I. Service of Notice Under Section 143(2) on a Sunday Due to Post Office Closure: Valid Service.
Issue:
Whether the service of a notice under Section 143(2) of the Income-tax Act, 1961, on October 1, 2012, is considered valid and within the limitation period, even though the prescribed last date for service was September 30, 2012, which happened to be a Sunday (and thus the post office was closed).
Facts:
For Assessment Year 2011-12, a notice under Section 143(2) was issued on September 26, 2012. This notice was statutorily required to be served on the assessee on or before September 30, 2012. However, it was actually served on October 1, 2012. The reason for the delay was that September 30, 2012, was a Sunday, and the post office was closed.
Decision:
In favor of the revenue: The court held that the service of notice under Section 143(2) on the assessee on October 1, 2012, was a valid service of notice. This was in view of Section 10 of the General Clauses Act, 1897, and the principles of law laid down by the Supreme Court (which generally extend the period to the next working day if the last day falls on a holiday). Thus, the assessee was considered timely served, and both appellate authorities were absolutely justified in holding that the notice served was within the period of limitation prescribed under Section 143(2).
Key Takeaways:
- Section 10 of General Clauses Act, 1897: This crucial section provides that where any act or proceeding is directed or allowed to be done or taken in any Court or office on a certain day or within a prescribed period, then, if the Court or office is closed on that day or the last day of the period, the act or proceeding shall be considered as done or taken in due time if it is done or taken on the next day afterwards on which the Court or office is open.
- Applicability to Income Tax Act: The principles of the General Clauses Act are generally applicable to the interpretation and application of the Income-tax Act.
- Last Day on Holiday: If the last day of a statutory period for performance of an act (like service of notice) falls on a holiday or a day when the office is closed, the act can be validly performed on the next working day.
- Timely Service: The service of the notice was deemed timely due to this principle, affirming the validity of the assessment proceedings.
II. Charitable Trust – Dharamshala Activities – Commerciality Under Section 2(15) Proviso.
Issue:
Whether a charitable trust established to manage a ‘Dharamshala’ for the relief of the poor, orphans, widows, and aged persons, and which rents it out for various functions (marriage, political, religious, social) generating receipts above the threshold in Section 2(15), is considered to be carrying out commercial activities, thereby losing its charitable status under the amended Section 2(15) proviso.
Facts:
For Assessment Year 2011-12, the assessee trust was established with the charitable objects of establishing/managing a ‘Dharamshala’ to facilitate relief to poor people, orphans, widows, and old-aged persons, and to provide rehabilitation. The assessee rented out the ‘Dharamshala’ to the public at large for multi-faceted purposes, including marriage functions, political, religious, and other social functions. It generated receipts from booking and cancellation charges, repairing charges, electricity charges, etc., collected/deducted from security deposits.
The Assessing Officer (AO) was of the view that by letting out the ‘Dharamshala’ for such multi-faceted purposes, the assessee was carrying out commercial activities and was, in substance, engaged in business. The AO further held that since the gross receipts of the trust during the year amounted to ₹ 15.89 lakhs, which exceeded the threshold of ₹ 10 lakhs as contemplated in the second proviso to Section 2(15) (for “advancement of any other object of general public utility” if it involves carrying on any activity in the nature of trade, commerce or business for a cess or fee or any other consideration), the activities of the assessee and the surplus generated were hit by the provisions of Section 2(15).
Decision:
In favor of the assessee: The court held that the ‘Dharamshala’ was let out for the charitable purposes mentioned in the trust deed on a cost-basis or nominally above cost to cover up charges, as demonstrated by the assessee. The primary and predominant object of the Trust was found to be charitable. Therefore, the authorities were absolutely unjustified in holding that the assessee Trust was carrying out commercial activities by letting out ‘Dharamshala’ for various purposes. The court concluded that the authorities committed a grave legal error in holding that the assessee Trust was involved in commercial activities solely based on the gross receipts exceeding the threshold.
Key Takeaways:
- Predominant Object Test: The “predominant object” of the trust is crucial. If the main object is charitable, and activities generating income are incidental or a means to achieve the charitable object, the trust may retain its charitable status.
- Second Proviso to Section 2(15) – Commerciality: The second proviso to Section 2(15) (amended) states that the advancement of any other object of general public utility shall not be a charitable purpose if it involves carrying on any activity in the nature of trade, commerce, or business, or1 any service in relation thereto, for a cess or fee or any other consideration, irrespective of the nature of use or application of the income, unless the aggregate receipts from such activities do not exceed the specified threshold (which was ₹ 10 lakhs for the relevant period, now higher).
