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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 ..... its by providing data connectivity to its subscribers in lieu of consideration as per its objects and nowhere, charity can be seen in the whole process 3. On the facts and circumstances of the case, Ld. CIT (A) has erred in allowing the appeal of the assessee by ignoring the fact that as capital expenditure for earlier years was allowed as application of income in the year in year of purchase of fixed asset/s 4. On the facts and circumstances of the case, Ld CIT(A)has erred in allowing assessee's appeal by ignoring that assessee like charitable or religious institutions are governed by almost the separate or independent provisions of sections 11, 12, 12A, 12AA & 13 and these provisions are independent code in itself in Chapter III of the Income Tax Act, 1961. The income and expenditure is computed on the basis of the entire expenditure including the capital expenditure for purchase of capital asset u/s. 11(1)." 2. At the outset, ld. counsel for the assessee submitted that in the appeal for the Assessment Years 2009-10 and 2010-11 this Tribunal on similar issues and grounds raised by the Revenue has decided the issue in favour of the assessee and dismissed the Revenue's Appeal. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1. We have carefully considered the rival contentions and perused the orders of the lower authorities. Undoubtedly, the assessee trust has been created by the Govt. of India with an object for development of computer communication in the country and it is a non-profit society. Subsequently, various certificates issued by various authorities also show that the assessee does not exist for the profit. The subscribers to the society were eminent persons such as Prof. YK Alagh and Hon‟ble former President of India, Dr. APJ Abdul Kalam when, his Excellency was scientific advisor to Govt. of India. Further, the governing council also has the Hon‟ble Minister of Communication and Information Technology as its Chairman and several highranking government officials along with the eminent technocrats of the country. 12. The main object of which the trust is formed are as under:- "3.1 The society has been established as a non-profit society only for the objects as under:- 3.1.1 To advance the cause of computer communication in the country in all its aspects and dimensions with a view to provide rapid nationwide development of the sector and technological and economic growth of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... both technological forecasts and national needs. 3.2.3 Work in the areas of advanced computer, networking taking into consideration of both technological forecasts and national needs. 3.2.4 Conduct general and customized educational and training activities for users and others through classroom and distance learning modes. 3.2.5 Conduct National and international conferences including teleconferences, seminars, symposia and workshops to inclulcate awareness of the strategic importance of computer communication and information technology in educational and research. 3.2.6 Carry out guide research leading to advanced degrees from leading national and international educational institutions and universities. 3.2.7 Institute stipends scholarships, associate ship and fellowship to students and individuals. 3.2.8 Carryout demonstration filed trials pilot production of its products and services developed in house or in collaboration with other educational and research institutions. 3.2.9 Develop or acquire and assimilate inputs from indigenous sources of computer networking and information technology and transfer relevant knowledge technology to users. 3.2.10 Promote and a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... abroad including international agencies, cacentral and multilateral agencies subject to prevailing laws of the Government of India and to invest and deal with funds and moneys of the Society and to vary, after or transfer such investments from time to time. 3:2.23 To accept remuneration for, consultancy, design, development, technology transfer, providing services or any related activity in the Country as well as abroad. 3.2.24 To establish and maintain provident and' other funds for the benefit of the employees or for the purpose of the Society and open and operate bank accounts. 3.2.25 Any surplus funds not needed or capable of being used for immediate application towards the objects for the society will be invested by the society only in accordance with the provisions contained from time to time in Income Tax Act 1961 applicable to such organizations which presently are as under:- i) Investment in savings Certificates as defined in clause (c) of section 2 of Govt Savings Certificate Act, 1959 (46 to 1959) and any other securities and certificates issued by the Central Govt under the small savings schemes of that govt. ii. Deposit in any account with the post offic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... objects of the assessee must be tested on the actual performance of the trust to understand the nature of activities carried on by it. Assessee has submitted the projects undertaken by it which are as under :- "A. ERNET network is a judicious mix of terrestrial