TMI Blog2017 (5) TMI 8X X X X Extracts X X X X X X X X Extracts X X X X ..... and restore the registration already granted to the assessee by the then Commissioner of Income Tax, Andhra Pradesh-II, Hyderabad - Decided in favour of assessee - I.T.A. No. 1751/HYD/2014 - - - Dated:- 26-4-2017 - SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER AND SHRI G. PAVAN KUMAR, JUDICIAL MEMBER For The Assessee : Shri V. Siva Kumar, AR For The Revenue : Shri P. Chandra Sekhar, DR ORDER PER B. RAMAKOTAIAH, A.M. : This is an appeal by assessee against the order of the Director of Income Tax (Exemptions), cancelling the registration granted u/s. 12A of the Income Tax Act [Act] on 09-05-1991, invoking the provisions of Section 12AA(3) vide the impugned order dt. 30-09-2014. 2. Assessee has raised the following grounds: 1. The order of the Director of Income Tax (Exemptions), Hyderabad dated 30-09-2014 is contrary to law and facts of the case. 2. (a) Director of Income Tax (Exemptions) erred in holding that the Appellant Society is not carrying out activity in accordance with charitable objects. (b) Director of Income Tax (Exemptions) ought to have seen that the activities of the society are genuine and all the activities are carried out ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le ITAT, after hearing their case, remitted the matter to the AO for deciding the case afresh on the ground that the enquiry conducted by the AO with handful of persons does not appear to have brought out the reality of the situation as to collection of capitation fee by the society and that another opportunity was to be given to the society to substantiate its claim before the AO. It was submitted that the AO again completed the assessments on similar lines, without considering the directions of the Hon'ble ITAT for AYs. 2005-06 - 2006-07. Aggrieved by those orders, assessee has filed appeals before the CIT(A). It was stated that the matter was pending before the CIT(A) on the issue of treating donations as capitation fee by the AO. It was further submitted that, it is premature to take a decision for cancellation of registration at this stage before the appeals for the AYs. 2005-06, 2006-07 and for 2010-11 and 2011- 12 are decided. 5.1. It was further submitted that, the society is a public charitable organization registered under Societies Registration Act, and is engaged in running various educational institutions as part of its charitable activities, and was registered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rned relative of that student, with admission of that student into that college run by the assessee society. Further, though, it has' been, submitted before me that the assessee has filed an appeal before the CIT(A) against the subsequent assessment order passed by the AO for A.Y. 2005-06, following that order of the Hon'ble ITAT in their case, from the observations made by the AO in para 2.4 of that assessment order, pointing out inability on the part of the assessee to produce those persons who had given donation exceeding ₹ 3.00 lakhs during that year before him, it shows the assessee has not been able to establish its claim of non-receipt of capitation fee from students for admission during that year. Rather when the assessee has, not been able to produce any such person before AO, during that assessment proceedings and moreover has not been able to adduce any evidence in that regard, it appears, such donation received by the assessee is linked to the admission of the concerned students to that college run by the assessee society and the same is fully in nature of capitation fee collected by the assessee during that year. 4.2 Further, in the first assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... donations of more than ₹ 3.00 lakhs, before him, 'the assessee has not been able to produce those persons before him, evident from para 2.4 of that assessment order dated 31.03.2014 passed u/s. 143(3) r.w.s. 254 of the Act. It may be mentioned here that Sri P.V.Ramana Raju who had given donation of ₹ 4.00 lakhs is the father of the student P.Nikhila, who has taken admission into B.Tech course in the college run by the assessee, mentioned to by the AO earlier at Sl.No.6 at page 6 of the original assessment order dated 29-12-2008 passed for A.Y. 2006-07. Similarly, Smt. K. Ratnakumari who had given donation of ₹ 4.00 lakhs, is the mother of the student K.Anvesh who has taken admission in the college run by the assessee, as mentioned by the AO at SI.No. at page 3 of the original assessment order. Further, Smt. Vempati Sujatha who had given donation of ₹ 4.00 lakhs is the mother of the student Harish Chakravarthy, as referred by the AO at Sl.No.12, at page 7 of the original assessment order. Since, such donations have been received from those persons who are the parents or those students, who had taken admission in that college run by the assessee society, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tration u/s 12A of the Act granted earlier. 