Hyderabad Runners Society, Secunderabad V. Director of Income Tax (Exemptions), Hyderabad

ITA 974/HYD/2012

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 66357 (ITAT-HYDERABAD)
• Duration Of Justice: 3 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-10-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2012-2013
• Appeal Filed On: 21-06-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: M H NAIK
• Assessee Lawyers: M V ANIL KUMAR
• Keywords: Charitable institution; Opportunity of being heard
• Section: 12A; 12AA; 15

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A', HYDERABAD BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER I.T.A. NO. 974/HYD/2012 ASSESSMENT YEAR 2012-13 M/S. HYDERABAD RUNNERS SOCIETY, HYDERABAD PAN: AAAAH5475K VS. THE DIRECTOR OF INCOME-TAX (EXEMPTIONS), HYDERABAD APPELLANT RESPONDENT APPELLANT BY: SRI M.V. ANIL KUMAR RESPONDENT BY: SRI M.H. NAIK DATE OF HEARING: 04.10.2012 DATE OF PRONOUNCEMENT: 12.10.2012 O R D E R PER CHANDRA POOJARI, AM: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER OF THE DIRECTOR OF INCOME-TAX (EXEMPTIONS) [DIT(E) FOR SHORT], HYDERABAD DATED 30.4.2012. 2. THE ASSESSEES RAISED THE FOLLOWING GROUNDS OF APPE AL: (A) THE DIT(E) ERRED IN LAW AND FACTS OF THE CASE IN NOT GRANTING THE APPROVAL UNDER SECTION 12A OF THE INCOME-TAX ACT, 1961. (B) YOUR APPELLANT SUBMITS THAT HAVING ACCEPTED THAT THE SOCIETY ACTIVITIES ARE FULLY IN THE NATURE OF 'ADVANCEMENT OF ANY OTHER OBJECT OF GENERAL PUBLIC UTILITY', WRONGLY APPLIED THE PROVISO TO SECTION 2(15), AS THIS ACTIVITY OF RUNNING DOES NOT FALL UNDER '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', DIT(E) OUGHT TO HAVE GRANTED APPROVAL. (C) DIT(E) OUGHT TO HAVE APPRECIATED THE FACT THAT THERE ARE NO SALES AND THE COLLECTION IS ONLY BY WAY OF PARTICIPATION FEE ONLY BY MEMBERS OF THE SOCIETY AND PUBLIC AT LARGE, ERRED IN REJECTING THE I.T.A. NO. 974/HYD/2012 M/S. HYDERABAD RUNNERS SOCIETY ========================= 2 APPLICATION. (D) YOUR APPELLANT OBJECT FOR THE DENIAL OF THE APPROVAL ON THE GROUND THAT WRONG ADDRESS WAS GIVEN WITHOUT AFFORDING AN OPPORTUNITY TO EXPLAIN THE SAME OR GATHER THE CORRECT PARTICULARS. YOUR APPELLANT SUBMITS THAT THE PRESENT ADDRESS AS ON THE DATE OF APPLICATION WAS GIVEN. 3. BRIEF FACTS OF THE ISSUE ARE THAT THE ASSESSEE FILE D AN APPLICATION FOR REGISTRATION U/S. 12AA OF THE ACT O N 19.10.2011. THE DIT(E) CALLED FOR DETAILS OF SPECIFIC POINTS AN D DOCUMENTS AND BOOKS OF ACCOUNT AND BILLS AND VOUCHERS FOR VER IFICATION. ON VERIFICATION OF THE DOCUMENTS THE DIT(E) FOUND THAT IN FORM NO. 10A AND BYE-LAWS OF THE SOCIETY, REGISTERED OFFICE OF THE SOCIETY IS MENTIONED THAT IT IS SITUATED AT 4 TH FLOOR, PLOT NOS. 6/2 AND 6/3, HUDA TECHNO ENCLAVE, HIGHTEC CITY, MADHAPUR, H YDERABAD- 81. HOWEVER, AS PER THE CERTIFICATE ISSUED BY THE REGISTRAR OF SOCIETIES, THE ADDRESS OF THE SOCIETY WAS MENTIONED AS VIJAYPURI, ECIL POST, HYDERABAD-61. 4. FURTHER IT WAS OBSERVED BY THE DIT(E) THAT IN THE B Y-LAWS, UNDER THE MEMBERSHIP, IT WAS CLARIFIED THAT THE MEM BERSHIP OF THE SOCIETY SHALL BE OF FOUR CATEGORIES VIZ., CORE MEMBERS, RUNNERS, CORPORATE MEMBERS AND HONORARY MEMBERS. TH OUGH THE FEE AMOUNT IN RESPECT OF CORE MEMBER IS MENTION ED AT RS. 5000, IN CLAUSE 3.4 SUCH FEES IN RESPECT OF THE OTH ER TWO MEMBERS I .E, RUNNERS AND CORPORATE MEMBERS HAVE NO T BEEN INDICATED. IN CLAUSE 5.1, RELATING TO CORPORATE MEM BERS, IT IS MENTIONED THAT THE CORPORATE MEMBERSHIP SHALL BE OP EN TO CORPORATE ORGANIZATIONS AND SHALL COMPRISE OF MEMBE RSHIP FOR A GROUP OF ITS EMPLOYEES ON PAYMENT OF A ONETIME