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October, 05th 2013

+                     Writ Petition (Civil) No. 7797/2009

                                       Reserved on: 18th July, 2013
%                            Date of Decision: 26th September, 2013

M/S GS1 INDIA                                     ....Petitioner
          Through        Mr. Vivek Tankha, Sr. Advocate with
                         Mr. Rishabh Sancheti and Ms. Rani Kiyala,

(EXEMPTION) AND ANR.                          ...Respondents
            Through      Mr. Kamal Sawhney, Advocate.



      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 17 th
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

WPC 7797/2009                                        Page 1 of 28
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

WPC 7797/2009                                       Page 2 of 28
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 2001-2002­Notification No.243/2001 dated 14th Aug`01.

     3. 2002-2003to 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

WPC 7797/2009                                              Page 3 of 28
       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 and renewal and direct expenses incurred is

    Head              FY 2004-05        FY 2005-06           FY 2006-07
Registration Fee      Rs.1.55 crore     Rs. 1.26 crore       Rs.1.81 crore
Renewal Fee           Rs. 1.09 crores   Rs. 1.45 crore       Rs. 1.69 crore
Total                 Rs. 2.64 crores   Rs. 2.71 crore       Rs. 3.5 crore
Less: Expenses as     Rs. 1.10 crore    Rs. 1.42 crore       Rs. 1.95 crore
claimed by assessee
NET PROFIT            Rs. 1.54 crore    Rs. 1.29 crore       Rs. 1.55 crore
N.P. rate             58.33%            47.60%               44.28%

   b) Petitioner was not maintaining separate books of accounts for
       the business/commercial activity, i.e. licensing bar coding
       system, and did not intend to do so in future. Thus there was
       violation of Section 11(4) and (4A). Thereby, the petitioner had
       violated proviso to Section 10(23C)(iv) for assessment years
       2007-08, 2006-07, 2005-06 and the petitioner does not meet the
       specified conditions of Section 10(23C)(iv) for assessment
       years 2008-09 onwards.

Nature and Character of Activity of GS1 namely the "Assessee"

WPC 7797/2009                                            Page 4 of 28
8.    We may now notice in some detail and put on record what is
the exact nature and character of activities carried on by the petitioner
society. GS1 codes have been developed and created by GS1
International, Belgium. GS1 coding system was/is used worldwide.
The code promotes universal standard in Electronic Data Inter-
exchanged (EDI) and other services. GS1 coding is extensively used
globally and is even mandatory for some services/goods or adopted
for significant advantages being a singular or one worldwide
identification system, recognized and accepted all over the world.
This system of coding has been accorded priority by the Government
of India as it is a compulsory requirement on products exported from
India. Government of India has set up non-profit organizations EAN
India now known as GS1 India i.e. the petitioner.

9.    GS1, Belgium has been granted legal status of International
Not-for-Profit association under the Belgium Tax Law and is,
therefore, not liable to pay corporation tax. The petitioner is affiliated
and conferred exclusive rights relating to GS1 coding in India. Once
GS1 code is used on a product it provides an unique identification to
the said product with wide ranging benefits and advantages which
facilitate track and trace the product, product recalls, counterfeit
detection, patient safety because of accuracy, medicine identification,
wastage control through accurate monitoring and stock levels for
commodities, security and safety of supply chains including PDS and
detection of illegal trade etc. Thus, this unique identification or
coding system developed and operated by GS1 International or GS1
India i.e. the petitioner, as stated is recognized and accepted globally.

WPC 7797/2009                                          Page 5 of 28
In addition to the codes, the unique identification code can be enabled
with RFID chip and other electronic technology. Being one of its
kinds globally, only a GS1 registered organization can set up and
promote the said system/standard within a country. These can be used
for several fields including public distribution system, agriculture,
health products etc. and has been successfully used as product
package labels. Usefulness and benefits of a universal coding system
assessable by anyone across the globe, for the consumers,
government, manufacturers, traders, exporters etc. are enormous and

Not for Profit Organisation

10.   Additionally clause 44 of the Memorandum of Association of
the petitioner stipulates that it is Not-for-Profit Society and the
funds/receipts are to be only used for promotion of objects of the
society for which it is established including sustenance and
expansion. There is no averment in the impugned order dated 17th
November 2008 to the effect that the petitioner is acting contrary to or
violating their Articles and Memorandum of Association.

