SUKHMANI SOCIETY FOR CITIZEN SERVICES,JALANDHAR vs. THE ASSTT. COMMISSIONER OF INCOME-TAX,, JALANDHAR

IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH, AMRITSAR BEFORE SH. SANJAY ARORA, ACCOUNTANT MEMBER AND SH. N. K. CHOUDHRY, JUDICIAL MEMBER I.T.A. No. 52/(Asr)/2014 Assessment Year: 2010-11

Sukhmani Society for Citizen Vs. Asstt. Commissioner of Services, Distt. Administrative Income-Tax, Circle-III, Complex, Ladowali Road, Jalandhar. Jalandhar. [PAN: AAFTS 7460M] (Appellant) (Respondent) I.T.A. No. 594/(Asr)/2017 Assessment Year: 2014-15

Sukhmani Society for Citizen Vs. Income Tax Officer Services, Distt. Administrative (Exemptions), Ward Complex, Ladowali Road, Jalandhar. Jalandhar. [PAN: AAFTS 7460M] (Appellant) (Respondent) Appellant by : Sh. J. S. Bhasin (Adv.) & Sh. Naresh Kumar (C.A.) Respondent by: Sh. A. N. Mishra (D. R.) Date of Hearing: 25.01.2018 Date of Pronouncement: 24.04.2018

ORDER Per Sanjay Arora, AM: This is set of two Appeals by the Assessee, i.e., for Assessment Years (AYs) 2010-11 & 2014-15, impugning its assessments u/s. 143(3) of the Income Tax, 1961 ('the Act' hereinafter), having been since confirmed by the Commissioner of

2 ITA Nos.52&594 (Asr)/2014&2017 (AYs 2010-11&2014-15) Sukhmani Society for Citizen Services v. Asst. CIT Income Tax (Appeals), Jalandhar ('CIT(A)' for short) vide orders dated 27.11.2013 & 29.06.2017 respectively.

‘Section 2. Definitions.— (15) "charitable purpose" includes relief of the poor, education, medical relief, preservation of environment (including watersheds, forests and wildlife) and preservation of monuments or places or objects of artistic or historic interest, and the advancement of any other object of general public utility : Provided that the advancement of any other object of general public 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 rendering 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 aggregate value of the receipts from the activities referred to therein is ten lakh rupees (*) or less in the previous year.’ (*) (twenty five lakhs, by Finance Act, 2011, w.e.f. 01/4/2012)

3 ITA Nos.52&594 (Asr)/2014&2017 (AYs 2010-11&2014-15) Sukhmani Society for Citizen Services v. Asst. CIT ‘7.8. Keeping in view the aforesaid discussions as per records as well as per documentary evidence given by the assessee, we find that the main project was initiated by the Govt. of Punjab in the month of August, 2002 at Fatehgarh Sahib. It was inaugurated by the Chief Minister of Punjab on 31.10.2002. The project was founded by the Govt. of India, Department of Communication & Information Technology. The Govt. of Punjab has decided to implement this project in all Districts of Punjab along with SUWIDHA Back-end Services (SUBS) of the Deputy Commissioner Branches in December, 2004. The project replication started in all districts with technical support of NIC-District Centres. As of now, the project is being executed in all Deputy Commissioner’s offices. The appellant society is registered with the Additional Registrar of Societies, Mansa vide No.44 of 22.03.2004 and its aims and objects are contained in Memorandum of Association of the Society which we have already mentioned in the foregoing paragraphs. After perusing the objects of the Society, we find that the Ld. CIT, Bathinda, has reproduced some important objects of the Society in para 3.1 (pages 2 & 3) of the impugned order which shows that this society has been established for maintaining the agencies and franchises in the district for the conduct of the business of the society, which clearly establishes that the present society is doing business with other agencies and franchises in the district for the conduct of the business. We have not seen any object of the society which shows that the present society is doing any charitable activities for the general public utility. The Ld. CIT, Bathinda has also referred the matter to the ITO Ward 1(4), Mansa to verify the genuineness of the activities of the present society who vide his reported dated 05.09.2011 has stated that the assessee has failed to produce books of account in the absence of which it is not possible to verify the genuineness of the activities of the society and the AO has not recommended the case of the assessee for registration u/s 12AA of the Act. Even otherwise, the assessee has failed to establish before the ld. CIT(A) that the society is doing any charitable work keeping in view its objects. Merely, mentioning about various objects in the nature of charitable activities in the Memorandum of Association, does not mean that the Society is doing any charitable activities for the general public utility and is entitled for registration under section 12AA of the Act. According to section 12AA of the Act, the Commissioner on receipt of application for registration of a trust or institution has to satisfy himself about the genuineness of activities of the trust or institution. In the present case, the Ld. CIT, Bathinda has made the inquiry from the concerned ITO, who has not recommended the case of the Society for registration. Even otherwise, the assessee has also failed to establish that the objects of the society are charitable in nature. 7.9. Keeping in view the aforesaid discussions, we are of the considered view that the activities of the assessee-society are not charitable in nature within the meaning of provisions of section 2(15) of the Act and it does not qualify to (be) treat(ed) as (a) charitable institution. Since the assessee has not established that its society is formed with objects of any charitable purpose, then the question of discussion of citations relied upon by the Society does not arise, even otherwise these judgments are different from the facts of present case and are not helpful the Society. The present society is doing its business and charging huge fees from the public which is in addition to the prescribed fee of the Punjab Govt. Even otherwise, the fees charged by the present society is in addition to the burden forced upon the common-man. Because (of) this service has to be rendered by the Punjab Govt. free of cost to the public against the fee prescribed in the chart as reproduced in the foregoing

