TMI Blog2022 (10) TMI 948X X X X Extracts X X X X X X X X Extracts X X X X ..... ld 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 [ 1979 (11) TMI 1 - SUPREME COURT] 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. 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. The insertion of Section 13(8)144, the seventeenth proviso to Section 10(23C) and third p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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. 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. 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. Non-statutory bodies - In the present batch of cases, non-statutory bodies performin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... impugned judgment of the High Court does not call for interference. Application of interpretation - As 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. - C.A. No. 8193/2012; C.A. No. 5057/2012; C.A. No. 5058/2014; C.A. No. 9974/2018; C.A. No. 5056/2012; C.A. No. 4196/2015; C.A. No. 4374/2015; C.A. No. 9380/2017; C.A. No. 13071/2017; C.A. No. 12058/2017; C.A. No. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... _____/2022 @ SLP(C) No. 12206/2020; C.A. No. _____/2022 @ SLP (C) No. _____/2022 @ Diary No(s). 20986/2020; C.A. No. _____/2022 @ SLP (C) No. _____/2022 @ Diary No(s). 23310/2020; C.A. No. _____/2022 @ SLP(C) No. 3759/2021; C.A. No. _____/2022 @ SLP(C) No. 4612/2021; C.A. No. _____/2022 @ SLP(C) No. 5167/2021; C.A. No. _____/2022 @ SLP(C) No. 6253/2021; C.A. No. _____/2022 @ SLP(C) No. 5709/2021; C.A. No. _____/2022 @ SLP(C) No. 6005/2021; C.A. No. _____/2022 @ SLP(C) No. 7166/2021; C.A. No. _____/2022 @ SLP(C) No. 7003/2021; C.A. No. _____/2022 @ SLP(C) No. 7011/2021; C.A. No. _____/2022 @ SLP(C) No. 6917/2021; C.A. No. _____/2022 @ SLP(C) No. 7510/2021; C.A. No. _____/2022 @ SLP(C) No. 19044/2021; C.A. No. _____/2022 @ SLP(C) No. 7779/2018; C.A. No. _____/2022 @ SLP(C) No. 4678/2021; C.A. No. _____/2022 @ SLP (C) No. _____/2022 @ Diary No(s). 5806/2021; C.A. No. _____/2022 @ SLP(C) No. 4636/2021; C.A. No. _____/2022 @ SLP(C) No. 4723/2021; C.A. No. _____/2022 @ SLP (C) No. _____/2022 @ Diary No(s). 6662/2021; C.A. No. _____/2022 @ SLP(C) No. 10490/2021; C.A. No. _____/2022 @ SLP(C) No. 6686/2021; C.A. No. _____/2022 @ SLP(C) No. 7302/2021; C.A. No. _____/2022 @ SLP(C) No. 6580/2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 55 A. Aids to interpretation ................................................................................................................................ 62 (i) History of the legislation .................................................................................................................. 62 (ii) Other extrinsic aids to construction of the statute ............................................................................ 63 B. Interpretation of Section 2(15), the definition clause ............................................................................... 70 Summation of interpretation of Section 2(15) ............................................................................................... 85 C. Sections 10, 11, 12, 12A, 12AA and 13 of the IT Act ................................................................................ 86 Distinction between business held under Trust [Section 11(4)] and Trust carrying on business [Section 11(4A)] 87 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 .................................. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 017 (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 b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 The Trustees of Tribune Press, Lahore v. CIT, Punjab (1939) 7 ITR 415 (hereafter In Re: Trustees of the Tribune ). (hereafter In Re: Trustees of the Tribune ) 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 impro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iness 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, 1953 7 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 charitab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. .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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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) This decision was reversed in Indian Chamber of Commerce v. Commissioner of Income Tax (1976) 1 SCC 324 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 i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... king 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 somethin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. (as it originally stood in the IT Act, 1961), Section 11(4A) Earlier, sub-section (4A) was inserted by the Finance Act, 1983, w.e.f. 01.04.1984, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4, (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. 01.04.1984)], 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 insti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A) and Section 10 (23) 24. Section 10(20A) had been inserted by the Finance Act, 1970, w.e.f. 01.04.1962; it exempted certain classes of income earned by housing boards, etc., and before deletion read as follows: (20A) any income of an authority constituted in India by or under any law enacted either for the purpose of dealing with and satisfying the need for housing accommodation or for the purpose of planning, development or improvement of cities, towns and villages, or for both; 25. Similarly, Section 10(23)23 existed and provided exemption to income earned by sport controlling boards, and associations, subject to specific conditions. Section 10(23) read as follows, before its deletion: (23) any income of an association or institution established in India which may be notified by the Central Government in the Official Gazette having regard to the fact that the association or institution has as its object the control, supervision, regulation or encouragement in India of the games of cricket, hockey, football, tennis or such other games or sports as the Central Government may, by notification in the Official Gazette, specify in this behalf: 26. Section 10( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 In Re: Trustees of the Tribune, A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l 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 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 highligh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 statute27, i.e. GIDA, 1962 for the purposes of securing and assisting rapid and orderly establishment and organisation of industrial areas and estates in Gujarat, as well as establishing commercial centres 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 vir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from the benefit of tax exemption. 