Tamil Nadu Cricket Association vs Director of Income Tax (Exemptions) and Others

Chitra Venkataraman, J.—The assessee is on appeal as against the order of the income tax Appellate Tribunal and seeks admission of tax

case (appeal) on the following substantial questions of law:

Whether the Tribunal was right in upholding the cancellation of registration u/s 12AA(3) of the income tax Act, 1961, on the ground that the

activities of the appellant could not be said to be genuine after the amendment of the definition of ''charitable purpose''?

Whether the Tribunal was right in law in holding that the activities of the appellant could be said to be ''not genuine'', when the appellant was

carrying on the activities in accordance with its objects and similar to its activities in earlier years, merely on account of the amendment to the

definition of ''charitable purpose'' in the Act?

Whether the Tribunal was right in not following the decisions of the jurisdictional High Court and co-ordinate Benches of the Tribunal, on the

ground that certain aspects had not been highlighted before the hon''ble High Court and the co-ordinate Benches?

The assessee is a society registered under the Tamil Nadu Societies Registration Act. The said society was granted registration u/s 12AA of the

income tax Act, 1961, on March 28, 2003. As is evident from the reading of the memorandum of association, the objects of the association are as

follows:

(a) to maintain a general control of the game of cricket in the State and the Union Territory of Pondicherry and give its decision on all matters

concerning the game either when referred to or suo motu.

(b) to spread the game throughout the State by organizing tournaments, including inter-university, inter-school and inter-association matches, to

educate young sportsmen in the game generally and also in the Held of physical culture and the spirit of sportsmanship. The benefits would be

available to the general public irrespective of caste, creed, religion or sex.

(c) to maintain a library of books, publications and periodicals of interest of sportsmen and to diffuse knowledge of cricket and its ideals of

sportsmanship.

(d) to communicate with public authorities and various sports organizations in India and abroad and concert and promote measures for the

development of the game and to provide social security safeguards for the players, officials such as managers/coaches, umpires, selectors and

others who are directly connected with the game.

Apart from this, yet another object is to afford required facilities for the cricketers, officials such as managers, coaches, umpires, selectors and

others who are directly connected with the game, members to acquire by purchase, lease, hire or otherwise suitable playgrounds, stadia and any

other property, movable and immovable, rights or privileges, etc.

The objects further seek to impart physical education through the medium of cricket and take all steps to assist the citizens to develop their

physique and have a healthy mind and a healthy body; to establish, promote or assist in establishing and promoting and to subscribe to and become

a member of any other association or club whose objects are similar or in part to the objects of the association; to create, foster and maintain

friendly relations with and among the population of the area under its control through sports, tournaments and competitions connected therewith, to

create, develop and foster a healthy spirit of sportsmanship and a broad and generous outlook devoid of all prejudices and to mould the character

of citizen through the medium of sports in general and cricket in particular; to spread the ideals of cricket and all that it stands for throughout the

length and breadth of its area by arranging schools for coaching, lectures, tournaments and run international matches between India and other

leading foreign countries so as to develop mutual goodwill and better understanding between India and other countries; to collect funds and

whenever necessary borrow with or without security for purposes of the association and in particular by the issue of debentures or debenture stock

perpetual or otherwise charged upon all or any of the association''s property both or future and to purchase, redeem or payoff any such securities

and to utilise such funds in such manner as the general body may consider desirable for the fulfillment of the objects of the association; to invest

monies and funds of the association as per the provisions of the income tax Act, 1961; to maintain a panel of approved cricket umpires and to do

such acts as may be necessary for this purpose including holding of prescribed periodical tests with a view to enable them to qualify themselves as

first class umpires; to organise a proper coaching scheme for the benefit of cricketers in the city and in the districts under the supervision of

coaches from India and abroad; to take such action as may be necessary to co-ordinate the activities of affiliated club, district associations and

institutions and their members in relation to the association and amongst themselves.

To achieve the objects, the assessee takes steps to arrange, supervise, regulate and finance visits of State teams or foreign teams under the

auspices of bodies like the Board of Control for Cricket in India; to draw up and organise a proper coaching scheme for the benefit of young and

promising cricketers within the State and the Union Territory of Pondicherry, to draw up a scheme of net practice whether free of charge or on

payment for members of affiliated clubs, district associations and for players selected to represent the association in various competitions within or

outside State, and to arrange for group coaching lectures, exhibition of cricket films for this purpose, etc., to engage a person or persons as a

professional or amateur cricket or cricketers and to pay remuneration or honorarium to him or them; to start or sponsor charity or benefit matches

and/or to subscribe to funds for the benefit of cricketers, coaches, umpires staff of the association or their families; to do all such other acts, deeds

and things as are incidental to or as the association may deem conducive to the attainment of the objects of the association.

After considering the genuineness of these objects, as early as 2003, the assessee was granted registration as a trust u/s 12AA of the income tax

Act, 1961 (hereinafter called as ""the Act""). However, on July 19, 2011, a notice was issued by the Director of income tax (Exemptions) u/s

12AA(3) of the Act that the statement of income and expenditure revealed that the assessee derived income from the following activities:

Subscription

Rent for hiring cricket ground, rooms and premises

Fees for providing services to IPL

Income from advertisement

Subsidy from BCCI

Sale of ticket for conducting of matches

Restaurant and catering income, etc.

Thus, these receipts were held to be in the nature of trade or commerce or business and hit by the proviso to section 2(15) of the income tax Act,

1961 (hereinafter called as ""the Act""). In the circumstances, notice was issued proposing to withdraw the registration granted to the assessee u/s

12AA of the income tax Act, 1961.

