Charitable status and incidental receipts do not defeat exemption absent dominant profit motive under the public utility test.

An entity advancing an object of general public utility does not lose section 11 exemption merely because it earns incidental receipts or surplus; the decisive test is whether it is actually carrying on trade, commerce or business with a dominant profit motive. On the facts, a State transport corporation's ancillary receipts from luxury buses, parcel services, tour packages, rent and advertisements were held insignificant in the context of its overall public transport activity, and insufficient to convert it into a commercial undertaking. The proviso to section 2(15) was therefore inapplicable, and denial of exemption under section 11 was unsustainable.

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Issues: Whether the assessee was disentitled to exemption under section 11 on the ground that its activities fell within the proviso to section 2(15) as commercial activity with profit motive.

Analysis: The assessee was a State corporation engaged in public transport and had consistently been treated as entitled to charitable status and exemption in earlier years. The amendment to section 2(15) does not automatically withdraw exemption merely because receipts arise from charges or fees; the decisive enquiry is whether the activity is in the nature of trade, commerce or business, or whether any surplus shows a dominant profit motive. The material relied on by the Revenue, including luxury buses, parcel services, tour packages, rent, advertisement and other incidental receipts, was held to be insignificant in the context of the overall transport activity and insufficient to establish that the assessee had become a commercial undertaking. The proviso to section 2(15) was therefore held inapplicable on the facts.

Conclusion: The denial of exemption under section 11 was unsustainable and the issue was decided in favour of the assessee.

Ratio Decidendi: An entity engaged in an object of general public utility does not lose charitable status merely because it earns incidental receipts or surplus, unless the Revenue establishes that trade, commerce or business with a dominant profit motive is carried on.

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