TMI Blog2021 (11) TMI 881X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 12A. As further observed that notwithstanding the fact that the assessee is conferred registration under the provisions of 12A of the Act, unless the assessee falls within the provisions of Section 2 (15) of the Act, excluding the first proviso, it will not be entitled to the benefit of exemption of tax. If the case of the assessee falls in the first proviso, the benefit of registration which flows from Section 12A of the Act is not available. But on that ground, registration cannot be cancelled and accordingly, dismissed the appeal filed by the Revenue. Tribunal has made a threadbare examination of the amendment with the original Objects of the Act and has given a finding that it is in furtherance of the Objects and not contrary to the Objects. The exemption under Section 11 of the Act is denied in the present case mainly alleging breach of Section 13(1)(c) of the Act. The payment in the name of professional services fees/administrative services fees made to Sri. Suresh Nagpal and Smt. Geetha Nagpal, the Tribunal having analyzed the matter in depth has given a finding that the said fees is not disproportionate to the services rendered by the said trustees - payment m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - I.T.A.No.47/2013 - - - Dated:- 22-10-2021 - HON BLE MRS.JUSTICE S. SUJATHA AND HON BLE MR. JUSTICE RAVI V. HOSMANI Appellants (By Sri K.V. Aravind, Adv.) Respondent (By Sri V. Chandrashekar, Adv. A/W JUDGMENT S. SUJATHA, J., This appeal is filed by the Revenue assailing the order dated 14.09.2012 passed by the Income Tax Appellate Tribunal Bengaluru Bench B , Bengaluru ( Tribunal for short) in ITA. No.86(BNG)/2012 whereby the appeal filed by the assessee challenging the order passed by the Director of Income Tax (Exemption), Bengaluru ( DIT (E) for short) has been allowed. 2. This appeal was admitted by this Court to consider the following substantial questions of law: 1. Whether on the facts and in circumstances of the case the Tribunal was correct in quashing the order u/s 12AA(3) of the Income Tax Act, 1961 without taking into consideration the reasons assigned for cancellation and recorded a perverse finding? 2. Whether on the facts and in circumstances of the case, the Tribunal in holding that amendment of the trust deed without the consent of the department would not be sufficient ground to exercise the power u/s 12AA(3) o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncel the registration granted under Section 12A of the Act. The gist of the show-cause notice is as under: (i) the assessee was paying commissions to persons to solicit students to the assessee institution-M/s Krupanidhi Educational Trust to pursue studies; (ii) the assessee was generating surplus funds thereby purchasing properties to establish an international school; (iii) the assessee had purchased a BMW car (iv) the Assessee was availing loans in cash from Sindhi financiers and was repaying in cash; (v) the assessee was not maintaining accounts on a regular basis; the assessee was migrating from a particular software to another software; (vi) the assessee violated 13 (1) (c) of the Act; and (vii) the original trust deed dated 10.01.1985 was amended by a deed dated 07.03.2005 without the approval of the Department. 4. The assessee filed a reply to the said show-cause notice denying the allegations made against it. The DIT (E), rejecting the reply, confirmed the proposal made in the show-cause notice and thereby cancelled the registration granted to the assessee invoking Section12AA of the Act. 5. Aggrieved by the said order, the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er Section 12A of the Act. What was alleged to have been amended has been considered by the Tribunal comparing the original Trust Deed and the amended Trust Deed. By substituting sub-clause (a) of clause (3) of the original Deed, imparting technical and medical education was included amongst the masses in all the fields, subjects, culture and irrespective of religion, caste or creed. Sub-clause (b) of clause (3) was substituted, thereby scholarships to the poor, needy and meritorious have been awarded. Sub-clause (e) of clause (3) was amended to make benefits of the Trust open to all irrespective of caste, creed and religion. The amendments are in furtherance of the Objects of the charitable institution. 10. As regards substantial question of law No.3, it was fairly submitted that the Commissioner has the power to review its earlier registration granted under Section 12A of the Act, however, the same renders academic in the present case. 11. As regards substantial question of law No.(4), it was submitted that the assessee is running several institutions like Krupanidhi Residential PU College, Krupanidhi Pre-University College, Krupanidhi College of Nursing, Krupanidhi College ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y of Sections 11 and 12. The said Section contemplates that the conditions for non-applicability of Sections 11 and 12 in relation to the income of any trust or institution unless the conditions stipulated therein are fulfilled. 