Immediately, on the receipt of the notice, the assessee replied that the receipts were not in the nature of trade or commerce or business since the

income of the assessee included interest income earned from fixed deposits with banks; subsidy from BCCI was a voluntary grant from the parent

body for promotion and development of the game of cricket in Tamil Nadu; there was no commercial activity involved in the conduct of the IPL

matches for which only subsidy was received by the assessee from BCCI like other cricket associations; thus, the receipt of subsidy was not a

payment for carrying on of any trade, commerce or business; the TV subsidy was given to all State associations and was part of the scheme of

BCCI, being a voluntary donation, there was no commercial character attached to these receipts; so too, the donations and contributions and the

sale of tickets in conducting matches organised by BCCI. Pointing out that the association was not running any canteen or restaurant, the assessee

submitted that as far as fee for providing services to IPL is concerned, the entire income from the sale of tickets belonged to the franchisee and,

therefore, there was no service rendered or charges made by the assessee.

Referring to the satisfaction recorded as to the genuineness of the objects of the association under the provision contained in section 12AA of

the Act, the assessee pointed out that the genuineness of the objects of the trust, thus not being in question and the objects of the trust thus

remaining the same as before and the activities also being in accordance with the objects of the trust, there was no case made out for canceling the

registration.

After hearing the assessee, the respondent passed the order u/s 12AA(3) rejecting the claim of the assessee and thereby canceling the

registration as trust.

The Director of income tax (Exemptions) viewed that though BCCI confirmed the payment to the assessee on IPL matches as grant of subsidy,

the same was not in the nature of grant. It was also pointed out that most of the advertisements through TV telecasting are received by the BCCI, it

being the apex body, thus the so-called subsidy given by the BCCI is nothing but some sort of sharing of the advertisement income on account of

holding of international test matches and ODI matches, due to which the BCCI has gathered huge advertisement income; thus, the nature of

receipt, even though called subsidy by the assessee was necessarily in the nature of income received by the activity of the assessee.

As regards the entrance fee charged, the Director of income tax (Exemptions) held that the receipts out of IPL matches by giving its ground for

conducting those matches were commercial in nature.

Referring to section 12AA(3) read with section 2(15) of the income tax Act, 1961, the respondent-Director of income tax (Exemptions)

viewed that even if the activities were carried on in accordance with the arrangement with the other party, the activities being not charitable, it was

hit by section 12AA(3) of the income tax Act, 1961; thus it was held that the activities were not carried on in accordance with the objects of the

trust; the activities not being charitable, the same could not be held to be genuine and the institution was not a charitable institution. Reading the

genuineness into the activities of the trust and looking at the objects of the trust, the Director of income tax (Exemptions) held that ""genuineness

was a term used only to find out whether the institution was charitable or not; thus once the institution was held as not for charitable purpose,

section 12AA registration had to be necessarily cancelled. In the circumstances, the registration originally granted to the assessee stood cancelled

with effect from April 1, 2009.

The assessee contended before the income tax Appellate Tribunal that since its inception and the date of granting of the registration under the

Act, the objects of the association ever remained same and it has not undergone any change to question its genuineness. The assessee contended

that the view of the Director of income tax (Exemptions) that the assessee was not carrying on charitable activity as per section 2(15) of the Act is

erroneous in law; in any event, all that section 12AA(3) of the Act prescribes for cancellation is the genuineness of the activities of the trust or that

the activities are not carried on in accordance with the objects of the trust. The assessee contended that it conducts national and international

matches including the district league. In addition to the income arrived by sale of tickets, income out of advertisement revenue arising out of the

telecast rights auctioned to different visual media, obtained from BCCI in India was distributed among the different States in India and this is in the

nature of grant/subsidy from BCCI which had been confined by BCCI.

The income tax Appellate Tribunal pointed out that the physical play of cricket game was not the sole point which would decide as to whether

the assessee-association was carrying on its activities as stated in the memorandum of association or the activities were genuine or not. The

Tribunal pointed out that the activities were genuine; however, the matches conducted did not go to the extent of ""advancement of any other object

of general public utility"". The Tribunal also pointed out that the activities did not come within the conceptual framework of charity, vis-a-vis the

activity of general public utility as given u/s 2(15) and the activities were all commercial in character. Thus, the matches conducted were not

conducted in accordance with the objects of the association and as explained in the proviso to the provision in section 2(15). Thus, according to

the Tribunal, when the assessee''s case was fully covered by the proviso, the proceedings taken u/s 12AA(3) were justified. Thus, the Tribunal

viewed that the provisions u/s 12AA(3) could not be read in disregard of section 2(15) first proviso. It further held that after the insertion of the

first proviso to section 2(15) of the income tax Act, 1961, effective from April 1, 2009, every activity on the advancement of the general public

utility to be called as for ""charitable purpose"" has to qualify itself as charitable activity within the meaning of the expression ""charitable purpose"". As

such, the activities of the assessee could not be considered as for a charitable purpose. The income tax Appellate Tribunal pointed out that the

proviso inserted with effect from April 1, 2009, clearly pointed out that advancement of any other object of general public utility shall not be a

charitable purpose, if it involved the carrying on of any activity in the nature of trade, commerce or business or any activity of rendering any service

in relation to any trade, commerce or business, for a cess or fee or any other consideration, irrespective of the nature of use or application, or

retention, of the income from such activity. Considering the said amendment and looking at the activities of the assessee, the income tax Appellate

Tribunal held that the conduct of the matches by cricket associations could be nothing but in the nature of commercial ventures and the assessee

was selling the game for the highest amount of revenue and the effect and the thrust of the assessee was towards maximising the revenue. Citing

IPL matches held and the manner of selection of players, the income tax Appellate Tribunal held that the matches were big game with big money

involved; in the words of the income tax Appellate Tribunal, ""In fact it is an entertainment industry by itself. It pointed out that 78 per cent of the

total receipts came out of advertisement revenue and in the background of the nature of activity undertaken, the entire activity of commercial nature

were oriented towards earning hyper profits and these activities contributed 86.5 per cent of the receipts of the assessee in the financial year 2008-

