The Judgment of the Court was delivered by

P.R Ramachandra Menon, J.:— Whether the refusal on the part of the respondents/Departmental authorities to issue exemption certificate under section 197 of the Income-tax Act, 1961 (“Act” in short) to the petitioners, in view of the amendment brought about by incorporating a “proviso” to section 2(15) of the Act with effect from April 1, 2009 is justified; forms the common issue involved in both these cases.

2. The petitioners are the State Government owned societies registered under the Travancore Cochin Literary, Scientific and Charitable Societies Registration Act (Act XII of 1955), allegedly with the main object of setting up of information technology parks in Kerala, among other goals. Pursuant to the said objective, the petitioners acquired lands and constructed buildings which have been let out to various information technology companies for rent. The petitioners' institutions were got registered as a charitable trust under section 12A of the Act and exemption was obtained under section 11 of the Income-tax Act in respect of the income derived by them on letting out the premises. In view of the fact that there was no tax liability in respect of the income derived on letting out the premises as above, having been assigned the status as a charitable purpose, the petitioners submitted application before the Departmental authorities for issuance of a certificate under section 197(1) of the Act for non-deduction of tax at source. While so, section 2(15) of the Act was amended incorporating a “proviso”, stipulating that the advancement of “any other object of general public utility” reckoned for giving the charitable status shall not be reckoned as a charitable purpose, if it involves the carrying on of any activity in the nature of trade, commerce or business or any activity of rendering any service in relation to any trade, commerce, or business for a cess or a fee or any other consideration, irrespective of the nature of use or application or retention of the income from such activity. The position in this regard was brought to the notice of the petitioners by the respondents/Departmental authorities; whereupon the petitioners maintained that the amendment will not be applicable to their case and requested to consider their applications for issuance of the certificate. After considering the matter, the respondents/Departmental authorities rejected the applications for issuance of the certificate under section 197(1) which is under challenge in these writ petitions.

3. Section 11 of the Act stipulates that the income from property held for charitable or religious purpose shall not be included in the total income of the previous year of the person in receipt of the income to be given effect in the manner as specified therein. The term “charitable purpose” has not been defined under the statute; but for the inclusive nature of the term as specified under section 2(15) of the Act, which as existed before the amendment is as follows:

“2.(15) ‘charitable purpose’ includes relief of the poor, education, medical relief and the advancement of any other object of general public utility.”

4. As per section 3 of the Finance Act, 2008, the said provision was amended adding a “proviso” with effect from April 1, 2009 as follows:

“Provided that the advancement of any other object of general public utility shall not be a charitable purpose, if it involves the carrying on of any activity in the nature of trade, commerce or business or any activity of rendering any service in relation to any trade, commerce or business for a cess or fee or any other consideration irrespective of the nature of use or application or retention of the income from such activity.”

5. The Department has taken a stand that by virtue of the amendment as above, the petitioners are not entitled to get the certificate under section 197(1) of the Act for non-deduction at source.

6. Mr. V. Ramachandran, senior counsel appearing for the petitioners, submits that, the idea and understanding of the respondents with regard to the scope of amendment to section 2(15) is thoroughly wrong and misconceived. There is no trade or business in the activity pursued by the petitioner in letting out the premises for rent and that such an exercise will not take it outside the purview of charity and hence that the “proviso” added to section 2(15) is not at all attracted to the cases in hand. Learned senior counsel also submits that the statute, as it stood still earlier, had clarified the charitable purpose mentioned in section 2(15) by the words “not involving the carrying on of any activity for profit”. By virtue of the existence of these clarifying words, if there was any element of profit it was enough liable to be reckoned as charitable purpose right from the inception of the Act in 1961 till April 1, 1984; when the words “not involving the carrying on of any activity for profit” were deleted. Thus, the contention is that after April 1, 1984, there is no allergy to profit and if the profit feeds charity, it stands cleared for exemption under section 11 of the Act.

7. To analyse the scope and object of the amendment, the learned senior counsel placed reliance on the “Budget Speech” of the Minister for Finance, which stated as follows [2008] 298 ITR (St.) 33, 65:

“‘Charitable purpose’ includes relief of the 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 of 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 the intention of Parliament and hence I propose to amend the law to exclude the aforesaid cases. Genuine charitable organizations will not in any way be affected” (para 180).

