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Income Tax Appellate Tribunal, DIVISION BENCH, ‘A’ CHANDIGARH
Before: SHRI SANJAY GARG & Ms. ANNAPURNA GUPTA
per first three limbs of section 2(15) i.e. for the relief of the poor,
education or medical relief were allowed to carry on business
activity also, but subject to the condition that such business is
carried on in the course of the actual carrying out of a primary
purpose of the trust or institution to claim their activity as for
“charitable Purposes”. However, for the institutions carrying on the
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activity as mentioned in the fourth limb i.e. for advancement of
object of General Public Utility, the profit making was barred in
view of the crucial words “ not for making profit” added in section
2(15) of the Act of 1961.
However, it is to be noted here that the above decisions in the
cases of ‘Sole Trustee, Lok Shikshana Trust vs. CIT’ (supra) and
Indian Chamber of Commerce vs. CIT (supra) were overruled by
the Majority View of the Larger Bench Judgement of the Supreme
Court in ‘Addl. CIT v. Surat Art Silk Cloth Manufacturers Assn’
reported in [1978 ] 121 ITR 1 [1979] 2 Taxman 501 (SC). Justice P.N. Bhagwati writing Majority view for the bench, in para 17 of the
said order held that the activity of the trust or the institution must
be for profit in order to attract the exclusionary clause. It is not
therefore enough that as a matter of fact an activity results in profit
but it must be carried on with the object of earning profit. That
profit-making must be the end to which the activity must be
directed or in other words, the predominant object of the activity
must be making a profit. The Hon’ble Supreme Court further
observed:
“Where an activity is not pervaded by profit motive but is carried on primarily for serving the charitable purpose, it would not be correct to describe it as an activity for profit. But where, on the other hand, an activity is carried on with the predominant object of earning profit, it would be an activity for profit, though it may be carried on in
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advancement of the charitable purpose of the trust or institution. Where an activity is carried on as a matter of advancement of the charitable purpose or for the purpose of carrying out the charitable purpose, it would not be incorrect to say as a matter of plain English grammar that the charitable purpose involves the carrying on of such activity, but the predominant object of such activity must be to subserve the charitable purpose and not to earn profit. The charitable purpose should not be submerged by the profit making motive; the latter should not masquerade under the guise of the former. The purpose of the trust, as pointed out by one of us (Pathak, J.) in Dharmadeepti v. CIT [(1978) 3 SCC 499 : 1978 SCC (Tax) 193] must be '"essentially charitable in nature" and it must not be a cover for carrying on an activity which has profit making as its predominant object.” This interpretation of the exclusionary clause in Section 2 clause (15) derives considerable support from the speech made by the Finance Minister while introducing that provision. The Finance Minister explained the reason for introducing this exclusionary clause in the following words:
"The definition of 'charitable purpose' in that clause is at present so widely worded that it can be taken advantage of even by commercial concerns which, while ostensibly serving a public purpose, get fully paid for the benefits provided by them namely, the newspaper industry which while running its concern on commercial lines can claim that by circulating newspapers it was improving the general knowledge of the public. In order to prevent the misuse of this definition in such cases, the Select Committee felt that the words 'not involving the carrying on of any activity for profit' should be added to the definition." (emphasis supplied by us)
The Hon’ble Supreme Court thus took departure from the 24.
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plain English grammar meaning of the words in the provisions, but
interpreted the phrase ‘not involving the carrying on of any
activity for profit’ suffixed to the ‘advancement of any other
object of general public utility’ in the provisions of section 2(15)
of the 1961 Act in the manner that if the income from the profit
making activity is ploughed back to subserve the charitable
purpose to achieve the end or ultimate motive of charity, the
activity of such an institution will not be excluded from the
definition of charitable purposes. The Hon’ble Supreme Court
held that it was obvious that the exclusionary clause was added
with a view to overcoming the decision of the Privy Council in the
of ‘The Trustees of the Tribune Press [AIR 1939 PC 208 : (1939) 7
ITR 415] where it was held that the object of supplying the
community with an organ of educated public opinion by
publication of a newspaper was an object of general public utility
and hence charitable in character, even though the activity of
publication of the newspaper was carried on commercial lines with
the object of earning profit. That the publication of the newspaper
was an activity engaged in by the trust for the purpose of carrying
out its charitable purpose and on the facts it was clearly an
activity which had profit-making as its predominant object, but
even so it was held by the Judicial Committee that since the
purpose served was an object of general public utility, it was a
charitable purpose. The Hon’ble Supreme Court observed that it
ITA No. 1382/Chd/2016- Chandigarh Lawn Tennis Association, Chandigarh 29
was clear from the speech of the Finance Minister that it was with
a view to setting at naught this decision that the exclusionary
clause was added in the definition of "charitable purpose". The
test which has, therefore, now (as per section 2(15) of 1961 Act)
to be applied was whether the predominant object of the activity
involved in carrying out the object of general public utility was to
sub serve the charitable purpose or to earn profit. Where profit-
making is the predominant object of the activity, the purpose,
though an object of general public utility, would cease to be a
charitable purpose. But where the predominant object of the
activity is to carry out the charitable purpose and not to earn
profit, it would not lose its character of a charitable purpose
merely because some profit arises from the activity. The
exclusionary clause does not require that the activity must be
carried on in such a manner that it does not result in any profit.
However, the profits, if any, should be ploughed back and applied
to charitable activity to subserve the main purpose. The Hon’ble
Supreme Court held, “It would indeed be difficult for persons in
charge of a trust or institution to so carry on the activity that
the expenditure balances the income and there is no resulting
profit. That would not only be difficult of practical realisation but would also reflect unsound principle of management.” The
Supreme Court held that the concluding words "not involving the
carrying on of any activity for profit" go with the "object of
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general public utility" and not with the "advancement".
His Lordship, Justice Bhagvati, as he then was, expressing the
majority view observed : “ The Revenue contended that whatever
be the object of general public utility, its "advancement" or
achievement cannot involve the carrying on of any activity for
profit; otherwise the purpose of the trust would not be a charitable
purpose and its income from business would not be immune from
tax liability. This contention cannot, however, be accepted as its
consequence would be as follows:
i. The trust or institution established for promotion of an object of general public utility would not be able to engage in business for fear that it might lose the tax exemption altogether and a major source of income for promoting objects of general public utility would be dried up. It is difficult to believe that the Legislature could have intended to bring about a result so drastic in its consequence. If the intention of the Legislature were to prohibit a trust or institution established for promotion of an object of general public utility from carrying on any activity for profit, it would have provided in the clearest terms that no such trust or institution shall carry on any activity for profit, instead of using involved and obscure language giving rise to linguistic problems and promoting interpretative litigation. ii. Section 11(4) , which declares that "property held under trust" shall include a business undertaking enjoying immunity from tax and which gave statutory recognition to this principle decided by this Court in earlier cases, would be rendered wholly superfluous and meaningless, after the insertion of clause (bb) in section 13(1) with effect from 1-4-1977. (emphasis supplied by us)
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However, there was dissenting view in the words of Justice
A.P. Sen pointing out that it is not permissible for the Court to
whittle down the plain language of the section. He reminded that "It
would be contrary to all rules of construction" in the words of
Khanna, J., speaking for himself and Gupta, J. in Loka Shikshana
Trust, "to ignore the impact of the newly added words ‘not involving
the carrying on of any activity for profit’ and to construe the
definition as if the newly added words were either not there or were
intended to be otiose and redundant, i.e., as qualifying and affirming
the position under the Act of 1922." According to Sen, J. "if an
object of general public utility is engaged in an activity for profit, it
ceases to be a charitable purpose and, therefore, the income is not
exempt under section 11(1)(a). He also observed that the concept
of ‘profits to feed the charity’, therefore, is applicable only to
the first three heads of charity and not the fourth. It would be
illogical and, indeed, difficult to apply the same consideration to
institutions which are established for charitable purposes of any
other object of general public utility. Any profit-making activity
linked with an object of general public utility would be taxable. The
theory of the dominant or primary object of the trust cannot,
therefore, be projected into the fourth head of charity, viz.,
‘advancement of any other object of general public utility’ so as to
make the carrying on of a business activity merely ancillary or
incidental to the main object." He also pointed out that the Direct
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Tax Laws Committee in its interim report on charitable trusts
(Chapter 2) in 1977 had considered the question whether the
expression ‘not involving the carrying on of any activity for profit’
in the definition of ‘charitable purpose’ should be deleted and
expressed its opinion in favour of deletion. The Government
however did not accept the suggestion. He observed "I fail to
comprehend when the recommendation has not been acted upon by
the Government by suitable legislation, how this court can by a
process of judicial construction to achieve the same result."
The purpose of our above discussion, is that while interpreting
the scope of the words” “not involving the carrying on of any
activity for profit." suffixed with “the advancement of any other
object of general public utility” both the views as to whether literal
interpretation of the above clause is to be taken or the same is to be
read down to remove hardship to the trusts whose end motive is
charity as they apply all such profits earned in charitable activity,
went on side by side. Earlier in the case of ‘Lok Shiksha Trust’
(supra) the majority view prevailed for the literal interpretation of
the provisions of the section 2(15) of the Act, however later on in
the case of ‘Surat Art Silk Manufacturers Assn.’(supra) the
provisions were read down and ‘purpose test’ or ‘the end object’ or
to say ‘predominant object’ theory was applied.
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However, shortly after the above judgment was delivered by
the Five Member Bench Hon’ble Supreme Court in the case of
“Surat Art Silk Manufacturers Assn.” (supra) , Sub-section (4A) was
introduced in section 11 by the Finance Act, 1983 with effect from
1-4-1984 to provide that a trust or institution for charitable or
religious purpose will not get the benefit of exemption under section
11 in respect of any profits or gains of business carried on by it,
unless the business is—(i ) carried on by a trust wholly for public
religious purposes and the business consists of printing and
publication of books or publication of books or the business is of a
kind notified by the Central Government, or (ii) carried on by an
institution wholly for charitable purposes and the work in
connection with the business is mainly carried on by the
beneficiaries of the institution. The Legislature, however, omitted
the words ‘not involving the carrying on of any activity for
profit’ from the definition of ‘charitable purpose’ in section 2(15), and also omitted section 13(1)(bb ).
It is pertinent to mention here that the above amendments
made by the Finance Act 1983, dropping of the words “not
involving the carrying on any activity for profit” did not bring
any major change as corresponding amendments were also made
in section 11 of the Act wherein more stringent restrictions (as
discussed above) were brought in.
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The rigour of newly inserted section 11(4A), however, was
diluted by the Finance (No. 2) Act, 1991 Sub-section (4A) of
section 11 was amended with effect from 1-4-1992 to provide
that sub-section (1) or sub-section (2) or sub-section (3) or
sub-section (3A) shall not apply in relation to any income of a
trust or an institution, being profits and gains of business,
unless the business is incidental to the attainment of the
objectives of the trust or, as the case may be, institution, and
separate books of account are maintained by such trust or
institution in respect of such business.
The amended section 11(4A) read as under: -
11(4A) : Sub-section (1) or sub-section (2) or sub-section (3) or subsection (3A) shall not apply in relation to any income of a trust or an institution, being profits and gains of business, unless the business is incidental to the attainment of the objectives of the trust or, as the case may be, institution, and separate books of account are maintained by such trust or institution in respect of such business.
Explaining this amendment in law, the CBDT circular no. 621 dated 19 t h December 1991 [(1992) 195 ITR (St) 154], read with circular No. 642 dated 15 t h December 1992 [(1993) 199 ITR
(St) 7] stated as follows: CBDT circular no. 621 dated 19th December 1991 [(1992 ] 195 ITR (St) 154 @165] 15.8 In order to bring exemption of charitable or religious trusts in line with the corresponding provisions in section 10(23C)(iv) or (v), sub-section (4A) of section 11 has been amended to permit trust and institutions to carry out business
ITA No. 1382/Chd/2016- Chandigarh Lawn Tennis Association, Chandigarh 35
activities if the business activities are incidental to the attainment of its objective. The charitable or religious trust will no longer lose complete exemption from income-tax. However, the profits and gains from such business activity will be subjected to tax.
CBDT circular no 642 dated 15th December 1992 In partial modification to para 15.8 (as extracted above) of the Circular No. 621, dt. 19th Dec., 1991 issued from F. No. 133/389/91-TPL, it is clarified that according to the provisions of section 11(4A) of the Income tax Act, as amended through the Finance (No. 2) Act, 1991, with effect from 1st April, 1992, profits and gains of business in the case of a trust or institution will not be liable to tax if the business is incidental to the attainment of the objectives of the trust or institution, as the case may be. In addition, separate books of account are to be maintained by the trust or institution in respect of such business. Income of any other business which is not incidental to the attainment of the objectives of the trust or institution will not be exempt from tax.
