TaxTMI 
TaxTMI 
TaxTMI 
2017 (1) TMI 1671
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....ation on 21.01.02. Nothing has come on record to point out that the activities of the trust have been run for the benefit of a family or for private benefit and hence there is no justification for coming to the conclusion that the trust is a family trust. The seized paper , CH-21-VJ-18 was only a discussion draft to make arrangements for the bifurcation of the trust into medical and technical campuses for smooth administration of the trust as the regulatory and service rules applicable to medical and technical institutions were widely different. The learned Commissioner should have appreciated that no change, in the structure or constitution of the trust could be brought about by merely having_an unsigned document purportedly holding out that the trust was a family trust and as long as that there_was no registered document altering the deed already registered the basic character of the trust could not be changed. 3. The Commissioner has totally erred in cancelling the registration on the ground that books of account were not finalized and no audit of accounts was conducted and no returns were filed till date of search. It is true that the returns from the assessment year 2007-08....
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....he carrying on of any activity for profit" from the definition of charitable purpose under section 2(15) and hence, even if the educational institution is run on commercial lines that will not be ground for cancellation of registration if the surplus is used for the furtherance of the objects of the trust 5. The Commissioner is also not justified in alleging that the trust_funds_were_diverted for the benefit of the trustees by advancing amounts to Dr K M Navas, a trustee . The Commissioner should have appreciated that as per section 13(2), the exemption under section 11 and 12 will be lost only when the income or property of the trust is inter-alia lent without adequate interest. The trustee to whom the funds were temporarily advanced , had paid interest at 16% per annum , the maximum rate at which funds were borrowed by the trust and hence the above provisions of section 13(2) were not applicable to the trust. 6. Running educational institutions was the predominant object of the appellant trust though the trust had also other objects of charity like relief of the poor, establishment of destitute homes, etc. The Commissioner should have appreciated that it is not required for....
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....t quota in Medical and Ayurveda colleges. The trustees are diverting trust funds for the benefit of persons specified, thereby infringing the provisions of section 13(1)(c) and violating provisions of section 11(5) of the Income Tax Act, 1961. 5. The CIT(Central), Calicut issued a show cause notice u/s 12AA(3) of the Act, and asked as to why registration granted u/s 12AA shall not be cancelled for the reasons recorded in his show cause notice. The CIT, has recorded reasons for issue of show cause notice at para 2, on pages 1and 2 of her order. The CIT, observed that though, the trust is registered as charitable trust, in reality, it was running like a family trust as all the trustees are family members. The trust is not maintaining proper books of accounts and no returns of income were filed for the A.Y. 2006-07 onwards. Though returns of income were filed for Asst years prior to A.Y. 2006-07, such returns were filed in response to notice u/s 148 of the Act. The trust is collecting additional fees from students admitted under management quota in Medical and Ayurveda colleges. The trust funds are diverted for the benefit of specified persons. The CIT has discussed the points which....
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....s evident from the facts gathered during search and post search investigation as per which though it is registered as public charitable trust it is managed by family members, the trust is not maintaining proper books of account and has not filed regular returns of income as prescribed under law, there are few instances of violation of sections 11(5) and 13(1)(c) and the trustees are siphoning trust funds for purchase of properties in their personal name. The CIT further observed that though the trust is imparting education through various educational institutions, such education is provided with profit motive which is evident from the fact that it has collected additional fees from students admitted under management quota in medical colleges. The CIT further alleged that additional fees collected from students is not accounted in the books of accounts and it was used for payment of on-money for purchase of property in the name of trustees which is confirmed by the trustee Shri. K.M. Navas in his statement recorded during search, which was further confirmed by some of the parents of students in their sworn statement. The CIT further observed that it is well settled that even if nome....
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....h are not in the nature of charitable purpose as defined u/s 2(15) nor made out a case of non genuine activities which are the two conditions essentially required for invoking provisions of section 12AA(3) of the Act. The assessee has countered allegations made by the CIT, by filing various details and submitted that reasons given by the CIT do not make out any case, which can show the activities of the assessee are not genuine or that the activities of the assessee are not being carried out in accordance with the objects of the trust or institution. Non maintenance of regular books of accounts, belated filing of returns of income, violation of provisions of Sec.13(1)( c) of the Act inasmuch as the trustees were paid loan are all by way of passing reference having no relevance to whether or not the assessee was pursuing education as its main object. The assessee's objects are predominantly charitable in nature and such objects are pursued by establishing 17 educational institutions in various subjects including medical, engineering, nursing, and pharmacy and management studies. All colleges and institutions are approved by regulatory bodies like, Medical Council of India, All India....
