the matches held were not in
\nadvancement of any specific object of general public
\nutility. The pattern of receipt is commercial in character
\nand the matches conducted are not in accordance with
\nthe objects of the Association. Thus, it rejected the
\nassessee’s case and held that both the conditions under
\nSection 12AA(3) of the Act stood attracted.
\n54. As seen from the observation of the Income Tax
\nPage 35 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\nAppellate Tribunal, although generally it accepted the
\ncase of the assessee that the physical aspect of the
\ngame was one in accordance with the objects, the
\nquantum of receipt apparently led the Income Tax
\nAppellate Tribunal and the Revenue to come to the
\nconclusion that the activities are commercial and hence
\nby Section 2(15) proviso to the Act, the receipt from BCCI
\ncould not be called as subsidy. As for the observation of
\nthe Income Tax Appellate Tribunal that the twin
\nconditions stood satisfied is concerned, it is not denied by
\nthe Revenue that at the time of granting registration, the
\nCommissioner had satisfied himself about the objects of
\nthe trust and the genuineness of the activities as falling
\nwithin the meaning of ‘charitable purpose’, as it stood in
\n2003. The Revenue does not deny as a matter of fact
\nthat the objects remain as it was in 2003 and there is no
\nchange in its content to call the assessee’s object as not
\ngenuine. There are no materials to indicate that the grant
\nof registration was not based on materials indicating
\nobjects of general public utility.
\n55.The assessee is a member of Board of Control for
\nCricket in India (BCCI), which in turn is a member of
\nICC(International Cricket Council). BCCI allots test
\nmatches with visiting foreign team and one day
\ninternational matches to various member cricket
\nassociation which organise the matches in their stadia.
\nThe franchisees conduct matches in the Stadia belonging
\nto the State Cricket Association. The State Association is
\nentitled to all in-stadia sponsorship advertisement and
\nbeverage revenue and it incurs expenses for the conduct
\nof the matches. BCCI earns revenue by way of
\nsponsorship and media rights as well as franchisee
\nrevenue for IPL and it distributes 70% of the revenue to
\nthe member cricket association. Thus the assessee is
\nalso the recipient of the revenue. Thus, for invoking
\nSection 12AA read with Section 2(15) of the Act, Revenue
\nhas to show that the activities are not fitting with the
\nobjects of the Association and that the dominant
\nactivities are in the nature of trade, commerce and
\nbusiness. We do not think that by the volume of receipt
\none can draw the inference that the activity is
\ncommercial. The Income Tax Appellate Tribunal’s view
\nthat it is an entertainment and hence offended Section
\n2(15) of the Act does not appear to be correct and the
\nsame is based on its own impression on free ticket,
\nPage 36 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\npayment of entertainment tax and presence of cheer
\ngroup and given the irrelevant consideration. These
\nconsiderations are not germane in considering the
\nquestion as to whether the activities are genuine or
\ncarried on in accordance with the objects of the
\nAssociation. We can only say that the Income Tax
\nAppellate Tribunal rested its decision on consideration
\nwhich are not relevant for considering the test specified
\nunder Section 12AA(3) to impose commercial character
\nto the activity of the Association. In the circumstances,
\nwe agree with the assessee that the Revenue has not
\nmade out any ground to cancel the registration under
\nSection 12AA(3) of the Act.
\n56. As regards the observation of the Income Tax
\nAppellate Tribunal that IPL Matches and Celebrity Cricket
\nMatches are also being held by the Association and
\nhence it is an entertainment industry, we need not go
\ninto these aspects, for, the order of the Director of
\nIncome Tax (Exemptions) casts no doubt on the
\ngenuineness of the objects of the trust. Hence, it is for
\nthe Assessing Officer to take note of all facts, while
\nconsidering the same under Section 11 of the Income Tax
\nAct, 1961. We disapprove the approach of the Tribunal in
\nthis regard. In the above said circumstances, we set
\naside the order of the Income Tax Appellate Tribunal. \u201c
\n33. The Delhi High Court, in the case of M\/s. GST India vs.
\nDIT, Delhi, reported in 360 ITR 138, held that:
\n“Section 2(15) of the Income-tax Act, 1961, was
\namended by the Finance Act, 2008, with effect from April
\n1, 2009, and a proviso was added to it. A second proviso
\nwas inserted to section 2(15) by the Finance Act, 2010,
\nwith retrospective effect from April 1, 2009. There are
\nfour main factors that need to be taken into
\nconsideration before classifying the activity of the
\nassesseee as “charitable” under the residuary category,
\ni.e.,” advancement of any other object of general public
\nutility” under section 2(15) of the Act. The four factors
\nare (i) the activity should be for advancement of general
\npublic utility; (ii) the activity should not involve any
\nactivity in the nature of trade, commerce and business;
\n(iii) the activity should not involve rendering any service
\nin relation to any trade, commerce, or business; and (iv)
\nPage 37 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\nthe activities in clauses (ii) and (iii) should not be for fee,
\ncess or other consideration and if for fee, cess or
\nconsideration the aggregate value of the receipts from
\nthe activities under (ii) and (iii) should not exceed the
\namount specified in the second proviso. The earlier test
\nof business feeding or application of income earned
\ntowards charity because of the statutory amendment is
\nno longer relevant and apposite. It is evident from
\nCircular No. 11 of2008 that a new proviso to section
\n2(15) of the Act is applicable to assessees who are
\nengaged in commercial activities, i.e., carrying on
\nbusiness, trade or commerce, in the garb of “public
\nutility” to avoid tax liability. The legal terms “trade,
\ncommerce, or business” in section 2(15) mean activity
\nundertaken with a view to make or earn profit. Profit
\nmotive is determinative and a critical factor to discern
\nwhether an activity is business, trade or commerce.
\nBusiness activity has an important pervading element of
\nself-interest, though fair dealing should and can be
\npresent, whilst charity or charitable activity is the antithesis
\nof activity undertaken with profit motive or activity
\nundertaken on sound or recognised business principles.
\nThe quantum of fee charged, the economic status of the
\nbeneficiaries who pay commercial value of benefits, in
\ncomparison to the fee, the purpose and object behind the
\nfee, etc., are several factors which will decide the
\nseminal question, is it business? Charitable activities
\nrequire operational\/running expenses as well as capital
\nexpenses to be able to sustain and continue in the long
\nrun. There is no statutory mandate that a charitable
\ninstitution falling under the last clause should be wholly,
\nsubstantially or in part must be funded by voluntary
\ncontributions. A practical and pragmatic view is required
\nto examine the data, which should be analysed
\nobjectively and a narrow and coloured view will be
\ncounter-productive and contrary to the language of
\nsection 2(15). The second proviso applies when business
\nwas\/is conducted and the quantum of receipts exceeds
\nthe specified sum. The proviso does not seek to
\ndisqualify a charitable organization covered by the last
\nlimb, when a token fee is collected from the beneficiaries
\nin the course of activity which is not a business but
\nclearly charity for which it is established and it
\nundertakes.\u201d
\nPage 38 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\n34. The principles of law discernible from the aforesaid two
\ndecisions may be summed up thus:-
\n(a) For the purpose of cancellation of the registration u\/s
\n12AA(3), the Commissioner should record a satisfaction that
\nthe activities of the Trust or Institution are not genuine or that
\nthe activities are not being carried on in accordance with the
\nobjects of the Trust. In the absence of such a finding, the
\nregistration granted u\/s 12A or u\/s 12AA cannot be cancelled.
\nCancellation of registration of a charitable Trust, in a given
\ncase, is permissible, only under the circumstances stated u\/s
\n12AA(3) of the Act.
\n(b) For an assessee to be classified as charitable under the
\nresiduary category i.e. “advancement of any other object of
\ngeneral public utility” u\/s 2(15) of the Act, the following four
\nfactors need to be satisfied.
\ni) Activity should be for the advancement of the ‘general
\npublic utility’.
\nii) Activity should not be in the nature of trade, commerce
\nor business.
\niii) Activity should not involve rendering of services in
\nrelation to any trade, commerce or business.
\niv) Activities in Clauses b and c above, should not be for
\nfees, cess or other consideration, the aggregate value of which
\nshould not exceed the amount specified in the Second Proviso
\nto S.2(15).
\n(c) The earlier test that if the income so collected, is applied
\ntowards the charitable activity, then the trust cannot be held
\nas non-charitable, is no longer relevant after the statutory
\nPage 39 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\namendment.
\n(d) The scope of the term “activity in the nature of trade,
\ncommerce or business” would mean that:
\ni) It is undertaken with a profit motive;
\nii) The activity is continued on sound and recognized
\nbusiness principles and is pursued with reasonable continuity;
\niii) There should be facts and other circumstances which
\njustify and indicate that the activity undertaken is in fact, in
\nthe nature of business;
\niv). The five tests propounded in the case of Customs and
\nExcise Commissioner vs. Lord Fisher (1981) STC 238 and the
\npropositions in the case of CST vs. Sai Publication Fund 258 ITR
\n70 (SC) apply.
\nv). Business activity is an important prevailing element of self
\ninterest.
\n(e) From a perusal of the Circular no.11 of 2008 issued by the
\nCBDT, it is clear that the new Proviso of S.2(15) of the Act, is
\napplicable to the assesses who are engaged in commercial
\nactivities i.e. carrying of trade, commerce or business in the
\ngarb of “public utility” to avoid tax liability, and where the
\nobject of the “general public utility” is only a mask or device to
\nhide the true purpose, which was “trade, commerce or
\nbusiness.”
\n(f) Charitable activity is the anti-thesis of activity having an
\nelement of self interest. Charity is driven by altruism and
\ndesire to serve others, though the element of self preservation
\nmay be present. For charity, benevolence should be
\nomnipresent and demonstratable but it is not equivalent to self
\nsacrifice and abnegation.
\nPage 40 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\n(g) The antiquated definition of the term charity, which entails
\ngiving and receiving nothing in return is outdated.
\n(h) Enrichment of oneself or self-gain should be missing and
\nthe predominant purpose of the activity should be to serve and
\nbenefit others, the mandatory features being, selflessness or
\nilliberal spirit.
\n(i) The quantum of fee charged, the economic status of the
\nbeneficiaries who pay, commercial values in comparison to the
\nfee, purpose and object behind the fee etc. are several factors
\nwhich decide the seminal question, is it business?
\n(j) The Revenue cannot take a contradictory stand that, the
\nassessee carries on charitable activity under the residuary
\nhead “general public utility”, but, simultaneously record the
\nsaid activity as business.
\n(k) There is no statutory mandate that a charitable Institution
\nfalling under the residuary Clauses, should be wholly,
\nsubstantially or in part be funded by voluntary contributions.
\n(l) A pragmatic view is required to be taken while examining
\nthe data and the same should be analysed objectively. A
\nnarrow and coloured view may prove to be counter productive
\nand contrary to S.2(15) of the Act.
\n(m) Accumulation of money\/funds over a period of two to three
\nyears may not be relevant in determining the nature and
\ncharacter of the activity and whether the same should be
\ntreated indicative of profit motive i.e. the desire or intention to
\ncarry on business or commerce.
\n(n) The so called business activities, when intrinsically woven
\ninto and is part of the charitable activity undertaken, the
\nbusiness activity is not feeding charitable activities, as they
\nPage 41 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\nare integral to the charity\/charitable activity.
\n(o) What has to be seen is, as to what is the core\/main activity
\nof the assessee. The predominant activity shall be the basis of
\nthe decision making.
\nANALYSIS
\n35. It appears from the line of reasoning adopted by the
\nAssessing Officer and the CIT(A) that both are absolutely
\nmesmerized or rather hypnotized by the word \u201cBCCI\u201d The
\ncorpus with the BCCI may be huge and the BCCI may be
\nindulging in commercial transactions like TV rights, IPL
\nmatches etc. However, we fail to understand what has the
\nBCCI to do directly with the assessee. The assessee is a
\nregistered charitable trust. It has its own objects. It has its
\nown activities for the purpose of promoting the game of
\ncricket, or in other words, imparting education in the game of
\ncricket. The BCCI may ask the Association to host a cricket
\nmatch at the international level once in a year or two.
\nHowever, that by itself, is not sufficient to draw an inference
\nthat the assessee-Association is indulging in commercial
\nactivity with an element of profit motive.
\n36. We are quite amazed with some of the findings recorded
\nby the Assessing Officer as well as the CIT(A). One of the
\nfindings recorded is that the Association should not sell tickets
\nfor watching the cricket matches. Are the authorities trying to
\nconvey that the Association should not sell tickets even when it
\ncomes to international matches. How does the Revenue expect
\nthe Association to distribute the tickets in such circumstances.
\nPage 42 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\n37. Having regard to the materials on record, we are
\nconvinced that the main and predominant object and activity
\nof the assessee is to promote, regulate and control the game
\nof cricket in the State of Gujarat. The undisputed fact is that
\nover a period of years, this activity has been recognized by the
\nIncome Tax Department as a charitable activity and the
\nregistration under Section 12A of the Act was granted to the
\nassessee. A number of assessment orders under Section
\n143(3) were passed, wherein the assessee was held eligible for
\nthe exemption under Sections 11 and 12 of the Act. It appears
\nthat it is only after the Proviso came to be inserted that, all of a
\nsudden, the department now believes that the activity of the
\nassessee is commercial in nature and no longer charitable. It
\nis difficult for us to take the view that the assessee could be
\nsaid to be carrying on \u201ctrade, commerce or business\u201d under
\nthe garb of the activity being \u201cgeneral public utility\u201d. Merely
\nbecause an activity is performed in an organized manner, that
\nalone, will not make such activities as business\/commercial
\nactivity. The profit motive is one essential ingredient which is
\napparently missing in the case on hand. In carrying out an
\nactivity, one may earn profit or one may incur loss. But for
\nmaking it as a business activity, the presence of the profit
\nmotive is sine qua non.
\n38. In the case on hand, the ultimate beneficiary is either the
\ncricketer or the game of cricket. The assessee is not charging
\nany fees or revenue from the cricketer who is the ultimate
\nbeneficiary. Thus there is no quid pro quo relationship with the
\ncricketer. The assessee is promoting cricket on the charitable
\nbasis as far as real beneficiary is concerned. Whenever the
\nPage 43 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\nrevenue is earned, the same is not on commercial lines and
\nthe same could be said to be earned without any commercial
\nattributes. The revenue is generated for recovering the cost, at
\nleast partly if not in full.
\n39. Mr. Shah also invited our attention to the observations
\nmade by this High Court in the case of Commissioner of
\nIncome Tax vs. Sarabhai Sons Ltd., (1983) 143 ITR 473
\n(Guj.). Mr. Shah seeks to rely upon this decision, more
\nparticularly, the observations we shall quote hereinafter to
\nmake good his submission that the view taken by the Madras
\nHigh Court should be accepted in conformity with the uniform
\npolicy as laid down in the Income Tax matters. We quote the
\nobservations upon which Mr. Shah would like to rely upon;
\n\u201cUnder the circumstances, as observed by Chagla, CJ, in
\nManeklal Chunilal & Sons Ltd. vs. CIT (1953) 24 ITR 375
\n(Bom.) in conformity with the uniform policy, which has
\nbeen laid down in income tax matters, whatever our
\nview may be, we must accept the view taken by the
\nanother High Court on the interpretation of the section of
\na statute which is in all India statute. Similar view has
\nexpressed by the Bombay High Court in Ramanlal
\nAmarnath (Agency) Ltd. vs. CIT (1973) 91 ITR 250, while
\nfollowing a decision of this Court in Baroda Traders Ltd.
\nvs. CIT (1965) 57 ITR 490. Even though, we may be
\npersuaded to take a different view, we are not inclined to
\ndo so in view of the settled practice referred to in the
\ndecision of the Madras High Court and the decision of
\nBombay High Court and the Madhya Pradesh High Court
\nadverted to above. Therefore, respectfully following the
\ndecisions of the Madras High Court and the Madhya
\nPradesh High Court, we must answer the third question
\nreferred to us also in the affirmative and against the
\nrevenue.\u201d
\n40. However, Mr. Bhatt would submit, by placing reliance on
\nthe decision of this Court in the case of N.R. Paper & Board
\nPage 44 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\nLimited vs. Deputy Commissioner of Income Tax, 1998
\n(234) ITR 733 that while the decision of any other High Court is
\nentitled to highest esteem and respect by this Court, the
\nsystem of law should not be evolved by such mechanical
\nprocess of following the dictum as laid. According to Mr. Bhatt,
\nif it becomes impossible to agree with the decisions of the
\nother High Courts, this Court should be free to give its reasons
\nwhich may not coincide with the conclusions reached in the
\npersuasive precedent relied upon. Mr. Bhatt seeks to rely upon
\nthe following observations of this Court, as contained in para-
\n27;
\n\u201c27. While the decision of any other High Court is entitled
\nto our highest esteem and respect, the constitutional
\npowers of the High Court in its writ jurisdiction cannot be
\nreduced to simply matching the colours of the case at
\nhand against the colours of many sample cases spread
\nout upon its desk and accept the sample nearest in
\nshade as the applicable rule. The system of law cannot
\nbe evolved by such mechanical process and no judge of a
\nHigh Court worthy of his office, views the function of his
\nplace so narrowly. If that were all there was to our calling
\nthere will be little of intellectual interest about it.
\nThe choice of a path for us cannot be made so blind and
\nunintelligent, to be followed without a survey of the route
\nwhich has been travelled and of the place where it would
\nlead. Necessarily therefore, reasons that are given in the
\ndecisions of other High Courts relied upon for the
\npetitioners, which have great persuasive value as
\nprecedent are required to be considered and the
\nconsequences are to be noted and if it becomes
\nimpossible to agree with them, or if there are no reasons
\nat all and only announcements of legal precepts, the
\ncourt would be free to give its reasons, which may not
\ncoincide with the conclusions reached in the persuasive
\nprecedent relied upon. The decisions of any High Court
\nare after all not intended to be “gag orders” for other
\nHigh Courts and do not have the effect of freezing judicial
\nthinking on the points covered by them. This is why in
\nPage 45 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\nArvind Boards and Paper Products Ltd. [1982] 137 ITR
\n635 (Guj), the court after reviewing the authorities on the
\nsubject, clearly spelt out exceptions, such as where the
\ndecision is sub-silentio, per incuriam, obiter dicta or
\nbased on a concession or takes a view which it is
\nimpossible to arrive at, etc., which would justify the High
\nCourt from taking its own view and not just follow the
\nprecedent which may otherwise have a persuasive value,
\nthough not binding.\u201d
\n41. Mr. Bhatt, the learned senior counsel appearing for the
\nRevenue may be right in his submission that if this Court is not
\npersuaded to follow the view taken by the High Court of
\nMadras in the case of Tamil Nadu Cricket Association (supra),
\nthen by only following the principle as laid down in the case of
\nManeklal (supra), this Court may not adopt or follow the view
\nof the High Court of Madras for the purpose of consistency.
\nWe may only say that having regard to the materials on
\nrecord, we are not persuaded to take a different view than the
\none taken by the High Court of Madras. Therefore, we are not
\ngoing much into the issue as regards the dictum as laid down
\nin Maneklal (supra). We find the view taken by the ITAT in its
\nimpugned order quite reasonable and in accordance with law.
\nThe Tribunal, in its impugned order, has made itself very clear
\nthat it was not expressing any opinion on the merits of the
\nissue as to whether the activities of the GCA would fall within
\nthe meaning of charitable purpose in accordance with Section
\n2(15) of the Act as amended. The ITAT has also clarified that
\nthe issue with regard to registration under Section 12AA of the
\nAct can be examined in the assessment proceedings.
\n42. In the aforesaid view of the matter, we are not convinced
\nwith the case put up by the Revenue. It is not the case of the
\nPage 46 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\nRevenue that the objects of the Trust are not charitable, but
\nthe case of the Revenue is that the activities undertaken by
\nthe Association are not charitable in nature.
\n43. In the result, this appeal fails and is hereby dismissed.
\nThe substantial question of law, as formulated by this Court, is
\nanswered in favour of the assessee and against the Revenue.
\nTax Appeal No.317 of 2019
\n44. We shall now take up the Tax Appeal No.317 of 2019.
\nThis tax appeal under Section 260A of the Income Tax Act,
\n1961 is at the instance of the Revenue and is directed against
\nthe order passed by the Income Tax Appellate Tribunal,
\nAhmedabad, Bench ‘D’, Ahmedabad in the ITA
\nNo.1257\/Ahd\/2013 for the A.Y.2009-10. This tax appeal came
\nto be admitted by this Court vide order dated 15th July, 2019 on
\nthe following substantial questions of law;
\n\u201c[A]. Whether, on the facts and in the circumstances of
\nthe case the Appellate Tribunal was justified in allowing
\nthe benefit of Sections 11 and 12 when the Assessing
\nOfficer has clearly brought on record that assessee is
\ncovered under the proviso to Section 2(15) r.w.s 13(8) of
\nthe Act?
\n[B]. Whether, on the facts and in the circumstances of
\nthe case the Appellate Tribunal has erred in holding that
\nthe assessee is not covered under the proviso to section
\n2(15) when the Officer has clearly brought on record that
\nassessee is engaged in the activity of \u201cadvancement of
\nobjects of general public utility?\u201d
\n[C]. Whether on the facts and circumstances of the case
\nand in law, the Appellate Tribunal was justified in deleting
\nthe addition made in respect of corpus donations
\nu\/s.11(l)(d) of the Act without appreciating that the
\nassessee failed to discharge its onus by not bringing
\nanything on record in support of its claim of corpus
\ndonation?\u201d
\nPage 47 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\n[D]. Whether on the facts and circumstances of the case
\nand in law, the Appellate Tribunal was justified in deleting
\nthe addition made on account of infrastructure subsidy of
\nRs.2,13,34,033\/-, treating it as capital receipts without
\nappreciating the findings of the Assessing Officer?\u201d
\n45. We may borrow the facts giving rise to this appeal from
\nthe memorandum of the appeal. The pleadings in the memo of
\nthe appeal are as under;
\n\u201c(A) In the present case, the assessee filed its return of
\nincome on 14\/09\/2009 declaring total loss of
\nRs.3,45,54,247\/-. The summary assessment u\/s.143(1) of
\nthe Act was resulted in Refund of Rs.46,14,500\/-. The
\nassessment u\/s.143(3) of the Act was completed on
\n30\/12\/2011 determining total income at
\nRs.22,77,02,663\/-.
\n(B) Disallowance of benefit of section 11 of the Act.
\n1) During the assessment proceedings, the Assessing
\nOfficer observed that the activity of the assessee was
\nheld as in the nature of trade, business or commerce for
\na cess or fees in the form of tickets with profit motive
\nand the receipt from the BCCI in the form of TV rights
\nwas not voluntary contribution but price paid for hosting
\ncricket tournament on assessee\u2019s stadium and therefore,
\nit was not educational activity of the assessee. The
\nactivity of the assessee was running of its business of
\nentertainment of the people at large for a fee of cess by
\narranging cricket tournament at various levels. Further,
\nthe DlT(E), Ahmedabad had passed speaking order
\nconsidering all the relevant legal and actual position
\ncancelling the registration u\/s.12AA(3) of the Act on
\n06\/12\/2010 w.e.f. A.Y. 2004-05 onwards. The Assessing
\nOfficer relied upon the decision of Hon. Supreme Court in
\nthe case of Sole Trustee Loka Shikshana Trust Vs CIT
\n(1975) 101 ITR 234 (SC). The Assessing Officer held that
\nthe BCCI is the richest Sport Authority in India. Arranging
\nnational and international level cricket tournament and
\nits allocation to various affiliated Associations like the
\nassessee and preparation for conduct of such cricket
\nmatches, selection of players, coaches, venue, TV
\nBroadcasting rights, Audio & Video Publicity, sale of
\ntickets, issue of license for parking lots, sale of edibles
\nPage 48 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\nand drinking water in stadium during tournament, five
\nstar arrangement of lodging and boarding for players,
\narrangement of security for players and in stadium a lot
\nof other ancillary squarely fit in the definition of trade or
\nservices for profit as defined by the Apex Courts.
\nTherefore, the Assessing Officer held that the activities
\ncarried out by the assessee were in the nature of
\nadvancement of any other object of general public utility.
\nAccordingly, the Assessing Officer had invoked provisions
\nof section 2(15) of the Act and thereby denying benefit of
\nsection 11(1)(a) or 11(1)(b) of the Act.
\n2) Being aggrieved, the assessee filed appeal before
\nCIT(A). The CIT(A) had held that the assessee was not
\ndoing any charitable\/educational activity by promoting
\ngame of cricket but it was in the business of
\nentertainment of people at large by arranging\/hosting
\nnational and international levels cricket tournaments and
\nthereby received approximately 3 crores which indicate
\nthat the activities of the assessee was carrying out
\nactivities in the nature of trade, commerce or business.
\nThe C1T(A) relied on the decision of Hon. Supreme Court
\nin the case of Sole Trustee Loka Shikshana Trust Vs CIT
\n101 ITR 234 (SC) and Hon. High Court of Calcutta in the
\ncase of Cricket Association of Bengal Vs CIT 37 ITR 277
\n(Calcutta). The C1T(A) held that with the introduction of
\nSection 13(8) of the Act w.e.f. 01\/04\/2009 (Finance Act,
\n2012) it was clear that the assessee was covered by the
\nproviso to section 2(15) of the Act. Accordingly, the
\nC1T(A) had dismissed the appeal of the assessee.
\n3) Being aggrieved, the assessee preferred appeal
\nbefore the Appellate Tribunal. The Appellate Tribunal
\nrelied on co-ordinate bench\u2019s decision in the case of
\nHoshiarpur Improvement Trust Vs ACIT (2015) 155 ITD
\n570 (Asr) which were approved by the Hon. Punjab &
\nHaryana high Court in the case of C1T(E) Vs
\nImprovement Trust Monga in TA No. 147 of 2016
\nreported as Tribune Trust Vs C1T(2017) 390 ITR 547
\n(P&H). Further, Appellate Tribunal has relied on the
\ndecision of this Hon\u2019ble Court in the case of Sabarmati
\nGaushala Trust and held that accrual of profit cannot be
\nheld that the assessee is not covered by the section
\n2(15) of the Act. The receipts in the hands of the cricket
\nassociations are nothing but appropriation of profits and
\nthat are not taxable. Further, the Department has not
\nPage 49 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\nbeen able to point out a single object of the assessee
\nwhich is in the nature of trade, commerce or business.
\nOn perusal of the annual reports and annual financial
\nstatements of the assessee, the objects of the assessee
\nexist and operate purely for the purpose of promoting
\ncricket. The Appellate Tribunal held that the assessee
\ncricket associations were not really engaged in the
\nactivities in the nature of trade, commerce or business.
\nAccordingly, the Appellate Tribunal held that the
\nassessee has covered by the section 2(15) of the Act and
\nthus the assessee is entitled to relief u\/s.11l of the Act.
\n4) The decision of the Appellate Tribunal is erroneous.
\nIt is seen that control of cricket is in a few powerful hands
\nand that cricket is completely monopolized by the Board
\nof Cricket Control in India. The BCCI is not a rank outsider
\nfor these cricket associations but the apex bodies of
\nthese cricket associations. These cricket associations act
\nin tandem with the BCCI and the cricket is pursued in as
\ncommercial a manner as it can be pursued auction of
\nplayers for playing matches and the format of the
\nmatches being improvised as per the requirements of
\ncommercial interests. It is submitted that cricket as it is
\npursued by the BCCI and its affiliates is pure
\nentertainment, and these are the dictates of its
\nentertainment value that decides the form and
\npresentation of cricket. If it is a noble activity of
\neducation in a gentleman\u2019s sport, where is the need of
\nauctioning of the players. The commerce is glaring in
\neach facet of cricket today. It is also submitted that even
\nimparting cricket coaching is a big business rather than a
\nselfless education. What is being pursued by these
\nassociations is pure commercial exploitation of cricket
\nand that is the reason that the profits of these
\nassociations needs to be brought to tax. The financial
\nrelationship between the assessees and the BCCI cannot
\nbe without quid pro quo between the BCCI and these
\ncricket associations, or else why would anyone share
\nsuch huge amounts with cricket associations. BCCI
\norganizes the events on pure commercial lines, makes
\nhuge monies on organizing these events, and share the
\nmonies with the local cricket associations. What the
\nassociations get is on account of fruits of the commercial
\noperations, and that precisely is the reason these monies
\nshould be brought to tax. Learned Commissioner then
\ntakes us through the legislative amendments to Section
\nPage 50 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\n2(15) and links the same to how the sports have been
\nexploited commercially in the last few decades. It is an
\nadmitted position that the cricket associations were all
\nalong treated as involved in \u201cadvancement of an object
\nof general public utility\u201d and, effective 1st April 2009, the
\nproviso to Section 2(15) came in force which made it
\nclear that if the activities of such institutions is in the
\nnature of trade, commerce or business or rendition of
\nservices, for a cess, fee or any other consideration, to the
\nbusiness entities. The principle is clear. When you are
\nhere to make money from such activities on commercial
\nlines, in the garb pursuing advancement of an object of
\ngeneral public utility, you may as well pay tax on the
\nearnings from such activities. There is no dispute that the
\ncricket is now biggest source of making money and,
\ntherefore, the income of the entities organizing cricket
\nevents should also be taxed. It is pertinent to mention
\nthat as per the CBDT Circular No.395 dated 24\/09\/1984,
\nit was held that promotion of sports and games is
\n\u201cadvancement of objects of general public utility\u2019. Thus,
\nin the instant case, the Assessee is clearly engaged in an
\nactivity that is of \u201cadvancement of objects of general
\npublic utility\u201d. Since the Assessee is covered by the last
\nlimb of the definition of Section 2(15), now it is to be
\nseen whether the conditions in the proviso 1 of the
\nSection 2(15) are applicable to the facts of the case. It is
\nvery clear from the audited accounts of the assessee that
\nit earns income out of sale of tickets, sale of space, A\/C
\nCabin Ticket sale etc. out of the cricket matches
\nconducted at the grounds of cricket association which is
\nnothing but a business activity carried out by the
\nAssessee. Thus, it is clearly evident that the Assessee is
\nengaged in business activity, thereby satisfying the
\nconditions prescribed in the proviso 1 to Section 2(15) of
\nthe I.T Act. Since the gross receipts of the Assessee
\nexceed the amount decided in the provisos, the
\nprovisions of the second proviso to Section 2(15) of the
\nI.T Act are also satisfied. Thus, the Assessee is clearly
\ncovered by the provisions of Section 2(15) read with the
\nproviso 1 & 2 to the said section.
\n[C] Disallowance of corpus donation.
\n(1) During the assessment proceedings, the Assessing
\nOfficer observed that the assessee claimed to have been
\nreceived amount of Rs.20,69,60,338\/being corpus from
\nPage 51 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\nBCCI and sponsorship money of Rs.20,00,000\/ from
\nReliance Industries Ltd. The assessee was asked to
\nsubmit documentary evidences to support its claim for
\ncorpus donation. The assessee failed to discharge its
\nonus either by bringing anything on records or producing
\nrepresentative of BCCI as its witness in support of its
\nclaim of corpus donation that can be considered as
\ncorpus donation on instruction of BCCI. The auditor was
\nalso of the opinion that the amount of Rs.20,69,60,338\/
\nconsidered as corpus was not in consonance with
\nprovisions of law and facts of the case. The Assessing
\nOfficer held that the assessee had not complied with the
\nrequirements of section 11(1)(d) of the Act. Accordingly,
\nthe claim of corpus donation of Rs.20,69,60,338\/- of the
\nassessee was rejected by the Assessing Officer.
\n2) Being aggrieved, the assessee filed appeal before the
\nCIT(A). The CIT(A) held that no written specific direction
\nwas available with the respective amounts for the
\nrespective A.Ys. Accordingly, the CIT(A) held that the
\nAssessing Officer has rightly treated the donation
\nreceived from the BCCI as income of the assessee and
\nthereby had confirmed the addition of Rs.20.69,60,338\/-.
\n3) Being aggrieved. the assessee preferred appeal before
\nthe Appellate Tribunal. The Appellate Tribunal held that
\nthere was specific confirmation to the effect that
\namounts were corpus donations. Further, on perusal of
\nthe BCCI resolution No. 5 which specifically stated that
\nthe TV subsidies should henceforth be sent to the
\nmember association towards corpus funds. Therefore,
\nany payments made by the BCCI, without a legal
\nobligation and with a specific direction that shall be form
\ncorpus fund. Thus, the condition u\/s.l 11(1)(d) of the Act
\nare satisfied. The Appellate Tribunal has relied on the
\ndecisions in assessee\u2019s own case in orders for A.Ys. 2004-
\n05 to 2007-08 and thus directed the Assessing Officer to
\ntreat the TV subsidy of Rs.20,69,60,338\/received from
\nBCCI as a corpus donation.
\n4) The decision of the Appellate Tribunal is erroneous. As
\nper provisions of section 11(1)(d) of the Act voluntary
\ncontributions with a specific direction that can be used as
\na corpus donation. However, in the instant case there is
\nno specific direction from the BCCI to treat the said
\namounts as towards the \u2018corpus fund\u2019. If the intention of
\nPage 52 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\nthe donor was to donate this amount towards the \u2018corpus
\nfund\u2019 of the assesee, then it has to be specifically
\nmentioned. In the absence of written direction, a
\nparticular donation cannot be considered as \u2018corpus
\ndonation\u2019. In this case, as the specific direction was
\nclearly missing, said receipt of subsidy had to be
\nconsidered as the income of the assessee trust and it
\ncannot be exempt u\/s.11(1)(d) of the Act.
\n[D] Disallowance of infrastructure subsidy
\n1) During the assessment proceedings, the Assessing
\nOfficer observed that the activity of the assessee was
\nheld as in the nature of trade, business or commerce for
\na cess or fees in the form of tickets with profit motive
\nand the receipt from the BCCI in the form of TV rights
\nwas not voluntary contribution but price paid for hosting
\ncricket tournament on assessee\u2019s stadium and therefore,
\nit was not educational activity of the assessee. The
\nactivity of the assessee was running of its business of
\nentertainment of the people at large for a fee of cess by
\narranging cricket tournament at various levels. Further,
\nthe DIT(E), Ahmedabad had passed speaking order
\nconsidering all the relevant legal and actual position
\ncancelling the registration u\/s.12AA(3) of the Act on
\n06\/12\/2010 w.e.f. A.Y. 2004-05 onwards. On perusal of
\nIncome & Expenditure A\/c., the assessee had received
\namount of Rs.3,98,07,028\/-. The Assessing Officer relied
\nupon the decision of Hon. Supreme Court in the case of
\nSole Trustee Loka Shikshana Trust Vs CIT (1975) 101 ITR
\n234 (SC). The Assessing Officer held that the BCCI is the
\nrichest Sport Authority in India. Arranging national and
\ninternational level cricket tournament and its allocation
\nto various affiliated Associations like the assessee and
\npreparation for conduct of such cricket matches,
\nselection of players, coaches, venue, TV Broadcasting
\nrights, Audio & Video Publicity, sale of tickets, issue of
\nlicense for parking lots, sale of edibles and drinking water
\nin stadium during tournament, five star arrangement of
\nlodging and boarding for players, arrangement of
\nsecurity for players and in stadium a lot of other ancillary
\nsquarely flt in the definition of trade or services for profit
\nas defined by the Apex courts. Therefore, the Assessing
\nOfficer held that the activities carried out by the
\nassessee were in the nature of advancement of any other
\nobject of general public utility. Accordingly, Assessing
\nPage 53 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\nOfflcer had invoked provisions of section 2(15) of the Act
\nand thereby denying benefit of section 11(1)(a) or 11(1)
\n(b) of the Act. The assessee, during the year under
\nconsideration, had received infrastructure subsidy from
\nBCCI of Rs.3,52,86,521\/- and had utilized of
\nRs.1,39,52,488\/- by way of payment of District Cricket
\nAssociation. Therefore, differential amount of
\nRs.2,13,34,033lwas added to the total income of the
\nassessee.
\n2) Being aggrieved, the assessee preferred appeal
\nbefore CIT(A). The CIT(A) held that the assessee was not
\nan educational institution within the meaning of section
\n2(15) of the Act. The CIT(A) partly allowed the appeal of
\nthe assessee.
\n3) Being aggrieved, the assessee preferred appeal before
\nAppellate Tribunal. The Appellate Tribunal held that the
\nAssessing Officer has not justified in holding that
\ninfrastructure subsidy as revenue in nature. The assessee
\nwas made claim for subsidy only after the expenditure
\nhaving been incurred which is relatable to capital assets.
\nThe infrastructure subsidy was given to the assessee for
\nthe reimbursement of 50% of expenditure which was
\nincurred on infrastructure related to the capital assets
\nand therefore it was not revenue receipt. Accordingly,
\nthe Appellate Tribunal has deleted the addition of
\nRs.2,13,34,033\/-.
\n4) The decision of the Appellate Tribunal erroneous. In
\nthe cases of trusts, the trust is eligible to claim both
\nrevenue as well as capital expenses as application of
\nincome, so all expenses claimed as application of income
\nshould be first treated as income and be routed through
\nthe profit and loss accounts.
\nThe tax effect involved is Rs.7,72,84,442\/- which is above
\nthe prescribed monetary limit under the Board\u2019s Circular
\nNo.03\/2018 dated 11\/07\/2018.\u201d
\n46. The assessee is a Society registered under the Societies
\nRegistration Act, 1860. It came to be registered with the
\nRegistrar of Societies vide the Registration Certificate dated
\nPage 54 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\n10th July, 1984. The assessee was granted registration under
\nSection 12AA of the Act, 1961 vide order dated 16th April, 2003
\nby the then DIT (Exemption), Ahmedabad. The registration
\nunder Section 12AA of the Act was granted on the premise that
\nthe assessee-Association is carrying on the charitable activities
\nlike promotion of sports.
\n47. The objects of the assessee-Association are as follows;
\n\u201c1. To control, supervise, regulate or encourage,
\npromote and develop the game of cricket in the area
\nunder the jurisdiction of the Association. The Association
\ncan also undertake any other and all activities which may
\nbe beneficial to the Association.
\n2. To create, foster and maintain friendly and cordial
\nrelationship through sports tournaments and
\ncompetitions connected therewith and to create a
\nhealthy spirit through the medium of sports in general
\nand cricket in particular.
\n3. To instill the spirit of sportsmanship in students
\nattending schools, colleges and members of other
\ninstitutions and other citizens and to foster the spirit of
\nsportsmanship and instill the ideal of cricket and educate
\nthem in the same.
\n4. To maintain a panel of approved Umpires who
\nqualify themselves by passing the prescribed tests for
\npurpose of officiating as such in the matches conducted
\nby the Association.
\n5. To select teams to represent the Association in any
\ntournaments, championship or fixture local or otherwise.
\n6. To arrange, supervise, hold, encourage and finance
\nvisits of teams.
\n7. To arrange, and\/or manage among other things
\nleague and\/or any other tournaments.
\n8. To promote and hold either alone or jointly with any
\nPage 55 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\nother Association. Club or persons, sports, meetings,
\ncompetitions and matches and to offer, give or distribute
\ntowards prizes, medals and awards.
\n9. To make provision for coaching deserving persons
\nin the various departments of the game in general and
\ncricket in particular.
\n10. To impart physical education through the medium
\nof Cricket and take all steps to assist to the citizens to
\ndevelop their physique.
\n11. To organize matches in aid of public charities and
\nRelief Funds.
\n12. To lay out such ground or grounds for playing the
\ngame and for other purposes and to provide pavilion,
\nstadiums, other conveniences and amenities in
\nconnection therewith.
\n13. To introduce a Scheme of professionalism and to
\nimplement the same.
\n14. To start and maintain a journal devoted to sports in
\ngeneral and cricket in particular.
\n15. To maintain a library of books, periodicals and other
\nliterature on sports i.e. general and cricket in particular
\nand to start journal or journals on sports in general
\nand\/or cricket in particular.
