TaxTMI 
TaxTMI 
TaxTMI 
2026 (3) TMI 237
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....9.08.2007 (Annexure A-1) w.e.f. 01.04.2007 for pursuing educational activities. On 05.11.2009, the Commissioner of Income Tax, Patiala issued a notice under Section 12AA(3) of 1961 Act proposing to cancel the registration of the respondent-Trust on the ground that it was generating surplus for assessment year 2002-03 to assessment year 2007-08 and therefore went beyond the purpose for which registration was accorded to it. 3. Respondent in its reply to the show cause notice pleaded that it was imparting education and the surplus generated was ploughed back by way of investment in capital assets. In furtherance of its stated object generation of surplus by running educational institution and its utilization for education purpose would not disentitle it from exemption/cancellation of registration u/s 12AA(3) of 1961 Act. 4. The Commissioner of Income Tax vide order dated 16.03.2010 (Annexure A-2) after review of copies of accounts filed by ITO, Barnala for assessment years 2002-2003 to 2007-2008 held that respondent-Trust was generating huge surplus year after year, which shows that the Trust was not carrying on activity as per Section 2(15) of 1961 Act wherein charitable activ....
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....tion of surplus income year after year by educational activities would not lead to the conclusion that assessee/Trust is not carrying on activity in accordance with its objects. It is argued that basis of the order of cancellation under Section 12AA(3) of 1961 Act does not exist as precondition to invoke 12AA(3) of 1961 Act is not present. Cancellation is justified under Section 12AA(3) of 1961 Act if genuineness of the activities of the registered Trust or society are beyond its object. However, in present case, this situation does not exist as Commissioner of Income Tax has not doubted the genuineness of activities or they being against objects of respondent-Trust. 9. Findings of fact recorded by learned Tribunal indicate that since genuineness of the educational activities was never doubted by the Commissioner of Income Tax while passing the order of cancellation, therefore, learned Tribunal held order of cancellation passed by Commissioner of Income Tax not justified, merely because the activities were generating surpluses. Dismissal is appeal is sought. 10. The appeal was admitted on 14.02.2012 for consideration of following questions of law:- "(A) Whether an ed....
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....Commissioner may proceed with such applications under that sub-section from the stage at which they were on that day. (2) Every order granting or refusing registration under clause (b) of sub-section (1) shall be passed before the expiry of six months from the end of the month in which the application was received under clause (a) or clause (aa) or clause (ab) of sub-section (1) of section 12A. (3) Where a trust or an institution has been granted registration under clause (b) of sub-section (1) or has obtained registration at any time under section 12A [as it stood before its amendment by the Finance (No. 2) Act, 1996 (33 of 1996)] and subsequently the Principal Commissioner or Commissioner is satisfied that the activities of such trust or institution are not genuine or are not being carried out in accordance with the objects of the trust or institution, as the case may be, he shall pass an order in writing cancelling the registration of such trust or institution: Provided that no order under this sub-section shall be passed unless such trust or institution has been given a reasonable opportunity of being heard. (4) Without prejudice to the provi....
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....ondent-Trust by way of reply to show cause notice was that surplus so generated by it was being ploughed back into educational infrastructure of the trust and therefore, it was being used for educational purposes as per objects of respondent- Trust. The Commissioner of Income Tax has no power to dictate the trust in what manner it should use its funds. The activity of trust has to be in line with the objects of society. There can be thousands of way in which object of society can be achieved. One way is to grant waiver of fee to students, another way to provide free books and uniform to the students and yet another way can be by way of strengthening school infrastructure by investing in laboratories, library or other infrastructure for providing quality education. All the purposes would be in line with object of the trust/society if are being conducted as such. Therefore, merely because trust/society, has used its surplus money for strengthening educational infrastructure and has not used the surplus money to waive off fee of students, it cannot be held that trust/society was not working in pursuance of its activities. 15. In fact, in present case, Commissioner of Income Tax has....
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....ds to be proved with material on record. In Pinegrove International Charitable Trust Vs. Union of India and Ors. (supra) case also, it was held that generation of surplus by itself is not a ground for cancellation of registration, therefore, the learned Tribunal had applied the same. In M/s. New Noble Educational Society Vs. The Chief Commissioner of Income Tax I and Anr. (supra), it is held that surplus amount by itself would not result in a conclusion that society/trust/institution had deviated from its objects. Hon'ble Supreme Court in Commissioner of Income Tax Vs. Queens' Educational Society and Anr. (supra) [wherein judgment of this Court in Pinegrove International Charitable Trust Vs. Union of India and Ors. (supra) was approved], considered provisions of Section 10(23C) and not Section 12AA of 1961 Act. In M/s. New Noble Educational Society Vs. The Chief Commissioner of Income Tax I and Anr (supra) also provisions of Section 10(23C) were in question. 19. It was held by Hon'ble Supreme Court in M/s. New Noble Educational Society Vs. The Chief Commissioner of Income Tax I and Anr (supra) as under:- "76. The conclusions of this court are summarized as follows: ....
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....n of such accounts would be at the stage of assessment. Whilst that reasoning undoubtedly applies to newly set up charities, trusts etc. the proviso under Section 10(23C) is not confined to newly set up trusts - it also applies to existing ones. The Commissioner or other authority is not in any manner constrained from examining accounts and other related documents to see the pattern of income and expenditure. g. It is held that wherever registration of trust or charities is obligatory under state or local laws, the concerned trust, society, other institution etc. seeking approval under Section 10(23C) should also comply with provisions of such state laws. This would enable the Commissioner or concerned authority to ascertain the genuineness of the trust, society etc. This reasoning is reinforced by the recent insertion of another proviso of Section 10(23C) with effect from 01.04.2021. 77. In a knowledge based, information driven society, true wealth is education- and access to it. Every social order accommodates, and even cherishes, charitable endeavour, since it is impelled by the desire to give back, what one has taken or benefitted from society. Our Co....