Gujarat High Court
Commissioner Of Income Tax … vs Bhavnagar Mandap Contractors … on 22 July, 2026
Author: Bhargav D. Karia
Bench: Bhargav D. Karia
NEUTRAL CITATION
C/TAXAP/467/2025 ORDER DATED: 22/07/2026
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IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/TAX APPEAL NO. 467 of 2025
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COMMISSIONER OF INCOME TAX (EXEMPTIONS) AHMEDABAD
Versus
BHAVNAGAR MANDAP CONTRACTORS ASSOCIATION
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Appearance:
MR AMAN MIR(10881) for the Appellant(s) No. 1
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CORAM:HONOURABLE MR. JUSTICE BHARGAV D. KARIA
and
HONOURABLE MR. JUSTICE PRANAV TRIVEDI
Date : 22/07/2026
ORAL ORDER
(PER : HONOURABLE MR. JUSTICE BHARGAV D. KARIA)
1. Heard learned Senior Standing Counsel
Mr. Aman Mir appearing for appellant.
2. By this appeal under Section 260A of the
Income Tax Act, 1961 [for short ‘the Act’]
arising out of order dated 21.11.2024
passed by the Income Tax Appellate
Tribunal ‘C’ Bench Ahmedabad (for short
‘Tribunal’) in ITA No. 542/AHD/2020
proposing following substantial questions
of law:
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(i) Whether on the facts and in the
circumstances of the case and in
law, the Hon’ble Tribunal has erred
in holding that objects of assessee
are charitable in nature under
Section 2(15) of the Act i.e.
‘advancement of any other object of
General Public Utility’ ignoring
the fact that activities of the
trust are for the benefit of its
members and not for the benefit of
the public at large?
(ii) Whether on the facts and in
the circumstances of the case and
in law, the Hon’ble Tribunal has
erred in holding that registration
of trust is not required for the
purpose of grant of registration
under section 12A of the Income-tax
Act, 1961, ignoring Rule 17A(1)(c)
of the Income-tax Rules, 1962 which
states that an application for
registration of charitable or
religious trusts shall be
accomplished by “self certified
copy of registration with Register
of companies or Register of Firms
and Societies or Register of Public
Trusts, the case may be?
3. The brief facts of the case are that the
Assessee-Trust filed an application for
registration of Trust under Section 12AA
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of the Act on 10.07.2019 in Form No 10A
under Rule 11AA of the Income Tax Rules,
1962 [‘the Rules’ for short] along with
requisite details and documents.
3.1 The Commissioner of Income Tax
(Exemption) (for short ‘the CIT(E)’), on
receipt of the application, observed that
the memorandum of association of the
assessee-Trust indicated that the objects
of the Trust were primarily for the
benefit of a specific group of
individuals, i.e. Mandap Contractors
operating in the Bhavnagar jurisdiction,
and objects were not for the general
public.
3.2 It was observed by the CIT(E) that
the objectives of the Trust primarily
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focused on knowledge sharing, organizing
events, encouraging trades among its
members who were all aimed at benefiting
the members of the trust and not the
public at large.
3.3 The CIT(E) also observed that the
applicant- Trust also charged entry fees
of Rs. 5,000/- from members and had also
fixed annual members’ dues, which
demonstrated that the activities of the
Trust were primarily of a mutual nature,
limited to its members and not for a
public charitable purpose.
3.4 The CIT(E) further observed that
since the assessee-Trust was not
registered as a Charitable Trust with the
Charity Commissioner or any other
competent authority and has admitted being
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an association or person, would also
disqualify the assessee-Trust from the
benefits under the provisions of the Act
applicable to Charitable and Religious
Trusts. Therefore, the CIT(E), rejected
the application for registration filed by
the assessee-Trust.
3.5 Being aggrieved, the assessee
preferred an appeal before the Tribunal.
The assessee contended before the Tribunal
that as per the decision of the Coordinate
Bench of the Tribunal in the case of
Panchkuva Cloth Merchant Association vs.
Commissioner of Income Tax (Exemption)
Ahmedabad reported in [2021] 128
Taxmann.com 391 (Ahmedabad-Trib), it was
held that for allowing the application of
Section 12AA of the Act, it is nowhere
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provided that the assessee-Trust has to be
registered with the Charity Commissioner
or Registrar of Companies.
