TaxTMI 
TaxTMI 
TaxTMI 
2025 (11) TMI 147
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....d. 2) The Ld. CIT (E) erred in stating that there is failure on part the Assessing Officer to apply correct position of law for AY 2020-21 on the ground that Ld. AO had passed the Assessment Order without making necessary inquires and verification before allowing exemption u/s 11 of Income Tax Act, 1961 since the Appellant company was hit by proviso to section 2(15) of the income tax act, 1961 for AY 2017-18 to AY 2019-20. Looking into the facts & circumstances of your Appellant it is submitted that specific queries with respect to clarification "on business income of the trust" and "detailed note on activities carried on by NPCI and explanation as to why the activities of the trust is not hit by proviso to section 2(15) of the income tax act, 1961" were already raised by the Ld. AO in his notices dated 29/06/2021 & 12/11/2021 during the course of assessment proceeding. In response your Appellant vide acknowledgement nos. 154780881140721, 239793631171221, 239970781171221 and 245265231171221 uploaded the necessary details alongwith the Annexures. Thereafter Ld. AO after due application of his mind and in accordance with law, passed the assessment order by accepting the clai....
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....iv. Refund Claim v. Transaction of Trust with Specified Persons vi. Foreign Outward Remittance 4.1. In the course of assessment proceedings, notices u/s 142(1) were issued on 12.11.2021 and 23.03.2022. Details of the notice issued and replies filed by the assessee are tabulated below: Sr. No. Dates of Notices issued by AO U/s. Date of Online Reply filed Acknowledgement No. 1 29/06/2021 (Annexure 1) 143(2) 14/07/2021 154780881140721 2 12/11/2021 (Questionnaire of Points) (Annexure 2) 142(1) 22/11/2021 869065191221121 17/12/2021 239793631171221 (Annexure 4) 17/12/2021 239970781171221 (Annexure 5) 17/12/2021 245265231171221 (Annexure 6) 22/12/2021 320560351221221 3 23/03/2022 (Annexure 3) 142(1) 31/03/2022 564193491310322 4.2. In the first notice, specific query was raised vide point No. 5 which stated "brief note of activities carried out during the F.Y. 2017-18 relevant to A.Y. 2018-19. Submission of the annual report would not be treated a replacement of the brief noted". Further, in the same notice in query at serial No. (iv) titled as "with respect to business income ....
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.... 2(15) regarding commercial activity cannot not be invoked. (iii) It was submitted that on the same aforementioned issue for Α.Υ. 2010-11 and A.Y. 2012-13, Coordinate Bench had decided in favour of the assessee. (iv) It also placed reliance on various case laws to submit that revision proceedings u/s. 263 cannot be invoked. 5.3. After taking into account the submission made by the assessee, ld. CIT(E) by taking note of the objects contained in MoA observed that this can at best be taken as object of advancement of any other object of general public utility as defined in section 2(15) of the Act. According to him, assessee has received income from providing services as platform in respect of transactions conducted for member banks. Assessee has also paid service tax for the services rendered to its member banks. Hence, its purpose is not a charitable purpose. He further observed that objects of the trust are in the domain of advancement of general public utility by taking into account the specific amendment brought by way of proviso to section 2(15) w.e.f. A.Y. 2009-10. He noted that nature of activity of the assessee is very much in relation to tr....
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....PSS Act, 2007 no person other than the Reserve Bank can operate or commence a payment system unless authorized by the Reserve Bank 1.2 The Hon'ble Finance Minister of India, while presenting the PSS Bill in Parliament, 2007 had indicated the need for setting up of a robust Payment and Settlement Infrastructure. To quote "There are also 1068 clearing houses in this country. Today clearing is not regulated. This is being done under a contractual arrangement. So, these 1068 units will come under the National Payment Corporation of India, which will be licensed by the Reserve Bank of India and regulated by the Reserve Bank of India...." Unquote Hon'ble Minister further committed that NPCI would be set up as a Non Profit Corporation and a Section 25 company and that no profit money will be distributed as dividend to any shareholder but will be kept with the NPCI only for improving the equipment and to cover the cost. (Extract from the speech of Hon'ble Finance Minister in the Parliament- Annexure -12.2). 1.3 RBI Deputy Governor before SFC stated in Para 32 of SFC Report, that "RBI has not been operating the clearing system to generate inco....
