DDIT (E), New Delhi V. M/s Quality Council of India, New Delhi

ITA 2754/DEL/2013

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 7880 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 11 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-04-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: F
• Next Hearing Date: 29-02-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 06-05-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAMAN KANT GARG
• Keywords: Charitable institution; Retrospective amendment
• Section: 143(3); 12; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH F , NEW DELHI BEFORE SHRI J. SUDHAKAR REDDY, ACCOUNTANT MEMBER AND MS. SUCHITRA KAMBLE , JUDICIAL MEMBER ITA NO. 2754/ DEL/201 3 AY: 2009 - 10 DDIT (E), INV. CIRCLE II VS. QUALITY COUNCIL OF INDIA NEW DELHI II FLOOR, INSTITUTION OF ENGINEERS BLDG. BAHADUR SHAH ZAFAR MARG NEW DELHI 110 002 PAN: AAATQ 0055 D (APPELLANT) (RESPONDENT) APPELLA NT BY : SH. RAMAN KANT GARG, SR.D.R. RESPONDENT BY : NONE ORDER PER J. SUDHAKAR REDDY, ACCOUNTANT MEMBER THIS IS AN APPEAL FILED BY THE R EVENUE DIRECTED AGAINST THE ORDER OF THE LD. COMMISSIONER OF I NCOME T AX ( A P PEALS) - XXI, NEW DELHI DATED 28.2.2013 PERTAINING TO THE A.Y. 2009 - 10. 2 . FACTS IN BRIEF : - THE ASSESSEE IS A S OCIETY AND IS REGISTERED UNDER T HE S OCIETIES R EGISTRATION A CT XXI, 1860 V IDE REGI STRATION C ERTIFICATE N UMBER S - 30832 DATED 21 . 01 . 1997. THE ASSESS EE S OCIETY IS ALSO REGISTERED U/S 12 A OF THE I NCOME T AX A CT 19 61 (HEREINAFTER REFERRED TO AS THE ACT) VIDE ORDER NO. DIT (E)/99 2000/Q 8/99/230 DATED 28.07.1999. 2.1 . THE ASSESSEE FILED ITS RETURN OF INCOME ON 30 . 09 . 2009 DECLARING NIL INCOME. THE A SSESSING O FFICER (AO) PASSED AN ORDER U/S 143(3) OF THE ACT ON 28 . 12 . 2011 DENYING EXEMPTION U/S 11 OF THE ACT AND DETERMINING THE TOTAL ITA 2 754/DEL/2013 A.Y. 2009 - 10 QUALITY COUNCIL OF INDIA, NEW DELHI 2 INCOME AT RS. 4, 24, 67, 644 / - . THE LD. AO HELD THAT THE ASSESSEE IS ENGAGED IN ADVANCEMENT OF ANY OTHER OBJECT OF GENE RAL PUBLIC UTILITY AND IN VIEW OF THE P ROVISO TO S ECTION 2(15) OF THE A CT, SUCH AN INSTITUTE IS NOT CHARITABLE IF IT IS INVOLVED IN CARRYING ON ANY ACTIVITY IN THE NATURE OF ANY TRADE, COMMERCE OR BUSINESS. THE AO HELD THAT THE ACTIVITY OF THE ASSESSEE COU LD NOT BE SQUARELY COVERED UNDER THE ABOVE MENTIONED ACTIVITIES OF EDUCATION, MEDICAL AND P RESERVATION OF AN ENVIRONMENT ETC . HE CONCLUDED THAT THE ASSESSEE FALLS UNDER THE 6 TH THE LIMB OF THE CHARITABLE ACTIVITY I.E. AD VANCEMENT OF GENERAL PUBLIC UTILIT Y , HE HELD THAT THE ASSESSEE SOCIETY PURSUES THE ACTIVITIES OF BUSINESS, TRADE OR COMMERCE. HE DENIED EXEMPTION UNDER SECTION 11 AND 12 OF THE A CT. AGGRIEVED THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD.C. I. T. (A). 