TaxTMI 
TaxTMI 
2026 (9) TMI 612
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.... been rejected primarily on the ground that the assessee was conducting professional golf tournaments, charging entry and professional entry fees and receiving substantial sponsorship receipts. 3. The assessee has raised following grounds of appeal:- "1.1 That on the facts and in the circumstances of the case, the impugned order passed by the Ld. CIT(E) rejecting the application for registration u/s 12A(1)(ac)(ii) of the Income Tax Act, 1961 is bad in law, arbitrary, and contrary to the facts and circumstances of the case. 1.2 That the Ld. CIT(E) has failed to appreciate that the primary object of the Appellant is the promotion of sports, specifically women's golf in India, which falls within the ambit of "charitable purpose" u/s 2(15) as being an object of general public utility coupled with the upliftment and empowerment of women. 1.3 That the Ld. CIT(E) has fallen into error in concluding that organizing golf tournaments as part of charitable activity amounts to a commercial activity without appreciating that such tournaments are the core means of achieving the charitable objects of the Appellant and cannot be divorced from its stated purpose. ....
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....assessee is also registered under Foreign Contribution Regulation Act (FCRA). The assessee is a non-profit sports association established with the principal object of promoting and developing women's golf in India. In furtherance of its objects, the assessee organizes professional golf tournaments, including the Women's Indian Open and Women's Professional Golf Tour, provides opportunities to women golfers to participate at national and international levels and undertakes activities relating to training, coaching, player development and welfare. 4. The assessee filed application seeking renewal of registration in Form No. 10AB on 28.09.2025 u/s 12A(1)(ac)(ii) of the Act. The Ld. CIT(E) issued questionnaires dated 08.12.2025 and 11.03.2026 which were duly replied by the assessee by furnishing the requisite documents. The Ld. CIT(E), however, rejected the application primarily on the ground that the assessee was conducting professional golf tournaments, charging entry and professional entry fees and receiving substantial sponsorship receipts. The Ld. CIT(E) held that the sponsorship arrangements were contractual in nature and constituted services rendered for considera....
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....#39;ble Supreme Court did not lay down an absolute proposition that every receipt arising pursuant to a sponsorship agreement or every activity involving consideration would necessarily constitute an activity in the nature of trade, commerce or business. On the contrary, in the context of sports associations, the Hon'ble Supreme Court specifically directed that the matter be examined on the basis of the factual pattern of receipts and expenditure and the actual nature of the activities undertaken by the concerned association. The Ld. AR specifically made reference to the observation of Hon'ble Supreme Court vide Para 253 (H) which is as under: - "H. It may be noted that the conclusions arrived at by way of this judgment, neither precludes any of the assessee's (whether statutory, or non-statutory) advancing objects of general public utility, from claiming exemption, nor the taxing authorities from denying exemption, in the future, if the receipts of the relevant year exceed the quantitative limit. The Assessing Officer must on a yearly basis, scrutinize the record to discern whether the nature of the assessee's activities amount to 'trade, commerce or business&....
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....ipts, together with entry fees and professional entry fees, exceed 20 per cent of the total receipts. The Ld. CIT(E) has further relied upon the judgment of the Hon'ble Supreme Court in the case of AUDA and has proceeded on the premise that once the assessee receives consideration under contractual sponsorship arrangements, the activities necessarily assume the character of trade, commerce or business and, consequently, the proviso to section 2(15) of the Act becomes applicable. In our considered view, the aforesaid approach of the Ld. CIT(E) proceeds on an incomplete appreciation of the ratio laid down by the Hon'ble Supreme Court in AUDA. On perusal of the Income and Expenditure account of the assessee, we find that the assessee has incurred expenditure on various such developmental and welfare activities in consonance with the charitable objects of the Society. Further we find that the dispute regarding the nature of activities in the context of proviso to section 2(15) of the Act arose in AY 2017-18 wherein the Ld. CIT(A) after appreciating the facts of the case, allowed the claim of exemption u/s 11 of the Act vide order dated 09.10.2024. We find that the reasoning ado....
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....s. The relevant operative portion of the said Tribunal order is reproduced hereunder:- "8. We have seen and carefully read the objects specifically referred to by CIT-DR which according to him are beneficial to running of commercial activities and not charitable activities by the Society. In our considered opinion, the bare reading of sub-clause (xii), (xiii) and (xiv) of main clause 3 do not show or reveal that they are not aimed at doing charity to public. In fact, the game of golf is a specialized game which is not generally played by majority of people and that is why the ld. Commissioner has misconceived that this game is not meant for public at large. At the stage of consideration of registration u/s 12AA in which the objects are primarily to be looked into and of course its activities can also be examined with a view to ascertain if it is really pursuing its objects or not. In our considered opinion, there is nothing on record which suggests that the assessee is not pursuing charitable purpose. The expression 'charitable purpose' is defined in section 2(15) of the Act to include relief of the poor, education, medical relief and advancement of any other objec....
