India Trade Promotion Organization v. Director General of Income-tax (Exemptions)
[Citation -2015-LL-0122]

Citation 2015-LL-0122
Appellant Name India Trade Promotion Organization
Respondent Name Director General of Income-tax (Exemptions)
Court HIGH COURT OF DELHI AT NEW DELHI
Relevant Act Income-tax
Date of Order 22/01/2015
Judgment View Judgment
Keyword Tags reopening of an assessment • rectification application • withdrawal of exemption • general public utility • charitable activities • intellectual property • condition precedent • ancillary activity • predominant object • capital expenses • mistake apparent • profit motive • rental income
Bot Summary: With a view to limiting the scope of the phrase'advancement of any other object of general public utility', it is proposed to amend section 2(15) so as to provide 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 of any service in relation to any trade, commerce or business, for a fee or cess or any other consideration, irrespective of the nature of use or application of the income from such activity, or the retention of such income, by the concerned entity. The Central Board of Direct Taxes will, following the usual practice, issue an explanatory circular containing guidelines for determining whether an entity is carrying on 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. The proviso applies only if an institution is engaged in advancement of any other object of general public utility and postulates that such an institute is not 'charitable' if it is involved in carrying on 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. An institution will not be regarded as established for charitable purpose/activity under the last limb, if cess, fee or consideration is received for carrying on any activity in nature of trade, commerce or business or for any activity of rendering of any service in relation to any trade, commerce or business, even if the consideration or the money received is used in furtherance of the charitable purposes/ activities. Even if the profits earned are used for charitable purposes, but fee, cess or consideration is charged by a person for carrying on any activity in the nature of trade, commerce or business or any activity of rendering of any service in addition to any trade, commerce or business, it would be covered under the proviso and the bar/prohibition will apply. In computing the total income of a previous year of any person, any income falling within any of the following clauses shall not be included-... any income received by any person on behalf of-... any other fund or institution established for charitable purposes which may be approved by the prescribed authority, having regard to the objects of the fund or institution and its importance throughout India or throughout any State or States; or... 2. The correct interpretation of the proviso to section 2(15) of the said Act would be that it carves out an exception from the charitable purpose of advancement of any other object of general public utility and that exception is limited to activities 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.


JUDGMENT judgment of court was delivered by Badar Durrez Ahmed J.-By way of this writ petition (as amended), petitioner seeks quashing of first proviso to section 2(15) of Income- tax Act, 1961 (hereinafter referred to as "the said Act"), as amended by Finance Act, 2008, on ground that it is arbitrary and unreasonable and has no rational nexus with object sought to be achieved and is thus violative of article 14 of Constitution of India. petitioner also seeks quashing of order dated January 23, 2013, which was passed by respondent under section 154 of said Act in connection with earlier order dated February 23, 2012, whereby exemption earlier granted under section 10(23C)(iv) of said Act had been withdrawn. petitioner also seeks writ of mandamus or any other appropriate writ, order or direction in nature of mandamus directing respondent to grant exemption to petitioner under section 10(23C)(iv) of said Act. On May 1, 2008, by Notification No. DGIT(E)/10(23C)(iv)/2008/143, approval had been granted under section 10(23C)(iv) of said Act to petitioner for assessment year 2007-08 onwards. During assessment proceedings for assessment year 2009-10, proposal for withdrawal of exemption was received from Assessing Officer through Director of Income-tax (Exemptions), Delhi, on December 21, 2011. proposal was moved for considering case for withdrawal of exemption on ground that main object of petitioner being advancement of objects of general public utility, proviso to section 2(15), which had been introduced with effect from April 1, 2009, was applicable. This led to order dated February 23, 2012, passed by respondent withdrawing exemption, which had earlier been granted under section 10(23C)(iv) from assessment year 2009-10 onwards. It is not disputed that petitioner was engaged in socially and economically desirable activities relating to promotion of Indian trade and that activities of petitioner fell within ambit of expression "the advancement of any other object of general public utility" as appearing in section 2(15) of said Act. But because of new proviso to section 2(15) petitioner's objects were not regarded as charitable purposes. It was observed in said order dated February 23, 2012, that petitioner, inter alia, had huge surpluses in banks, it had given its space for rent during trade fairs and exhibitions, it had received income by way of sale of tickets and income from food and beverage outlets in Pragati Maidan, etc. respondent, by virtue of said order dated February 23, 2012, held that even if petitioner's contention that it by itself was not involved in trade, commerce and business was accepted, it was definitely rendering service to large number of traders and industrialists in relation to trade, commerce and business and was, therefore, hit by expanded list of activities contained in proviso to section 2(15) of said Act. It was further observed that petitioner provides service of allotting space and other amenities like water, electricity and security, etc., to traders to conduct their exhibitions. respondent rejected petitioner's plea that its activities did not fall within ambit of trade, commerce and business as also contention that they did not fall within ambit of any activity of rendering any service in relation to trade, commerce or business. respondent held that even Central Board of Direct Taxes Circular No. 11 of 2008, dated December 19, 2008 (see [2009] 308 ITR (St.) 5), did not come to rescue of petitioner as it had been clearly noted in circular itself that each case has to be judged by facts peculiar to such case and no generalisation should be made by Assessing Officer. respondent concluded by holding that objects of petitioner being advancement of general public utility, proviso to section 2(15) of said Act was clearly applicable and as petitioner was engaged in activities of trade, commerce and business and was engaged in activities of rendering services in relation to trade, commerce and business for consideration, it loses its status as public charitable institution. Consequently, respondent withdrew exemption earlier granted under section 10(23C)(iv) from assessment year 2009-10 and onwards. Being aggrieved by said order of withdrawal of exemption dated February 23, 2012, petitioner filed writ petition being WP(C.) No. 3142 of 2012 before this court. That writ petition was dismissed as withdrawn on May 23, 2012, with liberty that petitioner may file application under section 154 of said Act before respondent seeking rectification of mistakes, which, according to petitioner, had crept into order dated February 23, 2012, on account of factual inaccuracies. court, while dismissing writ petition and granting said liberty, also clarified that it had not expressed any opinion regarding maintainability of application under section 154 of said Act and that such application, if filed, would be examined and considered in accordance with law. Thereafter, petitioner filed rectification application under section 154 of said Act before respondent seeking rectification of alleged mistakes which were apparent on record, which resulted in order dated February 23, 2012. petitioner gave detailed explanation regarding nature of its activities. With regard to space rent, it was pointed out that in order to enable petitioner to fulfil its objectives, Union Cabinet in its meeting held on April 27, 1976, deemed it fit to allot Pragati Maidan Complex to petitioner, which was spread over area of 123.50 acres at nominal ground rent of Re 1 per annum for initial 5 years, which was subsequently revised to Rs. 6 lakhs (approximately) per annum and same ground rent continues till date. Central Government did not change market rate or commercial rate of premium land. It was pointed out that this special nature of Government lease, as compared to commercial rates that could have been charged by Government, had enabled petitioner to provide space for exhibitions, seminars, conferences and other trade promotion activities to various participants at economically viable rates. It is because of this that petitioner was generating surplus even after providing space to trade and industry at much lower rates than prevailing market rates. Furthermore, it was pointed out that although intent behind establishing petitioner as company under section 25 of Companies Act, 1956, was to apply its surplus in furtherance of its objectives, surplus generated by company over years got accumulated as petitioner could not undertake major infrastructural additions and improvements in Pragati Maidan Complex due to non- execution of lease deed in its name. This was condition precedent before which various Government authorities could approve renovation projects. It was further pointed out that lease deed in respect of Pragati Maidan Complex came to be executed in favour of petitioner only in March, 2011. There was, however, yet another impediment in undertaking renovation projects of Pragati Maidan Complex and that was requirement of change in land use in records of DDA to be formally notified. It was also pointed out that only recently, Government had issued directives to petitioners to construct state of art convention-cum-exhibition centre in Pragati Maidan in place of old infrastructure which was constructed about four (4) decades back. According to petitioner, corpus of funds available with petitioner may not be sufficient to meet cost of new project. As regards income from hoardings, petitioner submitted that such income depicted in income and expenditure statement had different connotation than what was commonly understood where hoardings are put up on roadsides for advertisement purposes. It was pointed out that, in case of petitioner, large sized banners/boards are temporarily put up by participants/organisers at gates of Pragati Maidan Complex and/or within Pragati Maidan Complex to attract attention of visitors about events as well as to serve as directional guides for events organised in Pragati Maidan. As regards sale of publications, it was pointed out that petitioner publishes "fair guide" for each trade fair/exhibition and these guides contain names, product profiles and stall numbers of participating companies for guidance of visitors and receipts generated therefrom is treated under head "Sale of Publications". income received on this account is only few lakhs of rupees each year. It was contended that receipt of this amount on account of sale of guides is not in nature of profit and is merely incidental to achieving main object of petitioner, which is promotion of trade through medium of trade fairs and exhibitions. On aspect of income derived from sale of tickets, petitioner pointed out that sale of tickets is not done to earn profit but only for purposes of controlling number of people who visit trade fair. It was also clarified that no entry fee is charged from visitors for majority of fairs organised by petitioner. main component of revenue from sale of entry tickets pertains to annual event of India International Trade Fair organised in Pragati Maidan in November. It was further pointed out by petitioner that even for this event, intention behind charging entry fee was not to earn profit but same was charged only from crowd management point of view and to restrict number of visitors to Pragati Maidan. It was also pointed out by petitioner that this fact was further corroborated from directives received from Commissioner of Police by his letters dated September 3, 2008, and August 24, 2009, requesting petitioner to restrict number of visitors to Pragati Maidan to one lakh visitors per day. With regard to income from alleged long-term agreements with food and beverage outlets, petitioner clarified that it is worldwide practice to have food and beverage outlets within exhibition complex so that visitors do not have to leave exhibition ground for this purpose. With this objective of providing quality food and beverage facilities to trade fair visitors, petitioner had to per force allot food and beverage outlets on long-term basis to operators as they invest substantial amounts in setting up, maintaining and carrying out operations as and when required. petitioner pointed out that it was not practicable to have ad hoc arrangements with food and beverages outlets. It was, therefore, necessary to enter into long-term agreements with allottees of these outlets. petitioner submitted that objective of these food and beverage outlets must not be lost sight of and should be seen as incidental to carrying out main activity of organising trade fairs and exhibitions for achieving object of trade promotions. It was contended that respondent was, therefore, unjustified to construe object of having food and beverage outlets as being driven by commercial and business objectives. It was also pointed out that respondent, in its order dated February 23, 2012, had not taken into account fact that petitioner was Government of India undertaking incorporated under section 25 of Companies Act, 1956, in accordance with decision of Cabinet. petitioner functions under administrative control of Department of Commerce under Ministry of Commerce and Industries and all fairs of petitioner are held by Government of India or its nominees. affairs of petitioner are managed by board of directors headed by chairman and managing directors by board of directors headed by chairman and managing directors nominated by Government of India on rotation basis from pool of senior officers from Civil Services. This ensures that functions of petitioner are managed in accordance with rules and regulations and in consonance with object for which petitioner was constituted. accounts of petitioner are also subject to various audits-internal audit, statutory audit and audit by Comptroller and Auditor General of India to ensure compliance with all statutory requirements. It was, therefore, submitted by petitioner that there could be no denying that petitioner was neither constituted nor was it permitted to indulge in any commercial activity with profit motive. It was submitted that contentions of petitioner were rejected by respondent in order dated February 23, 2012, without ascribing any reasons and, therefore, said order needed to be rectified. However, all these submissions of petitioner, which were made by it in its section 154 application, were rejected and respondent passed impugned order dated January 23, 2013, by holding that exemption granted earlier under section 10(23C)(iv) by notification dated May 1, 2008, had been correctly withdrawn by order dated February 23, 2012, from assessment year 2009-10 and onwards. respondent held that if objects of petitioner were advancement of objects of general public utility, proviso to section 2(15) of said Act was clearly applicable to petitioner. Consequently, respondent rejected petitioner's application under section 154 of Income-tax Act, 1961, both on point of rectification and also on merits. In impugned order dated January 23, 2013, respondent observed as under: "If private operator charges rent from letting out its land for trade exhibitions and collects money from sale of tickets, advertisement, etc., its trading receipts are subjected to tax. Similar treatment has to be given to public sector undertaking because Income-tax Act does not discriminate between activities of private and public entity so far as commercial taxable activities are concerned. claim of applicant that its charges are much lesser than market rate cannot benefit applicant organisation keeping in view of facts that applicant organisation was earning huge surplus which clearly indicates conscious and full scale commercial exploitation of property at Pragati Maidan which is in possession of applicant organisation. huge surplus generated from year to year does not indicate that surplus has been earned casually or accidentally. There is conscious planning and policy decision to earn such huge revenue. Therefore, there is no mistake apparent on records with regard to applicability of proviso to section 2(15) of Income-tax Act. Accordingly, application under section 154 of Income-tax Act, 1961, on issue of proviso to section 2(15) of Income-tax Act, 1961, is not maintainable, hence rejected." respondent, in his order dated January 23, 2013, also held on merits as under: "In view of fact that providing of space on rent to traders by applicant organisation facilitates these traders to explore various opportunities of expanding their business, proviso to section 2(15) of Income-tax Act, 1961, comes into operation. Thus, applicant's activity assists traders/exhibitors to explore various opportunities of expanding their business and is'in relation to any trade, commerce or business' and, therefore, its activity cannot be held to be a'charitable purpose'." respondent also took support from decision of Kerala High Court in case of Infoparks Kerala v. Deputy CIT [2010] 329 ITR 404 (Ker). Reliance was also placed by respondent on decision of High Court of Andhra Pradesh in case of Andhra Pradesh State Seed Certification Agency v. Chief CIT [2013] 356 ITR 360 (AP); [2013] 256 CTR 380 (AP). Being aggrieved by said impugned order dated January 23, 2013, petitioner is before us by way of present writ petition. Mr Syali, learned senior counsel, appearing for petitioner, drew our attention to note for Cabinet prepared by Secretary, Foreign Trade with regard to creation of petitioner as company under section 25 of Companies Act, 1956. From said note, it is, inter alia, evident that prior to formation of petitioner, work of exhibitions and commercial business of Government was distributed between following three organisations: (a) India International Trade Fair Organisation (IITFO)-a wing of Ministry of Commerce; (b) Indian Council of Trade Fairs and Exhibitions-a registered society (ICTFE); and (c) Directorate of Exhibitions and Commercial Publicity-a wing of Commerce Ministry. All these three organisations were merged into petitioner company. Our attention was next drawn to Notes on Clauses in respect of Finance Bill, 2008, and, in particular, with regard to clause (15) of section 2 which was to following effect (see [2008] 298 ITR (St.) 142, 146): "Clause (15) of said section defines'charitable purpose' to include relief of poor, education, medical relief, and advancement of any other object of general public utility. It is proposed to amend said clause by inserting proviso thereto so as to exclude from'advancement of any other object of general public utility'- (i) any activity in nature of trade, commerce or business, or (ii) any activity of rendering any service in relation to any trade, commerce or business, for cess or fee or any other consideration, irrespective of nature of use or application, or retention, of income from any such activity. This amendment will take effect from 1st April, 2009, and will, accordingly, apply in relation to assessment year 2009-10 and subsequent assessment years." Furthermore, in Memorandum Regarding Delegated LegislationRationalisation and Simplification Measures, it has been noted as under (page 200 of 298 ITR (St.)): "Streamlining definition of'charitable purpose' Section 2(15) of Act defines'charitable purpose' to include relief of poor, education, medical relief, and advancement of any other object of general public utility. It has been noticed that number of entities operating on commercial lines are claiming exemption on their income either under section 10(23C) or section 11 of Act on ground that they are charitable institutions. This is based on argument that they are engaged in the'advancement of object of general public utility' as is included in fourth limb of current definition of'charitable purpose'. Such claim, when made in respect of activity carried out on commercial lines, is contrary to intention of provision. With view to limiting scope of phrase'advancement of any other object of general public utility', it is proposed to amend section 2(15) so as to provide that'the advancement of any other object of general public utility' shall not be charitable purpose if it involves carrying on of- (a) any activity in nature of trade, commerce or business; or (b) any activity of rendering of any service in relation to any trade, commerce or business, for fee or cess or any other consideration, irrespective of nature of use or application of income from such activity, or retention of such income, by concerned entity. This amendment will take effect from 1st day of April, 2009, and will, accordingly, apply in relation to assessment year 2009-10 and subsequent assessment years." reference was also made to following extract from Speech of Minister of Finance on February 29, 2008 (see page 65 of 298 ITR (St.)): "180'Charitable purpose' includes relief of poor, education, medical relief and any other object of general public utility. These activities are tax exempt, as they should be. However, some entities carrying on regular trade, commerce or business or providing services in relation to any trade commerce or business and earning income have sought to claim that their purpose would also fall under'charitable purpose'. Obviously, this was not intention of Parliament and, hence, I propose to amend law to exclude aforesaid cases. Genuine charitable organisations will not in any way be affected." Our attention was also drawn to following extract from reply of Finance Minister to Debate in Lok Sabha on Finance Bill, 2008: "6. Clause 3 of Finance Bill, 2008, seeks to amend definition of'charitable purpose' so as to exclude any activity in nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business, for cess or fee or any other consideration, irrespective