AI Drafter 
TaxTMI 
TaxTMI 
2022 (10) TMI 948
X X X X Extracts X X X X
X X X X Extracts X X X X
..... 4449/2019; C.A. No. 4957/2019; C.A. No. 213/2020; C.A. No. 783/2020; 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;....
X X X X Extracts X X X X
X X X X Extracts X X X X
....A. Provisions of the Income Tax Act, 1922 ................................................................................. 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 .........................................
X X X X Extracts X X X X
X X X X Extracts X X X X
.............. 141 A. General test under Section 2(15) ............................................................................................. 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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:....." (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 fo....
X X X X Extracts X X X X
X X X X Extracts X X X X
....profits or gains falling within the following classes shall not be included in the total income of the person receiving them:] (i) Subject to the provisions of clause (c) of sub-section (1) of section 16, any 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....an religious or charitable purposes or ceases to be accumulated or set apart for application thereto in which case it shall be deemed to be the income of the year in which it is 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.....
X X X X Extracts X X X X
X X X X Extracts X X X X
....aritable purpose' in that clause is at present so widely worded that it can be taken advantage of even by commercial concerns which, while ostensibly serving a public purpose, get fully paid for the benefits provided by them, namely, the newspaper industry which while running its concern on commercial 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....utility" in Section 2(15) of the Act. The objects were "promotional and protective of Indian trade interests and other allied service operations". A residual clause authorised the chamber "to do all other things as may be conducive to the development 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... ordinarily carried on by ordinary people for gain? Is there a built-in prescription in the constitution against making a profit? Has there been in practice, profit from this venture? Although, this last is a weak test. The mere fact that a service is rendered is no answer to chargeability 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....al obligation for the purpose of advancement of an object of general public utility within the meaning of section 2 clause (15)." 15. This court then held that the words of prohibition occurring at the end of Section 2(15) were applicable to the last category of charitable institutions, i.e., 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 in....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e whether the purpose of the trust or institution in fact involves the carrying on of an activity for profit or in other words whether an activity for profit is actually carried on as an integral part of the purpose or to use the words of Chandrachud, J, as he then was in Dharmodayam case [(1977) 4 SCC 75] , "as a matter 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Pathak, J. in Dharmadeepti v. CIT (1978) 3 SCC 499 as well as the speech of then then Finance Minister, and further observed: "17. ....It is obvious that the exclusionary clause was added with a view to overcoming the decision of the Privy Council in the Tribune case [AIR 1939 PC 208: In Re the Trustees of the Tribune, (1939) 7 ITR 415] where it was held that the object of supplying the community with an organ 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 add....
X X X X Extracts X X X X
X X X X Extracts X X X X
....all be proscribed. Even if there is no such express provision, the nature of the charitable purpose, the manner in which the activity for advancing the charitable purpose is being carried on and the surrounding circumstances may clearly indicate that the activity is not propelled by a dominant profit motive. What is necessary to be considered 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 pr....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t out by the provision contained in Section 13(1)(bb) inserted by Tax Laws (Amendment) Act, 1975." D. Relevant changes brought about to the IT Act, 1961 (Finance Act, 1983 and 1991) 20. It is pertinent to note that the judgment in Surat Art Silk was delivered on 19.11.1979. The expression "not involving the carrying on of any activity for profit" in Section 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) ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....eriods, in Assistant Commissioner of Income Tax v. Thanthi Trust (2001) 2 SCC 707; (2001) 1 SCR 727 where this court had to decide whether the assessee trust, created for establishing a newspaper "as an organ of educated public opinion for the Tamil reading public and to disseminate news and to ventilate opinion upon all matters of public interest through it." could avail of tax exemption. In 1957, 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....eater benefit than was given by section 13(1)(bb). If the object of Parliament was to give Trusts and institutions no more benefit than that given by section 13(1)(bb), the language of section 13(1)(bb) would have been employed in the substituted sub-section (4A). As it stands, all that it requires for the business income of a Trust or institution to be exempt is that the business should be incidental to the attainment 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." (....
X X X X Extracts X X X X
X X X X Extracts X X X X
....and preservation of monuments or places or objects of artistic or historic interest, 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 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:]" [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 utilit....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s court had recognized - from its earlier decisions - that the prohibition from carrying on trade or commerce activities applied only to charities meant to advance general public utility and not the other categories such as education, medical relief, or relief to the poor (which are per se exempt). 30. The ASG submitted that the judgments in Indian Chamber of Commerce and Lok Shikshana Trust (supra) were conscious of the generality of the GPU category which led Parliament to insert the restrictive 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 r....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ny income falling within any of the following clauses shall not be included- ******* ******** "(23C) any income received by any person on behalf of- (i) the Prime Minister' s National Relief Fund; or ******* ***** ***** (iv) any other fund or institution established for charitable purposes" The other amendment was introduction of Section 13(1)(bb) (w.e.f. 01.04.1977) which imposed conditions on the carrying on of business, by charitable institutions. 33. It was urged that the combined operation of Section 2(15), Section 10(23C) and Section 13(1)(bb) meant that only charities 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....and Gujarat Housing Board (hereafter "GHB"). Counsel submitted that all three corporations were established by or under statutes enacted by the Gujarat legislature; they were treated as local authority under Section 10(20) of the IT Act, as it existed till 2003. Thereafter they were treated as charitable institutions engaged in activities involved in the advancement of public utility till the amendment of 2008. Learned counsel highlighted that the AUDA was created purely for the development and redevelopment - as well as for augmentation of 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 specific....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Moreover, in the first two decisions, the law as it then stood did not contain any restriction prohibiting trade or commerce activity. Learned counsel submitted that the judgment in Indian Chamber of Commerce (supra) was specifically overruled in Surat Art Silk (supra). Therefore, it may be treated as having no precedential value on subject. Learned counsel highlighted the observations in Surat Art Silk (supra) and submitted that as long as the activities involved are mainly charitable and for advancement of public utility, its purposes are deemed 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 ful....
X X X X Extracts X X X X
X X X X Extracts X X X X
....pose which is trade, service or business.............". It was emphasised therefore that the circular and the speech of the Finance Minister during the budget clearly pointed out organisations, trust or entities which were masquerading as charitable but in reality carrying on business. On the other hand, genuine charitable organisations which generated income for their sustenance could not be denied the benefit of tax exemption under the Income Tax Act. 44. Counsel relied on the decisions in Shri Ramtanu Cooperative Housing Society Ltd. v. State of Maharashtra (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 La....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sel Mr. Kavin Gulati argued for NOIDA and relied upon the Constitution Bench judgment of this court in Commissioner of Central Excise, Bolpur v. Ratan Melting and Wire Industries (2008) 13 SCC 1 to urge that a circular cannot define an ambit of a provision. He highlighted the decision rendered by the Delhi High Court in Greater Noida Industrial Development Authority v. Union of India & Ors 2018 SccOnline Delhi 7536, where the assessee's activities were held to be not "commercial activity" within the meaning of clause (b) to S.10(46). The High Court had relied 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ommerce or business - within the meaning of first proviso to Section 2(15) of the IT Act, 1961. Reliance was placed upon Khoday Distilleries (supra), State of Tamil Nadu v. Board of Trustees of the Port of Madras53 and several other decisions54. It was argued that wherever it is intended, profit element is wholly excluded from activity - reliance was placed on provisions of the Karnataka VAT Act, The Central Goods and Service Tax Act ("CGST Act") and Section 2(31) of the IT Act. In the present context, the activities of the Board do not amount to "trade", "commerce" or "business" and the first proviso to Section 2(15) is attracted only if the primary/dominant objects are (a) in the nature 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....fore, it had accepted that the assessee's object and purpose was charitable, i.e., advancement of general public utility. Also, to reflect that there is no business/trade/commerce involved and profit motive is absent the learned counsel relied upon the decision of the assessee society to issue substantial discounts to the extent of 50% to deserving sectors like cottage industries to enable augmentation of market for such sectors, as well as the letter written by CEO-GS1 to the President GS1 (i.e. Joint Secretary, Ministry of Commerce) to permit reduction of fee from Rs.400 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 i....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ition will jeopardise its existence and functioning. 59. Ms. Radhika Suri, learned counsel argued on behalf of Bhatinda Improvement Trust and adopted the submissions of Mr. Soparkar. She urged, in addition, that it is obligatory on part of the assessee (a statutory corporation) to use the monies received for public utility purpose and the price fixation of lands/plots sold by them is also regulated through statutory regulations. Therefore, such activities qualify the test of general public utility. Ms. Suri also relied on the decision of the Delhi High Court in Greater Noida Industrial 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 exp....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tes GMB has no profit motive. It was therefore, urged that the provisions of the GMB Act, indicate the overwhelming public purpose carried out by it without profit motive and that utilization of funds is only for the purpose of development, management and safety of minor ports; all these entitles GMB to exemption. 62. Mr. Rohit Jain, learned counsel, appeared on behalf of the Education and Research Network (ERNET) and National Internet Exchange of India (NIXI). On behalf of ERNET it was submitted that it was started as a planned project of the Government of India under the Department of Electronics (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 act....
