2015 (5) TMI 680 - AT - Income Tax

Tribunal restores registration, rejects retrospective withdrawal. Trust activities aligned with charity, misuse to be addressed separately.

SRI BALAJI EDUCATIONAL AND CHARITABLE PUBL IC TRUST Versus COMMISSIONER OF INCOME TAX, CENTRAL III, CHENNAI.

The Tribunal held that the withdrawal of registration under Section 12A(a) with retrospective effect by the CIT was not justified. It emphasized that the ... Registration granted to the assessee U/s.12A (a) withdrawn with retrospective effect - Held that:- the activities conducted by the assessee Trust are only promoting education within the ambit of Section 2(15) of the Act. The Trust was not engaged in any other activity other that promoting Education. The allegations of the Revenue that the Trust was collecting capitation fees, Donations, siphoning of undisclosed income of the Trust for the benefit of the Trustees can at the most be taxed in the hands of the Trust or the Trustees as the case may be and may even trigger penal action against the Trustees in accordance with Law. Moreover no conclusive findings by cogent evidence are established by the Revenue to prove that the Trustees have siphoned out undisclosed income of the Trust. It is also not established before us by the Revenue that the trustees who have received funds by siphoning the undisclosed income of the trust are brought to tax. Based on these facts and case of DIT Vs. Garden City Educational Trust, [2009 (7) TMI 832 - Karnataka High Court] wherein it was held that “where there is no dispute in respect of the objects of the trust, that of imparting education and also when there is no dispute regarding the fact that the trust has actually imparted education and not carrying any other activities, the trust is qualified for getting registration U/s. 12A as a charitable institution and the question regarding the application of funds and allowability of benefit of exemption U/s. 11 & 12 are matters which are to be examined by the assessing authority at the time of assessment and not by the registering authority”. Thus we are of the considered view that the Ld. CIT is not justified in withdrawing the registration granted U/s.12A(a) of the Act by invoking the provisions of section 12AA(3) of the Act. Such Act of the Revenue will only affect the poor students who are studying in the institution by paying nominal and normal fees and also other students thereby defeating the very purpose of these provisions of the Act, which are enacted with the intention of promoting education in the country. Therefore, we hereby quash the order of the Ld. CIT withdrawing the registration granted U/s.12A(a) - Decided in favour of assesse. Issues Involved:1. Withdrawal of registration under Section 12A(a) with retrospective effect.2. Allegations of collecting capitation fees and not accounting income correctly.3. Applicability of Section 12AA(3) for cancellation of registration.4. Anonymous donations and their implications.5. Diversion of funds by trustees for personal benefits.Detailed Analysis:1. Withdrawal of Registration under Section 12A(a) with Retrospective Effect:The assessee, a charitable public trust running educational institutions, had its registration under Section 12A(a) withdrawn by the CIT with retrospective effect from 01.04.2006. The CIT's order dated 09.06.2014 was challenged by the assessee, who argued that once granted, the registration could not be canceled retrospectively.2. Allegations of Collecting Capitation Fees and Not Accounting Income Correctly:During a search and seizure operation on 20.11.2009, it was revealed that the trust was collecting substantial capitation fees from students and not accounting for the income correctly in its books. The CIT alleged that the trust violated the prohibition of capitation fees and did not reflect the entire cash received in its returns for assessment years 2009-10 and 2010-11.3. Applicability of Section 12AA(3) for Cancellation of Registration:The CIT invoked Section 12AA(3) to cancel the registration, citing that the trust's activities were not genuine and not in accordance with its objects. The assessee countered that the cancellation under Section 12AA(3) was only possible if the twin conditions were met: (a) the activities of the trust are not genuine, and (b) the activities are not being carried out in accordance with the objects of the trust. The assessee argued that neither condition was satisfied in their case.4. Anonymous Donations and Their Implications:The CIT alleged that the trust received anonymous donations amounting to Rs. 3.86 crores. The assessee contended that the list of anonymous donations was provided to the Assessing Officer, and receipts were issued to contributors. They argued that the term 'anonymous donation' was ambiguous and that the donations were not anonymous as the identity of donors was available, albeit incomplete in some cases.5. Diversion of Funds by Trustees for Personal Benefits:The CIT observed that trustees diverted a significant portion of the capitation fees for personal benefits. The assessee denied these allegations, stating that there was no evidence to support such claims. They argued that any misuse of funds by trustees should result in criminal action against the trustees, not the trust itself.Judgment:The Tribunal analyzed the facts and legal precedents, emphasizing that the trust's primary activity was promoting education, which is considered a charitable activity under Section 2(15) of the Act. The Tribunal noted that the Revenue's allegations were based on unproven claims and that there was no conclusive evidence of the trustees siphoning funds for personal use. The Tribunal also pointed out that the trust continued to receive approvals from relevant government authorities to run educational institutions, indicating compliance with its objects.The Tribunal held that the CIT was not justified in withdrawing the registration under Section 12A(a) by invoking Section 12AA(3). It emphasized that the allegations of collecting capitation fees and receiving anonymous donations could be addressed through taxation and penal provisions, not by canceling the registration. The Tribunal quashed the CIT's order and restored the registration, allowing the appeal of the assessee.Conclusion:The appeal was allowed, and the order of the CIT withdrawing the registration was quashed. The Tribunal underscored that the trust's activities were genuine and aligned with its objects, and any misuse of funds by trustees should be dealt with separately without penalizing the trust itself.