NATIONAL PAYMENTS CORPORATION OF INDIA,MUMBAI vs. DCIT (E) 2(1), MUMBAI

Assessment Years:2010-11 & 2012-13 National Payments Corporation of India आयकर अपीलीय अिधकरण “बी” "ायपीठ मुंबई म"। IN THE INCOME TAX APPELLATE TRIBUNAL “B” BENCH, MUMBAI माननीय "ी महावीर िसंह, उपा"" एवं माननीय "ी मनोज कुमार अ"वाल ,लेखा सद" के सम"। BEFORE HON’BLE SHRI MAHAVIR SINGH, VP AND HON’BLE SHRI MANOJ KUMAR AGGARWAL, AM

आयकरअपील सं./ I.T.A. No.5431/Mum/2015 (िनधा"रण वष" / Assessment Year: 2010-11) & आयकरअपील सं./ I.T.A. No.3382/Mum/2016 (िनधा"रण वष" / Assessment Year: 2012-13) National Payments Corporation of India DCIT(E)-2(1) 1001-A, B-Wing, 10th Floor बनाम/ Room No.510, 5th Floor The Capital, Bandra-Kurla Complex Piramal Chambers Vs. Bandra (E), Mumbai- 400 051. Lalbaug, Mumbai- 400 012. "थायीलेखासं./जीआइआरसं./PAN/GIR No. AACCN-9852-G (अपीलाथ"/Appellant) (""थ" / Respondent) : Assessee by : S/Shri Soli E.Dastur (Ld. Sr. Counsel), Niraj Sheth & Rajesh V.Shah-Ld. ARs Revenue by : Shri Rahul Raman-CIT- DR सुनवाई की तारीख/ : 21/01/2020 Date of Hearing घोषणा की तारीख / : 06/07/2020 Date of Pronouncement आदेश / O R D E R

