ITO (EXEMPTIONS), NEW DELHI vs. DATA SECURITY COUNCIL OF INDIA, NEW DELHI

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH “SMC”, NEW DELHI BEFORE SHRI S.V. MEHROTRA, ACCOUNTANT MEMBER ITA No.3306/Del/2016 Assessment Year : 2011-12 ITO (Exemptions), Ward- 1(3), Data Security Council of India, 3rd Floor, Niryat Bhawan, New Delhi. Vs. Rao Tula Ram Marg, New Delhi. PAN : AACCD 9781 G (Appellant) (Respondent)

Appellant by : Shri S. K. Jain, Sr.DR Respondent by : Shri Gajendra Maheshwari & Ms. Swati Thapa & Ms. Prerna Chopra, Adv. Date of hearing : 02-02-2017 Date of pronouncement : 28-02-2017 O R D E R PER S.V. MEHROTRA, A.M :

This is an appeal filed by the Revenue against the order dated 15.03.2016 passed by the Commissioner of Income Tax (Appeals)-40 (Exemption), New Delhi, u/s 143(3) of the Income Tax Act, 1961 (in short “the Act”) relating to assessment year 2011-12. 2. Brief facts of the case are that the assessee is a company limited by guarantee not having share capital registered u/s 25 of the Companies Act, 1956. The company was incorporated on 22nd August, 2008. The assessee had filed return of income declaring Nil income along with Audit Report u/s

2 ITA No.3306/Del/2016

12A(b) in Form No.10B and also Balance Sheet, Income & Expenditure

Account with relevant schedules. The Assessing Officer has observed as

under :-

“Originally, the assessee was accorded Registration u/s 12A(a) of the I.T. Act, 1961 vide letter F.No. DIT(E)/12A/2008-09/D-1392/1630 dated 30.03.2009 issued by the Department from the AY. 2009-10 onwards. The registration u/s 12A so granted was withdrawn by the DIT (E), Delhi's order passed u/s 12AA(3) r.w.s. 12A of the I.T. Act, 1961. Subsequently the Ld. DIT (E), Delhi vide his order F. No. DIT (E)/12A/2011-12/854 dated 11.10.2012 has restored the Registration granted u/s 12A vide F. No. DIT (E)/ 12A/2008-09/D-1392/1630 dated 30.03.2009, since inception. The assessee has also been granted certificate u/s 80G(5)(vi) of the Act by the DIT(E), Delhi vide order No. DIT(E)/2012-13/D- 1392/1376 dated 11.10.2012 for the period from A.Y. 2010-11 onwards till it is rescinded. A) The main objects of the assessee includes :- 1) To promote, encourage, support data protection and information security, maintenance of data privacy of any kind in India carrying out research, dissemination of information, setting of standards, for members providing education, training, conducting meetings, seminars, workshops, conferences interacting with government or non-government bodies, agencies, companies or any other person, taking appropriate legal or any other action by itself or on behalf of its members. 2) No objects of the company will be carried by the company without obtaining prior approval/ no objection certificate from concern authority (if any).”

observed that the assessee was neither in the field of education, nor in the

field of medical relief or relief of poor. He pointed out that the benefit of

exemption u/s 11/12 could be extended to assessee only after verifying the

applicability of the proviso to section 2(15) since its activities were falling

within the scope of “general public utility”. He noted that during the year

3 ITA No.3306/Del/2016

under consideration, the assessee had received income under the following

heads :-

Sl.No. Heads Amount (in Rs.) 1 Donation 2,00,00,000 2 Grants Apportioned 1,21,87,672 3 Participation Fees 3,86,799 4 Membership Fees 6,81,250 5 Sponsorship Fees 1,03,90,522 6 Interest from bank and on refund 1,60,223

received from different parties and copy of the TDS certificates were filed

in support of these receipts. He concluded that these were in the nature of

Fee from Professional/ Technical Services/ Contractual receipts and,

therefore, commercial in nature. Accordingly, he show-caused the assessee

as to why these two receipts be not treated as being covered by provisions to

section 2(15). After considering the assessee’s submissions, he concluded

that these activities were clearly in the nature of trade and commerce and

rendering services in relation to trade/ commerce/ business more particularly

because assessee had charged service tax on the amount so received by it.

