TaxTMI 
TaxTMI 
2015 (5) TMI 680
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....gistration U/s.12A (a) of the Act. A search and seizure operation was carried out in the case of the Trust on 20.11.2009 wherein it was revealed that the assessee trust was collecting huge capitation fees from students at the time of admission. It was also revealed that the income of the Trust was not correctly accounted in its books of accounts. Therefore, a show cause notices was issued to the assessee pointing out as to why Section 12AA (3) of the Act should not be invoked? The assessee in its reply made the following submissions:- "1. Vide the impugned show-cause notice dated 2.3.2010, the Ld. CIT does not acquire any jurisdiction to cancel the registration of the assessee trust, as the same was granted U/s. 12A(a) of the Act, dated 13.2.1998, cannot be cancelled. 2. The conditions laid down U/s. 12A (a) of the Act, are not satisfied in the case of the assessee trust and therefore, the registration already granted U/s. 12A(a) of the Act, dated 13.2.1998, cannot be cancelled. (i) The activities of the Trust are not genuine and (ii) Such activities are not being carried on in accordance with the objects of the Trust. Besides, in view of the number of students perus....
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....gh Court, in the case of Sri Belimatha Mah. Socio Cultural and Educational Trust. In the light of the aforesaid legal precedents, the cancellation of registration by the Ld. CIT U/s. 12AA (3) on the ground of accepting capitation fees is not sustainable in law. In view of the aforesaid reasons, the impugned notice U/s. 12AA(3) of the Act dated 2.3.2010 and the letter dated 26.3.2014, containing additional allegations in this context, are totally erroneous and misconceived and therefore, the same are required to be withdrawn." 4. Thereafter, the Ld. CIT made the following observations:- (i) The trust has violated clause-viii (6) of the Trust Deed wherein it was stated that the trust shall not carry out any activity with the intention of earning profit. (ii) Section 12AA of the Act has been amended to provide that the Commissioner can also cancel the Registration obtained U/s. 12A as it stood before amendment by Finance (No.2) Act, 1996. (iii) The Trust has been collecting huge capitation fees from students for granting admissions. (iv) The assessee trust has not reflected the entire portion of the cash received in its return of income for the assessment year 200....
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....etails viz. complete addresses of the donors were not available. d) There is ambiguity about the meaning of the term 'anonymous donation' as 'such other particulars' as contemplated U/s.115BBC (3) have not been prescribed by CBDT. e) The Assessing Officer had accepted the condition laid down (by the assessee trust) in its letter dated 15.12.2011 addressed to the Assessing Officer stating that the disclosure of the aforesaid income should not lead to any adverse conclusions in the case of the trust. f) Lastly, while in their reason for accepting the condition is to buy peace with the Department. g) Therefore the impugned donations were not anonymous donations and the trustees were persuaded to disclose the donations as anonymous donations. h) Therefore, the said disclosure was not the result of the aforesaid survey conducted on 20.11.2009". (vii) The assessee trust also stated that there was no evidence in the record to show that it had accepted capitation fees against allotment of seats. 6. However the Ld. CIT after examining the issues withdrew the registration granted to the assessee U/s.12A (a) of the Act with retrospective effect from 01.04.2006 by observin....
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....stration U/s.12A (a) of the Act on 13.02.1998. iv) After the granting registration to the Trust U/s.12A (a) of the Act by the order of the Ld. CIT dated 13.02.1998, there has been no change/alteration in the objects of the Trust. Therefore, the objects of the Trust have remained the same as they were at the time of grant of registration U/s.12A (a) of the Act by the Ld. Ld. CIT. v) In all the assessment orders U/s. 143(3) of the Act for the assessment years 2002-03 to 2011-12, the Assessing Officer have categorically stated the Trust is mainly engaged in running educational institution for conducting various professional course such as engineering, MBBS, Nursing and other Para Medical Courses, etc. The aforesaid statements of the AOs in the assessment orders right from A.Y 2002-03 to A.Y 2011-12 clearly establish that the activities of the Trust is to run educational institutions which is genuine and further, such activities are being carried out in accordance with the objects of the Trust which is nothing but running of educational institutions. vi) It is quite clear from the aforesaid facts that the Trust was established for promoting education. Nowhere in the order of t....