CORP ORATE FEES AT THE TIME OF INDUCTION AND THEREAFTER AN ANNUAL MEMBERSHIP FEES FROM 1 ST APRIL OF THE SUBSEQUENT YEAR. FURTHER, IN CLAUSE 5.2 RELATING TO CRITERIA FOR CORPORATE MEMBERSHIP, IT I S MENTIONED THAT 'THE QUALIFYING CRITERIA FOR CORPORATE MEMBERSHIP, THE I.T.A. NO. 974/HYD/2012 M/S. HYDERABAD RUNNERS SOCIETY ========================= 3 NUMBER OF RUNNERS PER CORPORATE, THE QUANTUM OF ONE TIME CORPORATE FEE AND THE ANNUAL MEMBERSHIP FEE SHALL BE DECIDED AND FIXED BY THE MANAGING COMMITTEE FROM TIME TO TIME AT ITS REGULAR MEETING. ' 5. IN ABSENCE OF SUCH INDUCTION FEES AND ANNUAL FEES A MOUNT IN RESPECT OF THE ABOVE TWO CATEGORIES OF MEMBERS, MENTIONED THEREIN, IT CLEARLY SHOWS THAT THE ASSESSEE SOCIETY HAS NOT FURNISHED COMPLETE AND FULL INFORMATION IN ITS SAID BY-LAWS AND IT IS UP TO THE DISCRETION OF THE MANAGING COMMITTE E OF THE ABOVE SOCIETY FOR DECIDING ON SUCH MEMBERSHIPS AND FIXING THOSE FEES. UNDER THESE CIRCUMSTANCES, THE ABOVE SO CIETY CANNOT BE TREATED AS A PUBLIC CHARITABLE ORGANIZATION. FUR THER, DURING THE PROCEEDINGS, THE ABOVE SOCIETY HAS FILED A PROF IT & LOSS ACCOUNT FOR THE PERIOD FROM 01.04.2011 TO 31.03.201 2 LE, FINANCIAL YEAR 2011- 12 DETERMINING FIRST-OF-ALL GR OSS PROFIT AT RS. 27,53,538/- AND NET PROFIT AT RS. 3,69,648.60. SUC H ACCOUNT UP TO THE POINT OF DETERMINATION OF GROSS PROFIT AS FU RNISHED IN THAT STATEMENT, IS AS UNDER: GROSS PROFIT C/O. SALES ACCOUNT 27,53,58 DIRECT INCOMES CLOSING STOCK (T - SHIRTS) PL 5,850 COLLECTION - AUROVILLE MARATHON 2012 2,44,425 COLLECTION FOR HYD RUNNERS EVENING 90,002 COLLECTION FOR T - SHIRTS (RELIANCE) 41,420 COLLECTION FOR WEEKEND RUN 2,520 COLLECTION JAN 26 CLUB RUN 45,815 DONATION RECEIVED 16,000 MEMBERSHIP FEE 27,000 PARTICIPANT FEE - RECEIPT HYD MARATHON 2011 22,80,506 27,53,538 27,53,538 27,53,538 GROSS PROFIT B/F. 27,53,538 6. FROM THE ABOVE FINANCIAL STATEMENT FOR THE FINANCIA L YEAR 2011-12, IT IS SEEN THAT UNDER DIRECT INCOME A SUM OF RS. 2,44,425 IS SHOWN AS COLLECTION FROM AUROVILLE MARA THON 2012 AND A SUM OF RS. 22,80,506 FROM PARTICIPANT FEE-REC EIPT-HVD- I.T.A. NO. 974/HYD/2012 M/S. HYDERABAD RUNNERS SOCIETY ========================= 4 MARATHON 2011. THE HYDERABAD MARATHON WAS CONDUCTED ON 28 TH AUGUST, 2011. THE RECEIPTS FROM FEES ETC., FROM BO TH THE MARATHONS I.E., AUROVILLE MARATHON & HYDERABAD MARA THON DURING THE FINANCIAL YEAR 2011-12 WERE TO THE EXTEN T OF RS. 25,24,931 I.E., MORE THAN RS. 25 LAKHS. AS MAY BE S EEN FROM THAT FINANCIAL STATEMENT, THE TOTAL RECEIPTS IN THE HAND S OF THE ABOVE SOCIETY FROM SALE OF T-SHIRTS AND FROM FEES ETC., R ECEIVED FROM BOTH THE ABOVE MARATHONS, DURING FINANCIAL YEAR 201 1-12, WERE EXCEEDING RS. 25 LAKHS. SINCE, THE ASSESSEE SOCIETY HAS SHOWN THE ENTIRE SUCH RECEIPTS AS DIRECT INCOME UNDER THE MAJOR HEAD 'SALES ACCOUNT', IN THAT STATEMENT AND THE ACTIVITI ES IN CASE OF THE SOCIETY ARE FULLY IN THE NATURE OF ADVANCEMENT OF ANY OTHER OBJECT OF GENERAL PUBLIC UTILITY, IT IS THUS HIT BY THE AMENDED PROVISO TO SECTION 2(15) OF THE ACT WHICH READ AS U NDER: '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 ACTIV ITY IN THE NATURE OF TRADE, COMMERCE OR BUSINESS, OR AN Y ACTIVITY OF RENDERING ANY SERVICE IN RELATION TO ANY TRADE, COMMERCE OR BUSINESS, FOR A CESS OR FEE OR A NY OTHER CONSIDERATION, IRRESPECTIVE OF THE NATURE OF USE OR APPLICATION, OR RETENTION, OF THE INCOME FROM SU CH ACTIVITY. PROVIDED FURTHER THAT THE FIRST PROVISO SHALL NOT A PPLY IF THE AGGREGATE VALUE OF THE RECEIPTS FROM THE ACTIVITIES REFERRED TO THEREIN IS TEN LAKH RUPEES OR LESS IN THE PREVIOUS YEAR. (IN PLACE OF RUPEES