Statutory Provisions

11.   In the present case the period in question is both prior and
subsequent to the amendments made applicable vide Finance Act
2008 with effect from 1.4.2009. Before deciding the contentions of
the parties we would like to first reproduce Section 2(15) of the Act
which defines the term charitable purpose` before and after its

WPC 7797/2009                                         Page 6 of 28
amendment by Finance Act, 2008. Section 2(15) before amendment
by Finance Act, 2008 was as under;

             2(15) charitable purpose includes relief of the
             poor, education, medical relief, and the
             advancement of any other object of general public

By Finance Act, 2008 with effect from 1.4.2009 the following
proviso was added;-
             Provided that the advancement of any other object
             of general public utility shall not be a charitable
             purpose, if it involves the carrying on of any activity
             in the nature of trade, commerce or business, or any
             activity of rendering any service in relation to any
             trade, commerce or business, for a cess or fee or any
             other consideration, irrespective of the nature of use
             or application, or retention, of the income from such

Second proviso inserted to Section 2(15) by Finance Act, 2010 with
retrospective effect from 1.4.2009, reads as under:-
             Provided further that the first proviso shall not apply
             if the aggregate value of the receipts from the
             activities referred to therein is ten lacs or less in the
             previous year

Rupees Ten lacs mentioned in the second proviso stands enhanced to
Rupees twenty five lacs by Finance Act, 2011 with effect from 1.4.

Main Section 2(15) of the Act has also undergone amendments, now
     2. In this Act, unless the context otherwise requires,--
     (15) "charitable purpose" includes relief of the
              poor, education, medical relief, preservation

WPC 7797/2009                                                   Page 7 of 28
             of environment including watersheds, forests
             and wildlife and preservation of monuments
             or places or objects of artistic or historic
             interest, and the advancement of any
             other object of general public utility:

             Provided that the advancement of any other
             object of general public utility shall not be a
             charitable purpose, if it involves the carrying
             on of any activity in the nature of trade,
             commerce or business, or any activity of
             rendering any service in relation to any trade,
             commerce or business, for a cess or fee or any
             other consideration, irrespective of the nature
             of use or application, or retention, of the
             income from such activity:

             Provided further that the first proviso shall
             not apply if the aggregate value of the
             receipts from the activities referred to therein
             is [twenty-five lakh rupees or less in the
             previous year;

Period prior to the amendment vide Finance Act 2008 w.e.f

12.   With regards to the period prior to 1.4.2009 the controversy
should not have been raised by the respondent with respect to the first
reason (reason a) in view of the authoritative pronouncement of the
Supreme Court in Additional CIT v. Surat Cloth Manufacturers
Association,(1980) 121 ITR 1(SC). In the said decision, it was held
that the primary or dominant purpose of the trust or institution has to
be examined to determine whether the said institution/trust was
involved   in   carrying    on   any    activity   for    profit.   If   the
primary/dominant purpose or object of the trust or institution was to

WPC 7797/2009                                            Page 8 of 28
carry out object of general public utility and not any activity for
profit then the same would satisfy the requirements of Section 2(15)
of the Act. Money earned from business held under trust or otherwise,
to feed the charity would not disentitle or negate the claim of
engagement in charitable purpose defined under section 2(15) of the
Act. The following quote from the said judgment is relevant;-

            "The test which has, therefore, now to be applied is
            whether the predominant object of the activity
            involved in carrying out the object of general public
            utility is to subserve the charitable purpose or to
            earn profit. Where profit-making is the predominant
            object of the activity, the purpose, though an object
            of general public utility would cease to be a
            charitable purpose. But where the predominant
            object of the activity is to carry out the charitable
            purpose and not to earn profit, it would not lose its
            character of a charitable purpose merely because
            some profit arises from the activity. The
            exclusionary clause does not require that the activity
            must be carried on in such a manner that it does
            not result in any profit. It would indeed be difficult
            for persons in charge of a trust or institution to so
            carry on the activity that the expenditure balances
            the income and there is no resulting profit. That
            would not only be difficult of practical realization
            but would also reflect unsound principle of