X X X X Extracts X X X X
X X X X Extracts X X X X
....is engaged in the activity of promotion of the export of all kind of ready-made garments, knitwear, and garments made of leather, jute and hemp. It does not per se engage in any activity for profit, and its mandate is to ensure that Indian apparel manufacturers, are given forums and platforms, to showcase their products. For that purpose, the AEPC charges subscriptions, and provides services, which have general public utility. These activities are by way of booking large spaces in fairs, and such like events, especially in overseas locales, so that Indian manufacturers can interact with other overseas 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 ba....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he assessee's claim that income was exempt under Section 11 of the Act. 69. During AY 2009-10 and 2010-11, the AO denied exemption under Section 11 on the ground that the newly inserted proviso to Section 2(15) was attracted; and thus the assessee was ineligible for exemption under Section 11. The AO held that the assessee was rendering services in relation to trade, commerce business for consideration and the receipt of which exceeds Rs.10 lakhs. The CIT(A) allowed the assessee's appeal following the decision of the High Court in its case, and there being no changes in the facts and circumstances of the 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 character....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed as profit, as is discussed in Krishna Warriar (supra). Profits from trade or business arising out of property held under trust for charitable purpose, if ploughed back to the extent of 100% cannot be termed as a commercial activity. This was the principal idea in omitting Section13(1)(bb) as it was considered as restrictive for carrying out such activities. It was argued that, substitution of the definition of "charitable purpose" in Section 2(15) by the Finance Act, 2008 has not changed the law. The words "in relation to any trade, commerce or business" and "for a cess, fee or consideration" in the proviso to 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. Activi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....It was also argued that the sport of cricket is a form of education and if it is not considered as a field of education, it is still an object of general public utility. The primary regulating body i.e., the BCCI, promotes sport in the entire country and worldwide, and the assessees herein are its second and third tier associations. The revenue generated by BCCI flows to state and regional cricket associations in the form of grants to maintain stadia, conduct matches, organize training camps, and other ancillary purposes. Counsel relied on the objects of Saurashtra Cricket Association which inter alia include, the control, 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, e....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... enrolled for chartered accountancy courses, so as to bring out true professionalism. Therefore, separate books of accounts are not required to be maintained in terms of Section 11(4A) read with the fifth and seventh proviso to Section 10(23C) of IT Act, 1961. It was urged that ICAI was not hit by the proviso to Section 2(15) of the IT Act (inserted w.e.f. 01.04.2009) since its activities fall within the purview of the clause "education" specified in the definition of the expression "charitable purpose" in S. 2(15) of the said Act, and not the residuary clause relating to the GPU category, wherein the proviso solely applies to the latter. 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 entitl....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... India & Ors.97 was referred to contend that it is not open for the revenue authorities, without any cogent reason and merely at its own caprices, to refuse to follow the conclusion reached on the earlier occasion, and to take up a totally different stand in subsequent years - as was done in this case while refusing to grant exemption under Section 10 (23C) of IT Act, 1961 to the ICAI. 84. Learned counsel further submitted that the present case involves two circulars issued by the Board viz. Circular No. 1/2009 dated 27.03.2009 and Circular No. 11/2008 dated 19.12.2008 which are clarificatory and not contrary to any provisions of the Act, 1961 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d that proviso to Section 2(15) applies only to the last limb i.e., "advancement of object of general public utility" and not to the preceding limb "education" and in respect of charity there is no discernible difference between the two. Since there is no intelligible differentia and rational nexus in this regard, this discrimination offends Article 14. 89. It was argued that the term "for a cess or fee or any other consideration" used in Section 2(15) is clearly violative of Article 14 as it fails to make a distinction between activities that are carried out by the State or by the instrumentalities or agencies of the State, and those carried out by 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" u....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tility". III. Analysis and reasoning 92. The history of the statute and the evolving interpretation of "charitable purpose" reveals that in - P. Krishna Warriar (supra), this court extensively considered the previous jurisprudence on the subject (in light of the pre-existing Section 4(3) of the old law), as well as the amendment introduced in 1953. At that time, income of a charitable organization, earned from business was subject to limitations. The limitations were that (i) the business was to be carried on in the course of the actual carrying out of a primary purpose of the trust or institution; or (ii) the work in connection with the business was to 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 espousin....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ulwark of the assessee's contentions- and has been the premise upon which almost all High Courts have interpreted Section 2 (15) after its amendment, in 2008. As noticed earlier, the old Act (in Section 4(3)) did not contain any terms, restricting or prohibiting charities from engaging in commercial activities or those which yielded profit. No doubt, the idea of income from business carried on "behalf of a religious or charitable institution" being exempt, provided "the business is carried on in the course of the actual carrying out of a primary purpose of the institution" was introduced by amendment, in 1953. This was interpreted in Andhra Chamber of Commerce and Krishna Warriar (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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....dustries101 it was, thus held: "In other words, the majority view in the Surat Art Silk's case (supra) was that the condition that the purpose should not involve the carrying on of any activity for profit would be satisfied if profit-making is not the real object. The theory of dominant or primary object of the trust has, therefore, been treated to be the determining factor, even in regard to the fourth head of charity, viz., the advancement of any other object of general public utility, so as to make the carrying on of business activity merely ancillary or incidental to the main object." 99. In Bar Council of Maharashtra (supra) this court considered whether a bar council, constituted 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... precursor for Section 11 under the IT Act. In other words, the structure of the old Act did not prohibit the carrying on of business; it spelt out a condition that any income derived from business "carried on in the course of the actual carrying out of a primary purpose of the institution" if applied for charitable purposes, was exempt. 102. The second aspect is that Surat Art Silk (supra), was rendered in the context of Section 2(15) of the IT Act, as it stood originally. However, by the Taxation Laws Amendment Act, 1975 (w.e.f. 01.04.1977), Section 13(1)(bb) was inserted. That provision excluded the operation of Sections 11 and 12 (under which income of charities were entitled to be exempted) in the case of 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 i....
X X X X Extracts X X X X
X X X X Extracts X X X X
....., that their incomes could be exempt under Section 11 to the extent they arose out of business, if the business was "in the course of the actual carrying out of a primary purpose of the trust"- was deleted. On the other hand, the wording of Section 11(4A) did seem to indicate that business activity was permissible if the objects of the trust were wholly charitable, and such business were to be carried on by its beneficiaries. This legal position continued, till the amendments in question were carried out, in relation to Section 2(15) in 2008. 106. Section 2 begins with the expression "unless the context otherwise requires"- as a preface to every expression which is sought to be defined, under the IT Act. The 1922 Act did not contain any words 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 importanc....
X X X X Extracts X X X X
X X X X Extracts X X X X
....on throwing light on the rest, the purpose of the legislation, the object sought to be achieved, and the consequences that may flow from the adoption of one in preference to the other possible interpretation." 111. Other decisions109 have also commented on the use of history of the legislation as a tool for its construction. It is, therefore, clear that courts can look at the previous history of the statute, and the changes it underwent to discern what is intended by the lawmakers when an amendment is introduced, or a new law enacted. In light of these factors, it would therefore, also be useful for the court to consider the background which led to the amendment - firstly in 2008 and thereafter in 2012 and 2015, seeking to restrict the nature of activities that a GPU 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 ans....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tax. In such cases, there must be complete identity between the contributors and the participants. Therefore, where industry or trade associations claim both to be charitable institutions as well as mutual organizations and their activities are restricted to contributions from and participation of only their members, these would not fall under the purview of the proviso to section 2(15) owing to the principle of mutuality. However, if such organizations have dealings with non-members, their claim to be charitable organizations would now be governed by the additional conditions stipulated in the proviso to section 2 (15)." 114. Circular No. 1/2009 dated 27.03.2009 contains explanatory notes to provisions of the Finance Act, 2008. It inter alia reads as follows: "5. Streamlining the definition of "charitable purpose" 5.1 Sub-section (15) of section 2 of the Act defines "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 sect....
