GS1 India vs. DGIT(E); [2013] 38 taxmann.com 364 (Delhi):
The petitioner society was registered as a charitable society under the residuary clause of section 2(15) of the Income-tax Act, 1961. The Income-tax department had granted registration to the petitioner u/s. 12A. The petitioner has acquired intellectual property rights qua bar coding system from GSI Global Officer, Belgium and permits use of these intellectual property rights by third parties under licence agreements for initial registration fee of Rs. 20,000 and subsequent annual registration fee of Rs. 4,000. GSI, Belgium has been granted legal status of International ‘Not-for-profit’ association under the Belgium tax law and was, therefore, not liable to pay corporation tax. The petitioner claimed approval for exemption u/s. 10(23C)(iv) of the Act. However, the Director General (Exemption) denied approval on ground that no charitable activity was involved in permitting use of intellectual property right for consideration and same was in nature of trade, commerce or business and that petitioner was not maintaining separate books of account for the business/commercial activity, i.e., licencing bar coding system, and did not intend to do so in future.
The Delhi High Court allowed the writ petition filed by the assessee and held as under:
“i) Legal terms ‘trade, commerce or business’ in section 2(15), means activity undertaken with a view to make or earn profit. Profit motive is determinative and a critical factor to discern whether any activity is business, trade or commerce.
ii) Business activity has an important pervading element of self-interest, though fair dealing should and can be present, whilst charity or charitable activity is anti-thesis of activity undertaken with profit motive or activity undertaken on sound or recognised business principles. Charity is driven by altruism and desire to serve others, though element of self-preservation may be present. For charity, benevolence should be omnipresent and demonstrable but it is not equivalent to self-sacrifice and abnegation. The antiquated definition of charity, which entails giving and receiving nothing in return is outdated. A mandatory feature would be; charitable activity should be devoid of selfishness or illiberal spirit. Enrichment of oneself or selfgain should be missing and the predominant purpose of the activity should be to serve and benefit others.
iii) A small contribution by way of fee that the beneficiary pays would not convert charitable activity into business, commerce or trade in the absence of contrary evidence. Quantum of fee charged, economic status of the beneficiaries who pay, commercial value of benefits in comparison to the fee, purpose and object behind the fee etc. are several factors which will decide the seminal question, is it business?.
iv) The petitioner does not cater to the lowest or marginalised section of the society, but Government, public sector and private sector manufacturers and traders. No fee is charged from users and beneficiaries like stockist, wholesellers, government department etc. while nominal fee is only paid by the manufacturer or marketing agencies, i.e., the first person who installs the coding system which is not at all exorbitant in view of the benefit and advantage which are overwhelming. Anyone from any part of the world can access the database for identification of goods and services using global standard. The fee is fixed and not product specific or quantity related, i.e., dependent upon quantum of production. Registration and annual fee entitles the person concerned to use GSI identification on all their products. Non-levy of fee in such cases may have its own disadvantages and problems. Charging a nominal fee to use the coding system and to avail the advantages and benefits therein is neither reflective of business aptitude nor indicative of profit oriented intent.
v) Having applied the test mentioned above, including the criteria for determining whether the fee is commensurate and is being charged on commercial or business principles, the petitioner fulfils the charitable activity test. It is apparent to us that revenue has taken a contradictory stand as they have submitted and accepted that the petitioner carries on charitable activity under the residuary head ‘general public utility’ but simultaneously regards the said activity as business. Thus the contention of the revenue that the petitioner charges fee and, therefore, is carrying on business, has to be rejected. The intention behind the entire activity is philanthropic and not to recoup or reimburse in monetary terms what is given to the beneficiaries. Element of give and take is missing, but decisive element of bequeathing in present. In the absence of ‘profit motive’ and charity being the primary and sole purpose behind the activities of the petitioner is perspicuously discernible and perceptible.
vi) The statement and submission of the respondents that the petitioner was not maintaining separate books of account for commercial activity and, therefore, denied registration/notification, has to be rejected as fallacious and devoid of any merit. Similar allegation is often made in cases of charitable organisation/association without taking into account the activity undertaken by the assessee and the primary objective and purpose, i.e., the activity and charity activity are one and the same. The charitable activity undertaken and performed by the petitioner relates to promotion, dissemination of knowledge and issue of unique identification amongst third parties etc. The ‘business’ activity undertaken by the petitioner is integral to the charity/charitable activities. As noted above, the petitioner is not carrying on any independent, separate or incidental activity, which can be classified as business to feed and promote charitable activities. The act or activity of the petitioner being one, thus a single set of books of account is maintained, as what is treated and regarded by the revenue as the ‘business’ is nothing but intrinsically connected with acts for attainment of the objects and goals of the petitioner. When the petitioner is maintaining the books of account with regard to their receipts/ income as well as the expenses incurred for their entire activity then how it can be held that separate books of account have not been maintained for ‘business’ activities.
vii) The ‘business’ activities are intrinsically woven into and part of the charitable activity undertaken. The ‘business’ activity is not feeding charitable activities. In any case, when it is held that the petitioner is not carrying on any business, trade or commerce, question of requirement of separate books of account for the business, trade or commerce is redundant.
ix) On the basis of reasoning given in the impugned order, the petitioner can not be denied benefit of registration/notification u/s. 10(23C) (iv).
x) In view of the aforesaid discussion, we allow the present writ petition and issue writ of certiorari quashing the order dated 17th November, 2008 and mandamus is issued directing the respondents to grant approval u/s. 10(23C)(iv) of the Act and the same shall be issued within six weeks fr
