DY. COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-08, JHANDEWALAN EXTENSION V. UNIVERSITY OF PETROLEUM AND ENERGY STUDIES, OKHLA INDUSTRIAL ESTATE

ITA 3940/DEL/2023

AI Insights

The case involves the University of Petroleum and Energy Studies, a trust under section 12A of the Income Tax Act, which entered into agreements with the Hydrocarbon Education and Research Society (HERS) for courseware development and other services. The Assessing Officer (AO) denied the exemption under sections 11 and 12, alleging violations of section 13(1) and 13(3) due to excessive royalty payments. However, the ld. CIT (A) reversed this decision, leading to the Revenue's appeal. The tribunal supported the CIT (A)'s decision, noting that the payments were fair and based on renegotiated terms reflecting the assessee's reduced dependence on HERS over time.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 23627 (ITAT-DELHI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-02-2025
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: H
• Assessment Year: misc
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: BALJEET KAUR
• Assessee Lawyers: ROHIT JAIN
• Keywords: Charitable institution
• Section: 142(1); 143(2); 12AA; 12A; 13; 10B; 80G; 13(2)

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH ‘E’: NEW DELHI BEFORE SHRI SATBEER SINGH GODARA, JUDICIAL MEMBER and SHRI S.RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA No.3940/DEL/2023 DCIT, Central Circle 8, vs. University of Petroleum and Energy Studies, New Delhi. 210, 2nd Floor, Okhla Industrial Estate, Phase III, New Delhi – 110 020. (PAN : AAAJU0111A) (APPELLANT) (RESPONDENT) ASSESSEE BY : Shri Rohit Jain, Advocate Ms. Somya Jain, CA REVENUE BY : Ms. Baljeet Kaur, CIT DR Date of Hearing : 23.01.2025 Date of Order : 23.01.2025 O R D E R PER S.RIFAUR RAHMAN,AM: 1. This appeal has been filed by the assessee against the order of ld. Commissioner of Income Tax (Appeals)/National Faceless Appeal Centre [for short ‘ld. CIT (A)] dated 31.10.2023. 2. Brief facts of the case are, assessee filed its return of income on 28.09.2015 declaring nil income. The case was selected for scrutiny. Notices under section 143(2) and 142(1) of the Income-tax Act, 1961 (for short ‘the Act’) were issued and served on the assessee along with 2 ITA No.3940/DEL/2023 questionnaire. The ld. AR of the assessee attended and submitted relevant information as called for. 3. The assessee is a Trust u/s 12A of the Act. It is also society notified u/s 80G of the Act and also notified u/s 10(23)(c)(vi)/2010. The main aims and objectives of the Trust are as under :- (a) To promote education & research in the field of petroleum energy. (b) The objects of the University along with the details of the Hydrocarbons Education and Research Society (HERS). (c) To provide industry interactions for students (monitoring of industrial tours and arranging/managing industry seminars and conferences etc.). (d) To provide placement platform for its students which includes summer training, industrial training and permanent placements. (e) To finalize various Joint Ventures and Memorandum of Understanding on research and development collaboration. (f) To explore various opportunities to attract students from all over India. 4. During assessment proceedings, assessee was asked to submit the payments made to Hydrocarbon Education and Research Society (HERS) and file justification why exemption may not be withdrawn. In response, assessee has submitted that the assessee is a University established in the year 2003 by an Act of State Legislature in Uttarakhand with Hydrocarbon Education and Research Society (,HERS'), as its sponsoring 3 ITA No.3940/DEL/2023 body. The assessee is authorized by University Grant Commission ('UGC') under section 2(t) to award degrees in higher education. The assessee University is duly registered under section 12AA/ 12AB and section 80G of the Income Tax Act, 1961 ('the Act'). The sponsoring body of the assessee i.e., HERS is also a charitable society established in the year 2002 with the predominant charitable object of \"education\" and is duly notified/ registered under section 12AA and section 80G of the Act. In furtherance of its charitable object of imparting education, the assessee University required courseware, i.e., specialized learning material in the form of textbooks, reference books, sample assignments etc. to facilitate student learning and performance. HERS, it is submitted, has historically been rendering courseware development services which include selection, evaluation, editing and periodic updation of content in the field of Petroleum and Energy Sector. This function is undertaken by content generators and processors (i.e., subject- matter experts) engaged by HERS. For development of content, HERS hired renowned professionals in Petroleum Industry to create a unique curriculum. Having regard to the aforesaid expertise of HERS, the assessee requested HERS for providing support in development of the courseware and provide other Industry related services like placement, training. In lieu of the aforesaid request, the assessee entered into - (1) Royalty Agreement 4 ITA No.3940/DEL/2023 dated 01.01.2006 with HERS, w.e.f. 15.09.2003, initially for a period of ten years upto 14.09.2013 (and renewed from time to time); and (2) Courseware Development Agreement dated 15.12.2009, w.e.f. 01.04.2009, initially valid for a period of five years (extended from time to time). In terms of the aforesaid agreements, HERS agreed not to provide the said courseware and/ or its use, to any other institution in India, in order to maintain the uniqueness of the courses offered by assessee. Since courseware was one of the sources of generating revenue for HERS to pursue its charitable objects of imparting education, it was decided that the assessee shall pay fees to HERS as percentage of net course fee. With passage of time, the assessee had itself acquired expertise and knowledge for developing its own courseware and therefore, the assessee's dependence on HERS had reduced with time. The assessee, vide Board Resolution dated 03.12.2014, terminated the Courseware Development Agreement dated 15.12.2009 and substantially reduced the rate of royalty for the use of the courseware from 10% to 7% w.e.f 01.01.2015. In line with the growth of assessee, the total fees was reduced from 25% in 2003 as under: a) Royalty was paid consistently @10% from 2003, subsequently reduced to 7% w.e.f. 1.1.2015 and was further reduced to 1 %; b) Fees for courseware development was paid @ 4% from 2003 upto 31.12.2014 and was discontinued w.e.f 1.1.2015; 5 ITA No.3940/DEL/2023 c) Placement services were paid @ 5% from 2003 to 2010 and were discontinued thereafter; d) Fees for other Industry services were paid @ 6% from 2003 to 2006 and were discontinued thereafter. Pursuance to the aforesaid agreements, the assessee had, during the year under consideration, paid royalty and courseware fee aggregating to Rs.17,78,75,332. 