TaxTMI 
TaxTMI 
2026 (9) TMI 687
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....tration and referred to financial statements as well as supporting case laws. The Ld. CIT-DR also advanced arguments and referred to the findings of Ld. CIT(E) to support cancellation of registration. The written submissions have also been filed on behalf of the assessee as well as on behalf of the revenue. Having heard rival submissions, oral and written and upon perusal of case records, our adjudication would be as under. Proceedings before Ld. CIT(E) 3.1 The assessee's activities were subjected to examination pursuant to information that the assessee society deposited cash of Rs. 14.82 Crores in its bank accounts. It transpired that the assessee-society was running various educational institutions which are tabulated at Page-2 of the impugned order. One of the institutions being run by the assessee was World University of Design. The assessee was required to furnish documents with respect to its income and expenditure along with various other details. The assessee was confronted with various issues vide show-cause notice dated 31.10.2025. In this notice, the Ld. CIT(E) proposed cancellation of registration on various grounds. 3.2 The first observation of Ld. CIT(E) was ....
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....er, the same was not supported by invoices. The assessee furnished MOU with SPS hospital and contended that training of nursing students was mandatory. The society also submitted a fees sheet mentioning details of fees received from the students. The Ld. CIT(E) held that mere submission of MOU would not prove that services were actually rendered and without invoices, the genuineness of the payments could not be verified. 3.7 The assessee paid CSR expenses of Rs. 1 Lacs to Lalita Ashram Trust which was stated to be engaged in charitable activities including education. The Ld. CIT(E) rejected the explanation for want of supporting documents. 3.8 The last of the observation that the assessee earned profit of 36.18%, 30.61% & 37.22% in AYs 2020-21, 2021-22 & 2022-23 respectively. The imparting of education was essentially charitable in nature. The object of establishing educational institution was not to make profits. Reference was made to the decision of Hon'ble Apex Court in the case of Baba Banda Bahadur Singh (CA No.10511 of 2013 dated 26.04.2023) wherein systematic profit generation was adversely been commented by Hon'ble Court. The decision in T.M.A. Pai Foundation v. State....
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.... which violated Stamp Act and Registration Act. The deliberate act of non-registration of lease deed to evade stamp duty is a serious offence under the Stamp Act. A charitable institution is required to comply with all applicable laws. However, in the present case, the Society violated the Stamp Act and Registration Act by not registering a lease deed signed with vice-chairman of the Society. Further, the Society has not acted as per the resolution of the members and the lease deed was signed by an unauthorized person. These violations indicate that the activities of the Society were not being carried out as required by the law. (ii) The Society commercially exploited its properties by letting out to agencies conducting competitive examinations and for mobile towers. Such activities were not aligned with the objects of the Society. The act of letting out of properties was not related to educational activities and the Society had not established that approval u/s. 12A of the Act was granted authorizing such letting out. Thus, letting out of property on commercial basis constitute violation of conditions subject to which registration was granted. (iii) The Society c....
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....Society. The Society was a profit-making concern, driven by commercial considerations. The Society had deliberately violated provisions of the other applicable laws as discussed above. The Society had not been maintaining proper records and therefore, the registration granted to the assessee on 24.09.2021 for AYs 2022-23 to 2026-27 was cancelled. Aggrieved, the assessee is in further appeal before us. Our findings and Adjudication 4. We have carefully considered the rival submissions, perused the impugned order, the material placed on record and the judicial precedents cited before us. The short issue for our consideration is whether, on the facts and circumstances of the case, the Ld. CIT(E) was justified in invoking the provisions of Section 12AB(4) of the Act and cancelling the registration already granted to the assessee. 5. Before adverting to the individual allegations levelled by Ld. CIT(E), it would be appropriate to examine the scope of powers conferred u/s. 12AB(4). The registration granted to a charitable institution could not be cancelled merely because certain irregularities or deficiencies are noticed during the course of proceedings. The jurisdiction u/s. 12....
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....very first instance, do not satisfy the statutory requirements of Sec. 12AB(4). The question that arises for our consideration is whether the unregistered document, though styled as lease deed, could by itself, renders the assessee ineligible for registration u/s. 12AB of the act. In our considered opinion, the answer has to be in negative. The reason being that it is an admitted position that the said document and the payment of the rent has not been disputed by the revenue. Thus, the existence of the arrangement and factum of payment of rent could not be said to be in dispute. The mere circumstance that the document evidencing such an arrangement was not registered may, at best, give rise to an issue under the applicable provisions of the Stamp Act or Registration Act, as the case may be. Such a defect, however, cannot by itself be elevated to the status of a violation going to the root of assessee's eligibility of registration u/s. 12AB. For the purpose of registration u/s. 12AB, the relevant consideration is whether the assessee satisfies the statutory conditions prescribed under the act and whether its activities are genuine and are being carried out in accordance with its sta....
