Section 2(15)

Section 2(15) — the law in short

What the courts have decided on section 2(15), in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.

• ACIT v Ahmedabad Urban Development Authority Supreme CourtCuts both ways
  We charge fees for our public utility work. Does that cost us charitable status under s.2(15)?
  Only if the fees are pitched above cost. Charging on a cost or nominal mark-up basis is not trade, commerce or business; charges noticeably higher than cost are. Even permissible commercial activity must be carried on in the actual course of achieving the general public utility object, and receipts from it must stay within 20 per cent of total receipts.
• New Noble Educational Society v CCIT Supreme CourtHelps department
  Our society runs a college but also earns from hostels and events. Can we get 10(23C)(vi) approval?
  Only if education is your sole object. 'Solely' means to the exclusion of all others, and the older predominant object test was rejected. Business receipts stay exempt only where the business is incidental to the educational object and separate books are kept, so letting hostels to non-students or hosting outside conferences falls outside that.
• Queen's Educational Society v CIT Supreme CourtHelps taxpayerPartly overruled — read this first
  My school makes a surplus every year and puts it back into buildings and equipment. Does that mean it no longer exists solely for education?
  No. The Supreme Court held that a surplus ploughed back into the institution does not destroy the exemption. What matters is the predominant object: if the institution exists solely for education and not for profit, the fact that receipts exceed expenditure is beside the point. The Court set aside the Uttarakhand High Court's contrary judgment in Queen's Educational Society, approved the Punjab and Haryana, Delhi and Bombay High Court decisions, and restored the Tribunal's view. It reaffirmed Surat Art Silk Cloth, Aditanar and American Hotel and Lodging as the governing tests, while stressing that the thirteenth proviso requires the authorities to monitor actual application of income year by year. Read subject to a date, though: on 19 October 2022 the Supreme Court in New Noble Educational Society v Chief CIT disapproved the reasoning of this judgment and of American Hotel and Lodging so far as it pertains to the interpretation of 'solely', and held instead that all the objects of the institution must relate to imparting education, so the predominant-object test stated here is no longer the test for that word. New Noble para 78 directs that the law it declares operate prospectively.
• CIT v Dawoodi Bohara Jamat Supreme CourtCuts both ways
  The Commissioner has refused my trust registration under section 12AA because our objects are tied to one religious community — can he refuse registration on that ground?
  No, not at the registration stage on this reasoning. The Supreme Court held on 20 February 2014 that section 13 is an exception to sections 11 and 12, so whether it bites is examined when exemption is claimed, not when registration is decided. On the merits the Court corrected both sides. Section 13(1)(b) is not confined to trusts that are purely charitable; a composite religious and charitable trust is not outside it merely because it is composite. But on these objects — food served on community occasions, a madarsa, help to the needy — the benefit was not channelled to the Dawoodi Bohra community alone, so section 13(1)(b) was not attracted and the appeals were dismissed.
• ACIT v Surat City Gymkhana Supreme CourtHelps taxpayer
  My trust already has registration under section 12A. Can the Assessing Officer go behind it and re-examine whether the objects are charitable?
  The Supreme Court dismissed the Revenue's appeals against a Gujarat High Court order that answered no, but it did so on a narrow ground. The Tribunal had held that the club's objects fell within general public utility under section 2(15) and that registration under section 12A was a fait accompli preventing the Assessing Officer from probing the objects further. The High Court dismissed the Revenue's appeals in limine as covered by Hiralal Bhagwati v. CIT. The Supreme Court found that both questions were concluded by that decision, which the Revenue had never challenged and which had attained finality. The appeals were therefore dismissed with no costs.
• CIT v Gujarat Maritime Board Supreme CourtHelps taxpayer
  My body is a statutory authority, not a trust under any public trust law. Can it still be registered as a charitable institution under section 12A?
  Yes. The Supreme Court dismissed the Revenue's appeal and held that the Gujarat Maritime Board was entitled to registration under section 12A. Its predominant purpose is the development of minor ports in Gujarat, its management and control lie essentially with the State Government, and sections 73 to 75 of its own statute show it has no profit motive and must apply its income to that purpose. That is an object of general public utility within section 2(15). Section 10(20) and section 11 operate in different spheres, so ceasing to be a local authority after the 2002 amendment did not preclude the claim. The Court was concerned with registration, not application of income.
