TaxTMI 
TaxTMI 
2026 (9) TMI 133
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....s as a charitable trust duly registered u/s 12A of the Act vide order dt: 17.06.2009 and its registration stands renewed upto 31.03.2026 u/s 12AB of the Act. The trust came into existence w.e.f 16.12.2004 through a trust deed of even date executed by Dr. P Mahalingam and Mrs.Kuilambal. The appellant has also been granted exemption in terms of section 80G(5) (iv) of Act vide order dt: 28.09.2011. The copy of Trust deed dated 16.12.2004, available at PB page 1-18, shows that the main object of the appellant trust is to impart medical education to the students with no discrimination of cast, religion and creed. In order to accomplish this philanthropic objective, the appellant has been running of late a medical college named as 'Santosh Medical College & Hospital' and another integrated institution named as 'Santosh Dental College & Hospital' at Ghaziabad NCR Delhi where apart from the medical education, the medical facilities are also provided to the public at large. Ld. Counsel had made pertinent reference to the fact that the services of the above institutions have found recognition from the Ministry of Human Resource Development, Government of India. The Ministry v....
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....B(4), which provides for procedure to be adopted for cancellation of a registration in case of alleged specified violations; "(4) Where registration or provisional registration of a trust or an institution has been granted under clause (a) or clause (b) or clause (c) of sub-section (1) or clause (b) of sub-section (1) of section 12AA, as the case may be, and subsequently,- (a) the Principal Commissioner or Commissioner has noticed occurrence of one or more specified violations during any previous year; or (b) the Principal Commissioner or Commissioner has received a reference from the Assessing Officer under the second proviso to sub-section (3) of section 143 for any previous year; or (c) such case has been selected in accordance with the risk management strategy, formulated by the Board from time to time, for any previous year, the Principal Commissioner or Commissioner shall,- (i) call for such documents or information from the trust or institution, or make such inquiry as he thinks necessary in order to satisfy himself about the occurrence or otherwise of any specified violation; (ii) pass an order in writing, cancelling the....
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....tely no reference of aforesaid procedure being adopted. Only one notice dated 28.02.2026, is referred in the impugned order. There is no reference as to if for purpose of invoking powers of cancellation u/s 12AB(4) of the Act, cognizance was being taken under which of the relevant clauses (a) to (c) of Section 12AB(4) of the Act. We find from PB of assessee that first notice as general practice raising formal queries, was issued on 08.01.2026, copy of which is available at pages 218-219 of PB and thereafter notice dated 28.02.2026 was issued, copy of which is available at page 220-221 of PB and which is also mentioned in the impugned order. This notice itself mentions that this notice dated 28.02.2026 was issued in continuation of earlier notice dated 08.02.2026. 10. However, this notice dated 28.02.2026 nowhere indicates that it was issued under which of the clauses of Section 12AB(4) of the Act. There is no reference or illustration of any specified violation found by ld. Prescribed Authority, from the information made available by assessee or on enquiry of that authority. Then this notice straight way mentions that show cause is issued for explaining why registration u/s 12AB....
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....ot undisclosed income but the fee received, which is part of reported income so there is no justification left for sustaining the conclusion of Ld PCIT for rejecting registration. 10. As with regard to remaining issues, at the very beginning of this discussion we find it a curious case where at the time of application of renewal of registration when only activities and object of the trust needs to be seen as per Sec 12AB(1) (b) of the Act and the powers are confined to verification of the activities/objects of the trust only, the provisions of Specified Violations as per Explanation (a) to Sec 12AB of the Act have been invoked. The appellant's predominant and substantive activity of imparting medical education through functional institutions was neither found to be sham nor it was shown to have departed from its objects, and none of the conditions in Form 10AC was shown to have been violated on any other ground then impugned specified violations. 11. Then coming to merits of second issue of alleged specified violation we find that appellant filed a detailed reply to show cause notices vide letter dated 06.03.2026 (copy available at PB 222-231) whereby the purpose of advan....
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....ny was a concern in which Dr. P. Mahalingam, the trustee of assessee trust was a director and thus, was a related party within the meaning of Section 13(1). The Prescribed authority admits that this agreement of purchase was signed in 2016. It also mentions that the trust has started making advance payments to M/s SHPL for the purpose of these purchases, the said assets however, continued to remain with M/s SHPL during agreement was completed. Ld. Prescribed authority mentions the fact that in 2018, M/s SHPL went into liquidation after an application was filed before NCLT. Ld. Prescribed authority records in para 7 that in 2022, M/s Santosh Trust, wrote a letter to the liquidator that in pursuance to Hon'ble Supreme Court order dated 16.12.2022 in Civil Appeal No. 3076-3077 of 2022 wherein Hon'ble Court has allowed Dr. P. Mahalingam., who is suspended director of SHPL and found and managing trustee of M/s Santosh Trust to make repayment of loan to financial creditors of SHPL. Here, the allegation of ld. Prescribed authority is that in this there is no reference that payment are made for any assets to be acquired. Ld. Prescribed authority records that liquidator had granted permissi....
