THE issue before the Bench is - Whether merely because assessee, a charitable body, receives sponsorship exceeding Rs 10 lakh on motor car races, its otherwise charitable object of general public utility becomes non-charitable and it warrants cancellation of registration u/s 12A. NO is the Tribunal's answer.
On Appeal before the Tribunal the AR submitted that, just because sponsorship fees were received on the races conducted by the assessee, it could not be held that assessee was doing something which was not of the nature mentioned u/s 2(15). The A.R. further submitted that just because receipts exceeded Rs. 10 lakhs, grant of registration u/s 12A(a) could not be cancelled. The D.R. submitted that Section 2(15) was substituted by Finance Act, 2008 with effect from 1.4.2009 and after such substitution, advancement of objects of general public utility, if it involved carrying on activity of trade, commerce, or business or collection of any fees or cess in connection with such trade, commerce or business, then it ceased to be a charitable purpose. The 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 the first proviso was less than Rs. 10 lakhs.
Having heard the parties, the Tribunal held that,
++ 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 Rs. 10 lakhs;
++ if the receipts exceeded Rs. 10 lakhs and if such receipts were of nature mentioned in first proviso to Section 2(15), the AO would, no doubt, be justified in denying exemption u/s 11 and 12. However, this will not be a sufficient reason for cancelling the registration granted to the assessee u/s 12A(a). If in the very next year, assessee’s receipts are less than Rs. 10 lakhs, then it will have to be granted the exemption available u/s 11 and 12, if other conditions are satisfied. In other words, nature of objects of the assessee cannot fluctuate in tandem with the quantum of receipts mentioned in the first proviso. The DIT(E) fell in error in cancelling the registration granted to the assessee u/s 12A(a).
Facts of the case
The assessee is a registered society and had registration u/s 12A(a) since 1977. Objects of the assessee, inter alia, were to promote sports of motor car and motor cycle and conduct motor races, competitions, etc. During the scrutiny proceedings, for A.Y 2009-10, the A.O. sent a
proposal to the DIT(E) recommending cancellation of registration granted to assessee u/s 12A(a). In the opinion of DIT(E), the motor sports were for the purpose of promotion of business of sponsors. The sponsorship proceeds were commercial receipts in the hands of the assessee. The DIT(E) was of the opinion that assessee was hit by proviso to Section 2(15) inserted from 1.4.2009. Therefore, according to him, the objects and activities of the assessee could no more be considered charitable in nature. In this view of the matter, he cancelled registration granted to the assessee u/s 12A(a).The assessee is a registered society and had registration u/s 12A(a) since 1977. Objects of the assessee, inter alia, were to promote sports of motor car and motor cycle and conduct motor races, competitions, etc. During the scrutiny proceedings, for A.Y 2009-10, the A.O. sent a
On Appeal before the Tribunal the AR submitted that, just because sponsorship fees were received on the races conducted by the assessee, it could not be held that assessee was doing something which was not of the nature mentioned u/s 2(15). The A.R. further submitted that just because receipts exceeded Rs. 10 lakhs, grant of registration u/s 12A(a) could not be cancelled. The D.R. submitted that Section 2(15) was substituted by Finance Act, 2008 with effect from 1.4.2009 and after such substitution, advancement of objects of general public utility, if it involved carrying on activity of trade, commerce, or business or collection of any fees or cess in connection with such trade, commerce or business, then it ceased to be a charitable purpose. The 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 the first proviso was less than Rs. 10 lakhs.
Having heard the parties, the Tribunal held that,
++ 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 Rs. 10 lakhs;
++ if the receipts exceeded Rs. 10 lakhs and if such receipts were of nature mentioned in first proviso to Section 2(15), the AO would, no doubt, be justified in denying exemption u/s 11 and 12. However, this will not be a sufficient reason for cancelling the registration granted to the assessee u/s 12A(a). If in the very next year, assessee’s receipts are less than Rs. 10 lakhs, then it will have to be granted the exemption available u/s 11 and 12, if other conditions are satisfied. In other words, nature of objects of the assessee cannot fluctuate in tandem with the quantum of receipts mentioned in the first proviso. The DIT(E) fell in error in cancelling the registration granted to the assessee u/s 12A(a).
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