TaxTMI 
TaxTMI 
2026 (10) TMI 817
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....06 vide document No.211/2006 with the aims and objects to inter alia establish, promote, set up, run, maintain, help charitable institutions, educational institutions and human resource development institutions, for the welfare of all, irrespective of cast, creed, colour, language, sex, status and nationality through education, training, and research of all kinds for the public who are living in villages and who suffer from social and economic backwardness. It is noted that, in pursuance of these objects the assessee-Trust had constructed and was operating four educational institutions viz., Dhanalakshmi Srinivasan Medical College, Dhanalakshmi Srinivasan Dental College, Dhanalakshmi Srinivasan Nursing College and Srinivasan College of Nursing. The assessee-Trust is also operating a medical institution namely Dhanalakshmi Srinivasan Hospital. All these colleges and hospital have been established at Perambalur. 3. A search action u/s 132 of the Act was conducted upon the assessee-Trust on 15.02.2018. According to the Revenue, the search action resulted in unearthing of several incriminating material comprising of note books, loose sheets etc., pursuant to which, the Ld.PCIT, Cent....
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....S-1 seized from the office of M/s Dhanalakshmi Srinivasan Chit Funds Pvt Ltd, which according to him, contained details of capitation fees collected from eleven students for the academic year 2016. The Ld. PCIT observed that, Shri S Kumaragurubaran, General Manager of M/s Dhanalakshmi Srinivasan Chit Funds Pvt Ltd had also confirmed the notings on these loose sheets to represent capitation fees collected from students. This seized material and the statement was also rebutted by the Vice Chairman of the college in his statement dated 18.02.2018. The Ld. PCIT however was not convinced with the statement of the Vice Chairman. He remarked that Shri Kathiravan's assertion that, the character of the payment is not capitation fee is not tenable. The Ld. PCIT proceeded to quantify the collection of capitation fees from these loose sheets for FYs 2014-15 to 2016-17 at Rs. 78.51 crores, and to corroborate his assertion, he referred to evidences of cash payments found & seized in the course of search to the tune of Rs. 3.66 crores. The Ld. PCIT observed that, the electronic devices ID marked ANN/GARS/DSMC/ED/S revealed payments of salaries & incentives to doctors and staff in cash to the exte....
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....er:- "This contention of the assessee-Trust is against the provisions of the Income Tax Act, 1961 and the presumptions governing the finding of evidence under the Act. Sec. 153A of the Act states, Assessment in case of search or requisition.-[(1)] Notwithstanding anything contained in ssection139, section 147, section 148, section 149, section 151 and section 153, in the case of a person where a search is initiated under section 132 or books of account, other documents or any assets are requisitioned under section 132A after the 31st day of May, 2003, the Assessing Officer shall-1. issue notice to such person requiring him to furnish within such period, as may be specified in the notice, the return of income in respect of each assessment year falling within six assessment years and for the relevant assessment year or years referred to in clause (b), in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed and the provisions of this Act shall, so far as may be, apply accordingly as if such return were a return required to be furnished under section 139; 2. assess or reassess the total income....
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....ontents of such books of account and other documents are true; and (iii) that the signature and every other part of such books of account and other documents which purport to be in the handwriting of any particular person or which may reasonably be assumed to have been signed by, or to be in the handwriting of, any particular person, are in that person's handwriting, and in the case of a document stamped, executed or attested, that it was duly stamped and executed or attested by the person by whom it purports to have been so executed or attested.] Third Presumption: Sec. 292C of the Act states, "Presumption as to assets, books of account, etc.- [(1)] Where any books of account, other documents, money, bullion, jewellery or other valuable article or thing are or is found in the possession or control of any person in the course of a search under section 132 (or survey under section 133A), it may, in any proceeding under this Act, be presumed- (i) that such books of account, other documents, money, bullion, jewellery or other valuable article or thing belong or belongs to such person; (ii) that the contents of such books of acc....
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....eir actual and correct incomes for the purposes of taxes. As the books reported towards tax purposes are kept ready and prepared, it would be but far fetched to presume that the unreported transactions would be maintained in the same methodical manner as reported/audited accounts for tax purposes. In order to circumvent such a scenario, the Parliament has provided a legal presumption in the Act in sec. 292C(1)(ii) which provides, ") that the contents of such books of account and other documents are true". Therefore, the contention of the assessee-Trust that these are mere scribblings does not in any way dissipate the evidentiary value of these seized material found during the course of the search proceedings under section 132 of the Act. Accordingly, the objection of the assessee-Trust is rejected. III) Discrepancies in statements recorded: Sec. 132(4) clearly states that, "The authorized officer may, during the course of the search or seizure, examine on oath any person who is found to be in possession or control of any books of account, documents, money, bullion, jewellery or other valuable article or thing and any statement made by such person during such exami....