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.... of the Act. This agreement of purchase was signed in 2016. The trust had started making advance payments to M/s SHPL for the purposes of this purchase. The assets, however, continue to remain with M/s SHPL during the agreement was completed. * In 2018, SHPL went into liquidation after an application was filed to the NCLT against the said company. * The assessee trust filed an application before the liquidator for recovery of Rs. 70 Crores and had been paid to M/s Santosh as a part of the said agreement. * The payment in any case was not in accordance with the provisions of section 11(5) and also not application for charitable purposes since it was only an advance. * The trust thereafter made further payments to a concern in which the founder trustee M/s P. Mahalingam was the suspended director, even after the initiation of liquidation proceedings. * This action on the part of the trust of making payments was rather attempting to bail out a company liquidation in which the trustee is a director clearly established with the activity is in no way charitable." 14. The reply to the same was received on 05.03.2026. The reply has been....
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....n renewal it is required to further seen as to whether any object or activity other than the charitable or genuine activity related to any charitable objects. In the present case the funds are being diverted and therefore this is not a charitable activity. This is also codified on the statute as a specified violation which is the basis of cancellation of registration. It is therefore clear that the Principal Commissioner has to be satisfied about the occurrence or otherwise of the specified violation during the renewal of registration process (in this case) as this itself would be a non-genuine activity. Also, in the present case there is a violation of the conditions subject to which the registration was granted. The arguments of the assessee therefore do not apply to the present law and provisions. Further this is not a case where the said amount is to be brought to tax for being applied elsewhere. It is a case of a specified violation for utilization of the funds for purposes other than the objects of the Trust. This objection of the assessee is also therefore not valid. 17. Explanation to section 12AB(4) is quoted hereunder: "Explanation.-For the purposes of t....
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.... and is required to be cancelled. Since the first specified violation resulting in the activities not being genuine and diversion of funds, has been noticed from FY 2022-23, when the payment to the liquidating company was made, the registration is cancelled for the previous year 2022-23 and all subsequent previous years. The application filed on 30.09.2025 for renewal of registration in Form 10AB is therefore rejected and registration stands cancelled." 14. At the outset we find that when such an alleged action is specifically covered by sec 13(1)(c) of the Act and there was no justification for Ld. PCIT(Central) to invoke Explanation (a) to sec12AB(4) to label the transaction as specified violation which is contrary to scheme of Act. 15. Then we are of considered view that the provision of sec 13(1)(c)of the Act is self contained code by itself to deal with situations involving alleged benefit to specified persons and defaults specified under clause (c) & (d) of sec 13(1) have not been brought into Explanation 2 to sec 12AB of the Act which defines specified violation although in the above Explanation to sec 12AB(4), the clauses (a) & (b) of sec 13(1) has been broug....
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....by a financer M/s MuthootFincorp Ltd ("MFL") against M/s SHPL and vide order dated 12.07.2018 of CMM Chennai, there was an order of taking over possession of assets of the SHPL and subsequent notice of auction by MFL on 29.05.2019, under Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act, 2002). 20. M/s SHPL filled CIRP proceedings before NCLT to escape auction of assets by the MFL vide 28.03.2019. The NCLT ordered liquidation of company on 04.12.2019 and appellate authority i.e. NCLAT confirmed liquidation order dated 14.02.2022.ThenHon'bleSupreme Court ordered deposit of installments of Rs. 57.50 Crore to escape liquidation process and which were paid by the appellant to salvage assets of the company and also in order to safeguard the amounts already paid. Thus it was in compliance of directions of the Hon'ble Apex Court and to avoid squandering of assets for which part payment had already been made, the amounts were paid by the appellant to the liquidator. It was explained to ld. Prescribed authority that these amounts were not paid to bail out any trustee, as it is the trust who would have suffered huge ....
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....- and mentions that out of which the trust has paid total sum of Rs. 33,48,20,363/- as has been date of addendum. This document further mentions that SHPL transfer and deliver to the trust the assets within the period of 2 years from the date of this addendum dated 29.03.2020 or earlier date of fully payment of the consideration. It was agreed by clause 4 that SHPL shall transfer, deliver assets in terms of agreement dated 01.03.2016 and addendum dated 29.03.2018 by performing of other obligations also, for the purpose of conveying, transferring absolutely, clear, marketable title of the schedule property. 22.2 This agreement addendum became basis for making payments which admittedly were made in relevant financial years and have not been subjected to any doubt by the ld. Tax authority and the genuineness of this transaction stands accepted is the form of assessment order completed for AY: 2016-17 onwards till AY; 2023-24. 22.3 Further, as we have gone through the recitals of this agreement and the addendum we find that the same are very illustrative and very meticulously drafted to protect the interest of assessee and to ensure that assessee gets a clear and encumbrances tit....
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....on account of Dr. P. Mahalingam and this payment was made not to bail out Dr. P Mahalingam but substantially to protect the interest of the assessee as assessee had already paid a substantial amount to SHPL in the agreement dated 01.03.2010 and addendum dated 29.02.2016. Merely because there is connection of Dr. P. Mahalingamwith the assessee trust also does not lead to inferences that the amounts were being paid for benefit of Dr. P. Mahalingam but in fact the payments were made to official liquidator in pursuance and his part consideration of agreement dated 01.03.2016 and addendum dated 29.03.2016. It is not the case of the department that this payment made to liquidator were not to be adjusted against the sales consideration to be paid in lieu of assets sought to be purchased by agreement dated 01.03.2016. 22.7 Thus, where the agreement between the trust and SHPL was initiated in year 2016 and subsequently SHPL has gone into financial distress due to which a clear title could not be transferred to the trust, then subsequent payment being made to the liquidator in furtherance of directions of Hon'ble Supreme Court dated 16.12.2022, are only to ensure that SHPL is able to meet....