New Delhi: The Supreme Court said on Wednesday a general public utility (GPU) cannot engage in any trade or commercial activity and provide paid services if it wants income tax exemptions available to organisations doing charitable work.
A bench comprising Chief Justice Uday Umesh Lalit and Justices S Ravindra Bhat and P S Narasimha delivered the 149-page verdict on a batch of appeals related to the interpretation of a provision to Section 2(15) of the IT Act. Section 2 (15) of the Income Tax Act defines charitable purpose" to include relief of the poor, education, medical relief, preservation of environment 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 Director General of Income Tax for exemptions had appealed the decisions of various high courts which had held that carrying on any trade, commerce, or business, is not a per se bar or disqualification for a GPU category charitable trust to claim to be such, precluding its tax-exempt status under the IT Act.
The court took note of the submissions of the Income Tax department that the law on tax exemption for charitable work was changed to expressly forbid the tax exemption benefit if the entity was involved' in carrying on trade or business. It is clarified that an assessee advancing general public utility cannot engage itself in any trade, commerce or business, or provide service in relation thereto for any consideration (cess, or fee, or any other consideration), Justice Bhat, writing the judgement, said.
However, in the course of achieving the object of GPU, the trust concerned, society, or other such organisation, can carry on trade, commerce or business or provide services in relation for consideration, it said, adding, provided that (i) the activities of trade, commerce or business are connected... to the achievement of its objects of GPU, it said. The GPU can carry on with commercial activities if the receipt from such business or service does not exceed the quantified limit, as amended over the years (Rs 10 lakhs w.e.f. 01.04.2009; then Rs. 25 lakhs w.e.f. 01.04.2012; and now 20% of total receipts of the previous year, w.e.f. 01.04.2016), the judgement said.
Passing a slew of directions, it said so far as the state cricket associations like Saurashtra, Gujarat, Rajasthan, Baroda, and Rajkot are concerned, their case needed further scrutiny. This Court is of the opinion that the matter requires further scrutiny, in light of the discussion... of the judgment. Accordingly, a direction is issued that the AO (Assessing Officer) shall adjudicate the matter afresh after issuing notice to the concerned assessees and examining the relevant material indicated in the previous paragraphs of this judgment.
"Furthermore, if any consequential order needs to be issued, the same shall be done and resulting actions, including assessment orders shall be passed in accordance with the law under relevant provisions of the IT Act, it said on the issue of state cricket bodies. Dealing with government authorities or corporations, it said the amount charged by a statutory corporation for achieving public functions' such as housing, industrial development, supply of water, sewage management, supply of food grain may resemble trade, commercial, or business activities.
However, since their objects are essential for advancement of public purposes/functions (and are accordingly restrained by way of statutory provisions), such receipts are prima facie to be excluded from the mischief of business or commercial receipts. This is in line with the larger bench judgments of this court in..., it said. At the same time, in every case, the assessing authorities would have to apply their minds and scrutinise the records to determine if, and to what extent, the consideration or amounts charged are significantly higher than the cost and a nominal mark-up, it said.
If such is the case, then the receipts would indicate that the activities are in fact in the nature of trade, commerce or business' and as a result, would have to comply with the quantified limit (as amended from time to time) in the proviso to Section 2(15) of the IT Act, it said. On statutory regulators, it said the income and receipts of statutory regulatory bodies, which are for instance tasked with exclusive duties of prescribing curriculum, disciplining professionals and prescribing standards of professional conduct, are prima facie not business or commercial receipts.
At the cost of repetition, it may be noted that the conclusions arrived at by way of this judgment, neither precludes any of the assessees (whether statutory, or non-statutory) advancing objects of general public utility, from claiming exemption, nor the taxing authorities from denying exemption, in the future, if the receipts of the relevant year exceed the quantitative limit, it said. The assessing authorities must on a yearly basis, scrutinise the record to discern whether the nature of the assessee's activities amounts to trade, commerce or business' based on its receipts and income, it said, adding if it is found that they are in the nature of trade, commerce or business', then it must be examined whether the quantified limit under Section 2(15), has been breached, thus disentitling them to exemption, it said. (PTI)