5. In view of the foregoing discussions, thus it is clear that the assessee society is not carrying out activities, in accordance with the charitable objects and hence, it needs withdrawal of registration granted u/s 12A of the Act to the assessee society earlier. Thus, it is a fit case for cancellation of the registration u/s 12AA(3) of the Act. Hence, the registration granted earlier to the assessee society u/s 12A of the Act, vide that order F.No. H.Qrs.II/12A 80G/95/90-91 dated 09-5-1991, is hereby cancelled, with effect from 01.04.2005. 6. Following cancellation of registration u/s 12A, it leads to withdrawal of the approval granted u/s 80G(5)(vi) of the Act to the assessee society. It may be mentioned here that registration u/s 12A of the Act is a prerequisite for approval u/s 80G(5)(vi) of the Act, which follows from the provisions contained in sub-rule (2) of Rule 11AA of the income Tax Rules, 1962. Since, registration u/s' 12A granted earlier to the assessee has been cancelled vide this order, consequently, the approval u/s 80G(5)(vi) of the Act granted earlier to the assessee vide order in F.No. DIT(E)/HYD/80G/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar); 7. Ld.CIT-DR however submitted, in support of the order, that the activities of the trust are not being carried out according to the objects. While accepting that the society was formed for running educational institute of charitable nature, it was submitted that assessee-society was involved in collecting capitation fee and making profits. He reiterated that the donations are collected from the parents or relations for admission in Management Quota and it is in clear violation of statutory directions on the subject. He relied on the following case law in support: i. Aditanar Educational Institutions Vs. Addl. CIT [224 ITR 310 (SC)]; ii. Aditanar Educational Institutions Vs. Asst. Director of IT (Exem) [297 ITR 376] (Mad.HC); iii. Addl.CIT, Gujarat Vs. Surat Art Silks Manufacturers Association [121 ITR 1 (SC)]; iv. American Hotel Lodging Association Educational Institution Vs. CBDT Ors [301 ITR 86 (SC)]; v. Visvesvaraya Technological University Vs. ACIT [2016 Tax Pub (DT) 1933 (SC)] [Civil Appeals Nos. 4361 to 4366/2016 dt. 22- 04-2016]; vi. Queens Educational Society Vs. CIT [372 ITR 699 (SC)]; vii. CIT Vs. National Institute o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n granted registration under clause (b) of sub-section (1) or has obtained registration at any time under section 12A [as it stood before its amendment by the Finance (No. 2) Act. 1996 (33 of 1996] and subsequently the Principal Commissioner or Commissioner is 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 institution, as the case may he. he shall pass an order in writing cancelling the registration of such trust or institution: Provided that no order under this sub-section shall be passed unless such trust or institution has been given a reasonable opportunity of being heard. 2. In the instant case, the Ld. DIT(E), Hyderabad has invoked the second limb of the conditions i.e. activities are not being carried out in accordance with the objects of the society. At this juncture it is submitted that one of the main objects of the assessee-society, apart from others, is lito establish, maintain, run, develop, improve and expend educational institutions including vocational training centres and similar other institutions(Pl. refer to Para No. 3(xi) of the Memorandum of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nexus with the admission of their wards under management quota. However, this contentious issue was adjudicated by Hon'ble Supreme Court in host of cases and held that any amount received over and above regular fee fixed by the statute / government authorities / committee in whatever name called i.e. building fund, donations, voluntary contribution, general donation, corpus donation etc. would partake the nature of capitation fee and such receipt of capitation fee for giving admissions in the colleges run by the societies / trusts is a clear violation of law. Relevant case laws are submitted below: i. T.M.A. Pai Foundation Vs. State of Karnataka (2002) 8 SCC 481 ii. P.A. Inamdar Vs. State of Maharashtra (2005) 6 SCC 537 iii. Mohini Jain Vs. State of Karnataka others (1992) 2 SCC 666 iv. Islamic Academy of Education Vs. State of Karnataka (2003) 6 SCC 677 8.1. Ld. DR elaborated the principles laid down in the following cases: i. Aditanar Educational Institutions Vs. Addl. CIT [224 ITR 310 (SC)]; ii. Visvesvaraya Technological University Vs. ACIT [2016] (Tax Pub(DT) 1933 (SC) Civil Appeals Nos. 4361 to 4366/2016 dt. 22-04-2016; iii. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r not. Even in a case of meager surplus or nil surplus cases also, the assessee is not eligible for registration u/s. 12AA and to claim the benefit of exemption u/s. 11 as it has failed to fulfill the basic requirement of conducting the activities lawfully. 11. Generation of Surplus, whether incidental to main activity or not:- If in case such additional amount or donation is collected without contravening any law in force governing the establishment and running of educational institutions, then it is to be seen whether such activity is resulting in generation of huge amount of surplus or not. If it is resulting in generation of surplus of 15% or more, then in accordance with the law laid down by the Hon'ble Supreme Court in the case of P.A. Inamdar (2005) 6 SCC 537, it is required to be verified the exact source of such surplus i.e. i. Whether it is resulting on account of regular fee collected without including the additional fee / voluntary donation. ii. Whether it is resulting on account of additional fee / voluntary donation collected from the students, which is allowed / permitted as per law, if any. iii. If the surplus is resulting on account of r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w.e.f. Academic Year 2001-02 to 2002-03 i.e. Assessment Year 2002-03 and 2003-04, Engineering Colleges are entitled to collect development fee to the extent of ₹ 3,000/- from free seat students, ₹ 8,000/- from payment seat students and $ 1,000 from NRI seat students. This amount was fixed over and above the regular fee. It is also stated in the said G.O in Para No. 6(e) that no college including the minority colleges should charge any development fee by whatever name in excess of what is permitted by the Government and any violation would entail withdrawal of permission to the defaulting institution. 15. Further, the Government of Andhra Pradesh issued one more G.O i.e. G.O.(MS) No. 33 dated 11.06.2003 [PI. refer to Para No. 9.3 of the order of DIT(E) ] (copy submitted during the course of hearing), consequent to the judgment of Hon'ble Supreme Court in the case of T.M.A. Poi Foundation Ors Vs. State of Karnataka Ors in Writ Petition(Civil) No. 317/1993 dated 31.10.2002 [(2002) 8 SCC 481(SC)], wherein the Engineering Colleges are prohibited from collecting any fee in the name of development fee, building fund, infrastructure donations etc., apart from tui ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated 11-06-2003 issued by Govt. of Andhra Pradesh in regard to collection of fee under management quota. Accordingly, it is prayed that the order of the Ld. DIT(E) passed u/s. 12AA(3) dated 30-09-2014 cancelling the registration granted earlier u/s. 12A may be sustained. 8.5. Reliance is placed on the following decision of various High Courts wherein rejection / cancellation of registration u/s. 12AA has been upheld: i. Travancore Educational Society Vs. CIT (2014) [369 ITR 534] (Page Nos. 130 to 131 of Dept. Paper Book) : Section 1(15) of the Income-tax Act, 1961 - Charitable purpose (Education) - Where assessee-trust collected capitation fees in addition to prescribed fees, object of assessee-trust could no more be said to be charitable in nature and, hence, registration granted to it was to be rejected (in favour of revenue). Held that capitation fees was collected by trust in addition to fee prescribed and said fact was admitted by treasurer of trust. In view of above, it was rightly held that object of trust was not charitable and registration granted to it u/s. 12AA was to be rejected . ii. CIT Vs. National Institute of Aeronautical Engineering (2009) [315 ITR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... SLP against judgment of Kerala High Court in case of Dawn Education Charitable Trust Vs CIT (2015) 370 ITR 724 (Ker): (2015) 63 ITCL 46 (Ker) wherein the High Court held that the authorities were justified in rejecting the application for grant of registration under section 12A, to an assesseetrust claiming that it was imparting education, based on the ground that it was running posh school for children of non-resident Indians on commercial lines under guise of charitable purpose. 9. In reply, Ld. Counsel for the assessee placed counter submissions as under: Rejoinder to written submissions filed on behalf of the Respondent. Paragraphs 2, 3 and 4: 1. It is the contention of the respondent Department that the DIT(E) has invoked second limb of the conditions for cancellation of registration granted to the assessee. Viz., that the activities of the assessee are not being carried out in accordance with the objects of the society. Paragraph 5: 2. It has been stated by the D.R on behalf of the respondent that as per the details gathered by the Department during the course of assessment proceedings, the assessee society has been collecting capitatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of P.A Inamdar (2205) 6 SCC 537 SC has not been discussed before the Hon'ble