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TMI Blog2020 (7) TMI 245X X X X Extracts X X X X X X X X Extracts X X X X ..... ts profits by way of dividend to its members. Even in case of dissolution or winding up, the residual surplus was not to be distributed amongst the members but were to be transferred to specified entity having similar objects. Assessee has sole authorization from RBI to operate the payment systems in India. The overall regulation as well as supervision was to be exercised by RBI in terms of PSS Act, 2007. Although the assessee was not created under PSS Act, 2007 but it was sole authorized arm of RBI to carry out payment settlement system in India in a professional manner by utilizing the latest technology. The overall purpose was to achieve broad-based social objective to bring efficiency in the clearing systems in India with a view to benefit society at large. Hence, it could be concluded that the assessee s objectives were to promote the welfare of general public. Clearing functions of RBI were divested to the assessee with the emergence of PSS, Act 2007. The electronic payment infrastructure created by the assessee would enable a larger section of the society to enjoy unparalleled secure and convenient payment systems. The systems being developed by the assessee would bring down ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in facility and services and therefore, the assessee would not be covered by the proviso to Sec. 2(15) - assessee was engaged in creating infrastructure facilities to improve the clearing mechanism. However, by creation of this facility, the assessee would ultimately be rendering the services to various entities and therefore, the fine distinction between the expression facility and services, in such a case, would get blur. On the facts and circumstances, it would not be correct to say that the assessee was merely creating facility and not providing any services and not hit by proviso to Sec.2(15). We do not find much substance in this argument. Assessee has been granted a valid registration u/s 12AA of the Act which has never been revoked by the revenue authorities - The registration has been granted post-insertion of proviso to Sec.2(15). Therefore, considering the said fact alone, the deduction could not be denied to the assessee. However, the said fact on standalone basis, in our considered opinion, would not entitle the assessee to claim the exemption u/s 11 12 which is evident from the terms of registration certificate itself. Considering all and applying the theory of domina ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Company under section 25 of the Companies Act, 195h and was prohibited by its object clause from carrying on any activity on commercial basis. 3) The AO and the CIT(A) ought to have held that the entire history / genesis behind the formation of the appellant, the manner of and purpose behind the formation of the appellant, the fact that the appellant had been licensed by the Central Government under section 25 of the Companies Act and the tact of involvement of the Ministry of Finance and Reserve Bank of India in the formation of the appellant clearly showed that the appellant's case did not come within the scope of the proviso to section 2(15) of the Act. 4) The CIT(A) erred in holding that Re.1 per transaction charged by the appellant to banks was consideration for services rendered by the appellant even though admittedly the appellant had merely provided an infrastructure facility to banks and recovered costs thereof. He failed to appreciate that provision of an infrastructure facility to banks cannot be equated with rendering of a service. 5) The CIT(A) erred in holding that profit motive is not required to be proved for the applicability of the first proviso to section 2(1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ility. The first proviso to Sec 2(15) as introduced by The Finance Act, 2008 w.e.f. 01/04/2009 provide that the last limb i.e. advancement of any other object of general public utility shall not be a charitable purpose, if it involves the carrying on of any activity in the nature of trade, commerce or business or any activity of rendering any service in relation to any trade, commerce or business, for a cess or fee or for any other consideration, irrespective of the nature of use or application, or retention, of the income from such activity. The proviso has two limbs and provide that the advancement of any other object of general public utility shall not be a charitable purpose if it involves the carrying on of: - (i) any activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business, (ii) irrespective of the nature of use or application, or retention, of the income from such activity. The Finance Act, 2010 added 2nd proviso to provide that 1st proviso shall not apply if the aggregate value of the receipts from the activities referred to therein was below ₹ 10 Lacs in the previous year. The Hon b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... while rendering certain services and therefore, it was not eligible to claim the stated benefit. As per the chart, the fees charged by the assessee has drastically been reduced by 70% from Re.1/- per transaction in AY 2010-11 to Re.0.30 per transaction in AY 2020-21 as tabulated below: - Date of Resolution Period Rate per transaction (INR) Reduction (%) From To From 1st January, 2010 (i.e from commencement of activity 31st March 2010 1 - 23rd March 2010 1SI April 2010 8th August 2010 0.8 20% 30th July 2010 9th August 2010 30th April 2015 0.5 50% 20th May 2015 1st May 2015 30th September 2017 0.45 55% 11th August 2017 1st October 2017 30th September 2018 0.4 60% 25 September 2018 1st October 2018 31st