2012 (8) TMI 1004 - AT - Income Tax

Society loses charitable status for engaging in commercial activities. Upheld decision under Income Tax Act.

M/s. Joginpally BR Educational Society, & M/s. JB Educational Society, Versus Commissioner of Income-tax (Central), Hyderabad

The tribunal upheld the Commissioner of Income Tax's decision to cancel the society's registration under section 12AA(3) of the Income Tax Act, 1961, due ... Registration granted u/s. 12AA cancelled - capitation fee was collected in cash - Held that:- The assessee cannot be considered as a trust engaged in charitable activities. The objects of the trust have been violated in a wholesome manner and the basis on which registration is granted no longer survives or holds good, would call immediate interference by the registration granting authority. In these circumstances, the registration authority cancels the registration. The argument placed before us by learned AR is superficial which cannot be considered. The CIT (Central), Hyderabad considering the entire facts of the case found that there is violation of the provisions of section 2(15) of the Act and the case cannot be called as a trust and it is carrying on the activities in a commercial manner for which registration u/s. 12A cannot be continued. In our opinion, the CIT (Central), Hyderabad has power to cancel the registration granted u/s. 12AA of the Act and considering the facts and circumstances of the case, we confirm the order of the CIT (Central), Hyderabad. - Decided against assessee. Issues Involved:1. Cancellation of registration under section 12AA(3) of the Income Tax Act.2. Collection of capitation fees and donations over the prescribed fees.3. Utilization of unaccounted funds.4. Adherence to the objects of the society.Issue-wise Detailed Analysis:1. Cancellation of Registration under Section 12AA(3):The primary issue was the cancellation of registration granted under section 12AA of the Income Tax Act, 1961. The Commissioner of Income Tax (CIT) cancelled the registration on the grounds that the society violated provisions of sections 11 and 13 of the Act. The CIT has the power to rescind the registration if the activities are not genuine or not carried out in accordance with the objects of the trust/institution. The tribunal upheld the CIT's decision, confirming that the registration authority has the power to cancel the registration when the objects of the trust or institution are not adhered to or are fraudulent.2. Collection of Capitation Fees and Donations Over the Prescribed Fees:Evidence was found during a search indicating that the society collected fees from students over and above the prescribed fees in the form of donations/capitation fees. The Assessing Officer reported that for the assessment years 2006-07 to 2010-11, the excess fees collected amounted to Rs. 27,79,87,000. This excess fee was not accounted for in the regular books of account and was used for the benefit of interested persons of the society. The tribunal noted that the seized material (Annexure-JB/AA/1 to JB/AA/5) provided evidence of such collections.3. Utilization of Unaccounted Funds:The tribunal observed that the unaccounted funds were not utilized for the purpose of education but instead for the benefit of the trustees and their family members. During the search, unexplained cash and jewelry were found and seized from the premises of the society and residential premises of some members. The society failed to provide a satisfactory explanation for these findings. The tribunal emphasized that the presumption under section 132(4A) of the Income Tax Act, 1961, is that the documents found from the premises of the society are true and belong to the society.4. Adherence to the Objects of the Society:The tribunal noted that the society's activities were contrary to its declared objects of providing education. The evidence showed that the society was engaged in commercial activities by collecting capitation fees, which violated the objects clause. The tribunal referred to the case of Sarvodaya Hakkiya Pannai, where it was held that the registration under section 12AA could only be revoked if the activities were not genuine or not in line with the objects of the trust. In this case, the tribunal found that the society's activities were not genuine and were not conducted in accordance with its objects.Conclusion:The tribunal upheld the CIT's decision to cancel the registration under section 12AA(3) of the Income Tax Act, 1961, due to the society's violation of its objects and engagement in commercial activities. The appeals of the assessees were dismissed, confirming that the society could not be considered a trust engaged in charitable activities. The tribunal emphasized that the registration authority must act when the objects of the trust are violated, and the basis for granting registration no longer holds good.