DCIT (E), New Delhi V. Ernet India, New Delhi

ITA 1355/DEL/2017

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 7383 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 5 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-08-2020
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2012-2013
• Appeal Filed On: 06-03-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ROHIT JAIN
• Assessee Lawyers: NIDHI SRIVASTAVA
• Keywords: Charitable institution; Capital expenditure
• Section: 12AA; 201; 274; 13; 119; 22; 10(23C)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH B NEW DELHI BEFORE SHRI AMIT SHUKLA, JUDICIAL MEMBER AND SHRI B.R.R. KUMAR, ACCOUNTANT MEMBER I.T.A. NO.1355/DEL/2017 ASSESSMENT YEAR: 2012-2013 DY. COMMISSIONER OF INCOME TAX (EXEMPTION), CIRCLE-1(1), E-2 BLOCK, NEW DELHI. VS. ERNET INDIA, 10 TH FLOOR, JEEVAN PRAKASH BUILDING, 25, K.G. MARG, NEW DELHI. TAN/PAN: AAATE2202A (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI ROHIT JAIN, ADV. RESPONDENT BY: MS. NIDHI SRIVASTAVA DATE OF HEARING: 03 08 2020 DATE OF PRONOUNCEMENT: 26 08 2020 O R D E R PER AMIT SHUKLA, JM: THE AFORESAID APPEAL HAS BEEN FILED BY THE REVENUE AGAINST THE IMPUGNED ORDER DATED 20.12.2016, PASSED BY LD. COMMISSIONER OF INCOME TAX (APPEALS)-XL, DELHI FOR THE QUANTUM OF ASSESSMENT PASSED U/S.143(3) FOR THE ASSESSMENT YEAR 2012-13. IN THE GROUNDS OF APPEAL, THE REVENUE HAS RAISED FOLLOWING GROUNDS: 1.ON THE FACTS AND CIRCUMSTANCES OF THE CASE, LD C IT(A) HAS ERRED IN ALLOWING THE APPEAL OF THE ASSESSEE BY IGN ORING THE FACT THAT EVEN THOUGH THE OBJECTS OF THE SOCIETY MAY HAV E BEEN CHARITABLE BUT THE ACTIVITIES CARRIED OUT BY THE SO CIETY WHICH YIELDED INCOME TO THE SOCIETY WERE COMMERCIAL IN NA TURE. I.T.A. NO.2235/DEL/2019 2 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, LD C IT(A) HAS ERRED IN ALLOWING THE APPEAL OF THE ASSESSEE BY IGN ORING THE FACT THAT ASSESSEE WAS EARNING HUGE PROFITS BY PROVIDING DATA CONNECTIVITY TO ITS SUBSCRIBERS IN LIEU OF CONSIDER ATION AS PER ITS OBJECTS AND NOWHERE, CHARITY CAN BE SEEN IN THE WHO LE PROCESS 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, LD. CIT (A) HAS ERRED IN ALLOWING THE APPEAL OF THE ASSESSEE BY IGN ORING THE FACT THAT AS CAPITAL EXPENDITURE FOR EARLIER YEARS WAS A LLOWED AS APPLICATION OF INCOME IN THE YEAR IN YEAR OF PURCHA SE OF FIXED ASSET/S 4. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, LD C IT(A)HAS ERRED IN ALLOWING ASSESSEES APPEAL BY IGNORING THA T ASSESSEE LIKE CHARITABLE OR RELIGIOUS INSTITUTIONS ARE GOVER NED BY ALMOST THE SEPARATE OR INDEPENDENT PROVISIONS OF SECTIONS 11, 12, 12A, 12AA & 13 AND THESE PROVISIONS ARE INDEPENDENT CODE IN ITSELF IN CHAPTER III OF THE INCOME TAX ACT, 1961. THE INCOME AND EXPENDITURE IS COMPUTED ON THE BASIS OF THE ENTIRE EXPENDITURE INCLUDING THE CAPITAL EXPENDITURE FOR PURCHASE OF C APITAL ASSET U/S. 11(1). 2. AT THE OUTSET, LD. COUNSEL FOR THE ASSESSEE SUBM ITTED THAT IN THE APPEAL FOR THE ASSESSMENT YEARS 2009-10 AND 2010-11 THIS TRIBUNAL ON SIMILAR ISSUES AND GROUNDS RAISED BY THE REVENUE HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSE SSEE AND DISMISSED THE REVENUES APPEAL. NOT ONLY THAT, THE DECISION OF THE TRIBUNAL HAS BEEN AFFIRMED BY THE HONBLE DELHI HIGH COURT IN ITA NO. 637/2018 VIDE JUDGMENT AND ORDER DA TED 25.09.2018. THUS, THE MATTER STANDS SQUARELY COVERE D IN FAVOUR OF THE ASSESSEE. I.T.A. NO.2235/DEL/2019 3 3. ON THE OTHER HAND, LD. DR STRONGLY RELIED UPON T HE 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, GOVERNME NT OF INDIA, AS A NON-PROFIT ORGANIZATION. THE MAIN OBJEC TS OF THE ASSESSEES SOCIETY WAS TO RUN NATION-WIDE ACADEMIC AND RESEARCH NETWORK TO UNDERTAKE AND PROMOTE R&D IN TH E AREA OF COMMUNICATION, DEVELOP POLICY OPTIONS IN THE COU NTRY FOR DEVELOPMENT OF NETWORK INFRASTRUCTURE AND TO ACT AS RESEARCH CENTER FOR TECHNOLOGICAL AND MANAGERIAL RESOURCES I N THE AREA OF COMPUTER NETWORK. LOOKING TO THE ACTIVITIES CARR IED OUT BY IT, WHICH FELL WITHIN THE AMBIT OF CHARITABLE PURP OSES UNDER SECTION 2(15), IT WAS GRANTED REGISTRATION U/S.12A VIDE ORDER DATED 26.03.2004. LD. ASSESSING OFFICER OBSERVED TH AT, ASSESSEE IS NEITHER IN THE FIELD OF EDUCATION NOR I N 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 TH E ACT. THE LD. ASSESSING OFFICER HELD THAT LOOKING TO ITS RECEIPTS , ITS ACTIVITIES WERE COMMERCIAL IN NATURE. HE OBSERVED THAT IN VIEW OF THE AMENDMENT TO SECTION 2(15) ASSESSEE CANNOT BE HELD TO BE CARRYING OUT CHARITABLE ACTIVITIES AS IT WAS CARRYI NG ON ACTIVITIES IN THE NATURE OF TRADE COMMERCE OR BUSIN ESS IN TERMS OF FIRST PROVISO TO SECTION 2(15) AND AFTER D ETAILED DISCUSSION, HE HELD THAT ENTIRE SURPLUS AS PER INCO ME AND I.T.A. NO.2235/DEL/2019 4 EXPENDITURE CLAIMED, COMPUTED THE NET TAXABLE INCOM E AT RS. 8,93,98,650/-. 5. LD. CIT (A) FOLLOWING THE APPELLATE ORDER FOR TH E ASSESSMENT YEAR 2011-12 HELD THAT THE ASSESSEE IS N OT INVOLVED IN ANY TRADE, COMMERCE OR BUSINESS ACTIVIT IES AND AS SUCH THE PROVISION TO SECTION 2(15) IS NOT ATTRACTE D, AND THEREFORE, THERE IS NO JUSTIFICATION FOR DENYING TH E EXEMPTION U/S.11. 6. WE FIND THAT THIS TRIBUNAL IN ASSESSEES OWN CAS E FOR THE ASSESSMENT YEARS 2009-10 AND 2010-11 IN ITA NO. 287 3 & 2874/DEL/2014 VIDE ORDER DATED 27.12.2017 HAS DISCU SSED THIS ISSUE IN DETAIL AND ALLOWED THE EXEMPTION U/S. 11. THE RELEVANT OBSERVATIONS AND THE FINDINGS ARE AS UNDER : 11. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENT IONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES. UNDOUB TEDLY, THE ASSESSEE TRUST HAS BEEN CREATED BY THE GOVT. OF IND IA WITH AN OBJECT FOR DEVELOPMENT OF COMPUTER COMMUNICATION IN THE COUNTRY AND IT IS A NON-PROFIT SOCIETY. SUBSEQUENTLY, VARIO US CERTIFICATES ISSUED BY VARIOUS AUTHORITIES ALSO SHOW THAT THE AS SESSEE DOES NOT EXIST FOR THE PROFIT. THE SUBSCRIBERS TO THE SO CIETY WERE EMINENT PERSONS SUCH AS PROF. YK ALAGH AND HON BLE FORMER PRESIDENT OF INDIA, DR. APJ ABDUL KALAM WHEN, HIS E XCELLENCY WAS SCIENTIFIC ADVISOR TO GOVT. OF INDIA. FURTHER, THE GOVERNING COUNCIL ALSO HAS THE HON BLE MINISTER OF COMMUNICATION AND INFORMATION TECHNOLOGY AS ITS CHAIRMAN AND SEVERAL HIGH- RANKING GOVERNMENT OFFICIALS ALONG WITH THE EMINENT TECHNOCRATS OF THE COUNTRY. I.T.A. NO.2235/DEL/2019 5 12. THE MAIN OBJECT OF WHICH THE TRUST IS FORMED AR E AS UNDER:- 3.1 THE SOCIETY HAS BEEN ESTABLISHED AS A NON-PROF IT SOCIETY ONLY FOR THE OBJECTS AS UNDER:- 3.1.1 TO ADVANCE THE CAUSE OF COMPUTER COMMUNICATIO N IN THE COUNTRY IN ALL ITS ASPECTS AND DIMENSIONS WITH A VI EW TO PROVIDE RAPID NATIONWIDE DEVELOPMENT OF THE SECTOR AND TECH NOLOGICAL AND ECONOMIC GROWTH OF THE COUNTY. 3.1.2 TO DEVELOP, DESIGN, SETUP AND OPERATE NATIONW IDE STATE OF THE ART COMPUTER COMMUNICATION INFRASTRUCTURE WITH INTERNATIONAL CONNECTIVITY DIRECTED TOWARDS RESEARCH AND DEVELOPM ENT, ADVANCEMENT OF HIGH QUALITY EDUCATION, CREATE AND H OST CONTENT, EXPRESS CREATIVE AND ACADEMIC POTENTIAL VIA INTRANE T AND INTRANET PEER TO PEER CONNECTIVITY AMONG EDUCATIONA L AND RESEARCH INSTITUTIONS IN THE COUNTRY AND THE WORLD AND MAKE AVAILABLE THE COMMUNICATION INFRASTRUCTURE TO USERS IN ACADEMIC, RESEARCH AND DEVELOPMENT INSTITUTIONS, GOVT ORGANIZ ATIONS IN LINE WITH NATIONAL PRIORITIES. 3.1.3 TO UNDERTAKE AND PROMOTE EDUCATION, RESEARCH, DEVELOPMENT, TRAINING AND STANDARDIZATION IN THE AR EA OF COMPUTER NETWORKING AND INFORMATION TECHNOLOGY AS W ELL AS ALLIED AREAS OF COMMUNICATION AND TO PROVIDE A FORU M FOR SUCH ACTIVITIES. 3.1.4. TO PROMOTE AND INCULCATE AWARENESS OF THE ST RATEGIC IMPORTANCE OF COMPUTER COMMUNICATION AND INFORMATIO N TECHNOLOGY FOR THE BENEFIT OF ACADEMIC, RESEARCH AN D DEVELOPMENT INSTITUTIONS, GOVERNMENT ORGANIZATIONS AND PUBLIC AT LARGE. 