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Facts
The assessee filed an appeal against the order of the CIT(E) who denied registration under Section 12AA of the Income Tax Act, 1961. The denial was based on the finding that the assessee's activities, including software development and consultancy, did not fall under the charitable purposes defined in Section 2(15) of the Act. Further, significant funding from 'Azcom Infosolutions' was viewed as commercial in nature.
Held
The Tribunal held that the assessee's operations, primarily software development and consultancy, do not qualify as charitable under Section 2(15) of the Income Tax Act. The financing from 'Azcom Infosolutions' was also deemed commercial and not charitable income. Consequently, the denial of registration by the CIT(E) was upheld.
Key Issues
Whether the assessee's activities of software development and consultancy qualify as charitable purposes under Section 2(15) of the Income Tax Act. Whether the financing from 'Azcom Infosolutions' is of a charitable nature.
Sections Cited
12AA, 2(15), 11, 12
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Income Tax Appellate Tribunal, DELHI BENCH ‘F’: NEW DELHI
ORDER
PER YOGESH KUMAR U.S., JM:
This appeal is filed by the Assessee against the order of Learned Commissioner of Income Tax (Exemptions), Chandigarh[“Ld.CIT(E)”, for short], dated 28.09.2018 wherein the CIT(E) denied the registration to the applicant u/s 12AA of the Income Tax Act, 1961 (‘the Act’ for short).
None appeared on behalf of the assessee. The order sheet reveals that the assessee has been represented by the AR, however except taking adjournments, no efforts has been made to argue the present Appeal. Therefore, we deem it fit to decide the present appeal on hearing the Ld. DR.
2 3. The Ld. DR vehemently submitted that the operations of the assessee do not cover under any of the limbs specified u/s 2(15) of the Act. Even the financing dominantly from ‘Azcom Infosolutions’ does not partake the character of income as envisaged in Sections 11 & 12 of the Act. Further submitted that objects/activities of the assessee are more of in the nature of the software development and start up consultancy that can’t be accorded the visage of being charitable, therefore, the Ld. CIT(E) has rightly denied the registration to the Appellant u/s 12AA of the Act, which requires no interference in the hands of the Tribunal.
We have heard the Ld. DR and perused the materials available on record. The Ld. CIT(E) vide order dated 28.09.2018, rejected the application fresh by the Appellant u/s 12AA of the Act in following manners: “6. On 23.08.2018. Sh. Naveen Kumar Sharma, CA counsel for the applicant attended this office and filed written submissions in response to letter dated 31.07.2018 After perusal of submission it got revealed that Rs 18.99 lakhs were received in company's bank account from the account of “Azcom Infosolution” in F.Y 2017-18. In that context, a questionnaire was sent to applicant on 14.09.2018 to furnish further clarifications/details by 21.09.2018 and same was emailed also to applicant. The contents of the same are reproduced as under- (i) Please specify the limb of section 2(15) of the Act gels covered by the operations of the foundation. (ii) What is the relation with "Azcom Infosolution"? Provide the details of the field in which the entity operates and within what boundaries. (iii) What are the outcomes of the projects pursued by the company? (iv) You may also explain how, when the predominant expenditure is on salaries, the activity qualifies to attract the label 'charitable'. 7. On 24.09.2018, Sh. Naveen Kumar Sharma, CA, counsel for the applicant and Sh. Krishan Kumar Sirohi, Director of the company attended this office and filed reply to queries cited above. After perusal of reply it is revealed that the applicant in its reply has stated that its main focus is on to initiate, nurture, support select initiatives of technology and business innovations and lend them to gain success with the high impact colleges, innovative products oriented research in select merging areas and standardization. One of the projects undertaken by the foundation i.e. "Digital Kisan", cited in support was for creating suitable organization to work at the grassroots with the farmers to educate them for adopting digital platform solutions and other agricultural services based emerging technology application for agriculture. Apart from it, the applicant company has contended that it is creating course content and conducting workshop for the advance topic in engineering which includes mobile telecom network design from 2G mobile to 4G/5G mobile networks, IOT based implementation techniques, big data analytics and machine learning and network security. In light of the same the applicant has claimed that its operations fall in the limbs 'education', 'relief for poor' and 'preservation of environment of section 2(15) of the Act. It is pertinent to mention here that "Digital Kisan" is a software which keeps farmer's profile, the configuration of the farm units and the online details of all the farm operations. The main projects of the applicant i.e. Digital Kisan and conducting workshops on few technical toples do not qualify for the tag "education" envisaged in section 2(15) of the Act. Moreover the target area of digital kisan has been confessedly affirmed to be "progressive farmers". Similarly the clients participating in the workshops relate only to a miniscule section of the public. Moreover, the sense in which the word "education" has been used in section 2(15) as interpreted by the Apex Court in the case of Sole trustee, Loka Sikshan Sansthan (101 ITR 234) is systematic instruction, schooling or training given to the young is preparation for the work of life. It also connotes the whole course of scholastic instruction which a person has received. The word "education" has not been used in that wide and extended sense, according to which every acquisition of further knowledge constitutes education. To that extent, the contention of the applicant of pursuing 'education' limb of section 2(15) is not acceptable.