3 . THE FIRST A PPELLATE A UT HORITY CONSIDERED VARIOUS SUBMISSIONS OF THE ASSESSEE AND HELD THAT THE P ROVIS O TO S ECTION 2(15) DOES NOT APPLY TO THE ASSESSEE BY RELYING ON THE JUDGEMENT OF THE HON BLE DELHI HIGH COURT IN THE CASE OF BUREAU OF INDIAN S TANDARD S VS. DGIT (E), IN W.P. (C) NO.1755 OF 2012 DATED 27 TH SEPT.2012 . HE GRANTED RELIEF . A GGRIEVED THE REVENUE IS IN APPEAL BEFORE US. 4 . NONE APPEARED ON BEHALF OF THE ASSESSEE DESPITE ISSUAL OF NOTICE. ON THE EARLIER OCCASIONS THE LD.COUNSEL OF THE ASSESSEE REQUESTED FOR ADJOURNM ENT AND THIS DATE WAS GIVEN AT THE REQUEST OF THE ASSESSEE. UNDER THESE CIRCUMSTANCES WE DISPOSE OF THE CASE EX PARTE , QUA THE ASSESSEE , AFTER HEARING THE LD. CIT , DR. 5 . HEARD THE LD. CIT , D.R. SH. RAMAN KANT GARG. ON A CAREFUL PERUSAL OF THE ORDERS OF T HE AUTHORITIES BELOW THE CONTENTIONS OF THE LD. CIT, D.R. AS WELL AS THE CASE LAWS RELIED UPON BY THE LD. CIT (A) WE HOLD AS FOLLOWS. 6 . QCI , THE ASSESSEE, WAS ESTABLISHED AS PER THE MANDATE OF ITS C ONSTITUTION BY THE MINISTRY OF I NDUSTRY, G OVERNMENT OF IN DIA AND APEX INDUSTRY BODIES SUCH AS CII, FICCI AND ASSOCHAM , WITH THE VIEW TO PROMOTE QUALITY IN INDIA. QCI HAS ESTABLISHED AN ACCREDITATION STRUCTURE IN INDIA INCLUDING RULES FOR ITA 2 754/DEL/2013 A.Y. 2009 - 10 QUALITY COUNCIL OF INDIA, NEW DELHI 3 APPLICATION, ASSESSMENT, ACCREDITATION AND APPLICABLE ACCREDITATION CRI TERIA. AS PER THE ACCREDITATION STRUCTURE VARIOUS CERTIFYING BODIES, EDUCATIONAL INSTITUTIONS AND HOSPITALS ETC ., A PPLY TO THEIR RESPECTIVE BOARDS I.E., NABCB, NABET AND NABH SEEKING ACCREDITATION FROM Q CI. APPLICATIONS FOR ACCREDITATION ARE ACCOMPANIED WITH PRESCRIBED APPLICATION FEES. WHEN THE ASSESSMENT IS CARRIED OUT BY QCI, THE ASSESSED BOD Y IS REQUIRED TO PAY ASSESSMENT FEE TO THE ASSESSEE BASED ON THE COST INCURRED. IF THE APPLICANTS MEET THE PRESCRIBED CRIT ERIA, THEY ARE FINALLY ISSUED ACCREDI TATION FOR WHICH P RESCRIBED ACCREDITATION FEES IS PAYABLE BY THE ACCREDITED BODIES/INSTITUTIONS. A PERUSAL OF THE ASSESSMENT ORDER SHOWS THAT THE ASSESSEE HAS RECEIVED QUALITY APPLICATION, ASSESSMENT AND ACCREDI T ATION FEES OF RS. 5,59,08, 54 6. HE FURTHER RECEIVED HONORARIUM, SALE OF QUALITY LITERATURE AND MISCELLANEOUS RECEIPTS OF RS. 70,12,636 . THE ASSESSEE FURTHER RECEIVED AN AMOUNT OF RS. 4,99, 17 ,750/ - ON IMPROVEMENT OF HEALTH SERVICES INITIATIVE. THE ISSUE IS WHETHER THE ASSESSEE IS COVERED UNDER THE N EWLY INSERTED PROVIS O TO SECTION 2 (15) OF THE A CT. 7 . IN OUR VIEW THE LD. CIT (A) HAS RIGHTLY FOLLOWED THE PROPOSITIONS LAID DOWN