ITAT nor a copy of the order of the Supreme Court filed by either party. Paragraphs 12, 13, 14 and 15 and 16 4. The submissions made by the learned DR under the heading Application/utilisation of surplus for charitable purposes are not germane to the issue in appeal as there is no allegation that the assessee has not accounted for the donations received in its books of account or utilised the same for any purpose other than the objects of the assessee society. Paragraph 17: 5. The learned DR has pleaded that the D.I.T(Exem) has given a finding of fact that the assessee has violated the law laid down by the Apex Court and that the D.I.T(E) has also placed reliance on the decision in the case of Vodithela Educational Society vs ADIT 20 SOT 353 HYD. The assessee submits that the decisions rendered by the Apex Court are not directly relevant in the context of the assessee's case in as much as these decisions have been considered in the various decided cases on the issue of cancellation of registration u/s.12AA(3) relied on by the assessee. As regards the case of Vodi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,000/- for Asst.Year 2006-07. When the matter reached the Hon'ble ITAT, it has been held by the Hon'ble ITAT in its order dated 19- 10-2012 in the quantum appeals for Asst.Years 2005-06 and 2006-07 in ITA Nos.378/Hyd/2009 and 66/Hyd/2010 dated 19-10-2012 we are of the opinion that adequate enquiry should have been conducted by the lower authorities before coming to the conclusion that the assessee has charged capitation fee (please see paragraph 12 of the said ITAT's orderat pages 50 to 56 of paper book filed by assessee). Accordingly, the matter was remitted back to the file of the Assessing Officer for deciding the issue afresh and the appeals on the A.O's order are still pending before C.I.T(Appeals). 11. Much later to the order of the Hon'ble ITAT, the D.I.T(Exem) issued a show cause notice dated don 13-03-2014, taking support from the fact that the original assessments made by the A.O were confirmed by the C.I.T(Appeals). In this show cause he recorded that the assessee was not running its activities as per the charitable objects in the case of the society and thus it needs withdrawal of registration granted to the society earlier u/s.12A. The fac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... available at page 151 of the paper book filed by assessee) is reproduced herewith: It is also submitted that the assesseesociety was set up in the year 1991 by some prominent industrialists, professionals and service minded people in Hyderabad for providing good educational facilities with the best possible standards to students to enable them to stand on their own. The assessee has also set apart a substantial sum of ₹ 2 crores to provide scholarships to deserving merit students. For all these activities substantial donations were given by the members of the society and public. In this connection it may not be out of place to mention that assessee's institutions are having the best possible infrastructure facilities and dignitaries from universities, AICTE, UGC and other organisations have been praising the assessee society for the efforts put in by the society in developing and providing the best possible facilities in its institutions. A visit to the institutions will prove the service rendered by it in various fields in which the assessee is providing services. In this process various persons including parents of the students having satisfied with the facilities, inf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ations are voluntary and no capitation fee was collected. No further enquiry was conducted in spite of remitting matter for examination of the same. Even though the matter is pending adjudication before the Ld.CIT(A) in assessment proceedings, we are of the opinion that these four isolated instances which were relied on by AO does not conclusively establish that the society has violated the objects for which it was established and registration framed so as to invoke provisions of Section 12AA(3) to cancel registration. 11. Before adverting to the issue of cancellation, it would be better to analyse the concepts of charitable purpose, taxability of voluntary contributions, capitation fee, whether the donation can be considered as capitation fee and profits and profiteering the reasons given by the Ld. DIT(E) while cancelling the registration. These are analysed herein onwards. 