ASSISTANT COMMISSIONER OF INCOME TAX v. AHMEDABAD URBAN DEVELOPMENT AUTHORITY

3 SCR 489; Duparquet Co. v. Evans 297 U.S. 216 (1936); Bhuwalka Steel Indus. Ltd. & Ors. v. Bombay Iron and Steel Labour Bd. & Ors. [2009] 16 SCR 618; Chief Justice of Andhra Pradesh & Ors. v. L.V.A. Dixitulu & Ors. [1979) 1 SCR 26; Lohia Machines Ltd. and Ors. v. Union of India & Ors. [1985] 2 SCR 686; Commissioner of Customs (Import), Mumbai v. Dilip Kumar & Company & Ors. 2018 (9) SCC 1 : [2018] 7 SCR 1191; State of West Bengal v. Union of India [1964] 1 SCR 371; 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; CIT v. Vatika Township (2015) 1 SCC 1 : [2014] 12 SCR 1037; Keshavji Ravji & Co. and Ors. v. Commissioner of Income Tax (1992) 2 SCC 231; Commissioner of Customs v. Indian Oil Corporation [2004] 2 SCR 511; S.K. Gupta & Anr. v. K.P. Jain & Anr. (1979) 3 SCC 54 : [1979] 2 SCR 1184; Indira Nehru Gandhi v. Shri Raj Narain and Anr. (1975) Supp. SCC 1; Kalya Singh v. Genda Lal and Ors. [1975] 3 SCR 783; Vanguard Fire and Insurance Company Ltd. v. M/s. Fraser and Ross and Anr. [1960] 3 SCR 837; N.K. Jain and Ors. v. C.K. Shah and Ors. [1991] 1 SCR 938;G. Venkataswami Naidu v. Commissioner of Income Tax [1959] Supp 1 SCR 646; State of Tamil Nadu v. Burmah Shell Oil Storage Distribution Company of India Ltd. [1973] 2 SCR 636; State of Tamil Nadu v. Shakti Estates [1989] 1 SCR 408; Director of Civil Supplies v. Member Board of Revenue [1967] 3 SCR 778; Renusagar Power Co. Ltd. v. General Electric Co. [1985] 1 SCR 432; Mansukhlal Dhanraj Jain v. Eknath Vithal Ogale [1995] 1 SCC 996; Doypack System (P) Ltd. v. Union of India 1988 (2) SCC 299 : [1988] 2 SCR 962; Physical Research Laboratory v. K. G. Sharma (1997) 4 SCC 257 : [1997] 3 SCR 733; Town Investments v. Department of Environment 1977 1 ALLER 813; Brothers Etc. v. Deputy Commissioner, Raichur and Ors. [1967] 1 SCR 548; India Cement Ltd. ASST. COMM’R OF INCOME TAX (EXEMPTIONS) v. AHMEDABAD URBAN DEVELOPMENT AUTHORITY 917 & Ors. v. State of Tamil Nadu and Ors. [1989] Supp 1 SCR 692; Vijayalashmi Rice Mill and Ors. v. Commercial Tax Officers, Palakol & Ors. (2006) 6 SCC 763 : [2006] 4 Suppl. SCR 279; The Commissioner of Income Tax, Lucknow v. U.P. Forest Corporation [1998] 2 SCR 22; 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; Commissioner of Central Excise, Mumbai v. Fiat India (P) Ltd. & Ors. [2012]12 SCR 975; 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 : [1998] 1 SCR 653; Gadodia Swadeshi Stores v. Commissioner of Income Tax, Punjab [1944] 12 ITR 385; J.K. Trust v. CIT [1985] 1 SCR 65; Thiagesar Dharma Vanikam v. CIT [1963] 50 ITR 798 Madras; Raja P.C. Lall Choudhary v. CIT, Bihar & Orissa [1957] 31 ITR 226 Patna; Director of Income Tax v. Bharat Diamond Bourse (2002) 10 SCC 392; Bangalore Water Supply and Sewage Undertaking v. A Rajappa (1978) 2 SCC 213:[1978] 3 SCR 207; Greater Noida Industrial Development Authority v. Union of India (hereafter “GNIDA”) [2018] 406 ITR 418; CIT v. Yamuna Expressway Industrial Development Authority (2017) 395 ITR 18; Tamil Nadu Cricket Association v. Director of Income Tax (Exemptions) & Ors. [2014] 360 ITR 633; Sahney Steel & Press Works Ltd v. Commissioner of Income Tax [1997] Supp 4 SCR 189; Commissioner of Income Tax v. Ponni Sugars 2008 (9) SCC 337 : [2008] 13 SCR570 – referred to. Halsbury’s Laws of England, Vol. 32 para 487 Case Law Reference [1939] 7 ITR 415 [1944] 12 ITR 385 referred to referred to Para 6 Para 6 A B C D E F G H 918 SUPREME COURT REPORTS [2022] 15 S.C.R. A [1964] 8 SCR 36 [1965] 1 SCR 565 [1944] 12 ITR 482 [1976] 1SCR 461 B [1976] 1SCR 830 [1980] 2 SCR 77 [1976] 1SCR 830 [1978] 3 SCR1038 [2001] 1 SCR 727 referred to referred to referred to referred to referred to referred to referred to referred to referred to C D E F [1996] 10 Suppl. SCR 472 referred to [1981] 3 SCR542 [1971] 1 SCR719 [1997] Supp 3 SCR 466 [2008] 9 SCR821 referred to referred to referred to referred to [2017] SCC Online Bom 10021 referred to [1965] 1 SCR 909 [1999] 3 SCR 635 [1968] SCR 2 636 [1994] 4 Suppl. SCR477 [1967] 1 SCR 618 [2008] 14 SCR653 referred to referred to referred to referred to referred to referred to [2018] SCC Online Delhi 7536 referred to [1971] 1 SCR719 G [1976] 1 SCR 552 [1976] 1 SCR 721 (1980) 2 SCC 322 [1989] 3 SCR 1038 H referred to referred to referred to referred to referred to Para 7 Para 8 Para 8 Para 11 Para 13 Para 14 Para 15 Para 17 Para 22 Para 36 Para 41 Para 44 Para 44 Para 44 Para 44 Para 45 Para 45 Para 46 Para 46 Para 46 Para 47 Para 47 Para 47 Para 47 Para 47 Para 49 Para 49 ASST. COMM’R OF INCOME TAX (EXEMPTIONS) v. AHMEDABAD URBAN DEVELOPMENT AUTHORITY 919 [2002] 3 Suppl. SCR 587 referred to [1973] 3 SCR 662 [2011] 5 SCR 26 [2006] 1 Suppl. SCR86 [1999] 2 SCR 195 [2007] 12 SCR 962 [2006] 1 SCR235 [2006] 9 Suppl. SCR954 referred to referred to referred to referred to referred to referred to referred to [1996] Supp 10 SCR 472 referred to [1997] 3SCR 733 [1976] 3 SCR 947 [1986] 1 SCR 570 [2015] 3 SCR838 [2002] 2 SCR 743 [1995] 6 Suppl.SCR 827 1995 (1) SCALE 653 [1965] 1 SCR 614 [2010] 4 SCR15 [1964] 7 SCR 664 321 ITR 73 (Del) 358 ITR 78 (Del) ) 360 ITR 138 (Del) ) [1967] 3SCR 778 [1981] 3 SCR 387 [1967]1 SCR 618 (1981) 2 All ER 147 [2017] 14 SCR301 referred to referred to referred to referred to referred to referred to referred to referred to referred to referred to referred to referred to referred to referred to referred to referred to referred to referred to Para 49 Para 49 Para 50 Para 50 Para 51 Para 51 Para 51 Para 51 Para 51 Para 51 Para 51 Para 51 Para 51 Para 51 Para 52 Para 52 Para 56 Para 57 Para 58 Para 65 Para 65 Para 65 Para 67 Para 67 Para 67 Para 67 Para 75 A B C D E F G H 920 SUPREME COURT REPORTS [2022] 15 S.C.R. A [1980] 2 SCC 322 referred to [2005] 273 ITR 139 (Guj.) referred to [1992] 195 ITR 279 (Guj.) referred to [2008] 8 SCR117 [1991] 188 ITR 57 (SC) [1997] 1 SCR 948 [1997] 3 SCR 965 referred to referred to referred to referred to [2003] 259 ITR 280 (SC) referred to [2016] 4 SCR362 referred to [1981] SCC OnLine Del 457 referred to B C D E F [1972] 2 SCR168 [2006] 1 Suppl. SCR757 [1981] 3 SCR 489 297 U.S. 216 (1936) [2009] 16 SCR 618 [1979) 1 SCR 26 [1985] 2 SCR 686 [2018] 7SCR1191 [1964] 1 SCR 371 [1972] 2 SCR 168 [1982] 1 SCR 629 [2003] Supp 4 SCR 222 [2014] 12SCR1037 G (1992) 2 SCC 231 [2004] 2 SCR 511 [1979] 2 SCR 1184 (1975) Supp. SCC 1 H referred to referred to referred to referred to referred to referred to referred to referred to referred to referred to referred to referred to referred to referred to referred to referred to referred to Para 76 Para 80 Para 80 Para 80 Para 82 Para 82 Para 82 Para 82 Para 83 Para 83 Para 84 Para 90 Para 98 Para 108 Para 109 Para 110 Para 111 Para 111 Para 112 Para 119 Para 119 Para 119 Para 119 Para 120 Para 121 Para 124 Para 124 ASST. COMM’R OF INCOME TAX (EXEMPTIONS) v. AHMEDABAD URBAN DEVELOPMENT AUTHORITY 921 [1975] 3 SCR 783 [1960] 3 SCR 837 [1991] 1 SCR 938 [1959] Supp 1 SCR 646 [1973] 2 SCR 636 [1989] 1 SCR 408 [1967] 3 SCR 778 [1985] 1 SCR 432 [1995] 1 SCC 996 [1988] 2 SCR 962 [1997] 3 SCR 733 1977 1 ALLER 813 [1967] 1 SCR 548 [1989] Supp 1 SCR 692 [2006] 4 Suppl. SCR279 [1998] 2 SCR 22 [2007]12 SCR 792 [1991] Supp 1 SCR 183 [2004] 1 SCR 913 [2012]12 SCR 975 (2014) 16 SCC 222 [1998] 1 SCR 653 [1944] 12 ITR 385 [1985] 1 SCR 65 referred to referred to referred to referred to referred to referred to referred to referred to referred to referred to referred to referred to referred to referred to referred to referred to referred to referred to referred