# ASSISTANT COMMISSIONER OF INCOME TAX (EXEMPTIONS) v. AHMEDABAD URBAN DEVELOPMENT AUTHORITY

- **Citation:** [2022] 15 S.C.R. 899
- **Court:** Supreme Court of India
- **Decided:** 2022-10-19
- **Case number:** Civil Appeal No. 21762 of 2017
- **Bench:** Uday Umesh Lalit, S. Ravindra Bhat, Pamidighantam Sri Narasimha
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/assistant-commissioner-of-income-tax-exemptions-v-ahmedabad-urban-development-35511
- **Pages:** 167

## Headnote

Income Tax Act 1961: ss. 2(15) proviso - Tax exemption -
Claim of, by Charitable institutions advancing an object of generally
public utility-GPU - 'Charitable Purpose' - Interpretation of - Term
of "any other object of generally public utility not being charitable
purpose if it involves the carrying on of any activity in the nature of
trade, commerce or business or any activity of rendering any service
in relation to any trade, commerce or business, for a cess or fee or
any other consideration, irrespective of the nature of use or
application, or retention, of the income from such activity" -
Interpretation and scope of - Held: Assessee advancing general
public utility cannot engage itself in any trade, commerce or business,
or provide service in relation thereto for any consideration, "cess,
or fee, or any other consideration" - However, in the course of
achieving the object of general public utility, the concerned trust,
society, or other such organization, can carry on trade, commerce
or business or provide services in relation thereto for consideration,
provided that the activities of trade, commerce or business are
connected to the achievement of its objects of GPU; and the receipt
from such business or commercial activity or service in relation
thereto, does not exceed 20% of total receipts of the previous year
- Charging of any amount towards consideration for an activity
advancing general public utility, which is on cost-basis or nominally
above cost, cannot be considered to be "trade, commerce, or
business" or any services in relation thereto - It is only when the
charges are markedly or significantly above the cost incurred by
the assessee, that they would fall within the mischief of "cess, or
fee, or any other consideration" towards "trade, commerce or
business" - Section 11(4A) must be interpreted harmoniously with
s. 2(15), the requirement in s. 11(4A) of maintaining separate books
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of account is also in line with the necessity of demonstrating that
the quantitative limit prescribed in the proviso to s. 2(15), has not
been breached - ss. 10(23C), 13(8), 11(4A) and 143(3).
s. 11(4), 11(4A) - Business held under Trust and Trust carrying
on business - Distinction between - Discussed.
ss. 2(15) - Tax exemption, claim of by the Statutory
corporations, authorities or bodies; Statutory regulatory bodies/
authorities; Trade Promotion bodies, councils, associations or
organizations; Non-statutory bodies-ERNET, NIXI and GS1 India;
State Cricket Associations;and Private trusts as a General Public
Utility charity - Certain kinds of income or receipts, may not be
characterized as derived from trade, commerce or business in relation
to activities of General Public Utility, for a consideration - Held:
As regards, Statutory Authorities, corporations, or bodies receipts
are prima facie to be excluded from the mischief of business or
commercial receipts, since their objects are essential for
advancement of public purposes/functions - However, if the
consideration or amounts charged are significantly higher than the
cost and a nominal mark-up, then the receipts would indicate that
the activities are in fact in the nature of "trade, commerce or business"
and would have to comply with the quantified limit in the proviso to
s. 2(15) - For the Statutory regulators, to be considered as one with
'charitable purpose' eligible for exemption under the IT Act, the
overall quantitative limit prescribed in the proviso to s. 2(15) (as
amended from time to time) has to be complied with - Trade
promotion bodies involved in advancement of objects of general
public utility can claim exemption - However, income or receipts
for providing the additional services would be business or commercial
in nature - As regards, non-statutory bodies performing public
functions, such as ERNET and NIXI are engaged in important public
purposes - Fees or consideration charged by them for the purposes
provided

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899
 [2022] 15 S.C.R. 899
899
ASSISTANT COMMISSIONER OF INCOME TAX
(EXEMPTIONS)
v.
