Adit E New Delhi v. M S Ernet India New Delhi

Income Tax Appellate Tribunal Delhi Bench B New Delhi Before Shri Bhavnesh Saini Judicial Member And Shri Prashant Maharishi Accountant Member Ita No 2873 2874 Del 2014 Assessment Year 2009 10 And 2010 11 Adit E Tc Ii New Delhi Vs Ernet India 10 Th Floor Jeevan Prakash Building 25 Kg Marg New Delhi Pan Aaate 0202 A Appellant Respondent Revenue By Ms Rachna Singh Cit Dr Assessee By Shri Rohit Jain Adv Ms Deepashree Rao Adv Date Of Hearing 05 10 2017 Date Of Pronouncement 27 12 2017 O R D E R Per Prashant Maharishi A M 1 Th Ese Are The Two Appeal S Filed By The Revenue Against The Order Of The Ld Cit A Xxi New Delhi Dated 04 10 2014 For The Assessment Year 2009 10 And 2010 11 The Revenue 2 The Revenue Has Raised The Following Identical Grounds Of Appeal In Both The Assessment Years 1 On The Facts And In The Circumstances Of The Case And In Law The Ld Cit A Has Erred In Holding That The Assessee Is Not Involved In Any Business Or Commercial Activity And The Provisions Of Section 2 15 Of The Act Is Not Attracted In The Case Of The Assessee 2 On The Facts And In The Circumstances Of The Case And In Law The Ld Cit A Has Failed To Appreciate The Fact That Assessee Itself Has Claimed That It Was Involved In Promoting The Communication Technology For The General Public And As Such The Assessee Is Neither In The Field Of Education Nor In The Field Of Medical Relief Or Relief Of The Poor And It Can Be Considered After Seeing The Activities Carried Out By The Assesseee As Falling Within The Scope Of General Public Utility As Per Section 2 15 Of The Income Tax Act 1961 3 On The Facts And In The Circumstances Of The C Ase And In Law The Ld Cit A Has Erred In Allowing The Exemption U S 11 To The Assessee Whereas The Assessee Is Earning Huge Profits By Providing Data Connectivity To Its Subscriber In Lieu Of Consideration As Per Its Objects And Nowhere Charity C An B E Seen In The Whole Process 3 The Assessee Is A Society Registered Under The Societies Registration Act An Autonomous Body Under Department Of Electronics It Is Registered U S 12 Aa Vide Registration Dated 26 03 2004 The Assessees Main Objects Are To Ad Vance The Cause Of Computer Communication In The Country In All Its Aspects And Dimensions With View To Promote Rapid Adit E Vs Ernet India Ita No 2873 2874 Del 2014 Assessment Year 2009 10 And 2010 11 Page 2 Nationwide Development Of The Sector And Technology And Economic Growth Of The Country Develop Or Acquire And Assimilate Inputs From Ind Igenous Sources Of Computer Networking And Information Technology And Transfer Relevant Knowledge Technology To Users Carry Out Demonstration Filed Trials And Pilot Production Of Its Products And Services Developed In House Or In Collaboration With Othe R Educational And Research Institutions 4 During The Year The Receipt Of The Assessee Is From Subscribers Network Processed Projects And Other Incomes The Ld Assessing Officer Stated That Assessees Activities Are Falling Within The Scope Of General Publ Ic Utility As Per Section 2 15 Of The Act Further Looking To The Receipts Of The Assessee He Held That It Is Of Commercial Nature He Further Referred To One Of The Agreements Where There Was Provision Of Consultancy Charges 6 Of Equipment Cost As Well As Other Terms And Conditions Which Showed That The Agreement Is A Pure Business Agreement For Earning Income For Extending The Services Therefore According To Him The Activities Of The Assessee Are Carried Out With Profit Motive And Therefore It Is Hit By The Amendment To Section 2 15 Of The Act Hence The Assessee Is Not Eligible For Exemption U S 11 And 12 Of The Income Tax Act The Assessee Objected These Observations Of The Ao Explaining That This Society Is Under Administrative Control O F Ministry Of Communication And It And Further All Incomes Etc Are For The Purpose Of Promotion Of The Objective Of National Interest And Without Any Profitable Commercial Activity The Ld Assessing Officer Rejected The Explanation And Held That Assessee I S Engaged In The Business Activity In View Of Proviso To Section 2 15 Of The Act Applicable From Assessment Year 2009 10 Hence He Denied The Benefit Of Section 11 And 12 Of The Act And Determined The Total Income Of The Assessee U S 143 3 Of The Act At Rs 330069597 Against The Nil Returned Income Of The Assessee Filed On 29 09 2009 The Assessee Aggrieved Filed Appeal Before The Ld Cit A Who Held That Assessee Is Not Engaged In Any Trade Commerce Or Business Activities And Therefore Entitled Fo R Exemption U S 11 Of The Act And Further The Amended Provisions U S 2 15 Do Not Apply To The Assessee The Revenue Aggrieved With The Order Of The Ld First Appellate Authority Has Preferred Appeal Before Us 5 The Facts For Both The Years Are Identical Therefore The Parties Before Us Have Placed Commo N Arguments For Both The Years Hence Both Appeals Are Disposed Off By This Common Order 6 The Ld Dr Has Placed A Written Submission And Vehemently Relied Upon Following Decisions A Information Audit Control Association Vs Ddit Exemptions 1 67 Taxmann Com 140 Chennai B Murasoli Trust Vs Adit Exemptions Iv 65 Taxmann Com 186 Chennai Adit E Vs Ernet India Ita No 2873 2874 Del 2014 Assessment Year 2009 10 And 2010 11 Page 3 C Small Medium Exporters Vs Dit 11 Taxmann Com 169 D Institute Of Chartered Accounts Of India Vs Dgit Exempti Ons 13 Taxmann Com 175 7 She Further Referred To The Agreements Placed In The Paper Book And To Various Clauses Of Liquid Ated Damages Defect Liability The Terms Of Payment And Cost To Demonstrate That Agreement Entered Into By The Assessee Is A Business A Greement And Hence Assessee Is Engaged In The Business Activity She Also Referred The Income And Expenditure Of The Assessee For 31 03 2009 Showing Huge Profit She Further Submitted That The Order Passed By The Ld Cit A Is Not A Reasoned Order And Fo R This She Relied On The Decision Of The Honble Supreme Court In Acit Vs M S Shukla Brothers In Slp No 16466 2009 Dated 15 04 2010 8 The Ld Authorised Representative Referred To The Objects Of The Assessee Trust And The Memorandum Of Association To Sho W That It Has Been Established As A Nonprofit Society He Further Referred To The Resolution Dated 14 01 1998 To Show That The Trust Is Not For Profit Making He Further Referred To Page No 121 To Show That The Administration And Management Of The Society Is With The Various Govt Officers Such As Secretaries Etc He Further Referred To The Certificat E Dated 27 02 2004 Of The Additional Secretary Which Says That Objective Of Setting Up Of These Infrastructure Is To Improve The Quality Of Education In The Country This Certificate Also Shows That It Is To Use By Research And Educational Institute For Undertaking Collaborative Research He Further Referred To Letter Dated 12 03 2004 Wherein It Is Mentioned That It Is Autonomous Scientific Society He Further Referred To Page No 125 Which Shows That The Subscription Income Of The Society Is Mostly From Schools Colleges Universities Scientific Research Institutes Etc He Further Referred Page No 192 Of The Paper Book For Data Network Which Is To Be On No Profit And No Loss Basis He Further Referred To Page No 263 Of The Paper Book To Show That Network Set Up By The Assessee Are Operated On No Profit Basis In View Of This He Submitted That Assessee Is Not Engaged In Any Business Activities But As Nonprofit Organization And Further The Ld Cit A Has Considered All These Facts And Has Held That Assessee Is Not Involved In Any Business Activity He Ex Tensively Referred To The Order Of The Ld Cit A To Show That The Ld Cit A Has Relied On Five Decisions Of The Honble Delhi High Court To State That Amendment W E F 01 04 2009 To Section 2 15 Of The Act Does Not Apply To The Assessee 9 Coming To The Ag Reements Entered By The Assessee Referred By The Ld Departmental Representative He Submitted That All These Conditions Do Not Suggest That Assessee Is Carrying On Any Business He Referred That Consultancy Charges Are Bare Minimum For Recovery Of Cost Of System Study Designing Etc He Further Submitted That Terms Of Payment On Milestone Adit E Vs Ernet India Ita No 2873 2874 Del 2014 Assessment Year 2009 10 And 2010 11 Page 4 Basis Is A Pe Rformance Based And Cost Based Recovery Method Which Do Not Demonstrate That It Is An Agreement For The Profit He Further Stated That In Case Of Equipments Etc Statutory Levies Are Chargeable Because The Trust Is Not Exempt From Such Sales Tax Vat Servic Es Tax Etc With Respect To Liquidated Damages And Warranty He Submitted That As It Is Contract For The Performance Of The Work Such Conditions Are Bound To Be There As It Safeguards The Interest Of The Service Recipient Merely Because These Terms Exist In Agreement It Does Not Make The Existence Of The Assessee For The Profit He Further Relied On Several