Judgment sc-2022-15-899-1065

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

23Copy pinpoint23. For the third period (1992-93 to 1996-97), the court dealt with the meaning and effect of Section 11(4A) (amended and substituted w.e.f. 01.04.1992) and held that the assessee trust was entitled to be treated as a charity: “25. The substituted sub-section (4A) states that the income derived from a business held under Trust wholly for charitable or religious purposes shall not be included in the total income of the previous year of the Trust or institution if “the business is incidental to the attainment of the objective of the Trust or, as the case may be, institution” and separate books of account are maintained in respect of such business. Clearly, the scope of sub-section (4A) is more beneficial to a Trust or institution than was the scope of sub-section (4A) as originally enacted. In fact, it seems to us that the substituted sub-section (4A) gives Trust or institution a greater benefit than was given by section 13(1)(bb). If the object of Parliament was to give Trusts E 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 F 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 G 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

ASST. COMM’R OF INCOME TAX (EXEMPTIONS) v. AHMEDABAD 945 URBAN DEVELOPMENT AUTHORITY [S. RAVINDRA BHAT, J.]

to the poor and that it has maintained separate books of A account in respect thereof.” (emphasis supplied) F. Deletion of certain exemptions: Section 10 (20A) and Section 10 (23) B

24Copy pinpoint24. Section 10(20A) had been inserted by the Finance Act, 1970, w.e.f. 01.04.1962; it exempted certain classes of income earned by housing boards, etc., and before deletion read as follows: “(20A) any income of an authority constituted in India by or under any law enacted either for the purpose of dealing with and satisfying the need for housing accommodation or for the purpose of planning, development or improvement of cities, towns and villages, or for both;”

25Copy pinpoint25. Similarly, Section 10(23)23 existed and provided exemption to income earned by sport controlling boards, and associations, subject to specific conditions. Section 10(23) read as follows, before its deletion: “(23) any income of an association or institution established in India which may be notified by the Central Government in the Official Gazette having regard to the fact that the association or institution has as its object the control, supervision, regulation or encouragement in India of the games of cricket, hockey, football, tennis or such other games or sports as the Central Government may, by notification in the Official Gazette, specify in this behalf:”

26Copy pinpoint26. Section 10(20A) and 10(23) were deleted/omitted by Finance F Act, 2002, w.e.f. 01.04.2003.While both these provisions are not directly relevant for deciding the primary question (i.e., as to whatcharitable purpose is, under Section 2 (15)), they still have an important bearing in the present case. This is because in view of the circumstances that the provisions were deleted w.e.f. 01.04.2003, housing boards, and bodies, as well as sports associations, that were earlier claiming exemption of G 23 As amended by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 01.04.1989; Direct Tax Laws (Amendment) Act, 1989, w.e.f. 01.04.1989; substituted by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 01.04.1990; and further amended by the Finance (No. 2) Act, 1991, w.r.e.f. 01.04.1990; Finance Act, 1992, w.r.e.f. 01.04.1990/ w.e.f. 01.04.1992; and Finance Act, 2000, w.e.f. 1-4-2001. H

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A their income under these provisions, now sought to claim that they were charities. G. Amendments to Section 2 (15) by Finance Act, 2008 (w.e.f. 01.04.2009)

27Copy pinpoint27. Section 2(15) - which had been amended last, in 198324, was again amended, by Finance Act, 2008, w.e.f. 01.04.2009. Some other amendments too were made, with effect from the same date by the Finance Act, 2009 and Finance Act, 2010. With the said amendments, as on 01.04.2009, the provision read as follows: (15) “charitable purpose” includes relief of the poor, education, medical relief, [preservation of environment (including watersheds, forests and wildlife) and preservation of monuments or places or objects of artistic or historic interest, and the advancement of any other object of general public utility: D 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 E 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;] F 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: G “Provided that the advancement of any other object of general public utility shall not be a charitable purpose, if it involves 24 Deletion of the expression “not involving the carrying on of any activity for profit” and the resulting Section 2(15) read as follows: ““charitable purpose” includes relief of the poor, education, medical relief, and the advancement of any other object of general public utility.” H

ASST. COMM’R OF INCOME TAX (EXEMPTIONS) v. AHMEDABAD 947 URBAN DEVELOPMENT AUTHORITY [S. RAVINDRA BHAT, J.]

the carrying on of any activity in the nature of trade, commerce A 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— B (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 C the total receipts, of the trust or institution undertaking such activity or activities, of that previous year;” Additionally, the same amendment also inserted “yoga” (after “education”) as a listed category of charitable activity, in the substantive provision. D II. Submissions of parties A. Arguments on behalf of the revenue

28Copy pinpoint28. The learned Additional Solicitor General, Mr. N. Venkataraman (hereafter “ASG”) tracing the genesis of Section 2(15) contended that the old IT Act contained no restrictive expressions forbidding trade or business activities by charities. He argued that decisions in In Re: Trustees of the Tribune, Andhra Chamber of Commerce and the decision in Krishna Warriar(supra) were in light of Section 4(3) of the old Act; therefore, the contextual framework of this court’s decisions was entirely different. Those decisions consequently did not rule out carrying on of activities akin to business, by charitable institutions established to advance general public utility.

29Copy pinpoint29. The ASG next submitted that Parliament’s intent, in changing the law, was to expressly forbid the tax exemption benefit if the entity was “involved” in carrying on trade or business. The revenue relied on the two decisions in Lok Shikshana Trust, and Indian Chamber of Commerce (supra), highlighting that the significance of the change – brought about by Section 2(15) of the IT Act – was noticed. Particular reliance was placed on the observations of Beg, J in Lok Shikshana Trust and the passages in Indian Chamber of Commerce to urge that H

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A the involvement of an entity in the carrying on of activities for profit, even if for advancement of charitable purpose or object, disentitled it to tax exemption. The learned ASG urged that this 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).

30Copy pinpoint30. 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 restrictive condition noting that units run on commercial lines could claim that some general public utility was promoted and claim exemption. The Select Committee E of Parliament (at that time), felt that to prevent misuse of the definition in such cases, the words “not involving the carrying on of any activity for profit” should be added to the definition. ASG relied on Lok Shikshana Trust (supra) which highlighted that this statement shed light on the new provision.

31Copy pinpoint31. It was submitted that Indian Chamber of Commerce (supra) recognized this legislative history, and also held that the interpretation of the provision had to be in tune with the advancement of the object of the changed law. The court also was conscious that there were borderline cases which posed difficulty in deciding ex facie whether the undertaking G yielding profit is a “deceptive” device or a bonafide venture resulting “in nominal surplus although substantially intended only to advance the charitable object”.The court also held that the restrictive condition was a “term of art and embraces objects of general public utility”. Yet, under the garb of charitable purposes, organisations masking profit, sprang up. The mask was charitable, but the “heart was hunger for H

ASST. COMM’R OF INCOME TAX (EXEMPTIONS) v. AHMEDABAD 949 URBAN DEVELOPMENT AUTHORITY [S. RAVINDRA BHAT, J.]

tax free profit”. The revenue highlighted the following reasoning from this court’s judgment in Indian Chamber of Commerce (supra): “by the new definition the benefit of exclusion from total income is taken away where in accomplishing a charitable purpose the institution engages itself in activities for profit. The Calcutta decisions are right in linking; activities for profit with advancement of the object. If you want immunity from taxation, your means of fulfilling charitable purposes must be unsullied by profit making ventures.”