3.6 It was also contended that the
assessee-Trust cannot be considered as a
AOP only for the purpose of mandap
contractors, otherwise all the trade
associations would become ineligible for
grant of registration under Section 12AA
of the Act.
3.7 The Tribunal relied upon the
decision in the case of Panchkuva Cloth
Merchant Association vs. CIT(E) Ahmedabad
Tribunal reported in 128 taxmann.com 391.
The Tribunal also relied upon the decision
of the Pune Bench in the case of
Federation of Trade Association of Pune
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vs. CIT [Exemption] reported in 132
taxmann.com 87 (Pune Benh-Trib), and the
decision of the Hon’ble Delhi High Court
in the case of Fertilizers Association of
India reported in 99 taxmann.com 387
(Delhi) wherein, it is held that mere
charging of fees from members or non-
members for rendering services ipso facto
would not lead to denial of exemption when
the dominant object of the assessee
remains charitable and such activities
were only incidental to the main activity.
3.8 Reliance was also placed by the
Tribunal on the decision of Confederation
of Pharma Dealers Association vs
Commissioner of Income Tax (Exemptions)
reported in 137 taxmann.com 117 of the
Raipur Bench wherein, it is held that the
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assessee-society was engaging in the
promotion of trade and commerce related to
the pharma business and protecting rights
and interests of its members and would be
covered in the fourth limb of Section
2(15), that is, the advancement of any
other object of general public utility and
would be entitled to registration under
Section 12A of the Act. Considering this
decision, the Tribunal quashed and set
aside the order of the CIT(E) and remitted
the matter to consider the case of the
assessee afresh by observing as under :
“14. Accordingly, in our considered
view, in light of the above
judicial precedents and facts of
the assessee’s case, in our
considered view Ld. precedent
CIT(E) has erred in facts and in
law in denying grant of
registration to the assessee /
applicant trust under Section 12AA
of the Act. Accordingly, the issue
is resotred to the file of Ld.Page 8 of 44
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CIT(E) to consider the case of the
assessee fresh, after giving due
opportunity to the assessee to
present it’s case on merits with
all supporting details / documents
and not to disentitle the
assessee / applicant grant of
registration on the basis of
reasons mentioned above.”
4. A Five Judge Bench of the Hon’ble Supreme
Court in the case of Additional
Commissioner of Income Tax vs. Surat Art
Silk Cloth Manufacturers Association
reported in 1978 (128) 1 ITR 1 (SC) has
analyzed the scope of Section 2(15) read
with Section 11 of the Act and, by
majority, it was held in the facts of the
case that the assessee-association, a
company within the meaning of Section 25
of the Companies Act, 1956, was set up to
promote commerce and trade in art silk
etc. and in terms of clauses 5 to 10 of
the memorandum of association, income of
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the assessee was liable to be applied
solely and exclusively for the promotion
of the specified objects only. The
Assessing Officer, however, rejected the
claim of the assessee that it was an
institution for charitable purpose on the
ground that its objects were not
charitable within the meaning of Section
2(15) of the Act.
5. The Hon’ble Apex Court by majority has
held as under:
“Where the main or primary objects
are distributive, each and every
one of the objects must be
charitable in order that the trust
is upheld as a valid charity. But
if the primary or dominant purpose
of a trust or institution is
charitable, another object which by
itself may not be charitable but
which is merely ancillary or
incidental to the primary or
dominant purpose, would not prevent
the trust from being valid charity.
