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2021 (8) TMI 767 - AT - Income TaxExemption u/s 11 - CIT(E) has rejected the application for registration u/s 12AA - proof of Charitable activity u/s 2(15) - assessee entered into franchise agreement - HELD THAT - From the perusal of the order passed by the CIT exemption it is clear that the CIT exemption has denied the registration to the assessee society on the basis of the franchise agreement entered between the assessee and that of the Zee Learn Ltd. however the running of the school, duly affiliated with the central board of secondary education, has not been denied by the CIT exemption, while rejecting the application for registration of the assessee. Running of the school after affiliation with the CBSE Board, is a charitable activities within the four corners of section 2(15) of the Act and the assessee is entitled to the registration u/s 12AA - AO at the time of assessment is duty bound to examine the permissibility of the franchise fees paid by the assessee to ZLL within the four corners of law. In our considered opinion merely because the assessee entered into franchise agreement with ZLL will not made the activity of the assessee non charitable. The predominant and sole purpose of the assessee s activities are imparting of education after affiliation with the CBSE. In the light of the above we deem it appropriate to direct the CIT(E) to grant registration to the assessee from the date of application. - Decided in favour of assessee.
Issues Involved:
1. Cancellation of registration u/s 12AA of the Income Tax Act, 1961. 2. Examination of the charitable nature of the society's objectives. 3. Impact of the franchise agreement with Zee Learn Ltd. on the charitable status. 4. Assessment of the society’s activities and financials to determine eligibility for registration. Detailed Analysis: Issue 1: Cancellation of Registration u/s 12AA of the Income Tax Act, 1961 The appellant, a society registered under the Society Registration Act 1860, contested the cancellation of its registration u/s 12AA by the CIT (Exemptions). The CIT(E) issued a show-cause notice and requested various documents and clarifications regarding the society's activities and financials. Despite the appellant providing the requisite information, the CIT(E) cancelled the registration on the grounds that the society's activities were not purely charitable due to its franchise agreement with Zee Learn Ltd. Issue 2: Examination of the Charitable Nature of the Society's Objectives The appellant argued that the CIT(E) did not dispute the charitable nature of the society's objectives but focused on the franchise agreement with Zee Learn Ltd., which the CIT(E) believed indicated engagement in non-charitable activities. The appellant maintained that its primary objective was to impart education, which aligns with the definition of charitable activities under section 2(15) of the Act. Issue 3: Impact of the Franchise Agreement with Zee Learn Ltd. The CIT(E) contended that the franchise agreement with Zee Learn Ltd. constituted a commercial activity, thereby disqualifying the society from being considered charitable. The appellant countered this by citing the Delhi High Court's decision in DIT vs. Delhi Public School Society, which held that franchise agreements for educational purposes do not negate the charitable nature of an institution. The tribunal agreed with the appellant, stating that the predominant purpose of the franchise agreement was to enhance the quality of education, not to engage in a business activity. Issue 4: Assessment of the Society’s Activities and Financials The tribunal referred to the Supreme Court's decision in Ananda Social & Educational Trust, which clarified that for registration u/s 12AA, the Commissioner must be satisfied that the objects and activities of the trust are genuine and charitable. The tribunal found that the CIT(E) had not adequately considered the genuine charitable activities of the appellant, which included running a CBSE-affiliated school. The tribunal emphasized that the mere fact of entering into a franchise agreement does not automatically render the activities non-charitable. Conclusion: The tribunal concluded that the appellant's activities, primarily running a CBSE-affiliated school, were indeed charitable. It directed the CIT(E) to grant registration u/s 12AA from the date of application, as the appellant's activities aligned with the charitable purposes defined under section 2(15) of the Act. The tribunal also noted that the Assessing Officer could examine the permissibility of the franchise fees paid to Zee Learn Ltd. during the assessment. Order: The appeal of the assessee was allowed, and the order was pronounced in the Open Court on 16/08/2021.
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