Income Tax Appellate Tribunal - Chandigarh
M/S Jiwan Dass Kartar Singh Charitable ... vs Cit(E), Chandigarh on 1 May, 2019
आयकर अपील य अ धकरण,च डीगढ़ यायपीठ "ए" , च डीगढ़
IN THE INCOME TAX APPELLATE TRIBUNAL, CHANDIGARH BENCH "A", CHANDIGARH
ी संजय गग , या यक सद य एवं डा. बी.आर.आर, कुमार, लेखा सद य
BEFORE: Sh. SANJAY GARG, JM & DR. B.R.R. KUMAR, AM
आयकर अपील सं./ ITA NO. 426/Chd/2018
नधा रण वष / Assessment Year : 2017-18
M/s Jiwan Dass Kartar Singh बनाम The CIT(E)
Charitable Trust, Chawla Niwas Chandigarh
Sector-12, Karnal
थायी लेखा सं./PAN NO: AACTJ0965H
अपीलाथ /Appellant यथ /Respondent
नधा रती क! ओर से/Assessee by : Shri. Rajeev Sachdeva
राज व क! ओर से/ Revenue by : Dr. Gulshan Raj
सन
ु वाई क! तार&ख/Date of Hearing : 11/02/2019
उदघोषणा क! तार&ख/Date of Pronouncement : 01/05/2019
आदे श/Order
PER DR. B.R.R. KUMAR, A.M
The present appeal has been filed by the Assessee against the order of the Ld. CIT(E), Chandigarh dt. 30/11/2017.
2. The appeal has been filed by the Assessee with the delay of 58 days. The Ld. AR submitted that the delay was due to abysmally deteriorating health condition of the Trustee and filed medical reports to that extent. Hence the delay is condoned.
3. Before us the Assessee has taken only one ground that the Ld. CIT(E) is not justified in disallowing the exemption under section 12AA of Income Tax Act,1961.
4. The stated aims and objects of the trust are to work for upliftment of Quality Education i.e. Technical Education, Basic education, Higher education, Professional education, ancient Yogic and spiritual education and Medical/Health Education etc. and to promote & develop education, employment, science and technology and prosperity of Humanity by way of establishment of different Educational Research & Training Institutions. The Institutions can be opened in any state/ Union territory/Abroad under any name as per resolution passed by the founder Trustees from time to time, to help the poor/needy and intelligent students for their welfare and to spread education in 2 the society at large, special emphasis shall be done for welfare of poor section of the society.
5. The Ld. CIT(E) after going through the submissions held that the assessee is a Franchisor of Zee Learn Ltd. and the intellectual property rights is vested with the franchisor, the ZEE LEARN LIMITED and the applicant trust merely remains an agent to the franchisor company for promoting its business on commercial basis on the terms and conditions set by the franchisor company for its own benefit, being a commercial enterprise. He held that this fact totally negates the essence of charity and the applicant trust's claims of being charitable get impinged by the arrangement that caters to enhancing the receipts of the franchisor. Independence of the applicant to pursue activities, claimed to be charitable is severely impinged in light of the overarching control of the franchisor in practically aspects.
6. It was also held that the heads of expenses as shown in the Income & expenditure account for the last two years since inception do not evidence carriage of any activity out of the sixteen point aims & objects mentioned in the trust deed of the applicant trust. It has been revealed that the terms of the agreement, the fee structure etc are all aligned to maximising the profits and its sharing between the franchisor and the franchisee. The structure of the trust, its character in terms of trustees etc are all controlled within a family. Lack of representation from other sections doesn't impart the character of an entity amenable to public charity.
7. Based on the submissions of the assessee trust it was held that the Trustees is running a franchise purely on commercial basis with no intent of imparting education to public at large. In the instant case the regulations are predominantly those of the franchisor and aimed to maximize its returns/ receipts from the arrangements. Holding thus the Ld. CIT(E) denied grant of Registration under section 12AA.
8. Before us, the Ld. AR argued that the Trust has 250 students and they belong to different sections of the society and also to financially poor students.
