TaxTMI 
TaxTMI 
TaxTMI 
2022 (10) TMI 948
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....0; C.A. No. 4430/2021; C.A. No. 2477/2021; C.A. No. 2478/2021; C.A. No. _____/2022 @ SLP(C) No. 23975/2012; C.A. No. _____/2022 @ SLP(C) No. 15547/2013; C.A. No. ______/2022 @ SLP(C) No. 15040/2019; C.A. No. _____/2022 @ SLP (C) No. _____/2022 @ Diary No(s). 39525/2017; C.A. No. _____/2022 @ SLP(C) No. 14574/2019; C.A. No. _____/2022 @ SLP (C) No. _____/2022 @ Diary No(s). 16597/2020; C.A. No. _____/2022 @ SLP(C) No. 10912/2018; C.A. No. _____/2022 @ SLP(C) No. 12304/2018; C.A. No. _____/2022 @ SLP (C) No. _____/2022 @ Diary No(s). 44856/2018; C.A. No. _____/2022 @ SLP(C) No. 6553/2019; C.A. No. _____/2022 @ SLP (C) No. _____/2022 @ Diary No(s). 15525/2019; C.A. No. _____/2022 @ SLP(C) No. 30597/2018; C.A. No. _____/2022 @ SLP (C) No. _____/2022 @ Diary No(s). 5683/2019; C.A. No. _____/2022 @ SLP (C) No. _____/2022 @ Diary No(s). 15488/2019; C.A. No. _____/2022 @ SLP (C) No. _____/2022 @ Diary No(s). 15489/2019; C.A. No. _____/2022 @ SLP(C) No. 15055/2019; C.A. No. _____/2022 @ SLP(C) No. 15079/2019; C.A. No. _____/2022 @ SLP(C) No. 14995/2019; C.A. No. _____/2022 @ SLP (C) No. _____/2022 @ Diary No(s). 21237/2019; C.A. No. _____/2022 @ SLP (C) No. _____/2022 @ Diary No(s). 17255/2....
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............................................... 5 B. The new law: Income Tax Act, 1961 ...................................................................................... 8 C. The judgment in Surat Art Silk .............................................................................................. 11 D. Relevant changes brought about to the IT Act, 1961 (Finance Act, 1983 and 1991) ........... 17 E. The judgment in Thanthi Trust .............................................................................................. 18 F. Deletion of certain exemptions: Section 10 (20A) and Section 10 (23) .................................. 20 G. Amendments to Section 2 (15) by Finance Act, 2008 (w.e.f. 01.04.2009) ............................ 21 II. Submissions of parties ........................................................................................................... 22 A. Arguments on behalf of the revenue...................................................................................... 22 B. Arguments of the assessee-organizations ............................................................................ 26 C. Revenue's rebuttal arguments...........................
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................. 141 B. Authorities, corporations, or bodies established by statute ...................................................... 142 C. Statutory regulators .................................................................................................................. 143 D. Trade promotion bodies ............................................................................................................ 144 E. Non-statutory bodies ................................................................................................................. 144 F. Sports associations..................................................................................................................... 145 G. Private Trusts ............................................................................................................................ 145 H. Application of interpretation...................................................................................................... 146 1. Leave granted in all matters where leave has not already been granted. C.A. No. 21762/2017 (Assistant Commission of Income Tax, Exemptions v. Ahmedabad Urban Development Authority) is taken as th....
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.... activity of rendering any service in relation to any trade, commerce or business, for a cess or fee or any other consideration, irrespective of the nature of use or application, or retention, of the income from such activity:....." (emphasis supplied) 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 visualized three kinds of charitable purposes: medical relief, education, and relief for the poor - which are described hereafter as "per se purposes". To this list, Parliament has, by amendments, added other categories, such as preservation of environment (including watersheds, forests, and wildlife) and preservation of monuments or places or objects of artistic or historic interest, and yoga. The last - or the residual purpose included by the definition - is "advancement of any other object of general public utility" (hereafter referred to as "GPU category"), which is the subject of interpretation in the present case. 5. The Director General of Income Tax for exemptions, Commissioner of Income Tax ("CIT") in various states, and other officials of the Income tax department (hereafter compendiously referred to as "the ....
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....c) of sub-section (1) of section 16, any income derived from property held under trust or other legal obligation wholly for religious or charitable purposes, in so far as such income is applied or accumulated for application to such religious or charitable purposes as relate to anything done within the taxable territories, and in the case of property so held in part only for such purposes, the income applied or finally set apart for application thereto: (ia) Any income derived from business carried on on behalf of a religious or charitable institution when the income is applied solely to the purposes of the institution and- (a) the business is carried on in the course of the carrying out of a primary purpose of the institution, or (b) the work in connection with the business is mainly carried on by beneficiaries of the institution" a new clause (ia) in the then existing provision. This provided that income derived from business carried on by or on behalf of a charitable trust or religious institution could be limited to only such business income as was derived by the trust or institution from business carried on either in the course of the carrying on of a trust's primary purpose, ....
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.... so applied or ceases to be so accumulated or set apart.]" wherein clause (ia) was deleted from section 4(3)(i) of the old Act and instead inserted as its proviso. Parliamentary intent, in transforming old clause (ia) into a proviso to Section 4 (3)(i) was that whenever business was carried on behalf of a religious or charitable institution, the conditions prescribed in clause (b) of proviso to clause (i) had to be satisfied in addition to the general condition of exemption set out in the substantive part of clause (i). Parliament's attempt to exempt income from business activity upon complying with other conditions - apart from those laid down in clause (i) - was interpreted by this court in CIT v. P. Krishna Warriar (1964) 8 SCR 36: (1964) 53 ITR 176 (hereafter "Krishna Warriar"). The court observed that: "The legal position may briefly be stated thus: Clause (i) of section 4(3) of the Act takes in every property or a fractional part of it held in trust wholly for religious or charitable purposes. It also takes in such property held only in part for such purposes. Business is also property within the meaning of said clause. Clause (b) of the proviso to section 4(3)(i) applies o....
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.... namely, the newspaper industry which while running its concern on commercial line 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." (LVI) Lok Sabha Debates., 32nd scs., p. 3073 (August 18, 1961) 11. The first major decision to interpret the new definition was Sole Trustee, Lok Shikshana Trust v. Commissioner of Income Tax (1976) 1 SCC 254 (hereafter "Lok Shikshana Trust") (hereafter "Lok Shikshana Trust"). This court turned down a contention that newspaper business, carried on with several other objects (which included setting up of educational institutions, dissemination of knowledge to 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 in order to bring a case within the fourth category of charitable purpose, it would be necessary to show that (1) the purpose of the trust is the advancement of any other object of g....
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....of trade, commerce and industries or incidental to attainment of the above objects or any of them". As per clauses (4) and (8) of the memorandum of association, the chamber's member could not stand to gain personally since no portion of "income and property of the association shall be paid ... directly or indirectly, by way of dividend or bonus or otherwise howsoever by "way of profit to the persons who at any time are ... members of the Association ...." On dissolution of the association, the members could not claim any share in the assets. The chamber, conceded before this court, that it "by and large, strives to advance the general trade interests of India and Indian without seeking to make profits for its members." This court denied the exemption claimed, holding that: "14... The attainment of that object shall not involve activities for profit. What then is an activity for profit? 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. We will illustrate to illumine. If there is a restrictive provision in the bye-laws of....
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....eability because all income is often derived by rendering some service or other." C. The judgment in Surat Art Silk 14. The judgment by a larger, five-judge Bench, in Assistant Commissioner v. Surat Art Silk Cloth Manufacturers' Association (1980) 2 SCC 31 (hereafter "Surat Art Silk") (hereafter "Surat Art Silk") was the most important decision rendered on the issue. Here a Section 25 (of the Companies Act, 1956 corresponding to Section 8 of the Companies Act, 2013) non-profit company was established. It claimed exemption as an institution with charitable purposes as its objectives. The objects of the company included promoting commerce and trade in Art Silk yarn, raw silk, cotton yarn, Art Silk cloth, silk cloth, and cotton cloth, among other objects The list of objects were as follows: "(a) To promote commerce and trade in Art Silk Yarn, Raw Silk, Cotton Yarn, Art Silk Cloth, Silk Cloth and Cotton Cloth. (b) To carry on all and any of the business of Art Silk Yarn, Raw Silk, Cotton Yarn as well as 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 and other raw m....
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...., those involved in the advancement of objects of general public utility. It further clarified that the prohibition applied to the object and not the advancement or attainment of the said object: "10a. It is clear on a plain natural construction of the language used by the legislature that the ten crucial words "not involving the carrying on of any activity for profit" go with "object of general public utility" and not with "advancement". It is the object of general public utility which must not involve the carrying on of any activity for profit and not its advancement or attainment. What is inhibited by these last ten words is the linking of activity for profit with the object of general public utility and not its linking with the accomplishment or carrying out of the object. It is not necessary that the accomplishment of the object or the means to carry out the object should not involve an activity for profit. That is not the mandate of the newly added words. What these words require is that the object should not involve the carrying on of any activity for profit. The emphasis is on the object of general public utility and not on its accomplishment or attainment. The decisions ....
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....of advancement of the purpose". There must be an activity for profit and it must be involved in carrying out the purpose of the trust or institution or to put it differently, it must be carried on in order to advance the purpose or in the course of carrying out the purpose of the trust or institution. It is then that the inhibition of the exclusionary clause would be attracted. This appears to us to be a more plausible construction which gives meaning and effect to the last concluding words added by the legislature and we prefer to accept it. Of course, there is one qualification which must be mentioned here and it is that if the constitution of a trust or institution expressly provides that the purpose shall be carried out by engaging in an activity which has a predominant profit motive, as, for example, where the purpose is specifically stated to be promotion of sports by holding cricket matches on commercial lines with a view to making profit, there would be no scope for controversy, because the purpose would, on the face of it, involve carrying on of an activity for profit and it would be non-charitable even though no activity for profit is actually carried on or, in the exampl....
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.... 7 ITR 415] where it was held that the object of supplying the community with an organ of educated public opinion by publication of a newspaper was an object of general public utility and hence charitable in character, even though the activity of publication of the newspaper was carried on commercial lines with the object of earning profit. The publication of the newspaper was an activity engaged in by the trust for the purpose of carrying out its charitable purpose and on the facts it was clearly an activity which had profit making as its predominant object, but even so it was held by the Judicial Committee that since the purpose served was an object of general public utility, it was a charitable purpose. It is clear from the speech of the Finance Minister that it was with a view to setting at naught this decision that the exclusionary clause was added in the definition of "charitable purpose". The test which has, therefore, now to be applied is whether the predominant object of the activity involved in carrying out the object of general public utility is to subserve the charitable purpose or to earn profit. Where profit making is the predominant object of the activity, the purpos....
