Charitable status and incidental receipts: royalty and sponsorship income did not trigger the section 2(15) proviso or deny exemption.

A registered charitable entity engaged in promoting wrestling remained entitled to exemption under sections 11 and 12 because royalty and sponsorship receipts were incidental to its charitable objects and did not show an independent business activity or profit motive. On identical facts in earlier years, the same view had been taken, and the receipts were therefore not treated as trade, commerce or business. The proviso to section 2(15) was held inapplicable, so charitable status was not denied and the exemption claim was sustained.

---

---

Issues: Whether the assessee was entitled to exemption under sections 11 and 12 of the Income-tax Act, 1961, and whether royalty and sponsorship receipts attracted the proviso to section 2(15) so as to deny charitable status.

Analysis: The assessee was a registered charitable entity engaged in promotion of wrestling. The receipts from royalty and sponsorship were found to be incidental to the fulfilment of its objects and not indicative of any independent business activity or profit motive. Following the consistent view taken in the assessee's own earlier years on identical facts, the receipts were held not to convert the assessee's activities into trade, commerce or business. On that basis, the restrictive proviso to section 2(15) was held inapplicable and the claim for exemption under sections 11 and 12 was sustained.

Conclusion: The denial of exemption was unsustainable and the assessee remained entitled to the benefit of sections 11 and 12.

Final Conclusion: The Revenue's challenge failed, and the assessee's charitable exemption was upheld on the footing that the impugned receipts did not disqualify it from charitable status.

Ratio Decidendi: Where receipts are incidental to the charitable objects of an entity and there is no profit motive, the proviso to section 2(15) does not apply to deny exemption under sections 11 and 12.

---