AI Drafter 
TaxTMI 
TaxTMI 
2018 (9) TMI 954
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....e School' affiliated to Central Board of Secondary Education (CBSE, Delhi) at Faridkot, Punjab, since f.y. 2013-14. For the f.y. 2014-15 (relating to AY 2015-16), the first full year of the operation of the school, it claimed and was allowed exemption u/s. 10(23C)(iiiad) in assessment u/s. 143(3) of the Act dated 15/5/2017 (PB pgs. 85- 87). It applied for registration u/s. 12AA on 28.02.2017, which stood rejected by the ld. CIT(E) vide the impugned order. The reasons that inform the said rejection, as a reading of the said order, also read out during hearing shows, are as under: (a) the school, which is the only activity being pursued by the assessee-society, is on the basis of a franchise agreement entered into with a corporate entity 'Zee Learn Limited', which is admittedly undertaking business, i.e., being run on commercial basis, and not undertaking any charitable activity. How could the assessee, the franchisee, which franchise is secured by paying a one-time non- refundable deposit of Rs. 40 lacs, functioning on the terms and conditions set out in the franchise agreement, then, claim to be undertaking charity? In fact, 10% of the total collection for each year is to ....
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....y, on which basis adverse inferences have been drawn by the ld. CIT(E), is only to ensure the quality of education, which in today's competitive times has assumed the nature of a very specialized discipline. The inference of profit maximization or business, is, under the circumstances, misplaced. In fact, the audited accounts of the school reflect an excess of expenditure over income; (c) even if considered as undertaking business, on sound business principles and practices, generating surplus, the same only feeds the charitable purpose of education, with clause 4 (r) (of MOA) barring withdrawal of the same by way of declaration of dividend, etc. to the members of the society. At this stage, the Bench queried the ld. Authorized Representative (AR), the assessee's counsel, Sh. Sudhir Sehgal, Advocate, as to the basis on which the assessee claims to be imparting or promoting education among the poor or the weaker sections of the society, as mandated per sub-clause 4(a) of its object clause, and toward which the school has been purportedly founded and is running. Two, in-as-much as the lease would expire on its term (stated to be 30 years), how would the society ensure tha....
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....ciety, demonstrating that the school exists predominantly for such students, i.e., as per the terms of its' mandate. 4. We have heard the parties, and perused the material on record. 4.1 Our first observation in the matter is that the assessee, a franchisee of a corporate entity, is running an educational institution in pursuance to object clause 4(a) of it's MOA, which is only object being pursued by it, reading as under: '4. The Objects of the Society are: The objects of the Society are given below: (a) To establish any institution or adopt means for imparting, promotion of education particularly for the poor or weaker sections of the Society as a whole.' The Revenue's prime objection is that the assessee is running its' school (educational institution) on commercial lines with a view/object to earn profit, and its' activities cannot therefore be regarded as driven by the purpose of providing 'education', a 'charitable purpose' u/s. 2(15), defining the said term under the Act. The controversy as well as the issue is by now well settled. It was in fact to target profit-making, that the words 'not involving the carrying on of any activity for pro....
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....e the predominant object, as where the charitable purpose gets submerged by the profit motive, the latter masquerading under the guise of the former. As long as it is not so, so that the activity carried on does not have profit-making as its' predominant object, it is not excluded. However, these decisions, again, are all rendered in the context of the charitable purpose being 'the advancement of an object of general public utility', qualified by the defining provision of law itself by a bar with reference to profit, or in the context of sec. 10(23C)(iiiad)/(vi), specifically providing for the educational institution, income from which gets exempt there-under, to be 'existing solely for education and not for profit', so that the Apex Court found it useful to refer to the elucidation of and the connotation of the preposition 'for' per its earlier decisions, which is the reason for our enlisting it's decisions over time, which thus document the progression of law in the matter. For the other objects constituting a charitable purpose, the genuineness of the purpose gets tested by the obligation created to spend the income exclusively or essentially on charity, i.e., its' charitable ob....
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....gard have been laid down, which the Hon'ble Courts have eschewed for perhaps precisely this reason, i.e., as a number of variables impinge thereon, and which aspect is therefore best left for the regulating authority (as CBSE) or the market place to decide. Our decision in this regard is thus consistent with the decisions by the Tribunal cited before us in respect of similar schools run as franchisee units (of Zee Learn Ltd.). 4.3 The moot question, however, is whether the assessee's activities are being carried on in satisfaction of it's object clause 4(a) (supra), in pursuance of and to achieve which the school stands established and is being run, the only activity being undertaken by the assessee-society. We, on the basis of the material on record, consider it as not. This is as there is nothing to show that the school is being run for children/students belonging to the poor and weaker sections of the society, or even substantially so, as the ld. counsel, Shri Sehgal, would point out during hearing, referring to the words 'particularly' occurring therein. Allowing concession or subsidy to a few students, as shown before us, which it is even otherwise obliged to under the Righ....