TaxTMI 
TaxTMI 
2021 (10) TMI 447
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....7 as per trust deed dt: 27-09-1996, which thus the cancellation of the trust deed dt: 18-07-1998 as pointed out, has nothing to do with the registration u/s. 12A of the Trust. 3. The Ld. CIT (Exemptions) erred in observing and refusing the registration ix] s. 12AA(3) r.w.s. 12AA(4) is not correct and is bad-in-law since the allegation that the original trust deed was cancelled is not correct, since the original deed was executed on 12-09-1996 and the approval for registration u/s. 12A was correctly accorded from 27-09-1996 by the erstwhile Commissioner of Income Tax, AP-I, Hyderabad basing on the trust deed dt:12-09-1996. 4. The Ld. CIT (Exemptions) ought to have considered that the trust deed executed on 20-12-2002 is only a deed of amendment in continuation of the original deed dt: 12-09-1996 and was noting to for cancellation of amendment trust deed dt:18-07-1998 for deciding the registration u/s. 12A and thus there is no violation or default on the part of the appellant trust and the Ld. CIT (Exemptions) could not have passed order u/s. 12AA(3) r.w.s. 12AA(4) of the Act, which is against to the provisions of the Act and is against to the Principles of Natural ....
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....st deed and is accordingly the appellant trust is eligible for exemption u] s. 11 of the Act. 10. The Ld. CIT (Exemptions) ought to have considered that the genuineness of the appellant trust has not in doubt keeping in view of the books of account maintained and the appellant has received the amounts towards corpus donation and not as "Capitation Fee" as pointed out by the Ld. CIT (Exemptions), which thus the refusal of registration u/s. 12AA(3) r.w.s. 12AA(4) of the Act is bad-in-law. 11. The Ld. CIT (Exemptions) ought to have appreciated the fact that the appellant trust is also sponsoring the students from weaker sections and provide them the admissions in the school without collecting any fees whatsoever. 12. The Ld. CIT (Exemptions) ought to have appreciated that the trust is utilizing the funds towards the objects of the trust and not violating any Aims & Objects of the trust. And thus the refusal of registration is not correct and is bad-in-law. 13. The assessee may add, alter or modify any other points to the grounds of appeal at any time before or at the time of the hearing." 2. Briefly the facts of the case are that the assessee tru....
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.... levels, conduct seminars, training programmes relating to the education, publish or cause to be published magazines and such other related material relevant to the education, conduct public awareness programmes on matters and issues relevant to the education. Thus, the aims and objects of the trust are for the overall benefit of the public at large in the field of education and other allied services. Therefore, upon application, the trust had been granted registration by the Commissioner of Income Tax, Ap-1, Hyderabad vide his order dated 30.07.1998 under section 12A of the Income Tax Act as a charitable organization within the meaning of section 2(15) of the Act. The Trust/Society has also been granted approval u/s. 80G of the act, authorizing it to raise donations from public, vide DIT (Exemptions), Hyderabad in F.No DIT (E)/Hyd/890G/17 (10)/07-08 dated 05.03.2008. Thus, the society has been enjoying the benefit of exemption of its income from tax in terms of section(s) 11/12 of the Income-Tax Act ever since 1998. 2.2 This being so, the Commissioner of Income tax had cancelled the registration that was already granted u/s. 12A of the Act to the trust by way of his order....
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....ot genuine or the activities of the trust are not in accordance with the object clause of the trust as per sec. 12AA of the act". For the sake of clarity it may have to be submitted that show cause notices issued to us do not contain any mention about any defect related to the non-genuineness of activities of the trust. The reasons mentioned in the show cause notices themselves do not lead to a violation falling u/s. 12AA(3) of the Act. The reasons mentioned in the show cause notice do not fall within the ambit of the parameters enshrined in the Section-12AA(3) of the Act. It only speaks of violations u/s. 13(1)(c) and called for clarifications, which the appellant had already submitted. The question of salary being paid high or low depends of the job card, the responsibilities accepted; the experience and expertise in a specific field of activity. Salary paid to a particular manager in an organization is based on the theory of demand and supply. It may not be out of place to make a mention here that, the similar designated employees of major companies are being paid differently in high paid packets, though all of them possess similar degree and similar length of service. Thus the ....
