NPCI is Charitable Entity for Advancing General Public Utility: ITAT Rejects Income Tax Revision by CIT(E) [Read Order]

The Mumbai Bench of the Income Tax Appellate Tribunal (ITAT recently held that the National Payments Corporation of India (NPCI) qualifies as a charitable entity as it is engaged in the advancement of general public utility, while quashing a revisionary order passed by the Commissioner of Income Tax (Exemptions) ( CIT(E) ) under Section 263 of the Income Tax Act, 1961.

The Tribunal ruled that the Assessing Officer (AO) had duly examined the facts and allowed exemption under Section 11 after proper inquiry, and hence, the CIT(E) was not justified in invoking revisionary powers.

NPCI had filed the present appeal against the revisionary order dated 31.03.2025 pertaining to the Assessment Year (A.Y.) 2020-21.

The NPCI, a not-for-profit entity registered under Section 25 of the Companies Act and registered under Section 12AA of the Income Tax Act, 1961 had filed its return reporting nil income. The case was selected for scrutiny and detailed notices were issued under Sections 142(1) and 143(2), to which the assessee filed comprehensive replies with supporting documents.

The CIT(E) had set aside the assessment order alleging that the AO failed to apply the correct position of law and did not conduct adequate inquiries while allowing exemption under Section 11, claiming the assessee’s activities were hit by the proviso to Section 2(15).

Niraj Sheth and Niyati Parikh, appearing for the assessee contended that the charitable status of the assessee still continues from the date of its S.12AA registration granted on 22.09.2009 vide the certificate dated 18.03.2010.

In terms of economic benefits enjoyed by NPCI, it was averred that when NPCI took over operations in 2009, it charged a fee of ₹1 per transaction undertaken by customers of banks, using its infrastructure which gradually reduced despite NPCI enjoying a monopoly over the industry.

Senior Departmental Representative Satya Prakash Singh represented the Revenue.

The Bench of Amit Shukla (Judicial Member) and Girish Agrawal (Accountant Member) noted that the NPCI was established under the aegis of the Reserve Bank of India (RBI) and the Indian Banks’ Association as a Section 25 company that is formed for charitable or not-for-profit purposes and prohibited from distributing its profits as dividends to members; the NPCI was created to build a robust payment and settlement infrastructure for the country.

The NPCI operates various payment systems such as NFS, IMPS, CTS, NACH, AePS, UPI, RuPay, and NETC, charging only nominal transaction fees to recover operational costs. The Bench observed that NPCI’s income is entirely reinvested back into the development of digital payment infrastructure and is not distributed as dividends, reiterating its character of being a non-profit organization.

Relying on the Supreme Court’s ruling in Ahmedabad UrbanDevelopment Authority v. ACIT (2022 TAXSCAN (SC) 183), the Tribunal held that an entity engaged in activities of general public utility does not lose its charitable status merely because it charges a nominal fee to recover costs.

Furthermore, the Tribunal noted that the AO had adequately examined all relevant issues, including the applicability of the proviso to Section 2(15) during the assessment proceedings. Accordingly, ITAT noted that the CIT(E) could not substitute its opinion against that of the AO when inquiries were duly made and conclusions were drawn based on facts and law.

Consequently, ITAT ruled that the assessment order was not prejudicial to the interests of the Revenue and quashed the revisionary order passed under Section 263 and restored the original assessment, thereby reaffirming NPCI’s charitable status under the Income Tax Act, 1961.

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