Appeal Details
Counselvise Citation
[2020] 110 COUNSELVISE.COM (IT) 9782 (ITAT-MUMBAI)
Assessee PAN
Bench
Appeal Number
CRN Number
Duration Of Justice
4 year(s) 1 month(s) 23 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
06-07-2020
Appeal Filed By
Assessee
Order Result
Allowed
Bench Allotted
Not Allotted
Assessment Year
2012-2013
Appeal Filed On
13-05-2016
Judgement Text
ITA NO.5431/MUM/2015 & ITA NO.3382/MUM/2016 ASSESSMENT YEARS:2010-11 & 2012-13 NATIONAL PAYMENTS CORPORATION OF INDIA 1 IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, MUMBAI , , BEFORE HONBLE SHRI MAHAVIR SINGH, VP AND HONBLE SHRI MANOJ KUMAR AGGARWAL, AM ./ I.T.A. NO.5431/MUM/2015 ( / ASSESSMENT YEAR : 2010-11 ) & ./ I.T.A. NO.3382/MUM/2016 (456 75 / ASSESSMENT YEAR: 2012-13) NATIONAL PAYMENTS CORPORATION OF INDIA 1001-A, B-WING, 10 TH FLOOR THE CAPITAL, BANDRA-KURLA COMPLEX BANDRA (E), MUMBAI- 400 051. / VS. D CIT (E) - 2(1) ROOM NO.510, 5 TH FLOOR PIRAMAL CHAMBERS LALBAUG, MUMBAI- 400 012. @A ./ ./PAN/GIR NO. AACCN-9852-G ( AC /APPELLANT ) : ( DEAC / RESPONDENT ) ASSESSEE B Y : S/SHRI SOLI E.DASTUR (LD. SR. COUNSEL), NIRAJ SHETH & RAJESH V.SHAH-LD. ARS REVENUE BY : SHRI RAHUL RAMAN-CIT- DR / DATE OF HEARING : 21/01/2020 / DATE OF PRONOUNCEMENT : 06/07/2020 / O R D E R MANOJ KUMAR AGGARWAL (ACCOUNTANT MEMBER) 1. AFORESAID APPEALS BY ASSESSEE FOR ASSESSMENT YEA RS [IN SHORT REFERRED TO AS AY] 2010-11 AND 2012-13 CONTEST SE PARATE ORDERS OF LEARNED FIRST APPELLATE AUTHORITY ON CERTAIN COMMON GROUNDS OF APPEAL. ITA NO.5431/MUM/2015 & ITA NO.3382/MUM/2016 ASSESSMENT YEARS:2010-11 & 2012-13 NATIONAL PAYMENTS CORPORATION OF INDIA 2 SINCE COMMON ISSUES WERE INVOLVED, THE APPEALS WERE HEARD TOGETHER AND ARE NOW BEING DISPOSED-OFF BY WAY OF THIS COMMO N ORDER FOR THE SAKE OF CONVENIENCE AND BREVITY. IT IS ADMITTED POS ITION THAT ADJUDICATION IN ANY OF THE YEARS WOULD APPLY TO OTHER YEAR ALSO. FIRST, WE TAKE UP APPEAL FOR AY 2010-11. ITA NO.5431/MUM/2015, AY 2010-11 2.1 AGGRIEVED BY THE ORDER OF LD. COMMISSIONER OF I NCOME-TAX (APPEALS)-1, MUMBAI, [IN SHORT REFERRED TO AS CIT( A)], APPEAL NO. CIT(A)-I/IT/E-2(68)/2013-14 DATED 04/09/2015, THE A SSESSEE IS UNDER APPEAL WITH FOLLOWING GROUNDS OF APPEAL: - THE FOLLOWING GROUNDS ARE WITHOUT PREJUDICE TO EACH OTHER: 1) THE COMMISSIONER OF INCOME TAX (APPEALS) ['THE CTT(A)'] ERRED IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER ('THE AO') IN R EJECTING THE APPELLANT'S CLAIM FOR EXEMPTION UNDER SECTION 11 AND SECTION 12 OF THE IN COME TAX ACT, 1961 ('THE ACT') ON THE GROUND THAT ITS ACTIVITIES WERE NOT CHARITAB LE AND ON THE GROUND THAT THE FIRST PROVISO TO SECTION 2(15) OF THE ACT WAS APPLICABLE. 2) THE CIT(A) OVERLOOKED THAT THE APPELLANT WAS F ORMED AS A 'NOT FOR PROFIT COMPANY' UNDER SECTION 25 OF THE COMPANIES ACT, 195 H AND WAS PROHIBITED BY ITS OBJECT CLAUSE FROM CARRYING ON ANY ACTIVITY ON COMM ERCIAL BASIS. 3) THE AO AND THE CIT(A) OUGHT TO HAVE HELD THAT THE ENTIRE HISTORY / GENESIS BEHIND THE FORMATION OF THE APPELLANT, THE MANNER O F AND PURPOSE BEHIND THE FORMATION OF THE APPELLANT, THE FACT THAT THE APPEL LANT HAD BEEN LICENSED BY THE CENTRAL GOVERNMENT UNDER SECTION 25 OF THE COMPANIE S ACT AND THE TACT OF INVOLVEMENT OF THE MINISTRY OF FINANCE AND RESERVE BANK OF INDIA IN THE FORMATION OF THE APPELLANT CLEARLY SHOWED THAT THE APPELLANT'S C ASE DID NOT COME WITHIN THE SCOPE OF THE PROVISO TO SECTION 2(15) OF THE ACT. 4) THE CIT(A) ERRED IN HOLDING THAT RE.1 PER TRA NSACTION CHARGED BY THE APPELLANT TO BANKS WAS CONSIDERATION FOR SERVICES RENDERED BY THE APPELLANT EVEN THOUGH ADMITTEDLY THE APPELLANT HAD MERELY PROVIDED AN INF RASTRUCTURE FACILITY TO BANKS AND RECOVERED COSTS THEREOF. HE FAILED TO APPRECIATE TH AT PROVISION OF AN INFRASTRUCTURE FACILITY TO BANKS CANNOT BE EQUATED WITH RENDERING OF A SERVICE. 5) THE CIT(A) ERRED IN HOLDING THAT PROFIT MOTIVE IS NOT REQUIRED TO BE PROVED FOR THE APPLICABILITY OF THE FIRST PROVISO TO SECTION 2(15) . HE FAILED TO APPRECIATE THAT THE FIRST PROVISO TO SECTION 2(15) IS ATTRACTED ONLY IN CASES OF ACTIVITIES WHICH ARE CARRIED ON WITH PROFIT MOTIVE. 6) THE CIT(A) OVERLOOKED THAT THE TOTAL EXPENDITU RE / APPLICATION BY THE APPELLANT WAS RS. 14.25 CRORES (INCLUDING CAPITAL EXPENDITURE OF RS.6.82 CRORES) AND THAT RS.7.50 CRORES WAS ACCUMULATED UNDER SECTION 11(2) SPECIFICALLY FOR CAPITAL PROJECTS, ITA NO.5431/MUM/2015 & ITA NO.3382/MUM/2016 ASSESSMENT YEARS:2010-11 & 2012-13 NATIONAL PAYMENTS CORPORATION OF INDIA 3 THUS, LEAVING NO SURPLUS ON ACCOUNT OF ITS APPLICAT ION OF INCOME AND PERMITTED ACCUMULATIONS FAR EXCEEDING ITS INCOME. 7) THE CIT(A) FAILED TO APPRECIATE THAT THE ACTIV ITIES OF THE APPELLANT COULD NEITHER BE REGARDED AS BEING IN THE NATURE OF TRADE, COMMER CE OR BUSINESS PER SE NOR IN THE NATURE OF ACTIVITIES IN RELATION TO TRADE, COMMERCE OR BUSINESS. 8) THE CIT(A) ERRED IN CONFIRMING THE VIEW OF THE AO THAT INCOME OF THE APPELLANT IS APPLIED DIRECTLY OR INDIRECTLY FOR THE BENEFIT OF P ERSONS REFERRED TO IN SECTION 13 (3) OF THE ACT, 9) THE CIT(A) FAILED TO APPRECIATE THAT THE BANKS WHICH HAD INVESTED IN THE SHARE CAPITAL OF THE APPELLANT COULD NOT HE REGARDED AS P ERSONS WHO HAD MADE A CONTRIBUTION TO THE APPELLANT AND, THEREFORE, THEY WERE NOT COVERED UNDER SECTION 13(3) OF THE ACT. 10) THE CIT(A) FAILED TO APPRECIATE THAT THE APPELL ANT'S INCOME OR PROPERTY WAS NOT APPLIED FOR THE BENEFIT OF ANY BANK SINCE UNIFORM R ATES WAS CHARGED BY THE APPELLANT TO ALL BANKS. 11) THE CIT(A) ERRED IN CONFIRMING THE LEVY OF INTE REST UNDER SECTION 234B OF THE ACT. 12) THE CIT (A) ERRED IN CONFIRMING THE LEVY OF INT EREST UNDER SECTION 234D OF THE ACT. GROUND NOS. 11 & 12 BEING CONSEQUENTIAL IN NATURE, WOULD NOT REQUIRE ANY SPECIFIC ADJUDICATION ON OUR PART. THE ASSESSEE HAS FILED REVISED FORM 36 REFLECTING CHANGE OF ADDRESS WHICH HAS BEEN PLACED ON RECORD. 2.2 AS EVIDENT FROM GROUNDS OF APPEAL, THE ASSESSEE IS PRIMARILY AGGRIEVED BY DENIAL OF EXEMPTION U/S 11 & 12 BY LD. ASSESSING OFFICER BY INVOKING PROVISO TO SEC. 2(15) AS INTRODUCED BY FINANCE ACT, 2008 W.E.F. 01/04/2009. THE PROVISIONS OF SECTION 11 PROVIDE FOR EXEMPTION TO CERTAIN INCOME DERIVED FROM PROPERTY HELD UNDER TRUST WHOLLY FOR C HARITABLE OR RELIGIOUS PURPOSES. THE EXPRESSION CHARITABLE PURPOSE AS DE FINED U/S. 2(15) WOULD INCLUDE RELIEF OF THE POOR, EDUCATION, MEDICA L RELIEF, PRESERVATION OF ENVIRONMENT & MONUMENTS, OBJECTS / PLACES OF HISTOR IC INTEREST AND ADVANCEMENT OF ANY OTHER OBJECT OF GENERAL PUBLIC U TILITY. THE FIRST PROVISO TO SEC 2(15) AS INTRODUCED BY THE FINANCE A CT, 2008 W.E.F. 01/04/2009 PROVIDE THAT THE LAST LIMB I.E. ADVANCE MENT OF ANY OTHER ITA NO.5431/MUM/2015 & ITA NO.3382/MUM/2016 ASSESSMENT YEARS:2010-11 & 2012-13 NATIONAL PAYMENTS CORPORATION OF INDIA 4 OBJECT OF GENERAL PUBLIC UTILITY SHALL NOT BE A CH ARITABLE PURPOSE, IF IT INVOLVES THE CARRYING ON OF ANY ACTIVITY IN THE NAT URE OF TRADE, COMMERCE OR BUSINESS OR ANY ACTIVITY OF RENDERING ANY SERVIC E IN RELATION TO ANY TRADE, COMMERCE OR BUSINESS, FOR A CESS OR FEE OR F OR ANY OTHER CONSIDERATION, IRRESPECTIVE OF THE NATURE OF USE OR APPLICATION, OR RETENTION, OF THE INCOME FROM SUCH ACTIVITY. THE PR OVISO HAS TWO LIMBS AND PROVIDE THAT THE ADVANCEMENT OF ANY OTHER OBJEC T OF GENERAL PUBLIC UTILITY SHALL NOT BE A CHARITABLE PURPOSE IF IT INV OLVES THE CARRYING ON OF: - (I) ANY ACTIVITY IN THE NATURE OF TRADE, COMMERCE O R BUSINESS, OR ANY ACTIVITY OF RENDERING ANY SERVICE IN RELATION TO ANY TRADE, COM MERCE OR BUSINESS, (II) IRRESPECTIVE OF THE NATURE OF USE OR APPLICATI ON, OR RETENTION, OF THE INCOME FROM SUCH ACTIVITY. THE FINANCE ACT, 2010 ADDED 2 ND PROVISO TO PROVIDE THAT 1 ST PROVISO SHALL NOT APPLY IF THE AGGREGATE VALUE OF THE RECEIPTS FR OM THE ACTIVITIES REFERRED TO THEREIN WAS BELOW RS.10 LACS IN THE PRE VIOUS YEAR. THE HONBLE SUPREME COURT IN CIT V. GUJARAT MARITIME BOARD [2007 295 ITR 561] OBSERVED THAT THE EXPRESSION 'ANY OTHER OBJECT OF G ENERAL PUBLIC UTILITY' IS OF THE WIDEST CONNOTATION. THIS EXPRESS ION WOULD PRIMA FACIE INCLUDE ALL OBJECTS WHICH PROMOTE THE WELFARE OF TH E GENERAL PUBLIC. THE CBDT, VIDE CIRCULAR NO. 11 OF 2008 DATED 19/12/ 2008, CLARIFIED THAT THE FIRST PROVISO WILL APPLY ONLY TO THOSE ENTITIES WHOSE PURPOSE WAS ADVANCEMENT OF ANY OTHER OBJECT OF GENERAL PUBLIC UTILITY AND THEREFORE, SUCH ENTITIES WOULD NOT BE ELIGIBLE TO CLAIM EXEMPT ION U/S 11 IF THEY CARRY ON COMMERCIAL ACTIVITIES. WHETHER THE ENTITY WAS CA RRYING ON AN ACTIVITY IN THE NATURE OF TRADE, COMMERCE OR BUSINESS WOULD BE A QUESTION OF FACT WHICH WILL BE DECIDED BASED ON THE NATURE, SCOPE, E XTENT AND FREQUENCY ITA NO.5431/MUM/2015 & ITA NO.3382/MUM/2016 ASSESSMENT YEARS:2010-11 & 2012-13 NATIONAL PAYMENTS CORPORATION OF INDIA 5 OF THE ACTIVITY. PARA 3.2 OF THE CIRCULAR CLARIFIE D THAT IF THE ASSESSEE HAVING ITS OBJECT AS ADVANCEMENT OF ANY OTHER OBJE CT OF GENERAL PUBLIC UTILITY ENGAGES IN ANY ACTIVITY IN THE NATURE OF T RADE, COMMERCE OR BUSINESS OR RENDERING OF ANY SERVICE IN RELATION TO TRADE, COMMERCE OR BUSINESS, IT WOULD NOT BE ENTITLED TO CLAIM THAT IT S OBJECT IS CHARITABLE IN NATURE. IN SUCH A CASE, THE OBJECT OF GENERAL PUBLI C UTILITY WILL BE ONLY A MASK OR A DEVICE TO HIDE THE TRUE PURPOSE WHICH IS TRADE, COMMERCE OR BUSINESS OR RENDERING OF ANY SERVICE IN RELATION TO TRADE, COMMERCE OR BUSINESS. RIVAL ARGUMENTS & SUBMISSIONS 3.1 THE LEARNED SR. COUNSEL, SHRI SOLI E. DASTUR, R EFERRING TO THE BACKGROUND IN WHICH THE ASSESSEE ENTITY WAS FORMED, ADVANCED ARGUMENT TO SUBMIT THAT THE OBJECTIVE OF THE ASSESS EE COULD NEVER BE TREATED TO BE PROFIT MOTIVE AND THE ASSESSEES ACTI VITIES WOULD SQUARELY FALL WITHIN THE MEANING OF CHARITABLE PURPOSE AND THEREFORE, THE ASSESSEE WAS ELIGIBLE TO CLAIM THE BENEFIT OF SEC.11 & 12 OF THE ACT. 3.2 ANOTHER PLEADINGS ARE THAT THE ASSESSEE CONTINU E TO HAVE VALID REGISTRATION AS TRUST U/S 12AA OF THE ACT WHICH WAS GRANTED POST- INSERTION OF PROVISO TO SEC.2(15). THE REGISTRATION IS SUBSISTING AND THE SAME IS NEVER BEEN REVOKED BY THE REVENUE AUTHORITI ES. THEREFORE, THE ASSESSEE WOULD BE ENTITLED TO CLAIM THE EXEMPTION. 