AHMEDABAD URBAN DEVELOPMENT AUTHORITY
(Civil Appeal No. 21762 of 2017)
OCTOBER 19, 2022
[UDAY UMESH LALIT, CJI, S. RAVINDRA BHAT AND
PAMIDIGHANTAM SRI NARASIMHA, JJ.]
Income Tax Act 1961: ss. 2(15) proviso - Tax exemption -
Claim of, by Charitable institutions advancing an object of generally
public utility-GPU - 'Charitable Purpose' - Interpretation of - Term
of "any other object of generally public utility not being charitable
purpose if it involves the carrying on of any activity in the nature of
trade, commerce or business or any activity of rendering any service
in relation to any trade, commerce or business, for a cess or fee or
any other consideration, irrespective of the nature of use or
application, or retention, of the income from such activity" -
Interpretation and scope of - Held: Assessee advancing general
public utility cannot engage itself in any trade, commerce or business,
or provide service in relation thereto for any consideration, "cess,
or fee, or any other consideration" - However, in the course of
achieving the object of general public utility, the concerned trust,
society, or other such organization, can carry on trade, commerce
or business or provide services in relation thereto for consideration,
provided that the activities of trade, commerce or business are
connected to the achievement of its objects of GPU; and the receipt
from such business or commercial activity or service in relation
thereto, does not exceed 20% of total receipts of the previous year
- Charging of any amount towards consideration for an activity
advancing general public utility, which is on cost-basis or nominally
above cost, cannot be considered to be "trade, commerce, or
business" or any services in relation thereto - It is only when the
charges are markedly or significantly above the cost incurred by
the assessee, that they would fall within the mischief of "cess, or
fee, or any other consideration" towards "trade, commerce or
business" - Section 11(4A) must be interpreted harmoniously with
s. 2(15), the requirement in s. 11(4A) of maintaining separate books
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of account is also in line with the necessity of demonstrating that
the quantitative limit prescribed in the proviso to s. 2(15), has not
been breached - ss. 10(23C), 13(8), 11(4A) and 143(3).
s. 11(4), 11(4A) - Business held under Trust and Trust carrying
on business - Distinction between - Discussed.
ss. 2(15) - Tax exemption, claim of by the Statutory
corporations, authorities or bodies; Statutory regulatory bodies/
authorities; Trade Promotion bodies, councils, associations or
organizations; Non-statutory bodies-ERNET, NIXI and GS1 India;
State Cricket Associations;and Private trusts as a General Public
Utility charity - Certain kinds of income or receipts, may not be
characterized as derived from trade, commerce or business in relation
to activities of General Public Utility, for a consideration - Held:
As regards, Statutory Authorities, corporations, or bodies receipts
are prima facie to be excluded from the mischief of business or
commercial receipts, since their objects are essential for
advancement of public purposes/functions - However, if the
consideration or amounts charged are significantly higher than the
cost and a nominal mark-up, then the receipts would indicate that
the activities are in fact in the nature of "trade, commerce or business"
and would have to comply with the quantified limit in the proviso to
s. 2(15) - For the Statutory regulators, to be considered as one with
'charitable purpose' eligible for exemption under the IT Act, the
overall quantitative limit prescribed in the proviso to s. 2(15) (as
amended from time to time) has to be complied with - Trade
promotion bodies involved in advancement of objects of general
public utility can claim exemption - However, income or receipts
for providing the additional services would be business or commercial
in nature - As regards, non-statutory bodies performing public
functions, such as ERNET and NIXI are engaged in important public
purposes - Fees or consideration charged by them for the purposes
provided are nominal - However, their claim have to be ascertained
on year to year basis - Further, GSI India is involved in
advancement of general public utility, its services are for the benefit
of trade and business, from which they receive significantly high
receipts - Therefore, GSI India is not eligible for the exemption -
Private Trusts-Tribune Trust cannot benefit from exemption offered
to entities covered by s. 2(15) as the income received from
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advertisements, constituted business or commercial receipts - Limit
prescribed in the proviso to s. 2(15) has to be adhered to for the
Trust's claim of being as a charity eligible for exemption - So far as
Sports associations is concerned, matter requires further scrutiny.
