TMI Blog2015 (5) TMI 680X X X X Extracts X X X X X X X X Extracts X X X X ..... 2 - Karnataka High Court] wherein it was held that “where there is no dispute in respect of the objects of the trust, that of imparting education and also when there is no dispute regarding the fact that the trust has actually imparted education and not carrying any other activities, the trust is qualified for getting registration U/s. 12A as a charitable institution and the question regarding the application of funds and allowability of benefit of exemption U/s. 11 & 12 are matters which are to be examined by the assessing authority at the time of assessment and not by the registering authority”. Thus we are of the considered view that the Ld. CIT is not justified in withdrawing the registration granted U/s.12A(a) of the Act by invoking the provisions of section 12AA(3) of the Act. Such Act of the Revenue will only affect the poor students who are studying in the institution by paying nominal and normal fees and also other students thereby defeating the very purpose of these provisions of the Act, which are enacted with the intention of promoting education in the country. Therefore, we hereby quash the order of the Ld. CIT withdrawing the registration granted U/s.12A(a) - Decided ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eing an educational institutions, are not genuine. It must be stated here that the assessee trust is running seven professional colleges providing graduate and post graduate courses, in Medicine, Engineering, Nursing, Dental Sciences and Education. In addition, the Trust is also running Sudhananda Vidyalaya Matriculation School, Tamilnadu. 3. Further, the allegations made by the Ld. CIT in the show-cause notice dated 2.3.2010, stand totally disproved by the appellant orders passed by the Ld. CIT (A)II Chennai dated 26.5.10 and later on, by the appellate order passed by the ITAT A Bench, Madras dated 5.4.2011 and hence the show-cause notice is required to be withdrawn. 4. The other allegations relating to survey on 20.11.2009 and the assessment order for assessment year 2009-10, are also factually incorrect. The aforesaid allegations relate to source of Income of the Trust and the source of income of the Trust is not at all relevant for the purposes of grant of registration U/s. 12AA(1) or cancellation of registration/s 12AA(3) of the Act. 5. Besides, the allegation regarding the so-called anonymous donations, vide para (5) of the letter dated 26.3.14 is not factually as we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ived for personal benefits. (vii) The ITAT has confirmed the orders of the Revenue for not granting the approval U/s. 80G (5) of the Act. 5. On the aforesaid observations of the Ld. CIT, the assessee trust made the following submissions before the Ld. CIT:- (i) Once the registration is granted U/s.12A (a) of the Act, the same cannot be cancelled by the Ld. CIT U/s.12AA (3) of the Act because amendment to Section.12AA (3) has been brought with effect from 01.06.2010. (ii) The cancellation of registration U/s. 12AA(3) is possible only if the twin conditions are fulfilled viz., a) The activity of the trust are not genuine and /or b) the activities of the trust are not being carried on in accordance with the objects of the trust. (iii) Since in the case of the assessee none of the aforesaid conditions are satisfied because the activities of the trust are absolutely genuine and the same are being carried on in accordance with the objects of the trust. (iv) The assessee has also placed reliance in the decisions of the case Tamilnadu Cricket Association reported in 98 DTR 299 (Mad.), CIT Vs. Sarvodaya Illakkiya Pannai, 343 ITR 300 (Mad.) and Padanilam Welfare Trust Vs. D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... collected from students), in violation of its objects contained in its trust deed. It is clear from the fore-going discussion that the activities of the assessee trust are not being carried out in accordance with the objects. Section 12AA(3) of the Act thus squarely applies to the facts of the assessee trust. It is abundantly clear from the admission of Shri M K Rajagopalan, Chairman of the Trust, in his sworn statement U/s. 132(4) recorded on 14.8.2007(reproduced in this order), which is admissible as an evidence, that in the Financial Year 2007-07, donations amounting to ₹ 10 crores and around 2 to 3 crores were collected from Medical College and Engineering College respectively and in the next Financial Year 2007-08 (upto 14.8.2007) donation of ₹ 9 cores was collected from Medial College. The details of actual amounts of donations collected in the subsequent F.Ys 2008-09 and 2009-10 which were not fully accounted, were admitted in the statement recorded during the survey on 20.11.2009 (in his reply to Q.23 reproduced in this order). The admission was based upon the documents impounded during the survey. Therefore it is an irrefutable fact that the activities o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce the Assessing Officer in all the aforesaid assessment orders has held that the Trust is engaged in running educational institutions. vii) In the present context, it is also relevant to refer to the last para of the impugned order U/s. 12AA (3), which are reproduced as follows:- Therefore, it is an irrefutable fact