An Analysis of Mumbai ITAT’s Ruling in the ‘BCCI’ Case

1. Facts

1.1 BCCI

The assessee, Board of Control for Cricket in India (“BCCI”), is a society registered at Madras, on 28.11.40, under Societies Registration Act 1880 now repealed and substituted, so far as the State of Tamil Nadu is concerned, by the Tamil Nadu Societies Registration Act 1975.

1.2 Earlier ITAT order

On 12.2.96, the Director of Income Tax (Exemption) Mumbai issued a certificate of registration under section 12A to the assessee, with effect from 1.4.1995, that is, financial year relevant to the assessment year 1996-97. On 1.6.2006, and then on 21.8.2007, certain amendments were made to the Memorandum of Association of the assessee. These amendments were examined by the Director of Income Tax (Exemptions), and, vide communication dated 28.12.12, he informed the assessee as follows:

“(i) when the objects of the institution, which are the basis of grant of registration are altered after grant of such registration, the very foundation of registration having been removed by the voluntary act of the assessee, the registration would not survive;

(ii) the registration under section 12A, was granted vide order dated 12th February 1996, on the basis of the Memorandum and rules & regulations of the assessee as on the date of registration and that, admittedly, the amendments were made on 1st June 2006 and also on 21st August 2007, but this had not been informed to DIT, who had granted registration under section 12A of the Act and that this information on amendments had not been given to the Department for more than three years and, hence, as the very foundation for grant of registration had been removed, the registration would not survive”.

Aggrieved, the assessee carried the matter in appeal before the Tribunal which dismissed the appeal as non-maintainable on the ground that there was no cancellation of registration as such and the impugned communication was no more than an ‘advisory in nature’, without the force of law.

The Tribunal also observed that:

“the registration granted under section 12A, on 12.2.96, and the benefits flowing therefrom, cannot be extended to the amended objects of the society unless the DIT examines the same and comes to a conclusion that the registration under section 12A, can be extended to the revised objects, memorandum and by-laws…

“…the assessee society should approach the registering authority with the changes and amendments so that the authorities could examine as to whether the amendments in question meet the requirement of law”.

1.3 Cancellation proceedings

Subsequently, show cause notices were issued by the then Principal Commissioner on 30.11.2016, 13.11.2017 and 30.11.2017, requiring the assessee to show cause as to why the registration granted under section 12A not be cancelled or withdrawn. Elaborate submissions were made by the assessee explaining the reasons as to why no such withdrawal or cancellation of registration was justified on the facts and in the circumstances of the case, and that the amendments made in 2006 and 2007 were minor amendments without any impact on the basic objects. Thereafter, the further proceedings were dropped in the matter and the registration obtained by the assessee under section 12A remained intact.

1.4 R.M. Lodha Committee Report and Supreme Court directions

Subsequently, on 27.10.2017, the Committee appointed by Hon’ble Supreme Court of India, and chaired by Hon’ble Justice R M Lodha, submitted its draft constitution for the assessee. Taking this draft into account, as also the comments and suggestions of the stakeholders’, Hon’ble Supreme Court, vide judgment dated 9.8.2018, approved the draft constitution of the assessee institution, though subject to certain modifications.

1.5 Background of the case

On 15.9.2018, that is, after the above directions of Hon’ble Supreme Court were given effect, the assessee filed an application in Form 10A seeking registration under section 12AA r.w.s. 12A(1)(b). This was made in deference to the abovereferred observations made by the Tribunal to the effect that “the assessee society should approach the registering authority with the changes and amendments so that the authorities could examine as to whether the amendments in question meet the requirement of law.”

The PCIT, however, did not accept the registration request of the assessee. She noted that-

(a) the date of original registration is 12.2.1996 by DIT(E) Mumbai, and the date of modification of its objects has been shown as 21.8.2018.