Interpretation of Statute : Aids to Interpretation - History of
legislation, other extrinsic aids to construction of the statute, viz,
speeches in Parliament and departmental circulars - Relevance of
- Explained.
Disposing of the appeals, the Court
HELD: 1.1 As regards the general test under Section 2(15)
of the Income Tax Act, 1961, it is clarified that an assessee
advancing general public utility cannot engage itself in any trade,
commerce or business, or provide service in relation thereto for
any consideration ("cess, or fee, or any other consideration").
However, in the course of achieving the object of general public
utility, the concerned trust, society, or other such organization,
can carry on trade, commerce or business or provide services in
relation thereto for consideration, provided that (i) the activities
of trade, commerce or business are connected ("actual carrying
out..." inserted w.e.f. 01.04.2016) to the achievement of its objects
of GPU; and (ii) the receipt from such business or commercial
activity or service in relation thereto, does not exceed the
quantified limit, as amended over the years (Rs. 10 lakhs w.e.f.
01.04.2009; then Rs. 25 lakhs w.e.f. 01.04.2012; and now 20% of
total receipts of the previous year, w.e.f. 01.04.2016). 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". Iit is clarified as to what
kind of services or goods provided on cost or nominal basis would
normally be excluded from the mischief of trade, commerce, or
business. 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
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to such activities, should be conducted in the course of achieving
the GPU object, and the income, profit or surplus or gains must,
therefore, be incidental. The requirement in Section 11(4A) of
maintaining separate books of account is also in line with the
necessity of demonstrating that the quantitative limit prescribed
in the proviso to Section 2(15), has not been breached. Similarly,
the insertion of Section 13(8), seventeenth proviso to Section
10(23C) and third proviso to Section 143(3) (all w.r.e.f.
01.04.2009), reaffirm this interpretation and bring uniformity
across the statutory provisions. [Para 253][1058-C-H; 1059-AC]
1.2 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. However, at
the same time, in every case, the assessing authorities would
have to apply their minds and scrutinize the records, to determine
if, and to what extent, the consideration or amounts charged are
significantly higher than the cost and a nominal mark-up. If such
is the case, then the receipts would indicate that the activities
are in fact in the nature of "trade, commerce or business" and as
a result, would have to comply with the quantified limit (as
amended from time to time) in the proviso to Section 2(15) of the
IT Act. [Para 253 B.1, B.2][1059-C-G]
1.3 In clause (b) of Section 10(46) of the IT Act,
"commercial" has the same meaning as "trade, commerce,
business" in Section 2(15) of the IT Act. Therefore, sums charged
by such notified body, authority, Board, Trust or Commission (by
whatever name called) will require similar consideration - i.e.,
whether it is at cost with a nominal mark-up or significantly higher,
to determine if it falls within the mischief of "commercial activity".
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However, in the case of such notified bodies, there is no quantified
limit in Section 10(46). Therefore, the Central Government would
have to decide on a case-by-case basis whether and to what extent,
exemption can be awarded to bodies that are notified under
Section 10(46). For the period 01.04.2003 to 01.04.2011, a
statutory corporation could claim the benefit of Section 2(15)
having regard to the judgment of this Court in the Gujarat
Maritime Board's case. Likewise, the denial of benefit under
Section 10(46) after 01.04.2011 does not preclude a statutory
corporation, board, or whatever such body may be called, from
claiming that it is set up for a charitable purpose and seeking
exemption under Section 10(23C) or other provisions of the Act.
[Para 253, B-3, B-4][1059-G-H; 1060-A-D]
1.4 The income and receipts of statutory regulatory bodies
which are for instance, tasked with exclusive duties of prescribing
curriculum, disciplining professionals and prescribing standards
of professional conduct, are prima facie not business or
commercial receipts. However, this is subject to the caveat that
if the assessing authorities discern that certain kinds of activities
carried out by such regulatory body involved charging of fees
that are significantly higher than the cost incurred (with a nominal
mark-up) or providing other facilities or services such as
admission forms, coaching classes, registration processing fees,
etc., at markedly higher prices, those would constitute commercial
or business receipts. In that event, the overall quantitative limit
prescribed in the proviso to Section 2(15) (as amended from time
to time) has to be complied with, if the regulatory body is to be
considered as one with 'charitable purpose' eligible for exemption
under the IT Act. 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. [Para 253, C.1, C.2][1060-D-G]
1.5 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
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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. [Para 253, D][1060-G-H; 1061-A-B]
1.6 Non-statutory bodies performing public functions, such
as ERNET and NIXI are engaged in important public purposes.
