TMI Blog2012 (5) TMI 252X X X X Extracts X X X X X X X X Extracts X X X X ..... (Exemptions), Delhi u/s 12AA(3) read with section 12A of the Income Tax Act, 1961, whereby the registration granted earlier u/s 12A to the assessee has been cancelled since A.Y. 2009-2010. 2. The grounds of appeal raised by the assessee are as under:- "1. That the order passed u/s 12AA(3) read with Section 12A of the Act passed by the ld. DIT(E) is totally illegal as the two conditions as prescribed for canceling the registration in sec. 12AA(3) of the Act have not been shown being violated by the appellant in the order. The Provision of Section 12AA(3) is only confined for enquiring about the activities of trust and its genuineness, in consonance with the objects for which it is created. 2. That the ld. Director of Income Tax (Exemptions) erred in arbitrarily alleging and for holding that the research activities conducted by the Appellant Foundation in relation to its work with Municipal Corporation of Delhi (MCD) and with Kolkata Municipal Corporation (KMC) were professional services in the field of accounting, and thus, the same are business or commercial activities, not falling within the purview of Charitable Purpose within the meaning of Section 2(15) of the Inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e formed for promoting the various object and purpose as specified in section 25(1)(a) of the companies Act, 1956, and being further satisfied that it intends to apply its profits, if any or other income in promoting its objects, and to prohibit the payment of any dividend to its members, by license directed that the Appellant Foundation be registered under section 25 of the Companies Act, 1956 as a company without the addition to its name of the word "limited". The assessee foundation has also been recognized as a Scientific and Industrial Research Organization (SIRO) by the department of Scientific and Industrial Research under the scheme on reorganization of Scientific and Industrial Research Organizations (SIROs), 1998. 4. In the meantime, the assessee's application for approval u/s 80G has, however, been rejected by the DIT(E) vide his order dated 22.07.2008 on the ground that assessee foundation was in receipt of money by way of rendering consultancy services to certain organizations, holding the same to be in the nature of business activity. In the light of DIT(E) order dated 22.07.2008 rejecting assessee's application for approval u/s 80G of the Act, the ld. DIT(E) issu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... carried out by the assessee in the last many years. The details of year-wise nature of receipts of the assessee society were noted by him as under:- Particulars Particulars A.Y. 2011-12 (Provisional A.Y. 2010-11 A.Y. 2009-10 Revenue from Research Projects 9833076/- 2594500/- 1295835/- Subscription from Members 180000/- 180000/- 190000/- Grant from ICAI - 1000000/- - Interest 321672/- 731206/- 2602543/- Misc. Income 14442/- 108000/- - Prior period income - - 1224670/- 6. Keeping in view the aforesaid facts and circumstances of the case as noted by him and in the absence of any charitable activity as perceived by the DIT(E), the DIT(E) had taken a view that assessee society was involved in the business activities by way of providing professional consultancy services for which no separate books of accounts were maintained, and as such the assessee society has violated the provisions of the Act for grant of registration u/s 12A of the Act. 7. On examination of income and expenditur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... endered to specific organization on receipt of amount quoted and mutual negotiation levels. Apart from the above activities there are certain ear-marked funds received from various organizations to carry out specific work as per their terms and conditions. Any activity carried under these specific project cannot be termed as application of income towards object for which the assessee society is established. The credit of having utilized funds for any project should go to the funding organization and not the executing organization. It is similar to a contractor executing a Toll Bridge under an agreement from the government agency, the contractor cannot claim that by virtue of construction of the Toll Bridge, he is serving to the cause of the public in easing the congestion of traffic etc. The credit is always goes to the government agency which in fact provided all the resources and the only job done by the contractor is to execute the same, whether he earned profit or not immaterial. Providing professional services in respect of accounting policies to a specific organization in lieu of consideration of money does not amount to charity under any circumstances. The only claim of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IT(Exemptions), Delhi vide his order dated 28.12.2007 by giving identical reasons as given by him in cancelling the registration u/s 12AA(3) of the Act, which order was challenged by way of writ before the Hon'ble High Court of Delhi, where the issue as to whether various activities carried out by the foundation are charitable activity within the meaning of sec. 2(15) of the Act had come for consideration (ICAI Accounting Research Foundation and Another vs. Director General of Income Tax (Exemption) and Others reported in (2009) 183 Taxman 462 (Del.) = (2010) 321 ITR 73 (Del.). In the said decision, the Hon'ble High Court has noted the objects of the assessee as mentioned in clause III-A of its memorandum of association and relevant clause thereof as under:- "2. ................ To conceive, establish, promote, sponsor, take over, own, run, administer, operate, maintain, equip and control an academy for the purpose of imparting, dissemination, spreading and promoting knowledge, learning, education and understanding in the fields of accounting, auditing, fiscal laws and policy, corporate and economic laws and policies, economics, financial management, financial services, capit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ject of the assessee foundation would fall in those category of institutions which are devoted to research and are of charitable nature, and would thus fall within the expression "Education" as appearing in the definition of charitable purpose contained in sec. 2(15) of the Act, and has thus, observed as under:- "6. If one is to go by the purpose and objective with which the petitioner foundation was created, namely, imparting, spreading and promoting knowledge, learning education, etc. in the fields related to the profession of Accountancy, it will clearly fall in those category of institutions which are devoted to research and are of charitable nature. The definition of "charitable purpose" is contained in sec. 2(15) of the Act, which is as under:- "'Charitable purpose' includes relief to the poor, education, medical relief, and the advancement of any other object of general public utility." The aforesaid objective of the petitioner foundation would fall within the expression "education", as appearing in the aforesaid definition. The vision of the petitioner foundation is to establish it as a co-research body with facilities to undertake research in the areas of accou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The research project titled "Legal protection of intellectual property rights in information technology industry" under the Infosys Fellowship Research Scheme is also taken up. Certain changes have been contemplated in the Infosys Fellowship Scheme Agreement, with a focus to enlarge the scope of the agreement to include the research scholars pursuing Ph.D. from other reputed universities, to become eligible under the Infosys Fellowship Research Programme. (f) Research study on recognition, measurement and disclosure issues in bio-technology and other life science companies, information technology (IT) companies and advertisement companies:- A group of "Recognition, measurement and disclosure issues in bio-technology and other life science companies, information technology (IT) companies and advertisement companies" was set up with the representatives from the office of the Comptroller and Auditor General of India, The Institute of Chartered Accountants of India, Technology Development Board, Technology Networking and Business Development Division (CSIR), Consultants Development Council, and the Industry. Based on the presentation made by the leading companies in the are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l financial reporting standards on the wider stakeholders". 15. The Hon'ble High Court then took note of various other research projects of varied nature and has thus observed as under:- "9. There are various other research projects of varied nature and it would not be necessary to incorporate all these activities as the aforesaid projects give sufficiently fair idea of the activities of the petitioner foundation. It has also plans to even set up ICAI University, for which action has already been initiated. It also contemplates to take strategic initiative to carry out the process of research studies and in this behalf the move is to launch the promotional campaign for establishing direct contract with the universities and other bodies on the one hand and reaching out to the potential researcher throughout the country on the other." 16. In the light of the various activities and research projects of varied nature discussed above, the Hon'ble High Court had thus, taken a view that there is not even an iota of doubt that the petitioner foundation is involved in education and, thus, meets the description of charitable institution. The relevant portion of the order is as un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are beneficial to the public at large, is not acceptable. The applicant is carrying on business activities of research and consultancy work on consideration received from Government and non-Government organizations. Activities of the applicant are akin to a contractor providing goods or services to a charitable hospital. The hospital may be doing charity by providing medical services, but contractor providing goods and services for consideration cannot be said to be engaged in charitable activities. Another example could be of a professor in an educational institution. An educational institution may be providing charity but professor rendering services for salary is not doing charity." (b) The petitioner foundation had also received monies from Infosys Technologies Limited in the form of Infosys Fellowship Fund. Though it is for grant of fellowship to deserving candidates under the Fellowship programme of the foundation in affiliation with the Guru Gobind Singh Indraprastha University, respondent No. 1 was of the view that even from this it would be concluded that the petitioner foundation is not doing charitable activity because of the reasons stated in this manner. "VII. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssentially research. Based on the study undertaken by the petitioner foundation, publication titled "Conversion of accounts of municipal bodies to accrual basis - issues, concerns and strategies" has been published and made available to the public at large. Thus, according to the petitioner foundation, it assisted the MCD in preparing and presenting their annual financial statements, comprehensive annual financial reports, comprehensive reconstructing of the budget heads as well as refining their accounting process in their various zones, hand holding and assistance in setting up the financial management and budget office. The petitioner foundation had also carried out number of training programmes for the core group of nodal officers of MCD focusing on double-entry accounting system, computer awareness, bank reconciliation and familiarization with new data formats. In the implementation of the fund based accrual system, the petitioner foundation also assisted MCD in introducing best practices which are being followed in leading municipal corporations world over." "14. Likewise, the Kolkata Municipal Corporation project was taken up by the petitioner foundation in July, 2004 be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... only aspect, in this backdrop, which needs to be considered is as to whether charging of amount from the MCD, KMC etc. for undertaking these research projects would make the activity commercial, as held by respondent No. 1 in the impugned order. Before we answer this, it would be apposite to take note of some of the judgments defining charitable purpose." 18. After making a reference to the decision of the same High Court in the case of Addl. CIT vs. Hamdard Davakhana (Wakf)...(1986) 157 ITR 639, and decision of Madras High Court in the case of CIT vs. K.S. Venkatasubbiah Reddiar...(1996), 221 ITR 18, the Hon'ble Delhi High Court has held and concluded as under:- "20. The principles which are laid down in both the aforesaid cases provide complete answer to the issue at hand. It is to be noted that the aforesaid projects undertaken on behalf of these local bodies is not a regular activity of the petitioner foundation. The primary activity remains the same, namely, research in accounting related fields. Even these projects which were taken up on behalf of those local bodies fit in the description of "research projects", which can be termed as ancillary activity only. The circ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngh Indraprastha University. The annual reports give details of the working of this fellowship. The petitioner foundation has constituted an expert committee for selection of candidates for Infosys Fellowship Research Programme. For this purpose, advertisements are issue and applications invited from candidates interested in pursuing the research with the petitioner foundation under the said scheme. On that basis, the candidates are selected to conduct research, who are assigned research projects. For example, one candidate was awarded this fellowship on the research project "Legal Protection of Intellectual Property in Information Technology Industry". The completion of such research projects lead to award of doctoral degree by the Guru Gobind Singh Indraprastha University. Surprisingly, only on the figment of imagination that a fellow leaves in the middle of the programme or finishes early with funds left in the account, as Infosys is to decide as to how the money is to be spent, with the petitioner foundation playing the role of a facilitator, respondent No. 1 has concluded that the petitioner foundation could not be said to be doing any charitable activity in this regard. It is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to research and are of charitable nature; iv) the vision of the assessee foundation is to establish it as a co-research body with facilities to undertake research in the areas of accounting, auditing, capital markets, fiscal policies and other related disciplines and to develop quality pronouncements, documents, research papers on these subjects; v) various projects and activities such as project of the Municipal Corporation of Delhi (MCD), Kolkata Municipal Corporation (KMC), Strengthening Rural Decentralization, receiving money from Infosys Technologies Limited towards fellowship programme per se, would not bring the assessee foundation out of the ambit of sec. 2(15) of the Act, and it would not constitute business/commercial activity and mere because some remuneration was taken by the assessee foundation for undertaking these projects would not alter the character of these projects, which remained research and consultancy work; vi) the receipts received by the assessee foundation are utilized by the assessee foundation for advancement of its objectives for which the petitioner foundation was established; vii) merely undertaking the aforesaid three projects at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (SC) with regard to the meaning of "business", and in the light of the proposition laid down in the said cases, has held that the purpose and object to do business is normally to earn and is carried out with a profit motive; and, in some cases, the absence of profit motive may not be determinative. It was further observed that the Institute has been created to regulate the profession of Chartered Accountancy and for this purpose the Institute can and is required to provide education, training and monitor professional skills of the members, but the DIT has not examined the question of objective and role of the institute in proper and correct perspective, and has taken a very narrow and myopic view in that regard. It was further held that the DIT, without examining the concept of business, has wrongly held that the institute was carrying on business as coaching and programmes were held by them and a fee was being charged for the same. It was held by the Hon'ble High Court that since DIT had given no finding as far as activities of institute were concerned and had not examined concept of business, findings recorded by him in order u/s 263, that coaching and programmes held by the Ins ..... X X X X Extracts X X X X X X X X Extracts X X X X
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