March 2019 0.35 65% 25th September 2018 1st April 2019 - 0.3 70% 3.4 The Ld. Sr. Counsel, also assailed the violation of the provisions of Sec.13(1)(c)(ii) as alleged by Ld. AO by submitting that there was no contributor in the assessee entity and no benefit was provided to any of the contributors. The Ld. Sr. Counsel, on the strength of the language of various statutory provisions as well as in the light of various judicial pronouncement, sought to draw the distinction between subscri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nism only advances the economic activity and supports the payment system leading to economic buoyancy. However, there was no element of charity in the domain of the governance. The Ld. CIT-DR drew attention to the fact that the assessee reflected surplus of ₹ 11.50 Crores against revenue of ₹ 17.58 Crores which was in the shape of commercial fees. The Ld. CIT-DR also submitted that any person desirous of commencing the payment system may apply to RBI for an authorization under the Act. The assessee has no monopoly since there are other prominent players like paytm operating in the market. In the said background, Ld. CIT-DR supported the denial of benefit of Sec. 11 12. The written submissions were filed in due course which have duly been considered by us. 5. We have carefully heard the arguments advanced by both the representatives. We have gone through material placed before us. We have also deliberated on various judicial pronouncements as cited before us during the course of hearing. Our adjudication to the subject matter of appeal would be as given in succeeding paragraphs. Factual Matrix and Summary of Proceedings before lower authorities 6.1 Facts on record would ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hare capital of the assessee has been set at ₹ 300 Crores consisting of 3 crores equity shares of ₹ 100/-each. As per Article-191, The company is specifically prohibited from distributing profits, in any manner, including payment of any dividend or remuneration to its members. 6.4 Section 25 of The Companies Act, 1956 is a special provision for registration of companies which are set up for promoting commerce, art, science, charity or any other similar useful object to promote public good and which do not intend to distribute their profits by way of dividend to its members. The assessee has been registered as Section 25 Company under The Companies Act, 1956. 6.5 The genesis of assessee company, as aptly noted by Ld. AO in the quantum assessment order, stem from the fact that Reserve Bank of India (RBI) formed a committee on technology upgradation in payment systems. The committee recommended a variety of payment applications which could be implemented with appropriate technology upgradation and development of a reliable communication network. The committee suggested setting up of an information technology institute for the purpose of research and development as well as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y Ld.AO, in para 4.5, are as follows: - 1. To promote the activities of bankers clearinghouse, owning, establishing operating, maintaining and consolidating payment system is for local, regional and national settlement of funds through electronic and paper based clearing systems, and related arrangements for evolving standards and procedures necessary for promoting, sound, efficient and cost-effective clearing and payment system is and to do all such acts and deeds as am necessary to ensure deeper penetration into smaller places. 2. To develop a secure dedicated and robust communication backbone consisting of intranets for the banking and financial sector and the other participants and getaways for communication including providing network for participation by ail categories of banks and financial institutions to benefit out of the uses of a closed user group network, to expand the network to become a combination of satellite and terrestrial modes of communication, and to initiate action for interconnectivity of the network to the network of banks to facilitate straight through processing and to design and develop and implement critical payment system projects to enable utilisation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and its income could not be distributed by way of dividend. It was granted registration u/s 12AA after seeing its no-profit activity. Further, it charges fee merely to meet the cost of operations and income so generated is incidental in nature and not with a view to generate profits. 6.11 However, the said arguments could not convince Ld. AO who opined that the assessee carried out systematic activity in the nature of business and its activities were hit by proviso to Sec.2(15). The Ld. AO also refused to accept the argument that the assessee was a part of RBI establishment. In fact, the assessee company was promoted by various commercial banks and it was a not a regulatory authority having power of supervision, control like in the case of other regulatory authorities like BIS, IRDA etc. Further, the assessee was merely an operational and infrastructural part of whole retail payment systems. Therefore, in para 4.10, a conclusion was drawn that the assessee s activities were hit by proviso to Sec.2(15) and its income was not eligible for exemption u/s 11 12. 