ICAI Accounting Research Foundation, Noida V. DIT (Exemptions), New Delhi

ITA 4097/DEL/2011

• Counselvise Citation: 409720114 RSA 2011
• Duration Of Justice: 3 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-12-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 14-11-2011
• Assessment Year: misc
• Appeal Filed On: 09-09-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: Y S KAKKAR
• Keywords: Charitable institution; Source of fund
• Section: 80G; 12A; 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH C, NEW DELHI BEFORE SHRI G.D. AGARWAL, HONBLE VICE PRESIDENT & SHRI C.L. SETHI, JUDICIAL MEMBER ITA NO.4097/DEL/2011 ASSESSMENT YEAR: - ICAI ACCOUNTING RESEARCH FOUNDATION, VS. DIT(EXEMPT IONS), ICAI BHAWAN, AAYAKAR BAHWAN A-29, SECTOR-62, DISTRICT CENTRE, NOIDA. LAXMI NAGAR, AAACI5058F NEW DELHI. (APPELLANT) (RESPONDENT) APPELLANT BY : SH. RAJESH JAIN, CA RESPONDENT BY : MS. Y.S. KAKKAR, SR. DR ORDER PER C.L. SETHI, J.M. THE ASSESSEE IS IN APPEAL AGAINST THE ORDER DATED 14.07.2011 PASSED BY THE DIRECTOR OF INCOME TAX (EXEMPTIONS), DELHI U/S 12AA(3) READ WITH SECTION 1 2A OF THE INCOME TAX ACT, 1961, WHEREBY THE REGISTRATION GRAN TED EARLIER U/S 12A TO THE ASSESSEE HAS BEEN CANCELLED SINCE A. Y. 2009- 2010. ITA NO. 4097/D/11 2 2. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE ARE AS UNDER: - 1. THAT THE ORDER PASSED U/S 12AA(3) READ WITH SEC TION 12A OF THE ACT PASSED BY THE LD. DIT(E) IS TOTALLY ILLE GAL AS THE TWO CONDITIONS AS PRESCRIBED FOR CANCELING THE REGISTRATION IN SEC. 12AA(3) OF THE ACT HAVE NOT BE EN SHOWN BEING VIOLATED BY THE APPELLANT IN THE ORDER. THE PROVISION OF SECTION 12AA(3) IS ONLY CONFINED FOR ENQUIRING ABOUT THE ACTIVITIES OF TRUST AND ITS GENUINENESS, IN CONSONANCE WITH THE OBJECTS FOR WHI CH IT IS CREATED. 2. THAT THE LD. DIRECTOR OF INCOME TAX (EXEMPTIONS) ERRED IN ARBITRARILY ALLEGING AND FOR HOLDING THAT THE RE SEARCH ACTIVITIES CONDUCTED BY THE APPELLANT FOUNDATION IN RELATION TO ITS WORK WITH MUNICIPAL CORPORATION OF DELHI (MCD) AND WITH KOLKATA MUNICIPAL CORPORATION (KMC) WERE PROFESSIONAL SERVICES IN THE FIELD OF ACCOUNTI NG, AND THUS, THE SAME ARE BUSINESS OR COMMERCIAL ACTIVITIE S, NOT FALLING WITHIN THE PURVIEW OF CHARITABLE PURPOSE WI THIN THE MEANING OF SECTION 2(15) OF THE INCOME TAX ACT, 1961. THE ORDER OF THE LD. DIT(E) IS CONTRARY TO T HE OBSERVATIONS OF HONBLE DELHI HIGH COURT PASSED IN THE CASE OF THE APPELLANT WHERE HONBLE COURT HELD THAT THE SAID PROJECTS ARE RESEARCH PROJECTS AND THE ACTIVIT IES OF THE APPELLANT ARE CHARITABLE EVEN AFTER THE AMENDME NT OF SECTION 2(15) OF THE ACT BY THE FINANCE ACT, 200 8. 3. THAT THE LD. DIRECTOR OF INCOME TAX (EXEMPTIONS) ERRED IN NOT APPRECIATING THAT THE ACTIVITIES CARRIED ON BY THE ITA NO. 4097/D/11 3 APPELLANT FOUNDATION WERE INCIDENTAL TO THE ATTAINM ENT OF ITS OBJECTIVES AS SET OUT IN ITS MEMORANDUM OF ASSOCIATION WITH REFERENCE TO WHICH IT WAS REGISTER ED AND GRANTED A LICENSE UNDER SECTION 25 OF THE COMPANIES ACT, 1956, BY CENTRAL GOVERNMENT. 4. THAT THE LEARNED DIRECTOR OF INCOME TAX (EXEMPTI ONS) ERRED IN REJECTING THE BONA FIDE CLAIM MADE BY THE APPELLANT FOUNDATION THAT IT DID NOT SUBSIST FOR PR OFIT AS ITS ACTIVITIES ARE WHOLLY INTENDED TO ADVANCE THE OBJECTS OF GENERAL PUBLIC UTILITY WITHIN THE MEANING OF SE CTION 2(15) OF THE SAID ACT. 5. THAT THE LD. DIRECTOR OF INCOME TAX (EXEMPTIONS) ERRED IN NOT APPRECIATING THAT THE APPELLANT FOUNDATION W AS NOT REQUIRED TO MAINTAIN ANY SEPARATE BOOKS OF ACCO UNTS FOR THE WORK CARRIED OUT IN RELATION TO MCD & KMC E TC. AS PER LAW, SINCE IT DID NOT CARRY ANY BUSINESS OR COMMERCIAL ACTIVITY, AS ARBITRARILY ALLEGED. 6. THAT THE IMPUGNED ORDER DATED 14 TH JULY, 2011 PASSED BY THE LD. DIRECTOR OF INCOME TAX (EXEMPTIONS) UNDE R SECTION 12AA(3) READ WITH SECTION 12A OF THE I.T. A CT IS NOT SUSTAINABLE BEING ILLEGAL & PERVERSE ON THE FAC TS OF THE CASE AND AS PER LAW. 3. THE ASSESSEE FOUNDATION WAS GRANTED REGISTRATION U/S 12A OF THE ACT WITH EFFECT FROM ITS INCEPTION I.E. ON 14.01.1999. THE APPELLANT IS A COMPANY FORMED AND REGISTERED ON 14 TH JANUARY, 1999 UNDER SECTION 25 OF THE COMPANIES ACT , 1956 WITH THE MAIN OBJECT OF ESTABLISHING AN ACADEMY O F ITA NO. 4097/D/11 4 INTERNATIONAL STANDARD FOR THE PURPOSE OF IMPARTING , DISSEMINATING, SPREADING AND PROMOTING KNOWLEDGE, L EARNING, EDUCATION AND UNDERSTANDING IN THE FIELDS OF ACCOUN TING, AUDITING, FISCAL LAWS AND POLICY, CORPORATE AND ECO NOMIC LAWS AND POLICES, ECONOMICS, FINANCIAL MANAGEMENT, FINAN CIAL SERVICES, CAPITAL AND MONEY MARKETS, MANAGEMENT INFORMATION AND CONTROL SYSTEMS, MANAGEMENT CONSULT ANCY SERVICES AND ALLIED DISCIPLINES. THE CENTRAL GOVERN MENT, HAVING BEEN SATISFIED THAT THE APPELLANT FOUNDATION IS TO BE FORMED FOR PROMOTING THE VARIOUS OBJECT AND PURPOSE AS SPECIFIED IN SECTION 25(1)(A) OF THE COMPANIES ACT, 1956, AND BEING FURTHER SATISFIED THAT IT INTENDS TO APPLY IT S PROFITS, IF ANY OR OTHER INCOME IN PROMOTING ITS OBJECTS, AND TO PR OHIBIT THE PAYMENT OF ANY DIVIDEND TO ITS MEMBERS, BY LICENSE DIRECTED THAT THE APPELLANT FOUNDATION BE REGISTERED UNDER S ECTION 25 OF THE COMPANIES ACT, 1956 AS A COMPANY WITHOUT THE ADDITION TO ITS NAME OF THE WORD LIMITED. THE ASS ESSEE FOUNDATION HAS ALSO BEEN RECOGNIZED AS A SCIENTIFIC & INDUSTRIAL RESEARCH ORGANIZATION (SIRO) BY THE DEPA RTMENT OF SCIENTIFIC & INDUSTRIAL RESEARCH UNDER THE SCHEME O N REORGANIZATION OF SCIENTIFIC & INDUSTRIAL RESEARCH ORGANIZATIONS (SIROS), 1998. ITA NO. 4097/D/11 5 4. IN THE MEANTIME, THE ASSESSEES APPLICATION FOR APPROVAL U/S 80G HAS, HOWEVER, BEEN REJECTED BY THE DIT(E) V IDE HIS ORDER DATED 22.07.2008 ON THE GROUND THAT ASSESSEE FOUNDATION WAS IN RECEIPT OF MONEY BY WAY OF RENDER ING CONSULTANCY SERVICES TO CERTAIN ORGANIZATIONS, HOLD ING THE SAME TO BE IN THE NATURE OF BUSINESS ACTIVITY. IN THE LIGHT OF DIT(E) ORDER DATED 22.07.2008 REJECTING ASSESSEES APPLICATION FOR APPROVAL U/S 80G OF THE ACT, THE LD . DIT(E) ISSUED A SHOW CAUSE NOTICE U/S 12AA(3) DATED 02.07. 2007 TO THE ASSESSEE FOUNDATION TO EXPLAIN AS TO WHY THE RE GISTRATION GRANTED U/S 12A OF THE ACT SHOULD NOT BE WITHDRAWN KEEPING IN VIEW THE VIOLATION OF SEC. 2(15) OF THE ACT. IN RE SPONSE TO THE ABOVE NOTICE, ASSESSEES AUTHORIZED REPRESENTATIVE, SH. RAJESH JAIN, CA ATTENDED BEFORE THE LD. DIT(E), AND FILED CERTAIN DETAILS AND ADVANCED HIS SUBMISSIONS. 