TaxTMI 
TaxTMI 
2014 (8) TMI 834
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....mtaj Alimiya Parkar, who were engaged in medical profession in their personal capacity, prior to creation of the trust. Latter on they created the assessee trust vide trust deed dated 28-03-2002, appointing themselves as the only trustees, in the capacity of Managing Trustees, and Secretary & Treasurer, respectively. Subsequently, vide resolution dated 10-09-2007, three new trustees were appointed. 2.1 The trust was granted registration u/s. 12A of the I.T. Act, 1961 by the CIT, Kolhapur, vide Certificate No. KOP/HQ.III/217-P- 123/62/247/2002-03, on 03-12-2002 as a Charitable Trust. Subsequently, the Ld. CIT verified the records available and noted that the assessee trust was engaged in carrying on Medical Profession, i.e. Multi-speciality Hospital, on commercial basis wherein fixed amount of fees was charged, on the basis of treatment given and facilities provided, from all the patients. She noted that the discount given to the patients were claimed as charity, and the surplus was actually diverted towards the trustees under the guise of Salary, Rent, Professional Fees, Utilization Fees, etc. and was subsequently utilized for personal benefits, including education of Son and Da....
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....neration to Daughter-in-law of the Trustee Rs.120000/-_ Total Rs.5431131/- 4.1 From the above details she noted that the assessee has siphoned out almost 26% of the total receipts under one pretext or the other. It is for purely personal benefits of the trustees which show that the trustees of the assessee trust are running a commercial medical establishment, with a profit making intention, under the guise of the Charitable Trust. She further noted that the trust has also agreed to pay fees to the extent of Rs. 13.50 Lakhs for the post-graduation studies of the son of the trustees, who is also working with the trust as a residential doctor. Similar amount is agreed to be paid in the case of Daughter-in-law of the trustees for pursuing the post-graduation, who is also working with the trust. Further the assessee trust has given advance of Rs. 6,48,216/- to M/s. Image Diagnostics, a firm where the chief trustee is also a partner, and is conducting its business from the same premises. According to her there is a clear contravention of provisions of Sec. 11(5) of the I.T. Act, 1961. She further noted that the assessee trust is charging fixed amount of fees, depending on the....
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....2AA of the I.T. Act, 1961. 5. Aggrieved with such order of the CIT(A) the assessee is in appeal before us with the following grounds : "1. In the facts and circumstances of the case and in law, the impugned order passed by the learned C.I.T. being arbitrary, perverse, malicious and patently illegal, bad in law and legally unsustainable the same may please be vacated and the registration granted u/s 12 A of the I.T. Act 1961 to the appellant trust vide order dt.03/12/2002 may please be restored. 2. In the facts and circumstances of the case and in law, since the impugned order passed by the learned C.I.T. is based purely on the observations of the learned Assessing Officer during the scrutiny assessment proceedings for A.Y.2004-05, A.Y.2005-06 and A.Y.2008-09 [which assessments are challenged before learned C.I.T.[A] Kolhapur] and being an outcome of non application of mind on the part of the learned C.I.T. the same is bad in law and being without jurisdiction the same may please be vacated. 3. In the facts and circumstances of the case and in law, the conclusions drawn by the learned C.I.T. that the appellant trust has violated the provisions of Section 13[l][c] & 11 [5....
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....or making profits and the application of the trust funds is to be made strictly for attaining the aims and objects of the trust. Referring to the copy of the Trust deed he submitted that the Profits, if any, of the Trust cannot be distributed directly or indirectly, by way of dividend or otherwise amongst certain group of individuals, settlers of the trust or donors. He submitted that merely because surplus is generated it cannot be said that the trust is carrying out the commercial activities. Referring to various decisions he submitted that where the purpose of a trust or institution is relief of the poor, education or medical relief, the requirement of the definition of Charitable purpose as given in Section 2(15) of the I.T. Act 1961 would be fully satisfied, even if an activity for profit is carried on in the course of the actual carrying out of the primary purpose of the Trust. Where the predominant object of the activity is to carry out the charitable purpose and not to earn profit, it would not lose its character of a charitable purpose merely because some profit arises from the activity. For the above proposition, he relied on the following decisions: i. Additional CIT ....
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....r of operational beds at concessional rate to the weaker section patients as per the provisions of the Section 41AA of the B.P.T. Act 1950. He submitted that the assessee trust is under an obligation to submit periodical statements to the Charity Commissioner about the amounts spent on charity as per the aforesaid scheme framed by the Hon'ble Bombay high Court. He submitted that the amount spent on charity and objects of the Trust is duly reflected in the final accounts of the trust, the copies of which are already filed on records. Therefore, when the assessee trust is complying with the statutory obligations, it is incorrect and false to suggest that the appellant trust is not spending any amount on charity and giving only discounts and concessions in few bills which is not a charity. 6.4 As regards the allegation that there is contravention of provisions of Section 13(1)(c) of the I.T. Act 1961 which warrants cancellation of registration granted to the trust u/s 12 AA of the I.T. Act 1961, he submitted that there are no alleged violations of Section 13(1)(c) of the I.T. Act 1961. Without prejudice to above and by way of an alternate submission, he submitted that under the pro....
