2017 (2) TMI 1534 - AT - Income Tax

Exemption u/s 11/12 - Receipt in the nature of Fee from Professional/ Technical Services/ Contractual receipts and, therefore, commercial in nature - donation had been given to the assessee to promote the objects of the NASSCOM and not for any charity - As per AO activities were clearly in the nature of trade and commerce and rendering services in relation to trade/ commerce/ business more particularly because assessee had charged service tax on the amount so received by it - As per assessee it was setup with the predominant objective to improve national capabilities by promoting data protection, develop security and privacy codes and standards and encourage implementation of the same - HELD THAT - Activities undertaken by assessee are in the field of cyber security for increasing level of security and privacy of IT and BPO service providers in public life to ensure that India is secure destination. Potential of cyber threats is increasingly recognized for their impact on the lives of individuals, as attacks are increasingly targeting critical infrastructure like, utilities, transport, oil and energy and hence the ability to disturb social harmony and interactions, urge to cause unrecoverable damages to businesses and ability to harm national security posture. Admittedly, the assessee is imparting very valuable services in this regard and training officials of police, banking, and other personnel in technical field. The grants received by assessee are mainly from Government. One of the major objections of Assessing Officer was that assessee was imparting services to NOSSCOM. This objection is devoid of any merit because it is the predominant object of assessee which is to be examined for deciding whether the assessee was carrying on charitable activities or not. The assessee was registered u/s 25 of the Companies Act which clearly shows that it could not carry on any activities for profit purposes. It is well settled law that while carrying on pre-dominant objects, if the assessee is earning some incidental surplus that will not prejudice the assessee s claim of being charitable in nature - Appeal of the Department is dismissed.

Summary

Issues Involved:
1. Whether the activities carried out by the assessee are in the nature of trade, business, or commerce or rendering services in relation to the same.
2. Whether the addition of Rs. 42,32,815/- made by the AO on account of restricted grants was justified.

Issue-wise Detailed Analysis:

1. Nature of Activities:
The Assessing Officer (AO) observed that the assessee, a company registered under section 25 of the Companies Act, 1956, was not involved in education, medical relief, or relief of the poor but in activities falling under "general public utility." The AO noted that the assessee received income from donations, grants, participation fees, membership fees, sponsorship fees, and bank interest. The AO concluded that the grants apportioned and sponsorship fees were commercial in nature, as they were received for professional/technical services. The AO further argued that the assessee's activities were in the nature of trade and commerce, as evidenced by the service tax charged and TDS deducted under sections 194C and 194J.

The CIT(A) found that the AO's conclusion was based on the nomenclature of receipts rather than the nature of activities. The CIT(A) emphasized that the assessee's predominant objective was to promote data protection and information security, which are charitable in nature. The CIT(A) noted that the assessee was registered under section 12A, which indicates its charitable status, and that it operated on a non-profit basis.

2. Addition of Restricted Grants:
The AO added Rs. 42,32,815/- to the assessee's income, treating it as commercial receipts. The AO argued that the grants were professional service fees and thus commercial. The CIT(A) disagreed, stating that the grants were received for charitable activities and were not commercial. The CIT(A) observed that the assessee's activities were genuine and reasonable, and the nomenclature of receipts did not change their charitable nature.

Conclusion:
The Tribunal upheld the CIT(A)'s decision, dismissing the Department's appeal. It concluded that the assessee's activities were charitable, focusing on data protection and information security, which are crucial in the modern technological era. The Tribunal emphasized that the predominant objective of the assessee was charitable, and any incidental surplus did not affect its charitable status. The Tribunal also noted that the assessee was registered under section 25 of the Companies Act, which mandates non-profit operations.

Order:
The appeal of the Department was dismissed, and the CIT(A)'s order was upheld. The Tribunal found no reason to interfere with the CIT(A)'s decision, affirming that the assessee's activities were charitable and not commercial. The order was pronounced on February 28, 2017.