Decisions As Under I Icai Accounting Research Foundation And Ors Vs Dgit 321 Itr 73 Ii Bureau Of Indian Standards Vs Dgit Exemptions 358 Itr 78 Iii Gs 1 India Vs Dgit Exemptions 262 Ctr 285 Iv India Trade Promotion Organization Vs Dit E 371 Itr 333 V Phd Chamber Of Commerce And Industry Vs Dit E 357 Itr 296 Vi National Interest Exchange Of India Vs Dit Exemption Ita No 3033 Del 2005 Vii Society Of Indian Automobile Manufactures 159 Itd 659 Viii National Accreditation Board For Testing And Calibration Vs Adit Ita No 1115 Del 2013 Ix Bombay Presidency Golf Club Vs Dit 52 52 Sot 149 X Credit Guarantee Fund Trust 163 Itd 285 Xi Quality Circle Forum Of India Vs Ddit 1 62 Itds 122 Xii The Improvement Trust Vs Ito Ita No 987 Chd 2014 Xiii The Patiala Trust Vs Ito Ita No 305 Chd 2013 Xiv Chandigarh Golf Club Vs Cit 156 Itd 264 10 Amongst The Above Decisions He Vehemently Relied On The Decision Of Gs 1 India Vs Dit Exemption 262 Ctr 585 360 Itr 138 And He Submitted That Facts Of That Particular Case Is Identical To The Facts Of The Case Of The Assessee He Further Referred To Pa Ra No 12 Of The Decision Wherein That Decision Considered Both Issues Prior To The Amendment W E F 01 04 2009 And Subsequent Thereto He Further Referred To Para No 16 To Show What The Trade Or Commerce Could Be In Nutshell He Submitted The Issue Is Squarely Covered In Favour Of The Assessee By This Decision 11 We Have Carefully Considered The Rival Contentions And Perused The Orders Of The Lower Authorities Undoubtedly The Assessee Trust Has Been Created By The Govt Of India With An Object For Deve Lopment Of Computer Communication In The Country And It Is A Non Profit Adit E Vs Ernet India Ita No 2873 2874 Del 2014 Assessment Year 2009 10 And 2010 11 Page 5 Society Subsequently Various Certificates Issued By Various Authorities Also Show That The Assessee Does Not Exist For The Profit The Subscribers To The Society Were Eminent Persons Such As Prof Yk Alagh And Honble Former President Of India Dr Apj Abdul Kalam When His Excellency Was Scientific Advisor To Govt Of India Further The Governing Council Also Has The Honble Minist Er Of Communication And Informatio N Technology As Its Chairman And Several High Ranking Government Officials Along With The Eminent Technocrats Of The Country 12 The Main Object Of Which The Trust Is Formed Are As Under 3 1 The Society Has Been Established As A Non Profit Society Only Fo R The Objects As Under 3 1 1 To Advance The Cause Of Computer Communication In The Country In All Its Aspects And Dimensions With A View To Provide Rapid Nationwide Development Of The Sector And Technological And Economic Growth Of The County 3 1 2 To Develop Design Setup And Operate Nationwide State Of The Art Computer Communication Infrastructure With International Connectivity Directed Towards Research And Development Advancement Of High Quality Education Create And Host Content Express Creative And Academic Potential Via Intranet And Intranet Peer To Peer Connectivity Among Educational And Research Institutions In The Country And The World And Make Available The Communication Infrastructure To Users In Academic Research And Development Institut Ions Govt Organizations In Line With National Priorities 3 1 3 To Undertake And Promote Education Research Development Training And Standardization In The Area Of Computer Networking And Information Technology As Well As Allied Areas Of Communication And To Provide A Forum For Such Activities 3 1 4 To Promote And Inculcate Awareness Of The Strategic Importance Of Computer Communication And Information Technology For The Benefit Of Academic Research And Development Institutions Government Organizations And Public At Large 3 1 5 To Develop Policy Options For Consideration Of The Government For Development Of Information Infrastructure And Computer Networking In The Country And Implement Participate In Programme Thereof 3 1 6 To Make Availa Ble Its Experience And Know How For The Effective Utilization Of The Technology And Provide Services To Potential Users And Developers 3 17 To Act As A Research Centre For Technological And Managerial Resources And A So Act As A Bridge For Cooperation Am Ong Other Countries In The Area Of Computer Communication Information Technology Computer Networking And Other Related Emerging Technologies 3 2 With A View To Attain The Aforesaid Objectives Set Out In The Para 3 1 Above The Society May Carry On The F Ollowing Activities 3 2 1 Undertake Research Design Development Consultancy To Build Competence In The Areas Of Computer Networking Information Technology Digital Library Voice On Data Satellite Communication And Other Related Emerging Fields In Te Rms Of Present Futuristic And Perspective Technologies 3 2 2 Undertake Test Bed Programmes And Evaluate Emerging Trends In The Area Of Computer Networking Information Technology And Other Related Emerging Fields In India And Abroad Adit E Vs Ernet India Ita No 2873 2874 Del 2014 Assessment Year 2009 10 And 2010 11 Page 6 3 2 3 Work In The A Reas Of Advanced Computer Networking Taking Into Consideration Of Both Technological Forecasts And National Needs 3 2 3 Work In The Areas Of Advanced Computer Networking Taking Into Consideration Of Both Technological Forecasts And National Needs 3 2 4 Conduct General And Customized Educational And Training Activities For Users And Others Through Classroom And Distance Learning Modes 3 2 5 Conduct National And International Conferences Including Teleconferences Seminars Symposia And Workshops To I Nclulcate Awareness Of The Strategic Importance Of Computer Communication And Information Technology In Educational And Research 3 2 6 Carry Out Guide Research Leading To Advanced Degrees From Leading National And International Educational Institutions A Nd Universities 3 2 7 Institute Stipends Scholarships Associate Ship And Fellowship To Students And Individuals 3 2 8 Carryout Demonstration Filed Trials Pilot Production Of Its Products And Services Developed In House Or In Collaboration With Other Ed Ucational And Research Institutions 3 2 9 Develop Or Acquire And Assimilate Inputs From Indigenous Sources Of Computer Networking And Information Technology And Transfer Relevant Knowledge Technology To Users 3 2 10 Promote And Ancillary Research Desi Gn And Development R D Units In The Country For Development Of Systems Sub Systems Hardware And Software To Build An Appropriate Technological And Application Base In The Country 3 2 1 Award Research Surveys Studies Technology Development And Consul Tancy Projects To Other Institutions Organizations And Companies To Achieve Objectives Of The Society And Disburse Funds And Grants For The Purpose 3 2 12 Invite Experts In The Filed Each From Within And Outside The Country For Advice Consultancy And P Articipation In Specific Arrangements 3 2 13 Participate In And Or Promote Professional Bodies And Institutions In The Country And Abroad 3 2 14 Undertake Publications In The Form Of Papers Books Monographs And Journals On Various Media Including Electronic Media 3 2 15 Disseminate Its Findings Development And Inventions Etc Through Exhibitions And Other Promotional Activities In The Area Of Computer Networking And Information Technology 3 2 16 Apply For Registration Of Patents Arid Copyrights To Protect Intellectual Property Rights For The Products And Services Developed By The Society By Itself Or In Collaboration With Others 3 2 17 To Purchase Or Take On Lease Or Hire Or Develop Or Improve Or Construct Or After Or Execute Of Maint Ain Or Otherwise Acquire Temporarily Or Permanently Any Movable Or Immovable Property Including Land And Building Machine And Equipment Works Etc And To Mortage Or Create Any Charge On The Assets So Acquired Necessary Or Convenient For The Activities In F Urtherance Of The Objectives Of The Society 3 2 18 Acquire Establish Maintain Disseminate And Manage Facilities Of Information To Achieve The Objective Of The Society Adit E Vs Ernet India Ita No 2873 2874 Del 2014 Assessment Year 2009 10 And 2010 11 Page 7 3 2 19 Set Up Library Of Books Periodicals Audiovisual Aids Database Of Industry And End Users Etc On National And International Basis To Enable To Society To Meet Its Objective And Effectively Carry Out Its Activities 3 2 20 Provide Services And Charge For The Same From The Users And Exploit The Know How And Products Developed By T He Society 3 2 21 Decide Subscription Membership Tariff And Other Charges For The Services Provided By The Society 3 2 22 Receive Grants Loans Subscriptions Hire Lease Charges Donations Or Any Other Financial Contribution In Cash And Securities A Nd Of Any Property Either Movable Or Movable From Within The Country And On Abroad Including International Agencies Cacentral And Multilateral Agencies Subject To Prevailing Laws Of The Government Of India And To Invest And