TEN LAKHS, RUPEES TWENTY FIVE LAKHS IS SUBSTITUTED VIDE FINANCE ACT 2011, W.E.F. 01-04-2012 I.E., A. Y 2012- 13)' 7. HAVING REGARD TO ABOVE AMENDED PROVISO AND SINCE TH E ACTIVITIES IN THE CASE OF ABOVE SOCIETY WERE IN NAT URE OF ADVANCEMENT OF ANY OTHER OBJECT OF GENERAL PUBLIC U TILITY AND MOREOVER THE GROSS RECEIPTS FROM DIFFERENT FEES ETC ., DURING THE FINANCIAL YEAR 2011-12 WERE EXCEEDING RS. 25 LAKHS, UNDER THAT CIRCUMSTANCE THEY ARE HIT BY THE SAID AMENDED PROVI SO TO I.T.A. NO. 974/HYD/2012 M/S. HYDERABAD RUNNERS SOCIETY ========================= 5 SECTION 2(15) OF THE ACT AND HENCE SUCH ACTIVITIES IN THEIR CASE CANNOT BE CONSIDERED AS FOR CHARITABLE PURPOSE AND THUS THEY CANNOT BE ALLOWED REGISTRATION U/S 12AA OF THE ACT. IN VIEW OF THE ABOVE, THE DIT(E) REJECTED REGISTRATION U/S. 12 AA OF THE ACT. 8. THE LEARNED AR SUBMITTED THAT THE ASSESSEE IS REGIS TERED AS A SOCIETY UNDER THE ANDHRA PRADESH SOCIETIES REG ISTRATION ACT, 2001 ON 23.10.2010 AND THE COPY OF THE BYE LAW S OF THE SOCIETY AND THE REGISTRATION CERTIFICATE HAVE BEEN SUBMITTED TO THE DIT(E) ALONG WITH THE APPLICATION. THE ASSESSE E IS ENGAGED IN THE PROMOTION OF RUNNING AS THE MOST PREFERRED F ORM OF FITNESS ACTIVITY IN THE TWIN CITIES AND ALSO HELP R UNNERS ATTEMPT ENDURANCE RUNNING OR SPORT AS PART OF HEALTHY LIFES TYLE. THE ASSESSEE, HYDERABAD RUNNERS IS NOT PROFIT ORIENTED SOCIETY AND IS A GROUP OF PASSIONATE RUNNERS WITH REGULAR RUNNI NG ACTIVITIES IN THE CITY. MEMBERS OF THE SOCIETY HAVE BEEN ACTIV ELY PARTICIPATING IN MARATHON EVENTS ACROSS INDIA AND O VERSEAS WITH OVER 170 FULL MARATHON AND 600+ HALF MARATHON PARTI CIPATIONS SINCE ITS INCEPTION. ITS MEMBERS HAVE PARTICIPATED IN EVENTS ALL OVER THE COUNTRY AND ACROSS 60 CITIES SPANNING FIVE CONTINENTS AND SOMETIMES ITS MEMBERS HAVE GONE ON TO DO A PODI UM FINISH. THE ASSESSEE OPERATES THROUGH AN ONLINE GROUP WITH 1100+ RUNNERS AND GROWING EACH DAY WITH THE AIM OF MAKING RUNNING AS THE MOST PREFERRED FORM OF FITNESS ACTIVITY IN T HE TWIN CITIES. THE SOCIETY HAS BEEN BRINGING OUT TO THE GENERAL PU BLIC AT LARGE THE AWARENESS, BENEFIT AND ADVANTAGES OF RUNNING. T HE OFFLINE ACTIVITIES INCLUDE FOUR RUNNING AND FITNESS RELATED ACTIVITIES. IT IS AN ANCIENT, SCIENTIFIC AND PROFOUND BELIEF THAT DAI LY RUNNING IMPROVES THE BODY FITNESS AND MENTAL STABILITY. EV EN TODAY MOST OF THE TRAINING CENTRES LIKE MILITARY TRAINING, , P OLICE TRAINING, AND VARIOUS RESIDENTIAL TRAINING CENTRES START THEI R DAY ONLY WITH RUNNING/JOGGING FOR AT LEAST ABOUT 2-3 KM TO KEEP T HEM PHYSICALLY AND MENTALLY FIT. IT IS AN UNDISPUTED F ACT THAT JOGGING I.T.A. NO. 974/HYD/2012 M/S. HYDERABAD RUNNERS SOCIETY ========================= 6 IS ONE FORM OF RUNNING AND MARATHON IS AN ADVANCED AND TECHNICALLY HIGHER LEVEL OF JOGGING. THE MARATHON IS A LONG- DISTANCE RUNNING EVENT WITH AN OFFICIAL DISTANCE OF 42.195 KILOMETRES (26 MILES AND 385 YARDS) 9. THE AR SUBMITTED THAT IT IS ALSO A KNOWN FACT THAT MARATHON IS A SPORT BY ITSELF AND THE POPULARITY IS EVIDENT BY THE FACT THAT THERE ARE NEARLY 1600 MARATHONS ORGANIZED ALL OVER THE WORLD ACROSS ALL THE SEVEN CONTINENTS. IN THE INTE RNATIONAL AND NATIONAL SPORT EVENTS AND AS WELL AS IN THE VARIOUS LEVELS OF SPORTS EVENTS CONDUCTED WE DO HAVE RELAY MARATHONS OR MARATHONS. THE SOCIETY THROUGH ITS MEMBERS ARE COND UCTING EVENTS AT INTERVALS PRESENTLY ANNUALLY, BRING THIS AWARENESS TO THE PUBLIC AT LARGE. IN THIS PROCESS THE SOCIETY C OLLECTS AN AMOUNT FROM THE PARTICIPANTS, WHICH IS TERMED AS PA RTICIPATION FEE. THEREFORE, IT FALLS WITHIN THE DEFINITION OF C HARITABLE PURPOSE AS DEFINED IN