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Income Tax Appellate Tribunal, NAGPUR BENCH : : NAGPUR
Before: SHRI S.S.GODARA & DR. DIPAK P. RIPOTE
ORDER
PER DR. DIPAK P. RIPOTE, AM:
This is an appeal filed by the assessee against the order under section12AA of the Income Tax Act, 1961 passed by ld.Commissioner of Income Tax(Exemption), Pune on 27.12.2018. The grounds of appeal
are as under :
1. The learned Commissioner of Income-tax (Exemptions) Pune, (CIT) erred in passing an order under section 12AA(1)(b)(ii) thereby, rejecting appellant's application for grant of registration under section 12A. Shankarlal Jalan Foundation AVG Layout [A]
The learned CIT erred in observing that the appellant is working as a franchise of Tally Education Pvt. Ltd and offering certified courses as a business activity rather than as a charitable one.
3. The learned CIT erred in not appreciating that the main object of the appellant was to spread education among people of society by establishing education society. That the appellant was providing training in certified courses with minimum burden of fees to people on charitable basis. 4. The learned CIT erred in not appreciating that expenditure incurred on objects of the trust exceeded the income resulting into deficit for year ended 31.03.2018 and 31.03.2017 thereby, evidencing that, there was no profit motive or commercial nature involved. 5. The learned CIT has erred both on facts and in law in observing that the objects of the appellant are not charitable in nature. 6. The learned CIT has erred in observing that the activities conducted by the appellant were not genuine, despite the appellant bringing all the material and evidence on record to prove the genuineness. 7. That at the stage of granting registration the learned CIT has to satisfy himself about the objects of the trust and genuineness of its activities and any enquiry with regard to the source of income or application thereof is beyond the scope of enquiry contemplated under section 12AA. 8. The appellant submits that the order of the CIT rejecting appellant's application for registration be set aside and the CIT be directed to grant registration to the appellant trust. 9. Each of the above grounds of appeal
are independent and without prejudice to each other.
10. The appellant craves liberty to add, alter and/or amend the grounds of appeal as and when necessary.”
Shankarlal Jalan Foundation AVG Layout [A] Brief facts of the case : 2. Assessee is a Society duly registered with Assistant Registrar, Co-operative Societies on 18.08.2016. Assessee had applied in Form No.10A for registration under section 12AA to the Commissioner of Income Tax(Exemption) on 21.06.2018. The ld.CIT(Exemption) had granted opportunity to the assessee. Ld.CIT(Exemption) observed that assessee is working as Franchise under the Franchise Agreement of Tally Education Private Limited which is a company incorporated under Companies Act. He further observed that assessee is offering certified courses under the Franchise Agreement as a business. Therefore, ld.CIT(Exemption) held that activities of the assessee are not charitable, they are commercial in nature. Therefore, ld.CIT(Exemption) rejected the assessee’s application for registration under section 12AA of the Act. Aggrieved by the order of ld.CIT(Exemption), assessee filed appeal before this Tribunal.
Submission of ld.AR : 3. The ld.Authorised Representative for the assessee(ld.AR) filed a paper book. Ld.AR submitted that assessee’s objects are Shankarlal Jalan Foundation AVG Layout [A] charitable in nature; therefore, assessee is eligible for Registration. Ld.AR submitted that the assessee is providing education.
Submission of ld.DR : 4. Ld.Departmental Representative for the Revenue(ld.DR) relied on the order of ld.CIT(Exemption). The ld.DR invited our attention to Franchise Agreement which is at page no.51 to 73 of the paper book filed by the assessee to explain business nature of the activities performed by the assessee. Ld.DR vehemently stated that assessee is doing business and not charitable activities.