X X X X Extracts X X X X
X X X X Extracts X X X X
....operation of Section 12(1B) would lead to extreme hardship, as it would cover the aggregate of all outstanding loans of past years and could have led to unreasonably high liability on shareholders to whom the loans might have been advanced. A circular [No. 20(XXI-6) /55] was issued by the Central Board of Revenue on 10.05.1955. The court, in that context, observed that: "It is clear that a circular of the kind which was issued by the Board would be binding on all officers and persons employed in the execution of the Act under s. 5(8) of the Act. This circular pointed out to all the officers that it was likely that some of the companies might have advanced loans to their shareholders as a result of genuine transactions of loans, and the idea was not to the effect such transactions and not to bring them within the mischief 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 normal....
X X X X Extracts X X X X
X X X X Extracts X X X X
....wer is given for the purpose of just, proper and efficient management of the work of assessment and in public interest." 119. The view expressed in Navnit Lal Jhaveri (supra), and later elaborated in UCO Bank (supra) appears to have found resonance in other decisions111 of this court. A recent instance where this court took aid of explanatory circulars is in CIT v. Vatika Township112 when after holding that the amendment in question applied prospectively, the court also supported that holding by citing the revenue's understanding about such prospective application, in a circular. What is of note in that judgment, is that the question of whether circulars or explanatory notes issued by the executive are binding aids of construction was not discussed; more importantly, the court first interpreted the statute, in its own terms, and then cited the circular. 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 cour....
X X X X Extracts X X X X
X X X X Extracts X X X X
....of Ellerman Lines Ltd. v. Commissioner of Income Tax, West Bengal [1971]82ITR913(SC) and the other is K.P. Varghese v. I.T. Officer, Ernakulam [1981]131ITR597(SC) . In both these cases it was assumed that Navnit Lal's case was an authority for the proposition that even if the directions given in the circular clearly deviate from the provisions of the Act, yet, the Revenue is bound by it. These three decisions were repeatedly referred to and relied on in the subsequent decisions in which the issue arose as regards the binding nature of the circulars either under the Income Tax Act or under the Central Excise Act. In between, there was the three Judge Bench decision in Sirpur Paper Mills Ltd. v. Commissioner of Wealth Tax [1970]77ITR6(SC) in which Section 13 of the Wealth Tax Act corresponding to Section 5(8) of the Income Tax Act, 1922 fell for consideration. This 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 B....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... definition clause 124. Section 2 of the Income Tax Act opens with the phrase "unless the context otherwise requires". It has been held in S.K. Gupta & Anr. v. K.P. Jain & Anr.115 that where the definition of a term is preceded by this phrase, normally, the definition given in the section "should be applied and given effect to but this normal rule can be deviated if there is something in the context to show that the definition should not be applied". This rule was also adopted in Indira Nehru Gandhi v. Shri Raj Narain and Anr.116 by Khanna, J and in Kalya Singh v. Genda Lal and Ors117. Previously, in Vanguard Fire and Insurance Company Ltd. v. M/s. Fraser and Ross and Anr.118, it was held that the term "unless the context otherwise requires" implies that the word or term so defined should be applied - subject to the context. It was held that in view of such a qualification, the 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....his court nevertheless was bound by the decision in Surat Art Silk (supra) which had ruled that: (i) A GPU category charity with a constitution granting discretion to the trustees to engage in charitable and non-charitable activities, could not claim the exemption; (ii) The main or dominant purpose of the GPU category charity had to be essentially charitable. If it was so, and it incidentally entailed carrying on activities that led to profit, it was entitled to exemption. 128. This court's understanding of the law as expressed in Thanthi Trust was therefore, coloured by the statute as it existed, and the formulation in Surat Art Silk (supra). As a result, Thanthi Trust, interpreted Section 11(4A) in this background and held that the assessee in that case incidentally was engaged in activities for profit. The court was also of the opinion that Section 11(4A) was wider than the revenue 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, Fede....
X X X X Extracts X X X X
X X X X Extracts X X X X
....usiness ordinarily there must exist the characteristics of volume, frequency, continuity and system indicating an intention to continue the activity of carrying on the transactions for a profit. But no single test or group of tests is decisive of the intention to carry on the business. " 132. The term "in relation to" was interpreted in Renusagar Power Co. Ltd. v. General Electric Co.124 in an arbitration clause - as follows: "25... (2) Expressions such as "arising out of or "in respect of or "in connection with" or "in relation to" or "in consequence of or "concerning" or "relating to" the contract are of the widest amplitude and content.." In Mansukhlal Dhanraj Jain v. Eknath Vithal Ogale125 this court underlined the amplitude to the term "relating to": "16. It is, therefore obvious that the phrase "relating to recovery of possession" as found in Section 41(1) of the Small Cause Courts Act is comprehensive in nature and 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 re....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... proviso, the resulting situation was that the first proviso (of exclusion of income through an activity as referred to) was inapplicable if the aggregate value of the receipts of such activity did not exceed Rs.10,00,000, and later by Finance Act, 2012 - this was enhanced to Rs.25,00,000. 135. The next important change took place through the Finance Act, 2015, which, w.e.f. 01.04.2016 substituted the two provisos to Section 2(15) with the following proviso: "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 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 t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....h was interpreted in Surat Art Silk). This substantial change brought about by the amendments of 2008 -2012 and 2015 is the prohibition from engaging in any kind of activity in the nature of business, commerce, or trade or any rendering any service in relation thereto, and earning income by the way of cess, fee or consideration. In the opinion of this court, the express deletion of the reference to 'activity for profit' on the one hand, and the enactment of an expanded list of what cannot be done by GPU charities if they are to retain their characteristic as charities, is an emphatic manner in which Parliament wished to express itself. 139. Counsel on both sides went to great lengths and cited several judgments for the proposition that "trade or business" are terms which imply profit-making. They relied on Khoday Distilleries (supra); M/s. Raipur Manufacturing (supra); Board of Trustees of the Port of Madras (supra), and Physical Research Laboratory v. K. G. Sharma128. It was contended by the revenue, that the reference to terms "business, trade or commerce" and "service in relation to" such activities are meant to imply that profit motive should be completely absent. At the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....lands or buildings and income? Is the ambit of proviso wider than the main limb? Is it an independent provision of a substantive nature notwithstanding the label given to it as a proviso? Or is it only an exception? It is asked. We are, however, of the considered opinion that it is more important to give effect to the language of and the intention underlying the proviso than to find a label for it. It is clarificatory in nature without a doubt; it appears to be more indeed. It is concerned mainly with the "income" (of Provincial Governments) referred to in the main limb of sub-section (1). It speaks of tax on the "lands or buildings" in that context alone, as we shall explain in the next paragraph. The idea underlying the proviso is to make it clear that the exemption of income of Provincial Government operates only where the income is earned or received by it as a Government; it will not avail where the income is earned or received by the Provincial Government on account of or from any trade or business carried on by it - that is a trade or 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ion upon the income of the other unit, the manifold activities carried on by Governments under our constitutional scheme, the necessity to maintain a balance between the Centre and the States and so on." (emphasis supplied) 141. From NDMC (supra), it is clear that not every state activity resembling commerce can be considered per se exempt from union taxation, in the context of Article 289. The court also emphasized that mere sale or lease of government property does not imply trade or business. The crucial or determinative element in the venture, so to say, is whether performance of a function is actuated by profit motive. 142. What then is the true meaning of the expressions "fee, cess or consideration"? The careful analysis of the amended proviso to Section 2(15), reveal that the prohibition applies in a four-fold manner- (a) The bar to engaging in trade, commerce or business, (b) The bar to providing any service in relation to trade, commerce or business, (c) wherein "for a fee, cess or any other consideration" is the controlling phrase for both (a) and (b) (which are collectively referred to as "prohibited activities" for brevity) (d) ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....dies - such as those which promote trade, for a section of business or industry, or are aimed at providing facilities or amenities to improve efficiencies, or platforms to a segment of business, for fee, whether charged by subscription, or specific fee, etc, may not be charitable; when they claim exemption, their cases would require further scrutiny. 145. This Court has in some decisions considered the term "cess". In Shinde Brothers Etc. v. Deputy Commissioner, Raichur and Ors.131, Justice M. Hidyatullah, (though his was a dissenting judgment, yet no contrary opinion was expressed by majority in regard to "cess") said that: "... The word "cess" is used in Ireland and is still in use in India although the word rate has replaced it in England. It means a tax and is generally used when the levy is for some special administrative expense which the name (health cess, education cess, road cess etc.) indicates. When levied as an increment to an existing tax, the name matters not for the validity of the cess must be judged of in the same way as the validity of the tax to which it is an increment. By Schedule A(1) read with Section 3 of the Act, it is collected as an additional....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s broader. The plain meaning is a monetary payment, for something obtained, in the form of goods, or services. In Commissioner of Central Excise, Mumbai v. Fiat India (P) Ltd. & Ors136 this court explained the meaning of that term: "Consideration means something which is of value in the eyes of law, moving from the Plaintiff, either of benefit to the Plaintiff or of detriment to the Defendant. In other words, it may consist either in some right, interest, profit or benefit accruing to the one party, or some forbearance, detriment, loss or responsibility, given, suffered or undertaken by the other, as observed in the case of Currie v. Misa (1875) LR 10 Ex. 153. 54. Webster's Third New International Dictionary (unabridged) defines, consideration thus: 'Something that is legally regarded as the equivalent or return given or suffered by one for the act or promise of another.' 55. In volume 17 of Corpus Juris Secundum (p.420-421 and 425) the import of 'consideration' has been described thus: 'Various definitions of the meaning of consideration are to be found in the text-books and judicial opinions. A sufficient one, as stated in Corpus Ju....