5. ON EXAMINATION OF ACCOUNTS OF THE ASSESSEE, THE LD. DIT(E) HAD TAKEN A VIEW THAT THE ASSESSEE HAS BEEN DOING PROFESSIONAL ACTIVITIES SPECIALLY IN ACCOUNTING ARE AS. THE LD. DIT FURTHER STATED THAT ASSESSEE HAD GIVEN ITS SPEC IALIZED SERVICES TO MUNICIPAL CORPORATION OF DELHI (MCD) (A GREEMENT ITA NO. 4097/D/11 6 DATED 20.03.2002) AND KOLKATA MUNICIPAL CORPORATION (KMC) (AGREEMENT DATED 22.06.2004) AS PER THE AGREEMENT E NTERED INTO WITH THEM. THE LD. DIT FURTHER STATED THAT TH E AGREEMENT WITH MCD WAS FOR TRAINING TO THE VARIOUS CATEGORIES OF ACCOUNTING PERSONNEL OF MCD FOR CONVERSION OF ACCOU NTING SYSTEM, AND FOR WHICH, THE ASSESSEE HAD CHARGED RS. 3 CRORES. THE DIT(E) FURTHER STATED THAT AGREEMENT W ITH KMC WAS FOR BUILDING THE INTERNAL CAPACITY OF MUNICIPAL FINANCE & ACCOUNTS TO IMPROVE FINANCIAL RECORDING, REPORTING AND FINANCE SYSTEM FOR BETTER MANAGEMENT OF KMC, FOR WHICH THE SUM OF RS. 2.25 CRORES WAS CHARGED BY THE ASSESSEE. HE FU RTHER NOTED THAT THE CLAUSES OF THE AGREEMENT PROVIDED TH AT THE PAYMENTS WERE MADE SUBJECT TO DEDUCTION OF CHARGES IN CASE DELAY ON THE PART OF THE ASSESSEE SOCIETY IN EXECUT ING THE WORK WITHIN THE STIPULATED TIME PERIOD IS OCCURRED. HE FURTHER STATED THAT THE ASSESSEE HAD BEEN SHOWING INCOME FR OM RESEARCH CONTRIBUTION, SUBSCRIPTION FROM MEMBERS, I NTEREST INCOME, MISCELLANEOUS INCOME AND PRIOR PERIOD INCOM E. IN THE LIGHT OF THESE SOURCES OF INCOME, DIT(E) ASKED THE ASSESSEE TO PROVIDE DETAILS AND EVIDENCES OF ANY CH ARITABLE ACTIVITY CARRIED OUT BY THE ASSESSEE. HE FURTHER N OTED THAT NO DETAILS OR EVIDENCES WERE FURNISHED BY THE ASSESSEE ABOUT ITA NO. 4097/D/11 7 CHARITABLE ACTIVITY APART FROM RESEARCH WORK/PROPOS ALS. HE FURTHER NOTED THAT THE EXPENDITURE BOOKED IN THE AC COUNTS WERE MOSTLY ON ACCOUNT OF ADMINISTRATIVE HEADS, BUT NO EXPENDITURE WAS INCURRED TOWARDS CHARITABLE ACTIVIT Y. FROM THESE DISCUSSIONS, HE HAD TAKEN A VIEW THAT APART F ROM DURING RESEARCH WORK FOR CERTAIN ORGANIZATION IN THE FIELD S OF ACCOUNT ON PAYMENT BASIS, NO OTHER CHARITABLE ACTIVITIES WE RE CARRIED OUT BY THE ASSESSEE IN THE LAST MANY YEARS. THE DE TAILS OF YEAR-WISE NATURE OF RECEIPTS OF THE ASSESSEE SOCIET Y WERE NOTED BY HIM AS UNDER: - PARTICULARS A.Y. 2011 - 12 (PROVISIONAL) A.Y. 2010 - 11 A.Y. 2009 - 10 REVENUE FROM RESEARCH PROJECTS 9833076/- 2594500/- 1295835/- SUBSCRIPTION FROM MEMBERS 180000/- 180000/- 190000/- GRANT FROM ICAI - 1000000/ - - INTEREST 321672/- 731206/- 2602543/- MISC. INCOME 14442/- 108000/- - PRIOR PERIOD INCOME - - 1224670/- 6. KEEPING IN VIEW THE AFORESAID FACTS AND CIRCUMST ANCES OF THE CASE AS NOTED BY HIM AND IN THE ABSENCE OF A NY CHARITABLE ACTIVITY AS PERCEIVED BY THE DIT(E), THE DIT(E) HAD TAKEN A VIEW THAT ASSESSEE SOCIETY WAS INVOLVED IN THE BUSINESS ACTIVITIES BY WAY OF PROVIDING PROFESSIONA L CONSULTANCY SERVICES FOR WHICH NO SEPARATE BOOKS OF ACCOUNTS ITA NO. 4097/D/11 8 WERE MAINTAINED, AND AS SUCH THE ASSESSEE SOCIETY H AS VIOLATED THE PROVISIONS OF THE ACT FOR GRANT OF REG ISTRATION U/S 12A OF THE ACT. 7. ON EXAMINATION OF INCOME AND EXPENDITURE ACCOUNT FOR THE YEAR ENDED ON MARCH, 2011 & MARCH, 2010, IT WAS NOTICED BY THE LD. DIT(E) THAT THE ASSESSEE WAS IN RECEIPT OF RS. 98,33,076/- TOWARDS REVENUE FROM RESEARCH PROJECT F ROM VARIOUS ORGANIZATIONS INCLUDING DEPARTMENT OF POST, KERALA STATE INSURANCE, NATIONAL HYDRAULIC ELECTRICITY COR PORATION & RURAL ELECTRIFICATION CORPORATION ETC. 8. THE LD. DIT(E) FURTHER OBSERVED AND STATED IN PA RA 7, 8 & 9 OF HIS ORDER AS UNDER: - 7. DURING THE COURSE OF PROCEEDINGS U/S 12AA(3), T HE AUTHORIZED REPRESENTATIVE OF THE ASSESSEE WAS ASKED TO FURNISH THE DETAILS OF RECEIPT AND PAYMENT FOR THE YEARS ENDING MARCH, 2011 & MARCH, 2010. IT IS NOTICED TH AT IN THE F.Y. 2010-11, THE ASSESSEE IS IN RECEIPT OF RS. 98,33,076/- TOWARDS REVENUE FROM RESEARCH PROJECT FROM VARIOUS ORGANIZATIONS WHICH INCLUDES DEPARTMEN T OF POST, KERALA STATE INSURANCE, NATIONAL HYDRAULIC ELECTRICITY CORPORATION AND RURAL ELECTRIFICATION CORPORATION ETC. ALL THESE RECEIPTS ARE IN RESPECT OF EXECUTING PROFESSIONAL SERVICES OF ACCOUNTING POLIC IES TO ITA NO. 4097/D/11 9 THE ABOVE ORGANIZATIONS. ON EXPENDITURE SIDE, IT I S OBSERVED THAT A SUM OF RS. 81,94,880/- WAS SPENT UN DER THE HEAD REMUNERATION OF RESEARCH ASSOCIATES. IT IS SUBMITTED THAT AFTER EXECUTING CONTRACT WITH THE PE RSONA WHO ARE ENGAGED THE SERVICES OF THE SOCIETY, THE ASSESSEE SOCIETY IN TURN CALLS FOR RESEARCH ASSOCIA TES FOR BRIEF PERIOD TO COMPLETE THE RESEARCH WORK TO B E RENDERED TO THE ABOVE ORGANIZATIONS WHICH ENGAGED T HE SERVICES OF THE ASSESSEE IN RESPECT OF PROFESSIONAL EXPERTISE. APART FROM THESE ALL OTHER EXPENSES ARE RELATING PURELY ADMINISTRATIVE IN NATURE. SIMILAR IS THE POSITION IN RESPECT OF F.Y. 2009-10 AS WELL. IN OR DER TO FIND OUT THE ACTUAL NATURE OF CHARITABLE ACTIVITY C ARRIED BY THE SOCIETY, ALL THE EXPENSES HAVE BEEN ANALYZED TO FIND OUT WHETHER ANY CHARITY HAS BEEN RENDERED IN THE IN STANT CASE. THERE IS NO CHARITY RENDERED BY THE ORGANIZA TION EXCEPT PROVIDING PROFESSIONAL SERVICES IN RESPECT O F ACCOUNTING STANDARDS AND POLICES TO VARIOUS ORGANIZATIONS. MOST OF PAYMENTS RECEIVED BY THE ASSESSEE SOCIETY ARE SUBJECT TO DEDUCTION OF TAX AT SOURCE, WHICH CLEARLY CATEGORIZES THE NATURE OF SER VICES RENDERED BY THE ACCOUNTING INSTITUTE. 8. IT IS NOT THE CASE THAT THE SOCIETY IS CARRYING OUT RESEARCH PROGRAMME IN THE ACCOUNTING STANDARDS AND MAKE IT AVAILABLE TO THE GENERAL PUBLIC FOR THEIR UTILIZATI ON ETC. INSTEAD, IT IS RENDERED TO SPECIFIC ORGANIZATION ON RECEIPT OF AMOUNT QUOTED AND MUTUAL NEGOTIATION LEVELS. AP ART FROM THE ABOVE ACTIVITIES THERE ARE CERTAIN EAR-MAR KED FUNDS RECEIVED FROM VARIOUS ORGANIZATIONS TO CARRY OUT ITA NO. 4097/D/11 10 SPECIFIC WORK AS PER THEIR TERMS AND CONDITIONS. A NY ACTIVITY CARRIED UNDER THESE SPECIFIC PROJECT CANNO T BE TERMED AS APPLICATION OF INCOME TOWARDS OBJECT FOR WHICH THE ASSESSEE SOCIETY IS ESTABLISHED. THE CRE DIT OF HAVING UTILIZED FUNDS FOR ANY PROJECT SHOULD GO TO THE FUNDING ORGANIZATION AND NOT THE EXECUTING ORGANIZA TION. IT IS SIMILAR TO A CONTRACTOR EXECUTING A TOLL BRID GE UNDER AN AGREEMENT FROM THE GOVERNMENT AGENCY, THE CONTRACTOR CANNOT CLAIM THAT BY VIRTUE OF CONSTRUCT ION OF THE TOLL BRIDGE, HE IS SERVING TO THE CAUSE OF THE PUBLIC IN EASING THE CONGESTION OF TRAFFIC ETC. THE CREDIT I S ALWAYS GOES TO THE GOVERNMENT AGENCY WHICH IN FACT PROVIDE D ALL THE RESOURCES AND THE ONLY JOB DONE BY THE CONT