899 ASSISTANT COMMISSIONER OF INCOME TAX A (EXEMPTIONS) v. AHMEDABAD URBAN DEVELOPMENT AUTHORITY

A enacted provisions that give effect to Parliamentary intent. Section 10 (23C)(iv) exempts any “income” of”any other fund or institution established for charitable purposes which may be approved by the prescribed authority, having regard to the objects of the fund or institution and its importance throughout India or throughout any B State or States” from taxation. A. Aids to interpretation (i) History of the legislation

107Copy pinpoint107. The amendments (i.e. Finance Act 2008, Finance Act 2009, Finance Act 2012 and Finance Act 2015) do not throw light – by way of statement of objects and reasons or notes on clauses. The court, therefore would have to resort to the surrounding circumstances that led to the amendment.

108Copy pinpoint108. The words of a statute are to be construed in their terms, according to the circumstances in which they occur. At the same time, there is some authority for the proposition that statutes – particularly amending provisions, may be considered in the light of the previous history of the legislation. Justice Cardozo in Duparquet Co. v. Evans105said thatin questions relating to construction, “history is a teacher that is not to be ignored”.In a similar vein, Chief Judge Learned Hand said that “statutes always have some purpose or object to accomplish, whose sympathetic and imaginative discovery is the surest guide to their meaning” 106.

109Copy pinpoint109. Some decisions of this Court have highlighted this aspect. In Bhuwalka Steel Indus. Ltd. & Ors. v. Bombay Iron and Steel Labour F Bd. & Ors.107 this court observed that “The legislative intent of the enactment may be gathered from several sources which are, from the statute itself, from the preamble to the statute, from the Statement of Objects and Reasons, from the legislative debates, reports of committees G and commissions which preceded the legislation and finally from all legitimate and admissible sources from where they may be allowed. Reference may be had to legislative history 105 297 U.S. 216 (1936) 106 Cabell v. Markham(1945) 148 F 2d 737 107 2009 (16) SCR 618 H

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and latest legislation also. But, the primary rule of construction A would be to ascertain the plain language used in the enactment which advances the purpose and object of the legislation...”

110Copy pinpoint110. In Chief Justice of Andhra Pradesh & Ors. v. L.V.A. Dixitulu & Ors.108 again, the court held that resort to the history of the legislation is legitimate, for interpreting a provision: B “..in order to ascertain the true meaning of the terms and phrases employed, it is legitimate for the Court to go beyond the arid literal confines of the provision and to call in aid other well-recognised rules of construction, such as its legislative history, the basic scheme and framework of the C statute as a whole, each portion throwing light on the rest, the purpose of the legislation, the object sought to be achieved, and the consequences that may flow from the adoption of one in preference to the other possible interpretation.” D

111Copy pinpoint111. Other decisions109 have also commented on the use of history of the legislation as a tool for its construction.It is, therefore, clear that courts can look at the previous history of the statute, and the changes it underwentto discern what is intended by the lawmakers when an amendment is introduced, or a new law enacted. In light of these factors, it would therefore, also be useful for the court to consider the background E which led to the amendment – firstly in 2008 and thereafter in 2012 and 2015, seeking to restrict the nature of activities that a GPU category charity can legitimately undertake. (ii) Other extrinsic aids to construction of the statute F (a) Speeches in Parliament

112Copy pinpoint112. Speeches made in the legislature or Parliament, can be looked into for throwing light on the rationale for an amendment. There is some authority for that proposition.110 Some light can be discerned from the statement of the finance minister on the floor of Parliament, who G 108 1979 (1) SCR26 109 Lohia Machines Ltd. and Ors. v. Union of India & Ors1985 (2) SCR 686; Commissioner of Customs (Import), Mumbai v. Dilip Kumar & Company & Ors 2018 (9) SCC 1 110 State of West Bengal v. Union of India 1964 (1) SCR 371: “A statute, as passed by Parliament, is the expression of the collective intention of the H

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A answered to the criticism levelled against the change brought about by the amendment in 2008. The finance minister commented on the criticism levelled against the amendment to Section 2(15) in the following words: “I once again assure the House that genuine charitable organisations will not in any way beaffected. The CBDT will, following the usual practice, issue an explanatory circular containingguidelines for determining whether an entity is carrying on any activity in the nature of trade,commerce or business or any activity of rendering any service in relation to any trade, commerce orbusiness. Whether the purpose is a charitable purpose will depend on the totality of the facts of thecase. Ordinarily, Chambers of Commerce and similar organisations rendering services to theirmembers would not be affected by the amendment and their activities would continue to beregarded as “advancement of any other object of general public utility”.” D (b) Departmental circulars

113Copy pinpoint113. Learned counsel for the assessees relied upon Circular No. 1/2009 dated 27.03.2009 and Circular No.11/2008 dated 19.12.2008 issued by the Central Board of Direct Taxes. The relevant part of Circular No. 11/2008 reads as follows: E “3. The newly inserted proviso to section 2(15) will apply only to entities whose purposeis ‘advancement of any other object of general public utility’ i.e. the fourth limb of the legislature as a whole, and any statement made by an individual, albeit a Minister, of the intention and objects of the Act cannot be used to cut down the generality of the words F used in the statute.” At the same time, later decisions have relaxed the rigor of this rule. In K.P. Varghese v. Income-tax Officer,1982 (1) SCR 629,this court, referring to the budget speech of the Minister stated: “Now it is true that the speeches made by the Members of the Legislature on the floor of the House when a Bill for enacting a statutory provision is being debated are inadmissible for the purpose of interpreting the statutory provision but the speech made by the Mover G of the Bill explaining the reason for the introduction of the Bill can certainly be referred to for the purpose of ascertaining the mischief sought to be remedied by the legislation and the object and purpose for which the legislation is enacted.” Other decisions following the same approach are Ramesh Yeshwant Prabhoo v. Prabhakar Kashinath Kunte1995 (Supp 6) SCR 371; Novartis AG v. Union of India (2013) 6 SCC 1;Surana Steels (P) Ltd. v. Commissioner of Income Tax 1999 (2) SCR H 589 and Kalpana Mehta & Ors. v. Union of India (UOI) and Ors2017 (7) SCC 295.

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definition of ‘charitable purpose’ contained in section 2(15). A Hence, such entities will not be eligible for exemption under section 11 or undersection 10(23C) of the Act if they carry on commercial activities. Whether such an entity is carrying on an activity in the nature of trade, commerce or business is a question of fact which will be decided basedon thenature, scope, extent and frequency of the activity. 3.1. There are industry and trade associations who claim exemption from tax u/s 11 on the ground that theirobjects are for charitable purpose as these are covered under ‘any other object of general public utility’.Under the principle of mutuality, if trading takes place between persons who are associated together andcontribute to a common fund for the financing of some venture or object and in this respect have no dealings or relations with any outside body, then any surplus returned to the persons forming such association is notchargeable to tax. In such cases, there must be complete identity between the contributors and theparticipants. Therefore, where industry or trade associations claim both to be charitable institutions as well as mutualorganizations and their activities are restricted to contributions from and participation of only their members,these would not fall under the purview of the proviso to section 2(15) owing to the principle of mutuality. However, if such organizations have dealings with non-members, their claim to be charitable organizationswould now be governed by the additional conditions stipulated in the proviso to section 2 (15).”

114Copy pinpoint114. Circular No. 1/2009 dated 27.03.2009 contains explanatory notes to provisions of the Finance Act, 2008. It inter alia reads as follows: “5. Streamlining the definition of “charitable purpose” G 5.1 Sub-section (15) of section 2 of the Act defines “charitable purpose” toinclude relief of the poor, education, medical relief, and the advancement of any otherobject of general public utility. It has been noticed that a number of entities operatingon commercial lines are claiming exemption on their income either under sub-section(23C) of section 10 or section 11 of the Act H

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A on the ground that they are charitable institutions. This is based on the argument that they are engaged in the “advancement of an object of general public utility” as is included in the fourth limb of the currentdefinition of “charitable purpose”. Such a claim, when made in respect of an activity carried out on commercial lines, is contrary to the intention of the provision. 5.2 With a view to limiting the scope of the phrase “advancement of any otherobject of general public utility”, sub-section (15) of section 2 has been amended toprovide that the advancement of any other object of general public utility shall not bea charitable purpose, if it involves the carrying on of any activity in the nature oftrade, commerce or business, or any activity of rendering any service in relation toany 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 suchactivity. Scope of this amendment has further been explained by the CBDT vide itscircular no.11/2008 dated 19th Dec 2008.”

115Copy pinpoint115. Senior counsel appearing for the assessees relied on Section 119 of the IT Act as well as decisions of this court, reported as Navnit E Lal Jhaveri (supra) and UCO Bank Calcutta (supra) and argued that departmental circulars are binding upon tax administrators, and should be legitimately considered as aids of construction. This was in support of their reliance on the circulars in the present case (No.11/2008 and No. 1/2009).