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....e of notice, to substantiate/establish the AO's prima facie belief that there was violation leading to cancellation of the registration. Subsequent to issue of SCN by CIT the survey operation was carried out, which is to ratify the issue of show cause notice. The notices subsequently given were issued on the reasons of difference of opinion, presumption, conceptual difference and un-sustainable reasons. Thus, the issue of SCN has no strong basis, no bona fide reason but only issued on ad-hoc manner. This action by AO reflects the AO's intention that just to prove that activities of trust as non-genuine or to establish a violation in the activities of trust in order to cancel the registration. Therefore, the cancellation of registration order of the CIT [E] is un-sustainable. 9. The commissioner of income tax [exemptions] had mentioned the following reasons in his order to cancel the registration of trust. i) CIT alleges: 'Assessee Trust has not obtained any approval to reconstitute the trust deed: 3.1 The assessee, which has been registered u/s. 12A of the Act is duty bound to take prior approval of the Commissioner of Income Tax for making an....
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....e genuineness: 8.9 Books of account do not inspire genuineness. The Donation is a voluntary act. But in this case the Parents are paying it because they are helpless, they are forced indirectly to pay it. Thus the main component which is voluntariness is missing. The so called Corpus donations are nothing but compulsory collection of capitation fee. It is not a donation at all. Therefore, the assessee has consciously mislead the department by entry in the books of account as Corpus donation. Therefore, the books of account are not reliable and are not giving genuine picture. Therefore, for these reasons also assessee is not eligible for registration u/s. 12AA and therefore the registration is cancelled hereby. Here, it is to bring to your notice that the conclusions drawn and reasons attributed for cancelling the registration already granted are not as per the violations or conditions mentioned under the provisions of Sec. 12AA(3) of the Act. Thus, the ld. CIT(E) has travelled beyond the show cause notice and cancelled the registration of trust, showing other reasons falling ii] s. 12AA(3) of Act. 10. As per law, in order to cancel the registrati....
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....eason of violation of Sec. 13 of the Act., and not u/s. 12AA(3) of Act. As per the provisions under section 12AA(3), the Commissioner is empowered to grant or refuse the registration and after granting registration, would be empowered to cancel and that too, only on two conditions laid down under section 12AA(3) of the Act. The assessee assails the order on the plea that none of the conditions under section 12AA(3) were violated and therefore, the satisfaction which was arrived at by the Commissioner of Income Tax was not justified. 12. On facts, the reasons specified in the CIT order are objected to in detail as follows: i) Show-cause notice issued to us mentions only about 13(1) violations but as per Income-tax act, 1961 registration of trust u/s. 12AA(3) can be cancelled only if objects are not genuine or activities of trust are not carried in accordance with the trust deed: As already submitted above, the Commissioner of Income tax had cancelled the registration of trust on the alleged reasons that 'trust has collected capitation fees and also paid unreasonable salary to the founder trustees'. It is strongly contended that the order of the Com....
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.... had mentioned that the assessee which is registered u/s. 12A is duty bound to take prior approval of commissioner of income tax for making amendments with regard to change in name/constitution of the trustees/objects etc. In this regard the appellant is again reiterating that, we have not made any amendments to the object clause of trust deed. The aims clauses only speak of charitable purpose viz., imparting education and other allied services to the public at large and not for the sectorial benefit of any caste, religion and for exclusive benefit of any individual. There is no un-lawful activity carried on by the trust. When the trust is already existing and when there is no change in the aims and objects clause, we sincerely feel that the approval of commissioner again is not required. When there is no violation of the aims and objects of the trust there is no reason for revoking the already granted registration u/s. 12AA of the Act. iv) On factual matrix, there is no capitation fee collected from the students: The Ld. Commissioner from his order dated 5-12-2019 specified that the assessee is engaged in collection of capitation fee and cancelled the re....