to referred to referred to referred to referred to referred to [1963] 50 ITR 798 Madras referred to [1957] 31 ITR 226 Patna referred to (2002) 10 SCC 392 referred to Para 124 A Para 124 Para 124 Para 131 Para 131 Para 131 Para 131 Para 132 Para 132 Para 132 Para 139 Para 140 Para 145 Para 146 Para 146 Para 147 Para 148 Para 148 Para 148 Para 149 Para 154 Para 154 Para 158 Para 159 Para 162 Para 162 Para 170 B C D E F G H 922 SUPREME COURT REPORTS [2022] 15 S.C.R. A [1978] 3 SCR 207 [2018] 406 ITR 418 (2017) 395 ITR 18 [2014] 360 ITR 633 [1997] Supp 4 SCR 189 [2008] 13 SCR 570 referred to referred to referred to referred to referred to referred to Para 170 Para 183 Para 183 Para 222 Para 236 Para 236 CIVIL APPELLATE JURISDICTION : Civil Appeal No.21762 of 2017. From the Judgment and Order dated 02.05.2017 of the High Court of Gujarat at Ahmedabad in Tax Appeal No.425 of 2016. With C.A. Nos. 8193, 5057 of 2012, 5058 OF 2014, 9974 of 2018, 5056 of 2012, 4196, 4374 of 2015, 9380, 13071, 12058, 16375, 12869, 17527, 21845 of 2017, 5719, 9886, 9200, 9860, 10114 of 2018, 1643/2019, 3596, 6762, 3972, 3343, 3359, 3971, 3347, 6489, 10598, 7643, 8321, 8554, 9172, 10406, 11259, 11884 of 2018, 226, 170, 2047, 2335, 3971, 4449, 4957 of 2019, 213, 783 of 2020, 4430, 2477, 2478 of 2021; 7705, 7696, 7720, 7780, 7717, 7707, 7698, 7699, 7695, 7719, 7703, 7718, 7700, 7701, 7702, 7721, 7723, 7722, 7704, 7708, 7724, 7709, 7710, 7711, 7725, 7726, 7712, 7727, 7713, 7714, 7728, 7754, 7730, 7733, 7734, 7735, 7738, 7741, 7742, 7743, 7745, 7753, 7697, 7729, 7715, 7731, 7732, 7716, 7736, 7737, 7739, 7740, 7744, 7746, 7747, 7748, 7749, 7750, 7751, 7752 of 2022 N. Venkataraman, ASG, Arvind datar, Kavin Gulati, Ms. Radhika Suri, Ajay Vohra, Dhruv Agrawal, Arvind P. Datar, K. K. Chythanya, Sanjay Jhanwar, Harish N. Salve, Tushar Hemani, Manish Shah, K.V. Viswanathan, Harish Salve, Saurabh Soparkar, S. N. Bhat, Sr. Advs., Rupesh Kumar, Ms. Gargi Khanna, Shyam Gopal, V. Chandrashekara Bharathi, Ms. Alka Agarwal, H. R. Rao, Raj Bahadur Yadav, B. V. Balaram Das, Mrs. Anil Katiyar, Mrs. Prabha Swami, Nikhil Swami, A V A Siva Kartikeya, Ms. Divya Swami, Rajat Navet, Kushagra Pandit, Pradeep K. Bakshi, Garvesh Kabra, Kumar Dushyant Singh, Rohit Sharma, Rounak Nayak, Anshul Chowdhary, Ms. Arju Chaudhary, P. S. B C D E F G H ASST. COMM’R OF INCOME TAX (EXEMPTIONS) v. AHMEDABAD URBAN DEVELOPMENT AUTHORITY 923 Sudheer, Gursharan H.Virk, Ms. Simranjit H.Virk, Prashanth Undurti, Ms. Esha T, Jaymin R. Brahmbhatt, Nakul Mohta, Ms. Misha Rohatgi Mohta, Devansh Shrivastava, Johnson Subba, Mahinder Singh Hura, Jasmeet Singh, Saif Ali, Divjot Singh Bhatia, Pushpendra S. Bhadoriya, Ms. Rusheet Saluja, Ms. Mamta Chakrabarti, Yajur Bhalla, Deepak Samota, Ashish Vajpayee, Rohit Kumar Pihal, Shubham Bhalla, Manish JP Shah, Balaji Srinivasan, Ms. Pallavi Sengupta, Shahrukh Mohammed, Ms. Kavita Jha, Anant Mann, Udit Naresh, Rohit Jain, Aniket D. Agarwal, Abhishek Kumar Singh, Pramod Dayal, Nikunj Dayal, Rahul Unnikrishnan, Dr. Rakesh Gupta, Somil Agarwal, Anshul Mittal, Ambhoj Kumar Sinha, Anand Sukumar, S. Sukumaran, Sharath S., Ajit V. Ghatikar, Bhupesh Pathak, S. Krishnan, K. V. Mohan, R. K. Raghavan, Rajat Sharma, Tarun Gupta, Ashish Virmani, Kanu Agrawal, Ms. Bina Madhvan, Ms. Aditi Sethi, Rajat Nair, Sanjay Kumar Visen, Ms. Adira A. Nair, Ms. Babita Mishra, Rishabh Sancheti, Ms. Padma Priya, Anchit Bhandari, Sushant Rao, Ms. Saloni Bhandari, Ms. Racheeta Chawla, Vivek Singh, Rakesh Uttamchandra Upadhyay, Ms. Aarti U. Mishra, Rishabh Kumar Pandey, Surrender Singh Manak, Mishra Saurabh, Kabir Hathi, Jatin Zaveri, Neel Kamal Mishra, D. S. Mishra, Ms. Deepanwita Priyanka, Siddharth Batra, Ms. Archna Yadav, Ms. Shivani Chawla, Chinmay Dubey, Malak Manish Bhatt, Sarim Naved, Kabir Dixit, Ms. Anshu Davar, Kamran Javed, D. P. Chaturvedi, Tarun Kumar Thakur, Ms. Parvati Bhat, Anuj Verma, Mrs. Anuradha Mutatkar, Mehul Sharma, Karunankar Mahalik, Advs. for the appearing parties. The Judgment of the Court was delivered by S. RAVINDRA BHAT, J. Index* I. Brief history of legislative changes and this court’s interpretation ................................................................ 5 A. B. C. Provisions of the Income Tax Act, 1922 ............ 5 The new law: Income Tax Act, 1961 .................. 8 The judgment in Surat Art Silk ......................... 11 * Ed Note: Pagination in the Index is as per the original judgment. A B C D E F G H 924 SUPREME COURT REPORTS [2022] 15 S.C.R. D. E. F. G. Relevant changes brought about to the IT Act, 1961 (Finance Act, 1983 and 1991) ......................... 17 The judgment in Thanthi Trust ......................... 18 Deletion of certain exemptions: Section 10 (20A) and Section 10 (23) .................................................. 20 Amendments to Section 2 (15) by Finance Act, 2008 (w.e.f. 01.04.2009) ............................................ 21 II. Submissions of parties ............................................... 22 A. B. C. Arguments on behalf of the revenue ................ 22 Arguments of the assessee-organizations ....... 26 Revenue’s rebuttal arguments ........................... 54 III. Analysis and reasoning ............................................ 55 A. Aids to interpretation ........................................ 62 B. C. (i) History of the legislation ................................. 62 (ii) Other extrinsic aids to construction of the statute .................................................................. 63 Interpretation of Section 2(15), the definition clause.................................................................. 70 Summation of interpretation of Section 2(15) ..... 85 Sections 10, 11, 12, 12A, 12AA and 13 of the IT Act ....................................................................... 86 Distinction between business held under Trust [Section 11(4)] and Trust carrying on business [Section 11(4A)] 87 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 ..................................................... 98 (i) Statutory corporations, authorities or bodies ... 98 (ii) Statutory regulatory bodies/authorities ........ 109 A B C D E F G H ASST. COMM’R OF INCOME TAX (EXEMPTIONS) v. AHMEDABAD URBAN DEVELOPMENT AUTHORITY [S. RAVINDRA BHAT, J.] 925 (iii) Trade Promotion bodies, councils, associations or organizations ....................................................... 114 A (iv) Non-statutory bodies - ERNET, NIXI and GS1 India .................................................................... 116 (v) State Cricket Associations ........................... 122 (vi) Private trusts .............................................. 135 B IV.Summation of conclusions ...................................... 141 A. B. C. D. E. F. G. H. General test under Section 2(15) ....................... 141 Authorities, corporations, or bodies established by statute .............................................................. 142 C Statutory regulators ........................................ 143 Trade promotion bodies ................................. 144 Non-statutory bodies ...................................... 144 Sports associations ........................................ 145 Private Trusts .................................................. 145 Application of interpretation ......................... 146

1. Leave granted in all matters where leave has not already been granted. C.A. No. 21762/2017 (Assistant Commission of Income Tax, Exemptions v. Ahmedabad Urban Development Authority) is taken as the lead matter.