The materials on record show that fees or consideration charged
by them for the purposes provided are nominal. In the
circumstances, it is held that the said two assessees are driven
by charitable purposes. However, the claims of such non- statutory
organisations performing public functions, will have to be
ascertained on a yearly basis, and the tax authorities must discern
from the records, whether the fees charged are nominally above
the cost, or have been increased to much higher levels. It is held
that though GS1 India is in fact, involved in advancement of
general public utility, its services are for the benefit of trade and
business, from which they receive significantly high receipts. In
the circumstances, its claim for exemption cannot succeed having
regard to amended Section 2(15). However, the Court does not
rule out any future claim made and being independently assessed,
if GS1 is able to satisfy that what it provides to its customers is
charged on cost-basis with at the most, a nominal markup. [Para
253 E.1, E.2][1061-B-F]
1.7 So far as the state cricket associations are concerned
(Saurashtra, Gujarat, Rajasthan, Baroda, and Rajkot), the matter
requires further scrutiny. Accordingly, a direction is issued that
the AO shall adjudicate the matter afresh after issuing notice to
the concerned assessees and examining the relevant material
indicated in the previous paragraphs of this judgment.
Furthermore, if any consequential order needs to be issued, the
same shall be done and resulting actions, including assessment
orders shall be passed in accordance with the law under relevant
provisions of the IT Act. [Para 253, F][1061-F-H]
1.8 So far as the appeal by assessee-Tribune Trust is
concerned, despite advancing general public utility, the Trust
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cannot benefit from exemption offered to entities covered by
Section 2(15) as the records reveal that income received from
advertisements, constituted business or commercial receipts.
Consequently, the limit prescribed in the proviso to Section 2(15)
has to be adhered to for the Trust's claim of being as a charity
eligible for exemption, to succeed. Therefore, despite differing
reasoning, the impugned judgment of the High Court does not
call for interference. [Para 253, G][1062-A-C]
2.1 The limited relief, given by the second proviso to s.
2(15) of the Income Tax Act, 1961, to 'general public utility' -
GPU charities (for the period 2009-2015) was that in case such
GPU category charities did carry on activities undertaken in the
course of actual carrying out of their GPU objects that were in
the nature of trade, commerce or business, or rendered any
service in relation to trade, business, etc., and collected fee, cess,
or other consideration, such income could still be exempt, if it
did not exceed
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. [Para 136][997-C-F]
2.2 Parliamentary endeavour, was to alter the regime
applicable to taxation of GPU category charities, under the IT
Act. The absolute bar imposed on GPU charities from carrying
on activities in the nature of trade, commerce or business, or of
rendering any service in relation to any trade, commerce or
business, for a cess or fee or any other consideration, evidences
this intent. The original Section 2(15) did not allude to trade,
commerce or business, or any service in relation to such activities.
