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TMI Blog2012 (5) TMI 236X X X X Extracts X X X X X X X X Extracts X X X X ..... t has raised five grounds in an illustrative and narrative manner, the substance of its grievance is confined to a solitary ground, namely, 'the order passed u/s 12AA(3) of the Act on 17.3.2011 by the DIT (Exemption) cancelling the registration granted to the assessee trust w.e.f. 21.3.1990 was wholly illegal'. 3. As the issues raised by the rival parties being inter-linked pertaining to the same assessee-trust, for the sake of convenience and clarity, both the appeals were heard, considered together and disposed off in this common order. 4. We shall now proceed to deal with the Revenue's appeal. I. I.T.A.No.1321/A/2011 - (By the Department): (i) Briefly stated, the assessee trust ['the assessee' henceforth] engaged in the field of education, had furnished its return of income on 10.9.2008 declaring a loss of Rs. 75,18,264/-. During the course of assessment proceedings, the AO noticed that the assessee had collected the following amounts from the students at the time of admission during the year under consideration: (1) Building fund Rs. 41,73,990 (2) Education Research Fund 41,73,990 (3) Education Infrastructure fund 50,88,019 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Addition: Rs. 1,90,01,319/-)" (iv) Aggrieved, the assessee took up the matter with the CIT(A) for relief. The contentions of the assessee in its written submission dated 23.2.2011 are extracted as under: "5.4.(CIT's order)............................................................................. 2.1 As regards the ground of appeal relating to the addition of Rs. 1,90,01,319/- in respect of corpus donations, the appellant begs to submit that the perusal of clause - 17 of the trust deed dated 16.11.1987 (filed at page 58 - 80 of paper book) shows that sub-clause (5) empowers the trustees to accept any money or property the corpus of the trust. The running translation of the said clause is as under: 'The trustees are empowered to accept any money or any kind of property that may be given by any person or institution or any charitable trust for the purposes of objects of this trust and such money or property shall be treated as property of this trust.' In view of the aforesaid powers vested in the trustees, the contributions towards different corpus funds received by the appellant trust from the parents/students was not current income but donation exempt u/s 12. 2.2 In a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... truction and standard. It is also noticed that the voluntary contribution were non-refundable and one time payment. The contributions have been towards different purposes such as library, building, sports development etc., whereas the tuition fees were towards the education imparted to the students and the fees by way of stationary, workshop, computer were towards use of such items. The AO has also not appreciated that the contributions made by the parents/students may not use the infrastructure intended to be so created and the actual beneficiary of such contribution may be students of the subsequent years. Therefore, the contributions building or library fund may be made by the students for this year but the actual users would be the students of the years after completion of such building. Thus, the element of quid pro quo claimed by the AO is not established. The contention of AO that the said contributions should have been reflected in the income and expenditure account is also not acceptable for two fold reasons firstly, even if the same may be reflected in income and expenditure account, the same may be taken to different funds account and secondly, the passing of any entry o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accept such sum and such amount or property shall be treated as property of this trust.' 5.7 Thus, in view of the aforesaid clause empowering the Board of trustees to accept any money for the objects of the trust, the voluntary contribution given by the parents/students were the property of the appellant trust and required to be utilized for the objects of the trust. The appropriation of donation as canvassed by AO was not the appropriation towards different funds but the quantum of such donations which may change by the trustees from year to year depending upon various factors. 