2013 (10) TMI 19 - DELHI HIGH COURT

Charitable activities u/s 2(15) - exemption u/s 10(23C) - Whether receipt of royalty in lieu of IPR is charitable activity or not - Requirement of separate books of accounts – Registration of charitable institution u/s 10(23C) of the Income Tax Act – Held that:- the contention of the Revenue that the petitioner charges fee and, therefore, is carrying on business, has to be rejected. The intention behind the entire activity is philanthropic and not to recoup or reimburse in monetary terms what is given to the beneficiaries. Element of give and take is missing, but decisive element of bequeathing is present. In the absence of -profit motive and charity being the primary and sole purpose behind the activities of the petitioner is perspicuously discernible and perceptible.

As observed above, fee charged and quantum of income earned can be indicative of the fact that the person is carrying on business or commerce and not charity, but we must keep in mind that charitable activities require operational/running expenses as well as capital expenses to be able to sustain and continue in long run. The petitioner has to be substantially self-sustaining in long-term and should not depend upon government, in other words taxpayers should not subsidize the said activities, which nevertheless are charitable and fall under the residuary clause -general public utility

Regarding separate books of accounts - Held that:- We fail to understand when the petitioner is maintaining the books of accounts with regard to their receipts/income as well as the expenses incurred for their entire activity then how it can be held that separate books of accounts have not been maintained for ‘business‘ activities. The -business activities are intrinsically woven into and part of the charitable activity undertaken. The -business activity is not feeding charitable activities. In any case, when we hold that the petitioner is not carrying on any business, trade or commerce, question of requirement of separate books of accounts for the business, trade or commerce is redundant.

Restriction under First proviso to section 2(15) - Held that:- Question is whether the legislative intent is to exclude from definition of charitable purpose any activity which has the aim and object of providing services to trade, commerce or business. The matter is not free from doubt but there are good reasons to hold that the bar or probation is not with reference to activity of the beneficiary but the activity of the assessee under the residuary clause.

Value of Ra. 10 lacs (Now ₹ 25 lacs) under Second proviso to section 2(15) - Held that:- A small charitable organization that receives token fee of more than ₹ 80,000/- a month or now ₹ 2,00,000/- per month approximately, would disqualify and lose their charitable status. The object of the proviso is to draw a distinction between charitable institutions covered by last limb which conduct business or otherwise business activities are undertaken by them to feed charity. The proviso applies when business was/is conducted and the quantum of receipts exceeds the specified sum. The proviso does not seek to disqualify charitable organization covered by the last limb, when a token fee is collected from the beneficiaries in the course of activity which is not a business but clearly charity for which they are established and they undertake.

Petitioner can be denied benefit of registration/notification under Section 10(23C)(iv) - Decided in favor of assessee.