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TMI Blog2020 (9) TMI 1095X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 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 contributions. No such requirement has been pointed out or argued. A practical and pragmatic view is required when we examine the data, which should be analyzed objectively and a narrow and coloured view will be counter-productive and contrary to the l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y covered in favour of the assessee. 3. On the other hand, ld. DR strongly relied upon the order of the Assessing Officer. 4. The facts in brief are that the assessee is an autonomous society established under the aegis of Department of Information Technology, Ministry of Communications and Information Technology, Government of India, as a non-profit organization. The main objects of the assessee s society was to run nation-wide academic and research network to undertake and promote R D in the area of communication, develop policy options in the country for development of network infrastructure and to act as research center for technological and managerial resources in the area of computer network. Looking to the activities carried out by it, which fell within the ambit of charitable purposes under section 2(15), it was granted registration u/s.12A vide order dated 26.03.2004. Ld. Assessing Officer observed that, assessee is neither in the field of education nor in the field of medical relief or relief of poor albeit it falls within the scope of general public utility as per Section 2(15) of the Act. The ld. Assessing Officer held that looking to its receipts, its activities were c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vancement of high quality education, create and host content, express creative and academic potential via intranet and intranet peer to peer connectivity among educational and research institutions in the country and the world and make available the communication infrastructure to users in academic, research and development institutions, Govt organizations in line with national priorities. 3.1.3 To undertake and promote education, research, development, training and standardization in the area of computer networking and information technology as well as allied areas of communication and to provide a forum for such activities. 3.1.4. To promote and inculcate awareness of the strategic importance of computer communication and information technology for the benefit of academic, research and development institutions, Government organizations and public at large. 3.1.5 To develop policy options for consideration of the Government for development of information infrastructure and computer networking in the country and implement/participate in programme thereof. 3.1.6 To make available its experience and know how for the effective utilization of the technology and provide services to pote ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tudies technology development and consultancy projects to other institutions, organizations and companies to achieve objectives of the society and disburse funds and grants for the purpose. 3.2.12 Invite experts in the filed each from within and outside the country for advice consultancy and participation in specific arrangements. 3.2.13 Participate in and /or promote professional bodies and institutions in the country and abroad. 3.2.14 Undertake publications in the form of papers, books, monographs and journals on various media including electronic media. 3.2.15 Disseminate its findings, development and inventions etc. through exhibitions and other promotional activities in the area of computer networking and Information Technology. 3.2.16 Apply for registration of patents arid copyrights to protect intellectual property rights for the products and services developed by the Society by itself or in collaboration with others. 3.2.17 To purchase or take on lease or hire or develop or improve or construct or after or execute of maintain or otherwise acquire temporarily or permanently any movable or immovable property including land and building machine and equipment works etc and to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the state bank of India constitutes under the State Bank of India Act 1955 (23 of 1959) a subsidiary bank as defined in the state bank of India (Subsidiary banks) Act 1959 (38 of 1959), a corresponding new bank constituted under section 3 of the banking companies (Acquisition and transfer of Undertakings) Act, 1970 (5 of 1970) or under section 3 of the Banking Companies ( Acquisitions and Transfer of Undertakings) Act 1960 (40 of 1980) or any other bank being a bank included in the second schedule to Reserve Bank of India Act, 1934 (2 of 1934) iv) Investment in units of the unit trust of India established under the Unit Trust of India Act, 1963) (52 of 1963) v) Investment in any security for money created and issued by the Central Government or a State Government; vi) Investment in debentures issued by. or on behalf of, any company corporation both the principal whereof and the interest whereon are fully and unconditionally guaranteed by the Central Government or by a Stale Government; vii) Investment or deposit in any public Sector company; viii) Deposits with or investment in any bonds issued by a financial corporation which is engaged in providing long-term finance for industri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n, ac.in and res.in have been registered, it has also been hosting websites for the academic and research community. B. Research Activities and ICT Projects . 