TaxTMI 
TaxTMI 
TaxTMI 
2009 (9) TMI 952
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....come is derived by the Trust, because Section 12AA does not speak anywhere that the CIT shall also examine the nature of income derived by the Trust. 3. The CIT(C) grossly erred in totally ignoring the objections of the appellant that the registration of the Trust could not be cancelled, unless it is established that- (i) the activities of the Trust are not genuine, and/or (ii) the activities of the Trust are not being carried out in accordance with the objects of the Trust. 4. The ld. CIT(C) grossly erred in totally glossing over the other important objection of the appellant that income-Tax Act, 1961, is an independent code and therefore, the provisions of the Maharashtra Educational Institutions (Prohibition of Capitation Fee) Act, 1987, are not relevant I as regards the provisions of the I.T. Act, 1961. 5. The ld. CIT(C) grossly erred in totally glossing over the objection of the appellant that the source of funds, viz. donations, etc, in the case of an educational Institution Trust is of no consequence and what is relevant is the application of income. 6. The ld. CIT(C) grossly erred in concluding that in view of the donations accepted by the Trust from guardians o....
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....on 133A on the premises of Maharashtra Academy of Engineering and Educational Research (in short MAEER) the appellant Later on, very next month, there was an another survey on 26/08/2005 at the premises of the assessee Some of the documents inventorized and some were impounded Under Section 131(3) by the Act. 3.1 The main allegation of the investigation wing of the IT Department after the search and survey was that the Trust was taking the Donation and Capitation Fees for admission though prohibited under Maharashtra Educational Institutions (Prohibition of Capitation Fees) Act 1987 (hereinafter referred as Prohibition of Capitation Fee Act). 3.2 On the basis of the above information a show cause was issued by the Learned Commissioner as to why the already granted registration bearing No. Pn/T/Regn/6620/98-99 dated 25/03/1999 be not canceled. Based upon the show cause notice the Learned Commissioner has thereafter short listed few points, at present relevant to understand and also Jo resolve the issue of cancellation of registration; is listed below: (i) That the assessee trust was charging donation to give admission. A list of 15 persons was mentioned and made part of the impu....
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....ance Sheet. It was concluded that a separate treatment is to be given to both of them so could not be clubbed together. It was emphasized that the receipts of donations have to be examined separately in accordance of Section 3(2) of Prohibition Act. 3.5 Thereafter in the impugned order the Ld. Commissioner has devoted rest of the paragraphs in respect of the nature of donations received by the assessee. His basic objection was that the. evidences collected have shown that the donations were not voluntarily made. On the other hand one of the stand of the assess was that it was guardians who decide how to make the payment, either part as fees or part as the donations, however the trust was happy to get the entire payment as fees instead of compelled to be bifurcated in to two. According to Ld. Commissioner it was a contradiction in the stand of the assessee. Referring earlier explanation of the assessee that the donations were voluntary thus having no connection with the fees received and so the donations have no connection with the admissions, Ld. CIT has emphasized that the trust has violated the law by not disclosing the donations as fees for the admissions. 3.6 The Commissioner....
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.... I.T. Act, 1961. 4. In that manner it was concluded that issuance of receipt Under Section 80 G; that collection of donation in contravention of Section 3(2) of Maharashtra Educational Institution (Prohibition of Capitation Fee) Act 1987; that non-issuance of receipt of money paid for admission; that evasion of stamp duty were all illegal act done by the assessee, therefore not entitled for registration. Against the cancellation this appellant is now in appeal before us. 5. Within the parameters of the facts as narrated hereinabove an intention was expressed by both the sides to proceed the hearing of this appeal within the narrow compasse of the facts referred supra hence the issue left for our adjudication is whether or not the trust is a genuine trust, whether its activities are as per the object and whether there was any infringement of the provision of Section 12AA of I.T. Act. 6. Initially there was a difference between the Ld. A.R. and Ld. D.R. in respect of the question of applicability of Section 12AA(3) as to whether operative with retrospective effect, since there were divergent views expressed by the coordinate benches of the tribunal, but after due deliberation it w....