Period post the amendment vide Finance Act 2008 w.e.f 1.4.2009

13.   A bare perusal of the main provision indicates that there are
four main factors that need to be taken into consideration before
classifying the activity of the assessee as charitable under the
residuary category, i.e. advancement of any other ob ject of general
public utility under Section 2(15) of the Act. The four factors are (i)
activity should be for advancement of general public utility (ii)

WPC 7797/2009                                               Page 9 of 28
activity should not involve any activity in the nature of trade,
commerce and business (iii) activity should not involve rendering any
service in relation to any trade, commerce or business (iv) activities in
clause (ii) and (iii) should not be for fee, cess or other consideration
and if for fee, cess or consideration the aggregate value of the receipts
from the activities under (ii) and (iii) should not exceed the amount
specified in the second proviso. The earlier test of business feeding or
application of income earned towards charity because of the statutory
amendment is no longer relevant and apposite.

14.   In Institute of Chartered Accountants of India & Anr. Vs.
Director General of Income Tax (Exemptions) Delhi & Ors. [2012]
347 ITR 99 (Del.) charitable purpose under residuary clause of
section 2(15) was discussed and explained in the following words:-

             The proviso applies only if an institution is
             engaged in advancement of any other object of
             general public utility and postulates that such an
             institute is not "charitable" if it is involved in
             carrying on any activity in the nature of trade,
             commerce or business or any activity of rendering
             any service in relation to any trade, commerce or
             business. The second part, "any activity of rendering
             any service in relation to any trade, commerce or
             business" obviously intends to expand the scope of
             the proviso to include services, which are rendered
             in relation to any trade, commerce or business. The
             proviso further stipulates that the activity must be
             for a cess or fee or any other consideration. The last
             part states that the proviso will apply even if the
             cess or fee or any other consideration is applied for
             a charitable activity/purpose. The proviso has to be
             given full effect to. Thus, even if cess, fee or
             consideration is used or utilized for charitable

WPC 7797/2009                                               Page 10 of 28
            purposes, the proviso and the bar will apply. An
           institution will not be regarded as established for
           charitable purpose/activity under the last limb, if
           cess, fee or consideration is received for carrying on
           any activity in      nature of trade, commerce or
           business or for any activity of rendering of any
           service in relation to any trade, commerce or
           business, even if the consideration or the money
           received is used in furtherance of the charitable
           purposes/activities. In view of the first proviso, the
           decisions that the application of money/profit is
           relevant for determining whether or not a person is
           carrying on charitable activity, are no longer
           relevant and apposite. Even if the profits earned
           are used for charitable purposes, but fee, cess or
           consideration is charged by a person for carrying on
           any activity in the nature of trade, commerce or
           business or any activity of rendering of any service
           in addition to any trade, commerce or business, it
           would be covered under the           proviso and the
           bar/prohibition will apply.

Scope of "Trade, Commerce or Business"

15.   The key words, namely; trade, commerce and business were
enumerate and elucidate in Institute of Chartered Accountants of
India & Anr. Vs. Director General of Income Tax (Exemptions)
Delhi & Ors.(Supra) as under:-
           Trade, as per the Webster's New Twentieth
           Century Dictionary (2nd edition), means, amongst
           others, "a means of earning one's living, occupation
           or work. In Black's Law Dictionary, "trade" means a
           business which a person has learnt or he carries on
           for procuring subsistence or profit ; occupation or
           employment, etc.

           The meaning of "commerce" as given by the
           Concise Oxford Dictionary is         "exchange of
           merchandise, specially on large scale". In ordinary
           parlance, trade, and commerce carry with them the
           idea of purchase and sale with a view to make
           profit. If a person buys goods with a view to sell

WPC 7797/2009                                             Page 11 of 28
           them for profit, it is an ordinary case of trade. If
           the transactions are on a large scale it is called
           commerce. Nobody can define the volume, which
           would convert a        trade into commerce. For the
           purpose of the first proviso to section 2(15), trade
           is sufficient, therefore, this aspect is not required to
           be examined in detail.