The major change, in our view, brought by amendment to
section 11(4A), is that earlier the phrase “not involving the carrying
on of any activity for profit” was applicable to the fourth limb of
definition of “charitable purposes” as per the provisions of section
2(15) of the 1961 act i.e. in respect of the institutions carrying out
the activity for advancement of general public utility. However
dropping the crucial words “not involving the carrying on of any
activity for profit” from section 2(15) and bringing the crucial
words “unless the business is incidental to the attainment of the
objectives of the trust” by way of amendment in section 11(4A)
allowed the institutions carrying out the activity for the
advancement of object of General Public Utility to carry out
business activity also, if the business activities are incidental to the
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attainment of their objective. Earlier , the provisions of section
13(1)(bb) provided that the institutions carrying out the activity
under the first three limbs i.e. relief to the poor, education and
medical relief are permitted to business activity in the course of the
actual carrying out of their primary purpose. However, the omission
of section 13(1) (bb) and corresponding amendments brought in
section 11(4A) brought the institutions carrying out the activity of
General Public Utility at par with the Institutions carrying on the
activity as per first three limbs of section 2(15) of the Act allowing
the carrying of business activity incidental to attainment of their
object. This was inconsonance with the interpretation made by the
hon’ble Supreme Court in the case of “Surat Art Silk Cloth
Manufacturers Association” (supra).
The phrase ‘business is incidental to the attainment of the 32.
objectives of the trust’ came up for interpretation before the
Supreme Court in the case Asstt. CIT v. Thanthi Trust [2001] 247
ITR 785 / 115 Taxman 126. The assessee therein was involved in
activity of publishing of a newspaper. The object of the trust was to
establish the said newspaper as an organ of educated public opinion
for the Tamil-speaking reading public to disseminate news and to
ventilate opinion upon all matters of public interest and to establish
and run schools, colleges, hostels and orphanages. The Court held
that a business, whose income is utilized by the trust or the
institution for the purposes of achieving the objectives of the trust
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or the institution, is, surely, a business which is incidental to the
attainment of the objectives of the trust. The findings of the Hon’ble
Supreme court can be divided into three parts:
(i) Discussing the position for the period from the assessment years 1979-80 to 1983-84, when the provisions of section 13(1)(bb) remained on the statute, the court held to claim the exemption under section 11 the business must be carried on in the course of the actual accomplishment of relief of the poor, education or medical relief. As an example, a public charitable trust for the relief of the poor, education and medical relief that carries on the business of weaving cloth and stitching, clothing by employing indigent women carries on the business in the course of actually accomplishing its primary object of affording relief to the poor and it would qualify for the exemption under section 11 of the Act. The court however observed that In the instant case, (Thanthi Trust) the business that the trust carried on was that of running a newspaper. That business, though it was held by the trust as a part of its corpus and, therefore, in trust, did not directly accomplish, wholly or in part, the trust's objects of relief of the poor and education. Its income only fed such activity. It could not be held to be carried on in the course of the actual accomplishment of the trust's objects of education and relief of the poor. It was, therefore, not possible to accept the argument on behalf of the trust that it was entitled to the exemption under section 11.
(ii) However, in respect of the assessment years 1984-85 to 1991-92 when the provisions of section 13(1)(bb)) stood omitted the court observed that Sub-section (4) of section 11 remains on the statute book and it defines the words 'property held under trust' for the purposes of section 11 to include a business held under trust. Sub-section (4A) restricts the
ITA No. 1382/Chd/2016- Chandigarh Lawn Tennis Association, Chandigarh 38
benefit under section 11 so that it is not available for income derived from business unless (a) the business is carried on by a trust only for public religious purposes and it is of printing and publishing books or any other notified kind. That the newspaper business that was carried on by the trust did not fall within sub-section (4A). The trust was not only for public religious purposes, so it did not fall within clause (a). It was a trust not an institution, so it did not fall within clause (b). It must, therefore, be held that for the assessment years in question, the trust was not entitled to the exemption contained in section 11 in respect of the income of its newspaper.
(iii) However, in respect of the assessment year 1992-93 and thereafter considering the provisions of amended section 11(4A) of the Act the court held that the substituted sub- section (4A) (with effect from 1-4-1992) states that the income derived from a business held under the trust wholly for charitable or religious purposes shall not be included in the total income of the previous year of the trust or institution if "the business is incidental to the attainment of the objectives of the trust or, as the case may be, institution" and separate books of account are maintained in respect of such business. Clearly, the scope of sub-section (4A) is more beneficial to a trust or institution than was the scope of sub-section (4A) as originally enacted. In fact, the substituted sub-section (4A) gives a trust or institution a greater benefit than was given by section 13(1)(bb). If the object of the Parliament was to give trusts and institutions no more benefit than that given by section 13(1)(bb), the language of section 13(1)(bb) would have been employed in the substituted sub-section (4A). As it stands, all that is required for the business income of a trust or institution to be exempt is that the business should be incidental to the attainment of the objectives of the trust or
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institution. A business whose income is utilized by the trust or the institution for the purpose of achieving the objectives of the trust or the institution is, surely, a business which is incidental to the attainment of the objectives of the trust. In any event, if there be any ambiguity in the language employed, the provision must be construed in a manner that benefits the assessee. Since it was not in dispute that the income of its newspaper business had been employed to achieve its objectives of education and relief to the poor and that it had maintained separate books of account in respect thereof, it was therefore, held that the trust was entitled to the benefit of section 11 for the assessment year 1992-93 and thereafter.
The Supreme Court, therefore, has drawn the distinction between the
Pharse “in the course of the actual carrying out of their primary
purpose” and the phrase "the business is incidental to the
attainment of the objectives of the trust.” It was therefore, held
that if all the surplus in acquiring business assets is invested or
ploughed back to the business, business will be a business incidental
to the attainment of the objects of the trust .
The Supreme Court again considered the applicability of the
last limb of the definition of ‘charitable purpose’ in the case of ‘CIT
v. Gujarat Maritime Board’ [2007] 295 ITR 561 [2008] 166 Taxman
58 (SC), the Court observed that he expression ‘any other object of
general public utility’ is of the widest connotation. The expression
would prima facie include all objects which promote the welfare of
the general public.
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The amendment brought by Finance Act 1983 to Section 2(15)
remained in force from 1984 to 2009. The legal position remained
that to claim exemption from taxation under section 11 of the Act,
making profits from a business activity must be incidental to the
attainment of objectives of the trust i.e. it must subserve the end
result for the end motive of charity. Further that separate books of
accounts should be maintained in respect of such business activity
by the assessee.
However vide Finance Act, 2008 w.e.f. 1.4.2009, a new
proviso (i.e. fist proviso) was added to this provision, carving out
an exception in the cases of ‘advancement of any other object of
general utility:
"2 (15) "charitable purpose" includes relief of the poor, education, medical relief, and the advancement of any other object of general public utility:
Provided that the advancement of any other object of general public utility shall not be a charitable purpose, if it involves the carrying on of any activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business, for a cess or fee or any other consideration, irrespective of the nature of use or application, or retention, of the income from such activity;' (Emphasis supplied by us)
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There are two limbs of the above proviso to section 2(15) of
the Act, introduced w.e.f. 1.4.2009, i.e. the advancement of any
other object of general public utility" shall not be a charitable
purpose if it involves the carrying on of:
(a) any activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business, (b) irrespective of the nature of use or application, or retention, of the income from such activity;'
The above amendment was carried in section seeks to
overcome the decisions of the hon’ble Supreme Court in the cases of
‘Surat Art Silk’ (supra) and ‘Thanthi Trust’ (supra) as relevant to
the period post substitution of the section 11(4A) of the Act. Firstly,
the position that the carrying of business incidental to the
attainment of the objectives of the trust as was allowable to the
intuitions u/s 11(4A) carrying the activity under the all the limbs of
section 2(15) of the Act is no more available to the institutions
carrying on the advancement of object of public utility. The
institutions carrying out the object of public utility have been barred
from doing any activity in the nature of trade, commerce or business
for claiming their activity for “charitable Purposes”. Secondly this
bar is irrespective of application of income from such commercial
activity. That it will be immaterial whether the income from the
commercial activity is utilized or ploughed back to such activity
serving object of public utility. However, the restriction imposed
by the above amendment is / was applicable only in respect of
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fourth limb of section 2(15) of the Act i.e. for the institutions or
trusts carrying out the activity of advancement of any other object
of general public utility. Hence, the restriction put by section
11(4A) was still applicable to the other limbs in the definition of
charitable purposes u/s 2(15) of the Act.
The Note on Clauses-Memorandum explaining the clause read
as under:—
'RATIONALISATION AND SIMPLIFICATION MEASURES Streamlining the definition of "charitable purpose" Section 2(15) of the Act defines "charitable purpose" to include relief of the poor, education, medical relief, and the advancement of any other object of general public utility. It has been noticed that a number of entities operating on commercial lines are claiming exemption on their income either under section 10(23C) or Section 11 of the Act on the ground that they are charitable institutions. This is based on the argument that they are engaged in the "advancement of an object of general public utility" as is included in the fourth limb of the current definition of "charitable purpose". Such a claim, when made in respect of an activity carried out on commercial lines, is contrary to the intention of the provision. With a view to limiting the scope of the phrase "advancement of any other object of general public utility", it is proposed to amend section 2(15) so as to provide that "the advancement of any other object of general public utility" shall not be a charitable purpose if it involves the carrying on of:—
(a) any activity in the nature of trade, commerce or business, or (b) any activity of rendering of any service in relation to any trade, commerce or business, for a fee or cess or any other consideration, irrespective of the nature of use or application of the income from such activity, or the retention of such income, by the concerned entity.
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This amendment will take effect from the Ist day of April, 2009 and will accordingly apply in relation to the assessment year 2009-10 and subsequent assessment years.'
The CBDT issued a circular dated 19.12.2008, paragraph-3
whereof reads as under:—
"3. The newly amended s. 2(15) will apply only to the entities whose purpose is ‘advancement of any other object of general public utility’ i.e., the fourth limb of definition of ‘charitable purpose’ contained in s. 2(15). Hence, such entities will not be eligible for exemption under s. 11 or under s. 10(23C) of the Act, if they carry on commercial activities. Whether such an entity is carrying on an activity in the nature of trade, commerce or business is a question of fact which will be decided based on the nature, scope, extent and frequency of activity.
3.1 There are industry and trade associations who claim exemption from tax under s. 11 or on the ground that their objects are for charitable purposes as these are covered under the ‘any other object of public utility’. Under the principle of mutuality, if trading takes place between the persons who are associated together and contribute to a common fund for the financing of some venture or object, and in this respect have no dealings or relations with any outside body, then the surplus returned to such persons is not chargeable to tax. Therefore, where industry or trade associations claim both to be charitable institutions as well as mutual members, these would not fall under the purview of s. 2(15) owing to the principle of mutuality. However, if such organizations have dealings with the non-members, their claim for
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charitable institution would now be governed by the additional conditions stipulated in proviso to s. 2(15).
3.2 In the final analysis, whether the assessee has for its object ‘the advancement of any other object of general public utility’ is a question of fact. If such assessee is engaged in any activity in the nature of trade, commerce or business or renders any service in connection to trade, commerce or business, it would not be entitled to claim that its object is for charitable purposes. In such a case, the object of ‘general public utility’ will only be a mask or a device to hide the true purpose which is trade, commerce, or business or rendering of any service in relation to trade, commerce or business. Each case would, therefore, have to be decided on its own facts, and generalizations are not possible. An assessee who claims that their object is ‘charitable purpose’ within the meaning of s. 2(15) would be well advised to eschew any activity which is in the nature of trade, commerce or business or rendering of any service in relation to any trade, commerce or business.”