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....of the search findings to support their claim. Accordingly, the contention of the assessee-Trust is rejected. V) Doctor payments not referred for statements: The contention of the assessee-Trust that all the payments to Doctors were reflected in the regular accounts of the assessee-Trust are against the evidences found during the course of the search proceedings u/s 132 of the Act. The assessee-Trust has also stated that they are not aware of the which seized material of the search is being relied on for these payments. On examination of the case records it emanates that during the course of search proceedings electronic devices were seized vide annexure ANN/GARS/DSMC/ED/S dated 15.02.2018 wherein cash payments to Doctors and Technicians were recorded. The said documents were shown to Sri.G.Raja, Accountant of Dhanalakshmi Srinivasan Medical College and Hospital and Sworn statement recorded from him on 17.02.2018 wherein he has stated that these are, "cash incentive given to doctors and workers and lab technicians". These details have also been furnished to the assessee-Trust vide show cause issued by this office initially on 29/11/2019 in DIN ITBA/COM/F/17/2019-2....
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....law. 7. In any event, loose sheets found being mere dumb documents lacking any evidentiary value, cancellation of registration by placing reliance on the same is wholly illegal. 8. The PCIT has grossly erred in placing reliance on uncorroborated depositions of certain employees and staff of the appellant, which are by themselves inaccurate, inconsistent and riddled with falsities. 9. Moreover, the statements relied upon being completely unreliable and inadmissible due to the circumstances in which the same have been supposedly recorded, the PCIT's finding as to receipt of capitation fees by placing reliance on such statements is wholly erroneous and illegal. 10. The charge of receipt of capitation fees having nowhere been proved by the Department via admissible and relevant evidence, the drastic action of the PCIT in cancelling the registration on such unfounded allegation is wholly illegal. 11. No independent evidence / examination having been carried out either by the PCIT or the AO to corroborate the supposed transactions recorded in the documents found during the search, the PCIT's finding that capitation fees was collected b....
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....everal judicial precedents, which we shall discuss later, the Ld. AR claimed that, as long as the activities of the trust was in accordance with the objects and its genuineness was not in doubt, the Ld. PCIT was unjustified in cancelling the registration u/s 12AA(3) of the Act. 9. The Ld. AR thereafter strongly assailed the allegation that, the assessee-Trust has collected capitation fees from the students admitted to the management quota claiming it to be false. The Ld. AR individually addressed each of the allegations levelled by the Ld. PCIT for inferring that the assessee-Trust was collecting capitation fees. Firstly, he submitted that the Loose Sheets (LS) in Annexure/PV/RE/LS/S-1 and electronic device ID marked Ann/VP/DSC/LS/S-1 was seized from the residential premises of Smt. R.Ezhilarasi & office premises of M/s Dhanalakshmi Srinivasan Chit funds Pvt Ltd respectively, and not from the premises of the appellant. He thus contended that, the contents of the seized material is to be presumed to belong to the person from whom it was seized and that the contents of the seized material can be presumed to be true as against the person from whom the materials were seized. Since t....
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.... Vishnu Priya K (DIG) 42 20 22 Paid 6.5 3 3.5 42 Swesthikka R 50 16 30 4 6.5 6.5 Paid 11. Referring to the above, he reiterated that, according to Smt. R. Ezhilarasi, the entry in red ink in the 3rd column represented the capitation fees collected. Taking us through her statement, he pointed out that, Smt. R. Ezhilarasi did not explain the nature of the entries following the third column, written in blue ink. According to him, by application of simple logic and maths, the columns 4 to 9 are break-ups of column 3 as the difference between the sum of columns 4 to 9 and column 3, if any has been recorded in column 10 at certain places. He further showed us that, columns 11 and 12 contained entries upto a maximum of Rs. 6.5 lakhs each, which according to Ld. AR presumably represented the tuition and hostel fees, as they are in the same range which the assessee-Trust charges from its students. Assuming that, the break-ups at columns 4 to 9 are the year-wise alleged collection of capitation fees mentioned at column 3, the Ld. AR submitted that, such an infere....
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....egorically asserted that the capitation fees were only collected in FYs 2015-16 & 2016-17 and if that be true, then, the notings at columns 6 & 7 contradicts her statement, making her assertions unreliable. 12. In support of the above contentions, the Ld. AR invited our attention to the statement of Shri S. Kathiravan, Vice Chairman, wherein he had categorically denied the contents of the above material and the statement of Smt. R. Ezhilarasi and asserted that they had not received any capitation fees but anonymous donations were received by the Group. He submitted that, Shri S. Kathiravan was being questioned in quick succession about various entities in the Dhanalakshmi Srinivasan Group, as he was trustee in three different trusts and thus, he had mixed up certain answers. He pointed out that, Shri S. Kathiravan in his retraction affidavit dated 20.08.2018 had explained that anonymous donations were received by Srinivasan Health and Educational Trust and not the assessee-Trust, wherein they had surrendered and offered income of Rs. 65.19 crores. The Ld. AR thus submitted that, when confronted with such allegations, the management of the assessee-Trust had denied collection of ....
