ASSISTANT COMMISSIONER OF INCOME TAX (EXEMPTIONS) versus AHMEDABAD URBAN DEVELOPMENT AUTHORITY

[2022] 15 S.C.R. 899

ASSISTANT COMMISSIONER OF INCOME TAX(EXEMPTIONS)

AHMEDABAD URBAN DEVELOPMENT AUTHORITY

(Civil Appeal No. 21762 of 2017)

OCTOBER 19, 2022

[UDAY UMESH LALIT, CJI, S. RAVINDRA BHAT ANDPAMIDIGHANTAM SRI NARASIMHA, JJ.]

Income Tax Act 1961: ss. 2(15) proviso – Tax exemption –Claim of, by Charitable institutions advancing an object of generallypublic utility-GPU – ‘Charitable Purpose’ – Interpretation of – Termof “any other object of generally public utility not being charitablepurpose if it involves the carrying on of any activity in the nature oftrade, commerce or business or any activity of rendering any servicein relation to any trade, commerce or business, for cess or fee orany other consideration, irrespective of the nature of use orapplication, or retention, of the income from such activity” –Interpretation and scope of – Held: Assessee advancing generalpublic utility cannot engage itself in any trade, commerce or business,or provide service in relation thereto for any consideration, “cess,or fee, or any other consideration” – However, in the course ofachieving the object of general public utility, the concerned trust,society, or other such organization, can carry on trade, commerceor business or provide services in relation thereto for consideration,provided that the activities of trade, commerce or business areconnected to the achievement of its objects of GPU; and the receiptfrom such business or commercial activity or service in relationthereto, does not exceed 20% of total receipts of the previous year– Charging of any amount towards consideration for an activityadvancing general public utility, which is on cost-basis or nominallyabove cost, cannot be considered to be “trade, commerce, orbusiness” or any services in relation thereto – It is only when thecharges are markedly or significantly above the cost incurred bythe assessee, that they would fall within the mischief of “cess, orfee, or any other consideration” towards “trade, commerce orbusiness” – Section 11(4A) must be interpreted harmoniously withs. 2(15), the requirement in s. 11(4A) of maintaining separate books

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Aof account is also in line with the necessity of demonstrating thatthe quantitative limit prescribed in the proviso to s. 2(15), has notbeen breached – ss. 10(23C), 13(8), 11(4A) and 143(3).

s. 11(4), 11(4A) – Business held under Trust and Trust carryingon business – Distinction between – Discussed.

ss. 2(15) – Tax exemption, claim of by the Statutorycorporations, authorities or bodies; Statutory regulatory bodies/authorities; Trade Promotion bodies, councils, associations ororganizations; Non-statutory bodies-ERNET, NIXI and GS1 India;State Cricket Associations;and Private trusts as General PublicCUtility charity – Certain kinds of income or receipts, may not becharacterized as derived from trade, commerce or business in relationto activities of General Public Utility, for consideration – Held:As regards, Statutory Authorities, corporations, or bodies receiptsare prima facie to be excluded from the mischief of business orcommercial receipts, since their objects are essential forDadvancement of public purposes/functions – However, if theconsideration or amounts charged are significantly higher than thecost and nominal mark-up, then the receipts would indicate thatthe activities are in fact in the nature of “trade, commerce or business”and would have to comply with the quantified limit in the proviso toEs. 2(15) – For the Statutory regulators, to be considered as one with‘charitable purpose’ eligible for exemption under the IT Act, theoverall quantitative limit prescribed in the proviso to s. 2(15) (asamended from time to time) has to be complied with – Tradepromotion bodies involved in advancement of objects of generalpublic utility can claim exemption – However, income or receiptsFfor providing the additional services would be business or commercialin nature – As regards, non-statutory bodies performing publicfunctions, such as ERNET and NIXI are engaged in important publicpurposes – Fees or consideration charged by them for the purposesprovided are nominal – However, their claim have to be ascertainedGon year to year basis – Further, GSI India is involved inadvancement of general public utility, its services are for the benefitof trade and business, from which they receive significantly highreceipts – Therefore, GSI India is not eligible for the exemption –Private Trusts-Tribune Trust cannot benefit from exemption offeredto entities covered by s. 2(15) as the income received fromH

advertisements, constituted business or commercial receipts – Limitprescribed in the proviso to s. 2(15) has to be adhered to for theTrust’s claim of being as charity eligible for exemption – So far asSports associations is concerned, matter requires further scrutiny.

Interpretation of Statute : Aids to Interpretation – History oflegislation, other extrinsic aids to construction of the statute, viz,speeches in Parliament and departmental circulars – Relevance of– Explained.

Disposing of the appeals, the Court

HELD: 1.1 As regards the general test under Section 2(15)of the Income Tax Act, 1961, it is clarified that an assesseeadvancing general public utility cannot engage itself in any trade,commerce or business, or provide service in relation thereto forany consideration (“cess, or fee, or any other consideration”).However, in the course of achieving the object of general publicutility, the concerned trust, society, or other such organization,can carry on trade, commerce or business or provide services inrelation thereto for consideration, provided that (i) the activitiesof trade, commerce or business are connected (“actual carryingout...” inserted w.e.f. 01.04.2016) to the achievement of its objectsof GPU; and (ii) the receipt from such business or commercialactivity or service in relation thereto, does not exceed thequantified limit, as amended over the years (Rs. 10 lakhs w.e.f.01.04.2009; then Rs. 25 lakhs w.e.f. 01.04.2012; and now 20% oftotal receipts of the previous year, w.e.f. 01.04.2016). Generally,the charging of any amount towards consideration for such anactivity (advancing general public utility), which is on cost-basisor nominally above cost, cannot be considered to be “trade,commerce, or business” or any services in relation thereto. It isonly when the charges are markedly or significantly above thecost incurred by the assessee in question, that they would fallwithin the mischief of “cess, or fee, or any other consideration”towards “trade, commerce or business”. Iit is clarified as to whatkind of services or goods provided on cost or nominal basis wouldnormally be excluded from the mischief of trade, commerce, orbusiness. Section 11(4A) must be interpreted harmoniously withSection 2(15), with which there is no conflict. Carrying out activityin the nature of trade, commerce or business, or service in relation

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Ato such activities, should be conducted in the course of achievingthe GPU object, and the income, profit or surplus or gains must,therefore, be incidental. The requirement in Section 11(4A) ofmaintaining separate books of account is also in line with thenecessity of demonstrating that the quantitative limit prescribedin the proviso to Section 2(15), has not been breached. Similarly,Bthe insertion of Section 13(8), seventeenth proviso to Section10(23C) and third proviso to Section 143(3) (all w.r.e.f.01.04.2009), reaffirm this interpretation and bring uniformityacross the statutory provisions. [Para 253][1058-C-H; 1059-A-C]C1.2 The amounts or any money whatsoever charged by astatutory corporation, board or any other body set up by the stategovernment or central governments, for achieving what areessentially ‘public functions/services’ (such as housing, industrialdevelopment, supply of water, sewage management, supply ofDfood grain, development and town planning, etc.) may resembletrade, commercial, or business activities. However, since theirobjects are essential for advancement of public purposes/functions (and are accordingly restrained by way of statutoryprovisions), such receipts are prima facie to be excluded fromthe mischief of business or commercial receipts. However, atEthe same time, in every case, the assessing authorities wouldhave to apply their minds and scrutinize the records, to determineif, and to what extent, the consideration or amounts charged aresignificantly higher than the cost and nominal mark-up. If suchis the case, then the receipts would indicate that the activitiesFare in fact in the nature of “trade, commerce or business” and asa result, would have to comply with the quantified limit (asamended from time to time) in the proviso to Section 2(15) of theIT Act. [Para 253 B.1, B.2][1059-C-G]1.3 In clause (b) of Section 10(46) of the IT Act,G“commercial” has the same meaning as “trade, commerce,business” in Section 2(15) of the IT Act. Therefore, sums chargedby such notified body, authority, Board, Trust or Commission (bywhatever name called) will require similar consideration – i.e.,whether it is at cost with nominal mark-up or significantly higher,to determine if it falls within the mischief of “commercial activity”.H

ASST. COMM’R OF INCOME TAX (EXEMPTIONS) v. AHMEDABAD

However, in the case of such notified bodies, there is no quantifiedlimit in Section 10(46). Therefore, the Central Government wouldhave to decide on case-by-case basis whether and to what extent,exemption can be awarded to bodies that are notified underSection 10(46). For the period 01.04.2003 to 01.04.2011, astatutory corporation could claim the benefit of Section 2(15)having regard to the judgment of this Court in the GujaratMaritime Board’s case. Likewise, the denial of benefit underSection 10(46) after 01.04.2011 does not preclude statutorycorporation, board, or whatever such body may be called, fromclaiming that it is set up for charitable purpose and seekingexemption under Section 10(23C) or other provisions of the Act.[Para 253, B-3, B-4][1059-G-H; 1060-A-D]

1.4 The income and receipts of statutory regulatory bodieswhich are for instance, tasked with exclusive duties of prescribingcurriculum, disciplining professionals and prescribing standardsof professional conduct, are prima facie not business orcommercial receipts. However, this is subject to the caveat thatif the assessing authorities discern that certain kinds of activitiescarried out by such regulatory body involved charging of feesthat are significantly higher than the cost incurred (with nominalmark-up) or providing other facilities or services such asadmission forms, coaching classes, registration processing fees,etc., at markedly higher prices, those would constitute commercialor business receipts. In that event, the overall quantitative limitprescribed in the proviso to Section 2(15) (as amended from timeto time) has to be complied with, if the regulatory body is to beconsidered as one with ‘charitable purpose’ eligible for exemptionunder the IT Act. Like statutory authorities which regulateprofessions, statutory bodies which certify products (such asseeds) based on standards for qualification, etc. will also betreated similarly. [Para 253, C.1, C.2][1060-D-G]

1.5 Bodies involved in trade promotion (such as AEPC), orset up with the objects of purely advocating for, coordinating andassisting trading organisations, can be said to be involved inadvancement of objects of general public utility. However, if suchorganisations provide additional services such as courses meant

Ato skill personnel, providing private rental spaces in fairs or tradeshows, consulting services, etc. then income or receipts fromsuch activities, would be business or commercial in nature. Inthat event, the claim for tax exemption would have to be againsubjected to the rigors of the proviso to Section 2(15) of the ITAct. [Para 253, D][1060-G-H; 1061-A-B]

1.6 Non-statutory bodies performing public functions, suchas ERNET and NIXI are engaged in important public purposes.The materials on record show that fees or consideration chargedby them for the purposes provided are nominal. In thecircumstances, it is held that the said two assessees are drivenCby charitable purposes. However, the claims of such non- statutoryorganisations performing public functions, will have to beascertained on yearly basis, and the tax authorities must discernfrom the records, whether the fees charged are nominally abovethe cost, or have been increased to much higher levels. It is heldDthat though GS1 India is in fact, involved in advancement ofgeneral public utility, its services are for the benefit of trade andbusiness, from which they receive significantly high receipts. Inthe circumstances, its claim for exemption cannot succeed havingregard to amended Section 2(15). However, the Court does notrule out any future claim made and being independently assessed,Eif GS1 is able to satisfy that what it provides to its customers ischarged on cost-basis with at the most, nominal markup. [Para253 E.1, E.2][1061-B-F]

1.7 So far as the state cricket associations are concerned(Saurashtra, Gujarat, Rajasthan, Baroda, and Rajkot), the matterFrequires further scrutiny. Accordingly, direction is issued thatthe AO shall adjudicate the matter afresh after issuing notice tothe concerned assessees and examining the relevant materialindicated in the previous paragraphs of this judgment.Furthermore, if any consequential order needs to be issued, theGsame shall be done and resulting actions, including assessmentorders shall be passed in accordance with the law under relevantprovisions of the IT Act. [Para 253, F][1061-F-H]

1.8 So far as the appeal by assessee-Tribune Trust isconcerned, despite advancing general public utility, the Trust

ASST. COMM’R OF INCOME TAX (EXEMPTIONS) v. AHMEDABAD

cannot benefit from exemption offered to entities covered bySection 2(15) as the records reveal that income received fromadvertisements, constituted business or commercial receipts.Consequently, the limit prescribed in the proviso to Section 2(15)has to be adhered to for the Trust’s claim of being as charityeligible for exemption, to succeed. Therefore, despite differingreasoning, the impugned judgment of the High Court does notcall for interference. [Para 253, G][1062-A-C]

2.1 The limited relief, given by the second proviso to s.2(15) of the Income Tax Act, 1961, to ‘general public utility’ –GPU charities (for the period 2009-2015) was that in case suchGPU category charities did carry on activities undertaken in thecourse of actual carrying out of their GPU objects that were inthe nature of trade, commerce or business, or rendered anyservice in relation to trade, business, etc., and collected fee, cess,or other consideration, such income could still be exempt, if itdid not exceed 10,00,000 (and later, 25,00,000). By theamendment of 2015, the second proviso was deleted and twoconditions were introduced, with respect to permissibility ofcarrying on trade, commerce, etc: (i) such activity is undertakenin the course of actual carrying out of such advancement of anyother object of general public utility; and (ii) the aggregatereceipts from such activity or activities during the previous year,do not exceed twenty percent of the total receipts, of the trust orinstitution undertaking such activity or activities, of that previousyear. [Para 136][997-C-F]2.2 Parliamentary endeavour, was to alter the regimeapplicable to taxation of GPU category charities, under the ITAct. The absolute bar imposed on GPU charities from carryingon activities in the nature of trade, commerce or business, or ofrendering any service in relation to any trade, commerce orbusiness, for cess or fee or any other consideration, evidencesthis intent. The original Section 2(15) did not allude to trade,commerce or business, or any service in relation to such activities.It only enjoined the GPU charities from involving themselvesfrom carrying on of any activity for profit 127 (which was

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Ainterpreted in Surat Art Silk). This substantial change broughtabout by the amendments of 2008 -2012 and 2015 is theprohibition from engaging in any kind of activity in the nature ofbusiness, commerce, or trade or any rendering any service inrelation thereto, and earning income by the way of cess, fee orconsideration. The express deletion of the reference to ‘activityBfor profit’ on the one hand, and the enactment of an expanded listof what cannot be done by GPU charities if they are to retaintheir characteristic as charities, is an emphatic manner in whichParliament wished to express itself. [Para 138][998-A-D]

2.3 Not every state activity resembling commerce can beCconsidered per se exempt from union taxation, in the context ofArticle 289. Mere sale or lease of government property doesnot imply trade or business. The crucial or determinative elementin the venture, so to say, is whether performance of function isactuated by profit motive. The careful analysis of the amended

Dproviso to Section 2(15), reveal that the prohibition applies in afour-fold manner- (a) The bar to engaging in trade, commerce orbusiness, (b)The bar to providing any service in relation to trade,commerce or business, (c) wherein “for fee, cess or any otherconsideration” is the controlling phrase for both (a) and (b) (whichare collectively referred to as “prohibited activities” for brevity)E(d) irrespective of the application of the income derived fromsuch ‘prohibited activities’. [Para 141, 142][1001-F-H; 1002-A-B]

2.4 The impermissibility of any trade, or commercial activityor service, and income, from them, was intended to be conveyedFthrough the prohibition, in the first part of the definition of GPUcharities. The necessary implication which arises is that income(received as fee, cess, or any other consideration) derived fromsuch ‘prohibited activities’ is necessarily motivated by profit. Theordinary meaning of fee or consideration would be synonymousGwith something of value, usually in monetary terms. However,the use of the expression “cess” facially lends different colourto all the three expressions. [Para 143][1002-B-D]

2.5 “Fee, cess and any other consideration” has to receivea purposive interpretation, in the present context. If fee or cess

ASST. COMM’R OF INCOME TAX (EXEMPTIONS) v. AHMEDABAD

or such consideration is collected for the purpose of an activity,by state department or entity, which is set up by statute, itsmandate to collect such amounts cannot be treated asconsideration towards trade or business. Therefore, regulatoryactivity, necessitating fee or cess collection in terms of enactedlaw, or collection of amounts in furtherance of activities such aseducation, regulation of profession, etc., are per se not businessor commercial in nature. Likewise, statutory boards andauthorities, who are under mandate to develop housing, industrialand other estates, including development of residential housingat reasonable or subsidized costs, which might entail charginghigher amounts from some section of the beneficiaries, to cross-subsidize the main activity, cannot be characterized as engagingin business. The character of being ‘state’, and such corporationsor bodies set up under specific laws (whether by states or thecentre) would, therefore, not mean that the amounts are ‘fee’ or‘cess’ to provide some commercial or business service. In eachcase, at the same time, the mere nomenclature of theconsideration being “fee” or “cess”, is not conclusive. If thefee or cess, or other consideration is to provide an essentialservice, in larger public interest, such as water cess or sewagecess or fee, such consideration, received by statutory body,would not be considered “trade, commerce or business” orservice in relation to those. Non-statutory bodies, on the otherhand, which may mimic regulatory or development bodies - suchas those which promote trade, for section of business or industry,or are aimed at providing facilities or amenities to improveefficiencies, or platforms to segment of business, for fee,whether charged by subscription, or specific fee, etc, may not becharitable; when they claim exemption, their cases would requirefurther scrutiny. [Para 144][1002-D-H; 1003-A-B]

2.6 What Parliament intended – through the amendmentsin question was to proscribe, involvement or engagement of GPUcharities, from any form (“in the nature of”) of activities that weretrade, business or commerce, or engage or involve in providingservices in relation to trade, business or commerce- for fee,cess or other consideration. The inclusion of the term “in thenature of” was by design, to clarify beyond doubt, that not only

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Abusiness, trade or commerce, but all activities in the nature of,or resembling them, were proscribed. Likewise, service inrelation to such activities, i.e., services relating, or pertainingto, such proscribed activities, too were forbidden. The referenceto fee or cess, is in the opinion of the court, only to emphasizethat even statutory consideration, for service to business,Btrade or commerce, would take the activity outside the definitionof GPU charity. The sense in which the expressions “cess, feeor other consideration” are used, is that if any amount, is receivedfor trading, or business or commercial activity, or any services tosuch activity, then, notwithstanding their nomenclature (as feeCor cess, i.e. that they are fixed under law) the GPU charity cannotclaim tax exempt status. To bring home this even more pointedly-and underline break from the past, the application of suchamounts (received in the course of trade, commerce, or business,or towards services in relation thereto) would be irrelevant, asevidenced by the term “irrespective”, in the fourth limb ofDreading Section 2(15). [Paras 150, 151][1006-D-H]2.7 Section 2(15) - in the wake of its several amendmentsbetween 2008 and 2015 - can be juxtaposed with theinterpretation of the unamended Section 2(15) by this Court. InSurat Art Silk’s case, the principle enunciated was that so long asEthe predominant object of GPU category charity is charitable, itsengagement in non-charitable object resulting in profits thatare incidental, is permissible. Profits and gains from such activitieswhich were non-charitable had to be deployed or “fed” back toachieve the dominant charitable object. The paradigm changeFachieved by Section 2(15) after its amendment in 2008 and as itstands today, is that firstly GPU charity cannot engage in anyactivity in the nature of trade, commerce, business or any servicein relation to such activities for any consideration (including astatutory fee etc.). This is emphasized in the negative language

employed by the main part of Section 2(15). Therefore, the ideaGof predominant object among several other objects, is discarded.The prohibition is relieved to limited extent, by the provisowhich carves out the condition by which otherwise prohibitedactivities can be engaged in by GPU charities. The conditionsare; that such activities in the nature of trade, commerce, businessH

ASST. COMM’R OF INCOME TAX (EXEMPTIONS) v. AHMEDABAD

or service (in relation to trade, commerce or business forconsideration) should be in the course of “actual carrying on” ofthe GPU object, and the quantum of receipts from such activitiesshould be exceed 20% of the total receipts. Both parts of theproviso: (i) and (ii) (to Section 2 (15)) have to be readconjunctively-given the conscious use of “or” connecting the twoof them. This means that if charitable trust carries on any activityin the nature of business, trade or commerce, in the actual courseof fulfilling its objectives, the income from such business, shouldnot exceed the limit defined in sub-clause (ii) to the proviso. [Paras152, 153][1007-A-G]

2.8 What has to be examined, therefore, is whether thebusiness itself is held under trust or is carried on by and on behalfof the trust. Importantly Section 11(1) of the Act starts with theexpression “subject to the provisions of Sections 60 to 63........”.Those provisions are in Chapter V of the Act. Section 60 providesfor the consequences of transfer of income where there is notransfer of assets. It says that where person transfers merelythe income from an asset without transferring the asset itself, hewould continue to be chargeable to income tax. Section 61provides for the consequences of revocable transfer of assetsand says that the same would be the position where person is inreceipt of income by virtue of revocable transfer of assets.Section 62 provides for the consequences of transfer of assetsfor specified period, and serves as an exception to Section 61.An assessee has to be divested of the asset before ceasing to beassessable in respect of the income from it. mere directionthat the income from the business shall be applied to the charitableobjects of trust, without there being settlement of the businessitself upon trust, does not result in any trust or legal obligation.[Para 163][1012-F-H; 1013-A-B]

2.9 The journey which began with Surat Art Silk’s case wasinterpreted in Thanthi Trust’s case to mean that the carrying onof business by GPU charity was permissible as long as it inuredto the benefit of the trust. The change brought about by theamendments in questions, however, place the focus on an entirelydifferent perspective: that if at all any activity in the nature of

Atrade, commerce or business, or service in the nature of thesame, for any form of consideration is permissible, that activityshould be intrinsically linked to, or part of the GPU categorycharity’s object. Thus, the test of the charity being driven by apredominant object is no longer good law. Likewise, the ambiguitywith respect to the kind of activities generating profit which couldBfeed the main object and incidental profit-making also is not goodlaw. What instead, the definition under Section 2(15) through itsproviso directs and thereby marks departure from the previouslaw, is – firstly that if GPU charity is to engage in any activity inthe nature of trade, commerce or business, for consideration itCshould only be part of this actual function to attain the GPUobjective and, secondly – and the equally important considerationis the imposition of quantitative standard - i.e., income (fees,cess or other consideration) derived from activity in the natureof trade, business or commerce or service in relation to thesethree activities, should not exceed the quantitative limit ofD10,00,000 (w.e.f. 01.04.2009), 25,00,000 (w.e.f. 01.04.2012),and 20% (w.e.f. 01.04.2016) of the total receipts. Lastly, the“ploughing” back of business income to “feed” charity is anirrelevant factor – again emphasizing the prohibition fromengaging in trade, commerce or business. [Para 167][1014-A-F]

E2.10 If one understands the definition in the light of theabove enunciation, the sequitur is that the reference to “incomebeing profits and gains of business” with further reference toits being incidental to the objects of the Trust, cannot and doesnot mean proceeds of activities incidental to the main object,Fincidental objects or income derived from incidental activities.The proper way of reading reference to the term “incidental” inSection 11(4A) is to interpret it in the light of the sub-clause (i) ofproviso to Section 2(15), i.e., that the activity in the nature ofbusiness, trade, commerce or service in relation to such activitiesshould be conducted actually in the course of achieving the GPUGobject, and the income, profit or surplus or gains can then, belogically incidental. The amendment of 2016, inserting sub clause(i) to proviso to Section 2(15) was therefore clarificatory. Thusinterpreted, there is no conflict between the definition of charitablepurpose and the machinery part of Section 11(4A). Further, theH

ASST. COMM’R OF INCOME TAX (EXEMPTIONS) v. AHMEDABAD

obligation under Section 11(4A) to maintain separate books ofaccount in respect of such receipts is to ensure that thequantitative limit imposed by sub-clause (ii) to Section 2(15) canbe computed and ascertained in an objective manner. [Para168][1014-F-H; 1015-A-B]

2.11 The conclusion recorded is also supported by thelanguage of seventh proviso 142 to Section 10(23C). WhereasSection 2(15) is the definition clause, Section 10 lists out what isnot income. Section 10(23C) – by sub-clauses (iv) and (v) exemptincomes of charitable organisations. Such organisations andinstitutions are not limited to GPU category charities but ratherextend to other types of charities (i.e. the per se kind as well).The controlling part of Section 10(23C) along with the relevantclauses (iv) and (v) seek to exclude income received by theconcerned charities. However, the provisos hedge suchexemption with conditions. The seventh proviso - much likeSection 11(4A) and the definition - carve out an exception, to theexemptions such that income derived by charities from business,are not exempt. The seventh proviso virtually echoes Section11(4A) in that business income derived by charity (in the presentcase, the GPU charities) which arises from an activity incidentalto the attainment of its objective is not per se excluded. [Para169][1015-B-E]

2.12 Classically, the idea of charity was tied up witheleemosynary. However, “charitable purpose” – and charity asdefined in the Act have wider meaning where it is the object ofthe institution which is in focus. Thus, the idea of providingservices or goods at no consideration, cost or nominalconsideration is not confined to the provision of services or goodswithout charging anything or charging token or nominal amount.Therefore, pure charity in the sense that the performance of anactivity without any consideration is not envisioned under theAct. If one keeps this in mind, what Section 2(15) emphasizes isthat so long as GPU’s charity’s object involves activities whichalso generates profits (incidental, or in other words, while actuallycarrying out the objectives of GPU, if some profit is generated),it can be granted exemption provided the quantitative limit (ofnot exceeding 20%) under second proviso to Section 2(15) forreceipts from such profits, is adhered to. Yet another manner of

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Alooking at the definition together with Sections 10(23) and 11 isthat for achieving general public utility object, if the charityinvolves itself in activities, that entail charging amounts only atcost or marginal mark up over cost, and also derive some profit,the prohibition against carrying on business or service relatingto business is not attracted - if the quantum of such profits do notBexceed 20% of its overall receipts. [Para 170-172][1015-E-G;1016-C-E]

2.13 The insertion of Section 13(8), the seventeenth provisoto Section 10(23C) and third proviso to Section 143(3) (all of whichwere inserted by Finance Act, 2012, but w.r.e.f. 01.04.2009),Cfurther reinforces the interpretation of this Court, of “charitablepurpose”. These provisions, form the machinery to control theconditions under which income is exempt. The effect of theseventeenth proviso to Section 10(23C) is to impose the samecondition i.e., that that the trade, commerce or business activityDor service relating to trade, business or commerce, should bepart of the GPU’s activities, to achieve its object of advancinggeneral public utility. The other condition– which is drawn in aspart of the exemption condition, is that if such trading orcommercial activity takes place the receipts should be confinedto prescribed percentage of the overall receipts. Section 13(8)Etoo reinforces the same condition. [Para 174][1017-B-D]2.14 The change intended by Parliament through theamendment of Section 2(15) was sought to be emphasised andclarified by the amendment of Section 10(23C) and the insertionof Section 13(8). This was Parliaments’ emphatic way of sayingFthat generally no commercial or business or trading activity oughtto be engaged by GPU charities but that in the course of theirfunctioning of carrying out activities of general public utility, theycan in limited manner do so, provided the receipts are withinthe limit spelt out in Clause (ii) of the proviso to Section 2(15).G[Para 175][1017-D-F]

3. The conclusions arrived at by way of this judgment,neither precludes any of the assessees (whether statutory, ornon-statutory) advancing objects of general public utility, fromclaiming exemption, nor the taxing authorities from denying

ASST. COMM’R OF INCOME TAX (EXEMPTIONS) v. AHMEDABAD

exemption, in the future, if the receipts of the relevant yearexceed the quantitative limit. The assessing authorities must ona yearly basis, scrutinize the record to discern whether the natureof the assessee’s activities amount to “trade, commerce orbusiness” based on its receipts and income (i.e., whether theamounts charged are on cost-basis, or significantly higher). If itis found that they are in the nature of “trade, commerce orbusiness”, then it must be examined whether the quantified limit(as amended from time to time) in proviso to Section 2(15), hasbeen breached, thus disentitling them to exemption. [Para 253,H][1062-C-E]

The Trustees of Tribune Press, Lahore v. CIT, Punjab[1939] 7 ITR 415; Charitable Gadodia Swadeshi Storesv. CIT [1944] 12 ITR 385; CIT v. P. Krishna Warriar[1964] 8 SCR 36; CIT v. Andhra Chamber of Commerce[1965] 1 SCR 565; All India Spinners Association ofMirzapur v. CIT [1944] 12 ITR 482; Sole Trustee, LokShikshana Trust v. Commissioner of Income Tax (1976)1 SCC 254 : [1976 ] 1SCR 461; Indian Chamber ofCommerce v. CIT (1976) 1 SCC 324 : [1976] 1SCR830; Assistant Commissioner v. Surat Art Silk ClothManufacturers’ Association (1980) 2 SCC 31 : [1980]2 SCR 77;Indian Chamber of Commerce v.Commissioner of Income Tax (1976) 1 SCC 324 : [1976]1 SCR 830; Dharmadeepti v. CIT (1978) 3 SCC 499 :[1978] 3 SCR 1038; Assistant Commissioner of IncomeTax v. Thanthi Trust (2001) 2 SCC 707 : [2001] 1 SCR727; New Delhi Municipal Council v. State of Punjab(1997) 7 SCC 339 : [1996] 10 Suppl. SCR 472; CIT,Bombay v. Bar Council of Maharashtra (1981) 3 SCC308 : [1981] 3 SCR542; Shri Ramtanu CooperativeHousing Society Ltd. v. State of Maharashtra (1970) 3SCC 323 : [1971]1 SCR 719; Gujarat IndustrialDevelopment Corporation v. CIT [1997] Supp 3 SCR466; HSIDC v. Hari Om Enterprises (2009) 16 SCC208 : [2008] 9 SCR 821; Commissioner of CentralExcise v. Maharashtra Industrial DevelopmentCorporation 2017 SCC Online Bom 10021; Navnit LalC. Jhaveri v. K.K. Sen [1965] 1 SCR 909; UCO Bank

Calcutta v. Commissioner of Income Tax, West Bengal1999 (4) SCC 599 : [1999] 3 SCR 635; State of Punjabv. Bajaj Electricals Ltd. [1968] SCR 2 636; KhodayDistilleries Ltd. v. State of Karnataka (1995) 1 SCC574 : [1994] 4 Suppl. SCR 477; State of Gujarat v. M/s. Raipur Manufacturing [1967] 1 SCR 618; CentralExcise, Bolpur v. Ratan Melting and Wire Industries(2008) 13 SCC 1 : [2008] 14 SCR 653; Greater NoidaIndustrial Development Authority v. Union of India &Ors 2018 Scc Online Delhi 7536; Shri Ramtanu Co-operative Housing Society Limited v. State ofMaharashtra (1970) 3 SCC 323 : [1971] 1 SCR 719;Kerala State Electricity Board v. Indian Aluminium Co.Ltd. (1976) 1 SCC 466 : [1976] 1 SCR 552; Trusteesof the Port of Madras v. Aminchand Pyarelal and Ors.(1976) 3 SCC 167 : [1976] 1 SCR 721; State of Gujaratv. Mahesh Dhiarjlal Thakkar (1980) 2 SCC 322; SodanSingh & Ors. v. New Delhi Municipal Committee & Ors.[1989] 3 SCR 1038; T.M.A Pai Foundation and Ors. v.State of Karnataka & Ors. (2002) 8 SCC 481 : [2002]3 Suppl. SCR 587; CIT, Madras v. M/s Madurai MillsCompany Limited (1973) 4 SCC 194 : [1973] 3 SCR662; Karnataka Industrial Areas Development Boardv. Prakash Dal Mill (2011) 6 SCC 714 : [2011] 5 SCR26; State of Karnataka v. All India Manufacturer’sOrganisation (2006) 4 SCC 683 : [2006] 1 Suppl. SCR86; State of Tamil Nadu v. Board of Trustees of the Portof Madras [1999] 2 SCR 195; Commissioner of IncomeTax v. Gujarat Maritime Board [2007] 12 SCR 962;State of Karnataka v. Shreyas Papers Pvt. Ltd. AIR 2006SC 865 : [2006] 1 SCR 235; Ashoka Smokeless CoalIndia (P) Ltd. v. Union Of India (2007) 2 SCC 640 :[2006] 9 Suppl. SCR 954; New Delhi MunicipalCommittee v. State of Punjab [1996] Supp 10 SCR 472;Physical Research Laboratory v. K.G Sharma [1997]3SCR 733; Yogiraj Charity Trust v. CIT [1976] 3 SCR947; Commissioner of Income Tax v. Andhra PradeshRoad Transport Corporation [1986] 1 SCR 570;Queens’s Educational Society v. CIT 2015 (8) SCC 47

ASST. COMM’R OF INCOME TAX (EXEMPTIONS) v. AHMEDABAD

URBAN DEVELOPMENT AUTHORITY

: [2015] 3 SCR838; CST v. Sai Publication Fund [2002]2 SCR 743; Chameli Singh v. State of U.P & Ors. (1996)2 SCC 549 : [1995] 6 Suppl. SCR 827; Sri. P.G. Guptav. State of Gujarat & Ors. 1995 (1) SCALE 653; P.Vajravelu Mudaliar v. Special Deputy Collector, Madras& Ors. [1965] 1 SCR 614; Dalco Engineering Pvt. Ltd.v. Satish Prabhakar Padhye & Ors. (2010) 4 SCC 378: [2010] 4 SCR15; State of A.P v. H. Abdul Bakhi &Bros. [1964] 7 SCR 664; ICAI Accounting ResearchFoundation v. DGIT(E) 321 ITR 73 (Del); Bureau ofIndian Standards v. DGIT(E) 358 ITR 78 (Del); GS1India v. DGIT(E) 360 ITR 138 (Del); Dir. Of Supp. &Disp. v. Board of Revenue [1967] 3 SCR 778; BarendraPrasad Ray v. ITO [1981] 3 SCR 387; State of Gujaratv. Raipur Manufacturing Co. Ltd. [1967] 1 SCR 618;Customs & Excise Commissioner v. Lord Fisher (1981)2 All ER 147; Nabha Power Limited v. Punjab SPCL(2018) 11 SCC 508: [2017] 14 SCR 301; State ofGujarat v. Maheshkumar Dhirajal Thakkar (1980) 2SCC 322; Saurashtra Education Foundation v. CIT[2005] 273 ITR 139 (Guj.); Gujarat State Co-operativeUnion v. CIT [1992] 195 ITR 279 (Guj.); AmericanHotel and Lodging Association v. CBDT (2008) 10 SCC509 : [2008] 8 SCR 117

Victoria Technical Institute v CIT [1991] 188 ITR 57(SC); Aditnar Educational Institution v. Addl. CIT(1997) 3 SCC 346 : [1997] 1 SCR 948; ThiagarajarCharities v. ACIT (1997) 4 SCC 724 : [1997] 3SCR965; Director of Income Tax v. Bharat DiamondBourse [2003] 259 ITR 280 (SC); VisvesvaryaTechnological University v. Assistant Commissioner ofIncome Tax (2016) 12 SCC 258 :[2016] 4 SCR 362;J.K Synthetics & Another v. Union of India & Ors. 1981SCC OnLine Del 457; Ellerman Lines v. Commissionerof Income Tax (1972) 4 SCC 474 : [1972] 2 SCR 168;Adityapur Industrial Area Development Authority v.Union of India (2006) 5 SCC 100 : [2006] 1 Suppl.SCR 757; Commissioner of Income Tax v. Federationof Indian Chambers of Commerce and Industries [1981]

3 SCR 489; Duparquet Co. v. Evans 297 U.S. 216(1936); Bhuwalka Steel Indus. Ltd. & Ors. v. BombayIron and Steel Labour Bd. & Ors. [2009] 16 SCR 618;Chief Justice of Andhra Pradesh & Ors. v. L.V.A. Dixitulu& Ors. [1979) 1 SCR 26; Lohia Machines Ltd. andOrs. v. Union of India & Ors. [1985] 2 SCR 686;Commissioner of Customs (Import), Mumbai v. DilipKumar & Company & Ors. 2018 (9) SCC 1 : [2018] 7SCR 1191; State of West Bengal v. Union of India [1964]1 SCR 371; Ellerman Lines Ltd. v. Commissioner ofIncome Tax [1972] 2 SCR 168; K.P. Verghese v.Commissioner of Income Tax [1982] 1 SCR 629; Unionof India v. Azadi Bachao Andolan [2003] Supp 4 SCR222; CIT v. Vatika Township (2015) 1 SCC 1 : [2014]12 SCR 1037; Keshavji Ravji & Co. and Ors. v.Commissioner of Income Tax (1992) 2 SCC 231;Commissioner of Customs v. Indian Oil Corporation[2004] 2 SCR 511; S.K. Gupta & Anr. v. K.P. Jain &Anr. (1979) 3 SCC 54 : [1979] 2 SCR 1184; IndiraNehru Gandhi v. Shri Raj Narain and Anr. (1975) Supp.SCC 1; Kalya Singh v. Genda Lal and Ors. [1975] 3SCR 783; Vanguard Fire and Insurance Company Ltd.v. M/s. Fraser and Ross and Anr. [1960] 3 SCR 837;N.K. Jain and Ors. v. C.K. Shah and Ors. [1991] 1 SCR938;G. Venkataswami Naidu v. Commissioner of IncomeTax [1959] Supp 1 SCR 646; State of Tamil Nadu v.Burmah Shell Oil Storage Distribution Company of IndiaLtd. [1973] 2 SCR 636; State of Tamil Nadu v. ShaktiEstates [1989] 1 SCR 408; Director of Civil Supplies v.Member Board of Revenue [1967] 3 SCR 778;Renusagar Power Co. Ltd. v. General Electric Co.[1985] 1 SCR 432; Mansukhlal Dhanraj Jain v. EknathVithal Ogale [1995] 1 SCC 996; Doypack System (P)Ltd. v. Union of India 1988 (2) SCC 299 : [1988] 2SCR 962; Physical Research Laboratory v. K. G. Sharma(1997) 4 SCC 257 : [1997] 3 SCR 733; TownInvestments v. Department of Environment 1977 1ALLER 813; Brothers Etc. v. Deputy Commissioner,Raichur and Ors. [1967] 1 SCR 548; India Cement Ltd.

ASST. COMM’R OF INCOME TAX (EXEMPTIONS) v. AHMEDABAD

URBAN DEVELOPMENT AUTHORITY

& Ors. v. State of Tamil Nadu and Ors. [1989] Supp 1SCR 692; Vijayalashmi Rice Mill and Ors. v.Commercial Tax Officers, Palakol & Ors. (2006) 6 SCC763 : [2006] 4 Suppl. SCR 279; The Commissioner ofIncome Tax, Lucknow v. U.P. Forest Corporation [1998]2 SCR 22; Union of India & Ors. v. State of U.P. &Ors. [2007] 12 SCR 792; Union of India v. PurnaMunicipal Corporation [1991] Supp 1 SCR 183;Municipal Corporation, Amritsar v. SeniorSuperintendent of Post Offices, Amritsar Division & Anr.[2004] 1 SCR 913; Commissioner of Central Excise,Mumbai v. Fiat India (P) Ltd. & Ors. [2012]12 SCR975; Commissioner of Income Tax v. Dawoodi BoharaJamat (2014) 16 SCC 222; S.RM.M.CT.M. TiruppaniTrust v. Commissioner of Income Tax (1998) 2 SCC 584: [1998] 1 SCR 653; Gadodia Swadeshi Stores v.Commissioner of Income Tax, Punjab [1944] 12 ITR385; J.K. Trust v. CIT [1985] 1 SCR 65; ThiagesarDharma Vanikam v. CIT [1963] 50 ITR 798 Madras;Raja P.C. Lall Choudhary v. CIT, Bihar & Orissa [1957]31 ITR 226 Patna; Director of Income Tax v. BharatDiamond Bourse (2002) 10 SCC 392; Bangalore WaterSupply and Sewage Undertaking v. Rajappa (1978)2 SCC 213:[1978] 3 SCR 207; Greater Noida IndustrialDevelopment Authority v. Union of India (hereafter“GNIDA”) [2018] 406 ITR 418; CIT v. YamunaExpressway Industrial Development Authority (2017)395 ITR 18; Tamil Nadu Cricket Association v. Directorof Income Tax (Exemptions) & Ors. [2014] 360 ITR633; Sahney Steel & Press Works Ltd v. Commissionerof Income Tax [1997] Supp 4 SCR 189; Commissionerof Income Tax v. Ponni Sugars 2008 (9) SCC 337 :[2008] 13 SCR570 – referred to.