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....s of the assessee are not commercial but they aim at promoting the game of golf. The society requires genuine motivation and zeal to organize the successful golf tournament to evoke interest in building golfers and motivate upcoming amateur as well as professional golfers." (Underlining provided by us) The factual similarity between the aforesaid decision and the instant case before us is striking, since the present assessee is also a golf association whose principal object is promotion and development of women's golf and whose tournaments are conducted as an integral means of achieving that object. 11. We further find that the Ld. CIT(E) has not recorded any adverse finding regarding the genuineness of the assessee's activities or any specified violation u/s 12AB(4) or any benefit or misuse of funds. The Ld. CIT(E) has not disputed that the assessee actually conducts golf tournaments, receives sponsorships, incurs expenditure on sporting activities or undertakes player-development and training programmes. The dispute is essentially regarding the legal characterization of the sponsorship receipts and the activities undertaken pursuant to the sponsorship arrangements. T....
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....g to activities in the nature of trade, commerce or business. The Court held that an institution having an object of general public utility cannot ordinarily engage itself in trade, commerce or business or render services in relation thereto for consideration merely under the guise of pursuing an object of general public utility. However, the judgment does not lay down an absolute proposition that every receipt generated by an institution having an object of general public utility, or every activity undertaken pursuant to a contractual arrangement, automatically assumes the character of trade, commerce or business. The true nature and character of the activity has to be determined having regard to the objects of the institution, the purpose for which the activity is undertaken, the nature of the receipts, the expenditure incurred and the manner in which the activity is actually carried out. This aspect assumes particular significance in the context of sports associations. The Hon'ble Supreme Court dealt with sports associations separately in the judgment in AUDA. In relation to the State Cricket Associations, the Hon'ble Supreme Court did not lay down an absolute propositio....
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....undertaken caddy training programmes without charging fees from trainees, conducted junior golf training camps and provided financial assistance to players for participation in overseas events. The assessee has also incurred expenditure towards coaching facilities and junior development camps and has provided facilities to professional women golfers. Therefore, the very factual consideration which led the Hon'ble Supreme Court to require closer scrutiny in AUDA, namely the relationship between substantial commercial receipts and expenditure towards promotion and development of the sport, has to be examined in the factual context of the present assessee and cannot simply be presumed against it. We further find that the Ld. CIT(E) has proceeded primarily on the quantum of sponsorship receipts. For Financial Years 2022-23 to 2024-25, the Ld. CIT(E) noticed that sponsorship fees, entry fees and professional entry fees constituted approximately 83 per cent to 88 per cent of the gross receipts and, on that basis, concluded that the assessee was predominantly engaged in commercial activities. In our considered opinion, however, the percentage of receipts cannot by itself determine the....
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...., the purpose of the sponsorship, the manner in which the funds are utilized, the existence or absence of profit motive and the overall pattern of receipts and expenditure have to be examined. 14. We have also examined the financial statements of the assessee for Financial Years 2022-23, 2023-24 and 2024-25 in the light of the specific test laid down by the Hon'ble Supreme Court in the case of AUDA. The financial statements reveal that the assessee received sponsorship receipts of Rs 8.67 crores, Rs 9.13 crores and Rs 10.14 crores respectively during the aforesaid three years, whereas the total receipts were Rs 10.07 crores, Rs 11.18 crores and Rs 12.16 crores respectively which includes donation, membership fee and interest. However, against the aforesaid receipts, the assessee incurred direct expenses, which included expenses directly relatable to the tournament activities, of Rs 8.89 crores, Rs 9.22 crores and Rs 10.10 crores respectively. The total expenditure, including other expenses, stood at Rs 9.24 crores, Rs 9.62 crores and Rs 10.60 crores respectively. Thus, the financial data itself demonstrates that the overwhelming and almost entire amount of sponsorship receip....
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....ure, absorb years in which expenditure exceeds receipts and ensure that its charitable activities do not come to a standstill merely because sponsorship receipts fluctuate. Thus, the retention of a modest surplus is not inconsistent with charitable activity; rather, it is an essential incident of prudent financial management of a non-profit institution. Therefore, when the financials are examined not merely from the perspective of the gross quantum of sponsorship receipts but from the perspective mandated by AUDA-namely, the relationship between the consideration received, the cost incurred, the manner of utilization and the resultant surplus, it is evident that there is no substantial commercial mark-up and no material basis to infer a profit motive. The financial analysis thus supports the assessee's contention that the sponsorship receipts are incidental and intrinsically connected with the charitable object of promotion of women's golf and that the activities of the assessee satisfy the test laid down by the Hon'ble Supreme Court in AUDA. 16. The Ld. CIT(E) has also relied upon the contractual nature of the sponsorship arrangements, particularly the agreement wit....
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....assessee's contention of rule of consistency. The assessee was granted registration u/s 12AA of the Act on 28.6.2005 and subsequently registration under the new regime for Assessment Years 2022-23 to 2026-27. Further, in the assessee's own assessment proceedings for earlier years, substantially similar objections concerning sponsorship receipts and the proviso to section 2(15) of the Act were raised and considered and the Ld. CIT(A) after detailed analysis, accepted the assessee's contention that promotion of golf is a charitable activity thereby upheld the claim of exemption u/s 11 of the Act. On perusal of the Ld. CIT(A) order for AY 2017-18, it is noted that the issue of claim of exemption u/s 11 of the Act was decided in favour of the assessee based on order passed by Ld. CIT(A) in AYs 2011-12 to 2014-15 and following the decision of the Tribunal in the case of Indian Golf Union. 19. In the impugned order, there is neither any finding that the objects of the assessee have undergone any change nor any finding that the assessee has changed the manner in which it conducts tournaments, promotes golf or applies its funds. In fact, the assessee has asserted that there has been no ....