Give Foundation’s Activities as a Donor-Recipient Bridge Held Charitable; Section 11 Exemption Allowed
Issue
Whether the assessee, a charitable trust acting as a “bridge” or platform between donors and recipient charitable organizations (General Public Utility – GPU), is entitled to exemption under Section 11, or if its activity of retaining a portion of donations as fees constitutes “trade, commerce, or business” under the proviso to Section 2(15).
Facts
Assessee: Give Foundation, a trust registered under Section 12AA.
Activity: The trust operated an online donation platform acting as a bridge between donors and various NGOs/charitable recipients. It provided services like identifying credible NGOs and channeling donations to them.
AO’s Action: The Assessing Officer (AO) denied the exemption under Section 11 for Assessment Year 2009-10.
Reasoning: The AO held that the assessee was rendering “professional services” by advising donors and retaining a portion of the donations as fees/commission. This was treated as an activity in the nature of trade, commerce, or business.
Financials: The facts revealed that for the year under consideration, the assessee had a deficit of about 7% (specifically -6.88%), meaning its expenditure on charitable objects exceeded its income/retention.
Decision
The Gujarat High Court ruled in favour of the assessee, relying on the Supreme Court’s landmark judgment in Asstt. CIT (Exemptions) v. Ahmedabad Urban Development Authority (AUDA) [2022] 449 ITR 1 (SC).
Application of AUDA Ruling: The Supreme Court in AUDA clarified that a GPU charity can engage in activities for consideration provided:
The activity is connected to the charitable object.
The receipts from such activity do not exceed the quantitative limit (20% of total receipts).
The charges are on a cost-basis or nominally above cost.
No Profit Motive: The High Court noted that the assessee had a deficit of about 7% for the relevant year. This factual finding conclusively proved that the activity was not driven by a profit motive and was not in the nature of “trade, commerce, or business.”
Retention Within Limits: The retention of donations (fees) was well within the permissible threshold (less than 20% of total receipts) and was used to cover costs.
Conclusion: Consequently, the proviso to Section 2(15) was not attracted, and the question of denying exemption under Section 11 did not arise.
Key Takeaways
Deficit Proves Charity: If a GPU entity operates at a deficit or on a cost-to-cost basis, it strongly supports the argument that the activity is charitable and not “trade, commerce, or business,” even if fees are charged.
Role of Intermediaries: Charitable platforms acting as intermediaries (bridges) between donors and beneficiaries serve a “General Public Utility.” Charging a nominal fee to sustain this platform does not disqualify them from tax exemption, provided the AUDA guidelines are met.
20% Threshold: For GPU trusts, maintaining commercial receipts below 20% of total receipts is the statutory safe harbor to retain Section 11 exemption.
HIGH COURT OF GUJARAT
Give Foundation
v.
Joint Director of Income-tax (Exemption)*
BHARGAV D. KARIA and Pranav Trivedi, JJ.
R/TAX APPEAL NO. 309 of 2016
JULY 30, 2025
Manya Anjaria, Adv. and B S Soparkar for the Appellant. Ms. Maithili D. Mehta, Senior Standing Counsel for the Respondent.
ORDER
Bhargav D. Karia, J.- Heard learned advocate Mr. Manya Anjaria for learned advocate Mr. B.S. Soparkar for the appellant and learned Senior Standing Counsel Ms. Maithili Mehta for the respondent. By order dated 12.07.2016, this Court (Coram: Hon’ble Mr. Justice Akil Kureshi & Hon’ble Mr. Justice A. J. Shastri), admitted this appeal for consideration of the following substantial questions of law for the Assessment Year 2009-10.
“(1) Whether Income Tax Appellate Tribunal has erred in law and on facts in disallowing the surplus of income over expenditure amounting to Rs.31,93,755/- u/s 11 in complete ignorance of the fact that a appellant was charitable institution duly registered u/s 12AA working in the area of education, medical relief and relief to poor.
(2) Whether in the facts and circumstances of the case the Income Tax Appellate Tribunal was right in law in holding that the Appellant was engaged in the “advancement of object of general public utility” but was covered by the proviso to clause (15) of section 2 of the Income Tax Act, 1961, and therefore not entitled to exemption under section 11 and 12 of the Act?”
2. At the outset, learned advocate for both the sides submitted that the issue of granting exemption under Sec.11 of the Income Tax Act, 1961, (hereinafter referred to as ‘the Act’ for short) to the appellant-assessee is now decided by the Hon’ble Apex Court in the case of Asstt. CIT (Exemptions) v. Ahmedabad Urban Development Authority (SC).