\n16. To engage person or persons and professional
\ncricketers, coaches, umpires, groundsmen and to pay
\nremuneration or honorarium to them.
\n17. To start, sponsor and\/or to subscribe to any fund for
\nthe benefit of players, umpires, coaches, groundsmen,
\nemployees or their families.
\n18. To collect funds for the purpose of the Association
\nand to utilize such in such a manner as the Managing
\nCommittee of the Association consider desirable for the
\nfulfillment of the objects of the Association.
\n19. To hold and maintain the Laws of Cricket and The
\nRules and Regulations of the Board of Control for Cricket
\nPage 56 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\nin India.
\n20. To take such action as may be necessary to
\ncoordinate the activities of affiliated district Cricket
\nAssociation institutions and their members in to the
\nAssociation and amongst themselves.
\n21. To stage or sponsor and\/or to subscribe funds to
\nstage a match for benefit of the Cricketers or persons
\nwho may have rendered service game of cricket or for
\ntheir families or to denote towards the develop
\npromotion of the game.
\n22. To appoint representative or representatives on the
\nCricket conference and other conferences, seminars,
\ntalent events, symposiums connected with the game of
\ncricket.
\n23. To invest moneys and funds of the Association in
\nsuch a manner as may be decided upon by the Managing
\nCommittee of the Association capable of being
\nconveniently carried on in connection with objects of the
\nAssociation.
\n24. To carry on any other activity which may seem to
\nthe Association capable of being conveniently carried on
\nin connection with objects of the Association.
\n25. To carry on any other activity for promoting the
\nobjects of the Association which are calculated directly or
\nindirectly, to protect and\/or to enhance the value of its
\nproperties or its rights and is conductive to the objects of
\nthe Association.
\n26. To acquire movable and immovable property and to
\napply both the capital and income thereof and the
\nproceeds of the sale or mortgage thereof, for or towards,
\nail or any of the objects of the Board.
\n27. To start, assist, encourage or promote for training
\nCricketers and to provide for such amenities and
\nfacilities, usually provided in boarding schools.
\n28. To appoint Committee or Committees from time to
\ntime to organize matches for the achievement of the
\nobjects of the association and to utilize the net proceeds
\nPage 57 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\nthereof towards the implementation of these objects.
\n29. To purchase, repair, make, supply, take on lease,
\nhire or otherwise acquire any movable and\/or immovable
\nproperty, rights or privileges necessary or convenient for
\nthe purpose of carrying out the objects of the Association
\non such terms and conditions as the Managing
\nCommittee may at its discretion deem fit.
\n30. To sell, mortgage, exchange, lease, dispose of or
\notherwise deal with, all or any part of the property or
\nfunds of the Association it may at its discretion deem fit.
\n31. To borrow, whenever necessary by and mode with
\nor without security, with or without interest and to
\npurchase, redeem or pay off any such securities.
\n32. To employ, appoint executive secretaries and
\nassistant secretaries, clerks, managers, coaches,
\nprofessional cricketers, umpires, scorers, statisticians,
\ngroundsmen, peons, servants and other service
\npersonnel and staff and to pay to them and other
\npersons in return for their services to the Association
\nsalaries, wages, gratuities, pensions, honorariums,
\ncompensations, any ex-gratia payments and\/or provident
\nfunds, other funds and to remove or dismiss such
\nemployees.
\n33. To promote such benevolent or other funds and to
\ndonate such sum or sums for
\n1. such causes as would be deem ed fit by the
\nAssociation conducive to the promotion of the game of
\ncricket;
\n2. the benefit of a Cricketer or his widow or children as
\nthe Association may deem fit;
\n3. any other person who has served cricket or his widow
\nor his children as the Association considers fit.
\n34. Generally to do all such other acts and things as
\nmay seem to the Association to be convenient and\/or
\nconductive to the carrying out of the objects of the
\nAssociation.
\nPage 58 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\n48. The Assessing Officer took the view that the activities of
\nthe Association cannot be termed as \u201ccharitable activities\u201d.
\nThe Assessing Officer took the view that the objects of the
\ntrust may be to promote the game of cricket, but the activities
\nare covered by the Proviso to the fourth limb of Section 2(15)
\nof the Act. The Assessing Officer also took the view that the
\nactivities of the Association cannot even be termed as the
\neducational activities. In short, the Assessing Officer took the
\nview that the Association is engaged in business. It derives
\nprofit from its so-called charitable activities. In such
\ncircumstances, according to the Assessing Officer, the
\nAssociation is not entitled to seek exemption under Section 11
\nof the Act. The Assessing Officer, in its order, has observed as
\nunder;
\n\u201civ) The legal position as contained in the amended
\ndefinition of ‘Charitable Purpose’ u\/s 2(15) of the Act and
\nexplained vide Clause 4.3 of CBDT Circular No. 1 of 2009
\ndt. 27-05-2009 on I.T. Act 2008, Finance Minister’s
\nSpeech, the Notes on Clauses, Memorandum Explaining
\nthe provisions of Finance Bill, CBDT circular No. 11 of
\n2008 dt. 19\/12\/2008, as well as the alternative
\nsubmission of the assessee is considered but not found
\nacceptable for the reasons stated below.
\n(a) The assessee has claimed that it is an Educational
\nInstitute. The claim of the assessee is not acceptable in
\nview ‘Education’ defined by H’ble Apex Court has in the
\ncase of Sole Trustee Loka Shikshana Trust Vs.
\nCommissioner of Income Tax [1975] 101 ITR 234(SC) has
\ndefined ‘Education’ as under:
\n\u201dPer Khanna J. The sense in which the word ‘education
\nhas been used in section 2(15) is the systematic
\ninstruction, schooling or training given to the young is
\npreparation for the work of life. It also connotes the
\nwhole course of scholastic instruction which a person has
\nreceived The word \u2019education\u2019 has not been used in that
\nwide and extended sense, according to which every
\nPage 59 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\nacquisition of further knowledge constitutes education.
\nWhat education connotes in that clause is the process of
\ntraining and developing the knowledge, skill, mind and
\ncharacter of students by normal schooling.”
\nThe so called “Educational Activity” of the assessee is not
\nthe education activity but an activity directed at to keep
\nthe flow of future cricketers uninterrupted for smooth
\nrunning of its business of entertainment of the people at
\nlarge for a fee or cess by arranging cricket tournament at
\nvarious levels by it as well as hosting them arranged by
\nBCCI, irrespective of the use of money. It is pertinent to
\nnote that the assessee is imparting only cricket related
\ntraining. Hence the claim of the assesse that it is an
\n‘Educational Institution’ is not acceptable and hence
\nrejected.
\n(b) the receipt of the previous year of the assessee as
\nreported in the Income & Expenditure Account is
\nRs.3,98,07,028\/- which is not less than Rs. 10 lakh,
\n(c) The assessee is in the business of entertainment of
\npublic at large by arranging\/hosting\/managing\/executing
\ncricket matches at national and international level for a
\ncess or fee or any other consideration, irrespective of the
\nnature of use or application, or retention, of the income
\nfrom such activity. This issue is discussed below at
\nlength.
\n(d) The analysis of its activities and justification of
\napplicability of amended definition of “Charitable
\nPurpose’ i.e. Carrying on activity, engaged in carrying on
\nTrade, Commerce or Business etc. and the activities
\nshould be carried out for any fee, cess etc. as analyzed in
\nthe tabular form is misleading and contrary to the
\ninterpretation of any activity, document, agreement or
\nlaw as settled by various judicial pronouncements. The
\nactivities and object of the trust should be seen as a
\nwhole. The above referred activities are ancillary to the
\nmain activities of the business of entertainment of people
\nat large for a fee or cess by arranging\/hosting cricket
\ntournaments on commercial basis with profit motive. The
\nassessee during year under assessment has earned fee
\nincome of Rs.1,51,97,741\/- for India Vs. South Africa Test
\nMatch in Income & Expenditure Account and hence,
\nassessee’s claim of non collecting of fees is incorrect.
\nPage 60 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\n(e) As discussed above, the assessee was given ample
\nopportunities right from the issue and service of first
\nnotice issued u\/s 143(2) of the Act dated 24\/09\/2010,
\nwhich provides an opportunities to the assessee to
\nsubmit any account, document, statement or evidences
\nrelying upon which it has made its return of income till
\nlast opportunity offered to it vide letter dated 8\/12\/2011.
\nThe assessee has avoided defining its relation with BCCI,
\nrevenue sharing with BCCI in respect of TV broadcasting
\nrights of cricket matches played on its ground, nature of
\nagreements made with RIL for sponsorship, nature of
\nreceipt of income from sale of tickets. The assessee has
\nfailed to discharge its onus to establish the nature of the
\nincome earned in the form of ‘Sponsorship Money’
\n\u2018Sharing of TV Broadcasting Income with BCCI. It has
\ntried ‘to conceal the revenue income in the garb of
\n\u2018Corpus Donation’. It has failed to establish why and how
\nBCCI is giving \u201cCorpus Donation\u201d It is to bring on record
\nthat as against the receipt of ‘Sponsorship Money’ of RS.
\n20,00,000\/- from Reliance Industries Ltd., the assessee
\nhas claimed expenses of Rs: 25,84,636\/- for Reliance
\nInter District Tournaments. Shri Parimal Nathwani holding
\na very senior position in Reliance Industries Ltd. is also
\nVice
\nPresident of the assessee.
\nIt is very well known fact that BCCI is the richest ‘Sport
\nAuthority\u2018 in India. Arranging national and international
\nlevel cricket tournament and its allocation to various
\naffiliated Associations like the assessee, and preparation
\nfor conduct of such cricket matches, selection of Players,
\nCoaches, venue, TV Broadcasting rights, Audio & Video
\nPublicity, sale of tickets, issue of license for parking lots,
\nsale of edibles and drinking water in stadium during
\ntournament, five star arrangement of lodging and
\nboarding for players, arrangement of security for players
\nand in stadium a lot of other ancillary activities squarely
\nflt in the definition of trade or service for profit as defined
\nby the Apex court. Even by stretch of imagination it
\ncannot be considered that the BCCI had its affiliated
\nbodies who are represented on its board through elected
\nrepresentative is doing any sort of chaele or educational
\nactivity. The expenses claimed by the assessee in the
\nIncome & Expenditure Account for arranging various
\nPage 61 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\ncricket tournaments in various levels round the year
\nproves that it is a business activity as defined by Ho’ble
\nApex Court by the above referred judgement. \u201c
\n49. The assessee, being dissatisfied with the order passed by
\nthe Assessing Officer preferred an appeal before the
\nCommissioner of Income Tax (Appeals). The Commissioner of
\nIncome Tax partly allowed the appeal. However, the
\nCommissioner of Income Tax (Appeals) also took the view that
\nthe activities of the Association are not charitable in nature
\nand the Association is not entitled to claim any exemption
\nunder Sections 11 and 12 of the Act. The CIT (A), while partly
\nallowing the appeal, held as under;
\n\u201c26. It is clear from the above that to claim exemption
\nu\/s 11 & 12 of the Income tax Act there must exist
\neducational institution. Secondly the educational institute
\nmust exist solely for the purpose of education and not for
\nthe purpose of profit.
\n27. Considering the elaboration on education above
\nincluding that of the judgment by the hons court in the
\ncase of Sole Trustee Loka Shikshana Trust Vs. CIT 101
\nITR 234 (SC), it is clear that education in clause 2(15)
\nrefers to the process of training and development of
\nknowledge, skill, mind and character of student by
\nnormal schooling. It is also clear that the term ‘education’
\nhas a very specific meaning and is not used in a wide and
\nextended sense and to be within the definition of
\neducation u\/s. 2(15), the trust should be an educational
\ninstitution which primarily engaged in education activity
\nand if such trust does not have education activity as
\nprimary activity, it cannot avail examination on the basis
\nof incidental training activity
\n28. In the instant case, the appellant trust is admittedly
\nin promotion of cricket as a game in the state of Gujarat.
\nEven the plain reading of objects of appellant does not
\nsupport the view that the appellant trust is an education
\ninstitution. The argument that cricket is a subject in
\nschool under the broad subject of ‘Health and Physical
\nPage 62 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\nEducation’ cannot make such physical training as
\neducation as it is not scholastic instruction as was held
\nby the Hon’ble apex court. To add this chapter is only for
\nclass from Standard VI to Standard IX. Further, this
\nsubject is an optional subject in higher classes as is
\nevident from both of the certificates from school
\nsubmitted by the appellant. I am inclined to state that
\nmerely having a chapter on cricket and that too under a
\nbroad subject ‘Health and Physical education’ will not be
\nsuffice to make appellant as ‘education institute’. The A.O
\non the other hand amply elaborate the fact that how
\nappellant is in the promotion of game cricket and has
\nalso highlighted that gross receipt of about 3 crores from
\nthe sale of tickets to general public. Considering the
\nabove facts. I am not inclined to support this argument
\nwith the appellant trust as an educational institution
\nwithin the meaning of Section 2(15) of the Incometax
\nAct.
\n29. Further, findings made by the A.0. indicates that
\nthe appellant indeed is carrying out charitable activities
\nwhich are of the nature of \u2018advancement of any other
\nobjective of the general public utility’. During the course
\nof scrutiny by the A.O it was established that the
\nassessee was not doing any ‘charitable\/educational
\nactivity\u2019 but it was in the business of entertainment of
\npeople at large by arranging\/hosting national and
\ninternational levels cricket tournaments for a fee\/cess.
\nThe A.O has rightly pointed out that the receipts by the
\nappellant predominantly from the sale of India Vs. Sri
\nLanka match amounting to approximately Rs.3 crores
\nand also other activities indicate that the appellant is
\ncarrying out activities in the nature of trade, commerce
\nor business.
\n30. At this point, it may be pointed out that CBDT has
\nclarified that promotion of sports and games is
\nconsidered to be general public utility vide Circular
\nNo.395 dated 24.09.1984. The text of circular is
\nreproduced below:
\nSECTION 2(15) CHARITABLE PURPOSE
\n11. Whether promotion of sports and games can be
\nconsidered to be charitable purpose
\nPage 63 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\n1. The expression “charitable purpose” is defined in
\nsection 2(15) to include relief of the poor, education,
\nmedical relief and the advancement of any other object
\nof general public utility.
\n2. The question whether promotion of sports and
\ngames can be considered as being a charitable purpose
\nhas been examined. The Board are advised that the
\nadvancement of any object beneficial to the public or
\nsection of the public as distinguished from an individual
\nor group of individuals would be an object of general
\npublic utility. In view thereof, promotion of sports and
\ngames is considered to be a charitable purpose within
\nthe meaning of section 2(15). Therefore, an association
\nor institution engaged in the promotion of sports and
\ngames can claim exemption under section 11 of the Act,
\neven if it is not approved under section 10(23) relating to
\nexemption from tax of sports associations and
\ninstitutions having their objects as the promotion,
\ncontrol, regulation and, encouragement of specified
\nsports and games.
\nCircular No. 395 [F. No. 181(5) 82\/IT(A-I)], dated 24.9.
\n1984.
\n31. I may hasten to add that in Cricket Association of
\nBengal Vs. CIT 37 ITR 277 (Calcutta) wherein it was held
\nthat a club formed for the development of promotion of
\nsports or games or entertainment are held to be not
\ncharitable institution. The head note of the decision is
\nreproduced as under:
\nSection 11 of the Income-tax Act 1961 (Corresponding to
\nsection 4(3)(i) of the Indian Income-tax Act 1922)-
\nCharitable or religious trust Exemption of income from
\nproperty held under-Assessment years 1950-51 to 1952-
\n53 Whether while promotion of games as a part of
\neducation of those who participate in them may be a
\ncharitable purpose, promotion of practice of game in
\ngeneral either for entertainment of public or for
\nadvancement of game itself could not be held to be
\ncharitable- Held, yes Assessee was an association whose
\nmain object was to promote game of cricket- Another
\nobject authorized assessee to carry out any other
\nbusiness or activity which might seem to assessee
\ncapable of being carried on in connection with above
\nPage 64 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\nAssessee merely held some demonstration or exhibition
\nmatches and did not provide any training in game of
\ncricket to novices or any advanced training for persons
\nwho were already practiced players its activities outside
\nholding matches was limited entirely to its own members
\nand only contact it had with public was by way of having
\nthem as spectators, on payment of fee, of matches
\narranged by it- Whether income that was derived from
\nfees charged for admission to games held under auspices
\nof association could not be said to be income derived
\nfrom any property- Held, yes Whether further, there was
\nno general public utility, so as to amount to charity, in
\narranging cricket matches which public could see on
\npayment and hence, assessee was not entitled to
\nexemption conferred by sections 4(3)(i) and 4(3)(ia) of
\n1922 Act- Held, yes
\n32. Section 2(15) of the Act defines \u2018charitable
\npurposes’. First proviso, thereto with effect from
\nassessment year 2009-10 laid down that, if any trust etc.
\n(a) is engaged in pursuing objects of general public utility
\n(‘other objects’) and (b) carries on any activity in the
\nnature of trade, business or commerce or provides any
\nservices in relation to the trade, commerce services or
\nbusiness and (c) aggregate receipts there from exceed
\nRs.25 lacs, it shall be considered that other objects is not
\na charitable purpose. If so, such a trust is not eligible for
\nthe exemption inasmuch as the primary condition of
\nbeing existing for charitable purpose is not satisfied.
\n33. With the introduction of Sec. 13(8) of the Act, w.e.f
\n1\/04\/2009 (Finance Act 2012), it is clearly evident that
\nthe appellant whose case is squarely covered by the
\nproviso to Sec 2(15) sha11 forfeit all the exemptions that
\nare otherwise available u\/s 11 and 12 of the Act. The
\nrelevant provisions are as under:
\n\u201d(8) Nothing contained in section 11 or section 12 Shall
\noperate so as to exclude any income from the total
\nincome of the previous year of the person in receipt
\nthereof if the provisions of the first proviso to clause (15)
\nof section 2 become applicable in the case of such
\nperson in the said previous year.\u201d
\nThe new sub-section (8) provides that the exemption
\nunder section 11 & 12 will not be available to a Trust, in a
\nPage 65 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\nprevious year, in which the First proviso to section 2(15)
\nbecomes applicable, for that previous year.
\n34. Therefore, in the light of the provisions of Sec 13(8)
\nof the Act, the appellant loses all the exemptions claimed
\nu\/s 11 & 12 of the Act. It is clear from the plain reading of
\nthe said provision that once proviso to Sec 2(15)
\nbecomes applicable to the facts of the case, all the
\nexemptions otherwise allowable u\/s 11 and 12 are not
\navailable to the appellant in that previous year.
\n35. Considering all the above, I am of the view that the
\nAO has rightly invoked proviso to Section 2(15) of the
\nIncome-tax Act and denied exemptions u\/s 11 & 12 of the
\nIncome tax Act as the appellant trust was engaged in
\npursuing objects of general public utility and it carried on
\nactivities in the nature of trade, business or commerce
\nwhere the aggregate receipts exceeded Rs.25 lacs.
\nAccordingly, ground Nos. 1(a) & 1(b) and ground Nos. 2 &
\n3 are dismissed. \u201c
\n50. The assessee carried the matter further in appeal before
\nthe Income Tax Appellate Tribunal, Ahmedabad, Bench ‘D’,
\nAhmedabad. The Tribunal, while allowing the appeal preferred
\nby the assessee-Association, has observed as under;
\n\u201c34. What essentially follows from the above discussions
\nis that, even after the 2008 amendment and insertion of
\nproviso to Section 2(15), so far as \u2018any other object of
\ngeneral public utility’ is concerned, as long as profit
\nearning is not the predominant purpose of the activity of
\nthe assessee, the benefit of Section 2(15) cannot be
\ndeclined. In other words, the accrual of profits to the
\nassessee, by itself, cannot, therefore, be reason enough
\nto hold that the assessee is not covered by the definition
\nof \u2018charitable institution\u2019 under section 2(15). Of course,
\nall these discussions are relevant only for the residuary
\nclause i.e. \u201cany other object of general public utility\u201d. In
\ncase, therefore, where the objects being pursued by the
\nassessee is \u201crelief of the poor\u201d, \u201ceducation\u201d or \u201cmedical
\nrelief”, it is not even material whether or not the
\nassessee is carrying on an activity in the nature of trade,
\ncommerce or business in the course of such activities.
\nPage 66 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\nThe key factor is as to what are the activities of the
\nassessee institution and as to what these activities seek
\nto achieve.
\n35. Let us take a pause here and examine as to what
\nare the activities of the assessee cricket associations so
\nas to be brought within the ambit of trade, commerce or
\nbusiness. We have seen objects of the association, which
\nare reproduced earlier in our order, and it is not even the
\ncase of the revenue that these objects have anything to
\ndo with any trade, commerce or business; these objects
\nare simply to promote cricket. The trigger for invoking
\nproviso to Section 2(15), as Shri Soparkar rightly
\ncontends has to an activity of the assessee which is in
\nthe nature of trade, commerce or business. However, the
\ncase of the revenue authorities hinges on the allegation
\nthat the way and manner in which cricket matches are
\nbeing organized, particularly the IPL matches, the activity
\nof organizing cricket matches is nothing but brute
\ncommerce. Undoubtedly, it would appear that right from
\nthe time Kerry Packer started his World Series Cricket in
\n1977, there has been no looking back in
\ncommercialization of cricket and the impact of this
\ncommercialization has not left Indian cricket intact. The
\nIndian Premier League and the rules of the game being
\ngoverned by the dictates of commercial considerations
\nmay seem to be one such example of commercialization
\nof Indian cricket. The difficulty for the case of the
\nrevenue before us, however, is that these matches are
\nnot being organized by the local cricket associations. We
\nare told that the matches are being organized by the
\nBoard of Cricket Control of India, but then, if we are to
\naccept this claim and invoke the proviso to Section 2(15)
\nfor this reason, it will amount to a situation in which
\nproviso to Section 2(15) is being invoked on account of
\nactivities of an entity other than the assesseessomething
\nwhich law does not permit. We are not really
\nconcerned, at this stage, whether the allegations about
\ncommercialization of cricket by the BCCI are correct or
\nnot, because that aspect of the matter would be relevant
\nonly for the purpose of proviso to Section 2(15) being
\ninvoked in the hands of the BCCI. We do not wish to deal
\nwith that aspect of the matter or to make any
\nobservations which would prejudge the case of the BCCI.
\nSuffice to say that the very foundation of revenue\u2019s case
\nis devoid of legally sustainable basis for the short reason
\nPage 67 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\nthat the commercialization of cricket by the BCCI, even if
\nthat be so, cannot be reason enough to invoke the
\nproviso to Section 2(15). We are alive of the learned
\nCommissioner (DR)\u2019s suggestion that the cricket
\nassociations cannot be seen on standalone basis as the
\nBCCI is nothing but an apex body of these cricket
\nassociations at a collective level and whatever BCCI does
\nis at the behest of or with the connivance of the local
\ncricket associations, and that it is not the case that
\nanyone can become a Member of the BCCI because only
\na recognized cricket association can become a Member
\nof the BCCI. We are also alive to learned Commissioner\u2019s
\nargument that what is being sought to be protected by
\nthe Charitable status of these associations is the share of
\nthese cricket associations from the commercial profits
\nearned by the BCCI by organizing the cricket matches.
\nThe problem, however, is that the activities of the apex
\nbody; as we have explained earlier, cannot be reason
\nenough to trigger proviso to Section 2(15) in these cases.
\nWhether these cricket associations collectively constitute
\nBCCI or not, in the event of BCCI being involved in
\ncommercial activities, the taxability of such commercial
\nprofits will arise in the hands of the BCCI and not the end
\nbeneficiaries. Even in such a case the point of taxability
\nof these profits is the BCCI and not the cricket
\nassociations, because, even going by learned
\nCommissioner\u2019s arguments, these receipts in the hands
\nof the cricket associations is nothing but appropriation of
\nprofits. What can be taxed is accrual of profits and not
\nappropriation of profits. In any event, distinction between
\nthe cricket associations and the BCCI cannot be ignored
\nfor the purposes of tax treatment. There is no dispute
\nthat the matches were organized by the BCCI, and the
\nassessee cannot thus be faulted for the commercial
\nconsiderations said to be inherent in planning the
\nmatches. As we make these observations, and as we do
\nnot have the benefit of hearing the perspective of the
\nBCCI, we make it clear that these observations will have
\nno bearing on any adjudication in the hands of the BCCI.
\nSuffice to say that so far as the cricket associations are
\nconcerned, the allegations of the revenue authorities
\nhave no bearing on the denial of the status of \u2018charitable
\nactivities\u2019 in the hands of the cricket associations before
\nus- particularly as learned Commissioner has not been
\nable to point out a single object of the assessee cricket
\nassociations which is in the nature of trade, commerce or
\nPage 68 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\nbusiness, and, as it is not even in dispute that the objects
\nbeing pursued by the assessee cricket associations are
\n\u201cobjects of general public utility\u201dunder section 2(15). All
\nthe objects of the assessee cricket associations, as
\nreproduced earlier in this order, unambiguously seek to
\npromote the cricket, and this object, as has been all
\nalong accepted by the CBDT itself, an object of general
\npublic utility.
\n36. Cricket is indeed an immensely popular game in
\nthis part of the world, and anything to do with cricket
\nresults in mass involvement of public at large. The sheer
\nstrength of these numbers results in higher visibility of
\ncricketing activities and the scale of operations on which
\nthe work for development of cricket is to be carried out.
\nThese facts, by itself, and without the assessees before
\nus deviating from their objects or venturing into trade,
\ncommerce or business, cannot require the activities to be
\ntreated as commercial activities. When a cricket stadium
\nis to be built, it has to accommodate a very large number
\nof persons but the size of the stadium would not mean
\nthat the activity is for anything other than promotion of
\ncricket.. When the numbers are large, the scale of
\noperations is large, and when scale of operations are
\nlarger, even the surplus or deficit could be large, but then
\nthe scale of operations may be a scale on which
\ncommercial activities could be carried out but that fact
\ncannot convert an object of general public utility into a
\ncommercial activity. We have carefully analyzed the
\nannual reports and the annual financial statements of the
\nassessee, and we do not find any objects, other than
\nobjects of the cricket associations, being pursed by these
\ncricket associations. The objects of these cricket
\nassociations clearly demonstrate that these cricket
\nassociations exist and operate purely for the purpose of
\npromoting cricket. We are, therefore, of the considered
\nview that the proviso to Section 2(15) has been wrongly
\ninvoked in these cases.
\n41. We have noted that all the learned representatives
\nhave advanced detailed arguments on the proposition
\nthat since the assessee cricket associations are engaged
\nin educational activities, it is not really material whether
\nor not the assessee has engaged itself in the activities in
\nthe nature of trade, commerce or business. However, in
\nthe light of our categorical finding that the assessee
\nPage 69 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\ncricket associations were not really engaged in the
\nactivities in the nature of trade, commerce or business, it
\nis not really necessary to adjudicate on this plea. We
\nleave the question open for adjudication in a flt case.
\nConclusions on this issue:
\n42. For the detailed reasons set out above, we are of
\nthe considered view that the authorities below were in
\nerror in invoking the proviso to Section 2(15) and thus in
\ndeclining the benefit of Section 11 and 12 to the
\nappellant cricket associations. To this extent, plea of the
\nappellants must be upheld. We uphold the plea. \u201c
\n51. Being dissatisfied with the order passed by the ITAT,
\nAhmedabad, ‘D’ Bench, Ahmedabad, the Revenue is here
\nbefore this Court with the present tax appeal.
\nSubmissions on behalf of the Revenue:-
\n52. Mr. M.R. Bhatt, the learned senior counsel appearing for
\nthe Revenue vehemently submitted that the ITAT committed
\na serious error in passing the impugned order. Mr. Bhatt would
\nsubmit that by any stretch of imagination, the activities of the
\nassessee do not fall within the definition of the term
\n\u201ccharitable purpose\u201d as defined under Section 2(15) of the
\nAct. Mr. Bhatt submitted that the activities, in no manner,
\ncould be said to be for the purpose of promotion of sports
\n(game of cricket). Mr. Bhatt would submit that the activities
\nof the Association are in the nature of business. The
\nAssociation derives huge profit by hosting international cricket
\nmatches in the stadium. Mr. Bhatt would submit that the
\nAssociation receives a huge amount from the BCCI for the
\npurpose of organizing the international matches. Mr. Bhatt
\nwould submit that the registration of the Association under
\nPage 70 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\nSection 12A of the Act will not make the assessee
\nautomatically eligible to seek exemption under Section 11 of
\nthe Act. Mr. Bhatt submitted that howsoever laudable the
\nobjects of the trust may be, but the activities undertaken by
\nsuch trust are to be looked into for the purpose of deciding
\nwhether such trust is entitled to be called a charitable trust
\nwithin the meaning of Section 2(15) of the Act and is liable to
\nclaim exemption under Sections 11 and 12 of the Act or not.
\n53. According to Mr. Bhatt, the Tribunal has not discussed
\nthe relevant issues in their true perspective and, therefore, the
\nmatters should be remitted to the Tribunal for fresh
\nconsideration of all the relevant aspects. According to Mr.
\nBhatt, although the Income Tax Appellate Tribunal is a fact
\nfinding Tribunal and if it arrives at its own conclusions of fact
\nafter due consideration of the evidence before it, this Court
\nmay not interfere, yet it is necessary, however, that every fact
\nfor and against the assessee must have been considered with
\ndue care and the Tribunal is obliged to give its finding in a
\nmanner which would clearly indicate what were the questions
\nwhich arose for determination, what was the evidence pro and
\ncontra in regard to each one of them and what were the
\nfindings recorded on the evidence on record before it.
\nAccording to Mr. Bhatt, when the Assessing Officer and the CIT
\n(A) have assigned cogent reasons for the purpose of coming to
\nthe conclusion that the activities of the assessee cannot be
\ntermed as charitable and the case of the assessee is covered
\nwithin the Proviso to the fourth limb of Section 2(15) of the Act,
\nthen to upset such findings, the Tribunal was expected to
\nassign cogent reasons. Mr. Bhatt, in support of this submission,
\nhas placed reliance on a decision of the Supreme Court in the
\nPage 71 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\ncase of Omar Salay Mohamed Sait vs. CIT, reported in
\n(1959) 371 ITR 151 (SC), in which the Supreme Court
\nsuccinctly expressed the expectation from a Tribunal while
\ndeciding such appeals. The following observations of the
\nSupreme Court have been relied upon by Mr. Bhatt;
\n“We are aware that the Income Tax Appellate-Tribunal is
\na fact finding Tribunal and if it arrives at its own
\nconclusion of fact after due consideration of the evidence
\nbefore it this court will not interfere. It is necessary,
\nhowever, that every fact for and against the assessee
\nmust have been considered with due care and the
\nTribunal must have given its finding in a manner which
\nwould clearly indicate what were the questions which
\narose for determination, what was the evidence pro and
\ncontra in regard to each one of them and what were the
\nfindings reached on the evidence on record before it. The
\nconclusions reached by the Tribunal should not be
\ncoloured by any irrelevant considerations or matters of
\nprejudice and if there are any circumstances which
\nrequired to be explained by the assessee, the assessee
\nshould be given an opportunity of doing so. On no
\naccount whatever should the Tribunal base its findings on
\nsuspicions, conjectures or surmises nor should it act on
\nno evidence at all or on improper rejection of material
\nand relevant evidence or partly on evidence and partly
\non suspicions, conjectures or surmises and if it does
\nanything of the sort, its findings, even though on
\nquestions of fact, will be liable to be set aside by this
\ncourt.”
\n54. Mr. Bhatt, in support of his submissions, has placed
\nreliance on the following decisions;
\nSr. No. Issue Particulars Page Nos.
\n1 Section 2(15) Director of Income Tax
\n(Exemption) vs. Tamil Nadu
\nCricket Association, 57
\ntaxmann.com 136 (SC)
\n1
\n2 Commissioner of Income Tax vs.
\nTruck Operators Association, 328
\n02\/05\/19
\nPage 72 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\nITR 636 (Punjab & Haryana)
\n3 Commissioner of Income Tax,
\nDehradun vs. National Institute of
\nAeronautical Engg. Educational
\nSociety, 315 ITR 428 (Uttranchal)
\n06\/09\/19
\n4 Hyderabad Race Club vs.
\nCommissioner of Income Tax,
\n153 ITR 521 (Andhra Pradesh)
\n10\/19\/19
\n5 Dharmaposhanam Co. vs.
\nCommissioner of Income Tax,
\n114 ITR 463 (SC)
\n20-25
\n6 Sole Trustee Loka Shikshana
\nTrust vs. Commissioner of
\nIncome Tax, 101 ITR 234 (SC)
\n26-43
\n7 Cricket Association of Bengal vs.
\nCommissioner of Income Tax, 37
\nITR 277 (Cal.)
\n44-53
\n8 Education Travancore Education Society vs.
\nCommissioner of Income Tax,
\n369 ITR 534 (Kerala)
\n54-55
\n9 Dawn Educational Charitable
\nTrust vs. Commissioner of
\nIncome Tax, 370 ITR 724
\n(Kerala)
\n56-57
\n10 Dawn Educational Charitable
\nTrust vs. Commissioner of
\nIncome Tax, 73 taxmann.com 61
\n(SC)
\n58
\n11 Saurashtra Education Foundation
\nvs. Commissioner of Income Tax,
\n273 ITR 139 (Gujarat)
\n59-67
\n12 Actual activities to
\nbe seen
\nN.N. Desai Charitable Trust vs.
\nCommissioner of Income Tax,
\n246 ITR 452 (Gujarat)
\n68-74
\n13 Reasons to be
\ngiven by ITAT on
\neach fact
\nRamesh Chandra M. Lutra vs.
\nAssistant Commissioner of
\nIncome Tax, 257 ITR 460
\n(Gujarat)
\n75-77
\n14 Decision of another
\nHigh Court,
\npersuasive and not
\nN.R. Paper & Board Ltd. vs.
\nDeputy Commissioner of Income
\nTax, 234 ITR 733 (Gujarat)
\n78-92
\nPage 73 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\nbinding
\nSubmissions on behalf of the assessee:
\n55. On the other hand, Mr. J.P. Shah, the learned senior
\ncounsel appearing on behalf of the assessee has vehemently
\nopposed this tax appeal. Mr. Shah submitted that no error,
\nnot to speak of any error of law, could be said to have been
\ncommitted by the ITAT in passing the impugned order. Mr.
\nShah submitted that the assessee is engaged in the activities
\nof promoting the game of cricket. In other words, according to
\nMr. Shah, the assessee is engaged in promotion of sports. Mr.
\nShah brought to our notice the following relevant facts;
\n\u201c1, GCA has given following renowned players to Indian
\nCricket:
\nMr. Jashubhai Patel,
\nMr. Parthiv Patel,
\nMr.Jasprit Bumrah,
\nMr. Axar Patel
\nThe above named cricketers have been rendered
\ncoaching and training by GCA.
\nMr. Jashubhai Patel, Mr. Parthiv Patel and Mr. Axar Patel
\nhave played as the members of the Indian Cricket Team
\nin Cricket matches against Foreign Teams in the past.
\nMr. Jasprit Bumrah is currently a star Cricketer in Indian
\nCricket Team in International Cricket and is ranked as
\nWorld No.1 bowler.
\nApart from the above players, Mr. Priyank Panchal is a
\nrenowned Ranji Trophy player playing for the GCA at
\npresent and is knocking on the doors of International
\ncricket.
\nAll the above players have been coached by the GCA.
\nPage 74 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\n2. GCA has the following Cricket teams for Men.
\n(a) Under 14 years
\n(b) Under 16 years
\n(c) Under 19 years
\n(d) Under 23 years
\n(e) Seniors Ranji Trophy Team, Duleep Trophy, etc.
\nThere are cricket teams for women also.
\n4. GCA has employed former national level cricketers
\nas coaches for each of all the above stated segments of
\ncricket teams, i.e. a coach appointed for under 14 team
\nwould look after coaching of that team only.
\n5. GCA looks after the cricketing activities in the following
\neleven districts\/provinces of the Gujarat State.
\n(I) Ahmedabad
\n(ii) Ghandhinagar
\n(iii) Kheda
\n(iv) Surat
\n(v) Bulsar(Balsad)
\n(vi) Bharuch I
\n(vii) Anand
\n(viii) Banaskantha
\n(ix) Daman
\n(x) Dadar Nagar Haveli
\n(xi) Panchmahal.
\n6. Currently the GCA has employed former Indian Team
\nCricketer, Mr. Sairaj Bhautule, as coach for the Seniors
\ni.e. GCA Ranji Trophy Team Players etc. He is also
\nresponsible for co-ordinating with the coaches of other
\nage group segment teams of GCA.
\n7. Coaching of Cricketers encompasses the following
\naspects :
\n(a) Skill development in nuances of Cricketing.
\n(b) Physical development,
\n(c) Mental development,
\n(d) Building Personality of a Cricketer.
\n8. It is a known fact that each large size school has its
\nPage 75 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\nown cricket team where the players are mostly under 14
\nyears in age.
\nThese schools play inter-school cricket and compete with
\neach other for cricket shield for best school team. From
\nthese championships, talent is spotted by GCA and
\ninvited for coaching and training. The budding cricketers
\nare coached by renowned past cricketers and their talent
\nis nurtured.
\n9. The coach monitors the progress of players and
\ntrains them for overcoming their deficiencies so that
\neach one of them progresses and is able to shine at
\nnational level.
\nIn Physical development, generally the following tests
\nare done as an ongoing process.
\n(a) Fitness Test under which the MSK is done, i.e.,
\nMuscular, Skeleton Test.
\n(b) Endurance Test,
\n(c ) Agility Test.
\nPlayers are informed of their deficiencies and during the
\ntraining sessions, the coaches concentrate for removal of
\nsuch deficiencies e.g. If one of the shoulders is not strong
\nenough, the coach would suggest to and supervise the
\nplayer for undertaking specific exercises to strengthen
\nthe shoulder.
\nIn Skill development the player is shown videos of his
\nactions. Coach points out the deficiency and would
\nsuggest corrective actions. e.g. if a batsman needs
\nimprovement in his batting stance, the same will be
\ncaptured in the video first and thereafter it would be
\nshown to him for corrective action. There is one to one
\ndiscussion with each player for improvement in his game
\nand this is an on going process.
\nIn Mental development, the coach has one to one
\ndiscussion with all the players to know about their
\ndeficiencies like getting nervous while facing opening
\nbowling spell etc. Curative actions are taken by coach.
\nPage 76 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\nPlayers are also trained to face media, e.g., if a cricketer
\nis awarded ‘Man of the match trophy’ then how to face
\ninterview etc.
\nCoaching and Support Staff at present.
\nGCA has employed at present following personnel;
\n(a) Coaches 14
\n(b) Physios 6
\n(c ) Trainers 5
\n(d) Video Analyst 2
\n(e) Pitch Curator 1
\n______
\nTotal 28\u201d
\n56. Mr. Shah submitted that the Association received corpus
\ndonation of Rs.20,69,60,338\/- from the BCCI. The Assessing
\nOfficer held that it is not corpus donation and added the same
\nto the income. Before the C.I.T (Appeals), the Association drew
\nthe attention to a letter addressed to the Officer dated 28th
\nDecember, 2011 where two specific letters from the BCCI
\ndated 12th October, .2001 and 13th October, 2001 respectively
\naddressed to the Secretary of Gujarat Cricket Association were
\nproduced. The letter dated 12th October, 2001 from the BCCI
\ndraws attention to the decision in the Annual General Meeting,
\nand the resolution incorporating the said decision as follows
\n[reproduced at page 59 of the order of CIT (A)]
\n\u201c5. Chairman suggested that as already decided in
\nworking Committee henceforth the TV subsidies should
\nbe sent towards ‘Corpus Fund’ and this decision can also
\nbe approved by the members of this meeting. Thereafter
\nthe members unanimously approved that henceforth the
\nTV subsidies should be sent by the Board to the Member
\nAssociations towards \u201cCorpus Fund\u201d instead of subsidy
\nfund.\u201d
\nPage 77 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\n57. Mr. Shah submitted that the C.I.T.(Appeals), in his order,
\nin para-18 on page 65 noted that the above \u201cdonation of
\nRs.1,38,36,800\/- was treated as the Corpus donation in A.Y.