116Copy pinpoint116. This court in Navnit Lal Jhaveri (supra) considered Sections 2(6A)(e) and 12(1B) of the IT Act which were introduced by the Finance Act, 15, 1955 (w.e.f. 01.04.1955). As a result of these amendments, the combined effect of the two provisions was that three kinds of payments made to shareholders companies to which those applied, were treated as taxable dividend to the extent of the accumulated profits held by the G company. The provision was challenged. It was noticed that while introducing the amendment, the Finance Minister assured that outstanding loans and advances – otherwise liable to taxation as dividends in AY 1955-56, would not be subjected to tax if it were shown that they had been genuinely refunded to the respective companies before 30.06.1955. H The government felt that unless such a step was taken, the operation of

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Section 12(1B) would lead to extreme hardship, as it would cover the A aggregate of all outstanding loans of past years and could have led to unreasonably high liability on shareholders to whom the loans might have been advanced. A circular [No. 20(XXI-6) /55] was issued by the Central Board of Revenue on 10.05.1955. The court, in that context, observed that: B “It is clear that a circular of the kind which was issued by the Board would be binding on all officers and persons employed in the execution of the Act under s. 5(8) of the Act. This circular pointed out to all the officers that it was likely that some of the companies might have advanced loans to their shareholders as a result of genuine transactions of loans, and the idea was not to the effect such transactions and not to bring them within the mischief of the new provision. The officers were, therefore, asked to intimate to all the companies that if the loans were repaid before the 30th June, 1955, in a genuine manner, they would not be taken into account in determining the tax liability of the shareholders to whom they may have been advanced. In other words, past transactions which would normally have attracted the stringent provisions of s. 12(1B) as it was introduced in 1955, were substantially granted exemption from the operation of the said provisions by making it clear to all the companies and their shareholders that if the past loans were genuinely refunded to the companies, they would not be taken into account under s. 12(1B). Section 12(1B) would, therefore, normally apply to loans granted by the companies, to their respective shareholders with full notice of the provisions prescribed by it.”

117Copy pinpoint117. This court ultimately upheld the amendments. As is evident, the judgment noticed that the circular sought to soften the rigors of the otherwise harsh consequence of immediate application of the amendment. There was nothing in the circular to make it applicable for all times to come. It was more in the nature of the government issuing a temporary suspension of operation of the substantive provision, introduced by the amendment.

118Copy pinpoint118. In UCO Bank, Calcutta (supra), this court had to deal with circulars issued under Section 145 regarding the method of accounting H

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A to be followed, in the context of bank loans to be written off, when an assessee was following the mercantile system (of accounting). The court inter alia, held that under Section 119 (2) of the IT Act, the Central Board of Direct Taxes is empowered, for proper and efficient management of assessment and collection of revenue to issue general or special orders in respect of any class of incomes or class of cases setting forth directions or instructions, not being prejudicial to assessees, as the guidelines, principles or procedures to be followed in the work relating to assessment. The court held that the “9. […] The Board thus has power, inter alia, to tone down the rigour of the law and ensure a fair enforcement of its provisions, by issuing circulars in exercise of its statutory powers under Section 119 of the Income-tax Act which are binding on the authorities in the administration of the Act. Under Section 119(2)(a), however, the circulars as contemplated therein cannot be adverse to the assessee. Thus, D the authority which wields the power for its own advantage under the Act is given the right to forego the advantage when required to wield it in a manner it considers just by relaxing the rigour of the law or in other permissible manners as laid down in Section 119. The power is given for the purpose of just, proper and efficient management of the work of assessment and in public interest.”

119Copy pinpoint119. The view expressed in Navnit Lal Jhaveri (supra), and later elaborated in UCO Bank (supra) appears to have found resonance in other decisions111 of this court. A recent instance where this court took aid of explanatory circulars is in CIT v.Vatika Township112 when after holding that the amendment in question applied prospectively, the court also supported that holding by citing the revenue’s understanding about such prospective application, in a circular. What is of note in that judgment, is that the question of whether circulars or explanatory notes issued by the executive are binding aids of construction was not discussed; more importantly, the court first interpreted the statute, in its own terms, and then cited the circular.

111 Ellerman Lines Ltd. v. Commissioner of Income tax 1972 (2) SCR 168; K.P. Verghese v. Commissioner of Income Tax 1982 (1) SCR 629; Union of India v. Azadi Bachao Andolan 2003 (Supp 4) SCR 222 112 (2015) 1 SCC 1 H

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120Copy pinpoint120. That circulars are per se not binding upon courts, in regard to interpretation of a statutory provision and, at best are guides or aid to interpretation for departmental authorities, who are bound to take them into account, was pithily stated in Keshavji Ravji & Co. and Ors. v. Commissioner of Income Tax113 where the court observed as follows: “This contention and the proposition on which it rests, namely, that all circulars issued by the Board have a binding legal quality incurs, quite obviously, the criticism of being too broadly stated. The Board cannot preempt a judicial interpretation of the scope and ambit of a provision of the ‘Act’ by issuing circulars on the subject. This is too obvious a proposition to require any argument for it. A circular cannot even impose on the tax payer a burden higher than what the Act itself on a true interpretation envisages. The task of interpretation of the laws is the exclusive domain of the courts. However, this is what Sri Ramachandran really has in mind - circulars beneficial to the assessees and which tone down the rigour of the law issued in exercise of the statutory power under Section 119 of the Act or under corresponding provisions of the predecessor Act are binding on the authorities in the administration of the Act. The Tribunal, much less the High Court, is an authority under the Act. The circulars do not bind them. But the benefits of such circulars to the assessees have been held to be permissible even though the circulars might have departed from the strict tenor of the statutory provision and mitigated the rigour of the law. But that is not the same thing as saying that such circulars would either have a binding effect in the interpretation of the provision itself or that the Tribunal and the High Court are supposed to interpret the law in the light of the circular. There is, however, support of certain judicial observations for the view that such circulars constitute external aids to construction.”

121Copy pinpoint121. This view was accepted in Commissioner of Customs v. G Indian Oil Corporation114, which articulated the position with some degree of clarity. Commenting on Navnit Lal Jhaveri (supra) and other decisions, it was observed that: 113 1992 (2) SCC 231 114 2004 (2) SCR511 H

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A “30. No proposition was laid down in that case that even if the circular was clearly contrary to the provisions of the Act it should prevail, On the other hand, the learned Judges were inclined to view the circular as granting the benefit of exemption from the operation of the impugned provisions subject to fulfilment of certain conditions. Navnit Lal’s case was referred to and construed in two cases decided by Benches of two learned Judges. The first one was the case of Ellerman Lines Ltd. v. Commissioner of Income Tax, West Bengal [1971]82ITR913(SC) and the other is K.P. Varghese v. I.T. Officer, Ernakulam [1981]131ITR597(SC) . In both these cases it was assumed that Navnit Lal’s case was an authority for the proposition that even if the directions given in the circular clearly deviate from the provisions of the Act, yet, the Revenue is bound by it. These three decisions were repeatedly referred to and relied on in the subsequent decisions in which the issue arose as regards the binding nature of the circulars either under the Income Tax Act or under the Central Excise Act. In between, there was the three Judge Bench decision in Sirpur Paper Mills Ltd. v. Commissioner of Wealth Tax [1970]77ITR6(SC) in which Section 13 of the Wealth Tax Act corresponding to Section 5(8) of the Income Tax Act, 1922 E fell for consideration. This Court took the view that the instructions issued by the Board may control the exercise of the power of the departmental officials in matters administrative but not quasi-judicial. There is yet another decision of a three Judge Bench which seems to make a dent on the weight of the proposition that the circulars of the Board, F even if they are plainly contrary to the provisions of the Act, should be given effect to and binding on the authorities concerned in the administration of the Act. That is the case of KeshavjiRavji& Co. v. I.T. Commissioner [1990] 183 ITR 1(SC)”

122Copy pinpoint122. In view of a conflict between decisions, on the binding nature of circulars issued by the Board (in the context of decisions of authorities dealing with indirect taxation issues) this court, by a five-judge decision, in Ratan Melting and Wire Industries (supra)held that “6. Circulars and instructions issued by the Board are no H doubt binding in law on the authorities under the respective

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statutes, but when the Supreme Court or the High Court A declares the law on the question arising for consideration, it would not be appropriate for the Court to direct that the circular should be given effect to and not the view expressed in a decision of this Court or the High Court. So far as the clarifications/circulars issued by the Central Government and of the State Government are concerned they represent merely their understanding of the statutory provisions. They are not binding upon the court. It is for the Court to declare what the particular provision of statute says and it is not for the Executive. Looked at from another angle, a circular which is contrary to the statutory provisions has really no existence in law.”

123Copy pinpoint123. In the opinion of this court, the views expressed in Keshavji Ravji, Indian Oil Corporation and Ratan Melting and Wire Industries (though the last decision does not cite Navnit Lal Jhaveri), reflect the correct position, i.e., that circulars are binding upon departmental authorities, if they advance a proposition within the framework of the statutory provision. However, if they are contrary to the plain words of a statute, they are not binding. Furthermore, they cannot bind the courts, which have to independently interpret the statute, in their own terms. At best, in such a task, they may be considered as departmental understanding on the subject and have limited persuasive value. At the highest, they are binding on tax administrators and authorities, if they accord with and are not at odds with the statute; at the worst, if they cut down the plain meaning of a statute, or fly on the face of their express terms, they are to be ignored. B. Interpretation of Section 2(15), the definition clause F

124Copy pinpoint124. Section 2 of the Income Tax Act opens with the phrase “unless the context otherwise requires”. It has been held in S.K. Gupta & Anr. v. K.P. Jain & Anr.115 that where the definition of a term is preceded by this phrase, normally, the definition given in the section “should be applied and given effect to but this normal rule can be G deviated if there is something in the context to show that the definition should not be applied”. This rule was also adopted in Indira Nehru Gandhi v. Shri Raj Narain and Anr. 116 by Khanna, J and in Kalya 115 (1979) 3 SCC 54. 116 (1975) Supp. SCC 1 H

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A Singh v. GendaLal and Ors 117. Previously, in Vanguard Fire and Insurance Company Ltd. v. M/s. Fraser and Ross and Anr. 118, it was held that the term “unless the context otherwise requires” implies that the word or term so defined should be applied – subject to the context. It was held that in view of such a qualification, the Court has not only to look at the words but also to look at the context, collocation, and the object of such words in respect of such matters and factor the meaning to be conveyed by the use of the words under the circumstances. Almost the same reasoning has been echoed in N.K. Jain and Ors. v. C.K. Shah and Ors 119.

