Cancellation of Trust Registration and Charitable Nature of Sports Activities: Remanded for Fresh Adjudication.

ORDER

Astha Chandra, Judicial Member.- Two appeals filed by the assessee are directed against the two separate orders dated 22.04.2024 and 12.03.2024 of the Ld. Commissioner of Income Tax (Appeals)/NFAC, Delhi [“CIT(A)”] pertaining to Assessment Years (“AYs”) 2011-12 and 2012-13. Since the issue(s) involved are identical, these were heard together and are being disposed of by this common order.

2. The assessee has raised the following grounds of appeal:-

“1. The learned CTT(A) erred in confirming the addition of Rs.15,78,07,810 made by the A.O. by denying the exemption u/s 11 of the Act and thereby taxing the receipts of the assessee trust without appreciating that the said action of the CIT(A) was not justified on facts and in law.

2. The learned CIT(A) erred in not accepting the claim of the assessee trust that the activities of the trust are that of Charitable Nature, and thereby invoking the provisions of amended Section 2(15) wc.101-04-2009 without appreciating that the said action is not justified on facts and in law.

3. The learned CIT(A) failed to appreciate that the 12A registration of the assessee trust has duly been restore by the Honorable Pune ITAT vide its order dated 28.08.2014 and the said order has not been stayed by the Hon’ble Bombay High Court therefore, the assessee trust is eligible to claim benefit of section 11 and 12 of the Act.

4. The learned CIT(A) ought to have appreciated that in the subsequent assessment proceedings the Revenue has accepted the contention of the assessee trust and allowed exemption u/s 11 to 13 of the Act, therefore, in view of the principle of consistency the learned CIT(A) should have treated the assessee trust as charitable organization eligible for exemption.

5. The learned CIT(A) erred in sustaining the addition of Rs.13,08,01,585 made by the A.O towards T.V. subsidy received from Board of Control for Cricket in India (BCCI) without appreciating that the said addition is not justified on facts and in law.

6. The learned CTT(A) failed to appreciate that the subsidy of Rs.13,08,01,585 received from BCCI was a voluntary grant from the parent body for promotion and development of the game of cricket in Maharashtra and there was no commercial activity involved on the part of assessee trust is concerned, thus, the receipt of subsidy was not a payment for carrying on of any trade, commerce or business and hence, the same should be treated as Voluntary Donation.

7. The learned CIT(A) ought to have appreciated that the TV subsidy was given to all State Associations and was part of the scheme of BCCI and state associations neither have any role in deciding the quantum of such donation nor compel BCCI to pay such subsidy every year, its BCCI who decides the quantum and frequency of payment hence, there was no commercial character attached to these receipts.

8. The learned CIT(A) also failed in not appreciating that the TV subsidy was granted to all the state associations irrespective of hosting the international matches and the this policy was in existence since last many years.

9. The learned CIT(A) erred in holding that the IPL Subvention Subsidy of Rs.8,10,43,200 received from BCCI as a commercial receipt in the hands of the assessee trust and thereby denying the exemption u/s 11 of the Act without appreciating that the said addition is not justified on facts and in law.

10. The learned CIT(A) failed to appreciate that the Indian Premier League is an activity carried out of the Board of Control for Cricket in India (BCCI) along with franchises involved and the assessee trust apart from renting its stadium does not play any active role in it, therefore, the exemption of the assessee trust should not be adjudicated on basis on the activities carried out by another entity.

11. The learned CIT(A) ought to have appreciated that irrespective of the nature of the activities of the BCCI (commercial or charitable), what is pertinent for the purpose of determining the nature of the activities of the assessees trust, is the object and the activities of the assessees trust and not that of the BCCI; the nature of the activities of the assessee cannot take its colour from the nature of the activities of the donor.

12. The learned CIT(A) erred in sustaining the addition of Rs.1,50,35,828 made by the A.O in respect of Tournament receipts without appreciating that the said addition is not justified on fact and in law.

13. The leaned CIT(A) failed to appreciate that tournament receipts represents the reimbursement received from BCCI and entry fees received for various domestic tournaments conducted by the assessee trust and hence, the same should not be treated as commercial income of the assessee trust.

14. The learned CIT(A) erred in sustaining the addition of Rs.2,97,30,982 made by the A.O in respect of capital subsidy received by the assessee trust from BCCI for the construction of Gahunje Stadium without appreciating that the said addition is not justified on facts and in law.

15. The learned CIT(A) erred in confirming the disallowance of deficit claim of Rs.155,55,73,714 in respect of application of income without appreciating that the said action is justified on facts and in law.