3. It was submitted that the Income Tax Appellate Tribunal (for short ‘the Tribunal’) for the subsequent Assessment Years from 2010-11 to 2015-16, relying upon the decision of the Hon’ble Apex Court in the case of Ahmedabad Urban Development Authority (supra), remanded the matter to the Assessing Officer vide order dated 06.10.2023 to analyze the impact of the observations made by the Hon’ble Supreme Court in the said case, with regard to incidental earning of income.
4. It was submitted that the Assessing Officer, on the matter being restored by the Tribunal for the Assessment Year 2010-11 onwards, has granted the benefit of exemption under Sec.11 of the Act after working out the retained donation as percentage of total donation received which was admittedly less than 20% monetary threshold.
4.1. It was, thereafter, pointed out in the facts of the case that for the Assessment Year 2009-10, there was a deficit as worked out by the appellant at minus 7% as total donation received during the year under consideration was exceeded by the expenditure by Rs.1,82,38,329/- as under:
| Income from property as per Section 11 & 12 | AY 2009-10 |
| Earmarked Donations Received | 245,436,494 |
| Income & Interest earned | 17,371,781 |
| Grants received | 2,304,760 |
| Total Income | 265,113,035 |
| Add: Deemed income u/s.11(1B) | 0 |
| Gross Total income as per Section 11 & 12 | 265,113,035 |
| Less: Amount utilised as per Section 11 | |
| Donation given to Charitable Trusts | 266,825,091 |
| Expenses incurred | 16,526,273 |
| Income deemed to be utilised U/s.11(1) (Expl 2) | 0 |
| Gross income utilised as per Section 11 | 283,351,364 |
| Surplus of income over utilisation (Rs) | -18,238,329 |
| Surplus of income over utilisation (%) | -6.88 |
| No of beneficiaries positively affected by GF’s efforts | 2.25 lac+ |
4.2. It was, therefore, submitted that the impugned order of the Tribunal is required to be set aside by allowing the appeal filed by the appellant answering the question in favour of the assessee and against the revenue.
4.3. The Assessing Officer disallowed the exemptions claimed by the appellant – assessee under Sec.11 of the Act on the ground that the activities of the appellant were not in nature of charitable activities at all as the appellant basically rendered professional services by way of giving advise for identifying charitable organizations for donors and the appellant did not bring on record any evidence to show any change in the nature of activities in the previous years wherein such exemption was denied.
4.4. The appellant is registered under Sec.12AA of the Act being a charitable institution. However, the Assessing Officer by the Assessment Order passed under Sec.143(3) of the Act determined the income of the appellant at Rs.48,61,533/- by order dated 30.12.2011 by disallowing the deduction claimed under the provision of Sec.11 and capital expenditure to the extent of Rs.13,47,700/- and gratuity under Sec.40(a)(ia) of the Act.
4.5. Being aggrieved, the appellant preferred an appeal before the CIT(Appeals) who, partly allowed the appeal filed by the appellant by upholding that the conclusion arrived at by the Assessing Officer that the appellant is not entitled to exemption under Sec.11 of the Act as the activity carried out by the appellant cannot be considered as a charitable work under Sec.2(15) of the Act being advancement of general public utility. However, the CIT (Appeals) granted deduction to the appellant regarding the depreciation computed under the provisions of the Act.
4.6. Being aggrieved, the appellant preferred an appeal before the Tribunal. The Tribunal, by the impugned order partly allowed the appeal filed by the appellant denying exemption under Sec.11 of the Act, but permitted the appellant to claim the depreciation on software charges @30% by deleting the allowance made by the Assessing Officer on that count.
5. The Hon’ble Apex Court in the case of Ahmedabad Urban Development Authority (supra), after considering the intent and purpose of the charitable activity, and exemptions granted under the provisions of the Act and has held as under:
“163. What has to be examined, therefore, is whether the business itself is held under trust or is carried on by and on behalf of the trust Importantly section 11(1) of the Act starts with the expression “subject to the provisions of sections 60 to 63” Those provisions are in Chapter V of the Act. Section 60 provides for the consequences of a transfer of income where there is no transfer of assets. It says that where a person transfers merely the income from an asset without transferring the asset itself, he would continue to be chargeable to income-tax. Section 61 provides for the consequences of a revocable transfer of assets and says that the same would be the position where a person is in receipt of income by virtue of a revocable transfer of assets. Section 62 provides for the consequences of a transfer of assets for a specified period, and serves as an exception to section 61. An assessee has to be divested of the asset before ceasing to be assessable in respect of the income from it. A mere direction that the income from the business shall be applied to the charitable objects of a trust, without there being a settlement of the business itself upon trust, does not result in any trust or legal obligation.