2. Religious and charitable trusts have existed in one form or the other, tracing their origins to the instinct of benevolence, which is part of human nature. Indian philanthropy has enriched its cultural heritage, particularly in catering to the educational, medical, socio-economic, and religious needs of the people. Here its role has been supplementary to the efforts of the State, which has recognized the public utility of this impulse, and granted tax exemptions.Indian income-tax laws have favoured charities, even granted preferential treatment since 1886. The law, while granting exemption to income from religious and charitable trusts has taken effective measures to minimise misuse of trust funds. As a result, a charitable trust loses tax exemption if certain provisions are not complied with, and if its activities do not fall under D E F G H 926 SUPREME COURT REPORTS [2022] 15 S.C.R. A B C D E F G H Section 10 of the Act. Such trusts also have to apply their income to the charitable objects within a specified period, maintain proper audited accounts, and invest or utilise funds in a manner so that no benefit is derived by the settlor, trustees, their relatives, or other persons.1

3. The scope and amplitude of the definition “charitable purpose” under the Income Tax Act, 1961 (hereafter “Income Tax Act” or “the IT Act”) has engaged the courts’ (including that of this court) attention on myriad occasions. The expression “not involving the carrying on of any activity for profit” in the last limb of the definition [Section 2(15) prior to amendment by Finance Act, 1983] was the subject of debate in no less than five judgments of this court (including that of a five-member bench).

4. In these batch of appeals and special leave petitions, the primary question which falls for consideration is the correct interpretation of the proviso to Section 2(15)2 of the IT Act introduced by amendment w.e.f. 01.04.2009. It is necessary, at this stage, to notice that the IT Act visualized three kinds of charitable purposes: medical relief, education, and relief for the poor – which are described hereafter as “per se purposes”. To this list, Parliament has, by amendments, added other categories, such as preservation of environment (including watersheds, forests, and wildlife) and preservation of monuments or places or objects of artistic or historic interest, and yoga. The last – or the residual purpose included by the definition - is “advancement of any other object of general public utility” (hereafter referred to as “GPU category”), which is the subject of interpretation in the present case.

5. The Director General of Income Tax for exemptions, Commissioner of Income Tax (“CIT”) in various states, and other officials of the Income tax department (hereafter compendiously referred to as 1 Sections 11, 12, 12-A and 13 of the Income-tax Act, 1961. 2 “charitable purpose” includes relief of the poor, education, medical relief, preservation of environment (including watersheds, forests and wildlife) and preservation of monuments or places or objects of artistic or historic interest, and the advancement of any other object of general public utility: 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:..…” (emphasis supplied) ASST. COMM’R OF INCOME TAX (EXEMPTIONS) v. AHMEDABAD URBAN DEVELOPMENT AUTHORITY [S. RAVINDRA BHAT, J.] 927 “the revenue”) have appealed the decisions of various High Courts, which have held that the carrying on of any trade, commerce, or business, is not a per se bar or disqualification for a GPU category charitable trust to claim to be such, precluding its tax-exempt status under the IT Act. I. Brief history of legislative changes and this court’s interpretation A. Provisions of the Income Tax Act, 1922

6. The provisions of the erstwhile Income Tax Act, 1922 (hereafter “the old Act”) enabled tax exemption claims by trusts for their income from business activity, provided trusts were created thereon. The Privy Council in The Trustees of Tribune Press, Lahore v. CIT, Punjab3 (hereafter “In Re: Trustees of the Tribune”) held that the income of the Tribune Press fell within section 4(3)(i) of the old Act, and it was implied that income from the press was derived from property held under trust to maintain a newspaper, to keep up its liberal policy and to devote surplus funds to improve the newspaper. The word “property” occurring under section 4(3)(i) of that Act was also held4 to include a business too. The old Act was amended twice with the object of eliminating and getting rid of tax exemptions for trusts, which were otherwise eligible for it. The first amendment of 1939 inserted5 a new 3 (1939) 7 ITR 415(hereafter “In Re: Trustees of the Tribune”). 4 In Commissioner of Income Tax v. P. Krishna Warriar, (1964) 8 SCR 36 : (1964) 53 ITR 176 this court, citing and relying on In re, Trustees of the Tribune [(1939) ITR 415 PC] held that: “This Court in J.K. Trust, Bombay v. Commissioner of Income Tax, Excess Profits Tax, Bombay [(1957) 32 ITR 535] endorsed the said view and held that “property” is a term of the widest import and that business would undoubtedly be property unless there was something to the contrary in the enactment. If business was property, it could be held under trust for religious and charitable purposes. As the business of running the Arya Vaidya Sala vested under trust for religious and charitable purposes, it would fall under clause (i), if the other conditions laid down therein were satisfied.” 5 Section 4(3) of the Indian Income-tax (Amendment) Act, 1939, reads as follows: “(3) Any income, profits or gains falling within the following classes shall not be included in the total income of the person receiving them:] (i) Subject to the provisions of clause (c) of sub-section (1) of section 16, any income derived from property held under trust or other legal obligation wholly for religious or charitable purposes, in so far as such income is applied or accumulated for application to such religious or charitable purposes as relate to anything done within the taxable territories, and in the case of property so held in part only for such purposes, the income applied or finally set apart for application thereto: (ia) Any income derived from business carried on on behalf of a religious or charitable institution when the income is applied solely to the purposes of the institution and- A B C D E F G H 928 SUPREME COURT REPORTS [2022] 15 S.C.R. clause (ia) in the then existing provision. This provided that income derived from business carried on by or on behalf of a charitable trust or religious institution could be limited to only such business income as was derived by the trust or institution from business carried on either in the course of the carrying on of a trust’s primary purpose, or carried on mainly by the beneficiaries of the trust or institution. The Lahore High Court in Charitable Gadodia Swadeshi Stores v. CIT6, observed: “Viewed in its proper perspective, therefore, clause (ia) can be taken to apply only such business as is carried on behalf of religious or charitable institutions which were not held under trust and not to such business as was itself held under trust or was conducted by or on behalf of such charitable or religious institutions as were held under trust. If it was intended to narrow down the scope of clause (1) so as to withdraw the exemption enjoyed by a business held under trust or conducted by or on behalf of a religious or charitable trust, the new clause should have been added as proviso to the old clause.”

7. The Act was again amended by the Finance Act, 19537 wherein clause (ia) was deleted from section 4(3)(i) of the old Act and instead (a) the business is carried on in the course of the carrying out of a primary purpose of the institution, or (b) the work in connection with the business is mainly carried on by beneficiaries of the institution” 6 (1944) 12 ITR 385 7 Section 4 of Finance Act, 1953 added proviso to Section 4(3)(i); it reads as follows: “Provided that such income shall be included in the total income— [(a) if it is applied to religious or charitable purposes without the taxable territories, but in the following cases, namely:— (i) where the property is held under trust or other legal obligation created before the commencement of the-Indian Income-tax (Amendment) Act, 1953 (XXV of 1953), and the income therefrom is applied to such purposes without the taxable territories; and (ii) where the property is held under trust or other legal obligation created after such commencement, and the income therefrom is applied without the taxable territories to charitable purposes which tend to promote international welfare in which India is interested, the Central Board of Revenue may, by general or special order, direct that it shall not be included in the total income;] (b) in the case of income derived from business carried on on behalf of a religious or charitable institution, unless the income is applied wholly for the purposes of the institution and either— A B C D E F G H ASST. COMM’R OF INCOME TAX (EXEMPTIONS) v. AHMEDABAD URBAN DEVELOPMENT AUTHORITY [S. RAVINDRA BHAT, J.] 929 inserted as its proviso. Parliamentary intent, in transforming old clause (ia) into a proviso to Section 4 (3)(i) was that whenever business was carried on behalf of a religious or charitable institution, the conditions prescribed in clause (b) of proviso to clause (i) had to be satisfied in addition to the general condition of exemption set out in the substantive part of clause (i). Parliament’s attempt to exempt income from business activity upon complying with other conditions - apart from those laid down in clause (i) - was interpreted by this court in CIT v. P. Krishna Warriar8 (hereafter “Krishna Warriar”). The court observed that: it held trust wholly “The legal position may briefly be stated thus: Clause (i) of section 4(3) of the Act takes in every property or a fractional part of for religious or charitable purposes. It also takes in such property held only in part for such purposes. Business is also property within the meaning of said clause. Clause (b) of the proviso to section 4(3)(i) applies only to business not held in trust but carried on on behalf of religious or charitable institutions.”

