Facts of the Case

The present appeal was filed by the Revenue challenging the order of the Income Tax Appellate Tribunal (ITAT), which granted exemption under Section 11 of the Income Tax Act to the respondent society.

The Revenue contended that the respondent society had violated provisions of Section 13(1)(c) read with Section 13(3) by registering a trademark in the personal name of its chairman instead of the society, thereby allegedly diverting franchise income/royalty.

Additionally, it was argued that the activities of the society were commercial in nature and thus not eligible for charitable exemption.

Issues Involved

  1. Whether the respondent society was entitled to exemption under Section 11 of the Income Tax Act.
  2. Whether registration of a trademark in the name of a related person amounts to diversion of income under Section 13(1)(c) read with Section 13(3).
  3. Whether charging fees and engaging in certain activities rendered the institution non-charitable.

Petitioner’s (Revenue’s) Arguments

  • The ITAT erred in granting exemption under Section 11 despite violation of Section 13 provisions.
  • The trademark being registered in the chairman’s name resulted in diversion of income/royalty.
  • The respondent’s activities were commercial in nature and therefore not charitable.
  • The earlier decision relied upon by ITAT had not been accepted and was under challenge before the Supreme Court.

Respondent’s Arguments

  • The respondent society continued to operate with unchanged charitable objects.
  • Mere charging of fees does not alter the charitable nature of the institution.
  • Use of a trademark owned by another person does not necessarily result in diversion of income.
  • The issue was already covered by a prior judgment of the Delhi High Court in the assessee’s own case.

Court’s Findings / Order

  • The High Court held that the issues raised were already covered by its earlier judgment in the assessee’s own case (ITA 871/2017).
  • It reaffirmed that:
    • Charging fees does not automatically change the charitable nature of an institution.
    • Use of a trademark does not confer ownership benefits on the user; benefits accrue to the owner under trademark law.
  • The Court relied on precedent including:
    • Formula One World Championship Ltd. v. CIT (Delhi High Court)
  • The Court further held that no substantial question of law arose in the present appeal.

 Final Order:
The appeal filed by the Revenue was dismissed.

Important Clarification

  • The Court clarified that although the earlier judgment is under challenge before the Supreme Court, there is no stay on its operation.
  • Therefore, the present decision will abide by the final outcome of the pending SLP before the Supreme Court.

Link to download the order -https://delhihighcourt.nic.in/app/case_number_pdf/2022:DHC:3830-DB/MMH22092022ITA3502022_172838.pdf

 

 

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