TaxTMI 
TaxTMI 
2026 (7) TMI 1809
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....on for registration under section 12A(1)(ac)(ii) of the Income tax Act, 1961 ('the Act') is illegal and bad in law. 1.1 That on the facts and circumstances of the case and in law, rejection of application for registration by the CIT(E) is beyond the scope of section 12AB of the Act inasmuch as the - (i) activities carried on by the assessee are genuine; and (ii) the assessee has duly complied with all other laws which are material for achieving the objects. 1.2 That the CIT(E) erred on facts and in law in passing the impugned order rejecting the registration without issuance of any prior show cause notice confronting the appellant with reasons for proposed rejection of registration and without affording a reasonable opportunity of being heard, which is not only violative of the statutory provisions but also the principles of natural justice. 1.3 That the CIT(E) erred on facts and in law in rejecting the application for registration based on various factually incorrect, bald and/ or irrelevant allegations, without judiciously considering the replies/ details filed by the appellant. Re: Allegations/ observations in the impugned order 2. Th....
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....ceipt either by IFRE or by the appellant, without appreciating that donations received by IFRE are treated as income for computing total income in the hands of IFRE. 7. That the CIT(E) erred on facts and in law in levelling the aforesaid allegations qua transactions/ arrangements between the appellant and IFRE (sponsoring body) without appreciating that transactions/ arrangements have been accepted as genuine and in compliance with the laws in the hands of sponsoring body inasmuch as similar registration under section 12AB of the Act of the sponsoring body stands renewed. Re: Incorrect cancellation of existing/ earlier registration 8. That on the facts and circumstances of the case and in law, the CIT(E) exceeded jurisdiction in holding that the registration earlier granted under section 12AB (for AYs 2022-23 to 2026-27) stands cancelled/ superseded by the impugned rejection. 8.1 That the CIT(E) erred in law in cancelling the earlier registration granted under section 12AB without appreciating that the said action is beyond the scope/ powers vested in the authority as per section 12AB(1)(b)(ii)(B) of the Act. 8.2 That the CIT(E) erred in....
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....d order has been passed beyond the scope of enquiry permissible under section 12AB of the Act. It was contended that the twin conditions required to be examined at the stage of registration are the charitable nature of the objects and the genuineness of activities. According to the Ld. AR, there is no dispute whatsoever that the assessee is engaged exclusively in imparting education and that its activities are genuine. 8. It was further submitted by the learned Senior Advocate that the findings recorded by the learned CIT(E) alleging violation of the provisions of the Haryana Private Universities Act, 2006 are founded merely on assumptions and conjectures and are not borne out from a proper appreciation of the statutory framework governing the University. In support of the said contention, our attention was drawn to the Haryana Private Universities Act, 2006 placed at page 54 of the paper book. Particular reference was made to the definition of "Sponsoring Body" contained in section 2(v) of the Act. The learned Senior Advocate thereafter took us through the provisions of sections 3, 4, 5, 6, 7, 8, 11, 12, 13, 16, 17, 22 and 23 of the said Act. 9. On the basis of the aforesaid....
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....n the strength of the aforesaid statutory provisions, it was contended that although the Sponsoring Body and the assessee University may be distinct entities in nomenclature and legal form, the legislative scheme itself contemplates a close functional and administrative relationship between them. It was therefore argued that the assessee University cannot be viewed in isolation from the Sponsoring Body and, in substance, functions through a governance structure in which the Sponsoring Body has a predominant and effective role. Accordingly, the adverse conclusions drawn by the learned CIT(E) merely on account of the involvement of the Sponsoring Body in the affairs of the University are contrary to the statutory framework envisaged under the Haryana Private Universities Act, 2006. The Ld. Sr. Advocate further contended that neither the Haryana Government nor any competent authority administering the Haryana Private Universities Act has ever alleged any violation against the assessee. 13. The learned Authorised Representative further submitted that the finding of the learned CIT(E) that the assessee University had lost its independent character is wholly misconceived and unsupport....
