Charging Franchise Fee by Educational Society is Incidental Activity, Not Commercial Venture: Delhi HC [Read Order]
The Delhi HC held that franchise fee charged by an educational society is incidental and does not defeat Section 10(23C)(vi) exemption.
In a recent ruling, the Delhi High Court held that charging franchise fee by an educational society is only an incidental activity and cannot be treated as a commercial venture for the purpose of denying exemption under Section10(23C)(vi) of the Income Tax Act, 1961.
The case arose after the Income Tax Authority passed orders withdrawing the exemption granted to the DPS Society for Assessment Years 2005-06 to 2007-08 and 2000-03 to 2004-05. These orders were passed following an earlier order for Assessment Year 2008-09.
The petitioner’s counsel argued that the earlier order had already been challenged before the Delhi High Court and was set aside by judgment in DIT (Exemption) v. Delhi Public Society, reported in (2018) 403 ITR 49 (Delhi). They also argued that the Special Leave Petition filed against that judgment had been dismissed by the Supreme Court.
The counsel further argued that in the earlier judgment, the High Court had clearly held that charging franchise fees from schools run under the aegis of the Society was only an incidental activity and could not be treated as business income. The petitioner’s counsel submitted that the facts in the present petitions were identical.
The counsel for the revenue was not in a position to dispute this factual and legal position.
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The Division Bench comprising Justice Dinesh Mehta and Justice Vinod Kumar observed that the earlier judgment had categorically recorded that charging franchise fees was only incidental to the educational activity of the Society and that the Society could not be said to be earning business income on that basis. The court also observed that the Special Leave Petition against the earlier judgment had been rejected.
In view of the settled position, the court held that the impugned orders dated 26.02.2009 could not stand. The High Court allowed the writ petitions, quashed and set aside the impugned orders, and directed the respondents to pass consequential orders in accordance with law.
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