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....cation backbone for the banking and financial sector and the other participant and to design, develop and implement critical payment system. (b) To promote the activities of bankers' clearing house, owning, establishing operating, maintaining and consolidating payment systems for promoting, sound, efficient, and cost effective clearing and payment systems and to do all such acts and deeds as are necessary to ensure deeper penetration into smaller places. No object of the Company shall be carried out without permission of the relevant competent authorities and no object of the company shall be carried out on a commercial basis. 1.7 It may be noted that section 25 of the Companies Act, 1956, was a special provision of Companies Act 1956 which are set up for promoting commerce, arts, science, charity or any other similar useful objects to promote public good & which do not intend to distribute their profits by way of dividend & in case of dissolution or winding up the residual surplus is not distributed amongst members but were to be transferred to specified entity having similar objects. 1.8 Accordingly, the Payment and Settlement functions of ....
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....stem, NPCI at present is operating the National Financial Switch for Inter Bank ATM Switching (NFS), Cheque Truncation Services (CTS), Immediate Payment Service (IMPS), National Automated Clearing House (NACH), Aadhaar Enabled Payment System (AePS), Unified Payments Interface (UPI) and National Electronic Toll Collection (NETC). In order to meet the cost of infrastructure and operations, NPCI is charging a nominal fee per transaction to the banks as decided in consultation with RBI to cover the said cost, the surplus if any generated is being utilized to meet the huge capital expenditure. Being a 'Non Profit Corporation' as envisaged by the Hon'ble Finance Minister of India in Parliament, surplus if any at any point of time cannot be distributed as Dividend to its shareholders by NPCI, but is to be utilized for carrying out the objects of NPCI which are not commercial in nature. A nominal fee charged is nothing but to recover the cost incurred and not to earn profits on commercial basis. 2.3 Thus NPCI's focus is to provide electronic mode of payments and settlement to general public at a minimum cost, all over India. It may be appreciated that electronic pa....
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....-up will not only encourage greater participation from the citizens in under banked and rural areas, it will also enable the Governments - both at Central and State level to make transfer of benefits digitally. There is a growing realization that access to affordable payment services be treated as fundamental as access to education and healthcare. Elimination of Unaccounted Money d) It will also help in terms of elimination of unaccounted money by way of reduced cash transactions and also meet the global challenge to prevent money laundering and move towards cashless economy. Thus overall purpose is to achieve broad based social objectives to bring efficiency in the clearing system in India with a view to benefit society at large and therefore it can be concluded that NPCI objectives were to promote the welfare of general public. 3.2 The above are only some of the benefits. There are lot of intangible benefit in terms of operational convenience, security features, innovative solutions which will go a long way to improve the national health and standard of living of Indian citizens. 4 NPCI'S SERVICE INITIATIVES As already stated earli....
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....B and will credit Rs. 10,000 to SBI. Certain other charges and government levies are also recovered on actual basis on these transactions, which are pass-through costs. In this transaction, Re 1 is the income of the NPCI, which currently stands reduced to Rs. 0.30 per transaction. In case a customer of SBI uses the ATM of SBI, then, NPCI does not come into the picture. NFS manages more than 95% of the interbank ATM transactions. As on date there are about 1199 members that includes PSU Banks, Private & foreign banks, co-operative banks, RRBs and White Label ATM Operators (WLAOs) using NFS network connected to more than 2.52 Lac ATMs. 5.2 Immediate Payment Service (IMPS) IMPS is a 24X7, real time, cost effective, independent retail payment service introduced by NPCI empowering customers to transfer money instantly within banks and RBI authorized Prepaid Issuers (PPIs) across India. This innovative service launched as an instant mobile remittance solution in November 2010 has today evolved into a multi-channel, multidimensional remittance platform. The IMPS platform today is capable of processing P2P (Person to Person), P2A (Person to Account), P2M (Person ....
