TaxTMI 
TaxTMI 
2018 (1) TMI 189
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.... in promoting the communication technology for the general 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 inp....
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....ears, hence, both appeals are disposed off by this common order. 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 obje....
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....respect to liquidated damages and warranty, he submitted that, as it is contract for the performance 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.....
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....he 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 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 communicati....
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....zations 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 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 o....
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....nd 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 guaranteed by the Central Government or by a Stale Government; vii) Investment or deposit in any public Sector company; viii) Deposits with o....
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....th 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 and Singapore providing direct connectivity to GEANT (the pan- European data network) and TEIN3 PoP at Singapor....
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....N 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 hosted in the new repcaite. 8. e-Linkage of Jawahar Navodaya Vidyalayas & Kendriy....
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....o have voice interaction among each other and the centre. The e-linkage facility hadbeen 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 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 sett....
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....epartment. It is also providing services for 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 t....
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....on 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 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 effec....
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....rplus 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 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 a....
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....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 nature of use or application, or retention, of the income from such activity : Provided further that the first proviso shall not apply if the aggre gate 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 pur....
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....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-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 advance ment 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 fe....
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.... 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 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 o....
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....mmerce 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 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 (Exe....
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....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 'chari table 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 eli gible 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 four....
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.... 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 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....
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....ment, 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 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....