41. Learned counsel then made a brief reference to the judgment in CIT, Bombay v. Bar Council of Maharashtra (1981) 3 SCC 308 (hereafter Bar Council of Maharashtra ) 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. 01.04.1992). 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enactment that the executive s understanding in the form of circulars in the context of taxing statutes were valuable guides to interpretation. The observations in Navnit Lal Jhaveri (supra) were relied on to submit that the circulars in that case was used to in fact soften the rigor of a newly introduced provision. Learned counsel also relied upon the judgment of this Court in UCO Bank Calcutta v. Commissioner of Income Tax, West Bengal 1999 (4) SCC 599 (hereafter UCO Bank Calcutta ) 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 SCR (2) 636 .; Khoday Distilleri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 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 Thakkar44, Sodan Singh Ors. v New Delhi Municipal Committee Ors45 and T.M.A Pai Foundation and Ors. v. State of Karnataka Ors46. Reliance was placed upon the judgment in CIT, Madras v. M/s Madurai Mills Company Limited47 to urge that interpretation of the definition of expression charitable purpose shoul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ancillary activities is established by the revenue. The judgments in CST v. Sai Publication Fund57 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)58 the Board has an option to claim exemption either under Section 11 or under Section 10(46). There is no bar for claiming exemption under either of those provisions. 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 Ors.59 which had stated that right to social justice includes right to shelter, and that these statutory corporations are the means to ensure that. 53. Mr. K. V. Vi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Ors.61 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 und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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)65 of the Gujarat Maritime Board Act, 1981 (GMB Act); it performs functions which, prior to the enactment of the Act, were being performed directly by the State Government66. The Preamble to the Act notes that it is constituted for administration, control and management of minor ports in the State of Gujarat, and for all matters connected therewith. The Board s powers under the GMB Act apply to works carried out by GMB as conservator of ports under the provisions of the Indian Ports Act67; it is charged with essential functions such as development and upkeep of jetties, wharves, docks, piers, places of anchorage, light-houses, light-ships, beacons, buoys, pilot boats, and other appliances necessary for safe maritime navigation, etc. and for development of minor ports in general68. It is also entitled to undertake essential maritime services such as stevedoring, landing, shipping or trans-shipping, piloting, hauling, mooring ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 revenu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ness or rendering service in relation thereto is barred. Reliance was placed upon judgments in Dir. Of Supp. Disp. v. Board of Revenue76 which follows H. Abdul Bakhi Bros (supra), Barendra Prasad Ray v. ITO77 and State of Gujarat v. Raipur Manufacturing Co. Ltd.78 to argue that in business there must be some real and systematic, or organized course of activity or conduct with the set purpose of making profit. Counsel referred to Sai Publication Fund (supra) where this court observed that since primary and dominant activity of the trust was to spread message of Saibaba and hence not business, then any incidental or ancillary activity of publishing and selling of books and literature cannot be regarded as business. Reference was made to Customs Excise Commissioner v. Lord Fisher79 which held that there are six indicia to determining business namely (a) serious undertaking earnestly pursued, (b) reasonable continuity, (c) substantial in amount, (d) conducted regularly on business principles, (e) predominantly concerned with making taxable supplies for consideration, (f) such as those commonly made by persons seeking to make profit. Other judgments too were cited; and reference ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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- -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 withi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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 Thakkar83 where the court observed that the word trade in its narrow popular sense means exchange of goods for goods or for money with the object of making profit . In its widest sense it includes any business carried on with a view to earn profit84. Further, the word takes its meaning 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.85 Lastly, the judgment in Secretary, Ministry of Education Broadcasting, Govt. of India Ors. v. Cricket Association of Bengal86 was cited to explain the dominant purpose of the BCCI. That judgment highlighted what is relevant and applicable is the test of predominant character of the activity, and not that an institution incidentally earns surplus or profit. 