that the activities of the assessee trust were not being carried out in accordance with its objects at least from 01.04.2006, onwards, relevant to the F.Y 2006-07 (i.e. A.Y 2007-08). This fact is recorded without prejudice to the Department s stand before the Hon ble High Court defending the assessment orders for A.Ys 2002-03 to 2006-07, relevant to the F.Ys 2001-02 to 2005-06 in which additions were made on the basis of extrapolation . (viii) In regard to the above mentioned reference of Ld. CIT , it is worth mentioning that for the assessment years 2002-03 to 2008-09 relevant to F.Y 2001-02 to 2007-08 also the Ld. Assessing Officer made additions to the total income of the trust by estimating alleged receipt of capitation fees. However, the Ld. CIT had not withdrawn registration granted U/s. 12A (a) of the Act. But on the same set of facts, the Ld. CIT has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o 284 pages. In the second paper book the assessee has filed details of permissions and sanctions granted from the Government of India, Ministry of Health and Family Welfare and Medical Council of India, a gist of the same is present herein below for reference:- Sl. No. Date Approval from Particulars 1. 02.01.2007 (PB-page 03) Ministry of Health Family Welfare, New Delhi Approval of Mahatma Gandhi Medical College Research Institute, Pondicherry for award of MBBS qualification (100 students) by Pondicherry University 2. 04.09.2012 (PB-page 05) -do Recognition/Approval of Mahatma Gandhi Medical College Research Institute, Pondicherry against increased intake i.e. from 100 to 150 for the award MBBS degree by Pondicherry University 3. 07-08-2014 (PB-page 07) -do Increase of seats in MBBS course from 150 to 200 at Mahatma Gandhi Medical College Research Institute, Pondicherry for the academic year 2014-15 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 23.03.2007 (PB-page 18) -do- Permission of Central Govt. for starting of the MD(DVL) DDVL courses at Mahatma Gandhi Medical College Research Institute, Pondicherry (annual intake of 1 student) from academic year 2007-08 13. 23.03.2007 (PB-page 19) -do- Permission of Central Govt. for starting of the MD(Psychiatry) course at Mahatma Gandhi Medical College Research Institute, Pondicherry (annual intake of 1 students) from academic year 2007-08 14. 11.04.2008 (PB-page 21) -do Increase of seats in MD (General Medicine) course from 3(three) to 4(four) at Mahatma Gandhi Medical College Research Institute, Pondicherry. from academic year 2008-09 15. 11.04.2008 (PB-page 22) -do Increase of seats in MD(Pediatrics) course from 32two) to 3(three) at Mahatma Gandhi Medical College Research Institute, Pondicherry. from academic year 2008-09 16. 11.04.2008 (PB-page 23) -do Increa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es at Mahatma Gandhi Medical College Research Institute, Pondicherry. from academic year 2010-11 26. 31.03.2011/01.04.2011 (PB-page 45) Board of Governors in Super-session of Medical Council of India Increase of seats in MD (General Medicine) [5 to 8] course at Mahatma Gandhi Medical College Research Institute, Pondicherry. from academic year 2011-12 27. Nil (PB-page 46) -do- Increase of seats in MS (General Surgery) [5 to 8] course at Mahatma Gandhi Medical College Research Institute, Pondicherry. from academic year 2011-12 28. Nil (PB-page 47) -do- Increase of seats in MS (ENT course) [1 to 2] course at Mahatma Gandhi Medical College Research Institute, Pondicherry. from academic year 2011-12 29. Nil (PB-page 48) -do- Increase of seats in MD (Respiratory Medicine) [1 to 2] course at Mahatma Gandhi Medical College Research Institute, Pondicherry. from academic year 2011-12 30. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t Mahatma Gandhi Medical College Research Institute, Pondicherry. from academic year 2012 40. 31.3.2012 (PB-page 60) -do- Increase of seats in MD (Anesthesia) [3 to 6] course at Mahatma Gandhi Medical College Research Institute, Pondicherry. from academic year 2012 41. 15.04.2014 (PB-page 62) -do- Increase of various PG courses at Mahatma Gandhi Medical College Research Institute, Pondicherry-conditional permission of Central Govt. from academic year 2014-14 10. From the above, it is apparent that the educational institutions managed by the assessee are approved by the relevant Government authorities and continues to exist as running educational institutions. Therefore, the assessee is only engaged in the activity of promoting education which is given the status of charitable activity within the provision of the Section 2(15) of the Act. The Revenue has also not pointed out as to any change in the objects of the Trust for which it is created. All the objects of the Trust at the time of inception of the trust remains the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ear that such receipts would be taxed. Further, the Govt. authorities granting permission for the charitable trust to run the institutions specifies caps for collection of fees or donations or capitation fees from the students or restrict them from collecting any such amount and if the trust violates such condition, permission for conducting the educational courses are withdrawn. In the case of the assessee, no such action is initiated by the Governmental governing body of the educational institutions run by