5.8 Considering all these facts of the case, I am of the view that AO was not justified in holding contributions towards different corpus funds totalling to Rs. 1,90,01,319/- as current income liable to tax. I hold that the said contributions were in nature of corpus funds and as such exempt u/s 12 of the Act. The addition of Rs. 1,90,01,319/- made by AO is hereby deleted." (vi) Agitated with the treatment meted out at the findings of the CIT(A), the Revenue has come up with the present appeal. It was the case of the Revenue that the assessee had collected Rs. 1,90,01,319/- from students at the tim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee for verification exhibit that the amounts received have been credited to each fund account of each receipt from the parents/students. Apart from such contributions towards 'corpus funds', it was noticed that the students have also paid towards tuition fees every year. Had the contribution collected been towards education to be imparted by the school as alleged by the Revenue, the institution would not have resorted to charge separately the monthly/quarterly tuition, term and computer fees? Another salient feature noticed from the evidences produced was that the contribution by way of 'corpus donation' ranges Rs. 10000 - 15000 with no consequence of the medium of instruction and the standard in which the ward (student) was to be admitted. Assuming but not admitting, if the contributions were to be quid pro quo as canvassed by the Revenue, the same should have been quite different depending upon the medium of instruction-wise and standard-wise. Another significant feature observed was that the one time payment of voluntary contribution was - non-refundable -towards different purposes, viz., library, buildings, sports curriculum activities etc.; whereas the tuition fees ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t all the facts as discussed in the foregoing paragraphs, we are of the considered view that the stand of the AO was rather misconceived in holding that the contribution towards different corpus funds aggregating to Rs. 1.9 crores as current income of the assessee liable to be taxed whereas the CIT(A) was justified in her finding that the said contributions were in the nature of corpus funds and as such exempt u/s 12 of the Act. Therefore the order of the Ld. CIT(A) is confirmed with respect to this issue. (2) The other grievance of the Revenue being that the CIT(A) had erred in directing the AO to grant exemption u/s 11 of the Act. The case of the Revenue was that the ultimate beneficiary from the student fees and contributions were the family of the Managing Trustee and the assessee was collecting huge fees and contributions from poor and needy students, but, it was enriching itself and its trustees. This conclusion of the AO was apparently based on the transaction relating to the banakath for purpose of agricultural lands and huge salary, free use of motor cars provided to the Managing Trustee etc., After giving due weightage to the lengthy submission of the assessee as recor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the appellant trust to him for the purpose of payment to the vendor clearly proves that the said funds were simply routed through him and no personal gain or title was set up by the trustee in this transaction. It is well-settled position in law that the property of the trust can be held either in the name of trust or any one or more trustees. Even the Managing trustee and the relatives have not claimed that the said purchase was made by them for their own benefit. It appears that the AO has made this conclusion simply because the funds of the trust were paid to the vendor through the trustees, but, there was no other material except routing of funds to hold to this effect. Further, the utilization of trust fund is not for purchase of agricultural land but it is the first step towards the educational institutions to be commenced in the said locality. The trustees have not retained any part of the said funds of Rs. 4.5 crores paid to the vendor. Under these facts and circumstances of the case, it cannot be said the funds of the appellant trust have been utilized for the personal benefits of the trustees of the trust insofar as it relates to the payment towards purchase of agricu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other staff of the school is based on experience, number of working hours etc., and even the same differs from rank to rank, such as principal of pre-primary, primary and higher education as well as medium of instructions. The chart showing the aforesaid details furnished by the appellant clearly shows the aforesaid distinction. Moreover, the use of motor cars provided to the trustees for the purpose of trust cannot be said to be any excessive amenities provided to them. Nowadays, such amenities are being provided to most of the high-ranking officers of any organization. It is contended by the appellant that the trustees have to visit different places such as Government offices at Gandhinagar, banks, schools etc., which are located at a very far distant places and in case, such amenity was not provided to them, they would have claimed conveyance expenses for such purposes apart from it would have resulted into as loss of time, energy and money. The contentions of the AO that the ultimate beneficiary from the students fees and contribution is the family of managing trustee is also not supported by any evidence or material on record. On the contrary, the activities