4 ITA Nos.52&594 (Asr)/2014&2017 (AYs 2010-11&2014-15) Sukhmani Society for Citizen Services v. Asst. CIT paragraphs. We are of the considered opinion that no interference is called for in the well reasoned order passed by the ld. CIT, Bathinda. Therefore, we uphold the impugned order dated 26.09.2011 by dismissing the present appeal filed by the assessee-society.’ (emphasis, ours) The ld. Authorized Representative (AR), the assessee’s counsel, would, on the other hand, vehemently contest the said reliance, stating that the said decision is factually distinguishable. The assessee in that case, as apparent from para 7.8 of the tribunal’s order, did not produce the books of account, as required to be by the competent authority, referring the matter to the ITO Mansa and, therefore, it was not possible to verify the genuineness of its activities. A mere mention of the objects in its Memorandum would not clothe the activities with genuineness, on which aspect also, i.e., apart from objects, the registering authority is to satisfy itself. In the present case, on the contrary, there is no such adverse observation by the Assessing Officer. The said case must thus be regarded with reference to the facts of that case. He would then take us through the objects of the assessee- society as its per Memorandum of Association (MOA) (at PB-I, pgs. 4-19), reading out some of them, which we reproduce as under:

‘4. Objectives and functions of the Society: e. To workout and recommend the service fee/ user charges that could be charged from the end customers for the approval of the competent authority and concerned departments/ organizations over and above the prescribed bill amount/ fee/ statutory fee for providing the services through Sukhmani Centres/ Financial institutions or Franchisees. E-Governance Society and concerned Departments and Organizations. h. To chalk out detailed procedures for the collection of revenue for various services provided by the Sukhmani centres and to transfer the revenue in to the accounts of the Punjab E-Governance Society and to the concerned departments and organizations as per the policy guidelines of Punjab E-Governance Society.’ ‘5. The costs of IT resources and management of the district-level Society would be funded through the share of user charges. Initially, the costs for the purpose would be provided by the Government. The income and property of the Society howsoever derived shall be applied towards the promotion of the objects thereof as set-forth in this Memorandum of Association. No part of income and property of the Society shall be paid or transferred, directly or indirectly, by way of profit, to the persons who are, or, at any time, have been or shall be