(b) clause (s) of the amended Memorandum of Association provided that “to carry out any other activity which may seem to the BCCI capable of being conveniently carried out in connection with the above, or calculated directly or indirectly to enhance the value or render profitable or generate better income/ revenue from any of the properties, assets and rights of the BCCI”.

(c) there was a specific clause (p) inserted to provide for conducting the Indian Premier League (IPL) matches by stating that “GOVERNING COUNCIL is the standing committee constituted by the BCCI which shall in charge of and conduct the Indian Premier League”.

Having noted the above, the PCIT opined that the activities of the applicant specially in relation to the IPL were in the nature of trade, commerce or business, and therefore, the applicant was squarely covered by proviso to section 2(15) and hence it did not satisfy the definition of “charitable purpose”. She held that the assessee was not entitled to registration.

The assessee filed an appeal to the Tribunal against the order passed by the PCIT.

2. Tribunal’s Order

2.1 Refusal of Registration

The PCIT refused registration on the sole ground that proviso to section 2(15) was applicable. However, the assessee filed 11 grounds before the Tribunal which were reformulated into 5 questions as follows:

• • Considering the facts and circumstances of the present case, whether the Appellant was under any obligation to apply for re-registration under section 12A(1)(ab) of the Act. The Appellant submits that if the Tribunal accepts the position, then, it may be held that there was no necessity to do so and the registration as earlier granted on 12.02.1996 continues to hold good.
  • Assuming without admitting that the Appellant has to obtain registration as per section12A(1)(ab) of the Act, whether the enquiry carried out by the Respondent and the finding given by her goes beyond the scope of the relevant statutory provisions.
  • Whether for fulfilling the condition relating to genuineness of the activity of the trust or institution, the only test should be whether the activities carried on by the assessee Institution are within the four corners of the objects or they go beyond it.
  • Whether the proviso to section 2(15) of the Act can have no relevance for adjudicating the aspect relating to the genuineness of the activities of the Trust. Placing of reliance on this proviso for denying grant of registration under section 12A/12AA tantamounts to reading a condition in the said sections which does not exist.
  • Assuming without admitting that the proviso to section 2(15) of the Act has any relevance while considering the present application, whether the predominant object pursued by the Appellant continues to be to control, regulate, encourage and promote the game of cricket and conduct of the IPL is an activity carried out in furtherance of the said object and not as a business.

2.2 In connection with the appeal, the Tribunal observed as follows:

• • What is impugned in the appeal is the order passed by the PCIT on an application filed by the assessee under section 12A(1)(ab).
  • The true trigger for an application under section 12A(1)(b) is the modification of objects “which do not conform to the conditions of the registration”. Hence, unless such modifications are demonstrated, there is no occasion for the PCIT to assume jurisdiction. Thus, unless, therefore, there are significant variations in the pre-amendment memorandum of association and the amended memorandum of association, the provisions of section 12A(1)(ab) will not come into play.
  • Hon’ble Supreme Court, as noted by Justice Lodha Committee, reiterated that the BCCI is carrying out public functions – functions that govern the interests of the public – the necessary corollary is that BCCI is subject to the rigours of public law, which mandates that the BCCI acts in line with the general principles of reasonableness and fairness, and also that it adheres to the basic principles of accountability and transparency. Any changes to bring out these reforms and specifically approved by Hon’ble Supreme Court, cannot, by any stretch of logic, be such changes that dilute the fundamental objective of promoting the game of cricket, and “not in conformity” with the objects all along espoused by the BCCI and as set out in the pre-amendment MoA. The very foundation of the approach implicit in the impugned order is thus wholly unsustainable in law, and clearly misconceived.
  • Section 12A(1)(ab) specifically refers to ‘objects’ of the assessee trust or institution, and, it cannot, therefore, be open to the PCIT to go beyond the ‘objects’ so far as jurisdiction under this section 12A(1)(ab) is concerned.
  • The notes on clauses while inserting section 12A(1)(ab) also support the aforesaid conclusion.
  • With regard to the earlier directions of ITAT regarding approaching the registering authority with the changes and amendments, there is a difference in two situations, that is, between keeping the registration authority informed about the changes in the memorandum of association and making an application for fresh registration which comes into play only when the amendments in question do not conform to the objectives in respect of which registration was granted or obtained. Unless the latter condition is satisfied, section 12A(1)(ab) cannot come into play.
  • The mere fact that the assessee had filed an application under section 12A(1)(ab), even as it is all along contending that there is no material change in the object clause so as not to conform to the objects clause in the original memorandum of association, did not have jurisdiction in the PCIT to deal with the application on merits.
  • There is a vital distinction between ‘object’ and ‘power’.
  • It cannot even be in dispute that the object of the assessee was the promotion of cricket game, and, at best, the assessee had powers to hold IPL tournament for achieving this object.
  • In any event, the entire basis of declining registration was invoking proviso to section 2(15) on the ground that the IPL activities were in the nature of commercial activities and that the receipts from such activities cross the threshold limit specified in exceptions to the proviso to section 2(15). It is, however, well-settled that so far as registration under section 12AA is concerned, section 2(15) has no application in the matter.
  • The application of proviso to section 2(15) is to be thus done on a year to year basis, while the grant of registration is a one time exercise.