RACTOR IS TO EXECUTE THE SAME, WHETHER HE EARNED PROFIT OR NOT IMMATERIAL. PROVIDING PROFESSIONAL SERVICES IN RES PECT OF ACCOUNTING POLICIES TO A SPECIFIC ORGANIZATION IN L IEU OF CONSIDERATION OF MONEY DOES NOT AMOUNT TO CHARITY UNDER ANY CIRCUMSTANCES. THE ONLY CLAIM OF THE ASSESSEE SOCIETY ABOUT THE CHARITY IS TO RENDER SPE CIFIC PROJECTS WHICH ARE RELATING TO ACCOUNTING NORMS TO BE FOLLOWED BY THEM IN THEIR FINANCIAL MATTERS LIKE AN Y OTHER CONTRACTEE OR CONTRACTOR, IN THE INSTANT CASE ALSO THOSE GOVERNMENT OR OTHER AGENCIES ENGAGED THE PROFESSION AL BODY LIKE THE ASSESSEE SOCIETY, TO ADVICE ON ACCOUN TING POLICIES TO BE FOLLOWED BY THEM IN ORDER TO PROFESSIONALIZE THEIR ACCOUNTS. FOR WHICH SUBSTANT IAL AMOUNTS HAVE BEEN PAID TO THE ASSESSEE SOCIETY FOR GETTING THE JOB DONE BY THEM. THE ASSESSEE SOCIETY FAILED TO PROVIDE ANY EVIDENCE OF ACTIVITY WHICH IS ITA NO. 4097/D/11 11 CHARITABLE IN NATURE. ENGAGING RESEARCH ASSOCIATES CANNOT BE CALLED CHARITY BECAUSE THEY ARE TAKEN ON CONTRACT BASIS TO EXTRACT WORK FROM THEM ON PAYMENT OF A PARTICULAR CONSIDERATION. THE CHARITABLE WORK CA RRIED BY THE ASSESSEE SHOULD BENEFIT PUBLIC AT LARGE BUT NOT TO PARTICULAR ORGANIZATION. INSTEAD OF EXTENDING CHAR ITY TO THE SOCIETY AT LARGE, THE INSTITUTE INDULGED IN COM MERCIAL ACTIVITY BY PROVIDING PROFESSIONAL ADVICE TO ORGANI ZATION SEEKING THEIR HELP IN FORMULATING THEIR ACCOUNTING POLICIES TO MONETARY CONSIDERATION. SUCH ACTIVITY DO NOT FA LL UNDER CHARITABLE ACTIVITY AT ALL. MOREOVER AFTER AMENDMENT TO SECTION 2(15) W.E.F. A.Y. 2009-10 ONWARDS. IN THE WHOLE EXERCISE OF EXECUTING THE RESEARCH PROGRAMME, THE CHARITY IS MISSING. IT IS A PURE COMMERCIAL PROJECT, THOUGH PROFESSIONAL IN NAT URE. 9. IN VIEW OF AMENDED PROVISIONS OF SEC. 2(15) OF T HE INCOME TAX ACT, 1961, THE ACTIVITY OF THE SOCIETY D OES NOT FALL WITHIN THE MEANING OF CHARITABLE ACTIVITY, AS THE ACTIVITY OF PROVIDING CONSULTANCY SERVICES IN THE N AME OF RESEARCH WORK FOR CERTAIN GOVERNMENT ORGANIZATIONS, HIT BY THE AMENDED PROVISIONS OF SECTION 2(15), THUS, T HE SOCIETY IS NO LONGER IS CHARITABLE SOCIETY. IT IS ESTABLISHED BEYOND REASONABLE DOUBT THAT THE SOCIET Y HAS INTENTION TO CARRY OUT NON-CHARITABLE ACTIVITIE S AND THUS, VIOLATED THE PROVISIONS OF SECTION 2(15) AND THE ACTIVITY BY THE SOCIETY DOES NOT QUALIFY FOR REGIST RATION U/S 12A. ACCORDINGLY, REGISTRATION GRANTED U/S 12A TO THE ASSESSEE SOCIETY IS CANCELLED SINCE 2009-10 ONWARDS AFTER PROVIDING OPPORTUNITY TO THE ASSESSEE SOCIETY . ITA NO. 4097/D/11 12 9. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. 10. AT THE OUTSET, WE NOTE THAT THE ASSESSEE FOUNDA TIONS APPLICATION FOR EXEMPTION U/S 10(23C)(IV) FOR A.Y. 2007-08 ONWARDS WAS REJECTED BY THE DIT(EXEMPTIONS), DELHI VIDE HIS ORDER DATED 28.12.2007 BY GIVING IDENTICAL REASONS AS GIVEN BY HIM IN CANCELLING THE REGISTRATION U/S 12AA(3) O F THE ACT, WHICH ORDER WAS CHALLENGED BY WAY OF WRIT BEFORE TH E HONBLE HIGH COURT OF DELHI, WHERE THE ISSUE AS TO WHETHER VARIOUS ACTIVITIES CARRIED OUT BY THE FOUNDATION ARE CHARIT ABLE ACTIVITY WITHIN THE MEANING OF SEC. 2(15) OF THE ACT HAD COM E FOR CONSIDERATION (ICAI ACCOUNTING RESEARCH FOUNDATION & ANOTHER VS. DIRECTOR GENERAL OF INCOME TAX (EXEMPTI ON) & OTHERS REPORTED IN (2009) 183 TAXMAN 462 (DEL.) = ( 2010) 321 ITR 73 (DEL.). IN THE SAID DECISION, THE HONBLE H IGH COURT HAS NOTED THE OBJECTS OF THE ASSESSEE AS MENTIONED IN C LAUSE III-A OF ITS MEMORANDUM OF ASSOCIATION AND RELEVANT CLAUS E THEREOF AS UNDER: - 2. . TO CONCEIVE, ESTABLISH, PROMOTE, SPONSOR, TAKE OVER, OWN, RUN, ADMINISTER, OPERATE, MAINTAIN, ITA NO. 4097/D/11 13 EQUIP AND CONTROL AN ACADEMY FOR THE PURPOSE OF IMPARTING, DISSEMINATION, SPREADING AND PROMOTING KNOWLEDGE, LEARNING, EDUCATION AND UNDERSTANDING IN THE FIELDS OF ACCOUNTING, AUDITING, FISCAL LAWS AND POLICY, CORPORATE AND ECONOMIC LAWS AND POLICIES, ECONOMICS, FINANCIAL MANAGEMENT, FINANCIAL SERVICES, CAPITAL AND MONEY MARKETS, MANAGEMENT INFORMATION AND CONTROL SYSTEMS, MANAGEMENT CONSULTANCY SERVICES AND ALLIED DISCIPLINES BY ANY MEANS WHATSOEVER INCLUDING (I) CONCEIVING, FORMULATING, UNDERTAKING, CONDUCTIN G, FOSTERING, AIDING, PROMOTING AND PROVIDING FACILITIES FOR PROSECUTING, CORE, FUNDAMENTAL, EMPIRICAL, APPLIED AND OTHER KINDS OF RESEARCH WORK AND PROJECTS AND STUDIES, EITHER ON ITS OWN OR JOINTLY OR IN COLLABORATION WITH OR AT THE INSTA NCE OF OTHER PERSONS AND ENTITIES. (II) CONCEIVING, ORGANIZING, HOLDING, CONDUCTING AN D SPONSORING TRAINING PROGRAMMES, STUDY COURSES, LECTURES, MEETINGS, WORKSHOPS, SEMINARS, CONFERENCES AND SYMPOSIA EITHER ON ITS OWN OR JOINTLY OR AT THE INSTANCE OF OTHER PERSONS AND ENTITIES AND ALSO INSTITUTING AND ESTABLISHING AWARDS, AID, SCHOLARSHIPS AND FELLOWSHIPS. (III) CONCEIVING, PREPARATION, BRINGING OUT, PRINTI NG AND PUBLISHING EITHER ON ITS OWN OR THROUGH OR IN COLLABORATION WITH OTHER PERSONS AND ENTITIES, ITA NO. 4097/D/11 14 PAPERS, PERIODICALS, MAGAZINES, BOOKS, JOURNALS EITHER THROUGH PRINT OR ANY OTHER MEDIA. (IV) STARTING, ESTABLISHING, RUNNING, MAINTAINING A ND PROVIDING LIBRARY AND ELECTRONIC DATABASE AND EXCHANGE FACILITIES AND OTHER INFORMATION SERVICES. 11. THE HONBLE HIGH COURT THEN ANALYZED THE CLAUSE (V) & (VI) OF THE MEMORANDUM OF ASSOCIATION BY OBSERVING AS UNDER: 3. CLAUSES (V) AND (VI) OF THE MEMORANDUM OF ASSOCIATION SPECIFICALLY PROVIDE THAT INCOME AND PROPERTY OF THE COMPANY SHALL BE APPLIED SOLELY FOR PROMOTION OF ITS OBJECTIVES AND NO PORTION THEREOF SHALL BE PAID, DIRECTLY OR INDIRECTLY, BY W AY OF DIVIDEND, BONUS OR OTHERWISE BY WAY OF PROFIT TO THE MEMBERS. EVEN REMUNERATION OR OTHER BENEFIT IN MONIES IS NOT TO BE GIVEN BY THE COMPANY TO ANY OF ITS MEMBERS, WHETHER OFFICERS OR SERVANTS OF THE COMPANY OR NOT, WITHOUT THE PREVIOUS APPROVAL OF THE CENTRAL GOVERNMENT. LIKEWISE, MEMBERS ARE NOT TO BE APPOINTED TO ANY OFFICE UNDER THE COMPANY WHICH IS REMUNERATED BY SALARY, FEES OR IN ANY OTHER MANNER, WITHOUT THE PREVIOUS APPROVAL OF THE CENTRAL GOVERNMENT. EVEN THE ALTERATION IN THE MEMORANDUM OF ASSOCIATION OR ARTICLES OF ASSOCIATION OF THE COMPANY IS NOT PERMITTED ITA NO. 4097/D/11 15 WITHOUT SUBMITTING THE SAME TO THE CENTRAL GOVERNMENT AND OBTAINING ITS PRIOR APPROVAL. 