Facts of the Case

  • The Revenue filed multiple appeals against the Delhi Public School Society concerning Assessment Years 2006-07, 2007-08, 2008-09, and 2009-10.
  • The assessee (Delhi Public School Society) received maintenance charges/franchise fees from affiliated or satellite schools.
  • The Income Tax Appellate Tribunal (ITAT) held that such income was exempt under Section 11(4A).
  • The Revenue challenged this finding before the Delhi High Court.

Issues Involved

  1. Whether the ITAT was correct in holding that maintenance charges/franchise fees received from satellite schools are exempt under Section 11(4A)?
  2. Whether such income is hit by the provisions of Section 11(4A) of the Income Tax Act, 1961?

Petitioner’s Arguments (Revenue)

  • The Revenue contended that the franchise/maintenance fee constituted business income.
  • It was argued that such income should fall within the restrictive provisions of Section 11(4A) and therefore not qualify for exemption.

Respondent’s Arguments (Assessee)

  • The Delhi Public School Society argued that:
    • The income was incidental to its charitable objectives.
    • The activities were integral to the educational purpose, and not independent business activities.
    • Hence, exemption under Section 11(4A) should be allowed.

Court’s Findings / Order

  • The Court noted that the issue was already settled by its earlier Division Bench judgment in:
    Director of Income Tax (Exemption) vs Delhi Public School Society (2018) 403 ITR 49 (Delhi).
  • Both parties agreed that the present questions of law are covered in favour of the assessee.
  • Accordingly:
    • The questions of law were answered in favour of the assessee and against the Revenue.
    • The appeals were disposed of without costs.

Important Clarification

  • The Court reaffirmed that franchise/maintenance fee received by an educational society can qualify for exemption under Section 11(4A), provided it is incidental to the main charitable objective (education).
  • The ruling strengthens the principle that ancillary income linked to charitable purpose does not automatically become taxable business income.

Link to download the order -

https://delhihighcourt.nic.in/app/case_number_pdf/2018:DHC:8298-DB/SKN01102018ITA3262013_134849.pdf

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