8. The old Act defined ‘charitable purpose’ under Section 4(3) - i.e., the definition as it stood just prior to the IT Act, 1961 coming into force (thereby replacing the old Act) - as follows: “4 (3) Any income, profits or gains falling within the following classes shall not be included in the total income of the person receiving them * * * In this sub-section “charitable purpose” includes relief of the poor, education, medical relief and the advancement of any other object of general public utility, but nothing contained in clause (i) or clause (ii) shall operate to exempt from the provisions of this Act that part of the income from (i) the business is carried on in the course of the actual carrying out of a primary purpose of the institution, or (ii) the work in connection with the business is mainly carried on by beneficiaries of the institution; (c) if it is applied to purposes other than religious or charitable purposes or ceases to be accumulated or set apart for application thereto in which case it shall be deemed to be the income of the year in which it is so applied or ceases to be so accumulated or set apart.]” 8 (1964) 8 SCR 36: (1964) 53 ITR 176 A B C D E F G H 930 SUPREME COURT REPORTS [2022] 15 S.C.R. property held under a trust or other legal obligation for private religious purposes which does not enure for the benefit of the public.” This court had occasion to interpret the meaning of the expression “advancement of any other object of general public utility” in CIT v. Andhra Chamber of Commerce9. The court considered previous decisions in: In Re: Trustees of the Tribune (supra) and All India Spinners Association of Mirzapur v. CIT10. Relying heavily on the decision of the Privy Council in In Re: Trustees of the Tribune (supra), this court held, in Andhra Chamber of Commerce that GPU objects included all objects promoting welfare of general public, including taking steps to oppose or urge legislation affecting trade, commerce, etc. B. The new law: Income Tax Act, 1961

9. Section 2 (15) of the IT Act (which came into force on 01.04.1962 and repealed the old IT Act) defined “charitable purpose” as follows: “(15) — charitable purpose includes relief of the poor, education, medical relief, and the advancement of any other object of general public utility not involving the carrying on of any activity for profit.”

10. The then Finance Minister, Mr. Morarji Desai, explained the rationale for the new definitionon the floor of Lok Sabha: “The definition of ‘charitable purpose’ in that clause is at present so widely worded that it can be taken advantage of even by commercial concerns which, while ostensibly serving a public purpose, get fully paid for the benefits provided by them, namely, the newspaper industry which while running its concern on commercial line can claim that by circulating newspapers it was improving the general knowledge of the public. In order to prevent the misuse of this definition in such cases, the Select Committee felt that the words ‘not involving the carrying on of any activity for profit’ should be added to the definition.”11 9 (1965) 1 SCR 565 (hereafter “Andhra Chamber of Commerce”) 10 (1944) 12 ITR 482 (hereafter “All India Spinners Association of Mirzapur”) 11 (LVI) Lok Sabha Debates., 32nd scs., p. 3073 (August 18, 1961). A B C D E F G H ASST. COMM’R OF INCOME TAX (EXEMPTIONS) v. AHMEDABAD URBAN DEVELOPMENT AUTHORITY [S. RAVINDRA BHAT, J.] 931

11. The first major decision to interpret the new definition was Sole Trustee, Lok Shikshana Trust v. Commissioner of Income Tax12 (hereafter “Lok Shikshana Trust”). This court turned down a contention that newspaper business, carried on with several other objects (which included setting up of educational institutions, dissemination of knowledge to the Kannada speaking public through newspaper, etc.) was charitable. The court noticed the changed definition: “7.…The result thus of the change in the definition is that in order to bring a case within the fourth category of charitable purpose, it would be necessary to show that (1) the purpose of the trust is the advancement of any other object of general public utility, and (2) the above purpose does not involve the carrying on of any activity for profit. Both the above conditions must be fulfilled before the purpose of the trust can be held to be charitable purpose. * * *

9. It is true that there are some business activities like mutual insurance and co-operative stores of which profit-making is not an essential ingredient, but that is so because of a self- imposed and innate restriction on making profit in the carrying on of that particular type of business. Ordinarily profit motive is a normal incidence of business activity and if the activity of a trust consists of carrying on of a business and there are no restrictions on its making profit, the court would be well justified in assuming in the absence of some indication to the contrary that the object of the trust involves the carrying on of an activity for profit…….. By the use of the expression ‘profit motive’ it is not intended that profit must in fact be earned. Nor does the expression cover a mere desire to make some monetary gain out of a transaction or even a series of transactions. It predicates a motive which pervades the whole series of transactions effected by the person in the course of his activity….” The court also rejected the submission that the “profit” referred to meant private profit. It held that the term had to be interpreted without qualification. 12 (1976) 1 SCC 254(hereafter “Lok Shikshana Trust”) A B C D E F G H 932 SUPREME COURT REPORTS [2022] 15 S.C.R. A B C D E F G H

12. One of the judges - Beg, J, concurred with the majority, but after noticing that the trust deed did not contain any condition on profit- making, expressed a slightly different view emphasizing that the actual activity needs to be considered, rather than the absence or existence of any condition, in the trust deed.

13. The next decision of importance is Indian Chamber of Commerce v. CIT13. The appellant-chamber was a company registered under Section 25 of the Indian Companies Act, 1913. Its memorandum and articles of association stipulated certain broad objects, which this court agreed fell within the expression “the advancement of any … object of general public utility” in Section 2(15) of the Act. The objects were “promotional and protective of Indian trade interests and other allied service operations”. A residual clause authorised the chamber “to do all other things as may be conducive to the development of trade, commerce and industries or incidental to attainment of the above objects or any of them”. As per clauses (4) and (8) of the memorandum of association, the chamber’s member could not stand to gain personally since no portion of “income and property of the association shall be paid … directly or indirectly, by way of dividend or bonus or otherwise howsoever by “way of profit to the persons who at any time are ... members of the Association ....” On dissolution of the association, the members could not claim any share in the assets. The chamber, conceded before this court, that it “by and large, strives to advance the general trade interests of India and Indian without seeking to make profits for its members.” This court denied the exemption claimed, holding that: “14… The attainment of that object shall not involve activities for profit. What then is an activity for profit? An undertaking by a business organisation is ordinarily assumed to be for profit unless expressly or by necessary implication or by eloquent surrounding circumstances the making of profit stands loudly negatived. We will illustrate to illumine. If there is a restrictive provision in the bye-laws of the charitable organisation which insists that the charges levied for services of public utility rendered are to be on a ‘no profit” basis, it 13 (1976) 1 SCC 324 (hereafter “Indian Chamber of Commerce”) ASST. COMM’R OF INCOME TAX (EXEMPTIONS) v. AHMEDABAD URBAN DEVELOPMENT AUTHORITY [S. RAVINDRA BHAT, J.] 933 clearly earns the benefit of Section 2(15). For instance, a funeral home, an S.P.C.A. or a cooperative may render services to the public but write a condition into its constitution that it shall not charge more than is actually needed for the rendering of the services, — maybe it may not be an exact equivalent, such mathematical precision being impossible in the case of variables, — maybe 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. As an antithesis, take a funeral home or an animal welfare organisation or a super bazaar run for general public utility by an institution which charges large sums and makes huge profits. Indubitably they render services of general public utility. Their objects are charitable but their activities are for profit… **********

16. To sum up, Section 2(15) excludes from exemption the carrying on of activities for profit even if they are linked with the objectives of general public utility, because the statute interdicts, for purposes of tax relief, the advancement of such objects by involvement in the carrying on of activities for profit. We appreciate the involved language we use, but when legislative draftsmanship declines to be simple, interpretative complexity becomes a judicial necessity. **********

21. The true test is to ask for answers to the following questions: (a) Is the object of the assessee one of general public utility? (b) Does the advancement of the object involve activities bringing in moneys? (c) If so, are such activities undertaken (i) for profit or (ii) without profit? Even if (a) and (b) are answered affirmatively, if (c)(i) is answered affirmatively, the claim for exemption collapses. The solution to the problem of an activity being one for or irrespective of profit is gathered on a footing of facts. What is the real nature of the activity? One which is ordinarily carried on by ordinary people for gain? Is there a built-in prescription in the constitution against making a profit? Has there been in practice, profit from this venture? Although, this last is a weak A B C D E F G H 934 SUPREME COURT REPORTS [2022] 15 S.C.R. A B C D E F G H test. The mere fact that a service is rendered is no answer to chargeability because all income is often derived by rendering some service or other.” C. The judgment in Surat Art Silk

14. The judgment by a larger, five-judge Bench, in Assistant Commissioner v. Surat Art Silk Cloth Manufacturers’ Association14 (hereafter “Surat Art Silk”) was the most important decision rendered on the issue. Here a Section 25 (of the Companies Act, 1956 corresponding to Section 8 of the Companies Act, 2013) non-profit company was established. It claimed exemption as an institutionwith charitable purposes as its objectives. The objects of the company included promoting commerce and trade in Art Silk yarn, raw silk, cotton yarn, Art Silk cloth, silk cloth, and cotton cloth, among other objects15. Clause 5(1) of the company’s memorandum provided that its income and property wheresoever derived was to be applied “solely for the promotion of its objects as set forth in the Memorandum”; Clause 5(2) directed that no portion of the income or property could be paid or transferred, directly or indirectly, by way of dividend, bonus, or otherwise by way of profit, to persons, who at any time are or had been members of the assessee. The Income Tax Appellate Tribunal (hereafter “ITAT”) after initial remand to the Appellate Commissioner, held that “the primary purpose for which the assessee wasestablished was to promote commerce and trade in Art Silk and Silk Yarn and Cloth”. The ITAT made a direct reference of the issue, to this court, since a conflict existed with regard to the correct interpretation of the residual clause, i.e., institutions engaged in the advancement of objects of general public utility, 14 (1980) 2 SCC 31(hereafter “Surat Art Silk”) 15 The list of objects were as follows: “(a) To promote commerce and trade in Art Silk Yarn, Raw Silk, Cotton Yarn, Art Silk Cloth, Silk Cloth and Cotton Cloth. (b) To carry on all and any of the business of Art Silk Yarn, Raw Silk, Cotton Yarn as well as Art Silk Cloth, Silk Cloth and Cotton Cloth belonging to and on behalf of the members. (c) To obtain import licences for import of Art Silk Yarn, Raw Silk, Cotton Yarn and other raw materials as well as accessories required by the members for the manufacture of Art Silk, Silk and Cotton Fabrics. (d) To obtain export licences and export cloth manufactured by the members. (e) To buy and sell and deal in all kinds of cloth and other goods and fabrics belonging to and on behalf of the members. (n) To do all other lawful things as are incidental or conducive to the attainment of the above objects.” ASST. COMM’R OF INCOME TAX (EXEMPTIONS) v. AHMEDABAD URBAN DEVELOPMENT AUTHORITY [S. RAVINDRA BHAT, J.] 935 and whether the company was entitled to be assessed as one carrying on activities that amounted to charitable purposes. This court first determined that the primary or dominant object of the company was promotion and development of trade in silk, silk cloth, yarn and other such items and that the other objects were subsidiary to this primary object. It then held that the requirement of absence of profit motive, was satisfied: “7...but this requirement was also satisfied in the case of the assessee, because the object of private profit was eliminated by the recognition of the assessee under section 25 of the Companies Act, 1956 and clauses 5 and 10 of its Memorandum. It must, therefore, be held that the income and property of the assessee were held under a legal obligation for the purpose of advancement of an object of general public utility within the meaning of section 2 clause (15).”