32Copy pinpoint32. It was then urged that before the decision in Surat Art Silk (supra) two legislative developments took place, which reinforced the revenue’s view that charities cannot engage in commercial activities. The first was the amendment, carried out in 1975 to the IT Act (w.e.f. 01.04.1976), which introduced Section 10 (23C) and had the effect of excluding income received by inter alia, any fund or institution, established for charitable purposes. The said provision, to the extent relevant, is extracted as follows: D

“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— ******* ******** E

“(23C) any income received by any person on behalf of- (i) the Prime Minister’ s National Relief Fund; or ******* ***** ***** F (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 imposedconditions on the carrying on of business, by charitable institutions. G

33Copy pinpoint33. 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 H

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A 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.

34Copy pinpoint34. The ASG then contended that the decision in Surat Art Silk (supra) had the unintended consequence of ignoring the significance of the addition of the expression “advancement of any other object of general public utility not involving the carrying on of any activity for profit”.The remedy intended by Parliament, in adding the said terms was to prevent charities (involved in the carrying on of any activity for profit) from claiming exemption, and to ensure that purely charitable activity-driven trusts or institutions, could claim exemption. It was submitted that the Constitution Bench fell into error, in holding that as long as the ‘dominant’ objective of the charity was to promote objects of general public utility, they were entitled to exemption.

35Copy pinpoint35. The ASG further submitted that if the history of the provision, and the further amendments were kept in mind, the question of permitting activities that had any business or trade, for consideration, could not arise; however, by later amendments, GPU category charities have been permitted to carry on activities in the nature of business, for consideration, or service in relation to business and commerce, provided that is in the course of actually achieving the charitable object, and also that income from such activities (i.e. business, etc.) does not exceed 20% of the total receipts.

36Copy pinpoint36. It was submitted that statutory corporations, agencies, boards and authorities may trace their origins to specific Central or State laws. However, if their activities are akin to or “in the nature of” business, or trade, or they provide services to businesses or trade, for consideration, fee or even cess (since they may be enabled to do so by law) they have to fulfil the mandate and restrictions under Section 2(15), especially proviso (ii). The ASG cited the larger bench decision in New Delhi Municipal Council v. State of Punjab25 (hereafter “NDMC”)to urge that state entities are not exempt from Union taxation, if they engage in trade or business. It was furthermore submitted that the effect of proviso (i) to Section 2(15) is that there can be no question of any incidental activity; nor can the proceeds of trade claim to be exempt merely because they are ploughed back to feed the charitable object. 25 (1997) 7 SCC 339(hereafter “NDMC”) H

ASST. COMM’R OF INCOME TAX (EXEMPTIONS) v. AHMEDABAD 951 URBAN DEVELOPMENT AUTHORITY [S. RAVINDRA BHAT, J.]

B. Arguments of the assessee-organizations A

37Copy pinpoint37. Mr. S.N. Soparkar, learned Senior Advocate appeared for the Ahmedabad Urban Development Authority (hereafter “AUDA”); the Gujarat Industrial Development Corporation (hereafter “GIDC”) and Gujarat Housing Board (hereafter “GHB”). Counsel submitted that all three corporations were established by or under statutes enacted by the B 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 C 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 D highlighted Section 40 of that Act and urged that the nature of activities, especially disposal of properties developed by AUDA were entirely regulated. Whilst the lion’s shares of properties developed by AUDA were to be allotted for housing and residence, and earmarked specifically for public amenities, roads etc., a small percentage (15%) could be sold by public auction. It was submitted that the statutory model adopted by E AUDA was to enable it to function as a self-sustaining unit. The disposal of plots through allotment and especially by public auction were the main modes through which it could generate revenue. The entire revenue or income so generated was to be kept in a fund under Section 91; and its accounts were mandatorily audited by the State’s Accountant General F under Section 95.

38Copy pinpoint38. It was argued that like AUDA, the GIDC too was also set up by virtue of a statute27, i.e. GIDA, 1962 for the purposes of securing and assisting rapid and orderly establishment and organisation of industrial areas and estates in Gujarat, as well as establishing commercial centres G for such industrial areas and estates. Like AUDA, its accounts were audited by the Accountant General; the audited report was to be laid before the State legislature (Section 26(4)) and the land developed by 26 Gujarat Town Planning and Urban Development Act, 1976 27 Gujarat Industrial Development Act, 1962 (referred to as “GIDA”) H

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A the GIDC could be dealt with only in accordance with law, i.e., the regulations framed under the GIDA, its constituting enactment, further to Section 32(2).As far as GHB is concerned, learned counsel submitted that like the other statutory corporations it was also established by virtue of a special law28. The functions of this Board were identical to that of AUDA and its mandate is to regulate and develop building activities aimed for the purposes of providing housing.

39Copy pinpoint39. Learned counsel urged that none of the three boards carry on any business activity; their functions are controlled by the parent enactments under which they were created. Furthermore, on advancing of its affairs in such a manner that if any surpluses are generated, they were used for furthering the objectives of law. Thus, for instance, if surplus is generated in the activities of AUDA, GIDC, or GHB, those would not be handed to the State Government, which previously had control over them but rather kept in a separate fund to be utilised for further development, expansion and development activities by each of such corporations. These cannot be construed as carrying on any trade, business or commerce.

40Copy pinpoint40. It was submitted that the decisions in In Re: Trustees of the Tribune; Krishna Warriar and Lok Shikshana Trust (supra) were all in the context of entities which carried on business. 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 28 H Gujarat Housing Board Act, 1961.

ASST. COMM’R OF INCOME TAX (EXEMPTIONS) v. AHMEDABAD 953 URBAN DEVELOPMENT AUTHORITY [S. RAVINDRA BHAT, J.]

such a purpose is fulfilled, the carrying on of some activity which might A result in surplus, would not disentitle the entity from the benefit of tax exemption.

41Copy pinpoint41. Learned counsel then made a brief reference to the judgment in CIT, Bombay v. Bar Council of Maharashtra29 arguing that Surat Art Silk (supra) was followed in this decision. He also cited Thanthi B Trust (supra). Counsel highlighted that the object of the assessee there, was charitable and required that the business ought to be carried out for the purposes of achieving the charitable purpose. Having regard to the nature of Section 13(1)(bb), which existed for the relevant period, the court held that the income which the trust derived was through a business and it only fed the charity. In this light, the court rejected the trust’s C contention with respect to the entitlement to claim tax benefit for the first part. Counsel pointedly referred to the observations in paragraph 24 of the said decision and submitted that the court noticed the difference in language brought about by the substitution of Section 11(4A) (w.e.f. 01.04.1992). The new provisions enabled the Trust to carry on business for it was incidental to the attainment of its activities.

42Copy pinpoint42. Elaborating on Thanthi Trust further, counsel highlightedthat the scope of the provision, i.e. Section 11(4A) had been ruled by this court as more beneficial to the trust or institution, than had existed previously before its amendment. Therefore, as long as the Trust carried on its activities mainly for charitable purposes - any income derived from incidental trading or business activities, would not result in it being characterised as an entity carrying on business; in other words, it was one carrying on a charitable objective or purpose.

43Copy pinpoint43. Learned counsel also relied upon Circular 11/2008 dated F 19.12.2008 which highlighted that whether the activities carried on by any charitable institutions are in the nature of trade or whether they are essentially charitable is a question of fact. It also spelt out that if an assessee is engaged in any activity, in the nature of trade, commerce or business or rendering any services in relation to such trade etc., it could not claim that its object was charitable. In such event, “the object of G general public utility will only be a means or defence to highlight the true purpose 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 29 (1981) 3 SCC 308 (hereafter “Bar Council of Maharashtra”) H

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A 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.

