ORDER
B.C. Meena, A.M.
1. These are four appeals of the revenue which are having common issue regarding applicability of Section 194-I and levying penalty and interest under Section 201(1) and 202(1) (sjc-201(1A)). The revenue is also aggrieved regarding the Commissioner (Appeals) order in respect of applicability of Circular No. 736, dated 13-2-1996 [(1996) 131 CTR (St) 1]. Since the issues involved in all the four-appeals are common, they are being disposed of by consolidated order for the sake of convenience.
2. The brief facts of the case are as under:
The facts of the case are that the appellant is a public limited company, inter alia, engaged in the business of providing computer education and training. During the relevant assessment year it was providing computer education and training through its own centres and also through franchisees who are providing NIIT courses under a license from appellant. One of the models being adopted by the appellant to run its business mainly in big cities was Metro Centre. Under the arrangement the franchisees were providing NIIT courses under a license from the appellant and the respective franchisees were to bring together their resources for the purposes of providing computer education to the students. The appellant was required to provide the franchisees the relevant courseware and its expertise in providing computer education. The franchisees were required to provide the infrastructure facilities like class room facility equipment, furniture, fixture, administrative set up, etc. It was the obligation of the franchisee to operate and manage the education centre on a day-to-day basis. The administrative control of the education centre was with the franchisees who were responsible for marketing the courses admitting the students, conducting the classes and perform all other administrative functions relating to the education centre. The appellant as the owner of the technical information was to provide the relevant courseware for providing education to the students. Since, the education centre was to run under the brand name of the appellant and the appellant was providing its valuable technical know-how and other intellectual rights to franchisees it was necessary on the part of the appellant to put in place certain restrictions on the running of the education centre in order that its name, brand value, intellectual property rights as also the interests of students were protected.
2.1 Under the model, fees collected from the students was deposited in the account of the appellant and then the fees collected was shared with the franchisees in accordance with the terms of the franchisees’ license agreement. To ensure that the franchisees delivered the services in accordance with the methods and process provided by the appellant it was essential that the appellant collected the fees and pay the franchisees share on milestone basis. The fees shared by the appellant with the franchisees, was for the purpose of convenience in the following nomenclature viz.,
(1) Marketing claim.
(2) Infrastructure claim.
3. The learned Departmental Representative pleaded that the assessing officer examined the agreement in which the assessee is licensor and the other party is franchisee in detail. The assessee was having rights in respect of conduct of classes, conduct of examination and collection of the money. The assessee also provided technical know-how. The major rights and responsibilities were with the assessee. Therefore, it cannot be said that licensee was running a business. The licensee was not allowed to enhance the capacity of business. The clauses of agreement have put certain obligations on the licensee, which stipulate that infrastructure created will be for the purpose of running NIIT unit. The list of the infrastructure enclosed with the agreement is mainly consisted of classroom, liberary room, furniture and fixtures, computers and air-conditioners. The assessee’s contention that there was no lease agreement, is not relevant. Section194-I is applicable in the case where such agreement exists under any other arrangement for the use of the premises. The real user of the infrastructure is NIIT only. He also pleaded that the minimum guarantee amount and no security deposit will not be the basic character of the agreement which is for the real use of the infrastructure only. In view of these facts, it is clear that the amount of infrastructure fee paid by the assessee to its franchisee is nothing but consideration for the use of premises, furniture and fixture, and certain equipments. Hence, the assessee was liable to deduct the tax on these amounts. He also pleaded that the Board’s Circular No. 736 is not applicable in the assessee’s case and it was issued only in respect of the distributor and the exhibitor owing the cinema theatre.
