As per Section 2(15) of the Income Tax Act 1961
“Charitable purpose” includes
- relief of the poor,
- medical relief,
- preservation of environment (including watersheds, forests 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, 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;
Analysis of the section 2(15):
- This proviso is applicable only for “Advancement of any other object of general public utility”.
- Hence this proviso is not applicable for first six limbs of section 2(15) i.e. relief of the poor, education, yoga, medical relief, preservation of environment (including watersheds, forests and wildlife) and preservation of monuments or places or objects of artistic or historic interest. So, it will constitute ‘charitable purpose’ even if it incidentally involves the carrying on the commercial activities like charging fees from school/college and charging fees from patients on commercial basis.
- The above section implies that if charitable activity is carried out for advancement of general public utility and during the course of such advancement if any activity in the nature of trade, commerce or business is carried out then such receipts should not exceed 20% of total receipts.
- A purpose must, in order to be charitable, be directed to the benefit of the community or a section of the community, as distinguished from an individual or a group of individuals.
Where the primary purpose of the settler is to benefit the members of his family and relations and only remotely and indirectly the general public, the trust is not a charitable trust.
It has been held that a charitable purpose’ includes a ‘religious purpose’. Thus, the words ‘trust for charitable purposes’ would include even trust for advancement of religion.