Halsbury’s Laws of England, Vol. 32 para 487

Case Law Reference

918SUPREME COURT REPORTS

[2022] 15 S.C.R.

CIVIL APPELLATE JURISDICTION : Civil Appeal No.21762of 2017.CFrom the Judgment and Order dated 02.05.2017 of the High Courtof Gujarat at Ahmedabad in Tax Appeal No.425 of 2016.

With

C.A. Nos. 8193, 5057 of 2012, 5058 OF 2014, 9974 of 2018, 5056Dof 2012, 4196, 4374 of 2015, 9380, 13071, 12058, 16375, 12869, 17527,21845 of 2017, 5719, 9886, 9200, 9860, 10114 of 2018, 1643/2019, 3596,6762, 3972, 3343, 3359, 3971, 3347, 6489, 10598, 7643, 8321, 8554, 9172,10406, 11259, 11884 of 2018, 226, 170, 2047, 2335, 3971, 4449, 4957 of2019, 213, 783 of 2020, 4430, 2477, 2478 of 2021; 7705, 7696, 7720,E7780, 7717, 7707, 7698, 7699, 7695, 7719, 7703, 7718, 7700, 7701, 7702,7721, 7723, 7722, 7704, 7708, 7724, 7709, 7710, 7711, 7725, 7726, 7712,7727, 7713, 7714, 7728, 7754, 7730, 7733, 7734, 7735, 7738, 7741, 7742,7743, 7745, 7753, 7697, 7729, 7715, 7731, 7732, 7716, 7736, 7737, 7739,7740, 7744, 7746, 7747, 7748, 7749, 7750, 7751, 7752 of 2022F

N. Venkataraman, ASG, Arvind datar, Kavin Gulati, Ms. RadhikaSuri, Ajay Vohra, Dhruv Agrawal, Arvind P. Datar, K. K. Chythanya,Sanjay Jhanwar, Harish N. Salve, Tushar Hemani, Manish Shah, K.V.Viswanathan, Harish Salve, Saurabh Soparkar, S. N. Bhat, Sr. Advs.,GRupesh Kumar, Ms. Gargi Khanna, Shyam Gopal, V. ChandrashekaraBharathi, Ms. Alka Agarwal, H. R. Rao, Raj Bahadur Yadav, B. V.Balaram Das, Mrs. Anil Katiyar, Mrs. Prabha Swami, Nikhil Swami, AV Siva Kartikeya, Ms. Divya Swami, Rajat Navet, Kushagra Pandit,Pradeep K. Bakshi, Garvesh Kabra, Kumar Dushyant Singh, RohitHSharma, Rounak Nayak, Anshul Chowdhary, Ms. Arju Chaudhary, P. S.

ASST. COMM’R OF INCOME TAX (EXEMPTIONS) v. AHMEDABAD

URBAN DEVELOPMENT AUTHORITY

Sudheer, Gursharan H.Virk, Ms. Simranjit H.Virk, Prashanth Undurti,Ms. Esha T, Jaymin R. Brahmbhatt, Nakul Mohta, Ms. Misha RohatgiMohta, Devansh Shrivastava, Johnson Subba, Mahinder Singh Hura,Jasmeet Singh, Saif Ali, Divjot Singh Bhatia, Pushpendra S. Bhadoriya,Ms. Rusheet Saluja, Ms. Mamta Chakrabarti, Yajur Bhalla, DeepakSamota, Ashish Vajpayee, Rohit Kumar Pihal, Shubham Bhalla, ManishJP Shah, Balaji Srinivasan, Ms. Pallavi Sengupta, Shahrukh Mohammed,Ms. Kavita Jha, Anant Mann, Udit Naresh, Rohit Jain, Aniket D. Agarwal,Abhishek Kumar Singh, Pramod Dayal, Nikunj Dayal, RahulUnnikrishnan, Dr. Rakesh Gupta, Somil Agarwal, Anshul Mittal, AmbhojKumar Sinha, Anand Sukumar, S. Sukumaran, Sharath S., Ajit V. Ghatikar,Bhupesh Pathak, S. Krishnan, K. V. Mohan, R. K. Raghavan, RajatSharma, Tarun Gupta, Ashish Virmani, Kanu Agrawal, Ms. BinaMadhvan, Ms. Aditi Sethi, Rajat Nair, Sanjay Kumar Visen, Ms. AdiraA. Nair, Ms. Babita Mishra, Rishabh Sancheti, Ms. Padma Priya, AnchitBhandari, Sushant Rao, Ms. Saloni Bhandari, Ms. Racheeta Chawla,Vivek Singh, Rakesh Uttamchandra Upadhyay, Ms. Aarti U. Mishra,Rishabh Kumar Pandey, Surrender Singh Manak, Mishra Saurabh, KabirHathi, Jatin Zaveri, Neel Kamal Mishra, D. S. Mishra, Ms. DeepanwitaPriyanka, Siddharth Batra, Ms. Archna Yadav, Ms. Shivani Chawla,Chinmay Dubey, Malak Manish Bhatt, Sarim Naved, Kabir Dixit, Ms.Anshu Davar, Kamran Javed, D. P. Chaturvedi, Tarun Kumar Thakur,Ms. Parvati Bhat, Anuj Verma, Mrs. Anuradha Mutatkar, Mehul Sharma,Karunankar Mahalik, Advs. for the appearing parties.

The Judgment of the Court was delivered by

S. RAVINDRA BHAT, J.

Index[*]

I. Brief history of legislative changes and this court’s

* Ed Note: Pagination in the Index is as per the original judgment.

[2022] 15 S.C.R.

(iii) Trade Promotion bodies, councils, associations orAorganizations.......................................................114

(iv) Non-statutory bodies - ERNET, NIXI and GS1India....................................................................116

(v) State Cricket Associations........................... 122

(vi) Private trusts .............................................. 135IV.Summation of conclusions ...................................... 141A.General test under Section 2(15)....................... 141B.Authorities, corporations, or bodies established bystatute .............................................................. 142C.Statutory regulators........................................ 143D.Trade promotion bodies ................................. 144E.Non-statutory bodies...................................... 144F.Sports associations ........................................ 145G.Private Trusts .................................................. 145H.Application of interpretation ......................... 146

1. Leave granted in all matters where leave has not already beengranted. C.A. No. 21762/2017 (Assistant Commission of Income Tax,Exemptions v. Ahmedabad Urban Development Authority) is takenas the lead matter.

2. Religious and charitable trusts have existed in one form or theother, tracing their origins to the instinct of benevolence, which is part ofhuman nature. Indian philanthropy has enriched its cultural heritage,particularly in catering to the educational, medical, socio-economic, andreligious needs of the people. Here its role has been supplementary tothe efforts of the State, which has recognized the public utility of thisimpulse, and granted tax exemptions.Indian income-tax laws havefavoured charities, even granted preferential treatment since 1886. Thelaw, while granting exemption to income from religious andcharitable trusts has taken effective measures to minimise misuse oftrust funds. As result, charitable trust loses tax exemption if certainprovisions are not complied with, and if its activities do not fall under

ASection 10 of the Act. Such trusts also have to apply their income to thecharitable objects within specified period, maintain proper auditedaccounts, and invest or utilise funds in manner so that no benefit isderived by the settlor, trustees, their relatives, or other persons.[1]

3. The scope and amplitude of the definition “charitable purpose”Bunder the Income Tax Act, 1961 (hereafter “Income Tax Act” or “theIT Act”) has engaged the courts’ (including that of this court) attentionon myriad occasions. The expression “not involving the carrying onof any activity for profit” in the last limb of the definition [Section2(15) prior to amendment by Finance Act, 1983] was the subject ofdebate in no less than five judgments of this court (including that of aCfive-member bench).

4. In these batch of appeals and special leave petitions, the primaryquestion which falls for consideration is the correct interpretation of theproviso to Section 2(15)[2] of the IT Act introduced by amendment w.e.f.01.04.2009. It is necessary, at this stage, to notice that the IT Act visualizedDthree kinds of charitable purposes: medical relief, education, and relieffor the poor – which are described hereafter as “per se purposes”. Tothis list, Parliament has, by amendments, added other categories, suchas preservation of environment (including watersheds, forests, andwildlife) and preservation of monuments or places or objects of artisticEor historic interest, and yoga. The last – or the residual purpose includedby the definition - is “advancement of any other object of generalpublic utility” (hereafter referred to as “GPU category”), which is thesubject of interpretation in the present case.

5. The Director General of Income Tax for exemptions,FCommissioner of Income Tax (“CIT”) in various states, and other officialsof the Income tax department (hereafter compendiously referred to as

1 Sections 11, 12, 12-A and 13 of the Income-tax Act, 1961.

2 “charitable purpose” includes relief of the poor, education, medical relief, preservationof environment (including watersheds, forests and wildlife) and preservation ofmonuments or places or objects of artistic or historic interest, and the advancement ofGany other object of general public utility:

Provided that the advancement of any other object of general public utilityshall not be charitable purpose, if it involves the carrying on of any activity in thenature of trade, commerce or business, or any activity of rendering any service inrelation to any trade, commerce or business, for cess or fee or any other consideration,irrespective of the nature of use or application, or retention, of the income from suchactivity:..…”H(emphasis supplied)

(emphasis supplied)

“the revenue”) have appealed the decisions of various High Courts, whichhave held that the carrying on of any trade, commerce, or business, isnot per se bar or disqualification for GPU category charitable trustto claim to be such, precluding its tax-exempt status under the IT Act.

I. Brief history of legislative changes and this court’sinterpretation

A. Provisions of the Income Tax Act, 1922

6. The provisions of the erstwhile Income Tax Act, 1922 (hereafter“the old Act”) enabled tax exemption claims by trusts for their incomefrom business activity, provided trusts were created thereon. The PrivyCouncil in The Trustees of Tribune Press, Lahore v. CIT,Punjab[3] (hereafter “In Re: Trustees of the Tribune”) held that theincome of the Tribune Press fell within section 4(3)(i) of the old Act, andit was implied that income from the press was derived from propertyheld under trust to maintain newspaper, to keep up its liberal policy andto devote surplus funds to improve the newspaper. The word “property”occurring under section 4(3)(i) of that Act was also held[4] to include abusiness too. The old Act was amended twice with the object ofeliminating and getting rid of tax exemptions for trusts, which wereotherwise eligible for it. The first amendment of 1939 inserted[5] new3 (1939) 7 ITR 415(hereafter “In Re: Trustees of the Tribune”).4 In Commissioner of Income Tax v. P. Krishna Warriar, (1964) 8 SCR 36 : (1964) 53ITR 176 this court, citing and relying on In re, Trustees of the Tribune [(1939) ITR 415PC] held that:

“This Court in J.K. Trust, Bombay v. Commissioner of Income Tax, Excess Profits Tax,Bombay [(1957) 32 ITR 535] endorsed the said view and held that “property” is termof the widest import and that business would undoubtedly be property unless there wassomething to the contrary in the enactment. If business was property, it could be heldunder trust for religious and charitable purposes. As the business of running the AryaVaidya Sala vested under trust for religious and charitable purposes, it would fall underclause (i), if the other conditions laid down therein were satisfied.”

5 Section 4(3) of the Indian Income-tax (Amendment) Act, 1939, reads as follows:“(3) Any income, profits or gains falling within the following classes shall not beincluded in the total income of the person receiving them:]

(i) Subject to the provisions of clause (c) of sub-section (1) of section 16, any incomederived from property held under trust or other legal obligation wholly for religious orcharitable purposes, in so far as such income is applied or accumulated for applicationto such religious or charitable purposes as relate to anything done within the taxableterritories, and in the case of property so held in part only for such purposes, the incomeapplied or finally set apart for application thereto:

(ia) Any income derived from business carried on on behalf of religious or charitableinstitution when the income is applied solely to the purposes of the institution and-

Aclause (ia) in the then existing provision. This provided that incomederived from business carried on by or on behalf of charitable trust orreligious institution could be limited to only such business income as wasderived by the trust or institution from business carried on either in thecourse of the carrying on of trust’s primary purpose, or carried onmainly by the beneficiaries of the trust or institution. The Lahore HighBCourt in Charitable Gadodia Swadeshi Stores v. CIT[6], observed:

“Viewed in its proper perspective, therefore, clause (ia) canbe taken to apply only such business as is carried on behalfof religious or charitable institutions which were not heldunder trust and not to such business as was itself held underCtrust or was conducted by or on behalf of such charitable orreligious institutions as were held under trust. If it was intendedto narrow down the scope of clause (1) so as to withdraw theexemption enjoyed by business held under trust orconducted by or on behalf of religious or charitable trust,Dthe new clause should have been added as proviso to the oldclause.”

7. The Act was again amended by the Finance Act, 1953[7 ] whereinclause (ia) was deleted from section 4(3)(i) of the old Act and instead

(a) the business is carried on in the course of the carrying out of primary purpose ofEthe institution, or

(b) the work in connection with the business is mainly carried on by beneficiaries of theinstitution”

6 (1944) 12 ITR 385

7 Section 4 of Finance Act, 1953 added proviso to Section 4(3)(i); it reads as follows:“Provided that such income shall be included in the total income—

[(a) if it is applied to religious or charitable purposes without the taxable territories, butFin the following cases, namely:—

(i) where the property is held under trust or other legal obligation created before thecommencement of the-Indian Income-tax (Amendment) Act, 1953 (XXV of 1953), andthe income therefrom is applied to such purposes without the taxable territories; and(ii) where the property is held under trust or other legal obligation created after suchcommencement, and the income therefrom is applied without the taxable territories toGcharitable purposes which tend to promote international welfare in which India isinterested,the Central Board of Revenue may, by general or special order, direct that it shall not beincluded in the total income;]

(b) in the case of income derived from business carried on on behalf of religious orcharitable institution, unless the income is applied wholly for the purposes of the institutionand either—H

inserted as its proviso. Parliamentary intent, in transforming oldclause (ia) into proviso to Section 4 (3)(i) was that whenever businesswas carried on behalf of religious or charitable institution, the conditionsprescribed in clause (b) of proviso to clause (i) had to be satisfied inaddition to the general condition of exemption set out in the substantivepart of clause (i). Parliament’s attempt to exempt income from businessactivity upon complying with other conditions - apart from those laiddown in clause (i) - was interpreted by this court in CIT v. P. KrishnaWarriar[8] (hereafter “Krishna Warriar”). The court observed that:

“The legal position may briefly be stated thus: Clause (i) ofsection 4(3) of the Act takes in every property or fractionalpart of it held in trust wholly for religious orcharitable purposes. It also takes in such property held onlyin part for such purposes. Business is also property withinthe meaning of said clause. Clause (b) of the proviso to section4(3)(i) applies only to business not held in trust but carriedon on behalf of religious or charitable institutions.”

8. The old Act defined ‘charitable purpose’ under Section 4(3) -i.e., the definition as it stood just prior to the IT Act, 1961 coming intoforce (thereby replacing the old Act) - as follows:

“4 (3) Any income, profits or gains falling within the followingclasses shall not be included in the total income of the personreceiving them

In this sub-section “charitable purpose” includes relief ofthe poor, education, medical relief and the advancement ofany other object of general public utility, but nothingcontained in clause (i) or clause (ii) shall operate to exemptfrom the provisions of this Act that part of the income from

(i) the business is carried on in the course of the actual carrying out of primarypurpose of the institution, or

(ii) the work in connection with the business is mainly carried on by beneficiaries of theinstitution;

(c) if it is applied to purposes other than religious or charitable purposes or ceases tobe accumulated or set apart for application thereto in which case it shall be deemed tobe the income of the year in which it is so applied or ceases to be so accumulated or setapart.]”

8 (1964) 8 SCR 36: (1964) 53 ITR 176

930SUPREME COURT REPORTS

[2022] 15 S.C.R.

Aproperty held under trust or other legal obligation forprivate religious purposes which does not enure for thebenefit of the public.”

This court had occasion to interpret the meaning of the expression“advancement of any other object of general public utility” in CITBv. Andhra Chamber of Commerce[9]. The court considered previousdecisions in: In Re: Trustees of the Tribune (supra) and All IndiaSpinners Association of Mirzapur v. CIT[10]. Relying heavily on thedecision of the Privy Council in In Re: Trustees of the Tribune (supra),this court held, in Andhra Chamber of Commerce that GPU objectsincluded all objects promoting welfare of general public, including takingCsteps to oppose or urge legislation affecting trade, commerce, etc.

B. The new law: Income Tax Act, 1961

9. Section 2 (15) of the IT Act (which came into force on01.04.1962 and repealed the old IT Act) defined “charitable purpose” asfollows:D

“(15) — charitable purpose includes relief of the poor,education, medical relief, and the advancement of any otherobject of general public utility not involving the carrying onof any activity for profit.”

E10. The then Finance Minister, Mr. Morarji Desai, explained therationale for the new definitionon the floor of Lok Sabha:

“The definition of ‘charitable purpose’ in that clause is atpresent so widely worded that it can be taken advantage ofeven by commercial concerns which, while ostensibly servingFa public purpose, get fully paid for the benefits provided bythem, namely, the newspaper industry which while runningits concern on commercial line can claim that by circulatingnewspapers it was improving the general knowledge of thepublic. In order to prevent the misuse of this definition insuch cases, the Select Committee felt that the words ‘notGinvolving the carrying on of any activity for profit’ should beadded to the definition.”[11]

9 (1965) 1 SCR 565 (hereafter “Andhra Chamber of Commerce”)

10 (1944) 12 ITR 482 (hereafter “All India Spinners Association of Mirzapur”)

11 (LVI) Lok Sabha Debates., 32nd scs., p. 3073 (August 18, 1961).H

11. The first major decision to interpret the new definition wasSole Trustee, Lok Shikshana Trust v. Commissioner of Income Tax[12](hereafter “Lok Shikshana Trust”). This court turned down contentionthat newspaper business, carried on with several other objects (whichincluded setting up of educational institutions, dissemination of knowledgeto the Kannada speaking public through newspaper, etc.) was charitable.The court noticed the changed definition:

“7.…The result thus of the change in the definition is that inorder to bring case within the fourth category of charitablepurpose, it would be necessary to show that (1) the purposeof the trust is the advancement of any other object of generalpublic utility, and (2) the above purpose does not involve thecarrying on of any activity for profit. Both the above conditionsmust be fulfilled before the purpose of the trust can be heldto be charitable purpose.

9. It is true that there are some business activities like mutualinsurance and co-operative stores of which profit-making isnot an essential ingredient, but that is so because of self-imposed and innate restriction on making profit in the carryingon of that particular type of business. Ordinarily profit motiveis normal incidence of business activity and if the activityof trust consists of carrying on of business and there areno restrictions on its making profit, the court would be welljustified in assuming in the absence of some indication to thecontrary that the object of the trust involves the carrying onof an activity for profit…….. By the use of the expression‘profit motive’ it is not intended that profit must in fact beearned. Nor does the expression cover mere desire to makesome monetary gain out of transaction or even series oftransactions. It predicates motive which pervades the wholeseries of transactions effected by the person in the course ofhis activity….”

The court also rejected the submission that the “profit” referredto meant private profit. It held that the term had to be interpreted withoutqualification.

12 (1976) 1 SCC 254(hereafter “Lok Shikshana Trust”)

A12. One of the judges - Beg, J, concurred with the majority, butafter noticing that the trust deed did not contain any condition on profit-making, expressed slightly different view emphasizing that the actualactivityneeds to be considered, rather than the absence or existence ofany condition, in the trust deed.B13. The next decision of importance is Indian Chamber ofCommerce v. CIT[13]. The appellant-chamber was company registeredunder Section 25 of the Indian Companies Act, 1913. Its memorandumand articles of association stipulated certain broad objects, which thiscourt agreed fell within the expression “the advancement of any …object of general public utility” in Section 2(15) of the Act. The objectsCwere “promotional and protective of Indian trade interests and otherallied service operations”. residual clause authorised the chamber“to do all other things as may be conducive to the development oftrade, commerce and industries or incidental to attainment of theabove objects or any of them”. As per clauses (4) and (8) of theDmemorandum of association, the chamber’s member could not stand togain personally since no portion of

“income and property of the association shall be paid …directly or indirectly, by way of dividend or bonus or otherwisehowsoever by “way of profit to the persons who at any timeEare ... members of the Association ....”

On dissolution of the association, the members could not claimany share in the assets. The chamber, conceded before this court, that it“by and large, strives to advance the general trade interests of Indiaand Indian without seeking to make profits for its members.” ThisFcourt denied the exemption claimed, holding that:

“14… The attainment of that object shall not involve activitiesfor profit. What then is an activity for profit? An undertakingby business organisation is ordinarily assumed to be forprofit unless expressly or by necessary implication or byGeloquent surrounding circumstances the making of profitstands loudly negatived. We will illustrate to illumine. If thereis restrictive provision in the bye-laws of the charitableorganisation which insists that the charges levied for servicesof public utility rendered are to be on ‘no profit” basis, it

H13 (1976) 1 SCC 324 (hereafter “Indian Chamber of Commerce”)

clearly earns the benefit of Section 2(15). For instance, afuneral home, an S.P.C.A. or cooperative may renderservices to the public but write condition into its constitutionthat it shall not charge more than is actually needed for therendering of the services, — maybe it may not be an exactequivalent, such mathematical precision being impossible inthe case of variables, — maybe little surplus is left over atthe end of the year — the broad inhibition against makingprofit is good guarantee that the carrying on of the activityis not for profit. As an antithesis, take funeral home or ananimal welfare organisation or super bazaar run for generalpublic utility by an institution which charges large sums andmakes huge profits. Indubitably they render services ofgeneral public utility. Their objects are charitable but theiractivities are for profit…

**********

16. To sum up, Section 2(15) excludes from exemption thecarrying on of activities for profit even if they are linked withthe objectives of general public utility, because the statuteinterdicts, for purposes of tax relief, the advancement of suchobjects by involvement in the carrying on of activities forprofit. We appreciate the involved language we use, but whenlegislative draftsmanship declines to be simple, interpretativecomplexity becomes judicial necessity.

**********

21. The true test is to ask for answers to the followingquestions: (a) Is the object of the assessee one of generalpublic utility? (b) Does the advancement of the object involveactivities bringing in moneys? (c) If so, are such activitiesundertaken (i) for profit or (ii) without profit? Even if (a) and(b) are answered affirmatively, if (c)(i) is answeredaffirmatively, the claim for exemption collapses. The solutionto the problem of an activity being one for or irrespective ofprofit is gathered on footing of facts. What is the real natureof the activity? One which is ordinarily carried on by ordinarypeople for gain? Is there built-in prescription in theconstitution against making profit? Has there been inpractice, profit from this venture? Although, this last is weak

ABC

[2022] 15 S.C.R.

Atest. The mere fact that service is rendered is no answer tochargeability because all income is often derived by renderingsome service or other.”

C. The judgment in Surat Art Silk

14. The judgment by larger, five-judge Bench, in AssistantBCommissioner v. Surat Art Silk Cloth Manufacturers’ Association[14](hereafter “Surat Art Silk”) was the most important decision renderedon the issue. Here Section 25 (of the Companies Act, 1956corresponding to Section 8 of the Companies Act, 2013) non-profitcompany was established. It claimed exemption as an institutionwithCcharitable purposes as its objectives. The objects of the company includedpromoting commerce and trade in Art Silk yarn, raw silk, cotton yarn,Art Silk cloth, silk cloth, and cotton cloth, among other objects[15]. Clause5(1) of the company’s memorandum provided that its income andproperty wheresoever derived was to be applied “solely for thepromotion of its objects as set forth in the Memorandum”; ClauseD5(2) directed that no portion of the income or property could be paid ortransferred, directly or indirectly, by way of dividend, bonus, or otherwiseby way of profit, to persons, who at any time are or had been membersof the assessee. The Income Tax Appellate Tribunal (hereafter “ITAT”)after initial remand to the Appellate Commissioner, held that “the primaryEpurpose for which the assessee wasestablished was to promotecommerce and trade in Art Silk and Silk Yarn and Cloth”. The ITATmade direct reference of the issue, to this court, since conflict existedwith regard to the correct interpretation of the residual clause, i.e.,institutions engaged in the advancement of objects of general public utility,

F14 (1980) 2 SCC 31(hereafter “Surat Art Silk”)15 The list of objects were as follows:

“(a) To promote commerce and trade in Art Silk Yarn, Raw Silk, Cotton Yarn, Art SilkCloth, Silk Cloth and Cotton Cloth.

(b) To carry on all and any of the business of Art Silk Yarn, Raw Silk, Cotton Yarn as wellas Art Silk Cloth, Silk Cloth and Cotton Cloth belonging to and on behalf of the members.

(c) To obtain import licences for import of Art Silk Yarn, Raw Silk, Cotton Yarn andGother raw materials as well as accessories required by the members for the manufactureof Art Silk, Silk and Cotton Fabrics.

(d) To obtain export licences and export cloth manufactured by the members.(e) To buy and sell and deal in all kinds of cloth and other goods and fabrics belongingto and on behalf of the members.

(n) To do all other lawful things as are incidental or conducive to the attainment of theHabove objects.”

and whether the company was entitled to be assessed as one carryingon activities that amounted to charitable purposes. This court firstdetermined that the primary or dominant objectof the company waspromotion and development of trade in silk, silk cloth, yarn and othersuch items and that the other objects were subsidiary to this primaryobject. It then held that the requirement of absence of profit motive,was satisfied:

“7...but this requirement was also satisfied in the case of theassessee, because the object of private profit was eliminatedby the recognition of the assessee under section 25 of theCompanies Act, 1956 and clauses 5 and 10 of itsMemorandum. It must, therefore, be held that the income andproperty of the assessee were held under legal obligationfor the purpose of advancement of an object of general publicutility within the meaning of section 2 clause (15).”

15. This court then held that the words of prohibition occurring atthe end of Section 2(15) were applicable to the last category of charitableinstitutions, i.e., those involved in the advancement of objects of generalpublic utility. It further clarified that the prohibition applied to the objectand not the advancement or attainment of the said object:

“10a. It is clear on plain natural construction of thelanguage used by the legislature that the ten crucial words“not involving the carrying on of any activity for profit” gowith “object of general public utility” and not with“advancement”. It is the object of general public utility whichmust not involve the carrying on of any activity for profit andnot its advancement or attainment. What is inhibited by theselast ten words is the linking of activity for profit with the objectof general public utility and not its linking with theaccomplishment or carrying out of the object. It is notnecessary that the accomplishment of the object or the meansto carry out the object should not involve an activity for profit.That is not the mandate of the newly added words. What thesewords require is that the object should not involve the carryingon of any activity for profit. The emphasis is on the object ofgeneral public utility and not on its accomplishment orattainment. The decisions of the Kerala and Andhra PradeshHigh Courts in CIT v. Cochin Chamber of Commerce and

AIndustry [(1973) 87 ITR 83 : (Ker)[16] and A.P. State RoadTransport Corporation v. CIT [(1975) 100 ITR 392 (AC)], inour opinion lay down the correct interpretation of the last tenwords in Section 2 clause(15). The true meaning of these lastten words is that when the purpose of trust or institution isthe advancement of an object of general public utility, it isBthat object of general public utility and not its accomplishmentor carrying out which must not involve the carrying on ofany activity for profit.”

16. The court then went on to hold what is meant by “not involvingthe carrying on an activity for profit”:C

“15. …The question that is necessary to be asked for thispurpose is as to when can the purpose of trust or institutionbe said to involve the carrying on of any activity for profit.The word “involve” according to the Shorter OxfordDictionary means “to enwrap in anything, to enfold orDenvelop; to contain or imply”. The activity for profit must,therefore, be intertwined or wrapped up with or implied inthe purpose of the trust or institution or in other words it mustbe an integral part of such purpose. But the question againis what do we understand by these verbal labels or formulae;Ewhat is it precisely that they mean? Now there are two possibleways of looking at this problem of construction. Oneinterpretation is that according to the definition what isnecessary is that the purpose must be of such nature that itinvolves the carrying on of any activity for profit in the sensethat it cannot be achieved without carrying on an activity forFprofit. On this view, if the purpose can be achieved withoutthe trust or institution engaging itself in an activity for profit,it cannot be said that the purpose involves the carrying on ofan activity for profit…

********************************G

16. The other interpretation is to see whether the purposeof the trust or institution in fact involves the carrying on ofan activity for profit or in other words whether an activity for

16 This decision was reversed in Indian Chamber of Commerce v. Commissioner ofHIncome Tax(1976) 1 SCC 324

profit is actually carried on as an integral part of the purposeor to use the words of Chandrachud, J, as he then wasin Dharmodayam case [(1977) 4 SCC 75] , “as matter ofadvancement of the purpose”. There must be an activity forprofit and it must be involved in carrying out the purpose ofthe trust or institution or to put it differently, it must be carriedon in order to advance the purpose or in the course ofcarrying out the purpose of the trust or institution. It is thenthat the inhibition of the exclusionary clause would beattracted. This appears to us to be more plausibleconstruction which gives meaning and effect to the lastconcluding words added by the legislature and we prefer toaccept it. Of course, there is one qualification which must bementioned here and it is that if the constitution of trust orinstitution expressly provides that the purpose shall be carriedout by engaging in an activity which has predominant profitmotive, as, for example, where the purpose is specificallystated to be promotion of sports by holding cricket matcheson commercial lines with view to making profit, there wouldbe no scope for controversy, because the purpose would, onthe face of it, involve carrying on of an activity for profit andit would be non-charitable even though no activity for profitis actually carried on or, in the example given, no cricketmatches are in fact organised.17. The next question that arises is as to what is themeaning of the expression “activity for profit”. Every trust orinstitution must have purpose for which it is establishedand every purpose must for its accomplishment involve thecarrying on of an activity. The activity must, however, be forprofit in order to attract the exclusionary clause and thequestion therefore is when can an activity be said to beone for profit? The answer to the question obviously dependson the correct connotation of the preposition “for”. Thispreposition has many shades of meaning but when used withthe active participle of verb it means “for the purpose of”and connotes the end with reference to which something isdone. It is not therefore enough that as matter of fact anactivity results in profit but it must be carried on with theobject of earning profit. Profit-making must be the end to

ABC

Awhich the activity must be directed or in other words, thepredominant object of the activity must be making profit.Where an activity is not pervaded by profit motive but is carriedon primarily for serving the charitable purpose, it would notbe correct to describe it as an activity for profit. But where,on the other hand, an activity is carried on with theBpredominant object of earning profit, it would be an activityfor profit, though it may be carried on in advancement of thecharitable purpose of the trust or institution. Where an activityis carried on as matter of advancement of the charitablepurpose or for the purpose of carrying out the charitableCpurpose, it would not be incorrect to say as matter of plainEnglish grammar that the charitable purpose involves thecarrying on of such activity, but the predominant object ofsuch activity must be to subserve the charitable purpose andnot to earn profit. The charitable purpose should not besubmerged by the profit making motive; the latter should notDmasquerade under the guise of the former….”17. The court took note of the judgment of Pathak, J.in Dharmadeepti v. CIT[17] as well as the speech of then then FinanceMinister, and further observed:

E“17. ….It is obvious that the exclusionary clause was addedwith view to overcoming the decision of the Privy Councilin the Tribune case [AIR 1939 PC 208: In Re the Trustees ofthe Tribune, (1939) 7 ITR 415] where it was held that theobject of supplying the community with an organ of educatedpublic opinion by publication of newspaper was an objectFof general public utility and hence charitable in character,even though the activity of publication of the newspaper wascarried on commercial lines with the object of earning profit.The publication of the newspaper was an activity engaged inby the trust for the purpose of carrying out its charitableGpurpose and on the facts it was clearly an activity which hadprofit making as its predominant object, but even so it washeld by the Judicial Committee that since the purpose servedwas an object of general public utility, it was charitablepurpose. It is clear from the speech of the Finance Minister

that it was with view to setting at naught this decision thatthe exclusionary clause was added in the definition of“charitable purpose”. The test which has, therefore, now tobe applied is whether the predominant object of the activityinvolved in carrying out the object of general public utility isto subserve the charitable purpose or to earn profit. Whereprofit making is the predominant object of the activity, thepurpose, though an object of general public utility, wouldcease to be charitable purpose. But where the predominantobject of the activity is to carry out the charitable purposeand not to earn profit, it would not lose its character of acharitable purpose merely because some profit arises fromthe activity. The exclusionary clause does not require that theactivity must be carried on in such manner that it does notresult in any profit. It would indeed be difficult for persons incharge of trust or institution to so carry on the activity thatthe expenditure balances the income and there is no resultingprofit…..

18. The court proceeded to quote from passages in its previousjudgments, in Lok Shikshana Trust and Indian Chamber of Commerce(supra) to the effect that if the activity of trust consists of carrying ona business and there are no restrictions on profit-making, the court couldassume (in the absence of something to the contrary) that the trust’sobject involved carrying on of an activity for profit. The ConstitutionBench disagreed with the approach in both the previous judgments, andobserved:

“19. …Now we entirely agree with the learned Judges whodecided these two cases that activity involved in carrying outthe charitable purpose must not be motivated by profitobjective but it must be undertaken for the purpose ofadvancement or carrying out of the charitable purpose. Butwe find it difficult to accept their thesis that whenever anactivity is carried on which yields profit, the inference mustnecessarily be drawn, in the absence of some indication tothe contrary, that the activity is for profit and the charitablepurpose involves the carrying on of an activity for profit. Wedo not think the Court would be justified in drawing any suchinference merely because the activity results in profit. It is in

our opinion not at all necessary that there must be provisionin the constitution of the trust or institution that the activityshall be carried on no profit no loss basis or that profit shallbe proscribed. Even if there is no such express provision, thenature of the charitable purpose, the manner in which theactivity for advancing the charitable purpose is being carriedon and the surrounding circumstances may clearly indicatethat the activity is not propelled by dominant profit motive.What is necessary to be considered is whether having regardto all the facts and circumstances of the case, the dominantobject of the activity is profit making or carrying out acharitable purpose. If it is the former, the purpose would notbe charitable purpose, but, if it is the latter, the charitablecharacter of the purpose would not be lost.

20. If we apply this test in the present case, it is clear that theactivity of obtaining licences for import of foreign yarn andDquotas for purchase of indigenous yarn, which was carriedon by the assessee, was not an activity for profit. Thepredominant object of this activity was promotion of commerceand trade in Art Silk Yarn, Raw Silk, Cotton Yarn, Art SilkCloth, Silk Cloth and Cotton Cloth, which was clearly anobject of general public utility and profit was merely bye-Eproduct which resulted incidentally in the process of carryingout the charitable purpose. It is significant to note that theassessee was Company recognised by the CentralGovernment under Section 25 of the Companies Act, 1956and under its Memorandum of Association, the profit arisingFfrom any activity carried on by the assessee was liable to beapplied solely and exclusively for the promotion of trade andcommerce in various commodities which we have mentionedabove and no part of such profit could be distributed amongstthe members in any form or under any guise. The profit of theassessee could be utilised only for the purpose of feedingGthis charitable purpose and the dominant and real object ofthe activity of the assessee being the advancement of thecharitable purpose, the mere fact that the activity yielded profitdid not alter the charitable character of the assessee. We areof the view that the Tribunal was right in taking the view thatHthe purpose for which the assessee was established was

charitable purpose within the meaning of Section 2 clause(15) and the income of the assessee was exempt from tax underSection 11. The question referred to us in each of thesereferences must, therefore, be answered in favour of theassessee and against the Revenue.”

19. There was, however, discordant note in Surat Art Silk -A.P. Sen, J disagreed with the majority, and delivered dissenting opinion.Explaining how there were no restrictive words or conditions, under theold IT Act, the learned judge held that the approach indicated in LokShikshana Trustand Indian Chamber of Commerce were correct. Hefelt that the previous decisions of the court were not relevant, and that ifthe activities of trust involved any activity for profit or business, theorganization ceased to be charitable, and that such proceeds were utilizedfor charitable objects, were not relevant. He also noted that “A readingof Section 2(15) and Section 11 together shows that what is frownedupon is an activity for profit by charity established for advancementof an object of general public utility in the course of accomplishingits objects.”The same judgment also stated that:

“if the object of the trust is advancement of an object ofgeneral public utility and it carried on any activity for profit,it is excluded from the ambit of charitable purpose defined inSection 2(15). The distinction is clearly brought out by theprovision contained in Section 13(1)(bb) inserted by Tax Laws(Amendment) Act, 1975.”

D. Relevant changes brought about to the IT Act, 1961(Finance Act, 1983 and 1991)

20. It is pertinent to note that the judgment in Surat Art Silk wasdelivered on 19.11.1979. The expression “not involving the carryingon of any activity for profit” in Section 2(15) of the IT Act, was omittedby the Finance Act, 1983, w.e.f. 01.04.1984. Prior to this, w.e.f.01.04.1977 the following restrictive condition had been inserted[18] as clause(bb), to Section 13(1)[19]:

“(bb) in the case of charitable trust or institution for therelief of the poor, education or medical relief, which carrieson any business, any income derived from such business,

18 Through the Taxation Laws Amendment Act, 1975.

19 Section 13 - Section 11 not to apply in certain cases.

Aunless the business is carried on in the course of the actualcarrying out of primary purpose of the trust or institution”

This provision had the effect of excluding or excepting theoperation of Section 11 (which deemed certain receipts of charitableinstitutions not to be part of their income). The restrictive condition inBclause (bb) was also omitted by the Finance Act, 1983, w.e.f. 01.04.1984.

21. Below Section 11(4)[20] (as it originally stood in the IT Act,1961), Section 11(4A)[21] was inserted by the Finance Act, 1983, w.e.f.01.04.1984. Subsequently, Section 11(4A) was amended and substitutedby the following provision w.e.f. 01.04.1992 (and continues to be in force):

“(4A) Sub-section (1) or sub-section (2) or sub-section (3) orsub-section (3A) shall not apply in relation to any income ofa trust or an institution, being profits and gains of business,unless the business is incidental to the attainment of theobjectives of the trust or, as the case may be, institution, andDseparate books of account are maintained by such trust orinstitution in respect of such business.”

20 Section 11(4) as originally enacted, reads as follows:

“For the purposes of this section ‘property held under trust’ includes businessundertaking so held, and where claim is made that the income of any such undertakingEshall not be included in the total income of the persons in receipt thereof, the Income TaxOfficer shall have power to determine the income of such undertaking in accordancewith the provisions of this Act relating to assessment; and where any income sodetermined is in excess of the income as shown in the accounts of the undertaking, suchexcess shall be deemed to be applied to purposes other than charitable or religiouspurposes.”