SECTION 2(15) COMING UNDER THE LIMB ' ANY OTHER ACT GENERAL PUBLIC UTILITY'. THE DIT(E) THOUGH UNDOUBT EDLY ACCEPTS THAT THE ACTIVITY IS UNDER THE LIMB 'ANY OTHER ACT OF GENERAL PUBLIC UTILITY' WRONGLY CONSTRUED THAT COLLECTION O F FEE BECOMES EITHER CARRYING ON OF ANY ACTIVITY IN THE NATURE OF TRADE, COMMERCE OR BUSINESS, OR ANY ACTIVITY OF RENDERING ANY SERVICE IN RELATION TO TRADE, COMMERCE OR BUSINESS, WHICH I S TOTALLY INCORRECT. CONDUCTING A MARATHON IS A HERCULEAN JOB , NEEDS TO COMPLY WITH CERTAIN NATIONAL AND INTERNATIONAL STAN DARDS, PROVIDE THE RUNNERS / PARTICIPANTS WITH ENERGY SUPP LEMENTS, ELECTRIC GADGETS TO MONITOR THEIR SPEED, TIME AND L OCATION, ALL THESE EXPENSES ARE MET OF PARTICIPATION FEE, DONATI ONS, SPONSORSHIP AMOUNT AND MEMBERSHIP FEE. THE AR SUBMI TTED THAT THE ASSESSEE BRINGS AWARENESS OF ITS ACTIVITY THROUGH THE ONLINE GROUPS NOTIFYING THE LOCATIONS AND DETAILS O F THE RUNS. THE GROUP HAD MORE THAN 500 PARTICIPANTS DURING EAC H MONTH FOR THE TRAINING SESSIONS, RUNS, MOTIVATIONAL TALKS AND ALSO OTHER I.T.A. NO. 974/HYD/2012 M/S. HYDERABAD RUNNERS SOCIETY ========================= 7 RUNNING RELATED ACTIVITIES WHICH HAVE ALL BEEN COND UCTED FREE OF COST SINCE ITS INCEPTION. THIS ENTIRE EXPENDITURE HAS BEEN MET OUT OF THE MEMBERS' CONTRIBUTION AND OUT OF THE HYD ERABAD MARATHON CONDUCTED IN AUGUST, 2011. 10. THE AR SUBMITTED THAT THE DIT(E) OUGHT TO HAVE APPRECIATED THE ABOVE AND GRANTED APPROVAL. ON THE CONTRARY MERELY BECAUSE THE HEAD SALES ACCOUNT HAS BEEN USED , WITHOUT ANY FINDING, BRUSHED ASIDE THE REAL ACTIVITY AND DE NIED THE APPROVAL, WHICH IS NOT CORRECT. AS REGARDS THE FEE AND MEMBERSHIP IT WAS EXPLAINED THAT THEY ARE CATEGORIZ ED AS: (1) CORE MEMBERS - IT CONSISTS OF THE FOUNDING MEMBERS OF THE SOCIETY WHICH CURRENTLY CONSTITUTES SEVEN MEMBE RS AND IT IS PROPOSED TO INCREASE IT TO A TOTAL OF 11 MEMBERS. THE MEMBERSHIP FEE HAS BEEN FIXED AT RS. 5000 PER H EAD APART FROM THE CRITERION OF COMPLETING A FULL MARAT HON ONCE IN YEARS AND ALSO A HALF MARATHON IN EVERY CAL ENDAR YEAR. (2) ASSOCIATE MEMBERS - IT CONSISTS OF ONLINE MEMBERS OF THE GROUP WHO HAVE BEEN ACTIVE AND DO PLAN TO TAKE PART IN THE REGULAR OFFLINE WEEKLY AND OTHER ACTIVITIES. TH ERE IS NO CRITERION FOR IT APART FROM PAYING AN ANNUAL FEE WH ICH IS YET TO BE FINALIZED. CURRENTLY THE CORE MEMBERS AR E SPENDING MONEY ON THEIR OWN TO KEEP THE ACTIVITIES OF THE GROUP GOING SEAMLESSLY. (3) CORPORATE MEMBERS - SINCE THE GROUP HAS BEEN SET UP WITH THE IDEA OF MAKING DISTANCE RUNNING AS THE MOST PRE FERRED FORM OF FITNESS ACTIVITY, THE GROUP HAS BEEN CONTEM PLATING APPROACHING CORPORATE BODIES TO HELP SPREAD DISTANC E RUNNING AS A FORM OF ACTIVITY AS PART OF THE INDIVI DUAL AND CORPORATE WELLNESS PROGRAMMES. THE PROPOSED I.T.A. NO. 974/HYD/2012 M/S. HYDERABAD RUNNERS SOCIETY ========================= 8 MEMBERSHIP CENTRE WILL CONCENTRATE ON A CORPORATE SIGNING UP WITH HYDERABAD RUNNERS SOCIETY TO DEVELO P A WELLNESS PROGRAMME BASED ON RUNNING AND ALSO TRAINI NG FOR 10K, HALF-MARATHONS AND FULL-MARATHONS AND ALSO THE NUMBER OF PEOPLE WHO HAVE SIGNED UP FOR SUCH A PROGRAMME. SINCE THE GROUP HAS BEEN EVOLVING OVER T HE LAST FEW YEARS AND SINCE THERE ARE NO FULL TIME STA FF FOR THIS, A MEMBERSHIP FEES NOR STRUCTURE HAVE NOT BEEN EVOLVED. DURING AUGUST, 2011, THE GROUP FOR THE FIR ST TIME IN THE CITY CONDUCTED A MARATHON AS PER INTERNATION AL GUIDELINES AND IT HAS BEEN WELL- RECEIVED. THIS HA S SPURRED THE GROUP TO ANNOUNCE THE SECOND EDITION OF THE EVENT TO BE HELD ON 26 TH AUGUST, 2012 WHICH HAS BEEN ENDORSED BY 90% OF THE RUNNING GROUPS IN THE