TMI Blog2020 (9) TMI 1095X X X X Extracts X X X X X X X X Extracts X X X X ..... There is no such allegation or contention of the Revenue in the present case. Fee charged and the quantum of income earned can be indicative of the fact that the person is carrying 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) - Decided in favour of assessee. - I.T.A. No.1355/DEL/20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... matter stands squarely covered in favour of the assessee. 3. On the other hand, ld. DR strongly relied upon the order of the Assessing Officer. 4. The facts in brief are that the assessee is an autonomous society established under the aegis of Department of Information Technology, Ministry of Communications and Information Technology, Government of India, as a non-profit organization. The main objects of the assessee s society was to run nation-wide academic and research network to undertake and promote R D in the area of communication, develop policy options in the country for development of network infrastructure and to act as research center for technological and managerial resources in the area of computer network. Looking to the activities carried out by it, which fell within the ambit of charitable purposes under section 2(15), it was granted registration u/s.12A vide order dated 26.03.2004. Ld. Assessing Officer observed that, assessee is neither in the field of education nor in the field of medical relief or relief of poor albeit it falls within the scope of general public utility as per Section 2(15) of the Act. The ld. Assessing Officer held that looking to i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... international connectivity directed towards research and development, advancement of high quality education, create and host content, express creative and academic potential via intranet and intranet peer to peer connectivity among educational and research institutions in the country and the world and make available the communication infrastructure to users in academic, research and development institutions, Govt organizations in line with national priorities. 3.1.3 To undertake and promote education, research, development, 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 experien ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pment of systems, subsystems, hardware and software to build an appropriate technological and application base in the country. 3.2.1 Award research surveys studies technology development and consultancy projects to other institutions, organizations and companies to achieve objectives of the society and disburse funds and grants for the purpose. 3.2.12 Invite experts in the filed each from within and outside the country for advice consultancy and participation in specific arrangements. 3.2.13 Participate in and /or promote professional bodies and 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... posit in any account with a scheduled bank or a cooperative society engaged in carrying on the business of banking (including a cooperative land mortgage bank or a cooperative land development bank. Explanation: In this clause scheduled bank means the state bank of India constitutes under the State Bank of India Act 1955 (23 of 1959) a subsidiary bank as defined in the state bank of India (Subsidiary banks) Act 1959 (38 of 1959), a corresponding new bank constituted under section 3 of the banking companies (Acquisition and transfer of Undertakings) Act, 1970 (5 of 1970) or under section 3 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 guar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ERNET India has installed mail, security appliances with antivirus and anti-spam software. The aggregate internet bandwidth was upgraded to more than 630 Mbps. More than 1100 user institutions covering diverse. application domains are now connected to ERNET network. A total of 6500 .in domains under edu.in, ac.in and res.in have been registered, it has also been hosting websites for the academic and research community. B. Research Activities and ICT Projects . 1. Trans Eurasia Information Network - TEIN3 The Trans-Eurasia Information Network (TEIN) initiative was launched at the Asia. Europe 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or monitoring and managing a 6L0WPAN based Wireless Sensor Network (WSN). An experimental 6L0WPAN testbed is setup at ERNET using TelosB motes with temperature, light and humidity sensors for development and testing. 6. Virtual Scalable Educational Services for Schools. The Department has approved in Nov., 2011 the implementation of the R D project, Virtual Scalable Educational Services for Schools - a pilot project . In the project, select Kendriya Vidyalayas from Delhi, Bengaluru and Chennai region will participate for which ERNET has signed an MoU with KVS. 7. Setting up Repository of Digitized Data under the 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 hoste ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions broadcast from the HUB and to have voice interaction among each other and the centre. The elinkage facility had been operationalized. The facility is being used for scheduling talks, lectures and seminars delivered from the Hub by domain experts on weekly basis for officials of the KVKs/ZPDs. ERNET India is supervising the operation management and support of the Hub and also liaisoning with Department of Space (DoS), Department of Telecommunications (DoT) and Network Operations Control Centre (NOCC). 13. Campus Network at National University of Juridical Sciences, Kolkata-Under an MoU with the National University of Juridical 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 10 Gigabit 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) fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the subscribers for network connectivity, web hosting and content development and domain registration. For these services, it charges income from subscribers, which are on actual basis. As per the list of subscribers placed at page No. 125 to 191, it is apparent that most of the subscribers are schools, colleges and educational institutes and universities. For professional fees and technical services, Jawahar Novodaya Vidalaya and Several universities pay it. 15. Now in this background it is necessary to examine whether the assessee has an object to earn the profit or not. According to the memorandum of association, it is non-profit society. 