of nature or use of application, or retention, of income from such activity. intention is to limit benefit to entities which are engaged in activities such as relief of poor, education, medical relief and any other genuine charitable purpose, and to deny it to purely commercial and business entities which wear mask of charity. number of Honourable Members have written to me expressing their concern on possible impact of proposal on Agricultural Produce Market Committees (APMC) or State Agricultural Marketing Boards (SAMB). Since there is no intention to tax such committees or boards, and in order to remove any doubts, I propose to insert new clause (26AAB) in section 10 of Income-tax Act to provide exemption to any income of APMC or SAMB constituted under any law for time being in force for purpose of regulating marketing of agricultural produce. I once again assure House that genuine charitable organisations will not in any way be affected. Central Board of Direct Taxes will, following usual practice, issue explanatory circular containing guidelines for determining whether entity is carrying on any activity in nature of trade, commerce or business or any activity of rendering any service in relation to any trade, commerce or business. Whether purpose is charitable purpose will depend on totality of facts of case. Ordinarily, Chambers of Commerce and similar organisations rendering services to their members would not be affected by amendment and their activities would continue to be regarded as'advancement of any other object of general public utility'." (underlining added) In context of above, it was submitted by Mr. Syali that object of introduction of proviso to clause (15) of section 2 of said Act was to deny benefit of Income-tax Act exemption to "purely" commercial and business entities which wear mask of charity. Genuine charitable organisations were not to be affected in any way. Mr. Syali submitted that while this was object, which is clearly discernible from Speech of Finance Minister, proviso to section 2(15) of said Act hits even genuine charitable organisations, such as petitioner. He submitted that unequals have been treated in like manner. unequals being purely commercial entities on one hand and charitable organisations on other. Since both these entities have been treated in like fashion, discrimination is writ large on proviso to section 2(15) of said Act. Mr. Syali made reference to Supreme Court decision in case of Venkateshwara Theatre v. State of Andhra Pradesh [1993] 3 SCC 677. relevant passages of said decision are as under: "20. Article 14 enjoins State not to deny to any person equality before law or equal protection of laws. phrase'equality before law' contains declaration of equality of civil rights of all persons within territories of India. It is basic principle of republicanism. phrase'equal protection of laws' is adopted from Fourteenth Amendment to U. S. Constitution. right conferred by article 14 postulates that all persons similarly circumstances shall be treated alike both in privileges conferred and liabilities imposed. Since State, in exercise of its governmental power, has, of necessity, to make laws operating differently on different groups of persons within its territory to attain particular ends in giving effect to its policies, it is recognised that State must possess power of distinguishing and classifying persons or things to be subjected to such laws. It is, however, required that classification must satisfy two conditions, namely, (i) it is founded on intelligible differential which distinguishes those that are grouped together from others; and (ii) differential must have rational relation to object sought to be achieved by Act. It is not requirement that classification should be scientifically perfect of logically complete. Classification would be justified if it is not palpably arbitrary (See Special Courts Bill, 1978, In re [1979] 2 SCR 476). If there is equality and uniformity within each group, law will not be condemned as discriminative, though due to some fortuitous law will not be condemned as discriminative, though due to some fortuitous circumstance arising out of peculiar situation some included in class get advantage over others, so long as they are not singled out for special treatment (See Khandige Sham Bhat v. Agrl. ITO [1963] 48 ITR (SC) 21; [1963] 3 SCR 809). 21. Since in present case we are dealing with taxation measure it is necessary to point out that in field of taxation decisions of this court have permitted Legislature to exercise extremely wide discretion in classifying items for tax purposes, so long as it refrains from clear and hostile discrimination against particular persons or classes (See East India Tobacco Co. v. State of A. P. [1962] 13 STC 529; [1963] 1 SCR 404, P. M. Ashwathanarayana Setty v. State of Karnataka [1989] (Supp 1) SCC 696, Federation of Hotel and Restaurant Association of India v. Union of India [1989] 178 ITR 97 (SC); [1989] 74 STC 102 (SC); [1989] 3 SCC 634, Kerala Hotel and Restaurant Association v. State of Kerala [1990] 77 STC 253 (SC) ; [1990] 1 SCR 516 and Gannon Dunkerley and Co. v. State of Rajasthan [1993] 88 STC 204 (SC); [1993] 1 SCC 364)... 23. Just as difference in treatment of persons similarly situate leads to discrimination, so also discrimination can arise if persons who are unequals, i.e., differently placed, are treated similarly. In such case failure on part of Legislature to classify persons who are dissimilar in separate categories and applying same law, irrespective of differences, brings about same consequence as in case where law makes distinction between persons who are similarly placed. law providing for equal treatment of unequal objects, transactions or persons would be condemned as discriminatory if there is absence of rational relation to object intended to be achieved by law. 24. In K. T. Moopil Nair v. State of Kerala [1961] 3 SCR 77; AIR 1961 SC 552, this court was dealing with law providing for imposition of uniform land tax at flat rate without having regard to quality of land or its productive capacity. law was held to be violative of article 14 of Constitution on ground that lack of classification had created inequality. 25. said decision in K. T. Moopil Nair's case (supra) has been explained by this court in Jalan Trading Co. (Pvt.) Ltd. v. Mill Mazdoor Union [1967] AIR 1967 SC 691; [1966] 2 LLJ 546, in context of challenge to validity of section 10 of Payment of Bonus Act, 1965, providing for payment of minimum bonus of 4 per cent. by all industrial establishments irrespective of fact whether they were making profit. This court held that judgment in Moopil Nair's case (supra) has not enunciated any broad proposition that when persons or objects which are unequals are treated in same manner and are subjected to same burden or liability discrimination inevitably results. It was observed: 'It was not said by court in that case that imposition of uniform liability upon persons, objects or transactions which are unequal must of necessity lead to discrimination. Ordinarily it may be predicated of unproductive agricultural land that it is incapable of being put to profitable agricultural use at any time. But that cannot be so predicated of industrial establishment which has suffered loss in accounting year, or even over several years successively. Such establishment may suffer loss in one year and make profit in another.' 26. It was further observed: 'Equal treatment of unequal objects, transactions or persons is not liable to be struck down as discriminatory unless there is simultaneously absence of rational relation to object intended to be achieved by law.' 27. limitations of application of principle that discrimination would result if unequals are treated as equal, in field of taxation, have been pointed out by this court in Twyford Tea Co. Ltd. v. State of Kerala [1970] 3 SCR 383, wherein tax at uniform rate was imposed on plantations. Hidayatullah C. J., speaking for majority, while upholding tax, has observed: '... It may also be conceded that uniform tax falls more heavily on some plantations than on others because profits are widely discrepant. But does that involve discrimination? If answer be in affirmative hardly any tax direct or indirect would escape same censure for taxes touch purses of different lengths and very uniformity of tax and its equal treatment would become its undoing. rich and poor pay same taxes irrespective of their incomes in many instances such as sales tax and profession tax, etc.' 28. It was further observed: 'The burden is on person complaining of discrimination. burden is proving not possible'inequality' but hostile'unequal' treatment. This is more so when uniform taxes are levied. It is not proved to us how different plantations can be said to be hostilely or unequally treated. uniform wheel tax on cars does not take into account value of car, mileage it runs, or in case of taxis, profits it makes and miles per gallon it delivers. A_mbassador taxi and fiat taxi give different outturns in terms of money and mileage. Cinemas pay same show fee. We do not take doctrinaire view of equality.'" Mr. Syali pointed out that, in present case, not only is there discrimination because unequals have been treated in same manner but there is hostile discrimination in so far as petitioner is concerned as it has resulted in loss of charitable status of petitioner for all times to come. Therefore, according to Mr Syali, proviso to section 2(15) of said Act is hit by principle of equality enshrined in article 14 of Constitution of India. Mr Syali further emphasised that reliance placed by respondents in impugned order dated January 23, 2013 on decision of Kerala High Court in Infoparks Kerala (supra) was misplaced. In that case, there was no challenge to proviso to section 2(15) of said Act and, therefore, decision of Kerala High Court does not at all come in way of petitioner. Similarly, in Andhra Pradesh State Seed Certification Agency (supra) also there was no challenge to proviso to section 2(15) of said Act. As such, it was contended that this decision would also be of no help to Revenue. Mr Syali submitted that decision of Kerala High Court in Infoparks (supra) and of Andhra Pradesh High Court in Andhra Pradesh State Seed Certification Agency (supra) followed literal interpretation of proviso to section 2(15) of said Act. He submitted that they did so because Constitutional validity of proviso was not questioned before them. He further submitted that, in any event, this court in several decisions did not adopt literal interpretation. decisions being: (1) Institute of Chartered Accountants of India v. Director General of Income-tax (Exemptions) [2012] 347 ITR 99 (Delhi); (2) Bureau of Indian Standards v. Director General of Income-tax (Exemptions) [2013] 358 ITR 78 (Delhi); [2013] 212 Taxman 210 (Delhi); (3) Institute of Chartered Accountants of India v. DGIT (Exemptions) W. P. (C) No. 3147 of 2112, decided on July 4, 2013- [2013] 358 ITR 91 (Delhi)) (4) GS1 India v. Director General of Income-tax (Exemption) W. P. (C.) No. 7797 of 2009, decided on September 26, 2013 ([2013] 219 Taxman 205; [2014] 360 ITR 138 (Delhi)). He submitted that this court, while rendering above decisions, was conscious of wide net that literal meaning of proviso would cast and, therefore, held that this could not be in consonance with