By Puloma Dalal, Jayesh Gogri, Mandar Telang Chartered Accountants
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Merely calling an agreement as “Joint Venture Agreement” would not make the parties joint ventures or partners unless there is sharing, both in profit and losses and a community of interest among the parties.
Facts:
The assessee entered into agreements with distinct entities which intended to establish schools in different areas (within India and overseas as well) in collaboration with the assessee. The assessee was experienced in establishing and managing schools that provided quality education and had a brand image in the area. The agreements were named as “Education Joint Venture”. As per the agreement, the schools were to be established, run and managed by Board of Management comprising of nominees of assessee and the other entity in each case. The Assessee provided academic, operational and managerial expertise for establishing and running the school and allowing the use of the name DPS, its motto/ logo, subject to assessee retaining right, interest and title therein and other reasonable restrictions. The obligation of the other party was to provide land, buildings and all infrastructural amenities like furniture, laboratory, library and sports materials etc. for the school including residential accommodation for the principal, teachers and staff including meeting the revenue deficit, budgeted expenditure, to raise loans for all running expenditure and to meet the consequent financial liability. The assessee was specifically indemnified from any claims in this regard. The assessee, under the terms of the agreements was to receive an annual fee from the other entity.
The department contended that, the services provided by the assessee to the other party constitute a franchisee service. The assessee contended that, since the agreements between the assessee and the other parties are “education joint ventures”, the services provided by the assessee thereunder would not constitute taxable services.
Held
The Tribunal held that, on a true and fair analysis of the agreements between the parties, it is clear that the assessee is wholly immune from any losses arising out of the enterprise i.e., the educational institution to be established pursuant to the agreement and also no entitlement to any share in the profits arising therefrom, hence the normative ingredients of a partnership or a joint venture are absent. Hence, in the totality of circumstances neither the indicia of a partnership or a joint venture is discernable from the terms and conditions of the agreements between the parties. The participation of the assessee in the management of the schools is calibrated only for effectuation of the assessees perceived expertise and experience, in establishing and running quality English Medium Schools and is in furtherance of effective execution of the franchise service provided by it for which the assessee receives remuneration as clearly indicated in Clause 3 of the agreement and therefore, would not tantamount to the assessee being a joint venturer. The Tribunal therefore held that, since all the ingredients of ‘franchisee services’ are fulfilled, the service is taxable under the category of franchisee service.
