[Opinion] Surat District Cricket Association hits Tax Demand out of the Park

Meenakshi Subramaniam – [2022] 139 taxmann.com 257 (Article)

Introduction

The Pandavas and Kauravas, once, had a cricket match. Now, among the Kaurava team, all wanted to bat, none wanted to bowl. True to their habit, they wished to wield the bat like a club, on the field. There was, hence, only one bowler in the Kaurava team, namely, Karna. Show your charity on us, the Kauravas told Karna. The match began. The only charity Karna did was to give away runs.

In modern era, when cricket associations do charitable work like conducting of matches to summer coaching camps, preparing ground to arranging water in stadium, the income tax law plays spoilsport.

Recently, the Surat Tribunal hit a sixer by upholding that cricket associations can’t be wrongly dubbed as Association of Persons (AOPs) and taxed.

ACIT v. Surat District Cricket Association [2022] 139 taxmann.com 182

The brief facts of the case are that assessee is a society registered under Society Registration Act and having registration under section 12A(a) of Income tax Act granted vide certificate dated 11.09.1987.

The assessee has received income of Rs. 1.57 crores, which has been shown under the head ” income from other sources” in income and expenditure account. The assessee claimed exemption under section 11 of Rs.3.90 crore/-.

The Assessing Officer on perusal of income and expenditure account and balance-sheet took the view that activities carried by assessee are commercial in nature and hit by the first Proviso to section 2(15) of Act and accordingly assessee is not eligible for claiming exemption under section 11 and 12.

During reassessment, assessee filed reply and contended that assessee is a trust and it’s main object is to encourage sports and various games, specially Cricket at State as well as National level.

During the year, assessee has shown gross receipt of Rs.2.30 crores and claimed application of income for its objects of Rs.3.90 crores. The Assessing Officer noted that the assessee has shown interest on securities, interest on bank fixed deposit, donation and other income. The assessee is carrying out activities which are commercial in nature and case is covered by the last limb of provisions of Section 2(15) of the Act. Accordingly, Assessing Officer issued showcause notice as to why the assessee should not be treated as “Associate of Person” (AOP) and income be computed under normal provisions of Income Tax Act, 1961.

The Assessing Officer held that the assessee has shown gross income of Rs.2.30 crores which consists of bank interest, donations and income from other sources. The income from other sources is Rs.1.57 crores. The main source of income under the head “income from other sources” are annual maintenance fees from members of Rs.1.28 crores, ground rent (cricket) of Rs.5.97 crores, guest fees of Rs.1.27 lakhs, health club & swimming pool income of Rs.1.28 lakhs, District Cricket Tournament income of Rs.3.29 lakh, Lawn Tennis income of Rs.1.42 lakh, Ranji Trophy match income of Rs.4.45 lakhs, Surat District Cricket Association open knockout cricket tournament income of Rs.8,978/-, summer coaching camp income of Rs.1.50 lakh etc. On the basis of aforesaid receipts, the Assessing Officer took view that assessee is engaged in the business of nature of trade, commerce or business and aggregate value of receipts exceeded Rs.25 lakhs from such activities and accordingly the case of assessee is covered by first proviso to Section 2(15) of the Act.

The Assessing Officer further noted that assessee has received subsidy of Rs.50.27 lakh from Gujarat Cricket Association infrastructure which has not been included in its income. The assessee in reply to notice stated that the aforesaid amount was received for specific purpose and as per provisions of Income Tax Act, the said amount was a part & parcel of specific / corpus fund. If it is treated and calculated as its income, the taxable income remains negative. The reply was not accepted by Assessing Officer by taking view that the donor has not given any direction to assessee to apply donated amount for the purpose of corpus fund. Accordingly, the Assessing Officer added the subsidy of Rs.50,27,975/- to the income of assessee.

The Assessing Officer on further perusal of balance-sheet found that assessee has shown addition in its earmarked fund of Rs.54,68,620/-. The Assessing Officer issued shown cause notice as to why such fund should not be added to income of assessee. The Assessing Officer further noted that assessee received membership fees of Rs.12,34,556/- which has also not been included in the total income of the assessee. The assessee was also issued show cause notice as to why the same shall not be added to the total income of assessee. The assessee in reply stated that assessee claimed net amount of capital expenditure including the membership fees. The reply of assessee was not accepted by Assessing Officer. The Assessing Officer held that the case has already been treated as AOP, therefore, the receipt of Rs.54,68,620 + Rs.12,34,556/- i.e., Rs.67,03,176/- was also included in the total income of assessee.

The Assessing Officer again noted that in computation of income the assessee has claimed ‘application of income’ and claimed capital expenditure of Rs.2.19 crores. Since the assessee was treated as AOP the case is covered by first proviso to Section 2(15) of the Act. Accordingly, the assessee is required to be assessed under normal provision of Income Tax Act. Accordingly, the capital expenditure of Rs.2.19 crores was also not allowed. Similarly, the ground renovation of Rs.12.50 lakh was also not allowed and added to the total income of assessee by taking view that assessee is treated as AOP.