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....s relating to the substantial contributions made by Mrs. Nirmala Diaz in the day to day affairs of the Assessee. From the submissions so made, it is apparent that Mrs. Nirmala Diaz is the main person who has contributed her entire time and efforts to the assessee trust in different forms. While the initial contribution was in the form of finding ways and modes of setting up a Waldorf school in India, the later part of the contribution came in the form of teaching the teachers Anthroposophy, Mrs. Nirrmala Diaz, apart from management of school, is involved in each and every aspect of day to day operations of the school. She is the central pillar of the assessee around whom the entire activity of the school runs. The staff, parents and the students look out for her guidance on daily basis to achieve the desired results, Apart from the above activities which are already narrated in the facts, Mrs. Nirmala Diaz coordinates all international activities, Mentors visit to Sloka and teachers training etc. It is also a fact on record that in spite of rendering various services apart from being a founder trustee Mrs. Nirmala Diaz, she was not paid anything till 2004. It was only since 2004, s....
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....T allegation that capitation fees are collected from students will not survive. 4) Reasonable Salary paid to the one of the trustees is not violation of 13(1)(c): As explained, Teacher with MA qualification and getting the salary of Rs. 84,390 is less than the salary that is payable in the market for similar qualifications. Hence, CIT allegation of 13(1)(c) violation cannot be survived. 5) Effective date of cancellation is not mentioned in the CIT order: No Effective date of cancellation of registration of trust u/s. 12AA(3) is mentioned in the CIT Order. Hence, CIT order is invalid. 6) The Order for cancellation of registration of trust U/s. 12AA of the Act has travelled beyond the show cause notice issued. In this connection, we have already submitted following case laws to you, vide our letter dated 21-06-2021. The case laws on relevant points as discussed above are as follows: Restoration of registration which was cancelled on the alleged ground of collection of capitation fees or Charging Fees up to the limit declared by government cannot be considered as violation. 1. Vignana Jyothi vs. Director of Income....
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....l Mehta Medical Trust having citation no ITA 2827/Mum/2014. 2. Sarvodaya Ilakkiya Pannai vs. CIT having citation No. [2012] 20 taxmann.com (mad) ITA 594/Mad/2011. 3. Tejas Education Society vs. Commissioner of Income Tax having citation no ITA 761/PN/2011. The Order for cancellation of registration of trust u/s. 12AA of the Act has travelled beyond the show cause notice issued. 1. CIT vs. Contimeters Electricals Pvt. Ltd. having citation No. 317 ITR 249. 2. Commissioner of customs Vs. Mis Toyo Engineering India Limited having citation no (2006) 7 SCC 592. 3. M/s. Saci Allied Products Ltd. Vs. Commissioner of central excise having citation no [2005] taxmann.com 1410. 4. Commissioner of central excise Vs. Steel stripes Ltd. having citation no [2003] taxmann.com 1205. Trust is eligible for registration u/s. 12A/12AA despite no formal deed 1. Tsurphu Labrang having citation No. TS-417-SC-2017, ITA 484/2016 (Delhi HC), ITA 4941/Del/2011 & 30611 Del/2013. ITAT can itself direct registration grant u/s. 12AA, where it disagrees with CIT's satisfaction 1. Reham Foundation having citation N....
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....0.2014, as per which the CIT has the power to cancel the registration u/s. 12AA(4) of the Act, even for violation of any conditions stipulated u/s. 13(1) of the Act. As such, as per the existing provisions of the Act, the CIT can cancel the registration under two independent provisions i.e., sub-section (3) and sub-section (4) of section 12AA of the Act, for two different kinds of reasons or violations of the Act, as the case may be. 5. Coming to the power of cancellation of CIT u/s. 12AA(3) of the Act, the CIT can cancel the registration provided he is satisfied that: 1) Activities of trust or institution are not genuine; or 2) Activities of trust or institution are not being carried out in accordance with the objects of the trust/institution. 6. In this regard, the group of words "the objects of the trust/institution" as appearing in sub-section (3) means-the objects of the trust as recorded in the trust deed produced by the assessee before the CIT at the time of filing an application seeking registration, and on the basis of which, the CIT earlier granted registration u/s. 12AA/12A of the Act, by issuing an order in writing, inter-alia, after ....
