TaxTMI 
TaxTMI 
2026 (8) TMI 1661
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....d further failed to appreciate that the assessee is earning substantial income of Rs. 2,16,91,14,950/- by providing payment and settlement platform services (ATM, IMPS, CTS, RuPay, NACH, AEPS etc.) to banks for consideration based on volume of transactions, which reflects a fee-based commercial model and clearly establishes that the activities are in the nature of trade, commerce OR business, and thus required proper examination by Ld CIT(A), NFAC under proviso to section 2(15), which has not been done. 2) On the facts and circumstances of the case and in law, the Ld. CIT(A), NFAC erred in not appreciating that the assessee is engaged in systematic, continuous and large scale activities involving huge volume of transactions and consideration, which are not incidental in nature, and further that the services rendered by the assessee are directly in relation to the business activities of member banks, which are commercial entities, thereby clearly establishing that the assessee is carrying on activities in the nature of trade, commerce OR business for consideration, attracting the proviso to section 2(15) of the Act. 3) On the facts and circumstances of the case and....
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.... for adjudication. 7) The appellant craves leave to add, amend, alter vary and/OR withdraw any of the grounds of appeal." As the issues involved in both the assessment years are identical, except for the variance in quantum, both the appeals were heard together and are being disposed of by this consolidated order. ITA No. 5328/Mum/2026 for AY 2014-15 is taken up as the lead case, and the adjudication therein shall apply mutatis mutandis to the other appeal. 2. Brief facts of the case are as under:- The assessee, National Payments Corporation of India (NPCI), is a non-profit company incorporated as a company u/s. 25 of the Companies Act, 1956 on 19/12/2008, pursuant to the initiative of the Reserve Bank of India (RBI) and Indian Banks Association (IBA), for implementation of the Payment and Settlement Systems Act, 2007. The assessee was registered u/s. 12A/12AA of the Income-tax Act, 1961 with effect from 01/04/2009. Its stated objects, inter alia, include promoting, establishing, operating and maintaining payment and clearing systems and developing secure communication infrastructure for the banking and financial sector, with a view to providing efficient and c....
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....2(15) was attracted, the benefit of sections 11 and 12 was unavailable in view of section 13(8) of the Act. Consequently, the assessee was held not to be entitled to exemption u/s. 11 and 12. The Ld.AO also made an addition of Rs. 41,47,12,988/- on account of interest relating to Settlement Guarantee Mechanism (SGM) investment, observing that the income had been credited as a liability and had not been offered to tax. Aggrieved by the assessment order, the assessee preferred an appeal before the Ld. CIT(A). 3. Before the Ld.CIT(A), the assessee, inter alia, contended that it was established for advancement of an object of general public utility. It was submitted that payment and settlement activities of the assessee were undertaken in a regulated environment under the supervision of RBI The assessee further submitted that the fees charged were nominal and intended to recover costs; and that its Memorandum prohibited carrying on activities on a commercial basis. The assessee also relied upon the decision of the Tribunal in its own case for AY 2010-11. 3.1. The Ld. CIT(A), allowed the assessee's substantive grounds relating to exemption u/s. 11 and 12. The Ld. CIT(A) rel....
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....es, we find it imperative to appreciate the basic factual matrix in which the assessee entity has come into existence. It is undisputed fact that the assessee has been granted a valid registration u/s 12AA of the Act which has never been revoked by the revenue authorities. The registration has been granted post-insertion of proviso to Sec.2(15) obviously after looking into the object of the assessee. The assessee has been incorporated under special provisions of Sec.25 of The Companies Act, 1956 which provide for registration of entities which are set up for promoting commerce, art, science, charity of any other similar useful object to promote public good and which do not intend to distribute their profits by way of dividend. As per various clauses of Memorandum & Articles of Association, the assessee is prohibited from distributing its profits by way of dividend to its members. Even in case of dissolution or winding up, the residual surplus was not to be distributed amongst the members but were to be transferred to specified entity having similar objects. 8.2 The RBI in its vision document 2005-08 (issued during May, 2005) titled as 'Payment Systems in India' take note o....