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....titutions in different streams of education. It's objective is to promote and develop Engineering education, Science education. Medical education Management education and Finance education etc. There was also a general clause that the trust shall do all such other activity which will be in the interest of the development of the education and beneficial for the public welfare at large Learned A.R. has described the history of this institution that appellant is a public charitable trust running a number of educational institutions including medical engineering, management and other professional colleges. It was registered as a public charitable trust under the Bombay Public Trust Act, 1950. It was also registered under the Societies Registration Act, 1860 in the year 1983. It was also granted registration Under Section 12A(1) by the Income Tax Department in the year 1983 which was also renewed and a fresh registration was granted in the year 1999 Photo copies of these registration certificates are placed on page 1 and 2 of the Paper Book He has also narrated few of the clauses of the constitution of the trust placed in the Paper Book on pages 4 to 16 to demonstrate that the activ....
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....infringement of Anti Capitation fee Act. The donations, if any, received have also been duly recorded in the books of account as also duly affirmed by the donors by furnishing confirmation letters. The main allegation on the institution was that it had violated the provisions of the capitation fee act and because of that violation trust was held as not genuine. In the case of the Appellant, admittedly, the activities of the Appellant are to establish educational institutions and to impart education in various fields. This fact was never disputed rather it was proved beyond doubt on the Strength of various evidences placed on record. Further, it is nobody's case that the Appellant has not been carrying out its activities as per the aims and objects stated in its constitution he has argued. However, the Respondent has cancelled the registration Under Section 12A(a) on the allegation that the Appellant has violated the provisions of the And Capitation Fee Act. In the written submissions filed before this Hon'ble Tribunal it is now claimed by the Respondent that the violation of the provisions of Anti Capitation Fee Act renders the activities of the Appellant as not genuine. Fo....
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....he permitted limit of five times the normal fees. This is in accordance with the provisions of the Anti Capitation Fee Act. The Respondent has admitted the fact that the Appellant trust is entitled to charge five times the normal fee in respect of the students admitted under management/discretionary quota. In this regard it is significant to note the observation of Respondent in the impugned order at para 6.4 relevant portion of which is reproduced as under- 6.4 Therefore, the stand of the appellant on this score is accepted that it can charge five times the fee in cases of admission in the Management Quota. However, I do not agree with the contention of the appellant that donations and the fees charged should be clubbed together for the purposes of finding out violation of Section 2(a) of the Maharashtra Educational Institutions (Prohibition of Capitation Fee) Act, 1981. Section 2(a) has been reproduced in page 2 above and this entitles the appellant to charge fees. Therefore, all that the appellant can charge is maximum of five times the fee which is chargeable. It may be seen from the chart at pp 285-287 of APB that the aggregate of fees and voluntary donations paid by the s....
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....d from the donors are voluntary and do not fall within the purview of the prohibited donations under proviso to Section 3(2), which prohibits reservation of seats against donations received other than those covered Under Section 3(1) of the said Act. It is an admitted position that the amounts collected from the students referred by the Respondent has not exceeded give times the normal fees and hence the case of the Appellant does not fall within the mischief of sees 3(1) and 3(2) read with Section 2(a) of the Anti Capitation Fee Act. It is humbly submitted that the Appellant has always issued the receipts for all the Fees/Higher Tuition Fees or the donations received from the students admitted under the category of Management/Discretionary Quota and has accounted for all the money received exclusively for the "Charitable Purposes" of the Trust. It is therefore submitted that the assumption of the Respondent that the Appellant has violated the provisions of the Anti Capitation Fee Act and hence the activity of the Trust is not genuine is baseless for the reasons stated above. Consequently, assumption of jurisdiction Under Section 12AA(3) is illegal and untenable. (e) The Appe....
