TaxTMI 
TaxTMI 
TaxTMI 
2018 (4) TMI 865
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....re was Rs. 2,044/-, Rs. 2,771/- and Rs. 1,72,500.46, respectively. He observed that in the financial years 2010-11 and 2011-12, there was no activity except construction of tennis court. Further, the society charged fees from the participants. From the articles of association, it is observed that the facilities are extended to members only and for becoming a member, fee is charged. Further, from the financial activities report of the society, it is seen that the activities are yet to start as given in the memorandum and articles of the association. Whatever little bit of activities have been carried out, there is no element of charity or philanthropy in them. He further observed that from a brief note of activities furnished by the society, it is observed that it is looking forward to raise funds from the sponsors and donors in the interest of the game. He observed that it was quite possible and apprehended that when any sponsors and donors will be involved in organising any tennis tournament, huge amount of commercial consideration will take effect by way of advertisement, ticket selling, and broadcasting right over the game, etc and the genuine activities of the association would....
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....ould not be considered as "charitable" under ambit of section 2(15) of the Act. 10. We find the Hon'ble Allahabad High Court in the case of Hardayal Charitable & Educational Trust vs CIT, 355 ITR 534 (All) has held as under: "20. The preponderance of the judicial opinion of all the High Court including this Court is that at the time of registration under Section 12AA of the Income Tax Act, which is necessary for claiming exemption under Section 11 and 12 of the Act, the Commissioner of Income Tax is not required to look into the activities, where such activities have not or are in the process of its initiation. Where a trust, set up to achieve its objects of establishing educational institution, is in the process of establishing such institutions, and receives donations, the registration under Section 12AA cannot be refused, on the ground that the Trust has not yet commenced the charitable or religious activity. Any enquiry of the nature would amount to putting the cart before the horse. At this stage only the genuineness of the objects has to be tested and not the activities, which have not commenced. The enquiry of the Commissioner of Income Tax at such preliminary stage shoul....
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.... poor, ill- managed, financially drenched and always anchoring for financial help. If any society acts in a prudent manner to become self-sustained, it would not amount to becoming of commercial organization. The allegation of ld. Commissioner that the society is engaged in money making activities which ultimately benefit the Professional Golfers in the form of prize money from various professional golf tournaments. The general public gets motivated only if the concerned game is in public domain and its players get compensated financially only. Thus, in our view, getting sponsors for tournaments and organizing such events as have been mentioned by the Commissioner is only aimed to display carrier opportunity for young golfers to take up this game as a profession. In that eventuality, even families of the players would have no objection. Thus, all the activities of the assessee are not commercial but they aim at promoting the game of golf...." 13. The Hon'ble Supreme Court in the case of Queen's Educational Society vs CIT, (2015) 372 ITR 699 (SC) while considering the definition of "charitable purpose" has considered the following decisions: (i) In CIT v. Surat Art Silk Cloth Ma....
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....ct. This interpretation of the exclusionary clause in Section 2 clause (15) derives considerable support from the speech made by the Finance Minister while introducing that provision. The Finance Minister explained the reason for introducing this exclusionary clause in the following words: "The definition of 'charitable purpose' in that clause is at present so widely worded that it can be taken advantage of even by commercial concerns which, while ostensibly serving a public purpose, get fully paid for the benefits provided by them namely, the newspaper industry which while running its concern on commercial lines can claim that by circulating newspapers it was improving the general knowledge of the public. In order to prevent the misuse of this definition in such cases, the Select Committee felt that the words 'not involving the carrying on of any activity for profit' should be added to the definition." It is obvious that the exclusionary clause was added with a view to overcoming the decision of the Privy Council in the Tribune case [AIR 1939 PC 208 : In Re the Trustees of the Tribune, (1939) 7 ITR 415] where it was held that the object of supplying the community with an organ ....
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....o added that the restrictive condition "that the purpose should not involve the carrying on of any activity for profit would be satisfied if profit making is not the real object" (emphasis supplied). We wholly endorse these observations. The application of this test may be illustrated by taking a simple example. Suppose the Gandhi Peace Foundation which has been established for propagation of Gandhian thought and philosophy, which would admittedly be an object of general public utility, undertakes publication of a monthly journal for the purpose of carrying out this charitable object and charges a small price which is more than the cost of the publication and leaves a little profit, would it deprive the Gandhi Peace Foundation of its charitable character? The pricing of the monthly journal would undoubtedly be made in such a manner that it leaves some profit for the Gandhi Peace Foundation, as, indeed, would be done by any prudent and wise management, but that cannot have the effect of polluting the charitable character of the purpose, because the predominant object of the activity of publication of the monthly journal would be to carry out the charitable purpose by propagating ....
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....tified in assuming in the absence of some indication to the contrary that the object of the trust involves the carrying on of an activity for profit." And to the same effect, observed Krishna Iyer, J. in the Indian Chamber of Commerce case [(1976) 1 SCC 324 : 1976 SCC (Tax) 41 : (1975) 101 ITR 796] when he said: "An undertaking by a business organisation is ordinarily assumed to be for profit unless expressly or by necessary implication or by eloquent surrounding circumstances the making of profit stands loudly negatived .... A pragmatic condition, written or unwritten, proved by a prescription of profits or by long years, of invariable practice or spelt from some strong surrounding circumstances indicative of anti-profit motivation - such a condition will qualify for charitable purpose." Now we entirely agree with the learned Judges who decided these two cases that activity involved in carrying out the charitable purpose must not be motivated by a profit objective but it must be undertaken for the purpose of advancement or carrying out of the charitable purpose. But we find it difficult to accept their thesis that whenever an activity is carried on which yields profit, th....
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.... Lodging Assn. Educational Institute v. CBDT, (2008) 301 ITR 86, this Court dealt with Section 10(23C)(vi) as follows: "29. In CIT v. Surat Art Silk Cloth Manufacturers' Assn. [(1980) 2 SCC 31 : 1980 SCC (Tax) 170 : (1980) 121 ITR 1] it has been held by this Court that test of predominant object of the activity is to be seen whether it exists solely for education and not to earn profit. However, the purpose would not lose its character merely because some profit arises from the activity. That, it is not possible to carry on educational activity in such a way that the expenditure exactly balances the income and there is no resultant profit, for, to achieve this, would not only be difficult of practical realisation but would reflect unsound principles of management. In order to ascertain whether the institute is carried on with the object of making profit or not it is the duty of the prescribed authority to ascertain whether the balance of income is applied wholly and exclusively to the objects for which the applicant is established. In deciding the character of the recipient, it is not necessary to look at the profits of each year, but to consider the nature of the activit....
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....ancement of any other object of general public utility" provided it does not involve carrying on of any activity in the nature of trade, commerce or business etc. for financial consideration. The 2nd proviso to said section, introduced w.e.f. 01- 04-2009 vide Finance Act 2010, provides that in case where the activities of any trust or institution is of the nature of advancement of any other object of general public utility and it involves carrying on of any activity in the nature of trade, commerce or business; but the aggregate value of receipts from such commercial activities does not exceed Rs. 25,00,000/- in the previous year, the purpose of such trust/institution shall be deemed as "charitable" despite it deriving consideration from such activities. However, if the aggregate value of these receipts exceeds the specified cut-off, the activity would no longer be considered as charitable and the income of the trust/institution would not be eligible for tax exemption in that year. Thus an entity, pursuing advancement of object of general public utility, could be treated as a charitable institution in one year and not a charitable institution in the other year depending on the aggr....