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...., including RRB's, Cooperative Banks are live on AePS platform. Banks are offering inter-bank AePS services as well. Banks have been issuing Aadhaar based RuPay debit cards. Authentication of these cards is being done basis Aadhaar number. NPCI is also offering eKYC services, wherein UIDAI shares the customer's Proof of Identity and Proof of Address details electronically, post customers biometric authentication. NPCI is also offering demographic authentication services, wherein bank verifies demographic details provided by customer along with his/her Aadhaar number on a real time basis for account seeding purposes. 5.6 Aadhaar Payment Bridge System (APBS) Aadhaar Payments Bridge is one of the services offered by NPCI using the Aadhaar number issued by the Unique Identification Authority of India (UIDAI). APB system is used for processing credit transactions pertaining to various Government / Government agency distribution. NPCI uses Aadhaar number as a key for electronically channelizing the Government benefits and subsidies to the Aadhaar enabled Bank Accounts (AEBA) of the intended beneficiaries. 5.7 RuPay RuPay has been conceived to f....
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....ch it was created and the activities undertaken by it. Ld. counsel also submitted that the charitable status of the assessee still continues as it has been granted registration u/s 12AA on 22.09.2009 w.e.f. 01.04.2009 vide certificate dated 18.03.2010. The said registration still continues and has not been revoked by the Revenue. The charitable purpose for the assessee falls within the category of "advancement of any other object of general public utility" which is accepted position both, by the ld. A.O. in the assessment proceedings and by ld. CIT(E) in the revisionary proceedings. Ld. counsel also emphasized on the fact that the charitable purpose of advancement of object for general public utility has been dealt elaborately by the Coordinate Bench in assessee's own case for assessment year 2010-11 and 2012-13 (supra). He also referred to all the aspects discussed by the ld. CIT(E) in the revisionary proceedings which have been dealt by the Co-ordinate Bench in its order for A.Y. 2010-11 and 2012-13 (supra). 6.1. He thus, summarized that assessee is a non-profit company registered u/s 25 of the Companies Act and its income cannot be distributed by way of dividend. Assessee was....
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....e decision of Hon'ble Supreme Court are reproduced below: "206. ERNET is a not-for profit society, set up under the aegis of the Union Government. At one time, government functionaries, including the late President, APJ Abdul Kalam, were members, on account of their ex officio capacity. The objects of this assessee are to "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 the county. 3.1.2 To develop, design, setup and operate nationwide state of the art computer communication infrastructure with 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. " 207. ERNET's networks are a mix ....
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.... its memorandum, without the prior consent of the Union Government. According to the submissions made on NIXI's behalf, it charges annual membership fee of Rs. 1000/- and registration of second and third level domain names at Rs. 500/- and Rs. 250/-. The finding of the ITAT and the High Court are that NIXI's objects and functioning are by way of general public utility and thus it is a GPU category charity. 210. Having regard to the findings on record and the materials placed by the parties, it is evident that NIXI carries on the essential - crucial purpose of promoting internet services and more importantly, regulating domain name registration which is extremely essential for internet users in India. A country's need to have a domestic internet exchange, rather than depend on an international one, cannot be overemphasized. The Union Government's object of setting up of internet exchange is part of its essential function as a government to regulate certain segment of the communication networks. In the absence of a single entity authorized to register ".in" domain names, there is bound to be chaos or confusion. 211. In view of the foregoing discussio....
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....e of N.N. Agarwal v. CIT [1991] 189 ITR 769 (All) wherein it was held that just because an appeal was pending, the decision of the court could not be treated as not final nor could it be ignored. It was binding upon the authorities within the territories on this state. The ITO had no option to follow this decision. Therefore, the notice issued by the Commissioner u/s 263 was not justified and the same was quashed. It was submitted that findings of the Co-ordinate Bench in assessee's own case for A.Y. 2010-11 and 2012-13 squarely applied in the present case and ld. CIT(E) ought to have adhered to the said decision, there being no change in the material facts and stay by the higher judicial forum on their operation. We are in agreement with the submissions made by the ld. counsel to this effect to the extent that there is no stay operating on the decision of the Co-ordinate Bench (supra). 8.1. There had been subsequent development by way of decision of Hon'ble Supreme Court in the case of Ahmedabad Urban Development Authority (supra) which ought to be factored in while concluding on the issue raised before us against the revisionary order passed by ld. CIT(E). In this respect, we ....
