[2022] 143 taxmann.

com 278 (SC)/[2023] 291 Taxman 11 (SC)/[2022] 449 ITR 1

(SC)[19-10-2022]

INCOME TAX : So long as a GPU's charity's object involves activities which also
generates profits (incidental), it can be granted exemption provided quantitative limit
(of not exceeding 20 per cent) under second proviso to section 2(15) for receipts
from such profits, is adhered to
INCOME TAX : Statutory Corporations, Boards, Authorities, Commissions, etc. (by
whatsoever names called) in housing development, town planning, industrial
development sectors are involved in advancement of objects of general public utility,
therefore are entitled to be considered as charities in GPU categories
INCOME TAX : Statutory regulatory bodies which regulate professions and are
created by or under statutes which are enjoined to prescribe compulsory courses to
be undergone before individuals concerned is entitled to claim entry into profession
or vocation, and also continuously monitor conduct of its members do not ipso
factocarry on activities in nature of trade, commerce or business, or services in
relation thereto
INCOME TAX : Bodies involved in trade promotion (such as AEPC), or set-up with
objects of purely advocating for, co-ordinating and assisting trading organisations,
can be said to be involved in advancement of objects of general public utility
INCOME TAX : Where assessee, Education and Research Network (ERNET), provided
Network Access Services, Network Application Services etc. and its receipts were
not of such nature which could be called as fees or consideration, assessee's
activities were charitable and it was not engaged in any business or commercial
activities
INCOME TAX : Where assessee-GS1 provided coding services in relation to
business, trade or commerce for a fee or other consideration even though coding
system was capable of being used by other sectors, in welfare or public interest
fields, however, contribution of assessee's revenues from segments of welfare or
public interest was absent, and materials on record only showed that coding
services were used for commercial or business purposes, since assessee was
involved in advancement of general public utility from which they received
significantly high receipts, its claim for exemption could not succeed having regard
to amended section 2(15)
INCOME TAX : National Internet Exchange of India (NIXI), established for promotion
and growth of internet services in India by Govt. was a GPU category charity, it was
not involved in trade, commerce or business
INCOME TAX : Where assessee-cricket associations were entitled to 70 per cent of
revenue from sale proceeds of media right and this formed part of arrangement by
which consideration flowing from such commercial rights had been agreed to be
shared amongst all members of BCCI and on close scrutiny of expenses borne it
was noted that assessees did not disclose any significant proportion which they
expended towards sustained or organized coaching camps or academies, true
nature of receipts flowing from BCCI into corpus of assessees was not determined in
proper way and, thus, matter was to be remanded to Assessing Officer for decision
afresh
 INCOME TAX : Where assessee-trust was constituted to maintain a press where 85
per cent of trust's revenue was derived from advertisement, even if publication of
advertisement was intrinsically linked with funding of newspaper activity, same was
no basis for holding that publishing advertisement would not constitute business
INCOME TAX : Where assessee-society, established for running health club entered
into arrangements with state agencies to supply mid-day meals to students of
primary schools, since assessee's object did not include activity of cooking and
supplying mid-day meals by entering into contract, however, it was apparent from
record that receipt from said activities did not exceed quantitative limit of Rs. 10
lakhs as per proviso to section 2(15) which was prescribed at relevant point of time,
activity could be said to be driven by charitable purpose
INCOME TAX : Nature of activities of Authorities set-up under Seeds Act, 1966 is not
by way of trade, commerce or business nor is in relation to trade, commerce,
business for some form of consideration

■■■

[2022] 143 taxmann.com 278 (SC)

SUPREME COURT OF INDIA
Assistant Commissioner of Income-tax (Exemptions)
v.
Ahmedabad Urban Development Authority*
UDAY UMESH LALIT, CJI.
S. RAVINDRA BHAT AND PAMIDIGHANTAM SRI NARASIMHA, JJ.
T. CIVIL APPEAL NOS. 21762 OF 2017 AND OTHS. †
OCTOBER 19, 2022

I. Section 2(15), read with sections 11 and 12A, of the Income-tax Act, 1961 - Charitable
purpose (Objects of general public utility) - Whether an assessee advancing general public
utility cannot engage itself in any trade, commerce or business, or provide service in relation
thereto for any consideration - Held, yes - Whether however, in course of achieving object of
general public utility, concerned trust, society, or other such organization, can carry on
trade, commerce or business or provide services in relation thereto for consideration,
provided that (i) activities of trade, commerce or business are connected to achievement of
its objects of general public utility and (ii) receipt from such business or commercial activity
or service in relation thereto, does not exceed quantified limit i.e. 20 per cent of total receipts
of previous year - Held, yes - Whether term 'incidental' in section 11(4A) is to be interpreted
in light of sub-clause (i) of proviso to section 2(15), i.e., that activity in nature of business,
trade, commerce or service in relation to such activities should be conducted actually in
course of achieving GPU object, and income, profit or surplus or gains can then, be logically
incidental - Held, yes - Whether thus, so long as a GPU's charity's object involves activities
which also generates profits (incidental), it can be granted exemption provided quantitative
limit (of not exceeding 20 per cent) under second proviso to section 2(15) for receipts from
such profits, is adhered to - Held, yes [Paras 168 and 253] [Partly in favour of assessee]
II. Section 10(46), read with sections 2(15) and 10(23C), of the Income-tax Act, 1961 - Body,
Authority, Board, etc., constituted for benefit of general public (General) - Whether Statutory
Corporations, Boards, Authorities, Commissions, etc. (by whatsoever names called) in
housing development, town planning, industrial development sectors are involved in
advancement of objects of general public utility, therefore are entitled to be considered as
charities in GPU categories - Held, yes - Whether if statutory corporations within section
10(46) derive their income by charging a nominal mark-up over cost of service rendered or
goods supplied, meant to recover costs of activities they engage in primarily or to achieve
object for which they were set-up, such as development of housing, road infrastructure,
water supply, sewage treatment, supply of food grains, medicines, etc., with or without
regulatory powers, mere fact that some surplus or gain is derived would not disentitle them
from benefit of section 10(46) - Held, yes - Whether however, amounts which are significantly
higher than recovery of costs, have to be treated as receipts from trade, commerce or
business and quantitative limit in proviso to section 2(15) applies but no such activities
would be permitted to local authorities and corporations - Held, yes [Paras 182 and 188] [In
favour of assessee]
III. Sections 2(15), read with sections 10(23C) and 11, of the Income-tax Act, 1961 - Charitable
purpose (Object of general public utility) - Whether Statutory regulatory bodies such as ICAI
which regulate professions and are created by or under statutes which are enjoined to
prescribe compulsory courses to be undergone before individuals concerned is entitled to
claim entry into profession or vocation, and also continuously monitor conduct of its
members, do not ipso facto carry on activities in nature of trade, commerce or business, or
services in relation thereto - Held, yes - Whether however if level of fees or collection
towards forms, brochures, or exams are significantly higher than cost, such income would
attract mischief of proviso to section 2(15), and would have to be within limits prescribed by
sub-clause (ii) of proviso to section 2(15) - Held, yes [Paras 197 and 199] [In favour of
assessee]
IV. Section 2(15), read with section 10(23C), of the Income-tax Act, 1961 - Charitable purpose
(Object of general public utility) - Whether bodies involved in trade promotion (such as
AEPC), or set-up with objects of purely advocating for, co-ordinating and assisting trading
organisations, can be said to be involved in advancement of objects of general public utility -
Held, yes - Whether however, if such organisations provide additional services such as
courses meant to skill personnel, providing private rental spaces in fairs or trade shows,
consulting services, etc. then income or receipts from such activities, would be business or
commercial in nature - Held, yes [Para 205] [Partly in favour of assessee]
V. Section 2(15), read with section 10(23C), of the Income-tax Act, 1961 - Charitable purpose
(Object of general public utility) - Assessees, Education and Research Network (ERNET),
was started as a planned project of Government of India under Department of Electronics
(DoE) with support of United Nations Development Programme (UNDP) - Programme was
focused on integrating information technology and internet tools with learning environment,
to enhance quality of education - It provided Network Access Services, Network Application
Services etc. - Materials on record nowhere suggested that its receipts (in nature of
membership fee, connectivity charges, data transfer differential charges, and registration
charges) were of such nature as to be called as fees or consideration towards business,
trade or commerce, or service in relation to it - Functions ERNET performed were vital to
development of online educational and research platforms - Whether having regard to nature
of ERNET's activities, it could not be said that they were in nature of trade, commerce or
business, or service, towards trade, commerce or business - Held, yes [Paras 208 and 209
and 253] [In favour of assessee]
VI. Section 2(15), read with section 10(23C), of the Income-tax Act, 1961 - Charitable purpose
(Object of general public utility) - Assessee-GS1 was a not-for profit organisation created by
Indian government which had acquired coding system developed and created by Belgium
based company, GS1 International - It was noted that objective of assessee were to provide
service in relation to business, trade or commerce for a fee or other consideration even
though coding system it possessed and facilities it provided, were capable of being used by
other sectors in welfare or public interest fields - Whether since there was no figures
showing contribution of assessee's revenues from segments of welfare or public interest
and materials on record showed that coding services were used for commercial or business
purposes, claim for exemption could not succeed having regard to amended section 2(15) -
Held, yes [Paras 217 and 253] [In favour of revenue]
VII. Section 2(15), read with section 10(23C), of the Income-tax Act, 1961 - Charitable purpose
(Object of general public utility) - National Internet Exchange of India (NIXI) was established
in 2003 under aegis of Ministry of Information Technology of Union Government for
promotion and growth of internet services in India, to regulate internet traffic, act as an
internet exchange, and undertake '.in' domain name registration - Finding of Tribunal and
High Court were that NIXI's objects and functioning were by way of general public utility and
thus it was a GPU category charity - Whether since NIXI carried on essential-crucial purpose
of promoting internet services and more importantly, regulating domain name registration
which was extremely essential for internet users in India, revenue's contention that NIXI did
not merely carry-on public purpose of regulatory activity but was involved in trade,
commerce, or business or in providing service in relation thereto, could not be accepted -
Held, yes [Paras 211 and 253] [In favour of assessee]
VIII. Section 2(15), read with section 10(23C), of the Income-tax Act, 1961 - Charitable
purpose (Object of general public utility) - Assessee-cricket associations were established to
promote or encourage and develop game of cricket in area under its jurisdiction - Assessing
Officer denied claim of assessees that they were charities on ground that their nature of
relationship with BCCI which included granting media rights consideration with respect to
matches organised, advertisement money etc. amounted to business or commercial activity
- Tribunal held that amounts received by assessee were in nature of infrastructure subsidy
and not commercial in nature - High Court upheld said order - It was noted that all assessees
put together were entitled to 70 per cent of revenue from sale proceeds of media rights and
this formed part of arrangement by which consideration flowing from such commercial
rights had been agreed to be shared amongst all members of BCCI - Also on close scrutiny
of expenses borne it was noted that assessees did not disclose any significant proportion
which they expended towards sustained or organized coaching camps or academies -
Whether thus, true nature of receipts flowing from BCCI into corpus of assessees was not
determined and matter was to be remanded to Assessing Officer for decision afresh - Held,
yes [Paras 238 and 253] [Matter remanded]
IX. Section 2(15), read with section 10(23C), of the Income-tax Act, 1961 - Charitable purpose
(Object of general public utility) - Assessee, Tribune trust, was constituted pursuant to a will
wherein it was directed that trustees ought to maintain a press and a newspaper - Trust was
treated as a general public utility category charity and was exempted under section 10(23C)
(iv) - In assessment year 2009-10, after considering revised return of trust, Assessing Officer
held that activity of publication was carried on commercial lines with object of earning profit
and denied exemption under section 10(23C) - High Court held that 85 per cent of trust's
revenue was derived from advertisement and thus, trust's income derived from its activities
were based on profit motive - Whether since newspaper published by trust was mainly
funded through advertisement, same was no basis for holding that publishing advertisement
would not constitute business - Held, yes - Whether, thus, even though publication of
advertisement was intrinsically linked with newspaper activity, condition imposed by sub-
clause (ii) of proviso to section 2(15), was to be fulfilled - Held, yes [Para 245] [In favour of
revenue]
X. Section 2(15), read with section 10(23C), of the Income-tax Act, 1961 - Charitable purpose
(Object of general public utility) - Assessee was a registered society formed with object of
establishing and running a health club - Assessee entered into arrangements with State
agencies to supply mid-day meals to students of primary schools - Assessee claimed that it
only obtained nominal charges for preparation of mid-day meal - Tribunal held that supply of
mid-day meal would not constitute business or commerce and it promoted objects of
general public utility - Whether assessee's objects involved maintenance of health clubs but
said objects did not include activity of cooking and supplying mid-day meals by entering
into contract, however, it was apparent from record that receipt from said activities did not
exceed quantitative limit of Rs. 10 lakhs as per proviso to section 2(15) which was
prescribed at relevant point of time, activity could be said to be driven by charitable purpose
- Held, yes [Para 252] [In favour of assessee]
XI. Section 2(15), read with section 10(23C), of the Income-tax Act, 1961 - Charitable purpose
(Object of general public utility) - Andhra Pradesh State Seeds Certification Authority and
Rajasthan State Seeds and Organic Production Certification Agency, two entities were set-up
as societies under section 8 of Seeds Act, and comprised of farmers, farmers co-operatives'
representatives, seed certification authorities etc. - Task of these agencies and authorities
was certification of seeds, to decide whether to certify supply of seeds of 'any notified kind
or variety', by applicants who might wish to offer them for trade - These agencies/authorities
scrutinized samples to ensure applicants conform to requisite standard notified under
section 6 of Seeds Act - Whether nature of their activities was not by way of trade, commerce
or business, nor service in relation to trade commerce, business, for some form of
consideration - Held, yes [Para 199] [In favour of assessee]
Words and phrases : Word 'incidental' as arising in section 11 of the Income-tax Act, 1961
Circulars and Notifications : Circular No. 11/2008, dated 19-12-2008 and Circular No. 1/2009,
dated 27-3-2009.
INTERPRETATION OF STATUTE: Aids to interpretation - History of the legislation
FACTS

■ The assessee (AUDA) was constituted as Urban Development Authority by the State Government in
exercise of powers under section 22 of the Gujarat Town Planning and Urban Development Act, 1976
(Town Planning Act). The function of the AUDA as Urban Development Authority were to undertake the
preparation and execution of town planning schemes under the provisions of the Act.
■ The assessee filed its return declaring total income after claiming deduction under section 11, read with
section 2(15).
■ The Assessing Officer held that activities of the assessee could not be said to be for 'charitable purpose' in
light of the proviso to section 2(15) and, therefore, the assessee was not entitled to deduction claimed
under section 11.
■ The Commissioner (Appeals) as well as the Tribunal confirmed the disallowance made under section 11
on the ground that the case of the assessee was covered by proviso to section 2(15).
■ Various High Courts had held that the carrying on of any trade, commerce, or business was not a per se
bar or disqualification for a GPU(General Public Utility) category charitable trust to claim to be such,
precluding its tax-exempt status under Income-tax Act.
■ The question came up for consideration was whether the activities of the assessee like authorities could be
said to be in nature of trade, commerce and business and, hence, it could not be regarded as activity for
charitable purpose in view of the proviso to section 2(15).
HELD

A. Interpretation of section 2(15)

■ The position with respect to what kind of activities GPU charities could legitimately undertake, was in a
state of flux till 2015. However, the amendments cumulatively point to prohibitions that were constant: (1)
the prohibition applicable to such charities involved in carrying on activities "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". (2) "irrespective of the nature of use or application,
or retention, of the income from such activity" (i.e. activity in the nature of trade, commerce or business
for a cess, fee or other consideration). By retrospective amendment, in section 2(15), after the proviso, a
second proviso was inserted with effect from 1-4-2009. With the introduction of the second proviso, the
resulting situation was that the first proviso (of exclusion of income through an activity as referred to) was
inapplicable if the aggregate value of the receipts of such activity did not exceed Rs. 10,00,000, and later
by Finance Act, 2012 - this was enhanced to Rs. 25,00,000. The next important change took place through
the Finance Act, 2015, which, w.e.f. 1-4-2016 substituted the two provisos to section 2(15). [Paras 133 to
135]
■ The limited relief, given by the second proviso, to GPU charities (for the period 2009-2015) was that in
case such GPU category charities did carry on activities undertaken in the course of actual carrying out of
their GPU objects that were in the nature of trade, commerce or business, or rendered any service in
relation to trade, business, etc., and collected fee, cess, or other consideration, such income could still be
exempt, if it did not exceed Rs. 10,00,000 (and later, Rs. 25,00,000). By the amendment of 2015, the
 second proviso was deleted and two conditions were introduced, with respect to permissibility of carrying
on trade, commerce, etc:

(i) such activity is undertaken in the course of actual carrying out of such advancement of any other
object of general public utility; and
(ii) the aggregate receipts from such activity or activities during the previous year, do not exceed
twenty per cent of the total receipts, of the trust or institution undertaking such activity or activities,
of that previous year. [Para 136]

■ Parliamentary endeavour, was to alter the regime applicable to taxation of GPU category charities, under
the IT Act. The absolute bar imposed on GPU charities from carrying on activities in the nature of trade,
commerce or business, or of rendering any service in relation to any trade, commerce or business, for a
cess or fee or any other consideration, evidences this intent. The original section 2(15) did not allude to
trade, commerce or business, or any service in relation to such activities. It only enjoined the GPU
charities from involving themselves from carrying on of any activity for profit (which was interpreted in
Surat Art Silk). This substantial change brought about by the amendments of 2008-2012 and 2015 is the
prohibition from engaging in any kind of activity in the nature of business, commerce, or trade or any
rendering any service in relation thereto, and earning income by the way of cess, fee or consideration. In
the opinion of this court, the express deletion of the reference to 'activity for profit' on the one hand, and
the enactment of an expanded list of what cannot be done by GPU charities if they are to retain their
characteristic as charities, is an emphatic manner in which Parliament wished to express itself. [Para 138]
■ From New Delhi Municipal Council v. State of Punjab [1979] 7 SCC 339, it is clear that not every state
activity resembling commerce can be considered per se exempt from union taxation, in the context of
Article 289. The court also emphasized that mere sale or lease of government property does not imply
trade or business. The crucial or determinative element in the venture, so to say, is whether performance
of a function is actuated by profit motive. [Para 141]
■ What then is the true meaning of the expressions "fee, cess or consideration"? The careful analysis of the
amended proviso to section 2(15), reveal that the prohibition applies in a four-fold manner-
(a) The bar to engaging in trade, commerce or business,
(b) The bar to providing any service in relation to trade, commerce or business,
(c) Wherein "for a fee, cess or any other consideration" is the controlling phrase for both (a) and (b)
(which are collectively referred to as "prohibited activities" for brevity)
(d) Irrespective of the application of the income derived from such 'prohibited activities'. [Para 142]

■ The impermissibility of any trade, or commercial activity or service, and income, from them, was intended
to be conveyed through the prohibition, in the first part of the definition of GPU charities. The necessary
implication which arises is that income (received as fee, cess, or any other consideration) derived from
such 'prohibited activities' is necessarily motivated by profit. The ordinary meaning of fee or consideration
would be synonymous with something of value, usually in monetary terms. However, the use of the
expression "cess" facially lends a different colour to all the three expressions. [Para 143]
■ "Fee, cess and any other consideration" has to receive a purposive interpretation, in the present context. If
fee or cess or such consideration is collected for the purpose of an activity, by a state department or entity,
which is set-up by statute, its mandate to collect such amounts cannot be treated as consideration towards
trade or business. Therefore, regulatory activity, necessitating fee or cess collection in terms of enacted
law, or collection of amounts in furtherance of activities such as education, regulation of profession, etc.,
are per se not business or commercial in nature. Likewise, statutory boards and authorities, who are under
mandate to develop housing, industrial and other estates, including development of residential housing at
reasonable or subsidized costs, which might entail charging higher amounts from some section of the
beneficiaries, to cross-subsidize the main activity, cannot be characterized as engaging in business. The
character of being 'state', and such corporations or bodies set-up under specific laws (whether by states or
the centre) would, therefore, not mean that the amounts are 'fee' or 'cess' to provide some commercial or
business service. In each case, at the same time, the mere nomenclature of the consideration being a "fee"
or "cess", is not conclusive. If the fee or cess, or other consideration is to provide an essential service, in
 larger public interest, such as water cess or sewage cess or fee, such consideration, received by a statutory
body, would not be considered "trade, commerce or business" or service in relation to those. Non-statutory
bodies, on the other hand, which may mimic regulatory or development bodies - such as those which
promote trade, for a section of business or industry, or are aimed at providing facilities or amenities to
improve efficiencies, or platforms to a segment of business, for fee, whether charged by subscription, or
specific fee, etc., may not be charitable; when they claim exemption, their cases would require further
scrutiny. [Para 144]
■ Therefore, what Parliament intended - through the amendments in question was to proscribe, involvement
or engagement of GPU charities, from any form ("in the nature of") of activities that were trade, business
or commerce, or engage or involve in providing services in relation to trade, business or commerce- for a
fee, cess or other consideration. The inclusion of the term "in the nature of" was by design, to clarify
beyond doubt, that not only business, trade or commerce, but all activities in the nature of, or resembling
them, were proscribed. Likewise, service in relation to such activities, i.e., services relating, or pertaining
to, such proscribed activities, too were forbidden. [Para 150]
■ The reference to fee or cess, is in the opinion of the court, only to emphasize that even a statutory
consideration, for a service to business, trade or commerce, would take the activity outside the definition
of a GPU charity. The sense in which the expressions "cess, fee or other consideration" are used, is that if
any amount, is received for trading, or business or commercial activity, or any services to such activity,
then, notwithstanding their nomenclature (as fee or cess, i.e. that they are fixed under a law) the GPU
charity cannot claim tax exempt status. To bring home this even more pointedly- and underline a break
from the past, the application of such amounts (received in the course of trade, commerce, or business, or
towards services in relation thereto) would be irrelevant, as evidenced by the term "irrespective", in the
fourth limb of reading section 2(15). [Para 151]
Summation of interpretation of section 2(15)

■ Section 2(15) - in the wake of its several amendments between 2008 and 2015 - can be juxtaposed with
the interpretation of the unamended section 2(15) by this Court. In Asstt. CIT v. Surat Art Silk Cloth
Manufacturers Association [1980] 121 ITR 1/[1980] 2 SCC 31, the principle enunciated was that so long
as the predominant object of GPU category charity is charitable, its engagement in a non-charitable object
resulting in profits that are incidental, is permissible. The court also declared that profits and gains from
such activities which were non-charitable had to be deployed or "fed" back to achieve the dominant
charitable object. [Para 152]
■ The paradigm change achieved by section 2(15) after its amendment in 2008 and as it stands today, is that
firstly a general public utility (GPU) charity cannot engage in any activity in the nature of trade,
commerce, business or any service in relation to such activities for any consideration (including a
statutory fee etc.). This is emphasized in the negative language employed by the main part of section
2(15). Therefore, the idea of a predominant object among several other objects, is discarded. The
prohibition is relieved to a limited extent, by the proviso which carves out the condition by which
otherwise prohibited activities can be engaged in by GPU charities. The conditions are:
(a) That such activities in the nature of trade, commerce, business or service (in relation to trade,
commerce or business for consideration) should be in the course of "actual carrying on" of the GPU
object, and
(b) The quantum of receipts from such activities should not exceed 20 per cent of the total receipts.
(c) Both parts of the proviso: (i) and (ii) (to section 2(15)) have to be read conjunctively-given the
conscious use of "or" connecting the two of them. This means that if a charitable trust carries on
any activity in the nature of business, trade or commerce, in the actual course of fulfilling its
objectives, the income from such business, should not exceed the limit defined in sub-clause (ii) to
the proviso. [Para 153]
B. Sections 10, 11, 12, 12A, 12AA and 13 of the IT Act

■ The effect of sections 11, 12, 12A, 12AA and 13 have been the subject of certain decisions CIT v.
Dawoodi Bohara Jamat [2014] 43 taxmann.com 243/222 Taxman 228 (Mag.)/364 ITR 31/268 ITR 1
(SC)/[2014] 16 SCC 222; S.RM.M.CT.M. Tiruppani Trust v. CIT [1998] 2 SCC 584 by Supreme Court.
 These decisions have noticed that section 11 deals with income from trusts for charitable and religious
purposes and sets out which shall be subject to tax. Section 11(1) relates to application of income towards
the objects of the trust and exempts income of trusts with objects wholly charitable or religious, or parts of
income which relate to such objects. Section 11(1A) provides for exemption of capital gains derived by
trusts. Section 11(1B), speaks of failure to apply income as per option under Explanation (2) to section
11(1). Section 11(2) relates to setting apart or accumulation of income. Section 11(3) deals with
consequences of misapplication of income or improper investment, while section 11(3A) relates to
modification of purposes specified in Form 10 under section 11(2), section 11(4) and 11(4A) relate to
business income of charitable trusts. Lastly, section 11(5) provides for the prescribed modes of investment
in regard to the said trusts. Section 12 enacts that income of trusts created wholly for charitable or
religious purpose from voluntary contributions would be deemed as income from the property held under
such trust for the purposes of sections 11 and 13. Section 12A prescribes the conditions for applicability of
sections 11 and 12. It enacts two essential conditions which are to be satisfied by a charitable or religious
trust for claiming exemption under those sections: firstly, that the person in receipt of the income has
made an application for registration of the trust on or after 1-6-2007 in the prescribed form and manner to
the Commissioner and such a trust is registered under section 12 AA and secondly, where the total income
of the trust exceeds the maximum amount which is not chargeable to income tax in any previous year, the
accounts of the trust must be audited by a chartered accountant and the person in receipt of the income
should furnish such audit report in the prescribed form along with the return of income. The procedure for
grant (or refusal) of registration is prescribed by section 12AA. Section 13 enlists the circumstances under
which tax exemption is unavailable to religious or charitable trusts otherwise falling under section 11 or
12. Section 13 therefore, has to be read with the provisions of sections 11 and 12 for deciding eligibility of
a trust's claim for exemption. [Para 154]
C. Distinction between business held under Trust [Section 11(4)] and Trust carrying on business [Section
11(4A)].

■ Section 11(4) applies to cases where the business undertaking itself is the property held by a trust. Thus,
where the property held in trust, or where property settled by the donor or trust creator in favour of the
trustees itself is a business undertaking, then the income from such an undertaking is covered by section
11(4). Section 11(4A) operates differently. It is applicable to cases where the trust carries on a business.
Section 11(4A) states that when a trust carries on a business, unless the business is incidental or ancillary
to the attainments of the objectives of the trust, it would be disentitled to an exemption under section
11(1). It imposes a further condition that separate books of account need to be maintained in such cases.
[Para 155]
■ Section 11(1) confers an exemption from tax only where the property itself is held under a trust or other
legal obligation. It does not apply to cases where a trust or legal obligation is not created on any property,
but only the income derived from any particular property or source is set apart and charged for a charitable
or religious purpose. Similarly, when a business itself has been set aside for the objects of the trust, then
such business is held under trust and will fall under sub-section (4). However, where the profits of a
business of a trust are applied for charitable purposes, then such business and trust will be governed by
sub-section (4A). [Para 156]
■ Section 11(1) exempts income derived from property held under trust wholly for charitable or religious
purposes, to the extent to which such income is applied to such purposes in India. The Act does not
comprehensively define "property held under trust". Section 11(4) however, provides that for the purposes
of section 11, the words "property held under trust" "includes a business undertaking so held". [Para 157]
■ Therefore, to summarise on the legal position on this - if a property is held under trust, and such property
is a business, the case would fall under section 11(4) and not under section 11(4A). Section 11(4A), would
apply only to a case where the business is not held under trust. There is a difference between a property or
business held under trust and a business carried on by or on behalf of the trust. [Para 160]
■ The interface between section 11(1) and (4) is of some importance. Firstly, under section 11(4), it is only
the business which is held under the trust that would enjoy exemption in respect of its income under
section 11(1). Secondly, there is a distinction between the objects of a trust and the powers given to the
trustees to effectuate the purposes of the trust. [Para 161]
■ What has to be examined, therefore, is whether the business itself is held under trust or is carried on by
 and on behalf of the trust. Importantly section 11(1) starts with the expression "subject to the provisions of
sections 60 to 63 ". Those provisions are in Chapter V of the Act. Section 60 provides for the
consequences of a transfer of income where there is no transfer of assets. It says that where a person
transfers merely the income from an asset without transferring the asset itself, he would continue to be
chargeable to income tax. Section 61 provides for the consequences of a revocable transfer of assets and
says that the same would be the position where a person is in receipt of income by virtue of a revocable
transfer of assets. Section 62 provides for the consequences of a transfer of assets for a specified period,
and serves as an exception to section 61. An assessee has to be divested of the asset before ceasing to be
assessable in respect of the income from it. A mere direction that the income from the business shall be
applied to the charitable objects of a trust, without there being a settlement of the business itself upon
trust, does not result in any trust or legal obligation. [Para 163]
■ What then is the interpretation of the expression "incidental" profits, from "business" being "incidental to
the attainment of the objectives" of the GPU charity (which occurs in section 11(4A))? As stated earlier,
the interpretation of that expression in Asstt. CIT v. Thanthi Trust [2001] 247 ITR 785/1 SCR 727 (SC)
was in the context of a per se charity, i.e., where the trust's object was education. However, the restrictive
or negative terms enjoining GPU charities from carrying on profitable activity had been deleted in 1983
(w.e.f. 1-4-1984). In Surat Art Silk (supra), the court had articulated the determinative test for defining
whether a Trust was a GPU charity if its predominant object was to carry out a charitable purpose and that
if that was the case, the fact that it earned profit would not per se deprive it of tax exemption. This
decision was interpreted in the context of section 11(4A) by this court in Thanthi Trust, to hold that
business can be incidental to attainment of the trust's objects. [Para 166]
■ Thus, the journey which began with Surat Art Silk was interpreted in Thanthi Trust to mean that the
carrying on of business by GPU charity was permissible as long as it inured to the benefit of the trust. The
change brought about by the amendments in questions, however, place the focus on an entirely different
perspective: that if at all any activity in the nature of trade, commerce or business, or a service in the
nature of the same, for any form of consideration is permissible, that activity should be intrinsically linked
to, or a part of the GPU category charity's object. Thus, the test of the charity being driven by a
predominant object is no longer good law. Likewise, the ambiguity with respect to the kind of activities
generating profit which could feed the main object and incidental profit-making also is not good law.
What instead, the definition under section 2(15) through its proviso directs and thereby marks a departure
from the previous law, is - firstly that if a GPU charity is to engage in any activity in the nature of trade,
commerce or business, for consideration it should only be a part of this actual function to attain the GPU
objective and, secondly - and the equally important consideration is the imposition of a quantitative
standard - i.e., income (fees, cess or other consideration) derived from activity in the nature of trade,
business or commerce or service in relation to these three activities, should not exceed the quantitative
limit of Rs. 10,00,000 (w.e.f. 1-4-2009), Rs. 25,00,000 (w.e.f. 1-4-2012) and 20 per cent (w.e.f. 1-4-2016)
of the total receipts. Lastly, the "ploughing" back of business income to "feed" charity is an irrelevant
factor - again emphasizing the prohibition from engaging in trade, commerce or business. [Para 167]
■ If one understands the definition in the light of the above enunciation, the sequitur is that the reference to
"income being profits and gains of business" with a further reference to its being incidental to the objects
of the Trust, cannot and does not mean proceeds of activities incidental to the main object, incidental
objects or income derived from incidental activities. The proper way of reading reference to the term
"incidental" in section 11(4A) is to interpret it in the light of the sub-clause (i) of proviso to section 2(15),
i.e., that the activity in the nature of business, trade, commerce or service in relation to such activities
should be conducted actually in the course of achieving the GPU object, and the income, profit or surplus
or gains can then, be logically incidental. The amendment of 2016, inserting sub-clause (i) to proviso to
section 2(15) was therefore clarificatory. Thus, interpreted, there is no conflict between the definition of
charitable purpose and the machinery part of section 11(4A). Further, the obligation under section 11(4A)
to maintain separate books of account in respect of such receipts is to ensure that the quantitative limit
imposed by sub-clause (ii) to section 2(15) can be computed and ascertained in an objective manner. [Para
168]
■ The conclusion recorded above is also supported by the language of seventh proviso to section 10(23C).
Whereas section 2(15) is the definition clause, section 10 lists out what is not income. Section 10(23C) -
by sub-clauses (iv) and (v) exempt incomes of charitable organisations. Such organisations and institutions
are not limited to GPU category charities but rather extend to other types of charities (i.e. the per se kind
 as well). The controlling part of section 10(23C) along with the relevant clauses (iv) and (v) seek to
exclude income received by the concerned charities. However, the provisos hedge such exemption with
conditions. The seventh proviso - much like section 11(4A) and the definition - carve out an exception, to
the exemptions such that income derived by charities from business, are not exempt. The seventh proviso
virtually echoes section 11(4A) in that business income derived by a charity (in the present case, the GPU
charities) which arises from an activity incidental to the attainment of its objective is not per se excluded.
[Para 169]
■ Therefore, pure charity in the sense that the performance of an activity without any consideration is not
envisioned under the Act. If one keeps this in mind, what section 2(15) emphasizes is that so long as a
GPU's charity's object involves activities which also generates profits (incidental, or in other words, while
actually carrying out the objectives of GPU, if some profit is generated), it can be granted exemption
provided the quantitative limit (of not exceeding 20 per cent) under second proviso to section 2(15) for
receipts from such profits, is adhered to. [Para 171]
■ Yet another manner of looking at the definition together with sections 10(23) and 11 is that for achieving a
general public utility object, if the charity involves itself in activities, that entail charging amounts only at
cost or marginal mark-up over cost, and also derive some profit, the prohibition against carrying on
business or service relating to business is not attracted - if the quantum of such profits do not exceed 20
per cent of its overall receipts. [Para 172]
■ It may be useful to conclude this section on interpretation with some illustrations. The example of Gandhi
Peace Foundation disseminating Mahatma Gandhi's philosophy (in Surat Art Silk) through museums and
exhibitions and publishing his works, for nominal cost, ipso facto is not business. Likewise, providing
access to low-cost hostels to weaker segments of society, where the fee or charges recovered cover the
costs (including administrative expenditure) plus nominal mark-up; or renting marriage halls for low
amounts, again with a fee meant to cover costs; or blood bank services, again with fee to cover costs, are
not activities in the nature of business. Yet, when the entity concerned charges substantial amounts- over
and above the cost it incurs for doing the same work, or work which is part of its object (i.e., publishing an
expensive coffee table book on Gandhi, or in the case of the marriage hall, charging significant amounts
from those who can afford to pay, by providing extra services, far above the cost-plus nominal mark-up)
such activities are in the nature of trade, commerce, business or service in relation to them. In such case,
the receipts from such latter kind of activities where higher amounts are charged, should not exceed the
limit indicated by proviso (ii) to section 2(15). [Para 173]
■ The insertion of section 13(8), the seventeenth proviso to section 10(23C) and third proviso to section
143(3) (all of which were inserted by Finance Act, 2012, but with retrospective effect from 1-4-2009),
further reinforces the interpretation, of "charitable purpose". These provisions, form the machinery to
control the conditions under which income is exempt. The effect of the seventeenth proviso to section
10(23C) is to impose the same condition i.e., that that the trade, commerce or business activity or service
relating to trade, business or commerce, should be part of the GPU's activities, to achieve its object of
advancing general public utility. The other condition- which is drawn in as part of the exemption
condition, is that if such trading or commercial activity takes place the receipts should be confined to a
prescribed percentage of the overall receipts. Section 13(8) too reinforces the same condition. [Para 174]
■ It is opined that, the change intended by Parliament through the amendment of section 2(15) was sought to
be emphasised and clarified by the amendment of section 10(23C) and the insertion of section 13(8). This
was Parliaments' emphatic way of saying that generally no commercial or business or trading activity
ought to be engaged by GPU charities but that in the course of their functioning of carrying out activities
of general public utility, they can in a limited manner do so, provided the receipts are within the limit spelt
out in clause (ii) of the proviso to section 2(15). [Para 175]
D. What kinds of income or receipts may not be characterized as derived from trade, commerce,
business or in relation to such activities, for a consideration
(i) Statutory corporations, authorities or bodies