5 ITA Nos.52&594 (Asr)/2014&2017 (AYs 2010-11&2014-15) Sukhmani Society for Citizen Services v. Asst. CIT members of the Society or Board of Governors or to any of them or to any persons claiming through them or any of them.’ The approval for the formation of such societies at the state and district level was given by the council of Ministers, Punjab, which was with the view to take full advantage of the E-Governance in all citizens related services, providing for the same through a single window mechanism in an integrated fashion, a concept since successfully implemented in the states of Andhra Pradesh, Rajasthan, Himachal Pradesh, Kerala and Maharashtra under different names. The purpose is a better delivery of the citizen services through the use of Information Technology (IT). For the purpose, a parent society by the name Punjab State E-Governance Society (PSEGS) has been formed at the state level, which, along with the citizen services societies at the district level, provides the institutional framework for the delivery of the citizen services. Detailed guidelines in the matter have been formulated by the Government, and circulated by the Chief Secretary, Government of Punjab, to all District Administrations, with the Deputy Commissioner of the respective District to be the over-all project in-charge. Being on a self-sustaining basis, user charges, termed ‘facilitation charges’, are to be charged and retained by the society, to be appropriated between the Punjab E-Governance Society; the District Sukhmani Society for Citizen Services; and the private partner. In fact, the Government of Punjab has set up a separate Department, by the name ‘Department of Government Reforms’, to act as a catalyst for administering this initiative, a reform measure, as well as a nodal agency of the State Government for this e- Governance initiative in its’ different departments. The facilitation charges are to be fixed by the State Government. In fact, these charges, as well as the time lines for the delivery of different IT based citizen services by the district level Sukhmani Societies are revised from time to time by PSEGS. The society is to be governed by the Board of Governors, which, as per rule 2(b) of its rules and regulations, is to be constituted by the Government, which, apart from the nominated members in

6 ITA Nos.52&594 (Asr)/2014&2017 (AYs 2010-11&2014-15) Sukhmani Society for Citizen Services v. Asst. CIT the form of eminent citizens and IT experts, at three each, include persons charged with the administration at the district level. The Board, charged with the general superintendence and control of the affairs of the society, is to function for the improvement in E-Governance in liaison with the State Government (in the Department of Information Technology). Reliance was placed by him on Circular No. 11/2008, dated 19.12.2008 issued by the Board in the context of amendment by way of first proviso to section 2(15) by Finance Act, 2008 w.e.f., 01.04.2009. It is, as clarified, only where the assessee is engaged in any act in the nature of trade, commerce, or business, or renders any service in relation thereto, that the constricted scope of the provision, per first proviso thereto, gets attracted. This is as the object of ‘general public utility’ is in such a case only a mask to hide the true purpose, which is trade, commerce or business. It is in this context that the Board ‘advised’ the assessees claiming a ‘charitable purpose’ to eschew activities which could be considered as commercial activities. In-as-much as it was emphasized that the facilitation charges are revisited time and again, reducing the same, the ld. AR was asked to furnish the receipt profile as well as the income-expenditure statement, which, as furnished, is accordingly reproduced as under: (Amount in Rs.)

Particulars 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 RECEIPTS Affidavit / Self Declaration 1493420 1631180 1453218 1023309 1148806 2109879 2360548 2495792 Arms Licence 1361300 1707300 719550 662557 965390 1044216 886351 1375129 Certification Charges 747900 815830 375109 324092 371065 393859 507557 553319 Copying 116930 124250 156737 140757 156348 152208 177359 193163 Counter Signature 1153000 988400 1025052 883572 898589 1454529 1565415 1650696 Demarcation 50100 - - - - - - -

7 ITA Nos.52&594 (Asr)/2014&2017 (AYs 2010-11&2014-15) Sukhmani Society for Citizen Services v. Asst. CIT Home Delivery - - - - - - - - Learner's Licence & Medicals 716125 625855 902907 911341 1043125 968840 819859 766651 Marriage Registration 2717580 4023265 3682786 3504156 4751535 5891726 7576495 Issuance of Certificates /ID Card - - - - - 597592 617725 1083387 E Aadhar Card Charges - - - - - 166962 1148340 1867873 Misc. 130700 149424 248868 318875 493022 770445 741832 1084231 Total (A) 5769475 8759819 8904706 7947289 8580501 12410065 14716712 18646736 Interest Received 109152 142274 113688 263048 258738 356412 712679 641312 Rent Received 326832 336564 385872 427768 381912 438312 457044 578358 Misc. Income / Stamp Papers 20125 9648 13611 22361 29048 12081 26966 16162 Statutory Forms - - - - - - 12982375 10018590 Forms Receipts 120221 120760 145050 140000 130122 119575 18000 5500 Total (B) 576330 609246 658221 853177 799820 926380 14197064 11259922 Gross Total (A) + (B) 6345805 9369065 9562927 8800466 9380321 13336445 28913776 29906658

Net Surplus / Deficit -834027 2901260 1401968 488329 543839 3611346 6006981 3486615

