United Sisters Foundation Vs ITO (ITAT Mumbai)
Sponsor May Advertise, But Charity Does Not Become Business: Pinkathon Sponsorship of ₹3.36 Crore Eligible for Section 11 Exemption
The Mumbai Bench of the Income Tax Appellate Tribunal has held that sponsorship received for organising a women’s marathon does not become a business receipt merely because the sponsors obtained publicity or claimed the payments as advertisement expenditure. Since “Pinkathon” was integrally connected with the assessee’s charitable objects relating to women’s health, fitness & empowerment, the proviso to Section 2(15) was inapplicable. Consequently, Section 13(8) could not be invoked and the addition of ₹2,58,39,236 was deleted.
Pinkathon & Sponsorship of ₹3.36 Crore
United Sisters Foundation was a Section 25 company registered u/s 12A and approved u/s 80G. Its objects included the welfare and development of women, promotion of women’s health and fitness, breast-cancer awareness, education & empowerment through campaigns, exhibitions, competitions and supporting events.
During the year, the assessee organised “Pinkathon”, a marathon for women intended to promote women’s health, fitness, awareness & empowerment. Against total receipts of ₹3,51,53,300, it received sponsorships of ₹3.36 crore. It also received donations of ₹12.94 lakh, event-organising receipts of ₹1.55 lakh and registration fees of ₹1.05 lakh.
The assessee filed its return declaring nil income. However, it inadvertently claimed exemption u/s 10(23C)(iv), though it held registration u/s 12A. Correspondingly, it filed Form 10BB instead of Form 10B. On noticing the error during assessment proceedings, it furnished Form 10B and requested that exemption be allowed u/s 11.
AO Treats Sponsorship as Commercial Receipt
The AO noticed that tax had been deducted u/s 194C from receipts of ₹2,09,64,700. He further observed that the sponsors had treated the payments as expenditure incurred for advertising and promoting their businesses.
From the sponsors’ commercial motivation, the AO inferred that the corresponding receipts in the assessee’s hands were not voluntary contributions but consideration for commercial services. Since the sponsorship exceeded the monetary threshold under the proviso to Section 2(15), he invoked the proviso and consequently Section 13(8).
Exemption under Sections 11 & 12 was denied, and the surplus of ₹2,58,39,236, representing the difference between gross receipts and expenditure/application of ₹93,14,064, was brought to tax.
The CIT(A) upheld the assessment. He also observed that the Memorandum produced before him contained an object clause modified only in 2019. According to him, the assessee had failed to establish that organising a marathon was expressly included in its objects during the relevant year.
The CIT(A) further applied the 20% receipts test and held that the sponsorship exceeded 20% of the assessee’s total receipts. Separately, he sustained the denial of exemption because Form 10B had not been filed within time and no condonation order had been obtained.
Objects Specify the Destination, Not Every Vehicle
The Tribunal found the CIT(A)’s insistence that the word “marathon” must appear in the Memorandum to be unduly literal. It emphasised the distinction between a charitable object and the activity adopted to achieve that object.
An object clause identifies the ends which an institution seeks to pursue. It cannot reasonably be expected to catalogue every programme, campaign or event that may subsequently be adopted for achieving those ends.
The assessee’s objects expressly covered women’s welfare, fitness, health, breast-cancer awareness, empowerment, campaigns, competitions & supporting events. A women’s marathon promoting precisely those causes had a real and proximate nexus with the objects. Pinkathon could not be treated as an alien or independent commercial venture merely because the word “marathon” was absent from the Memorandum.
Character in Sponsor’s Hands Is Not Character in Recipient’s Hands
The Tribunal rejected the AO’s reasoning that because the sponsors treated their payments as advertisement expenditure, the receipts automatically became business income of the assessee.
The character of expenditure in the payer’s hands and the character of receipt in the recipient’s hands operate in different juridical fields. A commercial concern may sponsor a charitable, sporting or social event for brand visibility and legitimately claim the payment as business expenditure. That explains the sponsor’s motivation; it does not establish that the charitable institution is carrying on business.
