is a certain amount of confusion with regard to business
and profit oriented activities of a Voluntary Organisation.
Business activities may be undertaken as long as they are
incidental to the main objects of the organisation, provided
the profit generated are not otherwise distributed.
2(15) of the Income Tax Act defines the term charitable
purpose as under :
expression “Charitable Purpose” includes the
Relief of the poor
- Medical Relief
- The advancement
of any other object of general public utility.
- Preservation of Environment(Including Watershed, forests
- Preservation of monuments or places*
- Preservation of artistic or historic interest*
Amendment inserted by finance Act,2010
may be noted that this definition was amended in 1984 and
the word “Not involving the carrying on of any activity
for profit” was deleted. This was a clearcut indication
of allowing profit oriented activities as a part of Charitable
the Finance Act 2008, the definition has been amended as: “
Charitable Purpose” includes relief of the poor, education,
medical relief and the advancement of
any other object of general public utility: Provided
that the advancement of any other object of general public
utility shall not be a charitable purpose
if it involves the carrying on of any activity in the nature
of trade, commerce or business or any
activity of rendering any services 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 or the retention, of the income from
Section 11(4A) was inserted to categorically allow profit
oriented business activity as long as they were incidental
to the attainment of the objectives.
Sometimes a business undertaking may itself be held by
a Voluntary Organisation, or a Trust for charitable purposes.
For example, an NGO receives as donation, the rights of
distribution of a film and the profit is to be utilised
for charitable purposes. In such a case though the business
activity is not incidental to the attainment of the objects
of the organisation still the profits would be exempted
of profit need not necessarily be deemed as business activity.
A Voluntary Organisation can have activities
which generate profit without engaging in business. For
instance income from letting out Hall, Dharmasala’s
and other infrastructure are not considered as business
may so happen that the business is partially considered
to be for the attainment of the obejcts of the Voluntary
Organisation. Under such circumstances only such proportion
of profit which relates to the attainment of the object
will be exempted. It has been clarified vide CBDT circular,
that on organisation is not debarred from doing business
which are not incidental to the attainment of the objectives,
but income from such business will not be exempted. It
is not advisable to engage in business activities only
for the sake of profits without having any relevance with
the objects of the organisation.
Finance Act, 2008 w.e.f. 1-4-2009 has amended the definition
of 'charitable purpose' under section 2(15) which may have
far reaching ramifications, for voluntary organisations.
2(15) of the Income Tax Act, 1961 provides the definition
of charitable purpose.
section was amended in the Finance
Act, 2008 by the Government of India. As the amended Sec.2(15)
has great implication on the business activities carried
out by an organisation, FMSF has brought out an e-communique, "Standards & NORMS" on
this aspect and the link of which is http://fmsfindia.org/fmsf/pdf/st-norms.pdf
December, 2008 the Central Board of Direct Taxes (CBDT)
had brought out a Circular dated 19.12.2008 and the provisions
of this Circular were included and a subsequent e-communique
issue no. 6 was brought. The link of which is http://fmsfindia.org.in/publication_upload/standard/s&n-ls-v1-i6.pdf.
there are lot of amendment made by Fin2ance Act 2012 in
context of business activities carried by NGOs. For more
details please refer our e-communique on. "Business Acticity
cannot affect Charitable Status". The link of which is