The test which has, therefore, to
be applied is whether the objectPage 10 of 44
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which is said to be non-charitable
is a main or primary object of the
trust or institution or it is
ancillary or incidental to the
dominant or primary object which is
charitable. Applying this criteria,
it is clear that the dominant or
primary purpose of the assessee-
association was to promote commerce
and trade in the said articles and
the other objects were merely
incidental to the carrying out of
this dominant or primary purpose
and were, in fact, in the nature of
powers conferred upon the assessee
for securing the fulfilment of the
dominant or primary purpose. It is
true that the subsidiary objects of
the assessee would benefit its
members but the benefit would be
incidental in carrying out its main
or primary purpose. If, therefore,
its dominant or primary purpose was
charitable, the subsidiary objects
would not militate against its
charitable character and its
purpose would not be any the less
charitable. The words “not
involving the carrying on of any
activity for profit” in section
2(15) qualify or govern only the
last head of charitable purpose and
not the earlier three heads. Thus,
where the purpose of a trust or
institution is relief of the poor,
education or medical relief, the
requirement of the definition of
“charitable purpose” would be fullyPage 11 of 44
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satisfied, even if an activity for
profit is carried on in the course
of the actual carrying out of its
primary purpose. But, if its
purpose cannot bring it under the
cover of earlier three heads and
its claim to be a charitable
purpose rests only on the last
head, it has to fulfil two
conditions: (i) its purpose must be
an advancement of general public
utility, and (ii) this purpose must
not involve the carrying on of any
activity for profit.
To arrive at the true meaning and
effect of the words “not involving
the carrying on of any activity for
profit”, the question to be
resolved first is whether these
words qualify “advancement” or
“object of general public utility”.
It is clear on a plain natural
construction of the language used
by the Legislature that the ten
crucial words “not involving the
carrying on of any activity for
profit” go with words “object of
general public utility” and not
with the word “advancement”. What
is inhibited by these last ten
words is the linking of activity
for profit with the object of
general public utility and not its
linking with the accomplishment or
carrying out of the object. The
emphasis is on the object of
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general public utility and not on
its accomplishment or attainment.
The true meaning of these last ten
words is that when the purpose of a
trust or institution is the
advancement of an object of general
public utility, it is that object
of general public utility, and not
its accomplishment or carrying out,
which must not involve the carrying
on of any activity for profit. The
Revenue contended that whatever be
the object of general public
utility, its “advancement” or
achievement cannot involve the
carrying on of any activity for
profit, otherwise the purpose of
the trust would not be a charitable
purpose and its income from
business would not be immune from
tax liability. This contention
cannot, however, be accepted as its
consequence would be as follows:
(i) The trust or institution
established for promotion of an
object of general public utility
would not be able to engage in
business for fear that it might
lose the tax exemption
altogether and a major source of
income for promoting objects of
general public utility would be
dried up. It is difficult to
believe that the Legislature
could have intended to bring
about a result so drastic in itsPage 13 of 44
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consequence. If the intention of
the Legislature were to prohibit
a trust or institution
established for promotion of an
object of general public utility
from carrying on any activity
for profit, it would have
provided in the clearest terms
that no such trust or
institution shall carry on any
activity for profit, instead of
using involved and obscure
language giving rise to
linguistic problems and
promoting interpretative
litigation.
(ii) Section 11(4), which
declares that “property held
under trust” shall include a
business undertaking enjoying
immunity from tax and which gave
statutory recognition to this
principle decided by this Court
in earlier cases, would be
rendered wholly superfluous and
meaningless, after the insertion
of clause (bb) in section 13(1)
with effect from 1-4-1977.
The question that automatically
arises, in this context, is as to
when can the purpose of the trust
be said to involve the carrying on
of any activity for profit? The
word “involve”, according to the
Shorter Oxford Dictionary, means
“to enwrap in anything. to enfold
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or envelop; to contain or imply”.
The activity for profit must,
therefore, be intertwined or
wrapped up with or implied in the
purpose of the trust or institution
or, in other words, it must be an
integral part of such purpose.
There are two possible ways of
construction, one interpretation is
that, according to the definition,
what is necessary is that the
purpose must be of such a nature
that it involves the carrying on of
any activity for profit in the
sense that it cannot be achieved
without carrying on an activity for
profit. On this view, if the
purpose can be achieved without the
trust or institution engaging
itself in an activity for profit,
it cannot be said that the purpose
involves the carrying on of an
activity for profit. This
interpretation would be too narrow
as it would defeat the object of
introducing the words “not
involving the carrying on of any
activity for profit”. Such a
construction, which emasculates
these last concluding words and
renders them meaningless and
ineffectual, cannot be accepted.