■ The definition ipso facto does not spell out whether certain kinds of income can be excluded. However,
the reference to specific provisions enabling or mandating collection of certain rates, tariffs or costs would
have to be examined. Generically, going by statutory models in enactments (under which corporations
boards or trust or authority by whatsoever name, are set-up), the mere fact that these bodies have to charge
 amounts towards supplying goods or articles, or rendering services i.e., for fees for providing typical
essential services like providing water, distribution of food grains, distribution of medicines, maintenance
of roads, parks etc., ought not to be characterized as "commercial receipts". The rationale for such
exclusion would be that if such rates, fees, tariffs, etc., determined by statutes and collected for essential
services, are included in the overall income as receipts as part of trade, commerce or business, the
quantitative limit of 20 per cent imposed by second proviso to section 2(15) would be attracted thereby
negating the essential general public utility object and thus driving up the costs to be borne by the ultimate
user or consumer which is the general public. By way of illustration, if a corporation supplies essential
food grains at cost, or a marginal mark-up, another supplies essential medicines, and a third, water, the
characterization of these, as activities in the nature of business, would be self-defeating, because the
overall receipts in some given cases may exceed the quantitative limit resulting in taxation and the
consequent higher consideration charged from the user or consumer. [Para 177]
■ Section 10(20A) was inserted by Finance Act, 1970 with effect from 1-4-1962. It had excluded certain
classes of income, of corporations. This court had occasion to deal with the provision while it was in force
in the Gujarat Industrial Development Corpn. v. CIT [1997] 94 Taxman 64/227 ITR 414/412 CTR 181
(SC)/1997 Supp (3) SCR 466/[1997] 7 SCC 17 case. The court had then emphasized that the expression
"development" in section 10(20A) should be understood widely; thus, all development programmes
"relating to any industry" fell within the purview of "development". The court also highlighted that
nothing in the IT Act laid down how a corporation could be termed as a development corporation nor was
there anything mandating that fee chargeable by such corporations was confined to non-industrial
activities. [Para 178]
■ The decision in CIT v. Gujarat Maritime Board [2021] 123 taxmann.com 35/277 Taxman 376/428 ITR
152 (Guj.) case was rendered in the context of section 10(20). That provision exempts income accruing to
local authorities, from taxation. By Finance Act, 2002, an Explanation was added to section 10(20) which
defined "local authority" retrospectively. The Board ceased to enjoy exemption which it had hitherto, in
the absence of the retrospective definition. It, therefore sought exemption, as a GPU category charity
claiming that it was controlled by objects of general public utility having regard to the provisions of its
parent Act, i.e., the Gujarat Maritime Board Act. This court refuted the argument of the revenue that if a
corporation did not fall within the definition of "local authority" it could not claim to be a GPU charity. It
was held that section 10(20) and section 11 of the 1961 Act operate in totally different spheres. Even if the
Board is not considered as a local authority, it is not precluded from claiming exemption under section
11(1) of the 1961 Act. Therefore, the court read section 11(1) in light of the definition of the words
"charitable purposes" as defined under section 2(15). This court also relied upon the ruling in CIT v.
Andhra Pradesh Road Transport Corpn. [1986] 1 SCR 570 where the APSRTC - constituted under the
Road Transport Corporation Act, 1950 having regard to the objectives of the Act, was held to be a GPU
charity, thus entitling it to exemption in terms of the IT Act. [Para 179]
■ In the light of these decisions, it is evident that the revenue's narrow construction by which tax exemption
is denied on the ground that if an entity is not covered by section 10(20A) - or the newly applicable
section 10(46), it cannot claim benefit as a GPU charity under section 11, is unsound. These two
provisions confer different though overlapping benefits. If an entity does not fulfil the requirement of one
provision because it does not answer the description of a body under that provision, that ipso facto is not a
bar for it to claim benefit of another provision. [Para 180]
■ Section 10(46) re-incarnated so to say section 10(20A), which had been deleted w.e.f. 1-4-2003. This
provision, i.e., section 10(46) was inserted with effect from 1-4-2009 retrospectively by the Finance Act,
2011. The conditions for applicability of section 10(46), i.e., that specified income or a class of specified
income of ports, trusts or commissions, etc., established or constituted by or under Central or State
enactments with the object of regulating or administering any activity in the general public, is on similar
lines as in the case of GPU charities. Like in the case of GPU charities, there is a prohibition by section
10(46)(b) against such corporations, etc. engaging in commercial activity. This restriction has been
introduced for the first time [as that prohibition was absent in the now repealed section 10(20A)]. [Para
181]
■ The term "commercial" is closely similar to, if not identical, with the phrase "in the nature of trade,
commerce or business." The other condition in section 10(46) is that the specified income to be exempted,
is to be notified by the Central Government in the Official Gazette. Facially the allusion to commercial
 activity, appears to be in the nature of a complete bar to activities which are akin to commerce or business,
yielding profit. However, what needs to be kept in mind is that the object of section 10 is to remove from
the taxable net, an entire class of receipts of income. Given this object of section 10, the interpretation of
"commercial" activity has to be on the same lines as in the case of income derived by GPU charities, in
the course of their actual functioning, by involving in activities in the nature of trade, commerce or
business. Thus, if statutory corporations within section 10(46) derive their income by charging a nominal
mark-up over the cost of service rendered or goods supplied, meant to recover the costs of the activities
they engage in primarily or to achieve the object for which they were set-up, such as development of
housing, road infrastructure, water supply, sewage treatment, supply of food grains, medicines, etc., with
or without regulatory powers, the mere fact that some surplus or gain is derived would not disentitle them
from the benefit of section 10(46). [Para 182]
■ There is a two-fold distinction between the now-deleted section 10(20A) and the newly added section
10(46) (w.e.f. 1-6-2011). Firstly, that the erstwhile section 10(20A) applied to a limited class of
undertaking i.e., the bodies, or corporations, constituted by or under any law-confined to the planning and
development of housing infrastructure. However, the newly added section 10(46) is wider in comparison
and the activities of any body or authority or board constituted by or under any central or State Act with
"the object of regulating or administering any activity for the benefit of the general public", has broader
import. In a sense, the newly added section 10(46), resembles a GPU category charity classified under
section 2(15). The second distinction is that section 10(20A) did not bar any board, or corporations, etc.
from indulging in commercial activities. However, sub-clause (b) of section 10(46) imposes such a bar,
and the concerned body cannot claim tax exemption if it engages in commercial activity. [Para 187]
■ The manner in which GPU charities has been dealt with under the definition clause, i.e., section 2(15),
indicates that even though trading or commercial activity or service in relation to trade, commerce or
business appears to be barred - nevertheless the ban is lifted somewhat by the proviso which enables such
activities to be carried out if they are intrinsically part of the activity of achieving the object of general
public utility. Furthermore, in the case of GPU charities there is a quantified limit of the overall receipts,
which is permissible from such commercial activity. In the case of local authorities and corporations
covered by section 10(46) no such activities are seemingly permitted. [Para 188]
■ In light of the above discussion, it is opined that:
(i) The fact that bodies which carry on statutory functions whose income was eligible to be considered
for exemption under section 10(20A) ceased to enjoy that benefit after deletion of that provision
w.e.f. 1-4-2003, does not ipso facto preclude their claim for consideration for benefit as GPU
category charities, under section 11 read with section 2(15).
(ii) Statutory Corporations, Boards, Authorities, Commissions, etc. (by whatsoever names called) in the
housing development, town planning, industrial development sectors are involved in the
advancement of objects of general public utility, therefore are entitled to be considered as charities
in the GPU categories.
(iii) Such statutory corporations, boards, trusts authorities, etc. may be involved in promoting public
objects and also in the course of their pursuing their objects, involved or engaged in activities in the
nature of trade, commerce or business.
(iv) The determinative tests to consider when determining whether such statutory bodies, boards,
authorities, corporations, autonomous or self-governing government sponsored bodies, are GPU
category charities:
(a) Does the state or central law, or the memorandum of association, constitution, etc. advance
any GPU object, such as development of housing, town planning, development of
industrial areas, or regulation of any activity in the general public interest, supply of
essential goods or services - such as water supply, sewage service, distributing medicines,
of food grains (PDS entities), etc.;
(b) While carrying on of such activities to achieve such objects (which are to be discerned
from the objects and policy of the enactment; or in terms of the controlling instrument,
such as memorandum of association etc.), the purpose for which such public GPU charity,
 is set-up - whether for furthering the development or a charitable object or for carrying on
trade, business or commerce or service in relation to such trade, etc.;
(c) Rendition of service or providing any article or goods, by such boards, authority,
corporation, etc., on cost or nominal mark-up basis would ipso facto not be activities in the
nature of business, trade or commerce or service in relation to such business, trade or
commerce;
(d) Where the controlling instrument, particularly a statute imposes certain responsibilities or
duties upon the concerned body, such as fixation of rates on pre-determined statutory basis,
or based on formulae regulated by law, or rules having the force of law, setting apart
amenities for the purposes of development, charging fixed rates towards supply of water,
providing sewage services, providing food grains, medicines, and/or retaining monies in
deposits or government securities and drawing interest therefrom or charging lease rent,
ground rent, etc., per se, recovery of such charges, fee, interest, etc. cannot be
characterized as "fee, cess or other consideration" for engaging in activities in the nature of
trade, commerce, or business, or for providing service in relation thereto;
(e) Does the statute or controlling instrument set out the policy or scheme, for how the goods
and services are to be distributed; in what proportion the surpluses, or profits, can be
permissively garnered; are there are limits within which plots, rates or costs are to be
worked out; whether the function in which the body is engaged in, is normally something a
government or state is expected to engage in, having regard to provisions of the
Constitution and the enacted laws, and the observations of this court in NDMC; whether in
case surplus or gains accrue, the corporation, body or authority is permitted to distribute it,
and if so, only to the government or state; the extent to which the state or its
instrumentalities have control over the corporation or its bodies, and whether it is subject
to directions by the concerned government, etc.;
(f) As long as the concerned statutory body, corporation, authority, etc. while actually
furthering a GPU object, carries out activities that entail some trade, commerce or
business, which generates profit (i.e., amounts that are significantly higher than the cost),
and the quantum of such receipts are within the prescribed limit (20 per cent as mandated
by the second proviso to section 2(15)) - the concerned statutory or government
organisations can be characterized as GPU charities. It goes without saying that the other
conditions imposed by the seventh proviso to section 10(23C) and by section 11 have to
necessarily be fulfilled.
(v) As a consequence, it is necessary in each case, having regard to the first proviso and
seventeenth proviso (the latter introduced in 2012, with retrospective effect from 1-4-2009)
to section 10(23C), that the authority considering granting exemption, takes into account
the objects of the enactment or instrument concerned, its underlying policy, and the nature
of the functions, and activities, of the entity claiming to be a GPU charity. If in the course
of its functioning it collects fees, or any consideration that merely cover its expenditure
(including administrative and other costs plus a small proportion for provision) - such
amounts are not consideration towards trade, commerce or business, or service in relation
thereto. However, amounts which are significantly higher than recovery of costs, have to
be treated as receipts from trade, commerce or business. It is for those amounts, that the
quantitative limit in proviso (ii) to section 2(15) applies, and for which separate books of
account will have to be maintained under other provisions of the IT Act. [Para 190]
Statutory regulatory bodies/authorities

■ The provisions of the Institute of Chartered Accountants Act clarify beyond a doubt that the Institute
performs statutory functions in the larger public interest of regulating the standards of education, leading
up to the profession of Chartered Accountancy and also prescribing standards of professional etiquette,
behaviour, and discipline of its members. No other entity or body has the authority in law to perform the
functions that the Institute does. Although the Act regulating Chartered Accountancy came into force prior
to the Constitution of India, the subject (of regulating professions, etc.) appears to be relatable to the
exercise of legislative power under Entry 25 and 26 of the Concurrent List. Furthermore, they also appear
 to conform to Entry 65 of the Union List (which has been adverted to in Entry 25 of the Concurrent List).
As things stand, the Institute is the only body which prescribes the contents of professional education and
entirely regulates the profession of Chartered Accountancy. There is no other body authorised to perform
any other duties which it performs. It, therefore, clearly falls in the description of a charity advancing
general public utility. The functions of the Institute ipso facto does not fall within the description of such
'prohibited activities'. The fees charged by the Institute and the manner of its utilisation are entirely
controlled by law. Furthermore, the material on record shows that the amounts received by it are not
towards providing any commercial service or business but are essential for the providing of service to the
society and the general public. [Para 195]
■ A singular characteristic of ICAI and other statutory bodies which can be said to regulate specific
functions and professions (including the profession of Cost and Work Accountants, and Company
Secretary, etc.) is the powers conferred upon them by the statutes to prescribe standards and enforce them
through disciplinary sanctions. Therefore, it is held that bodies which regulate professions and are created
by or under statutes which are enjoined to prescribe compulsory courses to be undergone before the
individuals concerned is entitled to claim entry into the profession or vocation, and also continuously
monitor the conduct of its members do not ipso facto carry on activities in the nature of trade, commerce
or business, or services in relation thereto. [Para 196]
■ It is important, at times, while considering the nature of activities (which may be part of a statutory
mandate) that regulatory bodies may perform, whether the kind of consideration charged is vastly or
significantly higher than the costs it incurs. For instance, there can be in given situations, regulatory fees
which may have to be paid annually, or the body may require candidates, or professionals to purchase and
fill forms, for entry into the profession, or towards examinations. If the level of such fees or collection
towards forms, brochures, or exams are significantly higher than the cost, such income would attract the
mischief of proviso to section 2(15), and would have to be within the limits prescribed by sub-clause (ii)
of the proviso to section 2(15). [Para 197]
■ The next set of 'statutory regulatory authorities' among the present batch are those related to authorities
set-up under the Seeds Act, 1966 (i.e. the Andhra Pradesh State Seeds Certification Authority and the
Rajasthan State Seeds and Organic Production certification Agency). These two entities are set-up as
societies under section 8 of the Seeds Act, and comprise of farmers, farmers co-operatives'
representatives, seed certification authorities, etc. The task of these agencies and authorities is certification
of seeds, to decide whether to certify supply of seeds of "any notified kind or variety", by applicants who
may wish to offer them for trade. These agencies/authorities scrutinize the samples to ensure they conform
to the requisite standard notified under section 6. These decisions are subject to appeal under section 11.
[Para 198]
■ The functioning of the seed certification agency, is a crucial one, in those only seeds conforming to
prescribed standards, are permitted to be traded and used, by farmers. Such standards are - in the context
of the fact that agriculture is one of the mainstays of the economy, and furthermore, pivotal for food
security essential as they ensure efficacy of seeds and guarantee to the farmers that they can be relied
upon. The essential nature of the regulatory function performed by these certification agencies is obvious.
The nature of their activities is not by way of trade, commerce or business, nor service in relation to trade
commerce, business, for some form of consideration. [Para 199]
Trade Promotion bodies, councils, associations or organizations

■ The question that arises is whether the change in definition of section 2(15) impacts the claims of trade
promotion bodies, federations of commerce, or such organizations, that they are GPU charities. [Para 201]
■ In the opinion of this court, the change in definition in section 2(15) and the negative phraseology -
excluding from consideration, trusts or institutions which provide services in relation to trade, commerce
or business, for fee or other consideration - has made a difference. Organizing meetings, disseminating
information through publications, holding awareness camps and events, would be broadly covered by
trade promotion. However, when a trade promotion body provides individualized or specialized services -
such as conducting paid workshops, training courses, skill development courses certified by it, and hires
venues which are then let out to industrial, trading or business organizations, to promote and advertise
their respective businesses, the claim for GPU status needs to be scrutinised more closely. Such activities
are in the nature of services "in relation to" trade, commerce or business. These activities, and the facility
 of consultation, or skill development courses, are meant to improve business activities, and make them
more efficient. The receipts from such activities clearly are 'fee or other consideration' for providing
service "in relation to" trade, commerce or business. [Para 202]
■ The objects of AEPC, which was set up in 1978 - include promotion of readymade garment export. To
achieve that end, its objects include providing training to instil skills in the workforce, to improve skills in
the industry; guide in sourcing machinery; to serve as a body advising, providing information on market
or technical intelligence; assisting the concerned industry in obtaining import licenses; showcase the best
capabilities of Indian garment exports through the prestigious "India International Garment Fair"
organised twice a year by AEPC, etc. These fairs host over 350 participants who exhibit their garment
designs and patterns. Other functions are to provide information, and to provide market research. AEPC
also assists in developing new design patterns and garments and to perform promotional activities in
individual foreign markets. Further, AEPC sends missions and trade delegations abroad, who participate
in international fairs; and conducts surveys to gather information on potential export of readymade
garments. [Para 203]
■ As part of its functioning, it also books bulk space, which is then rented out to individual Indian exporters,
who showcase their products and services, and ultimately secure export orders. Towards these services,
i.e., booking and providing space, AEPC charges rentals. Now, these rents are not towards fixed assets
owned by it. They are in fact charges, or fees, towards services in relation to business; likewise, the skill
development and diploma courses conducted by it, for which fees are charged, are to improve business
functioning of garment exporters. Furthermore, market surveys and market intelligence, especially
country specific activities, aimed at catering to specified exporters, or specified class of exporters, is also
service in relation to trade, commerce or business. [Para 204]
■ In the circumstances, it cannot be said that AEPC's functioning does not involve any element of trade,
commerce or business, or service in relation thereto. Though in some instances, the recipient may be an
individual business house or exporter, there is no doubt that these activities, performed by a trade body
continue to be trade promotion. Therefore, they are in the "actual course of carrying on" the GPU activity.
In such a case, for each year, the question would be whether the quantum from these receipts, and other
such receipts are within the limit prescribed by the sub-clause (ii) to proviso to section 2(15). If they are
within the limits, AEPC would be - for that year, entitled to claim benefit as a GPU charity. [Para 205]
Non-statutory bodies - ERNET, NIXI and GS1 India

■ ERNET's networks are a mix of terrestrial and satellite-based wide-area network. It provides services
through its 15 Points of Presence (PoPs) located across the country. All those are equipped to provide
access to Intranet, Internet and Digital Library through trial leased circuits and radio links to the user
institutions. The PoP at STPI Bengaluru provides Intranet and Internet access through Satellite. ERNET
provides, services, namely, Network Access Services, Network Applications Services, Hosting Services,
Operations Support Services und Domain Registration Services under srnet.in, ac.in, edu.in & res.in
domains. Funded through government grants, its projects support educational networks and development
of internet infrastructure in numerous other segments of society. [Para 207]
■ Having regard to the nature of ERNET's activities, it cannot be said that they are in the nature of trade,
commerce or business, or service, towards trade, commerce or business. It has to receive fees, to
reimburse its costs. The materials on record nowhere suggest that its receipts (in the nature of membership
fee, connectivity charges, data transfer differential charges, and registration charges) are of such nature as
to be called as fees or consideration towards business, trade or commerce, or service in relation to it. The
functions ERNET performs are vital to the development of online educational and research platforms. For
these reasons, it is held that the impugned judgment, which upheld the ITAT's order, does not call for
interference. [Para 208]
■ Having regard to the findings on record and the materials placed by the parties, it is evident that NIXI
carries on the essential - crucial purpose of promoting internet services and more importantly, regulating
domain name registration which is extremely essential for internet users in India. A country's need to have
a domestic internet exchange, rather than depend on an international one, cannot be over emphasized. The
Union Government's object of setting up of internet exchange is part of its essential function as a
government to regulate certain segment of the communication networks. In the absence of a single entity
authorized to register ".in" domain names, there is bound to be chaos or confusion. [Para 210]
■ In view of the foregoing discussion, it is opined that the revenue's contention that NIXI does not merely
carry-on public purpose of regulatory activity but is involved in trade, commerce, or business or in
providing service in relation thereto, cannot be accepted. [Para 211]
■ The GS1 codes were developed and created by GS1 International, Belgium (an international not-for-
profit under Belgium tax law). This coding system has been in use worldwide and is even mandatory for
some services/goods, or adopted for significant advantages being a singular identification system,
recognized and accepted all over the world. The code promotes universal standard in Electronic Data
Inter-exchanged (EDI) and other services. This system of coding has been accorded priority by the
Government of India as it is a compulsory requirement on products exported from India. Government of
India had set-up non-profit organizations EAN India, now known as GS1 India (the assessee). [Para 212]
■ Assessee's functions no doubt is of general public utility. However, equally the services it performs are to
aid businesses manufactures, tradesmen and commercial establishments. Bar coding packaged articles and
goods assists their consigners to identify them; helps manufactures, and marketing organizations
(especially in the context of contemporary times, online platforms which serve as market places). The
objective of GS1 is therefore, to provide service in relation to business, trade or commerce - for a fee or
other consideration. It is also true, that the coding system it possesses and the facilities it provides, is
capable of and perhaps is being used, by other sectors, in the welfare or public interest fields. However, in
the absence of any figures, showing the contribution of GS1's revenues from those segments, and whether
it charges lower amounts, from such organizations, no inference can be drawn in that regard. The
materials on record show that the coding services are used for commercial or business purposes. Having
regard to these circumstances, the impugned judgment and order calls for interference. [Para 217]
State Cricket Associations

■ At the outset, the contention that sports promotion is 'education' and hence, per se exempt, has to be dealt
with. In Lok Shikshana Trust (supra) this court has comprehensively addressed the scope of the term, and
conclude that it would entail "scholastic" education:
"5. The sense in which the word "education" has been used in section 2(15) is the systematic instruction,
schooling or training given to the young in preparation for the work of life. It also connotes the whole
course of scholastic instruction which a person has received. The word "education" has not been used in
that wide and extended sense, according to which every acquisition of further knowledge constitutes
education………" [Para 225]
■ Therefore, there is no doubt that the claim of the present sport associations will not fall within 'education'
and will have to be examined under the fourth limb of section 2(15) - i.e., GPU category, if it is to make a
case for tax exemption. [Para 226]
■ BCCI is the body which regulates cricket and represents the country. Within the country it organizes and
conducts the Ranji Trophy, the Irani Trophy, the Duleep Singh Trophy, the Deodar Trophy and the NKP
Salve Challenge Trophy. These are domestic events, yet only those who are members of the Board and/or
recognized by it can take part in these events. The members of the Board (entitled to vote in its election)
are the state cricket associations.The BCCI is the country-level cricket regulator both off and on the fields,
and its functions include selection of players and umpires. The International Cricket Council (of which
BCCI, as the representative body of the country, is a member) possesses and exercises all the powers to
regulate international competitive cricket. It also exercises disciplinary power - in case of violation of the
rules, a country member or the player may be derecognized. The ICC exercises a monopoly over the
sports at the international level whereas BCCI does so at the country level. BCCI recognizes bodies which
are entitled to participate in the nominated tournaments. Players and umpires also are to be registered with
it. [Para 226]
■ The game of competitive cricket, at the organizational level is structured in such a manner that BCCI has
umbilical ties with the state associations. Not only are the latter, the members who constitute BCCI and
elect its governing bodies, they also own vital infrastructure necessary to play cricket: such as stadia, and
all related facilities. BCCI does not own those facilities or infrastructure and depends on them.
Furthermore, the state associations are the channels through which players are mostly selected, and get
opportunities to participate in state, national and international level cricket. [Para 227]
■ As things stand, therefore, the state associations and BCCI are linked closely. The management of the
 game of cricket is structured in such a way that this link is apparent at every match or fixture of
significance. In the course of conducting matches (which are scheduled by the BCCI as the national co-
ordinating body), apart from amounts received towards sale of entry tickets, the state associations also
receive advertisement money, sponsorship fee, etc. from the BCCI. Aside from these, media rights - i.e.,
broadcasting rights to each national or international event conducted at various locales owned by the state
associations, and digital rights (all of which are exclusive, in nature) - are auctioned by BCCI. As noticed
above, the BCCI, by its own admission, negotiates the terms on which media rights are sold, on behalf of
the state association. [Para 228]
■ These media, or broadcasting rights, are in the nature of intellectual property rights: under sections 37 to
40 of the Copyrights Act, 1957. These rights-especially television and digital rights enable the licensee or
the successful bidder to exploit the telecast or broadcast commercially, by carrying advertisements of
various products and services, in the media. Given that (i) BCCI does not own the stadia, and uses the
entire physical infrastructure of the state associations (ii) expressly negotiates on their behalf for the sale
of such rights (which appear to be purely commercial contracts), the associations' assertions that they only
received subsidy from BCCI, needed closer examination. [Para 229]
■ The income and expenditure account for the year ending on 31-3-2009 shows that the total income of the
GCA was Rs. 4,03,98,736.81. Of these sponsorship money was Rs. 20,00,000/-; bank interest was Rs.
2,21,88,527.05 and as against the head 'India v. South Africa test match', the sum of Rs. 1,51,97,741/- has
been shown. Of the total of Rs. 2,21,02,441.45 shown as income, Rs. 32,24,591.25 is shown as
expenditure, only a fraction appears to have been expended towards promotion of cricket. [Para 230]
■ The details of the subsidy amounts received from BCCI for every match has been shown. This aggregates
to over Rs. 41 lakhs. Furthermore, the details received towards the India-South Africa test fixture paid
between 3-4-2008-04-4-2008 has been shown. GCA received Rs. 1,57,00,000/- towards sale of space;
ticket sales yielded Rs. 27,57,700 and towards the head screen income, a sum of Rs. 3 lakhs was received.
After deducting the expenditure, the excess income received for the year was Rs. 1,51,97,741/-. [Para 231]
■ In the case of Saurashtra Cricket Association, for the year ended on 31-3-2012, various heads of income
have been disclosed. These include entry fees which is Rs. 5200 onwards. Interest of income received
from Fixed Deposits was to the tune of Rs. 8,85,67,418/-; total amount of subsidy received from BCCI is
Rs. 17,56,72,490/-. Of these, the overwhelming share is towards the IPL money collected by the BCCI -
wherein Saurashtra Cricket Association's share worked out to a total of Rs. 17,16,32,490/-. [Para 232]
■ Apart from this, the BCCI also reimbursed to Saurashtra Cricket Association the sum of Rs. 73,73,911/-.
The income and expenditure account shows a head titled "subvention income from BCCI" to the extent of
Rs. 8,14,53,834/-. After deducting the heads of expenditure, excess of income over expenditure for the AY
was Rs. 69,96,537/-. The Cricket Association showed in the expenditure column that the sum of Rs.
24,00,00,000/- was transferred to the Cricket infrastructure fund. For the previous year, a sum of Rs.
21,21,00,000/- was transferred to the stadium fund. [Para 233]
■ It is quite evident that the activities of the cricket associations are run on business lines. The associations
own physical and other infrastructure, maintain them, have arrangements for permanent manpower and
have well-organised supply chains to cater to the several matches they host. Many such matches are not at
national level and are under-16 or under-18 matches at the regional level. However, these activities are not
to be seen in isolation but are to be regarded as part of the overall scheme, and ecosystem in which the
game of cricket is organized in India. Talent is spotted, at local levels and dependent on the promise
shown, given appropriate exposure. [Para 234]
■ On a close scrutiny of the expenses borne, having regard to the nature of receipts, the expenditure incurred
by Cricket Associations does not disclose that any significant proportion is expended towards sustained or
organized coaching camps or academies. Therefore, in the opinion of this court, the ITAT fell into error in
not considering the nature of receipts flowing from the BCCI into the corpus of GCA and SCA - as well
as other associations that are before this court-to determine their true character. The ITAT appears to have
been swayed by the submission that the amount given by the BCCI were towards capital subsidy. [Para
235]
■ Recent trends have shown that media rights, especially broadcasting and digital media rights have yielded
colossal revenues to the BCCI. The model adopted in the last 10 years or so has been to auction media
 rights in respect of events over a 3 or 5-year period. As discussed previously, these media rights are not
per se owned by BCCI, which is but an association of persons or agglomerate of all the State Cricket
Association. The stadiums which form the venue for these cricket matches (in relation to which media
rights are transferred or licensed) are owned by the State Cricket Associations. According to the BCCI
itself, the State Associations can well bargain and enter into arrangements for the sale of such media
rights. However, to obtain better terms, and gain bargaining leverage a centralized form of sale of such
rights has been agreed and adopted by which the BCCI auctions these rights on behalf of the State
Associations. All State Associations put together are entitled to 70 per cent of the revenue - i.e., the
proceeds of sale of the media rights. This may or may not be in proportion to the events hosted by each or
some of the cricket associations. Yet, this forms part of the arrangement by which the consideration
flowing from such commercial rights has been agreed to be shared amongst all members of the BCCI.
These rights are apparently commercial. [Para 237]
■ In the light of these, it is opined that the Tribunal - as well as the High Court fell into error in accepting at
face value the submission that the amounts made over by BCCI to the cricket associations were in the
nature of infrastructure subsidy. In each case, and for every year, the tax authorities are under an
obligation to carefully examine and see the pattern of receipts and expenditure. Whilst doing so, the nature
of rights conveyed by the BCCI to the successful bidders, in other words, the content of broadcast rights
as well as the arrangement with respect to state associations (either in the form of master documents,
resolutions or individual agreements with state associations) have to be examined. It goes without saying
that there need not be an exact correlation or a proportionate division between the receipt and the actual
expenditure. This is in line with the principle that what is an adequate consideration for something which
is agreed upon by parties is a matter best left to them. These observations are not however, to be treated as
final; the parties' contentions in this regard are to be considered on their merit. [Para 238]
Private Trust
(a)Tribune Trust

■ The question then is whether the nature of receipts and income garnered by the Trust, in the course of
actually carrying out its activity of publishing newspaper, can be characterized as "in the nature of trade,
commerce or business" or "service in relation to trade, commerce or business", for any consideration.
During the course of submissions, it was urged that advertisement revenue should not be treated as
business or commercial receipts since that virtually is the lifeblood which sustains the activity of
publication of newspapers. It was highlighted that the object of maintaining the activity of publishing and
distribution of newspaper remains the advancement of general public utility, as it has the effect of both
notifying and educating the general public about the current affairs and developments. The inclusion of
advertisements also serves as information to the general public, especially in areas of employment,
availability of resources, etc. Therefore, publication of advertisement is intrinsically connected with the
activity of printing and publishing of newspapers. [Para 244]
■ The publication of advertisements for consideration, by the newspaper, cannot but be termed as an activity
in the nature of carrying on business, trade or commerce for a fee or consideration. That the newspaper
published by the trust ("the Tribune") in this case is funded mainly through advertisement is no basis for
holding that publishing such advertisements by the Trust does not constitute business. The object of the
trust to involve or engage in publication of newspapers. Publishing advertisements is obviously to garner
receipts which are in the nature of profit. Now, by virtue of the amended definition of section 2(15), GPU
charities can engage themselves in business or commercial activity or profit, only if the receipts from such
activities do not exceed the quantitative limit of the overall receipts earned in a given year. While the
assessee's contention that publication of advertisement is intrinsically linked with newspaper activity
(thereby fulfilling sub-clause (i) of the proviso to section 2(15), i.e. an activity in the course of actual
carrying on of the activity towards advancement of the object) is acceptable, nevertheless, the condition
imposed by sub-clause (ii) of the proviso to section 2(15) has to also be fulfilled. In the instant case, that
percentage had been exceeded, as evident from the record. [Para 245]
■ In the light of the foregoing discussion, it is opined that the impugned judgment and order of the Punjab
and Haryana High Court cannot be sustained, to the extent it holds that the Tribune trust is not a GPU
charity. [Para 246]
(b) Shri Balaji Samaj Vikas Samiti
■ The assessee is a registered society which was formed with the object of establishing and running a health
club its object included organization of emergency relief centres, etc. Other objects, included promotion of
moral values, eradication of child labour, dowry, etc. The assessee had entered into arrangements with the
state agencies to supply mid-day meals to students of primary schools in different villages through
contracts entered into with the Basic Shiksha Adhikari, District Meerut. It is a matter of record that the
materials for preparation of mid-day meal was supplied by the government. The assessee society claimed
that it only obtains nominal charges for preparation of mid-day meals. The assessee's claim for registration
was rejected on the ground that it was involved in commercial activity. Upon appeal, the Tribunal agreed
with the assessee that supply of mid-day meals did not constitute business or commerce and that it
promoted the objects of general public utility. [Para 248]
■ It is opined that there is no clarity with respect to whether the activity of supplying mid-day meals falls
within the objects clause of the assessee society. The order of the Tribunal as well as the High Court
disclosed that the assessee's objects involved maintenance of health clubs, Arogya Kendra, promotion of
moral values and provision of emergency relief. These do not however include the activity which it
actually performed, i.e., entering into contracts for supply of mid-day meals and the activity of cooking
and supply of mid-day meals. In the absence of fuller material, it would not be possible for the court to
assess the activity with which the assessee was engaged, and determine whether it could be said to
legitimately fall within the description of GPU. [Para 250]
■ The first consideration would be whether the activity concerned was or is in any manner covered by the
objects clause. Secondly, the revenue authorities should also consider the express terms of the contract or
contracts entered into by the assessee with the State or its agencies. If on the basis of such contracts, the
accounts disclose that the amounts paid are nominal mark-up over and above the cost incurred towards
supplying the services, the activity may fall within the description of one advancing the general public
utility. If on the other hand, there is a significant mark-up over the actual cost of service, the next step
would be ascertain whether the quantitative limit in the proviso to section 2(15) is adhered to. It is only in
the event of the trust actually carrying on an activity in the course of achieving one of its objects, and
earning income which should not exceed the quantitative limit prescribed at the relevant time, that it can
be said to be driven by charitable purpose. [Para 251]
■ It is apparent from the records that the tax effect is less than Rs. 10 lakhs. It is apparent that the receipt
from the activities in the present case did not exceed the quantitative limit of Rs. 10 lakhs prescribed at the
relevant time. In the circumstances, the impugned order of the High Court does not call for interference.
[Para 252]
Conclusion
(iv) Summation of conclusions
In view of the foregoing discussion and analysis, the following conclusions are recorded regarding the
interpretation of the changed definition of "charitable purpose" (with effect from 1-4-2009), as well as the
later amendments, and other related provisions of the IT Act.
A. General test under section 2 (15)
A.1 It is clarified that an assessee advancing general public utility cannot engage itself in any trade, commerce
or business, or provide service in relation thereto for any consideration ("cess, or fee, or any other
consideration");
A.2 However, in the course of achieving the object of general public utility, the concerned trust, society, or
other such organization, can carry on trade, commerce or business or provide services in relation thereto for
consideration, provided that (i) the activities of trade, commerce or business are connected ("actual carrying
out…" inserted with effect from 1-4-2016) to the achievement of its objects of GPU; and (ii) the receipt from
such business or commercial activity or service in relation thereto, does not exceed the quantified limit, of 20
per cent of total receipts of the precious year;
A.3 Generally, the charging of any amount towards consideration for such 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 in question, that they would fall within the mischief of "cess, or fee, or any
other consideration" towards "trade, commerce or business". In this regard, the Court has clarified through
illustrations what kind of services or goods provided on cost or nominal basis would normally be excluded
from the mischief of trade, commerce, or business, in the body of the judgment.
A.4 Section 11(4A) must be interpreted harmoniously with section 2(15), with which there is no conflict.
Carrying out activity in the nature of trade, commerce or business, or service in relation to such activities,
should be conducted in the course of achieving the GPU object, and the income, profit or surplus or gains
must, therefore, be incidental. The requirement in section 11(4A) of maintaining separate books of account is
also in line with the necessity of demonstrating that the quantitative limit prescribed in the proviso to section
2(15), has not been breached. Similarly, the insertion of section 13(8), seventeenth proviso to section 10(23C)
and third proviso to section 143(3) (all with retrospective effect from 1-4-2009), reaffirm this interpretation
and bring uniformity across the statutory provisions.
B. Authorities, corporations, or bodies established by statute
B.1 The amounts or any money whatsoever charged by a statutory corporation, board or any other body set-
up by the state government or central governments, for achieving what are essentially 'public
functions/services' (such as housing, industrial development, supply of water, sewage management, supply of
food grain, development and town planning, etc.) may resemble trade, commercial, or business activities.
However, since their objects are essential for advancement of public purposes/functions (and are accordingly
restrained by way of statutory provisions), such receipts are prima facie to be excluded from the mischief of
business or commercial receipts. This is in line with the larger bench judgments of this court in Shri Ramtanu
Co-operative Housing Society Ltd. v. State of Maharashtra [1970] 3 SCC 323 and New Delhi Municipal
Council v. State of Punjab [1977] 7 SCC 399 (supra).
B.2 However, at the same time, in every case, the Assessing Officer would have to apply their minds and
scrutinize the records, to determine if, and to what extent, the consideration or amounts charged are
significantly higher than the cost and a nominal mark-up. If such is the case, then the receipts would indicate
that the activities are in fact in the nature of "trade, commerce or business" and as a result, would have to
comply with the quantified limit (as amended from time-to-time) in the proviso to section 2(15).
B.3 In clause (b) of section 10(46) "commercial" has the same meaning as "trade, commerce, business" in
section 2(15). Therefore, sums charged by such notified body, authority, Board, Trust or Commission (by
whatever name called) will require similar consideration - i.e., whether it is at cost with a nominal mark-up or
significantly higher, to determine if it falls within the mischief of "commercial activity". However, in the case
of such notified bodies, there is no quantified limit in section 10(46). Therefore, the Central Government
would have to decide on a case-by-case basis whether and to what extent, exemption can be awarded to bodies
that are notified under section 10(46).
B.4 For the period 1-4-2003 to 1-4-2011, a statutory corporation could claim the benefit of section 2(15)
having regard to the judgment of this Court in the CIT v. Gujarat Maritime Board [2008] 166 Taxman
58/[2007] 295 ITR 561/214 CTR 81 (SC)/[2007] 12 SCR 962/[2007] 14 SCC 704. Likewise, the denial of
benefit under section 10(46) after 1-4-2011 does not preclude a statutory corporation, board, or whatever such
body may be called, from claiming that it is set-up for a charitable purpose and seeking exemption under
section 10(23C) or other provisions of the Act.
C. Statutory regulators
C.1 The income and receipts of statutory regulatory bodies which are for instance, tasked with exclusive
duties of prescribing curriculum, disciplining professionals and prescribing standards of professional conduct,
are prima facie not business or commercial receipts. However, this is subject to the caveat that if the
Assessing Officer discern that certain kinds of activities carried out by such regulatory body involved
charging of fees that are significantly higher than the cost incurred (with a nominal mark-up) or providing
other facilities or services such as admission forms, coaching classes, registration processing fees, etc., at
markedly higher prices, those would constitute commercial or business receipts. In that event, the overall
quantitative limit prescribed in the proviso to section 2(15) (as amended from time-to-time) has to be
complied with, if the regulatory body is to be considered as one with 'charitable purpose' eligible for
exemption under the IT Act.
C.2 Like statutory authorities which regulate professions, statutory bodies which certify products (such as
seeds) based on standards for qualification, etc. will also be treated similarly.
D. Trade promotion bodies
Bodies involved in trade promotion (such as AEPC), or set-up with the objects of purely advocating for, co-
ordinating and assisting trading organisations, can be said to be involved in advancement of objects of general
public utility. However, if such organisations provide additional services such as courses meant to skill
personnel, providing private rental spaces in fairs or trade shows, consulting services, etc. then income or
receipts from such activities, would be business or commercial in nature. In that event, the claim for tax
exemption would have to be again subjected to the rigors of the proviso to section 2(15).
E. Non-statutory bodies
E.1 In the present batch of cases, non-statutory bodies performing public functions, such as ERNET and NIXI
are engaged in important public purposes. The materials on record show that fees or consideration charged by
them for the purposes provided are nominal. In the circumstances, it is held that the said two assessees are
driven by charitable purposes. However, the claims of such non-statutory organisations performing public
functions, will have to be ascertained on a yearly basis, and the tax authorities must discern from the records,
whether the fees charged are nominally above the cost, or have been increased to much higher levels.
E.2 It is held that though GS1 India is in fact, involved in advancement of general public utility, its services
are for the benefit of trade and business, from which they receive significantly high receipts. In the
circumstances, its claim for exemption cannot succeed having regard to amended section 2(15). However, the
Court does not rule out any future claim made and being independently assessed, if GS1 is able to satisfy that
what it provides to its customers is charged on cost-basis with at the most, a nominal markup.
F. Sports associations
So far as the state cricket associations are concerned (Saurashtra, Gujarat, Rajasthan, Baroda, and Rajkot). It
is opined that the matter requires further scrutiny. Accordingly, a direction is issued that the Assessing Officer
shall adjudicate the matter afresh after issuing notice to the concerned assessees and examining the relevant
material indicated in the previous paragraphs of this judgment. Furthermore, if any consequential order needs
to be issued, the same shall be done and resulting actions, including assessment orders shall be passed in
accordance with the law under relevant provisions of the IT Act.
G. Private Trusts
So far as the appeal by assessee-Tribune Trust is concerned, it has been held that despite advancing general
public utility, the trust cannot benefit from exemption offered to entities covered by section 2(15) as the
records reveal that income received from advertisements, constituted business or commercial receipts.
Consequently, the limit prescribed in the proviso to section 2(15) has to be adhered to for the Trust's claim of
being as a charity eligible for exemption, to succeed. Therefore, despite differing reasoning, this court has
held that the impugned judgment of the High Court does not call for interference.
H. Application of interpretation
H. It may be noted that the conclusions arrived at by way of this judgment, neither precludes any of the
assessees (whether statutory, or non-statutory) advancing objects of general public utility, from claiming
exemption, nor the taxing authorities from denying exemption, in the future, if the receipts of the relevant year
exceed the quantitative limit. The Assessing Officer must on a yearly basis, scrutinize the record to discern
whether the nature of the assessee's activities amount to 'trade, commerce or business' based on its receipts
and income (i.e., whether the amounts charged are on cost-basis, or significantly higher). If it is found that
they are in the nature of 'trade, commerce or business', then it must be examined whether the quantified limit
(as amended from time-to-time) in proviso to section 2(15), has been breached, thus, disentitling them to
exemption. [Para 253]
CASE REVIEW

Ahmedabad Urban Development Authority v. CIT (Exemption) [2017] 83 taxmann.com 78/396 ITR 323
(Guj.); CIT v. Yamuna Expressway Industrial Development Authority [2017] 81 taxmann.com 208/395 ITR
18/298 CTR 127 (All.); Greater Noida Industrial Development Authority v. Union of India [2018] 91
taxmann.com 352/254 Taxman 289/406 ITR 418/303 CTR 512 (Delhi)/2018 SCC Online Delhi 7536;
Karnataka Industrial Areas Development Board v. ADIT (Exemptions_ [2020] 121 taxmann.com 88/[2021]
277 Taxman 36 (Kar.); CIT v. Gujarat Maritime Board [2021] 123 taxmann.com 35/[2021] 277 Taxman
376/428 ITR 152 (Guj.); CIT (Exemptions) v. Hoshiarpur Improvement Trust, [IT Appeal No. 78 of 2016,
dated 23-12-2016] (para 254); Institute of Chartered Accounatants of India v. DGIT (Exemptions) [2013] 35
taxmann.com 140/217 Taxman 152/358 ITR 91/260 CTR 1 (Delhi); DIT v. Apparel Export Promotion
Council [2000] 112 Taxman 433/244 ITR 736/163 CTR 133 (para 254); Tribune Trust v. CIT [2016] 76
taxmann.com 363/390 ITR 547 (Punj. & Har.) (para 254); CIT v. Shri Balaji Samaj Vikas Samiti [2018] 91
taxmann.com 26/254 Taxman 93/302 CTR 397 (All.) (paras 252 and 254); CIT v. Ernet India [2019] 101
taxmann.com 59 (Delhi) and CIT (Exemption) v. National Internet Exchange of India [2021] 133
taxmann.com 376 (Delhi) (para 254) affirmed.
GS1 India v. DGIT (Exemptions) [2013] 38 taxmann.com 364/219 Taxman 205/[2014] 360 ITR 138/[2013]
262 CTR 585 (Delhi) (paras 217 and 254); DIT (Exemption) v. Gurjarat Cricket Association[2020] 120
taxmann.com 50/[2019] 419 ITR 561 (Guj.) and CIT v. Rajasthan Cricket Association [2018] 98
taxmann.com 425/[2019] 260 Taxman 149/414 ITR 452 (Raj.) (paras 238 and 254) set aside.
CASES REFERRED TO