Manoj Kumar Aggarwal (Accountant Member) 1. Aforesaid appeals by assessee for Assessment Years [in short referred to as ‘AY’] 2010-11 and 2012-13 contest separate orders of learned first appellate authority on certain common grounds of appeal. Assessment Years:2010-11 & 2012-13 National Payments Corporation of India Since common issues were involved, the appeals were heard together and are now being disposed-off by way of this common order for the sake of convenience and brevity. It is admitted position that adjudication in any of the years would apply to other year also. First, we take up appeal for AY 2010-11. ITA No.5431/Mum/2015, AY 2010-11 2.1 Aggrieved by the order of Ld. Commissioner of Income-Tax (Appeals)-1, Mumbai, [in short referred to as ‘CIT(A)’], Appeal No. CIT(A)-I/IT/E-2(68)/2013-14 dated 04/09/2015, the assessee is under appeal with following grounds of appeal: - The following grounds are without prejudice to each other: 1) The Commissioner of Income Tax (Appeals) ["the CTT(A)"] erred in confirming the action of the Assessing Officer ("the AO") in rejecting the appellant's claim for exemption under section 11 and section 12 of the Income Tax Act, 1961 ("the Act") on the ground that its activities were not charitable and on the ground that the first proviso to section 2(15) of the Act was applicable. 2) The CIT(A) overlooked that the appellant was formed as a "Not for Profit Company" under section 25 of the Companies Act, 195h and was prohibited by its object clause from carrying on any activity on commercial basis. 3) The AO and the CIT(A) ought to have held that the entire history / genesis behind the formation of the appellant, the manner of and purpose behind the formation of the appellant, the fact that the appellant had been licensed by the Central Government under section 25 of the Companies Act and the tact of involvement of the Ministry of Finance and Reserve Bank of India in the formation of the appellant clearly showed that the appellant's case did not come within the scope of the proviso to section 2(15) of the Act. 4) The CIT(A) erred in holding that Re.1 per transaction charged by the appellant to banks was consideration for services rendered by the appellant even though admittedly the appellant had merely provided an infrastructure facility to banks and recovered costs thereof. He failed to appreciate that provision of an infrastructure facility to banks cannot be equated with rendering of a service. 5) The CIT(A) erred in holding that profit motive is not required to be proved for the applicability of the first proviso to section 2(15). He failed to appreciate that the first proviso to section 2(15) is attracted only in cases of activities which are carried on with profit motive. 6) The CIT(A) overlooked that the total expenditure / application by the appellant was Rs. 14.25 crores (including capital expenditure of Rs.6.82 crores) and that Rs.7.50 crores was accumulated under section 11(2) specifically for capital projects, Assessment Years:2010-11 & 2012-13 National Payments Corporation of India thus, leaving no surplus on account of its application of income and permitted accumulations far exceeding its income. 7) The CIT(A) failed to appreciate that the activities of the Appellant could neither be regarded as being in the nature of trade, commerce or business per se nor in the nature of activities in relation to trade, commerce or business. 8) The CIT(A) erred in confirming the view of the AO that income of the appellant is applied directly or indirectly for the benefit of persons referred to in section 13 (3) of the Act, 9) The CIT(A) failed to appreciate that the banks which had invested in the share capital of the Appellant could not he regarded as persons who had made a contribution to the Appellant and, therefore, they were not covered under section 13(3) of the Act. 10) The CIT(A) failed to appreciate that the Appellant's income or property was not applied for the benefit of any bank since uniform rates was charged by the Appellant to all banks. 11) The CIT(A) erred in confirming the levy of interest under section 234B of the Act. 12) The CIT (A) erred in confirming the levy of interest under section 234D of the Act.” Ground Nos. 11 & 12 being consequential in nature, would not require any specific adjudication on our part. The assessee has filed revised Form 36 reflecting change of address which has been placed on record. 2.2 As evident from grounds of appeal, the assessee is primarily aggrieved by denial of exemption u/s 11 & 12 by Ld. Assessing Officer by invoking proviso to Sec. 2(15) as introduced by Finance Act, 2008 w.e.f. 01/04/2009. The provisions of Section 11 provide for exemption to certain income derived from property held under trust wholly for charitable or religious purposes. The expression ‘Charitable Purpose’ as defined u/s. 2(15) would include relief of the poor, education, medical relief, preservation of environment & monuments, objects / places of historic interest and advancement of any other object of general public utility. The first proviso to Sec 2(15) as introduced by The Finance Act, 2008 w.e.f. 01/04/2009 provide that the last limb i.e. ‘advancement of any other Assessment Years:2010-11 & 2012-13 National Payments Corporation of India 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 for any other consideration, irrespective of the nature of use or application, or retention, of the income from such activity. The proviso has two limbs and provide that the advancement of any other object of general public utility shall not be a charitable purpose if it involves the carrying on of: - (i) 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, (ii) irrespective of the nature of use or application, or retention, of the income from such activity. The Finance Act, 2010 added 2nd proviso to provide that 1st proviso shall not apply if the aggregate value of the receipts from the activities referred to therein was below Rs.10 Lacs in the previous year. The Hon’ble Supreme Court in CIT v. Gujarat Maritime Board [2007 295 ITR 561] observed that the expression 'any other object of general public utility' is of the widest connotation. This expression would prima facie include all objects which promote the welfare of the general public. The CBDT, vide Circular No. 11 of 2008 dated 19/12/2008, clarified that the first proviso will apply only to those entities whose purpose was ‘advancement of any other object of general public utility’ and therefore, such entities would not be eligible to claim exemption u/s 11 if they carry on commercial activities. Whether the entity was carrying on an activity in the nature of trade, commerce or business would be a question of fact which will be decided based on the nature, scope, extent and frequency Assessment Years:2010-11 & 2012-13 National Payments Corporation of India of the activity. Para 3.2 of the circular clarified that if the assessee having its object as ‘advancement of any other object of general public utility’ engages in any activity in the nature of trade, commerce or business or rendering of any service in relation to trade, commerce or business, it would not be entitled to claim that its object is charitable in nature. In such a case, the object of general public utility will be only a mask or a device to hide the true purpose which is trade, commerce or business or rendering of any service in relation to trade, commerce or business. Rival Arguments & Submissions 3.1 The learned Sr. Counsel, Shri Soli E. Dastur, referring to the background in which the assessee entity was formed, advanced argument to submit that the objective of the assessee could never be treated to be profit motive and the assessee’s activities would squarely fall within the meaning of charitable purpose and therefore, the assessee was eligible to claim the benefit of Sec.11 & 12 of the Act. 3.2 Another pleadings are that the assessee continue to have valid registration as Trust u/s 12AA of the Act which was granted post- insertion of proviso to Sec.2(15). The registration is subsisting and the same is never been revoked by the revenue authorities. Therefore, the assessee would be entitled to claim the exemption. 3.3 Our attention has been drawn to various documentary evidences as placed on record, to support all these arguments. A chart has been placed before us to dispel the observations of lower authorities that the assessee was charging fees with a view to earn profit while rendering Assessment Years:2010-11 & 2012-13 National Payments Corporation of India certain services and therefore, it was not eligible to claim the stated benefit. As per the chart, the fees charged by the assessee has drastically been reduced by 70% from Re.1/- per transaction in AY 2010- 11 to Re.0.30 per transaction in AY 2020-21 as tabulated below: - Date of Period Rate per Reduction Resolution transaction (%) (INR) From To 31st March 2010 From 1st January, 1 — 2010 (i.e from commencement of activity 1SI April 2010 8th August 2010 23rd March 2010 0.8 20%