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....uring all these years the Charity Commissioner has never raised any objection that the trustees have taken undue monetary advantage of their position. The decision of Hon. Bombay High Court in the case reported in 327 ITR Page 185 supports the contention that the decision of the Charity Commissioner on the financial affairs of the trust is binding on the tax authorities and has evidentiary value. He accordingly submitted that the order of Ld.CIT cancelling the registration granted earlier u/s.12AA be set-aside. 7. The Ld. Departmental Representative strongly supported the order of the CIT(A). He submitted that the assessee, in the instant case, was running the hospital on a commercial basis. It is charging fixed amount of fee depending on the treatment of patients. The assessee has failed to substantiate with evidence that the dominant part of the running of the hospital is charity. On the contrary the trustees who control the trust along with family members are charging for everything provided by them. The trust has even sponsored the PG Medical study of the son and daughter-in-law of the trustees. Relying on various decisions he submitted that the CIT was justified in cancelli....
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....ntly the AO finds during the assessment proceedings that the income of the charitable trust is applied directly or indirectly for the benefit of the persons referred to in section 13(3), then he has ample power to deny exemption to that extent u/s.13(1)(c) of the I.T. Act. This view of ours finds support from the decision of Jodhpur Bench of ITAT in the case of Modern Defence Shikshan Sansthan Vs. CIT reported in 108 TTJ (Jod.) 732. 8.2 We find the Chandigarh Bench of the Tribunal in the case of Himachal Pradesh Environment Protection and Pollution Control Board Vs. CIT reported in 125 TTJ (Chd.) 98 which has been relied on by the Pune Bench of the ITAT in the case of Maharashtra Academy of Engineering as Educational Board (MAEER) (Supra) has observed as under : "19. In any event, as a plain reading of s. 12AA(3) would indicate that a registration granted under s. 12AA can only be withdrawn when the CIT is satisfied that (a) the activities of the trust or the institution are not 'genuine'; or (b) the activities of the assessee are not being carried out in accordance with the objects of the trust or the institution. There cannot be any other legally sustainable reason ....
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.... the assessee trust was the only trust of its kind in the district of Ratnagiri giving medical help to the poor patients. There is no other better equipped hospital in the area. The illegal action of the department by abusing judicial powers has caused serious prejudice and injustice to the assessee trust as wrong signals are transmitted in the society that the assessee trust is a big fraud. It has adversely affected the reputation of the trust as well as the trustees who are eminent medical practitioners. He submitted that there exists an unpleasant social environment in Ratnagiri which is a small district place. Since the trustees are from the minority community, the impugned orders of the department have embarrassed the trustees and the trust. Referring to the decisions of the Hon'ble Supreme Court in the case of Union of India Vs. Raja Mohammed Amir Mohammad Khan (copy enclosed) and in the case of Urban Improvement Trust, Bikaner Vs. Mohanlal reported in 2010 (001-SCC-0512 (SC) and the decision of the Hon'ble Rajasthan High Court in the case of Charanjilal Tak Shyam Parwani & Party Vs. Union of India reported in 252 ITR 333 he requested that cost of the appeal may please be awa....
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.... in respect of action taken u/s.132 of the I.T. Act has observed as under (at page 518 and 519) : "We are, therefore, to see what are the inbuilt safeguards in section 132 of the Income tax Act. In the first place, it must be noted that the power to order search and seizure is vested in the highest officers of the department. Secondly, the exercise of this power can only follow a reasonable belief entertained by such officer that any of the three conditions mentioned in section 132(1) (a), (b) and (c) exists. In this connection it may be further pointed out that under sub rule (2) of rule 112, the Director of Inspection or the Commissioner, as the case may be, has to record his reasons before the authorisation is issued to the officers mentioned in sub section (1). Thirdly, the authorisation for the search cannot be in favour of any officer below the rank of an Income tax Officer. Fourthly, the authorisation is for specific purposes enumerated in (i) to (v) in sub section (1), all of which are strictly limited to the object of the search. Fifthly, when money, bullion, etc., is seized the Income tax Officer is to make a summary enquiry with a view to determine how much of what is....
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....as to do is to tell the true facts to the searching officer explaining on whose behalf he held the custody of the valuables. It will be then for the Income tax Officer to ascertain the person concerned under sub section (5)." 13.1 In that case, it was observed that it causes serious invasion of the privacy of a person. Still the Hon'ble Court held that even though the innocent is likely to be harassed by a raid for the purpose of search and seizure that cannot be helped. In the instant case, there is no such action of search and seizure which causes serious invasion in the privacy of the person. The Commissioner was discharging her quasijudicial duty. Further, there is nothing on record to suggest that the action of the CIT was malafide. Therefore, we do not find any merit in the submission of the Ld. Counsel for the assessee to award cost for the action of the Commissioner cancelling the registration granted earlier u/s.12AA of the Act. 13.2 The two Supreme Court decisions relied on by the Ld. Counsel for the assessee are distinguishable and not applicable to the facts of the case. Those cases were related to property dispute for which cost was awarded for dereliction of dut....