\n2002-03.\u201d. The above resolution mentioned in the letter of
\nBCCI dated 12th October, 2001, which used the word
\n\u201chenceforth\u201d, which means in future also, was not considered
\ngood enough by him as \u201ca specific direction\u201d as required by
\nsection 11(1)(d) and only on that reasoning, he held that It Is
\nnot the corpus donation. The Department did not file appeal
\nagainst the said decision but the Association did file an appeal
\nto the Tribunal against the finding of absence of specific
\ndirection in every year. The Tribunal, on page 242, para-49
\nreproduced from their order in A.Ys. 2004-05 to 2007-08
\npointing out that \u201csimilar amounts received in the earlier years
\nhave been treated all along as the corpus donation\u201d. \u2018Earlier
\nYear\u2019 means A.Ys. 2002-03 and 2003-04. On page 245, the
\nTribunal reproduced para-15 of their order for A.Ys. 2004-05 to
\n2007-08 as follows:
\n“15. We find that, at pages 46 and 47 of the paperbook,
\nthe assessee has filed specific confirmations to the effect
\nthat these amounts were corpus donations. We have also
\nperused the BCCI resolution no 5 dated 29th September
\n2001 which specifically states that the TV subsidies
\nshould henceforth be sent to the Member Associations
\ntowards \u201ccorpus funds”. There is no dispute that the TV
\nsubsidy in question is sent under this resolution. On
\nthese facts, and In the light of the provisions of Section
\n11(1)(d) which only require the income to be \u201cby way of
\nvoluntary contributions made with a specific direction
\nthat they shall form part of the corpus of the trust or the
\ninstitution\u201d, we are of the considered view that any
\npayments made by the BCCI, without a legal obligation
\nand with a specific direction that it shall be for corpus
\nfund as admittedly the present receipt is, is required to
\nbe treated as corpus donation not includible in total
\nPage 78 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\nincome. We are unable to find any legal support for
\nlearned CIT(A)’s stand that each donation must be
\naccompanied by a separate written document. The
\ncontribution has to be voluntary and it has to be with
\nspecific direction that it will form corpus of the trust\u2019.
\nThese conditions are clearly satisfied. Any payment
\nwhich the assessee is not under an obligation to make,
\nwhatever be the mode of its computation, is a voluntary
\npayment, and, any payment which is with a specific
\ndirection that it for corpus fund is a corpus donation. In
\nour considered view, even without the two specific
\nconfirmations filed by the assessee, in the light of the
\nBCCI resolution under which the payment is made and in
\nthe light of the payment not being under any legal
\nobligation, the conditions under section 11(1)(d) are
\nsatisfied. We, therefore, uphold the plea of the assessee.
\nThe Assessing Officer is accordingly directed to delete
\nthis addition of Rs.1,58,00,000.\u201d
\n58. Mr. Shah submitted that in view of the fact that in the
\nA.Ys. 2002-03 and 2003-04, the Assessing Officer accepted on
\nthe same facts and evidence of the above two letters and
\nresolution, the identical donations to be corpus donations, It
\nwas not open for the revenue to take a contrary view and hold
\nto the contrary in the succeeding assessment years i.e. A.Ys.
\n2004-05 to 2012-13 in view of the Supreme Court decision of
\nCIT vs. Excel Industries Ltd. (2013) 358 ITR 295, which
\napplied the rule of consistency of approach to the same issue
\narising in all other Assessment Years. The Supreme Court in
\nthe aforesaid decision has observed \u201cthe Revenue cannot be
\nallowed to flip-flop on the issue\u201d.
\n59. Mr. Shah further submitted that the Tribunal has rightly
\nconstrued the word \u201chenceforth” used in the resolution as
\ncovering up all the payments in the future years by citing the
\ndecision of CIT (Exemption) vs. Mata Amrithanandamayi
\nMath- (2017) 85 taxmann.com 261 (Ker), holding that once
\nPage 79 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\nthe assessee donated the principal and the future interest to
\nthe corpus account, every year, specific direction regarding
\ninterest is not necessary.
\n60. Mr. Shah submitted that the following Question (D) is only
\nfor the A.Y.2009-10:
\n\u201cWhether on the facts and circumstances of the case and
\nin law, the Appellate Tribunal was justified in deleting the
\naddition made on account of infrastructure subsidy of
\nRs.2,13,34,033\/-, treating it as capital receipts without
\nappreciating the findings of the Assessing Officer\u201d
\n61. Mr. Shah further submitted that in respect of the
\naforesaid disallowance, the Assessing Officer in his order has
\nobserved as follows:
\n\u201cCorpus Donation under the heading \u201cInfrastructure
\nSubsidy\u201d received from BCCI: The assessee during the
\nyear under assessment, has received infrastructure
\nsubsidy from BCCI for Rs.3,52,86,521\/- and has utilized
\nRs.1,39,52,488\/- by way of payment to District Cricket
\nAssociation and hence balance amount of
\nRs.2,13,34,033\/- is added to the assessee\u2019s total income
\nin view of the detailed discussion made in para 5, 6 & 7
\nabove.\u201d
\n62. Mr. Shah also submitted that the C.I.T. (Appeals) agreed
\nwith the Assessing Officer and the Tribunal on the appeal being
\ndisposed off on the issue in favour of the Respondent in para-
\n55 at page 249 as follows:
\n\u201c55. On a perusal of the BCCI Infrastructure Subsidy
\nrules, we find that what is given to the assessee as
\ninfrastructure subsidy is reimbursement of 50% of costs
\nin respect of certain expenditure on infrastructure which
\nis inherently in the capital field. The mere fact that it is
\nnot a reimbursement to an outside party, such as a
\ndistrict cricket association, does not really matter. As
\nPage 80 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\nlong as the subsidy is relatable to a capital asset created
\nby the assessee on his own or by an eligible district
\ncricket association, as the present subsidy undisputedly
\nis, it is outside the ambit of revenue receipt and taxable
\nincome. The very foundation of the stand of the
\nAssessing Officer is thus devoid of legally sustainable
\nmerits. As such, there can hardly be an occasion, in
\nprinciple, to hold such a subsidy as a revenue receipt or
\ntaxable income. There is not even a whisper of a
\ndiscussion by the Assessing officer to the effect that
\ninfrastructure subsidy is revenue in nature. As a matter
\nof fact, the claim is made for the subsidy only after the
\nexpenditure having been incurred. The authorities below
\nhave simply brushed aside the case and the submissions
\nof the assessee and proceeded to hold it as an income.
\nLooking to the nature of the subsidy, which is clearly
\nrelatable to the capital assets generated, we are unable
\nto hold this receipt in the revenue field. We, therefore,
\nuphold the plea of the assessee on this point as well and
\ndelete the addition of Rs 2,13,34,033\/-.\u201d
\n63. Mr. Shah, in regard to the common question In the A.Ys.
\n2004-05 to 2008-09 pertaining to allowing of the benefit of
\nexemption u\/s.11, submitted that if the Respondent succeeds
\nin the Tax Appeal No.268 of 2012, the aforesaid question in the
\nabove appeals for the A.Ys 2004-05 to 2008-09 will have to be
\nanswered in favour of the assessee
\n64. Mr. Shah further submitted that the activity other than
\nthe International match for the A.Ys. 2009-10 to 2012-13
\nentrusted by the BCCI Invariably have resulted into deficit and
\nthis activity goes on round the year without a break. It is only if
\nthe activity is a one day International match or twenty-twenty
\nor five days test match that there may be a surplus but one or
\ntwo matches cannot convert the altruistic activity of the
\nAssociation into trade or business. The activities carried on by
\nthe Gujarat Cricket Association are enumerated at para-19 of
\nthe Tribunal\u2019s order.
\nPage 81 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\n65. Mr. Shah submitted that the findings of the Tribunal are
\nvery clear on the controversy. The Tribunal, after due
\nconsideration of all the relevant aspects, concludes; \u201cWe are,
\ntherefore, of the considered view that the Proviso to section
\n2(15) had been wrongly Invoked In these cases.\u201d
\n66. Mr. Shah submitted that even prior to the amendment of
\nsection 2(15) w.e.f. 01.04.2019 i.e. the A.Y. 2009-10, the
\nfollowing provision, sub-section (4A) in section 11, inserted
\nw.e.f. 01.04.1992 was in the statute book:
\n\u201c11(4A) Sub-section (1) or sub-section (2) or subsection
\n(3) or sub-section (3A) shall not apply in relation to any
\nincome of a trust or an institution, being profits and gains
\nof business, unless the business is incidental to the
\nattainment of the objectives of the trust or, as the case
\nmay be, institution, and separate books of account are
\nmaintained by such trust or institution in respect of such
\nbusiness.\u201d
\n67. Mr. Shah submitted that inspite of the facts being
\nidentical in the years, A.Y. 2009-10 and preceding to A.Y. 2009-
\n10 and in A.Ys. 2008-09, 2007-08 backward upto 2002-03,
\nthere is total absence of finding of application of sec.11(4A) or
\nfinding of business in all these years prior to A.Y. 2009-10. This
\nvery aspect goes to show that the Assessing Officer is not
\nconsistent and the rule of consistency laid down by the
\nSupreme Court in CIT vs. Excel Industries Ltd. (2013) 358 ITR
\n295 very much applies in A.Ys. 2009-10 and onward.
\n68. Mr. Shah placed strong reliance on the following
\ndocumentary evidences also looked into by the ITAT.
\nPage 82 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\n\u201c(i) Note in the form of summary of activities other than
\nthe international match entrusted by the BCCI;
\n(ii) List of matches played in A.Y.2009-10
\n(iii) Income & Expenditure for A.Y. 2009-10 including
\nthe income of Rs.1,51,97,741\/- from India vs. South
\nAfrica Test Match, yet resulting into loss of Rs.5,91,708\/-
\naccepted by the Assessing Officer in his assessment
\norder u\/s. 143(3).
\n(iv) Break-up of remuneration of the support staff in
\ncurrent years’ cricket season 2019-20 of Rs.49,20,000\/-.
\n(v) Break-up of remuneration of coaches in current
\nyears’ cricket season 2019-20 of Rs.95,00,000\/-\u201d
\n69. Mr. Shah has placed strong reliance on the following two
\ndecisions;
\n\u201c(i) In the case of Commissioner of Income Tax vs. Excel
\nIndustries Ltd., (2013) 358 ITR 295 (SC);
\n(ii) In the case of Commissioner of Income Tax,
\n(Exemption) vs. Mata Amrithanandamayi Math, (2017)
\n85 taxmann.com 261 (Kerala);
\n70. Mr. Shah also brought to our notice the following;
\n\u201c1(a) The learned Assessing Officer has not found any
\ndefect in books of account. In his Assessment Order, he
\nstarts with the figure of (-) Rs.5,91,708\/against which he
\nhas stated thus: \u201cExcess of income over expenditure\u201d.
\n(b) Analysis of Income and Expenditure account which is
\naccepted by AO is as follows.
\n2. GCA has incurred total expenditure of
\nRs.4,03,98,737\/- as per audited Income and Expenditure
\nA\/c. GCA has receipts of Rs.3,98,07,028\/-. The net result
\nis loss i.e. Excess of Expenditure over Income of
\nRs.5,91,709\/-, i.e. there is a deficit.
\nPage 83 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\n3. The Receipt side comprises of following heads of
\nreceipts as summarized from Income and Expenditure
\nA\/c.
\nRs.
\n(I) International Cricket Match Surplus 1,51,97,741\/-
\n(ii) Bank FDR Interest 2,21,88,527\/-
\n(iii) Other Income 24,20,760\/
\n3,98,07,028\/
\n4. The Expenditure side comprises of following heads
\nof Expenses as summarized:
\n(i) Match Expenses [Local Matches] 1,70,84,594\/-
\n(ii)Cricketing Expenses as per Chart attached 1,53,90,325\/-
\n(iii) Administration and Other Expenses 79,23,818\/-
\n4,03,98,737\/-
\n5. From the above summary, it is quite clear that;
\nSurplus income from International matches is less than
\nexpense incurred for Local Matches.
\n(a) Cricketing expenses incurred by Rs.
\nGCA for domestic matches other than
\nInternational Matches where no fees
\nare charged.
\n[1,70,84,594 + 1,53,90,325\/-] 3,24,74,919\/-
\n(b) Surplus Income from International
\nMatches over all Deficit from Cricketing
\nactivities. 1,51,97,741\/-
\nDeficit (-)1,72,77,178\/-\u201d
\n71. Mr. Shah also brought to our notice the income and
\nexpenditure account for the year ended on 31st March, 2009.
\nThe same is as under;
\nSr. No. EXPENDITURE AMOUNT (RS.)
\n1 Price Money to all Teams 27,86,796
\nPage 84 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\n2 Ground Expense 20,06,228
\n3 Salary Expense 26,60,008
\n4 Security charges 11,67,279
\n5 Coaches Fee 10,06,040
\n6 Cricket Academy Expenses 9,51,067
\n7 Leaveling Expenses 9,26,080
\n8 Repairing & Maintenance Expenses 8,53,084
\n9 Municipal Tax 7,11,945
\n10 Senior & Junior Tournament Subsidy to
\nDistrict Cr.
\n7,00,000
\n11 Coaches Seminar Expense 4,87,360
\n12 Labour Charges 2,08,930
\n13 Physio Fee Expense 1,75,500
\n14 Curator Fee Expense 1,39,333
\n15 Prize Distribution Function Expense 1,29,145
\n16 Gardening Expense 1,01,765
\n17 Level B Coaches course Expense 94560
\n18 Supervision Fee 91000
\n19 Level Trainer Exam Expense 82281
\n20 NCA Camp Expense 53435
\n21 Suspect Action Expense 18266
\n22 Balling Action Workshop Expense 17953
\n23 MRF Camp Expense 9087
\n24 Trainer fee Expense 6000
\n25 Umpire Medical Exam Expense 3780
\n26 Cricket Equipment Purchase 3403
\nTotal 1,53,90,325
\nBARODA CRICKET ASSOCIATION:-
\n72. We shall now proceed to the Tax Appeals Nos.320 of
\n2019, 321 of 2019, 374 of 2019 and 675 of 2019 respectively.
\n73. In these tax appeals, the assessee is the Baroda Cricket
\nAssociation. In these appeals also Mr. Bhatt, the learned
\nPage 85 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\nsenior counsel has reiterated the very same submissions as
\ncanvassed in the Tax Appeal No.317 of 2019.
\n74. The Tax Appeal No.320 of 2019 is treated as the lead
\nmatter. This appeal was ordered to be admitted on the
\nfollowing substantial questions of law;
\n\u201c[A] Whether on the facts and circumstances of the case
\nand in law, the Appellate Tribunal was justified in
\nallowing the benefit of exemptions u\/s.11 & 12 of the Act
\nwithout considering the fact that the assessee is involved
\nin widespread commercial activities in nature of business
\nand the activities of the assessee is covered under first
\nand second proviso to section 2(15) of the Act?
\n[B]. Whether on the facts and circumstances of the case
\nand in law, the Appellate Tribunal was justified in
\ndeleting the addition made in respect of corpus donation
\nu\/s.11(1)(d) of the Act without appreciating that the
\nassessee failed to discharge its onus by not bringing
\nanything on record in support of its claim of corpus
\ndonation?\u201d
\n75. Mr. Soparkar, the learned senior counsel appearing for
\nthe Baroda Cricket Association, by an large, adopted all the
\nsubmissions of Mr. Shah, the learned senior counsel who has
\nargued on behalf of the Gujarat Cricket Association. However,
\nMr. Soparkar has something to add over and above what has
\nbeen submitted by Mr.J.P. Shah, the learned senior counsel
\nappearing for the Gujarat Cricket Association.
\n76. Mr. Soparkar submitted that the objects as well as the
\nactual activities carried out by the Baroda Cricket Association
\nare for the education in the field of cricket as well as promotion
\nand development of the sport of cricket (object of general
\npublic utility) not being in the nature of trade, commerce or
\nbusiness. Mr. Soparkar invited our attention to the objects of
\nPage 86 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\nthe Baroda Cricket Association set out as per clause (4) of its
\nMemorandum of Association. The objects are as under;
\n\u201c(a) To promote develop & encourage cricket within its
\njurisdiction.
\n(b) To arrange and promote the establishment of Cricket
\nclubs within its jurisdiction.
\n(c) To directly control and manage all cricket activities
\nwithin its jurisdiction.
\n(d) To pay special attention and care to the
\ndevelopment of cricket at all levels within its jurisdiction.
\n(e) To arrange for good cricket ground and maintain the
\npitch for practice and matches arranged by the
\nAssociation.
\n(f) To popularize the game of cricket within its jurisdiction
\nby organizing and\/or conducting and\/or controlling
\ntournaments and matches.
\n(g) To select teams to represent the Association in any
\ntournament Championship or fixture local or otherwise.
\n(h) To start or sponsor and\/or to subscribe to funds or to
\nstage a match for the benefit of cricketers or persons
\nwho have rendered services to the game of cricket or for
\ntheir families or to a sporting cause or institution.
\n(i) To borrow or raise money which may be required for
\nthe purpose of the Association.
\n(j) To collect funds and to utilize the same in such
\nmanner as may be considered fit for the fulfillment of the
\nobjects of the Association.
\n(k) To invest moneys and funds of the Association in such
\nmanner as may be decided upon from time to time.
\n(l) To train umpire and to form a panel of umpires.
\n(m) To collect all the cricket statistics of different players
\nand clubs so as to give guidance in the selection of
\nPage 87 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\nplayers for important matches.
\n(n) To do any other acts in furtherance of the above
\nobjects not inconsistent there with.\u201d
\n77. Mr. Soparkar, thereafter, invited our attention to the fact
\nthat to meet with the aforesaid objects, the Baroda Cricket
\nAssociation incurs the following types of expenditure.
\n\u201c(i) Local tournament expense- cricketing tournament
\n(ii) District cricket expense- to promote game of cricket
\nin our jurisdictional districts.
\n(iii) Seminar, training, meetings, exhibition, etc. for
\ncoaches, umpires, trainers, physics, scorers, and other
\ncricketing support staff.
\n(iv) Junior cricketing expense wherein kids from young
\nage of below 12 years, below 14 years
\n(v) sports material like balls, clothes, shoes, drinks. etc
\nare bought for cricketers during the year which are used
\nin various tournaments played over the year.
\n(vi) Medical, physical training, gym, fitness, etc
\nexpenses are incurred for the players during the year.
\n(vii) Women cricketing expense are also incurred.
\n(viii) Prize distribution expenses are also incurred for
\nvarious tournaments organized by the association during
\nthe year.
\n(ix) Cricketing ground maintenance expenses are
\nincurred for the upkeep of all the cricket ground in
\nBaroda and in the jurisdictional districts.
\n(x) Fees are paid to professionals like coaches,
\ntrainers, physics, curators and so on whose services are
\nused by the association during the year.
\n(xi) All other establishment and other related
\nexpenditure are incurred to run the association.\u201d
\nPage 88 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\n78. Mr. Soparkar, thereafter, invited our attention to the
\ndetails of income and expenditure of the assessee from the
\npaper-book furnished by him to this Court.
\nAssessment Year 2009-10 2010-11 2011-12
\nIncome and Expenditure
\nAccount
\nAt Pg 57 At Pg.38 At Pg.60
\nIncome and Expenditure from
\nOne Day International
\nSchedule lX
\nAt Pg 58 At Pg 39
\nSchedule E: Cricketing and
\nTournament expenses
\nSchedule F: Property and
\nGround Maintenance
\nExpenses
\nSchedule G tournaments and
\nother receipts
\nAt Pg 61 At Pg 42 At Pg 63
\n79. Mr. Soparkar submitted that the Association is engaged
\ninto the activities of seminar, training, meetings, exhibition,
\netc. for the coaches, umpires, trainers, physics, scorers, and
\nother cricketing support staff for the purpose of promoting the
\ngame of cricket. Mr. Soparkar also invited our attention to the
\nannual report of the Association. Mr. Soparkar, in support of his
\nsubmissions, has placed reliance on three decisions;.
\n(i) Ahmedabad Urban Development Authority, 2017
\n396 ITR 323 (Gujarat);
\n(ii) Gujarat Industrial Development Corporation, 2017
\n83 taxmann.com 366 (Gujarat)
\n(iii) Naroda Enviro Projects Limited (Gujarat), Tax
\nAppeal No. 189 of 2019;
\nPage 89 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\n80. Mr. Soparkar submitted that in carrying on the activities,
\ncertain surplus may ensue. The earning of surplus itself would
\nnot mean that the appellant existed for profit. \u2018Profits\u2019 means
\nthat surplus over which the owners of the entity have a right to
\nwithdraw for any purpose including the personal purpose.
\nProfit making would therefore means private profit. Profit
\nmaking would not mean the surplus that results from certain
\nactivities for which the organization is devoted is ploughed
\nback for the promotion of the very same activities.
\n81. Mr. Soparkar submitted that the Assessee Association has
\nnot distributed any profits outside the organization. All the
\nprofits are ploughed back into the very activities of education
\nand promotion and development of the sport of cricket and
\ntherefore the Assessee cannot be termed to be carrying out
\ncommercial activities in the nature of trade, commerce or
\nbusiness:
\n82. Mr. Soparkar submitted that the case of the Revenue is
\nthat the appellant is an alter ego of BCCI. Assessee receives
\n\u201cshare of income\u201d from the BCCI and therefore the activities of
\nthe BCCI are the activities of the assessee. Further the
\nactivities of the BCCI are commercial in nature. The activities
\nof the BCCI is the exhibition of sports and to earn profit out of
\nit. It is only when such exhibition of substantial part of the
\nincome of the assessee is coming from the BCCI and therefore
\nnecessarily the receipts of the assessee partake character of
\ncommercial nature.
\n83. Mr. Soparkar submitted that the state cricket associations
\nand the BCCI are distinct taxable units and must be treated as
\nPage 90 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\nsuch, as there is no provision in the law that a member body
\ncan be held liable for taxation on account of the activities of
\nthe apex body.
\n84. Mr. Soparkar submitted that irrespective of the nature of
\nthe activities of the BCCI (Commercial or Charitable) what is
\npertinent for determining the nature of the activates of the
\nassessee is the object and activates of the assessee and not
\nthat of the BCCI. The nature of the activities of the assessee
\ncannot take its colour from the nature of the activities of the
\ndonor. Examples are plenty where a corporate house supports
\nactivities of a Hospital or a School. Simply because the
\ncorporate house is not a charitable organization, the Hospital
\nor the school doesn\u2019t cease to remain charitable.
\n85. Mr. Soparkar submitted that even if the BCCI is held to be
\ninvolved in carrying out the commercial activities, the
\ndisbursements from the BCCl to the cricket associations cannot
\nbecome commercial profits of the assessee cricket
\nassociations liable to be taxed. It is again urged that the
\ntrigger for denial of Section 2(15) benefit, or for the proviso to
\nSection 2 (15) being invoked, is the activity of the assessee
\nand not an outsider.
\n86. With respect to the question relating to the corpus
\ndonation received by the Association from the BCCI and
\nclaimed as exempt by the assessee under Section 11(1)(d) of
\nthe Act, Mr. Soparkar submitted that according to the Revenue,
\nthere is no specific direction from the BCCI to treat the said
\namount towards the corpus donation and, in such
\ncircumstances, the same cannot be considered as \u201ccorpus
\ndonation\u201d and the same should be treated as income of the
\nPage 91 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\nassessee not exempt under Section 11(1)(d) of the Act.
\nAccording to Mr. Soparkar, such stance of the Revenue is not
\nsustainable in law.
\n87. Mr. Soparkar submitted that the ITAT has followed its
\nearlier decision in the case of Gujarat Cricket Association for
\nthe A.Ys.2004-05 to 2007-08 (ITA 1253\/Ahd\/2013), wherein the
\nITAT held as under;
\n\u201c1. The assessee has filed specific confirmations to the
\neffect that these amounts were corpus donations.
\n2. BCCI resolution no 5 dated 29th September 2001
\nspecifically states that the TV subsidies should
\nhenceforth be sent to the Member Associations towards
\n\u201ccorpus funds\u201d. There is no dispute that the TV subsidy in
\nquestion is sent under this resolution. This resolution
\nincludes the present assessee-Baroda Cricket Association
\nas well.
\n3. On these facts, and in the light of the provisions of
\nSection 11(1)(d) which only require the income to be \u201cby
\nway of voluntary contributions made with a specific
\ndirection that they shall form part of the corpus of the
\ntrust or the institution\u201d, Tribunal was of the considered
\nview that any payments made by the BCCI, without a
\nlegal obligation and with a specific direction that it shall
\nbe for corpus fund as admittedly the present receipt is, is
\nrequired to be treated as corpus donation not includible
\nin total income.
\n4. There is no legal support for leamed CIT(A)\u2019s stand
\nthat each donation must be accompanied by a separate
\nwritten document.
\n5. The contribution has to be voluntary and it has to be
\nwith specific direction that it will form corpus of the
\ntrust\u2019. These conditions are clearly satisfied. Any
\npayment which the assessee is not under an obligation to
\nmake, whatever be the mode of its computation, is a
\nvoluntary payment, and, any payment which is with a
\nspecific direction that it for corpus fund is a corpus
\ndonation.
\nPage 92 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\n6. Therefore, even without the two specific
\nconfirmations filed by the assessee, in the light of the
\nBCCI resolution under which the payment is made and in
\nthe light of the payment not being under any legal
\nobligation, the conditions under section 11(1)(d) are
\nsatisfied.\u201d
\n88. In such circumstances, referred to above, Mr. Soparkar
\nsubmits that the Tribunal has correctly found on facts and in
\nlaw that the said amount is towards the corpus fund and,
\ntherefore, the same will be exempted under Section 11(1)(d)
\nof the Act, 1961.
\nSAURASHTRA CRICKET ASSOCIATION:-
\n89. We shall now take up the Tax Appeals Nos.358-360 of
\n2019. In these two tax appeals, the respondent-assessee is
\nthe Saurashtra Cricket Association.
\n90. The Tax Appeal No.358 of 2019 is treated as the lead
\nmatter. This tax appeal was ordered to be admitted on the
\nfollowing substantial questions of law;
\n\u201c[A]. Whether, on the facts and in the circumstances of
\nthe case the Appellate Tribunal was justified in allowing
\nthe benefit of Sections 11 and 12 when the Assessing
\nOfficer has clearly brought on record that assessee is
\ncovered under the proviso to Section 2(15) r.w.s 13(8) of
\nthe Act?
\n[B]. Whether on the facts and circumstances of the case
\nand in law, the Appellate Tribunal was justified in
\ndirecting the Assessing Officer to allow the claim of
\naccumulation of Rs.5,37,04,677\/- under section 11(1)(a)
\nand Rs.23,44,45,000\/- under section 11(2) of the Act
\nwithout appreciating the findings of the Assessing Officer
\nwith regard to applicability of section 2(15) of the Act?
\n[C]. Whether on the facts and circumstances of the case
\nPage 93 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\nand in law, the Appellate Tribunal was justified in
\nremitting the issue of infrastructure subsidy of
\nRs.4,57,95,448\/- back to the file of the Assessing Officer,
\nwithout appreciating the findings of the Assessing
\nOfficer?\u201d
\n91. Mr. Tushar Hemani, the learned senior counsel appearing
\nfor the respondent-assessee has, by and large, adopted all the
\nsubmissions canvassed by Mr. J.P. Shah, the learned senior
\ncounsel appearing for the Gujarat Cricket Association and Mr.
\nSoparkar, the learned senior counsel appearing for the Baroda
\nCricket Association. However, Mr. Hemani added something
\nimportant of his own to what has been submitted on behalf of
\nthe other two Associations. His submissions are broadly as
\nunder;
\n\u201cI) Imparting training in sports is an educational
\nactivity and hence not an object of general public
\nutility. Hence, the proviso to Section 2(15) of the
\nAct is not applicable at all.
\nII) Alternatively and without prejudice:
\na. The activities carried out by the Respondent
\nare in the nature of \u201cgeneral public utility.\u201d
\nb. Mere generation of surplus does not add the
\nelement of \u201ctrade, commerce or business\u201d to
\nan otherwise charitable activity.
\nIII) Where two views are possible, view in favour
\nof the assessee should be adopted.
\nThe aforesaid is elaborated as follows:
\nI) Imparting training in sports is nothing but
\neducation activity and therefore the Respondent
\nwould fall in the first limb of definition of
\n\u201ccharitable purpose\u201d as defined u\/s.2(15) of the
\nAct and not under the residual clause of \u2018the
\nadvancement of any other object of general public
\nPage 94 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\nutility\u2019. If that be the situation, proviso to Section
\n2(15) would not apply at all.
\nSection 2(15):
\n\u201ccharitable purpose\u201d includes relief of the poor, education,
\nyoga, medical relief, preservation of environment (including
\nwatersheds, forests and wildlife) and preservation of
\nmonuments or places or objects of artistic or historic
\ninterest, and the advancement of any other object of
\ngeneral public utility:
\nProvided that the advancement of any other object of
\ngeneral public utility shall not be a charitable
\npurpose, if it involves the carrying on of any activity in the
\nnature of trade, commerce or business, or any activity of
\nrendering any service in relation to any trade, commerce or
\nbusiness, for a cess or fee or any other consideration,
\nirrespective of the nature of use or application, or
\nretention, of the income from such activity:
\nProvided further that the first proviso shall not apply if the
\naggregate value of the receipts from the activities referred
\nto therein is twenty-five lakh rupees or less in the previous
\nyear;
\nIt is submitted that it is a settled position that
\n\u201ceducation\u201d is a term with a very wide meaning,
\ngoing beyond traditional classroom teaching and
\ntaking within its ambit training in sports:
\n[CIT vs. Secretary, Regional Committee, National
\nSports Club of Assam [1989] 180 ITR 648 (Gauhati) is
\nsquarely applicable:
\n\u201cTo satisfy us in this regard, we have been taken through
\nthe order of the Tribunal passed in ITA Nos. 684 (Gauhati)
\nto 689 (Gauhati) of 1973-74 which related to the same
\nassessee. A perusal of that judgment shows that after
\ngoing through the aims and objects of the assessee, it was
\nheld that the main object of the assessee is to
\nprovide means for improving the health and
\nphysique of the youth of Assam through the medium
\nof sports and games of all kinds. The learned
\nTribunal, therefore, concluded that, in its considered
\nopinion, the main object of the institution falls
\nPage 95 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\nwithin the head “Education”. In this context, our
\nattention has been invited by Shri Bhattacharjee to Addl.
\nCIT v. Surat Art Silk Cloth Manufacturers Association [1980]
\n121 ITR 1 (SC) in which it has been held that if the primary
\nor dominant purpose of a trust or institution is charitable,
\nthe subsidiary object would not militate against its
\ncharitable character and the purpose of the assessee would
\nnot be any the less charitable. It thus seems that, to
\ndecide whether the purpose of an assessee is
\ncharitable or not within the meaning of section 2(15)
\nof the Act, attention has to be paid to the dominant
\nor primary purpose of the assessee. As, in this case,
\nit has been held by the learned Tribunal in its earlier
\njudgment which was followed in the present case
\nthat the main object of the assessee falls within the
\nhead “Education”, it has to be accepted that the
\npurpose of the assessee is charitable.
\nShri Choudhury, however, contends that the assessee is
\nalso carrying on an activity for profit by running a guesthouse.
\nAs to this, it has been brought to our notice by Shri
\nBhattacharjee that the words “not involving the carrying on
\nof any activity for profit” which found place in section 2(15)
\nof the Act at the relevant time are relatable to the last head
\nof charitable purpose of which mention has been made in
\nthe section. We may note section 2(15) which at the
\nrelevant time read as below:
\n” ‘Charitable purpose’ includes relief of the poor, education,
\nmedical relief and the advancement of any other object of
\ngeneral public utility not involving the carrying on of any
\nactivity for profit.”
\nIt has been held in Surat Art Silk’s case [1980] 121 ITR 1
\n(SC) that the words “not involving the carrying on of
\nany activity for profit” qualify or govern only the last
\nhead of charitable purpose and not the earlier three
\nones. It was, therefore, held that if the purpose of a
\ntrust or institution be relief of the poor, education or
\nmedical relief, the requirement of the definition of
\n“charitable purpose” would be fully satisfied, even if
\nan activity for profit is carried on in the course of
\nthe actual carrying out of the primary purpose of the
\ntrust or institution.
\nPage 96 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\nThis being the settled law by now and the finding of
\nthe learned Tribunal being that the main object of
\nthe institution falls within the head “Education”, and
\nthe primary purpose being the criterion for deciding
\nwhether the income has been earned for a charitable
\npurpose, it has to be held that the questions of law
\ninvolved in the present case are concluded by a
\njudgment of the highest court of the land. In such a
\nsituation, any direction to make a reference would be
\nacademic and the High Court would be right in refusing the
\nsame as stated in Mathura Prasad v. CIT [1966] 60 ITR 428
\n(SC).\u201d
\n(Emphasis supplied)]
\n[It has been held in Gujarat State Co-Operative Union
\nvs. CIT [1992] 195 ITR 279 (Gujarat) with reference to
\nthe decision of the Hon\u2019ble Supreme Court in Sole Trustee,
\nLoka Shikshana Trust v. CIT [1975] 101 ITR 234 that the
\nmeaning of \u201ceducation\u201d is not to be narrowly construed:
\n\u201cThe observations of the Supreme Court only indicate the
\nproper confines of the word “education” in the context of
\nthe provisions of section 2(15) of the Act. It will not be
\nproper to construe these observations in a manner in which
\nthey are construed by the Tribunal when it infers from
\nthese observations, in para 17 of its judgment, that the
\nword “education” is limited to schools, colleges and similar
\ninstitutions and does not extend to any other media for
\nsuch acquisition of knowledge. The observations of the
\nSupreme Court do not confine the word “education”
\nonly to scholastic instructions but other forms of
\neducation also are included in the word “education”.
\nAs noticed above, the word “schooling” also means
\ninstructing or educating. It, therefore, cannot be said that
\nthe word “education” has been given an unduly restricted
\nmeaning by the Supreme Court in the said decision.
\nThough, in the context of the provision of section 10(22),
\nthe concept of education need not be given any wide or
\nextended meaning, it surely would encompass
\nsystematic dissemination of knowledge and training
\nin specialised subjects as is done by the assessee.
\nThe changing times and the ever widening horizons of
\nknowledge may bring in changes in the methodology of
\nteaching and a shift for the better in the institutional setup.
\nAdvancement of knowledge brings within its fold
\nPage 97 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\nsuitable methods of its dissemination and though
\nthe primary method of sitting in a classroom may
\nremain ideal for most of the initial education, it may
\nbecome necessary to have a different outlook for
\nfurther education. It is not necessary to nail down
\nthe concept of education to a particular formula or
\nto flow it only through a defined channel. Its
\nprogress lies in the acceptance of new ideas and
\ndevelopment of appropriate means to reach them to
\nthe recipients.\u201d
\n(Emphasis supplied)]
\n[Director of Income-tax (Exemption) v. Ahmedabad
\nManagement Association [2014] 366 ITR 85 (Gujarat)
\n\u201c5.6 Now applying the ratio of the decision of the Division
\nBench of this Court in the case of Gujarat State Cooperative
\nUnion (Supra) reproduced hereinabove and the
\nactivities of the assessee such as Continuing
\nEducation Diploma and Certificate Programme;
\nManagement Development Programme; Public Talks
\nand Seminars and Workshops and Conferences etc.,
\nwe are in complete agreement with the view taken
\nby the tribunal that the activities of the assessee is
\neducational activities and\/or is in the field of
\neducation.\u201d
\n(Emphasis supplied)]
\n[Delhi Music Society vs. DGIT [2013] 357 ITR 265
\n(Delhi)
\nIn the context of Section 10(23C)(vi) of the Act, it was held
\nthat assessee society whose object clause \u201csays that the
\nobjects of the school are to teach western, classical music,
\nto promote musical knowledge and the appreciation among
\nthe students as well as among the interested public by
\nmeans of workshops, lectures\/demonstrations, recitals etc.,
\nto acquire and maintain instruments for teaching purposes,
\nto create and update a world class library of music
\nliterature both audio and video to add more class rooms
\nand other required facilities for the purpose of musical
\neducation and to construct and maintain concert
\nhall\/auditorium for the school\u201d was held to be an
\neducational institute under Section 10(23C)(vi) of the Act.]
\nPage 98 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\nIn light of these decisions, it is submitted that since the
\nobjects of the Respondent include promoting the game of
\ncricket, imparting physical education through the medium
\nof cricket and maintaining a library and periodicals on
\nsports and cricket, Respondent\u2019s activities pertain to
\n\u201ceducation\u201d and hence fall under \u201ccharitable purpose\u201d
\nunder Section 2(15) of the Act. The relevant objects are
\nas follows (pgs.57-58 of Paper book for AY 2012-13):
\n3.(e) To promote the game throughout Saurashtra and
\nKutch by organising coaching schemes, Tournaments,
\nExhibition Matches and by any other manner.
\n3. (f) To foster the spirit of sportsmanship and the ideals of
\ncricket amongst School, College and University students
\nand others and educate them for the same.
\n3. (l) To impart physical education through the medium of
\ncricket and take all steps to assist the citizens to develop
\ntheir physique.
\n3. (p) To start and maintain a library of books, periodicals
\nand museum on Sports in general and cricket in particular
\nand to start journal or journals in cricket.
\nRespondent has incurred expenses to hold various
\ntournaments including the Inter District tournaments for
\nthe various age groups, Women\u2019s matches and various
\nTrophy tournaments which squarely fall under the
\neducational activity. The Details of Tournament
\nExpenses are on pg.12 of the Paperbook for the
\nAssessment Year 2012-13. Further details of such
\nTournament Expenses were submitted to the Assessing
\nOfficer vide letter dated 07.03.2015. Copy of the same is at
\npgs.72-76 and details are on pgs. 77-144 of the
\nPaperbook for Assessment Year 2012-13.
\nII Alternatively and without prejudice, the
\nactivities carried out by the Respondent-Trust are
\ncharitable in nature, being \u201cgeneral public utility\u201d
\nand not in the nature of trade, commerce or
\nbusiness in view of amended provisions of Section
\n2(15) of the Act :
\nPage 99 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\n\u00b7 It has been observed by the lower authorities that the
\nRespondent \u2013 Trust has arranged one day international
\nmatches of cricket and in turn has received TV subsidy \/
\nsubvention income i.e sharing of TV broadcasting right
\nincome from BCCI and Advertisement sales income, and
\ntherefore, such activities are in the nature of trade,
\ncommerce or business in view of first proviso to S.2(15).
\n\u00b7 These observations by the lower authorities, as discussed
\nby the ITAT on pages 453-454, are factually incorrect in as
\nmuch as arranging of one day international matches of
\ncricket, sale and auction of TV broadcasting rights and
\nAdvertisement sales income from holding one day
\ninternationals are all carried out by BCCI and not by the
\nRespondent Cricket Association.
\n\u00b7 The question then for the kind consideration of this Court
\nwould be whether the activities of the Respondent Cricket
\nAssociation can be held to be charitable within the meaning
\nof S.2(15) so as to entitle it to claim exemption u\/s 11 of
\nthe Act.
\n\u00b7 The entire issue has to be seen from the two limbs of
\nthe provisions of Section 2(15) of the Act viz.:
\n(a) whether the promotion of sports and games, cricket in
\nthe present case is charitable or not within the definition
\nas provided u\/s 2(15) of the Act and
\n(b) whether such promotion of sports and games of
\ncricket are carried out with the profit \u2013 motive or not so
\nto be treated as in the nature of trade, commerce or
\nbusiness or charitable purpose.