the assessee trust. Needless to mention that in the case of the assessee which is running educational institutions such as Medical colleges, etc., requires enormous funds for subsistence. The admissions to students in these institutions are also regulated by the Government governing bodies, which permit them to collect fees from students or other funds in a prescribed manner. The fees/donations/capitation fees structure etc., varies from State Government to State Government authorities and Central Government authorities to which these educational institutions are affiliated. Such Government governing bodies have not made any allegations against the assessee trust or the same is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arise. We further hold that at the time of grant of registration on 28.3.2003, the same was made taking into consideration the objects of the institution fitting in with the definition of 'charitable purpose' defined under Section 2(15) of the Act and the substitution of the Section itself came only 2008, with effect from 01.04.2009. As rightly pointed out by the learned senior counsel appearing for the assessee, the circular clearly brings out the object of the amendment and the amended provision has no relevance to the case. The power regarding cancellation, hence has to be seen with reference to the registration and the object satisfying the definition on 'charitable purpose', as it stood at the time of registration and not by the subsequent amendment to Section 2(15) of the Income Tax Act. (Para 43) The Revenue granted registration under Section 12AA of the Act satisfying itself as to the objects of the association befitting the status as charitable purpose as defined under Section 2(15), as it stood in 2003 and after granting the registration, if the registration is to be cancelled, it must be only on the grounds stated under Section 12AA(3) of the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 2(15) of the Act does not appear to be correct and the same is based on its own impression on free ticket, payment of entertainment tax and presence of cheer group and given the irrelevant consideration. These considerations are not germane in considering the question as to whether the activities are genuine or carried on in accordance with the objects of the Association. We can only say that the Income Tax Appellate Tribunal rested its decision on consideration which are not relevant for considering the test specified under Section 12AA(3) to impose commercial character to the activity of the Association. In the circumstances, we agree with the assessee that the Revenue has not made out any ground to cancel the registration under Section 12AA(3) of the Act. As regards the observation of the Income Tax Appellate Tribunal that IPL Matches and Celebrity Cricket Matches are also being held by the Association and hence it is an entertainment industry, we need not go into these aspects, for, the order of the Director of Income Tax (Exemptions) casts no doubt on the genuineness of the objects of the trust. Hence, it is for the Assessing Officer to take note of all facts, while consider ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ffice of the trust was the residence of the trustees. Therefore, it was very premature to hold that the cash found in the registered office/residential houses amounted to diversion of funds. It was only a holding of funds and not application or diversion of funds. All the balance cash remained with different educational institutions. Therefore, the cash found and seized in the course of search was not a ground to make an allegation that the trustees had diverted the funds of the assessee-trust for activities other than charitable activities. The assessee had furnished the details of payments made by one of the trustees towards capitation fee for obtaining a medical seat for his daughter as reflected in the account maintained with bank. All these transactions were reflected in the books of account. Therefore the action of the Commissioner in withdrawing the registration granted to the assessee under section 12AA was not sustainable in law. Accordingly, the registration granted under section 12AA was to be restored. 4. Krupanidhi Eductional Trust Vs. Ld. CIT (E) [2013] 21 DTR (Trib) 373(Banglore) Held: In impugned order there is no finding on satisfaction that the activiti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot apply to the other categories of charitable purpose viz., relief to poor, education and medical relief . As rightly pointed out by the learned counsel for the assessee, eleemosynary element is not essential element of charity. It is also not a necessary element in a charitable purpose that it should provide something for nothing or for less than it costs or for less than the ordinary price. The surplus generated, if it is held for charitable purpose and applied for charitable purpose of the assesse, and then the Assessee has to be considered as existing for a charitable purpose. There are enough safeguards provided in Sec.12 and 13 of the Act to ensure that personal benefits of thepersons in control of the trusts are not treated as having applied for charitable purpose and for being brought to tax like provisions of Sec.13(1) (c ) of the Act which restricts unreasonable and excessive payments to certain category of persons connected with a trust or other institution. In such circumstances, the order u/s 12AA(3) of the Act, cannot be sustained. 