As for the basic issue raised by the revenue authorities, that is, whether the IPL matches can indeed be said to be commercial in nature in the sense that the entire orientation of these matches is aimed at making money in the garb of promotion of cricket, the Tribunal noted that strictly speaking, it was not necessary for it to go into this aspect of the matter at this stage, as the impugned order was held to be vitiated in law on account of other factors discussed by the Tribunal. However, it observed as follows:

“On the face of it merely because a sports tournament is structured in such a manner so as to make it more popular, resulting in more paying sponsorships and greater mobilization of resources, the basic character of the activity of popularizing cricket is not lost. It is indeed possible that the predominant object remains the promotion of cricket but that activity is done in a more effective and financially optimal manner, and that there is no conflict in the cricket becoming more popular and the cricket becoming more entertaining. It results in providing significant economic opportunities to those associated with the holding of the IPL tournament and, in the process, enriching the resources of the assessee trust. As long as the object of promoting cricket remains intact, and that continues to be the predominant object, the assessee cannot be said to be not following the object of promoting cricket, just because the operational model of a cricket tournament, whether IPL or any other tournament, is more entertaining, more economically viable, provides greater economic opportunities to all those associated with that tournament, and mobilizes greater financial resources for popularising cricket. The purpose for which all the funds at the disposal of the assessee trust, including the additional funds generated by holding the IPL tournament, are employed is certainly for promoting cricket, and that is what really matters. Improvising the rules of the game, adding entertainment value to it and making it economically attractive, may be a purist’s nightmare but the same factors can also be viewed as radical and innovative ideas to popularise a game- the very raison d’être of an institution like this assessee, and that is how we view it.”

2.3 Tribunal Held

Accordingly, the Tribunal held that the CIT erred in declining registration under section 12AA and should have held that the registration under section 12A dated 12.2.1996 not having been withdrawn or cancelled still holds good in law and in force.

3. Analysis

3.1 Application under Section 12A

The Tribunal noted that the assessee had made an application under section 12A(1)(ab) which reads as follows:

12A. (1) The provisions of section 11 and section 12 shall not apply in relation to the income of any trust or institution unless the following conditions are fulfilled, namely:—

(ab) the person in receipt of the income has made an application for registration of the trust or institution, in a case where a trust or an institution has been granted registration under section 12AA or has obtained registration at any time under section 12A as it stood before its amendment by the Finance (No. 2) Act, 1996 (33 of 1996), and, subsequently, it has adopted or undertaken modifications of the objects which do not conform to the conditions of registration, in the prescribed form and manner, within a period of thirty days from the date of said adoption or modification, to the Principal Commissioner or Commissioner and such trust or institution is registered under section 12AA;