\nPromotion of cricket is an advancement of \u201cgeneral
\npublic utility\u201d and is hence a \u201ccharitable purpose\u201d :
\n\u00b7 Insofar as the first limb as mentioned in (a) above is
\nconcerned, attention is invited to the Circular : No. 395 [F.
\nNo. 181(5) 82\/IT(A-I)], dated 24-9-1984, wherein the Board
\nhas advised that promotion of sports and games is
\nconsidered to be a charitable purpose within the meaning
\nof section 2(15).
\nPage 100 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\nIt is not in dispute that the Respondent is involved only in
\nthe activity of promoting the game of cricket. The
\nAssessing Officer himself has noted so in para 3.3 of the
\norder on page 61 of Tax Appeal that \u201cthe assessee is
\nadmittedly involved in promotion of cricket as a game.\u201d
\nFurther, all of the objects of the assessee are related to
\npromotion of cricket.
\nMoreover, the Circular has also been held to be applicable
\nby the lower authorities (Assessment Order on pg.3 and
\nCIT(A) on pg.210-211 of Tax Appeal)
\n\u00b7 It is submitted that all the expenses of the Respondent
\nhave been incurred towards the object clause i.e.,
\npromotion of cricket:
\nThe Expenses are as follows (pg.3 of Paperbook for
\nAssessment Year 2012-13):
\nEstablishment Expenses : pg.11
\nStadium Expenses : pg.12
\nTournament Expenses : pg.12
\nDepreciation : pg.9
\nCricket Infrastructure Fund* : pg.4, Resolution is
\non pg.21
\n* Accumulation (pgs.20-21 of Paperbook for AY 2012-
\n13)
\n\u00b7 Even from the Computation of Income on pg.15 of
\nPaperbook for AY 2012-13, it can be seen that none of the
\nexpenses have been incurred for non-trust purposes.
\n\u00b7 Moreover, details and evidences of all the various
\nincomes and expenses related to the objects of the
\nRespondent have been submitted to the Assessing Officer
\nvide letter dated 07.03.2015, reproduced on pgs. 72
\nto160 of Paperbook for AY 2012-13.
\n\u00b7 Even after perusal of the same, it is not the case of the
\nlower authorities that the Respondent has conducted
\nactivities or incurred expenses outside of the objects of the
\nRespondent.
\nPage 101 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\n\u00b7 Even the Income Tax Appellate Tribunal has held that the
\nCommissioner has not been able to point out a
\nsingle object of the Respondent which is in the
\nnature of trade, commerce or business and that it is
\nnot even in dispute that the objects are \u201cobjects of general
\npublic utility.\u201d All objects unambiguously promote cricket.
\n(ITAT Order para 35., pg.456 of Tax Appeal)
\nHence, the activity of the Respondent is a charitable
\nactivity.
\nOnce it is established that the objects of the trust
\nare of \u201cgeneral public utility\u201d and that no activities
\ndeviating from the objects have been carried out,
\nmere generation of surplus cannot turn it into an
\nactivity in the nature of trade, commerce or
\nbusiness.
\n\u00b7 Now so far as the second limb i.e first proviso to S.2(15)
\nof the Act as inserted by the Finance Act, 2008 w.e.f
\n01\/04\/2009 is concerned, it is submitted that the law is
\nsettled by the larger bench of Supreme Court in the case of
\nACIT vs. Surat Art Silk Cloth Manufacturers
\nAssociation reported in 121 ITR 1 (SC) that (a) the
\nprimary or dominant purpose of the trust or institution has
\nto be examined to determine whether the said trust \/
\ninstitution is involved in carrying out any activity for profit
\nand (b) if the \u201cobject\u201d of the trust or institution is to carry
\nout object of general public utility and this is the primary or
\ndominant purpose and not carrying on any activity for
\nprofit, the same would satisfy the requirements of S.2(15)
\nof the Act.
\n\u00b7 Since the terms trade, commerce or business is not
\ndefined under the scheme of the Act, general or dictionary
\nmeaning has to be resorted to. In order to determine
\nwhether an activity is in the nature of trade, commerce or
\nbusiness OR charitable, the determining factor is profit
\nmotive. The nature of activities may remain the same.
\nHowever, if they are carried out for profit motive, the same
\nare to be characterized as trade, commerce or business.
\nConversely, if the profit motive is absent, these very
\nactivities become charitable.
\nPage 102 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\n\u00b7 It is further submitted that (a) first proviso to S.2(15) of
\nthe act should not be generalized to each and every facts
\nof the case where there is a surplus over the expenditure in
\nrespect of the activities or objects carried out by the Trust
\nwhich are in any case of the charitable purpose, (b) the
\ncardinal principle is the predominant object of the Trust. If
\nthe predominant object of the Trust is of charitable nature
\nand with no-profit motive, the said activities cannot be
\ntreated as trade, commerce or business merely because
\nsome surplus has remained left over the expenditure to
\ncarry out such activities. The essence of trade, commerce
\nor business is profit motive and absence thereof makes
\nsuch activities charitable.
\n\u00b7 It is further submitted that even after insertion of proviso
\nto S.2(15) of the Act wef 01\/04\/2009, the following
\nauthorities, after following the law laid down by Apex Court
\nin Surat Art Silk (supra), have taken a view that if the
\npredominant object of the Trust is of charitable nature and
\nwith no-profit motive, the said activities cannot be treated
\nas trade, commerce or business merely because some
\nsurplus has remained left over the expenditure to carry out
\nsuch activities :
\n(a) CIT v. Gujarat industrial Development
\nCorporation [2017] 83 taxmann.com 366
\n(Gujarat)
\nWhere collection of fees and cess was incidental to the
\nmain charitable object of the trust, it would not fall under
\nthe second part of the proviso to Section 2(15) of the Act.
\n(b) Sabarmati Ashram Gaushala Trust vs. ADIT
\n(Exemption) [2014] 362 ITR 539 (Gujarat)
\n\u201c12. All these were the objects of the general public
\nutility and would squarely fall under section 2 (15) of the
\nAct. Profit making was neither the aim nor object of the
\nTrust. It was not the principal activity. Merely because
\nwhile carrying out the activities for the purpose of
\nachieving the objects of the Trust, certain incidental
\nsurpluses were generated, would not render the
\nactivity in the nature of trade, commerce or
\nbusiness. As clarified by the CBDT in its Circular No.
\n11\/2008 dated 19th December 2008 the proviso aims to
\nPage 103 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\nattract those activities which are truly in the nature of
\ntrade, commerce or business but are carried out under the
\nguise of activities in the nature of ‘ public utility’.\u201d
\n(Emphasis supplied)
\n(c) Ahmedabad Urban Development Authority vs.
\nACIT (Exemption) [2017] 396 ITR 323
\n(Gujarat)
\n\u201c13.
\nxxx\u2026
\nMerely because under the statutory provisions and to meet
\nwith the expenditure of Town Planning Scheme and\/or
\nproviding various services under the Town Planning
\nScheme, such as road, drainage, electricity, water supply
\netc. if the assessee is permitted to sale the plots (land) to
\nthe extent of 15% of the total area under the Town
\nPlanning Scheme and while selling the said plots they are
\nsold by holding the public auction, it cannot be said that
\nactivities of the assessee is profiteering, to be in the nature
\nof trade, commerce and business.
\nxxx\u2026
\n15. Now, so far as another question which is posed for the
\nconsideration of this Court i.e. whether while collecting the
\ncess or fees, activities of the assessee can be said to be
\nrendering any services in relation to any trade, commerce
\nor business is concerned, for the reasons stated above,
\nmerely because the assessee is collecting cess or fees
\nwhich is regulatory in nature, the proviso to Section 2(15)of
\nthe Act shall not be applicable. As observed herein above
\nneither there is element of profiteering nor the same can
\nbe said to be in the nature of trade, commerce or
\nbusiness.\u201d
\nXXX\u2026
\n(d) Institute of Chartered Accountants of India vs.
\nDGIT reported in 347 ITR 99 (Delhi)
\nThe Hon\u2019ble High Court held that the fundamental or
\ndominant function of the Institute was to exercise overall
\ncontrol and regulate the activities of the members\/enrolled
\nchartered accountants and merely because the Institute
\nPage 104 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\nwas holding coaching classes which also generate income,
\nthe Court held that proviso to Section 2 (15) of the Act
\nwould not be applicable
\nIn the present case, the main object of the Trust is to
\npromote and encourage the game of cricket in Saurashtra
\nand Kutch by organizing coaching schemes, tournaments,
\nexhibition matches and other matches etc. The attention is
\nfurther invited to the clause 3(j) of MOA which provides
\n\u201cto organize matches for the achievements of the objects
\nof the Association and utilize the net proceeds thereof
\ntowards the implementation of the object set therein\u201d. It is
\nsubmitted that all the receipts arising or accruing to
\nthe Respondent-Trust are on account of the
\nactivities carried out to meet the object of the
\nRespondent i.e to promote and encourage the game of
\ncricket in Saurashtra and Kutch by organizing coaching
\nschemes, tournaments, exhibition matches and other
\nmatches etc, and they are not with the intention to carry
\nout any trade, commerce or business with profit \u2013 motive.
\nSuch receipts should be strictly confined to the attainment
\nof the objects of the Respondent-Trust and with the
\nintention to carry out any trade, commerce or business.
\nDetails of all the receipts were submitted to the
\nAssessing Officer, as reproduced in the Assessment
\nOrder on pgs. 4 to 9 of Tax Appeal. As can be seen
\nfrom the nature of the receipts, none of the incomes
\npertain to any activity other than promoting the game of
\ncricket.
\nIt is submitted that promotion of sports is itself not an
\nactivity in the nature of trade, commerce or business and
\non that count also the proviso is not applicable. The
\nHon\u2019ble High Court of Bombay in CIT (Exemptions) vs.
\nBombay Presidency Golf Club Ltd. [2019] 106
\ntaxmann.com 58 (Bombay) has held that:
\n\u201cIn the present case, the main object of the assessee club
\nas noted above is to provide golf facilities to the
\nmembers for promotion of the sport. The Tribunal
\ncorrectly held that there was no element of the
\nassessee’s activity being in the nature of trade,
\ncommerce or business. Once the applicability of the
\nPage 105 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\nproviso to Section 2(15) of the Act is ruled out, the question
\nof the exemption under Section 11 of the Act would arise.\u201d
\n(Emphasis supplied)
\nFurther reliance is also placed on the Supreme Court
\ndecision in the case of CIT vs. Gujarat Maritime Board
\nreported in [2007] 295 ITR 561(SC), wherein the
\nquestion before the Apex Court was that whether the
\nMaritime Board was entitled to the status of a charitable
\ninstitution u\/s 11 of the Act and in that context also, the
\nApex Court observed that the Gujarat Maritime Board was
\nestablished for the predominant purpose of development of
\nminor ports within the State of Gujarat, the management
\nand control of Board was essentially with the State
\nGovernment and there was no profit motive and the
\nincome including reserves and surplus earned by the Board
\nwas deployed for the development of minor ports in the
\nState of Gujarat and accordingly the Apex Court held that
\nthe Board was entitled to be registered as \u201cCharitable
\nTrust\u201d within the scheme of the Act
\nIt is submitted that the insertion of proviso to s.
\n2(15) does not mean that in case an assessee is to
\nreceive any payment for anything done for trade,
\ncommerce or business, the assessee will be hit by
\nthe said proviso. Elaborating the scope of this
\namendment, CBDT, vide Circular No. 11, dt. 19th Dec.,
\n2008 [(2009) 221 CTR (St) 1], has observed as follows:
\n“3. The newly amended s. 2(15) will apply only to the
\nentities whose purpose is ‘advancement of any other object
\nof general public utility’ i.e., the fourth limb of definition of
\n‘charitable purpose’ contained in s. 2(15). Hence, such
\nentities will not be eligible for exemption under s. 11 or
\nunder s. 10(23C) of the Act, if they carry on commercial
\nactivities. Whether such an entity is carrying on an activity
\nin the nature of trade, commerce or business is a question
\nof fact which will be decided based on the nature, scope,
\nextent and frequency of activity.\u201d
\nAs long as the object of general public utility is not merely
\na mask to hide true purpose or rendering of any service in
\nrelation thereto, and where such services are being
\nrendered as purely incidental to or as subservient to the
\nPage 106 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\nmain objective of ‘general public utility’, the carrying on of
\nbonafide activities in furtherance of such objectives of
\n‘general public utility’ cannot be hit by the proviso to
\nSection 2(15).
\nRespondent also draws support from Circular no.194\/16-
\n17 II(AI) in which the question referred to board is;
\nwhether an educational institution existing solely for
\neducational purpose but which shows some surplus at the
\nend of the year is eligible for exemption? The board had
\nreplied this question in the following manner:
\n\u201cIf the profit of the educational institution can be diverted
\nfor the personal use of the proprietor thereof, then the
\nincome of the educational institution will be subject to tax.
\nHowever, there may be cases where the educational
\ninstitutions may be owned by the trusts or societies to
\nwhom the provisions of section 11 may be applicable.
\nWhere all the objects of these trusts are educational, and
\nthe surplus, if any, from running the educational institution
\nis used for educational purposes only, it can be held that
\nthe institution is existing for educational purposes and not
\nfor purposes of profit. However, if the surplus can be used
\nfor non-educational purposes, it cannot be said that the
\ninstitution is existing solely for educational purposes and
\nsuch institutions will not be liable for exemption u\/s 10(22).
\nBut, in such cases, the applicability of section 11 can be
\nexamined and if the conditions laid down therein are
\nsatisfied, the income will be exempt u\/s 11.\u201d
\nThe principle would also apply to the case of the
\nRespondent.
\nIt is submitted that there are decisions of other
\nHon\u2019ble High Courts that are in favour of the
\nRespondent:
\n\u00b7 Tamil Nadu Cricket Association v. DIT (Exemptions)
\n[2014] 360 ITR 633 (Mad)
\n\u00b7 CIT (Exemptions) v. Rajasthan Cricket Association
\n[2018] 98 taxmann.com 425 (Raj)
\nIII Legally it is well settled that while
\nadjudicating upon an appeal, where two views are
\nPage 107 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\npossible, the view in favour of the assessee should
\nbe adopted. In the facts of the present case, there
\nare large numbers of decisions which are in favour
\nof the assessee and therefore, even if the view
\nagainst the assessee is plausible and probable, the
\nview in favour may kindly be adopted:
\n(a) Mysore Minerals Ltd. V CIT 239 ITR 775 (SC)
\n(b) Orissa State Warehousing Corporation v CIT 237 ITR
\n589 (SC)
\n(c) CIT v. Podar Cement Pvt. Ltd. and Others. 226 ITR
\n625 (SC)
\n(d) CIT v Gwalier Rayon Silk Mfg. Co. Ltd. 196 ITR 149
\n(SC)
\n(e) CIT v Sahazada Nand 60 ITR 392 (SC)
\n(f) CIT v Kulu Valley Transport Co. Ltd. 77 ITR 518, 530
\n(SC)
\n(g) CIT v Vegetable Products Ltd. 88 ITR 192 (SC
\n(h) CIT v Naga Hills Tea Co. Ltd. 89 ITR 236, 240 (SC)
\n(i) Contr. ED v Kanakasabai 89 ITR 251, 257 (SC)
\n(j) CIT v Madho Jatia 105 ITR 179, 184 (SC)
\nIn addition to the above, it is submitted with respect to
\nQuestion [C] that the Tribunal has remitted the issue of
\ninfrastructure subsidy to the file of the Assessing Officer. It
\nis submitted that for this reason, no substantial question of
\nlaw arises.\u201d
\n92. We propose to first deal with the submission of Mr. Bhatt,
\nthe learned senior counsel appearing for the Revenue that the
\nmatters deserve to be remitted to the ITAT for fresh
\nconsideration of the issues in question. This submission of Mr.
\nBhatt is canvassed in the wake of the fact that, according to
\nMr. Bhatt, the ITAT ought to have assigned cogent reasons in
\nits impugned order for the purpose of disagreeing with the
\nconcurrent findings recorded by the lower revenue authorities,
\nnamely, the Assessing Officer and the CIT(A). We are not
\nimpressed by such submission of Mr. Bhatt. We are of the view
\nthat there is no good reason to remit the matters for fresh
\nconsideration. As discussed above, the only circumstance that
\nPage 108 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\nweighed with the CIT(A) is the revenue earned by the
\nAssociations through the subsidy paid by the BCCI. We have
\ndealt with this issue at length while deciding the Tax Appeal
\nNo.268 of 2012. We take notice of the fact that the issue with
\nregard to the Proviso to Section 2(15) of the Act has been
\nelaborately dealt with by the ITAT in its own way. The ITAT has
\nconveyed, in so many words, that for the purpose of invoking
\nthe Proviso to Section 2(15) of the Act, many other aspects
\nneed to be looked into and the subsidy paid by the BCCI
\ncannot be the sole factor for brining the case within the Proviso
\nto Section 2(15) of the Act.
\n93. At the cost of repetition, we, once again, reproduce the
\nfindings recorded by the ITAT in this regard. We are
\nhighlighting the findings to demonstrate why the ITAT
\ndisagreed with the CIT(A) . The findings are as under;
\n\u201c34. What essentially follows from the above discussions
\nis that, even after the 2008 amendment and insertion of
\nproviso to Section 2(15), so far as \u2018any other object of
\ngeneral public utility’ is concerned, as long as profit
\nearning is not the predominant purpose of the activity of
\nthe assessee, the benefit of Section 2(15) cannot be
\ndeclined. In other words, the accrual of profits to the
\nassessee, by itself, cannot, therefore, be reason enough
\nto hold that the assessee is not covered by the definition
\nof \u2018charitable institution\u2019 under section 2(15). Of course,
\nall these discussions are relevant only for the residuary
\nclause i.e. \u201cany other object of general public utility\u201d. In
\ncase, therefore, where the objects being pursued by the
\nassessee is \u201crelief of the poor\u201d, \u201ceducation\u201d or \u201cmedical
\nrelief”, it is not even material whether or not the
\nassessee is carrying on an activity in the nature of trade,
\ncommerce or business in the course of such activities.
\nThe key factor is as to what are the activities of the
\nassessee institution and as to what these activities seek
\nto achieve.
\nPage 109 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\n35. Let us take a pause here and examine as to what
\nare the activities of the assessee cricket associations so
\nas to be brought within the ambit of trade, commerce or
\nbusiness. We have seen objects of the association, which
\nare reproduced earlier in our order, and it is not even the
\ncase of the revenue that these objects have anything to
\ndo with any trade, commerce or business; these objects
\nare simply to promote cricket. The trigger for invoking
\nproviso to Section 2(15), as Shri Soparkar rightly
\ncontends has to an activity of the assessee which is in
\nthe nature of trade, commerce or business. However, the
\ncase of the revenue authorities hinges on the allegation
\nthat the way and manner in which cricket matches are
\nbeing organized, particularly the IPL matches, the activity
\nof organizing cricket matches is nothing but brute
\ncommerce. Undoubtedly, it would appear that right from
\nthe time Kerry Packer started his World Series Cricket in
\n1977, there has been no looking back in
\ncommercialization of cricket and the impact of this
\ncommercialization has not left Indian cricket intact. The
\nIndian Premier League and the rules of the game being
\ngoverned by the dictates of commercial considerations
\nmay seem to be one such example of commercialization
\nof Indian cricket. The difficulty for the case of the
\nrevenue before us, however, is that these matches are
\nnot being organized by the local cricket associations. We
\nare told that the matches are being organized by the
\nBoard of Cricket Control of India, but then, if we are to
\naccept this claim and invoke the proviso to Section 2(15)
\nfor this reason, it will amount to a situation in which
\nproviso to Section 2(15) is being invoked on account of
\nactivities of an entity other than the assesseessomething
\nwhich law does not permit. We are not really
\nconcerned, at this stage, whether the allegations about
\ncommercialization of cricket by the BCCI are correct or
\nnot, because that aspect of the matter would be relevant
\nonly for the purpose of proviso to Section 2(15) being
\ninvoked in the hands of the BCCI. We do not wish to deal
\nwith that aspect of the matter or to make any
\nobservations which would prejudge the case of the BCCI.
\nSuffice to say that the very foundation of revenue\u2019s case
\nis devoid of legally sustainable basis for the short reason
\nthat the commercialization of cricket by the BCCI, even if
\nthat be so, cannot be reason enough to invoke the
\nproviso to Section 2(15). We are alive of the learned
\nCommissioner (DR)\u2019s suggestion that the cricket
\nPage 110 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\nassociations cannot be seen on standalone basis as the
\nBCCI is nothing but an apex body of these cricket
\nassociations at a collective level and whatever BCCI does
\nis at the behest of or with the connivance of the local
\ncricket associations, and that it is not the case that
\nanyone can become a Member of the BCCI because only
\na recognized cricket association can become a Member
\nof the BCCI. We are also alive to learned Commissioner\u2019s
\nargument that what is being sought to be protected by
\nthe Charitable status of these associations is the share of
\nthese cricket associations from the commercial profits
\nearned by the BCCI by organizing the cricket matches.
\nThe problem, however, is that the activities of the apex
\nbody; as we have explained earlier, cannot be reason
\nenough to trigger proviso to Section 2(15) in these cases.
\nWhether these cricket associations collectively constitute
\nBCCI or not, in the event of BCCI being involved in
\ncommercial activities, the taxability of such commercial
\nprofits will arise in the hands of the BCCI and not the end
\nbeneficiaries. Even in such a case the point of taxability
\nof these profits is the BCCI and not the cricket
\nassociations, because, even going by learned
\nCommissioner\u2019s arguments, these receipts in the hands
\nof the cricket associations is nothing but appropriation of
\nprofits. What can be taxed is accrual of profits and not
\nappropriation of profits. In any event, distinction between
\nthe cricket associations and the BCCI cannot be ignored
\nfor the purposes of tax treatment. There is no dispute
\nthat the matches were organized by the BCCI, and the
\nassessee cannot thus be faulted for the commercial
\nconsiderations said to be inherent in planning the
\nmatches. As we make these observations, and as we do
\nnot have the benefit of hearing the perspective of the
\nBCCI, we make it clear that these observations will have
\nno bearing on any adjudication in the hands of the BCCI.
\nSuffice to say that so far as the cricket associations are
\nconcerned, the allegations of the revenue authorities
\nhave no bearing on the denial of the status of \u2018charitable
\nactivities\u2019 in the hands of the cricket associations before
\nus- particularly as learned Commissioner has not been
\nable to point out a single object of the assessee cricket
\nassociations which is in the nature of trade, commerce or
\nbusiness, and, as it is not even in dispute that the objects
\nbeing pursued by the assessee cricket associations are
\n\u201cobjects of general public utility\u201dunder section 2(15). All
\nthe objects of the assessee cricket associations, as
\nPage 111 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\nreproduced earlier in this order, unambiguously seek to
\npromote the cricket, and this object, as has been all
\nalong accepted by the CBDT itself, an object of general
\npublic utility.
\n36. Cricket is indeed an immensely popular game in
\nthis part of the world, and anything to do with cricket
\nresults in mass involvement of public at large. The sheer
\nstrength of these numbers results in higher visibility of
\ncricketing activities and the scale of operations on which
\nthe work for development of cricket is to be carried out.
\nThese facts, by itself, and without the assessees before
\nus deviating from their objects or venturing into trade,
\ncommerce or business, cannot require the activities to be
\ntreated as commercial activities. When a cricket stadium
\nis to be built, it has to accommodate a very large number
\nof persons but the size of the stadium would not mean
\nthat the activity is for anything other than promotion of
\ncricket.. When the numbers are large, the scale of
\noperations is large, and when scale of operations are
\nlarger, even the surplus or deficit could be large, but then
\nthe scale of operations may be a scale on which
\ncommercial activities could be carried out but that fact
\ncannot convert an object of general public utility into a
\ncommercial activity. We have carefully analyzed the
\nannual reports and the annual financial
\nstatements of the assessee, and we do not find
\nany objects, other than objects of the cricket
\nassociations, being pursed by these cricket
\nassociations. The objects of these cricket
\nassociations clearly demonstrate that these cricket
\nassociations exist and operate purely for the
\npurpose of promoting cricket. We are, therefore,
\nof the considered view that the proviso to Section
\n2(15) has been wrongly invoked in these cases.\u201d
\n94. From the above, it is evident that the ITAT considered the
\nissue bearing in mind the activities of the assessee and what
\nsuch activities seek to achieve. The ITAT has observed that it
\ncarefully analyzed the annual reports and the annual financial
\nstatements of the assessee, and upon perusal of the same, the
\nITAT reached to the conclusion that the activities undertaken
\nby the Associations were not contrary to the objects. This is a
\nPage 112 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\npure finding on a question of fact. In such circumstance,
\nreferred to above, it cannot be said or argued that the ITAT
\npassed the impugned order in a very slipshod manner or
\nwithout assigning any cogent reasons.
\n95. We shall now proceed to examine the main issue on our
\nown.
\n96. Section 2(15) of the Act defines the term \u201cCharitable
\nPurpose\u201d. The definition reads as under:
\n‘Section 2(15):-“charitable purpose” includes relief of the
\npoor, education, yoga, medical relief, preservation of
\nenvironment (including watersheds, forests and wildlife)
\nand preservation of monuments or places or objects of
\nartistic or historic interest, and the advancement of any
\nother object of general public utility:
\nProvided that the advancement of any other object of
\ngeneral public utility shall not be a charitable purpose, if
\nit involves the carrying on of any activity in the nature of
\ntrade, commerce or business, or any activity of rendering
\nany service in relation to any trade, commerce or
\nbusiness, for a cess or fee or any other consideration,
\nirrespective of the nature of use or application, or
\nretention, of the income from such activity, unless\u2014
\n(i) such activity is undertaken in the course of actual
\ncarrying out of such advancement of any other object of
\ngeneral public utility; and
\n(ii) the aggregate receipts from such activity or activities
\nduring the previous year, do not exceed twenty per cent
\nof the total receipts, of the trust or institution
\nundertaking such activity or activities, of that previous
\nyear;\u201d
\n97. S.2(15) of the 1961 Act::-
\nCharitable purpose, defined (upto 31-3-2009).-
\nAccording to section 2(15), the expression \u201ccharitable
\npurpose\u201d has been defined by way of an inclusive definition so
\nPage 113 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\nas to include-
\n-relief to the poor,
\n-education,
\n-medical relief, and
\n-the advancement of any other object of general public utility
\n[(upto 31-3-1984) not involving the carrying on of any activity
\nfor profit].
\n98. The subject-matter of this definition has been dealt with
\nunder section 11, post.
\n99. Charitable purpose, defined (operative from 1-4-
\n2009).-As per section 2(15), newly substituted (w.e.f. 1-4-
\n2009) by the Finance Act, 2008, the expression \u201ccharitable
\npurpose\u201d has been defined by way of an inclusive definition so
\nas to include;
\n-relief to the poor,
\n-education,
\nmedical relief,
\n-(w.e.f. 1-4-2009) preservation of environment (including
\nwatersheds, forests and Wildlife) and Preservation of
\nmonuments or places or objects of artistic of historic interest
\nand,
\n-the advancement of any other object of general public utility.
\n100. The first proviso to section 2(15) provides that the
\nadvancement of any other object of general public utility shall
\nnot be a charitable purpose, if it involves the carrying on of
\nany activity:
\n– in the nature of trade, commerce or business, or
\nPage 114 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\n-of rendering any service in relation to any trade, commerce or
\nbusiness, for a cess or fee or any other consideration,
\nirrespective of the nature of use or application, or retention, of
\nthe income from such activity.
\n101. The second proviso to section 2(15) as newly inserted
\n(w..e.f. 1-4-2009) by the Finance Act, 2010, further provides
\nthat the first proviso shall not apply if the aggregate value of
\nthe receipts from the activities referred to therein is
\n-(between 1-4-2009 and 31-3-2012) Rs. 10 lakhs
\n-(w.e.f. 1-4-2012) Rs. 25 lakhs
\nor less in the previous year.
\n102. Legislative amendments.-
\nI. The Finance Act, 1983-By section 3(a) of Act 11 of 1983,
\nsection 2(15) has been amended (w.e.f. 1-4-1984).
\nII The Finance Act, 2008.-The scope and effect of the
\nsubstitution (w.e.f. 1-4-2009) of section 2(15) by Act 18 of
\n2008, have been elaborated in the following portion of the
\ndepartmental circular No. 1\/2009, dated 27-3-2009, as under:-
\n‘Streamlining the definition of \u201ccharitable purpose\u201d.-
\n5.1 Sub-section (15) of section 2 of the Act defines
\n\u201ccharitable purpose\u201d to include relief of the poor,
\neducation, medical relief, and the advancement of any
\nother object of general public utility. It has been noticed
\nthat a number of entities operating on commercial lines
\nare claiming exemption on their income either under subsection
\n(23C) of section 10 or section 11 of the Act on
\nthe ground that they are charitable institutions. This is
\nbased on the argument that they are engaged in the
\n\u201cadvancement of an object of general public utility\u201d as is
\nincluded in the fourth limb of the current definition of
\n\u201ccharitable purpose\u201d Such as claim, when made in
\nPage 115 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\nrespect of an activity carried out on commercial lines, is
\nis contrary to the intention of the provision.
\n5.2 With a view to limiting the scope of the phrase
\n\u201cadvancement of any other object of general public
\nutility\u201d, sub-section (15) of section 2 has been amended
\nto provide that the advancement of any other object of
\ngeneral public utility shall not be a charitable purpose, if
\nit involves the carrying on of any activity in the nature of
\ntrade commerce or business, or any activity of rendering
\nany service in relation to any trade, commerce or
\nbusiness, for a cess or fee or any other consideration,
\nirrespective of the nature of use or application, or
\nretention, of the income from such activity. Scope of this
\namendment has further been explained by the CBDT vide
\nits Circular 11\/2008 dated December 19, 2008.
\n5.3 Applicability: This amendment has been made
\napplicable with effect from 1st April, 2009, and shall
\naccordingly apply for the assessment year 2009-10 and
\nsubsequent assessment years.\u2019.
\nIII The Finance (No.2) Act, 2009-The scope and effect of the
\nsubstitution (w..e.f. 1-4-2009) of section 2(15) by Act 33 of
\n2009 have been elaborated in the following portion of the
\ndepartmental circular No.5\/2010, dated 3-6-2010, as under:-
\n\u201cAmendment to include certain activities within the ambit
\nof provisions relating to \u201ccharitable purpose\u201d in the
\nIncome-tax Act.
\n4.1 For the purposes of the Income-tax Act, \u201ccharitable
\npurpose\u201d has been defined in section 2(15) of the
\nIncome-tax Act and it includes
\n(a) relief to the poor,
\n(b) education,
\n(c) medical relief and,
\n(d) the advancement of any other object of general public
\nutility.
\nHowever, as per proviso to the section, the
\n\u201cadvancement of any other object of general public
\nutility\u201d shall not be a charitable purpose, if it involves the
\nPage 116 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\ncarrying on of any activity in the nature of trade,
\ncommerce or business, or any activity of rendering any
\nservice in relation to any trade, commerce or business,
\nfor a cess or fee or any other consideration, irrespective
\nof the nature of use or application, or retention, of the
\nincome from such activity.
\n4.2 Clause (15) of section 2 has been amended so as to
\nprovide that the preservation of environment (including
\nwatersheds, forests and wildlife) and preservation of
\nmonuments or places or objects of artistic or historic
\ninterest would be excluded from the applicability of the
\naforesaid proviso which is applicable to the
\n\u201cadvancement of any other object of general public
\nutility\u201d.
\n4.3 Applicability:-These amendments have been made
\napplicable with effect from 1st April, 2009 and will
\naccordingly apply for assessment year 2009-10 and
\nsubsequent assessment years..\u201d
\nIV The Finance Act, 2010:–The scope and effect of the
\ninsertion (w.e.f. 1-4-2009) of a new second proviso in section
\n2(15) have been elaborated in the following portion of the
\ndepartmental circular No.1\/2011, dated 6-4~2011, as under:
\n\u2018Change in the definition of \u201ccharitable purpose\u201d.-
\n4.1 For the purposes of the Income-tax Act, \u201ccharitable
\npurpose\u201d has been defined in section 2(15) which, among
\nothers, includes \u201cthe advancement of any other object of
\ngeneral public utility\u201d.
\n4.2 However, \u201cthe advancement of any other object of
\ngeneral public utility\u201d is not a charitable purpose, if it
\ninvolves the carrying on of any activity in the nature of
\ntrade, commerce or business, or any activity of rendering
\nany service in relation to any trade, commerce or
\nbusiness, for a cess or fee or any other consideration,
\nirrespective of the nature of use or application, or
\nretention, of the income from such activity.
\n4.3 The absolute restriction on any receipt of
\ncommercial nature may create hardship to the
\nPage 117 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\norganizations which receive sundry considerations from
\nsuch activities. Therefore, section 2(15) has been
\namended to provide that \u201cthe advancement of any other
\nobject of general public utility\u201d shall continue to be a
\n\u201ccharitable purpose\u201d if the total receipts from any activity
\nin the nature of trade, commerce or business, or any
\nactivity of rendering any service in relation to any trade,
\ncommerce or business do not exceed Rs.10 lakhs in the
\nprevious year.
\n4.4 Applicability: This amendment has been made
\neffective retrospectively from 1st April, 2009 and will,
\naccordingly, apply in relation to the assessment year
\n2009-10 and subsequent years.\u2019.
\nV. The Finance Act, 2011.-The second proviso to section
\n2(15) has been amended (w.e.f. 1-4-2012) by section 3 of Act 8
\nof 2011.
\nThe scope and effect of the amendment made in section
\n2(15) by the Finance Act, 2011 have been elaborated in the
\nfollowing portion of the departmental circular No.2 of of 2012
\ndated 22-05-012. as follows:
\nDefinition of \u201ccharitable purpose”:-
\n4.1 For the purpose of the 1961 Act, \u201ccharitable
\npurpose\u201c has been determined in section 2(15) which,
\namong others, include “the advancement of any other
\nobject of general public utility\u201d.
\n4.2 However. \u201cthe advancement of any other object of
\ngeneral public utility\u201d is not considered as a charitable
\npurpose. if it involves the carrying on of any activity in
\nthe nature of trade. commerce or business. or any
\nactivity of rendering any service in relation to any trade.
\ncommerce or business, for a cess or fee or any other
\nconsideration, irrespective of the nature of use or
\napplication, or retention, of the income from such
\nactivity. if receipts from such activities is above the
\nspecified limit in the previous year.
\nPage 118 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\n4.3 Second proviso to section 2(15) of the 1961 Act has
\nbeen amended to provide that the specified monetary
\nlimit in respect of receipts from such activities shall be 25
\nlakh rupees instead of 10 lakh rupees.
\n4.4 Applicability.–This amendment has been made
\neffective from [1st April. 20l2, and will, accordingly, apply
\nin relation to the assessment year 2012-13 and
\nsubsequent years.\u201d
\nDepartmental circular.-1. Definition of \u201cCharitable
\npurpose\u201d under section 2(15) of the Income-tax Act, 1961-reg-
\nSection 2(15) of the Income-tax Act, 1961 (\u201cthe Act\u201d), defines
\n\u201ccharitable purpose\u201d to include the following:
\n(i) relief to the poor
\n(ii) education
\n(iii) medical relief, and
\n(iv) the advancement of any other object of general public
\nutility.
\nAn entity with a charitable object of the above nature was
\neligible for exemption from tax under section Section 11 or
\nalternatively under section 10(23C) of the Act. However. it was
\nseen that a number of entities who were engaged in
\ncommercial activities were also claiming exemption on the
\nground that such activities were for the advancement of
\nobjects of general public utility in terms of the fourth limb of
\nthe definition of \u201ccharitable purpose”. Therefore. section 2(15)
\nwas amended, vide Finance Act. 2008, by adding a proviso
\nwhich states that the \u201cadvancement of any other object of
\ngeneral public utility\u201d shall not be a charitable purpose if it
\ninvolves the carrying on of –
\n(a) any activity in the nature of trade, commerce or business:
\nor
\n(b) any activity of rendering any service in relation to any
\nPage 119 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\ntrade. commerce or business;
\nfor a cess or fee or any other consideration, irrespective
\nof the nature of use or application, or retention of the income
\nfrom such activity.
\n2. The following implications arise from this amendment \u2013
\n2.1 The newly inserted proviso to section 2(15) will not apply in
\nrespect of the first three limbs of section 2(15), i.e., relief of
\nthe poor, education or medical relief. Consequently, where the
\npurpose of a trust or institution is relief of the poor, education
\nor medical relief, it will constitute \u2018charitable purpose\u2019 even if it
\nincidentally involves the carrying on of commercial activities.
\n2.2. \u2018Relief of the poor\u2019 encompasses a wide range of objects
\nfor the welfare of the economically and socially disadvantaged
\nor needy. It will, therefore, include within its ambit purposes
\nsuch as relief to destitute, orphans or the handicapped,
\ndisadvantaged women or children, small and marginal farmers,
\nindigent artisans or senior citizens in need of aid. Entities who
\nhave these objects will continue to be eligible for exemption
\neven if they incidentally carry on a commercial activity,
\nsubject, however, to the conditions stipulated under section
\n11(4A) or the seventh proviso to section 10(23C) which are
\nthat
\n(i) the business should be incidental to the attainment of
\nthe objectives of the entity,and
\n(ii) separate books of account should be maintained in
\nrespect of such business.
\nSimilarly, entities whose object is \u2018education\u2019 or \u2018medical relief\u2019
\nwould also continue to be eligible for exemption as charitable
\nPage 120 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\ninstitutions even if they incidentally carry on a commercial
\nactivity subject to the conditions mentioned above.
\n3. The newly inserted proviso to section 2(15) will apply only to
\nentities whose purpose is \u2018advancement of any other object of
\ngeneral public utility\u2019 i.e. the fourth limb of the definition of
\n\u2018charitable purpose\u2019 contained in section 2(15). Hence, such
\nentities will not be eligible for exemption under section 11 or
\nunder section 10(23C) of the Act if they carry on commercial
\nactivities. Whether such an entity is carrying on an activity in
\nthe nature of trade, commerce or business is a question of fact
\nwhich will be decided based on the nature, scope, extent and
\nfrequency of the activity.
\n3.1. There are industry and trade associations who claim
\nexemption from tax u\/s 11 on the ground that their objects are
\nfor charitable purpose as these are covered under \u2018any other
\nobject of general public utility\u2019. Under the principle of
\nmutuality, if trading takes place between persons who are
\nassociated together and contribute to a common fund for the
\nfinancing of some venture or object and in this respect have no
\ndealings or relations with any outside body, then any surplus
\nreturned to the persons forming such association is not
\nchargeable to tax. In such cases, there must be complete
\nidentity between the contributors and the participants.
\nTherefore, where industry or trade associations claim both to
\nbe charitable institutions as well as mutual organizations and
\ntheir activities are restricted to contributions from and
\nparticipation of only their members, these would not fall under
\nthe purview of the proviso to section 2(15) owing to the
\nprinciple of mutuality. However, if such organizations have
\ndealings with non-members, their claim to be charitable
\nPage 121 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\norganizations would now be governed by the additional
\nconditions stipulated in the proviso to section 2 (15).
\n3.2. In the final analysis, however, whether the assessee has
\nfor its object \u2018the advancement of any other object of general
\npublic utility\u2019 is a question of fact. If such assessee is engaged
\nin any activity in the nature of trade, commerce or business or
\nrenders any service in relation to trade, commerce or business,
\nit would not be entitled to claim that its object is charitable
\npurpose. In such a case, the object of \u2018general public utility\u2019
\nwill be only a mask or a device to hide the true purpose which
\nis trade, commerce or business or the rendering of any service
\nin relation to trade, commerce or business. Each case would,
\ntherefore, be decided on its own facts and no generalization is
\npossible. Assessees, who claim that their object is \u2018charitable
\npurpose\u2019 within the meaning of Section 2(15), would be well
\nadvised to eschew any activity which is in the nature of trade,
\ncommerce or business or the rendering of any service in
\nrelation to any trade, commerce or business.