X X X X Extracts X X X X
X X X X Extracts X X X X
....oscribed. Likewise, service in relation to such activities, i.e., services relating, or pertaining to, such proscribed activities, too were forbidden. 151. The reference to fee or cess, is in the opinion of the court, only to emphasize that even a statutory consideration, for a service to business, trade or commerce, would take the activity outside the definition of a GPU charity. The sense in which the expressions "cess, fee or other consideration" are used, is that if any amount, is received for trading, or business or commercial activity, or any services to such activity, then, notwithstanding their nomenclature (as fee or cess, i.e. that they are fixed under a law) the GPU charity cannot claim tax exempt status. To bring home this even more pointedly- and underline a break from the past, the application of such amounts (received in the course of trade, commerce, or business, or towards services in relation thereto) would be irrelevant, as evidenced by the term "irrespective", in the fourth limb of reading Section 2(15). Summation of interpretation of Section 2(15) 152. Section 2(15) - in the wake of its several amendments between 2008 and 2015 - can be juxtaposed with ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....hich relate to such objects. Section 11(1-A) provides for exemption of capital gains derived by trusts. Section 11(1-B), speaks of failure to apply income as per option under Explanation (2) to Section 11(1). Section 11(2) relates to setting apart or accumulation of income. Section 11(3) deals with consequences of misapplication of income or improper investment, while Section 11(3-A) relates to modification of purposes specified in Form 10 under Section 11(2). Sections 11(4) and 11(4-A) relate to business income of charitable trusts. Lastly, Section 11(5) provides for the prescribed modes of investment in regard to the said trusts. Section 12 enacts that income of trusts created wholly for charitable or religious purpose from voluntary contributions would be deemed as income from the property held under such trust for the purposes of Sections 11 and 13 of the Act. Section 12-A prescribes the conditions for applicability of Sections 11 and 12 of the Act. It enacts two essential conditions which are to be satisfied by a charitable or religious trust for claiming exemption under those sections: firstly, that the person in receipt of the income has made an application for registration ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....57. Section 11(1) of the Act exempts income derived from property held under trust wholly for charitable or religious purposes, to the extent to which such income is applied to such purposes in India. The Act does not comprehensively define "property held under trust". Section 11(4) however, provides that for the purposes of Section 11, the words "property held under trust" "includes a business undertaking so held". Section 11(4A) as amended by the Finance (No. 2) Act, 1991 w.e.f. 01.04.1992 reads as under:- "(4A) Sub-section (1) or sub-section (2) or sub-section (3) or sub-section (3A) shall not apply in relation to any income of a trust or an institution, being profits and gains of business, unless the business is incidental to the attainment of the objectives of the trust or, as the case may be, institution, and separate books of account are maintained by such trust or institution in respect of such business." 158. The question whether Section 11(4A) applies where a business is held under trust was answered in the negative in earlier High Court judgments. The general provision under Section 4(3)(i) of the old Act exempted income derived from property held under trust....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he saving clause and the proviso taken and construed together is to prevail". So construed we find no difficulty, as we will indicate later in our judgment, in holding that the said clause (b) of the proviso deals with a case of business which is not vested in trust for religious or charitable purposes within the meaning of the substantive clause of section 4(3)(i)." 160. Therefore, to summarise on the legal position on this - if a property is held under trust, and such property is a business, the case would fall under Section 11(4) and not under Section 11(4A) of the Act. Section 11(4A) of the Act, would apply only to a case where the business is not held under trust. There is a difference between a property or business held under trust and a business carried on by or on behalf of the trust. This distinction was recognized in Surat Art Silk (supra), which observed that if a business undertaking is held under trust for a charitable purpose, the income from it would be entitled to exemption under Section 11(1) of the Act. 161. The interface between Sections 11(1) and (4) is of some importance. Firstly, under Section 11(4), it is only the business which is held under the trust ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....en either acquired with the help of the fund originally settled upon trust or the original fund settled upon trust must have a proximate connection with the later acquisition or carrying on of the business by the trustees. This distinction between a business held and carried on by a trust, or a trust business run by the trustees, was noticed, in Thiagesar Dharma Vanikam v. CIT140 by the Madras High Court and in Raja P.C. Lall Choudhary v. CIT, Bihar & Orissa141 by the Patna High Court which held similarly in relation to Section 4(3)(i) of the Act of 1922 (which corresponds to Section 11(1) of the 1961 Act). 163. What has to be examined, therefore, is whether the business itself is held under trust or is carried on by and on behalf of the trust. Importantly Section 11(1) of the Act starts with the expression "subject to the provisions of Sections 60 to 63........". Those provisions are in Chapter V of the Act. Section 60 provides for the consequences of a transfer of income where there is no transfer of assets. It says that where a person transfers merely the income from an asset without transferring the asset itself, he would continue to be chargeable to income tax. Section 6....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... education. However, the restrictive or negative terms enjoining GPU charities from carrying on profitable activity had been deleted in 1983 (w.e.f. 01.04.1984). In Surat Art Silk (supra), the court had articulated the determinative test for defining whether a Trust was a GPU charity if its predominant object was to carry out a charitable purpose and that if that was the case, the fact that it earned profit would not per se deprive it of tax exemption. This decision was interpreted in the context of Section 11(4A) by this court in Thanthi Trust, to hold that business can be incidental to attainment of the trust's objects. 167. Thus, the journey which began with Surat Art Silk was interpreted in Thanthi Trust to mean that the carrying on of business by GPU charity was permissible as long as it inured to the benefit of the trust. The change brought about by the amendments in questions, however, place the focus on an entirely different perspective: that if at all any activity in the nature of trade, commerce or business, or a service in the nature of the same, for any form of consideration is permissible, that activity should be intrinsically linked to, or a part of the GPU categor....