6.12 Another reason to deny the exemption was the belief of Ld.AO that the assessee was hit by the provisions of Sec.13(1)(c)( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ofit motive is not required to be proved. On perusal of the income and expenditure account for the year ended 31 March 2010 it is noted that the total expenditure booked is only ₹ 6.22 crores against which the surplus generated is ₹ 11.50 crores which is about 2 times. Thus, contention of the appellant that there is no profit is factually also not correct. iii. The appellant in its submissions has agreed that its objects fall in the category 'advancement of any other object of general public utility . It has however been disputed that there is no activity of rendering any service in relation to any trade, commerce and business. In this regard it is mentioned that the payment received from the banks as mentioned by AO in Para 4.6 of his assessment order, is against the services rendered by the appellant. Rendering any service in relation to trade, commerce or business to the parties from whom consideration is due thereof is received is directly covered by first proviso to section 2(15), Its activity of National Financial Switch -ATM Switch is in the nature of rendering services In relation to business of all banks involved that are commercial entities and the facilit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h is not the case of the appellant. In this regard it is mentioned that the AO has invoked provisions of section 13(1)(c)(ii) which says that sec. 11 shall not apply in the case of a trust if any part of its income is applied directly or indirectly for the benefit of any person referred to in subsection (3). It is not disputed that the banks to whom services have been rendered are falling within the category of persons referred to in Section 13(3). Accordingly, I agree with the AO that the appellant has applied its income directly as well as indirectly for the benefit of persons mentioned in section 13(3) and consequently hit by the provisions of section 13(l)(c)(ii). The judgement of Hon. Delhi High Court in the case of Maruti Centre for Excellence 21 taxmann.com 474 relied upon by the A.O is squarely applicable to the facts of the appellant's case relevant part of which reads as under: Section 13(1)(c)(ii) deals with actual functioning and activities undertaken during the assessment year in question. The said section has to be read along with section 13(3). Section 13(l)(c)(ii) states that no part of the income or any property of the institution should be used or applied dire ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not required to be proved. Further, the activity of NFS-ATM switch would be in the nature of rendering services in relation to business of all banks involved and facilities provided by the assessee would lead to huge value addition to the services provided by the bank to its customers. The profit motive behind such business, commerce or trade activity is not required to be separately examined and proved for applicability of proviso to Sec. 2(15). This proviso would apply to any regulatory body or body incorporated by Government since no exception is provided under the proviso. Further the provisions of Sec 13(1)(c)(ii) were applicable to the assessee. Therefore, the stand of Ld. AO in denying the exemption was upheld. Aggrieved as aforesaid, the assessee is under further appeal before us. 7. In the written note furnished on behalf of the assessee, the manner in which the assessee entity was incorporated and the nature of activities being carried out by it has been elaborated. Since the appraisal of these facts would be vital for determination of the subject matter of appeal, we deem it to fit to bring the same on record. It has been submitted that the assessee is an umbrella organ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were not to be paid to the shareholders as dividend but would be used only for further development of payment system. At the time of passage of the PSS Bill, 2006 the then Hon ble Finance Minister, inter-alia, reiterated that NPCI was a non-profit corporation and a Section 25 company and that its income would not be distributed as dividends but would be ploughed back for creation of infrastructure. He further stated that NPCI will be a public sector corporation owned by Public Sector Banks, who will own not less than 51% in NPCI. Section 2(i) and section 2(n) of PSS Act, 2007 define payment and settlement whereas sections 3-9 of the said Act deal with authorization of payment systems by RBI. Accordingly, NPCI was incorporated as Section 25 Company and it was specifically provided in its Memorandum of Association that none of its objects shall be carried out on a commercial basis. The income and the property of NPCI shall be applied solely for the promotion of its objects and that no part thereof shall be paid or transferred by way of dividend, bonus or otherwise by way of profit. The Board for Regulation and Supervision of Payment and Settlement Systems at its meeting held on 24/09 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate Payment Service (IMPS) This facility is stated to be a 24X7, real time, cost effective, independent retail payment service introduced by NPCI empowering customers to transfer money instantly within banks and RBI authorized Prepaid Issuers (PPls) across India. The underlying concept behind IMPS is to provide customers any time, any place real-time remittance access to meet their various payment needs. Using IMPS, a customer can transfer funds on real-time basis to another person or merchant for any personal or commercial purposes. IMPS is stated to be preferred mode for receiving inward cross border remittances by the banks. Cheque Truncation System (CTS) This system is stated to have replaced physical movement of cheques from banks to clearing houses. This is done by electronic transmission of images of the cheques and the relevant data, which ensure faster clearing mechanism. RuPay This facility is stated to be multilateral payment system with a view to create cash-less economy and make India a financial