object sought to be achieved. It was submitted that petitioner, in any event, apart from challenge to Constitutional validity, deserves relief on anvil of said four decisions of this court by taking "dominant object/activity" as relevant criteria. It was further contended that taxation law was not immune to principle enshrined in article 14 of Constitution which strikes at arbitrariness in any form. reference was made to decision of Supreme Court in E. P. Royappa v. State of Tamil Nadu [1974] 4 SCC 3, wherein Supreme Court observed as under: "85. last two grounds of challenge may be taken up together for consideration. Though we have formulated third ground of challenge as distinct and separate ground, it is really in substance and effect merely aspect of second ground based on violation of articles 14 and 16. Article 16 embodies fundamental guarantee that there shall be equality of opportunity for all citizens in matters relating to employment or appointment to any office under State. Though enacted as distinct and independent fundamental right because of its great importance as principle ensuring equality of opportunity in public employment which is so vital to building up of new classless egalitarian society envisaged in Constitution, article 16 is only instance of application of concept of equality enshrined in article 14. In other words, article 14 is genus while article 16 is species, article 16 gives effect to doctrine or equality in all matters relating to public employment. basic principle which, therefore, informs both articles 14 and 16 is equality and inhibition against discrimination. Now, what is content and reach of this great equalising principle? It is founding faith, to use words of Bose J.'a way of life', and it must not be subjected to narrow pedantic or lexicographic approach. We cannot countenance any attempt to truncate its all-embracing scope and meaning, for to do so would be to violate its activist magnitude. Equality is dynamic concept with many aspects and dimensions and it cannot be'cribbed, cabined and confined' within traditional and doctrinaire limits. From positivistic point of view, equality is antithetic to arbitrariness. In fact equality and arbitrariness are sworn enemies; one belongs to rule of law in republic while other, to whim and caprice of absolute monarch. Where act is arbitrary it is implicit in it that it is unequal both according to political logic and Constitutional law and is therefore violative of article 14, and if it affects any matter relating to public employment, it is also violative of article 16. Articles 14 and 16 strike at arbitrariness in State action and ensure fairness and equality of treatment. They require that State action must be based on valid relevant principles applicable alike to all similarly situate and it must not be guided by any extraneous or irrelevant considerations because that would be denial of equality. Where operative reason for State action, as distinguished from motive inducing from antechamber of mind, is not legitimate and relevant but is extraneous and outside area of permissible considerations, it would amount to mala fide exercise of power and that is hit by articles 14 and 16. Mala fide exercise of power and arbitrariness are different lethal radiations emanating from same vice: in fact latter comprehends former. Both are inhibited by articles 14 and 16." It was further contended that classification should be based on intelligible differentia that distinguishes persons or things that are grouped together from those left out of group. Moreover, such classification must have rational nexus with object sought to be achieved. If this is not done, then classification would be violative of article 14. Mr Syali reiterated, after referring to Budget Speech of Finance Minister as well as to reply of Finance Minister in debate in Lok Sabha with regard to Finance Bill, 2008, and Circular No. 11, dated December 19, 2008, that object behind introduction of proviso to section 2(15) was to debar and prevent entities operating "purely" on commercial lines and those masquerading as charitable. grouping of all entities, including those that are purely commercial and/or business entities and charitable organisations, which are not so, is in itself faulty grouping as unequals have been grouped together. While object is of debarring and preventing purely commercial or business entities from taking benefit of exemptions available to charitable organisations, effect is that even charitable organisations, which have objects of general public utility and are not purely business or commercial entities, are being denied benefit of exemption. By virtue of amendment, all pervasive legislation has been introduced, whereby benefit to genuine institutions carrying on charitable purposes of advancement of any other object of general public utility have also been denied benefit of exemption. In other words, those who masquerade or indulge in device or mask to hide their true commercial nature and purpose are classified or grouped together with entities which do not and, as such, this amounts to treatment of unequals as equals which is not permissible in law. Reliance was placed on Venkateshwara Theatre v. State of Andhra Pradesh [1993] 3 SCC 677, to which we have already referred above. It was further contended by Mr. Syali that though larger discretion is available in matters of taxation, this does not mean that go-by can be given to fundamental principles underlying doctrine of equality enshrined in article 14 of Constitution. rational classification based on intelligible differentia and having reasonable nexus with object is must. It was contended that in this case, grouping of unequals together is by no means rational and has no nexus with object and, therefore, same is hit by article 14 of Constitution of India. It was also contended by Mr. Syali that carrying on of business as such does not negate charity, at least in so far as object other than object of general public utility is concerned. dominant object is yet criteria and one that determines status of whether activity is charitable or not. Referring to Supreme Court decision in Addl. CIT v. Surat Art Silk Cloth Manufacturers Association [1980] 121 ITR 1 (SC), Mr. Syali submitted that it has been held that business and charity could co-exist provided former was subservient to latter. He finally contended that, in recent decision of this court in GS1 India (supra), issue has been dealt with threadbare and this court observed that profit motive is determinative and critical factor to discern whether activity is business, trade or commerce. It was further submitted that in said decision, this court held that antiquated definition of charity, which entailed only giving and receiving nothing in return, was outdated. court also observed that question whether legislative intent behind amendment was to exclude from definition of charitable purpose any activity, which has aim and object of providing services to trade, commerce or business, is not free from doubt. However, court observed that there are good reasons to hold that bar or prohibition was not with reference to activity of beneficiary, but activity of assessee under residuary clause. It is intended to exclude assessee who carries on business, trade or commerce to feed charitable activity under last limb. In view of above submissions, Mr Syali submitted that prayers sought in this writ petition are liable to be granted and ought to be granted. Ms. Suruchi Aggarwal, appearing for Revenue, referred to paragraph 12(d) of respondent's order dated February 23, 2012, and submitted that although petitioner was engaged in socially and economically desirable activities relating to promotion of Indian trade and, as such, was organisation involved in advancement of objects of general public utility, this does not make any difference in so far as application of proviso to section 2(15) of said Act is concerned. She submitted that amendment is reasonable inasmuch as second proviso has also been provided by virtue of Finance Act, 2010, with retrospective effect from April 1, 2009, which stipulates that first proviso would not apply if aggregate value of receipts from activities referred to in would not apply if aggregate value of receipts from activities referred to in first proviso was Rs. 25 lakhs or less in given previous year. According to her, provisions of first proviso cannot be considered to be arbitrary and unreasonable inasmuch as by introduction of second proviso with retrospective effect from April 1, 2009, smaller organisations have been exempted and this clearly entails that two provisos taken together operate in reasonable manner. She then referred to decision of Supreme Court in case of Arun Kumar v. Union of India [2006] 286 ITR 89 (SC); [2007] 1 SCC 732 in context of doctrine of "reading down" in order to sustain validity of proviso to section 2(15) of said Act. In Arun Kumar (supra), court held as under (page 112 of 286 ITR): "The doctrine of'reading down' is well-known in field of Constitutional Law. Colin Howard in his well- known work Australian Federal Constitutional Law states: 'Reading down puts into operation principle that so far as it is reasonably possible to do so, legislation should be construed as being within power. It has practical effect that where Act is expressed in language of generality which makes it capable, if read literally, of applying to matters beyond relevant legislative power, court will construe it in more limited sense so as to keep it within power.' As observed by this court in CST v. Radhakrishnan [1979] 43 STC 4 (SC); [1979] 2 SCC 249, in considering validity of statute presumption is always in favour of constitutionality and burden is upon person who attacks it to show that there has been transgression of constitutional principles. For sustaining constitutionality of Act, court may take into consideration matters of common knowledge, reports, preamble, history of times, object of legislation and all other facts which are relevant. It must always be presumed that Legislature understands and correctly appreciates need of its own people and that discrimination, if any, is based on adequate grounds and considerations. It is also well-settled that courts will be justified in giving liberal interpretation in order to avoid constitutional invalidity. provision conferring very wide and expansive powers on authority can be construed in conformity with legislative intent of exercise of power within constitutional limitations. Where statute is silent or is inarticulate, court would attempt to transmutation inarticulate and adopt construction which would lean towards constitutionality albeit without departing from material of which law is woven. These principles have given rise to rule of'reading down' provisions if it becomes necessary to uphold validity of law. In several cases, courts have invoked and applied doctrine of 'reading down' and upheld constitutional validity of Act... But it is equally well settled that if provision of law is explicitly clear, language unambiguous and interpretation leaves no room for more than one construction, it has to be read as it is. In that case, provision of law has to be tested on touchstone of relevant provisions of law or of Constitution and it is not open to court to invoke doctrine of'reading down' with view to save statute from