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....nt to collect fees from the students on behalf of the medical college operated by the assessee-Trust. The Ld. AR then explained to us that, Smt. R. Ezhilarasi was the office assistant of DSCET, and in charge of the reception at DSCET's trust office and that she had no role in any capacity in the medical college, and therefore her alleged involvement in alleged collection of capitation fees from the students was not possible. He further showed us that, at the time of search itself, when the Vice Chairman of the assessee-Trust was confronted with the statement of Smt. R. Ezhilarasi, he had categorically denied the allegations of collection of capitation fees. He further brought to our notice, the affidavit furnished by Shri Kathiravan wherein, he had categorically asserted that, the management of the trust is not responsible for whatever sheets were maintained by Smt. R. Ezhilarasi and others. According the Ld. AR, therefore the reliance placed by the Ld. PCIT on such loose sheets and the statement of Smt. R. Ezhilarasi was unjustified. 15. To further buttress his above contentions, the Ld. AR argued that, the statement of Smt. R. Ezhilarasi itself was unreliable, concocted and ri....
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....was only involved in collecting tuition fees, hostel fees, updating batch registers and depositing the cash collected in bank account of the assessee-Trust. 17. Next, the Ld. AR took us through the statement of Shri S Selvakumar who had only named Shri J Senthil Kumar, the person incharge of the admission cell, who was involved and knew about the modus of the collection of capitation fees. 18. The Ld. AR thereafter showed us that, similar to Smt. R. Ezhilarasi, two different statements were recorded from Mr. J. Senthil Kumar viz., one was recorded in English on 16.02.2018 and the other was recorded in Tamil from 15.02.2018 till 17.02.2018 at the same time by two different officers in two different languages, which according to him, was unfathomable. He thus urged us not to give any credence to his statement as well. Without prejudice to the foregoing, the Ld. AR showed us that, in the preceding questions, Shri J Sethil Kumar was asked about several investments made by his proprietorship and partnership concerns in several other companies, whose source he was unable to explain. He further brought to our notice that, Shri P Mani had been removed from the trusteeship in 2016 due....
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....een represented in the form of unaccounted assets or investments or incriminating material seized from the premises of the trust, which according to him, was evidently absent. 20. The Ld. AR countered the Ld. PCIT's allegation regarding the alleged payment of unaccounted cash expenditure of Rs. 3,66,40,123/- to doctors & staff by showing us that, these details were conspicuously incomplete and rather suggested that, they formed part of the regular books of accounts of the assessee-Trust. He took us through the detailed objections filed before the Ld. PCIT wherein it was shown that the manner of quantification as done by the Ld. PCIT lacked any rationale and that there was nothing contained in the seized material basis which, one could allege that the same were not recorded in the books of accounts. 21. The Ld. AR thus summed up that the seized material relied upon by the Department to support the allegation of capitation fees was primarily the statements of certain employees and staff members. However, these statements, according to him, were themselves riddled with inconsistencies and contradictions, and therefore carry little evidentiary value. Beyond these unreliable state....
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....unt paid, which supported the language used in these letters viz., "advance", or "deposit amount". The ld. AR submitted that, if the Revenue was of the view that, the terms "advance", or "deposit amount" suggested refund of capitation fees paid by them, then the only logical consequence was to examine the parents regarding the same, which was not done either in post search enquiries or during the assessment or by the Ld. PCIT. 23. The Ld. AR submitted that, ordinarily, if the Revenue was of the view that there was alleged collection of capitation fees, then such allegation could be corroborated if any of the students or parents, as named by the Ld. PCIT in the impugned order, had been examined. He submitted that, in spite of several requests to do so, the Revenue ignored the same and instead proceeded to infer alleged collection of capitation fees based on dumb documents without any independent corroboration. The Ld. AR submitted that, though the assessee-Trust was not expected to prove the negative, but it had still gone ahead and obtained affidavits from the parents that the trust had not charged any form of capitation fees from them, but both the Ld. PCIT and the AO did not c....
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....a Rao [2015] 53 taxmann.com 49 (Hyderabad - Trib.) - Vignana Jyothi v. DIT [2017] 81 taxmann.com 204 (Hyderabad - Trib.) - CMR Education Society Vs DCIT [2025] 179 taxmann.com 424 - Richmond Educational Society Vs DCIT [2026] 184 taxmann.com 281 - M.M. Patel Charitable Trust Vs PCIT [2025] 172 taxmann.com 316 (Pune Trib) - Shri Jairam Education Society v. Pr. CIT [ITA Nos.90 & 548 (Ind) of 2019) (Indore Trib) 26. It was contended that the power to cancel registration on the ground that activities of the trust was not genuine is an exceptional power, which can be exercised only where the predominant and substantive activities are shown to be sham or non-existent. According to him, so long as the core charitable activities for which the assessee-Trust was established are real, ongoing and carried out in accordance with its objects, registration cannot be cancelled merely because certain transactions are being questioned. He sought to make a distinction between an 'activity' and 'transaction' by stating that what is relevant to be seen at the time of registration of a charitable trust or sustenance of its registration is ....