           The word "business" is the broadest term and is
           encompasses trade, commerce and other activities.
           Section 2(13) of the Income-tax Act defines the
           term "business" as under :

                 "2. Definitions.-. . .(13) 'business'
                 includes any trade, commerce      or
                 manufacture or any adventure or
                 concern in the nature of trade,
                 commerce or manufacture."

           The word "business" is a word of large and
           indefinite import. Section 2(13) defines business to
           include any trade, commerce or manufacture or any
           adventure or concern in the nature of trade,
           commerce or manufacture. The intention of the
           Legislature is to make the definition extensive as the
           term "inclusive" has been used. The Legislature
           has deliberately departed from giving a definite
           import to the term "business" but made reference to
           several        other general terms like "trade",
           "commerce", "manufacture" and "adventure            or
           concern in the nature of trade, commerce and

           In Black's Law Dictionary, Sixth Edition, the word
           "business" has been defined as under :

                 "Employment, occupation, profession or
                 commercial activity engaged         in for
                 gain or livelihood. Activity or enterprise
                 for gain, benefit, advantage or
                 livelihood. Union League Club v.
                 Johnson 18 Cal 2d 275. Enterprise in
                 which      person     engaged       shows
                 willingness to invest time and capital
                 on future outcome. Doggett v. Burnet 62

WPC 7797/2009                                               Page 12 of 28
                 App DC 103 ; 65 F. 2D 191. That
                 which habitually busies or occupies or
                 engages the time, attention, labour and
                 effort of persons as a principal serious
                 concern or interest or for livelihood or

            According to Sampath Iyengar's Law of Income Tax
            (9th edition), a business activity has four essential
            characteristics. Firstly, a business must        be a
            continuous and systematic exercise of activity.
            Business is defined as          an active occupation
            continuously carried on. Business vocation connotes
            some real, substantive and systematic course of
            activity or conduct with a set purpose. The second
            essential characteristic is profit motive or capable
            of producing profit. To regard an activity as
            business, there must be a         course of dealings
            continued, or contemplated to be continued,
            normally with an object of making profit and not
            for sport or pleasure (Bharat Development P. Ltd. v.
            CIT [1982] 133 ITR 470 (Delhi)). The third
            essential        characteristic is that a business
            transaction must be between two persons. Business
            is not a unilateral act. It is brought about by a
            transaction between two or more persons. And,
            lastly, the business activity usually involves a twin
            activity. There is usually an element of reciprocity
            involved in a business transaction.

In the said case reliance and reference was made to State of Punjab v.
Bajaj Electricals Ltd. (1968) 2 SCR 536, Khoday Distilleries Ltd. V.
State of Karnataka (1995) 1 SCC 574, Bharat Development (P) Ltd.
v. CIT (1982) 133 ITR 470(Del), Barendra Prasad Ray v. Income
Tax Officer (1981) 129 ITR 295 (SC), State of Andhra Pradesh v.
H. Abdul Bakhi and Bros. (1964) 15 STC 664, State of Gujarat Vs.
Raipur Manufacturing Company (1967) 19 STC 1(SC), Director of
Supplies and Disposal Vs. Member, Board of Revenue (1967) 20

WPC 7797/2009                                             Page 13 of 28
STC 398(SC) and Sarojini Rajah Vs. CIT (1969) 71 ITR 504 (Mad)
to explain the terms trade, commerce or business.

15.   Referring to the concept and principle of economic activity
that has gained some acceptability in European Union and England it
was explained that the said principle is applicable to Sales Tax, Value
added tax, Excise duty etc. because these are not taxes on income but
the taxable event occurs because of the economic activity involved.
Even if a person/organization is carrying on trading/business on no
loss no profit principle, it may be liable to pay taxes or comply with
the statute when the charge, or incident of tax, is on the economic
activity. The words trade, commerce and business are etymological
chameleon and suit their meanings to the context in which they are
found. Five tests propounded in Customs and Excise Commissioner
Vs. Lord Fisher (1981) S.T.C. 238 and decision in Commissioner Of
Sales Tax Vs. Sai Publication Fund, (2002) 4 SCC 57 was quoted.

