Date of the Judgment: 19 October 2022
Citation: (2022) INSC 900
Judges: Uday Umesh Lalit, CJI, S. Ravindra Bhat, J, Pamidighantam Sri Narasimha, J.
Can organizations involved in activities that generate revenue, such as trade or business, still be considered charities for tax exemption purposes? The Supreme Court of India recently addressed this complex question, clarifying the scope of “charitable purpose” under Section 2(15) of the Income Tax Act, 1961. This judgment is crucial for understanding which organizations qualify for tax exemptions, particularly those involved in activities that generate revenue.
Case Background
This case involves a batch of appeals and special leave petitions where the central question is the interpretation of the proviso to Section 2(15) of the Income Tax Act, 1961, which defines “charitable purpose.” The core issue revolves around whether organizations involved in activities that generate revenue can still be considered charities for tax exemption purposes, particularly those falling under the “advancement of any other object of general public utility” category.
The appeals were filed by the Income Tax Department against various High Court decisions that had held that the carrying on of trade, commerce, or business is not a bar for a charitable trust to claim tax-exempt status.
Timeline
| Date | Event |
|---|---|
| 1922 | Income Tax Act, 1922 enabled tax exemption claims by trusts for income from business activity. |
| 1939 | Amendment to the Income Tax Act, 1922, introducing clause (ia) limiting business income exemption for charitable trusts. |
| 1953 | Further amendment to the Income Tax Act, 1922, transforming clause (ia) into a proviso to Section 4(3)(i). |
| 1961 | Income Tax Act, 1961 came into force, repealing the old Income Tax Act. Section 2(15) defined “charitable purpose” restrictively. |
| 1975 | Amendment to the IT Act, introducing Section 10(23C) and Section 13(1)(bb) imposing conditions on business activities by charities. |
| 1979 | Supreme Court decision in Assistant Commissioner v. Surat Art Silk Cloth Manufacturers’ Association, interpreting “charitable purpose” and introducing the “predominant object” test. |
| 1983 | Finance Act, 1983, omitted the expression “not involving the carrying on of any activity for profit” from Section 2(15) and Section 13(1)(bb), while inserting Section 11(4A). |
| 1991 | Amendment to Section 11(4A) of the IT Act. |
| 2002 | Finance Act, 2002, deleted Section 10(20A) and 10(23). |
| 2008 | Finance Act, 2008, amended Section 2(15) introducing the proviso that restricts tax exemption for GPU charities if they engage in trade, commerce or business. |
| 2015 | Finance Act, 2015, further amended Section 2(15), introducing a condition that trade, commerce or business activities must be in the course of actual carrying out of the charitable object, with receipts not exceeding 20% of the total receipts. |
| 2022 | Supreme Court judgment clarifying the interpretation of “charitable purpose” under Section 2(15) of the Income Tax Act, 1961. |
Legal Framework
The core of this case lies in the interpretation of Section 2(15) of the Income Tax Act, 1961, which defines “charitable purpose.” The definition includes:
“charitable purpose” includes relief of the poor, education, medical relief, preservation of environment (including watersheds, forests and wildlife) and preservation of monuments or places or objects of artistic or historic interest, and the advancement of any other object of general public utility:
The key part of the definition is its proviso, which was introduced by amendment w.e.f. 01.04.2009:
Provided that the advancement of any other object of general public utility shall not be a charitable purpose, if it involves the carrying on of any activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business, for a cess or fee or any other consideration, irrespective of the nature of use or application, or retention, of the income from such activity:
This proviso restricts the tax exemption for organizations under the “general public utility” category if they are involved in trade, commerce, or business activities for a fee or other consideration.
Other relevant provisions include:
- Section 11: Provides conditions for exemption of income from property held under trust for charitable or religious purposes.
- Section 12, 12A, 12AA: Prescribe conditions and procedures for claiming tax exemptions by charitable trusts.
- Section 13: Specifies circumstances where tax exemptions are not applicable.
- Section 10(46): Exempts specified income of certain bodies established for the benefit of the general public, provided they are not engaged in any commercial activity.
Arguments
Arguments on behalf of the revenue:
- The revenue argued that the term “not involving the carrying on of any activity for profit” in Section 2(15) was deliberately added to prevent misuse of tax exemptions by commercial entities masquerading as charities.
- It contended that the “predominant object” test, as laid down in Surat Art Silk, was incorrectly decided and that any involvement in trade or business should disqualify a charitable trust from claiming tax exemption.