44Copy pinpoint44. Counsel relied on the decisions in Shri Ramtanu Cooperative B Housing Society Ltd. v. State of Maharashtra30, Gujarat Industrial Development Corporation v. CIT31(hereafter “GIDC case”), HSIDC v. Hari Om Enterprises 32and Commissioner of Central Excise v. Maharashtra Industrial Development Corporation 33and urged that statutory organizations set up for housing and other essential development, cannot be regarded as commercial or business entities.

45Copy pinpoint45. Learned counsel relied upon the Constitution Bench decision of this Court in Navnit Lal C. Jhaveri v. K.K. Sen34 (hereafter “Navnit Lal Jhaveri”), where the court had held while interpreting the provisions of an enactment that the executive’s understanding –in the form of circulars in the context of taxing statutes – were valuable guides to interpretation. The observations in Navnit Lal Jhaveri (supra) were relied on to submit that the circulars in that case was used to in fact soften the rigor of a newly introduced provision. Learned counsel also relied upon the judgment of this Court in UCO Bank Calcutta v. Commissioner of Income Tax, West Bengal35and in Lok Shikshana Trust (supra)where the Court had specifically rejected the contention that a speech made in Parliament cannot be looked into to discern the intent of the lawmaker. In that case, the Court had stressed that the real meaning of all the words used could be understood specifically by referring to the past history of the legislation and the speech of the mover of the amendment.

46Copy pinpoint46. Learned counsel argued that the expressions “trade”, “business” or “commerce” always mean and have been interpreted to mean activities driven by profit. In this context, reliance was placed on this court’s decisions in State of Punjab v. Bajaj Electricals Ltd 36.; Khoday Distilleries Ltd. v. State of Karnataka37 and State of Gujarat G 30 (1970) 3 SCC 323 31 1997 (Supp 3) SCR 466; (1997) 7 SCC 17(hereafter “GIDC case”). 32 (2009) 16 SCC 208 33 2017 SCCOnline Bom 10021 (para 10-12) 34 (1965) 1 SCR 909 (hereafter “Navnit Lal Jhaveri”) 35 1999 (4) SCC 599 (hereafter “UCO Bank Calcutta”) 36 1968 SCR (2) 636 H 37 (1995) 1 SCC 574

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v. M/s. Raipur Manufacturing38. It was submitted that in all contexts, A the primary meaning of the expression “trade” is “exchange of goods” for money and connotates that such activity is necessarily or always carried on to earn profit. It was, therefore, argued that Section 2(15) cannot be read in isolation, but should be construed in the light of the minister’s speech while introducing the amendment, and the Circular B (i.e. Circular 11/2018). Therefore, if an organisation is created and carries on its activities with a view to earn profit as was held in Bajaj Electricals, Khoday Distilleries, and Raipur Manufacturing (supra), it is precluded from claiming to be a charitable organisation. On the other hand, if the entity is primarily set up for the charitable purpose, i.e., to carry on activities for the advancement of general public utility, but it C also carries activities that generate surplus or money, they cannot be per se excluded from consideration for tax benefit.

47Copy pinpoint47. Learned Senior Counsel 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 D Industries39 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 & Ors40, where the assessee’s activities were held to be not “commercial activity” within the meaning of clause (b) to S.10(46).41 He also relied on other decisions – of this court, to the same effect, in Kerala State Electricity E Board v. Indian Aluminium Co. Ltd.42and Trustees of the Port of Madras v. Aminchand Pyarelal and Ors.43.

48Copy pinpoint48. Mr. Gulati relied on theGIDC case (supra) to argue that the word “development” in S.10(20-A) of the IT Act, 1961 has to be understood in its wide sense. It was urged that development authorities F like NOIDA fall under Section 2(15) of the IT Act, 1961 if they satisfy the test in Section 11(7) of the IT Act, 1961. It was contended that 38

(1967) 1 SCR 618

39 (2008) 13 SCC 1 40 2018 SccOnline Delhi 7536 41 The High Court had relied upon the ratio in Shri Ramtanu Co-operative Housing G 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. 42 (1976) 1 SCC 466 43 (1976) 3 SCC 167 H

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A Surat Art Silk (supra)was clear that engagement by a trust with a commercial activity is not per se prohibited, as long as its object is the attainment of an object of general public utility. Pointing to the Explanatory Notes (to the Provisions of the Finance Act, 2015) - with respect to proviso to Section 2(15), counsel urged that the proviso operates at the stage of registration of trust under Section 12AA(1A) of the IT Act, B 1961, when the authorities satisfy themselves with respect to the genuineness of the activity and scope of the trust.

49Copy pinpoint49. It was lastly argued that the expression “trade” carries within it the idea of profitability: counsel cited State of Gujarat v. Mahesh Dhiarjlal Thakkar 44, Sodan Singh &Ors. v New Delhi Municipal C Committee & Ors45 and T.M.A Pai Foundation and Ors. v. State of Karnataka & Ors46. Reliance was placed upon the judgment in CIT, Madras v. M/s Madurai Mills Company Limited 47 to urge that interpretation of the definition of expression “charitable purpose” should not be coloured by considerations stemming from legislative history, which override the plain words of a statute.

50Copy pinpoint50. Mr. K. K. Chythanya, senior counsel appeared for M/s Karnataka Industrial Areas Development Board (“KIADB”). He urged that KIADB was formed under Section 5 of the Karnataka Industrial Areas Development Act, 1966 (“KIAD Act”) and it functions on “no profit-no loss” basis as is evident from the preamble48, the aims and objectives49 of the board as well as Sections 3, 5, 6, 28, 29, 43 and 4650 44 (1980) 2 SCC 322 45 1989 (3) SCR 1038 46 (2002) 8 SCC 481 47 (1973) 4 SCC 194 48 F “It is considered necessary to make provision for the orderly establishment and development of Industries insuitable areas in the State. To achieve this object, it is proposed to specify suitable areas for Industrial Development and establish a Board to develop such areas and make available lands therein forestablishment of Industries.” 49 Promote rapid and orderly development of industries in the state.;Assist in implementation of policies of Government within the purview of KIAD Act;Facilitate in establishing infrastructure projects:Function on “No Profit – No Loss” basis. G 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. H

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of the KIAD Act. Reliance was placed on Karnataka Industrial Areas A Development Board v. Prakash Dal Mill51which held that KIADB is “state” under Article 12 of the Constitution, and it was urged that KIADB was an extension of the Karnataka Government. The board exercises power of eminent domain and it performs governmental functions. Its activities, therefore, cannot be regarded as trade or business. Reliance B was placed upon State of Karnataka v. All India Manufacturer’s Organisation 52.

51Copy pinpoint51. It was submitted that in the absence of profit motive, the activity is not trade, commerce 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 C Port of Madras53and 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 D “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 Board 55 (hereafter “Gujarat Maritime Board E case”) and other decisions56. Hence, if the main activity is not “business”, the connected, incidental or ancillary activities of sales carried out in

• Section 3 & 28 - Government of Karnataka (GOK) that acquires the land from the public. • Section 29 – GOK determines the price and pays the compensation. F • Section 43 - No duty under the Karnataka Stamp Act, 1957, or fees under the Indian RegistrationAct, 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 G 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 Research Laboratory v. K.G Sharma 1997 (3) SCR 733. 55 2007 (12) SCR 962; (2007) 14 SCC 704(hereafter “Gujarat Maritime Board case”). 56 Yogiraj Charity Trust v. CIT 1976 (3) SCR 947; Commissioner of Income Tax v. Andhra Pradesh Road Transport Corporation 1986 (1) SCR 570; Queens’s Educational Society v. CIT 2015 (8) SCC 47. H

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A furtherance of and to accomplish their main objects would not normally, amount to business, unless an independent intention to conduct ‘business’ in these connected, incidental or ancillary activities is established by the revenue. The judgments in CST v. Sai Publication Fund57and the Board of Trustees of the Port of Madras (supra) was relied upon. It was urged that the revenue’s contention that statutory authorities’ claim for B exemption is confined to the provision in Section 10(46). He urged that in terms of Section 11(7)58 the Board has an option to claim exemption either under Section 11 or under Section 10(46). There is no bar for claiming exemption under either of those provisions.