125Copy pinpoint125. The importance of terms expressly defined in a statute is that they are internal and binding aids to interpretation. The prefacing – to any definition – of the phrase “unless the context otherwise requires” merely signifies that in case there is anything expressly to the contrary, in any specific provision(s) in the body of the Act, a different meaning can be attributed. However, to discern the purport of a provision, the term, as defined has to prevail, whenever the expression is used in the statute. This rule is subject to the exception that when a contrary intention is plain, in particular instances, that meaning is to be given. Therefore, in the light of the previous discussion, this court would interpret the true meaning of “charitable purpose” after its amendment in 2008, taking into consideration the subsequent changes. E

126Copy pinpoint126. As observed at the beginning of this judgment, GPU charities have been recognized as distinct from the ‘per se categories’of charity (education, medical relief, relief to the poor; and later - preservation of water sheds, monuments, environment, and yoga). The judgment of this court in Dharmadeepti (supra) has clarified that the per se categories F – are not subjected to the restrictive condition of eschewing activities of profit. This enunciation of the principle has been endorsed in all later decisions – starting with Surat Art Silk (supra). Therefore, the restriction imposed by Parliament against charities – prohibiting them from carrying on activities of profit do not apply to the first six categories. Although the G occasion did not so arise in Surat Art Silk (supra) (since this Court was dealing with AYs prior to 1975), the provision in Section 13(1)(bb) which prevailed then with effect from 01.04.1977 made the position clearer in 117

(1975) 3 SCR 783

(1960) 3 SCR 837

119 H (1991) 1 SCR 938

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that it permitted these per secategory charities, in the course of their A actual carrying on of their activities, to earn profits. Of course, this provision was deleted from 01.04.1984. Alongside, the restriction imposed on GPUs from engaging in activities for profit, was also deleted.

127Copy pinpoint127. As noticed in Thanthi Trust (supra), Section 11(4A) was originally introduced with effect from 01.04.1984 and substituted w.e.f. B 01.04.1991. At that stage, the statute as it stood, did not restrict GPU category charities from carrying on activities of profit or from carrying on business. This court nevertheless was bound by the decision in Surat ArtSilk (supra) which had ruled that: (i) A GPU category charity with a constitution granting discretion to the trustees to engage in charitable and non- charitable activities, could not claim the exemption; (ii) The main or dominant purpose of the GPU category charity had to be essentially charitable. If it was so, and it incidentally entailed carrying on activities that led to profit, it was entitled to exemption.

128Copy pinpoint128. This court’s understanding of the law as expressed in Thanthi Trust was therefore, coloured by the statute as it existed, and the formulation in Surat Art Silk (supra).As a result, Thanthi Trust, interpreted Section 11(4A) in this background and held that the assessee in that case incidentally was engaged in activities for profit. The court was also of the opinion that Section 11(4A) was wider than the revenue urged it to be, in that activities by way of business could not be carried on incidentally by a Trust, which otherwise was a GPU category trust.

129Copy pinpoint129. As noticed earlier, between Surat Art Silk (supra) and the decisions rendered thereafter (i.e., Bar Council of Maharashtra, Federation of Indian Chamber of Commerce and Industriesand Thanthi Trust) there were two changes in lawin 1983 w.e.f. 01.04.1984 – on the one hand deleting the restrictive words prohibiting GPU categories from carrying on profit, and deleting Section 13(1)(bb), and introducing Section 11(4A), on the other. There was otherwise no meaningful statutory change. The position therefore, continued as it was for about 25 years.

130Copy pinpoint130. After its introduction, by amendment in 2008, Section 2(15) read as follows: H

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A (15) “charitable purpose” includes relief of the poor, education, medical relief, 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, or retention, of the income from such activity;”

131Copy pinpoint131. The term “in the nature of” occurring in Section 2(15) has frequently been interpreted by this court. In G. Venkataswami Naidu v. Commissioner of Income Tax120 the isolated transaction of sale of land was held not to be activity in the nature of trade or business. In State of Tamil Nadu v.Burmah Shell Oil Storage Distribution Company of India Ltd.121 the test indicated was whether the “frequency, volume, continuity and regularity of transactions carried on with a profit- motive”. In State of Tamil Nadu v. Shakti Estates122, the assessee’s activities in leasing forest lands, clearing them, and creation of wooden sleepers, which were sold, as well as charcoal, which was sold, in a series of “sustained, systematic and organised activities” was held to be in the nature of business. In Director of Civil Supplies v. Member E Board of Revenue123 this court outlined, what would be activity in the nature of business: “To regard an activity as business there must be a course of dealings, either actually continued or contemplated to be continued with a profit- motive; there must be some real and F systematic or organised course of activity or conduct with a set purpose of making profit. To infer from a course of transactions that it is intended thereby to carry on business ordinarily there must exist the characteristics of volume, frequency, continuity and system indicating an intention to continue the activity of carrying on the transactions for a G profit. But no single test or group of tests is decisive of the intention to carry on the business. “ 120 1959 (Supp 1) SCR 646 121 1973 (2) SCR 636 122 1989 (1) SCR 408 123 H 1967 (3) SCR 778

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132Copy pinpoint132. The term “in relation to” was interpreted in Renusagar A Power Co. Ltd. v. General Electric Co.124 in an arbitration clause- as follows: “25... (2) Expressions such as “arising out of or “in respect of or “in connection with” or “in relation to” or “in consequence of or “concerning” or “relating to” the contract B are of the widest amplitude and content..” In Mansukhlal Dhanraj Jain v. Eknath Vithal Ogale125 this court underlined the amplitude to the term “relating to”: “16. It is, therefore obvious that the phrase “relating to recovery of possession” as found in Section 41(1) of the Small C Cause Courts Act is comprehensive in nature and takes in its sweep all types of suits and proceedings which are concerned with the recovery of possession of suit property from the licensee and, therefore, suits for permanent injunction restraining the Defendant from effecting forcible recovery of D such possession from the licensee-Plaintiff would squarely be covered by the wide sweep of the said phrase.” In Doypack System (P) Ltd. v. Union of India126, this court ruled that the expression “in relation to” is broad and is akin to the “concerning with” and “pertaining to”; and is also expansive. The E court observed: “50. The expression “in relation to” (so also “pertaining to”), is a very broad expression which presupposes another subject matter. These are words of comprehensiveness which might have both direct significance as well as indirect significance F depending on the context [internal citation omitted]. Assuming that the investments in shares and in lands do not form part of the undertaking but are different subject matters, even then these would be brought within the purview of the vesting by reason of the above expressions. In this connection reference may be made to 76 Corpus Juris Secundum at pages 620 and G 621 where it is stated that the term “relate” is also defined as meaning to bring into association or connection with. It has 124 1985 (1) SCR 432 125 1995 (1) SCR 996 126 1988 (2) SCC 299 H

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A been clearly mentioned that “relating to” has been held to be equivalent to or synonymous with as to “concerning with” and “pertaining to”. The expression “pertaining to” is an expression of expansion and not of contraction.”

133Copy pinpoint133. The position, therefore, with respect to what kind activities B GPU charities could legitimately undertake, was in a state of flux till

2015. However, the amendments cumulatively point to prohibitions that were constant: (1) the prohibition applicable to such charities involved in carrying on activities “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” (2) “irrespective of the nature of use or application, or retention, of the income from such activity” (i.e. activity in the nature of trade, commerce or business for a cess, fee or other consideration).

134Copy pinpoint134. By retrospective amendment, in Section 2(15), after the proviso, a second proviso was inserted with effect from 01.04.2009.- “Provided further that the first proviso shall not apply if the aggregate value of the receipts from the activities referred to therein is ten lakh rupees or less in the previous year;”; With the introduction of the second proviso, the resulting situation was that the first proviso (of exclusion of income through an activity as referred to) was inapplicable if the aggregate value of the receipts of such activity did not exceed 10,00,000, and later by Finance Act, 2012 – this was enhanced to 25,00,000.

135Copy pinpoint135. The next important change took place through the Finance Act, 2015, which, w.e.f. 01.04.2016 substituted the two provisos to Section 2(15) with the following proviso: G “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

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application, or 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;”

136Copy pinpoint136. The limited relief, given by the second proviso, to GPU C charities (for the period 2009-2015) was that in case such GPU category charities did carry on activitiesundertaken in the course of actual carrying out of their GPU objects that were in the nature of trade, commerce or business, or rendered any service in relation to trade, business, etc., and collected fee, cess, or other consideration, such income could still be exempt, if it did not exceed 10,00,000 (and later,, 25,00,000). By the amendment of 2015, the second proviso was deleted and two conditions were introduced, with respect to permissibility of carrying on trade, commerce, etc: (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 percent of the total receipts, of the trust or institution undertaking such activity or activities, of that previous year.