16.   The final and determining factors, it was observed was
consequential profit motive or purpose behind the activity and when
an activity is trade, commerce or business was elucidated in Institute
of Chartered Accountants of India & Anr. Vs. Director General of
Income Tax (Exemptions) Delhi & Ors. (Supra) in the following

            33. Section 2(15) defines the term charitable
            purpose. Therefore, while construing the term
            business for the said Section, the object and
            purpose of the Section has to be kept in mind. We
            do not think that a very broad and extended
            definition of the term business is intended for the

WPC 7797/2009                                            Page 14 of 28
             purpose of interpreting and applying the first
             proviso to Section 2(15) of the Act to include any
             transaction for a fee or money. An activity would
             be considered "business" if it is undertaken with a
             profit motive, but in some cases this may not be
             determinative. Normally the profit motive test
             should be satisfied but in a given case activity may
             be regarded as business even when profit motive
             cannot be established/proved. In such cases, there
             should be evidence and material to show that the
             activity has continued on sound and recognized
             business principles, and pursued with reasonable
             continuity. There should be facts and other
             circumstances which justify and show that the
             activity undertaken is infect in the nature of
             business. The test as prescribe in Raipur
             Manufacturing Company (supra) and Sai
             Publications Fund (supra) can be applied. The six
             indicia stipulated in Lord Fisher (supra) are also
             relevant. Each case, therefore, has to be examined
             on its own facts.

17.   Recently in another decision in WP(C) No. 1755/2012 titled
Bureau of Indian Standards vs. Director General of Income Tax
(Exemptions) dated 27th September, 2012, it was held that Bureau of
Indian Standards (BIS) was carrying on charitable activities as
described within the ambit of Section 2(15) and was entitled to
registration/notification under Section 10(23C)(iv). We, however,
note that there is one distinction between the present petitioner and
BIS. BIS is a statutory authority created by Legislation and, therefore,
their case and claim stands on a better footing but this does not imply
that only statutory bodies can be treated as established for charitable
purpose under Section 2(15) of the Act. Such contention has not
been raised and cannot be sustained/accepted.

WPC 7797/2009                                              Page 15 of 28
Circular No. 11 of 2008 by the Central Board of Direct Taxes

18.   It may be relevant to reproduce extract from Circular No. 11 of
2008 issued by the Central Board of Direct Taxes explaining the
amendments to Section 2(15) of the Act. The relevant portion of the
circular reads as under:
             Section 2(15) of the Income Tax Act, 1961 (Act`)
             defines charitable purpose to include the

             (i) Relief of the poor        (ii) Education

             (iii) Medical relief, and     (iv)the advancement
                                           of any other object of
                                           general public utility.

             2.       An entity with a charitable object of the
             above nature was eligible for exemption from tax
             under section 11 or alternatively under section
             10(23C) of the Act. However, it was seen that a
             number of entities who were engaged in
             commercial activities were also claiming
             exemption on the ground that such activities were
             for the advancement of objects of general public
             utility in terms of the fourth limb of the definition
             of `charitable purpose'. Therefore, section 2(15)
             was amended vide Finance Act, 2008 by adding a
             proviso ........


             3. The newly inserted proviso to section 2(15) will
             apply only to entities whose purpose is
             advancement of any other object of general public
             utility` i.e. the fourth limb of the definition of

             charitable purpose` contained in section 2(15).
             Hence, such entities will not be eligible for
             exemption under section 11 or under section
             10(23C) of the Act if they carry on commercial
             activities. Whether such an entity is carrying on an
             activity in the nature of trade, commerce or business

WPC 7797/2009                                               Page 16 of 28
            is a question of fact which will be decided based on
            the nature, scope, extent and frequency of the


            3.2. In the final analysis, however, whether the
            assessee has for its object the advancement of any
            other object of general public utility` is a question
            of fact. If such assessee is engaged in any activity
            in the nature of trade, commerce or business or
            renders any service in relation to trade,
            commerce or business, it would not be entitled to
            claim that its object is charitable purpose. In
            such a case, the object of ,,general public utility
            will be only a mask or a device to hide the true
            purpose which is trade, commerce or business or
            the rendering of any service in relation to trade,
            commerce or business. Each case would, therefore,
            be decided on its own facts and no generalization is
            possible. Assessees, who claim that their object is
            charitable purpose` within the meaning of Section
            2(15), would be well advised to eschew any activity
            which is in the nature of trade, commerce or
            business or the rendering of any service in relation
            to any trade, commerce or business.