52Copy pinpoint52. Mr. Dhruv Agrawal, learned senior counsel appearing for the C U.P Awas Evam Vikas Parishad adopted the submissions of senior counsel Mr. Soparkar and K.K Chythyanya. He also urged that the realization of the right to shelter and housing is an integral part of right to life, and contended that the predominant activity of the assessee involves the fulfilment of those objectives, especially for the weak and poorer sections D of the society. He relied on this court’s decision in Chameli Singh v. State of U.P &Ors.59 which had stated that right to social justice includes right to shelter, and that these statutory corporations are the means to ensure that.

53Copy pinpoint53. Mr. K. V. Viswanathan, senior counsel appearing on behalf of E GS1 India submitted that the assessee is involved in issuing bar codes which is a global language of standardised coding and the is a universally accepted standard for identification of products. The GS1 barcode is a global standard which is an intellectual property of GS1 (an international non-profit organisation headquartered at Brussels) and it has affiliates in each country with the assistance of national governments. GS1 India F the assessee, is an affiliate; it was registered as a society in the year 1996, with the Joint Secretary-Ministry of Commerce as its President and the administrative control vests with the Ministry of Commerce, Government of India. It was registered as a charitable GPU category 57 2002 (2) SCR 743 58 G Inserted by Finance (2) Act, 2014 and amended by Finance Act, 2020 59 (1996) 2 SCC 549. The court had cited Article 25(1) of the Universal Declaration of Human Rights and Article 11(1) of the International Covenant on Economic, Social and Cultural Rights, 1966 and relied on Sri. P.G. Gupta v. State of Gujarat & Ors. 1995 (1) SCALE 653 - where a Bench of three Judges of this Court had considered the mandate of the human right to shelter and read it into Article 19(1)(e) and Article 21 of the Constitution of India to guarantee the right to residence and settlement. H

ASST. COMM’R OF INCOME TAX (EXEMPTIONS) v. AHMEDABAD 959 URBAN DEVELOPMENT AUTHORITY [S. RAVINDRA BHAT, J.]

society in 1996. All the trade bodies60 as well Bureau of Indian Standards A are members of its governing council.

54Copy pinpoint54. It was submitted that the revenue had granted exemptions to the assessee society under Section 12A and Section 10(23C)(iv) while issuing various certificates from time to time (from AY 1996-1997 to 2007-2008); therefore, it had accepted that the assessee’s object and B 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 C GS1 (i.e. Joint Secretary, Ministry of Commerce) to permit reduction of fee from 400 too 70 per farm/plot, for issuing Global Location Number (GLN) to farmers, which was approved.

55Copy pinpoint55. Regarding the statutory provisions it was submitted that the words “trade, commerce or business” in the proviso to Section 2(15) of D 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) E still holds the field to interpret these words.

56Copy pinpoint56. Counsel urged that Parliament is assumed to have used the word ‘involves’ found in proviso to Section 2(15) as interpreted in Surat Art Silk (supra), in the sense that an activity is involved in the advancement of an object when it is enwrapped or enveloped in the activity of F advancement, so that the resulting activity has a dual nature or is twin faceted. The well-known principle of construction, that where the legislature uses in an Act, a legal term which has received judicial interpretation, it must be assumed that the term is used in the sense in which it has been judicially interpreted unless a contrary intention appears, was relied upon, and the decision in P. Vajravelu Mudaliar v. Special G Deputy Collector, Madras &Ors.61 was cited in that context. 60 Federation of Chambers of Indian Commerce and Industry; Confederation of Indian Industry; Associated Chambers of Commerce and Industry of India (ASSOCHAM); The Agricultural and P rocessed Food Products Export Development Authority (APEDA). 61 1965 (1) SCR 614 H

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57Copy pinpoint57. Countering the contentions of the revenue that if entities making profit but not involved in commercial activity desire exemption, they ought to apply under Section 10(46) IT Act, it was submitted that the expression “constituted by or under an Act” in Section 10(46) does not include all entities like the assessee, which is a not a statutory corporation, but a “not for profit” society registered under the Societies Act. It was argued B that the distinction between “established by and under an Act” is well settled and includes entities which are statutory corporations as contrasted from non-statutory ones. The judgment in Dalco Engineering Pvt. Ltd. v. Satish Prabhakar Padhye & Ors.62 was referred to, in this context where this court ruled that C “…when the words “by and under an Act” are preceded by the words “established”, it is clear that the reference is to a corporation established, that it is brought into existence, by an Act or under an Act. In short, the term refers to a statutory corporation as contrasted from a non-statutory corporation D incorporated or registered under the Companies Act.”

58Copy pinpoint58. Learned senior counsel lastly submitted that an activity, to be “trade, commerce or business”, must be profit driven. Profit motive is a quintessential element and an activity without profit motive will not result in “trade, commerce or business” in terms of the decision in State of E A.P v. H. Abdul Bakhi & Bros63. If exemption is not granted to the assessee it will face a liability of around 300 crore (from FY-2007-08 to 2020-21), which given its financial condition will jeopardise its existence and functioning.

59Copy pinpoint59. Ms. Radhika Suri, learned counsel argued on behalf of F 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 G 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 62 (2010) 4 SCC 378 63 H 1964 (7) SCR 664

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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, Hoshiarpur 64 to explain the characteristics of the assessee. Learned counsel further laid emphasis on provisions of the regulations under the Punjab Improvement Trust Rules and regulations to show the procedure adopted by the board in fixing prices.

60Copy pinpoint60. Mr. Gursharan S. Virk, argued that the Gujarat Maritime Board (GMB), is a statutory one, constituted under Section 3(2)65 of the Gujarat Maritime Board Act, 1981 (GMB Act); it performs functions which, prior to the enactment of the Act, were being performed directly by the State Government66. The Preamble to the Act notes that it is constituted for administration, control and management of minor ports in the State of Gujarat, and for all matters connected therewith. The Board’s powers under the GMB Act apply to works carried out by GMB as conservator of ports under the provisions of the Indian Ports Act67; it is charged with essential functions such as development and upkeep of jetties, wharves, docks, piers, places of anchorage, light-houses, light-ships, beacons, buoys, pilot boats, and other appliances necessary for safe maritime navigation, etc. and for development of minor ports in general68. It is also entitled to undertake essential maritime services such as stevedoring, landing, shipping or trans-shipping, piloting, hauling, mooring and hooking vessels/ goods, etc.69 Hence it was urged, that GMB’s functions are, essential and sovereign in nature, and relate to the development, safety and protection of the waterfront.

61Copy pinpoint61. It was submitted that the GMB is not engaged in any business or trade, is not engaged in any activity which generates profit and does not (also statutorily cannot) use money for anything except for 64 ITA No. 78 of 2016 65 Section 3 (2):- “ The board shall be a body corporate by the name aforesaid having perpetual succession and a common seal with power, subject to the provisions of this G Act to acquire, hold and dispose of property, both movable and immovable, and to contract, and may by the said name sue and be sued.” 66 Section 20 of the GMB Act 67 Section 83 of the GMB Act 68 Section 25(2) of the GMB Act 69 Section 32 r/w Sections 37-30 of the GMB Act H

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A development of minor ports in the state of Gujarat and the features of the GMB Act. These features in context of the controversy at hand, under the provisions of the IT Act, were considered by this court in the Gujarat Maritime Board case (supra). The decision discussed Sections 73, 74 & 75 of the GMB Act, which provide for management of all monies received by the GMB; and Section 76 of the GMB Act, which permits the setting aside of surplus money only for “expanding existing facilities or creating new facilities at the ports” or for meeting with contingencies caused on account of “fire, cyclones, shipwrecks or other accidents or for any other emergency.” It was stressed that that judgment clearly indicates 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.