In this background, the income tax Appellate Tribunal referred to the decision reported in the case of Bangalore Race Club Vs. Commissioner

of Income Tax, Mysore, , which related to the case of horse racing and held the same could not be held to be of public utility or interest. After

referring to the decision of this court reported in the case of Commissioner of Income Tax-I, Madurai Vs. Sarvodaya Ilakkiya Pannai, wherein this

court considered the effect of section 12AA(3) of the Act the income tax Appellate Tribunal held that this court had not considered the effect of

section 2(15) proviso and the necessary facts of the case relating to charitable purpose was not highlighted. It also referred to the decision of the

Ahmedabad Bench A rendered in the case of 2012 (19) ITR (Trib) 520 , as well as other decision of the Nagpur Bench rendered in the case of

Vidarbha Cricket Association v. CIT in I.T.A. No. 3/Nag/10, dated May 30, 2011, which were against the similar rejection order passed and

reversed by the income tax Appellate Tribunal and held that these orders had considered only the physical aspect of the cricket game promoted by

the assessee; however, all the assessee''s activities centered around the celebrated game of cricket.

As far as on the crucial question of general public utility was concerned, the income tax Appellate Tribunal held that the activities of the

assessee are all commercial activities. The income tax Appellate Tribunal held that the activities of the association are not in the nature of activities

for advancement of any object of general public utility; consequently, the appeal has to be dismissed. The income tax Appellate Tribunal upheld the

rejection order passed u/s 12AA of the income tax Act. The income tax Appellate Tribunal further viewed that there was no conflict between the

first proviso to section 2(15) of the Act and the conditions laid down u/s 12AA(3) of the Act for cancelling the registration; thus, when the

assessee''s case is hit by section 2(15) of the Act, consequential action is automatic to pass an order u/s 12AA(3) of the income tax Act, 1961. It

further pointed out that when the assessee was given registration originally, it was on the ground that it was a charitable institution inasmuch as it

engaged itself in the advancement of an object of general public utility; however, when the Revenue had found the assessee''s activities were

oriented towards generating income by converting the sport of cricket into a celebrated industry, the activities not being genuine, rightly, the

Revenue had cancelled the registration granted u/s 12AA of the income tax Act, 1961. Aggrieved by the same, the present appeal has been

preferred by the assessee.

Learned senior counsel appearing for the assessee took us through the various objects of the association and pointed out to the clear distinct

words used in section 12AA(1) and 12AA(3) of the Act as well as the first proviso to section 2(15) of the Act and pointed out that the grant of

registration originally as early as 2003 clearly pointed out the satisfaction of the authorities that the assessee was public charitable trust u/s 12AA of

the Act. Referring to section 12AA(3) of the Act, he further pointed out that the cancellation of registration granted is possible only under the

stated circumstances, viz., on the Commissioner recording his satisfaction that the activities of the trust are not genuine or are not being carried out

in accordance with the objects of the trust or institution; thus unless and until the show-cause notice issued contained the grounds and materials as

prescribed u/s 12AA(3) of the Act the question of cancellation of registration per se does not arise.

Learned senior counsel appearing for the appellant further pointed out that the appellant was granted registration u/s 12AA of the Act only on

the Commissioner satisfying himself on the objects of the trust and the genuineness of the activities. The nature of activity carried on by the assessee

continues to be the same without any change till this date and if any of the activities carried on by the assessee resulted in an income not incidental

and not connected with the main activity or main object of the trust, it would be a matter for assessment. Thus, what has to be a subject matter for

assessment cannot be considered as a ground for canceling the registration u/s 12AA(3).

Taking us through Circular No. 11 of 2008 of the Central Board of Direct Taxes, dated December 19, 2008 (see [2009] 308 ITR (St.) 5),

issued immediately in the wake of the insertion of a proviso to section 2(15) of the income tax Act, 1961, learned senior counsel appearing for the

assessee submitted that as is evident from the reading of the circular, the question of rejection of registration u/s 12AA(3) would arise only in those

cases where an entity uses this status of charitable institution with a charitable object of general public utility as a mask or a device to hide the true

purpose and that object is nothing other than trade, commerce or business or the rendering of any service in relation to trade, commerce or

business; as far as the present case is concerned, the Revenue has not substantiated with any material to show the absence of the genuineness; all

that the Revenue alleges is by conduct of matches, it has exhibited a sense of business or commercial character. This, according to the assessee, is

not a good ground for canceling the registration u/s 12AA of the income tax Act, 1961.

Going by the tenor of the language in section 12AA(3) of the Act and section 12AA(1) of the Act, the cancellation of the registration u/s

12AA of the income tax Act, 1961, is without any substance. He further pointed out that when in a similar assessee''s case, viz., 2012 (19) ITR

(Trib) 520 and in the case of Vidarbha Cricket Association v. CIT the income tax Appellate Tribunal Ahmedabad Bench A dated January 31,

2012, and in I.T.A. No. 3/Nag/10, dated May 30, 2011, of the Nagpur Bench, respectively, on the very same allegations for cancellation of

registration u/s 12AA(3) had held that the cancellation of the registration u/s 12AA of the income tax Act, 1961, was contrary to law, the Chennai

Bench of the ITAT ought to have followed these decisions, which were rendered as early as 2011 and 2012. He further pointed out to the

unreported decision of this court in the case of Gowri Ashram Vs. Director of Income Tax, , as well as in the case of Commissioner of Income Tax

Vs. National Institute of Aeronautical Engineering Educational Society, and submitted that they stand on a different line, they being the decisions

rendered on the rejection of the application for registration. He also referred to the decision of this court reported in the case of Commissioner of