9. The Trust has been formed for the purpose of providing education to the masses and for upliftment of education hence it is a public charitable trust and registration ought to have been granted. He relied on the case of Meritta Welfare Trust Vs. CIT 44 ITR 600. He argued that the Trust run by the family members cannot be an impediment for grant of Registration as the family 3 members are looking after the affairs of the Trust in the position of Trustees but not for any personal financial gains. It was argued that mere entering into franchisee agreement with franchisor to set up school cannot be a ground to conclude that earning profit is the main motive of the assessee trust. It was contended that the CIT(E) has to restrict himself to the objects of the Trust and genuineness of the activities and since there is no dispute about the activities of the instant case the registration should be granted. He placed reliance on various case laws in his paper book in support of his argument.
10. The Ld. AR also relied on the case of CIT Vs. Highlanders Educational Academy in ITA No. 142 of 2007. Further he extensively quoted the provisions of section 2(15) pertaining to the charitable purpose in support of his argument and filed paper book of 213 pages consisting of submissions before the lower authorities, Franchisee Agreement and case laws.
11. Against the argument of the Ld. AR, the departmental representative heavily relied on the order of the Ld. CIT(E) in rejecting the registration and submitted that decisions in the case of Rajah Sir Annamalai Chettiar Foundation Vs CIT 15 taxmann 313, CIT Vs. National Institute of Aeronautical Engineering Society 181 Taxmann 205 support the rejection of the registration.
12. We have heard the Ld. Representatives of both the parties and perused the material available on record. The aims and objective of the trust have been perused. They consist of to work for upliftment of Quality Education i.e. Technical Education, Basic education, Higher education, Professional education, ancient Yogic and spiritual education and Medical/Health Education etc. and to promote & develop education, employment, science and technology and prosperity of Humanity by way of establishment of different Educational Research & Training Institutions. The Institutions can be opened in any state/ Union territory/Abroad under any name as per resolution passed by the founder Trustees from time to time, to help the poor/needy and intelligent students for their welfare and to spread education in the society at large, special emphasis shall be done for welfare of poor section of the society in addition to the other clauses pertaining to dissolution, donation, properties and application of funds. Regarding the primary aims and objectives like technical education, basic education, higher education, spiritual education the assessee is not found to be undertaking or in the process of undertaking any of the activities mentioned in the trust deed. The only activity the assessee involved is obtaining a franchisee of Zee Learn Ltd. The Franchisee Agreement of the Zee Learn Ltd. undisputedly 4 shows the commercial nature of the activities between the franchisee and the franchisor. The relevant portion of the Franchisee Agreement is as under:
(a) It is expressly agreed by the parties that the Franchisee shall be responsible for collecting the annual fees from all Students, at the time of admission on behalf of the Franchisor. Such annual fees shall be determined by the Franchisor and may be amended from time to time at the Franchisors sole discretion.
(b) In addition to the above the Student shall also pay monthly tuition fees to the Franchisee before the commencement / completion of the course. The Franchisee shall charge and recover such fees from the Students for different levels of entry inclusive of such taxes as may be applicable from time to time. The Franchisee may be required to charge in addition to the tuition fees any other such charges as indicated by the Franchisor from time to time.
(c) The Franchisee hereby agrees to ensure that the monthly tuition / activity fees as decided by the Franchisor shall be collected by tlw Franchisee on a quarterly / half yearly basis in advance.
9. The terms of agreement clearly indicate that the applicant trust is not free to take its decision in terms of collection of fee for providing services hired from the company. The same gets further bolstered from contents of para 7.2 of the franchise agreement replicated as under:-
(a) Non-refundable "Franchise License Fee/Franchise Fee" (including fees for the use of Intellectual Property Rights) as mentioned in Section 3 of the Information Schedule which shall be inclusive of service taxes at the time of execution of this Agreement. The said Franchisee Fee and the tax thereon are non-refundable and the Franchisee shall not be entitled to claim a refund of the same for any reason whatsoever, including but not limited to earlier termination of this Agreement.