                                           (Emphasis Supplied)

19.   It is, evident from the Circular No. 11 of 2008 that the new
proviso of Section 2(15) of the Act is applicable to the assessees who
are engaged in commercial activities, i.e. carrying on business, trade
or commerce, in the garb of public utility to avoid tax liability as it
was noticed that object of general public utility was sometimes only
a mask or device to hide the true purpose which was trade,
commerce or business.

Discussion; Activities of the Petitioner and difference between
business and charity

WPC 7797/2009                                             Page 17 of 28
20.   In the present case, the business is not held in trust and
neither is the business feeding the charity. The very act or activity
of charity as claimed by the petitioner is regarded by the revenue as
nothing but business, trade or commerce. Money received, of course
is used and utilized for the charitable activities. Four reasons are
elucidated and propound in the impugned order to state that the
petitioner is engaged in business, trade or commerce and aforesaid
encapsulated in the impugned order.           Petitioner has acquired
intellectual property rights, receives fee from third parties, which is
nothing but payment of royalty, there is huge surplus of receipts over
expenditure (refer table reproduced in paragraph 7 above) and
payment is made by the petitioner to GS1 Global Services, Belgium.

21.   Can it be said that the petitioner is engaged in activities which
constitute business, commerce or trade? As observed above, 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 an activity is
business, trade or commerce.

22.   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 recognized 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

WPC 7797/2009                                        Page 18 of 28
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 self-
gain should be missing and the predominant purpose of the activity
should be to serve and benefit others. 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?

23.   The petitioner charges an initial registration fee of Rs.20,000/-
plus annual fee of Rs.4,000/-, enhanced to Rs.5,000/- from financial
year 2006-07 onwards from third parties, who become subscribing
members and are entitled to use the coding system, GS1. Revenue
acknowledges that the petitioner enjoys monopoly and has exclusive
rights to issue global bar coding system GS1 in India. However the
petitioner is not dealing or treating the prized rights as a right, which
is to be exploited commercially to earn or generate profits. A coding
system of this nature if marketed on commercial lines with profit
motive would amount to business but when the underlying and
propelling motive is not to earn profits or commercially exploit the
rights but general public good i.e. to promote and make GS1 coding
system available to Indian traders, manufacturers, government etc, it
will fail the test of business and meets the touchstone of charity. The

WPC 7797/2009                                         Page 19 of 28
petitioner is not directly or indirectly subjecting their activity to
market mechanism/ dynamics (i.e. demand and supply), rather it is
motivated and prompted to serve the beneficiaries. This is not a case
of commercial exploitation of intellectual property rights to earn
profits but rather a case where a token fee has been fixed and payable
by the user of the global identification system.

24.       The petitioner does not cater to the lowest or marginalized
section of the society, but Government, public sector and private
sector manufacturers and traders. No fee is charged from users and
beneficiaries like stockiest, whole sellers, government department etc.
while a 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.        Any one 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 GS1 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

25.       Having applied the test mentioned above, including the criteria
for determining whether the fee is commensurate and is being

WPC 7797/2009                                          Page 20 of 28
charged on commercial or business principles, we find that the
petitioner fulfills 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 is 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.

26.   Table relied on by the respondent and mentioned in paragraph
7 above tells a partial story. Only direct expenses incurred have been
set off from the fee earned from registration and renewal. The activity
of the petitioner involves promotion, propagation and spreading
awareness and knowledge about global coding identification system
GS1. The entire expenditure of the petitioner has to be taken into
consideration and cannot be ignored. There are stipulations in
Sections 11, 13 etc. of the Act to prevent misuse of or siphoning of
funds, bar/prohibit gains to related persons, stipulations of time limits
for use of funds, which are effective checks and curtail and deny
benefit in cases of abuse. There is no such allegation or contention of
the Revenue in the present case.