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....ally by the Ld. PCIT, qua the various colleges and hospitals being run and that, apart from FYs 2015-16 to 2016-17, there is no allegation of such alleged activity of collection of capitation fees being carried out. On these given facts, according to him, the cancellation of registration was completely unwarranted and uncalled for. 28. Next, the Ld. AR assailed the impugned order on legal grounds as well. Firstly, he submitted that, in the first round, this Tribunal in their order dated 08.11.2024 had directed the Ld. PCIT to await the orders of assessment, ascertain the concrete facts and then decide upon the cancellation u/s 12AA(3) of the Act. The Ld. AR submitted that, the Ld. PCIT had violated the directions of this Tribunal by passing the impugned order prior to the orders of assessment being framed and thus, according to him, the impugned order is liable to be quashed as the same is in direct violation of the directions of this Tribunal. 29. Secondly, the Ld. AR submitted that, the impugned order which was passed by the PCIT (Central) - 2, Chennai was without jurisdiction as the order for cancellation of registration could be passed only by the authority who had grante....
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....or any period prior to the date of the impugned order. For this, he relied on the decision of the jurisdictional Madras High Court in the case of Auro Lab vs. ITO [2019] 411 ITR 308. 31. Per contra, the Ld. Senior Standing Counsel appearing for the Revenue Shri. Prabhu Mukunth Arun kumar ( herein after referred in short also as 'Ld DR') firstly sought to address the legal challenge raised by the assessee-Trust to the validity of jurisdiction exercised by the Ld. PCIT to cancel the registration u/s 12AA(3) of the Act. He submitted that, in the first round of appeals when the case travelled upto this Tribunal and in the second cycle of appeals until the case came before this Tribunal, the assessee-Trust did not question the validity of notification under section 127 of the Act earlier and therefore, according to him, the assessee-Trust is now precluded from raising this legal issue at this stage. The Ld. DR relied on the decision of the Hon'ble Supreme Court in DCIT(E) vs. Kalinga Institute of Industrial Technology (454 ITR 582), wherein the Hon'ble Court had held that, if an assessee-Trust participates in proceedings without objecting to the same, he forfeits the right to challen....
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....nivasan Chit funds Pvt. Ltd., he submitted that the material clearly detailed the capitation fees collected from eleven students, which was also admitted by Shri. S. Kumaragurubaran, General Manager of the company. He further submitted that, the statement of Shri. S. Kathiravan, Vice Chairman of the college was rightly discarded by the Ld. PCIT as though he mentions that the donation is anonymous but he did not provide any evidence or document to substantiate the same and therefore the presumption under section 132(4), 132(4A) and 292C was against the assessee-Trust. The Ld.DR heavily relied on the decision of the Hon'ble Madras High Court in the case of Smt. N. Saroja vs. ACIT (TCA No.1395 to 1401 of 2019 dated 18.03.2026) and especially drew our attention to Para No.27 to 31 and submitted that presumption u/s. 132(4), 132(4A) and 292 has arisen against the assessee and also relied on the decision of the Hon'ble Jurisdictional High Court in the case of B. Kishore Kumar vs. CIT 52 Taxmann.com 449 affirmed by the Hon'ble Supreme Court which ratio, according to him, squarely apply to the facts of this case. With regard to seized material revealing incurrence of unaccounted expenses b....
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.... (b) That the activities of the Trust are not being carried out in accordance with the objects of the Trust. 38. Hence, in the present case, we are required to ascertain as to whether the assessee has violated any of the above two conditions prescribed by the Parliament which, we find are predominantly with reference to the activities of the trust. We, therefore, revert back to the facts before us. There is no dispute with regard to the fact that the assessee-Trust is a registered charitable trust established on 21.08.2006 with the primary and predominant object of imparting education and providing medical relief. The relevant objects as enumerated in the trust deed reads as follows:- i. To establish, promote, set up, run, maintain, help charitable institutions, educational Institutions, and Human resources development institutions, for the welfare of all irrespective of Caste, Creed, Colour, Language, Sex, Status and nationality through education, training and research of all kinds. ii. To, open, establish, run, maintaining, set up promote, finance and support Schools, Colleges. Training Schools, Training Colleges, Technical Schools, Engineering Colleges....