The Revenue failed to show that the assessee was rendering independent commercial services to the sponsors or carrying on event management as a separate profit-making enterprise.
Magnitude of Receipt Is Not a Test of Commerciality
The Tribunal acknowledged that sponsorship of ₹3.36 crore was substantial and constituted the predominant part of the assessee’s receipts. However, magnitude is not synonymous with commerciality.
An otherwise charitable activity does not become trade, commerce or business merely because substantial resources are mobilised or a sizeable surplus results. The primary inquiry must concern the intrinsic nature, manner and dominant setting of the activity.
The Tribunal also noticed a serious statutory error in the CIT(A)’s order. The 20% receipts test was introduced by the Finance Act, 2015 with effect from AY 2016-17. The appeal related to AY 2015-16, for which the applicable monetary threshold was ₹25 lakh. Although the sponsorship exceeded ₹25 lakh, crossing the threshold became relevant only if the underlying activity was first shown to be in the nature of trade, commerce or business. That foundational requirement was not established.
Once the proviso to Section 2(15) was held inapplicable, the consequential invocation of Section 13(8) automatically failed.
Wrong Audit Form Was a Curable Procedural Error
The Tribunal also accepted the assessee’s explanation regarding Form 10B. Its accounts had been audited on 21.08.2015, even before the return was filed on 21.09.2015. The mistake arose because exemption was claimed under the wrong provision and, consequently, Form 10BB was furnished instead of Form 10B.
The correct Form 10B was submitted during assessment proceedings before completion of assessment. This was not a case where the accounts remained unaudited. Treating such a procedural error as destructive of an otherwise valid exemption would amount to placing form above substance.
The AO was accordingly directed to allow exemption u/s 11, and the addition of ₹2,58,39,236 was deleted.
Author’s Comments
The ruling draws an important line between commercial participation around a charitable event and commerciality of the charitable institution itself. Corporate sponsors rarely contribute without expecting visibility. But the sponsor’s advertisement benefit cannot, by itself, transform the recipient’s charitable programme into business.
Equally important is the Tribunal’s distinction between an “object” and the “means” adopted to fulfil it. A trust deed need not be amended whenever a charity adopts a new campaign, marathon, exhibition or digital programme, provided the activity genuinely advances its existing objects.
However, application of surplus towards charity alone cannot rescue an activity which is intrinsically commercial. The crucial safeguard in this case was the direct nexus between Pinkathon and women’s health & empowerment, coupled with the absence of any independent commercial event-management undertaking.
The principle is clear: publicity to the sponsor, substantial receipts and generation of surplus are relevant facts, but none of them can replace the essential finding that the charity itself carried on trade, commerce or business.
Cases Discussed/Relied Upon
1. Assistant Commissioner of Income-tax (Exemptions) v. Ahmedabad Urban Development Authority, [2022] 143 taxmann.com 278 (SC) / 449 ITR 1 (SC) — relied upon for examining the true nature, scope and manner of an activity while applying the proviso to Section 2(15).
2. ADIT (Exemptions) v. Indian Medical Association — referred to before the CIT(A) regarding sponsorship receipts and charitable objects.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
The aforesaid appeal has been filed by the assessee against the impugned order passed by the learned Commissioner of Income-tax (Appeals) for the Assessment Year 2015-16, arising out of the assessment order dated 31.12.2017 passed under section 143(3) of the Income-tax Act, 1961. The substantive grievance of the assessee is against denial of exemption under section 11 by invoking the proviso to section 2(15) read with section 13(8) and, consequently, bringing to tax the surplus of ₹2,58,39,236. The assessee has principally challenged the finding of the authorities below that sponsorship amounts received from various concerns in connection with organisation of a marathon constituted receipts from an activity in the nature 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 for scrutiny. It was noticed during the assessment proceedings that, although the assessee held registration under section 12A, in the return of income exemption had been claimed under section 10(23C)(iv). The assessee explained before the Assessing Officer that this was an inadvertent mistake while filing the return and that its income was otherwise eligible for exemption under section 11 by virtue of its subsisting registration under section 12A. It was further explained that the audit of the accounts had already been carried out and the audit report was dated 21.08.2015; however, Form No.10BB applicable to an institution claiming exemption under section 10(23C) had been furnished instead of Form No.10B applicable to the claim under section 11. During the course of assessment proceedings, the assessee furnished Form No.10B and requested the Assessing Officer to determine its entitlement to exemption under sections 11 and 12 in accordance with law. The assessee contended that an inadvertent reference to an incorrect provision in the return and furnishing of an incorrect audit form could not, by themselves, defeat the substantive exemption otherwise available on the strength of a valid registration under section 12A. The prescribed ITR-7 for A.Y. 2015-16 itself contemplated claims under both section 10(23C)(iv) and section 11 and separately required particulars of registration under section 12A/12AA.