3.3 OUR ATTENTION HAS BEEN DRAWN TO VARIOUS DOCUMEN TARY EVIDENCES AS PLACED ON RECORD, TO SUPPORT ALL THESE ARGUMENTS . A CHART HAS BEEN PLACED BEFORE US TO DISPEL THE OBSERVATIONS OF LOWE R AUTHORITIES THAT THE ASSESSEE WAS CHARGING FEES WITH A VIEW TO EARN PROF IT WHILE RENDERING ITA NO.5431/MUM/2015 & ITA NO.3382/MUM/2016 ASSESSMENT YEARS:2010-11 & 2012-13 NATIONAL PAYMENTS CORPORATION OF INDIA 6 CERTAIN SERVICES AND THEREFORE, IT WAS NOT ELIGIBLE TO CLAIM THE STATED BENEFIT. AS PER THE CHART, THE FEES CHARGED BY THE ASSESSEE HAS DRASTICALLY BEEN REDUCED BY 70% FROM RE.1/- PER TRA NSACTION IN AY 2010- 11 TO RE.0.30 PER TRANSACTION IN AY 2020-21 AS TABU LATED BELOW: - DATE OF RESOLUTION PERIOD RATE PER TRANSACTION (INR) REDUCTION (%) FROM TO FROM 1ST JANUARY, 2010 (I.E FROM COMMENCEMENT OF ACTIVITY 31 ST MARCH 2010 1 23RD MARCH 2010 1 SI APRIL 2010 8 TH AUGUST 2010 0.8 20% 30 TH JULY 2010 9 TH AUGUST 2010 30 TH APRIL 2015 0.5 50% 20 TH MAY 201 5 1 ST MAY 2015 30 TH SEPTEMBER 201 7 0.45 55% 11 TH AUGUST 201 7 1 ST OCTOBER 2017 30 TH SEPTEMBER 2018 0.4 60% 25 SEPTEMBER 2018 1 ST OCTOBER 2018 31 ST MARCH 2019 0.35 65% 25 TH SEPTEMBER 2018 1 ST APRIL 2019 - 0.3 70% 3.4 THE LD. SR. COUNSEL, ALSO ASSAILED THE VIOLATIO N OF THE PROVISIONS OF SEC.13(1)(C)(II) AS ALLEGED BY LD. AO BY SUBMITTING THAT THERE WAS NO CONTRIBUTOR IN THE ASSESSEE ENTITY AND NO BENEFIT W AS PROVIDED TO ANY OF THE CONTRIBUTORS. THE LD. SR. COUNSEL, ON THE STREN GTH OF THE LANGUAGE OF VARIOUS STATUTORY PROVISIONS AS WELL AS IN THE LIGH T OF VARIOUS JUDICIAL PRONOUNCEMENT, SOUGHT TO DRAW THE DISTINCTION BETWE EN SUBSCRIPTION OF ITA NO.5431/MUM/2015 & ITA NO.3382/MUM/2016 ASSESSMENT YEARS:2010-11 & 2012-13 NATIONAL PAYMENTS CORPORATION OF INDIA 7 SHARES VIS--VIS CONTRIBUTIONS. THE ARGUMENTS WERE ALSO RAISED TO DRAW THE DISTINCTION BETWEEN FACILITY AND SERVICES. 3.5 RELIANCE HAS BEEN PLACED ON VARIOUS JUDICIAL PR ONOUNCEMENTS, THE COPIES OF WHICH HAVE BEEN PLACED ON RECORD. THE WRI TTEN SUBMISSIONS HAVE BEEN FILED IN DUE COURSE. WE HAVE DULY CONSIDE RED THE PLEADINGS / ARGUMENTS AS WELL AS WRITTEN SUBMISSIONS MADE BEFOR E US BY LD. SR. COUNSEL. 3.6 ANOTHER PERTINENT ARGUMENT MADE BEFORE US IS TH AT THE ASSESSEE TOOK OVER EXISTING ACTIVITIES OF NATIONAL FINANCE SWITCH (NFS) FROM INSTITUTE FOR DEVELOPMENT & RESEARCH IN BANKING TEC HNOLOGY (IDRBT), HYDERABAD. SIMILAR EXEMPTION WAS DENIED BY REVENUE AUTHORITIES TO IDRBT FOR AYS 2010-11 & 2011-12. THE ASSESSEE AGITA TED THE SAME SUCCESSFULLY BEFORE HYDERABAD TRIBUNAL WHICH IS REP ORTED AT 63 TAXMANN.COM 297 . THE REVENUE CONTESTED THE SAID ORDER BEFORE HONBLE HIGH COURT OF ANDHRA PRADESH & TELANGANA WH EREIN BY JUDGMENT DATED 09/10/2017 (400 ITR 66), THE REVENUE S APPEALS WERE DISMISSED FOR BOTH THE YEARS. THE SPECIAL LEAVE PET ITION PREFERRED BY THE REVENUE AGAINST THE SAME HAS SUBSEQUENTLY BEEN DISM ISSED BY HONBLE SUPREME COURT VIDE SLP NO. 19564/2018 DATED 20/07/2 018. THE COPIES OF ORDERS / JUDGEMENTS HAVE BEEN PLACED ON RECORD. THE LD. SR. COUNSEL SUBMITTED THAT THE ASSESSEES TOOK OVER EXISTING AC TIVITIES OF IDRBT AND THE SAME WERE PARI-MATERIA THE SAME AS CARRIED OUT BY IDRBT AND THEREFORE, THE ISSUE OF EXEMPTION U/S 11& 12 WOULD BE COVERED IN ASSESSEES FAVOR BY THE AFORESAID DECISIONS. HENCE, THE ASSESSEE WOULD BE ELIGIBLE TO CLAIM THE BENEFIT OF SEC. 11 & 12. ITA NO.5431/MUM/2015 & ITA NO.3382/MUM/2016 ASSESSMENT YEARS:2010-11 & 2012-13 NATIONAL PAYMENTS CORPORATION OF INDIA 8 4. AU CONTRAIRE, LD. CIT-DR SUPPORTED THE STAND OF LOWER AUTHORITIE S BY SUBMITTING THAT THE ASSESSEES CASE WAS HIT BY P ROVISO TO SEC.2(15) SINCE IT WAS CARRYING OUT SYSTEMATIC COMMERCIAL ACT IVITIES FOR THE BENEFIT OF PARTICIPATING BANKS WHICH LED TO HUGE VALUE ADDI TIONS FOR THESE BANKS. THERE WAS NO ELEMENT OF CHARITY IN ASSESSEES ACTIV ITIES. THE LD. CIT-DR ALSO ASSAILED THE SUBMISSIONS THAT THE ASSESSEE WAS CREATED BY AN ACT OF PARLIAMENT AND IT WAS SUBMITTED THAT RBI WAS NOT ITS PROMOTER. IT WAS ALSO SUBMITTED THAT CORE PRINCIPLE OF FORMING THE A SSESSEE WAS TO ASSIST PUBLIC AND PRIVATE SECTOR BANKS IN CARRYING OUT THE IR COMMERCIAL ACTIVITIES INVOLVING RECEIPTS AND PAYMENTS BY CHARGING A FEE. AT THE BEST, THE ACTIVITIES COULD BE FOR GENERAL PUBLIC GOOD AND IND IA BEING A WELFARE STATE, SUCH MECHANISM ONLY ADVANCES THE ECONOMIC AC TIVITY AND SUPPORTS THE PAYMENT SYSTEM LEADING TO ECONOMIC BUO YANCY. HOWEVER, THERE WAS NO ELEMENT OF CHARITY IN THE DOMAIN OF TH E GOVERNANCE. THE LD. CIT-DR DREW ATTENTION TO THE FACT THAT THE ASSE SSEE REFLECTED SURPLUS OF RS.11.50 CRORES AGAINST REVENUE OF RS.17.58 CROR ES WHICH WAS IN THE SHAPE OF COMMERCIAL FEES. THE LD. CIT-DR ALSO SUBMI TTED THAT ANY PERSON DESIROUS OF COMMENCING THE PAYMENT SYSTEM MA Y APPLY TO RBI FOR AN AUTHORIZATION UNDER THE ACT. THE ASSESSEE HA S NO MONOPOLY SINCE THERE ARE OTHER PROMINENT PLAYERS LIKE PAYTM OPERATING IN THE MARKET. IN THE SAID BACKGROUND, LD. CIT-DR SUPPORTED THE DENIA L OF BENEFIT OF SEC. 11 & 12. THE WRITTEN SUBMISSIONS WERE FILED IN DUE COURSE WHICH HAVE DULY BEEN CONSIDERED BY US. 5. WE HAVE CAREFULLY HEARD THE ARGUMENTS ADVANCED B Y BOTH THE REPRESENTATIVES. WE HAVE GONE THROUGH MATERIAL PLAC ED BEFORE US. WE ITA NO.5431/MUM/2015 & ITA NO.3382/MUM/2016 ASSESSMENT YEARS:2010-11 & 2012-13 NATIONAL PAYMENTS CORPORATION OF INDIA 9 HAVE ALSO DELIBERATED ON VARIOUS JUDICIAL PRONOUNCE MENTS AS CITED BEFORE US DURING THE COURSE OF HEARING. OUR ADJUDICATION T O THE SUBJECT MATTER OF APPEAL WOULD BE AS GIVEN IN SUCCEEDING PARAGRAPHS. FACTUAL MATRIX AND SUMMARY OF PROCEEDINGS BEFORE LO WER AUTHORITIES 6.1 FACTS ON RECORD WOULD REVEAL THAT ASSESSEE BEIN G RESIDENT CORPORATE ASSESSEE STATED TO BE AN ENTITY REGISTERE D U/S 25 OF THE COMPANIES ACT, 1956 WAS ASSESSED FOR YEAR UNDER CON SIDERATION U/S 143(3) ON 25/03/2013 WHEREIN THE INCOME OF THE ASSE SSEE WAS DETERMINED AT RS.1000.85 LACS AS AGAINST NIL RETURN FILED BY ASSESSEE ON 24/09/2010. THE INCOME WAS SO ASSESSED IN VIEW O F THE FACT THAT THE EXEMPTION CLAIMED BY THE ASSESSEE U/S 11 & 12 WAS D ENIED BY LD. AO. THE RETURN WAS SUBSEQUENTLY REVISED ON 23/03/2011 D UE TO NON- DEDUCTION OF CAPITAL EXPENDITURE IN THE ORIGINAL RE TURN AND DUE TO REVISION IN THE AMOUNT OF DEPRECIATION. 6.2 THE MATERIAL ON RECORD WOULD FURTHER REVEAL THA T THE ASSESSEE HAD APPLIED FOR REGISTRATION AS TRUST U/S 12AA ON 22/09 /2009 AND IT HAS BEEN GRANTED REGISTRATION U/S 12AA OF THE ACT W.E.F. 01/ 04/2009 VIDE CERTIFICATE DATED 18/03/2010. THE ASSESSEE WAS INCORPORATED ON 19/12/2008 AS SECTION 25 COMPANY VIDE CERTIFICATE OF INCORPORATIO N ISSUED BY THE ASSTT. REGISTRAR OF COMPANIES, MAHARASHTRA, MUMBAI. THE CE RTIFICATE OF COMMENCEMENT OF BUSINESS HAS BEEN ISSUED TO IT ON 2 0/04/2009. 6.3 THE PERUSAL OF COPY OF MEMORANDUM AND ARTICLES OF ASSOCIATION WOULD ESTABLISH THAT THE MAIN OBJECTS TO BE PERUSED BY THE ASSESSEE IS, INTER-ALIA, TO PROMOTE THE ACTIVITIES OF BANKERS CLEARING HOUS E, OWNING, ITA NO.5431/MUM/2015 & ITA NO.3382/MUM/2016 ASSESSMENT YEARS:2010-11 & 2012-13 NATIONAL PAYMENTS CORPORATION OF INDIA 10 ESTABLISHING, OPERATING, MAINTAINING AND CONSOLIDAT ING PAYMENT SYSTEMS FOR SETTLEMENT OF FUNDS THROUGH ELECTRONIC AND PAPE R-BASED CLEARING SYSTEMS. IT PROPOSES TO DEVELOP A SECURE, DEDICATED AND ROBUST COMMUNICATION SYSTEM FOR BANKING AND FINANCIAL SECT OR AND OTHER PARTICIPANTS AND GATEWAYS FOR COMMUNICATION INCLUDI NG PROVIDING NETWORK FOR PARTICIPATION BY ALL CATEGORIES OF BANK S AND FINANCIAL INSTITUTION. NO OBJECTS OF THE COMPANY WOULD BE CAR RIED OUT WITHOUT PERMISSION OF THE COMPETENT AUTHORITIES AND NO OBJE CTS WERE TO BE CARRIED OUT ON COMMERCIAL BASIS. THE INCOME OF THE COMPANY WAS TO BE APPLIED SOLELY FOR THE PROMOTION OF STATED OBJECTS. NO PORTION OF INCOME COULD BE PAID AS DIVIDEND, BONUS OR OTHERWISE BY WA Y OF PROFIT TO ITS MEMBERS. AS PER CLAUSE-XI OF THE MEMORANDUM, IN CAS E OF WINDING UP OR DISSOLUTION OF THE COMPANY, THE RESIDUAL SURPLUS WAS NOT TO BE DISTRIBUTED AMONGST THE MEMBERS BUT WERE TO BE TRAN SFERRED TO SPECIFIED ENTITY HAVING SIMILAR OBJECTS. THE 9 SUBSCRIBERS AR E THE PARTICIPATING BANKERS WHO AGREE TO SUBSCRIBE ONE SHARE EACH IN TH E ENTITY. THE AUTHORIZED SHARE CAPITAL OF THE ASSESSEE HAS BEEN S ET AT RS.300 CRORES CONSISTING OF 3 CRORES EQUITY SHARES OF RS.100/-EAC H. AS PER ARTICLE-191, THE COMPANY IS SPECIFICALLY PROHIBITED FROM DISTRIB UTING PROFITS, IN ANY MANNER, INCLUDING PAYMENT OF ANY DIVIDEND OR REMUNE RATION TO ITS MEMBERS. 6.4 SECTION 25 OF THE COMPANIES ACT, 1956 IS A SPEC IAL PROVISION FOR REGISTRATION OF COMPANIES WHICH ARE SET UP FOR PROM OTING COMMERCE, ART, SCIENCE, CHARITY OR ANY OTHER SIMILAR USEFUL OBJECT TO PROMOTE PUBLIC GOOD AND WHICH DO NOT INTEND TO DISTRIBUTE THEIR PROFITS BY WAY OF DIVIDEND TO ITS ITA NO.5431/MUM/2015 & ITA NO.3382/MUM/2016 ASSESSMENT YEARS:2010-11 & 2012-13 NATIONAL PAYMENTS CORPORATION OF INDIA 11 MEMBERS. THE ASSESSEE HAS BEEN REGISTERED AS SECTIO N 25 COMPANY UNDER THE COMPANIES ACT, 1956. 