Income Tax-I, Madurai Vs. Sarvodaya Ilakkiya Pannai, wherein, under similar circumstances, this court had held that when a trust is registered

with definite objects to carry on its activities and u/s 12AA of the income tax Act, 1961, the Commissioner is empowered to cancel registration

only on two conditions laid down u/s 12AA(3) of the income tax Act, 1961. He further pointed out that whether the income derived from such

transaction would be assessed to tax or whether the trust would be entitled to exemption u/s 11 of the income tax Act, 1961, are entirely matters

to be considered at the time of assessment. Thus, placing reliance on the decision of this court reported in Commissioner of Income Tax-I,

Madurai Vs. Sarvodaya Ilakkiya Pannai, , learned senior counsel appearing for the assessee submitted that the income tax Appellate Tribunal

committed a serious error in upholding the rejection order passed by the Director of income tax (Exemptions).

Countering the claim made by the learned senior counsel appearing for the assessee, learned standing counsel appearing for the Revenue,

however, submitted that the condition for continuance of the registration depends on the satisfaction of the conditions given under the definition of

charitable purpose"" laid down u/s 2(15) of the Act; when the assessee''s activities do not go hand in hand with the objects of the assessee''s

assessment, rightly, the Revenue had cancelled the registration. He further pointed out that at the time of grant of registration, the Commissioner is

empowered to look into the objects of the trust, for the purpose of grant of registration. However, after granting registration, if the Revenue finds

that the activities of the trust are not genuine and that the advancement of the object of the general public utility is not in terms of the objects of the

trust and that the objects are in the nature of carrying on trade, commerce or business, the grant of registration originally given may be cancelled;

thus, rightly, the registration was cancelled, hence, no exception could be taken to the order of the income tax Appellate Tribunal.

Heard learned senior counsel appearing for the assessee and learned standing counsel appearing for the Revenue and perused the materials

available on record.

We had already extracted in the preceding paragraph, the objects of the association. Going by the objects, we find that the trust falls under the

head of ""any other object of general public utility"" and,, hence, falls within the meaning of charitable purpose u/s 2(15) of the Act. Section 2(15) of

the Act defines ""charitable purpose"" as it originally stood at the time of grant of registration as under:

''charitable purpose'' includes relief of the poor, education, medical relief and the advancement of any other object of general public utility.

Section 2(15) was amended under the Finance Act, 2008, with effect from April 1, 2009, by substituting the following provision which reads

as under:

Definitions.--...(15) ''charitable purpose'' includes relief of the poor, education, medical relief, preservation of environment (including

watersheds, forests and wildlife) and preservation of monuments or places or objects of artistic or historic interest, and the advancement of any

other object of general public utility:

Provided that the advancement of any other object of general public utility shall not be a charitable purpose, if it involves the carrying on of any

activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business, for a

cess or fee or any other consideration, irrespective of the nature of use or application, or retention, of the income from such activity;

Section 2(15), as it stood prior to 1983, defined ""charitable purpose"" to include relief of the poor, education, medical relief, and the

advancement of any other object of general public utility not involving the carrying on of any activity for profit. The phrase ""not involving the

carrying on of any activity for profit"" was omitted from the section by the Finance Act, 1983, with effect from April 1, 1984, consequent on the

amendment to section 11, whereunder profits and gains of business in the case of charitable or religious trust and institutions would not be entitled

to exemption under that section, except in cases where the business fulfilled the conditions u/s 11(4). The section was once again amended by

substitution in the year 2008 under the Finance Act, 2008, with effect from April 1, 2009, streamlining the definition of ""charitable purpose"",

considering the fact that taking advantage of the phrase ""advancement of any other object of general public utility"", a number of entities operating

on commercial lines claimed exemption on their income either u/s 10(23C) or u/s 11 of the Act. Thus, to limit the scope of this expression, the

section was amended in the year 2008 that the advancement of any other object of general public utility shall not be a charitable purpose, if the

object involved the carrying on of any activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to

any trade, commerce or business, for a cess or fee or any other consideration, irrespective of the nature of use or application, or retention, of the

income from such activity. Though the section, as it stood prior to the substitution in 2008, contained no provision as in the proviso under the 2008

amendment, yet the Supreme Court held that if the primary or dominant purpose of a trust or institution is charitable, another object which by itself

may not be charitable but which is merely ancillary or incidental to the primary or dominant purpose would not prevent the trust or institution from

being a valid charity, vide Commissioner of Income Tax, Madras Vs. Andhra Chamber of Commerce, (referred to in the decision reported in

Additional Commissioner of Income Tax, Gujarat Vs. Surat Art Silk Cloth Manufacturers Association, ). Thus, if the dominant object or the

primary object was charitable, the subsidiary object for the purpose of securing the fulfillment of the dominant object would not militate against its

charitable character and the purpose would not be any the less charitable. The amendment in the year 2008 made a drastic amendment to deny the

status of a charitable purpose to an institution with the object of general public utility, having any activity in the nature of trade, commerce or

business, or any activity of rendering any service in relation to any trade, commerce or business, for a cess or fee or any other consideration.

The proviso to section 2(15) of the income tax Act states that if the objects involve the carrying on any activity in the nature of trade,

commerce or business, for a cess or fee or any other consideration, irrespective of the nature of use or application, or retention, of the income from

such activity, the status of the institution will not be one for ""charitable purpose"".

