Assistant Commissioner of Income-tax (Exemptions) Vs Ahmedabad Urban Development Authority (Supreme Court)
Date-19th October 2022

Sub-What is the meaning of the Object of General Public Utility(GPU) in Section 2(15) of the Income-tax Act,1961 and when that object of GPU gets converted into trade, commerce or business so as to attract the limits laid down in the said Section for being covered as a charitable purpose.

The three judges bench of Supreme Court in this case was dealing with more than 100 SLPs where not only Housing Boards, but Trade associations, Sports Association, Institute of Chartered Accountants of India and stock exchanges etc were before the Court in relation to the interpretation of the proviso to Section 2(15) of the Income-tax Act,1961 and answer to the question as to whether they were involved in object of GPU and it so, whether they were carrying on any trade, commerce and business. The court while noting the entire history of charitable enactments since early 1900, threadbare dealt with the decisions in case the Indian Chamber of Commerce ,Andhra Chamber of Commerce, Surat Art Silk Mills(where predominant object test was applied) , Thanti Trust and the law in this regard including the provisions of Section 11(4) and 11(4A) and the distinction between these two sections. The court also interpreted the relevance of circulars, FM speech in the parliament as far as interpretation of an enactment was concerned. Finally the court held that Section 2(15) after its amendment in 2008 and as it stands today, is that firstly a GPU charity 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.). Moreover, rendition of service or providing any article or goods, by such boards, authority, corporation, etc., 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. On these basis, Statutory Corporations, Boards, authorities, trusts, statutory regulatory bodies like ICAI were held be be engaged in object of general public utility (ICAI in relation to other activities carried on by it in addition to education). While holding so the court laid down the primary test, that the consideration which is being charged is nominal and marginal above cost or not and to be the decisive factor in determining.

This judgement will have far reaching implications for the entire world of Charity and this judgement coupled with the earlier judgement in the case of New Noble Education will definitely lead to threadbare churning of the law by the Revenue.

Ramesh Patodia
20-10-2022