- “Business” for Proviso 2(15): The term “business” in the context of the second proviso to Section 2(15) implies an activity carried on with a profit motive, even if the profits are used for charitable purposes. However, if the services are provided on a cost-recovery basis or at a nominal charge merely to cover expenses and further the charitable object, it may not be considered “in the nature of trade, commerce or business.”
- Incidental Activities vs. Primary Business: The letting out of ‘Dharamshala’ for various functions, if done on a cost-recovery or nominal basis to support the charitable objective (like providing relief to the poor), is incidental to the main charitable purpose and does not necessarily transform the entire trust into a commercial entity. The revenue authorities cannot simply focus on gross receipts without examining the underlying nature of the activity and its direct nexus to the primary charitable object.
- Burden of Proof: The assessee successfully demonstrated that the charges collected were primarily to cover costs, substantiating the non-commercial nature of the activity.
HIGH COURT OF CHHATTISGARH
Ramswaroop Das Niranjanlal Charitable Trust
v.
Deputy Commissioner of Income- tax
SANJAY K. AGRAWAL and Deepak Kumar Tiwari, JJ.
TAX Case No. 180 of 2023
MAY 9, 2025
Ankur Agrawal, Adv. for the Appellant. Ajay Kumrani and Amit Chaudhari, Advs. for the Respondent.
ORDER
Sanjay K. Agrawal, J. – This tax appeal preferred under Section 260A of the Income Tax Act, 1961 (for short, ‘the Act’) was admitted for hearing by formulating the following substantial questions of law: –
“1. Whether the Tribunal erred in upholding the order of the assessing officer dated 30.03.2014 as upheld by Commissioner of Income Tax (Appeals)-1, Raipur and sequitur addition of Rs.2,20,250/- to income of the appellant trust sans consideration of the ground no.2 raised before it i.e. since notice under Section 143(2) of the Income Tax Act, 1961 for assessment year 2011-12 issued to appellant trust was invalid consequential/ sequitur assessment for assessment year 2011-12 is also invalid/nullity in eyes of law?
2. Whether the Tribunal erred in upholding that 2nd proviso to Section 2(15) [as it stood at the relevant juncture of time] would be applicable in the case of appellant trust for assessment year 2011-12 and making sequitur addition of Rs.2,20,250/- to income of appellant trust in teeth with law laid down by the Hon’ble Apex Court in Assistant CIT v. Ahmedabad Urban Development Authority 2023 (7) SCC 249 reiterated in CIT v. Servants of People Society 2023 SCC OnLine SC 104.”
2. The aforesaid questions of law arise for consideration on the following factual backdrop: –
3. The appellant herein / assessee filed return of income for the assessment year 2011-12 on 30-9-2011 declaring total income as NIL. Its case was selected for scrutiny under compulsory selection criteria with the prior approval of the Chief Commissioner of Income Tax, Raipur and accordingly, notice under Section 143(2) of the Act was issued on 26-9-2012 which was served to the assessee on 1-10-2012 by registered post and thereafter, assessment was completed under Section 143(3) of the Act and assessment order was passed by the Deputy Commissioner of Income Tax-1(1), Raipur on 30-32014 assessing total income at Rs. 2,20,250/-. During the assessment proceedings and while making assessment, the Assessing Officer observed that the assessee Trust had received an amount of Rs. 15,89,163/- from the business of running a Dharamshala and the Assessing Officer was further of the opinion that since the assessee was registered as a charitable trust and was carrying out activities which were in the nature of “the advancement of any other object of general public utility” within the meaning of 2nd proviso to Section 2(15) of the Act, and had garnered business receipts of Rs. 15,89,163/-which was more than the prescribed amount of ten lakh rupees (as was applicable during the year under consideration) as contemplated in 2nd proviso to Section 2(15) of the Act, therefore, its activities cannot be held as having been carried out solely for charitable purposes. Finally, the Assessing Officer referring to the provisions contained in Section 2(15) read with Section 13(8) of the Act declined the assessee’s claim for exemption under Section 11 of the Act and brought its surplus of Rs. 2,20,247/- to tax.
4. Feeling aggrieved and dissatisfied with the order of the Assessing Officer, the assessee preferred appeal before the Commissioner of Income Tax (Appeals)-I, Raipur who dismissed the appeal holding that since the trust’s activities are being conducted on commercial lines and receipt during the year has exceeded Rs. 10 lakhs, the Assessing Officer is justified in declining the assessee’s claim and as such upheld the order of assessment passed by the AO. Questioning that order, the appellant/assessee has preferred an appeal before the Income Tax Appellate Tribunal which has also affirmed the order of assessment as also the order of the CIT (Appeals) affirming the view taken by the two authorities leading to filing of this appeal under Section 260A of the Act.