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....lation of registration as long as the trust objects are charitable in nature and its activities are carried out in accordance with its objects. 10. The Ld. AR further referring to other observations of the CIT with regard to collection of additional fees from certain students and diversion of funds to trustees, submitted that these are passing remarks by the CIT which cannot be considered as non genuine activities. The trust has collected fee from students as prescribed by the authorities. In some cases, additional fees collected from students admitted under management quota and such additional fees has been accounted for in the books of account and also applied for objects of the trust. The trust has collected additional fees in two years from students admitted under management quota and such additional fee does not exceed the limit prescribed by the authorities. The private unaided management colleges are permitted to fix their own fees in respect of management quota seats considering their feasibility and collect such fees from students. The additional fees and advance fees collected from students is hardly 4.46% of total fees collected from students. The additional fees colle....
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....ed by Income Tax Officer(T) for Commissioner of Income Tax. The Ld. AR referring to section 12AA(3) and show cause notice submitted that it is very clear from provisions of section 12AA(3) that the CIT cannot delegate his powers to ITO and he himself/herself exercise powers only on recording his/her satisfaction of the circumstances that may warrant the exercise of such powers. In this case, the show cause notice was issued by the ITO(T) for the CIT and such notice is bad in law and orders passed on the basis of invalid notice cannot survive in the eyes of law. The Ld. AR relied upon following case laws:- (i).CIT vs. Sree Narayana Chandrika Trust 212 ITR 456 (Kerala) (ii).CIT vs. Pullickal Medical Foundation Pvt Ltd 210 ITR 299 (Kerala) (iii).American Hotel and Lodging Association vs. CBDT 301 ITR 86(SC). (iv). Brahmin Education Society vs. ACIT 227 ITR 317 (Kerala). (v). VanithaVishram Trust vs. CCIT 327 ITR 121(Bombay). (vi).Maharashtra Academy of Engineering Education Research vs. CIT 133 TTJ 706(Pune). (vii).ACIT vs. B. Srinivasa Rao 97 DTR 132(Hyderabad). (viii).ChaitanyaBharaty Institute of Technology vs. DIT(E)- unreported(Hyd). (ix)CIT vs. Fr. Mul....
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....llected from students seeking admission and this fact has been confirmed by Dr. K.M. Navas, managing trustees in his statement. Non maintenance of books and non filing of returns was not disputed by the trustee. Though, returns of income have been filed subsequently, the fact that activities of the trust are not genuine was not countered by the assessee. Going by the provisions of section 12AA(3) of the Act, it is very clear that what is to be seen is objects of the trust and its activities. The CIT has brought out number of issues which shows light on non genuine activities of the trust which triggered cancellation of registration,as such the order of the CIT should be upheld. In this regard, he relied upon the following judgments. (i).Travancore Education Society vs. CIT (2014) 369 ITR 543(Kerala). (ii).Aditanar Educational Institutions v. Add. CIT [1997] 224 ITR 310. (iii) Visvesvaraya Technological University v. Asstt. CIT [2016] 384 ITR 37.(SC); (iv). Queens Educations Society v. CIT [2015] 372 ITR 699(SC). (v). CIT v. National Institute of Aeronautical Engg. Education Society [2009] 315 ITR 428. (vi).Voditala Educational Society v. Asstt. DIT (Exemption) [20....
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.... family members and its affairs is controlled by them. The second observation with regard to non maintenance of books of account and non filing of regular returns of income as required under the Act. The CIT also observed that the trust has collected additional fees from students admitted under management quota and that fund has been used for payment of on-money payment for purchase of property in the name of trustees. These are four observations of the CIT which lead to drawing adverse inference on the objects and activities of the trust and cancellation of registration u/s 12AA(3) of the Act. The CIT never disputed the fact that the trust objects are charitable in nature as defied u/s 2(15) and it is pursuing its objects by imparting education through various educational institutions. The CIT has accepted the fact that the objects of the trust are predominantly providing education and such object iscarried out through number of educational institutions which is evident from the fact that the trust is running seventeen educational institutions offering various graduate and post graduate degrees in Medicine, Engineering, Pharmacy, Management studies and Nursing. There are more than....