4. The Assessing Officer, however, did not accept the explanation of the assessee regarding the claim under an incorrect provision. He observed that the assessee was a professionally managed section 25 company and that a similar claim under section 10(23C)(iv) had also been made in the succeeding assessment years. According to him, therefore, the claim could not simply be regarded as an inadvertent error. Be that as it may, the Assessing Officer proceeded to examine the claim of exemption under section 11 on merits and, in substance, the principal reason for its ultimate denial was his conclusion that the assessee’s sponsorship receipts attracted the proviso to section 2(15) and consequently section 13(8).
5. In this regard, the Assessing Officer noticed that the total receipts of the assessee during the year were ₹3,51,53,300, out of which sponsorship receipts aggregated to ₹3,36,00,000. Apart from the same, the assessee had shown donations of ₹12,94,000, event-organising receipts of ₹1,54,700 and registration fees of ₹1,04,600. The Assessing Officer further noticed from the transaction information available with him that receipts of ₹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 precedents for the proposition that the true nature of the activity and its dominant purpose were required to be examined rather than merely the existence of receipts or generation of surplus.
7. The Assessing Officer rejected the aforesaid explanation. According to him, the concerns which had sponsored the marathon had incurred the expenditure for advertisement and promotion of their respective products and businesses and had treated the payments as business expenditure in their books. From this, he inferred that the corresponding amounts received by the assessee could not be regarded as voluntary donations but constituted business receipts. He further observed that the sponsorship receipts were far in excess of the monetary threshold prescribed under the proviso to section 2(15). He therefore held that the assessee’s activities fell within the mischief of the proviso to section 2(15) and, consequently, section 13(8) became applicable. Section 13(8), in substance, provides that where the proviso to section 2(15) becomes applicable, sections 11 and 12 do not operate to exclude the relevant income from total income. On this reasoning, the Assessing Officer denied the benefit of sections 11 and 12 and brought to tax the surplus of ₹2,58,39,236, being the difference between gross receipts of ₹3,51,53,300 and application/expenditure of ₹93,14,064.
8. The assessee carried the matter in appeal before the learned CIT(A). Insofar as the claim under section 11 was concerned, the assessee reiterated that the incorrect claim under section 10(23C)(iv) and filing of Form No.10BB instead of Form No.10B were inadvertent procedural errors; that the audit itself had been completed within time; and that Form No.10B had been furnished during the assessment proceedings before completion of the assessment. The learned CIT(A), however, observed that Form No.10B had been furnished belatedly and, referring to CBDT Circular No.2/2020 dated 03.01.2020, held that for the relevant assessment year the delay required condonation by the competent Commissioner. Since no order condoning such delay had been produced before him, he held that the assessee had failed to satisfy the requirement relating to furnishing of the audit report and sustained the denial of exemption on this aspect also.
9. On the substantive issue of applicability of section 2(15), the assessee submitted before 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 ₹3.36 crore against total receipts of ₹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 ground that therein the sponsorship receipts were found to have been utilised for medical relief and advancement of medical science, which were expressly amongst the objects of that institution; whereas, according to him, in the present case the assessee had failed to establish that conducting the marathon formed part of its objects during the relevant year. He thus concurred with the Assessing Officer that the proviso to section 2(15) stood attracted and consequently section 13(8) operated to deny exemption under sections 11 and 12. The addition of ₹2,58,39,236 was accordingly sustained. Against the aforesaid findings, the assessee is in appeal before us.