15. This court then held that the words of prohibition occurring at the end of Section 2(15) were applicable to the last category of charitable institutions, i.e., those involved in the advancement of objects of general public utility. It further clarified that the prohibition applied to the object and not the advancement or attainment of the said object: “10a. It is clear on a plain natural construction of the language used by the legislature that the ten crucial words “not involving the carrying on of any activity for profit” go with “object of general public utility” and not with “advancement”. It is the object of general public utility which must not involve the carrying on of any activity for profit and not its advancement or attainment. What is inhibited by these last ten words is the linking of activity for profit with the object of general public utility and not its linking with the accomplishment or carrying out of the object. It is not necessary that the accomplishment of the object or the means to carry out the object should not involve an activity for profit. That is not the mandate of the newly added words. What these words require is that the object should not involve the carrying on of any activity for profit. The emphasis is on the object of general public utility and not on its accomplishment or attainment. The decisions of the Kerala and Andhra Pradesh High Courts in CIT v. Cochin Chamber of Commerce and A B C D E F G H 936 SUPREME COURT REPORTS [2022] 15 S.C.R. A B C D E F G H Industry [(1973) 87 ITR 83 : (Ker)16 and A.P. State Road Transport Corporation v. CIT [(1975) 100 ITR 392 (AC)], in our opinion lay down the correct interpretation of the last ten words in Section 2 clause(15). The true meaning of these last ten words is that when the purpose of a trust or institution is the advancement of an object of general public utility, it is that object of general public utility and not its accomplishment or carrying out which must not involve the carrying on of any activity for profit.”

16. The court then went on to hold what is meant by “not involving the carrying on an activity for profit”: “15. …The question that is necessary to be asked for this purpose is as to when can the purpose of a trust or institution be said to involve the carrying on of any activity for profit. The word “involve” according to the Shorter Oxford Dictionary means “to enwrap in anything, to enfold or envelop; to contain or imply”. The activity for profit must, therefore, be intertwined or wrapped up with or implied in the purpose of the trust or institution or in other words it must be an integral part of such purpose. But the question again is what do we understand by these verbal labels or formulae; what is it precisely that they mean? Now there are two possible ways of looking at this problem of construction. One interpretation is that according to the definition what is necessary is that the purpose must be of such a nature that it involves the carrying on of any activity for profit in the sense that it cannot be achieved without carrying on an activity for profit. On this view, if the purpose can be achieved without the trust or institution engaging itself in an activity for profit, it cannot be said that the purpose involves the carrying on of an activity for profit… ********************************

16. The other interpretation is to see whether the purpose of the trust or institution in fact involves the carrying on of an activity for profit or in other words whether an activity for 16 This decision was reversed in Indian Chamber of Commerce v. Commissioner of Income Tax(1976) 1 SCC 324 ASST. COMM’R OF INCOME TAX (EXEMPTIONS) v. AHMEDABAD URBAN DEVELOPMENT AUTHORITY [S. RAVINDRA BHAT, J.] 937 profit is actually carried on as an integral part of the purpose or to use the words of Chandrachud, J, as he then was in Dharmodayam case [(1977) 4 SCC 75] , “as a matter of advancement of the purpose”. There must be an activity for profit and it must be involved in carrying out the purpose of the trust or institution or to put it differently, it must be carried on in order to advance the purpose or in the course of carrying out the purpose of the trust or institution. It is then that the inhibition of the exclusionary clause would be attracted. This appears to us to be a more plausible construction which gives meaning and effect to the last concluding words added by the legislature and we prefer to accept it. Of course, there is one qualification which must be mentioned here and it is that if the constitution of a trust or institution expressly provides that the purpose shall be carried out by engaging in an activity which has a predominant profit motive, as, for example, where the purpose is specifically stated to be promotion of sports by holding cricket matches on commercial lines with a view to making profit, there would be no scope for controversy, because the purpose would, on the face of it, involve carrying on of an activity for profit and it would be non-charitable even though no activity for profit is actually carried on or, in the example given, no cricket matches are in fact organised.

17. The next question that arises is as to what is the meaning of the expression “activity for profit”. Every trust or institution must have a purpose for which it is established and every purpose must for its accomplishment involve the carrying on of an activity. The activity must, however, be for profit in order to attract the exclusionary clause and the question therefore is when can an activity be said to be one for profit? The answer to the question obviously depends on the correct connotation of the preposition “for”. This preposition has many shades of meaning but when used with the active participle of a verb it means “for the purpose of” and connotes the end with reference to which something is done. It is not therefore enough that as a matter of fact an activity results in profit but it must be carried on with the object of earning profit. Profit-making must be the end to A B C D E F G H 938 SUPREME COURT REPORTS [2022] 15 S.C.R. A B C D E F G which the activity must be directed or in other words, the predominant object of the activity must be making a profit. Where an activity is not pervaded by profit motive but is carried on primarily for serving the charitable purpose, it would not be correct to describe it as an activity for profit. But where, on the other hand, an activity is carried on with the predominant object of earning profit, it would be an activity for profit, though it may be carried on in advancement of the charitable purpose of the trust or institution. Where an activity is carried on as a matter of advancement of the charitable purpose or for the purpose of carrying out the charitable purpose, it would not be incorrect to say as a matter of plain English grammar that the charitable purpose involves the carrying on of such activity, but the predominant object of such activity must be to subserve the charitable purpose and not to earn profit. The charitable purpose should not be submerged by the profit making motive; the latter should not masquerade under the guise of the former….”

17. The court took note of the judgment of Pathak, J. in Dharmadeepti v. CIT17 as well as the speech of then then Finance Minister, and further observed: “17. ….It is obvious that the exclusionary clause was added with a view to overcoming the decision of the Privy Council in the Tribune case [AIR 1939 PC 208: In Re the Trustees of the Tribune, (1939) 7 ITR 415] where it was held that the object of supplying the community with an organ of educated public opinion by publication of a newspaper was an object of general public utility and hence charitable in character, even though the activity of publication of the newspaper was carried on commercial lines with the object of earning profit. The publication of the newspaper was an activity engaged in by the trust for the purpose of carrying out its charitable purpose and on the facts it was clearly an activity which had profit making as its predominant object, but even so it was held by the Judicial Committee that since the purpose served was an object of general public utility, it was a charitable purpose. It is clear from the speech of the Finance Minister H 17 (1978) 3 SCC 499 ASST. COMM’R OF INCOME TAX (EXEMPTIONS) v. AHMEDABAD URBAN DEVELOPMENT AUTHORITY [S. RAVINDRA BHAT, J.] 939 that it was with a view to setting at naught this decision that the exclusionary clause was added in the definition of “charitable purpose”. The test which has, therefore, now to be applied is whether the predominant object of the activity involved in carrying out the object of general public utility is to subserve the charitable purpose or to earn profit. Where profit making is the predominant object of the activity, the purpose, though an object of general public utility, would cease to be a charitable purpose. But where the predominant object of the activity is to carry out the charitable purpose and not to earn profit, it would not lose its character of a charitable purpose merely because some profit arises from the activity. The exclusionary clause does not require that the activity must be carried on in such a manner that it does not result in any profit. It would indeed be difficult for persons in charge of a trust or institution to so carry on the activity that the expenditure balances the income and there is no resulting profit…..