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....sue its activities in accordance with its objects by running educational institutions. Therefore, we are of the view that where the purpose of the trust is relief to the poor, education and medical relief, the requirement of the definition of charitable purpose would be fully satisfied, even if an activity for profit is carried on, in the course of carrying out the primary purpose of the trust. This position is further strengthened by the decision of Hon'ble Supreme court in the case of Surat Art Silk Cloth Manufacturers Association vs. Addl.CIT (1980) 121 ITR 1 and Honble Kerala High Court Decision in the case of Dharmadeepti vs CIT (1978) 114 ITR 454. This position is further clarified by Hon'ble Supreme Court in the case of Queen's Education Society vs. CIT (2015) 372 ITR 699 and American Hotel & Lodging Association Educational Society vs. CBDT (2008) 301 ITR 86. 16. Having said so, let us examine the powers of the Commissioner to grant registration u/s 12AA and cancellation of registration u/s 12AA (3) of the Act. The power to cancel registration already granted u/s.12AA of the Act is contained in Sec. 12AA(3) of the Act and it reads as follows: "(3) Where a trust or an in....
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...., there is no finding recorded by the CIT contrary to this fact.Rather, this is also not the case of the CIT 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 any other activity except running educational institutions. In such circumstances, the action of cancellation of registration cannot be upheld. As far as the object of the assessee is concerned, this is not the case of the Revenue that the assessee was not imparting education. Since the question about the imparting of education has not been doubted or challenged by the Revenue, the impugned order passed by the CIT is unsustainable in law. Strange enough again, there is nothing on record to prove even sightlessly that the purpose of imparting education was not fulfilled by this institute, thus the Revenue Department has failed to establish that there was any illegal activity or infringement of law so as to doubt the genuineness of the activities. 17. The CIT's approach for deciding the eligibility of registration of a trust should be different from the angle by which an assessme....
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.... there are three ways to look at this problem. One is, that the donations are raised but not utilized for achieving the objects i.e., towards imparting education; then such an institution must bear the consequence of cancellation of registration since ipso facto infringed s. 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; that comes within the clutches of that Act but definitely not under s. 12AA(3) provisions. The provisions of section 13(1) are thus not directly relevant in this regard. "Nothing contained in section 11 or section 12 shall operate so as to exclude, from the total income of the previous year, of the person..." which clearly envisages operation of section 11 or section 12 before the provisions of section 13 can be applied or invoked in a given case. It also shows that the said provisions can be applied or invoked only at the time of computation of total income of the previous year of the person who is claiming exemption under section 11 or section 12. Both these situations contemplated in section 13 can arise only and only if registration u....
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....of regular returns of income it was submitted that it is true returns of income from the A.Y. 2007-08 have not been filed regularly and such returns have been filed after search but before the Commissioner issued her show cause notice on 6-9-2013 which is evident from the fact that returns of income up to A.Y. 2011-12 have been filed before 21-8-2013. The trust has filed regular returns for A.Y. 2012-13 and subsequent years. The AR further submitted that even assuming that there is delay in filing returns of income, it cannot be said that it is fatal so as to withdraw registration u/s 12AA(3). Non filing of returns is purely a procedural laps which can be cured by filing return of income or some other penal provision is provided to deal with non filing return of income, but it cannot be a ground for cancellation of registration as long as the trust objects are charitable in nature and its activities are carried out in accordance with its objects. Therefore, we are of the view that non maintenance of regular books of accounts, belated filing of returns of income, are all by way of passing reference having no relevance to whether or not the assessee was pursuing education, as its mai....
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....s collected from students admitted under management quota and such additional fees has been accounted for in the books of accounts and also applied for objects of the trust. The trust has collected additional fees in two years from students admitted under management quota and such additional fee has not exceeded the limit prescribed by the authorities. The private unaided management colleges are permitted to fix their own fees in respect of management quota seats considering their feasibility and collect such fees from students. The additional fees and advance fees collected from students is hardly 4.46% of total fees collected from students. The additional fees collected have been accounted for in the books, therefore it is incorrect on the part of the CIT to make baseless allegations that additional fees collected was not accounted for in the books of account and such additional fees has been used for payment of on-money for purchase of property in the name of trustees. The CIT made said comments on the basis of sworn statement of Shri. K.M. Navas, Managing trustee. But, if you refer the statement, no where the managing trustees admitted that additional fees has been used for pay....