COUNTR Y. THERE HAS BEEN A LOT OF AWARENESS CREATED DURING TH E LAST COUPLE OF YEARS AND THE GROUP WILL EVOLVE A CORPORA TE MEMBERSHIP PROGRAMME AND BASED ON THE QUANTUM OF WORK, IT WILL BE PRICED ACCORDINGLY. (4) HONORARY MEMBERSHIPS : THIS KIND OF MEMBERSHIP INCLUDES ATTRACTING MEMBERS OF REPUTE FROM THE FIEL D OF SPORTS AND ALSO OTHER FIELDS WHERE THERE HAVE BEEN ACHIEVEMENTS IN THE AREA OF ENDURANCE SPORTS SUCH A S MARATHON RUNNING, TRIATHLONS, ETC., THERE IS NO FEE AND THIS IS ONLY BY INVITATION AND CONSENSUS AMONGST THE COR E MEMBERS. TILL DATE, WE HAVE NOT APPOINTED ANYONE. 11. THE LEARNED AR SUBMITTED THAT THE ASSESSEE HAS APPROACHED VARIOUS CORPORATE BODIES LIKE BANK OF AM ERICA, DELOITTE, GMR GROUP, PEPSI, AIRTEL, ETC., AND THEY HAVE SHOWN INTEREST IN MAKING THEIR EMPLOYEES TO PARTICIPATE I N THE RUNS ON A REGULAR BASIS. IN AUGUST 2011 MARATHON, AIRTEL WA S THE MAIN SPONSOR IN ADDITION TO THE ABOVE OTHER CORPORATE BO DIES. ABOUT I.T.A. NO. 974/HYD/2012 M/S. HYDERABAD RUNNERS SOCIETY ========================= 9 400 PARTICIPANTS ARE EXCLUSIVELY FROM THE CORPORATE SECTOR OUT OF 1300 PARTICIPANTS OF THE AUGUST 2011 MARATHON. THOU GHT NOT FORMALIZED THE COMMITTEE IS IN THE PROCESS OF FIXIN G THE ANNUAL MEMBERSHIP FEE FOR EACH CORPORATE AT RS. 50,000. A PARTICIPATION FEES FOR CORPORATE EMPLOYEES WILL BE CHARGED AT APP ROXIMATELY RS. 300 PER ANNUM WHICH ENTITLES THEM TO PARTICIPAT E IN ALL THE EVENTS CONDUCTED BY THE GROUP. IN CASE OF ASSOCIAT E MEMBERS RS. 750/- PER ANNUM AND THEY CAN PARTICIPATE IN ALL EVENTS. THE SOCIETY WILL PROVIDE DURING EACH EVENT WATER, ENERG Y DRINKS, MEDICAL AID, AND ADVICE AND FACILITATE AVAILABILITY OF EQUIPMENTS FOR WEEKLY RUNS CONDUCTED. IN ADDITION TO THIS, TH E ENTRY FEE TO THE MEMBERS FOR ANNUAL FULL MARATHON AND HALF YEARL Y HALF MARATHONS WILL BE AT CONCESSIONAL RATES. THE PRIMA RY AND DOMINANT OBJECTIVE IS TO PROMOTE RUNNING AS A MEDIU M OF FITNESS, GOOD HEALTH AMONGST THE CITIZENS AND PARTI CULARLY THE YOUTH THROUGH OUR TRAINING PROGRAMMES AND EVENTS. 12. THE LEARNED AR SUBMITTED THAT THIS IS NOT DISPUTED BY THE DIT(E) ON ONE HAND AND ON THE OTHER HAND SAYS THIS IS COMMERCIAL WITHOUT THERE BEING AN IOTA COMMERCIAL A CTIVITY. ANY SURPLUS FROM THE ACTIVITIES ALSO WOULD BE APPLI ED ONLY FOR DEVELOPMENT OF POPULARITY OF ENDURANCE RUNNING AS A DAILY EXERCISE. THE MEMBERSHIP IS OPEN TO MEMBERS OF GEN ERAL PUBLIC WHO ARE INTERESTED IN PARTICIPATING IN THE ACTIVITI ES, WITHOUT ANY RESTRICTIONS. EVEN ON THE WINDING UP OF THE SOCIET Y, ALL ITS ASSETS REMAINING AFTER SETTLEMENT OF ALL ITS LIABILITIES S HALL NOT BE DISTRIBUTED AMONGST THE MEMBERS BUT SHALL BE HANDED OVER TO ANY OTHER SIMILAR ORGANIZATION REGISTERED AS CHARIT ABLE ORGANIZATION UNDER THE PROVISIONS OF SECTION 12A AN D OTHER APPLICABLE PROVISIONS OF INCOME TAX ACT. THEREFORE, ALL THE CONDITIONS GENERALLY REQUIRED FOR REGISTRATION OF S OCIETY FOR GENERAL PUBLIC UTILITY HAVE BEEN COMPLIED WITH. THE AR PRAYED THAT APPROVAL UNDER SECTION 12A MAY BE GRANTED. I.T.A. NO. 974/HYD/2012 M/S. HYDERABAD RUNNERS SOCIETY ========================= 10 13. THE AR ALSO DREW OUR ATTENTION TO A DECISION OF AND HRA PRADESH HIGH COURT IN THE CASE OF CIT VS ANDHRA PRA DESH RIDING CLUB (168 ITR 393) (AP), WHEREIN THE HIGH COURT HEL D THAT 'ASSESSEE CLUB ENGAGED IN PROMOTING HORSE RIDING AM ONG SECTION OF THE PUBLIC BEING OPEN TO GENERAL PUBLIC AND ITS INCOME BEING UTILIZED FOR THOSE ACTIVITIES, IS SAID TO BE CARRYING ON AN OBJECT OF GENERAL PUBLIC ACTIVITY NOT INVOLVING CAR RYING ON OF ANY ACTIVITY FOR PROFIT UNDER S. 2(15) AND HENCE IS ENT ITLED FOR EXEMPTION