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5 Charitable purpose — Charitable Institution
— Statutory body established for the predominant purpose of development of minor
ports the management of which is with the State Government and where there is no
profit motive covered within the meaning of the words any other object of
general public utility in S. 2(15) of the Act and is entitled to registration
u/s.12A
[ CIT v. Gujarat Maritime Board, (2007) 295
ITR 561 (SC)]
The Gujarat Maritime Board is a statutory authority
constituted u/s.3(2) of the Gujarat Maritime Board Act, 1981. The Board was
registered as ‘local authority’ in terms of definition u/s.3(31) of the General
Clauses Act, 1897, and was availing of exemption as local authority u/s.10(20)
of the 1961 Act. By the Finance Act, 2002, an Explanation was added in S. 10(20)
of the Income-tax Act, by which ‘local authority’ was defined. It gave a
restricted meaning to the words ‘local authority’. By reason of the said
Explanation, the expression ‘local authority’ was confined to panchayats,
municipality, municipal committee, district board and cantonment board. Thus,
the Maritime Board did not come within the definition of the expression ‘local
authority’. Under the circumstances, the Gujarat Maritime Board made an
application to the Commissioner for registering it (Board) as a ‘charitable
institution’ as defined u/s.2(15) of the Income-tax Act, 1961. Accordingly, they
claimed exemption as charitable institution in respect of income derived from
their profit/business u/s.11 of the 1961 Act. This has been denied by the
Department. One of the objections raised on behalf of the Department was that
the Gujarat Maritime Board was not entitled to the benefit of S. 11 of the 1961
Act, as the said Board was not a trust under the Public Trusts Act and,
therefore, it was not entitled to claim registration u/s.12A of the 1961 Act.
The Department’s case was that the Maritime Board was a statutory authority. It
was the case of the Department that the Board was performing statutory
functions. Development of minor ports in the State of Gujarat cannot be termed
as the work undertaken for charitable purposes and in the circumstances the
Commissioner rejected the Board’s application u/s.12A of the 1961 Act. On an
appeal, after perusal of number of decisions which have interpreted the words in
S. 2(15), namely, ‘any other object of general public utility’, the Supreme
Court held that the said expression is of the widest connotation. The word
‘general’ in the said expression means pertaining to a whole class. Therefore,
advancement of any object of benefit to the public or a section of the public as
distinguished from benefit to an individual or a group of individuals would be
charitable purpose. The said expression would prima facie include all
objects which promote the welfare of the general public. It cannot be said that
a purpose would cease to be charitable even if public welfare is intended to be
served. If the primary purpose and the predominant object are to promote the
welfare of the general public, the purpose would be charitable. When an object
is to promote or protect the interest of a particular trade or industry, that
object becomes an object of public utility, but not so if it seeks to promote
the interest of those who conduct the said trade or industry. If the primary or
predominant object of an institution is charitable, any other object which might
not be charitable, but which is ancillary or incidental to the dominant purpose,
would not prevent the institution from being a valid charity. According to the
Supreme Court, the present case was squarely covered by its judgment in the case
of CIT v. Andhra Pradesh State Road Transport Corporation, (1986) 159 ITR
1 (SC), in which it has been held that since the Corporation was established for
the purpose of providing efficient transport system, having no profit motive,
through it earns income in the process, it is not liable to Income-tax. The
Supreme Court further observed that under the scheme of S. 11(1) of the 1961
Act, the source of income must be held under trust or under other legal
obligation. Applying the said test, it was clear that the Gujarat Maritime Board
was under legal obligation to apply the income which arose directly and
substantially from the business held under trust for the development of minor
ports in the State of Gujarat. Therefore, they were entitled to be registered as
‘charitable trust’ u/s.12A of the 1961 Act.