3.1.5 TO DEVELOP POLICY OPTIONS FOR CONSIDERATION O F THE GOVERNMENT FOR DEVELOPMENT OF INFORMATION INFRASTRU CTURE AND I.T.A. NO.2235/DEL/2019 6 COMPUTER NETWORKING IN THE COUNTRY AND IMPLEMENT/PA RTICIPATE 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 C OOPERATION AMONG OTHER COUNTRIES IN THE AREA OF COMPUTER COMMU NICATION INFORMATION TECHNOLOGY, COMPUTER, NETWORKING AND OT HER RELATED EMERGING TECHNOLOGIES. 3.2 WITH A VIEW TO ATTAIN THE AFORESAID OBJECTIVES SET OUT IN THE PARA 3.1 ABOVE, THE SOCIETY MAY CARRY ON THE FOLLOW ING ACTIVITIES. 3.2.1 UNDERTAKE RESEARCH, DESIGN, DEVELOPMENT, CONS ULTANCY TO BUILD COMPETENCE IN THE AREAS OF COMPUTER NETWORKIN G, INFORMATION TECHNOLOGY, DIGITAL LIBRARY, VOICE-ON D ATA, SATELLITE COMMUNICATION AND OTHER RELATED EMERGING FIELDS IN TERMS OF PRESENT FUTURISTIC AND PERSPECTIVE TECHNOLOGIES. 3.2.2 UNDERTAKE TEST BED PROGRAMMES AND EVALUATE EM ERGING TRENDS IN THE AREA OF COMPUTER, NETWORKING, INFORMA TION TECHNOLOGY AND OTHER RELATED EMERGING FIELDS IN IND IA AND ABROAD. 3.2.3 WORK IN THE AREAS OF ADVANCED COMPUTER, NETWO RKING TAKING INTO CONSIDERATION OF BOTH TECHNOLOGICAL FOR ECASTS AND NATIONAL NEEDS. 3.2.3 WORK IN THE AREAS OF ADVANCED COMPUTER, NETWO RKING TAKING INTO CONSIDERATION OF BOTH TECHNOLOGICAL FOR ECASTS AND NATIONAL NEEDS. 3.2.4 CONDUCT GENERAL AND CUSTOMIZED EDUCATIONAL AN D TRAINING ACTIVITIES FOR USERS AND OTHERS THROUGH CLASSROOM A ND DISTANCE LEARNING MODES. I.T.A. NO.2235/DEL/2019 7 3.2.5 CONDUCT NATIONAL AND INTERNATIONAL CONFERENCE S INCLUDING TELECONFERENCES, SEMINARS, SYMPOSIA AND WORKSHOPS T O INCLULCATE AWARENESS OF THE STRATEGIC IMPORTANCE OF COMPUTER COMMUNICATION AND INFORMATION TECHNOLOGY IN EDUCATI ONAL AND RESEARCH. 3.2.6 CARRY OUT GUIDE RESEARCH LEADING TO ADVANCED DEGREES FROM LEADING NATIONAL AND INTERNATIONAL EDUCATIONAL INST ITUTIONS AND UNIVERSITIES. 3.2.7 INSTITUTE STIPENDS SCHOLARSHIPS, ASSOCIATE SH IP AND FELLOWSHIP TO STUDENTS AND INDIVIDUALS. 3.2.8 CARRYOUT DEMONSTRATION FILED TRIALS PILOT PRO DUCTION OF ITS PRODUCTS AND SERVICES DEVELOPED IN HOUSE OR IN COLL ABORATION WITH OTHER EDUCATIONAL AND RESEARCH INSTITUTIONS. 3.2.9 DEVELOP OR ACQUIRE AND ASSIMILATE INPUTS FROM INDIGENOUS SOURCES OF COMPUTER NETWORKING AND INFORMATION TECH NOLOGY AND TRANSFER RELEVANT KNOWLEDGE TECHNOLOGY TO USERS. 3.2.10 PROMOTE AND ANCILLARY RESEARCH, DESIGN AND D EVELOPMENT (R&D) UNITS IN THE COUNTRY FOR DEVELOPMENT OF SYSTE MS, SUB- SYSTEMS, HARDWARE AND SOFTWARE TO BUILD AN APPROPRI ATE TECHNOLOGICAL AND APPLICATION BASE IN THE COUNTRY. 3.2.1 AWARD RESEARCH SURVEYS STUDIES TECHNOLOGY DEV ELOPMENT AND CONSULTANCY PROJECTS TO OTHER INSTITUTIONS, ORG ANIZATIONS 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 PARTICIPATIO N IN SPECIFIC ARRANGEMENTS. 3.2.13 PARTICIPATE IN AND /OR PROMOTE PROFESSIONAL BODIES AND INSTITUTIONS IN THE COUNTRY AND ABROAD. I.T.A. NO.2235/DEL/2019 8 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 IN VENTIONS ETC. THROUGH EXHIBITIONS AND OTHER PROMOTIONAL ACTIVITIE S IN THE AREA OF COMPUTER NETWORKING AND INFORMATION TECHNOLOGY. 3.2.16 APPLY FOR REGISTRATION OF PATENTS ARID COPYR IGHTS TO PROTECT INTELLECTUAL PROPERTY RIGHTS FOR THE PRODUCTS AND S ERVICES DEVELOPED BY THE SOCIETY BY ITSELF OR IN COLLABORAT ION WITH OTHERS. 3.2.17 TO PURCHASE OR TAKE ON LEASE OR HIRE OR DEVE LOP OR IMPROVE OR CONSTRUCT OR AFTER OR EXECUTE OF MAINTAIN OR OTH ERWISE ACQUIRE TEMPORARILY OR PERMANENTLY ANY MOVABLE OR IMMOVABLE PROPERTY INCLUDING LAND AND BUILDING MACHINE AND EQUIPMENT W ORKS ETC AND TO MORTAGE OR CREATE ANY CHARGE ON THE ASSETS S O ACQUIRED, NECESSARY OR CONVENIENT FOR THE ACTIVITIES IN FURTH ERANCE OF THE OBJECTIVES OF THE SOCIETY. 3.2.18 ACQUIRE ESTABLISH MAINTAIN, DISSEMINATE AND MANAGE FACILITIES OF INFORMATION TO ACHIEVE THE OBJECTIVE OF THE SOCIETY. 3.2.19 SET UP LIBRARY OF BOOKS, PERIODICALS, AUDIOV ISUAL AIDS, DATABASE OF INDUSTRY AND END USERS ETC ON NATIONAL AND INTERNATIONAL BASIS TO ENABLE TO SOCIETY TO MEET IT S OBJECTIVE AND EFFECTIVELY CARRY OUT ITS ACTIVITIES. 3.2.20 PROVIDE SERVICES AND CHARGE FOR THE SAME FRO M THE USERS AND EXPLOIT THE KNOW HOW AND PRODUCTS DEVELOPED BY THE SOCIETY. 3.2.21 DECIDE SUBSCRIPTION, MEMBERSHIP TARIFF AND O THER CHARGES FOR THE SERVICES PROVIDED BY THE SOCIETY. 3.2.22 RECEIVE GRANTS, LOANS, SUBSCRIPTIONS, HIRE/L EASE CHARGES, DONATIONS OR ANY OTHER FINANCIAL CONTRIBUTION IN CA SH AND SECURITIES AND OF ANY PROPERTY EITHER MOVABLE OR -M OVABLE I.T.A. NO.2235/DEL/2019 9 FROM WITHIN THE COUNTRY AND/ON ABROAD INCLUDING INT ERNATIONAL AGENCIES, CACENTRAL AND MULTILATERAL AGENCIES SUBJE CT TO PREVAILING LAWS OF THE GOVERNMENT OF INDIA AND TO I NVEST AND DEAL WITH FUNDS AND MONEYS OF THE SOCIETY AND TO VA RY, AFTER OR TRANSFER SUCH INVESTMENTS FROM TIME TO TIME. 3:2.23 TO ACCEPT REMUNERATION FOR, CONSULTANCY, DES IGN, DEVELOPMENT, TECHNOLOGY TRANSFER, PROVIDING SERVICE S OR ANY RELATED ACTIVITY IN THE COUNTRY AS WELL AS ABROAD. 3.2.24 TO ESTABLISH AND MAINTAIN PROVIDENT AND' OTH ER FUNDS FOR THE BENEFIT OF THE EMPLOYEES OR FOR THE PURPOSE OF THE SOCIETY AND OPEN AND OPERATE BANK ACCOUNTS. 3.2.25 ANY SURPLUS FUNDS NOT NEEDED OR CAPABLE OF B EING USED FOR IMMEDIATE APPLICATION TOWARDS THE OBJECTS FOR T HE SOCIETY WILL BE INVESTED BY THE SOCIETY ONLY IN ACCORDANCE WITH THE PROVISIONS CONTAINED FROM TIME TO TIME IN INCOME TAX ACT 1961 APPLICABLE TO SUCH ORGANIZATIONS WHICH PRESENTLY ARE AS UNDER:- I) INVESTMENT IN SAVINGS CERTIFICATES AS DEFINED IN CLAUSE (C) OF SECTION 2 OF GOVT SAVINGS CERTIFICATE ACT, 1959 (46 TO 1959) AND ANY OTHER SECURITIES AND CERTIFICATES ISSUED BY THE CENTRAL GOVT UNDER THE SMALL SAVINGS SCHEMES OF THAT GOVT. II. DEPOSIT IN ANY ACCOUNT WITH THE POST OFFICE SAV INGS BANK. III. DEPOSIT IN ANY ACCOUNT WITH A SCHEDULED BANK O R A COOPERATIVE SOCIETY ENGAGED IN CARRYING ON THE BUSI NESS OF BANKING (INCLUDING A COOPERATIVE LAND MORTGAGE BANK OR A COOPERATIVE LAND DEVELOPMENT BANK. EXPLANATION: IN THIS CLAUSE SCHEDULED BANK MEANS TH E STATE BANK OF INDIA CONSTITUTES UNDER THE STATE BANK OF I NDIA ACT 1955 (23 OF 1959) A SUBSIDIARY BANK AS DEFINED IN THE ST ATE BANK OF INDIA (SUBSIDIARY BANKS) ACT 1959 (38 OF 1959), A C ORRESPONDING NEW BANK CONSTITUTED UNDER SECTION 3 OF THE BANKING COMPANIES I.T.A. NO.2235/DEL/2019 10 (ACQUISITION AND TRANSFER OF UNDERTAKINGS) ACT, 197 0 (5 OF 1970) OR UNDER SECTION 3 OF THE BANKING COMPANIES ( ACQUI SITIONS AND TRANSFER OF UNDERTAKINGS) ACT 1960 (40 OF 1980) OR ANY OTHER BANK BEING A BANK INCLUDED IN THE SECOND SCHEDULE T O 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 BEHAL F 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 COM PANY; VIII) DEPOSITS WITH OR INVESTMENT IN ANY BONDS ISSU ED BY A FINANCIAL CORPORATION WHICH IS ENGAGED IN PROVIDING LONG-TERM FINANCE FOR INDUSTRIAL DEVELOPMENT IN PROVIDING LON G-TERM FINANCE FOR CONSTRUCTION OF PURCHASE OF HOUSES IN RESIDENTI AL PURPOSES' ARID WHICH IS APPROVED BY THE CENTRAL GOVERNMENT FO R THE PURPOSE OF CLAUSE (VIII) OF SUB-SECTION (1) OF SECT ION 36 OF IT ACT. (IX) DEPOSITS WITH OR INVESTMENT IN ANY BONDS ISSUE D BY A PUBLIC COMPANY FORMED AND REGISTERED IN INDIA WITH THE MAI N OBJECT OF CARRYING ON THE BUSINESS OF PROVIDING LONG TERM FIN ANCE FOR CONSTITUTION OF PURCHASE OF HOUSE IN INDIA FOR RESI DENTIAL PURPOSES AND WHICH IS APPROVED BY THE CENTRAL GOVT FOR THE PURPOSE OF CLAUSE (VII) OF SUB-SECTION (1) OF SECTI ON 36 OF IT ACT. (X) INVESTMENT IN IMMOVABLE PROPERTY I.E. IN ANY BU ILDING OR OTHER IMMOVABLE PROPERTY/ ASSET RELATED TO THE APPROVED A CTIVITIES OF THE SIRO. I.T.A. NO.2235/DEL/2019 11 XI) DEPOSITS WITH THE INDUSTRIAL DEVELOPMENT BANK O F INDIA ESTABLISHED UNDER THE INDUSTRIAL DEVELOPMENT BANK O F INDIA ACT, 1964 (18 OF 1964). 