12. AFTER GOING BY THE PURPOSE AND OBJECTIVE WITH W HICH THE ASSESSEES FOUNDATION WAS CREATED, THE HONBLE HIGH COURT HAS HELD THAT THE OBJECT OF THE ASSESSEE FOUNDATION WOULD FALL IN THOSE CATEGORY OF INSTITUTIONS WHICH ARE DEVOTED TO RESEARCH AND ARE OF CHARITABLE NATURE, AND WOULD THUS FALL W ITHIN THE EXPRESSION EDUCATION AS APPEARING IN THE DEFINITI ON OF CHARITABLE PURPOSE CONTAINED IN SEC. 2(15) OF THE A CT, AND HAS THUS, OBSERVED AS UNDER: - 6. IF ONE IS TO GO BY THE PURPOSE AND OBJECTIVE WITH WHICH THE PETITIONER FOUNDATION WAS CREATED, NAMELY, IMPARTING, SPREADING AND PROMOTING KNOWLEDGE, LEARNING EDUCATION, ETC. IN THE FIELDS RELATED TO THE PROFESSION OF ACCOUNTANCY, IT WILL CLEARLY FALL IN THOSE CATEGORY OF INSTITUTIONS WHIC H ARE DEVOTED TO RESEARCH AND ARE OF CHARITABLE NATURE. THE DEFINITION OF CHARITABLE PURPOSE IS CONTAINED IN SEC. 2(15) OF THE ACT, WHICH IS AS UNDER: CHARITABLE PURPOSE INCLUDES RELIEF TO THE POOR, EDUCATION, MEDICAL RELIEF, AND THE ADVANCEMENT OF ANY OTHER OBJECT OF GENERAL PUBLIC UTILITY. ITA NO. 4097/D/11 16 THE AFORESAID OBJECTIVE OF THE PETITIONER FOUNDATION WOULD FALL WITHIN THE EXPRESSION EDUCATION, AS APPEARING IN THE AFORESAID DEFINITION. THE VISION OF THE PETITIONER FOUNDATIO N IS TO ESTABLISH IT AS A CO-RESEARCH BODY WITH FACILITIES TO UNDERTAKE RESEARCH IN THE AREAS OF ACCOUNTING, AUDITING, CAPITAL MARKETS, FISCAL POLICIES AND OTHER RELATED DISCIPLINES AND TO DEVELOP QUALITY PRONOUNCEMENTS, DOCUMENTS, RESEARCH PAPERS ON THESE SUBJECTS. 13. IT WAS ALSO NOTICED BY THE HONBLE HIGH COURT T HAT AFFILIATION FROM GURU GOBIND SINGH INDRAPRASTHA UNI VERSITY FOR OFFERING PH.D. PROGRAMMES WAS GRANTED TO THE ASSESS EE FOUNDATION, AND AS A RESULT, IT ENROLLS RESEARCH FE LLOWS AND ON SUCCESSFUL COMPLETION OF RESEARCH STUDY, A DOCTORAL DEGREE IS GRANTED BY THE UNIVERSITY TO THOSE RESEARCH FELLOWS . 14. FURTHER, THE HONBLE HIGH COURT FOUND THAT DURI NG THE PAST FEW YEARS, THE OTHER PROJECTS AND THE NATURE O F RESEARCH CONDUCTED BY THE ASSESSEES FOUNDATION INCLUDED THE FOLLOWING: - 8. .................... (A) CORPORATE FINANCIAL COMMUNICATIONS; TRENDS AND PRACTICES OF BUSINESS GROUPS IN INDIA. ITA NO. 4097/D/11 17 THIS RESEARCH PROJECT SEEKS TO ASCERTAIN OBSERVABLE TRENDS IN CORPORATE FINANCIAL REPORTING PRACTICES OF COMPANIES IN INDIA (INCLUDING MNCS OPERATING IN INDIA) TO ESTABLISH HOW EFFICIENTLY, CLEARLY AND TRANSPARENTLY THE PERFORMANCE IS REFLECTED IN THE AUDITED FINANCIALS, IS COMMUNICATE D TO SHAREHOLDERS AND OTHER STAKEHOLDERS THROUGH MEDIUM OF ANNUAL REPORTS, CHAIRMAN SPEECHES AND DIRECTORS REPORT. (B) ISSUES IN ACCOUNTING VALUATION OF INTANGI BLES: THE RESEARCH PROJECT IS UNDERTAKEN WITH AN AIM TO ADDRESS THE ACCOUNTING ISSUES IN KNOWLEDGE BASED INDUSTRY WITH PARTICULAR REFERENCE TO BIOTECHNOLOGY INDUSTRY WHICH IS AN EMERGING KNOWLEDGE DRIVEN INDUSTRY IN INDIA AND PROMISES A VERY HIGH RATE OF GROWTH. THE INDUSTRY BASED ON HIGH RESEARCH AND KNOWLEDGE CONTENT GIVES RISE TO VARIOUS TYPES OF INTANGIBLE ASSETS LIKE PATENTS, INTELLECTUAL PROPER TY RIGHTS, TECHNICAL KNOW-HOW AND HUMAN RESOURCES. THE STUDY IS INTENDED TO FOCUS ON THE ACCOUNTING PRINCIPLES, POLICIES AND PRACTICES FOLLOWED FOR RECOGNITION, MEASUREMENT AND DISCLOSURE OF SUCH ASSETS. (C) DEVELOPING A CODE FOR GOVERNANCE OF NON- GOVERNMENTAL ORGANIZATIONS (NGOS): THE RESEARCH STUDY PRIMARILY FOCUSES ON GOVERNANCE IN NGOS. (D) ELECTRONIC COMMERCE AND DIRECT TAXATION: ITA NO. 4097/D/11 18 THE OBJECTIVE OF THE RESEARCH PROJECT IS TO BRING O UT A PUBLICATION DESCRIBING THE ELECTRONIC COMMERCE, THE SIGNIFICANCE AND THE ISSUES WHICH ARISE IN THE CONTEXT OF APPLICATION OF EXISTING INCOME-TAX LAWS. (E) LEGAL PROTECTION OF INTELLECTUAL PROPERTY RIGH TS IN INFORMATION TECHNOLOGY INDUSTRY: THE RESEARCH PROJECT TITLED LEGAL PROTECTION OF INTELLECTUAL PROPERTY RIGHTS IN INFORMATION TECHNOL OGY INDUSTRY UNDER THE INFOSYS FELLOWSHIP RESEARCH SCHEME IS ALSO TAKEN UP. CERTAIN CHANGES HAVE BEEN CONTEMPLATED IN THE INFOSYS FELLOWSHIP SCHEME AGREEMENT, WITH A FOCUS TO ENLARGE THE SCOPE OF THE AGREEMENT TO INCLUDE THE RESEARCH SCHOLARS PURSUING PH.D. FROM OTHER REPUTED UNIVERSITIES, TO BECOME ELIGIBLE UNDER THE INFOSYS FELLOWSHIP RESEARCH PROGRAMME. (F)RESEARCH STUDY ON RECOGNITION, MEASUREMENT AND DISCLOSURE ISSUES IN BIO-TECHNOLOGY AND OTHER LIFE SCIENCE COMPANIES, INFORMATION TECHNOLOGY (IT) COMPANIES AND ADVERTISEMENT COMPANIES: A GROUP OF RECOGNITION, MEASUREMENT AND DISCLOSURE ISSUES IN BIO-TECHNOLOGY AND OTHER LIFE SCIENCE COMPANIES, INFORMATION TECHNOLOGY (IT) COMPANIES AND ADVERTISEMENT COMPANIES WAS SET UP WITH THE REPRESENTATIVES FROM THE OFFICE OF THE COMPTROLLER & AUDITOR GENERAL OF INDIA, THE INSTITU TE OF CHARTERED ACCOUNTANTS OF INDIA, TECHNOLOGY DEVELOPMENT BOARD, TECHNOLOGY NETWORKING AND BUSINESS DEVELOPMENT DIVISION (CSIR), CONSULTANTS ITA NO. 4097/D/11 19 DEVELOPMENT COUNCIL, AND THE INDUSTRY. BASED ON THE PRESENTATION MADE BY THE LEADING COMPANIES IN THE AREAS, THE STUDY GROUP CIRCULATED A QUESTIONNAI RE COVERING ACCOUNTING AND DISCLOSURE ISSUES TO A LARG E NUMBER OF COMPANIES. THE RESPONSE RECEIVED IS BEING COLLATED, ANALYZED AND EXAMINED TOGETHER WITH ACCOUNTING POLICIES AND PRACTICES BEING FOLLOWED IN OTHER COUNTRIES. (G) DEVELOPING A CODE OF GOVERNANCE OF NON-PROFIT ORGANIZATIONS (NPOS): THE STUDY ON CODE OF GOVERNANCE FOR NON-PROFIT ORGANIZATION (NPOS) SECTOR IS UNDERWAY. THE DRAFT OF THE STUDY PREPARED BY INVESTMENT INFORMATION AND CREDIT RATING AGENCY OF INDIA LTD. (ICRA) ON THE ABOVE SUBJECT IS CONSIDERED BY THE EXPERT GROUP OF THE PETITIONER FOUNDATION. THE STUDY PURPOSES TO SUGGEST THE MODEL CODE OF GOVERNANCE FOR SUCH ORGANIZATIONS AND WOULD BE BROUGHT OUT AS A RESEARCH PUBLICATION UNDER THE PETITIONER FOUNDATIO N. (H) ELECTRONIC COMMERCE AND DIRECT TAXATION: IN THIS PROJECT THE STUDY ON ELECTRONIC COMMERCE AN D DIRECT TAXATION COMMISSIONER IS UNDERTAKEN. (I) FINANCIAL AND ACCOUNTING REFORMS, CAPACITY BUIL DING AND RELATED STRATEGIES: THE PETITIONER FOUNDATION JOINED THE ICAI AS CO- PARTNER FOR SUBMISSION OF PROPOSALS FOR CARRYING OU T RESEARCH IN THE AREA OF FINANCIAL STATEMENTS AND ACCOUNTING REFORMS TO THE SMALL PROJECTS FACILITY PROGRAMME (EUROPEAN UNION PROJECTS). OUT OF THE ITA NO. 4097/D/11 20 ABOVE PROPOSALS SUBMITTED, THE PROPOSAL TITLED FINANCIAL AND ACCOUNTING REFORMS, CAPACITY BUILDIN G AND RELATED STRATEGIES WAS ACCEPTED. AS PER THE SCOPE OF THE PROJECT, A DETAILED STUDY ON NINE SHOR T LISTED URBAN LOCAL BODIES ON DEVELOPMENT OF INSTITUTIONAL FRAMEWORK ALONG WITH STRATEGIES DIREC TED TOWARDS BUILDING CAPACITY FOR UNDERTAKING THE SUGGESTED REFORMS