Further TDS had been deducted by the parties u/s 194C and 194J of the Act

as a contractor and as professional/ technical services.

4.1 As regards donation of Rs.2 crore received from NASSCOM during

the year, he referred to the contents of the resolution passed by the

4 ITA No.3306/Del/2016

NASSCOM in its executive meeting held on 07.01.2014. The same is

reproduced hereunder :-

“Resolved that a grant of Rs.2 crore be made by NASSCOM to the 'Data Security Council of India' during the period of the FY 2011-12 for the furtherance of the following NASSCOM's objectives i.e. 1. Promote the art and science of IT software and services for use in all types of computing equipment. 2. Encourage and assist balanced development of the IT software and services Industry. 3. To 11 ………… 12. Edit, print and publish journals, books pamphlets and other material relevant to the software profession. 13. Collect, tabulate and circulate information and statistics of value to industry.”

assessee to promote the objects of the NASSCOM and not for any charity.

He also referred to the confirmation received from M/s Verizon

Communication India Pvt. Ltd. (VCIPL). The same is reproduced

hereunder :-

“The confirmation has also been received from M/s Verizon Communication India Pvt. Ltd. (VCIPL). This company has stated that during the AY 2011-12, VCIPL was engaged in the business of providing telecommunication services in the nature of internet and data transmission services in India to its various corporate customers. VCIPL has submitted that the following services were rendered by the Data Security Council of India: 1. Sponsorship of an event organized by Data Security Council of India & Indian Banking Association. 2. Sponsorship of joint event in the nature of a road show conducted by VCIPL and Data Security Council of India to promote VCIPL's services. 3. Sponsorship of annual IT Security Summit conducted by Data Security

5 ITA No.3306/Del/2016

Council of India.”

professional services to the various organizations, as per their requirement,

in a systematic manner. He further observed that the assessee had been

providing services to a particular industry to safeguard their business

interest and not to the general public at large, which is the main element for

charitable purpose. He, accordingly, concluded that amended proviso to

section 2(15) is applicable in the case of assessee and determined the total

income at Rs.49,32,480/- as under :-

Total Income declared NIL Add:- i. Surplus as per Income & Expenditure A/c Rs. 6,24,705/- ii. Depreciation disallowed Rs. 2,71,266/- iii. Restrictive grants as discussed above Rs.42,32,815/- Rs.51,28,786/- Less:- Depreciation allowed on addition to fixed Rs. 1,96,308/- assets in the current year. Assessable Income Rs.49,32,478/- Rounded off to u/s 288A Rs.49,32,480/-

Association (MOA) of assessee company, the main objects from which have

been reproduced earlier while considering the Assessing Officer’s

objections. Apart from the two main objects mentioned by Assessing

Officer, there was one more object, which was, that none of the objects of

the company will be carried out on commercial basis. These objects have

6 ITA No.3306/Del/2016

been reproduced by ld. CIT(A) in his order. The other objects, incidental to

or ancillary to the attainment of the main objects, were as under :-

“OBJECTS INCIDENTAL OR ANCILLARY TO THE ATTAINMENT OF THE MAIN OBJECTS: 1. Help members, interested organization, government authorities and statutory bodies prevent and combat any misuse of intellectual property rights, illicit or unauthorized use, copying dealing, distribution, reproduction, duplication, selling of any kind of data, information or intellectual property, in any place by any person or persons in any manner whatsoever, through all mediums of communications, whether online or offline, including but not limited to, print media, electronic media and the internet. 2. Take effective steps to raise awareness among stakeholders in IT/ ITES and user industry of information security and privacy protection through appropriate awareness, education, training, research and capacity building programmes. 3. Strive to position itself as an institution dedicated to ensure, promote, encourage, and support data protection and information security, maintenance of data privacy, intellectual property rights in data and software, fraud prevention, of any kind in India or abroad by combining, developing, monitoring and enforcing the appropriate data privacy and security standards to be evolved and adopted by the company. 4. To promote awareness or assist in the operation or implementation of the Information Technology Act, 2000, and any other relevant Act(s) and any legislation, rules, regulations and guidelines as amended from time to time and prevailing for the time being in force, which may seem conducive to the Company's objects."