13. THE ABOVE OBJECTS OF THE ASSESSEE MUST BE TESTE D ON THE ACTUAL PERFORMANCE OF THE TRUST TO UNDERSTAND THE N ATURE OF ACTIVITIES CARRIED ON BY IT. ASSESSEE HAS SUBMITTED THE PROJECTS UNDERTAKEN BY IT WHICH ARE AS UNDER :- A. ERNET NETWORK IS A JUDICIOUS MIX OF TERRESTRIAL AND SATELLITE BASED WIDE AREA NETWORK. T INDIA PROVIDES SERVICES THROUGH ITS 15 POINTS OF PRESENCE (POPS) LOCATED ACROSS THE COU NTRY. ALL POPS ARE EQUIPPED TO PROVIDE ACCESS TO INTRANET, INTERNE T AND DIGITAL LIBRARY THROUGH TRIAL LEASED CIRCUITS AND RADIO LIN KS TO THE USER INSTITUTIONS. THE POP AT STPI BENGALURU PROVIDES IN TRANET AND INTERNET ACCESS THROUGH SATELLITE. ERNET NETWORK SUPPORTS IPV4 AND IPV6 INTERNET PROTO COL. IPV6, ROUTING PROTOCOL OSPFV3, END TO END ETHERNET SERVIC ES, QOS (DIFFSERV), VIDEO CONFERENCING, AUTHENTICATION AND AUTHORIZATION RAVE ALSO BEEN IMPLEMENTED ON ERNET NETWORK. ERNET PROVIDES, SERVICES, NAMELY, NETWORK ACCESS SERVICES , NETWORK APPLICATIONS SERVICES, HOSTING SERVICES, OPERATIONS SUPPORT SERVICES UND DOMAIN REGISTRATION SERVICES UNDER SRN ET.IN, AC.IN, EDU.IN & RES.IN DOMAINS. THE NETWORK INFRASTRUCTURE IS BEING UPGRADED IN TER MS OF BOTH TECHNOLOGY AND CAPACITY. AT ITS DELHI POP, ERNET IN DIA HAS INSTALLED MAIL, SECURITY APPLIANCES WITH ANTIVIRUS AND ANTI-SPAM SOFTWARE. THE AGGREGATE INTERNET BANDWIDTH WAS UPGR ADED TO MORE THAN 630 MBPS. MORE THAN 1100 USER INSTITUTION S COVERING DIVERSE. APPLICATION DOMAINS ARE NOW CONNECTED TO ERNET NETW ORK. A TOTAL OF 6500 .IN DOMAINS UNDER EDU.IN, AC.IN AND R ES.IN HAVE I.T.A. NO.2235/DEL/2019 12 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) INITIA TIVE 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 FOOTPRI NT TO SOUTH ASIA BRINGING THE TOTAL NUMBER OF PARTNERS TO 18. A SIAN COUNTRIES - BANGLADESH, BHUTAN, CAMBODIA, INDIA, NEPAL, PAKIS TAN AND SRI LANKA - ARE ALSO CONNECTED/ BEING CONNECTED. IN IND IA, TEIN3 POINT OF PRESENCE (POP) HAS BEEN CO-LOCATED AT ERNE T POP AT MUMBAI AND IS ACTING AS THE HUB FOR CONNECTING RESE ARCH 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 DIRE CT CONNECTIVITY TO GEANT (THE PAN- EUROPEAN DATA NETWO RK) AND TEIN3 POP AT SINGAPORE. INDIA IS NOW ACTING AS THE HUB FOR CONNECTIVITY BETWEEN EUROPE AND ASIA-PACIFIC COUNTR IES. THE NETWORK OF ERNET INDIA IS CONNECTED TO TEIN3 POP IN MUMBAI THROUGH NATIONAL KNOWLEDGE NETWORK (NKN). THE CONNE CTIVITY TO TEIN3 IS BEING USED BY INDIA FOR CONNECTING TO RESE ARCHAND EDUCATION NETWORKS WORLDWIDE FOR COLLABORATIVE RESE ARCH. 2. EU-INDIAGRID2 - SUSTAINABLE E-INFRASTRUCTURES AC ROSS EUROPE AND INDIA EU-INDIA GRID 2 IS THE SECOND PHASE OF TH E EU- INDIAGRID PROJECT WHICH WAS INITIATED IN JANUARY, 2 010. THERE ARE SIX EUROPEAN PARTNERS AND 10 INDIAN PARTNERS IN THIS NEW PROJECT. THE ROLE OF ERNET INDIA IN THE NEW PROJECT IS TO PROVIDE NETWORK INFRASTRUCTURE SUPPORT USING-TEIN3. I.T.A. NO.2235/DEL/2019 13 3. MY FIRE - MULTI-DISCIPLINARY NETWORKING OF RESEA RCH COMMUNITIES IN FIRE MYFIRE (WWW.MY-FIRE.EU) IS AN E UROPEAN COMMISSION FUNDED PROJECT LAUNCHED IN JUNE, 2010 TH ROUGH THE EU FP7 PROGRAMME, UNDER THE ICT THEMATIC PRIORITY F UTURE INTERNET RESEARCH AND EXPERIMENTATION (FIRE). THE P ROJECT AIMS TO ENSURE A BALANCE BETWEEN THE REQUIREMENTS FOR RE SEARCHER'S COLLABORATION AND THE STAKEHOLDERS EXPECTATIONS. M YFIRE PROJECT CONSORTIUM INCLUDES, FOUR. EUROPEAN PARTNERS (INNO TSD SA FRANCE, ETSI FRANCE, UNIVERSITY OF EDINBURGH UK AND FRAUNHOFER GERMANY), AND FOUR INTERNATIONAL PARTNERS FROM BRIC (IPT BRAZIL, ITMO RUSSIA, ERNET INDIA AND BII CHINA) COUNTRIES. 4. MOBILE IPV6 TEST BED - MOBILITY BETWEEN HETEROGE NEOUS ACCESS NETWORKS MOBILE IPV6 TEST BED IS A JOINT PROJECT BE TWEEN ERNET INDIA AND INDIAN INSTITUTE OF SCIENCE (IISC) -BENGA LURU WHICH IS FUNDED BY THE DEPARTMENT. UNDER THE PROJECT, A WLAN ACCESS NETWORK TESTBED HAS BEEN SETUP AT ERNET BENGALURU W ITH MOBILE IPV6HOME AGENT (HA), MOBILE NODE (MN) ANTI CORRESPONDENT NODE (CN) SERVICES CONFIGURED USING T HE UMIP MIPV6 STACK. THE SEAMLESS NETWORK LAYER MOBILITY TE ST BETWEEN DIFFERENT WLAN SUBNETS IS COMPLETED. 5. 6L0WPAN - MANAGEMENT AND MONITORING OF WIRELESS SENSOR NETWORKS 6L0WPAN IS A JOINT PROJECT BETWEEN, ERNET INDIA AND IISC BENGALURU, FUNDED BY THE DEPARTMENT. IEEE 802. 15.4 LOW- RATE WIRELESS PERSONAL AREA NETWORK (LOWPAN) STANDA RD SUPPORTS WIRELESS CONNECTIVITY IN LOW-COST DEVICES THAT OPERATE WITH LIMITED COMPUTING RESOURCES AND BATTERY POWER. THE OBJECTIVE OF THIS PROJECT IS TO DEVELOP A PROTOTYPE FOR MONITORING AND MANAGING A 6L0WPAN BASED WIRELESS SENSOR NETWOR K (WSN). AN EXPERIMENTAL 6L0WPAN TESTBED IS SETUP AT ERNET I.T.A. NO.2235/DEL/2019 14 USING TELOSB MOTES WITH TEMPERATURE, LIGHT AND HUMI DITY SENSORS FOR DEVELOPMENT AND TESTING. 6. VIRTUAL SCALABLE EDUCATIONAL SERVICES FOR SCHOOL S. THE DEPARTMENT HAS APPROVED IN NOV., 2011 THE IMPLEMENT ATION OF THE R&D PROJECT, 'VIRTUAL SCALABLE EDUCATIONAL SERV ICES 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 TH E DIGITAL LIBRARY INITIATIVE THE DEPARTMENT HAS FUNDED A PROJECT TITLED SETTING UP REPOSITORY OF DIGITIZED DATA UNDER THE DIGITAL LIBR ARY INITIATIVE. AS PART OF THIS PROJECT, ERNET INDIA IS TO SET UP A REPOSITORY FOR HOSTING THE DIGITIZED DATA AND PROVIDE INTERNET BAN DWIDTH TO THREE CENTRES NAMELY IISC (INDIAN INSTITUTE OF SCIE NCE) BENGALURU, INTERNATIONAL INSTITUTE OF INFORMATION TECHNOLOGY ( HIT) HYDERABAD AND CD AC NOIDA. THE DIGITAL REPOSITORY H AS BEEN SET-UP AT ERNET POP IN PUNE AND ALL THE AVAILABLE D ATA FROM IISC BENGALURU HAS BEEN DOWNLOADED AND HOSTED IN THE NEW REPCAITE. 8. E-LINKAGE OF JAWAHAR NAVODAYA VIDYALAYAS & KENDR IYA VIDYALAYAS ERNET INDIA HAS PROVIDED INTERNET CONNEC TIVITY TO 31 REMOTE VIDYALAYAS UNDER KENDRIYA VIDYALAYA SANGATHA N AND HAD ALSO PROVIDED CONNECTIVITY TO AROUND 300 JAWAHA R NAVODAYA VIDYALAYAS UNDER THE NAVODAYA VIDYALAYA SA MITI. 9. COMMUNITY INFORMATION CENTRE'S - VIDYA VAHINI (C IC-WS) CIC- VVS ARE OPERATIONAL IN THE GOVERNMENT SCHOOL'S LOCA TED IN ANDAMAN & NICOBAR ISLANDS AND LAKSHADWEEP ISLANDS W ITH THE DUAL PURPOSE OF IMPARTING ICT BASED EDUCATION AND T RAINING IN THE SCHOOLS AS WELL AS FOR PROVIDING CITIZEN CENTRI C SERVICES TO THE I.T.A. NO.2235/DEL/2019 15 PEOPLE OF THE REGION. THE VS AT LINK ENABLES RELIAB LE INTRANET AND INTERNET CONNECTIVITY INCLUDING DISTANCE EDUCATION IN THE REGION. 10. ICT VOCATIONAL CENTRES FOR CHILDREN WITH DISABI LITIES-PHASE II AFTER IMPLEMENTATION OF THE PILOT PROJECT BY SETTIN G UP OF ICT CENTERS IN 21 SCHOOLS IN TAMIL NADU AND NCR DELHI, ERNET INDIA HAS IMPLEMENTED THE SECOND PHASE OF THE PROJE CT. IN THIS PHASE, SELECT 100 SCHOOLS SPREAD THROUGHOUT THE COU NTRY HAVE BEEN MADE DISABLE FRIENDLY THROUGH SETTING UP OF IC T CENTERS FOR STUDENTS WHO ARE PHYSICALLY CHALLENGED, AND THOSE W ITH HEARING OR VISION IMPAIRMENT. 11. MOLL WITH STATE GOVERNMENT OF RAJASTHAN FOR EST ABLISHING ICT INFRASTRUCTURE AT SCHOOLS IN RURAL AREAS THIS MEMOR ANDUM OF UNDERSTANDING (MOU) IS MADE BETWEEN ERNET INDIA AND STATE GOVERNMENT OF RAJASTHAN FOR ESTABLISHING INFORMATIO N & COMMUNICATION TECHNOLOGIES (ICT) INFRASTRUCTURE IN THE SCHOOLS LOCATED IN RURAL AREAS OF RAJASTHAN. ICT CENTRES HAVE BEEN SETUP UNDER THE PROJECT IN 25 0 SCHOOLS LOCATED IN RURAL AREAS OF AJMER AND JAIPUR DISTRICT S. THE ESTABLISHMENT OF CONNECTIVITY TO THE ICT CENTERS IS IN PROGRESS. 