Section 2(15) of the Income Tax Act, 1961, explain about ‘Charitable Purpose’ Which purposes are to be considered as Charitable Purpose? It includes the following;

-Relief of the poor,

-Education, ( Yoga ),

-Medical Relief,

-Preservation of environment ( including watersheds, forest 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.

1. Object of giving charity falls within termRelief to Poor

We know that in our country, the object of relief of the poor’ has always been recognized as a charitable purpose. Dealing with the scope of these words, the Supreme Court in Dharmadeepti vs. CIT (1978) 114 ITR 454(SC) observed that they include the expression “ to give charity “also. Thus the object of giving charity appears to fall within the ambit of the expression” relief to the poor” used in section 2(15). An object cannot be said to be meant for ‘relief of the poor’ unless it has some reference to the words like poverty, indigence or need.

2. Support to unemployed – Not necessarily relief to poor.

To support those unemployed persons who are not poor or needy is not relief to the poor. Many persons are unemployed, not because they are poor but because they are wealthy enough not to need employment. On the contrary, to support needy or poor unemployed is a charitable purpose.  Vide CIT V. Karim Brothers Charity Fund (1943) 11 ITR 603 (B0m).

3. Contribution towards marriage expenses– Not relief to the poor

The object of contributing towards the marriage expenses of needy persons is not a charitable purpose. Similarly, the object of maintain materials for use in marriages and other social and religious ceremonies is also not a charitable purpose. Vide Kedia Jatiya Sahayak Sabha and Fund vs. CIT (1963) 49 ITR 74 (Cal) relying on Trustees of Gordhandas Govindram Family Charity Trust Vs. CIT (1952) 21 ITR 231 (Bom). In the latter case, Chagla C.J. said “ It is not possible to say that a poor man cannot do without matrimony and that matrimony is a bar necessity of life………….” However , a view to the contrary has been arrived at in CIT V. Board of Mutawalli ( 1968) 69 ITR 758 (Cal).

4. Distribution of blankets to poor was charitable purpose

In Sardhai Foundation V. ITO (1989) 30 ITD 23 (Ahd-Trib), the assessee- foundation’s objects were

a. relief of the poor b.  Education c. medical relief, and

d. advancement and promotion of any other object of general public utility including promotion of science, art and literature. The officer disallowed a sum spent on distribution of blankets, to the poor on the grounds that this expenditure was not verifiable. It was held that as there was no reason to doubt that the blankets were distributed, the assessee’s claim had to be allowed.

5. Providing essential commodities to poor at subsidized rate.

State Civil Supplies Corporation is providing essential commodities to poor people at subsidized rates, the same should be considered to be providing relief to poor and hence eligible for exemption u/s 11, since the assessee was neither a service organization nor rendering any services, amendment of proviso to section 2(15) was not applicable. Vide Dy. CIT Circle 1(1), Hyderabad v. A.P.State Civil Suppliers Corporation Ltd. (2016) 160 ITD (Hyd-Trib).

6. Lending of money to poor women for income generating activities.

Assessee’s work was lending money to the poor women for income generating activities. The loan given to project members were borrowed from the banks. The beneficiaries were poor families. If the women in the assessee’s project had to borrow money from the money lenders, they have to pay higher interest than what the assessee had charged. It was also not in dispute that the assessee incurred financial cost for obtaining loans from the banks. Thus the asseess’s object was charitable in nature and exemption u/s 11 could not be denied on the ground that assessee was charging exorbitant interest. Vide Asstt. DIT(Exemption) v. Bharatha Swamukhi Samsthe (2009) 319 ITR 422 (Bang.Trib).

Impact of insertion of proviso in section 2(15)

The proviso to section 2(15) is applicable in respect of last limb of section 2(15), i.e. the advancement of any other object of general public utility. Consequently, where the purpose of a trust or institution is relief of the poor, education, yoga or medical relief, it will constitute ‘ charitable purpose’ even if it incidentally involves the carrying on of commercial activities.

‘ Relief of the poor’ encompasses wide rage of objects for the welfare of the economically and socially disadvantaged or needy. It will, therefore, include within its ambit purposes such as relief to destitute, orphans or the handicapped, disadvantaged women or children, small and marginal farmers or senior citizens in need of aid. Entities who have these objects will continue to be eligible for exemption even if they incidentally carry on a commercial activity, subject to the conditions stipulated u/s 11(4A) or the seventh proviso to section 10(23C) which are that

(i)  the business should be incidental to the attainment of the objectives of the entity, and

(ii) Separate books of account should be maintained in respect of such business.

In ITO v. Sasha Association for Craft Producers 2018 TaxPub(DT) 3707 (Kol-Trib), it was held that proviso to section 2(15) is not applicable in respect of first three limbs of section 2(15) and consequently, where the purpose of a trust or institution is relief of poor, education or medical relief, it will constitute “ Charitable Purpose” even if it incidentally involves the carrying on of commercial activities. 

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June 2021