BY THE J URISDICTIONAL HIGH COURT IN THE CASE OF B UREAU OF INDIAN S TANDARDS VS. DGIT(E), (SUPRA). THE HON BLE HIGH COURT HAS HELD THAT : THE PRESCRIBING OF STANDARDS, AND ENFORCING OF THOSE STANDARDS, THROUGH ACCREDITATION AND CONTINUING SUPERVISION THROUGH INSPECTION ETC. CANNOT BE CONSIDERED AS TRADE, BUSINESS OR COMMERCIAL ACTIVITY, MERELY BECAUSE THE TESTING PROCEDURES OR A CCREDITATION INVOLVES CHARGING OF FEES. IT CANNOT BE SAID THAT THE PUBLIC UTILITY ACTIVITY OF EVOLVING, PRESCRIBING AND ENFORCING STANDARDS, INVOLVES THE CARRYING ON OF TRADE OR COMMERCIAL ACTIVITY. 7 .1. SIMILAR IS THE DECISION OF THE J URISDICTIONAL H IGH COURT IN THE CASE OF ICAI A CCOUNTING R ESEARCH F OUNDATION AND ORS VS. DGI T (E) REPORTED IN 321 ITR 73 AS WELL AS I CAI VS. DGI T(E) 245 CTR 541 DELHI . QCI WHICH HAS BEEN ESTABLISHED BY INITIATIVE OF THE GOVERNMENT OF INDIA FOR THE PURPOSE OF EVOLVING, PRESCRIBING AND ENFORCING STANDARDS RELATING TO PRODUCTS AND PROCESSES AND IS ITA 2 754/DEL/2013 A.Y. 2009 - 10 QUALITY COUNCIL OF INDIA, NEW DELHI 4 CHARGING, FEES FOR PROVIDING SERVICES OF ACCREDITATION FACILITIES. FURTHER THE FACT THAT QCI IS GENERATING PROFIT DOES NOT BRING IT UNDER THE AMBIT OF THE AMENDED PROVISIONS O F SECTION 2 (15). IT ARGUES THAT THIS ACTIVITY FALLS WITHIN THE TERM MEDICAL RELIEF . 7 .2. THE ASSESSEE S ACTIVITIES CARRIED ON BY NABH RELATES TO IMPROVEMENT OF HEALTH SERVICE INITIATIVE, WHEREBY IT IS AC CREDITING HOSPITALS AND HEALTHCARE UNITS AND HELPI NG THE STATE GOVERNMENTS TO IMPROVE THE SYSTEM AND INFRASTRUCTURE OF STATE OWNED MEDICAL INFRASTRUCTURE WITH A VIEW TO IMPROVE THE QUALITY OF MEDICAL RELIEF (SERVICE). IT IS BASICALLY INTENDED TO IMPROVE THE QUALITY OF MEDICAL SERVICES IN INDIA RESULTING I N MEDICAL RELIEF TO THE CITIZENS OF INDIA. THE ASSESSEE GRANTS ACCREDITATION TO QUALITY AUDITORS, CONDUCTS TRAINING COURSES AND A CCREDIT EDUCATION INSTITUTIONS. IT CONTENDS THAT THIS ACTIVITY FALLS WITHIN THE AMBIT OF EDUCATION. 7 .3 . THE ASSESSEE FURTHER SUBMITTED THAT THE ACTIVITIES OF THE ASSESSEE CARRIED ON BY NABCB RELATING TO ACCREDITATION OF CERTIFYING BODIES DOING ENVIRONMENT MANAGEMENT SYSTEM AND ENVIRONMENTAL IMPACT ASSESSMENTS . AS IT IS INVOLVED IN ACTIVITIES RELATING TO MEDICAL RELIEF, EDUCATIO N AND P RESERVATION OF ENVIRONMENT , COVERED BY THE SPECIFIC CATEGORIES SET OUT UNDER SECTION 2 (15) OF THE ACT AND THEREFORE THE RESIDUARY CLAUSE DOES NOT COME INTO PLAY FOR SUCH ACTIVITIES. 