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2019 (11) TMI 1296 - AT - Income TaxExemption u/s 11 - Registration u/s 12AA(1)(b)(ii) denied - HELD THAT - In this case as the appellant at the initial stage failed to disclose the relevant franchise agreement and relation with franchiser to the CIT(E) and has also not produced the details qua franchise agreement on the relation of the franchiser, therefore, this issue requires fresh consideration by the Ld. CIT(E). CIT(E) has also reasoned that the applicant society has been claiming exemption u/s 10(23C) (iiiad) of the Act till F.Y. 2013- 14, however from 2013-14 and 2015-16 claimed exemption u/s 10(23C) (vi) of the act without having any approval of the prescribed authority. From the Paper Book dated 25.06.2019 it appears that the Co-ordinate Bench in the case of applicant society 2018 (2) TMI 49 - ITAT AMRITSAR directed the CIT(E) to grant registration to the applicant society u/s 10(23C)(vi) of the Act. Though, from the order it does not clear from which date and Financial Year, the order passed by the Co-ordinate Bench shall be applicable, therefore, this issue is also requires determination by the Ld. CIT(E) with regard to the claim of the appellant society u/s 10(23C)(vi) of the Act for the F.Y. 2013-14 to 2015-16. Applicant society has over the years, shifted to acquiring of buses and as evident from the financial statements of the record that the assessee has earned income of ₹ 30,43,010/- in the form of transportation fee during the financial year 2015-16 and the expenses under the head transportation charges was ₹ 16,00,236/- only i.e. almost 50% of the fees charged exemplifies the profit motive - In view of the law laid down by the Hon ble Apex Court in Queen s Educational Society vs. CIT 2015 (3) TMI 619 - SUPREME COURT CIT(E) has to determine the quantum of the surplus amount and its utilization and is also at liberty to put any condition in accordance with law for utilization of the surplus amount and/or fixing the charges of buses/transportation on charitable basis. On the aforesaid analyzations and reasons, it would be proper to set aside the order passed by the Ld. CIT(E) and to remand the case to the file of the Ld. CIT(E) for decision afresh while taking into consideration the observation made above by us and law laid down by the Hon ble Apex Court in the case of Queen s Educational Society (supra) and Delhi Public School Society's case 2018 (4) TMI 714 - DELHI HIGH COURT within six months, suffice to say while affording reasonable opportunities of being heard to the assessee.
Issues Involved:
1. Franchise Agreement and Concealment of Commercial Activity 2. Claim of Exemption under Section 10(23C)(vi) without Approval 3. Profit Motive due to Transportation Fee and Surplus Issue-wise Detailed Analysis: 1. Franchise Agreement and Concealment of Commercial Activity: The primary objection by the Ld. CIT(E) was that the appellant society had a franchise agreement with M/s. S.K. Educational Pvt. Ltd. for running a play school named "Bachpan" and was paying a monthly fee equivalent to fifteen percent of the gross collection to the franchiser. The appellant society did not initially disclose this relationship, which was only revealed upon inquiry by the Department. The Ld. CIT(E) considered this concealment as evidence of indulging in purely commercial activities, thus rejecting the application for registration under Section 12AA of the Income Tax Act. The Tribunal referred to the Delhi High Court judgment in the case of Director of Income Tax (Exemption) vs. Delhi Public School Society, which held that franchise agreements do not necessarily entail rejection of the application for exemption if the entity maintains separate accounts in compliance with the Act. However, since the appellant failed to disclose the franchise agreement initially, this issue requires fresh consideration by the Ld. CIT(E). 2. Claim of Exemption under Section 10(23C)(vi) without Approval: The Ld. CIT(E) noted that the appellant society claimed exemptions under Section 10(23C)(iiiad) until the Financial Year 2013-14 and subsequently under Section 10(23C)(vi) without the prescribed authority's approval. The Tribunal observed that a Co-ordinate Bench had directed the Ld. CIT(E) to grant registration under Section 10(23C)(vi) in a previous order dated 05.12.2017. However, the applicability of this order to specific financial years was unclear. Therefore, this issue also requires determination by the Ld. CIT(E) regarding the claim for the Financial Years 2013-14 to 2015-16. 3. Profit Motive due to Transportation Fee and Surplus: The Ld. CIT(E) reasoned that the appellant society's emphasis had shifted to acquiring buses, generating significant income from transportation fees, which exemplified a profit motive. The Tribunal referred to the Supreme Court judgment in Queen's Educational Society vs. CIT, which held that surplus ploughed back for educational purposes does not negate the educational institution's charitable status. The Apex Court laid down principles distinguishing between making a surplus and carrying on an institution for profit. The Tribunal directed the Ld. CIT(E) to determine the quantum of the surplus amount and its utilization, and to impose any necessary conditions for the utilization of the surplus or fixing transportation charges on a charitable basis. Conclusion: The Tribunal set aside the order passed by the Ld. CIT(E) and remanded the case for fresh consideration, taking into account the observations made and the legal precedents set by the Supreme Court and Delhi High Court. The Ld. CIT(E) is to decide within six months, providing reasonable opportunities for the appellant to be heard. The appeal filed by the appellant was allowed for statistical purposes. Order Pronounced: The order was pronounced in the open Court on 29/10/2019.
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