21 Earlier, sub-section (4A) was inserted by the Finance Act, 1983, w.e.f. 01.04.1984,Fand read as follows:“(4A) Sub-section (1) or sub-section (2) or sub-section (3) or sub-section (3A) shall notapply in relation to any income of trust or an institution, being profits and gains ofbusiness, unless

(a)the business is carried on by trust wholly for public religiouspurposes and the business consists of printing and publication of books or is ofa kind notified by the Central Government in this behalf in the Official Gazette;G(b)the business is carried on by an institution wholly for charitablepurposes and the work in connection with the business is mainly carried on bythe beneficiaries of the institution;

and separate books of accounts are maintained by the trust or institution in respect ofsuch business”

E. The judgment in Thanthi Trust

22. This court comprehensively interpreted these provisions asthey existed, in different time periods, in Assistant Commissioner ofIncome Tax v. Thanthi Trust[22] where this court had to decide whetherthe assessee trust, created for establishing newspaper “as an organof educated public opinion for the Tamil reading public and todisseminate news and to ventilate opinion upon all matters of publicinterest through it.” could avail of tax exemption.In 1957, the settlorexecuted supplementary deed making the trust irrevocable. On28.07.1961 another supplementary deed was executed which directedthat the trust’s surplus income (after defraying all expenses), should bedevoted to purposes such as establishing and running school or collegefor the teaching of journalism; establishing and/or running or helping torun schools, colleges or other educational institutions for teaching artsand science; establishing of scholarships for students of journalism, artsand science; establishing and/or running or helping to run hostels forstudents; establishing and/or running or helping to run orphanages; andother educational purposes. The High Court held that exemption couldbe claimed by the trust. The revenue appealed. This court noticed thatthe appeals covered three distinct periods- (i) 1979-80 to 1983-84, (ii)1984-85 to 1991-92, and (ii) 1992-93 to 1996-97. This court held that forthe first period (1979-80 to 1983-84), the activity of running newspaper,and the corpus held for it, by the trust, did not directly result in carryingon the educational activities mentioned in the supplementary deeds. Theincome was found to only feed such activity, which was not the same ascarrying on in the course of actual accomplishment of the trust’s objectsof education and relief of poor, and thus not entitled to exemption. Forthe next period (1984-85 to 1991-92), noting that Section 11(4) continuedto be in existence [despite Section 11(4A) being inserted (as originallyenacted w.e.f. 01.04.1984)], dealing with the expression “property heldunder trust”, and held that:

“23....Trusts and institutions are separately dealt with in theAct (Section 11 itself and sections 12, 12A and 13, forexample). The expressions refer to entities differentlyconstituted. It is thus clear that the newspaper business thatis carried on by the Trust does not fall within sub-section(4A). The Trust is not only for public religious purposes so it

does not fall within clause (a). It is Trust not an institution,so it does not fall within clause (b). It must, therefore, be heldthat for the assessment years in question the Trust was notentitled to the exemption contained in section 11 in respect ofthe income of its newspaper.”

B23. For the third period (1992-93 to 1996-97), the court dealt withthe meaning and effect of Section 11(4A) (amended and substitutedw.e.f. 01.04.1992) and held that the assessee trust was entitled to betreated as charity:

“25. The substituted sub-section (4A) states that the incomederived from business held under Trust wholly for charitableor religious purposes shall not be included in the total incomeof the previous year of the Trust or institution if “the businessis incidental to the attainment of the objective of the Trust or,as the case may be, institution” and separate books of accountare maintained in respect of such business. Clearly, the scopeof sub-section (4A) is more beneficial to Trust or institutionthan was the scope of sub-section (4A) as originally enacted.In fact, it seems to us that the substituted sub-section (4A)gives Trust or institution greater benefit than was given bysection 13(1)(bb). If the object of Parliament was to give Trustsand institutions no more benefit than that given by section13(1)(bb), the language of section 13(1)(bb) would have beenemployed in the substituted sub-section (4A). As it stands, allthat it requires for the business income of Trust or institutionto be exempt is that the business should be incidental to theattainment of the objectives of the Trust or institution. Abusiness whose income is utilized by the Trust or the institutionfor the purposes of achieving the objectives of the Trust orthe institution is, surely, business which is incidental to theattainment of the objectives of the Trust. In any event, if therebe any ambiguity in the language employed, the provisionmust be construed in manner that benefits the assessee. TheTrust, therefore, is entitled to the benefit of section 11 for theassessment year 1992-93 and thereafter. It is, we should add,not in dispute that the income of its newspaper business hasbeen employed to achieve its objectives of education and relief

to the poor and that it has maintained separate books ofaccount in respect thereof.”

(emphasis supplied)

F. Deletion of certain exemptions: Section 10 (20A) andSection 10 (23)

24. Section 10(20A) had been inserted by the Finance Act, 1970,w.e.f. 01.04.1962; it exempted certain classes of income earned by housingboards, etc., and before deletion read as follows:

“(20A) any income of an authority constituted in India by orunder any law enacted either for the purpose of dealing withand satisfying the need for housing accommodation or forthe purpose of planning, development or improvement of cities,towns and villages, or for both;”

25. Similarly, Section 10(23)[23] existed and provided exemption toincome earned by sport controlling boards, and associations, subject tospecific conditions. Section 10(23) read as follows, before its deletion:

“(23) any income of an association or institution establishedin India which may be notified by the Central Government inthe Official Gazette having regard to the fact that theassociation or institution has as its object the control,supervision, regulation or encouragement in India of thegames of cricket, hockey, football, tennis or such other gamesor sports as the Central Government may, by notification inthe Official Gazette, specify in this behalf:”

26. Section 10(20A) and 10(23) were deleted/omitted by FinanceAct, 2002, w.e.f. 01.04.2003.While both these provisions are not directlyrelevant for deciding the primary question (i.e., as to whatcharitablepurpose is, under Section 2 (15)), they still have an important bearing inthe present case. This is because in view of the circumstances that theprovisions were deleted w.e.f. 01.04.2003, housing boards, and bodies,as well as sports associations, that were earlier claiming exemption of

23 As amended by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 01.04.1989;Direct Tax Laws (Amendment) Act, 1989, w.e.f. 01.04.1989; substituted by the DirectTax Laws (Amendment) Act, 1989, w.e.f. 01.04.1990; and further amended by theFinance (No. 2) Act, 1991, w.r.e.f. 01.04.1990; Finance Act, 1992, w.r.e.f. 01.04.1990/w.e.f. 01.04.1992; and Finance Act, 2000, w.e.f. 1-4-2001.

[2022] 15 S.C.R.

Atheir income under these provisions, now sought to claim that they werecharities.

G. Amendments to Section 2 (15) by Finance Act, 2008 (w.e.f.01.04.2009)

27. Section 2(15) - which had been amended last, in 1983[24], wasBagain amended, by Finance Act, 2008, w.e.f. 01.04.2009. Some otheramendments too were made, with effect from the same date by theFinance Act, 2009 and Finance Act, 2010. With the said amendments, ason 01.04.2009, the provision read as follows:

(15) “charitable purpose” includes relief of the poor,Ceducation, medical relief, [preservation of environment(including watersheds, forests and wildlife) and preservationof monuments or places or objects of artistic or historicinterest, and the advancement of any other object of generalpublic utility:

DProvided that the advancement of any other object of generalpublic utility shall not be charitable purpose, if it involvesthe carrying on of any activity in the nature of trade, commerceor business, or any activity of rendering any service in relationto any trade, commerce or business, for cess or fee or anyEother consideration, irrespective of the nature of use orapplication, or retention, of the income from such activity:]”

[Provided further that the first proviso shall not apply if theaggregate value of the receipts from the activities referred totherein is [ten lakh rupees] or less in the previous year;]

FIn the second proviso, the reference to ten lakhs was substituted,and the figure of rupees twenty-five lakhs, was inserted, by the FinanceAct, 2011 (w.e.f. 01.04.2012). By Finance Act, 2015 (w.e.f. 01.04.2016),the first two provisos to Section 2(15) were deleted, and instead, thefollowing proviso was inserted:

G“Provided that the advancement of any other object of generalpublic utility shall not be charitable purpose, if it involves24 Deletion of the expression “not involving the carrying on of any activity for profit”and the resulting Section 2(15) read as follows:

““charitable purpose” includes relief of the poor, education, medical relief, and theadvancement of any other object of general public utility.”

the carrying on of any activity in the nature of trade, commerceor business, or any activity of rendering any service in relationto any trade, commerce or business, for cess or fee or anyother consideration, irrespective of the nature of use orapplication, or retention, of the income from such activity,unless—

(i) such activity is undertaken in the course of actual carryingout of such advancement of any other object of general publicutility; and

(ii) the aggregate receipts from such activity or activitiesduring the previous year, do not exceed twenty per cent ofthe total receipts, of the trust or institution undertaking suchactivity or activities, of that previous year;”

Additionally, the same amendment also inserted “yoga” (after“education”) as listed category of charitable activity, in the substantiveprovision.

II. Submissions of parties

A. Arguments on behalf of the revenue

28. The learned Additional Solicitor General, Mr. N. Venkataraman(hereafter “ASG”) tracing the genesis of Section 2(15) contended thatthe old IT Act contained no restrictive expressions forbidding trade orbusiness activities by charities. He argued that decisions in In Re: Trusteesof the Tribune, Andhra Chamber of Commerce and the decision inKrishna Warriar(supra) were in light of Section 4(3) of the old Act;therefore, the contextual framework of this court’s decisions was entirelydifferent. Those decisions consequently did not rule out carrying on ofactivities akin to business, by charitable institutions established to advancegeneral public utility.

29. The ASG next submitted that Parliament’s intent, in changingthe law, was to expressly forbid the tax exemption benefit if the entitywas “involved” in carrying on trade or business. The revenue relied onthe two decisions in Lok Shikshana Trust, and Indian Chamber ofCommerce (supra), highlighting that the significance of the change –brought about by Section 2(15) of the IT Act – was noticed. Particularreliance was placed on the observations of Beg, J in Lok ShikshanaTrust and the passages in Indian Chamber of Commerce to urge that

Athe involvement of an entity in the carrying on of activities for profit,even if for advancement of charitable purpose or object, disentitled it totax exemption. The learned ASG urged that this court had recognized –from its earlier decisions – that the prohibition from carrying on trade orcommerce activities applied only to charities meant to advance generalpublic utility and not the other categories such as education, medicalBrelief,or relief to the poor (which are per se exempt).

30. The ASG submitted that the judgments in Indian Chamberof Commerce and Lok Shikshana Trust (supra) were conscious of thegenerality of the GPU category which led Parliament to insert therestrictive words “not involving the carrying on of any activity forCprofit”. It was argued that Parliament amended the definition due torampant abuse of the law by businesses claiming to be driven by charitablepurposes. Often, charities would be created merely to secure exemptionfrom tax, and would carry on large commercial activities, enjoying theprofits. This led Parliament to embed the exclusionary terms, deprivingDexemption if the institution otherwise fell under the GPU category charity,but undertook activities for profit. The ASG relied on the FinanceMinister’s speech in the House at the time of the introduction of the ITAct, and submitted that it outlines the rationale for the restrictive conditionnoting that units run on commercial lines could claim that some generalpublic utility was promoted and claim exemption. The Select CommitteeEof Parliament (at that time), felt that to prevent misuse of the definitionin such cases, the words “not involving the carrying on of any activityfor profit” should be added to the definition. ASG relied on LokShikshana Trust (supra) which highlighted that this statement shed lighton the new provision.F31. It was submitted that Indian Chamber of Commerce (supra)recognized this legislative history, and also held that the interpretation ofthe provision had to be in tune with the advancement of the object of thechanged law. The court also was conscious that there were borderlinecases which posed difficulty in deciding ex facie whether the undertakingGyielding profit is “deceptive” device or bonafide venture resulting“in nominal surplus although substantially intended only to advancethe charitable object”.The court also held that the restrictive conditionwas “term of art and embraces objects of general public utility”.Yet, under the garb of charitable purposes, organisations masking profit,sprang up. The mask was charitable, but the “heart was hunger forH

tax free profit”. The revenue highlighted the following reasoning fromthis court’s judgment in Indian Chamber of Commerce (supra):

“by the new definition the benefit of exclusion from totalincome is taken away where in accomplishing charitablepurpose the institution engages itself in activities for profit.The Calcutta decisions are right in linking; activities for profitwith advancement of the object. If you want immunity fromtaxation, your means of fulfilling charitable purposes mustbe unsullied by profit making ventures.”

32. It was then urged that before the decision in Surat Art Silk(supra) two legislative developments took place, which reinforced therevenue’s view that charities cannot engage in commercial activities.The first was the amendment, carried out in 1975 to the IT Act (w.e.f.01.04.1976), which introduced Section 10 (23C) and had the effect ofexcluding income received by inter alia, any fund or institution, establishedfor charitable purposes. The said provision, to the extent relevant, isextracted as follows:

“10. In computing the total income of previous year of anyperson, any income falling within any of the following clausesshall not be included—

***************

“(23C) any income received by any person on behalf of-

(i)the Prime Minister’ s National Relief Fund; or*****************

(iv) any other fund or institution established for charitablepurposes”

The other amendment was introduction of Section 13(1)(bb) (w.e.f.01.04.1977) which imposedconditions on the carrying on of business, bycharitable institutions.

33. It was urged that the combined operation of Section 2(15),Section 10(23C) and Section 13(1)(bb) meant that only charities whichwere set up for the purpose of “relief of the poor, education or medicalrelief”, could claim exemption if they carried on business “in the courseof actual carrying out of primary purpose of the trust or

Ainstitution”. The studied omission of GPU category charities, in Section13(1)(bb) meant that if such trust or institutions carried on any business,even incidental to their objects, they would not be entitled to exemption.

34. The ASG then contended that the decision in Surat Art Silk(supra) had the unintended consequence of ignoring the significance ofBthe addition of the expression “advancement of any other object ofgeneral public utility not involving the carrying on of any activityfor profit”.The remedy intended by Parliament, in adding the said termswas to prevent charities (involved in the carrying on of any activity forprofit) from claiming exemption, and to ensure that purely charitableactivity-driven trusts or institutions, could claim exemption. It wasCsubmitted that the Constitution Bench fell into error, in holding that aslong as the ‘dominant’ objective of the charity was to promote objects ofgeneral public utility, they were entitled to exemption.35. The ASG further submitted that if the history of the provision,and the further amendments were kept in mind, the question of permittingDactivities that had any business or trade, for consideration, could notarise; however, by later amendments, GPU category charities have beenpermitted to carry on activities in the nature of business, for consideration,or service in relation to business and commerce, provided that is in thecourse of actually achieving the charitable object, and also that incomeEfrom such activities (i.e. business, etc.) does not exceed 20% of thetotal receipts.

36. It was submitted that statutory corporations, agencies, boardsand authorities may trace their origins to specific Central or State laws.However, if their activities are akin to or “in the nature of” business, orFtrade, or they provide services to businesses or trade, for consideration,fee or even cess (since they may be enabled to do so by law) they haveto fulfil the mandate and restrictions under Section 2(15), especiallyproviso (ii). The ASG cited the larger bench decision in New DelhiMunicipal Council v. State of Punjab[25] (hereafter “NDMC”)to urgethat state entities are not exempt from Union taxation, if they engage inGtrade or business. It was furthermore submitted that the effect of proviso(i) to Section 2(15) is that there can be no question of any incidentalactivity; nor can the proceeds of trade claim to be exempt merely becausethey are ploughed back to feed the charitable object.

B. Arguments of the assessee-organizations

37. Mr. S.N. Soparkar, learned Senior Advocate appeared for theAhmedabad Urban Development Authority (hereafter “AUDA”); theGujarat Industrial Development Corporation (hereafter “GIDC”) andGujarat Housing Board (hereafter “GHB”). Counsel submitted that allthree corporations were established by or under statutes enacted by theGujarat legislature; they were treated as local authority under Section10(20) of the IT Act, as it existed till 2003. Thereafter they were treatedas charitable institutions engaged in activities involved in the advancementof public utility till the amendment of 2008. Learned counsel highlightedthat the AUDA was created purely for the development andredevelopment -as well as for augmentation of roads and allotment oflands after redevelopment, in the areas under its control. Relying uponthe provisions of the Act constituting AUDA[26], he submitted that itsmandate is to control development activities, execution of works anddispersal of sewage, provisions of such other facilities and generallyengage in urban development in the areas it had jurisdiction over. Hehighlighted Section 40 of that Act and urged that the nature of activities,especially disposal of properties developed by AUDA were entirelyregulated. Whilst the lion’s shares of properties developed by AUDAwere to be allotted for housing and residence, and earmarked specificallyfor public amenities, roads etc., small percentage (15%) could be soldby public auction. It was submitted that the statutory model adopted byAUDA was to enable it to function as self-sustaining unit. The disposalof plots through allotment and especially by public auction were the mainmodes through which it could generate revenue. The entire revenue orincome so generated was to be kept in fund under Section 91; and itsaccounts were mandatorily audited by the State’s Accountant Generalunder Section 95.

38. It was argued that like AUDA, the GIDC too was also set upby virtue of statute[27], i.e. GIDA, 1962 for the purposes of securing andassisting rapid and orderly establishment and organisation of industrialareas and estates in Gujarat, as well as establishing commercial centresfor such industrial areas and estates. Like AUDA, its accounts wereaudited by the Accountant General; the audited report was to be laidbefore the State legislature (Section 26(4)) and the land developed by

26 Gujarat Town Planning and Urban Development Act, 1976

27 Gujarat Industrial Development Act, 1962 (referred to as “GIDA”)

ABC

DEFG

Athe GIDC could be dealt with only in accordance with law, i.e., theregulations framed under the GIDA, its constituting enactment, furtherto Section 32(2).As far as GHB is concerned, learned counsel submittedthat like the other statutory corporations it was also established by virtueof special law[28]. The functions of this Board were identical to that ofAUDA and its mandate is to regulate and develop building activitiesBaimed for the purposes of providing housing.

39. Learned counsel urged that none of the three boards carry onany business activity; their functions are controlled by the parentenactments under which they were created. Furthermore, on advancingof its affairs in such manner that if any surpluses are generated, theyCwere used for furthering the objectives of law. Thus, for instance, ifsurplus is generated in the activities of AUDA, GIDC, or GHB, thosewould not be handed to the State Government, which previously hadcontrol over them but rather kept in separate fund to be utilised forfurther development, expansion and development activities by each ofDsuch corporations. These cannot be construed as carrying on any trade,business or commerce.

40. It was submitted that the decisions in In Re: Trustees of theTribune; Krishna Warriar and Lok Shikshana Trust (supra) were allin the context of entities which carried on business. Moreover, in theEfirst two decisions, the law as it then stood did not contain any restrictionprohibiting trade or commerce activity. Learned counsel submitted thatthe judgment in Indian Chamber of Commerce (supra) was specificallyoverruled in Surat Art Silk (supra). Therefore, it may be treated ashaving no precedential value on subject. Learned counsel highlightedthe observations in Surat Art Silk (supra) and submitted that as long asFthe activities involved are mainly charitable and for advancement ofpublic utility, its purposes are deemed to be charitable even if it carrieson some business or trade-like activities for the purpose of generatingincome. What is important, it was argued, is whether the main or dominantpurpose of business or activity is motivated by profit. In such cases, theGentity is debarred from claiming that it is charity and cannot claim thebenefit of tax exemption. Therefore, what is to be understood from theratio in Surat Art Silk (supra) is that the main purpose or principalobjective or motivation for the activity should not be to carry on trade orbusiness. It should be to advance the purpose of general public utility. If

H28 Gujarat Housing Board Act, 1961.

such purpose is fulfilled, the carrying on of some activity which mightresult in surplus, would not disentitle the entity from the benefit of taxexemption.

41. Learned counsel then made brief reference to the judgmentin CIT, Bombay v. Bar Council of Maharashtra[29] arguing that SuratArt Silk (supra) was followed in this decision. He also cited ThanthiTrust (supra). Counsel highlighted that the object of the assessee there,was charitable and required that the business ought to be carried out forthe purposes of achieving the charitable purpose. Having regard to thenature of Section 13(1)(bb), which existed for the relevant period, thecourt held that the income which the trust derived was through businessand it only fed the charity. In this light, the court rejected the trust’scontention with respect to the entitlement to claim tax benefit for thefirst part. Counsel pointedly referred to the observations in paragraph 24of the said decision and submitted that the court noticed the differencein language brought about by the substitution of Section 11(4A) (w.e.f.01.04.1992). The new provisions enabled the Trust to carry on businessfor it was incidental to the attainment of its activities.42. Elaborating on Thanthi Trust further, counsel highlightedthatthe scope of the provision, i.e. Section 11(4A) had been ruled by thiscourt as more beneficial to the trust or institution, than had existedpreviously before its amendment. Therefore, as long as the Trust carriedon its activities mainly for charitable purposes - any income derivedfrom incidental trading or business activities, would not result in it beingcharacterised as an entity carrying on business; in other words, it wasone carrying on charitable objective or purpose.

43. Learned counsel also relied upon Circular 11/2008 dated19.12.2008 which highlighted that whether the activities carried on byany charitable institutions are in the nature of trade or whether they areessentially charitable is question of fact. It also spelt out that if anassessee is engaged in any activity, in the nature of trade, commerce orbusiness or rendering any services in relation to such trade etc., it couldnot claim that its object was charitable.In such event, “the object ofgeneral public utility will only be means or defence to highlightthe true purpose which is trade, service or business………….”. Itwas emphasised therefore that the circular and the speech of the FinanceMinister during the budget clearly pointed out organisations, trust or

Aentities which were masquerading as charitable but in reality carryingon business. On the other hand, genuine charitable organisations whichgenerated income for their sustenance could not be denied the benefit oftax exemption under the Income Tax Act.

44. Counsel relied on the decisions in Shri Ramtanu CooperativeBHousing Society Ltd. v. State of Maharashtra[30], Gujarat IndustrialDevelopment Corporation v. CIT[31](hereafter “GIDC case”), HSIDCv. Hari Om Enterprises[32]and Commissioner of Central Excise v.Maharashtra Industrial Development Corporation[33]and urged thatstatutory organizations set up for housing and other essential development,cannot be regarded as commercial or business entities.C45. Learned counsel relied upon the Constitution Bench decisionof this Court in Navnit Lal C. Jhaveri v. K.K. Sen[34 ](hereafter “NavnitLal Jhaveri”), where the court had held while interpreting the provisionsof an enactment that the executive’s understanding –in the form ofcirculars in the context of taxing statutes – were valuable guides toDinterpretation. The observations in Navnit Lal Jhaveri (supra) wererelied on to submit that the circulars in that case was used to in factsoften the rigor of newly introduced provision. Learned counsel alsorelied upon the judgment of this Court in UCO Bank Calcutta v.Commissioner of Income Tax, West Bengal[35]and in Lok ShikshanaTrust (supra)where the Court had specifically rejected the contentionEthat speech made in Parliament cannot be looked into to discern theintent of the lawmaker. In that case, the Court had stressed that the realmeaning of all the words used could be understood specifically by referringto the past history of the legislation and the speech of the mover of theamendment.F46. Learned counsel argued that the expressions “trade”,“business” or “commerce” always mean and have been interpreted tomean activities driven by profit. In this context, reliance was placed onthis court’s decisions in State of Punjab v. Bajaj Electricals Ltd[36].;Khoday Distilleries Ltd. v. State of Karnataka[37] and State of GujaratG30 (1970) 3 SCC 32331 1997 (Supp 3) SCR 466; (1997) 7 SCC 17(hereafter “GIDC case”).

32 (2009) 16 SCC 208

33 2017 SCCOnline Bom 10021 (para 10-12)

34 (1965) 1 SCR 909 (hereafter “Navnit Lal Jhaveri”)

35 1999 (4) SCC 599 (hereafter “UCO Bank Calcutta”)36 1968 SCR (2) 636H37 (1995) 1 SCC 574

v. M/s. Raipur Manufacturing[38]. It was submitted that in all contexts,the primary meaning of the expression “trade” is “exchange of goods”for money and connotates that such activity is necessarily or alwayscarried on to earn profit. It was, therefore, argued that Section 2(15)cannot be read in isolation, but should be construed in the light of theminister’s speech while introducing the amendment, and the Circular(i.e. Circular 11/2018). Therefore, if an organisation is created and carrieson its activities with view to earn profit as was held in BajajElectricals, Khoday Distilleries, and Raipur Manufacturing (supra),it is precluded from claiming to be charitable organisation. On theother hand, if the entity is primarily set up for the charitable purpose, i.e.,to carry on activities for the advancement of general public utility, but italso carries activities that generate surplus or money, they cannot beper se excluded from consideration for tax benefit.

47. Learned Senior Counsel Mr. Kavin Gulati argued for NOIDAand relied upon the Constitution Bench judgment of this court inCommissioner of Central Excise, Bolpur v. Ratan Melting and WireIndustries[39] to urge that circular cannot define an ambit of provision.He highlighted the decision rendered by the Delhi High Court in GreaterNoida Industrial Development Authority v. Union of India & Ors[40],where the assessee’s activities were held to be not “commercial activity”within the meaning of clause (b) to S.10(46).[41] He also relied on otherdecisions – of this court, to the same effect, in Kerala State ElectricityBoard v. Indian Aluminium Co. Ltd.[42]and Trustees of the Port ofMadras v. Aminchand Pyarelal and Ors.[43].

48. Mr. Gulati relied on theGIDC case (supra) to argue that theword “development” in S.10(20-A) of the IT Act, 1961 has to beunderstood in its wide sense. It was urged that development authoritieslike NOIDA fall under Section 2(15) of the IT Act, 1961 if they satisfythe test in Section 11(7) of the IT Act, 1961. It was contended that

38 (1967) 1 SCR 618

39 (2008) 13 SCC 1

40 2018 SccOnline Delhi 7536

41 The High Court had relied upon the ratio in Shri Ramtanu Co-operative HousingSociety Limited v. State of Maharashtra (1970) 3 SCC 323 , which ruled that the truecharacter of the corporation in that case i.e., the Maharashtra Development Corporationwas to act as an architectural agent for the development and growth of industrial townsand for their establishment.

42 (1976) 1 SCC 466

43 (1976) 3 SCC 167

ASurat Art Silk (supra)was clear that engagement by trust with acommercial activity is not per se prohibited, as long as its object is theattainment of an object of general public utility. Pointing to the ExplanatoryNotes (to the Provisions of the Finance Act, 2015) - with respect toproviso to Section 2(15), counsel urged that the proviso operates at thestage of registration of trust under Section 12AA(1A) of the IT Act,B1961, when the authorities satisfy themselves with respect to thegenuineness of the activity and scope of the trust.

49. It was lastly argued that the expression “trade” carries withinit the idea of profitability: counsel cited State of Gujarat v. MaheshDhiarjlal Thakkar[44], Sodan Singh &Ors. v New Delhi MunicipalCCommittee & Ors[45 ]and T.M.A Pai Foundation and Ors. v. State ofKarnataka & Ors[46]. Reliance was placed upon the judgment in CIT,Madras v. M/s Madurai Mills Company Limited[47] to urge thatinterpretation of the definition of expression “charitable purpose” shouldnot be coloured by considerations stemming from legislative history, whichDoverride the plain words of statute.50. Mr. K. K. Chythanya, senior counsel appeared for M/sKarnataka Industrial Areas Development Board (“KIADB”). He urgedthat KIADB was formed under Section 5 of the Karnataka IndustrialAreas Development Act, 1966 (“KIAD Act”) and it functions on “noEprofit-no loss” basis as is evident from the preamble[48], the aims andobjectives[49] of the board as well as Sections 3, 5, 6, 28, 29, 43 and 46[50]

44 (1980) 2 SCC 32245 1989 (3) SCR 103846 (2002) 8 SCC 48147 (1973) 4 SCC 194F48 “It is considered necessary to make provision for the orderly establishment anddevelopment of Industries insuitable areas in the State. To achieve this object, it isproposed to specify suitable areas for Industrial Development and establish Board todevelop such areas and make available lands therein forestablishment of Industries.”49Promote rapid and orderly development of industries in the state.;Assist inimplementation of policies of Government within the purview of KIAD Act;Facilitate inestablishing infrastructure projects:Function on “No Profit – No Loss” basis.G50 • Section 5 – Established and incorporated for securing the establishment of industrialareas in the State of Karnataka and generally for promoting the rapid and orderlyestablishment and development of industries and for providing industrial infrastructualfacilities and amenity in industrial areas in the State of Karnataka.• Section 6 – All the members of the Board are government officials;

• Section 46 - the members & other employees of the Respondent are deemed to bepublic servants.H

of the KIAD Act. Reliance was placed on Karnataka Industrial AreasDevelopment Board v. Prakash Dal Mill[51]which held that KIADB is“state” under Article 12 of the Constitution, and it was urged that KIADBwas an extension of the Karnataka Government. The board exercisespower of eminent domain and it performs governmental functions. Itsactivities, therefore, cannot be regarded as trade or business. Reliancewas placed upon State of Karnataka v. All India Manufacturer’sOrganisation[52].

51. It was submitted that in the absence of profit motive, the activityis not trade, commerce or business- within the meaning of first provisoto Section 2(15) of the IT Act, 1961. Reliance was placed upon KhodayDistilleries (supra), State of Tamil Nadu v. Board of Trustees of thePort of Madras[53]and several other decisions[54]. It was argued thatwherever it is intended, profit element is wholly excluded from activity-reliance was placed on provisions of the Karnataka VAT Act, The CentralGoods and Service Tax Act (“CGST Act”) and Section 2(31) of the ITAct. In the present context, the activities of the Board do not amount to“trade”, “commerce” or “business” and the first proviso to Section 2(15)is attracted only if the primary/dominant objects are (a) in the nature oftrade, commerce or business; or (b) rendering any service in relation toany trade, commerce or business. To substantiate this argument, counselrelied on Surat Art Silk (supra), Commissioner of Income Tax v.Gujarat Maritime Board[55] (hereafter “Gujarat Maritime Boardcase”) and other decisions[56]. Hence, if the main activity is not “business”,the connected, incidental or ancillary activities of sales carried out in

• Section 3 & 28 - Government of Karnataka (GOK) that acquires the land from thepublic.

• Section 29 – GOK determines the price and pays the compensation.• Section 43 - No duty under the Karnataka Stamp Act, 1957, or fees under the IndianRegistrationAct, 1908.

51 (2011) 6 SCC 714

52 (2006) 4 SCC 683

53 1999 (2) SCR 195 (hereafter, “Board of Trustees of the Port of Madras”)

54 State of Karnataka v. Shreyas Papers Pvt. Ltd. AIR 2006 SC 865; Ashoka SmokelessCoal India (P) Ltd. v. Union Of India (2007) 2 SCC 640; New Delhi Municipal Committeev. State of Punjab 1996 Supp 10 SCR 472; and Physical Research Laboratory v. K.GSharma 1997 (3) SCR 733.

55 2007 (12) SCR 962; (2007) 14 SCC 704(hereafter “Gujarat Maritime Board case”).56 Yogiraj Charity Trust v. CIT 1976 (3) SCR 947; Commissioner of Income Tax v.Andhra Pradesh Road Transport Corporation 1986 (1) SCR 570; Queens’sEducational Society v. CIT 2015 (8) SCC 47.

Afurtherance of and to accomplish their main objects would not normally,amount to business, unless an independent intention to conduct ‘business’in these connected, incidental or ancillary activities is established by therevenue. The judgments in CST v. Sai Publication Fund[57]and the Boardof Trustees of the Port of Madras (supra) was relied upon. It wasurged that the revenue’s contention that statutory authorities’ claim forBexemption is confined to the provision in Section 10(46). He urged thatin terms of Section 11(7)[58] the Board has an option to claim exemptioneither under Section 11 or under Section 10(46). There is no bar forclaiming exemption under either of those provisions.

52. Mr. Dhruv Agrawal, learned senior counsel appearing for theCU.P Awas Evam Vikas Parishad adopted the submissions of senior counselMr. Soparkar and K.K Chythyanya. He also urged that the realizationof the right to shelter and housing is an integral part of right to life, andcontended that the predominant activity of the assessee involves thefulfilment of those objectives, especially for the weak and poorer sectionsDof the society. He relied on this court’s decision in Chameli Singh v.State of U.P &Ors.[59] which had stated that right to social justice includesright to shelter, and that these statutory corporations are the means toensure that.

53. Mr. K. V. Viswanathan, senior counsel appearing on behalf of

EGS1 India submitted that the assessee is involved in issuing bar codeswhich is global language of standardised coding and the is universallyaccepted standard for identification of products. The GS1 barcode is aglobal standard which is an intellectual property of GS1 (an internationalnon-profit organisation headquartered at Brussels) and it has affiliates ineach country with the assistance of national governments. GS1 IndiaFthe assessee, is an affiliate; it was registered as society in the year1996, with the Joint Secretary-Ministry of Commerce as its Presidentand the administrative control vests with the Ministry of Commerce,Government of India. It was registered as charitable GPU category57 2002 (2) SCR 743G58 Inserted by Finance (2) Act, 2014 and amended by Finance Act, 202059 (1996) 2 SCC 549. The court had cited Article 25(1) of the Universal Declaration ofHuman Rights and Article 11(1) of the International Covenant on Economic, Social andCultural Rights, 1966 and relied on Sri. P.G. Gupta v. State of Gujarat & Ors. 1995 (1)SCALE 653 - where Bench of three Judges of this Court had considered the mandateof the human right to shelter and read it into Article 19(1)(e) and Article 21 of theConstitution of India to guarantee the right to residence and settlement.H

society in 1996. All the trade bodies[60] as well Bureau of Indian Standardsare members of its governing council.

54. It was submitted that the revenue had granted exemptions tothe assessee society under Section 12A and Section 10(23C)(iv) whileissuing various certificates from time to time (from AY 1996-1997 to2007-2008); therefore, it had accepted that the assessee’s object andpurpose was charitable, i.e., advancement of general public utility. Also,to reflect that there is no business/trade/commerce involved and profitmotive is absent the learned counsel relied upon the decision of theassessee society to issue substantial discounts to the extent of 50% todeserving sectors like cottage industries to enable augmentation of marketfor such sectors, as well as the letter written by CEO-GS1 to the PresidentGS1 (i.e. Joint Secretary, Ministry of Commerce) to permit reduction offee from 400 too 70 per farm/plot, for issuing Global Location Number(GLN) to farmers, which was approved.

55. Regarding the statutory provisions it was submitted that thewords “trade, commerce or business” in the proviso to Section 2(15) ofthe IT Act cannot be read in isolation and have to be seen in context of“charitable purpose” and, even after series of amendments -from theFinance Act, 2008 to Finance Act, 2015 there is essentially, no change inthe basis of determination of what amounts to trade, commerce orbusiness and therefore the tests as laid down in Surat Art Silk (supra)still holds the field to interpret these words.

56. Counsel urged that Parliament is assumed to have used theword ‘involves’ found in proviso to Section 2(15) as interpreted in SuratArt Silk (supra), in the sense that an activity is involved in the advancementof an object when it is enwrapped or enveloped in the activity ofadvancement, so that the resulting activity has dual nature or is twinfaceted. The well-known principle of construction, that where thelegislature uses in an Act, legal term which has received judicialinterpretation, it must be assumed that the term is used in the sense inwhich it has been judicially interpreted unless contrary intention appears,was relied upon, and the decision in P. Vajravelu Mudaliar v. SpecialDeputy Collector, Madras &Ors.[61] was cited in that context.

60 Federation of Chambers of Indian Commerce and Industry; Confederation of IndianIndustry; Associated Chambers of Commerce and Industry of India (ASSOCHAM);The Agricultural and Processed Food Products Export DevelopmentAuthority (APEDA).61 1965 (1) SCR 614

A57. Countering the contentions of the revenue that if entities makingprofit but not involved in commercial activity desire exemption, they oughtto apply under Section 10(46) IT Act, it was submitted that the expression“constituted by or under an Act” in Section 10(46) does not include allentities like the assessee, which is not statutory corporation, but a“not for profit” society registered under the Societies Act. It was arguedBthat the distinction between “established by and under an Act” is wellsettled and includes entities which are statutory corporations as contrastedfrom non-statutory ones. The judgment in Dalco Engineering Pvt. Ltd.v. Satish Prabhakar Padhye & Ors.[62] was referred to, in this contextwhere this court ruled thatC

“…when the words “by and under an Act” are preceded bythe words “established”, it is clear that the reference is to acorporation established, that it is brought into existence, byan Act or under an Act. In short, the term refers to statutorycorporation as contrasted from non-statutory corporationDincorporated or registered under the Companies Act.”

58. Learned senior counsel lastly submitted that an activity, to be“trade, commerce or business”, must be profit driven. Profit motive is aquintessential element and an activity without profit motive will not resultin “trade, commerce or business” in terms of the decision in State ofEA.P v. H. Abdul Bakhi & Bros[63]. If exemption is not granted to theassessee it will face liability of around 300 crore (from FY-2007-08to 2020-21), which given its financial condition will jeopardise its existenceand functioning.

59. Ms. Radhika Suri, learned counsel argued on behalf ofFBhatinda Improvement Trust and adopted the submissions of Mr.Soparkar. She urged, in addition, that it is obligatory on part of the assessee(a statutory corporation) to use the monies received for public utilitypurpose and the price fixation of lands/plots sold by them is also regulatedthrough statutory regulations. Therefore, such activities qualify the testof general public utility. Ms. Suri also relied on the decision of the DelhiGHigh Court in Greater Noida Industrial Development Authority (supra)to the effect that there is need to distinguish commercial activity whichconstitutes disqualification under clause (b) to Section 10(46) of the Act,and charging and payment of fee, service charges, reimbursement of

62 (2010) 4 SCC 378H63 1964 (7) SCR 664

costs or consideration for transfer of rights for performing and undertakingregulatory or administrative duties for general public interest, when theseare not guided and undertaken with profit motive or intent.Further, reliancewas placed on The Commissioner of Income Tax (Exemptions),Chandigarh v. M/s Hoshiarpur Improvement Trust, Hoshiarpur[64] toexplain the characteristics of the assessee. Learned counsel further laidemphasis on provisions of the regulations under the Punjab ImprovementTrust Rules and regulations to show the procedure adopted by the boardin fixing prices.

60. Mr. Gursharan S. Virk, argued that the Gujarat Maritime Board(GMB), is statutory one, constituted under Section 3(2)[65] of the GujaratMaritime Board Act, 1981 (GMB Act); it performs functions which,prior to the enactment of the Act, were being performed directly by theState Government[66]. The Preamble to the Act notes that it is constitutedfor administration, control and management of minor ports in the Stateof Gujarat, and for all matters connected therewith. The Board’s powersunder the GMB Act apply to works carried out by GMB as conservatorof ports under the provisions of the Indian Ports Act[67]; it is charged withessential functions such as development and upkeep of jetties, wharves,docks, piers, places of anchorage, light-houses, light-ships, beacons, buoys,pilot boats, and other appliances necessary for safe maritime navigation,etc. and for development of minor ports in general[68]. It is also entitled toundertake essential maritime services such as stevedoring, landing,shipping or trans-shipping, piloting, hauling, mooring and hooking vessels/goods, etc.[69] Hence it was urged, that GMB’s functions are, essentialand sovereign in nature, and relate to the development, safety andprotection of the waterfront.

61. It was submitted that the GMB is not engaged in any businessor trade, is not engaged in any activity which generates profit and doesnot (also statutorily cannot) use money for anything except for

64 ITA No. 78 of 2016

65 Section 3 (2):- “ The board shall be body corporate by the name aforesaid havingperpetual succession and common seal with power, subject to the provisions of thisAct to acquire, hold and dispose of property, both movable and immovable, and tocontract, and may by the said name sue and be sued.”

66 Section 20 of the GMB Act

67 Section 83 of the GMB Act

68 Section 25(2) of the GMB Act

69 Section 32 r/w Sections 37-30 of the GMB Act

Adevelopment of minor ports in the state of Gujarat and the features ofthe GMB Act. These features in context of the controversy at hand,under the provisions of the IT Act, were considered by this court in theGujarat Maritime Board case (supra). The decision discussed Sections73, 74 & 75 of the GMB Act, which provide for management of allmonies received by the GMB; and Section 76 of the GMB Act, whichBpermits the setting aside of surplus money only for “expanding existingfacilities or creating new facilities at the ports” or for meeting withcontingencies caused on account of “fire, cyclones, shipwrecks orother accidents or for any other emergency.” It was stressed thatthat judgment clearly indicates GMB has no profit motive. It wasCtherefore, urged that the provisions of the GMB Act, indicate theoverwhelming public purpose carried out by it without profit motive andthat utilization of funds is only for the purpose of development,management and safety of minor ports; all these entitles GMB toexemption.

