[Citation -2007-LL-1031-13]

Citation 2007-LL-1031-13
Respondent Name NIIT LTD.
Court ITAT
Relevant Act Income-tax
Date of Order 31/10/2007
Assessment Year 1998-99, 1999-2000, 2000-01, 2001-02
Judgment View Judgment
Keyword Tags technical information • intellectual property • technical know-how • business interest • security deposit • guarantee amount • lease agreement • letting out • brand name
Bot Summary: The learned Departmental Representative pleaded that the AO examined the agreement in which the assessee is licensor and the other party is franchisee i n detail. 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. 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. 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. Mere certain rights of the assessee to protect the business interest stipulated in the agreement would not change the essence of the agreement. 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. The assessee is not liable to deduct the taxes under s. 194-I of the Act in respect of the amount shared by the assessee and remitted to the franchisee for infrastructure claims.

These are four appeals of Revenue which are having common issue regarding applicability of s. 194-I and levying penalty and interest under s. 201(1) and 202(1) [sic 201(1A)]. Revenue is also aggrieved regarding CIT(A) order in respect of applicability of Circular No. 736, dt. 13th Feb., 1996 [(1996) 131 CTR (St) 1]. Since issues involved in all four appeals are common, they are being disposed of by consolidated order for sake of convenience. brief facts of case are as under: facts of case are that appellant is public limited company, inter alia, engaged in business of providing computer education and training. During relevant assessment year it was providing computer education and training through its own centres and also through franchisees who are providing NIIT courses under license from appellant. One of models being adopted by appellant to run its business mainly in big cities was Metro Centre. Under arrangement franchisees were providing NIIT courses under license from appellant and respective franchisees were to bring together their resources for purposes of providing computer education to students. appellant was required to provide franchisees relevant courseware and its expertise in providing computer education. franchisees were required to provide infrastructure facilities like class room facility equipment, furniture, fixture, administrative set up etc. It was obligation of franchisee to operate and manage education centre on day-to-day basis. administrative control of education centre was with franchisees who were responsible for marketing courses admitting students, conducting classes and perform all other administrative functions relating to education centre. appellant as owner of technical information was to provide relevant courseware for providing education to students. Since, education centre was to run under brand name of appellant and appellant was providing its valuable technical know-how and other intellectual rights to franchisees it was necessary on part of appellant to put in place certain restrictions on running of education centre in order that its name, brand value, intellectual property rights as also interests of students were protected. Under model, fees collected from students was deposited in account of appellant and then fees collected was shared with franchisees in accordance with terms of franchisees license agreement. To ensure that franchisees delivered services in accordance with methods and process provided by appellant it was essential that appellant collected fees and pay franchisees share on milestone basis. fees shared by appellant with franchisees, was for purpose of convenience in following nomenclature viz., (1) Marketing claim. (2) Infrastructure claim. learned Departmental Representative pleaded that AO examined agreement in which assessee is licensor and other party is franchisee i n detail. assessee was having rights in respect of conduct of classes, conduct of examination and collection of money. assessee also provided technical know-how. major rights and responsibilities were with assessee. Therefore, it cannot be said that licensee was running business. licensee was not allowed to enhance capacity of business. clauses of agreement have put certain obligations on licensee, which stipulate that infrastructure created will be for purpose of running NIIT unit. list of infrastructure enclosed with agreement is mainly consisted of class room, liberary room, furniture and fixtures, computers and air-conditioners. assessee s contention that there was no lease agreement, is not relevant. Sec. 194-I is applicable in case where such agreement exists under any other arrangement for use of premises. real user of infrastructure is NIIT only. He also pleaded that minimum guarantee amount and no security deposit will not be basic character of agreement which is for real use of infrastructure only. In view of these facts, it is clear that amount of infrastructure fee paid by assessee to its franchisee is nothing but consideration for use of premises, furniture and fixture, and certain equipments. Hence, assessee was liable to deduct tax on these amounts. He also pleaded that Board s Circular No. 736 is not applicable in assessee s case and it was issued only in respect of distributor and exhibitor owing cinema theatre. On other hand, learned Authorised Representative vehemently pleaded that assessee was carrying out business for imparting education by pooling resources with franchisee. licensee agreement does not give any right or interest whatsoever in premises. infrastructure claimed is only nomenclature given to share of revenue that accrued to licensee f o r undertaking various responsibilities and pooling various infrastructure facilities. 