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....is whether having regard to all the facts and circumstances of the case, the dominant object of the activity is profit making or carrying out a charitable purpose. If it is the former, the purpose would not be a charitable purpose, but, if it is the latter, the charitable character of the purpose would not be lost. 20. If we apply this test in the present case, it is clear that the activity of obtaining licences for import of foreign yarn and quotas for purchase of indigenous yarn, which was carried on by the assessee, was not an activity for profit. The predominant object of this activity was promotion of commerce and trade in Art Silk Yarn, Raw Silk, Cotton Yarn, Art Silk Cloth, Silk Cloth and Cotton Cloth, which was clearly an object of general public utility and profit was merely a bye-product which resulted incidentally in the process of carrying out the charitable purpose. It is significant to note that the assessee was a Company recognised by the Central Government under Section 25 of the Companies Act, 1956 and under its Memorandum of Association, the profit arising from any activity carried on by the assessee was liable to be applied solely and exclusively for the promot....
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.... 2(15) of the IT Act, was omitted by 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 Through the Taxation Laws Amendment Act, 1975 as clause (bb), to Section 13(1) Section 13 - Section 11 not to apply in certain cases: "(bb) in the case of a charitable trust or institution for the relief of the poor, education or medical relief, which carries on any business, any income derived from such business, unless the business is carried on in the course of the actual carrying out of a primary purpose of the trust or institution" This provision had the effect of excluding or excepting the operation of Section 11 (which deemed certain receipts of charitable institutions not to be part of their income). The restrictive condition in clause (bb) was also omitted by the Finance Act, 1983, w.e.f. 01.04.1984. 21. Below Section 11(4) Section 11(4) as originally enacted, reads as follows: "For the purposes of this section 'property held under trust' includes a business undertaking so held, and where a claim is made that the income of any such undertaking shall not be included in the total income of the persons in re....
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....957, the settlor executed a supplementary deed making the trust irrevocable. On 28.07.1961 another supplementary deed was executed which directed that the trust's surplus income (after defraying all expenses), should be devoted to purposes such as establishing and running a school or college for the teaching of journalism; establishing and/or running or helping to run schools, colleges or other educational institutions for teaching arts and science; establishing of scholarships for students of journalism, arts and science; establishing and/or running or helping to run hostels for students; establishing and/or running or helping to run orphanages; and other educational purposes. The High Court held that exemption could be claimed by the trust. The revenue appealed. This court noticed that the 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 for the first period (1979-80 to 1983-84), the activity of running a newspaper, and the corpus held for it, by the trust, did not directly result in carrying on the educational activities mentioned in the supplementary deeds. The income was found to only fee....
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....ttainment of the objectives of the Trust or institution. A business whose income is utilized by the Trust or the institution for the purposes of achieving the objectives of the Trust or the institution is, surely, a business which is incidental to the attainment of the objectives of the Trust. In any event, if there be any ambiguity in the language employed, the provision must be construed in a manner that benefits the assessee. The Trust, therefore, is entitled to the benefit of section 11 for the assessment year 1992-93 and thereafter. It is, we should add, not in dispute that the income of its newspaper business has been employed to achieve its objectives of education and relief to the poor and that it has maintained separate books of account in respect thereof." (emphasis supplied) F. Deletion of certain exemptions: Section 10 (20A) and Section 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 housing boards, etc., and before deletion read as follows: "(20A) any income of an authority constituted in India by or under any law enacted either for the purpose of dealing with and satisfyin....
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....cess or fee or any other consideration, irrespective of the nature of use or application, or retention, of the income from such activity:]" [Provided further that the first proviso shall not apply if the aggregate value of the receipts from the activities referred to therein is [ten lakh rupees] or less in the previous year;] In the second proviso, the reference to ten lakhs was substituted, and the figure of rupees twenty-five lakhs, was inserted, by the Finance Act, 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, the following proviso was inserted: "Provided that the advancement of any other object of general public utility shall not be a charitable purpose, if it involves the carrying on of any activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business, for a cess or fee or any other consideration, irrespective of the nature of use or application, or retention, of the income from such activity, unless- (i) such activity is undertaken in the course of actual carrying out of such advancement of any other o....
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....ive words "not involving the carrying on of any activity for profit". It was argued that Parliament amended the definition due to rampant abuse of the law by businesses claiming to be driven by charitable purposes. Often, charities would be created merely to secure exemption from tax, and would carry on large commercial activities, enjoying the profits. This led Parliament to embed the exclusionary terms, depriving exemption if the institution otherwise fell under the GPU category charity, but undertook activities for profit. The ASG relied on the Finance Minister's speech in the House at the time of the introduction of the IT Act, and submitted that it outlines the rationale for the restrictive condition noting that units run on commercial lines could claim that some general public utility was promoted and claim exemption. The Select Committee of Parliament (at that time), felt that to prevent misuse of the definition in such cases, the words "not involving the carrying on of any activity for profit" should be added to the definition. ASG relied on Lok Shikshana Trust (supra) which highlighted that this statement shed light on the new provision. 31. It was submitted that Indi....
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....on 2(15), Section 10(23C) and Section 13(1)(bb) meant that only charities which were set up for the purpose of "relief of the poor, education or medical relief", could claim exemption if they carried on business "in the course of actual carrying out of a primary purpose of the trust or institution". The studied omission of GPU category charities, in Section 13(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 of the addition of the expression "advancement of any other object of general public utility not involving the carrying on of any activity for profit". The remedy intended by Parliament, in adding the said terms was to prevent charities (involved in the carrying on of any activity for profit) from claiming exemption, and to ensure that purely charitable activity-driven trusts or institutions, could claim exemption. It was submitted that the Constitution Bench fell into error, in holding that as long as the 'dominant' objective of the charity was to pr....
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.... roads and allotment of lands after redevelopment, in the areas under its control. Relying upon the provisions of the Act constituting AUDA26, he submitted that its mandate is to control development activities, execution of works and dispersal of sewage, provisions of such other facilities and generally engage in urban development in the areas it had jurisdiction over. He highlighted Section 40 of that Act and urged that the nature of activities, especially disposal of properties developed by AUDA were entirely regulated. Whilst the lion's shares of properties developed by AUDA were to be allotted for housing and residence, and earmarked specifically for public amenities, roads etc., a small percentage (15%) could be sold by public auction. It was submitted that the statutory model adopted by AUDA was to enable it to function as a self-sustaining unit. The disposal of plots through allotment and especially by public auction were the main modes through which it could generate revenue. The entire revenue or income so generated was to be kept in a fund under Section 91; and its accounts were mandatorily audited by the State's Accountant General under Section 95. 38. It was argued tha....
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....d to be charitable even if it carries on some business or trade-like activities for the purpose of generating income. What is important, it was argued, is whether the main or dominant purpose of business or activity is motivated by profit. In such cases, the entity is debarred from claiming that it is a charity and cannot claim the benefit of tax exemption. Therefore, what is to be understood from the ratio in Surat Art Silk (supra) is that the main purpose or principal objective or motivation for the activity should not be to carry on trade or business. It should be to advance the purpose of general public utility. If such a purpose is fulfilled, the carrying on of some activity which might result in surplus, would not disentitle the entity from the benefit of tax exemption. 41. Learned counsel then made a brief reference to the judgment in CIT, Bombay v. Bar Council of Maharashtra (1981) 3 SCC 308 (hereafter "Bar Council of Maharashtra") arguing that Surat Art Silk (supra) was followed in this decision. He also cited Thanthi Trust (supra). Counsel highlighted that the object of the assessee there, was charitable and required that the business ought to be carried out for the purp....
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....arashtra (1970) 3 SCC 323 31 1997 (Supp 3) SCR 466; (1997) 7 SCC 17 (hereafter "GIDC case"), Gujarat Industrial Development Corporation v. CIT31 (hereafter "GIDC case"), HSIDC v. Hari Om Enterprises (2009) 16 SCC 208 and Commissioner of Central Excise v. Maharashtra Industrial Development Corporation 2017 SCCOnline Bom 10021 (para 10-12) and urged that statutory organizations set up for housing and other essential development, cannot be regarded as commercial or business entities. 45. Learned counsel relied upon the Constitution Bench decision of this Court in Navnit Lal C. Jhaveri v. K.K. Sen (1965) 1 SCR 909 (hereafter "Navnit Lal Jhaveri") (hereafter "Navnit Lal Jhaveri"), where the court had held while interpreting the provisions of an enactment that the executive's understanding - in the form of circulars in the context of taxing statutes - were valuable guides to interpretation. The observations in Navnit Lal Jhaveri (supra) were relied on to submit that the circulars in that case was used to in fact soften the rigor of a newly introduced provision. Learned counsel also relied upon the judgment of this Court in UCO Bank Calcutta v. Commissioner of Income Tax, West Bengal 199....
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....d upon the ratio in Shri Ramtanu Co-operative Housing Society Limited v. State of Maharashtra (1970) 3 SCC 323 , which ruled that the true character of the corporation in that case i.e., the Maharashtra Development Corporation was to act as an architectural agent for the development and growth of industrial towns and for their establishment He also relied on other decisions - of this court, to the same effect, in Kerala State Electricity Board v. Indian Aluminium Co. Ltd. (1976) 1 SCC 466 and Trustees of the Port of Madras v. Aminchand Pyarelal and Ors. (1976) 3 SCC 167. 48. Mr. Gulati relied on the GIDC case (supra) to argue that the word "development" in S.10(20-A) of the IT Act, 1961 has to be understood in its wide sense. It was urged that development authorities like NOIDA fall under Section 2(15) of the IT Act, 1961 if they satisfy the test in Section 11(7) of the IT Act, 1961. It was contended that Surat Art Silk (supra) was clear that engagement by a trust with a commercial activity is not per se prohibited, as long as its object is the attainment of an object of general public utility. Pointing to the Explanatory Notes (to the Provisions of the Finance Act, 2015) - with r....