- The revenue argued that statutory corporations and authorities, if engaged in trade or business, should not be exempt from taxation.
Arguments of the assessee organizations:
- The assessee organizations contended that their activities were primarily for the advancement of general public utility and that any income generated was incidental to their main charitable purpose.
- They relied on the “predominant object” test in Surat Art Silk, arguing that as long as their main objective was not profit-making, they should be considered charities.
- They argued that statutory bodies, such as housing boards and industrial development corporations, perform essential public functions and should not be treated as commercial entities.
- The assessees argued that the term “trade,” “business,” or “commerce” always implies activities driven by profit and that their activities, not being primarily profit-driven, do not fall under this category.
Revenue’s rebuttal arguments:
- The revenue rebutted the arguments of the assessees and submitted that there is no constitutional immunity from taxation for state entities if they engage in trade or business.
- It was further contended that the validity of the amendment can be tested on limited grounds such as invalidity, arbitrariness, unreasonableness, discrimination etc. and the assessees have failed to make out a case under any such ground.
Submissions Categorized
| Main Submission | Revenue’s Sub-Submission | Assessee’s Sub-Submission |
|---|---|---|
| Interpretation of Section 2(15) | Restrictive interpretation; any trade or business activity disqualifies for tax exemption. | Liberal interpretation; “predominant object” test should apply; incidental trade does not disqualify. |
| Statutory Bodies | If engaged in trade or business, not exempt from taxation. | Perform essential public functions, not commercial entities; should be exempt. |
| “Trade,” “Business,” “Commerce” | Any activity with a profit motive is within these terms. | Require a primary profit motive; activities without such motive are outside these terms. |
| Circulars and Parliamentary Speeches | Circulars are not binding on courts; parliamentary speeches can’t override the plain words of a statute. | Circulars and speeches are valuable aids to interpretation, especially when softening the rigor of a new provision. |
| Effect of Amendments | Amendments were meant to restrict tax exemptions for entities engaged in trade or business. | Amendments should not negate the principles laid down in previous judgments, such as Surat Art Silk. |
Issues Framed by the Supreme Court
The primary issue before the Supreme Court was the correct interpretation of the proviso to Section 2(15) of the Income Tax Act, 1961, specifically:
- Whether the carrying on of any activity in the nature of trade, commerce, or business, or any activity of rendering any service in relation to any trade, commerce, or business, for a cess or fee or any other consideration, would disqualify an organization from being considered a charitable purpose under Section 2(15) of the Income Tax Act, 1961.
- How to interpret the terms “cess,” “fee,” and “any other consideration” in the proviso to Section 2(15) of the Act.
- Whether the “predominant object” test, as laid down in Surat Art Silk, is still applicable in light of the amendments to Section 2(15).
Treatment of the Issue by the Court
| Issue | Court’s Treatment | Brief Reasons |
|---|---|---|
| Interpretation of Proviso to Section 2(15) | The court held that the proviso is to be interpreted strictly, and that GPU charities cannot engage in activities in the nature of trade, commerce, or business for a fee or other consideration. | The court emphasized that the amendments were intended to prevent misuse of tax exemptions by commercial entities. |
| Interpretation of “cess,” “fee,” and “any other consideration” | The court clarified that these terms imply a monetary payment for something of value, and that these terms should be interpreted to mean activities driven by profit. | The court noted that the terms should be read to mean activities that are not purely for the advancement of public utility but for profit. |
| Applicability of “Predominant Object” Test | The court ruled that the “predominant object” test is no longer applicable in light of the amendments to Section 2(15). | The court emphasized that the focus is now on whether the activity is in the nature of trade, commerce, or business, rather than the overall object of the organization. |
Authorities
The Supreme Court considered the following authorities:
Cases:
- The Trustees of Tribune Press, Lahore v. CIT, Punjab (1939) – Privy Council.
- Charitable Gadodia Swadeshi Stores v. CIT (1944) – Lahore High Court.
- CIT v. P. Krishna Warriar (1964) – Supreme Court of India.
- CIT v. Andhra Chamber of Commerce (1965) – Supreme Court of India.
- Sole Trustee, Lok Shikshana Trust v. Commissioner of Income Tax (1976) – Supreme Court of India.
- Indian Chamber of Commerce v. CIT (1976) – Supreme Court of India.
