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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 ..... to 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. - ITA No.227/Asr/2017 - - - Dated:- 16-8-2021 - Shri Laliet Kumar, Judicial Member And Dr. Mitha Lal Meena, Accountant Member For the Appellant : Sh. Ashwani Kumar, Sh. Bhavesh Singhal, C.A. For the Respondent : Sh. J.S. Kahlon, D.R. ORDER PER LALIET KUMAR, J.M. This appeal filed by the assessee is against the order of ld. CIT(Exemption), dated 28.02.2017. Grounds of Appeal 1. Because the Ld. Commissioner of Income Tax (Exemptions) erred in law as well as on facts in cancelling the registration u/s 12AA of the Income Tax Act, 1961 w. e. f. A. Y. 2016-17.The action of the CIT is illegal, unjustified arbitrary and against the facts of the case. 2. Because the Ld. CIT (Exemptions) has erred in overlooking and in summarily rejecting the detailed wri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... institution for attainment of its main objects. The society shall also the power of frame rules by laws under its connection. i) To do all such other lawful acts, deeds and things as are incidental and conductive to the attainment of the objects or any of them j) To apply the income and properties of the society for the fulfillment of its objects and not to pay any portion thereof by way of profit or dividend or bonus to any members of the society. k) To do all acts things necessary to facilitate the charitable, social, culture, educational, vocational economic development of the society. 3. That the CIT(E) had issued the show cause notice on 13.02.2017 to provide the various information and the matter was fixed for 20.02.2017. The Appellant was asked to prove the following documents/ clarification by CIT(E) a. Details of property vested in the society, as envisaged u/s 11 of the I. T. Act, income Ji o111 which is sought to be exempted. b. Details of voluntary contributions received by the society, as envisaged u/s 12 of the I.T. Act and whether any specific direction has been received by the persons making voluntarycontributions. c. Tile ori ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he fees structure of the school in terms of the admission fees and other receipts. In compliance thereof the assessee has submitted the details of the amount of admission fees and monthly fees totaling to ₹ 99,10,400/ - excluding transport fees. 6. The CIT(E) in paragraph 6.4 had mentioned as under: - 7. The CIT(E) while examining the other issues of the assessee, in paragraph 7.2 and 7.3 and 8 as held as under:- 8. That on the basis of above said discussion, the CIT(E) has rejected the application for registration u/s 12AA of Income Tax Act 1961. 9. Feeling aggrieved by the order passed by the CIT exemption the assessee is in appeal before us on the grounds mentioned hereinabove. 10. It was the contention of the ld. AR that for the purposes of registration u/s 12AA it was necessary for the CIT(E) to examine the objects of the assessee and to find out whether the objects of the assessee are charitable nor not. It was further submitted that after satisfying himself about the object of the assessee, the CIT(E) was duty bound to examine the genuineness of the activities of the assessee. 11. In the present case, it was submitted by the ld. Ar that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the CIT exemption, while rejecting the application for registration of the assessee. 16. In our considered opinion, the law is fairly settled by the decision of the honorable Supreme Court in the matter of AnandaSocial Educational Trust2020] 114 taxmann.com 693 (SC), wherein it was held as under:- 11. We have given our anxious consideration to the above submissions made by Ms. Aishwarya Bhati, learned Senior Counsel appearing for the appellant - Director of Income tax and find that it is not possible to agree with the same. The purpose of section 12AA of the Act is to enable registration only of such trust or institution whose objects and activities are genuine. In other words, the Commissioner is bound to satisfy himself that the object of the Trust are genuine and that its activities are in furtherance of the objects of the Trust, that is equally genuine. 12. Since section 12AA pertains to the registration of the Trust and not to assess of what a trust has actually done, we are of the view that the term 'activities' in the provision includes 'proposed activities'. That is to say, a Commissioner is bound to consider whether the objects of the T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a) To permit the Franchisee to conduct the. MOUNT LITERA ZEE SCHOOL Program. (b) To permit the Franchisee to run the SCHOOL under the Trade name MOUNT LITERA ZEE SCHOOL or such other name as may be specified or approved in writing by the Franchisor from time to time. (c) To permit the Franchisee to use the MOUNT LITERA ZEE SCHOOL Manuals. (d) The Franchisor shall, if it so desires, have the right to post staff (including Principal/Vice Principal) and faculty and other staff at the Franchisee's expenses to ensure proper functioning of the school by the Franchisee and to further ensure that the Franchisee maintains the confidentiality and