INCOME TAX ACT, 1961

Section 2(15), Proviso 11

Charitable trust - Exemption under section 11 - Applicability of proviso to section 2(15) - Dominant object being charitable--Fee received on certain incidential activities

Assessee-section 25 company, was having objects to promote activities of banker's clearing house, owning, establishing, operating, maintaining and consolidating payment systems for settlement of funds through electronic and paper-based clearing systems. It claimed exemption under section 11. AO took the view that as assessee was charging fees with a view to earn profit while rendering certain services and therefore, it was not eligible to claim exemption in view of proviso to section 2(15). Held: Undoubtedly, assessee was registered with a charitable purpose and was not driven primarily by a desire or motive to earn profits. Merely because a fee or some other consideration was collected or received by the assessee, it would not lose its character of having been established for a charitable purpose and any such incidental or ancillary activity would also not fall within the categories of business, trade or commerce. Therefore, considering entirety of facts and circumstances and applying theory of dominant purpose test proviso to section 2(15) did not get attracted and exemption under section 11 could not be denied.

Distinguished:Hiralal Bhagwati v. CIT (2000) 246 ITR 188 (Guj-HC) : 2000 TaxPub(DT) 1345 (Guj-HC). Relied:CIT v. Lucknow Development Authority (2014) 265 CTR 433 (All-HC) : 2014 TaxPub(DT) 0157 (All-HC) 16-9-2013, Relied:Institute of Chartered Accountants of India v. DGIT (2012) 347 ITR 99 (Del-HC) : 2012 TaxPub(DT) 253 (Del-HC), Bureau of Indian Standards v. DGIT (2013) 212 Taxman 210 (Del-HC) : 2013 TaxPub(DT) 323 (Del-HC), Institute of Chartered Accountants of India v. DGIT (2013) 358 ITR 91 (Del-HC) : 2013 TaxPub(DT) 2666 (Del-HC) (4-7-2013) and GSI India v. DGIT (2013) 219 Taxman 205 (Del-HC) : 2013 TaxPub(DT) 2791 (Del-HC).