TaxTMI 
TaxTMI 
2026 (8) TMI 1427
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....e of trade, commerce or business. The assessee has also challenged the consequential application of section 13(8). 2. Briefly stated, the assessee, United Sisters Foundation, is a company incorporated under section 25 of the Companies Act, 1956 and is registered under section 12A of the Act vide order dated 17.11.2014. It was also granted approval under section 80G. The objects of the assessee, as noted in the assessment proceedings, are broadly directed towards welfare and development of women, women's health and fitness, breast-cancer awareness and empowerment through education, dissemination of literature, mass education through radio and television, exhibitions, shows, campaigns, competitions and other supporting events. During the year under consideration, the assessee organised an event known as "Pinkathon", which is stated to be a marathon organised for women with the object of promoting women's fitness, health, awareness and empowerment. In connection with the said event, the assessee received sponsorship amounts from various entities. 3. The assessee filed its return of income for the year under consideration on 21.09.2015 declaring Nil income. The case was selected ....
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....4,000, event-organising receipts of Rs.1,54,700 and registration fees of Rs.1,04,600. The Assessing Officer further noticed from the transaction information available with him that receipts of Rs.2,09,64,700 were subjected to deduction of tax under section 194C. The assessee was accordingly called upon to explain why the sponsorship receipts should not be regarded as business receipts and why the proviso to section 2(15) should not be invoked. 6. In response, the assessee explained that the sponsorship receipts were intrinsically connected with the charitable event organised by it and could not be treated as receipts from trade, commerce or business merely because the sponsors derived publicity or promotional visibility from their association with the event. It was submitted that the predominant purpose of the assessee was charitable and that Pinkathon was organised for advancement of women's fitness, health and empowerment. The sponsorship was essentially a mode of mobilising resources for carrying out such activities and the assessee was not carrying on any independent commercial business or rendering commercial services to the sponsors. The assessee also relied upon judicial ....
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....efore the learned CIT(A) that Pinkathon was organised in furtherance of its objects concerning women's welfare, fitness and empowerment and that sponsorship received for conducting such an event could not acquire the character of commercial receipts merely because the sponsors themselves derived promotional benefit. The learned CIT(A), however, observed that the Memorandum of Association furnished before him contained an object clause which had been modified in an Extraordinary General Meeting held on 22.08.2019, i.e., much after the relevant previous year. According to him, despite being called upon to do so, the assessee had failed to establish from the original object clause prevailing during the relevant year that conducting a marathon was itself one of its objects. He further observed that the assessee had received sponsorship of Rs.3.36 crore against total receipts of Rs.3,51,53,300 and that such receipts exceeded the prescribed threshold. He therefore concluded that the sponsorship activity attracted the proviso to section 2(15). 10. The learned CIT(A) also distinguished the decision relied upon by the assessee in ADIT (Exemptions) v. Indian Medical Association on the gro....
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..... The assessee's objects specifically contemplated welfare and empowerment of women, women's fitness, awareness, campaigns, competitions and other supporting events. A marathon organised exclusively with focus on women's health and fitness was therefore merely one of the modes through which these objects were sought to be accomplished. It was submitted that a memorandum containing charitable objects cannot be expected to enumerate every individual programme, event or instrumentality which may subsequently be adopted for achieving those objects. 13. Adverting to the sponsorship receipts, the learned counsel submitted that no commercial services whatsoever were rendered by the assessee to the sponsors. Sponsorship was essentially a mode of mobilising financial resources for organising Pinkathon and for pursuing the assessee's charitable activities. The authorities below, according to him, attached undue importance to the circumstance that the sponsors had treated their respective contributions as advertisement or business expenditure. The treatment of an outgoing in the books of the payer, he submitted, cannot determine the legal character of the corresponding receipt in the hands....
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....t. Thus, according to him, this was not a case where the accounts had not been audited or where the assessee sought to create eligibility for exemption after the event; it was merely a case of furnishing an incorrect statutory form consequent to an erroneous claim under an incorrect provision. The assessee throughout possessed a valid registration under section 12A. It was therefore submitted that such procedural error could not extinguish an otherwise subsisting substantive claim under section 11. The learned counsel accordingly submitted that neither the proviso to section 2(15) nor section 13(8) was attracted and the addition of Rs.2,58,39,236 deserved to be deleted. 16. Per contra, the learned DR strongly relied upon the orders of the Assessing Officer and the learned CIT(A). He submitted that the sponsorship receipts constituted overwhelmingly the major component of the assessee's receipts during the year and arose from concerns which had sponsored the marathon for commercial and promotional benefit. The sponsors had themselves treated the payments as expenditure incurred for advertisement and promotion of their businesses and, therefore, the authorities below were justifie....
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....ction between an object and an activity undertaken as a means of achieving that object. The objects of the assessee, as they emerge from the material considered even during the assessment proceedings, were directed towards welfare and development of women, women's fitness, breast-cancer awareness, education and dissemination of awareness through literature, radio and television, exhibitions, shows, campaigns, competitions and other supporting events. Once these objects are kept in perspective, an event in the nature of a women's marathon intended to promote women's fitness, health and awareness cannot be regarded as alien to those objects merely because the expression "marathon" does not find an express mention therein. An object clause ordinarily defines the ends which an institution seeks to pursue; it cannot reasonably be expected to catalogue every programme, campaign, event or instrumentality through which those ends may from time to time be achieved. The relevant inquiry, therefore, was not whether the word "marathon" occurred in the Memorandum, but whether Pinkathon bore a real and proximate nexus with the charitable objects actually pursued by the assessee. 19. Examined ....
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.... of sponsorship receipts, in our view, does not alter this position. The sponsorship receipts amounted to Rs.3.36 crore and admittedly constituted the predominant part of the assessee's total receipts of Rs.3,51,53,300. These figures are undoubtedly relevant factual circumstances, but magnitude by itself is not synonymous with commerciality. The proviso to section 2(15) does not contemplate that an otherwise charitable activity becomes trade, commerce or business merely because the resources mobilised for carrying it out are substantial or because a surplus results therefrom. The anterior and indispensable inquiry is whether the activity itself answers the description of trade, commerce or business or rendering of a service in relation thereto for consideration. Unless that foundational character is established, the quantum of receipts cannot, by itself, supply the missing commercial element. 22. There is yet another important statutory infirmity in the reasoning of the learned CIT(A). While applying the proviso to section 2(15), he has proceeded on the basis that sponsorship receipts of Rs.3.36 crore exceeded 20% of the total receipts of Rs.3,51,53,300 and has computed 20% ther....
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....amined rather than deciding the issue merely from the existence of receipts. We are conscious that application of income towards charitable purposes does not, by itself, immunise an activity which is otherwise demonstrably in the nature of trade, commerce or business. Equally, however, the converse cannot be accepted that every activity generating substantial receipts or surplus necessarily assumes a commercial character. The distinction has to be drawn from the intrinsic nature and dominant setting of the activity. On the facts before us, Pinkathon was integrally connected with the assessee's objects concerning women's fitness, health, awareness and empowerment, and the Revenue has not demonstrated that the activity was carried on as an independent commercial venture. We therefore find no adequate factual foundation for invoking the proviso to section 2(15). 25. Once the proviso to section 2(15) is held inapplicable on the facts of the case, the consequential invocation of section 13(8) also cannot survive. Section 13(8) operates where the provisions of the first proviso to section 2(15) become applicable to the person concerned for the relevant previous year. It does not creat....