TMI Blog2013 (9) TMI 1120X X X X Extracts X X X X X X X X Extracts X X X X ..... cost, and there is a cost-tag to each and every item which is not less than the upper limit prescribed by the State Govt. Thus IT Department states that Institute is run purely on commercial lines but to initiate steps for the cancellation of the registration of a trust or Institution where the activities of the trust or institution are not genuine or are not being carried out according to the objects for which trust was registered under S. 12A. So basic requirement for invoking S. 12AA(3) is that the activities of the trust are not genuine and are not being carried out in accordance with the objects of the trust. The question raised was that trust is imparting knowledge at cost and therefore, not a charitable Trust u/s 2(15) of the Act and the appellant trust has contravened the provisions of Ss. 11(5) and 13(1) (c) of the Act. Thus, there is nothing found out that the Trust is not 'genuine', the trust is carrying on Educational activities that are charitable in nature. The activities are carried out as per its objects and thus, no infringement of any of the provisions contained in Ss.11(5) and 13 of the Act. The provisions of S.12AA(3) for cancellation/withdrawal of regi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thdrawal of registration granted to it w.e.f. 11-2-1998 u/s 12A of the Act are not retrospective and therefore, the impugned order of the CIT passed u/s 12AA(3) is nothing but a review of its earlier order which is impermissible in law. We hold so. The decision in the case DIRECTOR OF INCOME-TAX (EXEMPTION) , AHMEDABAD VERSUS NH. KAPADIA EDUCATION TRUST [ 2012 (5) TMI 236 - ITAT AHMEDABAD] and SINHAGAD TECHNICAL EDUCATION SOCIETY VERSUS COMMISSIONER OF INCOME TAX [ 2012 (3) TMI 262 - BOMBAY HIGH COURT] followed. As a result, the appeal of assessee was allowed - ITA No. 892/PN/2012 - - - Dated:- 30-9-2013 - SHRI SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER, AND SHRI G.S. PANNU, ACCOUNTANT MEMBER For the Appellant :Shri M.K. Kulkarni For the Respondent : Ms. M.S. Verma ORDER PER SHAILENDRA KUMAR YADAV, JM: This appeal by the assessee is directed against the order of the CIT II, Kolhapur dated 30-3-2012 passed u/s 12AA(3) of the Act on the following grounds:- 1. Whether in the facts and circumstances of the case and in law the ld. CIT-II Kolhapur was justified in cancelling/withdrawing the registration granted to the assessee u/s 12A of the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terested, in contravention to sec. 13 of the Act. It was further noticed that the assessee had deposited huge sums in Pat sansthas in contravention of the provisions of sec. 11(5) of the Act. Moreover, it was noticed that the assessee had failed to apply the funds set apart for the objects of the trust in subsequent year in contravention to Rule 17 of the IT Rules 1962. It was noticed that with the amendment to the constitution of the assessee trust dated 11-9-2001, absolute control over management and conducting the activities of the assessee was congregated with the Chairman, i.e. Shri Ravindra Mane and the Mane family for all times to come, without any checks and balances. This has effectively barred the public at large of having any access to the properties/funds of the assessee and subsequent utilisation thereof. It was also noticed that the assessee had incurred expenditure of huge amount for personal benefits of interested persons, in contravention to the provisions of sec. 13 of the Act. Thus, it was noticed that there was apparent violation of the provisions of sec. 11(5) , 12A, 12AA and 13 of the Act. 4. In view of the above, as per provisions of sec. 12AA(I_)(b)(ii) o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... small matter and has to be ignored when considered from the point of view of the institution which generates almost 2.5 crores gross revenue. (j) As regards to the expenditure incurred on the marriage of Principal s daughter, the assessee has put forth his contention that considering the services rendered by him in the capacity of principal, this was considered as proper and just payment towards the part pensionary benefits to the employee at the time of daughter s marriage. (k) As regards to the observation that the activities carried out were found to be commercial activities and not charity, the assessee has stated that the trust is genuine and that activities were also carried in a manner which is beneficial to the society and they are all for education. In this background, the assessee requested that the proceedings initiated u/s 12A(3) may be dropped; (l) The assessee has relied upon the following decisions: (1) Rastogi Foundation Vs ACIT (1993) 47 TTJ Delhi 307; (2) Smt. Manukshi Devi Bihani Jan Hitkari Trust Vs. CIT (277 ITR 140; (3) CIT Vs. South Point Montessori School (294 ITR 149) (4) CIT Vs. Pramod Jain Trust (81 ITR 604 (5) Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ane, Chairman of the assessee trust. The assessee's contention in this regards is of a general nature, and therefore not acceptable. This is noteworthy, when we consider the various investments/deposits/advances given to the Pat-sansthas, etc., where either the Chairman, or his relative, have substantial interest. The inuring use or application of the income or property may be for the direct or indirect benefit of the persons referred to in subsection 3 of sec. 13. A trust would fall in a mischief of claiming, if its income or property is applied or used for the benefit of any one or more of such persons, or concerns. The Hon'ble Supreme Court in the case of CIT Vs Rattan Trust 1991 (227 ITR 356) has held that any diversion of income other than those authorized by the trust deed would