62Copy pinpoint62. 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 E 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 F Communication and Information Technology, Govt. of India on 27.01.1998. It was registered under Section 12A of the IT Act, 1961 on 26.03.2004 and its activities fell within the meaning of “charitable purpose” under Section 2(15). It duly complied with Sections 11 and 12 of the IT Act, 1961.

63Copy pinpoint63. NIXI was created in 2003 by the Government of India under the Ministry of Information Technology, for promotion and growth of internet services in India, regulating the internet traffic and acting as internet exchange, to undertake “.in” domain name registration thereby saving valuable foreign exchange, and take care of national concern. It was urged that this is a Section 25 company barred from undertaking H

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

64Copy pinpoint64. Learned counsel submitted that ERNET is a “not for profit” B society wherein considering its objects, it receives only subscription fees mainly from schools, colleges, universities, scientific research institutes, etc. This subscription fees is charged on “actual basis” and utilized towards promotion of its objectives. The charitable character of the assessee is apparent and not in dispute since it has been accepted by the revenue up to AY 2008-09. Also, the final factual findings recorded by C lower authorities conclusively demonstrate that the assessee is engaged in ‘advancement of general public utility’, and qualifies as a ‘charitable purpose’ as it does not carry any trade commerce or business, and the income earned is not derived in the course of any commercial activity.

65Copy pinpoint65. Learned counsel also submitted that the assessee carries on D R & D work which enables educational institutions with Information and Communication Technology infrastructure for making education reach the public at large solely for charitable purpose and further reliance was placed upon ICAI Accounting Research Foundation v. DGIT(E)70, Bureau of Indian Standards v. DGIT(E)71 and GS1 India v. DGIT(E)72. E

66Copy pinpoint66. Mr. Ajay Vohra, learned senior counsel, appearing for the Apparel Export Promotion Council (AEPC) urged that it is a non-profit organization set up with approval of the Central Government, for promotion of exports of garments from India (i.e., promotion of trade). It was registered under Section 12AA(1) of the IT Act, on 18.05.1979 F and 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 G utility. These activities are by way of booking large spaces in fairs, and such like events, especially in overseas locales, so that Indian 70 321 ITR 73 (Del) 71 358 ITR 78 (Del) 72 360 ITR 138 (Del) H

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A 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.

67Copy pinpoint67. Mr. Vohra relied upon the Memo Explaining Provisions in the B Finance Bill, 200873, the speech of Finance Minister in Lok Sabha on Finance Bill, 200874, CBDT Circular No. 11 dated 19/12/200875 to submit that proviso to Section 2(15) only bars commercial/business activities undertaken for profit motive. It was submitted that mere earning of income and/or charging any fees is not barred by the proviso; rather, carrying of any activity in the nature of trade, commerce or business or rendering service in relation thereto is barred. Reliance was placed upon judgments in Dir. Of Supp. & Disp. v. Board of Revenue76 which follows H. Abdul Bakhi& Bros (supra), Barendra Prasad Ray v. ITO77and State of Gujarat v. Raipur Manufacturing Co. Ltd.78 to argue that in “business” there must be some real and systematic, or organized course of activity or conduct with the set purpose of making profit. Counsel referred to Sai Publication Fund (supra) where this court observed that since primary and dominant activity of the trust was to spread message of Saibaba and hence not business, then any incidental or ancillary activity of publishing and selling of books and literature cannot be regarded as business. Reference was made to Customs & Excise E Commissioner v. Lord Fisher79 which held that there are six indicia to determining business namely (a) serious undertaking earnestly pursued, (b) reasonable continuity, (c) substantial in amount, (d) conducted regularly on business principles, (e) predominantly concerned with making taxable supplies for consideration, (f) such as those commonly made by persons seeking to make profit. Other judgments too were cited; and reference was made to definitions in the Concise Oxford Dictionary, Webster’s New Twentieth Century Dictionary, Black’s Law Dictionary, and Sampath Iyengar’s Law of Income Tax.

68Copy pinpoint68. Mr. Ajay Vohra, urged that AEPC has been claiming exemption under Section 11 from AY 1979-80 to 1990-91. During AY 1991-92, the 73 298 ITR (St.) 74 Quoted in ITPO v. DGIT(E) : 371 ITR 333 (Del) (hereafter “ITPO”) 75 308 ITR (St.) 76 1967 (3) SCR 778 77 1981 (3) SCR 387 78 1967 (1) SCR 618 H 79 (1981) 2 All ER 147

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Assessing Officer (“AO”) denied the exemption on the ground that it was carrying on business. That order was eventually set aside by the ITAT which, held that it was entitled to exemption under Section 11 of the Act. Subsequently, an amendment was brought to Section 11(4A) and AEPC had to maintain separate books of accounts. In AY 1992-93, the AO again denied exemption. On appeal, the issue was decided in favour of AEPC by the ITAT. The Delhi High Court upheld the order of the ITAT in a judgment80. AEPC received entrance fee and membership fee which, it claimed were exempt on the principle of mutuality. This issue too was resolved in its favour from the AY 1992-93 to AY 1997-98 by the jurisdictional High Court. From the assessment year 1998-99 to the assessment year 2008-09, the AO accepted the assessee’s claim that income was exempt under Section 11 of the Act.

69Copy pinpoint69. 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 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.

70Copy pinpoint70. Ms. Prabha Swami, learned counsel submitted that the A.P State Seed Certification Agencyis a statutory society set up under Section 881 of the Seeds Act, 1966 which is represented by the representatives of Seedsmen Association, seed farmers, farming community and members representing Central Seed Certification Board. While explaining the charitable characteristic of the society the counsel pointed out that the society was duly registered and its Memorandum of Association clearly inter-alia stated that the object for which it was established was to see that the cultivators adopt all scientific methods for production of quality seeds in accordance with the Seeds Act and to carry on educational 80 Reported at 244 ITR 736 81 "Section 8. The State Government or the Central Government in consultation with the State Government may, by notification in the Official Gazette, establish a certification agency for the State to carry out the functions entrusted to the certification agency by or under this Act”. H

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A programs designed to promote the use of certified seeds. Charges are collected from the traders or the societies engaged in the trade of seeds. The society provides quality seeds to the farmers and hence traders are prevented from selling inferior variety of seeds. Highlighting the activities of the authority, it was urged that farmers are benefited by various services it offers - inspection of fields at the time of seed production, B supervision while processing seeds and issuing a validation certificate at the time of packing, sampling, and seed testing. The society (which is not involved in trade, commerce or business) is therefore rendering service to the general public as they are encouraging farmers to purchase quality seeds and help prevent loss to them, and loss of natural resources. C Mr. Sanjay Jhawar, learned counsel for Rajasthan State Seed Corporation also adopted the submissions of Ms. Prabha Swami.

71Copy pinpoint71. Mr. Sanjay Visen, learned counsel argued on behalf of M/s Raebareli Development Authority, Raebareli, urging that the assessee is a body constituted under the U.P Urban Planning and Development Act,

D 1973. As their activities were aimed at public purpose, it applied for registration u/s 12AA of the IT Act, 1961. It was submitted that the assessee’s income was earlier exempted under Section 10(20A) of the IT Act, 1961 which was omitted by the Finance Act, 2002; however, this did not restrict the assessee from getting registered under Section12AA of IT Act, as the object of the authority is to provide shelter to homeless people, which is charitable.