6.5 THE GENESIS OF ASSESSEE COMPANY, AS APTLY NOTED BY LD. AO IN THE QUANTUM ASSESSMENT ORDER, STEM FROM THE FACT THAT R ESERVE BANK OF INDIA (RBI) FORMED A COMMITTEE ON TECHNOLOGY UPGRAD ATION IN PAYMENT SYSTEMS. THE COMMITTEE RECOMMENDED A VARIETY OF PAY MENT APPLICATIONS WHICH COULD BE IMPLEMENTED WITH APPROP RIATE TECHNOLOGY UPGRADATION AND DEVELOPMENT OF A RELIABLE COMMUNICA TION NETWORK. THE COMMITTEE SUGGESTED SETTING UP OF AN INFORMATION TE CHNOLOGY INSTITUTE FOR THE PURPOSE OF RESEARCH AND DEVELOPMENT AS WELL AS CONSULTANCY IN THE APPLICATION OF TECHNOLOGY TO THE BANKING AND FINANC IAL SECTOR OF THE COUNTRY. AS PER RECOMMENDATIONS, THE INSTITUTE FOR DEVELOPMENT & RESEARCH IN BANKING TECHNOLOGY (IDRBT) WAS ESTABLIS HED BY THE RBI IN MARCH 1996 AS AN AUTONOMOUS CENTRE FOR DEVELOPMENT AND RESEARCH IN BANKING TECHNOLOGY. THE INSTITUTE OF DEVELOPMENT AND RESEARCH IN BANKING TECHNOLOGY (IDRBT), HYDERABAD HAD BEEN PROV IDING AUTOMATED TELLER MACHINES (ATM) SWITCHING SERVICE T O BANKS IN INDIA THROUGH MECHANISM OF NATIONAL FINANCIAL SWITCH (NFS ). WITH A VIEW TO INTER-CONNECT THE ATMS IN THE COUNTRY AND FACILITAT E CONVENIENCE BANKING FOR THE COMMON MAN, THE INSTITUTE CONCEPTUALIZED, D EVELOPED AND IMPLEMENTED THE NATIONAL FINANCIAL SWITCH (NFS). TH E NFS FACILITATES ROUTING OF ATM TRANSACTIONS THROUGH INTER-CONNECTIV ITY BETWEEN BANKS SWITCHES, THEREBY ENABLING THE CITIZENS OF THE COUN TRY TO UTILIZE ANY ATM OF A CONNECTED BANK TO CARRY OUT VARIOUS BANKING TR ANSACTIONS. LATER ON, IDRBT DECIDED TO HIVE-OFF ITS OPERATIONAL ROLE ON A TM SWITCHING WITH A ITA NO.5431/MUM/2015 & ITA NO.3382/MUM/2016 ASSESSMENT YEARS:2010-11 & 2012-13 NATIONAL PAYMENTS CORPORATION OF INDIA 12 VIEW TO EXCLUSIVELY FOCUS ON RESEARCH AND DEVELOPME NT AND ACCORDINGLY, LOOKED FOR SUITABLE ARRANGEMENT FOR SHIFTING THE BU SINESS TO NATIONAL LEVEL PAYMENT SYSTEM ORGANIZATION. THE ASSESSEE I.E. NATI ONAL PAYMENTS CORPORATION OF INDIA (NPCI) CONSIDERED THIS AS AN O PPORTUNITY AND STARTED DISCUSSIONS WITH IDRBT ON THE FEASIBILITY O F TAKING OVER. THE BOARD FOR REGULATION AND SUPERVISION OF PAYMENT AND SETTLEMENT SYSTEMS (BPSS), SET UP BY GOVT. OF INDIA VIDE GAZET TE NOTIFICATION DATED 18/02/2005, GRANTED IN-PRINCIPLE AUTHORIZATION TO N PCI FOR OPERATING VARIOUS RETAIL PAYMENT SYSTEMS IN THE COUNTRY. THE RBI GRANTED AUTHORIZATION TO NPCI TO TAKE OVER THE OPERATIONS O F NATIONAL FINANCIAL SWITCH (NFS) FROM THE INSTITUTE OF DEVELOPMENT AND RESEARCH IN BANKING TECHNOLOGY (IDRBT) ON OCTOBER, 15,2009. THE ASSESSEE WAS INCORPORATED IN DEC. 2008 AND IT WAS INCORPORATED A S A SECTION 25 COMPANY UNDER THE COMPANIES ACT AND AIMED TO OPERAT E FOR THE BENEFIT OF ALL THE MEMBER BANKS AND THEIR CUSTOMERS. SUFFIC IENT RESERVES WERE PROVIDED TO ASSESSEE COMPANY SO THAT THE COMPANY CO ULD OPERATE ON HIGH VOLUME PAYMENT SERVICES. THERE WERE VARIOUS CO RE PROMOTER BANKS FOR THE ASSESSEE WHICH INCLUDE SBI, PNB, CANARA BAN K, BANK OF BARODA, UNION BANK OF INDIA, BANK OF INDIA, ICICI BANK, HDF C BANK, CITIBANK AND HSBC. 6.6 THE MAIN OBJECTS OF THE ASSESSEE COMPANY, AS NO TED BY LD.AO, IN PARA 4.5, ARE AS FOLLOWS: - 1. TO PROMOTE THE ACTIVITIES OF BANKERS CLEARINGHOU SE, OWNING, ESTABLISHING OPERATING, MAINTAINING AND CONSOLIDATI NG PAYMENT SYSTEM IS FOR LOCAL, REGIONAL AND NATIONAL SETTLEMENT OF F UNDS THROUGH ELECTRONIC AND PAPER BASED CLEARING SYSTEMS, AND RELATED ARRAN GEMENTS FOR EVOLVING STANDARDS AND PROCEDURES NECESSARY FOR PRO MOTING, SOUND, ITA NO.5431/MUM/2015 & ITA NO.3382/MUM/2016 ASSESSMENT YEARS:2010-11 & 2012-13 NATIONAL PAYMENTS CORPORATION OF INDIA 13 EFFICIENT AND COST-EFFECTIVE CLEARING AND PAYMENT S YSTEM IS AND TO DO ALL SUCH ACTS AND DEEDS AS AM NECESSARY TO ENSURE DEEPE R PENETRATION INTO SMALLER PLACES. 2. TO DEVELOP A SECURE DEDICATED AND ROBUST COMMUNI CATION BACKBONE CONSISTING OF INTRANETS FOR THE BANKING AND FINANCI AL SECTOR AND THE OTHER PARTICIPANTS AND GETAWAYS FOR COMMUNICATION INCLUDI NG PROVIDING NETWORK FOR PARTICIPATION BY AIL CATEGORIES OF BANK S AND FINANCIAL INSTITUTIONS TO BENEFIT OUT OF THE USES OF A CLOSED USER GROUP NETWORK, TO EXPAND THE NETWORK TO BECOME A COMBINATION OF SATEL LITE AND TERRESTRIAL MODES OF COMMUNICATION, AND TO INITIATE ACTION FOR INTERCONNECTIVITY OF THE NETWORK TO THE NETWORK OF BANKS TO FACILITATE S TRAIGHT THROUGH PROCESSING AND TO DESIGN AND DEVELOP AND IMPLEMENT CRITICAL PAYMENT SYSTEM PROJECTS TO ENABLE UTILISATION OF THE NETWOR K BY THE BANKING INDUSTRY THROUGH THE DEVELOPMENT OF INTRANETS, INTE RCITY CONNECTIVITY TO THE STATS AND ALLOTMENT OF BANK LEVEL GATEWAYS . ON THE BASIS OF AFORESAID FACTS, IT WAS NOTED BY LD . AO THAT THE ASSESSEES CASE WOULD FALL UNDER THE LAST LIMB OF S EC.2(15) I.E. ADVANCEMENT OF ANY OTHER OBJECT OF GENERAL PUBLIC U TILITY. THE ASSESSEE HAS ALSO NOT CONTESTED THESE FINDINGS. THEREFORE, T HERE IS NO DISPUTE ON THIS FACT. 6.7 AT PARA 4.4, MONTH-WISE VOLUME OF NFS TRANSACTI ONS SINCE APRIL, 2012 WERE TABULATED WHEREIN IT WAS NOTED THAT TOTAL VOLUME OF TRANSACTIONS JUMPED FROM 16.92 CRORES TO 19.18 CROR ES WITH AN OVERALL INCREASE IN PARTICIPATING BANKS AS WELL AS NUMBER O F ATMS COVERED UNDER THE SWITCH. THE ASSESSEE CHARGED FEE OF RE.1/ -, FROM PARTICIPATING BANKS, PER TRANSACTION UNDERTAKEN BY THE CUSTOMERS OF THE BANK. CONSEQUENTLY, THE ASSESSEE PAID SERVICE TAX OF RS.1 7 CRORES ON ACCOUNT OF SERVICES RENDERED TO PARTICIPATING BANKS WHICH LED LD. AO TO FORM A BELIEF THAT THE ASSESSEE HAS RECEIVED PAYMEN TS IN CONSIDERATION OF SERVICES IN THE NATURE OF BUSINESS AND SERVICES RENDERED IN RELATION TO BUSINESS OF ITS CLIENTS I.E. VARIOUS BANK AND THERE FORE, IT WAS HIT BY ITA NO.5431/MUM/2015 & ITA NO.3382/MUM/2016 ASSESSMENT YEARS:2010-11 & 2012-13 NATIONAL PAYMENTS CORPORATION OF INDIA 14 PROVISO TO SEC. 2(15). CONSEQUENTLY, THE ASSESSEE W AS SHOW-CAUSED AS TO THE FACT THAT IT WAS HIT BY PROVISO TO SEC. 2(15 ) AND THEREFORE, EXEMPTION WAS NOT AVAILABLE TO IT U/S 11 & 12. 6.8 THE ASSESSEE, IN DEFENSE, SUBMITTED THAT IT DID NOT HAVE ANY PROFIT MOTIVE AND ITS ACTIVITIES COULD NOT BE TERMED AS BU SINESS. IT WAS ALSO ARGUED THAT IT WAS PART OF GOVERNMENT MECHANISM FOR ACTING ON BEHALF OF GOVERNMENT AND NO OTHER PARTY COULD ENGAGE IN THE A CTIVITY OF THE ASSESSEE. LASTLY, THE ASSESSEE ARGUED THAT IT WAS F OR BENEFIT OF PEOPLE AT LARGE AND ELIGIBLE TO CLAIM THE IMPUGNED BENEFIT. 6.9 HOWEVER, THE SAID PLEAS WERE REJECTED IN THE BA CKGROUND OF THE FACT THAT THE ACTIVITIES OF NFS WAS SERVICE IN RELATION TO BUSINESS OF ALL BANKS INVOLVED. BANKS ARE COMMERCIAL ENTITIES AND THE FAC ILITY SO PROVIDED WOULD BE HUGE VALUE ADDITION TO THE SERVICES OF ANY BANK TO THEIR CUSTOMERS IN ORDER TO INCREASE VOLUME, BUSINESS AND ULTIMATE PROFITS OF THE BANKS. THE OTHER PLEAS ALSO COULD NOT FIND FAVO R WITH LD. AO. 6.10 THE OTHER ARGUMENTS TAKEN BY ASSESSEE WERE SUM MARIZED IN PARA 4.8 OF THE ORDER. THE ASSESSEE, INTER-ALIA, SUBMITTED THAT IT WAS A NON- PROFIT COMPANY REGISTERED U/S 25 OF THE COMPANIES A CT AND ITS INCOME COULD NOT BE DISTRIBUTED BY WAY OF DIVIDEND. IT WAS GRANTED REGISTRATION U/S 12AA AFTER SEEING ITS NO-PROFIT ACTIVITY. FURTH ER, IT CHARGES FEE MERELY TO MEET THE COST OF OPERATIONS AND INCOME SO GENERA TED IS INCIDENTAL IN NATURE AND NOT WITH A VIEW TO GENERATE PROFITS. 6.11 HOWEVER, THE SAID ARGUMENTS COULD NOT CONVINC E LD. AO WHO OPINED THAT THE ASSESSEE CARRIED OUT SYSTEMATIC ACT IVITY IN THE NATURE OF BUSINESS AND ITS ACTIVITIES WERE HIT BY PROVISO TO SEC.2(15). THE LD. AO ITA NO.5431/MUM/2015 & ITA NO.3382/MUM/2016 ASSESSMENT YEARS:2010-11 & 2012-13 NATIONAL PAYMENTS CORPORATION OF INDIA 15 ALSO REFUSED TO ACCEPT THE ARGUMENT THAT THE ASSESS EE WAS A PART OF RBI ESTABLISHMENT. IN FACT, THE ASSESSEE COMPANY WAS PR OMOTED BY VARIOUS COMMERCIAL BANKS AND IT WAS A NOT A REGULATORY AUTH ORITY HAVING POWER OF SUPERVISION, CONTROL LIKE IN THE CASE OF OTHER R EGULATORY AUTHORITIES LIKE BIS, IRDA ETC. FURTHER, THE ASSESSEE WAS MERELY AN OPERATIONAL AND INFRASTRUCTURAL PART OF WHOLE RETAIL PAYMENT SYSTEM S. THEREFORE, IN PARA 4.10, A CONCLUSION WAS DRAWN THAT THE ASSESSEES AC TIVITIES WERE HIT BY PROVISO TO SEC.2(15) AND ITS INCOME WAS NOT ELIGIBL E FOR EXEMPTION U/S 11 & 12. 6.12 ANOTHER REASON TO DENY THE EXEMPTION WAS THE B ELIEF OF LD.AO THAT THE ASSESSEE WAS HIT BY THE PROVISIONS OF SEC.13(1) (C)(II) OF THE ACT. THE SAID PROVISIONS DENY EXEMPTION TO THE INCOME OF THE TRUST IF ANY PART OF INCOME OR ANY PROPERTY OF THE TRUST WAS USED / APPL IED DIRECTLY OR INDIRECTLY FOR THE BENEFIT OF ANY PERSONS REFERRED TO IN SUB-SECTION (3). THE CATEGORY WOULD, INTER-ALIA , INCLUDE THE AUTHOR OF THE TRUST OR ANY PERSON WHO HAS MADE SUBSTANTIAL CONTRIBUTION TO THE TRUST EXCEEDING FIFTY THOUSAND RUPEES. SINCE THE PROMOTER BANKS HAD MADE SUBSTANTIAL CONTRIBUTION IN THE TRUST, THE CASE WAS STATED TO B E HIT BY THE PROVISIONS OF SEC.13(1)(C)(II). THE ASSESSEE REBUTTED THE SAME BY SUBMITTING THAT ASSESSEE CHARGED SAME FEES FROM PROMOTER BANKS AS W ELL AS NON- PROMOTER BANKS AND THERE WAS NO EXCLUSIVE BENEFIT T O THE PROMOTER BANKS. BUT LD. AO OPINED THAT EXISTENCE OF ASSESSEE COMPANY WAS PRIMARILY TO BENEFIT THE BUSINESS OF PROMOTER BANKS AND TO PROVIDE BENEFITS TO CUSTOMERS OF THE BANKS. ITA NO.5431/MUM/2015 & ITA NO.3382/MUM/2016 ASSESSMENT YEARS:2010-11 & 2012-13 NATIONAL PAYMENTS CORPORATION OF INDIA 16 6.13 FINALLY, THE EXEMPTION U/S 11 & 12 AS CLAIMED BY THE ASSESSEE WAS DENIED TO IT AND ITS INCOME WAS BROUGHT TO TAX. 6.14 ALTHOUGH THE ASSESSEE ASSAILED THE STAND OF LD .AO BEFORE LD. CIT(A), HOWEVER THE ASSESSEES SUBMISSIONS COULD NO T FIND WITH LD. CIT(A) WHO CONFIRMED THE STAND OF LD. AO BY OBSERVI NG AS UNDER: - 5.2 I HAVE CONSIDERED THE FACTS AND CIRCUMSTANCE S OF THE CASE, GONE THROUGH THE ASSESSMENT ORDER OF THE A.O AND THE SUBMISSIONS OF THE APPELLANT AND ALSO DISCUSSED THE CASE WITH THE AR OF THE APPELLANT. TH E CONTENTIONS AND SUBMISSIONS OF THE APPELLANT ARE BEING DISCUSSED AND DECIDED HE RE IN UNDER: I. THE APPELLANT SUBMITTED THAT ITS BENEFITS WERE AVAILABLE TO GENERAL PUBLIC AT A VERY NOMINAL COST AND HENCE IT IS CHARITABLE IN NAT URE. IN THIS REGARD IT IS MENTIONED THAT THE APPELLANT HAS CHARGED RS.1 PER TRANSACTION FROM CUSTOMER BANK. THERE IS NOTHING BROUGHT ON RECORD BY THE APPELLANT THAT THE COST TO THE APPELLANT PER TRANSACTION IS MORE THAN RS.1 AND HENCE ITS SUBMISS ION REGARDING COST BEING NOMINAL REMAINS UNSUBSTANTIATED. II. IT WAS STATED THAT THERE WAS NO INTENTION TO M AKE PROFIT AND HENCE ITS ACTIVITIES ARE CHARITABLE. IN THIS REGARD IT IS MENTIONED THAT DUR ING THE YEAR UNDER CONSIDERATION IT HAS RECEIVED INCOME OF RS.17.58 CRORES FROM THE BUS INESS TRANSACTIONS OUT OF WHICH SURPLUS OF RS.11.50 CRORES HAS BEEN GENERATED WHICH IS NOTHING BUT PROFIT ONLY. FURTHER AS RIGHTLY MENTIONED BY THE ASSESSING OFFIC ER, FOR APPLICABILITY OF PROVISO TO SECTION 2(15), PROFIT MOTIVE IS NOT REQUIRED TO BE PROVED. ON PERUSAL OF THE INCOME AND EXPENDITURE ACCOUNT FOR THE YEAR ENDED 31 MARCH 2010 IT IS NOTED THAT THE TOTAL EXPENDITURE BOOKED IS ONLY RS.6.22 CRORES AGAINST W HICH THE SURPLUS GENERATED IS RS.11.50 CRORES WHICH IS ABOUT 2 TIMES. THUS, CONTE NTION OF THE APPELLANT THAT THERE IS NO PROFIT IS FACTUALLY ALSO NOT CORRECT. III. THE APPELLANT IN ITS SUBMISSIONS HAS AGREED TH AT ITS OBJECTS FALL IN THE CATEGORY ''ADVANCEMENT OF ANY OTHER OBJECT OF GENERAL PUBLIC UTILITY'. IT HAS HOWEVER BEEN DISPUTED THAT THERE IS NO ACTIVITY OF RENDERING ANY SERVICE IN RELATION TO ANY TRADE, COMMERCE AND BUSINESS. IN THIS REGARD IT IS MENTION ED THAT THE PAYMENT RECEIVED FROM THE BANKS AS MENTIONED BY AO IN PARA 4.6 OF HI S ASSESSMENT ORDER, IS AGAINST THE SERVICES RENDERED BY THE APPELLANT. 