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...., a trust is created when the settler/author of the trust declares the creation of the trust expressing his/her intention to create the trust, espousing the purposes/objects of the trust, the details of beneficiaries, trusties and the trust properties, etc. As such, in the instant case, creation of trust itself appears to be not in accordance with provisions of trust law in force. 10. Be that as it may, after the creation of the trust on 12.09.1996, on the basis of the said trust deed, the assessee applied for registration u/s. 12AA of the Act before the CIT. However, it appears that after verifying the trust deed, the CIT raised objections with regard to non-inclusion of the following essential clauses of a charitable trust: i. Amendment clause, stating that the amendment or modification of trust deed, more specifically the object clauses, if any, shall be made after obtained prior approval of the CIT. ii. Maintenance of books of account clause. iii. Investment clause i.e., investment shall be made in the specified modes as provided u/s. 11(5) of the Act. iv. Dissolution clause i.e., after dissolution of the trust, the properties of the....
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....being document No. 70/98 and reconstitute the trust." As such, in essence, the assessee has cancelled the original trust deed dated 18.07.1998 and reconstituted the trust on 19.12.2002. As mentioned earlier, apart from completely changing the objects of the trust, one more important and notable change observed is that in the newly reconstituted trust deed on 19.12.2002, as appearing at page No. 117 of the paper book, it is stated that the main objective of the assessee is running an educational institution in the name and style of "Sloka the Hyderabad Waldorf School", whereas in the original trust deed dated 18.07.1998, there is no whisper about the objective of the trust being running an educational institutions in the above mentioned name. 15. Thus, it is clearly evident that the contents of the trust deed including object clauses, on the basis of which the CIT granted registration u/s. 12 AA of the Act, dated 30.07.1998, have been changed/modified and, therefore, they are no longer finding place in the reconstituted trust deed dated 19.12.2002. Further, it is interesting to note that as per the original trust deed dated 18.07.19198 on the basis of which the reg....
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....of registration is contrary to law and facts of the case. Also, the case-laws relied upon by the Appellant are not all relevant to the instant case due to distinguishable facts and legal issues emanating thereof. In support of the arguments of the Revenue, reliance is placed on the following judicial precedents: (1) Allahabad Agricultural Institute vs. Union of India (2007) 163 taxmann.com 67/(ALL. HC):- In this case, the Hon'ble Allahabad High Court has held that where the objectives of the trust on the basis of which the registration was originally granted u/s. 12AA of the Act, have been altered/amended after such grant of registration where by the very nature of institution changes its character, the revocation of registration granted by invoking section 12AA(3) of the Act was valid. While doing so the Hon'ble He observed that by virtue of altering the objects of the trust after granting of registration u/s. 12AA of the Act, the very foundation of the registration having been removed by the voluntary act of the assessee, the registration would not survive. The relevant and operative portion of the decision vide para No. 10 is extracted below for ready r....
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....will arise. If an institution obtains registration under section 12A, on a certain objects and bye-laws, examined by the Director of Income-tax and thereafter, that institution amends its objects and regulations substantially, then to hold that the registration under section 12A would hold good (or the amended objects and bye-laws would be against law and the scheme of the Act. Whether the amendment is substantial or otherwise, is also to be examined by the revenue authorities and it is not for the assessee to unilaterally declare that the amendments are not drastic or substantive. If the assessee does not intimate the Revenue of the amendments on the ground that there is no statutory requirement, the assessee, as a consequence, cannot claim the benefit that flows under section 12A, for these changed objects; otherwise it would amount to a situation where the assessee shifts the goalpost midway and continues to claim benefit. There might be no statutory requirement for intimating the Director of Income-tax of the changes in the memorandum and rules and regulations but if the assessee does not fulfill its undertaking to furnish the changes then he cannot claim automatic bene Its und....