12. C-LINKAGE OF KRISHI VIGYAN KENDRAS UNDER ICAR UNDER AN MOU, ERNET INDIA HAS ESTABLISHED A DEDICAT ED VSAT HUB AND DEPLOYED INFORMATION TECHNOLOGY INFRASTRUCT URE AT 200 KRISHI VIGYAN KENDRAS (KVKS)/ ZONAL PROJECT DIRECTO RATES (ZPDS) UNDER ICAR TO DEVELOP THEM INTO INFORMATION HUBS. E LINKAGE OF THE REMOTE 200 KVKS/ZPDS HAS BEEN ESTABLISHED WITH THE VSAT HUB AT ICAR HEADQUARTERS IN NEW DELHI. THE SCIENTIS TS, AND OFFICIALS AT EACH OF THE KVK/ZPD CAN ACCESS INTERNE T, E-MAILING AND WEB SERVICES ON 24X7 BASIS. THE E- LINKAGE NETW ORK IS ENABLED FOR VIDEO MULTICAST AND IP TELEPHONY WHICH ALLOWS EACH KVK/ZPD TO WATCH VIDEO SESSIONS BROADCAST FROM THE HUB AND I.T.A. NO.2235/DEL/2019 16 TO HAVE VOICE INTERACTION AMONG EACH OTHER AND THE CENTRE. THE E- LINKAGE FACILITY HAD BEEN OPERATIONALIZED. THE FACI LITY IS BEING USED FOR SCHEDULING TALKS, LECTURES AND SEMINARS DE LIVERED FROM THE HUB BY DOMAIN EXPERTS ON WEEKLY BASIS FOR OFFIC IALS OF THE KVKS/ZPDS. ERNET INDIA IS SUPERVISING THE OPERATION MANAGEMENT AND SUPPORT OF THE HUB AND ALSO LIAISONI NG WITH DEPARTMENT OF SPACE (DOS), DEPARTMENT OF TELECOMMUN ICATIONS (DOT) AND NETWORK OPERATIONS CONTROL CENTRE (NOCC). 13. CAMPUS NETWORK AT NATIONAL UNIVERSITY OF JURIDI CAL SCIENCES, KOLKATA- UNDER AN MOU WITH THE NATIONAL UNIVERSITY OF JURIDI CAL SCIENCES (NUJS), KOLKATTA, ERNET INDIA HAS DESIGNED & SETUP A FIBRE OPTIC BASED GIGABIT CAMPUS NETWORK CONNECTING ACADE MIC, 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 CENTRALIZ ED DATA CENTER A CONTRACT AGREEMENT HAD BEEN CONCLUDED WITH INDIAN COUNCIL OF AGRICULTURAL RESEARCH - NATIONAL AGRICULTURAL INNOV ATION PROJECT (ICAR- NAIP) FOR SETTING UP A CENTRALIZED DATA CENT RE FOR 274 ICAR INSTITUTES CONNECTED ON ERNET THROUGH WORLD BA NK FUNDING. 15. VIDEO CONFERENCE FACILITY AT VARIOUS INSTITUTES 203 ERNET INDIA HAS TAKEN UP PROJECTS FOR SETTING UP OF VIDEO CONFERENCE FACILITY FOR VARIOUS INSTITUTIONS INCLUD ING PROVISIONING OF BANDWIDTH, MAINTENANCE & OPERATIONAL SUPPORT. ER NET INDIA IS IMPLEMENTING/IMPLEMENTED THE FOLLOWING VIDEO CON FERENCE PROJECTS: I.T.A. NO.2235/DEL/2019 17 VC FACILITY FOR GOVT, OF UP AT STATE CAPITAL, 18 DI VISIONS & 1 DISTRICT OF UP WITH A TOTAL OF 21 SITES. HIGH DEFINITION VC FACILITY AT 9 LOCATIONS OF INDIA N METEOROLOGICAL DEPARTMENT. DEPLOYMENT OF VC FACILITY AT 11 LOCATIONS OF THE MA HATMA PHULE KRISHI VIDYAPEEDH, RAHURI. TELE-PRESENCE BASED HIGH DEFINITION VIDEO CONFERENC E FACILITY AT 8 LOCATIONS OF MINISTRY . OF EARTH SCIENCES (MOES). VIDEO CONFERENCING FACILITIES AT 49 LOCATIONS OF IN COME TAX, 7 LOCATIONS OF DGS&D AND 11 LOCATIONS OF THE NATIONAL INSTITUTE OF IMMUNOLOGY (NIL) UNDER THE DEPARTMENT OF BIOTECHNOL OGY(DBT). C. CONFERENCES & WORKSHOPS A PAN (THE ASIA PACIFIC ADVANCED NETWORK) REFERS TO BOTH THE ORGANIZATION REPRESENTING ITS MEMBERS, AND TO THE B ACKBONE NETWORK THAT CONNECTS THE RESEARCH AND EDUCATION NE TWORKS OF ITS MEMBER COUNTRIES/ECONOMIES TO EACH OTHER AND TO OTHER RESEARCH NETWORKS AROUND THE WORLD. APAN COORDINATE S DEVELOPMENTS AND INTERACTIONS AMONG ITS MEMBERS, AN D WITH PEER INTERNATIONAL ORGANIZATIONS, IN BOTH NETWORK T ECHNOLOGY AND APPLICATIONS, AND IS A KEY DRIVER IN PROMOTING AND FACIIITATING NETWORK-ENABLED RESEARCH COLLABORATION; KNOWLEDGE D ISCOVERY TELEHEALTH; AND NATURAL DISASTER MITIGATION. ERNET INDIA IS A PRIMARY MEMBER OF APAN (THE ASIA P ACIFIC ADVANCED NETWORK) REPRESENTING THE EDUCATION AND RE SEARCH NETWORK OF THE COUNTRY. DURING 22ND-26TH AUGUST 201 1, ERNET INDIA ORGANIZED THE 32ND ASIA PACIFIC ADVANCED NETW ORK MEETING AT NEW DELHI. THE WORKSHOP WAS ATTENDED BY AROUND 330 DELEGATES FROM INDIA AND ABROAD. I.T.A. NO.2235/DEL/2019 18 14. OVER AND ABOVE THIS, THE ASSESSEE IS ALSO CARRY ING ON SEVERAL PROJECTS FOR WHICH GRANTS HAVE BEEN RECEIVED SUCH A S FOR VCSC FOR DISABLED CHILDREN, DYNAMIC WEB CONTENT FOR CERT , TRAFFIC ANALYSIS FOR CERT, PROJECT FOR DIGITAL LIBRARY, PRO JECT VI CHOICE INDIA-EUROPE COOPERATION TO IPV-VI, UP GOVT. VIDEO CONFERENCING PROJECT, VIDEO CONFERENCING FOR INCOME TAX DEPARTME NT. IT IS ALSO PROVIDING SERVICES FOR THE SUBSCRIBERS FOR NETWORK CONNECTIVITY, WEB HOSTING AND CONTENT DEVELOPMENT AND DOMAIN REGI STRATION. FOR THESE SERVICES, IT CHARGES INCOME FROM SUBSCRIB ERS, WHICH ARE ON ACTUAL BASIS. AS PER THE LIST OF SUBSCRIBERS PLA CED AT PAGE NO. 125 TO 191, IT IS APPARENT THAT MOST OF THE SUBSCRI BERS ARE SCHOOLS, COLLEGES AND EDUCATIONAL INSTITUTES AND UN IVERSITIES. FOR PROFESSIONAL FEES AND TECHNICAL SERVICES, JAWAHAR N OVODAYA VIDALAYA AND SEVERAL UNIVERSITIES PAY IT. 15. NOW IN THIS BACKGROUND IT IS NECESSARY TO EXAMI NE WHETHER THE ASSESSEE HAS AN OBJECT TO EARN THE PROFIT OR NO T. ACCORDING TO THE MEMORANDUM OF ASSOCIATION, IT IS NON-PROFIT SOC IETY. FURTHER, THE ADDITIONAL SECRETARY TO THE MINISTRY O F COMMUNICATION AND INFORMATION TECHNOLOGY HAS ALSO C ERTIFIED THAT IT IS FUNCTIONING UNDER THE MINISTRY AS AN AUT ONOMOUS BODY AND IT IS WORKING ON NO PROFIT AND NO LOSS BASIS. F URTHER, IT HAS A MANDATE TO INTERCONNECT ONLY EDUCATIONAL AND RESEAR CH INSTITUTIONS IN THE COUNTRY SO AS TO PROVIDE SERVIC ES LIKE DISTANCE EDUCATION AND DIGITAL LIBRARY. FURTHER, THE SOLE OB JECT OF SETTING UP OF THE INFRASTRUCTURE IS TO IMPROVE THE QUALITY OF EDUCATION IN THE COUNTRY. ACCORDING TO THE OBJECT OF THE SOCIETY , IT IS SETTING UP ERNET NETWORK. FURTHER, THE SUBSCRIPTION CHARGED BY THE ASSESSEE FROM THE VARIOUS SUBSCRIBERS AS WELL AS TH E PROFESSIONAL CHARGES IS AT ACTUAL. MERELY, ON GENER ATION OF I.T.A. NO.2235/DEL/2019 19 SURPLUS IT CANNOT BE SAID THAT THE ASSESSEE IS FUNC TIONING WITH THE MOTIVE OF EARNING PROFIT. FURTHER, AS PER THE CLAUSE NO. 33 OF THE MOU THAT I N THE CASE OF DISSOLUTION OF THE SOCIETY ALL THE PROPERTIES SHALL REVERT TO DEPARTMENT OF INFORMATION TECHNOLOGY, GOVT. OF INDI A. ALL THESE FACTS SHOW THAT ASSESSEE TRUST IS NOT FUNCTIONING W ITH A DOMINANT AND PRIME OBJECTIVE OF PROFIT MAKING. THER EFORE, IT IS EVIDENT THAT THE ASSESSEE IS FORMED NOT FOR THE PUR POSES OF THE PROFIT. 16. AS AMENDED W.E.F. 01.04.2009 THE PROVISIONS OF SECTION 2(15) HAS UNDERGONE CHANGE BY INSERTING THE PROVISO THERE IN. THE IMPACT OF THE PROVISO IS THAT THE TRUST AND SOCIETI ES WHO ARE ENGAGED IN CARRYING ON CHARITABLE PURPOSES FALLIN G INTO THE CATEGORY OF ADVANCEMENT OF ANY OTHER OBJECT OF GEN ERAL PUBLIC UTILITY THEY WOULD NOT BE CONSIDERED AS CARRYING ON CHARIT ABLE PURPOSES IF THEY CARRY ON ANY ACTIVITY IN THE NATUR E OF TRADE, COMMERCE AND BUSINESS FOR A CESS, FEE OR ANY OTHER CONSIDERATION. IF THE ABOVE CONDITIONS ARE FULFILLE D THEN USE OF THE INCOME IS IMMATERIAL. THE MAIN REASON FOR THE INSER TION OF THE ABOVE PROVISO IS TO DENY THE EXEMPTION TO THE INSTI TUTIONS WHICH ARE DRIVEN PRIMARILY BY A DESIRE OR MOTIVE TO EARN PROFIT AND DO CHARITY THROUGH THE ADVANCEMENT AN OBJECT OF GENER AL PUBLIC UTILITY THEN SUCH INSTITUTES SHALL NOT BE REGARDED AS INSTITUTIONS ESTABLISHED FOR CHARITABLE PURPOSES. HON'BLEDELHI H IGH COURT IN (371 ITR 333) IN INDIA TRADE PROMOTION VS. DGIT HAS HELD THAT THE CORRECT INTERPRETATION OF PROVISO TO SECTION 2( 15) WOULD BE THAT IT CARVES OUT AN EXCEPTION FROM THE CHARITABLE PURP OSES OF ADVANCEMENT OF ANY OTHER OBJECT OF GENERAL PUBLIC UTILITY AND THAT EXCEPTION IS LIMITED TO ACTIVITIES IN THE NATU RE OF TRADE, COMMERCE OR BUSINESS OR ANY ACTIVITY OF RENDERING A NY SERVICE IN I.T.A. NO.2235/DEL/2019 20 RELATION TO TRADE, COMMERCE OR BUSINESS FOR A CESS OR FEE OR ANY OTHER CONSIDERATION. THEREFORE, IT IS IMPORTANT TO SEE THE DOMINANT AND THE PRIME OBJECTIVE OF THE INSTITUTION . IF THE DOMINANT AND PRIME OBJECTIVE IS PROFIT MAKING AND I TS ACTIVITIES ARE TRADE, COMMERCE OR BUSINESS THEN, SUCH INSTITUT ION WOULD NOT BE ENTITLED TO CLAIM THAT IT IS SET UP FOR CHARITAB LE PURPOSES AS PER SECTION 2(15) OF THE ACT. IN THIS BACKGROUND, IT IS REQUIRED TO BE EXAMINED THAT WHETHER THE ASSESSEE TRUST HAS DOMINA NT AND PRIME OBJECTIVE OF MAKING PROFIT AND CARRY ON TRADE , COMMERCE, AND BUSINESS. 