TaxTMI 
TaxTMI 
2021 (8) TMI 767
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....see craves leave to add/alter any of the grounds of appeal on or before the date of hearing. 4. That it is prayed that the cancellation of registration u/ s 12AA of the Income tax Act, 1961 may kindly be reviewed and appeal be accepted. Brief Facts 1. The Appellant is a society registered under the Society Registration Act 1860. The Appellant society had applied for registration u/s 12AA of Income Tax Act 1961 vide application dated 03.08.2016. 2. That the main aims and objects of the Society are as under:- a) To promote, establish, support and maintain institutions for the promotion of education, science, literature, fine and diffusion of useful Knowledge. b) To work for education institutions and to spread education facilities in the rural, backward, semi-urban and other areas c) To control, maintain and run any school, educational institutions of any kind and knowledge like nursing, computers, technology, education and management etc. d) To establish construct, maintain, manage & supervise hospitals relief and rehabilitation centres and many other ancillary voluntary services carried on by the Society. e) To establish orph....
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....ropagated highlighting the receipts and the different items of expenditure that are being claimed. e. Details of salary paid explaining whether the same are guided by lite TDS provisions or not corroborating the salaries paid through bank accounts. f. Details of all educational institutions run by the society alongwith their date of incorporation and details of affiliation obtained from the Education Board etc. g. Details of the Donations received or intended to be received and documentary evidence as regards to Grants received. h. Donation received under FCRA longwith relevant details such as copy of the return for i. FCRA and the copy of specified bank account. * j. A note on activities of the society. k. Details of corpus fund and whether the same are with any written specific directions. l. Details regarding charitable activities being conducted by the society clarifying the specific limb us 2(15) of the I.T.Act under which the activity is being pursued. m. Receipts and payment accounts of the society for the last 3 years. n. Any exemption which is already being claimed by the society unde....
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....(E) was that the assessee had entered into a frenchise agreement with M/s Zee Learn Ltd. is placed which according to him tantamounts to the society being engaged ibn activities other than charitable activity as per provisions of section 2(15) of the Act. Ld.AR submitted that the main object of the appellant society is to impart education to children and is at present engaged in the same purpose by way of setting up and running of a school in rural area of Punjab. Merely because the Appellant society has entered into a franchise agreement with M/s Zee Learn Ltd. with the basic purpose of improving the quality of education cannot be termed to be running of any business. 12. The ld. AR relied upon the decision of Delhi High Court in the matter of DIT vs. Delhi Public School Society 403 ITR 49 (Del). It was submitted that in that case the DPS Society was receiving the franchise charges from the affiliated schools on the basis of the franchises agreement for using logo moto etc. However, Delhi High Court on examination of the facts of the case had found that maintaining the schools in furtherance of educational purposes is a charitable activity u/s 2(15) of the Act. 13. The ld. A....
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....e that they are in line with the objects of the Trust. In contrast, the position would be different where the Commissioner proposes to cancel the registration of a Trust under sub-section (3) of section 12AA of the Act. There the Commissioner would be bound to record the finding that an activity or activities actually carried on by the Trust are not genuine being not in accordance with the objects of the Trust. Similarly, the situation would be different where the trust has before applying for registration found to have undertaken activities contrary to the objects of the Trust. 17. The ld. AR had drawn our attention to the order of the CIT(E) wherein he had observed that the appellant being a franchise of ZLL, was working on the terms and condition imposed by the franchise giver is neither an independent entity nor was working for the benefit of general public. In our considered opinion the CIT(E) had misguided himself and forget the principle laid down by the Hon'ble Supreme Court. The predominant purpose of the agreement entered the assessee and ZLL was mentioned in para 3 at page 2 of the agreement wherein it is mentioned as under:- "3.The Franchisor has de....
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....considered and put in practice by the School Principal and staff. The travel and other expenditure of visiting team sent by the Franchisor shall be borne by the SCHOOL in accordance with the Franchisor's travel rules." 19. Undoubtedly, the Hon'ble Delhi High Court in the matter of Delhi Public School Society had held that providing the franchise of the school to the sartelite school for the purposes of using the logo brand etc. is a activities which will not disentitled the assessee to claim 10(23c) (vi) approval under the Income Tax Act 1961. The observation of the Delhi Public School Society* [2018] 92 taxmann.com 132 (Delhi)are as under:- "23. Likewise, the test to determine the predominant objective was highlighted earlier, in Addl. CIT v. Surat Art Silk Cloth Manufacturers Association [1980] 121 ITR 1/[1979] 2 Taxman 501 (SC), by the application of which it was to be adjudged whether the institution existed solely for education and not for profit. This point was re-iterated in Venu Charitable Society (supra) 246 Taxman 396 (Delhi) as follows: "18. The incidental carrying on of commercial activities is subject to certain conditions stipulated under....
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....ve or acid test is whether on an overall view of the matter, the object is to make profit. In evaluating or appraising the above, one should also bear in mind the distinction/difference between the corpus, the objects and the powers of the concerned entity." 25. This critical test therefore has a conspicuous qualitative value; the of the objectives of the organization are to be determined not merely by the memorandum of objectives of the institution, but, also from the design of how the profits are being directed and utilized and if such application of profits uphold the "charitable purpose" of the organization (as postulated in section 2(15) of the Act) or if the objectives are marred by a profit making motive that emerges more as a business activity rather than an educational purpose. Section 10(23C)(vi) of the Act while guiding the manner of this determination also, provides a certain amount of discretion to the authority assessing the compliance to these conditions for ascertaining whether the requirements of the provision are met with. Such scrutiny is to be carried out every year, irrespective of any preceding pattern in the assessment of the previous years. This poi....
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....tion, the prescribed authority will still have to apply the determinative test of assessing whether the business is incidental to the attainment of the objectives of the entity and whether separate books of account are being maintained in respect of such business, even if the profits received by the assessee as such increase exponentially, if the assessee qualifies this test, they will still be eligible for exemption under section 10(23C)(vi) of the Act. 28. In light of the decisive test for determining eligibility for exemption under section 10(23C)(vi) of the Act, it is apparent that the assertion of the DGIT that the Assessee's activities including charging a franchisee fee could not be regarded as a charitable activity within the meaning of section 2(15) of the Act, and thus, inapplicable for exemption under section 10(23C)(vi) of the Act, has not been adequately substantiated, despite examination of the assessee's audited accounts. The DGIT asserted that the Assessee is carrying out a business activity for profit motives by entering into franchise agreements, whereby, it has opened and is running around 120 schools, and that these charges were received by the ....
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....oes not carry out any other business but only collaborates with other trusts and institutions. It has maintained its books of account as well. So the conditions have been met with. Exemption under the provisions mentioned above will be granted if the main objective of the society is relief of poor, education, medical relief and carrying on of a business with a view to fulfill these objects would not deprive them from such exemption. This was stated in CIT v. Rao Charitable Trust (1976) 102 ITR 474." 31. The authorities in the form of case law referred to above also reiterate that a mere incurrence of (surplus) profit does not automatically presuppose a business activity that invalidates the exemption under section 10(23C)(vi); the same has to be tested on whether such profits are being utilized within the meaning of the larger charitable purpose as defined in section 2(15) of the Act or not. On scrutiny, it can be observed that the accounts marked the heading "Secretary's Account", detail the heads of income and expenditure that cater to the various requirements of running and maintaining the satellite schools. Thus, arguendo if it were held that the objected activity ....