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TMI Blog2018 (1) TMI 189X X X X Extracts X X X X X X X X Extracts X X X X ..... of the order of the ld CIT (A), we do not concur with the arguments of the ld CIT DR that order is perfunctory and devoid of reasons for the reasons that he has decided the issues relying on the decision of Honorable Delhi high court. According to us, the ld CIT (A) has also given his finding on all the aspects of the issues raised by ld AO. In view of the above facts and respectfully relying on the decision of M/s GS1 India Versus [2013 (10) TMI 19 - DELHI HIGH COURT] we find no infirmity in the order of the ld CIT (A), hence we dismiss all the grounds of appeal of revenue. - ITA No. 2873 And 2874/Del/2014 - - - Dated:- 27-12-2017 - SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER For The Revenue : Ms. Rachna Singh, CIT DR For The Assessee : Shri Rohit Jain, Adv. Ms. Deepashree Rao, Adv ORDER PER PRASHANT MAHARISHI, A. M. 1. These are the two appeals filed by the revenue against the order of the ld CIT (A)-XXI, New Delhi dated 04.10.2014 for the Assessment Year 2009-10 and 2010-11. The revenue 2. The revenue has raised the following identical grounds of appeal in both the Assessment Years:- 1. On the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uipment cost as well as other terms and conditions, which showed that the agreement is a pure business agreement for earning income for extending the services. Therefore, according to him the activities of the assessee are carried out with profit motive and therefore, it is hit by the amendment to section 2(15) of the Act. Hence, the assessee is not eligible for exemption u/s 11 and 12 of the Income Tax Act. The assessee objected these observations of the AO explaining that this society is under administrative control of Ministry of Communication and IT and further all incomes etc are for the purpose of promotion of the objective of national interest and without any profitable commercial activity. The ld Assessing Officer rejected the explanation and held that assessee is engaged in the business activity in view of proviso to section 2(15) of the Act applicable from Assessment Year 2009-10. Hence, he denied the benefit of section 11 and 12 of the Act and determined the total income of the assessee u/s 143(3) of the Act at ₹ 330069597/- against the Nil returned income of the assessee filed on 29.09.2009. The assessee aggrieved, filed appeal before the ld CIT(A), who held that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that it is autonomous scientific society. He further referred to page No. 125, which shows that the subscription income of the society is mostly from schools, colleges, universities, scientific research institutes, etc. He further referred page NO. 192 of the paper book for data network which is to be on no profit and no loss basis. He further referred to page NO. 263 of the paper book to show that network set up by the assessee are operated on no profit basis. In view of this he submitted that assessee is not engaged in any business activities but as nonprofit‟ organization and further the ld CIT(A) has considered all these facts and has held that assessee is not involved in any business activity. He extensively referred to the order of the ld CIT(A) to show that the ld CIT(A) has relied on five decisions of the Hon'ble Delhi High Court to state that amendment w.e.f 01.04.2009 to section 2(15) of the Act does not apply to the assessee. 9. Coming to the agreements entered by the assessee, referred by the ld Departmental Representative, he submitted that all these conditions do not suggest that assessee is carrying on any business. He referred that consultancy charge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. Undoubtedly, the assessee trust has been created by the Govt. of India with an object for development of computer communication in the country and it is a non-profit society. Subsequently, various certificates issued by various authorities also show that the assessee does not exist for the profit. The subscribers to the society were eminent persons such as Prof. YK Alagh and Hon‟ble former President of India, Dr. APJ Abdul Kalam when, his Excellency was scientific advisor to Govt. of India. Further, the governing council also has the Hon‟ble Minister of Communication and Information Technology as its Chairman and several high-ranking government officials along with the eminent technocrats of the country. 12. The main object of which the trust is formed are as under:- 3.1 The society has been established as a non-profit society only for the objects as under:- 3.1.1 To advance the cause of computer communication in the country in all its aspects and dimensions with a view to provide rapid nationwide development of the sector and technological and economic growth of the county. 