1. Trans Eurasia Information Network - TEIN3 The Trans-Eurasia Information Network (TEIN) initiative was launched at the Asia. Europe Meeting (ASEM) Summit in Seoul in 2000 to improve Euro-Asian research networking. TEIN3 that started in 2009 has expanded its footprint to South Asia bringing the total number of partners to 18. Asian countries - Bangladesh, Bhutan, Cambodia, India, Nepal, Pakistan and Sri Lanka - are also connected/ being connected. In India, TEIN3 Point of Presence (PoP) has been co-located at ERNET PoP at Mumbai and is acting as the hub for connecting research networks in South Asia except Pakistan. From Mumbai, two high speed links of 2.5 Gbps each have been commissioned to Europe and Singapore providing direct connectivity to GEANT (the pan- European data network) and TEIN3 PoP at Singapore. India is now acting as the hub for connectivity between Europe and Asia-Pacific countries. The network of ERNET India is connected to TEIN3 PoP in Mumbai through National Knowledge Network (NKN). The connectivity to TE ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irtual Scalable Educational Services for Schools - a pilot project . In the project, select Kendriya Vidyalayas from Delhi, Bengaluru and Chennai region will participate for which ERNET has signed an MoU with KVS. 7. Setting up Repository of Digitized Data under the Digital Library Initiative The Department has funded a project titled Setting up Repository of Digitized Data under the Digital Library Initiative . As part of this project, ERNET India is to set up a repository for hosting the digitized data and provide Internet bandwidth to three centres namely IISc (Indian Institute of Science) Bengaluru, International Institute of Information Technology (HIT) Hyderabad and CD AC Noida. The digital repository has been set-up at ERNET PoP in Pune and all the available data from IISc Bengaluru has been downloaded and hosted in the new repcaite. 8. e-Linkage of Jawahar Navodaya Vidyalayas Kendriya Vidyalayas ERNET India has provided Internet connectivity to 31 remote Vidyalayas under Kendriya Vidyalaya Sangathan and had also provided connectivity to around 300 Jawahar Navodaya Vidyalayas under the Navodaya Vidyalaya Samiti. 9. Community Information Centre's - Vidya Vahini (CIC-Ws) C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent of Space (DoS), Department of Telecommunications (DoT) and Network Operations Control Centre (NOCC). 13. Campus Network at National University of Juridical Sciences, Kolkata-Under an MoU with the National University of Juridical Sciences (NUJS), Kolkatta, ERNET India has designed setup a fibre optic based gigabit Campus Network connecting academic, administration and finance wings. The work has been completed and is serving-814 user nodes. All blocks, hostels and guest house have been connected through fibre optic cable supporting 10 Gigabit Ethernet Technology. 14. Agreement w ith ICAR for setting up a Centralized Data Center A contract agreement had been concluded with Indian Council of Agricultural Research - National Agricultural Innovation Project (ICAR- NAIP) for setting up a centralized Data Centre for 274 ICAR institutes connected on ERNET through World Bank funding. 15. Video Conference Facility at various Institutes 203 ERNET India has taken up projects for setting up of video conference facility for various Institutions including provisioning of bandwidth, maintenance operational support. ERNET India is implementing/implemented the following Video Conference projects ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is background it is necessary to examine whether the assessee has an object to earn the profit or not. According to the memorandum of association, it is non-profit society. Further, the additional secretary to the Ministry of Communication and Information Technology has also certified that it is functioning under the ministry as an autonomous body and it is working on no profit and no loss basis. Further, it has a mandate to interconnect only educational and research institutions in the country so as to provide services like distance education and digital library. Further, the sole object of setting up of the infrastructure is to improve the quality of education in the country. According to the object of the society, it is setting up ERNET Network. Further, the subscription charged by the assessee from the various subscribers as well as the professional charges is at actual. Merely, on generation of surplus it cannot be said that the assessee is functioning with the motive of earning profit. Further, as per the clause No. 33 of the MOU that in the case of dissolution of the society all the properties shall revert to Department of Information Technology, Govt. of India. All these fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e and have clauses such as of liquidated damages, defect liability clause, performance security requirement, terms and manner of payment fixed with the milestones etc. gives a semblance that assessee is carrying on business. Looking to the various service agreement entered into by the assessee with the service recipient, which is heavily relied upon by the revenue that assessee is carrying on a business. The ld Assessing Officer has cited various clauses of the agreements. we are of the view that the services provided by the assessee are for creating a public infrastructure, which should be sustainable, and effective as the public money is involved in that. This is apparent from the fact that many of the projects of the assessee are based on grants and the payer of the services are various schools, educational institutes and universities and other govt organizations such as Income Tax Department and CBI. Therefore, it is also not correct on part of the revenue to look at various clauses of the agreement and to pick and choose the relevant clauses, which gives a colour to that agreement of a business agreement. It must not be forgotten that assessee may not be engaged in the busines ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t has shown the clear distinction between coaching classes conducted by the private parties and institute of Chartered Accountants of India. We are also of the view that service provided by the assessee is to be looked from different perspective for the reason that its main objective are incidental to education and that too without any profit motive. 