11. Before us, the learned counsel for the assessee submitted that the entire approach of the authorities below proceeds on an erroneous premise that the sponsorship receipts of ₹3.36 crore, merely because of their magnitude and because the sponsors may have claimed the corresponding payments as business expenditure, acquired the character of receipts from trade, commerce or business in the hands of the assessee. He submitted that the assessee is admittedly a section 25 company having a subsisting registration under section 12A and approval under section 80G, and there is no dispute regarding the charitable nature of its principal objects relating to welfare and empowerment of women, women’s health and fitness, breast-cancer awareness, education and dissemination of awareness through campaigns, competitions, exhibitions, shows and other supporting events. The event “Pinkathon” was a marathon specifically organised for women and was conceived and conducted as a means of promoting women’s health, fitness, awareness and empowerment. Thus, according to him, Pinkathon was not an independent commercial venture divorced from the charitable objects of the assessee, but was an activity undertaken in furtherance and actual implementation of those very objects.
12. The learned counsel further submitted that the learned CIT(A) has proceeded on an erroneous understanding that unless conducting a “marathon” was expressly mentioned as a separate object in the Memorandum of Association applicable during the relevant year, the activity necessarily fell outside the objects of the assessee. According to him, such an approach confuses the charitable object with the means or activity through which that object is pursued. 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 of the recipient. A sponsor may associate itself with a charitable event for corporate visibility or promotional considerations and may consequently claim the expenditure for its own business purposes; nevertheless, the character of the activity undertaken by the charitable institution has to be independently examined from the standpoint of its objects, purpose and manner of carrying on such activity. There was no finding that the assessee was carrying on any systematic commercial business independent of its charitable objects or that Pinkathon had been organised as a commercial enterprise with profit-making as its object.
14. The learned counsel further submitted that the mere existence of a sizeable sponsorship receipt or generation of surplus could not, without anything more, bring the activity within the expression “trade, commerce or business” occurring in the proviso to section 2(15). What was required to be examined was the intrinsic character of the activity, its relationship with the charitable objects, the manner in which it was conducted and the purpose for which the receipts were generated. The surplus of ₹2,58,39,236 arose in the course of the event and was available only for application towards the objects of the assessee. There was no distribution of profit or private benefit to any member or participant. Reliance in this regard was placed upon the principles enunciated by the Hon’ble Supreme Court in Assistant Commissioner of Income- tax (Exemptions) v. Ahmedabad Urban Development Authority for the proposition that applicability of the proviso to section 2(15) has to be examined having regard to the true nature and character of the activity and not merely from the fact that receipts or surplus have arisen in the course thereof.
15. The learned counsel also assailed the separate reasoning adopted by the learned CIT(A) with regard to Form No.10B. He submitted that the assessee had filed its return on 21.09.2015 and the accounts had already been audited, the audit report itself being dated 21.08.2015. The error occurred because, while filing the return, exemption was inadvertently claimed under section 10(23C)(iv) instead of section 11 and, correspondingly, Form No.10BB was furnished instead of Form No.10B. Once the mistake was noticed during assessment proceedings, the correct Form No.10B was furnished before completion of the assessment. 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 ₹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 justified in examining the receipts as commercial receipts rather than voluntary donations. He further submitted that the assessee had failed to establish before the learned CIT(A), by producing the contemporaneous object clause applicable for the relevant year, that organising a marathon was one of its stated objects. The amended Memorandum relied upon by the assessee came into existence subsequently and could not retrospectively govern the year under consideration. He accordingly contended that the learned CIT(A) was justified in sustaining the applicability of the proviso to section 2(15) and consequential operation of section 13(8). On the issue of Form No.10B also, the learned DR relied upon the finding of the learned CIT(A) that the prescribed report had not been furnished within the stipulated time and no order condoning the delay had been produced. He, therefore, submitted that there was no infirmity in the impugned order warranting interference.