5. Mr. Ankur Agrawal, learned counsel appearing for the appellant/assessee Trust, would make two fold submissions: –
| 1. | Notice under Section 143(2) of the Act was issued to the appellant / assessee on 26-9-2012 and served to the appellant on 1-10-2012, whereas Section 143(2), as applicable, mandates that notice must be issued within six months from the end of the financial year in which the return is furnished i.e. 2011-12 and thus it ought to have been served on or before 30-9-2012, whereas it was served on 1-10-2012 and as such, the notice so issued under Section 143(2) was barred by one day and therefore the impugned order deserves to be set aside and the instant appeal deserves to be allowed. |
| 2. | The second proviso to Section 2(15) of the Act would not be applicable because the services provided by the appellant Trust are charitable in nature and not profit driven. He would rely upon the decision of the Supreme Court in the matter of Asstt.CIT (Exemptions) v. Ahmedabad Urban Development Authority |
6. Mr. Ajay Kumrani, learned counsel appearing for the respondent/Revenue, would submit as under: –
| 1. | Notice under Section 143(2) of the Act was issued on 26-9-2012 and since last day of the month of September, 2012 was Sunday, therefore, it has rightly been served on 1-10-2012 by registered post as such, the service made is in accordance with law, as Section 10 of the General Clauses Act, 1897 would apply and since last day of the month was holiday and as per the Postal Department it was a non-working day, therefore, by virtue of Section 10 of the General Clauses Act, 1897, last day would be excluded in computing the period of six months and as such, the notice issued and served by registered post is within time and therefore the proceeding initiated for scrutiny assessment was maintainable. |
| 2. | The Assessing Officer has rightly disallowed the gross receipt of the Trust to the tune of Rs. 15.89 lakhs on account of running Dharamshala having threshold limit of only Rs. 10 lakhs for charitable purposes for the year under consideration. Therefore, the action of disallowance by the AO confirmed by the CIT (Appeals) as well as by the ITAT, is well merited and the appeal deserves to be dismissed by answering the substantial questions of law in favour of the Revenue and against the assessee Trust. |
7. We have heard learned counsel for the parties and considered their rival submissions made herein-above and also went through the record with utmost circumspection.
Answer to the first substantial question of law
8. Section 143(2) of the Act as applicable at the relevant point of time, states as under: –
“143. Assessment.—(1) xxx xxx xxx
(2) Where a return has been furnished under section 139, or in response to a notice under sub-section (1) of section 142, the Assessing Officer shall,—
(i) where he has reason to believe that any claim of loss, exemption, deduction, allowance or relief made in the return is inadmissible, serve on the assessee a notice specifying particulars of such claim of loss, exemption, deduction, allowance or relief and require him, on a date to be specified therein to produce, or cause to be produced, any evidence or particulars specified therein or on which the assessee may rely, in support of such claim:
Provided that no notice under this clause shall be served on the assessee on or after the 1 st day of June, 2003;
(ii) notwithstanding anything contained in clause (i), if he considers it necessary or expedient to ensure that the assessee has not under-stated the income or has not computed excessive loss or has not underpaid the tax in any manner, serve on the assessee a notice requiring him, on a date to be specified therein, either to attend his office or to produce, or cause to be produced, any evidence on which the assessee may rely in support of the return:
Provided that no notice under clause (ii) shall be served on the assessee after the expiry of six months from the end of the financial year in which the return is furnished.”
9. The proviso appended to clause (ii) of sub-section (2) of Section 143 of the Act clearly states that no notice under Section 143(2) shall be served on the assessee after the expiry of six months from the end of the financial year in which the return is furnished and the proviso to clause (ii) of Section 143(2) of the Act is mandatory.
10. The dispute is of the assessment year 2011-12 relevant to financial year 2010-11 and notice under Section 143(2) of the Act, dispatched by registered post, was issued on 26-9-2012, which was said to be served on the assessee / appellant Trust on 1-10-2012.
11. At this stage, Rules and Regulations relating to the Inland Post as enumerated in the Post Office Guide Part I issued by the Director-General of Posts may be noticed herein of which clause 7 relates to Business done on Sundays and P.O. holidays, which states as under: –
“7. Business done on Sundays and P.O. holidays
(a) Except the Night Post Offices all post offices Mobile Post Offices are generally closed on Sundays and PO Holidays and no business transacted with the public. There is also no clearance of street letter post boxes delivery of mails on such days.
(b) Facilities are provided for the posting of letters on which the prescribed late fee is paid during certain specific hours in the letter boxes at RMS offices and at selected offices. Such postings can also, be made in the letters boxes of the mail vans of R.M.S. Sections, Machined franked articles should not be posted either in the Post office letter box or the mail van letter box.