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....e was located in a remote area. Therefore, such an observation does not invalidate the registration of the assessee. 8. The second allegation relates to receipts earned by permitting use of the educational premises for conduct of competitive examinations and installation of mobile towers to various agencies. We find considerable force in the submissions advanced on behalf of the assessee that these receipts are merely incidental to the main object of imparting education. It is a matter of common knowledge that educational institutions permit government agencies, universities and examining bodies to utilize available infrastructure during periods when classrooms and auditoriums remain vacant. Likewise, installation of mobile towers facilitates communication within the campus and generates incidental revenue. Such receipts do not alter the predominant character of the institution nor do they establish that the Society has undertaken any independent commercial activity. It has not been established that educational activities have been discontinued or overshadowed by these incidental receipts. On the contrary, the record clearly demonstrates that the assessee continued to run variou....
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.... to cancellation of assessee's impugned registration. Every alleged violation does not automatically result in cancellation of registration u/s. 12AB unless it is further established that the institution has ceased to pursue its charitable objects or has committed any specified violation contemplated by the statute. No such finding emerges from the impugned order. 10. The Ld. CIT(E) has also drawn adverse inference on the ground that the Society initially denied making donation and subsequently admitted the same. We are unable to subscribe to this reasoning. The donation itself stands duly recorded in the books of account. There is no allegation that the payment was fictitious or represented diversion of charitable funds for private benefit. An inconsistency in explanation cannot, by itself, justify the drastic consequence of cancellation of registration. 11. The last of the objections is the fact that the assessee has generated surplus which ranged between approximately 30% to 37% during the relevant years. In our considered opinion, the approach adopted by Ld. CIT(E) legally unsustainable. The generation of surplus by an educational institution, by itself, is not prohibited....
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....nal institutions is misplaced since the facts of the present case do not disclose any distribution of profits or private enrichment. Mere existence of surplus cannot be equated with existence for profit. 12. The Ld. CIT(E) has referred to the decision of Hon'ble Supreme Court in Union of India vs. Baba Banda Singh Bahadur Education Trust (150 Taxmann.com 40) while holding that the generation of surplus by the assessee disentitles it from continuing to enjoy registration u/s. 12AB. In our considered opinion, the reliance is misplaced both on facts as well as in law. We find that this case law is in the context of exemption u/s. 10(23)(vi) which mandate that the assessee must solely be engaged in educational activities which fact was found missing in that case and the assessee earned profit of 67.81% without depreciation and 44.48% with depreciation. The facts in this case are materially distinguishable. This case arose out of rejection of approval u/s. 10(23C)(vi) where the Commissioner had recorded findings regarding exceptionally high profit margins over a continuous period and examined whether the institution existed solely for educational purposes within the meaning of Se....
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....xmann.com 53) which had similar factual matrix wherein appropriate authority levelled similar allegation of generation of surplus out of educational activities. The assessee argued that the surplus so generated was being ploughed back into educational infrastructure of the trust and therefore, it was being used for educational purposes only as per objects of respondent Trust. The CIT(E) had 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 ways in which object of society could be achieved. One way could be to grant waiver of fee to students or provide free books and uniform to the students and yet another way could 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. Merely because the trust has used its surplus money for strengthening educational infrastructure and has not used the surplus money to waive-off fee of students, it could not be held that the trust was not working in pursuance of its activities. The Ld. CIT ....
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....n established that the assessee has discontinued educational activities. It is an admitted position that the Society continues to run educational institutions including the World University of Design and other educational establishments. There is also no finding that any part of the surplus has been distributed amongst members, office bearers or related parties or that the funds have been diverted for non-charitable purposes. On the contrary, the financial statements indicate that the surplus has remained invested in the educational institutions and their infrastructure. 15. Lastly, we do not find any merit in the observation that the affairs of the Society are managed by members of the same family. The Income-tax Act nowhere prohibits management of a charitable institution by related persons. Unless it is established that prohibited benefits have been conferred upon specified persons attracting the provisions of the Act, family management by itself cannot constitute a specified violation under section 12AB(4). 16. Having examined each of the allegations individually as well as cumulatively, we find that none of them establish that the assessee has abandoned its charitable ob....