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....rial has been brought by the CIT that the assessee society exists for profit motive. The Department has not been able to discharge its onus of showing as to how the conditions for grant of registration have been breached by the assessee. The assessee remained enjoying the registration granted to it for the last number of years under the same unchanged facts and circumstances. It has also not been demonstrated by the Department as to how the approach of the assessee has turned to a commercial one. The predominant object of the assessee is and remains to carry out charitable purpose of advancement of education, and not to earn profit. In fact, no profit has been established to have been earned by the assessee. The CIT has failed to specify as to how profit earning is the predominant activity of the assessee instead of carrying out its said charitable purpose. On the other hand, the assessee has filed various details of income from property held under trust and application of income for charitable purpose as per which its application of income for its object is more than its income generated from property held under trust for all these years. In fact, its application of income is more....
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....or profit. [Para 21] In the instant case, there was no dispute about the fact that the assessee-trust existed only for educational purposes, i.e., for running schools and not for the purposes of making profit. There was an integral unity between the trust and the school for the purposes of section 10(22 ). The amount invested belonged to the school. The school was not merely a building in which it was housed, or the equipment that was contained in it, but something more. It was an institution, and that institution belonged to the trust. In dealing with the question, whether the income was that of the school, the significance of the expression 'any income of a university or other educational institution' in section 10(22) had to be noticed. Both words 'any' and 'of' carry a definite meaning. It is not income from the educational institution that is exempted but any income of the educational institution. What appears to be relevant is that the income should reach the school to be utilised by it for educational purposes and not for the purposes of profit. [Para 22] It is, thus, obvious that granting exemption to the income of the educational institutions is to enable such instit....
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....re that while considering the registration the CIT shall also see the manner in which the receipts or the income is being spent by the trust. Various related provisions, the power of enquiry, in respect of sources of receipts and the utilization of income is entrusted in separate sections as already discussed ante. The language thus used in section 12AA only confines to enquire about the activities of the trust and its genuineness, which means, in consonance with the objects for which created and those objects as also activities should not be a camouflage but pure, sincere, charitable and for public utility at large. What is implicit is that the CIT has to sincerely examine that the objects as also the activities should not be prima facie against the basic structure for which beneficial law is made and also be not in conflict with the general public utility. Naturally an institution if established to carry out an illegal activity or activities are causing any type of nuisance not in the interest of the public at large should definitely lead to cancellation of registration. Therefore, this is the first requisite of the statute to mandate for the registration and in the absence of su....
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.... 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 one uphold the action of cancellation of registration? Answer is obvious no. [Para 11.7] 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. 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 subjects 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 or challenged by the revenue therefore, the impugned order passed by the respondent is unsustainable in law. Strange enough there is nothing on record to prove sightlessly that the purpose of imparting ....
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.... that the amount of correct exempt income be not prejudged. [Para 11.12] The aspect of morality as touched by the CIT 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. One is tempted to write an idiomatic language due to the sensitivity of the issue, that a CIT cannot be allowed to hold a baton of morality in his hand to hit an immoral; but the statute has given him a flexible stick for inflicting tax on defaulter; that includes a trust or educational institution. The gist is that if the CIT had an information of some wrongful means of earning fees in the form of a donation or the information tells about excessive charging of fees; then the CIT in his rights can pass on the information to the concerned office bearers working under the Maharashtra Capitation Fees (Prohibition) Act. These authorities have enough power to deal with such nature of default, side by....
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....visions of section 12AA states that, the Department can cancel registration granted to a society under section 12AA if the activities of the trust are not genuine and the activities of the trust are not carried on in accordance with the object of the trust. [Para 32] In the present case, the Commissioner is not alleging that the assessee is not pursuing object of imparting of education. It is an admitted fact that the assessee had been carrying on educational institution imparting medical education and it fulfilled requirement of imparting education and the question of imparting education by the assessee has not been doubted or challenged by the Department. Being so, on this reason, registration cannot be cancelled. [Para 33] The Commissioner has relied on the certain materials to demonstrate that the activities of the trust are not being carried out in accordance with the object of the trust. He expressly referred to the seized material to hold that the assessee's activities cannot be said to be for charitable purpose. These materials are independently not corroborated. Collection of capitation fee by the assessee was made out on the basis of Excel sheets found during th....
