DCIT Vs Ernet India (ITAT Delhi)
Conclusion: Merely earning surplus by assessee did not result into the conclusion, that assessee was carrying on its activities, which could be termed as business, trade, or commerce, charging a nominal fee to use coding system and to avail of advantages and benefits therein was neither reflective of business aptitude nor indicative of profit-oriented intent. Accordingly, proviso to section 2(15) did not get attracted, and hence, there was no justification for denying exemption under section 11.
Held: Assessee was an autonomous society established under the aegis of Department of Information Technology, Ministry of Communications and Information Technology, Government of India, as a non-profit organization. Looking to the activities carried out by it, which fell within the ambit of ‘charitable purposes’ under section 2(15), it was granted registration u/s.12A vide order dated 26.03.2004. AO observed that, assessee was neither in the field of education nor in the field of medical relief or relief of poor albeit it fell within the scope of “general public utility” as per Section 2(15). AO held that looking to its receipts, its activities were commercial in nature. He observed that in view of the amendment to Section 2(15) assessee cannot be held to be carrying out charitable activities as it was carrying on activities in the nature of trade commerce or business in terms of first proviso to Section 2(15) and after detailed discussion, he held that entire surplus as per income and expenditure claimed, computed the net taxable income at Rs. 8,93,98,650/-. It was held that Assessee was engaged in research based activity which was highly cost intensive and required continuous spending on innovation and new developments as it was concerning with the education of society. Assessee was charging subscription as well as consultancy fees on actual, which fact was not denied. Therefore, merely earning surplus did not result into the conclusion, that assessee was carrying on its activities, which could be termed as business, trade, or commerce, charging a nominal fee to use coding system and to avail of advantages and benefits therein was neither reflective of business aptitude nor indicative of profit-oriented intent. Accordingly, proviso to section 2(15) did not get attracted, and hence, there was no justification for denying exemption under section 11.
FULL TEXT OF THE ITAT JUDGEMENT
The aforesaid appeal has been filed by the Revenue against the impugned order dated 20.12.2016, passed by Ld. Commissioner of Income Tax (Appeals)-XL, Delhi for the quantum of assessment passed u/s.143(3) for the Assessment Year 2012-13. In the grounds of appeal, the Revenue has raised following grounds:
“1.On the facts and circumstances of the case, Ld CIT(A) has erred in allowing the appeal of the assessee by ignoring the fact that even though the objects of the Society may have been charitable but the activities carried out by the Society which yielded income to the Society were commercial in nature.
2. On the facts and circumstances of the case, Ld CIT(A) has erred in allowing the appeal of the assessee by ignoring the fact that assessee was earning huge profits by providing data connectivity to its subscribers in lieu of consideration as per its objects and nowhere, charity can be seen in the whole process
3. On the facts and circumstances of the case, Ld. CIT (A) has erred in allowing the appeal of the assessee by ignoring the fact that as capital expenditure for earlier years was allowed as application of income in the year in year of purchase of fixed asset/s
4. On the facts and circumstances of the case, Ld CIT(A)has erred in allowing assessee’s appeal by ignoring that assessee like charitable or religious institutions are governed by almost the separate or independent provisions of sections 11, 12, 12A, 12AA & 13 and these provisions are independent code in itself in Chapter III of the Income Tax Act, 1961. The income and expenditure is computed on the basis of the entire expenditure including the capital expenditure for purchase of capital asset u/s. 11(1).”
2. At the outset, ld. counsel for the assessee submitted that in the appeal for the Assessment Years 2009-10 and 2010-11 this Tribunal on similar issues and grounds raised by the Revenue has decided the issue in favour of the assessee and dismissed the Revenue’s Appeal. Not only that, the decision of the Tribunal has been affirmed by the Hon’ble Delhi High Court in ITA No. 637/2018 vide judgment and order dated 25.09.2018. Thus, the matter stands squarely covered in favour of the assessee.
3. On the other hand, ld. DR strongly relied upon the order of the Assessing Officer.
4. The facts in brief are that the assessee is an autonomous society established under the aegis of Department of Information Technology, Ministry of Communications and Information Technology, Government of India, as a non-profit organization. The main objects of the assessee’s society was to run nation-wide academic and research network to undertake and promote R&D in the area of communication, develop policy options in the country for development of network infrastructure and to act as research center for technological and managerial resources in the area of computer network. Looking to the activities carried out by it, which fell within the ambit of ‘charitable purposes’ under section 2(15), it was granted registration u/s.12A vide order dated 26.03.2004. Ld. Assessing Officer observed that, assessee is neither in the field of education nor in the field of medical relief or relief of poor albeit it falls within the scope of “general public utility” as per Section 2(15) of the Act. The ld. Assessing Officer held that looking to its receipts, its activities were commercial in nature. He observed that in view of the amendment to Section 2(15) assessee cannot be held to be carrying out charitable activities as it was carrying on activities in the nature of trade commerce or business in terms of first proviso to Section 2(15) and after detailed discussion, he held that entire surplus as per income and expenditure claimed, computed the net taxable income at Rs. 8,93,98,650/-.