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....the Act, the exemption shall be forfeited if it is found to be engaged in any of the following activities. 1. Any private religious purposes. 2. Providing benefit to any particular community or cast. 3. Providing benefit to interested person u/s. 13(3) of the Act. 4. Making investment in violation of section 11(5) of the Act. 20. In the instant case, during the course of assessment proceedings for the A.Y. 2016-17, the AO found that the assessee paid towards remuneration to the Settler/Author of the trust i.e., Ms. Nirmala Diaz, violating the provisions of section 13(1)(c) of the Act. In view of this, the same was brought to the notice of the CIT and, on the basis of the same, the CIT initiated cancellation proceedings. While doing so, the CIT issued several show cause notices/letters (supra) giving adequate opportunities of hearing to the assessee before the cancellation of the registration wherein it was clearly stated that the assessee has violated the provisions of section 13(1)(c) of the Act, by virtue of payment of salary/remuneration to the Settler/Author and also founding trustee i.e., Ms. Nirmala Diaz, which was found to be in e....
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....d that the ITO was correct in invoking the provisions of section 13(1)(c) of the Act, in regard to the payment of Rs. 10,001 to Sri Thatha Chettiar. President of the society and other payments and advances to interested persons as the same falls under the provisions of section 13(1)(c) of the Act. and denying the exemption to the assessee under section 11. So the Tribunal was not justified in holding that the assessee is entitled to exemption under section 11 and the ITO was not correct in invoking section 130(c)". (Emphasis supplied) 3. Deputy Director of Income-tax (Exemptions) vs. India Cements Educational Society [2016/67 taxmann.com 236 (Chennai-Trib.): The relevant portion of the decision is reproduced below (para No. S of the order), for ready reference: "As per section 13, the benefit of exemption from income-tax is not available if any part of their income or property enures or is, during the previous year, applied, directly or indirectly, for the benefit of the author, founder, substantial contributor or relative aforesaid or for the benefit of any concern in which any such author, founder, substantial contributor or relative has substa....
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....s not entitled to enjoy the registration granted earlier u/s. 12AA of the Act, on the basis of original trust deed containing a different set of objects. 2) Alternatively, in view of violation of the provisions of section 13(1) of the Act, and the also object clause clause 00.21 of the trust deed relating to payment made to Settler/Author, the provisions of section 12AA(4) of the Act are attracted, and, accordingly, the assessee is not entitled to continue the registration u/s. 12AA of the Act. Encl. Case Record in One Volume & Case laws mentioned above." 6. We have considered the rival submissions and perused the material on record as well as gone through the orders of revenue authorities. We have also perused the written submissions filed by the both the counsels quoted supra. It is observed that the activities undertaken by the assessee trust are genuine as it is collecting fee from students and providing education. This has not been disputed while cancelling registration of the trust. The revenue has to consider whether the trust is carrying its activities as per the objectives/clauses or not. The only source of income is not the sole reason for cancellatio....
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....nance Act, 1984, with effect from April, 1985. By the said proviso, it is, inter alia, laid down that where the whole or part of the relevant income is not exempt by virtue of Section 13(1)(d), tax shall be charged on the relevant income or part of the relevant income at the maximum marginal rate. The phrase "relevant income or part of the relevant income" is required to be read in contradistinction to the phrase "whole income" under Section 161(1A). This is only by way of comparison. Under Section 161(A), which begins with a non obstante clause, it is provided that where any income in respect of which a person is liable as a representative assessee consists of profits of business, then tax shall be charged on the whole of the income in respect of which such person is so liable at the maximum marginal rate. Therefore, reading the above two phrases show that the Legislature has clearly indicated its mind in the proviso to Section 164(2) when it Categorically refers to forfeiture of exemption for breach of Section 13(1)(d), resulting in levy of maximum marginal rate of tax only to that part of the income which has forfeited exemption. It does not refer to the entire income being subj....
