2018 (2) TMI 1735 - HC - Income Tax

Charitable activities u/s 2(15) - exemption u/s 10(23C) - Whether the bar code licensing fee is commercial in nature? - proof of charitable activities - Held that - As decided in case of GSI India Vs. Director General of Income Tax 2013 (10) TMI 19 - DELHI HIGH COURT - it is held that bar code licensing fee received by the two cannot be characterized as commercial receipts and subject to tax treatment - appeal of revenue is dismissed - Decided in favor of assessee.

Summary

Issues:
1. Characterization of bar code licensing fee as a commercial receipt for tax assessment.
2. Applicability of charitable status under Income Tax Act.
3. Comparison with similar cases involving domain name registration fees.
4. Interpretation of Section 2(15) read with Section 10(23C) for exemption eligibility.
5. Determination of profit motive in charitable activities.
6. Consideration of operational and capital expenses in sustaining charitable activities.
7. Requirement of funding by voluntary contributions for charitable institutions.

Analysis:
1. The High Court deliberated on the characterization of a bar code licensing fee amounting to ?9 crores as a commercial receipt for tax assessment purposes. The Revenue contended that the fee is commercial in nature, while the assessee, a charitable society, sought exemption under Section 2(15) read with Section 10(23)(C) of the Income Tax Act.

2. The Court noted that the bar code licensing activity was linked to a public policy measure by the Union Ministry of Commerce. Referring to a similar case related to domain name registration fees, the Court emphasized that the nature of the services provided by the assessee, such as domain name allocation, did not align with commercial activities, thus upholding the charitable status of the organization.

3. Drawing parallels with past judgments involving charitable organizations like GSI India, the Court highlighted the importance of assessing whether the fee charged by the organization was commensurate with charitable activities rather than indicative of profit motives. The judgment emphasized the philanthropic intent behind the activities, emphasizing the absence of a profit motive and the presence of charitable objectives.

4. In line with the principles established in GSI India case, the Court concluded that the bar code licensing fee received by the assessee should not be treated as commercial receipts subject to tax. By affirming the ITAT's decision and finding no substantial question of law, the Court dismissed the Revenue's appeal, underscoring the organization's eligibility for exemption under the Income Tax Act.

5. The judgment underscored the necessity for charitable institutions to be self-sustaining in the long run and not solely reliant on government funding. It rejected the notion that charging nominal fees for charitable activities equated to profit-oriented business practices, emphasizing the charitable and philanthropic nature of the organization's endeavors.

6. Overall, the Court's analysis focused on interpreting the provisions of Section 2(15) read with Section 10(23C) to determine the charitable status of the organization and the non-commercial nature of the bar code licensing fee. By referencing past precedents and legal principles, the judgment clarified the distinction between commercial receipts and charitable activities, ultimately upholding the organization's exemption from tax liability.