The Central Board of Direct Taxes, in paragraph 3.2 pointed out to the scope of the circular as under (see [2009] 308 ITR 57):

In such a case, the object of ''general public utility'' will be only a mask or a device to hide the true purpose, which is trade, commerce or business

or the rendering of any service in relation to trade, commerce or business. Each case would, therefore, be decided on its own facts and no

generalization is possible. The assessees, who claim that their object is ''charitable purpose'' within the meaning of section 2(15), would be well

advised to eschew any activity which is in the nature of trade, commerce or business or the rendering of any service in relation to any trade,

commerce or business.

Thus, the anxiety of Parliament in introducing the proviso to section 2(15) of the Act is only to check those institutions, which attempt to gain

exemption under the cloak of a trust.

Section 11 of the Act states that income from property held for religious or charitable purposes shall not be included in the total income of the

previous year. Section 12 deals with income of trusts or institutions from contributions. Section 12A deals with making application for registration

of the trust/association so that the said institution will have the benefit of exemption u/s 11 and section 12 of the Act.

Section 12AA of the Act prescribes procedure for registration. As per this, on receipt of the application for registration, the Commissioner is

to call for such documents or information from the trust or institution in order to satisfy himself about the genuineness of activities of the trust or

institution. The section further empowers the Commissioner to make such enquiry as he deems necessary in this regard. Once the Commissioner is

satisfied himself about the objects of the trust or institution and the genuineness of the activities of the trust, he has to pass an order in writing

registering the trust or institution; if he is not so satisfied, he has to pass an order in writing refusing to register the trust or institution.

Section 12AA(3) of the Act inserted with effect from October 1, 2004, under the Finance (No. 2) Act, 2004, and the amendment inserted by

the Finance Act, 2010, with effect from June 1, 2010, therein empowering the Commissioner to cancel the registration granted under the stated

circumstances, reads as under:

Provision inserted under the Finance Act, 2004:

12AA. (3) Where a trust or an institution has been granted registration under clause (b) of sub-section (1) and subsequently the Commissioner is

satisfied that the activities of such trust or institution are not genuine or are not being carried out in accordance with the objects of the trust or

institution, as the case may be, he shall pass an order in writing canceling the registration of such trust or institution:

Provided that no order under this sub-section shall be passed unless such trust or institution has been given a reasonable opportunity of being

heard.

After the amendment in the year 2010, section 12AA(3) of the income tax Act reads as follows:

12AA. (3) Where a trust or an institution has been granted registration under clause (b) of sub-section (1) or has obtained registration at any time

u/s 12A as it stood before its amendment by the Finance (No. 2) Act, 1996 (33 of 1996) and subsequently the Commissioner is satisfied that the

activities of such trust or institution are not genuine or are not being carried out in accordance with the objects of the trust or institution, as the case

may be, he shall pass an order in writing canceling the registration of such trust or institution:

Provided that no order under this sub-section shall be passed unless such trust or institution has been given a reasonable opportunity of being

heard.

Thus, in contrast to section 12AA(1)(b) of the income tax Act, 1961, where the grant of registration requires satisfaction about the objects of

the trust as well as the genuineness of the activities, for the cancellation of the registration u/s 12AA(3), all that it is insisted upon is the satisfaction

as to whether the activities of the trust or institution are genuine or not and whether the activities are being carried on in accordance with the

objects of the trust. Thus, even if the trust is a genuine one, i.e., the objects are genuine, if the activities are not genuine and the same not being

carried on in accordance with the objects of the trust, this will offer a good ground for cancellation. Thus, in every case, grant of registration as well

as cancellation of registration rests on the satisfaction of the Commissioner on findings given on the parameters given in section 12AA(1) and

section 12AA(3) of the Act, as the case may be.

Registration of the trust under the Act confers certain benefits from taxation under the provisions of the Act. The conditions under which the

income of the trust would be exempted under the provisions of the Act are clearly laid down u/s 11 as well as in section 12 of the Act. Section 11

of the Act specifically points out the circumstances under which income of the trust is not to be included in the total income of the previous year of

the person. So too, section 12 of the Act on the income derived from property held for charitable or religious purposes.

Thus, when the assessee is in receipt of income from activities, which fits in with sections 11 and 12 of the Act as well as from sources which

do not fall strictly with the objects of the trust, would not go for cancellation of registration u/s 12AA of the Act on the sole ground that the

assessee is in receipt of income which does not qualify for exemption straightaway by itself. All that ultimately would arise in such cases is the

question of considering whether section 11 of the Act would at all apply to exempt these income from liability. These are matters of assessment

and has nothing to do with the genuineness of the activity or the activities not in conformity with the objects of the trust. As rightly pointed out by

learned senior counsel appearing for the assessee, as is evident from the reading of Circular No. 11 of 2008, dated December 19, 2008, the

object of the insertion of first proviso to section 2(15) of the Act was only to curtail institution, which under the garb of ""general public utility"", carry

on business or commercial activity only to escape the liability under the Act thereby gain unmerited exemption u/s 11 of the Act.

In the decision reported in Sinhagad Technical Education Society Vs. Commissioner of Income Tax (Central), Pune and Another, , the

Bombay High Court held as follows (page 26):

As a result of the amendment, which has been brought about by the Finance Act of 2010, sub-section (3) of section 12AA has been amended

specifically to empower the Commissioner to cancel a registration obtained u/s 12A, as it stood prior to its amendment by the Finance (No. 2)

Act, 1996. Sub-section (3) was inserted into the provisions of section 12AA by the Finance (No. 2) Act, 2004, with effect from October 1,

2004. As it originally stood, under subsection (3), a power to cancel registration was conferred upon the Commissioner where a trust or an

institution had been granted registration under clause (b) of sub-section (1) of section 12AA. The Commissioner, after satisfying himself that the

objects of the trust or an institution are not genuine or are not being carried out in accordance with the objects of the trust or institution, as the case

may be, was vested with the power to pass an order in writing canceling the registration of such trust or institution. By the Finance Act of 2010,

sub-section (3) was amended so as to empower the Commissioner to cancel the registration of a trust or an institution which has obtained

registration at any time u/s 12A (as it stood before its amendment by the Finance (No. 2) Act, 1996). As a result of the amendment, a regulatory

framework is now sought to be put in place so as to cover also a trust or an institution which has obtained registration u/s 12A, as it stood prior to

its amendment in 1996. . .

power u/s 12AA(3) can be exercised by the Commissioner in respect of a trust registered prior to June 1, 2010. The mere fact that a part of the

requisites for the action u/s 12AA(3) is drawn from a time prior to its passing namely registration as a charitable trust u/s 12A prior to 2010 would

not make the amendment retrospective in operation. The amendment does not take away any vested right nor does it create new obligations in

respect of past actions.