It only enjoined the GPU charities from involving themselves
from carrying on of any activity for profit 127 (which was
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interpreted in Surat Art Silk). This substantial change brought
about by the amendments of 2008 -2012 and 2015 is the
prohibition from engaging in any kind of activity in the nature of
business, commerce, or trade or any rendering any service in
relation thereto, and earning income by the way of cess, fee or
consideration. The express deletion of the reference to 'activity
for profit' on the one hand, and the enactment of an expanded list
of what cannot be done by GPU charities if they are to retain
their characteristic as charities, is an emphatic manner in which
Parliament wished to express itself. [Para 138][998-A-D]
2.3 Not every state activity resembling commerce can be
considered per se exempt from union taxation, in the context of
Article 289. Mere sale or lease of government property does
not imply trade or business. The crucial or determinative element
in the venture, so to say, is whether performance of a function is
actuated by profit motive. The careful analysis of the amended
proviso to Section 2(15), reveal that the prohibition applies in a
four-fold manner- (a) The bar to engaging in trade, commerce or
business, (b)The bar to providing any service in relation to trade,
commerce or business, (c) wherein "for a fee, cess or any other
consideration" is the controlling phrase for both (a) and (b) (which
are collectively referred to as "prohibited activities" for brevity)
(d) irrespective of the application of the income derived from
such 'prohibited activities'. [Para 141, 142][1001-F-H; 1002-AB]
2.4 The impermissibility of any trade, or commercial activity
or service, and income, from them, was intended to be conveyed
through the prohibition, in the first part of the definition of GPU
charities. The necessary implication which arises is that income
(received as fee, cess, or any other consideration) derived from
such 'prohibited activities' is necessarily motivated by profit. The
ordinary meaning of fee or consideration would be synonymous
with something of value, usually in monetary terms. However,
the use of the expression "cess" facially lends a different colour
to all the three expressions. [Para 143][1002-B-D]
2.5 "Fee, cess and any other consideration" has to receive
a purposive interpretation, in the present context. If fee or cess
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or such consideration is collected for the purpose of an activity,
by a state department or entity, which is set up by statute, its
mandate to collect such amounts cannot be treated as
consideration towards trade or business. Therefore, regulatory
activity, necessitating fee or cess collection in terms of enacted
law, or collection of amounts in furtherance of activities such as
education, regulation of profession, etc., are per se not business
or commercial in nature. Likewise, statutory boards and
authorities, who are under mandate to develop housing, industrial
and other estates, including development of residential housing
at reasonable or subsidized costs, which might entail charging
higher amounts from some section of the beneficiaries, to crosssubsidize the main activity, cannot be characterized as engaging
in business. The character of being 'state', and such corporations
or bodies set up under specific laws (whether by states or the
centre) would, therefore, not mean that the amounts are 'fee' or
'cess' to provide some commercial or business service. In each
case, at the same time, the mere nomenclature of the
consideration being a "fee" or "cess", is not conclusive. If the
fee or cess, or other consideration is to provide an essential
service, in larger public interest, such as water cess or sewage
cess or fee, such consideration, received by a statutory body,
would not be considered "trade, commerce or business" or
service in relation to those. Non-statutory bodies, on the other
hand, which may mimic regulatory or development bodies - such
as those which promote trade, for a section of business or industry,
or are aimed at providing facilities or amenities to improve
efficiencies, or platforms to a segment of business, for fee,
whether charged by subscription, or specific fee, etc, may not be
charitable; when they claim exemption, their cases would require
further scrutiny. [Para 144][1002-D-H; 1003-A-B]
2.6 What Parliament intended - through the amendments
in question was to proscribe, involvement or engagement of GPU
charities, from any form ("in the nature of") of activities that were
trade, business or commerce, or engage or involve in providing
services in relation to trade, business or commerce- for a fee,
cess or other consideration. The inclusion of the term "in the
nature of" was by design, to clarify beyond doubt, that not only
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business, trade or commerce, but all activities in the nature of,
or resembling them, were proscribed. Likewise, service in
relation to such activities, i.e., services relating, or pertaining
to, such proscribed activities, too were forbidden. The reference
to fee or cess, is in the opinion of the court, only to emphasize
that even a statutory consideration, for a service to business,