137Copy pinpoint137. Having thus far discussed a nature of the changes to the term “charitable purpose” and how judicial thinking has shaped it, this court would now explore the all important question of the scope of the term of “any other object generally public utility” not being 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, irrespectiveof the nature of use or application, or retention, of the income from such activity.” H

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138Copy pinpoint138. Parliamentary endeavour, was to alter the regime applicable to taxation of GPU category charities, under the IT Act. The absolute bar imposed on GPU charities from carrying on activities in the nature of trade, commerce or business, or of rendering any service in relation to any trade, commerce or business, for a cess or fee or any other consideration, evidences this intent. The original Section 2(15) did not allude to trade, commerce or business, or any service in relation to such activities. It only enjoined the GPU charities from involving themselves from carrying on of any activity for profit127(which was interpreted in Surat Art Silk). This substantial change brought about by the amendments of 2008 -2012 and 2015 is the prohibition from engaging in any kind of activity in the nature of business, commerce, or trade or any rendering any service in relation thereto, and earning income by the way of cess, fee or consideration.In the opinion of this court, the express deletion of the reference to ‘activity for profit’ on the one hand, and the enactment of an expanded list of what cannot be done by GPU charities if they are to retain their characteristic as charities, is an emphatic manner in which Parliament wished to express itself.

139Copy pinpoint139. Counsel on both sides went to great lengths and cited several judgments for the proposition that “trade or business” are terms which imply profit-making. They relied on Khoday Distilleries (supra); M/s. Raipur Manufacturing (supra); Board of Trustees of the Port of E Madras (supra), and Physical Research Laboratory v. K. G. Sharma128. It was contended by the revenue, that the reference to terms “business, trade or commerce” and “service in relation to” such activities are meant to imply that profit motive should be completely absent. At the same time - on behalf of the assessees, it was contented that if the proscribed activities i.e., business, commerce or trade or service in relation to such activities - is not the main or dominant object of the GPU charity, any incidental involvement in such activities is permissible. Counsel on behalf of many assessees urged that some of them are statutory corporations chargedwith developing housing industrial infrastructure sector, regulation of professions (such as chartered accountants, etc.). It was underlined that such corporations are agencies of the state, recognized as “State” under Article 12 of the Constitution, and carry out the essential purposes for which they were set up, which 127 “…the advancement of any other object of general public utility not involving the carrying on of any activity for profit” 128 (1997) 4 SCC 257. H

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otherwise state departments would have been expected to carry out. It A was then emphasized that the activities of such corporations cannot be characterized as motivated by profit- rather their essential purposes are to achieve objects of general public utility.

140Copy pinpoint140. In Town Investments v. Department of Environment129, it was remarked that “business” is an ‘etymological chameleon’. In NDMC B (supra) - while dealing with the question of immunity of states and state corporations, municipal corporations and local authorities from union taxation, this court (in a nine-judge bench composition) interpreted Article 289 of the Constitution130 and discussed the nature of the activities that could be carried on by state or state agencies: C “Section 155(1) which by its own force levied taxes upon the trading and business operations carried on by the Provincial Governments did not either define the said expressions or specify which trading or business operations are subject to taxation. On this account, the proviso was not and could not be said to have been, ineffective or unenforceable. It was effective till 26-1-1950. Clause (2) of Article 289 also similarly does not define or specify — nor does it require that the law made thereunder should so define or specify. It cannot be said that unless the law made under and with reference to clause (2) specifies the particular trading or business operations to be taxed, it would not be a law within the meaning of clause (2). Coming back to the language of clause (2), a question is raised, why does the proviso speak of taxation in respect of trade or business when the main limb of sub-section (1) speaks only of taxes in respect of lands or buildings and income? Is the ambit of proviso wider than the F 129 1977 1 ALLER 813 130

289. Exemption of property and income of a State from Union taxation.—(1) The property and income of a State shall be exempt from Union taxation. (2) Nothing in clause (1) shall prevent the Union from imposing, or authorising the imposition of, any tax to such extent, if any, as Parliament may by law provide in respect of a trade or business of any kind carried on by, or on behalf of, the Government G of a State, or any operations connected therewith, or any property used or occupied for the purposes of such trade or business, or any income accruing or arising in connection therewith. (3) Nothing in clause (2) shall apply to any trade or business, or to any class of trade or business, which Parliament may by law declare to be incidental to the ordinary functions of government. H

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A main limb? Is it an independent provision of a substantive nature notwithstanding the label given to it as a proviso? Or is it only an exception? It is asked. We are, however, of the considered opinion that it is more important to give effect to the language of and the intention underlying the proviso than to find a label for it. It is clarificatory in nature without a B doubt; it appears to be more indeed. It is concerned mainly with the “income” (of Provincial Governments) referred to in the main limb of sub-section (1). It speaks of tax on the “lands or buildings” in that context alone, as we shall explain in the next paragraph. The idea underlying the proviso is to make it clear that the exemption of income of Provincial Government operates only where the income is earned or received by it as a Government; it will not avail where the income is earned or received by the Provincial Government on account of or from any trade or business carried on by it — that is a trade or a business carried on with profit motive. In the light of the language of the proviso to Section 155 and clause (2) of Article 289, it is not possible to say that every activity carried on by the Government is governmental activity. A distinction has to be made between governmental activity and trade and business carried on by the Government, at least for the purposes of this clause. It is for this reason, we say, that unless an activity in the nature of trade and business is carried on with a profit motive, it would not be a trade or business contemplated by clause (2). For example, mere sale of government properties, immovable or moveable, or granting of leases and licences in respect of its properties does not amount to carrying on trade or business. Only where a trade or business is carried on with a profit motive — or any property is used or occupied for the purpose of carrying on such trade or business — that the proviso [or for that matter clause (2) of Article 289] would be attracted. Where there is no profit motive involved in any activity carried on by the State Government, it cannot be said to be carrying on a trade or business within the meaning of the proviso/clause (2), merely because some profit results from the activity [ For example, almost every State Government maintains one or more guest houses in Delhi for accommodating their officials and H

ASST. COMM’R OF INCOME TAX (EXEMPTIONS) v. AHMEDABAD 1001 URBAN DEVELOPMENT AUTHORITY [S. RAVINDRA BHAT, J.]

others connected with the affairs of the State. But, when some rooms/accommodation are not occupied by such persons and remain vacant, outsiders are accommodated therein, though at higher rates. This activity cannot obviously be called carrying on trade or business nor can it be said that the building is used or occupied for the purpose of any trade or business carried on by the State Government.] . We may pause here a while and explain why we are attaching such restricted meaning to the words “trade or business” in the proviso to Section 155 and in clause (2) of Article 289. Both the words import substantially the same idea though, ordinarily speaking, the expression “business” appears to be wider in its content. The expression, however, has no definite meaning; its meaning varies with the context and several other factors. …Having regard to the context in which the words “trade or business” occur — whether in the proviso to Section 155 of the Government of India Act, 1935 or in clause (2) of Article D 289 of our Constitution — they must be given, and we have given, a restricted meaning, the context being levy of tax by one unit of Federation upon the income of the other unit, the manifold activities carried on by Governments under our constitutional scheme, the necessity to maintain a balance between the Centre and the States and so on.” E (emphasis supplied)

141Copy pinpoint141. From NDMC (supra), it is clear that not every state activity resembling commerce can be considered per se exempt from union taxation, in the context of Article 289. The court also emphasized that mere sale or lease of government property does not imply trade or F business. The crucial or determinative element in the venture, so to say, is whether performance of a function is actuated by profit motive.

142Copy pinpoint142. What then is the true meaning of the expressions “fee, cess or consideration”? The careful analysis of the amended proviso to Section 2(15), reveal that the prohibition applies in a four-fold manner- G (a) The bar to engaging in trade, commerce or business, (b) The bar to providing any service in relation to trade, commerce or business, H

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A (c) wherein “for a fee, cess or any other consideration” is the controlling phrase for both (a) and (b) (which are collectively referred to as “prohibited activities” for brevity) (d) irrespective of the application of the income derived from such ‘prohibited activities’.

143Copy pinpoint143. The impermissibility of any trade, or commercial activity or service, and income, from them, was intended to be conveyed through the prohibition, in the first part of the definition of GPU charities. The necessary implication which arises is that income (received as fee, cess, or any other consideration) derived from such ‘prohibited activities’ is C necessarily motivated by profit. The ordinary meaning of fee or consideration would be synonymous with something of value, usually in monetary terms. However, the use of the expression “cess” facially lends a different colour to all the three expressions.

144Copy pinpoint144. “Fee, cess and any other consideration” has to receive a D purposive interpretation, in the present context. If fee or cess or such consideration is collected for the purpose of an activity, by a state department or entity, which is set up by statute, its mandate to collect such amounts cannot be treated as consideration towards trade or business. Therefore, regulatory activity, necessitating fee or cess collection in terms of enacted law, or collection of amounts in furtherance of activities such as education, regulation of profession, etc., are per se not business or commercial in nature. Likewise, statutory boards and authorities, who are under mandate to develop housing, industrial and other estates, including development of residential housing at reasonable or subsidized costs, which might entail charging higher amounts from some section of the beneficiaries, to cross-subsidize the main activity, cannot be characterized as engaging in business. The character of being ‘state’, and such corporations or bodies set up under specific laws (whether by states or the centre) would, therefore, not mean that the amounts are ‘fee’ or ‘cess’to provide some commercial or business service. In each case, at the same time, the mere nomenclature of the consideration being a “fee” or “cess”, is not conclusive. If the fee or cess, or other consideration is to provide an essential service, in larger public interest, such as water cess or sewage cess or fee, such consideration, received by a statutory body, would not be considered “trade, commerce or business” or service in relation to those.Non- H statutory bodies, on the other hand, which may mimic regulatory or

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development bodies - such as those which promote trade, for a section A of business or industry, or are aimed at providing facilities or amenities to improve efficiencies, or platforms to a segment of business, for fee, whether charged by subscription, or specific fee, etc, may not be charitable; when they claim exemption, their cases would require further scrutiny. B

145Copy pinpoint145. This Court has in some decisions considered the term “cess”. In Shinde Brothers Etc. v. Deputy Commissioner, Raichur and Ors.131, Justice M. Hidyatullah, (though his was a dissenting judgment, yet no contrary opinion was expressed by majority in regard to “cess”) said that: C “... The word “cess” is used in Ireland and is still in use in India although the word rate has replaced it in England. It means a tax and is generally used when the levy is for some special administrative expense which the name (health cess, education cess, road cess etc.) indicates. When levied as an increment to an existing tax, the name matters not for the D validity of the cess must be judged of in the same way as the validity of the tax to which it is an increment. By Schedule A(1) read with Section 3 of the Act, it is collected as an additional levy with a tax, which, as described in Schedule A, is undoubtedly one within the powers of the State Legislature E and has been so even prior to the Constitution....”

