Cricket Associations Are Run On Business Lines, Their Claim For Income Tax Exemption As "Charitable Purpose" Requires Scrutiny : Supreme Court

The Supreme Court has observed that the claim of State Cricket Associations for income tax exemption on the ground of "charitable purposes" require deeper scrutiny as their activities are run on business lines.

A bench comprising Chief Justice of India UU Lalit, Justice S Ravindra Bhat and Justice PS Narasimha allowed the appeals filed by the revenue department and directed the Income Tax Appellate Tribunal to re-examine the claims made by Gujarat Cricket Association, the Saurashtra Cricket Association, Baroda, Rajkot and Rajkot Cricket Associations for income tax exemption.

The issue involved was whether the activities of the cricket associations could be considered as "general public utility" under the definition of "charitable purpose" in Section 2(15) of the Income Tax Act 1961.

The Court noted that the cricket organization is structured in such a way that the BCCI has umbilical ties with the state associations. It noted that state associations own the stadia and infrastructure. BCCI negotiates the broadcasting rights on behalf of the State Associations.

The judgment authored by Justice Bhat observed :

"These media, or broadcasting rights, are in the nature of intellectual property rights: under Section 37 to 40 of the Copyrights Act, 1957. These rights- especially television and digital rights enable the licensee or the successful bidder to exploit the telecast or broadcast commercially, by carrying advertisements of various products and services, in the media. Given that (i) BCCI does not own the stadia, and uses the entire physical infrastructure of the state associations (ii) expressly negotiates on their behalf for the sale of such rights (which appear to be purely commercial contracts), the associations' assertions that they only received subsidy from BCCI, needed closer examination".

As in illustration, the Court cited that the total income of the GCA was ₹4.03 Crores in 2008-2009. Of these sponsorship money was ₹20,00,000/-; bank interest was ₹2,21,88,527.05 and as against the head 'India v. South Africa test match', the sum of ₹1,51,97,741/- has been shown. Of the total of ₹2,21,02,441.45 shown as income, ₹32,24,591.25 is shown as expenditure, only a fraction appears to have been expended towards promotion of cricket.

In this background, the Court noted :

"It is quite evident that the activities of the cricket associations are run on business lines. The associations own physical and other infrastructure, maintain them, have arrangements for permanent manpower and have well-organised supply chains to cater to the several matches they host. Many such matches are not at national level and are under16 or under-18 matches at the regional level. However, these activities are not to be seen in isolation but are to be regarded as part of the overall scheme, and ecosystem in which the game of cricket is organized in India. Talent is spotted, at local levels and dependent on the promise shown, given appropriate exposure".

The bench further noted that no significant expenditure has been made towards cricket activities as well :

"On a close scrutiny of the expenses borne, having regard to the nature of receipts, the expenditure incurred by Cricket Associations does not disclose that any significant proportion is expended towards sustained or organized coaching camps or academies".

Therefore, court opined that the ITAT fell into error in not considering the nature of receipts flowing from the BCCI into the corpus of GCA and SCA – as well as other associations that are before this court- to determine their true character. The ITAT appears to have been swayed by the submission that the amount given by the BCCI were towards capital subsidy.

Therefore, the Court allowed the revenue's appeals and remanded the matter to the ITAT for fresh consideration. However, the Court clarified that its observations are preliminary in nature.

"So far as the state cricket associations are concerned (Saurashtra, Gujarat, Rajasthan, Baroda, and Rajkot), this Court is of the opinion that the matter requires further scrutiny, in light of the discussion. Accordingly, a direction is issued that the AO shall adjudicate the matter afresh after issuing notice to the concerned assessees and examining the relevant material indicated in the previous paragraphs of this judgment. Furthermore, if any consequential order needs to be issued, the same shall be done and resulting actions, including assessment orders shall be passed in accordance with the law under relevant provisions of the IT Act"

Also held in the judgment :
Statutory Authorities, Professional Bodies Like ICAI Entitled To Income Tax Exemption If Amounts Charged By Them Are Nominal To Cover Costs : Supreme Court

Advancement Of General Public Utility Won't Be "Charitable Purpose" For Income Tax Exemption If It Is Done As Business : Supreme Court