Trustees of Tribune, In re [1939] 7 ITR 415 (PC) (para 6), CIT v. P. Krishna Warrior [1964] 53 ITR 176/8
SCR 36 (SC) (para 6), J.K. Trust v. CIT, Excess Profits Tax [1957] 32 ITR 535 (SC) (para 6), Charitable
Gadodia Swadeshi Stores v. CIT [1944] 12 ITR 385 (para 6), CIT v. Andhra Chamber of Commerce [1965] 55
ITR 722/1 SCR 565 (SC) (para 8), All India Spinners Association of Mirzapur v. CIT [1944] 12 ITR 482 (PC)
(para 8), Sole Trustee, Lok Shikshana Trust v. CIT [1975] 101 ITR 234 (SC)/[1976] 1 SCC 254 (para 11),
Indian Chamber of Commerce v. CIT [1975] 101 ITR 796 (SC)/[1976] 1 SCC 324 (para 13), Asstt.
Commissioner v. Surat Art Silk Cloth Manufacturers Association [1980] 121 ITR 1 (SC)/[1980] 2 SCC 31
(para 14), Dharmadeepti v. CIT [1978] 114 ITR 454 (SC)/[1978] 3 SCC 499 (para 17), Asstt. CIT v. Thanthi
Trust [2001] 247 ITR 785/1 SCR 727 (SC)/[2001] 2 SCC 707 (para 22), New Delhi Municipal Council v.
State of Punjab [1997] 7 SCC 339 (para 36), CIT v. Bar Council of Maharashtra [1981] 130 ITR 28
(SC)/[1981] 3 SCC 308 (para 41), Shri Ramtanu Cooperative Housing Society Ltd. v. State of Maharashtra
[1970] 3 SCC 323 (para 44), Gujarat Industrial Development Corpn. v. CIT [1997] 94 Taxman 64/227 ITR
414/412 CTR 181 (SC)/1997 (Supp 3) SCR 466/[1997] 7 SCC 17 (para 44), HSIDC v. Hari Om Enterprises
[2009] 16 SCC 208 (para 44), CCE v. Maharashtra Industrial Development Corpn. 2017 SCC Online Bom.
10021 (para 44), Navnit Lal C. Jhaveri v. K.K. Sen [1965] 1 SCR 909 (para 45), UCO Bank Calcutta v. CIT
[1999] 104 Taxman 547/237 ITR 889/154 CTR 88 (SC)/[1999] 4 SCC 599 (para 45), State of Punjab v. Bajaj
Electricals Ltd. [1968] 2 SCR 636 (para 46), Khoday Distilleries Ltd. v. State of Karnataka [1995] 1 SCC 574
(para 46), State of Gujarat v. Raipur Manufacturing [1967] 1 SCR 618 (para 46), CCE v. Ratan Melting &
Wire Industries [2008] 17 STT 103/12 STR 416 (SC)/[2008] 13 SCC 1 (para 47), Greater Noida Industrial
Development Authority v. Union of India [2018] 91 taxmann.com 352/254 Taxman 289/406 ITR 418/303
CTR 512 (Delhi)/2018 SCC Online Delhi 7536 (para 47), Kerala State Electricity Board v. Indian Aluminium
Co. Ltd. [1976] 1 SCC 466 (para 47), Trustees of the Port of Madras v. Aminchand Pyarelal [1976] 3 SCC
167 (para 47), State of Gujarat v. Mahesh Dhiarjlal Thakkar [1980] 2 SCC 322 (para 49), Sodan Singh v. New
Delhi Municipal Committee [1989] 3 SCR 1038 (para 49), T.M.A Pai Foundation v. State of Karnataka [2002]
8 SCC 481 (para 49), CIT v. Madurai Mills Co. Ltd. [1973] 4 SCC 194 (para 49), Karnataka Industrial Areas
Development Board v. Prakash Dal Mill [2011] 6 SCC 714 (para 50), State of Tamil Nadu v. Board of
Trustees of the Port of Madras [1999] 2 SCR 195 (para 51), State of Karnataka v. Shreyas Papers (P.) Ltd.
2006 taxmann.com 1848/144 STC 331 (SC)/AIR 2006 SC 865 (para 51), Ashoka Smokeless Coal India (P.)
Ltd. v. Union of India [2007] 2 SCC 640 (para 51), New Delhi Municipal Committee v. State of Punjab 1996
Supp 10 SCR 472 (para 51), Physical Research Laboratory v. K.G Sharma [1997] 3 SCR 733 (para 51), CIT
v. Gujarat Maritime Board [2008] 166 Taxman 58/[2007] 295 ITR 561/214 CTR 81 (SC)/[2007] 12 SCR
962/[2007] 14 SCC 704 (para 51), Yogiraj Charity Trust v. CIT [1976] 103 ITR 777 (SC)/[1976] 3 SCR 974
(para 51), CIT v. Andhra Pradesh Road Transport Corpn. [1986] 1 SCR 570 (para 51), Queens's Educational
Society v. CIT [2015] 55 taxmann.com 255/231 Taxman 286/372 ITR 699/275 CTR 449 (SC) (para 51),
Chameli Singh v. State of U.P. [1996] 2 SCC 549 (para 52), Sri P.G. Gupta v. State of Gujarat 1995 (1)
SCALE 653 (para 52), P. Vajravelu Mudaliar v. Special Deputy Collector, Madras [1965] 1 SCC 614 (para
56), Dalco Engineering (P.) Ltd. v. Satish Prabhakar Padhye [2011] 12 taxmann.com 106/108 SCL 354/164
Comp. Case 275 (SC)/[2010] 4 SCC 378 (para 57), State of A.P. v. H. Abdul Bakhi & Bros [1964] 7 SCR 664
(para 58), CIT (Exemptions) v. Hoshiarpur Improvement Trust, Hoshiarpur [IT Appeal No. 78 of 2016, dated
23-12-2016] (para 59), ICAI Accounting Research Foundation v. DGIT (Exemptions) [2009] 183 Taxman
462/[2010] 321 ITR 73/[2009] 226 CTR 27 (Delhi) (para 65), Bureau of Indian Standards v. DGIT
(Exemptions) [2012] 27 taxmann.com [2012] 27 taxmann.com 127/[2013] 212 Taxman 210/358 ITR 78/260
CTR 39 (Delhi) (para 65), GS1 India v. DGIT (Exemptions) [2013] 38 taxmann.com 364/219 Taxman
205/[2014] 360 ITR 138/[2013] 262 CTR 585 (Delhi) (para 65), India Trade Promotion Organization v.
Director General of Income-tax (Exemptions) [2015] 53 taxmann.com 404/229 Taxman 347/371 ITR 333/274
CTR 305 (Delhi) (para 67), Dir. of Supp & Disp v. Board of Revenue [1967] 3 SCR 778 (para 67), Barendra
Prasad Ray v. ITO [1981] 3 SCR 387 (para 67), Customs & Excise Commissioner v. Lord Fisher [1981] 2 All
ER 147 (para 67), DIT v. Apparel Export Promotion Council [2000] 112 Taxman 433/244 ITR 736/163 CTR
133 (Delhi) (para 68), State of Gujarat v. Maheshkumar Dhirajal Thakkar [1980] 2 SCC 322 (para 76),
Secretary, Ministry of Education & Broadcasting, Govt. of India v. Cricket Association of Bengal [1995] 2
SCC 161 (para 77), Saurashtra Education Foundation v. CIT [2004] 141 Taxman 26/[2005] 273 ITR 139
(Guj.) (para 80), Gujarat State Co-operative Union v. CIT [1992] 195 ITR 279 (Guj.) (para 80), American
Hotel and Lodging Association v. CBDT [2008] 170 Taxman 306/301 ITR 86/216 CTR 377 (SC)/[2008] 10
SCC 509 (para 80), Visvesvarya Technological University v. Asstt. CIT [2016] 73 taxmann.com 286/242
Taxman 247/389 ITR 10 (SC)/[2016] 12 SCC 258 (para 83), J.K Synthetics v. Union of India 1981
taxmann.com 21 (Delhi)/1981 (8) ELT 328 (Delhi)/1981 SCC Online Delhi 457 (para 83), Ellerman Lines
Ltd. v. CIT [1971] 82 ITR 913 (SC)/[1972] 4 SCC 474 (para 84), Adityapur Industrial Area Development
Authority v. Union of India [2006] 153 Taxman 107/283 ITR 97/202 CTR 464 (SC)/[2006] 5 SCC 100 (para
90), CIT v. Federation of Indian Chambers of Commerce & Industries [1981] 6 Taxman 7/130 ITR 186/22
CTR 124 (SC)/[1981] 3 SCR 489 (para 98), Duparquet Co. v. Evans [1936] 29 U.S. 216 (para 108), Casell v.
Markham [1945] 148 F 2d 737 (para 108), Bhuwalka Steel Indus. Ltd. v. Bombay Iron and Steel Labour Bd.
[2009] 16 SCR 618 (para 109), Chief Justice of Andhra Pradesh v. L.V.A. Dixitulu [1979] 1 SCR 26 (para
110), Lohia Machines Ltd. v. Union of India [1985] 20 Taxman 9/152 ITR 308 (SC)/[1985] 2 SCR 686 (para
111), Commissioner of Customs (Import) v. Dilip Kumar & Co. [2018] 95 taxmann.com 327/69 GST 239
(SC)/2018 (361) ELT 577 (SC)/[2018]/9 SCC 1 (para 111), State of West Bengal v. Union of India [1964] 1
SCR 371 (para 112), K.P. Varghese v. ITO [1981] 7 Taxman 13/131 ITR 597/24 CTR 358 (SC)/[1982] 1 SCR
629 (para 12), Ramesh Yeshwant Prabhoo v. Prabhakar Kashinath Kunte 1995 (Supp 6) SCR 371 (para 112),
Novartis AG v. Union of India [2013] 32 taxmann.com 1/119 SCL 217 (SC)/[2013] 6 SCC 1 (para 112),
Surana Steels (P) Ltd. v. CIT [1999] 2 SCR 589 (para 112), Kalpana Mehta v. Union of India [2017] 7 SCC
295 (para 112), CIT v. Vatika Township [2014] 49 taxmann.com 249/227 Taxman 121/367 ITR 466/271 CTR
1 (SC)/[2015] 1 SCC 1 (para 119), Keshavji Ravji & Co. v. CIT [1990] 219 Taxman 87/183 ITR 1/82 CTR
123 (SC)/[1992] 2 SCC 231 (para 120), Union of India v. Azadi Bachao Andolan [2003] 132 Taxman 373/263
ITR 706/184 CTR 450 (SC)/2003 (Supp 4) SCR 222 (para 120), Commissioner of Customs v. Indian Oil
Corpn. [2004] 136 Taxman 491/267 ITR 272/187 CTR 297 (SC)/[2004] 2 SCR 511 (para 121), S.K. Gupta v.
K.P. Jain [1979] 3 SCC 54 (para 124), Indira Nehru Gandhi v. Shri Raj Narain [1975] Supp SCC 1 (para
124), Kalya Singh v. Genda Lal [1975] 3 SCR 783 (para 124), Vanguard Fire & Insurance Co. Ltd. v. Fraser
and Ross [1960] 3 SCR 837 (para 124), N.K. Jain v. C.K. Shah [1991] 1 SCR 938 (para 124), G.
Venkataswami Naidu v. CIT 1959 (Supp 1) SCR 646 (para 131), State of Tamil Nadu v. Burmah Shell Oil
Storage Distribution Company of India Ltd. [1973] 2 SCR 636 (para 131), State of Tamil Nadu v. Shakti
Estates [1989] 1 SCR 408 (para 131), Director of Civil Supplies v. Member Board of Revenue [1967] 3 SCR
778 (para 131), Renusagar Power Co. Ltd. v. General Electric Co. [1985] 1 SCR 432 (para 132), Mansukhlal
Dhanraj Jain v. Eknath Vithal Ogale [1995] 1 SCC 996 (para 132), Doypack System (P.) Ltd. v. Union of
India [1988] 2 SCC 299 (para 132), Physical Research Laboratory v. K. G. Sharma [1997] 4 SCC 257 (para
139), Town Investments v. Department of Environment 1977 1 ALL ER 813 (para 140), Shinde Brothers Etc.
v. Deputy Commissioner [1967] 1 SCR 548 (para 145), India Cement Ltd. v. State of Tamil Nadu 1989 (Supp
1) SCR 692 (para 146), Vijayalashmi Rice Mill v. CTO 2007 taxmann.com 1769 (SC)/2006 (201) ELT 329
(SC)/[2006] 6 SCC 763 (para 146), CIT v. U.P. Forest Corpn. [1998] 97 taxmann.com 259/230 ITR 945/145
CTR 402 (SC)/1998 (2) SCR 22 (para 147), Union of India v. State of U.P. [2007] 12 SCR 792 (para 148),
Union of India v. Purna Municipal Corpn. 1991 (Supp 1) SCR 183 (para 148), Municipal Corpn. v. Senior
Superintendent of Post of Fices Amritsar Division [2004] 1 SCR 913 (para 148), CCE v. Fiat India (P.) Ltd.
[2012] 25 taxmann.com 534/37 STT 147/12 SCR 975 (SC) (para 149), CIT v. Dawoodi Bohara Jamat [2014]
43 taxmann.com 243/222 Taxman 228 (Mag.)/364 ITR 31/268 ITR 1 (SC)/[2014] 6 SCC 222 (para 154),
S.RM.M.CT.M. Tiruppani Trust v. CIT [1998] 2 SCC 584 (para 154), J.K. Trust v. CIT [1958] 1 SCR 65 (para
159), Thiagesar Dharma Vanikam v. CIT [1963] 50 ITR 798 (para 162), Raja P.C. Lall Choudhary v. CIT
[1957] 31 ITR 226 (para 162), DIT v. Bharat Diamond Bourse [2002] 10 SCC 392 (para 170), Bangalore
Water Supply & Sewage Undertaking v. A Rajappa [1978] 2 SCC 213 (para 170), CIT v. Yamuna Expressway
Industrial Development Authority [2017] 81 taxmann.com 208/395 ITR 18/298 CTR 127 (All.) (para 183),
Tamil Nadu Cricket Association v. DIT (Exemptions) [2013] 40 taxmann.com 250/[2014] 221 Taxman
275/360 ITR 633/265 CTR 277 (Mad.) (para 222), Sahney Steel & Press Works Ltd. v. CIT [1997] 94 Taxman
368/228 ITR 253/142 CTR 261 (SC)/1997 (Supp 4) SCR 189 (para 236) and CIT v. Ponni Sugars [2008] 174
Taxman 87/306 ITR 392/219 CTR 105 (SC)/[2008] 9 SCC 337 (para 236).
Balbir Singh, ASG, Navanjay Mahapatra, Ms Gargi Khanna, Ms. Shyam Gopal, Ms. Chinmayee
Chandra, Advs. and Raj Bahadur Yadav, AOR for the Petitioner.
JUDGMENT

S. Ravindra Bhat, J. - Leave granted in all matters where leave has not already been granted. C.A. No.
21762/2017 (Assistant Commission of Income Tax, Exemptions v. Ahmedabad Urban Development Authority)
is taken as the lead matter.
2. Religious and charitable trusts have existed in one form or the other, tracing their origins to the instinct of
benevolence, which is part of human nature. Indian philanthropy has enriched its cultural heritage, particularly
in catering to the educational, medical, socio-economic, and religious needs of the people. Here its role has
been supplementary to the efforts of the State, which has recognized the public utility of this impulse, and
granted tax exemptions. Indian income-tax laws have favoured charities, even granted preferential treatment
since 1886. The law, while granting exemption to income from religious and charitable trusts has taken
effective measures to minimise misuse of trust funds. As a result, a charitable trust loses tax exemption if
certain provisions are not complied with, and if its activities do not fall under section 10 of the Act. Such
trusts also have to apply their income to the charitable objects within a specified period, maintain proper
audited accounts, and invest or utilise funds in a manner so that no benefit is derived by the settlor, trustees,
their relatives, or other persons.1
3. The scope and amplitude of the definition "charitable purpose" under the Income-tax Act, 1961 (hereafter
"Income Tax Act" or "the IT Act") has engaged the courts' (including that of this court) attention on myriad
occasions. The expression "not involving the carrying on of any activity for profit" in the last limb of the
definition [Section 2(15) prior to amendment by Finance Act, 1983] was the subject of debate in no less than
five judgments of this court (including that of a five-member bench).
4. In these batch of appeals and special leave petitions, the primary question which falls for consideration is
the correct interpretation of the proviso to Section 2(15)2 of the IT Act introduced by amendment w.e.f. 1-4-
2009. It is necessary, at this stage, to notice that the IT Act visualized three kinds of charitable purposes:
medical relief, education, and relief for the poor - which are described hereafter as "per se purposes". To this
list, Parliament has, by amendments, added other categories, such as preservation of environment (including
watersheds, forests, and wildlife) and preservation of monuments or places or objects of artistic or historic
interest, and yoga. The last - or the residual purpose included by the definition - is "advancement of any other
object of general public utility" (hereafter referred to as "GPU category"), which is the subject of
interpretation in the present case.
5. The Director General of Income-tax for exemptions, Commissioner of Income-tax ("CIT") in various states,
and other officials of the Income-tax department (hereafter compendiously referred to as "the revenue") have
appealed the decisions of various High Courts, which have held that the carrying on of any trade, commerce,
or business, is not a per se bar or disqualification for a GPU category charitable trust to claim to be such,
precluding its tax-exempt status under the IT Act.
I. Brief history of legislative changes and this court's interpretation
A. Provisions of the Income-tax Act, 1922
6. The provisions of the erstwhile Income-tax Act, 1922 (hereafter "the old Act") enabled tax exemption
claims by trusts for their income from business activity, provided trusts were created thereon. The Privy
Council in Trustees of Tribune, In re [1939] 7 ITR 415 (PC) held that the income of the Tribune Press fell
within section 4(3)(i) of the old Act, and it was implied that income from the press was derived from property
held under trust to maintain a newspaper, to keep up its liberal policy and to devote surplus funds to improve
the newspaper. The word "property" occurring under section 4(3)(i) of that Act was also held3 to include a
business too. The old Act was amended twice with the object of eliminating and getting rid of tax exemptions
for trusts, which were otherwise eligible for it. The first amendment of 1939 inserted4 a new clause (ia) in the
then existing provision. This provided that income derived from business carried on by or on behalf of a
charitable trust or religious institution could be limited to only such business income as was derived by the
trust or institution from business carried on either in the course of the carrying on of a trust's primary purpose,
or carried on mainly by the beneficiaries of the trust or institution. The Lahore High Court in Charitable
Gadodia Swadeshi Stores v. CIT [1944] 12 ITR 385, observed:
"Viewed in its proper perspective, therefore, clause (ia) can be taken to apply only such business as is carried
on behalf of religious or charitable institutions which were not held under trust and not to such business as
was itself held under trust or was conducted by or on behalf of such charitable or religious institutions as were
held under trust. If it was intended to narrow down the scope of clause (1) so as to withdraw the exemption
enjoyed by a business held under trust or conducted by or on behalf of a religious or charitable trust, the new
clause should have been added as proviso to the old clause."

7. The Act was again amended by the Finance Act, 19535 wherein clause (ia) was deleted from section 4(3)(i)
of the old Act and instead inserted as its proviso. Parliamentary intent, in transforming old clause (ia) into a
proviso to section 4(3)(i) was that whenever business was carried on behalf of a religious or charitable
institution, the conditions prescribed in clause (b) of proviso to clause (i) had to be satisfied in addition to the
general condition of exemption set out in the substantive part of clause (i). Parliament's attempt to exempt
income from business activity upon complying with other conditions - apart from those laid down in clause (i)
- was interpreted by this court in P. Krishna Warriar (supra). The court observed that:
"The legal position may briefly be stated thus: clause (i) of section 4(3) of the Act takes in every property
or a fractional part of it held in trust wholly for religious or charitable purposes. It also takes in such
property held only in part for such purposes. Business is also property within the meaning of said clause.
Clause (b) of the proviso to section 4(3)(i) applies only to business not held in trust but carried on on
behalf of religious or charitable institutions."
8. The old Act defined 'charitable purpose' under section 4(3) - i.e., the definition as it stood just prior to the
IT Act, 1961 coming into force (thereby replacing the old Act) - as follows:
"4. (3) Any income, profits or gains falling within the following classes shall not be included in the total
income of the person receiving them
** ** **

In this sub-section "charitable purpose" includes relief of the poor, education, medical relief and the
advancement of any other object of general public utility, but nothing contained in clause (i) or clause (ii)
shall operate to exempt from the provisions of this Act that part of the income from property held under a
trust or other legal obligation for private religious purposes which does not enure for the benefit of the
public."
This court had occasion to interpret the meaning of the expression "advancement of any other object of
general public utility" in CIT v. Andhra Chamber of Commerce [1965] 55 ITR 722/1 SCR 565 (SC). The court
considered previous decisions in: Trustees of the Tribune (supra) and All India Spinners Association of
Mirzapur v. CIT [1944] 12 ITR 482 (PC). Relying heavily on the decision of the Privy Council in Trustees of
the Tribune (supra), this court held, in Andhra Chamber of Commerce (supra) that GPU objects included all
objects promoting welfare of general public, including taking steps to oppose or urge legislation affecting
trade, commerce, etc.
B. The new law: Income-tax Act, 1961
9. Section 2 (15) of the IT Act (which came into force on 1-4-1962 and repealed the old IT Act) defined
"charitable purpose" as follows:
"(15) ? charitable purpose includes relief of the poor, education, medical relief, and the advancement of
any other object of general public utility not involving the carrying on of any activity for profit."
10. The then Finance Minister, Mr. Morarji Desai, explained the rationale for the new definition on the floor
of Lok Sabha:
"The definition of 'charitable purpose' in that clause is at present so widely worded that it can be taken
advantage of even by commercial concerns which, while ostensibly serving a public purpose, get fully
paid for the benefits provided by them, namely, the newspaper industry which while running its concern
on commercial line can claim that by circulating newspapers it was improving the general knowledge of
the public. In order to prevent the misuse of this definition in such cases, the Select Committee felt that
the words 'not involving the carrying on of any activity for profit' should be added to the definition."6
11. The first major decision to interpret the new definition was Sole Trustee, Lok Shikshana Trust v. CIT
[1975] 101 ITR 234/[1976] 1 SCC 254. This court turned down a contention that newspaper business, carried
on with several other objects (which included setting up of educational institutions, dissemination of
knowledge to the Kannada speaking public through newspaper, etc.) was charitable. The court noticed the
changed definition:
"7.…The result thus of the change in the definition is that in order to bring a case within the fourth
category of charitable purpose, it would be necessary to show that (1) the purpose of the trust is the
advancement of any other object of 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.
** ** **

9. It is true that there are some business activities like mutual insurance and co-operative stores of which
profit-making is not an essential ingredient, but that is so because of a self-imposed and innate restriction
on making profit in the carrying on of that particular type of business. Ordinarily profit motive is a
normal incidence of business activity and if the activity of a trust consists of carrying on of a business
and there are no restrictions on its making profit, the court would be well justified in assuming in the
absence of some indication to the contrary that the object of the trust involves the carrying on of an
activity for profit…….. By the use of the expression 'profit motive' it is not intended that profit must in
fact be earned. Nor does the expression cover a mere desire to make some monetary gain out of a
transaction or even a series of transactions. It predicates a motive which pervades the whole series of
transactions effected by the person in the course of his activity…."
The court also rejected the submission that the "profit" referred to meant private profit. It held that the term
had to be interpreted without qualification.
12. One of the judges - Beg, J, concurred with the majority, but after noticing that the trust deed did not
contain any condition on profit-making, expressed a slightly different view emphasizing that the actual
activity needs to be considered, rather than the absence or existence of any condition, in the trust deed.
13. The next decision of importance is Indian Chamber of Commerce v. CIT [1975] 101 ITR 796/[1976] 1
SCC 324. The appellant-chamber was a company registered under section 25 of the Indian Companies Act,
1913. Its memorandum and articles of association stipulated certain broad objects, which this court agreed fell
within the expression "the advancement of any … object of general public utility" in Section 2(15) of the Act.
The objects were "promotional and protective of Indian trade interests and other allied service operations". A
residual clause authorised the chamber "to do all other things as may be conducive to the development of
trade, commerce and industries or incidental to attainment of the above objects or any of them". As per
clauses (4) and (8) of the memorandum of association, the chamber's member could not stand to gain
personally since no portion of
"income and property of the association shall be paid … directly or indirectly, by way of dividend or
bonus or otherwise howsoever by "way of profit to the persons who at any time are ... members of the
Association ...."
On dissolution of the association, the members could not claim any share in the assets. The chamber,
conceded before this court, that it "by and large, strives to advance the general trade interests of India and
Indian without seeking to make profits for its members." This court denied the exemption claimed, holding
that:
"14… The attainment of that object shall not involve activities for profit. What then is an activity for
profit? An undertaking by a business organisation is ordinarily assumed to be for profit unless expressly
or by necessary implication or by eloquent surrounding circumstances the making of profit stands loudly
negatived. We will illustrate to illumine. If there is a restrictive provision in the bye-laws of the charitable
organisation which insists that the charges levied for services of public utility rendered are to be on a 'no
profit" basis, it clearly earns the benefit of Section 2(15). For instance, a funeral home, an S.P.C.A. or a
cooperative may render services to the public but write a condition into its constitution that it shall not
charge more than is actually needed for the rendering of the services, — maybe it may not be an exact
equivalent, such mathematical precision being impossible in the case of variables, — maybe a little
surplus is left over at the end of the year — the broad inhibition against making profit is a good guarantee
 that the carrying on of the activity is not for profit. As an antithesis, take a funeral home or an animal
welfare organisation or a super bazaar run for general public utility by an institution which charges large
sums and makes huge profits. Indubitably they render services of general public utility. Their objects are
charitable but their activities are for profit…
** ** **

16. To sum up, Section 2(15) excludes from exemption the carrying on of activities for profit even if they
are linked with the objectives of general public utility, because the statute interdicts, for purposes of tax
relief, the advancement of such objects by involvement in the carrying on of activities for profit. We
appreciate the involved language we use, but when legislative draftsmanship declines to be simple,
interpretative complexity becomes a judicial necessity.
** ** **

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? Has there been in practice, profit from
this venture? Although, this last is a weak test. The mere fact that a service is rendered is no answer to
chargeability because all income is often derived by rendering some service or other."
C. The judgment in Surat Art Silk
14. The judgment by a larger, five-judge Bench, in Asstt. Commissioner v. Surat Art Silk Cloth Manufacturers'
Association [1980] 121 ITR 1 (SC)/[1980] 2 SCC 31 was the most important decision rendered on the issue.
Here a section 25 (of the Companies Act, 1956 corresponding to section 8 of the Companies Act, 2013) non-
profit company was established. It claimed exemption as an institution with charitable purposes as its
objectives. The objects of the company included promoting commerce and trade in Art Silk yarn, raw silk,
cotton yarn, Art Silk cloth, silk cloth, and cotton cloth, among other objects7. Clause 5(1) of the company's
memorandum provided that its income and property wheresoever derived was to be applied "solely for the
promotion of its objects as set forth in the Memorandum"; clause 5(2) directed that no portion of the income
or property could be paid or transferred, directly or indirectly, by way of dividend, bonus, or otherwise by way
of profit, to persons, who at any time are or had been members of the assessee. The Income-tax Appellate
Tribunal (hereafter "ITAT") after initial remand to the Appellate Commissioner, held that "the primary
purpose for which the assessee was established was to promote commerce and trade in Art Silk and Silk Yarn
and Cloth". The ITAT made a direct reference of the issue, to this court, since a conflict existed with regard to
the correct interpretation of the residual clause, i.e., institutions engaged in the advancement of objects of
general public utility, and whether the company was entitled to be assessed as one carrying on activities that
amounted to charitable purposes. This court first determined that the primary or dominant object of the
company was promotion and development of trade in silk, silk cloth, yarn and other such items and that the
other objects were subsidiary to this primary object. It then held that the requirement of absence of profit
motive, was satisfied:
"7...but this requirement was also satisfied in the case of the assessee, because the object of private profit was
eliminated by the recognition of the assessee under section 25 of the Companies Act, 1956 and clauses 5 and
10 of its Memorandum. It must, therefore, be held that the income and property of the assessee were held
under a legal obligation for the purpose of advancement of an object of general public utility within the
meaning of section 2 clause (15)."
15. This court then held that the words of prohibition occurring at the end of section 2(15) were applicable to
the last category of charitable institutions, i.e., those involved in the advancement of objects of general public
utility. It further clarified that the prohibition applied to the object and not the advancement or attainment of
the said object:
"10a. It is clear on a plain natural construction of the language used by the legislature that the ten crucial
words "not involving the carrying on of any activity for profit" go with "object of general public utility"
 and not with "advancement". It is the object of general public utility which must not involve the carrying
on of any activity for profit and not its advancement or attainment. What is inhibited by these last ten
words is the linking of activity for profit with the object of general public utility and not its linking with
the accomplishment or carrying out of the object. It is not necessary that the accomplishment of the
object or the means to carry out the object should not involve an activity for profit. That is not the
mandate of the newly added words. What these words require is that the object should not involve the
carrying on of any activity for profit. The emphasis is on the object of general public utility and not on its
accomplishment or attainment. The decisions of the Kerala and Andhra Pradesh High Courts in CIT v.
Cochin Chamber of Commerce and Industry [(1973) 87 ITR 83 (Ker):8 and A.P. State Road Transport
Corporation v. CIT [(1975) 100 ITR 392 (AC)], in our opinion lay down the correct interpretation of the
last ten words in section 2 clause(15). The true meaning of these last ten words is that when the purpose
of a trust or institution is the advancement of an object of general public utility, it is that object of general
public utility and not its accomplishment or carrying out which must not involve the carrying on of any
activity for profit."
16. The court then went on to hold what is meant by "not involving the carrying on an activity for profit":
"15. …The question that is necessary to be asked for this purpose is as to when can the purpose of a trust
or institution be said to involve the carrying on of any activity for profit. The word "involve" according to
the Shorter Oxford Dictionary means "to enwrap in anything, to enfold or envelop; to contain or imply".
The activity for profit must, therefore, be intertwined or wrapped up with or implied in the purpose of the
trust or institution or in other words it must be an integral part of such purpose. But the question again is
what do we understand by these verbal labels or formulae; what is it precisely that they mean? Now there
are two possible ways of looking at this problem of construction. One interpretation is that according to
the definition what is necessary is that the purpose must be of such a nature that it involves the carrying
on of any activity for profit in the sense that it cannot be achieved without carrying on an activity for
profit. On this view, if the purpose can be achieved without the trust or institution engaging itself in an
activity for profit, it cannot be said that the purpose involves the carrying on of an activity for profit…
** ** **

16. The other interpretation is to see whether the purpose of the trust or institution in fact involves the
carrying on of an activity for profit or in other words whether an activity for profit is actually carried on
as an integral part of the purpose or to use the words of Chandrachud, J, as he then was in Dharmodayam
case [(1977) 4 SCC 75] , "as a matter of advancement of the purpose". There must be an activity for
profit and it must be involved in carrying out the purpose of the trust or institution or to put it differently,
it must be carried on in order to advance the purpose or in the course of carrying out the purpose of the
trust or institution. It is then that the inhibition of the exclusionary clause would be attracted. This
appears to us to be a more plausible construction which gives meaning and effect to the last concluding
words added by the legislature and we prefer to accept it. Of course, there is one qualification which must
be mentioned here and it is that if the constitution of a trust or institution expressly provides that the
purpose shall be carried out by engaging in an activity which has a predominant profit motive, as, for
example, where the purpose is specifically stated to be promotion of sports by holding cricket matches on
commercial lines with a view to making profit, there would be no scope for controversy, because the
purpose would, on the face of it, involve carrying on of an activity for profit and it would be non-
charitable even though no activity for profit is actually carried on or, in the example given, no cricket
matches are in fact organised.
17. The next question that arises is as to what is the meaning of the expression "activity for profit". Every
trust or institution must have a purpose for which it is established and every purpose must for its
accomplishment involve the carrying on of an activity. The activity must, however, be for profit in order
to attract the exclusionary clause and the question therefore is when can an activity be said to be one for
profit? The answer to the question obviously depends on the correct connotation of the preposition "for".
This preposition has many shades of meaning but when used with the active participle of a verb it means
"for the purpose of" and connotes the end with reference to which something is done. It is not therefore
enough that as a matter of fact an activity results in profit but it must be carried on with the object of
earning profit. Profit-making must be the end to which the activity must be directed or in other words, the
predominant object of the activity must be making a profit. Where an activity is not pervaded by profit
motive but is carried on primarily for serving the charitable purpose, it would not be correct to describe it
 as an activity for profit. But where, on the other hand, an activity is carried on with the predominant
object of earning profit, it would be an activity for profit, though it may be carried on in advancement of
the charitable purpose of the trust or institution. Where an activity is carried on as a matter of
advancement of the charitable purpose or for the purpose of carrying out the charitable purpose, it would
not be incorrect to say as a matter of plain English grammar that the charitable purpose involves the
carrying on of such activity, but the predominant object of such activity must be to subserve the
charitable purpose and not to earn profit. The charitable purpose should not be submerged by the profit
making motive; the latter should not masquerade under the guise of the former…."
17. The court took note of the judgment of Pathak, J. in Dharmadeepti v. CIT [1978] 114 ITR 454
(SC)/[1978] 3 SCC 499 as well as the speech of then Finance Minister, and further observed:
"17. ….It is obvious that the exclusionary clause was added with a view to overcoming the decision of
the Privy Council in the Tribune case [AIR 1939 PC 208: In Re the Trustees of the Tribune (1939) 7 ITR
415] where it was held that the object of supplying the community with an organ of educated public
opinion by publication of a newspaper was an object of general public utility and hence charitable in
character, even though the activity of publication of the newspaper was carried on commercial lines with
the object of earning profit. The publication of the newspaper was an activity engaged in by the trust for
the purpose of carrying out its charitable purpose and on the facts it was clearly an activity which had
profit making as its predominant object, but even so it was held by the Judicial Committee that since the
purpose served was an object of general public utility, it was a charitable purpose. It is clear from the
speech of the Finance Minister that it was with a view to setting at naught this decision that the
exclusionary clause was added in the definition of "charitable purpose". The test which has, therefore,
now to be applied is whether the predominant object of the activity involved in carrying out the object of
general public utility is to subserve the charitable purpose or to earn profit. Where profit making is the
predominant object of the activity, the purpose, though an object of general public utility, would cease to
be a charitable purpose. But where the predominant object of the activity is to carry out the charitable
purpose and not to earn profit, it would not lose its character of a charitable purpose merely because some
profit arises from the activity. The exclusionary clause does not require that the activity must be carried
on in such a manner that it does not result in any profit. It would indeed be difficult for persons in charge
of a trust or institution to so carry on the activity that the expenditure balances the income and there is no
resulting profit…..
18. The court proceeded to quote from passages in its previous judgments, in Lok Shikshana Trust and Indian
Chamber of Commerce (supra) to the effect that if the activity of a trust consists of carrying on a business and
there are no restrictions on profit-making, the court could assume (in the absence of something to the
contrary) that the trust's object involved carrying on of an activity for profit. The Constitution Bench
disagreed with the approach in both the previous judgments, and observed:
"19. …Now we entirely agree with the learned Judges who decided these two cases that activity involved
in carrying out the charitable purpose must not be motivated by a profit objective but it must be
undertaken for the purpose of advancement or carrying out of the charitable purpose. But we find it
difficult to accept their thesis that whenever an activity is carried on which yields profit, the inference
must necessarily be drawn, in the absence of some indication to the contrary, that the activity is for profit
and the charitable purpose involves the carrying on of an activity for profit. We do not think the Court
would be justified in drawing any such inference merely because the activity results in profit. It is in our
opinion not at all necessary that there must be a provision in the constitution of the trust or institution that
the activity shall be carried on no profit no loss basis or that profit shall be proscribed. Even if there is no
such express provision, the nature of the charitable purpose, the manner in which the activity for
advancing the charitable purpose is being carried on and the surrounding circumstances may clearly
indicate that the activity is not propelled by a dominant profit motive. What is necessary to be considered
is whether having regard to all the facts and circumstances of the case, the dominant object of the activity
is profit making or carrying out a charitable purpose. If it is the former, the purpose would not be a
charitable purpose, but, if it is the latter, the charitable character of the purpose would not be lost.
20. If we apply this test in the present case, it is clear that the activity of obtaining licences for import of
foreign yarn and quotas for purchase of indigenous yarn, which was carried on by the assessee, was not
an activity for profit. The predominant object of this activity was promotion of commerce and trade in
Art Silk Yarn, Raw Silk, Cotton Yarn, Art Silk Cloth, Silk Cloth and Cotton Cloth, which was clearly an
object of general public utility and profit was merely a bye-product which resulted incidentally in the
 process of carrying out the charitable purpose. It is significant to note that the assessee was a Company
recognised by the Central Government under section 25 of the Companies Act, 1956 and under its
Memorandum of Association, the profit arising from any activity carried on by the assessee was liable to
be applied solely and exclusively for the promotion of trade and commerce in various commodities which
we have mentioned above and no part of such profit could be distributed amongst the members in any
form or under any guise. The profit of the assessee could be utilised only for the purpose of feeding this
charitable purpose and the dominant and real object of the activity of the assessee being the advancement
of the charitable purpose, the mere fact that the activity yielded profit did not alter the charitable
character of the assessee. We are of the view that the Tribunal was right in taking the view that the
purpose for which the assessee was established was a charitable purpose within the meaning of section 2
clause (15) and the income of the assessee was exempt from tax under section 11. The question referred
to us in each of these references must, therefore, be answered in favour of the assessee and against the
Revenue."
19. There was, however, a discordant note in Surat Art Silk - A.P. Sen, J disagreed with the majority, and
delivered a dissenting opinion. Explaining how there were no restrictive words or conditions, under the old IT
Act, the learned judge held that the approach indicated in Sole Trustee, Lok Shikshana Trust (supra) and
Indian Chamber of Commerce (supra) were correct. He felt that the previous decisions of the court were not
relevant, and that if the activities of a trust involved any activity for profit or business, the organization ceased
to be charitable, and that such proceeds were utilized for charitable objects, were not relevant. He also noted
that "A reading of section 2(15) and section 11 together shows that what is frowned upon is an activity for
profit by a charity established for advancement of an object of general public utility in the course of
accomplishing its objects." The same judgment also stated that:
"if the object of the trust is advancement of an object of general public utility and it carried on any
activity for profit, it is excluded from the ambit of charitable purpose defined in section 2(15). The
distinction is clearly brought out by the provision contained in section 13(1)(bb) inserted by Tax Laws
(Amendment) Act, 1975."
D. Relevant changes brought about to the IT Act, 1961 (Finance Act, 1983 and 1991)
20. It is pertinent to note that the judgment in Surat Art Silk was delivered on 19-11-1979. The expression
"not involving the carrying on of any activity for profit" in Section 2(15) of the IT Act, was omitted by the
Finance Act, 1983, w.e.f. 1-4-1984. Prior to this, w.e.f. 1-4-1977 the following restrictive condition had been
inserted9 as clause (bb), to Section 13(1)10:
"(bb) in the case of a charitable trust or institution for the relief of the poor, education or medical relief,
which carries on any business, any income derived from such business, unless the business is carried on
in the course of the actual carrying out of a primary purpose of the trust or institution"
This provision had the effect of excluding or excepting the operation of Section 11 (which deemed certain
receipts of charitable institutions not to be part of their income). The restrictive condition in clause (bb) was
also omitted by the Finance Act, 1983, w.e.f. 1-4-1984.