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....he assessee-Trust have been recognized by the Government of Tamil Nadu and the All India Council for Technical Education and these institutions hold valid approvals granted by various authorities as well. Further, the assessee-Trust also manages and operates 'Dhanalakshmi Srinivasan Hospital' for providing medical relief and the said medical institution also hold necessary approvals from the concerned regulatory authorities. As pointed out by the Ld. AR, about 3068 students are studying in various institutions run by assessee-Trust and hundreds of doctors and staff are employed at the hospital which operates 1350 beds for patients. There is no finding from the Ld. PCIT on the activities carried out by the assessee-Trust insofar as running colleges are concerned and admission of students to said institutions, including any violations in the admission process conducted by the assessee-Trust for the year under consideration. Therefore, it is necessary for us to examine the reasons given by the Ld. PCIT for cancellation of registration of the assessee-Trust, in light of the objects of the trust, activities carried out by them, and the provisions of Section 12AA(3) of the Act. 40. Th....
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....hand, the consequences of cancellation, however, are far more severe and disproportionate than the Revenue appears to appreciate. Once registration is refused or cancelled, not only the entire corpus of receipts but the fair market value of all the assets held in trust becomes liable to assessment as income, and the benefit of exemption under Sections 11 and 12 automatically stands extinguished. The practical consequence is thus deeply inequitable, as because even if a substantial portion of the receipts had genuinely been applied towards the stated charitable objects viz., imparting of education and providing medical relief, as is the case here, the AO would be statutorily precluded from acknowledging or granting the benefit of such application. Hence, income that otherwise would not form part of total income by virtue of exemption set out in Section 11 & 12 of the Act, would nevertheless be brought to tax, solely as a consequence of the cancellation. Should the Ld. PCIT be of the view that fees are being collected under the guise of donations, or that excessive fees are being charged in violation of applicable norms, then appropriate course of action would be to instruct the AO t....
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....ct that any part of the regular income or receipts of the trust was diverted or misappropriated by the trustees for their personal benefit, or that the funds were applied otherwise than in furtherance of the trust's stated objects. Viewed from a broader perspective, there are essentially three distinct scenarios through which this issue may be examined. First, where donations are received but not applied towards the charitable objects, in this case, the imparting of education & medical relief, then the institution must face the consequence of cancellation of registration, since such a situation would constitute an ipso facto infringement of the conditions stipulated under Sections 12AA of the Act. Secondly, where donations received are intended to advance the charitable objects but, when taken together with fees charged, fall foul of the Anti-Capitation Prohibition Act, then the breach in question falls squarely within the domain of that enactment and not within the purview of Sections 12AA(3) of the Act. 44. As noted earlier, the assessee-Trust was established with the charitable objects of imparting education and providing healthcare to the public at large. It is seen that....
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....ent activities, according to us, affirms the genuine charitable character of the Trust. 46. Having carefully gone through the contentions advanced by the assessee-Trust, we find that even the case built by the Ld. PCIT against the assessee-Trust rests on a fragile foundation. As pointed out by the Ld. AR, the seized material basis which such allegation of collection of capitation fees has been levelled are only three loose sheets viz., Annexure/PV/RE/LS/S-1 & ANN/VP/DSC/LS/S-1, two of which were found from the premises of Smt. R. Ezhilarasi and one sheet found from the premises of M/s Dhanalakshmi Srinivasan Chit Funds Pvt. Ltd. Admittedly these loose sheets were not recovered from the premises of the appellant-trust, but from those of third parties, (Smt. R. Ezilarasi was not employed with the assessee-Trust, but another trust named DSLET) and therefore the presumption sought to be drawn by the Ld. PCIT u/s 132(4A) / 292C of the Act is required to be carefully/evaluated tested. Moreover, on a standalone examination of the contents of these loose sheets, the inferences drawn by the Ld. PCIT may not survive scrutiny, in light of the factual consistencies and commercial impossibil....
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....ing to the learned counsel, fall within the meaning of books of account. The other piece of evidence is the statement of one Dr.B.Muthukumaran, who is the Managing Trustee and who at the time of search of the premises, had given a statement that the management used to collect Rs. 1,00,000/- as capitation fees from the students joining under the Management quota. 9. "Books of account" as defined under Section 2(12A) of the Income Tax Act, 1961 is an inclusive definition. It includes day books and other account books maintained in the regular course of administration. Whereas, the exhibits relied upon by the Department have nothing to do with the accounts. It is only information about the students and the category under which they got admitted. They do not fall within the definition of books of accounts. 10. Secondly, to draw the statutory presumption, a sworn statement of one of the Managing Trustees, who remains uncorroborated, will not lead to a presumption that the assessee-Trust has collected a sum of Rs. 1,27,00,000/- from the students who joined under the Management quota for Engineering. As pointed out by the first Appellate Authority, the Department ought t....