146Copy pinpoint146. The seven-judge bench judgment of this court in India Cement Ltd. & Ors. v. State of Tamil Nadu and Ors.132, approved the definition propounded by Hidayatulla, J. In Vijayalashmi Rice Mill and Ors. v. Commercial Tax Officers, Palakol & Ors133 this court observed that F “13. Hence ordinarily a cess is also a tax, but is a special kind of tax. Generally tax raises revenue which can be used generally for any purpose by the State. For instance, the income tax or excise tax or sales tax are taxes which generate revenue which can be utilised by the Union or the State G Governments for any purpose e.g. for payment of salary to the members of the armed forces or civil servants, police, etc. or for development programmes, etc. However, cess is a tax 131 1967 (1) SCR 548 132 1989 (Supp 1) SCR 692 133 (2006) 6 SCC 763 H

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A which generates revenue which is utilised for a specific purpose. For instance, health cess raises revenue which is utilised for health purposes e.g. building hospitals, giving medicines to the poor, etc. Similarly, education cess raises revenue which is used for building schools or other educational purposes.” B

147Copy pinpoint147. The expression “cess”, therefore, implies a tax or impost levied for some special purpose, which may be levied as an increment to an existing tax. The term “fee”, to some extent, has a similar meaning. In The Commissioner of Income Tax, Lucknow v. U.P. Forest Corporation134 this court, after considering other previous decisions, held that exaction, through process of law, of amounts may be called “fee” but broadly are taxes: “compulsory exaction’s of money imposed for public purpose and requiring no consideration to sustain it, but in a broad generic sense as to also include fees levied essentially for services rendered. It is now well recognised that there is no generic difference between a tax and a fee; both are compulsory exaction of money by public authority.”

148Copy pinpoint148. At the same time, there is also authority135 for the proposition that charges (which may be termed as “fee” in given statutes) collected by local or municipal authorities, for supply of water, for sewerage, etc., are not “taxes”- they form consideration for the specific services, by the concerned local authority.

149Copy pinpoint149. The term “consideration” however is broader. The plain meaning is a monetary payment, for something obtained, in the form of goods, or services. In Commissioner of Central Excise, Mumbai v. Fiat India (P) Ltd. &Ors136 this court explained the meaning of that term: “Consideration means something which is of value in the eyes of law, moving from the Plaintiff, either of benefit to the G Plaintiff or of detriment to the Defendant. In other words, it 134 1998 (2) SCR 22 135 See Union of India & Ors. v. State of U.P. & Ors. 2007(12) SCR 792; Union of India v. Purna Municipal Corporation 1991 (Supp 1) SCR 183; Municipal Corporation, Amritsar v. Senior Superintendent of Post Offices, Amritsar Division & Anr. 2004 (1) SCR 913. 136 H 2012(12) SCR 975

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may consist either in some right, interest, profit or benefit A accruing to the one party, or some forbearance, detriment, loss or responsibility, given, suffered or undertaken by the other, as observed in the case of Currie v. Misa (1875) LR 10 Ex. 153.

54. Webster ’s Third New International Dictionary B (unabridged) defines, consideration thus: ‘Something that is legally regarded as the equivalent or return given or suffered by one for the act or promise of another.’

55. In volume 17 of Corpus Juris Secundum (p.420-421 C and 425) the import of ‘consideration’ has been described thus: ‘Various definitions of the meaning of consideration are to be found in the text-books and judicial opinions. A sufficient one, as stated in Corpus Juris and which has been quoted and cited with approval is “a benefit to the party promising or a loss or detriment to the party to whom the promise is made..... At common law every contract not under seal requires a consideration to support it, that is, as shown in the definition above, some benefit to the promisor, or some detriment to the promisee.’

56. In Salmond on Jurisprudence, the word ‘consideration’ has been explained in the following words. F A consideration in its widest sense is the reason, motive or inducement, by which a man is moved to bind himself by an agreement. It is for nothing that he consents to impose an obligation upon himself, or to abandon or transfer a right. It is in consideration of such and such a fact that he agrees to bear new burdens or to forego the benefits which G the law already allows him.

57. The gist of the term ‘consideration’ and its legal significance has been clearly summed up in Section 2(d) of the Indian Contract Act which defines ‘consideration’ thus: H

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A ‘When, at the desire of the promisor, the promisee or any other person has done or abstained from doing, or does or abstains from doing, or promises to do or to abstain from doing, something, such act or abstinence or promise is called a consideration to the promise.’

B 58. From a conspectus of decisions and dictionary meaning, the inescapable conclusion that follows is that ‘consideration’ means a reasonable equivalent or other valuable benefit passed on by the promisor to the promisee or by the transferor to the transferee. Similarly, when the word ‘consideration’ is qualified by the word ‘sole’, it makes consideration stronger so as to make it sufficient and valuable having regard to the facts, circumstances and necessities of the case.”

150Copy pinpoint150. Therefore, what Parliament intended – through the amendments in question was to proscribe, involvement or engagement of GPU charities, from any form (“in the nature of”) of activities that were trade, business or commerce, or engage or involve in providing services in relation to trade, business or commerce- for a fee, cess or other consideration. The inclusion of the term “in the nature of” was by design, to clarify beyond doubt, that not only business, trade or commerce, but all activities in the nature of, or resembling them, were proscribed. E Likewise, service in relation to such activities, i.e., services relating, or pertaining to, such proscribed activities, too were forbidden.

151Copy pinpoint151. The reference to fee or cess, is in the opinion of the court, only to emphasize that even a statutory consideration, for a service to business, trade or commerce, would take the activity outside the definition of a GPU charity. The sense in which the expressions “cess, fee or other consideration” are used, is that if any amount, is received for trading, or business or commercial activity, or any services to such activity, then, notwithstanding their nomenclature (as fee or cess, i.e. that they are fixed under a law) the GPU charity cannot claim tax exempt status. To bring home this even more pointedly- and underline a break from the past, the application of such amounts (received in the course of trade, commerce, or business, or towards services in relation thereto) would be irrelevant, as evidenced by the term “irrespective”, in the fourth limb of reading Section 2(15). Summation of interpretation of Section 2(15) H

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152Copy pinpoint152. Section 2(15) - in the wake of its several amendments between 2008 and 2015 - can be juxtaposed with the interpretation of the unamended Section 2(15) by this Court. In Surat Art Silk (supra), the principle enunciated was that so long as the predominant object of GPU category charity is charitable, its engagement in a non-charitable object resulting in profits that are incidental, is permissible. The court also declared that profits and gains from such activities which were non-charitable had to be deployed or “fed” back to achieve the dominant charitable object.

153Copy pinpoint153. The paradigm change achieved by Section 2(15) after its amendment in 2008 and as it stands today, is that firstly a GPU charity cannot engage in any activity in the nature of trade, commerce, business or any service in relation to such activities for any consideration (including a statutory fee etc.). This is emphasized in the negative language employed by the main part of Section 2(15). Therefore, the idea of a predominant object among several other objects, is discarded. The prohibition is relieved to a limited extent, by the proviso which carves out the condition by which otherwise prohibited activities can be engaged in by GPU charities. The conditions are: (a) That such activities in the nature of trade, commerce, business or service (in relation to trade, commerce or business for consideration) should be in the course of “actual carrying on” of the GPU object, and E (b) The quantum of receipts from such activities should be exceed 20% of the total receipts. (c) Both parts of the proviso: (i) and (ii) (to Section 2 (15)) have to be read conjunctively-given the conscious use of “or” connecting the two of them. This means that if a F charitable trust carries on any activity in the nature of business, trade or commerce, in the actual course of fulfilling its objectives, the income from such business, should not exceed the limit defined in sub-clause (ii) to the proviso. C. Sections 10, 11, 12, 12A, 12AA and 13 of the IT Act G

154Copy pinpoint154. The effect of Sections 11, 12, 12A 12AA and 13 have been the subject of certain decisions137 of this court. These decisions have noticed that Section 11 deals with income from trusts for charitable and 137 Commissioner of Income Tax v. Dawoodi Bohara Jamat, (2014) 16 SCC 222; S.RM.M.CT.M. Tiruppani Trust v. Commissioner of Income Tax, (1998) 2 SCC 584 H