17. THE THRUST HAS BEEN EMPHASIZED BY REVENUE ON TH E AGREEMENT ENTERED INTO BY THE ASSESSEE WITH THE SER VICE RECEIVER. THE COPY OF THE SAMPLE AGREEMENT IS AVAILABLE AT PA GE 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 LIABI LITY CLAUSE, PERFORMANCE SECURITY REQUIREMENT, TERMS AND MANNER OF PAYMENT FIXED WITH THE MILESTONES ETC. GIVES A SEMBLANCE TH AT ASSESSEE IS CARRYING ON BUSINESS. LOOKING TO THE VARIOUS SERVIC E AGREEMENT ENTERED INTO BY THE ASSESSEE WITH THE SERVICE RECIP IENT, WHICH IS HEAVILY RELIED UPON BY THE REVENUE THAT ASSESSEE IS CARRYING ON A BUSINESS. THE LD ASSESSING OFFICER HAS CITED VARIOU S CLAUSES OF THE AGREEMENTS. WE ARE OF THE VIEW THAT THE SERVICE S PROVIDED BY THE ASSESSEE ARE FOR CREATING A PUBLIC INFRASTRUCTU RE, WHICH SHOULD BE SUSTAINABLE, AND EFFECTIVE AS THE PUBLIC MONEY IS INVOLVED IN THAT. THIS IS APPARENT FROM THE FACT TH AT MANY OF THE PROJECTS OF THE ASSESSEE ARE BASED ON GRANTS AND THE PAYER O F THE SERVICES ARE VARIOUS SCHOOLS, EDUCATIONAL INSTITUTE S AND UNIVERSITIES AND OTHER GOVT ORGANIZATIONS SUCH AS I NCOME TAX I.T.A. NO.2235/DEL/2019 21 DEPARTMENT AND CBI. THEREFORE, IT IS ALSO NOT CORRE CT ON PART OF THE REVENUE TO LOOK AT VARIOUS CLAUSES OF THE AGREE MENT AND TO PICK AND CHOOSE THE RELEVANT CLAUSES, WHICH GIVES A COLOUR TO THAT AGREEMENT OF A BUSINESS AGREEMENT. IT MUST NOT BE FORGOTTEN THAT ASSESSEE MAY NOT BE ENGAGED IN THE BUSINESS, T RADE, OR COMMERCE BUT THE SERVICE RECEIVER I.E. THE OTHER PA RTY TO THE CONTRACT IS NECESSARILY ENGAGED IN OBTAINING THOSE SERVICES, WHICH SHOULD BE EFFECTIVE, EFFICIENT, RELIABLE AND SUSTAINABLE. HENCE, SUCH CLAUSES ARE REQUIRED. THEREFORE, IT CAN NOT BE SAID THAT THOSE CLAUSES SUGGESTS THAT ASSESSEE IS CARRYI NG ON BUSINESS. 18. FURTHER, MERELY BECAUSE THE PROFITS HAVE BEEN E ARNED IN ONE OR TWO YEARS IT CANNOT LEAD TO THE FACT THAT ASSESS EE IS EXISTING FOR MAKING PROFIT. IT IS REQUIRED TO BE ASCERTAINED THAT WHETHER PROFIT MAKING IS NOT THE DRIVING FORCE OR DOMINANT OBJECTIVE OF THE ASSESSEE. THE ASSESSEE HAS GIVEN ENOUGH EVIDENCES T O SHOW THAT PROFIT EARNING IS NOT THE DRIVING FORCE OR OBJ ECTIVE OF THE ASSESSEE. AS THE PRINCIPAL EMERGES FROM THE DECISIO N OF THE HON'BLE SUPREME COURT IN CIT VS. SURAT ART SILK MAN UFACTURING ASSOCIATION 121 ITR 1 ACTIVITY FOR THE PROFIT CONNO TES THAT THE PREDOMINANT OBJECT OF THE ACTIVITY MUST BE THE MAKI NG OF PROFIT. IT IS NOT ENOUGH THAT AS A MATTER OF FACT THE ACTIVITI ES RESULTS INTO PROFIT. WHERE AN ACTIVITY IS NOT PERVADED BY THE PR OFIT MOTIVE BUT IS CARRIED ON PRIMARILY FOR SERVING THE CHARITABLE PURPOSES, IT WOULD NOT BE CORRECT TO DESCRIBE IT AS AN ACTIVITY FOR PROFIT MERELY BECAUSE PROFIT ACCRUES. EVEN THE PROPOSITION WAS RE JECTED THAT IF THE PURPOSES TRULY CHARITABLE, THE ATTAINMENT OF TH E PURPOSE MUST RIGOROUSLY EXCLUDE ANY ACTIVITY FOR PROFIT. FURTHER , CONVERSELY WHERE PROFIT MAKING IS THE PREDOMINANT OBJECT OF TH E ACTIVITY, THE PURPOSE THOUGH IT MAY AIM AT ADVANCING AN OBJECT OF GENERAL I.T.A. NO.2235/DEL/2019 22 PUBLIC UTILITY, WOULD CEASE TO BE A CHARITABLE PURP OSE U/S 2(15) OF THE ACT. IT IS DEMONSTRATED BY ASSESSEE BY OVERWHEL MING EVIDENCES THAT ITS ACTIVITIES DO NOT EXIST FOR PROF IT. HENCE, THE ARGUMENT OF THE REVENUE THAT ASSESSEE IS HAVING CON SIDERABLE SURPLUS DESERVES TO BE REJECTED. 19. FURTHERMORE, THE LD DR HAS HEAVILY RELIED ON TH E DECISION OF INSTITUTE OF CHARTERED ACCOUNTANT OF INDIA VS. DIRE CTOR GENERAL OF INCOME TAX (13 TAXMANN.COM 175) WHERE IT IS HELD TH AT WHETHER AN ACTIVITY WOULD BE CONSIDERED AS BUSINESS IF IT I S UNDERTAKEN WITH A PROFIT MAKING MOTIVE BUT IN SOME CASES THIS MAY NOT BE DETERMINATIVE, IN SUCH CASES THERE SHOULD BE EVIDEN CE AND MATERIAL TO SHOW THAT ACTIVITY HAS CONTINUED ON SOU ND AND RECOGNIZED BUSINESS PRINCIPLES WHICH ARE PURSUED WI TH REASONABLE CONTINUITY. IN THAT DECISION, HON'BLE HI GH COURT HAS SHOWN THE CLEAR DISTINCTION BETWEEN COACHING CLASSE S CONDUCTED BY THE PRIVATE PARTIES AND INSTITUTE OF CHARTERED A CCOUNTANTS OF INDIA. WE ARE ALSO OF THE VIEW THAT SERVICE PROVIDE D 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 DELH I HIGH COURT IN CASE OF GS1 V DGIT (EXEMPTION) 360 ITR 138 (DELH I) (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 ITR 99, WHICH IS RELIED UP ON BY REVENUE. THE HON HIGH COUR T HELD THAT STATUTORY PROVISIONS 12. IN THE PRESENT CASE, THE PERIOD IN QUESTION IS BOTH PRIOR AND SUBSEQUENT TO THE AMENDMENTS MADE APPLICABLE, VIDE FINANCE ACT , 2008, WITH EFFECT FROM APRIL 1, 2009. BEFORE DECIDING THE CONTENTIONS OF THE PARTIES WE WOULD I.T.A. NO.2235/DEL/2019 23 LIKE TO FIRST REPRODUCE SECTION 2(15) OF THE ACT WH ICH DEFINES THE TERM 'CHARITABLE PURPOSE' BEFORE AND AFTER ITS AMENDMENT BY THE FINANCE ACT, 2008. SECTION 2(15), BEFORE AMENDMENT BY THE FINANC E ACT, 2008, WAS AS UNDER : '2. (15) 'CHARITABLE PURPOSE' INCLUDES RELIEF OF TH E POOR, EDUCATION, MEDICAL RELIEF, AND THE ADVANCEMENT OF ANY OTHER OBJECT OF GENERAL PUBLIC UTILITY.' BY THE FINANCE ACT, 2008, WITH EFFECT FROM APRIL 1, 2009, THE FOLLOWING PROVISO WAS ADDED : 'PROVIDED THAT THE ADVANCEMENT OF ANY OTHER OBJECT OF GENERAL PUBLIC UTILITY SHALL NOT BE A CHARITABLE PURPOSE, IF IT INVOLVES T HE CARRYING ON OF ANY ACTIVITY IN THE NATURE OF TRADE, COMMERCE OR BUSINE SS, OR ANY ACTIVITY OF RENDERING ANY SERVICE IN RELATION TO ANY TRADE, COM MERCE OR BUSINESS, FOR A CESS OR FEE OR ANY OTHER CONSIDERATION, IRRESPECTIV E OF THE NATURE OF USE OR APPLICATION, OR RETENTION, OF THE INCOME FROM SUCH ACTIVITY.' A SECOND PROVISO INSERTED TO SECTION 2(15) BY FINAN CE ACT, 2010, WITH RET ROSPECTIVE EFFECT FROM APRIL 1, 2009, READS AS UNDE R : 'PROVIDED FURTHER THAT THE FIRST PROVISO SHALL NOT APPLY IF THE AGGREGATE VALUE OF THE RECEIPTS FROM THE ACTIVITIES REFERRED TO THEREIN IS TEN LACS OR LESS IN THE PREVIOUS YEAR.' RUPEES TEN LAKHS MENTIONED IN THE SECOND PROVISO ST ANDS ENHANCED TO RUPEES TWENTY-FIVE LAKHS BY THE FINANCE ACT, 2011, WITH EFFECT FROM APRIL 1, 2012. THE MAIN SECTION 2(15) OF THE ACT HAS ALSO UNDERGON E AMENDMENTS, NOW READS : '2. IN THIS ACT, UNLESS THE CONTEXT OTHERWISE REQUI RES, . . . (15) 'CHARITABLE PURPOSE' INCLUDES RELIEF OF THE PO OR, EDUCATION, MEDICAL RELIEF, PRESERVATION OF ENVIRONMENT (INCLUDING WATE RSHEDS, FORESTS AND WILD LIFE) AND PRESERVATION OF MONUMENTS OR PLACES OR OB JECTS OF ARTISTIC OR HISTORIC INTEREST, AND THE ADVANCEMENT OF ANY OTHER OBJECT OF GENERAL PUBLIC UTILITY : I.T.A. NO.2235/DEL/2019 24 PROVIDED THAT THE ADVANCEMENT OF ANY OTHER OBJECT O F GENERAL PUBLIC UTILITY SHALL NOT BE A CHARITABLE PURPOSE, IF IT INVOLVES T HE CARRYING ON OF ANY ACTIVITY IN THE NATURE OF TRADE, COMMERCE OR BUSINE SS, OR ANY ACTIVITY OF RENDERING ANY SERVICE IN RELATION TO ANY TRADE, COM MERCE OR BUSINESS, FOR A CESS OR FEE OR ANY OTHER CONSIDERATION, IRRESPECTIV E OF THE NATURE OF USE OR APPLICATION, OR RETENTION, OF THE INCOME FROM SUCH ACTIVITY : PROVIDED FURTHER THAT THE FIRST PROVISO SHALL NOT A PPLY IF THE AGGREGATE VALUE OF THE RECEIPTS FROM THE ACTIVITIES REFERRED TO THE REIN IS TWENTY-FIVE LAKH RUPEES OR LESS IN THE PREVIOUS YEAR ;' PERIOD PRIOR TO THE AMENDMENT, VIDE FINANCE ACT, 20 08, WITH EFFECT FROM APRIL 1, 2009 13. WITH REGARD TO THE PERIOD PRIOR TO APRIL 1, 200 9, THE CONTROVERSY SHOULD NOT HAVE BEEN RAISED BY THE RESPONDENT WITH RESPECT TO THE FIRST REASON (REASON A) IN VIEW OF THE AUTHORITATIVE PRONOUNCEME NT 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 PR IMARY OR DOMINANT PURPOSE OF THE TRUST OR INSTITUTION HAS TO BE EXAMI NED 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 TR UST OR INSTITUTION WAS TO CARRY OUT OBJECT OF 'GENERAL PUBLIC UTILITY' AND NO T 'ANY ACTIVITY FOR PROFIT' THEN THE SAME WOULD SATISFY THE REQUIREMENTS OF SEC TION 2(15) OF THE ACT. MONEY EARNED FROM BUSINESS HELD UNDER TRUST OR OTHE RWISE, TO