On that basis, it was submitted by him that but for the sale of statutory forms (in the last two years, i.e., fys. 2014-15 and 2015-16), the society would have incurred

8 ITA Nos.52&594 (Asr)/2014&2017 (AYs 2010-11&2014-15) Sukhmani Society for Citizen Services v. Asst. CIT a loss; the said sale being at Rs.129.82 lacs and Rs.100.19 lacs, as against a net surplus of Rs.60.07 lacs and Rs.34.87 lacs respectively. The following decisions are placed on record even as the same were not referred to by him during hearing: DIT(E) v. Sabarmati Gaushala Trust [2014] 362 ITR 539 (Guj); ICAI v. DGIT [2013] 358 ITR 91 (Del); ICAI v. DGIT [2012] 347 ITR 99 (Del); & Pinegrove International Charitable Trust v. Union of India [2010] 327 ITR 73 (P&H). The ld. Departmental Representative (DR) would rely on the order by the tribunal in Sukhmani Society for Citizen Services, Mansa (supra), stating that no contrary decision has been brought on record by the assessee. No doubt the tribunal took note of the fact that the assessee in that case had not proved the genuineness of its activities, but it also categorically held that the objects and the activities of the society were not charitable in terms of section of 2(15) of the Act. Abundant case law qua the scope of the term ‘business’ has been relied on by the Assessing Officer (AO), whose order stands upheld by the ld. CIT(A), reproducing a substantial part thereof, which therefore are relied upon, apart from the Board Instruction No. 1024 dated 07.11.1976 (copy on record).

9 ITA Nos.52&594 (Asr)/2014&2017 (AYs 2010-11&2014-15) Sukhmani Society for Citizen Services v. Asst. CIT Clearly, therefore, registration u/s. 12AA, while indicating that the objects and activities of the applicant trust/institution are charitable, does not preclude the Revenue to examine the actual carrying out of these objects in-as-much it is only this that would reveal if the same, admittedly ‘advancing an object of general public utility’, is a charitable purpose within the contracted scope of section 2(15) read with first proviso thereto. The gross receipt of the assessee-society, first year onwards, far exceeds Rs.10 lacs or, as the case may be, Rs.25 lacs, so that the second proviso to section 2(15), carving an exception to the first proviso, making it applicable only where the said monetary limit is breached, does not apply. Reference to the decision in Asst. CIT v. Surat City Gymkhana [2008] 300 ITR 214 (SC), as well as by the tribunal reported at [2000] 74 ITD 1 (Ahbd) and [2004] 90 ITD 569 (Chd), would therefore be of little assistance to the assessee.

4.2 The assessee’s next objection is that the decision in Sukhmani Society for Citizens Services, Mansa (supra) is distinguishable. True, the issue in that case was if registration u/s. 12AA stands rightly denied to the appellant-society. However, the decision by the tribunal in that case rested on the true interpretation of the first proviso to section 2(15), i.e., whether the same applies, given the nature of the activities of the appellant, as indeed informs the present case. The findings of the tribunal are already reproduced herein-before. The fact that the appellant in that case did not produce the books of account, so that the genuineness of the activities could also not be verified, obtains. The tribunal, however, duly noted that the society was formed by, and was working under the aegis of the State Government. The same, however, in its view, was not germane; the assessee, maintaining agencies and franchisees, was only conducting business. The Revenue’s finding of it pursuing commercial activities (refer para 7.6 of the tribunal’s order) was, accordingly, upheld, for which the tribunal also examined the appellants’ income and expenditure account and balance-sheets for 3 consecutive years (paras 7.2 to

10 ITA Nos.52&594 (Asr)/2014&2017 (AYs 2010-11&2014-15) Sukhmani Society for Citizen Services v. Asst. CIT 7.4). It is therefore difficult to agree that the said order by the tribunal is, as claimed, distinguishable. We shall, nevertheless, having heard the matter at length, proceed to examine the issue in some detail.