carried out by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther, submitted that in Form No.10-B which ought to be filed along with the return of income, the assessee trust had to disclose whether the fund of the trust is/was lent at any point of time to the trustees and persons referred to s.13(3) of the Act i.e., the relatives of the trustees. The assessee had not disclosed this fact in Form 10-B filed with the return of income. It was contended that the assessee had concealed the actual mode of transaction and transfer of such payments through trustees. It was contended by the Revenue that the assessee had, therefore, violated the provisions of s.13(1)(c)(ii) of the Act and, hence, the assessee was not eligible for deduction u/s 11 and the provisions of s. 12 shall not operative. The Revenue has relied on the decision of Hon'ble Uttarkhand High Court in the case of CIT v. National Institute of Aeronautical Engineering Education Society [2009] 315 ITR 428/184 Taxman 264 to support its view. On the other hand, the Ld. AR submitted his side of the version which was more or less what was contended before the first appellate authority. In furtherance, it was contended that keeping the abnormal growth and vast development activities of the ci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eir benefits. We have conclusively considered the submissions of the assessee as well as the Revenue and also perused the various documentary evidences adduced by the assessee during the course of hearing. As pointed out by the CIT(A), the fund provided by the assessee trust has been paid to the vendor through its trustees and their relatives, precisely, to outsmart the restrictions on transfer of agricultural lands to a non-agriculturist - the assessee trust.. Since the agricultural lands could be purchased only by an agriculturist as such restriction was prevailed at that relevant time, one of the trustees - Mrs. Rupali N Kapadia, being an agriculturist - was made as a conduit to get over the restriction. The AO's allegation that the purchase of the said land was intended by the trustees for their own benefits/gain etc., doesn't hold water as no documentary evidence was brought on record to thwart the assessee's claim. With regard to the payment made by the trustees to the vendor, it was explained that the funds provided by the trust has been paid through its trustees for the reasons recorded supra and that the banakhat clearly indicates that the transaction was made for and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... apadia and Smt. Rupali Kapadia, we would like to reiterate that due to unstinted efforts and far-sightedness, Shri Kapadia has been managing a chunk of student community, also carrying on other administrative work, besides co-ordinate with various Government agencies. His experience, administrative skill and managing a flagship of institution cannot be equated with that of the Principal of a school/college and other staff of the institution whose activities were confined to their ranks, experience and limited role to their assignments. Therefore, the salaries of Shri M.N. Kapadia and Mrs. Rupali Kapadia cannot be equated with that of other persons working in the institution at the behest of the assessee trust. With regard to the use of motor cars provided to the trustees cannot also be considered to be excessive amenities provided to them. As they were expected to commute on day-to-day basis to various Government agencies, and other allied places which were scattered all over the vast city of Ahmedabad, the assessee trust was expected to extend such minimum facilities to its trustees. This cannot be branded at any stretch of imagination that the trustees have been provided with ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 13(1)(c)(ii) of the I.T. Act, 1961, as a result of which it is not eligible for deduction 11 of the I.T. Act, 1961. Further, it is also seen from the records by the assessing officer that land proposed to be acquired by the trust is an agricultural land which has not been converted into non-agricultural land. Objects of the trust are educational in nature and not agricultural ones. The trust cannot divert and utilize fund for purpose of agriculture. 2. Trust has collected Rs. 1,90,01,319/- from students at the time of admission. This amount was directly credited to Balance and claimed as corpus donations instead of reflecting in Income and Expenditure account. The Trust has failed to establish aforesaid amount as Corpus donations and also no separate claim of deduction u/s 11(1)(d) of the I.T. Act, 1961 in respect of corpus donation has been made in the return of income. 3. Thus, the trust has violated provisions of section 11(1)(d) and 13(1)(c)(ii) of the I.T. Act, 1961 and is not eligible for registration u/s 12A(i) of the I.T. Act, 1961. It clearly attracts the amended definition of 'charitable purpose' in section 2(15) of the I.T. Act, 1961 by insertion of a proviso w.e.f. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntenance thereof; (4) to provide interest-free loan, scholarship to the students who want to go abroad for education; (5) to carry out research for upliftment of society on science, industries and education; (6) to publish books for unliftment of society on morality, spirituality and education. From the aforesaid object clauses, it is nowhere stated that it would indulge itself in transaction of commercial nature i.e., by transferring amount of Rs. 4,50,00,000/-from bank account to Shri Muktak Kapadia and his sons and they, in turn, had paid Rs. 3,50,00,000/- to Smt. Sonalben Jaksania towards agreement to sell of land with her. It is seen that no sale deed has so far been executed for the reasons best known to the trust. The said transaction with Shri Muktak Kapadia was to be reflected in Form No.10B filed with the return of income. This shows that the trust has concealed actual mode of transactions and violated the provisions of section 13(1)(c)(ii) of the I.T. Act, 1961, which would not make it eligible for deduction u/s 11 of the I.T. Act, 1961. In this regard, there is no merit in the argument of the ld. Counsel that the payments made to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m has introduced section 12AA of the I.T. Act 1961 by the Finance Act No.2 1996 w.e.f 1.4.1997 i.e., AY 1997-98 onwards which requires the Commissioner to be satisfied with the objects of the trust and the genuineness of its activities. As a logical corollary of the provisions of section 12AA of the Act, the Commissioner has to examine the objects of the trust by their reference to the definition of 'charitable purpose' along with the new inserted proviso to charitable purpose in section 2(15) of the Act w.e.f. 1.4.2009. in fact, there is a mutual, symbiotic relationship between the two provisions, namely, section 2(15) and section 12AA of the I.T. Act, 1961. the definition of 'charitable purpose' in section 2(15) of the Act is the engine which drives the machinery of the provisions of section 12AA of the Act. (iv) the Ld. Counsel has relied upon the following judicial decisions to support his case for reconsideration of registration granted to the trust u/s 12A(a) of the I.T. Act, 1961: .......................................................................................... .......................................................................................... ............. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of DDIT(E), Ahmedabad passed in this case u/s 143(3) for AY 2008-09. he had also attached a copy of the said appellate order and has also stressed on the Doctrine of Merger of the AO's order with the order of the CIT(A)-XXI, Ahmedabad. He has placed reliance upon the judicial pronouncements of Hon'ble Supreme Court in the case of CIT v. Kanpur Coal Syndicate reported in 53 ITR 225 (SC) and the Bombay High Court decision in the case of CIT v. Sakseria Cotton Mills Ltd reported in 124 ITR 570 (Bom). There is no merit in the aforesaid submissions of the Ld. Counsel by invoking the Doctrine of merger of the AO's order with the order of the CIT(A) for the purpose of not withdrawing the registration by the undersigned in this issue. It goes without saying that the nature of proceedings before the undersigned u/s 12AA(3) of the I.T. Act, 1961 and the appellate proceedings before the CIT(A)-XXI, Ahmedabad u/s 246 or Chapter XX of the I.T. Act, 1961 are totally distinct, separate and independent in nature. The jurisdiction of both these authorities does not overlap with each other. The aforesaid two judicial pronouncements relied upon by the Ld. Counsel are totally distinguishable and inde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ities of the trust or the institution are not genuine or that the activities are not being carried out in accordance with the objects of the trust or institution, as the case may be. Relies on the case laws: (i) Ajit Education Trust v. CIT [2010] 42 SOT 415 (Ahd); (ii) Baba Gandha Singh Education Trust v. CIT [2011] 138 TTJ 1 (Chd) (UO); 6.1 It was, further, argued that the DIT(E) having not doubted the genuineness of the activities of the trust and the activities not found beyond its objects, the cancellation of registration was unwarranted [Refer: St. Don Bosco Education Society v. CIT [2004] 90 ITD 477 (Luck). It was, further, submitted that on perusal of the reasoning given by the DIT(E) in his impugned order that the activities of the assessee trust by way of taking donations from students, indulging in transactions of commercial nature within the family group were treated as violation of s.13(1)(c) of the Act. The reasoning given by the DIT(E) in para III of the impugned order has been dealt with by the assessee as under: "3.3.1 (submission) it is observed by DIT(E) in para (i) of the order that 'The main notorious facts are that the trust has been indu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nbsp; banakhat