inclusive economy. This facility is meant to provide a safe, secured and low-cost payment mechanism to the public at large with a view to fulfill the objective of financial in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in objective would be to establish safe, secure, sound and efficient payment system in India, matching international standards and best practices. This proposed entity would provide a robust and technologically intensive centralized system offering Electronic Clearing Services (ECS), Electronic Funds Transfer (EFT) and National Electronic Fund Transfer (NEFT) services covering the entire country and to take initiatives on ATM-switching, multi-application smart card, e-commerce and m-commerce based payment systems. This new entity would bring about efficiency enhancements and uniformity in the existing payment products and develop new products taking advantage of technology innovation. In this background, the document envisions setting up of an institution at national level which would own and operate all retail payment systems of the country. To achieve this, the document proposes enactment of Payments and Settlement Bills. 8.3 Subsequently, Govt. of India introduced The Payment and Settlement Systems Bill, 2006 in the year 2006 to facilitate the oversight of Payments and Settlement Systems in the country by RBI. After review of the bill by a standing committee set up by Parliament ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Board for Regulation and Supervision of Payment and Settlement Systems, at its meeting held on 24/09/2009, granted inprinciple authorization to NPCI for operating various retail payment systems in India. The RBI on 15/10/2009, in exercise of powers conferred under the PSS Act, 2007, granted authorization to assessee to take over the operations of National Financial Switch (NFS) from IDRBT. The assessee took over NFS operations from 14/12/2009 and it started charging a fee of Re.1 per transaction undertaken by customers of banks using the NPCI s infrastructure. The fee has gradually been reduced over the years by as much as 70% notwithstanding the fact that the assessee was enjoying monopoly over the payment systems. As of today, the assessee is stated to have received authorization from RBI under the PSS Act to build a central infrastructure for payment systems like NFS. IMPS, CTS, National Automated Clearing House, AEPS and RuPay which has already been elaborated in preceding paragraphs. 8.8 Thus, from the perusal of chronology of these events, it is quite discernible that the assessee has sole authorization from RBI to operate the payment systems in India. The overall regulation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l within the meaning of Service as defined in Service Tax Regulations. However, the payment thereof would not bring about material change in assessee s primary objective. The assessee would naturally be bound to follow the law of land as applicable to it. 8.12 The Ld. CIT-DR has sought to equate the activities of the assessee with that of e-commerce payment system paytm . However, no substance could be found in the same since the assessee was a national level entity envisioned by RBI to take over the clearing mechanism in a unified manner on PAN India basis. The activities of the assessee could not be equated with e-commerce payment system paytm which was merely facilitating e-payments to certain users and it would merely be using the infrastructure created by the assessee. Therefore, the said argument could not be accepted. 8.13 So far as the applicability of the provisions of Sec.13(1)(c)(ii) are concerned, we find that the facilities / services being provided by the assessee were uniformly available to the user of the system against same fee. No concession in fee was given to the promoter entities and it could not be said that the assessee directly or indirectly applied its inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e trust would fall within the expression charitable purposes as defined in Sec. 2(15) or not. Whether the assessee has actually carried out its objects could only be ascertained at the time of framing of assessment by Ld. AO. Therefore, the said plea also could not be accepted. In the case law of Hon ble Gujarat High Court in Hiralal Bhagwati V/s CIT (2000 246 ITR 188), as relied upon by the assessee, it was held that Ld. AO could not go into the re-examination of assessee s objects to determine whether it was charitable in nature or not. However, in the present case, Ld. AO has merely invoked proviso to Sec.2(15) to deny the exemption to the assessee. Therefore, the said case law as well as other case laws drawing strength from the same, is on different tangent and do not touch upon the issue of proviso to Sec.2(15) and hence, not applicable to the present case. In the present case, the fact that the assessee was registered with a charitable purpose has not been doubted by Ld. AO. 8.16 Another pertinent factor which goes in assessee s favor is that the assessee took over existing activities of National Finance Switch (NFS) from Institute for Development Research in Banking Technol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he same is very well applicable to the facts of present case. The Hon ble Court, in the course of stated judgement, has elaborately considered its own decisions rendered in: - (i) Institute of Chartered Accountants of India V/s DGIT (347 ITR 99) (ii) Bureau of Indian Standards V/s DGIT (2013 212 Taxman 210) (iii) Institute of Chartered Accountants of India V/s DGIT [358 ITR 91 04/07/2013] (iv) M/s GSI India V/s DGIT (2013 219 Taxman 205) In the case of Institute of Chartered Accountants of India V/s DGIT [358 ITR 91 04/07/2013], it was observed by Hon ble court that the purpose and dominant object for which an institution carried on its activities is material to determine whether the same is business or not. The purport of the first proviso to Section 2(15) was not to exclude entities which are essentially for charitable purpose but are conducting some activities for a consideration or a fee. The objective to introduce the proviso was to exclude organizations which were carrying on regular business from the scope of charitable purpose. The expression business, trade or commerce was to be interpreted restrictively and where the dominant objective was charitable any incidental activi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e purpose and not to earn profit, it would not lose its character of a charitable purpose merely because some profit arises from the activity. 