declaring it ultra vires by carrying it to point of'perverting purposes of statute'." In Arun Kumar (supra), Supreme Court, while referring to its earlier decision Delhi Transport Corporation v. D.T.C. Mazdoor Congress [1991] (Supp 1) SCC 600, observed that in that case Supreme Court held that provision in question was ultra vires and unconstitutional and refused to apply doctrine of reading down. Supreme Court observed that as language of regulation in question was clear, unambiguous and explicit, it was not permissible for court to read down something not intended by regulations. court also observed that doctrine of reading down may be applied if statute is silent, ambiguous or allows more than one interpretation. But where it is express and clearly mandates to take certain actions, function of court is to interpret it plainly and declare it ultra vires without adding, altering or subtracting anything therefrom. Ms. Aggarwal further contended that present petitioner's case was not covered by Delhi High Court decisions in case of Institute of Chartered Accountants of India (supra), Bureau of Indian Standards (supra) and GS1 (supra). She referred to second part of proviso to section 2(15) to submit that petitioner was carrying on activity of renting of space, etc., which was activity of rendering service in relation to trade, commerce or business. Since it was charging rent for same, it is evident that activity carried out by petitioner could not be classified as charitable purpose. She further submitted that by virtue of proviso itself, it was irrelevant as to nature or use or application or retention of income derived from such activity. She submitted that there was quid pro quo and, therefore, what petitioner was doing was nothing but rendering service. She referred to Dalmia Cement (Bharat) Ltd. v. CIT [2013] 357 ITR 419 (Delhi) in context of meanings of words "cess" and "tax". She also referred to Devan Chand Builders and Contractors v. Union of India [2012] 1 SCC 101 in context of differentiating between "tax" and "fee". She further submitted that fee would necessarily involve service element. Ms. Aggarwal then referred to decision of Division Bench of this court in GS1 (supra) in some detail and attempted to interpret same as decision in favour of Revenue. She referred to Institute of Chartered Accountants (I) (supra) to emphasise that in finding out as to whether activity is in nature of trade, commerce or business, profit motive is not sole consideration. She also emphasised that reference to earlier decisions prior to introduction of proviso to section 2(15) of said Act for determining as to whether particular activity, which entails advancement of any other object of general public utility, can be termed as charitable purpose or not, would not be relevant at all. In particular, she submitted that no reliance could be placed on decision of Supreme Court in case of Surat Art Silk (supra) after introduction of first proviso to section 2(15) of said Act. She placed reliance on following observations of Division Bench in ICAI (I) (supra) (page 108 of 347 ITR): "As first proviso was introduced with effect from 1st April, 2009, scope and ambit of said proviso to section 2(15) of Act has to be examined and considered. Earlier orders under section 10(23C)(iv) are not relevant and are inconsequential, as they have not examined scope and ambit of first proviso. proviso applies only if institution is engaged in ambit of first proviso. proviso applies only if institution is engaged in advancement of any other object of general public utility and postulates that such institute is not 'charitable' if it is involved in carrying on any activity in nature of trade, commerce or business or any activity of rendering any service in relation to any trade, commerce or business. second part,'any activity of rendering any service in relation to any trade, commerce or business' obviously intends to expand scope of proviso to include services, which are rendered in relation to any trade, commerce or business. proviso further stipulates that activity must be for cess or fee or any other consideration. last part states that proviso will apply even if cess or fee or any other consideration is applied for charitable activity/purpose. proviso has to be given full effect to. Thus, even if cess, fee or consideration is used or utilized for charitable purposes, proviso and bar will apply. institution will not be regarded as established for charitable purpose/activity under last limb, if cess, fee or consideration is received for carrying on any activity in nature of trade, commerce or business or for any activity of rendering of any service in relation to any trade, commerce or business, even if consideration or money received is used in furtherance of charitable purposes/ activities. In view of first proviso, decisions that application of money/profit is relevant for determining whether or not person is carrying on charitable activity, are no longer relevant and apposite. Even if profits earned are used for charitable purposes, but fee, cess or consideration is charged by person for carrying on any activity in nature of trade, commerce or business or any activity of rendering of any service in addition to any trade, commerce or business, it would be covered under proviso and bar/prohibition will apply. Reliance placed by petitioners on Addl. CIT v. Surat Art Silk Cloth Manufacturers Association [1980] 121 ITR 1 (SC) may not be fully appropriate after introduction of first proviso as statutory requirements were then different. Utilisation of funds or income earned whether for charitable purpose or otherwise is not relevant now in view of first proviso and cannot be determining factor for deciding whether petitioner institute is covered by section 2(15) of Act. In said decision, it was held that primary or dominant purpose of trust or institution has to be examined to determine whether said trust/institution was involved in carrying out any activity for profit. If the'object' of trust or institution was to carry out object of general public utility and this was primary or dominant purpose and not carrying on any activity for profit, same would satisfy requirements of section 2(15) as it existed. It was immaterial whether members had benefitted from some of activities. aforesaid observations of Supreme Court in said case and other cases will be relevant only for determining and deciding question whether trust or institution is carrying on any business." Ms. Aggarwal then referred to ICAI (II) (supra) in attempt to show that same would not come in aid of petitioner. Ms. Aggarwal then submitted that proviso to section 2(15) should be construed as carving out exception to main proviso to which it has been enacted as proviso. For this proposition, she placed reliance on Division Bench of this court in Haryana Acrylic Manufacturing Co. v. CIT [2009] 308 ITR 38 (Delhi). She referred to following observations (page 55): "Let us now examine provisions of section 147 as applicable to present case. It has been pointed out above that present case, being case of reopening of assessment after four years (but before six years) from end of assessment year in question, would be governed by proviso to section 147. Before we examine proviso, it would be instructive to examine scope and function of proviso. In CIT v. Indo-Mercantile Bank Ltd. [1959] 36 ITR 1 (SC) ; [1959] Supp 2 SCR 256 Supreme Court held (page 7 of 36 ITR): 'The proper function of proviso is that it qualifies generality of main enactment by providing exception and taking out as it were, from main enactment, portion which, but for proviso would fall within main enactment. Ordinarily, it is foreign to proper function of proviso to read it as providing something by way of addendum or dealing with subject which is foreign to main enactment.'It is fundamental rule of construction that proviso must be considered with relation to principal matter to which it stands as proviso'. Therefore, it is to be construed harmoniously with main enactment. (Per Das C. J.) in Abdul Jabar Butt v. State of Jammu and Kashmir [1957] SCR 51, 59) Bhagwati J. in Ram Narain Sons Ltd. v. Asst. CST [1955] 2 SCR 483, 493; [1956] 6 STC 627, 635 said: SCR 483, 493; [1956] 6 STC 627, 635 said: 'It is cardinal rule of interpretation that proviso to particular provision of statute only embraces field which is covered by main provision. It carves out exception to main provision to which it has been enacted as proviso and to no other.' Lord Macmillan in Madras and Southern Maharatta Railway Co. v. Bezwada Municipality [1944] LR 71 IA 113, 122 laid down sphere of proviso as follows: 'The proper function of proviso is to except and deal with case which would otherwise fall within general language of main enactment, and its effect is confined to that case. Where, as in present case, language of main enactment is clear and unambiguous, proviso can have no repercussion on interpretation of main enactment, so as to exclude from it by implication what clearly falls within its express terms.' territory of proviso, therefore, is to carve out exception to main enactment and exclude something which otherwise would have been within section. It has to operate in same field and if language of main enactment is clear it cannot be used for purpose of interpreting main enactment or to exclude by implication what enactment clearly says unless words of proviso are such that that is its necessary effect (vide also Corporation of City of Toronto v. Attorney-General for Canada [1946] AC 32, 37.' In M. K. Ali v. State of Kerala [2003] 11 SCC 632, 637, Supreme Court made similar observations: 'The normal function of proviso is to except something out of enactment or to qualify something enacted therein which but for proviso would be within purview of enactment. As was stated in Mullins v. Treasurer of Survey [1880] 5 QB 170; 42 LT 128 (referred to in Shah Bhojraj Kuverji Oil Mills and Ginning Factory v. Subhash Chandra Yograj Singh, AIR 1961 SC 1596 and Calcutta Tramways Co. Ltd. v. Corporation of Calcutta, AIR 1965 SC 1728), when one finds proviso to section natural presumption is that, but for proviso, enacting part of section would have included subject matter of proviso. proper function of proviso is to except and to deal with case which would otherwise fall within general language of main enactment and its effect is confined to that case. It is qualification of preceding enactment which is expressed in terms too general to be quite accurate. As general rule, proviso is added to enactment to qualify or create exception to what is in enactment and ordinarily, proviso is not interpreted as stating general rule.'" Ms. Aggarwal then referred to Supreme Court decision in case of CIT v. Federation of Indian Chambers of Commerce and Industry [1981] 130 ITR 186 (SC); [1981] 3 SCC 156 and, in particular, to certain observations in paragraph 14 thereof. It was observed in said paragraph that "the doctrine of dominant or primary object must, as laid down in Surat Art Silk case, hold field till there is change in law". In this context, Ms. Aggarwal submitted that decision of Supreme Court in Surat Art Silk (supra) would no longer apply in view of change in law introduced by amendment to section 2(15), whereby proviso to section 2(15) of said Act was brought in. reference was also made to Calcutta High Court