2014 (8) TMI 1257 - AT - Income Tax

Trust loses registration appeal after operating medical college commercially despite charitable status claims under section 12AA

M/s Sree Anjaneya Medical Trust Versus CIT, North Block, Kozhikode

ITAT Cochin dismissed the appeal challenging rejection of registration under section 12AA. The trust established a medical college and hospital but ... Rejection of registration u/s 12AA - assessee has mobilized all the resources under its control for construction of the massive building for the medical college and hospital - According to assessee since the trust was established for the purpose of education and the medical college was in fact started after getting approval from the MCI, the assessee is entitled for registration u/s 12AA - HELD THAT:- This Tribunal is of the considered opinion that the activities of the trust was not carried out in accordance with the object of the trust. The assessee trust administer and manage the so-called medical college in a commercial manner with profit motive. The assessee trust gone to the extent of entering into agreement for offering employment and admission for medical education and collects money. It is to be remembered that admission in any educational institution including medical college has to be made only on merit basis. Therefore, entering into agreement for admission in medical college after collecting money is not only inhuman but also against the scheme of the Constitution as held by the Apex Court in Mohini Jain’s case [1992 (7) TMI 330 - SUPREME COURT]. This Tribunal is of the considered opinion that there is no genuineness in the activity of the assessee trust and it exist only for profit motive to administer and manage the medical college in a commercial manner, therefore, it is not entitled for registration as a charitable institution u/s 12AA. This view of the Tribunal is fortified by the decision of this bench of the Tribunal in Travancore Educational Society [2015 (6) TMI 547 - ITAT COCHIN] Appeal of the assessee stands dismissed. The appeal before the Appellate Tribunal concerned the rejection of the application for registration under section 12AA of the Act by the Administrative Commissioner. The core legal question was whether the assessee trust was entitled to registration as a charitable institution under the Act.The main issue revolved around the activities of the trust, specifically the collection of funds from prospective employees and students before obtaining recognition from the Medical Council of India (MCI) and the government. The ld. senior counsel for the appellant argued that the trust was established for educational purposes, and the funds collected were necessary for constructing a medical college and hospital. On the other hand, the ld. DR for the respondent contended that the trust operated with a profit motive, collecting money in a commercial manner without maintaining proper records.The Tribunal considered the trust deed, which showed that the trust was established with a nominal amount and subsequently acquired loans to construct a building. It was revealed that the trust collected significant sums from individuals for employment and admission promises, even before obtaining necessary approvals. The managing director admitted to collecting Rs. 4 crores from prospective employees and entering agreements for admission under NRI quota, with a refund clause if permissions were not obtained.The Tribunal found that the trust's activities did not align with the charitable purpose intended for registration under section 12AA. It noted the lack of proper accounting, the commercial nature of fund collection, and agreements for admission based on payments rather than merit. Citing relevant legal precedents, including Supreme Court decisions, the Tribunal emphasized the incompatibility of collecting funds for admissions with charitable objectives.Ultimately, the Tribunal concluded that the trust operated with a profit motive and did not qualify for registration as a charitable institution under section 12AA. The decision was supported by a previous ruling of the Tribunal in a similar case. Consequently, the appeal was dismissed, affirming the lower authority's order.In summary, the Tribunal's analysis focused on the trust's activities, fund collection practices, lack of proper accounting, and the commercial nature of agreements for admissions. The decision underscored the importance of aligning trust activities with charitable objectives to qualify for registration under section 12AA.