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A religious purposes and sets out which shall be subject to tax. Section 11(1) relates to application of income towards the objects of the trust and exempts income of trusts with objects wholly charitable or religious, or parts of income which relate to such objects. Section 11(1-A) provides for exemption of capital gains derived by trusts. Section 11(1-B), speaks of failure to apply income as per option under Explanation (2) to Section B 11(1). Section 11(2) relates to setting apart or accumulation of income. Section 11(3) deals with consequences of misapplication of income or improper investment, while Section 11(3-A) relates to modification of purposes specified in Form 10 under Section 11(2). Sections 11(4) and 11(4-A) relate to business income of charitable trusts. Lastly, Section C 11(5) provides for the prescribed modes of investment in regard to the said trusts. Section 12 enacts that income of trusts created wholly for charitable or religious purpose from voluntary contributions would be deemed as income from the property held under such trust for the purposes of Sections 11 and 13 of the Act. Section 12-A prescribes the conditions for applicability of Sections 11 and 12 of the Act. It enacts D two essential conditions which are to be satisfied by a charitable or religious trust for claiming exemption under those sections: firstly, that the person in receipt of the income has made an application for registration of the trust on or after 01.06.2007 in the prescribed form and manner to the Commissioner and such a trust is registered under Section 12-AA E and secondly, where the total income of the trust exceeds the maximum amount which is not chargeable to income tax in any previous year, the accounts of the trust must be audited by a chartered accountant and the person in receipt of the income should furnish such audit report in the prescribed form along with the return of income. The procedure for grant (or refusal) of registration is prescribed by Section 12AA. Section F 13 enlists the circumstances under which tax exemption is unavailable to religious or charitable trusts otherwise falling under Sections 11 or 12. Section 13 therefore, has to be read with the provisions of Sections 11 and 12 for deciding eligibility of a trust’s claim for exemption. Distinction between business held under Trust[Section 11(4)] G and Trust carrying on business [Section 11(4A)]

155Copy pinpoint155. Section 11(4) applies to cases where the business undertaking itself is the property held by a trust. Thus, where the property held in trust, or where property settled by the donor or trust creator in favour of the trustees itself is a business undertaking, then the income from such H

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an undertaking is covered by Section 11(4). Section 11(4A) operates differently. It is applicable to cases where the trust carries on a business. Section 11(4A) states that when a trust carries on a business, unless the business is incidental or ancillary to the attainments of the objectives of the trust, it would be disentitled to an exemption under Section 11(1). It imposes a further condition that separate books of accounts need to be maintained in such cases.

156Copy pinpoint156. Section 11(1) confers an exemption from tax only where the property itself is held under a trust or other legal obligation. It does not apply to cases where a trust or legal obligation is not created on any property, but only the income derived from any particular property or source is set apart and charged for a charitable or religious purpose. C Similarly, when a business itself has been set aside for the objects of the trust, then such business is held under trust and will fall under sub-section (4). However, where the profits of a business of a trust are applied for charitable purposes, then such business and trust will be governed by sub-section (4A). D

157Copy pinpoint157. Section 11(1) of the Act exempts income derived from property held under trust wholly for charitable or religious purposes, to the extent to which such income is applied to such purposes in India. The Act does not comprehensively define “property held under trust”. Section 11(4) however, provides that for the purposes of Section 11, the E words “property held under trust” “includes a business undertaking so held”. Section 11(4A) as amended by the Finance (No. 2) Act, 1991 w.e.f. 01.04.1992 reads as under:- “(4A) Sub-section (1) or sub-section (2) or sub-section (3) or sub-section (3A) shall not apply in relation to any income of F a trust or an institution, being profits and gains of business, unless the business is incidental to the attainment of the objectives of the trust or, as the case may be, institution, and separate books of account are maintained by such trust or institution in respect of such business.” G

158Copy pinpoint158. The question whether Section 11(4A) applies where a business is held under trust was answered in the negative in earlier High Court judgments. The general provision under Section 4(3)(i) of the old Act exempted income derived from property held under trust from taxation. Section 4(3)(ia) however, enacted that any income derived from a business carried on behalf of a religious or charitable trust would be H

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A entitled to exemption only if the business was carried on in the course of carrying out of a primary purpose of the trust or the work in connection with the business is mainly carried on by the beneficiaries of the trust. The revenue contended there that since clause (ia) was a special provision dealing with exemption in respect of a business carried on for and on behalf of a trust, any claim for exemption as regards the B profits of such business can be made only under that provision, and if conditions laid down therein are not satisfied, the assessee cannot rely upon the general provision contained in Section 4(3)(i) to claim exemption thereunder on the ground that business is property. In Gadodia Swadeshi Stores v. Commissioner of Income Tax, Punjab138, the Lahore High C Courtheld that the fact that the business carried on behalf of the trust failed to satisfy the two conditions in Section 4(3)(ia) was no reason for it be denied exemption if it fell within Section 4(3)(i). The court held that that the two categories mentioned in the two clauses did not exclude each other.

159Copy pinpoint159. This judgment of the Lahore High Court was approved- by reference by this court in J.K. Trust v. CIT139 which was followed in Krishna Warriar (supra). By then the content of Section 4(3)(ia) had been enacted as a proviso to clause(i) of Section 4(3), by amending Act of 1953. After referring to the judgment of the Lahore High Court (supra) and rejecting the argument of the revenue that a proviso in a statute be always read as limitation upon the effect of the main enactment Subbarao, J. in Krishna Warriar (supra) observed as under: “........But it is not an inflexible rule of construction that a proviso in a statute should always be read as a limitation upon the effect of the main enactment. Generally the natural presumption is that but for the proviso the enacting part of the section would have included the subject-matter of the proviso; but the clear language of the substantive provision as well as the proviso may establish that the proviso is not a qualifying clause of the main provision, but is in itself a G substantive provision. In the words of Maxwell, “the true principle is that the sound view of the enacting clause, the saving clause and the proviso taken and construed together 138 See Gadodia Swadeshi Stores v. Commissioner of Income Tax, Punjab, (1944) 12 ITR 385 139 1958 (1) SCR 65 H

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is to prevail”. So construed we find no difficulty, as we will A indicate later in our judgment, in holding that the said clause (b) of the proviso deals with a case of business which is not vested in trust for religious or charitable purposes within the meaning of the substantive clause of section 4(3)(i).”

160Copy pinpoint160. Therefore, to summarise on the legal position on this - if a B property is held under trust, and such property is a business, the case would fall under Section 11(4) and not under Section 11(4A) of the Act. Section 11(4A) of the Act, would apply only to a case where the business is not held under trust. There is a difference between a property or business held under trust and a business carried on by or on behalf of the trust. This distinction was recognized in Surat Art Silk (supra), which observed that if a business undertaking is held under trust for a charitable purpose, the income from it would be entitled to exemption under Section 11(1) of the Act.

161Copy pinpoint161. The interface between Sections 11(1) and (4) is of some importance. Firstly, under Section 11(4), it is only the business which is held under the trust that would enjoy exemption in respect of its income under Section 11(1). Secondly, there is a distinction between the objects of a trust and the powers given to the trustees to effectuate the purposes of the trust. In this regard, the observations of this court, in J.K. Trust (supra) assume relevance. There, one of the questions which arose was whether the office of managing agency, which was an office of profit, was in fact settled upon trust and, therefore, could be considered to be business held under trust. The court held that for the purposes of Section 4(3)(i) of the 1922 Act, the office of managing agency was property which could be held under trust. The revenue pointed out that on the terms of the trust deed previously executed by the settlors (on 15.06.1945), F the properties which the trustees are to hold and stand possessed of, were only the sum of 1,00,000/-, any donations and contribution received by the trustees and all accretions thereto, and investment in securities made from time to time representing the accretions. It was contended that on the terms of the trust deed, the managing agency G which was acquired on 10.09.1945 for a period of 20 years,cannot be said to be property held under trust since no part of the initial amount of 1,00,000/-, which was settled upon the trust, was utilised in the acquisition of the managing agency, so as to impress it with the character of accretion. While repelling this contention, this court held that: H

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A “.......But it is to be observed that clause (3) of the trust deed expressly provides for the acquisition of the business of managing agency on behalf of the trust and “with the help of the trust fund” and that precisely is what has happened and indeed, reading together Exhibits A and B, it is impossible to resist the conclusion that both the documents formed part of an integral scheme, and that what the settlors had in view in clause 3 of Exhibit A is the very managing agency, which was acquired under Exhibit B. There is considerable authority in England that when trustees carry on business with the aid of trust fund, the position in law is the same as if they actually employed it in the business, though, in fact, it be not actually invested therein.”

162Copy pinpoint162. It seems that the test applied in J.K. Trust (supra) that for a business, to be considered as property held under trust, it should have been either acquired with the help of the fund originally settled upon trust or the original fund settled upon trust must have a proximate connection with the later acquisition or carrying on of the business by the trustees. This distinction between a business held and carried on by a trust, or a trust business run by the trustees, was noticed, in Thiagesar Dharma Vanikam v. CIT140 by the Madras High Court and in Raja P.C. Lall Choudhary v. CIT, Bihar & Orissa141 by the Patna High Court E which held similarly in relation to Section 4(3)(i) of the Act of 1922 (which corresponds to Section 11(1) of the 1961 Act).