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....s./2010 for the assessment years 2002-03 to 2008-09 dated 05/04/2011, the Bench has categorically held at para 40 page 48 (PB-190) of the order that "the assessee is carrying on genuine educational activities to be treated as charitable activity and there is no evidence on record to show that the assessee had accepted capitation fee against allotment of seats". 8. The Ld. D.R argued in support of the orders of the Revenue and further relied in the following decisions:- (i) Hon'ble ITAT, Cochin Bench, Cochin in the case of M/s.Travancore Education Society Vs. CIT in ITA No.134/Coch/2014 vide order dated 27.06.2014. (ii) Hon'ble High Court of Kerala at Ernakulam in ITA No.194 of 2014 vide order dated 27.10.2014. (iii) In the case of Rajah Sir Annamalai Chettiar Foundation Vs. DIT(E) reported in (2011) 15 Taxmann.Com 313 (Chennai) (iv) In the case of CIT Vs. National Institute of Aeronautical Engg. Educational Society reported in (2009) 184 Taxman 264(Uttarkhand) (v) In the case of Vodithala Education Society Vs. ADIT(E) reported in (2008) 20 SOT 353 (Hyd.) (vi) In the case of P.S.Govindasamy Naidu & Sons Vs. ACIT reported in (2010) 324 ITR 44 (Mad.) 9. We have....
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....on of Central Govt. for starting of the MS(ENT) course at Mahatma Gandhi Medical College & Research Institute, Pondicherry (annual intake of 1 student) from academic year 2007-08 10. 23.03.2007 (PB-page 16) -do- Permission of Central Govt. for starting of the MS(Ophthalmology) & DG courses at Mahatma Gandhi Medical College & Research Institute, Pondicherry (annual intake of 1 student) from academic year 2007-08 11. 16.04.2007 (PB-page 17) -do- Permission of Central Govt. for starting of the MD(TB & Chest Diseases) & DTCD courses at Mahatma Gandhi Medical College & Research Institute, Pondicherry (annual intake of 1 student) from academic year 2007-08 12. 23.03.2007 (PB-page 18) -do- Permission of Central Govt. for starting of the MD(DVL) & DDVL courses at Mahatma Gandhi Medical College & Research Institute, Pondicherry (annual intake of 1 student) from academic year 2007-08 13. 23.03.2007 (PB-page 19) -do- Permission of Central Govt. for starting of the MD(Psychiatry) course at Mahatma Gandhi Medical College & Research Institute, Pondicherry (annual intake of 1 students) from academic year 2007-08 14. 11.04.2008 (PB-page 21) ....
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....y. from academic year 2010-11 26. 31.03.2011/01.04.2011 (PB-page 45) Board of Governors in Super-session of Medical Council of India Increase of seats in MD (General Medicine) [5 to 8] course at Mahatma Gandhi Medical College & Research Institute, Pondicherry. from academic year 2011-12 27. Nil (PB-page 46) -do- Increase of seats in MS (General Surgery) [5 to 8] course at Mahatma Gandhi Medical College & Research Institute, Pondicherry. from academic year 2011-12 28. Nil (PB-page 47) -do- Increase of seats in MS (ENT course) [1 to 2] course at Mahatma Gandhi Medical College & Research Institute, Pondicherry. from academic year 2011-12 29. Nil (PB-page 48) -do- Increase of seats in MD (Respiratory Medicine) [1 to 2] course at Mahatma Gandhi Medical College & Research Institute, Pondicherry. from academic year 2011-12 30. 31.5.2011 (PB-page 49) -do- Increase of seats in MD (Anaesthesiology) [2 to 3] course at Mahatma Gandhi Medical College & Research Institute, Pondicherry. from academic year 2011-12 31. 22.12.2011 (PB-page 50) -do- Increase of seats in MD (DVL) courses [2 to 3] course at Mahatma Gandhi Medical C....