Deal With Funds And Moneys Of The Society And To Vary After Or Transfer Such Investments From Time To Time 3 2 23 To Accept Remuneration For Consultancy Design Development Technology Transfer Providing Services Or Any Related Activity In The Country As Well As Abroad 3 2 24 T O Establish And Maintain Provident And Other Funds For The Benefit Of The Employees Or For The Purpose Of The Society And Open And Operate Bank Accounts 3 2 25 Any Surplus Funds Not Needed Or Capable Of Being Used For Immediate Application Towards The Ob Jects For The Society Will Be Invested By The Society Only In Accordance With The Provisions Contained From Time To Time In Income Tax Act 1961 Applicable To Such Organizations Which Presently Are As Under I Investment In Savings Certificates As Defined In Clause C Of Section 2 Of Govt Savings Certificate Act 1959 46 To 1959 And Any Other Securities And Certificates Issued By The Central Govt Under The Small Savings Schemes Of That Govt Ii Deposit In Any Account With The Post Office Savings Ban K Iii Deposit In Any Account With A Scheduled Bank Or A Cooperative Society Engaged In Carrying On The Business Of Banking Including A Cooperative Land Mortgage Bank Or A Cooperative Land Development Bank Explanation In This Clause Scheduled Bank M Eans The State Bank Of India Constitutes Under The State Bank Of India Act 1955 23 Of 1959 A Subsidiary Bank As Defined In The State Bank Of India Subsidiary Banks Act 1959 38 Of 1959 A Corresponding New Bank Constituted Under Section 3 Of The Banki Ng Companies Acquisition And Transfer Of Undertakings Act 1970 5 Of 1970 Or Under Section 3 Of The Banking Companies Acquisitions And Transfer Of Undertakings Act 1960 40 Of 1980 Or Any Other Bank Being A Bank Included In The Second Schedule To Reserve Bank Of India Act 1934 2 Of 1934 Iv Investment In Units Of The Unit Trust Of India Established Under The Unit Trust Of India Act 1963 52 Of 1963 V Investment In Any Security For Money Created And Issued By The Central Government Or A State Government Vi Investment In Debentures Issued By Or On Behalf Of Any Company Corporation Both The Principal Whereof And The Interest Whereon Are Fully And Unconditionally Guaranteed By The Central Government Or By A Stale Government Vii Investment O R Deposit In Any Public Sector Company Adit E Vs Ernet India Ita No 2873 2874 Del 2014 Assessment Year 2009 10 And 2010 11 Page 8 Viii Deposits With Or Investment In Any Bonds Issued By A Financial Corporation Which Is Engaged In Providing Long Term Finance For Industrial Development In Providing Long Term Finance For Construction Of Purchase Of Houses In Residential Purposes Arid Which Is Approved By The Central Government For The Purpose Of Clause Viii Of Sub Section 1 Of Section 36 Of It Act Ix Deposits With Or Investment In Any Bonds Issued By A Public Company Formed And Registered In India With The Main Object Of Carrying On The Business Of Providing Long Term Finance For Constitution Of Purchase Of House In India For Residential Purposes And W Hich Is Approved By The Central Govt For The Purpose Of Clause Vii Of Sub Section 1 Of Section 36 Of It Act X Investment In Immovable Property I E In Any Building Or Other Immovable Property Asset Related To The Approved Activities Of The Siro X I Deposits With The Industrial Development Bank Of India Established Under The Industrial Development Bank Of India Act 1964 18 Of 1964 13 The Above Objects Of The Assessee Must Be Tested On The Actual Performance Of The Trust To Understand The Nature Of Activities Carried On By It Assessee Has Submitted The Projects Undertaken By It Which Are As Under A Ernet Network Is A Judicious Mix Of Terrestrial And Satellite Based Wide Area Network T India Provides Services Through Its 15 Points Of Pre Sence Pops Located Across The Country All Pops Are Equipped To Provide Access To Intranet Internet And Digital Library Through Trial Leased Circuits And Radio Links To The User Institutions The Pop At Stpi Bengaluru Provides Intranet And Internet Acce Ss Through Satellite Ernet Network Supports Ipv 4 And Ipv 6 Internet Protocol Ipv 6 Routing Protocol Ospfv 3 End To End Ethernet Services Qos Diffserv Video Conferencing Authentication And Authorization Rave Also Been Implemented On Ernet Network Ern Et Provides Services Namely Network Access Services Network Applications Services Hosting Services Operations Support Services Und Domain Registration Services Under Srnet In Ac In Edu In Res In Domains The Network Infrastructure Is Being Upgrad Ed In Terms Of Both Technology And Capacity At Its Delhi Pop Ernet India Has Installed Mail Security Appliances With Antivirus And Anti Spam Software The Aggregate Internet Bandwidth Was Upgraded To More Than 630 Mbps More Than 1100 User Institutions Covering Diverse Application Domains Are Now Connected To Ernet Network A Total Of 6500 In Domains Under Edu In Ac In And Res In Have Been Registered It Has Also Been Hosting Websites For The Academic And Research Community B Research Activities An D Ict Projects 1 Trans Eurasia Information Network Tein 3 The Trans Eurasia Information Network Tein Initiative Was Launched At The Asia Europe Meeting Asem Summit In Seoul In 2000 To Improve Euro Asian Research Networking Tein 3 That Started In 2 009 Has Expanded Its Footprint To South Asia Bringing The Total Number Of Partners To 18 Asian Countries Bangladesh Bhutan Cambodia India Nepal Pakistan And Sri Lanka Are Also Connected Being Connected In India Adit E Vs Ernet India Ita No 2873 2874 Del 2014 Assessment Year 2009 10 And 2010 11 Page 9 Tein 3 Point Of Presence Pop Ha S Been Co Located At Ernet Pop At Mumbai And Is Acting As The Hub For Connecting Research Networks In South Asia Except Pakistan From Mumbai Two High Speed Links Of 2 5 Gbps Each Have Been Commissioned To Europe And Singapore Providing Direct Connectivit Y To Geant The Pan European Data Network And Tein 3 Pop At Singapore India Is Now Acting As The Hub For Connectivity Between Europe And Asia Pacific Countries The Network Of Ernet India Is Connected To Tein 3 Pop In Mumbai Through National Knowledge Net Work Nkn The Connectivity To Tein 3 Is Being Used By India For Connecting To Research And Education Networks Worldwide For Collaborative Research 2 Eu Indiagrid 2 Sustainable E Infrastructures Across Europe And India Eu Indiagrid 2 Is The Second Phase Of The Eu Indiagrid Project Which Was Initiated In January 2010 There Are Six European Partners And 10 Indian Partners In This New Project The Role Of Ernet India In The New Project Is To Provide Network Infrastructure Support Using Tein 3 3 Myfire M Ulti Disciplinary Networking Of Research Communities In Fire Myfire Www My Fire Eu Is An European Commission Funded Project Launched In June 2010 Through The Eu Fp 7 Programme Under The Ict Thematic Priority Future Internet Research And Experimentation Fire The Project Aims To Ensure A Balance Between The Requirements For Researchers Collaboration And The Stakeholders Expectations Myfire Project Consortium Includes Four European Partners Inno Tsd Sa France Etsi France University Of Edinburgh U K And Fraunhofer Germany And Four International Partners From Bric Ipt Brazil Itmo Russia Ernet India And Bii China Countries 4 Mobile Ipv 6 Test Bed Mobility Between Heterogeneous Access Networks Mobile Ipv 6 Test Bed Is A Joint Project Between E Rnet India And Indian Institute Of Science Iisc Bengaluru Which Is Funded By The Department Under The Project A Wlan Access Network Testbed Has Been Setup At Ernet Bengaluru With Mobile Ipv 6 Home Agent Ha Mobile Node Mn Anti Correspondent Node Cn Services Configured Using The Umip Mipv 6 Stack The Seamless Network Layer Mobility Test Between Different Wlan Subnets Is Completed 5 6 L 0 Wpan Management And Monitoring Of Wireless Sensor Networks 6 L 0 Wpan Is A Joint Project Between Ernet India And Iisc Bengaluru Funded By The Department Ieee 802 15 4 Low Rate Wireless Personal Area Network Lowpan Standard Supports Wireless Connectivity In Low Cost Devices That Operate With Limited Computing Resources And Battery Power The Objective Of This Proj Ect Is To Develop A Prototype For Monitoring And Managing A 6 L 0 Wpan Based Wireless Sensor Network Wsn An Experimental 6 L 0 Wpan Testbed Is Setup At Ernet Using Telosb Motes With Temperature Light And Humidity Sensors For Development And Testing 6 Virtu Al Scalable Educational Services For Schools The Department Has Approved In Nov 2011 The Implementation Of The R D Project Virtual Scalable Educational Services For Schools A Pilot Project In The Project Select Kendriya Vidyalayas From Delhi Beng Aluru And Chennai Region Will Participate For Which Ernet Has Signed An Mou With Kvs 7 Setting Up Repository Of Digitized Data Under The Digital Library Initiative Adit E Vs Ernet India Ita No 2873 2874 Del 2014 Assessment Year 