Findings &Analysis : 5. We have heard both parties and perused the records. On perusal of the memorandum of the assessee which is at page no.3 to 15 of the paper book filed by assessee, it is observed that there are various objects totaling to 26. Some of the objects are reproduced here as under (we have copied the objects from English translation provided by the assessee): “6. To establish and run industrial and technical institute for business. Shankarlal Jalan Foundation AVG Layout [A]
To establish Technical Institute, Poly Technic Engineering College, Medical College, BBA, MBA, MCA.
14. To run and establish Gymnasium. Also establish Yoga Education and Training Centre.
For primary education arrange, establish and run pre- primary, middle school and higher school education.
To establish and run colleges for Graduation and Post- Graduation and to run and establish colleges for graduation and higher education.
To establish and run Kinder Garten and residential public school.
7. To establish and run Skill Development Courses.
8. To establish and run hostel facility.
12. To start educational and cultural schemes of non-political nature.
For development and welfare of physical and mental patients. Provide health center ad mental health services and work for them through welfare schemes.
Research in social work and social science and also reward and felicitate fellow who work better in this field.
18. To establish and run old age home, orphanage, Ashram shala. DharmarthDawakhana, Vastigruha and public library.
Organise National Programmes and keep national integrity intact.
Work for weaker section for child development, women development also work for upliftment of schedule caste, senior citizen, schedule tribe, run welfare schemes which are aided by govt.
Shankarlal Jalan Foundation AVG Layout [A]
To take over run and execute Govt, Semi Govt. schemes to achieve above objectives.” 6. Thus, it can be observed that assessee’s objects are general in nature. However, the actual activity performed by the assessee is only related to Franchise Agreement entered by the assessee with Tally Education Private Limited.
The assessee had filed copy of the Registered Franchise Agreement between the Assessee and Tally Education Private Limited at Page No.51 to 61 of the paper book. As per the Franchise Agreement, assessee is described as “FRANCHISEE”. As per the Franchise Agreement, assessee’s obligations are as under : a. Franchisee shall conduct the “Tally online Assessments” In its Assessment Center(s) regularly. b. Franchisee shall undertake marketing activities and create required awareness in the market about Tally and Tally Certification Programs”. c. Franchisee shall pay the registration/sign up fee for each assessment center as per Annexure II. d. Franchisee shall purchase courseware from franchisor. e. Franchisee shall conduct the Tally online Certification for each candidate on the Franchisor assessment portal and provide required IT Infrastructure like Computers/Laptop and Internet to the students for undergoing the Tally online assessments at no additional cost to Franchisor. g. Franchisee should register the candidate on Franchisor portal for the “Tally Certification Program”. Shankarlal Jalan Foundation AVG Layout [A] 7.1 Franchisor’s Some obligations are as under : a. Franchisor shall provide Franchisee with the courseware for course as per commercials defined by it from time to time. b. Franchisor shall provide operational support to Franchisee as per the guidelines (mentioned in Annexure III of this Agreement) after fulfillment of necessary terms and conditions by Franchisee.
g. Franchisor may inspect with or without prior notice premises of Franchisee to verify the following:- i. Compliance of various policies & guidelines as issued by Franchisor from time to time. ii. Inspection of books of accounts related to the business. iii. Inputs used to deliver services and solutions. iv. Other related matters without prejudice to its legal rights, correction of any deficiencies, and breach of contract and if required, determines this agreement in cases where breach committed by Franchisee, is prejudicial to the Interest of Franchisor.”
Thus, when we analyze the Franchisee Agreement, it is observed that assessee is marketing the “Tally Certification Programme” of Tally Education Private Limited. Assessee is conducting a Tally Certification Programme as provided by Tally Education Private Limited at a prescribed fee, part of which has to be remitted by the assessee to Tally Education Private Limited. In the Franchisee Agreement, Tally Education Private Limited has specified the infrastructure required, staff required for conducting such activity. As per the Franchisee Shankarlal Jalan Foundation AVG Layout [A] Agreement, one of the staff members to be appointed by assessee shall be “Business Development Executive”.