164. It is now, necessary to consider Thanthi Trust (supra) and its context This court, while interpreting section 11(4A) (as amended with effect from April 1, 1992) stated that the provision requires the “business income of a trust or institution to be exempt is that the business should be incidental to the attainment of objectives of the trust or institution” 165 The above observations have to be understood in the light of the facts before the court. Thanthi Trust carried on newspaper business which was held under trust. The charitable object of the trust was the imparting of education-which falls under section 2(15) of the Act The newspaper business was incidental to the attainment of the object of the trust, namely, that of imparting education. This aspect is important, because the aim of the trust was a per se charitable object, not a GPU object. The observations were therefore made, having regard to the fact that the profits of the news-paper business were utilized by the trust for achieving the object of education. In the light of such facts, the carrying on of newspaper business, could be incidental to the object of education- a per se category. The Thanthi Trust (supra) ratio therefore, cannot be extended to cases where the trust carries on business which is not held under trust and whose income is utilized to feed the charitable objects of the trust.
166. What then is the interpretation of the expression “incidental” profits, from “business” being “incidental to the attainment of the objectives” of the GPU charity (which occurs in section 11(4A)) ? As stated earlier, the interpretation of that expression in Thanthi Trust (supra) was in the con-text of a per se charity, i. e, where the trust’s object was education. How-ever, the restrictive or negative terms enjoining GPU charities from carrying on profitable activity had been deleted in 1983 (with effect from April 1 1984). In Surat Art Silk (supra), the court had articulated the determinative test for defining whether a trust was a GPU charity if its predominant object was to carry out a charitable purpose and that if that was the case, the fact that it earned profit would not per se deprive it of tax exemption This decision was interpreted in the context of section 11(4A) by this court in Thanthi Trust, to hold that business can be incidental to attainment of the trust’s objects.
167. Thus, the journey which began with Surat Art Silk was interpreted in Thanthi Trust to mean that the carrying on of business by GPU charity was permissible as long as it inured to the benefit of the trust The change brought about by the amendments in question, however, place the focus on an entirely different perspective that if at all any activity in the nature of trade, commerce or business, or a service in the nature of the same, for any form of consideration is permissible, that activity should be intrinsically linked to, or a part of the GPU category charity’s object. Thus, the test of the charity being driven by a predominant object is no longer good law Likewise, the ambiguity with respect to the kind of activities generating profit which could feed the main object and incidental profit-making also is not good law. What instead, the definition under section 2(15) through its proviso directs and thereby marks a departure from the previous law, is firstly that if a GPU charity is to engage in any activity in the nature of trade, commerce or business, for consideration it should only be a part of this actual function to attain the GPU objective and, secondly and the equally important consideration is the imposition of a quantitative stand-ard, i. e, income (fees, cess or other consideration) derived from activity in the nature of trade, business or commerce or service in relation to these three activities, should not exceed the quantitative limit of Rs. 10,00,000 (with effect from April 1, 2009), Rs. 25,00,000 (with effect from April 1, 2012), and 20 per cent. (with effect from April 1, 2016) of the total receipts. Lastly, the “ploughing” back of business income to “feed” charity is an irrelevant factor-again emphasizing the prohibition from engaging in trade, commerce or business.
168. If one understands the definition in the light of the above enunciation, the sequitur is that the reference to “income being profits and gains of business with a further reference to its being incidental to the objects of the trust, cannot and does not mean proceeds of activities incidental to the main object, incidental objects or income derived from incidental activities. The proper way of reading reference to the term “incidental” in section 11(4A) is to interpret it in the light of the sub-clause (1) of proviso to section 2(15), i e, that the activity in the nature of business, trade, commerce or service in relation to such activities should be conducted actually in the course of achieving the GPU object, and the income, profits or surplus or gains can then, be logically incidental. The amendment of 2016, inserting sub-clause (1) to proviso to section 2(15) was therefore clarificatory. Thus interpreted, there is no conflict between the definition of charitable pur pose and the machinery part of section 11(4A) Further, the obligation under section 11(4A) to maintain separate books of account in respect of such receipts is to ensure that the quantitative limit imposed by sub-clause (ii) to section 2(15) can be computed and ascertained in an objective manner.