The learned senior counsel points out that, the amendment was brought about as a measure of rationalization and simplification, streamlining the definition of charitable purpose and not as a measure of taxation. It is also stated that the concept of charity in India is wider than in England; simultaneously adding that, by virtue of the amendment, the position that existed prior to February 1, 1984, has been brought back and that is all. This, however, will not tilt the balance in any manner in the case of the petitioners so as to take the activities outside the charitable purpose, particularly in view of the fact that, letting out the buildings for I.T development will not constitute any trade or business. Reliance is also placed on the decision rendered by the apex court in CIT v. Federation of Indian Chambers of Commerce and Industry, [1981] 130 ITR 186, CIT v. Andhra Pradesh State Road Transport Corporation, [1986] 159 ITR 1 (SC), Victoria Technical Institute v. Addl. CIT, [1991] 188 ITR 57 (SC) and Commissioner Of Income Tax v. Gujarat Maritime Board, [2007] 295 ITR 561 (SC) to ascertain and understand the meaning of the terms “any other object of general public utility” and the “charitable purpose” as contemplated under the statute.

It is contended that, by virtue of the “preamble” and contents of section 32 of the Travancore Cochin Literary, Scientific and Charitable Societies Registration Act (XII of 1955) describing the eligibility of the societies to get the benefit, the petitioners admittedly since are registered under the Kerala Act, they are liable to be reckoned automatically under the Income-tax Act as well, particularly when extended definition is given under the Kerala Act unlike the Income-tax Act. Referring to the decision rendered by the apex court in Dharmadeepti, Alwaye, Kerala v. Commissioner Of Income Tax, Kerala, [1978] 114 ITR 454 and by a Division Bench of the Madras High Court in CIT v. Sri Thyaga Brahma Gana Sabha (Regd.), [1991] 188 ITR 160 (Mad) and another decision by the very same court in CIT v. Chennai Properties and Investments Ltd., [2004] 266 ITR 685, the learned senior counsel submits that, to perform charity, income/money is inevitable and contends that the activity being pursued by an institution may constitute a trade or business, if buildings are constructed and sold; whereas it will not be a trade or business if the activities are construction of the buildings and letting them out for rent. The distinction between the income from business contemplated under section 9 and income from property contemplated under section 10 is also sought to be explained with reference to the dictum laid by the apex court in Karnani Properties Ltd. v. Commissioner Of Income Tax, West Bengal, [1971] 82 ITR 547.

The respondents have filed a detailed statement in W.P (C) No. 6899 of 2009 contending that the eligibility for exemption under section 11 has to be evaluated at the time of assessment and hence that the alleged cause of action now projected by the petitioner is rather premature. Reliance is also placed on annexure R1(a) Circular issued by the Central Board of Direct Taxes, clarifying the position with regard to the amended section 2(15) holding that where the purpose of trust or institution is the relief of the poor, education or medical relief, it will be constitute “charitable purpose”, even if it incidentally involves the carrying on of commercial activities and that the amendment will have effect only to the entities whose purpose is advancement of “any other object of general public utility”.

8. With regard to the specific case in W.P (C) No. 6899 of 2009, referring to the contents of the “memorandum of association” of the petitioner as specified in paragraph 3, it is contended that, in order to perform the object of society as enumerated in paragraph 3.1, the society may carry out the functions as stated in para 3.2.1 The nature of functions enumerated includes planning, establishing and managing software IT, ITES, BPO Parks in Kerala with all the necessary infrastructure and support facilities, set up incubator and pilot production facilities for entrepreneurs as well as various other activities. The primary function of the assessee would be running of technology parks setting up all facilities, take part in joint ventures and conduct international seminars, conferences, marketing, etc., for promotion of the park, undertake publications in the form of paper book, audio, video cassettes and other functions. Referring to the said activities it is contended that, it is a business enterprise, doing all necessary activities for running an electronic park in whatever form necessary.

9. It is brought to the notice of this court from the part of the respondents that, although the primary function of the assessee is the encouragement, development and management of the Info Park, the assessee functions in a business oriented manner, obtaining lands and constructing buildings, developing infrastructural facilities and then hiring out the premises to the various persons/institutions at a fee and therefore the assessee is in the business of promotion of development and management of estate, which incidentally is occupied by the IT based companies. The fact that such activities being pursued are on behalf of the Government or on the orders of the Government is of no significance. As a whole, it is stated, since the operation is in a business oriented manner, it will definitely come within the fourth limb of the amended section 2(15), where the prohibition of activity in the nature of trade, commerce or business or any activity of rendering any service in relation to a trade or commerce or business for a cess or any other consideration, irrespective of the nature of the use or application or retention of the income of such activity is specified and hence not entitled to any exemption.