2009 10 And 2010 11 Page 10 The Department Has Funded A Project Titled Setting Up Repository Of Digitized Data Under The Digital Library Initiative As Part Of This Project Ernet India Is To Set Up A Repository For Hosting The Digitized Data And Provide Internet Bandwidth To Three Centres Namely Iisc Indian Institute Of Science Bengaluru International Institute Of Information Technology Hit Hyderabad And Cd Ac Noida The Digital Repository Has Been Set Up At Ernet Pop In Pune And All The Available Data From Iisc Bengaluru Has Been Downloaded And Hosted In The New Repcaite 8 E Linkage Of Jawahar Navodaya Vidyala Yas Kendriya Vidyalayas Ernet India Has Provided Internet Connectivity To 31 Remote Vidyalayas Under Kendriya Vidyalaya Sangathan And Had Also Provided Connectivity To Around 300 Jawahar Navodaya Vidyalayas Under The Navodaya Vidyalaya Samiti 9 Commun Ity Information Centres Vidya Vahini Cic Ws Cic Vvs Are Operational In The Government Schools Located In Andaman Nicobar Islands And Lakshadweep Islands With The Dual Purpose Of Imparting Ict Based Education And Training In The Schools As Well As F Or Providing Citizen Centric Services To The People Of The Region The Vs At Link Enables Reliable Intranet And Internet Connectivity Including Distance Education In The Region 10 Ict Vocational Centres For Children With Disabilities Phase Ii After Impl Ementation Of The Pilot Project By Setting Up Of Ict Centers In 21 Schools In Tamil Nadu And Ncr Delhi Ernet India Has Implemented The Second Phase Of The Project In This Phase Select 100 Schools Spread Throughout The Country Have Been Made Disable Frie Ndly Through Setting Up Of Ict Centers For Students Who Are Physically Challenged And Those With Hearing Or Vision Impairment 11 Moll With State Government Of Rajasthan For Establishing Ict Infrastructure At Schools In Rural Areas This Memorandum Of U Nderstanding Mou Is Made Between Ernet India And State Government Of Rajasthan For Establishing Information Communication Technologies Ict Infrastructure In The Schools Located In Rural Areas Of Rajasthan Ict Centres Have Been Setup Under The Projec T In 250 Schools Located In Rural Areas Of Ajmer And Jaipur Districts The Establishment Of Connectivity To The Ict Centers Is In Progress 12 C Linkage Of Krishi Vigyan Kendras Under Icar Under An Mou Ernet India Has Established A Dedicated Vsat Hub And Deployed Information Technology Infrastructure At 200 Krishi Vigyan Kendras Kvks Zonal Project Directorates Zpds Under Icar To Develop Them Into Information Hubs E Linkage Of The Remote 200 Kvks Zpds Has Been Established With The Vsat Hub At Icar He Adquarters In New Delhi The Scientists And Officials At Each Of The Kvk Zpd Can Access Internet E Mailing And Web Services On 24 X 7 Basis The E Linkage Network Is Enabled For Video Multicast And Ip Telephony Which Allows Each Kvk Zpd To Watch Video Sess Ions Broadcast From The Hub And To Have Voice Interaction Among Each Other And The Centre The E Linkage Facility Hadbeen Operationalized The Facility Is Being Used For Scheduling Talks Lectures And Seminars Delivered From The Hub By Domain Experts On We Ekly Basis For Officials Of The Kvks Zpds Ernet India Is Supervising The Operation Management And Support Of The Hub And Also Liaisoning With Department Of Space Dos Department Of Telecommunications Dot And Network Operations Control Centre Nocc Adit E Vs Ernet India Ita No 2873 2874 Del 2014 Assessment Year 2009 10 And 2010 11 Page 11 13 Campus Network At National University Of Juridical Sciences Kolkata Under An Mou With The National University Of Juridical Sciences Nujs Kolkatta Ernet India Has Designed Setup A Fibre Optic Based Gigabit Campus Network Connecting Academic Ad Ministration And Finance Wings The Work Has Been Completed And Is Serving 814 User Nodes All Blocks Hostels And Guest House Have Been Connected Through Fibre Optic Cable Supporting 1 Ogigabit Ethernet Technology 14 Agreement W Ith Icar For Setting Up A Centralized Data Center A Contract Agreement Had Been Concluded With Indian Council Of Agricultural Research National Agricultural Innovation Project Icar Naip For Setting Up A Centralized Data Centre For 274 Icar Institutes Connected On Ernet Thro Ugh World Bank Funding 15 Video Conference Facility At Various Institutes 203 Ernet India Has Taken Up Projects For Setting Up Of Video Conference Facility For Various Institutions Including Provisioning Of Bandwidth Maintenance Operational Support E Rnet India Is Implementing Implemented The Following Video Conference Projects Vc Facility For Govt Of Up At State Capital 18 Divisions 1 District Of Up With A Total Of 21 Sites High Definition Vc Facility At 9 Locations Of Indian Meteorological Dep Artment Deployment Of Vc Facility At 11 Locations Of The Mahatma Phule Krishi Vidyapeedh Rahuri Tele Presence Based High Definition Video Conference Facility At 8 Locations Of Ministry Of Earth Sciences Moes Video Conferencing Facilities At 49 Loca Tions Of Income Tax 7 Locations Of Dgs D And 11 Locations Of The National Institute Of Immunology Nil Under The Department Of Biotechnology Dbt C Conferences Workshops A Pan The Asia Pacific Advanced Network Refers To Both The Organization Representing Its Members And To The Backbone Network That Connects The Research And Education Networks Of Its Member Countries Economies To Each Other And To Other Research Networks Around The World Apan Coordinates Developments And Interactions Among It S Members And With Peer International Organizations In Both Network Technology And Applications And Is A Key Driver In Promoting And Faciiitating Network Enabled Research Collaboration Knowledge Discovery Telehealth And Natural Disaster Mitigation Er Net India Is A Primary Member Of Apan The Asia Pacific Advanced Network Representing The Education And Research Network Of The Country During 22nd 26 Lh August 2011 Ernet India Organized The 32nd Asia Pacific Advanced Network Meeting At New Delhi The W Orkshop Was Attended By Around 330 Delegates From India And Abroad 14 Over And Above This The Assessee Is Also Carrying On Several Projects For Which Grants Have Been Received Such As For Vcsc For Disabled Children Dynamic Web Content For Cert Adit E Vs Ernet India Ita No 2873 2874 Del 2014 Assessment Year 2009 10 And 2010 11 Page 12 Traffic An Alysis For Cert Project For Digital Library Project Vi Choice India Europe Cooperation To Ipv Vi Up Govt Video Conferencing Project Video Conferencing For Income Tax Department It Is Also Providing Services For The Subscribers For Network Connectivit Y Web Hosting And Content Development And Domain Registration For These Services It Charges Income From Subscribers Which Are On Actual Basis As Per The List Of Subscribers Placed At Page No 125 To 191 It Is Apparent That Most Of The Subscribers Are Schools Colleges And Educational Institutes And Universities For Professional Fees And Technical Services Jawahar Novodaya Vidalaya And Several Universities Pay It 15 Now In This Background It Is Necessary To Examine Whether The Assessee Has An Object T O Earn The Profit Or Not According To The Memorandum Of Association It Is Non Profit Society Further The Additional Secretary To The Ministry Of Communication And Information Technology Has Also Certified That It Is Functioning Under The Ministry As An Autonomous Body And It Is Working On No Profit And No Loss Basis Further It Has A Mandate To Interconnect Only Educational And Research Institutions In The Country So As To Provide Services Like Distance Education And Digital Library Further The Sole Object Of Setting Up Of The Infrastructure Is To Improve The Quality Of Education In The Country According To The Object Of The Society It Is Setting Up Ernet Network Further The Subscription Charge D By The Assessee From The Various Subscribers As Well As The Professional Charges Is At Actual Merely On Generation Of Surplus It Cannot Be Said That The Assessee Is Functioning With The Motive Of Earning Profit Further As Per The Clause No 33 Of The Mou That In The Case Of Dissolution Of The Society Al L The Properties Shall Revert To Department Of Information Technology Govt Of India All These Facts Show That Assessee Trust Is Not Functioning With A Dominant And Prime Objective Of Profit Making Therefore It Is Evident That The Assessee Is Formed No T For The Purposes Of The Profit 16 As Amended W E F 01 04 2009 The Provisions Of Section 2 15 Has Undergone Change By Inserting The Proviso Therein The Impact Of The Proviso Is That The Trust And Societies Who Are Engaged In Carrying On Charitable Purposes Falling Into The Category Of Advancement Of Any Other Object Of General Public Utility They Would Not Be Considered As Carrying On Charitable Purposes If They Carry On Any Activity In The Nature Of Trade Commerce And Business For A Cess Fee O R Any Other Consideration