Aggrieved, the assessee filed appeal before Ld.CIT(A).

The assessee stated that in case of Delhi & District Cricket Association Vs DIT(E) in ITA No.3095/Del/2012, the Tribunal clarified that once Assessing Authority hold that assessee is carrying on undisputed activity is of charitable nature and another hand coming to a conclusion that the assessee is doing business creates contradiction.

The assessee also relied on the decision of Madras High Court in the case of Tamil Nadu Cricket Association, wherein it was held that amount received from ground booking charges, health club charges, lawn booking income, sale of ticket, advertisement etc., are not result of undertaking activities in the nature of trade commerce or business. These receipts are intrinsically related, interconnected and interwoven with charitable activity and cannot be viewed separately and the said sale receipts are also of charitable activities and not trade, commerce or business activities.

The assessee in submission stated that Hon’ble jurisdictional High Court in the case of Director of Income Tax (Exemption) vs. (1) Gujarat Cricket Association (2) Baroda Cricket Association (3) Saurashtra Cricket Association in Tax Appeal No.123 of 2014 dated 27.09.2019 decided the issue in favour of those assessees and dismissed the appeal of Revenue.

The Ld. CIT(A) after considering the submission of assessee allowed the appeal of assessee by taking view that the sole ground of appeal contested by the assessee is against addition of Rs. 3.49 Crore made by assessing officer by holding that the assessee’s case in covered by the proviso of section 2(15) of the Act and hence not eligible for exemption under section 11 of the Act. The Hon’ble jurisdictional High Court had confirmed the finding of Ahmedabad Tribunal in three appeals, in Tax Appeal No.123/2014 dated 27.09.2019. Accordingly, the Assessing Officer was directed to delete the addition. Aggrieved by the CIT’s order, Revenue filed present appeal before the Tribunal.

Tribunal Judgement

The Tribunal held there is no dispute that the assessee is a registered society having object of promotion of cricket and other sports in State as well as national level. The assessee is also having valid registration under section 12A(a) of Income tax Act. The registration under section 12A was granted way back in 1987. It is also settled legal position that the registration of institution or trust under section 12 is the foundation for seeking exemption of section 11, though not conclusive. In other words the registration under section 12A is sine qua non for eligibility of benefit of section 11.

The coordinate bench of Tribunal in Gujarat Cricket Association Vs Jt.CIT (E) [2019] 101 taxmann.com 453 (Ahd. – Trib) held that where predominant object of various cricket associations was to promote cricket and profit earning was not predominant purpose, proviso to section 2(15) could not have been invoked to decline benefit of sections 11 and 12. It was further held that amounts received under TV subsidy by assessee cricket association from Board of Control for Cricket in India (BCCI) being under a resolution which specifically stated that TV subsidies should henceforth be sent to Member Associations towards corpus funds and not under any legal obligation, were to be treated as corpus donations. It was also held that where infrastructure subsidy received by assessee cricket association from Board of Control for Cricket in India (BCCI) was relatable to a capital asset created by assessee on his own or by an eligible district cricket association; it was outside ambit of revenue receipt/taxable income.

The Hon’ble Gujarat High Court in DIT (E) Vs Gujarat Cricket Association [2020] 120 taxmann.com 50/[2019] 419 ITR 561 (Guj.) while affirming the order of Tribunal held that where driving force of assessee- State cricket association was not desire to earn profit but object was to promote game of cricket and nurture best of talent, merely because it put up tickets of international cricket matches for sale and earned some profit out of same and said profit was used in activities of promotion of game, it would not lose its character of having been established for a charitable purpose.

The Tribunal held,

“We find that the predominant object of promotion of Cricket and other sports are not doubted by the assessing officer. There is no allegation of the assessing officer that the receipt shown under the head “income from other sources” was not utilised on the promotion of sports Or no activities for promotions of sports were undertaken by the assessee. Rather on careful examination of those disputed receipt we find that those receipt were generated from various activities undertaken in furtherance of various sports. It is also matter of fact that prior to the impugned assessment year the assessee was granted exemption under section 11 of the Act.”

The assessee’s main dominant and prime objective was to promote sports, not desire to earn profits but, object of promoting sports for Nation, it was clearly a charitable purpose.

The important elements of application of proviso are that the assessee should be involved in carrying on the activities of any trade, commerce or business or any activities of rendering service in relation to any trade, commerce or business, which is clearly missing in the present case

Thus, the Tribunal affirmed the order of ld CIT(A), and the grounds of appeal raised by the revenue were dismissed.

Cup of joy is full

One president of a cricket association lamented:

“Do you know why the income tax officer taxed us as Association of Persons (AOP)?”

The members asked:

“Why ?”

The president answered:

“Because he thought the ‘association’ in our name meant an Association of Persons (AOP).” !!!

The Surat Tribunal has upheld the glory of the gentleman’s game. It has shown that cricket associations are not money-spinning organizations, but truly interested in bat-and-ball powwows.

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