4.3 As a bare reading of section 2(15) shows, its first proviso would stand attracted only if the activity/s carried on in pursuance of its objects by the assessee- society constitutes trade, commerce or business (or any service in relation thereto). This is as, where not, even if a consideration (by whatever name called) is charged there-for, as admittedly in the present case, the advancement of an object of general public utility would continue to be a ‘charitable purpose’ u/s. 2(15). Though section 2(15) postulates ‘trade, commerce or business’, the former two (along with ‘manufacture’) find mention in section 2(13), defining (inclusively) the term ‘business’ itself, and which also includes any ‘concern’ or ‘adventure’ in the nature of trade, commerce or manufacture. ‘Business’, thus, even otherwise a term of wide and indefinite import, is used in section 2(15) to include activity/s which may not be captured in the terms ‘trade’ and commerce’. Further still, any service in relation to ‘trade’, commerce or business’ would also stand covered as an activity to which the mandate of the first proviso to section 2(15) shall apply. ‘Business’, significantly, stands extensively explained by the Hon'ble Courts in a variety of fact-situations and contexts, to some by the Apex Court reference has also been made in the assessment order. In Laxmaninarayan Ram Gopal & Son Ltd. v. Government of Hyderabad [1954] 25 ITR 449 (SC), the term was understood to include services to others of a variegated character, by holding as under: (pg. 459) ‘The activities which constitute carrying on of business need not necessarily consist of activities by way of trade, commerce or manufacture or activities in the in the exercise of a profession or vocation. They may even consist of rendering services to others which services may be of a variegated character.’

11 ITA Nos.52&594 (Asr)/2014&2017 (AYs 2010-11&2014-15) Sukhmani Society for Citizen Services v. Asst. CIT In the facts of that case, the appellant acting under an agency agreement for carrying on general management of the business of the company, subject to the control and supervision of the directors, was held by the Apex Court as carrying on business. It is the nature and scope of the activities, and not the extent of operations, which was relevant for the purpose, so that it was immaterial that the business was restricted to an individual or concern (i.e., the company). In CIT v. Lahore Electric Supply Company Ltd. [1996] 60 ITR 1 (SC), it was held that the term ‘business’ as contemplated under the Indian Income Tax Act, 1922, contemplates activities capable of producing profit which could be taxed. In State of Gujarat v. Raipur Manufacture Company Ltd. [1967] 19 STC 1 (SC), it was held that though the object of business is normally to make profit, the expression ‘profit motive’ does not postulate that profit must, in fact, be earned. Nor does the expression cover a mere desire to make some monetary gain out of a transaction or a series of transactions. It predicates a motive which pervades the transaction/s effected by a person in the course of his activities. It is not, as explained in CIT v. Gulab Devi Memorial Hospital [2017] 391 ITR 73 (pg. 94), also relied upon by the ld. AR, the existence of profit per se that is detrimental; the Act itself contemplating ‘profit’ which could be therefore exempt from tax. But, as afore- explained, the ability to generate the same, and which therefore assumes significance in the facts and circumstances of a case. In Indian Chambers of Commerce v. CIT [1975] 101 ITR 796 (SC), the Apex Court cited an example of a Blood Bank collecting blood on payment and supplying it for a higher price. Though the Blood Bank was serving an object of general public utility, sale of blood with the object of making profit made it difficult to call its’ purpose charitable. In Barendra Prasad Ray v. ITO [1981] 129 ITR 295 (SC), the Apex Court explained ‘business’ to mean an activity carried on continuously and systematically by a person by the application of labour or skill with a view to earning an income. In Bharat Development Pvt. Ltd. v. CIT [1982] 133 ITR 470

12 ITA Nos.52&594 (Asr)/2014&2017 (AYs 2010-11&2014-15) Sukhmani Society for Citizen Services v. Asst. CIT (Del), the term ‘business’ was held to mean some real substantive, systematic or organized course of activities or conduct capable of producing profit. After an exhaustive review of case law in the matter the Hon'ble Court in ICAI (supra), opined, in the context of section 2(15), that though ‘profit motive’ should normally be satisfied, yet that may not be conclusive, as where it is difficult to be proved/ established, in which case the test would be if it is continued on sound and recognized business principles and, further, pursued with reasonable continuity. There should be facts and circumstances which justify and show that the activity is in fact in the nature of business. Each case, it concluded, would have to be examined on its’ own facts (para 33, at pg. 123 of 347 ITR).