HAS BEEN CARRIED OUT. AS A PRECURSOR TO THIS PROJECT, THE PETITIONER FOUNDATIO N HAS FINANCED A PROJECT ON EVALUATING THE CAPACITY F OR FINANCIAL AND ACCOUNTING REFORMS IN THE CITIES OF AMRITSAR, JALANDHAR, LUDHIANA, CHANDIGARH, SHIMLA, DELHI, KOLKATA, CHENNAI, MUMBAI, NASIK, BARODA & AHMEDABAD. THE RESEARCH REPORT WAS CIRCULATED TO VARIOUS CONCERNED AGENCIES INCLUDING THE WORLD BANK AND ASIAN DEVELOPMENT BANK. (J) IMPACT OF INTERNATIONAL ACCOUNTING STANDARDS/INTERNATIONAL FINANCIAL REPORTING STANDAR DS ON THE WIDER STAKEHOLDERS: THE OXFORD UNIVERSITY OF BUSINESS SCHOOL (ACCOUNTING) HAS SENT A REQUEST TO THE PETITIONER FOUNDATION FOR COLLABORATING WITH THEM FOR A RESEAR CH PROJECT ON IMPACT OF INTERNATIONAL ACCOUNTING STANDARDS/INTERNATIONAL FINANCIAL REPORTING STANDAR DS ON THE WIDER STAKEHOLDERS. ITA NO. 4097/D/11 21 15. THE HONBLE HIGH COURT THEN TOOK NOTE OF VARIOU S OTHER RESEARCH PROJECTS OF VARIED NATURE AND HAS THUS OBS ERVED AS UNDER: - 9. THERE ARE VARIOUS OTHER RESEARCH PROJECTS OF VARIED NATURE AND IT WOULD NOT BE NECESSARY TO INCORPORATE ALL THESE ACTIVITIES AS THE AFORESAID PROJECTS GIVE SUFFICIENTLY FAIR IDEA OF THE ACTIVITIES OF THE PETITIONER FOUNDATION. IT HAS ALSO PLANS TO EVEN SET UP ICAI UNIVERSITY, FOR WHICH ACTION HAS ALREADY BEEN INITIATED. IT ALSO CONTEMPLATES TO TAKE STRATEGIC INITIATIVE TO CARRY OUT THE PROCESS OF RESEARCH STUDIES AND IN THIS BEHALF THE MOVE IS TO LAUNCH THE PROMOTIONAL CAMPAIGN FOR ESTABLISHING DIRECT CONTRACT WITH THE UNIVERSITIES AND OTHER BODIES ON THE ONE HAND AND REACHING OUT TO THE POTENTIAL RESEARCHER THROUGHOUT THE COUNTRY ON THE OTHER. 16. IN THE LIGHT OF THE VARIOUS ACTIVITIES AND RESE ARCH PROJECTS OF VARIED NATURE DISCUSSED ABOVE, THE HONBLE HIGH COURT HAD THUS, TAKEN A VIEW THAT THERE IS NOT EVEN AN IOTA O F DOUBT THAT THE PETITIONER FOUNDATION IS INVOLVED IN EDUCATION AND, THUS, MEETS THE DESCRIPTION OF CHARITABLE INSTITUTION. T HE RELEVANT PORTION OF THE ORDER IS AS UNDER: - ITA NO. 4097/D/11 22 10. ON THE BASIS OF THE AFORESAID ACTIVITIES, THERE IS NOT EVEN AN IOTA OF DOUBT THAT THE PETITIONER FOUNDATION IS INVOLVED IN EDUCATION AND, THUS, MEETS THE DESCRIPTION OF CHARITABLE INSTITUTION. 17. WITH REGARD TO THE ALLEGATION OF THE DEPARTMENT THAT THE ASSESSEE FOUNDATION HAS MAINLY DONE CONTRACT WORK, FOR WHICH IT HAS RECEIVED CERTAIN PAYMENTS; AND THESE ACTIVIT IES ARE BASICALLY THE JOBS DONE FOR THIRD PARTIES FOR CONSI DERATION RECEIVED; AND, THEREFORE, THE PETITIONER FOUNDATION IS PROVIDING PROFESSIONAL SERVICES ON REGULAR BASIS, WHICH AMOUN T TO DOING BUSINESS OF PROVIDING PROFESSIONAL SERVICES; AND SI NCE PROFESSIONAL SERVICES IS A COMMERCIAL ACTIVITY, IT CANNOT BE TAKEN AS A CHARITABLE ACTIVITY, THE HONBLE HIGH COURT HAS OBSERVED AND ANALYZED THE POSITION AS UNDER: - 12. .. PARTICULARS OF THE VARIOUS SUCH JOBS UNDERTAKEN BY THE PETITIONER FOUNDATION AND THE AMOUNTS RECEIVED FOR THOSE CONSULTANCY SERVICES ARE ALSO STATED IN THE IMPUGNED ORDERS. THOSE DETAILS INDICATE THAT THEY BROADLY FALL IN TWO CATEGORIES, WHICH ARE AS UNDER: (A) THE PETITIONER FOUNDATION IS PROVIDING RESEARC H AND CONSULTANCY SERVICES TO VARIOUS GOVERNMENT BODIES; THE PAYMENTS ARE MADE BY THESE GOVERNMENT BODIES AND HAVE BEEN ACCOUNTED ITA NO. 4097/D/11 23 FOR BY THE PETITIONER FOUNDATION UNDER THE HEAD RESEARCH CONTRIBUTIONS. THE PAYMENTS SO RECEIVED ARE THEN USED FOR MAKING THE PAYMENT TO RESEARCHERS/CONSULTANTS HIRED BY THE PETITIONER TO CARRY OUT THE RESEARCH WORK. THE PARTICULARS SHOWN INDICATE THAT THREE GOVERNMENT PROJECTS WERE UNDERTAKEN BY THE PETITIONER FOUNDATION, NAMELY, THAT OF THE MUNICIPAL CORPORATION OF DELHI (MCD), KOLKATA MUNICIPAL CORPORATION (KMC) PROJECT AND STRENGTHENING RURAL DECENTRALIZATION (SRD) PROJECT. THE REPRESENTATIVE OF THE PETITIONER FOUNDATION HAD URGED BEFORE RESPONDENT NO. 1 THAT THESE WERE NOT THE BUSINESS/COMMERCIAL ACTIVITIES BUT SIMPLY RESEARCH ACTIVITIES AND, IN FACT, EXPERTISE WAS PROVIDED TO THE AFORESAID BODIES WHO WANTED TO STREAMLINE THEIR ACCOUNTING SYSTEM. IT WAS, THEREFORE, IN THE NATURE OF RESEARCH ACTIVITY ONLY. THIS PLEA, HOWEVER, IS BRUSHED ASIDE BY RESPONDENT NO. 1 IN THE FOLLOWING TERMS: VI. THE CONTENTION OF THE APPELLANT THAT THE RESEARCH ACTIVITIES ARE NOT ANY BUSINESS/COMMERCIAL ACTIVITIES BUT SIMPLY RESEARCH ACTIVITIES PROVIDED TO VARIOUS BODIES FOR OBTAINING THE OBJECTS OF THE FOUNDATION AND ARE BENEFICIAL TO THE PUBLIC AT LARGE, IS NOT ACCEPTABLE. THE APPLICANT IS CARRYING ON BUSINESS ACTIVITIES OF RESEARCH AND CONSULTANCY WORK ON ITA NO. 4097/D/11 24 CONSIDERATION RECEIVED FROM GOVERNMENT AND NON-GOVERNMENT ORGANIZATIONS. ACTIVITIES OF THE APPLICANT ARE AKIN TO A CONTRACTOR PROVIDING GOODS OR SERVICES TO A CHARITABLE HOSPITAL. THE HOSPITAL MAY BE DOING CHARITY BY PROVIDING MEDICAL SERVICES, BUT CONTRACTOR PROVIDING GOODS AND SERVICES FOR CONSIDERATION CANNOT BE SAID TO BE ENGAGED IN CHARITABLE ACTIVITIES. ANOTHER EXAMPLE COULD BE OF A PROFESSOR IN AN EDUCATIONAL INSTITUTION. AN EDUCATIONAL INSTITUTION MAY BE PROVIDING CHARITY BUT PROFESSOR RENDERING SERVICES FOR SALARY IS NOT DOING CHARITY. (B) THE PETITIONER FOUNDATION HAD ALSO RECEIVED MO NIES FROM INFOSYS TECHNOLOGIES LIMITED IN THE FORM OF INFOSYS FELLOWSHIP FUND. THOUGH IT IS FOR GRANT OF FELLOWSHIP TO DESERVING CANDIDATES UNDER THE FELLOWSHIP PROGRAMME OF THE FOUNDATION IN AFFILIATION WITH THE GURU GOBIND SINGH INDRAPRASTHA UNIVERSITY, RESPONDENT NO. 1 WAS OF THE VIEW THAT EVEN FROM THIS IT WOULD BE CONCLUDED THAT THE PETITIONER FOUNDATION IS NOT DOING CHARITABLE ACTIVITY BECAUSE OF THE REASONS STATED IN THIS MANNER. VII. REGARDING THE SCHEME OF GRANTING STIPEND AND FELLOWSHIP TO STUDENTS, IT IS NOTICED THAT FUNDS FOR THE SAME ARE BEING PROVIDED BY INFOSYS TECHNOLOGIES LTD. AS ITA NO. 4097/D/11 25 PER THE AGREEMENT SIGNED WITH INFOSYS TECHNOLOGIES LTD., IT IS FOUND THAT ENTIRE ENDOWMENT AMOUNT OF RS. 9,00,000 PER FELLOW IS TO BE PROVIDED BY INFOSYS TECHNOLOGIES LTD. IF A FELLOW LEAVES IN THE MIDDLE OF THE PROGRAMME, OR FINISHES EARLY WITH FUNDS LEFT IN THE ACCOUNT, INFOSYS WILL DECIDE HOW THE MONEY IS TO BE SPENT. THIS SHOWS THAT THIS STIPEND AND FELLOWSHIP ARE BEING FUNDED BY INFOSYS TECHNOLOGIES LTD. WITH THE APPLICANT PLAYING ONLY THE ROLE OF A FACILITATOR. HENCE, THE APPLICANT CANNOT BE SAID TO BE DOING ANY CHARITABLE ACTIVITY IN THIS REGARD. RESPONDENT NO. 1 WAS ALSO OF THE VIEW THAT EVEN IF IT IS CONSIDERED THAT THE PETITIONER FOUNDATION WAS CARRYING ON SOME OTHER CHARITABLE ACTIVITIES, SEPARATE BOOKS OF ACCOUNT WERE REQUIRED TO BE MAINTAINED IN RESPECT OF BUSINESS OF PROVIDING CONTRACTUAL SERVICES TO VARIOUS GOVERNMENT BODIES AS PER THE PROVISO TO SECTION 10(23C)(IV) OF THE ACT, WHICH WAS NOT BEING DONE BY THE PETITIONER FOUNDATION. 