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TMI Blog2020 (1) TMI 1072X X X X Extracts X X X X X X X X Extracts X X X X ..... 1979 (11) TMI 1 - SUPREME COURT] held that if the primary purpose of advancement of objects is for general public utility, the institution would remain charitable, even if there are incidental non-charitable objects for achieving the said purpose. Having given our thoughtful consideration to this issue, we are not persuaded by the submissions advanced by Mr. Maratha, learned Senior Standing Counsel. Merely because the objects of the trust are for the advancement of the business of TPA, it would not ipso facto render the trust to be non-charitable. The objects of the trust are not exclusively for the promotion of the interests of the TPA members. The objects are to provide benefit to general public in the field of insurance and health facilities. In the course of carrying out the main activities of the trust, the benefits accruing to the TPA members cannot, by itself, deny the institution the benefit of being a charitable organisation. No substantial question of law arising for our consideration. X X X X Extracts X X X X X X X X Extracts X X X X ..... inant object, which can be discerned by reading the object clause of the trust deed. During the course of the arguments, the attention of the learned counsel was drawn to the decisions of the Supreme Court in the case of Additional Commissioner of Income Tax, Gujarat v. Surat Art Silk Cloth Manufactures Association (1979) 13 CTR (SC) 378 and Director of Income Tax v. Bharat diamond Bourse (2003) 259 ITR 0280. Mr. Maratha then sought time to go through the aforesaid decisions and address the Court on the same aspect. Today, Mr. Maratha argues that neither the CIT (E), nor the ITAT had passed the orders in line with the aforesaid judgments and while applying the test prescribed by the Constitution Bench of Supreme Court in the case of Surat Art Silk (supra), the Court has to independently consider the facts of each case and come to a conclusion as to whether the assessee would be entitled to the benefit of Section 12AA of the Act. Mr. Maratha then referred to the aims and objects of the trust and submitted that the same are in the nature of advancement of the business of health insurance for TPAs to get the industry status to TPA business and it was thus clear that the intent was to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rk of TPAs and implement common procedures, standardized billing and standardized tariff and other related documentations; (viii) To represent to regulatory bodies, Govt authorities, on behalf of member TPAs on matters related to TPA/insurance business with the object of improvement and development of TPA industry; (ix) To create common data bank, exchange information pertaining to claim statistics, enrollment statistics and other related matters pertaining to member TPAs; (x) To initiate legal proceedings against defaulting hospitals, fraudulently insured and such other persons involved in malpractices or frauds pertaining to claims, cashless mechanism, insurance underwriting, etc.; (xi) To promote and create awareness for healthy living and to bring together all persons who subscribe to this common cause; (xii) To educate members about health insurance and comprehensive medical services; (xiii) To interact with various regulatory and other public and private sectors bodies for framing health-related and other beneficial schemes for people in general and those below the poverty line, and also participate in implementation of such schemes whether as consultants, advisor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and Banks. The funds, properties, assets and all other resources, present and future of the Trust shall be utilized for any or all the purposes or objects of the Trust as stated above and also for all other similar activities in furtherance of ideals of truth and non-violence; (xxix) To acquire by purchase or otherwise hold on lease, hire or rent or by exchange any movable or immovable property or properties; (xxx) To organize and maintain residential hostels, restaurants and other amenities for its members; (xxxi) To maintain and keep in good repair all buildings and common services; (xxxii) To constitute or cause to be constituted Regional Centres at convenient places to promote the objectives of the Trust; (xxxiii) To sell, give on lease or hire any property of the Trust; (xxxiv)To promote National Unity and International Peace and Amity; (xxxv) To aim towards Communal and Social Harmony and Brotherhood; (xxxvi) To undertake evaluation of Economic and Social projects; (xxxvii) To engage in any other lawful activity which may be conducive to the promotion or attainment of any or all objects of the Trust." 5. The CIT (E) proceeded to decline the registration relyi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ontention were permissible, we do not think there is any substance in it. The law is well settled that if there are several objects of a trust or institution, some of which are charitable and some non-charitable and the trustees or the managers in their discretion are to apply the income or property to any of those objects, the trust or institution would not be liable to be regarded as charitable and no part of its income would be exempt from tax. In other words, where the main or primary objects are distributive, each and everyone of the objects must be charitable in order that the trust or institution might be upheld as a valid charity - Mohammed Ibrahim Riza v. CIT [1930] LR 57 IA 260 and East India Industries (Madras) Pvt. Ltd. v. CIT [1967] 65 ITR 611. But if the primary or dominant purpose of a trust or institution is charitable, another object which by itself may not be charitable but which is merely ancillary or incidental to the primary or dominant purpose would not prevent the trust or institution from being a valid charity - CIT v. Andhra Chamber of Commerce [1965] 55 ITR 722. The test which has, therefore, to be applied is whether the object which is said to be nonchari ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ust 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 proposition "for". This proposition 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 to which the activity must be directed or, in other words, the predominant object of the activity must be making of profit. Where an activity is not pervaded by profit motive but is carried on primarily for serving the charitable purpose, it would not be correct to describe it as an activity for profit. But where, on the other hand, an activity is carried on with the predominant object of earning profit, it would ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se of carrying out its charitable purpose and on the facts it was clearly an activity which had profit-making as its predominant object, but even so it was held by the Judicial Committee that since the purpose served was an object of general public utility, it was a charitable purpose. It is clear from the speech of the Finance Minister that it was with a view to setting at naught this decision that the exclusionary clause was added in the definition of "charitable purpose". The test which has, therefore, now to be applied is whether the predominant object of two activities involved in carrying out the object of general public utility is to sub-serve this 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 resul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he charitable purpose must not be motivated by a profit objective but it must be undertaken for the purpose of advancement or carrying out of the charitable purpose. But we find it difficult to accept their thesis that whenever an activity is carried on which yields profit, the inference must necessarily be drawn, in the absence of some indication to the contrary, that the activity is for profit and the charitable purpose involves the carrying on of an activity for profit. We do not think the Court would be justified in drawing any such inference merely because the activity results in profit. It is in our opinion not at all necessary that there must be a provision in the constitution of the trust or institution that the activity shall be carried on no profit no loss basis or that profit shall be proscribed. Even if there is no such express provision, the nature of the charitable purpose, the manner in which the activity for advancing the charitable purpose is being carried on and the surrounding circumstances may clearly indicate that the activity is not propelled by a dominant profit motive. What is necessary to be considered is whether having regard to all the facts and circumsta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in CIT v. Andhra Chamber of Commerce [1965] 55 ITR 722, the Supreme Court said in Surat Art Silk Cloth Mfrs. Association's case (supra) that if the primary purpose is advancement of objects for general public utility, the institution would remain charitable, even if an incidental non-charitable object for achieving that purpose was contemplated. In the case of Andhra Chamber of Commerce (supra) it was held that a Chamber of Commerce did not cease to be charitable merely because the members of the chamber were incidentally benefited in carrying out its main charitable purpose. This Court approvingly followed the ratio in the case of Commissioner of Inland Revenue v. Yorkshire Agricultural Society [1928] 1 KB 611 and Institution of Civil Engineers v. Commissioner of Civil Revenue [1932] 1 KB 149 for reaching the conclusion that merely because some facilities incidentally arose to the members of a society or institution in the course of carrying out its main charitable purpose, that by itself would not prevent the institution from being a charity. All subsequent judgments have noticed and followed the judgment of the Constitutional Bench in Surat Art Silk Cloth Mfrs. Association ..... X X X X Extracts X X X X X X X X Extracts X X X X
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