(c) Registered newspapers and packets of registered news papers are accepted on Sundays and PO holidays without payment of any late fee in Press Sorting Offices, R.M.S. offices and at Night Post Offices.
(d) Generally, all RMS offices stamps and postal stationary and grant certificates of posting and book registered articles on payment of usual late fee during specified hours on Sundays and PO holidays.
Note 1 :- Postage stamps, postcards, inland letters, and envelopes are also sold at the telegraph branches of the combined post and telegraph offices the hours they are open to public.”
12. In the instant case, admittedly, as per the statement of the Revenue, notice under Section 143(2) of the Act was issued by the Assessing Officer on 26-9-2012 dispatched by registered post. 30-9-2012 was admittedly, Sunday. As per the Postal Regulations, post office is closed on Sunday and no business is transacted with the public on that day. Therefore, the notice came to be served to the assessee / appellant herein on 1-10-2012. However, as per the mandate provided in the proviso appended to Section 143(2) of the Act as applicable, no notice was required to be served on the assessee after the expiry of six months from the end of the financial year in which the return is furnished and thus it was required to be served on 30-9-2012 and 30-9-2012 being Sunday, no business is to be transacted with the public in the post office, it came to be served on 1-10-2012 and therefore the short question would be, whether notice served on 1-10-2012 on account of post office having been closed on 30-9-2012 being Sunday and no business is transacted on that day, can be said to be duly served on the assessee within the meaning of Section 143(2) of the Act? In response to this question, the Revenue has placed reliance on Section 10 of the General Clauses Act, 1897, which states as under: –
“10. Computation of time.—(1) Where, by any Central Act or Regulation made after the commencement of this Act, any act or proceeding is directed or allowed to be done or taken in any Court or office on a certain day or within a prescribed period, then, if the Court or office is closed on that day or the last day of the prescribed period, the act or proceeding shall be considered as done or taken in due time if it is done or taken on the next day afterwards on which the Court or office is open:
Provided that nothing in this section shall apply to any act or proceeding to which the Indian Limitation Act, 1877 (15 of 1877), applies.
(2) This section applies also to all Central Acts and Regulations made on or after the fourteenth day of January, 1887.”
13. A careful perusal of Section 10 of the General Clauses Act, 1897 would show that it embodies the general principles enshrined in two maxims – (i) lex non cogit ad impossibilia and (the law does not compel a man to do the impossible) (ii) actus curiae reminem gravabit (the act of court shall prejudice no man). The principle underlying Section 10 is that the act to Court shall prejudice no man. There is the general principle that a party prevented from doing an act by some circumstances beyond his control, can do so at the first subsequent opportunity. The main object of the above principle is to enable a person to do what he could have done on a holiday, on the next working day. Where, therefore, a period is prescribed for the performance of an act in a court or office, and that period expires on a holiday, then the act should be considered to have been done within that period if it is done on the next day on which the court or office is open. The reason is that law does not compel the performance of an impossibility. (See H.H. Raja Harinder Singh v. S. Karnail Singh AIR 1957 SC 271 /AIR 1957 SC 271.)
14. Similarly, in the matter of Chaganti Satyanarayana v. State of Andhra Pradesh (1986) 3 SCC 141 their Lordships of the Supreme Court relied upon the decision in the matter of N. Sureya Reddy v. State of Orissa 1985 Cri LJ 939 (Ori)), in which it has been held that Section 10 of the General Clauses Act would be attracted for interpreting the proviso if the last day happens to be a Sunday or holiday and even otherwise the principle enunciated therein should be invoked on considerations of justice and expediency.
15. In the matter of HUDA v. Dr. Babeswar Kanhar (2005) 1 SCC 191 , it has been held by their Lordships of the Supreme Court that a party prevented from doing an act by some circumstances beyond his control, can do so at the first subsequent opportunity. It has further been held that every consideration of justice and expediency would require that the accepted principle which underlies Section 10 of the General Clauses Act should be applied in cases where it does not otherwise in terms apply. Paragraph 5 of the report states as under: –
“5. What is stipulated in clause 4 of the letter dated 30-10-2001 is a communication regarding refusal to accept the allotment. This was done on 28-11-2001. Respondent 1 cannot be put to loss for the closure of the office of HUDA on 1-12-2001 and 2-12-2001 and the postal holiday on 30-11-2001. In fact he had no control over these matters. Even the logic of Section 10 of the General Clauses Act, 1897 can be pressed into service. Apart from the said section and various provisions in various other Acts, there is the general principle that a party prevented from doing an act by some circumstances beyond his control, can do so at the first subsequent opportunity (see Sambasiva Chari v. Ramasami Reddi (1898) 8 MLJ 265 : ILR 22 Mad 179). The underlying object of the principle is to enable a person to do what he could have done on a holiday, on the next working day. Where, therefore, a period is prescribed for the performance of an act in a court or office, and that period expires on a holiday, then the act should be considered to have been done within that period if it is done on the next day on which the court or office is open. The reason is that law does not compel the performance of an impossibility. (See Hossein Ally v. Donzelle ILR (1880) 5 Cal 906 : 6 CLR 239.) Every consideration of justice and expediency would require that the accepted principle which underlies Section 10 of the General Clauses Act should be applied in cases where it does not otherwise in terms apply. The principles underlying are lex non cogit ad impossibilia (the law does not compel a man to do the impossible) and actus curiae neminem gravabit (the act of court shall prejudice no man). Above being the position, there is nothing infirm in the orders passed by the forums below. However, the rate of interest fixed appears to be slightly on the higher side and is reduced to 9% to be paid with effect from 3-122001 i.e. the date on which the letter was received by HUDA.”