'RENDERING ANY SERVICE IN RELATION TO TRADE, COMMERCE OR BUSINESS TO THE PARTIES FROM WHOM CONSI DERATION IS DUE THEREOF IS RECEIVED' IS DIRECTLY COVERED BY FIRST PROVISO TO SECTION 2(1 5), ITS ACTIVITY OF NATIONAL FINANCIAL SWITCH -ATM SWITCH IS IN THE NATURE OF RE NDERING SERVICES IN RELATION TO BUSINESS OF ALL BANKS INVOLVED THAT ARE COMMERCIAL ENTITIES AND THE FACILITY PROVIDED BY THE APPELLANT, THAT IS TO BE USED BY CUSTOMERS O F THE BANKS, IS A HUGE VALUE ADDITION TO THE SERVICES PROVIDED BY THE BANK TO TH EIR CUSTOMERS. IF A CHARITABLE ORGANIZATION CARRYING OUT OBJECTS OF 'ADVANCEMENT OF GENERAL PUBLIC UTILITY' IS INVOLVED IN CARRYING ON ANY ACTIVITY IN THE NATURE OF TRADE/ COMMERCE, BUSINESS OR IS CHARGING FEES FOR SERVICES IN RELATION TO ANY TRADE, COMMERCE, BUSINESS, IS EXCLUDED FROM BEING 'CHARITABLE. THE CASE OF THE APPELLANT IS EXCLUDED FROM BEING CH ARITABLE ALSO BECAUSE THE CHARITABLE ACTIVITY CLAIMED BY IT IS IN THE DOMAIN OF 'ADVANCEMENT OF ITA NO.5431/MUM/2015 & ITA NO.3382/MUM/2016 ASSESSMENT YEARS:2010-11 & 2012-13 NATIONAL PAYMENTS CORPORATION OF INDIA 17 GENERAL PUBLIC UTILITY' ONLY. THE PROFIT MOTIVE BEH IND SUCH BUSINESS, COMMERCE OR TRADE ACTIVITY IS NOT REQUIRED TO BE SEPARATELY EXA MINED AND PROVED FOR APPLICABILITY OF PROVISO TO SECTION 2(15). THE SPECIFIC AMENDMENT BY WAY OF PROVISO TO SECTION 2(15) W.E.F. A.Y. 2009-10 DOES NOT PROVIDE FOR CARR YING OUT BUSINESS TRADE OR COMMERCE PER SE FOR APPLICABILITY OF PROVISO, RATHER THE STIPULATIO N IN THE PROVISO IS IN RELATION TO' WHICH IS TO BE INTERPRETED AND APPLIED IN THAT CONTEXT - IN A WIDER TERM AND NOT TO BE CONFINED TO CARRYING OUT TRADE, BUSIN ESS AND PROFESSION. IT WAS HELD IN THE CASE OF SUBHRAM TRUST VS. DIT (E) (2009) 317 2TR (AT)(BANG. ) THAT 'THE TERM IN RELATION TO SHOULD BE BROADLY INTERPRETED I.E. T O SAY IF ANY ACTIVITY WHICH DIRECTLY OR INDIRECTLY FACILITATES THE RENDERING OF ANY SERVICE IN RELATION TO ANY TRADE, COMMERCE OR BUSINESS, IS CARRIED ON BY TRUST, THEN IT WILL B E COVERED UNDER PROVISO TO SECTION 2(15). ACCORDINGLY, CONTENTION OF THE APPELLANT IS NOT ACC EPTABLE. IV. THE APPELLANT CONTENDED THAT IT IS FUNCTIONING ON BEHALF OF GOVT. I.E. RBI AND HENCE THE ACTIVITY IS NOT FOR PROFIT. IN THIS REGAR D IT IS MENTIONED THAT THE COMPANY HAS NOT BEEN CREATED BY ANY ACT OF PARLIAMENT. THER E ARE SEVERAL BANKS THAT ARE UNDER THE CONTROL OF RBI BUT THEY ARE NOT EXEMPT FR OM TAX. EVEN OTHERWISE IN THE CASE OF ENTERTAINMENT SOCIETY OF GOA VS. CIT (2013) 23 ITR 549 (MUM)(TRIB) IT WAS HELD THAT ' THE PROVISO TO SECTION 2(15) WILL ALSO APPLY TO A R EGULATORY BODY OR A BODY INCORPORATED BY GOVERNMENT AS THE SECTION DOES NOT PROVIDE ANY EXCEPTION UNDER THE PROVISO. THE CONTENTION OF THE APPELLANT IS THEREFORE NOT AC CEPTABLE. V. THE APPELLANT ALSO STATED THAT UNDER SECTION 13( 2)(D), THERE SHOULD BE INADEQUATE REMUNERATION OR OTHER COMPENSATION WHICH IS NOT THE CASE OF THE APPELLANT. IN THIS REGARD IT IS MENTIONED THAT THE AO HAS INVOKED PROV ISIONS OF SECTION 13(1)(C)(II) WHICH SAYS THAT SEC. 11 SHALL NOT APPLY IN THE CASE OF A TRUST IF ANY PA RT OF ITS INCOME IS APPLIED DIRECTLY OR INDIRECTLY FOR THE BENEFIT O F ANY PERSON REFERRED TO IN SUBSECTION (3). IT IS NOT DISPUTED THAT THE BANKS TO WHOM SERVICES HAVE BEEN RENDERED ARE FALLING WITHIN THE CATEGORY OF PERSONS REFERRED TO IN SECTION 13(3). ACCORDINGLY, I AGREE WITH THE AO THAT THE APPELLANT HAS APPLIED IT S INCOME DIRECTLY AS WELL AS INDIRECTLY FOR THE BENEFIT OF PERSONS MENTIONED IN SECTION 13(3) AND CONSEQUENTLY HIT BY THE PROVISIONS OF SECTION 13(L)(C)(II). THE JUDG EMENT OF HON. DELHI HIGH COURT IN THE CASE OF MARUTI CENTRE FOR EXCELLENCE 21 TAXMANN .COM 474 RELIED UPON BY THE A.O IS SQUARELY APPLICABLE TO THE FACTS OF THE APPE LLANT'S CASE RELEVANT PART OF WHICH READS AS UNDER: 'SECTION 13(1)(C)(II) DEALS WITH ACTUAL FUNCTIONING AND ACTIVITIES UNDERTAKEN DURING THE ASSESSMENT YEAR IN QUESTION. THE SAID SE CTION HAS TO BE READ ALONG WITH SECTION 13(3). SECTION 13(L)(C)(II) STAT ES THAT NO PART OF THE INCOME OR ANY PROPERTY OF THE INSTITUTION SHOULD BE USED O R APPLIED DIRECTLY OR INDIRECTLY FOR THE BENEFIT OF ANY PERSON REFERRED T O IN SUB-SECTION (3). THE WORDS 'DIRECTLY OR INDIRECTLY' ARE IMPORTANT AND RE FLECT THE INTENTION OF THE LEGISLATURE THAT INCOME OR PROPERTY SHOULD NOT BE EVEN INDIRECTLY USED FOR BENEFIT OF A MEMBER. THE WORD INDIRECTLY' USED IN SECTION 13(3)(C)(III) SHOWS THE EXPENSIVE AND COMPREHENSIVE SCOPE AND INTENTION BEHIND INCORPORATION OF THE SAID PROVISIO N. THE - PROVISION POSTULATES AND STATES THAT CHARITY FOR SELF OR CLOS ELY RELATED/ASSOCIATED PERSONS AS DEFINED IN SECTION 13(3) IS AN ANATHEMA AND NOT ACCEPTABLE. INCOME AND THE PROPERTY OF THE CHARITABLE INSTITUTI ON SHOULD BE USED FOR ITA NO.5431/MUM/2015 & ITA NO.3382/MUM/2016 ASSESSMENT YEARS:2010-11 & 2012-13 NATIONAL PAYMENTS CORPORATION OF INDIA 18 CHARITABLE ACTIVITIES WHICH BENEFIT THIRD PERSONS A ND SHOULD NOT DIRECTLY OR INDIRECTLY BENEFIT THE PERSONS COVERED UNDER SECTIO N 13(3). [PARA 11] UNDER SECTION 13(1)(C)(II) THE PURPOSE OF THE SOCIE TY MUST BE TO BENEFIT THE PUBLIC OR SUBSERVE THE OBJECT OF GENERAL PUBLIC. TH US, WHERE THE DOMINANT MOTIVE OF THE APPLICATION OF INCOME OR PROPERTY IS TO HELP THE MEMBERS OF THE SOCIETY, AND REMOTELY AND INDIRECTLY TO BENE FIT THE PUBLIC, IT CANNOT BE SAID THAT THE INSTITUTION MEETS THE REQUI REMENTS OF THE SAID SECTION. AGAIN WHERE THE PRIMARY PURPOSE IS TO BENE FIT THE PRIVATE INTERESTS OF PERSONS UNDER SECTION 13(3) PROVISIONS OF SECTION 13(1)(C)(II) ARE ATTRACTED. THUS THE GENERAL PURPOSE OR AS STATED IN THE MEMORANDUM MAY BE A BENEFICIAL ONE, BUT IT WOULD VI OLATE SECTION 13(1)(C)(II) READ WITH SECTION 13(3) WHERE THE BENEFIT IS PRIMAR ILY CONFINED TO THE MEMBERS OF THE INSTITUTION ITSELF OR EMPLOYEES OF A PARTICULAR FIRM OR COMPANY COVERED UNDER THE AMBIT OF SECTION 13(3), HOWEVER L ARGE THE NUMBER OF BENEFICIARIES MAY BE.' ALSO IN THE CASE OF CHAMBER OF COMMERCE VS. CIT (1936) 4 ITR 397 , HON'BLE ALLAHABAD HIGH COURT, DISCUSSING THE TEST FOR ''CHA RITY', OBSERVED THAT ELEMENT OF 'ALTRUISM' MUST BE PRESENT I.E. TO SAY 'BEFORE AN INSTITUTION CAN BE HELD TO BE CHARITABLE THERE MUST BE AN ELEMENT OF ALTRUISM, TH AT IS TO SAY, THE BENEFICIARIES MUST NOT BE ABLE TO CLAIM THE BENEFIT. THUS AS DISCUSSED ABOVE, THE APPELLANT HAS FAILED THIS TEST ALSO. VI. IN VIEW OF THE FACTS AND LEGAL POSITION AS DISC USSED ABOVE, I AM OF THE CONSIDERED OPINION THAT THAT THE AO HAS RIGHTLY DENIED THE EXE MPTION U/S. 11. IT IS EVIDENT THAT LD. CIT(A) HAS, INTER-ALIA, OBSERVED THAT FOR THE APPLICABILITY OF PROVISO TO SEC. 2(15), PROFIT MOTI VE IS NOT REQUIRED TO BE PROVED. FURTHER, THE ACTIVITY OF NFS-ATM SWITCH WOU LD BE IN THE NATURE OF RENDERING SERVICES IN RELATION TO BUSINESS OF ALL B ANKS INVOLVED AND FACILITIES PROVIDED BY THE ASSESSEE WOULD LEAD TO H UGE VALUE ADDITION TO THE SERVICES PROVIDED BY THE BANK TO ITS CUSTOMERS. THE PROFIT MOTIVE BEHIND SUCH BUSINESS, COMMERCE OR TRADE ACTIVITY IS NOT REQUIRED TO BE SEPARATELY EXAMINED AND PROVED FOR APPLICABILITY OF PROVISO TO SEC. 2(15). THIS PROVISO WOULD APPLY TO ANY REGULATORY BODY OR BODY INCORPORATED BY GOVERNMENT SINCE NO EXCEPTION IS PROVIDED UNDER THE PROVISO. FURTHER THE PROVISIONS OF SEC 13(1)(C)(II) WERE APPLICABLE TO THE ASSESSEE. THEREFORE, THE STAND OF LD. AO IN DENYING THE EXEMP TION WAS UPHELD. ITA NO.5431/MUM/2015 & ITA NO.3382/MUM/2016 ASSESSMENT YEARS:2010-11 & 2012-13 NATIONAL PAYMENTS CORPORATION OF INDIA 19 AGGRIEVED AS AFORESAID, THE ASSESSEE IS UNDER FURTH ER APPEAL BEFORE US. 7. IN THE WRITTEN NOTE FURNISHED ON BEHALF OF THE A SSESSEE, THE MANNER IN WHICH THE ASSESSEE ENTITY WAS INCORPORATED AND T HE NATURE OF ACTIVITIES BEING CARRIED OUT BY IT HAS BEEN ELABORATED. SINCE THE APPRAISAL OF THESE FACTS WOULD BE VITAL FOR DETERMINATION OF THE SUBJE CT MATTER OF APPEAL, WE DEEM IT TO FIT TO BRING THE SAME ON RECORD. IT HAS BEEN SUBMITTED THAT THE ASSESSEE IS AN UMBRELLA ORGANIZATION OPERATING THE RETAIL PAYMENT SYSTEMS IN INDIA. THE PAYMENT AND SETTLEMENT SYSTE MS WERE EARLIER OPERATED IN INDIA BY THE RESERVE BANK OF INDIA (RBI ). RETAIL PAYMENT SYSTEMS TYPICALLY HANDLE TRANSACTIONS WHICH ARE LOW IN VALUE, BUT VERY LARGE IN NUMBER, RELATING TO INDIVIDUALS, FIRMS AND CORPORATE, SUCH AS CHEQUE CLEARANCE, ONLINE FUND TRANSFER, CREDIT CARD PAYMENTS, ETC. THE BROAD FRAMEWORK OF NPCI AS THE NATIONAL ENTITY FOR RETAIL PAYMENT SYSTEMS WAS ENVISAGED IN THE RBI'S VISION DOCUMENT (2005-08) TITLED AS PAYMENT SYSTEMS IN INDIA'. NPCI WAS SET UP TO PROV IDE A ROBUST AND TECHNOLOGICALLY INTENSIVE CENTRALIZED SYSTEM OFFERI NG ELECTRONIC CLEARING SERVICES (ECS), ELECTRONIC FUNDS TRANSFER (EFT) AND NATIONAL ELECTRONIC FUND TRANSFER (NEFT) SERVICES COVERING THE ENTIRE C OUNTRY AND TO TAKE INITIATIVES ON ATM-SWITCHING, MULTI-APPLICATION SMA RT CARD, E-COMMERCE AND M-COMMERCE BASED PAYMENT SYSTEMS. THE OPERATION OF PAYMENT SYSTEMS IN INDIA WAS TRANS FERRED TO NPCI (ASSESSEE) THROUGH ENACTMENT OF THE PAYMENT AND SET TLEMENT SYSTEMS ACT, 2007 (PSS ACT). THE PSS BILL, 2006 AS INTRODUC ED IN LOK SABHA ON 25/07/2006 WAS REFERRED TO THE STANDING COMMITTEE O N FINANCE FOR EXAMINATION AND REPORT THEREON. THE COMMITTEE SUBMI TTED ITS 56 TH ITA NO.5431/MUM/2015 & ITA NO.3382/MUM/2016 ASSESSMENT YEARS:2010-11 & 2012-13 NATIONAL PAYMENTS CORPORATION OF INDIA 20 REPORT AFTER OBTAINING INFORMATION FROM FINANCE MIN ISTRY AND VIEWS OF VARIOUS CONCERNED PARTIES. THE COPY OF THE REPORT H AS BEEN PLACED IN THE PAPER-BOOK. IN PARAS 27-43 OF THE REPORT, THE COMMI TTEE REFERRED TO THE BACKGROUND AND FRAMEWORK OF NPCI AND DISCUSSED ISSU ES RAISED BY OFFICERS OF RBI ON NPCI BEING GIVEN THE TASK OF IMP LEMENTING THE PSS. AT PARA-29, THE REPORT QUOTES FINANCE MINISTRY AS STAT ING 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 TH AN 10% AND SHARES WOULD BE HELD BY AS MANY BANKS AS POSSIBLE A ND IT WAS ALSO DECIDED THAT RBI WOULD HAVE REPRESENTATION ON THE B OARD. PARA-32 OF THE REPORT TAKE NOTE OF RBIS REPLY THAT RBI HAS NOT BEEN OPERATING THE CLEARING SYSTEM TO GENERATE INCOME. I NCOME GENERATION WAS ONLY INCIDENTAL. RBI STARTED THE CHEQUES PROCES SING 