Madras Motor Sports Club, CHENNAI V. DIT, CHENNAI

ITA 777/CHNY/2012

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 64697 (ITAT-CHENNAI)
• Duration Of Justice: 8 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-12-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 20-12-2012
• Assessment Year: 2009-2010
• Appeal Filed On: 12-04-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: R LAKSHMI RATAN
• Keywords: Business income; Charitable institution; Retrospective amendment
• Section: 80G; 12; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, CHENNAI BEFORE SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER AND SHRI VIKAS AWASTHY, JUDICIAL MEMBER I.T.A. NO. 777/MDS/2012 (ASSESSMENT YEAR : 2009-10) M/S MADRAS MOTOR SPORTS CLUB, C/O R. LAKSHMI RATAN & CO., CHARTERED ACCOUNTANTS, 48, TAYLORS ROAD, KILPAUK, CHENNAI - 600 010. PAN : AAOFM 1744 K (APPELLANT) V. THE DIRECTOR OF INCOME-TAX (EXEMPTIONS), CHENNAI - 600 034 . (RESPONDENT) APPELLANT BY : SHRI R. LAKSHMI RATAN, CA RESPONDENT BY : SHRI GURU BASHYAM, JCIT DATE OF HEARING : 20.12.2012 DATE OF PRONOUNCEMENT : 21.12.2012 O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER : IN THIS APPEAL FILED BY THE ASSESSEE, ITS GRIEVAN CE IS THAT DIT(E) CANCELLED THE REGISTRATION GRANTED TO IT UNDER SECT ION 12A(A) OF INCOME- TAX ACT, 1961 (IN SHORT 'THE ACT'). 2. FACTS APROPOS ARE THAT ASSESSEE MOTOR SPORTS CLU B, REGISTERED AS A SOCIETY, WAS ALSO HAVING REGISTRATION UNDER SECTION 12A(A) OF THE ACT 2 I.T.A. NO. 777/MDS/12 SINCE 1977, WITH REGISTRATION NO.C.NO.1212(154)/77. OBJECTS OF THE ASSESSEE, INTER ALIA, WAS TO PROMOTE SPORTS OF MOTO R CAR AND MOTOR CYCLE AND CONDUCT MOTOR RACES, COMPETITIONS, ETC. DURING THE SCRUTINY PROCEEDINGS, FOR ASSESSMENT YEAR 2009-10, THE A.O. OF THE ASSESSEE SENT A PROPOSAL TO THE DIT(E) RECOMMENDING CANCELLA TION OF REGISTRATION GRANTED TO ASSESSEE UNDER SECTION 12A(A) OF THE ACT . A SHOW CAUSE NOTICE WAS ISSUED FOR THIS, BY THE DIT(E). AS PER DIT(E) , THOUGH THE OBJECTS AND ACTIVITIES WERE COVERED UNDER THE CATEG ORY OF ADVANCEMENT OF GENERAL PUBLIC UTILITY COMING WITHIN THE AMBIT OF SECTION 2(15) OF THE ACT, ASSESSEE HAD, DURING THE PREVIOUS YEAR ENDED 3 1.3.2009, RECEIPTS OF ` 1,52,79,521/-. AS PER LD. DIT(E), SUCH RECEIPTS W ERE IN THE NATURE OF BUSINESS RECEIPTS AND WAS THEREFORE, HIT BY FIRST A ND SECOND PROVISOS TO SECTION 2(15) OF THE ACT. REPLY OF THE ASSESSEE ON THE SHOW CAUSE NOTICE ISSUED WAS THAT IT WAS A SOCIETY RUNNING MOT OR CAR AND MOTOR CYCLE RACES SINCE LAST MANY YEARS. ENTRY FEES RECE IVED FROM PARTICIPANTS