16. Finally, in the matter of Mohd. Ayub v. State of Uttar Pradesh (2009) 17 SCC 70, where the last date of submitting the application along with medical certificate was 14-4-2003, which was a gazetted holiday on account of Ambedkar Jayanti, it has been held by their Lordships of the Supreme Court that the last date being a gazetted holiday, his application should have been considered on merit in view of the principles laid down in Section 10 of the General Clauses Act and observed as under: –
“8. Section 10 of the General Clauses Act has come up for consideration in various cases before this Court and also different High Courts. In Harinder Singh v. S. Karnail Singh [H.H. Raja Harinder Singh v. S. Karnail Singh AIR 1957 SC 271 /AIR 1957 SC 271] a four-Judge Bench of this Court explained the object of Section 10 very lucidly. The learned Judges have held as under: (AIR p. 273, para 5)
“5.. Where, therefore, a period is prescribed for the performance of an act in a court or office, and that period expires on a holiday, then according to the section the act should be considered to have been done within that period, if it is done on the next day on which the court or office is open. For that section to apply, therefore, all that is requisite is that there should be a period prescribed, and that period should expire on a holiday.”
The decision in Harinder Singh [H.H. Raja Harinder Singh v. S. Karnail Singh AIR 1957 SC 271 /AIR 1957 SC 271] was rendered in the context of an election dispute but the general principles explained therein apply to all cases.
9. Even while construing the provisions of Section 167 of the Criminal Procedure Code, 1973, this Court accepted the same interpretation in respect of Section 10 of the General Clauses Act. [See Chaganti Satyanarayana v. State of A.P. [ChagantiSatyanarayana v. StateofAndhraPradesh Chaganti Satyanarayana v. StateofAndhraPradesh (1986) 3 SCC 141 /(1986) 3 SCC 141 /Chaganti Satyanarayana v. StateofAndhraPradesh (1986) 3 SCC 141 /(1986) 3 SCC 141 : 1986 SCC (Cri) 321] (SCC p. 154, para 30 of the Report).]”
17. Turning to the facts of the case in light of the principles of law laid down in the aforesaid judgments in Dr. Babeswar Kanhar’s case (supra) and Mohd. Ayub (supra), in the instant case, notice under Section 143(2) of the Act was issued well within the time prescribed for issuance of notice on 26-92012, it was required to be served as per the provisions contained in Section 143 of the Act on or before 30-9-2012 and 30-9-2012 was Sunday being a holiday as per the Post Office Regulations noticed herein-above, therefore, notice was came to be served on 1-10-2012 on Monday. In our considered opinion, such service of notice under Section 143(2) of the Act on the assessee on 1-10-2012 is the valid service of notice in view of Section 10 of the General Clauses Act and the principles of law laid down by their Lordships of the Supreme Court in the above-noticed judgments (supra) and thus the assessee was timely served and as such, both the appellate authorities are absolutely justified in holding that notice served was within the period of limitation prescribed under Section 143(2). We accordingly answer the first substantial question in favour of the Revenue and against the assessee.
Answer to the second substantial question of law
18. In order to consider the plea raised at the Bar, it would be appropriate to notice Section 2(15) of the Act. Section 2(15) – which had been amended last, in 19831, was again amended, by the Finance Act, 2008, w.e.f. 1-4-2009. Some other amendments too were made, with effect from the same date by the Finance Act, 2009 and Finance Act, 2010. With the said amendments, as on 1-4-2009, the provision read as follows: –
“2. (15) “charitable purpose” includes relief of the poor, education, medical relief, preservation of environment (including watersheds, forest 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;
Provided further that the first proviso shall not apply if the aggregate value of the receipts from the activities referred to therein is ten lakh rupees or less in the previous year;
19. In the second proviso, the reference to ten lakhs was substituted, and the figure of rupees twenty-five lakhs, was inserted, by the Finance Act, 2011 (w.e.f. 1-4-2012). By the Finance Act, 2015 (w.e.f. 1-4-2016), the first two provisos to Section 2(15) were deleted, and instead, the following proviso was inserted:-
“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;”
Additionally, the same amendment also inserted “yoga” (after “education”) as a listed category of charitable activity, in the substantive provision.
