Law: Income Tax Act, 1961

Section: 2(15),1

Income-tax----Charitable purposes---Charitable trust ---Exemption---Business--¬Difference between objects of trust and powers given to trustees---Objects of trust found to be charitable---Trustees given power to carry on business--¬Business carried on by trustees was corpus or property held under trust, Which produced or resulted in income---Business only a "means" of achieving the objects of trust---Profits from Business spent for charitable purposes---Trust was entitled to exemption---Indian Income Tax Act, 1961, Ss. 2(15) & 1 I---[Thiagarajar Charities v. Addl. C.I.T. (1978) 114 ITR 699 reversed]. The test to find out if a trust is entitled to the exemption under section 11 read with section 2(15) of the Income Tax Act, 1961, because it has been established for the advancement of an object of general public utility not involving the carrying on of any activity for profit 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. That would not only be difficult of practical realisation, but would also reflect unsound principles of management. If the profits must necessarily feed a charitable purpose under the terms of the trust, the mere fact that the activities of the trust yield profit, will not alter the charitable character of the trust. The test now is, more clearly than in the past, the genuineness of the purpose, tested by the obligation created to spend…

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