UNDER S. 11(1).' THE AR SUBMITTED THAT T HE OBJECTS OF THE SOCIETY ARE ALSO OF SIMILAR NATURE AND FALL UND ER THE SAME CATEGORY BASED ON THE PRIMARY AND DOMINANT OBJECTIV ES. THE DIT(E) SHOULD HAVE RAISED THE QUESTION WITH REGARD TO THE CHANGE IN ADDRESS OF THE ASSESSEE. THE PRESENT ADDRESS WAS GIVEN IN THE APPLICATION, WITHOUT FINDING OUT THE FACTS CANNOT C OME TO THE CONCLUSION THAT THE ASSESSEE HAS PROVIDED WRONG ADD RESS AND BASED ON THIS THE APPROVAL SHOULD NOT HAVE BEEN DEN IED. IT IS BROUGHT TO THE NOTICE OF THE DIT(E) THAT THE ASSESS EE HAS SUBMITTED MEMBERSHIP APPLICATION ONLINE TO ASSOCIAT ION OF INTERNATIONAL MARATHONS AND DISTANCE RACE (AIMS), L ONDON AND SUBMITTED A LETTER FROM SPORTS AUTHORITY OF ANDHRA PRADESH (SAAP) GIVING PERMISSION AND SUPPORT FOR THE MARATH ON 2012. THE DIT(E) WITHOUT CONSIDERING ALL THE ABOVE FACTS REJECTED THE APPLICATION. 14. THE LEARNED DR RELIED ON THE ORDER OF THE DIT(E). 15. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATE RIAL ON RECORD. SECTION 12AA OF THE ACT PROVIDES AS FOL LOWS : '12AA. (1) THE COMMISSIONER, ON RECEIPT OF AN APPLICATION FOR REGISTRATION OF A TRUST OR INSTITUT ION MADE UNDER CLAUSE (A) OF SECTION 12A SHALL (A) CALL FOR SUCH DOCUMENTS OR INFORMATION FROM THE TRUST OR INSTITUTION AS HE THINKS NECESSARY IN ORDE R I.T.A. NO. 974/HYD/2012 M/S. HYDERABAD RUNNERS SOCIETY ========================= 11 TO SATISFY HIMSELF ABOUT THE GENUINENESS OF ACTIVITIES OF THE TRUST OR INSTITUTION AND MAY ALSO MAKE SUCH INQUIRIES AS HE MAY DEEM NECESSARY IN THIS BEHALF; AND (B) AFTER SATISFYING HIMSELF ABOUT THE OBJECTS OF THE TRUST OR INSTITUTION AND THE GENUINENESS OF ITS ACTIVITIES, HE - (I) SHALL PASS AN ORDER IN WRITING REGISTERING THE TRUST OR INSTITUTION; (II) SHALL, IF HE IS NOT SO SATISFIED, PASS AN ORDER IN WRITING REFUSING TO REGISTER THE TRUST OR INSTITUTION, AND A COPY OF SUCH ORDER SHALL BE SENT TO THE APPLICANT: PROVIDED THAT NO ORDER UNDER SUB-CLAUSE (II) SHALL BE PASSED UNLESS THE APPLICANT HAS BEEN GIVEN A REASONABLE OPPORTUNITY OF BEING HEARD. (1A) ALL APPLICATIONS, PENDING BEFORE THE CHIEF COMMISSIONER ON WHICH NO ORDER HAS BEEN PASSED UNDER CLAUSE (B) OF SUB-SECTION (1) BEFORE THE 1 ST DAY OF JUNE, 1999, SHALL STAND TRANSFERRED ON THAT DAY TO THE COMMISSIONER AND THE COMMISSIONER MAY PROCEED WITH SUCH APPLICATIONS UNDER THAT SUB- SECTION FROM THE STAGE AT WHICH THEY WERE ON THAT DAY. (2) EVERY ORDER GRANTING OR REFUSING REGISTRATION UNDER CLAUSE (B) OF SUB-SECTION (1) SHALL BE PASSED BEFORE THE EXPIRY OF SIX MONTHS FROM THE END OF THE MONTH IN WHICH THE APPLICATION WAS RECEIVED UNDER CLAUSE (A) SECTION 12A. (3) WHERE A TRUST OR AN INSTITUTION HAS BEEN GRANTE D REGISTRATION UNDER CLAUSE (B) OF SUB-SECTION (1) AN D SUBSEQUENTLY THE COMMISSIONER IS SATISFIED THAT THE ACTIVITIES OF SUCH TRUST OR INSTITUTION ARE NOT GEN UINE OR ARE NOT BEING CARRIED OUT IN ACCORDANCE WITH THE OBJECTS OF THE TRUST OR INSTITUTION, AS THE CASE MA Y BE, HE SHALL PASS AN ORDER IN WRITING CANCELLING THE REGISTRATION OF SUCH TRUST OR INSTITUTION: PROVIDED THAT NO ORDER UNDER THIS SUB-SECTION SHALL I.T.A. NO. 974/HYD/2012 M/S. HYDERABAD RUNNERS SOCIETY ========================= 12 BE PASSED UNLESS SUCH TRUST OR INSTITUTION HAS BEEN GIVEN A REASONABLE OPPORTUNITY OF BEING HEARD:' 16. SECTION 12AA OF THE ACT CONFERS POWER ON THE COMMISSIONER WHILE CONSIDERING THE APPLICATION FOR REGISTRATION OF A TRUST OR INSTITUTION MADE UNDER THE SAME PROVI SIONS TO CALL FOR SUCH DOCUMENTS OR INFORMATION FROM THE TRUST OR INSTITUTION AS HE THINKS NECESSARY IN ORDER TO SATISFY HIMSELF ABOUT THE GENUINENESS