Platform Services to Banks Deemed Charitable as Only Nominal Fee Charged | ITAT

Case Details: National Payments Corporation of India vs. CIT (Exemptions) - [2025] 179 taxmann.com 401 (Mumbai-Trib.)

Judiciary and Counsel Details

• Amit Shukla, Judicial Member & Girish Agrawal, Accountant Member
• Niraj Sheth & Ms Niyati Parikh, Advs. for the Appellant.
• Satya Prakash Singh, Sr. DR for the Respondent.

Facts of the Case

The assessee, a not-for-profit company registered under section 25 of the Companies Act, 1956, was established under the aegis of the Reserve Bank of India and the Indian Banks’ Association to operate and manage payment and settlement systems in India. It provided a platform for conducting transactions among member banks and charged a nominal fee per transaction to recover the cost of infrastructure and operations; any surplus was utilised for capital expenditure and further development of payment systems.

The Assessing Officer (AO), after making specific inquiries on the applicability of the proviso to section 2(15) and after considering detailed replies, accepted the assessee’s claim of exemption under section 11. On revision, the CIT (Exemptions) held that the assessee’s activities were like trade, commerce, or business and, thus, hit by the proviso to section 2(15).

The matter reached the Mumbai Tribunal.

ITAT Held

The Tribunal held that the word ‘business’, as per Section 2(13) of the Act, is generic. ‘Business’ in its ordinary sense would mean an occupation, or profession which occupies time, attention or labour of a person and is generally undertaken with a profit motive. The word ‘commerce’ again is of the same connotation as ‘trade’ or ‘business’.

In the present case, as can be seen from the objects of the assessee mentioned in its MoA, it is not in any manner involved in any activity of trade, commerce, or business. Further, it is necessary to see whether the second condition of any activity of rendering any service in relation to any trade, commerce, or business is applicable.

Since the assessee itself was not carrying on any trade, commerce or business, it cannot be said that it was involved in any activity of rendering service in relation to any trade, commerce or business. Further, it was observed that as per the proviso to section 2(15), the activity of trade, commerce or business or services related thereto must be for a cess or fee or any other consideration.

In the instant case, the assessee recovered only a nominal charge for providing its facilities to recover its costs. Admittedly, these have been reduced significantly to pass on the economies of scale to its member banks. Accordingly, the CIT (Exemptions) was not justified in invoking Explanation 2 to section 263 and holding that the assessee’s activities were like trade, commerce or business.

List of Cases Reviewed

• National Payments Corporation of India v. Dy. CIT [2020] 117 taxmann.com 645/183 ITD 412 (Mumbai – Trib.) (para 8)
• N.N. Agrawal v. CIT [1991] 56 Taxman 24/189 ITR 769 (Allahabad) (para 8)
• Asstt. CIT (Exemptions) v. Ahmedabad Urban Development Authority [2022] 143 taxmann.com 278/291 Taxman 11/449 ITR 1 (SC) (para 8.1)
• Media Research Users Council v. Asstt. DIT (Exemption) [2023] 157 taxmann.com 470/205 ITD 170 (Mumbai – Trib.) (para 8.10) followed.

List of Cases Referred to

• National Payments Corporation of India v. Dy. CIT [2020] 117 taxmann.com 645/183 ITD 412 (Mumbai – Trib.) (para 6)
• Asstt. CIT (Exemptions) v. Ahmedabad Urban Development Authority [2022] 143 taxmann.com 278/291 Taxman 11/449 ITR 1 (SC) (para 6.2)
• Ahmedabad Urban Development Authority v. Asstt. CIT (Exemption) [2017] 83 taxmann.com 78/396 ITR 323 (Gujarat) (para 6.2)
• N.N. Agrawal v. CIT [1991] 56 Taxman 24/189 ITR 769 (Allahabad) (para 8)
• Media Research Users Council v. Asstt. DIT (Exemption) [2023] 157 taxmann.com 470/205 ITD 170 (Mumbai – Trib.) (para 8.3).