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 UMBREL LA ORGANIZATION TO BRING EFFICIENCY AND STANDARDIZATION OF PROCEDURES AND PRACTICES. FURTHER, THE PROFITS TO BE GENERATED BY THE NEW COM PANY WERE NOT TO BE PAID TO THE SHAREHOLDERS AS DIVIDEND BUT WOULD BE U SED ONLY FOR FURTHER DEVELOPMENT OF PAYMENT SYSTEM. AT THE TIME OF PASSAGE OF THE PSS BILL, 2006 THE TH EN HONBLE FINANCE MINISTER, INTER-ALIA, REITERATED THAT NPCI WAS A NON-PROFIT CORPORATION AND A SECTION 25 COMPANY AND THAT ITS INCOME WOULD NOT BE DISTRIBUTED AS DIVIDENDS BUT WOULD BE PLOUGHED BACK FOR CREATION O F INFRASTRUCTURE. HE FURTHER STATED THAT NPCI WILL BE A PUBLIC SECTOR CO RPORATION OWNED BY PUBLIC SECTOR BANKS, WHO WILL OWN NOT LESS THAN 51% IN NPCI. SECTION ITA NO.5431/MUM/2015 & ITA NO.3382/MUM/2016 ASSESSMENT YEARS:2010-11 & 2012-13 NATIONAL PAYMENTS CORPORATION OF INDIA 21 2(I) AND SECTION 2(N) OF PSS ACT, 2007 DEFINE 'PAYM ENT' AND 'SETTLEMENT' WHEREAS SECTIONS 3-9 OF THE SAID ACT DEAL WITH AUTH ORIZATION OF PAYMENT SYSTEMS BY RBI. ACCORDINGLY, NPCI WAS INCORPORATED AS SECTION 25 COMPANY AND IT WAS SPECIFICALLY PROVIDED IN ITS MEM ORANDUM OF ASSOCIATION THAT NONE OF ITS OBJECTS SHALL BE CARRI ED OUT ON A COMMERCIAL BASIS. THE INCOME AND THE PROPERTY OF NPCI SHALL BE APPLIED SOLELY FOR THE PROMOTION OF ITS OBJECTS AND THAT NO PART THERE OF SHALL BE PAID OR TRANSFERRED BY WAY OF DIVIDEND, BONUS OR OTHERWISE BY WAY OF PROFIT. THE BOARD FOR REGULATION AND SUPERVISION OF PAYMENT AND SETTLEMENT SYSTEMS AT ITS MEETING HELD ON 24/09/2009 GRANTED I N-PRINCIPLE AUTHORIZATION TO NPCI FOR OPERATING VARIOUS RETAIL PAYMENT SYSTEMS IN INDIA AND ON 15/10/2009, RBI GRANTED AUTHORIZATION TO ASSESSEE TO TAKE OVER THE OPERATIONS OF NATIONAL FINANCIAL SWITCH (N FS) FROM IDRBT. THE ASSESSEE TOOK OVER NFS OPERATIONS FROM 14/12/2009 A ND IT CHARGED A FEE OF RE.1 PER TRANSACTION UNDERTAKEN BY CUSTOMERS OF BANKS USING THE NPCIS INFRASTRUCTURE. THE FEE HAS GRADUALLY BEEN R EDUCED OVER THE YEARS NOTWITHSTANDING THE FACT THAT THE ASSESSEE WA S ENJOYING MONOPOLY OVER THE PAYMENT SYSTEMS. AS OF TODAY, THE ASSESSEE IS STATED TO HAVE RECEIVED AUTHORIZATION FROM RBI UNDER THE PSS ACT T O BUILD A CENTRAL INFRASTRUCTURE FOR PAYMENT SYSTEMS LIKE NFS. IMPS, CTS, NATIONAL AUTOMATED CLEARING HOUSE, AEPS AND RUPAY. THE BRIEF OVERVIEW OF IMPORTANT PAYMENT SYSTEM BEING OPERATED BY THE ASSE SSEE IS AS FOLLOWS:- ITA NO.5431/MUM/2015 & ITA NO.3382/MUM/2016 ASSESSMENT YEARS:2010-11 & 2012-13 NATIONAL PAYMENTS CORPORATION OF INDIA 22 NATIONAL FINANCIAL SWITCH WITH A VIEW TO CONNECT THE ATMS IN THE COUNTRY AND FACILITATING CONVENIENT BANKING, IDRBT CONCEPTUALIZED AND OPERAT IONALIZED A MULTILATERAL DOMESTIC ATM NETWORK REFERRED TO AS NA TIONAL FINANCIAL SWITCH (NFS). NFS FACILITATES ROUTING OF ATM TRANSA CTIONS THROUGH INTER- CONNECTIVITY BETWEEN ITS MEMBER INSTITUTIONS THEREB Y ENABLING CITIZENS TO UTILIZE ANY ATM OF A CONNECTED ENTITY. IN OCTOBER 2 009, IDRBT HANDED OVER NFS TO NPCI. SINCE THE TAKEOVER, NPCI HAS MADE VARIOUS IMPROVEMENTS IN TECHNOLOGY AND USAGE OF NFS. SINCE NFS FACILITATES INTERBANK ATM TRANSACTIONS, IT IS ALSO USED AS A BA CKBONE NETWORK INFRASTRUCTURE FOR OTHER NPCI PRODUCTS LIKE IMPS, A EPS, ETC. WITH THE INCLUSION OF SCHEDULED COMMERCIAL BANKS, FOREIGN BA NKS, COOPERATIVE BANKS, ETC. AS ITS MEMBERS, NFS IS THE LEADING ATM NETWORK IN THE COUNTRY. TO TAKE AN EXAMPLE, IF A CUSTOMER OF PUNJAB NATIONA L BANK (PNB) USES AN ATM OF STATE BANK OF INDIA (SBI) TO WITHDRAW RS. 10,000, THEN, SBI WILL CLAIM RS.10,000 FROM PNB THROUGH THE PAYMENT M ECHANISM PROVIDED BY NPCI. NPCI WILL RECOVER RS. 10,001 FROM PNB (INCLUDING ITS CHARGE OF RE.1) BY DEBITING THIS AMOUNT TO PNB AND WILL CREDIT RS.10,000 TO SBI. CERTAIN OTHER CHARGES AND GOVERNMENT LEVIES ARE ALSO RECOVERED ON ACTUAL BASIS ON THESE TRANSACTIONS, WHICH ARE PA SS-THROUGH COSTS. IN THIS TRANSACTION, RE.1 IS THE INCOME OF THE APPELLA NT, WHICH HAS GRADUALLY BEEN REDUCED OVER THE YEARS. IN CASE A CUSTOMER OF SBI USES THE ATM OF SBI, THEN, NPCI DOES NOT COME INTO THE PICTURE. ITA NO.5431/MUM/2015 & ITA NO.3382/MUM/2016 ASSESSMENT YEARS:2010-11 & 2012-13 NATIONAL PAYMENTS CORPORATION OF INDIA 23 IMMEDIATE PAYMENT SERVICE (IMPS) THIS FACILITY IS STATED TO BE A 24X7, REAL TIME, CO ST EFFECTIVE, INDEPENDENT RETAIL PAYMENT SERVICE INTRODUCED BY NPCI EMPOWERIN G CUSTOMERS TO TRANSFER MONEY INSTANTLY WITHIN BANKS AND RBI AUTHO RIZED PREPAID ISSUERS (PPLS) ACROSS INDIA. THE UNDERLYING CONCEPT BEHIND IMPS IS TO PROVIDE CUSTOMERS 'ANY TIME, ANY PLACE' REAL-TIME R EMITTANCE ACCESS TO MEET THEIR VARIOUS PAYMENT NEEDS. USING IMPS, A CUS TOMER CAN TRANSFER FUNDS ON REAL-TIME BASIS TO ANOTHER PERSON OR MERCH ANT FOR ANY PERSONAL OR COMMERCIAL PURPOSES. IMPS IS STATED TO BE PREFER RED MODE FOR RECEIVING INWARD CROSS BORDER REMITTANCES BY THE BA NKS. CHEQUE TRUNCATION SYSTEM (CTS) THIS SYSTEM IS STATED TO HAVE REPLACED PHYSICAL MOV EMENT OF CHEQUES FROM BANKS TO CLEARING HOUSES. THIS IS DONE BY ELEC TRONIC TRANSMISSION OF IMAGES OF THE CHEQUES AND THE RELEVANT DATA, WHICH ENSURE FASTER CLEARING MECHANISM. RUPAY THIS FACILITY IS STATED TO BE MULTILATERAL PAYMENT SYSTEM WITH A VIEW TO CREATE CASH-LESS ECONOMY AND MAKE INDIA A FINANCIAL INCLUSIVE ECONOMY. THIS FACILITY IS MEANT TO PROVIDE A SAFE, SECURED A ND LOW-COST PAYMENT MECHANISM TO THE PUBLIC AT LARGE WITH A VIEW TO FUL FILL THE OBJECTIVE OF FINANCIAL INCLUSION & ECONOMIC DEVELOPMENT. IN THE BACKGROUND OF ABOVE FACTS, WE PROCEED TO ADJ UDICATE THE SUBJECT MATTER OF APPEAL IN SUCCEEDING PARAGRAPHS. ITA NO.5431/MUM/2015 & ITA NO.3382/MUM/2016 ASSESSMENT YEARS:2010-11 & 2012-13 NATIONAL PAYMENTS CORPORATION OF INDIA 24 OUR FINDINGS AND ADJUDICATION 8.1 FOR DETERMINATION OF ISSUES, WE FIND IT IMPERA TIVE TO APPRECIATE THE BASIC FACTUAL MATRIX IN WHICH THE AS SESSEE ENTITY HAS COME INTO EXISTENCE. IT IS UNDISPUTED FACT THAT THE ASSESSEE HAS BEEN GRANTED A VALID REGISTRATION U/S 12AA OF THE ACT WH ICH HAS NEVER BEEN REVOKED BY THE REVENUE AUTHORITIES. THE REGISTRATIO N HAS BEEN GRANTED POST-INSERTION OF PROVISO TO SEC.2(15) OBVIOUSLY AF TER LOOKING INTO THE OBJECT OF THE ASSESSEE. THE ASSESSEE HAS BEEN INCOR PORATED UNDER SPECIAL PROVISIONS OF SEC.25 OF THE COMPANIES ACT, 1956 WHICH PROVIDE FOR REGISTRATION OF ENTITIES WHICH ARE SET UP FOR P ROMOTING 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 ASS OCIATION, THE ASSESSEE IS PROHIBITED FROM DISTRIBUTING ITS PROFIT S 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 MEMBE RS BUT WERE TO BE TRANSFERRED TO SPECIFIED ENTITY HAVING SIMILAR OBJE CTS. 8.2 THE RBI IN ITS VISION DOCUMENT 2005-08 (ISSUED DURING MAY, 2005) TITLED AS PAYMENT SYSTEMS IN INDIA TAKE NOTE OF THE FACT THAT WITH A VIEW TO HELP WITH THE PAYMENT SETTLEMENT PROCESS, THE FACILITY OF ATM- SWITCH WAS SET UP AND OPERATED BY IDRBT, HYDERABAD. A NEED HAS BEEN FELT THAT INDIAN RETAIL CLEARING FUNCTION, IN ITS E NTIRETY, COULD BE ENTRUSTED TO A SEPARATE LEGAL ENTITY AT NATIONAL LEVEL AND RB I COULD PROVIDE SETTLEMENT SERVICES FOR ALL THE CLEARING SYSTEMS, B ESIDES BEING REGULATOR AND SUPERVISOR OF THE PAYMENTS SYSTEMS. THE BROAD F RAMEWORK OF THE ITA NO.5431/MUM/2015 & ITA NO.3382/MUM/2016 ASSESSMENT YEARS:2010-11 & 2012-13 NATIONAL PAYMENTS CORPORATION OF INDIA 25 PROPOSED NEW NATIONAL ENTITY WAS ELABORATED THEREIN . THE FORMATION OF NATIONAL LEVEL ENTITY WOULD ENSURE UNIFORMITY OF ST RUCTURE, OPERATIONS AND PROCEDURES. THIS ENTITY WOULD DEPLOY PROFESSIONALLY SKILLED COMPETENT PERSONNEL TO MANAGE AND RUN CLEARING OPERATIONS AND PAVE THE WAY FOR CONDUCTING ALL CLEARING FUNCTIONS AT NATIONAL LEVEL LEADING TO BETTER INFORMATION DISSEMINATION AND BETTER CUSTOMER EDUCA TION ON VARIOUS SERVICES AND SYSTEMS. THE DOCUMENT ALSO ENVISAGES D RAFTING COMPREHENSIVE LEGISLATION ON PAYMENT SYSTEM BY WAY OF A PAYMENT SYSTEM BILL. THE MAIN OBJECTIVE WOULD BE TO ESTABLI SH SAFE, SECURE, SOUND AND EFFICIENT PAYMENT SYSTEM IN INDIA, MATCHING INT ERNATIONAL STANDARDS AND BEST PRACTICES. THIS PROPOSED ENTITY WOULD PROV IDE A ROBUST AND TECHNOLOGICALLY INTENSIVE CENTRALIZED SYSTEM OFFERI NG ELECTRONIC CLEARING SERVICES (ECS), ELECTRONIC FUNDS TRANSFER (EFT) AND NATIONAL ELECTRONIC FUND TRANSFER (NEFT) SERVICES COVERING THE ENTIRE C OUNTRY AND TO TAKE INITIATIVES ON ATM-SWITCHING, MULTI-APPLICATION SMA RT CARD, E-COMMERCE AND M-COMMERCE BASED PAYMENT SYSTEMS. THIS NEW ENTI TY WOULD BRING ABOUT EFFICIENCY ENHANCEMENTS AND UNIFORMITY IN THE EXISTING PAYMENT PRODUCTS AND DEVELOP NEW PRODUCTS TAKING ADVANTAGE OF TECHNOLOGY INNOVATION. IN THIS BACKGROUND, THE DOCUMENT ENVISI ONS SETTING UP OF AN INSTITUTION AT NATIONAL LEVEL WHICH WOULD OWN AND O PERATE ALL RETAIL PAYMENT SYSTEMS OF THE COUNTRY. TO ACHIEVE THIS, TH E DOCUMENT PROPOSES ENACTMENT OF PAYMENTS AND SETTLEMENT BILLS . 8.3 SUBSEQUENTLY, GOVT. OF INDIA INTRODUCED THE P AYMENT AND SETTLEMENT SYSTEMS BILL, 2006 IN THE YEAR 2006 TO FACILITATE THE OVERSIGHT OF PAYMENTS AND SETTLEMENT SYSTEMS IN THE COUNTRY B Y RBI. AFTER REVIEW ITA NO.5431/MUM/2015 & ITA NO.3382/MUM/2016 ASSESSMENT YEARS:2010-11 & 2012-13 NATIONAL PAYMENTS CORPORATION OF INDIA 26 OF THE BILL BY A STANDING COMMITTEE SET UP BY PARLI AMENT, THE SAID BILL WAS PASSED BY THE PARLIAMENT ON 26/11/2007 AND ACCORDIN GLY, IT BECAME AN ACT. AS PER SECTION 4 THE PAYMENT AND SETTLEMENT S YSTEMS ACT, 2007 (IN SHORT PSS ACT), NO PERSON OTHER THAN RBI COUL D OPERATE OR COMMENCE A PAYMENT SYSTEM UNLESS AUTHORIZED BY RBI. 8.4 THE STANDING COMMITTEE ON FINANCE FOR EXAMINAT ION AND REPORT ON THE BILL, SUBMITTED ITS 56 TH REPORT AFTER OBTAINING INFORMATION FROM FINANCE MINISTRY AND AFTER INCORPORATING THE V IEWS OF VARIOUS CONCERNED PARTIES. THE COMMITTEE REFERRED TO THE BA CKGROUND AND FRAMEWORK OF NPCI AND DISCUSSED ISSUES RAISED BY OF FICERS 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 SH ARES WOULD BE HELD BY AS MANY BANKS AS POSSIBLE AND IT WAS ALSO D ECIDED THAT RBI WOULD HAVE REPRESENTATION ON THE BOARD. PARA-32 OF THE REPORT TAKE NOTE OF RBIS REPLY THAT RBI HAS NOT BEEN OPERATING THE CLEARING SYSTEM TO GENERATE INCOME. INCOME GENERATION WAS ONLY INCIDEN TAL. RBI STARTED THE CHEQUES PROCESSING CENTER AS A PART OF ITS INITIATI VE TO BUILD A SOUND CHEQUE CLEARING SYSTEM. A NEED WAS FELT TO CONSOLID ATE ALL CLEARING CENTERS UNDER AN UMBRELLA ORGANIZATION TO BRING EFF ICIENCY AND STANDARDIZATION OF PROCEDURES AND PRACTICES. FURTHE R, THE PROFITS TO BE GENERATED BY THE NEW COMPANY WERE NOT TO BE PAID TO THE SHAREHOLDERS AS DIVIDEND BUT WOULD BE USED ONLY FOR FURTHER DEVE LOPMENT OF PAYMENT SYSTEM. ITA NO.5431/MUM/2015 & ITA NO.3382/MUM/2016 ASSESSMENT YEARS:2010-11 & 2012-13 NATIONAL PAYMENTS CORPORATION OF INDIA 27 8.5 AT THE TIME OF PASSAGE OF THE PSS BILL, 2006 T HE THEN HONBLE FINANCE MINISTER, INTER-ALIA, REITERATED THAT NPCI WAS A NON-PROFIT CORPORATION AND A SECTION 25 COMPANY AND THAT ITS I NCOME WOULD NOT BE DISTRIBUTED AS DIVIDENDS BUT WOULD BE PLOUGHED BACK FOR CREATION OF INFRASTRUCTURE. HE FURTHER STATED THAT NPCI WILL BE A PUBLIC SECTOR CORPORATION OWNED BY PUBLIC SECTOR BANKS, WHO WILL OWN NOT LESS THAN 51% IN NPCI. 8.6 ACCORDINGLY, NPCI WAS INCORPORATED AS SECTION 25 COMPANY AND IT WAS SPECIFICALLY PROVIDED IN ITS MEMORANDUM OF ASSOCIATION THAT NONE OF ITS OBJECTS SHALL BE CARRIED OUT ON A COMME RCIAL BASIS. THE INCOME AND THE PROPERTY OF NPCI SHALL BE APPLIED SO LELY FOR THE PROMOTION OF ITS OBJECTS AND THAT NO PART THEREOF S HALL BE PAID OR TRANSFERRED BY WAY OF DIVIDEND, BONUS OR OTHERWISE BY WAY OF PROFIT. 