13. THE SUBMISSION OF LEARNED COUNSEL FOR THE PETITIONER IN THIS BEHALF WAS THAT THE MAIN ACTIVITIES OF THE PETITIONER FOUNDATION CARRIED OUT ALL ALONG WERE EDUCATIONAL AND, THUS, CHARITABLE IN NATURE. THE AFORESAID ACTIVITIES ARE INCIDENTAL TO ITA NO. 4097/D/11 26 THE ATTAINMENT OF ITS OBJECTIVE. THE EXPLANATION OF THE PETITIONER IS THAT AT THE INSTANCE OF THE AFORESAID LOCAL BODIES, NAMELY, MCD, KMC AND SRD, THE PETITIONER FOUNDATION TOOK UP THREE PROJECTS WITH THE SOLE AIM AND ENDEAVOUR TO IMPROVE AND REFORM PREPARATION AND PRESENTATION OF ACCOUNTS AND ACCOUNTING PROCESS, FINANCIAL ANALYSIS AND MANAGEMENT PRACTICES IN THESE URBAN LOCAL BODIES. IT IS EXPLAINED THAT THE MCD PROJECT WAS TAKEN UP BY THE PETITIONER FOUNDATION IN MARCH, 2002, AND WAS SUCCESSFULLY COMPLETED ON MAY 31, 2006. THIS PROJECT AROSE OUT OF THE DECISION OF THE GOVERNMENT OF INDIA TO IMPLEMENT ACCRUAL BASED ACCOUNTING REFORM IN THE THIRD YEAR OF THE GOVERNMENT. THIS WAS A NEW INITIATIVE IN INDIA WHERE THE COMPTROLLER & AUDITOR GENERAL (CAG) HAD NO PRIOR EXPOSURE. THEREFORE, THERE WAS NEED FOR COLLECTION AND ASSIMILATION OF DATA AND EXPERIENCE. THIS BODY, THUS, WANTED TO UTILIZE THE EXPERTISE OF THE PETITIONER FOUNDATION BY UNDERTAKING THIS PROJECT OF APPLIED/FILED RESEARCH. THE NATURE OF WORK WAS ESSENTIALLY RESEARCH. BASED ON THE STUDY UNDERTAKEN BY THE PETITIONER FOUNDATION, PUBLICATION TITLED CONVERSION OF ACCOUNTS OF MUNICIPAL BODIES TO ACCRUAL BASIS ISSUES, CONCERNS AND STRATEGIES HAS BEEN PUBLISHED AND MADE AVAILABLE TO THE PUBLIC AT LARGE. THUS, ACCORDING TO THE PETITIONER FOUNDATION, IT ASSISTED THE MCD IN PREPARING AND ITA NO. 4097/D/11 27 PRESENTING THEIR ANNUAL FINANCIAL STATEMENTS, COMPREHENSIVE ANNUAL FINANCIAL REPORTS, COMPREHENSIVE RECONSTRUCTING OF THE BUDGET HEADS AS WELL AS REFINING THEIR ACCOUNTING PROCESS IN THEIR VARIOUS ZONES, HAND HOLDING AND ASSISTANCE IN SETTING UP THE FINANCIAL MANAGEMENT AND BUDGET OFFICE. THE PETITIONER FOUNDATION HAD ALSO CARRIED OUT NUMBER OF TRAINING PROGRAMMES FOR THE CORE GROUP OF NODAL OFFICERS OF MCD FOCUSING ON DOUBLE-ENTRY ACCOUNTING SYSTEM, COMPUTER AWARENESS, BANK RECONCILIATION AND FAMILIARIZATION WITH NEW DATA FORMATS. IN THE IMPLEMENTATION OF THE FUND BASED ACCRUAL SYSTEM, THE PETITIONER FOUNDATION ALSO ASSISTED MCD IN INTRODUCING BEST PRACTICES WHICH ARE BEING FOLLOWED IN LEADING MUNICIPAL CORPORATIONS WORLD OVER. 14. LIKEWISE, THE KOLKATA MUNICIPAL CORPORATION PROJECT WAS TAKEN UP BY THE PETITIONER FOUNDATION IN JULY, 2004 BECAUSE IT INVOLVED FURTHER STUDY OF SOME UNIQUE CHARACTERISTICS DIFFERENT FROM THE ABOVE. THIS WAS SUCCESSFULLY COMPLETED IN SEPTEMBER, 2007. DURING THIS PERIOD, THE PETITIONER FOUNDATION ASSISTED KOLKATA MUNICIPAL CORPORATION IN THE PREPARATION OF ITS FINANCIAL ACCOUNTS, CARRIED OUT A NUMBER OF STUDIES ON BUSINESS PROCESS RE-ENGINEERING, AND ALSO CONDUCTED VARIOUS MANAGEMENT TRAINING PROGRAMMES FOR CAPACITY BUILDING ETC. THE ITA NO. 4097/D/11 28 PETITIONER FOUNDATION DEMONSTRATED TO THE MUNICIPAL CORPORATION THE EFFECTS OF WHAT IMPROVED PRESENTATION OF ACCOUNTS CAN ACHIEVE, WHAT IMPROVED FINANCIAL ANALYSIS AND MANAGEMENT PRACTICES CAN PROVIDE AND SUBMITTED ITS FINDINGS. THE PETITIONER FOUNDATION ALSO ASSISTED THE MUNICIPAL CORPORATION IN PREPARING REPORT ON SUSTAINABILITY, CONTAINING SPECIFIC RECOMMENDATIONS OF INTEGRATED CAPACITY BUILDING EXERCISE WITH ORGANIZATIONAL CHANGES, AND STANDARDIZED FORMATS OF FINANCIAL STATEMENTS AND ESTABLISHED AUDIT TRAILS. THE KOLKATA MUNICIPAL CORPORATION WAS ALSO PROVIDED BY THE PETITIONER FOUNDATION WITH A CLEAR ROAD MAP FOR STRENGTHENING ITS INTERNAL AUDIT DEPARTMENT. 15. IN STRENGTHENING RURAL DECENTRALIZATION (SRD) PROJECT, THE TEAM OF THE PETITIONER FOUNDATION CARRIED OUT FILED VISITS TO VARIOUS GRAM PANCHAYATS (GPS) AND GRAM UNNAYAN SAMITIS (GUSS) SPREAD ACROSS THE 6 SRD DISTRICTS AND OTHER NON-SRD DISTRICTS OF WEST BENGAL. IN THESE FIELD VISITS, T HE TEAM OF THE PETITIONER FOUNDATION CARRIED OUT STUDY OF AND ASSISTED IN FRAMING PROPER ACCOUNTING, AUDITING AND PROCUREMENTS SYSTEM AND PROCEDURE IN THE CASE OF GPS AND GUSS, AS A DELIVERABLE ACCOUNTING MANUAL, INTERNAL AUDIT MANUAL, AS WELL AS THE PROCUREMENT MANUAL. 16. THE AFORESAID DESCRIPTION OF THE THREE PROJECTS GIVEN BY THE PETITIONER FOUNDATION FINDS SUPPORT ITA NO. 4097/D/11 29 FROM THE ANNUAL REPORTS AS WELL AS OTHER DOCUMENTS PRODUCED AND ANNEXED BY THE PETITIONER FOUNDATION WITH THIS WRIT PETITION. 17. IT CLEARLY FOLLOWS THAT EVEN THESE THREE PROJECTS WERE THE RESEARCH PROJECTS WHICH WERE GIVEN TO THE PETITIONER FOUNDATION HAVING REGARD TO ITS EXPERTISE IN THIS FIELD. THEREFORE, THESE ACTIVITI ES PER SE WOULD NOT BRING THE PETITIONER FOUNDATION OUT OF THE AMBIT OF SECTION 2(15) OF THE ACT. IT C AN BE SAID THAT THE ACTIVITIES AMOUNTED TO ADVANCEMENT OF ANY OTHER OBJECT OF GENERAL PUBLIC UTILITY WHICH ALSO APPEARS IN THE DEFINITIO N OF CHARITABLE PURPOSE IN SECTION 2(15) OF THE ACT. THE ONLY ASPECT, IN THIS BACKDROP, WHICH NEEDS TO BE CONSIDERED IS AS TO WHETHER CHARGING OF AMOUNT FROM THE MCD, KMC ETC. FOR UNDERTAKING THESE RESEARCH PROJECTS WOULD MAKE THE ACTIVITY COMMERCIAL, AS HELD BY RESPONDENT NO. 1 IN THE IMPUGNED ORDER. BEFORE WE ANSWER THIS, IT WOULD BE APPOSITE TO TAKE NOTE OF SOME OF THE JUDGMENTS DEFINING CHARITABLE PURPOSE. 