The other interpretation is to see
whether the purpose of the trust or
institution in fact involves the
carrying on of an activity for
profit, i.e., whether an activity
for profit is actually carried on
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as an integral part of the purpose
or as a matter of advancement of
the purpose. There must be an
activity for profit and it must be
involved in carrying out its
purpose or, to put it differently,
it must be carried on in order to
advance the purpose or in the
course of carrying out the purpose
of the trust or institution. It is
then that the inhibition of the
exclusionery clause would be
attracted. This appears to us to be
a more plausible construction which
gives meaning and effect to the
last concluding words added by the
Legislature and its acceptance is
preferable. It is not enough that
an activity results in profit but
it must be carried on with the
object of earning profit. Profit-
making must be the end to which the
activity must be directed. Where,
an activity is not pervaded by
profit motive but is carried on
primarily for serving the
charitable purpose, it would not be
correct to describe it as an
activity for profit. But where, on
the other hand, an activity is
carried on with the predominant
object of earning profit, it would
be an activity for profit, though
it may be carried on in advancement
of the charitable purpose of the
trust or institution. Where an
activity is carried on as a matter
of advancement of or for the
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purpose of carrying out the
charitable purpose, it would not be
incorrect to say that the
charitable purpose involves the
carrying on of such activity, but
the predominant object of such
activity must be to sub serve the
charitable purpose and not to earn
profit. The charitable purpose
should not be submerged by the
profit-making motive; the latter
should not masquerade under the
guise of the former. The purpose of
the trust must be “essentially
charitable in nature” and it must
not be a cover for carrying on an
activity which has profit-making as
its predominant object.
It is not at all necessary that
there must be a provision in the
constitution of the trust or
institution that the activity shall
be carried on no-profit no-loss
basis or that profit shall be
proscribed. Even if there is no
such express provision, the nature
of the charitable purpose, the
manner in which the activity for
advancing the charitable purpose is
being carried on and. the
surrounding circumstances may
clearly indicate that the activity
is not propelled by a dominant
profit motive. What is necessary to
be considered is whether the
dominant object of the activity is
profit-making or carrying out a
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charitable purpose. If it is the
former, the purpose would not be a
charitable purpose, but, if it is
the latter, the charitable
character of the purpose would not
be lost.
In the instant case, the
predominant object of the
assessee’s activity was promotion
of commerce and trade in specified
articles which was clearly an
object of general public utility
and profit was merely a bye-product
which resulted incidentally in the
process of carrying out the
charitable purpose. Therefore, the
Tribunal was right in taking the
view that the purpose for which the
assessee was established was a
charitable purpose within the
meaning of section 2(15) and that
its income was exempt from tax
under section 11.
2. This Court cannot travel beyond
the particular question of law
which has been referred to it by
the Tribunal on account of confict
in the decisions of the High
Courts. It cannot, in a direct
reference deal with a question of
law on which there is no conflict
of decisions amongst the High
Courts because such a question
would be outside the jurisdiction
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of the Tribunal to refer under
section 257. The contention of the
Revenue that the objects of the
assessee did not fall within the
category “advancement of any other
object of general public utility”
and were, therefore, not charitable
within the meaning of section 2(15)
cannot be allowed to be raised in
these references.”
6. The above ratio of the Hon’ble Apex Court
would also be applicable after the
insertion of Section 12AA of the Act which
reads as under:
“Procedure for registration.
12AA. (1) The Principal
Commissioner or Commissioner, on
receipt of an application for
registration of a trust or
institution made under clause (a)
or clause (aa) or clause (ab) of
sub-section (1) of section 12A,
shall–
[(a) call for such documents or
information from the trust or
institution as he thinks necessary
in order to satisfy himself about,
—
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(i) the genuineness of activities
of the trust or institution; and
(ii) the compliance of such
requirements of any other law for
the time being in force by the
trust or institution as are
material for the purpose of
achieving its objects,and may also make such inquiries
as he may deem necessary in this
behalf; and]
(b) after satisfying himself about
the objects of the trust or
institution and the genuineness of
its activities 55[as required
under sub-clause (i) of clause (a)
and compliance of the requirements
under sub-clause (ii) of the said
clause], he–
(i) shall pass an order in writing
registering the trust or
institution;
(ii) shall, if he is not so
satisfied, pass an order in
writing refusing to register the
trust or institution, and a copy
of such order shall be sent to the
applicant :
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Provided that no order under sub-
clause (ii) shall be passed unless
the applicant has been given a
reasonable opportunity of being
heard.