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....ional Foundation for Research and Education (IFRE) on behalf of the University", an amount of Rs. 14,162 lakhs was reflected. It was submitted that out of the aforesaid amount, donations aggregating to Rs. 11,911 lakhs had been received. As per the notes forming part of the financial statements, an amount of Rs. 135 lakhs represented donations received towards acquisition of specific depreciable assets, whereas the balance amount of Rs. 11,776 lakhs pertained to donations received for meeting operating expenditure. It was contended that the entire amount had been duly accounted for in the books of account of the assessee in accordance with the applicable accounting standards. 18. The Ld. Sr. Advocate also referred to page 296 of the paper book and submitted that scholarships amounting to Rs. 5,528 lakhs received through the International Foundation for Research and Education were specifically disclosed in the financial statements and duly incorporated in the books of account of the assessee. It was argued that the donations received by the University had been utilized for the development and upgradation of educational infrastructure, and in support thereof, reliance was placed u....
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....to 31.03.2026, and in this regard our attention was invited to page 24 of the paper book, wherein the period of validity of the registration has been specifically recorded. Further reference was made to page 40 of the paper book containing Form No. 10AC issued in favour of the assessee, evidencing grant of registration for a period of five years, i.e., from Assessment Year 2022-23 to Assessment Year 2026-27. The Ld. Sr. Advocate submitted that once a valid registration has been granted under section 12AB, the same can be withdrawn or cancelled only in accordance with the procedure prescribed under section 12AB(4) of the Act. It was argued that the statute confers power of cancellation only upon the recording of a "specified violation" as defined in the Explanation to section 12AB(4), and that such cancellation can be effected only after affording the assessee a reasonable opportunity of being heard. According to the Ld. Sr. Advocate, the impugned order does not identify, much less establish, the existence of any specified violation within the meaning of the aforesaid provision. There is not even a reference in the impugned order to any of the contingencies enumerated in the Explana....
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....hout blurring the distinction between the two entities. 26. The Ld. DR further submitted that the record revealed receipt of foreign contributions by IFRE for projects specifically described as "Ashoka University Project". It was argued that the assessee had failed to furnish any cogent material demonstrating that such receipts fell outside the ambit of "foreign contribution" as defined under the Foreign Contribution (Regulation) Act, 2010, or that they represented mere fee-related receipts exempt from the statutory definition. According to the Revenue, the overall arrangement indicated an indirect routing of foreign contributions for the benefit of the assessee-University despite the admitted position that the assessee itself did not possess registration or permission under the FCRA. 27. The Ld. DR invited our attention to page 515 of the paper book containing a letter dated 09.10.2024 issued by IFRE, wherein details of twenty-three students to whom scholarship assistance aggregating to USD 57,500 had been granted were furnished. Referring to the said document, the Ld. DR submitted that the assessee had failed to provide complete particulars regarding the instructions, condi....
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....o the Revenue, once the ultimate beneficiary of the CSR grant was admittedly the assessee-University, there existed no plausible justification for routing the funds through the bank account of IFRE or for permitting the sponsoring body to retain custody and control over such funds. It was argued that if the contribution was genuinely intended for the University and for carrying out its educational activities, the amount ought to have been transferred directly to the assessee or, at the very least, promptly remitted to the University without being retained by the sponsoring body. The Ld. DR contended that the interposition of IFRE in the receipt and administration of the CSR contribution raised serious questions regarding the transparency of the transaction and the actual control over the funds. It was further submitted that such an arrangement was not only inconsistent with the claim of institutional autonomy advanced by the assessee but also prima facie defeated the very object and mandate of CSR funding, which requires that the contribution be deployed for the intended beneficiary and approved project. According to the Revenue, the continued holding or administration of the CSR f....