(b) Without limiting the Franchisor's right to terminate this Agreement pursuant to Clause 15, in the event that/any amount is not paid by the Franchisee to the Franchisor when due such amount will bear late payment interest calculated on a daily basis from the due date for payment at the rate of 24% (Twenty Four percent) per annum.
(c) The Franchisee shall collect fees from the Students for the relevant Programs in accordance with the prescribed fee schedule provided by the Franchisor from time to time. The Franchisee shall under no circumstances vary from the fee range as indicated by the Franchisor unless changes are approved by the Franchisor. The Franchisee is also not authorized to offer discounts to Students except as approved in writing by the Franchisor. In the event the Franchisee deviates from the quantum of fees as agreed upon by the Franchisor and the Franchisee, then the Franchisee shall be liable to pay such damages, penalties, losses, etc. to the Franchisee, as may be decided by the Franchisor.
(d) The Franchisee shall not offer any credit facilities to any Students.
(e) Notwithstanding the above, the Franchisor reserves the right to make amendments, alterations to the collection procedures and to the amounts mentioned in this Agreement, to be followed by the Franchisee from time to time, as situations demand and Franchisee shall execute the same, implement and co-
operate in implementing those changes. These may also include directions to collect the Programs fees in the name of the Franchisor and to deposit the same directly in the Franchisor's bank account or instruction received from them, if the Franchisor so desires at a later date for banking and operational convenience.
13. The following points emerge out of the above agreement:
a. It is the responsibility of the Trust to collect the annual fee on behalf of franchisor.5
b. The fee would be determined by the franchisor. The trust would have no say in determining the fee structure.
c. All the students must pay the monthly tuition fee before the completion of the course.
d. There is a provision for collection of additional charge.
e. The franchisee fee is non refundable.
f. The provision for payment of interest calculated on daily basis in case of delayed payment.
g. The trust cannot vary the fee range or not authorized to give any discount and the trust is liable to damages and penalty claimed by the franchisee in case of any deviation of the fee structure.
h. The trust cannot offer any credit to students.
From the above it can be seen 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.
In the background of these facts emanating the provisions of the section 2(15) are being revisited. This section reads as under:
"2(15) "charitable purpose" includes relief of the poor, education, 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 business, or any activity of rendering any service in relation to any trade, commerce or business, for a cess or fee or any other consideration, 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.6
14. Thus when the provisions of the Section are read with regard to the activities of the assessee we find that either by the aims and objective or by the conduct or implementation of the objective of the Trust, it do not qualify for registration under section 12AA. It could be well evident that the Trust is running with a primary objective of earning the profits. The Co-ordinate Bench of ITAT Chennai held in the case of Rajah Sir Annamalai Chettiar Foundation (supra) held that the institutions run by the charitable societies may collect fees and service charges does not mean that the institutions can charge fees, etc., at commercial rates from all the people without giving any element of charity to needy people. The charitable purpose defined and manifested as including relief of the poor, education, medical relief, etc., is to protect the basic concept of charity. Presence of real charity cannot be diluted. Charity always means helping the needy supporting the poor, working with compassion and dedication for the society. Running of an institution without any of the above virtues cannot be considered as a charitable institution. The object of the assessee-trust is to establish a number of educational institutions in a brand name and run it on commercial lines. This cannot be a charitable activity.
14.1 The activities of the instant case also do not give any evidence or bring out any fact to prove that the Trust is running for a charitable purpose.