FEED THE CHARITY WOULD NOT DISENTITLE OR NEGATE THE CLAIM OF ENGAGEMENT IN CHARITABLE PURPOSE DEFINED UNDER SECTION 2(15) OF THE ACT. THE FOLLOWING QUOTE FROM THE SAID JUDGMENT IS RELEVANT (PAGE 25) : 'THE TEST WHICH HAS, THEREFORE, NOW TO BE APPLIED I S WHETHER THE PREDOMINANT OBJECT OF THE ACTIVITY INVOLVED IN CARR YING OUT THE OBJECT OF GENERAL PUBLIC UTILITY IS TO SUBSERVE THE CHARITABL E PURPOSE OR TO EARN PROFIT. WHERE PROFIT-MAKING IS THE PREDOMINANT OBJECT OF TH E ACTIVITY, THE PURPOSE, THOUGH AN OBJECT OF GENERAL PUBLIC UTILITY, WOULD C EASE TO BE A CHARITABLE I.T.A. NO.2235/DEL/2019 25 PURPOSE. BUT HERE THE PREDOMINANT OBJECT OF THE AC TIVITY IS TO CARRY OUT THE CHARITABLE PURPOSE AND NOT TO EARN PROFIT, IT WOULD NOT LOSE ITS CHARACTER OF A CHARITABLE PURPOSE MERELY BECAUSE SOME PROFIT ARI SES FROM THE ACTIVITY. THE EXCLUSIONARY CLAUSE DOES NOT REQUIRE THAT THE A CTIVITY MUST BE CARRIED ON IN SUCH A MANNER THAT IT DOES NOT RESULT IN ANY PROFIT. IT WOULD INDEED BE DIFFICULT FOR PERSONS IN CHARGE OF A TRUST OR INSTI TUTION TO SO CARRY ON THE ACTIVITY THAT THE EXPENDITURE BALANCES THE INCOME A ND THERE IS NO RESULTING PROFIT. THAT WOULD NOT ONLY BE DIFFICULT OF PRACTIC AL REALIZATION BUT WOULD ALSO REFLECT UNSOUND PRINCIPLE OF MANAGEMENT.' PERIOD POST THE AMENDMENT, VIDE FINANCE ACT, 2008, WITH EFFECT FROM APRIL 1, 2009 14. A BARE PERUSAL OF THE MAIN PROVISION INDICATES THAT THERE ARE FOUR MAIN FACTORS THAT NEED TO BE TAKEN INTO CONSIDERATION BE FORE CLASSIFYING THE ACTIVITY OF THE ASSESSEE AS 'CHARITABLE' UNDER THE RESIDUARY CATEGORY, I.E., 'ADVANCEMENT OF ANY OTHER OBJECT OF GENERAL PUBLIC UTILITY' UNDER SECTION 2(15) OF THE ACT. THE FOUR FACTORS ARE (I) ACTIVITY SHOULD BE FOR ADVANCEMENT OF GENERAL PUBLIC UTILITY, (II) ACTIVITY SHOULD NOT INVOLVE ANY ACTIVITY IN THE NATURE OF TRADE, COMMERCE AND BUSINESS, (III) ACTIV ITY SHOULD NOT INVOLVE RENDERING ANY SERVICE IN RELATION TO ANY TRADE, COM MERCE OR BUSINESS, (IV) ACTIVITIES IN CLAUSES (II) AND (III) SHOULD NOT BE FOR FEE, CESS OR OTHER CONSIDERATION AND IF FOR FEE, CESS OR CONSIDERATION THE AGGREGATE VALUE OF THE RECEIPTS FROM THE ACTIVITIES UNDER (II) AND (III) S HOULD NOT EXCEED THE AMOUNT SPECIFIED IN THE SECOND PROVISO. THE EARLIER TEST O F BUSINESS FEEDING OR APPLICATION OF INCOME EARNED TOWARDS CHARITY BECAUS E 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 DIS CUSSED AND EXPLAINED IN THE FOLLOWING WORDS (PAGE 108) : I.T.A. NO.2235/DEL/2019 26 'THE PROVISO APPLIES ONLY IF AN INSTITUTION IS ENGA GED IN ADVANCEMENT OF ANY OTHER OBJECT OF GENERAL PUBLIC UTILITY AND POSTULAT ES THAT SUCH AN INSTITUTE IS NOT 'CHARITABLE' IF IT IS INVOLVED IN CARRYING ON A NY ACTIVITY IN THE NATURE OF TRADE, COMMERCE OR BUSINESS OR ANY ACTIVITY OF REND ERING ANY SERVICE IN RELATION TO ANY TRADE, COMMERCE OR BUSINESS. THE SE COND PART, 'ANY ACTIVITY OF RENDERING ANY SERVICE IN RELATION TO ANY TRADE, COMMERCE OR BUSINESS' OBVIOUSLY INTENDS TO EXPAND THE SCOPE OF THE PROVIS O TO INCLUDE SERVICES, WHICH ARE RENDERED IN RELATION TO ANY TRADE, COMMER CE OR BUSINESS. THE PROVISO FURTHER STIPULATES THAT THE ACTIVITY MUST B E 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 APPLI ED FOR A CHARITABLE ACTIVITY/PURPOSE. THE PROVISO HAS TO BE GIVEN FULL EFFECT TO. THUS, EVEN IF CESS, FEE OR CONSIDERATION IS USED OR UTILIZED FOR CHARITABLE PURPOSES, THE PROVISO AND THE BAR WILL APPLY. AN INSTITUTION WILL NOT BE REGARDED AS ESTABLISHED FOR CHARITABLE PURPOSE/ACTIVITY UNDER T HE LAST LIMB, IF CESS, FEE OR CONSIDERATION IS RECEIVED FOR CARRYING ON ANY ACTIV ITY IN NATURE OF TRADE, COMMERCE OR BUSINESS OR FOR ANY ACTIVITY OF RENDERI NG OF ANY SERVICE IN RELATION TO ANY TRADE, COMMERCE OR BUSINESS, EVEN I F THE CONSIDERATION OR THE MONEY RECEIVED IS USED IN FURTHERANCE OF THE CHARIT ABLE PURPOSES/ACTIVITIES. IN VIEW OF THE FIRST PROVISO, THE DECISIONS THAT TH E APPLICATION OF MONEY/PROFIT IS RELEVANT FOR DETERMINING WHETHER OR NOT A PERSON IS CARRYING ON CHARITABLE ACTIVITY, ARE NO LONGER RELEVANT AND APPOSITE. EVEN IF THE PROFITS EARNED ARE USED FOR CHARITABLE PURPOSES, BU T FEE, CESS OR CONSIDERATION IS CHARGED BY A PERSON FOR CARRYING O N ANY ACTIVITY IN THE NATURE OF TRADE, COMMERCE OR BUSINESS OR ANY ACTIVI TY OF RENDERING OF ANY SERVICE IN ADDITION TO ANY TRADE, COMMERCE OR BUSINESS, IT WOULD BE COVERED UNDER THE PRO VISO AND THE BAR/PROHIBITION WILL APPLY.' SCOPE OF 'TRADE, COMMERCE OR BUSINESS' I.T.A. NO.2235/DEL/2019 27 16. THE KEY WORDS, NAMELY ; TRADE, COMMERCE AND BUS INESS WERE ENUMERATE AND ELUCIDATE IN INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA V. DIRECTOR- GENERAL OF INCOME-TAX (EXEMPTIONS) [2012] 347 ITR 99 (DELHI) AS UNDER (PAGE 113) : 'TRADE, AS PER THE WEBSTER'S NEW TWENTIETH CENTURY DICTIONARY (2 ND EDITION), MEANS, AMONGST OTHERS, 'A MEANS OF EARNIN G ONE'S LIVING, OCCUPATION OR WORK'. IN BLACK'S LAW DICTIONARY, 'TR ADE' MEANS A BUSINESS WHICH A PERSON HAS LEARNT OR HE CARRIES ON FOR PROC URING SUBSISTENCE OR PROFIT ; OCCUPATION OR EMPLOYMENT, ETC. THE MEANING OF 'COMMERCE' AS GIVEN BY THE CONCISE O XFORD DICTIONARY IS 'EXCHANGE OF MERCHANDISE, SPECIALLY ON LARGE SCALE' . IN ORDINARY PARLANCE, TRADE, AND COMMERCE CARRY WITH THEM THE IDEA OF PUR CHASE AND SALE WITH A VIEW TO MAKE PROFIT. IF A PERSON BUYS GOODS WITH A VIEW TO SELL THEM FOR PROFIT, IT IS AN ORDINARY CASE OF TRADE. IF THE TRA NSACTIONS ARE ON A LARGE SCALE IT IS CALLED COMMERCE. NOBODY 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 ENC OMPASSES 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 NATU RE OF TRADE, COMMERCE OR MANUFACTURE.' THE WORD 'BUSINESS' IS A WORD OF LARGE AND INDEFINI TE IMPORT. SECTION 2(13) DEFINES BUSINESS TO INCLUDE ANY TRADE, COMMERCE OR MANUFACTURE OR ANY ADVENTURE OR CONCERN IN THE NATURE OF TRADE, COMMER CE OR MANUFACTURE. THE INTENTION OF THE LEGISLATURE IS TO MAKE THE DEFINIT ION EXTENSIVE AS THE TERM 'INCLUSIVE' HAS BEEN USED. THE LEGISLATURE HAS DELI BERATELY DEPARTED FROM GIVING A DEFINITE IMPORT TO THE TERM 'BUSINESS' BUT MADE REFERENCE TO SEVERAL I.T.A. NO.2235/DEL/2019 28 OTHER GENERAL TERMS LIKE 'TRADE', 'COMMERCE', 'MANU FACTURE' AND 'ADVENTURE OR CONCERN IN THE NATURE OF TRADE, COMMERCE AND MAN UFACTURE'. IN BLACK'S LAW DICTIONARY, SIXTH EDITION, THE WORD 'BUSINESS' HAS BEEN DEFINED AS UNDER : 'EMPLOYMENT, OCCUPATION, PROFESSION OR COMMERCIAL A CTIVITY ENGAGED IN FOR GAIN OR LIVELIHOOD. ACTIVITY OR ENTERPRISE FOR GAIN , BENEFIT, ADVANTAGE OR LIVELIHOOD. UNION LEAGUE CLUB V. JOHNSON 18 CAL 2D 275. ENTERPRISE IN WHICH PERSON ENGAGED SHOWS WILLINGNESS TO INVEST TI ME AND CAPITAL ON FUTURE OUTCOME. DOGGETT V. BURNET 62 APP DC 103 65 F. 2D 191. THAT WHICH HABITUALLY BUSIES OR OCCUPIES OR ENGAGES THE TIME, ATTENTION, LABOUR AND EFFORT OF PERSONS AS A PRINCIPAL SERIOUS CONCER N OR INTEREST OR FOR LIVELIHOOD OR PROFIT.' ACCORDING TO SAMPATH IYENGAR'S LAW OF INCOME TAX (9 TH EDITION), A BUSINESS ACTIVITY HAS FOUR ESSENTIAL CHARACTERISTIC S. FIRSTLY, A BUSINESS MUST BE A CONTINUOUS AND SYSTEMATIC EXERCISE OF ACTIVITY . BUSINESS IS DEFINED AS AN ACTIVE OCCUPATION CONTINUOUSLY CARRIED ON. BUSIN ESS VOCATION CONNOTES SOME REAL, SUBSTANTIVE AND SYSTEMATIC COURSE OF ACT IVITY OR CONDUCT WITH A SET PURPOSE. THE SECOND ESSENTIAL CHARAC TERISTIC I S PROFIT MOTIVE OR CAPABLE OF PRODUCING PROFIT. TO REGARD AN ACTIVITY AS BUSIN ESS, THERE MUST BE A COURSE OF DEALINGS CONTINUED, OR CONTEMPLATED TO BE CONTINUED, NORMALLY WITH AN OBJECT OF MAKING PROFIT AND NOT FOR SPORT O R PLEASURE (BHARAT DEVELOPMENT P. LTD. V. CIT [1982] 133 ITR 470 (DELH I)). THE THIRD ESSENTIAL CHARACTERISTIC IS THAT A BUSINESS TRANSACTION MUST BE BETWEEN TWO PERSONS. BUSINESS IS NOT A UNILATERAL ACT. IT IS BROUGHT ABO UT BY A TRANSACTION BETWEEN TWO OR MORE PERSONS. AND, LASTLY, THE BUSINESS ACTI VITY USUALLY INVOLVES A TWIN ACTIVITY. THERE IS USUALLY AN ELEMENT OF RECIP ROCITY INVOLVED IN A BUSINESS TRANSACTION.' 