X X X X Extracts X X X X
X X X X Extracts X X X X
....mit imposed by sub-clause (ii) to Section 2(15) can be computed and ascertained in an objective manner. 169. The conclusion recorded above is also supported by the language of seventh proviso142 to Section 10(23C). Whereas Section 2(15) is the definition clause, Section 10 lists out what is not income. Section 10(23C) - by sub-clauses (iv) and (v) exempt incomes of charitable organisations. Such organisations and institutions are not limited to GPU category charities but rather extend to other types of charities (i.e. the per se kind as well). The controlling part of Section 10(23C) along with the relevant clauses (iv) and (v) seek to exclude income received by the concerned charities. However, the provisos hedge such exemption with conditions. The seventh proviso - much like Section 11(4A) and the definition - carve out an exception, to the exemptions such that income derived by charities from business, are not exempt. The seventh proviso virtually echoes Section 11(4A) in that business income derived by a charity (in the present case, the GPU charities) which arises from an activity incidental to the attainment of its objective is not per se excluded. 170. Classically, the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d cover the costs (including administrative expenditure) plus nominal mark up; or renting marriage halls for low amounts, again with a fee meant to cover costs; or blood bank services, again with fee to cover costs, are not activities in the nature of business. Yet, when the entity concerned charges substantial amounts- over and above the cost it incurs for doing the same work, or work which is part of its object (i.e., publishing an expensive coffee table book on Gandhi, or in the case of the marriage hall, charging significant amounts from those who can afford to pay, by providing extra services, far above the cost-plus nominal markup) such activities are in the nature of trade, commerce, business or service in relation to them. In such case, the receipts from such latter kind of activities where higher amounts are charged, should not exceed the limit indicated by proviso (ii) to Section 2(15). 174. The insertion of Section 13(8)144, the seventeenth proviso to Section 10(23C) and third proviso to Section 143(3) (all of which were inserted by Finance Act, 2012, but w.r.e.f. 01.04.2009), further reinforces the interpretation of this Court, of "charitable purpose". These provisio....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... and receive rents. 177. The answers to these, in the opinion of this court, are that the definition ipso facto does not spell out whether certain kinds of income can be excluded. However, the reference to specific provisions enabling or mandating collection of certain rates, tariffs or costs would have to be examined. Generically, going by statutory models in enactments (under which corporations boards or trust or authority by whatsoever name, are set up), the mere fact that these bodies have to charge amounts towards supplying goods or articles, or rendering services i.e., for fees for providing typical essential services like providing water, distribution of food grains, distribution of medicines, maintenance of roads, parks etc., ought not to be characterized as "commercial receipts". The rationale for such exclusion would be that if such rates, fees, tariffs, etc., determined by statutes and collected for essential services, are included in the overall income as receipts as part of trade, commerce or business, the quantitative limit of 20% imposed by second proviso to Section 2(15) would be attracted thereby negating the essential general public utility object and thus driv....
X X X X Extracts X X X X
X X X X Extracts X X X X
....charitable purposes" as defined under Section 2(15). This court also relied upon the ruling in CIT v. APSRTC (supra) where the APSRTC - constituted under the Road Transport Corporation Act, 1950 - having regard to the objectives of the Act, was held to be a GPU charity, thus entitling it to exemption in terms of the IT Act. 180. In the light of these decisions, it is evident that the revenue's narrow construction by which tax exemption is denied on the ground that if an entity is not covered by Section 10(20A) - or the newly applicable Section 10(46), it cannot claim benefit as a GPU charity under Section 11, is unsound. These two provisions confer different though overlapping benefits. If an entity does not fulfil the requirement of one provision because it does not answer the description of a body under that provision, that ipso facto is not a bar for it to claim benefit of another provision. 181. Section 10(46) re-incarnated so to say Section 10(20A), which had been deleted w.e.f. 01.04.2003. This provision, i.e., Section 10(46) was inserted with effect from 01.04.2009 retrospectively by the Finance Act, 2011146. The conditions for applicability of Section 10(46), i.e., th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....by profit, and other government bodies. The court held, correctly so - that other government bodies are not entitled to exemption as they are motivated by profit. Then, dealing with the term "commercial activity" under Section 10(46), it was held that the decisive test is whether the activities for which consideration in the form of fee, service charge etc., is collected, is "intrinsically associated, connected and had minimum nexus with the object of regulating and administering the activity for the benefit of the public". 184. It was also held that if the activity is not carried on commercial lines, i.e., with the profit motive in mind, but the body is assigned an administrative role, having regard to the objects of the controlling statute or law, exemption cannot be denied under Section 10(46). As juxtaposed, activities for profit or activities which clearly were motivated by profit - carried on by government or statutory bodies, cannot avail of exemption. The judgment in Yamuna Industrial Development Authority (supra) is along the similar lines. 185. As far as boards and corporations which are tasked with development of industrial areas, by statute, the judgments of this ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... costs and charges received by the Corporation, all moneys received by the Corporation from the disposal of lands, buildings and other properties and all moneys received by the Corporation by way of rents and profits or in any other manner. The Corporation shall have the authority to spend such sums out of the general funds of the Corporation or from reserve and other funds. The Corporation is to make provision for reserve and other specially denominated funds as the State Government may direct. The Corporation accepts deposits from persons, authorities or institutions to whom allotment or sale of land, buildings, or sheds is made or is likely to be made in furtherance of the object of the Act. A budget is prepared showing the estimated receipts and expenditure. The accounts of the Corporation are audited by an auditor appointed by the State Government. These provisions in regard to the finance of the Corporation indicate the real role of the Corporation viz. the agency of the Government in carrying out the purpose and object of the Act which is the development of industries. If in the ultimate analysis there is excess of income over expenditure that will not establish the trading ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....zed by law, to levy rates and charges, for the services they provide, on pre-determined basis. In the light of these provisions, clearly, these boards and authorities perform objects of general public utility; and they are not driven by profit motive. 187. There is a two-fold distinction between the now-deleted Section 10(20A) and the newly added Section 10(46) (w.e.f. 01.06.2011). Firstly, that the erstwhile Section 10(20A) applied to a limited class of undertaking i.e., the bodies, or corporations, constituted by or under any law-confined to the planning and development of housing infrastructure. However, the newly added Section 10(46) is wider in comparison and the activities of any body or authority or board constituted by or under any central or State Act with "the object of regulating or administering any activity for the benefit of the general public", has broader import. In a sense, the newly added Section 10(46), resembles a GPU category charity classified under Section 2(15). The second distinction is that Section 10(20A) did not bar any board, or corporations, etc. from indulging in commercial activities. However, sub-clause (b) of Section 10(46) imposes such a bar, a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....soever names called) in the housing development, town planning, industrial development sectors are involved in the advancement of objects of general public utility, therefore are entitled to be considered as charities in the GPU categories. (iii) Such statutory corporations, boards, trusts authorities, etc. may be involved in promoting public objects and also in the course of their pursuing their objects, involved or engaged in activities in the nature of trade, commerce or business. (iv) The determinative tests to consider when determining whether such statutory bodies, boards, authorities, corporations, autonomous or self-governing government sponsored bodies, are GPU category charities: (a) Does the state or central law, or the memorandum of association, constitution, etc. advance any GPU object, such as development of housing, town planning, development of industrial areas, or regulation of any activity in the general public interest, supply of essential goods or services - such as water supply, sewage service, distributing medicines, of food grains (PDS entities), etc.; (b) While carrying on of such activities to achieve such objects (which ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....thority, etc. while actually furthering a GPU object, carries out activities that entail some trade, commerce or business, which generates profit (i.e., amounts that are significantly higher than the cost), and the quantum of such receipts are within the prescribed limit (20% as mandated by the second proviso to Section 2(15)) - the concerned statutory or government organisations can be characterized as GPU charities. It goes without saying that the other conditions imposed by the seventh proviso to Section 10(23C) and by Section 11 have to necessarily be fulfilled. (v) As a consequence, it is necessary in each case, having regard to the first proviso and seventeenth proviso (the latter introduced in 2012, w.r.e.f 01.04.2009) to Section 10(23C), that the authority considering granting exemption, takes into account the objects of the enactment or instrument concerned, its underlying policy, and the nature of the functions, and activities, of the entity claiming to be a GPU charity. If in the course of its functioning it collects fees, or any consideration that merely cover its expenditure (including administrative and other costs plus a small proportion for provision) - suc....
X X X X Extracts X X X X
X X X X Extracts X X X X
....year was Rs.1.0691 lakhs. As against that, the Revenue earned from generation of fees for the corresponding year which was Rs.1.78 crores and the corresponding expenditure was Rs.96.93 lakhs. The corresponding figures for FY 2011-12 for salaries was Rs.2.94 crores. The depreciation was Rs.4.05 crores. The total expenditure thus was Rs. 6.9 crores. As against this, the amount received towards fees was Rs.6.36 crores and expenditure incurred towards coaching, including salaries, provisions of course material, etc. was Rs.4.34 crores. The surplus (without including administrative expenditure) for that year was Rs.2.01 crores. The Institute apparently cannot distribute the surplus or utilise it for any activity other than what is set out under the controlling statute and its rules. 193. The Revenue highlighted that conducting courses leading to a professional qualification and charging fees for it is in the nature of a 'service', and all services in relation to trade, commerce or business squarely falls within the mischief of Section 2(15), which has to preclude the institute's claim for exemption as a GPU charity. 194. The Institute is a creature of the Institute of Chartered Ac....