• ACIT v Thanthi Trust Supreme CourtCuts both ways
  Our trust runs a business and puts the profit into its objects. Does s.11(4A) still deny the exemption?
  No, on this decision. The Supreme Court read the substituted s.11(4A), in force from 1 April 1992, as more beneficial to a trust than the sub-section it replaced, and held that a business whose income is used by the trust to achieve its objectives is a business incidental to the attainment of those objectives. The trust ran a newspaper, applied the income to education and relief of the poor, and kept separate books, and was held entitled to s.11 from assessment year 1992-93 onwards. Read the disposal whole: for the earlier years, decided under s.11(4A) as it stood before that substitution, the exemption for the newspaper income was refused.
• Upper Ganges Sugar Mills Ltd v CIT Supreme CourtHelps departmentNo later treatment found
  I donated to a trust that runs schools and hospitals but also has an object of maintaining places of worship. Do I still get the section 80G deduction?
  No. The Supreme Court held that Explanation 3 to section 80G does not ask whether the institution as a whole is substantially religious. It asks whether any one of its objects is wholly, or substantially wholly, of a religious nature. If one is, the institution falls outside section 80G and a donation to it earns no deduction, however charitable the rest of its objects are. The dominant purpose reasoning of Surat Art Silk, which was about the words in section 2(15), gives no help in construing Explanation 3.
• CIT v Kamla Town Trust Supreme CourtCuts both ways
  Our company trust builds quarters for our own workmen and staff. Is that a public charitable trust, and does a civil court decree rectifying the trust deed help for earlier years?
  It depends on the deed, and a rectification decree does not reach back. The Supreme Court held that under the 1945 rectified deed the trustees were obliged to build quarters in particular for the workmen, staff and other employees of the settlor company and its allied concerns, who may include the affluent. That made the reference to workmen in general illusory, so the object was not public charitable and the whole trust failed the wholly charitable test. Under the 1955 rectified deed the objects were wholly charitable. The second decree operated only from assessment year 1956-57. The assessing officer could not go behind the decree, but could construe the deed as rectified.
• Addl CIT v Surat Art Silk Cloth Manufacturers Association Supreme CourtHelps taxpayerSuperseded by amendment
  Our trade association promotes commerce in our industry, but the work it does throws up a surplus every year. Does the surplus stop it being charitable?
  No, not by itself. A five-judge Bench of the Supreme Court held that the test is whether the predominant object of the activity carried on in advancing an object of general public utility is to subserve the charitable purpose or to earn profit. Profit-making must be the end to which the activity is directed; it is not enough that the activity in fact results in profit. Where the dominant object is the charitable purpose, the character of the purpose is not lost merely because some profit arises. The exclusionary clause does not require the activity to be run so that it yields no surplus.
• Ahmedabad Rana Caste Association v CIT Supreme CourtHelps taxpayer
  Our trust benefits one caste. Can that be a charitable purpose at all?
  Yes. It is not necessary that the object benefit the whole of mankind or all persons in a country; it is enough that a section of the public, as distinguished from specified individuals, is intended to be benefited. The Supreme Court held that the members of the Rana caste of Ahmedabad — whether natives or admitted to the caste under custom or usage — are united by a quality that is impersonal, so they form a section of the public and the trust's objects were charitable.
• CIT v Andhra Chamber of Commerce Supreme CourtHelps taxpayer
  My trade association only helps its own trade and its members get a benefit from it — can it still be charitable?
  Yes. The Supreme Court held that promotion and protection of trade, commerce and industry is an object of general public utility and therefore a charitable purpose, even though the members of the chamber benefit incidentally. An object need not benefit all mankind; it is enough that a section of the public, defined by some common quality of a public or impersonal nature, is intended to be benefited. Rental income from the chamber's building, held under a legal obligation to apply it to those objects, was exempt. The Revenue's appeals were dismissed with costs.
• Greater Noida Industrial Development Authority v Union of India High CourtHelps taxpayer
  Our s.10(46) application has been rejected because we charge lease rent and fees. Does charging for what we do make us commercial and disentitle us?
  Not where the charge is for the regulatory and administrative functions the body is obliged to perform. The Delhi High Court held that a body satisfying clause (a) of s.10(46) does not lose the exemption under clause (b) merely because it charges and receives money as fee, reimbursement, rent or consideration for transfer of rights in property, provided those receipts are directly connected with and have a nexus to the functions it is mandated to perform. The rejection order was quashed and a notification directed.