11.1. First we will consider the meaning of Charitable purpose under the Income Tax Act. Section 2(15) of the Act defines charitable purpose as under: Charitable purpose includes relief of the poor, education, medical relief and the advancement of any other object of general public ut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t further held that it is not permissible to read the word profit in the expression not involving the carrying on of an activity for profit as private profit as the words general public utility themselves exclude objects of private gain. The relevant portion of the judgment is reproduced hereunder: It has been pointed out in the earlier part of the judgment that in the definition of charitable purpose as given in s. 2(15) of the Act the words not involving the carrying on of any activity for profit have been added at the end of the definition as it was given in s. 4(3) of the Indian IT Act, 1922. The position as it existed under the Act of 1922 was that once the purpose of the trust was relief of the poor, education, medical relief or the advancement of any other object of general public utility, the trust was considered to be for a charitable purpose. As a result of the addition of the word not involving the carrying on of any activity for profit at the end of the definition in s. 2(15) of the Act, even if the purpose of trust is advancement of any other object of general public utility , it would not be considered to be charitable purpose unless it is shown th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 13(1)(bb) was inserted in the Act by the taxation Laws (Amendment) Act, 1975, with effect from April 1, 1977. 11.5. The above judgment refers to the limitation placed by sec.13(1)(bb) of the Act inserted by the Taxation Laws (Amendment) Act, 1975. Let us now examine the scope of limitation placed by Clause (bb) to section 13(1) inserted with effect from April 1, 1977. It reads as under: (bb) in the case of a charitable trust or institution for the relief of the poor, education or medical relief, which carries on business, unless the business is carried on in the course of the actual carrying on of a primary purpose of the trust or institution. However, this provision has been omitted by the Finance Act, 1983 (w.e.f.1-4-1984) in view of the new provision made in Sub-section (4A) of section 11. The provisions of sub-section (4A) as inserted by the Finance Act, 1983 (w.e.f.1-4-1984) read as under: (4A). Sub-section (1), or sub-section (2) or sub-section (3) or subsection (3A) shall not apply in relation to any income, being profits and gains of business, unless (a) the business is carried on by a trust wholly for public religious purposes and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ance the purpose, or (b) where the trust deed expressly provides that the purpose shall be carried out by engaging in an activity which has predominant profit motive, in which case it would be noncharitable even if no activity for profit is actually carried on. (iv) Activity for Profit connotes that the predominant object of the activity must be the making of profit: it is not enough that as a matter of fact the activity results in profit. Bhagwati J said, Where an activity is not pervaded by profit motive but is carried on primarily for serving the charitable purpose, it would not be correct to describe it as an activity for profit merely because profit accrues. Pathak J observed, I am unable to accept the proposition that if the purpose is truly charitable, the attainment of the purpose must rigorously exclude any activity for profit (v) On the other hand, where profit making is the predominant object of the activity, the purpose, though it may aim at advancing an object of general public utility, would cease to be a charitable purpose under s.2(15). Thus, where the profit earned by a charitable institution is not pursuant its objectives but is incidental t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cordance with the provisions of the Act; v. the accounts are not audited; or vi. the funds are not invested or deposited according to statutory requirements. Thus, the portion of the trust-income entitled to exemption may vary from year to year and therefore the AO has to examine the issue year after year and section 11 can have no application unless the source of the income is some property, and the property is held under trust or other legal obligation wholly or in part for a religious or charitable purposes. 11.9. Clause (d) of sub-sec(1) of sec.11 provides that voluntary contributions made with a specific direction that they shall form part of the corpus of the trust or institution shall not be included in the total income of the previous year of the person in receipt of the income. On the other hand, section 2(24)(iia) defines income to include voluntary contributions received by a trust created wholly or partly for charitable or religious purposes by an institution established wholly or partly for such purposes[ ..]. Sub-sec.