OF THE ACTIVITIES OF THE TRUST OF INSTI TUTION AND ALSO TO MAKE SUCH ENQUIRY AS HE MAY DEEM NECESSARY IN TH IS BEHALF AND IF HE SATISFIES HIMSELF ABOUT THE OBJECT OF THE TRUST OR INSTITUTION AND GENUINENESS OF THE ACTIVITIES, HE M AY PASS AN ORDER IN WRITING REGISTERING THE TRUST OR INSTITUTI ON AND IF HE IS NOT SATISFIED HE WOULD REFUSE REGISTRATION. IN OTH ER WORDS, THE DIT HAS TO SATISFY HIMSELF ABOUT THE GENUINENESS OF THE ACTIVITIES OF TRUST OR INSTITUTION IN CONSONANCE WITH THE OBJE CTS OF THE TRUST OR INSTITUTION. THUS ON ENQUIRY, THE LEARNED DIT S HALL HAVE TO EXAMINE AS TO WHETHER THE ASSESSEE WHO HAS MOVED AN APPLICATION FOR REGISTRATION IS ACTUALLY IN THE ACT IVITIES WHICH ARE GENUINE. IF THE ACTIVITIES ARE GENUINE REGISTRATIO N HAS TO BE GRANTED. 17. IN THE PRESENT CASE THE ASSESSEES APPLICATION FOR REGISTRATION U/S. 12AA OF THE ACT WAS REJECTED ON T HE REASON THAT THE ASSESSEES ACTIVITIES ARE NOT CHARITABLE IN NAT URE. THE ACTIVITIES SAID TO BE CARRIED ON BY THE ASSESSEE WE RE FOUND FOR PROMOTING COMMERCIAL ACTIVITIES RATHER THAN CHARITA BLE ACTIVITIES. BEFORE US THE LEARNED AR SUBMITTED THAT THE ASSESSE E COLLECTED FEES FOR CONDUCTING MARATHON AT AUROVILLE AND HYDER ABAD OF MORE THAN RS. 25 LAKHS. ACCORDING TO THE AR, IT IS ONLY INCIDENTAL TO THE MAIN OBJECT OF ASSESSEES CHARITA BLE ACTIVITIES. 18. CHARITABLE PURPOSE HAS BEEN DEFINED UNDER S. 2(15) OF THE IT ACT. THIS CLAUSE HAS BEEN SUBSTITUTED BY THE FIN ANCE ACT, I.T.A. NO. 974/HYD/2012 M/S. HYDERABAD RUNNERS SOCIETY ========================= 13 2008 W.E.F. 1ST APRIL., 2009. THE CLAUSE, WHICH IS RELEVANT FOR THE ASSESSMENT YEAR 2009-10 AND RELEVANT TO THE FINANCI AL YEAR 2008-09 ONWARD, IS AS UNDER : '(15) CHARITABLE PURPOSE INCLUDES RELIEF OF THE P OOR, EDUCATION, MEDICAL RELIEF, 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.' 19. IN THE NOTES ON CLAUSES TO THE FINANCE BILL, 2008, IT IS CLEARLY MENTIONED THAT CL. 3 OF THE FINANCE BILL, W HICH SEEKS AMENDMENT TO S. 2 OF THE IT ACT RELATING TO DEFINIT ION OF CHARITABLE PURPOSE WILL TAKE EFFECT FROM 1ST APRIL, 2009 AND WILL ACCORDINGLY APPLY IN RELATION TO THE ASST. YR. 2009 -10 AND SUBSEQUENT ASSESSMENT YEARS. IN THE MEMORANDUM EXPL AINING THE PROVISIONS OF THE FINANCE BILL, IT HAS BEEN MEN TIONED AS UNDER FOR BRINGING THE AMENDMENT TO THE DEFINITION OF THE CHARITABLE PURPOSE : 'SEC. 2(15) OF THE ACT DEFINES CHARITABLE PURPOSE TO INCLUDE RELIEF OF THE POOR, EDUCATION, MEDICAL RELI EF, AND THE ADVANCEMENT OF ANY OTHER OBJECT OF GENERAL PUBL IC UTILITY. IT HAS BEEN NOTICED THAT A NUMBER OF ENTITIES OPERA TING ON COMMERCIAL LINES ARE CLAIMING EXEMPTION ON THEIR INCOME EITHER UNDER S. 10(23C) OF S. 11 OF THE ACT ON THE GROUND THAT THEY ARE CHARITABLE INSTITUTIONS. THIS IS BASED ON THE ARGUMENT THAT THEY ARE ENGAGED IN THE ADVANCEMENT OF AN OBJECT OF GENERAL PUBLIC UTILITY AS IS INCLUDED IN THE FOURTH LIMB OF THE CURRENT DEFINITI ON OF CHARITABLE PURPOSE. SUCH A CLAIM, WHEN MADE IN RE SPECT I.T.A. NO. 974/HYD/2012 M/S. HYDERABAD RUNNERS SOCIETY ========================= 14 OF AN ACTIVITY CARRIED OUT ON COMMERCIAL LINES, IS CONTRARY TO THE INTENTION OF THE PROVISION. WITH A VIEW TO LIMITING THE SCOPE OF THE PHRASE ADVANCEMENT OF ANY OTHER OBJECT OF GENERAL PUBLIC UTILITY, IT IS PROPOSED TO AMEND S. 2(15) SO AS TO PROVIDE THAT THE ADVANCEMENT OF ANY OTHER OBJECT OF GENERA L PUBLIC UTILITY SHALL NOT BE A CHARITABLE PURPOSE I F IT INVOLVES THE CARRYING ON OF (A) ANY ACTIVITY IN THE NATURE OF TRADE, COMMERCE O R BUSINESS OF, (B) ANY ACTIVITY OF RENDERING OF ANY SERVICE IN REL ATION TO ANY TRADE, COMMERCE OR BUSINESS, FOR A FEE OR CESS OR ANY OTHER CONSIDERATION, IRRESPECTIVE OF THE NATURE OF USE OR APPLICATION OF THE INCOME FROM SUCH ACTIVITY, OR TH E RETENTION OF SUCH INCOME, BY THE CONCERNED ENTITY. THIS AMENDMENT WILL TAKE EFFECT FROM THE 1ST APRIL, 2009 AND WILL ACCORDINGLY APPLY IN RELATION TO THE ASST. YR. 2009-10 AND SUBSEQUENT ASSESSMENT YEARS.' 