Income Tax Appellate Tribunal

Income Tax Appellate Tribunal (ITAT), Mumbai: A two-Member Bench of Pramod Kumar (Vice President) and Ravish Sood (Judicial Member) allowed the Board of Control for Cricket in India (“BCCI”) to continue with its registration under Section 12-A of the Income Tax Act, 1961 making it eligible for income tax exemption benefits. The main controversy arose regarding the commercial nature of the Indian Premier League (“IPL”) organised by BCCI, however, there is significant discussion on substantive law in the decision of the Appellate Tribunal.

Factual Matrix

BBCI challenged correctness of the order passed by the Principal Commissioner of Income Tax, Mumbai (“CIT”), rejecting its application for registration under Section 12-A(1)(ab) read with Section 12-AA of the Income Tax Act, 1961.

Notably, BCCI was duly granted registration under Section 12-A in 1996, which is yet to be cancelled or withdrawn. However, BCCI applied for fresh registration in wake of the amendment in its ‘memorandum of association, and rules and regulations’, to implement the recommendations of Justice R.M. Lodha Committee.

While rejecting BCCI’s application, the CIT took note of the amended Memorandum of Association (“MoA”) and inter alia noted that a specific clause was inserted for conducting Indian Premier League (“IPL”) matches, and concluded that “it can be easily concluded that activities of the applicant specially in relation to the IPL are in the nature of trade, commerce or business, and therefore, the applicant is squarely covered by proviso to Section 2(15) and hence applicant’s claim of being covered by the last limb, i.e. advancement of any other object of general public utility cannot be held to be charitable purpose”.

BCCI on the other hand contented that its activities are wholly charitable and genuine, and the element of profit in organising the IPL event does not vitiate its predominant character.  It was submitted that BCCI was in fact under no obligation to approach the CIT for fresh registration as the amendments did not even remotely affect its basic objects for which the registration was earlier granted; nevertheless it approached the CIT in deference  to the observations made by another Bench of the Appellate 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”.

Law, Analysis and Decision

Application of S. 12-A(1)(ab)

Referring first to Section 12-A(1)(ab), the Appellate Tribunal noted that the true trigger for an application under that section has to be the modification of objects “which do not conform to the conditions of the registration”. Therefore, unless such modifications are demonstrated, there is no occasion for CIT to assume jurisdiction. The registration granted to BCCI in 1996 was on the basis of MoA, 1940. Unless, therefore, there were significant amendments in that Memorandum of Association, the provisions of Section 12-A(1)(ab) will not come into play inasmuch these provisions come into play only when the assessee “has adopted or undertaken modifications of the objects which do not conform to the conditions of registration”.

The Appellate Tribunal then compared MoA, 1940 and the amended MoA, 2018, and found that the amended MoA does not show any change which is contrary to the corresponding clause in the earlier MoA. It was noted that there was nothing in the impugned order to even indicate that the modifications in the objects of the amended deed do not conform to the objects in the memorandum of association based on which the registration was granted. The Appellate Tribunal observed:

“It is also important to bear in mind the fact that Section 12-A(1)(ab) specifically refers to ‘objects’ of the assessee trust or institution, and, it cannot, therefore, be open to the Principal Commissioner to go beyond the ‘objects’ so far as jurisdiction under this Section 12-A(1)(ab) is concerned. It is only when there is such a modification in the object clause that it does not conform to the conditions of registration, i.e. objects clause in the documents based on which registration was granted – only the memorandum of association in this case, that Section 12-A(1)(ab) can come into play.”

It was also noted that any changes to bring out reforms in the functioning of BCCI and specifically approved by the Supreme Court to be for that purpose (by its order dated 9-8-2018), cannot be termed to be the changes that dilute the fundamental objective of promoting the game of cricket, or said to be “not in conformity” with the objects of promoting the game of cricket all along espoused by BCCI and as set out in the pre-amendment MoA. In this view of the matter also, the condition precedent for invoking Section 12-A(1)(ab), was not fulfilled.

Referring to the view of another Bench 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 Appellate Tribunal observed:

“[T]his requirement, in our humble understanding, does not necessarily extend to the filing of the fresh application of registration under Section 12-A(1)(ab) unless the amendments are such as not in conformity with the documents based on which registration was originally granted. There is a difference in these two situations, i.e. between keeping the registration authority [informed] about the changes in the memorandum of association etc., and between 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 that condition is satisfied, Section 12-A(1)(ab) [does not] come into play.”

It was observed that there is a vital distinction between “object” and “power”. It could not even be in dispute that the object of BCCI is the promotion of cricket game, and, at best, it has powers to hold IPL for achieving this object. Whether this power of conducting IPL is exercised with predominantly pecuniary gains in mind or not is a different aspect, but then this is a “power” not an “object”. The Appellate Tribunal was of the opinion that:

“So far as the provisions of Section 12-A(1)(ab) are concerned, the Principal Commissioner was only required to examine the objects of the institution and not to extend her considerations to the powers vested in the institution. Unless the bridge of finding variations in objects of pre-amendment or post-amendment objects is crossed, there is no occasion to examine anything else. “

Application of proviso to S. 2(15)

Next, it was noted that the entire basis of declining registration by CIT was invoking the proviso to Section 2(15) on the ground that IPL activities are in the nature of commercial activities and cross the threshold limit specified in exceptions to the proviso to Section 2(15). On this point, the Appellate Tribunal observed:

“It is, however, well-settled in law that so far as registration under section 12-AA is concerned, Section 2(15) has no application in the matter.”

Relying on its earlier decision in Kapurthala Improvement Trust v. CIT, 2015 SCC OnLine ITAT 8111, the Appellate Tribunal concluded that the remedy to the proviso to Section 2(15) coming into play is not denial of registration under section 12-A or 12-AA but denial of benefits of exemption under Section 11, under Section 13(8). That is the reason that along with the insertion of proviso to Section 2(15), effective from the same date, sub-section 13(8) was also inserted and these two provisions are thus clearly complementary in nature.

Indian Premier League

Interestingly, as to the question whether IPL 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 Appellate Tribunal was of the view that it was not necessary to go into that aspect in the instant case. It however added:

“[O]n 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 mobilisation of resources, the basic character of the activity of popularising 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 mobilises 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.”

In such view of the matter, the Appellate Tribunal held that BCCI was entitled to continuance of its registration under Section 12-A dated 12-2-1996. Accordingly, the impugned order passed by the CIT was quashed. [BCCI v. CIT, ITA No. 3301/Mum/2019, dated 2-11-2021]

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