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.... or "business" and the first proviso to Section 2(15) is attracted only if the primary/dominant objects are (a) in the nature of trade, commerce or business; or (b) rendering any service in relation to any trade, commerce or business. To substantiate this argument, counsel relied on Surat Art Silk (supra), Commissioner of Income Tax v. Gujarat Maritime Board55 (hereafter "Gujarat Maritime Board case") and other decisions56. Hence, if the main activity is not "business", the connected, incidental or ancillary activities of sales carried out in furtherance 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 the revenue. The judgments in CST v. Sai Publication Fund57 and the Board of Trustees of the Port of Madras (supra) was relied upon. It was urged that the revenue's contention that statutory authorities' claim for exemption is confined to the provision in Section 10(46). He urged that in terms of Section 11(7)58 the Board has an option to claim exemption either under Section 11 or under Section 10(46). There is no bar for claimi....
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....0 too Rs.70 per farm/plot, for issuing Global Location Number (GLN) to farmers, which was approved. 55. Regarding the statutory provisions it was submitted that the words "trade, commerce or business" in the proviso to Section 2(15) of the IT Act cannot be read in isolation and have to be seen in context of "charitable purpose" and, even after a series of amendments - from the Finance Act, 2008 to Finance Act, 2015 there is essentially, no change in the basis of determination of what amounts to a trade, commerce or business 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 the word 'involves' found in proviso to Section 2(15) as interpreted in Surat Art Silk (supra), in the sense that an activity is involved in the advancement of an object when it is enwrapped or enveloped in the activity of advancement, so that the resulting activity has a dual nature or is twin faceted. The well-known principle of construction, that where the legislature uses in an Act, a legal term which has received judicial interpretation, it must be assumed that the term is used in the sens....
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....l Development Authority (supra) to the effect that there is need to distinguish commercial activity which constitutes disqualification under clause (b) to Section 10(46) of the Act, and charging and payment of fee, service charges, reimbursement of costs or consideration for transfer of rights for performing and undertaking regulatory or administrative duties for general public interest, when these are not guided and undertaken with profit motive or intent. Further, reliance was placed on The Commissioner of Income Tax (Exemptions), Chandigarh v. M/s Hoshiarpur Improvement Trust, Hoshiarpur64 to explain the characteristics of the assessee. Learned counsel further laid emphasis on provisions of the regulations under the Punjab Improvement Trust Rules and regulations to show the procedure adopted by the board in fixing prices. 60. Mr. Gursharan S. Virk, argued that the Gujarat Maritime Board (GMB), is a statutory one, constituted under Section 3(2)65 of the Gujarat Maritime Board Act, 1981 (GMB Act); it performs functions which, prior to the enactment of the Act, were being performed directly by the State Government66. The Preamble to the Act notes that it is constituted for adminis....
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....ctronics (DoE) with the support of the United Nations Development Program (UNDP). The program was focused on integrating information technology and internet tools with learning environment, to enhance the quality of education. However, funding by the UNDP ended in 1992. The DoE nevertheless continued to support the project till 1998 and thereafter the body was registered as an autonomous society under administrative control of the Ministry of Communication and Information Technology, Govt. of India on 27.01.1998. It was registered under Section 12A of the IT Act, 1961 on 26.03.2004 and its activities fell within the meaning of "charitable purpose" under Section 2(15). It duly complied with Sections 11 and 12 of the IT Act, 1961. 63. NIXI was created in 2003 by the Government of India under the Ministry of Information Technology, for promotion and growth of internet services in India, regulating the internet traffic and acting as internet exchange, to undertake ".in" domain name registration thereby saving valuable foreign exchange, and take care of national concern. It was urged that this is a Section 25 company barred from undertaking any commercial or business activity for profi....
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.... buyers, and are enabled to promote trade. It was submitted that there is ex-officio involvement on behalf of the Central Government, in the AEPC's activities, including in its policy formulation levels. 67. Mr. Vohra relied upon the Memo Explaining Provisions in the Finance Bill, 200873, the speech of Finance Minister in Lok Sabha on Finance Bill, 200874, CBDT Circular No. 11 dated 19/12/200875 to submit that proviso to Section 2(15) only bars commercial/business activities undertaken for profit motive. It was submitted that mere earning of income and/or charging any fees is not barred by the proviso; rather, carrying of any activity in the nature of trade, commerce or business or rendering service in relation thereto is barred. Reliance was placed upon judgments in Dir. Of Supp. & Disp. v. Board of Revenue76 which follows H. Abdul Bakhi & Bros (supra), Barendra Prasad Ray v. ITO77 and State of Gujarat v. Raipur Manufacturing Co. Ltd.78 to argue that in "business" there must be some real and systematic, or organized course of activity or conduct with the set purpose of making profit. Counsel referred to Sai Publication Fund (supra) where this court observed that since primary and....
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.... case. The ITAT upheld the findings of the first appellate authority as it observed that the assessee did not carry any activity with an object of profit, and thus the question of attracting the proviso did not arise. 70. Ms. Prabha Swami, learned counsel submitted that the A.P State Seed Certification Agency is a statutory society set up under Section 881 of the Seeds Act, 1966 which is represented by the representatives of Seedsmen Association, seed farmers, farming community and members representing Central Seed Certification Board. While explaining the charitable characteristic of the society the counsel pointed out that the society was duly registered and its Memorandum of Association clearly inter-alia stated that the object for which it was established was to see that the cultivators adopt all scientific methods for production of quality seeds in accordance with the Seeds Act and to carry on educational programs designed to promote the use of certified seeds. Charges are collected from the traders or the societies engaged in the trade of seeds. The society provides quality seeds to the farmers and hence traders are prevented from selling inferior variety of seeds. Highlight....
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.... Section 2(15) implies that advancement of object of a trust may not involve activities of profit. It was urged that the amendment appears to have undermined this court's decision in Surat Art Silk (supra). 73. It was argued that the crucial part of the definition of "charitable purpose" is the word "cess" employed in the proviso. As an explanatory measure, the activities of promotional councils were taken into consideration - for example Surat Art Silk supported silk manufacturers. If such activity is for a cess or a fee, the organization ceases to be charitable. Activities in the nature of trade, commerce or business are not charitable if they are for a fee or other consideration. Fees collected by the private organizations forms the content of Section 2(15). However, amounts based on tariff regulations imposed by the controlling law, or statute-based fee is neither "fee" nor "cess" under that provision. Further, the consideration involved is vis-à-vis the activity or service. The test is the object for which the consideration is paid, and what it entails, wherein the words "any other consideration" is for the activities in aid or service of business. In this regard it wa....
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....l, supervision, regulation, encouragement, promotion and development of the game of cricket in the Association's jurisdiction. Other objects include creation, fostering friendly relationships through sports tournaments and the creation of a healthy sportsmanship spirit, through the medium of sports in general and cricket in particular. All other objects were similar, including "to arrange, and/or manage among other things league and/or any other tournaments"; organize matches, lay out grounds for playing cricket, organization of matches in aid of public charities, etc. If these associations sell tickets and generate revenue through other activities, those do not necessarily mean that their objects are commercial or to promote trade. Selling tickets for a sport performance or match is to promote cricket, and not trade. Mr. Salve also urged that the expression "trade" has a particular meaning; he referred to State of Gujarat v. Maheshkumar Dhirajal Thakkar83 where the court observed that "the word trade in its narrow popular sense means 'exchange of goods for goods or for money with the object of making profit'. In its widest sense it includes any business carried on with a view to....
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....er. In this regard the counsel referred to the Gujarat High Court judgment in Saurashtra Education Foundation v. CIT88 which took into account the observations made in another judgment by the same High Court in Gujarat State Co-operative Union v. CIT89, to hold that the ICAI was existing solely for educational purposes and its activities clearly fall within the category of 'education' in Section 2(15) of the Act. In further support of this proposition, reliance was placed on American Hotel and Lodging Association v. CBDT90 to argue that ICAI is entitled to be notified under Section 10(23C)(iv) r/w Section 2(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 activities of ICAI are not of such nature. Counsel relied upon the judgment in NDMC (supra) which ruled that profit motive is the core aspect of trade and business, in the context of Article 289 of the Constitution of India, which talks about exemption of property and income of a state from Union Taxation. 82. It was argued that there is a distinction between nature of commercial ventures and charitable institutions such as ....
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....61 and hence the ratio of the decision in Ratan Melting and Wire Industries (supra) does not apply. Reliance was placed on observations made in Navnit Lal Zaveri (supra) and Ellerman Lines v. Commissioner of Income Tax98 to urge that these circulars are classified as "beneficial". They place a purposive interpretation on a statutory provision. Such circulars enormously reduce litigation and hardship of assessees and they play a vital role in the proper administration of taxes. 85. It was argued that the demand against ICAI is from 2004-05 and the fees collected from students have already been spent on various infrastructure development and other capital expenditure items. The surplus amounts remaining were invested in government securities/FDs of nationalized banks, so the demands raised will seriously prejudice the assessees. 86. On behalf of the Tribune Trust, Mr. Datar argued that the charitable nature of the trust can be traced back to the In Re: Trustees of the Tribune (supra) judgment rendered by the Privy Council, which allowed the trust's appeal against the judgment of Lahore High Court (that rejected exemption for the trust's income for AY 1932-33). The Privy Council con....
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....y commercial entities for which a consideration is charged. In addition, Article 289(1) exempts states' property and income from Union taxation. To permit levy of income tax on cess or fee collected by a state would violate Article 289(1), hence the word "cess" or "fee" in the proviso is liable to be declared unconstitutional and violative not only of 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 fall within the definition of "income" under Section 2(24) read with Entry 82 of List-I and cannot be subject to tax. C. Revenue's rebuttal arguments 90. In rebuttal to the submissions advanced by the assessees, the ASG relied upon Adityapur Industrial Area Development Authority v. Union of India100 and submitted that there is no constitutional immunity from taxation, for the state, because by Article 289(2) even state or its instrumentalities/agencies are not immune from taxation if they carry on trade or business. In light of Article 289(2), there is no constitutional bar for the States (or the Union) to engage or carry on trade or business, and Article 289 allows the Parliament to imp....
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....be mainly carried on by beneficiaries of the institution. These expressions were considered in Krishna Warriar (supra), where the court held that the term "property" (of a trust) was of widest amplitude, which included business. The following decision, in Andhra Chamber of Commerce (supra) where the chamber of commerce had among its objects, one enabling it to advocate policies or legislation, or oppose them, in addition to the object of promoting business, held that the incidental inclusion of such objects, involving espousing a political purpose, did not undermine its essential or main purpose, of advancing objects of general public utility. The new provision, i.e., Section 2(15) of the IT Act, defined "charitable purpose" restrictively: to deny tax exemption to activities for profit which were carried on by a trust for the advancement of an object of general public utility. The reason for this change (discussed previously) was that the advantage of tax exemption was not intended to charitable trusts that were commercial concerns, which while ostensibly serving a public purpose, were fully paid for the benefits provided by them. 93. The first two decisions of some note are Lok S....