(emphasis supplied by us) 40. The above explanation given by the CBDT that the newly
amended s. 2(15) will apply only to the entities whose purpose is
‘advancement of any other object of general public utility’ and that
such entities will not be eligible for exemption under s. 11 or under
s. 10(23C) of the Act, if they carry on commercial activities
irrespective of application of income from such activity has not
gone well with the interpretation given by the High Courts. The
Jurisdictional Punjab & Haryana High Court has discussed at length
ITA No. 1382/Chd/2016- Chandigarh Lawn Tennis Association, Chandigarh 45
the effect of newly inserted proviso to section 2(15) of the 1961 Act
w.e.f. 1.4.2009 while referring to several case laws of other High
Courts of the country and held that by the insertion of the proviso,
the position has restored/reverted to legal position as declared by
the Hon’ble Supreme court in ‘Surat Art Silk Case’ (supra) while
interpreting the unamended provisions of 1961 Act. The Hon’ble
High Court has observed that the crucial words “not involving the
carrying on of any activity for profit” as were mentioned originally
in the section 2(15) of the 1961 Act, were akin to the wording
introduced vide Finance Act 2008 w.e.f. Ist April 2009 i.e. “"any
activity in the nature of trade, commerce or business, or any activity
of rendering any service in relation to any trade, commerce or
business.” The Hon’ble High court has observed that while the
legislature in the 1984 amendment which continued up to the year
2009 altered the position by deleting the words "not involving the
carrying on of any activity for profit", it reintroduced an
exclusionary clause albeit in different and wider terms in the 2009
amendment. The exclusionary clause related to the object of general
public utility and not the advancement thereof. The Hon’ble High
Court thereafter referring to the words "any activity in the nature of
trade, commerce or business, or any activity of rendering any
service in relation to any trade, commerce or business” as mentioned
in the proviso to section 2(15), as amended in 2009, observed that
such activities are carried for profit only. The Hon’ble High Court
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rejected the contention of the revenue that the meaning of the above
words “nature of trade, commerce or business” was of wider import
and that even if the advancement of object of general public utility
involves any activity in the nature of trade, commerce or business or
any activity of rendering any service in relation to any trade,
commerce or business, it will be out of the definition of the word
“charitable purposes”. The Hon’ble high court held that a wider
meaning ought not to be given to these words especially in a taxing
statute. The Hon’ble High Court observed that if a trade or business
for a commercial activity did not result in profit, it would not be
necessary to deal with the same in the Income Tax Act. The hon’ble
High Court observed that there was nothing in the Act and particular
in section 2 (15) thereof that indicated that the Legislature
contemplated a trade or a business or a commercial activity other
than for profit. The Hon’ble High Court in this respect referred to
the several judgments of the Delhi High Court including in the case
of Bureau of Indian Standards v. DGIT (Exemptions) [2013] 358
ITR 78/212 Taxman 210/[2012] 27 taxmann.com 127, The Institute
of Chartered Accountants of India v. DGIT (Exemptions), [2013]
358 ITR 91/217 Taxman 152/35 taxmann.com 140 wherein it has
been held that while construing the term business for the purpose of
Section 2(15) of the Act the object and purpose of the Section must
be kept in mind and a broad and extended definition of business
would not be applicable for the purpose of interpreting and applying
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the first proviso to Section 2(15) of the Act. The object of
introducing the first proviso is to exclude organizations which are
carrying on regular business from the scope of "charitable purpose.
The expressions "business", "trade" or "commerce" as used in the
first proviso must, thus, be interpreted restrictively and where the
dominant object of an organisation is charitable, any incidental
activity for furtherance of the object would not fall within the
expressions "business", "trade" or "commerce". Although, it is not
essential that an activity be carried on for profit motive in order to
be considered as business, but existence of profit motive would be a
vital indicator in determining whether an organisation is carrying on
business or not. The Hon’ble High Court also referred to the
decision of the Delhi High Court in the case of India Trade
Promotion Organization v. DGIT (Exemptions) [2015] 371 ITR
333/229 Taxman 347/53 taxmann.com 404 wherein it was held as
under:-
“An activity would be considered 'business' if it is undertaken with a profit motive, but in some cases, this may not be determinative. Normally, the profit motive test should be satisfied, but in a given case activity may be regarded as a business even when profit motive cannot be established / proved. In such cases, there should be evidence and material to show that the activity has continued on sound and recognized business principles and pursued with reasonable continuity. There should be facts and other circumstances which justify and show that the activity undertaken is in fact in the nature of business. 58. In conclusion, we may say that the expression "charitable purpose", as defined in Section 2(15) cannot be construed literally and in absolute terms. It has to take
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colour and be considered in the context of Section 10(23C)(iv) of the said Act. It is also clear that if the literal interpretation is given to the proviso to Section 2(15) of the said Act, then the proviso would be at risk of running foul of the principle of equality enshrined in Article 14 of the Constitution of India. In order to save the Constitutional validity of the proviso, the same would have to be read down and interpreted in the context of Section 10(23C)(iv) because, in our view, the context requires such an interpretation. The correct interpretation of the proviso to Section 2(15) of the said Act would be that it carves out an exception from the charitable purpose of advancement of any other object of general public utility and that exception is limited to activities in the nature of trade, commerce or business or any activity of rendering any service in relation to any trade, commerce or business for a cess or fee or any other consideration. In both the activities, in the nature of trade, commerce or business or the activity of rendering any service in relation to any trade, commerce or business, the dominant and the prime objective has to be seen. If the dominant and prime objective of the institution, which claims to have been established for charitable purposes, is profit making, whether its activities are directly in the nature of trade, commerce or business or indirectly in the rendering of any service in relation to any trade, commerce or business, then it would not be entitled to claim its object to be a 'charitable purpose'. On the flip side, where an institution is not driven primarily by a desire or motive to earn profits, but to do charity through the advancement of an object of general public utility, it cannot but be regarded as an institution established for charitable purposes." (emphasis supplied by us)
The crucial point for the entire discussion in the above case of
‘India Trade Promotion Organization v. DGIT (Exemptions)’ was
relating to the interpretation of section 2(15) r.w.s. 10(23C) (iv) of
the Income Tax Act. The Hon’ble High Court has observed that the
expression “charitable purposes” in context of section10 (23C) (iv)
has a reference to income. It is only when an institute has an
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income that it will claim exemption from its inclusion in the total
income. The Hon’ble Delhi High Court therefore held that merely
because an institution which otherwise was established for a
charitable purpose, receives income would not make it any less a
charitable institution. That it is not the income but the objects of the
institution that have to be looked into. The Hon’ble Delhi High
Court observed that it was undisputed that the institute (India Trade
Promotion Organization) had been established for charitable
purpose. The Hon’ble High Court took the notice that prior to the
amendment introduced w.e.f Ist April, 2009 the institute had been
recognized as an institution established for charitable purposes and
that this had been done having regard to the objects of the
institution and its importance throughout India. The Hon’ble High
Court further observed that if a meaning is given to the expression
‘charitable purpose’ so as to suggest that in case an institution,
having an objective of advancement of general public utility,
derives an income, it would be falling within the exception carved
out in the first proviso to Section 2(15) of the said Act, then there
would be no institution whatsoever which would qualify for the
exemption under Section 10(23C)(iv) of the said Act and the said
provision would be rendered redundant.
The Hon’ble Punjab & Haryana High court in the case of ‘The
Tribune Trust’ (supra) following the decision of the Hon’ble
Supreme Court in ‘Surat Art Silk’ (supra) and in the light of the
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several decisions of the Hon’ble Delhi Court has held that the
predominant object of the trust or institution is the deciding factor ,
if the profit is the pre-dominant motive, purpose and object of the
assessee Trust then its activities cannot be considered for charitable
purposes as per the definition of charitable purposes in the light of
newly inserted proviso w.e.f. 1.4.2009. But where the predominant
object of the activity is to carry out the charitable purpose and not
to earn profit, it would not lose its character of a charitable purpose
merely because some profit arises from the activity.
From the above discussion and in the light of decisions
rendered by the Delhi High Court in the cases as discussed above
and of the Jurisdictional Pb. & Hry. High court in the case of ‘The
Tribune Trust’ (supra) the position that has emerged is that as if the
new proviso to section 2(15) has never been brought in and has been
rendered redundant or otiose. The theory of predominant object or
activity and incidental income therefrom can well be applied as per
the provisions of section 11(4A) of the Act and as interpreted by the
Supreme Court in the case of ‘Thanthi Trust’ (supra) and several
High Court decisions thereafter. Even with all due respect, in our
humble opinion, the restriction put by newly inserted proviso was
applicable only to the activity of ‘any other object of general public
utility’ but not to the other limbs of the definition as provided u/s
2(15) of the Act. Hence, to say that the newly inserted proviso
would make for all purposes the section 2(23)(iv) or section 11 (4)
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of the Act redundant or otiose, in our humble view, may not be
correct. Even the crucial words in the second limb of the proviso
‘irrespective of the nature of use or application, or retention, of the
income from such activity’ are also required to be considered and
the same, in our view, cannot be ignored. By the insertion of these
words, intention of the government is to overcome the ‘ultimate or
end object or to say predominant object theory’ as was laid down by
the Hon’ble Supreme Court in the cases of ‘Surat Art Silk’ (supra)
and ‘Thanthi Trust’ (supra). To be more precise, the effect of the
above introduced words is that it will be immaterial if the funds or
the profits from business activity are ploughed back to subserve the
main or the predominant object of the trust. Again, even at the cost
of repetition, it is to be mentioned here that this restriction is
applicable only to the activity of advancement of any other object of
general public utility but not to the other limbs of the activity as
included in the definition provided u/s 2(15) of the Act.
We may further add here that the prohibition put by the above
proviso is not applicable in respect of non-business income of the
institution or the trusts carrying on the advancement of other objects
of general public utility but only in respect of income earned from
the activity in the nature of trade, commerce or business. In other
words, this exclusionary provision will not exclude the institutions
having income other than the business income.
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It is pertinent to mention here that Parliament also realized
that the absolute restriction on any receipt of commercial nature
imposed by the proviso inserted w.e.f. 1.4.2009 to section 2(15)
may create hardship to the organizations which receive sundry or
incidental considerations from such activities. Therefore by the
Finance Act 2010, there was yet another proviso (i.e. second
proviso) inserted with retrospective effect from 1.4.2009; now the
section read as under:
"2 (15) "charitable purpose" includes relief of the poor, education, medical relief, and the advancement of any other object of general public utility:
Provided that the advancement of any other object of general public utility shall not be a charitable purpose, if it involves the carrying on of any activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business, for a cess or fee or any other consideration, irrespective of the nature of use or application, or retention, of the income from such activity;
Provided further that the first proviso shall not apply if the aggregate value of the receipts from the activities referred to therein is 10 lakh rupees or less in the previous year.’ (emphasis supplied by us)
The CBDT issued explanatory notes to the provisions of the
Finance Act, 2010 vide circular no. 01/2011 dated, the 6th april,
2011, the relevant part in respect of the aforesaid amendment read
as under:
“4. Change in the Definition of “charitable purpose” 4.1 For the purposes of the Income-tax Act, “charitable purpose” has been defined in section 2(15) which, among others, includes “the advancement of any other object of general public utility”.
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4.2 However, “the advancement of any other object of general public utility” is not a charitable purpose, if it involves the carrying on of any activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business, for a cess or fee or any other consideration, irrespective of the nature of use or application, or retention, of the income from such activity.
4.3 The absolute restriction on any receipt of commercial nature may create hardship to the organizations which receive sundry considerations from such activities. Therefore, section 2(15) has been amended to provide that “the advancement of any other object of general public utility” shall continue to be a “charitable purpose” if the total receipts from any activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business do not exceed Rs.10 lakhs in the previous year.
4.4 Applicability - This amendment has been made effective retrospectively from 1st April, 2009 and will, accordingly, apply in relation to the assessment year 2009-10 and subsequent years.”
The above prescribed limit of receipts up to Rs.10 lakhs from
the ancillary activity in the nature of trade business or commerce
by the institutions carrying out the object of General Public Utility
was increased to Rs. 25 lakhs vide finance Act 2011 w.e.f.1.4.2012.
By the Finance Act 2015, the first and second provisos also stand substituted, with effect from 1st April 2016, with a new
proviso to Section 2(15). The section now is read as under:
"2 (15) "charitable purpose" includes relief of the poor, education, medical relief, and the advancement of any other object of general public utility: Provided that the advancement of any other object of general public utility shall not be a charitable
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purpose, if it involves the carrying on of any activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business, for a cess or fee or any other consideration, irrespective of the nature of use or application, or retention, of the income from such activity, unless—
such activity is undertaken in the course of (i) actual carrying out of such advancement of any other object of general public utility; and
the aggregate receipts from such activity or (ii) activities during the previous year, do not exceed twenty per cent. of the total receipts, of the trust or institution undertaking such activity or activities, of that previous year
The Memorandum explaining the clause read as under:—
“Rationalization of definition of charitable purpose in the Income-tax Act
The primary condition for grant of exemption to a trust or institution under section 11 of the Act is that the income derived from property held under trust should be applied for charitable purposes in India. ‘Charitable purpose’ is defined in section 2(15) of the Act. The section, inter alia, provides that advancement of any other object of general public utility shall not be a charitable purpose, if it involves the carrying on of any activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business, for a cess or fee or any other consideration, irrespective of the nature of use or application, or retention, of the income from such activity. However, this restriction shall not apply if the aggregate value of the receipts from the activities referred above is twenty five lakh rupees or less in the previous year.
The institutions which, as part of genuine charitable activities, undertake activities like publishing books or holding program on yoga or other programs as part of actual carrying out of the objects which are of charitable
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nature are being put to hardship due to first and second proviso to section 2(15). The activity of Yoga has been one of the focus areas in the present times and international recognition has also been granted to it by the United Nations. Therefore, it is proposed to include 'yoga' as a specific category in the definition of charitable purpose on the lines of education. In so far as the advancement of any other object of general public utility is concerned, there is a need is to ensure appropriate balance being drawn between the object of preventing business activity in the garb of charity and at the same time protecting the activities undertaken by the genuine organization as part of actual carrying out of the primary purpose of the trust or institution.
It is, therefore, proposed to amend the definition of charitable purpose to provide that the advancement of any other object of general public utility shall not be a charitable purpose, if it involves the carrying on of any activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business, for a cess or fee or any other consideration, irrespective of the nature of use or application, or retention, of the income from such activity, unless,- (i) such activity is undertaken in the course of actual carrying out of such advancement of any other object of general public utility; and (ii) the aggregate receipts from such activity or activities, during the previous year, do not exceed twenty percent. of the total receipts, of the trust or institution undertaking such activity or activities, for the previous year . These amendments will take effect from 1st April, 2016 and will, accordingly, apply in relation to the assessment year 2016-17 and subsequent assessment years.” (emphasis supplied by us)
Thus, the respective memorandums explaining the clauses in
2015 explain that the purpose of insertion of second proviso to
section 2(15) and subsequent amendments there to was to remove
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the hardship faced by the institutions genuinely carrying on the
advancement of any other object of general public utility due to
first proviso to section 2(15) and to bring appropriate balance
between the object of preventing business activity and at the same
time protecting the genuine charitable activities. The amendments
brought out to second proviso w.e.f. 1.4.2016 seeks remove
hardship of restriction of receipts of Rs.25 lakh to the institutes
who carry on the genuine charitable activities for the advancement
of their object of general public utility on a large scale and
receives incidental or sundry receipts as per their large volume of
activity which may cross the prescribed limit of Rs. 25 Lakhs.
Hence to rationalize the definition of ‘Charitable purposes’ the
limit of receipt of Rs. 25 Lakhs has been substituted with 20% of
the total receipts.
At this stage, it is important to note that vide finance Act
2012, with retrospective effect from 1.4.2009 has inserted
subsection (8) to section 13 of the Act, which read as under:
“ [(8) Nothing contained in section 11 or section 12 shall operate so as to exclude any income from the total income of the previous year of the person in receipt thereof if the provisions of the first proviso to clause (15) of section 2 become applicable in the case of such person in the said previous year.”
The parliamentary notes on clauses explaining the above
amendment to section 13 read as under:
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Clause 6 of the Bill seeks to amend section 13 of the Income-tax Act relating to section 11 not to apply in certain cases. It is proposed to insert a new sub-section (8) in the aforesaid section 13 so as to provide that nothing contained in section 11 or section 12 shall operate so as to exclude any income from the total income of the previous year of the person in receipt thereof if the provisions of the first proviso to clause (15) of section 2 become applicable in the case of such person in the said previous year.
This amendment will take effect retrospectively from 1st April, 2009 and will, accordingly, apply in relation to the assessment year 2009-2010 and subsequent assessment years.
A corresponding amendment has also been brought in section
10(23C) of the Act inserted by the Finance Act, 2012, w.r.e.f. 1-4-
2009 adding the following proviso added:
“10. In computing the total income of a previous year of any person, any income falling within any of the following clauses shall not be included— (23C) any income received by any person on behalf of— ……………….. (iv) any other fund or institution established for charitable purposes which may be approved by the prescribed authority , having regard to the objects of the fund or institution and its importance throughout India or throughout any State or States; or (v) any trust (including any other legal obligation) or institution wholly for public religious purposes or wholly for public religious and charitable purposes, which may be approved by the prescribed authority , having regard to the manner in which the affairs of the trust or institution are administered and supervised for ensuring that the income accruing thereto is properly applied for the objects thereof; ……………. Provided also that the income of a trust or institution referred to in sub- clause (iv) or sub-clause (v) shall be included in its total income of the previous year if the provisions of the first proviso to clause (15) of section 2 become applicable to such trust or institution in the said previous year, whether or not any approval granted or notification issued in respect of such trust or institution has been withdrawn or rescinded;”
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A corresponding amendment has also been brought to section
143(3) of the Act inserted by the Finance Act, 2012, w.r.e.f. 1-4-
2009 which deals with the assessment, adding third proviso thereto:
“Assessment : 143. (1)…………… (3) On the day specified in the notice,— …………….. Provided also that notwithstanding anything contained in the first and the second proviso, no effect shall be given by the Assessing Officer to the provisions of clause (23C) of section 10 in the case of a trust or institution for a previous year, if the provisions of the first proviso to clause (15) of section 2 become applicable in the case of such person in such previous year, whether or not the approval granted to such trust or institution or notification issued in respect of such trust or institution has been withdrawn or rescinded.”
Therefore, with the introduction of second proviso to section
2(15) there is a paradigm shift from the earlier position. Though,
some of the decisions of the Delhi High Court as referred to above
and that of the Pb. & Hry. High Court in the case of The Tribune
Trust (supra) have been delivered subsequent to the introduction of
the second proviso to section 2(15) of the Act, however in none of
the above referred to decisions there is any discussion about the
effect of the introduction of second proviso to section 2(15) of the
act and subsequent amendments thereto, amendments brought in
section 10(23C), section 13 and section 143 of the Act. Though the
courts of law have interpreted the first proviso to section 2(15)
taking not consideration the hardships faced by the institutions
genuinely involved in carrying out the charitable activities and
thereby did not go by the literal meaning of the words of the
provisions and interpreted the provision to mitigate the hardship to
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such institutes and to bring rational to the definition of charitable
purposes and thereby holding that the crucial words “ in the nature
of trade, commerce or business” find mentioned in the second
proviso have the same meaning as was ascribed to the words “ not
for making profits’ as were there in the originally introduced
provisions of section 2(15) in the 1961 Act. However, in our view,
that was perhaps never the intention of the parliament to restore the
position to that was operative or as interpreted by the courts of law
from the year 1961 to the year1983. That is why immediately in the
next financial year vide Finance Act 2010 with retrospective effect
from 1.4.2009, the date with effect from which the first proviso to
section 2(15) was introduced, the second proviso was brought in
with the sole purpose of diluting the rigours of the first proviso and
to mitigate the hardship created to the institutes genuinely carrying
out the object of general public utility. Since with the introduction
of second proviso, the rigour of the first proviso was diluted to
ensure appropriate balance being drawn between the object of
preventing business activity in the garb of charity and at the same
time protecting the activities undertaken by the genuine
organization, hence the interpretation given by the courts taking
into consideration the hardship caused by the first proviso , in our
view, can not be applied as such at this stage, but the same is
required to be looked into in the light of the second proviso and the
amendments brought in other related sections also, as discussed
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above. In our view, it will not be proper to just ignore the second
proviso brought in by the parliament on the statute by following the
interpretation given by the courts of the first proviso which was to
mitigate the hardship created by the first proviso to the institutions
genuinely carrying on the activity of general public utility. Since
the interpretation adopted by the courts was not the literal
interpretation of the proviso, but there was departure from the
literal meaning because of the hardships which may be faced by the
trusts carrying genuine charitable activities in giving literal and
plain meaning to first proviso, hence under the circumstances, when
the Parliament itself has introduced the second proviso to remove
the rigour of the first proviso and to mitigate the hardships created
by the first proviso, hence the interpretation of the section 2(15) in
the changed scenario is to be given by taking into consideration the
section in its entirety and also in the light of consequential
amendments carried out in sections 10(23C), 13, and 143 of the Act
and thereby making the newly inserted second proviso and
amendments thereto and other amended section meaningful and
workable so as to achieve and serve the intended purposes for which
they have been introduced by the legislature in the statute.
It is to be noted that the section 2(15) as it stood post
insertion of the first proviso w.e.f.1.4.2009, the charitable purposes
included relief to the poor, education, medical relief, preservation
of environment and preservation of monuments or places or objects
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of artistic or historic interest and advancement of any other object
of general public utility. The first proviso does not control or
restrict the definition of ‘charitable purposes’ in respect of trust
carrying out the activity such as relief to poor, education, medical
relief, preservation of monuments etc. as specifically mentioned.
However section 11(4A) do put restriction on business activity of
such institutions and provides that the same should be incidental to
their main objects. Subsection 4A of section 11 neither makes
inoperative or redundant the provisions of section 2(15) nor of
subsection 4 of section 11. On the other hand the provisos to
section 2(15) only put restrictions on the benefits available to the
trusts carrying on the advancement of any other object of general
public utility which also involves the incidental activity in the
nature of trade, commerce or business. Newly inserted proviso to
section 10(23C) also controls or restricts the benefit available to
the institutions claiming benefit thereunder, however none of the
provisions, in our view, in any manner, makes the other section
inoperative, otiose or redundant. On the other hand, in our view,
adopting the interpretation as given by the courts to the first
proviso to section 2(15) bereft of second proviso and ignoring
section 13(8) of the Act and other related amendments brought into
section 10(23C) and section 143(3) of the Act with retrospective
effect from 1.4.2009, would make these provisions redundant,
otiose and inoperative.
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It is pertinent to point here that the hon’ble supreme court in
the case of “Thanthi Trust” (supra) while interpreting the relevant
provisions as they stood for the period from AY 1984-85 to AY
1991-92, denied the benefits of exemption to the assessee trust
applying and adopting the literal interpretation of the more
stringent provisions of section 11(4A) of the act as were there in
the statute for the aforesaid period. Though, the provisions of
Sub-section (4) of section 11 remained on the statute book which
defines the words 'property held under trust' for the purposes of
section 11 to include ‘a business held under trust’, yet, the supreme
court observed that Sub-section (4A) restricts the benefit under
section 11 so that it is not available for income derived from
business unless the business is carried on by a trust only for public
religious purposes and it is of printing and publishing books or any
other notified kind. The court held that the newspaper business that
was carried on by the trust did not fall within sub-section (4A).
This finding of the Hon’ble Supreme Court is in departure from the
earlier interpretation made by it in the case of “Surat Art silk Cloth
Manufactures Association”(supra) wherein it was held that the
literal and plain meaning of the provisions of section 2(15) in
context of the words “not for making profit” would render the
provisions of section 11 (4) wholly superfluous and meaningless,
despite the fact that these words barring the activity of the making
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of profit were applicable only in respect of institutions carrying on
the activity in respect of advancement of other objects of public
utility, whereas, the provisions of section 11(4) still holding good
for the institutions carrying in the activity in respect of first three
limbs i.e. relief to poor, education and medical relief. However in
the subsequent decison in the case of Thanthi Trust (supra) , the
supreme court applied the plain literal meaning to the more
stringent provisions of subsection 4A of section 11 as these stood
during the period from AY 1984-85 to AY1991-92 and held that
subsection 4A restricts the benefits under section 11, despite
noticing the existence of the provisions of subsection 4 of section
11 on the statute. The latter decision of the Supreme Court in the
case of Thanthi Trust (supra), in our view, cannot be ignored or
overlooked, while interpreting the newly amended provisions of
section 2(15) of the Act, especially the second proviso, which also
strives to control the benefit available to the institutions involved
in the activity of advancement of any other object of general public
utility and not of the institutions carrying out the activity in
respect of other limbs, to which the provisions of amended
subsection 4A to section 11 continue to apply.
Another crucial phrase brought in the first proviso are
“irrespective of the nature of use or application, or retention, of
income from such activity”. The addition of the above crucial
words obviously is to overcome the decision of the Hon'ble
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Supreme court in the case of Surat Art Silk (supra) as well in the
case of ‘Asstt. CIT v. Thanthi Trust’ (supra) wherein it was held
that if all the surplus or profit from the business activity is
invested or ploughed back into the assets of the assessee or applied
to the main activity, the business will be a business incidental to
the attainment of the objects of the trust. However, this proposition
has been made inapplicable or to say bygone by the Legislature for
the institutions carrying on object of general public utility by way
inserting the crucial words “ irrespective of the nature of use or
application, or retention, of the income from such activity” in
the first proviso to section 2(15) of the Act.
The Government realized need to curb the practice of
business houses to claim exemption on the ground that they were
carrying out of objects of general public utility and thereby making
the benefit of exemption in respect of business carried out by them
in the mask of charity and that is why they introduced first proviso
to section 2(15) thereby excluding the institutions carrying on the
object of the general public utility if their activities involves
carrying on the activity of business trade or commerce or the
services in relation to business trade or commerce for a cess or fee
and even it was also clarified that application or the retention of
such income from such activity will be immaterial.
The High Courts of Delhi and Pb. & Hry. in the cases as referred
to above , however, held that the above provision was a harsh
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provision and the consequences of the same could be like as it were
that the introduction of words “not for making profits” in section
which operated from 1961 to 1983. Even the Courts of law also
following the proposition laid down by the Hon'ble Supreme Court
in the case of ‘Surat Art Silk’ (supra) held that the literal and plain
meaning cannot be given to the said first proviso to section 2(15)
of the Act and therefore, propounded the ‘pre-dominant object
theory’ or ‘the ultimate fulfilment of object theory’ on the same
lines as was given in the case of ‘Surat Art Silk’ (supra) by the
Hon'ble Supreme Court. The Hon'ble Supreme Court in the case of
‘Surat Art Silk’ (supra) in para 11 of the decision has held that in
the ordinary course, the different interpretation should not be done
if the words of the statute taken could not alter the meaning of a
statutory provision where such meaning is plain and unambiguous,
but they can certainly help to fix its meaning in case of doubt or
ambiguity. The Hon'ble Supreme Court thereafter discussed as to
what would be the consequence of the construction of the
provisions contained for on behalf of the Revenue and held that in
such an event no trust or institution whose purpose is promotion of
object to general public utility would be able to carry on any
business, even though such business is held under trust or legal
obligation to apply its income wholly to the charitable purpose
carried on by the trust or institution. However, the Hon'ble
Supreme Court held that in such an event the provisions of section
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11 (4) would be rendered wholly superfluous and meaningless. The
High Courts of Delhi and Pb. & Hry. followed the obove
construction made by the Supreme Court in the caae of ‘Surat Art
Silk Cloth Manufacturers Assn.’ (supra)
However, the Govt. very soon, even before the coming of
above interpretations by the High Courts, realized the consequence
that were likely to arise from the above amendment. Therefore,
taking into consideration the harsh and strict meaning of the first
proviso, it was felt that the plain and literal meaning to the first
proviso would be of great hardship to the trust or institution which
were genuinely carrying out the object of general public utility
and that in the course of which it also generates some incidental or
ancillary income. It was under such circumstances that the second
proviso was brought in the next financial year itself with
retrospective effect so as to make the first proviso to section 2(15)
workable and to remove the ambiguity in the provisions of section
2(15) of the Act. Now with the insertion of second proviso,
meaning and interpretation which is more rational has to be arrived
at.
However, if the interpretation of section (2(15) as per the decision
of the Hon’ble Pb. & Hry. High court in the case of “Tribune
Trust’(supra) and in other decisions of the Delhi High court as
discussed above considering the first proviso to section 2(15) alone
and ignoring the subsequent amendments, is applied to the amended
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section 2(15), then it will not only make the second proviso to
section 2(15) but also section 13(8) and corresponding amendments
to section 10(23C) and section 143(3) redundant, meaningless and
inoperative and the situation will be as if the second proviso was
never inserted or existed in the Act, what to say its subsequent
amendment by way of increasing the limit of Rs. 25 lacs and then
to the 20% of the total receipts and other corresponding
amendments to section 10, section 13, and section 143. In our view,
sticking to the interpretation which was given by the Courts before
introduction or bereft of second proviso to section 2(15) of the Act,
would lead to unintended construction, which will be against the
spirit of statutory provisions. The subsequent amendments, as
discussed above, in our view, definitely have a bearing on the
interpretation which was done by the Courts of law taking into
consideration the harshness of the first proviso to section 2(15)
alone. However, the leverage provided to the institution by way of
insertion of second proviso would prompt us re-think and re-
appraise about the literal interpretation of the section. The
subsequent amendments brought in section 10(23C), section 13 and
section 143 of the act with retrospective effect from 1.4.2009, the
date on which the first proviso comes in effect, also cannot be
ignored or rendered redundant. As it stands, post insertion of
second proviso, allows the institutions to carry on the incidental
activity in the nature of trade, commerce or business while
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pursuing objects of general public utility of the trust or institution,
but restricts the receipts to a specified limit. The said limit perhaps
was made so as to allow only genuine institutions to claim
exemptions who were carrying out the activity of charitable
purposes and their motive is not to earn huge profits.
Now, let us, assume that the interpretation that the income
derived by the Trust from ancillary commercial activity while
carrying out the pre-dominant object of general public utility is
totally exempt as stood canvassed by the Ld. Counsel for the
assessee in the light of the various case laws including the decision
of the Hon'ble Jurisdictional High Court of Punjab & Haryana in
the case of ‘The Tribune Trust’ (supra) . In that event the argument
that can be reasonably put is that the second proviso inserted by
Finance Act 2010 with retrospective effect from 1.4.2009
allowing the carrying out of the business activity up to the
prescribed limit of receipts from such activity would be applicable
in those cases where an institution or trust is carrying out the
activity of advancement of general public utility but at the same
time its object is also to make profits as observed by the hon’ble
Supreme Court in the case of ‘Surat Art Silk Cloth Manufactures
Association’ (supra) in respect of the privy Council decision in the
case of “Trustees of the Tribune” (supra) and then by the Hon’ble
Pb. & Hry. High court in respect of activities carried out by the
Tribune Press Trust in the case of “The Tribune Trust” (supra), in
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that event such institutions would also be eligible to claim
exemption u/s 2(15) subject to the condition that their total receipts
would not exceed the prescribed limit of Rs. 10 lacs or Rs. 25 lacs
or 20% of the total receipts as applicable from time to time. In that
scenario, each and every trust or institution indulged into business
activity involving the providing of some sort of public utility
services will claim exemption if total receipt of such institution
does not exceed the prescribed limit. As held by the Hon’ble
Supreme Court in the case of ‘CIT v. Gujarat Maritime Board’
[2007] 295 ITR 561 /[2008] 166 Taxman 58 (SC), that he
expression ‘any other object of general public utility’ is of the
widest connotation. The expression would prima facie include all
objects which promote the welfare of the general public.
A company or trust involved in the insurance business for
profit will claim that the object, purpose and activity of the
insurance activity is towards the advancement of object of general
public utility as it provides security against unforeseen events to
the insured . An industrialist will also claim exemption on the
ground that by way of establishing industry, it has contributed
towards the advancement of object of general public utility as with
the establishment of industry, it generated employment and that it
has also contributed towards infrastructure development and
boosting the economy of the country. A manufacturer of medicine
will also so claim that medicines are made by him with the object
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of providing people of country the essential and useful drugs for
fighting dreaded disease and sickness and even lifesaving drugs
and also contributing towards improvement of health of the people
for advancement of object of general public utility. A road
contractor will also claim that the road maintained or constructed
by it, though with profit motive are for the advancement of object
of general public utility as it ease mode of transport not only of the
people but also of the goods and other material. Even a general
merchant, opening shop in a rural area or village may claim that
though it is doing the retail business with the motive of profit,
however, it is also doing the activity of general public unity by
way of making available different goods on day to day need and
necessity of the people of the village who otherwise would have to
travel large distances to get the same. The taxation limits fixed by
the Department will fail and the taxation in respect of such persons
doing different business will start only if their receipts during the
year would cross the limit as prescribed from time to time.
Even big institutions or companies will divide themselves
into subsidiaries or smaller units ensuring that income of each of
such taxable unit or entity should not increase the prescribed
monetary limit of the receipts. Such an interpretation of the second
proviso to section 2(15) would lead to absolute absurdity,
confusion and unwanted and uncalled for consequences. Even it
will be also an issue in dispute as which of the activity/activities of
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an assessee is/are towards the advancement of object of General
Public Utility though may be with profit making object also and
which of these is/are of a pure commercial venture. Thus. in our
view, the different but related provisos of the Act are to be read in
harmony with each other. The interpretation as canvassed for the
period prior to the introduction of the second proviso, if adopted
now, will render the newly inserted amended provisions of the Act
as infructuous and redundant.
The issue relating to the effect of insertion of first and second
provisos to section 2(15) of the Act vide Finance Acts 2008 and
2009 respectively came into consideration in the case of ‘Jammu
Development Authority vs. CIT’ (supra) wherein, it has been held
that if activities of any Institution/Trust/Society under the fourth
limb i.e. `the advancement of any other object of general public
utility’ are in the nature of trade, commerce or business for cess or
fee and the receipts therefrom crosses the prescribed limit then
they are not eligible to continue with registration u/s 12A and the
same is required to be withdrawn. However, subsequently the
impact of these provisions was also considered by the Coordinate
Mumbai Benches of the Tribunal in the cases of “Ghatkopar Jolly
Gymkhana v. Director of Income-tax (E)” reported in [2013] 40
taxmann.com 207 (Mumbai - Trib.) and “Cotton Textiles Exports
Promotion Council v. Director of Income-tax (Exemption), Mumbai
reported in [2014] 44 taxmann.com 168 [Judicial Member of this
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Bench being party to the said decisions also) wherein it has been
held that the first proviso to section 2(15) is a very rigorous
provision which excludes the institution or trust from the definition
of charitable trust, if such trust carries activities in the nature of
trade, commerce or business….irrespective of the nature of use or
application or retention of the income from such activity. That,
however, by the insertion of the second proviso w.e.f. 01.04.2009
the rigour of the first proviso has been diluted and that the first
proviso will not apply even if the trust carrying on business
activities in the course of its dominant activities for the purpose of
advancement of any other objects of general public utility and the
gross receipts from such activities is Rs.10.00 lacs or less in the
previous year. However where the gross receipts of a charitable
institution, from its business activities exceeds limit of Rs. 10
lakhs, assessee will not be entitled for exemption or other
admissible tax benefits for that relevant year but it does not result
in cancellation of its registration as charitable institution. The
above view, now has been affirmed by the Hon’ble Bombay High
Court in the case of Director of Income-tax (Exemption) v. North
Indian Association [2017] 79 taxmann.com 410 (Bombay) wherein
the Hon’ble High court while further relying upon its another
decision in the case of “DIT (Exemption) v. Khar Gymkhana[2016]
385 ITR 162/240 Taxman 407/70 taxmann.com 181 (Bom.) has duly
taken note of the provisions of section 13(8) of the Act inserted
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vide Finance Act 2012 w.r.e.f. 1.4.2009 as well as the CBDT
Circular No.21 of 2016 and though, held that merely because in
one year income of assessee-trust exceeded prescribed limit
provided under second proviso to section 2(15), that by itself, could
not warrant cancellation of registration of trust, however, where
the receipts are hit by the proviso to Section 2(15) of the Act, the
benefit of exemption to its income for the previous year relevant to
the subject assessment year will not be available. However it has
been further held that if this happens on continuous / regular basis,
it could justify further probe / inquiry before concluding that the
trust is not genuine.
Though in the above referred to decisions of Mumbai Bench of
the Tribunal and that of the Hon’ble Bombay High Court (supra),
the question was whether the registration granted u/s 12 to the
charitable institution can be cancelled if the monetary receipts from
its business activity crosses the limit prescribed as per the second
proviso to section 2(15) of the Income Tax Act and it was held that
the registration on this ground granted to a charitable institution
cannot be cancelled. However, it is to be noted that it was also held
that in the previous year during which such income from business
activity of the trust or institution crosses the prescribed limit,
benefit of exemption u/s 11 for that year will not be available to
such trust or institution. It is, therefore, to be noted that not only
second proviso to section 2(15) of the Income Tax Act but also
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insertion of corresponding provisions of section 13(8) of the Act
have been duly noted and their effect discussed. What we want to
convey is that existence and effect of the amended provisions of
sections 2(15), section 13, section 23 and section 143 of the Act
cannot be just ignored or negated rather the same are to be read
along with other relating provisions of the Act such as sections
11(4) and 11 (4A) of the Act and a harmonious construction is to be
arrived at.
We may point out here that in the decision of the Coordinate
Amritsar Bench of the Tribunal in the case of ‘Hoshiarpur
Improvement Trust (supra)’, the issue relating to the effect and
consequences of insertion of the second proviso w.e.f. 1.4.2009 did
not come for discussion , however, the Tribunal did take the note
amendment to section 2(15) by Finance Act 2015 w.e.f. 2016 and
held that the new proviso, with effect from 1st April 2016, seeks to
exclude, from the scope of section 2(15), the situations in which
even in the course of pursuing advancement of any objects of
general public utility when any activities in the nature of trade,
commerce or business etc is undertaken in the course of actual
carrying out of such advancement of any other object of general
public utility, unless, the activity level remains within the threshold
limit i.e. receipts from such activities are less than twenty percent
of total receipts of that year. The relevant part of the order is
reproduced as under:
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“19. This substitution of proviso to Section 2(15), in our considered view, may be viewed as representing a paradigm shift in the scope of the exclusion clause.
The paradigm shift is this. So far as the scope of earlier provisos is concerned, the CBDT itself has, dealing with an assessee pursing “the advancement of any object of general pubic utility”, observed that “If such assessee is engaged in any activity in the nature of trade, commerce or business or renders any service in connection to trade, commerce or business, it would not be entitled to claim that its object is for charitable purposes” because “In such a case, the object of ‘general public utility’ will only be a mask or a device to hide the true purpose which is trade, commerce, or business or rendering of any service in relation to trade, commerce or business.” The advancement of any objects of general public utility and engagement in trade, commerce and business etc. were thus seen as mutually exclusive in the sense that either the assessee was pursuing the objects of general public utility or pursuing trade, commerce or business etc. in the garb of pursing the objects of general public utility. As the CBDT circular itself demonstrates, there could not have been any situation in which the assessee was pursing the objects of general public utility as also engaged in trade, commerce of business etc. In the new proviso, however, even when the assessee is engaged in the activities in the nature of trade, commerce or business etc. and “such activity is undertaken in the course of actual carrying out of such advancement of any other object of general public utility” it is excluded from the scope of charitable purposes only when “the aggregate receipts from such activity or activities during the previous year, do not exceed twenty per cent of the total receipts, of the trust or institution undertaking such activity or activities, of that previous year”. In other words, even when the activities are in the course of advancement of any other object of general public utility, but in the nature of trade, commerce or business etc, the proviso seeks to exclude it only when the threshold level of activity is not satisfied. Whether such a statutory provision stands the legal scrutiny or not is another aspect of the matter, and that is none of our concern at present anyway, it is beyond doubt that the new proviso, with effect from 1st April 2016, seeks to exclude, from the scope of section 2(15), the situations in which even in the course of pursuing advancement of any objects of general public utility when any activities in the nature of trade, commerce or business etc “is undertaken in the course of actual carrying out of such advancement of any other object of general public utility”, unless, of course, the activity level remains within the threshold limit i.e. receipts from such activities are less than twenty percent of total receipts of that year.”
We may point out here that the Amritsar Bench of the Tribunal
has held that substitution of proviso to Section 2(15), by Finance
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Act 2015 has brought a paradigm shift in the scope of the exclusion
clause i.e first proviso to section 2(15) of the Act. However the
paradigm shift brought by the insertion of second proviso to section
2(15) did not come for discussion before the Coordinate Bench of
the Tribunal. In the first proviso, the words ‘if it involves’ before
the words ‘the carrying on of any activity in the nature of trade,
commerce or business….’ is crucial and important which means
that it is the carrying on of any other object of general public utility
which may involve the activity in the nature of trade, commerce or
business. The activity in the nature of trade, commerce or business
should not be separately or distinctly carried out but it should be a
part of the main activity of the institution.
In our view, by way of above amendment by Finance Act 2015,
the Parliament just has reiterated its earlier intention and purpose,
as was for introducing the amendments to section 2(15) w.e.f.
1.4.2009, by way of again introducing the clause (a) to the proviso,
wherein, it has been mentioned that the first proviso is applicable if
the receipts are generated in actually carrying out the object of the
general public utility being incidental or ancillary to the main
object. We do not find that the above words introduced by the
Finance Act 2015 are clarificatory or explanatory, rather the same
,in our view, is reiteration of the wording which already was there
in the first proviso to section 2(15) of the Act. Rather the scope
otherwise, of the provisio has also been curtailed by bringing in the
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more restrictive words “in the course of actual carrying out of such
advancement of any other object of general public utility” in clause
(a) to the proviso to section 2(15) of the act. These words are
crucial in the light of differentiation drawn between the phrases “ in
the course of the actual carrying out of their primary purpose” and
the phrase "the business is incidental to the attainment of the
objectives of the trust.” by the Supreme Court in the case of “CIT vs
Thanthi Trust” (supra).
Now coming to the point as to when the provisions of section
2(15) are read along with other related or corresponding provisions
in plain English grammar meaning, whether they would render each
or any of them redundant or inoperative, if it is so, which provision
is to be read and in what manner to arrive at the correct
interpretation? The relevant arguments and decisions that can be
referred in this respect to are enumerated as under:
(i) The decision of Hon'ble Delhi High Court in the case of ‘India Trade Promotion Organization v. DGIT (Exemptions) (supra) wherein the hon’ble high court has held that if the literal interpretation is given to the proviso to Section 2(15) of the Act, then there would be no institution whatsoever which would qualify for the exemption under Section 10(23C)(iv) of the said Act and the said provision would be rendered redundant. That in order to save the Constitutional validity of the proviso, the same would have to be read down and interpreted in the context of Section 10(23C)(iv).
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(ii) That section 11(4) recognizes that “property held under trust” includes a business undertaking and, therefore, the business activity is not excluded from the charitable activity or charitable purpose and that the literal and plain meaning to first proviso to section 2(15) of the Act will make this section redundant. Reference has been made to the decision of the Hon’ble Supreme Court in Surat Art Silk case wherein the Hon’ble Supreme court has observed that Section 11(4) , would be rendered wholly superfluous and meaningless, after the insertion of clause (bb) in section 13(1) with effect from 1-4-1977.
(iii) Then there is section 13(8) of the Income Tax Act, which states that nothing contained in section 11 or section 12 shall operate so as to exclude any income from the total income if the provisions of first proviso to clause (15) of section 2 become applicable in the case of such person. This section if read isolation or in conjunction with the first proviso to section 2(15) of the Act, will make the provisions of section 10 (23C) (iv) and section 11(4) of the Income Tax Act inoperative, meaningless or redundant.
To address all the above noted points of arguments and to
properly analyse the relevant provisions on the statute and their
interse relation or effect ,we deem it proper to reproduce, even at
the cost of repetition, the relevant provisions here under:
“ Definitions. Section 2. In this Act, unless the context otherwise requires, …………….. (15) "charitable purpose" includes relief of the poor, education, yoga, medical relief, preservation of environment (including watersheds, forests and wildlife) and preservation of monuments or places or objects of artistic
ITA No. 1382/Chd/2016- Chandigarh Lawn Tennis Association, Chandigarh
or historic interest, and the advancement of any other object of general public utility: Provided that the advancement of any other object of general public utility shall not be a charitable purpose, if it involves the carrying on of any activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business, for a cess or fee or any other consideration, irrespective of the nature of use or application, or retention, of the income from such activity, unless— (i) such activity is undertaken in the course of actual carrying out of such advancement of any other object of general public utility; and (ii) the aggregate receipts from such activity or activities during the previous year, do not exceed twenty per cent of the total receipts, of the trust or institution undertaking such activity or activities, of that previous year; (24) "income" includes— (i) ……..; xxxxx (iia) voluntary contributions received by a trust created wholly or partly for charitable or religious purposes or by an institution established wholly or partly for such purposes or by an association or institution referred to in clause (21) or clause (23), or by a fund or trust or institution referred to in sub-clause (iv) or sub-clause (v) or by any university or other educational institution referred to in sub-clause (iiiad) or sub-clause (vi) or by any hospital or other institution referred to in sub-clause (iiiae) or sub-clause (via) of clause (23C) of section 10 or by an electoral trust. Xxxxxxx xxxxxxx Incomes not included in total income. Section 10. In computing the total income of a previous year of any person, any income falling within any of the following clauses shall not be included— xxxxxxxxx (23C) any income received by any person on behalf of— xxxxxxxxx (iv) any other fund or institution established for charitable purposes which may be approved by the prescribed authority , having regard to the objects of the fund or institution and its importance throughout India or throughout any State or States; or (v) any trust (including any other legal obligation) or institution wholly for public religious purposes or wholly for public religious and charitable purposes, which may be approved by the prescribed authority , having regard to the manner in which the affairs of the trust or institution are
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administered and supervised for ensuring that the income accruing thereto is properly applied for the objects thereof; xxxxxxxx Provided also that the income of a trust or institution referred to in sub- clause (iv) or sub-clause (v) shall be included in its total income of the previous year if the provisions of the first proviso to clause (15) of section 2 become applicable to such trust or institution in the said previous year, whether or not any approval granted or notification issued in respect of such trust or institution has been withdrawn or rescinded;” Xxxxxx xxxxxx
Income From Property Held For Charitable Or Religious Purposes. Section 11. (1) Subject to the provisions of section 60 to 63, the following income shall not be included in the total income of the previous year of the person in receipt of the income— xxxx (4) For the purposes of this section "property held under trust" includes a business undertaking so held, and where a claim is made that the income of any such undertaking shall not be included in the total income of the persons in receipt thereof, the Assessing Officer shall have power to determine the income of such undertaking in accordance with the provisions of this Act relating to assessment; and where any income so determined is in excess of the income as shown in the accounts of the undertaking, such excess shall be deemed to be applied to purposes other than charitable or religious purposes. (4A) Sub-section (1) or sub-section (2) or sub-section (3) or sub-section (3A) shall not apply in relation to any income of a trust or an institution, being profits and gains of business, unless the business is incidental to the attainment of the objectives of the trust or, as the case may be, institution, and separate books of account are maintained by such trust or institution in respect of such business. Xxxxxx xxxxxxx Section 13. …………. (8) Nothing contained in section 11 or section 12 shall operate so as to exclude any income from the total income of the previous year of the person in receipt thereof if the provisions of the first proviso to clause (15) of section 2 become applicable in the case of such person in the said previous year. Xxxxxxxx
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xxxxxxxx “ASSESSMENT” : 143. (1)…………… (3) On the day specified in the notice,— xxxxxxxx Provided also that notwithstanding anything contained in the first and the second proviso, no effect shall be given by the Assessing Officer to the provisions of clause (23C) of section 10 in the case of a trust or institution for a previous year, if the provisions of the first proviso to clause (15) of section 2 become applicable in the case of such person in such previous year, whether or not the approval granted to such trust or institution or notification issued in respect of such trust or institution has been withdrawn or rescinded.”
The provisions of different sections as enumerated above, in
our view, are to be read to be in harmony with each other so that
each and every section should aid and supplement to the meaning
and construction of other, so as to arrive at the correct interpretation
rather than to read any or each of them in contradiction of each
other making the other provision/s redundant and inoperative
leading to confusion, anomaly and absurdity. Therefore, these
provisions are to be read as each provision of the section
supplement to other and not supplant the other and so that a
reasonable construction may be arrived at and applied as may be
intended by the Parliament while introducing the above provisions
in the Statute.
In our view, when we read the aforesaid relevant provisions
of the different but related sections in harmony to each other, a
valid and proper construction can be arrived giving a meaning
interpretation .
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69 (1) The introduction of second proviso to section 2(15) of
the Act, as discussed above, has removed the anomalies which have
occurred due to the aforesaid different provisions present in the
statute. The proposition that if any surplus is generated from
business activity which is again ploughed back for the activities of
the trust exemption u/s 11 is to be allowed has been done away with
by the crucial words “irrespective of the nature of use or application,
or retention, of the income from such activity” introduced in the first
proviso of section 2(15) of the Act.
69 (2). Now, coming to the provisions of section 10(23C)(iv) of
the Act, the income received by any person, on behalf of any fund
or institution established for charitable purposes which may be
approved by the prescribed authority, having regard to the objects of
the fund or institution and its importance throughout India or
throughout any State or States exempt from taxation. Now for
approval to claim exemption u/s 10(23C)(iv), the institute for the
fund must fall in the definition of ‘charitable purposes’ which
includes activity under all or any limb as discussed above and can
not be said to be applicable solely for activity of General Public
Utility. So far institutes established for the objects of relief to the
poor, education yoga, medical relief, preservation of environment
and preservation of monuments or places or objects of artistic or
historic interest, their income may be claimed as exempt u/s
10(23C) (iv) if they otherwise fulfill the conditions as enumerated
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u/s 10(23C)(iv) of the Act. So far as the institute carrying on the
advancement of any other object of general public utility, as noted
above, their commercial income has also not been excluded in the
light of second provision to section 2(15) of the Act but subject to
the limit prescribed of the quantum of receipts. In respect of the
question that if an institute or a trust will not be engaged in the
commercial activity, it will not have any income and where is the
question of claiming exemption is cornered, we may point out here
that the income of a charitable institution cannot be only from
commercial activity, but there are other modes of income also as per
the provisions of section 2(24)(iia) of the Act. Voluntary
contributions received by the trust created wholly or partly for
charitable or religious purposes and included in the definition of
income apart from voluntary contribution, such charitable trust or
institution may receive grants from other modes or activity which
may not in strict term to be said to be the activities in the nature of
trade, commerce or business. Suppose, a trust or institutions
engaged in the activity of imparting training in sports receives a
nominal registration fee from the trainees. Can it be said to be an
activity in the nature of trade, commerce or business? The answer
will be in negative. Whether a particular activity is in the nature of
trade, commerce or business is to be examined taking into
consideration the nature of activity, the object and purpose of such
activity, the volume of such activity and the nature and volume of
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the receipts and further the application thereof also. Every receipt of
income, in our view, cannot be termed as activity in the nature of
trade, commerce or business.