\n103. In the course of the hearing of these appeals, our
\nattention was drawn to the following extract from the speech
\nof the Minister of Finance on 29th February, 2008.
\n\u201c 180. Charitable purpose’ includes \u2015 relief of the poor,
\neducation, medical relief and any other object of general
\npublic utility. These activities are tax exempt, as they
\nshould be. However, some entities carrying on regular
\ntrade, commerce or business or providing services in
\nrelation to any trade commerce or business and earning
\nincome have sought to claim that their purpose would
\nalso fall under ‘charitable purpose’. Obviously, this way
\nnot the intention of Parliament and, hence, I propose to
\namend the law to exclude the aforesaid cases. Genuine
\ncharitable organizations will not in any way be affected.\u201d
\nPage 122 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\n104. Our attention was also drawn to the following extract
\nfrom the reply of the Finance Minister to the Debate in the Lok
\nSabha on the Finance Bill, 2008:-
\n\u201c 6. Clause 3 of the Finance \u2015 Bill, 2008 seeks to amend
\nthe definition of charitable purpose’ so as to exclude any
\nactivity in the nature of trade, commerce or business, or
\nany activity of rendering any service in relation to any
\ntrade, commerce or business, for a cess or fee or any
\nother consideration, irrespective of the nature or use of
\napplication, or retention, of the income from such activity.
\nThe intention is to limit the benefit to entities which are
\nengaged in activities such as relief of the poor, education,
\nmedical relief and any other genuine charitable purpose,
\nand to deny it to purely commercial and business entities
\nwhich wear the mask of a charity. A number of Honourable
\nMembers have written to me expressing their concern on
\nthe possible impact of the proposal on Agricultural
\nProduce Market Committees (APMC) or State Agricultural
\nMarketing Boards (SAMB). Since there is no intention to
\ntax such committees or boards, and in order to remove
\nany doubts, I propose to insert a new clause (26AAB) in
\nsection 10 of the Income tax Act to provide exemption to
\nany income of an APMC or SAMB constituted under any
\nlaw for the time being in force for the purpose of
\nregulating the marketing of agricultural produce. I once
\nagain assure the House that genuine charitable
\norganisations will not in any way be affected. The CBDT
\nwill, following the usual practice, issue an explanatory
\ncircular containing guidelines for determining whether an
\nentity is carrying on any activity in the nature of trade,
\ncommerce or business or any activity of rendering any
\nservice in relation to any trade, commerce or business.
\nWhether the purpose is a charitable purpose will depend
\non the totality of the facts of the case. Ordinarily,
\nChambers of Commerce and similar organisations
\nrendering services to their members would not be affected
\nby the amendment and their activities would continue to
\nbe regarded as \u2015advancement of any other object of
\ngeneral public utility. (underlining added) \u201c
\n105. Thus, prima facie, it appears from the above that the
\nobject of the introduction of the Proviso to clause (15) of
\nSection 2 of the said Act was to deny the benefit of the Income
\nPage 123 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\nTax Act exemption to purely commercial and business entities
\nwhich wear the mask of a charity. The genuine charitable
\norganizations were not affected in any way.
\n106. The first and the foremost thing we want to clarify is that
\nthe registration of the assessee as a Charitable Institution
\nwould, prima facie, clothe the assesseee with the character of
\na charitable institution. However, the game, by itself, is not
\nconclusive and the question whether the assessee is
\nestablished for a charitable purpose or not must be examined
\nindependently with reference to the provisions of the Act. The
\nregistration of the assessee as a charitable institution under
\nSection 12A of the Act, 1961 is a relevant factor in reaching an
\nappropriate conclusion. Unless the positive requirements of
\nlaw are satisfied, the assessee, only by virtue of the aforesaid
\nevent, cannot be regarded as a Charitable Institution. The
\nobjects, for which, the assessee is established either as a
\nSociety or as a Association should spell out any charitable
\npurpose.
\n107. In the aforesaid context, it may be pertinent to refer to
\nthe decision of this High Court in the case of Hiralal
\nBhagwati v. Commissioner of Income Tax, [2000] 161
\nCTR (Guj) 401, wherein the Court has held as under:
\n\u201cThe registration of a charitable trust under section 12A
\nis not an empty formality. This is apparent from the tenor
\nof the provisions of section 12A. It requires that not only
\nan application should be filed in the prescribed form,
\nsetting the details of the origin of the trust, but also
\nnames and addresses of the trustees and\/or managers
\nshould be furnished. The CIT has to examine the objects
\nof creation as well as an empirical study of the past
\nactivities of the applicant. The CIT has to examine that it
\nPage 124 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\nis really a charitable trust or institution eligible for
\nregistration. The Court further held that once the
\nregistration under section 12A(a) of the Act is granted,
\nthe Income Tax Officer is not justified in refusing the
\nbenefit which would, otherwise, accrue under the
\nregistration.\u201d
\n108. In the case of Assistant Commissioner of Income Tax
\nv. Surat City Gymkhana, (2008) 300 ITR 214 (SC), the
\nSupreme Court was called upon to deal with the question as to
\nwhether on the facts and circumstances of the said case,
\nIncome Tax Appellate Tribunal was justified in law in holding
\nthat registration under section 12A was a fiat accompli to hold
\nthe Assessing Officer back from further probe into the objects
\nof the trust. On a perusal of the judgment of the Gujarat High
\nCourt in the case of Hiralal Bhagwati, the Supreme Court
\nheld that the question stood concluded by the said judgment,
\nwhich had attained finality since the revenue did not challenge
\nthe decision in the said case. The relevant observations made
\nby the Supreme Court are as follows;
\n\u201cThe respondent assessee claimed exemption under
\nSection 10(23) of the Income Tax Act, 1961 for
\nAssessment Years 1991-1992 and 1992-1993. The said
\nexemption was claimed on the basis that the objects of
\nthe respondent assessee are exclusively charitable. The
\nassessing officer rejected the claim. The appeals filed
\nbefore the Commissioner of Income Tax (Appeals) were
\nalso dismissed. Aggrieved thereby, the assessee filed
\nfurther appeals before the Income Tax Appellate Tribunal
\n(the Tribunal). The Tribunal, by order dated 20-1-2000,
\nallowed the appeals filed by the respondent assessee.
\nThe appellant filed appeals before the High Court of
\nGujarat. The Revenue claimed that the following two
\nsubstantial questions of law arise from the order of the
\nTribunal:
\n\u201c(A) Whether, on the facts and circumstances of the
\ncase, the Income Tax Appellate Tribunal was justified in
\nlaw in holding that the objects of the trust restricting
\nPage 125 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\nbenefit to the members of the club would fall within the
\npurview of the act of \u2018general public utility\u2019 under
\nSection 2(15) of the Income Tax Act constituting as a
\nsection of public and not a body of individuals?
\n(B) Whether, on the facts and circumstances of the case,
\nthe Income Tax Appellate Tribunal was justified in law in
\nholding that registration under Section 12-A was a fait
\naccompli to hold the assessing officer back from further
\nprobe into the objects of the trust?\u201d
\n2. By the impugned order, the High Court dismissed the
\nappeals, in limine, relying on a decision of the same
\nCourt in Hiralal Bhagwati v. CIT 2000 246 ITR 188,
\nholding that the questions raised in the appeals are
\ncovered by the aforesaid decision.
\n3. Being dissatisfied by the order of the High Court, the
\nRevenue has filed these appeals.
\n4. This Court, on 22-7-2002, granted leave in respect of
\nQuestion \u2018B\u2019 only. The appeals were not entertained in
\nrespect of Question \u2018A\u2019 and it was noted that the appeals
\nwere rightly dismissed by the High Court insofar as
\nQuestion \u2018A\u2019 is concerned as the appellant did not
\nchallenge the correctness of the judgment in Hiralal
\nBhagwati.
\n5. On a perusal of the judgment of the Gujarat High Court
\nin Hiralal Bhagwati we now find that Question \u2018B\u2019 is also
\nconcluded by the said judgment (refer to the 1st
\nparagraph of ITR p. 196). Since the Revenue did not
\nchallenge the decision in the said case, the same has
\nattained finality. Question \u2018B\u2019, therefore, is to meet the
\nsame fate as Question \u2018A\u2019 as this Court had declined to
\ngrant leave in respect of Question \u2018A\u2019 on the ground that
\nthe Revenue did not challenge the correctness of the
\ndecision in Hiralal Bhagwati. It appears that the fact, that
\nQuestion \u2018B\u2019 was also covered by the aforementioned
\njudgment, was not brought to the notice of Their
\nLordships and, therefore, leave granted was restricted to
\nQuestion \u2018B\u2019.\u201d
\n109. This High Court in the case of Ahmedabad Urban
\nDevelopment Authority v. Deputy Director of Income
\nTax (Exemption), (supra), has held thus:
\nPage 126 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\n\u201c9. Section 12AA of the Act lays down the procedure for
\nregistration in relation to the conditions for applicability
\nof sections 11 & 12 as provided in section 12A of the Act.
\nTherefore, once the procedure is complete as provided in
\nsub-section (1) of section 12AA of the Act and a
\nCertificate is issued granting registration to the Trust or
\nInstitution it is apparent that the same is a document
\nevidencing satisfaction about : (1) genuineness of the
\nactivities of the Trust or institution, (2) about the objects
\nof the Trust or Institution. Section 12A of the Act
\nstipulates that provisions of sections 11 & 12 shall not
\napply in relation to income of a Trust or an Institution
\nunless conditions stipulated therein are fulfilled. Thus
\ngranting of registration under section 12AA of the Act
\ndenotes, as per legislative scheme, that conditions laid
\ndown in section 12A of the Act stand fulfilled.\u201d
\n110. This High Court, in the case of Agricultural Produce
\nMarket Committee vs. Income Tax Officer, reported in
\n(2013) 355 ITR 384, held as under;
\n\u201cA perusal of the reasons recorded shows that the
\nassessment is sought to be reopened on the ground that
\neven if the petitioner has obtained registration under
\nsection 12AA of the Act as an institution carrying on
\ncharitable activities, the petitioner is not entitled to the
\nstatus of trust carrying out charitable activities since the
\npetitioner is conducting the business as an \u201cAssociation
\nof Persons\u201d and not as a \u201cTrust\u201d. Thus, though the
\npetitioner has been granted registration under section
\n12AA of the Act by the Commissioner of Income-tax, the
\nassessment is sought to be reopened on the basis of
\nrevenue audit objection that the petitioner is not eligible
\nfor exemption for the aforesaid reasons. The grounds for
\nreopening the assessment are clearly contrary to the
\nsettled legal position as laid down by this Court in the
\ncase of Hiralal Bhagwati v. Commissioner of Income Tax,
\n(supra) as well as in the case of Ahmedabad Urban
\nDevelopment Authority v. Deputy Director of Income Tax
\n(Exemption), wherein the Court has held that section
\n12AA of the Act lays down the procedure for registration
\nin relation to the conditions for applicability of sections
\n11 and 12 as provided in section 12A of the Act.
\nPage 127 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\nTherefore, once the procedure is complete as provided
\nunder sub-section (1) of section 12AA of the Act and a
\ncertificate is issued granting registration to the Trust or
\nInstitution, it is apparent that the same is a document
\nevidencing satisfaction about: (1) genuineness of the
\nactivities of the trust or Institution, and (2) about the
\nobjects of the Trust or Institution. While framing the
\nassessment order, it is not open to the Assessing Officer
\nto ignore the certificate of registration granted under
\nsection 12AA of the Act by the Director of Income Tax
\n(Exemption).
\nIn the facts of the present case, the Assessing Officer
\nwhile framing the original assessment under section
\n143(3) of the Act, has, taken into consideration the
\ncertificate granted by the Commissioner of Income Tax
\nunder section 12AA of the Act, and has found that the
\npetitioner carries on charitable activities. In the return of
\nincome filed by it, the petitioner had specifically claimed
\ndeduction of Rs.32,40,212\/- and Rs.45,00,000\/- totalling
\nto Rs.77,40,212\/- as a Charitable Trust registered under
\nsection 12AA of the Act by the Commissioner of Income
\nTax. During the course of assessment proceedings the
\nAssessing Officer had issued notice pursuant to which the
\npetitioner had given its reply explaining as to why it was
\nentitled to the said deductions. The Assessing Officer
\nafter considering the explanation given by the petitioner
\nhad passed a scrutiny assessment order under section
\n143(3) of the Act specifically allowing the above
\ndeductions. From the reasons recorded, it is evident that
\nthe Assessing Officer has not recorded any independent
\nopinion regarding income having escaped assessment for
\nthe reasons stated therein. The sole ground for reopening
\nthe assessment appears to be the observations of the
\nRevenue Audit Party that the assessee is not eligible for
\nexemption to the tune of Rs.77,40,212\/- for the year
\nunder reference since, the Assessing Officer has not
\ndisallowed the exemption while finalizing the assessment
\nunder section 143(3) of the Act. Thus, it appears that the
\nbelief that income chargeable to tax escaped assessment
\nis that of the Revenue Audit Party and not of the
\nAssessing Officer. In the circumstances, the condition
\nprecedent for exercise of powers under section 147 of
\nthe Act, namely, that the Assessing Officer should have
\nreason to believe that income chargeable to tax has
\nescaped assessment, does not appear to be fulfilled in
\nPage 128 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\nthe present case.
\nBesides, in the light of the above referred decisions of
\nthis Court, it is not permissible for the Assessing Officer
\nto go behind the registration obtained by the assessee
\nunder section 12AA of the Act. The Assessing Officer
\nwhile framing original assessment having taking into
\nconsideration the registration under section 12AA of the
\nAct as well as having examined the admissibility of the
\nclaims made by the petitioner, has allowed the deduction
\nunder section 11 of the Act. Under the circumstances, the
\nreopening of assessment appears to be based on a mere
\nchange of opinion, that too, the opinion of the Revenue
\nAudit Party and not that of the Assessing Officer.\u201d
\n111. The ratio discernible from the aforesaid decision is that
\nonce the procedure is completed as provided under subsection
\n(1) of Section 12AA of the Act and a certificate is issued
\ngranting registration to the trust or institution, it is apparent
\nthat the same is a document evidencing satisfaction about (i)
\nthe genuineness of the activities of the trust or institution and
\n(ii) about the objects of the trust or institution. While framing
\nthe assessment order, it is not open to the Assessing Officer to
\nignore the certificate of registration granted under Section
\n12AA of the Act by the Director of Income Tax (Exemption). It
\nis not permissible for the Assessing Officer to go behind the
\nregistration obtained by the assessee under Section 12AA of
\nthe Act.
\n112. It is apposite to state that the definition of the term
\n\u201ccharitable purpose\u201d remains an inclusive one and is not an
\nexhaustive or exclusive one. In other words, the purposes
\nsimilar to those mentioned in the aforesaid definition could
\nalso constitute \u2018charitable purpose’ under the Act. The
\nexpression \u2018charitable purpose\u2019 is sufficiently wide in scope to
\ninclude a variety of activities. For instance, promotion of sports
\nPage 129 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\nand games is a charitable purpose, as is promotion of trade
\nand commerce, even when the beneficiaries are confined only
\nto a particular line of trade or commodity. However, at the
\nsame time, the fact that remote and indirect benefits are
\nderived by the members of the public will not be sufficient to
\nmake the purpose a \u201ccharitable purpose\u201d under the Act.
\n113. The word \u2018Charity\u2019 connotes altruism in thought and
\naction. It involves an idea of benefiting others rather than
\noneself.
\n114. For a trust to be accepted as a charitable trust for the
\npurposes of exemption, it is necessary that the objects should
\nbe specific so as to confirm to the requirement of the income
\ntax law in this regard. Where they are too wide, the trust may
\nnot qualify for exemption. However, a pragmatic view is
\nrequired to be taken while examining the data. The material on
\nrecord should be analysed objectively.
\n115. The onus to prove that the objects are of charitable
\nnature is on the assessee.
\n116. In our considered opinion, the principle of purposive
\ninterpretation of the provision has to be adopted and when
\nsuch a construction is placed, it serves the legislative intent.
\n117. In this context we may refer to the decision in State of
\nT.N. v. Kodaikanal Motor Union (P) Ltd., (1986) 62 STC 272
\n(SC): (1989) 3 SCC 91, wherein the Supreme Court, after
\nreferring to K.P. Varghese vs. Income Tax Officer and and Luke
\nv. Inland Revenue Commissioner, (1964) 54 ITR 692 (HL);
\n(1963) AC 557 (HL), observed thus:-
\n\u201cThe courts must always seek to find out the intention of
\nthe legislature. Though the courts must find out the
\nintention of the statute from the language used, but
\nPage 130 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\nlanguage more often than not is an imperfect instrument
\nof expression of human thought. As Lord Denning said it
\nwould be idle to expect every statutory provision to be
\ndrafted with divine prescience and perfect clarity. As
\nJudge Learned Hand said, we must not make a fortress
\nout of dictionary but remember that statutes must have
\nsome purpose or object, whose imaginative discovery is
\njudicial craftsmanship. We need not always cling to
\nliteralness and should seek to endeavour to avoid an
\nunjust or absurd result. We should not make a mockery
\nof legislation. To make sense out of an unhappily worded
\nprovision, where the purpose is apparent to the judicial
\neye \u2018some\u2019 violence to language is permissible.\u201d
\n118. In Keshavji Ravji and Co. v. CIT, (1990) 183 ITR 1 (SC);
\n(1990) 2 SCC 231, it has been held by the Supreme Court that
\nwhen in a taxation statute where literal interpretation leads to
\na result that does not sub-serve the object of the legislation
\nanother construction in consonance with the object can be
\nadopted.
\n119. We now propose to examine the matter, keeping in mind
\nthe fourth limb of Section 2(15) of the Act, i.e., \u201cthe
\nadvancement of any other object of general public utility\u201d.
\n120. The provision as it existed under the Act of 1922 was that
\nonce the purpose of the trust was relief of the poor, education,
\nmedical relief or advancement of any other object of general
\npublic utility, the trust was considered to be for a charitable
\npurpose. As a result of the addition of the words “not involving
\nthe carrying on of any activity for profit” at the end of the
\ndefinition in section 2(15) of the Act even if the purpose of the
\ntrust is “advancement of any other object of general public
\nutility”, it would not be considered to be “charitable purpose”
\nunless it is shown that the above purpose does not involve the
\nPage 131 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\ncarrying of any activity for profit. The result, thus, of the
\nchange in the definition is that in order to bring a case within
\nthe fourth category of charitable purpose, it would be
\nnecessary to show that :
\n(i) the purpose of the trust is advancement of any other object
\nof general public utility, and
\n(ii) the above purpose does not involve the carrying on of any
\nactivity for profit.
\n121. Both the above conditions must be satisfied before the
\npurpose of the trust can be held to be charitable purpose.
\n122. A brief analysis of all the provisions would show that (i)
\nproviding relief of the poor; (ii) establishing institution for
\neducation; (ii) providing medical relief; and (iv) to advance any
\nother object of general public utility are included within the
\ndefinition of \u2018charitable purposes\u2019. With effect from
\n01.04.2009, a new definition has been substituted, in that, if
\nthe advancement of object of general public utility involves
\ncarrying on any activity in the nature of trade, commerce or
\nbusiness or any activity of rendering any service in relation to
\nany trade, commerce or business for cess or fee or any other
\nconsideration, such activity shall not be a charitable purpose.
\nExcept the addition of the proviso, restricting the purport of
\nthe \u2018advancement of any other object of general public utility\u2019,
\nthere is not much difference in section 2(15) as it existed prior
\nto 01.04.2009, and thereafter. After the amendment the
\npreservation of environment including the watersheds, forest
\nand wild life, and preservation of monuments or places\/objects
\nof artistic or historic interest are also included in the definition
\n\u2018charitable purpose\u2019. Be that as it is, what is important is any
\nPage 132 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\ninstitution or organization or entity for the advancement of
\nobject of general public utility is also considered as an
\ninstitution or trust for charitable purpose. Section 11 exempts
\nvarious categories of incomes as enumerated under section
\n11(1)(a) to (d) from the total income of the previous year.
\nSection 12 exempts the voluntary contributions received by a
\ntrust created for charitable purposes from the total income.
\nThe benefit of Section 11 and\/or 12 can be claimed only when
\nthe conditions as stipulated under Section 12A are satisfied.
\nOne such condition is that a person in receipt of the income
\nhas to apply for the registration of the trust or institution in the
\nprescribed form on or before the expiry of a period of one year
\nfrom the date of creation of the trust or establishment of
\ninstitution. The proviso to Section 12A(1) confers the power on
\nthe Commissioner to entertain an application under Section
\n12A (1) even after the expiry of period of one year if he is
\nsatisfied that the person was prevented from making an
\napplication before the expiry of period of one year for sufficient
\nreasons.
\n123. Section 11(5) requires every trust or institution for a
\ncharitable purpose to invest or deposit the money only in the
\nmanner provided therein inter alia investment in Savings
\nCertificates as defined in Government Savings Certificates Act,
\n1959, deposit with the Post Office Savings Bank, deposit in any
\naccount with the scheduled bank i.e., Reserve Bank of India or
\nits subsidiary bank or any scheduled bank under Section 3 of
\nthe Banking Companies (Acquisition and Transfer of
\nUndertakings) Act, 1980 or any other bank being a bank
\nincluded in Second Schedule to Reserve Bank of India Act,
\nPage 133 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\n1934 and the like. The breach of Section 11(5) would
\nattract Section 13(1)(d) of the IT Act and the benefit under
\nSections 11 and 12 would not be available if funds are
\ndeposited or invested contrary to Section 11(5) or in breach of
\nSection 13(1) generally and Section 13(1)(d) specifically.
\n124. In CIT vs. Andhra Chamber of Commerce, (1965) 55
\nITR 722 (SC), the Supreme Court considered the question as to
\nwhether the income of Andhra Chamber of Commerce is
\nexempt under Section 4(3)(i) of the Income tax Act, 1922.
\nWhile observing that the legislature had used language of
\ngreat amplitude in defining \u2018charitable purpose\u2019 and referring
\nto the Trustees of Tribune, the Court held that the Chamber of
\nCommerce is a charitable institution although it was promoting
\nthe interest of trade and commerce, which were only ancillary
\nand subsidiary objects. While observing that the primary object
\nbeing, \u201cto promote and protect trade, commerce and
\nindustries, to aid, stimulate and promote the development of
\ntrade, commerce and industries, and to watch over and protect
\nthe general commercial interests of India\u201d, the Court held as
\nunder.
\n\u201cThe expression \u201cobject of general public utility\u201d in
\nSection 4(3) would prima facie include all objects which
\npromote the welfare of the general public. It cannot be
\nsaid that a purpose would cease to be charitable even if
\npublic welfare is intended to be served thereby if it
\nincludes the taking of steps to urge or oppose legislation
\naffecting trade, commerce or manufacture. If the primary
\npurpose be advancement of objects of general public
\nutility, it would remain charitable even if an incidental
\nentry into the political domain for achieving that purpose,
\ne.g., promotion of or opposition to legislation concerning
\nthat purpose, is contemplated. \u201c
\nPage 134 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\n125. In Addl. Commissioner of Income Tax vs. Surat Art
\nSilk, (1980) 121 ITR 1 (SC), a Constitution Bench of the
\nSupreme Court interpreting the words \u2018not involving the
\ncarrying on of any activity for profit\u2019 occurring in section 2(15)
\n(as it existed), held that the test of predominant object has to
\nbe applied while deciding whether an entity is a charitable
\ntrust\/institution and that profit making by such institution is
\nnot excluded. The relevant observations are as follows.
\n\u201cTherefore, for a purpose to fall under the fourth head of
\n\u201ccharitable purpose\u201d, it must constitute the advancement
\nof an object of general public utility in which the activity
\nof advancement must not involve a profit making
\nactivity. The word \u201cinvolving\u201d in the restrictive clause is
\nnot without significance. An activity is involved in the
\nadvancement of an object when it is enwrapped or
\nenveloped in the activity of advancement. In another
\ncase, it may be interwoven into the activity of
\nadvancement, so that the resulting activity has a dual
\nnature or is twin faceted. Since we are concerned with
\nthe definition of \u201ccharitable purpose\u201d, and the definition
\ndefines in its entirety a \u201cpurpose\u201d only, it will be more
\nappropriate to speak of the purpose of profit making
\nbeing enwrapped or enveloped in the purpose of the
\nadvancement of an object of general public utility or, in
\nthe other kind of case, the purpose of profit making being
\ninterwoven into the purpose of the advancement of that
\nobject giving rise to a purpose possessing a dual nature
\nor twin facets. Now, section 2(15) clearly says that to
\nconstitute a \u201ccharitable purpose\u201d the purpose of profit
\nmaking must be excluded. In my opinion, the
\nrequirement is satisfied where there is either a total
\nabsence of the purpose of profit making or it is so
\ninsignificant compared to the purpose of advancement of
\nthe object of general public utility that the dominating
\nrole of the latter rendersthe former unworthy of account.
\nIf the profit making purpose holds a dominating role or
\neven constitutes an equal component with the purpose of
\nadvancement of the object of general public utility, then
\nclearly the definition in section 2(15) is not satisfied.
\nWhen applying Section 11, it is open to the tax authority
\nin an appropriate case to pierce the veil of what is
\nPage 135 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\nproclaimed on the surface by the document constituting
\nthe trust or establishing the institution, and enter into an
\nascertainment of the true purpose of the trust or
\ninstitution. The true purpose must be genuinely and
\nessentially charitable. \u201c
\n126. In CIT vs. Andhra Pradesh State Road Transport
\nCorporation, (1986) 159 ITR 1 (SC), the question was whether
\nthe income of the APSRTC was exempt from income tax under
\nsection 4(3)(i). On a reference by the Income Tax Appellate
\nTribunal, the High Court answered the question in the
\naffirmative in favour of the assessee. Following Trustees of the
\nTribune, the Supreme Court affirmed the High Court\u2019s view
\nobserving as under.
\n\u201cIt is admitted position, as pointed out by the High Court
\nin its judgment under appeal, that no share capital has
\nbeen raised under Section 23(2) and the entire capital
\nhas been provided by the government under Section
\n23(1) and the Government is only paid interest thereon
\nunder Section 28(1) just as interest would be paid on any
\nmoney due as a debt. That the activity of the respondent
\nCorporation is not carried on with the object of making
\nprofit is made abundantly clear by the provisions of
\nsection 30 under which, prior to the amendment of that
\nsection by the Amendment Act of 1959, the balance
\nof income left, after utilization of the net profits for the
\npurpose set out in section 30, was to be made over to the
\nState Government for the purpose of road development
\nand after the Amendment Act of 1959 is to be utilized
\nfor financing the expansion programmes of the
\nrespondent corporation and the remainder, if any, is to
\nbe made over to the State Government for the purpose of
\nroad development. As pointed out by this Court in Andhra
\nPradesh Road Transport Corporation v ITO (1964) 52 ITR
\n524 (SC), the amount handed over to the State
\nGovernment does not become a part of the general
\nrevenues of the State but is impressed with an obligation
\nthat it should be utilized only for the purpose for which it
\nis entrusted, namely, road development. It is not, and
\ncannot be, disputed that road development is an object
\nof general public utility.\u201d
\nPage 136 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\n127. CIT vs. Agricultural Produce and Market
\nCommittee, (2007) 291 ITR 419 (Bom) is a case wherein the
\nBombay High Court considered the question whether the
\nmarket committees constituted under the Maharashtra
\nAgricultural Produce Marketing (Regulation) Act, 1963
\nare established for charitable purposes and whether they can
\nbe registered under section 12A\/12AA of the Act. After
\nreferring to the various provisions of the Maharashtra Act \u2013 the
\npreamble, the powers and duties of market committees, the
\npower to levy and collect fees and regulate the markets, the
\nCourt relied on Surat Art Silk (supra) and held as under. (paras
\n22 and 24)
\n\u201cApplying the tests laid down by the apex court in the
\naforesaid cases to the facts of the present case, there
\ncan be no doubt that the object of the market
\ncommittees (assessees) established under the 1963 Act
\nis to regulate the entire marketing of agricultural and
\nsome other produce from the stage of procuring till it
\nreaches the ultimate consumer, which is squarely
\ncovered within the meaning of the expression
\n“advancement of any object of general public utility”
\ncontained in section 2(15) of the Act.
\nIt is pertinent to note that prior to April 1,1984, the words
\nused in section 2(15) of the Act were “advancement of
\nany other object of general public utility not involving the
\ncarrying on of any activity for profit”. By the Finance Act,
\n1983 with effect from April 1, 1984, Legislature has
\nomitted the words “not involving the carrying on of any
\nactivity for profit” from section 2(15) of the Act. Thus,
\nafter April 1, 1984, even if there is some profit in the
\nactivity carried on by the trust\/institution, so long as the
\ndominant object is of general public utility, it cannot be
\nsaid that the said trust\/institution is not established for
\ncharitable purposes. \u201c
\n128. In CIT vs. Market Committee, (2007) 294 ITR 563
\nPage 137 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\n(P&H), the Punjab and Haryana High Court, after considering
\nthe provisions of the Punjab Agricultural Produce Markets Act,
\n1961 held that the market committee incorporated in terms of
\nSection 18 of the Punjab Act is a body corporate and that
\nits activities can be included within the definition of the term
\ncharitable purposes. It was also held that the exemptions
\nunder sections 10, 11 and 12 of the Act are independent of one
\nanother and merely because an assessee is not entitled to
\nclaim exemption under one of the aforesaid provisions that
\ncannot ipso facto lead to the conclusion that the claim of the
\nassessee cannot be considered for the grant of tax exemption
\nin some other provisions of the IT Act. The relevant
\nobservations are as follows.
\n\u201cIt is apparent from the duties and responsibilities of the
\nmarket committees, delineated in the foregoing two
\nparagraphs, that a market committee, in the background
\nof the provisions of the Markets Act, should be treated as
\na body, discharging “legal obligation”(s) within the
\nmeaning of Section 13(7) of the Income Tax Act. The
\nduties and responsibilities discharged by a market
\ncommittee, envisaged under the provisions of the
\nMarkets Act, referred to above, also lead us to conclude,
\nthat the activities of a market committee can be included
\nwithin the definition of the term “charitable purpose”,
\ndefined by Section 2(15) of the Income Tax Act. The
\ninstant conclusion is inevitable from a cumulative reading
\nand interpretation of Sections 13, 26 and 28 of the
\nMarkets Act (analysed in paragraphs 3, 4 and 5
\nhereinabove). Briefly stated, it may be noticed, that the
\nobligations discharged by a market committee include
\nthe regulation of purchase, sale, storage and processing
\nof agricultural produce with the intention of benefiting
\nthe producers, as well as, the consumers of agricultural
\nproducts. A market committee is also obliged to provide
\nfor conveniences for the activities of a market area like
\nconstruction of buildings, sheds, plinths, etc. A market
\ncommittee is also obliged to provide conveniences for
\npersons visiting a market area, like providing for shelter,
\nshade and parking facilities. A market committee is also
\nPage 138 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\nobliged to look after the safety, health and convenience
\nof persons visiting the market area. A market committee
\nis also obliged to construct and repair link roads,
\napproach roads, culverts, and bridges, etc. One of the
\nmany specified activities of a market committee is to
\nextend loans to financially weak communities as well as
\nin the repayment of such loans and the interest thereon.
\nThe market committee under reference, in the discharge
\nof its obligations, besides carrying out all the aforesaid
\nactivities, is stated to have spent a huge sum of money
\nfor the construction, development and repair of link
\nroads, culverts, bridges, etc \u201c
\n129. In CIT vs. Gujarat Maritime Board, (2007) 295 ITR 561
\n(SC), the question before the Supreme Court was whether
\nMaritime Board is entitled to the status of charitable institution
\nunder Section 11 of the Act. Maritime Board was constituted
\nunder the Gujarat Maritime Board Act for the purpose of
\ndevelopment of minor ports in Gujarat. Under the statute, the
\nBoard also renders stevedoring, transport and shipping
\nservices besides maintaining the jetties, wharfs, roads, lights
\netc. The management and control of the Board was with the
\nState Government. There was no profit motive and the income
\nearned by the Board has to be deployed for the development
\nof minor ports in Gujarat. It was registered as \u2018local authority\u2019
\nunder Section 3(31) of the General Clauses Act, 1897.
\nPrior to 2002, it was availing exemption as local authority
\nunder Section 10(20) of the IT Act and, therefore, was not
\nexigible to the income tax. After insertion of the explanation in
\nSection 10(20), the expression \u2018local authority\u2019 was confined to
\nPanchayats, Municipality, Municipal Committee, District Board
\nand Cantonment Board. Maritime Board did not come within
\nthe definition of local authority. They, therefore, made an
\napplication to the Commissioner for being registered as a
\nPage 139 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\ncharitable institution as defined under section 2(15). The
\nCommissioner rejected the application. The Tribunal as well as
\nthe High Court of Gujarat held that the Maritime Board is a
\ncharitable institution. The Supreme Court, while construing
\nSection 2(15) and Section 11(1), relied on the Andhra
\nChamber of Commerce (supra), Surat Art Silk (supra) and
\nAPSRTC (supra) and held that the Maritime Board is entitled to
\nbe registered as a \u2018charitable trust\u2019 under Section 12A of the
\nAct. The relevant observations are as follows. ;
\n\u201cFor the purposes of this section \u2018property held under
\ntrust\u2019 includes a business undertaking so held, and where
\na claim is made that the income of any such undertaking
\nshall not be included in the total income of the persons in
\nreceipt thereof, the assessing officer shall have power to
\ndetermine the income of such undertaking in accordance
\nwith the provisions of this Act relating to assessment;
\nand where any income so determined is in excess of the
\nincome as shown in the accounts of the undertaking,
\nsuch excess shall be deemed to be applied to purposes
\nother than charitable or religious purposes.
\nAccording to section 2(15), the expression \u201ccharitable
\npurpose\u201d has been defined by way of an inclusive
\ndefinition so as to include relief to the poor, education,
\nmedical relief and advancement of any other object of
\ngeneral public utility. In this case we are concerned with
\nthe interpretation of the expression \u201cadvancement of any
\nother object of general public utility.
\nUnder Section 11(1), income from property held for
\ncharitable purposes is not includible and does not form
\npart of total income.
\nSection 11(1) has three sub-sections, (a), (b) and (c). In
\nall the three sub-sections the words used are \u201cincome
\nderived from property held under trust wholly for
\ncharitable purposes\u201d. Under Section 11(4) the expression
\n\u201cproperty held under trust\u201d includes a business
\nundertaking so held. In other words, income from
\nbusiness undertaking held for charitable purposes can fall
\nunder Section 11 subject to such income fulfilling the
\nrequisite conditions of that section …
\nPage 140 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\n.. At the outset, we may point out that Section 10(20)
\nand Section 11 of the 1961 Act operate in totally
\ndifferent spheres. Even if the Board has ceased to be a
\n\u201clocal authority\u201d, it is not precluded from claiming
\nexemption under Section 11(1) of the 1961 Act.
\nTherefore we have to read Section 11(1) in the light of
\nthe definition of the words \u201ccharitable purposes\u201d as
\ndefined under Section 2(15) of the 1961 Act.
\nWe have perused number of decisions of this Court which
\nhave interpreted the words in section 2(15), namely,
\n\u201cany other object of general public utility\u201d. From the said
\ndecisions it emerges that the said expression is of the
\nwidest connotation. The word \u201cgeneral\u201d in the said
\nexpression means pertaining to a whole class. Therefore,
\nadvancement of any object of benefit to the public or a
\nsection of the public as distinguished from benefit to an
\nindividual or a group of individuals would be a charitable
\npurpose (CIT v. Ahmedabad Rana Caste Assn (1983) 140
\nITR 1 (SC)). The said expression would prima facie
\ninclude all objects which promote the welfare of the
\ngeneral public. It cannot be said that a purpose would
\ncease to be charitable even if public welfare is intended
\nto be served. If the primary purpose and the predominant
\nobject are to promote the welfare of the general public
\nthe purpose would be charitable purpose. When an object
\nis to promote or protect the interest of a particular trade
\nor industry that object becomes an object of public utility,
\nbut not so if it seeks to promote the interest of those who
\nconduct the said trade or industry (CIT v. Andhra
\nChamber of Commerce (1965) 55 ITR 722 (SC). If the
\nprimary or predominant object of an institution is
\ncharitable, any other object which might not be
\ncharitable but which is ancillary or incidental to the
\ndominant purpose, would not prevent the institution from
\nbeing a valid charity (CIT v. Surat Art Silk Cloth
\nManufacturers\u2019 Assn (1980) 121 ITR 1 (SC). \u201c
\n130. The apex Court in the case of Surat Art Silk Cloth
\nManufacturers Association (supra) has pointed out that the
\nrestriction must be read with “the advancement of any other
\nobject of general public utility” and not “object of general
\npublic utility”. The Supreme Court, considering the English
\nPage 141 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\ndecisions and the Indian law, has pointed out in the aforesaid
\ndecision that :
\n“……… There is no such limitation so far as Indian law is
\nconcerned even if a purpose is not within the spirit and
\nintendment of the preamble to the statute of Elizabeth, it
\nwould be charitable if it falls within the definition of
\n“charitable purpose” given in the statute Every object of
\ngeneral public utility would, therefore, be charitable
\nunder the Indian law, subject only to the condition
\nimposed by the carrying on of any activity for profit”
\nadded in the present Act. ……”
\n131. The apex Court in the case of CIT vs. Federation of Indian
\nChambers of Commerce & Industry (1981) 130 ITR 186 (SC),
\nafter applying the principle laid down in the case of Surat Art
\nSilk Cloth Manufacturers Association (supra), held as under :
\n“………. the income derived by the respondent from the
\nactivities, such as holding the Indian Trade Fair and
\nsponsoring the conference of the Afro-Asian Organisation,
\nwere for the advancement of the dominant object and
\npurpose of the Federation, viz. promotion, protection and
\ndevelopment of trade, commerce and industry in India,
\nand were exempt from tax under s. 11(1)(a) r\/w s.
\n2(15) ……”
\n132. The Apex Court in Ahmedabad Rana Caste Association vs.
\nCIT, (1971) 82 ITR 704 (SC) and CIT vs. Ahmedabad Rana
\nCaste Association (1983) 140 ITR 1 (SC) pointed out that the
\nlaw recognises no purpose as charitable unless it is for a public
\ncharity. That is to say, a purpose must, in order to be
\ncharitable, be directed to the benefit of the community or a
\nsection of the community. The expression “object of general
\npublic utility”, however, is not restricted to the objects
\nbeneficial to the whole mankind. An object beneficial to a
\nsection of the public is an object of general public utility. The
\nPage 142 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\nsection of the community sought to be benefited must
\nundoubtedly be sufficiently defined and identifiable ……..
\nquality of a public or impersonal nature.
\n133. The apex Court in the case of Kamla Town Trust (supra),
\nafter considering the facts of that case, viz., the trust deed and
\nthe rectification agreement, expressed an opinion as under :
\n“…………. On the contrary it becomes clear on a close
\nreading of relevant provisions of this clause that the
\nobjects are specific and charitable in nature. The
\nbeneficiaries are also clearly indicated. There is also no
\nambiguity about the trustees or the trust properties. Thus
\nall the basic requirements for creation of a public
\ncharitable trust do exist on the express language of the
\nrelevant clauses of rectified deed. …..”