- Assistant Commissioner v. Surat Art Silk Cloth Manufacturers’ Association (1980) – Supreme Court of India.
- CIT, Bombay v. Bar Council of Maharashtra (1981) – Supreme Court of India.
- Assistant Commissioner of Income Tax v. Thanthi Trust (2001) – Supreme Court of India.
- New Delhi Municipal Council v. State of Punjab (1997) – Supreme Court of India.
- Shri Ramtanu Cooperative Housing Society Ltd. v. State of Maharashtra (1970) – Supreme Court of India.
- Gujarat Industrial Development Corporation v. CIT (1997) – Supreme Court of India.
- HSIDC v. Hari Om Enterprises (2009) – Supreme Court of India.
- Commissioner of Central Excise v. Maharashtra Industrial Development Corporation (2017) – Bombay High Court.
- Navnit Lal C. Jhaveri v. K.K. Sen (1965) – Supreme Court of India.
- UCO Bank Calcutta v. Commissioner of Income Tax, West Bengal (1999) – Supreme Court of India.
- State of Punjab v. Bajaj Electricals Ltd (1968) – Supreme Court of India.
- Khoday Distilleries Ltd. v. State of Karnataka (1995) – Supreme Court of India.
- State of Gujarat v. M/s. Raipur Manufacturing (1967) – Supreme Court of India.
- Commissioner of Central Excise, Bolpur v. Ratan Melting and Wire Industries (2008) – Supreme Court of India.
- Kerala State Electricity Board v. Indian Aluminium Co. Ltd. (1976) – Supreme Court of India.
- Trustees of the Port of Madras v. Aminchand Pyarelal and Ors. (1976) – Supreme Court of India.
- State of Gujarat v. Mahesh Dhiarjlal Thakkar (1980) – Supreme Court of India.
- Sodan Singh & Ors. v New Delhi Municipal Committee & Ors (1989) – Supreme Court of India.
- T.M.A Pai Foundation and Ors. v. State of Karnataka & Ors (2002) – Supreme Court of India.
- CIT, Madras v. M/s Madurai Mills Company Limited (1973) – Supreme Court of India.
- Karnataka Industrial Areas Development Board v. Prakash Dal Mill (2011) – Supreme Court of India.
- State of Karnataka v. All India Manufacturer’s Organisation (2006) – Supreme Court of India.
- State of Tamil Nadu v. Board of Trustees of the Port of Madras (1999) – Supreme Court of India.
- CST v. Sai Publication Fund (2002) – Supreme Court of India.
- Commissioner of Income Tax v. Gujarat Maritime Board (2007) – Supreme Court of India.
- Yogiraj Charity Trust v. CIT (1976) – Supreme Court of India.
- Commissioner of Income Tax v. Andhra Pradesh Road Transport Corporation (1986) – Supreme Court of India.
- Queens’s Educational Society v. CIT (2015) – Supreme Court of India.
- State of Karnataka v. Shreyas Papers Pvt. Ltd (2006) – Supreme Court of India.
- Ashoka Smokeless Coal India (P) Ltd. v. Union Of India (2007) – Supreme Court of India.
- Physical Research Laboratory v. K.G Sharma (1997) – Supreme Court of India.
- State of A.P v. H. Abdul Bakhi & Bros (1964) – Supreme Court of India.
- P. Vajravelu Mudaliar v. Special Deputy Collector, Madras & Ors (1965) – Supreme Court of India.
- Dalco Engineering Pvt. Ltd. v. Satish Prabhakar Padhye & Ors. (2010) – Supreme Court of India.
- Nabha Power Limited v. Punjab SPCL (2018) – Supreme Court of India.
- Secretary, Ministry of Education & Broadcasting, Govt. of India & Ors. v. Cricket Association of Bengal (1995) – Supreme Court of India.
- American Hotel and Lodging Association v. CBDT (2008) – Supreme Court of India.
- Visvesvarya Technological University v. Assistant Commissioner of Income Tax (2016) – Supreme Court of India.
- Director Of Supp. & Disp. v. Board of Revenue (1967) – Supreme Court of India.
- Barendra Prasad Ray v. ITO (1981) – Supreme Court of India.
- Customs & Excise Commissioner v. Lord Fisher (1981) – All ER 147.
- Adityapur Industrial Area Development Authority v. Union of India (2006) – Supreme Court of India.
- Commissioner of Income Tax v. Federation of Indian Chambers of Commerce and Industries (1981) – Supreme Court of India.
