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TMI Blog2021 (10) TMI 744X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the society as per the decided case laws on this issue which have been addressed in favor of the assessee by the earlier order of the Coordinate Bench as placed in the paper book. As regards to the issue of profit motive, it had clearly been held that profit motive should not be predominant and for that various decisions have been cited has held that the denial of registration is being made on the issue of the franchise fee paid to M/s. Zee Learn Ltd. and ignoring the finding is already in favor of the assessee in the earlier order of ITAT [ 2018 (9) TMI 954 - ITAT AMRITSAR ] and, therefore, the CIT (E) not following the order of the Hon ble ITAT is against judicial discipline and rejecting the application for registration u/s 12AA, which issue had already attained finality is bad in law and, thus, the PCIT (E) was required to grant registration to the assessee u/s 12AA. The jurisdiction of the PCIT(E) was being limited to verification of two issues, one with regard to the lease hold land and the second about the fee concession and on both accounts, and since, the CIT (E) has not drawn any adverse inference and, therefore, in our view, the order of CIT(E) denying t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r an order u/s 12AA of the Income Tax Act was passed by the Commissioner of Income Tax (E), Chandigarh in this case on 30.08.2017 rejecting the application for grant of registration u/s 12AA. The applicant trust preferred an appeal before the Hon ble Income Tax Appellate Tribunal, Amritsar against the order of the Commissioner of Income Tax (E), Chandigarh. The Hon ble ITAT, Amritsar has restored back the case of the applicant trust for fresh consideration in ITA No. 605/Asr/2017 dated 10.09.2018 by observing as under: - We, accordingly, i.e., in view of the foregoing, only consider it proper to restore the matter back to the file of the competent authority to allow the assessee an opportunity to exhibit its activities as being undertaken toward and in satisfaction of its stated object/s, which no doubt constitute a charitable purpose under the Act. Before parting, we may also add, and even as clarified by us during hearing, that in view of the assessee s objects, the reliance on the decisions by the tribunal in the context of other schools run as franchisees of Zee Learn Ltd., is rendered of little moment; we ourselves holding that profitmaking per se cannot be regarded a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the Hon ble ITAT has observed as under: 4.2 The question, therefore, is whether the earning of profits, i.e., in a regular and systematic manner - on which there could hardly be any doubt, even as the Id. CIT(E) was at pains to emphasize, by managing its affairs adopting standard and well accepted/recognized business management practices and principles, on commercial or market driven basis, could be said to exclude an activity geared to achieve an object otherwise constituting a charitable purpose. The Hon ble Apex Court has, per a series of decisions, as in Sole Trustee, Loka Shikshana Trust v. CIT [1975] 101 ITR 234 (SC); Indian Chamber of Commerce v. CIT [1975] 101 ITR 796 (SC); Dharmadeepti v. CIT [1978] 114 ITR 454 (SC); CIT v. Surat Art Silk Cloth Manufacturers Association [1980] 121 ITR 1 (SC); Aditanar Educational Institution v. CIT (Addl.) [1997] 224 ITR 310 (SC); American Hotel Lodging Assn. Educational Institute v. CBDT [2008] 301 ITR 86 (SC); and Queens Educational Society v. CIT [2015] 372 ITR 699 (SC), the last also approving the decision by the Hon ble jurisdictional High Court in Pine Grove International Charitable Trust vs. Union of India (2010) 327 IT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovided only through the school. The Hon'ble Courts, as a reading of the various decisions in the matter shows, have refrained from providing a quantitative test for the income generated from the activity carried on in pursuance of or for achieving a charitable purpose/object. Nothing, therefore, turns on the assessee stating before us of its expenditure exceeding income; the expenditure including a handsome component of depreciation (₹ 37 lacs for AY 2015-16), so that there is substantial cash profit and, two, the depreciation stands provided on an accelerated (WDV) basis at the rates prescribed under the Act for determining business income, which inflates the charge for the initial years, as against being applied uniformly over the life of the asset. Before us, the Id. counsel sought to justify the fees which, on an annual basis, ranges from ₹ 40,000/- to ₹ 50,000/-, with refereppe to th%quality of the education; the school also providing training in Robotics, a new discipline. Without doubt, the cost of education, as of any other service, cannot be properly compared without taking into account its quality; rather, the quality of both the input resources as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under:- Para 5 Page 9 5. We, accordingly, i.e., in view of the foregoing, only consider it proper to restore the matter back to the file of the competent authority to allow the assessee an opportunity to exhibit its activities as being undertaken toward and in satisfaction of its stated object/s, which no doubt constitute a charitable purpose under the Act. Before parting, we may also add, and even as clarified by us during hearing, that in view of the assessee s objects, the reliance on the decisions by the tribunal in the context of other schools run as franchisees of Zee Learn Ltd., is rendered of little moment; we ourselves holding that profit-making per se cannot be regarded as detrimental as long as it feeds a charitable purpose (of education). For the same reason/s, and to the same effect, would be the assessee s reliance on the decisions by the Hon ble jurisdictional High Court, placed in the assessee s compilation, which, even though not referred to during hearing, have been perused by us to find ourselves as in agreement therewith in principle. Further, as regards the observation of the assessee s principal asset, the school building, as not secured, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... heir fees by the school/ but only this aspect would not suffice to prove that the institution being. run by the society is completely charitable and is not being run for profit. The activities of the school have to be charitable as a whole where the intent of any institution is not for profit making and profit sharing through franchisees. 