SC provides clarity on ‘Charitable Purpose’ under S.2(15) on clause relating to General Public Utility
Asst. CIT (E) v Ahemdabad Urban Development Authority 2022 (143 taxmann.com 78 (SC) ~ Order dt 3-11-2022)
SC has clarified law relating to General Public Utility (GPU) clause under the last limb of S.2(15). As per the SC judgement activities in question (i.e. considered as commercial) need to be undertaken for advancement of objects of the entity. Even if these are considered in the nature of trade, commerce or business, that does not bar the entity from tax exemption under S.11.
However in such a scenario, two aspects need to be considered
(1) are the activities commercial in nature ? For this SC has given following guidelines:
· Consideration charged is on cost or nominal mark-up basis, if so than activities cannot be stated to be trade, commerce or business or services in the nature of trade, commerce or business.
· To decide the above test, SC has illustrated through several examples:
Not considered as trade, commerce or business related activities
o Gandhi Peace Foundation disseminating Mahatma Gandhi’s philosophy through museums, exhibitions, publications for nominal cost is not business.
o An institute providing low-cost hostels to weaker segments of the society, where the fee or charges recovered cover the costs, including administrative expenditure plus nominal mark-up.
o An entity renting marriage halls for low amounts at fees meant to cover costs.
o A blood-bank services recovering fees to cover costs
Considered as trade, commerce or business related activities, even if arising from GUP related objectives
o Publishing an expensive coffee table book on Mahatma Gandhi
o Renting marriage hall at significant amounts, even if by providing extra services, far above the cost plus nominal mark-up.
(2) If consideration charged is considered commercial, then one would need to satisfy the 20% threshold limit of total turnover.
It is further clarified that above law will apply to all institutions, falling under the limb of GPU activity, whether it is a statutory or non-statutory body.
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