Meaning of “Charitable purpose”

The meaning of charitable purpose under section 2(15) of the Income Tax Act is not defined in the act itself. But we can take guidance from decisions by various high courts. Here are excerpts of courts orders in which the Hon’ble High Court tried to explain the meaning of charitable purpose.

Meaning of charitable purpose defined by court

The phrase ‘charitable purpose ‘ used in section 2(15) of the Income Tax Act came up before various high courts as detailed under :

1. Hon’ble Gujarat high court explained the meaning of ‘charitable purpose’ while delivering judgment in Cit v. Barkate saifiyah society [1995] 78 taxman 6/213 ITR 492 (Guj.) as under :

Meaning : Definition of the phrase ‘charitable purpose’ in section 2(15) is inclusive and it covers wider field than the field covered by the words ‘religious purposes’. Hence, words ‘trust for charitable purpose’ would include even trust for advancement of religion.

2. Hon’ble Karnataka high court explained the meaning of ‘charitable purpose’ while delivering judgment in CIT v. Bal employees death relief fund and service benefit fund association [1997] 225 ITR 270 (Kar.) as under :

Meaning : The definition of the term ‘charitable purpose’ under section 2(15) is inclusive and not exhaustive or exclusive. A perusal of the various provisions of the act would show that the legislature had intended to give a restricted meaning to the expression ‘charitable purpose’ with the object to see that no commercial activity is treated as charitable object and that any activity for profit or for personal enjoyment or for avoiding tax is not regarded as a charitable purpose. Charity as commonly understood means the bequeath of property in favour of others basically for a religious purpose.

In its restricted and commonsense use it means relief to the poor. In english law ‘charity’ is understood to mean a general public use and comprehends, ‘relief of aged, impotent and the poor people’. According to jowitt’s dictionary of english law ‘charity’ means, a general public use and comprehends relief of aged, impotent and poor people, maintenance of sick and maimed soldiers and mariners, schools of learning, free schools, and scholars of universities; repairs of bridges, ports, havens, cause-ways, churches, sea-banks and highways; education and preferment of orphans;

the relief, stock or maintenance of houses of correction; marriage of poor maids; supportation, aid and help of young tradesmen, handicraftsmen and persons decayed; relief or redemption of prisoners or captives; and aid or ease of any poor inhabitants, concerning payments of fifteenths, setting out of soldiers and other taxes. It has been held by the english courts that a trust is not charitable unless it is attracted to the public benefit. It should benefit the community or section of the community. Trust would not be charitable if it only conferred private benefits.

3. Hon’ble ITAT-mumbai explained the meaning of ‘charitable purpose’ while delivering judgment in Indo-american society v. Asstt. Director of income-tax (exemption) [2005] 96 ITD 61 (Mum. – Trib.) as under :

Meaning : The expression ‘charity’ or ‘charitable purposes’ does not admit of rigid definition. In order to understand what these expressions legally convey, one can merely enumerate their various aspects and characteristics as they have been recognised by the laws of a particular country. ‘Charity’ denotes instincts of piety and benevolence, dictated by desire to do good.

4. Hon’ble Andhra pradesh high court explained the meaning of ‘charitable purpose’ while delivering judgment in Andhra pradesh state seed certification agency v. Chief CIT [2012] 28 taxmann.Com 288 as under :

Meaning : A reading of section 2(15) show that income received by any person on behalf of an institution established for ‘charitable purpose’ which may be approved by the prescribed authority alone would be excluded from the total income of a previous year of such person under section 10(23c)(iv).

While under the main part of section 2(15) activities which involve relief of the poor, education, medical relief, preservation of environment (including water sheds, forests and wildlife) and preservation of monuments or places or objects of artistic or historic interests, would automatically come within the purview of ‘charitable purpose’, activities which advance ‘any other object of general public utility’ would qualify only if such activity does not involve:

(i)   carrying on of any activity in the nature of trade, commerce or business; (ii)   any activity of rendering any service in relation to any trade, commerce or business. The term ‘advancement of any other object of general public utility’ used in section 2(15) includes all objects to promote the welfare of the public particularly when the object is to promote or protect the interest of a particular trade or industry.

The activity of the petitioner which facilitates sale of certified seeds to farmers therefore falls within ‘advancement of any other object of general public utility’ included in the definition of the term ‘charitable purpose’ as defined in section 2(15) but in view of the fact that certification of seeds by the petitioner facilitates trade, commerce or business in the certified seeds by the client of the petitioner, the proviso to the said section would come into operation.