xxxxxx
(4) Without prejudice to the
provisions of sub-section (3),
where a trust or an institution
has been granted registration
under clause (b) of sub-section
(1) or has obtained registration
at any time under section 12A [as
it stood before its amendment by
the Finance (No. 2) Act, 1996 (33
of 1996)] and subsequently it is
noticed that[(a) the activities of the trust
or the institution are being
carried out in a manner that the
provisions of sections 11 and 12
do not apply to exclude either
whole or any part of the income of
such trust or institution due to
operation of sub-section (1) of
section 13; or
(b) the trust or institution has
not complied with the requirement
of any other law, as referred to
in sub-clause (ii) of clause (a)
of sub-section (1), and the order,
direction or decree, by whatever
name called, holding that suchPage 21 of 44
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non-compliance has occurred, has
either not been disputed or has
attained finality,then, the
Principal Commissioner or the
Commissioner may, by an order in
writing, cancel the registration
of such trust or institution:]Provided that the registration
shall not be cancelled under this
sub-section, if the trust or
institution proves that there was
a reasonable cause for the
activities to be carried out in
the said manner.”
7. It would be also relevant to refer to Rule
17A(1) of the Rules which reads as under:
"17A. [Application for
registration of charitable or
religious trusts, etc. [Rule 17A
substituted by the Income-tax
(First Amendment) Rules, 2018,
w.e.f. 19-2-2018.]
(1)An application under clause
(aa) or clause (ab) of sub-section
(1) of section 12A for
registration of a charitable or
religious trust or institution
shall be made in Form No. 10A and
accompanied by the following
documents, namely:-
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(a)where the trust is created, or
the institution is established,
under an instrument, self-
certified copy of the instrument
creating the trust or establishing
the institution;
(b)where the trust is created, or
the institution is established,
otherwise than under an
instrument, self-certified copy of
the document evidencing the
creation of the trust, or
establishment of the institution;
(c)self-certified copy of
registration with Registrar of
Companies or Registrar of Firms
and Societies or Registrar of
Public Trusts, as the case may be;
(d)self-certified copy of the
documents evidencing adoption or
modification of the objects, if
any;
(e)where the trust or institution
has been in existence during any
year or years prior to the
financial year in which the
application for registration is
made, self certified copies of the
annual accounts of the trust or
institution relating to such prior
year or years (not being more than
three years immediately preceding
the year in which the said
application is made) for which
such accounts have been made up;
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(f)note on the activities of the
trust or institution;
(g)self-certified copy of existing
order granting registration under
section 12A or section 12AA, as
the case may be; and
(h)self-certified copy of order of
rejection of application for grant
of registration under section 12A
or section 12AA, as the case may
be, if any.”
8. In order to understand the controversy, it
would be necessary to refer to the
following provisions:
“Conditions for applicability of
sections 11 and 12.