and satellite based wide area network. GBPT India provides services through its 15 Points of Presence (PoPs) located across the country. All PoPs are equipped to provide access to Intranet, Internet and Digital Library through trial leased circuits and radio links to the user institutions. The PoP at STPI Bengaluru provides Intranet and Internet access through Satellite. ERNET network supports IPv4 and IPv6 Internet Protocol. IPv6, routing protocol OSPFv3, end to end Ethernet services, QoS (DiffServ), video conferencing, authentication and authorization rave also been implemented on ERNET Network. ERNET provides, services, namely, Network Access Services, Network Applications Services, Hosting Services, Operations Support Services und Domain Registration Services under srnet.in, ac.in, edu.in & res.in domains. The network infrastructure is being upgraded in terms of both technology and capacity. At its Delhi PoP, ERNET ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roject consortium includes, four. European partners (Inno TSD SA France, ETSI France, University of Edinburgh UK and Fraunhofer Germany), and four international partners from BRIC (IPT Brazil, ITMO Russia, ERNET India and BII China) countries. 4. Mobile IPv6 Test bed - Mobility between heterogeneous access networks Mobile IPv6 test bed is a joint project between ERNET India and Indian Institute of Science (IISc) -Bengaluru which is funded by the Department. Under the project, a WLAN access network testbed has been setup at ERNET Bengaluru with Mobile IPv6Home Agent (HA), Mobile Node (MN) anti Correspondent Node (CN) services configured using the UMIP MIPv6 stack. The seamless network layer mobility test between different WLAN subnets is completed. 5. 6L0WPAN - Management and Monitoring of Wireless Sensor Networks 6L0WPAN is a joint project between, ERNET India and IISc Bengaluru, funded by the Department. IEEE 802.15.4 Lowrate Wireless Personal Area Network (LoWPAN) standard supports wireless connectivity in low-cost devices that operate with limited computing resources and battery power. The objective of this project is to develop a prototype for monitoring and managing a 6L0W ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... State Government of Rajasthan for establishing ICT Infrastructure at Schools in rural areas This Memorandum of Understanding (MoU) is made between ERNET India and State Government of Rajasthan for establishing Information & Communication Technologies (ICT) Infrastructure in the Schools located in rural areas of Rajasthan. ICT Centres have been setup under the project in 250 Schools located in rural areas of Ajmer and Jaipur districts. The establishment of connectivity to the ICT centers is in progress. 12. c-Linkage of Krishi Vigyan Kendras under ICAR Under an MoU, ERNET India has established a dedicated VSAT Hub and deployed Information Technology Infrastructure at 200 Krishi Vigyan Kendras (KVKs)/ Zonal Project Directorates (ZPDs) under ICAR to develop them into Information Hubs. ELinkage of the remote 200 KVKs/ZPDs has been established with the VSAT Hub at ICAR Headquarters in New Delhi. The scientists, and officials at each of the KVK/ZPD can access Internet, e-mailing and web services on 24X7 basis. The e- Linkage network is enabled for Video Multicast and IP telephony which allows each KVK/ZPD to watch Video sessions broadcast from the HUB and to have voice interaction am ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o each other and to other research networks around the world. APAN coordinates developments and interactions among its members, and with peer international organizations, in both network technology and applications, and is a key driver in promoting and faciiitating network-enabled research collaboration; knowledge discovery telehealth; and natural disaster mitigation. ERNET India is a primary member of APAN (the Asia Pacific Advanced Network) representing the education and research network of the country. During 22nd-26th August 2011, ERNET India organized the 32nd Asia Pacific Advanced Network Meeting at New Delhi. The workshop was attended by around 330 delegates from India and abroad." 14. Over and above this, the assessee is also carrying on several projects for which grants have been received such as for VCSC for disabled children, dynamic web content for CERT, traffic analysis for CERT, project for digital library, project VI choice India-Europe Cooperation to IPV-vi, UP Govt. Video Conferencing Project, Video Conferencing for Income Tax Department. It is also providing services for the subscribers for network connectivity, web hosting and content development and domain r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sertion of the above proviso is to deny the exemption to the institutions which are driven primarily by a desire or motive to earn profit and do charity through the "advancement an object of general public utility" then such institutes shall not be regarded as institutions established for charitable purposes. Hon'bleDelhi High Court in (371 ITR 333) in India Trade Promotion Vs. DGIT has held that the correct interpretation of proviso to section 2(15) would be that it carves out an exception from the charitable purposes 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 trade, commerce or