18. The court proceeded to quote from passages in its previous judgments, in Lok Shikshana Trust and Indian Chamber of Commerce (supra) to the effect that if the activity of a trust consists of carrying on a business and there are no restrictions on profit-making, the court could assume (in the absence of something to the contrary) that the trust’s object involved carrying on of an activity for profit. The Constitution Bench disagreed with the approach in both the previous judgments, and observed: “19. …Now we entirely agree with the learned Judges who decided these two cases that activity involved in carrying out the charitable purpose must not be motivated by a profit objective but it must be undertaken for the purpose of advancement or carrying out of the charitable purpose. But we find it difficult to accept their thesis that whenever an activity is carried on which yields profit, the inference must necessarily be drawn, in the absence of some indication to the contrary, that the activity is for profit and the charitable purpose involves the carrying on of an activity for profit. We do not think the Court would be justified in drawing any such inference merely because the activity results in profit. It is in A B C D E F G H 940 SUPREME COURT REPORTS [2022] 15 S.C.R. A B C D E F G H our opinion not at all necessary that there must be a provision in the constitution of the trust or institution that the activity shall be carried on no profit no loss basis or that profit shall be proscribed. Even if there is no such express provision, the nature of the charitable purpose, the manner in which the activity for advancing the charitable purpose is being carried on and the surrounding circumstances may clearly indicate that the activity is not propelled by a dominant profit motive. What is necessary to be considered is whether having regard to all the facts and circumstances of the case, the dominant object of the activity is profit making or carrying out a charitable purpose. If it is the former, the purpose would not be a charitable purpose, but, if it is the latter, the charitable character of the purpose would not be lost. 20. If we apply this test in the present case, it is clear that the activity of obtaining licences for import of foreign yarn and quotas for purchase of indigenous yarn, which was carried on by the assessee, was not an activity for profit. The predominant object of this activity was promotion of commerce and trade in Art Silk Yarn, Raw Silk, Cotton Yarn, Art Silk Cloth, Silk Cloth and Cotton Cloth, which was clearly an object of general public utility and profit was merely a bye- product which resulted incidentally in the process of carrying out the charitable purpose. It is significant to note that the assessee was a Company recognised by the Central Government under Section 25 of the Companies Act, 1956 and under its Memorandum of Association, the profit arising from any activity carried on by the assessee was liable to be applied solely and exclusively for the promotion of trade and commerce in various commodities which we have mentioned above and no part of such profit could be distributed amongst the members in any form or under any guise. The profit of the assessee could be utilised only for the purpose of feeding this charitable purpose and the dominant and real object of the activity of the assessee being the advancement of the charitable purpose, the mere fact that the activity yielded profit did not alter the charitable character of the assessee. We are of the view that the Tribunal was right in taking the view that the purpose for which the assessee was established was a ASST. COMM’R OF INCOME TAX (EXEMPTIONS) v. AHMEDABAD URBAN DEVELOPMENT AUTHORITY [S. RAVINDRA BHAT, J.] 941 charitable purpose within the meaning of Section 2 clause (15) and the income of the assessee was exempt from tax under Section 11. The question referred to us in each of these references must, therefore, be answered in favour of the assessee and against the Revenue.”

19. There was, however, a discordant note in Surat Art Silk - A.P. Sen, J disagreed with the majority, and delivered a dissenting opinion. Explaining how there were no restrictive words or conditions, under the old IT Act, the learned judge held that the approach indicated in Lok Shikshana Trustand Indian Chamber of Commerce were correct. He felt that the previous decisions of the court were not relevant, and that if the activities of a trust involved any activity for profit or business, the organization ceased to be charitable, and that such proceeds were utilized for charitable objects, were not relevant. He also noted that “A reading of Section 2(15) and Section 11 together shows that what is frowned upon is an activity for profit by a charity established for advancement of an object of general public utility in the course of accomplishing its objects.”The same judgment also stated that: “if the object of the trust is advancement of an object of general public utility and it carried on any activity for profit, it is excluded from the ambit of charitable purpose defined in Section 2(15). The distinction is clearly brought out by the provision contained in Section 13(1)(bb) inserted by Tax Laws (Amendment) Act, 1975.” D. Relevant changes brought about to the IT Act, 1961 (Finance Act, 1983 and 1991)

20. It is pertinent to note that the judgment in Surat Art Silk was delivered on 19.11.1979. The expression “not involving the carrying on of any activity for profit” in Section 2(15) of the IT Act, was omitted by the Finance Act, 1983, w.e.f. 01.04.1984. Prior to this, w.e.f. 01.04.1977 the following restrictive condition had been inserted18 as clause (bb), to Section 13(1)19: “(bb) in the case of a charitable trust or institution for the relief of the poor, education or medical relief, which carries on any business, any income derived from such business, 18 Through the Taxation Laws Amendment Act, 1975. 19 Section 13 - Section 11 not to apply in certain cases. A B C D E F G H 942 SUPREME COURT REPORTS [2022] 15 S.C.R. unless the business is carried on in the course of the actual carrying out of a primary purpose of the trust or institution” This provision had the effect of excluding or excepting the operation of Section 11 (which deemed certain receipts of charitable institutions not to be part of their income). The restrictive condition in clause (bb) was also omitted by the Finance Act, 1983, w.e.f. 01.04.1984.

21. Below Section 11(4)20 (as it originally stood in the IT Act, 1961), Section 11(4A)21 was inserted by the Finance Act, 1983, w.e.f. 01.04.1984. Subsequently, Section 11(4A) was amended and substituted by the following provision w.e.f. 01.04.1992 (and continues to be in force): “(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 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.” 20 Section 11(4) as originally enacted, reads as follows: “For the purposes of this section ‘property held under trust’ includes a business undertaking so held, and where a claim is made that the income of any such undertaking shall not be included in the total income of the persons in receipt thereof, the Income Tax Officer shall have power to determine the income of such undertaking in accordance with the provisions of this Act relating to assessment; and where any income so determined is in excess of the income as shown in the accounts of the undertaking, such excess shall be deemed to be applied to purposes other than charitable or religious purposes.” 21 Earlier, sub-section (4A) was inserted by the Finance Act, 1983, w.e.f. 01.04.1984, and read as follows: “(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 a trust or an institution, being profits and gains of business, unless (a) the business is carried on by a trust wholly for public religious purposes and the business consists of printing and publication of books or is of a kind notified by the Central Government in this behalf in the Official Gazette; (b) the business is carried on by an institution wholly for charitable purposes and the work in connection with the business is mainly carried on by the beneficiaries of the institution; and separate books of accounts are maintained by the trust or institution in respect of such business” A B C D E F G H ASST. COMM’R OF INCOME TAX (EXEMPTIONS) v. AHMEDABAD URBAN DEVELOPMENT AUTHORITY [S. RAVINDRA BHAT, J.] 943 E. The judgment in Thanthi Trust

22. This court comprehensively interpreted these provisions as they existed, in different time periods, in Assistant Commissioner of Income Tax v. Thanthi Trust22 where this court had to decide whether the assessee trust, created for establishing a newspaper “as an organ of educated public opinion for the Tamil reading public and to disseminate news and to ventilate opinion upon all matters of public interest through it.” could avail of tax exemption.In 1957, the settlor executed a supplementary deed making the trust irrevocable. On 28.07.1961 another supplementary deed was executed which directed that the trust’s surplus income (after defraying all expenses), should be devoted to purposes such as establishing and running a school or college for the teaching of journalism; establishing and/or running or helping to run schools, colleges or other educational institutions for teaching arts and science; establishing of scholarships for students of journalism, arts and science; establishing and/or running or helping to run hostels for students; establishing and/or running or helping to run orphanages; and other educational purposes. The High Court held that exemption could be claimed by the trust. The revenue appealed. This court noticed that the appeals covered three distinct periods- (i) 1979-80 to 1983-84, (ii) 1984-85 to 1991-92, and (ii) 1992-93 to 1996-97. This court held that for the first period (1979-80 to 1983-84), the activity of running a newspaper, and the corpus held for it, by the trust, did not directly result in carrying on the educational activities mentioned in the supplementary deeds. The income was found to only feed such activity, which was not the same as carrying on in the course of actual accomplishment of the trust’s objects of education and relief of poor, and thus not entitled to exemption. For the next period (1984-85 to 1991-92), noting that Section 11(4) continued to be in existence [despite Section 11(4A) being inserted (as originally enacted w.e.f. 01.04.1984)], dealing with the expression “property held under trust”, and held that: “23....Trusts and institutions are separately dealt with in the Act (Section 11 itself and sections 12, 12A and 13, for example). The expressions refer to entities differently constituted. It is thus clear that the newspaper business that is carried on by the Trust does not fall within sub-section (4A). The Trust is not only for public religious purposes so it 22 (2001) 2 SCC 707; (2001) 1 SCR 727. A B C D E F G H 944 SUPREME COURT REPORTS [2022] 15 S.C.R. does not fall within clause (a). It is a Trust not an institution, so it does not fall within clause (b). It must, therefore, be held that for the assessment years in question the Trust was not entitled to the exemption contained in section 11 in respect of the income of its newspaper.”