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 education centre. Thus, revenue shared by licensee was not for infrastructure only. agreement clause also made it mandatory on part of licensee to allow inspection of premises by assessee which shows that assessee was not tenant in premises. He also relied on decision of Mumbai Bench of Tribunal in case of Kamat Hotels (I) Ltd. vs. CIT (2001) 73 TTJ (Mumbai) 608: (2001) 78 ITD 241 (Mumbai) held: "The very object of agreements is to permit assessee to conduct catering business efficiently. It was only incidental thereto that assessee was permitted to use premises. consideration payable by assessee in form of royalty/commission was, therefore, not for use of land or building or furniture and fittings therein. consideration was for allowing assessee to manage or conduct business. There was whole of MF and PIP. assessee was subject to strict control in manner of conducting business....." He also pleaded that test of dominant intention has to be recognized n d applied. dominant intention of parties to agreement under consideration was to grant license to manage and conduct education business. substance of this agreement was for conducting business and not use of building and infrastructure. true legal relation between assessee and franchisee was to conduct business of education under brand name of NIIT. amount was not fixed. It was variable according to number of students admitted at centre. There was no security deposit therefore, for premises. assessee never got possession of premises. There was no minimum guarantee in agreement. Therefore, it is pleaded that provisions of s. 194-I are not applicable. After hearing rival submissions, we hold as under: appellant has entered into agreement with franchisees for running education centre at various metro cities. fees was shared between assessee and franchisee as per clauses of agreement. details of provisions regarding conduct of business were stipulated in agreement. dominant intention of parties of the, agreement was to conduct business and not mere letting out of building, furniture and fixture. amount to be shared with franchisee was variable and it was not fixed. There was no minimum guarantee amount which assessee was to make. composite arrangement is essence of agreement for conducting business. essence of agreement is to conduct business of running education centres jointly. Mere certain rights of assessee to protect business interest stipulated in agreement would not change essence of agreement. share of revenue with franchisee is on account of composite services provided by franchisee. In view of these facts, we hold that broad objective of agreement between assessee and franchisee was to share revenue and certainly it was not to hire premises provided by assessee. Therefore, assessee is not liable to deduct taxes under s. 194-I of Act in respect of amount shared by assessee and remitted to franchisee for infrastructure claims. Therefore, we confirm order of CIT(A) in respect of all four years and dismiss appeal of Revenue C.O. Nos. 259 & 260/Del/2007: No other cross-objections have been filed by assessee, which are badly time-barred. assessee has raised issue of limitation in respect of action taken under s. 201 of IT Act, which has been taken after he expiry of four years from end of relevant financial year. learned Authorised Representative pleaded that cross-objections have been filed after period of 183 days from permissible date. He pleaded to condone delay in filing cross-objections. On other hand, learned Departmental Representative pleaded that cross-objections for challenging limitation (which is not provided in IT Act), which themselves are barred by limitation. He pleaded that assessee was having no sufficient cause for delay in filing cross-objections. assessee has not given any concrete explanation for delay. Every day s delay has to be explained by assessee in which it had failed. After hearing rival submissions, we are of view that there is no acceptable explanation for filing cross-objections beyond time available. Therefore, we are not inclined to condone delay. In view of these facts, both cross-objections are rejected as unadmitted. In result, appeals of Revenue are dismissed and cross- objections of assessee are rejected as unadmitted. *** ASSISTANT COMMISSIONER OF INCOME TAX v. NIIT LTD.
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