WPC 7797/2009                                          Page 21 of 28
27.     As observed above, fee charged and quantum of income earned
can be indicative of the fact that the person is carrying on business or
commerce and not charity, but we must keep in mind that charitable
activities require operational/running expenses as well as capital
expenses to be able to sustain and continue in long run. The petitioner
has to be substantially self-sustaining in long-term and should not
depend upon government, in other words taxpayers should not
subsidize the said activities, which nevertheless are charitable and fall
under the residuary clause general public utility. The impugned
order does not refer to any statutory mandate that a charitable
institution falling under the last clause should be wholly, substantially
or in part must be funded by voluntary contributions. No such
requirement has been pointed out or argued.            A practical and
pragmatic view is required when we examine the data, which should
be analyzed objectively and a narrow and coloured view will be
counter-productive and contrary to the language of Section 2(15) of
the Act.

28.     Petitioner has indicated that they have recently purchased
office space in HUDCO Complex, Bhikaji Cama Place and they have
acquired plot at Noida. They require accumulated funds for running
branch offices at Chennai and Mumbai. Office at Chennai is already
operational and operations at Mumbai are contemplated shortly for
which      proposals   are   under   consideration.   Accumulation    of
money/funds over a period of 2-3 years may not be relevant in
determining the nature and character of activity and whether the same
should be treated as indicative of profit motive i.e. desire or intention

WPC 7797/2009                                         Page 22 of 28
to carry on business or commerce.             In MCD vs. Children Book
Trust's (1992) 3 SCC 390 a decision relating to property tax, the
Supreme Court held that both qualitative and quantitative tests should
be satisfied in view of specific language of Section 115(4)(a) of Delhi
Municipal Corporation Act 1957.               Nevertheless it negated and
rejected the argument that data for one year should be taken into
consideration. It was observed that data for block period for five
years may and should be taken into consideration. It was held as

              It cannot be gainsaid that the municipal general tax
              is an annual tax. Therefore, normally speaking, the
              liability for taxation must be determined with
              reference to each year. In other words, the society
              claiming exemption will have to show that it fulfils
              the conditions for exemption each year. If it shows,
              for example, that for its support it has to depend on,
              either wholly or in part, voluntary contributions, in
              that particular year, it may be exempt. But where in
              that year, for its support, it need not depend on
              voluntary contributions at all or again if the society
              produces surplus income and excludes the
              dependence on voluntary contributions, it may cease
              to be exempt. Of course, the word support will
              have to mean sustenance or maintenance. Only to
              get over this difficulty that the qualitative test is
              pressed into service. We would consider the
              reasonable way of giving effect to the exemption,
              will be to take each case and assess for a period of
              five years and find out whether the society or body
              depends on voluntary contributions. Of course, at
              the end of each five-year period the assessing
              authority could review the position.

29.      Under the provisions of the Act, a charitable institution/
organization is to utilize specific percentage of their funds/income
within the assessment year in question and carry forward is allowed

WPC 7797/2009                                                Page 23 of 28
subject to strict stipulations. There is no allegation or statement in the
impugned order dated 17th November, 2008 that the petitioner has
violated the said condition or requirements of the statute. No doubt
that the petitioner has to make payment of part of fees collected to
GS1 Global services, Belgium but this is natural as GS1 system is
global and worldwide system. Petitioner has pointed out that during
past years they have been receiving amounts from Government of
India for furtherance of their objectives. A fact which is not denied
and disputed. The petitioner is not only concerned with enrollment of
members who are entitled to GS1 identification system but involved
in promoting and spreading awareness about GS1 identification
system and making it available to Indians for a small fee. Petitioner
has to organize training camps, workshops and seminars all over
India and as well as for Government departments/bodies and help
them adopt the system. They have to publish material highlighting
advantages of GS1 identification and how this can benefit the
manufacturers and traders.