As already pointed out earlier, the question as to whether the particular income of a trust is eligible for exemption u/s 12 of the Act is a matter

of assessment and this court had pointed out in the decision reported in the case of Commissioner of Income Tax-I, Madurai Vs. Sarvodaya

Ilakkiya Pannai, , as under (page 302):

In order to avail of the benefit of exemption u/s 11 of the income tax Act, 1961, a trust can make an application to the Commissioner for

registration u/s 12A of the income tax Act, 1961. On receipt of the said application for registration of a trust or institution, the Commissioner

should satisfy himself about the genuineness of the activities of the trust or institution. In order to satisfy himself, the Commissioner may also make

such enquiry as he may deem necessary in that behalf. In the event the Commissioner satisfies himself that the trust is entitled to registration keeping

in mind the objects, shall grant registration in writing in terms of section 12AA(1)(b)(i) of the income tax Act, 1961. In the event the Commissioner

is not satisfied, he shall refuse such registration in terms of section 12AA(1)(b)(ii) of the income tax Act, 1961. Once such a satisfaction is arrived

at by the Commissioner to grant, such registration cannot be cancelled by following the very same provision of section 12AA(b)(i) of the income

tax Act, 1961, to go into the genuineness of the activities of the trust. However, the Commissioner is empowered to revoke the certificate in terms

of section 12AA(3) of the income tax Act, 1961. As per the said provision, in the event the Commissioner is satisfied subsequently, i.e., after

registration that the activities of such trust or institution are not genuine or not being carried out in accordance with the objects of the trust or the

institution, as the case may be, he shall pass an order in writing canceling the registration of such trust or institution.

After the grant of registration, if the Commissioner is satisfied subsequently that the activities of the institution are not genuine or they are not

carried on in accordance with the trust/institution, he could pass an order in writing canceling the registration of such trust or institution.

Referring to section 11 and section 12A of the Act, this court pointed out that the act of granting registration u/s 12AA(1) itself is a result of a

satisfaction recorded by the Commissioner as regards the genuineness of the objects of the trust as well as the activities of the trust and once a

satisfaction is arrived at by the Commissioner, the cancellation could only be in terms of section 12AA(3) of the income tax Act, 1961.

This court pointed out that the cancellation made in the case of the assessee therein was not on the ground that the activities were not genuine,

but the activities of the trust in publication and sale and spread of Sarvodaya literature and Gandhian ideologies was not the objects of the trust.

This court pointed out that the cancellation was made not on the ground that the activities of the trust were not genuine but the activities of the trust

were not in accordance with the objects of the trust; when the trust was registered with definite objects, carrying on such activities would be in

terms of the objects for which registration was granted.

Referring to section 12AA of the income tax Act, 1961, this court has held as under (page 304 of 343 ITR):

Under section 12AA, the Commissioner is empowered to grant or refuse the registration and after granting registration, would be empowered to

cancel and that too, only on two conditions laid down u/s 12AA(3) of the income tax Act, 1961. Whether the income derived from such

transaction would be assessed for tax and also whether the trust would be entitled to exemption u/s 11 are entirely the matters left to the Assessing

Officer to decide as to whether it should be assessed or exempted.

In the light of the law declared by this court in the abovesaid decision, we do not find that the scope of section 12AA(3) of the Act is of any

doubt for a fresh look. It is relevant herein to point out that in two other assessee''s case, the income tax Appellate Tribunal Ahmedabad Bench A,

rendered in the case of 2012 (19) ITR (Trib) 520 , and that of the Nagpur Bench rendered in the case of Vidarbha Cricket Association v. CIT in

I.T.A. No. 3/Nag/10, dated May 30, 2011, considered the said decision reported in the case of Commissioner of Income Tax-I, Madurai Vs.

Sarvodaya Ilakkiya Pannai, rendered u/s 12AA(3) of the Act. On appeal before the respective High Courts, the decision of the income tax

Appellate Tribunal was confirmed.

Leaving that aside, there being no dispute raised by the Revenue as to the genuineness of the trust or as to the activities of the trust not being in

accordance with the objects of the trust, the question of cancellation u/s 12AA of the Act does not arise. We further hold that at the time of grant

of registration on March 28, 2003, the same was made taking into consideration the objects of the institution fitting in with the definition of

charitable purpose"" defined u/s 2(15) of the Act and the substitution of the section itself came only 2008, with effect from April 1, 2009. As rightly

pointed out by the learned senior counsel appearing for the assessee, the circular clearly brings out the object of the amendment and the amended

provision has no relevance to the case. The power regarding cancellation, hence has to be seen with reference to the registration and the object

satisfying the definition on ""charitable purpose"", as it stood at the time of registration and not by the subsequent amendment to section 2(15) of the

income tax Act.