Further the applicant has contended that such technology is the key catalyst will help to create an environment that will have well informed masses that in term will not only bring relief for poor but will ensure preservation of environment byenhancing the production through efficiency created by technology and y them to develop new technology. However, the applicant has not explained how the development of software fell under the limb relief for poor of section 2(15) of the Act neither was it elaborated by the applicant that how the same will be useful in preservation of environment Coming up with a software and that foo whose outcomes do not manifest in any immediate tangible effect on the public at large doesn't qualify as charitable. It is pertinent to reiterate that the digitization of agriculture farm operation is for enhancing agriculture production and farmer's profitability through agriculture scientist intervention and by establishing an effective connect between progressive farmers and the agriculture eco-system which being developed by Government and the private sector for doubling the farmer's Income. To that extent it is safe to conclude that the development of software "Digital Kisan" doesn't
disseminate any direct benefits accruing to the predominant section amongst the farmers. In this light it would not be out of place to quote from the digital scheme papers that its operations would benefit the progressive farmers. Further, there is no evidence adduced how the outcomes of the workshops have percolated down to the public at large. Thus it is safe to conclude that the applicant company is not constructed in way that would enure to the benefit of the general public at large.
9.1 Moreover, it is seen from the Income & Expenditure accounts that major expenditure has been incurred for salary, car lease, car fuel, travelling and business promotion which are tabulated as below- Expenditure 2016-17 2017-18 Salary 24,00,000/- (68.4%) 42,00,000/- (77%) Car Lease 5,72,250/- (16.4%) 6,00,000/- (11%) Car Fuel 1,16,685/- (3.3%) 2,12,877/- (3.9%) Travelling Expenses 96,408/- 2,04,929- (3.8%) Business Promotion 68,551/- (2%) 55,783/- (1%)
It is clear from the above that 92.8% of total expenditure in FY 2016-17 and 96.7% of fuel, travelling and business promotion that do not corroborate efforts made towards the stated claims. There is no expense that has been shown which could qualify as utilization for charitable purposes since its inception. It is further relevant to mention here that major expenditure incurred on salary is on account of payments made to Mr. Krishan Kumar only who is the Director of the applicant Company. It is also seen that the company's income (that assumes the visage of public money once registered as a section '8' company) is being utilized to finance purchase of car (apart from other expenses thereupon) that is of a purely personal character with no benefits accruing to the general public. Additionally expenditure has been incurred on business promotion and welfare. Moreover, perusal of bank statements provided by the applicant reveals that Rs. 18.99 lakhs was received from the "Azcom Infosolution" in F.Y 2017-18 which the applicant company claims to work with in strategic advising capacity. The income therefrom does not partake the character of voluntary donations or income from property vested in the trust as envisaged in section 11 & 12 of the Act.
9.2 Moreover, company's stated objects are of a nature of software, research and start up consultant that can not be accorded the visage of being charitable. Some of them are stated as under-
“To do research by introducing industry unsolved problems, bring global emerging trends in new technology/product developments, create industry project oriented research environment in Indian Technical Universities, link research problems with commercially potential innovations, bring best global experience to be shared among research community, help defining research problem in the field of 5th generation mobile networks internet of things, 5 network security environment friendly technologies, establish working relations between research faculty in technical institutions India and the industry in Indian and abroad". 9.3 It is another issue that returns of income for the A.Y 2016-17 and 2017-18 have been filed in Form No. ITR-6 that are required to be filed by the company other than a company income of which arise from any property for religious or charitablepurposes. It is pertinent to mention that as per rule 12(1) of the IT Rules, 1962, the returns of income of the society/trust/company which works on the principal of 'no profit no loss', are required to be filed in Form No. ITR-7. Filing of return of income in form no. ITR-6 clearly indicates that the applicant company is involved in business operations.
Keeping in view all of the above, it is held that the contours of the company and the operations do not get covered under any of the limbs specified u/s 2(15) of the Act. Even the financing dominantly from Azcom Infosolutions' does not partake the character of income as envisaged in section 11 & 12 of the Act. It has been claimed that the applicant works with Azcom (a purely commercial concern) in strategic advising capacity. Any payment in lieu of such a relation would not qualify as income that is being sought to be exempt. Moreover, the stated objects/activities are more of the nature of software development and start up consultancy that can't be accorded the visage of being charitable. In light of the above, I have no option but to deny the registration to the applicant u/s 12AA of Income Tax Act, 1961.”
As could be seen from the order of the Ld. CIT(E), the CIT(E) exemption found that the activities and operation of the assessee company do not come under any of the limbs specified u/s 2(15) of the Act.It was found by the CIT(E) that the financing dominantly from 'Azcom Infosolutions' does not partake the character of income as envisaged in section 11 & 12 of the Act. It has been claimed that the applicant works with Azcom (a purely commercial concern) in strategic advising capacity. Any payment in lieu of such a relation would not qualify as income that is being sought to be exempt. Moreover, the stated objects/activities are more of the nature of software development and start up consultancy that can't be accorded the visage of being charitable. In light of the above, I have no option but to deny the registration to the applicant u/s 12AA of 6 Income Tax Act, 1961. In view of the above and in the absence of any contrary material against the findings and conclusion of the CIT(E) brought on record by the appellant, we find no reason to interfere in the Order of the Ld. CIT(E). Finding no merits in the grounds of the appeal of the assessee, we dismiss the same.
In the result, Appeal of the Assessee is dismissed.
Order pronounced in open Court on 29th December, 2025.