3.1.2 To develop, design, setup and operate nationwide state of the art c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3.2.3 Work in the areas of advanced computer, networking taking into consideration of both technological forecasts and national needs. 3.2.4 Conduct general and customized educational and training activities for users and others through classroom and distance learning modes. 3.2.5 Conduct National and international conferences including teleconferences, seminars, symposia and workshops to inclulcate awareness of the strategic importance of computer communication and information technology in educational and research. 3.2.6 Carry out guide research leading to advanced degrees from leading national and international educational institutions and universities. 3.2.7 Institute stipends scholarships, associate ship and fellowship to students and individuals. 3.2.8 Carryout demonstration filed trials pilot production of its products and services developed in house or in collaboration with other educational and research institutions. 3.2.9 Develop or acquire and assimilate inputs from indigenous sources of computer networking and information technology and transfer relevant knowledge technology to users. 3.2.10 Promote and ancillary research, d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom within the country and/on abroad including international agencies, cacentral and multilateral agencies subject to prevailing laws of the Government of India and to invest and deal with funds and moneys of the Society and to vary, after or transfer such investments from time to time. 3:2.23 To accept remuneration for, consultancy, design, development, technology transfer, providing services or any related activity in the Country as well as abroad. 3.2.24 To establish and maintain provident and' other funds for the benefit of the employees or for the purpose of the Society and open and operate bank accounts. 3.2.25 Any surplus funds not needed or capable of being used for immediate application towards the objects for the society will be invested by the society only in accordance with the provisions contained from time to time in Income Tax Act 1961 applicable to such organizations which presently are as under:- i) Investment in savings Certificates as defined in clause (c) of section 2 of Govt Savings Certificate Act, 1959 (46 to 1959) and any other securities and certificates issued by the Central Govt under the small savings schemes of that govt. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under the Industrial Development Bank of India Act, 1964 (18 of 1964). 13. The above objects of the assessee must be tested on the actual performance of the trust to understand the nature of activities carried on by it. Assessee has submitted the projects undertaken by it which are as under :- A. ERNET network is a judicious mix of terrestrial and satellite based wide area network. T India provides services through its 15 Points of Presence (PoPs) located across the country. All PoPs are equipped to provide access to Intranet, Internet and Digital Library through trial leased circuits and radio links to the user institutions. The PoP at STPI Bengaluru provides Intranet and Internet access through Satellite. ERNET network supports IPv4 and IPv6 Internet Protocol. IPv6, routing protocol OSPFv3, end to end Ethernet services, QoS (DiffServ), video conferencing, authentication and authorization rave also been implemented on ERNET Network. ERNET provides, services, namely, Network Access Services, Network Applications Services, Hosting Services, Operations Support Services und Domain Registration Services under srnet.in, ac.in, edu.in res.in domains. The network ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsure a balance between the requirements for researcher's collaboration and the stakeholder s expectations. MyFIRE project consortium includes, four. European partners (Inno TSD SA France, ETSI France, University of Edinburgh UK and Fraunhofer Germany), and four international partners from BRIC (IPT Brazil, ITMO Russia, ERNET India and BII China) countries. 4. Mobile IPv6 Test bed - Mobility between heterogeneous access networks Mobile IPv6 test bed is a joint project between ERNET India and Indian Institute of Science (IISc) -Bengaluru which is funded by the Department. Under the project, a WLAN access network testbed has been setup at ERNET Bengaluru with Mobile IPv6Home Agent (HA), Mobile Node (MN) anti Correspondent Node (CN) services configured using the UMIP MIPv6 stack. The seamless network layer mobility test between different WLAN subnets is completed. 5. 6L0WPAN - Management and Monitoring of Wireless Sensor Networks 6L0WPAN is a joint project between, ERNET India and IISc Bengaluru, funded by the Department. IEEE 802.15.4 Low-rate Wireless Personal Area Network (LoWPAN) standard supports wireless connectivity in low-cost devices that operate with limited ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een made disable friendly through setting up of ICT centers for students who are physically challenged, and those with hearing or vision impairment. 