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....the assessee and a significant portion thereof continued to remain under the control of IFRE. According to the Revenue, this arrangement fundamentally undermined the autonomy and independent character contemplated under the Haryana Private Universities Act. 35. It was further submitted that foreign contributions were received by IFRE for projects described as "Ashoka University Project" and the assessee failed to furnish any evidence showing that such receipts were merely fee-related receipts excluded from the definition of foreign contribution. According to the Ld. DR, the overall arrangement indicated indirect routing of foreign contributions for the benefit of the assessee despite the assessee itself not being registered under FCRA. 36. We have heard the rival submissions, perused the orders of the authorities below and carefully examined the material placed on record. The principal issue arising for our consideration is whether, on the facts and circumstances of the case, the Ld. CIT(E) was justified in rejecting the assessee's application for registration under section 12AB of the Income-tax Act, 1961. 37. It is a settled proposition of law that while considering ....
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....tutes a violation of FCRA is primarily a matter falling within the jurisdiction of the authorities administering that enactment. In the absence of any determination under the said law, we are unable to sustain the rejection solely on the basis of presumptive allegations. 41. Similarly, the observations relating to discrepancies in financial statements, accounting treatment of receipts and reconciliation of accounts are matters which may be relevant for examination in appropriate proceedings under the Act. However, unless such discrepancies are shown to establish that the activities of the institution are not genuine or that the institution exists for purposes other than its stated charitable objects, they cannot, by themselves, constitute a valid basis for denial of registration. 42. We also find merit in the contention of the assessee that the Ld. CIT(E) exceeded the jurisdiction vested in him while observing that rejection of the present application would have the effect of superseding or nullifying the registration already granted to the assessee. The Act contains a separate statutory mechanism under section 12AB(4) for cancellation of registration upon occurrence of speci....
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.... such an arrangement have not been comprehensively examined. 46. In our considered opinion, the foundational issue requiring determination is the true nature and legal character of the receipts collected by IFRE. It requires examination whether such receipts represented independent donations made to IFRE for its own charitable purposes, whether they were donations specifically intended for the benefit of the assessee-University, whether they were earmarked grants for identified educational projects or scholarship programmes, or whether they were, in substance, contributions made to the University through the medium of the sponsoring agency. The answers to these questions would have a direct bearing on the ownership, control, and permissible utilisation of the funds in question. 47. The issue assumes particular significance because the assessee-University is an independently established and fully functional University under the Haryana Private Universities Act, 2006. Once an educational institution acquires a distinct legal identity, administrative framework, academic structure, and public recognition, an important question arises regarding the legal basis for donations and co....
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.... purpose sought to be achieved thereby, the duration of such retention, the manner of utilisation of such funds and whether such arrangements constitute bona fide funding mechanisms or effectively dilute the financial independence of the University. 51. We further find that the issue relating to scholarships and student sponsorships also warrants a detailed enquiry. The assessee has sought to explain a substantial part of the fund flow by contending that the amounts were utilised towards scholarships and educational assistance granted to students. However, the record presently available does not conclusively establish the complete particulars of beneficiaries, the criteria adopted for selection, the linkage between donations received and scholarships granted, the identity of students allegedly benefitted, and the supporting documentation evidencing such utilisation. These aspects require independent verification ( paragraph 4.4.3 of the CIT(E) order). 52. It is necessary to bear in mind the settled legal principle that what cannot be done directly cannot ordinarily be permitted to be achieved indirectly. It hardly needs emphasis that under the existing statutory framework gov....
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....ether the two entities functioned as genuinely independent institutions or whether the sponsoring agency exercised direct or indirect influence, supervision, control or pervasive involvement in the affairs of the University. 54. The Ld. CIT(E) shall also examine the entire flow of domestic and foreign contributions received by IFRE in connection with the University, the legal authority under which such receipts were collected and administered, the compliance implications arising therefrom under the relevant statutory framework, and the actual deployment of such funds. For this purpose, the Ld. CIT(E) shall be at liberty to obtain information from the competent authorities administering the Haryana Private Universities Act, 2006, the Foreign Contribution (Regulation) Act, 2010, the Ministry of Home Affairs, the University Grants Commission, the State Government or any other authority having jurisdiction over the relevant issues. 55. Any material so collected shall be duly confronted to the assessee and adequate opportunity shall be afforded to rebut the same in conformity with the principles of natural justice. Thereafter, the Ld. CIT(E) shall pass a comprehensive, reasoned an....