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TMI Blog2021 (8) TMI 767X X X X Extracts X X X X X X X X Extracts X X X X ..... f 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 orphanages, old age homes, leprosy rehabilitation center, homes for widows, aged, helpless and pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 under tile Income tax Act, 1961 and the same have been availed while fling its ITR in earlier years. o. Whether any grants have been received by the society stating whether the grants so received (if any) have. been utilized for tie purp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mitted 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. AR had also submitted that the assessee is not involved into any other activities other than running the schools as is clear from balance sheet and income and expenditure account of the assessee. 14. On the other hand the ld. AR for the revenue relied upon the order pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctivity 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 designed and developed a program know how on School management which includes the knowledge and expertise in conducting the SCHOOL, the process, practice, techniques, procedures relating to floor lay out drawing and architectural designs along with the instructional methodology and teaching resources in li ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hool 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 the seventh proviso to Section 10 (23C). They are- (a) The business should be incidental to the attainment of the objectives of the entity and (b) Separate books of account should be maintained in respect of such business." 24. In Queen's Educational Society (supra), the Supreme Court went on to summarize the law that arises under Section 10(23C) as follows: "11. Thus, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 point was highlighted in American Hotel and Lodging Assn. Educational Institute (supra) as follows: "Therefore, in our view, it is always open to the PA to impose such terms and conditions as it deems fit. The interpretation we have given is based on harmonious construction of the provisos inserted in Section 10(23C)(vi) by the Finance Act, 1998. Lastly, we may reiterate that there is a difference between stipulation by the Prescribed Authority (PA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 Assessee for using the name of DelhiPublicSchool by the satellite schools in and outside India and no separate books of accounts were maintained by the Assessee for the business activity as required under section 11(4A) of the Act. This is prima facie not correct, because the assessee has maintained, accounts audited in detail for financial years 2000-2001, 2003-04, 3004-05 and 2005-06. That aspect has been found by the ITAT for those assessment years. Such accounts have been maint ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 were indeed commercial in nature, nevertheless, the realization of profit by the assessee is through an activity incidental to the dominant educational purpose that its memorandum of association sets out, and is in turn being channeled back into the maintenance and management of the same schools, thus, fulfilling the objectives the Assessee has set out in its memorandum of objectives. 32. ====================================================================== ========== 33. In view of the above analysis, i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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