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...., no person other than RBI could operate or commence a payment system unless authorized by RBI. 8.4 The standing committee on finance for examination and report on the bill, submitted its 56th Report after obtaining information from Finance Ministry and after incorporating the views of various concerned parties. The committee referred to the background and framework of NPCI and discussed issues raised by officers of RBI on NPCI being given the task of implementing the PSS. At para-29, the Report quotes Finance Ministry as stating that NPCI would be a Section 25 company owned and operated by banks and that no bank or bank group can have shareholding of more than 10% and shares would be held by as many banks as possible and it was also decided that RBI would have representation on the Board. Para-32 of the Report take note of RBI's reply that RBI has not been operating the clearing system to generate income. Income generation was only incidental. RBI started the cheques processing center as a part of its initiative to build a sound cheque clearing system. A need was felt to consolidate all clearing centers under an umbrella organization to bring efficiency and standardizatio....
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....social objective to bring efficiency in the clearing systems in India with a view to benefit society at large. Hence, it could be concluded that the assessee's objectives were to promote the welfare of general public. 8.9 The clearing functions of RBI were divested to the assessee with the emergence of PSS, Act 2007. The electronic payment infrastructure created by the assessee would enable a larger section of the society to enjoy unparalleled secure and convenient payment systems. The systems being developed by the assessee would bring down cost of clearing transactions which would ultimately benefit public at large availing the banking services. The greater penetration of e-payments would encourage larger participation of citizen in banking system and help in meeting the larger objective of cash-less economy. Therefore, it could safely be concluded that the primary objective of the assessee was to administer the payment settlement system for the larger benefit of general public and not to run the clearing system in a commercial manner or on a commercial basis. 8.10 So far as the issue of charging of fees is concerned, we find that the assessee was engaged in pro....
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....dge that there is clear distinction between subscribers to the shares vis-à-vis contributors. 8.14 Regarding Ld. Sr. Counsel's argument that there would be difference in facility and services and therefore, the assessee would not be covered by the proviso to Sec. 2(15), we are of the opinion that the assessee was engaged in creating infrastructure facilities to improve the clearing mechanism. However, by creation of this facility, the assessee would ultimately be rendering the services to various entities and therefore, the fine distinction between the expression facility and services, in such a case, would get blur. On the facts and circumstances, it would not be correct to say that the assessee was merely creating facility and not providing any services and not hit by proviso to Sec.2(15). We do not find much substance in this argument. 8.15 Another argument raised is that the assessee has been granted a valid registration u/s 12AA of the Act which has never been revoked by the revenue authorities. The registration has been granted post-insertion of proviso to Sec.2(15). Therefore, considering the said fact alone, the deduction could not be denied to the ....
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....Tribunal which is reported at 63 Taxmann.com 297. The revenue contested the order of Tribunal before Hon'ble High Court of Andhra Pradesh & Telangana wherein by judgment dated 09/10/2017 (400 ITR 66), the revenue's appeals were dismissed for both the years. The Special Leave Petition preferred by the revenue against the same has subsequently been dismissed by Hon'ble Supreme Court vide SLP No. 19564/2018 dated 20/07/2018. It is quite evident that existing activity of NFS was taken over by the assessee from IDRBT and the same was continued. Therefore, in terms of the aforesaid decision also, the assessee would be entitled to claim the deduction u/s 11 & 12. 8.17 The Hon'ble Delhi High Court in assessee's Writ Petition No. 1872 of 2013 dated 22/01/2015 titled as India Trade Promotion Organization vs. DGIT (Exemption) & Ors. (371 ITR 333), while upholding the constitutional validity of the 1st proviso, has held that in both the activities i.e. (i) activity in the nature of trade, commerce or business or (ii) any activity of rendering any service in relation to any trade, commerce or business, dominant and prime objective is to be seen. If the dominant objective was 'profit mo....
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....en applied by co-ordinate bench of this Tribunal in Maharashtra Housing & Area Development Authority V/s ADIT (ITA N. 6678/Mum/2013 04/06/2019) and held that the profit motive is the determinative and critical factor to judge the activities which could be reckoned as in the nature of business, trade or commerce. The Hon'ble Bombay High Court, while refusing to admit revenue's substantial question of law, in its decision titled as DIT(E) V/s Shree Nashik Panchvati Panjrapole (ITA N0. 1565 of 2014 dated 24/02/2017), observed that the presence of profit intent (even if it does not fructify) would normally be a sine qua non for the activity to be considered as trade, commerce or business. The Lordship chose to follow the ratio of decision of Hon'ble Gujarat High Court rendered in Sabarmati Ashram Gaushala Trust (2014 362 ITR 539) wherein it was held that the proviso to Sce.2(15) was not aimed at excluding the genuine charitable trusts of general public utility but was aimed at excluding activities in the nature of trade, commerce or business which were masked as charitable purpose. The decision of Hon'ble Delhi High Court in Institute of Chartered Accountants of India V/s DGIT....