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High Court of Delhi
SANJIV KHANNA & SANJEEV SACHDEVA, JJ.
M/s. GS1 India
Versus
Director General of Income Tax (Exemption) & Another
Writ Petition (Civil) No. 7797 of 2009
Decided On : 26-09-2013
GS1 India - Income Tax Act, 1961 - Section 10(23C)(iv) - 2(15) - Summary of Acts and Sections: The court discussed the provisions of Section 10(23C)(iv) and Section 2(15) of the Income Tax Act, 1961, and their amendments by the Finance Acts of 2008 and 2010. The court analyzed the nature and character of activities carried out by GS1 India and the statutory provisions related to charitable purposes and business activities.
Fact of the Case:
The petitioner, GS1 India, sought to quash the order denying them registration under Section 10(23C)(iv) of the Income Tax Act, 1961, and to obtain a mandamus directing the grant of registration/approval. The respondent accepted that the petitioner was carrying on charitable activities under the residuary clause of Section 2(15) of the Act but denied approval on the grounds of commercial activities and lack of separate books of accounts.
Finding of the Court:
The court found that the petitioner's activities were charitable in nature and not for profit. It held that the petitioner's primary purpose was to promote and disseminate knowledge about the GS1 coding system for the general public utility, and the fee charged was nominal and not indicative of profit motive. The court rejected the respondent's contention that the petitioner was engaged in business, trade, or commerce.
Issues: The issues involved the denial of registration under Section 10(23C)(iv) based on the petitioner's commercial activities and the alleged failure to maintain separate books of accounts for business activities.
Ratio Decidendi: The court applied the test of profit motive to determine whether the petitioner's activities constituted business, trade, or commerce. It emphasized that the fee charged by the petitioner was nominal and not indicative of profit motive, and the activities were primarily charitable in nature. The court also rejected the requirement for separate books of accounts for business activities, as the business activities were integral to the charitable activities.
Final Decision: The court allowed the writ petition, quashed the order denying registration, and directed the respondents to grant approval under Section 10(23C)(iv) of the Act.
Sanjiv Khanna, J.
1. The petitioner GS1 India it is claimed is a “Not-for-Profit” Society promoted by the Ministry of Commerce and Indian Industry, duly registered under the Societies Registration Act, 1860.
2. The petitioner has prayed for quashing of the order dated 17th November, 2008 passed by Director General of Income Tax (Exemptions) denying them registration under Section 10(23C)(iv) of the Income Tax Act, 1961 (Act, for short) and for issue of mandamus directing that registration/approval under the said Section should be granted.
3. Respondent in reply/counter affidavit have not disputed the identity of the petitioner society founded and promoted by Department of Commerce, Ministry of Commerce and Industry, Government of India, Indian Institute of Packaging, Federation of Indian Export Organizations, Agricultural and Processing Food Products Export Development Authority, Federation of Indian Chamber of Commerce and Industry (FICCI), Associated Chambers of Commerce and Industry of India (ASSOCHAM), Bureau of Indian Standards (BIS), Confederation of Indian Industry (CII), Spices Board and Indian Merchants‘ Chambers.
4. It is not disputed by the respondents that the object of the petitioner inter-alia includes creating awareness and promoting study of Global Standards regarding Company Prefix Number (GS1 standards), location numbering, EDI, ECR, automatic data collection and related services and technologies; research and development into these Global Standards; and providing education in universities and colleges regarding these standards. We shall refer and elucidate upon GS1 standard subsequently in the judgment.
5. At this stage, it would be suffice to notice and record that the impugned order dated 17th November, 2008 elucidates that the objective and activities of the petitioner fall under the residuary clause of Section 2(15) of the Act. In other words, the respondent accepts that the petitioner were/are carrying on charitable activity under the residuary heading “any other object of general public utility”.
6. The petitioner society was registered as a charitable society in the year 1996 under the residuary clause of Section 2(15) of the Act. Income Tax Department had granted exemption to the petitioner under Section 12A vide Certificate No. IT (E)/98-99/E.106/98/360 dated 24th September, 1998 w.e.f. 9th March, 1998 and under Section 10(23C)(iv) received for assessment year 1996-97 onwards vide income tax exemption certificates as under:
1. 1996-1997 to 1998-1999 – Notification No. 11187 dated 29th Dec‘99.
2. 1999-2000 to 2001-2002–Notification No.243/2001 dated 14th Aug‘01.
3. 2002-2003 to 2004-2005 – Notification No.270/2003 dated 30th Oct‘03.
4. 2005-06 to 2007-2008- Notification No. 310/2006 dated 3rd Nov.‘06.
Thus, there cannot be any dispute and the respondent accepts that the object and purpose of the petitioner society was/is charitable i.e. advancement of object of general public utility.
Reasons for Denial of Registration under Section 10(23C)(iv) by the Respondent
7. Nevertheless the petitioner have been denied approval/registration under Section 10 (23C)(iv) on two grounds:-
a) Petitioner has acquired intellectual property rights qua bar coding system from GS1 Global Office, 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.4000/-, enhanced to Rs.5000/- from financial year 2006-07 onwards. No charitable activity was involved in permitting use of intellectual property right for consideration which is nothing but earning royalty income. This activity of the petitioner was/is in the nature of trade, commerce or business. According to the respondent, the petitioner earns substantial net profits from business of coding system as the fee/income earned was significantly higher than the direct costs. The following table of fee earned from registration
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