5. From the above, it is very clear that nothing having been doubted and if there is complete waver of fee, how the school would run and what more evidence was required to be given has not been substantiated by the CIT (Exemption) and according to us, that on this issue no adverse inference have been drawn and main object of the society is to carry-out the object of the education only and not doubted. Further, regarding lease of land, the CIT in para 7.4 after considering the affidavit and submissions of the assessee as per Para no. 7.3 of his order has accepted the contention of the assessee. The same para is reproduced as under: 7.4 The affidavit and the submission of the assessee in this regard have been filed and no adverse inference in this particular aspect is drawn. 6. In para 7.4, the CIT (Exemptions) has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to the lease hold land and the second about the fee concession and on both accounts, the CIT (Exemptions) has not drawn any adverse inference and, therefore, it is prayed that the order of CIT(Exemptions) denying the registration u/s 12AA is bad in laws. The finding of CIT (Exemptions) in para 6.3 with regard to fee concession and all such details were filed in the Paper Book at pages 26 to 58 (sample copies) and at pages 73 to 74, the letter was filed from Sewa Bharti about the fee concession at page 75 and details of fee concession year wise at pages 76 to 78 and various appreciation cum recognition letters at page 85 onwards. Thus, nothing has been doubted and for the purpose of 12A only two conditions are to be required to be satisfied that one with regard to the activities of the trust and the second with regard to the aims objects of the society as per the decided case laws on this issue which have been addressed in favor of the assessee by the earlier order of the Hon ble ITAT as placed in the paper book at page no. 1 to 10. 10. On the issue of profit motive, it had clearly been held that profit motive should not be predominant and for that variou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions dated 07.05.2019;.27.05.2019 and 17.07.2020. These submissions have been examined and placed on record. The assessee, in respect of the franchise agreement of the society with Zee Learn Ltd., has submitted that the franchise agreement with Zee Learn Ltd. was entered only to achieve the object of providing quality education to all the sections of the society and there was no profit earning motive by the franchisee. 13. The Coordinate Bench while remanding the matter back to the competent Authority for limited purpose observing in para 5.3 that to allow the assessee an opportunity to exhibit its activities as being undertaken toward and in satisfaction of its stated object/s, which no doubt constitute a charitable purpose under the Act and that before parting, we may also add, and even as clarified by us during hearing, that in view of the assessee s objects, the reliance on the decisions by the tribunal in the context of other schools run as franchisees of Zee Learn Ltd., is rendered of little moment; we ourselves holding that profitmaking per se cannot be regarded as detrimental as long as it feeds a charitable purpose (of education). For the same reason/s, and to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te waver of fee, how the society would run the school and further whatever more evidence was required to be given has not been substantiated by the CIT (E). In our view, if on this issue, no adverse inference have been drawn by the PCIT(E) by accepting main object of the society is to carry-out the object of the education only, then refusal to grant 12 AA to the assessee society was not justified. Further, the CIT in para 7.4 of his order has accepted the contention of the assessee regarding lease of land, as follows: 7.4 The affidavit and the submission of the assessee in this regard have been filed and no adverse inference in this particular aspect is drawn. 18. The CIT (E) has referred to the order of ITAT, Chandigarh Bench in the case of Jiwan Dass Kartar Singh Charitable Trust with regard to the payment of Franchisee fee to the Zee Learn Ltd. and held that the case is squarely covered by the judgment of Chandigarh Bench of the ITAT by observing vide 8 of the impugned order, as under:- Para 8 In view of the above discussion and the fact that no clear direction has been given by the Hon ble ITAT, Amritsar for granting registration u/s 12A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the order of the Hon ble Bench and the Ld. CIT (E) in para-8 of the order has held that the denial of registration is being made following the order of the Hon ble ITAT, Chandigarh Bench on the issue of the franchise fee paid to M/s. Zee Learn Ltd. and ignoring the finding is already in favor of the assessee in the earlier order of ITAT in ITA No. 605/Asr/2017 and, therefore, the CIT (E) not following the order of the Hon ble ITAT is against judicial discipline and rejecting the application for registration u/s 12AA, which issue had already attained finality is bad in law and, thus, the PCIT (E) was required to grant registration to the assessee u/s 12AA. 23. In view of the above facts, we are of the considered view, that the jurisdiction of the PCIT(E) was being limited to verification of two issues, one with regard to the lease hold land and the second about the fee concession and on both accounts, and since, the CIT (E) has not drawn any adverse inference and, therefore, in our view, the order of CIT(E) denying the registration u/s 12AA is bad in law. 24. In the above view, we are of the considered opinion that the assessee is entitled to registration under ..... 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