Indian Kanoon - Search engine for Indian Law

3.2 In the final analysis, whether the assessee has for its object, the advancement of any other object of general public utility, is a question of fact. If such assessee is engaged in any activity in the nature of trade, commerce or business or renders any service in connection to trade, commerce or business, it would not be entitled to claim that its object is for ITA Nos.152-155 & 189/JODH/2015 C.O.Nos.14, 15,17/JODH/2015 and 07 & 04/JODH/2016 charitable purposes. In such a case, the object of ‗general public utility' will only be a mask or a device to hide the true purpose which is trade, commerce, or business or rendering of any service in relation to trade, commerce or business. Each case would, therefore, have to be decided on its own facts, and generalizations are not possible. An assessee who claims that their object is ‗charitable purpose' within the meaning of section 2(15) would be well advised to eschew any activity which is in the nature of trade, commerce or business or rendering of any service in relation to any trade, commerce or business.‖ (emphasis supplied).‖ 3.11 As can be seen from above, the aforesaid Circular clarifies that the proviso applies to trusts/ institutions falling in the last limb of the definition of ‗charitable purpose' namely advancement of any other object of general public utility. Further, when clause 15 of section 2 was amended to separately include ‗preservation of monuments or places or objects of artistic or historic nature' in the definition of charitable purpose, the intent of the Legislature was that the proviso thereto would not apply to an institution covered under the said limb. Thus, the aforesaid proviso does not apply to a trust/ institution engaged in the charitable object of preservation of monuments or places or objects of artistic or historic nature. Again this intention can be gathered from CBDT Circular No. 5 of 2010 dated 3rd June, 2010 reported in 308 ITR (St) 5, explaining the scope of the aforesaid amendment in the following words:

i) such an activity is not in the nature of trade, commerce or business,

ii) a) no fees is charged for rendering the service; or ITA Nos.152-155 & 189/JODH/2015 C.O.Nos.14, 15,17/JODH/2015 and 07 & 04/JODH/2016

b) in case fees is charged, rendering of such service is not in relation to trade, commerce or business.

Even otherwise, if the objectives of the appellant trust fall within the last limb of the definition of ‗charitable purpose' as defined under section 2(15), it cannot result in the denial of exemption under sections 11/12 of the Act, as the aforesaid activity of establishing museums is clearly in furtherance of the charitable objectives of the appellant trust and is not a business/commercial activity carried on with the motive of earning profit. The aforesaid proviso provides that if any of the objects of the assessee involve carrying on of any activity in the nature of trade, commerce or business for cess or fee or any other consideration, then, irrespective of the nature of use or application of income, the assessee shall not be regarded as existing for charitable purpose. Similarly, if any of the objects of an assessee involve carrying on of activity of rendering service in relation to trade, commerce or business for consideration then, too, the assessee shall not be regarded as carrying on any activity for charitable purpose. The circulars clarify that the proviso to section 2(15) of the Act applies to trust/ institution falling in the last limb of the definition of ‗charitable purpose' if such trust/ institution carries on commercial activities in the nature of business, trade or commerce. What is the definition of the term ‗business'? The Hon'ble Supreme Court in the case of Distributers Baroda P. Ltd. (83 ITR 377) has held that ‗business' refers to real, substantial, organized course of activity for earning profits as ‗profit motive' is essential requisite for conducting business. Following the above decision, the Special Bench of the Tribunal, in the case of BJP vs. DCIT : 258 ITR 1 (Del.) (AT), has held that an activity to be treated as ‗business' should have a semblance of trade, an attribute of commercial activity and an expectation to earn income over a reasonable period. The Tribunal further held that the expressions ‗trade' and ‗commerce' are narrower in scope than the expression ‗business'. The expressions ‗trade' or ‗commerce' signify economic/commercial activity with motive of earning profit. The term ―trade‖ has not been defined in the Act. Some of the dictionary meanings of ‗trade' are as under:

In our view, the entire point is now covered by the Supreme Court's judgment in Addl. CIT v. Surat Art Silk Cloth Manufacturers Association [1980] 121 ITR 1. The Court pointed out in that case that when the object of a trust was the carrying on of an object of general public utility, it is that object of general public utility which must not involve the carrying on of an activity for profit. It was pointed out that it was immaterial how the money for achieving or implementing such purpose was found. Whether, that money was obtained by the running of an activity for profit or not, did not make the charity not charitable. Thus, in the present case, no doubt, the trust earns the money from the Hamdard Dawakhana. If that money is used for charitable purpose and not for the carrying on of any business at a profit, then the object of the trust is charitable, notwithstanding the source of the income.

"The aims and objects of the trust are charitable. From details, we find that the assessee is constructing toilets for public which is also a charitable work. These public toilets are made out of the grants from Government of Uttar Pradesh and also some petty contribution from the beneficiaries. The contribution from beneficiaries cannot be said a commercial activity. After close perusal of these facts and taking the pleadings into consideration, we hold that the assessee trust is a genuine trust registered for charitable purpose, hence deserves registration under section 12A of the Income-tax Act and the exemption under section 80G. Therefore, we set aside the order of the DIT (Exemptions) and direct to grant the registration under section 12A and also to grant exemption under section 80G."