Incidental Commercial Activities

Charitable trusts are established and grant registrations for advancement of charitable purpose and conduct charitable activities only. The expression “charitable purpose” has been defined under Section 2(15) of the Income Tax Act 1961 to include:

• Relief of the poor,
• Education,
• Medical relief,
• Preservation of environment (including water sheds, forests and wild life)
• Preservation of monuments or places or objects of artistic or historic interest
• Yoga and
• Advancement of any other object of public utility

As per the provisions of section 11, income from property held from religious or charitable purpose shall not be included in the total income of the trust and available for exemption. Further, section 11(4) provides that for the purposes of this section "property held under trust" includes a business undertaking so held. Hence, the income from such business shall also qualify for exemption provided the other conditions of sections11 and 12 are fulfilled.

Section 2(15) of income tax act defines “charitable purpose” and this definition includes advancement of any other object of general public utility. But it also provides that the advancement of any other object of general public utility shall not be considered as 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, unless:

• such activity is undertaken in the actual course of carrying out of such advancement of any other object of general public utility; and
• the aggregate receipts from such activity or activities during the previous year, do not exceed 20% of the total receipts, of the trust or institution undertaking such activity or activities, of that previous year;

So from above mentioned provisions we can conclude that charitable institutions are allowed to carry out business activities which are incidental to the attainment of the objects of the institution. However, in case of “advancement of any other object of general public utility” the receipts from business activities shall not exceed 20% of the total receipt of the institution.

Conditions for claiming exemption

• The business or commercial Activity should be incidental to the attainment of the objectives of the entity
• Separate books of account should be maintained in respect of such business.
• The amount of receipts from such business should be separately disclosed in Income Tax Returns