Section 2(15) of the Income Tax Act
The decision most relied on for Section 2(15) is ACIT v. Ahmedabad Urban Development Authority (143 Taxmann.com 278), cited in 390 of the 2,878 judgments on BharatTax that turn on this section.
Leading authorities on Section 2(15)
If activities for the advancement of general public utility are carried on as a business, income from such activities is not exempt under Section 11, even if the profits are utilized for the main charitable object. The argument that profits from general public utility activities can be ploughed back to charity to maintain exemption is not a good law.
A charitable institution, whose predominant object is general public utility, can engage in non-charitable activities yielding incidental profits, provided these profits are deployed to achieve the dominant charitable object. A subsidiary object, if ancillary to the primary charitable purpose, does not negate the institution's charitable character.
This case defines 'education' under Section 2(15) of the Income Tax Act as systematic instruction, schooling, or training given to the young for preparation for the work of life. It clarifies that 'education' in this context has a narrow meaning, not extending to every acquisition of further knowledge.
An organization qualifies as having a charitable purpose if its primary object is the advancement of general public utility, even if its members receive incidental benefits. The existence of incidental non-charitable objects does not negate its charitable status.
An educational institution that generates a surplus does not automatically lose its charitable status or cease to exist solely for educational purposes. This is true if the surplus is reinvested for its educational objectives, and the predominant object test determines if the institution's primary aim is education or profit.
An institution engaged in the advancement of general public utility retains its charitable character and eligibility for exemptions under Section 11 or approval under Section 10(23C)(iv) provided profit is not its predominant motive, even if it generates incidental surpluses or collects fees.
Once an institution receives registration under Section 12AA, the Assessing Officer must compute its income as per Section 11, focusing only on the application of income and not re-examining the charitable nature of its activities. The Supreme Court also clarified the meaning and scope of 'general public utility' under Section 2(15).
For registration under Section 12AA, the Commissioner (Exemptions) must examine the objects of the trust and the genuineness of its proposed activities, even if the trust has not yet commenced actual charitable activities or incurred expenditure.
The broad definition of 'business' should not be applied when interpreting the proviso to Section 2(15) of the Income-tax Act, 1961, as the object and purpose of the section must be considered.
An educational institution is eligible for exemption under Section 10(23C)(vi) if it exists solely for educational purposes, even if it generates incidental profits. The mere existence of profit does not disqualify an institution from exemption.