21. Below section 11(4)11 (as it originally stood in the IT Act, 1961), section 11(4A)12 was inserted by the
Finance Act, 1983, w.e.f. 1-4-1984. Subsequently, section 11(4A) was amended and substituted by the
following provision w.e.f. 1-4-1992 (and continues to be in force):
"(4A) Sub-section (1) or sub-section (2) or sub-section (3) or sub-section (3A) shall not apply in relation
to any income of a trust or an institution, being profits and gains of business, unless the business is
incidental to the attainment of the objectives of the trust or, as the case may be, institution, and separate
books of account are maintained by such trust or institution in respect of such business."
E. The judgment in Thanthi Trust
22. This court comprehensively interpreted these provisions as they existed, in different time periods, in Asstt.
CIT v. Thanthi Trust [2001] 247 ITR 785/1 SCR 727 (SC)/[2001] 2 SCC 707 where this court had to decide
whether the assessee trust, created for establishing a newspaper "as an organ of educated public opinion for
the Tamil reading public and to disseminate news and to ventilate opinion upon all matters of public interest
through it." could avail of tax exemption. In 1957, the settlor executed a supplementary deed making the trust
irrevocable. On 28-7-1961 another supplementary deed was executed which directed that the trust's surplus
income (after defraying all expenses), should be devoted to purposes such as establishing and running a
school or college for the teaching of journalism; establishing and/or running or helping to run schools,
colleges or other educational institutions for teaching arts and science; establishing of scholarships for
students of journalism, arts and science; establishing and/or running or helping to run hostels for students;
establishing and/or running or helping to run orphanages; and other educational purposes. The High Court
held that exemption could be claimed by the trust. The revenue appealed. This court noticed that the appeals
covered three distinct periods- (i) 1979-80 to 1983-84, (ii) 1984-85 to 1991-92, and (ii) 1992-93 to 1996-97.
This court held that for the first period (1979-80 to 1983-84), the activity of running a newspaper, and the
corpus held for it, by the trust, did not directly result in carrying on the educational activities mentioned in the
supplementary deeds. The income was found to only feed such activity, which was not the same as carrying
on in the course of actual accomplishment of the trust's objects of education and relief of poor, and thus not
entitled to exemption. For the next period (1984-85 to 1991-92), noting that Section 11(4) continued to be in
existence [despite section 11(4A) being inserted (as originally enacted w.e.f. 1-4-1984)], dealing with the
expression "property held under trust", and held that:
"23....Trusts and institutions are separately dealt with in the Act (Section 11 itself and sections 12, 12A
and 13, for example). The expressions refer to entities differently constituted. It is thus clear that the
newspaper business that is carried on by the Trust does not fall within sub-section (4A). The Trust is not
only for public religious purposes so it 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."
23. 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. 1-4-1992) 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 and institutions no more benefit than that given by section 13(1)(bb), the language of
section 13(1)(bb) would have been employed in the substituted sub-section (4A). As it stands, all that it
requires for the business income of a Trust or institution to be exempt is that the business should be
incidental to the attainment of the objectives of the Trust or institution. A business whose income is
utilized by the Trust or the institution for the purposes of achieving the objectives of the Trust or the
institution is, surely, a business which is incidental to the attainment of the objectives of the Trust. In any
event, if there be any ambiguity in the language employed, the provision must be construed in a manner
that benefits the assessee. The Trust, therefore, is entitled to the benefit of section 11 for the assessment
year 1992-93 and thereafter. It is, we should add, not in dispute that the income of its newspaper business
has been employed to achieve its objectives of education and relief to the poor and that it has maintained
separate books of account in respect thereof."
(Emphasis Supplied)
F. Deletion of certain exemptions: Section 10 (20A) and Section 10 (23)
24. Section 10(20A) had been inserted by the Finance Act, 1970, w.e.f. 1-4-1962; 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;"
25. Similarly, Section 10(23)13 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:"
26. Section 10(20A) and 10(23) were deleted/omitted by Finance Act, 2002, w.e.f. 1-4-2003. While both these
provisions are not directly relevant for deciding the primary question (i.e., as to what charitable 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. 1-4-2003, housing boards, and bodies, as well as sports
associations, that were earlier claiming exemption of 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. 1-4-2009)

27. Section 2(15) - which had been amended last, in 198314, was again amended, by Finance Act, 2008, w.e.f.
1-4-2009. 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 1-4-2009, 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:
Provided that the advancement of any other object of general public utility shall not be a charitable
purpose, if it involves the carrying on of any activity in the nature of trade, commerce or business, or any
activity of rendering any service in relation to any trade, commerce or business, for a cess or fee or any
other consideration, irrespective of the nature of use or application, or retention, of the income from such
activity:]"
[Provided further that the first proviso shall not apply if the aggregate value of the receipts from the
activities referred to therein is [ten lakh rupees] or less in the previous year;]
In the second proviso, the reference to ten lakhs was substituted, and the figure of rupees twenty-five lakhs,
was inserted, by the Finance Act, 2011 (w.e.f. 1-4-2012). By Finance Act, 2015 (w.e.f. 1-4-2016), the first two
provisos to Section 2(15) were deleted, and instead, the following proviso was inserted:
"Provided that the advancement of any other object of general public utility shall not be a charitable
purpose, if it involves the carrying on of any activity in the nature of trade, commerce or business, or any
activity of rendering any service in relation to any trade, commerce or business, for a cess or fee or any
other consideration, irrespective of the nature of use or application, or retention, of the income from such
activity, unless—

(i) such activity is undertaken in the course of actual carrying out of such advancement of any
other object of general public utility; and
(ii) the aggregate receipts from such activity or activities during the previous year, do not
exceed twenty per cent of the total receipts, of the trust or institution undertaking such
activity or activities, of that previous year;"
Additionally, the same amendment also inserted "yoga" (after "education") as a listed category of charitable
activity, in the substantive provision.
II. Submissions of parties
A. Arguments on behalf of the revenue
28. 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 Trustees of the Tribune (supra) Andhra Chamber of
Commerce and the decision in P. 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.
29. 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 Sole Trustee, Lok Shikshana Trust (supra), 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 (supra) to urge that 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).
30. The ASG submitted that the judgments in Indian Chamber of Commerce (supra) and Sole Trustee, 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
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 Sole
Trustee, Lok Shikshana Trust (supra) which highlighted that this statement shed light on the new provision.
31. 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 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 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."
32. 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. 1-4-1976), 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:
"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—
** ** **

"(23C) any income received by any person on behalf of-

(i) the Prime Minister' s National Relief Fund; or
** ** **

(iv) any other fund or institution established for charitable purposes"

The other amendment was introduction of section 13(1)(bb) (w.e.f. 1-4-1977) which imposed conditions on
the carrying on of business, by charitable institutions.
33. It was urged that the combined operation of section 2(15), section 10(23C) and section 13(1)(bb) meant
that only charities which were set up for the purpose of "relief of the poor, education or medical relief", could
claim exemption if they carried on business "in the course of actual carrying out of a primary purpose of the
trust or institution". The studied omission of GPU category charities, in section 13(1)(bb) meant that if such
trust or institutions carried on any business, even incidental to their objects, they would not be entitled to
exemption.
34. The ASG then contended that the decision in Surat Art Silk (supra) had the unintended consequence of
ignoring the significance of the addition of 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.
35. 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.
36. 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 Punjab [1997] 7 SCC 339
(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.
B. Arguments of the assessee-organizations
37. 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 Gujarat legislature; they were treated as local authority under section 10(20) of the IT
Act, as it existed till 2003. Thereafter they were treated as charitable institutions engaged in activities
involved in the advancement of public utility till the amendment of 2008. Learned counsel highlighted that the
AUDA was created purely for the development and redevelopment - as well as for augmentation of roads and
allotment of lands after redevelopment, in the areas under its control. Relying upon the provisions of the Act
constituting AUDA15, he submitted that its mandate is to control development activities, execution of works
and dispersal of sewage, provisions of such other facilities and generally engage in urban development in the
areas it had jurisdiction over. He highlighted Section 40 of that Act and urged that the nature of activities,
especially disposal of properties developed by AUDA were entirely regulated. Whilst the lion's shares of
properties developed by AUDA were to be allotted for housing and residence, and earmarked specifically for
public amenities, roads etc., a small percentage (15%) could be sold by public auction. It was submitted that
the statutory model adopted by AUDA was to enable it to function as a self-sustaining unit. The disposal of
plots through allotment and especially by public auction were the main modes through which it could generate
revenue. The entire revenue or income so generated was to be kept in a fund under section 91; and its
accounts were mandatorily audited by the State's Accountant General under section 95.

38. It was argued that like AUDA, the GIDC too was also set up by virtue of a statute16, 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 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 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 law17. 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.
39. 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.
40. It was submitted that the decisions in Trustees of the Tribune; Krishna Warriar (supra) and Sole Trustee,
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 such a purpose is fulfilled, the
carrying on of some activity which might result in surplus, would not disentitle the entity from the benefit of
tax exemption.
41. Learned counsel then made a brief reference to the judgment in CIT v. Bar Council of Maharashtra [1981]
130 ITR 28 (SC)/[1981] 3 SCC 308 arguing that Surat Art Silk (supra) was followed in this decision. He also
cited Thanthi Trust (supra). Counsel highlighted that the object of the assessee there, was charitable and
required that the business ought to be carried out for the 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 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. 1-4-1992). The new
provisions enabled the Trust to carry on business for it was incidental to the attainment of its activities.
42. Elaborating on Thanthi Trust further, counsel highlighted that 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.
43. Learned counsel also relied upon Circular 11/2008 dated 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 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
entities which were masquerading as charitable but in reality carrying on business. On the other hand, genuine
charitable organisations which generated income for their sustenance could not be denied the benefit of tax
exemption under the Income-tax Act.
44. Counsel relied on the decisions in Shri Ramtanu Cooperative Housing Society Ltd. v. State of
Maharashtra [1970] 3 SCC 323, Gujarat Industrial Development Corpn. v. CIT [1997] 94 Taxman 64/227
ITR 414/412 CTR 181 (SC)/1997 (Supp 3) SCR 466/[1997] 7 SCC 17, HSIDC v. Hari Om Enterprises [2009]
16 SCC 208 and CCE v. Maharashtra Industrial Development Corpn. 2017 SCC Online Bom. 10021 and
urged that statutory organizations set up for housing and other essential development, cannot be regarded as
commercial or business entities.
45. Learned counsel relied upon the Constitution Bench decision of this Court in Navnit Lal C. Jhaveri v. K.K.
Sen [1965] 1 SCR 909, 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. CIT [1999] 104 Taxman 547/237 ITR 889/154 CTR
88 (SC)/[1999] 4 SCC 599 and 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.
46. 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. [1968] 2 SCR 636.; Khoday Distilleries Ltd. v. State of
Karnataka [1995] 1 SCC 574 and State of Gujarat v. Raipur Manufacturing [1967] 1 SCR 618. It was
submitted that in all contexts, 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 (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
(supra), Khoday Distilleries (supra), 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 also carries activities that generate
surplus or money, they cannot be per se excluded from consideration for tax benefit.
47. Learned Senior Counsel Mr. Kavin Gulati argued for NOIDA and relied upon the Constitution Bench
judgment of this court in CCE v. Ratan Melting and Wire Industries [2008] 17 STT 103/12 STR 416
(SC)/[2008] 13 SCC 1 to urge that a circular cannot define an ambit of a provision. He highlighted the
decision rendered by the Delhi High Court in Greater Noida Industrial Development Authority v. Union of
India [2018] 91 taxmann.com 359/254 Taxman 289/406 ITR 418/303 CTR 512 (Delhi)/2018 SCC Online
Delhi 7536, where the assessee's activities were held to be not "commercial activity" within the meaning of
clause (b) to S.10(46).18 He also relied on other decisions - of this court, to the same effect, in Kerala State
Electricity Board v. Indian Aluminium Co. Ltd. [1976] 1 SCC 466 and Trustees of the Port of Madras v.
Aminchand Pyarelal [1976] 3 SCC 167.
48. Mr. Gulati relied on the GIDC case (supra) to argue that the word "development" in S.10(20-A) of the IT
Act, 1961 has to be understood in its wide sense. It was urged that development authorities like NOIDA fall
under section 2(15) of the IT Act, 1961 if they satisfy the test in section 11(7) of the IT Act, 1961. It was
contended that Surat Art Silk (supra) was clear that engagement by a trust with a commercial activity is not
per se prohibited, as long as its object is the attainment of an object of general public utility. Pointing to the
Explanatory Notes (to the Provisions of the Finance Act, 2015) - with 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, 1961, when the authorities satisfy themselves with respect to the genuineness of the activity and scope of
the trust.
49. It was lastly argued that the expression "trade" carries within it the idea of profitability: counsel cited State
of Gujarat v. Mahesh Dhiarjlal Thakkar [1980] 2 SCC 322, Sodan Singh v New Delhi Municipal Committee
[1989] 3 SCR 1038 and T.M.A Pai Foundation v. State of Karnataka [2002] 8 SCC 481. Reliance was placed
upon the judgment in CIT v. Madurai Mills Co. Ltd. [1973] 4 SCC 194 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.
50. 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
preamble19, the aims and objectives20 of the board as well as Sections 3, 5, 6, 28, 29, 43 and 4621 of the
KIAD Act. Reliance was placed on Karnataka Industrial Areas Development Board v. Prakash Dal Mill
[2011] 6 SCC 714 which 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 was placed upon State of Karnataka v. All India Manufacturer's Organisation [2006] 4 SCC 683.
51. 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 Port of Madras [1999] 2 SCR 195 and
several other decisions22. It was argued that wherever it is intended, profit element is wholly excluded from
activity - reliance was placed on provisions of the Karnataka VAT Act, The Central Goods and Service Tax
Act ("CGST Act") and section 2(31) of the IT Act. In the present context, the activities of the Board do not
amount to "trade", "commerce" or "business" and the first proviso to Section 2(15) is attracted only if the
primary/dominant objects are (a) in the nature of trade, commerce or business; or (b) rendering any service in
relation to any trade, commerce or business. To substantiate this argument, counsel relied on Surat Art Silk
(supra), CIT v. Gujarat Maritime Board [2008] 166 Taxman 58/[2007] 295 ITR 561/214 CTR 81 (SC)/[2007]
12 SCR 962/[2007] 14 SCC 704 and other decisions23. Hence, if the main activity is not "business", the
connected, incidental or ancillary activities of sales carried out in furtherance of and to accomplish their main
objects would not normally, amount to business, unless an independent intention to conduct 'business' in these
connected, incidental or ancillary activities is established by the revenue. The judgments in CST v. Sai
Publication Fund 2002 taxmann.com 2342/126 STC 288 (SC)/[2002] 2 SCR 473 and the Board of Trustees of
the Port of Madras (supra) was relied upon. It was urged that the revenue's contention that statutory
authorities' claim for exemption is confined to the provision in section 10(46). He urged that in terms of
section 11(7)24 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.
52. Mr. Dhruv Agrawal, learned senior counsel appearing for the 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 of the
society. He relied on this court's decision in Chameli Singh v. State of U.P. [1996] 2 SCC 54925 which had
stated that right to social justice includes right to shelter, and that these statutory corporations are the means to
ensure that.
53. Mr. K. V. Viswanathan, senior counsel appearing on behalf of 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 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 society in 1996. All the trade bodies26 as well Bureau of Indian Standards are
members of its governing council.
54. 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 purpose was charitable, i.e., advancement of general
public utility. Also, to reflect that there is no business/trade/commerce involved and profit motive is absent the
learned counsel relied upon the decision of the assessee society to issue substantial discounts to the extent of
50% to deserving sectors like cottage industries to enable augmentation of market for such sectors, as well as
the letter written by CEO-GS1 to the President GS1 (i.e. Joint Secretary, Ministry of Commerce) to permit
reduction of fee from Rs. 400 too Rs. 70 per farm/plot, for issuing Global Location Number (GLN) to
farmers, which was approved.
55. Regarding the statutory provisions it was submitted that the words "trade, commerce or business" in the
proviso to section 2(15) of the IT Act cannot be read in isolation and have to be seen in context of "charitable
purpose" and, even after a series of amendments - from the Finance Act, 2008 to Finance Act, 2015 there is
essentially, no change in the basis of determination of what amounts to a trade, commerce or business and
therefore the tests as laid down in Surat Art Silk (supra) still holds the field to interpret these words.
56. Counsel urged that Parliament is assumed to have used the word 'involves' found in proviso to section
2(15) as interpreted in Surat Art Silk (supra), in the sense that an activity is involved in the advancement of an
object when it is enwrapped or enveloped in the activity of advancement, so that the resulting activity has a
dual nature or is twin faceted. The well-known principle of construction, that where the legislature uses in an
Act, a legal term which has received judicial interpretation, it must be assumed that the term is used in the
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 Deputy Collector, Madras [1965] 1 SCC 614. was cited in that
context.
57. 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 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
(P.) Ltd. v. Satish Prabhakar Padhye [2011] 12 taxmann.com 106/108 SCL 354/164 Comp. Case 275
(SC)/[2010] 4 SCC 378 was referred to, in this context where this court ruled that
"…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
incorporated or registered under the Companies Act."
58. 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 A.P. v. H. Abdul Bakhi & Bros [1964] 7
SCR 664. If exemption is not granted to the assessee it will face a liability of around Rs. 300 crore (from FY-
2007-08 to 2020-21), which given its financial condition will jeopardise its existence and functioning.
59. Ms. Radhika Suri, learned counsel argued on behalf of Bhatinda Improvement Trust and adopted the
submissions of Mr. Soparkar. She urged, in addition, that it is obligatory on part of the assessee (a statutory
corporation) to use the monies received for public utility purpose and the price fixation of lands/plots sold by
them is also regulated through statutory regulations. Therefore, such activities qualify the test of general
public utility. Ms. Suri also relied on the decision of the Delhi High Court in Greater Noida Industrial
Development Authority (supra) to the effect that there is need to distinguish commercial activity which
constitutes disqualification under clause (b) to Section 10(46) of the Act, and charging and payment of fee,
service charges, reimbursement of costs or consideration for transfer of rights for performing and undertaking
regulatory or administrative duties for general public interest, when these are not guided and undertaken with
profit motive or intent. Further, reliance was placed on CIT (Exemptions) v. Hoshiarpur Improvement Trust,
Hoshiarpur [IT Appeal No. 78 of 2016, dated 23-12-2016] to explain the characteristics of the assessee.
Learned counsel further laid emphasis on provisions of the regulations under the Punjab Improvement Trust
Rules and regulations to show the procedure adopted by the board in fixing prices.
60. Mr. Gursharan S. Virk, argued that the Gujarat Maritime Board (GMB), is a statutory one, constituted
under section 3(2)27 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 Government28. 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 Act29; 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 general30. 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.31 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.
61. 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 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.
62. Mr. Rohit Jain, learned counsel, appeared on behalf of the Education and Research Network (ERNET) and
National Internet Exchange of India (NIXI). On behalf of ERNET it was submitted that it was started as a
planned project of the Government of India under the Department of Electronics (DoE) with the support of the
United Nations Development Program (UNDP). The program was focused on integrating information
technology and internet tools with learning environment, to enhance the quality of education. However,
funding by the UNDP ended in 1992. The DoE nevertheless continued to support the project till 1998 and
thereafter the body was registered as an autonomous society under administrative control of the Ministry of
Communication and Information Technology, Govt. of India on 27-1-1998. It was registered under section
12A of the IT Act, 1961 on 26-3-2004 and its activities fell within the meaning of "charitable purpose" under
section 2(15). It duly complied with sections 11 and 12 of the IT Act, 1961.
63. NIXI was created in 2003 by the Government of India under the Ministry of Information Technology, for
promotion and growth of internet services in India, regulating the internet traffic and acting as internet
exchange, to undertake ".in" domain name registration thereby saving valuable foreign exchange, and take
care of national concern. It was urged that this is a section 25 company barred from undertaking any
commercial or business activity for profit and is bound by strict 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.
64. Learned counsel submitted that ERNET is a "not for profit" 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 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.
65. Learned counsel also submitted that the assessee carries on 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 (Exemptions) [2009] 183 Taxman 462/[2010] 321 ITR 73/[2009] 226 CTR 27 (Delhi),
Bureau of Indian Standards v. DGIT (Exemptions) [2012] 27 taxmann.com 127/[2013] 212 Taxman 210/358
ITR 78/260 CTR 39 (Delhi) and GS1 India v. DGIT (Exemptions) [2013] 38 taxmann.com 364/219 Taxman
205/[2014] 360 ITR 138/[2013] 262 CTR 585 (Delhi).
66. 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 18-5-1979 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 utility. These activities are by way of booking large spaces in fairs, and such like events,
especially in overseas locales, so that Indian manufacturers can interact with other overseas buyers, and are
enabled to promote trade. It was submitted that there is ex-officio involvement on behalf of the Central
Government, in the AEPC's activities, including in its policy formulation levels.

67. Mr. Vohra relied upon the Memo Explaining Provisions in the Finance Bill, 200832, the speech of Finance
Minister in Lok Sabha on Finance Bill, 2008 India Trade Promotion Organization v. Director General of
Income-tax (Exemptions) [2015] 53 taxmann.com 404/229 Taxman 347/371 ITR 333/274 CTR 305 (Delhi),
CBDT Circular No. 11 dated 19/12/200833 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 Revenue [1967] 3 SCR 778 which follows H. Abdul Bakhi & Bros
(supra), Barendra Prasad Ray v. ITO [1981] 3 SCR 387 and Raipur Manufacturing Co. Ltd. (supra) 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 Commissioner v. Lord Fisher [1981] 2 All ER 147 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.
68. 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 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 judgment DIT v. Apparel Export Promotion Council [2000] 112 Taxman 433/244 ITR 736/163 CTR
133 (Delhi). 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.
69. During AY 2009-10 and 2010-11, the AO denied exemption under section 11 on the ground that the newly
inserted proviso to Section 2(15) was attracted; and thus the assessee was ineligible for exemption under
section 11. The AO held that the assessee was rendering services in relation to trade, commerce business for
consideration and the receipt of which exceeds Rs. 10 lakhs. The CIT(A) allowed the assessee's appeal
following the decision of the High Court in its case, and there being no changes in the facts and circumstances
of the case. The ITAT upheld the findings of the first appellate authority as it observed that the assessee did
not carry any activity with an object of profit, and thus the question of attracting the proviso did not arise.
70. Ms. Prabha Swami, learned counsel submitted that the A.P State Seed Certification Agency is a statutory
society set up under section 834 of the Seeds Act, 1966 which is represented by the representatives of
Seedsmen Association, seed farmers, farming community and members representing Central Seed
Certification Board. While explaining the charitable characteristic of the society the counsel pointed out that
the society was duly registered and its Memorandum of Association clearly inter-alia stated that the object for
which it was established was to see that the cultivators adopt all scientific methods for production of quality
seeds in accordance with the Seeds Act and to carry on educational programs designed to promote the use of
certified seeds. Charges are collected from the traders or the societies engaged in the trade of seeds. The
society provides quality seeds to the farmers and hence traders are prevented from selling inferior variety of
seeds. 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, 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. Mr. Sanjay
Jhawar, learned counsel for Rajasthan State Seed Corporation also adopted the submissions of Ms. Prabha
Swami.
71. 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, 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
section 12AA of IT Act, as the object of the authority is to provide shelter to homeless people, which is
charitable.
72. 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" in the proviso to Section 2(15) implies that advancement of object of a trust may not involve
activities of profit. It was urged that the amendment appears to have undermined this court's decision in Surat
Art Silk (supra).
73. It was argued that the crucial part of the definition of "charitable purpose" is the word "cess" employed in
the proviso. As an explanatory measure, the activities of promotional councils were taken into consideration -
for example Surat Art Silk (supra) 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 "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.
74. 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.
75. 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 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 Ltd. v. Punjab
SPCL [2018] 11 SCC 508 to state that a purposive interpretation of "cess", is to be adopted.
76. 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. Maheshkumar Dhirajal Thakkar [1980] 2 SCC 322 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
profit35. Further, the word takes its meaning from the context."
77. Likewise, with regard to "business" the counsel referred to H. Abdul Bakhi & Bros. (supra) which had
discussed the term and explained that any activity should be driven by profit motive.36 Lastly, the judgment in
Secretary, Ministry of Education & Broadcasting, Govt. of India v. Cricket Association of Bengal [1995] 2
SCC 161 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.
78. 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.
79. Counsel submitted that ICAI is a premier professional accountancy body of the country established under
the Chartered 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 1537 of the CA Act defines the functions of
Council of Institute which include holding of examinations for chartered accountancy course candidates and
regulation of engagement and training of articled clerks and audit assistants.
80. It was submitted that holding of coaching and revision classes, and surplus generated due to the fees
collected from that activity is not 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) 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. 1-4-2009) since its activities fall within the purview of the clause
"education" specified in the definition of the expression "charitable purpose" in S. 2(15) of the said Act, and
not the residuary clause relating to the GPU category, wherein the proviso solely applies to the latter. In this
regard the counsel referred to the Gujarat High Court judgment in Saurashtra Education Foundation v. CIT
[2004] 141 Taxman 26/[2005] 273 ITR 139 (Guj.) which took into account the observations made in another
judgment by the same High Court in Gujarat State Co-operative Union v. CIT [1992] 195 ITR 279 (Guj.), to
hold that the ICAI was existing solely for educational purposes and its activities clearly fall within the
category of 'education' in section 2(15) of the Act. In further support of this proposition, reliance was placed
on American Hotel and Lodging Association v. CBDT [2008] 170 Taxman 306/301 ITR 86/216 CTR 377
(SC)/[2008] 10 SCC 509 to argue that ICAI is entitled to be notified under section 10(23C)(iv) r/w section
2(15) of the Act, 1961.
81. Counsel submitted that profit motive is an essential element, or the driving force, for any business or
commercial activity. The activities of ICAI are not of such nature. Counsel relied upon the judgment in
NDMC (supra) which ruled that profit motive is the core aspect of trade and business, in the context of Article
289 of the Constitution of India, which talks about exemption of property and income of a state from Union
Taxation.
82. It was argued that there is a distinction between nature of commercial ventures and charitable institutions
such as ICAI. The word '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 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 Corpn. (supra), Victoria
Technical Institute v. Addl. CIT [1991] 188 ITR 57 (SC)/94 CTR 153, Aditnar Educational Institution v. Addl.
CIT [1997] 3 SCC 346, Thiagarajar Charities v. Addl. CIT [1997] 92 Taxman 152/225 ITR 1010/140 CTR
295 (SC)/[1997] 4 SCC 724, DIT v. Bharat Diamond Bourse [2003] 126 Taxman 365/259 ITR 280/179 CTR
225 (SC) 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.
83. 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 538 and the ratio Visvesvarya Technological University v. Asstt. CIT
[2016] 73 taxmann.com 286/242 Taxman 247/389 ITR 10 (SC)/[2016] 12 SCC 258 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 v. Union of India 1981 taxmann.com 21
(Delhi)/1981 (8) ELT 328 (Delhi)/1981 SCC Online Delhi 457 was referred to contend that it is not open for
the revenue authorities, without any cogent reason and merely at its own caprices, to refuse to follow the
conclusion reached on the earlier occasion, and to take up a totally different stand in subsequent years - as was
done in this case while refusing to grant exemption under section 10 (23C) of IT Act, 1961 to the ICAI.
84. Learned counsel further submitted that the present case involves two circulars issued by the Board viz.
Circular No. 1/2009 dated 27-3-2009 and Circular No. 11/2008 dated 19-12-2008 which are clarificatory and
not contrary to any provisions of the Act, 1961 and hence the ratio of the decision in Ratan Melting and Wire
Industries (supra) does not apply. Reliance was placed on observations made in Navnit Lal Zaveri (supra) and
Ellerman Lines v. CIT [1971] 82 ITR 913 (SC)/[1972] 4 SCC 474 to urge that these circulars are classified as
"beneficial". They place a purposive interpretation on a statutory provision. Such circulars enormously reduce
litigation and hardship of assessees and they play a vital role in the proper administration of taxes.
85. It was argued that the demand against ICAI is from 2004-05 and the fees collected from students have
already been spent on various infrastructure development and other capital expenditure items. The surplus
amounts remaining were invested in government securities/FDs of nationalized banks, so the demands raised
will seriously prejudice the assessees.
86. On behalf of the Tribune Trust, Mr. Datar argued that the charitable nature of the trust can be traced back
to the Trustees of the Tribune (supra) judgment rendered by the Privy Council, which allowed the trust's
appeal against the judgment of Lahore High Court (that rejected exemption for the trust's income for AY
1932-33). The Privy Council 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 trust involved the dissemination of educated public opinion. It was urged that the impugned judgment
passed by the Punjab and Haryana High Court39 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.
87. 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 Rs. 2 whereas the cost of printing each
newspaper is Rs. 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.
88. 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 there is no
discernible difference between the two. Since there is no intelligible differentia and rational nexus in this
regard, this discrimination offends Article 14.
89. It was argued that the term "for a cess or fee or any other consideration" used in Section 2(15) is clearly
violative of Article 14 as it fails to make a distinction between activities that are carried out by the State or by
the instrumentalities or agencies of the State, and those carried out by commercial entities for which a
consideration is charged. In addition, Article 289(1) exempts states' property and income from Union taxation.
To permit levy of income tax on cess or fee collected by a state would violate Article 289(1), hence the word
"cess" or "fee" in the proviso is liable to be declared unconstitutional and violative not only of Article 14 but
of Article 289 as well, in the context of state undertakings. For Central institutions, it was submitted that cess
or fee can never fall within the definition of "income" under section 2(24) read with Entry 82 of List-I and
cannot be subject to tax.
C. Revenue's rebuttal arguments
90. In rebuttal to the submissions advanced by the assessees, the ASG relied upon Adityapur Industrial Area
Development Authority v. Union of India [2006] 153 Taxman 107/283 ITR 97/202 CTR 464 (SC)/[2006] 5
SCC 100 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.
91. 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, discrimination; and
the assessees have not made out a case under any 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), 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
92. The history of the statute and the evolving interpretation of "charitable purpose" reveals that in - P.
Krishna Warriar (supra), this court extensively considered the previous jurisprudence on the subject (in light
of the pre-existing Section 4(3) of the old law), as well as the amendment introduced in 1953. At that time,
income of a charitable organization, earned from business was subject to limitations. The limitations were that
(i) the business was to be carried on in the course of the actual carrying out of a primary purpose of the trust
or institution; or (ii) the work in connection with the business was to be mainly carried on by beneficiaries of
the institution. These expressions were considered in Krishna Warriar (supra), where the court held that the
term "property" (of a trust) was of widest amplitude, which included business. The following decision, in
Andhra Chamber of Commerce (supra) where the chamber of commerce had among its objects, one enabling
it to advocate policies or legislation, or oppose them, in addition to the object of promoting business, held that
the incidental inclusion of such objects, involving espousing a political purpose, did not undermine its
essential or main purpose, of advancing objects of general public utility. The new provision, i.e., Section 2(15)
of the IT Act, defined "charitable purpose" restrictively: to deny tax exemption to activities for profit which
were carried on by a trust for the advancement of an object of general public utility. The reason for this
change (discussed previously) was that the advantage of tax exemption was not intended to charitable trusts
that were commercial concerns, which while ostensibly serving a public purpose, were fully paid for the
benefits provided by them.
93. The first two decisions of some note are Lok 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."
94. 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?...."
95. 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 of income from business carried on "behalf of a
religious or charitable institution" being exempt, provided "the business is carried on in the course of the
actual carrying out of a primary purpose of the institution" was introduced by amendment, in 1953. This was
interpreted in Andhra Chamber of Commerce and Krishna Warriar (supra). However, Parliament clearly
intended a departure, when it introduced the new Section 2 (15) under the IT Act. The earlier decisions in
Indian Chamber of Commerce, and Lok Shikshana Trust (supra) noticed this change. Surat Art (supra) was
yet another a departure. While it considered the previous decisions of the court, it consciously departed from
them, and even overruled the interpretation in Indian Chamber of Commerce (supra). The larger Bench in
Surat Art Silk agreed with the previous decisions to the effect that the motivation for the activity in question
(i.e., for it to be charitable) should not be deriving of profits. However, the larger Bench enunciated the
principle of 'predominant object' and held that what was of importance was "whether the predominant object
of the activity involved in carrying out the object of general public utility is to subserve the charitable purpose
or to earn profit" and that such an entity would not lose its charitable character merely because some profit
arose from the said activity.
96. Thus, was born the 'predominant object' test, of an organization, to determine whether it was essentially
charitable, or 'for profit'. If the 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."
97. 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 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 Commerce, the necessity of such a condition was
highlighted.
98. 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 CIT v. Federation of Indian Chambers of Commerce and Industries [1981] 6
Taxman 7/130 ITR 186/22 CTR 124 (SC)/[1981] 3 SCR 489 it was, thus held:
"In other words, the majority view in the Surat Art Silk's case (supra) was that the condition that the
purpose should not involve the carrying on of any activity for profit would be satisfied if profit-making is
not the real object. The theory of dominant or primary object of the trust has, therefore, been treated to be
the determining factor, even in regard to the fourth head of charity, viz., the advancement of any other
object of general public utility, so as to make the carrying on of business activity merely ancillary or
incidental to the main object."
99. In Bar Council of Maharashtra (supra) this court considered whether a bar council, constituted under the
Advocates Act, 1961, performed activities that were charitable in nature; it was held that the statute obliged
several activities whose dominant object was advancement of public utility, without profit motive. This court
held that the provisions of the Act
"enjoined upon avowedly with the objective of protecting the litigating public from unscrupulous
professionals by taking them to task for any misconduct on their part; it is also one of the obligatory
functions of a State Bar Council to promote and support measures for law reform as also to conduct law
seminars and organise talks on legal topics by eminent jurists, obviously with a view to educate the
general public, the function prescribed by clause (eee) is obviously charitable in nature, the same being to
organise legal aid to the poor. Amongst these various obligatory functions one under clause (d) is to
safeguard the rights, privileges and interests of the advocates on its roll and it is difficult to regard it as a
primary or dominant function or purpose for which the body is constituted. Even this function apart from
securing speedy discharge of obligations by the litigants to the lawyers ensures maintenance 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…"
100. 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.
101. An interesting detail, is that the old Act did not define "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 .. 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…"40 could not be included as
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 business; it spelt out a condition
that any income derived from business "carried on in the course of the actual carrying out of a primary
purpose of the institution" if applied for charitable purposes, was exempt.
102. The second aspect is that Surat Art Silk (supra), was rendered in the context of Section 2(15) of the IT
Act, as it stood originally. However, by the Taxation Laws Amendment Act, 1975 (w.e.f. 1-4-1977), section
13(1)(bb) was inserted. That provision excluded the operation of sections 11 and 12 (under which income of
charities were entitled to be exempted) in the case of income derived from business by charities engaged in
medical relief, education and relief to the poor, unless the business fulfilled a condition:
"(bb) in the cases of a charitable trust or institution for the relief of the poor, education or medical relief,
which carries on any business, any income derived from such business, unless the business is carried on
in the course of the actual carrying out of a primary purpose of the trust or institution;"
103. The 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 1-4-1977, 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 (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.41 The conscious omission of the last
object, i.e., the GPU category, 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).
104. The next significant change, which occurred was with the Finance Act, 1983 (w.e.f. 1-4-1984). 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)
(c) Section 11(4A) was inserted42, 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".
105. 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.
106. Section 2 begins with the expression "unless the context otherwise requires"- as a preface to every
expression which is sought to be defined, under the IT Act. The 1922 Act did not contain any words of
restriction, in the definition clause. The IT Act, however, defined charitable purpose - at the outset,
restrictively, and then, substantively enacted provisions that give effect to Parliamentary intent. Section 10
(23C)(iv) exempts any "income" of "any other fund or institution established for charitable purposes which
may be approved by the prescribed authority, having regard to the objects of the fund or institution and its
importance throughout India or throughout any State or States" from taxation.
A. Aids to interpretation
(i) History of the legislation
107. The amendments (i.e. Finance Act 2008, Finance Act 2009, Finance Act 2012 and Finance Act 2015) do
not throw light - by way of statement of objects and reasons or notes on clauses. The court, therefore would
have to resort to the surrounding circumstances that led to the amendment.
108. The words of a statute are to be construed in their terms, according to the circumstances in which they
occur. At the same time, there is some authority for the proposition that statutes - particularly amending
provisions, may be considered in the light of the previous history of the legislation. Justice Cardozo in
Duparquet Co. v. Evans 297 U.S. 216 (1936) said that in questions relating to construction, "history is a
teacher that is not to be ignored". In a similar vein, Chief Judge Learned Hand said that "statutes always have
some purpose or object to accomplish, whose sympathetic and imaginative discovery is the surest guide to
their meaning" Cabell v. Markham [1945] 148 F 2d 737.
109. Some decisions of this Court have highlighted this aspect. In Bhuwalka Steel Indus. Ltd. v. Bombay Iron
and Steel Labour Bd. [2009] 16 SCR 618 this court observed that
"The legislative intent of the enactment may be gathered from several sources which are, from the statute
itself, from the preamble to the statute, from the Statement of Objects and Reasons, from the legislative
debates, reports of committees and commissions which preceded the legislation and finally from all
legitimate and admissible sources from where they may be allowed. Reference may be had to legislative
history and latest legislation also. But, the primary rule of construction would be to ascertain the plain
language used in the enactment which advances the purpose and object of the legislation..."
110. In Chief Justice of Andhra Pradesh v. L.V.A. Dixitulu [1979] 1 SCR 26 again, the court held that resort to
the history of the legislation is legitimate, for interpreting a provision:
 "..in order to ascertain the true meaning of the terms and phrases employed, it is legitimate for the Court
to go beyond the arid literal confines of the provision and to call in aid other well-recognised rules of
construction, such as its legislative history, the basic scheme and framework of the statute as a whole,
each portion throwing light on the rest, the purpose of the legislation, the object sought to be achieved,
and the consequences that may flow from the adoption of one in preference to the other possible
interpretation."