17. We have heard the rival submissions and perused the material placed before us as well as the orders of the authorities below. The core issue requiring our adjudication is whether, in the facts of the present case, the sponsorship receipts received by the assessee in connection with organisation of Pinkathon could be characterised as receipts arising from an activity in the nature of trade, commerce or business so as to attract the proviso to section 2(15) and, as a consequence, section 13(8). There is no dispute that the assessee is a section 25 company and was holding a valid registration under section 12A during the relevant year. Nor is there any finding that such registration stood withdrawn or cancelled. The controversy essentially arises because substantial sponsorship was received in connection with Pinkathon and because, according to the authorities below, the sponsors had treated the corresponding payments as expenditure incurred for advertisement or promotion of their respective businesses.
18. At the outset, we find that one of the principal reasons which weighed with the learned CIT(A) was that the assessee could not demonstrate that conducting a “marathon” was specifically mentioned as one of its objects during the relevant year. In our opinion, this approach places an unduly literal construction upon the objects of a charitable institution and, more fundamentally, fails to maintain the distinction 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 from this perspective, Pinkathon was a marathon organised for women and the stated purpose of the event was promotion of women’s health, fitness, awareness and empowerment. These are not purposes extraneous to the objects of the assessee; rather, they are directly aligned with them. There is no material brought on record by the Revenue to demonstrate that the assessee had embarked upon an independent line of commercial activity unrelated to its stated objects, or that organising Pinkathon had assumed the character of a commercial enterprise carried on with an independent profit-making objective. The fact that the event generated substantial receipts or resulted in a surplus cannot, standing by itself, efface the nexus between the activity and the charitable objects. What section 2(15) requires to be examined is the true character of the activity undertaken by the assessee and not merely its financial outcome.
20. We are also unable to subscribe to the principal reasoning of the Assessing Officer that since the sponsors had treated their payments as advertisement or business expenditure in their respective books, the corresponding receipts necessarily became business receipts in the hands of the assessee. The character of an expenditure in the hands of the payer and the character of the receipt in the hands of the recipient operate in different juridical fields and one does not inexorably determine the other. A commercial entity may sponsor a charitable, sporting, cultural or social event because its association with such event affords visibility to its brand and may, for that reason, regard the expenditure as having been incurred for its business. That circumstance may explain the commercial motivation of the sponsor; it does not, without anything further, establish that the recipient charitable institution is itself carrying on trade, commerce or business. The latter question must necessarily be answered from the standpoint of the nature of the recipient’s activity, its objects, the manner in which the activity is carried out and the relationship between the receipt and such activity. In the present case, no independent material has been brought on record to establish that the assessee was rendering commercial services to the sponsors as a business undertaking distinct from the organisation of Pinkathon in furtherance of its objects.
21. The magnitude of sponsorship receipts, in our view, does not alter this position. The sponsorship receipts amounted to ₹3.36 crore and admittedly constituted the predominant part of the assessee’s total receipts of ₹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 ₹3.36 crore exceeded 20% of the total receipts of ₹3,51,53,300 and has computed 20% thereof at ₹70,30,660. However, the appeal before us relates to A.Y. 2015-16. The formulation whereby the exception to the proviso was linked to the aggregate receipts from the specified activity not exceeding 20% of the total receipts was introduced by the Finance Act, 2015 with effect from 01.04.2016 and was expressly made applicable from A.Y. 2016-17 onwards. For the year under consideration, the statutory regime then prevailing contained the monetary threshold of ₹25 lakh. Thus, the learned CIT(A) has applied to A.Y. 2015-16 a statutory formulation which had not yet come into operation. His finding founded upon the 20% test, therefore, cannot be sustained. This, however, does not by itself conclude the matter in favour of the assessee because the sponsorship receipts admittedly exceeded the ₹25 lakh threshold applicable for the relevant year. The determinative question still remains whether the receipts arose from an activity in the nature of trade, commerce or business within the meaning of the proviso as it then stood.
