The Supreme Court has observed that State Cricket Association's claim for income tax exemption on the ground of 'charitable purposes' under Section 2(15) of the Income Tax Act would require deeper scrutiny as to ascertain whether its activities adhere to 'general public utility' definition or not.
The three-judge bench comprising of Chief Justice of India UU Lalit, Justice S Ravindra Bhat and Justice PS Narasimha in this view allowed the appeals filed by the Income Tax Department and directed the Income Tax Appellate Tribunal to re-examine the claims asserted by Gujarat Cricket Association, Saurashtra Cricket Association, Baroda and Rajkot Cricket Associations on income tax exemption.
The Court discussed in detail, various objects of the GCA and went on to prima facie agree with Revenue Deparment's contention that looking at the nature of the relationship of the State Cricket associations with the Board of Cricket Control of India (BCCI), the amounts received by these associations from BCCI were in the nature of consideration or fees, for granting media rights, and collecting their share, among other things amount to a business or commercial activity.
It was also urged on behalf of the Revenue that the Cricket Associations are not carrying on any charitable activity; reliance was placed on the facts to say that substantial amounts were received by the state associations, towards their share of sale of media rights (as constituents or members of BCCI), which are commercial receipts.
It was argued that although the sale of those rights was by the BCCI, the lion’s share of those amounts was that of the respective state associations. Furthermore, it was submitted the state associations owned the stadia, and actually conducted the matches, in respect of which stadium advertisements and sponsorship amounts were received: these, too, were in the nature of business or commercial activities.
The assessees on the other hand, submitted that they are distinct from the BCCI. It was sought to be urged that the activity of sports and sport promotion is basically education, and hence, per se exempt.
They submitted that realizing the value of inculcating sportsmanship and fostering the culture of sport, Parliament had introduced Section 10(23), to exempt income received by sports bodies. However, that was deleted w.e.f. 01.04.2003. It was argued that this does not preclude sports bodies, like cricket associations from claiming to be charities. It was urged that even if the court were not to consider the cricket associations to be education-related charities, they cannot be denied the status of GPU charities, having regard to the sports promotional nature of their objects. It was submitted that these bodies are primarily responsible for fostering the sport, talent spotting, nurturing it, and providing opportunities to those who have the aptitude and passion for the game of cricket. All these are objects of general public utility. It was submitted that the amounts which BCCI collects may or may not be in the course of commerce; however, what is given to the associations is subsidy, which cannot be termed as consideration for carrying on any commercial activity.
The Court deliberated upon the contention that sports promotion is ‘education’ and hence, per se exempt. It mentioned Lok Shikshana Trust (supra) wherein the Apex Court has comprehensively addressed the scope of the term, and conclude that it would entail “scholastic” education and noted that no doubt that the claim of the present sport associations will not fall within ‘education’ and will have to be examined under the fourth limb of Section 2(15) – i.e., GPU category, if it is to make a case for tax exemption.
The Court shed light on the intertwined relationshhip shared by BCCI and the State Cricket Associations.
"The game of competitive cricket, at the organizational level is structured in such a manner that BCCI has umbilical ties with the state associations. Not only are the latter, the members who constitute BCCI and elect its governing bodies, they also own vital infrastructure necessary to play cricket: such as stadia, and all related facilities. BCCI does not own those facilities or infrastructure and depends on them. Furthermore, the state associations are the channels through which players are mostly selected, and get opportunities to participate in state, national and international level cricket."
As things stand, therefore, the state associations and BCCI are linked closely, the Court remarked.
"The management of the game of cricket is structured in such a way that this link is apparent at every match or fixture of significance. In the course of conducting matches (which are scheduled by the BCCI as the national coordinating body), apart from amounts received towards sale of entry tickets, the state associations also receive advertisement money, sponsorship fee, etc. from the BCCI. Aside from these, media rights - i.e., broadcasting rights to each national or international event conducted at various locales owned by the state associations, and digital rights (all of which are exclusive, in nature) - are auctioned by BCCI."
These media, or broadcasting rights, are in the nature of intellectual property rights: under Section 37 to 40 of the Copyrights Act, 1957, the Court pointed out and insisted that the issue needs a deeper deliberation.
"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."
CASE TITLE: ASSISTANT COMMISSIONER OF INCOME TAX (EXEMPTIONS) versus AHMEDABAD URBAN DEVELOPMENT AUTHORITY
CORAM: Chief Justice of India UU Lalit, Justice S Ravindra Bhat and Justice PS Narasimha
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