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.... (supra). However, Parliament clearly intended a departure, when it introduced the new Section 2 (15) under the IT Act. The earlier decisions in Indian Chamber of Commerce, and Lok Shikshana Trust (supra) noticed this change. Surat Art (supra) was yet another a departure. While it considered the previous decisions of the court, it consciously departed from them, and even overruled the interpretation in Indian Chamber of Commerce (supra). The larger Bench in Surat Art Silk agreed with the previous decisions to the effect that the motivation for the activity in question (i.e., for it to be charitable) should not be deriving of profits. However, the larger Bench enunciated the principle of 'predominant object' and held that what was of importance was "whether the predominant object of the activity involved in carrying out the object of general public utility is to subserve the charitable purpose or to earn profit" and that such an entity would not lose its charitable character merely 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 the predomi....
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....ed under the Advocates Act, 1961, performed activities that were charitable in nature; it was held that the statute obliged several activities whose dominant object was advancement of public utility, without profit motive. This court held that the provisions of the Act "enjoined upon avowedly with the objective of protecting the litigating public from unscrupulous professionals by taking them to task for any misconduct on their part; it is also one of the obligatory functions of a State Bar Council to promote and support measures for law reform as also to conduct law seminars and organise talks on legal topics by eminent jurists, obviously with a view to educate the general public, the function prescribed by Clause (eee) is obviously charitable in 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 the advocates on its roll and it is difficult to regard it as a primary or dominant function or purpose for which the body is constituted. Even this function apart from securing speedy discharge of obligations by the litigants to the lawyers ensures maintenance ....
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.... income derived from business by charities engaged in medical relief, education and relief to the poor, unless the business fulfilled a condition: "(bb) in the cases of a charitable trust or institution for the relief of the poor, education or medical relief, which carries on any business, any income derived from such business, unless the business is carried on in the course of the actual carrying out of a primary purpose of the trust or institution;" 103. The interpretation in Surat Art Silk (supra), obviously could not have been affected, in the light of a subsequent amendment; however, what is of significance is that with effect from 01.04.1977, the condition of actual carrying on a primary purpose of the trust while conducting business was visualised only in the case of trusts involved in relief of the poor, education or medical relief. The majority judgment in Surat Art Silk (supra) recognized this: "8. [...] Where therefore, there is a charitable trust or institution falling within any of the first three categories of charitable purpose set out in Section 2 Clause (15) and it carries on business which is held by it under trust for its charitable purpose, income from suc....
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.... of restriction, in the definition clause. The IT Act, however, defined charitable purpose - at the outset, restrictively, and then, substantively enacted provisions that give effect to Parliamentary intent. Section 10 (23C)(iv) exempts any "income" of "any other fund or institution established for charitable purposes which may be approved by the prescribed authority, having regard to the objects of the fund or institution and its importance throughout India or throughout any State or States" from taxation. 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 of statement of objects and reasons or notes on clauses. The court, therefore would have to resort to the surrounding circumstances that led to the amendment. 108. The words of a statute are to be construed in their terms, according to the circumstances in which they occur. At the same time, there is some authority for the proposition that statutes - particularly amending provisions, may be considered in the light of the previous history of the legislation. Justice Cardozo in Duparquet Co. ....
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.... category charity 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 looked into for throwing light on the rationale for an amendment. There is some authority for that proposition.110 Some light can be discerned from the statement of the finance minister on the floor of Parliament, who answered to the criticism levelled against the change brought about by the amendment in 2008. The finance minister commented on the criticism levelled against the amendment to Section 2(15) in the following words: "I once again assure the House that genuine charitable organisations will not in any way be affected. The CBDT will, following the usual practice, issue an explanatory circular containing guidelines for determining whether an entity is carrying on 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. Whether the purpose is a charitable purpose will depend on the totality of the facts of the case. Ordinarily, Chambers of Commerce and similar organisations rendering services t....
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...."charitable purpose" 5.1 Sub-section (15) of section 2 of the Act defines "charitable purpose" to include relief of the poor, education, medical relief, and the advancement of any other object of general public utility. It has been noticed that a number of entities operating on commercial lines are claiming exemption on their income either under sub-section (23C) of section 10 or section 11 of the Act on the ground that they are charitable institutions. This is based on the argument that they are engaged in the "advancement of an object of general public utility" as is included in the fourth limb of the current definition of "charitable purpose". Such a claim, when made in respect of an activity carried out on commercial lines, is contrary to the intention of the provision. 5.2 With a view to limiting the scope of the phrase "advancement of any other object of general public utility", sub-section (15) of section 2 has been amended to provide that the advancement of any other object of general public utility shall not be a charitable purpose, if it involves the carrying on of any activity in the nature of trade, commerce or business, or any activity of rendering any service in....
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.... of the new provision. The officers were, therefore, asked to intimate to all the companies that if the loans were repaid before the 30th June, 1955, in a genuine manner, they would not be taken into account in determining the tax liability of the shareholders to whom they may have been advanced. In other words, past transactions which would normally have attracted the stringent provisions of s. 12(1B) as it was introduced in 1955, were substantially granted exemption from the operation of the said provisions by making it clear to all the companies and their shareholders that if the past loans were genuinely refunded to the companies, they would not be taken into account under s. 12(1B). Section 12(1B) would, therefore, normally apply to loans granted by the companies, to their respective shareholders with full notice of the provisions prescribed by it." 117. This court ultimately upheld the amendments. As is evident, the judgment noticed that the circular sought to soften the rigors of the otherwise harsh consequence of immediate application of the amendment. There was nothing in the circular to make it applicable for all times to come. It was more in the nature of the governme....
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....rcular. 120. That circulars are per se not binding upon courts, in regard to interpretation of a statutory provision and, at best are guides or aid to interpretation for departmental authorities, who are bound to take them into account, was pithily stated in Keshavji Ravji & Co. and Ors. v. Commissioner of Income Tax113 where the court observed as follows: "This contention and the proposition on which it rests, namely, that all circulars issued by the Board have a binding legal quality incurs, quite obviously, the criticism of being too broadly stated. The Board cannot preempt a judicial interpretation of the scope and ambit of a provision of the 'Act' by issuing circulars on the subject. This is too obvious a proposition to require any argument for it. A circular cannot even impose on the tax payer a burden higher than what the Act itself on a true interpretation envisages. The task of interpretation 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 down the rigour of the law issued in exercise of the statutory power under Section 119 of the Act or under cor....
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.... Court took the view that the instructions issued by the Board may control the exercise of the power of the departmental officials in matters administrative but not quasi-judicial. There is yet another decision of a three Judge Bench which seems to make a dent on the weight of the proposition that the circulars of the Board, even if they are plainly contrary to the provisions of the Act, should be given effect to and binding on the authorities concerned in the administration of the Act. That is the case of Keshavji Ravji & Co. v. I.T. Commissioner [1990] 183 ITR 1(SC)" 122. In view of a conflict between decisions, on the binding nature of circulars issued by the Board (in the context of decisions of authorities dealing with indirect taxation issues) this court, by a five-judge decision, in Ratan Melting and Wire Industries (supra) held that "6. Circulars and instructions issued by the Board are no doubt binding in law on the authorities under the respective statutes, but when the Supreme Court or the High Court declares the law on the question arising for consideration, it would not be appropriate for the Court to direct that the circular should be given effect to and not the vi....
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....Court has not only to look at the words but also to look at the context, collocation, and the object of such words in respect of such matters and factor the meaning to be conveyed by the use of the words under the circumstances. Almost the same reasoning has been echoed in N.K. Jain and Ors. v. C.K. Shah and Ors119. 125. The importance of terms expressly defined in a statute is that 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, a different meaning can be attributed. However, to discern the purport of a provision, the term, as defined has to prevail, whenever the expression is used in the statute. This rule is subject to the exception that when a contrary intention is plain, in particular instances, that meaning is to be given. Therefore, in the light of the previous discussion, this court would interpret the true meaning of "charitable purpose" after its amendment in 2008, taking into consideration the subsequent changes. 126. As observed at the beginning of....
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....ue urged it to be, in that activities by way of business could not be carried on incidentally by a Trust, which otherwise was a GPU category trust. 129. As noticed earlier, between Surat Art Silk (supra) and the decisions rendered thereafter (i.e., Bar Council of Maharashtra, Federation of Indian Chamber of Commerce and Industries and Thanthi Trust) there were two changes in law in 1983 w.e.f. 01.04.1984 - on the one hand deleting the restrictive words prohibiting GPU categories from carrying on profit, and deleting Section 13(1)(bb), and introducing Section 11(4A), on the other. There was otherwise no meaningful statutory change. The position therefore, continued as it was for about 25 years. 130. After its introduction, by amendment in 2008, Section 2(15) read as follows: (15) "charitable purpose" includes relief of the poor, education, medical relief, and the advancement of any other object of general public utility: Provided that the advancement of any other object of general public utility shall not be a charitable purpose, if it involves the carrying on of any activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to ....
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.... takes in its sweep all types of suits and proceedings which are concerned with the recovery of possession of suit property from the licensee and, therefore, suits for permanent injunction restraining the Defendant from effecting forcible recovery of such possession from the licensee-Plaintiff would squarely be covered by the wide sweep of the said phrase." In Doypack System (P) Ltd. v. Union of India126, this court ruled that the expression "in relation to" is broad and is akin to the "concerning with" and "pertaining to"; and is also expansive. The court observed: "50. The expression "in relation to" (so also "pertaining to"), is a very broad expression which presupposes another subject matter. These are words of comprehensiveness which might have both direct significance as well as indirect significance depending on the context [internal citation omitted]. Assuming that the investments in shares and in lands do not form part of the undertaking but are different subject matters, even then these would be brought within the purview of the vesting by reason of the above expressions. In this connection reference may be made to 76 Corpus Juris Secundum at pages 620 and 621 where....
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....t of any other object of general public utility; and (ii) the aggregate receipts from such activity or activities during the previous year, do not exceed twenty per cent of the total receipts, of the trust or institution undertaking such activity or activities, of that previous year;" 136. The limited relief, given by the second proviso, to GPU charities (for the period 2009-2015) was that in case such GPU category charities did carry on activities undertaken in the course of actual carrying 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 income could still be exempt, if it did not exceed Rs.10,00,000 (and later, Rs.25,00,000). By the amendment of 2015, the second proviso was deleted and two conditions were introduced, with respect to permissibility of carrying on trade, commerce, etc: (i) such activity is undertaken in the course of actual carrying out of such advancement of any other object of general public utility; and (ii) the aggregate receipts from such activity or activities during the previous year, do not exceed twenty....