trade or commerce, would take the activity outside the definition
of a GPU charity. The sense in which the expressions "cess, fee
or other consideration" are used, is that if any amount, is received
for trading, or business or commercial activity, or any services to
such activity, then, notwithstanding their nomenclature (as fee
or cess, i.e. that they are fixed under a law) the GPU charity cannot
claim tax exempt status. To bring home this even more pointedlyand underline a break from the past, the application of such
amounts (received in the course of trade, commerce, or business,
or towards services in relation thereto) would be irrelevant, as
evidenced by the term "irrespective", in the fourth limb of
reading Section 2(15). [Paras 150, 151][1006-D-H]
2.7 Section 2(15) - in the wake of its several amendments
between 2008 and 2015 - can be juxtaposed with the
interpretation of the unamended Section 2(15) by this Court. In
Surat Art Silk's case, the principle enunciated was that so long as
the predominant object of GPU category charity is charitable, its
engagement in a non-charitable object resulting in profits that
are incidental, is permissible. Profits and gains from such activities
which were non-charitable had to be deployed or "fed" back to
achieve the dominant charitable object. 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; that such activities in the nature of trade, commerce, business
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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 the quantum of receipts from such activities
should be exceed 20% of the total receipts. Both parts of the
proviso: (i) and (ii) (to Section 2 (15)) have to be read
conjunctively-given the conscious use of "or" connecting the two
of them. This means that if a charitable trust carries on any activity
in the nature of business, trade or commerce, in the actual course
of fulfilling its objectives, the income from such business, should
not exceed the limit defined in sub-clause (ii) to the proviso. [Paras
152, 153][1007-A-G]
2.8 What has to be examined, therefore, is whether the
business itself is held under trust or is carried on by and on behalf
of the trust. Importantly Section 11(1) of the Act starts with the
expression "subject to the provisions of Sections 60 to 63........".
Those provisions are in Chapter V of the Act. Section 60 provides
for the consequences of a transfer of income where there is no
transfer of assets. It says that where a person transfers merely
the income from an asset without transferring the asset itself, he
would continue to be chargeable to income tax. Section 61
provides for the consequences of a revocable transfer of assets
and says that the same would be the position where a person is in
receipt of income by virtue of a revocable transfer of assets.
Section 62 provides for the consequences of a transfer of assets
for a specified period, and serves as an exception to Section 61.
An assessee has to be divested of the asset before ceasing to be
assessable in respect of the income from it. A mere direction
that the income from the business shall be applied to the charitable
objects of a trust, without there being a settlement of the business
itself upon trust, does not result in any trust or legal obligation.
[Para 163][1012-F-H; 1013-A-B]
2.9 The journey which began with Surat Art Silk's case was
interpreted in Thanthi Trust's case to mean that the carrying on
of business by GPU charity was permissible as long as it inured
to the benefit of the trust. The change brought about by the
amendments in questions, however, place the focus on an entirely
different perspective: that if at all any activity in the nature of
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trade, commerce or business, or a service in the nature of the
same, for any form of consideration is permissible, that activity
should be intrinsically linked to, or a part of the GPU category
charity's object. Thus, the test of the charity being driven by a
predominant object is no longer good law. Likewise, the ambiguity
with respect to the kind of activities generating profit which could
feed the main object and incidental profit-making also is not good
law. What instead, the definition under Section 2(15) through its
proviso directs and thereby marks a departure from the previous
law, is - firstly that if a GPU charity is to engage in any activity in
the nature of trade, commerce or business, for consideration it
should only be a part of this actual function to attain the GPU
objective and, secondly - and the equally important consideration
is the imposition of a quantitative standard - i.e., income (fees,
cess or other consideration) derived from activity in the nature
of trade, business or commerce or service in relation to these
three activities, should not exceed the quantitative limit of
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. [Para 167][1014-A-F]
2.10 If one understands the definition in the light of the
above enunciation, the sequitur is that the reference to "income
being profits and gains of business" with a further reference to
its being incidental to the objects of the Trust, cannot and does
not mean proceeds of activities incidental to the main object,
incidental objects or income derived from incidental activities.
