While interpreting the meaning of the charitable purpose the Court held that the paradigm change achieved by section 2(15) of the Income-tax Act, 1961 after its amendment in 2008 and as it stands today, is that firstly a charity engaged in an object of general public utility cannot engage in any activity in the nature of trade, commerce, business or any service in relation to such activities for any consideration (including a statutory fee, etc.). This is emphasised in the negative language employed by the main part of section 2(15). Therefore, the idea of a predominant object among several other objects, is discarded. The prohibition is relieved to a limited extent, by the proviso which carves out the condition by which otherwise prohibited activities can be engaged in by charities carrying out objects of general public utility. The conditions are : (a) that such activities in the nature of trade, commerce, business or service (in relation to trade, commerce or business for consideration) should be in the course of “actual carrying on” of the object of general public utility and (b) the quantum of receipts from such activities should not exceed 20 per cent. of the total receipts. Both parts of the proviso : (i) and (ii) (to section 2(15)) have to be read conjunctively, given the conscious use of “or” connecting the two. This means that if a charitable trust carries on any activity in the nature of business, trade or commerce, in the actual course of fulfilling its objectives, the income from such business, should not exceed the limit defined in sub-clause (ii) to the proviso. If a property is held under trust, and such property is a business, the case would fall under section 11(4) and not under section 11(4A) of the Act. Section 11(4A) of the Act, would apply only to a case where the business is not held under trust. The insertion of section 13(8), the seventeenth proviso to section 10(23C) and the third proviso to section 143(3) (all of which were inserted by the Finance Act, 2012, but with retrospective effect from April 1, 2009), further reinforces the interpretation of “charitable purpose”. These provisions form the machinery to control the conditions under which income is exempt. The effect of the seventeenth proviso to section 10(23C) is to impose the same condition, i. e., that the trade, commerce or business activity or service relating to trade, business or commerce, should be part of the assessee’s activities, to achieve its object of advancing general public utility. The other condition is that if such trading or commercial activity takes place the receipts should be confined to a prescribed percentage of the overall receipts. Section 13(8) too reinforces the same condition.

Statutory corporations, boards, authorities, commissions, (by whatsoever names called) in the housing development, town planning and industrial development sectors are involved in the advancement of objects of general public utility. Such statutory corporations, boards, trust authorities, may be involved in promoting public objects and also in the course of pursuing their objects, involved or engaged in activities in the nature of trade, commerce or business. The determinative tests to consider when determining whether such statutory bodies, boards, authorities, corporations, autonomous or self-governing Government sponsored bodies, are engaged in advancement of any other object of general public utility within the meaning of section 2(15) of the Act, are : (a) does the State or Central law, or the memorandum of association, constitution, advance any other object of general public utility, such as development of housing, town planning, development of industrial areas, or regulation of any activity in the general public interest, supply of essential goods or services, such as water supply, sewage service, distributing medicines, of food grains (public distribution system entities), etc.; (b) the purpose for which such assessee engaged in advancement of any other object of general public utility, is set up, whether for furthering the development of a charitable object or for carrying on trade, business or commerce or service in relation to such trade, etc. ; (c) rendition of service or providing any article or goods on cost or nominal mark-up basis would ipso facto not be activities in the nature of business, trade or commerce or service in relation to such business, trade or commerce ; (d) where the controlling instrument imposes certain responsibilities or duties upon the concerned body, such as fixation of rates on pre-determined statutory basis, or based on formulae regulated by law, or rules having the force of law, setting apart amenities for the purposes of development, charging fixed rates towards supply of water, providing sewage services, providing food grains, medicines, or retaining monies in deposits or Government securities and drawing interest therefrom or charging lease rent, ground rent, etc., per se, recovery of such charges, fee, interest, etc. cannot be characterized as “fee, cess or other consideration” for engaging in activities in the nature of trade, commerce, or business, or for providing service in relation thereto ; (e) does the statute or controlling instrument set out the policy or scheme, for how the goods and services are to be distributed ; in what proportion the surpluses, or profits, can be permissively garnered ; are there limits within which plots, rates or costs are to be worked out ; whether the function in which the body is engaged, is normally something a Government or State is expected to engage in, having regard to provisions of the Constitution and the enacted laws, and the observations of the court in New Delhi Municipal Council v. State of Punjab [1997] 7 SCC 339 ; whether in case surplus or gains accrue, the corporation, body or authority is permitted to distribute it, and if so, only to the Government or State ; the extent to which the State or its instrumentalities have control over the corporation or its bodies, and whether it is subject to directions by the concerned Government, etc. ; (f) as long as the entity while actually furthering an object of general public utility, carries out activities that entail some trade, commerce or business, which generates profit (i. e., amounts that are significantly higher than the cost), and the quantum of such receipts are within the prescribed limit (20 per cent. as mandated by the second proviso to section 2(15)) the entity can be characterised as an assessee engaged in advancement of any other object of general public utility. The other conditions imposed by the seventh proviso to section 10(23C) and by section 11 have to necessarily be fulfilled ; (g) as a consequence, it is necessary in each case, having regard to the first proviso and seventeenth proviso (the latter introduced in 2012, with retrospective effect from April 1, 2009) to section 10(23C), that the authority considering granting exemption, takes into account the objects of the enactment or instrument concerned, its underlying policy, and the nature of the functions, and activities, of the entity claiming to be engaged in advancement of any other object of general public utility. If in the course of its functioning it collects fees, or any consideration that merely cover its expenditure (including administrative and other costs plus a small proportion for provision), such amounts are not consideration towards trade, commerce or business, or service in relation thereto. However, amounts which are significantly higher than recovery of costs, have to be treated as receipts from trade, commerce or business. It is for those amounts, that the quantitative limit in proviso (ii) to section 2(15) applies, and for which separate books of account will have to be maintained under other provisions of the Act.

The amounts charged towards supplying goods or articles, or rendering services, i. e., for fees for providing typical essential services like providing water, distribution of food grains, distribution of medicines, maintenance of roads, parks, etc., by corporations, boards or trusts or authorities set up under enactments ought not to be characterised as “commercial receipts”. The rationale for such exclusion would be that if such rates, fees, tariffs, etc., determined by statutes and collected for essential services, are included in the overall income as receipts as part of trade, commerce or business, the quantitative limit of 20 per cent. imposed by second proviso to section 2(15) would be attracted thereby negating the essential general public utility object and thus driving up the costs to be borne by the ultimate user or consumer which is the general public.

Charities engaged in “advancement of any other object of general public utility” are distinct from the “per se categories” of charity (education, medical relief, relief to the poor, and later preservation of water sheds, monuments, environment, and yoga). The restriction imposed by Parliament against charities prohibiting them from carrying on activities of profit does not apply to the first six categories. The importance of terms expressly defined in a statute is that they are internal and binding aids to interpretation. The prefacing-to any definition-of the phrase “unless the context otherwise requires” merely signifies that in case there is anything expressly to the contrary, in any specific provision in the body of the Act, a different meaning can be attributed. However, to discern the purport of a provision, the term, as defined, has to prevail, whenever the expression is used in the statute. This rule is subject to the exception that when a contrary intention is plain, in particular instances, that meaning is to be given. (AY.2009-10 to 2014-15)