12A. (1) The provisions of section
11 and section 12 shall not apply
in relation to the income of any
trust or institution unless the
following conditions are fulfilled,
namely:–
(a) the person in receipt of the
income has made an application for
registration of the trust orPage 24 of 44
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undefined
institution in the prescribed form
and in the prescribed manner to the
[Principal Commissioner or]
Commissioner before the 1st day of
July, 1973, or before the expiry of
a period of one year from the date
of the creation of the trust or the
establishment of the institution,
whichever is later and such trust
or institution is registered under
section 12AA :
Provided that where an application
for registration of the trust or
institution is made after the
expiry of the period aforesaid, the
provisions of sections 11 and 12
shall apply in relation to the
income of such trust or
institution,–
(i) from the date of the creation
of the trust or the establishment
of the institution if the
[Principal Commissioner or]
Commissioner is, for reasons to be
recorded in writing, satisfied that
the person in receipt of the income
was prevented from making the
application before the expiry of
the period aforesaid for sufficient
reasons;
(ii) from the 1st day of the
financial year in which the
application is made, if thePage 25 of 44
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[Principal Commissioner or]
Commissioner is not so satisfied:
Provided further that the
provisions of this clause shall not
apply in relation to any
application made on or after the
1st day of June, 2007;”
“2. Definitions.–In this Act,
unless the context otherwise
requires,–
[(15) “charitable purpose” includes
relief of the poor, education,
10[yoga,] 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:
[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, orPage 26 of 44
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retention, of the income from such
activity, unless–
(i) such activity is undertaken in
the course of actual carrying out
of such advancement of any other
object of general public utility;
and
( ii) the aggregate receipts from
such activity or activities during
the previous year, do not exceed
twenty per cent. of the total
receipts, of the trust or
institution undertaking such
activity or activities, of that
previous year;]”
9. A conjoint reading of the above provisions
clearly demonstrates that the assessee is
required to establish by producing
evidence in the form of documents by way
of an instrument creating Trust, and such
documents would include all types of
documents which lead to the creation of
the Trust and existence of the Trust. In
the facts of the case, the Assessee filed
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Form-10A for approval under section 12AA
of the Act which was rejected by the
CIT(E) on the ground that on perusal of
the Memorandum of Association of the
assessee, its objects pertain only to its
members. However, CIT(E) has not given any
finding regarding genuineness of the
creation of the for the benefit of its
members and in view of the amendment of
section 2(15) of the Act once the Trust is
established for the purpose of advancement
of the business for the public at large,
the same would be considered as charitable
purpose. The Hon’ble Supreme Court in case
of Assistant Commissioner of Income-tax
(Exemptions) v. Ahmedabad Urban
Development Authority reported in 449 ITR
1 (SC)has held as under:
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“IV. Summation of conclusions
253. In view of the foregoing
discussion and analysis, the
following conclusions are recorded
regarding the interpretation of the
changed definition of “charitable
purpose” (w.e.f. 1-4-2009), as well
as the later amendments, and other
related provisions of the IT Act.
A. General test under section 2(15)
A.1. 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”);
A.2. However, in the course of
achieving the object of general
public utility, the concerned
trust, society, or other such
organization, can carry on trade,
commerce or business or provide
services in relation thereto for
consideration, provided that (i)
the activities of trade, commerce
or business are connected (“actual
carrying out…” inserted w.e.f. 1-4-
2016) to the achievement of its
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objects of GPU; and (ii) the
receipt from such business or
commercial activity or service in
relation thereto, does not exceed
the quantified limit, as amended
over the years (Rs. 10 lakhs w.e.f.
1-4-2009; then Rs. 25 lakhs w.e.f.
1-4-2012; and now 20% of total
receipts of the previous year,
w.e.f. 1-4-2016);
A.3. Generally, the charging of any
amount towards consideration for
such an activity (advancing general
public utility), which is on cost-
basis or nominally above cost,
cannot be considered to be “trade,
commerce, or business” or any
services in relation thereto. It is
only when the charges are markedly
or significantly above the cost
incurred by the assessee in
question, that they would fall
within the mischief of “cess, or
fee, or any other consideration”
towards “trade, commerce or
business”. In this regard, the
Court has clarified through
illustrations what kind of services
or goods provided on cost or
nominal basis would normally be
excluded from the mischief ofPage 30 of 44
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trade, commerce, or business, in
the body of the judgment.
A.4. Section 11(4A) must be
interpreted harmoniously with
section 2(15), with which there is
no conflict. Carrying out activity
in the nature of trade, commerce or
business, or service in relation to
such activities, should be
conducted in the course of
achieving the GPU object, and the
income, profit or surplus or gains
must, therefore, be incidental. The
requirement in section 11(4A) of
maintaining separate books of
account is also in line with the
necessity of demonstrating that the
quantitative limit prescribed in
the proviso to section 2(15), has
not been breached. Similarly, the
insertion of section 13(8),
seventeenth proviso to section
10(23C) and third proviso to
section 143(3) (all w.r.e.f. 1-4-
2009), reaffirm this interpretation
and bring uniformity across the
statutory provisions.