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...., the question whether the trust is entitled to exemption under Section 11 of the Income Tax Act, 1961, does not arise. For the sake of repetition, we are enforced that the Department at the first instance, should have established collection of capitation fees by the trust. Merely on the statutory presumption, without corroboration, the collection of capitation fee as found in the assessment order, remains unproved and unsustainable. Hence, the order of the first Appellate Authority as well as the Tribunal need to be upheld." 48. Also, the Ld. DR was unable to show us that, any of the parent or student, allegedly charged capitation fees, was ever examined to independently corroborate the case of the Ld. PCIT. On the other hand, the assessee-Trust, though not obliged to prove a negative, is found to have went so far as to obtain affidavits from parents categorically asserting that no capitation fees were charged by the trust, but the Revenue did not find it appropriate to cross-examine them. It is significantly noted that, Shri J. Senthil Kumar was named by Smt. R. Ezhilarasi and Shri S. Selvakumar as the person in-charge of the admission cell who was allegedly involved in the co....
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.... capitation fee collection is confined to two or maximum three specific years alone. There is no allegation, finding, or material to suggest any such collection in any other year, past or present. It is also not disputed that, the assessee-Trust has otherwise conducted itself in accordance with its charitable objects throughout its entire existence. An isolated and time-bound allegation, confined to two years, cannot be allowed to eclipse the genuine charitable character of the Trust's activities across its entire lifespan. The test under Section 12AA(3) is whether the activities of the Trust are genuine and in accordance with its objects, must be assessed holistically and not by isolating a single alleged episode spanning two / three years. 50. The Revenue has emphasized that the alleged collection of capitation fees constitutes an activity of profiteering, which raises a doubt on the genuineness of the charitable objects of the Trust. Such a contention of Ld CIT is noted for the purpose of holding it as misconceived. First of all, the concrete facts are neither established nor crystallized, as the income-tax assessments of the respective years are pending adjudication befo....
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....o those specific years under the relevant provisions of the Act. Such action would adequately address the Revenue's grievance for those specific years. These allegations, if found true, could also justify denial of exemption under Section 11 for the years in question and such action would address the alleged violation without causing any harm to the assessee-Trust's ongoing charitable activities or to the thousands of beneficiaries who depend upon it. 51. We usefully refer to the decision of the Hon'ble Karnataka High Court in the case of CIT(C) v. Islamic Academy of Education (supra), where it was held that where assessee-Trust was fulfilling its main object of imparting education, registration of trust could not be cancelled on the basis that trustees were misappropriating trust funds. The relevant portion of order is extracted below. "In the instant case, the material on record shows that the trust has established educational institution and imparting medical education. Every year, students are admitted. Huge investment is made for construction of buildings for housing the college, hostel and to provide other facilities to the students who are studying in....
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....re, the certification of registration is a sine qua non for an assessee-Trust to claim the benefit under Sections 11 and 12 of the Act in respect of the income of the trust. It is in this background, the Commissioner to whom an application is made under Section 12AA has to satisfy himself about the objects of the trust or institution end the genuineness of its activities before passing an order either granting registration or refusing to grant registration. In order to satisfy himself, it is open to him to call for such documents or information from the trust or institution and on production of such documents to satisfy himself about the genuiness of the activities of the trust or institution. He also has the power to make an enquiry in this behalf before passing of an order. 9. As is clear from the language employed in Section 12AA, first he should be satisfied about the object of the trust or institution and then the genuineness of its activities. In order to satisfy himself about the abject of the trust what is required to be seen is the object as set out in a deed of trust. After satisfying himself about the object of the trust, it is open to him to see whether the act....
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....s have been declared the founder has no power to revoke, vary or add to the trusts. This is so irrespective of whether the trusts have been declared by an individual, or by a body of subscribers, or by the trustees." When the founders of the trust have no power to alter or vary the terms of the Trust a trustee appointed to manage the properties of the Trust for securing its object can under no circumstances be regarded as having such a power specially when the original deed dated 28th November, 1941 does not bestow such power on him. Such a question also came up for consideration before the Madras High Court in Thanthi Trust v. ITO [91 ITR 261 ] Dealing with the question whether the founder of a trust had power to revoke the same, this Court observed as follows (pages 284-85): "It is well established that the subsequent acts and conduct of the founder of the trust cannot affect the trust if there has been already a complete dedication, (vide Krishnaswamy Pillai v. Kothandarama Naicken [1914] 27 MLJ 582: Sunder Singh Mallah Singh Sanathan Dharam High School Trust v. Managing Committee, Sunder Singh Mallah Singh Rajput High School [1938] 1 MLJ 359 : AIR 1938 PC 73, ....