72Copy pinpoint72. Mr. Harish Salve, learned senior counsel appearing on behalf of Saurashtra Cricket Association drew attention of this court towards the ambit of Section 4(3) of Income Tax Act, 1922 (i.e., the old Act), as compared to Section 2(15) of the IT Act, 1961 which defines ‘charitable purpose’. He also presented the construction of Section 11 in light of Thanthi Trust (supra). It was emphasized that the objects of a trust are decisive and every surplus cannot be construed 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” H

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in the proviso to Section 2(15) implies that advancement of object of a 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).

73Copy pinpoint73. It was argued that the crucial part of the definition of “charitable purpose” is the word “cess” employed in the proviso. As an explanatory measure, the activities of promotional councils were taken into consideration - for example Surat Art Silk supported silk manufacturers. If such activity is for a cess or a fee, the organization ceases to be charitable. Activities in the nature of trade, commerce or business are not charitable if they are for a fee or other consideration. Fees collected by the private organizations forms the content of Section 2(15). However, amounts based on tariff regulations imposed by the controlling law, or statute-based fee is neither “fee” nor “cess” under that provision. Further, the consideration involved is vis-à-vis the activity or service. The test is the object for which the consideration is paid, and what it entails, wherein the words “any other consideration” is for the activities in aid or service of business. In this regard it was submitted that, in true sense the word D “business” implies profit, however statutory organizations are excluded from its ambit. Fee or consideration collected by such organizations should not be taken in the sense of profiteering, as it is for the advancement of their objectives. In this sense the word “cess” can be read down as non- statutory. E

74Copy pinpoint74. It was submitted that the phrase “cess, fee or any other consideration” in the proviso to Section 2(15) covers the second part of the proviso, i.e., it is relatable to “service in relation to” trade, commerce or business. Mr. Salve submitted that any statutory cess, or fee, authorized or compelled by law, which is within the domain of the state legislature, cannot be construed as taxable, having regard to the principles indicated in the judgment of this court, in NDMC (supra). He relied on Article 289 of the Constitution of India, and submitted that it is only if a state engages – by itself, or through an agency, directly in trading activity, that the immunity from Union taxation is lifted. In the present case, those agencies set up by the State, essentially through law, to carry out welfare activities, such as regulation and housing, cannot per se be characterized as trading concerns.

75Copy pinpoint75. Mr. Salve submitted that cricket associations are operating purely to advance their objective of promoting the sport. They should not be considered as pursing activities in furtherance of trade, commerce H

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A or business. The word “cess” has to be read down in reverse (reverse ejusdem generis) and it should be read non-statutorily while adopting purposive interpretation of the same. Reliance was placed on Nabha Power Limited v. Punjab SPCL82 to state that a purposive interpretation of “cess”, is to be adopted.

76Copy pinpoint76. 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, etc. If these associations sell tickets and generate revenue through other activities, those do not necessarily mean that their objects are commercial or to promote trade. Selling tickets for a sport performance or match is to promote cricket, and not trade. Mr. Salve also urged that the expression “trade” has a particular meaning; he referred to State of Gujarat v. F MaheshkumarDhirajal Thakkar83 where the court observed that “the word trade in its narrow popular sense means ‘exchange of goods for goods or for money with the object of making profit’. In its widest sense it includes any business carried on with a view to earn profit84. Further, the word takes its meaning G from the context.”

77Copy pinpoint77. Likewise, with regard to “business” the counsel referred to H.Abdul Bakhi & Bros. (supra) which had discussed the term and 82 (2018) 11 SCC 508 83 (1980) 2 SCC 322 84 H Halsbury’s Laws of England, Vol. 32 para 487

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explained that any activity should be driven by profit motive.85 Lastly, A the judgment in Secretary, Ministry of Education & Broadcasting, Govt. of India & Ors. v. Cricket Association of Bengal86 was cited to explain the dominant purpose of the BCCI. That judgment highlighted what is relevant and applicable is the test of predominant character of the activity, and not that an institution incidentally earns surplus or profit. B

78Copy pinpoint78. Mr. Arvind Datar, learned senior counsel appeared on behalf of the Institute of Chartered Accountants of India (hereafter “ICAI”) as well as The Tribune Trust.

79Copy pinpoint79. Counsel submitted that ICAI is a premier professional accountancy body of the country established under the Chartered C Accountants Act, 1949 (“CA Act”) to impart formal and quality education in accounting and thereafter to regulate the profession of Chartered Accountancy in India. It is under the control and supervision of the Ministry of Corporate Affairs, Government of India. Section 1587of the CA Act defines the functions of Council of Institute which include holding D 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 E 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 duty of carrying out the provisions of this Act shall be vested in the Council. F (2) In particular, and without prejudice to the generality of the foregoing powers, the duties of the Council shall include – (a) to approve academic courses and their contents; (b) the examination of candidates for enrolment and the prescribing of fees therefor; (c) the regulation of the engagement and training of articled and audit assistants; (d) the prescribing of qualifications for entry in the Register; (e) the recognition of foreign qualifications and training for the purposes of enrolment; G (f) the granting or refusal of certificates of practice under this Act; (g) the maintenance and publication of a Register of persons qualified to practice as chartered accountants; (h) the levy and collection of fees from members, examinees and other persons; (i) subject to the orders of the appropriate authorities under the Act, the removal of names from the Register and the restoration to the Register of names which have been removed; H

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A of examinations for chartered accountancy course candidates and regulation of engagement and training of articled clerks and audit assistants.

80Copy pinpoint80. It was submitted that holding of coaching and revision classes, and surplus generated due to the fees collected from that activity is not B a business or commercial activity. Counsel urged that it is wholly incidental and ancillary to the objects of the institute - which is to provide education and conduct examinations of the candidates 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) C 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 D 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) E of the Act. In further support of this proposition, reliance was placed on American Hotel and Lodging Association v. CBDT90 to argue that (j) the regulation and maintenance of the status and standard of professional qualifications of members of the Institute; (k) the carrying out, by granting financial assistance to persons other than members of the Council or in any other manner, of research in accountancy; F (l) the maintenance of a library and publication of books and periodicals relating to accountancy; (m) to enable functioning of the Director (Discipline), the Board of Discipline, the Disciplinary Committee and the Appellate Authority constituted under the provisions of this Act; (n) to enable functioning of the Quality Review Board; G (o) consideration of the recommendations of the Quality Review Board made under clause (a) of Section 28B and the details of action taken thereon in its annual report; and (p) to ensure the functioning of the Institute in accordance with the provisions of this Act and in performance of other statutory duties as may be entrusted to the Institute from time to time. 88 (2005) 273 ITR 139 (Guj.) 89 (1992) 195 ITR 279 (Guj.) 90 H (2008) 10 SCC 509

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ICAI is entitled to be notified under Section 10(23C)(iv) r/w Section A 2(15) of the Act, 1961.

81Copy pinpoint81. Counsel submitted that profit motive is an essential element, or the driving force, for any business or commercial activity. The activities of ICAI are not of such nature. Counsel relied upon the judgment in NDMC (supra)which ruled that profit motive is the core aspect of trade B and business, in the context of Article 289 of the Constitution of India, which talks about exemption of property and income of a state from Union Taxation.