23. For the third period (1992-93 to 1996-97), the court dealt with the meaning and effect of Section 11(4A) (amended and substituted w.e.f. 01.04.1992) and held that the assessee trust was entitled to be treated as a charity: “25. The substituted sub-section (4A) states that the income derived from a business held under Trust wholly for charitable or religious purposes shall not be included in the total income of the previous year of the Trust or institution if “the business is incidental to the attainment of the objective of the Trust or, as the case may be, institution” and separate books of account are maintained in respect of such business. Clearly, the scope of sub-section (4A) is more beneficial to a Trust or institution than was the scope of sub-section (4A) as originally enacted. In fact, it seems to us that the substituted sub-section (4A) gives Trust or institution a greater benefit than was given by section 13(1)(bb). If the object of Parliament was to give Trusts and institutions no more benefit than that given by section 13(1)(bb), the language of section 13(1)(bb) would have been employed in the substituted sub-section (4A). As it stands, all that it requires for the business income of a Trust or institution to be exempt is that the business should be incidental to the attainment of the objectives of the Trust or institution. A business whose income is utilized by the Trust or the institution for the purposes of achieving the objectives of the Trust or the institution is, surely, a business which is incidental to the attainment of the objectives of the Trust. In any event, if there be any ambiguity in the language employed, the provision must be construed in a manner that benefits the assessee. The Trust, therefore, is entitled to the benefit of section 11 for the assessment year 1992-93 and thereafter. It is, we should add, not in dispute that the income of its newspaper business has been employed to achieve its objectives of education and relief A B C D E F G H ASST. COMM’R OF INCOME TAX (EXEMPTIONS) v. AHMEDABAD URBAN DEVELOPMENT AUTHORITY [S. RAVINDRA BHAT, J.] 945 to the poor and that it has maintained separate books of account in respect thereof.” A (emphasis supplied) F. Deletion of certain exemptions: Section 10 (20A) and Section 10 (23)

24. Section 10(20A) had been inserted by the Finance Act, 1970, w.e.f. 01.04.1962; it exempted certain classes of income earned by housing boards, etc., and before deletion read as follows: “(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;”

25. Similarly, Section 10(23)23 existed and provided exemption to income earned by sport controlling boards, and associations, subject to specific conditions. Section 10(23) read as follows, before its deletion: “(23) any income of an association or institution established in India which may be notified by the Central Government in the Official Gazette having regard to the fact that the association or institution has as its object the control, supervision, regulation or encouragement in India of the games of cricket, hockey, football, tennis or such other games or sports as the Central Government may, by notification in the Official Gazette, specify in this behalf:”

26. Section 10(20A) and 10(23) were deleted/omitted by Finance Act, 2002, w.e.f. 01.04.2003.While both these provisions are not directly relevant for deciding the primary question (i.e., as to whatcharitable purpose is, under Section 2 (15)), they still have an important bearing in the present case. This is because in view of the circumstances that the provisions were deleted w.e.f. 01.04.2003, housing boards, and bodies, as well as sports associations, that were earlier claiming exemption of 23 As amended by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 01.04.1989; Direct Tax Laws (Amendment) Act, 1989, w.e.f. 01.04.1989; substituted by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 01.04.1990; and further amended by the Finance (No. 2) Act, 1991, w.r.e.f. 01.04.1990; Finance Act, 1992, w.r.e.f. 01.04.1990/ w.e.f. 01.04.1992; and Finance Act, 2000, w.e.f. 1-4-2001. B C D E F G H 946 SUPREME COURT REPORTS [2022] 15 S.C.R. A their income under these provisions, now sought to claim that they were charities. G. Amendments to Section 2 (15) by Finance Act, 2008 (w.e.f.

01.04.2009)

27. Section 2(15) - which had been amended last, in 198324, was again amended, by Finance Act, 2008, w.e.f. 01.04.2009. Some other amendments too were made, with effect from the same date by the Finance Act, 2009 and Finance Act, 2010. With the said amendments, as on 01.04.2009, the provision read as follows: (15) “charitable purpose” includes relief of the poor, education, medical relief, [preservation of environment (including watersheds, forests and wildlife) and preservation of monuments or places or objects of artistic or historic interest, and the advancement of any other object of general public utility: 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:]” [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;] In the second proviso, the reference to ten lakhs was substituted, and the figure of rupees twenty-five lakhs, was inserted, by the Finance Act, 2011 (w.e.f. 01.04.2012). By Finance Act, 2015 (w.e.f. 01.04.2016), the first two provisos to Section 2(15) were deleted, and instead, the following proviso was inserted: “Provided that the advancement of any other object of general public utility shall not be a charitable purpose, if it involves 24 Deletion of the expression “not involving the carrying on of any activity for profit” and the resulting Section 2(15) read as follows: ““charitable purpose” includes relief of the poor, education, medical relief, and the advancement of any other object of general public utility.” B C D E F G H ASST. COMM’R OF INCOME TAX (EXEMPTIONS) v. AHMEDABAD URBAN DEVELOPMENT AUTHORITY [S. RAVINDRA BHAT, J.] 947 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, 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;” Additionally, the same amendment also inserted “yoga” (after “education”) as a listed category of charitable activity, in the substantive provision. II. Submissions of parties A. Arguments on behalf of the revenue

28. The learned Additional Solicitor General, Mr. N. Venkataraman (hereafter “ASG”) tracing the genesis of Section 2(15) contended that the old IT Act contained no restrictive expressions forbidding trade or business activities by charities. He argued that decisions in In Re: Trustees of the Tribune, Andhra Chamber of Commerce and the decision in Krishna Warriar(supra) were in light of Section 4(3) of the old Act; therefore, the contextual framework of this court’s decisions was entirely different. Those decisions consequently did not rule out carrying on of activities akin to business, by charitable institutions established to advance general public utility.

29. The ASG next submitted that Parliament’s intent, in changing the law, was to expressly forbid the tax exemption benefit if the entity was “involved” in carrying on trade or business. The revenue relied on the two decisions in Lok Shikshana Trust, and Indian Chamber of Commerce (supra), highlighting that the significance of the change – brought about by Section 2(15) of the IT Act – was noticed. Particular reliance was placed on the observations of Beg, J in Lok Shikshana Trust and the passages in Indian Chamber of Commerce to urge that A B C D E F G H 948 SUPREME COURT REPORTS [2022] 15 S.C.R. the involvement of an entity in the carrying on of activities for profit, even if for advancement of charitable purpose or object, disentitled it to tax exemption. The learned ASG urged that this court had recognized – from its earlier decisions – that the prohibition from carrying on trade or commerce activities applied only to charities meant to advance general public utility and not the other categories such as education, medical relief,or relief to the poor (which are per se exempt).

30. The ASG submitted that the judgments in Indian Chamber of Commerce and Lok Shikshana Trust (supra) were conscious of the generality of the GPU category which led Parliament to insert the restrictive words “not involving the carrying on of any activity for profit”. It was argued that Parliament amended the definition due to rampant abuse of the law by businesses claiming to be driven by charitable purposes. Often, charities would be created merely to secure exemption from tax, and would carry on large commercial activities, enjoying the profits. This led Parliament to embed the exclusionary terms, depriving exemption if the institution otherwise fell under the GPU category charity, but undertook activities for profit. The ASG relied on the Finance Minister’s speech in the House at the time of the introduction of the IT Act, and submitted that it outlines the rationale for the restrictive condition noting that units run on commercial lines could claim that some general public utility was promoted and claim exemption. The Select Committee of Parliament (at that time), felt that to prevent misuse of the definition in such cases, the words “not involving the carrying on of any activity for profit” should be added to the definition. ASG relied on Lok Shikshana Trust (supra) which highlighted that this statement shed light on the new provision.

31. It was submitted that Indian Chamber of Commerce (supra) recognized this legislative history, and also held that the interpretation of the provision had to be in tune with the advancement of the object of the changed law. The court also was conscious that there were borderline cases which posed difficulty in deciding ex facie whether the undertaking yielding profit is a “deceptive” device or a bonafide venture resulting “in nominal surplus although substantially intended only to advance the charitable object”.The court also held that the restrictive condition was a “term of art and embraces objects of general public utility”. Yet, under the garb of charitable purposes, organisations masking profit, sprang up. The mask was charitable, but the “heart was hunger for A B C D E F G H ASST. COMM’R OF INCOME TAX (EXEMPTIONS) v. AHMEDABAD URBAN DEVELOPMENT AUTHORITY [S. RAVINDRA BHAT, J.] 949 tax free profit”. The revenue highlighted the following reasoning from this court’s judgment in Indian Chamber of Commerce (supra): A “by the new definition the benefit of exclusion from total income is taken away where in accomplishing a charitable purpose the institution engages itself in activities for profit. The Calcutta decisions are right in linking; activities for profit with advancement of the object. If you want immunity from taxation, your means of fulfilling charitable purposes must be unsullied by profit making ventures.”

32. It was then urged that before the decision in Surat Art Silk (supra) two legislative developments took place, which reinforced the revenue’s view that charities cannot engage in commercial activities. The first was the amendment, carried out in 1975 to the IT Act (w.e.f. 01.04.1976), which introduced Section 10 (23C) and had the effect of excluding income received by inter alia, any fund or institution, established for charitable purposes. The said provision, to the extent relevant, is extracted as follows: “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— ******* ******** “(23C) any income received by any person on behalf of- (i) the Prime Minister’ s National Relief Fund; or ******* ***** ***** (iv) any other fund or institution established for charitable purposes” The other amendment was introduction of Section 13(1)(bb) (w.e.f. 01.04.1977) which imposedconditions on the carrying on of business, by charitable institutions.

33. It was urged that the combined operation of Section 2(15), Section 10(23C) and Section 13(1)(bb) meant that only charities which were set up for the purpose of “relief of the poor, education or medical relief”, could claim exemption if they carried on business “in the course of actual carrying out of a primary purpose of the trust or B C D E F G H 950 SUPREME COURT REPORTS [2022] 15 S.C.R. institution”. The studied omission of GPU category charities, in Section 13(1)(bb) meant that if such trust or institutions carried on any business, even incidental to their objects, they would not be entitled to exemption.

34. The ASG then contended that the decision in Surat Art Silk (supra) had the unintended consequence of ignoring the significance of the addition of the expression “advancement of any other object of general public utility not involving the carrying on of any activity for profit”.The remedy intended by Parliament, in adding the said terms was to prevent charities (involved in the carrying on of any activity for profit) from claiming exemption, and to ensure that purely charitable activity-driven trusts or institutions, could claim exemption. It was submitted that the Constitution Bench fell into error, in holding that as long as the ‘dominant’ objective of the charity was to promote objects of general public utility, they were entitled to exemption.