8.7 THE BOARD FOR REGULATION AND SUPERVISION OF PA YMENT AND SETTLEMENT SYSTEMS, AT ITS MEETING HELD ON 24/09/20 09, GRANTED IN- PRINCIPLE AUTHORIZATION TO NPCI FOR OPERATING VARIO US RETAIL PAYMENT SYSTEMS IN INDIA. THE RBI ON 15/10/2009, IN EXERCIS E OF POWERS CONFERRED UNDER THE PSS ACT, 2007, GRANTED AUTHORIZ ATION TO ASSESSEE TO TAKE OVER THE OPERATIONS OF NATIONAL FINANCIAL SWIT CH (NFS) FROM IDRBT. THE ASSESSEE TOOK OVER NFS OPERATIONS FROM 14/12/20 09 AND IT STARTED CHARGING A FEE OF RE.1 PER TRANSACTION UNDERTAKEN B Y CUSTOMERS OF BANKS USING THE NPCIS INFRASTRUCTURE. THE FEE HAS GRADUA LLY BEEN REDUCED OVER THE YEARS BY AS MUCH AS 70% NOTWITHSTANDING TH E FACT THAT THE ASSESSEE WAS ENJOYING MONOPOLY OVER THE PAYMENT SYS TEMS. AS OF TODAY, THE ASSESSEE IS STATED TO HAVE RECEIVED AUTH ORIZATION FROM RBI ITA NO.5431/MUM/2015 & ITA NO.3382/MUM/2016 ASSESSMENT YEARS:2010-11 & 2012-13 NATIONAL PAYMENTS CORPORATION OF INDIA 28 UNDER THE PSS ACT TO BUILD A CENTRAL INFRASTRUCTURE FOR PAYMENT SYSTEMS LIKE NFS. IMPS, CTS, NATIONAL AUTOMATED CLEARING HO USE, AEPS AND RUPAY WHICH HAS ALREADY BEEN ELABORATED IN PRECEDIN G PARAGRAPHS. 8.8 THUS, FROM THE PERUSAL OF CHRONOLOGY OF THESE EVENTS, IT IS QUITE DISCERNIBLE THAT THE ASSESSEE HAS SOLE AUTHOR IZATION FROM RBI TO OPERATE THE PAYMENT SYSTEMS IN INDIA. THE OVERALL R EGULATION AS WELL AS SUPERVISION WAS TO BE EXERCISED BY RBI IN TERMS OF PSS ACT, 2007. ALTHOUGH THE ASSESSEE WAS NOT CREATED UNDER PSS ACT , 2007 BUT IT WAS SOLE AUTHORIZED ARM OF RBI TO CARRY OUT PAYMENT SET TLEMENT SYSTEM IN INDIA IN A PROFESSIONAL MANNER BY UTILIZING THE LAT EST TECHNOLOGY. THE OVERALL PURPOSE WAS TO ACHIEVE BROAD-BASED SOCIAL O BJECTIVE TO BRING EFFICIENCY IN THE CLEARING SYSTEMS IN INDIA WITH A VIEW TO BENEFIT SOCIETY AT LARGE. HENCE, IT COULD BE CONCLUDED THAT THE ASSESS EES 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 CONVEN IENT PAYMENT SYSTEMS. THE SYSTEMS BEING DEVELOPED BY THE ASSESSE E WOULD BRING DOWN COST OF CLEARING TRANSACTIONS WHICH WOULD ULTI MATELY BENEFIT PUBLIC AT LARGE AVAILING THE BANKING SERVICES. THE GREATER PENETRATION OF E- PAYMENTS WOULD ENCOURAGE LARGER PARTICIPATION OF CI TIZEN IN BANKING SYSTEM AND HELP IN MEETING THE LARGER OBJECTIVE OF CASH-LESS ECONOMY. THEREFORE, IT COULD SAFELY BE CONCLUDED THAT THE PR IMARY OBJECTIVE OF THE ASSESSEE WAS TO ADMINISTER THE PAYMENT SETTLEMENT S YSTEM FOR THE ITA NO.5431/MUM/2015 & ITA NO.3382/MUM/2016 ASSESSMENT YEARS:2010-11 & 2012-13 NATIONAL PAYMENTS CORPORATION OF INDIA 29 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 C ONCERNED, WE FIND THAT THE ASSESSEE WAS ENGAGED IN PROVIDING TECHNOLO GY INTENSIVE INFRASTRUCTURE FACILITIES AT NATIONAL LEVEL AND WOU LD OBVIOUSLY REQUIRE FUNDS TO MEET THE OPERATIONAL COST WHICH WOULD NECESSITAT E THE CHARGING OF FEES BY THE ASSESSEE. HOWEVER, THE SAID FACT WOULD NOT MATERIALLY ALTER THE PRIMARY OBJECTIVE FOR WHICH THE ASSESSEE ENTITY WAS CREATED. IT IS ALSO EVIDENT THAT THE FEE CHARGED BY THE ASSESSEE PER TR ANSACTION HAS DRASTICALLY BEEN REDUCED BY AS MUCH AS 70% OVER SEV ERAL YEARS WHICH WOULD ONLY BOLSTER ASSESSEES CLAIM THAT IT WAS NOT RUNNING AS COMMERCIAL ORGANIZATION AND ITS PRIMARY MOTIVE WAS NOT TO MAKE PROFITS. 8.11 THE OBSERVATION OF LD. AO THAT THE ASSESSEE P AID SERVICE TAX OF RS.17 CRORES, IN OUR OPINION, WOULD NOT BE D ETERMINATIVE OF ASSESSEES PRIMARY OBJECTIVE. THE LIABILITY TO PAY SERVICE TAX AROSE TO THE ASSESSEE UNDER SEPARATE ENACTMENT IN VIEW OF THE FA CT THAT THE ASSESSEES ACTIVITIES FELL WITHIN THE MEANING OF SERVICE AS DEFINED IN SERVICE TAX REGULATIONS. HOWEVER, THE PAYMENT THERE OF WOULD NOT BRING ABOUT MATERIAL CHANGE IN ASSESSEES PRIMARY OBJECTI VE. THE ASSESSEE WOULD NATURALLY BE BOUND TO FOLLOW THE LAW OF LAND AS APPLICABLE TO IT. 8.12 THE LD. CIT-DR HAS SOUGHT TO EQUATE THE ACTIV ITIES OF THE ASSESSEE WITH THAT OF E-COMMERCE PAYMENT SYSTEM PAYTM . HOWEVER, NO SUBSTANCE COULD BE FOUND IN THE SAME SINCE THE ASSE SSEE WAS A NATIONAL LEVEL ENTITY ENVISIONED BY RBI TO TAKE OVER THE CLE ARING MECHANISM IN A UNIFIED MANNER ON PAN INDIA BASIS. THE ACTIVITIES O F THE ASSESSEE COULD ITA NO.5431/MUM/2015 & ITA NO.3382/MUM/2016 ASSESSMENT YEARS:2010-11 & 2012-13 NATIONAL PAYMENTS CORPORATION OF INDIA 30 NOT BE EQUATED WITH E-COMMERCE PAYMENT SYSTEM PAYTM WHICH WAS MERELY FACILITATING E-PAYMENTS TO CERTAIN USERS AND IT WOULD MERELY BE USING THE INFRASTRUCTURE CREATED BY THE ASSESSEE. T HEREFORE, THE SAID ARGUMENT COULD NOT BE ACCEPTED. 8.13 SO FAR AS THE APPLICABILITY OF THE PROVISIONS OF SEC.13(1)(C)(II) ARE CONCERNED, WE FIND THAT THE FACILITIES / SERVIC ES BEING PROVIDED BY THE ASSESSEE WERE UNIFORMLY AVAILABLE TO THE USER OF TH E SYSTEM AGAINST SAME FEE. NO CONCESSION IN FEE WAS GIVEN TO THE PRO MOTER ENTITIES AND IT COULD NOT BE SAID THAT THE ASSESSEE DIRECTLY OR IND IRECTLY APPLIED ITS INCOME FOR THE BENEFIT OF PERSONS AS SPECIFIED IN S EC.13(3). ANOTHER PERTINENT OBSERVATION IS THAT THE PROMOTER BANKS WE RE MERE SUBSCRIBER TO ASSESSEES SHARE CAPITAL AND NOT ENTITIES WHO MADE SUBSTANTIAL CONTRIBUTION OF EXCEEDING RS.50,000/- IN ASSESSEE E NTITY. IT IS MATTER OF COMMON KNOWLEDGE THAT THERE IS CLEAR DISTINCTION BE TWEEN SUBSCRIBERS TO THE SHARES VIS--VIS CONTRIBUTORS. 8.14 REGARDING LD. SR. COUNSELS ARGUMENT THAT THE RE 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 FAC ILITIES TO IMPROVE THE CLEARING MECHANISM. HOWEVER, BY CREATION OF THIS FA CILITY, THE ASSESSEE WOULD ULTIMATELY BE RENDERING THE SERVICES TO VARIO US ENTITIES AND THEREFORE, THE FINE DISTINCTION BETWEEN THE EXPRESS ION FACILITY AND SERVICES, IN SUCH A CASE, WOULD GET BLUR. ON THE FACTS AND C IRCUMSTANCES, IT WOULD NOT BE CORRECT TO SAY THAT THE ASSESSEE WA S MERELY CREATING ITA NO.5431/MUM/2015 & ITA NO.3382/MUM/2016 ASSESSMENT YEARS:2010-11 & 2012-13 NATIONAL PAYMENTS CORPORATION OF INDIA 31 FACILITY AND NOT PROVIDING ANY SERVICES AND NOT HIT BY PROVISO TO SEC.2(15). WE DO NOT FIND MUCH SUBSTANCE IN THIS AR GUMENT. 8.15 ANOTHER ARGUMENT RAISED IS THAT THE ASSESSEE HAS BEEN GRANTED A VALID REGISTRATION U/S 12AA OF THE ACT WH ICH HAS NEVER BEEN REVOKED BY THE REVENUE AUTHORITIES. THE REGISTRATIO N HAS BEEN GRANTED POST-INSERTION OF PROVISO TO SEC.2(15). THEREFORE, CONSIDERING THE SAID FACT ALONE, THE DEDUCTION COULD NOT BE DENIED TO TH E ASSESSEE. HOWEVER, THE SAID FACT ON STANDALONE BASIS, IN OUR CONSIDERE D OPINION, WOULD NOT ENTITLE THE ASSESSEE TO CLAIM THE EXEMPTION U/S 11 & 12 WHICH IS EVIDENT FROM THE TERMS OF REGISTRATION CERTIFICATE ITSELF. IT HAS CLEARLY BEEN MENTIONED IN CLAUSE-4 OF THE REGISTRATION CERTIFICA TE THAT REGISTRATION U/S 12AA DOES NOT AUTOMATICALLY EXEMPT THE INCOME OF TH E TRUST. THE QUESTION OF TAXABILITY OF THE INCOME OF THE TRUST H AS TO BE EXAMINED AND DECIDED BY LD. AO BASED ON THE ACTIVITIES, COMPLIAN CE WITH VARIOUS STATUTORY AND OTHER REQUIREMENTS ETC. FURTHER, THE FACT THAT WHETHER THE ASSESSEE HAS ACTUALLY CARRIED OUT ITS ACTIVITIES AS PER ITS OBJECTS OR NOT, COULD ONLY BE DETERMINED ON THE BASIS OF ITS FINANC IAL STATEMENTS WHICH WOULD BE AVAILABLE ONLY AT THE TIME OF FRAMING OF A SSESSMENT. AT THE TIME OF REGISTRATION, THE ONLY THING THAT WAS REQUIRED T O BE SEEN BY THE REGISTERING AUTHORITY WAS THAT WHETHER THE OBJECTS OF THE TRUST WOULD FALL WITHIN THE EXPRESSION CHARITABLE PURPOSES AS DEFINED IN SEC. 2(15) OR NOT. WHETHER THE ASSESSEE HAS ACTUALLY CARRIED OUT ITS O BJECTS COULD ONLY BE ASCERTAINED AT THE TIME OF FRAMING OF ASSESSMENT BY LD. AO. THEREFORE, THE SAID PLEA ALSO COULD NOT BE ACCEPTED. IN THE CA SE LAW OF HONBLE GUJARAT HIGH COURT IN HIRALAL BHAGWATI V/S CIT (2000 246 ITR 188), AS ITA NO.5431/MUM/2015 & ITA NO.3382/MUM/2016 ASSESSMENT YEARS:2010-11 & 2012-13 NATIONAL PAYMENTS CORPORATION OF INDIA 32 RELIED UPON BY THE ASSESSEE, IT WAS HELD THAT LD. A O COULD NOT GO INTO THE RE-EXAMINATION OF ASSESSEES OBJECTS TO DETERMI NE WHETHER IT WAS CHARITABLE IN NATURE OR NOT. HOWEVER, IN THE PRESEN T CASE, LD. AO HAS MERELY INVOKED PROVISO TO SEC.2(15) TO DENY THE EXE MPTION TO THE ASSESSEE. THEREFORE, THE SAID CASE LAW AS WELL AS O THER CASE LAWS DRAWING STRENGTH FROM THE SAME, IS ON DIFFERENT TAN GENT AND DO NOT TOUCH UPON THE ISSUE OF PROVISO TO SEC.2(15) AND HENCE, N OT APPLICABLE TO THE PRESENT CASE. IN THE PRESENT CASE, THE FACT THAT TH E ASSESSEE WAS REGISTERED WITH A CHARITABLE PURPOSE HAS NOT BEEN D OUBTED BY LD. AO. 8.16 ANOTHER PERTINENT FACTOR WHICH GOES IN ASSESS EES FAVOR IS THAT THE ASSESSEE TOOK OVER EXISTING ACTIVITIES OF NATIONAL FINANCE SWITCH (NFS) FROM INSTITUTE FOR DEVELOPMENT & RESEARCH IN BANKIN G TECHNOLOGY (IDRBT), HYDERABAD. THAT ENTITY IS STATED TO BE CAR RYING OUT THE ACTIVITY OF NFS SINCE THE YEAR 1996. SIMILAR EXEMPTION WAS D ENIED BY REVENUE AUTHORITIES TO IDRBT FOR AYS 2010-11 & 2011-12. THE ASSESSEE AGITATED THE SAME WITH SUCCESS BEFORE HYDERABAD TRIBUNAL WHI CH IS REPORTED AT 63 TAXMANN.COM 297 . THE REVENUE CONTESTED THE ORDER OF TRIBUNAL BEFORE HONBLE HIGH COURT OF ANDHRA PRADESH & TELAN GANA WHEREIN BY JUDGMENT DATED 09/10/2017 (400 ITR 66), THE REVENUE S APPEALS WERE DISMISSED FOR BOTH THE YEARS. THE SPECIAL LEAVE PET ITION PREFERRED BY THE REVENUE AGAINST THE SAME HAS SUBSEQUENTLY BEEN DISM ISSED BY HONBLE SUPREME COURT VIDE SLP NO. 19564/2018 DATED 20/07/2 018. IT IS QUITE EVIDENT THAT EXISTING ACTIVITY OF NFS WAS TAKEN OVE R BY THE ASSESSEE FROM IDRBT AND THE SAME WAS CONTINUED. THEREFORE, I N TERMS OF THE ITA NO.5431/MUM/2015 & ITA NO.3382/MUM/2016 ASSESSMENT YEARS:2010-11 & 2012-13 NATIONAL PAYMENTS CORPORATION OF INDIA 33 AFORESAID DECISION ALSO, THE ASSESSEE WOULD BE ENTI TLED TO CLAIM THE DEDUCTION U/S 11 & 12. 