- Commissioner of Income Tax v. Gujarat Maritime Board (2007) – Supreme Court of India.
- Director of Income Tax v. Bharat Diamond Bourse (2003) – Supreme Court of India.
- Greater Noida Industrial Development Authority v. Union of India & Ors (2018) – Delhi High Court.
- Saurashtra Education Foundation v. CIT (2005) – Gujarat High Court.
- Gujarat State Co-operative Union v. CIT (1992) – Gujarat High Court.
- J.K Synthetics & Another v. Union of India & Ors (1981) – Delhi High Court.
- CIT v. Yamuna Expressway Industrial Development Authority (2017) – Allahabad High Court.
- Commissioner of Income Tax (Exemptions), Chandigarh v. M/s Hoshiarpur Improvement Trust, Hoshiarpur (2016) – Punjab and Haryana High Court.
- Tamil Nadu Cricket Association v. Director of Income Tax (Exemptions) & Ors. (2014) – Madras High Court.
- Commissioner of Income Tax v. Dawoodi Bohara Jamat (2014) – Supreme Court of India.
- S.RM.M.CT.M. Tiruppani Trust v. Commissioner of Income Tax (1998) – Supreme Court of India.
- G. Venkataswami Naidu v. Commissioner of Income Tax (1959) – Supreme Court of India.
- State of Tamil Nadu v. Burmah Shell Oil Storage Distribution Company of India Ltd (1973) – Supreme Court of India.
- State of Tamil Nadu v. Shakti Estates (1989) – Supreme Court of India.
- Director of Civil Supplies v. Member Board of Revenue (1967) – Supreme Court of India.
- Renusagar Power Co. Ltd. v. General Electric Co. (1985) – Supreme Court of India.
- Mansukhlal Dhanraj Jain v. Eknath Vithal Ogale (1995) – Supreme Court of India.
- Doypack System (P) Ltd. v. Union of India (1988) – Supreme Court of India.
- Town Investments v. Department of Environment (1977) – All ER 813.
- Shinde Brothers Etc. v. Deputy Commissioner, Raichur and Ors (1967) – Supreme Court of India.
- India Cement Ltd. & Ors. v. State of Tamil Nadu and Ors (1989) – Supreme Court of India.
- Vijayalashmi Rice Mill and Ors. v. Commercial Tax Officers, Palakol & Ors (2006) – Supreme Court of India.
- The Commissioner of Income Tax, Lucknow v. U.P. Forest Corporation (1998) – Supreme Court of India.
- Commissioner of Central Excise, Mumbai v. Fiat India (P) Ltd. & Ors (2012) – Supreme Court of India.
- S.K. Gupta & Anr. v. K.P. Jain & Anr. (1979) – Supreme Court of India.
- Indira Nehru Gandhi v. Shri Raj Narain and Anr. (1975) – Supreme Court of India.
- Kalya Singh v. Genda Lal and Ors (1975) – Supreme Court of India.
- Vanguard Fire and Insurance Company Ltd. v. M/s. Fraser and Ross and Anr. (1960) – Supreme Court of India.
- N.K. Jain and Ors. v. C.K. Shah and Ors (1991) – Supreme Court of India.
- Commissioner of Customs v. Indian Oil Corporation (2004) – Supreme Court of India.
- Keshavji Ravji & Co. and Ors. v. Commissioner of Income Tax (1992) – Supreme Court of India.
- CIT v. Vatika Township (2015) – Supreme Court of India.
- Bhuwalka Steel Indus. Ltd. & Ors. v. Bombay Iron and Steel Labour Bd. & Ors. (2009) – Supreme Court of India.
- Chief Justice of Andhra Pradesh & Ors. v. L.V.A. Dixitulu & Ors. (1979) – Supreme Court of India.
- Lohia Machines Ltd. and Ors. v. Union of India & Ors (1985) – Supreme Court of India.
- Commissioner of Customs (Import), Mumbai v. Dilip Kumar & Company & Ors (2018) – Supreme Court of India.
- Sahney Steel & Press Works Ltd v. Commissioner of Income Tax (1997) – Supreme Court of India.
- Commissioner of Income Tax v. Ponni Sugars (2008) – Supreme Court of India.
- J.K. Trust v. CIT (1958) – Supreme Court of India.
- Thiagesar Dharma Vanikam v. CIT (1963) – Madras High Court.
- Raja P.C. Lall Choudhary v. CIT, Bihar & Orissa (1957) – Patna High Court.