35. The ASG further submitted that if the history of the provision, and the further amendments were kept in mind, the question of permitting activities that had any business or trade, for consideration, could not arise; however, by later amendments, GPU category charities have been permitted to carry on activities in the nature of business, for consideration, or service in relation to business and commerce, provided that is in the course of actually achieving the charitable object, and also that income from such activities (i.e. business, etc.) does not exceed 20% of the total receipts.

36. It was submitted that statutory corporations, agencies, boards and authorities may trace their origins to specific Central or State laws. However, if their activities are akin to or “in the nature of” business, or trade, or they provide services to businesses or trade, for consideration, fee or even cess (since they may be enabled to do so by law) they have to fulfil the mandate and restrictions under Section 2(15), especially proviso (ii). The ASG cited the larger bench decision in New Delhi Municipal Council v. State of Punjab25 (hereafter “NDMC”)to urge that state entities are not exempt from Union taxation, if they engage in trade or business. It was furthermore submitted that the effect of proviso (i) to Section 2(15) is that there can be no question of any incidental activity; nor can the proceeds of trade claim to be exempt merely because they are ploughed back to feed the charitable object. 25 (1997) 7 SCC 339(hereafter “NDMC”) A B C D E F G H ASST. COMM’R OF INCOME TAX (EXEMPTIONS) v. AHMEDABAD URBAN DEVELOPMENT AUTHORITY [S. RAVINDRA BHAT, J.] 951 B. Arguments of the assessee-organizations

37. Mr. S.N. Soparkar, learned Senior Advocate appeared for the Ahmedabad Urban Development Authority (hereafter “AUDA”); the Gujarat Industrial Development Corporation (hereafter “GIDC”) and Gujarat Housing Board (hereafter “GHB”). Counsel submitted that all three corporations were established by or under statutes enacted by the Gujarat legislature; they were treated as local authority under Section 10(20) of the IT Act, as it existed till 2003. Thereafter they were treated as charitable institutions engaged in activities involved in the advancement of public utility till the amendment of 2008. Learned counsel highlighted that the AUDA was created purely for the development and redevelopment -as well as for augmentation of roads and allotment of lands after redevelopment, in the areas under its control. Relying upon the provisions of the Act constituting AUDA26, he submitted that its mandate is to control development activities, execution of works and dispersal of sewage, provisions of such other facilities and generally engage in urban development in the areas it had jurisdiction over. He highlighted Section 40 of that Act and urged that the nature of activities, especially disposal of properties developed by AUDA were entirely regulated. Whilst the lion’s shares of properties developed by AUDA were to be allotted for housing and residence, and earmarked specifically for public amenities, roads etc., a small percentage (15%) could be sold by public auction. It was submitted that the statutory model adopted by AUDA was to enable it to function as a self-sustaining unit. The disposal of plots through allotment and especially by public auction were the main modes through which it could generate revenue. The entire revenue or income so generated was to be kept in a fund under Section 91; and its accounts were mandatorily audited by the State’s Accountant General under Section 95.

38. It was argued that like AUDA, the GIDC too was also set up by virtue of a statute27, i.e. GIDA, 1962 for the purposes of securing and assisting rapid and orderly establishment and organisation of industrial areas and estates in Gujarat, as well as establishing commercial centres for such industrial areas and estates. Like AUDA, its accounts were audited by the Accountant General; the audited report was to be laid before the State legislature (Section 26(4)) and the land developed by 26 Gujarat Town Planning and Urban Development Act, 1976 27 Gujarat Industrial Development Act, 1962 (referred to as “GIDA”) A B C D E F G H 952 SUPREME COURT REPORTS [2022] 15 S.C.R. A B C D E F G the GIDC could be dealt with only in accordance with law, i.e., the regulations framed under the GIDA, its constituting enactment, further to Section 32(2).As far as GHB is concerned, learned counsel submitted that like the other statutory corporations it was also established by virtue of a special law28. The functions of this Board were identical to that of AUDA and its mandate is to regulate and develop building activities aimed for the purposes of providing housing.

39. Learned counsel urged that none of the three boards carry on any business activity; their functions are controlled by the parent enactments under which they were created. Furthermore, on advancing of its affairs in such a manner that if any surpluses are generated, they were used for furthering the objectives of law. Thus, for instance, if surplus is generated in the activities of AUDA, GIDC, or GHB, those would not be handed to the State Government, which previously had control over them but rather kept in a separate fund to be utilised for further development, expansion and development activities by each of such corporations. These cannot be construed as carrying on any trade, business or commerce.

40. It was submitted that the decisions in In Re: Trustees of the Tribune; Krishna Warriar and Lok Shikshana Trust (supra) were all in the context of entities which carried on business. Moreover, in the first two decisions, the law as it then stood did not contain any restriction prohibiting trade or commerce activity. Learned counsel submitted that the judgment in Indian Chamber of Commerce (supra) was specifically overruled in Surat Art Silk (supra). Therefore, it may be treated as having no precedential value on subject. Learned counsel highlighted the observations in Surat Art Silk (supra) and submitted that as long as the activities involved are mainly charitable and for advancement of public utility, its purposes are deemed to be charitable even if it carries on some business or trade-like activities for the purpose of generating income. What is important, it was argued, is whether the main or dominant purpose of business or activity is motivated by profit. In such cases, the entity is debarred from claiming that it is a charity and cannot claim the benefit of tax exemption. Therefore, what is to be understood from the ratio in Surat Art Silk (supra) is that the main purpose or principal objective or motivation for the activity should not be to carry on trade or business. It should be to advance the purpose of general public utility. If H 28 Gujarat Housing Board Act, 1961. ASST. COMM’R OF INCOME TAX (EXEMPTIONS) v. AHMEDABAD URBAN DEVELOPMENT AUTHORITY [S. RAVINDRA BHAT, J.] 953 such a purpose is fulfilled, the carrying on of some activity which might result in surplus, would not disentitle the entity from the benefit of tax exemption.

41. Learned counsel then made a brief reference to the judgment in CIT, Bombay v. Bar Council of Maharashtra29 arguing that Surat Art Silk (supra) was followed in this decision. He also cited Thanthi Trust (supra). Counsel highlighted that the object of the assessee there, was charitable and required that the business ought to be carried out for the purposes of achieving the charitable purpose. Having regard to the nature of Section 13(1)(bb), which existed for the relevant period, the court held that the income which the trust derived was through a business and it only fed the charity. In this light, the court rejected the trust’s contention with respect to the entitlement to claim tax benefit for the first part. Counsel pointedly referred to the observations in paragraph 24 of the said decision and submitted that the court noticed the difference in language brought about by the substitution of Section 11(4A) (w.e.f. 01.04.1992). The new provisions enabled the Trust to carry on business for it was incidental to the attainment of its activities.

42. Elaborating on Thanthi Trust further, counsel highlightedthat the scope of the provision, i.e. Section 11(4A) had been ruled by this court as more beneficial to the trust or institution, than had existed previously before its amendment. Therefore, as long as the Trust carried on its activities mainly for charitable purposes - any income derived from incidental trading or business activities, would not result in it being characterised as an entity carrying on business; in other words, it was one carrying on a charitable objective or purpose.

43. Learned counsel also relied upon Circular 11/2008 dated 19.12.2008 which highlighted that whether the activities carried on by any charitable institutions are in the nature of trade or whether they are essentially charitable is a question of fact. It also spelt out that if an assessee is engaged in any activity, in the nature of trade, commerce or business or rendering any services in relation to such trade etc., it could not claim that its object was charitable. In such event, “the object of general public utility will only be a means or defence to highlight the true purpose which is trade, service or business………….”. It was emphasised therefore that the circular and the speech of the Finance Minister during the budget clearly pointed out organisations, trust or 29 (1981) 3 SCC 308 (hereafter “Bar Council of Maharashtra”) A B C D E F G H 954 SUPREME COURT REPORTS [2022] 15 S.C.R. A B C D E F G H entities which were masquerading as charitable but in reality carrying on business. On the other hand, genuine charitable organisations which generated income for their sustenance could not be denied the benefit of tax exemption under the Income Tax Act.

44. Counsel relied on the decisions in Shri Ramtanu Cooperative Housing Society Ltd. v. State of Maharashtra30, Gujarat Industrial Development Corporation v. CIT31(hereafter “GIDC case”), HSIDC v. Hari Om Enterprises32and Commissioner of Central Excise v. Maharashtra Industrial Development Corporation33and urged that statutory organizations set up for housing and other essential development, cannot be regarded as commercial or business entities.

45. Learned counsel relied upon the Constitution Bench decision of this Court in Navnit Lal C. Jhaveri v. K.K. Sen34 (hereafter “Navnit Lal Jhaveri”), where the court had held while interpreting the provisions of an enactment that the executive’s understanding –in the form of circulars in the context of taxing statutes – were valuable guides to interpretation. The observations in Navnit Lal Jhaveri (supra) were relied on to submit that the circulars in that case was used to in fact soften the rigor of a newly introduced provision. Learned counsel also relied upon the judgment of this Court in UCO Bank Calcutta v. Commissioner of Income Tax, West Bengal35and in Lok Shikshana Trust (supra)where the Court had specifically rejected the contention that a speech made in Parliament cannot be looked into to discern the intent of the lawmaker. In that case, the Court had stressed that the real meaning of all the words used could be understood specifically by referring to the past history of the legislation and the speech of the mover of the amendment.

46. Learned counsel argued that the expressions “trade”, “business” or “commerce” always mean and have been interpreted to mean activities driven by profit. In this context, reliance was placed on this court’s decisions in State of Punjab v. Bajaj Electricals Ltd36.; Khoday Distilleries Ltd. v. State of Karnataka37 and State of Gujarat