business for a cess or fee or any other consideration. Therefore, it is important to see the dominant and the prime objective of the institution. If the dominant and prime objective is profit making and its activities are trade, commerce or business then, such institution would not be entitled to claim that it is set up for charitable purposes as per section 2(15) of the Act. In this background, it is required to be examined that whether th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upreme Court in CIT Vs. Surat Art Silk Manufacturing Association 121 ITR 1 activity for the profit connotes that the predominant object of the activity must be the making of profit. It is not enough that as a matter of fact the activities results into profit. Where an activity is not pervaded by the profit motive but is carried on primarily for serving the charitable purposes, it would not be correct to describe it as an activity for profit merely because profit accrues. Even the proposition was rejected that if the purposes truly charitable, the attainment of the purpose must rigorously exclude any activity for profit. Further, conversely where profit making is the predominant object of the activity, the purpose though it may aim at advancing an object of general public utility, would cease to be a charitable purpose u/s 2(15) of the Act. It is demonstrated by assessee by overwhelming evidences that its activities do not exist for profit. Hence, the argument of the revenue that assessee is having considerable surplus deserves to be rejected. 19. Furthermore, the ld DR has heavily relied on the decision of Institute of Chartered Accountant of India Vs. Director General of Income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t from April 1, 2009, reads as under : "Provided further that the first proviso shall not apply if the aggregate value of the receipts from the activities referred to therein is ten lacs or less in the previous year." Rupees ten lakhs mentioned in the second proviso stands enhanced to rupees twenty-five lakhs by the Finance Act, 2011, with effect from April 1, 2012. The main section 2(15) of the Act has also undergone amendments, now reads : "2. In this Act, unless the context otherwise requires,- . . . (15) 'charitable purpose' includes relief of the poor, education, medical relief, preservation of environment (including watersheds, forests and wild life) and preservation of monuments or places or objects of artistic or historic interest, and the advancement of any other object of general public utility : Provided that the advancement of any other object of general public utility shall not be a charitable purpose, if it involves the carrying on of any activity 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 or any other consideration, irrespective of the nat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le of management." Period post the amendment, vide Finance Act, 2008, with effect from April 1, 2009 14. A bare perusal of the main provision indicates that there are four main factors that need to be taken into consideration before classifying the activity of the assessee as "charitable" under the residuary category, i.e., "advancement of any other object of general public utility" under section 2(15) of the Act. The four factors are (i) activity should be for advancement of general public utility, (ii) activity should not involve any activity in the nature of trade, commerce and business, (iii) activity should not involve rendering any service in relation to any trade, commerce or business, (iv) activities in clauses (ii) and (iii) should not be for fee, cess or other consideration and if for fee, cess or consideration the aggregate value of the receipts from the activities under (ii) and (iii) should not exceed the amount specified in the second proviso. The earlier test of business feeding or application of income earned towards charity because of the statutory amendment is no longer relevant and apposite. 15. In Institute of Chartered Accountants of India v. Director-Gener ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l of Income-tax (Exemptions) [2012] 347 ITR 99 (Delhi) as under (page 113) : "Trade, as per the Webster's New Twentieth Century Dictionary (2nd edition), means, amongst others, 'a means of earning one's living, occupation or work'. In Black's Law Dictionary, 'trade' means a business which a person has learnt or he carries on for procuring subsistence or profit ; occupation or employment, etc. The meaning of 'commerce' as given by the Concise Oxford Dictionary is 'exchange of merchandise, specially on large scale'. In ordinary parlance, trade, and commerce carry with them the idea of purchase and sale with a view to make profit. If a person buys goods with a view to sell them for profit, it is an ordinary case of trade. If the transactions are on a large scale it is called commerce. Nobody can define the volume, which would convert a trade into commerce. For the purpose of the first proviso to section 2(15), trade is sufficient, therefore, this aspect is not required to be examined in detail. The word 'business' is the broadest term and is encompasses trade, commerce and other activities. Section 2(13) of the Income-tax Act d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... two or more persons. and, lastly, the business activity usually involves a twin activity. There is usually an element of reciprocity involved in a business transaction.' 