D62. Mr. Rohit Jain, learned counsel, appeared on behalf of theEducation and Research Network (ERNET) and National InternetExchange of India (NIXI). On behalf of ERNET it was submitted that itwas started as planned project of the Government of India under theDepartment of Electronics (DoE) with the support of the United NationsDevelopment Program (UNDP). The program was focused onEintegrating information technology and internet tools with learningenvironment, to enhance the quality of education. However, funding bythe UNDP ended in 1992. The DoE nevertheless continued to supportthe project till 1998 and thereafter the body was registered as anautonomous society under administrative control of the Ministry ofFCommunication and Information Technology, Govt. of India on27.01.1998. It was registered under Section 12A of the IT Act, 1961 on26.03.2004 and its activities fell within the meaning of “charitable purpose”under Section 2(15). It duly complied with Sections 11 and 12 of the ITAct, 1961.G63. NIXI was created in 2003 by the Government of India underthe Ministry of Information Technology, for promotion and growth ofinternet services in India, regulating the internet traffic and acting asinternet exchange, to undertake “.in” domain name registration therebysaving valuable foreign exchange, and take care of national concern. Itwas urged that this is Section 25 company barred from undertakingH

any commercial or business activity for profit and is bound by strictlicensing conditions, including prohibition on alteration in the memorandumof association, without prior consent of the government. The “charitable”nature of the same has also been upheld under Section 12A of the ITAct, 1961.

64. Learned counsel submitted that ERNET is “not for profit”society wherein considering its objects, it receives only subscription feesmainly from schools, colleges, universities, scientific research institutes,etc. This subscription fees is charged on “actual basis” and utilizedtowards promotion of its objectives. The charitable character of theassessee is apparent and not in dispute since it has been accepted by therevenue up to AY 2008-09. Also, the final factual findings recorded bylower authorities conclusively demonstrate that the assessee is engagedin ‘advancement of general public utility’, and qualifies as ‘charitablepurpose’ as it does not carry any trade commerce or business, and theincome earned is not derived in the course of any commercial activity.65. Learned counsel also submitted that the assessee carries onR & work which enables educational institutions with Informationand Communication Technology infrastructure for making education reachthe public at large solely for charitable purpose and further reliance wasplaced upon ICAI Accounting Research Foundation v. DGIT(E)[70],Bureau of Indian Standards v. DGIT(E)[71] and GS1 India v. DGIT(E)[72].

66. Mr. Ajay Vohra, learned senior counsel, appearing for theApparel Export Promotion Council (AEPC) urged that it is non-profitorganization set up with approval of the Central Government, forpromotion of exports of garments from India (i.e., promotion of trade).It was registered under Section 12AA(1) of the IT Act, on 18.05.1979and is engaged in the activity of promotion of the export of all kind ofready-made garments, knitwear, and garments made of leather, jute andhemp. It does not per se engage in any activity for profit, and its mandateis to ensure that Indian apparel manufacturers, are given forums andplatforms, to showcase their products. For that purpose, the AEPCcharges subscriptions, and provides services, which have general publicutility. These activities are by way of booking large spaces in fairs, andsuch like events, especially in overseas locales, so that Indian

70 321 ITR 73 (Del)71 358 ITR 78 (Del)72 360 ITR 138 (Del)

Amanufacturers can interact with other overseas buyers, and are enabledto promote trade. It was submitted that there is ex-officio involvementon behalf of the Central Government, in the AEPC’s activities, includingin its policy formulation levels.

67. Mr. Vohra relied upon the Memo Explaining Provisions in theBFinance Bill, 2008[73], the speech of Finance Minister in Lok Sabha onFinance Bill, 2008[74], CBDT Circular No. 11 dated 19/12/2008[75] to submitthat proviso to Section 2(15) only bars commercial/business activitiesundertaken for profit motive. It was submitted that mere earning ofincome and/or charging any fees is not barred by the proviso; rather,carrying of any activity in the nature of trade, commerce or business orCrendering service in relation thereto is barred. Reliance was placed uponjudgments in Dir. Of Supp. & Disp. v. Board of Revenue[76 ]whichfollows H. Abdul Bakhi& Bros (supra), Barendra Prasad Ray v.ITO[77]and State of Gujarat v. Raipur Manufacturing Co. Ltd.[78] toargue that in “business” there must be some real and systematic, orDorganized course of activity or conduct with the set purpose of makingprofit. Counsel referred to Sai Publication Fund (supra) where thiscourt observed that since primary and dominant activity of the trust wasto spread message of Saibaba and hence not business, then any incidentalor ancillary activity of publishing and selling of books and literature cannotbe regarded as business. Reference was made to Customs & ExciseECommissioner v. Lord Fisher[79] which held that there are six indicia todetermining business namely (a) serious undertaking earnestly pursued,(b) reasonable continuity, (c) substantial in amount, (d) conductedregularly on business principles, (e) predominantly concerned with makingtaxable supplies for consideration, (f) such as those commonly made byFpersons seeking to make profit. Other judgments too were cited; andreference was made to definitions in the Concise Oxford Dictionary,Webster’s New Twentieth Century Dictionary, Black’s Law Dictionary,and Sampath Iyengar’s Law of Income Tax.

68. Mr. Ajay Vohra, urged that AEPC has been claiming exemptionGunder Section 11 from AY 1979-80 to 1990-91. During AY 1991-92, the73 298 ITR (St.)74 Quoted in ITPO v. DGIT(E) : 371 ITR 333 (Del) (hereafter “ITPO”)75 308 ITR (St.)76 1967 (3) SCR 77877 1981 (3) SCR 387781967 (1) SCR 618H79 (1981) 2 All ER 147

Assessing Officer (“AO”) denied the exemption on the ground that itwas carrying on business. That order was eventually set aside by theITAT which, held that it was entitled to exemption under Section 11 ofthe Act. Subsequently, an amendment was brought to Section 11(4A) andAEPC had to maintain separate books of accounts. In AY 1992-93, theAO again denied exemption. On appeal, the issue was decided in favourof AEPC by the ITAT. The Delhi High Court upheld the order of theITAT in judgment[80]. AEPC received entrance fee and membershipfee which, it claimed were exempt on the principle of mutuality. Thisissue too was resolved in its favour from the AY 1992-93 to AY 1997-98by the jurisdictional High Court. From the assessment year 1998-99 tothe assessment year 2008-09, the AO accepted the assessee’s claimthat income was exempt under Section 11 of the Act.

69. During AY 2009-10 and 2010-11, the AO denied exemptionunder Section 11 on the ground that the newly inserted proviso to Section2(15) was attracted; and thus the assessee was ineligible for exemptionunder Section 11. The AO held that the assessee was rendering servicesin relation to trade, commerce business for consideration and the receiptof which exceeds 10 lakhs. The CIT(A) allowed the assessee’s appealfollowing the decision of the High Court in its case, and there being nochanges in the facts and circumstances of the case. The ITAT upheldthe findings of the first appellate authority as it observed that the assesseedid not carry any activity with an object of profit, and thus the questionof attracting the proviso did not arise.

70. Ms. Prabha Swami, learned counsel submitted that the A.PState Seed Certification Agencyis statutory society set up under Section8[81] of the Seeds Act, 1966 which is represented by the representativesof Seedsmen Association, seed farmers, farming community and membersrepresenting Central Seed Certification Board. While explaining thecharitable characteristic of the society the counsel pointed out that thesociety was duly registered and its Memorandum of Association clearlyinter-alia stated that the object for which it was established was to seethat the cultivators adopt all scientific methods for production of qualityseeds in accordance with the Seeds Act and to carry on educational

80 Reported at 244 ITR 736

81 "Section 8. The State Government or the Central Government in consultation with theState Government may, by notification in the Official Gazette, establish certificationagency for the State to carry out the functions entrusted to the certification agency by orunder this Act”.

Aprograms designed to promote the use of certified seeds. Charges arecollected from the traders or the societies engaged in the trade of seeds.The society provides quality seeds to the farmers and hence traders areprevented from selling inferior variety of seeds. Highlighting the activitiesof the authority, it was urged that farmers are benefited by variousservices it offers - inspection of fields at the time of seed production,Bsupervision while processing seeds and issuing validation certificate atthe time of packing, sampling, and seed testing. The society (which isnot involved in trade, commerce or business) is therefore renderingservice to the general public as they are encouraging farmers to purchasequality seeds and help prevent loss to them, and loss of natural resources.CMr. Sanjay Jhawar, learned counsel for Rajasthan State Seed Corporationalso adopted the submissions of Ms. Prabha Swami.71. Mr. Sanjay Visen, learned counsel argued on behalf of M/sRaebareli Development Authority, Raebareli, urging that the assessee isa body constituted under the U.P Urban Planning and Development Act,D1973. As their activities were aimed at public purpose, it applied forregistration u/s 12AA of the IT Act, 1961. It was submitted that theassessee’s income was earlier exempted under Section 10(20A) of theIT Act, 1961 which was omitted by the Finance Act, 2002; however, thisdid not restrict the assessee from getting registered under Section12AAof IT Act, as the object of the authority is to provide shelter to homelessEpeople, which is charitable.

72. Mr. Harish Salve, learned senior counsel appearing on behalfof Saurashtra Cricket Association drew attention of this court towardsthe ambit of Section 4(3) of Income Tax Act, 1922 (i.e., the old Act), ascompared to Section 2(15) of the IT Act, 1961 which defines ‘charitableFpurpose’. He also presented the construction of Section 11 in light ofThanthi Trust (supra). It was emphasized that the objects of trust aredecisive and every surplus cannot be construed as profit, as is discussedin Krishna Warriar (supra). Profits from trade or business arising outof property held under trust for charitable purpose, if ploughed back toGthe extent of 100% cannot be termed as commercial activity. This wasthe principal idea in omitting Section13(1)(bb) as it was considered asrestrictive for carrying out such activities. It was argued that, substitutionof the definition of “charitable purpose” in Section 2(15) by the FinanceAct, 2008 has not changed the law. The words “in relation to anytrade, commerce or business” and “for cess, fee or consideration”H

in the proviso to Section 2(15) implies that advancement of object of atrust may not involve activities of profit. It was urged that the amendmentappears to have undermined this court’s decision in Surat Art Silk (supra).

73. It was argued that the crucial part of the definition of “charitablepurpose” is the word “cess” employed in the proviso. As an explanatorymeasure, the activities of promotional councils were taken intoconsideration - for example Surat Art Silk supported silk manufacturers.If such activity is for cess or fee, the organization ceases to becharitable. Activities in the nature of trade, commerce or business arenot charitable if they are for fee or other consideration. Fees collectedby the private organizations forms the content of Section 2(15). However,amounts based on tariff regulations imposed by the controlling law, orstatute-based fee is neither “fee” nor “cess” under that provision. Further,the consideration involved is vis-à-vis the activity or service. The test isthe object for which the consideration is paid, and what it entails, whereinthe words “any other consideration” is for the activities in aid or serviceof business. In this regard it was submitted that, in true sense the word“business” implies profit, however statutory organizations are excludedfrom its ambit. Fee or consideration collected by such organizations shouldnot be taken in the sense of profiteering, as it is for the advancement oftheir objectives. In this sense the word “cess” can be read down as non-statutory.74. It was submitted that the phrase “cess, fee or any otherconsideration” in the proviso to Section 2(15) covers the second part ofthe proviso, i.e., it is relatable to “service in relation to” trade, commerceor business. Mr. Salve submitted that any statutory cess, or fee,authorized or compelled by law, which is within the domain of the statelegislature, cannot be construed as taxable, having regard to the principlesindicated in the judgment of this court, in NDMC (supra). He relied onArticle 289 of the Constitution of India, and submitted that it is only if astate engages – by itself, or through an agency, directly in trading activity,that the immunity from Union taxation is lifted. In the present case,those agencies set up by the State, essentially through law, to carry outwelfare activities, such as regulation and housing, cannot per se becharacterized as trading concerns.

75. Mr. Salve submitted that cricket associations are operatingpurely to advance their objective of promoting the sport. They shouldnot be considered as pursing activities in furtherance of trade, commerce

Aor business. The word “cess” has to be read down in reverse (reverseejusdem generis) and it should be read non-statutorily while adoptingpurposive interpretation of the same. Reliance was placed on NabhaPower Limited v. Punjab SPCL[82] to state that purposive interpretationof “cess”, is to be adopted.B76. It was also argued that the sport of cricket is form of educationand if it is not considered as field of education, it is still an object ofgeneral public utility. The primary regulating body i.e., the BCCI,promotes sport in the entire country and worldwide, and the assesseesherein are its second and third tier associations.The revenue generatedby BCCI flows to state and regional cricket associations in the form ofCgrants to maintain stadia, conduct matches, organize training camps, andother ancillary purposes. Counsel relied on the objects of SaurashtraCricket Association which inter alia include, the control, supervision,regulation, encouragement, promotion and development of the game ofcricket in the Association’s jurisdiction.Other objects include creation,Dfostering friendly relationships through sports tournaments and thecreation of healthy sportsmanship spirit, through the medium of sportsin general and cricket in particular. All other objects were similar, including“to arrange, and/or manage among other things league and/or anyother tournaments”; organize matches, lay out grounds for playingcricket, organization of matches in aid of public charities, etc. If theseEassociations sell tickets and generate revenue through other activities,those do not necessarily mean that their objects are commercial or topromote trade. Selling tickets for sport performance or match is topromote cricket, and not trade. Mr. Salve also urged that the expression“trade” has particular meaning; he referred to State of Gujarat v.FMaheshkumarDhirajal Thakkar[83 ]where the court observed that

“the word trade in its narrow popular sense means ‘exchangeof goods for goods or for money with the object of makingprofit’. In its widest sense it includes any business carried onwith view to earn profit[84]. Further, the word takes its meaningGfrom the context.”

77. Likewise, with regard to “business” the counsel referred toH.Abdul Bakhi & Bros. (supra) which had discussed the term and

82 (2018) 11 SCC 508

83 (1980) 2 SCC 322H84 Halsbury’s Laws of England, Vol. 32 para 487

explained that any activity should be driven by profit motive.[85] Lastly,the judgment in Secretary, Ministry of Education & Broadcasting,Govt. of India & Ors. v. Cricket Association of Bengal[86] was citedto explain the dominant purpose of the BCCI. That judgment highlightedwhat is relevant and applicable is the test of predominant character ofthe activity, and not that an institution incidentally earns surplus or profit.

78. Mr. Arvind Datar, learned senior counsel appeared on behalfof the Institute of Chartered Accountants of India (hereafter “ICAI”)as well as The Tribune Trust.

79. Counsel submitted that ICAI is premier professionalaccountancy body of the country established under the CharteredAccountants Act, 1949 (“CA Act”) to impart formal and quality educationin accounting and thereafter to regulate the profession of CharteredAccountancy in India. It is under the control and supervision of theMinistry of Corporate Affairs, Government of India. Section 15[87]of theCA Act defines the functions of Council of Institute which include holding

85 "the expression ‘business’ though extensively used is word of indefinite import, intaxing statutes it is used in the sense of an occupation, or profession which occupies thetime, attention and labour of person, normally with the object of making profit. Toregard an activity as business there must be course of dealings, either actuallycontinued or contemplated to be continued with profit motive, and not for sport orpleasure. But to be dealer person need not follow the activity of buying, selling andsupplying the same commodity. Mere buying for personal consumption i.e. without aprofit motive will not make person dealer within the meaning of the Act, but personwho consumes commodity bought by him in the course of his trade, or use inmanufacturing another commodity for sale, would be regarded as dealer”.86 (1995) 2 SCC 161

87 15. Functions of Council (1) The Institute shall function under the overall control,guidance and supervision of the Council and the duty of carrying out the provisions ofthis Act shall be vested in the Council.

(2) In particular, and without prejudice to the generality of the foregoing powers, theduties of the Council shall include –

(a) to approve academic courses and their contents;

(b) the examination of candidates for enrolment and the prescribing of fees therefor;

(c) the regulation of the engagement and training of articled and audit assistants;

(d) the prescribing of qualifications for entry in the Register;

(e) the recognition of foreign qualifications and training for the purposes of enrolment;

(f) the granting or refusal of certificates of practice under this Act;

(g) the maintenance and publication of Register of persons qualified to practice aschartered accountants;

(h) the levy and collection of fees from members, examinees and other persons;

(i) subject to the orders of the appropriate authorities under the Act, the removal ofnames from the Register and the restoration to the Register of names which have beenremoved;

Aof examinations for chartered accountancy course candidates andregulation of engagement and training of articled clerks and auditassistants.

80. It was submitted that holding of coaching and revision classes,and surplus generated due to the fees collected from that activity is notBa business or commercial activity. Counsel urged that it is wholly incidentaland ancillary to the objects of the institute - which is to provide educationand conduct examinations of the candidates enrolled for charteredaccountancy courses, so as to bring out true professionalism. Therefore,separate books of accounts are not required to be maintained in terms ofSection 11(4A) read with the fifth and seventh proviso to Section 10(23C)Cof IT Act, 1961. It was urged that ICAI was not hit by the proviso toSection 2(15) of the IT Act (inserted w.e.f. 01.04.2009) since its activitiesfall within the purview of the clause “education” specified in the definitionof the expression “charitable purpose” in S. 2(15) of the said Act, andnot the residuary clause relating to the GPU category, wherein the provisoDsolely applies to the latter. In this regard the counsel referred to theGujarat High Court judgment in Saurashtra Education Foundation v.CIT[88 ]which took into account the observations made in another judgmentby the same High Court in Gujarat State Co-operative Union v. CIT[89],to hold that the ICAI was existing solely for educational purposes and itsactivities clearly fall within the category of ‘education’ in Section 2(15)Eof the Act. In further support of this proposition, reliance was placed onAmerican Hotel and Lodging Association v. CBDT[90 ]to argue that

(j) the regulation and maintenance of the status and standard of professionalqualifications of members of the Institute;

(k) the carrying out, by granting financial assistance to persons other than members ofthe Council or in any other manner, of research in accountancy;F (l) the maintenance of library and publication of books and periodicals relating toaccountancy; (m) to enable functioning of the Director (Discipline), the Board of Discipline, theDisciplinary Committee and the Appellate Authority constituted under the provisions ofthis Act;

(n) to enable functioning of the Quality Review Board;G (o) consideration of the recommendations of the Quality Review Board made underclause (a) of Section 28B and the details of action taken thereon in its annual report; and (p) to ensure the functioning of the Institute in accordance with the provisions of this Actand in performance of other statutory duties as may be entrusted to the Institute fromtime to time.88 (2005) 273 ITR 139 (Guj.)89 (1992) 195 ITR 279 (Guj.)H90 (2008) 10 SCC 509

ICAI is entitled to be notified under Section 10(23C)(iv) r/w Section2(15) of the Act, 1961.

81. Counsel submitted that profit motive is an essential element,or the driving force, for any business or commercial activity. The activitiesof ICAI are not of such nature. Counsel relied upon the judgment inNDMC (supra)which ruled that profit motive is the core aspect of tradeand business, in the context of Article 289 of the Constitution of India,which talks about exemption of property and income of state fromUnion Taxation.

82. It was argued that there is distinction between nature ofcommercial ventures and charitable institutions such as ICAI. The word‘profit’ should never be used with body set up for public purposes, toregulate activities, in public interest and the intent of the organization/establishment must be taken into consideration. In support, Board ofTrustees of the Port of Madras (supra) was cited,where the Port trust’sactivities included sale of unclaimed and unserviceable goods in dischargeof various statutory charges, items, etc. They were part of the PortTrust’s main activities of service. The court said that they cannot betreated as ‘business’ and that the Port Trust had no intention to carry onbusiness in the sale of unserviceable/unclaimed goods. Reliance wasplaced on Surat Art Silk (supra), Andhra Pradesh State Road TransportCorporation (supra), Victoria Technical Institute v CIT[91], AditnarEducational Institution v. Addl. CIT[92], Thiagarajar Charities v.ACIT[93], Director of Income Tax v. Bharat Diamond Bourse[94 ]andGujarat Maritime Board case (supra). The observations in T.M.A Pai(supra) that there can be reasonable revenue surplus, by the educationalinstitution for the purpose of development of education and expansion ofthe institution, was also referred to.

83. Learned senior counsel further relied on the explanatory notesto the provisions of the Finance Act, 2008, specifically towardsamendment made to Section 2(15) of the IT Act, aimed at streamliningthe definition of “charitable purpose” as discussed in para 5[95] and the

91 (1991) 188 ITR 57 (SC)92 (1997) 3 SCC 34693 (1997) 4 SCC 724

94 (2003) 259 ITR 280 (SC)95 "5. Streamlining the definition of “charitable purpose”5.1 Sub-section (15) of section 2 of the Act defines “charitable purpose” to include reliefof the poor, education, medical relief, and the advancement of any other object of

AratioVisvesvarya Technological University v. Assistant Commissionerof Income Tax[96] to submit that there is no loss to the character of aGPU charity where surplus generated is ploughed back. Further, ajudgment of the Division Bench of the Delhi High Court in J.K Synthetics& Another v. Union of India & Ors.[97] was referred to contend that itis not open for the revenue authorities, without any cogent reason andBmerely at its own caprices, to refuse to follow the conclusion reached onthe earlier occasion, and to take up totally different stand in subsequentyears - as was done in this case while refusing to grant exemption underSection 10 (23C) of IT Act, 1961 to the ICAI.

84. Learned counsel further submitted that the present caseCinvolves two circulars issued by the Board viz. Circular No. 1/2009 dated27.03.2009 and Circular No. 11/2008 dated 19.12.2008 which areclarificatory and not contrary to any provisions of the Act, 1961 andhence the ratio of the decision in Ratan Melting and Wire Industries(supra) does not apply. Reliance was placed on observations made inDNavnit Lal Zaveri (supra) and Ellerman Lines v. Commissioner ofIncome Tax[98] to urge that these circulars are classified as “beneficial”.They place purposive interpretation on statutory provision. Suchcirculars enormously reduce litigation and hardship of assessees andthey play vital role in the proper administration of taxes.

E85. It was argued that the demand against ICAI is from 2004-05and the fees collected from students have already been spent on various

general public utility. 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 ofthe current 12 It has been noticed that number of entities operating on commerciallines are claiming exemption on their income either under sub-sectionF(23C) of section 10 or section 11 of the Act on the ground that they arecharitable 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 ofthe current definition of “charitable purpose”. Such claim, when made in respect ofan activity carried out on commercial lines, is contrary to the intention of the provision.5.2 With view to limiting the scope of the phrase “advancement of any other object ofgeneral public utility”, sub-section (15) of section 2 has been amended to provide thatGthe advancement of any other object of general public utility shall not bea 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 cess or fee or any other consideration, irrespective of thenature of use or application, or retention, of the income from such activity.”96 (2016) 12 SCC 25897 1981 SCC OnLine Del 457H98 (1972) 4 SCC 474

infrastructure development and other capital expenditure items. Thesurplus amounts remaining were invested in government securities/FDsof nationalized banks, so the demands raised will seriously prejudice theassessees.

86. On behalf of the Tribune Trust, Mr. Datar argued that thecharitable nature of the trust can be traced back to the In Re: Trusteesof the Tribune (supra) judgment rendered by the Privy Council, whichallowed the trust’s appeal against the judgment of Lahore High Court(that rejected exemption for the trust’s income for AY 1932-33). ThePrivy Council considered the objects of the trust and held it was notfounded for private profit and prima facie the trust’s object was ofgeneral public utility, since by supplying newspapers in the province thetrust involved the dissemination of educated public opinion. It was urgedthat the impugned judgment passed by the Punjab and Haryana HighCourt[99] in Tribune’s case dismissing the Tribune’s appeal, erroneouslyrelied on para 17 of Surat Art Silk decision (supra) which wrongly quotedthe Privy council judgment in the Tribune’s case.

87. It was further argued that collecting advertisements forconsideration cannot be treated as business activity undertaken by profitbecause the sale price of the newspaper is 2 whereas the cost ofprinting each newspaper is 12 and the deficits can be made up onlythrough advertisements. Placing reliance on the extracts from the will ofthe late Sardar Dyal Singh Majithia it was urged that the trustees wereunder duty to devote the surplus income for the improvement of thenewspaper and hence prayed for allowing the appeal.

88. Upon this court’s query with respect to advancing submissionson the constitutional aspect in the ITPO judgment (supra), the learnedsenior counsel advanced his submissions on the validity of Section 2(15)in the context of Article 14 and Article 289. It was submitted thatclassification made in the ITPO judgment i.e., institutions driven by profitmotive vis-à-vis institutions driven by motive to advance objective ofGPU, was correct and is in tune with the decision of this court in NDMC(supra). It was urged that Article 289(1) will not apply to ITPO as itsincome and property cannot be regarded as income and property of aState. It was also submitted that proviso to Section 2(15) applies only tothe last limb i.e., “advancement of object of general public utility”and not to the preceding limb “education” and in respect of charity99 ITA Nos. 62 of 2015 and 147 of 2016 (O&M)

Athere is no discernible difference between the two. Since there is nointelligible differentia and rational nexus in this regard, this discriminationoffends Article 14.

89. It was argued that the term “for cess or fee or any otherconsideration” used in Section 2(15) is clearly violative of Article 14Bas it fails to make distinction between activities that are carried out bythe State or by the instrumentalities or agencies of the State, and thosecarried out by commercial entities for which consideration is charged.In addition, Article 289(1) exempts states’ property and income fromUnion taxation. To permit levy of income tax on cess or fee collected bya state would violate Article 289(1), hence the word “cess” or “fee” inCthe proviso is liable to be declared unconstitutional and violative not onlyof Article 14 but of Article 289 as well, in the context of state undertakings.For Central institutions, it was submitted that cess or fee can never fallwithin the definition of “income” under Section 2(24) read with Entry 82of List-I and cannot be subject to tax.DC. Revenue’s rebuttal arguments

90. In rebuttal to the submissions advanced by the assessees, theASG relied upon Adityapur Industrial Area Development Authorityv. Union of India[100 ]and submitted that there is no constitutional immunityfrom taxation, for the state, because by Article 289(2) even state or itsEinstrumentalities/agencies are not immune from taxation if they carry ontrade or business. In light of Article 289(2), there is no constitutional barfor the States (or the Union) to engage or carry on trade or business,and Article 289 allows the Parliament to impose taxes on such trade orbusiness. The ratio in NDMC (supra) has to be read in light of theFprovisions and the judgment rendered in Shri Ramtanu CooperativeHousing Society (supra) should in turn be read in light of NDMC. Thedecisive factor therefore is not the status of the entity, but the nature ofactivity carried by it. If the nature of activity is trade or business with aprofit motive, then the same can be taxed even if it is carried by state orits instrumentalities. It was also contended that Article 289 does notGgrant absolute any immunity from taxation.

91. The revenue further submitted that the validity of theamendment can be tested especially in the case of exclusions orexemptions on limited grounds - invalidity, arbitrariness, unreasonableness,

discrimination; and the assessees have not made out case under anysuch ground. Also, by referring to In Re: Trustees of the Tribune andAll India Spinners Association of Mirzapur(supra), it was contendedthat “general public utility” is only statutory creation so as to form partof charitable purposes and it can always be given statutory import bysubjecting it to conditions and limitations prescribed under Section 2(15),at different points of time. In other words, it can always be regulated ormodulated through statutory prescriptions, conditions, and limitations whilegranting an exemption from taxation. The submission of the assessees,that one has to look only at the objects to determine if it constitutescharitable purpose for Section 2(15) of the Act, is to be rejected becauseexemptions or exclusions are not based on mere objects of trust but onwhether the purpose of the trust is “advancement of any other objectof general public utility”.

III. Analysis and reasoning

92. The history of the statute and the evolving interpretation of“charitable purpose” reveals that in -P. Krishna Warriar(supra), thiscourt extensively considered the previous jurisprudence on the subject(in light of the pre-existing Section 4(3) of the old law), as well as theamendment introduced in 1953. At that time, income of charitableorganization, earned from business was subject to limitations. Thelimitations were that (i) the business was to be carried on in the courseof the actual carrying out of primary purpose of the trust orinstitution; or (ii) the work in connection with the business was to bemainly carried on by beneficiaries of the institution. Theseexpressions were considered in Krishna Warriar (supra), where thecourt held that the term “property” (of trust) was of widest amplitude,which included business. The following decision, in Andhra Chamberof Commerce (supra) where the chamber of commerce had among itsobjects, one enabling it to advocate policies or legislation, or oppose them,in addition to the object of promoting business, held that the incidentalinclusion of such objects, involving espousing political purpose, did notundermine its essential or main purpose, of advancing objects of generalpublic utility. The new provision, i.e., Section 2(15) of the IT Act, defined“charitable purpose” restrictively: to deny tax exemption to activitiesfor profit which were carried on by trust for the advancement of anobject of general public utility.The reason for this change (discussedpreviously) was that the advantage of tax exemption was not intended

Ato charitable trusts that were commercial concerns, which while ostensiblyserving public purpose, were fully paid for the benefits provided bythem.

93. The first two decisions of some note are Lok ShikshanaTrust and Indian Chamber of Commerce (supra). The former decision,Bby majority, held that to qualify as charitable purpose, two ingredientshad to be satisfied. It was held that the change in the definition meantthat to be the fourth category of charitable purpose, it was necessary toshow that

“(1) the purpose of the trust is the advancement of any otherCobject of general public utility, and (2) the above purposedoes not involve the carrying on of any activity for profit.Both the above conditions must be fulfilled before the purposeof the trust can be held to be charitable purpose.”

94. In Indian Chamber of Commerce this court categoricallyDheld that even if the activity for profit, is to further an object of generalpublic utility, the charity could not claim of exemption. The court wenton to indicate the following test:

“21. The true test is to ask for answers to the followingquestions: (a) Is the object of the assessee one of generalEpublic utility? (b) Does the advancement of the object involveactivities bringing in moneys? (c) If so, are such activitiesundertaken (i) for profit or (ii) without profit? Even if (a) and(b) are answered affirmatively, if (c)(i) is answeredaffirmatively, the claim for exemption collapses. The solutionto the problem of an activity being one for or irrespective ofFprofit is gathered on footing of facts. What is the real natureof the activity? One which is ordinarily carried on by ordinarypeople for gain? Is there built-in prescription in theconstitution against making profit?....”

95. The decision in Surat Art Silk, needs careful scrutiny, notGonly because it is by larger Bench, but also because it has been thebulwark of the assessee’s contentions- and has been the premise uponwhich almost all High Courts have interpreted Section 2 (15) after itsamendment, in 2008. As noticed earlier, the old Act (in Section 4(3)) didnot contain any terms, restricting or prohibiting charities from engagingin commercial activities or those which yielded profit. No doubt, the ideaH

of income from business carried on”behalf of religious or charitableinstitution” being exempt, provided “the business is carried on in thecourse of the actual carrying out of primary purpose of theinstitution” was introduced by amendment, in 1953. This was interpretedin Andhra Chamber of Commerceand Krishna Warriar (supra).However, Parliament clearly intended departure, when it introducedthe new Section 2 (15) under the IT Act. The earlier decisions in IndianChamber of Commerce, and Lok Shikshana Trust (supra) noticed thischange. Surat Art (supra) was yet another departure. Whileitconsidered the previous decisions of the court, it consciously departedfrom them, and even overruled the interpretation in Indian Chamber ofCommerce (supra). The larger Bench in Surat Art Silk agreed with theprevious decisions to the effect that the motivation for the activity inquestion (i.e., for it to be charitable) should not be deriving of profits.However, the larger Bench enunciated the principle of ‘predominantobject’ and held that what was of importance was “whether thepredominant object of the activity involved in carrying out the objectof general public utility is to subserve the charitable purpose or toearn profit” and that such an entity would not lose its charitable charactermerely because some profit arose from the said activity.

96. Thus, was born the ‘predominant object’ test, of an organization,to determine whether it was essentially charitable, or ‘for profit’. If thepredominant object was not for profit,but advancement of general publicutility, that some profits were earned, would not debar it from claiming tobe an organization with charitable purpose. However, if the predominantobject was such that profit making was“enwrapped”or“intertwined”with it, the organization or trust could not be calledcharitable. Crucially, the court emphasized that the manner of carryingon of the activity in question,was determinative:

“the nature of the charitable purpose, the manner in whichthe activity for advancing the charitable purpose is beingcarried on and the surrounding circumstances may clearlyindicate that the activity is not propelled by dominant profitmotive.”

97. Interestingly, the test proposed by the majority judgment inSurat Art Silk is similar to the one advocated in Indian Chamber ofCommerce (which it overruled). The difference in approach is that SuratArt Silk advocated the “predominant object” test to see whether the

Aobject is for advancement of general public utility, bereft of profit motive,whereas in Indian Chamber of Commerce (supra), the court did notdeal with or visualize consideration of “predominant object”. The seconddifference between the two decisions, is that Surat Art Silk stated thatthere is no need for an express provision in the constitution of giventrust, eschewingprofit motive, whereas in Indian Chamber ofBCommerce, the necessity of such condition was highlighted.

98. The judgments of this court, afterSurat Art Silk(supra),noticed the enunciation of, and the need to apply the test of“dominant” object. In Commissioner of Income Tax v. Federation ofIndian Chambers of Commerce and Industries[101 ]it was, thus held:C

“In other words, the majority view in the Surat Art Silk’s case(supra) was that the condition that the purpose should notinvolve the carrying on of any activity for profit would besatisfied if profit-making is not the real object. The theory ofdominant or primary object of the trust has, therefore, beenDtreated to be the determining factor, even in regard to thefourth head of charity, viz., the advancement of any otherobject of general public utility, so as to make the carrying onof business activity merely ancillary or incidental to the mainobject.”

E99. In Bar Council of Maharashtra (supra) this court consideredwhether bar council, constituted under the Advocates Act, 1961,performed activities that were charitable in nature; it was held that thestatute obliged several activities whose dominant object was advancementof public utility, without profit motive. This court held that the provisionsof the ActF

“enjoined upon avowedly with the objective of protecting thelitigating public from unscrupulous professionals by takingthem to task for any misconduct on their part; it is also one ofthe obligatory functions of State Bar Council to promoteand support measures for law reform as also to conduct lawGseminars and organise talks on legal topics by eminent jurists,obviously with view to educate the general public, thefunction prescribed by Clause (eee) is obviously charitablein nature, the same being to organise legal aid to the poor.

Amongst these various obligatory functions one under Clause(d) is to safeguard the rights, privileges and interests of theadvocates on its roll and it is difficult to regard it as primaryor dominant function or purpose for which the body isconstituted. Even this function apart from securing speedydischarge of obligations by the litigants to the lawyers ensuresmaintenance of high professional standards andindependence of the Bar which are necessary in theperformance of their duties to the society. In other words, thedominant purpose of State Bar Council as reflected by thevarious obligatory functions is to ensure quality service ofcompetent lawyers to the litigating public, to spread legalliteracy, promote law reforms and provide legal assistance tothe poor while the benefit accruing to the lawyer-members isincidental…”

100. The view that prevailed, after the decision in Surat Art Silk(supra), therefore, was that so long as the “dominant” object of trustwas charitable, and it did not essentially involve in business or commercialactivity, the generation of profits, or surpluses by it, through activities,incidental to that main or dominant activity, did not undermine itscharitable purpose, as long as the surpluses or profits, were used forthe advancement of an object of general public utility.

101. An interesting detail, is that the old Act did not define“charitable purpose” restrictively, in the manner that the IT Act did,when enacted, in 1961. This lent fair degree of interpretive flexibility,to the courts, to decide whether commercial or business element, couldbe interwoven with charitable object. The amendment of 1953 ensuredthat income “applied or accumulated for application to such ..charitable purposes as relate to anything done within the taxableterritories, and in the case of property so held in part only for suchpurposes, the income applied or finally set apart for application…”[102]could not be includedas taxable income of any charitable organization.This provision is precursor for Section 11 under the IT Act. In otherwords, the structure of the old Act did not prohibit the carrying on ofbusiness; it spelt out condition that any income derived from business“carried on in the course of the actual carrying out of primarypurpose of the institution” if applied for charitable purposes,wasexempt.

102 Section 4(3)(i) of the old IT Act.

A102. The second aspect is thatSurat Art Silk(supra), was renderedin the context of Section 2(15) of the IT Act, as it stood originally.However, by the Taxation Laws Amendment Act, 1975 (w.e.f.01.04.1977), Section 13(1)(bb) was inserted. That provision excludedthe operation of Sections 11 and 12 (under which income of charitieswere entitled to be exempted) in the case of income derived fromBbusinessby charities engaged in medical relief, education and relief tothe poor, unlessthe business fulfilled condition:

“(bb) in the cases of charitable trust or institution for therelief of the poor, education or medical relief, which carrieson any business, any income derived from such business,Cunless the business is carried on in the course of the actualcarrying out of primary purpose of the trust or institution;”

103. The interpretation in Surat Art Silk (supra), obviously couldnot have been affected, in the light of subsequent amendment; however,what is of significance is that with effect from 01.04.1977, the conditionDof actual carrying on primary purpose of the trust while conductingbusiness was visualised only in the case of trusts involved in relief of thepoor, education or medical relief. The majority judgment in Surat ArtSilk(supra)recognized this:

“8. […] Where therefore, there is charitable trust orEinstitution falling within any of the first three categories ofcharitable purpose set out in Section 2 Clause (15) and itcarries on business which is held by it under trust for itscharitable purpose, income from such business would not beexempt by reason of Section 13(1)(bb). Section 11 Sub-sectionF(4) would, therefore, have no application in case of acharitable trust or institution falling within any of the firstthree heads of ‘charitable purpose’.”

Yet, the court enunciated and applied the ‘predominant object’test.[103 ]The conscious omission of the last object,i.e., theGPUcategory,

Gin the newly inserted 13(1)(bb), therefore, meant that when those trusts,while carrying out the object of advancement of general public utility,had to conduct of business, the income was to be taxed (because themain provision, under Section 13(1) excluded the operation of Sections11 and 12).

H103 See para 19 of Surat Art Silk (extracted above at paragraph 18 of this judgment).

104. The next significant change, which occurred was with theFinance Act, 1983 (w.e.f.01.04.1984). This amendment:

(a) omitted the restrictive words under Section 2(15)i.e. “notinvolving the carrying on of any activity for profit”

(b) omitted Section 13(1)(bb)

(c) Section 11(4A) was inserted[104], by which- in relation to charitiesset up with the object of general public utilities, “business”couldbe “carried on by an institution wholly for charitable purposesand the work in connection with the business is mainly carriedon by the beneficiaries of the institution, and separate booksof account are maintained by the trust or institution in respectof such business”.

105. It is therefore clear that after 1 April, 1984, the statute didnot contain any restriction as to the nature of activity that could becarried on by GPU category charity. Furthermore, the condition in Section13(1)(bb) - which applied to other kinds of trusts, i.e., that their incomescould be exempt under Section 11 to the extent they arose out of business,if the business was “in the course of the actual carrying out of aprimary purpose of the trust”- was deleted. On the other hand, thewording of Section 11(4A) did seem to indicate that business activitywas permissible if the objects of the trust were wholly charitable, andsuch business were to be carried on by its beneficiaries.This legal positioncontinued, till the amendments in question were carried out, in relation toSection 2(15) in 2008.

