Category Archives: Exemptions

Charity and

It is a common notion that a charitable trust cannot make profits. In fact it is all the more necessary that every charitable organization must have its own means of making some profits to self sustain itself. Such income may even come from running a business activity too.

The Supreme Court in Additional Commissioner of Income-tax Vs. Surat Art Silk Cloth Manufacturers Association (121ITR1) held that where the purpose of a trust or institution is relief of the poor, education or medical relief, the requirement of the definition of “charitable purpose” would be fully satisfied, even if an activity for profit is carried on in the course of the actual carrying out of the primary purpose of the trust or institution. So long as the purpose does not involve the carrying on of any activity for profit, the requirement of the definition would be met and it is immaterial how the monies for achieving or implementing such purpose are found, whether by carrying on an activity for profit or not.

The Apex Court in Thiagarajar Charities v. Additional CIT (245ITR1010) on a practical count held that it would indeed be difficult for persons in charge of a trust or institution to so carry on the activity, that the expenditure balances the income and there is no resulting profit. That would not only be difficult of practical realisation, but would also reflect unsound principles of management. If the profits must necessarily feed a charitable purpose under the terms of the trust, the mere fact that the activities of the trust yield profit, will not alter the charitable character of the trust. The test now is, more clearly than in the past, the genuineness of the purpose, tested by the obligation created to spend the money exclusively or essentially on charity. The restrictive condition that the purpose should not involve the carrying on of any activity for profit would be satisfied, if profit making were not the real object.

In Commissioner of Income-tax v. Samyuktha Gowda Saraswatha Sabha (245ITR242) a charitable trust earning income by letting out property as marriage hall is held entitled to exemption. The Madras High Court too in Commissioner of Income-tax v. Nahata Charitable Trust (2002) 125TAX190/246ITR450 allowed exemption to a trust viz a viz transaction for agreement for distribution rights of film. In yet another instance a trust running business of ginning factory and coolly receipts from decortication of groundnut seeds was held entitled to exemption by Madras High Court in Commissioner of Income-tax v. Virudhunagar Hindu Nadars Abiviruthi Panchukadai Mahamai (219ITR303). Similarly income from conducting trade fare, rent for space allotted and sale of entry and gate tickets, agricultural fair and