TMI Blog2019 (6) TMI 781X X X X Extracts X X X X X X X X Extracts X X X X ..... 13 - The situation sought to be covered by section 12AA(4) revolves around the manner in which activities are carried out, including a case where the income or property of the trust is applied for specific persons like author of trust, trustees, etc; or investment of funds in prohibited modes, etc. The aforesaid are areas, which are contained in section 13 which disentitles an assessee from the exemptions contained in section 11 and 12. Violation of section 13 is also sought to be covered by the Legislature by insertion of sub-section (4) to section 12AA as a ground for cancellation of registration. So however, the said provision is effective from 01.10.2014. Pertinently, we are dealing with the impugned order of the CIT dated 28th March 2014 and, therefore, the provisions of section 12AA(4) inserted w.e.f. 01.10.2014 would have no application. In fact, the insertion of section 12AA(4) of the Act on a subsequent date reinforces the legal position noted by us in earlier paras that in the impugned case what the Commissioner was required to satisfy the then existing conditions contained in section 12AA(3) in order to cancel the registration. Thus, the impugned reasons advanced by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt Trust which were not found to be not genuine. 4. in holding that there was a diversion of income of the Trust for purposes other than the objects of the Trust and in holding the same tantamount to a violation of Section 11 and Section 13 of the Act. 5. In not appreciating that a violation of Section 13, if at all, was not a valid ground for cancellation of registration u/s 12AA(3) of the Act. 6. In not adequately appreciating the findings of the Hon'ble ITAT in the appellant's case for A Y 2001-02 and 2002-03 on advances given which were not held to be violative of Section 13 of the Act and the subsequent orders of the Hon'ble High Court upholding the said order of the Hon'ble ITAT. 7. In holding various advances given as investments made in violation of the provisions of Section 11(5) of the Act. 8. In holding that the payments to M/s Empire Chemists were covered by the provisions of Section 13(2)(c) and hence would lead to cancellation of registration u/s 12AA. 9. In holding that credit card payments were for personal expenses and were covered by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r any kind of basic or fundamental and/ or applied research and scientific work in connection with or relating to medical surgical and sociomedical research problems and to do all things necessary or incidental or conducive to the attainment of the same and to provide funds for research and for scholarships, stipends and/or other payment or aid to any person or persons engaged in research work. (g) establish and maintain and to assist and encourage or promote as and when deemed proper and expedient for the purpose of medical relief in the form of Hospitals or in connection there with or attached thereto all or any of the following Institutions namely: (1) Institutions for promoting medical research work; (2) Medical College, Nursery and Midwifery Institutions for imparting medical education and training ; (3) Convalescent Home; (4) Creche and Children' s Hospital. (2) To incur any expenditure on any programme of rural development as provided for under Section 35-CC of the Income Tax Act or any other law relating to rural development for the time being in force and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... most 700 Staff and 200 technicians as well as managerial and other staff, which numbers around 500. It is also pointed out that considering the number of beds and operation theatres, including ICT, etc., the total patients being treated counts to 17500 approximately. It is also being pointed out that the hospital has a number of specialized departments, including Cardiac, pathology, Radiology, Dental, ENT, Nuclear Medicine Department etc. It is also pointed out that the total amount spent on medical expenditure for F.Y. 2012-13 was approximately ₹ 283 crores. We are only highlighting the aforesaid features, with a view to appreciate the preliminary point of the appellant that having regard to the Trust Deed, the assessee had been carrying out activities intended for attainment of its dominant singular object, viz., running of hospital and research centre. 5. In the instant case, the registration u/s. 12A of the Act was granted by the Commissioner on 22.01.1979, and since then the assessee was claiming the benefit of exemption prescribed under sections 12 and 13 of the Act. The Commissioner has since invoked his power contained in section 12AA(3) of the Act an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asizes that the field authorities are required to initiate the process of cancellation of registration strictly in accordance with the mandate of section 12AA(3) of the Act. Thus, so far as the legal proposition with regard to the scope and ambit of section 12AA(3) is concerned, it would suffice to infer that the power of cancellation can be invoked by the Commissioner only after being satisfied that the activities of the Trust or Institution are not genuine or that the same are not being carried out in accordance with the objects of the Trust or Institution, as the case may be. 7. We may also refer