163Copy pinpoint163. What has to be examined, therefore, is whether the business itself is held under trust or is carried on by and on behalf of the trust. Importantly Section 11(1) of the Act starts with the expression “subject to the provisions of Sections 60 to 63........”. Those provisions are in Chapter V of the Act. Section 60 provides for the consequences of a transfer of income where there is no transfer of assets. It says that where a person transfers merely the income from an asset without transferring the asset itself, he would continue to be chargeable to income tax. Section 61 provides for the consequences of a revocable transfer of assets and says that the same would be the position where a person is in receipt of income by virtue of a revocable transfer of assets. Section 62 provides for the consequences of a transfer of assets for a specified 140 (1963) 50 ITR 798 Madras. 141 (1957) 31 ITR 226 Patna. H

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period, and serves as an exception to Section 61. An assessee has to be A divested of the asset before ceasing to be assessable in respect of the income from it. A mere direction that the income from the business shall be applied to the charitable objects of a trust, without there being a settlement of the business itself upon trust, does not result in any trust or legal obligation. B

164Copy pinpoint164. It is now, necessary to consider Thanthi Trust (supra) and its context. This court, while interpreting Section 11(4A) (as amended w.e.f. 01.04.1992) stated that the provision requires the “business income of a trust or institution tobe exempt is that the business should be incidental to the attainment of objectives of the trust or institution”. C

165Copy pinpoint165. The above observations have to be understood in the light of the facts before the court. Thanthi Trust carried on newspaper business which was held under trust. The charitable object of the trust was the imparting of education- which falls under Section 2(15) of the Act. The newspaper business was incidental to the attainment of the object of the trust, namely that of imparting education. This aspect is important, because the aim of the trust was a per se charitable object, not a GPU object. The observations were therefore made, having regard to the fact that the profits of the newspaper business were utilized by the trust for achieving the object of education. In the light of such facts, the carrying on of newspaper business, could be incidental to the object of education- a per se category. The Thanthi Trust (supra) ratio therefore, cannot be extended to cases where the trust carries on business which is not held under trust and whose income is utilized to feed the charitable objects of the trust.

166Copy pinpoint166. What then is the interpretation of the expression “incidental” F profits, from “business” being “incidental to the attainment of the objectives” of the GPU charity (which occurs in Section 11(4A))? As stated earlier, the interpretation of that expression in ThanthiTrust (supra) was in the context of a per se charity, i.e., where the trust’s object was education. However, the restrictive or negative terms enjoining GPU charities from carrying on profitable activity had been deleted in 1983 G (w.e.f. 01.04.1984). In Surat Art Silk (supra), the court had articulated the determinative test for defining whether a Trust was a GPU charity if its predominant object was to carry out a charitable purpose and that if that was the case, the fact that it earned profit would not per se deprive it of tax exemption. This decision was interpreted in the context of Section H

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A 11(4A) by this court in Thanthi Trust,to hold that business can be incidental to attainment of the trust’s objects.

167Copy pinpoint167. Thus, the journey which began with Surat Art Silk was interpreted in Thanthi Trust to mean that the carrying on of business by GPU charity was permissible as long as it inured to the benefit of the B trust. The change brought about by the amendments in questions, however, place the focus on an entirely different perspective: that if at all any activity in the nature of trade, commerce or business, or a service in the nature of the same, for any form of consideration is permissible, that activity should be intrinsically linked to, or a part of the GPU categorycharity’s object. Thus, the test of the charity being driven by a C predominant object is no longer good law. Likewise, the ambiguity with respect to the kind of activities generating profit which could feed the main object and incidental profit-making also is not good law. What instead, the definition under Section 2(15) through its proviso directs and thereby marks a departure from the previous law, is – firstly that if a D GPU charity is to engage in any activity in the nature of trade, commerce or business, for consideration it should only be a part of this actual function to attain the GPU objective and, secondly – and the equally important consideration is the imposition of a quantitative standard -i.e., income (fees, cess or other consideration) derived from activity in the nature of trade, business or commerce or service in relation to these E three activities, should not exceed the quantitative limit of 10,00,000 (w.e.f. 01.04.2009), 25,00,000 (w.e.f. 01.04.2012), and 20% (w.e.f. 01.04.2016) of the total receipts. Lastly, the “ploughing” back of business income to “feed” charity is an irrelevant factor – again emphasizing the prohibition from engaging in trade, commerce or business.

168Copy pinpoint168. If one understands the definition in the light of the above enunciation, the sequitur is that the reference to “income being profits and gains of business” with a further reference to its being incidental to the objects of the Trust, cannot and does not mean proceeds of activitiesincidental to the main object, incidental objects or income G derived from incidental activities. The proper way of reading reference to the term “incidental” in Section 11(4A) is to interpret it in the light of the sub-clause (i) of proviso to Section 2(15), i.e., that the activity in the nature of business, trade, commerce or service in relation to such activities should be conducted actually in the course of achieving the GPU object, and the income, profit or surplus or gains can then, be logically H

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incidental. The amendment of 2016, inserting sub clause (i) to proviso A to Section 2(15) was therefore clarificatory. Thus interpreted, there is no conflict between the definition of charitable purpose and the machinery part of Section 11(4A). Further, the obligation under Section 11(4A) to maintain separate books of account in respect of such receipts is to ensure that the quantitative limit imposed by sub-clause (ii) to Section B 2(15) can be computed and ascertained in an objective manner.

169Copy pinpoint169. The conclusion recorded above is also supported by the language of seventh proviso142 to Section 10(23C). Whereas Section 2(15) is the definition clause, Section 10 lists out what is not income. Section 10(23C)– by sub-clauses (iv) and (v) exempt incomes of charitable organisations. Such organisations and institutions are not limited C to GPU category charities but rather extend to other types of charities (i.e. the per se kind as well). The controlling part of Section 10(23C) along with the relevant clauses (iv) and (v) seek to exclude income received by the concerned charities. However, the provisos hedge such exemption with conditions. The seventh proviso- much like Section D 11(4A) and the definition - carve out an exception, to the exemptions such that income derived by charities from business, are not exempt. The seventh proviso virtually echoes Section 11(4A) in that business income derived by a charity (in the present case, the GPU charities) which arises from an activity incidental to the attainment of its objective is not per se excluded. E

170Copy pinpoint170. Classically, the idea of charity was tied up with eleemosynary143. However, “charitable purpose” – and charity as defined in the Act have a wider meaning where it is the object of the institution which is in focus. Thus, the idea of providing services or goods at no consideration, cost or nominal consideration is not confined to the provision of services or goods without charging anything or charging a token or nominal amount. This is spelt out in Indian Chamber of

142 “Providedalso that nothing contained in sub-clause (iv) or sub-clause (v) or sub- clause (vi) or sub-clause (via) shall apply in relation to any income of the fund or trust or institution or any university or other educational institution or any hospital or other medical institution, being profits and gains of business, unless the business is incidental to the attainment of its objectives and separate books of account are maintained by it in respect of such business:” 143 Providing relief from distress to humans based on Christian values - refer to Director of Income Tax v. Bharat Diamond Bourse (2002) 10 SCC 392, and Bangalore Water Supply and Sewage Undertaking v. A Rajappa (1978) 2 SCC 213. H

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A Commerce (supra) where this Court held that certain GPUs can render services to the public with the condition that they would not charge “more than is actually needed for the rendering of the services, - may be it may not be an exact equivalent, such mathematical precision being impossible in the case of variables, - may be a little surplus is left over at the end of the year – the broad inhibition against making profit is a good guarantee that the carrying on of the activity is not for profit”.

171Copy pinpoint171. Therefore, pure charity in the sense that the performance of an activity without any consideration is not envisioned under the Act. If one keeps this in mind, what Section 2(15) emphasizes is that so long as a GPU’s charity’s object involves activities which also generates profits (incidental, or in other words, while actually carrying out the objectives of GPU, if some profit is generated), it can be granted exemption provided the quantitative limit (of not exceeding 20%) under second proviso to Section 2(15) for receipts from such profits, is adhered to.

172Copy pinpoint172. Yet another manner of looking at the definition together with Sections 10(23) and 11 is that for achieving a general public utility object, if the charity involves itself in activities, that entail charging amounts only at cost or marginal mark up over cost, and also derive some profit, the prohibition against carrying on business or service relating to business is not attracted- if the quantum of such profits do not exceed 20% of its overall receipts.

173Copy pinpoint173. It may be useful to conclude this section on interpretation with some illustrations. The example of Gandhi Peace Foundation disseminating Mahatma Gandhi’s philosophy (in Surat Art Silk) through museums and exhibitions and publishing his works, for nominal cost, ipso facto is not business. Likewise, providing access to low-cost hostels to weaker segments of society, where the fee or charges recovered cover the costs (including administrative expenditure) plus nominal mark up; or renting marriage halls for low amounts, again with a fee meant to cover costs; or blood bank services, again with fee to cover costs, are not activities in the nature of business. Yet, when the entity concerned charges substantial amounts- over and above the cost it incursfor doing the same work, or work which is part of its object (i.e., publishing an expensive coffee table book on Gandhi, or in the case of the marriage hall, charging significant amounts from those who can afford to pay, by providing extra services, far above the cost-plus nominal markup) such

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activities are in the nature of trade, commerce, business or service in relation to them. In such case, the receipts from such latter kind of activities where higher amounts are charged, should not exceed the limit indicated by proviso (ii) to Section 2(15).