18. AFTER MAKING A REFERENCE TO THE DECISION OF THE SAME HIGH COURT IN THE CASE OF ADDL. CIT VS. HAMDARD DAV AKHANA (WAKF) (1986) 157 ITR 639, AND DECISION OF MADRAS HIGH COURT IN THE CASE OF CIT VS. K.S. VENKATASUBBIAH ITA NO. 4097/D/11 30 REDDIAR(1996), 221 ITR 18, THE HONBLE DELHI HIGH COURT HAS HELD AND CONCLUDED AS UNDER: - 20. THE PRINCIPLES WHICH ARE LAID DOWN IN BOTH THE AFORESAID CASES PROVIDE COMPLETE ANSWER TO THE ISSUE AT HAND. IT IS TO BE NOTED THAT THE AFORESAI D PROJECTS UNDERTAKEN ON BEHALF OF THESE LOCAL BODIES IS NOT A REGULAR ACTIVITY OF THE PETITIONER FOUNDATION. THE PRIMARY ACTIVITY REMAINS THE SAME, NAMELY, RESEARCH IN ACCOUNTING RELATED FIELDS. EVEN THESE PROJECTS WHICH WERE TAKEN UP ON BEHALF OF THOSE LOCAL BODIES FIT IN THE DESCRIPTION OF RESEARCH PROJECTS, WHICH CAN BE TERMED AS ANCILLARY ACTIVITY ONLY. THE CIRCUMSTANCES UNDER WHICH THE PROJECTS WERE UNDERTAKEN MAKE IT CLEAR THAT IT WAS AT THE INSTANCE OF THE GOVERNMENT OF INDIA OR THE STATE GOVERNMENT FOR IMPROVING THE ACCOUNTING AND BUDGETARY SYSTEMS IN THESE LOCAL BODIES. THE EXPERTISE OF THE PETITIONER FOUNDATION IN CARRYING OUT RESEARCH IN THIS FILED WAS SOUGHT TO BE UTILIZED. THEREFORE, IT CANNOT CONSTITUTE BUSINESS/COMMERCIAL ACTIVITY. MERELY BECAUSE SOME REMUNERATION WAS TAKEN BY THE PETITIONER FOUNDATION FOR UNDERTAKING THESE PROJECTS WOULD NOT ALTER THE CHARACTER OF THESE PROJECTS, WHICH REMAINED RESEARCH AND CONSULTANCY WORK. IT IS SO CATEGORICALLY HELD IN HAMDARD DAWAKHANA [1986] 157 ITR 639 (DELHI). THE IMPORTANT TEST IS ITA NO. 4097/D/11 31 THE APPLICATION OF THE AMOUNTS RECEIVED FROM THOSE PROJECTS. IT IS NOWHERE DISPUTED THAT THE RECEIPTS ARE UTILIZED BY THE PETITIONER FOUNDATION FOR ADVANCEMENT OF ITS OBJECTIVES. THE MEMORANDUM OF ASSOCIATION SPECIFICALLY STIPULATES THAT THESE ARE NOT TO BE DISTRIBUTED TO THE MEMBERS AS DIVIDENDS OR PROFITS. IT IS CLEAR THAT MOST OF THE AMOUNT RECEIVED QUA THESE PROJECTS WAS SPENT ON THE PROJECT AND SURPLUS, IF ANY, IS USED FOR ADVANCEMENT OF THE OBJECTIVES FOR WHICH THE PETITIONER FOUNDATION IS ESTABLISHED. 21. THE AMENDED DEFINITION OF CHARITABLE PURPOSE WOULD NOT ALTER THIS POSITION. NO DOUBT, THE PROVISO TO THIS DEFINITION CLARIFIES THAT ADVANCEMENT OF ANY OTHER OBJECT OF GENERAL PUBLIC UTILITY WILL NOT BE TREATED AS CHARITABLE PURPOSE IF IT INVOLVES THE CARRYING ON OF ANY ACTIVITY IN THE NATURE OF TRADE, COMMERCE OR BUSINESS OR ANY ACTIVITY OF RENDERING SERVICE IN RELATION TO TRADE, COMMERCE OR BUSINESS. HOWEVER, WHAT IS NOT APPRECIATED BY RESPONDENT NO. 1 IS THAT MERELY ON UNDERTAKING THOSE THREE RESEARCH PROJECTS AT THE INSTANCE OF THE GOVERNMENT/LOCAL BODIES, THE ESSENTIAL CHARACTER OF THE PETITIONER FOUNDATION CANNOT BE CONVERTED INTO ONE WHICH CARRIES ON CANNOT BE TREATED AS THE ACTIVITY WHICH CARRIES ON TRADE, COMMERCE OR ITA NO. 4097/D/11 32 BUSINESS OR ACTIVITY OF RENDERING ANY SERVICE IN RELATION TO TRADE, COMMERCE OR BUSINESS. 22. THE ONLY ASPECT WHICH REMAINS TO BE CONSIDERED RELATES TO THE SCHOLARSHIPS INTRODUCED BY THE INFOSYS TECHNOLOGIES LTD. THE AMOUNT RECEIVED FROM THIS COMPANY IS IN THE FORM OF INFOSYS FELLOWSHIP FUNDS, WHICH HAS BEEN CREATED FOR GRANTING FELLOWSHIPS TO THE DESERVING CANDIDATES UNDER THE PROPOSED FELLOWSHIP PROGRAMME IN AFFILIATION TO THE GURU GOBIND SINGH INDRAPRASTHA UNIVERSITY. THE ANNUAL REPORTS GIVE DETAILS OF THE WORKING OF THIS FELLOWSHIP. THE PETITIONER FOUNDATION HAS CONSTITUTED AN EXPERT COMMITTEE FOR SELECTION OF CANDIDATES FOR INFOSYS FELLOWSHIP RESEARCH PROGRAMME. FOR THIS PURPOSE, ADVERTISEMENTS ARE ISSUE AND APPLICATIONS INVITED FROM CANDIDATES INTERESTED IN PURSUING THE RESEARCH WITH THE PETITIONER FOUNDATION UNDER THE SAID SCHEME. ON THAT BASIS, THE CANDIDATES ARE SELECTED TO CONDUCT RESEARCH, WHO ARE ASSIGNED RESEARCH PROJECTS. FOR EXAMPLE, ONE CANDIDATE WAS AWARDED THIS FELLOWSHIP ON THE RESEARCH PROJECT LEGAL PROTECTION OF INTELLECTUAL PROPERTY IN INFORMATION TECHNOLOGY INDUSTRY. THE COMPLETION OF SUCH RESEARCH PROJECTS LEAD TO AWARD OF DOCTORAL DEGREE BY THE GURU GOBIND SINGH INDRAPRASTHA UNIVERSITY. SURPRISINGLY, ONLY ON THE FIGMENT OF IMAGINATION THAT A FELLOW LEAVES IN THE MIDDLE OF THE PROGRAMME OR FINISHES EARLY ITA NO. 4097/D/11 33 WITH FUNDS LEFT IN THE ACCOUNT, AS INFOSYS IS TO DECIDE AS TO HOW THE MONEY IS TO BE SPENT, WITH THE PETITIONER FOUNDATION PLAYING THE ROLE OF A FACILITATOR, RESPONDENT NO. 1 HAS CONCLUDED THAT THE PETITIONER FOUNDATION COULD NOT BE SAID TO BE DOING ANY CHARITABLE ACTIVITY IN THIS REGARD. IT I S TOO PRESUMPTUOUS A REASONING. WHAT IS IGNORED IS THAT EVEN IF SUCH EVENTUALITY OCCURS MONEY HAS TO BE SPENT FOR THE PURPOSE FOR WHICH IT IS ALLOCATED, NAMELY, FELLOWSHIP. THE ESSENTIAL CHARACTER OF THIS FELLOWSHIP IS THAT A STUDENT IS GIVEN THE FELLOWSHIP/SCHOLARSHIP FOR UNDERTAKING RESEARCH PROJECTS. WE FAIL TO UNDERSTAND AS TO HOW THIS ESSENTIAL CHARACTER OF THE FELLOWSHIP WOULD ALTER MERELY BECAUSE OF DISTANT POSSIBILITY OF A FELLOW LEAVING IN THE MIDDLE OF THE PROGRAMME OR FINISHING HIS RESEARCH EARLY. 23. ONE SIGNIFICANT ASPECT WHICH IS TOTALLY IGNORED BY RESPONDENT NO. 1 IS THAT THE PETITIONER FOUNDATION IS A DEEMED COMPANY UNDER SECTION 25 OF THE COMPANIES ACT. THIS SECTION READS AS UNDER: 25. POWER TO DISPENSE WITH LIMITED IN NAME OF CHARITABLE OR OTHER COMPANY. (1) WHERE IT IS PROVED TO THE SATISFACTION OF THE CENTRAL GOVERNMENT THAT AN ASSOCIATION (A) IS ABOUT TO BE FORMED AS A LIMITED COMPANY FOR PROMOTING COMMERCE, ART, ITA NO. 4097/D/11 34 SCIENCE, RELIGION, CHARITY OR ANY OTHER USEFUL OBJECT, AND (B) INTENDS TO APPLY ITS PROFITS, IF ANY, OR OTHER INCOME IN PROMOTING ITS OBJECTS, AND TO PROHIBIT THE PAYMENT OF ANY DIVIDEND TO ITS MEMBERS, THE CENTRAL GOVERNMENT MAY BY LICENCE, DIRECT THAT THE ASSOCIATION MAY BE REGISTERED AS A COMPANY WITH LIMITED LIABILITY, WITHOUT THE ADDITION TO ITS NAME OF THE WORD LIMITED OR THE WORDS PRIVATE LIMITED THUS, THE STATUS WHICH IS GRANTED BY THE GOVERNMENT ITSELF IS THE RECOGNITION OF THE FACT THAT THE PETITIONER FOUNDATION IS ESSENTIALLY ESTABLISHED FOR THE PURPOSE OF EDUCATION AND/OR FOR ADVANCEMENT OF ANY OTHER PROJECT OF GENERAL PUBLIC UTILITY. 19. IN THE LIGHT OF THE AFORESAID DECISIONS OF HON BLE DELHI HIGH COURT IN THE ASSESSEES OWN CASE, IT IS CLEAR BEYOND ANY DOUBT, INTER-ALIA, THAT I) THE ASSESSEE FOUNDATION IS INVOLVED IN EDUCATION AND, THUS, MEETS THE DESCRIPTION OF CHARI TABLE INSTITUTION; II) THE OBJECTIVE OF THE ASSESSEE FOUN DATION WOULD FALL WITHIN THE EXPRESSION EDUCATION AS APPEARING IN THE DEFINITION OF CHARITABLE PURPOSE CONTAINED IN SEC . 