Charitable Purpose u/s. 2(15) of Income Tax Act ,1961

CHARITABLE PURPOSE

1. The expression “charitable purpose” has been defined under Section 2(15) of the Act to include:

(a) relief of the poor,

(b) education,

(c) medical relief,

(d) preservation of environment (including water sheds, forests and wild life)

(e) preservation of monuments or places or objects of artistic or historic interest and

(f) any other object of public utility

2. Prior to Assessment Year 2009-10, business income of a charitable trust or institution was also eligible for exemption subject to conditions that such business should be incidental to the attainment of its objects, and that separate books of account are maintained for such business. With effect from 01.04.2009 (i.e., from assessment year 2009-10 onwards), however, the “advancement of any other object of general public utility” shall not qualify as a “charitable purpose” if the same involves the carrying on of any activity in the nature of trade, commerce or business, or rendering of any service in relation to any trade, commerce or business, for a consideration. This new restriction applies irrespective of the nature of use or application of the income arising from such activity. However, the rigour of this amendment has been reduced somewhat by a subsequent amendment brought in by the Finance Act, 2010 (with retrospective effect from 1-4-2009) to the effect that the said restriction shall not apply if the aggregate value of receipts from such activity during the given financial year does not exceed Rs. 10,00,000.²

3. Further, w.e.f. 01.04.09, preservation of environment (including watersheds, forests and wildlife), and preservation of monuments or places, or objects of artistic or historic interest have specifically been included within the ambit of “charitable purpose”.

4. It may be added that the definition of “charitable purpose” remains an inclusive one and is not an exhaustive or exclusive one. In other words, purposes similar to those mentioned in the aforesaid definition could also constitute ‘charitable purpose’ under the Act. Courts have held that the expression ‘charitable purpose’ is sufficiently wide in scope to include a variety of activities. For instance, promotion of sports and games is a charitable purpose³, as is promotion of trade and commerce, even when the beneficiaries are confined only to a particular line of trade or commodity⁴. At the same time, however, the fact that remote and indirect benefits are derived by members of the public will not be sufficient to make the purpose a “charitable purpose” under the Act. Mentioned below are a few significant cases which help clarify the meaning of the expression “charitable purpose” for the purposes of income tax.

CHARITY

5. The word ‘Charity’ connotes altruism in thought and action. It involves an idea of benefiting others rather than oneself.⁵

6. A commercial concern is not an object of relief of the poor on the ground that it provides employment. The object should provide relief directly and not indirectly.⁶

7. For a trust to be accepted as a charitable trust for the purposes of exemption, it is necessary that the objects should be specific so as to confirm to the requirement of income tax law in this regard. Where they are too wide, the trust may not qualify for exemption.⁷

8. The onus to prove that objects are of charitable nature is on the assessee.⁸

RELIEF OF THE POOR

9. The establishment of an industrial or commercial concern ordinarily envisages a profit making activity⁹and cannot be said to be a charitable purpose on the ground that it will provide employment to some poor persons.¹⁰

EDUCATION

10. The word ‘Education’ means training and developing the knowledge, skill, mind and character of students by normal schooling. Travelling also enhances knowledge, but that would not amount to ‘education’ in the context of Section 2(15).¹¹

11. The running of a private coaching institute for the purpose of training the students to appear at certain specified examinations upon taking specified sum from the trainees is not a charitable purpose.¹²

ADVANCEMENT OF ANY OTHER OBJECT OF GENERAL PUBLIC UTILITY

12. To serve a charitable purpose, it is not necessary that the object should be to benefit the whole of mankind or all persons in a   particular country or state. It is sufficient if the intention to benefit a section of the public, as distinguished from a specified individual, is present. However, the section of the community sought to be benefited must be sufficiently defined and identifiable by some common quality of a public or impersonal nature.¹³

13. An institution set up with the object of promoting trade or commerce is a charitable institution as it promotes common good through enhancement of business.¹⁴ However, an institution which merely regulates or enhances the business of its members, is not a charitable institution. Thus, where the proprietors of hotels formed an association for obtaining articles on permit for supplying them to members and protecting their business interest, the association was held not to be a charitable one for the purpose of the Act¹⁵

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²This ceiling stands revised upwards to Rs.25, 00,000 with effect from 01.04.2012.

³CBDT’s Circular No.395 dated 24.09.1984.

⁴Bharat Diamond Bourse [2003] 126 Taxman 365 (SC); Surat Art Silk Cloth Manufactures Association [1980] 121 ITR 1 (SC).

⁵Andhra Chamber of Commerce [1965] 55 ITR 722 (SC).

⁶Yograj Charity Trust [1976] 103 ITR 777(SC).

⁷Gangabai Charities [1992] 197 ITR 416 (SC); Assembly Rooms [2000] 241 ITR 76 (Mad).

⁸Indian Chamber of Commerce v. CIT [1975] 101 ITR 796 (SC).

 ⁹Dharmaposhanam Co. [1978] 114 ITR 463 (SC).

¹⁰Jaipur Charitable Trust [1971] 81 ITR 1 (Del); Yogiraj Charity Trust [1976] 103 ITR 777 (SC).

¹¹Sole Trustee, Lok Shikshana Trust [1975] 101 ITR 234 (SC).

¹²Bihar Institute of Mining and Mine Surveying [1994] 208 ITR 608 (Pat.)

¹³Ahmedabad Rana Caste Association [1971] 82 ITR 704 (SC).¹³

¹⁴Federation of Indian Chambers of Commerce & Industry [1981] 130 ITR 186(SC); Bar Council of Maharashtra [1981] 130 ITR 28 (SC).

¹⁵Madras Hotels Association [1978] 111 ITR 241 (Mad.)