20. A careful perusal of Section 2(15) of the Act would reveal that the expression “charitable purpose” has been defined by way of an inclusive definition so as to include relief to the poor, education, yoga, medical relief, preservation of environment (including watersheds, forest 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. The expression “advancement of any other object of general public utility” has been considered by the Supreme Court in number of judgments.
21. In the matter of CIT v. Gujarat Maritime Board (SC)/(2007) 14 SCC 704 , the words in Section 2(15) of the Act, namely, “any other object of general public utility” have been considered by their Lordships of the Supreme Court and it has been held that the said expression would prima facie include all objects which promote the welfare of the general public. Their Lordships further held that if the primary purpose and the predominant object are to promote the welfare of the general public the purpose would be charitable purpose. It has been observed by their Lordships of the Supreme Court as under: –
“13. We have perused number of decisions of this Court which have interpreted the words in Section 2(15), namely, “any other object of general public utility”. From the said decisions it emerges that the said expression is of the widest connotation. The word “general” in the said expression means pertaining to a whole class. Therefore, advancement of any object of benefit to the public or a section of the public as distinguished from benefit to an individual or a group of individuals would be a charitable purpose (CIT v. Ahmedabad Rana Caste Assn.(1982) 2 SCC 542 : 1982 SCC (Tax) 151 : (1983) 140 ITR 1). The said expression would prima facie include all objects which promote the welfare of the general public. It cannot be said that a purpose would cease to be charitable even if public welfare is intended to be served. If the primary purpose and the predominant object are to promote the welfare of the general public the purpose would be charitable purpose. When an object is to promote or protect the interest of a particular trade or industry that object becomes an object of public utility, but not so if it seeks to promote the interest of those who conduct the said trade or industry (CIT v. Andhra Chamber of Commerce (1965) 55 ITR 722). If the primary or predominant object of an institution is charitable, any other object which might not be charitable but which is ancillary or incidental to the dominant purpose, would not prevent the institution from being a valid charity (CIT v. Surat Art Silk Cloth Manufacturers’ Assn. (1980) 2 SCC 31 : 1980 SCC (Tax) 170 : (1980) 121 ITR 1).”
22. Furthermore, a three-Judge Bench of the Supreme Court in Ahmedabad Urban Development Authority’s case (supra) has considered all its earlier judgments qua Section 2(15) of the Act and summed up the conclusions as under: –
“IV. Summation of conclusions
269. In view of the foregoing discussion and analysis, the following conclusions are recorded regarding the interpretation of the changed definition of “charitable purpose” (w.e.f. 1-4-2009), as well as the later amendments, and other related provisions of the IT Act.
A. General test under Section 2(15)
270. It is clarified that an assessee advancing general public utility cannot engage itself in any trade, commerce or business, or provide service in relation thereto for any consideration (“cess, or fee, or any other consideration”).
271. However, in the course of achieving the object of general public utility, the trust, society, or other such organisation concerned, can carry on trade, commerce or business or provide services in relation thereto for consideration, provided that (i) the activities of trade, commerce or business are connected (“actual carrying out.” inserted w.e.f. 1-4-2016) to the achievement of its objects of GPU; and (ii) the receipt from such business or commercial activity or service in relation thereto, does not exceed the quantified limit, as amended over the years (Rs 10 lakhs w.e.f. 1-4-2009; then Rs 25 lakhs w.e.f. 1-4-2012; and now 20% of total receipts of the previous year, w.e.f. 1-4-2016).
272. Generally, the charging of any amount towards consideration for such an activity (advancing general public utility), which is on cost-basis or nominally above cost, cannot be considered to be “trade, commerce, or business” or any services in relation thereto. It is only when the charges are markedly or significantly above the cost incurred by the assessee in question, that they would fall within the mischief of “cess, or fee, or any other consideration” towards “trade, commerce or business”. In this regard, the Court has clarified through illustrations what kind of services or goods provided on cost or nominal basis would normally be excluded from the mischief of trade, commerce, or business, in the body of the judgment.