30th July 2010 9th August 2010 30th April 2015 0.5 50%

20th May 201 5 1st May 2015 30th September 0.45 55% 201 7 1st October 2017 30th September 11 th August 0.4 60% 201 7 2018 1st October 2018 31st March 2019 25 September 0.35 65% 2018 25th September 1st April 2019 - 0.3 70% 2018

3.4 The Ld. Sr. Counsel, also assailed the violation of the provisions of Sec.13(1)(c)(ii) as alleged by Ld. AO by submitting that there was no contributor in the assessee entity and no benefit was provided to any of the contributors. The Ld. Sr. Counsel, on the strength of the language of various statutory provisions as well as in the light of various judicial pronouncement, sought to draw the distinction between subscription of Assessment Years:2010-11 & 2012-13 National Payments Corporation of India shares vis-à-vis contributions. The arguments were also raised to draw the distinction between ‘facility’ and ‘services’. 3.5 Reliance has been placed on various judicial pronouncements, the copies of which have been placed on record. The written submissions have been filed in due course. We have duly considered the pleadings / arguments as well as written submissions made before us by Ld. Sr. Counsel. 3.6 Another pertinent argument made before us is that the assessee took over existing activities of National Finance Switch (NFS) from Institute for Development & Research in Banking Technology (IDRBT), Hyderabad. Similar exemption was denied by revenue authorities to IDRBT for AYs 2010-11 & 2011-12. The assessee agitated the same successfully before Hyderabad Tribunal which is reported at 63 Taxmann.com 297. The revenue contested the said order before Hon’ble High Court of Andhra Pradesh & Telangana wherein by judgment dated 09/10/2017 (400 ITR 66), the revenue’s appeals were dismissed for both the years. The Special Leave Petition preferred by the revenue against the same has subsequently been dismissed by Hon’ble Supreme Court vide SLP No. 19564/2018 dated 20/07/2018. The copies of orders / judgements have been placed on record. The Ld. Sr. Counsel submitted that the assessee’s took over existing activities of IDRBT and the same were pari-materia the same as carried out by IDRBT and therefore, the issue of exemption u/s 11& 12 would be covered in assessee’s favor by the aforesaid decisions. Hence, the assessee would be eligible to claim the benefit of Sec. 11 & 12. Assessment Years:2010-11 & 2012-13 National Payments Corporation of India 4. Au Contraire, Ld. CIT-DR supported the stand of lower authorities by submitting that the assessee’s case was hit by proviso to Sec.2(15) since it was carrying out systematic commercial activities for the benefit of participating banks which led to huge value additions for these banks. There was no element of charity in assessee’s activities. The Ld. CIT-DR also assailed the submissions that the assessee was created by an act of parliament and it was submitted that RBI was not its promoter. It was also submitted that core principle of forming the assessee was to assist public and private sector banks in carrying out their commercial activities involving receipts and payments by charging a fee. At the best, the activities could be for general public good and India being a welfare state, such mechanism only advances the economic activity and supports the payment system leading to economic buoyancy. However, there was no element of charity in the domain of the governance. The Ld. CIT-DR drew attention to the fact that the assessee reflected surplus of Rs.11.50 Crores against revenue of Rs.17.58 Crores which was in the shape of commercial fees. The Ld. CIT-DR also submitted that any person desirous of commencing the payment system may apply to RBI for an authorization under the Act. The assessee has no monopoly since there are other prominent players like paytm operating in the market. In the said background, Ld. CIT-DR supported the denial of benefit of Sec. 11 & 12. The written submissions were filed in due course which have duly been considered by us. 5. We have carefully heard the arguments advanced by both the representatives. We have gone through material placed before us. We Assessment Years:2010-11 & 2012-13 National Payments Corporation of India have also deliberated on various judicial pronouncements as cited before us during the course of hearing. Our adjudication to the subject matter of appeal would be as given in succeeding paragraphs. Factual Matrix and Summary of Proceedings before lower authorities 6.1 Facts on record would reveal that assessee being resident corporate assessee stated to be an entity registered u/s 25 of The Companies Act, 1956 was assessed for year under consideration u/s 143(3) on 25/03/2013 wherein the income of the assessee was determined at Rs.1000.85 Lacs as against ‘Nil’ return filed by assessee on 24/09/2010. The income was so assessed in view of the fact that the exemption claimed by the assessee u/s 11 & 12 was denied by Ld. AO. The return was subsequently revised on 23/03/2011 due to non- deduction of capital expenditure in the original return and due to revision in the amount of depreciation. 6.2 The material on record would further reveal that the assessee had applied for registration as trust u/s 12AA on 22/09/2009 and it has been granted registration u/s 12AA of the Act w.e.f. 01/04/2009 vide certificate dated 18/03/2010. The assessee was incorporated on 19/12/2008 as Section 25 company vide certificate of incorporation issued by The Asstt.