- Commissioner of Income Tax v. Federation of Indian Chambers of Commerce and Industries (1981) – Supreme Court of India.
- Union of India & Ors. v. State of U.P. & Ors. (2007) – Supreme Court of India.
- Union of India v. Purna Municipal Corporation (1991) – Supreme Court of India.
- Municipal Corporation, Amritsar v. Senior Superintendent of Post Offices, Amritsar Division & Anr. (2004) – Supreme Court of India.
- K.P. Varghese v. Income-tax Officer (1982) – Supreme Court of India.
- Union of India v. Azadi Bachao Andolan (2003) – Supreme Court of India.
- Kalpana Mehta & Ors. v. Union of India (UOI) and Ors (2017) – Supreme Court of India.
- Ellerman Lines Ltd. v. Commissioner of Income tax (1972) – Supreme Court of India.
- Sirpur Paper Mills Ltd. v. Commissioner of Wealth Tax (1970) – Supreme Court of India.
- Ramesh Yeshwant Prabhoo v. Prabhakar Kashinath Kunte (1995) – Supreme Court of India.
- Novartis AG v. Union of India (2013) – Supreme Court of India.
- Surana Steels (P) Ltd. v. Commissioner of Income Tax (1999) – Supreme Court of India.
- Commissioner of Income Tax v. Cochin Chamber of Commerce and Industry (1973) – Kerala High Court.
- A.P. State Road Transport Corporation v. CIT (1975) – Andhra Pradesh High Court.
- Dharmadeepti v. CIT (1978) – Supreme Court of India.
- Victoria Technical Institute v CIT (1991) – Supreme Court of India.
- Aditnar Educational Institution v. Addl. CIT (1997) – Supreme Court of India.
- Thiagarajar Charities v. ACIT (1997) – Supreme Court of India.
- Director of Income Tax v. Bharat Diamond Bourse (2003) – Supreme Court of India.
- State of West Bengal v. Union of India (1964) – Supreme Court of India.
Legal Provisions:
- Indian Income Tax Act, 1922: Section 4(3)
- Income Tax Act, 1961: Section 2(15), Section 10(23C), Section 10(46), Section 11, Section 12, Section 12A, Section 12AA, Section 13
- Indian Contract Act: Section 2(d)
- Copyrights Act, 1957: Section 37 to 40
Judgment
How each submission made by the Parties was treated by the Court?
| Submission | Court’s Treatment |
|---|---|
| Revenue’s submission that “predominant object” test is no longer applicable | Accepted. Court held that the amendments to Section 2(15) have shifted the focus from the “predominant object” to the nature of the activity. |
| Assessee’s submission that statutory bodies performing public functions should be exempt | Partially accepted. Court held that such bodies, if engaged in activities for public benefit, can be considered charities, but their receipts must be scrutinized. |
| Revenue’s submission that any commercial activity disqualifies for tax exemption | Partially accepted. Court held that the level of the receipts should be within the prescribed limits. |
| Assessee’s submission that “trade,” “business,” or “commerce” implies profit motive | Partially accepted. Court held that if the activities are not primarily profit-driven, they can still be considered charitable, provided the receipts are within the prescribed limits. |
| Assessee’s submission that circulars and parliamentary speeches are valuable aids to interpretation | Partially accepted. Court held that circulars are binding on tax authorities, but not on courts, and that parliamentary speeches can be used to understand the object of legislation. |
How each authority was viewed by the Court?
- Surat Art Silk: (1980) 2 SCC 31 Overruled to the extent that it held that the “predominant object” test was sufficient to determine charitable purpose.
- Lok Shikshana Trust: (1976) 1 SCC 254 Partially followed to the extent of the definition of education but not with respect to the interpretation of “for profit”.
- Indian Chamber of Commerce: (1976) 1 SCC 324 Overruled as it was not in line with the principles laid down in the Surat Art Silk case.
- In Re: Trustees of the Tribune: (1939) 7 ITR 415 Distinguished as it was decided under the old Income Tax Act, which did not have the restrictive provisions of the 1961 Act.
- Krishna Warriar: (1964) 8 SCR 36 Followed to the extent of the definition of “property” but distinguished as it was under the old Act.
- Andhra Chamber of Commerce: (1965) 1 SCR 565 Distinguished as it was decided under the old Act.