82Copy pinpoint82. It was argued that there is a distinction between nature of commercial ventures and charitable institutions such as ICAI. The word C ‘profit’ should never be used with a body set up for public purposes, to regulate activities, in public interest and the intent of the organization/ establishment must be taken into consideration. In support, Board of Trustees of the Port of Madras (supra) was cited,where the Port trust’s activities included sale of unclaimed and unserviceable goods in discharge of various statutory charges, items, etc. They were part of the Port D Trust’s main activities of service. The court said that they cannot be treated as ‘business’ and that the Port Trust had no intention to carry on business in the sale of unserviceable/unclaimed goods. Reliance was placed on Surat Art Silk (supra), Andhra Pradesh State Road Transport Corporation (supra), Victoria Technical Institute v CIT91, Aditnar E Educational Institution v. Addl. CIT 92, Thiagarajar Charities v. ACIT93, Director of Income Tax v. Bharat Diamond Bourse94 and Gujarat Maritime Board case (supra). The observations in T.M.A Pai (supra) that there can be reasonable revenue surplus, by the educational institution for the purpose of development of education and expansion of the institution, was also referred to. F

83Copy pinpoint83. Learned senior counsel further relied on the explanatory notes to the provisions of the Finance Act, 2008, specifically towards amendment made to Section 2(15) of the IT Act, aimed at streamlining the definition of “charitable purpose” as discussed in para 595 and the 91 (1991) 188 ITR 57 (SC) G 92 (1997) 3 SCC 346 93 (1997) 4 SCC 724 94 (2003) 259 ITR 280 (SC) 95 "5. Streamlining the definition of “charitable purpose” 5.1 Sub-section (15) of section 2 of the Act defines “charitable purpose” to include relief of the poor, education, medical relief, and the advancement of any other object of H

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A ratioVisvesvarya Technological University v. Assistant Commissioner of Income Tax96 to submit that there is no loss to the character of a GPU charity where surplus generated is ploughed back. Further, a judgment of the Division Bench of the Delhi High Court in J.K Synthetics & Another v. Union of India & Ors.97 was referred to contend that 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.

84Copy pinpoint84. 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 D 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.

85Copy pinpoint85. It was argued that the demand against ICAI is from 2004-05 and the fees collected from students have already been spent on various general public utility. This is based on the argument that they are engaged in the “advancement of an object of general public utility” as is included in the fourth limb 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 F (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 G 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.” 96 (2016) 12 SCC 258 97 1981 SCC OnLine Del 457 H 98 (1972) 4 SCC 474

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infrastructure development and other capital expenditure items. The A surplus amounts remaining were invested in government securities/FDs of nationalized banks, so the demands raised will seriously prejudice the assessees.

86Copy pinpoint86. On behalf of the Tribune Trust, Mr. Datar argued that the charitable nature of the trust can be traced back to the In Re: Trustees B of the Tribune (supra) judgment rendered by the Privy Council, which allowed the trust’s appeal against the judgment of Lahore High Court (that rejected exemption for the trust’s income for AY 1932-33). The Privy Council considered the objects of the trust and held it was not founded for private profit and prima facie the trust’s object was of general public utility, since by supplying newspapers in the province the C trust involved the dissemination of educated public opinion. It was urged that the impugned judgment passed by the Punjab and Haryana High Court99 in Tribune’s case dismissing the Tribune’s appeal, erroneously relied on para 17 of Surat Art Silk decision (supra) which wrongly quoted the Privy council judgment in the Tribune’s case. D

87Copy pinpoint87. It was further argued that collecting advertisements for consideration cannot be treated as business activity undertaken by profit because the sale price of the newspaper is 2 whereas the cost of printing each newspaper is 12 and the deficits can be made up only through advertisements. Placing reliance on the extracts from the will of the late Sardar Dyal Singh Majithia it was urged that the trustees were under a duty to devote the surplus income for the improvement of the newspaper and hence prayed for allowing the appeal.

88Copy pinpoint88. Upon this court’s query with respect to advancing submissions on the constitutional aspect in the ITPO judgment (supra), the learned senior counsel advanced his submissions on the validity of Section 2(15) in the context of Article 14 and Article 289. It was submitted that classification made in the ITPO judgment i.e., institutions driven by profit motive vis-à-vis institutions driven by motive to advance objective of GPU, was correct and is in tune with the decision of this court in NDMC (supra). It was urged that Article 289(1) will not apply to ITPO as its income and property cannot be regarded as income and property of a State. It was also submitted 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 99 ITA Nos. 62 of 2015 and 147 of 2016 (O&M) H

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A 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.

89Copy pinpoint89. 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 B 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 C the proviso is liable to be declared unconstitutional and violative not only of Article 14 but of Article 289 as well, in the context of state undertakings. For Central institutions, it was submitted that cess or fee can never fall within the definition of “income” under Section 2(24) read with Entry 82 of List-I and cannot be subject to tax. D C. Revenue’s rebuttal arguments

90Copy pinpoint90. In rebuttal to the submissions advanced by the assessees, the ASG relied upon Adityapur Industrial Area Development Authority v. Union of India100 and submitted that there is no constitutional immunity from taxation, for the state, because by Article 289(2) even state or its instrumentalities/agencies are not immune from taxation if they carry on trade or business. In light of Article 289(2), there is no constitutional bar for the States (or the Union) to engage or carry on trade or business, and Article 289 allows the Parliament to impose taxes on such trade or business. The ratio in NDMC (supra) has to be read in light of the provisions and the judgment rendered in Shri Ramtanu Cooperative Housing Society (supra) should in turn be read in light of NDMC. The decisive factor therefore is not the status of the entity, but the nature of activity carried by it. If the nature of activity is trade or business with a profit motive, then the same can be taxed even if it is carried by state or its instrumentalities. It was also contended that Article 289 does not grant absolute any immunity from taxation.

91Copy pinpoint91. The revenue further submitted that the validity of the amendment can be tested especially in the case of exclusions or exemptions on limited grounds - invalidity, arbitrariness, unreasonableness, 100 H (2006) 5 SCC 100

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discrimination; and the assessees have not made out a case under any A such ground. Also, by referring to In Re: Trustees of the Tribune and All India Spinners Association of Mirzapur(supra), it was contended that “general public utility” is only a statutory creation so as to form part of charitable purposes and it can always be given a statutory import by subjecting it to conditions and limitations prescribed under Section 2(15), B at different points of time. In other words, it can always be regulated or modulated through statutory prescriptions, conditions, and limitations while granting an exemption from taxation. The submission of the assessees, that one has to look only at the objects to determine if it constitutes charitable purpose for Section 2(15) of the Act, is to be rejected because exemptions or exclusions are not based on mere objects of trust but on whether the purpose of the trust is “advancement of any other object of general public utility”. III. Analysis and reasoning

92Copy pinpoint92. 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 F of Commerce (supra) where the chamber of commerce had among its objects, one enabling it to advocate policies or legislation, or oppose them, in addition to the object of promoting business, held that the incidental inclusion of such objects, involving espousing a political purpose, did not undermine its essential or main purpose, of advancing objects of general G public utility. The new provision, i.e., Section 2(15) of the IT Act, defined “charitable purpose” restrictively: to deny tax exemption to activities for profit which were carried on by a trust for the advancement of an object of general public utility. The reason for this change (discussed previously) was that the advantage of tax exemption was not intended H

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A to charitable trusts that were commercial concerns, which while ostensibly serving a public purpose, were fully paid for the benefits provided by them.

93Copy pinpoint93. The first two decisions of some note are Lok Shikshana Trust and Indian Chamber of Commerce (supra). The former decision, by majority, held that to qualify as a charitable purpose, two ingredients had to be satisfied. It was held that the change in the definition meant that to be the fourth category of charitable purpose, it was necessary to show that “(1) the purpose of the trust is the advancement of any other object of general public utility, and (2) the above purpose does not involve the carrying on of any activity for profit. Both the above conditions must be fulfilled before the purpose of the trust can be held to be charitable purpose.”