273. Section 11(4-A) must be interpreted harmoniously with Section 2(15), with which there is no conflict. Carrying out activity in the nature of trade, commerce or business, or service in relation to such activities, should be conducted in the course of achieving the GPU object, and the income, profit or surplus or gains must, therefore, be incidental. The requirement in Section 11(4-A) of maintaining separate books of account is also in line with the necessity of demonstrating that the quantitative limit prescribed in the proviso to Section 2(15), has not been breached. Similarly, the insertion of Section 13(8), seventeenth proviso to Section 10(23-C) and third proviso to Section 143(3) (all w.r.e.f. 1-42009), reaffirm this interpretation and bring uniformity across the statutory provisions.
xxx xxx xxx”
23. Further, their Lordships of the Supreme Court in Ahmedabad Urban Development Authority’s case (supra) observed as under: –
“190. It may be useful to conclude this section on interpretation with some illustrations. The example of Gandhi Peace Foundation disseminating Mahatma Gandhi’s philosophy (in Surat Art Silk CIT v. Surat Art Silk Cloth Manufacturers’ Assn., (1980) 2 SCC 31 : 1980 SCC (Tax) 170) through museums and exhibitions and publishing his works, for nominal cost, ipso facto is not business. Likewise, providing access to low-cost hostels to weaker segments of society, where the fee or charges recovered cover the costs (including administrative expenditure) plus nominal markup; or renting marriage halls for low amounts, again with a fee meant to cover costs; or blood bank services, again with fee to cover costs, are not activities in the nature of business. Yet, when the entity concerned charges substantial amounts—over and above the cost it incurs for doing the same work, or work which is part of its object (i.e. publishing an expensive coffee table book on Gandhi, or in the case of the marriage hall, charging significant amounts from those who can afford to pay, by providing extra services, far above the cost plus nominal markup) such activities are in the nature of trade, commerce, business or service in relation to them. In such case, the receipts from such latter kind of activities where higher amounts are charged, should not exceed the limit indicated by proviso (ii) to Section 2(15).
H. Application of interpretation
285. At the cost of repetition, it may be noted that the conclusions arrived at by way of this judgment, neither precludes any of the assessees (whether statutory, or non-statutory) advancing objects of general public utility, from claiming exemption, nor the Taxing Authorities from denying exemption, in the future, if the receipts of the relevant year exceed the quantitative limit. The assessing authorities must on a yearly basis, scrutinise the record to discern whether the nature of the assessee’s activities amount to “trade, commerce or business” based on its receipts and income (i.e. whether the amounts charged are on cost-basis, or significantly higher). If it is found that they are in the nature of “trade, commerce or business”, then it must be examined whether the quantified limit (as amended from time to time) in the proviso to Section 2(15), has been breached, thus disentitling them to exemption.”
24. Coming to the facts of the case in light of the principles of law laid down by their Lordships of the Supreme Court in Gujarat Maritime Board’s case (supra) followed in Ahmedabad Urban Development Authority’s case (supra), it is quite vivid that in the instant case, it is not in dispute that the assessee Trust was set up with the objects of establishing/managing “Dharamshala” to facilitate relief to poor people, orphans, widows, and old aged persons and otherwise provide them rehabilitation, which are charitable in nature. However, all the three authorities were greatly influenced with the fact that the assessee trust had rented out the “Dharamshala” to the public at large and thereby had ventured into commercial activities relying upon the reply dated 5-12-2013 in which the assessee had admitted the fact that it had rented the “Dharamshala”/premises to 170 persons for multi-faceted purposes i.e. marriage function, political, religious and other social functions, etc. and the assessee had generated receipts from booking and cancellation charges, repairing charges, electricity charges, etc., which were collected/deduction from security deposits from the persons who booked the “Dharamshala” for the above-mentioned activities and thereby all the three authorities came to the conclusion that the assessee was carrying out commercial activities of letting out “Dharamshala” to the public at large for multi-facet purposes, i.e. marriage functions, political, religious and other social functions, etc., therefore, it was in substance carrying on a business. It was further held that since the gross receipts of the assessee Trust during the year under consideration amounted to Rs. 15,89,163/- which was more than the threshold amount of Rs. 10 lakhs as contemplated in the second proviso to Section 2(15) of the Act, therefore, the activities of the assessee and surplus therein generated were hit by the provisions of Section 2(15) of the Act.
25. It is the contention of learned counsel for the appellant/ assessee Trust that all the three authorities have ignored the notional expenditure of depreciation of Rs. 8.55 lakhs which is against the well settled principle of law and which has to be allowed to be debited to the expenditure amount of the Trust in light of the decision of the M.P. High Court in the matter of CIT v. Raipur Pallottine Society (Madhya Pradesh)/1989 SCC OnLine MP 339 in which it has been held that if depreciation is not allowed as a necessary deduction for computing the income of a charitable institution, then there would be no way to preserve the corpus of the trust for deriving income. It has been observed in paragraph 5 of the report as under: –
“5. It was not disputed that the mercantile system of accounting was followed by the assessee. In that case, as held in CIT v. Society of the Sisters of St. Anne, [1984] 146 ITR 28 (Kar), if depreciation is not allowed as a necessary deduction for computing the income of a charitable institution, then there would be no way to preserve the corpus of the trust for deriving income. We respectfully agree with that decision.”