111. Other decisions43 have also commented on the use of history of the legislation as a tool for its
construction. It is, therefore, clear that courts can look at the previous history of the statute, and the changes it
underwent to discern what is intended by the lawmakers when an amendment is introduced, or a new law
enacted. In light of these factors, it would therefore, also be useful for the court to consider the background
which led to the amendment - firstly in 2008 and thereafter in 2012 and 2015, seeking to restrict the nature of
activities that a GPU category charity can legitimately undertake.
(ii) Other extrinsic aids to construction of the statute
(a) Speeches in Parliament
112. Speeches made in the legislature or Parliament, can be looked into for throwing light on the rationale for
an amendment. There is some authority for that proposition.44 Some light can be discerned from the statement
of the finance minister on the floor of Parliament, who answered to the criticism levelled against the change
brought about by the amendment in 2008. The finance minister commented on the criticism levelled against
the amendment to section 2(15) in the following words:
"I once again assure the House that genuine charitable organisations will not in any way be affected. The
CBDT will, following the usual practice, issue an explanatory circular containing guidelines for
determining whether an entity is carrying on any activity in the nature of trade, commerce or business or
any activity of rendering any service in relation to any trade, commerce or business. Whether the purpose
is a charitable purpose will depend on the totality of the facts of the case. Ordinarily, Chambers of
Commerce and similar organisations rendering services to their members would not be affected by the
amendment and their activities would continue to be regarded as "advancement of any other object of
general public utility"."
(b) Departmental circulars
113. Learned counsel for the assessees relied upon Circular No. 1/2009 dated 27-3-2009 and Circular No.
11/2008 dated 19-12-2008 issued by the Central Board of Direct Taxes. The relevant part of Circular No.
11/2008 reads as follows:
"3. The newly inserted proviso to section 2(15) will apply only to entities whose purpose is 'advancement
of any other object of general public utility' i.e. the fourth limb of the definition of 'charitable purpose'
contained in section 2(15). Hence, such entities will not be eligible for exemption under section 11 or
under section 10(23C) of the Act if they carry on commercial activities. Whether such an entity is
carrying on an activity in the nature of trade, commerce or business is a question of fact which will be
decided based on the nature, scope, extent and frequency of the activity.
3.1 There are industry and trade associations who claim exemption from tax u/s 11 on the ground that
their objects are for charitable purpose as these are covered under 'any other object of general public
utility'. Under the principle of mutuality, if trading takes place between persons who are associated
together and contribute to a common fund for the financing of some venture or object and in this respect
have no dealings or relations with any outside body, then any surplus returned to the persons forming
such association is not chargeable to tax. In such cases, there must be complete identity between the
contributors and the participants.
Therefore, where industry or trade associations claim both to be charitable institutions as well as mutual
organizations and their activities are restricted to contributions from and participation of only their
members, these would not fall under the purview of the proviso to section 2(15) owing to the principle of
mutuality. However, if such organizations have dealings with non-members, their claim to be charitable
organizations would now be governed by the additional conditions stipulated in the proviso to section 2
(15)."
114. Circular No. 1/2009 dated 27-3-2009 contains explanatory notes to provisions of the Finance Act, 2008.
It inter alia reads as follows:
"5. Streamlining the definition of "charitable purpose"
5.1 Sub-section (15) of section 2 of the Act defines "charitable purpose" to include relief of the poor,
education, medical relief, and the advancement of any other object of general public utility. It has been
noticed that a number of entities operating on commercial lines are claiming exemption on their income
either under sub-section (23C) of section 10 or section 11 of the Act on the ground that they are
charitable institutions. This is based on the argument that they are engaged in the "advancement of an
object of general public utility" as is included in the fourth limb of the current definition of "charitable
purpose". Such a claim, when made in respect of an activity carried out on commercial lines, is contrary
to the intention of the provision.
5.2 With a view to limiting the scope of the phrase "advancement of any other object of general public
utility", sub-section (15) of section 2 has been amended to provide that the advancement of any other
object of general public utility shall not be a charitable purpose, if it involves the carrying on of any
activity in the nature of trade, commerce or business, or any activity of rendering any service in 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. Scope of this amendment has further
been explained by the CBDT vide its circular no. 11/2008 dated 19th Dec 2008."
115. Senior counsel appearing for the assessees relied on section 119 of the IT Act as well as decisions of this
court, reported as Navnit Lal Jhaveri (supra) and UCO Bank Calcutta (supra) and argued that departmental
circulars are binding upon tax administrators, and should be legitimately considered as aids of construction.
This was in support of their reliance on the circulars in the present case (No.11/2008 and No. 1/2009).
116. This court in Navnit Lal Jhaveri (supra) considered Sections 2(6A)(e) and 12(1B) of the IT Act which
were introduced by the Finance Act, 15, 1955 (w.e.f. 1-4-1955). As a result of these amendments, the
combined effect of the two provisions was that three kinds of payments made to shareholders companies to
which those applied, were treated as taxable dividend to the extent of the accumulated profits held by the
company. The provision was challenged. It was noticed that while introducing the amendment, the Finance
Minister assured that outstanding loans and advances - otherwise liable to taxation as dividends in AY 1955-
56, would not be subjected to tax if it were shown that they had been genuinely refunded to the respective
companies before 30-6-1955. The government felt that unless such a step was taken, the operation of Section
12(1B) would lead to extreme hardship, as it would cover the aggregate of all outstanding loans of past years
and could have led to unreasonably high liability on shareholders to whom the loans might have been
advanced. A circular [No. 20(XXI-6)/55] was issued by the Central Board of Revenue on 10-5-1955. The
court, in that context, observed that:
"It is clear that a circular of the kind which was issued by the Board would be binding on all officers and
persons employed in the execution of the Act under s. 5(8) of the Act. This circular pointed out to all the
officers that it was likely that some of the companies might have advanced loans to their shareholders as
a result of genuine transactions of loans, and the idea was not to the effect such transactions and not to
bring them within the mischief of the new provision.
The officers were, therefore, asked to intimate to all the companies that if the loans were repaid before
the 30th June, 1955, in a genuine manner, they would not be taken into account in determining the tax
liability of the shareholders to whom they may have been advanced. In other words, past transactions
which would normally have attracted the stringent provisions of s. 12(1B) as it was introduced in 1955,
were substantially granted exemption from the operation of the said provisions by making it clear to all
the companies and their shareholders that if the past loans were genuinely refunded to the companies,
they would not be taken into account under s. 12(1B). Section 12(1B) would, therefore, normally apply to
loans granted by the companies, to their respective shareholders with full notice of the provisions
prescribed by it."
117. This court ultimately upheld the amendments. As is evident, the judgment noticed that the circular sought
to soften the rigors of the otherwise harsh consequence of immediate application of the amendment. There
was nothing in the circular to make it applicable for all times to come. It was more in the nature of the
government issuing a temporary suspension of operation of the substantive provision, introduced by the
amendment.
118. In UCO Bank (supra), this court had to deal with circulars issued under section 145 regarding the method
of accounting to be followed, in the context of bank loans to be written off, when an assessee was following
the mercantile system (of accounting). The court inter alia, held that under section 119 (2) of the IT Act, the
Central Board of Direct Taxes is empowered, for proper and efficient management of assessment and
collection of revenue to issue general or special orders in respect of any class of incomes or class of cases
setting forth directions or instructions, not being prejudicial to assessees, as the guidelines, principles or
procedures to be followed in the work relating to assessment. The court held that the
"9. […] The Board thus has power, inter alia, to tone down the rigour of the law and ensure a fair
enforcement of its provisions, by issuing circulars in exercise of its statutory powers under section 119 of
the Income-tax Act which are binding on the authorities in the administration of the Act. Under Section
119(2)(a), however, the circulars as contemplated therein cannot be adverse to the assessee. Thus, the
authority which wields the power for its own advantage under the Act is given the right to forego the
advantage when required to wield it in a manner it considers just by relaxing the rigour of the law or in
other permissible manners as laid down in Section 119. The power is given for the purpose of just, proper
and efficient management of the work of assessment and in public interest."
119. The view expressed in Navnit Lal Jhaveri (supra), and later elaborated in UCO Bank (supra) appears to
have found resonance in other decisions45 of this court. A recent instance where this court took aid of
explanatory circulars is in CIT v. Vatika Township [2014] 49 taxmann.com 249/227 Taxman 121/367 ITR
466/271 CTR 1 (SC)/[2015] 1 SCC 1 when after holding that the amendment in question applied
prospectively, the court also supported that holding by citing the revenue's understanding about such
prospective application, in a circular. What is of note in that judgment, is that the question of whether circulars
or explanatory notes issued by the executive are binding aids of construction was not discussed; more
importantly, the court first interpreted the statute, in its own terms, and then cited the circular.
120. That circulars are per se not binding upon courts, in regard to interpretation of a statutory provision and,
at best are guides or aid to interpretation for departmental authorities, who are bound to take them into
account, was pithily stated in Keshavji Ravji & Co. v. CIT [1990] 49 Taxman 87/183 ITR 1/82 CTR 123
(SC)/[1992] 2 SCC 231 where the court observed as follows:
"This contention and the proposition on which it rests, namely, that all circulars issued by the Board have
a binding legal quality incurs, quite obviously, the criticism of being too broadly stated. The Board
cannot preempt a judicial interpretation of the scope and ambit of a provision of the 'Act' by issuing
circulars on the subject. This is too obvious a proposition to require any argument for it. A circular cannot
even impose on the tax payer a burden higher than what the Act itself on a true interpretation envisages.
The task of interpretation of the laws is the exclusive domain of the courts. However, this is what Sri
Ramachandran really has in mind - circulars beneficial to the assessees and which tone down the rigour
of the law issued in exercise of the statutory power under section 119 of the Act or under corresponding
provisions of the predecessor Act are binding on the authorities in the administration of the Act. The
Tribunal, much less the High Court, is an authority under the Act. The circulars do not bind them. But the
benefits of such circulars to the assessees have been held to be permissible even though the circulars
might have departed from the strict tenor of the statutory provision and mitigated the rigour of the law.
But that is not the same thing as saying that such circulars would either have a binding effect in the
interpretation of the provision itself or that the Tribunal and the High Court are supposed to interpret the
law in the light of the circular. There is, however, support of certain judicial observations for the view
that such circulars constitute external aids to construction."
121. This view was accepted in Commissioner of Customs v. Indian Oil Corpn. [2004] 136 Taxman 491/267
ITR 272/187 CTR 297 (SC)/[2004] 2 SCR 511, which articulated the position with some degree of clarity.
Commenting on Navnit Lal Jhaveri (supra) and other decisions, it was observed that:
"30. No proposition was laid down in that case that even if the circular was clearly contrary to the
provisions of the Act it should prevail, On the other hand, the learned Judges were inclined to view the
circular as granting the benefit of exemption from the operation of the impugned provisions subject to
fulfilment of certain conditions. Navnit Lal's case was referred to and construed in two cases decided by
Benches of two learned Judges. The first one was the case of Ellerman Lines Ltd. v. Commissioner of
Income Tax, West Bengal [1971] 82 ITR 913 (SC) and the other is K.P. Varghese v. I.T. Officer,
Ernakulam [1981] 131 ITR 597 (SC). In both these cases it was assumed that Navnit Lal's case was an
authority for the proposition that even if the directions given in the circular clearly deviate from the
 provisions of the Act, yet, the Revenue is bound by it. These three decisions were repeatedly referred to
and relied on in the subsequent decisions in which the issue arose as regards the binding nature of the
circulars either under the Income-tax Act or under the Central Excise Act. In between, there was the three
Judge Bench decision in Sirpur Paper Mills Ltd. v. Commissioner of Wealth Tax [1970] 77 ITR 6 (SC) in
which Section 13 of the Wealth Tax Act corresponding to section 5(8) of the Income-tax Act, 1922 fell
for consideration. This Court took the view that the instructions issued by the Board may control the
exercise of the power of the departmental officials in matters administrative but not quasi-judicial. There
is yet another decision of a three Judge Bench which seems to make a dent on the weight of the
proposition that the circulars of the Board, even if they are plainly contrary to the provisions of the Act,
should be given effect to and binding on the authorities concerned in the administration of the Act. That
is the case of Keshavji Ravji & Co. v. I.T. Commissioner [1990] 183 ITR 1(SC)"
122. In view of a conflict between decisions, on the binding nature of circulars issued by the Board (in the
context of decisions of authorities dealing with indirect taxation issues) this court, by a five-judge decision, in
Ratan Melting and Wire Industries (supra) held that
"6. Circulars and instructions issued by the Board are no doubt binding in law on the authorities under the
respective statutes, but when the Supreme Court or the High Court declares the law on the question
arising for consideration, it would not be appropriate for the Court to direct that the circular should be
given effect to and not the view expressed in a decision of this Court or the High Court. So far as the
clarifications/circulars issued by the Central Government and of the State Government are concerned
they represent merely their understanding of the statutory provisions. They are not binding upon the
court. It is for the Court to declare what the particular provision of statute says and it is not for the
Executive. Looked at from another angle, a circular which is contrary to the statutory provisions has
really no existence in law."
123. In the opinion of this court, the views expressed in Keshavji Ravji, Indian Oil Corporation and Ratan
Melting and Wire Industries (though the last decision does not cite Navnit Lal Jhaveri), reflect the correct
position, i.e., that circulars are binding upon departmental authorities, if they advance a proposition within the
framework of the statutory provision. However, if they are contrary to the plain words of a statute, they are
not binding. Furthermore, they cannot bind the courts, which have to independently interpret the statute, in
their own terms. At best, in such a task, they may be considered as departmental understanding on the subject
and have limited persuasive value. At the highest, they are binding on tax administrators and authorities, if
they accord with and are not at odds with the statute; at the worst, if they cut down the plain meaning of a
statute, or fly on the face of their express terms, they are to be ignored.
B. Interpretation of Section 2(15), the definition clause
124. Section 2 of the Income-tax Act opens with the phrase "unless the context otherwise requires". It has
been held in S.K. Gupta v. K.P. Jain [1979] 3 SCC 54 that where the definition of a term is preceded by this
phrase, normally, the definition given in the section "should be applied and given effect to but this normal rule
can be deviated if there is something in the context to show that the definition should not be applied". This
rule was also adopted in Indira Nehru Gandhi v. Raj Narain [1975] Supp. SCC 1 by Khanna, J and in Kalya
Singh v. Genda Lal [1975] 3 SCR 783. Previously, in Vanguard Fire and Insurance Co. Ltd. v. Fraser and
Ross [1965] 3 SCR 837, it was held that the term "unless the context otherwise requires" implies that the word
or term so defined should be applied - subject to the context. It was held that in view of such a qualification,
the Court has not only to look at the words but also to look at the context, collocation, and the object of such
words in respect of such matters and factor the meaning to be conveyed by the use of the words under the
circumstances. Almost the same reasoning has been echoed in N.K. Jain v. C.K. Shah [1991] 1 SCR 938.
125. The importance of terms expressly defined in a statute is that they are internal and binding aids to
interpretation. The prefacing - to any definition - of the phrase "unless the context otherwise requires" merely
signifies that in case there is anything expressly to the contrary, in any specific provision(s) in the body of the
Act, a different meaning can be attributed. However, to discern the purport of a provision, the term, as defined
has to prevail, whenever the expression is used in the statute. This rule is subject to the exception that when a
contrary intention is plain, in particular instances, that meaning is to be given. Therefore, in the light of the
previous discussion, this court would interpret the true meaning of "charitable purpose" after its amendment in
2008, taking into consideration the subsequent changes.
126. As observed at the beginning of this judgment, GPU charities have been recognized as distinct from the
'per se categories' of charity (education, medical relief, relief to the poor; and later - preservation of water
sheds, monuments, environment, and yoga). The judgment of this court in Dharmadeepti (supra) has clarified
that the per se categories - are not subjected to the restrictive condition of eschewing activities of profit. This
enunciation of the principle has been endorsed in all later decisions - starting with Surat Art Silk (supra).
Therefore, the restriction imposed by Parliament against charities - prohibiting them from carrying on
activities of profit do not apply to the first six categories. Although the occasion did not so arise in Surat Art
Silk (supra) (since this Court was dealing with AYs prior to 1975), the provision in section 13(1)(bb) which
prevailed then with effect from 1-4-1977 made the position clearer in that it permitted these per se category
charities, in the course of their actual carrying on of their activities, to earn profits. Of course, this provision
was deleted from 1-4-1984. Alongside, the restriction imposed on GPUs from engaging in activities for profit,
was also deleted.
127. As noticed in Thanthi Trust (supra), section 11(4A) was originally introduced with effect from 1-4-1984
and substituted w.e.f. 1-4-1991. At that stage, the statute as it stood, did not restrict GPU category charities
from carrying on activities of profit or from carrying on business. This court nevertheless was bound by the
decision in Surat Art Silk (supra) which had ruled that:

(i) A GPU category charity with a constitution granting discretion to the trustees to engage in
charitable and non-charitable activities, could not claim the exemption;
(ii) The main or dominant purpose of the GPU category charity had to be essentially charitable. If it
was so, and it incidentally entailed carrying on activities that led to profit, it was entitled to
exemption.
128. This court's understanding of the law as expressed in Thanthi Trust was therefore, coloured by the statute
as it existed, and the formulation in Surat Art Silk (supra). As a result, Thanthi Trust, interpreted section
11(4A) in this background and held that the assessee in that case incidentally was engaged in activities for
profit. The court was also of the opinion that section 11(4A) was wider than the revenue urged it to be, in that
activities by way of business could not be carried on incidentally by a Trust, which otherwise was a GPU
category trust.
129. As noticed earlier, between Surat Art Silk (supra) and the decisions rendered thereafter (i.e.,Bar Council
of Maharashtra, Federation of Indian Chamber of Commerce and Industries and Thanthi Trust) there were
two changes in law in 1983 w.e.f. 1-4-1984 - on the one hand deleting the restrictive words prohibiting GPU
categories from carrying on profit, and deleting section 13(1)(bb), and introducing Section 11(4A), on the
other. There was otherwise no meaningful statutory change. The position therefore, continued as it was for
about 25 years.
130. After its introduction, by amendment in 2008, section 2(15) read as follows:
(15) "charitable purpose" includes relief of the poor, education, medical relief, and the advancement of
any other object of general public utility:
Provided that the advancement of any other object of general public utility shall not be a charitable
purpose, if it involves the carrying on of any activity in the nature of trade, commerce or business, or any
activity of rendering any service in relation to 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;"
131. The term "in the nature of" occurring in Section 2(15) has frequently been interpreted by this court. In G.
Venkataswami Naidu v. CIT 1959 (Supp.) SCR 646 the isolated transaction of sale of land was held not to be
activity in the nature of trade or business. In State of Tamil Nadu v. Burmah Shell Oil Storage Distribution Co.
of India Ltd. [1973] 2 SCR 636 the test indicated was whether the "frequency, volume, continuity and
regularity of transactions carried on with a profit-motive". In State of Tamil Nadu v. Shakti Estates [1989] 1
SCR 408, the assessee's activities in leasing forest lands, clearing them, and creation of wooden sleepers,
which were sold, as well as charcoal, which was sold, in a series of "sustained, systematic and organised
activities" was held to be in the nature of business. In Director of Civil Supplies v. Member Board of Revenue
[1967] 3 SCR 778 this court outlined, what would be activity in the nature of business:
"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; there must be some real and systematic or organised
course of activity or conduct with a set purpose of making profit. To infer from a course of transactions
that it is intended thereby to carry on business ordinarily there must exist the characteristics of volume,
 frequency, continuity and system indicating an intention to continue the activity of carrying on the
transactions for a profit. But no single test or group of tests is decisive of the intention to carry on the
business. "
132. The term "in relation to" was interpreted in Renusagar Power Co. Ltd. v. General Electric Co. [1985] 1
SCR 432 in an arbitration clause - as follows:
"25... (2) Expressions such as "arising out of or "in respect of or "in connection with" or "in relation to"
or "in consequence of or "concerning" or "relating to" the contract are of the widest amplitude and
content.."
In Mansukhlal Dhanraj Jain v. Eknath Vithal Ogale [1995] 1 SCR 996 this court underlined the amplitude to
the term "relating to":
"16. It is, therefore obvious that the phrase "relating to recovery of possession" as found in Section 41(1)
of the Small Cause Courts Act is comprehensive in nature and takes in its sweep all types of suits and
proceedings which are concerned with the recovery of possession of suit property from the licensee and,
therefore, suits for permanent injunction restraining the Defendant from effecting forcible recovery of
such possession from the licensee-Plaintiff would squarely be covered by the wide sweep of the said
phrase."
In Doypack System (P) Ltd. v. Union of India [1988] 2 SCC 299, this court ruled that the expression "in
relation to" is broad and is akin to the "concerning with" and "pertaining to"; and is also expansive. The court
observed:
"50. The expression "in relation to" (so also "pertaining to"), is a very broad expression which
presupposes another subject matter. These are words of comprehensiveness which might have both direct
significance as well as indirect significance depending on the context [internal citation omitted].
Assuming that the investments in shares and in lands do not form part of the undertaking but are different
subject matters, even then these would be brought within the purview of the vesting by reason of the
above expressions. In this connection reference may be made to 76 Corpus Juris Secundum at pages 620
and 621 where it is stated that the term "relate " is also defined as meaning to bring into association or
connection with. It has been clearly mentioned that "relating to " has been held to be equivalent to or
synonymous with as to "concerning with" and "pertaining to". The expression "pertaining to" is an
expression of expansion and not of contraction."
133. The position, therefore, with respect to what kind activities GPU charities could legitimately undertake,
was in a state of flux till 2015. However, the amendments cumulatively point to prohibitions that were
constant:

(1) the prohibition applicable to such charities involved in carrying on activities "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"
(2) "irrespective of the nature of use or application, or retention, of the income from such activity" (i.e.
activity in the nature of trade, commerce or business for a cess, fee or other consideration).
134. By retrospective amendment, in section 2(15), after the proviso, a second proviso was inserted with
effect from 1-4-2009 .-
"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;";
With the introduction of the second proviso, the resulting situation was that the first proviso (of exclusion of
income through an activity as referred to) was inapplicable if the aggregate value of the receipts of such
activity did not exceed Rs. 10,00,000, and later by Finance Act, 2012 - this was enhanced to Rs. 25,00,000.
135. The next important change took place through the Finance Act, 2015, which, w.e.f. 1-4-2016 substituted
the two provisos to section 2(15) with the following proviso:
"Provided that the advancement of any other object of general public utility shall not be a charitable
purpose, if it involves the carrying on of any activity in the nature of trade, commerce or business, or any
activity of rendering any service in relation to any trade, commerce or business, for a cess or fee or any
 other consideration, irrespective of the nature of use or application, or retention, of the income from such
activity, unless—

(i) such activity is undertaken in the course of actual carrying out of such advancement of any
other object of general public utility; and
(ii) the aggregate receipts from such activity or activities during the previous year, do not
exceed twenty per cent of the total receipts, of the trust or institution undertaking such
activity or activities, of that previous year;"
136. The limited relief, given by the second proviso, to GPU charities (for the period 2009-2015) was that in
case such GPU category charities did carry on activities undertaken in the course of actual carrying out of
their GPU objects that were in the nature of trade, commerce or business, or rendered any service in relation
to trade, business, etc., and collected fee, cess, or other consideration, such income could still be exempt, if it
did not exceed Rs. 10,00,000 (and later, Rs. 25,00,000). By the amendment of 2015, the second proviso was
deleted and two conditions were introduced, with respect to permissibility of carrying on trade, commerce,
etc:

(i) such activity is undertaken in the course of actual carrying out of such advancement of any other
object of general public utility; and
(ii) the aggregate receipts from such activity or activities during the previous year, do not exceed
twenty percent of the total receipts, of the trust or institution undertaking such activity or activities,
of that previous year.
137. Having thus far discussed a nature of the changes to the term "charitable purpose" and how judicial
thinking has shaped it, this court would now explore the all important question of the scope of the term of
"any other object 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."
138. Parliamentary endeavour, was to alter the regime applicable to taxation of GPU category charities, under
the IT Act. The absolute bar imposed on GPU charities from carrying on activities in the nature of trade,
commerce or business, or of rendering any service in relation to any trade, commerce or business, for a cess or
fee or any other consideration, evidences this intent. The original Section 2(15) did not allude to trade,
commerce or business, or any service in relation to such activities. It only enjoined the GPU charities from
involving themselves from carrying on of any activity for profit46 (which was interpreted in Surat Art Silk).
This substantial change brought about by the amendments of 2008 -2012 and 2015 is the prohibition from
engaging in any kind of activity in the nature of business, commerce, or trade or any rendering any service in
relation thereto, and earning income by the way of cess, fee or consideration. In the opinion of this court, the
express deletion of the reference to 'activity for profit' on the one hand, and the enactment of an expanded list
of what cannot be done by GPU charities if they are to retain their characteristic as charities, is an emphatic
manner in which Parliament wished to express itself.
139. Counsel on both sides went to great lengths and cited several judgments for the proposition that "trade or
business" are terms which imply profit-making. They relied on Khoday Distilleries (supra); Raipur
Manufacturing (supra); Board of Trustees of the Port of Madras (supra), and Physical Research Laboratory v.
K. G. Sharma [1997] 4 SCC 257. It was contended by the revenue, that the reference to terms "business, trade
or commerce" and "service in relation to" such activities are meant to imply that profit motive should be
completely absent. At the same time - on behalf of the assessees, it was contented that if the proscribed
activities i.e., business, commerce or trade or service in relation to such activities - is not the main or
dominant object of the GPU charity, any incidental involvement in such activities is permissible. Counsel on
behalf of many assessees urged that some of them are statutory corporations charged with developing housing
industrial infrastructure sector, regulation of professions (such as chartered accountants, etc.). It was
underlined that such corporations are agencies of the state, recognized as "State" under Article 12 of the
Constitution, and carry out the essential purposes for which they were set up, which otherwise state
departments would have been expected to carry out. It was then emphasized that the activities of such
corporations cannot be characterized as motivated by profit- rather their essential purposes are to achieve
objects of general public utility.
140. In Town Investments v. Department of Environment 1977 1 All ER 813, it was remarked that "business"
is an 'etymological chameleon'. In NDMC (supra) - while dealing with the question of immunity of states and
state corporations, municipal corporations and local authorities from union taxation, this court (in a nine-judge
bench composition) interpreted Article 289 of the Constitution47 and discussed the nature of the activities that
could be carried on by state or state agencies:
"Section 155(1) which by its own force levied taxes upon the trading and business operations carried on
by the Provincial Governments did not either define the said expressions or specify which trading or
business operations are subject to taxation. On this account, the proviso was not and could not be said to
have been, ineffective or unenforceable. It was effective till 26-1-1950. Clause (2) of Article 289 also
similarly does not define or specify — nor does it require that the law made thereunder should so define
or specify. It cannot be said that unless the law made under and with reference to clause (2) specifies the
particular trading or business operations to be taxed, it would not be a law within the meaning of clause
(2). Coming back to the language of clause (2), a question is raised, why does the proviso speak of
taxation in respect of trade or business when the main limb of sub-section (1) speaks only of taxes in
respect of lands or buildings and income? Is the ambit of proviso wider than the main limb? Is it an
independent provision of a substantive nature notwithstanding the label given to it as a proviso? Or is it
only an exception? It is asked. We are, however, of the considered opinion that it is more important to
give effect to the language of and the intention underlying the proviso than to find a label for it. It is
clarificatory in nature without a doubt; it appears to be more indeed. It is concerned mainly with the
"income" (of Provincial Governments) referred to in the main limb of sub-section (1). It speaks of tax on
the "lands or buildings" in that context alone, as we shall explain in the next paragraph. The idea
underlying the proviso is to make it clear that the exemption of income of Provincial Government
operates only where the income is earned or received by it as a Government; it will not avail where the
income is earned or received by the Provincial Government on account of or from any trade or business
carried on by it — that is a trade or a business carried on with profit motive. In the light of the language
of the proviso to Section 155 and clause (2) of Article 289, it is not possible to say that every activity
carried on by the Government is governmental activity. A distinction has to be made between
governmental activity and trade and business carried on by the Government, at least for the purposes of
this clause. It is for this reason, we say, that unless an activity in the nature of trade and business is
carried on with a profit motive, it would not be a trade or business contemplated by clause (2). For
example, mere sale of government properties, immovable or moveable, or granting of leases and licences
in respect of its properties does not amount to carrying on trade or business. Only where a trade or
business is carried on with a profit motive — or any property is used or occupied for the purpose of
carrying on such trade or business — that the proviso [or for that matter clause (2) of Article 289] would
be attracted. Where there is no profit motive involved in any activity carried on by the State Government,
it cannot be said to be carrying on a trade or business within the meaning of the proviso/clause (2),
merely because some profit results from the activity [ For example, almost every State Government
maintains one or more guest houses in Delhi for accommodating their officials and others connected with
the affairs of the State. But, when some rooms/accommodation are not occupied by such persons and
remain vacant, outsiders are accommodated therein, though at higher rates. This activity cannot
obviously be called carrying on trade or business nor can it be said that the building is used or occupied
for the purpose of any trade or business carried on by the State Government.] . We may pause here a
while and explain why we are attaching such restricted meaning to the words "trade or business" in the
proviso to Section 155 and in clause (2) of Article 289. Both the words import substantially the same idea
though, ordinarily speaking, the expression "business" appears to be wider in its content. The expression,
however, has no definite meaning; its meaning varies with the context and several other factors. …
Having regard to the context in which the words "trade or business" occur — whether in the proviso to
Section 155 of the Government of India Act, 1935 or in clause (2) of Article 289 of our Constitution —
they must be given, and we have given, a restricted meaning, the context being levy of tax by one unit of
Federation upon the income of the other unit, the manifold activities carried on by Governments under
our constitutional scheme, the necessity to maintain a balance between the Centre and the States and so
on." (Emphasis Supplied)
141. From NDMC (supra), it is clear that not every state activity resembling commerce can be considered per
se exempt from union taxation, in the context of Article 289. The court also emphasized that mere sale or
lease of government property does not imply trade or business. The crucial or determinative element in the
venture, so to say, is whether performance of a function is actuated by profit motive.
142. What then is the true meaning of the expressions "fee, cess or consideration"? The careful analysis of the
amended proviso to section 2(15), reveal that the prohibition applies in a four-fold manner-

(a) The bar to engaging in trade, commerce or business,

(b) The bar to providing any service in relation to trade, commerce or business,
(c) wherein "for a fee, cess or any other consideration" is the controlling phrase for both (a) and (b)
(which are collectively referred to as "prohibited activities" for brevity)
(d) irrespective of the application of the income derived from such 'prohibited activities'.
143. The impermissibility of any trade, or commercial activity or service, and income, from them, was
intended to be conveyed through the prohibition, in the first part of the definition of GPU charities. The
necessary implication which arises is that income (received as fee, cess, or any other consideration) derived
from such 'prohibited activities' is necessarily motivated by profit. The ordinary meaning of fee or
consideration would be synonymous with something of value, usually in monetary terms. However, the use of
the expression "cess" facially lends a different colour to all the three expressions.
144. "Fee, cess and any other consideration" has to receive a purposive interpretation, in the present context.
If fee or cess or such consideration is collected for the purpose of an activity, by a state department or entity,
which is set up by statute, its mandate to collect such amounts cannot be treated as consideration towards
trade or business. Therefore, regulatory activity, necessitating fee or cess collection in terms of enacted law, or
collection of amounts in furtherance of activities such as education, regulation of profession, etc., are per se
not business or commercial in nature. Likewise, statutory boards and authorities, who are under mandate to
develop housing, industrial and other estates, including development of residential housing at reasonable or
subsidized costs, which might entail charging higher amounts from some section of the beneficiaries, to cross-
subsidize the main activity, cannot be characterized as engaging in business. The character of being 'state', and
such corporations or bodies set up under specific laws (whether by states or the centre) would, therefore, not
mean that the amounts are 'fee' or 'cess' to provide some commercial or business service. In each case, at the
same time, the mere nomenclature of the consideration being a "fee" or "cess", is not conclusive. If the fee or
cess, or other consideration is to provide an essential service, in larger public interest, such as water cess or
sewage cess or fee, such consideration, received by a statutory body, would not be considered "trade,
commerce or business" or service in relation to those. Non-statutory bodies, on the other hand, which may
mimic regulatory or development bodies - such as those which promote trade, for a section of business or
industry, or are aimed at providing facilities or amenities to improve efficiencies, or platforms to a segment of
business, for fee, whether charged by subscription, or specific fee, etc, may not be charitable; when they claim
exemption, their cases would require further scrutiny.
145. This Court has in some decisions considered the term "cess". In Shinde Brothers Etc. v. Deputy
Commissioner [1967] 1 SCR 548, Justice M. Hidyatullah, (though his was a dissenting judgment, yet no
contrary opinion was expressed by majority in regard to "cess") said that:
"... The word "cess" is used in Ireland and is still in use in India although the word rate has replaced it in
England. It means a tax and is generally used when the levy is for some special administrative expense
which the name (health cess, education cess, road cess etc.) indicates. When levied as an increment to an
existing tax, the name matters not for the validity of the cess must be judged of in the same way as the
validity of the tax to which it is an increment. By Schedule A(1) read with Section 3 of the Act, it is
collected as an additional levy with a tax, which, as described in Schedule A, is undoubtedly one within
the powers of the State Legislature and has been so even prior to the Constitution...."
146. The seven-judge bench judgment of this court in India Cement Ltd. v. State of Tamil Nadu 1989 (Supp.1)
1 SCR 692, approved the definition propounded by Hidayatulla, J. In Vijayalashmi Rice Mill v. CTO, Palakol
2007 taxmann.com 1769 (SC)/2006 (201) ELT 329 (SC)/[2006] 6 SCC 763 this court observed that
"13. Hence ordinarily a cess is also a tax, but is a special kind of tax. Generally tax raises revenue which
can be used generally for any purpose by the State. For instance, the income tax or excise tax or sales tax
are taxes which generate revenue which can be utilised by the Union or the State Governments for any
purpose e.g. for payment of salary to the members of the armed forces or civil servants, police, etc. or for
development programmes, etc. However, cess is a tax which generates revenue which is utilised for a
specific purpose. For instance, health cess raises revenue which is utilised for health purposes e.g.
 building hospitals, giving medicines to the poor, etc. Similarly, education cess raises revenue which is
used for building schools or other educational purposes."
147. The expression "cess", therefore, implies a tax or impost levied for some special purpose, which may be
levied as an increment to an existing tax. The term "fee", to some extent, has a similar meaning. In CIT v. U.P.
Forest Corpn. [1998] 97 taxmann.com 259/230 ITR 945/145 CTR 402 (SC)/1998 (2) SCR 22 this court, after
considering other previous decisions, held that exaction, through process of law, of amounts may be called
"fee" but broadly are taxes:
"compulsory exaction's of money imposed for public purpose and requiring no consideration to sustain it,
but in a broad generic sense as to also include fees levied essentially for services rendered. It is now well
recognised that there is no generic difference between a tax and a fee; both are compulsory exaction of
money by public authority."

148. At the same time, there is also authority48 for the proposition that charges (which may be termed as "fee"
in given statutes) collected by local or municipal authorities, for supply of water, for sewerage, etc., are not
"taxes"- they form consideration for the specific services, by the concerned local authority.
149. The term "consideration" however is broader. The plain meaning is a monetary payment, for something
obtained, in the form of goods, or services. In CCE v. Fiat India (P.) Ltd. [2012] 25 taxmann.com 534/375
STT 147/12 SCR 975 (SC) this court explained the meaning of that term:
"Consideration means something which is of value in the eyes of law, moving from the Plaintiff, either of
benefit to the Plaintiff or of detriment to the Defendant. In other words, it may consist either in some
right, interest, profit or benefit accruing to the one party, or some forbearance, detriment, loss or
responsibility, given, suffered or undertaken by the other, as observed in the case of Currie v. Misa
(1875) LR 10 Ex. 153.
54. Webster's Third New International Dictionary (unabridged) defines, consideration thus:
'Something that is legally regarded as the equivalent or return given or suffered by one for the act or
promise of another.'
55. In volume 17 of Corpus Juris Secundum (p.420-421 and 425) the import of 'consideration' has been
described thus:
'Various definitions of the meaning of consideration are to be found in the text-books and judicial
opinions. A sufficient one, as stated in Corpus Juris and which has been quoted and cited with approval is
"a benefit to the party promising or a loss or detriment to the party to whom the promise is made.......
At common law every contract not under seal requires a consideration to support it, that is, as shown in
the definition above, some benefit to the promisor, or some detriment to the promisee.'
56. In Salmond on Jurisprudence, the word 'consideration' has been explained in the following words.
A consideration in its widest sense is the reason, motive or inducement, by which a man is moved to bind
himself by an agreement. It is for nothing that he consents to impose an obligation upon himself, or to
abandon or transfer a right. It is in consideration of such and such a fact that he agrees to bear new
burdens or to forego the benefits which the law already allows him .
57. The gist of the term 'consideration' and its legal significance has been clearly summed up in Section
2(d) of the Indian Contract Act which defines 'consideration' thus:
'When, at the desire of the promisor, the promisee or any other person has done or abstained from doing,
or does or abstains from doing, or promises to do or to abstain from doing, something, such act or
abstinence or promise is called a consideration to the promise.'
58. From a conspectus of decisions and dictionary meaning, the inescapable conclusion that follows is
that 'consideration' means a reasonable equivalent or other valuable benefit passed on by the promisor to
the promisee or by the transferor to the transferee. Similarly, when the word 'consideration' is qualified by
the word 'sole', it makes consideration stronger so as to make it sufficient and valuable having regard to
the facts, circumstances and necessities of the case."
150. Therefore, what Parliament intended - through the amendments in question was to proscribe,
involvement or engagement of GPU charities, from any form ("in the nature of") of activities that were trade,
business or commerce, or engage or involve in providing services in relation to trade, business or commerce-
for a fee, cess or other consideration. The inclusion of the term "in the nature of" was by design, to clarify
beyond doubt, that not only business, trade or commerce, but all activities in the nature of, or resembling
them, were proscribed. Likewise, service in relation to such activities, i.e., services relating, or pertaining to,
such proscribed activities, too were forbidden.
151. The reference to fee or cess, is in the opinion of the court, only to emphasize that even a statutory
consideration, for a service to business, trade or commerce, would take the activity outside the definition of a
GPU charity. The sense in which the expressions "cess, fee or other consideration" are used, is that if any
amount, is received for trading, or business or commercial activity, or any services to such activity, then,
notwithstanding their nomenclature (as fee or cess, i.e. that they are fixed under a law) the GPU charity cannot
claim tax exempt status. To bring home this even more pointedly- and underline a break from the past, the
application of such amounts (received in the course of trade, commerce, or business, or towards services in
relation thereto) would be irrelevant, as evidenced by the term "irrespective", in the fourth limb of reading
section 2(15).
Summation of interpretation of section 2(15)
152. Section 2(15) - in the wake of its several amendments between 2008 and 2015 - can be juxtaposed with
the interpretation of the unamended section 2(15) by this Court. In Surat Art Silk (supra), the principle
enunciated was that so long as the predominant object of GPU category charity is charitable, its engagement
in a non-charitable object resulting in profits that are incidental, is permissible. The court also declared that
profits and gains from such activities which were non-charitable had to be deployed or "fed" back to achieve
the dominant charitable object.
153. The paradigm change achieved by section 2(15) after its amendment in 2008 and as it stands today, is
that firstly a GPU charity cannot engage in any activity in the nature of trade, commerce, business or any
service in relation to such activities for any consideration (including a statutory fee etc.). This is emphasized
in the negative language employed by the main part of section 2(15). Therefore, the idea of a predominant
object among several other objects, is discarded. The prohibition is relieved to a limited extent, by the proviso
which carves out the condition by which otherwise prohibited activities can be engaged in by GPU charities.
The conditions are:

(a) That such activities in the nature of trade, commerce, business or service (in relation to trade,
commerce or business for consideration) should be in the course of "actual carrying on" of the GPU
object, and
(b) The quantum of receipts from such activities should be exceed 20% of the total receipts.
(c) Both parts of the proviso: (i) and (ii) (to Section 2 (15)) have to be read conjunctively-given the
conscious use of "or" connecting the two of them. This means that if a charitable trust carries on
any activity in the nature of business, trade or commerce, in the actual course of fulfilling its
objectives, the income from such business, should not exceed the limit defined in sub-clause (ii) to
the proviso.
C. Sections 10, 11, 12, 12A, 12AA and 13 of the IT Act