AND SPONSORSHIP FEES RECEIVED FROM MAIN SPONSORS OF THE EVENTS WERE ONLY FOR THE PURPOSE OF EFFECTUATING THE OBJECTS OF THE SOCIETY. TO A QUESTION AS TO WHETHER ANY BENEFITS WERE DERIVED BY THE SPONSORS ON ACCOUNT OF ADVERTISEMENT, ASSESSEE SUBMITTED THAT T HE CHAMPIONSHIP RACES WERE CONDUCTED OVER FIVE ROUNDS AND THAT THRO UGH THIS, VARIOUS COMPONENTS USED BY VARIOUS ENGINE MANUFACTURERS, WE RE TESTED. AS PER LD. DIT(E), THE CHAMPIONSHIP RACES CONDUCTED BY THE ASSESSEE WERE TO 3 I.T.A. NO. 777/MDS/12 TEST DURABILITY AND PERFORMANCE OF COMPONENTS AND T HIS RESULTED IN DIRECT BENEFIT TO THE SPONSORS. THE SPONSORS OF VARIOUS E VENTS OF ASSESSEE LIKE MRF, UAM, UCAL AND JK TYRES DERIVED BENEFIT FR OM THE ASSESSEE AS PER THE LD. DIT(E). THEREFORE, IN THE OPINION O F LD. DIT(E), THE MOTOR SPORTS WERE FOR THE PURPOSE OF PROMOTION OF BUSINES S OF SPONSORS. THE SPONSORSHIP PROCEEDS WERE COMMERCIAL RECEIPTS IN TH E HANDS OF THE ASSESSEE. CONTENTION OF THE ASSESSEE THAT THE SURP LUS EARNED WERE USED FOR OBJECTS OF THE ASSESSEE, WAS NOT ACCEPTED BY THE LD. DIT(E). LD. DIT(E) WAS OF THE OPINION THAT ASSESSEE WAS HIT BY PROVISO TO SECTION 2(15) INSERTED FROM 1.4.2009. THEREFORE, A CCORDING TO HIM, THE OBJECTS AND ACTIVITIES OF THE ASSESSEE COULD NO MOR E BE CONSIDERED CHARITABLE IN NATURE. IN THIS VIEW OF THE MATTER, HE CANCELLED REGISTRATION GRANTED TO THE ASSESSEE UNDER SECTION 12A(A) OF THE ACT. 3. NOW BEFORE US, LEARNED A.R. STRONGLY ASSAILING T HE ORDER OF DIT(E), SUBMITTED THAT ASSESSEE HAD BEEN GRANTED REGISTRATI ON UNDER SECTION 12A(A) FROM THE YEAR 1977 AND ALSO GRANTED BENEFIT UNDER SECTION 80G OF THE ACT. ACCORDING TO LEARNED A.R., JUST BECAUS E SPONSORSHIP FEES WERE RECEIVED ON THE RACES CONDUCTED BY THE ASSESSE E, IT COULD NOT BE HELD THAT ASSESSEE WAS DOING SOMETHING WHICH WAS NO T OF THE NATURE MENTIONED UNDER SECTION 2(15) OF THE ACT. ACCORDIN G TO HIM, LD. DIT(E) HAD ACCEPTED THAT OBJECTS OF THE ASSESSEE CAME WITH IN THE AMBIT OF 4 I.T.A. NO. 777/MDS/12 ADVANCEMENT OF GENERAL PUBLIC UTILITY. HE CANCELLE D THE REGISTRATION ONLY FOR A REASON THAT SPONSORSHIP FEES, DURING THE RELE VANT PREVIOUS YEAR, EXCEEDED THE AMOUNT SPECIFIED UNDER SECOND PROVISO TO SECTION 2(15) OF THE ACT. RELYING ON THE DECISION OF JAIPUR BENCH O F THIS TRIBUNAL IN THE CASE OF RAJASTHAN HOUSING BOARD V. CIT [2012] 19 IT R (TRIB) 524 (JAIPUR), LEARNED A.R. SUBMITTED THAT JUST BECAUSE RECEIPTS EXCEEDED ` 10 LAKHS, GRANT OF REGISTRATION UNDER SECTION 12A(A ) COULD NOT BE CANCELLED. RELIANCE WAS ALSO PLACED ON THE DECISIO N OF AHMEDABAD BENCH OF THIS TRIBUNAL IN THE CASE OF GUJARAT CRICK ET ASSOCIATION V. DIT(E) (2012) 19 ITR (TRIB) 520. 