If The Above Conditions Are Fulfilled Then Use Of The Income Is Immaterial The Main Reason For The Insertion Of The Above Proviso Is To Deny The Exemption To The Institutions Which Are Driven Primarily By A Desire Or Motive To E Arn Profit And Do Charity Through The Advancement An Object Of General Public Utility Then Such Institutes Shall Not Be Regarded As Institutions Established For Charitable Purposes Honble Adit E Vs Ernet India Ita No 2873 2874 Del 2014 Assessment Year 2009 10 And 2010 11 Page 13 Delhi High Court In 371 Itr 333 In India Trade Promotion Vs D Git Has Held That The Correct Interpretation Of Proviso To Section 2 15 Would Be That It Carves Out An Exception From The Charitable Purposes Of Advancement Of Any Other Object Of General Public Utility And That Exception Is Limited To Activities In The Nature Of Trade Commerce Or Business Or Any Activity Of Rendering Any Service In Relation To Trade Commerce Or Business For A Cess Or Fee Or Any Other Consideration Therefore It Is Important To See Th E Dominant And The Prime Objective Of The Institution If The Dominant And Prime Objective Is Profit Making And Its Activities Are Trade Commerce Or Business Then Such Institution Would Not Be Entitled To Claim That It Is Set Up For Charitable Purposes A S Per Section 2 15 Of The Act In This Background It Is Required To Be Examined That Whether The Assessee Trust Has Dominant And Prime Objective Of Making Profit And Carry On Trade Commerce And Business 17 The Thrust Has Been Emphasized By Revenue On Th E Agreement Entered Into By The Assessee With The Service Receiver The Copy Of The Sample Agreement Is Available At Page No 96 To 119 Of The Paper Book The Ld Assessing Officer Has Stated That Such Agreements Are Drawn On A Commercial Line And Have Clau Ses Such As Of Liquidated Damages Defect Liability Clause Performance Security Requirement Terms And Manner Of Payment Fixed With The Milestones Etc Gives A Semblance That Assessee Is Carrying On Business Looking To The Various Service Agreement Enter Ed Into By The Assessee With The Service Recipient Which Is Heavily Relied Upon By The Revenue That Assessee Is Carrying On A Business The Ld Assessing Officer Has Cited Various Clauses Of The Agreements We Are Of The View That The Services Provided By The Assessee Are For Creating A Public Infrastructure Which Should Be Sustainable And Effective As The Public Money Is Involved In That This Is Apparent From The Fact That Many Of The Projects Of The Assessee Are Based On Grants And The Payer Of The Ser Vices Are Various Schools Educational Institutes And Universities And Other Govt Organizations Such As Income Tax Department And Cbi Therefore It Is Also Not Correct On Part Of The Revenue To Look At Various Clauses Of The Agreement And To Pick And Choo Se The Relevant Clauses Which Gives A Colour To That Agreement Of A Business Agreement It Must Not Be Forgotten That Assessee May Not Be Engaged In The Business Trade Or Commerce But The Service Receiver I E The Other Party To The Contract Is Necessar Ily Engaged In Obtaining Those Services Which Should Be Effective Efficient Reliable And Sustainable Hence Such Clauses Are Required Therefore It Cannot Be Said That Those Clauses Suggests That Assessee Is Carrying On Business 18 Further Merely Because The Profits Have Been Earned In One Or Two Years It Cannot Lead To The Fact That Assessee Is Existing For Making Profit It Is Required To Be Ascertained That Whether Profit Making Is Not The Driving Force Or Dominant Objective Of T He Assessee The Assessee Has Adit E Vs Ernet India Ita No 2873 2874 Del 2014 Assessment Year 2009 10 And 2010 11 Page 14 Given Enough Evidences To Show That Profit Earning Is Not The Driving Force Or Objective Of The Assessee As The Principal Emerges From The Decision Of The Honble Supreme Court In Cit Vs Surat Art Silk Manufacturing Associa Tion 121 Itr 1 Activity For The Profit Connotes That The Predominant Object Of The Activity Must Be The Making Of Profit It Is Not Enough That As A Matter Of Fact The Activities Results Into Profit Where An Activity Is Not Pervaded By The Profit Motive B Ut Is Carried On Primarily For Serving The Charitable Purposes It Would Not Be Correct To Describe It As An Activity For Profit Merely Because Profit Accrues Even The Proposition Was Rejected That If The Purposes Truly Charitable The Attainment Of The P Urpose Must Rigorously Exclude Any Activity For Profit Further Conversely Where Profit Making Is The Predominant Object Of The Activity The Purpose Though It May Aim At Advancing An Object Of General Public Utility Would Cease To Be A Charitable Purpos E U S 2 15 Of The Act It Is Demonstrated By Assessee By Overwhelming Evidences That Its Activities Do Not Exist For Profit Hence The Argument Of The Revenue That Assessee Is Having Considerable Surplus Deserves To Be Rejected 19 Furthermore The Ld Dr Has Heavily Relied On The Decision Of Institute Of Chartered Accountant Of India Vs Director General Of Income Tax 13 Taxmann Com 175 Where It Is Held That Whether An Activity Would Be Considered As Business If It Is Undertaken With A Profit Making Motive But In Some Cases This May Not Be Determinative In Such Cases There Should Be Evidence And Material To Show That Activity Has Continued On Sound And Recognized Business Principles Which Are Pursued With Reasonable Continuity I N That Decision Honble High Court Has Shown The Clear Distinction Between Coaching Classes Conducted By The Private Parties And Institute Of Chartered Accountants Of India We Are Also Of The View That Service Provided By The Assessee Is To Be Looked Fro M Different Perspective For The Reason That Its Main Objective Are Incidental To Education And That Too Without Any Profit Motive 20 Ld Ar Has Relied Up On The Decision Of Hon Delhi High Court In Case Of Gs 1 V Dgit Exemption 360 Itr 138 Delhi 2014 Wherein Though The Issue Pertained To Ay 2008 09 The Hon High Court Also Discussed The Provisions W E F 1 4 2009 Hon High Court Also Considered The Decision Rendered In 347 Itr 99 Which Is Relied Up On By Revenue The Hon High Court Held That Statutory Provisions 12 In The Present Case The Period In Question Is Both Prior And Subsequent To The Amendments Made Applicable Vide Finance Act 2008 With Effect From April 1 2009 Before Deciding The Contentions Of The Parties We Would Like To Fi Rst Reproduce Section 2 15 Of The Act Which Defines The Term Charitable Purpose Before And After Its Amendment By The Finance Act Adit E Vs Ernet India Ita No 2873 2874 Del 2014 Assessment Year 2009 10 And 2010 11 Page 15 2008 Section 2 15 Before Amendment By The Finance Act 2008 Was As Under 2 15 Charitable Purpose Includes Rel Ief Of The Poor Education Medical Relief And The Advancement Of Any Other Object Of General Public Utility By The Finance Act 2008 With Effect From April 1 2009 The Following Pro Viso Was Added Provided That The Advancement Of Any Other Object Of General Public Utility Shall Not Be A Charitable Purpose If It Involves The Car Rying On Of Any Activity In The Nature Of Trade Commerce Or Business Or Any Activity Of Rendering Any Service In Relation To Any Trade Com Merce Or Business For A Cess Or Fee Or Any Other Consideration Irre Spective Of The Nature Of Use Or Application Or Retention Of The Income From Such Activity A Second Proviso Inserted To Section 2 15 By Finance Act 2010 With Ret Rospective Effect From April 1 2009 Reads As Under Provided Further That The First Proviso Shall Not Apply If The Aggre Gate Value Of The Receipts From The Activities Referred To Therein Is Ten Lacs Or Less In The Previous Year Rupees Ten Lakhs Mentioned In The Second Proviso Stands Enhanced To Rupees Twenty Five Lakhs By The Finance Act 2011 With Effect From April 1 2012 The Main Section 2 15 Of The Act Has Also Undergone Amendments Now Reads 2 In This Act Unless The Context Otherwise Requires 15 Charitable Purpose Includes Relief Of The Poor Education Medical Relief Preservation Of Environment Including Watersheds Forests And Wild Life And Preservation Of Monuments Or Places Or Objects Of Artistic Or Historic Interest And The Advancement Of Any Other Object O F General Public Utility Provided That The Advancement Of Any Other Object Of General Pub Lic Utility Shall Not Be A Charitable Purpose If It Involves The Carrying On Of Any Activity In The Nature Of Trade Commerce Or Business Or Any Activity Of Rende Ring Any Service In Relation To Any Trade Commerce Or Business For A Cess Or Fee Or Any Other Consideration Irrespective Of The Nature Of Use Or Application Or Retention Of The Income From Such Activity Provided Further That The First Proviso Shall Not Apply If The Aggre Gate Value Of The Receipts From The Activities Referred To Therein Is Twenty Five Lakh Rupees Or Less In The Previous Year Period Prior To The Amendment