B. Authorities, corporations, or
bodies established by statute
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B.1. The amounts or any money
whatsoever charged by a statutory
corporation, board or any other
body set up by the state government
or central governments, for
achieving what are essentially
‘public functions/services’ (such
as housing, industrial development,
supply of water, sewage management,
supply of food grain, development
and town planning, etc.) 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
Ramtanu Cooperative Housing Society
and NDMC (supra).
B.2. However, at the same time, in
every case, the assessing
authorities would have to apply
their minds and scrutinize the
records, to determine if, and to
what extent, the consideration or
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amounts charged are significantly
higher than the cost and a nominal
mark-up. 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.
B.3. In clause (b) of section
10(46) of the IT Act, “commercial”
has the same meaning as “trade,
commerce, business” in section
2(15) of the IT Act. Therefore,
sums charged by such notified body,
authority, Board, Trust or
Commission (by whatever name
called) will require similar
consideration – i.e., whether it is
at cost with a nominal mark-up or
significantly higher, to determine
if it falls within the mischief of
“commercial activity”. However, in
the case of such notified bodies,
there is no quantified limit in
section 10(46). Therefore, the
Central Government would have to
decide on a case-by-case basis
whether and to what extent,
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exemption can be awarded to bodies
that are notified under section
10(46).
B.4. For the period 1-4-2003 to 1-
4-2011, a statutory corporation
could claim the benefit of section
2(15) having regard to the judgment
of this Court in the Gujarat
Maritime Board case (supra).
Likewise, the denial of benefit
under section 10(46) after 1-4-2011
does not preclude a statutory
corporation, board, or whatever
such body may be called, from
claiming that it is set up for a
charitable purpose and seeking
exemption under section 10(23C) or
other provisions of the Act.
C. Statutory regulators
C.1. 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. However, this
is subject to the caveat that if
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the assessing authorities discern
that certain kinds of activities
carried out by such regulatory body
involved charging of fees that are
significantly higher than the cost
incurred (with a nominal mark-up)
or providing other facilities or
services such as admission forms,
coaching classes, registration
processing fees, etc., at markedly
higher prices, those would
constitute commercial or business
receipts. In that event, the
overall quantitative limit
prescribed in the proviso to
section 2(15) (as amended from time
to time) has to be complied with,
if the regulatory body is to be
considered as one with ‘charitable
purpose’ eligible for exemption
under the IT Act.
C.2. Like statutory authorities
which regulate professions,
statutory bodies which certify
products (such as seeds) based on
standards for qualification, etc.
will also be treated similarly.
D. Trade promotion bodies Bodies
involved in trade promotion (such
as AEPC), or set up with the
objects of purely advocating for,
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coordinating and assisting trading
organisations, can be said to be
involved in advancement of objects
of general public utility. However,
if such organisations provide
additional services such as courses
meant to skill personnel, providing
private rental spaces in fairs or
trade shows, consulting services,
etc. then income or receipts from
such activities, would be business
or commercial in nature. In that
event, the claim for tax exemption
would have to be again subjected to
the rigors of the proviso to
section 2(15) of the IT Act.
E. Non-statutory bodies
E.1. In the present batch of cases,
non-statutory bodies performing
public functions, such as ERNET and
NIXI are engaged in important
public purposes. The materials on
record show that fees or
consideration charged by them for
the purposes provided are nominal.
In the circumstances, it is held
that the said two assessees are
driven by charitable purposes.
However, the claims of such non-
statutory organisations performing
public functions, will have to be
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ascertained on a yearly basis, and
the tax authorities must discern
from the records, whether the fees
charged are nominally above the
cost, or have been increased to
much higher levels.
E.2. It is held that though GS1
India is in fact, involved in
advancement of general public
utility, its services are for the
benefit of trade and business, from
which they receive significantly
high receipts. In the
circumstances, its claim for
exemption cannot succeed having
regard to amended section 2(15).
However, the Court does not rule
out any future claim made and being
independently assessed, if GS1 is
able to satisfy that what it
provides to its customers is
charged on cost-basis with at the
most, a nominal markup.
