A sports NGO is running a residential sports academy and providing training to athletes for free but charges them for food. Providing training should be considered any other object of general public utility but as no price is charged for it, the question of applicability of the limit of 20% of total receipts does not arise. Providing food to athletes should be considered as incidental commercial activity as per Section 345 which does not have any limit.
Thanks Manoj. Promotion of sports is generally an object under GPU. If no fees is being charged, the training activity is charitable. The cost recovered for food is for the activity under GPU (object selected while registering under 12A/332).
The question is whether the above cost is commercial activity under Section 345 or 346 of ITA 2025. The Act has bucketed all objects other than GPU under 345 and GPU under 346. Therefore if the commercial activity is for advancement of object of GPU, section 346 maybe followed. Definition of commercial activity i.e. fee for service in Section 355 is the proviso to the GPU limb under 2(15) of ITA 1961.
Section 346 is applicable when an NGO is involved in any other act (object) of GPU (which is commercial itself. If it is being carried out for free, it becomes an object like other objects i.e. education, medical, yoga etc. and any incidental commercial activity is covered under section 345, without any limit, like in section 346.
Section 2(23)(g)-GPU is a charitable object, Section 345 prohibits commercial activity unless it is incidental for objects (a) to (f) with no cap and Section 346 permits commercial activity for GPU advancement but with 20% cap. Training is under 2(23)(g) without consideration while charging for food cost should be referenced to 346. The ITA has separated 345 and 346 with that intent is the understanding.
If we see providing food as an independent object like opening a kitchen for the poor, which it is not, then, if commercial, it would be suject to 20% limit of S. 346.
If we see it as an incidental activity, which it is (providing food to resident athletes), even for an object of GPU, it should be covered u/s 345.
Do we have consensus? @Sharad Sir, your opinion matters.
Let us go back to the drawing board Manoj. In the current Act, proviso to Section 2(15) of ITA 1961 is included in section 355(e)-definition of commercial activity which is unchanged and the GPU commercial activity under GPU is included in section 346 which is also unchanged. For the 6 limbs other than GPU i.e. Section 2(23)(a-f), commercial activity is prohibited (not specified in ITA 1961) with a caveat that permission is only if commercial activity is incidental to the object, erstwhile Section 11(4A) and is also unchanged. Please remember 345 mentions incidentality for 2(23)(a-f) but 346 does not mention incidentality for 2(23)(g) regarding commercial activity.
In the instant case of sports promotion which does not fit into 2(23)(a-f), it is included in 2(23)(g). If training fee had been charged, that would be charitable receipts under 2(23(g). However, it food costs is charged as commercial activity unless food and training are clubbed/integrated/inseparable to be shown as one does not exist without the other which may not look justified in this case, the activity would fall under 346 with cap.
In the case you just mentioned about food to poor, that will fall under 2(23)(a) i.e. relief to poor. If we are providing food without consideration, that is clearly charitable, but if we are charging cost as incidental business to the object of relief to poor in this case, it will fall under 345 without cap.
Sir, you want to say "An activity (Renting space in trade fair to businesses) incidental to the attainment of a GPU object (trade promotion) is also covered under section 346?
For renting space as GPU object, the consideration by way of business is commercial activity for advancement of GPU under 346. For 6 non GPU objects only, the principle of incidental business for attainment of the concerned object is tested (with pureplay commercial activity prohibited here) and commercial receipts under the 6 objects covered under 345. We could discuss offline.