16. The appellant craves, leave to add, alter, amend and delete any of the above grounds of appeal.”

3. Briefly stated the facts are that the assessee is a charitable trust registered under the Bombay Public Trust Act and the Societies Registration Act, 1860. It also registered u/s 12A of the Income Tax Act, 1961 (the “Act”) with effect from 9^th December, 1991. The assessee trust is formed with the object “to encourage physical education, foster and maintain friendly cordial relationship through sport tournaments and competitions in connection therewith and to create a healthy spirit in the country through the medium of sports in general and cricket in particular.” For AY 2011-12, the assessee filed its return of income on 28.09.2011 declaring total income at Rs.Nil. The return was processed u/s 143(1) of the Act on 25.04.2012. Subsequently, the case was selected for scrutiny under CASS. Accordingly, notice(s) u/s 143(2) and 142(1) of the Act along with questionnaire were issued and duly served on the assessee from time to time. The assessee submitted the requisite details as called upon by the Ld. Assessing Officer (“AO”).

3.1 During the course of assessment proceedings, the Ld. AO noticed that the assessee trust is a member of BCCI. Majority of its income includes subsidy from BCCI, capital grants or subsidy for buying specific assets such as land for stadium or construction of stadium, annual affiliation fees, TV subsidy, IPL subvention subsidy and interest income etc. He observed that the Ld. Commissioner of Income Tax-1, Pune vie his order dated 30^th July, 2012 cancelled the registration granted to the assessee trust u/s 12A of the Act on account of amendment to section 2(15) and non-communication of change in objects of the trust with effect from 1^st April, 2009. The Ld. AO accordingly opined as under and requested the assessee to furnish its response thereto :

“a. Cancellation of Registration of Assessee Trust u/s 12A and as a consequence of the same, the withdrawal of the exemption claimed by the Assessee Trust u/s 11 and assessing it as AOP.

b. Treating the Capital Subsidies received from BCCI for various Assets and for Gahunje Stadium Project as revenue receipts.

c. Treating subsidies received from BCCI towards IPL Subvention and TV Subsidy as commercial in nature and treating the activities of the assessee trust being carried out in a commercial manner and for profits.

d. Withdrawal of Claim of Capital Expenditure being application of Income, and withdrawal total claim of application of income under Section 11 for the year under consideration.

e. Treating tournament receipts from BCCI as commercial in nature and treating the activities of the Assessee Trust being carried out in a commercial manner and for profits.”

3.2 In response to the above queries, the assessee filed its written submissions raising the following contentions in support of its claim:

“a. Regarding the withdrawal of 12A Registration the assessee Trust has submitted that the withdrawal of Registration u/s 12A is bad in law and is required to be quashed and the Assessee Trust has filed an Appeal with Income Tax Appellate Tribunal, Pune Bench ‘A’ (ITA No. 1856/Pn/2012) against the Order for cancelation Registration u/s 12A of the Income Tax Act, 1961. The appeal is partly heard. Assessee Trust has relied on various judicial decisions in support of its claim and also submitted the copies of the same at the time of assessment proceedings.

b. Regarding treating Capital Subsidies received for various Infrastructure developments, Gahunje Stadium Project as revenue receipts, the assessee Trust has submitted that the receipt for acquiring various Capital Assets are by very nature voluntary Capital Receipts and also submitted various judicial decision in support of its claim.

c. Regarding Subsidy from BCCI, the Assessee Trust has submitted that it has no role to play in getting these subsidies. MCA does not have any role to play in this entire process. All these subsidies are voluntary receipts and given to all staging as well as non-staging Cricket Associations solely at the discretion of BCCI the parent Body of the Assessee Trust. Subsidies are voluntary payments for development of the game, it is a gratuitous payment given by BCCI to MCA for furtherance of the charitable activities of the Assessee Trust and there is no commercial substance hidden in the same. Even the Assessee Trust has not hosted any International Cricket Match during the year under consideration; still it has received the subsidy, which makes it very much clear that the receipts are voluntary in nature and not at all commercial.

d. Regarding tournament receipts, the Assessee Trust has submitted that BCCI reimburses the expenses incurred by the state associations for conduction of various tournaments/matches in the manner laid down under rules framed by BCCI. These rules are common to all State Associations. In fact MCA has deficit on this specific account and net deficit only after considering the reimbursement is debited to Income & Expenditure Account.”

3.3 The above submissions/contentions of the assessee were not acceptable to the Ld. AO and he proceeded to complete the assessment u/s 143(3) of the Act vide his order dated 14.03.2014 assessing the total income at Rs.15,78,07,810/- disallowing the exemption claimed by the assessee society u/s 11 of the Act and computing the income of the assessee as an AOP by recasting the income and expenditure statement at maximum marginal rate. The Ld. AO made the following major disallowances :

“a. Withdrawal of Claim u/s 11 of the Income Tax Act, 1961 and treating the Assessee as AOP liable for taxation by considering the activities of the trust not to be charitable in nature and the eligibility of allowance of sec 11 depends on accounting treatment given by BCCI. i.e. Expenditure will be allowed to the assessee trust only if BCCI had not treated the same as expenditure in its accounts.

b. Treating the Capital Subsidies received from BCCI Rs.2,97,30,982/- for Gahunje Stadium Project as revenue receipts and liable for tax.

c. Withdrawing the claim of Rs.166,13,62,685/- being Capital Expenditure claimed as Application of Income and claim of deficit of Rs.155,55,73,714/-(180,21,27,096 – 24,65,53,382).

d. Added tournament receipts from BCCI of Rs.1,50,35,828/- as revenue receipt separately as liable for tax, though the these receipts are credited to Tournament Expenses Account.”