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....ities or not. If in the process of carrying on the trust activities if there is any misapplication of the property, misappropriation of funds that would not render the trust itself as non est. If the funds of the trust are misused, income of the trust is misutilised notwithstanding the fact that the certification of registration is granted under Section 12AA, the assessee-Trust will not be entitled to the benefit of exemption on that income from the provisions of the Act. The certificate of registration is only an enabling provision to claim exemption. By merely granting a certificate income is not exempted. That is only a first stage to claim exemption. The Commissioner of Appeals should not have confused these two aspects and seems to think as the trustees and his family members are treating the property as their own and misutilising the property it is not a genuine trust. When once it is admitted that in pursuance of the trust deed and in terms of the objects set out therein, schools and colleges are being run and educational institutions are being run as rightly held by the Tribunal, nothing more requires to be established to show that the trust in question is a genuine trust a....
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....a registration has been granted under section 12AA, a trust or institution may not take any such liberty of misuse of the registration or the provisions by going haywire rather furthering the objects of the trust or genuinely not pursuing the activities for which it was established. [Para 11.4] The most important feature of section 12AA is that this section has only laid down the procedure of registration and this section nowhere speaks that while considering the application of registration, the CIT shall also look into the procedure of earning of income and sources from where receipts are derived. The argument was, it also does not speak anywhere that while considering the registration the CIT shall also see the manner in which the receipts or the income is being spent by the trust. Various related provisions, the power of enquiry, in respect of sources of receipts and the utilization of income is entrusted in separate sections as already discussed ante. The language thus used in section 12AA only confines to enquire about the activities of the trust and its genuineness, which means, in consonance with the objects for which created and those objects as also activities sho....
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....ecisely for the purpose of imparting education. Strange enough there is no finding recorded by the CIT contrary to this fact. Be that as it may, the real and the only substantial objection for refusal of registration was that the institution has collected donations thus adopted some wrong means of collection of fees. But whether at this preliminary stage he had the right to draw an adverse inference so as to refuse registration or alternatively confine himself to the enquiry about the objects and the activities of the trust as per the limits of the jurisdiction of section 12AA. Rather this is also not the case of the CIT that the institution is doing some other activity of earning profit other than the activity of running educational institutions. The established factual position is that the institution is not doing in any other activity except running educational institutions. In such circumstances, can one uphold the action of cancellation of registration? Answer is obvious no. [Para 11.7] As far as the objective of the appellant is concerned this is not the case of the revenue that the assessee-Trust was not imparting education. The term education means to teach subject....
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....registration the entire receipts shall be subject to assessment without granting benefit of section 11 and section 12 to assess income which do not form part of total income though the factual position could be that major part might have been devoted towards achieving the objects, i.e., imparting education, as in this case, but the AO shall be automatically forbidden to grant advantage of exemption consequent upon the cancellation as is mandatory in statute; relevant section already reproduced ante. The outcome of the deliberation made in detail hereinabove is that percurian opinion is to debar the CIT to enter into the area of investigation of source of income and also application of income, so that the amount of correct exempt income be not prejudged. [Para 11.12] The aspect of morality as touched by the CIT is appreciable. Every vigilant and law abiding citizen has to be fair in his conduct and should refrain from immoral activities. But existing blue laws are derived from the numerous extremely rigorous laws designed to regulate morals and conduct. These laws are enacted in such a fashion that if implemented correctly and efficiently then there is no scapegoat for an offender. ....
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.... action can be suggested under section 12AA(3). The Assessee-Trust's case falls under the third category. With the result, totality of the circumstances thus warrants, in the light of the foregoing discussion, not to endorse the view of the CIT; consequence there upon reverse those findings. The order of cancellation of registration is hereby revoked". 54. We also refer to the decision of ITAT, Hyderabad bench in the case of Asstt. CIT v. B. Srinivasa Rao [2015] 53 taxmann.com 49 wherein it was held that department cannot cancel registration granted to a society u/s 12AA when activities of trust are otherwise genuine and are carried on in accordance with objects of trust. The relevant portion of order is extracted below: "The provisions of section 12AA states that, the Department can cancel registration granted to a society under section 12AA if the activities of the trust are not genuine and the activities of the trust are not carried on in accordance with the object of the trust. [Para 32] In the present case, the Commissioner is not alleging that the assessee- Trust is not pursuing object of imparting of education. It is an admitted fact that the assesse....
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....to cancel its registration. The relevant portion of order is extracted below. "As can be seen from the order, the DIT(E) based his conclusion on the basis of enquiry from four parents/relations in assessment proceedings concluded in the year 2007 for assessment year 2005 06 and in year 2008 for assessment year 2006-07. Even though those findings in assessments were not conclusive and matters were restored to Assessing Officer for further enquiry, no such enquiry was made as can be seen from the orders passed again on 31-03 2014 for the above years. These orders at present are pending adjudication before Commissioner (Appeals). Thus, the order of DIT(E) is based on premature conclusions and the contention of revenue stating that the department has 'conclusively proved' the collection of capitation fee is devoid of any merit. [Para 10] As can be seen from the facts, only four cases were examined and on the basis of that, all the donations received including from Members of Society were considered as capitation fees and were brought to tax. Assessee-Trust filed the letters from the above four persons that the donations are voluntary and no capitation fee was ....