- Thanthi Trust: (2001) 2 SCC 707 Partially followed to the extent that it held that business can be incidental to the attainment of the trust’s objectives but distinguished as it was in the context of a per se charity.
What weighed in the mindof the Court?
The Supreme Court’s decision was heavily influenced by the following factors:
- Legislative Intent: The Court placed significant emphasis on the legislative intent behind the amendments to Section 2(15). It concluded that the amendments were deliberately made to curb the misuse of tax exemptions by organizations that were essentially engaging in commercial activities under the guise of charity.
- Plain Language of the Statute: The Court stressed the importance of adhering to the plain and unambiguous language of the statute. It noted that the proviso to Section 2(15) clearly states that if an organization is involved in trade, commerce, or business activities for a fee or other consideration, it cannot be considered a charitable purpose under the “general public utility” category.
- Distinction between Public Utility and Commercial Activity: The Court sought to draw a clear distinction between activities that are purely for the advancement of public utility and those that have a commercial or profit-making element. It held that while an organization may be engaged in activities that benefit the public, if those activities also involve a commercial element, they cannot qualify for tax exemption under the charitable purpose definition.
- Overruling of the “Predominant Object” Test: The Court explicitly overruled the “predominant object” test, which had been the guiding principle in the Surat Art Silk case. It stated that the amendments to Section 2(15) had shifted the focus from the overall object of the organization to the nature of its activities. If the activities involve trade, commerce, or business, the organization cannot claim tax exemption, regardless of its overall charitable object.
- Need to Prevent Misuse of Tax Exemptions: The Court also expressed concern about the potential misuse of tax exemptions by organizations that were essentially commercial enterprises. It emphasized the need to ensure that tax benefits are available only to genuine charitable organizations and not to those that are primarily engaged in commercial activities.
Final Decision
The Supreme Court held that:
- The proviso to Section 2(15) of the Income Tax Act, 1961, should be interpreted strictly.
- Organizations under the “advancement of any other object of general public utility” category cannot engage in activities in the nature of trade, commerce, or business for a fee or other consideration.
- The “predominant object” test, as laid down in Surat Art Silk, is no longer applicable in light of the amendments to Section 2(15).
- The terms “cess,” “fee,” and “any other consideration” should be interpreted to mean activities that are not purely for the advancement of public utility but for profit.
The court remanded the cases back to the assessing officers for fresh consideration in light of the principles laid down in the judgment.
Flowchart: Determining Charitable Purpose
Is the organization claiming to be a charity?
↓
Is the organization’s purpose relief of the poor, education, medical relief, preservation of environment, or preservation of monuments?
↓
If yes, it is a charity (per se). If no, is the purpose advancement of any other object of general public utility?
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Does the organization engage in trade, commerce, or business, or any activity of rendering any service in relation to any trade, commerce or business for a cess, fee, or any other consideration?
↓
If no, it is a charity. If yes, it is NOT a charity under the “general public utility” category.
Implications
This judgment has significant implications for organizations claiming charitable status, particularly those under the “general public utility” category. Key implications include:
- Stricter Scrutiny: Organizations will face stricter scrutiny from tax authorities regarding their activities and sources of income. Any involvement in trade, commerce, or business for a fee or other consideration will be closely examined.
- Loss of Tax Exemptions: Organizations found to be engaged in commercial activities may lose their tax exemptions, leading to increased tax liabilities.
- Need for Restructuring: Some organizations may need to restructure their activities to ensure compliance with the amended Section 2(15) and retain their charitable status. This may involve separating commercial activities from charitable activities.
- Increased Compliance Burden: Organizations will need to maintain detailed records of their activities and receipts to demonstrate compliance with the law. This will increase their compliance burden.
- Impact on Statutory Bodies: Statutory bodies and authorities that engage in activities with a commercial element may need to re-evaluate their operations and tax status.
Conclusion
The Supreme Court’s judgment in Assistant Commissioner of Income Tax vs. Ahmedabad Urban Development Authority is a landmark decision that clarifies the scope of “charitable purpose” under Section 2(15) of the Income Tax Act, 1961. By overruling the “predominant object” test and emphasizing the nature of the activities of an organization, the Court has set a stricter standard for organizations claiming tax exemptions under the “general public utility” category. This judgment will have far-reaching implications for organizations involved in activities that generate revenue and will likely lead to increased tax compliance and restructuring of operations for many entities. It also underscores the importance of adhering to the plain language of the statute and the need to prevent misuse of tax exemptions.