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able purposes as per section 2(15) of the Act. In this background, it is required to be examined that whether the assessee trust has dominant and prime objective of making profit and carry on trade, commerce, and business. 17. The thrust has been emphasized by revenue on the agreement entered into by the assessee with the service receiver. The copy of the sample agreement is available at page No. 96 to 119 of the paper book. The ld Assessing Officer has stated that such agreements are drawn on a commercial line and have clauses such as of liquidated damages, defect liability clause, performance security requirement, terms and 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore, the ld DR has heavily relied on the decision of Institute of Chartered Accountant of India Vs. Director General of Income Tax (13 Taxmann.com 175) where it is held that whether an activity would be considered as business if it is undertaken with a profit making motive but in some cases this may not be determinative, in such cases there should be evidence and material to show that activity has continued on sound and recognized business principles which are pursued with reasonable continuity. In that decision, Hon'ble High Court has shown the clear distinction between coaching classes conducted by the private parties and institute of Chartered 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r 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 nature of use or application, or retention, of the income from such activity : Provided further that the first proviso shall not apply if the aggregate value of the receipts from the activities referred to therein is twenty-five lakh rupees or less in the previous year ; Period prior to the amendment, vide Finance Act, 2008, with effect from April 1, 2009 13. With regard to the period prior to April 1, 2009, the controversy should not have been raised by the respondent with respect to the first reason (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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cation 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-General of Income-tax (Exemptions) [2012] 347 ITR 99 (Delhi), charitable purpose under the residuary clause of section 2(15) was discussed and explained in the following words (page 108) : The proviso applies only if an institution is engaged in advancement of any other object of general public utility and postulates that such an institute is not 'charitable' if it is involved in carrying on 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. 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 app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, 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 defines the term 'business' as under : '2. Definitions.-. . . (13) business ' includes any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture.' The word 'business' is a word of large and indefinite import. Section 2(13) defines business to include any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture. The intention of the Legislature is to make 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rinciple 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 carrying on trading/business on no loss no profit principle, it may be liable to pay taxes or comply with the statute when the charge, or incident of tax, is on the economic activity . The words trade, commerce and business are etymological chameleon and suit their meanings to the context in which they are found. Five tests propounded in Customs and Excise Commissioners v. Lord Fisher [1981] STC 238 and the decision in CST v. Sai Publication Fund [2002] 258 ITR 70 (SC) ; [2002] 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ;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 charitable object of the above nature was eligible for exemption from tax under section 11 or alternatively under section 10(23C) of the Act. However, it was seen that a number of entities who were engaged in commercial activities were also claiming exemption on the ground that such activities were for the advance ment of objects of general public utility in terms of the fourth limb of the definition of 'charitable purpose'. Therefore, section 2(15) was amended 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. Wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 which constitute business, commerce or trade ? As observed above, the legal terms trade, commerce, or business in section 2(15), means activity undertaken with a view to make or earn profit. Profit motive is determinative and a critical factor to discern whether an activity is business, trade or commerce. 25. Business activity has an important pervading element of self-interest, though fair dealing should and can be present, whilst charity or charitable 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 or quantity related, i.e., dependent upon the quantum of production. Registration and annual fee entitles the person concerned to use the GS1 identification on all their products. Non-levy of fee in such cases may have its own disadvantages and problems. Charging a nominal fee to use the coding system and to avail of the advantages and benefits therein is neither reflective of business aptitude nor indicative of profit oriented intent. 28. Having applied 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tive 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 organization and to defray its cost as well as further capital cost. It is also required to be noted that assessee is engaged in research based activity which is highly cost intensive and requires continuous spending on the innovation and new developments as it is concerning with the education of the society. The Assessee has categorically stated before the ld AO as well as before Ld CIT (A) that it is charging subscription as well 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 Hono ..... X X X X Extracts X X X X X X X X Extracts X X X X
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