4.4 The preamble of the assessee-society reads as under: ‘1. Preamble The primary objective of the Sukhmani Society for Citizen Services, Jalandhar (SSCS- JALANDHAR) is to establish, manage, operate, maintain and control the service centres, namely, Sukhmani centers in the District for providing integrated citizen services to the public in an efficient, transparent, convenient and friendly manner using IT in all aspects of citizen services to maximize speed, accountability, objectivity, affordability, and accessibility from the perspective of the citizens. The Sukhmani Society is a district level body that would work under the overall umbrella of Punjab State E-Governance Society (PSEGS). All the service centers in a district would be established, managed and run by the Sukhmani Society of that district on a self- sustaining revenue model. Sukhmani Centres would be a one-stop shop for all Government services in an integrated manner. It is considered expedient to provide the Society a legal entity by getting it registered under The Societies Registration Act, 1860.’

We reproduce the preamble instead of all the different objects, as its various objects would only be in fulfillment of the statement of purpose per the preamble. Further, though the object clause (cl. 4) lists as many as 24 objects (a thro’ x), the principal object is to establish, manage, operate, maintain and control service centres, namely, the Sukhmani Centres, throughout the district, for providing integrated citizen services to the public in an efficient, transparent, convenient and

13 ITA Nos.52&594 (Asr)/2014&2017 (AYs 2010-11&2014-15) Sukhmani Society for Citizen Services v. Asst. CIT friendly manner using Information Technology (IT) in all aspects of citizen services so as to maximize speed, accountability, objectivity, affordability and accessibility from the perspective of the citizens (cl. 4(a)). All other objects would be incidental thereto, dove-tailing therewith. Indeed, it is this object that defines the assessee-society, and considered so both by the Revenue as well as by the tribunal in Sukhmani Society for Citizen Services, Mansa (supra). Again, the Preamble shows that the society is to run on a self-sustaining basis. It is to work out and recommend - for approval by the competent authority and the concerned department, the user charges that could be charged to end customers (citizens), and which would be over and above the prescribed/statutory fee levied by the Government (in the concerned department). As the society is to have no permanent staff of its own (refer post-defacto approval by the Chief Secretary for the formation of the societies by the State Government (PB-II, pgs 8-12, at clause 11 (v), containing the comments of the Finance Department), the man-power required for upgrading, administration, technical and other like purposes was to be contracted on job-work basis, i.e., outsourced, the cost of which is to be met by the revenue generated through service charges in lieu of the services. These service/ facilitation charges are to be apportioned between the Punjab E-Governance Society, the assessee and the private partner, selected through an open tendering process (refer note by the Chief Secretary dated 17.05.2005/ PB-II, pgs. 16-21). This is also borne out by clause 4 (l) reading as under: ‘l. To recruit and deploy the operational and managerial staff and other human resources, purely on contract basis, for operation and maintenance and running of the Citizen service centres as per the requirement/norms fixed by the Society from time to time.’ Other relevant sub-clauses of Cl. 4 read as under: ‘e. To workout and recommend the service fee/ user charges that could be charged from the end customers for the approval of the competent authority and concerned departments/ organizations over and above the prescribed bill amount/ fee/ statutory fee for providing the services through Sukhmani Centres/ Financial Institutions or Franchisees.

14 ITA Nos.52&594 (Asr)/2014&2017 (AYs 2010-11&2014-15) Sukhmani Society for Citizen Services v. Asst. CIT f. To collect the revenue/ payments/ service charge on behalf of Punjab E-Governance Society, various government departments and organizations and to issue receipts on behalf of the Punjab E-Governance Society and concerned Departments and Organizations. h. To chalk out detailed procedures for the collection of revenue for various services provided by the Sukhmani centres and to transfer the revenue in to the accounts of the Punjab E-Governance Society and to the concerned departments and organizations as per the policy guidelines of Punjab E-Governance Society. i. To chalk out, plan and execute the infrastructure requirements for site preparation, IT resources like hardware, software, connectivity, networking, operational & managerial staff, training, stationery items and consumables with associated agencies. To ensure the timely- availability of the necessary resources for the various activities under the project. j. To liasion with the associated IT companies for the analysis, design, development, testing and the implementation of the application software, networking, connectivity and other solutions necessary for providing Citizen services through the use of information technology. o. To recommend the necessary administrative reforms or processes re-engineering required accomplishing the objectives of e-governance and good governance. To test and recommend modifications to be made in the system or the processes involved. w. To make all other expenditures in connection with providing Citizen services through the Citizen services centre including salaries, connectivity costs, cost of power, cost of maintenance and consumables, cost of upgradation of equipment etc.’