20. Ld AR has relied up on the decision of Hon Delhi high court in case of GS1 V DGIT (exemption) 360 ITR 138 (Delhi) (2014) wherein, though the issue pertained to AY 2008- 09, the Hon high court also discussed the provisions w.e.f. 1-4-2009. Hon High court also considered the decision rendered in 347 ITR 99, which is relied up on by revenue. The Hon high court held that Statutory provisions 12. In the present case, the period in question is both prior and subsequent to the amendments made applicable, vide Finance Act, 2008, with effect from April 1, 2009. Before deciding the contentions of the parties we would like to first reproduce section 2(15) of the Act which defines the term charitable purpose before and after its amendment by the Finance Act, 2008. Section 2(15), before amendment by the Finance Act, 2008, was as under : 2. (15) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en raised by the respondent with respect to the first reason (reason a) in view of the authoritative pronouncement of the Supreme Court in Addl. CIT v. Surat Art Silk Cloth Manufacturers Association [1980] 121 ITR 1 (SC). In the said decision, it was held that the primary or dominant purpose of the trust or institution has to be examined to determine whether the said institution/trust was involved in carrying on any activity for profit. If the primary/dominant purpose or object of the trust or institution was to carry out object of general public utility and not any activity for profit then the same would satisfy the requirements of section 2(15) of the Act. Money earned from business held under trust or otherwise, to feed the charity would not disentitle or negate the claim of engagement in charitable purpose defined under section 2(15) of the Act. The following quote from the said judgment is relevant (page 25) : The test which has, therefore, now to be applied is whether the predominant object of the activity involved in carrying out the object of general public utility is to subserve the charitable purpose or to earn profit. Where profit-making is the predominant object of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of rendering any service in relation to any trade, commerce or business. The second part, 'any activity of rendering any service in relation to any trade, commerce or business' obviously intends to expand the scope of the proviso to include services, which are rendered in relation to any trade, commerce or business. The proviso further stipulates that the activity must be for a cess or fee or any other con sideration. The last part states that the proviso will apply even if the cess or fee or any other consideration is applied for a charitable activity/purpose. The proviso has to be given full effect to. Thus, even if cess, fee or consideration is used or utilized for charitable purposes, the proviso and the bar will apply. An institution will not be regarded as established for charitable purpose/activity under the last limb, if cess, fee or consideration is received for carrying on any activity in nature of trade, commerce or business or for any activity of rendering of any service in relation to any trade, commerce or business, even if the consideration or the money received is used in furtherance of the charitable purposes/activities. In view of the first proviso, the de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... finition extensive as the term 'inclusive' has been used. The Legislature has deliberately departed from giving a definite import to the term 'business' but made reference to several other general terms like 'trade', 'commerce', 'manufacture' and 'adventure or concern in the nature of trade, commerce and manufacture'. In Black's Law Dictionary, sixth edition, the word 'business' has been defined as under : 'Employment, occupation, profession or commercial activity engaged in for gain or livelihood. Activity or enterprise for gain, benefit, advantage or livelihood. Union League Club v. Johnson 18 Cal 2d 275. Enterprise in which person engaged shows willingness to invest time and capital on future outcome. Doggett v. Burnet 62 App DC 103 65 F. 2D 191. That which habitually busies or occupies or engages the time, attention, labour and effort of persons as a principal serious concern or interest or for livelihood or profit.' According to Sampath Iyengar's Law of Income Tax (9th edition), a business activity has four essential characteristics. Firstly, a business must be a continuous and systematic exercise of activ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e final and determining factors, it was observed was consequential profit motive or purpose behind the activity and when an activity is trade, commerce or business was elucidated in Institute of Chartered Accountants of India v. Director-General of Income-tax (Exemptions) [2012] 347 ITR 