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....s "business, trade or commerce" and "service in relation to" such activities are meant to imply that profit motive should be completely absent. At the same time - on behalf of the assessees, it was contented that if the proscribed activities i.e., business, commerce or trade or service in relation to such activities - is not the main or dominant object of the GPU charity, any incidental involvement in such activities is permissible. Counsel on behalf of many assessees urged that some of them are statutory corporations charged with developing housing industrial infrastructure sector, regulation of professions (such as chartered accountants, etc.). It was underlined that such corporations are agencies of the state, recognized as "State" under Article 12 of the Constitution, and carry out the essential purposes for which they were set up, which otherwise state departments would have been expected to carry out. It was then emphasized that the activities of such corporations cannot be characterized as motivated by profit- rather their essential purposes are to achieve objects of general public utility. 140. In Town Investments v. Department of Environment129, it was remarked that "bus....
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.... a business carried on with profit motive. In the light of the language of the proviso to Section 155 and clause (2) of Article 289, it is not possible to say that every activity carried on by the Government is governmental activity. A distinction has to be made between governmental activity and trade and business carried on by the Government, at least for the purposes of this clause. It is for this reason, we say, that unless an activity in the nature of trade and business is carried on with a profit motive, it would not be a trade or business contemplated by clause (2). For example, mere sale of government properties, immovable or moveable, or granting of leases and licences in respect of its properties does not amount to carrying on trade or business. Only where a trade or business is carried on with a profit motive - or any property is used or occupied for the purpose of carrying on such trade or business - that the proviso [or for that matter clause (2) of Article 289] would be attracted. Where there is no profit motive involved in any activity carried on by the State Government, it cannot be said to be carrying on a trade or business within the meaning of the proviso/clause (....
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.... phrase for both (a) and (b) (which are collectively referred to as "prohibited activities" for brevity) (d) irrespective of the application of the income derived from such 'prohibited activities'. 143. The impermissibility of any trade, or commercial activity or service, and income, from them, was intended to be conveyed through the prohibition, in the first part of the definition of GPU charities. The necessary implication which arises is that income (received as fee, cess, or any other consideration) derived from such 'prohibited activities' is necessarily motivated by profit. The ordinary meaning of fee or consideration would be synonymous with something of value, usually in monetary terms. However, the use of the expression "cess" facially lends a different colour to all the three expressions. 144. "Fee, cess and any other consideration" has to receive a purposive interpretation, in the present context. If fee or cess or such consideration is collected for the purpose of an activity, by a state department or entity, which is set up by statute, its mandate to collect such amounts cannot be treated as consideration towards trade or business. Therefore, regulatory activity, n....
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....is an increment. By Schedule A(1) read with Section 3 of the Act, it is collected as an additional levy with a tax, which, as described in Schedule A, is undoubtedly one within the powers of the State Legislature and has been so even prior to the Constitution...." 146. The seven-judge bench judgment of this court in India Cement Ltd. & Ors. v. State of Tamil Nadu and Ors.132, approved the definition propounded by Hidayatulla, J. In Vijayalashmi Rice Mill and Ors. v. Commercial Tax Officers, Palakol & Ors133 this court observed that "13. Hence ordinarily a cess is also a tax, but is a special kind of tax. Generally tax raises revenue which can be used generally for any purpose by the State. For instance, the income tax or excise tax or sales tax are taxes which generate revenue which can be utilised by the Union or the State Governments for any purpose e.g. for payment of salary to the members of the armed forces or civil servants, police, etc. or for development programmes, etc. However, cess is a tax which generates revenue which is utilised for a specific purpose. For instance, health cess raises revenue which is utilised for health purposes e.g. building hospitals, giving medi....
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....icial opinions. A sufficient one, as stated in Corpus Juris and which has been quoted and cited with approval is "a benefit to the party promising or a loss or detriment to the party to whom the promise is made..... At common law every contract not under seal requires a consideration to support it, that is, as shown in the definition above, some benefit to the promisor, or some detriment to the promisee.' 56. In Salmond on Jurisprudence, the word 'consideration' has been explained in the following words. A consideration in its widest sense is the reason, motive or inducement, by which a man is moved to bind himself by an agreement. It is for nothing that he consents to impose an obligation upon himself, or to abandon or transfer a right. It is in consideration of such and such a fact that he agrees to bear new burdens or to forego the benefits which the law already allows him. 57. The gist of the term 'consideration' and its legal significance 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 any other person has done or abstained from doi....
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.... juxtaposed with the interpretation of the unamended Section 2(15) by this Court. In Surat Art Silk (supra), the principle enunciated was that so long as the predominant object of GPU category charity is charitable, its engagement in a non-charitable object resulting in profits that are incidental, is permissible. The court also declared that profits and gains from such activities which were non-charitable had to be deployed or "fed" back to achieve the dominant charitable object. 153. The paradigm change achieved by Section 2(15) after its amendment in 2008 and as it stands today, is that firstly a GPU charity cannot engage in any activity in the nature of trade, commerce, business or any service in relation to such activities for any consideration (including a statutory fee etc.). This is emphasized in the negative language employed by the main part of Section 2(15). Therefore, the idea of a predominant object among several other objects, is discarded. The prohibition is relieved to a limited extent, by the proviso which carves out the condition by which otherwise prohibited activities can be engaged in by GPU charities. The conditions are: (a) That such activities in the natu....
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....st on or after 01.06.2007 in the prescribed form and manner to the Commissioner and such a trust is registered under Section 12-AA and secondly, where the total income of the trust exceeds the maximum amount which is not chargeable to income tax in any previous year, the accounts of the trust must be audited by a chartered accountant and the person in receipt of the income should furnish such audit report in the prescribed form along with the return of income. The procedure for grant (or refusal) of registration is prescribed by Section 12AA. Section 13 enlists the circumstances under which tax exemption is unavailable to religious or charitable trusts otherwise falling under Sections 11 or 12. Section 13 therefore, has to be read with the provisions of Sections 11 and 12 for deciding eligibility of a trust's claim for exemption. Distinction between business held under Trust [Section 11(4)] and Trust carrying on business [Section 11(4A)] 155. Section 11(4) applies to cases where the business undertaking itself is the property held by a trust. Thus, where the property held in trust, or where property settled by the donor or trust creator in favour of the trustees itself is a busin....
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....)(ia) however, enacted that any income derived from a business carried on behalf of a religious or charitable trust would be entitled to exemption only if the business was carried on in the course of carrying out of a primary purpose of the trust or the work in connection with the business is mainly carried on by the beneficiaries of the trust. The revenue contended there that since clause (ia) was a special provision dealing with exemption in respect of a business carried on for and on behalf of a trust, any claim for exemption as regards the profits of such business can be made only under that provision, and if conditions laid down therein are not satisfied, the assessee cannot rely upon the general provision contained in Section 4(3)(i) to claim exemption thereunder on the ground that business is property. In Gadodia Swadeshi Stores v. Commissioner of Income Tax, Punjab138, the Lahore High Court held that the fact that the business carried on behalf of the trust failed to satisfy the two conditions in Section 4(3)(ia) was no reason for it be denied exemption if it fell within Section 4(3)(i). The court held that that the two categories mentioned in the two clauses did not exclud....
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.... its income under Section 11(1). Secondly, there is a distinction between the objects of a trust and the powers given to the trustees to effectuate the purposes of the trust. In this regard, the observations of this court, in J.K. Trust (supra) assume relevance. There, one of the questions which arose was whether the office of managing agency, which was an office of profit, was in fact settled upon trust and, therefore, could be considered to be business held under trust. The court held that for the purposes of Section 4(3)(i) of the 1922 Act, the office of managing agency was property which could be held under trust. The revenue pointed out that on the terms 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 Rs.1,00,000/-, any donations and contribution received by the trustees and all accretions thereto, and investment in securities made from time to time representing the accretions. It was contended that on the terms of the trust deed, the managing agency which was acquired on 10.09.1945 for a period of 20 years, cannot be said to be property held under trust since no p....
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....er of assets and says that the same would be the position where a person is in receipt of income by virtue of a revocable transfer of assets. Section 62 provides for the consequences of a transfer of assets for a specified period, and serves as an exception to Section 61. An assessee has to be divested of the asset before ceasing to be assessable in respect of the income from it. A mere direction that the income from the business shall be applied to the charitable objects of a trust, without there being a settlement of the business itself upon trust, does not result in any trust or legal obligation. 164. It is now, necessary to consider Thanthi Trust (supra) and its context. This court, while interpreting Section 11(4A) (as amended w.e.f. 01.04.1992) stated that the provision requires the "business income of a trust or institution to be exempt is that the business should be incidental to the attainment of objectives of the trust or institution". 165. The above observations have to be understood in the light of the facts before the court. Thanthi Trust carried on newspaper business which was held under trust. The charitable object of the trust was the imparting of education - whic....
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....n by a predominant object is no longer good law. Likewise, the ambiguity with respect to the kind of activities generating profit which could feed the main object and incidental profit-making also is not good law. What instead, the definition under Section 2(15) through its proviso directs and thereby marks a departure from the previous law, is - firstly that if a GPU charity is to engage in any activity in the nature of trade, commerce or business, for consideration it should only be a part of this actual function to attain the GPU objective and, secondly - and the equally important consideration is the imposition of a quantitative standard - i.e., income (fees, cess or other consideration) derived from activity in the nature of trade, business or commerce or service in relation to these three activities, should not exceed the quantitative limit of Rs.10,00,000 (w.e.f. 01.04.2009), Rs.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 an irrelevant factor - again emphasizing the prohibition from engaging in trade, commerce or business. 168. If one understands the definition in the ....
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....ble purpose" - and charity as defined in the Act have a wider meaning where it is the object of the institution which is in focus. Thus, the idea of providing services or goods at no consideration, cost or nominal consideration is not confined to the provision of services or goods without charging anything or charging a token or nominal amount. This is spelt out in Indian Chamber of Commerce (supra) where this Court held that certain GPUs can render services to the public with the condition that they would not charge "more than is actually needed for the rendering of the services, - may be it may not be an exact equivalent, such mathematical precision being impossible in the case of variables, - may be a little surplus is left over at the end of the year - the broad inhibition against making profit is a good guarantee that the carrying on of the activity is not for profit". 171. Therefore, pure charity in the sense that the performance of an activity without any consideration is not envisioned under the Act. If one keeps this in mind, what Section 2(15) emphasizes is that so long as a GPU's charity's object involves activities which also generates profits (incidental, or in other ....