78. Mr. Arvind Datar, learned sen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted 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. Reli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther 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 In Re: 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 Court99 in Tribune s case dismissing the Tribune s appeal, erroneously relied on para 17 of Surat Art Silk decision (supra) which wrongly quoted the Privy council judgment in the Tribune s case. 87. It was further argued that collecting advertisements for consideration cannot be treated as business activity u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tal arguments 90. In rebuttal to the submissions advanced by the assessees, the ASG relied upon Adityapur Industrial Area Development Authority v. Union of India100 and submitted that there is no constitutional immunity from taxation, for the state, because by Article 289(2) even state or its instrumentalities/agencies are not immune from taxation if they carry on trade or business. In light of Article 289(2), there is no constitutional bar for the States (or the Union) to engage or carry on trade or business, and Article 289 allows the Parliament to impose taxes on such trade or business. The ratio in NDMC (supra) has to be read in light of the provisions and the judgment rendered in Shri Ramtanu Cooperative Housing Society (supra) should in turn be read in light of NDMC. The decisive factor therefore is not the status of the entity, but the nature of activity carried by it. If the nature of activity is trade or business with a profit motive, then the same can be taxed even if it is carried by state or its instrumentalities. It was also contended that Article 289 does not grant absolute any immunity from taxation. 91. The revenue further submitted that the validity of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld 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 surrou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment; however, what is of significance is that with effect from 01.04.1977, the condition of actual carrying on a primary purpose of the trust while conducting business was visualised only in the case of trusts involved in relief of the poor, education or medical relief. The majority judgment in Surat Art Silk (supra) recognized this: 8. [ ] Where therefore, there is a charitable trust or institution falling within any of the first three categories of charitable purpose set out in Section 2 Clause (15) and it carries on business which is held by it under trust for its charitable purpose, income from such business would not be exempt by reason of Section 13(1)(bb). Section 11 Sub-section (4) would, therefore, have no application in case of a charitable trust or institution falling within any of the first three heads of 'charitable purpose'. Yet, the court enunciated and applied the predominant object test.103 The conscious omission of the last object, i.e., 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. Evans105 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 106. 109. Some decisions of this Court have highlighted this aspect. In Bhuwalka Steel Indus. Ltd. Ors. v. Bombay Iron and Steel Labour Bd. Ors. 107 this court observed that The legislative intent of the enactment may be gathered from s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nted 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 27.03.2009 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 pu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, Calcutta (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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 circ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 provisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y 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 al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. Commissioner of Income Tax120 the isolated transaction of sale of land was held not to be activity in the nature of trade or bus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 char ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) 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 ₹10,00,000 (and later, ₹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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Environment129, 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 Constitution130 and discussed the nature of the activities that could be carried on by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . State of Tamil Nadu and Ors.132, approved the definition propounded by Hidayatulla, J. In Vijayalashmi Rice Mill and Ors. v. Commercial Tax Officers, Palakol Ors133 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. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tal, 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nection 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 v. Commissioner of Income Tax, Punjab138, 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. CIT139 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 Secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vance. 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 15.06.1945), the properties which the trustees are to hold and stand possessed of, were only the sum of ₹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 10.09.1945 for a period of 20 years, cannot be said to be property held under trust since no part of the initial amount of ₹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: . ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es 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. 01.04.1992) 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 charita ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ₹10,00,000 (w.e.f. 01.04.2009), ₹25,00,000 (w.e.f. 01.04.2012), and 20% (w.e.f. 01.04.2016) 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 pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sideration 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 re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 woul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f 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 01.04.1962. It had excluded certain classes of income, of corporations145. 