106. Section 2 begins with the expression “unless the contextotherwise requires”- as preface to every expression which is soughtto be defined, under the IT Act. The 1922 Act did not contain any wordsof restriction, in the definitionclause. The IT Act, however, definedcharitable purpose- at the outset, restrictively, and then, substantively

104 “(4A) Sub-section (1) or sub-section (2) or sub-section (3) or sub-section (3A)shall not apply in relation to any income, being profits and gains of business, unless–(a) the business is carried on by trust wholly for public religious purposes and thebusiness consists of printing and publication of books or publication of books or is ofa kind notified by the Central Government in this behalf in the Official Gazette; or(b) the business is carried on by an institution wholly for charitable purposes and thework in connection with the business is mainly carried on by the beneficiaries of theinstitution, and separate books of account are maintained by the trust or institution inrespect of such business. …”

Aenacted provisions that give effect to Parliamentary intent. Section 10(23C)(iv) exempts any “income” of”any other fund or institutionestablished for charitable purposes which may be approved by theprescribed authority, having regard to the objects of the fund orinstitution and its importance throughout India or throughout anyState or States” from taxation.B

A. Aids to interpretation

(i) History of the legislation

107. The amendments (i.e. Finance Act 2008, Finance Act 2009,Finance Act 2012 and Finance Act 2015) do not throw light – by way ofCstatement of objects and reasons or notes on clauses. The court, thereforewould have to resort to the surrounding circumstances that led to theamendment.

108. The words of statute are to be construed in their terms,according to the circumstances in which they occur. At the same time,Dthere is some authority for the proposition that statutes – particularlyamending provisions, may be considered in the light of the previous historyof the legislation. Justice Cardozo in Duparquet Co. v. Evans[105]saidthatin questions relating to construction, “history is teacher that isnot to be ignored”.In similar vein, Chief Judge Learned Hand saidEthat “statutes always have some purpose or object to accomplish,whose sympathetic and imaginative discovery is the surest guide totheir meaning”[106].

109. Some decisions of this Court have highlighted this aspect. InBhuwalka Steel Indus. Ltd. & Ors. v. Bombay Iron and Steel LabourBd. & Ors.[107 ]this court observed thatF

“The legislative intent of the enactment may be gathered fromseveral sources which are, from the statute itself, from thepreamble to the statute, from the Statement of Objects andReasons, from the legislative debates, reports of committeesGand commissions which preceded the legislation and finallyfrom all legitimate and admissible sources from where theymay be allowed. Reference may be had to legislative history

105 297 U.S. 216 (1936)

106 Cabell v. Markham(1945) 148 2d 737107 2009 (16) SCR 618H

and latest legislation also. But, the primary rule of constructionwould be to ascertain the plain language used in the enactmentwhich advances the purpose and object of the legislation...”

110. In Chief Justice of Andhra Pradesh & Ors. v. L.V.A.Dixitulu & Ors.[108] again, the court held that resort to the history of thelegislation is legitimate, for interpreting provision:

“..in order to ascertain the true meaning of the terms andphrases employed, it is legitimate for the Court to go beyondthe arid literal confines of the provision and to call in aidother well-recognised rules of construction, such as itslegislative history, the basic scheme and framework of thestatute as whole, each portion throwing light on the rest,the purpose of the legislation, the object sought to beachieved, and the consequences that may flow from theadoption of one in preference to the other possibleinterpretation.”

111. Other decisions[109] have also commented on the use of historyof the legislation as tool for its construction.It is, therefore, clear thatcourts can look at the previous history of the statute, and the changes itunderwentto discern what is intended by the lawmakers when anamendment is introduced, or new law enacted. In light of these factors,it would therefore, also be useful for the court to consider the backgroundwhich led to the amendment – firstly in 2008 and thereafter in 2012 and2015, seeking to restrict the nature of activities that GPU categorycharity can legitimately undertake.

(ii) Other extrinsic aids to construction of the statute

(a) Speeches in Parliament

112. Speeches made in the legislature or Parliament, can be lookedinto for throwing light on the rationale for an amendment. There issome authority for that proposition.[110 ]Some light can be discerned fromthe statement of the finance minister on the floor of Parliament, who

108 1979 (1) SCR26

109 Lohia Machines Ltd. and Ors. v. Union of India & Ors1985 (2) SCR 686;Commissioner of Customs (Import), Mumbai v. Dilip Kumar & Company & Ors 2018(9) SCC 1

110 State of West Bengal v. Union of India 1964 (1) SCR 371:

“A statute, as passed by Parliament, is the expression of the collective intention of the

Aanswered to the criticism levelled against the change brought about bythe amendment in 2008. The finance minister commented on the criticismlevelled against the amendment to Section 2(15) in the following words:

“I once again assure the House that genuine charitableorganisations will not in any way beaffected. The CBDT will,Bfollowing the usual practice, issue an explanatory circularcontainingguidelines for determining whether an entity iscarrying on any activity in the nature of trade,commerce orbusiness or any activity of rendering any service in relationto any trade, commerce orbusiness. Whether the purpose is acharitable purpose will depend on the totality of the facts ofCthecase. Ordinarily, Chambers of Commerce and similarorganisations rendering services to theirmembers would notbe affected by the amendment and their activities wouldcontinue to beregarded as “advancement of any other objectof general public utility”.”D(b) Departmental circulars

113. Learned counsel for the assessees relied upon Circular No.1/2009 dated 27.03.2009 and Circular No.11/2008 dated 19.12.2008issued by the Central Board of Direct Taxes. The relevant part of CircularNo. 11/2008 reads as follows:E

“3. The newly inserted proviso to section 2(15) will applyonly to entities whose purposeis ‘advancement of any otherobject of general public utility’ i.e. the fourth limb of the

legislature as whole, and any statement made by an individual, albeit Minister, of theintention and objects of the Act cannot be used to cut down the generality of the wordsFused in the statute.”

At the same time, later decisions have relaxed the rigor of this rule. In K.P. Varghese v.Income-tax Officer,1982 (1) SCR 629,this court, referring to the budget speech of theMinister stated:

“Now it is true that the speeches made by the Members of the Legislature on the floor ofthe House when Bill for enacting statutory provision is being debated are inadmissiblefor the purpose of interpreting the statutory provision but the speech made by the MoverGof the Bill explaining the reason for the introduction of the Bill can certainly be referredto for the purpose of ascertaining the mischief sought to be remedied by the legislationand the object and purpose for which the legislation is enacted.”

Other decisions following the same approach are Ramesh Yeshwant Prabhoo v.Prabhakar Kashinath Kunte1995 (Supp 6) SCR 371; Novartis AG v. Union of India(2013) 6 SCC 1;Surana Steels (P) Ltd. v. Commissioner of Income Tax 1999 (2) SCRH589 and Kalpana Mehta & Ors. v. Union of India (UOI) and Ors2017 (7) SCC 295.

definition of ‘charitable purpose’ contained in section 2(15).Hence, such entities will not be eligible for exemption undersection 11 or undersection 10(23C) of the Act if they carryon commercial activities. Whether such an entity is carryingon an activity in the nature of trade, commerce or business isa question of fact which will be decided basedon thenature,scope, extent and frequency of the activity.

3.1. There are industry and trade associations who claimexemption from tax u/s 11 on the ground that theirobjects arefor charitable purpose as these are covered under ‘any otherobject of general public utility’.Under the principle ofmutuality, if trading takes place between persons who areassociated together andcontribute to common fund for thefinancing of some venture or object and in this respect haveno dealings

or relations with any outside body, then any surplus returnedto the persons forming such association is notchargeable totax. In such cases, there must be complete identity betweenthe contributors and theparticipants.

Therefore, where industry or trade associations claim both tobe charitable institutions as well as mutualorganizations andtheir activities are restricted to contributions from andparticipation of only their members,these would not fall underthe purview of the proviso to section 2(15) owing to theprinciple of mutuality. However, if such organizations havedealings with non-members, their claim to be charitableorganizationswould now be governed by the additionalconditions stipulated in the proviso to section 2 (15).”

114. Circular No. 1/2009 dated 27.03.2009 contains explanatorynotes to provisions of the Finance Act, 2008. It inter alia reads as follows:

“5. Streamlining the definition of “charitable purpose”

5.1 Sub-section (15) of section 2 of the Act defines “charitablepurpose” toinclude relief of the poor, education, medical relief,and the advancement of any otherobject of general publicutility. It has been noticed that number of entities operatingoncommercial lines are claiming exemption on their income eitherunder sub-section(23C) of section 10 or section 11 of the Act

ABC

DEF

Aon the ground that they are charitable institutions. This isbased on the argument that they are engaged in the“advancement of an object of general public utility” as isincluded in the fourth limb of the currentdefinition of“charitable purpose”. Such claim, when made in respect ofan activity carried out on commercial lines, is contrary to theBintention of the provision.

5.2 With view to limiting the scope of the phrase“advancement of any otherobject of general public utility”,sub-section (15) of section 2 has been amended toprovidethat the advancement of any other object of general publicCutility shall not bea charitable purpose, if it involves the

carrying on of any activity in the nature oftrade, commerceor business, or any activity of rendering any service in relationtoany trade, commerce or business, for cess or fee or anyother consideration,irrespective of the nature of use orDapplication, or retention, of the income from suchactivity.Scope of this amendment has further been explained by theCBDT vide itscircular no.11/2008 dated 19th Dec 2008.”

115. Senior counsel appearing for the assessees relied on Section119 of the IT Act as well as decisions of this court, reported as NavnitELal Jhaveri (supra) and UCO Bank Calcutta (supra) and argued thatdepartmental circulars are binding upon tax administrators, and shouldbe legitimately considered as aids of construction. This was in supportof their reliance on the circulars in the present case (No.11/2008 andNo. 1/2009).

F116. This court in Navnit Lal Jhaveri (supra) considered Sections2(6A)(e) and 12(1B) of the IT Act which were introduced by the FinanceAct, 15, 1955 (w.e.f. 01.04.1955). As result of these amendments, thecombined effect of the two provisions was that three kinds of paymentsmade to shareholders companies to which those applied, were treatedas taxable dividend to the extent of the accumulated profits held by theGcompany. The provision was challenged. It was noticed that whileintroducing the amendment, the Finance Minister assured that outstandingloans and advances – otherwise liable to taxation as dividends in AY1955-56, would not be subjected to tax if it were shown that they hadbeen genuinely refunded to the respective companies before 30.06.1955.HThe government felt that unless such step was taken, the operation of

Section 12(1B) would lead to extreme hardship, as it would cover theaggregate of all outstanding loans of past years and could have led tounreasonably high liability on shareholders to whom the loans might havebeen advanced. circular [No. 20(XXI-6) /55] was issued by the CentralBoard of Revenue on 10.05.1955. The court, in that context, observedthat:

“It is clear that circular of the kind which was issued by theBoard would be binding on all officers and persons employedin the execution of the Act under s. 5(8) of the Act. This circularpointed out to all the officers that it was likely that some ofthe companies might have advanced loans to theirshareholders as result of genuine transactions of loans,and the idea was not to the effect such transactions and notto bring them within the mischief of the new provision.

The officers were, therefore, asked to intimate to all thecompanies that if the loans were repaid before the 30[th] June,1955, in genuine manner, they would not be taken intoaccount in determining the tax liability of the shareholders towhom they may have been advanced. In other words, pasttransactions which would normally have attracted the stringentprovisions of s. 12(1B) as it was introduced in 1955, weresubstantially granted exemption from the operation of the saidprovisions by making it clear to all the companies and theirshareholders that if the past loans were genuinely refundedto the companies, they would not be taken into account unders. 12(1B). Section 12(1B) would, therefore, normally apply toloans granted by the companies, to their respectiveshareholders with full notice of the provisions prescribed byit.”

117. This court ultimately upheld the amendments. As is evident,the judgment noticed that the circular sought to soften the rigors of theotherwise harsh consequence of immediate application of theamendment. There was nothing in the circular to make it applicable forall times to come. It was more in the nature of the government issuing atemporary suspension of operation of the substantive provision, introducedby the amendment.

118. In UCO Bank, Calcutta (supra), this court had to deal withcirculars issued under Section 145 regarding the method of accounting

DEF

Ato be followed, in the context of bank loans to be written off, when anassessee was following the mercantile system (of accounting). The courtinter alia, held that under Section 119 (2) of the IT Act, the CentralBoard of Direct Taxes is empowered, for proper and efficientmanagement of assessment and collection of revenue to issue generalor special orders in respect of any class of incomes or class of casesBsetting forth directions or instructions, not being prejudicial to assessees,as the guidelines, principles or procedures to be followed in the workrelating to assessment. The court held that the

“9. […] The Board thus has power, inter alia, to tone downthe rigour of the law and ensure fair enforcement of itsCprovisions, by issuing circulars in exercise of its statutorypowers under Section 119 of the Income-tax Act which arebinding on the authorities in the administration of the Act.Under Section 119(2)(a), however, the circulars ascontemplated therein cannot be adverse to the assessee. Thus,Dthe authority which wields the power for its own advantageunder the Act is given the right to forego the advantage whenrequired to wield it in manner it considers just by relaxingthe rigour of the law or in other permissible manners as laiddown in Section 119. The power is given for the purpose ofjust, proper and efficient management of the work ofEassessment and in public interest.”119. The view expressed in Navnit Lal Jhaveri (supra), and laterelaborated in UCO Bank (supra) appears to have found resonance inother decisions[111] of this court. recent instance where this court tookaid of explanatory circulars is in CIT v.Vatika Township[112 ]when afterFholding that the amendment in question applied prospectively, the courtalso supported that holding by citing the revenue’s understanding aboutsuch prospective application, in circular. What is of note in that judgment,is that the question of whether circulars or explanatory notes issued bythe executive are binding aids of construction was not discussed; moreGimportantly, the court first interpreted the statute, in its own terms, andthen cited the circular.

111 Ellerman Lines Ltd. v. Commissioner of Income tax 1972 (2) SCR 168; K.P. Verghesev. Commissioner of Income Tax 1982 (1) SCR 629; Union of India v. Azadi BachaoAndolan 2003 (Supp 4) SCR 222H112 (2015) 1 SCC 1

120. That circulars are per se not binding upon courts, in regardto interpretation of statutory provision and, at best are guides or aid tointerpretation for departmental authorities, who are bound to take theminto account, was pithily stated in Keshavji Ravji & Co. and Ors. v.Commissioner of Income Tax[113 ]where the court observed as follows:

“This contention and the proposition on which it rests, namely,that all circulars issued by the Board have binding legalquality incurs, quite obviously, the criticism of being toobroadly stated. The Board cannot preempt judicialinterpretation of the scope and ambit of provision of the‘Act’ by issuing circulars on the subject. This is too obvious aproposition to require any argument for it. circular cannoteven impose on the tax payer burden higher than what theAct itself on true interpretation envisages. The task ofinterpretation of the laws is the exclusive domain of the courts.However, this is what Sri Ramachandran really has in mind -circulars beneficial to the assessees and which tone downthe rigour of the law issued in exercise of the statutory powerunder Section 119 of the Act or under correspondingprovisions of the predecessor Act are binding on theauthorities in the administration of the Act. The Tribunal, muchless the High Court, is an authority under the Act. The circularsdo not bind them. But the benefits of such circulars to theassessees have been held to be permissible even though thecirculars might have departed from the strict tenor of thestatutory provision and mitigated the rigour of the law. Butthat is not the same thing as saying that such circulars wouldeither have binding effect in the interpretation of theprovision itself or that the Tribunal and the High Court aresupposed to interpret the law in the light of the circular. Thereis, however, support of certain judicial observations for theview that such circulars constitute external aids toconstruction.”

121. This view was accepted in Commissioner of Customs v.Indian Oil Corporation[114], which articulated the position with somedegree of clarity. Commenting on Navnit Lal Jhaveri (supra) and otherdecisions, it was observed that:

113 1992 (2) SCC 231

114 2004 (2) SCR511

DEF

A“30. No proposition was laid down in that case that even ifthe circular was clearly contrary to the provisions of the Actit should prevail, On the other hand, the learned Judges wereinclined to view the circular as granting the benefit ofexemption from the operation of the impugned provisionssubject to fulfilment of certain conditions. Navnit Lal’s caseBwas referred to and construed in two cases decided byBenches of two learned Judges. The first one was the case ofEllerman Lines Ltd. v. Commissioner of Income Tax, WestBengal [1971]82ITR913(SC) and the other is K.P. Varghesev. I.T. Officer, Ernakulam [1981]131ITR597(SC) . In bothCthese cases it was assumed that Navnit Lal’s case was anauthority for the proposition that even if the directions givenin the circular clearly deviate from the provisions of the Act,yet, the Revenue is bound by it. These three decisions wererepeatedly referred to and relied on in the subsequent decisionsin which the issue arose as regards the binding nature of theDcirculars either under the Income Tax Act or under the CentralExcise Act. In between, there was the three Judge Benchdecision in Sirpur Paper Mills Ltd. v. Commissioner of WealthTax [1970]77ITR6(SC) in which Section 13 of the Wealth TaxAct corresponding to Section 5(8) of the Income Tax Act, 1922Efell for consideration. This Court took the view that theinstructions issued by the Board may control the exercise ofthe power of the departmental officials in mattersadministrative but not quasi-judicial. There is yet anotherdecision of three Judge Bench which seems to make denton the weight of the proposition that the circulars of the Board,Feven if they are plainly contrary to the provisions of the Act,should be given effect to and binding on the authoritiesconcerned in the administration of the Act. That is the case ofKeshavjiRavji& Co. v. I.T. Commissioner [1990] 183 ITR1(SC)”

G122. In view of conflict between decisions, on the binding natureof circulars issued by the Board (in the context of decisions of authoritiesdealing with indirect taxation issues) this court, by five-judge decision,in Ratan Melting and Wire Industries (supra)held that

“6. Circulars and instructions issued by the Board are noHdoubt binding in law on the authorities under the respective

statutes, but when the Supreme Court or the High Courtdeclares the law on the question arising for consideration, itwould not be appropriate for the Court to direct that thecircular should be given effect to and not the view expressedin decision of this Court or the High Court. So far as theclarifications/circulars issued by the Central Government andof the State Government are concerned they represent merelytheir understanding of the statutory provisions. They are notbinding upon the court. It is for the Court to declare what theparticular provision of statute says and it is not for theExecutive. Looked at from another angle, circular which iscontrary to the statutory provisions has really no existence inlaw.”123. In the opinion of this court, the views expressed in KeshavjiRavji, Indian Oil Corporation and Ratan Melting and Wire Industries(though the last decision does not cite Navnit Lal Jhaveri), reflect thecorrect position, i.e., that circulars are binding upon departmentalauthorities, if they advance proposition within the framework of thestatutory provision. However, if they are contrary to the plain words ofa statute, they are not binding. Furthermore, they cannot bind the courts,which have to independently interpret the statute, in their own terms. Atbest, in such task, they may be considered as departmental understandingon the subject and have limited persuasive value. At the highest, theyare binding on tax administrators and authorities, if they accord with andare not at odds with the statute; at the worst, if they cut down the plainmeaning of statute, or fly on the face of their express terms, they areto be ignored.

B. Interpretation of Section 2(15), the definition clause

124. Section 2 of the Income Tax Act opens with the phrase“unless the context otherwise requires”. It has been held in S.K. Gupta& Anr. v. K.P. Jain & Anr.[115] that where the definition of term ispreceded by this phrase, normally, the definition given in the section“should be applied and given effect to but this normal rule can bedeviated if there is something in the context to show that the definitionshould not be applied”. This rule was also adopted in Indira NehruGandhi v. Shri Raj Narain and Anr.[116 ]by Khanna, J and in Kalya

115 (1979) 3 SCC 54.116 (1975) Supp. SCC 1

ABC

ASingh v. GendaLal and Ors[117]. Previously, in Vanguard Fire andInsurance Company Ltd. v. M/s. Fraser and Ross and Anr.[118], it washeld that the term “unless the context otherwise requires” implies thatthe word or term so defined should be applied – subject to the context. Itwas held that in view of such qualification, the Court has not only tolook at the words but also to look at the context, collocation, and theBobject of such words in respect of such matters and factor the meaningto be conveyed by the use of the words under the circumstances. Almostthe same reasoning has been echoed in N.K. Jain and Ors. v. C.K.Shah and Ors[119].

125. The importance of terms expressly defined in statute isCthat they are internal and binding aids to interpretation. The prefacing –to any definition – of the phrase “unless the context otherwise requires”merely signifies that in case there is anything expressly to the contrary,in any specific provision(s) in the body of the Act, different meaningcan be attributed. However, to discern the purport of provision, theDterm, as defined has to prevail, whenever the expression is used in thestatute. This rule is subject to the exception that when contrary intentionis plain, in particular instances, that meaning is to be given. Therefore, inthe light of the previous discussion, this court would interpret the truemeaning of “charitable purpose” after its amendment in 2008, takinginto consideration the subsequent changes.E

126. As observed at the beginning of this judgment, GPU charitieshave been recognized as distinct from the ‘per se categories’of charity(education, medical relief, relief to the poor; and later - preservation ofwater sheds, monuments, environment, and yoga). The judgment of thiscourt in Dharmadeepti (supra) has clarified that the per se categoriesF– are not subjected to the restrictive condition of eschewing activities ofprofit. This enunciation of the principle has been endorsed in all laterdecisions – starting with Surat Art Silk (supra). Therefore, the restrictionimposed by Parliament against charities – prohibiting them from carryingon activities of profit do not apply to the first six categories. Although theGoccasion did not so arise in Surat Art Silk (supra) (since this Court wasdealing with AYs prior to 1975), the provision in Section 13(1)(bb) whichprevailed then with effect from 01.04.1977 made the position clearer in117 (1975) 3 SCR 783118 (1960) 3 SCR 837H119 (1991) 1 SCR 938

that it permitted these per secategory charities, in the course of theiractual carrying on of their activities, to earn profits. Of course, thisprovision was deleted from 01.04.1984. Alongside, the restriction imposedon GPUs from engaging in activities for profit, was also deleted.

127. As noticed in Thanthi Trust (supra), Section 11(4A) wasoriginally introduced with effect from 01.04.1984 and substituted w.e.f.01.04.1991. At that stage, the statute as it stood, did not restrict GPUcategory charities from carrying on activities of profit or from carryingon business. This court nevertheless was bound by the decision in SuratArtSilk (supra) which had ruled that:

(i)A GPU category charity with constitution grantingdiscretion to the trustees to engage in charitable and non-charitable activities, could not claim the exemption;

(ii)The main or dominant purpose of the GPU category charityhad to be essentially charitable. If it was so, and it incidentallyentailed carrying on activities that led to profit, it was entitledto exemption.

128. This court’s understanding of the law as expressed in ThanthiTrust was therefore, coloured by the statute as it existed, and theformulation in Surat Art Silk (supra).As result, Thanthi Trust,interpreted Section 11(4A) in this background and held that the assesseein that case incidentally was engaged in activities for profit. The courtwas also of the opinion that Section 11(4A) was wider than the revenueurged it to be, in that activities by way of business could not be carriedon incidentally by Trust, which otherwise was GPU category trust.

129. As noticed earlier, between Surat Art Silk (supra) and thedecisions rendered thereafter (i.e., Bar Council of Maharashtra,Federation of Indian Chamber of Commerce and IndustriesandThanthi Trust) there were two changes in lawin 1983 w.e.f. 01.04.1984– on the one hand deleting the restrictive words prohibiting GPUcategories from carrying on profit, and deleting Section 13(1)(bb), andintroducing Section 11(4A), on the other. There was otherwise nomeaningful statutory change. The position therefore, continued as it wasfor about 25 years.

130. After its introduction, by amendment in 2008, Section 2(15)read as follows:

A(15) “charitable purpose” includes relief of the poor,education, medical relief, and the advancement of any otherobject of general public utility:

Provided that the advancement of any other object of generalpublic utility shall not be charitable purpose, if it involvesBthe carrying on of any activity in the nature of trade, commerceor business, or any activity of rendering any service in relationto any trade, commerce or business, for cess or fee or anyother consideration, irrespective of the nature of use orapplication, or retention, of the income from such activity;”

131. The term “in the nature of” occurring in Section 2(15) hasCfrequently been interpreted by this court. In G. Venkataswami Naidu v.Commissioner of Income Tax[120] the isolated transaction of sale of landwas held not to be activity in the nature of trade or business. In State ofTamil Nadu v.Burmah Shell Oil Storage Distribution Company ofIndia Ltd.[121 ]the test indicated was whether the “frequency, volume,Dcontinuity and regularity of transactions carried on with profit-motive”. In State of Tamil Nadu v. Shakti Estates[122], the assessee’sactivities in leasing forest lands, clearing them, and creation of woodensleepers, which were sold, as well as charcoal, which was sold, in aseries of “sustained, systematic and organised activities” was heldto be in the nature of business. In Director of Civil Supplies v. MemberEBoard of Revenue[123 ]this court outlined, what would be activity in thenature of business:“To regard an activity as business there must be course ofdealings, either actually continued or contemplated to becontinued with profit- motive; there must be some real andFsystematic or organised course of activity or conduct with aset purpose of making profit. To infer from course oftransactions that it is intended thereby to carry on businessordinarily there must exist the characteristics of volume,frequency, continuity and system indicating an intention tocontinue the activity of carrying on the transactions for aGprofit. But no single test or group of tests is decisive of theintention to carry on the business. “

120 1959 (Supp 1) SCR 646121 1973 (2) SCR 636122 1989 (1) SCR 408H123 1967 (3) SCR 778

132. The term “in relation to” was interpreted in RenusagarPower Co. Ltd. v. General Electric Co.[124] in an arbitration clause- asfollows:

“25... (2) Expressions such as “arising out of or “in respectof or “in connection with” or “in relation to” or “inconsequence of or “concerning” or “relating to” the contractare of the widest amplitude and content..”

In Mansukhlal Dhanraj Jain v. Eknath Vithal Ogale[125] thiscourt underlined the amplitude to the term “relating to”:

“16. It is, therefore obvious that the phrase “relating torecovery of possession” as found in Section 41(1) of the SmallCause Courts Act is comprehensive in nature and takes in itssweep all types of suits and proceedings which are concernedwith the recovery of possession of suit property from thelicensee and, therefore, suits for permanent injunctionrestraining the Defendant from effecting forcible recovery ofsuch possession from the licensee-Plaintiff would squarelybe covered by the wide sweep of the said phrase.”

In Doypack System (P) Ltd. v. Union of India[126], this courtruled that the expression “in relation to” is broad and is akin to the“concerning with” and “pertaining to”; and is also expansive. Thecourt observed:

“50. The expression “in relation to” (so also “pertaining to”),is very broad expression which presupposes another subjectmatter. These are words of comprehensiveness which mighthave both direct significance as well as indirect significancedepending on the context [internal citation omitted]. Assumingthat the investments in shares and in lands do not form partof the undertaking but are different subject matters, even thenthese would be brought within the purview of the vesting byreason of the above expressions. In this connection referencemay be made to 76 Corpus Juris Secundum at pages 620 and621 where it is stated that the term “relate” is also defined asmeaning to bring into association or connection with. It has

124 1985 (1) SCR 432125 1995 (1) SCR 996126 1988 (2) SCC 299

Abeen clearly mentioned that “relating to” has been held to beequivalent to or synonymous with as to “concerning with”and “pertaining to”. The expression “pertaining to” is anexpression of expansion and not of contraction.”

133. The position, therefore, with respect to what kind activitiesBGPU charities could legitimately undertake, was in state of flux till2015. However, the amendments cumulatively point to prohibitions thatwere constant:

(1)the prohibition applicable to such charities involved incarrying on activities “in the nature of trade, commerceCor business, or any activity of rendering any service inrelation to any trade, commerce or business, for cessor fee or any other consideration”

(2)“irrespective of the nature of use or application, orretention, of the income from such activity” (i.e. activityDin the nature of trade, commerce or business for cess,fee or other consideration).

134. By retrospective amendment, in Section 2(15), after theproviso, second proviso was inserted with effect from 01.04.2009.-

“Provided further that the first proviso shall not apply if theEaggregate value of the receipts from the activities referred totherein is ten lakh rupees or less in the previous year;”;

With the introduction of the second proviso, the resulting situationwas that the first proviso (of exclusion of income through an activity asreferred to) was inapplicable if the aggregate value of the receipts ofFsuch activity did not exceed 10,00,000, and later by Finance Act, 2012– this was enhanced to 25,00,000.

135. The next important change took place through the FinanceAct, 2015, which, w.e.f. 01.04.2016 substituted the two provisos toSection 2(15) with the following proviso:G

“Provided that the advancement of any other object of generalpublic utility shall not be charitable purpose, if it involvesthe carrying on of any activity in the nature of trade, commerceor business, or any activity of rendering any service in relationto any trade, commerce or business, for cess or fee or anyHother 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 actualcarrying out of such advancement of any other objectof general public utility; and

(ii)the aggregate receipts from such activity or activitiesduring the previous year, do not exceed twenty per centof the total receipts, of the trust or institutionundertaking such activity or activities, of that previousyear;”

136. The limited relief, given by the second proviso, to GPUcharities (for the period 2009-2015) was that in case such GPU categorycharities did carry on activitiesundertaken in the course of actualcarrying out of their GPU objects that were in the nature of trade,commerce or business, or rendered any service in relation to trade,business, etc., and collected fee, cess, or other consideration, such incomecould still be exempt, if it did not exceed 10,00,000 (and later,25,00,000). By the amendment of 2015, the second proviso was deletedand two conditions were introduced, with respect to permissibility ofcarrying on trade, commerce, etc:

(i)such activity is undertaken in the course of actual carryingout of such advancement of any other object of generalpublic utility; and

(ii)the aggregate receipts from such activity or activities duringthe previous year, do not exceed twenty percent of the totalreceipts, of the trust or institution undertaking such activityor activities, of that previous year.

137. Having thus far discussed nature of the changes to theterm “charitable purpose” and how judicial thinking has shaped it, thiscourt would now explore the all important question of the scope of theterm of “any other object generally public utility” not being charitablepurpose “if it involves the carrying on of any activity in the natureof trade, commerce or business or any activity of rendering anyservice in relation to any trade, commerce or business, for cess orfee or any other consideration, irrespectiveof the nature of use orapplication, or retention, of the income from such activity.”

A138. Parliamentary endeavour, was to alter the regime applicableto taxation of GPU category charities, under the IT Act. The absolutebar imposed on GPU charities from carrying on activities in the natureof trade, commerce or business, or of rendering any service in relationto any trade, commerce or business, for cess or fee or any otherconsideration, evidences this intent. The original Section 2(15) did notBallude to trade, commerce or business, or any service in relation to suchactivities. It only enjoined the GPU charities from involving themselvesfrom carrying on of anyactivity for profit[127](which was interpreted inSurat Art Silk). This substantial change brought about by theamendments of 2008 -2012 and 2015 is the prohibition from engaging inCany kind ofactivity in the natureof business, commerce, or trade or anyrendering any service in relation thereto, and earning income by the wayof cess, fee or consideration.In the opinion of this court, the expressdeletion of the reference to ‘activity for profit’ on the one hand, and theenactment of an expanded list of what cannot be done by GPU charitiesif they are to retain their characteristic as charities, is an emphatic mannerDin which Parliament wished to express itself.

139. Counsel on both sides went to great lengths and cited severaljudgments for the proposition that “trade or business” are terms whichimply profit-making. They relied on Khoday Distilleries (supra); M/s.Raipur Manufacturing (supra); Board of Trustees of the Port ofEMadras (supra), and Physical Research Laboratory v. K. G.Sharma[128]. It was contended by the revenue, that the reference to terms“business, trade or commerce” and “service in relation to” suchactivities are meant to imply that profit motive should be completelyabsent. At the same time - on behalf of the assessees, it was contentedFthat if the proscribed activities i.e., business, commerce or trade or servicein relation to such activities - is not the main or dominant object of theGPU charity,any incidental involvement in such activities ispermissible. Counsel on behalf of many assessees urged that some ofthem are statutory corporations chargedwith developing housing industrial

infrastructure sector, regulation of professions (such as charteredGaccountants, etc.). It was underlined that such corporations are agenciesof the state, recognized as “State” under Article 12 of the Constitution,and carry out the essential purposes for which they were set up, which

127 “…the advancement of any other object of general public utility not involving thecarrying on of any activity for profit”H128 (1997) 4 SCC 257.

otherwise state departments would have been expected to carry out. Itwas then emphasized that the activities of such corporations cannot becharacterized as motivated by profit- rather their essential purposes areto achieve objects of general public utility.

140. In Town Investments v. Department of Environment[129], itwas remarked that “business” is an ‘etymological chameleon’. In NDMC(supra) - while dealing with the question of immunity of states and statecorporations, municipal corporations and local authorities from uniontaxation, this court (in nine-judge bench composition) interpreted Article289 of the Constitution[130 ]and discussed the nature of the activities thatcould be carried on by state or state agencies:

“Section 155(1) which by its own force levied taxes upon thetrading and business operations carried on by the ProvincialGovernments did not either define the said expressions orspecify which trading or business operations are subject totaxation. On this account, the proviso was not and could notbe said to have been, ineffective or unenforceable. It waseffective till 26-1-1950. Clause (2) of Article 289 also similarlydoes not define or specify — nor does it require that the lawmade thereunder should so define or specify. It cannot besaid that unless the law made under and with reference toclause (2) specifies the particular trading or businessoperations to be taxed, it would not be law within themeaning of clause (2). Coming back to the language of clause(2), question is raised, why does the proviso speak oftaxation in respect of trade or business when the main limbof sub-section (1) speaks only of taxes in respect of lands orbuildings and income? Is the ambit of proviso wider than the

129 1977 1 ALLER 813

130 289. Exemption of property and income of State from Union taxation.—(1) Theproperty and income of State shall be exempt from Union taxation.

(2) Nothing in clause (1) shall prevent the Union from imposing, or authorisingthe imposition of, any tax to such extent, if any, as Parliament may by law provide inrespect of trade or business of any kind carried on by, or on behalf of, the Governmentof State, or any operations connected therewith, or any property used or occupied forthe purposes of such trade or business, or any income accruing or arising in connectiontherewith.

(3) Nothing in clause (2) shall apply to any trade or business, or to any class oftrade or business, which Parliament may by law declare to be incidental to the ordinaryfunctions of government.

DEF

Amain limb? Is it an independent provision of substantivenature notwithstanding the label given to it as proviso? Oris it only an exception? It is asked. We are, however, of theconsidered opinion that it is more important to give effect tothe language of and the intention underlying the proviso thanto find label for it. It is clarificatory in nature without aBdoubt; it appears to be more indeed. It is concerned mainlywith the “income” (of Provincial Governments) referred to inthe main limb of sub-section (1). It speaks of tax on the “landsor buildings” in that context alone, as we shall explain in thenext paragraph. The idea underlying the proviso is to make itCclear that the exemption of income of Provincial Governmentoperates only where the income is earned or received by it asa Government; it will not avail where the income is earned orreceived by the Provincial Government on account of or fromany trade or business carried on by it — that is trade or abusiness carried on with profit motive. In the light of theDlanguage of the proviso to Section 155 and clause (2) of Article289, it is not possible to say that every activity carried on bythe Government is governmental activity. distinction has tobe made between governmental activity and trade andbusiness carried on by the Government, at least for theEpurposes of this clause. It is for this reason, we say, that unlessan activity in the nature of trade and business is carried onwith profit motive, it would not be trade or businesscontemplated by clause (2). For example, mere sale ofgovernment properties, immovable or moveable, or grantingof leases and licences in respect of its properties does notFamount to carrying on trade or business. Only where tradeor business is carried on with profit motive — or anyproperty is used or occupied for the purpose of carrying onsuch trade or business — that the proviso [or for that matterclause (2) of Article 289] would be attracted. Where there isGno profit motive involved in any activity carried on by theState Government, it cannot be said to be carrying on tradeor business within the meaning of the proviso/clause (2),merely because some profit results from the activity [ Forexample, almost every State Government maintains one or moreguest houses in Delhi for accommodating their officials and

others connected with the affairs of the State. But, when somerooms/accommodation are not occupied by such persons andremain vacant, outsiders are accommodated therein, thoughat higher rates. This activity cannot obviously be calledcarrying on trade or business nor can it be said that thebuilding is used or occupied for the purpose of any trade orbusiness carried on by the State Government.] . We may pausehere while and explain why we are attaching such restrictedmeaning to the words “trade or business” in the proviso toSection 155 and in clause (2) of Article 289. Both the wordsimport substantially the same idea though, ordinarilyspeaking, the expression “business” appears to be wider inits content. The expression, however, has no definite meaning;its meaning varies with the context and several other factors.…Having regard to the context in which the words “trade orbusiness” occur — whether in the proviso to Section 155 ofthe Government of India Act, 1935 or in clause (2) of Article—289 of our Constitution they must be given, and we havegiven, restricted meaning, the context being levy of tax byone unit of Federation upon the income of the other unit, themanifold activities carried on by Governments under ourconstitutional scheme, the necessity to maintain balancebetween the Centre and the States and so on.”

(emphasis supplied)

141. From NDMC (supra), it is clear that not every state activityresembling commerce can be considered per se exempt from uniontaxation, in the context of Article 289. The court also emphasized thatmere sale or lease of government property does not imply trade orbusiness. The crucial or determinative element in the venture, so to say,is whether performance of function is actuated by profit motive.

142. What then is the true meaning of the expressions “fee, cessor consideration”? The careful analysis of the amended proviso toSection 2(15), reveal that the prohibition applies in four-fold manner-

(a)The bar to engaging in trade, commerce or business,

(b)The bar to providing any service in relation to trade,commerce or business,

A(c)wherein “for fee, cess or any other consideration” isthe controlling phrase for both (a) and (b) (which arecollectively referred to as “prohibited activities” for brevity)

(d)irrespective of the application of the income derived fromsuch ‘prohibited activities’.

143. The impermissibility of any trade, or commercial activity orservice, and income, from them, was intended to be conveyed throughthe prohibition, in the first part of the definition of GPU charities. Thenecessary implication which arises is that income (received as fee, cess,or any other consideration) derived from such ‘prohibited activities’ isCnecessarily motivated by profit. The ordinary meaning of fee orconsideration would be synonymous with something of value, usually inmonetary terms. However, the use of the expression “cess” faciallylends different colour to all the three expressions.

144. “Fee, cess and any other consideration” has to receive aDpurposive interpretation, in the present context. If fee or cess or suchconsideration is collected for the purpose of an activity, by statedepartment or entity, which is set up by statute, its mandate to collectsuch amounts cannot be treated as consideration towards trade orbusiness. Therefore, regulatory activity, necessitating fee or cesscollection in terms of enacted law, or collection of amounts in furtheranceEof activities such as education, regulation of profession, etc., are per senot business or commercial in nature. Likewise, statutory boards andauthorities, who are under mandate to develop housing, industrial andother estates, including development of residential housing at reasonableor subsidized costs, which might entail charging higher amounts fromFsome section of the beneficiaries, to cross-subsidize the main activity,cannot be characterized as engaging in business. The character of being‘state’, and such corporations or bodies set up under specific laws(whether by states or the centre) would, therefore, not mean that theamounts are ‘fee’ or ‘cess’to provide some commercial or businessservice. In each case, at the same time, the mere nomenclature of theGconsideration being “fee” or “cess”, is not conclusive. If the fee orcess, or other consideration is to provide an essential service, in largerpublic interest, such as water cess or sewage cess or fee, suchconsideration, received by statutory body, would not be considered“trade, commerce or business” or service in relation to those.Non-Hstatutory bodies, on the other hand, which may mimic regulatory or

development bodies - such as those which promote trade, for sectionof business or industry, or are aimed at providing facilities or amenitiesto improve efficiencies, or platforms to segment of business, for fee,whether charged by subscription, or specific fee, etc, may not becharitable; when they claim exemption, their cases would require furtherscrutiny.