4. Aggrieved, the assessee filed an appeal before the Ld. CIT(A) challenging the above action of the Ld. AO. The Ld. CIT(A) dismissed the appeal of the assessee by upholding the observations and findings of the Ld. AO in respect of each ground of the appeal raised by the assessee before him. The relevant observations and findings of the Ld. CIT(A) is reproduced below :

“1. Ground no. 1 objects to assessing the income of the assessee at Rs.157807807 without specifying any particular reason.

2. Ground no.2 disputes cancellation of registration u/s12A and disallowance of exemption under section 11 & 12. The AO brought the surplus in income and expenditure account because the registration u/s 12A is cancelled w.e.f 1st April 2009. The AO treated the assessee as AOP and adjudicated that since BCCI cannot claim benefits of section 12A, any receipts from BCCI is not eligible for exemption under section 11 to 13. The AO rightly considered the assessee as not carrying out any charitable activity. The assessee trust was promoting the game of cricket in every corner of the state which involved huge money making aim and it is running purely on commercial terms and earning systematic profits year after year. The AO denied assessee’s claim of excess application of expenses over income of Rs. 155,5573714.

3. In ground no.3, objects to AO treating subsidies and receipts from BCCI as neither voluntary in nature nor ‘income derived from property held under trust’. These receipts and subsidies are rightly treated as commercial receipts and denied exemption claimed u/s 11. The total amount of subsidy received is Rs.121844785.The AO rightly treated tournament receipts of Rs.15035828 as business receipts. The AO rightly held that subsidies received by the assessee from BCCI amount to carrying out an activity in the nature of trade commerce or business and was hit by the amendment to section 2(15). Therefore after giving an opportunity of being heard, CIT,1, Pune vide its order dated 30.07.2012 cancelled the registration u/s12A from AY.2009-10 onwards for the detailed reasons discussed in the said order.

4. For the detailed reasons discussed in the assessment order total income as per re-casted Income & Expenditure amounting to Rs.157807810 is confirmed.”

5. Dissatisfied, the assessee is in appeal before the Tribunal and all the grounds of appeal relate thereto.

6. The Ld. AR submitted that the assessee has been regularly filing its return of income and has been subject to scrutiny in previous AYs 200203, 2003-04, 2004-05, 2008-09 and 2010-11. In all these assessment years, the objects of the trust have been found to be charitable in nature (even post amendment to section 2(15) of the Act) by the Ld. AO including the immediate preceding year i.e. AY 2009-10. The Ld. AR submitted that the Ld. CIT(A) has passed a non-speaking order without himself dwelling into the merits of the case and summarily rejecting the assessee’s appeal based on the observations and findings of the Ld. AO. He submitted that the Ld. CIT(A) has disallowed the exemption claimed by the assessee u/s 11 of the Act for the reason that the registration granted to the assessee u/s 12A of the Act to the assessee has been cancelled by the Ld. Commissioner of Income Tax-1, Pune w.e.f. 1^st April, 2009. However, he failed to appreciate the fact that the Co-ordinate Bench of the Tribunal has decided the impugned issue in favour of the assessee wherein the Tribunal has set aside the order of the Ld. CIT(A) and restored the assessee’s registration u/s 12A of the Act dated 09.12.1991. Consequent to the said order of the Tribunal, the Ld. CIT(E), Pune passed an order u/s 12AA(1)(b)(i) r.w.s. 254 of the Act, dated 09.01.2017 wherein it has been admitted that the assessee is considered to be continuously registered u/s 12A of the Act w.e.f. 09.12.1991. The Department’s appeal against the said order of the Tribunal before the Hon’ble Bombay High Court is pending for adjudication till date. He, therefore submitted that since the decision of the Tribunal (supra) has not been stayed by the Hon’ble Bombay High Court, it still subsists. The Ld. AR contended that all the above facts were brought to the notice of the Ld. CIT(A) by the assessee during the appellate proceedings before him by filing detailed written submissions, however, the Ld. CIT(A) has adjudicated the matter without considering these facts available on record. He further submitted that the Ld. CIT(A) has failed to consider the decision of the Hon’ble Supreme Court in the case of Assistant Commissioner of Income Tax v. Ahmedabad Urban Development Authority[2022] 449 ITR 389 (SC) (AUDA’s case). He prayed that the matter may be restored to the file of the Ld. CIT(A) for deciding the issue on merits in light of the above facts as well as decision of Hon’ble Supreme Court in AUDA’s case (supra).