169. The conclusion recorded above is also supported by the language of seventh proviso to section 10(23C). Whereas section 2(15) is the definition clause, section 10 lists out what is not income. Section 10(23C)-by sub-clauses (iv) and (v) exempt incomes of charitable organisations. Such organisations and institutions are not limited to GPU category charities but rather extend to other types of charities (i. e, the per se kind as well). The controlling part of section 10(23C) along with the relevant clauses (iv) and (v) seek to exclude income received by the concerned chanties However, the provisos hedge such exemption with conditions. The seventh proviso-much like section 11(4A) and the definition-carve out an exception, to the exemptions such that income derived by charities from business, are not exempt. The seventh proviso virtually echoes section 11(4A) in that busi-ness income derived by a charity (in the present case, the GPU charities) which arises from an activity incidental to the attainment of its objective is not per se excluded
170. Classically, the idea of charity was tied up with eleemosynary However, “charitable purpose” and charity as defined in the Act have a wider meaning where it is the object of the institution which is in focus. Thus, the idea of providing services or goods at no consideration, cost or nominal consideration is not confined to the provision of services or goods without charging anything or charging a token or nominal amount. This is spelt out in Indian Chamber of Commerce (supra) where this court held that certain GPUs can render services to the public with the condition that they would not charge “more than is actually needed for the rendering of the services -may be it may not be an exact equivalent, such mathematical precision being impossible in the case of variables, may be 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”.
5.1. Following the above decision in the case of Ahmedabad Urban Development Authority (supra), it appears that the Income Tax Appellate Tribunal, for the subsequent Assessment Years from 2010-11 to 2015-16, restored the matters back to the Assessing Officer to work out and analyze the facts for each Assessment Year in light of the observation made by the Hon’ble Supreme Court in the decision of Ahmedabad Urban Development Authority (supra), and thereafter to decide whether looking into the assessee’s facts, as to whether the assessee is engaged primarily in rendering of service for consideration (retained earnings) or whether looking into totality of the facts of the case it could be inferred that such retained earnings are only kept by the assessee to the extent of facilitating such activities.
5.2. The Tribunal has further observed in the order passed in Give Foundation v. Joint Director of Income-tax/Deputy Director of Income-tax (Exemption) (Ahmedabad – Trib.)/ITA No. 965 and 966/Ahd/2017 and other allied matters in the case of the appellant-assessee by directing the Assessing Officer to analyze the impacts of the order passed by the Tribunal in the year under consideration, wherein, it is held that the appellant – assessee had acted as a bridge between donor and recipient. Even then, looking into the particular facts of the case, whether it may be inferred that the appellant – assessee is carrying out charitable activities within the meaning of Sec.2(15) of the Act.
5.3. In view of such findings, the issue with regard to the claim of depreciation and claim of the corpus donation were also remanded by the Tribunal to the file of the Assessing Officer for de-novo consideration. It appears from the paper book filed, containing the order of the Tribunal for the subsequent Assessment Years as well as the Assessment Order passed after the remand made by the Tribunal, the Assessing Officer has worked out the total donation received by the assessee and the percentage of donation retained by it, and thereafter applied the decision of the Apex Court in the case of Ahmedabad Urban Development Authority (supra), wherein, it is held that the charitable organization cannot engage in trade, commerce or business or provide service for consideration unless such activities are identical to their core “general public utility” and within 20% monetary threshold. The Assessing Officer found that for the subsequent years, as the assessee has retained donation less than 20% of the total donation received, the Assessing Officer came to the conclusion that the assessee cannot be treated as engaged in trade, commerce or business as prescribed in the decision of Ahmedabad Urban Development Authority (supra).
5.4. In view of the above subsequent development and considering the fact that for the year under consideration as stated herein above, there is no retention of income but there is a deficit of about 7%, the question of denying the exemption under Sec.11 of the Act would not arise in view of the decision of the Hon’ble Apex Court in the case of Ahmedabad Urban Development Authority (supra).
6. Therefore, we are of the opinion that there is no need to remand the matter back to the Assessing Officer and considering the facts available on record, we answer both the questions in favour of the assessee and against the revenue.
7. The appeal is accordingly allowed with no order as to costs.