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....vision of the Section 2(15) of the Act. The Revenue has also not pointed out as to any change in the objects of the Trust for which it is created. All the objects of the Trust at the time of inception of the trust remains the same based on which Ld. CIT has granted exemption U/s.12A(a) of the Act. The only allegation of the Revenue is that the trust is receiving capitation fees/donations etc., and conducting its activities in a manner so as to earn profit. It is also the allegation of the Revenue that the Trust has been receiving anonymous donations. Further, the Revenue has made allegations that the trustees are diverting the unaccounted funds of the Trust for their own benefit. Citing all these reasons, the Revenue has withdrawn the registration granted U/s. 12A(a) of the Act invoking the provisions of section 12AA(3) of the Act. At this juncture, it is pertinent to note that the Revenue has arrived at this conclusion based on certain materials on which they have relied upon. The finding of the Revenue is yet to be adjudicated by various higher authorities and it has not reached finality. At the present stage it is only the allegation made by the Revenue and yet to withstand the ....
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....o State Government authorities and Central Government authorities to which these educational institutions are affiliated. Such Government governing bodies have not made any allegations against the assessee trust or the same is not brought to our knowledge by the Revenue. Needless to mention that, the relevant Government Authorities permit such institutions to collect fees and capitation fees according to various categories of admission of students, such as admission in the general category, Management Quota, Non Resident Indian Students, etc. The Revenue has not made any findings as to from which category of students the Trust had received capitation fees/Donations and to what extend it is impermissible. Another allegation of the Revenue is that, the trustees of the assessee trust have siphoned out the undisclosed income of the trust for their personal benefits. It is pertinent to mention here that all the income of the charitable trust belongs to the trust only for meeting out its objects. Squandering away the wealth of the trust for personal benefits of the trustees gives arise to criminal action against them by the competent authorities. The State/Central Government can also int....
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....as charitable purpose as defined under Section 2(15), as it stood in 2003 and after granting the registration, if the registration is to be cancelled, it must be only on the grounds stated under Section 12AA(3) of the Act with reference to the objects accepted and registered under Section 12AA, as per the law then stood under the definition of Section 2(15) of the Income Tax Act. Even therein, Courts have defined as to when an institution could be held as one for advancement of any other object of general public utility. Thus, if a particular activity of the institution appeared to be commercial in character, and it is not dominant, then it is for the Assessing Officer to consider the effect of Section 11 of the Act in the matter of granting exemption on particular head of receipt. The mere fact that the said income does not fit in with Section 11 of the Act would not, by itself, herein lead to the conclusion that the registration granted under Section 12AA is bad and hence, to be cancelled. It may be of relevance to note the language used in the definition "charitable purpose" in Section 2(15) of the Act, which states that charitable purpose includes relief of the poor, educati....
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....to these aspects, for, the order of the Director of Income Tax (Exemptions) casts no doubt on the genuineness of the objects of the trust. Hence, it is for the Assessing Officer to take note of all facts, while considering the same under Section 11 of the Income Tax Act, 1961. We disapprove the approach of the Tribunal in this regard. In the above said circumstances, we set aside the order of the Income Tax Appellate Tribunal. 2) CIT Vs.Sarvodaya Illakkiya Pannai 343 ITR 300 (Mad.) Held, that under section 12AA , the Commissioner is empowered to grant or refuse the registration and after granting registration, would be empowered to cancel it, but only on the two conditions laid down under section 12AA(3) . Whether the income derived from such transaction would be assessed to tax and whether the trust would be entitled to exemption under section 11 are entirely the matters left to the Assessing Officer to decide. The Tribunal had allowed the case of the assessee with the finding that none of the conditions under section 12AA(3) were violated and, therefore, the satisfaction which was arrived at by the Commissioner was not justified. Therefore, there was no reason to interfere ....
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....anted under section 12AA was to be restored. 4. Krupanidhi Eductional Trust Vs. Ld. CIT (E) [2013] 21 DTR (Trib) 373(Banglore) Held: In impugned order there is no finding on satisfaction that the activities of the trust or institution are not genuine or that the activities of the trust or institution are not being carried out in accordance with the objects of the trust or institution. There is no finding that the objects of trust after the amendment of the trust deed are not charitable. Even after amendment to trust deed charitable nature of the trust remains intact. Mere finding that the objects of appellant have been altered without the consent of department would not be sufficient to exercise power u/s.12AA (3) without giving a finding that the appellant's objects are no longer charitable. (para16) The DIT(E) in the order u/s 12AA(3) of the Act, do not make out any case, which can show the activities of the assessee are not genuine or that the activities of the assessee are not being carried out in accordance with the objects of the trust or institution. The fact that the Assessee was paying commission to persons who solicit students for studying in the Assessee's....
