INCOME TAX ACT, 1961

Section 2(15), Proviso Section 11

Charitable trust - Exemption under section 11 - Applicability of proviso to section 2(15) - Earning of surplus vis-a-vis no profit motive

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. Main objects of assessee's 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. It claimed exemption under section 11. AO held that as assessee was earning huge profits by providing data connectivity to its subscribers looking at assessee's receipts, its activities were commercial in nature and, therefore, assessee was not entitled to exemption in view of proviso to section 2(15). Held: Fee charged and quantum of income earned could be indicative of the fact that person was carrying on business or commerce and not charity, but charitable activities require operational/running expenses as well as capital expenses to be able to sustain and continue in long run. Assessee had to be substantially self-sustaining in long-term and could not depend upon Government. 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.

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