10. In response to the case put forth by the petitioner, reference is also made to R1(b) “profit and loss account” of the petitioner for the year ending March 31, 2008, as revealed from the latest return available on record. It is stated that the assessee has shown the income from lease rent under schedule A and the other income under schedule B. It is also stated that on the expense side, the assessee has claimed salary and conveyance, administrative and other charges, printing and stationery, staff welfare expenses, promotional expenses, repairs and maintenance and depreciation. From the above, it is revealed that, while claiming that the income from the property the determination has been made by the assessee for the purpose of income and expenditure account, as in any business case, claiming all the deductions including depreciation for the current year for Rs. 5,92,01,178 which shows the business nature of the activities pursued by the assessee.

11. Mr. Jose Joseph, the learned standing counsel appearing on behalf of the respondents, submits that, as made clear by the Central Board of Direct Taxes, vide annexure R1(a) circular, each case has to be examined independently, as to the eligibility for exemption and that is essentially a “fact adjudication process” to be pursued at the time of assessment and not resolvable in the present writ petition. Referring to the mandate under the statutory prescription and also placing reliance on the dictum laid down by the apex court in Aditanar Educational Institution's case, [1997] 224 ITR 310. It is sought to be established that evaluation has to be done every year and that instance of exemption is not automatic.

12. From the nature of activities being pursued by the petitioners, particularly as contained in the “memorandum of association” extracted by the respondent in the statement filed in W.P (C) No. 6899 of 2009 (stated as more or less similar in the other case as well), it is very much evident that the derivation of income by the petitioner cannot be held as merely the income from property, so as to oust the involvement of “trade, commerce or business” or “any service in connection with trade commerce or business” as contemplated under the statute, which requires to be exempted and appreciated in detail by the Departmental authorities at the time of assessment. For the very same reason, the petitioners cannot have a short cut, to have an automatic declaration of exemption, by seeking for issuance of a Certificate under section 197(1); particularly when there is substantial variation in the statutory position as it existed earlier when the petitioners were given exemption under section 11 and the position as available after the amendment to section 2(15) brought into effect from April 1, 2009. All the decisions cited by the learned senior counsel for the petitioners are in respect of the position as it existed earlier and the position as it now exists does not form the subject-matter of consideration in any such cases. Further, the petitioners have not chosen to challenge the amendment to section 2(15) and the Union of India is not impleaded in the party array, so as to answer the scope and extent of amendment. Yet another important aspect to be noted in this context is that, after the amendment by incorporating a proviso to section 2(15), the fourth limb as to the advancement of “any other object of general public utility” will no longer remain as charitable purpose, if it involves carrying on of:

(a) any activity in the nature of trade, commerce or business;

(b) any activity of rendering any service in relation to any trade, commerce or business for a cess or a fee or any other consideration, irrespective of the nature of use or application or retention of the income from such activity.

13. The first limb of exclusion from charitable purpose under clause (a) will be attracted, if the activity pursued by the institution involves any trade, commerce or business. But the situation contemplated under the second limb (clause (b)) stands entirely on a different pedestal, with regard to the service in relation to the trade, commerce or business mentioned therein. To put it more clear, when the matter comes to the service in relation to the trade, commerce or business, it has to be examined whether the words “any trade, commerce or business” as they appear in the second limb of clause (b) are in connection with the service referred to the trade, commerce or business pursued by the institutions to which the service is given by the assessee. If the said words are actually in respect of the trade, commerce or business of the assessee itself, the said clause (second limb of the stipulation under clause (b) is rather otiose. Since the activity of the assessee involving any trade commerce or business, is already excluded from the charitable purpose by virtue of the first limb (clause (a)) itself, there is no necessity to stipulate further, by way of clause (b), adding the words “or any activity of rendering any service in relation to any trade, commence or business…”. As it stands so, giving a purposive interpretation to the statute, it may have to be read and understood that the second limb of exclusion under clause (b) in relation to the service rendered by the assessee, the terms “any trade, commerce or business refer to the trade, commerce or business pursued by the recipient to whom the service is rendered (as there may be a situation involving letting out the premises for purposes other than involving trade, commerce or business as well). Since the petitioners have not chosen to implead the Union Government in the party array, to consider and finalise the scope and extent of the amendment in this regard, this court is not in a position to lay down the law on this aspect for the time being and hence it is left open.

14. As stated hereinbefore, whether the petitioners are entitled to get the benefit of exemption in view of the activity being pursued by them, in respect of the period after the amendment of section 2(15) with effect from April 1, 2009, is a matter to be looked into and decided by the Departmental authorities in the course of adjudication, at the time of assessment. For the very same reason, exhibit P5 issued by the respondents in W.P (C) No. 6899 of 2009 and exhibit P7 issued in W.P (C) No. 6900 of 2009 refusing to issue any certificate under section 197(1) of the Act, are perfectly within the four walls of the law and not assailable under any circumstance. No interference is called for. Both the writ petitions fail and are dismissed accordingly.