\n134. We may also refer to and rely upon the decision of this
\nCourt in the case of Additional Commissioner of Income
\nTax, Gujarat vs. Ahmedabad, Millowners Association,
\nreported in 1977 (106) ITR 725, wherein this Court held as
\nunder;
\n\u201c22. We now proceed to consider whether an object
\nwhich serves personal interest would fall within the scope
\nof section 2(15) of the Act. There is no dispute that the
\ncharitable purposes of relief to poor and educational and
\nmedical relief have no relevance to the facts of the
\npresent case. It is, therefore, the fourth category of the
\ncharitable purpose, namely, the object of general public
\nutility, with which we are concerned in this case. The
\nexpression “object of general public utility ” appearing in
\nsection 2(15) would include only those objects which
\npromote the welfare of general public and not the
\npersonal and individual interests of some persons. It is
\nnot uncommon to find the objects of general public utility
\nbeing in conflict with the object of personal welfare of
\nsome specified individuals. It is true, as held by the
\nSupreme Court in the case of Andhra Chamber of
\nCommerce [1965] 55 ITR 722 (SC), that personal welfare
\nPage 143 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\nof specified individuals would be incidental or
\nconsequential to the main purpose of general public
\nutility, but a converse of this proposition is not always
\ntrue. Now, if we examine the objects contained in clauses
\n(a), (b) and (c) from this point of view, it will be at once
\nnoticed that these objects seek to protect the interest of
\n“millowners and users of motive power” and also of those
\nconcerned with them. Clause (b) contemplates the
\npromotion of good relations between the persons and
\nbodies using such powers and clause (c), which is
\nconsequential to clause (a) and (b), contemplates doing
\nof those acts and things by which the objects covered by
\nclause (a) and (b) may be attained. Thus, all these three
\nclause aim at protecting personal interest and not public
\ninterests. If this is so, the respondent-association is
\nbound to carry on its activity keeping in mind the
\nnarrower concept of promoting the personal and selfserving
\ninterests of individuals who are consider
\n“millowners and users of motive power” even when their
\ninterest are in conflict with the interests of their own
\ntrade or industry. If and when this happens, how can it be
\nsaid that the respondent-association has carried out an
\nobject of general public utility ? General public is
\nundoubtedly interested in trade, commerce or industry
\nconducted by individuals, but it is surely not interested in
\nprotecting the personal interests of these individuals if
\nthey are in conflict with the interests of trade, commerce
\nand industry. Therefore, when an object seeks to
\npromote or protect the interests of a particular trade or
\nindustry, that object becomes an object of public utility,
\nbut not so, if it seeks to promote the interests of those
\nwho conduct the said trade or industry.
\n23. This distinction between the protection of the
\ninterests of individuals and the protection of interests of
\nan activity, which is of general public utility, goes to the
\nroot of the whole problem, and, hence, the Supreme
\nCourt has pointedly referred to this problem in
\nCommissioner of Income-tax v. Andhra Chamber of
\nCommerce [1965] 55 ITR 722 (SC) at page 727 of the
\nreport by observing as under :
\n“It may be remembered that promotion and protection of
\ntrade, commerce and industry cannot be equated with
\npromotion and protection of activities and interests
\nmerely of persons engaged in trade, commerce and
\nPage 144 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\nindustry.”
\n24. In this case, the Supreme Court has pointed out that
\neven an object beneficial to a section of the public is an
\nobject of public utility and that to serve a charitable
\npurpose, it is not necessary that the object should be to
\nbenefit the whole mankind or person living in a particular
\ncountry or province. But, while making these
\nobservations, the Supreme Court has been careful in
\npointing out the distinction between ” a section of the
\npublic ” and specified individuals. Even so far as “a
\nsection of the public” is concerned, the Supreme Court
\nhas been particular in identifying it in the following terms
\n(page 729) :
\n“The section of the community sought to be benefited
\nmust undoubtedly be sufficiently defined and identifiable
\nby some common quality of a public or impersonal nature
\n: where there was no common quality uniting the
\npotential beneficiaries into a class, it might not be
\nregarded as valid.”
\n25. These observations are repeated by the Supreme
\nCourt in the subsequent decision in Ahmedabad Rana
\nCaste Association v. Commissioner of Income-tax [1971]
\n82 ITR 704 (SC).
\n26. These observations supply a complete answer to the
\ncontention of the learned Advocate-General that the
\ncategory of persons covered by the expression
\n“millowners and users of motive power” constitutes a
\nsection of the public, which can legitimately form the
\nobject of a charitable purpose. The observations make it
\nclear that the section of the public which is to be
\nbenefited to make the purpose a charitable one should
\nhave a common quality of either a “public” nature or an
\n“impersonal” nature. Can it be said that “millowners and
\nusers of motive power” have a common quality of a
\n“public nature” ? If they have any common quality the
\nsame is obviously of a “private” nature, as each one of
\nthem is concerned with his own interest and shares
\nnothing in common with the public. It was contended that
\ntheir common quality is the fact that each one of them is
\neither a millowner or a user of motive power. Granting
\nthat this is their common quality, it cannot be said that
\nthe said common quality possesses the attributes of a
\npublic or impersonal nature. If individuals, whose only
\ncommon quality is their profession or vocation, can
\nPage 145 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\nlegitimately be invested with the attributes of a public
\nnature, then every partnership, company or an
\nassociation of persons can be an object of charity, and
\nthe trusts created for the benefit of such partnerships,
\ncompanies and associations would be charitable trusts
\nearning exemption under section 11. Absurdity of such a
\nsituation cannot be over-emphasised.
\n27. What is the exact nature of “section of the public”
\nwhich can legitimately become an object of a charity, is
\nconsidered by Lord Greene M.R. in Powell v. Compton
\n[1945] 1 Ch 123, 129 (CA). In that case a bequest was
\nmade for the education of a small number of individual
\nrelatives of a testatrix. The question which arose was
\nwhether these individuals formed a “section of the
\npublic” so as to make the trust a charitable trust. Lord
\nGreene M. R. held that the trust was not a valid trust,
\nmaking the following observations :
\n“No definition of what is meant by a section of the public
\nhas, so far as I am aware, been laid down, and I certainly
\ndo not propose to be the first to make the attempt to
\ndefine it. In the case of many charitable gifts it is possible
\nto identify the individuals who are to benefit, or who at
\nany given moment constitute the class from which the
\nbeneficiaries are to be selected. This circumstance does
\nnot, however, deprive the gift of its public character.
\nThus, if there is a gift to relieve the poor inhabitants of a
\nparish the class to benefit is readily ascertainable. But
\nthey do not enjoy the benefit, when they receive it, by
\nvirtue of their character as individuals but by virtue of
\ntheir membership of the specified class. In such case the
\ncommon quality which unites the potential beneficiaries
\ninto a class is essentially an impersonal one. It is
\ndefinable by reference to what each has in common with
\nthe others, and that is something into which their status
\nas individuals does not enter.”
\n28. Our Supreme Court has approved of this principle in
\nAhmedabad Rana Caste Association’s case [1971] 82 ITR
\n704 (SC) and has held that members of Rana caste has a
\nrelationship which was an impersonal one dependent
\nupon their status a members of that caste. No such
\nrelationship of impersonal nature can be found amongst
\nthe millowners and users of motive power, and, hence,
\nnone of the objects mentioned in clause (a), (b) and (c)
\ncan be treated as objects of public utility.
\nPage 146 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\n29. We have already dealt with the object found in clause
\n(d). So far as the object contained in clause (e) is
\nconcerned it consists of two parts. This first part
\ncontemplates establishment or the creation of funds to
\nbenefit employees of the association or the dependents
\nof such persons while the second part contemplates
\nsubscriptions, donations or guarantees or “charitable or
\nbenevolent” purposes at the discretion of the association.
\nNow, so far as the first part is concerned, it is covered by
\nthe decision in Oppenheim v. Tobacco Securities Trust
\nCo. Ltd. [1951] AC 297 (HL), to which reference is made
\nby the Supreme Court in Ahmedabad Rana Caste
\nAssociation’s case [1971] 82 ITR 704 (SC) at page 710 of
\nthe report. The facts of that English decision were that
\nthe trustees were directed to apply certain income in
\nproviding for the education of children of employees or
\n“former employees” of a British limited company or any
\nof its subsidiary or allied companies. The House of Lords
\nheld in this case by majority that though the group of
\npersons indicated was numerous, the nexus between
\nthem was employment by particular employers and,
\naccordingly, the trust did not satisfy the test of a public
\nbenefit requisite to establish it as charitable. This
\nprinciple has been approved by our Supreme Court and,
\ntherefore, the first part of the object clause (e) is also not
\nfound to be for general public utility within the meaning
\nof section of section 2(15) of the Act. So far as the
\nsecond part is concerned, Shri Kaji’s contention was that
\na benevolent purpose is not necessarily a charitable
\npurpose but if this clause is constructed liberally, it may
\nbe said that it embodies within it the object of public
\nutility. Now, proceeding to clause (f) it contemplates
\npromotion of good relation between the employers and
\nthe employees. So far as this object is concerned, the
\nmatter is concluded by the decision of the Supreme Court
\nin the above referred case of Commissioner of Incometax
\nv. Indian Sugar Mills Association [1974] 97 ITR 486
\n(SC), wherein the relevant clause which the court
\nconsidered was “to promote good relations between the
\nemployers and the employees”. This clause was exactly
\nsimilar to clause (f) with which we are concerned in this
\nreference. With regard to such a clause, the Supreme
\nCourt has observed that even assuming that in some
\nremote and indirect manner such an object might be
\nsome public utility, it cannot be called a charitable
\npurpose within the meaning of section 4(3)(i) of the
\nPage 147 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\nIndian Income-tax Act, 1922. In view of this decision,
\neven the object mentioned in clause (f) cannot be
\nconsidered as the object serving any public utility.
\n30. If we closely scrutinise the objects contained in rule
\n3, we find that a substantial part of these objects benefit
\nthe association’s own members, those connected with
\nthem, and their employees. It is no doubt true that the
\nbeneficiaries of these objects are also who are nonmembers
\nbut who happen to be millowners or users of
\nmotive power. But that aspect of the matter does not
\ndetract from the fact all the members, and their
\nemployees, and “those who are connected” with
\nmembers, from the substantial part of the recipients of
\nthe benefits contemplated by the objects. In
\nCommissioner of Inland Revenue v. City of Glasgow
\nPolice Athletic Association [1953] 34 TC 76 (HL) Lord
\nCohen has summarised the legal position in such cases
\nas under at page 105 of the report :
\n“(1) If the main purpose of the body of persons is
\ncharitable and the only elements in its constitution and
\noperations which are non-charitable are merely incidental
\nto that main purpose, that body of persons is a charity
\nnotwithstanding the presence of those elements – Royal
\nCollege of Surgeons of England v. National Provincial
\nBank [1952] AC 631 (HL).
\n(2) If, however, a non-charitable object is itself one of the
\npurposes of the body of persons and is not merely
\nincidental to the charitable purposes, the body of persons
\nis not a body of persons formed for charitable purposes
\nonly, within the meaning of the Income Tax Acts – Oxford
\nGroup v. Inland Revenue Commissioner [1949] 2 All ER
\n537; 31 TC 221 (CA).
\n(3) If a substantial part of the objects of the body of
\nperson is to benefit its own members, the body of
\npersons is not established for charitable purposes only –
\nInland Revenue Commissioner v. Yorkshire Agricultural
\nSociety [1928] 1 KB 611 (CA).”
\n135. In our opinion, the case on hand falls within the first
\ncategory mentioned by Lord Cohent.\u201d
\nPage 148 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\n136. It is important to note that prior to the introduction of the
\nProviso to Section 2(15) of the Act, the assessee-Association
\nwas granted registration under Section 12A of the Act. From
\nthis, it is clear that prior to the introduction of the Proviso to
\nSection 2(15) of the Act, the authority, upon due consideration
\nof all the relevant aspects, arrived at the satisfaction that the
\nassessee-Association was established for charitable purposes..
\nThe Association continues to be recognised as a charitable
\ninstitution. The certificate issued under Section 12A, after due
\ninquiry, is still in force. If the Proviso had not been introduced
\nby virtue of the Finance Act, 2008 w.e.f 1st April, 2009, the
\nassessee Association would have been recognized as a charity
\nand would have been recognized as an institution established
\nfor the purpose of advancement of an object of general public
\nutility. The argument of the learned senior counsel on behalf of
\nthe Revenue is that in view of the introduction of the Proviso
\nto Section 2(15), the assessee-Association is not entitled to
\nseek exemption. The said proviso has two parts. The first part
\nhas reference to the carrying on of any activity in the nature of
\ntrade, commerce or business. The second part has reference to
\nany activity of rendering any service \u2015in relation to any trade,
\ncommerce or business. Both these parts are further subject to
\nthe condition that the activities so carried out are for a cess or
\nfee or any other consideration, irrespective of the nature or
\nuse or application or retention of the income from such
\nactivities. In other words, if, by virtue of a cess’ or fee’ or any
\nother consideration, income is generated by any of the two
\nsets of activities referred to above, the nature of use of such
\nincome or application or retention of such income is irrelevant
\nfor the purposes of construing the activities as charitable or
\nnot.
\nPage 149 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\n137. To be clear, if an activity in the nature of trade,
\ncommerce or business is carried on and it generates income,
\nthe fact that such income is applied for charitable purposes,
\nwould not make any difference and the activity would
\nnonetheless not be regarded as being carried on for a
\ncharitable purpose. We have seen that by virtue of Section 25
\nof the Companies Act, the petitioner is enjoined to plough back
\nits income in furtherance of its object and the declaration of
\ndividends is prohibited. If a literal interpretation is to be given
\nto the proviso, then it may be concluded that this fact would
\nhave no bearing on determining the nature of the activity
\ncarried on by the petitioner. But, we feel that in deciding
\nwhether any activity is in the nature of trade, commerce or
\nbusiness, it has to be examined whether there is an element of
\nprofit making or not. Similarly, while considering whether any
\nactivity is one of rendering any service in relation to any trade,
\ncommerce or business, the element of profit making is also
\nvery important.
\n138. The Delhi High Court in the case of Addl.
\nCommissioner of Income Tax, Delhi vs. Delhi Brick Kiln
\nOwners Association, reported in 1981 (130) ITR 55. In the
\nsaid case, M\/s. Delhi Brick Kiln Owners Association was the
\nrespondent assessee. The association had obtained a license
\nfrom the Central Government for its registration under Section
\n26 of the Indian Companies Act, 1913. The following were the
\nobjects of the company;
\n\u201c(a) To promote, develop and protect the brick kiln trade,
\ncommerce and industries.
\n(b) To watch and protect the interest of brick kiln owners,
\nPage 150 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\ncontractors, customers and brick dealers, members of
\nthe association and the interest of persons engaged in
\nbrick trade, commerce or industries legally, morally and
\nsocially.
\n(c) To consider all questions connected with brick trade,
\ncommerce and industries and to initiate or support
\nnecessary action in connection therewith.
\n(d) To protect the trade, with the co-operation of the
\nGovernment through legislative representation to get the
\ngrievances and difficulties of Brick Kiln Association
\nredressed.\u201d
\n139. The High Court took notice of the fact that the other
\nobjects appeared to be incidental to the paramount objects
\nand were in the nature of powers to carry out the primary
\npurpose. The association derived its income from the
\nadmission fee, membership subscription and rent realized by it
\nfrom the building belonging to it. The association asserted that
\nits income was entitled to exemption from tax under Section
\n11(1)(a) of the I.T. Act, 1961 as it was formed for a charitable
\npurpose, it objects being the advancement of general public
\nutility. The ITO, however, disallowed the claim. The ITO took
\nthe view that as the assessment was confined to brick kiln
\nowners, it could not be said to have been formed for the
\nbenefit of the general public and, therefore, was not entitled to
\nexemption. On appeal, the AAC, relying on the main objects of
\nthe association, as laid down in the Memorandum of
\nAssociation, held that the association was entitled to
\nexemption. The AAC, relied on the decision of the Supreme
\nCourt in CIT vs. Andhra Chamber of Commerce (supra) and the
\ndecision of the Kerala High Court in CIT vs. Indian Chamber
\nof Commerce, 1971 80 ITR 645. The AAC came to the
\nconclusion that the association fulfilled the conditions as
\nrequired under Section 11(1)(a) of the Act. The department
\nPage 151 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\nwent up in appeal to the Income Tax Appellate Tribunal. It
\ncontended, on the basis of the decision of the Mysore High
\nCourt in CIT vs. Sole Trustee Loka Shikshana Trust, 1970
\n77 ITR 61 and the decision of the Calcutta High Court in CIT
\nvs. Indian Chamber of Commerce, 1971 81 ITR 147 that
\nthe conclusions of the AAC were erroneous. On the other
\nhand, the respondent association relied on the decision of the
\nKeral High Court in CIT vs. Cochin Chamber of Commerce
\n& Industry, 1973 87 ITR 83. It also contended that the
\ndecision of the Supreme Court in Andhra Chamber of
\nCommerce, 1965 55 ITR 722, despite the fact that it pertained
\nto the provisions of the Indian I.T. Act, 1922, was still good law
\nas there was no change in the substantive provisions relating
\nto the exemption of income from a trust in the I.T. Act, 1961.
\nThe Tribunal dismissed the appeal of the department. The
\ndepartment, being dissatisfied, preferred an appeal before the
\nHigh Court. The High Court took notice of the fact that the
\nTribunal did not consider the matter relating to the dominant
\nintention but construed the words \u201cnot involving the carrying
\non of any activity for profit\u201d which had been added by the
\n1961, Act to the definition of the term \u201ccharitable purpose\u201d.
\nThe High Court also took notice of the fact that the Tribunal
\nheld that an activity for profit would imply that there should be
\na profit motive in the activities of the assessed. In other words,
\nthe activities should be commercial in nature. Further, the
\nmotive to make profit should be in the integrated activity of
\nthe buying and disposal. The High Court of Delhi, while
\ndismissing the appeal of the department, held as under;
\n\u201c12. The question referred for our opinion is dependent
\non the construction and interpretation of “charitable
\npurpose” as defined in s. 2(15) of the I. T. Act, 1961.
\nPage 152 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\nSection 2(15) reads :
\n“‘Charitable purpose’ includes relief of the poor,
\neducation, medical relief, and the advancement of any
\nother object of general public utility not involving the
\ncarrying on of any activity for profit.”
\n13. It is well settled that the words “not involving the
\ncarrying on of any activity for profit” pertain only to the
\nfourth limb of charitable purpose, i.e., the advancement
\nof any other object of general public utility.
\n14. However, there has been a conflict of opinion with
\nregard to the meaning of these words. This conflict
\nappears to have been set at rest in view of a recent
\ndecision of the Supreme Court in Addl. CIT v. Surat Art
\nSilk Cloth Manufacturing Association [1980] 121 ITR 1.
\nThe assessed therein was a company incorporated under
\nthe Indian Companies Act, 1913, and registered under s.
\n25 of the Companies Act, 1956; its objects were, inter
\nalia, to promote commerce and trade, in art silk, raw silk,
\ncotton yarn, art silk cloth, silk cloth and cotton and to
\ncarry on all and any business of art silk, etc., belonging to
\nand on behalf of its members. The court held, inter alia,
\nthat where the main or primary objects are distributive,
\neach and every one of the objects must be charitable in
\norder that the trust or institution be upheld as a valid
\ncharity. But if the primary or dominant purpose of a trust
\nor institution is charitable, another object, which by itself
\nmay not be charitable, but is merely ancillary or
\nincidental to the primary or dominant purpose, would not
\nprevent the trust or institution from being or valid charity.
\n15. The fact that the members of the assessed benefited
\nwas merely incidental to the carrying out of the main or
\nprimary purpose and if the primary purpose was
\ncharitable, the subsidiary objects would not militate
\nagainst its charitable character not would it make the
\npurpose any the less charitable.
\n16. The Supreme Court referring to its earlier decision in
\nCIT v. Andhra Chamber of Commerce [1965] 55 ITR 722,
\nobserved that the court had held that the dominant or
\nprimary object of the Andhra Chamber of Commerce,
\nwhich was to promote and protect trade, commerce and
\nindustry and to aid, stimulate and promote the
\ndevelopment of trade, commerce and industry and to
\nwatch over and protect the general commercial interests
\nof India or any part thereof was clearly an object of
\nPage 153 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\ngeneral public utility. This was despite the fact that one
\nof the objects included in the memorandum was the
\ntaking of steps to urge or oppose legislation affecting
\ntrade, commerce or manufacture, which by itself, might
\nbe considered non-charitable. However, as it was merely
\nincidental to the dominant or primary object, it did not
\nprevent the Andhra Chamber of Commerce from being a
\nvalid charity. Therefore, if the primary purpose was the
\nadvancement of an object of general public utility, it
\nwould remain charitable, even if an incidental entry into
\nthe political domain for achieving that purpose, such as
\npromotion of or opposition to legislation concerning that
\npurpose, was contemplated. Applying that very test, the
\nSupreme Court held that the Surat Art Silk Cloth
\nManufacturers Association was also a valid charity.
\n17. The true meaning of the ten words “not involving the
\ncarrying on of any activity for profit” was held to be, that
\nwhen the purpose of a trust or institution is the
\nadvancement of an object of general public utility, it is
\nthat object of general public utility, and not its
\naccomplishment or carrying out, which must not involve
\nthe carrying on of any activity for profit. So long as the
\npurpose does not involve the carrying on of any activity
\nfor profit, the requirement of the definition would be met
\nand it is immaterial how the monies for achieving or
\nimplementing such purpose are found, whether by
\ncarrying on an activity for profit or not. The decision of
\nthe Supreme Court in Indian Chamber of Commerce v.
\nCIT [1975] 101 ITR 796 was overruled. It was observed
\nthat the decisions of the Kerala High Court in CIT v.
\nCochin Chamber of Commerce and Industry [1973] 87 ITR
\n83 and the Andhra Pradesh High Court in Andhra Pradesh
\nState Road Transport Corporation v. CIT [1975] 100 ITR
\n392 laid down the correct interpretation.
\n18. Applying these principles, it is clear that the dominant
\nintention of the assessed was to promote the brick kiln
\ntrade. This purpose did not involve the carrying on of any
\nactivity for profit, though its advancement might have. It
\nis thus a valid charity. For the relevant years, however, it
\nappears that even the advancement of the purpose did
\nnot involve the carrying on of any activity for profit. The
\nassessed is clearly entitled to the exemption under s.
\n11(1)(a) of the Act. \u201c
\nPage 154 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\n140. The Delhi High Court, in the case of India Trade
\nPromotion Organization vs. Director General of Income
\nTax (Exemptions) & Ors., Writ Petition (C) No.1872 of 2013,,
\ndecided on 22nd January, 2015, in context with Section
\n10(23C)(iv) of the Act vis-a-vis Section 2(15) of the Act, had
\nobserved as under;
\n\u201cAt this juncture, we may point out that we are in
\nagreement with the argument advanced by Mr Syali that
\nthe proviso to Section 2(15) does not make any
\ndistinction between entities carrying on regular trade,
\ncommerce or business or providing services in relation to
\nany trade, commerce or business on the one hand and
\ngenuine charitable organizations on the other. It must be
\nremembered that we are construing the expression
\n“charitable purpose” not in a vacuum, but in the specific
\ncontext of Section 10(23C)(iv) of the said Act. As pointed
\nout above, Section 10 deals with the incomes not
\nincluded in total income. And, Section 10(23C)(iv)
\nspecifically deals with the income received by any person
\non behalf of, inter alia, an institution established for
\ncharitable purposes. We have to, therefore, examine the
\nmeaning of the expression “charitable purposes” in the
\ncontext of Section 10(23C)(iv). Looking at the said
\nexpression from this stand point, it becomes clear that it
\nhas a reference to income. Because, it is only when such
\nan institution has an income that the question of not
\nincluding that income in its total income would arise.
\nTherefore, merely because an institution, which
\notherwise is established for a charitable purpose,
\nreceives income would not make it any less a charitable
\ninstitution. Whether that institution, which is established
\nfor charitable purposes, will get the exemption under
\nSection 10(23C)(iv) would have to be determined by the
\nprescribed authority having regard to the objects of the
\ninstitution and its importance throughout India or
\nthroughout any State or States. There is no denying that
\nhaving regard to the objects of the petitioner and its
\nimportance throughout India in the field of advancement
\nof promotion of trade and commerce, the petitioner
\nwould be entitled to be regarded as an institution which
\nwould qualify for that exemption. The only thing that we
\nhave to examine is – whether the petitioner had been
\nPage 155 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\nestablished for charitable purposes? The fact that it
\nderives income does not, in any way, detract from the
\nposition that it is an institution established for charitable
\npurposes. Therefore, in our view, merely because the
\npetitioner derives rental income, income out of sale of
\ntickets and sale of publications or income out of leasing
\nout food and beverages outlets in the exhibition grounds,
\ndoes not, in any way, affect the nature of the petitioner
\nas a charitable institution if it otherwise qualifies for such
\na character.
\nWe have already noted that prior to the amendment
\nbeing introduced with effect from 01.04.2009, the
\npetitioner had been recognized as an institution
\nestablished for charitable purpose and this had been
\ndone having regard to the objects of the institution and
\nits importance throughout India. It is only because of this
\nthat the petitioner had been granted the exemption by
\nthe respondent for the period prior to assessment year
\n2009-10. Therefore, insofar as the receiving of income is
\nconcerned, that cannot be taken as an instance to deny
\nthe petitioner its status as an institution established for
\ncharitable purposes. Because, if that were to be so, then
\nthere would be no necessity to take recourse to Section
\n10(23C)(iv) for the benefit of an exemption. To put it
\nplainly, if an institution established for charitable
\npurposes did not receive an income at all, then what
\nwould be the need for taking any benefit under Section
\n10(23C)(iv) of the said Act. Therefore, if a meaning is
\ngiven to the expression charitable \u2015 purpose so as to
\nsuggest that in case an institution, having an objective of
\nadvancement of general public utility, derives an income,
\nit would be falling within the exception carved out in the
\nfirst proviso to Section 2(15) of the said Act, then there
\nwould be no institution whatsoever which would qualify
\nfor the exemption under Section 10(23C)(iv) of the said
\nAct. And, the said provision would be rendered
\nredundant. This is so, because, if the institution had no
\nincome, recourse to Section 10(23C)(iv) would not be
\nnecessary. And, if such an institution had an income, it
\nwould not, on the interpretation sought to be given by
\nthe revenue, be qualified for being considered as an
\ninstitution established for charitable purposes. So, either
\nway, the provisions of Section 10(23C)(iv) would not be
\navailable, either because it is not necessary or because it
\nPage 156 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\nis blocked. The intention behind introducing the proviso
\nto Section 2(15) of the said Act could certainly not have
\nbeen to render the provisions of Section 10(23C)(iv)
\nredundant.
\nWith this in mind, it is to be seen as to what is meant by
\nthe expressions “trade”, “commerce” or “business”. The
\nword “trade” was considered by the Supreme Court in its
\ndecision in the case of Khoday Distilleries Ltd and Others
\nv. State of Karnataka and Others: 1995 (1) SCC 574,
\nwhereby the Supreme Court held that “the primary
\nmeaning of the word ‘trade’ is the exchange of goods for
\ngoods or goods for money”. Furthermore, in State of
\nAndhra Pradesh v. H. Abdul Bakhi and Bros: 1964 (5) STC
\n644 (SC), the Supreme Court held that \u2015the word
\n“business” was of indefinite import and in a taxing
\nstatute, it is used in the sense of an occupation, or
\nprofession which occupies time, attention or labour of a
\nperson, and is clearly associated with the object of
\nmaking profit”. This court, in ICAI (I) (supra) held that,
\nwhile construing the term “business” as appearing in the
\nproviso to Section 2(15), the object and purpose of the
\nSection has to be kept in mind. It was observed therein
\nthat a very broad and extended definition of the term
\n“business” was not intended for the purpose of
\ninterpreting and applying the first proviso to Section
\n2(15) of the Act so as to include any transaction for a
\ncess, fee or consideration. The Court specifically held
\nthat:-
\n\u2015An activity would be considered ‘business’ if it is
\nundertaken with a profit motive, but in some cases, this
\nmay not be determinative. Normally, the profit motive
\ntest should be satisfied, but in a given case activity may
\nbe regarded as a business even when profit motive
\ncannot be established \/ proved. In such cases, there
\nshould be evidence and material to show that the activity
\nhas continued on sound and recognized business
\nprinciples and pursued with reasonable continuity. There
\nshould be facts and other circumstances which justify and
\nshow that the activity undertaken is in fact in the nature
\nof business.\u201d
\n141. From the aforesaid decisions, it is apparent that merely
\nbecause the Association puts up tickets of the international
\nPage 157 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\ncricket matches for sale and earns some profit out of the same,
\nit would not lose its character of having been established for a
\ncharitable purpose. It is also important to note that we must
\nexamine as to what is the dominant activity of the institution in
\nquestion. If the dominant activity of the institution was not
\nbusiness or trade or commerce, then any such incidental or
\nancillary activity would also not fall within the categories of the
\ntrade, commerce or business. It is clear from the facts of the
\npresent case that the driving force is not the desire to earn
\nprofit but the object is to promote the game of cricket and
\nnurture the best of the talent.
\n142. The Latin word utilis means \u2018useful, beneficial, equitable,
\navailable\u2019. Chambers Dictionary of English defines \u2018utility\u2019 as
\nuseful: power to satisfy the wants of people in general: a useful
\nthing, public utility: public service or a Association providing
\nsuch public service. According to \u2018New Oxford Dictionary of
\nEnglish\u2019 (1998), as a Noun, utility is the status of being useful,
\nprofitable or beneficial.
\n143. The Corpus Juris Secundum Volume 73 page 990
\nelucidates the following legal position.
\n\u201cA public utility\u201d has been described as a business
\norganization which regularly supplies the public with
\nsome commodity or service, such as electricity, gas,
\nwater, transportation or telephone or telegraph service.
\nWhile the term has not been exactly defined, and, as has
\nbeen said, it would be difficult to construct a definition
\nthat would fit every conceivable case, the distinguishing
\ncharacteristic of a public utility is the devotion of private
\nproperty by the owner or person in control thereof to
\nsuch a use that the public generally, or that part of the
\npublic which has been served and has accepted the
\nservice, has the right to demand that the use or service, s
\nPage 158 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\nlong as it is continued shall be conducted with reasonable
\nefficiency and under proper charges. The term is
\nsometimes used in an extended sense to include a great
\nmany matters of general welfare to the State and its
\ncommunities. \u201c
\n144. The words \u2018public utility\u2019 or \u2018general public utility\u2019 are not
\ncapable of a precise meaning. The question whether service is
\npublic utility or not has to be discharged in the context of
\ndifferent situations but it is, as considered infra, well settled
\nthat public utility means public purpose depending upon the
\ncontext in which it is used in the statute or the Rules. Indeed,
\nin some decisions, public utility is considered very similar to
\none for public purpose (Hunter v A.G. 1909 AC 323, Babu
\nBankya Thakur v State of Bombay AIR 1960 SC 1203 and
\nJhandu Lal v State of Punjab AIR 1961 SC 343).
\n145. In cases arising under the Income Tax Act, 1922 as well
\nas 1961 Act, it is held that the expression \u2018object of general
\npublic utility\u2019 must be construed by applying the standard of
\ncustomary law and common knowledge amongst the
\ncommunity to which the parties interested belong. This test,
\napplied in the Trustees of the Tribune, seems to have
\ninfluenced judicial thinking in the subsequent decisions as well.
\nThe object of general public utility would include all objects
\nwhich promote the welfare of the general public even it
\nincludes taking up steps effecting trade, commerce or
\nmanufacture if the primary purpose is for advancement of
\nobjects of general public utility [Andhra Chamber of
\nCommerce(supra)], even if in an insignificant manner the
\nperson makes some profit in carrying out the objects [Surat Art
\nSilk (supra)]. In other words, any activity for the benefit of the
\nPage 159 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\npublic or a section of the public, as distinguished from the
\nbenefit to an individual or a group of individuals, would be
\ncharitable purpose as the object is for advancement of general
\npublic utility. The expression includes all objects to promote
\nthe welfare of the public, and when an object is to promote or
\nprotect the interest of particular trade or industry that object
\nbecomes an object of public utility and would be charitable
\npurpose (Gujarat Maritime Board (2007) 295 ITR 561 (SC) [see
\nCommissioner of Income Tax vs. Agricultural Market
\nCommittee, (2011) 336 ITR 641 (AP)]
\n146. In our opinion, this could be termed as a charitable
\npurpose which has as its motive advancement of an object of
\ngeneral public utility to which the exception carved out in the
\nfirst proviso to Section 2(15) of the Act would not apply.
\n147. We may refer to and rely upon the decision of this Court
\nin the case of Director of Income Tax (Exemption) vs.
\nSabarmati Ashram Gaushala Trust, reported in (2014) 44
\ntaxmann.com 141 (Gujarat), wherein this Court was called
\nupon to consider whether the activities of the respondent
\nassessee-Sabarmati Ashram Gaushala Trust could be termed
\nas charitable having regard to the object with which the trust
\nwas constituted. We may quote the relevant observations;
\n\u201cWhat thus emerges from the statutory provisions, as
\nexplained in the speech of Finance Minister and the CBDT
\nCircular, is that the activity of a trust would be
\nexcluded from the term \u2018charitable purpose\u2019 if it
\nis engaged in any activity in the nature of trade,
\ncommerce or business or renders any service in relation
\nto trade, commerce or business for a cess, fee and\/or
\nany other consideration. It is not aimed at
\nexcluding the genuine charitable trusts of general
\nPage 160 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\npublic utility but is aimed at excluding activities in
\nthe nature of trade, commerce or business which are
\nmasked as \u2018charitable purpose\u2019.
\nMany activities of genuine charitable purposes which are
\nnot in the nature of trade, commerce or business
\nmay still generate marketable products. After setting
\noff of the cost, for production of such marketable
\nproducts from the sale consideration, the activity may
\nleave a surplus. The law does not expect the Trust
\nto dispose of its produce at any consideration
\nless than the market value. If there is any
\nsurplus generated at the end of the year, that
\nby itself would not be the sole consideration for
\njudging whether any activity is trade, commerce
\nor business particularly if generating \u2018surplus\u2019 is wholly
\nincidental to the principal activities of the trust;
\nwhich is otherwise for general public utility, and
\ntherefore, of charitable nature.
\nWe are wholly in agreement with the view of
\nthe Tribunal. The objects of the Trust clearly establish
\nthat the same was for general public utility and where for
\ncharitable purposes. The main objectives of the trust are
\nto breed the cattle and endeavour to improve the quality
\nof the cows and oxen in view of the need of
\ngood oxen as India is prominent agricultural
\ncountry; to produce and sale the cow milk; to
\nhold and cultivate agricultural lands; to keep grazing
\nlands for cattle keeping and breeding; to rehabilitate
\nand assist Rabaris and Bharwads; to make
\nnecessary arrangements for getting informatics and
\nscientific knowledge and to do scientific research with
\nregard to keeping and breeding of the cattle,
\nagriculture, use of milk and its various
\npreparations, etc.; to establish other allied institutions
\nlike leather work and to recognize and help them in
\norder to make the cow keeping economically
\nviable; to publish study materials, books,
\nperiodicals, monthlies etc., in order to publicize the
\nobjects of the trust as also to open schools and hostels
\nfor imparting eduction in cow keeping and agriculture
\nhaving regard to the trust objects.
\nAll these were the objects of the general public utility and
\nwould squarely fall under section 2 (15) of the Act. Profit
\nPage 161 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\nmaking was neither the aim nor object of the Trust.
\nIt was not the principal activity. Merely because
\nwhile carrying out the activities for the purpose of
\nachieving the objects of the Trust, certain incidental
\nsurpluses were generated, would not render the activity
\nin the nature of trade, commerce or business. As clarified
\nby the CBDT in its Circular No. 11\/2008 dated 19 th
\nDecember 2008 the proviso aims to attract those
\nactivities which are truly in the nature of trade,
\ncommerce or business but are carried out under the
\nguise of activities in the nature of \u2018public utility\u2019. \u201d
\n148. Carrying on an ‘activity in the nature of trade, commerce,
\nor business’ or rendering of any service in relation to trade etc.
\nis sine qua non for taking away the character of charitable
\npurpose. An activity in the nature of trade, commerce or
\nbusiness is always carried on with the prior object of earning
\nincome. What is relevant is the intention of the person before
\nundertaking such activity. A line of distinction needs to be
\ndrawn between the activities undertaken by a society,
\notherwise satisfying the prescription .of section 2(15) ‘prior to
\nthe insertion of proviso, which are aimed at earning income
\ndivorced from the objects for which it is charitable por una
\nparte and the activities which are aimed at the attainment of
\nthe objects for which It was set up por otra parte. Whereas the
\nformer fall within the mandate of the proviso to section 2(15),
\nthe latter do not. The obvious reason is that the latter activities
\nare in furtherance of the charitable objects of such society and
\nincome, if any, resulting from such activities and does not
\nconvert the otherwise charitable activity [within the definition
\nof section 2(15)] into carrying on of a business, trade or
\ncommerce. It can be understood with the help of a simple
\nillustration. Supposing an association set up for the promotion
\nof a particular trade, has its own premises\u2018 from which it
\ncarries out the activities for the promotion of such trade. If the
\nPage 162 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\nassociation lets out its premises from time to time for
\nenhancing its income, which letting out has no relation with
\nthe objects for which it was set up as a charitable institution,
\nnamely, the promotion of that particular trade, the resultant
\nactivity will amount to carrying on trade, commerce or
\nbusiness so as to fall within proviso to section 2(15). 0n the
\nother hand, if it uses its premises for undertaking activities for
\nwhich it was set up and is a charitable institution, and while
\ndoing so, there results some income, such income will not
\namount to carrying on any trade, commerce or business. The
\ncrux of the matter is to understand the object of carrying on
\nthe activity which resulted into income. If the object is to
\nsimply earn income de hors the promotion of objects for which
\nit was set up, it will fall within the ambit of proviso to section
\n2(15) and if the object of the activity is to promote the objects
\nfor which it was set up, then it will not be caught within the
\nsweep of the proviso notwithstanding the fact that there
\nresults some income from carrying out such activity. The core
\nof the matter is to see whether the activity which resulted into
\nsome income or loss was carried on with the object of doing
\nsome trade, commerce or business, etc., or it was in
\nfurtherance of the objects (non-business) etc., for which the
\nassessee was set up. In other words, the predominant object of
\nthe activities should be seen as to whether it is aimed at
\ncarrying on some business, trade or commerce or the
\nfurtherance of the object for which it was set up. If it falls in
\nthe first category, then, the case would be covered within the
\nproviso to section 2(15) and, in the otherwise scenario, the
\nassessee will be construed to have carried on its activities of
\ngeneral public utility. (see Society of Indian Automobile
\nManufactures vs. ITO, Delhi)
\nPage 163 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\n149. The Delhi High Court in the Institute of Chartered
\nAccounts of India v. Director General of Income-tax
\n(Exemptions), 2013 358 lTR 91\/217 Taxman 152\/35
\ntaxmann.com 140 (Delhi) , observed, while disposing of a writ
\npetition, that holding interviews for fees for the purpose of
\ncampus placements of its students does not amount to
\ncarrying on a business so as to deny exemption u\/s 11 of the
\nAct. It further observed that if the object or purpose of an
\ninstitution is charitable, the fact that the institution collects
\ncertain charges does not alter the character of the institution.
\nThe Delhi High Court further observed in para 67 that \u201cthe
\npurport of the first proviso to section 2(15) of the Act is not to
\nexclude the entities which are essentially for charitable
\npurpose, but are conducting some activities for a consideration
\nor a fee. The object of introducing the first proviso is to
\nexclude the organizations which are carrying on regular
\nbusiness from the scope of “charitable purpose'”. The High
\nCourt also noticed the purpose of introducing the proviso to
\nsection 2(15) of the Act from the Budget Speech of the Finance
\nMinister while introducing the Finance Bill 2008 and
\nreproduced the relevant extract to the Speech as under:’
\n“\u2026…..Charitable purpose” includes relief of the poor,
\neducation, medical relief and any other object of general
\npublic utility. These activities are tax exempt, as they
\nshould be. However, some entities carrying on regular
\ntrade, commerce or business or providing services in
\nrelation to any trade, commerce or business and earning
\nincomes have sought to claim that their purposes would
\nalso fall under “charitable purpose”. Obviously, this was
\nnot the intention of Parliament and, hence, I propose to
\namend the law to exclude the aforesaid cases. Genuine
\ncharitable organizations will not in any way be affected.\u201d
\nThe expressions “business”, “trade\u201c or \u201ccommerce” as
\nPage 164 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\nused in the first proviso must, thus, be interpreted
\nrestrictively and where the dominant object of an
\norganization is charitable any incidental activity for
\nfurtherance of the object would not fall within the
\nexpressions ” business”. “trade” or “commerce”.