7 .4 . BE I T AS IT MAY , THE HON BLE DELHI HIGH COURT HA D THE OCCASION TO CONSIDER I N THE CASE OF B UREAU OF INDIAN S TANDARDS (SUPRA) WHEREIN IT WAS HELD AS FOLLOWS: HELD, THAT THE BUREAU OF INDIAN STANDARDS (BIS) WAS A STATUTORY BODY ESTABLISHED UNDER THE BIS ACT AND WAS BROUGHT INTO EXISTENCE FOR THE HARMO NIOUS DEVELOPMENT OF THE ACTIVITIES OF STANDARDIZATION, MARKING AND QUALITY CERTIFICATION OF GOODS . THIS WAS, AND HAS BEEN, ITS PRIMARY AND PREDOMINANT OBJECT. EVEN THOUGH IT DOES TAKE LICENCE FEES FOR GRANTING MARKS/CERTIFICATION, THAT CANNOT BE SAID T O BE DONE FOR THE PURPOSE OF PROFIT. IF ANY PROFIT/REVENUE IS EARNED, IT IS PURELY INCIDENTAL. THE BIS PERFORMS SOVEREIGN ITA 2 754/DEL/2013 A.Y. 2009 - 10 QUALITY COUNCIL OF INDIA, NEW DELHI 5 AND REGULATORY FUNCTION, IN ITS CAPACITY OF AN INSTRUMENTALITY OF THE STATE. THEREFORE, IT IS NOT INVOLVED IN CARRYING ANY ACTIVITY IN THE NATURE OF TRADE, COMMERCE OR BUSINESS. IT WAS ENTITLED TO EXEMPTION U/S 10(23C)(IV). 7.5. THE HON BLE DELHI HIGH COURT IN THE CASE OF M/S GSI INDIA VS. DIT, DELHI REPORTED IN 360 ITR 138 HELD THAT : SECTION 2(15) OF THE INCOME - TAX ACT, 1961, WAS AMENDED BY THE FINANCE ACT, 2008, WITH EFFECT FROM APRIL 1, 2009, AND A PROVISO WAS ADDED TO IT. A SECOND PROVISO WAS INSERTED TO SECTION 2(15) BY THE FINANCE ACT, 2010, WITH RETROSPECTIVE EFFECT FROM APRIL 1, 2009. THERE ARE FOUR MAIN FACTORS THAT NEED TO BE TAKEN INTO CONSIDERATION BEFORE CLASSIFYING THE ACTIVITY OF THE ASSESSEEE 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) T HE ACTIVITY SHOULD BE FOR ADVANCEMENT OF GENERAL PUBLIC UTILITY; (II) THE ACTIVITY SHOULD NOT INVOLVE ANY ACTIVITY IN THE NATURE OF TRADE, COMMERCE AND BUSINESS; (III) THE ACTIVITY SHOULD NOT INVOLVE RENDERING ANY SERVICE IN RELATION TO ANY TRADE, COMMERC E, OR BUSINESS; AND (IV) THE 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) SHOULD NOT EXCEED THE AM OUNT SPECIFIED IN THE SECOND PROVISO. THE EARLIER TEST OF BUSINESS FEEDING OR APPLICATION OF INCOME EARNED TOWARDS CHARITY BECAUSE OF THE STATUTORY AMENDMENT IS NO LONGER RELEVANT AND APPOSITE. IT IS EVIDENT FROM CIRCULAR NO. 11 OF2008 THAT A NEW PROVISO T O SECTION 2(15) OF THE ACT IS APPLICABLE TO ASSESSEES WHO ARE ENGAGED IN COMMERCIAL ACTIVITIES, I.E., CARRYING ON BUSINESS, TRADE OR COMMERCE, IN THE GARB OF 'PUBLIC UTILITY' TO AVOID TAX LIABILITY. THE LEGAL TERMS 'TRADE, COMMERCE, OR BUSINESS' IN SECTION 2(15) MEAN ACTIVITY UNDERTAKEN WITH A VIEW TO MAKE OR EARN PROFIT. PROFIT MOTIVE IS DETERMINATIVE AND A CRITICAL FACTOR TO DISCERN WHETHER AN ACTIVITY IS BUSINESS, TRADE OR COMMERCE. BUSINESS ACTIVITY HAS AN IMPORTANT PERVADING ELEMENT OF SELF - INTEREST, T HOUGH FAIR DEALING SHOULD AND CAN BE PRESENT, WHILST CHARITY OR CHARITABLE ACTIVITY IS THE ANTI - THESIS OF ACTIVITY UNDERTAKEN WITH PROFIT MOTIVE OR ACTIVITY UNDERTAKEN ON SOUND OR RECOGNISED BUSINESS PRINCIPLES . THE QUANTUM