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It is a settled law that the first proviso to Section 2(15) of the Income Tax Act, 1961 does not exclude entities which are for charitable purpose but are conducting some activities for a consideration or a fee. The object of introducing first proviso is to exclude organizations which are carrying on business with profit motive with intent to distribute the profit to the shareholders/owners and the same was upheld by High Court of Delhi through the learned bench led by Justice Manmohan in the case of COMMISSIONER OF INCOME TAX (EXEMPTIONS) DELHI vs. SERVANTS OF PEOPLE SOCIETY [ITA 26/2022] on 11.02.2022.

The facts of the case are that the assesse is a charitable institution. The assessee is carrying the mandate of the Will of Late Shri Gopa Bandhu Dass in running the printing press and the newspaper. The income so generated is used for charitable purposes and apparently there is no profit motive in the activities of the assesse. Therefore, the assessee is not involved in any trade, commerce or business and as such the mischief of the Proviso of section 2(15) is not apparently attracted.

Present appeals have been filed challenging the order whereby the appeals filed by appellant were dismissed on grounds that the income earned by commercial activity is charitable because of the application of the said income was for the charitable-object of the society.

The appellant’s counsel stated that the Tribunal erred in allowing benefit of exemption under Section 11 of the Income Tax Act, 1961 and in treating the assessee as a charitable institution even when the activities of the assessee fell under the last limb of Section 2(15) of the Act. It was further submitted that the activities carried out by the assessee yielded income/profit to the society and were commercial in nature.

Since, the profit so generated by assessee company is used for charitable purposes and apparently there is no profit motive in the activities of the assessee, the Court held that it cannot be said that the assessee is involved in any trade, commerce or business. Consequently, the mischief of proviso to Section 2(15) of the Act is not attracted

The Court observed that “It is a settled law that the first proviso to Section 2(15) of the Act does not exclude entities which are for charitable purpose but are conducting some activities for a consideration or a fee. The object of introducing first proviso is to exclude organizations which are carrying on business with profit motive with intent to distribute the profit to the shareholders/owners.” It was further held by the Court that in a case where from a given set of circumstances two inferences of fact are possible, the one drawn by the lower appellate court will not be interfered by the High Court in second appeal. Adopting any other approach is not permissible. Under Section 100 of the Code of Civil Procedure the jurisdiction of the High Court to interfere with the orders passed by the Courts below is confined to hearing on substantial question of law.

Click here to read the Judgment

Judgment reviewed by – Shristi Suman