4. PER CONTRA, LEARNED D.R. SUBMITTED THAT DIT(E) W AS JUSTIFIED IN CANCELLING THE REGISTRATION GRANTED TO ASSESSEE UND ER SECTION 12A(A) OF THE ACT. ACCORDING TO HIM, SECTION 2(15) WAS SUBST ITUTED BY FINANCE ACT, 2008 WITH EFFECT FROM 1.4.2009 AND AFTER SUCH SUBSTITUTION, ADVANCEMENT OF OBJECTS OF GENERAL PUBLIC UTILITY, I F IT INVOLVED CARRYING ON ACTIVITY OF TRADE, COMMERCE, OR BUSINESS OR COLLECT ION OF ANY FEES OR CESS IN CONNECTION WITH SUCH TRADE, COMMERCE OR BUSINESS , THEN IT CEASED TO BE A CHARITABLE PURPOSE. LEARNED D.R. POINTED OUT THAT SECOND PROVISO TO SECTION 2(15) INSERTED BY FINANCE ACT, 2010 WITH RETROSPECTIVE EFFECT FROM 1.4.2009 EXCLUDED APPLICATION OF FIRST PROVISO ONLY WHERE AGGREGATE VALUE OF THE RECEIPTS OF THE NATURE MENTIONED IN TH E FIRST PROVISO WAS LESS 5 I.T.A. NO. 777/MDS/12 THAN ` 10 LAKHS. HERE, ADMITTEDLY, ASSESSEE HAD RECEIVE D SPONSORSHIP FEES AND ENTRY FEES WHICH EXCEEDED THE SUM OF ` 10 LAKHS. THEREFORE, IT COULD NOT ARGUE THAT ANY OBJECT OF THE GENERAL PUBL IC UTILITY WAS BEING CARRIED ON BY IT. THOUGH THE OBJECTS WERE IN THE N ATURE OF GENERAL PUBLIC UTILITY, EARLIER, BY VIRTUE OF PROVISO TO SECTION 2 (15), INTRODUCED BY FINANCE ACT, 2008, IT CEASED TO BE SO. THEREFORE, ACCORDING TO HIM, LD. DIT(E) WAS JUSTIFIED IN CANCELLING THE REGISTRATION . 5. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL SUBMISSIONS. THERE IS NO DISPUTE THAT THE ASSESSEE WAS GRANTED R EGISTRATION UNDER SECTION 12A(A) IN THE YEAR 1977. THEREFORE, ASSESS EE WAS EARLIER CONSIDERED TO BE CHARITABLE SOCIETY ELIGIBLE FOR CL AIMING EXEMPTION UNDER SECTIONS 11 AND 12 OF THE ACT. LD. DIT(E) HAS MENT IONED AS UNDER AT PARA 3 AND PARA 10(I) OF HIS ORDER:- 3. A PERUSAL OF THE OBJECTS CLEARLY REVEALS THAT THE OBJECTS CAN BE TERMED AS ADVANCEMENT OF OBJECT OF GENERAL PUBL IC UTILITY U/S 2(15) OF THE I.T. ACT WHERE CHARITABLE PURPOSE INCL UDES SUCH OBJECTS. 10. . .. . .. (I) UNDOUBTEDLY, THE OBJECTS AND ACTIVITIES OF THE SOCI ETY COMES WITHIN THE ADVANCEMENT OF ANY OTHER OBJECT OF GENERAL PUBLIC UTILITY. THE SAME IS NOT QUESTIONED EITHER IN THE SHOW CAUSE LETTER OR DURING THE PROCEEDINGS. IN FACT, APPLICATION OF THE FIRST AND SECOND PROVISO, AFTER AMENDMENT W.E.F. 1.4.2009 IS APPLICABLE FOR THIS KIND OF 6 I.T.A. NO. 777/MDS/12 OBJECTS. HENCE THE RELIANCE OF LEARNED A.R. ON THE BOARDS CIRCULAR AND THE VARIOUS CONTENTIONS THAT TH E ACTIVITIES OF THE SOCIETY ARE COVERED WITHIN THE DE FINITION OF CHARITABLE PURPOSE UNDER THE