Thus, the application under the aforesaid section is required only if the modifications to objects do not conform to the conditions of registration. On a literal reading of the provision, it appears that one has to look at the original registration order, identify in it conditions stipulated by the CIT for grant of registration, check whether the modified objects conform to the condition, if any, in the registration order and if the modifications do not conform to the conditions, an application under section 12A(1)(b) is required to be made for fresh registration. In other words, the comparison is between conditions in the original registration order and the modified objects. However, the Tribunal is silent on the literal interpretation; it held (at various places throughout the order) that a comparison has to be made between the objects in pre-amendment memorandum of association and the amended memorandum of association and unless there are significant variations between the two, the provisions of section 12A(1)(ab) will not be applicable.

3.2 Modification to MOA

The Tribunal pointed out that any modification undertaken pursuant to directions from the Supreme Court cannot be considered as “not in conformity” with the pre-amendment memorandum of association. Apart from the aforesaid argument, a point for consideration is when the section refers to “it has adopted or undertaken modifications of the objects”, is it restricted to voluntary modification of objects carried out by the assessee of its own volition or does it also cover those imposed upon it pursuant to directions of a Court? In latter cases, it is a moot point whether section 12A(1)(ab) is applicable at all.

3.3 Objects vs. Powers

The Tribunal distinguished between “objects” and “powers”. This is in line with various judgments, including the following:

• • Thiagarajar Charities v. ACIT, (1997) 92 Taxman 152 (SC), para 8
  • CIT v. Federation of Indian Chambers of Commerce & Industry, (1981) 130 ITR 186 (SC)
  • ACIT v. Surat Art Silk Cloth Manufacturers Association, (1979) 121 ITR 1 (SC), para 14

Accordingly, the Tribunal held that what is relevant for section 12A(1)(ab) is “objects” and not “powers”. The Tribunal held that conduct of IPL was a power and not an object.

3.4 Power of BCCI to Conduct IPL

It is pertinent that the conduct of IPL is covered by clause (p) / (s) of the amended Memorandum of Association, which reads as follows:

“(p) Governing Council is the standing committee constituted by the BCCI which shall in charge of and conduct the Indian Premier League.
…
(s) to carry out any other activity which may seem to the BCCI capable of being conveniently carried out in connection with the above, or calculated directly or indirectly to enhance the value or render profitable or generate better income / revenue from any of the properties, assets and rights of the BCCI”

Now, the aforesaid clauses are in the modified object clause of the Memorandum of Association of BCCI. Nevertheless, the Tribunal held that clause (s) contains a power and not an object. In other words, the object clause of Memorandum of Association of BCCI contained powers. This is also in line with the following judgments where it has been held that the object clause can contain powers which are not objects.

(a) Thiagarajar Charities v. ACIT, (1997) 92 Taxman 152 (SC), para 9
(b) Dasa Balinjika Seva Sangam v. CIT, (1999) 240 ITR 854 (Mad), para 10
(c) Ecumenical Christian Centre v. CIT, (1983) 139 ITR 226 (Kar)
(d) Zenith Tin Works Charitable Trust v. CIT, (1976) 102 ITR 119 (Bom)
(e) Maharashtra Cricket Association v. CIT [2014] 51 taxmann.com 511/[2015] 152 ITD 1 (Pune – Trib.)

3.5 Denying Registration by Invoking Section 2(15)

The Tribunal held that registration under section 12AA could not be denied by invoking proviso to section 2(15). The Tribunal cited in support of its conclusion [Kapurthala Improvement Trust v. CIT [2015] 60 taxmann.com 301/(154 ITD 637 (Asr – Trib)]

3.6 Filing Application out of ‘Abundant Caution’

The Tribunal noted that BCCI had filed an application under section 12A(1)(ab). It observed that merely because such application is filed by an assessee out of abundant caution contending that the section does not apply, then, the PCIT is not vested with jurisdiction to deal with the application on merits. This is also an application of the salutary principle that acquiescence or filing of application out of abundant caution does not mean that the necessary conditions for applicability of a provision are satisfied.

