First Proviso to section 2(15) is applicable only to the fourth limb of definition of “Charitable purpose” i.e. advancement of any other object of general public utility:

Assessee is a charitable trust engaged in the activity of breeding milk cattle, improving quality of cows and oxen and other related activities. AO, relying on newly added Proviso to section 2(15) w.e.f. 01.04.10, held that assessee-trust can’t be considered as one created for charitable purposes since considerable income was generated from the activity of milk production and sale. Accordingly, he denied the benefit of Sections 11 & 12 to the assessee. AO’s order came to be confirmed by CIT(A). On further appeal, ITAT decided the issue in favour of the assessee aggrieved by which, Revenue preferred tax appeal. Hon’ble High Court observed that the first Proviso to section 2(15) which provides for exclusion of certain activities from the definition of “Charitable activities” in case if it involves carrying on any activity in the nature of trade, commerce or business is applicable only to the fourth limb of definition of “Charitable purpose” i.e. advancement of any other object of general public utility. From the speech of Finance Minister and Circular No.11 of 2008 dated 19.12.2008 issued by CBDT, it was further observed that the aim was not to exclude genuine charitable trust of general public utility but to exclude activities in the nature of trade commerce or business which are masked as “charitable purpose”. From the objects of the assessee-trust, it was apparent that all the objects were of the general public utility. Profit making was neither the object nor the aim of the assessee-trust. It was also not the principal activity. Merely because while carrying out the activities for achieving the objects of the trust, if certain incidental surplus is generated, that will not render the activity to be in the nature of trade, commerce or business. In light of the above, it was held that ITAT had not committed any error in deciding the issue in favour of the assessee. Accordingly, Revenue’s appeal was dismissed.

[DIT Vs. Sabarmati Ashram Gaushala Trust – Tax Appeal No.1162 of 2013]