decision in case of Bengal National Chamber of Commerce and Industry v. CIT [1978] 111 ITR 514 (Cal). In that case, Division Bench of Calcutta High Court observed as under (page 524): "If we apply tests laid down by Mr. Justice Krishna Iyer to instant case, we find that trustees have acquired land, they have constructed house on land and portions of house have been let out by them. They derive rents regularly and 75 per cent. of rents after meeting various expenses are handed over to chamber for its objects of general public utility. On these facts, in view of Mr. Justice Krishna lyer's tests, it cannot be said that advancement of object of general public utility does not involve activity for profit." On basis of above observations, Ms. Aggarwal submitted that even though said decision was prior to introduction of proviso to section 2(15) of said Act, Calcutta High Court had held that because said trust derived rents regularly and 75 per cent. of rents, after meeting various expenses, were handed over to said chamber for its objects of general public utility, same could not be regarded as activity which did not involve activity for profit. Therefore, according to her, inasmuch as petitioner rents out space at Pragati Maidan, its activity would be activity involving profits and, therefore, would be covered as trade, commerce or business activity. Mr. Syali, in rejoinder, reiterated his submissions made in his opening arguments and emphasised once again that object behind introduction of proviso to section 2(15) of said Act was to catch hold of persons/entities who were disguising their trade, commerce and business activities as charity. object was not to deny beneficial provisions of Income-tax Act to genuine charities, whose incidental activities involved generation of income. He submitted that, in first instance, clubbing together of unequals-"purely business and commercial entities" and "charitable entities"-was violative of article 14 of Constitution of India. There is clear intelligible differentia between trading, commercial and business entities and charitable entities and one determinative factor being desire to make profits in former and lack of it in latter. object of introduction of proviso was to prevent such trading, commercial and business entities from masking their activities and taking advantage of exemption. object was not to deny exemption to genuine charities. It was contended that had intelligible differentia been applied, proviso may not have been ultra vires Constitution. But since that was not done and unequals were treated in equal fashion, article 14 has been violated and proviso, therefore, on literal interpretation would have to be struck down. In alternative, it was argued by Mr. Syali that, in any event, said proviso should be read down in such manner so as to exclude from its purview genuine charities which do not have profit making as dominant object. In either eventuality, Mr. Syali argued, impugned order would have to be set aside and petitioner would be entitled for issuance of writ of mandamus directing respondents to grant exemption to petitioner under section 10(23C)(iv) of said Act. Before we examine rival contentions, it would be necessary to set out provisions of said Act and Income-tax Rules 1962, to extent they are relevant. Section 10 reads as under: are relevant. Section 10 reads as under: "10. Incomes not included in total income.-In computing total income of previous year of any person, any income falling within any of following clauses shall not be included-... (23C) any income received by any person on behalf of-... (iv) any other fund or institution established for charitable purposes which may be approved by prescribed authority, having regard to objects of fund or institution and its importance throughout India or throughout any State or States; or..." "2. Definitions.-In this Act, unless context otherwise requires,-... (15)'charitable purpose' includes relief of poor, education, medical relief, preservation of environment (including watersheds, forests and wildlife) and preservation of monuments or places or objects of artistic or historic interest, and advancement of any other object of general public utility: Provided that advancement of any other object of general public utility shall not be charitable purpose, if it involves carrying on of any activity in nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business, for cess or fee or any other consideration, irrespective of nature of use or application, or retention, of income from such activity: Provided further that first proviso shall not apply if aggregate value of receipts from activities referred to therein is ten lakh rupees or less in previous year:" Rule 2C of Income-tax Rules, 1962: "2C. Guidelines for approval under sub-clauses (iv) and (v) of clause (23C) of section 10.-(1) prescribed authority under subclauses (iv) and (v) of clause (23C) of section 10 shall be Chief Commissioner or Director General, to whom application shall be made as provided in sub-rule (2). (2) application to be furnished under sub-clauses (iv) and (v) of clause (23C) of section 10 by fund, trust or institution shall be in Form No. 56. Explanation.-For purposes of this rule,'Chief Commissioner or Director General' means Chief Commissioner or Director General whom Central Board of Direct Taxes may, authorise to act as prescribed authority for purposes of sub-clause (iv) or sub-clause (v) of clause (23C) of section 10 in relation to any fund or trust or institution." It is evident from section 10(23C)(iv) of said Act that if any income is received by any person on behalf of any other fund or institution established for "charitable purposes", which may be approved by prescribed authority, having regard to objects of fund or institution and its importance throughout any State or States, such income shall not be included in total income. Therefore, what is necessary in first instance is to establish that income is received on behalf of fund or institution established for "charitable purposes". first thing that needs to be satisfied, therefore, is that institution must be established for "charitable purposes". Charitable purpose is defined in section 2(15), as indicated above. It is inclusive definition and includes relief of poor, education, medical relief, advancement of any other object of general public utility and "preservation of environment (including watersheds, forests and wildlife) and preservation of monuments or places or objects of artistic or historic interest". In so far as present case is concerned, we are concerned only with advancement of any other object of general public utility, which has been regarded as residuary object. Rule 2C specifies "prescribed authority" as Chief Commissioner or Director General to whom application is to be furnished under section 10(23C)(iv) or (v) by fund, trust or institution. form of application has been specified as Form No. 56. Once such application is made, prescribed authority (in this case, Director General of Income-tax (Exemptions)) has to determine eligibility for granting approval to institution for purposes of exemption stipulated in section 10(23C)(iv). We have noted that prior to introduction of proviso to section 2(15) of said Act, Director General of Income-tax (Exemptions) had, in fact, granted such exemption on May 1, 2008. But, subsequently, from assessment year 2009-10 onwards, by virtue of order dated February 23, 2012, exemption earlier granted was withdrawn. said withdrawal of 2012, exemption earlier granted was withdrawn. said withdrawal of exemption was confirmed by impugned order dated January 23, 2013, passed under section 154 of said Act by respondent. From this, it is clear that prior to introduction of proviso to section 2(15) of said Act, there was no dispute that petitioner was established for charitable purposes and, therefore, its income was not to be included in total income and was, therefore, granted benefit of exemption. We have already noted above, while discussing facts of case that income received by petitioner is from letting out of space, sale of publications, sale of tickets and leasing out food and beverages outlets in Pragati Maidan. dominant and main object of petitioner is to organise trade fairs/exhibitions in order to promote trade, commerce and business not only within India but internationally. This is done through organisation of trade fairs, including annual International trade fair and other exhibitions. It is for this purpose that space is let out to various entities during said fairs and exhibitions. All these activities, including sale of tickets and sale of publications are inherent part of main object of petitioner. It is clear from facts of case that profit making is not driving force or objective of petitioner. It is registered under section 25 of Companies Act, 1956, which specifically applies to entities which intend to apply their profits, if any, or other income in promoting their objects and prohibits, payment of any dividend to its members. This makes it clear that any income generated by petitioner does not find its way into pockets of any individuals or entities. It is to be utilised fully for purposes of objects of petitioner. It is admitted position that had proviso not been introduced by virtue of Finance Act, 2008, with effect from April 1, 2009, petitioner would have been recognised as charity and would have been recognised as institution established for charitable purpose of advancement of object of general public utility. difficulty that has arisen for petitioner is because of introduction of proviso to section 2(15). said proviso has two parts. first part has reference to carrying on of any activity in nature of trade, commerce or business. second part has reference to any activity of rendering any service "in relation to" any trade, commerce or business. Both these parts are further subject to condition that activities so carried out are for cess or fee or any other consideration, irrespective of nature or use or application or retention of income from such activities. In other words, if, by virtue of "cess" or "fee" or any other consideration, income is generated by any of two sets of activities, referred to above, nature of use of such income or application or retention of such income is irrelevant for purposes of construing activities as charitable or not. To be clear, if activity in nature of trade, commerce or business is carried on and it generates income, fact that such income is applied for charitable purposes, would not make any difference and activity would none less not be regarded as being carried on for charitable purpose. We have seen that by virtue of section 25 of Companies Act, petitioner is enjoined to plough back its income in furtherance of its object and declaration of dividends is prohibited. If literal interpretation is to be given to proviso, then it may be concluded that this fact would have no bearing on determining nature of activity carried on by petitioner. But we feel that in deciding whether any activity is in nature of trade, commerce or business, it has to be examined whether there is element of profit making or not. Similarly, while considering whether any activity is one of rendering any service in relation to any trade, commerce or business, element of profit making is also very important. At this juncture, we may point