Vide Finance Act 2008 With Effect From April 1 2009 13 With Regard To Th E Period Prior To April 1 2009 The Controversy Should Not Have Been Raised By The Respondent With Respect To The First Reason Reason A In View Of The Authoritative Pronouncement Of The Supreme Court In Addl Cit V Surat Art Silk Cloth Manufacturers As Sociation 1980 121 Itr 1 Sc In The Said Decision It Was Held That The Primary Or Dominant Purpose Of The Trust Or Institution Has To Be Examined To Determine Whether The Said Institution Trust Was Involved In Carrying On Any Activity For Profit Adit E Vs Ernet India Ita No 2873 2874 Del 2014 Assessment Year 2009 10 And 2010 11 Page 16 If The Primary Dominant Purpos E Or Object Of The Trust Or Institution Was To Carry Out Object Of General Public Utility And Not Any Activity For Profit Then The Same Would Satisfy The Requirements Of Section 2 15 Of The Act Money Earned From Business Held Under Trust Or Otherwise To Feed The Charity Would Not Disentitle Or Negate The Claim Of Engagement In Charitable Purpose Defined Under Section 2 15 Of The Act The Following Quote From The Said Judgment Is Relevant Page 25 The Test Which Has Therefore Now To Be Applied Is Whether The Predominant Object Of The Activity Involved In Carrying Out The Object Of General Public Utility Is To Subserve The Charitable Purpose Or To Earn Profit Where Profit Making Is The Predominant Object Of The Activity The Purpose Though An O Bject Of General Public Utility Would Cease To Be A Charitable Purpose But Where The Predominant Object Of The Activity Is To Carry Out The Charitable Purpose And Not To Earn Profit It Would Not Lose Its Character Of A Charitable Purpose Merely Because Some Profit Arises From The Activity The Exclusionary Clause Does Not Require That The Activity Must Be Carried On In Such A Manner That It Does Not Result In Any Profit It Would Indeed Be Difficult For Persons In Charge Of A Trust Or Institution To So C Arry On The Activity That The Expenditure Balances The Income And There Is No Resulting Profit That Would Not Only Be Difficult Of Practical Realization But Would Also Reflect Unsound Principle Of Management Period Post The Amendment Vide Finance Act 2008 With Effect From April 1 2009 14 A Bare Perusal Of The Main Provision Indicates That There Are Four Main Factors That Need To Be Taken Into Consideration Before Classifying The Activity Of The Assessee As Charitable Under The Residuary Category I E Advancement Of Any Other Object Of General Public Utility Under Section 2 15 Of The Act The Four Factors Are I Activity Should Be For Advancement Of General Public Utility Ii Activity Should Not Involve Any Activity In The Nature Of Trade Commerce And Business Iii Activity Should Not Involve Rendering Any Service In Relation To Any Trade Commerce Or Business Iv Activities In Clauses Ii And Iii Should Not Be For Fee Cess Or Other Consideration And If For Fee Cess Or Consideratio N The Aggregate Value Of The Receipts From The Activities Under Ii And Iii Should Not Exceed The Amount Specified In The Second Proviso The Earlier Test Of Business Feeding Or Application Of Income Earned Towards Charity Because Of The Statutory Amend Ment Is No Longer Relevant And Apposite 15 In Institute Of Chartered Accountants Of India V Director General Of Income Tax Exemptions 2012 347 Itr 99 Delhi Charitable Purpose Under The Residuary Claus E Of Section 2 15 Was Discussed And Explained In The Following Words Page 108 The Proviso Applies Only If An Institution Is Engaged In Advance Ment Of Any Other Object Of General Public Utility And Postulates That Such An Institute Is Not Charitable If It Is Involved In Carrying On Any Activity In The Nature Of Trade Commerce Or Business Or Any Activity Of Rendering Any Service In Relation To Any Trade Commerce Or Business The Second Part Any Activity Of Rendering Any Service In Relation To Any Trade Commerce Or Business Obviously Intends To Expand The Scope Of The Proviso To Include Services Adit E Vs Ernet India Ita No 2873 2874 Del 2014 Assessment Year 2009 10 And 2010 11 Page 17 Which Are Rendered In Relation To Any Trade Commerce Or Business The Proviso Further Stipulates That The Activity Must Be For A Cess Or Fee Or Any Oth Er Con Sideration The Last Part States That The Proviso Will Apply Even If The Cess Or Fee Or Any Other Consideration Is Applied For A Charitable Acti Vity Purpose The Proviso Has To Be Given Full Effect To Thus Even If Cess Fee Or Consideration Is Us Ed Or Utilized For Charitable Purposes The Proviso And The Bar Will Apply An Institution Will Not Be Regarded As Established For Charitable Purpose Activity Under The Last Limb If Cess Fee Or Consideration Is Received For Carrying On Any Activity In Na Ture Of Trade Commerce Or Business Or For Any Activity Of Rendering Of Any Service In Relation To Any Trade Commerce Or Business Even If The Consideration Or The Money Received Is Used In Furtherance Of The Charitable Purposes Activities In View Of The First Proviso The Deci Sions That The Application Of Money Profit Is Relevant For Determining Whether Or Not A Person Is Carrying On Charitable Activity Are No Longer Relevant And Apposite Even If The Profits Earned Are Used For Charitable Purposes Bu T Fee Cess Or Consideration Is Charged By A Person For Carrying On Any Activity In The Nature Of Trade Commerce Or Business Or Any Activity Of Rendering Of Any Service In Addition To Any Trade Commerce Or Business It Would Be Covered Under The Pro Vis O And The Bar Prohibition Will Apply Scope Of Trade Commerce Or Business 16 The Key Words Namely Trade Commerce And Business Were Enumerate And Elucidate In Institute Of Chartered Accountants Of India V Director General Of Income Tax Exemption S 2012 347 Itr 99 Delhi As Under Page 113 Trade As Per The Websters New Twentieth Century Dictionary 2nd Edition Means Amongst Others A Means Of Earning Ones Living Occupation Or Work In Bla Cks Law Dictionary Trade Means A Business Which A Person Has Learnt Or He Carries On For Procuring Subsistence Or Profit Occupation Or Employment Etc The Meaning Of Commerce As Given By The Concise Oxford Dictionary Is Exchange Of Merchandise Specially On Large Scale In Ordinary Parlance Trade And Commerce Carry With Them The Idea Of Purchase And Sale With A View To Make Profit If A Person Buys Goods With A View To Sell Them For Profit It Is An Ordinary Case Of Trade If The Transactions Are On A Large Scale It Is Called Commerce Nobody Can Define The Volume Which Would Convert A Trade Into Commerce For The Purpose Of The First Proviso To Section 2 15 Trade Is Sufficient Therefore This Aspect Is Not Required To Be Examined In Detail The Word Business Is The Broadest Term And Is Encompasses Trade Commerce And Other Activities Section 2 13 Of The Income Tax Act Defines The Term Business As Under 2 Definitions 13 Bus Iness Includes Any Trade Com Merce Or Manufactu Re Or Any Adventure Or Concern In The Nature Of Trade Commerce Or Manufacture The Word Business Is A Word Of L Arge And Indefinite Import Sec Tion 2 13 Defines Business To Incl Ude Any Trade Commerce Or Manu Facture Or Any Adventure Or Concern In The N Ature Of Trade Commerce Or Manufacture The Adit E Vs Ernet India Ita No 2873 2874 Del 2014 Assessment Year 2009 10 And 2010 11 Page 18 Intention Of The Legislature Is To Make The Definition Extensive As The Term Inclusive Has Been Used The Legislature Has Deliberately Departed From Giving A Definite Import To The Term Business But Made Ref Erence To Several Other General Terms Like Trade Commerce Manufacture And Adventure Or Concern In The Nature Of Trade Commerce And Manufacture In Blacks Law Dictionary Sixth Edition The Word Business Has Been Defined As Under Employment Occupation Profession Or Commercial Activity Engaged In For Gain Or Livelihood Activity Or Enterprise For Gain Benefit Advantage Or Livelihood Union League Club V Johnson 18 Cal 2 D 275 Enterprise In Which Person Engaged Shows Willingness To Invest Time And Capital On Future Outcome Doggett V Burnet 62 App Dc 103 65 F 2 D 191 That Which Habitually Busies Or Occupies Or Engages The Time Attention Labour And Effort Of Persons As A Principal Serious Concern Or Interest Or For Livelihood Or Profit According To Sampath Iyengars Law Of Income Tax 9th Edition A Business Activity Has Four Essential Characteristics Firstly A Business Must Be A Continuous And Systematic Exercise Of Activity Business Is Defined As An Active Occupation Continuously Carried On Business Vocation Connotes Some Real Substantive And Systematic Course Of Activity Or Conduct With A Set Purpose The Second Essential Charac Teristic Is Profit Motive Or Capable Of Producing Profit To Regard An Activity As Business There M Ust Be A Course Of Dealings Continued Or Contemplated To Be Continued Normally With An Object Of Making Profit And Not For