Meaning of "Charitable Purpose" - Section 2(15) - Income Tax - Ready Reckoner - Income Tax

Meaning of Charitable Purpose - Section 2(15) Charitable purpose includes Relief of poor, Education, Yoga (w.e.f. AY 2016-17) ; Medical relief Preservation of environment (including watersheds, forests and wildlife), Preservation of monuments or places or objects of artistic or historic interest, and the Advancement of any other object of general public utility . 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 fee or any other consideration , irrespective of the nature of use or application, or retention, of the income from such activity. Exception of this proviso:- However, the carrying on commercial activity shall still be regarded as charitable purpose if: Such commercial activity is under taken in the course of actual carrying previous such advancement of any other objective of general public utility AND ; the aggregate receipts from such activity or activity during the previous year, do not exceed 20% of the total receipt of the trust or institution undertaking such activity or activities Limitation on Commercial Activities - Permission u/s 2(15) - Proviso Assessment year Receipts from commercial activities From AY 2009-10 to 2011-12 10 lakh during the relevant previous year From AY 2012-13 to 2015-16 25 lakh during the relevant previous year From AY 2016-17 onwards 20 % of total receipts of the relevant previous year of the trust undertaking such activities* Restriction mention in proviso of section 2(15) does not apply in respect of the first five limbs of section 2(15). [ Refer Circular no. 11/2008 dated 19 December, 2008 ] SECTION 13(8) AND AMENDMENT IN SECTION 10(23C)AND 143(3) BY THE FINANCE ACT 2012 1. Section 13(8) provides that if the trust has the object of the advancement of any other object of general public utility and trust has been granted registration by commissioner of Income -Tax as charitable trust under section 12AA and because of first proviso to section 2(15) i.e. the receipt from commercial activities exceeds 20 % of total receipts of the relevant previous year of the trust undertaking such activities, the trust ceases to be a charitable trust ,then exemption under section 11 12 shall not be available to such trust for the previous year in which receipts exceeds such aforementioned limits 2. In such a case ,the cancellation of registration of trust under section 12AA by commissioner of income tax is not required and even if Commissioner of Income Tax has not cancelled the registration under section 11 12 shall not be allowed . 3. Section 13(8) provides that exemption under section 11 12 shall not be available for the previous year in which commercial receipts exceeds aforementioned limits, even if Commissioner of Income Tax has not cancelled the registration of the trust for such previous year .Such exemption shall not be available for such previous year by operation of law i.e section 13(8). 4. Section 10(23C) provides an exemption similar to section 11 12 to certain larger specified charitable organisations. The exemption under section 10(23C) is granted by Government by issuing a notification in the official gazette under section 10(23C). 5. Similar amendment has been carried out in section 10(23C) which provides that exemption under section 10(23C)shall not be available for the Assessment year in which first proviso to section 2(15) became applicable even if Government has not cancelled the approval granted for such previous year. 6. The amendment provides that exemption under section 10(23C) shall not be available for the previous year in which commercial receipts exceeds aforementioned limits ,whether or not the approval granted or notification issued for such institutions has been cancelled the approval /notification granting exemption under section 10(23C). 7. Section 143(3) which deals with assessment has been amended by the Finance Act ,2012 and it provides as under : Assessing Officer shall not give exemption under section 10(23C) or under section 11 12 In case of a trust or institution For the previous year in which First Proviso to section 2(15) becomes applicable i.e. commercial / business receipts exceeds above aforementioned limits Whether or not approval granted to such trust or institution has been cancelled under section 12AA or 10(23C) Assessing Officer will disallow exemption under section 10(23C) or section 11 12 by operation of law. Important Case laws YOGA fall under charitable purpose meaning under section 2(15) [ Patanjali Yogpeeth (NYAS) Vs. ADIT [Exemptions] , Range II, New Delhi 2017 (2) TMI 781 - ITAT DELHI ] Being in the nature of providing medical relief through Pranayam and Yoga and also to impart education in the field of yoga, would fall under the category of providing medical relief and imparting education as provided under section 2(15) of the Act, meaning thereby that the proviso to section 2(15) of the Act would not apply. Promotion of sports and game [ Director of Income Tax (Exemption) Vs Goregaon Sports Club 2012 (4) TMI 214 - Bombay HC ] Promotion of sport games is considered to be a charitable purpose of sport the meaning of section 2(15). Therefore, an associates or institution engaged in the promotion of sports and game can claim exemption under section 11, even if it is not approved under section 10(23) Circular no. 395, dated 24, September, 1984 . providing sports facilities to general public without restriction to any cast, creed, religion or profession is religion for exemption under section 11. Advancement of any object or benefit to the public or section of the public as distinguished from benefit to an individual or group of individual would be a charitable purpose. [ Commissioner of Income Tax Vs. Gujarat Maritime Board 2007 (12) TMI 7 - SC ]