• India Trade Promotion Organisation v DGIT (Exemptions) High CourtHelps taxpayerUnder appeal
  My institution advances an object of general public utility but charges fees and ends up with a surplus — does the proviso to section 2(15) knock out my exemption?
  Not by itself. The Delhi High Court upheld the constitutional validity of the first proviso to section 2(15) but read it down: it bites only where the dominant and prime objective of the institution is profit making, whether directly through trade, commerce or business or indirectly through rendering services in relation to them. Charging a fee, or generating a surplus, does not by itself make an institution non-charitable. Because the India Trade Promotion Organisation's driving force was promoting the nation's trade rather than earning profit, its exemption under section 10(23C)(iv) was restored and a mandamus issued to grant approval within six weeks.
• DIT (Exemption) v Charanjiv Charitable Trust High CourtHelps departmentSuperseded by amendment
  My trust paid an advance to a company in which the trustees are interested, under an agreement to buy land, and the deal was later cancelled. Is that a s.13(1)(c) violation even though no money went out in the year in question?
  Yes, on these facts. The Delhi High Court held that where trust funds remain with a s.13(3) person without interest or security, that is a direct use of the funds for the benefit of a prohibited person, and s.13(2)(a) makes clear that it is enough that the money continues to be lent during the previous year — no fresh advance in that year is needed. The agreements to sell were treated as a device to take the payments out of the word 'lent', and exemption under s.11 was denied for both years.
• Institute of Chartered Accountants of India v DGIT (Exemptions) High CourtHelps taxpayerNo later treatment found
  My institution is a statutory regulator that charges fees for coaching and placement and ends up with a surplus — does that make it a trade or business under the proviso to section 2(15)?
  No. The Delhi High Court held that a body incorporated to regulate a profession, which imparts education and training as part of that statutory function, is not carrying on trade, commerce or business merely because it charges fees and generates a surplus. Coaching classes and campus placement interviews were held to be activities in furtherance of the Institute's main object, so they are neither business nor services rendered in relation to any trade, commerce or business. The orders refusing exemption were set aside and the Director General was directed to recognise the Institute under section 10(23C)(iv) for assessment years 2006-07 to 2011-12.
• Gujarat Maritime Board v DCIT (Exemption), Ahmedabad ITATCuts both waysNo later treatment found
  The Assessing Officer says my statutory authority's port charges and lease rentals are trade or business, so the proviso to s.2(15) denies exemption. How is that tested after Ahmedabad Urban Development Authority?
  The size of the receipts and of the surplus is not the test. Applying the Supreme Court's framework in Ahmedabad Urban Development Authority, the Tribunal held that what matters is the statutory setting in which the receipts arise, the nature of the functions discharged, the manner in which the charges are fixed and regulated, and the destination of the surplus — and on that footing the Board continued to fall within 'advancement of any other object of general public utility' and remained entitled to exemption under ss.11 and 12.
• Infosys Green Forum v ITO (Exemptions) ITATHelps department
  We set up a section 8 company to hold a CSR asset that supplies its output back to the founder company. Will it get registration under s.12AB?
  On these facts, no. The Bangalore Tribunal accepted that running a solar power plant is preservation of the environment and so falls within s.2(15). But the plant's entire output went to the founder, at a rate below what the founder would otherwise have paid, with the founder keeping all the green benefits. There being no benefit to the public or to a section of the public, the dominant object was the founder's own, and registration under s.12AB and approval under s.80G were both refused.
• Haji Pir Mohmad Yusuf Waqf v CIT (Exemption), Ahmedabad ITATHelps departmentNo later treatment found
  The CIT(E) has rejected my Form 10AB and cancelled my provisional registration on the ground that my objects benefit only one religious community. What is the Revenue's case and how does it succeed?
  It succeeds where the objects on their face are confined to one community and the trust files no evidence that it has not incurred expenditure on those objects. The Tribunal dismissed the appeal, finding no infirmity in an order which rejected the Form 10AB application under s.12A(1)(ac)(iii) and cancelled the provisional registration on the footing of a specified violation under clause (d) of the Explanation to s.12AB(4).

Listed strongest first: Supreme Court, then High Court, then Tribunal, then CBDT. Nothing here has yet been read in full by a chartered accountant — open an entry to see where it came from.