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....he genuineness of the activities carried out by the trust and only in case it is find that the activities are not carried out as per the objects then the registrations have been cancelled. However, in the instant case as we have elaborately discussed above that the activities of the assessee-Trust are fully satisfying that it is running for the objects of the trust for which it has been registered and therefore even if at the end of the assessment proceedings certain additions are made with respect to the alleged allegation about collection of capitation fees in specific years from specified students, then the AO can deny the benefit u/s. 11 in relation to such discrepancies in those respective years. 57. In light of the above discussed facts and circumstances and the decisions (supra) which we find are squarely applicable on the facts of the instant case, we hold that Ld. PCIT erred in cancelling the registration granted to the assessee-Trust u/s. 12A of the Act solely on the allegation of alleged collection of capitation fees during a specified period from few students on the basis of loose sheets (as discussed earlier), even when overall and holistically the activities of the....
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....ge by the aggrieved party, the assessee-Trust, in this case. For this, we gainfully refer to the decision of the Hon'ble Supreme Court in the case of Kiran Singh & Ors. V. Chaman Paswan & Ors. [1955] 1 SCR 117 wherein the Hon'ble Supreme Court observed as follows (relevant portion):- " It is a fundamental principle well-established that a decree passed by a Court without jurisdiction is a nullity, and that its invalidity could be set up whenever and wherever it is sought to be enforced or relied upon, even at the stage of execution and even in collateral proceedings. A defect of jurisdiction, whether it is pecuniary or territorial, or whether it is in respect of the subject-matter of the action, strikes at the very authority of the Court to pass any decree and such a defect cannot be cured even by consent of parties." 61. We also rely on the following findings of the Hon'ble Gujarat High Court in the case of P.V. Doshi Vs CIT (113 ITR 22) wherein it was held as under:- "The legal position about waiver of such a mandatory provision created in the wider public interest to operate as fetter on the jurisdiction of the authority is well settled that there co....
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.... arisen in the context of the Assam Taxation (on Goods Carried bv Road and on Inland Waterways) Act, 1961. The assessee- Trust had obtained an injunction order against the State in a writ petition challenging the validity of the Act. The assessee-Trust had not submitted the return under section 7(1) and under section 7(2) a notice had to be issued only within two years from the end of the return period. The procedure of best judgment assessment was laid down in section 9(4) and the question arose whether, in view of the injunction order obtained by the assessee-Trust, ignoring the two years' limit laid down as a fetter for issuance of the notice under section 7(2), the best judgment assessment procedure was permissible. At page 2070, the learned Chief Justice first held that if a return under section 7(1) was not made, the service of a notice under section 7(2) of the Act was the only method for initiation of a valid assessment proceeding under the Act. The period of two years under section 7(2) was a fetter on the power of the authority and was not just a bar of time. It was the scheme of the Act that the service of notice within two years from the end of the return period was....
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....round of public policy even in such revenue statutes could not be waived, because of the underlying principle that jurisdiction could neither be waived nor created by consent. ..... Besides, the question of waiver could never be raised if the person had no knowledge of his legal rights so that he could make any such conscious waiver. In the present case, the Appellate Assistant Commissioner in his order had pointed out that it was when he perused the order sheet that he found that there were no reasons recorded by the Income-tax Officer for issuing notice under section 148. The entry on the order sheet dated September 3, 1963, simply contained the direction: "Issue notice under section 148", and no reasons were recorded by the Income-tax Officer before reopening the assessment. Even the relevant sub-section of section 147 under which the assessment was sought to be reopened was not mentioned. These facts, prima facie, disclosed that the reasons came to the notice of the assessee-Trust for the first time when the Appellate Assistant Commissioner perused this order sheet and brought this fact to the notice of the assessee-Trust. Even on that ground, therefore, there....
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....sition which could never have any finality or conclusiveness. If the original order is without jurisdiction it would be only a nullity confirmed in further appeals. If the essential distinction is borne in mind in such cases when there is such defect of jurisdiction because the conditions to found jurisdiction are absent, the Tribunal also would be suffering from the same defect and it could not confer any jurisdiction on the Income-tax Officer by making the remand order, because of the settled legal principle that consent could not confer jurisdiction when jurisdiction could be created only by fulfilment of the condition precedent as in the present case. Therefore, no question of finality of the remand order could ever arise in the present context, if the mandatory conditions for founding jurisdiction for initiating reassessment proceeding were absent. This is the view in Commissioner of Income-tax v. Nanalal Tribhovandas [1975] 100 ITR 734 (Guj), agreeing with the Madras view that there would be no such finality by remand because consent could not confer jurisdiction, and so, such objection in regard to the validity of the notice under section 34 could be raised before the Appell....