Charitable Purpose under Section 2(15)- Relief of Poor
Section 2(15) of the Income Tax Act, 1961 defines "Charitable Purpose". The definition of "Charitable Purpose" has seven limbs of which first limb is "Relief of Poor". Thus accordingly to the Income Tax Act, "Relief of Poor" will qualify as a charitable purpose for allowing exemption from tax to the eligible trusts or institutions. However, the term “Relief of Poor” is not defined under the Income Tax Act, 1961. The dictionary meaning of the term ‘poor’ means who have little money or significant and those deserving pity. Any measure taken to assist them in any manner would constitute ‘Relief of Poor’. In order to fall within “Relief of Poor” in the definition of charitable purpose:
- It must be for the poor; and
- There must be relief to the poor.
It must be noted that the Income Tax Act contemplates that there should be a “Relief of Poor” but the manner and form of relief is nowhere stipulated in the Act. The most important element to fall under “Relief of Poor” is that the person to whom the relief is provided must be from a section of poor class. Thus, relief of poor shall have a public character i.e. it must benefit to public rather than a few selected individuals.
We can derive some clarity on the term “Relief of Poor” from the CBDT Circular No. 11/2008. The relevant extract is quoted:
‘Relief of poor’ encompasses a wide range of objects for the welfare of the economically and socially disadvantaged or needy. It will, therefore, include within its ambit purposes such as relief to destitute, orphans or the handicapped, disadvantaged women or children, small and marginal farmers, indigent artisans or senior citizens in need of aid. Entities who have these objects will continue to be eligible for exemption even if they incidentally carry on a commercial activity, subject, however, to the conditions stipulated under section 11(4A) or the seventh proviso to section 10(23C) which are that:
(i) The business should be incidental to the attainment of the objectives of the entity; and
(ii) Separate books of accounts should be maintained in respect of such business;
It should also be noted that proviso to section 2(15) will not be applicable to the object “Relief of Poor”. Thus, if any activity is carried on by the trust or institution which is in the nature of trade or commerce, incidental to the object “Relief of Poor”, such trust or institution shall continue to enjoy exemptions from income tax u/s 11 or 10(23C).
What judiciary says about “Relief of Poor”?
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Assistance in marriage expenses |
Kedia Jatiya Sahayak Sabha and Fund vs. CIT (1963) 49 ITR 74 (Cal): The object of contributing towards the marriage expenses of needy persons is not a charitable purpose. It is not possible to say that a poor man cannot do without matrimony and that matrimony is a bar necessity of life. However, a contrary view has been arrived at in CIT vs. Board of Mutwallis to the Wakf Estate (1968) 69 ITR 758 (Cal). |
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Beneficiary should be public |
CIT Vs. M Jamal Mohamad Sahib (1941) 9 ITR 375 (Mad): Held that for claiming the exemption under the Income Tax Act, beneficiaries of the trust must be public. Part of the income of the trust deed set apart for the benefit of the donor’s family members is not exempt. |
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Support to unemployed- Not amounting to Relief of Poor |
CIT vs. Karim Brothers Charity Fund (1943) 11 ITR 603 (Bom): Held that unless one gives some restricted meaning to the word “unemployed” people in that category do not fall within the concept of charity. Many persons are unemployed not because they are poor but because they are wealthy enough not to need employment. Thus, we can conclude that supporting a poor unemployed will fall under charitable purpose only. |
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Providing essential commodities at subsidized rates |
DCIR Vs. A.P. State Civil Suppliers Corporation Ltd. (2016) 160 ITD (Hyd-Trib): The assessee is providing essential commodities to poor people at subsidized rates, the same should be considered to be providing relief to poor and hence eligible for exemption u/s 11. |
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Lending to Poor women |
Asstt. DIT (Exemption) vs. Bharatha Swamukhi Samsthe (2009) 319 ITR 422 (Bang. Trib): The assessee is borrowing money from banks and financial institutions and then advancing money to the beneficiaries for mainly including poor women & women who have no access to the credit facilities. The trusts’ motive is not to gain any advantage in this activity but help the poor in uplifting their economic status in the society. Thus, the object of the assessee was charitable in nature and exemption can not be denied on the ground that the assessee was charging exorbitant interest. There is nothing on record to suggest that these poor women are capable of receiving loan at lesser interest than offered by the assessee. |
Conluding Remarks: "Relief of Poor" shall constitute any welfare activities to support the poor and needy section of the public at large. If any such activity is carried on by the trust or institution, it will fall under "Charitable Purpose" and will qualify for exemption under section 11 or 10(23C) of the Act. Further, proviso to section 2(15) of the Act will not apply on the object "Relief of Poor" if any commercial activities are carried on which are incidental to attainment of such objects.
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