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 taxati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 Se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his 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 G ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Corp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de, 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 01.0.2003 - 31.05.2011, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arate 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 31.03.2012. Likewise, there was an exponen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtered 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 Section 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ers 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 Seed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss of Art Silk Yarn, Raw Silk, Cotton Yarn as well as Art Silk f loth, 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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 ₹1000/- and registration of second and third level domain names at ₹500/- and ₹250/-. The finding of the ITAT and the High Court are that NIXI s objects and functioning are by way of general publ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ational 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 ₹ 20,000/- is charged by GS1, plus annual fee of ₹4,000/- (enhanced to ₹ 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he year ending 2007 was ₹1,68,57,200/- whereas for the next year i.e., as on 31.03.2008 it was ₹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 31.03.2011 was ₹4,24,69,850/- whereas as on 31.03.2012 it was ₹6,07,58,100/-; subscription fee as on 31.03.2011 was ₹1,02,06,720/-; for the next year i.e., on 31.03.2012 it was ₹1,01,69,850/-. Likewise, the subscription renewal fees as on 31.03.2011 was ₹4,18,62,804/- and the same head as on 31.03.2012 was ₹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. 21 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Commit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 explain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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 pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unts 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. 01.04.2003. 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 co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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.154 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 ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 31.03.2009 shows that the total income of the GCA was ₹4,03,98,736.81. Of these sponsorship money was ₹20,00,000/-; bank interest was ₹2,21,88,527.05 and as against the head India v. South Africa test match , the sum of ₹1,51,97,741/- has been shown. Of the total of ₹2,21,02,441.45 shown as income, ₹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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Tru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was received from advertisements and ₹11.38 crores from interest on FDRs; ₹17.49 crores was from sale of newspapers and ₹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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Court157 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 ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so 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. 01.04.2009), 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 ut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oss 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, Moga158, the Hoshiarpur Improvement Trust159, Bathinda Improvement Trust160, Fazilka Improvement Trust161, Sangrur Improvemen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his 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 assesseee, 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. Foot Note 23 As amended by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 01.04.1989; Direct Tax Laws (Amendment) Act, 1989, w.e.f. 01.04.1989; substituted by the D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a 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. 55 2007 (12) SCR 962; (2007) 14 SCC 704 (hereafter Gujarat Maritime Board case ). 56 Yogiraj Charity Trust v. CIT 1976 (3) SCR 947; Commissioner of Income Tax v. Andhra Pradesh Road Transport Corporation 1986 (1) SCR 570; Queens s Educational Society v. CIT 2015 (8) SCC 47. 572002 (2) SCR 743 58 Inserted by Finance (2) Act, 2014 and amended by Finance Act, 2020 59 (1996) 2 SCC 549. The court had cited Article 25(1) of the Universal Declaration of Human Rights and Article 11(1) of the International Covenant on Economic, Social and Cultural Rights, 1966 and relied on Sri. P.G. Gupta v. State of Gujarat Ors. 1995 (1) SCALE 653 - where a Bench of three Judges of this Court had considered the mandate of the human right to shelter and read it into Article 19(1)(e) and Article 21 of the Constitution of India to guarantee the right to residence and settlement. 60 Federation of Chambers of Indian Commerce and Industry; Confederation of Indian Industry; Associated Cham ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upervision 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 qualifica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e purpose, if it involves the carrying on of any activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business, for a cess or fee or any other consideration, irrespective of the nature of use or application, or retention, of the income from such activity. 96 (2016) 12 SCC 258 97 1981 SCC OnLine Del 457 98 (1972) 4 SCC 474 99 ITA Nos. 62 of 2015 and 147 of 2016 (O M) 100 (2006) 5 SCC 100 101 1981 (3) SCR 489 102 Section 4(3)(i) of the old IT Act. 103 See para 19 of Surat Art Silk (extracted above at paragraph 18 of this judgment). 104 (4A) Sub-section (1) or sub-section (2) or sub-section (3) or sub-section (3A) shall not apply in relation to any income, being profits and gains of business, unless (a) the business is carried on by a trust wholly for public religious purposes and the business consists of printing and publication of books or publication of books or is of a kind notified by the Central Government in this behalf in the Official Gazette; or (b) the business is carried on by an institution wholly for charitable purposes and the work in connecti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1985 (1) SCR 432 125 1995 (1) SCR 996 126 1988 (2) SCC 299 127 the advancement of any other object of general public utility not involving the carrying on of any activity for profit 128 (1997) 4 SCC 257. 129 1977 1 ALLER 813 130 289. 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. 131 1967 (1) SCR 548 132 1989 (Supp 1) SCR 692 133 (2006) 6 SCC 763 134 1998 (2) SCR 22 135 See Union of India Ors. v. Sta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 147 (2018) 406 ITR 418 (hereafter GNIDA ) 148 (2017) 395 ITR 18 149 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 . 150 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) scie ..... X X X X Extracts X X X X X X X X Extracts X X X X
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