17. In the said case, reliance and reference was made to State of Punjab v. Bajaj Electricals Ltd. [1968] 70 ITR 730 (SC) ; [1968] 2 SCR 536, Khoday Distilleries Ltd. v. State of Karnataka [1995] 1 SCC 574, Bharat Development P. Ltd. v. CIT [1982] 133 ITR 470 (Delhi), Barendra Prasad Ray v. ITO [1981] 129 ITR 295 (SC), State of Andhra Pradesh v. H. Abdul Bakshi and Bros. 15 STC 664 (SC), State of Gujarat v. Raipur Manufacturing Co. Ltd. 19 STC 1 (SC), Director of Supplies and Disposal v. Member, Board of Revenue 20 STC 398 (SC) and Mrs. Sarojini Rajah v. CIT [1969] 71 ITR 504 (Mad) to explain the terms "trade, commerce or business". 18. Referring to the concept and principle of "economic activity" that has gained some acceptability in European Union and England it was explained that the said principle is applicable to sales tax, value added tax, excise duty, etc., because these are not taxes on income but the taxable event occurs because of the "economic activity" involved. Even if a person/ organization is c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arrying on charitable activities as described within the ambit of section 2(15) and was entitled to registration/notification under section 10(23C)(iv). We, however, note that there is one distinction between the present petitioner and BIS. BIS is a statutory authority created by the legislation and, therefore, their case and claim stands on a better footing but this does not imply that only statutory bodies can be treated as established for charitable purpose under section 2(15) of the Act. Such contention has not been raised and cannot be sustained/accepted. Circular No. 11 of 2008 by the Central Board of Direct Taxes 21. It may be relevant to reproduce extract from Circular No. 11 of 2008, dated December 19, 2008, issued by the Central Board of Direct Taxes explaining the amendments to section 2(15) of the Act. The relevant portion of the circular reads as under (see [2009] 308 ITR (St.) 5 ) : "Section 2(15) of the Income-tax Act, 1961 ('Act') defines 'charitable purpose' to include the following : (i) relief of the poor (ii) education (iii) medical relief, and (iv) the advancement of any other object of general public utility. 2. An entity with a c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, in the garb of "public utility" to avoid tax liability as it was noticed that the object of "general public utility" was sometimes only a mask or device to hide the true purpose which was "trade, commerce or business." Discussion ; Activities of the petitioner and difference between business and charity 23. In the present case, "the business" is not held in trust and neither is "the business" feeding the charity. The very "act or activity of charity" as claimed by the petitioner is regarded by the Revenue as nothing but business, trade or commerce. Money received, of course is used and utilized for the charitable activities. Four reasons are elucidated and propounded in the impugned order to state that the petitioner is engaged in business, trade or commerce and aforesaid encapsulated in the impugned order. The petitioner has acquired intellectual property rights, receives fee from third parties, which is nothing but payment of royalty, there is a huge surplus of receipts over expenditure (refer table reproduced in paragraph 7 above) and payment is made by the petitioner to GS1 Global Services, Belgium. 24. Can it be said that the petitioner is engaged in the activities whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng system available to Indian traders, manufacturers, Government, etc., it will fail the test of business and meets the touchstone of charity. The petitioner is not directly or indirectly subjecting their activity to market mechanism/dynamics (i.e., demand and supply), rather it is motivated and compted to serve the beneficiaries. This is not a case of commercial exploitation of intellectual property rights to earn profits but rather a case where a token fee has been fixed and payable by the user of the global identification system. 27. The petitioner does not cater to the lowest or marginalized section of the society, but Government, public sector and private sector manufacturers and traders. No fee is charged from users and beneficiaries like stockist, whole sellers, Government departments, etc., while a nominal fee is only paid by the manufacturer or marketing agencies, i.e., the first person who installs the coding system which is not at all exorbitant in view of the benefit and advantage which are overwhelming. Any one from any part of the world can access the database for identification of goods and services using global standard. The fee is fixed and not product specific o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 language of section 2(15) of the Act." 21. All the questions raised in the order of the ld. AO has been answered by the Hon Delhi high court. With respect to the fees charged by the assessee naturally, it should be commensurating with the efforts put in by the organizati ..... X X X X Extracts X X X X X X X X Extracts X X X X
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