TaxTMI 
TaxTMI 
2012 (5) TMI 252
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.... 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 Income Tax Act, 1961. The order of the ld. DIT(E) is contrary to the observations of Hon'ble Delhi High Court passed in the case of the appellant where Hon'ble Court held that the said projects are research projects and the activities of the appellant are Charitable even after the amendment of Section 2(15) of the Act by the Finance Act, 2008. 3. That the ld. Director of Income Tax (Exemptions) erred in not appreciating that the activities carried on by the Appellant Foundation were incidental to the attainment of its objectives as set out in its Memorandum of Association with reference to which it was registered and granted a license under Section 25 of the Companies Act, 195....
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.... 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) issued a show cause notice u/s 12AA(3) dated 02.07.2007 to the assessee foundation to explain as to why the registration granted u/s 12A of the Act should not be withdrawn keeping in view the violation of sec. 2(15) of the Act. In response to the above notice, assessee's Authorized Representative, Sh. Rajesh Jain, CA attended before the ld. DIT(E), and filed certain details and advanced his submissions. 5. On examination of accounts of the assessee, the ld. DIT(E) had taken a view that the assessee has been doing professional activities specially in accounting areas. The ld. DIT further stated that assessee had given its specialized services to M....
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.... 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 expenditure account for the year ended on March, 2011 and March, 2010, it was noticed by the ld. DIT(E) that the assessee was in receipt of Rs. 98,33,076/- towards revenue from Research Project from various organizations including Department of Post, Kerala State Insurance, National Hydraulic Electricity Corporation and Rural Electrification Corporation etc. 8. The ld. DIT(E) further observed and stated in para 7, 8 and 9 of his order as under:- 7. "During the course of proceedings u/s 12AA(3), the authorized representative of the assessee was asked to furnish the details of receipt and payment for the years ending March, 2011 and March, 2010. It is noticed that in the F.Y. 2010-11, the assessee is in receipt of Rs. 98,33,076/- towards revenue f....
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....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 assessee society about the charity is to render specific projects which are relating to accounting norms to be followed by them in their financial matters like any other contractee or contractor, in the instant case also those government or other agencies engaged the professional body like the assessee society, to advice on accounting policies to be followed by them in order to professionalize their accounts. For which substantial amounts have been paid to the assessee society for getting the job done by them. The assessee society failed to provide any evidence of activity which is charitable in nature. Engaging research associates cannot be called charity because they are taken on contract basis to extract work from them on payment of a....
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.... 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, capital and money markets, management information and control systems, management consultancy services and allied disciplines by any means whatsoever including:- (i) Conceiving, formulating, undertaking, conducting, fostering, aiding, promoting and providing facilities for prosecuting, core, fundamental, empirical, applied and other kinds of research work and projects and studies, either on its own or jointly or in collaboration with or at the instance of other persons and entities. (ii) Conceiving, organizing, holding, conducting and sponsoring training programmes, study courses, lectures, meetings, workshops, seminars, conferences and symposia either on its own or jointly or at the instance of other per....
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....on 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 accounting, auditing, capital markets, fiscal policies and other related disciplines and to develop quality pronouncements, documents, research papers on these subjects." 13. It was also noticed by the Hon'ble High Court that affiliation from Guru Gobind Singh Indraprastha University for offering Ph.D. programmes was granted to the assessee foundation, and as a result, it enrolls research fellows and on successful completion of research study, a doctoral degree is granted by the University to those research fellows. 14. Further, the Hon'ble High Court found that during the past few years, the other projects and the nature of research conducted ....
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....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 areas, the study group circulated a questionnaire covering accounting and disclosure issues to a large number of companies. The response received is being collated, analyzed and examined together with accounting policies and practices being followed in other countries. (g) Developing a code of governance of non-profit organizations (NPOs):- The study on code of governance for non-profit organization (NPOs) sector is underway. The draft of the study prepared by Investment Information and Credit Rating Agency of India Ltd. (ICRA) on the above subject is consider....
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.... 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 under:- "10. On the basis of the aforesaid activities, there is not even an iota of doubt that the petitioner foundation is involved in education and, thus, meets the description of charitable institution." 17. With regard to the allegation of the department that the assessee foundation has mainly done contract work, for which it has received certain payments; and these activities are basically the jobs done for third parties for consideration received; and, therefore, the petitioner foundation....
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.... 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. Regarding the scheme of granting stipend and fellowship to students, it is noticed that funds for the same are being provided by Infosys Technologies Ltd. As per the agreement signed with Infosys Technologies Ltd., it is found that entire endowment amount of Rs. 9,00,000 per fellow is to be provided by Infosys Technologies Ltd. If a fellow leaves in the middle of the programme, or finishes early with funds left in the account, Infosys will decide how the money is t....
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....f 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 because it involved further study of some unique characteristics different from the above. This was successfully completed in September, 2007. During this period, the petitioner foundation assisted Kolkata Municipal Corporation in the preparation of its financial accounts, carried out a number of studies on business process re-engineering, and also conducted various management training programmes for capacity building etc. The petitioner foundation ....
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....rt 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 circumstances under which the projects were undertaken make it clear that it was at the instance of the Government of India or the State Government for improving the accounting and budgetary systems in these local bodies. The expertise of the petitioner foundation in carrying out research in this filed was sought to be utilized. Therefore, it cannot constitute business/commercial activity. Merely because some remuneration....
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....t 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 too presumptuous a reasoning. What is ignored is that even if such eventuality occurs money has to be spent for the purpose for which it is allocated, namely, fellowship. The essential character of this fellowship is that a student is given the fellowship/scholarship for undertaking research projects. We fail to understand as to how this essential character of the fellowship would alter merely because of ....
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....bjects; 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 the instance of Government/Local bodies, the essential character of the assessee foundation cannot be converted into one which carries on trade, commerce or business, or activity of rendering any service in relation to trade, commerce or business, and, thus, the amended definition of "charitable purpose" contained in sec. 2(15) ....
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....tive 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 Institute and a fee was being charged for the same, were not sufficient to hold that institute was carrying on business. 22. In the light of aforesaid decisions and a categorical findings of Hon'ble High Court of Delhi in assessee's own case, we can safely hold t....