19. Section 12AA of the Act deals with the procedure for registration. It reads thus: 12AA. Procedure for registration.- (1) The Principal Commissioner or Commissioner, on receipt of an application for registration of a trust or institution made under clause (a) 4 or clause (aa) 5 or clause (ab) of sub-section (1) of section 12A, shall- (a) call for such documents or information from the trust or institution as he thinks necessary in order to satisfy himself about the genuineness of activities of the trust or institution and may also make such inquiries as he may deem necessary in this behalf; and (b) after satisfying himself about the objects of the trust or institution and the genuineness of its activities, he- (i) shall pass an order in writing registering the trust or institution; (ii) shall, if he is not so satisfied, pass an order in writing refusing to register the trust or institution, and a copy of such order shal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion are not genuine, and ii) the activities of the trust or institution are not being carried out in accordance with the object of the trust or institution. Only on these two conditions/grounds found to be satisfied, the registration granted could be cancelled by the authorities under Section 12A. 22. It has been further observed that notwithstanding the fact that the assessee is conferred registration under the provisions of 12A of the Act, unless the assessee falls within the provisions of Section 2 (15) of the Act, excluding the first proviso, it will not be entitled to the benefit of exemption of tax. If the case of the assessee falls in the first proviso, the benefit of registration which flows from Section 12A of the Act is not available. But on that ground, registration cannot be cancelled and accordingly, dismissed the appeal filed by the Revenue. 23. In the case of Allahabad Agricultural Institute (supra), the income tax officer has held that a comparison has shown that the original objects have been totally altered without giving intimation about the change of the alteration in its Objects to the Department, and the said alteration which would remove the very found ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vestment or deposit which has been made in violation of Section 11(5) of the Act that is liable to be taxed and that the violation under Section 13(1)(d) does not tantamount to denial of exemption under Section 11 on the total income of the assessee. Reference has been made to the judgment of the Hon ble Bombay High Court in the case of DIT (Exemptions) vs. Sheth Mafatlal Gangalbhai Foundation Trust reported in (2001) 249 ITR 533 (Bombay), wherein the question whether violation of Section 11(5) read with Section 13(1)(d) by the assessee-trust attracts the maximum marginal rate of tax and the entire income of the trust? was considered and held that in case of contravention of Section 13(1)(d), the maximum marginal rate of tax under Section 164(2), proviso is applicable only to that part of income of the trust which has forfeited exemption and not the entire income. The Hon ble Delhi High Court in the case of DIT (Exemption) vs. Agrim Charan Foundation reported in (2002) 253 ITR 593 (Delhi) has held that the legislature has clearly contemplated that in a case, where the whole or part of the relevant income is not exempted under Section 11 by virtue of violation of Section 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... petent authority and affirmed by the High Court was held to be justifiable as no perversity was found calling for interference. However, it has been observed that if the assessee wants to rectify the position, as emerging from the discussions made therein, that would not preclude the assessee from claiming exemption for relevant subsequent years. We are of the view that this judgment would be of no assistance to the Revenue in the present set of facts. 31. As regards the amendment of trust deed, the Tribunal has returned the finding that the objects of the assessee - trust even after amendment of the trust being continued to be charitable; the amendment is a mere power conferred on the trust or other institution. There is no finding recorded by the authorities that the amendment to the object clause has resulted in the trust or institution becoming non-charitable in character. Thereby no reason is forthcoming to establish the removal of foundation of charitable in nature on which the registration was granted was removed. We have no reasons to interfere with the finding recorded by the Tribunal since the Revenue itself was satisfied that the objects of the assessee - trust was im ..... X X X X Extracts X X X X X X X X Extracts X X X X
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