11. Moll with State Government of Rajasthan for establishing ICT Infrastructure at Schools in rural areas This Memorandum of Understanding (MoU) is made between ERNET India and State Government of Rajasthan for establishing Information Communication Technologies (ICT) Infrastructure in the Schools located in rural areas of Rajasthan. ICT Centres have been setup under the project in 250 Schools located in rural areas of Ajmer and Jaipur districts. The establishment of connectivity to the ICT centers is in progress. 12. c-Linkage of Krishi Vigyan Kendras under ICAR Under an MoU, ERNET India has established a dedicated VSAT Hub and deployed Information Technology Infrastructure at 200 Krishi Vigyan Kendras (KVKs)/ Zonal Project Directorates (ZPDs) under ICAR to develop them into Information Hubs. E-Linkage of the remote 200 KVKs/ZPDs has been established with the VSAT Hub at ICAR Headquarters in New Delhi. The scientists, and officials at each of the KVK/ZPD can access Internet, e-mailing and web services on 24X7 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Conferences Workshops A PAN (the Asia Pacific Advanced Network) refers to both the organization representing its members, and to the backbone network that connects the research and education networks of its member countries/economies to each other and to other research networks around the world. APAN coordinates developments and interactions among its members, and with peer international organizations, in both network technology and applications, and is a key driver in promoting and faciiitating network-enabled research collaboration; knowledge discovery telehealth; and natural disaster mitigation. ERNET India is a primary member of APAN (the Asia Pacific Advanced Network) representing the education and research network of the country. During 22nd-26lh August 2011, ERNET India organized the 32nd Asia Pacific Advanced Network Meeting at New Delhi. The workshop was attended by around 330 delegates from India and abroad. 14. Over and above this, the assessee is also carrying on several projects for which grants have been received such as for VCSC for disabled children, dynamic web content for CERT, traffic analysis for CERT, project for digital library, project VI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arrying on charitable purposes if they carry on any activity in the nature of trade, commerce and business for a cess, fee or any other consideration. If the above conditions are fulfilled then use of the income is immaterial. The main reason for the insertion of the above proviso is to deny the exemption to the institutions which are driven primarily by a desire or motive to earn profit and do charity through the advancement an object of general public utility‟ then such institutes shall not be regarded as institutions established for charitable purposes. Hon'ble Delhi High Court in (371 ITR 333) in India Trade Promotion Vs. DGIT has held that the correct interpretation of proviso to section 2(15) would be that it carves out an exception from the charitable purposes of advancement of any other object of general public utility‟ and that exception is limited to activities in the nature of trade, commerce or business or any activity of rendering any service in relation to trade, commerce or business for a cess or fee or any other consideration. Therefore, it is important to see the dominant and the prime objective of the institution. If the dominant and prime object ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... profit making is not the driving force or dominant objective of the assessee. The assessee has given enough evidences to show that profit earning is not the driving force or objective of the assessee. As the principal emerges from the decision of the Hon'ble Supreme Court in CIT Vs. Surat Art Silk Manufacturing Association 121 ITR 1 activity for the profit connotes that the predominant object of the activity must be the making of profit. It is not enough that as a matter of fact the activities results into profit. Where an activity is not pervaded by the profit motive but is carried on primarily for serving the charitable purposes, it would not be correct to describe it as an activity for profit merely because profit accrues. Even the proposition was rejected that if the purposes truly charitable, the attainment of the purpose must rigorously exclude any activity for profit. Further, conversely where profit making is the predominant object of the activity, the purpose though it may aim at advancing an object of general public utility, would cease to be a charitable purpose u/s 2(15) of the Act. It is demonstrated by assessee by overwhelming evidences that its activities do