17. IN THE SAID CASE, RELIANCE AND REFERENCE WAS MA DE TO STATE OF PUNJAB V. BAJAJ ELECTRICALS LTD. [1968] 70 ITR 730 (SC) ; [19 68] 2 SCR 536, KHODAY DISTILLERIES LTD. V. STATE OF KARNATAKA [1995] 1 SC C 574, BHARAT I.T.A. NO.2235/DEL/2019 29 DEVELOPMENT P. LTD. V. CIT [1982] 133 ITR 470 (DELH I), BARENDRA PRASAD RAY V. ITO [1981] 129 ITR 295 (SC), STATE OF ANDHRA PRADESH V. H. ABDUL BAKSHI AND BROS. 15 STC 664 (SC), STATE OF GUJARAT V. RAIPUR MANUFACTURING CO. LTD. 19 STC 1 (SC), DIRECTOR OF S UPPLIES AND DISPOSAL V. MEMBER, BOARD OF REVENUE 20 STC 398 (SC) AND MRS. S AROJINI RAJAH V. CIT [1969] 71 ITR 504 (MAD) TO EXPLAIN THE TERMS 'T RADE, COMMERCE OR BUSINESS'. 18. REFERRING TO THE CONCEPT AND PRINCIPLE OF 'ECON OMIC ACTIVITY' THAT HAS GAINED SOME ACCEPTABILITY IN EUROPEAN UNION AND ENG LAND 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 B UT 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 ACT IVITY'. THE WORDS 'TRADE, COMMERCE AND BUSINESS' ARE ETYMOLOGICAL CHAMELEON A ND SUIT THEIR MEANINGS TO THE CONTEXT IN WHICH THEY ARE FOUND. FI VE TESTS PROPOUNDED IN CUSTOMS AND EXCISE COMMISSIONERS V. LORD FISHER [19 81] 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 OBSER VED WAS CONSEQUENTIAL PROFIT MOTIVE OR PURPOSE BEHIND THE ACTIVITY AND WH EN AN ACTIVITY IS TRADE, COMMERCE OR BUSINESS WAS ELUCIDATED IN INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA V. DIRECTOR-GENERAL OF INCOME-TAX (EXEMPTI ONS) [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 THE SAID SECTION , THE OBJECT AND PURPOSE OF THE SECTION HAS TO BE KEPT IN MIND. WE DO NOT THINK THAT A VERY BROAD AND EXTENDED DEFINITION OF THE TERM 'BUSINESS' IS INTEN DED FOR THE PURPOSE OF INTERPRETING AND APPLYING THE FIRST PROVISO TO SECT ION 2(15) OF THE ACT TO I.T.A. NO.2235/DEL/2019 30 INCLUDE ANY TRANSACTION FOR A FEE OR MONEY. AN ACTI VITY WOULD BE CONSIDERED 'BUSINESS' IF IT IS UNDERTAKEN WITH A PROFIT MOTIVE , BUT IN SOME CASES THIS MAY NOT BE DETERMINATIVE. NORMALLY, THE PROFIT MOTIVE T EST SHOULD BE SATISFIED BUT IN A GIVEN CASE ACTIVITY MAY BE REGARDED AS BUSINES S EVEN WHEN PROFIT MOTIVE CANNOT BE ESTABLISHED/PROVED. IN SUCH CASES, THERE SHOULD BE EVIDENCE AND MATERIAL TO SHOW THAT THE ACTIVITY HAS CONTINUED ON SOUND AND RECOGNIZED BUSINESS PRINCIPLES, AND PURSUED WITH RE ASONABLE CONTINUITY. THERE SHOULD BE FACTS AND OTHER CIRCUMSTANCES WHICH JUSTIFY AND SHOW THAT THE ACTIVITY UNDERTAKEN IS INFECT IN THE NATURE OF BUSINESS. THE TEST AS PRESCRIBE IN RAIPUR MANUFACTURING CO. (SUPRA) AND S AI PUBLICATION FUND (SUPRA) CAN BE APPLIED. THE SIX INDICIA STIPULATED IN LORD FISHER (SUPRA) ARE ALSO RELEVANT. EACH CASE, THEREFORE, HAS TO BE EXAM INED ON ITS OWN FACTS.' 20. RECENTLY IN ANOTHER DECISION IN WP(C) NO. 1755 OF 2012 TITLED BUREAU OF INDIAN STANDARDS V. DIRECTOR-GENERAL OF INCOME-T AX (EXEMPTIONS) [2013] 358 ITR 78 (DELHI) DATED SEPTEMBER 27, 2012, IT WAS HELD THAT BUREAU OF INDIAN STANDARDS (BIS) WAS CARRYING ON CHARITABLE A CTIVITIES AS DESCRIBED WITHIN THE AMBIT OF SECTION 2(15) AND WAS ENTITLED TO REGISTRATION/NOTIFICATION UNDER SECTION 10(23C)(IV) . WE, HOWEVER, NOTE THAT THERE IS ONE DISTINCTION BETWEEN THE PRESENT PETITI ONER AND BIS. BIS IS A STATUTORY AUTHORITY CREATED BY THE LEGISLATION AND, THEREFORE, THEIR CASE AND CLAIM STANDS ON A BETTER FOOTING BUT THIS DOES NOT IMPLY THAT ONLY STATUTORY BODIES CAN BE TREATED AS ESTABLISHED FOR CHARITABLE PURPOSE UNDER SECTION 2(15) OF THE ACT. SUCH CONTENTION HAS NOT BEEN RAIS ED AND CANNOT BE SUSTAINED/ACCEPTED. CIRCULAR NO. 11 OF 2008 BY THE CENTRAL BOARD OF DIR ECT TAXES 21. IT MAY BE RELEVANT TO REPRODUCE EXTRACT FROM CIRCULAR NO. 11 OF 2008, DATED DECEMBER 19, 2008, ISSUED BY THE CENTRAL BOARD OF D IRECT TAXES EXPLAINING THE AMENDMENTS TO SECTION 2(15) OF THE ACT. THE REL EVANT PORTION OF THE CIRCULAR READS AS UNDER (SEE [2009] 308 ITR (ST.) 5 ) : I.T.A. NO.2235/DEL/2019 31 'SECTION 2(15) OF THE INCOME-TAX ACT, 1961 ('ACT') DEFINES 'CHARITABLE PURPOSE' TO INCLUDE THE FOLLOWING : (I) RELIEF OF THE POOR (II) EDUCATION (III) MEDICAL RELIEF, AND(IV) THE ADVANCEMENT OF AN Y 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 ALTERNATIVEL Y UNDER SECTION 10(23C) OF THE ACT. HOWEVER, IT WAS SEEN THAT A NUMBER OF E NTITIES WHO WERE ENGAGED IN COMMERCIAL ACTIVITIES WERE ALSO CLAIMING EXEMPTI ON ON THE GROUND THAT SUCH ACTIVITIES WERE FOR THE ADVANCE MENT OF OBJECT S OF GENERAL PUBLIC UTILITY IN TERMS OF THE FOURTH LIMB OF THE DEFINITION OF 'C HARITABLE PURPOSE'. THEREFORE, SECTION 2(15) WAS AMENDED VIDE FINANCE A CT, 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 O F GENERAL PUBLIC UTILITY', I.E., THE FOURTH LIMB OF THE DEFINITION OF 'CHARITA BLE 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 T HEY CARRY ON COMMERCIAL ACTIVITIES. WHETHER SUCH AN ENTITY IS CARRYING ON A N ACTIVITY IN THE NATURE OF TRADE, COMMERCE OR BUSINESS IS A QUESTION OF FACT W HICH WILL BE DECIDED BASED ON THE NATURE, SCOPE, EXTENT AND FREQUENCY OF THE ACTIVITY . . . 3.2. IN THE FINAL ANALYSIS, HOWEVER, WHETHER THE AS SESSEE HAS FOR ITS OBJECT 'THE ADVANCEMENT OF ANY OTHER OBJECT OF GENERAL PUB LIC UTILITY' IS A QUESTION OF FACT. IF SUCH ASSESSEE IS ENGAGED IN ANY ACTIVIT Y IN THE NATURE OF TRADE, COMMERCE OR BUSINESS OR RENDERS ANY SERVICE IN RELA TION TO TRADE, COMMERCE OR BUSINESS, IT WOULD NOT BE ENTITLED TO CLAIM THAT ITS OBJECT IS CHARITABLE PURPOSE. IN SUCH A CASE, THE OBJECT OF 'GENERAL PUB LIC UTILITY' WILL BE ONLY A MASK OR A DEVICE TO HIDE THE TRUE PURPOSE WHICH IS TRADE, COMMERCE OR BUSINESS OR THE RENDERING OF ANY SERVICE IN RELATIO N TO TRADE, COMMERCE OR I.T.A. NO.2235/DEL/2019 32 BUSINESS. EACH CASE WOULD, THEREFORE, BE DECIDED ON ITS OWN FACTS AND NO GENERALIZATION IS POS SIBLE. ASSESSEES, WHO CLAIM T HAT THEIR OBJECT IS 'CHARITABLE PURPOSE' WITHIN THE MEANING O F SECTION 2(15), WOULD BE WELL ADVISED TO ESCHEW ANY ACTIVITY WHICH IS IN THE NATURE OF TRADE, COMMERCE OR BUSINESS OR THE RENDERING OF ANY SERVIC E IN RELATION TO ANY TRADE, COMMERCE OR BUSINESS.' (EMPHASIS SUPPLIED) 22. IT IS, EVIDENT FROM CIRCULAR NO. 11 OF 2008 THA T THE NEW PROVISO OF SECTION 2(15) OF THE ACT IS APPLICABLE TO THE ASSES SEES WHO ARE ENGAGED IN COMMERCIAL ACTIVITIES, I. E., CARRYING ON BUSINESS, TRADE OR COMMERCE, IN THE GARB OF 'PUBLIC UTILITY' TO AVOID TAX LIABILITY AS IT WAS NOTICED THAT THE OBJECT OF 'GENERAL PUBLIC UTILITY' WAS SOMETIMES ONLY A MA SK OR DEVICE TO HIDE THE TRUE PURPOSE WHICH WAS 'TRADE, COMMERCE OR BUSINESS .' DISCUSSION ; ACTIVITIES OF THE PETITIONER AND DIFFE RENCE BETWEEN BUSINESS AND CHARITY 23. IN THE PRESENT CASE, 'THE BUSINESS' IS NOT HELD IN TRUST AND NEITHER IS 'THE BUSINESS' FEEDING THE CHARITY. THE VERY 'ACT OR ACT IVITY OF CHARITY' AS CLAIMED BY THE PETITIONER IS REGARDED BY THE REVENU E AS NOTHING BUT BUSINESS, TRADE OR COMMERCE. MONEY RECEIVED, OF COU RSE IS USED AND UTILIZED FOR THE CHARITABLE ACTIVITIES. FOUR REASONS ARE ELU CIDATED AND PROPOUNDED IN THE IMPUGNED ORDER TO STATE THAT THE PETITIONER IS ENGAGED IN BUSINESS, TRADE OR COMMERCE AND AFORESAID ENCAPSULATED IN THE IMPUG NED ORDER. THE PETITIONER HAS ACQUIRED INTELLECTUAL PROPERTY RIGHT S, RECEIVES FEE FROM THIRD PARTIES, WHICH IS NOTHING BUT PAYMENT OF ROYALTY, T HERE IS A HUGE SURPLUS OF RECEIPTS OVER EXPENDITURE (REFER TABLE REPRODUCED I N 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 I N THE ACTIVITIES WHICH CONSTITUTE BUSINESS, COMMERCE OR TRADE ? AS OBSERVE D ABOVE, THE LEGAL TERMS 'TRADE, COMMERCE, OR BUSINESS' IN SECTION 2(15), ME ANS