69(3). Moreover the restriction placed in the first proviso is
only in respect of the institutions or trusts carrying out the activity
for the advancement of any other object of Public Utility, and not in
respect of activity for the other limbs of section 2(15). Hence, it
cannot be said that the first proviso controls, restricts or bars any
institution established for charitable purposes for carrying out the
objects or activities in respect of other limbs and generating
incidental income also therefrom.
69(4). Moreover, the anomaly, if any, has been removed with
the introduction of second proviso to section 2(15) of the Act
wherein the income from incidental or ancillary commercial
activity has also been allowed and included while carrying out the
advancement of object of general public utility also subject to the
limit prescribed of the receipts. The second proviso of the section is
in consonance of the provisions of section 11(4) & (4A) of the
Income Tax Act.
69(5). We may point out here that the provisions of sections
11(4) and 11 (4A) of the Act are general provisions and are
applicable to all the institutions claiming exemption u/s 11 of the
Act carrying out activity for charitable purposes. Definition of the
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‘Charitable purposes’ as provided u/s 2(15) of the Income Tax Act
includes relief to the poor, education yoga, medical relief,
preservation of environment (including watersheds, forests and
wildlife) and preservation of monuments or places or objects of
artistic or historic interest, and the advancement of any other object
of general public utility. Sub section 4A do not bar the carrying on
of business activity , however, puts restriction that such business
should be incidental to the attainment of the objectives of the trust
or institution and separate books of account are maintained. The
restriction put by earlier section 13(1)(bb) and after its omission and
by the subsequently inserted section 11(4A) have been well
considered, interpreted and applied by the Hon’ble Supreme Court
in the case of “Thanthi Trust” (supra) and thus it can not be said to
be said there is any anomaly created by the above provisions .
69(6). Then there is sub section (8) to section 13 of the Income
Tax Act which states that nothing contained in sections 11 or 12
shall operate so as to exclude any income from total income of the
previous years if the provisions of first proviso to clause (15) of
section 2 becomes applicable. So the construction that any type of
receipt which is incidental or ancillary to the carrying out of the
advancement of objects of general public utility will be considered
as income from charitable purposes if applied, such construction
would not only render the first and second proviso to section 2(15)
as amended from time to time and but also section 13(8) of the
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statute redundant and inoperative defeating the purpose for which
they were brought into statute by Parliament will be defeated. At
the same time, when we read the provisions of section 13(8) in
isolation, it will make the provisions of sections 11 (4) and 11 (4A)
of the Act inoperative for the institution carrying of object of
advancement of general public utility, which also involves the
activity of carrying of business, trade or commerce generating
ancillary or incidental income. However, by the insertion of second
proviso to section 2(15) as amended from time to time, the anomaly,
if any, has been removed.
A harmonious construction of these amended provisions will
lead to the conclusion that each of the provisions are in aid to and
supplement each other. In our view, a reasonable and meaningful
construction that may be arrived now is that as per the provisions
of section 2(15) of the Act, ‘charitable purposes’ on the first part
will include relief to the poor, education, medical relief,
preservation of environment and preservation of monuments or
places or objects of artistic or historic interest and advancement of
any other object of general public utility and further as per the
provisions of section 11(4) of the Act, such trust or institution can
hold business assets also. However, as per the provisions of section
(4A), such business for profit should be incidental to the attainment
of the objectives of such trust or institution and separate books of
account are to be maintained. Further, to claim exemption u/s
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10(23C)(iv) of the Act, the fund or institutes must be established for
charitable purpose and is approved / registered by the prescribed
authority having regard to their objects and importance throughout
India and otherwise fulfill the other conditions as enumerated u/s
10(23C) of the Income Tax Act. Here we may point out the
restriction put by section 11(4A) or section 13(8) do not in any
manner comes into play or otherwise restrict the business activity of
the fund or institutions established for charitable purposes and
claiming exemption u/s 10( 23C)(iv) of the Act. But the restriction
inter alia created by the provisos to section 2(15) read with the newly inserted 18th proviso to section 10( 23C) (as reproduced
above) and newly inserted proviso to section 143 (as inserted by
Finance Act 2012 w.e.f. 1.4.2009) will apply that too only to the
Institutions carrying on the activity of advancement of any other
object of General public utility and not to the institutions
established under other limbs of the definition of “Charitable
Purposes”. Thus the provisos to section 2(15) or to section 10(23C)
or to section 143 do not make the provisions of section 10(23C)(iv)
redundant or inoperative, but only put some restrictions on the
institutions carrying on the object of General Public Utility in
respect of their business activity.
As per the second proviso to section 2(15) of the Act, income
from incidental business activity should not cross the limit as
prescribed from time to time as per the amendments carried out in
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second proviso of the Income tax act and the provisions of sections
11(4) & (4A) and section 10(23C)(iv) can be applied accordingly
and such a construction will not make any provision contrary or in
contradiction to the other, rather will supplement each other. Even
the section 13(8) of the Act can also be meaningfully applied which
will be required to read in the light of the second proviso to section
2(15) of the Act and thus harmonious construction of the related
provisions will give a meaningful and workable interpretation as
intended by the Parliament.
Hence, in the light of discussion made above of the relevant
provisions of the Act, the interpretation that may be arrived is that
for the trusts or the institutions carrying on the activity included in
the first part of definition of ‘charitable purposes’ as defined u/s
2(15) of the Act viz. for the objects of relief to the poor, education
yoga, medical relief, preservation of environment and preservation
of monuments or places or objects of artistic or historic interest and
are also carrying on the business activity which is incidental to the
attainment of objective of such trust or institution [as provided u/s
11(4A)], they are entitled to claim exemption of their income
including the income from incidental business activity under section
11 of the Act subject to compliance or fulfilment of the otherwise
required conditions including inter alia registration of such trust or
institution u/s 12 A of the Act or maintaining of separate books of
account regarding business activity as per the provisions of section
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11(4A) of the Act etc. and subject to the applicability of the
relevant provisions of section 11, 12 and 13 of the Act, irrespective
of the quantum of income earned from such incidental business
activity. In other words, there is no cap or limit prescribed for such
receipts to be eligible for claiming exemption from taxation u/s 11
of the Act.
As discussed in the paras above of this order, any income received
by a person on behalf of any fund or institutions established for
charitable purposes as included in the first part of the definition as
defined u/s 2(15) of the Act i.e. for the objects of relief to the poor,
education yoga, medical relief, preservation of environment and
preservation of monuments or places or objects of artistic or historic
interest can be claimed as exempt from levy of tax u/s 10(23C)(iv)
of the Act irrespective of the quantum of such income i.e without
any cap or limit on such income subject to fulfilling the other
conditions as prescribed therein such as approval of such fund or
institution by the prescribed authority, having regard to the objects
of the fund or institution and its importance throughout India or
throughout any State or States.
However, the trusts or institutions carrying on such activity or
established to carry on such activity, as the case may be, that is
falling in the last limb of the definition of charitable purposes as
defined u/s 2(15) of the Act i.e. for the advancement of any other
object of public utility which also involves the carrying of
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incidental activity in the nature of trade commerce or business or
any activity of rendering any service in relation to any trade,
commerce or business for a cess or fee, the restrictions inter alia put
by the provisos to section 2(15) such as that the incidental
business activity should be in the course of actual carrying out of
the main object and the receipts therefrom should not cross the
limit or cap (as applicable from time to time) and further that it will
be immaterial that the funds or the profits from business activity are
ploughed back to sub serve the main or the predominant object of
the trust. In this respect the words “irrespective of the nature of use
or application, or retention, of the income from such activity”
finding place in the first proviso to section 2(15) of the Act would
come into play. However, the other restrictions as provided under
section 11(4A), 13(8) and 143(3) as discussed above, would
accordingly apply for claiming exemption u/s 11 of the Act;
However, the restriction inter alia put under the provisos to section
10(23C)(iv) and section 143(3) along with restrictions put by the
provisos to section 2(15), as discussed above, will apply for
claiming exemption u/s10(23) (iv). These restriction put under the
provisos to section 2(15) are applicable only to the activity of
advancement of any other object of general public utility.
However, even after holding that the harmonious reading of
the related provisions of the Act, as discussed above, will lead to
the conclusion that it cannot be said that any of the related section
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is in contradiction to the other or in any manner making inoperative
or redundant the other, we still are of the view, that there remains
still an anomaly which has not been addressed by the Parliament till
date by way of introduction of the suitable provision. Suppose the
income from incidental and ancillary activity of an institution in the
course of carrying out of activity for advancement of object of
general public utility crosses the limit, as prescribed for different
assessment years as per the provisos to section 2(15), can it be said
that such an institution will not be an institution carrying out the
objects for ‘charitable purposes’. For example for the assessment
year 2009-10, the total receipts of an institution from the ancillary
activity in the shape of trade and commerce or business are Rs. 9.95
lacs, the institution will be treated as an institution for charitable
purposes and its entire income exempt from taxation either u/s 11 or
10(23C) as the case may be, whereas, if there is a slight increase of
Rs. six thousands only in such business income, say it crosses the
limit of Rs. 10 lacs, i.e say at Rs. 10.01 lacs, then such trust or
institution will be out of purview of the ‘charitable purpose’ and its
entire income will be included in the total income, including the
receipts which are not directly connected with the carrying of the
incidental activity in the nature of trade, commerce or business.
Such an anomaly will create utter confusion and will operate as
restriction on the institution genuinely involved in carrying out the
objects of general public utility. The Institutes which are rather
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carrying of the activity of general public utility on large scale will
not be entitled to claim the benefit under the provisions of sections
11 & 12 of the Income Tax Act. Even the non-business income in
the form of voluntary contribution and donations or directly relating
to charitable activities (as discussed in para 61 (2) above) and not
relating to the activity in the nature of trade, commerce or business
would also become taxable. The moment the receipts from the
commercial activity crosses the stipulated limit, the provisions of
section 13(8) of the Act and provisos to section 10(23C) and section
143 , as the case may be, will come into play. It will mean that the
entire income of an institution carrying on the object of general
public utility on a small scale involving incidental commercial
activity will be treated as exempt as it will not cross the prescribed
limit of Rs. 10 lacs or Rs. 25 lacs or 20% of the total receipt as
applicable for the different assessment years, however, the income
of an institution carrying on the activity of general public utility on
large scale will become taxable if the receipts from the incidental
commercial activity crosses the limits as prescribed for different
assessment years as noted above. Though by way of amendment to
second proviso vide Finance Act 2015 w.e.f. 1.4.2016, the
government has tried to remove the anomaly by substituting fixed
limit of receipts of Rs. 25 lacs with the 20% of the total receipts,
however, the question is that the receipts from the incidental or
ancillary commercial activity cannot, in our view, be controlled or
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restricted by way of measuring or controlling the activities with
golden scale or to say to check the same on day to day basis and the
stop carrying out the incidental activity, which otherwise may be
necessary to achieve the main object of general public utility, the
moment the receipts touch the threshold. The Hon’ble Supreme
Court in the case of “ Surat Art Silk Cloth Manf. Assn.” (supra) has
held, “It would indeed be difficult for persons in charge of a trust or
institution to so carry on the activity that the expenditure balances
the income and there is no resulting profit. That would not only be
difficult of practical realization but would also reflect unsound
principle of management.” The same analogy can well be applied in
the facts and circumstances as discussed above.
To remove this anomaly, proper construction will be that the
institution carrying out the object of advancement of general public
utility which involve the incidental or ancillary activity in the
nature of trade, commerce or business and generating income
therefrom, the income to such an extent as is limited by the second
proviso to section 2(15) of the Income Tax Act should be taken as
exempt being treated as income from charitable purposes as per the
relevant provisions of sections 2(15), section 10, section 11,
section 12 or section 13, as the case may be and wherever applied.
The other income which is not from the commercial activity, such
as, by way of voluntary donations, contributions, grants or nominal
registration fee etc. or otherwise will remain to be from charitable
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purposes and eligible for exemption under the relevant provisions.
However, the income from activity in the nature of trade,
commerce or business over the above limit prescribed from time to
time as per the second proviso to section 2(15) of the Income Tax
Act, should be treated as income from the business activity and
liable to be included in the total income. In this way, the receipts of
incidental business income while carrying out the objects of
advancement of general public utility, when these cross the limit
prescribed u/s 2(15) of the Act, will not render such institute as
non-charitable bringing into taxation its entire income including
non-business income or even income from charitable activity itself
including voluntary contributions and donations. Only the business
income which will be over and above the prescribed limit will be
subjected to taxation. The above interpretation of the different
provisions of the Act will lead to a harmonious construction of the
provisions removing hardship created by the first and second
proviso to section 2(15) read with section 13(8) of the Act and will
also strive to achieve the objects and purpose of sections 11(4) and
11 (4A), 10(23C)(iv) as well as the provisions of section 2(15)
along with its proviso and section 13(8) of the Income Tax Act.