not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y service in relation to any trade, com merce or business, for a cess or fee or any other consideration, irre spective of the nature of use or application, or retention, of the income from such activity. A second proviso inserted to section 2(15) by Finance Act, 2010, with ret rospective effect from April 1, 2009, reads as under : Provided further that the first proviso shall not apply if the aggre gate value of the receipts from the activities referred to therein is ten lacs or less in the previous year. Rupees ten lakhs mentioned in the second proviso stands enhanced to rupees twenty-five lakhs by the Finance Act, 2011, with effect from April 1, 2012. The main section 2(15) of the Act has also undergone amendments, now reads : 2. In this Act, unless the context otherwise requires,- . . . (15) 'charitable purpose' includes relief of the poor, education, medical relief, preservation of environment (including watersheds, forests and wild life) and preservation of monuments or places or objects of artistic or historic interest, and the advancement of any other object of general public utility : Provided that the advancement of any other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in such a manner that it does not result in any profit. It would indeed be difficult for persons in charge of a trust or institution to so carry on the activity that the expenditure balances the income and there is no resulting profit. That would not only be difficult of practical realization but would also reflect unsound principle of management. Period post the amendment, vide Finance Act, 2008, with effect from April 1, 2009 14. A bare perusal of the main provision indicates that there are four main factors that need to be taken into consideration before classifying the activity of the assessee as charitable under the residuary category, i.e., advancement of any other object of general public utility under section 2(15) of the Act. The four factors are (i) activity should be for advancement of general public utility, (ii) activity should not involve any activity in the nature of trade, commerce and business, (iii) activity should not involve rendering any service in relation to any trade, commerce or business, (iv) activities in clauses (ii) and (iii) should not be for fee, cess or other consideration and if for fee, cess or consideration the aggregate va ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny activity of rendering of any service in addition to any trade, commerce or business, it would be covered under the pro viso and the bar/prohibition will apply. Scope of trade, commerce or business 16. The key words, namely ; trade, commerce and business were enumerate and elucidate in Institute of Chartered Accountants of India v. Director- General of Income-tax (Exemptions) [2012] 347 ITR 99 (Delhi) as under (page 113) : Trade, as per the Webster's New Twentieth Century Dictionary (2nd edition), means, amongst others, 'a means of earning one's living, occupation or work'. In Black's Law Dictionary, 'trade' means a business which a person has learnt or he carries on for procuring subsistence or profit ; occupation or employment, etc. The meaning of 'commerce' as given by the Concise Oxford Dictionary is 'exchange of merchandise, specially on large scale'. In ordinary parlance, trade, and commerce carry with them the idea of purchase and sale with a view to make profit. If a person buys goods with a view to sell them for profit, it is an ordinary case of trade. If the transactions are on a large scale it is c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as business, there must be a course of dealings continued, or contemplated to be continued, normally with an object of making profit and not for sport or pleasure (Bharat Development P. Ltd. v. CIT [1982] 133 ITR 470 (Delhi)). The third essential characteristic is that a business transaction must be between two persons. Business is not a unilateral act. It is brought about by a transaction between two or more persons. and, lastly, the business activity usually involves a twin activity. There is usually an element of reciprocity involved in a business transaction.' 17. In the said case, reliance and reference was made to State of Punjab v. Bajaj Electricals Ltd. [1968] 70 ITR 730 (SC) ; [1968] 2 SCR 536, Khoday Distilleries Ltd. v. State of Karnataka [1995] 1 SCC 574, Bharat Development P. Ltd. v. CIT [1982] 133 ITR 470 (Delhi), Barendra Prasad Ray v. ITO [1981] 129 ITR 295 (SC), State of Andhra Pradesh v. H. Abdul Bakshi and Bros. 15 STC 664 (SC), State of Gujarat v. Raipur Manufacturing Co. Ltd. 19 STC 1 (SC), Director of Supplies and Disposal v. Member, Board of Revenue 20 STC 398 (SC) and Mrs. Sarojini Rajah v. CIT [1969] 71 ITR 504 (Mad) to explain the terms trade, c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ublication Fund (supra) can be applied. The six indicia stipulated in Lord Fisher (supra) are also relevant. Each case, therefore, has to be examined on its own facts. 