Sport Or Pleasure Bharat Development P Ltd V Cit 1982 133 Itr 470 Delhi The T Hird Essential Characteristic Is That A Business Transaction Must Be Between Two Persons Business Is Not A Unilateral Act It Is Brought About By A Transaction Between Two Or More Persons And Lastly The Business Activity Usually Involves A Twin Activit Y There Is Usually An Element Of Reciprocity Involved In A Business Transaction 17 In The Said Case Reliance And Reference Was Made To State Of Punjab V Bajaj Electricals Ltd 1968 70 Itr 730 Sc 1968 2 Scr 536 Khoday Distilleries Ltd V State Of Karnataka 1995 1 Scc 574 Bharat Development P Ltd V Cit 1982 133 Itr 470 Delhi Barendra Prasad Ray V Ito 1981 129 Itr 295 Sc State Of Andhra Pradesh V H Abdul Bakshi And Bros 15 Stc 664 Sc State Of Gujarat V Raipur Manufacturing Co Ltd 19 Stc 1 Sc Director Of Supplies And Disposal V Member Board Of Revenue 20 Stc 398 Sc And Mrs Sarojini R Ajah V Cit 1969 71 Itr 504 Mad To Expl Ain The Terms Trade Commerce Or Business 18 Referring To The Concept And Principle Of Economic Activity That Has Gained Some Acceptability In European Union And England It Was Explained That The Said Principle Is Applicable To Sales Tax Value Added Tax Excise Duty Etc Because These Are No T Taxes On Income But The Taxable Event Occurs Because Of The Economic Activity Involved Even If A Person Organization Is Carrying On Trading Business On No Loss No Profit Principle It May Be Liable To Pay Taxes Or Comply With The Statute When The Charge Or Incident Of Tax Is On The Economic Activity The Words Trade Commerce And Business Are Etymological Chameleon And Suit Their Adit E Vs Ernet India Ita No 2873 2874 Del 2014 Assessment Year 2009 10 And 2010 11 Page 19 Meanings To The Context In Which They Are Found Five Tests Propounded In Customs And Excise Commissioners V Lord Fisher 1981 Stc 238 And The Decision In Cst V Sai Publication Fund 2002 258 Itr 70 Sc 2002 4 Scc 57 Was Quoted 19 The Final And Determining Factors It Was Observed Was Consequential Profit Motive O R Purpose Behind The Activity And When An Activity Is Trade Commerce Or Business Was Elucidated In Institute Of Chartered Accountants Of India V Director General Of Income Tax Exemptions 2012 347 Itr 99 Delhi In The Following Words Page 123 Section 2 15 Defines The Term Charitable Purpose Therefore While Construing The Term Business For The Said Section The Object And Purpose Of The Section Has To Be Kept In Mind We Do Not Think That A Very Broad And Extended Definition Of The Term Business Is Intended For The Purpose Of Interpreting And Applying The First Proviso To Section 2 15 Of The Act To Include Any Transaction For A Fee Or Money An Activit Y Would Be Considered Business If It Is Undertaken With A Profit Motive But In Some Cases This May Not Be Determinative Normally The Profit Motive Test Should Be Satisfied But In A Given Case Activity May Be Regarded As Business Even When Profit Motiv E Cannot Be Established Proved In Such Cases There Should Be Evidence And Material To Show That The Activity Has Continued On Sound And Recog Nized Business Principles And Pursued With Reasonable Continuity There Should Be Facts And Other Circumstances Which Justify And Show That The Activity Undertaken Is Infect In The Nature Of Business The Test As Prescribe In Raipur Manufacturing Co Supra And Sai Publication Fund Supra Can Be Applied The Six Indicia Stipulated In Lord Fisher Supra Are Also Relevant Each Case Therefore Has To Be Examined On Its Own Facts 20 Recently In Another Decision In Wp C No 1755 Of 2012 Titled Bureau Of Indian Standards V Director General Of Income Tax Exemptions 2013 358 Itr 78 Delhi Dated September 27 2012 It Was Held That Bureau Of Indian Standards Bis Was Carrying On Charitable Activities As Described Within The Ambit Of Section 2 15 And Was Entitled To Registration Notification Under Section 10 23 C Iv We However Note That There Is One Distinction Between The Present Petitioner And Bis Bis Is A Statutory Authority Created By The Legislation And Therefore Their Case And Claim Stands On A Better Footing But This Does Not Imply That Only Statutory Bodies Can Be Tr Eated As Established For Charitable Purpose Under Section 2 15 Of The Act Such Contention Has Not Been Raised And Cannot Be Sustained Accepted Circular No 11 Of 2008 By The Central Board Of Direct Taxes 21 It May Be Relevant To Reproduce Extract From Circular No 11 Of 2008 Dated December 19 2008 Issued By The Central Board Of Direct Taxes Explaining The Amendments To Section 2 15 Of The Act The Relevant Portion Of The Circular Reads As Under See 2009 308 Itr St 5 Section 2 15 Of The Income Tax Act 1961 Act Defines Chari Table Purpose To Include The Following I Relief Of The Poor Ii Education Iii Medical Relief And Adit E Vs Ernet India Ita No 2873 2874 Del 2014 Assessment Year 2009 10 And 2010 11 Page 20 Iv The Advancement Of Any Other Object Of General Public Utility 2 An Entity With A Charitable Obje Ct Of The Above Nature Was Eli Gible For Exemption From Tax Under Section 11 Or Alternatively Under Section 10 23 C Of The Act However It Was Seen That A Number Of Entities Who Were Engaged In Commercial Activities Were Also Claiming Exemption On The Gro Und That Such Activities Were For The Advance Ment Of Objects Of General Public Utility In Terms Of The Fourth Limb Of The Definition Of Charitable Purpose Therefore Section 2 15 Was Amended Vide Finance Act 2008 By Adding A Proviso 3 The New Ly Inserted Proviso To Section 2 15 Will Apply Only To Entities Whose Purpose Is Advancement Of Any Other Object Of General Public Utility I E The Fourth Limb Of The Definition Of Charitable Pur Pose Contained In Section 2 15 Hence Such Entities Will Not Be Eli Gible For Exemption Under Section 11 Or Under Section 10 23 C Of The Act If They Carry On Commercial Activities Whether Such An Entity Is Carrying On An Activity In The Nature Of Trade Commerce Or Business Is A Question Of Fact Which Wil L Be Decided Based On The Nature Scope Extent And Frequency Of The Activity 3 2 In The Final Analysis However Whether The Assessee Has For Its Object The Advancement Of Any Other Object Of General Public Utility Is A Question Of Fact If Such Assessee Is Engaged In Any Activity In The Nature Of Trade Commerce Or Business Or Renders Any Service In Rela Tion To Trade Commerce Or Business It Would Not Be Entitled To Claim That Its Object Is Charitable Purpose In Such A Case The Object Of Gen Eral Public Utility Will Be Only A Mask Or A Device To Hide The True Purpose Which Is Trade Commerce Or Business Or The Rendering Of Any Service In Relation To Trade Commerce Or Business Each Case Would Therefore Be Decided On Its Own Facts And No G Eneralization Is Pos Sible Assessees Who Claim That Their Object Is Charitable Purpose Within The Meaning Of Section 2 15 Would Be Well Advised To Eschew Any Activity Which Is In The Nature Of Trade Commerce Or Business Or The Rendering Of Any Servi Ce In Relation To Any Trade Commerce Or Business Emphasis Supplied 22 It Is Evident From Circular No 11 Of 2008 That The New Proviso Of Section 2 15 Of The Act Is Applicable To The Assessees Who Are Engaged In Commercial Activities I E Carryi Ng On Business Trade Or Commerce In The Garb Of Public Utility To Avoid Tax Liability As It Was Noticed That The Object Of General Public Utility Was Sometimes Only A Mask Or Device To Hide The True Purpose Which Was Trade Commerce Or Business D Iscussion Activities Of The Petitioner And Difference Between Business And Charity 23 In The Present Case The Business Is Not Held In Trust And Neither Is The Business Feeding The Charity The Very Act Or Activity Of Charity As Claimed By The Pet Itioner Is Regarded By The Revenue As Nothing But Business Trade Or Commerce Money Received Of Course Is Used And Utilized For The Charitable Activities Four Reasons Are Elucidated And Propounded In The Impugned Order To State That The Petitioner Is En Gaged In Business Trade Or Commerce And Aforesaid Encapsulated In The Impugned Order The Petitioner Has Acquired Intellectual Property Rights Receives Fee From Third Parties Which Is Nothing But Payment Of Royalty There Is A Huge Surplus Of Adit E Vs Ernet India Ita No 2873 2874 Del 2014 Assessment Year 2009 10 And 2010 11 Page 21 Receipts O Ver Expenditure Refer Table Reproduced In Paragraph 7 Above And Payment Is Made By The Petitioner To Gs 1 Global Services Belgium 24 Can It Be Said That The Petitioner Is Engaged In The Activities Which Constitute Business Commerce Or Trade As Obse Rved Above The Legal Terms Trade Commerce Or Business In Section 2 15 Means Activity Undertaken With A View To Make Or Earn Profit Profit Motive Is Determinative And A Critical Factor To Discern Whether An Activity Is Business Trade Or Commerce 2 5 Business Activity Has An Important Pervading Element Of Self Interest