Any other interpretation or conclusion, in our view, would not be
towards the achievement of the object or purpose for their insertion
or introduction in the statute and even will lead to hardship to the
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institutions genuinely carrying on the activities of advancement of
general public utility.
After holding as above, now, let us revert to the facts of the
present case. The assessee herein, inter alia, has taken a plea that
that the assessee- association is involved in imparting training to
boys and girls in Tennis and is running a tennis academy having
coaches and instructor therefore the assessee trust can be said to be
engaged in imparting education and thus, is covered in the first limb
of section 2(15) and not under the last or residual limb. The Ld.
Counsel, in this respect, has relied upon the decision of the Delhi
Bench of the Tribunal in the case of ‘Pitanjali Yog Peeth Nyas Vs
ADIT’ (Exemptions) (supra) wherein it has been held that imparting
training in Yoga amounts to educational activity.
We are not convinced by the above argument of the ld.
Counsel for the assessee. ‘Education’ as defined under section 2(15)
of the Act, in our view, can not be ascribed to such an extended
meaning. It does not appear the intention of the legislature to
include ‘training in sports’ in definition and scope of term
‘Education’ for the purpose of section 2(15) of the Act. Not only in
general parlance but also in specific terms, the sports activity is
considered as a separate and distinct activity as compared to
‘education or studies’. The term training implies the act of
imparting a special skill or behavior to a person, but it is not exactly
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same as education, which is undertaken for the purpose of furthering
of knowledge and developing of intellect through a process of
systematic learning something in an institution that develops a sense
of judgment and reasoning. As discussed above in the opening paras
of this order, Hon’ble supreme court in the case of ‘Sole Trustee,
Lok Shikshana Trust vs. CIT’(supra) while further relying on the
decision of the Judicial Committee in the case of ‘In re Trustees of
the Tribune’ [1939] 7 ITR 415 (PC) has held that the word
'education' has not been used in that wide and extended sense so far
as the provisions of section 2(15) of the Act are concerned. His
Lordship Justice H.R. Khanna, writing the majority view (for
himself and Justice A.C. Gupta) observed as under :
“The sense in which the word "education" has been used in section 2(15) in the systematic instruction, schooling or training given to the young is preparation for the work of life. It also connotes the whole course of scholastic instruction which a person has received. The word "education" has not been used in that wide and extended sense, according to which every acquisition of further knowledge constitutes education. According to this wide and extended sense, travelling is education, because as a result of travelling you acquire fresh knowledge. Likewise, if you read newspapers and magazines, see pictures, visit art galleries, museums and zoos, you thereby add to your knowledge. Again, when you grow up and have dealings with other people, some of whom are not straight, you learn by experience and thus add to your knowledge of the ways of the world. If you are not careful, your wallet is liable to be stolen or you are liable to be cheated by some unscrupulous person. The thief who removes your wallet and the swindler who cheats you teach you a lesson and in the process make you wiser though poorer. If you visit a night club, you get acquainted with and add to your knowledge about some of the not much revealed realities and mysteries of life. All this in a way is education in the great school of life. But that is not the sense in which the word "education" is used in clause (15) of section 2. What education connotes in that clause is the process of training and
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developing the knowledge, skill, mind and character of students by normal schooling. The question as to whether a trust the object of which is to supply the people with an organ of educated public opinion should be considered to be one for education or for any other object of public utility was considered by the Judicial Committee in the case of In re Trustees of the Tribune [1939] 7 ITR 415 (PC). In that case a person who owned a press and a newspaper created a trust by his will by which his property in the stock and goodwill of the press and newspaper was made to vest permanently in a committee of certain members. It was the duty of the said committee of trustees under the will "to maintain the said press and newspaper in an efficient condition, and to keep up the liberal policy of the said newspaper, devoting the surplus income of the said press and newspaper after defraying all current expenses in improving the said newspaper and placing it on a footing of permanency". It was also provided by an arrangement made subsequently that in case the paper ceased to function or for only other reason the surplus of the income could not be applied to the object mentioned above, the same should be applied for the maintenance of a college which had been established out of the funds of another trust created by the same testator. There was surplus income in the hands of the trustees after defraying the expenses of the press and newspaper. Question arose as to whether that income was liable to be assessed in the hands of the trustees. The Judicial Committee held that the object of the settlor was to supply the province of the Punjab with an organ of educated public opinion and this was prima facie an object of general public utility. Their Lordships unequivocally expressed the view that they were not prepared to hold that the property referred to in the various paragraphs of the will was held for the purpose of "education" in the sense that word was used in section 4 of the Indian Income-tax Act of 1922. The above decision of the Judicial Committee applies directly to the present case and, in view of this decision, we would hold that the object of the appellant-trust was "the advancement of any other object of general public utility".
So far as the reliance of the ld. Counsel on the decision of the Delhi
Bench of the Tribunal in the case of ‘Pitanjali Yog Peeth Nyas Vs
ADIT’(Exemptions)’(supra) is concerned, the Bench has considered the specific
and distinct features of “yoga” as compared to a game or sport. Apart from
holding the systematic and regular classes in Yoga as ‘educational activity’, the
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Tribunal has also held the ‘Yoga’ as falling under the other limb ‘medical
relief’. It has been considered that the subject ‘Yoga” has been recognized as a
separate stream of science and educational degrees courses such as M.A.
(Yoga Science), M.Sc. (Yoga Science), B.A. (Yoga Science) Post
Graduate Diploma in Panchkarma, Post Graduate Diploma in Yoga
Science and Post Graduate Diploma in Yoga Health and Cultural
Tourism have been offered in the University set up by the assessee
trust in that case, which was duly recognized by the Govt. Even the
matter went in appeal before the Hon’ble Delhi High Court. The
Hon’ble Delhi High Court while admitting the appeal of the revenue
has however held that the dissemination of yoga or vedic philosophy
or the practice of yoga or education with respect to yoga was well
within the larger term "medical relief" and that no substantial
question of law was involved on this aspect.
It is further pertinent to mention here that yoga has been
specifically included as a limb of charity in section (15) of the Act
w.e.f. 01.04.2016 on the same lines as education, medical relief,
relief to the poor, etc. In view of the above discussion, the case law
cited by the assessee is not applicable to the facts and circumstances
of the case. The contention of the assessee that the activity of the
assessee of providing training in tennis is education, therefor, can
not be accepted, however, the same can very well be said to be
towards the advancement of any other object of general public
utility.
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Now coming to the point as to whether the activity of the
assessee is hit by the provisos to section 2(15) and other related
provisions of the Act, it is neither the case of the Assessing officer
nor of the CIT(A) that the assessee is regularly following
commercial activity by exploiting its property and right to hold
matches and thereby earning income by way of allocating
broadcasting rights, advertisements, sale of tickets etc. The Ld.
Counsel has brought on record that as per its aims and objects, the
assessee society is carrying on the activity of the promotion of game
of the tennis which also includes holding of domestic and
international matches in tennis. He has further submitted that rights
to conduct matches like Devis Cup, which are popular among the
people are granted once a while to the assessee. That the assessee
has also been running Chandigarh Academy of Rural Tennis,
wherein, boys and girls from low income families of remote villages
are selected, imparted training and are trained in tennis at the cost
borne by the assessee society. Even other schooling expenses are
borne by the assessee society. The Ld. Counsel in this respect has
placed reliance on the brochure and scheme of assessee society. The
Ld. Counsel has also placed on record the details of income derived
from domestic as well as international tournaments for the year
2008-09 onwards. As per the chart / documents placed on record, for
the year 2008-09, the assessee society organized six domestic
championships in tennis and four international matches. However, it
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suffered loss of Rs. 1,81,949/-in organizing domestic tournament
and a loss of Rs. 6,24,724.14 in organizing the international
tournament in tennis and thereby total loss of Rs. 8,06,673.14. For
the year 2009-10, the assessee society suffered loss of Rs.
2,89,190/- in organizing domestic tennis, whereas, it received
income of Rs. 6,28,468/- from organizing international tournament
thereby net profit of the assessee was at Rs. 3,39,278/-. For the year
2010-11, the assessee society conducted 13 domestic tournaments
suffering loss of Rs. 4,14,600/- and one international event for
junior players suffering loss of Rs. 20,253/- and thereby totalling
loss to Rs. 4,34,853/-. For the year 2011-12, the assessee suffered
loss of Rs. 5,20,968/- from domestic tournament whereas it got
profits of Rs. 5,95,078/- from international matches and the net
income of the assessee stood at Rs. 74,110/-. For the year 2013-14,
the assessee got positive net income from holding of domestic as
well as international matches at Rs. 25,15,760/- and for the year
2012-13, the assessee got allotted Davis Cup and it got a positive
net income of Rs. 1,06,14,830/- in respect of which exemption has
been claimed for the year under consideration, however the same
has been denied by the Revenue authorities holding that the assessee
was indulged in commercial activity. However, for the next year
2013-14, the assessee got net income of Rs. 25,15,760/-. For the
year 2014-15, the assessee suffered loss in domestic matches
whereas it got positive income in one of the international
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tournament, whereas, he suffered loss in two international
tournaments and the net income of the assessee in holding all
matches came to Rs. 2,07,766/-. For the year 2015-16, the assessee
suffered loss of Rs. 22,22,965/- and similarly for the year 2016-17,
though the assessee got net positive income from domestic matches,
however, it suffered losses from holding of international matches
and the net result was of loss of Rs. 13,42,858/-.
The Ld. Counsel for the assessee, therefore, has submitted that
for the promotion of game of tennis, catching young talent, not only
out of urban population, but also from rural population, imparting
training in tennis to them and even financial help including the
schooling of the economically weak players is also done. So far as
the holding of Davis Cup and exploitation of the match rights was
concerned, it was explained that the assessee society need funds for
carrying out its activities and once and while it got right to organize
match, which otherwise is part of main object of the society in the
course of carrying out its objects, it got incidental income which is
otherwise ploughed back for self- substance and for carrying the
aims and objects of the assessee society, hence, it cannot be said
that the assessee society’s pre-dominant object is changed or that it
has been indulged in commercial activity.
We find that except the above commercial exploitation of
rights during the holding of Davis Cup match, there is no dispute
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that the pre-dominant object of the assessee society is promotion of
game of tennis including the selection of players, training of
players, and conduct of matches both domestic and international.
We, therefore, do not think that the other income of the assessee
such as from nominal registration fees or nominal coaching fees
which is charged so as to attract only the genuinely interested
trainees / players can be said to be its business income as it sans the
profit motive. The Ld. Counsel has explained in detail that the
holding of matches for commercial purpose is not a regular feature
or regular activity of the assessee. Even the Davis Cup was also
organized as part of the objects of the assessee and even the
incidental income has been ploughed back and applied for carrying
the aims and objects of the assessee society. Therefore, in the light
of the decision made above, we hold that though the assessee
Chandigarh Lawn Tennis Association is carrying out the activities
towards the advancement of objects of general public utility, which
is its dominant activity, however, it has also involved in carrying
out the incidental activity in the nature of trade, commerce or
business in the course of actual carrying out of advancement of
object of general public utility by way of commercially exploiting
the rights of hosting the “Davis Cup Match”. However, as per the
amended provisions of section 2(15), 10(23C), 11(4), 11(4A), 13(8)
and 143(3) of the Income Tax Act and in view of our discussion and
interpretation of the relevant provisions as given above, the income
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of the assessee from the incidental and commercial activity i.e.
income from organizing of Davis Cup up to the limit prescribed as
per the second proviso to section 2(15), which for the assessment
year under consideration is Rs. 25 lacs, will be treated as income
from ‘charitable purposes’ and the assessee will be entitled to claim
the exemption u/s 11 of the Act up to that extent in respect of the
said income along with other income, if any, from the non-business
activity of the assessee. However, the income over and above
amount for Rs. 25 lacs from the business activity i.e. from the
exploitation of its right to hold Davis Cup will be treated as
‘business income’ of the assessee and will be liable to include in its
total income. The assessing officer, therefore, is directed to
bifurcate the income from commercial activity and non-commercial
activity and assess the income of the assessee as directed above.
With the above observations, the appeal of the assessee is
treated as partly allowed.
Order pronounced in the Open Court on 26.7.2018
Sd/- Sd/- (ANNAPURNA GUPTA) (SANJAY GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated : 26.7.2018 Rkk Copy to: • The Appellant • The Respondent • The CIT • The CIT(A) • The DR