The proper way of reading reference to the term "incidental" in
Section 11(4A) is to interpret it in the light of the sub-clause (i) of
proviso to Section 2(15), i.e., that the activity in the nature of
business, trade, commerce or service in relation to such activities
should be conducted actually in the course of achieving the GPU
object, and the income, profit or surplus or gains can then, be
logically incidental. The amendment of 2016, inserting sub clause
(i) to proviso to Section 2(15) was therefore clarificatory. Thus
interpreted, there is no conflict between the definition of charitable
purpose and the machinery part of Section 11(4A). Further, the
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obligation under Section 11(4A) to maintain separate books of
account in respect of such receipts is to ensure that the
quantitative limit imposed by sub-clause (ii) to Section 2(15) can
be computed and ascertained in an objective manner. [Para
168][1014-F-H; 1015-A-B]
2.11 The conclusion recorded is also supported by the
language of seventh proviso 142 to Section 10(23C). Whereas
Section 2(15) is the definition clause, Section 10 lists out what is
not income. Section 10(23C) - by sub-clauses (iv) and (v) exempt
incomes of charitable organisations. Such organisations and
institutions are not limited to GPU category charities but rather
extend to other types of charities (i.e. the per se kind as well).
The controlling part of Section 10(23C) along with the relevant
clauses (iv) and (v) seek to exclude income received by the
concerned charities. However, the provisos hedge such
exemption with conditions. The seventh proviso - much like
Section 11(4A) and the definition - carve out an exception, to the
exemptions such that income derived by charities from business,
are not exempt. The seventh proviso virtually echoes Section
11(4A) in that business income derived by a charity (in the present
case, the GPU charities) which arises from an activity incidental
to the attainment of its objective is not per se excluded. [Para
169][1015-B-E]
2.12 Classically, the idea of charity was tied up with
eleemosynary. However, "charitable purpose" - and charity as
defined in the Act have a wider meaning where it is the object of
the institution which is in focus. Thus, the idea of providing
services or goods at no consideration, cost or nominal
consideration is not confined to the provision of services or goods
without charging anything or charging a token or nominal amount.
Therefore, pure charity in the sense that the performance of an
activity without any consideration is not envisioned under the
Act. If one keeps this in mind, what Section 2(15) emphasizes is
that so long as a GPU's charity's object involves activities which
also generates profits (incidental, or in other words, while actually
carrying out the objectives of GPU, if some profit is generated),
it can be granted exemption provided the quantitative limit (of
not exceeding 20%) under second proviso to Section 2(15) for
receipts from such profits, is adhered to. Yet another manner of
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looking at the definition together with Sections 10(23) and 11 is
that for achieving a general public utility object, if the charity
involves itself in activities, that entail charging amounts only at
cost or marginal mark up over cost, and also derive some profit,
the prohibition against carrying on business or service relating
to business is not attracted - if the quantum of such profits do not
exceed 20% of its overall receipts. [Para 170-172][1015-E-G;
1016-C-E]
2.13 The insertion of Section 13(8), the seventeenth proviso
to Section 10(23C) and third proviso to Section 143(3) (all of which
were inserted by Finance Act, 2012, but w.r.e.f. 01.04.2009),
further reinforces the interpretation of this Court, of "charitable
purpose". These provisions, form the machinery to control the
conditions under which income is exempt. The effect of the
seventeenth proviso to Section 10(23C) is to impose the same
condition i.e., that that the trade, commerce or business activity
or service relating to trade, business or commerce, should be
part of the GPU's activities, to achieve its object of advancing
general public utility. The other condition- which is drawn in as
part of the exemption condition, is that if such trading or
commercial activity takes place the receipts should be confined
to a prescribed percentage of the overall receipts. Section 13(8)
too reinforces the same condition. [Para 174][1017-B-D]
2.14 The change intended by Parliament through the
amendment of Section 2(15) was sought to be emphasised and
clarified by the amendment of Section 10(23C) and the insertion
of Section 13(8). This was Parliaments' emphatic way of saying
that generally no commercial or business or trading activity ought
to be engaged by GPU charities but that in the course of their
functioning of carrying out activities of general public utility, they
can in a limited manner do so, provided the receipts are within
the limit spelt out in Clause (ii) of the proviso to Section 2(15).
[Para 175][1017-D-F]
3. 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
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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. [Para 253,
H][1062-C-E]
The Trustees of Tribune Press, Lahore v. CIT, Punjab
[1939] 7 ITR 415; Charitable Gadodia Swadeshi Stores
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Calcutta v. Commissioner of Income Tax, West Bengal
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ASST. COMM'R OF INCOME TAX (EXEMPTIONS) v.