154. The effect of sections 11, 12, 12A 12AA and 13 have been the subject of certain decisions49 of this court.
These decisions have noticed that Section 11 deals with income from trusts for charitable and religious
purposes and sets out which shall be subject to tax. Section 11(1) relates to application of income towards the
objects of the trust and exempts income of trusts with objects wholly charitable or religious, or parts of
income which relate to such objects. Section 11(1-A) provides for exemption of capital gains derived by
trusts. Section 11(1-B), speaks of failure to apply income as per option under Explanation (2) to Section 11(1).
Section 11(2) relates to setting apart or accumulation of income. Section 11(3) deals with consequences of
misapplication of income or improper investment, while section 11(3-A) relates to modification of purposes
specified in Form 10 under section 11(2). Sections 11(4) and 11(4-A) relate to business income of charitable
trusts. Lastly, Section 11(5) provides for the prescribed modes of investment in regard to the said trusts.
Section 12 enacts that income of trusts created wholly for charitable or religious purpose from voluntary
contributions would be deemed as income from the property held under such trust for the purposes of Sections
11 and 13 of the Act. Section 12-A prescribes the conditions for applicability of Sections 11 and 12 of the Act.
It enacts two essential conditions which are to be satisfied by a charitable or religious trust for claiming
exemption under those sections: firstly, that the person in receipt of the income has made an application for
registration of the trust on or after 1-6-2007 in the prescribed form and manner to the Commissioner and such
a trust is registered under section 12-AA and secondly, where the total income of the trust exceeds the
maximum amount which is not chargeable to income tax in any previous year, the accounts of the trust must
be audited by a chartered accountant and the person in receipt of the income should furnish such audit report
in the prescribed form along with the return of income. The procedure for grant (or refusal) of registration is
prescribed by section 12AA. Section 13 enlists the circumstances under which tax exemption is unavailable to
religious or charitable trusts otherwise falling under sections 11 or 12. Section 13 therefore, has to be read
with the provisions of sections 11 and 12 for deciding eligibility of a trust's claim for exemption.
Distinction between business held under Trust [Section 11(4)] and Trust carrying on business [Section
11(4A)]
155. Section 11(4) applies to cases where the business undertaking itself is the property held by a trust. Thus,
where the property held in trust, or where property settled by the donor or trust creator in favour of the
trustees itself is a business undertaking, then the income from such an undertaking is covered by Section
11(4). Section 11(4A) operates differently. It is applicable to cases where the trust carries on a business.
Section 11(4A) states that when a trust carries on a business, unless the business is incidental or ancillary to
the attainments of the objectives of the trust, it would be disentitled to an exemption under section 11(1). It
imposes a further condition that separate books of accounts need to be maintained in such cases.
156. Section 11(1) confers an exemption from tax only where the property itself is held under a trust or other
legal obligation. It does not apply to cases where a trust or legal obligation is not created on any property, but
only the income derived from any particular property or source is set apart and charged for a charitable or
religious purpose. Similarly, when a business itself has been set aside for the objects of the trust, then such
business is held under trust and will fall under sub-section (4). However, where the profits of a business of a
trust are applied for charitable purposes, then such business and trust will be governed by sub-section (4A).
157. Section 11(1) of the Act exempts income derived from property held under trust wholly for charitable or
religious purposes, to the extent to which such income is applied to such purposes in India. The Act does not
comprehensively define "property held under trust". Section 11(4) however, provides that for the purposes of
Section 11, the words "property held under trust" "includes a business undertaking so held". Section 11(4A) as
amended by the Finance (No. 2) Act, 1991 w.e.f. 1-4-1992 reads as under:-
"(4A) Sub-section (1) or sub-section (2) or sub-section (3) or sub-section (3A) shall not apply in relation
to any income of a trust or an institution, being profits and gains of business, unless the business is
incidental to the attainment of the objectives of the trust or, as the case may be, institution, and separate
books of account are maintained by such trust or institution in respect of such business."
158. The question whether Section 11(4A) applies where a business is held under trust was answered in the
negative in earlier High Court judgments. The general provision under section 4(3)(i) of the old Act exempted
income derived from property held under trust from taxation. Section 4(3)(ia) however, enacted that any
income derived from a business carried on behalf of a religious or charitable trust would be entitled to
exemption only if the business was carried on in the course of carrying out of a primary purpose of the trust or
the work in connection with the business is mainly carried on by the beneficiaries of the trust. The revenue
contended there that since clause (ia) was a special provision dealing with exemption in respect of a business
carried on for and on behalf of a trust, any claim for exemption as regards the profits of such business can be
made only under that provision, and if conditions laid down therein are not satisfied, the assessee cannot rely
upon the general provision contained in Section 4(3)(i) to claim exemption thereunder on the ground that
business is property. In Gadodia Swadeshi Stores (supra), the Lahore High Court held that the fact that the
business carried on behalf of the trust failed to satisfy the two conditions in Section 4(3)(ia) was no reason for
it be denied exemption if it fell within Section 4(3)(i). The court held that that the two categories mentioned in
the two clauses did not exclude each other.
159. This judgment of the Lahore High Court was approved- by reference by this court in J.K. Trust v. CIT
[1958] 1 SCR 65 which was followed in Krishna Warriar (supra). By then the content of Section 4(3)(ia) had
been enacted as a proviso to clause (i) of Section 4(3), by amending Act of 1953. After referring to the
judgment of the Lahore High Court (supra) and rejecting the argument of the revenue that a proviso in a
statute be always read as limitation upon the effect of the main enactment Subbarao, J. in Krishna Warriar
(supra) observed as under:
"But it is not an inflexible rule of construction that a proviso in a statute should always be read as a limitation
upon the effect of the main enactment. Generally the natural presumption is that but for the proviso the
enacting part of the section would have included the subject-matter of the proviso; but the clear language of
the substantive provision as well as the proviso may establish that the proviso is not a qualifying clause of the
main provision, but is in itself a substantive provision. In the words of Maxwell, "the true principle is that the
sound view of the enacting clause, the saving clause and the proviso taken and construed together is to
prevail". So construed we find no difficulty, as we will indicate later in our judgment, in holding that the said
clause (b) of the proviso deals with a case of business which is not vested in trust for religious or charitable
purposes within the meaning of the substantive clause of section 4(3)(i)."
160. Therefore, to summarise on the legal position on this - if a property is held under trust, and such property
is a business, the case would fall under section 11(4) and not under section 11(4A) of the Act. Section 11(4A)
of the Act, would apply only to a case where the business is not held under trust. There is a difference
between a property or business held under trust and a business carried on by or on behalf of the trust. This
distinction was recognized in Surat Art Silk (supra), which observed that if a business undertaking is held
under trust for a charitable purpose, the income from it would be entitled to exemption under section 11(1) of
the Act.
161. The interface between Sections 11(1) and (4) is of some importance. Firstly, under section 11(4), it is
only the business which is held under the trust that would enjoy exemption in respect of its income under
section 11(1). Secondly, there is a distinction between the objects of a trust and the powers given to the
trustees to effectuate the purposes of the trust. In this regard, the observations of this court, in J.K. Trust
(supra) assume relevance. There, one of the questions which arose was whether the office of managing
agency, which was an office of profit, was in fact settled upon trust and, therefore, could be considered to be
business held under trust. The court held that for the purposes of Section 4(3)(i) of the 1922 Act, the office of
managing agency was property which could be held under trust. The revenue pointed out that on the terms of
the trust deed previously executed by the settlors (on 15-6-1945), the properties which the trustees are to hold
and stand possessed of, were only the sum of Rs. 1,00,000/-, any donations and contribution received by the
trustees and all accretions thereto, and investment in securities made from time to time representing the
accretions. It was contended that on the terms of the trust deed, the managing agency which was acquired on
10-9-1945 for a period of 20 years, cannot be said to be property held under trust since no part of the initial
amount of Rs. 1,00,000/-, which was settled upon the trust, was utilised in the acquisition of the managing
agency, so as to impress it with the character of accretion. While repelling this contention, this court held that:
"But it is to be observed that clause (3) of the trust deed expressly provides for the acquisition of the
business of managing agency on behalf of the trust and "with the help of the trust fund" and that precisely
is what has happened and indeed, reading together Exhibits A and B, it is impossible to resist the
conclusion that both the documents formed part of an integral scheme, and that what the settlors had in
view in clause 3 of Exhibit A is the very managing agency, which was acquired under Exhibit B. There is
considerable authority in England that when trustees carry on business with the aid of trust fund, the
position in law is the same as if they actually employed it in the business, though, in fact, it be not
actually invested therein."
162. It seems that the test applied in J.K. Trust (supra) that for a business, to be considered as property held
under trust, it should have been either acquired with the help of the fund originally settled upon trust or the
original fund settled upon trust must have a proximate connection with the later acquisition or carrying on of
the business by the trustees. This distinction between a business held and carried on by a trust, or a trust
business run by the trustees, was noticed, in Thiagesar Dharma Vanikam v. CIT [1963] 50 ITR 798 by the
Madras High Court and in Raja P.C. Lall Choudhary v. CIT [1957] 31 ITR 226 by the Patna High Court
which held similarly in relation to section 4(3)(i) of the Act of 1922 (which corresponds to Section 11(1) of
the 1961 Act).
163. What has to be examined, therefore, is whether the business itself is held under trust or is carried on by
and on behalf of the trust. Importantly section 11(1) of the Act starts with the expression "subject to the
provisions of sections 60 to 63 ". Those provisions are in Chapter V of the Act. Section 60 provides for the
consequences of a transfer of income where there is no transfer of assets. It says that where a person transfers
merely the income from an asset without transferring the asset itself, he would continue to be chargeable to
income tax. Section 61 provides for the consequences of a revocable transfer of assets and says that the same
would be the position where a person is in receipt of income by virtue of a revocable transfer of assets.
Section 62 provides for the consequences of a transfer of assets for a specified period, and serves as an
exception to section 61. An assessee has to be divested of the asset before ceasing to be assessable in respect
of the income from it. A mere direction that the income from the business shall be applied to the charitable
objects of a trust, without there being a settlement of the business itself upon trust, does not result in any trust
or legal obligation.
164. It is now, necessary to consider Thanthi Trust (supra) and its context. This court, while interpreting
section 11(4A) (as amended w.e.f. 1-4-1992) stated that the provision requires the "business income of a trust
or institution to be exempt is that the business should be incidental to the attainment of objectives of the trust
or institution".
165. The above observations have to be understood in the light of the facts before the court. Thanthi Trust
carried on newspaper business which was held under trust. The charitable object of the trust was the imparting
of education -which falls under section 2(15) of the Act. The newspaper business was incidental to the
attainment of the object of the trust, namely that of imparting education. This aspect is important, because the
aim of the trust was a per se charitable object, not a GPU object. The observations were therefore made,
having regard to the fact that the profits of the newspaper business were utilized by the trust for achieving the
object of education. In the light of such facts, the carrying on of newspaper business, could be incidental to
the object of education-a per se category. The Thanthi Trust (supra) ratio therefore, cannot be extended to
cases where the trust carries on business which is not held under trust and whose income is utilized to feed the
charitable objects of the trust.
166. What then is the interpretation of the expression "incidental" profits, from "business" being "incidental to
the attainment of the objectives" of the GPU charity (which occurs in section 11(4A))? As stated earlier, the
interpretation of that expression in Thanthi Trust (supra) was in the context of a per se charity, i.e., where the
trust's object was education. However, the restrictive or negative terms enjoining GPU charities from carrying
on profitable activity had been deleted in 1983 (w.e.f. 1-4-1984). In Surat Art Silk (supra), the court had
articulated the determinative test for defining whether a Trust was a GPU charity if its predominant object was
to carry out a charitable purpose and that if that was the case, the fact that it earned profit would not per se
deprive it of tax exemption. This decision was interpreted in the context of Section 11(4A) by this court in
Thanthi Trust, to hold that business can be incidental to attainment of the trust's objects.
167. Thus, the journey which began with Surat Art Silk was interpreted in Thanthi Trust to mean that the
carrying on of business by GPU charity was permissible as long as it inured to the benefit of the trust. The
change brought about by the amendments in questions, however, place the focus on an entirely different
perspective: that if at all any activity in the nature of trade, commerce or business, or a service in the nature of
the same, for any form of consideration is permissible, that activity should be intrinsically linked to, or a part
of the GPU category charity's object. Thus, the test of the charity being driven by a predominant object is no
longer good law. Likewise, the ambiguity with respect to the kind of activities generating profit which could
feed the main object and incidental profit-making also is not good law. What instead, the definition under
section 2(15) through its proviso directs and thereby marks a departure from the previous law, is - firstly that
if a GPU charity is to engage in any activity in the nature of trade, commerce or business, for consideration it
should only be a part of this actual function to attain the GPU objective and, secondly - and the equally
important consideration is the imposition of a quantitative standard - i.e., income (fees, cess or other
consideration) derived from activity in the nature of trade, business or commerce or service in relation to these
three activities, should not exceed the quantitative limit of Rs. 10,00,000 (w.e.f. 1-4-2009), Rs. 25,00,000
(w.e.f. 1-4-2012), and 20% (w.e.f. 1-4-2016) of the total receipts. Lastly, the "ploughing" back of business
income to "feed" charity is an irrelevant factor - again emphasizing the prohibition from engaging in trade,
commerce or business.
168. If one understands the definition in the light of the above enunciation, the sequitur is that the reference to
"income being profits and gains of business" with a further reference to its being incidental to the objects of
the Trust, cannot and does not mean proceeds of activities incidental to the main object, incidental objects or
income derived from incidental activities. The proper way of reading reference to the term "incidental" in
section 11(4A) is to interpret it in the light of the sub-clause (i) of proviso to section 2(15), i.e., that the
activity in the nature of business, trade, commerce or service in relation to such activities should be conducted
actually in the course of achieving the GPU object, and the income, profit or surplus or gains can then, be
logically incidental. The amendment of 2016, inserting sub clause (i) to proviso to section 2(15) was therefore
clarificatory. Thus interpreted, there is no conflict between the definition of charitable purpose and the
machinery part of section 11(4A). Further, the obligation under section 11(4A) to maintain separate books of
account in respect of such receipts is to ensure that the quantitative limit imposed by sub-clause (ii) to section
2(15) can be computed and ascertained in an objective manner.

169. The conclusion recorded above is also supported by the language of seventh proviso50 to section
10(23C). Whereas section 2(15) is the definition clause, section 10 lists out what is not income. Section
10(23C) - by sub-clauses (iv) and (v) exempt incomes of charitable organisations. Such organisations and
institutions are not limited to GPU category charities but rather extend to other types of charities (i.e. the per
se kind as well). The controlling part of section 10(23C) along with the relevant clauses (iv) and (v) seek to
exclude income received by the concerned charities. However, the provisos hedge such exemption with
conditions. The seventh proviso - much like section 11(4A) and the definition - carve out an exception, to the
exemptions such that income derived by charities from business, are not exempt. The seventh proviso
virtually echoes section 11(4A) in that business income derived by a charity (in the present case, the GPU
charities) which arises from an activity incidental to the attainment of its objective is not per se excluded.
170. Classically, the idea of charity was tied up with eleemosynary51. However, "charitable purpose" - and
charity as defined in the Act have a wider meaning where it is the object of the institution which is in focus.
Thus, the idea of providing services or goods at no consideration, cost or nominal consideration is not
confined to the provision of services or goods without charging anything or charging a token or nominal
amount. This is spelt out in Indian Chamber of Commerce (supra) where this Court held that certain GPUs
can render services to the public with the condition that they would not charge "more than is actually needed
for the rendering of the services, - may be it may not be an exact equivalent, such mathematical precision
being impossible in the case of variables, - may be a little surplus is left over at the end of the year - the broad
inhibition against making profit is a good guarantee that the carrying on of the activity is not for profit".
171. Therefore, pure charity in the sense that the performance of an activity without any consideration is not
envisioned under the Act. If one keeps this in mind, what section 2(15) emphasizes is that so long as a GPU's
charity's object involves activities which also generates profits (incidental, or in other words, while actually
carrying out the objectives of GPU, if some profit is generated), it can be granted exemption provided the
quantitative limit (of not exceeding 20%) under second proviso to section 2(15) for receipts from such profits,
is adhered to.
172. Yet another manner of looking at the definition together with sections 10(23) and 11 is that for achieving
a general public utility object, if the charity involves itself in activities, that entail charging amounts only at
cost or marginal mark up over cost, and also derive some profit, the prohibition against carrying on business
or service relating to business is not attracted - if the quantum of such profits do not exceed 20% of its overall
receipts.
173. It may be useful to conclude this section on interpretation with some illustrations. The example of
Gandhi Peace Foundation disseminating Mahatma Gandhi's philosophy (in Surat Art Silk) through museums
and exhibitions and publishing his works, for nominal cost, ipso facto is not business. Likewise, providing
access to low-cost hostels to weaker segments of society, where the fee or charges recovered cover the costs
(including administrative expenditure) plus nominal mark up; or renting marriage halls for low amounts, again
with a fee meant to cover costs; or blood bank services, again with fee to cover costs, are not activities in the
nature of business. Yet, when the entity concerned charges substantial amounts- over and above the cost it
incurs for doing the same work, or work which is part of its object (i.e., publishing an expensive coffee table
book on Gandhi, or in the case of the marriage hall, charging significant amounts from those who can afford
to pay, by providing extra services, far above the cost-plus nominal markup) such activities are in the nature
of trade, commerce, business or service in relation to them. In such case, the receipts from such latter kind of
activities where higher amounts are charged, should not exceed the limit indicated by proviso (ii) to section
2(15).

174. The insertion of section 13(8)52, the seventeenth proviso to section 10(23C) and third proviso to section
143(3) (all of which were inserted by Finance Act, 2012, but w.r.e.f. 1-4-2009), further reinforces the
interpretation of this Court, of "charitable purpose". These provisions, form the machinery to control the
conditions under which income is exempt. The effect of the seventeenth proviso to section 10(23C) is to
impose the same condition i.e., that that the trade, commerce or business activity or service relating to trade,
business or commerce, should be part of the GPU's activities, to achieve its object of advancing general public
utility. The other condition- which is drawn in as part of the exemption condition, is that if such trading or
commercial activity takes place the receipts should be confined to a prescribed percentage of the overall
receipts. Section 13(8) too reinforces the same condition.
175. In the opinion of this court, the change intended by Parliament through the amendment of section 2(15)
was sought to be emphasised and clarified by the amendment of section 10(23C) and the insertion of section
13(8). This was Parliaments' emphatic way of saying that generally no commercial or business or trading
activity ought to be engaged by GPU charities but that in the course of their functioning of carrying out
activities of general public utility, they can in a limited manner do so, provided the receipts are within the
limit spelt out in clause (ii) of the proviso to section 2(15).
D. What kinds of income or receipts may not be characterized as derived from trade, commerce, business or in
relation to such activities, for a consideration
(i) Statutory corporations, authorities or bodies
176. It would be essential now to deal with certain kinds of receipts which GPU charities, typically statutory
housing boards, regulatory authorities and corporations may be entitled to, if mandated to collect or receive.
During the course of hearing, learned counsels highlighted that statutory boards, and corporations have to
recover the cost of providing essential goods and services in public interest, and also fund large scale
development and maintain public property. These would entail recovering charges or fees, interest and also
receiving interest for holding deposits. It was further pointed out that in some cases, income in the form of
rents - having regard to the nature of the schemes which the concerned board, trust or corporation may be
mandated or permitted to carry on, has to be received. For instance, in some situations, for certain kinds of
properties, the boards may be permitted only to lease out their assets and receive rents.
177. The answers to these, in the opinion of this court, are that the definition ipso facto does not spell out
whether certain kinds of income can be excluded. However, the reference to specific provisions enabling or
mandating collection of certain rates, tariffs or costs would have to be examined. Generically, going by
statutory models in enactments (under which corporations boards or trust or authority by whatsoever name,
are set up), the mere fact that these bodies have to charge amounts towards supplying goods or articles, or
rendering services i.e., for fees for providing typical essential services like providing water, distribution of
food grains, distribution of medicines, maintenance of roads, parks etc., ought not to be characterized as
"commercial receipts". The rationale for such exclusion would be that if such rates, fees, tariffs, etc.,
determined by statutes and collected for essential services, are included in the overall income as receipts as
part of trade, commerce or business, the quantitative limit of 20% imposed by second proviso to section 2(15)
would be attracted thereby negating the essential general public utility object and thus driving up the costs to
be borne by the ultimate user or consumer which is the general public. By way of illustration, if a corporation
supplies essential food grains at cost, or a marginal mark up, another supplies essential medicines, and a third,
water, the characterization of these, as activities in the nature of business, would be self-defeating, because the
overall receipts in some given cases may exceed the quantitative limit resulting in taxation and the consequent
higher consideration charged from the user or consumer.
(a) Interpretation of section 10(46) and section 2(15)
178. section (20A) was inserted by Finance Act, 1970 with effect from 1-4-1962. It had excluded certain
classes of income, of corporations53. This court had occasion to deal with the provision while it was in force
in the GIDC case (supra). The court had then emphasized that the expression "development" in section
10(20A) should be understood widely; thus, all development programmes "relating to any industry" fell
within the purview of "development". The court also highlighted that nothing in the IT Act laid down how a
corporation could be termed as a development corporation nor was there anything mandating that fee
chargeable by such corporations was confined to non-industrial activities.
179. The decision in Gujarat Maritime Board case (supra) was rendered in the context of section 10(20). That
provision exempts income accruing to local authorities, from taxation. By Finance Act, 2002, an Explanation
was added to section 10(20) which defined "local authority" retrospectively. The Board ceased to enjoy
exemption which it had hitherto, in the absence of the retrospective definition. It, therefore sought exemption,
as a GPU category charity claiming that it was controlled by objects of general public utility having regard to
the provisions of its parent Act, i.e., the Gujarat Maritime Board Act. This court refuted the argument of the
revenue that if a corporation did not fall within the definition of "local authority" it could not claim to be a
GPU charity. It was held that section 10(20) and section 11 of the 1961 Act operate in totally different
spheres. Even if the Board is not considered as a local authority, it is not precluded from claiming exemption
under section 11(1) of the 1961 Act. Therefore, the court read section 11(1) in light of the definition of the
words "charitable purposes" as defined under section 2(15). This court also relied upon the ruling in APSRTC
(supra) where the APSRTC - constituted under the Road Transport Corporation Act, 1950 - having regard to
the objectives of the Act, was held to be a GPU charity, thus entitling it to exemption in terms of the IT Act.
180. In the light of these decisions, it is evident that the revenue's narrow construction by which tax
exemption is denied on the ground that if an entity is not covered by section 10(20A) - or the newly applicable
section 10(46), it cannot claim benefit as a GPU charity under section 11, is unsound. These two provisions
confer different though overlapping benefits. If an entity does not fulfil the requirement of one provision
because it does not answer the description of a body under that provision, that ipso facto is not a bar for it to
claim benefit of another provision.
181. section 10(46) re-incarnated so to say section 10(20A), which had been deleted w.e.f. 1-4-2003. This
provision, i.e., section 10(46) was inserted with effect from 1-4-2009 retrospectively by the Finance Act,
201154. The conditions for applicability of section 10(46), i.e., that specified income or a class of specified
income of ports, trusts or commissions, etc., established or constituted by or under Central or State enactments
with the object of regulating or administering any activity in the general public, is on similar lines as in the
case of GPU charities. Like in the case of GPU charities, there is a prohibition by section 10(46)(b) against
such corporations, etc. engaging in commercial activity. This restriction has been introduced for the first time
[as that prohibition was absent in the now repealed section 10 (20A)].
182. The term "commercial" is closely similar to, if not identical, with the phrase "in the nature of trade,
commerce or business." The other condition in section 10(46) is that the specified income to be exempted, is
to be notified by the Central Government in the Official Gazette. Facially the allusion to commercial activity,
appears to be in the nature of a complete bar to activities which are akin to commerce or business, yielding
profit. However, what needs to be kept in mind is that the object of section 10 is to remove from the taxable
net, an entire class of receipts of income. Given this object of section 10, the interpretation of "commercial"
activity has to be on the same lines as in the case of income derived by GPU charities, in the course of their
actual functioning, by involving in activities in the nature of trade, commerce or business. Thus, if statutory
corporations within section 10(46) derive their income by charging a nominal mark-up over the cost of service
rendered or goods supplied, meant to recover the costs of the activities they engage in primarily or to achieve
the object for which they were set up, such as development of housing, road infrastructure, water supply,
sewage treatment, supply of food grains, medicines, etc., with or without regulatory powers, the mere fact that
some surplus or gain is derived would not disentitle them from the benefit of section 10(46).
183. In this context, it would be useful to consider the judgment of the Delhi and Allahabad High Courts in
Greater Noida Industrial Development Authority (supra) (hereafter "GNIDA") and CIT v. Yamuna
Expressway Industrial Development Authority [2017] 81 taxmann.com 208/395 ITR 18/298 CTR 127 (All.).
In GNIDA (supra), the High Court drew a distinction between bodies set up by the government with
commercial purpose and objects - which are motivated by profit, and other government bodies. The court
held, correctly so - that other government bodies are not entitled to exemption as they are motivated by profit.
Then, dealing with the term "commercial activity" under section 10(46), it was held that the decisive test is
whether the activities for which consideration in the form of fee, service charge etc., is collected, is
"intrinsically associated, connected and had minimum nexus with the object of regulating and administering
the activity for the benefit of the public".
184. It was also held that if the activity is not carried on commercial lines, i.e., with the profit motive in mind,
but the body is assigned an administrative role, having regard to the objects of the controlling statute or law,
exemption cannot be denied under section 10(46). As juxtaposed, activities for profit or activities which
clearly were motivated by profit - carried on by government or statutory bodies, cannot avail of exemption.
The judgment in Yamuna Industrial Development Authority (supra) is along the similar lines.
185. As far as boards and corporations which are tasked with development of industrial areas, by statute, the
judgments of this court, in Shri Ramtanu Cooperative Housing Society (supra) and Gujarat Industrial
Development Corporation (supra) have declared that these bodies are involved in 'development' and are not
essentially engaged in trading. In Shri Ramtanu Cooperative Housing Society (supra) this court, by a five
judge bench, held that the Maharashtra Industrial Development Corporation is not a trading concern, and
observed as follows:
 "These features of transfer of land, or borrowing of moneys or receipt of rents and profits will by
themselves neither be the indicia nor the decisive attributes of the trading character of the Corporation.
Ordinarily, a Corporation is established by shareholders with their capital. The shareholders have their
Directors for the regulation and management of the Corporation Such a Corporation set up by the
shareholders carries on business and is intended for making profits. When profits are earned by such a
Corporation they are distributed to shareholders by way of dividends or kept in reserve funds. In the
present case, these attributes of a trading Corporation are absent. The Corporation is established by the
Act for carrying out the purposes of the Act. The purposes of the Act are development of industries in the
State. The Corporation consists of nominees of the State Government, State Electricity Board and the
Housing Board. The functions and powers of the Corporation indicate that the Corporation is acting as a
wing of the State Government in establishing industrial estates and developing industrial areas, acquiring
property for those purposes, constructing buildings, allotting buildings, factory sheds to industrialists or
industrial undertakings. It is obvious that the Corporation will receive moneys for disposal of land,
buildings and other properties and also that the Corporation would receive rents and profits in appropriate
cases. Receipts of these moneys arise not out of any business or trade but out of sole purpose of
establishment, growth and development of industries.
17. The Corporation has to provide amenities and facilities in industrial estates and industrial areas.
Amenities of road, electricity, sewerage and other facilities in industrial estates and industrial areas are
within the programme of work of the Corporation. The found of the Corporation consists of moneys
received from the State Government, all fees, costs and charges received by the Corporation, all moneys
received by the Corporation from the disposal of lands, buildings and other properties and all moneys
received by the Corporation by way of rents and profits or in any other manner. The Corporation shall
have the authority to spend such sums out of the general funds of the Corporation or from reserve and
other funds. The Corporation is to make provision for reserve and other specially denominated funds as
the State Government may direct. The Corporation accepts deposits from persons, authorities or
institutions to whom allotment or sale of land, buildings, or sheds is made or is likely to be made in
furtherance of the object of the Act. A budget is prepared showing the estimated receipts and
expenditure. The accounts of the Corporation are audited by an auditor appointed by the State
Government. These provisions in regard to the finance of the Corporation indicate the real role of the
Corporation viz. the agency of the Government in carrying out the purpose and object of the Act which is
the development of industries. If in the ultimate analysis there is excess of income over expenditure that
will not establish the trading character of the Corporation. There are various departments of the
Government which may have excess of income over expenditure.
** ** **

20. The underlying concept of a trading Corporation is buying and selling. There is no aspect of buying
or selling by the Corporation in the present case. The Corporation carries out the purposes of the Act,
namely, development of industries in this State. The construction of buildings, the establishment of
industries by letting buildings on hire or sale, the acquisition and transfer of land in relation to
establishment of industrial estate or development of industrial areas and of setting up of industries cannot
be said to be dealing in land or buildings for the obvious reason that the State is carrying out the objects
of the Act with the Corporation as an agent in setting up industries in the State. The Act aims at building
an industrial town and the Corporation carries out the objects of the Act. The hard core of a trading
Corporation is its commercial character. Commerce connotes transactions of purchase and sale of
commodities, dealing in goods. The forms of business transactions may be varied but the real character is
buying and selling. The true character of the Corporation in the present case is to act as an architectural
agent of the development and growth of industrial towns by establishing and developing industrial estates
and industrial areas. We are of opinion that the Corporation is not a trading one."
186. In Shri Ramtanu Cooperative Housing Society (supra) no doubt, this court did not have to decide
whether the Maharashtra Industrial Development Corporation was entitled to tax exemption. However, it
examined the provisions of the Act, and the ratio, that such industrial development corporations are not
engaged in trading, is binding. Like in that case, here too, the concerned state Acts (Gujarat Industrial
Development Act, 1962 and the Karnataka Industrial Areas Development Act, 1966) tasked the boards with
planning and development of industrial areas. Their personnel are appointed under the enactments and are
deemed to be public servants. The state government is empowered to acquire land, in exercise of eminent
domain power, for their purposes; their audits are by the Accountant General of the concerned state, or
auditors appointed by the state. They are authorized by law, to levy rates and charges, for the services they
provide, on pre-determined basis. In the light of these provisions, clearly, these boards and authorities perform
objects of general public utility; and they are not driven by profit motive.
187. There is a two-fold distinction between the now-deleted section 10(20A) and the newly added section
10(46) (w.e.f. 1-6-2011). Firstly, that the erstwhile section 10(20A) applied to a limited class of undertaking
i.e., the bodies, or corporations, constituted by or under any law-confined to the planning and development of
housing infrastructure. However, the newly added section 10(46) is wider in comparison and the activities of
any body or authority or board constituted by or under any central or State Act with "the object of regulating
or administering any activity for the benefit of the general public", has broader import. In a sense, the newly
added section 10(46), resembles a GPU category charity classified under section 2(15). The second distinction
is that section 10(20A) did not bar any board, or corporations, etc. from indulging in commercial activities.
However, sub-clause (b) of section 10(46) imposes such a bar, and the concerned body cannot claim tax
exemption if it engages in commercial activity.
188. The manner in which GPU charities has been dealt with under the definition clause, i.e., section 2(15),
indicates that even though trading or commercial activity or service in relation to trade, commerce or business
appears to be barred - nevertheless the ban is lifted somewhat by the proviso which enables such activities to
be carried out if they are intrinsically part of the activity of achieving the object of general public utility.
Furthermore, in the case of GPU charities there is a quantified limit of the overall receipts, which is
permissible from such commercial activity. In the case of local authorities and corporations covered by
section 10(46) no such activities are seemingly permitted.
189. As was observed in the earlier part of this judgment - while considering whether for the period 1.0.2003 -
31-5-2011, statutory boards, corporations, etc. could have lawfully claimed to be GPU charities, this court has
observed that the nature of such corporations is not to generate profit but to make available goods and other
services for the benefit of public weal. If such corporations (falling within the description of section 10(46))
applied to the Central Government for exemption, the treatment of their receipts, should be no different than
how such receipts can and should have been treated for the purposes of determining whether they are GPU
charities, during the period when section 10(46) was not in existence. Furthermore, this court is of the opinion
that having regard to the observations in Gujarat Maritime Board case (supra), the denial of exemption under
one category cannot debar such corporations from claiming income exempt status under another category.
(b) Summary in relation to statutory authorities/corporations.
190. In light of the above discussion, this court is of the opinion that:

(i) The fact that bodies which carry on statutory functions whose income was eligible to be considered
for exemption under section 10(20A) ceased to enjoy that benefit after deletion of that provision
w.e.f. 1-4-2003, does not ipso facto preclude their claim for consideration for benefit as GPU
category charities, under section 11 read with section 2(15) of the Act.
(ii) Statutory Corporations, Boards, Authorities, Commissions, etc. (by whatsoever names called) in the
housing development, town planning, industrial development sectors are involved in the
advancement of objects of general public utility, therefore are entitled to be considered as charities
in the GPU categories.
(iii) Such statutory corporations, boards, trusts authorities, etc. may be involved in promoting public
objects and also in the course of their pursuing their objects, involved or engaged in activities in the
nature of trade, commerce or business.
(iv) The determinative tests to consider when determining whether such statutory bodies, boards,
authorities, corporations, autonomous or self-governing government sponsored bodies, are GPU
category charities:
(a) Does the state or central law, or the memorandum of association, constitution, etc. advance
any GPU object, such as development of housing, town planning, development of
industrial areas, or regulation of any activity in the general public interest, supply of
essential goods or services - such as water supply, sewage service, distributing medicines,
of food grains (PDS entities), etc.;
 (b) While carrying on of such activities to achieve such objects (which are to be discerned
from the objects and policy of the enactment; or in terms of the controlling instrument,
such as memorandum of association etc.), the purpose for which such public GPU charity,
is set-up - whether for furthering the development or a charitable object or for carrying on
trade, business or commerce or service in relation to such trade, etc.;
(c) Rendition of service or providing any article or goods, by such boards, authority,
corporation, etc., on cost or nominal mark-up basis would ipso facto not be activities in the
nature of business, trade or commerce or service in relation to such business, trade or
commerce;
(d) where the controlling instrument, particularly a statute imposes certain responsibilities or
duties upon the concerned body, such as fixation of rates on pre-determined statutory basis,
or based on formulae regulated by law, or rules having the force of law, setting apart
amenities for the purposes of development, charging fixed rates towards supply of water,
providing sewage services, providing food-grains, medicines, and/or retaining monies in
deposits or government securities and drawing interest therefrom or charging lease rent,
ground rent, etc., per se, recovery of such charges, fee, interest, etc. cannot be
characterized as "fee, cess or other consideration" for engaging in activities in the nature of
trade, commerce, or business, or for providing service in relation in relation thereto;
(e) Does the statute or controlling instrument set out the policy or scheme, for how the goods
and services are to be distributed; in what proportion the surpluses, or profits, can be
permissively garnered; are there are limits within which plots, rates or costs are to be
worked out; whether the function in which the body is engaged in, is normally something a
government or state is expected to engage in, having regard to provisions of the
Constitution and the enacted laws, and the observations of this court in NDMC; whether in
case surplus or gains accrue, the corporation, body or authority is permitted to distribute it,
and if so, only to the government or state; the extent to which the state or its
instrumentalities have control over the corporation or its bodies, and whether it is subject
to directions by the concerned government, etc.;
(f) As long as the concerned statutory body, corporation, authority, etc. while actually
furthering a GPU object, carries out activities that entail some trade, commerce or
business, which generates profit (i.e., amounts that are significantly higher than the cost),
and the quantum of such receipts are within the prescribed limit (20% as mandated by the
second proviso to section 2(15)) - the concerned statutory or government organisations can
be characterized as GPU charities. It goes without saying that the other conditions imposed
by the seventh proviso to section 10(23C) and by section 11 have to necessarily be
fulfilled.
(v) As a consequence, it is necessary in each case, having regard to the first proviso and seventeenth
proviso (the latter introduced in 2012, w.r.e.f 1-4-2009) to section 10(23C), that the authority
considering granting exemption, takes into account the objects of the enactment or instrument
concerned, its underlying policy, and the nature of the functions, and activities, of the entity
claiming to be a GPU charity. If in the course of its functioning it collects fees, or any consideration
that merely cover its expenditure (including administrative and other costs plus a small proportion
for provision) - such amounts are not consideration towards trade, commerce or business, or service
in relation thereto. However, amounts which are significantly higher than recovery of costs, have to
be treated as receipts from trade, commerce or business. It is for those amounts, that the
quantitative limit in proviso (ii) to section 2(15) applies, and for which separate books of account
will have to be maintained under other provisions of the IT Act.
(ii) Statutory regulatory bodies/authorities
191. During the hearings, rival contentions were made in regard to the facial nature of the public utility
character of regulatory bodies. A sample special case was that of the Institute of Chartered Accountants of
India (ICAI). In respect of some years, the revenue has preferred appeals and in respect of some others, the
Institute has preferred appeals. Reliance was placed upon the provisions of the ICAI Act and detailed
submissions were made to emphasise that it plays a pivotal role in regulating the entire universe of vocation of
Chartered Accountants - i.e., selecting candidates that can undergo the educational course, setting the syllabus
for the Chartered Accountancy examination; holding classes, training sessions and imparting education;
conducting exams, etc. It was highlighted that the membership of the institute, i.e., those who are enrolled as
Chartered Accounts has grown significantly. Whereas in the end of financial year 2005, the membership was
1.23 lakhs, it had increased to 1,86,440 on 31-3-2012. Likewise, there was an exponential growth in the
students appearing in the examination - in 2005, it was 2,96,294, and on 31-3-2012, it had increased to
10,70,839. Apparently, the Institute conducts distance education courses and also conducts classroom
instruction facilities. These are integrated with the course curriculum. Additionally, it was urged that no
commercial motive was involved; coaching and revisional classes conducted are very nominally priced -
ranging from Rs. 1500 to Rs. 2500 for one group, and from Rs. 4000 to Rs. 6000 for both groups, depending
on cities where the classes are held.
192. During the submissions on behalf of the Institute, the financials for different years were provided. It was
revealed that the total outflow towards salaries for 2003-04 was Rs. 55.27 lakhs and depreciation for the same
was Rs. 51.64 lakhs. The total expenditure for that year was Rs. 1.0691 lakhs. As against that, the Revenue
earned from generation of fees for the corresponding year which was Rs. 1.78 crores and the corresponding
expenditure was Rs. 96.93 lakhs. The corresponding figures for FY 2011-12 for salaries was Rs. 2.94 crores.
The depreciation was Rs. 4.05 crores. The total expenditure thus was Rs. 6.9 crores. As against this, the
amount received towards fees was Rs. 6.36 crores and expenditure incurred towards coaching, including
salaries, provisions of course material, etc. was Rs. 4.34 crores. The surplus (without including administrative
expenditure) for that year was Rs. 2.01 crores. The Institute apparently cannot distribute the surplus or utilise
it for any activity other than what is set out under the controlling statute and its rules.
193. The Revenue highlighted that conducting courses leading to a professional qualification and charging
fees for it is in the nature of a 'service', and all services in relation to trade, commerce or business squarely
falls within the mischief of section 2(15), which has to preclude the institute's claim for exemption as a GPU
charity.
194. The Institute is a creature of the Institute of Chartered Accountants Act, 1949. By section 4 of this Act,
every person who qualifies in the examination conducted by the Institute has to seek registration as a
Chartered Accountant. Only when members obtain certificates issued by the Council of the Institute under
section 6 can they be known as a 'Chartered Accountant' and be entitled to practice that profession (Sections 6
and 7). The Council of the Institute is constituted under section 9 which defines such constitution and the
manner for holding elections, etc. The functions of the Council by section 15(2A) include approving the
academic courses and their contents, examining the candidates, regulation and articleship assistance,
prescribing qualification for entry of persons in the register, collection of fees from members; the regulation
and maintenance and status of the professional qualifications of the members of the Institute, etc. By section
15A, universities are enabled to impart education on subjects covered by the academic courses of the Institute.
However, by section 15A(2) while awarding degrees or diplomas, their designation should not resemble or be
identical to what is awarded by the Institute. The finances are regulated by section 18. The Council is enjoined
to maintain the register under section 19 and has disciplinary powers by virtue of sections 21A, 21B and 21C
of the Act.
195. These provisions of the Act clarify beyond a doubt that the Institute performs statutory functions in the
larger public interest of regulating the standards of education, leading up to the profession of Chartered
Accountancy and also prescribing standards of professional etiquette, behaviour, and discipline of its
members. No other entity or body has the authority in law to perform the functions that the Institute does.
Although the Act regulating Chartered Accountancy came into force prior to the Constitution of India, the
subject (of regulating professions, etc.) appears to be relatable to the exercise of legislative power under Entry
25 and 26 of the Concurrent List55. Furthermore, they also appear to conform to Entry 65 of the Union List56
(which has been adverted to in Entry 25 of the Concurrent List). As things stand, the Institute is the only body
which prescribes the contents of professional education and entirely regulates the profession of Chartered
Accountancy. There is no other body authorised to perform any other duties which it performs. It, therefore,
clearly falls in the description of a charity advancing general public utility. Having regard to the previous
discussion on the nature of charities and what constitutes activities in the 'nature of trade, business or
commerce', the functions of the Institute ipso facto does not fall within the description of such 'prohibited
activities'. The fees charged by the Institute and the manner of its utilisation are entirely controlled by law.
Furthermore, the material on record shows that the amounts received by it are not towards providing any
commercial service or business but are essential for the providing of service to the society and the general
public.
196. Similarly, there are several other regulatory bodies that discharge functions which are otherwise within
the domain of the State. A singular characteristic of ICAI and other statutory bodies which can be said to
regulate specific functions and professions (including the profession of Cost and Work Accountants, and
Company Secretary, etc.) is the powers conferred upon them by the statutes to prescribe standards and enforce
them through disciplinary sanctions. Therefore, it is held that bodies which regulate professions and are
created by or under statutes which are enjoined to prescribe compulsory courses to be undergone before the
individuals concerned is entitled to claim entry into the profession or vocation, and also continuously monitor
the conduct of its members do not ipso facto carry on activities in the nature of trade, commerce or business,
or services in relation thereto.
197. At the same time, this court would sound a note of caution. It is important, at times, while considering
the nature of activities (which may be part of a statutory mandate) that regulatory bodies may perform,
whether the kind of consideration charged is vastly or significantly higher than the costs it incurs. For
instance, there can be in given situations, regulatory fees which may have to be paid annually, or the body
may require candidates, or professionals to purchase and fill forms, for entry into the profession, or towards
examinations. If the level of such fees or collection towards forms, brochures, or exams are significantly
higher than the cost, such income would attract the mischief of proviso to section 2(15), and would have to be
within the limits prescribed by sub-clause (ii) of the proviso to section 2(15).
198. The next set of 'statutory regulatory authorities' among the present batch are those related to authorities
set up under the Seeds Act, 1966 (i.e. the Andhra Pradesh State Seeds Certification Authority and the
Rajasthan State Seeds and Organic Production certification Agency). These two entities are set up as societies
under section 8 of the Seeds Act, and comprise of farmers, farmers co-operatives' representatives, seed
certification authorities, etc. The task of these agencies and authorities is certification of seeds, to decide
whether to certify supply of seeds of "any notified kind or variety", by applicants who may wish to offer them
for trade. These agencies/authorities scrutinize the samples to ensure they conform to the requisite standard
notified under section 6. These decisions are subject to appeal under section 11.
199. The functioning of the seed certification agency, is a crucial one, in those only seeds conforming to
prescribed standards, are permitted to be traded and used, by farmers. Such standards are - in the context of
the fact that agriculture is one of the mainstays of the economy, and furthermore, pivotal for food security -
essential as they ensure efficacy of seeds and guarantee to the farmers that they can be relied upon. The
essential nature of the regulatory function performed by these certification agencies is obvious. The nature of
their activities is not by way of trade, commerce or business, nor service in relation to trade commerce,
business, for some form of consideration.
(iii) Trade Promotion bodies, councils, associations or organizations
200. Surat Art Silk (supra) and other decisions, had ruled that as long as the objects of trade promotion bodies
were for general public utility - wherein 'trade promotion' in itself, was held to be a GPU - the fact that
incidentally these bodies carried on some commercial activity, leading to profit, did not preclude them from
claiming to be driven by charitable purpose. As observed earlier, the enunciation of those principles were in
the context of the unamended section 2(15).
201. The question that arises is whether the change in definition impacts the claims of trade promotion bodies,
federations of commerce, or such organizations, that they are GPU charities . The judgment in Surat Art Silk
(supra) proceeded on the assumption that trade promotion was the pre-dominant object of the GPU charity
before the court, and that other objects - including procuring licences, trade etc. were incidental. The assessee
in Surat Silk had clear trading objects:
"(b) To carry on all and any of the business of Art Silk Yarn, Raw Silk, Cotton Yarn as well as Art Silk
floth, Silk Cloth and Cotton Cloth belonging to and on behalf of the members.
** ** **