20. Recently in another decision in WP(C) No. 1755 of 2012 titled Bureau of Indian Standards v. Director-General of Income-tax (Exemptions) [2013] 358 ITR 78 (Delhi) dated September 27, 2012, it was held that Bureau of Indian Standards (BIS) was carrying on charitable activities as described within the ambit of section 2(15) and was entitled to registration/notification under section 10(23C)(iv). We, however, note that there is one distinction between the present petitioner and BIS. BIS is a statutory authority created by the legislation and, therefore, their case and claim stands on a better footing but this does not imply that only statutory bodies can be treated as established for charitable purpose under section 2(15) of the Act. Such contention has not been raised and cannot be sustained/accepted. Circular No. 11 of 2008 by the Central Board of Direct Taxes 21. It may be relevant to reproduce extract from Circular No. 11 of 2008, dated December 19, 2008, issued by the Central Board of Direct T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purpose' within the meaning of section 2(15), would be well advised to eschew any activity which is in the nature of trade, commerce or business or the rendering of any service in relation to any trade, commerce or business. (emphasis supplied) 22. It is, evident from Circular No. 11 of 2008 that the new proviso of section 2(15) of the Act is applicable to the assessees who are engaged in commercial activities, i. e., carrying on business, trade or commerce, in the garb of public utility to avoid tax liability as it was noticed that the object of general public utility was sometimes only a mask or device to hide the true purpose which was trade, commerce or business. Discussion ; Activities of the petitioner and difference between business and charity 23. In the present case, the business is not held in trust and neither is the business feeding the charity. The very act or activity of charity as claimed by the petitioner is regarded by the Revenue as nothing but business, trade or commerce. Money received, of course is used and utilized for the charitable activities. Four reasons are elucidated and propounded in the impugned order to state that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oys monopoly and has exclusive rights to issue global bar coding system GS1 in India. However, the petitioner is not dealing or treating the prized rights as a right, which is to be exploited commercially to earn or generate profits. A coding system of this nature if marketed on commercial lines with profit motive would amount to business but when the underlying and propelling motive is not to earn profits or commercially exploit the rights but general public good , i.e., to promote and make GS1 coding system available to Indian traders, manufacturers, Government, etc., it will fail the test of business and meets the touchstone of charity. The petitioner is not directly or indirectly subjecting their activity to market mechanism/dynamics (i.e., demand and supply), rather it is motivated and prompted to serve the beneficiaries. This is not a case of commercial exploitation of intellectual property rights to earn profits but rather a case where a token fee has been fixed and payable by the user of the global identification system. 27. The petitioner does not cater to the lowest or marginalized section of the society, but Government, public sector and private sector manufacture ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ken into consideration and cannot be ignored. There are stipulations in sections 11, 13, etc., of the Act to prevent misuse of or siphoning of funds, bar/prohibit gains to related persons, stipulations of time limits for use of funds, which are effective checks and curtail and deny benefit in cases of abuse. There is no such allegation or contention of the Revenue in the present case. 30. As observed above, the fee charged and the quantum of income earned can be indicative of the fact that the person is carrying on the business or commerce and not charity, but we must keep in mind that charitable activities require operational/running expenses as well as capital expenses to be able to sustain and continue in long run. The petitioner has to be substantially self-sustaining in long-term and should not depend upon the Government, in other words, taxpayers should not subsidize the said activities, which nevertheless are charitable and fall under the residuary clause general public utility . The impugned order does not refer to any statutory mandate that a charitable institution falling under the last clause should be wholly, substantially or in part must be funded by voluntary c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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