(1) of section 12 also provides that any voluntary contributions received by a trust created wholly for charitable or religious pur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Capitation fee means any kind of donation or contribution or payment other than the fee notified by the School . Thus, the term capitation fee includes all amounts of money by whatever name it is called or may be called by various names viz., donation/security deposit fee/maintenance fee/activity fee/development fee/entertainment fee etc. Ld DIT placed reliance upon the judgment of the Hon ble Apex court in the case of Miss Mohini Jain v. State of Karnataka [1992] 2 SCC 666 and also the decision of the ITAT in the case of Rajah Sir Annamalai Chettiar Foundation v. DIT(E) (2011) 48 SOT 502/15 Taxmann.com 313, in support of his decision that collection of capital fee for admission amounts to sale of education and hence is no longer a charitable activity, but is an activity run with a profit motive and is not being run wholly for charitable purposes as required u/s 12(1). 11.12. We find that the AO in the assessments has relied upon the judgment of the Hon'ble Supreme Court in the case of TMA Pai Foundation Others in Writ Petition (Civil) 317 of 1993 dated 31- 10-2002 wherein it has been held that charging of capitation fee is against public policy and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f regulation, however, only is permissible for the purpose of exercising control over profiteering and not earning of a profit which would include reasonable return of the investment made. I say so because in T.M.A. Pai foundation, this court itself held: 11.13. Revenue has placed reliance in the case of Mohini Jain s case (cited supra), whereas there has been a change in approach thereafter in subsequent judgments of the Hon ble Apex Court. In Mohini Jain s case, the Apex Court had held that any prescription of fee in excess of what was payable in Government colleges was a capitation fee and would therefore be illegal. Subsequently, in the case of Unnikrishnan Vs. State of Andhra Pradesh [(1993) 4 SCC 697] (supra), the Hon ble Court held that private unaided educational institutions running professional course were entitled to charge a fee higher than that charged by Government institutions for similar courses but that such a fee could not exceed the maximum limit fixed by the State. The court then formulated a scheme and directed every authority granting recognition/affiliation to impose that scheme upon institutions seeking recognition/affiliation, even if they were u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otified rules and regulations for admissions into under graduate professional courses through Common Entrance Test. The rules are applicable to all the Unaided Non-minority professional institutions imparting under-graduate professional courses in various streams stated therein. The EAMCET is the basis for admission of students into various unaided Non-minority professional institutions in the State of Andhra Pradesh (at the relevant point of time). Management Seats are defined as the seats earmarked from out of the sanctioned intake of seats in each course to be filled by the Management of the Unaided Non-minority professional institutions. Rule 4 of the above rules provides that the Management seats shall be filled either on the basis of rank obtained in EAMCET conducted by the State scoring not less than 50% marks in aggregate or in group subjects in the qualifying examination. Rule 5(c) provides that 15% of the total intake of seats of each course shall be earmarked as Management seats. Rule 6(b) provides that the Managements seats shall be filled by the Management of the concerned Professional College by ensuring merit and transparency. Rule 7(B) provides that the Management ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f funds. In the case before us, it is the stand of the assessee that these are voluntary contributions not connected to the admission of students. However, from the statements of the parents before the AO when enquired initially, the contributions are stated to be linked to the admission of students, even though they have filed affidavits subsequently denying the same. We also find that the institution has received the fund through D.Ds/ cheques and has issued receipts for the same and has also accounted for the same. Therefore, there is transparency in accounting the receipts. The Hon ble Apex Court has further held that the private unaided institutions are entitled to collect funds for the maintenance and improvement of the institution. However, the objective of the collection of funds must be the imparting of standard education to the public at large. In the case before us, there is no allegation that the funds collected by the assessee society are for any other purpose or that the profits have been distributed to any person or persons. Therefore the collection of the donations by the assessee institution cannot be regarded as capitation fee. 11.16. Now issue arises about pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ₹ 75,000/ per annum. There is no allegation that assessee