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....ption, to the exemptions such that income derived by charities from business, are not exempt. The seventh proviso virtually echoes section 11(4A) in that business income derived by a charity (in the present case, the GPU charities) which arises from an activity incidental to the attainment of its objective is not per se excluded. 170. Classically, the idea of charity was tied up with eleemosynary51. However, "charitable purpose" - and charity as defined in the Act have a wider meaning where it is the object of the institution which is in focus. Thus, the idea of providing services or goods at no consideration, cost or nominal consideration is not confined to the provision of services or goods without charging anything or charging a token or nominal amount. This is spelt out in Indian Chamber of Commerce (supra) where this Court held that certain GPUs can render services to the public with the condition that they would not charge "more than is actually needed for the rendering of the services, - may be it may not be an exact equivalent, such mathematical precision being impossible in the case of variables, - may be a little surplus is left over at the end of the year - the ....
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....e higher amounts are charged, should not exceed the limit indicated by proviso (ii) to section 2(15). 174. The insertion of section 13(8)52, the seventeenth proviso to section 10(23C) and third proviso to section 143(3) (all of which were inserted by Finance Act, 2012, but w.r.e.f. 1-4-2009), further reinforces the interpretation of this Court, of "charitable purpose". These provisions, form the machinery to control the conditions under which income is exempt. The effect of the seventeenth proviso to section 10(23C) is to impose the same condition i.e., that that the trade, commerce or business activity or service relating to trade, business or commerce, should be part of the GPU's activities, to achieve its object of advancing general public utility. The other condition- which is drawn in as part of the exemption condition, is that if such trading or commercial activity takes place the receipts should be confined to a prescribed percentage of the overall receipts. Section 13(8) too reinforces the same condition. 175. In the opinion of this court, the change intended by Parliament through the amendment of section 2(15) was sought to be emphasized and clarified....
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....ctivity in the nature of trade, business or commerce or service in relation to these three activities, should not exceed the quantitative limit. iv. The Apex Court has further held that the idea of providing services or goods at no consideration or at cost may not be relevant factor as it has to be given a wider meaning. But now there is an inhibition against making profit though there may be a little surplus left over the end of the year. Thus, concept of pure charity i.e. the performance of an activity without consideration is not envisioned under the Act, however, as long as GPUs object involves activities which also generates profits, it can be granted exemption provided the quantitative limit under second proviso to section 2(15) for receipts from such profits, is adhered to. v. In para 171, it has been stated that if the charity involves itself in activities that entail charging amounts only at cost or marginal markup over cost and also derives profit, the prohibition against carrying on business or service relating to business is not attracted (if the quantum of such profits did not exceed 20 per cent of its overall receipts) has been adhered to." 8.4. B....
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....able. Since the assessee itself is not carrying on any trade, commerce or business, it cannot be said that it is involved in any activity of rendering service in relation to any trade, commerce or business. 8.7. To further elaborate on this issue, we refer to the memorandum explaining the provision of Finance Bill, 2008 which spells out the legislative intent for insertion of the proviso to section 2(15) of the Act. The relevant part of the memorandum reads as under: "Streamlining the definition of "charitable purpose" Section 2(15) of the Act defines "charitable purpose" to include relief of the poor, education, medical relief, and the advancement of any other object of general public utility. It has been noticed that a number of entities operating on commercial lines are claiming exemption on their income either under section 10(23) or section 11 of the Act on the ground that they are charitable institutions. This is based on the argument that they are engaged in the "advancement of an object of general public utility" as is included in the fourth limb of the current definition of "charitable purpose". Such a claim, when made in respect of an activit....
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....nch observed that if the very activity was in the nature of trade, commerce or business then, why it was even granted registration u/s 12AA by the Revenue which has not been revoked as of now. Thus, if from the same activities, the receipts of the assessee exceed the threshold, how can the benefit be denied and proviso be invoked when assessee carried out the activities which has been recognized as charitable, falling within the category of 'object of general public utility'. Accordingly, the correct interpretation and the intent of brining proviso to section 2(15) will meet its end only when the assessee carried out any other activity to fulfill its general public utility objects involving element of trade, commerce or business and its receipts from such activity are found to be in excess of the 20% threshold prescribed, of the total receipts. In this context, in the present case before us, the factual position on record evidently demonstrates that assessee has been passing on the benefit of economics of scale year-on-year basis to member banks for which it started initially with charge of Re.1 and in the present time, got reduced to Re.0.05. For this, relevant circular is already....