X X X X Extracts X X X X
X X X X Extracts X X X X
....y other duties which it performs. It, therefore, clearly falls in the description of a charity advancing general public utility. Having regard to the previous discussion on the nature of charities and what constitutes activities in the 'nature of trade, business or commerce', the functions of the Institute ipso facto does not fall within the description of such 'prohibited activities'. The fees charged by the Institute and the manner of its utilisation are entirely controlled by law. Furthermore, the material on record shows that the amounts received by it are not towards providing any commercial service or business but are essential for the providing of service to the society and the general public. 196. Similarly, there are several other regulatory bodies that discharge functions which are otherwise within the domain of the State. A singular characteristic of ICAI and other statutory bodies which can be said to regulate specific functions and professions (including the profession of Cost and Work Accountants, and Company Secretary, etc.) is the powers conferred upon them by the statutes to prescribe standards and enforce them through disciplinary sanctions. Therefore, it is he....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ore, pivotal for food security - essential as they ensure efficacy of seeds and guarantee to the farmers that they can be relied upon. The essential nature of the regulatory function performed by these certification agencies is obvious. The nature of their activities is not by way of trade, commerce or business, nor service in relation to trade commerce, business, for some form of consideration. (iii) Trade Promotion bodies, councils, associations or organizations 200. Surat Art Silk (supra) and other decisions, had ruled that as long as the objects of trade promotion bodies were for general public utility - wherein 'trade promotion' in itself, was held to be a GPU - the fact that incidentally these bodies carried on some commercial activity, leading to profit, did not preclude them from claiming to be driven by charitable purpose. As observed earlier, the enunciation of those principles were in the context of the unamended Section 2(15). 201. The question that arises is whether the change in definition impacts the claims of trade promotion bodies, federations of commerce, or such organizations, that they are GPU charities . The judgment in Surat Art Silk (supra) proceeded....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ls in the industry; guide in sourcing machinery; to serve as a body advising, providing information on market or technical intelligence; assisting the concerned industry in obtaining import licenses; showcase the best capabilities of Indian garment exports through the prestigious "India International Garment Fair" organised twice a year by AEPC, etc. These fairs host over 350 participants who exhibit their garment designs and patterns. Other functions are to provide information, and to provide market research. AEPC also assists in developing new design patterns and garments and to perform promotional activities in individual foreign markets. Further, AEPC sends missions and trade delegations abroad, who participate in international fairs; and conducts surveys to gather information on potential export of ready-made garments. 204. As part of its functioning, it also books bulk space, which is then rented out to individual Indian exporters, who showcase their products and services, and ultimately secure export orders. Towards these services, i.e., booking and providing space, AEPC charges rentals. Now, these rents are not towards fixed assets owned by it. They are in fact charges, ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....twork. It provides services through its 15 Points of Presence (PoPs) located across the country. All those are equipped to provide access to Intranet, Internet and Digital Library through trial leased circuits and radio links to the user institutions. The PoP at STPI Bengaluru provides Intranet and Internet access through Satellite. ERNET provides, services, namely, Network Access Services, Network Applications Services, Hosting Services, Operations Support Services und Domain Registration Services under srnet.in, ac.in, edu.in & res.in domains. Funded through government grants, its projects support educational networks and development of internet infrastructure in numerous other segments of society. 208. Having regard to the nature of ERNET's activities, it cannot be said that they are in the nature of trade, commerce or business, or service, towards trade, commerce or business. It has to receive fees, to reimburse its costs. The materials on record nowhere suggest that its receipts (in the nature of membership fee, connectivity charges, data transfer differential charges, and registration charges) are of such nature as to be called as fees or consideration towards business, tr....
X X X X Extracts X X X X
X X X X Extracts X X X X
....public purpose of regulatory activity but is involved in trade, commerce, or business or in providing service in relation thereto, cannot be accepted. 212. The next assessee under consideration - is GS1 India. GS1 codes were developed and created by GS1 International, Belgium (an international not-for-profit under Belgium tax law). This coding system has been in use worldwide and is even mandatory for some services/goods, or adopted for significant advantages being a singular identification system, recognized and accepted all over the world. The code promotes universal standard in Electronic Data Inter-exchanged (EDI) and other services. This system of coding has been accorded priority by the Government of India as it is a compulsory requirement on products exported from India. Government of India had set up non-profit organizations EAN India, now known as GS1 India (the assessee). 213. Counsel on behalf of GS1 India, submitted that GS1 is affiliated and conferred exclusive rights relating to GS1 coding in India. The GS1 code on a product, provides a unique identification to it with wide ranging benefits and advantages which facilitate tracking, tracing of the product, produc....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... a case of commercial exploitation of intellectual property rights to earn profits (as contended by the Revenue), but rather a case where a token fee has been fixed and payable by the user of the global identification system. Clause 44 of GSI's Memorandum of Association of the petitioner stipulates that it is a "Not-for-Profit" society and the funds/receipts are to only be used for promotion of objects of the society for which it is established, including sustenance and expansion. 215. The revenue contended that although GS1 India has a monopoly, the mere fact that it is stated to be a Not for Profit Society with some governmental involvement in its management would not detract from its essential nature; which is to sub-serve the interest of the business community. It was elaborated in this context that GS1 by providing bar codes and the coding system secured by license, not only exploits the intellectual property rights but is in fact engaged in services in relation to trade, commerce or business. Counsel pointed to the fact that the revenues of GS1 has steadily increased over the years. It was pointed out that according to the balance sheet the aggregate registration fees rece....
X X X X Extracts X X X X
X X X X Extracts X X X X
....terials on record show that the coding services are used for commercial or business purposes. Having regard to these circumstances, the Court is of the opinion that the impugned judgment and order calls for interference. (v) State Cricket Associations 218. The revenue has preferred appeals against the decision of the Gujarat High Court in respect of orders made in the cases of the Gujarat Cricket Association, the Saurashtra Cricket Association, Baroda and Rajkot Cricket Associations and the decision of the Rajasthan High Court, in respect of the Rajasthan Cricket Association. The main facts, relevant for deciding the questions involved are set out in the order of the ITAT151 against which the Gujarat High Court rendered the impugned judgment152. Since the legal issues are common in relation to all these matters, the facts relating to the Gujarat Cricket Association (GCA) may be considered for convenience. 219. The objects of GCA (and other associations) are to control, supervise, regulate, promote or encourage, and develop the game of cricket in the area under its jurisdiction. The association can also undertake any other and all activities which may be beneficial to it. G....
X X X X Extracts X X X X
X X X X Extracts X X X X
....of the Act to BCCI. The stand taken by BCCI during its assessment proceedings is mentioned below. The BCCI vide its submission dated 03/12/2012 to the AO has explained its relationship with State Cricket Association as follows:- "1. BCCI is society registered under the Tamil Nadu Societies Registration Act. It was formed in the year 1929 with the object of promotion and development of cricket in India and is a member of the International Cricket Council (ICC) the regulatory body for world cricket. As a member of ICC, BCCI represents India in bilateral tours between member countries and in ICC tournaments such as the World Cup. 2. BCCI has 30 members out of whom 25 are state cricket associations, 2 are private clubs and 3 are Central Government Institutions. BCCI does not own or manage the infrastructure and facilities that are required for cricket. It encourages and oversees the various state associations to promote the game, build the required infrastructure organize tournaments, leagues, coaching camps etc. in their respective states. Whenever a foreign team visits India, the international matches such as Test and ODI are allotted by BCCI to the State Cricket As....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... respect of revenues from sale of media rights, an arrangement has evolved over time. Until 1991-92 the income from media rights was meager. With the growth in income from media rights, it became necessary to optimize the arrangement for sale of media rights. For a Test series or ODI series conducted in multiple centers and organised by BCCI and multiple state associations, it was found that if each state association were to negotiate the sale of rights to events in its centre, its negotiating strength would be low. It was, therefore, agreed that BCCI would negotiate the sale of media rights for the entire country to optimize the income under this head. It was further decided that out of the receipts from the sale of media rights 70% of the gross revenue less production cost would belong to the state associations. Every year, BCCI has paid out exactly 70% of its receipts from media rights (less- production cost) to the state associations. This amount has been utilized by the respective associations to build infrastructure and promote cricket, making the game more popular, nurturing and encouraging cricket talent, and leading to higher revenues from media rights. **********....
