TaxTMI 
TaxTMI 
2017 (5) TMI 8
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.... carried out by the Society are in accordance with 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 ....
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....gistered u/s. 12A of the Act after satisfying with its charitable 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 careful....
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....de by the AO for A.Y. 2006-07 vide order u/s. 143(3) r.w.s. 147 of 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 again....
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....fee is nothing but a price for selling education'. Later, the Hon'ble Apex Court in their decision in Islamic Academy Education 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....
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....s are not voluntary. It was further submitted that the ITAT has remitted the matter for further enquiry as the assessee could file affidavits 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....
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.... xiv. Dawn Educational Charitable Trust Vs. CIT [370 ITR 724] (Ker.HC); xv. Voditala Educational Society Vs. Asst. Director (Exem), Hyd [20 SOT 353 ITAT, Hyd order 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)....
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....y other type of public charitable institutions having same or similar objects is also one of the objects of the society. 3. Accordingly, as per the objects and activities mentioned 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 t....
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....ce of income is from an activity lawfully carried on by the society / educational institution or not. b) Whether surplus resulting from such activity, after meeting the expenditure, is incidental or 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 th....
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.... charitable purpose in the same year of generation or accumulated over a period of time as per the provisions of Sec. 11(1)(a). As such, the issue of application / utilization of surplus would come into picture 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 is....
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....005-06 & 2006-07)". 8.3. Relying on the GO issued by State Government, it was reiterated that assessee-trust has violated that GO. As there is clear violation of law in collecting the amounts, in accordance with the 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....
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....ational Charitable Trust Vs. CIT (2015) [370 ITR 724] (Page Nos. 142 to 143 of Dept. Paper Book) : wherein Hon'ble High Court of Kerala held that when school is running under the commercial lines under the clad of charitable 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 ac....
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....er and that the appeals against the fresh assessments are pending before the C.I.T (Appeals). It has also been brought to the kind notice of the Hon'ble ITAT that for the Assessment Years 2010-11 and 2011-12, the Assessing Officer treated 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 ....
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.... Institute of aeronautical Engineering Educational Society 315 ITR 428 Uttarakhand: It was found as a fact in that case that the assessee was carrying on commercial activity and it was held by the Court that mere trade or commerce in the name of education 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)....
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....,84,85,000/- being the same amount taxed in the original assessment was brought to tax in the fresh assessment for Asst.Year 2006-07. (please see pages 1 to 4 and 5 to 8 of paper book filed by assessee). The assessee's appeal before the C.I.T(Appeals) 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 utilisatio....
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....rt of its contention that the D.I.T(Exem) was not correct in cancelling registration solely on the count that the assessee has received donations which are accounted for and utilised for charitable purposes. 16. The assessee submits that the contentions 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....
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....pass every acquisition of knowledge and gave a restricted meaning to the word 'education' by confining it to 'scholastic instruction' and 'normal schooling'. 11.2. In the case before us, the assessee society established educational institution to impart 'scholastic instruction' 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) ....
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....ference to 'profit' not meaning 'private profit' by the Apex court was in reference to the fourth category of charitable activity and not to the first three categories. 11.4. The Hon'ble Supreme Court, further, in the case of Dharmadeepti v. CIT, Kerala reported in 114 ITR 454(SC) 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 ....
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....f account are maintained by such trust or institution in respect of such business. Department Circular No.642 dated 11-12-1992 has explained that Sub-section (4A) has thus been amended to permit trusts and institutions to carry on business activities if the business activities are incidental to 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 t....
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....1 is registration u/s.12A/ 12AA of the Act and without the same, exemption under s.11 would not be available at all. Section 12 specifies the income which is to be deemed to be the income of the charitable institution, while sec.12A prescribes the conditions for applicability of sections 11 and 12 and section 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;....
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....ere states that if the contribution is compulsory (or not voluntary) the recipient ceases to be charitable in nature or that the benefit of section 11 of the IT Act should be denied. Support can be taken from the following decisions: (a) Shri Belimatha Maha Samsthana Socio Cultural & Educational Trust reported in (2010) 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"....
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....dgments in the cases of P.A.Inamdar and Islamic Academy of Education and has considered the question as to whether admission procedure and fee structure of an unaided minority and non-minority institutions imparting professional education can be regulated or taken over by the committees ordered to be constituted by 'Islamic academy of 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 ap....
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....ged and that there is no profiteering though a reasonable surplus for the furtherance of education is held to be permissible. The decision of the eleven Judge Bench in the case of TMA Pai (supra) was explained by the Apex Court in it subsequent judgments. In all the judgments, the Apex Court has, however, deprecated collection of capitation 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 'donat....
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....nsidered as a 'fee' and if it is over and above the prescribed fee then is it in the nature of 'capitation fee'? The Hon'ble Apex Court in the case referred to above has held that the managements of Private Un-aided professional colleges can prescribe their own fee structure in order to maintain and improve the institution. As seen from the rules 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 di....
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....ere were newspaper reports that many colleges could not get the permitted number of students. The reasons for not getting the students may be many such lack infrastructure, or faculty or standard of education. The assessee institution may be commanding good reputation and may also be a sought after institution due to which the parents and the students 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 th....
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....rovisions of Andhra Pradesh Educational Institutions (Regulation of Admission and Prohibition of Capitation Fee) Act, 1983. 13. Thus, it can be seen that the contentions of the Revenue cannot be supported fully on the parameters set-out above. However, these issues will arise in an assessment completed in a trust case under the provisions of Section 11 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 ca....
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....tle an institution to get the receipts excluded from the income or exemption be granted automatically by just showing the registration certificate to the revenue authorities. The sine qua non for cancellation of registration are two conditions prescribed in section 12AA(3) needs to be satisfied are: (a) That activities of the trust/institution are not genuine. (b) 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 f....
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....tions 11 and 12. It is also explicit that registration ipso facto does not necessarily entitle an institution to get the receipts excluded from the income or exemption be granted automatically by just showing the registration certificate to the revenue authorities. [Para 11.5] Procedure of registration is a first step and a preliminary stage where the CIT 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 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 o....
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....11] The sine qua non for cancellation of registration are two conditions prescribed in section 12AA(3) needs to be satisfied are: (a) That activities of the trust/institution are not genuine. (b) 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, 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 subj....
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....tly the situation is that the revenue has not said about any immoral activity of the appellant or the collection of fees was by wrongful means; hence deregistration sans the Tribunal's approval. [Para 11.13] Prima facie no case was made out by the CIT so as to even vaguely demonstrate that the activities of the appellant were not genuine or activity of imparting 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 12A....
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....but that the same has to be collected in the manner prescribed. That the decision of the ITAT in the case of M/s.Vodithala Education Society and Vasavi Academy of Education, Hyderabad (supra) was rendered without examining the provisions of the AP Educational Institution (Regulation of Admissions and prohibition of capitation fee) Act, 1983 and many other decisions of 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 Cou....
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....or bogus. Therefore, the Tribunal had set aside the order passed by the Commissioner and restored the registration. * On appeal: HELD In the instant case, the material on record shows that the trust has established educational institution and _imparting medical education. Every year, students are admitted. Huge investment is made for construction of buildings for housing the college, 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 misa....