8.19 Similarly, Hon ble Allahabad High Court in CIT V/s Lucknow Development Authority 265 CTR 433 16/09/2013 has held that where a trust is carrying on its activities for the fulfilment of its aims and objectives which are of charitable in nature with no motive to earn profit and in the process, earns some profit, the same would not be hit by proviso to Section 2(15). 8.20 Therefore, considering the entirety of facts and circumstances and applying the theory of dominant purpose test, the inevitable conclusion that could be drawn is that the assessee was entitled for exemption u/s 11 12. The mere fact that certain fee was charged by the assessee while rendering certain services and surplus was generated, the said fact alone, would not disentitle the assessee to claim the impugned exemption u/s 11 12 considering the fact that the primary objects of the assessee were charitable in nature. No substance could be found in the allegation of violation of Sec.13(1)(c)(ii). Accordingly, the lower authorities are directed the grant the exemption to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l (ITAT). The situation led to unprecedented disruption of judicial work all over the country and the order could not be pronounced despite lapse of considerable period of time. The situation created by pandemic covid-19 could be termed as unprecedented and beyond the control of any human being. The situation, thus created by this pandemic, could never be termed as ordinary circumstances and would warrant exclusion of lockdown period for the purpose of aforesaid rule governing the pronouncement of the order. Accordingly, the order is being pronounced now after the re-opening of the offices. 10.3 Faced with similar facts and circumstances, the co-ordinate bench of this Tribunal comprising-off of Hon ble President and Hon ble Vice President, in its recent decision titled as DCIT V/s JSW Limited (ITA Nos. 6264 6103/Mum/2018) order dated 14/05/2020 held as under: - 7. However, before we part with the matter, we must deal with one procedural issue as well. While hearing of these appeals was concluded on 7th January 2020, this order thereon is being pronounced today on 14th day of May, 2020, much after the expiry of 90 days from the date of conclusion of hearing. We are also alive to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... then arises whether the passing of this order, beyond ninety days, was necessitated by any extraordinary circumstances. 9. Let us in this light revert to the prevailing situation in the country. On 24th March, 2020, Hon ble Prime Minister of India took the bold step of imposing a nationwide lockdown, for 21 days, to prevent the spread of Covid 19 epidemic, and this lockdown was extended from time to time. As a matter of fact, even before this formal nationwide lockdown, the functioning of the Income Tax Appellate Tribunal at Mumbai was severely restricted on account of lockdown by the Maharashtra Government, and on account of strict enforcement of health advisories with a view of checking spread of Covid 19. The epidemic situation in Mumbai being grave, there was not much of a relaxation in subsequent lockdowns also. In any case, there was unprecedented disruption of judicial wok all over the country. As a matter of fact, it has been such an unprecedented situation, causing disruption in the functioning of judicial machinery, that Hon ble Supreme Court of India, in an unprecedented order in the history of India and vide order dated 6.5.2020 read with order dated 23.3.2020, extende ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w the law is required to interpreted. The interpretation so assigned by us is not only in consonance with the letter and spirit of rule 34(5) but is also a pragmatic approach at a time when a disaster, notified under the Disaster Management Act 2005, is causing unprecedented disruption in the functioning of our justice delivery system. Undoubtedly, in the case of Otters Club Vs DIT [(2017) 392 ITR 244 (Bom)], Hon ble Bombay High Court did not approve an order being passed by the Tribunal beyond a period of 90 days, but then in the present situation Hon ble Bombay High Court itself has, vide judgment dated 15th April 2020, held that directed while calculating the time for disposal of matters made timebound by this Court, the period for which the order dated 26th March 2020 continues to operate shall be added and time shall stand extended accordingly . The extraordinary steps taken suo motu by Hon ble jurisdictional High Court and Hon ble Supreme Court also indicate that this period of lockdown cannot be treated as an ordinary period during which the normal time limits are to remain in force. In our considered view, even without the words ordinarily , in the light of the above analys ..... X X X X Extracts X X X X X X X X Extracts X X X X
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