X X X X Extracts X X X X
X X X X Extracts X X X X
....er, the case of the revenue authorities hinges on the allegation that the way and manner in which cricket matches are being organized, particularly the IPL matches, the activity of organizing cricket matches is nothing but brute commerce. Undoubtedly, it would appear that right from the time Kerry Packer started his World Series Cricket in 1977, there has been no looking back in commercialization of cricket and the impact of this commercialization has not left Indian cricket intact. The Indian Premier League and the rules of the game being governed by the dictates of commercial considerations may seem to be one such example of commercialization of Indian cricket. The difficulty for the case of the revenue before us, however, is that these matches are not being organized by the local cricket associations. We are told that the matches are being organized by the Board of Cricket Control of India, but then, if we are to accept this claim and invoke the proviso to Section 2(15) for this reason, it will amount to a situation in which proviso to Section 2(15) is being invoked on account of activities of an entity other than the assessees- something which law does not permit. We are not re....
X X X X Extracts X X X X
X X X X Extracts X X X X
....id to be inherent in planning the matches. As we make these observations, and as we do not have the benefit of hearing the perspective of the BCCI, we make it clear that these observations will have no bearing on any adjudication in the hands of the BCCI. Suffice to say that so far as the cricket associations are concerned, the allegations of the revenue authorities have no bearing on the denial of the status of 'charitable activities' in the hands of the cricket associations before us- particularly as learned Commissioner has not been able to point out a single object of the assessee cricket associations which is in the nature of trade, commerce or business, and, as it is not even in dispute that the objects being pursued by the assessee cricket associations are "objects of general public utility" under section 2(15). All the objects of the assessee cricket associations, as reproduced earlier in this order, unambiguously seek to promote the cricket, and this object, as has been all along accepted by the CBDT itself, an object of general public utility." 222. In granting relief, the ITAT was persuaded by the decision of the Madras High Court, in Tamil Nadu Cricket Associ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....o doubt on the genuineness of the objects of the trust. Hence, it is for the Assessing Officer to take note of all facts, while considering the same under section 11 of the Income-tax Act, 1961. We disapprove the approach of the Tribunal in this regard. In the above said circumstances, we set aside the order of the Income-tax Appellate Tribunal." 223. The ITAT agreed with the assessees that TV subsidy amounts received by the associations were "corpus donations" in furtherance of the BCCI's resolution dated 05.09.2001. It accordingly held that these amounts were in the capital field, irrespective of whether they were fully utilized by the state association, or whether some part of it, was given to district associations. Thus, for AY 2009-2010, the sum of Rs.3,52,86,521 paid by BCCI to GCA was subsidy, falling in the capital field. 224. It was urged on behalf of the Revenue that the cricket associations are not carrying on any charitable activity; reliance was placed on the facts to say that substantial amounts were received by the state associations, towards their share of sale of media rights (as constituents or members of BCCI), which are commercial receipts. Although the sale ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ecause as a result of travelling you acquire fresh knowledge. Likewise, if you read newspapers and magazines, see pictures, visit art galleries, museums and zoos, you thereby add to your knowledge. Again, when you grow up and have dealings with other people, some of whom are not straight, you learn by experience and thus add to your knowledge of the ways of the world. If you are not careful, your wallet is liable to be stolen or you are liable to be cheated by some unscrupulous person. The thief who removes your wallet and the swindler who cheats you teach you a lesson and in the process make you wiser though poorer. If you visit a night club, you get acquainted with and add to your knowledge about some of the not much revealed realities and mysteries of life. All this in a way is education in the great school of life. But that is not the sense in which the word "education" is used in clause (15) of Section 2. What education connotes in that clause is the process of training and developing the knowledge, skill, mind and character of students by formal schooling." Therefore, there is no doubt that the claim of the present sport associations will not fall within 'education' and wi....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... from these, media rights - i.e., broadcasting rights to each national or international event conducted at various locales owned by the state associations, and digital rights (all of which are exclusive, in nature) - are auctioned by BCCI. As noticed above, the BCCI, by its own admission, negotiates the terms on which media rights are sold, on behalf of the state associations: "For a Test series or ODI series conducted in multiple centers and organised by BCCI and multiple state associations, it was found that if each state association were to negotiate the sale of rights to events in its centre, its negotiating strength would be low. It was, therefore, agreed that BCCI would negotiate the sale of media rights for the entire country to optimize the income under this head. It was further decided that out of the receipts from the sale of media rights 70% of the gross revenue less production cost would belong to the state associations. Every year, BCCI has paid out exactly 70% of its receipts from media rights (less- production cost) to the state associations. This amount has been utilized by the respective associations to build infrastructure and promote cricket, making the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....03.2012, various heads of income have been disclosed. These include entry fees which is Rs.5200 onwards. Interest of income received from Fixed Deposits was to the tune of Rs.8,85,67,418/-; total amount of subsidy received from BCCI is Rs.17,56,72,490/-. Of these, the overwhelming share is towards the IPL money collected by the BCCI - wherein Saurashtra Cricket Association's share worked out to a total of Rs.17,16,32,490/-. 233. Apart from this, the BCCI also reimbursed to Saurashtra Cricket Association the sum of Rs.73,73,911/-. The income and expenditure account shows a head titled "subvention income from BCCI" to the extent of Rs.8,14,53,834/-. After deducting the heads of expenditure, excess of income over expenditure for the AY was Rs.69,96,537/-. The Cricket Association showed in the expenditure column that the sum of Rs.24,00,00,000/- was transferred to the Cricket infrastructure fund. For the previous year, a sum of Rs.21,21,00,000/- was transferred to the stadium fund. 234. It is quite evident that the activities of the cricket associations are run on business lines. The associations own physical and other infrastructure, maintain them, have arrangements for permanen....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Association. The stadia which form the venue for these cricket matches (in relation to which media rights are transferred or licensed) are owned by the State Cricket Associations. According to the BCCI itself, the State Associations can well bargain and enter into arrangements for the sale of such media rights. However, to obtain better terms, and gain bargaining leverage a centralized form of sale of such rights has been agreed and adopted by which the BCCI auctions these rights on behalf of the State Associations. All State Associations put together are entitled to 70% of the revenue - i.e., the proceeds of sale of the media rights. This may or may not be in proportion to the events hosted by each or some of the cricket associations. Yet, this forms part of the arrangement by which the consideration flowing from such commercial rights has been agreed to be shared amongst all members of the BCCI. These rights are apparently commercial. 238. In the light of these, the Court is of the opinion that the ITAT - as well as the High Court fell into error in accepting at face value the submission that the amounts made over by BCCI to the cricket associations were in the nature of infra....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the revised return of the trust, the Revenue was of the opinion that it was not entitled to claim exemption under Section 10(23C). The Punjab and Haryana High Court which dealt with the Trust's present appeal was of the opinion that in Surat Art Silk (supra), this court had considered the judgment of the Privy Council. In that judgment, this Court had made some observations that even though the activity of the publication of newspaper was carried on commercial lines with the object of earning profit, it was an activity engaged by the Trust for the purposes of carrying out its charitable objects. The High Court upheld the revenue's contention and based upon its analysis of Section 2(15) concluded that the Trust's income derived from its activities were based on profit motive. In doing so, it was noticed that 85% of the trust's revenue was from advertisements and interest. The total revenue was Rs.161 crores out of which Rs.124.87 crores was received from advertisements and Rs.11.38 crores from interest on FDRs; Rs.17.49 crores was from sale of newspapers and Rs.3.74 crores from subscriptions of the dailies. 242. It was argued on behalf of the trust that it was never intended and ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r holding that publishing such advertisements by the Trust does not constitute business. The object of the trust to involve or engage in publication of newspapers. Publishing advertisements is obviously to garner receipts which are in the nature of profit. Now, by virtue of the amended definition of Section 2(15), GPU charities can engage themselves in business or commercial activity or profit, only if the receipts from such activities do not exceed the quantitative limit of the overall receipts earned in a given year. While the assessee's contention that publication of advertisement is intrinsically linked with newspaper activity (thereby fulfilling sub-clause (i) of the proviso to Section 2(15), i.e. an activity in the course of actual carrying on of the activity towards advancement of the object) is acceptable, nevertheless, the condition imposed by sub-clause (ii) of the proviso to Section 2(15) has to also be fulfilled. In the present case, that percentage had been exceeded, as evident from the record. 