\nQuestion with regard to Section 11(1)(d) of the Act:
\n150. So far as the question with regard to Section 11(1)(d) of
\nthe Act is concerned, we may only say that a charitable
\ninstitution is entitled to exemption under Section 11 of the
\nIncome Tax Act. Such exemption is subject to the conditions
\nprescribed therein. A reading of Section 11 shows that subject
\nto the provisions of Sections 62 and 63 of the Act, the income
\nenumerated therein shall not be included in the total income of
\nthe previous year of the person in receipt of the income. One
\nof the source of income that is enumerated in clause (d) of
\nsub-section (1) of Section 11 is the income in the form of
\nvoluntary contributions made with a specific direction that they
\nshall form part of the corpus of the trust or institution. The fact
\nthat the donors had instructed that the interest earned shall be
\nadded to the corpus of the trust is not in dispute. If that be so,
\nthe interest earned on the contributions already made by the
\ndonors would also partake the character of income in the form
\nof voluntary contributions made with a specific direction that
\nthey shall form part of the corpus of the trust. If that be so, the
\nconclusion is irresistible that the Tribunal has rightly held that
\nthe interest earned would qualify for exemption under Section
\n11(1)(d) of the Act.
\n151. In the aforesaid context, the findings of the Tribunal are
\nas under;
\n\u201c55. On a perusal of the BCCI Infrastructure Subsidy
\nPage 165 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\nrules, we find that what is given to the assessee as
\ninfrastructure subsidy is reimbursement of 50% of costs
\nin respect of certain expenditure on infrastructure which
\nis inherently in the capital field. The mere fact that it is
\nnot a reimbursement to an outside party, such as a
\ndistrict cricket association, does not really matter. As
\nlong as the subsidy is relatable to a capital asset created
\nby the assessee on his own or by an eligible district
\ncricket association, as the present subsidy undisputedly
\nis, it is outside the ambit of revenue receipt and taxable
\nincome. The very foundation of the stand of the
\nAssessing Officer is thus devoid of legally sustainable
\nmerits. As such, there can hardly be an occasion, in
\nprinciple, to hold such a subsidy as a revenue receipt or
\ntaxable income. There is not even a whisper of a
\ndiscussion by the Assessing officer to the effect that
\ninfrastructure subsidy is revenue in nature. As a matter
\nof fact, the claim is made for the subsidy only after the
\nexpenditure having been incurred. The authorities below
\nhave simply brushed aside the case and the submissions
\nof the assessee and proceeded to hold it as an income.
\nLooking to the nature of the subsidy, which is clearly
\nrelatable to the capital assets generated, we are unable
\nto hold this receipt in the revenue field. We, therefore,
\nuphold the plea of the assessee on this point as well and
\ndelete the addition of Rs 2,13,34,033\/-.\u201d
\n152. The Gujarat Cricket Association received corpus donation
\nof Rs.20,69,60,338\/- from the BCCI. The Assessing Officer held
\nthat it is not corpus donation and added the same to the
\nincome. Before the C.I.T (Appeals), the Association drew the
\nattention to a letter addressed to the Officer dated 28th
\nDecember, 2011 where two specific letters from the BCCI
\ndated 12th October, .2001 and 13th October, 2001 respectively
\naddressed to the Secretary of the Gujarat Cricket Association
\nwere produced. The letter dated 12th October, 2001 from the
\nBCCI draws attention to the decision in the Annual General
\nMeeting, and the resolution incorporating the said decision as
\nfollows
\nPage 166 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\n\u201c5. Chairman suggested that as already decided in
\nworking Committee henceforth the TV subsidies should
\nbe sent towards ‘Corpus Fund’ and this decision can also
\nbe approved by the members of this meeting. Thereafter
\nthe members unanimously approved that henceforth the
\nTV subsidies should be sent by the Board to the Member
\nAssociations towards \u201cCorpus Fund\u201d instead of subsidy
\nfund.\u201d
\n153. The C.I.T.(Appeals), in his order, in para-18 noted that the
\nabove \u201cdonation of Rs.1,38,36,800\/- was treated as the Corpus
\ndonation in the A.Y. 2002-03.\u201d. The aforesaid resolution
\nmentioned in the letter of the BCCI dated 12th October, 2001,
\nwhich used the word \u201chenceforth\u201d, which means in future also,
\nwas not considered good enough by him as \u201ca specific
\ndirection\u201d as required by section 11(1)(d) and only on that
\nreasoning, he held that It Is not the corpus donation. The
\nDepartment did not file appeal against the said decision but
\nthe Association did file an appeal to the Tribunal against the
\nfinding of absence of specific direction in every year. The
\nTribunal, on page 242, para-49 reproduced from their order in
\nA.Ys. 2004-05 to 2007-08 pointing out that the \u201csimilar
\namounts received in the earlier years had been treated all
\nalong as the corpus donation\u201d. \u2018Earlier Year\u2019 means A.Ys. 2002-
\n03 and 2003-04. On page 245, the Tribunal reproduced para-
\n15 of their order for the A.Ys. 2004-05 to 2007-08 as follows:
\n“15. We find that, at pages 46 and 47 of the paperbook,
\nthe assessee has filed specific confirmations to the effect
\nthat these amounts were corpus donations. We have also
\nperused the BCCI resolution no 5 dated 29th September
\n2001 which specifically states that the TV subsidies
\nshould henceforth be sent to the Member Associations
\ntowards \u201ccorpus funds”. There is no dispute that the TV
\nsubsidy in question is sent under this resolution. On
\nthese facts, and In the light of the provisions of Section
\n11(1)(d) which only require the income to be \u201cby way of
\nPage 167 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\nvoluntary contributions made with a specific direction
\nthat they shall form part of the corpus of the trust or the
\ninstitution\u201d, we are of the considered view that any
\npayments made by the BCCI, without a legal obligation
\nand with a specific direction that it shall be for corpus
\nfund as admittedly the present receipt is, is required to
\nbe treated as corpus donation not includible in total
\nincome. We are unable to find any legal support for
\nlearned CIT(A)’s stand that each donation must be
\naccompanied by a separate written document. The
\ncontribution has to be voluntary and it has to be with
\nspecific direction that it will form corpus of the trust\u2019.
\nThese conditions are clearly satisfied. Any payment
\nwhich the assessee is not under an obligation to make,
\nwhatever be the mode of its computation, is a voluntary
\npayment, and, any payment which is with a specific
\ndirection that it for corpus fund is a corpus donation. In
\nour considered view, even without the two specific
\nconfirmations filed by the assessee, in the light of the
\nBCCI resolution under which the payment is made and in
\nthe light of the payment not being under any legal
\nobligation, the conditions under section 11(1)(d) are
\nsatisfied. We, therefore, uphold the plea of the assessee.
\nThe Assessing Officer is accordingly directed to delete
\nthis addition of Rs.1,58,00,000.\u201d
\n154. In the course of the hearing of these tax appeals, the
\nlearned counsel appearing for the respective assessee also
\nsubmitted that the promotion of sports and games would fall
\nwithin the ambit of the term \u201ceducation\u201d so as to fall in the
\nfirst limb of the definition of the term charitable purpose. In
\nthis regard, our attention was drawn to the Circular No.395
\ndated 24th September, 1984 issued by the Central
\nGovernment in its Finance Department. The circular reads
\nthus;
\n\u201cCIRCULAR:NO.395 [F.NO.181(5)82\/IT(A-I)-SECTION
\n2(15) OF THE INCOME-TAX ACT, 1961-CHARITABLE
\nPURPOSE-WHETHER PROMOTION OF SPORTS AND
\nGAMES CAN BE CONSIDERED TO BE CHARITABLE
\nPage 168 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\nPURPOSE.
\nSECTION 2(15) OF THE INCOME-TAX ACT, 1961-
\nCHARITABLE PURPOSE-WHETHER PROMOTION OF
\nSPORTS AND GAMES CAN BE CONSIDERED TO BE
\nCHARITABLE PURPOSE
\nCircular: No.395 [F.NO.181(5) 82\/IT(A-I), DATED 24.9.1984.
\n1. The expression \u201ccharitable purpose\u201d is defined in
\nsection 2(15) to include relief of the poor, education,
\nmedical relief and the advancement of any other object
\nof general public utility.
\n2. The question whether promotion of sports and
\ngames can be considered as being a charitable purpose
\nhas been examined. The Board are advised that the
\nadvancement of any object beneficial to the public or
\nsection of the public as distinguished from an individual
\nor group of individuals, would be an object of general
\npublic utility. In view thereof, promotion of sports and
\ngames is considered to be a charitable purpose within the
\nmeaning of section 2(15). Therefore, an association or
\ninstitution engaged in the promotion of sports and games
\ncan claim exemption under section 11 of the Act, even if
\nit is not approved under section 10(23) relating to
\nexemption from tax of sports associations and institutions
\nhaving their objects as the promotion, control, regulation
\nand, encouragement of specified sports and games.\u201d
\n155. Mr. Bhatt raised a strong objection as regards the
\naforesaid issue. According to Mr. Bhatt, although the
\nsubmission in this regard was canvassed before the ITAT, the
\nITAT thought fit not to touch the said issue for the reason
\nassigned in para-41 of the impugned judgment. Para-41 reads
\nthus;
\n\u201cWe have noted that all the learned representatives have
\nadvanced detailed arguments on the proposition that
\nsince the assessee cricket associations are engaged in
\neducational activities, it is not really material whether or
\nnot the assessee has engaged itself in the activities in
\nPage 169 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\nthe nature of trade, commerce or business. However, in
\nthe light of our categorical finding that the assessee
\ncricket associations were not really engaged in the
\nactivities in the nature of trade, commerce or business, it
\nis not really necessary to adjudicate on this plea. We
\nleave the question open for adjudication in a flt case.\u201d
\n156.. In such circumstances, referred to above, Mr. Bhatt, the
\nlearned senior counsel, submitted that this Court may not go
\ninto the issue whether the activities of the Association could be
\ntermed as imparting education in sports. In other words,
\nimparting training in sports whether could be termed as an
\neducational activity falling within the ambit of Section 2(15) of
\nthe Act. In this regard, the submission canvassed on behalf of
\nthe assessees is that imparting training in sports is nothing but
\nan education activity and, therefore, the assessees would fall
\nin the first limb of the definition of \u201ccharitable purpose\u201d as
\ndefined under Section 2(15) of the Act and not under the
\nresidual clause of \u201cadvancement of any other object of general
\npublic utility\u201d. The argument canvassed on behalf of the
\nassessee is that if that be the situation, the Proviso to Section
\n2(15) would not apply at all. At this stage, we deem it
\nappropriate to quote Section 260A(6) of the Act, 1961 which
\nreads thus;
\n\u201cThe High Court may determine any issue which-
\n(a) has not been determined by the Appellate Tribunal,
\nor
\n(b) has been wrongly determined by the Appellate
\nTribunal, by reason of a decision on such question of law
\nas is referred to in sub-section(1).\u201d
\n157. The plain reading of the aforesaid provision indicates that
\nthe High Court may determine any issue which has not been
\nPage 170 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\ndetermined by the Appellate Tribunal.
\n158. It is not in dispute that in none of the tax appeals, any
\nsubstantial question of law as regards whether training in
\nsports (game of cricket) would fall within the ambit of the term
\n\u201ceducation\u201d so as to fall in the first limb of the definition of the
\nterm \u201ccharitable purpose\u201d as defined under Section 2(15) of
\nthe Act. In the absence of any substantial question of law being
\nformulated in this regard, whether we should go into this
\nquestion and express any opinion of our own is something we
\nshould look into closely.
\n159. Clause (a) of sub-section (6) to Section 260A of the Act
\nstates that the High Court may decide an issue, which is not
\ndetermined by the Appellate Tribunal. The word \u201cdetermined\u201d
\nmeans that the issue is not dealt with, though it was raised
\nbefore the Tribunal. The word \u201cdetermined\u201d presupposes an
\nissue was raised or argued but there is failure of the Tribunal
\nto decide or adjudicate the same. In a given case, a substantial
\nquestion of law may arise because of the facts and findings
\nrecorded by the Tribunal, but the said issue\/question is not
\ndetermined. In such cases, an appeal under Section 260A of
\nthe Act can be entertained. This would depend upon the facts
\nof each case and the reasoning and findings recorded by the
\nTribunal.
\n160. In the aforesaid context, we may refer to a decision of
\nthe Supreme Court in the case of M. Janardhana Rao vs.
\nJoint Commissioner of Income Tax, 2005 (273) ITR 50,
\nwherein the Supreme Court has observed as under;
\n\u201cUnder Section 260A(2)(c) the appeal under Section 260A
\nPage 171 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\nshall be (a) in the form of a memorandum of appeal and
\n(b) precisely stating therein the substantial question of
\nlaw involved. Under Section 260A(3) when the High Court
\nis satisfied that a substantial question of law is involved
\nin any case it shall formulate that question and under
\nsection 260A(4) the appeal is to be heard only on the
\nquestion formulated under the preceding sub- section. It
\nhas to be noted that in terms of Section 260A(4) the
\nrespondent in the appeal is allowed to argue at the time
\nof hearing of the appeal that the case does not involve a
\nsubstantial question of law as formulated. However,
\nproviso to Section 260A(4) specifically lays down that
\nnothing in Section 260A(4) shall be deemed to take away
\nthe power of the High Court to hear, for reasons to be
\nrecorded, the appeal on any other substantial question of
\nlaw not formulated by it, in case it is satisfied that the
\ncase involves such question. Section 260A(5) provides
\nthat the High Court to decide the question of law as
\nformulated and to deliver the judgment thereon
\ncontaining grounds on which such decision is founded.
\nSub-section (6) empowers the High Court to determine
\nany such issue which has not been determined by the
\nAppellate Tribunal or has been wrongly determined by
\nthe Appellate Tribunal by reasons of a decision of such
\nquestion of law as is referred to in sub-section (1) It is
\nimportant to note that appeal to the High Court lies only
\nwhen a substantial question of law is involved. It is
\nessential for the High Court to first formulate question of
\nlaw and thereafter proceed in the matter.
\nWithout insisting on the statement of substantial question
\nof law in the memorandum of appeal and formulating the
\nsame at the time of admission, the High Court is not
\nempowered to generally decide the appeal under Section
\n260A without adhering to the procedure prescribed under
\nSection 260A. Further, the High Court must make every
\neffort to distinguish between a question of law and a
\nsubstantial question of law. In exercise of powers under
\nSection 260A, the findings of fact of the Tribunal cannot
\nbe disturbed. It has to be kept in mind that the right of
\nappeal is neither a natural nor an inherent right attached
\nto the litigation. Being a substantive statutory right, it has
\nto be regulated in accordance with law in force at the
\nrelevant time. The conditions mentioned in Section 260A
\nmust be strictly fulfilled before an appeal can be
\nPage 172 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\nmaintained under Section 260A. Such appeal cannot be
\ndecided on merely equitable grounds.
\nAn appeal under Section 260A can be only in respect of a
\n`substantial question of law’. The expression `substantial
\nquestion of law’ has not been defined anywhere in the
\nstatute. But it has acquired a definite connotation
\nthrough various judicial pronouncements. In Sir Chunilal
\nV. Mehta & Sons Ltd. v. Century Spinning & Mfg. Co. Ltd.,
\nAIR (1962) SC 1314, this court laid down the following
\ntests to determine whether a substantial question of law
\nis involved. The tests are: (1) whether directly or
\nindirectly it affects substantial rights of the parties, or (2)
\nthe question is of general public importance, or (3)
\nwhether it is an open question in the sense that issue is
\nnot settled by pronouncement of this Court or Privy
\nCouncil or by the Federal Court, or (4) the issue is not
\nfree from difficulty, and (5) it calls for a discussion for
\nalternative view. There is no scope for interference by the
\nHigh Court with a finding recorded when such finding
\ncould be treated to be a finding of fact.
\nOn reading of impugned judgment of the High Court it is
\nclear that no substantial question of the law was
\nformulated at the time of admission of the appeal.
\nObviously, the High Court has formulated questions
\nsubsequently after conclusion of arguments for the
\npurpose of adjudication. That is clearly against the
\nscheme of Section 260A. Additionally , grievance that
\ncertain points which were urged have not been dealt with
\nby the High Court appears to be correct. \u201c
\n161. The aforesaid decision of the Supreme Court has been
\nexhaustively discussed by a Division Bench of the Gauhati High
\nCourt in the case of Meghalaya Steels Ltd. & Ors. vs.
\nCommissioner of Income Tax, 2013 (358) ITR 551, wherein
\nthe following has been observed;
\n\u201cIt follows, therefore, that the satisfaction of the High
\nCourt that the appeal involves substantial question of law
\nis sine qua non for the appeal to be admitted for hearing.
\nThis position of law will not remain in doubt, when we
\nproceed to minutely examine the provisions embodied in
\nsection 260A.
\nPage 173 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\nSub-section (2) of section 260A permits the Chief
\nCommissioner or Commissioner as well as an assessee,
\nwho may feel aggrieved by the order passed by an
\nappellate Tribunal, to appeal to the High Court provided
\nthat the appeal is filed within one hundred and twenty
\ndays from the date on which the order, appealed against,
\nis received by the assessee or the Chief Commissioner or
\nthe Commissioner, as the case may be. This apart, as
\nindicated above, the appeal has to be in the form of
\nmemorandum of appeal precisely stating therein the
\nsubstantial question or questions of law involved.
\nThus, apart from the period of limitation within which an
\nappeal has to be preferred and the form in which the
\nappeal has to be preferred, section 260A necessitates
\nthat the memorandum of appeal clearly states the
\nsubstantial question or questions of law, which, according
\nto the appellant, is, or are, involved in the appeal.
\nSub-section (3) of section 260A shows that when an
\nappeal is filed, as prescribed by sub-section (2), stating
\nthe substantial question or questions of law involved, this
\nwould not, automatically, make the appeal admissible in
\nlaw inasmuch as sub-sections (1) and (3) of section 260A
\nmake it clear that if an appeal, preferred under section
\n260A, does not state the substantial question or
\nquestions of law involved, then, the appeal may not be
\nadmitted by the High Court.
\nCoupled with the above, sub-section (3) of section 260A
\nlays down that where the High Court is satisfied that a
\nsubstantial question of law is involved in an appeal, it
\nshall formulate that question. Conversely speaking, if the
\nHigh Court finds, on examination of a memorandum of
\nappeal, that the appeal does not give rise to a substantial
\nquestion of law, the High Court is duty bound to dismiss
\nthe appeal in limine. If, however, the High Court takes
\nthe view that appeal has given rise to substantial
\nquestion or questions of law, then, the High Court is
\nunder legal obligation to formulate the substantial
\nquestion or questions of law, which, according to the
\nHigh Court, the appeal has raised, and, then, the High
\nCourt shall hear the appeal on the question or questions
\nso formulated.
\nWhen an appeal is heard, in the light of sub-section (4) of
\nsection 260A on the substantial question or questions of
\nlaw, which the court has formulated in the appeal, the
\nPage 174 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\nrespondents shall be allowed to argue, at the time of
\nhearing of the appeal, that no such substantial question
\nor questions of law, as formulated by the High Court, has
\nor have arisen for being answered in the appeal.
\nWhat further follows from a close reading, as a whole, of
\nsection 260A is that if the High Court decides to give
\nnotice to a respondent, in an appeal, before formulating
\nthe substantial question or questions of law, the
\nrespondent, in the appeal, shall have the right to satisfy
\nthe
\nHigh Court that the substantial question or questions of
\nlaw, as contended by the appellant, is, or are, not really
\ninvolved; or else, there would be no meaning and
\npurpose in giving notice to the respondent, in the appeal,
\nbefore the appeal is admitted by formulating the
\nsubstantial question or questions of law on which, in the
\nview of the High Court, the appeal needs to be heard.
\nIn other words, if a respondent, in appeal, made under
\nsection 260A, is given notice before admission of the
\nappeal, it necessarily follows that the respondent has
\nbeen given an opportunity by the High Court to satisfy
\nthe High Court that no substantial question or questions
\nof law, as contended by the appellant, has or have arisen
\nfor determination and it would be thereafter that the
\nHigh Court would take a decision whether the appeal has
\nor has not given rise to any substantial question of law
\nand if the High Court finds that the substantial question
\nor questions of law has or have arisen, it shall admit the
\nappeal by formulating, for hearing, such substantial
\nquestion or questions of law, which, according to the
\nHigh Court, the appeal has given rise to for adjudication
\nand, then, answer the question or questions, so
\nformulated, by according opportunity of hearing to the
\nparties concerned on the substantial question or
\nquestions of law, which the High Court may have
\nformulated.
\nLogically extended, what the above scheme of hearing of
\nthe appeal conveys is that if the High Court, without
\nadmitting the appeal, chooses to issue, in a given appeal,
\nnotice to the respondent, in the appeal, to have the
\nlatter’s say in the matter, the parties to the appeal would
\nhave the right to address the court. Necessarily,
\ntherefore, at the stage of admission, in such a situation,
\nwhile the appellant can address the court to show as to
\nPage 175 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\nhow a substantial question of law or more than one
\nsubstantial question of law can be said to have arisen, for
\ndetermination, in the appeal, the respondent would have
\nequally good right to try to satisfy the court on merit that
\nthe substantial question or questions of law, which the
\nappellant contends to have arisen, has or have not
\narisen. If, thereafter, the High Court is satisfied that a
\nsubstantial question or questions of law is, or are, indeed,
\ninvolved, notwithstanding the submissions made to the
\ncontrary by the respondent, then, the High Court has to
\nformulate the substantial question or questions of law on
\nwhich, according to the High Court, the appeal needs to
\nbe heard and it is only on the substantial question or
\nquestions of law, so formulated, that hearing of the
\nappeal would take place and, on this hearing, both the
\nparties to the appeal would have the right to place their
\narguments.
\nObviously, while the appellant would try to show, at the
\ntime of hearing of the appeal, on its admission, that the
\nsubstantial question or questions of law has or have
\narisen for determination and needs or need to be
\ndecided, the respondent would resist that substantial
\nquestion of law (as suggested by the appellant and\/or
\nformulated by the High Court), does not really arise. In
\nshort, hearing of an appeal, under section 260A, can, in a
\ngiven case, be in two different stages \u2014 once, before
\nadmission of the appeal, and, once again, after admission
\nof the appeal.
\nWe may, however, hasten to add that there is no
\nimpediment, on the part of the High Court, to admit an
\nappeal without giving notice to the respondent; but if the
\nHigh Court decides to give a notice before admitting the
\nappeal and if it decides to hear the respondent on the
\nadmission of the appeal, the High Court cannot straight
\naway allow the appeal on the basis of the substantial
\nquestion or questions of law, which the appellant may
\nhave formulated inasmuch as section 260A provides \u2018that
\nif the High Court finds that the appeal needs to be heard,
\nthe High Court is legally bound to formulate the
\nsubstantial question or questions of law, which, according
\nto the High Court, has or have arisen for determination.
\nPut shortly, an appeal, under section 260A, can be heard
\nsubsequent to the formulation of the substantial question
\nof questions of law, which, according to the High Court,
\nhas or have arisen for determination.
\nPage 176 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\nWe may hastily add that the proviso to sub-section (4) of
\nsection 260A empowers the High Court to formulate any
\nother substantial question of law if it is satisfied that the
\ncase involves such a question, though the appellant may
\nnot have raised such a substantial question of law.
\nSub-section (5) of section 260A makes it crystal clear
\nthat the appeal can be decided only on the substantial
\nquestion of law, which has been formulated by the High
\nCourt, and not on the basis of the substantial question or
\nquestions of law, which the appellant may have
\nmentioned in the memorandum of appeal, and the High
\nCourt has to deliver the judgment not on the substantial
\nquestion or questions of law which an appellant may
\nhave framed, but only on that substantial question of law
\nor those substantial questions of law, which the High
\nCourt has already formulated.
\nIt clearly follows, therefore, that no appeal can be heard,
\nas already pointed out above, until the time the High
\nCourt is satisfied that the appeal involves a substantial
\nquestion of law for determination and no appeal can be
\nheard until the time the substantial question of law or
\nquestions of law, as the case may be, has or have been
\nformulated by the High Court for the purpose of hearing
\nof the appeal.
\nIncidentally, one may also point out that the High Court,
\nunder section 260A(6), has the power to determine an
\nissue, which has not been determined by an appellate
\nTribunal or has been wrongly determined by the
\nappellate Tribunal.
\nSub-section (7) makes it further clear that the provisions,
\nrelating to second appeal, as embodied in section 100,
\nCPC, shall, as far as may be, applied to the appeals under
\nsection 260A.
\nThe Supreme Court has pointed out, at para 11, in M.
\nJanardana Rao v. Joint Commissioner of Incometax,
\n(2005) 2 SCC 324, which Mr. Bhattacharjee, learned
\nsenior counsel, has relied upon, that under section
\n260A(c), the appeal, under section 260A, shall be \u2014 (a)
\nin the form of memorandum of appeal, and (b) the
\nmemorandum of appeal must precisely state the
\nsubstantial question or questions of law involved and
\nsection 260A(3) lays down that when the High Court is
\nsatisfied that a substantial question of law is involved, in
\na given appeal, it shall formulate that question and the
\nPage 177 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\nappeal, in terms of the provisions of section 260A(4), has
\nto be heard only on the question formulated by the High
\nCourt and that in terms of section 260A(4), the
\nrespondent, in appeal, has to be allowed to argue, at the
\ntime of hearing of the appeal, (wherein the substantial
\nquestion or questions of law-stands or stand already
\nformulated by the High Court), that the appeal does not
\ninvolve a substantial question or questions of law as has
\nbeen, or have been, formulated by the High Court.
\nIn M. Janardana Rao (supra), the Supreme Court has also
\nclarified, at para 11, that the proviso to section 260A(4)
\nlays down that nothing in section 260A(4) shall be
\ndeemed to take away the power of the High Court to
\nhear, for reasons to be recorded, an appeal on any
\nsubstantial question or questions of law not formulated
\nby it provided that the High Court is satisfied that the
\ncase involves such a question. In no uncertain words, the
\nSupreme Court has held, at para 11, in M. Janardana Rao
\n(supra), that the High Court cannot, but decide the
\nsubstantial question of law, as formulated by it under
\nsection 260A, and deliver judgment thereon containing
\nthe grounds on which its decision is founded. The
\nobservations, appearing at para 11, in\u2019 M. Janardana Rao
\n(supra), read as under:
\n\u201c11. Various essentials as culled out from the relevant
\nprovisions of the Act are as follows:
\nUnder section 260A(2)(c) the appeal under section 260A
\nshall be (a) in the form of a memorandum of appeal, and
\n(b) precisely stating therein the substantial question of
\nlaw involved. Under section 260A(3) when the High Court
\nis satisfied that a substantial question of law is involved
\nin any case, it shall formulate that question and under
\nsection 260A(4) the appeal is to be heard only on the
\nquestion formulated under the preceding sub-section. It
\nhas to be noted that in terms of section 260A(4) the
\nrespondent in the appeal is allowed to argue at the time
\nof hearing of the appeal that the case does not involve a
\nsubstantial question of law as formulated. However, the
\nproviso to section 260A(4) specifically lays down that
\nnothing in section 260A(4) shall be deemed to take away
\nthe power of the High Court to hear, for reasons to be
\nrecorded, the appeal on any other substantial question of
\nlaw not formulated by it, in case it is satisfied that the
\ncase involves such question. Section 260A(5) provides
\nPage 178 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\nthat the High Court is to decide the question of law as
\nformulated and to deliver the judgment thereon
\ncontaining grounds on which such decision is founded.\u201d
\n(Emphasis is added)
\nLeaving none in doubt, the Supreme Court, in M.
\nJanardana Rao (supra), has laid down the scope of
\nsection 260A by observing, in clear terms, that it is
\nessential for the High Court to, first, formulate a
\nsubstantial question of law and, thereafter, proceed in
\nthe matter.
\nIn other words, clarifying the scope of section 260A, the
\nSupreme Court, in M. Janardana Iiao v. Joint
\nCommissioner of Income-tax, (2005) 2 SCC 324, has
\npointed out, at para 13, thus:
\n\u201c13. It is important to note that the appeal to the High
\nCourt lies only when a substantial question of law is
\ninvolved. It is essential for the High Court to first
\nformulate a question of law and thereafter proceed in the
\nmatter.\u201d
\n(emphasis is added)
\nThe Supreme Court has pointed out, in M. Janardana Iiao
\n(supra), that the conditions, mentioned in section 260A,
\nmust be strictly fulfilled before an appeal can be
\nmaintained under section 260A meaning thereby that if
\nthe appellant is unable to show that a substantial
\nquestion of law has arisen for determination, there is no
\nimpediment, on the part of the High Court, to dismiss the
\nappeal without even admitting the appeal. Logically
\nextended, it would mean that if the respondent has been
\ngiven notice before the High Court decides to admit an
\nappeal, it would remain open to the respondent to show
\nthat no substantial question of law has arisen and in
\norder to show that no substantial question of law has
\narisen, it would be, ordinarily, necessary for the
\nrespondent to make his submission on merit if the
\nrespondent seeks to satisfy the High Court that no
\nsubstantial question of law for determination has arisen
\nin the appeal. The relevant observations, appearing in
\nthis regard, in M. Janardana Iiao (supra), read as under:
\n\u201c14. Without insisting on the statement of substantial
\nquestion of law in the memorandum of appeal and
\nformulating the same at the time of admission, the High
\nCourt is not empowered to generally decide the appeal
\nPage 179 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\nunder section 260A without adhering to the procedure
\nprescribed under section 260A. Further, the High Court
\nmust make every effort to distinguish between a
\nquestion of law and a substantial question of law. In
\nexercise of powers under section 260A, the findings of
\nfact of the Tribunal cannot be disturbed. It has to be kept
\nin mind that the right of appeal is neither a natural nor
\nan inherent right attached to the litigation. Being a
\nsubstantive statutory right, it has to be regulated in
\naccordance with law in force at the relevant time. The
\nconditions mentioned in section 260A must be strictly
\nfulfilled before an appeal can be maintained under
\nsection 260A. Such appeal cannot be decided on merely
\nequitable grounds.\u201d
\n(emphasis is added)
\nA three Judge Bench, in M. Janardana Rao (supra), culled
\nout the test to determine as to what question can be
\ntreated as a substantial question of law. Having referred,
\nin this regard, to the case of Sir Chunilal V. Mehta and
\nSons Ltd. v. Century Spg. and Mfg. Co. Ltd., (AIR 1962 SC
\n1314), the Supreme Court has hold, at para 15, in M.
\nJanardana Rao (supra), as under:
\n\u201c15. An appeal under section 260 A can only be in
\nrespect of a \u201csubstantial question of law\u201d. The expression
\n\u201csubstantial question oflaw\u201d has not been defined
\nanywhere in the statute. But it has acquired a definite
\nconnotation through various judicial pronouncements. In
\nSir Chunilal V. Mehta and Sons Ltd. v. Century Spg. and
\nMfg. Co. Ltd., this court laid down the following tests to
\ndetermine whether a substantial question of law is
\ninvolved. The tests are: (1) whether directly or indirectly
\nit affects substantial rights of the parties, or (2) the
\nquestion is of general public importance, or (3) whether it
\nis an open question in the sense that the issue is not
\nsettled by pronouncement of this court or Privy Council
\nor by the Federal Court, or (4) the issue is not free from
\ndifficulty, and (5) it calls for a discussion for alternative
\nview. There is no scope for interference by the High Court
\nwith a finding recorded when such finding could be
\ntreated to be a finding of fact.\u201d
\n(emphasis is added)
\nIn M. Janardana Rao (supra), having found that the High
\nCourt had not formulated any substantial question of law
\nat the time of admission of the appeal, but formulated,
\nPage 180 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\nfor the purpose of adjudication of the appeal, the
\nquestion subsequent to the conclusion of arguments, the
\nSupreme Court took the view that the procedure, so
\nadopted, is clearly against the scheme of section 260A.
\nIn the face of the facts, as indicated above, the Supreme
\nCourt, in M. Janardana Rao, (supra) interfered with the
\norder, which had been passed, in appeal, by the High
\nCourt.
\nIn the case at hand, too, if this court finds, in the light of
\nthe clearly laid down position of law, in M. Janardana Rao
\n(supra), that this court formulated the substantial
\nquestion or questions of law for adjudication subsequent
\nto the admission of the appeal, as is contended by the
\nrespondent-opposite party, then, such a breach by the
\nHigh Court would make its judgment and order open to
\nreview if the power of review is, otherwise, found to be
\navailable to the High Court in a case of present nature.
\nThe relevant observations, appearing at para 1.6, in M.
\nJanardana Rao (supra), read as under:
\n\u201c16. On reading of the impugned judgment of the High
\nCourt it is clear that no substantial question of law was
\nformulated at the time of admission of the appeal.
\nObviously, the High Court has formulated questions
\nsubsequently after conclusion of arguments for the
\npurpose of adjudication. That is clearly against the
\nscheme of section 260A. Additionally, grievance that
\ncertain points which were urged have not been dealt with
\nby the High Court appears to be correct.\u201d
\n(emphasis is added)
\nRelying heavily on the case of Kanan (dead) by Lrs. v.
\nV.S Pandurangam (dead) by Lrs., (2007) 15 SCC 157,
\nMr. Pathak, learned Additional Solicitor General, has
\nsubmitted that the mere omission to frame substantial
\nquestion of law before hearing of the appeal cannot be a
\nreason for interfering with the impugned, judgement and
\norder, dated 16.9.2010, unless prejudice is shown to
\nhave been caused.
\nIn Kanan (Dead) (supra), the Supreme Court has held
\nthat when the parties, in appeal, go to appeal knowing
\nfully well the issue, the order, which is finally passed in
\nthe second appeal, cannot be interfered with unless
\nprejudice is shown to have been caused as a result of
\nomission to frame a substantial question of law.
\nPage 181 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\nWhile considering the case of Kanan (supra), it may be
\nnoted that, while the decision, in Kanan (supra), has been
\nrendered by a two-Judge Bench of the Supreme Court,
\nthe decision, in M. Janardana Rao v. Joint
\nCommissioner of Income-tax, (2005) 2 SCC 324, has
\nbeen rendered by a three-Judge Bench of the Supreme
\nCourt. In M. Janardana Rao (supra), the Supreme Court
\nhas emphasized, at para 13, that it is essential for the
\nHigh Court to, first, formulate a question of law and,
\nthereafter, proceed with the matter and, at para 14, the
\nSupreme Court has held, in M. Janardana Rao (supra),
\nthat the conditions, mentioned in section 260A, must be
\nstrictly fulfilled and that such an appeal cannot be
\ndecided merely on equitable grounds. In fact, in M.
\nJanardana Rao (supra), the Supreme Court interfered
\nwith the order, made in the appeal under section 260A,
\non the ground that no substantial question of law had
\nbeen framed at the time of the admission of the appeal
\nand that the High Court had formulated, for the purpose
\nof adjudication, the questions subsequent to the
\nconclusion of the arguments, which procedure is against
\nthe scheme, which section 260A propounds.
\nIn the face of the decision, in M. Janardana Rao (supra),
\nthere can be no escape from the conclusion that disposal
\nof an appeal without formulating the substantial
\nquestions of law and without hearing the parties, on such
\nsubstantial questions of law, is illegal even if the High
\nCourt formulates the question, for the purpose of
\nadjudication, subsequent to the conclusion of the
\narguments.
\nThe question, therefore, of prejudice having been caused
\nor not does not arise. This apart, in the case at hand, it is
\nthe grievance of the review petitioners that as
\nsubstantial questions of law had not been formulated for
\nthe purpose of hearing of the appeal, the review
\npetitioners could not make their submissions on the merit
\nof the substantial questions of law, which the High Court
\nhas, subsequent to the admission hearing, ultimately,
\ndecided inasmuch as one of the issues in the appeal has
\nbeen decided against the review petitioners without
\naccording them an opportunity to have their say after
\nmaking it clear to them that the substantial questions of
\nlaw, which the memorandum of appeal had mentioned,
\nwere the substantial questions of law, which, even
\naccording to the High Court, had arisen for determination
\nPage 182 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\nand these were the questions, which would be finally
\ntaken up for adjudication by the court.
\nCoupled with the above, the decisions, which have been
\nreferred to in Kanan (dead) by Lrs. v. VS.
\nPandurangam (dead) by Lrs., (2007) 15 SCC 157, are
\nnot on substantial questions of law, but on the question
\nof issues. It is trite that even if an issue was not framed,
\nit would not disable the court from refusing to interfere
\nwith a decree if the parties were, otherwise, well aware
\nof the issues and if the omission to frame the issues has
\nnot caused any prejudice to either of the parties.
\nIn the face of the fact that no substantial question of law
\nwas formulated by the High Court before the appeal was
\nheard for the purpose of disposal and this court had not
\nmade it clear to the parties, in the appeal, that the
\nappeal would be disposed of on hearing the parties
\nconcerned at the admission stage itself, it logically
\nfollows that the decision, rendered in the appeal, was
\ncontrary to, and in violation of, the mandatory
\nrequirements as regards the procedure to be followed in
\nan appeal under section 260A. Consequently, the
\nimpugned judgment and order, dated 16.9.2010, cannot
\nsurvive.\u201d
\n162. In view of the aforesaid discussion, we are not going into
\nthe question whether the assessees could be said to be
\nengaged in imparting education in the form of promoting the
\ngame of cricket.
\n163. We sum up our final conclusions as under;
\n(i) In carrying on the charitable activities, certain surplus
\nmay ensue. However, earning of surplus, itself, should not be
\nconstrued as if the assessee existed for profit. The word
\n\u201cprofit\u201d means that the owners of the entity have a right to
\nwithdraw the surplus for any purpose including the personal
\npurpose.
\n(ii) It is not in dispute that the three Associations have not
\nPage 183 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\ndistributed any profits outside the organization. The profits, if
\nany, are ploughed back into the very activities of promotion
\nand development of the sport of cricket and, therefore, the
\nassessees cannot be termed to be carrying out commercial
\nactivities in the nature of trade, commerce or business.
\n(iii) It is not correct to say that as the assessees received
\nshare of income from the BCCI, their activities could be said to
\nbe the activities of the BCCI. Undoubtedly, the activities of the
\nBCCI are commercial in nature. The activities of the BCCI is in
\nthe form of exhibition of sports and earn profit out of it.
\nHowever, if the Associations host any international match once
\nin a year or two at the behest of the BCCI, then the income of
\nthe Associations from the sale of tickets etc., in such
\ncircumstances, would not portray the character of commercial
\nnature.
\n(iv) The State Cricket Associations and the BCCI are distinct
\ntaxable units and must be treated as such. It would not be
\ncorrect to say that a member body can be held liable for
\ntaxation on account of the activities of the apex body.
\n(v) Irrespective of the nature of the activities of the BCCI
\n(commercial or charitable), what is pertinent for the purpose of
\ndetermining the nature of the activities of the assessees, is the
\nobject and the activities of the assessees and not that of the
\nBCCI. The nature of the activities of the assessee cannot take
\nits colour from the nature of the activities of the donor.
\nDiscussion of case law:
\n164. We shall now proceed to deal with the decisions, upon
\nwhich, strong reliance has been placed on behalf of the
\nPage 184 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\nRevenue.