to section 12AA(4) of the Act, which has been inserted by the Finance Act, 2014 w.e.f. 01.10.2014, which reads as under: (4) Without prejudice to the provisions of sub-section (3), where a trust or an institution has been 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 it is noticed that the activities of the trust or the institution are being carried out in a manner that the provisions o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re severely restricted. There have been cases where trusts, particularly in the year in which they have substantial income claimed to be exempt under other provisions of the Act deliberately violate provisions of section 13 by investing in prohibited mode etc. Similarly, there have been cases where the income is not properly applied for charitable purposes or has been diverted for benefit of Certain Interested persons. Due to restrictive interpretation of the powers or the commissioner under section 12AA, registration of such trusts or institutions continues to be in force and these institutions continue to enjoy the beneficial regime of exemption. Whereas under section 10(23C), which also allows similar benefits of exemption to a fund, Institution, University, etc., the power of withdrawal of approval is vested with the prescribed authority if such authority is satisfied that such entity has not applied income or made investment in accordance with provisions of section 10(23C) or the activities of such entity are not genuine or are not being carried out in accordance with all or any of the conditions subject to which it was approved. Therefore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns advanced are based on the premise that the assessee has violated the provisions of section 13 of the Act or section 11(5) of the Act thereby rendering it ineligible for the claim of exemptions under sections 11 and 12 of the Act. On this basis, it is sought to be canvassed that the case of the assessee does not fall within the prescription of section 12AA(3) of the Act, which enables the Commissioner to cancel the registration only when the two conditions prescribed therein are satisfied. 9. We have carefully perused the impugned order of the Commissioner and have also heard the learned CIT-DR, who has sought to defend the impugned order. As per the CIT-DR, the Commissioner has noted in the opening para itself that the proceedings of cancellation are as a consequence of a Search and Seizure action carried out in the case of the assessee on 11.04.2011. It is pointed out that the manner of investment of Trust funds was in violation of the objects of the Trust, which lead to the same being treated as violation of section 13 of the Act. The entire discussion by the Commissioner in paras 4 to 8 brings out various types of violations on the part of the assessee but al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the assessing authority. The grant of registration under section 12A of the Act by Commissioner is only a starting point on the basis of which an assessee stakes his claim for exemptions under sections 11 and 12 of the Act, subject to fulfilments of conditions prescribed therein. Therefore, if in a given situation, section 13 of the Act is triggered the result would be that sections 11 and 12 of the Act would not operate so as to allow exemption to the assessee contained in section 11 and 12 of the Act. Now, we may go back to section 12AA(3) of the Act, which prescribes only two conditions under which the Commissioner is empowered to cancel the registration earlier granted u/s. 12A of the Act. In our view, the points brought out by the Commissioner in the impugned order are not in the context of the conditions prescribed u/s. 12AA(3) of the Act, but are relevant for the purposes of making an assessment of income. 11. In the present case, the case sought to be made out by the Commissioner is that the violation carried out by the assessee would lead to denial of exemption u/s. 11 13 of the Act and, therefore, the pre-requisite of section 12AA(3) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has resulted in violation of section 13 of the Act can be construed as activities carried out by the Trust, which are not in accordance with the objects of the Trust. In our considered opinion the argument set up by the CIT-DR is quite misconceived in as much as the activities that are required to be considered for the present purpose are the activities which are being carried out towards objects of the Trust. In the present case, as we have seen initially, the objects of the Trust are formation of hospital and Institutions for medical relief, etc. In fact, there is no finding by the Commissioner much less any material on record, which would show that the activities of the Trust are dehors its stated objects. The transactions, which are being understood by the CIT-DR as activities, cannot be considered to be the activities that are contemplated for the purposes of section 12AA(3) of the Act. At this stage, we may observe that the insertion of section 12AA(4) of the Act by the Finance Act, 2014 w.e.f. 01.10.2014 also cannot be lost sight of as our subsequent discussion would show. As noted earlier, sub-section (4) of section 12AA has expanded the situation for cancellation of regis ..... X X X X Extracts X X X X X X X X Extracts X X X X
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