Learned standing counsel appearing for the Revenue placed heavy reliance on the proviso to section 12AA(3) of the Act and submitted that

when the assessee has income received from conduct of the matches, which are commercial in nature, as had been found by the income tax

Appellate Tribunal, the objects of the trust ceased to be charitable. He submitted that going by the definition of section 2(15) of the Act, rightly, the

Commissioner assumed jurisdiction u/s 12AA(3) of the Act to cancel the registration. He further pointed out that for the finding to be recorded that

the activities of the trust are not genuine, one must necessarily look into the objects of the association; if the objects of the association reveal

commercial nature in the conduct of matches, the association cannot be one for charitable purpose as defined u/s 2(15) of the Act. Thus, there

could be no inhibition for the Commissioner to assume jurisdiction to issue show-cause notice calling upon the assessee to state whether the

association is genuine or not. He further submitted that on looking at the activities of the association, the Commissioner had rightly come to the

conclusion that the assessee''s registration was liable to be withdrawn.

We do not accept the submission of learned standing counsel appearing for the Revenue. As rightly observed by learned senior counsel

appearing for the assessee, the Revenue granted registration u/s 12AA of the Act satisfying itself as to the objects of the association befitting the

status as charitable purpose as defined u/s 2(15), as it stood in 2003 and after granting the registration, if the registration is to be cancelled, it must

be only on the grounds stated u/s 12AA(3) of the Act with reference to the objects accepted and registered u/s 12AA, as per the law then stood

under the definition of section 2(15) of the income tax Act. Even therein, courts have defined as to when an institution could be held as one for

advancement of any other object of general public utility. Thus, if a particular activity of the institution appeared to be commercial in character, and

it is not dominant, then it is for the Assessing Officer to consider the effect of section 11 of the Act in the matter of granting exemption on particular

head of receipt. The mere fact that the said income does not fit in with section 11 of the Act would not, by itself, herein lead to the conclusion that

the registration granted u/s 12AA is bad and, hence, to be cancelled.

It may be of relevance to note the language used in the definition ""charitable purpose"" in section 2(15) of the Act which states that charitable

purpose includes relief of the poor, education, medical relief and advancement of any other object of general public utility. The assessee''s case falls

within the phrase of the definition ""general public utility"". In the decision reported in the case of Hiralal Bhagwati Vs. Commissioner of Income Tax,

, the Gujarat High Court considered the said phrase in the context of section 12AA registration and held that registration of the charitable trust u/s

12AA of the Act is not an idle or empty formality; the Commissioner of income tax has to examine the objects of the trust as well as an empirical

study of the past activities of the applicant; the Commissioner of income tax has to examine that it is really a charitable trust or institution eligible for

registration; the object beneficial to a section of the public is an object of ""general public utility"". The Gujarat High Court held that to serve as a

charitable purpose, it is not necessary that the object must be to serve the whole of mankind or all persons living in a country or province; it is

required to be noted that if a section of the public alone are given the benefit, it cannot be said that it is not a trust for charitable purpose in the

interest of the public; it is not necessary that the public at large must get the benefit; the criteria here is the objects of general public utility. Thus, the

Gujarat High Court held that in order to be charitable, the purpose must be directed to the benefit of the community or a section of the community;

the expression ""object of general public utility"", however, is not restricted to the objects beneficial to the whole of mankind; an object beneficial to

a section of the public is an object of general public utility; the section of the community sought to be benefited must undoubtedly be sufficiently

defined and identifiable by some common quality of a public or impersonal nature.

The abovesaid decision Hiralal Bhagwati Vs. Commissioner of Income Tax, came up on April 18, 2000. Evidently, the Revenue has not gone

on appeal as against this judgment. In the decision reported in the case of Asstt. Commissioner of Income Tax Vs. Surat City Gymkhana,

reference was made about this decision and the apex court pointed out that the Revenue did not challenge this case and it attained finality.

It is no doubt true that the decision reported in Asstt. Commissioner of Income Tax Vs. Surat City Gymkhana, , was in the context of section

10(23) of the income tax Act, 1961, nevertheless, the fact remains that the understanding of the scope of the expression ""general public utility

would nevertheless is of relevance herein. Admittedly, when the assessee was granted registration, the Revenue recorded its satisfaction that the

objects are of charitable purpose. Thus, only possible enquiry u/s 12AA of the Act for cancellation is to find out whether the activities of the trust

are genuine or in accordance with the objects of the trust. If any of the income arising on the activities are not in accordance with the objects of the

trust the assessee''s income, at best, may not get the exemption u/s 11 of the Act. But this, by itself, does not result in straight rejection of the

registration as ""trust"" u/s 12AA of the Act. Consequently, we reject the prayer of the Revenue that section 12AA(1) of the income tax Act, 1961,

must be read along with section 12AA(3) of the income tax Act, 1961, before considering the cancellation.

As far as the unreported decision of this court in Gowri Ashram Vs. Director of Income Tax, is concerned, on which heavy reliance was

placed by the Revenue, the said decision relates to the rejection of the registration at the threshold of the application filed for registration. So too

the decision of the Uttarakhand High Court reported in the case of Commissioner of Income Tax Vs. National Institute of Aeronautical Engineering

Educational Society, wherein, rejection was made on the threshold of application for registration made by the assessee. The decisions relied on is

thus distinguishable and has no relevance to the facts of the present case.

As far as unreported decision of this court in Gowri Ashram Vs. Director of Income Tax, is concerned, while rejecting the appeal filed by the

assessee on the rejection of the application for registration, this court observed that it was open for the assessee-society to renew its application as

and when it expanded the objects of the society and were approved by the competent court. The rejection order passed by the Revenue was on

the ground that the objects of the trust were not charitable in character. This decision also has no relevance to the case on hand.