was executed in the capacity as a trustee and expressly stated as representing the appellant trust (Page 60); (ii) payments shown in the books of appellant under the head 'advance towards the land' as per Annexure I to the audited balance sheet as on 31.3.2008 (Page 20); (iii) the trustees had also not treated the said funds as loan or advance from the trust but, on the contrary given funds to the trust to carry out the activities of the trust (p 19); (iv) the board of trustees had passed resolutions in this regard; (v) the funds were routed through the trustees account in view of the land being agricultural and one of the trustees was an agriculturist. The trustees had not retained any part of the said fund. In view of the above facts, it cannot be said that the aforesaid activity was non-genuine or outside the objects of the trust. In view of the above, the DIT(E) having not doubted the genuineness of the activities of the appellant trust and the activities not found beyond its objects, the cancellation of registration is unwarranted. 3.4.1. It is contended by DIT(E) in para (ii) of the impugned order that the transaction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion, the payments for construction of building which was not utilized for the purpose other than the education purposes, the payments cannot be the ground to cancel the registration granted u/s 12A(a). In view of the above, it is submitted that neither there was a commercial transaction of transferring money to the trustee and others nor the activity of acquiring land for the purpose of expansion of education activity was an alteration in he object clause of the trust. 3.5.1 it is observed by DIT(E) in para (iii) of the order that the proviso to section 2(15) inserted w.e.f. 1.4.2009 treat the carrying on of any activity in the nature of trade, commerce or business was not with the object of general public utility. 3.5.2 the appellant submits that the reliance placed on this amended definition of 'charitable purpose' is wholly unjustified because - (i) the said proviso as even stated by DIT(E) is applicable from AY 2009-10 and onwards. (ii) Moreover, it is applicable only in case where the object of the trust is advancement of any other object of general public utility and not in the cases of like relief of the poor, education, medical relief etc., The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y demonstrates non-application of mind and bias." 6.2 On the other hand, the Ld. D R had vehemently argued that as the activities of the assessee were not only non-genuine in nature but also outside the objects of the trust and for the detailed reasons recorded in his findings, the DIT(E) cancelled the registration earlier granted to the assessee trust. It was, therefore, pleaded that the stand of the DIT(E) requires to be sustained. 7. We have carefully considered the submissions of the Ld. AR as well as the Revenue. We have also perused the relevant records, case laws relied on by rival parties and also the voluminous paper book furnished by the Ld. A R during the course of hearing. 7.1 The origin of the issue being that the assessment in the case of the assessee trust was concluded by the AO for the AY 2008-09 in rejecting the exemption allowed u/s 11 and 12 of the Act for the reasons detailed by the AO in his impugned order. On being approached the CIT(A) with an appeal, the assessee trust's plea for restoration of the exemption under the said sections of the Act was ultimately acceded to by the CIT(A)'s order dt.24.1.2011. In the meanwhile, the DIT(E) slapped a show-cause n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Transaction of commercial nature by way of transferring of Rs. 4.5 crores to Shri Mutak Kapadia etc.,: Incidentally, this issue also drew our attention while dealing with the Revenue's appeal (supra). For appreciation of facts, of course, at the cost of repetition, we observe that in respect of the payment made by the trustees to the vendor, it was explained that the funds provided by the trust has been paid through its trustees for the reasons recorded supra and that the banakhat clearly indicates that the transaction was made for and on behalf of the assessee trust only and not for the personal benefit of any of the trustees. The payment made towards purchase of land was shown by the assessee in its books of account under the head 'advance towards land' (Annexure L to the audited annual a/c) and the Managing Trustee had not claimed anywhere in his books of account that the said payments were towards purchase of land. To towering all, neither the managing trustee nor any of his relatives for that matter have claimed that the said purchase was made on behalf of them or for their own benefits. We have also perused the confirmation of accounts furnished by Smt. Sonalben J Jakasania ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such failure since Part II of Annexure in the said Form