by the assessee, it was evident that assessee was setup with the pre-

dominant objective to improve national capabilities by promoting data

protection, develop security and privacy codes and standards and encourage

implementation of the same. It was further pointed out that while the

immediate goal of the assessee was to raise the level of security and privacy

of IT and BPO service providers to ensure that India is secure destination

7 ITA No.3306/Del/2016

for global sourcing, the assessee also promoted best practices for domestic

industry segments like banking, telecom and e-governance. It was further

pointed out that unless India is able to project itself as a destination having

capability to protect the confidential data, the entire IT and BPO industry

would not be able to survive. Further, it was pointed out that in the present

scenario when the entire critical/ confidential information is stored in soft

form, data protection is emerging as one of the most important critical

aspect of technological advance, to combat any misuse of intellectual

property rights, illicit or unauthorized use, copying, dealing, distribution,

reproduction, duplication, selling of any kind of data, information or

intellectual property. After narrating the pre-dominant object, as noted

above, the assessee further pointed out that it was working with various

Government/ Semi-government agencies on various projects, with or

without the aid of DIT and NASSCOM. Further, it was pointed out that

besides developing and promoting such practices, the assessee was

launching various programs to reach out to educational institutions and

security vendors to encourage collaborative working with the IT/ BPO

companies, and other verticals such as banking and telecom. The assessee

further pointed out that it was also building up similar platforms for helping

law enforcement agencies in handling cyber-crimes. The assessee had also

8 ITA No.3306/Del/2016

given gist of events organized by it, which have been reproduced from

pages 4 to 6 of ld. CIT(A)’s order. The assessee further pointed out that it

was duly registered u/s 12A which was subsequent to the change of

definition of section 2(!5) under the Income Tax Act. The assessee further

pointed out that it is a company registered u/s 25 of the Companies Act,

which status is granted only to a company incorporated/ promoted for a

charitable purpose. It could not carry on any activities for profit and had to

work as non-profit organization and to apply the entire income for charitable

purposes. Further, the assessee pointed out that as per clause X of the MOA

no part of the income/ funds of the assessee could be distributed amongst its

members as profit and in the event of dissolution of the company, any

surplus shall vest in any other company incorporated u/s 25 of the

Companies Act having similar objects as that of the assessee. Further,

Clause VI of the MOA provides further safeguard that any alternation in

MOA would require prior authorization from the regulatory authorities. As

regards the activities of the assessee being non-commercial, the assessee

pointed out as under :-

“No commercial activity On perusal of the aforesaid, it will kindly be appreciated that not only there is an overriding mandate on the appellant to pursue its objects and carry on the activities on no-profit basis, but the appellant, as a matter of fact, too, carries out its activities on no-profit basis. None of the receipts of the appellant were from any of the commercial activities.