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....pt. The effect of the seventeenth proviso to Section 10(23C) is to impose the same condition i.e., that that the trade, commerce or business activity or service relating to trade, business or commerce, should be part of the GPU's activities, to achieve its object of advancing general public utility. The other condition- which is drawn in as part of the exemption condition, is that if such trading or commercial activity takes place the receipts should be confined to a prescribed percentage of the overall receipts. Section 13(8) too reinforces the same condition. 175. In the opinion of this court, the change intended by Parliament through the amendment of Section 2(15) was sought to be emphasised and clarified by the amendment of Section 10(23C) and the insertion of Section 13(8). This was Parliaments' emphatic way of saying that generally no commercial or business or trading activity ought to be engaged by GPU charities but that in the course of their functioning of carrying out activities of general public utility, they can in a limited manner do so, provided the receipts are within the limit spelt out in Clause (ii) of the proviso to Section 2(15). D. What kinds of income or rec....
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....ublic. By way of illustration, if a corporation supplies essential food grains at cost, or a marginal mark up, another supplies essential medicines, and a 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 may exceed the quantitative limit resulting in taxation and the consequent higher 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 effect from 01.04.1962. It had excluded certain classes of income, of corporations145. This court had occasion to deal with the provision while it was in force in the GIDC case (supra) . The court had then emphasized that the expression "development" in Section 10(20A) should be understood widely; thus, all development programmes "relating to any industry" fell within the purview of "development". The court also highlighted that nothing in the IT Act laid down how a corporation could be termed as a development corporation nor was there anything mandating that fee chargeable by such corporations was confined to non-industrial activi....
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....blished or constituted by or under Central or State enactments with the object of regulating or administering any activity in the general public, is on similar lines as in the case of GPU charities. Like in the case of GPU charities, there is a prohibition by Section 10(46)(b) against such corporations, etc. engaging in commercial activity. This restriction has been introduced for the first time [as that prohibition was 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." The other condition in Section 10(46) is that the specified income to be exempted, is to be notified by the Central Government in the Official Gazette. Facially the allusion to commercial activity, appears to be in the nature of a complete bar to activities which are akin to commerce or business, yielding profit. However, what needs to be kept in mind is that the object of Section 10 is to remove from the taxable net, an entire class of receipts of income. Given this object of Section 10, the interpretation of "commercial" activity has to be on the same lines as in the case of income derive....
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....ion (supra) have declared that these bodies are involved in 'development' and are not essentially engaged in trading. In Shri Ramtanu Cooperative Housing Society (supra) this court, by a five judge bench, held that the Maharashtra Industrial Development Corporation is not a trading concern, and observed as follows: "These features of transfer of land, or borrowing of moneys or receipt of rents and profits will by themselves neither be the indicia nor the decisive attributes of the trading character of the Corporation. Ordinarily, a Corporation is established by shareholders with their capital. The shareholders have their Directors for the regulation and management of the Corporation Such a Corporation set up by the shareholders carries on business and is intended for making profits. When profits are earned by such a Corporation they are distributed to shareholders by way of dividends or kept in reserve funds. In the present case, these attributes of a trading Corporation are absent. The Corporation is established by the Act for carrying out the purposes of the Act. The purposes of the Act are development of industries in the State. The Corporation consists of nominees of the Stat....
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....expenditure. ************** ******** ********* 20. The underlying concept of a trading Corporation is buying and selling. There is no aspect of buying or selling by the Corporation in the present case. The Corporation carries out the purposes of the Act, namely, development of industries in this State. The construction of buildings, the establishment of industries by letting buildings on hire or sale, the acquisition and transfer of land in relation to establishment of industrial estate or development of industrial areas and of setting up of industries cannot be said to be dealing in land or buildings for the obvious reason that the State is carrying out the objects of the Act with the Corporation as an agent in setting up industries in the State. The Act aims at building an industrial town and the Corporation carries out the objects of the Act. The hard core of a trading Corporation is its commercial character. Commerce connotes transactions of purchase and sale of commodities, dealing in goods. The forms of business transactions may be varied but the real character is buying and selling. The true character of the Corporation in the present case is to act as an architectural....
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....been dealt with under the definition clause, i.e., Section 2(15), indicates that even though trading or commercial activity or service in relation to trade, commerce or business appears to be barred - nevertheless the ban is lifted somewhat by the proviso which enables such activities to be carried out if they are intrinsically part of the activity of achieving the object of general public utility. Furthermore, in the case of GPU charities there is a quantified limit of the overall receipts, which is permissible from such commercial activity. In the case of local authorities and corporations covered by Section 10(46) no such activities are seemingly permitted. 189. As was observed in the earlier part of this judgment - while considering whether for the period 01.0.2003 - 31.05.2011, statutory boards, corporations, etc. could have lawfully claimed to be GPU charities, this court has observed that the nature of such corporations is not to generate profit but to make available goods and other services for the benefit of public weal. If such corporations (falling within the description of Section 10(46)) applied to the Central Government for exemption, the treatment of their receipts,....
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....ic GPU charity, is set-up - whether for furthering the development or a charitable object or for carrying on trade, business or commerce or service in relation to such trade, etc.; (c) Rendition of service or providing any article or goods, by such boards, authority, corporation, etc., on cost or nominal mark-up basis would ipso facto not be activities in the nature of business, trade or commerce or service in relation to such business, trade or commerce; (d) where the controlling instrument, particularly a statute imposes certain responsibilities or duties upon the concerned body, such as fixation of rates on pre-determined statutory basis, or based on formulae regulated by law, or rules having the force of law, setting apart amenities for the purposes of development, charging fixed rates towards supply of water, providing sewage services, providing food-grains, medicines, and/or retaining monies in deposits or government securities and drawing interest therefrom or charging lease rent, ground rent, etc., per se, recovery of such charges, fee, interest, etc. cannot be characterized as "fee, cess or other consideration" for engaging in activities in the nature of trade, commerc....
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....commerce or business. It is for those amounts, that the quantitative limit in proviso (ii) to Section 2(15) applies, and for which separate books of account will have to be maintained under other provisions of the IT Act. (ii) Statutory regulatory bodies/authorities 191. During the hearings, rival contentions were made in regard to the facial nature of the public utility character of regulatory bodies. A sample special case was that of the Institute of Chartered Accountants of India (ICAI). In respect of some years, the revenue has preferred appeals and in respect of some others, the Institute has preferred appeals. Reliance was placed upon the provisions of the ICAI Act and detailed submissions were made to emphasise that it plays a pivotal role in regulating the entire universe of vocation of Chartered Accountants - i.e., selecting candidates that can undergo the educational course, setting the syllabus for the Chartered Accountancy examination; holding classes, training sessions and imparting education; conducting exams, etc. It was highlighted that the membership of the institute, i.e., those who are enrolled as Chartered Accounts has grown significantly. Whereas in the end o....
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....uncil of the Institute under Section 6 can they be known as a 'Chartered Accountant' and be entitled to practice that profession (Sections 6 and 7). The Council of the Institute is constituted under Section 9 which defines such constitution and the manner for holding elections, etc. The functions of the Council by Section 15(2A) include approving the academic courses and their contents, examining the candidates, regulation and articleship assistance, prescribing qualification for entry of persons in the register, collection of fees from members; the regulation and maintenance and status of the professional qualifications of the members of the Institute, etc. By Section 15A, universities are enabled to impart education on subjects covered by the academic courses of the Institute. However, by Section 15A(2) while awarding degrees or diplomas, their designation should not resemble or be identical to what is awarded by the Institute. The finances are regulated by Section 18. The Council is enjoined to maintain the register under Section 19 and has disciplinary powers by virtue of Section 21A, 21B and 21C of the Act. 195. These provisions of the Act clarify beyond a doubt that the Inst....
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....ocation, and also continuously monitor the conduct of its 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 a note of caution. It is important, at times, while considering the nature of activities (which may be part of a statutory mandate) that regulatory bodies may perform, whether the kind of consideration charged is vastly or significantly higher than the costs it incurs. For instance, there can be in given situations, regulatory fees which may have to be paid annually, or the body may require candidates, or professionals to purchase and fill forms, for entry into the profession, or towards examinations. If the level of such fees or collection towards forms, brochures, or exams are significantly higher than the cost, such income would attract the mischief of proviso to Section 2(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 the present batch are those related to authorities set up under the Seeds Act, 1966 (i.e, the Andhra Pradesh State ....
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.... "(b) To carry on all and any of the business of Art Silk Yarn, Raw Silk, Cotton Yarn as well as Art Silk f loth, Silk Cloth and Cotton Cloth belonging to and on behalf of the members. ********* ********** (e) To buy and sell and deal in all kinds of cloth and other goods and fabrics belonging to and on behalf of the Members." This court, nevertheless, held that since the predominant object of the assessee was trade promotion, while furthering it, the fact that some trading occurred, leading to income, did not preclude the assessee from claiming tax exemption. 202. In the opinion of this court, the change in definition in Section 2(15) and the negative phraseology - excluding from consideration, trusts or institutions which provide services in relation to trade, commerce or business, for fee or other consideration - has made a difference. Organizing meetings, disseminating information through publications, holding awareness camps and events, would be broadly covered by trade promotion. However, when a trade promotion body provides individualized or specialized services - such as conducting paid workshops, training courses, skill development courses certified by it, and hire....
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....country specific activities, aimed at catering to specified exporters, or specified class of exporters, is also service in relation to trade, commerce or business. 205. In the circumstances, it cannot be said that AEPC's functioning does not involve any element of trade, commerce or business, or service in relation thereto. Though in some instances, the recipient may be an individual business house or exporter, there is no doubt that these activities, performed by a trade body continue to be trade promotion. Therefore, they are in the "actual course of carrying on" the GPU activity. In such a case, for each year, the question would be whether the quantum from these receipts, and other such receipts are within the limit prescribed by the sub-clause (ii) to proviso to Section 2(15). If they are within the limits, AEPC would be - for that year, entitled to claim benefit as a GPU charity. (iv) Non-statutory bodies - ERNET, NIXI and GS1 India 206. ERNET is a not-for profit society, set up under the aegis of the Union Government. At one time, government functionaries, including the late President, APJ Abdul Kalam, were members, on account of their ex officio capacity. The objects of t....