145. This Court has in some decisions considered the term “cess”.In Shinde Brothers Etc. v. Deputy Commissioner, Raichur andOrs.[131], Justice M. Hidyatullah, (though his was dissenting judgment,yet no contrary opinion was expressed by majority in regard to “cess”)said that:

“... The word “cess” is used in Ireland and is still in use inIndia although the word rate has replaced it in England. Itmeans tax and is generally used when the levy is for somespecial administrative expense which the name (health cess,education cess, road cess etc.) indicates. When levied as anincrement to an existing tax, the name matters not for thevalidity of the cess must be judged of in the same way as thevalidity of the tax to which it is an increment. By ScheduleA(1) read with Section 3 of the Act, it is collected as anadditional levy with tax, which, as described in Schedule A,is undoubtedly one within the powers of the State Legislatureand has been so even prior to the Constitution....”

146. The seven-judge bench judgment of this court in India CementLtd. & Ors. v. State of Tamil Nadu and Ors.[132], approved the definitionpropounded by Hidayatulla, J. In Vijayalashmi Rice Mill and Ors. v.Commercial Tax Officers, Palakol & Ors[133] this court observed that

“13. Hence ordinarily cess is also tax, but is specialkind of tax. Generally tax raises revenue which can be usedgenerally for any purpose by the State. For instance, theincome tax or excise tax or sales tax are taxes which generaterevenue which can be utilised by the Union or the StateGovernments for any purpose e.g. for payment of salary tothe members of the armed forces or civil servants, police, etc.or for development programmes, etc. However, cess is tax131 1967 (1) SCR 548132 1989 (Supp 1) SCR 692133 (2006) 6 SCC 763

DEF

Awhich generates revenue which is utilised for specificpurpose. For instance, health cess raises revenue which isutilised for health purposes e.g. building hospitals, givingmedicines to the poor, etc. Similarly, education cess raisesrevenue which is used for building schools or othereducational purposes.”B

147. The expression “cess”, therefore, implies tax or impostlevied for some special purpose, which may be levied as an increment toan existing tax. The term “fee”, to some extent, has similar meaning.In The Commissioner of Income Tax, Lucknow v. U.P. ForestCorporation[134] this court, after considering other previous decisions,Cheld that exaction, through process of law, of amounts may be called

“fee” but broadly are taxes:

“compulsory exaction’s of money imposed for public purposeand requiring no consideration to sustain it, but in broadgeneric sense as to also include fees levied essentially forDservices rendered. It is now well recognised that there is nogeneric difference between tax and fee; both arecompulsory exaction of money by public authority.”

148. At the same time, there is also authority[135] for the propositionthat charges (which may be termed as “fee” in given statutes) collectedEby local or municipal authorities, for supply of water, for sewerage, etc.,are not “taxes”- they form consideration for the specific services, by theconcerned local authority.

149. The term “consideration” however is broader. The plainmeaning is monetary payment, for something obtained, in the form ofFgoods, or services. In Commissioner of Central Excise, Mumbai v.Fiat India (P) Ltd. &Ors[136 ]this court explained the meaning of thatterm:

“Consideration means something which is of value in the eyesof law, moving from the Plaintiff, either of benefit to theGPlaintiff or of detriment to the Defendant. In other words, it

134 1998 (2) SCR 22

135 See Union of India & Ors. v. State of U.P. & Ors. 2007(12) SCR 792; Union ofIndia v. Purna Municipal Corporation 1991 (Supp 1) SCR 183; MunicipalCorporation, Amritsar v. Senior Superintendent of Post Offices, Amritsar Division &Anr. 2004 (1) SCR 913.H136 2012(12) SCR 975

may consist either in some right, interest, profit or benefitaccruing to the one party, or some forbearance, detriment,loss or responsibility, given, suffered or undertaken by theother, as observed in the case of Currie v. Misa (1875) LR 10Ex. 153.

54. Webster’s Third New International Dictionary(unabridged) defines, consideration thus:

‘Something that is legally regarded as the equivalent orreturn given or suffered by one for the act or promise ofanother.’

55. In volume 17 of Corpus Juris Secundum (p.420-421and 425) the import of ‘consideration’ has been describedthus:

‘Various definitions of the meaning of consideration areto be found in the text-books and judicial opinions. Asufficient one, as stated in Corpus Juris and which hasbeen quoted and cited with approval is “a benefit to theparty promising or loss or detriment to the party to whomthe promise is made.....

At common law every contract not under seal requires aconsideration to support it, that is, as shown in the definitionabove, some benefit to the promisor, or some detriment tothe promisee.’

56. In Salmond on Jurisprudence, the word ‘consideration’has been explained in the following words.

consideration in its widest sense is the reason, motive orinducement, by which man is moved to bind himself byan agreement. It is for nothing that he consents to imposean obligation upon himself, or to abandon or transfer aright. It is in consideration of such and such fact that heagrees to bear new burdens or to forego the benefits whichthe law already allows him.

57. The gist of the term ‘consideration’ and its legalsignificance has been clearly summed up in Section 2(d)of the Indian Contract Act which defines ‘consideration’thus:

‘When, at the desire of the promisor, the promisee or anyother person has done or abstained from doing, or doesor abstains from doing, or promises to do or to abstainfrom doing, something, such act or abstinence or promiseis called consideration to the promise.’

B58. From conspectus of decisions and dictionary meaning,the inescapable conclusion that follows is that‘consideration’ means reasonable equivalent or othervaluable benefit passed on by the promisor to the promiseeor by the transferor to the transferee. Similarly, when theword ‘consideration’ is qualified by the word ‘sole’, it makesCconsideration stronger so as to make it sufficient andvaluable having regard to the facts, circumstances andnecessities of the case.”

150. Therefore, what Parliament intended – through theamendments in question was to proscribe, involvement or engagementDof GPU charities, from any form (“in the nature of”) of activities that

were trade, business or commerce, or engage or involve in providingservices in relation to trade, business or commerce- for fee, cess orother consideration. The inclusion of the term “in the nature of” was bydesign, to clarify beyond doubt, that not only business, trade or commerce,but all activities in the nature of, or resembling them, were proscribed.ELikewise, service in relation to such activities, i.e., services relating, orpertaining to, such proscribed activities, too were forbidden.

151. The reference to fee or cess, is in the opinion of the court,only to emphasize that even statutory consideration, for service tobusiness, trade or commerce, would take the activity outside the definitionFof GPU charity. The sense in which the expressions “cess, fee or

other consideration” are used, is that if any amount, is received fortrading, or business or commercial activity, or any services to such activity,then, notwithstanding their nomenclature (as fee or cess, i.e. that theyare fixed under law) the GPU charity cannot claim tax exempt status.To bring home this even more pointedly- and underline break from theGpast, the application of such amounts (received in the course of trade,commerce, or business, or towards services in relation thereto) wouldbe irrelevant, as evidenced by the term “irrespective”, in the fourth limbof reading Section 2(15).

Summation of interpretation of Section 2(15)H

152. Section 2(15) - in the wake of its several amendmentsbetween 2008 and 2015 - can be juxtaposed with the interpretation ofthe unamended Section 2(15) by this Court. In Surat Art Silk (supra),the principle enunciated was that so long as the predominant object ofGPU category charity is charitable, its engagement in non-charitableobject resulting in profits that are incidental, is permissible. The courtalso declared that profits and gains from such activities which werenon-charitable had to be deployed or “fed” back to achieve the dominantcharitable object.

153. The paradigm change achieved by Section 2(15) after itsamendment in 2008 and as it stands today, is that firstly GPU charitycannot engage in any activity in the nature of trade, commerce, businessor any service in relation to such activities for any consideration (includinga statutory fee etc.). This is emphasized in the negative languageemployed by the main part of Section 2(15). Therefore, the idea of apredominant object among several other objects, is discarded. Theprohibition is relieved to limited extent, by the proviso which carves outthe condition by which otherwise prohibited activities can be engaged inby GPU charities. The conditions are:

(a)That such activities in the nature of trade, commerce,business or service (in relation to trade, commerce orbusiness for consideration) should be in the course of“actual carrying on” of the GPU object, and

(b)The quantum of receipts from such activities should beexceed 20% of the total receipts.

(c)Both parts of the proviso: (i) and (ii) (to Section 2 (15))have to be read conjunctively-given the conscious use of“or” connecting the two of them. This means that if acharitable trust carries on any activity in the nature ofbusiness, trade or commerce, in the actual course of fulfillingits objectives, the income from such business, should notexceed the limit defined in sub-clause (ii) to the proviso.

C. Sections 10, 11, 12, 12A, 12AA and 13 of the IT Act

154. The effect of Sections 11, 12, 12A 12AA and 13 have beenthe subject of certain decisions[137] of this court. These decisions havenoticed that Section 11 deals with income from trusts for charitable and

137 Commissioner of Income Tax v. Dawoodi Bohara Jamat, (2014) 16 SCC 222;S.RM.M.CT.M. Tiruppani Trust v. Commissioner of Income Tax, (1998) 2 SCC 584

Areligious purposes and sets out which shall be subject to tax. Section11(1) relates to application of income towards the objects of the trustand exempts income of trusts with objects wholly charitable or religious,or parts of income which relate to such objects. Section 11(1-A) providesfor exemption of capital gains derived by trusts. Section 11(1-B), speaksof failure to apply income as per option under Explanation (2) to SectionB11(1). Section 11(2) relates to setting apart or accumulation of income.Section 11(3) deals with consequences of misapplication of income orimproper investment, while Section 11(3-A) relates to modification ofpurposes specified in Form 10 under Section 11(2). Sections 11(4) and11(4-A) relate to business income of charitable trusts. Lastly, SectionC11(5) provides for the prescribed modes of investment in regard to thesaid trusts. Section 12 enacts that income of trusts created wholly forcharitable or religious purpose from voluntary contributions would bedeemed as income from the property held under such trust for thepurposes of Sections 11 and 13 of the Act. Section 12-A prescribes theconditions for applicability of Sections 11 and 12 of the Act. It enactsDtwo essential conditions which are to be satisfied by charitable orreligious trust for claiming exemption under those sections: firstly, thatthe person in receipt of the income has made an application for registrationof the trust on or after 01.06.2007 in the prescribed form and manner tothe Commissioner and such trust is registered under Section 12-AAEand secondly, where the total income of the trust exceeds the maximumamount which is not chargeable to income tax in any previous year, theaccounts of the trust must be audited by chartered accountant and theperson in receipt of the income should furnish such audit report in theprescribed form along with the return of income. The procedure forgrant (or refusal) of registration is prescribed by Section 12AA. SectionF13 enlists the circumstances under which tax exemption is unavailableto religious or charitable trusts otherwise falling under Sections 11 or 12.Section 13 therefore, has to be read with the provisions of Sections 11and 12 for deciding eligibility of trust’s claim for exemption.Distinction between business held under Trust[Section 11(4)]Gand Trust carrying on business [Section 11(4A)]

155. Section 11(4) applies to cases where the business undertakingitself is the property held by trust. Thus, where the property held intrust, or where property settled by the donor or trust creator in favour ofthe trustees itself is business undertaking, then the income from suchH

an undertaking is covered by Section 11(4). Section 11(4A) operatesdifferently. It is applicable to cases where the trust carries on business.Section 11(4A) states that when trust carries on business, unless thebusiness is incidental or ancillary to the attainments of the objectives ofthe trust, it would be disentitled to an exemption under Section 11(1). Itimposes further condition that separate books of accounts need to bemaintained in such cases.

156. Section 11(1) confers an exemption from tax only where theproperty itself is held under trust or other legal obligation. It does notapply to cases where trust or legal obligation is not created on anyproperty, but only the income derived from any particular property orsource is set apart and charged for charitable or religious purpose.Similarly, when business itself has been set aside for the objects of thetrust, then such business is held under trust and will fall under sub-section(4). However, where the profits of business of trust are applied forcharitable purposes, then such business and trust will be governed bysub-section (4A).

157. Section 11(1) of the Act exempts income derived fromproperty held under trust wholly for charitable or religious purposes, tothe extent to which such income is applied to such purposes in India.The Act does not comprehensively define “property held under trust”.Section 11(4) however, provides that for the purposes of Section 11, thewords “property held under trust” “includes business undertakingso held”. Section 11(4A) as amended by the Finance (No. 2) Act, 1991w.e.f. 01.04.1992 reads as under:-

“(4A) Sub-section (1) or sub-section (2) or sub-section (3) orsub-section (3A) shall not apply in relation to any income ofa trust or an institution, being profits and gains of business,unless the business is incidental to the attainment of theobjectives of the trust or, as the case may be, institution, andseparate books of account are maintained by such trust orinstitution in respect of such business.”

158. The question whether Section 11(4A) applies where businessis held under trust was answered in the negative in earlier High Courtjudgments. The general provision under Section 4(3)(i) of the old Actexempted income derived from property held under trust from taxation.Section 4(3)(ia) however, enacted that any income derived from abusiness carried on behalf of religious or charitable trust would be

Aentitled to exemption only if the business was carried on in the courseof carrying out of primary purpose of the trust or the work inconnection with the business is mainly carried on by the beneficiariesof the trust. The revenue contended there that since clause (ia) was aspecial provision dealing with exemption in respect of business carriedon for and on behalf of trust, any claim for exemption as regards theBprofits of such business can be made only under that provision, and ifconditions laid down therein are not satisfied, the assessee cannot relyupon the general provision contained in Section 4(3)(i) to claim exemptionthereunder on the ground that business is property. In Gadodia SwadeshiStores v. Commissioner of Income Tax, Punjab[138], the Lahore HighCCourtheld that the fact that the business carried on behalf of the trustfailed to satisfy the two conditions in Section 4(3)(ia) was no reason forit be denied exemption if it fell within Section 4(3)(i). The court held thatthat the two categories mentioned in the two clauses did not excludeeach other.

D159. This judgment of the Lahore High Court was approved- byreference by this court in J.K. Trust v. CIT[139] which was followed inKrishna Warriar (supra). By then the content of Section 4(3)(ia) hadbeen enacted as proviso to clause(i) of Section 4(3), by amending Actof 1953. After referring to the judgment of the Lahore High Court (supra)and rejecting the argument of the revenue that proviso in statute beEalways read as limitation upon the effect of the main enactment Subbarao,J. in Krishna Warriar (supra) observed as under:“........But it is not an inflexible rule of construction that aproviso in statute should always be read as limitationupon the effect of the main enactment. Generally the naturalFpresumption is that but for the proviso the enacting part ofthe section would have included the subject-matter of theproviso; but the clear language of the substantive provisionas well as the proviso may establish that the proviso is not aqualifying clause of the main provision, but is in itself aGsubstantive provision. In the words of Maxwell, “the trueprinciple is that the sound view of the enacting clause, thesaving clause and the proviso taken and construed together

138 See Gadodia Swadeshi Stores v. Commissioner of Income Tax, Punjab, (1944) 12ITR 385139 1958 (1) SCR 65H

is to prevail”. So construed we find no difficulty, as we willindicate later in our judgment, in holding that the said clause(b) of the proviso deals with case of business which is notvested in trust for religious or charitable purposes within themeaning of the substantive clause of section 4(3)(i).”

160. Therefore, to summarise on the legal position on this - if aproperty is held under trust, and such property is business, the casewould fall under Section 11(4) and not under Section 11(4A) of the Act.Section 11(4A) of the Act, would apply only to case where the businessis not held under trust. There is difference between property orbusiness held under trust and business carried on by or on behalf of thetrust. This distinction was recognized in Surat Art Silk (supra), whichobserved that if business undertaking is held under trust for charitablepurpose, the income from it would be entitled to exemption under Section11(1) of the Act.

161. The interface between Sections 11(1) and (4) is of someimportance. Firstly, under Section 11(4), it is only the business which isheld under the trust that would enjoy exemption in respect of its incomeunder Section 11(1). Secondly, there is distinction between the objectsof trust and the powers given to the trustees to effectuate the purposesof the trust. In this regard, the observations of this court, in J.K. Trust(supra) assume relevance. There, one of the questions which arose waswhether the office of managing agency, which was an office of profit,was in fact settled upon trust and, therefore, could be considered to bebusiness held under trust. The court held that for the purposes of Section4(3)(i) of the 1922 Act, the office of managing agency was propertywhich could be held under trust. The revenue pointed out that on theterms of the trust deed previously executed by the settlors (on 15.06.1945),the properties which the trustees are to hold and stand possessed of,were only the sum of 1,00,000/-, any donations and contributionreceived by the trustees and all accretions thereto, and investment insecurities made from time to time representing the accretions. It wascontended that on the terms of the trust deed, the managing agencywhich was acquired on 10.09.1945 for period of 20 years,cannot besaid to be property held under trust since no part of the initial amount of1,00,000/-, which was settled upon the trust, was utilised in the acquisitionof the managing agency, so as to impress it with the character ofaccretion. While repelling this contention, this court held that:

A“.......But it is to be observed that clause (3) of the trust deedexpressly provides for the acquisition of the business ofmanaging agency on behalf of the trust and “with the help ofthe trust fund” and that precisely is what has happened andindeed, reading together Exhibits and B, it is impossible toresist the conclusion that both the documents formed part ofBan integral scheme, and that what the settlors had in view inclause 3 of Exhibit is the very managing agency, which wasacquired under Exhibit B. There is considerable authority inEngland that when trustees carry on business with the aid oftrust fund, the position in law is the same as if they actuallyCemployed it in the business, though, in fact, it be not actuallyinvested therein.”

162. It seems that the test applied in J.K. Trust (supra) that for abusiness, to be considered as property held under trust, it should havebeen either acquired with the help of the fund originally settled uponDtrust or the original fund settled upon trust must have proximateconnection with the later acquisition or carrying on of the business bythe trustees. This distinction between business held and carried on bya trust, or trust business run by the trustees, was noticed, in ThiagesarDharma Vanikam v. CIT[140] by the Madras High Court and in Raja P.C.Lall Choudhary v. CIT, Bihar & Orissa[141 ]by the Patna High CourtEwhich held similarly in relation to Section 4(3)(i) of the Act of 1922(which corresponds to Section 11(1) of the 1961 Act).

163. What has to be examined, therefore, is whether the businessitself is held under trust or is carried on by and on behalf of the trust.Importantly Section 11(1) of the Act starts with the expression “subjectFto the provisions of Sections 60 to 63........”. Those provisions are inChapter V of the Act. Section 60 provides for the consequences of atransfer of income where there is no transfer of assets. It says thatwhere person transfers merely the income from an asset withouttransferring the asset itself, he would continue to be chargeable to incomeGtax. Section 61 provides for the consequences of revocable transfer ofassets and says that the same would be the position where person is inreceipt of income by virtue of revocable transfer of assets. Section 62provides for the consequences of transfer of assets for specified

140 (1963) 50 ITR 798 Madras.141 (1957) 31 ITR 226 Patna.H

period, and serves as an exception to Section 61. An assessee has to bedivested of the asset before ceasing to be assessable in respect of theincome from it. mere direction that the income from the business shallbe applied to the charitable objects of trust, without there being asettlement of the business itself upon trust, does not result in any trust orlegal obligation.

164. It is now, necessary to consider Thanthi Trust (supra) andits context. This court, while interpreting Section 11(4A) (as amendedw.e.f. 01.04.1992) stated that the provision requires the “business incomeof trust or institution tobe exempt is that the business should beincidental to the attainment of objectives of the trust or institution”.

165. The above observations have to be understood in the light ofthe facts before the court. Thanthi Trust carried on newspaper businesswhich was held under trust. The charitable object of the trust was theimparting of education- which falls under Section 2(15) of the Act. Thenewspaper business was incidental to the attainment of the object ofthe trust, namely that of imparting education. This aspect is important,because the aim of the trust was per se charitable object, not GPUobject. The observations were therefore made, having regard to thefact that the profits of the newspaper business were utilized by the trustfor achieving the object of education. In the light of such facts, thecarrying on of newspaper business, could be incidental to the object ofeducation- per se category. The Thanthi Trust (supra) ratio therefore,cannot be extended to cases where the trust carries on business whichis not held under trust and whose income is utilized to feed the charitableobjects of the trust.

166. What then is the interpretation of the expression “incidental”profits, from “business” being “incidental to the attainment of theobjectives” of the GPU charity (which occurs in Section 11(4A))? Asstated earlier, the interpretation of that expression in ThanthiTrust (supra)was in the context of per se charity, i.e., where the trust’s object waseducation. However, the restrictive or negative terms enjoining GPUcharities from carrying on profitable activity had been deleted in 1983(w.e.f. 01.04.1984). In Surat Art Silk (supra), the court had articulatedthe determinative test for defining whether Trust was GPU charity ifits predominant object was to carry out charitable purpose and that ifthat was the case, the fact that it earned profit would not per se depriveit of tax exemption. This decision was interpreted in the context of Section

[2022] 15 S.C.R.

A11(4A) by this court in Thanthi Trust,to hold that business can be incidentalto attainment of the trust’s objects.

167. Thus, the journey which began with Surat Art Silk wasinterpreted in Thanthi Trust to mean that the carrying on of business byGPU charity was permissible as long as it inured to the benefit of theBtrust. The change brought about by the amendments in questions,however, place the focus on an entirely different perspective: that if atall any activity in the nature of trade, commerce or business, or servicein the nature of the same, for any form of consideration is permissible,that activity should be intrinsically linked to, or part of the GPUcategorycharity’s object. Thus, the test of the charity being driven by aCpredominant object is no longer good law. Likewise, the ambiguity withrespect to the kind of activities generating profit which could feed themain object and incidental profit-making also is not good law. Whatinstead, the definition under Section 2(15) through its proviso directs andthereby marks departure from the previous law, is – firstly that if aDGPU charity is to engage in any activity in the nature of trade, commerceor business, for consideration it should only be part of this actualfunction to attain the GPU objective and, secondly – and the equallyimportant consideration is the imposition of quantitative standard -i.e.,income (fees, cess or other consideration) derived from activity in thenature of trade, business or commerce or service in relation to theseEthree activities, should not exceed the quantitative limit of 10,00,000(w.e.f. 01.04.2009), 25,00,000 (w.e.f. 01.04.2012), and 20% (w.e.f.01.04.2016) of the total receipts. Lastly, the “ploughing” back of businessincome to “feed” charity is an irrelevant factor – again emphasizing theprohibition from engaging in trade, commerce or business.F

168. If one understands the definition in the light of the aboveenunciation, the sequitur is that the reference to “income being profitsand gains of business” with further reference to its being incidentalto the objects of the Trust, cannot and does not mean proceeds ofactivitiesincidental to the main object, incidental objects or incomeGderived from incidental activities. The proper way of reading referenceto the term “incidental” in Section 11(4A) is to interpret it in the light ofthe sub-clause (i) of proviso to Section 2(15), i.e., that the activity in thenature of business, trade, commerce or service in relation to such activitiesshould be conducted actually in the course of achieving the GPUobject, and the income, profit or surplus or gains can then, be logicallyH

incidental. The amendment of 2016, inserting sub clause (i) to provisoto Section 2(15) was therefore clarificatory. Thus interpreted, there isno conflict between the definition of charitable purpose and the machinerypart of Section 11(4A). Further, the obligation under Section 11(4A) tomaintain separate books of account in respect of such receipts is toensure that the quantitative limit imposed by sub-clause (ii) to Section2(15) can be computed and ascertained in an objective manner.

169. The conclusion recorded above is also supported by thelanguage of seventh proviso[142] to Section 10(23C). Whereas Section2(15) is the definition clause, Section 10 lists out what is not income.Section 10(23C)– by sub-clauses (iv) and (v) exempt incomes ofcharitable organisations. Such organisations and institutions are not limitedto GPU category charities but rather extend to other types of charities(i.e. the per se kind as well). The controlling part of Section 10(23C)along with the relevant clauses (iv) and (v) seek to exclude incomereceived by the concerned charities. However, the provisos hedge suchexemption with conditions. The seventh proviso- much like Section11(4A) and the definition - carve out an exception, to the exemptionssuch that income derived by charities from business, are not exempt.The seventh proviso virtually echoes Section 11(4A) in that businessincome derived by charity (in the present case, the GPU charities)which arises from an activity incidental to the attainment of its objectiveis not per se excluded.

170. Classically, the idea of charity was tied up witheleemosynary[143]. However, “charitable purpose” – and charity as definedin the Act have wider meaning where it is the object of the institutionwhich is in focus. Thus, the idea of providing services or goods at noconsideration, cost or nominal consideration is not confined to theprovision of services or goods without charging anything or charging atoken or nominal amount. This is spelt out in Indian Chamber of

142 “Providedalso that nothing contained in sub-clause (iv) or sub-clause (v) or sub-clause (vi) or sub-clause (via) shall apply in relation to any income of the fund or trustor institution or any university or other educational institution or any hospital or othermedical institution, being profits and gains of business, unless the business is incidentalto the attainment of its objectives and separate books of account are maintained by it inrespect of such business:”

143 Providing relief from distress to humans based on Christian values - refer to Directorof Income Tax v. Bharat Diamond Bourse (2002) 10 SCC 392, and Bangalore WaterSupply and Sewage Undertaking v. Rajappa (1978) 2 SCC 213.

ACommerce (supra) where this Court held that certain GPUs can renderservices to the public with the condition that they would not charge “morethan is actually needed for the rendering of the services, - may be itmay not be an exact equivalent, such mathematical precision beingimpossible in the case of variables, - may be little surplus is leftover at the end of the year – the broad inhibition against makingBprofit is good guarantee that the carrying on of the activity is notfor profit”.

171. Therefore, pure charity in the sense that the performance ofan activity without any consideration is not envisioned under the Act.If one keeps this in mind, what Section 2(15) emphasizes is that so longCas GPU’s charity’s object involves activities which also generates profits(incidental, or in other words, while actually carrying out the objectivesof GPU, if some profit is generated), it can be granted exemption providedthe quantitative limit (of not exceeding 20%) under second proviso toSection 2(15) for receipts from such profits, is adhered to.D

172. Yet another manner of looking at the definition together withSections 10(23) and 11 is that for achieving general public utility object,if the charity involves itself in activities, that entail charging amountsonly at cost or marginal mark up over cost, andalso derive some profit,the prohibition against carrying on business or service relating to businessEis not attracted- if the quantum of such profits do not exceed 20% of itsoverall receipts.

173. It may be useful to conclude this section on interpretationwith some illustrations. The example of Gandhi Peace Foundationdisseminating Mahatma Gandhi’s philosophy (in Surat Art Silk) throughFmuseums and exhibitions and publishing his works, for nominal cost,ipso facto is not business. Likewise, providing access to low-cost hostelsto weaker segments of society, where the fee or charges recoveredcover the costs (including administrative expenditure) plus nominal markup; or renting marriage halls for low amounts, again with fee meant tocover costs; or blood bank services, again with fee to cover costs, areGnot activities in the nature of business. Yet, when the entity concernedcharges substantial amounts- over and above the cost it incursfor doingthe same work, or work which is part of its object (i.e., publishing anexpensive coffee table book on Gandhi, or in the case of the marriagehall, charging significant amounts from those who can afford to pay, byHproviding extra services, far above the cost-plus nominal markup) such

activities are in the nature of trade, commerce, business or service inrelation to them. In such case, the receipts from such latter kind ofactivities where higher amounts are charged, should not exceed the limitindicated by proviso (ii) to Section 2(15).

174. The insertion of Section 13(8)[144], the seventeenth proviso toSection 10(23C) and third proviso to Section 143(3) (all of which wereinserted by Finance Act, 2012, but w.r.e.f. 01.04.2009), further reinforcesthe interpretation of this Court, of “charitable purpose”. These provisions,form the machinery to control the conditions under which income isexempt. The effect of the seventeenth proviso to Section 10(23C) is toimpose the same condition i.e., that that the trade, commerce or businessactivity or service relating to trade, business or commerce, should bepart of the GPU’s activities, to achieve its object of advancing generalpublic utility. The other condition– which is drawn in as part of theexemption condition, is that if such trading or commercial activity takesplace the receipts should be confined to prescribed percentage of theoverall receipts. Section 13(8) too reinforces the same condition.

175. In the opinion of this court, the change intended by Parliamentthrough the amendment of Section 2(15) was sought to be emphasisedand clarified by the amendment of Section 10(23C) and the insertion ofSection 13(8). This was Parliaments’ emphatic way of saying thatgenerally no commercial or business or trading activity ought to beengaged by GPU charities but that in the course of their functioning ofcarrying out activities of general public utility, they can in limited mannerdo so, provided the receipts are within the limit spelt out in Clause (ii) ofthe proviso to Section 2(15).

D. What kinds of income or receipts may not be characterizedas derived from trade, commerce, business or in relation tosuch activities, for consideration

(i) Statutory corporations, authorities or bodies

176. It would be essential now to deal with certain kinds of receiptswhich GPU charities, typically statutory housing boards, regulatoryauthorities and corporations may be entitled to, if mandated to collect or

144 “(8) Nothing contained in section 11 or section 12 shall operate so as to excludeany income from the total income of the previous year of the person in receipt thereofif the provisions of the first proviso to clause (15) of section 2 become applicable inthe case of such person in the said previous year.”

Areceive. During the course of hearing, learned counsels highlighted thatstatutory boards, and corporations have to recover the cost of providingessential goods and services in public interest, and also fund large scaledevelopment and maintain public property. These would entail recoveringcharges or fees, interest and also receiving interest for holding deposits.It was further pointed out that in some cases, income in the form ofBrents – having regard to the nature of the schemes which the concernedboard, trust or corporation may be mandated or permitted to carry on,has to be received. For instance, in some situations, for certain kinds ofproperties, the boards may be permitted only to lease out their assetsand receive rents.C177. The answers to these, in the opinion of this court, are that thedefinition ipso facto does not spell out whether certain kinds of incomecan be excluded. However, the reference to specific provisions enablingor mandating collection of certain rates, tariffs or costs would have to beexamined. Generically, going by statutory models in enactments (underDwhich corporations boards or trust or authority by whatsoever name,are set up), the mere fact that these bodies have to charge amountstowards supplying goods or articles, or rendering services i.e., for feesfor providing typical essential services like providing water, distributionof foodgrains, distribution of medicines, maintenance of roads, parksetc., ought not to be characterized as “commercial receipts”. TheErationale for such exclusion would be that if such rates, fees, tariffs,etc., determined by statutes and collected for essential services, areincluded in the overall income as receipts as part of trade, commerce orbusiness, the quantitative limit of 20% imposed by second proviso toSection 2(15) would be attracted thereby negating the essential generalFpublic utility object and thus driving up the costs to be borne by theultimate user or consumer which is the general public. By way ofillustration, if corporation supplies essential foodgrains at cost, or amarginal mark up, another supplies essential medicines, and third, water,the characterization of these, as activities in the nature of business, would

be self-defeating, because the overall receipts in some given cases mayGexceed the quantitative limit resulting in taxation and the consequenthigher consideration charged from the user or consumer.

(a) Interpretation of Section 10(46) and Section 2(15)

178. Section (20A) was inserted by Finance Act, 1970 with effectHfrom 01.04.1962. It had excluded certain classes of income, of

corporations[145]. This court had occasion to deal with the provision whileit was in force in the GIDC case (supra). The court had then emphasizedthat the expression “development” in Section 10(20A) should beunderstood widely; thus, all development programmes “relating to anyindustry” fell within the purview of “development”. The court alsohighlighted that nothing in the IT Act laid down how corporation couldbe termed as development corporation nor was there anythingmandating that fee chargeable by such corporations was confined tonon-industrial activities.

179. The decision in Gujarat Maritime Board case (supra) wasrendered in the context of Section 10(20). That provision exempts incomeaccruing to local authorities, from taxation. By Finance Act, 2002, anExplanation was added to Section 10(20) which defined “local authority”retrospectively. The Board ceased to enjoy exemption which it hadhitherto, in the absence of the retrospective definition. It, therefore soughtexemption, as GPU category charity claiming that it was controlled byobjects of general public utility having regard to the provisions of itsparent Act, i.e., the Gujarat Maritime Board Act. This court refuted theargument of the revenue that if corporation did not fall within thedefinition of “local authority” it could not claim to be GPU charity. Itwas held that Section 10(20) and Section 11 of the 1961 Act operate intotally different spheres. Even if the Board is not considered as localauthority, it is not precluded from claiming exemption under Section 11(1)of the 1961 Act. Therefore, the court read Section 11(1) in light of thedefinition of the words “charitable purposes” as defined under Section2(15). This court also relied upon the ruling in CIT v. APSRTC (supra)where the APSRTC – constituted under the Road Transport CorporationAct, 1950 – having regard to the objectives of the Act, was held to be aGPU charity, thus entitling it to exemption in terms of the IT Act.

180. In the light of these decisions, it is evident that the revenue’snarrow construction by which tax exemption is denied on the ground

145 Incomes not included in total income.

10. In computing the total income of previous year of any person, any income fallingwithin any of the following clauses shall not be included-xxxxxxxxxxxxxxxxxx

(20A) any income of an authority constituted in India by or under any law enacted eitherfor the purpose of dealing with and satisfying the need for housing accommodation orfor the purpose of planning, development or improvement of cities, towns and villages,or for both.

CDE

Athat if an entity is not covered by Section 10(20A) – or the newlyapplicable Section 10(46), it cannot claim benefit as GPU charity underSection 11, is unsound. These two provisions confer different thoughoverlapping benefits. If an entity does not fulfil the requirement of oneprovision because it does not answer the description of body underthat provision, that ipso facto is not bar for it to claim benefit of anotherBprovision.

181. Section 10(46) re-incarnated so to say Section 10(20A), whichhad been deleted w.e.f. 01.04.2003. This provision, i.e., Section 10(46)was inserted with effect from 01.04.2009 retrospectively by the FinanceAct, 2011[146]. The conditions for applicability of Section 10(46), i.e., thatCspecified income or class of specified income of ports, trusts orcommissions, etc., established or constituted by or under Central or Stateenactments with the object of regulating or administering any activity inthe general public, is on similar lines as in the case of GPU charities.Like in the case of GPU charities, there is prohibition by Section

D10(46)(b) against such corporations, etc. engaging in commercial activity.This restriction has been introduced for the first time [as that prohibitionwas absent in the now repealed Section 10 (20A)].

182. The term “commercial” is closely similar to, if not identical,with the phrase “in the nature of trade, commerce or business.” Theother condition inSection 10(46) is that the specified income to beEexempted,is to be notified by the Central Government in the OfficialGazette. Facially the allusion to commercial activity, appears to be in thenature of complete bar to activities which are akin to commerce orbusiness, yielding profit. However, what needs to be kept in mind is thatthe object of Section 10 is to remove from the taxable net, an entireFclass of receipts of income. Given this object of Section 10, the146 Incomes not included in total income.10. In computing the total income of previous year of any person, any income fallingwithin any of the following clauses shall not be included-xxxxxxxxxxxxxxxxxx

(46) any specified income arising to body or authority or Board or Trust or CommissionG(by whatever name called) or class, thereof which-(a) has been established or constituted by or under Central, State or Provincial Act, orconstituted by the Central Government or State Government, with the object ofregulating or administering any activity for the benefit of the general public;(b) is not engaged in any commercial activity; and

(c) is notified by the Central Government in the Official Gazette for the purposes ofHthis clause.

interpretation of “commercial” activity has to be on the same lines as inthe case of income derived by GPU charities, in the course of theiractual functioning, by involving in activities in the nature of trade,commerce or business. Thus, if statutory corporations within Section10(46) derive their income by charging nominal mark-up over the costof service rendered or goods supplied, meant to recover the costs of theactivities they engage in primarily or to achieve the object for whichthey were set up, such as development of housing, road infrastructure,water supply, sewage treatment, supply of foodgrains, medicines, etc.,with or without regulatory powers, the mere fact that some surplus orgain is derived would not disentitle them from the benefit of Section10(46).183. In this context, it would be useful to consider the judgment ofthe Delhi and Allahabad High Courts in Greater Noida IndustrialDevelopment Authority v. Union of India[147](hereafter “GNIDA”) andCIT v. Yamuna Expressway Industrial Development Authority[148]. InGNIDA (supra), the High Court drew distinction between bodies setup by the government with commercial purpose and objects – which aremotivated by profit, and other government bodies. The court held,correctly so – that other government bodies are not entitled to exemptionas they are motivated by profit. Then, dealing with the term “commercialactivity” under Section 10(46), it was held that the decisive test is whetherthe activities for which consideration in the form of fee, service chargeetc., is collected, is “intrinsically associated, connected and hadminimum nexus with the object of regulating and administering theactivity for the benefit of the public”.

184. It was also held that if the activity is not carried on commerciallines, i.e., with the profit motive in mind, but the body is assigned anadministrative role, having regard to the objects of the controlling statuteor law, exemption cannot be denied under Section 10(46). As juxtaposed,activities for profit or activities which clearly were motivated by profit –carried on by government or statutory bodies, cannot avail of exemption.The judgment in Yamuna Industrial Development Authority (supra) isalong the similar lines.

185. As far as boards and corporations which are tasked withdevelopment of industrial areas, by statute, the judgments of this court,

147 (2018) 406 ITR 418 (hereafter “GNIDA”)

148 (2017) 395 ITR 18

Ain ShriRamtanu Cooperative Housing Society (supra) and GujaratIndustrial Development Corporation (supra) have declared that thesebodies are involved in ‘development’ and are not essentially engaged intrading. In ShriRamtanu Cooperative Housing Society (supra) thiscourt, by five judge bench, held that the Maharashtra IndustrialDevelopment Corporation is not trading concern, and observed asBfollows:

“These features of transfer of land, or borrowing of moneysor receipt of rents and profits will by themselves neither bethe indicia nor the decisive attributes of the trading characterof the Corporation. Ordinarily, Corporation is establishedCby shareholders with their capital. The shareholders havetheir Directors for the regulation and management of theCorporation Such Corporation set up by the shareholderscarries on business and is intended for making profits. Whenprofits are earned by such Corporation they are distributedDto shareholders by way of dividends or kept in reserve funds.In the present case, these attributes of trading Corporationare absent. The Corporation is established by the Act forcarrying out the purposes of the Act. The purposes of the Actare development of industries in the State. The Corporationconsists of nominees of the State Government, State ElectricityEBoard and the Housing Board. The functions and powers ofthe Corporation indicate that the Corporation is acting as awing of the State Government in establishing industrial estatesand developing industrial areas, acquiring property for thosepurposes, constructing buildings, allotting buildings, factoryFsheds to industrialists or industrial undertakings. It is obviousthat the Corporation will receive moneys for disposal of land,buildings and other properties and also that the Corporationwould receive rents and profits in appropriate cases. Receiptsof these moneys arise not out of any business or trade but outof sole purpose of establishment, growth and development ofGindustries.

17. The Corporation has to provide amenities and facilitiesin industrial estates and industrial areas. Amenities of road,electricity, sewerage and other facilities in industrial estatesand industrial areas are within the programme of work of the

Corporation. The found of the Corporation consists of moneysreceived from the State Government, all fees, costs and chargesreceived by the Corporation, all moneys received by theCorporation from the disposal of lands, buildings and otherproperties and all moneys received by the Corporation byway of rents and profits or in any other manner. TheCorporation shall have the authority to spend such sums outof the general funds of the Corporation or from reserve andother funds. The Corporation is to make provision for reserveand other specially denominated funds as the StateGovernment may direct. The Corporation accepts depositsfrom persons, authorities or institutions to whom allotment orsale of land, buildings, or sheds is made or is likely to bemade in furtherance of the object of the Act. budget isprepared showing the estimated receipts and expenditure. Theaccounts of the Corporation are audited by an auditorappointed by the State Government. These provisions in regardto the finance of the Corporation indicate the real role of theCorporation viz. the agency of the Government in carryingout the purpose and object of the Act which is the developmentof industries. If in the ultimate analysis there is excess ofincome over expenditure that will not establish the tradingcharacter of the Corporation. There are various departmentsof the Government which may have excess of income overexpenditure.