7. The Ld. DR fairly conceded to the above request of the Ld. AR that the matter may be restored to the file of the Ld. CIT(A) for fresh adjudication on merits based on the fact available on record and in the light of the decision of the Hon’ble Supreme Court in AUDA’s case (supra).

8. We have heard the Ld. Representatives of the parties and perused the material on records and paper book(s) filed by the assessee before us. The facts of the case are not in dispute. We find that the Ld. AO has denied the assessee’s claim of exemption u/s 11 of the Act mainly for the reason that the assessee’s registration u/s 12A of the Act has been cancelled w.e.f. 1^st April, 2009. The Ld. AO has considered the activities carried out by the assessee as not charitable but commercial in nature and denied the assessee’s claim of exemption by applying the amended provisions of section 2(15) of the Act which has been upheld by the Ld. CIT(A). Before us, the Ld. AR has contended that the issue pertaining to cancellation of registration of the assessee trust u/s 12A of the Act is pending in Revenue’s appeal before the Hon’ble Bombay High Court against the order of the Co-ordinate Bench of the Tribunal (supra) wherein the Tribunal has restored the registration granted to the assessee u/s 12A of the Act w.e.f. 09.12.1991. It is the contention of the Ld. AR is that the Hon’ble Bombay High Court has not stayed the said order of the Tribunal and therefore it still subsists, meaning thereby the assessee trust still holds valid certificate of registration u/s 12A of the Act. The Ld. CIT(A) therefore has erred in confirming the additions made by the Ld. AO by denying exemption u/s 11 of the Act and thereby taxing the receipts of the assessee trust. The Ld. AR has also contended that the Ld. CIT(A) has failed to take into account the observations made by the Hon’ble Supreme Court in AUDA’s case (supra) vis-a-vis the nature of activities/receipts of the assessee trust before arriving at the conclusion that the assessee is not eligible for claim of benefit of section 11 and 12 of the Act. We have perused the decision of the Hon’ble Supreme Court in AUDA’s case (supra) wherein the Hon’ble Supreme Court has observed that “In each case and for every year, the tax authorities are under an obligation to carefully examine and see the pattern of receipts and expenditure and the party’s contention in this regard are to be considered on their merits.” This judgment of the Hon’ble Apex Court was available with the Ld. CIT(A) at the time of passing of his appellate order, however, it remained to be considered by him vis-a-vis the facts and merits of the assessee’s case for the relevant AY 2011-12 under consideration. Thus, in our considered view, the issue(s) raised in various grounds of appeal by the assessee before us needs to be examined in light of the observations of the Hon’ble Supreme Court in AUDA’s case (supra). We also find some force in the arguments of the Ld. AR that the Ld. CIT(A) has passed a non-speaking order by simply upholding the observations and findings of the Ld. AO without himself going into the merits of the case and has also failed to consider the detailed submissions made by the assessee before him in support of its claim. Considering the totality of the facts and in the circumstances of the case and in the absence of any objection being raised by the Revenue, we deem it fit and proper in the interest of justice, to set aside the impugned order of the Ld. CIT(A) and restore the matter to his file for fresh adjudication on merits as per fact and law in the light of the decision of the Hon’ble Supreme Court in AUDA’s case (supra) after giving adequate opportunity of being heard to the assessee. The assessee is also hereby directed to make his further submissions before the Ld. CIT(A) to substantiate its case on the appointed date without seeking any adjournment unless otherwise required for the reasonable cause failing which the Ld. CIT(A) shall be at liberty to pass appropriate order as per law. All the grounds No. 1 to 15 raised by the assessee are accordingly allowed for statistical purposes. We direct and order accordingly.

9. In the result, the appeal of the assessee is allowed for statistical purposes.

10. Both the sides are unanimous in stating that the facts and the grounds of appeal in ITA No. 975/PUN/2024 are identical to the grounds raised in ITA No. 1387/PUN/2024 except the variance in amounts. Thus, in view of the fact that the issue raised in the appeal are identical and are arising from same set of facts, the findings given by us while adjudicating the appeal in ITA No. 1387/PUN/2024 would mutatis mutandis apply to the appeal in ITA No. 975/PUN/2024, as well. Accordingly, the appeal of the assessee in ITA No. 975/PUN/2024 is allowed for statistical purpose in the same terms.

11. To sum up, both the appeals of the assessee for AYs 2011-12 (ITA No. 1387/PUN/2024) and 2012-13 (ITA No. 975/PUN/2024) are allowed for statistical purposes.