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....appealed the decision of Delhi High Court in which the National Internet Exchange of India (NIXI) was held to be a GPU category charity. The materials on record show that NIXI was established in 2003 under the aegis of the Ministry of Information Technology of the Union Government for the promotion and growth of internet services in India, to regulate the internet traffic, act as an internet exchange, and undertake ".in" domain name registration. Concededly, NIXI, is a not for profit, and is barred from undertaking any commercial or business activity. Its object is to promote the interests of internet service providers and internet consumers in India, improve quality of internet service, save foreign exchange, and carry on domain name operations. It is bound by licensing conditions - which include the prohibition from altering its memorandum, without the prior consent of the Union Government. According to the submissions made on NIXI's behalf, it charges annual membership fee of Rs.1000/- and registration of second and third level domain names at Rs.500/- and Rs.250/-. The finding of the ITAT and the High Court are that NIXI's objects and functioning are by way of general public ut....
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....1 India is recognized and accepted globally. Additionally, the unique identification code can be enabled with RFID chip and other electronic technology. Being one of its kinds globally, only a GS1 registered organization can set up and promote the said system/standard within a country. These can be used for several fields including public distribution system, agriculture, health products, etc. and has been successfully used for product package labels. The utility and benefits of a universal coding system assessable by anyone across the globe, for the consumers, government, manufacturers, traders, exporters, etc. are enormous and significant. Initial registration fee of Rs. 20,000/- is charged by GS1, plus annual fee of Rs.4,000/- (enhanced to Rs. 5,000/- from financial year 2006-07 onwards) from third parties, who become subscribing members, and are entitled to use the GS1 coding system. 214. It was submitted on behalf of GS1 that it was set up as society in 1996 and sponsored by the Union Government. The Union Government representatives and the representatives of the trade bodies are its members. The activities of GS1 are extremely important and have to be characterized as involv....
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....eas for the next year i.e., as on 31.03.2008 it was Rs.1,90,50,650/-. The Revenue submitted that even where income and interest were to be excluded, the increase on a yearly basis was exponential. Likewise, it was pointed out that registration fees as on 31.03.2011 was Rs.4,24,69,850/- whereas as on 31.03.2012 it was Rs.6,07,58,100/-; subscription fee as on 31.03.2011 was Rs.1,02,06,720/-; for the next year i.e., on 31.03.2012 it was Rs.1,01,69,850/-. Likewise, the subscription renewal fees as on 31.03.2011 was Rs.4,18,62,804/- and the same head as on 31.03.2012 was Rs.4,46,71,134/-. 216. The Revenue emphasises the fact that GS1 is a monopolist organization, has exclusive licenses in relation to bar coding technology which it admittedly uses for fee or other consideration. It is highlighted that these services are provided mostly to business, trade purpose, manufacturing, etc. On the other hand, GS1 urges that it performs the important public function which enables not merely manufactures but others involved in supplies of various articles by packaging, etc., to regulate and ensure their identity. 217. In the opinion of this Court, GS1's functions no doubt is of general public ut....
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.... school and college students, members of other institutions, and other citizens; instil the ideals of cricket and educate them in the same; to select teams to represent the association in any competitive forum; to arrange, supervise, hold, encourage and finance visits of teams; to arrange or manage league and/or any other tournaments; to promote persons, meetings, competitions and matches in relation to sports; and to offer, give/distribute or contribute towards prizes, medals and awards; to lay out grounds for playing the game; and to provide pavilion, stadia, other conveniences and amenities in connection therewith. The GCA also includes within its objects, providing coaching to deserving persons in the various departments of the game of cricket; engaging professional cricketers, coaches, umpires, groundsmen, and other employees, and to pay remuneration or honorarium to them; and to start, sponsor and/or to subscribe to any fund for the benefit of such persons or their families. The GCA can collect funds for the purpose of the Association and utilise it in such manner as its Managing Committee considers desirable for the fulfilment of its objects. 220. The assessing authorities ....
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....es of equity and fairness, for which the sport of cricket is renowned." 9.7.3 The BCCI in its submission dated 21/1/2013 earned subsidy paid to SCAs and TV Subvention as stated as follows:- "13.2 PAYMENTS TO STATE ASSOCIATIONS During the year, BCCI has paid amounts to the state associations under the head "TV, Subventions to Associations". This represents payment of 70% of the revenue from sale of media rights to the state associations". Whenever a foreign team visits India, the international matches such as Test and ODI are allotted by BCCI to the state cricket associations by a rotation policy. The matches are conducted and managed by the respective state associations. It is not possible for BCCI to conduct all these matches with its own limited personnel. It is dependent on the state associations, their office bearers, their employees and their network and resources at the local centre to conduct the matches. The association manage the entire match right from provision of security to players, spectators in coordination with respective state police personnel, taking other security measures like fire prevention etc. The association incurs a good chunk of expenditure in ....
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....s. BCCI does not have the infrastructure and the resources to conduct the matches by itself and is dependent on the state associations to conduct the matches. The income from media rights is dependent on the efforts of the state associations in conducting the matches from which the media rights accrue. The division of revenues and expenditure is a matter of arrangement between the parties. Certain incomes such as sale of ticket revenues belong to the state associations, who meet the expenditure on the matches such as security for players and spectators temporary stands, operation of floodlights, Score Boards, management of crowd, insurance for the match, electricity charges, catering etc. Whereas with regard to the income from sale of media rights, the arrangement between BCCI and the State Associations has been that 70% of the revenue would belong to the State Associations. As shown, this has been the arrangement between the parties for the twenty years. The State Associations are entitled by virtue of established practice to 70% of the media right fee. It is in expectation of this revenue that the various state associations take an active part and cooperate in the conduct of the ....
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....fice to say that the very foundation of revenue's case is devoid of legally sustainable basis for the short reason that the commercialization of cricket by the BCCI, even if that be so, cannot be reason enough to invoke the proviso to Section 2(15). We are alive o learned Commissioner (DR)'s suggestion that the cricket associations cannot be seen on standalone basis as the BCCI is nothing but an apex body of these cricket associations at a collective level and whatever BCCI does is at the behest of or with the connivance of the local cricket associations, and that it is not the case that anyone can become a Member of the BCCI because only a recognized cricket association can become a Member of the BCCI. We are also alive to learned Commissioner's argument that what is being sought to be protected by the charitable status of these associations is the share of these cricket associations from the commercial profits earned by the BCCI by organizing the cricket matches. The problem, however, is that the activities of the apex body, as we have explained earlier, cannot be reason enough to trigger proviso to Section 2(15) in these cases. Whether these cricket associations coll....
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....chisees conduct matches in the stadia belonging to the State cricket association. The State association is entitled to all in-stadia sponsorship advertisement and beverage revenue and it incurs expenses for the conduct of the matches. BCCI earns revenue by way of sponsorship and media rights as well as franchisee revenue for IPL and it distributes 70 per cent, of the revenue to the member cricket association. Thus, the assessee is also the recipient of the revenue. Thus, for invoking section 12AA read with section 2(15) of the Act, the Revenue has to show that the activities are not fitting with the objects of the association and that the dominant activities are in the nature of trade, commerce and business. We do not think that by the volume of receipt one can draw the inference that the activity is commercial. The Income-tax Appellate Tribunal's view that it is an entertainment and, hence, offended section 2(15) of the Act does not appear to be correct and the same is based on its own impression on free ticket, payment of entertainment tax and presence of cheer group and given the irrelevant consideration. These considerations are not germane in considering the question as to....
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....are distinct from the BCCI. It was sought to be urged that the activity of sports and sport promotion is basically education, and hence, per se exempt. Realizing the value of inculcating sportsmanship and fostering the culture of sport, Parliament had introduced Section 10(23), to exempt income received by sports bodies. However, that was deleted w.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 that even if the court were not to consider the cricket associations to be education-related charities, they cannot be denied the status of GPU charities, having regard to the sports promotional nature of their objects. It was submitted that these bodies are primarily responsible for fostering the sport, talent spotting, nurturing it, and providing opportunities to those who have the aptitude and passion for the game of cricket. All these are objects of general public utility. It was submitted that the amounts which BCCI collects may or may not be in the course of commerce; however, what is given to the associations is subsidy, which cannot be termed as consideration for carrying on any commercia....
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....s of the Board and/or recognized by it can take part in these events. The members of the Board (entitled to vote in its election) are the state cricket associations.154 The BCCI is the country-level cricket regulator both off and on the fields, and its functions include selection of players and umpires. The International Cricket Council (of which BCCI, as the representative body of the country, is a member) possesses and exercises all the powers to regulate international competitive cricket. It also exercises disciplinary power - in case of violation of the rules, a country member or the player may be derecognized. The ICC exercises a monopoly over the sports at the international level whereas BCCI does so at the country level. BCCI recognizes bodies which are entitled to participate in the nominated tournaments. Players and umpires also are to be registered with it. 227. The game of competitive cricket, at the organizational level is structured in such a manner that BCCI has umbilical ties with the state associations. Not only are the latter, the members who constitute BCCI and elect its governing bodies, they also own vital infrastructure necessary to play cricket: such as stadi....
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....ents of various products and services, in the media. Given that (i) BCCI does not own the stadia, and uses the entire physical infrastructure of the state associations (ii) expressly negotiates on their behalf for the sale of such rights (which appear to be purely commercial contracts), the associations' assertions that they only received subsidy from BCCI, needed closer examination. 230. The income and expenditure account for the year ending on 31.03.2009 shows that the total income of the GCA was Rs.4,03,98,736.81. Of these sponsorship money was Rs.20,00,000/-; bank interest was Rs.2,21,88,527.05 and as against the head 'India v. South Africa test match', the sum of Rs.1,51,97,741/- has been shown. Of the total of Rs.2,21,02,441.45 shown as income, Rs.32,24,591.25 is shown as expenditure, only a fraction appears to have been expended towards promotion of cricket. This is apparent from the following: S. No. Details of expenditure Amounts 1. Ground equipment of District Cricket Association Rs. 29,34,394/- 2. Prize money to all teams Rs. 27,86,796/- 3. Ground expenditure Rs. 20,06,228/- 4. Cricket academy expenses Rs. 9,51,067/- 5. Coach Fee Rs. 10,06,0....
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....lose scrutiny of the expenses borne, having regard to the nature of receipts, the expenditure incurred by Cricket Associations does not disclose that any significant proportion is expended towards sustained or organized coaching camps or academies. Therefore, in the opinion of this court, the ITAT fell into error in not considering the nature of receipts flowing from the BCCI into the corpus of GCA and SCA - as well as other associations that are before this court- to determine their true character. The ITAT appears to have been swayed by the submission that the amount given by the BCCI were towards capital subsidy. 236. To determine whether a given receipt is to be characterized as falling in the revenue or capital stream, the objective for which it is given 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 Tax155 in the following terms: "It is not the source from which the amount is paid to the assessee which is determinative of the question whether the subsidy payments are of revenue or capital nature. The first proposition stated by Viscount Simon in Ostime case [2....