secrecy of Franchisor s proprietary material and Know How. (e) The Franchisee shall permit such person/s referred to hereinabove to enter at any time and remain upon the premises for such period of time as Franchisor considers fit for the functioning of the SCHOOL and for ensuring that the confidentiality and secrecy are maintained. (t) To supervise, evaluate and monitor academic and other activities in the SCHOOL periodically through visiting teams appointed by the Franchisor from time to time. Such visiting teams sha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng a profit, it becomes an activity for profit. (4) If after meeting expenditure, a surplus arises incidentally from the activity carried on by the educational institution, it will not be cease to be one existing solely for educational purposes. (5) The ultimate test is whether on an overall view of the matter in the concerned assessment year the object is to make profit as opposed to educating persons. The determining test to qualify for exemption under section 10(23C)(vi), hence, lies in the final motivation on which the institution functions, regardless of what extraneous profit it may accrue in the pursuit of the same. This was amply highlighted in Aditanar Educational Institution (supra) as follows: We may state that the language of Section 10(22) of the Act is plain and clear and the availability of the exemption should be evaluated each year to find out whether the institution existed during the relevant year solely for educational purposes and not for the purposes of profit. After meeting the expenditure, if any surplus results incidentally from the activity lawfully carried on by the educational institution, it will not cease to be one existin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see's accounts. Although DPS Society, in the earlier years had been granted exemption under section 10(23C)(vi), that itself does not cause for a res judicata principle, as examination of the Assessee's audited accounts may be done afresh by the prescribed authority, corresponding to the specific assessment year, as prescribed in the second proviso to section 10(23C)(vi) as follows: Provided further that the prescribed authority, before approving any fund or trust or institution or any university or other educational institution or any hospital or other medical institution, under sub clause (iv) or sub-clause (v) or sub-clause (vi) or sub-clause (via), may call for such documents (including audited annual accounts) or information from the fund or trust or institution or any university or other educational institution or any hospital or other medical institution, as the case may be, as it thinks necessary in order to satisfy itself about the genuineness of the activities of such fund or trust or institution or any university or other educational institution or any hospital or other medical institution, as the case may be, and the prescribed authority may also make ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s themselves. This, reaffirms the Assessee's argument that the usage of the gains arising out of its agreements are incidental to its educational purpose outlined by its objective of the Assessee. 30. The interpretation of section 10(23C)(vi) is one that requires fulfillment of a two pronged test: firstly, that any business activity if carried out by the educational institution applying for exemption should be incidental to their educational purpose, and secondly, that proper accounts of such business activity ought to be maintained, as highlighted above in Queen's Educational Society (supra). This was also mentioned in Venu Charitable Society and Ors (supra) 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. The memorandum of the petitioner's society clearly states its main objective is to render comprehensive eye care services inclusive of all forms of ophthalmic s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is. This is because, the larger objective of an educational/ charitable purpose of the institution and its manifestation can only be subjectively adjudged; for instance, in the present situation, the balance sheets of the assessee demonstrate how the profits are utilized for the growth and maintenance of the very schools they are accrued from, thus, subscribing to a charitable motive. However, the educational institutions may take more creative steps to qualify their objectives as an educational purpose that is more universal than the individual objectives set out in the memoranda of objectives of such institutions. For instance, a percentage of profits earned from a business activity indulged in by such an educational institution may be mandated towards fructifying the implementation the provisions of the Right to Education Act, 2009, particularly, to create a more sensitive learning environment for children with disabilities in implementation of the provisions in the Persons with Disabilities (Equal Opportunities, Protection of Rights and Full Participation) Act, 1995, or have a system to analyze the ratio of inflow of money over progressive assessment years as opposed to how m ..... X X X X Extracts X X X X X X X X Extracts X X X X
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