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....not made available the particulars of donations charged to students other then the 15 students identified by the Department. It is submitted that the department conducted survey actions Under Section 133A of the Act on two occasions i.e. one on 20/07/2005 and 26/08/2005 and have extensively searched the premises of the Appellant trust and have verified the documents, records etc. maintained by the Appellant. It is, there fore, submitted that the assumption of the Respondent that the Appellant was blocking the investigation is preposterous. (i) The next allegation is that the Appellant had received heavy donations in cash year after year and in most of the cases the addressee are not given. Therefore, the Respondent has assumed that these donations are also linked with admissions. At the outset, the Appellant submits that it is not the case of the Respondent that donations received, whether in cash or by cheque, are unaccounted. The Appellant trust has issued receipts for all the donations received by I.T. However, the Appellant trust does not have control over the information supplied by the donors. Correctness or completeness of the information supplied by the donors cannot be v....
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....egation is that the Appellant has generated unaccounted money and utilized the same for purchase of property at Kelgaon by making on money payment of Rs. 69 lakhs. It is submitted that the Appellant trust has issued proper receipts for all the amounts received by it either by way of fees, donations or otherwise. The income of the Appellant trust has been exempted from income tax Under Section 10(23C) or Under Sections 11 and 12 of the Act. There is no good reason for making or keeping unaccounted money with the Appellant. Since the income of the Appellant was exempted, it is unreasonable to believe that the Appellant might have generated unaccounted money only to finance the acquisition of Kelgaon property. It is submitted that there is nothing in Annexure - VII to the impugned order to indicate that cash was paid to one Shri Ramkumur Jatyan for purchase of Kelgaon property as alleged by the Respondent. It is submitted that the statements of said person was not cross-examined. However, cross-examination of the said person was offered after passing of the impugned order. Therefore, the allegation that unaccounted money was paid for purchase of Kelgaon property is only an assumption ....
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....170 (Mad.) 7.3 Learned A.R. S/Shri Sanrabh N. Soparkar 7 Shankar K. jalgaar have also argued that Learned Commissioner should have confined his decision on the provisions of I.T. Act and should not have passed his decision for cancellation of registration on beach of some other statute In support of this contention case laws cited are: (1) Dr. T.A. Qureshi v. CIT 287 ITR 547 (SC) (2) Rama Rao Adik Trust ITA 5742/Mum/207 (3) CIT v. Red Rose School 163 Taxmann 19 (4) Punjab Fruit v. CIT 149 ITR 42 (Del.) (5) DCIT v. Cosmopolitan Ed. Soc. 244 ITR 494 (Raj.) (6) Lancer Army School Soc. v. ACIT 90 TTJ 1024 (7) Dr. Bhimrao Ambedkar Ed. Soc. v. CIT 114 TTJ 965 (8) Arvind Bhartiya v. ACIT 115 TTJ 351 7.4 He has also argued that even in case the trust has received capitation fee the outcome should not be the cancellation of registration granted Under Section 12A(a). Case laws cited are: (1) IAC v. Matrusri Ed. Society 48 ITD 583 (Hyd.) (2) Govrn. Bd of Rangraya Med. Col. 117 ITR 284 (3) CIT v. Khalsa Rural Hosp. 304 ITR 20 7.5 Finally he has also argued that after the survey action the A.O. was in the process of finalisation of assessment proceedings and the assessm....
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....ct and such an activity of the trust cannot be said to be a genuine activity He has also mentioned that the assessee has made all attempts to hide the identity of the donors He has advanced the arguments by mentioning that if the nature of those donations was claimed to be noting but "admission fees" then the assessee should not have given a certificate Under Section 80G of I.T. Act and if it was a donation then assessee was not entitled to accept the same because of the proviso to Section 2 of Prohibition of Capitation Fee. An another argument has also been placed on the basis of a decision in the case of Islamic Academy of Education v. State of Karnataka 6 SCC 697 wherein the issue was the charging of the fees for the entire course at one go. Answer to that problem was, as per the verdict, that educational institutions can only charge prescribed fees for one semester in a year. Once the appellant has violated the" Prohibition of Capitation Fees act, then that activity cannot said to be a genuine activity of the assessee. Through Dictionary and Law Lexicon Learned D.R has also cited meaning of the word "genuineness". Finally he has elaborated that as per the provisions of Section ....
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....ncture that since the issue of retrospective effect and legality of the provisions of Section 12AA(3) has not been contested therefore, there was no necessity left of any deliberation on the issue retrospective applicability of Section 12AA(3) as far as this appeal is concerned He has elaborated that this section was introduced to curb the mischief and also to advance the remedy. It is impossible to believe that Hon'ble Parliament had an intention to allow a trust to conduct its affairs in any manner they like to conduct once a registration is granted Under Section 12A(a) of I.T. Act. At the cost of public good if managing the affairs for furtherance of the personal gains by the trustees then to curb such malpractice this section has not been introduced. 8.2 From the side of the Revenue the Learned CIT (DR) Shri R. Kaushal has further earnestly pleaded that prior to the introduction of Section 12AA there was no procedure laid down for grant of Registration to a trust. By the introduction of this section under the heading "Procedure for Registration" the respected Parliament has intended to provide a clear mechanism to regularize the procedure of registration. His argument was ....
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....about the scope of Section 12AA and held that the Revenue authorities have to decide the question of registration within the scope of the mandatory provisions of IT Act. The Hon'ble Court has categorically commented that sufficient safeguard is provided under the Act for cancellation of registration obtained by the assessee in the event of misusing the provisions. The authorities have to satisfy themselves about the genuineness of the activities and to examine how the income derived from the trust properly is applied to charitable purposes. The Hon'ble Court is abundantly clear in its land-mark verdict that the authorities have not to examine the nature of the activity by which the income was derived by the trust. Section 11 of the Act deals with the exemption available to income from property held for charitable purposes Exemption from tax has to be allowed in respect of income actually applied to the purpose of the trust. Therefore, it was concluded that for the purpose of registration Under Section 12AA what the authorities have to satisfy is the genuineness of the activities and the nature of the activities in conformity with the object of the trust and not the nature o....
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....of the trust are genuine activities and not being carried out with the object of earning profit In that manner, the appeal was allowed in favour of the assessee. (iii) CIT v. Red Rose School 163 Taxmann 19 (Allahabad): The question berate the Hon'ble Court was that if trust or institution is not registered Under Section 12AA, the trust would not be able to claim any exemption or exclusion of its income from total income of the previous year even if such income is otherwise liable to exclude under any of clauses of Section 11 or Section 12 of I.T. Act The observation was that mere registration Under Section 12AA would not in itself be a ground much less a conclusive proof for excluding such income from the total income of the trust from income of the previous year. But the provision of Section 12A, which is under the heading "conditions as to registration of trust etc." disentitles any trust or institution from claiming any benefit of the provisions of Rule 11 and 12, unless such person in receipt of the income has made an application for registration of the trust. Further it was observed that Section 12AA which lays down the procedure for registration, does not speak anywher....
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....charya Sewa Nivas Uttaranchal v. CIT 13 SOT 54 (Del.): The observation of the respected Delhi bench is that Under Section 12AA the jurisdiction of the Commissioner is confined to Satisfy himself about the objects of the trust and genuineness of the activities and for this purpose, he is authorized to make such enquiries, as he may deem fit. If the Commissioner had not taken any objection about the nature of charitable object or activity then in the absence of any contrary findings Commissioner cannot proceed to cancel the registration in respect of some other ground So the bench has held that the objection of small amount of initial contribution was insufficient for cancellation of registration. (vi) Trustees of Vanita Vishram v. CIT 280 ITR 345 (Bom.) This is a decision of the Hon'ble Jurisdictional High Court hence directly applicable on this appeal. Though this decision pertains to Section 10(22) of IT Act however, the ratio laid down by the Hon'ble Jurisdictional High Court is important and relevant for this appeal. In this decision several other decisions viz. CIT v. A.M.M. Arunachalam Educational Society [2000] 243 ITR 229 (Mad.) CIT v. Aditanar Educational I....
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....om properties should be towards fulfillment of the objects and also to be utilized to implement the activities for which the trust is established. (ix) Dr. T.A. Qureshi v. CIT 287 ITR 547 (SC): This is one of the extreme case of immoral activity carried out by a Doctor. Facts have revealed that Doctor though the medical practitioner was in the business of drugs. He has claimed a deduction of the drugs seized as a business loss. The Hon'ble Court has made a stringent remark that it was disgraceful for a Doctor to indulge in activities against humanity. On appeal the Hon'ble Supreme Court has held that even though the assessee was committing a highly immoral act in illegal manufacturing and selling of heroin, the case had to be decided on legal principal and not on one's own moral views. The Hon'ble Supreme Court has commented that by rejecting the claim the High Court has adopted an emotional and moral approach rather than a legal approach. It was observed that the assessee though had committed a highly immoral act in illegally manufacturing and selling heroin however cases are to be decided, by Court on legal principal and not on one's own moral views. It may....
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....h, as aforesaid, was later recovered too, the society should not be deprived of the benefit of Section 10(22). It was running the college for a noble cause imparting technical education to about 1200 students and enriching the nation by adding about 300 engineers every year. Therefore, the benefit available under Section 10(22) was not to be denied to the assessee" unquote. (xii) Kalirera Institute v. CIT 113 TTJ 906: The Commissioner has proposed the cancellation of registration on the basis of findings of the search and seizure operation. It was observed that it is pertinent to note-; that cancellation of a registration means a great stumbling block on the society to continue its activities held, quote "Therefore, in the present case despite the facts that the assessee has disclosed a sizeable amount for reasons best known to them, simply should not be a basis for immediate cancellation of registration without final determination/assessment in the search and seizure proceedings. The same is premature and in clear cut judicial terms it is like hanging a person before pronouncement of a judgment Rather in all fairness the CIT should have taken precaution to complete the assess....
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....lly perused the impugned order and also several correspondences filed in the compilation in the light of the case laws cited. 11.1 The Law now introduced is to streamline the "Procedure for Registration" and by saying so we do not want to enter into the controversy whether the applicability of Section 12AA(3) was retrospective or prospective in nature Rather we can make an observation that this issue stood answered by coordinate benches. We want to express that earlier to this section there was no guidelines in the statute for refusal of registration, therefore it was considered eminent to introduce in the statute the said procedure. What bothered the Tribunals and High Courts in the recent past is the scope and the purpose of introduction of Section 12AA in the Statute. All those judgment as listed above, in agreement have said that the activities ought to be in fulfillment of the objects for which a trust is created. Sentiments should be in line with the purpose for which the Trust is created. The purpose should be philanthropic, charitable, or for public general utility. Service without profit has to be motive. As in the present case the objects are to undertake, to run and to ....
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....limb to the level where the exemptions are placed. At this first step the Commissioner is conferred with the powers to call for such documents and information in order to satisfy-himself about the genuineness of the activities and also to enquire that those genuine activities are as per the objects of the trust for which it is seeking registration. The objects and activities should be philanthropic and not against the public interest must be for the benefit at large instead for the benefit of particular individual or group of individuals. 11.4 In the recent past Sub-section (3) was inserted in Section 12AA with effect from 01/10/2004 which gives power of cancellation of registration to the Commissioner, if he finds that the activities are not genuine or not being carried out in accordance with the object of the trust The need for the enactment had arisen due to belief of some quarter that in the absence of explicit law the Commissioner cannot exercise the power of cancellation of registration. To over-come this hurdle this sub-section is incorporated and now in operation Naturally these powers are conferred with a view to ensure that if once a registration has been granted Under S....