lead to attraction of section 13(l)(c) of the Act. In the present case, there is not only a clear infringement of the provisions of sec. 13(l)(c) of the Act, but more prominently a glaring example of exercising absolute control and command, which is at the disposal of the Chairman, with almost negligible participation of the public at large, in the day to day affairs of the trust, or questioni ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the above, the assessee has charged donation under the head Development Fund from the students. From the details available on records, it is seen that such development fund runs in Crores of Rupees, every year. 11.1 In this respect, it is seen that the assessee has merely stated that, ......the trust is genuine and that activities are also carried in a manner which is beneficial to the society and they are all for education. 11.2 From the details elaborated hereinabove, it is seen that almost 95 % of the income of the assessee, which incidentally is running in crores, has been charged from the students, that too who are claimed to be mostly from a notified backward area-Kokan . It is also a point to be noted that they have not/ been spared even of the charges under the guise of Donations towards Development Funds . 11.3 It is also seen from the above that, the students are enrolled with full fees/charges, and other expenses which they have to incur, like Hostel rent, mess, etc. Even the transportation of students in school bus, is not done on charitable basis, but fees are charged in this respect also. It is also to be noted that the assessee is charging ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt's permission, allowing the assessee to collect/charge fees at prescribed rates. It is pertinent to note that the State Govt has a constitutional liability to provide education to all and sundry. For this purpose, the State Govt. has been running schools of its own for a long period. However, with increase in the number of students, and on finding that it was falling short to discharge its liability, the State Govt. has delegated this task to NGOs, who are engaged in imparting education. Even in such cases, where it is considered necessary that the education has to be provided as a charity, and that it was short of discharging its constitutional duties, the State Govt. has not unshackled itself completely, but has provided necessary financial aid in form of grants to such NGOs. Thus, by proxy, the State Govt. has shouldered the financial responsibility of providing education, to the needy, by providing grants to the deserving NGOs engaged in the educational field. This impliedly means mat, in case the state govt. is not providing educational grants to any NGO, engaged in the field of imparting education, then the State Govt. finds that the so-called charitable educational w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee trust is engaged in the business of imparting knowledge with cost and profit, inherent therein. I also find that the funds have been applied for the personal benefits of the trustees and relatives, i.e. other than for the object of the trust. Therefore, the activities carried out are commercial activities, and not for charity, within the meaning of provisions of sec. 2(15) of the IT Act, 1961. There is an infringement of the provisions of sec. 11(5) 13(l)(c) of the Income tax Act, 1961. 14. To continue to be registered u/s 12A of the Act, and to avail benefit of section 11 and 12 of the Act, the trust has to comply with the provisions of Rule 17, 17B, 17C of the IT Rules,' 1962, and also provisions of sec. 12A, 12AA, and 13 of the IT Act, 1961. Section 13 is over and above the conditions and provisions provided for exemption u/s 11 12 of the Act. The Hon. Madras High Court in the case of MA Namazie Endowment Vs CIT (1988) (174 ITR 58) has held that section 13 is only an exception to section 11 of the Act. Section 13 begins with the words Nothing contained in section 11 [or sec. 12] shall operate so as to exclude from the total income of the previous year..... . ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rpose, , if it involves the carrying on of any activity in the nature of trade commerce or business for a cess or fee or nay other consideration, irrespective of the nature of use or application, or retention, of the income from such activity . The proviso was inserted by Finance (No. 2) Act, 2008, w.e.f. 01-04- 2009. Now the question is whether the proviso inserted with effect from 1-4-2009 is applicable to the activity of the trust before us. S. 11(1) of the Act lays down that subject to the provisions of Ss. 60 to 63, the income derived from property held under Trust wholly for charitable or religious purpose, to the extent to which such income is applied to such purposes in India; and where such income is accumulated or set apart for application for such purpose in India, to the extent to which the income so accumulated or set apart is not in excess of 15% (25% upto 31-03-2003) of the income from such property. The Sub-section (2) cl. (b) of S. 11 provides that here eighty-five percent of the income referred to in cl. (a) or cl. (b) of Sub-section (1) read with Explanation to that Sub-section is not applied, or is not deemed to have been applied, to charitable or religious ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... harashtra Arogya Mandal v. ITO, (2008) 117 TTJ (Pune) 631 has held as under; investment in credit co-op society (Pat Sanstha) by assessee-trust is eligible investment under S. ll(5)(iii), hence there was no violation of S. 13(l)(d) so as to deny relief under S. 11 of the Act. In the above said case, the Tribunal relied upon decision in the case of SBI Staff credit Co-op Society v. ITO (1998) 234 ITR 104 (Mad), and Tata Tea Ltd. v. CIT (2003) 78 TTJ (Kol) 646. 