As already noted in the preceding paragraphs, considering the provision u/s 12AA(3) of the Act, the cancellation or registration in a given case

could be done only under the stated circumstances u/s 12AA(3) of the Act and in the background of the definition relevant to the particular year of

registration. As rightly pointed out by the assessee, the Revenue does not allege anything against the genuineness of the objects of the assessee or

its activities. It rests its order only on the ground of the assessee receiving income from holding of matches which, according to the assessee, were

not held by it. Thus, as regards the question as to whether the particular income qualified u/s 11 of the Act or not is not the same as activity being

genuine or not. In the circumstances, we do not agree with the view of the income tax Appellate Tribunal that the order passed by the Director of

income tax (Exemptions) was in accordance with the provisions of the income tax Act, 1961. He viewed that the conduct of the test matches and

ODI are in the nature of commerce or business. Though the assessee claimed their activities for promotion of sports, he held that the dominant

feature is evident from the huge profits received and, hence, the amount received from the BCCI as subsidy are commercial. As regards

conducting of IPL matches, he pointed out that though no services are rendered by the assessee for conducting the matches, the ground where the

matches are played are given for rent which is a commercial venture. The subsidy received from the BCCI included mainly TV advertisements sold

by the BCCI for the conduct of IPL and their commercial receipts arising for IPL transactions. Therefore, the nature of receipt was important than

the name of account under which it was accounted. Thus, he viewed that the objects and activities would no longer come within the definition of

section 2(15) of the Act after the amendment come in effect from April 1, 2009.

As rightly pointed out by the assessee, the Revenue does not question the objects of the association as not genuine or are in accordance with

the objects. All that the Revenue stated was that the nature of receipt could not be called a subsidy. Thus, the Revenue came to the conclusion that

the objects and activities could not come within the meaning of ""charitable purpose"" u/s 2(15) of the Act.

On going through the materials, the income tax Appellate Tribunal pointed out that instead of promoting and developing the game of cricket,

the assessee was promoting and developing cricket as an entertainment and the tickets are highly priced; here, the assessee has shifted the activities

of general public utility to commercial activity for generating revenue; the public merely participate to view costly matches; hence, the conditions of

section 12AA(3) were satisfied. The income tax Appellate Tribunal agreed with the Director of income tax (Exemptions) that the expression

subsidy from the BCCI"" was a misleading nomenclature and it was a share from the revenue collected by the BCCI from the sale of telecast

rights. The surplus from IPL season-I worked out to 8.5 per cent of the total receipts. It further held that 78 per cent of the total receipt came out

of advertisement revenue.

The income tax Appellate Tribunal pointed out that the physical aspect of the game was one in accordance with the objects of the assessee

and the activities are genuine. However, the matches held were not in advancement of any specific object of general public utility. The pattern of

receipt is commercial in character and the matches conducted are not in accordance with the objects of the association. Thus, it rejected the

assessee''s case and held that both the conditions u/s 12AA(3) of the Act stood attracted.

As seen from the observation of the income tax Appellate Tribunal, although generally it accepted the case of the assessee that the physical

aspect of the game was one in accordance with the objects, the quantum of receipt apparently led the income tax Appellate Tribunal and the

Revenue to come to the conclusion that the activities are commercial and, hence, by section 2(15) proviso to the Act, the receipt from the BCCI

could not be called as subsidy. As for the observation of the income tax Appellate Tribunal that the twin conditions stood satisfied is concerned, it

is not denied by the Revenue that at the time of granting registration, the Commissioner had satisfied himself about the objects of the trust and the

genuineness of the activities as falling within the meaning of ""charitable purpose"", as it stood in 2003. The Revenue does not deny as a matter of

fact that the objects remain as it was in 2003 and there is no change in its content to call the assessee''s object as not genuine. There are no

materials to indicate that the grant of registration was not based on materials indicating objects of general public utility.

The assessee is a member of the Board of Control for Cricket in India (BCCI), which in turn is a member of ICC (International Cricket

Council). BCCI allots test matches with visiting foreign team and one day international matches to various member cricket associations which

organise the matches in their stadia. The franchisees conduct matches in the stadia belonging to the State cricket association. The State association

is entitled to all in-stadia sponsorship advertisement and beverage revenue and it incurs expenses for the conduct of the matches. BCCI earns

revenue by way of sponsorship and media rights as well as franchisee revenue for IPL and it distributes 70 per cent, of the revenue to the member

cricket association. Thus, the assessee is also the recipient of the revenue. Thus, for invoking section 12AA read with section 2(15) of the Act, the

Revenue has to show that the activities are not fitting with the objects of the association and that the dominant activities are in the nature of trade,

commerce and business. We do not think that by the volume of receipt one can draw the inference that the activity is commercial. The income tax

Appellate Tribunal''s view that it is an entertainment and, hence, offended section 2(15) of the Act does not appear to be correct and the same is

based on its own impression on free ticket, payment of entertainment tax and presence of cheer group and given the irrelevant consideration. These

considerations are not germane in considering the question as to whether the activities are genuine or carried on in accordance with the objects of

the association. We can only say that the income tax Appellate Tribunal rested its decision on consideration which are not relevant for considering

the test specified u/s 12AA(3) to impose commercial character to the activity of the association. In the circumstances, we agree with the assessee

that the Revenue has not made out any ground to cancel the registration u/s 12AA(3) of the Act.

As regards the observation of the income tax Appellate Tribunal that IPL matches and Celebrity cricket matches are also being held by the

association and hence, it is an entertainment industry, we need not go into these aspects for the order of the Director of income tax (Exemptions)

casts no doubt on the genuineness of the objects of the trust. Hence, it is for the Assessing Officer to take note of all facts, while considering the

same u/s 11 of the income tax Act, 1961. We disapprove the approach of the Tribunal in this regard. In the above said circumstances, we set

aside the order of the income tax Appellate Tribunal. In the result, the tax case (appeal) stands allowed. No costs. Consequently, connected MP is

closed.