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Income Tax Act 1961: ss. 2(15) proviso – Tax exemption – Claim of, by Charitable institutions advancing an object of generally public utility-GPU – ‘Charitable Purpose’ – Interpretation of – Term of “any other object of generally public utility not being 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” – Interpretation and scope of – Held: Assessee advancing general public utility cannot engage itself in any trade, commerce or business, or provide service in relation thereto for any consideration, “cess, or fee, or any other consideration” – However, in the course of achieving the object of general public utility, the concerned trust, society, or other such organization, can carry on trade, commerce or business or provide services in relation thereto for consideration, provided that the activities of trade, commerce or business are connected to the achievement of its objects of GPU; and the receipt from such business or commercial activity or service in relation thereto, does not exceed 20% of total receipts of the previous year – Charging of any amount towards consideration for an activity advancing general public utility, which is on cost-basis or nominally above cost, cannot be considered to be “trade, commerce, or business” or any services in relation thereto – It is only when the charges are markedly or significantly above the cost incurred by the assessee, that they would fall within the mischief of “cess, or fee, or any other consideration” towards “trade, commerce or business” – Section 11(4A) must be interpreted harmoniously with s. 2(15), the requirement in s. 11(4A) of maintaining separate books of account is also in line with the necessity of demonstrating that the quantitative limit prescribed in the proviso to s. 2(15), has not been breached – ss. 10(23C), 13(8), 11(4A) and 143(3). s. 11(4), 11(4A) – Business held under Trust and Trust carrying on business – Distinction between – Discussed.ss. 2(15) – Tax exemption, claim of by the Statutory corporations, authorities or bodies; Statutory regulatory bodies/ authorities; Trade Promotion bodies, councils, associations or organizations; Non-statutory bodies-ERNET, NIXI and GSI India; State Cricket Associations;and Private trusts as a General Public Utility charity – Certain kinds of income or receipts, may not be characterized as derived from trade, commerce or business in relation to activities of General Public Utility, for a consideration – Held: As regards, Statutory Authorities, corporations, or bodies receipts are prima facie to be excluded from the mischief of business or commercial receipts, since their objects are essential for advancement of public purposes/functions – However, if the consideration or amounts charged are significantly higher than the cost and a nominal mark-up, then the receipts would indicate that the activities are in fact in the nature of “trade, commerce or business” and would have to comply with the quantified limit in the proviso to s. 2(15) – For the Statutory regulators, to be considered as one with ‘charitable purpose’ eligible for exemption under the IT Act, the overall quantitative limit prescribed in the proviso to s. 2(15) (as amended from time to time) has to be complied with – Trade promotion bodies involved in advancement of objects of general public utility can claim exemption – However, income or receipts for providing the additional services would be business or commercial in nature – As regards, non-statutory bodies performing public functions, such as ERNET and NIXI are engaged in important public purposes – Fees or consideration charged by them for the purposes provided are nominal – However, their claim have to be ascertained on year to year basis – Further, GSI India is involved in advancement of general public utility, its services are for the benefit of trade and business, from which they receive significantly high receipts – Therefore, GSI India is not eligible for the exemption – Private Trusts-Tribune Trust cannot benefit from exemption offered to entities covered by s. 2(15) as the income received from advertisements, constituted business or commercial receipts – Limit prescribed in the proviso to s. 2(15) has to be adhered to for the Trust’s claim of being as a charity eligible for exemption – So far as Sports associations is concerned, matter requires further scrutiny. Interpretation of Statute : Aids to Interpretation – History of legislation, other extrinsic aids to construction of the statute, viz, speeches in Parliament and departmental circulars – Relevance of – Explained. |