Thus, the petitioner’s activity assists the sale of certified seeds and is ‘in relation to any trade, commerce or business’ and therefore its activity cannot be held to be a ‘charitable purpose’.

5. Hon’ble Delhi high court explained the meaning of ‘charitable purpose’ while delivering judgment in Bureau of indian standards v. Director general of income-tax (exemptions) [2012] 27 taxmann.Com 127 as under :

Meaning : The expressions “any activity”, “rendering any service” and “in relation to any trade, commerce or business” imply that the intention of the legislature was to make the latter part of the exception broad and inclusive. It seems that the exception (the first proviso) is intended to catch with its ambit any and all commercial activity, except what falls within the second proviso (which bars application of the exception in cases where the aggregate value of the receipts from the activities mentioned therein is less than ten lakh rupees in the relevant previous year).

The bureau, it would appear at the first blush, renders service in relation to trade, commerce or business by granting certification/quality marks in return of license fee. Apparently, parliament intended to clarify that not all activities of state agencies (some of which might be set up to carry on trading and commercial activities) can be considered charitable.

In these circumstances, “rendering any service in relation to trade, commerce or business” cannot, in the opinion of the court, receive such a wide construction as to enfold regulatory and sovereign authorities, set up under statutory enactments, and tasked to act as agencies of the state in public duties which cannot be discharged by private bodies.

Often, apart from the controlling or parent statutes, like the bis act, these statutory bodies (including bis) are empowered to frame rules or regulations, exercise coercive powers, including inspection, raids; they possess search and seizure powers and are invariably subjected to parliamentary or legislative oversight. The primary object for setting up such regulatory bodies would be to ensure general public utility.

The prescribing of standards, and enforcing those standards, through accreditation and continuing supervision through inspection, etc., Cannot be considered as trade, business or commercial activity, merely because the testing procedures, or accreditation involves charging of such fees. It cannot be said that the public utility activity of evolving, prescribing and enforcing standards, “involves” the carrying on of trade or commercial activity.

6. Hon’ble Mumbai high court explained the meaning of ‘charitable purpose’ while delivering judgment in Ghatkopar jolly gymkhana v. DIT (exemption) [2013] 40 taxmann.Com 207 as under :

Meaning : First proviso to section 2(15) is a very rigorous provision which excludes the institution or trust from the definition of ‘charitable trust’, if such trust carries activities in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business, for a cess or fee or any other consideration, irrespective of the nature of use or application, or retention, of the income from such activity. So before the insertion of the second proviso from 1-4-2009,

the definition of ‘charitable purpose’ when read with first proviso was very restrictive. However, by the insertion of the second proviso with effect from 1-4-2009 the rigour of the first proviso has been diluted and the first proviso has not been made applicable even if the trust carries on business activities and the gross receipts from such activities is rs.10.00 Lakhs or less than rs.10.00 Lakhs in the previous year.

Hence, from 1-4-2009 the carrying out of the activities of trade, commerce or business even by charitable trust is not barred so as to exclude its activities from the definition of charitable purposes. However, a limitation has been imposed to the effect that the gross receipts from such activities should not exceed rs.10.00 Lakhs.

7. Hon’ble Rajkot high court explained the meaning of ‘charitable purpose’ while delivering judgment in Late shri mohanlal kanjibhai pansara education & charitable trust v. Cit [2013] 36 taxmann.Com 338/59 sot 169 (Rajkot) as under :

Meaning : The definition of ‘charitable purpose’ as given in section 2(15) is in the nature of inclusive definition. Charity means an act of piety and benevolence intended to benefit the society at large. Importing education would qualify to be called a charitable activity only if it is of public character directed for the benefit of the community or a section of the community and not motivated by commercial or business considerations.

An activity which is motivated by commercial considerations can never qualify to be called a charitable activity. The same principle applies to education. The inherent features of ‘charity’ must be present in all the activities enumerated in section 2(15). 271

Section 2(15) of Income Tax Act

(15) “charitable purpose” includes relief of the poor, education, yoga, medical relief, preservation of environment (including watersheds, forests and wildlife) and preservation of monuments or places or objects of artistic or historic interest, and the advancement of any other object of general public utility:

Provided that the advancement of any other object of general public utility shall not be a charitable purpose, if it involves the carrying on of any activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business, for a cess or fee or any other consideration, irrespective of the nature of use or application, 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;

In this article, you can get guidance from high courts on the meaning of charitable purpose under section 2(15) of the Income Tax Act.

Updated up to Finance Act 2021