14.2 Similarly the ratio laid down in the case of CIT Vs National Institute of Aeronautical Engineering Educational Society [2009] 181 Taxman 205 (Uttaranchal) where Hon'ble Uttaranchal High Court held that in expression 'charitable purpose', charity is soul of expression and mere trade and commerce in education cannot be said to be a charitable purpose entitling a society to grant of registration under section 12AA. It was held as under:
"Section 12AA provides procedure for registration clause (a) of section 12AA(1)(a) empowers the Commissioner to call for such documents or information from the trust or an institution, as he thinks necessary in order to satisfy himself about the genuineness of the activities of the trust or an institute and may also make such inquiries, as he may deem necessary in this behalf. Said provision in section 12AA makes it clear that the Commissioner is not supposed to allow the registration with blind eyes. In the instant case, the order passed by the Commissioner showed that he had considered the income and expenditure account of the society for the financial years 2000-01 to 2002-03, and concluded that the assessee was not carrying on any charitable activity as its dominant object was to earn profits under the garb of 'education'. The Commissioner had further observed that the assessee was charging substantial fee from the students and was making huge profits. The order passed by the Commissioner further disclosed that the surplus had been transferred to the capital fund of the assessee. It had been further clarified in the finding of the Commissioner that no expenditure was made by the assessee for the charitable purpose. Mere imparting education for primary purpose of earning profit cannot be said to be a charitable activity as interpreted by the Apex Court in Municipal Corpn. of Delhi v. Children Book Trust [1992] 3 SCC 390. In the expression 'charitable 7 purpose', charity is soul of the expression. Mere trade and commerce in education cannot be said to be a charitable purpose".
15. For getting the benefit of registration under section 12AA of the Act, motive should be very clear that is charitable in nature for the benefit of public in general not for self aggrandizement of the family of the Trustees. In this case, we are of the opinion that the objectives of the trust are not found to be charitable in nature.
The relevant provisions for registration of the Trust under section 12AA are as under:
..
.. I. The commissioner on receipt an application for registration of a trust shall call for the documents and information as he thinks necessary to satisfy about the genuineness of the activities of trust.
II. He shall pass an order in writing after satisfying himself about the objects of trust.
III. If he is not satisfied, he shall pass an order in writing refusing to register the trust. Applicant shall be given opportunity of being heard before passing order of refusal.
IV. Order granting or refusing registration shall be passed before the expiry of six months from the end of month in which application was received under section 12A.
In case of refusal to grant the registration, an opportunity of hearing is must. In case the assessing officer refuses to grant the registration, then he must pass speaking order recording the reasons for refusal.
Note: Section 12A has not made any distinction with regard to charitable or religious trust. Therefore, the scheme of exemption is applicable to charitable as well as religious trusts.
d) Deemed Registration:
As per Section 12AA(2) Every order granting or refusing registration shall be passed before the expiry of six months from the end of the month in which the application was received.
16. After going to the Trust Deeds, Franchisee Agreement as well as the provisions of Section 12A and Section 12AA of the Income Tax Act,1961 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. The 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, 8 Commissioner should be satisfied about the genuineness of activities of the trust or institution, as the case may be.
17. We have also gone through all the judgments quoted by the Ld. AR as well as DR and found that in the facts and circumstances of the present case, we are of the view that merely writing aims and objectives as charitable in nature in the trust deed doesn't entitle the trust to be charitable per se. It has to be proved beyond doubt that the activities of the trust are charitable in nature and genuine. There should be some evidence to satisfy the authorities concerned before granting the registration under section 12AA of the Act. It is not a case where the trust has not started its activities, hence the burden was on the trust to prove that its objects as well as activities are charitable in nature. But the trust in the instant case has not produced any evidence to the satisfaction of the Ld. CIT (E) about its real charitable character. On the other hand the Ld. 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 Ld. CIT(E).
18. In the result, appeal of the Assessee is dismissed.
Order pronounced in the open Court.
Sd/- Sd/-
संजय गग डा. बी.आर.आर, कुमार,
(SANJAY GARG ) ( DR. B.R.R. KUMAR, AM)
या यक सद य/ Judicial Member लेखा सद य/ Accountant Member
AG
Date:01/05/2019
आदे श क! त,ल-प अ.े-षत/ Copy of the order forwarded to :
1. अपीलाथ / The Appellant
2. यथ / The Respondent
3. आयकर आय/
ु त/ CIT
4. आयकर आय/
ु त (अपील)/ The CIT(A)
5. -वभागीय त न4ध, आयकर अपील&य आ4धकरण, च7डीगढ़/ DR, ITAT, CHANDIGARH
6. गाड फाईल/ Guard File