2017 (10) TMI 1584 - HC - Income Tax

Exemption u/s 11 - charitable object u/s 2(15) - assessee was performing broadly answers the description of education but it charges extremely high rates of fee which in fact amounts to commercialization of education - HELD THAT - The findings of the Tribunal we notice are that the essential objects of the respondent assessee continue to be the same i.e. providing education to schools. The Revenue s reliance on Aditanar Educational Institution v. Additional Commissioner of Income Tax 1997 (2) TMI 3 - SUPREME COURT is of no avail. The ITAT had considered that judgment and analyzed the facts of this case in the light of both the previous judgments as well as the later ruling in Queen s Educational Society 2015 (3) TMI 619 - SUPREME COURT The Court is of the opinion that there is no merit in the Revenue s appeal; objects for the respondent assessee remained unaltered. The extent of fees charged by it ipso facto cannot be the basis to conclude that the purpose for which it was set up had changed. Diversion under Section 13(3) - Goodwill and monetary value of the trade mark which arose in the course of the respondent s activities ought to have accrued to it rather than the owner - The Court is of the opinion that the ITAT s reasoning on this aspect too is merited. Besides the use of a trade mark per se does not confer an advantage upon the licensee or authorized user under Section 40(2) of the Trade Marks Act 1999 the benefit of such use accrues to the owner. This aspect too has been considered by a Division Bench of this Court and later affirmed in Formula One World Championship Ltd. v. CIT 2016 (12) TMI 123 - DELHI HIGH COURT

Summary

Issues:
1. Cancellation of registration under Section 2(15) of the Income Tax Act, 1961.
2. Interpretation of the purpose and activities of the respondent-assessee.
3. Accrual of goodwill and monetary value of the trade mark.

Analysis:
1. The Revenue appealed against the ITAT judgment, arguing that the cancellation of registration under Section 2(15) of the Income Tax Act was justified due to the alleged commercialization of education by the assessee, charging high fees. The Court noted that although the activity broadly fell under "education," the charging of high fees did not alter the fundamental objective of providing education. The Court found no merit in the Revenue's appeal as the purpose of the respondent-assessee remained unchanged despite the fee structure (para 1-3).

2. The Tribunal's findings emphasized that the respondent's core objective was still education provision, dismissing the Revenue's reliance on a previous judgment. The Court referenced past and recent judgments to support its decision, highlighting that the fee charged did not alter the primary purpose of the organization. The Court upheld the Tribunal's decision, concluding that the fee structure did not change the fundamental nature of the respondent's activities (para 2-3).

3. Another ground of appeal was the accrual of goodwill and monetary value of the trade mark, contended to belong to the respondent rather than the owner. The Court agreed with the ITAT's reasoning, stating that the use of a trade mark did not inherently benefit the licensee under the Trade Marks Act, where the advantage accrues to the owner. Citing a Division Bench decision and a subsequent ruling, the Court found no merit in this aspect of the appeal, ultimately dismissing it (para 4).