ACTIVITY UNDERTAKEN WITH A VIEW TO MAKE OR EARN PROFIT. PROFIT MOTIVE I S DETERMINATIVE AND A CRITICAL FACTOR TO DISCERN WHETHER AN ACTIVITY IS B USINESS, TRADE OR COMMERCE. I.T.A. NO.2235/DEL/2019 33 25. BUSINESS ACTIVITY HAS AN IMPORTANT PERVADING EL EMENT OF SELF-INTEREST, THOUGH FAIR DEALING SHOULD AND CAN BE PRESENT, WHIL ST CHARITY OR CHARITABLE ACTIVITY IS ANTI-THESIS OF ACTIVITY UNDERTAKEN WITH PROFIT MOTIVE OR ACTIVITY UNDERTAKEN ON SOUND OR RECOGNIZED BUSINESS PRINCIPL ES. CHARITY IS DRIVEN BY ALTRUISM AND DESIRE TO SERVE OTHERS, THOUGH ELEMENT OF SELF-PRESERVATION MAY BE PRESENT. FOR CHARITY, BENEVOLENCE SHOULD BE OMNI PRESENT AND DEMONSTRABLE BUT IT IS NOT EQUIVALENT TO SELF-SACRI FICE AND ABNEGATION. THE ANTIQUATED DEFINITION OF CHARITY, WHICH ENTAILS GIV ING AND RECEIVING NOTHING IN RETURN IS OUTDATED. A MANDATORY FEATURE WOULD BE ; CHARITABLE ACTIVITY SHOULD BE DEVOID OF SELFISHNESS OR ILLIBERAL SPIRIT . ENRICHMENT OF ONESELF OR SELF-GAIN SHOULD BE MISSING AND THE PREDOMINANT PUR POSE OF THE ACTIVITY SHOULD BE TO SERVE AND BENEFIT OTHERS. A SMALL CONT RIBUTION BY WAY OF FEE THAT THE BENEFICIARY PAYS WOULD NOT CONVERT CHARITA BLE ACTIVITY INTO BUSINESS, COMMERCE OR TRADE IN THE ABSENCE OF CONTRARY EVIDEN CE. THE QUANTUM OF FEE CHARGED, ECONOMIC STATUS OF THE BENEFICIARIES WHO P AY, COMMERCIAL VALUE OF BENEFITS IN COMPARISON TO THE FEE, PURPOSE AND OBJE CT BEHIND THE FEE, ETC., ARE SEVERAL FACTORS WHICH WILL DECIDE THE SEMINAL Q UESTION, IS IT BUSINESS ? 26. THE PETITIONER CHARGES AN INITIAL REGISTRATION FEE OF RS. 20,000 PLUS ANNUAL FEE OF RS. 4,000, ENHANCED TO RS. 5,000 FROM THE FINANCIAL YEAR 2006- 07 ONWARDS FROM THIRD PARTIES, WHO BECOME SUBSCRIBI NG MEMBERS AND ARE ENTITLED TO USE THE CODING SYSTEM, GS1. THE REVENUE ACKNOWLEDGES THAT THE PETITIONER ENJOYS MONOPOLY AND HAS EXCLUSIVE RIGHTS TO ISSUE GLOBAL BAR CODING SYSTEM GS1 IN INDIA. HOWEVER, THE PETITIONER IS NOT DEALING OR TREATING THE PRIZED RIGHTS AS A RIGHT, WHICH IS TO BE EXPLOITED COMMERCIALLY TO EARN OR GENERATE PROFITS. A CODING SYSTEM OF THI S NATURE IF MARKETED ON COMMERCIAL LINES WITH PROFIT MOTIVE WOULD AMOUNT TO BUSINESS BUT WHEN THE UNDERLYING AND PROPELLING MOTIVE IS NOT TO EARN PRO FITS OR COMMERCIALLY EXPLOIT THE RIGHTS BUT 'GENERAL PUBLIC GOOD', I.E., TO PROMOTE AND MAKE GS1 CODING SYSTEM AVAILABLE TO INDIAN TRADERS, MANUFACT URERS, GOVERNMENT, ETC., IT WILL FAIL THE TEST OF BUSINESS AND MEETS THE TOU CHSTONE OF CHARITY. THE I.T.A. NO.2235/DEL/2019 34 PETITIONER IS NOT DIRECTLY OR INDIRECTLY SUBJECTING THEIR ACTIVITY TO MARKET MECHANISM/DYNAMICS (I.E., DEMAND AND SUPPLY), RATHE R IT IS MOTIVATED AND COMPTED TO SERVE THE BENEFICIARIES. THIS IS NOT A C ASE OF COMMERCIAL EXPLOITATION OF INTELLECTUAL PROPERTY RIGHTS TO EAR N PROFITS BUT RATHER A CASE WHERE A TOKEN FEE HAS BEEN FIXED AND PAYABLE BY THE USER OF THE GLOBAL IDENTIFICATION SYSTEM. 27. THE PETITIONER DOES NOT CATER TO THE LOWEST OR MARGINALIZED SECTION OF THE SOCIETY, BUT GOVERNMENT, PUBLIC SECTOR AND PRIVATE SECTOR MANUFACTURERS AND TRADERS. NO FEE IS CHARGED FROM USERS AND BENEF ICIARIES 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 EXOR BITANT 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 S PECIFIC OR QUANTITY RELATED, I.E., DEPENDENT UPON THE QUANTUM OF PRODUC TION. 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 H AVE 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 P ROFIT ORIENTED INTENT. 28. HAVING APPLIED THE TEST MENTIONED ABOVE, INCLUD ING 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 ACCE PTED THAT THE PETITIONER CARRIES ON CHARITABLE ACTIVITY UNDER THE RESIDUARY HEAD 'GENERAL PUBLIC UTILITY' BUT SIMULTANEOUSLY REGARDS THE SAID ACTIVI TY AS BUSINESS. THUS, THE CONTENTION OF THE REVENUE THAT THE PETITIONER CHARG ES FEE AND, THEREFORE, IS CARRYING ON BUSINESS, HAS TO BE REJECTED. THE INTEN TION BEHIND THE ENTIRE I.T.A. NO.2235/DEL/2019 35 ACTIVITY IS PHILANTHROPIC AND NOT TO RECOUP OR REIM BURSE IN MONETARY TERMS WHAT IS GIVEN TO THE BENEFICIARIES. THE ELEMENT OF GIVE AND TAKE IS MISSING, BUT THE DECISIVE ELEMENT OF BEQUEATHING IS PRESENT. IN THE ABSENCE OF 'PROFIT MOTIVE' AND CHARITY BEING THE PRIMARY AND SOLE PURP OSE BEHIND THE ACTIVITIES OF THE PETITIONER IS PERSPICUOUSLY DISCE RNIBLE AND PERCEPTIBLE. 29. THE TABLE RELIED ON BY THE RESPONDENT AND MENTI ONED IN PARAGRAPH 7 ABOVE TELLS A PARTIAL STORY. ONLY DIRECT EXPENSES I NCURRED HAVE BEEN SET OFF FROM THE FEE EARNED FROM REGISTRATION AND RENEWAL. THE ACTIVITY OF THE PETITIONER INVOLVES PROMOTION, PROPAGATION AND SPRE ADING AWARENESS AND KNOWLEDGE ABOUT GLOBAL CODING IDENTIFICATION SYSTEM GS1. THE ENTIRE EXPENDITURE OF THE PETITIONER HAS TO BE TAKEN INTO CONSIDERATION AND CANNOT BE IGNORED. THERE ARE STIPULATIONS IN SECTIONS 11, 13, ETC., OF THE ACT TO PREVENT MISUSE OF OR SIPHONING OF FUNDS, BAR/PROHIB IT GAINS TO RELATED PERSONS, STIPULATIONS OF TIME LIMITS FOR USE OF FUN DS, WHICH ARE EFFECTIVE CHECKS AND CURTAIL AND DENY BENEFIT IN CASES OF ABU SE. THERE IS NO SUCH ALLEGATION OR CONTENTION OF THE REVENUE IN THE PRES ENT CASE. 30. AS OBSERVED ABOVE, THE FEE CHARGED AND THE QUAN TUM OF INCOME EARNED CAN BE INDICATIVE OF THE FACT THAT THE PERSON IS CA RRYING 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 SHOU LD NOT DEPEND UPON THE GOVERNMENT, IN OTHER WORDS, TAXPAYERS SHOULD NOT SU BSIDIZE THE SAID ACTIVITIES, WHICH NEVERTHELESS ARE CHARITABLE AND F ALL UNDER THE RESIDUARY CLAUSE 'GENERAL PUBLIC UTILITY'. THE IMPUGNED ORDER DOES NOT REFER TO ANY STATUTORY MANDATE THAT A CHARITABLE INSTITUTION FAL LING 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 EX AMINE THE DATA, WHICH SHOULD BE ANALYZED OBJECTIVELY AND A NARROW AND COL OURED VIEW WILL BE I.T.A. NO.2235/DEL/2019 36 COUNTER-PRODUCTIVE 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 COM MENSURATING WITH THE EFFORTS PUT IN BY THE ORGANIZATION AND TO DEFRAY ITS COST AS WELL AS FURTHER CAPITAL COST. IT IS ALSO REQUIRE D TO BE NOTED THAT ASSESSEE IS ENGAGED IN RESEARCH BASED ACTIVITY WHIC H 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 CATEGORI CALLY 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 DO ES 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 C IT (A), WE DO NOT CONCUR WITH THE ARGUMENTS OF THE LD CIT DR THAT ORDER IS PERFUNCTORY AND DEVOID OF REASONS FOR THE REASONS T HAT HE HAS DECIDED THE ISSUES RELYING ON THE DECISION OF HONOR ABLE DELHI HIGH COURT. ACCORDING TO US, THE LD CIT (A) HAS ALS O GIVEN HIS FINDING ON ALL THE ASPECTS OF THE ISSUES RAISED BY LD AO. 23. IN VIEW OF THE ABOVE FACTS AND RESPECTFULLY REL YING ON THE DECISION OF HON DELHI HIGH COURT IN 360 ITR 138 , W E FIND NO INFIRMITY IN THE ORDER OF THE LD CIT (A), HENCE WE DISMISS ALL THE GROUNDS OF APPEAL OF REVENUE IN ITA NO 2873/DEL/201 1 FOR AY 2009-10. 24. FURTHER, THE APPEAL OF THE REVENUE FOR AY 2010- 11 IN ITA NO 2874/DEL/2011, ALSO INVOLVES THE SAME ISSUES. THERE FORE, FOR I.T.A. NO.2235/DEL/2019 37 THE REASONS GIVEN BY US IN APPEAL OF REVENUE FOR AY 2009-10, WE ALSO DISMISS ALL THE GROUNDS OF APPEAL OF REVENUE I N ITA NO 2874/DEL/2011 FOR AY 2010-11. 7. THIS ORDER OF THE TRIBUNAL HAS ALSO BEEN CONFIRM ED BY HONBLE HIGH COURT IN THE APPEAL FILED BY THE REVEN UE. ADMITTEDLY, SAME FACTS AND ISSUES ARE PERMEATING IN THIS YEAR ALSO INCLUDING THE OBSERVATIONS AND THE FINDINGS OF THE ASSESSING OFFICER. HENCE, RESPECTFULLY FOLLOWING TH E EARLIER YEAR PRECEDENT, WE DISMISS THE GROUNDS RAISED BY TH E REVENUE. 8. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 26 TH AUGUST, 2020 SD/- SD/- [B.R.R. KUMAR] [AMIT SHUKLA] [ACCOUNTANT MEMBER] JUDICIAL MEMBER DATED: 26/08/2020 PKK: COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR ASSISTANT REGISTRAR