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CBDT circular no. 621 dated 19 th December 1991 [(1992 195 ITR (St) 154 @165] 15.8 In order to bring exemption of charitable or religious trusts in line with the corresponding provisions in section 10(23C)(iv) or (v) of sub-section (4A) of section 11 has been amended to permit trust and institutions to carry out business activities if the business activities are incidental to the attainment of its objective. The charitable or religious trust will no longer lose complete exemption from income-tax. However, the profits and gains from such business activity will be subjected to tax.

"With respect, I venture to say that if an object of general public utility is engaged in an activity for profit, it ceases to be a charitable purpose and, therefore, the income is not exempt under s. 11(1)(a). In case of a trust falling under any of the first three heads of charity, viz., "relief of the poor", "education" and "medical relief" it may engage in any activity for profit, and the profits would not be taxable if they were utilized for the primary object of the trust. In other words, the business carried on by them is incidental or ancillary to the primary object, viz., relief of the poor, education and medical relief. To illustrate, a charitable hospital holding buildings on trust may run a nursing home. The profits of the nursing home owned and run by the trust will be exempt under s. 11(4), because the business is carried on by the trust in the course of the actual carrying out of the primary purpose of the trust. The concept of "profits to feed the charity", therefore, is applicable only to the first three heads of charity and not the fourth. It would be illogical and, indeed, difficult to apply the same consideration to institutions which are established for charitable purposes of any object of general public utility. Any profit-making activity linked with an object of general public utility would be taxable. The theory of the dominant or primary object of the trust cannot, therefore, be projected into the fourth head of charity, viz., "advancement of any Asst. Year: 2008-09 & 2010-11 other object of general public utility", so as to make the carrying on of a business activity merely ancillary or incidental to the main object.