OF FEE CHARGED, THE ECONOMIC STA TUS OF THE BENEFICIARIES WHO PAY COMMERCIAL VALUE OF BENEFITS, IN COMPARISON TO THE FEE, THE PURPOSE AND OBJECT BEHIND THE FEE, ETC., ARE SEVERAL FACTORS WHICH WILL DECIDE THE SEMINAL QUESTION, IS IT BUSINESS? CHARITABLE ACTIVITIES REQUIRE OPERATIONAL/RU NNING EXPENSES AS WELL AS CAPITAL EXPENSES TO BE ABLE TO SUSTAIN AND CONTINUE IN THE LONG RUN. THERE IS NO STATUTORY MANDATE THAT A CHARITABLE INSTITUTION FALLING UNDER THE LAST CLAUSE SHOULD BE WHOLLY, SUBSTANTIALLY OR IN PART MUST BE FUNDED BY VOLUNTARY CONTRIBUTIONS. A PRACTICAL AND PRAGMATIC VIEW IS REQUIRED TO EXAMINE THE DATA, WHICH SHOULD BE ANALYSED OBJECTIVELY AND A NARROW AND COLOURED VIEW WILL BE COUNTER - PRODUCTIVE AND CONTRARY TO THE LANGUAGE OF SECTION 2(15). THE SECOND PROVISO APPLIES WHEN BUS INESS WAS/IS CONDUCTED AND THE QUANTUM OF RECEIPTS EXCEEDS THE ITA 2 754/DEL/2013 A.Y. 2009 - 10 QUALITY COUNCIL OF INDIA, NEW DELHI 6 SPECIFIED SUM. THE PROVISO DOES NOT SEEK TO DISQUALIFY A CHARITABLE ORGANIZATION COVERED BY THE LAST LIMB, WHEN A TOKEN FEE IS COLLECTED FROM THE BENEFICIARIES IN THE COURSE OF ACTIVITY WHICH I S NOT A BUSINESS BUT CLEARLY CHARITY FOR WHICH IT IS ESTABLISHED AND IT UNDERTAKES. (EMPHASIS OURS) 8 . APPLYING THE PROPOSITIONS LAID DOWN IN THESE CASE LAWS TO THE FACTS OF THIS CASE , WE HAVE NO HESITATION IN HOLDING THAT THE A SSESSING O FFICER WAS WRONG IN COMING TO A CONCLUSION THAT THE ASSESSEE ACTIVITIES ARE IN THE NATURE OF TRADE, BUSINESS OR COMMERCE OR THAT THE ASSESSEE WAS RENDERING ANY SERVICE IN RELATION TO SUCH TRADE, BUSINESS OR COMMERCE. THE ASSESSEE HAS NO PROFIT MOTIVE AND THE FEES COLLECT ED FOR ACCREDITATION ETC ., IS NOT FOR ANY ACTIVITY WHICH CAN BE TERMED AS BUSINESS. AS THE ASSESSEE IS NOT INVOLVED IN ANY ACTIVITY OF TRADE, BUSINESS OR COMMERCE OR SERVICE IN RELATION TO TRADE, BUSINESS OR COMMERCE, THE PROVISION TO S.2(15) OF THE ACT HAS WRONGLY BEEN INVOKED BY THE A.O. IN OUR VIEW THE LD.CIT(A) HAS CORRECTLY APPRECIATED THE FACTS OF THIS CASE AND HAD APPLIED THE CORRECT PROPOSITION OF LAW TO THE FACTS OF THIS CASE AND GRANTED RELIEF TO THE ASSESSEE. THUS WE UPHOLD THE ORDER OF THE F IRST A PPELLATE A UTHORITY AND DISMISS THIS APPEAL OF THE REVENUE. 9 . I N THE RESULT THE APPEAL OF THE REVENUE IS DISMISSED . ORDER PRONOUNCED IN THE OPEN COURT ON 26 TH APRIL , 2016 . SD/ - SD/ - ( SUCHITRA KAMBLE ) (J. SUDHAKAR REDDY) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: THE 26 TH APRIL , 2016 MANGA ITA 2 754/DEL/2013 A.Y. 2009 - 10 QUALITY COUNCIL OF INDIA, NEW DELHI 7 COPY FORWARDED TO: - 1 . APPELLANT 2 . RESPONDENT 3 . CIT 4 . CIT(A) 5 . DR, ITAT - TRUE COPY - BY ORDER, ASSISTANT REGISTRAR