CATEGORY OF ADVANCE MENT OF ANY OTHER OBJECT OF GENERAL PUBLIC UTILITY NO WA Y HELP THE ASSESSEE FROM INVOKING SEC.12AA(3) WHICH HAS BEE N ISSUED ON THE BASIS OF BUSINESS OR COMMERCIAL RECEI PTS AS PROVIDED IN FIRST AND SECOND PROVISO OF THE SAID CL AUSE (15) OF SEC.2 OF THE I.T. ACT. 6. THE ONLY REASON WHY THE DIT(E) CHOSE TO CANCEL T HE REGISTRATION WAS THAT ASSESSEE WAS HIT BY SUBSTITUTED SECTION 2( 15) OF THE ACT. BY VIRTUE OF SUBSTITUTION OF SECTION 2(15) BY FINANCE ACT, 2008, WITH EFFECT FROM 01.04.2009, THERE WAS A CHANGE, WHICH PLACED O N AN OBJECT FOR ADVANCEMENT OF GENERAL PUBLIC UTILITY, CERTAIN CONS TRAINTS. THE SAID SECTION 2(15) WAS FURTHER AMENDED BY FINANCE ACT, 2 010, WITH RETROSPECTIVE EFFECT FROM 1.4.2009. SECTION 2(15) AS IT STANDS NOW READS AS UNDER:- 2( 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 A RTISTIC OR HISTORIC INTEREST,] AND THE ADVANCEMENT OF ANY OTHER OBJECT OF GENERAL PUBL IC UTILITY: PROVIDED THAT THE ADVANCEMENT OF ANY OTHER OBJECT OF GENERA L PUBLIC UTILITY SHALL NOT BE A CHARITABLE PURPOSE, IF IT INVOLVES THE CAR RYING ON OF ANY ACTIVITY IN THE NATURE OF TRADE, COMMERCE OR BUSINESS, OR ANY ACTIV ITY 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:] [PROVIDED FURTHER THAT THE FIRST PROVISO SHALL NOT APPLY IF THE AGGRE GATE VALUE OF THE RECEIPTS FROM THE ACTIVITIES REFERRED TO THEREI N IS TEN LAKH RUPEES OR LESS IN THE PREVIOUS YEAR; ] BOTH PROVISOS ARE APPLICABLE FROM 01.04.2009. IF W E LOOK AT FIRST PROVISO, NO DOUBT IT CAN BE SAID THAT ADVANCEMENT OF OBJECT OF GENERAL PUBLIC 7 I.T.A. NO. 777/MDS/12 UTILITY SHALL NOT BE A CHARITABLE PURPOSE, IF IT IN VOLVED ACTIVITY OF TRADE, COMMERCE OR BUSINESS OR ANY SERVICE RENDERED IN REL ATION TO ANY TRADE, COMMERCE OR BUSINESS FOR A CONSIDERATION. HOWEVER, THE SECOND PROVISO, WHICH WAS ADDED BY FINANCE ACT, 2010, AGAI N WITH RETROSPECTIVE EFFECT FROM 1.4.2009, BROUGHT IN CERTAIN LIMITATION S ON THE APPLICATION OF FIRST PROVISO. FIRST PROVISO, AS IT STOOD INDEPEND ENTLY TILL THE LATTER AMENDMENT WAS BROUGHT IN, CLEARLY INDICATED THAT A VIOLATION THEREOF WOULD RESULT IN AN OTHERWISE CHARITABLE OBJECT OF G ENERAL PUBLIC UTILITY, NOT BECOMING SO. HOWEVER, BY VIRTUE OF SECOND PROVISO, THE CONSTRAINTS PLACED ON AN OBJECT OF GENERAL PUBLIC UTILITY, WILL COME INTO PLAY ONLY IF THE AGGREGATE VALUE OF THE RECEIPTS OF THE NATURE MENTI ONED THEREIN EXCEEDED ` 10 LAKHS. IN OTHER WORDS, THE OBJECT CONTINUED TO BE ONE OF GENERAL PUBLIC UTILITY, EVEN IF IT INVOLVED CARRYIN G ON AN ACTIVITY IN THE NATURE OF TRADE, COMMERCE OR BUSINESS BUT THERE