26. In the matter of CIT v. Rajasthan & Gujarati Charitable Foundation Poona (SC)/(2018) 7 SCC 810 , it has been held that the income of the Trust is required to be computed under Section 11 on commercial principles after providing for allowance for normal depreciation and deduction thereof from gross income of the trust. It has been observed in paragraph 2 of the report as under: –
“2. From the judgments of the High Courts, it can be discerned that the High Courts have primarily followed the judgment of the Bombay High Court in CIT v. IBPS CIT v. IBPS, 2003 SCC OnLine Bom 642 :. In the said judgment, the contention of the Department predicated on double benefit was turned down in the following manner: (SCC OnLine Bom paras 6-7)
“6.. However, the income of the Trust is required to be computed under Section 11 on commercial principles after providing for allowance for normal depreciation and deduction thereof from gross income of the Trust. In view of the aforestated judgment of the Bombay High Court, we answer Question 1 in the affirmative i.e. in favour of the assessee and against the Department.
7. xxx xxx xxx””
27. Undisputedly, the appellant/assessee is registered as a charitable trust under Section 12A of the Act on 31-3-1998 with the Commissioner of Income Tax, Raipur. One of the objects of the assessee Trust is to establish, maintain, Dharamshalas, Temples, homes orphanages or other establishments for relief of and to give help to poor and destitute people, orphans, widows, cripples and old aged persons and otherwise provide them rehabilitation aid for self earnings among the other objects. All the authorities were impressed with the fact that the “Dharamshala” was rented out to different persons and therefore had ventured into commercial activities. However, it is the case of the assessee that the “Dharamshala” was rented out to different persons on a cost basis or nominally above cost. The Supreme Court in Ahmedabad Urban Development Authority’s case (supra) has clearly held that the charging of any amount towards consideration for such an activity (advancing general public utility), which is on cost-basis or nominally above cost, cannot be considered to be “trade, commerce, or business” or any services in relation thereto. It is only when the charges are markedly or significantly above the cost incurred by the assessee in question, that they would fall within the mischief of “cess, or fee, or any other consideration” towards “trade, commerce or business”. Further, it has been held that where the fee or charges recovered cover the costs (including administrative expenditure) plus nominal markup; or renting marriage halls for low amounts, again with a fee meant to cover costs; or blood bank services, again with fee to cover costs, are not activities in the nature of business and only when the entity concerned charges substantial amounts—over and above the cost it incurs for doing the same work, such activities are in the nature of trade, commerce or business.
28. In the instant case, it is the case of the assessee that renting of marriage hall was done on a cost-basis or nominally above cost to cover up the expenditure, which has not been considered by all the authorities and merely by holding that Rs. 15,89,163/- was received by the assessee Trust, the authorities have proceeded to hold that Rs. 2,20,247/- was liable to tax. In our considered opinion, the Dharamshala was let out for charitable purpose mentioned in the trust deed on a cost-basis or nominally above cost to cover up the charges as demonstrated by the assessee and the primary and predominant object of the Trust was charitable. Furthermore, it has been shown by the appellant/assessee that the appellant Trust has adopted the mercantile system of accounting for the financial year 2010-11 (assessment year 2011-12) for which depreciation of Rs. 8.55 lakhs is to be accepted which the authorities have not accepted, same ought to have been allowed as depreciation being notional expenditure in light of the decision of the Supreme Court in Rajasthani and Gujarati Charitable Foundation, Poona’s case (supra) and that of the M.P High Court in Raipur Pallottine Society’s case (supra). As such, on both the counts, the finding of the learned authorities that proviso to Section 2(15) of the Act would apply, is contrary to the facts and law available on record.
29. In view of the aforesaid discussion, we are of the considered opinion that all the three authorities are absolutely unjustified in holding that the appellant Trust is carrying out the commercial activities by letting out the Dharamshala for various purposes and committed grave legal error in holding that appellant / assessee Trust is involved in commercial activities. Accordingly, the second substantial question is answered in favour of the assessee and against the Revenue.
30. In conclusion, the appeal is allowed in part. First substantial question is answered in favour of the Revenue and against the assessee and second substantial question is answered in favour of the assessee and against the Revenue. Consequently, the impugned order is set-aside to the extent of second substantial question of law and it is held that the appellant/ assessee is not liable to tax on Rs. 2,20,247/-. No order as to cost(s).