*******************************

20. The underlying concept of trading Corporation is buyingand selling. There is no aspect of buying or selling by theCorporation in the present case. The Corporation carries outthe purposes of the Act, namely, development of industries inthis State. The construction of buildings, the establishment ofindustries by letting buildings on hire or sale, the acquisitionand transfer of land in relation to establishment of industrialestate or development of industrial areas and of setting up ofindustries cannot be said to be dealing in land or buildingsfor the obvious reason that the State is carrying out the objectsof the Act with the Corporation as an agent in setting upindustries in the State. The Act aims at building an industrial

1024SUPREME COURT REPORTS

Atown and the Corporation carries out the objects of the Act.The hard core of trading Corporation is its commercialcharacter. Commerce connotes transactions of purchase andsale of commodities, dealing in goods. The forms of businesstransactions may be varied but the real character is buyingand selling. The true character of the Corporation in theBpresent case is to act as an architectural agent of thedevelopment and growth of industrial towns by establishingand developing industrial estates and industrial areas. Weare of opinion that the Corporation is not trading one.”186. In Shri Ramtanu Cooperative Housing Society (supra) noCdoubt, this court did not have to decide whether the Maharashtra IndustrialDevelopment Corporation was entitled to tax exemption. However, itexamined the provisions of the Act, and the ratio, that such industrialdevelopment corporations are not engaged in trading, is binding. Like inthat case, here too, the concerned state Acts (Gujarat IndustrialDDevelopment Act, 1962 and the Karnataka Industrial Areas DevelopmentAct, 1966) tasked the boards with planning and development of industrialareas. Their personnel are appointed under the enactments and aredeemed to be public servants. The state government is empowered toacquire land, in exercise of eminent domain power, for their purposes;their audits are by the Accountant General of the concerned state, orEauditors appointed by the state. They are authorized by law, to levy ratesand charges, for the services they provide, on pre-determined basis. Inthe light of these provisions, clearly, these boards and authorities performobjects of general public utility; and they are not driven by profit motive.

187. There is two-fold distinction between the now-deletedFSection 10(20A) and the newly added Section 10(46) (w.e.f. 01.06.2011).Firstly, that the erstwhile Section 10(20A) applied to limited class ofundertaking i.e., the bodies, or corporations, constituted by or under anylaw-confined to the planning and development of housing infrastructure.However, the newly added Section 10(46) is wider in comparison andGthe activities of any body or authority or board constituted by or underany central or State Act with “the object of regulating or administeringany activity for the benefit of the general public”, has broader import.In sense, the newly added Section 10(46), resembles GPU categorycharity classified under Section 2(15). The second distinction is thatSection 10(20A) did not bar any board, or corporations, etc. from indulgingH

in commercial activities. However, sub-clause (b) of Section 10(46)imposes such bar, and the concerned body cannot claim tax exemptionif it engages in commercial activity.

188. The manner in which GPU charities has been dealt withunder the definition clause, i.e., Section 2(15), indicates that even thoughtrading or commercial activity or service in relation to trade, commerceor business appears to be barred– nevertheless the ban is lifted somewhatby the proviso which enables such activities to be carried out if they areintrinsically part of the activity of achieving the object of general publicutility. Furthermore, in the case of GPU charities there is quantifiedlimit of the overall receipts, which is permissible from such commercialactivity. In the case of local authorities and corporations covered bySection 10(46) no such activities are seemingly permitted.

189. As was observed in the earlier part of this judgment – whileconsidering whether for the period 01.0.2003 - 31.05.2011, statutoryboards, corporations, etc. could have lawfully claimed to be GPUcharities, this court has observed that the nature of such corporations isnot to generate profit but to make available goods and other services forthe benefit of public weal. If such corporations (falling within thedescription of Section 10(46)) applied to the Central Government forexemption, the treatment of their receipts, should be no different thanhow such receipts can and should have been treated for the purposes ofdetermining whether they are GPU charities, during the period whenSection 10(46) was not in existence. Furthermore, this court is of theopinion that having regard to the observations in Gujarat MaritimeBoard case (supra), the denial of exemption under one category cannotdebar such corporations from claiming income exempt status underanother category.

(b) Summary in relation to statutory authorities/corporations

190. In light of the above discussion, this court is of the opinion

that:

(i)The fact that bodies which carry on statutory functionswhose income was eligible to be considered for exemptionunder Section 10(20A) ceased to enjoy that benefit afterdeletion of that provision w.e.f. 01.04.2003, does not ipsofacto preclude their claim for consideration for benefit as

1026SUPREME COURT REPORTS

[2022] 15 S.C.R.

GPU category charities, under Section 11 read with Section2(15) of the Act.

(ii)Statutory Corporations, Boards, Authorities, Commissions,etc. (by whatsoever names called) in the housingdevelopment, town planning, industrial development sectorsare involved in the advancement of objects of general publicutility, therefore are entitled to be considered as charitiesin the GPU categories.

(iii)Such statutory corporations, boards, trusts authorities, etc.may be involved in promoting public objects and alsoin thecourse of their pursuing their objects, involved or engagedin activities in the nature of trade, commerce or business.

(iv)The determinative tests to consider when determiningwhether such statutory bodies, boards, authorities,corporations, autonomous or self-governing governmentDsponsored bodies, are GPU category charities:

(a)Does the state or central law, or the memorandum ofassociation, constitution, etc. advance any GPU object, suchas development of housing, town planning, development ofindustrial areas, or regulation of any activity in the generalEpublic interest, supply of essential goods or services - suchas water supply, sewage service, distributing medicines, offoodgrains (PDS entities), etc.;

(b) While carrying on of such activities to achieve such objects(which are to be discerned from the objects and policy ofFthe enactment; or in terms of the controlling instrument,such as memorandum of association etc.), the purpose forwhich such public GPU charity, is set-up -whether forfurthering the development or charitable object orfor carrying on trade, business or commerce or servicein relation to such trade, etc.;

(c)Rendition of service or providing any article or goods, bysuch boards, authority, corporation, etc., on cost or nominalmark-up basis would ipso facto not be activities in the natureof business, trade or commerce or service in relation tosuch business, trade or commerce;

(d)where the controlling instrument, particularly statuteAimposes certain responsibilities or duties upon the concernedbody, such as fixation of rates on pre-determined statutorybasis, or based on formulae regulated by law, or rules havingthe force of law, setting apart amenities for the purposes ofdevelopment, charging fixed rates towards supply of water,Bproviding sewage services, providing food-grains, medicines,and/or retaining monies in deposits or government securitiesand drawing interest therefrom or charging lease rent, groundrent, etc., per se, recovery of such charges, fee, interest,etc. cannot be characterized as “fee, cess or otherconsideration” for engaging in activities in the nature ofCtrade, commerce, or business, or for providing service inrelation in relation thereto;(e) Does the statute or controlling instrument set out the policyor scheme, for how the goods and services are to bedistributed; in what proportion the surpluses, or profits, canDbe permissively garnered; are there are limits within whichplots, rates or costs are to be worked out; whether thefunction in which the body is engaged in, is normallysomething government or state is expected to engage in,having regard to provisions of the Constitution and theEenacted laws, and the observations of this court in NDMC;whether in case surplus or gains accrue, the corporation,body or authority is permitted to distribute it, and if so, onlyto the government or state; the extent to which the state orits instrumentalities have control over the corporation or itsbodies, and whether it is subject to directions by theFconcerned government, etc.;

(f)As long as the concerned statutory body, corporation,authority, etc. while actually furthering GPU object, carriesout activities that entail some trade, commerce orbusiness,which generates profit (i.e., amounts that aresignificantly higher than the cost), and the quantum of suchreceipts are within the prescribed limit (20% as mandatedby the second proviso to Section 2(15)) – the concernedstatutory or government organisations can be characterizedas GPU charities. It goes without saying that the other

1028SUPREME COURT REPORTS

Aconditions imposed by the seventh proviso to Section10(23C) and by Section 11 have to necessarily be fulfilled.

(v)As consequence, it is necessary in each case, havingregard to the first proviso and seventeenth proviso (the latterintroduced in 2012, w.r.e.f 01.04.2009) to Section 10(23C),Bthat the authority considering granting exemption, takes intoaccount the objects of the enactment or instrumentconcerned, its underlying policy, and the nature of thefunctions, and activities, of the entity claiming to be GPUcharity. If in the course of its functioning it collects fees, orany consideration that merely cover its expenditureC(including administrative and other costs plus smallproportion for provision) - such amounts are notconsideration towards trade, commerce or business, orservice in relation thereto. However, amounts which aresignificantly higher than recovery of costs, have to be treatedDas receipts from trade, commerce or business. It is for thoseamounts, that the quantitative limit in proviso (ii) to Section2(15) applies, and for which separate books of account willhave to be maintained under other provisions of the IT Act.

(ii) Statutory regulatory bodies/authorities

E191. During the hearings, rival contentions were made in regardto the facial nature of the public utility character of regulatory bodies. Asample special case was that of the Institute of Chartered Accountantsof India (ICAI). In respect of some years, the revenue has preferredappeals and in respect of some others, the Institute has preferred appeals.FReliance was placed upon the provisions of the ICAI Act and detailedsubmissions were made to emphasise that it plays pivotal role inregulating the entire universe of vocation of Chartered Accountants –i.e., selecting candidates that can undergo the educational course, settingthe syllabus for the Chartered Accountancy examination; holding classes,training sessions and imparting education; conducting exams, etc. It wasGhighlighted that the membership of the institute, i.e., those who are enrolledas Chartered Accounts has grown significantly. Whereas in the end offinancial year 2005, the membership was 1.23 lakhs, it had increased to1,86,440 on 31.03.2012. Likewise, there was an exponential growth inthe students appearing in the examination - in 2005, it was 2,96,294, andHon 31.03.2012, it had increased to 10,70,839. Apparently, the Institute

conducts distance education courses and also conducts classroominstruction facilities. These are integrated with the course curriculum.Additionally, it was urged that no commercial motive was involved;coaching and revisional classes conducted are very nominally priced-ranging from 1500 to 2500 for one group, and from 4000 to 6000for both groups, depending on cities where the classes are held.

192. During the submissions on behalf of the Institute, the financialsfor different years were provided. It was revealed that the total outflowtowards salaries for 2003-04 was 55.27 lakhs and depreciation for thesame was 51.64 lakhs. The total expenditure for that year was1.0691 lakhs. As against that, the Revenue earned from generation offees for the corresponding year which was 1.78 crores and thecorresponding expenditure was 96.93 lakhs. The corresponding figuresfor FY 2011-12 for salaries was 2.94 crores. The depreciation wasRs.4.05 crores. The total expenditure thus was 6.9 crores. As againstthis, the amount received towards fees was 6.36 crores and expenditureincurred towards coaching, including salaries,provisions of course material,etc. was 4.34 crores. The surplus (without including administrativeexpenditure) for that year was 2.01 crores. The Institute apparentlycannot distribute the surplus or utilise it for any activity other than whatis set out under the controlling statute and its rules.

193. The Revenue highlighted that conducting courses leading toa professional qualification and charging fees for it is in the nature of a‘service’, and all services in relation to trade, commerce or businesssquarely falls within the mischief of Section 2(15),which has to precludethe institute’s claim for exemption as GPU charity.

194. The Institute is creature of the Institute of CharteredAccountants Act, 1949. By Section 4 of this Act, every person whoqualifies in the examination conducted by the Institute has to seekregistration as Chartered Accountant. Only when members obtaincertificates issued by the Council of the Institute under Section 6 canthey be known as ‘Chartered Accountant’ and be entitled to practicethat profession (Sections 6 and 7). The Council of the Institute isconstituted under Section 9 which defines such constitution and themanner for holding elections, etc. The functions of the Council by Section15(2A) include approving the academic courses and their contents,examining the candidates, regulation and articleship assistance, prescribingqualification for entry of persons in the register, collection of fees from

Amembers; the regulation and maintenance and status of the professionalqualifications of the members of the Institute, etc. By Section 15A,universitiesare enabled to impart education on subjects covered by theacademic courses of the Institute. However, by Section 15A(2) whileawarding degrees or diplomas, their designation should not resemble orbe identical to what is awarded by the Institute. The finances are regulatedBby Section 18. The Council is enjoined to maintain the register underSection 19 and has disciplinary powers by virtue of Section 21A, 21Band 21C of the Act.

195. These provisions of the Act clarify beyond doubt that theInstitute performs statutory functions in the larger public interest ofCregulating the standards of education, leading up to the profession ofChartered Accountancy and also prescribing standards of professionaletiquette, behaviour, and discipline of its members. No other entity orbody has the authority in law to perform the functions that the Institutedoes. Although the Act regulating Chartered Accountancy came into

Dforce prior to the Constitution of India, the subject (of regulatingprofessions, etc.) appears to be relatable to the exercise of legislativepower under Entry 25 and 26 of the Concurrent List[149]. Furthermore,they also appear to conform to Entry 65 of the Union List[150] (which hasbeen adverted to in Entry 25 of the Concurrent List). As things stand,the Institute is the onlybody which prescribes the contents of professionalEeducation and entirely regulates the profession of CharteredAccountancy. There is no other body authorised to perform any otherduties which it performs. It, therefore, clearly falls in the description of acharity advancing general public utility. Having regard to the previousdiscussion on the nature of charities and what constitutes activities inFthe ‘nature of trade, business or commerce’, the functions of the Institute149 In List III of the Seventh Schedule to the Constitution of India,

“25. Education, including technical education, medical education and universities, subjectto the provisions of entries 63, 64, 65 and 66 of List I; vocational and technical trainingof labour.

26. Legal, medical and other professions”.G150 In List I of the Seventh Schedule to the Constitution of India,“65. Union agencies and institutions for—

(a) professional, vocational or technical training, including the training of police officers;or

(b) the promotion of special studies or research; or

(c) scientific or technical assistance in the investigation or detectionof crime.”H

ipso facto does not fall within the description of such ‘prohibitedactivities’. The fees charged by the Institute and the manner of itsutilisation are entirely controlled by law. Furthermore, the material onrecord shows that the amounts received by it are not towards providingany commercial service or business but are essential for the providing ofservice to the society and the general public.

196. Similarly, there are several other regulatory bodies thatdischarge functions which are otherwise within the domain of the State.A singular characteristic of ICAI and other statutory bodies which canbe said to regulate specific functions and professions (including theprofession of Cost and Work Accountants, and Company Secretary, etc.)is the powers conferred upon them by the statutes to prescribe standardsand enforce them through disciplinary sanctions. Therefore, it is heldthat bodies which regulate professions and are created by or understatutes which are enjoined to prescribe compulsory courses to beundergone before the individuals concerned is entitled to claim entry intothe profession or vocation, and also continuously monitor the conduct ofits members do not ipso facto carry on activities in the nature of trade,commerce or business, or services in relation thereto.197. At the same time, this court would sound note of caution. Itis important, at times, while considering the nature of activities (whichmay be part of statutory mandate) that regulatory bodies may perform,whether the kind of consideration charged is vastly or significantly higherthan the costs it incurs. For instance, there can be in given situations,regulatory fees which may have to be paid annually, or the body mayrequire candidates, or professionals to purchase and fill forms, for entryinto the profession, or towards examinations. If the level of such fees orcollection towards forms, brochures, or exams are significantly higherthan the cost, such income would attract the mischief of proviso to Section2(15), and would have to be within the limits prescribed by sub-clause(ii) of the proviso to Section 2(15).

198. The next set of ‘statutory regulatory authorities’ among thepresent batch are those related to authorities set up under the SeedsAct, 1966 (i.e, the Andhra Pradesh State Seeds Certification Authorityand the Rajasthan State Seeds and Organic Production certificationAgency). These two entities are set up as societies under Section 8 ofthe Seeds Act, and comprise of farmers, farmers co-operatives’representatives, seed certification authorities, etc. The task of these

Aagencies and authorities is certification of seeds, to decide whether tocertify supply of seeds of “any notified kind or variety”, by applicantswho may wish to offer them for trade. These agencies/authoritiesscrutinize the samples to ensure they conform to the requisite standardnotified under Section 6. These decisions are subject to appeal underSection 11.B

199. The functioning of the seed certification agency, is crucialone, in those only seeds conforming to prescribed standards, are permittedto be traded and used, by farmers. Such standards are - in the context ofthe fact that agriculture is one of the mainstays of the economy, andfurthermore, pivotal for food security - essential as they ensure efficacyCof seeds and guarantee to the farmers that they can be relied upon. Theessential nature of the regulatory function performed by these certificationagencies is obvious. The nature of their activities is not by way of trade,commerce or business, nor service in relation to trade commerce, business,for some form of consideration.D

(iii) Trade Promotion bodies, councils, associations ororganizations

200. Surat Art Silk (supra) and other decisions, had ruled that aslong as the objects of trade promotion bodies were for general publicutility - wherein ‘trade promotion’in itself, was held to be GPU - theEfact that incidentally these bodies carried on some commercial activity,leading to profit, did not preclude them from claiming to be driven bycharitable purpose. As observed earlier, the enunciation of those principleswere in the context of the unamended Section 2(15).

201. The question that arises is whether the change in definitionFimpacts the claims of trade promotion bodies, federations of commerce,or such organizations, that they are GPU charities . The judgment inSurat Art Silk (supra) proceeded on the assumption that trade promotionwas the pre-dominant object of the GPU charity before the court, andthat other objects – including procuring licences, trade etc. were incidental.GThe assessee in Surat Silk had clear trading objects:

“(b) To carry on all and any of the business of Art Silk Yarn,Raw Silk, Cotton Yarn as well as Art Silk loth, Silk Clothand Cotton Cloth belonging to and on behalf of the members.

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(e) To buy and sell and deal in all kinds of cloth and othergoods and fabrics belonging to and on behalf of theMembers.”

This court, nevertheless, held that since the predominant object ofthe assessee was trade promotion, while furthering it, the fact thatsome trading occurred, leading to income, did not preclude the assesseefrom claiming tax exemption.

202. In the opinion of this court, the change in definition in Section2(15) and the negative phraseology - excluding from consideration, trustsor institutions which provide services in relation to trade, commerce orbusiness, for fee or other consideration - has made difference.Organizing meetings, disseminating information through publications,holding awareness camps and events, would be broadly covered by tradepromotion. However, when trade promotion body providesindividualized or specialized services- such as conducting paid workshops,training courses, skill development courses certified by it, and hires venueswhich are then let out to industrial, trading or business organizations, topromote and advertise their respective businesses, the claim for GPUstatus needs to be scrutinised more closely. Such activities are in thenature of services “in relation to” trade, commerce or business. Theseactivities, and the facility of consultation, or skill development courses,are meant to improve business activities, and make them more efficient.The receipts from such activities clearly are ‘fee or other consideration’for providing service “in relation to” trade, commerce or business.

203. The revenue has appealed to this court, in respect of twoassessment years, in the case of Apparel Export Promotion Council(AEPC). The objects of AEPC, which was set up in 1978 – includepromotion of ready-made garment export. To achieve that end, its objectsinclude providing training to instil skills in the workforce, to improve skillsin the industry; guide in sourcing machinery; to serve as body advising,providing information on market or technical intelligence; assisting theconcerned industry in obtaining import licenses; showcase the bestcapabilities of Indian garment exports through the prestigious “IndiaInternational Garment Fair” organised twice year by AEPC, etc. Thesefairs host over 350 participants who exhibit their garment designs andpatterns. Other functions are to provide information, and to provide marketresearch. AEPC also assists in developing new design patterns andgarments and to perform promotional activities in individual foreign

Amarkets. Further, AEPC sends missions and trade delegations abroad,who participate in international fairs; and conducts surveys to gatherinformation on potential export of ready-made garments.

204. As part of its functioning, it also books bulk space, which isthen rented out to individual Indian exporters, who showcase theirBproducts and services, and ultimately secure export orders. Towardsthese services, i.e., booking and providing space, AEPC charges rentals.Now, these rents are not towards fixed assets owned by it. They are infact charges, or fees, towards services in relation to business; likewise,the skill development and diploma courses conducted by it, for whichfees are charged, are to improve business functioning of garmentCexporters. Furthermore, market surveys and market intelligence, especiallycountry specific activities, aimed at catering to specified exporters, orspecified class of exporters, is also service in relation to trade,commerce or business.205. In the circumstances, it cannot be said that AEPC’sDfunctioning does not involve any element of trade, commerce or business,or service in relation thereto. Though in some instances, the recipientmay be an individual business house or exporter, there is no doubt thatthese activities, performed by trade bodycontinue to be tradepromotion. Therefore, they are in the “actual course of carrying on”Ethe GPU activity. In such case, for each year, the question would bewhether the quantum from these receipts, and other such receipts arewithin the limit prescribed by the sub-clause (ii) to proviso to Section2(15). If they are within the limits, AEPC would be – for that year,entitled to claim benefit as GPU charity.

F(iv) Non-statutory bodies - ERNET, NIXI and GS1 India

206. ERNET is not-for profit society, set up under the aegis ofthe Union Government. At one time, government functionaries, includingthe late President, APJ Abdul Kalam, were members, on account oftheir ex officiocapacity. The objects of this assessee are toG“ 3.1.1 To advance the cause of computer communication inthe country in all its aspects and dimensions with view toprovide rapid nationwide development of the sector andtechnological and economic growth of the county.

3.1.2 To develop, design, setup and operate nationwide stateHof the art computer communication infrastructure with

international connectivity directed towards research anddevelopment, advancement of high quality education, createand host content, express creative and academic potentialvia intranet and intranet peer to peer connectivity amongeducational and research institutions in the country and theworld and make available the communication infrastructureto users in academic, research and development institutions,Govt organizations in line with national priorities.”

207. ERNET’s networks are mix of terrestrial and satellite-based wide-area network. It provides services through its 15 Points ofPresence (PoPs) located across the country. All those are equipped toprovide access to Intranet, Internet and Digital Library through trial leasedcircuits and radio links to the user institutions. The PoP at STPI Bengaluruprovides Intranet and Internet access through Satellite.ERNET provides,services, namely, Network Access Services, Network ApplicationsServices, Hosting Services, Operations Support Services und DomainRegistration Services under srnet.in, ac.in, edu.in & res.in domains.Funded through government grants, its projects support educationalnetworks and development of internet infrastructure in numerous othersegments of society.

208. Having regard to the nature of ERNET’s activities, it cannotbe said that they are in the nature of trade, commerce or business, orservice, towards trade, commerce or business. It has to receive fees, toreimburse its costs. The materials on record nowhere suggest that itsreceipts (in the nature of membership fee, connectivity charges, datatransfer differential charges, and registration charges) are of such natureas to be called as fees or consideration towards business, trade orcommerce, or service in relation to it. The functions ERNET performsare vital to the development of online educational and research platforms.For these reasons, it is held that the impugned judgment, which upheldthe ITAT’s order, does not call for interference.

209. The Revenue has appealed the decision of Delhi High Courtin which the National Internet Exchange of India (NIXI) was held to bea GPU category charity. The materials on record show that NIXI wasestablished in 2003 under the aegis of the Ministry of InformationTechnology of the Union Government for the promotion and growth ofinternet services in India, to regulate the internet traffic, act as an internetexchange, and undertake “.in” domain name registration. Concededly,

ANIXI, is not for profit, and is barred from undertaking any commercialor business activity. Its object is to promote the interests of internetservice providers and internet consumers in India, improve quality ofinternet service, save foreign exchange, and carryon domain nameoperations. It is bound by licensing conditions – which include theprohibition from altering its memorandum, without the prior consent ofBthe Union Government. According to the submissions made on NIXI’sbehalf, it charges annual membership fee of 1000/- and registration ofsecond and third level domain names at 500/- and 250/-. The findingof the ITAT and the High Court are that NIXI’s objects and functioningare by way of general public utility and thus it is GPU category charity.C

210. Having regard to the findings on record and the materialsplaced by the parties, it is evident that NIXI carries on the essential –crucial purpose of promoting internet services and more importantly,regulating domain name registration which is extremely essential forinternet users in India. country’s need to have domestic internetDexchange, rather than depend on an international one, cannot beoveremphasized. The Union Government’s object of setting up of internetexchange is part of its essential function as government to regulatecertain segment of the communication networks. In the absence of asingle entity authorized to register “.in” domain names, there is bound tobe chaos or confusion.E

211. In view of the foregoing discussion, this Court is of the opinionthat the revenue’s contention that NIXI does not merely carry-on publicpurpose of regulatory activity but is involved in trade, commerce, orbusiness or in providing service in relation thereto, cannot be accepted.

212. The next assessee under consideration – is GS1 India. GS1Fcodes were developed and created by GS1 International, Belgium (aninternational not-for-profit under Belgium tax law). This coding systemhas been in use worldwide and is even mandatory for some services/goods, or adopted for significant advantages being singular identificationsystem, recognized and accepted all over the world. The code promotesGuniversal standard in Electronic Data Inter-exchanged (EDI) and otherservices. This system of coding has been accorded priority by theGovernment of India as it is compulsory requirement on productsexported from India. Government of India had set up non-profitorganizations EAN India, now known as GS1 India (the assessee).

213. Counsel on behalf of GS1 India, submitted that GS1 is affiliatedand conferred exclusive rights relating to GS1 coding in India. The GS1code on product, provides unique identification to it with wide rangingbenefits and advantages which facilitate tracking, tracing of the product,product recalls, counterfeit detection, user safety due to accuracy, wastagecontrol through accurate monitoring and stock levels for commodities,security and safety of supply chains, detection of illegal trade, etc. Theunique identification or coding system developed and operated by GS1International or GS1 India is recognized and accepted globally. Additionally,the unique identification code can be enabled with RFID chip and otherelectronic technology. Being one of its kinds globally, only GS1registered organization can set up and promote the said system/standardwithin country. These can be used for several fields including publicdistribution system, agriculture, health products, etc. and has beensuccessfully used for product package labels. The utility and benefits ofa universal coding system assessable by anyone across the globe, forthe consumers, government, manufacturers, traders, exporters, etc. areenormous and significant. Initial registration fee of 20,000/- is chargedby GS1, plus annual fee of 4,000/- (enhanced to 5,000/- from financialyear 2006-07 onwards) from third parties, who become subscribingmembers, and are entitled to use the GS1 coding system.214. It was submitted on behalf of GS1 that it was set up associety in 1996 and sponsored by the Union Government. The UnionGovernment representatives and the representatives of the trade bodiesare its members. The activities of GS1 are extremely important andhave to be characterized as involving general public utility. It wassubmitted that having regard to the fact that GS1 provides services to allorganizations regardless of whether they carry on business, trade orother commercial activity, narrow interpretation confining the expression“service in relation to” should not be adopted. It was urged, that there isno dispute about the fact that GS1 was directed to be granted registrationunder the IT Act, and that GS1 Belgium, the parent organization, so tosay, which owns the technology, has been granted the status of not forprofit charity. GS1 urges that it is not dealing or treating the prized rightsas right be exploited commercially to earn or generate profits.Itis notdirectly or indirectly subjecting their activity to market mechanism/dynamics (i.e., demand and supply), rather it is motivated and promptedto serve the beneficiaries. Therefore, this is not case of commercialexploitation of intellectual property rights to earn profits (as contended

Aby the Revenue), but rather case where token fee has been fixedand payable by the user of the global identification system. Clause 44 ofGSI’s Memorandum of Association of the petitioner stipulates that it is a“Not-for-Profit” society and the funds/receipts are to only be used forpromotion of objects of the society for which it is established, includingsustenance and expansion. B215. The revenue contended that although GS1 India has amonopoly, the mere fact that it is stated to be Not for Profit Societywith some governmental involvement in its management would notdetract from its essential nature; which is to sub-serve the interest of thebusiness community. It was elaborated in this context that GS1 byCproviding bar codes and the coding systemsecured by license, not onlyexploits the intellectual property rights but is in fact engaged in servicesin relation to trade, commerce or business. Counsel pointed to the factthat the revenues of GS1 has steadily increased over the years. It waspointed out that according to the balance sheet the aggregate registration

Dfees receipt for the year ending 31.03.2007 was 1,80,80,760/- whereasfor the year ending 31.03.2008 which had increased to 4,85,47,170/-.Likewise, membership fees had increased from 44,40,000/- as on31.03.2007 to 93,42,500/-. Furthermore, renewal fees for the year ending2007 was 1,68,57,200/- whereas for the next year i.e., as on 31.03.2008it was 1,90,50,650/-. The Revenue submitted that even where incomeEand interest were to be excluded, the increase on yearly basis wasexponential. Likewise, it was pointed out that registration fees as on31.03.2011 was 4,24,69,850/- whereas as on 31.03.2012 it was6,07,58,100/-; subscription fee as on 31.03.2011 was 1,02,06,720/-;for the next year i.e., on 31.03.2012 it was 1,01,69,850/-. Likewise, theFsubscription renewal fees as on 31.03.2011 was 4,18,62,804/- and thesame head as on 31.03.2012 was 4,46,71,134/-.216. The Revenue emphasises the fact that GS1 is monopolistorganization, has exclusive licenses in relation to bar coding technologywhich it admittedly uses for fee or other consideration. It is highlighted

that these services are provided mostly to business, trade purpose,Gmanufacturing, etc.On the other hand, GS1 urges that it performs theimportant public function which enables not merely manufactures butothers involved in supplies of various articles by packaging, etc., toregulate and ensure their identity.

217. In the opinion of this Court, GS1’s functions no doubt is ofHgeneral public utility. However,equally the services it performs are to aid

businesses manufactures, tradesmen and commercial establishments.Bar coding packaged articles and goods assists their consignersto identifythem; helps manufactures, and marketing organizations (especially inthe context of contemporary times, online platforms which serve asmarket places). The objective of GS1 is therefore, to provide service inrelation to business, trade or commerce - for fee or other consideration.It is also true, that the coding system it possesses and the facilities itprovides, is capable of and perhaps is being used, by other sectors, in thewelfare or public interest fields. However, in the absence of any figures,showing the contribution of GS1’s revenues from those segments, andwhether it charges lower amounts, from such organizations, no inferencecan be drawn in that regard. The materials on record show that thecoding services are used for commercial or business purposes. Havingregard to these circumstances, the Court is of the opinion that theimpugned judgment and order calls for interference.

(v) State Cricket Associations

218. The revenue has preferred appeals against the decision ofthe Gujarat High Court in respect of orders made in the cases of theGujarat Cricket Association, the Saurashtra Cricket Association, Barodaand Rajkot Cricket Associations and the decision of the Rajasthan HighCourt, in respect of the Rajasthan Cricket Association. The main facts,relevant for deciding the questions involved are set out in the order ofthe ITAT[151] against which the Gujarat High Court rendered the impugnedjudgment[152]. Since the legal issues are common in relation to all thesematters, the facts relating to the Gujarat Cricket Association (GCA)may be considered for convenience.

219. The objects of GCA (and other associations) are to control,supervise, regulate, promote or encourage, and develop the game ofcricket in the area under its jurisdiction. The association can also undertakeany other and all activities which may be beneficial to it. GCA’s objectsinclude activities aimed at creating, fostering and maintaining friendlyand cordial relationship through sports tournaments and competitions, tocreate healthy spirit through the medium of sports in general, and cricket

151 ITA Nos: 1257/Ahd/13, 3303/Ahd/16, 3304/Ahd/16, 408/Ahd/17 Assessment years:2009-10, 2010-11, 2011-12 and 2012-13.

152 SLP (D) No. 16597/2020 against common judgment dated 27.9.2019, whichrelate to the Gujarat Cricket Association, Saurashtra, Baroda and Rajkot CricketAssociation Cricket Association.

Ain particular. The other objects include: to instil the spirit of sportsmanshipin school and college students, members of other institutions, and othercitizens; instil the ideals of cricket and educate them in the same; toselect teams to represent the association in any competitive forum; toarrange, supervise, hold, encourage and finance visits of teams; to arrangeor manage league and/or any other tournaments; to promote persons,Bmeetings, competitions and matches in relation to sports; and to offer,give/distribute or contribute towards prizes, medals and awards; to layout grounds for playing the game; and to provide pavilion, stadia, otherconveniences and amenities in connection therewith. The GCA alsoincludes within its objects, providing coaching to deserving persons inCthe various departments of the game of cricket; engaging professionalcricketers, coaches, umpires, groundsmen, and other employees, and topay remuneration or honorarium to them; and to start, sponsor and/or tosubscribe to any fund for the benefit of such persons or their families.The GCA can collect funds for the purpose of the Association and utiliseit in such manner as its Managing Committee considers desirable for theDfulfilment of its objects.

220. The assessing authorities denied GCA’s claim and that of theother associations, that they were charities. Before the ITAT, it wascontended, on behalf of the revenue, inter alia, that looking at the natureof the relationship of these state cricket associations with the Board ofECricket Control of India (BCCI), the amounts received by theseassociations from BCCI were in the nature of consideration or fees, forgranting media rights, and collecting their share, among other things.This amounted to business or commercial activity. It would, in thiscontext, be useful to quote the observations set out in the ITAT’s orderF(which were part of the commissioner’s order). The Commissioner hadtaken note of assessment proceedings in relation to BCCI, and set outits submissions:

“9.7.2 The AO of BCCI, based on the communication ofDIT(E), Mumbai, has not granted benefit of section 11 & 12Gof the Act to BCCI. The stand taken by BCCI during itsassessment proceedings is mentioned below. The BCCI videits submission dated 03/12/2012 to the AO has explained itsrelationship with State Cricket Association as follows:-

“1. BCCI is society registered under the Tamil Nadu SocietiesHRegistration Act. It was formed in the year 1929 with the object

of promotion and development of cricket in India and is amember of the International Cricket Council (ICC) theregulatory body for world cricket. As member of ICC, BCCIrepresents India in bilateral tours between member countriesand in ICC tournaments such as the World Cup.

2. BCCI has 30 members out of whom 25 are state cricketassociations, 2 are private clubs and 3 are CentralGovernment Institutions. BCCI does not own or manage theinfrastructure and facilities that are required for cricket. Itencourages and oversees the various state associations topromote the game, build the required infrastructure organizetournaments, leagues, coaching camps etc. in their respectivestates. Whenever foreign team visits India, the internationalmatches such as Test and ODI are allotted by BCCI to theState Cricket Associations by rotation policy. The matchesare conducted and managed by the respective stateassociations and over time, arrangements have evolved aboutthe respective responsibilities, rights, shares of revenue etc.These have evolved in order to promote co-operation and unityamong the member associations and by applying the principlesof equity and fairness, for which the sport of cricket isrenowned.”

9.7.3 The BCCI in its submission dated 21/1/2013 earnedsubsidy paid to SCAs and TV Subvention as stated as follows:-

PAYMENTS TO STATE ASSOCIATIONS

During the year, BCCI has paid amounts to the stateassociations under the head “TV, Subventions toAssociations”. This represents payment of 70% of the revenuefrom sale of media rights to the state associations”.

Whenever foreign team visits India, the international matchessuch as Test and ODI are allotted by BCCI to the state cricketassociations by rotation policy. The matches are conductedand managed by the respective state associations. It is notpossible for BCCI to conduct all these matches with its ownlimited personnel. It is dependent on the state associations,

their office bearers, their employees and their network andresources at the local centre to conduct the matches.

The association manage the entire match right from provisionof security to players, spectators in coordination withrespective state police personnel, taking other securitymeasures like fire prevention etc. The association incurs agood chunk of expenditure in conducting an InternationalTest/ODI/T20/IPL/CL T20 Matches.

In order to have fair and equitable sharing of the revenues,arrangements have evolved over time, about the respectiveresponsibilities, rights, shares of revenue etc. of BCCI andthe state associations. The state association is entitled to theticket revenue and ground sponsorship revenues. Expenseson account of security for players and spectators, temporarystands, operation of floodlights, Score Boards, managementof crowd. Insurance for the match, electricity charges,catering etc are met by the state associations. On the otherhad expenditure on transportation of players and other matchofficials, boarding and lodging, expenses on food for playersand officials, tour fee, match fee, etc are met by BCCI andrevenues from sponsorship belong to BCCI. In respect ofrevenues from sale of media rights, an arrangement hasevolved over time. Until 1991-92 the income from media rightswas meager. With the growth in income from media rights, itbecame necessary to optimize the arrangement for sale ofmedia rights. For Test series or ODI series conducted inmultiple centers and organised by BCCI and multiple stateassociations, it was found that if each state association wereto negotiate the sale of rights to events in its centre, itsnegotiating strength would be low. It was, therefore, agreedthat BCCI would negotiate the sale of media rights for theentire country to optimize the income under this head. It wasfurther decided that out of the receipts from the sale of mediarights 70% of the gross revenue less production cost wouldbelong to the state associations. Every year, BCCI has paidout exactly 70% of its receipts from media rights (less-production cost) to the state associations. This amount hasbeen utilized by the respective associations to build

infrastructure and promote cricket, making the game morepopular, nurturing and encouraging cricket talent, andleading to higher revenues from media rights.

****************

Even in the event that exemption under section 11 is denied,the payments to state associations must be allowed as adeduction, as expenditure laid out or expended wholly andexclusively for the purpose of earning such income, it mustbe appreciated that in order to earn revenues, BCCI was andcontinues to be highly dependent on the state associations.BCCI does not have the infrastructure and the resources toconduct the matches by itself and is dependent on the stateassociations to conduct the matches. The income from mediarights is dependent on the efforts of the state associations inconducting the matches from which the media rights accrue.The division of revenues and expenditure is matter ofarrangement between the parties. Certain incomes such assale of ticket revenues belong to the state associations, whomeet the expenditure on the matches such as security forplayers and spectators temporary stands, operation offloodlights, Score Boards, management of crowd, insurancefor the match, electricity charges, catering etc. Whereas withregard to the income from sale of media rights, the arrangementbetween BCCI and the State Associations has been that 70%of the revenue would belong to the State Associations. Asshown, this has been the arrangement between the partiesfor the twenty years. The State Associations are entitled byvirtue of established practice to 70% of the media right fee.It is in expectation of this revenue that the various stateassociations take an active part and cooperate in the conductof the matches. This payment is therefore made only with aview to earn the income from media rights.”

