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Tax Publishers National Payments Corporation of India v. DCIT [I.T.A. No. 5431/Mum/2015, dt. 6-7-2020] : 2020 TaxPub(DT) 2802 (Mum.-Trib.) Denial of charitable purpose exemption due to commercial activities referring to section 11/12 read with section 2(15) proviso -- Detailed discussion on this topic *Facts:* Assessee a consortium of different banks was incorporated as a section 25 company under Companies Act, 1956 in December, 2008 with the sole intent to take over electronic payment gateway services like NEFT, NFS, IMPS etc. from erstwhile IDRBT -- Institute for Development & Research in Banking Technology and was granted registration under section 12AA since incorporation. The scheme of operation was that the assessee was to charge Re. 1 per transaction with all banks, participants across the country including the consortium capital corpus contributors as well. This fee of Re. 1 was reduced basing volume increases in subsequent years. The assessing officer and Commissioner (Appeals) denied benefit of section 11/12 citing proviso to section 2(15) inserted vide Finance Act, 2007 with effect from 1-4-2009. The grounds of denial of charitable activities being -- 1. They were pursuing commercial activities by charging the Re. 1 thus their claim of 'any other object of general public utility' charitable activity was factually hit by the said proviso to section 2(15). 2. By charging the fees to the corpus consortium capital contributors they were hit by section 13(1)(c)(ii) which confirms denial of section 11/12 benefits if charitable activities is provided to corpus contributors. 3. No matter the setting aside of surplus for capital investment purposes they made a surplus after all expenses. Aggrieved the assessee went in appeal to ITAT -- Held in favour of the assessee that they were entitled to the benefits of section 11/12 exemption as their dominant activity or its intent has been one of charitable purpose under the limb -- 'any other object of general public utility'. 1. The erstwhile IDRBT enjoyed a similar exemption which was also contested by the department and held in favour of the assessee vide (2015) 63 Taxmann.com 297 (Hyd.-ITAT) : 2015 TaxPub(DT) 2971 (Hyd-Trib) upheld by High Court (2018) 400 ITR 66 (AP-HC) : 2018 TaxPub(DT) 0150 (AP-HC). Special leave of department dismissed by Supreme Court (SC) SLP No. 19564/2018, dated 20-7-2018. 2. The dominant theory test for charitable activity was applied. 3. Section 13(1)(c)(ii) would not be hit as services were provided to other banks besides corpus capital contributors on similar non-favourable terms. 4. The activity was an object of general public utility and the reduction in fee due to volume increases manifest a genuine charitable intent. *Applied:* Dominant test theory for Charitable activities from -- India Trade Promotion Organisation v. DGIT (Exemption) & Ors. (2015) 371 ITR 333 (Del-HC) : 2015 TaxPub(DT) 0623 (Del-HC) Institute of Chartered Accountants of India v. DGIT (2013) 358 ITR 91 (Del-HC) : 2013 TaxPub(DT) 2666 (Del-HC) Maharashtra Housing & Area Development Authority v. ADIT (I.T.A. No. 6678/Mum/2013, dt. 4-6-2019) Sabarmati Ashram Gaushala Trust (2014) 362 ITR 539 (Guj-HC) : 2014 TaxPub(DT) 1964 (Guj-HC) commercial intent is a must to be hit by the proviso to section 2(15). Genuine charitable activities cannot be hit by the said proviso. Ahmedabad Urban Development Authority v. ACIT (2017) 396 ITR 323 (Guj-HC) : 2017 TaxPub(DT) 1863 (Guj-HC) CIT v. Lucknow Development Authority (2014) 265 CTR 433 (All-HC) : 2014 TaxPub(DT) 0157 (All-HC)

Tax Publishers

National Payments Corporation of India v. DCIT [I.T.A. No. 5431/Mum/2015, dt. 6-7-2020] : 2020 TaxPub(DT) 2802 (Mum.-Trib.)

Denial of charitable purpose exemption due to commercial activities referring to section 11/12 read with section 2(15) proviso -- Detailed discussion on this topic

Facts:

Assessee a consortium of different banks was incorporated as a section 25 company under Companies Act, 1956 in December, 2008 with the sole intent to take over electronic payment gateway services like NEFT, NFS, IMPS etc. from erstwhile IDRBT -- Institute for Development & Research in Banking Technology and was granted registration under section 12AA since incorporation. The scheme of operation was that the assessee was to charge Re. 1 per transaction with all banks, participants across the country including the consortium capital corpus contributors as well. This fee of Re. 1 was reduced basing volume increases in subsequent years. The assessing officer and Commissioner (Appeals) denied benefit of section 11/12 citing proviso to section 2(15) inserted vide Finance Act, 2007 with effect from 1-4-2009. The grounds of denial of charitable activities being --

1. They were pursuing commercial activities by charging the Re. 1 thus their claim of 'any other object of general public utility' charitable activity was factually hit by the said proviso to section 2(15).

2. By charging the fees to the corpus consortium capital contributors they were hit by section 13(1)(c)(ii) which confirms denial of section 11/12 benefits if charitable activities is provided to corpus contributors.

3. No matter the setting aside of surplus for capital investment purposes they made a surplus after all expenses.

Aggrieved the assessee went in appeal to ITAT --

Held in favour of the assessee that they were entitled to the benefits of section 11/12 exemption as their dominant activity or its intent has been one of charitable purpose under the limb -- 'any other object of general public utility'.

1. The erstwhile IDRBT enjoyed a similar exemption which was also contested by the department and held in favour of the assessee vide (2015) 63 Taxmann.com 297 (Hyd.-ITAT) : 2015 TaxPub(DT) 2971 (Hyd-Trib) upheld by High Court (2018) 400 ITR 66 (AP-HC) : 2018 TaxPub(DT) 0150 (AP-HC). Special leave of department dismissed by Supreme Court (SC) SLP No. 19564/2018, dated 20-7-2018.

2. The dominant theory test for charitable activity was applied.

3. Section 13(1)(c)(ii) would not be hit as services were provided to other banks besides corpus capital contributors on similar non-favourable terms.

4. The activity was an object of general public utility and the reduction in fee due to volume increases manifest a genuine charitable intent.

Applied: Dominant test theory for Charitable activities from --

India Trade Promotion Organisation v. DGIT (Exemption) & Ors. (2015) 371 ITR 333 (Del-HC) : 2015 TaxPub(DT) 0623 (Del-HC)

Institute of Chartered Accountants of India v. DGIT (2013) 358 ITR 91 (Del-HC) : 2013 TaxPub(DT) 2666 (Del-HC)

Maharashtra Housing & Area Development Authority v. ADIT (I.T.A. No. 6678/Mum/2013, dt. 4-6-2019)

Sabarmati Ashram Gaushala Trust (2014) 362 ITR 539 (Guj-HC) : 2014 TaxPub(DT) 1964 (Guj-HC) commercial intent is a must to be hit by the proviso to section 2(15). Genuine charitable activities cannot be hit by the said proviso.

Ahmedabad Urban Development Authority v. ACIT (2017) 396 ITR 323 (Guj-HC) : 2017 TaxPub(DT) 1863 (Guj-HC)

CIT v. Lucknow Development Authority (2014) 265 CTR 433 (All-HC) : 2014 TaxPub(DT) 0157 (All-HC)