246. In the light of the foregoing discussion, this court is of the opinion that the impugned judgment and order of the Punjab and Haryana High Court cannot be sustained, to ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....als. In the absence of fuller material, it would not be possible for the court to assess the activity with which the assessee was engaged, and determine whether it could be said to legitimately fall within the description of GPU. 251. The first consideration would be whether the activity concerned was or is in any manner covered by the objects clause. Secondly, the revenue authorities should also consider the express terms of the contract or contracts entered into by the assessee with the State or its agencies. If on the basis of such contracts, the accounts disclose that the amounts paid are nominal mark-up over and above the cost incurred towards supplying the services, the activity may fall within the description of one advancing the general public utility. If on the other hand, there is a significant mark-up over the actual cost of service, the next step would be ascertain whether the quantitative limit in the proviso to Section 2(15) is adhered to. It is only in the event of the trust actually carrying on an activity in the course of achieving one of its objects, and earning income which should not exceed the quantitative limit prescribed at the relevant time, that it can b....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ces or goods provided on cost or nominal basis would normally be excluded from the mischief of trade, commerce, or business, in the body of the judgment. A.4. Section 11(4A) must be interpreted harmoniously with Section 2(15), with which there is no conflict. Carrying out activity in the nature of trade, commerce or business, or service in relation to such activities, should be conducted in the course of achieving the GPU object, and the income, profit or surplus or gains must, therefore, be incidental. The requirement in Section 11(4A) of maintaining separate books of account is also in line with the necessity of demonstrating that the quantitative limit prescribed in the proviso to Section 2(15), has not been breached. Similarly, the insertion of Section 13(8), seventeenth proviso to Section 10(23C) and third proviso to Section 143(3) (all w.r.e.f. 01.04.2009), reaffirm this interpretation and bring uniformity across the statutory provisions. B. Authorities, corporations, or bodies established by statute B.1. The amounts or any money whatsoever charged by a statutory corporation, board or any other body set up by the state government or central governments, for achieving....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rs C.1. The income and receipts of statutory regulatory bodies which are for instance, tasked with exclusive duties of prescribing curriculum, disciplining professionals and prescribing standards of professional conduct, are prima facie not business or commercial receipts. However, this is subject to the caveat that if the assessing authorities discern that certain kinds of activities carried out by such regulatory body involved charging of fees that are significantly higher than the cost incurred (with a nominal mark-up) or providing other facilities or services such as admission forms, coaching classes, registration processing fees, etc., at markedly higher prices, those would constitute commercial or business receipts. In that event, the overall quantitative limit prescribed in the proviso to Section 2(15) (as amended from time to time) has to be complied with, if the regulatory body is to be considered as one with 'charitable purpose' eligible for exemption under the IT Act. C.2. Like statutory authorities which regulate professions, statutory bodies which certify products (such as seeds) based on standards for qualification, etc. will also be treated similarly. D. Tra....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ential order needs to be issued, the same shall be done and resulting actions, including assessment orders shall be passed in accordance with the law under relevant provisions of the IT Act. G. Private Trusts So far as the appeal by assessee-Tribune Trust is concerned, it has been held that despite advancing general public utility, the Trust cannot benefit from exemption offered to entities covered by Section 2(15) as the records reveal that income received from advertisements, constituted business or commercial receipts. Consequently, the limit prescribed in the proviso to Section 2(15) has to be adhered to for the Trust's claim of being as a charity eligible for exemption, to succeed. Therefore, despite differing reasoning, this court has held that the impugned judgment of the High Court does not call for interference. H. Application of interpretation H. At the cost of repetition, it may be noted that the conclusions arrived at by way of this judgment, neither precludes any of the assessees (whether statutory, or non-statutory) advancing objects of general public utility, from claiming exemption, nor the taxing authorities from denying exemption, in the future, if the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n Certification Agency is rejected, whereas SLP (C) No. 15547/2013 filed by Andhra Pradesh State Seed Certification Agency is allowed for the same reasons. (v) The revenue's appeal against APEC succeeds in part. The impugned judgment of the High Court is set aside; the matter is remitted for the concerned years, to the Assessing Officer. SLP (C) No. 14995/2019 is allowed, in the above terms. (vi) In relation to the non-statutory bodies - the revenue's appeal against ERNET fails, and SLP (C) No. 15040/2019 is hereby dismissed; and similarly the impugned judgment in relation to NIXI is confirmed - SLP(C) No. 15079/2019 is therefore dismissed. However, the revenue's appeals against GS1 - C.A. No. 5058/2014 and C.A. No. 4374/2015, are hereby allowed and the impugned judgments are set aside, for the reasons elaborated in the body of the judgment. (vii) The revenue's appeals against the cricket associations before this court succeed in part, and the impugned judgments of the Gujarat High Court and Rajasthan High Court are hereby set aside. The matter is remitted to the concerned authorities for determination of the question afresh in the light of the above disc....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s" basis. 50 * Section 5 - Established and incorporated for securing the establishment of industrial areas in the State of Karnataka and generally for promoting the rapid and orderly establishment and development of industries and for providing industrial infrastructual facilities and amenity in industrial areas in the State of Karnataka. * Section 6 - All the members of the Board are government officials; * Section 46 - the members & other employees of the Respondent are deemed to be public servants. * Section 3 & 28 - Government of Karnataka (GOK) that acquires the land from the public. * Section 29 - GOK determines the price and pays the compensation. * Section 43 - No duty under the Karnataka Stamp Act, 1957, or fees under the Indian Registration Act, 1908. 51 (2011) 6 SCC 714 52 (2006) 4 SCC 683 53 1999 (2) SCR 195 (hereafter, "Board of Trustees of the Port of Madras") 54 State of Karnataka v. Shreyas Papers Pvt. Ltd. AIR 2006 SC 865; Ashoka Smokeless Coal India (P) Ltd. v. Union Of India (2007) 2 SCC 640; New Delhi Municipal Committee v. State of Punjab 1996 Supp 10 SCR 472; and Physical....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d to the certification agency by or under this Act". 82 (2018) 11 SCC 508 83 (1980) 2 SCC 322 84 Halsbury's Laws of England, Vol. 32 para 487 85 "the expression 'business' though extensively used is a word of indefinite import, in taxing statutes it is used in the sense of an occupation, or profession which occupies the time, attention and labour of a person, normally with the object of making profit. To regard an activity as business there must be a course of dealings, either actually continued or contemplated to be continued with a profit motive, and not for sport or pleasure. But to be a dealer a person need not follow the activity of buying, selling and supplying the same commodity. Mere buying for personal consumption i.e. without a profit motive will not make a person a dealer within the meaning of the Act, but a person who consumes a commodity bought by him in the course of his trade, or use in manufacturing another commodity for sale, would be regarded as a dealer". 86 (1995) 2 SCC 161 87 15. Functions of Council (1) The Institute shall function under the overall control, guidance and supervision of the Council and the d....
X X X X Extracts X X X X
X X X X Extracts X X X X
....5. Streamlining the definition of "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. 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 12 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 advancemen....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rue that the speeches made by the Members of the Legislature on the floor of the House when a Bill for enacting a statutory provision is being debated are inadmissible for the purpose of interpreting the statutory provision but the speech made by the Mover of the Bill explaining the reason for the introduction of the Bill can certainly be referred to for the purpose of ascertaining the mischief sought to be remedied by the legislation and the object and purpose for which the legislation is enacted." Other decisions following the same approach are Ramesh Yeshwant Prabhoo v. Prabhakar Kashinath Kunte 1995 (Supp 6) SCR 371; Novartis AG v. Union of India (2013) 6 SCC 1; Surana Steels (P) Ltd. v. Commissioner of Income Tax 1999 (2) SCR 589 and Kalpana Mehta & Ors. v. Union of India (UOI) and Ors 2017 (7) SCC 295. 111 Ellerman Lines Ltd. v. Commissioner of Income tax 1972 (2) SCR 168; K.P. Verghese v. Commissioner of Income Tax 1982 (1) SCR 629; Union of India v. Azadi Bachao Andolan 2003 (Supp 4) SCR 222 112 (2015) 1 SCC 1 113 1992 (2) SCC 231 114 2004 (2) SCR 511 115 (1979) 3 SCC 54. 116 (1975) Supp. SCC 1 117 (1975) 3 SCR ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ess 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 Undertaking v. A Rajappa (1978) 2 SCC 213. 144 "(8) Nothing contained in section 11 or section 12 shall operate so as to exclude any income from the total income of the previous year of the person in receipt thereof if the provisions of the first proviso to clause (15) of section 2 become applicable in the case of such person in the said previous year." 145 Incomes not included in total income. 10. In computing the total income of a previous year of any person, any income falling within any of the following clauses shall not be included- xxxxxx xxxxxx xxxxxx (20A) any income of an authority constituted in India by or under any law enacted either for the purpose of dealing with and satisfying the need for housing accommodation or for the purpose of planning, development or improvement of cities, towns....