Wide publicity is to be given to this measure of the Punjab Government by the assessee-society through the media (cl. 4(m)).

4.5 The question, therefore, is if these activities constitute ‘business’. We have no doubt in our mind that it is so. Without doubt, the whole object is to promote efficiency in the functioning of the Government in its various departments in relation to the delivery of citizen services by using IT. The managerial and technical resources are to be outsourced. The policy and legal framework for the same is provided by the Government, while the organizational and operational work is to be, under the overall superintendence and control of the Government, carried out by the private partner, secured on a contract/franchisee basis. This is what in corporate parlance is called a ‘business model’. Why, as apparent, it is the society, using the man power supplied by the private partner, which is to work out

15 ITA Nos.52&594 (Asr)/2014&2017 (AYs 2010-11&2014-15) Sukhmani Society for Citizen Services v. Asst. CIT and recommend the user charges, which - understandably, would cover operational cost (including for publicity), plus a reasonable margin, as in fact it does. It is the surplus that would enable the expansion or acquisition of infrastructure facilities. In fact, as it appears, and clearly - the technical and managerial resource being outsourced, it is this resource, which comes at a cost, that shall make the initial studies, recommending which departments are to be computerized and linked first, as well as the manner of doing so. Again, the recommendation of administrative reforms and process reengineering, to usher e-governance and good governance, in the various departments, would only be through, largely, this resource. That is, even the policy making and execution is to a considerable extent only with the active participation of the private partner. We rather find it to be a classical example of a public- private partnership, so as to bring about a better delivery of citizen services and, in a broader context, administrative reform and, thereby, governance, by co-opting IT - a challenging and highly technical work, made more so as the government staff is generally not technically skilled/equipped (apart from being not motivated) and the government forms/processes, apart from being archaic, silo based. It may be argued that the society is only a facilitator, enabling the Government in better discharge of its’ functions, i.e., enabling a state function. True, but then the assessee-society, or other societies of its kind, is not a State (refer Article 12 of the Constitution of India), nor any organ of the State. It is a separate legal entity, mandated to work for the government/state though. The State, which comes into existence through a constitutional mandate, cannot replicate itself, except through legislation (inasmuch as an authority constituted under law is also regarded as a State under Article 12). The same, however, unless exempt, as u/ss. 10(20), 10(20A) (since omitted), 10(46), etc. cannot claim exemption on account of its status. That the society is geared to help the state better perform its’ avowed functions (and obligations), as well as, thus, to cut the ordeal for the

16 ITA Nos.52&594 (Asr)/2014&2017 (AYs 2010-11&2014-15) Sukhmani Society for Citizen Services v. Asst. CIT citizen - the recipient of the services, will not make it any less business. Rather, it makes for a perfect business opportunity – there being a vast scope for improvement in the government functioning by injecting efficiency through induction of IT, for which the citizen – the end-user, presumably, would not mind paying for at the bargain of removing the ordeal which normally attends the delivery of such services. And, therefore, one, of which the Government of the day, sensing considerable potential for improvement, could also make political capital, if not generate revenue as well and, in any case, without having to fund the same. In fact, it has a good potential for percolating down, to actual administrative reforms, as referred to in object clause 4(o), extending thus beyond the areas of citizen interface only. Business, by definition, implies an exchange of value, where each side (party to the business transaction) provides what the other requires. In fact, business would practically happen only when one specializes (which could be in a product/s or service/s), so that the same is exchanged for value in satisfaction of the socio-economic (human) need. A tailor, for example, specializes in treating clothes (perhaps, in today’s times of specialization, clothes of a particular type), which he bargains for exchange of money with those needing finely stitched reasonably priced garment. That Government activities – even as what is contemplated in the present case is not government activity, which only can, for example, issue licences, NOCs, etc., but enabling the government activity to be performed more efficiently, by providing technical and managerial inputs and expertise, is not out of the purview of ‘business’, as clarified by House of Lords in Town Investments Ltd v. Department of Environment [1977] 1 All ER 813, a decision referred to in ICAI (supra) (para 29, at page 118 of 347 ITR).