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....such circumstances, the order u/s 12AA(3) of the Act, cannot be sustained. 5. DIT(E) Vs. N.H.Kapadia Education Trust [2012] 74 DTR(Trib) 233(Ahd.) Tribunal in its order had observed that the core contention of the Revenue was that the contributions aggregating made by the parents/students at the time of admission in the institution were in consideration of the services to be rendered by the school to the students. In contrast, the documentary evidences, adduced by the assessee proved that the amounts were, in fact neither fixed nor identical in all the cases and to illustrate the classical example that almost 331 students had been admitted to the Institution without receiving a penny for such a contribution. The assessee had, in fact, furnished a list running into staggering 29 pages showing the names of the students in standard-wise and also the contributions towards 'corpus fund'. Copies of ledger accounts of different corpus funds produced by the assessee for verification exhibited that the amounts received had been credited to each fund account of each receipt from the parents/students. Apart from such contributions towards 'corpus funds', it was noticed t....
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.... being carried out in accordance with the objects of the Trust or the institution. Therefore, ITAt did not found any reason as to how the CIT can cancel the registration granted earlier in contravention of the provisions of section 12AA(3) of the I.T. Act. Once registration is granted to the trust/institution and if subsequently 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 11. From the above decisions, it is apparent that the jurisdictional high court in the case of Tamilnadu Cricket Association has categorically held that:- "(a) The power regarding cancellation has to be seen with reference to the registration and the object satisfying the definition of 'charitable purpose', as it stood at the time of registration and not by the subsequent amendment to Section 2(15) of the Income Tax Act. (b) If a particular activity of the institution appeared to be commercial in character, and it is not dominant, then it is for the Assessing Officer to consid....
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....ks of accounts, payment of enormous salary, are not sufficient cause to invoke section 12AA of the Act for cancelling the registration granted under Section 12A(a) of the Act. (b) The surplus generated, if it is held for charitable purpose and applied for charitable purpose by the assessee then, the Assessee has to be considered as existing for a charitable purpose. There are enough safeguards provided in Sec.12 and 13 of the Act to ensure that personal benefits of the persons in control of the trusts are not treated as having applied for charitable purpose and will be brought to tax like, provisions of Sec.13(1) (c ) of the Act which restricts unreasonable and excessive payments to certain category of persons connected with a trust or other institution. In such circumstances, the order U/s.12AA (3) of the Act cannot be sustained." 12. The Revenue has also relied on various decisions. i) Kochin Bench of the Tribunal in the case M/s.Travancore Educational Society Vs. CIT (Central) Cochin ITA No.134/Coch./2014:- In this decision the Tribunal held that when the capitation fees collected for admission of students over and above the prescribed fees which was shared amongst t....
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....is not rejection of application for granting registration U/s.12A(a) of the Act, but it is a case of withdrawal of registration granted U/s.12A(a) of the Act by invoking the provisions of section 12AA(3) of the Act. Hence the facts are not identical. (iv) The Hyderabad Bench of this Tribunal in the case Vodithala Education Society Vs. ADIT(E) reported in [2008] 20 SOT 353 (Hyd.) has held that when money is collected over and above the prescribed fees by the concerned authority for admission of students, then such amount should be classified as capitation fee and it could be said that the assessee's case is a clear case of sale of education by the assessee and therefore, it cannot be considered as charitable institution U/s. 2(15) of the Act. As against this, we find from the order of the Tribunal in ITA No.1476 to 1482/Mds./2010 dated 05.04.2011 for the assessment years 2002-03 to 2008-09 in para 40 page 48 (page 198 of the Paper book) that the Tribunal has held that there is no evidence on record to show that the assessee had accepted the capitation fees against allotment of seats. Therefore, this order of the Hyderabad Bench of this Tribunal is irrelevant. (v) The Hon'bl....