On perusal of Income & Expenditure Account, it is observed that no other activity has been carried out by the assessee other than executing the Franchisee Agreement by charging fee from students. In these facts and circumstances of the case, we agree with ld.CIT(Exemption) that the activity carried out by the assessee is a business activity. Assessee is not carrying out any charitable activities, though there are various objects mentioned in the Memorandum. We have already reproduced the objects above, and one of the objects of the assessee is “to run technical institute for business”. Thus, the objects of the assessee are itself not wholly charitable. The word Charitable Activity has been defined in section 2(15) of the Act and same is reproduced here as under : "charitable purpose" includes relief of the poor, education, [yoga,] medical relief, [preservation of environment(including watersheds, forests and wildlife) and preservation of monuments or places or objects of artistic or historic interest,] and the advancement of any other object of general public utility:
[Provided that the advancement of any other object of general public utility shall not be a charitable purpose, if it involves the carrying on of any activity in the nature of trade, commerce or Shankarlal Jalan Foundation AVG Layout [A] business, or any activity of rendering any service in relation to any trade, commerce or business, for a cess or fee or any other consi- deration, irrespective of the nature of use or application, or retention, of the income from such activity, unless—
(i) such activity is undertaken in the course of actual carrying out of such advancement of any other object of general public utility; and (ii) the aggregate receipts from such activity or activities during the previous year, do not exceed twenty per cent of the total receipts, of the trust or institution undertaking such activity or activities, of that previous year;]]
The Hon’ble Supreme Court has observed in the case of ACIT(exemption) Vs. Ahmedabad Urban Development Authority in Civil Appeal No. 21762 of 2017 as under : Quote, “150. Therefore, what Parliament intended – through the amendments in question was to proscribe, involvement or engagement of GPU charities, from any form (“in the nature of”) of activities that were trade, business or commerce, or engage or involve in providing services in relation to trade, business or commerce- for a fee, cess or other consideration. The inclusion of the term “in the nature of” was by design, to clarify beyond doubt, that not only business, trade or commerce, but all activities in the nature of, or resembling them, were proscribed. Likewise, service in relation to such activities, i.e., services relating, or pertaining to, such proscribed activities, too were forbidden.
The reference to fee or cess, is in the opinion of the court, only to emphasize that even a statutory consideration, for a service to business, trade or commerce, would take the activity outside the Shankarlal Jalan Foundation AVG Layout [A]
definition of a GPU charity. The sense in which the expressions “cess, fee or other consideration” are used, is that if any amount, is received for trading, or business or commercial activity, or any services to such activity, then, notwithstanding their nomenclature (as fee or cess, i.e. that they are fixed under a law) the GPU charity cannot claim tax exempt status. To bring home this even more pointedly- and underline a break from the past, the application of such amounts (received in the course of trade, commerce, or business, or towards services in relation thereto) would be irrelevant, as evidenced by the term “irrespective”, in the fourth limb of reading Section 2(15).”Unquote.
10.1 Thus, the Hon’ble Supreme Court has categorically observed that GPU are proscribed from any activities in the nature of Trade, Commerce, Business.
Meaning of Education as explained by the Hon’ble Supreme Court:
11.1 The Hon’ble Supreme Court in the case of New Noble Educational Society Vs. CCIT in Civil Appeal No.3795 of 2014 vide order dated 19/10/2022 has observed as under : Quote, “Thus, education i.e., imparting formal scholastic learning, is what the IT Act provides for under the head of “charitable” purposes, under Section 2 (15).” Unquote. Shankarlal Jalan Foundation AVG Layout [A] 11.2 Thus, Hon’ble Supreme Court has categorically held that for the purpose of Section 2(15) of the Income tax Act, the education means formal scholastic education.
The Hon’ble Gujarat High Court in CIT Vs. Sorabji Nusserwanji Parekh [1993] 201 ITR 939, held after referring to various decisions of the Hon’ble Supreme Court, that “there has to be an activity of normal schooling or actual imparting of education by an institution to claim exemption”.