(e) To buy and sell and deal in all kinds of cloth and other goods and fabrics belonging to and on behalf
of the Members."
This court, nevertheless, held that since the predominant object of the assessee was trade promotion, while
furthering it, the fact that some trading occurred, leading to income, did not preclude the assessee from
claiming tax exemption.
202. In the opinion of this court, the change in definition in section 2(15) and the negative phraseology -
excluding from consideration, trusts or institutions which provide services in relation to trade, commerce or
business, for fee or other consideration - has made a difference. Organizing meetings, disseminating
information through publications, holding awareness camps and events, would be broadly covered by trade
promotion. However, when a trade promotion body provides individualized or specialized services - such as
conducting paid workshops, training courses, skill development courses certified by it, and hires venues which
are then let out to industrial, trading or business organizations, to promote and advertise their respective
businesses, the claim for GPU status needs to be scrutinised more closely. Such activities are in the nature of
services "in relation to" trade, commerce or business. These activities, and the facility of consultation, or skill
development courses, are meant to improve business activities, and make them more efficient. The receipts
from such activities clearly are 'fee or other consideration' for providing service "in relation to" trade,
commerce or business.
203. The revenue has appealed to this court, in respect of two assessment years, in the case of Apparel Export
Promotion Council (AEPC). The objects of AEPC, which was set up in 1978 - include promotion of ready-
made garment export. To achieve that end, its objects include providing training to instil skills in the
workforce, to improve skills in the industry; guide in sourcing machinery; to serve as a body advising,
providing information on market or technical intelligence; assisting the concerned industry in obtaining
import licenses; showcase the best capabilities of Indian garment exports through the prestigious "India
International Garment Fair" organised twice a year by AEPC, etc. These fairs host over 350 participants who
exhibit their garment designs and patterns. Other functions are to provide information, and to provide market
research. AEPC also assists in developing new design patterns and garments and to perform promotional
activities in individual foreign markets. Further, AEPC sends missions and trade delegations abroad, who
participate in international fairs; and conducts surveys to gather information on potential export of ready-
made garments.
204. As part of its functioning, it also books bulk space, which is then rented out to individual Indian
exporters, who showcase their products and services, and ultimately secure export orders. Towards these
services, i.e., booking and providing space, AEPC charges rentals. Now, these rents are not towards fixed
assets owned by it. They are in fact charges, or fees, towards services in relation to business; likewise, the
skill development and diploma courses conducted by it, for which fees are charged, are to improve business
functioning of garment exporters. Furthermore, market surveys and market intelligence, especially country
specific activities, aimed at catering to specified exporters, or specified class of exporters, is also service in
relation to trade, commerce or business.
205. In the circumstances, it cannot be said that AEPC's functioning does not involve any element of trade,
commerce or business, or service in relation thereto. Though in some instances, the recipient may be an
individual business house or exporter, there is no doubt that these activities, performed by a trade body
continue to be trade promotion. Therefore, they are in the "actual course of carrying on" the GPU activity. In
such a case, for each year, the question would be whether the quantum from these receipts, and other such
receipts are within the limit prescribed by the sub-clause (ii) to proviso to section 2(15). If they are within the
limits, AEPC would be - for that year, entitled to claim benefit as a GPU charity.
(iv) Non-statutory bodies - ERNET, NIXI and GS1 India
206. ERNET is a not-for profit society, set up under the aegis of the Union Government. At one time,
government functionaries, including the late President, APJ Abdul Kalam, were members, on account of their
ex officio capacity. The objects of this assessee are to
"3.1.1 To advance the cause of computer communication in the country in all its aspects and dimensions
with a view to provide rapid nationwide development of the sector and technological and economic
growth of the county.
3.1.2 To develop, design, setup and operate nationwide state of the art computer communication
infrastructure with international connectivity directed towards research and development, advancement of
high quality education, create and host content, express creative and academic potential via intranet and
intranet peer to peer connectivity among educational and research institutions in the country and the
 world and make available the communication infrastructure to users in academic, research and
development institutions, Govt organizations in line with national priorities. "
207. ERNET's networks are a mix of terrestrial and satellite-based wide-area network. It provides services
through its 15 Points of Presence (PoPs) located across the country. All those are equipped to provide access
to Intranet, Internet and Digital Library through trial leased circuits and radio links to the user institutions. The
PoP at STPI Bengaluru provides Intranet and Internet access through Satellite. ERNET provides, services,
namely, Network Access Services, Network Applications Services, Hosting Services, Operations Support
Services und Domain Registration Services under srnet.in, ac.in, edu.in & res.in domains. Funded through
government grants, its projects support educational networks and development of internet infrastructure in
numerous other segments of society.
208. Having regard to the nature of ERNET's activities, it cannot be said that they are in the nature of trade,
commerce or business, or service, towards trade, commerce or business. It has to receive fees, to reimburse its
costs. The materials on record nowhere suggest that its receipts (in the nature of membership fee, connectivity
charges, data transfer differential charges, and registration charges) are of such nature as to be called as fees or
consideration towards business, trade or commerce, or service in relation to it. The functions ERNET
performs are vital to the development of online educational and research platforms. For these reasons, it is
held that the impugned judgment, which upheld the ITAT's order, does not call for interference.
209. The Revenue has appealed the decision of Delhi High Court in which the National Internet Exchange of
India (NIXI) was held to be a GPU category charity. The materials on record show that NIXI was established
in 2003 under the aegis of the Ministry of Information Technology of the Union Government for the
promotion and growth of internet services in India, to regulate the internet traffic, act as an internet exchange,
and undertake ".in" domain name registration. Concededly, NIXI, is a not for profit, and is barred from
undertaking any commercial or business activity. Its object is to promote the interests of internet service
providers and internet consumers in India, improve quality of internet service, save foreign exchange, and
carry on domain name operations. It is bound by licensing conditions - which include the prohibition from
altering its memorandum, without the prior consent of the Union Government. According to the submissions
made on NIXI's behalf, it charges annual membership fee of Rs. 1000/- and registration of second and third
level domain names at Rs. 500/- and Rs. 250/-. The finding of the ITAT and the High Court are that NIXI's
objects and functioning are by way of general public utility and thus it is a GPU category charity.
210. Having regard to the findings on record and the materials placed by the parties, it is evident that NIXI
carries on the essential - crucial purpose of promoting internet services and more importantly, regulating
domain name registration which is extremely essential for internet users in India. A country's need to have a
domestic internet exchange, rather than depend on an international one, cannot be overemphasized. The Union
Government's object of setting up of internet exchange is part of its essential function as a government to
regulate certain segment of the communication networks. In the absence of a single entity authorized to
register ".in" domain names, there is bound to be chaos or confusion.
211. In view of the foregoing discussion, this Court is of the opinion that the revenue's contention that NIXI
does not merely carry-on public purpose of regulatory activity but is involved in trade, commerce, or business
or in providing service in relation thereto, cannot be accepted.
212. The next assessee under consideration - is GS1 India. GS1 codes were developed and created by GS1
International, Belgium (an international not-for-profit under Belgium tax law). This coding system has been in
use worldwide and is even mandatory for some services/goods, or adopted for significant advantages being a
singular identification system, recognized and accepted all over the world. The code promotes universal
standard in Electronic Data Inter-exchanged (EDI) and other services. This system of coding has been
accorded priority by the Government of India as it is a compulsory requirement on products exported from
India. Government of India had set up non-profit organizations EAN India, now known as GS1 India (the
assessee).
213. Counsel on behalf of GS1 India, submitted that GS1 is affiliated and conferred exclusive rights relating
to GS1 coding in India. The GS1 code on a product, provides a unique identification to it with wide ranging
benefits and advantages which facilitate tracking, tracing of the product, product recalls, counterfeit detection,
user safety due to accuracy, wastage control through accurate monitoring and stock levels for commodities,
security and safety of supply chains, detection of illegal trade, etc. The unique identification or coding system
developed and operated by GS1 International or GS1 India is recognized and accepted globally. Additionally,
the unique identification code can be enabled with RFID chip and other electronic technology. Being one of
its kinds globally, only a GS1 registered organization can set up and promote the said system/standard within
a country. These can be used for several fields including public distribution system, agriculture, health
products, etc. and has been successfully used for product package labels. The utility and benefits of a
universal coding system assessable by anyone across the globe, for the consumers, government,
manufacturers, traders, exporters, etc. are enormous and significant. Initial registration fee of Rs. 20,000/- is
charged by GS1, plus annual fee of Rs. 4,000/- (enhanced to Rs. 5,000/- from financial year 2006-07 onwards)
from third parties, who become subscribing members, and are entitled to use the GS1 coding system.
214. It was submitted on behalf of GS1 that it was set up as society in 1996 and sponsored by the Union
Government. The Union Government representatives and the representatives of the trade bodies are its
members. The activities of GS1 are extremely important and have to be characterized as involving general
public utility. It was submitted that having regard to the fact that GS1 provides services to all organizations
regardless of whether they carry on business, trade or other commercial activity, a narrow interpretation
confining the expression "service in relation to" should not be adopted. It was urged, that there is no dispute
about the fact that GS1 was directed to be granted registration under the IT Act, and that GS1 Belgium, the
parent organization, so to say, which owns the technology, has been granted the status of not for profit charity.
GS1 urges that it is not dealing or treating the prized rights as a right be exploited commercially to earn or
generate profits. It is not directly or indirectly subjecting their activity to market mechanism/dynamics (i.e.,
demand and supply), rather it is motivated and prompted to serve the beneficiaries. Therefore, this is not a
case of commercial exploitation of intellectual property rights to earn profits (as contended by the Revenue),
but rather a case where a token fee has been fixed and payable by the user of the global identification system.
Clause 44 of GSI's Memorandum of Association of the petitioner stipulates that it is a "Not-for-Profit" society
and the funds/receipts are to only be used for promotion of objects of the society for which it is established,
including sustenance and expansion.
215. The revenue contended that although GS1 India has a monopoly, the mere fact that it is stated to be a Not
for Profit Society with some governmental involvement in its management would not detract from its essential
nature; which is to sub-serve the interest of the business community. It was elaborated in this context that GS1
by providing bar codes and the coding system secured by license, not only exploits the intellectual property
rights but is in fact engaged in services in relation to trade, commerce or business. Counsel pointed to the fact
that the revenues of GS1 has steadily increased over the years. It was pointed out that according to the balance
sheet the aggregate registration fees receipt for the year ending 31-3-2007 was Rs. 1,80,80,760/- whereas for
the year ending 31-3-2008 which had increased to Rs. 4,85,47,170/-. Likewise, membership fees had
increased from Rs. 44,40,000/- as on 31-3-2007 to Rs. 93,42,500/-. Furthermore, renewal fees for the year
ending 2007 was Rs. 1,68,57,200/- whereas for the next year i.e., as on 31-3-2008 it was Rs. 1,90,50,650/-.
The Revenue submitted that even where income and interest were to be excluded, the increase on a yearly
basis was exponential. Likewise, it was pointed out that registration fees as on 2011 was Rs. 4,24,69,850/-
whereas as on 31-3-2012 it was Rs. 6,07,58,100/-; subscription fee as on 31-3-2011 was Rs. 1,02,06,720/-; for
the next year i.e., on 2012 it was Rs. 1,01,69,850/-. Likewise, the subscription renewal fees as on 31-3-2011
was Rs. 4,18,62,804/- and the same head as on 31-3-2012 was Rs. 4,46,71,134/-.
216. The Revenue emphasises the fact that GS1 is a monopolist organization, has exclusive licenses in
relation to bar coding technology which it admittedly uses for fee or other consideration. It is highlighted that
these services are provided mostly to business, trade purpose, manufacturing, etc. On the other hand, GS1
urges that it performs the important public function which enables not merely manufactures but others
involved in supplies of various articles by packaging, etc., to regulate and ensure their identity.
217. In the opinion of this Court, GS1's functions no doubt is of general public utility. However, equally the
services it performs are to aid businesses manufactures, tradesmen and commercial establishments. Bar
coding packaged articles and goods assists their consigners to identify them; helps manufactures, and
marketing organizations (especially in the context of contemporary times, online platforms which serve as
market places). The objective of GS1 is therefore, to provide service in relation to business, trade or
commerce - for a fee or other consideration. It is also true, that the coding system it possesses and the
facilities it provides, is capable of and perhaps is being used, by other sectors, in the welfare or public interest
fields. However, in the absence of any figures, showing the contribution of GS1's revenues from those
segments, and whether it charges lower amounts, from such organizations, no inference can be drawn in that
regard. The materials on record show that the coding services are used for commercial or business purposes.
Having regard to these circumstances, the Court is of the opinion that the impugned judgment and order calls
for interference.
(v) State Cricket Associations
218. The revenue has preferred appeals against the decision of the Gujarat High Court in respect of orders
made in the cases of the Gujarat Cricket Association, the Saurashtra Cricket Association, Baroda and Rajkot
Cricket Associations and the decision of the Rajasthan High Court, in respect of the Rajasthan Cricket
Association. The main facts, relevant for deciding the questions involved are set out in the order of the ITAT57
against which the Gujarat High Court rendered the impugned judgment58. Since the legal issues are common
in relation to all these matters, the facts relating to the Gujarat Cricket Association (GCA) may be considered
for convenience.
219. The objects of GCA (and other associations) are to control, supervise, regulate, promote or encourage,
and develop the game of cricket in the area under its jurisdiction. The association can also undertake any other
and all activities which may be beneficial to it. GCA's objects include activities aimed at creating, fostering
and maintaining friendly and cordial relationship through sports tournaments and competitions, to create a
healthy spirit through the medium of sports in general, and cricket in particular. The other objects include: to
instil the spirit of sportsmanship in school and college students, members of other institutions, and other
citizens; instil the ideals of cricket and educate them in the same; to select teams to represent the association
in any competitive forum; to arrange, supervise, hold, encourage and finance visits of teams; to arrange or
manage league and/or any other tournaments; to promote persons, meetings, competitions and matches in
relation to sports; and to offer, give/distribute or contribute towards prizes, medals and awards; to lay out
grounds for playing the game; and to provide pavilion, stadia, other conveniences and amenities in connection
therewith. The GCA also includes within its objects, providing coaching to deserving persons in the various
departments of the game of cricket; engaging professional cricketers, coaches, umpires, groundsmen, and
other employees, and to pay remuneration or honorarium to them; and to start, sponsor and/or to subscribe to
any fund for the benefit of such persons or their families. The GCA can collect funds for the purpose of the
Association and utilise it in such manner as its Managing Committee considers desirable for the fulfilment of
its objects.
220. The assessing authorities denied GCA's claim and that of the other associations, that they were charities.
Before the ITAT, it was contended, on behalf of the revenue, inter alia, that looking at the nature of the
relationship of these state cricket associations with the Board of Cricket Control of India (BCCI), the amounts
received by these associations from BCCI were in the nature of consideration or fees, for granting media
rights, and collecting their share, among other things. This amounted to a business or commercial activity. It
would, in this context, be useful to quote the observations set out in the ITAT's order (which were part of the
commissioner's order). The Commissioner had taken note of assessment proceedings in relation to BCCI, and
set out its submissions:
"9.7.2 The AO of BCCI, based on the communication of DIT(E), Mumbai, has not granted benefit of
section 11 & 12 of the Act to BCCI. The stand taken by BCCI during its assessment proceedings is
mentioned below. The BCCI vide its submission dated 03/12/2012 to the AO has explained its
relationship with State Cricket Association as follows:-

"1. BCCI is society registered under the Tamil Nadu Societies Registration Act. It was formed
in the year 1929 with the object of promotion and development of cricket in India and is a
member of the International Cricket Council (ICC) the regulatory body for world cricket.
As a member of ICC, BCCI represents India in bilateral tours between member countries
and in ICC tournaments such as the World Cup.
2. BCCI has 30 members out of whom 25 are state cricket associations, 2 are private clubs
and 3 are Central Government Institutions. BCCI does not own or manage the
infrastructure and facilities that are required for cricket. It encourages and oversees the
various state associations to promote the game, build the required infrastructure organize
tournaments, leagues, coaching camps etc. in their respective states. Whenever a foreign
team visits India, the international matches such as Test and ODI are allotted by BCCI to
the State Cricket Associations by a rotation policy. The matches are conducted and
managed by the respective state associations and over time, arrangements have evolved
about the respective responsibilities, rights, shares of revenue etc. These have evolved in
order to promote co-operation and unity among the member associations and by applying
the principles of equity and fairness, for which the sport of cricket is renowned."
9.7.3 The BCCI in its submission dated 21/1/2013 earned subsidy paid to SCAs and TV Subvention as
stated as follows:-
"13.2
PAYMENTS TO STATE ASSOCIATIONS
During the year, BCCI has paid amounts to the state associations under the head "TV, Subventions to
Associations". This represents payment of 70% of the revenue from sale of media rights to the state
associations".
Whenever a foreign team visits India, the international matches such as Test and ODI are allotted by
BCCI to the state cricket associations by a rotation policy. The matches are conducted and managed by
the respective state associations. It is not possible for BCCI to conduct all these matches with its own
limited personnel. It is dependent on the state associations, their office bearers, their employees and their
network and resources at the local centre to conduct the matches.
The association manage the entire match right from provision of security to players, spectators in
coordination with respective state police personnel, taking other security measures like fire prevention
etc. The association incurs a good chunk of expenditure in conducting an International
Test/ODI/T20/IPL/CL T20 Matches.
In order to have fair and equitable sharing of the revenues, arrangements have evolved over time, about
the respective responsibilities, rights, shares of revenue etc. of BCCI and the state associations. The state
association is entitled to the ticket revenue and ground sponsorship revenues. Expenses on account of
security for players and spectators, temporary stands, operation of floodlights, Score Boards,
management of crowd. Insurance for the match, electricity charges, catering etc are met by the state
associations. On the other had expenditure on transportation of players and other match officials,
boarding and lodging, expenses on food for players and officials, tour fee, match fee, etc are met by
BCCI and revenues from sponsorship belong to BCCI. In respect of revenues from sale of media rights,
an arrangement has evolved over time. Until 1991-92 the income from media rights was meager. With the
growth in income from media rights, it became necessary to optimize the arrangement for sale of media
rights. For a Test series or ODI series conducted in multiple centers and organised by BCCI and multiple
state associations, it was found that if each state association were to negotiate the sale of rights to events
in its centre, its negotiating strength would be low. It was, therefore, agreed that BCCI would negotiate
the sale of media rights for the entire country to optimize the income under this head. It was further
decided that out of the receipts from the sale of media rights 70% of the gross revenue less production
cost would belong to the state associations. Every year, BCCI has paid out exactly 70% of its receipts
from media rights (less-production cost) to the state associations. This amount has been utilized by the
respective associations to build infrastructure and promote cricket, making the game more popular,
nurturing and encouraging cricket talent, and leading to higher revenues from media rights.
** ** **

Even in the event that exemption under section 11 is denied, the payments to state associations must be
allowed as a deduction, as expenditure laid out or expended wholly and exclusively for the purpose of
earning such income, it must be appreciated that in order to earn revenues, BCCI was and continues to be
highly dependent on the state associations. BCCI does not have the infrastructure and the resources to
conduct the matches by itself and is dependent on the state associations to conduct the matches. The
income from media rights is dependent on the efforts of the state associations in conducting the matches
from which the media rights accrue. The division of revenues and expenditure is a matter of arrangement
between the parties. Certain incomes such as sale of ticket revenues belong to the state associations, who
meet the expenditure on the matches such as security for players and spectators temporary stands,
operation of floodlights, Score Boards, management of crowd, insurance for the match, electricity
charges, catering etc. Whereas with regard to the income from sale of media rights, the arrangement
between BCCI and the State Associations has been that 70% of the revenue would belong to the State
Associations. As shown, this has been the arrangement between the parties for the twenty years. The
State Associations are entitled by virtue of established practice to 70% of the media right fee. It is in
expectation of this revenue that the various state associations take an active part and cooperate in the
 conduct of the matches. This payment is therefore made only with a view to earn the income from media
rights."
221. The ITAT accepted the assessee's contentions, and held that the associations were GPU charities:
"35. Let us take a pause here and examine as to what are the activities of the assessee cricket associations
so as to be brought within the ambit of trade, commerce or business. We have seen objects of the
association, which are reproduced earlier in our order, and it is not even the case of the revenue that these
objects have anything to do with any trade, commerce or business; these objects are simply to promote
cricket. The trigger for invoking proviso to section 2(15), as Shri Soparkar rightly contends, has to an
activity of the assessee which is in the nature of trade, commerce or business. However, the case of the
revenue authorities hinges on the allegation that the way and manner in which cricket matches are being
organized, particularly the IPL matches, the activity of organizing cricket matches is nothing but brute
commerce. Undoubtedly, it would appear that right from the time Kerry Packer started his World Series
Cricket in 1977, there has been no looking back in commercialization of cricket and the impact of this
commercialization has not left Indian cricket intact. The Indian Premier League and the rules of the game
being governed by the dictates of commercial considerations may seem to be one such example of
commercialization of Indian cricket. The difficulty for the case of the revenue before us, however, is that
these matches are not being organized by the local cricket associations. We are told that the matches are
being organized by the Board of Cricket Control of India, but then, if we are to accept this claim and
invoke the proviso to section 2(15) for this reason, it will amount to a situation in which proviso to
section 2(15) is being invoked on account of activities of an entity other than the assessees- something
which law does not permit. We are not really concerned, at this stage, whether the allegations about
commercialization of cricket by the BCCI are correct or not, because that aspect of the matter would be
relevant only for the purpose of proviso to section 2(15) being invoked in the hands of the BCCI. We do
not wish to deal with that aspect of the matter or to make any observations which would prejudge the
case of the BCCI. Suffice to say that the very foundation of revenue's case is devoid of legally sustainable
basis for the short reason that the commercialization of cricket by the BCCI, even if that be so, cannot be
reason enough to invoke the proviso to section 2(15). We are alive o learned Commissioner (DR)'s
suggestion that the cricket associations cannot be seen on standalone basis as the BCCI is nothing but an
apex body of these cricket associations at a collective level and whatever BCCI does is at the behest of or
with the connivance of the local cricket associations, and that it is not the case that anyone can become a
Member of the BCCI because only a recognized cricket association can become a Member of the BCCI.
We are also alive to learned Commissioner's argument that what is being sought to be protected by the
charitable status of these associations is the share of these cricket associations from the commercial
profits earned by the BCCI by organizing the cricket matches. The problem, however, is that the activities
of the apex body, as we have explained earlier, cannot be reason enough to trigger proviso to section
2(15) in these cases. Whether these cricket associations collectively constitute BCCI or not, in the event
of BCCI being involved in commercial activities, the taxability of such commercial profits will arise in
the hands of the BCCI and not the end beneficiaries. Even in such a case the point of taxability of these
profits is the BCCI and not the cricket associations, because, even going by learned Commissioner's
arguments, these receipts in the hands of the cricket associations is nothing but appropriation of profits.
What can be taxed is accrual of profits and not appropriation of profits. In any event, distinction between
the cricket associations and the BCCI cannot be ignored for the purposes of tax treatment. There is no
dispute that the matches were organized by the BCCI, and the assessee cannot thus be faulted for the
commercial considerations said to be inherent in planning the matches. As we make these observations,
and as we do not have the benefit of hearing the perspective of the BCCI, we make it clear that these
observations will have no bearing on any adjudication in the hands of the BCCI. Suffice to say that so far
as the cricket associations are concerned, the allegations of the revenue authorities have no bearing on the
denial of the status of 'charitable activities' in the hands of the cricket associations before us- particularly
as learned Commissioner has not been able to point out a single object of the assessee cricket associations
which is in the nature of trade, commerce or business, and, as it is not even in dispute that the objects
being pursued by the assessee cricket associations are "objects of general public utility" under section
2(15). All the objects of the assessee cricket associations, as reproduced earlier in this order,
unambiguously seek to promote the cricket, and this object, as has been all along accepted by the CBDT
itself, an object of general public utility."
222. In granting relief, the ITAT was persuaded by the decision of the Madras High Court, in Tamil Nadu
Cricket Association v. DIT (Exemptions) [2013] 40 taxmann.com 250/[2014] 221 Taxman 275/360 ITR
633/265 CTR 277, and held
"54. The assessee is a member of the Board of Control for Cricket in India (BCCI), which in turn is a
member of ICC (International Cricket Council). BCCI allots test matches with visiting foreign team and
one day international matches to various member cricket associations which organise the matches in their
stadia. The franchisees conduct matches in the stadia belonging to the State cricket association. The State
association is entitled to all in-stadia sponsorship advertisement and beverage revenue and it incurs
expenses for the conduct of the matches. BCCI earns revenue by way of sponsorship and media rights as
well as franchisee revenue for IPL and it distributes 70 per cent, of the revenue to the member cricket
association. Thus, the assessee is also the recipient of the revenue. Thus, for invoking section 12AA read
with section 2(15) of the Act, the Revenue has to show that the activities are not fitting with the objects
of the association and that the dominant activities are in the nature of trade, commerce and business. We
do not think that by the volume of receipt one can draw the inference that the activity is commercial. The
Income-tax Appellate Tribunal's view that it is an entertainment and, hence, offended section 2(15) of the
Act does not appear to be correct and the same is based on its own impression on free ticket, payment of
entertainment tax and presence of cheer group and given the irrelevant consideration. These
considerations are not germane in considering the question as to whether the activities are genuine or
carried on in accordance with the objects of the association. We can only say that the Income-tax
Appellate Tribunal rested its decision on consideration which are not relevant for considering the test
specified under section 12AA(3) to impose commercial character to the activity of the association. In the
circumstances, we agree with the assessee that the Revenue has not made out any ground to cancel the
registration under section 12AA(3) of the Act.
55. As regards the observation of the Income-tax Appellate Tribunal that IPL matches and Celebrity
cricket matches are also being held by the association and hence, it is an entertainment industry, we need
not go into these aspects for the order of the Director of Income-tax (Exemptions) casts no doubt on the
genuineness of the objects of the trust. Hence, it is for the Assessing Officer to take note of all facts,
while considering the same under section 11 of the Income-tax Act, 1961. We disapprove the approach of
the Tribunal in this regard. In the above said circumstances, we set aside the order of the Income-tax
Appellate Tribunal."
223. The ITAT agreed with the assessees that TV subsidy amounts received by the associations were "corpus
donations" in furtherance of the BCCI's resolution dated 5-9-2001. It accordingly held that these amounts
were in the capital field, irrespective of whether they were fully utilized by the state association, or whether
some part of it, was given to district associations. Thus, for AY 2009-2010, the sum of Rs. 3,52,86,521 paid
by BCCI to GCA was subsidy, falling in the capital field.
224. It was urged on behalf of the Revenue that the cricket associations are not carrying on any charitable
activity; reliance was placed on the facts to say that substantial amounts were received by the state
associations, towards their share of sale of media rights (as constituents or members of BCCI), which are
commercial receipts. Although the sale of those rights was by the BCCI, the lion's share of those amounts was
that of the respective state associations. Furthermore, the state associations owned the stadia, and actually
conducted the matches, in respect of which stadium advertisements and sponsorship amounts were received:
these, too, were in the nature of business or commercial activities. The assessees on the other hand, submitted
that they are distinct from the BCCI. It was sought to be urged that the activity of sports and sport promotion
is basically education, and hence, per se exempt. Realizing the value of inculcating sportsmanship and
fostering the culture of sport, Parliament had introduced section 10(23), to exempt income received by sports
bodies. However, that was deleted w.e.f. 1-4-2003. It was argued that this does not preclude sports bodies, like
cricket associations from claiming to be charities. It was urged that even if the court were not to consider the
cricket associations to be education-related charities, they cannot be denied the status of GPU charities,
having regard to the sports promotional nature of their objects. It was submitted that these bodies are
primarily responsible for fostering the sport, talent spotting, nurturing it, and providing opportunities to those
who have the aptitude and passion for the game of cricket. All these are objects of general public utility. It
was submitted that the amounts which BCCI collects may or may not be in the course of commerce; however,
what is given to the associations is subsidy, which cannot be termed as consideration for carrying on any
commercial activity.
225. At the outset, the contention that sports promotion is 'education' and hence, per se exempt, has to be dealt
with. In Lok Shikshana Trust (supra) this court has comprehensively addressed the scope of the term, and
conclude that it would entail "scholastic" education:
 "5. The sense in which the word "education" has been used in section 2(15) is the systematic instruction,
schooling or training given to the young in preparation for the work of life. It also connotes the whole
course of scholastic instruction which a person has received. The word "education" has not been used in
that wide and extended sense, according to which every acquisition of further knowledge constitutes
education. According to this wide and extended sense, travelling is education, because as a result of
travelling you acquire fresh knowledge. Likewise, if you read newspapers and magazines, see pictures,
visit art galleries, museums and zoos, you thereby add to your knowledge. Again, when you grow up and
have dealings with other people, some of whom are not straight, you learn by experience and thus add to
your knowledge of the ways of the world. If you are not careful, your wallet is liable to be stolen or you
are liable to be cheated by some unscrupulous person. The thief who removes your wallet and the
swindler who cheats you teach you a lesson and in the process make you wiser though poorer. If you visit
a night club, you get acquainted with and add to your knowledge about some of the not much revealed
realities and mysteries of life. All this in a way is education in the great school of life. But that is not the
sense in which the word "education" is used in clause (15) of section 2. What education connotes in that
clause is the process of training and developing the knowledge, skill, mind and character of students by
formal schooling."
226. Therefore, there is no doubt that the claim of the present sport associations will not fall within 'education'
and will have to be examined under the fourth limb of section 2(15) - i.e., GPU category, if it is to make a case
for tax exemption.
226. BCCI is the body which regulates cricket and represents the country. Within the country it organizes and
conducts the Ranji Trophy, the Irani Trophy, the Duleep Singh Trophy, the Deodar Trophy and the NKP Salve
Challenge Trophy. These are domestic events, yet only those who are members of the Board and/or
recognized by it can take part in these events. The members of the Board (entitled to vote in its election) are
the state cricket associations.59 The BCCI is the country-level cricket regulator both off and on the fields, and
its functions include selection of players and umpires. The International Cricket Council (of which BCCI, as
the representative body of the country, is a member) possesses and exercises all the powers to regulate
international competitive cricket. It also exercises disciplinary power - in case of violation of the rules, a
country member or the player may be derecognized. The ICC exercises a monopoly over the sports at the
international level whereas BCCI does so at the country level. BCCI recognizes bodies which are entitled to
participate in the nominated tournaments. Players and umpires also are to be registered with it.
227. The game of competitive cricket, at the organizational level is structured in such a manner that BCCI has
umbilical ties with the state associations. Not only are the latter, the members who constitute BCCI and elect
its governing bodies, they also own vital infrastructure necessary to play cricket: such as stadia, and all related
facilities. BCCI does not own those facilities or infrastructure and depends on them. Furthermore, the state
associations are the channels through which players are mostly selected, and get opportunities to participate in
state, national and international level cricket.
228. As things stand, therefore, the state associations and BCCI are linked closely. The management of the
game of cricket is structured in such a way that this link is apparent at every match or fixture of significance.
In the course of conducting matches (which are scheduled by the BCCI as the national co-ordinating body),
apart from amounts received towards sale of entry tickets, the state associations also receive advertisement
money, sponsorship fee, etc. from the BCCI. Aside from these, media rights - i.e., broadcasting rights to each
national or international event conducted at various locales owned by the state associations, and digital rights
(all of which are exclusive, in nature) - are auctioned by BCCI. As noticed above, the BCCI, by its own
admission, negotiates the terms on which media rights are sold, on behalf of the state associations:
"For a Test series or ODI series conducted in multiple centers and organised by BCCI and multiple state
associations, it was found that if each state association were to negotiate the sale of rights to events in its
centre, its negotiating strength would be low. It was, therefore, agreed that BCCI would negotiate the sale
of media rights for the entire country to optimize the income under this head. It was further decided that
out of the receipts from the sale of media rights 70% of the gross revenue less production cost would
belong to the state associations. Every year, BCCI has paid out exactly 70% of its receipts from media
rights (less- production cost) to the state associations. This amount has been utilized by the respective
associations to build infrastructure and promote cricket, making the game more popular, nurturing and
encouraging cricket talent, and leading to higher revenues from media rights."
229. These media, or broadcasting rights, are in the nature of intellectual property rights: under section 37 to
40 of the Copyrights Act, 1957. These rights-especially television and digital rights enable the licensee or the
successful bidder to exploit the telecast or broadcast commercially, by carrying advertisements of various
products and services, in the media. Given that (i) BCCI does not own the stadia, and uses the entire physical
infrastructure of the state associations (ii) expressly negotiates on their behalf for the sale of such rights
(which appear to be purely commercial contracts), the associations' assertions that they only received subsidy
from BCCI, needed closer examination.
230. The income and expenditure account for the year ending on 31-3-2009 shows that the total income of the
GCA was Rs. 4,03,98,736.81. Of these sponsorship money was Rs. 20,00,000/-; bank interest was Rs.
2,21,88,527.05 and as against the head 'India v. South Africa test match', the sum of Rs. 1,51,97,741/- has
been shown. Of the total of Rs. 2,21,02,441.45 shown as income, Rs. 32,24,591.25 is shown as expenditure,
only a fraction appears to have been expended towards promotion of cricket. This is apparent from the
following:
S. No. Details of expenditure Amounts
1. Ground equipment of District Cricket Association Rs. 29,34,394/-
2. Prize money to all teams Rs. 27,86,796/-
3. Ground expenditure Rs. 20,06,228/-
4. Cricket academy expenses Rs. 9,51,067/-
5. Coach Fee Rs. 10,06,040/-
6. Senior and Junior tournament subsidy to District Cricket Association Rs. 7,00,000/-
Total Rs. 1,03,84,525/-