8.17 THE HONBLE DELHI HIGH COURT IN ASSESSEES WR IT PETITION NO. 1872 OF 2013 DATED 22/01/2015 TITLED AS INDIA TRADE PROMOTION ORGANIZATION VS. DGIT (EXEMPTION) & ORS. (371 ITR 3 33) , WHILE UPHOLDING THE CONSTITUTIONAL VALIDITY OF THE 1 ST 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 SERV ICE IN RELATION TO ANY TRADE, COMMERCE OR BUSINESS, DOMINANT AND PRIME OBJ ECTIVE IS TO BE SEEN. IF THE DOMINANT OBJECTIVE WAS PROFIT MOTIVE , THE TRUST WOULD NOT BE ENTITLED TO CLAIM ITS OBJECTIVE TO BE CHARITABLE IN NATURE. ON THE OTHER HAND, IF THE INSTITUTION IS NOT DRIVEN PRIMARILY BY A DESIRE OR MOTIVE TO EARN PROFITS, BUT TO DO CHARITY THROUGH THE ADVANCEMENT OF AN OBJECT OF GENERAL PUBLIC UTILITY, IT WOULD BE AN INSTITUTION ESTABLIS HED FOR CHARITABLE PURPOSES. IT WAS ALSO OBSERVED THAT MERELY BECAUSE A FEE OR SOME OTHER CONSIDERATION IS COLLECTED OR RECEIVED BY THE ASSES SEE, IT WOULD NOT LOSE ITS CHARACTER OF HAVING BEEN ESTABLISHED FOR A CHAR ITABLE PURPOSE. THE DOMINANT ACTIVITY OF THE ASSESSEE WAS TO BE EXAMINE D. IF IT WAS NOT BUSINESS, TRADE OR COMMERCE THEN ANY SUCH INCIDENTA L OR ANCILLARY ACTIVITY WOULD ALSO NOT FALL WITHIN THE CATEGORIES OF BUSINESS, TRADE OR COMMERCE. ALTHOUGH THE REVENUES SPECIAL LEAVE PETI TION [SLP] AGAINST THE SAME HAS BEEN ADMITTED BY HONBLE SUPREME COURT ( 84 TAXMANN.COM 283), HOWEVER, THERE IS NO STAY ON THE OPERATION OF THIS JUDGEMENT AND THE SAME IS VERY WELL APPLICABLE TO T HE FACTS OF PRESENT CASE. ITA NO.5431/MUM/2015 & ITA NO.3382/MUM/2016 ASSESSMENT YEARS:2010-11 & 2012-13 NATIONAL PAYMENTS CORPORATION OF INDIA 34 THE HONBLE COURT, IN THE COURSE OF STATED JUDGEMEN T, HAS ELABORATELY CONSIDERED ITS OWN DECISIONS RENDERED IN: - (I) INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA V/S DGIT (347 ITR 99) (II) BUREAU OF INDIAN STANDARDS V/S DGIT (2013 212 TAXMAN 210) (III) INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA V /S DGIT [358 ITR 91 04/07/2013] (IV) M/S GSI INDIA V/S DGIT (2013 219 TAXMAN 205) IN THE CASE OF INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA V/S DGI T [358 ITR 91 04/07/2013], IT WAS OBSERVED BY HONBLE COURT THAT THE PURPOSE AND DOMINANT OBJECT FOR WHICH AN INSTITUTIO N CARRIED ON ITS ACTIVITIES IS MATERIAL TO DETERMINE WHETHER THE SAM E IS BUSINESS OR NOT. THE PURPORT OF THE FIRST PROVISO TO SECTION 2(15) W AS NOT TO EXCLUDE ENTITIES WHICH ARE ESSENTIALLY FOR CHARITABLE PURPO SE BUT ARE CONDUCTING SOME ACTIVITIES FOR A CONSIDERATION OR A FEE. THE O BJECTIVE TO INTRODUCE THE PROVISO WAS TO EXCLUDE ORGANIZATIONS WHICH WERE CARRYING ON REGULAR BUSINESS FROM THE SCOPE OF CHARITABLE PURPOSE. THE EXPRESSION BUSINESS, TRADE OR COMMERCE WAS TO BE INTERPRETED R ESTRICTIVELY AND WHERE THE DOMINANT OBJECTIVE WAS CHARITABLE ANY INC IDENTAL ACTIVITY FOR THE FURTHERANCE OF THE SAID OBJECTIVE WOULD NOT FAL L WITHIN THE EXPRESSION TRADE, BUSINESS OR COMMERCE. THE RATIO OF AFORESAID DECISIONS I.E. DOMINANT PURP OSE TEST HAS BEEN APPLIED BY CO-ORDINATE BENCH OF THIS TRIBUNAL IN MAHARASHTRA HOUSING & AREA DEVELOPMENT AUTHORITY V/S ADIT (ITA N. 6678/MU M/2013 04/06/2019) AND HELD THAT THE PROFIT MOTIVE IS THE DETERMINATIV E AND CRITICAL FACTOR TO JUDGE THE ACTIVITIES WHICH COULD BE RECKONED AS IN THE NATURE OF BUSINESS, TRADE OR COMMERCE. ITA NO.5431/MUM/2015 & ITA NO.3382/MUM/2016 ASSESSMENT YEARS:2010-11 & 2012-13 NATIONAL PAYMENTS CORPORATION OF INDIA 35 THE HONBLE BOMBAY HIGH COURT, WHILE REFUSING TO AD MIT REVENUES SUBSTANTIAL QUESTION OF LAW, IN ITS DECISION TITLED AS DIT(E) V/S SHREE NASHIK PANCHVATI PANJRAPOLE (ITA N0. 1565 OF 2014 D ATED 24/02/2017), OBSERVED THAT THE PRESENCE OF PROFIT INTENT (EVEN I F IT DOES NOT FRUCTIFY) WOULD NORMALLY BE A SINE QUA NON FOR THE ACTIVITY TO BE CONSIDERED AS TRADE, COMMERCE OR BUSINESS. THE LORD SHIP CHOSE TO FOLLOW THE RATIO OF DECISION OF HONBLE GUJARAT HIG H 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, COMMER CE OR BUSINESS WHICH WERE MASKED AS CHARITABLE PURPOSE. THE DECISION OF HONBLE DELHI HIGH COURT IN INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA V/S DGI T [358 ITR 91 04/07/2013] WAS ALSO REFERRED TO IN THE STATED DECISION OF HON BLE BOMBAY HIGH COURT AND ULTIMATELY THE APPLICATION OF DOMINANT ACTIVITY TEST WAS UPHELD. 8.18 THE HONBLE GUJARAT HIGH COURT IN THE CASE OF AHMEDABAD URBAN DEVELOPMENT AUTHORITY V/S ACIT [396 ITR 323 0 2/05/2017] HAS OBSERVED THAT THE EXPRESSION TRADE, COMMERCE AND BU SINESS MUST BE READ IN THE CONTEXT OF THE INTENT AND PURPOSE OF SE CTION 2(15) OF THE ACT AND THE SAME WAS NOT MEANT TO EXCLUDE ENTITIES WHIC H ARE ESSENTIALLY FOR CHARITABLE PURPOSES BUT CONDUCTING SOME ACTIVITIES FOR A CONSIDERATION OR A FEES. THE TEST WHICH HAS TO BE APPLIED IS WHETHER THE PREDOMINANT OBJECTIVE OF THE ACTIVITY INVOLVED IN CARRYING OUT THE OBJECT OF GENERAL PUBLIC UTILITY WAS TO SUB-SERVE THE CHARITABLE PURP OSE OR TO EARN PROFIT. ITA NO.5431/MUM/2015 & ITA NO.3382/MUM/2016 ASSESSMENT YEARS:2010-11 & 2012-13 NATIONAL PAYMENTS CORPORATION OF INDIA 36 WHERE PROFIT MAKING IS THE PREDOMINANT OBJECT OF TH E ACTIVITY, THE PURPOSE, THOUGH AN OBJECT OF GENERAL PUBLIC UTILITY WOULD CEASE TO BE A CHARITABLE PURPOSE. BUT WHERE THE PREDOMINANT OBJEC T OF THE ACTIVITY WAS TO CARRY OUT THE CHARITABLE PURPOSE AND NOT TO EARN PROFIT, IT WOULD NOT LOSE ITS CHARACTER OF A CHARITABLE PURPOSE MERELY B ECAUSE SOME PROFIT ARISES FROM THE ACTIVITY. 8.19 SIMILARLY, HONBLE ALLAHABAD HIGH COURT IN CIT V/S LUCKNOW DEVELOPMENT AUTHORITY 265 CTR 433 16/09/2013 HAS HELD THAT WHERE A TRUST IS CARRYING ON ITS ACTIVITIES FOR THE FULFI LMENT OF ITS AIMS AND OBJECTIVES WHICH ARE OF CHARITABLE IN NATURE WITH N O MOTIVE TO EARN PROFIT AND IN THE PROCESS, EARNS SOME PROFIT, THE SAME WOU LD NOT BE HIT BY PROVISO TO SECTION 2(15). 8.20 THEREFORE, CONSIDERING THE ENTIRETY OF FACTS AND CIRCUMSTANCES AND APPLYING THE THEORY OF DOMINANT PURPOSE TEST, T HE INEVITABLE CONCLUSION THAT COULD BE DRAWN IS THAT THE ASSESSEE WAS ENTITLED FOR EXEMPTION U/S 11 & 12. THE MERE FACT THAT CERTAIN F EE WAS CHARGED BY THE ASSESSEE WHILE RENDERING CERTAIN SERVICES AND S URPLUS WAS GENERATED, THE SAID FACT ALONE, WOULD NOT DISENTITL E THE ASSESSEE TO CLAIM THE IMPUGNED EXEMPTION U/S 11 & 12 CONSIDERING THE FACT THAT THE PRIMARY OBJECTS OF THE ASSESSEE WERE CHARITABLE IN NATURE. NO SUBSTANCE COULD BE FOUND IN THE ALLEGATION OF VIOLATION OF SE C.13(1)(C)(II). ACCORDINGLY, THE LOWER AUTHORITIES ARE DIRECTED THE GRANT THE EXEMPTION TO THE ASSESSEE U/S 11 & 12. 8.21 RESULTANTLY, THE APPEAL STANDS ALLOWED IN TER MS OF OUR ABOVE ORDER. ITA NO.5431/MUM/2015 & ITA NO.3382/MUM/2016 ASSESSMENT YEARS:2010-11 & 2012-13 NATIONAL PAYMENTS CORPORATION OF INDIA 37 ITA NO. 3382/MUM/2016, AY 2012-13 9.1 IN THIS YEAR, THE ASSESSEE HAS SIMILARLY BEEN ASSESSED U/S 143(3) ON 20/02/2015. THE LD. AO, APPLYING THE PROV ISO TO SEC.2(15) AS WELL AS THE PROVISIONS OF SEC.13(1)(C)(II), DENIED EXEMPTION U/S 11 & 12 AND COMPUTED TOTAL INCOME AT RS.3842.95 LACS AS AGA INST NIL RETURN FILED BY THE ASSESSEE ON 28/09/2012. THE STAND OF LD. AO, UPON CONFIRMATION BY LEARNED FIRST APPELLATE AUTHORITY VIDE IMPUGNED ORDER DATED 03/02/2016, IS UNDER CHALLENGE BEFORE US. THE ASSES SEE IS UNDER FURTHER APPEAL BEFORE US, WITH MORE OR LESS, SIMILAR GROUND S OF APPEAL. 9.2 FACTS BEING PARI-MATERIA THE SAME AS IN AY 201 0-11, OUR ADJUDICATION, AS CONTAINED THEREIN, WOULD MUTATIS-MUTANDIS APPLY TO THIS YEAR ALSO. CONSEQUENTLY, LD. AO IS DIRECTED THE GRA NT THE EXEMPTION TO THE ASSESSEE U/S 11 & 12. 9.3 RESULTANTLY, THE APPEAL STANDS ALLOWED, IN SI MILAR MANNER. REASONS FOR DELAY IN PRONOUNCEMENT OF ORDER 10.1 BEFORE PARTING, WE WOULD LIKE TO ENUMERATE THE CIRCUMSTANCES WHICH HAVE LED TO DELAY IN PRONOUNCEMENT OF THIS OR DER. THE HEARING OF THE MATTER WAS CONCLUDED ON 21/01/2020 AND IN TERMS OF RULE 34(5) OF INCOME TAX (APPELLATE TRIBUNAL) RULES, 1963, THE MA TTER WAS REQUIRED TO BE PRONOUNCED WITHIN A TOTAL PERIOD OF 90 DAYS. AS PER SUB-CLAUSE (C) OF RULE 34(5), EVERY ENDEAVOR WAS TO BE MADE TO PRONOU NCE THE ORDER WITHIN 60 DAYS AFTER CONCLUSION OF HEARING. HOWEVER , WHERE IT IS NOT PRACTICABLE TO DO SO ON THE GROUND OF EXCEPTIONAL A ND EXTRAORDINARY CIRCUMSTANCES, THE BENCH COULD FIX A FUTURE DATE OF PRONOUNCEMENT OF THE ORDER WHICH SHALL NOT ORDINARILY BE A DAY BEYOND A FURTHER PERIOD OF 30 ITA NO.5431/MUM/2015 & ITA NO.3382/MUM/2016 ASSESSMENT YEARS:2010-11 & 2012-13 NATIONAL PAYMENTS CORPORATION OF INDIA 38 DAYS. THUS, A PERIOD OF 60 DAYS HAS BEEN PROVIDED U NDER THE EXTANT RULE FOR PRONOUNCEMENT OF THE ORDER. THIS PERIOD COULD B E EXTENDED BY THE BENCH ON THE GROUND OF EXCEPTIONAL AND EXTRAORDINAR Y CIRCUMSTANCES. HOWEVER, THE EXTENDED PERIOD SHALL NOT ORDINARILY EXCEED A PERIOD OF 30 DAYS. 10.2 ALTHOUGH THE ORDER WAS WELL DRAFTED BEFORE THE EXPIRY OF 90 DAYS, HOWEVER, UNFORTUNATELY, ON 24/03/2020, A NATIONWIDE LOCKDOWN WAS IMPOSED BY THE GOVERNMENT OF INDIA IN VIEW OF ADVER SE CIRCUMSTANCES CREATED BY PANDEMIC COVID-19 IN THE COUNTRY. THE LO CKDOWN WAS EXTENDED FROM TIME TO TIME WHICH CRIPPLED THE FUNCT IONING OF MOST OF THE GOVERNMENT DEPARTMENTS INCLUDING INCOME TAX APPELLA TE TRIBUNAL (ITAT). THE SITUATION LED TO UNPRECEDENTED DISRUPTI ON OF JUDICIAL WORK ALL OVER THE COUNTRY AND THE ORDER COULD NOT BE PRONOUN CED DESPITE LAPSE OF CONSIDERABLE PERIOD OF TIME. THE SITUATION CREATED BY PANDEMIC COVID-19 COULD BE TERMED AS UNPRECEDENTED AND BEYOND THE CON TROL OF ANY HUMAN BEING. THE SITUATION, THUS CREATED BY THIS PANDEMIC , COULD NEVER BE TERMED AS ORDINARY CIRCUMSTANCES AND WOULD WARRANT EXCLUSION OF LOCKDOWN PERIOD FOR THE PURPOSE OF AFORESAID RULE G OVERNING THE PRONOUNCEMENT OF THE ORDER. ACCORDINGLY, THE ORDER IS BEING PRONOUNCED NOW AFTER THE RE-OPENING OF THE OFFICES. 