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National Accreditation Board for Testing and Calibration Laboratories Versus ADIT (Exemptions) , Investigation Circle-II, New Delhi

2015 (12) TMI 196 - ITAT DELHI

Eligibility for exemption u/s 11 & 12 - Held that:- Amendment made in section 2 (15) of the act with effect from 1.4.2016 by substituting the first proviso and second proviso by a single proviso, which would now exempt the business income, where the activity “is undertaken in the course of actual carrying out of such advancement of any other object of general public utility”, so that it recognizes all the activities consistent with the objects, where the objects are not prompted by profit motive .....

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provided under section 11(4A) of the Act, subject to certain limitation.

In view of above we reverse the order of CIT (A) and hold that assessee is eligible for exemption u/s 11 & 12 of the Income Tax Act as assessee is not engaged in any trade, commerce or business and its dominant and prime objective is charitable in nature in accordance with section 2 (15 ) of The Income Tax Act. - Decided in favour of assessee. - ITA No. 1115/Del/2013 - Dated:- 26-11-2015 - Shri H. S. Sidhu, Judic .....

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dance with the provisions of section 2(15), proviso, the activities of the appellant are in the nature of trade, commerce or business and hence cannot be given exemption under section 11 and 12 of the IT Act as charitable activity. That on the facts and the circumstances of the case, the assessment order dated 20.12.2011 passed u/s 143(3) of the Act by the ld AO, denying the benefit of section 11 and 12 of the Act and raising a tax demand on an assessed income of ₹ 2,28,54,196/-, is grossl .....

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aims and objects of the assessee society are to promote, co-ordinate, guide, implement and maintain an accreditation system for laboratories suitable in the country in accordance with the relevant national and international standards and guides. To ensure that all measurements either during calibration or testing by accredited laboratories are related to appropriate national/ international standards maintained by National Physical Laboratory (NPL) and at Bhabha Atomic Research Center (BARC) thr .....

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he Income Tax Act, 1961 and the case was selected for scrutiny Notices u/s 143(2) and 142(1) of the Act, 1961 were issued on 09.09.2010, 21.04.2011 and 25.07.2011 respectively. On scrutiny income of the assessee was assessed at gross income shown by the assessee after adjustment of depreciation. Ld AO did not grant deduction u/s 11 & 12 Of the Income Tax Act holding that as assessee charges Application fees, Annual membership fees , assessment fees and Desktop Surveillance charges assessee i .....

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rmed the action of AO. Therefore assessee is in appeal before us. 03. According to the ld AR the Assessing Officer has wrongly interpreted the provisions of section 2(15). He submitted that assessee trust is formed by Quality council of India vide its resolution dated 9/02/1996.. This society was established which is responsible to Quality council of India and is carrying on the activity of Testing and Calibration laboratories. It is also under the direct control of central government for its po .....

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t. It provides some accreditation to various ;laboratories , giving updates on accreditation and desk top surveillance. Therefore it charges fees from such laboratories. Therefore it was submitted that as it is formed by government of India and helps in promoting quality accreditation in India therefore it cannot be said to be that it is carrying on any business. For this appropriation he riled on the decision of Honourable Delhi High court in case of Indian Trade promotion Organization V DGIT ( .....

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ee squarely falls within the provision of section 2 (15) of the Act and is eligible for exemption benefit as provided u/s 11 & 12 of The Act. 04. Ld DR relying up on the orders of lower authorities submitted that as assessee is charging fees and also has earned huge profits same is not eligible for exemption u/s 11 & 12 of the Income tax Act. 05. We have carefully considered the submission of parties and also the orders of lower authorities. We have perused the objects of the trust for w .....

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ITR 333 the correct interpretation of the proviso to section 2(15) of the said Act would be that it carves out an exception from the charitable purpose of advancement of any other object of general public utility and that exception is limited to activities in the nature of trade, commerce or r any activity of rendering any service in relation to any trade, commerce or business for a cess or fee or any other consideration. In both the activities, in the nature of trade, commerce or business or t .....

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ect to be a "charitable purpose". On the flip side, where an institution is not driven primarily by a desire or motive to earn profits but to do charity through the advancement of an object of general public utility, it cannot but be regarded as an institution established for charitable purposes. Honourable High court has held that :- 55. It would be appropriate to also examine the observations of another Division Bench of this court in GS1 (supra). While considering Circular No. 11 of .....

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etimes used as a mask or device to hide the true purpose, which was "trade, commerce or business". From this, it is evident that the introduction of the proviso to section 2(15) by virtue of the Finance Act, 2008, was directed to prevent the unholy practice of pure trade, commerce and business entities from masking their activities and portraying them in the garb of an activity with the object of a general public utility. It was not designed to hit at those institutions, which had the .....

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lectual property rights from GS1 (Belgium) and thereafter received registration fees from third parties in India. This was sought to be equated to royalty payments. It was also contended that GS1 (India) had huge surpluses of receipts over expenditure and that payments were made to GS1 (Belgium). According to the Revenue, all this entailed that GS1 (India) was engaged in "business, trade or commerce". The petitioner herein refuted this. In this backdrop, this court asked the question-c .....

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further held (page 153 of 360 ITR) : "Business activity has an important pervading element of self- interest, though fair dealing should and can be present, whilst charity or charitable activity is antithesis of activity undertaken with profit motive or activity undertaken on sound or recognised 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 .....

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nto 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 ?" 57. Ultimately, in the context of the factual matrix of that case, this court held that (page 155 of 360 ITR) : "charging a nominal fee to use the coding system and to avail .....

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issing, but 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." The court also held (page 155 of 360 ITR) : "As observed above, fee charged and quantum of income earned can be indicative of the fact that the person is carrying on business or commerce and not charity, but we must keep in mind that charitable activities re .....

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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 analysed objectively and a narrow and coloured view will be counter-productive and contrary to the language of section 2(15) of the Act." 58. In conclusion, we may say that the expression "charitable purpose", as defined in section 2(15) cannot b .....

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e context of section 10(23C)(iv) because, in our view, the context requires such an interpretation. The correct interpretation of the proviso to section 2(15) of the said Act would be that it carves out an exception from the charitable purpose 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 any trade, commerce or business for a cess or fee .....

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