Maintenance of Books of Accounts

30.   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 organization/
association without taking into account the activity undertaken by the
assessee and the primary objective and purpose i.e. the activity and

WPC 7797/2009                                          Page 24 of 28
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. We fail to understand when the petitioner is
maintaining     the   books   of   accounts   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 accounts have
not been maintained for business` activities. 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 we hold that the petitioner is not carrying
on any business, trade or commerce, question of requirement of
separate books of accounts for the business, trade or commerce is

Other aspects

31.   There is another challenge to the registration, which has neither
been adverted to in the impugned order nor raised by the respondent

WPC 7797/2009                                         Page 25 of 28
during arguments. First proviso to Section 2(15) of the Act equally
bars rendering of any service in relation to any trade, commerce or
business when it generates receipts for an amount exceeding the
figure mentioned in second proviso. The stipulation broadens and
widens the negative stipulation [see The Institute of Chartered
Accountants of India case (supra)].The petitioner is providing
services to persons engaged in trade, commerce or business who are
the beneficiaries. Question is whether the legislative intent is to
exclude from definition of charitable purpose any activity which has
the aim and object of providing services to trade, commerce or
business. The matter is not free from doubt but there are good reasons
to hold that the bar or probation is not with reference to activity of the
beneficiary but the activity of the assessee under the residuary clause.
The intent is to exclude an assessee who carries on business, trade or
commerce to feed the charitable activities under the last limb.
Application of income earned from business is no longer relevant and
cannot help an assessee. Circular No.11 of 2008 is to the said effect
and does not promote contrary interpretation.         The said circular
clearly stipulates that the object of general public utility should not
be a mask or a device to hide the true purpose, which is trade,
commerce or business or rendering any service in relation to trade,
commerce or business. Director General (Exemption) has not
interpreted the first proviso in this manner in this case. Even in the
case of Bureau of Indian Standards (supra) no such contention was
raised. 7th proviso to Section 10(23C) of the Act supports our
interpretation and the legislature has not omitted or suitably amended

WPC 7797/2009                                          Page 26 of 28
the said proviso to support the contrary interpretation.             Even
otherwise, the beneficiaries of GS1 system are not confined or
restricted to persons from trade, commerce or business.              The
beneficiaries are present everywhere and the advantages are
permeating and universal and would include consumers, government,
beneficiaries of PDS etc.

32.   The second proviso, which refers to the aggregate value of
receipt of activities of Rs.10 lacs (now enhanced Rs.25 lacs vide
Finance Act 2011 with effect from 1.4.2012) or less in a previous
year, cannot be invoked in the present case because the said provision
will apply only if the institution covered by the last/residuary clause
is involved or carrying on activity of rendering any service in relation
to trade, commerce or business. Contention of the respondent, if
accepted, would deny charitable status to a faintly moderate size
institution under the last/residuary limb, when it charges even a token
or insignificant amount from the beneficiaries, who gain significantly
from the altruism and benevolence. A small charitable organization
that receives token fee of more than Rs.80,000/- a month or now
Rs.2,00,000/- per month approximately, would disqualify and lose
their charitable status.     The object of the proviso is to draw a
distinction between charitable institutions covered by last limb which
conduct business or otherwise business activities are undertaken by
them to feed charity.       The proviso applies when business was/is
conducted and the quantum of receipts exceeds the specified sum.
The proviso does not seek to disqualify charitable organization

WPC 7797/2009                                        Page 27 of 28
covered by the last limb, when a token fee is collected from the
beneficiaries in the course of activity which is not a business but
clearly charity for which they are established and they undertake.

33.   On the basis of reasoning given in the impugned order, we do
not   think   that   the   petitioner   can    be   denied   benefit   of
registration/notification under Section 10(23C)(iv).

34.   In view of the aforesaid discussion, we allow the present writ
petition and issue writ of certiorari quashing the order dated 17 th
November, 2008 and mandamus is issued directing the respondents to
grant approval under Section 10(23C)(iv) of the Act and the same
shall be issued within six weeks from the date copy of this order is
received. The writ petition stands disposed of. There will be no
orders as to cost

                                              (SANJIV KHANNA)

                                              (SANJEEV SACHDEVA)
SEPTEMBER 26th, 2013

WPC 7797/2009                                          Page 28 of 28
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