3.7 Modification of Objects

The following objects were added by the assessee:

(a) To award sponsorships to sportspersons in games other than Cricket for development of their individual skills [clause U(iv)].
(b) To donate to any other charitable cause [clause U(iv)].

Prima facie, the above are not related to the predominant object of ‘promotion of cricket’. However, the Tribunal has held that the modifications do not show any change with respect to the earlier MoA.

3.8 Is IPL a Trade, Commerce or Business?

The Tribunal noted that it did not have to decide whether the IPL matches were commercial in nature. However, it observed that “on the face of it”, what is important is the object of promoting cricket and if IPL also can be said to be with the object of promoting cricket, which is the predominant object of BCCI, then, merely because IPL is more entertaining or more economically viable, it cannot be said that BCCI is not following the object of promoting cricket. It appears that the observations of the Tribunal are in the nature of obiter; the Tribunal has not conclusively decided that the conduct of IPL does not result in trade, commerce or business within the meaning of the proviso to section 2(15) and that the said proviso does not apply.

3.9 Applicability of Section 115TD

Under the new regime for registration applicable with effect from 1st April 2021, section 12A(1)(ac)(v) provides for application by an assessee where it has adopted or undertaken modifications of the objects which do not conform to the conditions of registration. Further, section 115TD(3) read with section 115TD(1) provide that an assessee would be liable to exit tax if it has adopted or undertaken modification of its objects which do not conform to the conditions of registration and,

(a) it has not applied for fresh registration in the said previous year; or
(b) it has filed application for fresh registration but the said application has been rejected.

Thus, the language of the new provision and section 115TD(3) is similar to that in section 12A(1)(ab) dealt with by the Tribunal. Hence, the principles laid down by the Tribunal could be applicable to these provisions.

3.10 Refusal of Registration on Alteration in Powers

Further, under the above referred new regime for registration, an application for registration of an existing trust or a new trust is required to be made in Form 10A [section 12A(1)(ac)(i)/(vi)]. Pursuant to such application, the PCIT / CIT issues an order for registration in Form No. 10AC. The Authors understand that all institutions across the country have received an order containing uniform conditions, including the following:

“10. The provisional registration is granted subject to the following conditions:-

a. As and when there is a move to amend or alter the objects/rules and regulations of the applicant, prior approval of the Commissioner of Income Tax shall be sought along with the draft of the amended deed and no such amendment shall be effected until and unless the approval is accorded.”

Thus, the registration order suggests that prior approval of the CIT is required before objects are amended. This is clearly contradictory to the abovereferred provision in section 12A(1)(ac)(v). The legality of the condition is doubtful; however, having regard to the condition, whenever a charitable institution proposes to make modification to objects, it will have to decide whether it should seek prior approval or not, notwithstanding the Tribunal ruling or the literal language of section 12A(1)(ac)(v). A similar decision will have to be made whenever alteration in powers is proposed, although the Tribunal has categorically held that section 12A(1)(ab) [and accordingly, section 12A(1)(ac)(v)] is not applicable to alteration in powers.

3.11 Questions not Answered

As mentioned above, one of the questions before the Tribunal was whether for fulfilling the condition relating to genuineness of the activity of the trust or institution, the only test should be whether the activities carried on by the assessee institution are within the four corners of the objects or they go beyond it. It appears that the Tribunal has not answered this question.

4. Conclusion

The ITAT has intricately discussed section 12A(1)(ab) relating to modification of objects of a charitable institution. Its observations / conclusions are relevant for similarly worded section 12A(1)(ac)(v) / section 115TD(3).