5. DIT(E) Vs. N.H.Kapadia Education Trust [2012] 74 DTR(Trib) 233(Ahd.) Tribunal in its order had observed that the core content ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the trust only. Following the decision of the tribunal the revenue s contention was discarded. (Para 6) 6. Parkar Medical Foundation Vs. Dy. Ld. CIT [2014] 34 ITR (Trib) 286 (Pune) Held: As per the provisions of section 12AA(3) the Commissioner can cancel the registration granted earlier if he /she was satisfied that the activities of such trust or institution are not genuine or are not being carried out in accordance with the objects of the trust or the institution. In the instant case, there was no such finding given by the Ld.CIT that the activities of the trust was not genuine or are not being carried out in accordance with the objects of the trust. While granting registration u/s.12A on 03-12-2002, the then CIT, Kolhapur had gone through the objects of the trust and the genuineness of the activities. There was no change in the objects of the trust in the meantime. The Ld.CIT had not brought on record any material to show that the activities of the Trust were not being carried out in accordance with the objects of the Trust or the institution. Therefore, ITAt did not found any reason as to how the CIT can cancel the registration granted earlier in contraventio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... could not be a ground to take away the registration of a charitable organization. The cancellation of registration by the Commissioner under section 12A on the ground of accepting capitation fees was not sustainable in law. The Pune Bench of the Tribunal in the case Parkar Medical Foundation Vs. CIT [2014] 34 ITR (Trib) 286 as follows:- (a) Once registration is granted to the trust/institution and if subsequently the AO finds during the assessment proceedings that the income of the charitable trust is applied directly or indirectly for the benefit of the persons referred to in section 13(3), then he has ample power to deny exemption to that extent u/s.13 (1)(c) of the I.T. Act Further the Bangalore Bench of this Tribunal in the case of Krupanidhi Educational Trust Vs. DIT(E) [2013] 21 DTR (Trib) 373 held as follows:- (a) Payment of commission to solicit to students, purchase of BMW Car, borrowings from private financial institutions, non-maintenance of regular books of accounts, payment of enormous salary, are not sufficient cause to invoke section 12AA of the Act for cancelling the registration granted under Section 12A(a) of the Act. (b) The surplus genera ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cannot be said to be charitable purpose and if the objects says so, the Revenue is justified in rejecting the application for granting registration U/s. 12AA of the Act. However, in the case of the assessee the Registration was granted by the Revenue on earlier occasion by accepting the objects of the trust to be genuine and meant for education but subsequently wants to invoke Section 12AA(3) of the Act on the premises that activity of the such trust or institutions are not genuine or are not being carried out in accordance with the objects of the trust or institutions. Further in the case of the assessee, it is evident from the sanctions granted by the concerned Government regulatory authority permitting the assessee to run educational institutions, the trust has been carrying on its activities for promoting education. For any violation or mis-utilization of the funds of the assessee trust, there are sufficient provisions in the Act to tax the same. Further, the case of the assessee is not rejection of application for granting registration U/s.12A(a) of the Act, but it is a case of withdrawal of registration granted U/s.12A(a) of the Act by invoking the provisions of section 12AA( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ur above discussions it is evident that the activities conducted by the assessee Trust are only promoting education within the ambit of Section 2(15) of the Act. The Trust was not engaged in any other activity other that promoting Education. The allegations of the Revenue that the Trust was collecting capitation fees, Donations, siphoning of undisclosed income of the Trust for the benefit of the Trustees can at the most be taxed in the hands of the Trust or the Trustees as the case may be and may even trigger penal action against the Trustees in accordance with Law. Moreover no conclusive findings by cogent evidence are established by the Revenue to prove that the Trustees have siphoned out undisclosed income of the Trust. It is also not established before us by the Revenue that the trustees who have received funds by siphoning the undisclosed income of the trust are brought to tax. Based on these facts and the case laws discussed herein above, we are of the considered view that the Ld. CIT is not justified in withdrawing the registration granted U/s.12A(a) of the Act by invoking the provisions of section 12AA(3) of the Act. Such Act of the Revenue will only affect the poor student ..... X X X X Extracts X X X X X X X X Extracts X X X X
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