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.... (g). The ITAT, Ahmadabad in the case of Ajith Education Trust vs. CIT (2010) 143 TTJ 483 held that non maintenance and non filing of regular returns cannot be a ground for cancellation of registration. The relevant portion of order is extracted below. The objects have explicitly stated that the trust was established for educational purposes. Nowhere in the order of the CIT there was an allegation that the trust was not running an educational institution. Therefore one has to examine the correctness of the cancellation of the registration in terms of the language of s. 12AA as prescribed in sub-s. (1) and particularly in cls. (a) and (b) of the section. So far as the running of the educational institution is concerned, even the AO while passing assessment orders for several years, has held that the trust is entitled for exemption under s. 10(23C)(iiiad). If the Revenue officer himself is qualifying this trust as an educational institution and then granting the said exemption, then as a result it was not justifiable on the part of the CIT to hold such a conflicting view, which can be said to be altogether contrary to the facts of the case. The allegation was that the books of ac....
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....us was used for philanthropic purposes, which need not be medical purposes. In other words, what was intended was a benefit to hospitals and to trusts or societies running them, provided the institution was not one run for profit. On the strength of various decisions under section 10(22) which, as mentioned above, is analogous to section 10(22A) the position is well established that if a trust or society exists solely for educational purposes and it runs an educational institution, its income will be the income of the educational institution, and, therefore, exempt under section 10(22). The fact that the assessee had other objects, will not disentitle it to the exemption so long its the activity carried on by it was that of running an educational institution, and its activities were not for profit. The same ratio must apply to hospitals as well The trust which is running the hospital and is existing solely for that purpose falls within the purview of section 10(22A) with exemption for its income, if the other requirements of the section are satisfied. It should be treated as the hospital itself, as it existed solely for running of the hospital and not for any other purposes. In oth....
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....will be to syphon off the income required for the starting of a hospital by way of tax, thereby depleting the resources available to the institution, defeating the very object behind section 10(22A) for the years 1977-78 and 1979-80. Therefore, the Tribunal was justified in holding that the assessee was entitled to exemption under section 10(22A)." (i)The Hon'ble Karnataka High Court in the case of CIT vs. Islamic Academy of Higher Education (2015) 229 Taxmann. 274 held that where assessee trust was fulfilling its main object of imparting education, registration of trust could not be cancelled on the basis that trustees were misappropriating trust funds. The Relevant portion of order is extracted below. "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 b....
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....ions are voluntary and no capitation fee was collected. No further enquiry was conducted in spite of remitting matter for examination of the same. Even though the matter is pending adjudication before the Commissioner (Appeals) in assessment proceedings, these four isolated instances which were relied on by Assessing Officer do not conclusively establish that the society has violated the objects for which it was established and registration framed so as to invoke provisions of section 12AA(3) to cancel registration. [Para 10.1] The provision envisages that 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. Even though DIT(E) has used the above words in the order before cancelling the registration, there is no such finding that the activities are not genuine or are not being carried out in accordance with the objects. Assessee no doubt is running an educational institution and i.e., of charitable nature. Even though donations are collected, they are permitted by the Memorandum and as discussed above, permitted by the Statut....
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....ation fees collection and the assessee has collected additional fees which were within the prescribed fees fixed for management quota seats, therefore, the case law relied upon by the ld. D.R. is not applicable for the facts of present case. 24. In this view of the matter and considering the ratios of case laws discussed hereinabove, we are of the considered view that the Ld. CIT is not justified in withdrawing the registration granted u/s.12AA of the Act by invoking the provisions of section 12AA(3) of the Act. Such act of the Revenue will only affect the poor students, who are studying in the institution by paying nominal / normal fees and also other students thereby defeating the very purpose of these provisions of the Act, which are enacted with the intention of promoting education in the country. In the instant case, the material on record shows that the Trust has established educational institutions and was imparting medical education. Every year, students are admitted. Huge investment is made for construction of buildings for housing the college, hostel and for providing other facilities to the students who are studying in the College. The College is recognized by the Medi....