out that we are in agreement with argument advanced by Mr. Syali that proviso to section 2(15) does not make any distinction between entities carrying on regular trade, commerce or business or providing services in relation to any trade, commerce or business on one hand and genuine charitable organisations on other. It must be remembered that we are construing expression "charitable purpose" not in vacuum but in specific context of section 10(23C)(iv) of said Act. As pointed out above, section 10 deals with incomes not included in total income. And, section 10(23C)(iv) specifically deals with income received by any person on behalf of, inter alia, institution established for charitable purposes. We have to, therefore, examine meaning of expression "charitable purposes" in context of section 10(23C)(iv). Looking at said expression from this stand point, it becomes clear that it has reference to income. Because it is only when point, it becomes clear that it has reference to income. Because it is only when such institution has income that question of not including that income in its total income would arise. Therefore, merely because institution, which otherwise is established for charitable purpose, receives income would not make it any less charitable institution. Whether that institution, which is established for charitable purposes, will get exemption under section 10(23C)(iv) would have to be determined by prescribed authority having regard to objects of institution and its importance throughout India or throughout any State or States. There is no denying that having regard to objects of petitioner and its importance throughout India in field of advancement of promotion of trade and commerce, petitioner would be entitled to be regarded as institution which would qualify for that exemption. only thing that we have to examine is-whether petitioner had been established for charitable purposes? fact that it derives income does not, in any way, detract from position that it is institution established for charitable purposes. Therefore, in our view, merely because petitioner derives rental income, income out of sale of tickets and sale of publications or income out of leasing out food and beverages outlets in exhibition grounds, does not, in any way, affect nature of petitioner as charitable institution if it otherwise qualifies for such character. We have already noted that prior to amendment being introduced with effect from April 1, 2009, petitioner had been recognised as institution established for charitable purpose and this had been done having regard to objects of institution and its importance throughout India. It is only because of this that petitioner had been granted exemption by respondent for period prior to assessment year 2009-10. Therefore, in so far as receiving of income is concerned, that cannot be taken as instance to deny petitioner its status as institution established for charitable purposes. Because if that were to be so, then there would be no necessity to take recourse to section 10(23C)(iv) for benefit of exemption. To put it plainly, if institution established for charitable purposes did not receive income at all, then what would be need for taking any benefit under section 10(23C)(iv) of said Act. Therefore, if meaning is given to expression "charitable purpose" so as to suggest that in case institution, having objective of advancement of general public utility, derives income, it would be falling within exception carved out in first proviso to section 2(15) of said Act, then there would be no institution whatsoever which would qualify for exemption under section 10(23C)(iv) of said Act. And, said provision would be rendered redundant. This is so because if institution had no income, recourse to section 10(23C)(iv) would not be necessary. And, if such institution had income, it would not, on interpretation sought to be given by Revenue, be qualified for being considered as institution established for charitable purposes. So, either way, provisions of section 10(23C)(iv) would not be available, either because it is not necessary or because it is blocked. intention behind introducing proviso to section 2(15) of said Act could certainly not have been to render provisions of section 10(23C)(iv) redundant. With this in mind, it is to be seen as to what is meant by expressions "trade", "commerce" or "business". word "trade" was considered by Supreme Court in its decision in case of Khoday Distilleries Ltd. v. State of Karnataka [1995] 1 SCC 574, whereby Supreme Court held that'the primary meaning of word "trade" is exchange of goods for goods or goods for money'. Furthermore, in State of Andhra Pradesh v. H. Abdul Bakshi and Bros. [1964] 15 STC 644 (SC), Supreme Court held that "the word'business' was of indefinite import and in taxing statute, it is used in sense of occupation, or profession which occupies time, attention or labour of person, and is clearly associated with object of making profit". This court, in ICAI (I) (supra) held that, while construing term "business", as appearing in proviso to section 2(15), object and purpose of section has to be kept in mind. It was observed therein that very broad and extended definition of term "business" was not intended for purpose of interpreting and applying first proviso to section 2(15) of Act so as to include any transaction for cess, fee or consideration. court specifically held that (page 123 of 347 ITR): "An activity would be considered'business' if it is undertaken with profit motive, but in some cases, this may not be determinative. Normally, profit motive test should be satisfied but in given case activity may be regarded as business even when profit motive cannot be established/proved. In such cases, there should be evidence and material to show that activity has continued on sound and recognized business principles and pursued with reasonable continuity. There should be facts and other circumstances which justify and show that activity undertaken is in fact in nature of business." In Bureau of Indian Standards (supra), this court, while considering whether activities of Bureau of Indian Standards (supra) in granting licences and trading certificates and charging of fee amounted to carrying on business, trade or commerce, held as under (page 90 of 358 ITR): "In these circumstances,'rendering any service in relation to trade, commerce or business' cannot, in opinion of court, receive such wide construction as to enfold regulatory and sovereign authorities, set up under statutory enactments, and tasked to act as agencies of State in public duties which cannot be discharged by private bodies. Often, apart from controlling or parent statutes, like BIS Act, these statutory bodies (including BIS) are empowered to frame rules or regulations, exercise coercive powers, including inspection, raids; they possess search and seizure powers and are invariably subjected to Parliamentary or legislative oversight. primary object for setting up such regulatory bodies would be to ensure general public utility. prescribing of standards, and enforcing those standards, through accreditation and continuing supervision through inspection etc., cannot be considered as trade, business or commercial activity, merely because testing procedures, or accreditation involves charging of such fees. It cannot be said that public utility activity of evolving, prescribing and enforcing standards, 'involves' carrying on of trade or commercial activity." In ICAI (II) (supra), while considering whether activities of ICAI fell within proviso to section 2(15) as introduced with effect from April 1, 2009, this court, after considering Supreme Court decision in case of CST v. Sai Publication Fund [2002] 258 ITR 70 (SC) held (page 119 of 358 ITR): 'Thus, if dominant activity of assessee was not business, then any incidental or ancillary activity would also not fall within definition of business." This court also observed in ICAI (II) (supra) that (page 121 of 358 ITR): "It is not necessary that person should give something for free or at concessional rate to qualify as being established for charitable purpose. If object or purpose of institution is charitable, fact that institution collects certain charges, does not alter character of institution." This court in ICAI (II) (supra) held (page 122 of 358 ITR): "The expressions'trade','commerce' and'business' as occurring in first proviso to section 2(15) of Act, must be read in context of intent and purport of section 2(15) of Act and cannot be interpreted to mean any activity which is carried on in organised manner. purpose and dominant object for which institution carries on its activities is material to determine whether same is business or not. purport of first proviso to section 2(15) of Act is not to exclude entities which are essentially for charitable purpose but are conducting some activities for consideration or fee. object of introducing first proviso is to exclude organizations which are carrying on regular business from scope of'charitable purpose'. purpose of introducing proviso to section 2(15) of Act can be understood from Budget Speech of Finance Minister while introducing Finance Bill, 2008. relevant extract to Speech is as under (see [2008] 298 ITR (St.) 33, 65): '.... "Charitable purpose" includes relief of poor, education, medical relief and any other object of general public utility. These activities are tax exempt, as they should be. However, some entities carrying on regular trade, commerce or business or providing services in relation to any trade, commerce or business and earning incomes have sought to claim that their purposes would also fall under "charitable purpose". Obviously, this was not intention of Parliament and, hence, I propose to amend law to exclude aforesaid cases. Genuine charitable organisations will not in any way be affected.' expressions'business','trade' or'commerce' as used in first proviso must, thus, be interpreted restrictively and where dominant object of organisation is charitable any incidental activity for furtherance of object would not fall within expressions 'business','trade' or'commerce'." With regard to Surat Art Silk case (supra), this court, in ICAI (II) (supra) observed as under (page 123 of 358 ITR): "In case of Addl. CIT v. Surat Art Silk Cloth Manufacturers Association [1980] 121 ITR 1 (SC), Supreme Court held as under (page 25 of 121 ITR): 'The test which has, therefore, now to be applied is whether predominant object of activity involved in carrying out object of general public utility is to subserve charitable purpose or to earn profit. Where profit- making is predominant object of activity, purpose, though object of general public utility would cease to be charitable purpose. But where predominant object of activity is to carry out charitable purpose and not to earn profit, it would not lose its character of charitable purpose merely because some profit arises from activity.' Although in that case statutory provisions being considered by Supreme Court were different and utilisation of income earned is, now, not relevant consideration in view of express words of first proviso to section 2(15) of Act, none less test of dominant object of entity would be relevant to determine whether entity is carrying on business or not. In present case, there is little doubt that objects of activities of petitioner are entirely