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TMI Blog2018 (1) TMI 189X X X X Extracts X X X X X X X X Extracts X X X X ..... ral public and as such, the assessee is neither in the field of education, nor in the field of medical relief or relief of the poor and it can be considered after seeing the activities carried out by the assesseee as falling within the scope of' general public utility' as per section 2(15) of the Income tax Act, 1961. 3. On the facts and in the circumstances of the case and in law, the Ld. CIT (A) has erred in allowing the exemption u/s 11 to the assessee, whereas, the assessee is earning huge profits by providing data connectivity to its subscriber in lieu of consideration as per its objects and nowhere charity can be seen in the whole process." 3. The assessee is a society registered under the Societies Registration Act, an autonomous body under Department of Electronics. It is registered u/s 12AA vide registration dated 26.03.2004. The assessee‟s main objects are to advance the cause of computer communication in the country in all its aspects and dimensions with view to promote rapid nationwide development of the sector and technology and economic growth of the country, develop or acquire and assimilate inputs from indigenous sources of computer networking and informa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6. The ld DR has placed a written submission and vehemently relied upon following decisions:- a. Information Audit & Control Association Vs. DDIT (Exemptions)-1, 67 Taxmann.com 140 (Chennai b. Murasoli Trust Vs. ADIT (Exemptions-IV), 65 TAxmann.com 186 (Chennai) c. Small & Medium Exporters Vs. DIT 11 Taxmann.com 169 d. Institute of Chartered Accounts of India Vs. DGIT (Exemptions) 13 Taxmann.com 175 7. She further referred to the agreements placed in the paper book and to various clauses of liquidated damages, defect liability, the terms of payment and cost to demonstrate that agreement entered into by the assessee is a business agreement and hence, assessee is engaged in the business activity. She also referred the income and expenditure of the assessee for 31.03.2009, showing huge profit. She further submitted that the order passed by the ld CIT (A) is not a reasoned order and for this she relied on the decision of the Hon'ble Supreme Court in ACIT Vs. M/s. Shukla Brothers in SLP No. 16466/2009 dated 15.04.2010. 8. The ld Authorised Representative referred to the objects of the assessee trust and the memorandum of association to show that it has been established ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce of the work such conditions are bound to be there as it safeguards the interest of the service recipient. Merely because these terms exist in agreement, it does not make the existence of the assessee for the profit. He further relied on several decisions as under:- I. ICAI Accounting Research Foundation and Ors. Vs. DGIT 321 ITR 73 II. Bureau of Indian Standards Vs. DGIT (Exemptions) 358 ITR 78 III. GS1 India Vs. DGIT (Exemptions) 262 CTR 285 IV. India Trade Promotion Organization Vs. DIT(E) 371 ITR 333 V. PHD Chamber of Commerce and Industry Vs. DIT (E) 357 ITR 296 VI. National Interest Exchange of India Vs. DIT (Exemption) ITA No. 3033/Del/2005 VII. Society of Indian Automobile Manufactures 159 ITD 659 VIII. National Accreditation Board for Testing and Calibration Vs. ADIT. ITA No. 1115/Del/2013 IX. Bombay Presidency Golf Club Vs. DIT 52 52SOT 149 X. Credit Guarantee Fund Trust 163 ITD 285 XI. Quality Circle Forum of India Vs. DDIT 162 ITDS 122 XII. The Improvement Trust Vs. ITO, ITA No. 987/Chd/2014 XIII. The Patiala Trust Vs. ITO ITA No. 305/Chd/2013 XIV. Chandigarh Golf Club Vs. CIT 156 ITD 264 10. Amongst the above decisions he ve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pment, 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 potential users and developers. 3 17 To act as a research centre for technological and managerial resources and a so act as a bridge for cooperation among other countries in the area of computer communication information technology, computer, networking and other related emerging technologies. 3.2 With a view to attain the aforesaid objectives set out in the Para 3.1 above, the Society may carry on the following activities. 3.2.1 Und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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 mortage or create any charge on the assets so acquired, necessary or convenient for the activities in furtherance of the objectives of the society. 3.2.18 Acquire establish maintain, disseminate and manage facilities of information to achieve the objective of the society. 3.2.19 Set up library of books, periodicals, audiovisual aids, database of industry and end users etc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 industrial development in providing long-term finance for construction of purchase of houses in residential purposes' arid which is approved by the Central Government for the purpose of clause (viii) of sub-section (1) of section 36 of IT Act. (ix) Deposits with or investment in any bonds issued by a public company formed and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 TEIN3 is being used by India for connecting to research and education networks worldwide for collaborative research. 2. EU-IndiaGrid2 - Sustainable e-Infrastructures across Europe and India EU-IndiaGrid2 is the second phase of the EU-IndiaGrid project which was initiated in January, 201 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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) CIC-VVs are operational in the Government school's located in Andaman & Nicobar Islands and Lakshadweep Islands with the dual purpose of imparting ICT based education and training in the schools as well as for providing citizen centric services to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ridical 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 1 OGigabit 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: * VC facility for Govt, of UP at State Capital, 18 Divisions & 1 District of UP with a total of 21 sites. * High Definition VC facility at 9 locations of Indian Meteorological Department. * Deployme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iety. 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 facts show that assessee trust is not functioning with a dominant and prime objective of profit making. Therefore, it is evident that the assessee is formed not for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd 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 business, trade, or commerce but the service receiver i.e. the other party to the contract is necessarily engaged in obtain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ered 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) 'charitable purpose' includes relief of the poor, education, medical relief, and the advancem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eason (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 activity, the purpose, though an object of gene ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce 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 acti vity/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 deci sions that the app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the definition 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 e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 002] 4 SCC 57 was quoted. 19. The 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 h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nded vide Finance Act, 2008, by adding a proviso . . . 3. The newly inserted 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 rela tion 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 pur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... activity is anti-thesis of activity undertaken with profit motive or activity undertaken on sound or recognized 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 Rs. 20,000 pl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pplied the test mentioned above, including the criteria for determining whether the fee is commensurate and 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 fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ell as consultancy fees on actual, which fact is not denied. Therefore merely earning the surplus does not result in to the conclusion, that assessee is 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. 25. In the result, both the appeals of the revenue a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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