The Income Tax Appellate Tribunal (ITAT), Delhi Bench allowed the exemption to National Internet Exchange of India as charitable activities are undertaken.
The assessee, National Internet Exchange of India is engaged in carrying out running of internet exchange and registration of domain names. For running of internet exchange, the assessee is charging membership fees, connectivity charges, data transferred differential. For registration of domain name, the assessee charges registration charges.
The assessee also claimed mutuality on the ground that the assessee was providing internet services to various ISPs who are members and other income/charges are received members only.
The Assessing Officer compared receipts of the assessee and found that the assessee has accumulated approximately Rs.109 crores of surplus which was lying in the reserve fund.
It was also noted that the objects of the assessee fall within the category of “advancement of general public utility” which were pursued by the assessee through setting up of internet exchanges at four metro locations and setting up, operating and maintaining IN registry, involving registration of IN domain.
The Assessing Officer discussed changes made in the Income Tax Act through various amendments in respect of charitable organizations and held that proviso to section 2(15) is applicable and that the assessee is hit by the proviso to section 2(15).
It was also held that the assessee is not covered by the principle of mutuality also. It was also held that the assessee is doing activities on commercial lines and that such activities are in the nature of business and that such business cannot be incidental to the objects as provided section 2(15) since the assessee is hit by the proviso section 2(15).
The surplus generated from business activities of the assessee was held to be liable to tax under section 164 of the act.
The AO held that the assessee is doing activities on commercial lines, which are in the nature of business. This business cannot be incidental to the object and therefore, it is hit by the proviso to section 2 (15) of the Act. He therefore, held that the benefit of section 11(4A) would not be available to the assessee and the surplus generated from the business activities of the assessee amounting to Rs.278986646 is liable to be taxed under section 164 of the Act. Accordingly, the total income of the assessee was assessed at Rs. 27,89,86,646.
The assessee-preferred appeal before the CIT (A) who decided the issue in favour of the assessee by following the decision of the coordinate bench in case of the assessee’s itself for Assessment Year 2012-13 and held that the assessee is not involved in trade, commercial or business therefore, he directed the AO to allow the exemption under section 11(1) of the Act.
The coram of H.S. Siddhu and Prashant Maharishi while dismissing the appeal of the revenue held that the issue in the case of the assessee is squarely covered in favour of the assessee by the order of the High Court in assessee’s own case for Assessment Year 2009-10 and 2010-11.
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