221. The ITAT accepted the assessee’s contentions, and held thatthe associations were GPU charities:

“35. Let us take pause here and examine as to what are theactivities of the assessee cricket associations so as to bebrought within the ambit of trade, commerce or business. We

have seen objects of the association, which are reproducedearlier in our order, and it is not even the case of the revenuethat these objects have anything to do with any trade,commerce or business; these objects are simply to promotecricket. The trigger for invoking proviso to Section 2(15), asShri Soparkar rightly contends, has to an activity of theassessee which is in the nature of trade, commerce or business.However, the case of the revenue authorities hinges on theallegation that the way and manner in which cricket matchesare being organized, particularly the IPL matches, the activityof organizing cricket matches is nothing but brute commerce.Undoubtedly, it would appear that right from the time KerryPacker started his World Series Cricket in 1977, there hasbeen no looking back in commercialization of cricket andthe impact of this commercialization has not left Indian cricketintact. The Indian Premier League and the rules of the gamebeing governed by the dictates of commercial considerationsmay seem to be one such example of commercialization ofIndian cricket. The difficulty for the case of the revenue beforeus, however, is that these matches are not being organized bythe local cricket associations. We are told that the matchesare being organized by the Board of Cricket Control of India,but then, if we are to accept this claim and invoke the provisoto Section 2(15) for this reason, it will amount to situationin which proviso to Section 2(15) is being invoked on accountof activities of an entity other than the assessees- somethingwhich law does not permit. We are not really concerned, atthis stage, whether the allegations about commercializationof cricket by the BCCI are correct or not, because that aspectof the matter would be relevant only for the purpose of provisoto Section 2(15) being invoked in the hands of the BCCI. Wedo not wish to deal with that aspect of the matter or to makeany observations which would prejudge the case of the BCCI.Suffice to say that the very foundation of revenue’s case isdevoid of legally sustainable basis for the short reason thatthe commercialization of cricket by the BCCI, even if that beso, cannot be reason enough to invoke the proviso to Section2(15). We are alive o learned Commissioner (DR)’s suggestionthat the cricket associations cannot be seen on standalone

basis as the BCCI is nothing but an apex body of these cricketassociations at collective level and whatever BCCI does isat the behest of or with the connivance of the local cricketassociations, and that it is not the case that anyone canbecome Member of the BCCI because only recognizedcricket association can become Member of the BCCI. Weare also alive to learned Commissioner’s argument that whatis being sought to be protected by the charitable status ofthese associations is the share of these cricket associationsfrom the commercial profits earned by the BCCI by organizingthe cricket matches. The problem, however, is that the activitiesof the apex body, as we have explained earlier, cannot bereason enough to trigger proviso to Section 2(15) in thesecases. Whether these cricket associations collectivelyconstitute BCCI or not, in the event of BCCI being involvedin commercial activities, the taxability of such commercialprofits will arise in the hands of the BCCI and not the endbeneficiaries. Even in such case the point of taxability ofthese profits is the BCCI and not the cricket associations,because, even going by learned Commissioner’s arguments,these receipts in the hands of the cricket associations isnothing but appropriation of profits. What can be taxed isaccrual of profits and not appropriation of profits. In anyevent, distinction between the cricket associations and theBCCI cannot be ignored for the purposes of tax treatment.There is no dispute that the matches were organized by theBCCI, and the assessee cannot thus be faulted for thecommercial considerations said to be inherent in planningthe matches. As we make these observations, and as we donot have the benefit of hearing the perspective of the BCCI,we make it clear that these observations will have no bearingon any adjudication in the hands of the BCCI. Suffice to saythat so far as the cricket associations are concerned, theallegations of the revenue authorities have no bearing on thedenial of the status of ‘charitable activities’ in the hands ofthe cricket associations before us- particularly as learnedCommissioner has not been able to point out single objectof the assessee cricket associations which is in the nature oftrade, commerce or business, and, as it is not even in dispute

ABC

DEF

Athat the objects being pursued by the assessee cricketassociations are “objects of general public utility” undersection 2(15). All the objects of the assessee cricketassociations, as reproduced earlier in this order,unambiguously seek to promote the cricket, and this object,as has been all along accepted by the CBDT itself, an objectBof general public utility.”

222. In granting relief, the ITAT was persuaded by the decision ofthe Madras High Court, in Tamil Nadu Cricket Association v. Directorof Income Tax (Exemptions) &Ors.[153], and heldC“54. The assessee is member of the Board of Control for

C“54. The assessee is member of the Board of Control forCricket in India (BCCI), which in turn is member of ICC(International Cricket Council). BCCI allots test matches withvisiting foreign team and one day international matches tovarious member cricket associations which organise thematches in their stadia. The franchisees conduct matches inDthe stadia belonging to the State cricket association. The Stateassociation is entitled to all in-stadia sponsorshipadvertisement and beverage revenue and it incurs expensesfor the conduct of the matches. BCCI earns revenue by wayof sponsorship and media rights as well as franchisee revenueEfor IPL and it distributes 70 per cent, of the revenue to themember cricket association. Thus, the assessee is also therecipient of the revenue. Thus, for invoking section 12AA readwith section 2(15) of the Act, the Revenue has to show thatthe activities are not fitting with the objects of the associationand that the dominant activities are in the nature of trade,Fcommerce and business. We do not think that by the volumeof receipt one can draw the inference that the activity iscommercial. The Income-tax Appellate Tribunal’s view that itis an entertainment and, hence, offended section 2(15) of theAct does not appear to be correct and the same is based onGits own impression on free ticket, payment of entertainmenttax and presence of cheer group and given the irrelevantconsideration. These considerations are not germane inconsidering the question as to whether the activities aregenuine or carried on in accordance with the objects of the

association. We can only say that the Income-tax AppellateTribunal rested its decision on consideration which are notrelevant for considering the test specified under section12AA(3) to impose commercial character to the activity of theassociation. In the circumstances, we agree with the assesseethat the Revenue has not made out any ground to cancel theregistration under section 12AA(3) of the Act.

55. As regards the observation of the Income-tax AppellateTribunal that IPL matches and Celebrity cricket matches arealso being held by the association and hence, it is anentertainment industry, we need not go into these aspects forthe order of the Director of Income-tax (Exemptions) casts nodoubt on the genuineness of the objects of the trust. Hence, itis for the Assessing Officer to take note of all facts, whileconsidering the same under section 11 of the Income-tax Act,1961. We disapprove the approach of the Tribunal in thisregard. In the above said circumstances, we set aside the orderof the Income-tax Appellate Tribunal.”

223. The ITAT agreed with the assessees that TV subsidy amountsreceived by the associations were “corpus donations” in furtherance ofthe BCCI’s resolution dated 05.09.2001. It accordingly held that theseamounts were in the capital field, irrespective of whether they werefully utilized by the state association, or whether some part of it, wasgiven to district associations. Thus, for AY 2009-2010, the sum of3,52,86,521 paid by BCCI to GCA was subsidy, falling in the capitalfield.

224. It was urged on behalf of the Revenue that the cricketassociations are not carrying on any charitable activity; reliance wasplaced on the facts to say that substantial amounts were received by thestate associations, towards their share of sale of media rights (asconstituents or members of BCCI), which are commercial receipts.Although the sale of those rights was by the BCCI, the lion’s share ofthose amounts was that of the respective state associations. Furthermore,the state associations owned the stadia, and actually conducted thematches, in respect of which stadium advertisements and sponsorshipamounts were received: these, too, were in the nature of business orcommercial activities. The assessees on the other hand, submitted thatthey are distinct from the BCCI. It was sought to be urged that the

Aactivity of sports and sport promotion is basically education, and hence,per se exempt. Realizing the value of inculcating sportsmanship andfostering the culture of sport, Parliament had introduced Section 10(23),to exempt income received by sports bodies. However, that was deletedw.e.f. 01.04.2003. It was argued that this does not preclude sports bodies,like cricket associations from claiming to be charities. It was urged thatBeven if the court were not to consider the cricket associations to beeducation-related charities, they cannot be denied the status of GPUcharities, having regard to the sports promotional nature of their objects.It was submitted that these bodies are primarily responsible for fosteringthe sport, talent spotting, nurturing it, and providing opportunities to thoseCwho have the aptitude and passion for the game of cricket. All these areobjects of general public utility. It was submitted that the amounts whichBCCI collects may or may not be in the course of commerce; however,what is given to the associations is subsidy, which cannot be termed asconsideration for carrying on any commercial activity.

D225. At the outset, the contention that sports promotion is‘education’ and hence, per se exempt, has to be dealt with. In LokShikshana Trust (supra) this court has comprehensively addressed thescope of the term, and conclude that it would entail “scholastic” education:

“5. The sense in which the word “education” has been usedEin Section 2(15) is the systematic instruction, schooling ortraining given to the young in preparation for the work oflife. It also connotes the whole course of scholastic instructionwhich person has received. The word “education” has notbeen used in that wide and extended sense, according towhich every acquisition of further knowledge constitutesFeducation. According to this wide and extended sense,travelling is education, because as result of travelling youacquire fresh knowledge. Likewise, if you read newspapersand magazines, see pictures, visit art galleries, museums andzoos, you thereby add to your knowledge. Again, when youGgrow up and have dealings with other people, some of whomare not straight, you learn by experience and thus add toyour knowledge of the ways of the world. If you are notcareful, your wallet is liable to be stolen or you are liable tobe cheated by some unscrupulous person. The thief whoremoves your wallet and the swindler who cheats you teachH

you lesson and in the process make you wiser though poorer.If you visit night club, you get acquainted with and add toyour knowledge about some of the not much revealed realitiesand mysteries of life. All this in way is education in thegreat school of life. But that is not the sense in which theword “education” is used in clause (15) of Section 2. Whateducation connotes in that clause is the process of trainingand developing the knowledge, skill, mind and character ofstudents by formal schooling.”

Therefore, there is no doubt that the claim of the present sportassociations will not fall within ‘education’ and will have to be examinedunder the fourth limb of Section 2(15) – i.e., GPU category, if it is tomake case for tax exemption.

226. BCCI is the body which regulates cricket and represents thecountry. Within the country it organizes and conducts the Ranji Trophy,the Irani Trophy, the Duleep Singh Trophy, the Deodar Trophy and theNKP Salve Challenge Trophy. These are domestic events, yet only thosewho are members of the Board and/or recognized by it can take part inthese events. The members of the Board (entitled to vote in its election)are the state cricket associations.[154] The BCCI is the country-level cricketregulator both off and on the fields, and its functions include selection ofplayers and umpires. The International Cricket Council (of which BCCI,as the representative body of the country, is member) possesses andexercises all the powers to regulate international competitive cricket. Italso exercises disciplinary power – in case of violation of the rules, acountry member or the player may be derecognized. The ICC exercisesa monopoly over the sports at the international level whereas BCCIdoes so at the country level. BCCI recognizes bodies which are entitledto participate in the nominated tournaments. Players and umpires alsoare to be registered with it.

227. The game of competitive cricket, at the organizational levelis structured in such manner that BCCI has umbilical ties with thestate associations. Not only are the latter, the members who constituteBCCI and elect its governing bodies, they also own vital infrastructurenecessary to play cricket: such as stadia, and all related facilities. BCCIdoes not own those facilities or infrastructure and depends on them.

154 Rule 3 (a) (ii) (B) of the latest BCCI Memorandum of Association and the Rulesand Regulations

DEF

AFurthermore, the state associations are the channels through whichplayers are mostly selected, and get opportunities to participate in state,national and international level cricket.

228. As things stand, therefore, the state associations and BCCIare linked closely. The management of the game of cricket is structuredBin such way that this link is apparent at every match or fixture ofsignificance. In the course of conducting matches (which are scheduledby the BCCI as the national co-ordinating body), apart from amountsreceived towards sale of entry tickets, the state associations also receiveadvertisement money, sponsorship fee, etc. from the BCCI. Aside fromthese, media rights - i.e., broadcasting rights to each national orCinternational event conducted at various locales owned by the stateassociations, and digital rights (all of which are exclusive, in nature) -are auctioned by BCCI. As noticed above, the BCCI, by its own admission,negotiates the terms on which media rights are sold, on behalf ofthe state associations:D“For Test series or ODI series conducted in multiple centersand organised by BCCI and multiple state associations, it wasfound that if each state association were to negotiate the saleof rights to events in its centre, its negotiating strength wouldbe low. It was, therefore, agreed that BCCI would negotiateEthe sale of media rights for the entire country to optimize theincome under this head. It was further decided that out of thereceipts from the sale of media rights 70% of the gross revenueless production cost would belong to the state associations.Every year, BCCI has paid out exactly 70% of its receiptsfrom media rights (less- production cost) to the stateFassociations. This amount has been utilized by the respectiveassociations to build infrastructure and promote cricket,making the game more popular, nurturing and encouragingcricket talent, and leading to higher revenues from mediarights.”G229. These media, or broadcasting rights, are in the nature ofintellectual property rights: under Section 37 to 40 of the Copyrights Act,1957. These rights- especially television and digital rights enable thelicensee or the successful bidder to exploit the telecast or broadcastcommercially, by carrying advertisements of various products andHservices, in the media. Given that (i) BCCI does not own the stadia, and

URBAN DEVELOPMENT AUTHORITY [S. RAVINDRA BHAT, J.]

uses the entire physical infrastructure of the state associations (ii)expressly negotiates on their behalf for the sale of such rights (whichappear to be purely commercial contracts), the associations’ assertionsthat they only received subsidy from BCCI, needed closer examination.

230. The income and expenditure account for the year ending on31.03.2009 shows that the total income of the GCA was 4,03,98,736.81.Of these sponsorship money was 20,00,000/-; bank interest was2,21,88,527.05 and as against the head ‘India v. South Africa test match’,the sum of 1,51,97,741/- has been shown. Of the total of2,21,02,441.45 shown as income, 32,24,591.25 is shown as expenditure,only fraction appears to have been expended towards promotion ofcricket. This is apparent from the following:

231. The details of the subsidy amounts received from BCCI forevery match has been shown. This aggregates to over 41 lakhs.Furthermore, the details received towards the India-South Africa testfixture paid between 03.04.2008-04.04.2008 has been shown. GCAreceived 1,57,00,000/- towards sale of space; ticket sales yielded27,57,700 and towards the head screen income, sum of 3 lakhs wasreceived. After deducting the expenditure, the excess income receivedfor the year was 1,51,97,741/-.

232. In the case of Saurashtra Cricket Association, for the yearended on 31.03.2012, various heads of income have been disclosed.These include entry fees which is 5200 onwards. Interest of incomereceived from Fixed Deposits was to the tune of 8,85,67,418/-; totalamount of subsidy received from BCCI is 17,56,72,490/-. Of these, theoverwhelming share is towards the IPL money collected by the BCCI –wherein Saurashtra Cricket Association’s share worked out to total of17,16,32,490/-.

233. Apart from this, the BCCI also reimbursed to SaurashtraCricket Association the sum of 73,73,911/-. The income and expenditureaccount shows head titled “subvention income from BCCI” to theextent of 8,14,53,834/-. After deducting the heads of expenditure, excessof income over expenditure for the AY was 69,96,537/-. The CricketAssociation showed in the expenditure column that the sum of24,00,00,000/- was transferred to the Cricket infrastructure fund. Forthe previous year, sum of 21,21,00,000/- was transferred to the stadium

Afund.

234. It is quite evident that the activities of the cricket associationsare run on business lines. The associations own physical and otherinfrastructure, maintain them, have arrangements for permanentmanpower and have well-organised supply chains to cater to the severalBmatches they host. Many such matches are not at national level and areunder-16 or under-18 matches at the regional level. However, theseactivities are not to be seen in isolation but are to be regarded as part ofthe overall scheme, and ecosystem in which the game of cricket isorganized in India. Talent is spotted, at local levels and dependent on thepromise shown, given appropriate exposure.C

235. On close scrutiny of the expenses borne, having regard tothe nature of receipts, the expenditure incurred by Cricket Associationsdoes not disclose that any significant proportion is expended towardssustained or organized coaching camps or academies. Therefore, in theopinion of this court, the ITAT fell into error in not considering the natureDof receipts flowing from the BCCI into the corpus of GCA and SCA –as well as other associations that are before this court- to determinetheir true character. The ITAT appears to have been swayed by thesubmission that the amount given by the BCCI were towards capitalsubsidy.

236. To determine whether given receipt is to be characterizedas falling in the revenue or capital stream, the objective for which it isgiven as well as the manner in which it is utilized has to be scrutinized.This aspect has been highlighted in Sahney Steel & Press Works Ltd v.Commissioner of Income Tax[155 ]in the following terms:F

“It is not the source from which the amount is paid to theassessee which is determinative of the question whether thesubsidy payments are of revenue or capital nature. The firstproposition stated by Viscount Simon in Ostime case [28 TC261 : (1946) 1 All ER 668] is that if payments in the nature ofGsubsidy from public funds are made to the assessee to assisthim in carrying on his trade or business, they are tradereceipts.”

This has later been followed inCommissioner of Income Tax v.Ponni Sugars[156].H155 1997 (Supp 4) SCR 189

237. Recent trends have shown that media rights, especiallybroadcasting and digital media rights have yielded colossal revenues tothe BCCI. The model adopted in the last 10 years or so has been toauction media rights in respect of events over 3 or 5-year period. Asdiscussed previously, these media rights are not per se owned by BCCI,which is but an association of persons or agglomerate of all the StateCricket Association. The stadia which form the venue for these cricketmatches (in relation to which media rights are transferred or licensed)are owned by the State Cricket Associations. According to the BCCIitself, the State Associations can well bargain and enter into arrangementsfor the sale of such media rights. However, to obtain better terms, andgain bargaining leverage centralized form of sale of such rights hasbeen agreed and adopted by which the BCCI auctions these rights onbehalf of the State Associations. All State Associations put together areentitled to 70% of the revenue – i.e., the proceeds of sale of the mediarights. This may or may not be in proportion to the events hosted byeach or some of the cricket associations. Yet, this forms part of thearrangement by which the consideration flowing from such commercialrights has been agreed to be shared amongst all members of the BCCI.These rights are apparently commercial.238. In the light of these, the Court is of the opinion that the ITAT– as well as the High Court fell into error in accepting at face value thesubmission that the amounts made over by BCCI to the cricketassociations were in the nature of infrastructure subsidy. In each case,and for every year, the tax authorities are under an obligation to carefullyexamine and see the pattern of receipts and expenditure. Whilst doingso, the nature of rights conveyed by the BCCI to the successful bidders,in other words, the content of broadcast rights as well as the arrangementwith respect to state associations (either in the form of master documents,resolutions or individual agreements with state associations) have to beexamined. It goes without saying that there need not be an exactcorrelation or proportionate division between the receipt and the actualexpenditure. This is in line with the principle that what is an adequateconsideration for something which is agreed upon by parties is matterbest left to them. These observations are not however, to be treated asfinal; the parties’ contentions in this regard are to be considered on theirmerit.

1054SUPREME COURT REPORTS

A(vi) Private trusts

(a) Tribune Trust

239. The Tribune Trust was constituted pursuant to will executedby late Sardar Dial Singh Majithia. In clause (xxi) of his Will – afternominating three trustees, the testator directed that they ought to maintainBa press and newspaper; in clause (xx) the testator directed that hisproperty in the Tribune Press and newspaper would vest permanently ina Committee of Trustees who would thereafter maintain them and “keepup the liberal policy of the newspaper and activity and the excessincome after current expenses in improving the said newspaper andCplace it on footing of permanency”.

240. Under the old Act, question arose as to whether the activityof running newspaper was one of general public utility; the revenuedisallowed the exemption for AY 1932-33. This was affirmed by theLahore High Court. The Privy Council by its decision in In Re: TrusteesDof Tribune (supra) allowed the trust’s appeal and held that the trustwas neither constituted for private profit either to the testator nor to anyother private person, and that the object of the paper could be describedas one “supplying the province with an organ of educated publicopinion”. The Privy Council, therefore, reasoned that the Trust wasestablished as GPU charity.E

241. Apparently, the trust was continuously treated as GPUcategory charity and exempted under Section 10(23C)(iv) from 1984-85onwards. For AY 2009-10, after considering the revised return of thetrust, the Revenue was of the opinion that it was not entitled to claimexemption under Section 10(23C). The Punjab and Haryana High CourtFwhich dealt with the Trust’s present appeal was of the opinion that inSurat Art Silk (supra), this court had considered the judgment of thePrivy Council. In that judgment, this Court had made some observationsthat even though the activity of the publication of newspaper was carriedon commercial lines with the object of earning profit, it was an activityGengaged by the Trust for the purposes of carrying out its charitable objects.The High Court upheld the revenue’s contention and based upon itsanalysis of Section 2(15) concluded that the Trust’s income derived fromits activities were based on profit motive. In doing so, it was noticed that85% of the trust’s revenue was from advertisements and interest. Thetotal revenue was 161 crores out of which 124.87 crores was received

from advertisements and 11.38 crores from interest on FDRs; 17.49crores was from sale of newspapers and 3.74 crores from subscriptionsof the dailies.

242. It was argued on behalf of the trust that it was never intendedand in fact, not run on profitable basis. No part of its income was everdisbursed to any private individual through profit sharing or otherwise,nor distributed for any purpose other than the activities of the Trust. Itwas submitted that the High Court’s surmise that the accumulation oflarge profits and its assumption that the Trust could utilize them for non-charitable purposes in future, was unfounded. In this regard, it wassubmitted that till 2008-09 all assessments were completed, since theRevenue was satisfied that more than 85% had been ploughed back tofeed the main charitable activity.

243. It is noticed from the impugned judgment that the High Courtconcedes to the fact that the trust’s activities were held by the PrivyCouncil to constitute financing of objects of ‘general public utility’; furtherthat merely because thousands of newspapers were being publishedmade no difference. It still continues to be GPU charity.

244. The question then is whether the nature of receipts andincome garnered by the Trust, in the course of actually carrying out itsactivity of publishing newspaper, can be characterized as “in the natureof trade, commerce or business” or “service in relation to trade,commerce or business”, for any consideration. During the course ofsubmissions, it was urged that advertisement revenue should not betreated as business or commercial receipts since that virtually is thelifeblood which sustains the activity of publication of newspapers. Itwas highlighted that the object of maintaining the activity of publishingand distribution of newspaper remains the advancement of general publicutility, as it has the effect of both notifying and educating the generalpublic about the current affairs and developments. The inclusion ofadvertisements also serves as information to the general public, especiallyin areas of employment, availability of resources, etc. Therefore,publication of advertisement is intrinsically connected with the activityof printing and publishing of newspapers.

245. The publication of advertisements for consideration, in theopinion of the court, by the newspaper, cannot but be termed as anactivity in the nature of carrying on business, trade or commerce for

Afee or consideration. That the newspaper published by the trust (“theTribune”) in this case is funded mainly through advertisement is no basisfor holding that publishing such advertisements by the Trust does notconstitute business. The object of the trust to involve or engage inpublication of newspapers. Publishing advertisements is obviously togarner receipts which are in the nature of profit. Now, by virtue of theBamended definition of Section 2(15), GPU charities can engagethemselves in business or commercial activity or profit, only if thereceipts from such activities do not exceed the quantitative limit of theoverall receipts earned in given year. While the assessee’s contentionthat publication of advertisement is intrinsically linked with newspaperCactivity (thereby fulfilling sub-clause (i) of the proviso to Section 2(15),i.e. an activity in the course of actual carrying on of the activity towardsadvancement of the object) is acceptable, nevertheless, the conditionimposed by sub-clause (ii) of the proviso to Section 2(15) has to also befulfilled. In the present case, that percentage had been exceeded, asevident from the record.D

246. In the light of the foregoing discussion, this court is of theopinion that the impugned judgment and order of the Punjab and HaryanaHigh Court cannot be sustained, to the extent it holds that the Tribunetrust is not GPU charity. However, having regard to the factual analysis,the judgment needs no interference.E

(b) Shri Balaji Samaj Vikas Samiti

247. The revenue appeals decision of the Allahabad HighCourt[157] affirming the order of the ITAT which had directed the CIT togrant registration under Section 12AA of the Income Tax Act.F

248. The assessee is registered society which was formed withthe object of establishing and running health club, Arogya Kendra; itsobject included organization of emergency relief centres, etc. Otherobjects, included promotion of moral values, eradication of child labour,dowry, etc. The assessee had entered into arrangements with the stateGagencies to supply mid-day meals to students of primary schools indifferent villages through contracts entered into with the Basic ShikshaAdhikari, District Meerut. It is matter of record that the materials forpreparation of mid-day meal was supplied by the government. Theassessee society claimed that it only obtains nominal charges for

157 Dated 09.02.2018 in ITA 49/2014.H

URBAN DEVELOPMENT AUTHORITY [S. RAVINDRA BHAT, J.]

preparation of mid-day meals. The assessee’s claim for registration wasrejected on the ground that it was involved in commercial activity. Uponappeal, the ITAT agreed with the assessee that supply of mid-day mealsdid not constitute business or commerce and that it promoted the objectsof general public utility.

249. The revenue in its appeal contends that the assessee’s onlyactivity for the relevant year was supply of mid-day meals to primaryschools. This was not relatable to any object of the society. The assessee’scontention is that the state ordinarily would have carried on the activityof supply of mid-day meals. Yet, nevertheless it outsourced its activity toan outside agency like the assessee which performed it for nominalcharges.

250. This court is of the opinion that there is no clarity with respectto whether the activity of supplying mid-day meals falls within the objectsclause of the assessee society. The order of the ITAT as well as theHigh Court disclosed that the assessee’s objects involved maintenanceof health clubs, Arogya Kendra, promotion of moral values and provisionof emergency relief. These do not however include the activity which itactually performed, i.e., entering into contracts for supply of mid-daymeals and the activity of cooking and supply of mid-day meals. In theabsence of fuller material, it would not be possible for the court to assessthe activity with which the assessee was engaged, and determine whetherit could be said to legitimately fall within the description of GPU.

251. The first consideration would be whether the activityconcerned was or is in any manner covered by the objects clause.Secondly, the revenue authorities should also consider the express termsof the contract or contracts entered into by the assessee with the Stateor its agencies. If on the basis of such contracts, the accounts disclosethat the amounts paid are nominal mark-up over and above the costincurred towards supplying the services, the activity may fall within thedescription of one advancing the general public utility. If on the otherhand, there is significant mark-up over the actual cost of service, thenext step would be ascertain whether the quantitative limit in the provisoto Section 2(15) is adhered to. It is only in the event of the trust actuallycarrying on an activity in the course of achieving one of its objects, andearning income which should not exceed the quantitative limit prescribedat the relevant time, that it can be said to be driven by charitable purpose.

A252. This court, in the normal circumstances, having regard to theabove discussion, would have remitted the matter for consideration.However, it is apparent from the records that the tax effect is less thanRs.10 lakhs. It is apparent that the receipt from the activities in thepresent case did not exceed the quantitative limit of Rs.10 lakhsprescribed at the relevant time. In the circumstances, the impugned orderBof the High Court does not call for interference.

IV. Summation of conclusions

253. In view of the foregoing discussion and analysis, the followingconclusions are recorded regarding the interpretation of the changeddefinition of “charitable purpose” (w.e.f. 01.04.2009), as well as theClater amendments, and other related provisions of the IT Act.

A. General test under Section 2(15)

A.1. It is clarified that an assessee advancing general public utilitycannot engage itself in any trade, commerce or business, or provideservice in relation thereto for any consideration (“cess, or fee, or anyDother consideration”);

A.2. However, in the course of achieving the object of generalpublic utility, the concerned trust, society, or other such organization,can carry on trade, commerce or business or provide services in relationthereto for consideration, provided that (i) the activities of trade,Ecommerce or business are connected (“actual carrying out…” insertedw.e.f. 01.04.2016) to the achievement of its objects of GPU; and (ii) thereceipt from such business or commercial activity or service in relationthereto, does not exceed the quantified limit, as amended over the years(Rs. 10 lakhs w.e.f. 01.04.2009; then Rs. 25 lakhs w.e.f. 01.04.2012;and now 20% of total receipts of the previous year, w.e.f. 01.04.2016);F

A.3. Generally, the charging of any amount towards considerationfor such an activity (advancing general public utility), which is on cost-basis or nominally above cost, cannot be considered to be “trade,commerce, or business” or any services in relation thereto. It is onlywhen the charges are markedly or significantly above the cost incurredGby the assessee in question, that they would fall within the mischief of“cess, or fee, or any other consideration” towards “trade, commerce orbusiness”. In this regard, the Court has clarified through illustrationswhat kind of services or goods provided on cost or nominal basis wouldnormally be excluded from the mischief of trade, commerce, or business,Hin the body of the judgment.

A.4. Section 11(4A) must be interpreted harmoniously withSection 2(15), with which there is no conflict. Carrying out activity in thenature of trade, commerce or business, or service in relation to suchactivities, should be conducted in the course of achieving the GPU object,and the income, profit or surplus or gains must, therefore, be incidental.The requirement in Section 11(4A) of maintaining separate books ofaccount is also in line with the necessity of demonstrating that thequantitative limit prescribed in the proviso to Section 2(15), has not beenbreached. Similarly, the insertion of Section 13(8), seventeenth provisoto Section 10(23C) and third proviso to Section 143(3) (all w.r.e.f.01.04.2009), reaffirm this interpretation and bring uniformity across thestatutory provisions.

B. Authorities, corporations, or bodies established by statute

B.1. The amounts or any money whatsoever charged by astatutorycorporation, board or any other body set up by the stategovernment or central governments, for achieving what are essentially‘public functions/services’ (such as housing, industrial development,supply of water, sewage management, supply of food grain, developmentand town planning, etc.) may resemble trade, commercial, or businessactivities. However, since their objects are essential for advancement ofpublic purposes/functions (and are accordingly restrained by way ofstatutory provisions), such receipts areprima facie to be excluded fromthe mischief of business or commercial receipts. This is in line with thelarger bench judgments of this court in Ramtanu Cooperative HousingSocietyand NDMC (supra).

B.2. However, at the same time, in every case, the assessingauthorities would have to apply their minds and scrutinize the records, todetermine if, and to what extent, the consideration or amounts chargedare significantly higher than the cost and nominal mark-up. If such isthe case, then the receipts would indicate that the activities are in fact inthe nature of “trade, commerce or business” and as result, would haveto comply with the quantified limit (as amended from time to time) in theproviso to Section 2(15) of the IT Act.

B.3. In clause (b) of Section 10(46) of the IT Act, “commercial”has the same meaning as “trade, commerce, business” in Section 2(15)of the IT Act. Therefore, sums charged by such notifiedbody, authority,Board, Trust or Commission (by whatever name called) will require

ABC

Asimilar consideration – i.e., whether it is at cost with nominal mark-upor significantly higher, to determine if it falls within the mischief of“commercial activity”. However, in the case of such notified bodies,there is no quantified limit in Section 10(46). Therefore, the CentralGovernment would have to decide on case-by-case basis whether andto what extent, exemption can be awarded to bodies that are notifiedBunder Section 10(46).

B.4. For the period 01.04.2003 to 01.04.2011, statutorycorporation could claim the benefit of Section 2(15) having regard to thejudgment of this Court in the Gujarat Maritime Board case (supra).Likewise, the denial of benefit under Section 10(46) after 01.04.2011Cdoes not preclude statutory corporation, board, or whatever such bodymay be called, from claiming that it is set up for charitable purpose andseeking exemption under Section 10(23C) or other provisions of the Act.

C. Statutory regulators

DC.1. The income and receipts of statutory regulatory bodieswhichare for instance, tasked with exclusive duties of prescribing curriculum,disciplining professionals and prescribing standards of professionalconduct, are prima facie not business or commercial receipts. However,this is subject to the caveat that if the assessing authorities discern thatcertain kinds of activities carried out by such regulatory body involvedEcharging of fees that are significantly higher than the cost incurred(with nominal mark-up) or providing other facilities or services such asadmission forms, coaching classes, registration processing fees, etc., atmarkedly higher prices, those would constitute commercial or businessreceipts. In that event, the overall quantitative limit prescribed in theFproviso to Section 2(15) (as amended from time to time) has to becomplied with, if the regulatory body is to be considered as one with‘charitable purpose’ eligible for exemption under the IT Act.

C.2. Like statutory authorities which regulate professions, statutorybodies which certify products (such as seeds) based on standards forGqualification, etc. will also be treated similarly.

D. Trade promotion bodies

Bodies involved in trade promotion (such as AEPC), or set upwith the objects of purely advocating for, coordinating and assisting tradingorganisations, can be said to be involved in advancement of objects ofH

general public utility. However, if such organisations provide additionalservices such as courses meant to skill personnel, providing private rentalspaces in fairs or trade shows, consulting services, etc. then income orreceipts from such activities, would be business or commercial in nature.In that event, the claim for tax exemption would have to be again subjectedto the rigors of the proviso to Section 2(15) of the IT Act.

E. Non-statutory bodies

E.1. In the present batch of cases, non-statutory bodies performingpublic functions, such as ERNET and NIXI are engaged in importantpublic purposes. The materials on record show that fees or considerationcharged by them for the purposes provided are nominal. In thecircumstances, it is held that the said two assessees are driven bycharitable purposes. However, the claims of such non-statutoryorganisations performing public functions, will have to be ascertained ona yearly basis, and the tax authorities must discern from the records,whether the fees charged are nominally above the cost, or have beenincreased to much higher levels.

E.2. It is held that though GS1 India is in fact, involved inadvancement of general public utility, its services are for the benefit oftrade and business, from which they receive significantly high receipts.In the circumstances, its claim for exemption cannot succeed havingregard to amended Section 2(15). However, the Court does not rule outany future claim made and being independently assessed, if GS1 is ableto satisfy that what it provides to its customers is charged on cost-basiswith at the most, nominal markup.

F. Sports associations

So far as the state cricket associations are concerned (Saurashtra,Gujarat, Rajasthan, Baroda, and Rajkot), this Court is of the opinion thatthe matter requires further scrutiny, in light of the discussion in paragraphs228-238 of the judgment. Accordingly, direction is issued that the AOshall adjudicate the matter afresh after issuing notice to the concernedassessees and examining the relevant material indicated in the previousparagraphs of this judgment. Furthermore, if any consequential orderneeds to be issued, the same shall be done and resulting actions, includingassessment orders shall be passed in accordance with the law underrelevant provisions of the IT Act.

AG. Private Trusts

So far as the appeal by assessee-Tribune Trustis concerned, ithas been held that despite advancing general public utility, the Trust cannotbenefit from exemption offered to entities covered by Section 2(15) asthe records reveal that income received from advertisements, constitutedBbusiness or commercial receipts. Consequently, the limit prescribed inthe proviso to Section 2(15) has to be adhered to for the Trust’s claim ofbeing as charity eligible for exemption, to succeed. Therefore, despitediffering reasoning, this court has held that the impugned judgment ofthe High Court does not call for interference.

H. Application of interpretationC

H. At the cost of repetition, it may be noted that the conclusionsarrived at by way of this judgment, neither precludes any of the assessees-(whether statutory, or nonstatutory)advancing objects of general publicutility, from claiming exemption, nor the taxing authorities from denyingexemption, in the future, if the receipts of the relevant year exceed theDquantitative limit. The assessing authorities must on yearly basis,scrutinize the record to discern whether the nature of the assessee’sactivities amount to “trade, commerce or business” based on its receiptsand income (i.e., whether the amounts charged are on cost-basis, orsignificantly higher). If it is found that they are in the nature of “trade,Ecommerce or business”, then it must be examined whether the quantifiedlimit (as amended from time to time) in proviso to Section 2(15), hasbeen breached, thus disentitling them to exemption.

254. In accordance with the foregoing discussion, and summaryof conclusions, the numerous appeals are disposed of as follows:

(i)The revenue’s appeals against the Improvement Trust,Moga[158], the Hoshiarpur Improvement Trust[159], BathindaImprovement Trust[160], Fazilka Improvement Trust[161],Sangrur Improvement Trust[162]; Patiala ImprovementTrust[163], Jalandhar Improvement Trust[164], Kapurthala

G158 CA Nos. 9974/2018 and 10371/2017159 CA Nos. 12058/2017 and 9886/2018160 CA Nos. 16375/2017, 2047/2019and Diary No. 5683/2019161 CA No. 10598/2018162 CA No. 17527/2017163 CA Nos. 9860/2018, 8321/2018, 2335/2019, 4449/2019 and 4957/2019H164 CA Nos. 12869/2017 and 10406/2018

Improvement Trust[165], Pathankot Improvement Trust[166],AImprovement Trust, Hansi[167], and the Special LeavePetitions filed against the Gujarat Maritime Board[168 ]andKarnataka Water Supply and Drainage Board[169 ]arerejected.

(ii)The revenue’s appeals against Ahmedabad UrbanBDevelopment Authority[170], the Gujarat Housing Board[171],the Gandhinagar Urban Development Authority[172], RajkotUrban Development Authority[173], Surat UrbanDevelopment Authority[174], Jamnagar Area DevelopmentAuthority[175], and the Gujarat Industrial DevelopmentCCorporation[176] are rejected. Likewise, the revenue’s appealsagainst Agra Development Trust[177]; UP Awas Evam VikasParishad[178]; Raebareli Development Authority[179], RajasthanHousing Board[180]; Mangalore Urban DevelopmentAuthority[181]; Mathura Vrindavan Development Authority[182];Meerut Development Authority[183]; Belgaum DevelopmentDAuthority[184]; Moradabad Urban Development Authority[185],165 CA No. 11259/2018166 D. No. 44856/2018167 CA No. 9200/2018168 SLP(C) Nos. 3759/2021, 4612/2021, 5167/2021, 4678/2021, 4636/2021, 4723/E2021, 7854/2021and 11683/2021169 SLP (C) Nos. 8364/2021.170 CA Nos.21762/2017, 5719/2018, 6762/2018, 3343/2018, 3359/2018, 1643/2019,3971/2019, SLP (C) 6686/2021, and SLP (C) No. 6580/2021171 CA No. 6553/2019 and 783/2020172 SLP (C) No. 5709/2021, 6005/2021 and 10490/2021173 SLP (C) No. 7003/2021; 7166/2021; 6917/2021; 7510/2021; 7290/2021 and 7606/F2021174 SLP (C) No. 10908/2021; 7789/2021 and 11072/2021175 SLP (C) No. 7302/2021 and 7011/2021176D. Nos.39525/2017, 15525/2019, 21237-2019; 15488/2019; 15489/2019 and21237/2019; CA Nos. 3971-3972/2018, 170/2019; SLP (C) No. 15055/2019177 C.A No. 10114/2018178 SLP(C) No. 12304/2018G179 C.A. No. 6489/2018180 SLP(C) No. 10912/2018181 C.A No. 9172/2018182 C.A No. 11884/2018183 C.A No. 226/2019184 C.A. No. 213/2020185 SLP(C) No. 7779/2018H

1064SUPREME COURT REPORTS

Yamuna Expressway Industrial Development Authority[186];Greater Noida Industrial Development Authority[187]; NewOkhla Industrial Development Authority[188] and KarnatakaIndustrial Areas Development Board[189] are rejected.

(iii)The revenue’s appeals[190] against ICAI are dismissed andBfor the same reasons, the appeals[191] filed by the ICAI arehereby allowed.

(iv)The revenue’s appeal - C.A. No. 21845/2017, againstRajasthan State Seed and Organic Production CertificationAgency is rejected, whereas SLP (C) No. 15547/2013 filedCby Andhra Pradesh State Seed Certification Agency isallowed for the same reasons.

(v)The revenue’s appeal against APEC succeeds in part. Theimpugned judgment of the High Court is set aside; the matteris remitted for the concerned years, to the Assessing Officer.DSLP (C) No. 14995/2019 is allowed, in the above terms.

(vi)In relation to the non-statutory bodies - the revenue’s appealagainst ERNET fails, and SLP (C) No. 15040/2019 is herebydismissed; and similarly the impugned judgment in relationto NIXI is confirmed – SLP(C) No. 15079/2019 is thereforeEdismissed. However, the revenue’s appeals against GS1 –C.A. No. 5058/2014 and C.A. No. 4374/2015, are herebyallowed and the impugned judgments are set aside, for thereasons elaborated in the body of the judgment.

(vii)The revenue’s appeals against the cricket associations beforeFthis court succeed in part, and the impugned judgments ofthe Gujarat High Court and Rajasthan High Court are herebyset aside. The matter is remitted to the concerned authoritiesfor determination of the question afresh in the light of theabove discussion and observations. D. No. 16597/2020, C.ANo. 7643/2018, C.A No. 8554/2018, D. No. 17255-2020,G186 SLP(C) No. 14574/2019187 C.A No. 3596/2018188 CA No. 3347/2018189 CA Nos. 4430/2021, 2477/2021, 2478/2021190 CA Nos. 8193/2012, 5057/2012 and 4196/2015H191 SLP (C) No. 23975/2012; and CA No. 5056/2012

SLP (C) No. 1404/2021, D. No. 19394-2020, D. No. 19399-2020, D. No. 19403-2020, SLP (C) No. 11486/2020, SLP(C) No. 11124/2020, D. No. 19449-2020, SLP (C) No.12206/2020, D. No. 20986-2020, D. No.23310-2020, SLP(C) No. 6253/2021, SLP(C) No. 19044/2021, D. No. 5806/2021, D. No. 6662/2021 are hereby allowed.

(viii) In relation to the private trusts, the appeal filed bytheassesseee, Tribune Trust - CA 9380/2017 isdismissed. Therevenue’s appeal – SLP (C) No. 30597/2018, against ShriBalaji Samaj Vikas Samiti is dismissed, on account of lowtax effect.

255. This batch of matters is disposed of, in the above terms.Pending applications, if any, are dismissed.

Nidhi Jain

(Assisted by : Shashwat Jain, LCRA)

Appeals disposed of.