F. Sports associations So far as
the state cricket associations are
concerned (Saurashtra, Gujarat,
Rajasthan, Baroda, and Rajkot),
this Court is of the opinion that
the matter requires further
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scrutiny, in light of the
discussion in paragraphs 228- 238
of the judgment. Accordingly, a
direction is issued that the AO
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.
G. Private Trusts So far as the
appeal by assessee-Tribune Trust is
concerned, it has been held that
despite advancing general public
utility, the Trust cannot benefit
from exemption offered to entities
covered by section 2(15) as the
records reveal that income received
from advertisements, constituted
business or commercial receipts.
Consequently, the limit prescribed
in the proviso to section 2(15) has
to be adhered to for the Trust’s
claim of being as a charity
eligible for exemption, to succeed.
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Therefore, despite differing
reasoning, this court has held that
the impugned judgment of the High
Court does not call for
interference.
H. Application of interpretation
H. 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. The assessing
authorities must on a yearly basis,
scrutinize the record to discern
whether the nature of the
assessee’s activities amount to
“trade, commerce or business” based
on its receipts and income (i.e.,
whether the amounts charged are on
cost-basis, or significantly
higher). If it is found that they
are in the nature of “trade,
commerce or business”, then it must
be examined whether the quantified
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limit (as amended from time to
time) in proviso to section 2(15),
has been breached, thus
disentitling them to exemption.”
10. In the facts of the case, the assessee has
submitted its Agreement of Association of
Persons dated 31st May 2019 with the
following main objects:
“1. Main Object: That the main purpose
of AOP shall beTo organize events for its
members,To share knowledge and Information
among members and to educate them.
To encourage the trade,industry
and profession of Mandap
contractors works To represent
to government and non government
organization on behalf of and for
the benefit and larger interest of
members and To promote and carry
all such activities which are in
benefit of members.”
11. On perusal of the above objects, it is for
the advancement of the trade and business
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for its members and the public at large.
In view of above dictum of law, assessee
which is Trade promotion body involved in
trade promotion set up with the objects of
purely advocating for, coordinating and
assisting trading organizations, can be
said to be involved in advancement of
objects of general public utility.
12. Therefore, considering the above facts,
the Tribunal has rightly applied the
decision of Panchkuva Cloth Merchant
Association (supra), as the assessee trust
has fulfilled the criteria laid down in
Rule 17A of the Rules read with section
12AA of the Act. On going through the
objects of the Trust, the Tribunal has
found that the assessee Trust had been set
up to promote, develop, and protecting
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interest of trade and commerce, which
falls within the scope of advancement of
any other object of general public utility
as provided under section 2(15) of the
Act. None of the activities of the
assessee-Trust was in the nature of trade,
commerce, or business and thus, the
Tribunal arrived at a finding of fact that
the assessee-Trust satisfies the
conditions, viz. that the objects of the
Trust should be of advancement of any
other object of general public utility,
and secondly, that no activity in the
nature of trade, commerce, or business,
etc., should be carried on by it.
13. As per Rule 17(a), of the Rules, the
assessee is required to file an
application of registration under section
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12AA of the Act, accompanied by the
documents described therein, to establish
the genuineness of the creation of such
Trust or institution. Thus, Rule 17A of
the Rules does not envisage the existence
of a trust deed or its registration, as
the existence of the Trust can also be
established by producing documentary
evidence evidencing the creation of the
Trust. Section 12AA of the Act lays down
the procedure for granting registration,
which only requires the CIT(E) to call for
the documents or information from the
Trust or institution as he thinks
necessary in order to satisfy himself
about the genuineness of the activities of
the Trust or institution and to inquire
regarding the same and after satisfying
about the objects of the Trust or
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institution and the genuineness of the
activities, registration is required to be
granted.
14. Accordingly, the Tribunal has rightly set
aside the order of rejection passed by the
CIT (E) denying the grant of registration
to the assessee-Trust under section 12AA
of the Act.
15. In view of the foregoing reasons, no
interference is called for in the impugned
order of the Tribunal, as no question of
law or substantial question of law can be
said to have arisen from the same.
The Tax Appeal is accordingly dismissed.
(BHARGAV D. KARIA, J)
(PRANAV TRIVEDI,J)
JYOTI V. JANI
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