\n165. In the case of Truck Operators Association (supra), the
\nassessee Truck Operators Association had filed an application
\nin Form No.10A for registration of the Society under Section
\n12AA of the Act along with the certificate of registration
\ngranted by the Registrar of Societies and a copy of
\nMemorandum and By-Laws of the Society. The Commissioner
\nrejected the application holding that the Association was not
\nformed for advancement of object of general public utility
\nwithin the meaning of Section 2(15) of the Act. The Tribunal
\nallowed the assessee’s appeal and directed the Commissioner
\nto grant the registration under Section12AA to the assessee-
\nSociety. The Revenue went in appeal before the High Court of
\nPunjab & Haryana. The High Court thought fit to allow the
\nappeal, observing as under;
\n\u201c9. On examination of the objects and the purpose of the
\nAssociation in the present case, it emerges that the
\nrespondent-Association is union of Truck Operators
\nconstituted for facilitating its members to carry on the
\ntrade of transportation and not to allow the outsider or
\nnon-member to undertake any business activity within
\nthe precincts of Hansi Town\/village. The Association
\ncharges fees from its members before the transportation
\non the basis of the distance involved. The membership
\nand payment of fees are mandatory and the element of
\nvoluntary contribution is missing. The association is
\nvigorously pursuing transportation business by receiving
\nfreight charges on behalf of its members. The welfare
\nactivities adopted for the truck drivers, cleaners and
\nmechanics of the truck owners are in the nature of staff
\nwelfare activities, as are common in other business
\norganizations which cannot be termed for general public
\nutility.
\n17. The assessee was a union of transport operators
\nregistered as a Trade Union under the Indian Trade
\nPage 185 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\nUnions Act, 1926. On analysis of the objects of the
\nunion for which it was constituted, it was discerned that
\nthe surplus funds of the trade union could be distributed
\namong the members at the time of its dissolution. In
\nother words, it was held that the rules and regulations do
\nnot impose a legal obligation on the assessee or its
\nmembers to hold the income of the assessee only for
\ncharitable purposes and the element of private gain
\ncould not be excluded. The union was, thus, held not to
\nbe a Charitable Institution.\u201d
\n166. Thus, on the facts of that case, the High Court took the
\nview that the assessee was not carrying on the activities for
\ncharitable purposes and, therefore, was not entitled to the
\nbenefit of registration under Section 12AA of the Act. One
\nimportant aspect which was noticed by the High Court was that
\nthe surplus funds of the Trade Union could be distributed
\namong the members at the time of its dissolution. The High
\nCourt noticed that the rules and regulations did not impose a
\nlegal obligation on the assessee or its members to hold the
\nincome of the assessee only for charitable purposes and the
\nelement of private gain could not be excluded. This decision,
\nin our opinion, is of no avail to the Revenue.
\n167. In National Institute of Aeronautical Engg. Educational
\nSociety (supra), the assessee was an educational society. It
\nmoved an application before the Commissioner for grant of
\nregistration under Section12AA of the Act. The Commissioner,
\nafter examining the record before him, concluded that the
\nassessee was not carrying any charitable activity within the
\nmeaning of Section 2(15) as it was charging substantial fees
\nfrom the students and making huge profits from that business.
\nConsequently, the assessee’s application was rejected. The
\nTribunal, however, allowed the appeal of the assessee. The
\nRevenue went in appeal before the High Court of Uttarakhand.
\nPage 186 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\nThe High Court, while allowing the appeal preferred by the
\nRevenue, observed as under;
\n\u201c10. Section 12AA of the Act provides the procedure for
\nregistration. Clause (a) of sub Section (1) of Section 12AA
\nempowers the CIT to call for such documents or
\ninformation from the trust or institution as he thinks
\nnecessary in order to satisfy himself about the
\ngenuineness of the activities of the trust or institution
\nand may also make such inquiries, as he may deem
\nnecessary in this behalf. Said provision in Section 12AA
\nmakes it clear that CIT is not supposed to allow
\nregistration with blind eyes. In the present case, CIT has
\nconsidered the relevant papers before him, which
\nincluded the income and expenditure accounts of the
\nprevious years after the society got registered with the
\nAssistant Registrar Firms, Societies and Chits. The CIT,
\nafter considering the record before him, has observed
\nthat the society (present respondent) is charging
\nsubstantial fees from the students and making huge
\nprofits.
\n11. After considering the submissions of the learned
\nCounsel for the parties, we are of the view that mere
\nimparting education for primary purpose of earning
\nprofits cannot be said to be a charitable activity. We are
\nof the firm view that, in the expression ‘charitable
\npurpose’, ‘charity’ is the soul of the expression. Mere
\ntrade or commerce in the name of education cannot be
\nsaid to be a charitable purpose. And Commissioner
\nIncome Tax has to satisfy itself as provided under Section
\n12AA of the Act before allowing the registration. Question
\nof law stands answered. \u201c
\n168. Thus, in the aforesaid case, the High Court took the view
\nthat as the Society was charging substantial fees from the
\nstudents and making huge profits, it could not be said that the
\nassessee was carrying on any charitable activity. This decision
\nalso is of no avail to the Revenue.
\nPage 187 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\n169. In Hyderabad Race Club (supra), the assessee was a
\nSociety registered under the Societies Registration Act, 1860
\nand the objects, for which, the assessee was established were
\nspecified in Para No.3 of the Memorandum of Association. The
\nobjects were to encourage, promote the scientific breeding
\nand training of horses, ponies and mules and to carry on the
\nbusiness of a race club in all its branches etc. The ITO rejected
\nthe assessee’s claim that it was a charitable institution and
\nthat its income was exempt under Section 11 on the ground
\nthat the assessee was carrying on a business by conducting
\nraces which was an activity for profit. On appeal by the
\nassessee, the Tribunal upheld the ITO’s order. The matter was
\nultimately heard by a Full Bench of the High Court of Andhra
\nPradesh. While answering the substantial question of law in
\nfavour of the Revenue and against the assessee, the Full
\nBench observed as under;
\n\u201c9. It would thus be seen that the scientific breeding and
\ntraining of horses and the imparting of instructions
\nrelating to horse breeding in all its aspects, is shown as
\nan incidental or ancillary object in the memorandum of
\nassociation of the assessee-company which was
\nestablished in April 1971. Learned counsel submits that
\nin the memorandum of association constituting the
\nassessee as a company in April, 1971, carrying on the
\nbusiness of a race club in all its branches had to be
\nspecified as the main object in order to meet the
\nrequirements of the company law, although in point of
\nfact the main object for which the assessee-company was
\nestablished, was what was stated as an incidental or
\nancillary object against sl. no. 4 referred to above. It is
\npointed out that for the purpose of incorporating a
\ncompany, the business which the company carries on has
\nto be specified as the main object and all other objects
\nhave to be specified as incidental or ancillary objects,
\nand this classification for the limited purpose of the
\nCompanies Act should not, according to the learned
\ncounsel, be confused with the real object for which the
\nPage 188 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\nassessee-company was established. According to the
\nlearned counsel, the basic or dominant object for which
\nthe assessee was established, whether as a society prior
\nto April, 1971, or as a company from April, 1971, was to
\nencourage and promote the scientific breeding and
\ntraining of horses and to impart instructions in and to
\ndiffuse useful and scientific knowledge of horse breeding
\nand to encourage horse breeding in all its aspects which,
\naccording to the learned counsel, are objects of general
\npublic utility. The other objects specified, whether in the
\nmemorandum of association relating to the assessee as a
\nsociety or in the memorandum of association relating to
\nthe assessee as a company, are all subservient to the
\nmain object of “scientific horse breeding”. Consequently,
\nthe doctrine of dominant or primary object should be
\ninvoked in the present case in order to examine whether
\nthe dominant or primary object for which the assessee is
\nestablished, is charitable in character.
\n10. We are unable to agree with the learned counsel
\nthat the dominant or primary object for which the
\nassessee is established either as a society or as a
\ncompany, is the scientific breeding of horses, and not for
\nthe purpose of carrying on business in conducting races.
\nReferring to the memorandum of association of the
\nassessee as a society under the Societies Registration
\nAct, we see no ground to regard the object specified in
\nclause (c) of para 3 as a power conferred on the society
\nto carry on the business to advance and promote the socalled
\nmain object of scientific breeding and training of
\nhorses. In the first place, paragraph 3 specifically
\nmention that carrying on the business of a race club is an
\nobject for which the society is established. It is not in the
\nnature of a power conferred on the society. It is true that
\nsome of the objects specified in para 3 of the
\nmemorandum of association relate to powers conferred
\non the society and there is, to some extent, a mix-up of
\nthe objects and powers in pars. 3. We have, however, no
\ndifficulty in regarding the carrying on of the business by
\nconducting races as being in the nature of an objects
\nrather than a power. If any doubt in the above regard
\nsubsists as regards the memorandum of association of
\nthe society, that is clearly set at rest while setting out the
\nobjects for which the assessee was established as a
\ncompany. As we have already referred to above, the
\nmemorandum of association of the assessee after its
\nPage 189 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\nincorporation in April, 1971, as a company clearly states
\nthat the main object to be pursued by the assesseecompany
\non its incorporation, is to carry on the business
\nof a race club in all its branches. Even when the assessee
\nwas a society, carrying on the business of a race club
\nwas obviously the main object although it was mixed up
\nwith other objects, as there was no statutory requirement
\nthat the main objects and ancillary objects should be
\nseparately specified in the case of society. We are unable
\nto appreciate the learned counsel’s contention that
\nnotwithstanding the memorandum of association
\nspecifying the carrying on of the business of a race club
\nas the main object for which the assessee-company was
\nincorporated, we should hold that the main object for the
\npurpose of the Companies Act is the carrying on of the
\nbusiness of a race club, and the main object for the
\npurpose of the I.T. Act is the scientific breeding of horses.
\nWe must reject the contention that the main objects for
\nwhich the assessee was established should be regarded
\ndifferently for the purpose of the companies Act and the
\nI.T. Act. The provision contained in the memorandum of
\nassociation is unlearned counsel. We have, therefore, no
\ndifficulty in coming to the conclusion that the main object
\nfor which the assessee was established whether as a
\nsociety or as a company, was to carry on the business of
\na race club and all other objects are either incidental or
\nancillary to the above main object. Thus, even invoking
\nthe doctrine of dominant or primary object, we must hold
\nthat the assessee was established with the dominant or
\nprimary object of carrying on the business of a race club
\nby conducting a races which, on the own admission of
\nthe learned counsel, is not charitable in character. This
\nitself is sufficient to demolish the assessee’s claim that it
\nmust be regarded as having been established for
\ncharitable purposes by invoking the doctrine of dominant
\nor primary object.\u201d
\n170. Thus, on the facts of that case, the Full Bench, ultimately,
\nheld that the assessee was established with the dominant or
\nprimary object of carrying on the business of a race club by
\nconducting races which cannot be termed as charitable in
\ncharacter. This decision also is of no avail to the Revenue in
\nPage 190 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\nthe case at hand.
\n171. In Dharmaposhanam Co. (supra), the objects of the
\nassessee Company were to raise funds by conducting kuries
\nwith Company as foreman, receiving donations and
\nsubscriptions by lending money on interest and by such other
\nmeans as the Company would deem fit to do the needful for
\nthe promotion of charity, industries etc. The appellant derived
\nincome from the property, money lending and business in
\nkuries or chit funds held under the trust and claimed
\nexemption from tax in respect of the said income under
\nSection 11. The Tribunal held that the assessee was not
\nentitled to exemption. The matter went right upto the Supreme
\nCourt. The Supreme Court, while dismissing the appeal of the
\nassessee, observed as under;
\n\u201cOn a consideration of the rival contentions of the
\nparties, the position appears to be this. The appellant can
\nsucceed in his claim to exemption under section 1 1 (1)(a)
\nof the Act if the income from the business of conducting
\nkuries and of money lending can be said to be income
\nderived from property held under trust wholly for
\ncharitable purposes. It is well settled that business is
\n“property” within the meaning of section 11(1)(e). C.I.T.
\nv. Krishna Warrier, (1964) 53 ITR 176 (SC). That is also
\nevident from the provisions of section 11 (4), and
\nreference may be made also to section 13(1)(bb).
\nFurther, it is apparent from the terms of the
\nMemorandum of Association and the Articles of
\nAssociation that the business of conducting kuries and of
\nmoney lending is held under trust. The question is : Is the
\nbusiness held under trust for charitable purposes ?
\nThere can be little doubt that when sub-clause (a) of
\nclause 3 of the Memorandum says “To raise funds by
\nconducting kuries, with company as foreman, receiving
\ndonations and subscriptions by lending money on
\ninterest and by such other means as the company deem
\nfit”. it refers to powers conferred on the appellant to raise
\nPage 191 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\nmoney in aid of, and for the purpose of accomplishing,
\nthe objects mentioned in sub-clause (b) of clause 3 of the
\nMemorandum. Upto June 6, 1965 sub-clause (b) read :
\n“To do the needful for the promotion of charity,
\neducation, industries, etc. and public good”.
\nCan all the purposes mentioned in sub-clause (b) be
\ndescribed as charitable purposes ? Section 2(15) of the
\nAct defines the expression “charitable purpose” as
\nincluding “relief of the poor, education, medical relief and
\nthe advancement of any other object of general public
\nutility not involving the carrying on of any activity for
\nprofit.” Two objects in sub-clause (b) of clause (3) of the
\nMemorandum need to be considered, “industries” and
\n“public good”. As regards the latter, the decision on what
\nshould be the “purposes of common good” was left to the
\ngeneral meeting by Article 58 of the Articles of
\nAssociation. Having regard to the context in which these
\nwords appear in the Memorandum and the Articles, they
\nmust evidently be referred to the residue general head in
\nthe definition in section 2(15) of the Act, that is to say,
\n“the advancement of any other object of general public
\nutility………… But this head is qualified by the restrictive
\nwords “not involving the carrying on of any activity for
\nprofit.” The operation of an industry ordinarily envisages
\na profit making activity, and so far as the advancement
\nof public good is concerned, it is open to the appellant to
\npursue a profit making activity in the course of carrying
\nout that purpose, which of course depends on the nature
\nand purpose of the “public good. Nowhere do we find in
\nthe material before us any limiting provision that if the
\nappellant carries on any activity in the course of actually
\ncarrying out those purposes of the trust it should refrain
\nfrom adopting and pursuing a profit making activity. In
\nSole Trustee, Loka Shikshana Trust v. Commissioner of
\nIncome-Tax, Mysore, (1975) 101 ITR 234, 243 (SC),
\nKhanna and Gupta, JJ., dealing with a case in which the
\nassessee carried on a business in the course of the actual
\ncarrying out of a primary purpose of the trust, rejected
\nthe claim to exemption and declared :-
\n“The fact that the appellant trust is engaged in the
\nbusiness of printing and publication of newspaper and
\njournals and the further fact that the aforesaid activity
\nyields or is one likely to yield profit and there are no
\nrestrictions on the appellant-trust earning profits in the
\nPage 192 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\ncourse of its business would go to show that the purpose
\nof the appellant- trust does not satisfy the requirement
\nthat it should be one ‘not involving the carrying on of any
\nactivity for profit…….. Ordinarily profit is a normal
\nincident of business activity and if the activity of a trust
\nconsists of carrying on of a business and there are no
\nrestrictions on its making profit, the Court would be well
\njustified in assuming in the absence of some indication to
\nthe contrary that the object of the trust involves the
\ncarrying on of an activity for profit.”
\nBeg, J., in the same case, observed
\n“The deed puts no condition upon the conduct of the
\nnewspaper and publishing business from which we could
\ninfer that it was to be on “no profit and no loss” basis ….
\nThat character (i.e. of the deed) is determined far more
\ncertainly and convincingly by the absence of terms which
\ncould eliminate or prevent profit making from becoming
\nthe real or dominant purpose of the trust. It is what the
\nprovisions of the trust make possible or permit coupled
\nwith what had been actually done without any illegality in
\nthe ;Nay of profit making, in the case before us, under
\nthe cover of the provisions of the deed, which enable us
\nto decipher the predominantly profit making character of
\nthe trust.”
\nIn a subsequent case, Commissioner of Income-Tax,
\nKerala v. Cochin Chamber of Commerce and Industry,
\n(1975) 101 ITR 796 (SC), this Court extended the test to
\nincome derived from activities carried on in aid of, and
\nincidental to, the primary object of the trust. We may
\nnote that no attempt has been made by the appellant
\nbefore us to cast doubt on the validity of the
\nobservations made in those two cases, and we proceed
\non the footing that they convey the true content of the
\nlaw.
\nIt is, therefore, apparent that among the objects
\ncontained in the original unamended sub-clause (b) of
\nclause (3) of the Memorandum are objects which, while
\nreferable to the residual general head in the definition of
\n“charitable purpose” in section 2(15) of the Act,
\nnonetheless do not satisfy the condition that they should
\nnot involve “the carrying on of any activity for profit.” The
\nresult is that the objects “industries” and “common good”
\nPage 193 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\ncannot be described as “charitable purposes”. What
\nfollows then is this, that the said sub-clause (b) can be
\nsaid to contain some objects which are charitable and
\nothers which are non- charitable. They are all objects
\nwhich appear to enjoy an equal status. It is open to the
\nappellant, in its discretion, to apply the income derived
\nfrom conducting kuries and from money lending, to any
\nof the objects. No definite part of the business or of its
\nincome is related to charitable purposes only.
\nConsequently, in view of Mohammed Ibrahim Raza v.
\nCommissioner of Income-‘Tax, (1930) LR 57 IA 260; AIR
\n1930 PC 226 and East India Industries (Madras) Private
\nLimited v. Commissioner of Income-Tax, (1967) 65 ITR
\n611 (SC), , the entire claim to exemption must fail and it
\ncannot be said that any part of the income under
\nconsideration is exempt from tax. That is the position in
\nregard to the assessment years 1962-63 to 1965-66
\nbefore us\u201d
\n172. Thus, in the facts of that case, the Supreme Court,
\nultimately, held that the objects \u201cindustries\u201d and \u201ccommon
\ngood\u201d could not be described as \u201ccharitable purposes\u201d. This
\ndecision also, in our opinion, is of no avail to the Revenue.
\n173. In the case of Sole Trustee Loka Shikshana Trust (supra),
\nthe appellant was the sole trusty of a trust. The object of the
\ntrust was to educate the people of India in general and of
\nKarnataka in particular by (a) establishing, conducting and
\nhelping directly or indirectly institutions calculated to educate
\nthe people by spread of knowledge on all matters of general
\ninterest and welfare; (b) founding and running reading rooms
\nand libraries and keeping and conducting printing houses and
\npublishing or aiding the publication of books, booklets, leaflets,
\npamphlets, magazines etc., in Kannada and other languages,
\nall these activities being started, conducted and carried on
\nwith the object of educating the people; (c) supplying the
\nPage 194 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\nKannada speaking people with an organ or organs of educated
\npublic opinion and conducting journals in Kannada and other
\nlanguage for the dissemination of useful news and information
\nand for the ventilation of public opinion on matters of general
\npublic utility; and (d) helping directly or indirectly societies and
\ninstitutions which have all or any of the aforesaid objects in
\nview. The High Court held that the income of the trust was not
\nentitled to exemption under Section 11 read with Section 2(15)
\nof the Act. The assessee, went in appeal before the Supreme
\nCourt. The Supreme Court, while dismissing the appeal of the
\nassessee, observed as under;
\n\u201cIn addition to the power which the sole trustee had to
\ncollect donations and subscriptions for the trust. he had
\nall the powers which the sole manager of a business may
\nhave in order to carry it on profitably. He had the power
\nof transferring trust properties and funds if he thought “it
\nexpedient in the interest of the objects of the Trust, to
\ntransfer the assests and liabilities of this Trust to any
\nother Charitable Trust or institution conducted by such
\nTrust which in the opinion of the original Trustee or the
\nBoard of Trustee has objects similar to the objects of this
\nTrust and is capable of carrying out the objects and
\npurposes of this Trust either fully or partially” (Paragraph
\n17 of the Trust deed). Although, the “original trustee”
\nwas not “to take any remuneration” for discharging his
\nduties as a trustee, yet, he was not precluded “from
\nbeing paid out of the Trust fund such remuneration as
\nmay be deemed propellor carrying out any work and duty
\nin connection with the conduct or management of
\ninstitutions of the Trust, or with the business of printing,
\npublishing or other activities carried on by the Trust”. He
\nwas to be paid expenses incurred in travelling or
\notherwise in connection with his duties as a trustee
\n(paragraph 16 of the Trust deed).
\nThe “original trustee” could invest trust monies and profits “in any
\ninvestment authorised by law for the investment of Trust funds or in
\nshares, or securities or debentures of Limited Companies in India or
\noutside” (para 4 of the Trust deed). He had the “power to mortgage,
\nsell, transfer and give on lease or to otherwise deal with the Trust
\nPage 195 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\nproperty or any portion thereof for the purpose of the Trust and to
\nborrow monies or raise loans for the purpose of the Trust whenever he
\nmay deem it necessary to do so” (para 8 of the Trust deed).
\nFurthermore, the Trustee had the “power and authority to spend and
\nutilise the money and the property of the Trust for any of the purposes
\nof this Trust in such manner as to him may appear proper”.
\nIt appears to us that, with this profit making background of the trust, its
\nloosely stated objects the wide powers of the sole trustee, and the
\napparently profitable mode of conducting business, just like any
\ncommercial concern, disclosed not only by the terms of the trust but by
\nthe statement of total expenditure and income by the trustee it is very
\ndifficult to see what educational or other charitable purpose the trust
\nwas serving unless the dissemination of information and expression of
\nopinions through the publications of the trust was in itself treated as the
\nreally educational and charitable purpose.
\nIn the trust deed before us, as we have already indicated,
\nthe trustee had not only wide powers of utilisation of
\ntrust funds for purposes of the trust but could divert its
\nassets as well as any of the funds of the Trust to other
\ninstitutions whose objects are “similar to the objects” of
\nthe trust and of “carrying out the objects and purposes of
\nthis trust either fully or partially”. The whole deed
\nappears to me to be cleverly drafted so as to make the
\npurpose of clause 2(c) resemble the one which was held
\nto be protected from income-tax in the Tribune case
\n(supra). Indeed the very language used by the Privy
\nCouncil in the Tribune case (supra), for describing the
\nobjects of the Trust in that case, seems to have been
\nkept in view by the draftsman of the trust deed before
\nus. And, we find that the power of diverting the assets
\nand income of the Trust although couched in language
\nwhich seems designed to counsel their real effect is
\ndecisive on the question whether the trust is either
\nwholly or predominantly for a charitable purpose or not.
\nThe trustees is given the power of deciding what 485
\npurpose is allowed to or like an object covered by the
\ntrust and how it is to be served by a diversion of trust
\nproperties and funds. If the trustee is given the power to
\ndetermine the proportion of such diversion, as he is given
\nhere, the trust could not be said to be wholly charitable.
\nHe could divert as much as to make the charitable part or
\naspect, if any, purely illusory. Indeed, this was the law
\neven before the qualifying words introduced by the 1961
\nAct. [See: East India Industries (Madras) Pvt. Ltd. v.
\nCommissioner of Income-tax, Madras, (1967) 65 ITR 611
\n(SC), Commissioner of Income-tax, Madras v. Andhra
\nPage 196 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\nChamber of Commerce, (1965) 55 ITR 722 (SC) and Md.
\nIbrahim Riza v. Commissioner of Income-tax, Nagpur, AIR
\n1930 PC 226. Such a “trust” would be of doubtful validity,
\nbut I refrain from further comment or any
\npronouncement upon the validity of such a trust as that
\nwas neither a question referred to the High Court in this
\ncase nor argued anywhere. \u201c
\n174. Thus, it appears that the Supreme Court looked into the
\ntrust deed of the trust in details and noticed that the sole
\ntrustee had not only wide powers of utilization of the trust
\nfunds for the purposes of the trust but he could divert its
\nassets as well as any of the funds of the trust, to the other
\ninstitutions whose objects were \u201csimilar to the objects\u201d of the
\ntrust and of \u201ccarrying out the objects and purposes of such
\ntrust either fully or partially.\u201d The Supreme Court observed
\nthat the whole deed appeared to be very cleverly drafted so as
\nto make the purpose of clause (2)(c) resemble the one which
\nwas held to be protected from income tax in the Tribune case
\n(1939) 7 ITR 415. (PC). The Supreme Court observed that if
\nthe trustee is given the power to determine the proportion of
\nsuch diversion, the trust could not be said to be wholly
\ncharitable. This decision also is of no avail to the Revenue in
\nthe case at hand.
\n175. In the case of Cricket Association of Bengal (supra), the
\nassessee was an unregistered and unincorporated body. Its
\nmembership was open to the clubs, District Associations,
\nUniversities, Indian States, and subject to certain conditions,
\nindividuals. Its objects were roughly summarized as promotion
\nof the game of cricket played in accordance with the highest
\nstandard. The Association received payments by way of
\nsubscriptions and donations. The ITO did not accept the plea of
\nthe assessee, seeking exemption. The ITO held that the object
\nPage 197 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\nof the Association was merely the promotion of a game and
\ncould not be termed as pursuing a charitable object. The
\norder of the ITO was upheld by the AAC as well as the Tribunal.
\nThe matter went in appeal before the High Court of Calcutta.
\nThe High Court, while rejecting the appeal of the assessee,
\nobserved as under;
\n\u201c12. The question we have to consider is whether
\npromotion of cricket as a general purpose or more
\nparticularly promotion of cricket in the form in which the
\nAssociation professes to promote it can at all be a
\ncharitable purpose. In England, it has repeatedly been
\nheld that no gift or bequest made merely for the
\npromotion of some game or pastime can be called a gift
\nor bequest for a charitable purpose. An exception is to be
\nfound with respect to cases where provision is made for
\ntraining in a game as a part of the education of youth. In
\nthose cases, the gift or bequest is regarded as charitable
\non the ground that it advances the cause of education. As
\ninstances of gifts or bequests for such purposes, I may
\nrefer to the case of In re, Mariette : Mariette v. Governing
\nBody of Aldenham School, (1915) 2 Ch. 284, where a
\nbequest was made to the Governing Body of a school for
\nthe purpose of building some squash racket courts and a
\nfurther bequest was made to the Head Master for the
\ntime being upon trust to use the interest for providing a
\nprize for some event in the school athletic sports every
\nyear. This bequest was upheld as charitable, because it
\nwas considered essential in a school of learning that
\nthere should be organised games as a part of the daily
\nroutine in order that the boys might not be left to
\nthemselves and that their bodily welfare might be
\npromoted. Another instance is the case of Dupree’s Deed
\nTrusts, In re, Daley v. Lloyds Bank, Ltd., (1945) 114 LJ Ch
\nL where a deed of gift, expressed to be for the
\nencouragement of chess playing by holding an annual
\nchess tournament limited to boys and, young-men under
\nthe age of 21 years resident in a particular area, was held
\nto be a good gift for a charitable purpose. It appears that
\nVaisey, J. who decided the case had to struggle a good
\ndeal against his own inclinations in order to arrive at the
\nconclusion which he ultimately reached, but he said that
\nPage 198 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\nin view of the evidence before him that chess was
\nincluded in the school curriculum and that according to
\nthe experience of the members of the teaching
\nprofession the game promoted concentration, selfreliance
\nand reasoning, he would not condemn the gift as
\nbad. The learned Judge, however, expressed the difficulty
\nhe felt in the following words :
\n“One feels perhaps that one is on rather a slippery slope.
\nIt chess, why not draughts? if draughts, why not bezique?
\nand so on, through to bridge, whist, and by another
\nroute, stamp collecting and the acquisition of birds’
\neggs?”
\nI need not, however, deal with this class of cases,
\nbecause the gifts in them were not merely for the
\npromotion of some game or sports, but they were for
\ntraining of youth in some game of skill or in athletic
\nsports as a part of their education. Where, however, a gift
\nor bequest has been made solely for the promotion of a
\ngame or pastime, it has always been struck down as not
\ncharitable. To take the case of In re: Nottage: Jones v.
\nPalmer, (1895) 2 Ch. 649 which is so often cited, the four
\nJudges who decided it, one in the High Court and three in
\nthe Court of Appeal, all held that a bequest for the
\nencouragement of yacht racing, although it might be
\nbeneficial to the public, could not be upheld as
\ncharitable, because it was a bequest for the
\nencouragement of a mere sport. Lindley, L. J. in the Court
\nof Appeal made an observation in the course of his
\njudgment which is peculiarly appropriate to the present
\ncase, since it mentions encouragement of the game of
\ncricket :
\n“Now, I should say”, observed the learned Judge, “that
\nevery healthy sport is good for the nation–cricket,
\nfootball, fencing, yachting, or any other healthy exercise
\nand recreation; but if it had been the idea of lawyers that
\na gift for the encouragement of such exercises is
\ntherefore charitable, we should have heard of it before
\nnow.”
\nIt will be noticed that the learned Lord Justice included
\ncricket among the games in the illustrations he gave. The
\ncase was decided in 1895 and it may be said that ideas
\nhave since changed and that cricket has grown so much
\nin popularity and the general public have come to be
\nPage 199 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\nassociated so much with the game that the observations
\nmade so long ago are no longer valid. Any such
\ncontention must be overruled because even the
\nrecentmost cases have not expressed any dissent from
\nthe view taken in the Nottage case(1895-2 Ch. 649). It
\nhas often been cited and very recently it was cited in the
\ncase of Baddeley v. Inland Revenue Commissioners,
\n(1953) 1 Ch 504 in the Court of Appeal and in the same
\ncase, Baddeley v. Inland Revenue Commra., (1955) AC
\n572 in the House of Lords. “In re Nottage, 1895-2 Ch 649
\nwas cited for the proposition” observed Jenkins L. J. in the
\nCourt of Appeal.
\n“that the encouragement of mere sport is not a charitable
\npurpose. With regard to this authority, I need only say
\nthat in my view, neither of the trust here in question is a
\ntrust for the encouragement of mere sport”.
\nIt is noticeable that the learned Lord Justice did not
\ndissent from the decision cited before him. A more
\nelaborate reference to the case was made in the House of
\nLords and among the other Lords, Lord Reid made
\ncomments on it. Referring to the view taken in the Court
\nof Appeal of the Nottage case, 1895-2 Ch 649, Lord Reid
\nobserved as follows :
\n“In re Nottage, 1895-2 Ch 649 is clearly distinguishable :
\nmoney was bequeathed to provide annually a cup for
\nyacht racing, so the only possible beneficiaries were
\nyacht owners who would be somewhat strange objects of
\ncharity. But what the appellants found on is the
\nreasoning in the Court of Appeal to the effect that
\nencouragement of a mere sport or game is not charitable
\nthough the sport or game may be beneficial to the public.
\nNo doubt that is true in the main, but it cannot apply to
\nthe provision or support of playing fields: yacht racing is
\nfar removed from the kind of recreation which Parliament
\nhas declared to be charitable. And a charitable purpose
\nsuch as education may well be achieved in part at least
\nby promoting. sport or games. The emphasis is on mere
\nsport or games, and I cannot suppose that any of the
\nlearned Judges had in mind the Acts of Parliament
\ndealing-with recreation or would have denied that the
\nencouragement of games, as a means to achieve a
\ncharitable purpose for those who took part in them, was
\nquite a different matter.”
\nIt will thus be seen that while promotion of games as a
\nPage 200 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\npart of the education of those who participate in them
\nmay be a charitable purpose, the promotion of the
\npractice of a game in general either for the
\nentertainment of the public or for an advancement of. the
\ngame itself has never been held to be charitable. So far
\nas cricket is concerned, I shall content myself with citing
\nonly one other case, In re Patten, Westminster Bank,
\nLimited v. Carlyon, 1929-2 Ch. 276. A trust was created
\nfor the benefit of the Sussex County Cricket Club and in
\norder to bring the trust within the statute of Elizabeth, it
\nwas said that the trust was “for the supportation aid and
\nhelp of young tradesmen handicraftsmen and persons
\ndecayed”. Really, however, it was a trust for the
\npromotion of cricket among boys of the working and
\nlower middle classes who might not be well off
\nfinancially. Romer, J. who decided the case said that it
\nmight be that with the aid of the assistance provided
\nfrom this trust, some boys would be enable to embark,
\nupon life as professional cricketers, but he continued. to
\nsay : “It is, I think, reasonably clear that the object of the
\nfund is the encouragement of the game of cricket and
\nnothing else, and it has been held by authorities that are
\nbinding upon me that such a bequest is not charitable.”
\nHe then proceeded to refer to the case of In re Nottage,
\n1895-2 Ch 649 as laying down the proposition to which
\nhe was giving effect.
\n13. I do not think I should multiply citations in order to
\nillustrate the point that a gift or bequest merely for the
\npromotion of a game has never been considered
\ncharitable : Clifford, In re : Mallam v. McFie, (1911) 81 LJ
\nCh 220 was a case of angling; Trustees of Warnher’s
\nCharitable Trust v. Commissioners of Inland Revenue,
\n(1937) 21 Tax Cas 137, a case of playing fields. Scottish
\nFlying Club, Ltd. v. Commissioners of Inland Revenue,
\n(1936) 20 Tax. Cas 1, a case of an Aviation Club which
\nheld aerial pageants and charged fees for admission to
\nthe display and Inland Revenue Commissioners v. City of
\nGlasgow Police Athletic Association, 1953 AC 380, a case
\nof athletic sports of a police club. It is true that some of
\nthe decisions ultimately turned on the point that the
\nbeneficiary was not the public or a section of it, as
\nunderstood in law, but incidentally observations were
\nmade in all of them as regards when promotion of a
\ngame can be a charitable purpose and when it cannot be.
\n14. The facts of the present case are that the assessee
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\nC\/TAXAP\/268\/2012 JUDGMENT
\nAssociation merely held certain demonstration or
\nexhibition matches. It does not provide any training in
\nthe game of cricket to novices or any advanced training
\nfor persons who are already practiced players. Its
\nactivities outside the holding of the exhibition matches is
\nlimited entirely to its own members. The only contact it
\nhas with the public is by way of having them as
\nspectators, on payment of a fee, of matches arranged by
\nit. I find it impossible to hold that any benefit or
\nentertainment which is thus paid for and which is availed
\nof by only such members of the public as can or wish to
\npay for it can in any sense be a purpose of a charity. It is
\ntrue that charity in the income-tax sense need not have
\nany eleemosynary element in it and that an object of
\ngeneral public utility is under the income-tax law a
\ncharitable object. Indeed, if the objects professed by the
\nAssociation, are to be treated as charitable objects at all,
\nthey can be so treated only if they can be regarded as
\nobjects of general public utility. I find it impossible to hold
\nthat there is any general public utility, so as to amount to
\na charity, in arranging for cricket matches which the
\npublic can see on payment. How untenable must be a
\ncontention that such an object is an object of general
\npublic utility and, therefore, must be held to be charitable
\nwill appear if one considers certain parallel cases.
\nSuppose a body of men bind themselves together into a
\nclub and collect annually some musicians from all parts of
\nthe country to give demonstrations for a number of days
\nand suppose the public are admitted to such
\ndemonstrations on payment of a fee. If the contention of
\nthe Association in the present case is to be accepted, it
\nmust equally be held that the body of men in the
\nhypothetical case I have mentioned who derive a large
\nincome by selling admission to the musical
\ndemonstrations organised by them, are also exercising
\nthemselves for a charitable purpose and that their
\nearnings must be equally exempt from tax.
\n15. It was contended that the game of cricket had a place
\nof its own among games and that it inculcated a spirit of
\nfairness and an honourable conduct to such ah extent
\nthat the term ‘cricket’ had come to be a synonym for
\nfairness and honour. That may be so, but I am unable to
\nunderstand how fairness and honour can be inculcated by
\nthe game of cricket in any person other than those who
\nactually take part in it. In the present case, we are not
\nPage 202 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\nconcerned with the players who play at the matches
\narranged by the Association, for they are members of the
\nvisiting teams or it might be local teams, but so far as the
\nAssociation is concerned they are mostly outsiders. The
\nAssociation is claiming to be advancing a charitable
\npurpose only by providing an opportunity to the public to
\nwitness the games arranged by it. It can by no means be
\nsaid that any spirit of fairness and honour is inculcated in
\nthe spectators of a game of cricket or perhaps any other
\ngame, played not by individuals but by teams. Indeed,
\nthere is a school of opinion, now growing in volume,
\nwhich thinks that games played by rival teams drawn
\nfrom different parts of the country or different countries
\nand witnessed by multitudes do not serve any beneficial
\npurpose, but, on the other hand cause a deterioration of
\nthe mind by fostering fanatical partisanships or
\ngenerating mass hatreds. This, however, is a matter of
\nopinion. Whether this extreme view is right or wrong, I
\nfind it impossible to hold that any benefit of a public
\ncharacter is conferred on the society or a section of it
\nmerely by the arrangement of exhibition games of cricket
\nor tournaments and the admission of the public thereto
\nfor a fee, on the basis of which the purpose of arranging
\nfor such matches can be said to be a charitable purpose.
\n16. There is another ground too upon which the
\nAssociation’s claim must fail. I have already hinted at it,
\nbut will now point it out specifically. Among the objects
\nset out in the Rules is one which authorises the
\nAssociation to carry out any other business or activity
\nwhich may seem to the Association capable of being
\ncarried on in connection with the above. Section 4 (3) (i)
\n(a) and (b) of the Act which I have already read
\ncontemplate either a business carried on in the course of
\nthe carrying out of a primary purpose of the Association
\nor a business, the work in connection with which is
\nmainly carried on by the beneficiaries. There is no
\nquestion of the business of playing cricket here being
\ncarried on by the beneficiaries of the Association,
\nbecause the games are mainly played by outsiders. But
\nthe authority which the Rules confer on the Association to
\ncarry out any other business “in connection with the
\nabove,” that is to say, in connection with the promotion
\nof the objects set out earlier, does not seem to me to
\ncome within the terms of Section 4 (3) (i) (a) which
\nrequires the business to be carried on in the course of
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\nC\/TAXAP\/268\/2012 JUDGMENT
\ncarrying out one of the primary purposes of the
\nAssociation. If so, it appears to me that even assuming
\nthat there is a property and even assuming that the
\npurpose of promoting the game of cricket is a charitable
\npurpose, the property is here held not wholly for that
\npurpose but it is held for other purposes as well.\u201d
\n176. The High Court, in the aforesaid case, took notice of the
\nfact that the Association merely held certain demonstration or
\nexhibition matches. It did not provide any training in the game
\nof cricket to novices or any advanced training for the persons
\nwho were already practiced players. The High Court further
\nnoticed that the activities of the Association, outside the
\nholding of the exhibition matches, was limited entirely to its
\nown members. The High Court also noticed that the only
\ncontact the Association had with the public was by way of
\nhaving them as spectators on payment of a fee of matches
\narranged by it. Thus, having regard to what has been referred
\nto above, the High Court, ultimately, took the view that the
\nAssociation was engaged in any charitable objects. The facts in
\nthe case on hand are altogether different.
\n177. In the case of N.N. Desai Charitable Trust (supra), this
\nCourt ruled that howsoever laudable the objects of the trust
\nmay be, and such objects may lead one to believe that the
\nactivities of the trust are charitable in nature, but for the
\npurpose of seeking exemption under Section 11 of the Act, the
\nactual activities are to be seen and not just the objects. There
\nneed not be any debate on this proposition of law. In the case
\non hand, after a detailed scrutiny of the various activities, the
\ntribunal has recorded a finding of fact that the activities, in
\nfact, are charitable in nature.
\nPage 204 of 205
\nC\/TAXAP\/268\/2012 JUDGMENT
\n178. In such circumstances, referred to above, we are of the
\nview that the Tribunal could be said to have taken a
\nreasonable view of the matter, and having recorded a finding
\nof fact based on the material on record, we should not disturb
\nsuch finding of fact.
\n179. In the result, all the tax appeals fail and are hereby
\ndismissed. The substantial questions of law, formulated in all
\nthe tax appeals, are answered in favour of the assessees and
\nagainst the Revenue.
\n(J. B. PARDIWALA, J)
\n(A. C. RAO, J)
\nVahid
\nPage 205 of 205<\/p>\n","protected":false},"excerpt":{"rendered":"
It is not in dispute that the three Associations have not 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<\/p>\n