has collected any fee in excess of such prescribed amount. In addition to the above fee notified, the assessee has also collected the donations not only from some parents/ relatives bit also from members of Society. Whether such collection of donation is prohibited by the Andhra Pradesh Educational Institutions (Regulation of Admission and Prohibition of Capitation Fee) Act, 1983 is to be examined. The reliance of the Revenue has been only on the rules framed vide G.O.Ms.33(supra) in which there is no mention of donations and contributions to the educational institutions. The rules have prescribed only the fee to be collected from the students and have prohibited the collection of the fee of any kind other than those mentioned in the rules. But Sec.6 of the Andhra Pradesh Educational Institutions (Regulation of Admission and Prohibition of Capitation Fee) Act, 1983 permits the receipt of voluntary donations. For the sake of easy reference the relevant provision is reproduced hereunder: Sec.6. (1) Any donation of money to any educational institution, shall be made only in such manner as may be prescribed and not oth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at no order under this sub-section shall be passed unless such trust or institution has been given a reasonable opportunity of being heard.] Thus, the provision envisages that the Principal CIT or CIT is 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 institution. Even though Ld.DIT(E) has used the above words in the order before cancelling the registration, there is no such finding that the activities are not genuine or are not being carried out in accordance with the objects. Assessee no doubt is running an educational institution and i.e., of charitable nature. Even though donations are collected, they are permitted by the Memorandum and as discussed above, permitted by the Statute also [Andhra Pradesh Educational Institutions (Regulation of Admission and Prohibition of Capitation Fee) Act, 1983]. There are no complaint or proceedings that assessee was collecting any fees more than what was prescribed. There is no allegation also that any of the trust funds are being mis-used/diverted for any purpose other than for the objects of the trust. In view of the above, we are of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sub-section is incorporated and now in operation. Naturally these powers are conferred with a view to ensure that if once a registration has been granted under section 12AA, a trust or institution may not take any such liberty of misuse of the registration or the provisions by going haywire rather furthering the objects of the trust or genuinely not pursuing the activities for which it was established. [Para 11.4] The most important feature of section 12AA is that this section has only laid down the procedure of registration and this section nowhere speaks that while considering the application of registration, the CIT shall also look into the procedure of earning of income and sources from where receipts are derived. The argument was, it also does not speak anywhere that while considering the registration the CIT shall also see the manner in which the receipts or the income is being spent by the trust. Various related provisions, the power of enquiry, in respect of sources of receipts and the utilization of income is entrusted in separate sections as already discussed ante. The language thus used in section 12AA only confines to enquire about the activities of the trust and its ge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the trust deed does reflect that all are philanthropic or benevolent in nature, precisely for the purpose of imparting education. Strange enough there is no finding recorded by the CIT contrary to this fact. Be that as it may, the real and the only substantial objection for refusal of registration was that the institution has collected donations thus adopted some wrong means of collection of fees. But whether at this preliminary stage he had the right to draw an adverse inference so as to refuse registration or alternatively confine himself to the enquiry about the objects and the activities of the trust as per the limits of the jurisdiction of section 12AA. Rather this is also not the case of the CIT that the institution is doing some other activity of earning profit other than the activity of running educational institutions. The established factual position is that the institution is not doing in any other activity except running educational institutions. In such circumstances, can one uphold the action of cancellation of registration? Answer is obvious no. [Para 11.7] As far as the objective of the appellant is concerned this is not the case of the revenue that the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... trust. The other adverse side of cancellation is that on refusal of registration the