2(15) OF THE ITA NO. 4097/D/11 35 ACT; III) IF ONE IS TO GO BY THE PURPOSE AND OBJECT IVE WITH WHICH THE ASSESSEE FOUNDATION WAS CREATED, NAMELY, IMPART ING SPREADING AND PROMOTING KNOWLEDGE, LEARNING EDUCATI ON ETC. IN THE FIELDS RELATED TO THE PROFESSION OF ACCOUNTA NCY, IT WILL CLEARLY FALL IN THOSE CATEGORY OF INSTITUTIONS WHIC H ARE DEVOTED TO RESEARCH AND ARE OF CHARITABLE NATURE; IV) THE V ISION OF THE ASSESSEE FOUNDATION IS TO ESTABLISH IT AS A CO-RESE ARCH BODY WITH FACILITIES TO UNDERTAKE RESEARCH IN THE AREAS OF ACCOUNTING, AUDITING, CAPITAL MARKETS, FISCAL POLICIES AND OTHE R RELATED DISCIPLINES AND TO DEVELOP QUALITY PRONOUNCEMENTS, DOCUMENTS, RESEARCH PAPERS ON THESE SUBJECTS; V) VA RIOUS PROJECTS AND ACTIVITIES SUCH AS PROJECT OF THE MUNI CIPAL CORPORATION OF DELHI (MCD), KOLKATA MUNICIPAL CORPO RATION (KMC), STRENGTHENING RURAL DECENTRALIZATION, RECEIV ING MONEY FROM INFOSYS TECHNOLOGIES LIMITED TOWARDS FELLOWSHI P PROGRAMME PER SE, WOULD NOT BRING THE ASSESSEE FOUN DATION OUT OF THE AMBIT OF SEC. 2(15) OF THE ACT, AND IT W OULD NOT CONSTITUTE BUSINESS/COMMERCIAL ACTIVITY AND MERE BE CAUSE SOME REMUNERATION WAS TAKEN BY THE ASSESSEE FOUNDAT ION FOR UNDERTAKING THESE PROJECTS WOULD NOT ALTER THE CHAR ACTER OF THESE PROJECTS, WHICH REMAINED RESEARCH AND CONSULT ANCY WORK; VI) THE RECEIPTS RECEIVED BY THE ASSESSEE FOU NDATION ARE ITA NO. 4097/D/11 36 UTILIZED BY THE ASSESSEE FOUNDATION FOR ADVANCEMENT OF ITS OBJECTIVES FOR WHICH THE PETITIONER FOUNDATION WAS ESTABLISHED; VII) MERELY UNDERTAKING THE AFORESAID THREE PROJECT S AT THE INSTANCE OF GOVERNMENT/LOCAL BODIES, THE ESSENTIAL CHARACTER OF THE ASSESSEE FOUNDATION CANNOT BE CONVERTED INTO ONE WHICH CARRIES ON TRADE, COMMERCE OR BUSINESS, OR AC TIVITY OF RENDERING ANY SERVICE IN RELATION TO TRADE, COMMERC E OR BUSINESS, AND, THUS, THE AMENDED DEFINITION OF CHA RITABLE PURPOSE CONTAINED IN SEC. 2(15) READ WITH PROVISO INSERTED THERETO W.E.F. 01.04.2009 WOULD NOT ALTER THE ASSES SEE FOUNDATIONS POSITION WHICH EXISTS FOR CHARITABLE P URPOSE ONLY; VIII) THE ASSESSEE FOUNDATION BEING A DEEMED COMPAN Y U/S 25 OF THE COMPANIES ACT IS ESSENTIALLY ESTABLISHED FOR THE PURPOSE OF EDUCATION AND/OR FOR ADVANCEMENT OF ANY OTHER PROJECT OF GENERAL PUBLIC UTILITY. 20. FURTHER, THE HONBLE HIGH COURT OF DELHI IN THE CASE OF INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA (WRITE PETITION (CIVIL) NO. 1927 OF 2010) VIDE DECISION DATED 19.09 .2011 HAS ELUCIDATED THE WORDS TRADE, BUSINESS OR COMMERCE USED IN THE PROVISO INSERTED TO SECTION 2(15) OF THE ACT W. E.F. 01.04.2009 AFTER ANALYZING THE FOLLOWING DECISIONS: - ITA NO. 4097/D/11 37 I) STATE OF PUNJAB VS. BAJAJ ELECTRICALS LTD. (19 68) 2 SCR 536 II) KHODAY DISTILLERIES LTD. VS. STATE OF KARNATAKA (1995) 1 SCC 574 III) STATE OF ANDHRA PRADESH VS. H. ABDUL BAKHI & B ROS. (1964) 15 STC 664 (S.C.) IV) CIT VS. LAHORE ELECTRIC SUPPLY COMPANY LIMITED (1966) 60 ITR 1 (SC) V) STATE OF GUJARAT VS. RAIPUR MANUFACTURING COMPA NY (1967) 19 STC 1 (SC) VI) DIRECTOR OF SUPPLIES AND DISPOSAL VS. MEMBER, BOARD OF REVENUE (1967) 20 STC 398 (SC). IN THAT CASE, IT WAS HELD BY THE HONBLE DELHI HIGH COURT THAT HOLDING COACHING CLASSES BY THE INSTITUTE WOULD NOT AMOUNT TO BUSINESS, HAVING REGARD TO THE SCOPE, AMBIT AND O BJECT OF THE INSTITUTE FOR WHICH IT IS ESTABLISHED, AND THER E IS A CLEAR DISTINCTION BETWEEN COACHING CLASSES CONDUCTED BY P RIVATE COACHING INSTITUTIONS AND THE COURSES AND EXAMINATI ONS WHICH ARE HELD BY THE INSTITUTE OF CHARTERED ACCOUNTANT O F INDIA. 21. SIMILARLY, IN THE CASE OF DIT(EXEMPTION) VS. IN STITUTE OF CHARTERED ACCOUNTANTS OF INDIA (ITA NO. 869/2011, T HE DECISION BEING DATED 19 TH SEPTEMBER, 2011) SINCE REPORTED IN (2011) 202 TAXMAN 138 (DEL.), THE HONBLE DELHI HIG H COURT HAS ANALYZED THE DECISION IN THE CASE OF STATE OF A NDHRA PRADESH VS. H. ABDUL BAKHI (SUPRA), DIRECTOR OF SUP PLIES & ITA NO. 4097/D/11 38 DISPOSAL VS. MEMBER, BOARD OF REVENUE (SUPRA) AND C ST VS. SAI PUBLICATION FUND (2002) 4 SCC 57 (SC) WITH REGA RD TO THE MEANING OF BUSINESS, AND IN THE LIGHT OF THE PROP OSITION LAID DOWN IN THE SAID CASES, HAS HELD THAT THE PURPOSE A ND OBJECT TO DO BUSINESS IS NORMALLY TO EARN AND IS CARRIED O UT WITH A PROFIT MOTIVE; AND, IN SOME CASES, THE ABSENCE OF P ROFIT MOTIVE MAY NOT BE DETERMINATIVE. IT WAS FURTHER OBSERVED THAT THE INSTITUTE HAS BEEN CREATED TO REGULATE THE PROFESSI ON OF CHARTERED ACCOUNTANCY AND FOR THIS PURPOSE THE INST ITUTE CAN AND IS REQUIRED TO PROVIDE EDUCATION, TRAINING AND MONITOR PROFESSIONAL SKILLS OF THE MEMBERS, BUT THE DIT HAS NOT EXAMINED THE QUESTION OF OBJECTIVE AND ROLE OF THE INSTITUTE IN PROPER AND CORRECT PERSPECTIVE, AND HAS TAKEN A VER Y NARROW AND MYOPIC VIEW IN THAT REGARD. IT WAS FURTHER HEL D THAT THE DIT, WITHOUT EXAMINING THE CONCEPT OF BUSINESS, HAS WRONGLY HELD THAT THE INSTITUTE WAS CARRYING ON BUSINESS AS COACHING AND PROGRAMMES WERE HELD BY THEM AND A FEE WAS BEIN G CHARGED FOR THE SAME. IT WAS HELD BY THE HONBLE H IGH COURT THAT SINCE DIT HAD GIVEN NO FINDING AS FAR AS ACTIV ITIES OF INSTITUTE WERE CONCERNED AND HAD NOT EXAMINED CONCE PT OF BUSINESS, FINDINGS RECORDED BY HIM IN ORDER U/S 263 , THAT COACHING AND PROGRAMMES HELD BY THE INSTITUTE AND A FEE WAS ITA NO. 4097/D/11 39 BEING CHARGED FOR THE SAME, WERE NOT SUFFICIENT TO HOLD THAT INSTITUTE WAS CARRYING ON BUSINESS. 22. IN THE LIGHT OF AFORESAID DECISIONS AND A CATEG ORICAL FINDINGS OF HONBLE HIGH COURT OF DELHI IN ASSESSEE S OWN CASE, WE CAN SAFELY HOLD THAT THE LD. DIT(EXEMPTION )S VIEW THAT THE ACTIVITY OF THE ASSESSEE FOUNDATION DOES N OT FALL WITHIN THE MEANING OF CHARITABLE ACTIVITY DEFINED U/S 2(15 ) OF THE ACT IS PATENTLY WRONG AND IMPROPER. WE, THEREFORE, CAN CEL HIS ORDER CANCELLING THE REGISTRATION GRANTED U/S 12A T O THE PRESENT ASSESSEE. IN OTHER WORDS, THE LD. DIT(EXEM PTION) IS NOT JUSTIFIED IN CANCELLING THE REGISTRATION GRANTE D U/S 12A TO THE PRESENT ASSESSEE SINCE A.Y. 2009-10. HENCE, TH E DIT(EXEMPTION)S ORDER DATED 14.07.2011 U/S 12AA(3) STANDS CANCELLED,, AND THE PRESENT APPEAL FILED BY THE ASS ESSEE IS ALLOWED. 23. BEFORE PARTING WITH THIS APPEAL, WE NOTE THAT DIT(EXEMPTION), DELHI HAS HIMSELF GRANTED APPROVAL OF EXEMPTION U/S 10(23C)(IV) OF THE ACT FOR A.Y. 2010- 11 AND ONWARDS VIDE HIS ORDER DATED 29 TH SEPTEMBER, 2011, AND THUS, HE HAS ACCEPTED THAT THE CONDITION FOR SEEKING EXEM PTION ITA NO. 4097/D/11 40 10(23C)(IV) OF THE ACT ARE SATISFIED IN THE ASSESSE ES CASE MEANING THEREBY THAT THE ASSESSEE FOUNDATION IS EST ABLISHED FOR CHARITABLE PURPOSES HAVING REGARD TO THE OBJECT S OF THE FOUNDATION AND ITS IMPORTANCE THROUGHOUT INDIA OR T HROUGHOUT ANY STATE OR STATES. 24. IN THE RESULT, THE APPEAL OF THE ASSESSEE FOUND ATION STANDS ALLOWED. THIS DECISION IS PRONOUNCED IN THE OPEN COURT ON 9 TH DECEMBER, 2011. SD/- SD/- (G.D. AGARWAL) (C.L. SETHI) VICE PRESIDENT JUDICIAL ME MBER DATED: 09.12.11 *KAVITA COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT TRUE COPY BY ORDER, DEPUTY REGISTRAR ITA NO. 4097/D/11 41 ITA NO. 4097/D/11 42