requires reporting of application or use of income or property for the benefits of its trustees. However, in the case under consideration, neither the income nor the property of the assessee trust was utilized for the benefits of the trustees; there was no occasion for the assessee trust to furnish such a transaction in Form No. 10B. Further, there was no case of any alteration of object of the trust, as the purchase of agricultural land and routing through of the payments to the vendor was due to expediency. The object of the trust has not anyway been derailed as alleged by the DIT(E) while making expansion of its educational activities to run its schools at a new place. We therefore, do not find any infirmity in the transaction as alleged by the DIT(E). (3) The trust was having activities of commercial nature which is hit by the Proviso to s.2(15) of the Act: Brushing aside the assessee's genuine claim that the inserted proviso has come into effect only from 1.4.2009 i.e., from the AY 2009-10 and onwards, we would like to recall the amended provisions of s.2 (15) of the Act which reads as under: "Charitable purpose' incl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .18 lakhs in that year as per I & E account and that it had incurred expenses aggregating to Rs. 5.80 crores towards the object of the educational activities. In view of the above facts, we are of the considered view that the assessee trust's registration could not have been cancelled on a flimsy ground. (4) s. 12AA inserted by Finance Act (No.2) of 1996 w.e.f. 1.4.1997 empowers the Commissioner to examine the objects of the trust w. r. t. the definition of 'charitable purpose 'along with newly inserted proviso to s. 2 (15). We have duly considered the submission of the assessee trust that the DIT(E) had cancelled the registration of the trust basically for alleged violation of s.11(1)(d) and s.13(1)(c) of the Act which, in view of the settled legal position, was beyond the purview of the powers of DIT(E) u/s. 12AA(3) of the Act. It was, further, advanced that in other words, the alleged violation of the said provisions as per DIT(E) could not be a ground for cancellation or registration of the trust u/s. 12AA(3) of the Act. As rightly argued by the assessee trust, the alleged violation of the said provisions could be enquired into by the AO while examining the claim of exemptio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct. At this stage, we may also state that the issues raised by the Commissioner in the impugned order are not beyond the powers of the Revenue to examine so, however, the same can only be examined in the appropriate proceedings, such as assessment proceedings in the present case. Our decision is resting only on the foundation that the impugned order passed by the Commissioner is not permissible in view of the limited powers available to him under section 12AA(3) of the Act........." (2) Ahmedabad Urban Development Authority v. DIT(E) - ITA No. 754/Ahd/2010 dt; 21.5.2010 (for the AY 2009-10): An identical issue to that of the present one came up for consideration of the earlier Bench. The issue before the Bench, in brief, was that the assessee was an autonomous body set up and governed by the provisions of The Gujarat Town Planning and Urban Development Act 1976 (GTP Act); that the assessee was registered u/s 12AA of the Act w.e.f 1.4.2002 vide order dated 23.10.2003 of the DIT(E). The DIT(E) vide his order u/s 12AA(3) of the Act dated 15.2.2010 cancelled the registration u/s 12AA w.e.f. 1.4.2002. After consideration of the submissions of either party, analyzing the provisions of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der s. 12AA (in the past s.12A). In the light of above discussion, the cancellation of registration, on both the counts, i.e., on merits as also on the legality of jurisdiction, was not in accordance with law-Maharashtra Academy of Engineering & Educational Research (Maeer) v. CIT [2010] 36 dtr (Pune)(Tri) 321 relied on." 7.3 It is pertinent to note that the whole finding of the Ld. DIT(E) are based on the findings given in the assessment order for the assessment year 2008-09, but subsequently the assessment order has been set aside and the additions made therein were deleted by the Ld. CIT(A) vide order dt. 24/02/2011, which is now confirmed by the Tribunal in ITA No.1321/A/2011 herein above. However, the Ld. DIT(E) had cancelled the registration vide order dt. 17/03/2011. Since on the day of passing the order on 17/03/2011 nothing survived in favour of the Revenue because the Ld. CIT(A) had deleted all the additions on merits by his order on 24/02/2011, there was no basis left for the Ld. DIT(E) to cancel the Registration granted to the assessee. 7.4 Further Sec. 12AA has been inserted into the Income Tax Act w.e.f 01/04/1997. Prior to that registration were granted U/s. 12A(a) ..... X X X X Extracts X X X X X X X X Extracts X X X X
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