5. After considering the above submissions, the Assessing Officer rejected the submissions of the assessee and proceeded to deny the entire exemption claimed u/s 11/12 alleging that the abovesaid royalty payments are in violation of provisions of section 13(1) read with section 13(3) on the following grounds :- (i) The study material supplied by HERS to the assessee is more than 7 to 8 years old, in respect whereof application for Intellectual Property Rights (IPR) was made in the year 2011 ; (ii) Details of IPR registered in the name of HERS were not provided by the assessee, which shows that there is no underlying property with HERS to whom royalty was paid by the assessee; (iii) Payment of royalty was arbitrary, and rates of royalty was decided without any basis; (iv) HERS neither had any IPR nor any infrastructure to provide the services to the assessee and hence the payment of royalty and courseware development fees was arbitrary and without any basis. 6 ITA No.3940/DEL/2023 6. Aggrieved assessee preferred an appeal before the ld. CIT (A) and ld. CIT(A) considered the facts on record and allowed the exemption claimed u/s 11/12 with the observation that royalty payment made to HERS was neither unreasonable nor excessive to attract the provisions of section 13 of the Act. 7. Aggrieved, Revenue is in appeal before us raising following grounds of appeal :- grounds “1. The Ld. CIT(A) has erred in not confirming the denial of exempli on u/s 11 and 12 of the Income Tax Act. 1961. 2. The Ld. CIT(A) has erred in not appreciating the facts that the transactions with Hydrocarbon Education and Research society (HERS) has not been reported in form 10B as payments made to specified person as per section 13(3) of the I.T. Act. 3. The Ld. CIT(A) has erred in not exploring the reasonableness of royalty and courseware development fees, as the assessing officers has clearly established that such content is 8-9 year old and that the assessee has not submitted any reply to establish that claim of such expenses year after year is reasonable.” 8. At the time of hearing, ld. DR of the Revenue vehemently argued that assessee has violated the provisions of section 13(1) and 13(3) of the Act by making excessive payment in the form of royalty and she brought to our notice findings of the Assessing Officer. She submitted that the order of ld. CIT (A) is not justified. 9. On the other hand, ld. AR of the assessee objected to the submissions of the ld. DR and submitted as under :- 7 ITA No.3940/DEL/2023 8 ITA No.3940/DEL/2023 9 ITA No.3940/DEL/2023 10 ITA No.3940/DEL/2023 11 ITA No.3940/DEL/2023 12 ITA No.3940/DEL/2023 13 ITA No.3940/DEL/2023 10. Considered the rival submissions and material placed on record. We observed that HERS is a society and a charitable institution in the field of education specifically in the environment, infrastructure and energy management in the areas of petroleum, electric power and non- conventional energy sources. The assessee entered into an agreement 14 ITA No.3940/DEL/2023 with HERS in the AY 2003-04. The courseware material was widely used by the assessee since then and after considering the development over the years and its adoptability by the assessee, the assessee has renegotiated the terms and revised the royalty rates in the current assessment years from 10% to 7% effective from 01.01.2015. The terms were negotiated from the date the course was utilized by the assessee and the revenue has accepted the above payments and only during the renegotiation of the above terms, the AO raises the flag and relooks at the terms afresh. It was further brought to our attention that the Revenue has accepted the renegotiated terms in the subsequent years. The review of the terms during the current assessment years without considering the factual matrix in this case is uncalled for. Therefore, the terms of agreement and payment of royalty do not attract the provisions of section 13(3) of the Act. 11. Further it was brought to our attention that the assessee also brought on record the comparative analysis on the payment of royalty payments to demonstrate that the payments are fair market price. After considering the assessment order, the AO has not brought on record how the provisions of section 13(2) and 13(3) are attracted and how the benefit was derived by the specified/main trustees of the assessee trust in this transaction. The AO merely observed his views on the reasonableness of the royalty 15 ITA No.3940/DEL/2023 payments and method of execution of agreement. The main ground raised by the Revenue is on the payments made to HERS without reporting the transactions in the form 10B as the payment was made to specified person. The AO failed to bring on record, how the payments made are relating to specified persons. There are no findings by the AO on the aspect of payments made to specified persons. Therefore, after considering the factual matrix on record, we are inclined to accept the detailed findings of Ld CIT(A). In the result, we dismiss the grounds raised by the Revenue. 12. In the result, the appeal filed by the Revenue is dismissed. Order pronounced in the open court on this 23RD day of January, 2025 after the conclusion of hearing. Sd/- sd/- (SATBEER SINGH GODARA) (S.RIFAUR RAHMAN) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 23.01.2025 TS Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT (A) 5. DR: ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI "