TaxTMI 
TaxTMI 
TaxTMI 
2017 (5) TMI 8
X X X X Extracts X X X X
X X X X Extracts X X X X
....ith its objects. (c) Director of Income Tax (Exemptions) did not bring out any incidence of mis-utilisation of trust property or any other violation". Ground No. 3 is general in nature. 3. Briefly stated, the assessee society 'Vignana Jyothi' was granted registration u/s.12A of the Income Tax Act, 1961, by the then Commissioner of Income Tax, Andhra Pradesh-II, Hyderabad, vide order in F.No. H.Qrs.II/12A & 80G/95/90-91 dated 09-05- 1991. 4. During the course of assessment proceedings for AYs. 2005-06 & 2006-07, AO was of the view that the assessee-society has collected capitation fee from students, which was directly linked to admission of students in the engineering college run by the society. In view of that, Assessing Officer (AO) denied the claim of exemption u/s. 11 of the Income Tax Act ( Act ) to assessee for both the assessment years, and completed the assessments, treating donations as income, vide order dated 31-12-2007 passed u/s. 143(3) of the Act for the A.Y. 2005-06 and vide order dated 29-12-2008 passed u/s. 143(3) r.w.s 147 of the Act for the A.Y. 2006-07. The said assessments made by the AO denying exemption to the assessee u/s.11 of the Act were conf....
X X X X Extracts X X X X
X X X X Extracts X X X X
....aritable nature. During the course of entire assessment proceedings, the AO has not found any violation of the conditions stipulated in Section 13 of the Act, and it was stated that, in absence of any violation, the society is entitled for continuation of registration u/s. 12A of the Act. 5.2. It was further submitted that the society was started in the year 1991 by prominent industrialists and professionals for providing good educational facilities to the students. They have set apart a substantial amount to provide scholarship to students. It was stated that for such activities substantial donations were given by their members and public. It was further submitted that the management of the society is putting its best efforts in providing best possible facilities to all concerned and not wasting the donations received. With these submissions, assessee-society requested that the proceedings be dropped. 5.3. Ld.DIT(E) has however, cancelled the registration by stating as under: "4. I have carefully considered the submissions made by the assessee society in that letter. However, the same are not tenable. I have carefully gone through the said appellate orders of the CIT(A) and the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f the Act dated 29-12-2008, he has referred to various letters pertaining to donations paid by different persons which have nexus with the admission of the concerned students as given by him in the tabular chart at page 5 to 7 of that assessment order. Reference in this regard made at Sl. No.3, 4 and 5 of that chart, clearly shows nexus of such donation, amounts received by the assessee with admission of those students. Further from the subsequent assessment order passed by the AO, for A.Y. 2006-07, after the said order of Hon'ble ITAT, it is noticed that the assessee has not been able to produce those persons before him, who had given donation exceeding Rs. 3.00 lakhs during that year. 4.3 During the course of assessment proceedings for A.Y. 2006-07, after the said order dated 19-10-2012 of Hon'ble ITAT, the assessee has furnished the details of statement of donations received by it during the years relevant to the A.Ys. 2005-06 and 2006-07 vide its letter dated 24- 03-2014. From the list of such donation, it is pertinent refer to the, following three donations received during the year 2005-06, shown against Rect. Nos.214, 241 and 1923, which are as under: Rect.No. Na....
X X X X Extracts X X X X
X X X X Extracts X X X X
....on and Another Vs State of Karnataka and another (2003) 6 SCC 697, while referring to their judgement in TMA Pai case and directing the respective State Governments/concerned authority to set up committee for fixation of fees, held that once fees are fixed by the Committee, the institute cannot charge either directly or indirectly any other amount over and above the amount fixed as fees. The Hon'ble Apex court further held, if any other amount is charged, under any other head or guise e.g., donations, the same would amount to charging of capitation fee. Thus, applying the above two judgments of the Hon'ble Supreme Court to the facts in the case of the assessee society, and when it has collected such donations from the parents of such students who had taken admissions into the college run by the assessee society, it is clear that such donations collected by the assessee, are purely in the nature of capitation fee charged by the assessee for the purpose of giving admission to those students. Further, it may be mentioned here that the Hon'ble ITAT, Hyderabad in their decision in the case of Vodithala Education Society Vs. ADIT(E)-II, in ITA No. 1138/Hyd/06 dated 31-10-2007....
X X X X Extracts X X X X
X X X X Extracts X X X X
....its from the said parties denying the nature of donations as 'capitation fee' and AO without any further enquiry repeated the original order in reassessment proceedings, which is the basis for the present proceedings. It was the contention that the nature of donations are voluntary and are received in the course of society-trust activities and are duly accounted. There is no allegation of misutilisation of funds. 6.1. It was submitted by Ld. Counsel that the order is based on (a) premature conclusions during the assessment; (b) the twin condition prescribed in the provision was not satisfied and there is no finding on those conditions and (c) that there is no independent application of mind. Ld. Counsel relied on the following cases in support: i. Hon'ble ITAT 'A' Bench, Hyderabad in the case of Vignana Jyothi Vs. DDIT (Exem) in ITA Nos. 378 & 399/H/09 & 66 & 83/H/10 dt. 19-10-2012; ii. Maharashtra Academy of Engg & Educational Research Vs. CIT [133 TTJ 706] (Pune); iii. Hon'ble ITAT 'A' Bench, Chennai in the case of Padanilam Welfare Trust Vs. DCIT [20 Taxmann.com 113] (Chennai); iv. Hon'ble High Court of Karnataka in the case of CIT Vs. Karnataka Lingayat Educ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rder in ITA No. 1138/H/06 dt. 31.10.2007]; xvi. Raja Sir Annamalai Cheettiar Foundation Vs. DIT (Exem) [(2011) 10 ITR (T) 424] (Chennai Trib); xvii. Sri Anjaneya Medical Trust Vs. CIT [(2014) 66 SOT 272] (Coch. Trib); xviii. A.P.Private Engg. Colleges Vs. Govt. of AP & Anr. [(2000) (5) ALD 205 (AP HC)]; xix. Mohini Jain Vs. State of Karnataka [(1992) SCC 666(SC)]; xx. ADIT(Exem)-III Vs. Vasavi Academy of Education [ITAT, Hyd order in ITA No. 1120/H/09 dt. 29-01-2010]; xxi. Marimallappa's Charities Vs. ACIT [ITAT Bangalore order in ITA No. 1492 & 1493/Bang/10 and 675/Bang/2014 dt. 24-06- 2016]; xxii. DDIT(Exem) Vs. Kammavari Sangham [ITAT Bangalore order in ITA No. 206 & 207/Bang/2014 dt. 17-06-2016]; xxiii. Municipal Corporation of Delhi Vs. Children Book Trust [(1992) 63 Taxman 385 (SC)]; 8. After hearing was over, Ld.CIT-DR placed detailed written submissions, as he sought permission during the course of hearing. His written submissions are as under: "As per the provisions of Sec. 12AA(3) of Income Tax Act, 1961, the Pr.CIT /CIT, as the case may be is vested with the powers to cancel the registration granted earlier u/s. 12AA(i)(b) / 12A subject to recording hi....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... in the Memorandum of Society, the assessee society should carry out its activities i.e. imparting education by means of establishing educational institutions without profit motive and it should not engage in commercial activity while running such educational institutions. 4. In the backdrop of this factual matrix, it is to be analyzed whether the assessee has carried out its activities in accordance with the charitable objects as enshrined in the Memorandum of Society. In the instant case, the object of the assessee is imparting education, and since education is also one of the charitable purposes as defined in Sec. 2(15) of the I.T. Act, the objects of the assessee would fall under charitable purposes as per the Income Tax Act. At this juncture, it is submitted that education per se will not be a charitable activity unless the activities are carried out on a charitable endeavour. An assessee carrying on education on commercial lines can't claim the status of a charitable institution only for the reason that the assessee is engaged in educational activities. 5. As per the details gathered by the department during the course of assessment proceedings with regard to the acti....
X X X X Extracts X X X X
X X X X Extracts X X X X
....not. c) Whether surplus generated is applied exclusively to the objects for which the society / educational institution is established. All the above 3 conditions should be fulfilled cumulatively to qualify for the purpose of claiming registration u/s. 12AA as well as exemption of income u/s. 10(23C) /11 as the case may be. 8. On the basis of ascertaining the above mentioned facts, it is possible to determine the predominant object of the activity carried on by the society / educational institution and thereby an inference can be drawn whether it is existing wholly for the purpose of education and not to earn profit. The same are analyzed as under. 9. Source of income is from the activity lawfully carried on :- In the instant case, it is important to examine the nature and source of income i.e. collection of donation from the parents of wards is as per law or in contravention of law. If such amount is collected contravening any law / provisions of Act / Govt. orders, then the assessee is failing in fulfillment of the basic requirement of income derived from the property held under trust wholly/solely for charitable purposes. Accordingly, it is not eligible to register u/s. 12....
X X X X Extracts X X X X
X X X X Extracts X X X X
....only after having fulfilled the primary requirements of i. Generation of income / surplus by legal means without contravening any law; and ii. Any surplus generated exceeding 15% of the receipts is incidental to the main activity of running educational institution. 13. In the instant case, it is an admitted fact that the assessee has collected additional fee/capitation fee in the garb of voluntary contributions from the parents of the students. Though the assessee has contended that such donations were received voluntarily from the parents of the students, but a detailed investigation conducted by the Assessing officer in this regard has revealed the fact that such donations were actually collected from the parents of the students who got admission under management quota, but accounted the same in the books as voluntary donations in order to circumvent the provisions of law. 14. In this context, it is important to know that the Government of Andhra Pradesh has issued a G.O. i.e. G.O (RT) No. 950 dated 06.12.2000,consequent to the decision of the Hon'ble Supreme Court in the case of Unnikrishnan Vs. State of Andhra Pradesh [(1993) 4 SCC 697] and subsequent resolution of ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e provisions of law laid down by the Hon'ble Supreme Court in the case of Adinatar Educational Institutions Vs. Addl. CIT [224 ITR 310 (SC)], Visvesvarayya Technological University Vs. ACIT [2016] (Tax Pub(DT) 1933 (SC) Civil Appeals Nos. 4361 to 4366/2016 dt. 22-04-2016 and Queens Educational Society Vs. CIT [372 ITR 699] (SC), assessee has failed to qualify as an educational institutions society existing wholly for charitable purposes within the meaning of Section 12AA r.w.s. 2(15) of the IT Act). 8.4. In view of the above, It was submitted that in his order dated 30-09-2014, the Ld. DIT(E) has given a finding of fact that assessee has violated the law laid down by Hon'ble Supreme Court in the case of T.M.A. Pai Foundation Vs. State of Karnataka & Ors. (2002) [8 SCC 481 (SC)] and Mohini Jain Vs. State of Karnataka & Others (1992) [2 SCC 666] and Islamic Academy of Education Vs. State of Karnataka (2003) [6 SCC 677] in regard to collection of capitation fee and also placed reliance on the decision of Hon'ble ITAT in the case of Voditala Educational Society Vs. ADIT [20 SOT 353] and, accordingly, cancelled the registration by invoking the second limb of the Sec. 12AA(3....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ble purposes, the authorities are justified in making enquiries and rejecting the applications. Relevant head note is reproduced below: "Charitable Trust - Registration u/s. 12A Charitable purpose - Assessee trust, running a school filed an application seeking registration u/s. 12A. On enquiry, it was found that though the main object of trust being to run educational institutions and establish institutions of training and rehabilitation for mentally retarded persons, physically handicapped persons, etc., but the activity of the trust was only to bring under its ambit the already existing school run by the managing trustee. The school is run in a building where air-conditioned class rooms with breakfast and lunch were provided. The school is maintained and meant for the benefit of children of non-resident Indians. Thus, CIT rejected the registration application taking view that assessee intended to run a posh international school in the name of charitable activity Tribunal affirmed the order of CIT. Being aggrieved, assessee preferred an appeal before the High Court." Further, this decision of Hon'ble Kerala High Court has been affirmed by the Hon'ble Supreme Court by v....
X X X X Extracts X X X X
X X X X Extracts X X X X
....eated voluntary donations as capitation fee and that in appeal, the C.I.T(Appeals), after obtaining remand reports from the Assessing Officer, held that nexus between the donations and admissions was not established. These orders exonerating the assessee were passed on 12-09-2014 i.e., just before the D.I.T (Exem) held against the assessee in his order u/s.12AA(3). The assessee therefore submits that the averment of the DR needs to be discarded in the light of the facts submitted above. Paragraphs 6 to 10: 3. The submissions made by the learned DR citing decisions of the Apex Court in the cases of Aditnar Educational Institutions vs Addl CIT 224 ITR 310 SC, Visweswaraya Technological University vs ACIT Tax Pub (DT) 1933 SC and Queens Educational Society vs CIT 372 ITR 699 SC are, it is submitted, not directly relevant to the issue in the present appeal for the reason that the said cases pertains to Sections 10(22), 10(23C)(iiiad) etc. In fact the learned DR submitted in paragraph 6 that in one case the assessee was university run by the Government and in another case, there was no issue of collection of any fee in violation of law. Paragraph 11: The submissions made by lear....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ducation cannot entitle the assessee to registration u/s.12M. Thus the facts of the said case are not applicable to the assessee's case. 8. Similarly the decision in the case Dawn Educational Charitable Trust vs CIT 370 ITR 724 KER (affirmed by Hon'ble Supreme Court) is distinguishable. The activity of the trust was only to bring under its ambit the already existing school run by the managing trustee. The said school is run in a building where air conditioned classrooms with breakfast and lunch are provided. The school is maintained and meant for the benefit of children of non-resident Indians whereas the main object of that trust was to run educational institutions, establish institutions of training and rehabilitation for mentally retarded persons, physically handicapped persons etc., On these facts, registration sought u/s.12A was rejected and the same was upheld. 9. The contention of the learned DR is that the D.I.T(Exem) has given a finding of fact that the assessee has violated law laid down by the Hon'ble Supreme Court in regard to collection of capitation fee etc. and accordingly cancelled registration by invoking the second limb of Sec.12AA(3) of the Act. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....als) is still pending. 12. Thus the contention of the learned DR that the finding of the D.I.T(Exem) that the assessee has collected capitation fee is a not finding of fact, and is not based on material on record. This is without prejudice to the submission made by the assessee that the issue of collection of capitation fee cannot by itself be a reason for cancellation of registration in support of which the assessee has relied on several decided cases submitted in its paper book. 13. It is submitted on behalf of the appellant that even as per the learned DR's submissions, the DIT(Exem) has not found the objects of the assessee to be not genuine. The contentions raised by the learned DR fail to take into account the fact that the order of the D.I.T (Exemptions) does not show that the assessee is carrying out any activity which is not in accordance with its objects or that there has been misappropriation of funds or utilisation for purposes other than the objects of the society. 14. The asseesse has placed evidence in the paper book filed to show that several donors have given voluntary donations the nature of which has not been disproved by the Assessing Officer even duri....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... raised by the D.R on behalf of the respondent may be rejected and the order of the D.I.T(Exem), Hyderabad cancelling registration earlier granted to the assessee u/s.12A of the Act may be quashed". 10. We have considered the rival contentions and submissions and perused documents placed on record. As can be seen from the order, the Ld.DIT(E) based his conclusion on the basis of enquiry from four parents/relations in assessment proceedings concluded in the year 2007 for AY. 2005-06 and in year 2008 for AY. 2006-07. Even though those findings in assessments were not conclusive and matters were restored to AO for further enquiry, no such enquiry was made as can be seen from the orders passed again on 31-03-2014 for the above years. These orders at present are pending adjudication before CIT(A). Thus, the order of DIT(E) is based on premature conclusions and the contention of Ld.CIT-DR stating that the department has 'conclusively proved' the collection of capitation fee is devoid of any merit. 10.1. As can be seen from the facts, only four cases were examined and on the basis of that, all the donations received including from Members of Society were considered as capitation fees a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tion' in various streams for general public and thus satisfies the condition laid down by the apex court in the above case. Therefore, assessee's activities constitutes 'education' as classified in 'charitable purposes' u/s. 2(15) of the I.T. Act. The further undisputed fact that the assessee has been granted the registration u/s.12A of the I.T. Act also confirms that department was also satisfied that the objects and activities of the assessee society are charitable in nature. 11.3. As pointed out in the above paragraph, prior to 1st April, 1984, the definition of 'charitable purpose' u/s. 2(15) of the Act, ended with the words 'not involving the carrying on of any activities for profit' (emphasis supplied by us). The Hon'ble Supreme Court in the case of Sole Trustee, Loka Shikshana Trust vs. CIT (cited supra) has held that the object of the trust therein was not 'education' within the meaning of sec 2(15) but 'an object of general public utility'. Thereafter, while holding that the publication of newspapers and journals carried on by the trust therein involved the carrying of an activity for profit, it was held that the income of the trust therein was not exempt from tax. It was....
X X X X Extracts X X X X
X X X X Extracts X X X X
....) has considered the meaning of the definition of "charitable Purpose" as existing prior to 1st April, 1984 and has held that these words which restrict the exemption covers only the fourth head of 'object of general public utility' and do not refer to the first three heads of 'charitable purpose'. The relevant portion of the judgment reads as under: "Apparently, when framing the Income Tax act, 1961, Parliament considered it appropriate to cut down the wide scope of these words by qualifying them with the restrictive words "not involving the carrying on of any activity for profit". This was done to emphasize that the residual general head was to be confined to objects which were essentially charitable in nature. It is, therefore, clear that the words "not involving the carrying on of any activity for profit" govern the words "the advancement of any other object of general public utility" and not the words" relief of the poor, education and medical relief" in sec 2(15). The heads "relief of the poor, education, and medical relief" remained unqualified by any express statutory restriction, and income arising from a profit-making activity linked with those heads enjoyed exemption wi....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the attainment of its objective and the charitable or religious trust will no longer lose complete exemption from income tax, but however, the profits and gains from such business activity will be subject to tax. 11.6. Further, the larger Bench of the Apex Court in a subsequent judgment in the case of CIT v. Surat Art Cloth Manufacturers Association reported in 121 ITR 1 (SC) has laid down the following principles:- (i). the words "not involving the carrying on of any activity for profit" govern the words "objects of general public utility", and not the word "advancement" as wrongly held in the Indian chamber of commerce case. It is the object and not its accomplishment which should involve the carrying on of an activity for profit. (ii) to satisfy the above quoted words, it is not at all necessary that there should be a provision in the constitution of the trust or institution that the activity shall be conducted on a no profit no loss basis or that no profit shall be prescribed. (iii) the definition of "charitable purpose" would not be satisfied (a) where an activity for profit is actually carried on as an integral part of the purpose or in order to advance the purpose, or....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n 12AA prescribes the procedure for registration. Section 13 specifies the conditions under which section 11 is not applicable. 11.8. As set out earlier, the exemption u/s. 11 is available to an assessee on the basis of its character, i.e., exemption u/s.11 is available to an assessee whose activities are wholly for charitable or religious purposes. Clause (a) of sub-sec.(1) provides that the income derived from property held under trust wholly for charitable or religious purposes is unconditionally exempt to the extent it is applied to such purposes in India or is allowed to be accumulated for such purposes. Thus, though the property may be held wholly for charitable or religious purposes, the whole or a part of the income may still be disentitled to exemption in a particular year on the ground that: i. the income is applied to purposes other than charitable or religious; ii. the income is applied to any purpose outside India; iii. the income accumulated is in excess of the permissible limit of accumulation; iv. the income shown in the accounts of a business undertaking held upon trust is less than the income computed in accordance with the provisions of the Act; v. the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....46 DTR Judgment 290(Kar) (b) DCIT vs. Vellore Institute of Technology 46 SOT 224 (c) Karandhai Tamil Sangham, Thanjavur Vs. CIT in ITA. No. 960/Mad/2011 dt.9-8-2011. Even if the donations are held to be not voluntary and are linked to admissions, it still does not destroy the charitable character of the assessee. Thus, in our opinion collecting donations voluntarily or compulsorily may have an effect in computation of income but not to the nature of the activities of the Trust-society. 11.11. The next issue for consideration is whether the 'donations' received/collected by the assessee can be termed as 'capitation fee'? Whether collection of 'Donations' can be considered as 'profiteering' by the assessee? To answer this question, it is necessary to understand the meaning of the word "capitation fee". The Income Tax Act has not defined "capitation fee" and therefore it is necessary to look at the meaning given to this word in other related Acts and the judicial pronouncements thereon. The Right of Children to Free & Compulsory Education Act, 2009 defines 'Capitation fee' in Section 2(b) as follows: "Capitation fee" means any kind of donation or contribution or payment other t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....education'. It took note of the following findings of the court in the case of P.A. Inamdar : 129. ......................State regulation should be minimal and only with a view to maintain fairness and transparency in admission procedure and to check exploitation of the students by charging exorbitant money or capitation fees. 139. To set up a reasonable fee structure is also a component of the "right to establish and administer an institution" within the meaning of Article 30(1) of the Constitution, as per the law declared in Pai foundation. Every institution is free to devise its own fee structure subject to the limitation that there can be no profiteering and no capitation fee can be charged directly or indirectly, or in any form. At para 29 of its order in the case of Action committee, Unaided Private schools(cited supra) , the Hon'ble apex court held as under: 29. I, in view of the statement of law laid down in P.A.Inamdar(supra), am of the opinion that the authorities of all the schools, particularly, unaided schools, may lay down its own fee criteria. Imposition of regulation, however, only is permissible for the purpose of exercising control over profiteering and not....
X X X X Extracts X X X X
X X X X Extracts X X X X
....fee and profiteering by the educational institutions, but did not prohibit collection of funds for the purpose of achieving its objects. 11.14. It is thus seen that the private unaided professional colleges are entitled to fix their own fee structure subject to the limitation that there cannot be profiteering and collection of capitation fee. Only the payments, other than fee notified by the educational institution, are called as capitation fee. In the case before us, the assessee is alleged to have collected 'donations' in addition to the prescribed fee only from the students admitted under the management quota. The stand of the AO has been that the assessee has collected 'donations', it is in fact, payment for admission and hence 'capitation fee'. In view of this stand of the Revenue, it is, therefore, necessary to examine if the 'donations' is 'quid pro quo' for a seat in a college. G.O. Ms.No.33 dated 11-6- 2003 issued by the Govt. of Andhra Pradesh to implement the judgment of the Hon'ble Supreme Court in the case of TMA Pai (cited supra), has notified rules and regulations for admissions into under graduate professional courses through Common Entrance Test. The rules....
X X X X Extracts X X X X
X X X X Extracts X X X X
....les framed above, 85% of the seats are to be filled by the Convener and the management has no role or discretion what-so-ever either in the admission process or in collection of fee as regards these seats. As regards the balance 15% of the seats under the Management Quota also, admission criteria is already fixed by the rules and the discretion of the management is limited. In such circumstances, can it be said that the assessee is involved in 'profiteering' or collection of capitation fee? 11.15. We have already brought out above, the observations of the Apex Court that in view of the majority judgment in the case of TMA Pai, different institutions may notify different fee for different courses and the same institution is also entitled to fix different fee for different courses. Therefore, if the institution has fixed different sums for different courses, they are perfectly entitled to do so but they must notify the same. To our understanding, the requirement of notifying the fee is to ensure transparency and accountability and to prevent misuse of funds. In the case before us, it is the stand of the assessee that these are voluntary contributions not connected to the admission o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ents may be willing to contribute to the development of the institution but that would not amount to profiteering by the institution. 12. That leads us to the question whether the assessee has violated the rules and regulations of the government of Andhra Pradesh framed for the purpose of prohibiting the collection of Capitation fees? One of the grounds on which the revenue has relied is that the assessee has violated the provisions of the Andhra Pradesh Educational Institutions (Regulation of Admission and Prohibition of Capitation Fee) Act, 1983 which prohibited collection of any fee other than the fee fixed by the Govt. The ld DR has placed before us the copy of the G.O.Ms.33, dt.11-06-2003 issued by the government of Andhra Pradesh to implement the judgment of the apex court in the case of T.M.A. Pai Foundation (supra) by framing the rules and regulations for admission of students into professional colleges. As per these rules, the fee prescribed per student admitted to an engineering college under the management quota was up to a sum of Rs. 75,000/ per annum. There is no allegation that assessee has collected any fee in excess of such prescribed amount. In addition to the abo....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... and 13 of the Act. In the present case, it is not the issue of assessment but issue of cancellation of registration already granted. Most of the issues discussed above are academic in nature but those are to be discussed as Ld.DIT(E) has relied on the findings on the assessment order, to resort to cancellation of registration. The provisions of Section 12AA(3) which empowers the Ld.DIT(E) to cancel the registration are as under: "12AA(3) Where a trust or an institution has been granted registration under clause (b) of sub-section (1) [or has obtained registration at any time under section 12A [as it stood before its amendment by the Finance (No.2) Act, 1996 (33 of 1996]] and subsequently the [Principal Commissioner or] Commissioner is satisfied that the activities of such trust or institution are not genuine or are not being carried out in accordance with the objects of the trust or institution, as the case may be, he shall pass an order in writing cancelling the registration of such trust or institution: Provided that no order under this sub-section shall be passed unless such trust or institution has been given a reasonable opportunity of being heard.]" Thus, the provision ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....) That activities of the trust are not carried out in accordance with the objects of the trust/institution. Thus, the findings of the CIT has not to be only conceptual or contextual but should be within the four-corners of law so that not surpassing the power granted in subsection (3) of section 12AA. But unfortunately the fallacy is writ large as gathered on perusing the impugned order. The CIT's approach for deciding the eligibility of registration of a trust should be different from the angle by which an assessment of an income is made by AO. In the recent past sub-section (3) was inserted in section 12AA with effect from 1-10-2004 which gives power of cancellation of registration to the CIT, 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 CIT cannot exercise the power of cancellation of registration. To overcome 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 section 12AA, a ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....strict 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 misutilization of funds or to judge the taxability income. The scheme of the Act otherwise does not subscribe and allow a trust to take the benefit of the provisions of section 11 and 12 unless it establishes the prescribed utilization of the income even if at all he trust holds the registration in its hands. Therefore at the stage of granting registration the CIT is not expected to bother himself about the other provisions of the Act and supposed to confine himself to the procedure of registration as laid down therein. [Para 11.6] Another feature of the impugned order of the CIT is in fact bothering that nowhere he has taken any objection to the charitable and educational nature of the institution. In fact, the objects of the institution, as declared in the trust deed does reflect that all are philanthropic or benevolent in nature, precisely for the purpose of imparting education. Strange enough there is no finding recorde....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ntextual but should be within the four corners of law so that not surpassing the power, as listed above, granted in sub-section (3) of section 12AA. But unfortunately the fallacy is writ large as gathered on perusing the impugned order. The CIT's approach for deciding the eligibility of registration of a trust should be different from the angle by which an assessment of an income is made by the AO. About the ramification if one approve the action of CIT because in that case it may adversely affect the imparting of education especially when the revenue has not made out a case that the very purpose for creation of the trust was defeated. Rather one wonders that what purpose does it serve to revenue by cancelling a registration if the activities are in public interest because in case of any breach of the laws the same is subject to tax under sections 11 and 12. These two provisions and few other provisions are competent enough to tackle firmly a defaulter of philanthropic application of income or funds of the trust. The other adverse side of cancellation is that on refusal of registration the entire receipts shall be subject to assessment without granting benefit of section 11 and sec....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ng of education, for which the trust was created, were not carried out. Even the CIT has failed to establish that any part of the income/receipt of the trust was in any manner misutilized by the trustees for their personal benefit i.e., not in fulfillment of the object of the trust. Otherwise also there are three ways to look at this problem. One is, that the donations are raised but not utilized for achieving the objects, Le., towards imparting education; then such an institution must bear the consequence of cancellation of registration since ipso facto infringed section 12AA(3) condition. Second aspect is, that though the donations received are meant to fulfill the objects but together with fees have infringed Anti Capitation Prohibition Act; then comes within the clutches of that Act but definitely not under section 12AA(3) provisions. The third aspect is, that the donation plus fees do not exceed the prescribed limit of Anti Capitation Fee Act i.e., five times the normal fees; further that no evidence of misutilization other than the prescribed activity then no action can be suggested under section 12AA(3). The Assessee's case falls under the third category. With the result....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f High Courts and coordinate Benches of the Tribunal at other places and that it has the effect of determining the legal position of taxability of educational institutions in the State of AP at variance with the following decisions in the rest of the country: i. Director of Income-tax (Exemption) & another vs Shri Belimatha MahaSamsthana Socio Cultural & Educational Trust (46 DTR (Kar) 290 ii. Maharashtra Academy of Engineering & Educational Research vs. CIT (133 TTJ 706)(Pune) iii. Karandhai Tamil Sangam, Thanjavur, Vs. CIT (ITA 960/Mds/2011 dt.9-8-2011) iv. DCIT vs. Vellore Institute of Technology (46 SOT 224) (ITAT, Chennai). However, the reference and constitution of special Bench in Matrusri educational Society case was rejected as the matter was pending before the Hon'ble jurisdictional high Court. However as stated earlier the issue is one of violation of provisions of Section 11 and 13 of the Act and not cancellation of Registration. Most of the case law relied on by the CIT-DR is with reference to the violation of provisions of Section 11 & 13 or granting registration u/s.12A / 12AA. Thus, those decisions may not directly apply to the issue under consideration. 1....
X X X X Extracts X X X X
X X X X Extracts X X X X
....lege, hostel and to provide other facilities to the students who are studying in the college. The college is recognized by the Medical Council of India, State of Karnataka and all other statutory authorities. Therefore, it cannot be said that the trust is not genuine. Admittedly, the students are being admitted every year. Students are studying in all courses. Thus the object of the constitution of the trust namely imparting of education is going on uninterruptedly. Therefore, it cannot be said that the activities of the trust are not being carried out in accordance with the objects of the trust. When the aforesaid two conditions are fully satisfied, on the ground that the trustees are misappropriating the funds of the trust the registration of the trust cannot be cancelled. If the trustees are misappropriating the funds, if they are maintaining false accounts, it is open to the authorities to deny the benefit under section 11, but that is not a ground for cancellation of registration itself. That is precisely what the Tribunal has held. Therefore, the substantial question of law is answered in favour of the assessee and against the revenue". 15. The principles laid down by the H....