9 ITA No.3306/Del/2016

DSCI is also focused on capacity building of Law Enforcement Agencies for combating cybercrimes in the country and towards this; it operates several cyber labs across India to train police officers, prosecutors and judicial officers in cyber forensics. DSCI so far has trained more than 49,000 personnel from police, prosecution, judiciary, banking industry and other government departments in various cyber forensic trainings which range from 5-day full time hands on trainings to short courses and few guest lectures. The overall model has been conceptualized based on the Public-Private-Partnership model through DSCI's cyber lab program. DSCI in involved in the following activities for capacity building of Indian Law Enforcement and other departments: a) Conducts 5-day training programs as well short courses of 3 days and awareness program of 1 day for police officers, prosecutors and judiciary. b) Conducts Special training programs for other government departments like North Eastern Police Academies, Vigilance department-Indian Railways, PSU Banks. c) Provides support to Law Enforcement Officers in Technical investigation. d) Published standard operating Procedures (SOP) for Cyber- crime investigations and standardized training material for Law enforcement in the form of Cyber Crime Investigation Manual that is used as a reference by police officials in investigating Cybercrimes. e) Conducts several Cyber Safe Programs in various cities- Week-long social awareness campaigns on cyber security targeting citizens from students, home users and working professionals through open group discussions, Road shows, Quizzes, conferences, etc. In the light of the aforesaid, there is, it is submitted, no warrant at all to draw any adverse inference from the nature of receipts of the appellant. In view of the above submissions, it is respectfully submitted that the activities of the appellant are not at all covered by the mischief of proviso to section 2(15) of the Act. Based on the above we wish to highlight that the basis on which the appellant company has been incorporated has not been noticed by the AO while passing his order. The Appellant company is bound by law to carry out activities without any profit motive and this gets strengthen by the fact that the company has been issued an exemption certificate under Section 12AA of the Income Tax Act, 1961. The appellant received 80% of its receipts from NASSCOM during the year.”

assessee allowed the assessee’s appeal observing in para 5.3 as under :-

10 ITA No.3306/Del/2016

“5.3 The reason given by AO and the submission of the appellant are considered. The AO has linked the activities of the appellant with NASSCOM and has considered the appellant as a service provider to NASSCOM, thus denying the benefit of section 11 on the premise of commercial activities during the year. Thus, the assumption of the Ld. AO on considering the amount received as a professional service is incorrect and bad in law. However, nomenclature of a particular receipt does not change the real character and objective of a transaction. The nature of activities is a matter of facts and needs to be analyzed on the basis of its prime objectives. Since, the genuineness and reasonableness of the activities of the appellant is not in question and it is only the nomenclature which has resulted in the denial of the exemptions, the same is incorrect. In view of this, ground 2 and 3 of appeal are allowed.”

has taken following grounds of appeal :-

“1. Whether on the facts and circumstances of the case and in law the Ld. CIT(A) has erred in holding that the activities carried out by the assessee are not in the nature of trade, business or commerce or rendering services in relation to the same. 2. Whether on the facts and circumstances of the case the Ld. CIT(A) has erred in deleting the addition of Rs.42,32,815/- made by the AO on account of restricted grants. 3. The appellant craves leave to add, to alter or amend any grounds of appeal raised above at the time of hearing.”

pointed out that Assessing Officer after examining the nature of activities

carried on by the assessee pointed out that the same satisfies the features of

business. He further pointed out that the Assessing Officer has also

observed that assessee had charged service tax on the amount of fees

received by it and TDS was also deducted by party u/ss 194C and 194J as

11 ITA No.3306/Del/2016

applicable. Ld. DR further pointed out that after considering the assessee’s

submissions that it had no profit motive in carrying on its activity, the

Assessing Officer pointed out that assessee had not given any specific

explanation as to how it was not covered by the amended definition of

section 2(15) of the Act. He pointed out that even after being registered u/s

25 of the Companies Act, the assessee had been involved in providing

professional services. He, therefore, submitted that the provisions of

proviso to section 2(15) were clearly attracted in assessee’s case.