99 (Delhi) in the following words (page 123) : Section 2(15) defines the term 'charitable purpose'. Therefore, while construing the term 'business' for the said section, the object and purpose of the section has to be kept in mind. We do not think that a very broad and extended definition of the term 'business' is intended for the purpose of interpreting and applying the first proviso to section 2(15) of the Act to include any transaction for a fee or money. An activity would be considered 'business' if it is undertaken with a profit motive, but in some cases this may not be determinative. Normally, the profit motive test should be satisfied but in a given case activity may be regarded as business even when profit motive cannot be established/proved. In such cases, there should be evidence and material to show that the activity has continued on sound and recognized bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erted proviso to section 2(15) will apply only to entities whose purpose is 'advancement of any other object of general public utility', i.e., the fourth limb of the definition of 'charitable pur pose' contained in section 2(15). Hence, such entities will not be eli gible for exemption under section 11 or under section 10(23C) of the Act if they carry on commercial activities. Whether such an entity is carrying on an activity in the nature of trade, commerce or business is a question of fact which will be decided based on the nature, scope, extent and frequency of the activity . . . 3.2. In the final analysis, however, whether the assessee has for its object 'the advancement of any other object of general public utility' is a question of fact. If such assessee is engaged in any activity in the nature of trade, commerce or business or renders any service in relation to trade, commerce or business, it would not be entitled to claim that its object is charitable purpose. In such a case, the object of 'general public utility' will be only a mask or a device to hide the true purpose which is trade, commerce or business or the rendering of any service in r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... zed business principles. Charity is driven by altruism and desire to serve others, though element of self-preservation may be present. For charity, benevolence should be omnipresent and demonstrable but it is not equivalent to self-sacrifice and abnegation. The antiquated definition of charity, which entails giving and receiving nothing in return is outdated. A mandatory feature would be ; charitable activity should be devoid of selfishness or illiberal spirit. Enrichment of oneself or self-gain should be missing and the predominant purpose of the activity should be to serve and benefit others. A small contribution by way of fee that the beneficiary pays would not convert charitable activity into business, commerce or trade in the absence of contrary evidence. The quantum of fee charged, economic status of the beneficiaries who pay, commercial value of benefits in comparison to the fee, purpose and object behind the fee, etc., are several factors which will decide the seminal question, is it business ? 26. The petitioner charges an initial registration fee of ₹ 20,000 plus annual fee of ₹ 4,000, enhanced to ₹ 5,000 from the financial year 2006-07 onwards from thir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is being charged on commercial or business principles, we find that the petitioner fulfils the charitable activity test. It is apparent to us that the Revenue has taken a contradictory stand as they have submitted and accepted that the petitioner carries on charitable activity under the residuary head General public utility but simultaneously regards the said activity as business. Thus, the contention of the Revenue that the petitioner charges fee and, therefore, is carrying on business, has to be rejected. The intention behind the entire activity is philanthropic and not to recoup or reimburse in monetary terms what is given to the beneficiaries. The element of give and take is missing, but the decisive element of bequeathing is present. In the absence of profit motive and charity being the primary and sole purpose behind the activities of the petitioner is perspicuously discernible and perceptible. 29. The table relied on by the respondent and mentioned in paragraph 7 above tells a partial story. Only direct expenses incurred have been set off from the fee earned from registration and renewal. The activity of the petitioner involves promotion, propagation and spreading awareness ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s carrying on its activities, which can be termed as business, trade, or commerce. 22. Furthermore on perusal 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. 23. In view of the above facts and respectfully relying on the decision of Hon Delhi High Court in 360 ITR 138 , we find no infirmity in the order of the ld CIT (A), hence we dismiss all the grounds of appeal of revenue in ITA no 2873/del/2011 for AY 2009-10. 24. Further, the appeal of the revenue for AY 2010-11 in ITA No 2874/Del/2011, also involves the same issues. Therefore, for the reasons given by us in appeal of revenue for AY 2009-10, we also dismiss all the grounds of appeal of revenue in ITA No 2874/Del/2011 for AY 2010-11. 7. This order of the Tribunal has also been confirmed by Hon ble High Court in the appeal filed by the Revenue. Admittedly, same facts and issues are permeating in this year also including the observations a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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