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....short, the question for consideration is when there is violation u/s. 11(5) and 13(1)(d) of the Act, whether the exemption is to be withdrawn for the entire income or the portion of the income. This issue is covered by the judgment of the Bombay High Court in the case reported in (2001) 249 ITR 533 (Born). Following the aforesaid judgment, this court in the case of Commissioner of Income Tax, Mangalore Vs. Fr. Mullers Charitable Institutions, Kankanady, Mangalore, in ITA Nos. 588 and 589 of 2007 decided on 10.2.2014 has held the entire income of the assessee cannot be assessed for the tax, for violating under Section 11(5) read with Sec. 31(1)(d) of the Act and what would become the subject matter of assessment is only that income which is the subject matter of violation. In that view of the matter, as the substantial question of law has already answered in favour of the assessee and against the Revenue, we also answer it accordingly and dismiss these appeals." ITA Nos. 915 to 920/PUN/2012 71. We find the Hon'ble Supreme Court in the case of CIT Vs. Karnatak Industrial Area Development Board vide SLP (C) No. 19422/2015 order dated 11-11-2016 has dismi....
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.... any enquiry to be conducted. Even the A.O. did not conduct any investigation as directed by the Hon'ble ITAT. The A.O. completed the fresh assessment on 31-03-2014 in a summary manner and without examining a single person. He completed fresh assessments without bringing any fresh material on record or examining any person, stating that donors who gave donations of more than Rs. 3 lakhs were not produced as required and hence the entire donations were being treated as capitation fee. Not only that, he brought to tax an amount of Rs. 2,29,99,999/- as against Rs. 1,55,81,000/- in the original assessment for Asst. Year 200506, without bringing any further material on record. Similarly and in the same manner, an amount of Rs. 1,84,85,000/- 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. (Exam) that the assessee has collected capitation fee is a not finding of fact, and is not based on mate....
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....nations. It would not be out of place to mention that the management of the assessee society is putting its best efforts in providing best possible facilities to all concerned and not wasting even a single rupee of donation received and using it only for improving infrastructure of the educational institutions and rural development activities set up by it. Thus the society is doing its best to utilise the funds provided by philanthropists to the best possible use." A list of such donations amounting to more than Rs. 8 crores has already been submitted by the assessee. (available at page 42 of the paper book filed by it). 15. The assessee has also placed reliance on several decided cases (kindly refer to the paper books filed by the assessee) in support of its contention that the D.I.T.(Exam) 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." 6.3. In the case of Commissioner of Income Tax (Exemption) vs. Rajasthan Cricket Association reported in [2018] 98 taxmann.com 425 (Rajasthan) the Hon'ble HIGH COURT OF RAJASTHAN has held as under: "11. If....
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....t while cancelling the registration of the trust, which was granted earlier, the CIT(E) alleged that the remuneration paid to the trustees were very high, which is not a ground to cancel the registration. The assessee had submitted details for justifying the remuneration paid to Ms. Nirmala Diaz, founder trustee, the proof of which is placed in paper book at page Nos. 136-141. The CIT(E) has referred to clause 21 amended deed dated 20/12/2002 to cancel the registration that "the trustees shall not be entitled to any remuneration for their service put in by them in connection with the management of the trust", which is not having much weightage and not a ground to cancel the registration. Ms. Nirmala Diaz, founder trustee is coordinating for smooth running of day to day activities of educational institution. Even if the CIT(E) was not satisfied with her services rendered in consonance with the remuneration paid by the trust, he could have disallowed the excess expenditure as per his opinion, but the same should not be taken a ground to cancel the registration of trust. The CIT(E) can cancel the registration only in situations, namely, i) if the activities of the such trust or instit....