Charitable purposes under the Income-tax Act

It is defined under section 2(15) of the Income-tax Act. By Finance Act 2008, a proviso is added and now the section stands as under:-

(15) charitable purpose includes relief of the poor, education, medical relief, 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;

Now a recent circular has been issued by TPL, CBDT which elucidates the amendment. It clarifies the proviso. The effect of the proviso is that even though the commercial activity is incidental to the attainment of object of general public utility, still it won’t be charitable purpose.

However, if the commercial activity is incidental to relief of poor, education or medical relief, it will have no effect and they will continue to be treated as charitable one. So, key line is that the earlier three are treated as sacrosanct and the business activity will have no effect on their charitable character whereas for any other object of general public utility the new criterion is inserted. It must be free from any sort of commercial activity.

Thus, this new amendment will render many hitherto charitable institutions lose their exemption either under section 10(23C) or under section 11 and thus leading to enhancement of revenue.

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