2) In the case of Gurdayal Berlia Charitable Trust v. ITO, (1990) 34 ITD (Bom) 489, the ITAT held as under:- According to us, the line of argument/reasoning advanced by the Ld. Counsel for the assessee is fully fortified by the aforesaid Circular No. 387 issued by the CBDT. There is nothing in S. 11(5) which can be interpreted to mean that if a portion of the accumulated income of the Trust is not invested in specified securities, the exemption under S. 11 of the Act which has already been granted to the trust in earlier year would be withdrawn. 8.4 It was founded by concerned CIT that the Society has purchased a plot of land at Sadavli for which a sum of . 10,55,000/- was withdrawn by the Treasurer w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d of identical amount paid by the vice president on its behalf for purchase of machinery then apparently provisions of S. 13(l)(c)(ii) would not be attracted. In this case the advance granted to one of the trustees for purchase of land at Sadvili of ₹ 10,55,000/- on behalf of the appellant Trust has been recovered from the said trustee and he is sacked. The provisions of S. 13(l)(c) therefore, will not be attracted. In this case the advance granted to one of the trustees for purchase of land at Sadvili of ₹ 10,55,000/- on behalf of the appellant trust has been recovered from the said trustee the provisions of sec. 13(1)(c) therefore, will not be attracted. In the case of CIT v. Baldeoji Maharaj (1996) 84 Taxman 448 (All) the Hon ble High Court, wherein the Tribunal held that there was no evidence to show that the loan was not adequately secured and interest charged was also adequate in the facts and circumstances of the case, the Tribunal concluded that there was no violation of the provisions of law i.e. S. 13 of the Act and the trust was entitled to exemption under S. 11 of the Act. It was therefore, concluded that there was no violation of the provisions of S. 13 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efits are intended to be enjoyed by the Chairman, his relatives and his successors in future. Thus by concentrating all the powers of running the trust in the hands of the Chairman and his family members, arrangements have been done for enjoyment of benefits by Manes (Family of Mane) not only for the present but for the future as well. According to CIT such amendment goes against the very spirit of the term 'Charitable Trust'. In this regard, we find that the co-ordinate Bench of ITAT Jodhpur Bench in Mansukhi Bihani Jan Hitkari Trust v. CIT (2005) 277 ITR (AT) 140 (Jodhpur) held: The mere fact that the trustee are closely related to each other and belong to one family with vacancy also bound to be filled up only by members of the family cannot be treated as benefit to such members. Whether the trust is a public trust or not depends upon its objects. In case the settler himself decides to be the sole trustee or nominates trustees from his family or those in his personal confidence. This does not vitiate either the validity of such trust or its public character. It is natural that settler would like to ensure that the objects of the trust created by him are best ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ow Bench, Lucknow was correctly and rightly allowed by the said authority by order dated July 10, 2009. The Hon'ble High Court of Allahabad in Oxford Academy for Career Development v. Cf. CIT (2009) 315 ITR 382 (All) held that since S. 12AA(3) was incorporated in the Act, w.e.f. 1st Oct. 2004, and not applicable retrospectively, Registration granted to assessee on 1st April, 1999 could not ,therefore, be cancelled by the CIT by invoking powers u/s 12AA(3) of the Act. Even assuming that CIT has power to rescind the order of registration on the ground that registration has been obtained by practicing fraud or forgery there was nothing in the showcause notice or in the impugned order dt. 9th March 2004 alleging that the petitioner had obtained the registration by practicing fraud or forgery. 8.10 Even the ITAT Ranchi Bench in the case of Institute of Science Management v. CIT (Central) Patna (2012) 25 Taxmann.com 186 (Ranchi) has held that the Commissioner before passing an order under S. 12AA(3) to satisfy, himself that activities of such trust or institution are not genuine or are not being carried out in accordance with objects of trust or institution and before proceed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on where the activities of the trust or institution are not genuine or are not being carried out in accordance with the objects thereof even in relation to a trust which was registered under S. 12A as it then stood. So basic requirement for invoking S. 12AA(3) is that the activities of the trust are not genuine and are not being carried out in accordance with the objects of the trust. The CIT has recorded her findings in the order u/s 12AA(3) that the trust is imparting knowledge at cost and therefore, not a charitable Trust within the purview of S. 2(15) of the Act, secondly, the appellant trust has contravened the provisions of Ss. 11(5) and 13(1) (c) of the Act. Thirdly, the trust is treated by the Chairman and family members/relatives as their private property and enjoyed by them for their benefits only. There is nothing on record to suggest that the Trust is not 'genuine'. In fact, the trust is carrying on Educational activities they are charitable in nature. The activities are carried out as per its objects. There is no infringement of any of the provisions contained in Ss.11(5) and 13 of the Act. The provisions of S.12AA(3) for cancellation/withdrawal of registra ..... 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