referred to page 76 of the Paper Book, wherein, schedule of restricted grants

received by assessee is contained to demonstrate that grants were received

from various Government agencies. He further pointed out that no grant

was received during the year from NASSCOM. Ld. counsel further referred

to page 33 to 36 of Paper Book, wherein, order u/s 80G(5)(vi) of the Income

Tax Act, 1961 read with Rule 11AA of the Income Tax Rules, 1962 dated

06.04.2010 of the DIT (Exemptions), Delhi, is contained rejecting the

assessee’s application for exemption u/s 80G. Ld. counsel referred to para 3

of the order and pointed out that ld. DIT (Exemptions) had specifically

observed that activities undertaken by the assessee were covered by the last

limb of section 2(15) i.e. any other objects of general public utility. He

12 ITA No.3306/Del/2016

further referred to para 6 and 7 of the order and pointed out that it was also

observed that assessee does not qualify for continuation of registration u/s

12A/12AA. He referred to page 37 to 41 of Paper Book, wherein, the order

of DIT (Exemptions), Delhi dated 24.03.2011 cancelling the registration

granted u/s 12A is contained. Ld. counsel referred to page 44 to 55 of Paper

Book, wherein, the Tribunal’s order against the aforementioned order is

contained, in which, the orders cancelling the grant of exemption u/s 80G

and 12A were set-aside and the matter was restored to the authorities below.

Ld. counsel referred to page 56 of Paper Book, wherein, order of DIT

(Exemptions) dated 11.10.2012 is contained, restoring back the registration

u/s 12AA(3) since inspection. Ld. counsel further referred to page 57,

wherein, order u/s 80G(5)(vi) is contained entitling the assessee exemptions

under the said section, wherein, the following conditions have been

mentioned, which are reproduced hereunder :-

“2. This exemption is valid for the period A.Y. 2010-11 ONWARDS TILL IT IS CONDITIONS :- ii) Every receipt issued to donor shall bear the number and date; of this order and shall state the date up to which this certificate is valid from A.Y. 2010- 11 ONWARDS TILL IT IS RESCINDED.”

13 ITA No.3306/Del/2016

exemption u/s 80G though he had specifically examined the nature of

receipt as per direction of the Tribunal. Ld. Counsel relied on the decision

of Hon’ble Delhi High Court in the case of Institute of Chartered

Accountant of India & Another vs. DIT (E), (2013) 358 ITR 91 (Delhi).

record of the case. The facts are not disputed. The activities undertaken by

assessee are in the field of cyber security for increasing level of security and

privacy of IT and BPO service providers in public life to ensure that India is

secure destination. In the present day of technological advancement when

the use of internet and other technological support services has immensely

entered into day to day working of an individual where payments are made

and amounts are received through internet, it is in the interest of all that the

confidential data of every individual is fully secured. It cannot be denied

that the potential of cyber threats is increasingly recognized in every walk of

life because of increased use of internet in various utility services like

transport, telephone, electricity, water, etc.. Therefore, the potential of

cyber threats is increasingly recognized for their impact on the lives of

individuals, as attacks are increasingly targeting critical infrastructure like,

utilities, transport, oil and energy and hence the ability to disturb social

harmony and interactions, urge to cause unrecoverable damages to

14 ITA No.3306/Del/2016

businesses and ability to harm national security posture. Admittedly, the assessee is imparting very valuable services in this regard and training

officials of police, banking, and other personnel in technical field. The grants received by assessee are mainly from Government. One of the major objections of Assessing Officer was that assessee was imparting services to

NOSSCOM. This objection is devoid of any merit because it is the pre- dominant object of assessee which is to be examined for deciding whether the assessee was carrying on charitable activities or not. The assessee was

registered u/s 25 of the Companies Act which clearly shows that it could not

carry on any activities for profit purposes. It is well settled law that while carrying on pre-dominant objects, if the assessee is earning some incidental

surplus that will not prejudice the assessee’s claim of being charitable in

nature. I, therefore, find no reason to interfere with the order of ld. CIT(A). 15. In the result, the appeal of the Department is dismissed. Order pronounced in the open court on this 28th day of February,

2017.

Sd/- (S.V. MEHROTRA) ACCOUNTANT MEMBER Dated : 28-02-2017. Sujeet

15 ITA No.3306/Del/2016

Copy of order to: - 1) The Appellant 2) The Respondent 3) The CIT 4) The CIT(A) 5) The DR, I.T.A.T., New Delhi By Order //True Copy// Assistant Registrar ITAT, New Delhi