20. SEC. 12(1) OF THE IT ACT IS REPRODUCED AS UNDER : '12(1) ANY VOLUNTARY CONTRIBUTIONS RECEIVED BY A TR UST CREATED WHOLLY FOR CHARITABLE OR RELIGIOUS PURPOSES OR BY AN INSTITUTION ESTABLISHED WHOLLY FOR SUCH PURPOSES (NOT BEING CONTRIBUTIONS MADE WITH A SPECIFIC DIRECTION THAT THEY SHALL FORM PART OF THE CORPUS OF THE TRUST OR INSTITUTION) SHALL FOR THE PURPOSES OF S. 11 BE DEE MED TO BE INCOME DERIVED FROM PROPERTY HELD UNDER TRUST WHOLL Y FOR CHARITABLE OR RELIGIOUS PURPOSES AND THE PROVIS IONS OF THAT SECTION AND S. 13 SHALL APPLY ACCORDINGLY.' 21. THE VOLUNTARY CONTRIBUTION RECEIVED BY A TRUST CREA TED ONLY FOR CHARITABLE OR RELIGIOUS PURPOSES IS TO BE DEEMED AS INCOME U/S. 11 OF THE ACT. IN CASE SOME OF THE OBJ ECTS OF THE TRUST ARE CHARITABLE AND SOME OF THE OBJECTS CAN BE TERMED AS NON CHARITABLE THEN SUCH A TRUST WILL NOT BE COVERE D U/S. 12 BECAUSE THEN IT IS NOT A TRUST CREATED WHOLLY FOR C HARITABLE PURPOSES. ONE HAS TO GO THROUGH THE OBJECT CLAUSE OF THE TRUST DEED AND TO SEE WHETHER THE ACTIVITIES CARRIED ON B Y THE ASSESSEE ARE IN THE NATURE OF CHARITABLE OR NOT. AS PER THE PROVISO TO I.T.A. NO. 974/HYD/2012 M/S. HYDERABAD RUNNERS SOCIETY ========================= 15 SECTION 2(15) OF THE ACT AN OBJECT OF GENERAL PUBLI C UTILITY WILL NOT BE A CHARITABLE PURPOSE IF IT IS INVOLVED CARRY ING ON OF ANY ACTIVITY IN THE NATURE OF TRADE, COMMERCE OR BUSINE SS OR ANY ACTIVITY RENDERING ANY SERVICE IN RELATION TO ANY T RADE, COMMERCE, BUSINESS FOR A CESS OR FEE OR ANY OTHER CONSIDERATI ON, IRRESPECTIVE OF NATURE OF USE OR APPLICATION OF RET ENTION OF THE INCOME FROM SUCH ACTIVITIES. IF THE ASSESSEE CARRI ED ON ANY ACTIVITY IN THE NATURE OF TRADE, COMMERCE OR BUSINE SS, THE ASSESSEE CANNOT BE TERMED AS EXISTING FOR THE PURPO SE OF CHARITABLE OR RELIGIOUS ACTIVITIES. AS PER PROVISO TO SECTION 2(15) IF THE OBJECT OF THE TRUST IS ADVANCEMENT OF ANY OT HER OBJECT OF GENERAL PUBLIC UTILITY THEN THE ACTIVITY OF RENDERI NG ANY SERVICE IN RELATION TO TRADE, COMMERCE OR BUSINESS WILL MAKE S UCH AN OBJECT OF GENERAL PUBLIC UTILITY AS NOT QUALIFYING FOR CHARITABLE PURPOSE. IF THE ASSESSEE CONDUCTS MARATHON IN A CO MMERCIAL MANNER, THEN THE TRUST CANNOT BE SAID TO BE EXISTIN G ONLY FOR CHARITABLE PURPOSES IN VIEW OF THE AMENDED DEFINITI ON OF THE CHARITABLE PURPOSE W.E.F. 1.4.2008. IN VIEW OF THI S THE DIT(E) IS DIRECTED TO EXAMINE WHETHER RECEIPT OF FEES FROM MA RATHON IS INCIDENTAL TO CHARITABLE OBJECT OF THE ASSESSEE OR IT IS THE MAIN ACTIVITY OF THE ASSESSEE AND DECIDE THEREUPON. IF THE ASSESSEE FALLS UNDER THE PURVIEW OF AMENDED PROVISION OF SEC TION 2(15), THEN REGISTRATION IS NOT TO BE GRANTED. 22. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED FO R STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 12 TH OCTOBER, 2012. SD/- (ASHA VIJAYARAGHAVAN) JUDICIAL MEMBER SD/- (CHANDRA POOJARI) ACCOUNTANT MEMBER HYDERABAD, DATED 12 TH OCTOBER, 2012 TPRAO I.T.A. NO. 974/HYD/2012 M/S. HYDERABAD RUNNERS SOCIETY ========================= 16 COPY FORWARDED TO: 1. M/S. HYDERABAD RUNNERS SOCIETY, C/O. M/S. M. ANA NDAM & CO., CHARTERED ACCOUNTANTS, 7A, SURYA TOWERS, S.P. ROAD, SECUNDERABAD-500 003. 2. THE DIT(E), HYDERABAD. 3. THE ADIT(E)-I, HYDERABAD. 4. THE DR A BENCH, ITAT, HYDERABAD