94Copy pinpoint94. In Indian Chamber of Commerce this court categorically held that even if the activity for profit, is to further an object of general public utility, the charity could not claim of exemption. The court went on to indicate the following test: “21. The true test is to ask for answers to the following questions: (a) Is the object of the assessee one of general public utility? (b) Does the advancement of the object involve activities bringing in moneys? (c) If so, are such activities undertaken (i) for profit or (ii) without profit? Even if (a) and (b) are answered affirmatively, if (c)(i) is answered affirmatively, the claim for exemption collapses. The solution to the problem of an activity being one for or irrespective of profit is gathered on a footing of facts. What is the real nature of the activity? One which is ordinarily carried on by ordinary people for gain? Is there a built-in prescription in the constitution against making a profit?....”

95Copy pinpoint95. The decision in Surat Art Silk, needs careful scrutiny, not only because it is by a larger Bench, but also because it has been the bulwark 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 H

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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 Commerceand 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 itconsidered the previous decisions of the court, it consciously departed from them, and even overruled the interpretation in Indian Chamber of Commerce (supra). The larger Bench in Surat Art Silk agreed with the previous decisions to the effect that the motivation for the activity in question (i.e., for it to be charitable) should not be deriving of profits. However, the larger Bench enunciated the principle of ‘predominant object’ and held that what was of importance was “whether the predominant object of the activity involved in carrying out the object of general public utility is to subserve the charitable purpose or to earn profit” and that such an entity would not lose its charitable character merely because some profit arose from the said activity.

96Copy pinpoint96. Thus, was born the ‘predominant object’ test, of an organization, to determine whether it was essentially charitable, or ‘for profit’. If the predominant object was not for profit, but advancement of general public utility, that some profits were earned, would not debar it from claiming to be an organization with a charitable purpose. However, if the predominant object was such that profit making was“enwrapped”or “intertwined”with it, the organization or trust could not be called charitable. Crucially, the court emphasized that the manner of carrying on of the activity in question, was determinative: “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.”

97Copy pinpoint97. Interestingly, the test proposed by the majority judgment in Surat Art Silk is similar to the one advocated in Indian Chamber of Commerce (which it overruled). The difference in approach is that Surat Art Silk advocated the “predominant object” test to see whether the H

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A object is for advancement of general public utility, bereft of profit motive, whereas in Indian Chamber of Commerce (supra), the court did not deal with or visualize consideration of a “predominant object”. The second difference between the two decisions, is that Surat Art Silk stated that there is no need for an express provision in the constitution of a given trust, eschewing profit motive, whereas in Indian Chamber of B Commerce, the necessity of such a condition was highlighted.

98Copy pinpoint98. The judgments of this court, after Surat Art Silk (supra),noticed the enunciation of, and the need to apply the test of “dominant” object. In Commissioner of Income Tax v. Federation of Indian Chambers of Commerce and Industries101 it was, thus held: C “In other words, the majority view in the Surat Art Silk’s case (supra) was that the condition that the purpose should 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 D 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.”

99Copy pinpoint99. 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 a State Bar Council to promote and support measures for law reform as also to conduct law seminars and organise talks on legal topics by eminent jurists, obviously with a view to educate the general public, the function prescribed by Clause (eee) is obviously charitable in nature, the same being to organise legal aid to the poor.

101 H 1981 (3) SCR489

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Amongst these various obligatory functions one under Clause A (d) is to safeguard the rights, privileges and interests of the advocates on its roll and it is difficult to regard it as a primary or dominant function or purpose for which the body is constituted. Even this function apart from securing speedy discharge of obligations by the litigants to the lawyers ensures maintenance of high professional standards and independence of the Bar which are necessary in the performance of their duties to the society. In other words, the dominant purpose of a State Bar Council as reflected by the various obligatory functions is to ensure quality service of competent lawyers to the litigating public, to spread legal literacy, promote law reforms and provide legal assistance to the poor while the benefit accruing to the lawyer-members is incidental…”

100Copy pinpoint100. The view that prevailed, after the decision in Surat Art Silk (supra), therefore, was that so long as the “dominant” object of a trust was charitable, and it did not essentially involve in business or commercial activity, the generation of profits, or surpluses by it, through activities, incidental to that main or dominant activity, did not undermine its charitable purpose, as long as the surpluses or profits, were used for the advancement of an object of general public utility.

101Copy pinpoint101. An interesting detail, is that the old Act did not define E “charitable purpose” restrictively, in the manner that the IT Act did, when enacted, in 1961. This lent a fair degree of interpretive flexibility, to the courts, to decide whether a commercial or business element, could be interwoven with a charitable object. The amendment of 1953 ensured that income “applied or accumulated for application to such .. F 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…” 102 could not be includedas taxable income of any charitable organization. This provision is a precursor for Section 11 under the IT Act. In other words, the structure of the old Act did not prohibit the carrying on of G 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 Section 4(3)(i) of the old IT Act. H

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102Copy pinpoint102. The second aspect is thatSurat 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;”

103Copy pinpoint103. The interpretation in Surat Art Silk (supra), obviously could not have been affected, in the light of a subsequent amendment; however, what is of significance is that with effect from 01.04.1977, the condition of actual carrying on a primary purpose of the trust while conducting business was visualised only in the case of trusts involved in relief of the poor, education or medical relief. The majority judgment in Surat Art Silk(supra)recognized this: “8. […] Where therefore, there is a charitable trust or institution falling within any of the first three categories of charitable purpose set out in Section 2 Clause (15) and it carries on business which is held by it under trust for its charitable purpose, income from such business would not be exempt by reason of Section 13(1)(bb). Section 11 Sub-section F (4) would, therefore, have no application in case of a charitable trust or institution falling within any of the first three heads of ‘charitable purpose’.” Yet, the court enunciated and applied the ‘predominant object’ test.103 The conscious omission of the last object,i.e., theGPUcategory, G in the newly inserted 13(1)(bb), therefore, meant that when those trusts, while carrying out the object of advancement of general public utility, had to conduct of business, the income was to be taxed (because the main provision, under Section 13(1) excluded the operation of Sections 11 and 12). 103 H See para 19 of Surat Art Silk (extracted above at paragraph 18 of this judgment).

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104Copy pinpoint104. The next significant change, which occurred was with the A Finance Act, 1983 (w.e.f.01.04.1984). This amendment: (a) omitted the restrictive words under Section 2(15) i.e. “not involving the carrying on of any activity for profit” (b) omitted Section 13(1)(bb) B (c) Section 11(4A) was inserted104, by which- in relation to charities set up with the object of general public utilities, “business”could be “carried on by an institution wholly for charitable purposes and the work in connection with the business is mainly carried on by the beneficiaries of the institution, and separate books of account are maintained by the trust or institution in respect of such business”.

105Copy pinpoint105. It is therefore clear that after 1 April, 1984, the statute did not contain any restriction as to the nature of activity that could be carried on by GPU category charity. Furthermore, the condition in Section 13(1)(bb) - which applied to other kinds of trusts, i.e., 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.

106Copy pinpoint106. 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 definitionclause. The IT Act, however, defined charitable purpose- at the outset, restrictively, and then, substantively 104 “(4A) Sub-section (1) or sub-section (2) or sub-section (3) or sub-section (3A) shall not apply in relation to any income, being profits and gains of business, unless– (a) the business is carried on by a trust wholly for public religious purposes and the business consists of printing and publication of books or publication of books or is of a kind notified by the Central Government in this behalf in the Official Gazette; or (b) the business is carried on by an institution wholly for charitable purposes and the work in connection with the business is mainly carried on by the beneficiaries of the institution, and separate books of account are maintained by the trust or institution in respect of such business. …” H

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