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....t saying that there need not be an exact correlation or a proportionate division between the receipt and the actual expenditure. This is in line with the principle that what is an adequate consideration for something which is agreed upon by parties is a matter best left to them. These observations are not however, to be treated as final; the parties' contentions in this regard are to be considered on their merit. (vi) Private trusts (a) Tribune Trust 239. The Tribune Trust was constituted pursuant to a will executed by late Sardar Dial Singh Majithia. In clause (xxi) of his Will - after nominating three trustees, the testator directed that they ought to maintain a press and a newspaper; in clause (xx) the testator directed that his property in the Tribune Press and newspaper would vest permanently in a Committee of Trustees who would thereafter maintain them and "keep up the liberal policy of the newspaper and activity and the excess income after current expenses in improving the said newspaper and place it on a footing of permanency". 240. Under the old Act, a question arose as to whether the activity of running a newspaper was one of general public utility; the revenue disal....
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....satisfied that more than 85% had been ploughed back to feed the main charitable activity. 243. It is noticed from the impugned judgment that the High Court concedes to the fact that the trust's activities were held by the Privy Council to constitute financing of objects of 'general public utility'; further that merely because thousands of newspapers were being published made no difference. It still continues to be a GPU charity. 244. The question then is whether the nature of receipts and income garnered by the Trust, in the course of actually carrying out its activity of publishing newspaper, can be characterized as "in the nature of trade, commerce or business" or "service in relation to trade, commerce or business", for any consideration. During the course of submissions, it was urged that advertisement revenue should not be treated as business or commercial receipts since that virtually is the lifeblood which sustains the activity of publication of newspapers. It was highlighted that the object of maintaining the activity of publishing and distribution of newspaper remains the advancement of general public utility, as it has the effect of both notifying and educating the gene....
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.... included organization of emergency relief centres, etc. Other objects, included promotion of moral values, eradication of child labour, dowry, etc. The assessee had entered into arrangements with the state agencies to supply mid-day meals to students of primary schools in different villages through contracts entered into with the Basic Shiksha Adhikari, District Meerut. It is a matter of record that the materials for preparation of mid-day meal was supplied by the government. The assessee society claimed that it only obtains nominal charges for preparation of mid-day meals. The assessee's claim for registration was rejected on the ground that it was involved in commercial activity. Upon appeal, the ITAT agreed with the assessee that supply of mid-day meals did not constitute business or commerce and that it promoted the objects of general public utility. 249. The revenue in its appeal contends that the assessee's only activity for the relevant year was supply of mid-day meals to primary schools. This was not relatable to any object of the society. The assessee's contention is that the state ordinarily would have carried on the activity of supply of mid-day meals. Yet, nevertheles....
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.... conclusions 253. In view of the foregoing discussion and analysis, the following conclusions are recorded regarding the interpretation of the changed definition of "charitable purpose" (w.e.f. 01.04.2009), as well as the later 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 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"); A.2. However, in the course of achieving the object of general public utility, the concerned trust, society, or other such organization, can carry on trade, commerce or business or provide services in relation thereto for consideration, provided that (i) the activities of trade, commerce or business are connected ("actual carrying out..." inserted w.e.f. 01.04.2016) to the achievement of its objects of GPU; and (ii) the receipt from such business or commercial activity or service in relation thereto, 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; a....
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....ourt in Ramtanu Cooperative Housing Society and NDMC (supra). B.2. However, at the same time, in every case, the assessing authorities would have to apply their minds and scrutinize the records, to determine if, and to what extent, the consideration or amounts charged are significantly higher than the cost and a nominal mark-up. If such is the case, then the receipts would indicate that the activities are in fact in the nature of "trade, commerce or business" and as a result, would have to comply with the quantified limit (as amended from time to time) in the proviso 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 notified body, authority, Board, Trust or Commission (by whatever name called) will require similar consideration - i.e., whether it is at cost with a nominal mark-up or 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 Central Government would have to decide....
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....tion would have to be again subjected to 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 performing public functions, such as ERNET and NIXI are engaged in important public purposes. The materials on record show that fees or consideration charged by them for the purposes provided are nominal. In the circumstances, it is held that the said two assessees are driven by charitable purposes. However, the claims of such non-statutory organisations performing public functions, will have to be ascertained on a yearly basis, and the tax authorities must discern from the records, whether the fees charged are nominally above the cost, or have been increased to much higher levels. E.2. It is held that though GS1 India is in fact, involved in advancement of general public utility, its services are for the benefit of trade and business, from which they receive significantly high receipts. In the circumstances, its claim for exemption cannot succeed having regard to amended Section 2(15). However, the Court does not rule out any future claim made and being independently assessed, if GS1 is able to satisf....
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....ption. 254. In accordance with the foregoing discussion, and summary of conclusions, the numerous appeals are disposed of as follows: (i) The revenue's appeals against the Improvement Trust, Moga158, the Hoshiarpur Improvement Trust159, Bathinda Improvement Trust160, Fazilka Improvement Trust161, Sangrur Improvement Trust162; Patiala Improvement Trust163, Jalandhar Improvement Trust164, Kapurthala Improvement Trust165, Pathankot Improvement Trust166, Improvement Trust, Hansi167, and the Special Leave Petitions filed against the Gujarat Maritime Board168 and Karnataka Water Supply and Drainage Board169 are rejected. (ii) The revenue's appeals against Ahmedabad Urban Development Authority170, the Gujarat Housing Board171, the Gandhinagar Urban Development Authority172, Rajkot Urban Development Authority173, Surat Urban Development Authority174, Jamnagar Area Development Authority175, and the Gujarat Industrial Development Corporation176 are rejected. Likewise, the revenue's appeals against Agra Development Trust177; UP Awas Evam Vikas Parishad178; Raebareli Development Authority179, Rajasthan Housing Board180; Mangalore Urban Development Authority181; Mathura Vrindavan Developme....
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....count of low tax effect. 255. This batch of matters is disposed of, in the above terms. Pending applications, if any, are dismissed. Foot Note 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 Direct Tax Laws (Amendment) Act, 1989, w.e.f. 01.04.1990; and further amended by the Finance (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. 24 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 the advancement of any other object of general public utility." 26 Gujarat Town Planning and Urban Development Act, 1976 27 Gujarat Industrial Development Act, 1962 (referred to as "GIDA") 28 Gujarat Housing Board Act, 1961. 44 (1980) 2 SCC 322 45 1989 (3) SCR 1038 46 (2002) 8 SCC 481 47 (1973) 4 SCC 194 48 "It is considered necessary to make provision for the orderly establishment and development of Industries in suitable ....
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....t into Article 19(1)(e) and Article 21 of the Constitution of India to guarantee the right to residence and settlement. 60 Federation of Chambers of Indian Commerce and Industry; Confederation of Indian Industry; Associated Chambers of Commerce and Industry of India (ASSOCHAM); The Agricultural and Processed Food Products Export Development Authority (APEDA). 61 1965 (1) SCR 614 62 (2010) 4 SCC 378 63 1964 (7) SCR 664 64 ITA No. 78 of 2016 65 Section 3 (2):- " The board shall be a body corporate by the name aforesaid having perpetual succession and a common seal with power, subject to the provisions of this Act to acquire, hold and dispose of property, both movable and immovable, and to contract, 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 70 321 ITR 73 (Del) 71 358 ITR 78 (Del) 72 360 ITR 138 (Del) 73 298 ITR (St.) 74 Quoted in ITPO v. DGIT(E) : 371 ITR 333 (Del) (hereafter "ITPO") 75 308 ITR (St.) 76 1967 (3) SCR 778 77 1981 (3) SCR 387 78 1967 (1) SCR 618 79 (1981) 2 All ER 147 80 Reported at 244 ITR 736 ....
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....f names which have been removed; (j) the regulation and maintenance of the status and standard of professional qualifications of members of the Institute; (k) the carrying out, by granting financial assistance to persons other than members of the Council or in any other manner, of research in accountancy; (l) the maintenance of a library and publication of books and periodicals relating to accountancy; (m) to enable functioning of the Director (Discipline), the Board of Discipline, the Disciplinary Committee and the Appellate Authority constituted under the provisions of this Act; (n) to enable functioning of the Quality Review Board; (o) consideration of the recommendations of the Quality Review Board made under clause (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 Act and in performance of other statutory duties as may be entrusted to the Institute from time to time. 88 (2005) 273 ITR 139 (Guj.) 89 (1992) 195 ITR 279 (Guj.) 90 (2008) 10 SCC 509 91 (1991) 188 ITR 57 (SC) 92 (1997) 3 SCC 346 93 (1997) 4 SCC 724 94 (2003) 259 ITR ....
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....ritable purposes and the work in connection with the business is mainly carried on by the beneficiaries of the institution, and separate books of account are maintained by the trust or institution in respect of such business. ..." 105 297 U.S. 216 (1936) 106 Cabell v. Markham (1945) 148 F 2d 737 107 2009 (16) SCR 618 108 1979 (1) SCR 26 109 Lohia Machines Ltd. and Ors. v. Union of India & Ors 1985 (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 legislature as a whole, and any statement made by an individual, albeit a Minister, of the intention and objects of the Act cannot be used to cut down the generality of the words used 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 the Minister stated: "Now it is true that the speeches made by the Members of the Legislature on the floor of the House when a Bill for enacting a statutory....
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....v. Purna Municipal Corporation 1991 (Supp 1) SCR 183; Municipal Corporation, Amritsar v. Senior Superintendent of Post Offices, Amritsar Division & Anr. 2004 (1) SCR 913. 136 2012(12) SCR 975 137 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 584 138 See Gadodia Swadeshi Stores v. Commissioner of Income Tax, Punjab, (1944) 12 ITR 385 139 1958 (1) SCR 65 140 (1963) 50 ITR 798 Madras. 141 (1957) 31 ITR 226 Patna. 142 "Provided also 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 trust or institution or any university or other educational institution or any hospital or other medical institution, being profits and gains of business, unless the business is incidental to the attainment of its objectives and separate books of account are maintained by it in respect of such business:" 143 Providing relief from distress to humans based on Christian values - refer to Director of Income Tax v. Bharat Diamond Bourse (2002) 10 SCC 392, and Bangalore Water Supply and Sewage Underta....