2019 (6) TMI 583 - AT - Income Tax

Registration u/s 12AA - activity the assessee involved is obtaining a franchisee of Zee Learn Ltd for education - activity are in commercial nature OR Charitable - HELD THAT - The trust is operating on a commercial basis in conducting of its affairs which consists mainly running of Kid Zee . There is no provision for any type of free or concessional education to the poor and needy students. Rather the clauses in the franchisee Agreement makes it binding on the trust not to offer any discounts or concessions as otherwise provided in the Agreement. As per the Clause C D of the Agreement above the trust cannot even grant credit to the needy students in case of financial crisis and the interest is liable to be charged on day to day basis. Such type of activity cannot be considered as charitable activity. After going to the Trust Deeds, Franchisee Agreement as well as the provisions of Section 12A and Section 12AA as well as the impugned order passed by the Ld. CIT(E), we are of the considered opinion that according to Section 12AA, the Commissioner, on receipt of application for registration of trust or institution shall have to examine the documentary evidence filed by the assessee along with the application for granting registration. Commissioner can call for any type of documentary evidence or information from the trust or institution as he thinks necessary in order to satisfy himself about the genuineness of the activities of the trust or institution. If he has any doubt in his mind then he may also make such inquiries as he may deem necessary. Before granting the registration to any trust or institution, Commissioner should be satisfied about the genuineness of activities of the trust or institution, as the case may be. The trust in the instant case has not produced any evidence to the satisfaction of the CIT (E) about its real charitable character. On the other hand the CIT (E) could prove cogently the non charitable and commercial nature of the work undertaken by the assessee trust. In view of the foregoing discussion no interference is required in the impugned order. Accordingly we uphold the order of the CIT(E). - Decided against assessee.

Summary

Issues Involved:
1. Delay in filing the appeal.
2. Justification for disallowing exemption under section 12AA of the Income Tax Act, 1961.

Detailed Analysis:

1. Delay in Filing the Appeal:
The appeal was filed by the Assessee with a delay of 58 days. The Assessee's representative submitted that the delay was due to the deteriorating health condition of the Trustee, supported by medical reports. Hence, the delay was condoned.

2. Justification for Disallowing Exemption under Section 12AA:
The Assessee contended that the Ld. CIT(E) was not justified in disallowing the exemption under section 12AA. The trust's stated aims and objectives included promoting quality education, helping poor and needy students, and spreading education in society. However, the Ld. CIT(E) found that the trust was operating as a franchisor of Zee Learn Ltd., with intellectual property rights vested in Zee Learn Ltd., and the trust acting merely as an agent promoting the franchisor's business on commercial terms. This arrangement was seen as negating the essence of charity.

The Ld. CIT(E) also noted that the trust's income and expenditure accounts did not evidence any charitable activities aligned with its stated aims and objectives. The fee structure and terms of the agreement with Zee Learn Ltd. were aimed at maximizing profits, with the trust's operations controlled within a family, lacking representation from other sections, which did not impart the character of an entity amenable to public charity.

The trust argued that it had 250 students from different sections of society, including financially poor students, and that it was formed for providing education to the masses. The trust relied on various case laws to support its claim that entering into a franchise agreement does not imply a profit motive and that the CIT(E) should consider the objects and genuineness of the trust's activities.

The departmental representative supported the Ld. CIT(E)'s order, citing cases like Rajah Sir Annamalai Chettiar Foundation Vs CIT and CIT Vs. National Institute of Aeronautical Engineering Society to justify the rejection of the registration.

Tribunal's Findings:
The Tribunal reviewed the trust's aims and objectives, which included promoting various forms of education and helping poor and needy students. However, it found that the trust was primarily involved in operating a franchise of Zee Learn Ltd., with the franchise agreement indicating a commercial nature of activities. The agreement mandated the trust to collect fees on behalf of the franchisor, with no provision for free or concessional education to poor students, and imposed strict terms on fee collection and penalties for deviations.

The Tribunal noted that the trust's activities did not align with its stated charitable objectives and were primarily aimed at earning profits. The Tribunal referenced the definition of "charitable purpose" under section 2(15) of the Income Tax Act, which excludes activities involving trade, commerce, or business from being considered charitable.

The Tribunal concluded that the trust did not qualify for registration under section 12AA, as its activities were not charitable in nature. The trust failed to provide evidence of its charitable character, and the Ld. CIT(E) had cogently proven the commercial nature of the trust's operations. Hence, the Tribunal upheld the order of the Ld. CIT(E) and dismissed the appeal.

Conclusion:
The appeal of the Assessee was dismissed, with the Tribunal upholding the Ld. CIT(E)'s order disallowing the exemption under section 12AA due to the commercial nature of the trust's activities and lack of evidence of genuine charitable purposes.