10.3 FACED WITH SIMILAR FACTS AND CIRCUMSTANCES, TH E CO-ORDINATE BENCH OF THIS TRIBUNAL COMPRISING-OFF OF HONBLE PRESIDEN T AND HONBLE VICE PRESIDENT, IN ITS RECENT DECISION TITLED AS DCIT V/S JSW LIMITED (ITA NOS. 6264 & 6103/MUM/2018) ORDER DATED 14/05/2020 HELD AS UNDER: - 7. HOWEVER, BEFORE WE PART WITH THE MATTER, WE MUST DEAL WITH ONE PROCEDURAL ISSUE AS WELL. WHILE HEARING OF THESE APPEALS WAS C ONCLUDED ON 7TH JANUARY 2020, ITA NO.5431/MUM/2015 & ITA NO.3382/MUM/2016 ASSESSMENT YEARS:2010-11 & 2012-13 NATIONAL PAYMENTS CORPORATION OF INDIA 39 THIS ORDER THEREON IS BEING PRONOUNCED TODAY ON 14T H DAY OF MAY, 2020, MUCH AFTER THE EXPIRY OF 90 DAYS FROM THE DATE OF CONCLUSION O F HEARING. WE ARE ALSO ALIVE TO THE FACT THAT RULE 34(5) OF THE INCOME TAX APPELLATE TR IBUNAL RULES 1963, WHICH DEALS WITH PRONOUNCEMENT OF ORDERS, PROVIDES AS FOLLOWS: (5) THE PRONOUNCEMENT MAY BE IN ANY OF THE FOLLOWIN G MANNERS: (A) THE BENCH MAY PRONOUNCE THE ORDER IMMEDIATELY U PON THE CONCLUSION OF THE HEARING. (B) IN CASE WHERE THE ORDER IS NOT PRONOUNCED IMMED IATELY ON THE CONCLUSION OF THE HEARING, THE BENCH SHALL GIVE A DATE FOR PRONOUNCEM ENT. (C) IN A CASE WHERE NO DATE OF PRONOUNCEMENT IS GIV EN BY THE BENCH, EVERY ENDEAVOUR SHALL BE MADE BY THE BENCH TO PRONOUNCE T HE ORDER WITHIN 60 DAYS FROM THE DATE ON WHICH THE HEARING OF THE CASE WAS CONCL UDED BUT, WHERE IT IS NOT PRACTICABLE SO TO DO ON THE GROUND OF EXCEPTIONAL A ND EXTRAORDINARY CIRCUMSTANCES OF THE CASE, THE BENCH SHALL FIX A FUTURE DAY FOR P RONOUNCEMENT OF THE ORDER, AND SUCH DATE SHALL NOT ORDINARILY (EMPHASIS SUPPLIED B Y US NOW) BE A DAY BEYOND A FURTHER PERIOD OF 30 DAYS AND DUE NOTICE OF THE DAY SO FIXED SHALL BE GIVEN ON THE NOTICE BOARD. 8. QUITE CLEARLY, ORDINARILY THE ORDER ON AN APPE AL SHOULD BE PRONOUNCED BY THE BENCH WITHIN NO MORE THAN 90 DAYS FROM THE DATE OF CONCLUDING THE HEARING. IT IS, HOWEVER, IMPORTANT TO NOTE THAT THE EXPRESSION ORD INARILY HAS BEEN USED IN THE SAID RULE ITSELF. THIS RULE WAS INSERTED AS A RESULT OF DIRECTIONS OF HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF SHIVSAGAR VEG RESTAURANT VS ACIT [(2009) 317 ITR 4 33 (BOM)] WHEREIN THEIR LORDSHIPS HAD, INTER ALIA, DIRECTED THAT WE, THEREFORE, DIRECT THE PRESIDENT OF THE APPELLATE TRIBUNAL TO FRAME AN D LAY DOWN THE GUIDELINES IN THE SIMILAR LINES AS ARE LAID DOWN BY THE APEX COUR T IN THE CASE OF ANIL RAI (SUPRA) AND TO ISSUE APPROPRIATE ADMINISTRATIVE DIR ECTIONS TO ALL THE BENCHES OF THE TRIBUNAL IN THAT BEHALF. WE HOPE AND TRUST THAT SUITABLE GUIDELINES SHALL B E FRAMED AND ISSUED BY THE PRESIDENT OF THE APPELLATE TRIBUNAL WITHIN SHORTEST REASONABLE TIME AND FOLLOWED STRICTLY BY ALL THE BE NCHES OF THE TRIBUNAL. IN THE MEANWHILE (EMPHASIS, BY UNDERLINING, SUPPLIED BY US NOW), ALL THE REVISIONAL AND APPELLATE AUTHORITIES UNDER THE INCOME-TAX ACT ARE DIRECTED TO DECIDE MATTERS HEARD BY THEM WITHIN A PERIOD OF THREE MONTHS FROM THE DATE CASE IS CLOSED FOR JUDGMENT . IN THE RULED SO FRAMED, AS A RESULT OF THESE DIR ECTIONS, THE EXPRESSION ORDINARILY HAS BEEN INSERTED IN THE REQUIREMENT T O PRONOUNCE THE ORDER WITHIN A PERIOD OF 90 DAYS. THE QUESTION THEN ARISES WHETHER THE PASSING OF THIS ORDER, BEYOND NINETY DAYS, WAS NECESSITATED BY ANY EXTRAO RDINARY CIRCUMSTANCES. 9. LET US IN THIS LIGHT REVERT TO THE PREVAILING SI TUATION IN THE COUNTRY. ON 24TH MARCH, 2020, HONBLE PRIME MINISTER OF INDIA TOOK T HE BOLD STEP OF IMPOSING A NATIONWIDE LOCKDOWN, FOR 21 DAYS, TO PREVENT THE SP READ OF COVID 19 EPIDEMIC, AND THIS LOCKDOWN WAS EXTENDED FROM TIME TO TIME. AS A MATTER OF FACT, EVEN BEFORE THIS FORMAL NATIONWIDE LOCKDOWN, THE FUNCTIONING OF THE INCOME TAX APPELLATE TRIBUNAL AT MUMBAI WAS SEVERELY RESTRICTED ON ACCOUNT OF LOCKDO WN BY THE MAHARASHTRA GOVERNMENT, AND ON ACCOUNT OF STRICT ENFORCEMENT OF HEALTH ADVISORIES WITH A VIEW OF CHECKING SPREAD OF COVID 19. THE EPIDEMIC SITUAT ION IN MUMBAI BEING GRAVE, THERE WAS NOT MUCH OF A RELAXATION IN SUBSEQUENT LO CKDOWNS ALSO. IN ANY CASE, THERE WAS UNPRECEDENTED DISRUPTION OF JUDICIAL WOK ALL OV ER THE COUNTRY. AS A MATTER OF FACT, IT HAS BEEN SUCH AN UNPRECEDENTED SITUATION, CAUSING DISRUPTION IN THE ITA NO.5431/MUM/2015 & ITA NO.3382/MUM/2016 ASSESSMENT YEARS:2010-11 & 2012-13 NATIONAL PAYMENTS CORPORATION OF INDIA 40 FUNCTIONING OF JUDICIAL MACHINERY, THAT HONBLE SUP REME COURT OF INDIA, IN AN UNPRECEDENTED ORDER IN THE HISTORY OF INDIA AND VID E ORDER DATED 6.5.2020 READ WITH ORDER DATED 23.3.2020, EXTENDED THE LIMITATION TO E XCLUDE NOT ONLY THIS LOCKDOWN PERIOD BUT ALSO A FEW MORE DAYS PRIOR TO, AND AFTER , THE LOCKDOWN BY OBSERVING THAT IN CASE THE LIMITATION HAS EXPIRED AFTER 15.03.202 0 THEN THE PERIOD FROM 15.03.2020 TILL THE DATE ON WHICH THE LOCKDOWN IS L IFTED IN THE JURISDICTIONAL AREA WHERE THE DISPUTE LIES OR WHERE THE CAUSE OF A CTION ARISES SHALL BE EXTENDED FOR A PERIOD OF 15 DAYS AFTER THE LIFTING OF LOCKDOWN. HONBLE BOMBAY HIGH COURT, IN AN ORDER DATED 15TH APRIL 2020, HAS, BESIDES EXTENDING THE VALIDITY OF ALL INTERIM ORDERS, HAS ALSO OBSERVED THAT, IT IS ALSO CLARIFIED THAT WHILE CALCULATING TIME FOR DISPOSAL OF MATTERS MADE TIME- BOUND BY THIS COURT, THE PERIOD FOR WHICH THE ORDER DATED 26TH MARCH 2020 CO NTINUES TO OPERATE SHALL BE ADDED AND TIME SHALL STAND EXTENDED ACCORDINGLY , AND ALSO OBSERVED THAT ARRANGEMENT CONTINUED BY AN ORDER DATED 26TH MARCH 2020 TILL 30TH APRIL 2020 SHALL CONTINUE FURTHER TILL 15TH JUNE 2020. IT HAS BEEN AN UNPRECEDENTED SITUATION NOT ONLY IN INDIA BUT ALL OVER THE WORLD. GOVERNMENT OF INDIA HAS, VIDE NOTIFICATION DATED 19TH FEBRUARY 2020, TAKEN THE ST AND THAT, THE CORONAVIRUS SHOULD BE CONSIDERED A CASE OF NATURAL CALAMITY AND FMC (I .E. FORCE MAJEURE CLAUSE) MAYBE INVOKED, WHEREVER CONSIDERED APPROPRIATE, FOL LOWING THE DUE PROCEDURE. THE TERM FORCE MAJEURE HAS BEEN DEFINED IN BLACKS LAW DICTIONARY, AS AN EVENT OR EFFECT THAT CAN BE NEITHER ANTICIPATED NOR CONTR OLLED WHEN SUCH IS THE POSITION, AND IT IS OFFICIALLY SO NOTIFIED BY THE G OVERNMENT OF INDIA AND THE COVID-19 EPIDEMIC HAS BEEN NOTIFIED AS A DISASTER UNDER THE NATIONAL DISASTER MANAGEMENT ACT, 2005, AND ALSO IN THE LIGHT OF THE DISCUSSIONS ABOVE, THE PERIOD DURING WHICH LOCKDOWN WAS IN FORCE CAN BE ANYTHING BUT AN ORDIN ARY PERIOD. 10. IN THE LIGHT OF THE ABOVE DISCUSSIONS, WE ARE OF THE CONSIDERED VIEW THAT RATHER THAN TAKING A PEDANTIC VIEW OF THE RULE REQU IRING PRONOUNCEMENT OF ORDERS WITHIN 90 DAYS, DISREGARDING THE IMPORTANT FACT THA T THE ENTIRE COUNTRY WAS IN LOCKDOWN, WE SHOULD COMPUTE THE PERIOD OF 90 DAYS B Y EXCLUDING AT LEAST THE PERIOD DURING WHICH THE LOCKDOWN WAS IN FORCE. WE MUST FAC TOR GROUND REALITIES IN MIND WHILE INTERPRETING THE TIME LIMIT FOR THE PRONOUNCE MENT OF THE ORDER. LAW IS NOT BROODING OMNIPOTENCE IN THE SKY. IT IS A PRAGMATIC TOOL OF THE SOCIAL ORDER. THE TENETS OF LAW BEING ENACTED ON THE BASIS OF PRAGMAT ISM, AND THAT IS HOW THE LAW IS REQUIRED TO INTERPRETED. THE INTERPRETATION SO ASSI GNED BY US IS NOT ONLY IN CONSONANCE WITH THE LETTER AND SPIRIT OF RULE 34(5) BUT IS ALSO A PRAGMATIC APPROACH AT A TIME WHEN A DISASTER, NOTIFIED UNDER THE DISAS TER MANAGEMENT ACT 2005, IS CAUSING UNPRECEDENTED DISRUPTION IN THE FUNCTIONING OF OUR JUSTICE DELIVERY SYSTEM. UNDOUBTEDLY, IN THE CASE OF OTTERS CLUB VS DIT [(2017) 392 ITR 244 (BOM)], HONBLE BOMBAY HIGH COURT DID NOT APPROVE AN ORDER BEING PASSED BY THE TRIBUNAL BEYOND A PERIOD OF 90 DAYS, BUT THEN IN THE PRESENT SITUATION HONBLE BOMBAY HIGH COURT ITSELF HAS, VIDE JUDGMENT DATED 15TH APRIL 20 20, HELD THAT DIRECTED WHILE CALCULATING THE TIME FOR DISPOSAL OF MATTERS MADE T IMEBOUND BY THIS COURT, THE PERIOD FOR WHICH THE ORDER DATED 26TH MARCH 2020 CO NTINUES TO OPERATE SHALL BE ADDED AND TIME SHALL STAND EXTENDED ACCORDINGLY . THE EXTRAORDINARY STEPS TAKEN SUO MOTU BY HONBLE JURISDICTIONAL HIGH COURT AND HONBLE SUPREME COURT ALSO INDICATE THAT THIS PERIOD OF LOCKDOWN CANNOT B E TREATED AS AN ORDINARY PERIOD DURING WHICH THE NORMAL TIME LIMITS ARE TO REMAIN I N FORCE. IN OUR CONSIDERED VIEW, ITA NO.5431/MUM/2015 & ITA NO.3382/MUM/2016 ASSESSMENT YEARS:2010-11 & 2012-13 NATIONAL PAYMENTS CORPORATION OF INDIA 41 EVEN WITHOUT THE WORDS ORDINARILY, IN THE LIGHT O F THE ABOVE ANALYSIS OF THE LEGAL POSITION, THE PERIOD DURING WHICH LOCKOUT WAS IN FO RCE IS TO EXCLUDED FOR THE PURPOSE OF TIME LIMITS SET OUT IN RULE 34(5) OF THE APPELLA TE TRIBUNAL RULES, 1963. VIEWED THUS, THE EXCEPTION, TO 90-DAY TIME-LIMIT FOR PRONO UNCEMENT OF ORDERS, INHERENT IN RULE 34(5)(C), WITH RESPECT TO THE PRONOUNCEMENT OF ORDERS WITHIN NINETY DAYS, CLEARLY COMES INTO PLAY IN THE PRESENT CASE. OF COURSE, THE RE IS NO, AND THERE CANNOT BE ANY, BAR ON THE DISCRETION OF THE BENCHES TO REFIX THE MATTERS FOR CLARIFICATIONS BECAUSE OF CONSIDERABLE TIME LAG BETWEEN THE POINT OF TIME WHEN THE HEARING IS CONCLUDED AND THE POINT OF TIME WHEN THE ORDER THER EON IS BEING FINALIZED, BUT THEN, IN OUR CONSIDERED VIEW, NO SUCH EXERCISE WAS REQUIR ED TO BE CARRIED OUT ON THE FACTS OF THIS CASE. DERIVING STRENGTH FROM THE RATIO OF AFORESAID DECIS ION, WE EXCLUDE THE PERIOD OF LOCKDOWN WHILE COMPUTING THE LIMITATION P ROVIDED UNDER RULE 34(5) AND PROCEED WITH PRONOUNCEMENT OF THE ORDER. CONCLUSION 11. BOTH THE APPEAL STANDS ALLOWED IN TERMS OF OUR ABOVE ORDER. THIS ORDER IS PRONOUNCED UNDER RULE 34(4) OF THE IN COME TAX (APPELLATE TRIBUNAL) RULES, 1962, BY PLACING THE DETAILS OF TH E SAME ON THE NOTICE BOARD. SD/- SD/- (MAHAVIR SINGH) (MANOJ KUMAR AGGARWAL) / VICE PRESIDENT / ACCOUNTANT MEMBER MUMBAI; DATED : 06/07/2020 SR.PS, JAISY VARGHESE ITA NO.5431/MUM/2015 & ITA NO.3382/MUM/2016 ASSESSMENT YEARS:2010-11 & 2012-13 NATIONAL PAYMENTS CORPORATION OF INDIA 42 !'! / COPY OF THE ORDER FORWARDED TO : 1. AC / THE APPELLANT 2. DEAC / THE RESPONDENT 3. J ( ) / THE CIT(A) 4. J / CIT CONCERNED 5. KLDG4 , 4 , / DR, ITAT, MUMBAI 6. LM5N / GUARD FILE / BY ORDER, / (DY./ASSTT.REGISTRAR) , / ITAT, MUMBAI.
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