for charitable purposes." Finally in ICAI (II) (supra), this court, with reference to H. Abdul Bakshi and Bros. (supra) observed as under (page 123 of 358 ITR): "Although it is not essential that activity be carried on for profit motive in order to be considered as business, but existence of profit motive would be vital indicator in determining whether organisation is carrying on business or not. In present case, petitioner has submitted figures to indicate that expenditure on salaries and depreciation exceeds surplus as generated from holding coaching classes. In addition, petitioner institute provides study material and other academic support such as facilities of library without any material additional costs. Supreme Court in case of State of Andhra Pradesh v. H. Abdul Bakshi and Bros. (supra) held as under: 'The expression "business" though extensively used word of indefinite import, in taxing statutes it is used in sense of occupation, or profession which occupies time, attention and labour of person, normally with object of making profit. To regard activity as business there must be course of dealings, either actually continued or contemplated to be continued with profit motive, and not for sport or pleasure.' (underlining added) There is nothing on record to indicate assertion of petitioner that its activities are not fuelled by profit motive is incorrect. Absence of profit motive, though not conclusive, does indicate that petitioner is not carrying on any business." From said decision, it is apparent that merely because fee or some other consideration is collected or received by institution, it would not lose its character of having been established for charitable purpose. It is also important to note that we must examine as to what is dominant activity of institution in question. If dominant activity of institution was not business, trade or commerce, then any such incidental or ancillary activity would also not fall within categories of trade, commerce or business. It is clear from facts of present case that driving force is not desire to earn profits but object of promoting trade and commerce not for itself, but for nation-both within India and outside India. Clearly, this is charitable purpose, which has as its motive advancement of object of general public utility to which exception carved out in first proviso to section 2(15) of said Act would not apply. We say so because if literal interpretation were to be given to said proviso, then it would risk being hit by article 14 (the equality clause enshrined in article 14 of Constitution). It is well-settled that courts should always endeavour to uphold Constitutional validity of provision and, in doing so, provision in question may have to be read down, as pointed out above, in Arun Kumar (supra). It would be pertinent to reiterate that section 2(15) is only definition clause. Section 2 begins with words, "in this Act, unless context otherwise requires". expression "charitable purpose", appearing in section 2(15) of said Act, has to be seen in context of section 10(23C)(iv). When expression "charitable purpose", as defined in section 2(15) of said Act, is read in context of section 10(23C)(iv) of said Act, we would have to give up strict and literal interpretation sought to be given to expression "charitable purpose" by Revenue. With respect, we do not agree with views of Kerala and Andhra Pradesh High Courts. It would be appropriate to also examine observations of another Division Bench of this court in GS1 (supra). While considering Circular No. 11 of 2008 issued by Central Board of Direct Taxes, to which reference has been made earlier in this judgment, Division Bench held that it was evident from said circular that new proviso to section 2(15) of said Act was "applicable to assessees, who are engaged in commercial activities, i.e., carrying on business, trade or commerce, in garb of "public utilities" to avoid tax liability as it was noticed that object "general public utility" was sometimes used as mask or device to hide true purpose, which was "trade, commerce or business". From this, it is evident that introduction of proviso to section 2(15) by virtue of Finance Act, 2008, was directed to prevent unholy practice of pure trade, commerce and business entities from masking their activities and portraying them in garb of activity with object of general public utility. It was not designed to hit at those institutions, which had advancement of objects of general public utility at their hearts and were charity institutions. attempt was to remove masks from entities, which were purely trade, commerce or business entities, and to expose their true identities. object was not to hurt genuine charitable organisations. And, this was also assurance given by Finance Minister while introducing Finance Bill, 2008. In GS1 (supra) it was contended by Revenue that GS1 (India) had acquired intellectual property rights from GS1 (Belgium) and thereafter received registration fees from third parties in India. This was sought to be equated to royalty payments. It was also contended that GS1 (India) had huge surpluses of receipts over expenditure and that payments were made to GS1 (Belgium). According to Revenue, all this entailed that GS1 (India) was engaged in "business, trade or commerce". petitioner herein refuted this. In this backdrop, this court asked question-can it be said that petitioner is engaged in activities which constitute business, commerce or trade? While answering said question, court held as under (page 153 of 360 ITR): answering said question, court held as under (page 153 of 360 ITR): "As observed above, legal terms,'trade','commerce' or'business' in section 2(15), mean activity undertaken with view to make or earn profit. Profit motive is determinative and critical factor to discern whether activity is business, trade or commerce." court further held (page 153 of 360 ITR): "Business activity has important pervading element of selfinterest, though fair dealing should and can be present, whilst charity or charitable activity is antithesis of activity undertaken with profit motive or activity undertaken on sound or recognised business principles. Charity is driven by altruism and desire to serve others, though element of self-preservation may be present. For charity, benevolence should be omnipresent and demonstrable but it is not equivalent to self-sacrifice and abnegation. antiquated definition of charity, which entails giving and receiving nothing in return is outdated. mandatory feature would be; charitable activity should be devoid of selfishness or illiberal spirit. Enrichment of oneself or self-gain should be missing and predominant purpose of activity should be to serve and benefit others. small contribution by way of fee that beneficiary pays would not convert charitable activity into business, commerce or trade in absence of contrary evidence. quantum of fee charged, economic status of beneficiaries who pay, commercial value of benefits in comparison to fee, purpose and object behind fee, etc. are several factors which will decide seminal question, is it business?" Ultimately, in context of factual matrix of that case, this court held that (page 155 of 360 ITR): "charging nominal fee to use coding system and to avail of advantages and benefits therein is neither reflective of business aptitude nor indicative of profit oriented intent". court further observed (page 155 of 360 ITR): "Thus, contention of Revenue that petitioner charges fee and, therefore, is carrying on business, has to be rejected. intention behind entire activity is philanthropic and not to recoup or reimburse in monetary terms what is given to beneficiaries. element of give and take is missing, but decisive element of bequeathing is present. In absence of'profit motive' and charity being primary and sole purpose behind activities of petitioner is perspicuously discernible and perceptible." court also held (page 155 of 360 ITR): "As observed above, fee charged and quantum of income earned can be indicative of fact that person is carrying on business or commerce and not charity, but we must keep in mind that charitable activities require operational/running expenses as well as capital expenses to be able to sustain and continue in long run. petitioner has to be substantially self-sustaining in long-term and should not depend upon Government, in other words, taxpayers should not subsidize said activities, which nevertheless are charitable and fall under residuary clauseA 'general public utility'. impugned order does not refer to any statutory mandate that charitable institution falling under last clause should be wholly, substantially or in part must be funded by voluntary contributions. No such requirement has been pointed out or argued. practical and pragmatic view is required when we examine data, which should be analysed objectively and narrow and coloured view will be counter- productive and contrary to language of section 2(15) of Act." In conclusion, we may say that expression "charitable purpose", as defined in section 2(15) cannot be construed literally and in absolute terms. It has to take colour and be considered in context of section 10(23C)(iv) of said Act. It is also clear that if literal interpretation is given to proviso to section 2(15) of said Act then proviso would be at risk of running fowl of principle of equality enshrined in article 14 of Constitution of India. In order to save Constitutional validity of proviso, same would have to be read down and interpreted in context of section 10(23C)(iv) because, in our view, context requires such interpretation. correct interpretation of proviso to section 2(15) of said Act would be that it carves out exception from charitable purpose of advancement of any other object of general public utility and that exception is limited to activities in nature of trade, commerce or business or any activity of rendering any service in relation to any trade, commerce or business for cess or fee or any other consideration. In both activities, in nature of trade, commerce or business or activity of rendering any service in relation to any trade, commerce or business, dominant and prime objective has to be seen. If dominant and prime objective of institution, which claims to have been established for charitable purposes, is profit making, whether its activities are directly in nature of trade, commerce or business or indirectly in rendering of any service in relation to any trade, commerce or business, then it would not be entitled to claim its object to be "charitable purpose". On flip side, where institution is not driven primarily by desire or motive to earn profits but to do charity through advancement of object of general public utility, it cannot but be regarded as institution established for charitable purposes. Thus, while we uphold Constitutional validity of proviso to section 2(15) of said Act, it has to be read down in manner indicated by us. As consequence, impugned order dated January 23, 2013, is set aside and mandamus is issued to respondent to grant approval to petitioner under section 10(23C)(iv) of said Act within six weeks from date of this judgment. writ petition stands allowed as above. parties are left to bear their own costs. *** India Trade Promotion Organization v. Director General of Income-tax (Exemptions)
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