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2020 (7) TMI 245 - AT - Income TaxDenial of exemption u/s 11 & 12 - ‘Charitable Purpose’ as defined u/s. 2(15) - core principle of forming the assessee was to assist public and private sector banks in carrying out their commercial activities involving receipts and payments by charging a fee - HELD THAT:- It is undisputed fact that the assessee has been granted a valid registration u/s 12AA of the Act which has never been revoked by the revenue authorities.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) obviously after looking into the object of the assessee. Assessee has been incorporated under special provisions of Sec.25 of The Companies Act, 1956 which provide for registration of entities which are set up for promoting commerce, art, science, charity of any other similar useful object to promote public good and which do not intend to distribute their profits by way of dividend. As per various clauses of Memorandum & Articles of Association, the assessee is prohibited from distributing its 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 cost of clearing transactions which would ultimately benefit public at large availing the banking services. The greater penetration of epayments would encourage larger participation of citizen in banking system and help in meeting the larger objective of cash-less economy. Therefore, it could safely be concluded that the primary objective of the assessee was to administer the payment settlement system for the larger benefit of general public and not to run the clearing system in a commercial manner or on a commercial basis. Charging of fees - assessee was engaged in providing technology intensive infrastructure facilities at national level and would obviously require funds to meet the operational cost which would necessitate the charging of fees by the assessee - said fact would not materially alter the primary objective for which the assessee entity was created - fee charged by the assessee per transaction has drastically been reduced by as much as 70% over several years which would only bolster assessee’s claim that it was not running as commercial organization and its primary motive was not to make profits. CIT-DR has sought to equate the activities of the assessee with that of e-commerce payment system paytm. 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. Applicability of the provisions of Sec.13(1)(c)(ii) - 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 income for the benefit of persons as specified in Sec.13(3). Another pertinent observation is that the promoter banks were mere subscriber to assessee’s share capital and not entities who made substantial contribution of exceeding ₹ 50,000/- in assessee entity. It is matter of common knowledge that there is clear distinction between subscribers to the shares vis-à-vis contributors. Difference 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 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). - Decided in favour of assessee. Order being pronounced after ninety (90) days of hearing - COVID-19 pandemic and lockdown - HELD THAT:- Taking note of the extraordinary situation in the light of the COVID-19 pandemic and lockdown, the period of lockdown days need to be excluded. See case of DCIT vs. JSW Limited [2020 (5) TMI 359 - ITAT MUMBAI]
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