4. On the other hand, the learned Authorised Representative vehemently pleaded that the assessee was carrying out the business for imparting education by pooling the resources with franchisee. The licensee agreement does not give any right or interest whatsoever in the premises. The infrastructure claimed is only a nomenclature given to the share of revenue that accrued to the licensee for undertaking various responsibilities and pooling various infrastructure facilities. The franchisee agreement had many other clauses like student transfer, staff movement, student admission, annual conference setting up of educational centre, maintenance of infrastructure insurance, local marketing, invoicing, accounting, student registration and day-to-day admission of the education centre. Thus, the revenue shared by the licensee was not for infrastructure only. The agreement clause also made it mandatory on the part of licensee to allow the inspection of the premises by the assessee which shows that the assessee was not a tenant in the premises. He also relied on the decision of Mumbai Bench of the Tribunal in the case of Kaxnat Hotels (I) Ltd. v. CIT (2001) 78 ITD 241 (Mum-Trib) held:
The very object of the agreements is to permit the assessee to conduct the catering business efficiently. It was only incidental thereto that the assessee was permitted to use the premises. The consideration payable by the assessee in the form of royalty/commission was, therefore, not for the use of the land or building or the furniture and fittings therein. The consideration was for allowing the assessee to manage or conduct the business. There was a whole of MF and PIP. The assessee was subject to strict control in the manner of conducting the business
He also pleaded that the test of dominant intention has to be recognized and applied. The dominant intention of the parties to the agreement under consideration was to grant a license to manage and conduct the education business. The substance of this’ agreement was for conducting the business and not the use of building and infrastructure. The true legal relation between the assessee and the franchisee was to conduct the business of education under the brand name of NIIT. The amount was not fixed. It was variable according to the number of the students admitted at the centre. There was no security deposit therefore, for premises. The assessee never got the possession of the premises. There was no minimum guarantee in the agreement. Therefore, it is pleaded that the provisions of Section 194-1 are not applicable.
5. After hearing the rival submissions, we hold as under:
The appellant has entered into the agreement with the franchisees for running the education centre at various metro cities. The fees was shared between the assessee and the franchisee as per the clauses of the agreement. The details of provisions regarding conduct of the business were stipulated in the agreement. The dominant intention of the parties of the, agreement was to conduct the business and not mere letting out of the building, furniture and fixture. The amount to be shared with the franchisee was variable and it was not fixed. There was no minimum guarantee amount which the assessee was to make. The composite arrangement is the essence of the agreement for conducting the business. The essence of agreement is to conduct the business of running education centres jointly. Mere certain rights of the assessee to protect the business interest stipulated in the agreement would not change the essence of the agreement. The share of the revenue with the franchise is on account of composite services provided by the franchisee. In view of these facts, we hold that the broad objective of the agreement between the assessee and the franchisee was to share the revenue and certainly it was not to hire the premises provided by the assessee. Therefore, the assessee is not liable to deduct the taxes under Section 194-I of the Act in respect of the amount shared by the assessee and remitted to the franchisee for infrastructure claims. Therefore, we confirm the order of the Commissioner (Appeals) in respect of all four years and dismiss appeal of the revenue
CO. Nos. 259 & 260/Del/2007:
6. No other cross-objections have been filed by the assessee, which are badly time-barred. The assessee has raised issue of limitation in respect of action taken under Section 201 of the Income Tax Act, which has been taken after he expiry of four years from the end of the relevant financial year. The learned Authorised Representative pleaded that cross-objections have been filed after the period of 183 days from the permissible date.
He pleaded to condone the delay in filing cross-objections. On the other hand, the learned Departmental Representative pleaded that cross-objections for challenging the limitation [which is not provided in the Income Tax Act], which themselves are barred by limitation. He pleaded that the assessee was having no sufficient cause for delay in filing the cross-objections. The assessee has not given any concrete explanation for the delay. Every day’s delay has to be explained by the assessee in which it had failed.
6.1 After hearing the rival submissions, we are of the view that there is no acceptable explanation for filing the cross-objections beyond the time available. Therefore, we are not inclined to condone the delay. In view of these facts, both the cross-objections are rejected as unadmitted.
7. In the result, the appeals of the revenue ‘are dismissed and cross-objections of the assessee are rejected as unadmitted.