WAS AN UPPER LIMIT SPECIFIED. THUS, EVEN IF WE PRESUME THAT THE SPONS ORSHIP FEES AND ENTRY FEES RECEIVED BY THE ASSESSEE WERE CONSIDERATION RE CEIVED IN RELATION TO SERVICE RENDERED BY VIRTUE OF TRADE, COMMERCE OR BU SINESS, IF THE AGGREGATE VALUE OF SUCH RECEIPTS WERE LESS THAN ` 10 LAKHS, IT WOULD STILL BE CONSIDERED AS CHARITABLE PURPOSE. A HARMONIOUS READING OF BOTH THE PROVISOS WILL ONLY MEAN IN THE YEARS IN WHICH THE R ECEIPTS OF NATURE MENTIONED IN FIRST PROVISO EXCEEDED ` 10 LAKHS, ASSESSEE WILL NOT BE 8 I.T.A. NO. 777/MDS/12 ELIGIBLE FOR EXEMPTION UNDER SECTIONS 11 AND 12 OF THE ACT. IT WILL NOT MEAN THAT AN OTHERWISE CHARITABLE OBJECT OF GENERAL PUBLIC UTILITY WILL BECOME A NON-CHARITABLE ONE ONLY FOR A REASON THAT THE AGGREGATE RECEIPTS EXCEEDED ` 10 LAKHS. 7. AS ALREADY MENTIONED BY US, ORDER OF LD. DIT(E) HAS CLEARLY MENTIONED THAT ASSESSEES OBJECTS WERE IN THE NATUR E OF ADVANCEMENT OF OBJECT OF GENERAL PUBLIC UTILITY COMING WITHIN THE AMBIT OF SECTION 2(15) OF THE ACT. HE HAD CANCELLED THE REGISTRATION ONLY FO R THE REASON THAT THE RECEIPTS EXCEEDED ` 10 LAKHS. IF THE RECEIPTS EXCEEDED ` 10 LAKHS AND IF SUCH RECEIPTS WERE OF NATURE MENTIONED IN FIRST PRO VISO TO SECTION 2(15) OF THE ACT, THE ASSESSING OFFICER WOULD, NO DOUBT, BE JUSTIFIED IN DENYING EXEMPTION UNDER SECTIONS 11 AND 12 OF THE ACT. HOW EVER, THIS WILL NOT BE A SUFFICIENT REASON FOR CANCELLING THE REGISTRAT ION GRANTED TO THE ASSESSEE UNDER SECTION 12A(A) OF THE ACT. IF IN TH E VERY NEXT YEAR, ASSESSEES RECEIPTS ARE LESS THAN ` 10 LAKHS, THEN IT WILL HAVE TO BE GRANTED THE EXEMPTION AVAILABLE UNDER SECTIONS 11 A ND 12 OF THE ACT, IF OTHER CONDITIONS ARE SATISFIED. IN OTHER WORDS, NA TURE OF OBJECTS OF THE ASSESSEE CANNOT FLUCTUATE IN TANDEM WITH THE QUANTU M OF RECEIPTS MENTIONED IN THE FIRST PROVISO. SIMILAR VIEW HAD ALREADY BEEN TAKEN BY THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF RAJASTHAN HOUSING BOARD (JAIPUR) (SUPRA) AND GUJARAT CRICKET ASSOCIAT ION (AHMEDABAD) 9 I.T.A. NO. 777/MDS/12 (SUPRA). WE ARE, THEREFORE, OF THE OPINION THAT LD . DIT(E) FELL IN ERROR IN CANCELLING THE REGISTRATION GRANTED TO THE ASSESSEE UNDER SECTION 12A(A) OF THE ACT. 8. IN THE RESULT, ORDER OF DIT(E) IS QUASHED AND AP PEAL OF THE ASSESSEE IS ALLOWED. THE ORDER WAS PRONOUNCED IN THE COURT ON FRIDAY, TH E 21 ST OF DECEMBER, 2012, AT CHENNAI. SD/- SD/- (VIKAS AWASTHY) (ABRAHAM P. GEORGE) JUDICIAL MEMBER ACCOUNTANT MEMBER CHENNAI, DATED THE 21 ST DECEMBER, 2012. KRI. COPY TO: (1) APPELLANT (2) RESPONDENT (3) DIT(E), CHENNAI (4) D.R. (5) GUARD FILE