(2001) 247 ITR 785 (SC)
Business undertaking held as property of an NPO
Yes. Where the business is held under trust, or is incidental to attaining the trust's objectives, and separate books are maintained, the income is eligible for exemption provided it is applied to the charitable purpose.
Can a trust that runs a business claim exemption where the business income is applied to its charitable objects?
The trust owned and published a well-known Tamil daily newspaper. Its objects, as amended, were to devote the income of the newspaper business to the establishment and support of educational institutions. The newspaper business was substantial and was itself trust property. The Revenue denied exemption on the ground that the trust was carrying on a business, relying on the successive statutory provisions restricting exemption for business income of charitable trusts.
The matter had a long history through the appellate hierarchy and turned on the effect of amendments made to the governing provisions in 1984 and 1992, which altered the conditions attaching to business income of charitable trusts. The Supreme Court examined the position across the different statutory regimes.
For the assessee
The newspaper business was itself held under trust, so its income is income derived from property held under trust and falls within the exemption. After the 1992 amendment, exemption is available where the business is incidental to the attainment of the objectives and separate books are kept, both of which conditions were satisfied.
For the Revenue
The provisions were amended to curtail exemption for trusts carrying on business. A newspaper business of this scale is not incidental to educational objects; it is a substantial commercial undertaking in its own right, and the exemption should not extend to it.
The Court traced the statutory history in detail and held that the answer differed across the periods. Under the regime in which exemption attached to income derived from property held under trust, a business itself held under trust qualified, because the business was the trust property from which the income was derived. Following the 1992 amendment, the governing condition became whether the business is incidental to the attainment of the objectives of the trust and whether separate books of account are maintained. The Court held that a business whose income is applied to the trust's charitable objects is incidental to the attainment of those objects; the word does not require the business to be small or ancillary in scale, but looks to the relationship between the business and the purposes served. Since the newspaper's income was devoted to education, and separate books were kept, the conditions were met. What mattered was the destination of the income and compliance with the record-keeping requirement, not the fact that a commercial activity was being carried on.
Section 344 of the IT Act 2025 deals with a business undertaking held as property of an NPO. The decision remains the principal authority on when trust-held business income retains exemption, subject now to the commercial-activity ceiling in Section 346 for organisations whose object is general public utility — a restriction that did not apply on these facts, the objects being educational.