174Copy pinpoint174. The insertion of Section 13(8)144, the seventeenth proviso to Section 10(23C) and third proviso to Section 143(3) (all of which were inserted by Finance Act, 2012, but w.r.e.f. 01.04.2009), further reinforces the interpretation of this Court, of “charitable purpose”. These provisions, form the machinery to control the conditions under which income is exempt. The effect of the seventeenth proviso to Section 10(23C) is to impose the same condition i.e., that that the trade, commerce or business activity or service relating to trade, business or commerce, should be part of the GPU’s activities, to achieve its object of advancing general public utility. The other condition– which is drawn in as part of the exemption condition, is that if such trading or commercial activity takes place the receipts should be confined to a prescribed percentage of the overall receipts. Section 13(8) too reinforces the same condition. D

175Copy pinpoint175. In the opinion of this court, the change intended by Parliament through the amendment of Section 2(15) was sought to be emphasised and clarified by the amendment of Section 10(23C) and the insertion of Section 13(8). This was Parliaments’ emphatic way of saying that generally no commercial or business or trading activity ought to be engaged by GPU charities but that in the course of their functioning of carrying out activities of general public utility, they can in a limited manner do so, provided the receipts are within the limit spelt out in Clause (ii) of the proviso to Section 2(15). D. What kinds of income or receipts may not be characterized as derived from trade, commerce, business or in relation to such activities, for a consideration (i) Statutory corporations, authorities or bodies

176Copy pinpoint176. It would be essential now to deal with certain kinds of receipts which GPU charities, typically statutory housing boards, regulatory authorities and corporations may be entitled to, if mandated to collect or 144 “(8) Nothing contained in section 11 or section 12 shall operate so as to exclude any income from the total income of the previous year of the person in receipt thereof if the provisions of the first proviso to clause (15) of section 2 become applicable in the case of such person in the said previous year.” H

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A receive. During the course of hearing, learned counsels highlighted that statutory boards, and corporations have to recover the cost of providing essential goods and services in public interest, and also fund large scale development and maintain public property. These would entail recovering charges or fees, interest and also receiving interest for holding deposits. It was further pointed out that in some cases, income in the form of B rents – having regard to the nature of the schemes which the concerned board, trust or corporation may be mandated or permitted to carry on, has to be received. For instance, in some situations, for certain kinds of properties, the boards may be permitted only to lease out their assets and receive rents.

177Copy pinpoint177. The answers to these, in the opinion of this court, are that the definition ipso facto does not spell out whether certain kinds of income can be excluded. However, the reference to specific provisions enabling or mandating collection of certain rates, tariffs or costs would have to be examined. Generically, going by statutory models in enactments (under D which corporations boards or trust or authority by whatsoever name, are set up), the mere fact that these bodies have to charge amounts towards supplying goods or articles, or rendering services i.e., for fees for providing typical essential services like providing water, distribution of foodgrains, distribution of medicines, maintenance of roads, parks etc., ought not to be characterized as “commercial receipts”. The E rationale for such exclusion would be that if such rates, fees, tariffs, etc., determined by statutes and collected for essential services, are included in the overall income as receipts as part of trade, commerce or business, the quantitative limit of 20% imposed by second proviso to Section 2(15) would be attracted thereby negating the essential general public utility object and thus driving up the costs to be borne by the ultimate user or consumer which is the general public. By way of illustration, if a corporation supplies essential foodgrains at cost, or a marginal mark up, another supplies essential medicines, and a third, water, the characterization of these, as activities in the nature of business, would be self-defeating, because the overall receipts in some given cases may exceed the quantitative limit resulting in taxation and the consequent higher consideration charged from the user or consumer. (a) Interpretation of Section 10(46) and Section 2(15)

178Copy pinpoint178. Section (20A) was inserted by Finance Act, 1970 with effect from 01.04.1962. It had excluded certain classes of income, of

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corporations145. This court had occasion to deal with the provision while it was in force in the GIDC case (supra). The court had then emphasized that the expression “development” in Section 10(20A) should be understood widely; thus, all development programmes “relating to any industry” fell within the purview of “development”. The court also highlighted that nothing in the IT Act laid down how a corporation could be termed as a development corporation nor was there anything mandating that fee chargeable by such corporations was confined to non-industrial activities.

179Copy pinpoint179. The decision in Gujarat Maritime Board case (supra) was rendered in the context of Section 10(20). That provision exempts income accruing to local authorities, from taxation. By Finance Act, 2002, an C Explanation was added to Section 10(20) which defined “local authority” retrospectively. The Board ceased to enjoy exemption which it had hitherto, in the absence of the retrospective definition. It, therefore sought exemption, as a GPU category charity claiming that it was controlled by objects of general public utility having regard to the provisions of its D parent Act, i.e., the Gujarat Maritime Board Act. This court refuted the argument of the revenue that if a corporation did not fall within the definition of “local authority” it could not claim to be a GPU charity. It was held that Section 10(20) and Section 11 of the 1961 Act operate in totally different spheres. Even if the Board is not considered as a local authority, it is not precluded from claiming exemption under Section 11(1) E of the 1961 Act. Therefore, the court read Section 11(1) in light of the definition of the words “charitable purposes” as defined under Section 2(15). This court also relied upon the ruling in CIT v. APSRTC (supra) where the APSRTC – constituted under the Road Transport Corporation Act, 1950 – having regard to the objectives of the Act, was held to be a F GPU charity, thus entitling it to exemption in terms of the IT Act.

180Copy pinpoint180. In the light of these decisions, it is evident that the revenue’s narrow construction by which tax exemption is denied on the ground 145 Incomes not included in total income.

10. In computing the total income of a previous year of any person, any income falling G within any of the following clauses shall not be included- xxxxxx xxxxxx xxxxxx (20A) any income of an authority constituted in India by or under any law enacted either for the purpose of dealing with and satisfying the need for housing accommodation or for the purpose of planning, development or improvement of cities, towns and villages, or for both. H

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A that if an entity is not covered by Section 10(20A) – or the newly applicable Section 10(46), it cannot claim benefit as a GPU charity under Section 11, is unsound. These two provisions confer different though overlapping benefits. If an entity does not fulfil the requirement of one provision because it does not answer the description of a body under that provision, that ipso facto is not a bar for it to claim benefit of another provision.

181Copy pinpoint181. Section 10(46) re-incarnated so to say Section 10(20A), which had been deleted w.e.f. 01.04.2003. This provision, i.e., Section 10(46) was inserted with effect from 01.04.2009 retrospectively by the Finance Act, 2011146. The conditions for applicability of Section 10(46), i.e., that specified income or a class of specified income of ports, trusts or commissions, etc., established or constituted by or under Central or State enactments with the object of regulating or administering any activity in the general public, is on similar lines as in the case of GPU charities. Like in the case of GPU charities, there is a prohibition by Section D 10(46)(b) against such corporations, etc. engaging in commercial activity. This restriction has been introduced for the first time [as that prohibition was absent in the now repealed Section 10 (20A)].

182Copy pinpoint182. The term “commercial” is closely similar to, if not identical, with the phrase “in the nature of trade, commerce or business.” The other condition inSection 10(46) is that the specified income to be exempted,is to be notified by the Central Government in the Official Gazette. Facially the allusion to commercial activity, appears to be in the nature of a complete bar to activities which are akin to commerce or business, yielding profit. However, what needs to be kept in mind is that the object of Section 10 is to remove from the taxable net, an entire class of receipts of income. Given this object of Section 10, the 146 Incomes not included in total income.

10. In computing the total income of a previous year of any person, any income falling within any of the following clauses shall not be included- xxxxxx xxxxxx xxxxxx

(46) any specified income arising to a body or authority or Board or Trust or Commission G (by whatever name called) or a class, thereof which- (a) has been established or constituted by or under a Central, State or Provincial Act, or constituted by the Central Government or a State Government, with the object of regulating or administering any activity for the benefit of the general public; (b) is not engaged in any commercial activity; and (c) is notified by the Central Government in the Official Gazette for the purposes of this clause.

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interpretation of “commercial” activity has to be on the same lines as in the case of income derived by GPU charities, in the course of their actual functioning, by involving in activities in the nature of trade, commerce or business. Thus, if statutory corporations within Section 10(46) derive their income by charging a nominal mark-up over the cost of service rendered or goods supplied, meant to recover the costs of the activities they engage in primarily or to achieve the object for which they were set up, such as development of housing, road infrastructure, water supply, sewage treatment, supply of foodgrains, medicines, etc., with or without regulatory powers, the mere fact that some surplus or gain is derived would not disentitle them from the benefit of Section 10(46). C

183Copy pinpoint183. In this context, it would be useful to consider the judgment of the Delhi and Allahabad High Courts in Greater Noida Industrial Development Authority v. Union of India147(hereafter “GNIDA”) and CIT v. Yamuna Expressway Industrial Development Authority148. In GNIDA (supra), the High Court drew a distinction between bodies set up by the government with commercial purpose and objects – which are motivated by profit, and other government bodies. The court held, correctly so – that other government bodies are not entitled to exemption as they are motivated by profit. Then, dealing with the term “commercial activity” under Section 10(46), it was held that the decisive test is whether the activities for which consideration in the form of fee, service charge etc., is collected, is “intrinsically associated, connected and had minimum nexus with the object of regulating and administering the activity for the benefit of the public”.

184Copy pinpoint184. It was also held that if the activity is not carried on commercial lines, i.e., with the profit motive in mind, but the body is assigned an administrative role, having regard to the objects of the controlling statute or law, exemption cannot be denied under Section 10(46). As juxtaposed, activities for profit or activities which clearly were motivated by profit – carried on by government or statutory bodies, cannot avail of exemption. The judgment in Yamuna Industrial Development Authority (supra) is along the similar lines. G

185Copy pinpoint185. As far as boards and corporations which are tasked with development of industrial areas, by statute, the judgments of this court,

147 (2018) 406 ITR 418 (hereafter “GNIDA”) 148 (2017) 395 ITR 18 H

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