entire receipts shall be subject to assessment without granting benefit of section 11 and section 12 to assess income which do not form part of total income though the factual position could be that major part might have been devoted towards achieving the objects, i.e., imparting education, as in this case, but the AO shall be automatically forbidden to grant advantage of exemption consequent upon the cancellation as is mandatory in statute; relevant section already reproduced ante. The outcome of the deliberation made in detail hereinabove is that percurian opinion is to debar the CIT to enter into the area of investigation of source of income and also application of income, so that the amount of correct exempt income be not prejudged. [Para 11.12] The aspect of morality as touched by the CIT is appreciable. Every vigilant and law abiding citizen has to be fair in his conduct and should refrain from immoral activities. But existing blue laws are derived from the numerous extremely rigorous laws designed to regulate morals and conduct. These laws are enacted in such a fashion that if implemented co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f misutilization other than the prescribed activity then no action can be suggested under section 12AA(3). The Assessee's case falls under the third category. With the result, totality of the circumstances thus warrants, in the light of the foregoing discussion, not to endorse the view of the CIT; consequence there upon reverse those findings. The order of cancellation of registration is hereby revoked . [EMPHASIS SUPPLIED] No contrary decision was brought to our notice. 13.2. The issue in Voditala Educational Society Vs. Asst. Director (Exem), Hyd [20 SOT 353] (ITAT, Hyd order in ITA No. 1138/H/06 dt. 31-10-2007) and other cases of coordinate benches at Hyderabad was with reference to exemption u/s 11 and not cancellation of registration for which provisions are different. A reference to Special Bench was made on the reason that while deciding the above cases, coordinate benches have not considered the views expressed by the jurisdictional High Court in the case of Governing Body of Rangaraya Medical College vs. ITO reported in 117 ITR 284(AP) and also the decision of the Hon ble Andhra Pradesh High Court in the case of Chairman, Andhra Pradesh Welfare Fund vs. CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relied on by the CIT-DR is with reference to the violation of provisions of Section 11 13 or granting registration u/s.12A / 12AA. Thus, those decisions may not directly apply to the issue under consideration. 14. Further, Hon'ble Karnataka High Court in IT Appeal No. 805 of 2008 in the case of CIT Vs. Islamic Academy of Education [54 taxmann.com 255] (Karnataka) has held as under: Section 12A, read with section 80G, of the Income-tax Act, 1961 - Charitable or religious trust - Registration of (Cancellation of registration) - Whether, where assessee-trust was fulfilling its main object of imparting education by establishing educational institution and taking admission of students every year, only on basis that trustees were misappropriating funds of said trust, registration of trust could not be cancelled - Held, yes [Para 8] [In favour of assessee] Circulars and Notifications: Circular No. 5 of 2005, dated 15-7-2005 FACTS Registration of the assessee trust under section 12A and recognition under section 80G were withdrawn on ground that three of the trustees of the assessee were also the Directors/Chairman in YIMSRPL a private limited company. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1, but that is not a ground for cancellation of registration itself. That is precisely what the Tribunal has held. Therefore, the substantial question of law is answered in favour of the assessee and against the revenue . 15. The principles laid down by the Hon ble Karnataka High Court in the above said case will equally apply to the facts of the case. As stated earlier, there is no allegation that funds are being misused or diverted or assessee is not imparting education. The activities of the trust cannot be considered as not genuine. Further, the trust is spending the funds for fulfilling the objects of the trust for which it is formed. Therefore, twin conditions prescribed for cancellation of trust registration have not been fulfilled. It is open to the authorities to deny the benefit u/s.11 but this cannot be a ground for cancellation of registration. Respectfully following the principles laid down by the Hon ble Karnataka High Court in the aforesaid cases i.e., CIT Vs. Islamic Academy of Education [54 taxmann.com 255] (Karnataka) and Coordinate Bench decision in the case of Maharashtra Academy of Engineering Educational Research Vs. CIT [133 TTJ 706] [36 DTR 321], we ..... X X X X Extracts X X X X X X X X Extracts X X X X
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