23. On that determinative question, the material before us does not support the conclusion drawn by the authorities below. The assessee organised a women’s marathon having a discernible nexus with its objects concerning women’s health, fitness and empowerment. Sponsorship was mobilised in connection with that event. There is no finding of any independent commercial undertaking, nor any material showing that the assessee had departed from its institutional objects and entered the market as a commercial event organiser. Equally, the mere presence of promotional benefit to the sponsors does not convert the activity of the assessee into their business or into a business of its own. In applying the proviso to section 2(15), the activity has to be viewed in its setting and substance. An incidental commercial interface cannot be isolated from the underlying charitable activity and treated as conclusive of its character, unless the manner and surrounding circumstances demonstrate that what is ostensibly charitable has, in substance, assumed the attributes of trade, commerce or business. No such factual foundation has been brought out in the present case.
24. The principles explained by the Hon’ble Supreme Court in ACIT (Exemptions) v. Ahmedabad Urban Development Authority also require the nature, scope and manner of the activity to be examined 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 create an independent disqualification divorced from section 2(15). Therefore, the very foundation on which exemption under sections 11 and 12 was denied by invoking section 13(8) ceases to exist.
26. This leaves us with the separate objection relating to the audit report in Form No.10B. Here also, the facts require to be viewed in their correct perspective. It is not a case where the assessee’s accounts had remained unaudited. The audit report was admittedly dated 21.08.2015, i.e., even prior to filing of the return on 21.09.2015. The error arose because the assessee, while filing the return, claimed exemption under section 10(23C)(iv) instead of section 11 and consequently furnished Form No.10BB instead of Form No.10B. During the assessment proceedings, when the mistake was noticed, the assessee asserted its claim under section 11 and furnished Form No.10B before completion of the assessment. Thus, the substantive act of audit stood completed within time; what remained defective was the statutory form furnished consequent upon the incorrect provision under which exemption had initially been claimed. The Assessing Officer was therefore in possession of the requisite material before framing the assessment and, indeed, examined the assessee’s entitlement under section 11 on merits.
27. In these circumstances, we do not find justification for treating the procedural lapse as destructive of the substantive exemption. The assessee possessed a subsisting registration under section 12A; its accounts had been audited; and the prescribed Form No.10B was made available during the assessment proceedings before the assessment was completed. The claim under section 11 was therefore capable of being examined on the basis of the material already before the Assessing Officer. The learned CIT(A)’s reliance upon the absence of a separate condonation order, without appreciating the peculiar circumstance that the audit itself had already been completed and an incorrect audit form had accompanied an incorrect claim under section 10(23C), places form above the substantive factual position. In the facts of this case, such procedural error cannot be made the sole basis for extinguishing the assessee’s otherwise valid claim under section 11.
28. Thus, viewed cumulatively, the reasons assigned by the authorities below for denying exemption cannot be sustained. The absence of the specific expression “marathon” in the objects cannot sever an activity demonstrably connected with women’s health, fitness and empowerment from those objects; the treatment of sponsorship expenditure in the books of the sponsors cannot determine the character of the receipt in the hands of the assessee; the magnitude of sponsorship and resultant surplus cannot substitute for a factual finding that the assessee itself carried on trade, commerce or business; and the 20% threshold relied upon by the learned CIT(A) was, in any event, not applicable to A.Y. 2015-16. On the material brought before us, Pinkathon remained an activity undertaken in furtherance of the assessee’s charitable objects and the sponsorship received in connection therewith does not acquire the character contemplated by the proviso to section 2(15). Consequently, section 13(8) has no application.
29. We accordingly set aside the impugned order and direct the Assessing Officer to allow the assessee’s claim of exemption under section 11 in accordance with law. Consequently, the addition of ₹2,58,39,236 made by denying the benefit of sections 11 and 12 is directed to be deleted. The substantive grounds raised by the assessee are accordingly allowed.
30. In the result, the appeal of the assessee is allowed.
Order pronounced in the open Court on 19th August, 2026.