Though Fair Dealing Should And Can Be Present Whilst Charity Or Charitable Activity Is Anti Thesis Of Activity Undertaken With Profit Motive Or Activity Undertaken On Sound Or Recog Nized Business Principles Charity Is Driven By Altruism And Desire To Serve Others Though Element Of Self Preservation May Be Present For Charity Benevolence Should Be Omnipresent And Demonstrable But It Is Not Equivalent To Self Sacrifice And Abnegation The Antiquated Definition Of Charity Which Entails Giving And Receiving Nothing In Return Is Outdated A Mandatory Feature Would Be Charitable Activity Should Be Devoid Of Selfishness Or Illiberal Spirit Enrichment Of Oneself Or Self Gain S Hould Be Missing And The Predominant Purpose Of The Activity Should Be To Serve And Benefit Others A Small Contribution By Way Of Fee That The Beneficiary Pays Would Not Convert Charitable Activity Into Business Commerce Or Trade In The Absence Of Contra Ry Evidence The Quantum Of Fee Charged Economic Status Of The Beneficiaries Who Pay Commercial Value Of Benefits In Comparison To The Fee Purpose And Object Behind The Fee Etc Are Several Factors Which Will Decide The Seminal Question Is It Busines S 26 The Petitioner Charges An Initial Registration Fee Of Rs 20 000 Plus Annual Fee Of Rs 4 000 Enhanced To Rs 5 000 From The Financial Year 2006 07 Onwards From Third Parties Who Become Subscribing Members And Are Entitled To Use The Coding Syst Em Gs 1 The Revenue Acknowledges That The Petitioner Enjoys Monopoly And Has Exclusive Rights To Issue Global Bar Coding System Gs 1 In India However The Petitioner Is Not Dealing Or Treating The Prized Rights As A Right Which Is To Be Exploited Commerc Ially To Earn Or Generate Profits A Coding System Of This Nature If Marketed On Commercial Lines With Profit Motive Would Amount To Business But When The Underlying And Propelling Motive Is Not To Earn Profits Or Commercially Exploit The Rights But Gener Al Public Good I E To Promote And Make Gs 1 Coding System Available To Indian Traders Manufacturers Government Etc It Will Fail The Test Of Business And Meets The Touchstone Of Charity The Petitioner Is Not Directly Or Indirectly Subjecting Their Activity To Market Mechanism Dynamics I E Demand And Supply Rather It Is Motivated And Prompted To Serve The Beneficiaries This Is Not A Case Of Commercial Exploitation Of Intellectual Property Rights To Earn Profits But Rather A Case Where A Token F Ee Has Been Fixed And Payable By The User Of The Global Identification System 27 The Petitioner Does Not Cater To The Lowest Or Marginalized Section Of The Society But Government Public Sector And Private Sector Manufacturers And Traders No Fee Is Cha Rged From Users And Beneficiaries Like Stockist Whole Sellers Government Departments Etc While A Nominal Fee Is Only Paid By The Manufacturer Or Marketing Agencies I E The First Person Who Installs The Coding System Which Is Not At All Exorbitant I N View Of The Benefit Adit E Vs Ernet India Ita No 2873 2874 Del 2014 Assessment Year 2009 10 And 2010 11 Page 22 And Advantage Which Are Overwhelming Any One From Any Part Of The World Can Access The Database For Identification Of Goods And Services Using Global Standard The Fee Is Fixed And Not Product Specific Or Quantity Related I E Dep Endent Upon The Quantum Of Production Registration And Annual Fee Entitles The Person Concerned To Use The Gs 1 Identification On All Their Products Non Levy Of Fee In Such Cases May Have Its Own Disadvantages And Problems Charging A Nominal Fee To Use T He Coding System And To Avail Of The Advantages And Benefits Therein Is Neither Reflective Of Business Aptitude Nor Indicative Of Profit Oriented Intent 28 Having Applied The Test Mentioned Above Including The Criteria For Determining Whether The Fee Is Commensurate And Is Being Charged On Commercial Or Business Principles We Find That The Petitioner Fulfils The Charitable Activity Test It Is Apparent To Us That The Revenue Has Taken A Contradictory Stand As They Have Submitted And Accepted That The Pe Titioner Carries On Charitable Activity Under The Residuary Head General Public Utility But Simultaneously Regards The Said Activity As Business Thus The Contention Of The Revenue That The Petitioner Charges Fee And Therefore Is Carrying On Business Has To Be Rejected The Intention Behind The Entire Activity Is Philanthropic And Not To Recoup Or Reimburse In Monetary Terms What Is Given To The Beneficiaries The Element Of Give And Take Is Missing But The Decisive Element Of Bequeathing Is Present In The Absence Of Profit Motive And Charity Being The Primary And Sole Purpose Behind The Activities Of The Petitioner Is Perspicuously Discernible And Perceptible 29 The Table Relied On By The Respondent And Mentioned In Paragraph 7 Above Tells A Par Tial Story Only Direct Expenses Incurred Have Been Set Off From The Fee Earned From Registration And Renewal The Activity Of The Petitioner Involves Promotion Propagation And Spreading Awareness And Knowledge About Global Coding Identification System Gs 1 The Entire Expenditure Of The Petitioner Has To Be Taken Into Consideration And Cannot Be Ignored There Are Stipulations In Sections 11 13 Etc Of The Act To Prevent Misuse Of Or Siphoning Of Funds Bar Prohibit Gains To Related Persons Stipulation S Of Time Limits For Use Of Funds Which Are Effective Checks And Curtail And Deny Benefit In Cases Of Abuse There Is No Such Allegation Or Contention Of The Revenue In The Present Case 30 As Observed Above The Fee Charged And The Quantum Of Income Ear Ned Can Be Indicative Of The Fact That The Person Is Carrying On The Business Or Commerce And Not Charity But We Must Keep In Mind That Charitable Activities Require Operational Running Expenses As Well As Capital Expenses To Be Able To Sustain And Contin Ue In Long Run The Petitioner Has To Be Substantially Self Sustaining In Long Term And Should Not Depend Upon The Government In Other Words Taxpayers Should Not Subsidize The Said Activities Which Nevertheless Are Charitable And Fall Under The Residuar Y Clause General Public Utility The Impugned Order Does Not Refer To Any Statutory Mandate That A Charitable Institution Falling Under The Last Clause Should Be Wholly Substantially Or In Part Must Be Funded By Voluntary Contributions No Such Requirem Ent Has Been Pointed Out Or Argued A Practical And Pragmatic View Is Required When We Examine The Data Which Should Be Analyzed Objectively And A Narrow And Coloured View Will Be Counter Productive And Contrary To The Language Of Section 2 15 Of The Act Adit E Vs Ernet India Ita No 2873 2874 Del 2014 Assessment Year 2009 10 And 2010 11 Page 23 Extracted From Itr Online 21 All The Questions Raised In The Order Of The Ld Ao Has Been Answered By The H On Delhi High Court With Respect To The Fees Charged By The Assessee Naturally It Should Be Commensurating With The Efforts Put In By The Organization And To Defray Its Cost As Well As Further Capital Cost It Is Also Required To Be Noted That Assessee Is Engaged In Research Based Activity Which Is Highly Cost Intensive And Requires Co Ntinuous Spending On The Innovation And New Developments As It Is Concerning With The Education Of The Society The Assessee Has Categorically Stated Before The Ld Ao As Well As Before Ld Cit A That It Is Charging Subscription As Well As Consultancy Fees On Actual Which Fact Is Not Denied Therefore Merely Earning The Surplus Does Not Result In To The Conclusion That Assessee Is Carrying On Its Activities Which Can Be Termed As Business Trade Or Commerce 22 Furthermore On Perusal Of The Order Of The L D Cit A We Do Not Concur With The Arguments Of The Ld Cit Dr That Order Is Perfunctory And Devoid Of Reasons For The Reasons That He Has Decided The Issues Relying On The Decision Of Honorable Delhi High Court According To Us The Ld Cit A Has Also Given His Finding On All The Aspects Of The Issues Raised By Ld Ao 23 In View Of The Above Facts And Respectfully Relying On The Decision Of Hon Delhi High Court In 360 Itr 138 We Find No Infirmity In The Order Of The Ld Cit A Hence We Dismiss All The Grounds Of Appeal Of Revenue In Ita No 2873 Del 2011 For Ay 2009 10 24 Further The Appeal Of The Revenue For Ay 2010 11 In Ita No 2874 Del 2011 Also Involves The Same Issues Therefore For The Reasons Given By Us In Appeal Of Revenue For Ay 2009 1 0 We Also Dismiss All The Grounds Of Appeal Of Revenue In Ita No 2874 Del 2011 For Ay 2010 11 25 In The Result Both The Appeals Of The Revenue Are Dismissed Order Pronounced In The Open Court On 2 7 12 2017 S D S D Bhavnesh Saini Prashant Maharishi Judicial Member Accountant Member Dated 2 7 12 2017 A K Keot Copy Forwarded To 1 Applicant 2 Respondent 3 Cit 4 Cit A 5 Dr Itat Adit E Vs Ernet India Ita No 2873 2874 Del 2014 Assessment Year 2009 10 And 2010 11 Page 24 Assistant Registrar Itat New Delhi