‘Profitable’ charitable entities cannot claim tax relief: SC

Any entity or institution involved in any trade or commerce under the guise of ‘general public utility’ will cease to be a ‘charitable institution’ and therefore, cannot claim tax exemption under the Income-Tax (I-T) Act, the Supreme Court (SC) ruled.

 Two key issues were heard by the apex court. One, scope of the expression ‘general public utility’ (deals with benefit to a section of the public) for claiming tax exemption as ‘charitable institution’.

 Two, scope of exemption to educational institutions claiming tax exemption as ‘charitable institution’.

 The expression ‘charitable purpose’ has been defined under certain clauses which include relief to the poor, for education and medical relief, preservation of the environment (including watersheds, forests and wildlife), preservation of monuments, and the advancement of any other object of public utility.

 Many institutions doing trade/commerce used the ‘general public utility’ clause to gain exemption for profits on such trade/commerce since the meaning is ambiguous. The court has now clarified if any profit or margin is earned from such an activity, it shall cease to be a charitable activity.