4.6 It could then be said that the ‘profit motive’ guides the government decision. We have firstly seen that generation of revenue, and of being able to operate on a self-sustaining basis, without government support, is a prime consideration for

17 ITA Nos.52&594 (Asr)/2014&2017 (AYs 2010-11&2014-15) Sukhmani Society for Citizen Services v. Asst. CIT setting up the societies as the assessee-society and, in fact, informs the government initiative. Consideration of profit is implicit in the model approved, embedded in the Preamble itself. Further, we have, on a review of case law, seen that what is necessary is not the actual earning of profit – which has in fact been, but the capability to produce profit, and which is apparent. Rather, while a private person has to compete in the market – which is fiercely competitive, which, through an open competitive process, exercises a downward pressure on price and upward pressure on quality/delivery, government services face no such pressure. This is as they are, being outside the market paradigm, not subject to any competition. We are not making any criticism. All we wish to bring home is the fact that the government activities are generally not subject to the competitive pressure of the market, allowing a much larger freedom/field to effect price changes (increase).

In sum 5. We have considered the law as explained by the higher courts, principally, the Apex Court, as well as examined the nature and scope of the assessee’s activities, i.e., which it is undertaking or may undertake, including the manner thereof. The same, in our view, fall within the ambit of ‘business’. The term is not confined to purchase and sale of goods, and can assume varied forms. Being, in the present case – in the main, delivery of services through better coordination and induction of technology; acting as an interface between the Government in the concerned departments and the citizens; and pursuing administrative reforms. That it is formed with a view to promote efficiency, which is its’ raison de’tre, defining its rationale, is another matter. That it does so, or is formed by or engages with the Government, facilitating its’ work, or that of the citizens for that matter, is not relevant and, in any case, not material. Why, Governments give contracts all the time. That the service rates are fixed with the approval of the Government, is, again, largely inconsequential. The society is to operate on the self-sustaining

18 ITA Nos.52&594 (Asr)/2014&2017 (AYs 2010-11&2014-15) Sukhmani Society for Citizen Services v. Asst. CIT principle. The same itself implies being run on sound business principles in-as- much as it would ensure recovery of cost – which is not subject to any competitive pressure of the market, and a reasonable margin. Outsourcing is to be through the tendering process. A part (and not insubstantial) of the revenue generated is also to be given to Punjab E-Governance Society (refer object clauses 4(f),(g) & (h)). Fixing of the rate with the approval of the State Government, thus, would not detract from the fact that the activity is being run on sound business principles and, further, envisaged with reasonable continuity. The revenue comes from different avenues, which includes the sale of statutory forms. As such, nothing turns on the fact, as argued, that but for this, the business (undertaking) would not have returned a surplus (profit), which argument is though valid for only two years. How, one may ask, the sale of forms be ignored, which is an integral part of the assessee’s undertaking? In fact, the service rates, which are in addition to the statutory fee being charged by the Government, could be increased at any time, of course following the procedure for the purpose. It is, as explained, the ability to produce profit from the stated/pursued (set of) activity/s, that is relevant. In our view, therefore, the assessee is undertaking business and, accordingly, is hit by the second proviso to section 2(15) of the Act. The matter, given the law, is principally factual, and which we have decided by issuing definite finding of fact. We, therefore, do not consider the assessee’s reliance (which is by way of placing a copy of the order in the file) on the decision in Hoshiarpur Improvement Trust v. ITO (in ITA Nos. 496/Asr/2013 and 18/Asr/2015, dated 10.09.2015) and others, as of any consequence. 6. In view of the fore-going, we see no reason to take a view from different that by tribunal in Sukhmani Society for Citizen Services, Mansa (supra). The assessee is therefore not entitled to relief u/s. 11, and we, accordingly, decline interference. We decide accordingly.

19 ITA Nos.52&594 (Asr)/2014&2017 (AYs 2010-11&2014-15) Sukhmani Society for Citizen Services v. Asst. CIT 7. In the result, the assessee’s appeals are dismissed. Order pronounced in the open court on 24 .04.2018

Sd/- Sd/- (N. K. Choudhry) (Sanjay Arora) Judicial Member Accountant Member Dated: 24.04.2018 /GP/Sr. Ps. Copy of the order forwarded to: (1) The Appellant: Sukhmani Society for Citizen Services, Distt. Administrative Complex, Ladowali Road, Jalandhar (2) The Respondent: Asst. Commissioner of Income-Tax, Circle-III, Jalandhar. (3) The CIT(Appeal), Jalandhar (4) The CIT concerned (5) The Sr. DR, I.T.A.T.