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....emption be granted automatically by just showing the registration certificate to the revenue authorities. In no way the registration certificate is a license to do any type of activity and to get away from the ambits of the tax An institution has to follow the norms as laid down in other related sections for availing prescribed benefits. 11.6 Procedure of registration is a first step and a preliminary stage where the Commissioner shall restrict the enquiries as to whether the trust is actually and whole heartedly performing all the duties and activities for which it was created. On careful reading of this section it was gathered that at this initial-stage there is no scope of any apprehension of mis-utilization of funds or to judge the taxability of income. The scheme of the Act otherwise do not subscribe and allow a trust to take the benefit of the provisions of Section 11 and 12 unless establish the prescribed utilization of the income, even if at all the trust hold the registration in its hands. Therefore at the stage of granting registration the Commissioner is not expected to bother himself about the other provisions of the Act and supposed to confine himself to the procedure....
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....the objects and the activities of the trust as per the limits of the jurisdiction of Section 12AA of the Act Rather this is also not the case of the Ld. Commissioner that the institution is doing some other activity of earning profit other than the activity of running educational institutions. The established factual position is that the institution is not doing in any other activity except running educational institutions, in such circumstances, can we uphold the action of cancellation of registration?. Answer is obvious no. 11.8 While reading the precedents cited from the side of the appellant we come across a decision of a respected coordinate bench ITAT. Kolkata pronounced in the case of Kalinga Institute of Industrial Technology reported in 113 TTJ 906 and have found that almost on identical situation, as in the present appeal, it was held that consequence upon a search while the assessment proceedings are pending a cancellation of registration by invoking Section 12AA(3) is a premature action on the part of Commissioner, because it is expected from him to take precaution to let the assessment get completed, if possible expeditiously, instead of rushing to cancel the registra....
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....e trust are regulatory functions for the public good, and any collection for fees or charges, in the course of discharging these regulatory functions, cannot be viewed as a consideration of rendering these services of pollution control measures. We are unable to see any substance in learned commissioner's stand that the income earned by assessee as licence fees, consent fees and testing charges are receipts in consideration of rendering the services to trade, commerce or business. What is termed as consent fees is in fact fees accompanying the application for obtaining consent (i.e. permission) of the assessee Board to set up a new unit. It cannot be anybody's case that the processing of applications by itself has a commercial motive, or that fees for processing of application is a fees collected for rendering of service of pollution control which is undisputed sole object of the assessee trust. Similarly, fees for testing charges and licence fees are not the also towards rendering of any services of pollution control either. These are not the services with a profit motive but essentially only to recoup the cost of getting the samples tested or processing of licences. In an....
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....d that the learned Commissioner did not have any good reasons, sustainable in law, to withdraw the registration. The impugned order is accordingly set aside. On reading the above verdict it is gathered that if the objects as permissible in the eyes of law are carried out legally and the object of advancement of education as also the object of general public utility are carried out with due sincerity then the claim of registration is within the ambiguity of Section 12A of the Act. 11.11 As far as the objective of the appellant is concerned this is not the case of the Revenue that the assessee was not imparting education. As we know the term education means to teach Subjects to students for the development of his mind and also to equip students to deal with reality. The training process is either theoretical or practical but student has to be taught the essentials of the selected subjects so as to develop his skill and knowledge for the subject studied by him. The appellant institute, admittedly, fulfils the requirements of imparting formal education by a systematic teaching and instructions. Since the question about the imparting of education has not been doubted of challenged by ....
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....hat major part might have been devoted towards achieving the objects i.e. imparting education, as in this case, but the A.O. shall be automatically forbidden to grant advantage of exemption consequent upon the cancellation as is mandatory in statute; relevant section already reproduced ante. The outcome of the deliberation made in detail hereinabove is that percurian opinion is to debar the Commissioner to enter into the area of investigation of source of income and also application of income, so that the amount of correct exempt income be not prejudged. 11.13 The aspect of morality as touched by the Learned Commissioner is appreciable. Every vigilant and law abiding citizen has to be fair in his conduct and should refrain from immoral activities But existing Blue-laws are derived from the numerous extremely rigorous laws designed to regulate morals and conduct. These laws are enacted in such a fashion that if implemented correctly and efficiently then there is no scapegoat for an offender We are tempted to write an idiomatic language due to the sensitivity of the issue, that a Commissioner of Income Tax Department cannot be allowed to hold a baton of morality in his hand to write....