5. Ld. CIT (A) following the appellate order for the Assessment Year 2011-12 held that the assessee is not involved in any trade, commerce or business activities and as such the provision to Section 2(15) is not attracted, and therefore, there is no justification for denying the exemption u/s.11.
6. We find that this Tribunal in assessee’s own case for the Assessment Years 2009-10 and 2010-11 in ITA No. 2873 & 2874/Del/2014 vide order dated 27.12.2017 has discussed this issue in detail and allowed the exemption u/s. 11. The relevant observations and the findings are as under:
“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 development of computer communication in the country and it is a non-profit 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 Hon‟ble 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 Hon‟ble Minister of Communication and Information 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 for 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 institutions, 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 available 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 among 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 following 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 terms 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.
3.2.3 Work in the areas 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 inclulcate 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 and 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 educational 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, design and development (R&D) Units in the country for development of systems, subsystems, hardware and software to build an appropriate technological and application base in the country.
3.2.1 Award research surveys studies technology development and consultancy 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 participation 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 maintain 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 furtherance 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. 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 the 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 and 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 To 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 objects 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 bank.
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 means 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 banking 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;
viiInvestment or deposit in any public Sector company;
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 which 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.
xi) 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 Presence (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 access through Satellite.
ERNET network supports IPv4 and IPv6 Internet Protocol. IPv6, routing protocol OSPFv3, end to end Ethernet services, QoS (DiffServ), video conferencing, authentication and authorization rave also been implemented on ERNET Network. ERNET 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 upgraded 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 and ICT Projects .
1. Trans Eurasia Information Network – TEIN3
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.
TEIN3 that started in 2009 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, TEIN3 Point of Presence (PoP) has 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 connectivity to GEANT (the pan- European data network) and TEIN3 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 TEIN3 PoP in Mumbai through National Knowledge Network (NKN). The connectivity to TEIN3 is being used by India for connecting to researchand education networks worldwide for collaborative research.
2. EU-IndiaGrid2 – Sustainable e-Infrastructures across Europe and India EU-India Grid 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-TEIN3.
3. My FIRE – Multi-disciplinary Networking of Research Communities in FIRE MyFIRE (my-fire.eu) is an European Commission funded project launched in June, 2010 through the EU FP7 programme, under the ICT thematic priority Future Internet Research and Experimentation (FIRE). The project aims to ensure a balance between the requirements for researcher’s collaboration and the stakeholder’s expectations. MyFIRE project consortium includes, four. European partners (Inno TSD SA France, ETSI France, University of Edinburgh UK and Fraunhofer Germany), and four international partners from BRIC (IPT Brazil, ITMO Russia, ERNET India and BII China) countries.
4. Mobile IPv6 Test bed – Mobility between heterogeneous access networks Mobile IPv6 test bed is a joint project between ERNET 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 IPv6Home Agent (HA), Mobile Node (MN) anti Correspondent Node (CN) services configured using the UMIP MIPv6 stack. The seamless network layer mobility test between different WLAN subnets is completed.
5. 6L0WPAN – Management and Monitoring of Wireless Sensor Networks 6L0WPAN 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 project is to develop a prototype for monitoring and managing a 6L0WPAN based Wireless Sensor Network (WSN). An experimental 6L0WPAN testbed is setup at ERNET using TelosB motes with temperature, light and humidity sensors for development and testing.
6. Virtual 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, Bengaluru 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
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 Vidyalayas & 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. Community Information Centre’s – Vidya Vahini (CIC-Ws) CIC-VVs are operational in the Government school’s 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 for 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 implementation 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 friendly 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 Understanding (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 project 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. ELinkage of the remote 200 KVKs/ZPDs has been established with the VSAT Hub at ICAR Headquarters in New Delhi. The scientists, and officials at each of the KVK/ZPD can access Internet, e-mailing and web services on 24X7 basis. The e- Linkage network is enabled for Video Multicast and IP telephony which allows each KVK/ZPD to watch Video sessions broadcast from the HUB and to have voice interaction among each other and the centre. The e-linkage facility had been operationalized. The facility is being used for scheduling talks, lectures and seminars delivered from the Hub by domain experts on weekly 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).
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, administration 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 10 Gigabit 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 through 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. ERNET India is implementing/implemented the following Video Conference projects:
