"Charitable purpose"u/s 2(15) of Income-tax Act,1961. - Income Tax - 1024/CBDT

INSTRUCTION NO. 1024/CBDT Dated : November 9, 1976 Section(s) Referred: 2(15) Statute: Income - Tax Act, 1961 Section 2(15) of the Income-tax Act, 1961 defines "charitable purpose" as under:- "Charitable purpose" includes relief of the poor, education medical relief, and the advancement of any other object of general public utility not involving the carrying on of any activity for profit." 2. In the definition of "charitable purpose", the expression "not involving the carrying on of any activity for profit" was added in the 1961 Act. The significance of this expression has been examined by the Supreme Court in great detail in the cases of Sole Trustee Lok Shikshana Trust Vs. C.I.T., West Bengal etc. (101 ITR 797). Commenting on this expression, their Lordships, in the case of the Indian Chamber of Commerce Vs. C.I.T., West Bengal etc. observed. "Notwithstanding the possibility of obscurity and of dual meanings when the emphasis is shifted from 'advancement' to 'object' used in section 2(15), we are clear in our minds that by the new definition the benefit of exclusion from total income is taken away where in accomplishing a charitable purpose the institution engages itself in activities for profit" The Supreme Court emphasised that if in the advancement of the objects of general public utility a trust resorts to carrying on of any activity for profit, then necessarily section 2(15) cannot confer exemption. In Lok Shikshana Trust, their Lordships Khanna J., and Gupta J. observed. "Ordinarily, profit motive is a normal incident 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 any activity for profit. 3. The test which has been laid down by the Supreme Court for determining whether a particular activity of general public utility is covered by the definition of "charitable purpose" or not is :(a) Is the object of the assessee one of general public utility? (b) Does the advancement of the object involve activities, (i) for profit, or (ii) without profit ? It was observed by the Supreme Court that if (a) and (b) are answered affirmatively, and clause (i) is also answered affirmatively, the claim for exemption collapses and the benefit of section-II will not be available to the entire income. However, if such activity is undertaking within the meaning of section 2(15). 4. These two decisions of the Supreme Court may kindly be brought to the notice of the officers working in your charge. They may also kindly be directed to carry out a review of the completed cases in the light of the pronouncement of the Supreme Court and take remedial action wherever called for and feasible. A report indicating the result of the review may please be sent to the Board by 1st January, 1977 without fail.