Reliance in this regard, is placed on the decision of Hon’ble Patna High Court in the case of Bihar Institute of Mining and Mine Surveying Vs. CIT (1994) 208 ITR 608, wherein, it was held that coaching of the students in an institution cannot be held as education, as it is not a process of training and development of the students in normal schooling. The Hon’ble High Court, in that decision, further held that for the purpose of getting exemption, the trust should be an educational institution which primarily engages in educational activities – an institute, which do not have any primary educational activity cannot avail exemption, only on the basis of incidental training activity. Shankarlal Jalan Foundation AVG Layout [A]
When we have analyzed the activities of the Assessee in the light of the decisions of the Hon’ble Supreme Court and the Hon’ble High Courts, it is observed that the activities of providing Tally course as a Franchise of Tally Education Pvt. Ltd is not an activity of “Education” for the purpose of section 2(15) of the Act. When we analyzed the activity of the assessee in the light of above referred decisions, we are of the considered opinion that activities of the assessee are not charitable in nature, are not as per the objects of the assessee and they are purely business activities. Therefore, we uphold the order of ld.CIT(E). Accordingly, Ground No.1, 2, 3 and 5 are dismissed.
14.1 One of the objects of the assessee is “to run technical institute for business”. This object of the Assessee is also not charitable. Thus, the objects of the assessee are not charitable. All the objects of the assessee should be Charitable in nature as per the definition provided in Section 2(15) of the Act. Even when one of the objects is not charitable in nature, then the assessee may spend entire amount for the impugned NON CHARITABLE object. Therefore, all the objects must be charitable in nature as defined in the Act. Hence, the assessee is Shankarlal Jalan Foundation AVG Layout [A] not eligible for registration u/s 12AA of the Act. Accordingly, Ground No.1, 2, 3 and 5 are dismissed Ground Nos.4 & 6 : 15. Assessee claimed that assessee had not earned any profit on the said activity. However, since assessee had not earned any profit from its activity of providing courses as per Franchisee Agreement entered with Tally Education Private Limited, does not make the activity charitable in nature. Many a times, businessmen do suffer loss, but that does not mean that the activities were charitable in nature. In this case, we have already analyzed the activity. Assessee is indulging into only one activity of providing courses by charging fee as per the Franchisee Agreement. Assessee is also remitting certain part of the fee to Tally Education Private Limited. These are nothing but business activities. Hence, assessee is not eligible for Registration under section 12AA of the Act. Accordingly, Ground Nos.4 & 6 raised by the assessee are dismissed.
Ground No.7 : 16. In this case, the ld.CIT(Exemption) has held that activities are not charitable in nature. We have already discussed the Shankarlal Jalan Foundation AVG Layout [A] nature of the activities and held that activities are not charitable in nature. A per the provisions of Section 12AA the Ld.CIT(E) is duty bound to examine the Objects of the assessee and the Activities of the assessee wherever the assessee has commenced activities. In this case the assessee had commenced activities hence it was the duty of the ld.CIT(E) to examine whether the Activities are as per the objects of the Trust and whether the activities are Charitable or not! Ld.CIT(E) also has to examine genuineness of the activities. In this case, we have analyzed the activities and held that activities are not as per the objects and are not charitable in nature. Therefore, we do not agree with the contention raised by the assessee in Ground No.7. Accordingly, Ground No.7 raised by the assessee is dismissed.
Ground No.8 : 17. In this case, the ld.CIT(Exemption) has held that activities are not charitable in nature. We have already discussed the nature of the activities and held that activities are not charitable in nature. Accordingly, Ground No.8 raised by the assessee is dismissed. Shankarlal Jalan Foundation AVG Layout [A]
Ground Nos.9 & 10 are general in nature and do not need adjudication, hence, dismissed.
To sum up, appeal of the assessee is dismissed. Order pronounced in the open Court on 21st November, 2023.