231. The details of the subsidy amounts received from BCCI for every match has been shown. This
aggregates to over Rs. 41 lakhs. Furthermore, the details received towards the India-South Africa test fixture
paid between 3-4-2008-04-4-2008 has been shown. GCA received Rs. 1,57,00,000/- towards sale of space;
ticket sales yielded Rs. 27,57,700 and towards the head screen income, a sum of Rs. 3 lakhs was received.
After deducting the expenditure, the excess income received for the year was Rs. 1,51,97,741/-.
232. In the case of Saurashtra Cricket Association, for the year ended on 31-3-2012, various heads of income
have been disclosed. These include entry fees which is Rs. 5200 onwards. Interest of income received from
Fixed Deposits was to the tune of Rs. 8,85,67,418/-; total amount of subsidy received from BCCI is Rs.
17,56,72,490/-. Of these, the overwhelming share is towards the IPL money collected by the BCCI - wherein
Saurashtra Cricket Association's share worked out to a total of Rs. 17,16,32,490/-.
233. Apart from this, the BCCI also reimbursed to Saurashtra Cricket Association the sum of Rs. 73,73,911/-.
The income and expenditure account shows a head titled "subvention income from BCCI" to the extent of Rs.
8,14,53,834/-. After deducting the heads of expenditure, excess of income over expenditure for the AY was
Rs. 69,96,537/-. The Cricket Association showed in the expenditure column that the sum of Rs.
24,00,00,000/- was transferred to the Cricket infrastructure fund. For the previous year, a sum of Rs.
21,21,00,000/- was transferred to the stadium fund.
234. It is quite evident that the activities of the cricket associations are run on business lines. The associations
own physical and other infrastructure, maintain them, have arrangements for permanent manpower and have
well-organised supply chains to cater to the several matches they host. Many such matches are not at national
level and are under-16 or under-18 matches at the regional level. However, these activities are not to be seen
in isolation but are to be regarded as part of the overall scheme, and ecosystem in which the game of cricket is
organized in India. Talent is spotted, at local levels and dependent on the promise shown, given appropriate
exposure.
235. On a close scrutiny of the expenses borne, having regard to the nature of receipts, the expenditure
incurred by Cricket Associations does not disclose that any significant proportion is expended towards
sustained or organized coaching camps or academies. Therefore, in the opinion of this court, the ITAT fell into
error in not considering the nature of receipts flowing from the BCCI into the corpus of GCA and SCA - as
well as other associations that are before this court-to determine their true character. The ITAT appears to have
been swayed by the submission that the amount given by the BCCI were towards capital subsidy.
236. To determine whether a given receipt is to be characterized as falling in the revenue or capital stream, the
objective for which it is given as well as the manner in which it is utilized has to be scrutinized. This aspect
has been highlighted in Sahney Steel & Press Works Ltd. v. CIT [1997] 94 Taxman 368/228 ITR 253/142 CTR
261 (SC)/1997 (Suppu) SCR 189 in the following terms:
"It is not the source from which the amount is paid to the assessee which is determinative of the question
whether the subsidy payments are of revenue or capital nature. The first proposition stated by Viscount
Simon in Ostime case [28 TC 261 : (1946) 1 All ER 668] is that if payments in the nature of subsidy
from public funds are made to the assessee to assist him in carrying on his trade or business, they are
trade receipts."
This has later been followed in CIT v. Ponni Sugars [2008] 174 Taxman 87/306 ITR 392/219 CTR 105
(SC)/[2008] 9 SCC 337.
237. Recent trends have shown that media rights, especially broadcasting and digital media rights have
yielded colossal revenues to the BCCI. The model adopted in the last 10 years or so has been to auction media
rights in respect of events over a 3 or 5-year period. As discussed previously, these media rights are not per se
owned by BCCI, which is but an association of persons or agglomerate of all the State Cricket Association.
The stadia which form the venue for these cricket matches (in relation to which media rights are transferred or
licensed) are owned by the State Cricket Associations. According to the BCCI itself, the State Associations
can well bargain and enter into arrangements for the sale of such media rights. However, to obtain better
terms, and gain bargaining leverage a centralized form of sale of such rights has been agreed and adopted by
which the BCCI auctions these rights on behalf of the State Associations. All State Associations put together
are entitled to 70% of the revenue - i.e., the proceeds of sale of the media rights. This may or may not be in
proportion to the events hosted by each or some of the cricket associations. Yet, this forms part of the
arrangement by which the consideration flowing from such commercial rights has been agreed to be shared
amongst all members of the BCCI. These rights are apparently commercial.
238. In the light of these, the Court is of the opinion that the ITAT - as well as the High Court fell into error in
accepting at face value the submission that the amounts made over by BCCI to the cricket associations were
in the nature of infrastructure subsidy. In each case, and for every year, the tax authorities are under an
obligation to carefully examine and see the pattern of receipts and expenditure. Whilst doing so, the nature of
rights conveyed by the BCCI to the successful bidders, in other words, the content of broadcast rights as well
as the arrangement with respect to state associations (either in the form of master documents, resolutions or
individual agreements with state associations) have to be examined. It goes without saying that there need not
be an exact correlation or a proportionate division between the receipt and the actual expenditure. This is in
line with the principle that what is an adequate consideration for something which is agreed upon by parties is
a matter best left to them. These observations are not however, to be treated as final; the parties' contentions in
this regard are to be considered on their merit.
(vi) Private trusts
(a) Tribune Trust
239. The Tribune Trust was constituted pursuant to a will executed by late Sardar Dial Singh Majithia. In
clause (xxi) of his Will - after nominating three trustees, the testator directed that they ought to maintain a
press and a newspaper; in clause (xx) the testator directed that his property in the Tribune Press and newspaper
would vest permanently in a Committee of Trustees who would thereafter maintain them and "keep up the
liberal policy of the newspaper and activity and the excess income after current expenses in improving the
said newspaper and place it on a footing of permanency".
240. Under the old Act, a question arose as to whether the activity of running a newspaper was one of general
public utility; the revenue disallowed the exemption for AY 1932-33. This was affirmed by the Lahore High
Court. The Privy Council by its decision in Trustees of Tribune In re: (supra) allowed the trust's appeal and
held that the trust was neither constituted for private profit either to the testator nor to any other private
person, and that the object of the paper could be described as one "supplying the province with an organ of
educated public opinion". The Privy Council, therefore, reasoned that the Trust was established as a GPU
charity.
241. Apparently, the trust was continuously treated as a GPU category charity and exempted under section
10(23C)(iv) from 1984-85 onwards. For AY 2009-10, after considering the revised return of the trust, the
Revenue was of the opinion that it was not entitled to claim exemption under section 10(23C). The Punjab and
Haryana High Court which dealt with the Trust's present appeal was of the opinion that in Surat Art Silk
(supra), this court had considered the judgment of the Privy Council. In that judgment, this Court had made
some observations that even though the activity of the publication of newspaper was carried on commercial
lines with the object of earning profit, it was an activity engaged by the Trust for the purposes of carrying out
its charitable objects. The High Court upheld the revenue's contention and based upon its analysis of section
2(15) concluded that the Trust's income derived from its activities were based on profit motive. In doing so, it
was noticed that 85% of the trust's revenue was from advertisements and interest. The total revenue was Rs.
161 crores out of which Rs. 124.87 crores was received from advertisements and Rs. 11.38 crores from
interest on FDRs; Rs. 17.49 crores was from sale of newspapers and Rs. 3.74 crores from subscriptions of the
dailies.
242. It was argued on behalf of the trust that it was never intended and in fact, not run on profitable basis. No
part of its income was ever disbursed to any private individual through profit sharing or otherwise, nor
distributed for any purpose other than the activities of the Trust. It was submitted that the High Court's
surmise that the accumulation of large profits and its assumption that the Trust could utilize them for non-
charitable purposes in future, was unfounded. In this regard, it was submitted that till 2008-09 all assessments
were completed, since the Revenue was satisfied that more than 85% had been ploughed back to feed the
main charitable activity.
243. It is noticed from the impugned judgment that the High Court concedes to the fact that the trust's
activities were held by the Privy Council to constitute financing of objects of 'general public utility'; further
that merely because thousands of newspapers were being published made no difference. It still continues to be
a GPU charity.
244. The question then is whether the nature of receipts and income garnered by the Trust, in the course of
actually carrying out its activity of publishing newspaper, can be characterized as "in the nature of trade,
commerce or business" or "service in relation to trade, commerce or business", for any consideration. During
the course of submissions, it was urged that advertisement revenue should not be treated as business or
commercial receipts since that virtually is the lifeblood which sustains the activity of publication of
newspapers. It was highlighted that the object of maintaining the activity of publishing and distribution of
newspaper remains the advancement of general public utility, as it has the effect of both notifying and
educating the general public about the current affairs and developments. The inclusion of advertisements also
serves as information to the general public, especially in areas of employment, availability of resources, etc.
Therefore, publication of advertisement is intrinsically connected with the activity of printing and publishing
of newspapers.
245. The publication of advertisements for consideration, in the opinion of the court, by the newspaper, cannot
but be termed as an activity in the nature of carrying on business, trade or commerce for a fee or
consideration. That the newspaper published by the trust ("the Tribune") in this case is funded mainly through
advertisement is no basis for holding that publishing such advertisements by the Trust does not constitute
business. The object of the trust to involve or engage in publication of newspapers. Publishing advertisements
is obviously to garner receipts which are in the nature of profit. Now, by virtue of the amended definition of
section 2(15), GPU charities can engage themselves in business or commercial activity or profit, only if the
receipts from such activities do not exceed the quantitative limit of the overall receipts earned in a given year.
While the assessee's contention that publication of advertisement is intrinsically linked with newspaper
activity (thereby fulfilling sub-clause (i) of the proviso to section 2(15), i.e. an activity in the course of actual
carrying on of the activity towards advancement of the object) is acceptable, nevertheless, the condition
imposed by sub-clause (ii) of the proviso to section 2(15) has to also be fulfilled. In the present case, that
percentage had been exceeded, as evident from the record.
246. In the light of the foregoing discussion, this court is of the opinion that the impugned judgment and order
of the Punjab and Haryana High Court cannot be sustained, to the extent it holds that the Tribune trust is not a
GPU charity. However, having regard to the factual analysis, the judgment needs no interference.
(b) Shri Balaji Samaj Vikas Samiti
247. The revenue appeals a decision of the Allahabad High Court60 affirming the order of the ITAT which had
directed the CIT to grant registration under section 12AA of the Income-tax Act.
248. The assessee is a registered society which was formed with the object of establishing and running a
health club, Arogya Kendra; its object included organization of emergency relief centres, etc. Other objects,
included promotion of moral values, eradication of child labour, dowry, etc. The assessee had entered into
arrangements with the state agencies to supply mid-day meals to students of primary schools in different
villages through contracts entered into with the Basic Shiksha Adhikari, District Meerut. It is a matter of
record that the materials for preparation of mid-day meal was supplied by the government. The assessee
society claimed that it only obtains nominal charges for preparation of mid-day meals. The assessee's claim
for registration was rejected on the ground that it was involved in commercial activity. Upon appeal, the ITAT
agreed with the assessee that supply of mid-day meals did not constitute business or commerce and that it
promoted the objects of general public utility.
249. The revenue in its appeal contends that the assessee's only activity for the relevant year was supply of
mid-day meals to primary schools. This was not relatable to any object of the society. The assessee's
contention is that the state ordinarily would have carried on the activity of supply of mid-day meals. Yet,
nevertheless it outsourced its activity to an outside agency like the assessee which performed it for nominal
charges.
250. This court is of the opinion that there is no clarity with respect to whether the activity of supplying mid-
day meals falls within the objects clause of the assessee society. The order of the ITAT as well as the High
Court disclosed that the assessee's objects involved maintenance of health clubs, Arogya Kendra, promotion
of moral values and provision of emergency relief. These do not however include the activity which it actually
performed, i.e., entering into contracts for supply of mid-day meals and the activity of cooking and supply of
mid-day meals. In the absence of fuller material, it would not be possible for the court to assess the activity
with which the assessee was engaged, and determine whether it could be said to legitimately fall within the
description of GPU.
251. The first consideration would be whether the activity concerned was or is in any manner covered by the
objects clause. Secondly, the revenue authorities should also consider the express terms of the contract or
contracts entered into by the assessee with the State or its agencies. If on the basis of such contracts, the
accounts disclose that the amounts paid are nominal mark-up over and above the cost incurred towards
supplying the services, the activity may fall within the description of one advancing the general public utility.
If on the other hand, there is a significant mark-up over the actual cost of service, the next step would be
ascertain whether the quantitative limit in the proviso to section 2(15) is adhered to. It is only in the event of
the trust actually carrying on an activity in the course of achieving one of its objects, and earning income
which should not exceed the quantitative limit prescribed at the relevant time, that it can be said to be driven
by charitable purpose.
252. This court, in the normal circumstances, having regard to the above discussion, would have remitted the
matter for consideration. However, it is apparent from the records that the tax effect is less than Rs. 10 lakhs.
It is apparent that the receipt from the activities in the present case did not exceed the quantitative limit of Rs.
10 lakhs prescribed at the relevant time. In the circumstances, the impugned order of the High Court does not
call for interference.
IV. Summation of conclusions
253. In view of the foregoing discussion and analysis, the following conclusions are recorded regarding the
interpretation of the changed definition of "charitable purpose" (w.e.f. 1-4-2009), as well as the later
amendments, and other related provisions of the IT Act.
A. General test under section 2(15)
A.1. It is clarified that an assessee advancing general public utility cannot engage itself in any trade,
commerce or business, or provide service in relation thereto for any consideration ("cess, or fee, or any other
consideration");
A.2. However, in the course of achieving the object of general public utility, the concerned trust, society, or
other such organization, can carry on trade, commerce or business or provide services in relation thereto for
consideration, provided that (i) the activities of trade, commerce or business are connected ("actual carrying
out…" inserted w.e.f. 1-4-2016) to the achievement of its objects of GPU; and (ii) the receipt from such
business or commercial activity or service in relation thereto, does not exceed the quantified limit, as amended
over the years (Rs. 10 lakhs w.e.f. 1-4-2009; then Rs. 25 lakhs w.e.f. 1-4-2012; and now 20% of total receipts
of the previous year, w.e.f. 1-4-2016);
A.3. Generally, the charging of any amount towards consideration for such 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 in question, that they would fall within the mischief of "cess, or fee, or any
other consideration" towards "trade, commerce or business". In this regard, the Court has clarified through
illustrations what kind of services or goods provided on cost or nominal basis would normally be excluded
from the mischief of trade, commerce, or business, in the body of the judgment.
A.4. Section 11(4A) must be interpreted harmoniously with section 2(15), with which there is no conflict.
Carrying out activity in the nature of trade, commerce or business, or service in relation to such activities,
should be conducted in the course of achieving the GPU object, and the income, profit or surplus or gains
must, therefore, be incidental. The requirement in section 11(4A) of maintaining separate books of account is
also in line with the necessity of demonstrating that the quantitative limit prescribed in the proviso to section
2(15), has not been breached. Similarly, the insertion of section 13(8), seventeenth proviso to section 10(23C)
and third proviso to section 143(3) (all w.r.e.f. 1-4-2009), reaffirm this interpretation and bring uniformity
across the statutory provisions.
B. Authorities, corporations, or bodies established by statute
B.1. The amounts or any money whatsoever charged by a statutory corporation, board or any other body set
up by the state government or central governments, for achieving what are essentially 'public
functions/services' (such as housing, industrial development, supply of water, sewage management, supply of
food grain, development and town planning, etc.) may resemble trade, commercial, or business activities.
However, since their objects are essential for advancement of public purposes/functions (and are accordingly
restrained by way of statutory provisions), such receipts are prima facie to be excluded from the mischief of
business or commercial receipts. This is in line with the larger bench judgments of this court in Ramtanu
Cooperative Housing Society and NDMC (supra).
B.2. However, at the same time, in every case, the assessing authorities would have to apply their minds and
scrutinize the records, to determine if, and to what extent, the consideration or amounts charged are
significantly higher than the cost and a nominal mark-up. If such is the case, then the receipts would indicate
that the activities are in fact in the nature of "trade, commerce or business" and as a result, would have to
comply with the quantified limit (as amended from time to time) in the proviso to section 2(15) of the IT Act.
B.3. In clause (b) of section 10(46) of the IT Act, "commercial" has the same meaning as "trade, commerce,
business" in section 2(15) of the IT Act. Therefore, sums charged by such notified body, authority, Board,
Trust or Commission (by whatever name called) will require similar consideration - i.e., whether it is at cost
with a nominal mark-up or significantly higher, to determine if it falls within the mischief of "commercial
activity". However, in the case of such notified bodies, there is no quantified limit in section 10(46).
Therefore, the Central Government would have to decide on a case-by-case basis whether and to what extent,
exemption can be awarded to bodies that are notified under section 10(46).
B.4. For the period 1-4-2003 to 1-4-2011, a statutory corporation could claim the benefit of section 2(15)
having regard to the judgment of this Court in the Gujarat Maritime Board case (supra). Likewise, the denial
of benefit under section 10(46) after 1-4-2011 does not preclude a statutory corporation, board, or whatever
such body may be called, from claiming that it is set up for a charitable purpose and seeking exemption under
section 10(23C) or other provisions of the Act.
C. Statutory regulators
C.1. The income and receipts of statutory regulatory bodies which are for instance, tasked with exclusive
duties of prescribing curriculum, disciplining professionals and prescribing standards of professional conduct,
are prima facie not business or commercial receipts. However, this is subject to the caveat that if the assessing
authorities discern that certain kinds of activities carried out by such regulatory body involved charging of
fees that are significantly higher than the cost incurred (with a nominal mark-up) or providing other facilities
or services such as admission forms, coaching classes, registration processing fees, etc., at markedly higher
prices, those would constitute commercial or business receipts. In that event, the overall quantitative limit
prescribed in the proviso to section 2(15) (as amended from time to time) has to be complied with, if the
regulatory body is to be considered as one with 'charitable purpose' eligible for exemption under the IT Act.
C.2. Like statutory authorities which regulate professions, statutory bodies which certify products (such as
seeds) based on standards for qualification, etc. will also be treated similarly.
D. Trade promotion bodies
Bodies involved in trade promotion (such as AEPC), or set up with the objects of purely advocating for,
coordinating and assisting trading organisations, can be said to be involved in advancement of objects of
general public utility. However, if such organisations provide additional services such as courses meant to
skill personnel, providing private rental spaces in fairs or trade shows, consulting services, etc. then income or
receipts from such activities, would be business or commercial in nature. In that event, the claim for tax
exemption would have to be again subjected to the rigors of the proviso to section 2(15) of the IT Act.
E. Non-statutory bodies
E.1. In the present batch of cases, non-statutory bodies performing public functions, such as ERNET and
NIXI are engaged in important public purposes. The materials on record show that fees or consideration
charged by them for the purposes provided are nominal. In the circumstances, it is held that the said two
assessees are driven by charitable purposes. However, the claims of such non-statutory organisations
performing public functions, will have to be ascertained on a yearly basis, and the tax authorities must discern
from the records, whether the fees charged are nominally above the cost, or have been increased to much
higher levels.
E.2. It is held that though GS1 India is in fact, involved in advancement of general public utility, its services
are for the benefit of trade and business, from which they receive significantly high receipts. In the
circumstances, its claim for exemption cannot succeed having regard to amended section 2(15). However, the
Court does not rule out any future claim made and being independently assessed, if GS1 is able to satisfy that
what it provides to its customers is charged on cost-basis with at the most, a nominal markup.
F. Sports associations
So far as the state cricket associations are concerned (Saurashtra, Gujarat, Rajasthan, Baroda, and Rajkot), this
Court is of the opinion that the matter requires further scrutiny, in light of the discussion in paragraphs 228-
238 of the judgment. Accordingly, a direction is issued that the AO shall adjudicate the matter afresh after
issuing notice to the concerned assessees and examining the relevant material indicated in the previous
paragraphs of this judgment. Furthermore, if any consequential order needs to be issued, the same shall be
done and resulting actions, including assessment orders shall be passed in accordance with the law under
relevant provisions of the IT Act.
G. Private Trusts
So far as the appeal by assessee-Tribune Trust is concerned, it has been held that despite advancing general
public utility, the Trust cannot benefit from exemption offered to entities covered by section 2(15) as the
records reveal that income received from advertisements, constituted business or commercial receipts.
Consequently, the limit prescribed in the proviso to section 2(15) has to be adhered to for the Trust's claim of
being as a charity eligible for exemption, to succeed. Therefore, despite differing reasoning, this court has
held that the impugned judgment of the High Court does not call for interference.
H. Application of interpretation
H. At the cost of repetition, it may be noted that the conclusions arrived at by way of this judgment, neither
precludes any of the assessees (whether statutory, or non-statutory) advancing objects of general public utility,
from claiming exemption, nor the taxing authorities from denying exemption, in the future, if the receipts of
the relevant year exceed the quantitative limit. The assessing authorities must on a yearly basis, scrutinize the
record to discern whether the nature of the assessee's activities amount to "trade, commerce or business" based
on its receipts and income (i.e., whether the amounts charged are on cost-basis, or significantly higher). If it is
found that they are in the nature of "trade, commerce or business", then it must be examined whether the
quantified limit (as amended from time to time) in proviso to section 2(15), has been breached, thus
disentitling them to exemption.
254. In accordance with the foregoing discussion, and summary of conclusions, the numerous appeals are
disposed of as follows:

(i) The revenue's appeals against the Improvement Trust, Moga61, the Hoshiarpur Improvement
Trust62, Bathinda Improvement Trust63, Fazilka Improvement Trust64, Sangrur Improvement
Trust65; Patiala Improvement Trust66, Jalandhar Improvement Trust67, Kapurthala Improvement
Trust68, Pathankot Improvement Trust69, Improvement Trust, Hansi70, and the Special Leave
Petitions filed against the Gujarat VC Maritime Board71 and Karnataka Water Supply and Drainage
Board72 are rejected.
(ii) The revenue's appeals against Ahmedabad Urban Development Authority73, the Gujarat Housing
Board74, the Gandhinagar Urban Development Authority75, Rajkot Urban Development
Authority76, Surat Urban Development Authority77, Jamnagar Area Development Authority78, and
the Gujarat Industrial Development Corporation79 are rejected. Likewise, the revenue's appeals
against Agra Development Trust80; UP Awas Evam Vikas Parishad81; Raebareli Development
Authority82, Rajasthan Housing Board83; Mangalore Urban Development Authority84; Mathura
Vrindavan Development Authority85; Meerut Development Authority86; Belgaum Development
Authority87; Moradabad Urban Development Authority88, Yamuna Expressway Industrial
Development Authority89; Greater Noida Industrial Development Authority90; New Okhla
Industrial Development Authority91 and Karnataka Industrial Areas Development Board92 are
rejected.
(iii) The revenue's appeals93 against ICAI are dismissed and for the same reasons, the appeals94 filed by
the ICAI are hereby allowed.
(iv) The revenue's appeal - C.A. No. 21845/2017, against Rajasthan State Seed and Organic Production
Certification Agency is rejected, whereas SLP (C) No. 15547/2013 filed by Andhra Pradesh State
Seed Certification Agency is allowed for the same reasons.
(v) The revenue's appeal against APEC succeeds in part. The impugned judgment of the High Court is
set aside; the matter is remitted for the concerned years, to the Assessing Officer. SLP (C) No.
14995/2019 is allowed, in the above terms.
(vi) In relation to the non-statutory bodies - the revenue's appeal against ERNET fails, and SLP (C) No.
15040/2019 is hereby dismissed; and similarly the impugned judgment in relation to NIXI is
confirmed - SLP(C) No. 15079/2019 is therefore dismissed. However, the revenue's appeals against
GS1 - C.A. No. 5058/2014 and C.A. No. 4374/2015, are hereby allowed and the impugned
judgments are set aside, for the reasons elaborated in the body of the judgment.
(vii) The revenue's appeals against the cricket associations before this court succeed in part, and the
impugned judgments of the Gujarat High Court and Rajasthan High Court are hereby set aside. The
matter is remitted to the concerned authorities for determination of the question afresh in the light
of the above discussion and observations. D. No. 16597/2020, C.A No. 7643/2018, C.A No.
8554/2018, D. No. 17255-2020, SLP (C) No. 1404/2021, D. No. 19394-2020, D. No. 19399-2020,
D. No. 19403-2020, SLP (C) No. 11486/2020, SLP (C) No. 11124/2020, D. No. 19449-2020, SLP
(C) No. 12206/2020, D. No. 20986-2020, D. No. 23310-2020, SLP (C) No. 6253/2021, SLP(C) No.
19044/2021, D. No. 5806/2021, D. No. 6662/2021 are hereby allowed.
(viii) In relation to the private trusts, the appeal filed by the assessee, Tribune Trust - CA 9380/2017 is
dismissed. The revenue's appeal - SLP (C) No. 30597/2018, against Shri Balaji Samaj Vikas Samiti
is dismissed, on account of low tax effect.
255. This batch of matters is disposed of, in the above terms. Pending applications, if any, are dismissed.
SANIYA
 *Partly in favour of assessee.
† Arising out of decisions in Ahmedabad Urban Development Authority v. CIT (Exemption) [2017] 83
taxmann.com 78/[2017] 396 ITR 323 (Guj.), CIT v. Yamuna Expressway Industrial Development
Authority [2017] 81 taxmann.com 208/395 ITR 18/298 CTR 127 (All.), Greater Noida Industrial
Development Authority v. Union of India [2018] 91 taxmann.com 352/254 Taxman 289/406 ITR
418/303 CTR 512 (Delhi)/2018 SCC Online Delhi 7536, Karnataka Industrial Areas Development
Board v. Prakash Dal Mill [2011] 6 SCC 714, CIT v. Gujarat Maritime Board [2021] 123
taxmann.com 35/277 Taxman 376/428 ITR 152 (Guj.), CIT (Exemptions) v. Hoshiarpur Improvement
Trust, Hoshiarpur [IT Appeal No. 78 of 2016, dated 23-12-2016], ICAI Accounting Research
Foundation v. DGIT (Exemptions) [2009] 183 Taxman 462/[2010] 321 ITR 73/[2009] 226 CTR 27
(Delhi), IT v. Apparel Export Promotion Council [2000] 112 Taxman 433/244 ITR 736/163 CTR 133,
CIT v. Ernet India [2019] 101 taxmann.com 59 (Delhi), CIT (Exemption) v. National Internet
Exchange of India [2021] 133 taxmann.com 376 (Delhi), GS1 India v. DGIT (Exemptions) [2013] 38
taxmann.com 364/219 Taxman 205/[2014] 360 ITR 138/[2013] 262 CTR 585 (Delhi), DIT
(Exemption) v. Gurjarat Cricket Association [2020] 120 taxmann.com 50/[2019] 419 ITR 561 (Guj.),
CIT v. Rajasthan Cricket Association [2018] 98 taxmann.com 425/[2019] 260 Taxman 149/[2019]
414 ITR 452 (Raj.), Tribune Trust v. CIT [2016] 76 taxmann.com 363/[2017] 247 Taxman 36/390 ITR
547 (Punj. & Har.) and CIT v. Shri Balaji Samaj Vikas Samiti [2018] 91 taxmann.com 26/254 Taxman
93/302 CTR 397 (All.)
1. Sections 11, 12, 12-A and 13 of the Income-tax Act, 1961.
2. "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:
Provided that the advancement of any other object of general public utility shall not be a
charitable purpose, if it involves the carrying on of any activity in the nature of trade, commerce or
business, or any activity of rendering any service in relation to any trade, commerce or business,
for a cess or fee or any other consideration, irrespective of the nature of use or application, or
retention, of the income from such activity:..…" (Emphasis Supplied)
3. In CIT v. P. Krishna Warriar [1964] 53 ITR 176/8 SCR 36 this court, citing and relying on Trustees of
the Tribune (supra) held that:
"This Court in J.K. Trust v. CIT, Excess Profits Tax [1957] 32 ITR 535 endorsed the said view and
held that "property" is a term of the widest import and that business would undoubtedly be
property unless there was something to the contrary in the enactment. If business was property, it
could be held under trust for religious and charitable purposes. As the business of running the Arya
Vaidya Sala vested under trust for religious and charitable purposes, it would fall under clause (i),
if the other conditions laid down therein were satisfied."
4. Section 4(3) of the Indian Income-tax (Amendment) Act, 1939, reads as follows:
"(3) Any income, profits or gains falling within the following classes shall not be included in the
total income of the person receiving them:]

(i) Subject to the provisions of clause (c) of sub-section (1) of section 16, any income derived from
property held under trust or other legal obligation wholly for religious or charitable purposes, in
so far as such income is applied or accumulated for application to such religious or charitable
purposes as relate to anything done within the taxable territories, and in the case of property so
held in part only for such purposes, the income applied or finally set apart for application
thereto:

(ia) Any income derived from business carried on behalf of a religious or charitable
institution when the income is applied solely to the purposes of the institution and-
(a) the business is carried on in the course of the carrying out of a primary purpose of the
institution, or
(b) the work in connection with the business is mainly carried on by beneficiaries of the
institution"
5. Section 4 of Finance Act, 1953 added proviso to section 4(3)(i); it reads as follows:
"Provided that such income shall be included in the total income—
[(a) if it is applied to religious or charitable purposes without the taxable territories, but in the
following cases, namely:—
(i) where the property is held under trust or other legal obligation created before the
commencement of the-Indian Income-tax (Amendment) Act, 1953 (XXV of 1953), and the income
therefrom is applied to such purposes without the taxable territories; and
(ii) where the property is held under trust or other legal obligation created after such
commencement, and the income therefrom is applied without the taxable territories to charitable
purposes which tend to promote international welfare in which India is interested,
the Central Board of Revenue may, by general or special order, direct that it shall not be included
in the total income;]
(b) in the case of income derived from business carried on on behalf of a religious or charitable
institution, unless the income is applied wholly for the purposes of the institution and either—
(i) the business is carried on in the course of the actual carrying out of a primary purpose of the
institution, or
(ii) the work in connection with the business is mainly carried on by beneficiaries of the institution;
(c) if it is applied to purposes other than religious or charitable purposes or ceases to be
accumulated or set apart for application thereto in which case it shall be deemed to be the income
of the year in which it is so applied or ceases to be so accumulated or set apart.]"
6. (LVI) Lok Sabha Debates., 32nd scs., p. 3073 (August 18, 1961).
7. The list of objects were as follows:
"(a) To promote commerce and trade in Art Silk Yarn, Raw Silk, Cotton Yarn, Art Silk Cloth, Silk
Cloth and Cotton Cloth.
(b) To carry on all and any of the business of Art Silk Yarn, Raw Silk, Cotton Yarn as well as Art
Silk Cloth, Silk Cloth and Cotton Cloth belonging to and on behalf of the members.
(c) To obtain import licences for import of Art Silk Yarn, Raw Silk, Cotton Yarn and other raw
materials as well as accessories required by the members for the manufacture of Art Silk, Silk and
Cotton Fabrics.
(d) To obtain export licences and export cloth manufactured by the members.
(e) To buy and sell and deal in all kinds of cloth and other goods and fabrics belonging to and on
behalf of the members.
(n) To do all other lawful things as are incidental or conducive to the attainment of the above
objects."
8. This decision was reversed in Indian Chamber of Commerce v. Commissioner of Income-tax (1976) 1
SCC 324
9. Through the Taxation Laws Amendment Act, 1975.
10. Section 13 - Section 11 not to apply in certain cases.
11. Section 11(4) as originally enacted, reads as follows:
"For the purposes of this section 'property held under trust' includes a business undertaking so held,
and where a claim is made that the income of any such undertaking shall not be included in the
total income of the persons in receipt thereof, the Income-tax Officer shall have power to determine
the income of such undertaking in accordance with the provisions of this Act relating to
assessment; and where any income so determined is in excess of the income as shown in the
accounts of the undertaking, such excess shall be deemed to be applied to purposes other than
charitable or religious purposes."
12. Earlier, sub-section (4A) was inserted by the Finance Act, 1983, w.e.f. 1-4-1984, and read as follows:
"(4A) Sub-section (1) or sub-section (2) or sub-section (3) or sub-section (3A) shall not apply in
relation to any income of a trust or an institution, being profits and gains of business, unless
(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 is of a kind notified by the Central Government in
this behalf in the Official Gazette;
(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 accounts are maintained by the trust or institution in respect of such
business"
13. As amended by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989; Direct Tax Laws
(Amendment) Act, 1989, w.e.f. 1-4-1989; substituted by the Direct Tax Laws (Amendment) Act,
1989, w.e.f. 1-4-1990; and further amended by the Finance (No. 2) Act, 1991, w.r.e.f. 1-4-1990;
Finance Act, 1992, w.r.e.f. 1-4-1990/w.e.f. 1-4-1992; and Finance Act, 2000, w.e.f. 1-4-2001.
14. 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."
15. Gujarat Town Planning and Urban Development Act, 1976
16. Gujarat Industrial Development Act, 1962 (referred to as "GIDA")
17. Gujarat Housing Board Act, 1961.
18. The High Court had relied upon the ratio in Shri Ramtanu Co-operative Housing Society Ltd. (supra),
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.
19. "It is considered necessary to make provision for the orderly establishment and development of
Industries in suitable 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 for establishment of Industries."
20. 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.
21. u Section 5 - Established and incorporated for securing the establishment of industrial areas in the
State of Karnataka and generally for promoting the rapid and orderly establishment and development
of industries and for providing industrial infrastructual facilities and amenity in industrial areas in the
State of Karnataka.
♦ Section 6 - All the members of the Board are government officials;
♦ Section 46 - the members & other employees of the Respondent are deemed to be public
servants.
♦ Section 3 & 28 - Government of Karnataka (GOK) that acquires the land from the public.
♦ Section 29 - GOK determines the price and pays the compensation.
♦ Section 43 - No duty under the Karnataka Stamp Act, 1957, or fees under the Indian
Registration Act, 1908.
22. State of Karnataka v. Shreyas Papers (P.) Ltd. 2006 taxmann.com 1848/144 STC 331 (SC)/AIR 2006
SC 865; Ashoka Smokeless Coal India (P.) Ltd. v. Union of India [2007] 2 SCC 640; New Delhi
Municipal Committee v. State of Punjab 1996 Supp 10 SCR 472; and Physical Research Laboratory
v. K.G. Sharma [1997] 3 SCR 733.
23. Yogiraj Charity Trust v. CIT [1976] 3 SCR 947; CIT v. Andhra Pradesh Road Transport Corpn.
[1986] 1 SCR 570; Queens Educational Society v. CIT [2015] 55 taxmann.com 255/231 Taxman
286/372 ITR 699/275 CTR 449 (SC)/[2015] (8) SCC 47.
24. Inserted by Finance (2) Act, 2014 and amended by Finance Act, 2020
25. 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 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.
26. Federation of Chambers of Indian Commerce and Industry; Confederation of Indian Industry;
Associated Chambers of Commerce and Industry of India (ASSOCHAM); The Agricultural and
Processed Food Products Export Development Authority (APEDA).
27. Section 3 (2):- " The board shall be a body corporate by the name aforesaid having perpetual
succession and a common seal with power, subject to the provisions of this Act to acquire, hold and
dispose of property, both movable and immovable, and to contract, and may by the said name sue and
be sued."
28. Section 20 of the GMB Act.
29. Section 83 of the GMB Act.
30. Section 25(2) of the GMB Act.
31. Section 32 r/w Sections 37-30 of the GMB Act
32. 298 ITR (St.)
33. 308 ITR (St.)
34. "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".
35. Halsbury's Laws of England, Vol. 32 para 487
36. "the expression 'business' though extensively used is a word of indefinite import, in taxing statutes it
is used in the sense of an occupation, or profession which occupies the time, attention and labour of a
person, normally with the object of making profit. To regard an activity as business there must be a
course of dealings, either actually continued or contemplated to be continued with a profit motive, and
not for sport or pleasure. But to be a dealer a person need not follow the activity of buying, selling and
supplying the same commodity. Mere buying for personal consumption i.e. without a profit motive
will not make a person a dealer within the meaning of the Act, but a person who consumes a
commodity bought by him in the course of his trade, or use in manufacturing another commodity for
sale, would be regarded as a dealer".
37. 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.
(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;
(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;
(j) the regulation and maintenance of the status and standard of professional qualifications of
members of the Institute;
(k) the carrying out, by granting financial assistance to persons other than members of the Council
 or in any other manner, of research in accountancy;
(l) the maintenance of a library and publication of books and periodicals relating to accountancy;
(m) to enable functioning of the Director (Discipline), the Board of Discipline, the Disciplinary
Committee and the Appellate Authority constituted under the provisions of this Act;
(n) to enable functioning of the Quality Review Board;
(o) consideration of the recommendations of the Quality Review Board made under clause (a) of
Section 28B and the details of action taken thereon in its annual report; and
(p) to ensure the functioning of the Institute in accordance with the provisions of this Act and in
performance of other statutory duties as may be entrusted to the Institute from time to time.
38. "5. Streamlining the definition of "charitable purpose"
5.1 Sub-section (15) of section 2 of the Act defines "charitable purpose" to include relief of the
poor, education, medical relief, and the advancement of any other object of general public utility.
This is based on the argument that they are engaged in the "advancement of an object of general
public utility" as is included in the fourth limb of the current 12 It has been noticed that a number
of entities operating on commercial lines are claiming exemption on their income either under sub-
section (23C) of section 10 or section 11 of the Act on the ground that they are charitable
institutions. This is based on the argument that they are engaged in the "advancement of an object
of general public utility" as is included in the fourth limb of the current definition of "charitable
purpose". Such a claim, when made in respect of an activity carried out on commercial lines, is
contrary to the intention of the provision.
5.2 With a view to limiting the scope of the phrase "advancement of any other object of general
public utility", sub-section (15) of section 2 has been amended to provide that the 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."
39. ITA Nos. 62 of 2015 and 147 of 2016 (O&M)
40. Section 4(3)(i) of the old IT Act.
41. See para 19 of Surat Art Silk (extracted above at paragraph 18 of this judgment).
42. "(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. …"
43. Lohia Machines Ltd. v. Union of India [1985] 20 Taxman 9/152 ITR 308 (SC)/[1985] 2 SCR 686;
Commissioner of Customs (Import) v. Dilip Kumar & Co. [2018] 95 taxmann.com 327/69 GST 239
(SC)/2018 (361) ELT 577 (SC)/[2018] 9 SCC 1.
44. State of West Bengal v. Union of India [1964] 1 SCR 371:
"A statute, as passed by Parliament, is the expression of the collective intention of the legislature as
a whole, and any statement made by an individual, albeit a Minister, of the intention and objects of
the Act cannot be used to cut down the generality of the words used in the statute."
At the same time, later decisions have relaxed the rigor of this rule. In K.P. Varghese v. ITO [1982]
1 SCR 629, this court, referring to the budget speech of the Minister stated:
"Now it is true that the speeches made by the Members of the Legislature on the floor of the House
when a Bill for enacting a statutory provision is being debated are inadmissible for the purpose of
 interpreting the statutory provision but the speech made by the Mover of the Bill explaining the
reason for the introduction of the Bill can certainly be referred to for the purpose of ascertaining
the mischief sought to be remedied by the legislation and the object and purpose for which the
legislation is enacted."
Other decisions following the same approach are Ramesh Yeshwant Prabhoo v. Prabhakar
Kashinath Kunte 1995 (Supp 6) SCR 371; Novartis AG v. Union of India [2013] 32 taxmann.com
1/119 SCL 217 (SC)/[2013] 6 SCC 1; Surana Steels (P.) Ltd. v. CIT [1999] 2 SCR 589 and
Kalpana Mehta v. Union of India [2017] 7 SCC 295.
45. Ellerman Lines Ltd. (supra); K.P. Verghese (supra); Union of India v. Azadi Bachao Andolan [2003]
132 Taxman 373/263 ITR 706/184 CTR 450 (SC)/2003 (Supp 4) SCR 222
46. "…the advancement of any other object of general public utility not involving the carrying on of any
activity for profit"
47. 289. Exemption of property and income of a State from Union taxation.—(1) The property and
income of a State shall be exempt from Union taxation.
(2) Nothing in clause (1) shall prevent the Union from imposing, or authorising the imposition of,
any tax to such extent, if any, as Parliament may by law provide in respect of a trade or business of
any kind carried on by, or on behalf of, the Government of a State, or any operations connected
therewith, or any property used or occupied for the purposes of such trade or business, or any
income accruing or arising in connection therewith.
(3) Nothing in clause (2) shall apply to any trade or business, or to any class of trade or business,
which Parliament may by law declare to be incidental to the ordinary functions of government.
48. See Union of India v. State of U.P. [2007] (12) SCR 792; Union of India v. Purna Municipal Corpn.
1991 (Supp 1) SCR 183; Municipal Corpn. v. Senior Superintendent of Post Offices, Amritsar
Division [2004] 1 SCR 913.
49. CIT v. Dawoodi Bohara Jamat [2014] 43 taxmann.com 243/222 Taxman 228 (Mag.)/364 ITR 31/268
CTR 1 (SC)/[2014] 6 SCC 222; S.RM.M.CT.M. Tiruppani Trust v. CIT [1998] 2 SCC 584.
50. "Provided also that nothing contained in sub-clause (iv) or sub-clause (v) or sub-clause (vi) or sub-
clause (via) shall apply in relation to any income of the fund or trust or institution or any university or
other educational institution or any hospital or other medical institution, being profits and gains of
business, unless the business is incidental to the attainment of its objectives and separate books of
account are maintained by it in respect of such business:"
51. Providing relief from distress to humans based on Christian values - refer to DIT v. Bharat Diamond
Bourse [2002] 10 SCC 392, and Bangalore Water Supply and Sewage Undertaking v. A Rajappa
[1978] 2 SCC 213.
52. "(8) Nothing contained in section 11 or section 12 shall operate so as to exclude any income from the
total income of the previous year of the person in receipt thereof if the provisions of the first proviso
to clause (15) of section 2 become applicable in the case of such person in the said previous year."
53. Incomes not included in total income.
10. In computing the total income of a previous year of any person, any income falling within any
of the following clauses shall not be included-
** ** **

(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.
54. Incomes not included in total income.
10. In computing the total income of a previous year of any person, any income falling within any
of the following clauses shall not be included-
** ** **

(46) any specified income arising to a body or authority or Board or Trust or Commission (by
whatever name called) or a class, thereof which-
 (a) has been established or constituted by or under a Central, State or Provincial Act, or constituted
by the Central Government or a State Government, with the object of regulating or administering
any activity for the benefit of the general public;
(b) is not engaged in any commercial activity; and
(c) is notified by the Central Government in the Official Gazette for the purposes of this clause.
55. In List III of the Seventh Schedule to the Constitution of India,
"25. Education, including technical education, medical education and universities, subject to the
provisions of entries 63, 64, 65 and 66 of List I; vocational and technical training of labour.
26. Legal, medical and other professions".
56. In List I of the Seventh Schedule to the Constitution of India,
"65. Union agencies and institutions for—

(a) professional, vocational or technical training, including the training of police officers; or
(b) the promotion of special studies or research; or
(c) scientific or technical assistance in the investigation or detection of crime."
57. ITA Nos: 1257/Ahd/13, 3303/Ahd/16, 3304/Ahd/16, 408/Ahd/17 Assessment years: 2009-10, 2010-
11, 2011-12 and 2012-13.
58. SLP (D) No. 16597/2020 against a common judgment dated 27-9-2019, which relate to the Gujarat
Cricket Association, Saurashtra, Baroda and Rajkot Cricket Association Cricket Association.
59. Rule 3 (a) (ii) (B) of the latest BCCI Memorandum of Association and the Rules and Regulations.
60. Dated 9-2-2018 in ITA 49/2014.
61. CA Nos. 9974/2018 and 10371/2017.
62. CA Nos. 12058/2017 and 9886/2018.
63. CA Nos. 16375/2017, 2047/2019 and Diary No. 5683/2019.
64. CA No. 10598/2018.
65. CA No. 17527/2017.
66. CA Nos. 9860/2018, 8321/2018, 2335/2019, 4449/2019 and 4957/2019
67. CA Nos. 12869/2017 and 10406/2018.
68. CA No. 11259/2018.
69. D. No. 44856/2018.
70. CA No. 9200/2018.
71. SLP (C) Nos. 3759/2021, 4612/2021, 5167/2021, 4678/2021, 4636/2021, 4723/2021, 7854/2021 and
11683/2021.
72. SLP (C) Nos. 8364/2021.
73. CA Nos. 21762/2017, 5719/2018, 6762/2018, 3343/2018, 3359/2018, 1643/2019, 3971/2019, SLP (C)
6686/2021, and SLP (C) No. 6580/2021.
74. CA No. 6553/2019 and 783/2020.
75. SLP (C) No. 5709/2021, 6005/2021 and 10490/2021.
76. SLP (C) No. 7003/2021; 7166/2021; 6917/2021; 7510/2021; 7290/2021 and 7606/2021.
77. SLP (C) No. 10908/2021; 7789/2021 and 11072/2021.
78. SLP (C) No. 7302/2021 and 7011/2021.
79. D. Nos. 39525/2017, 15525/2019, 21237-2019; 15488/2019; 15489/2019 and 21237/2019; CA Nos.
3971- 3972/2018, 170/2019; SLP (C) No. 15055/2019.
80. C.A No. 10114/2018.
81. SLP(C) No. 12304/2018.
82. C.A. No. 6489/2018.
83. SLP (C) No. 10912/2018.
84. C.A No. 9172/2018.
85. C.A No. 11884/2018.
86. C.A No. 226/2019.
87. C.A. No. 213/2020.
88. SLP (C) No. 7779/2018.
89. SLP (C) No. 14574/2019.
90. C.A No. 3596/2018.
91. CA No. 3347/2018.
92. CA Nos. 4430/2021, 2477/2021, 2478/2021.
93. CA Nos. 8193/2012, 5057/2012 and 4196/2015.
94. SLP (C) No. 23975/2012; and CA No. 5056/2012.