2009-VIL-346-ITAT-PNE
Equivalent Citation: [2010] 133 TTJ 706
Income Tax Appellate Tribunal PUNE
ITA No. 1669/PN/2007
Date: 08.09.2009
MAHARASHTRA ACADEMY OF ENGINEERING & EDUCATIONAL RESEARCH (MAEER)
Vs
COMMISSIONER OF INCOME TAX
For the Appellant: Saurabh N. Soparkar & Shankar K. Jalgaar,
For the Respondent: R. Kaushal,
BENCH
Shri Pramod Kumar, A.M. & Shri Mukul Shrawat, J.M.
JUDGMENT
Mukul Shrawat, J.M. :
This is an appeal at the behest of the assessee emanates from the order of CIT (Central), Pune, passed under s. 12AA(3), dt. 31st Oct., 2007. Though the grounds are narrative as also argumentative however for the sake of completeness reproduced below :
"1. The learned CIT (Central) erred in withdrawing registration of the appellant trust, under s. 12AA(3) of the IT Act, 1961, without appreciating the facts and circumstances of the case as also without considering legal position in respect of cancellation of registration. The learned CIT (Central) erred in not appreciating the provisions of the IT Act, 1961, that for the purpose of granting or cancelling the registration under s. 12AA of the Act, the CIT has to satisfy only about the genuineness of the activities of the trust and not the nature of activity by which the income is derived by the trust, because s. 12AA does not speak anywhere that the CIT shall also examine the nature of income derived by the trust. The CIT (Central) grossly erred in totally ignoring the objections of the appellant that the registration of the trust could not be cancelled, unless it is established that–
(i) the activities of the trust are not genuine, and/or
(ii) the activities of the trust are not being carried out in accordance with the objects of the trust.
The learned CIT (Central) grossly erred in totally glossing over the other important objection of the appellant that IT Act, 1961, is an independent code and therefore, the provisions of the Maharashtra Educational Institutions (Prohibition of Capitation Fee) Act, 1987, are not relevant as regards the provisions of the IT Act, 1961.
The learned CIT (Central) grossly erred in totally glossing over the objection of the appellant that the source of funds, viz., donations, etc., in the case of an educational institution/trust is of no consequence and what is relevant is the application of income.
The learned CIT (Central) grossly erred in concluding that in view of the donations accepted by the trust from guardians of the students admitted under NRI/management/discretionary quota, there was contravention of s. 3(2) of the Maharashtra Educational Institutions (Prohibition of Capitation Fee) Act, 1987, though he has accepted the fact that the fees including donations charged in case of the aforesaid students, are within the higher rates approved by the Government of Maharashtra and Pune University and accordingly, the case of the appellant does not fall within the definition of ‘capitation fee’ as per s. 2(a) of the aforesaid Act.
The learned CIT (Central) erred in applying the provisions of s. 3(2) of the Maharashtra Educational Institutions (Prohibition of Capitation Fee) Act, 1987, though the same cannot be applied in case of admissions granted under NRI/management/discretionary quota.
The learned CIT (Central) grossly erred in making various allegations in the order, regarding the so-called irregularities in collection of fees and donations, as also regarding alleged violation of Maharashtra Educational Institutions (Prohibition of Capitation Fee) Act, 1987, as the same are not true and correct and they are totally denied by the appellant.
9. The learned CIT (Central) erred in not appreciating that the aforesaid allegations are, at best, relevant for consideration by the AO in granting exemption for the purpose of assessment; and they do not derogate from the fact that the appellant’s activities in the field of education are genuinely carried out in furtherance of its objects and the learned CIT (Central) has totally failed to show that these activities of the appellant are not genuine."
2. On reading the grounds it can be gathered that there is only one issue and that issue is confined to the validity of cancellation of registration by invoking s. 12AA(3) of IT Act (brevity demands to refer as ‘the Act’) of the appellant. As per the amended provisions it is mandatory for a charitable trust/institution to have a registration under s. 12A and in case of cancellation an appeal lies to the Tribunal under s. 253(1)(a) of the Act. (I) Facts of the case :
3. Facts in brief as emerged from the impugned order of cancellation of registration dt. 31st Oct., 2007 passed under s. 12AA(3) by learned CIT (Central) were that the Revenue Department has conducted a search action on 20th July, 2005 on the trustees and thereupon a survey action under s. 133A on the premises of Maharashtra Academy of Engineering and Educational Research (in short MAEER), the appellant. Later on, very next month, there was an another survey on 26th Aug., 2005 at the premises of the assessee. Some of the documents inventorized and some were impounded under s. 131(3) by the Act.
3.1 The main allegation of the Investigation Wing of the IT Department after the search and survey was that the trust was taking the donation and capitation fees for admission though prohibited under Maharashtra Educational Institutions (Prohibition of Capitation Fees) Act, 1987 (hereinafter referred as ‘Prohibition of Capitation Fee Act’).
3.2 On the basis of the above information a show cause was issued by the learned CIT as to why the already granted registration bearing No. Pn/T/Regn/6620/1998-99, dt. 25th March, 1999 be not cancelled. Based upon the show-cause notice the learned CIT has thereafter short listed few points, at present relevant to understand and also to resolve the issue of cancellation of registration; is listed below:
(i) That the assessee trust was charging donation to give admission. A list of 15 persons was mentioned and made part of the impugned order as Annex.-II.
(ii) The assessee was stated to be entitled to charge 5 times of fees to grant seat of admission under management quota even then there was not a single such instance; hence it was asked as to why the trust has not charged more fees from the students though admitted under management quota ?
(iii) That the language of the confirmation letter of the donors was identical as if drafted by one man as a result thus raised the doubts in the minds of the Revenue authorities.
(iv) That the trust was charging heavy donation but the addresses of the donors were not provided so it was asked that why those donations would not be linked with the admission ?
(v) That few Annexure were attached with the impugned order giving names of the donors and amount of donation to demonstrate that the donations were received in cash and linked with the admission of particular students named therein.
3.3 From the side of the assessee certain replies were submitted before learned CIT. Those replies need not be reproduced at the moment but a little later in the paras hereinbelow because of the reason that those very submissions were reiterated by the counsel during his arguments before us. However, the reasons given by the learned CIT for cancellation of registration and dealing of those arguments as advanced by the assessee are to be examined first. There was an argument of the assessee that it is only the destination of the funds to be examined and not the source of the funds. For this proposition reliance was placed on Trustees of Vanita Vishram vs. CIT (2005) 198 CTR (Bom) 521 : (2006) 280 ITR 345 (Bom). But the learned CIT has remarked that the said judgment had dealt only with the scope of s. 10(22) and not the provisions in question. According to him there was no discussion in respect of donations barred by the Prohibition Act in the said cited decision, learned CIT commented.
3.4 As per the learned CIT there was a reference of entitlement of five times fees as prescribed under s. 2(a) r/w s. 4 of Prohibition Act. In para 6.4 learned CIT has accepted that the trust can charge five times of the fees for management quota, but in his opinion donations and fees should not be clubbed for the purpose of finding the violation of those sections of Prohibition Act. According to learned CIT the fees is to be accounted in income account and the donation in balance sheet. It was concluded that a separate treatment is to be given to both of them so could not be clubbed together. It was emphasized that the receipts of donations have to be examined separately in accordance of s. 3(2) of Prohibition Act.
3.5 Thereafter in the impugned order the learned CIT has devoted rest of the paras in respect of the nature of donations received by the assessee. His basic objection was that the evidences collected have shown that the donations were not voluntarily made. On the other hand one of the stand of the assessee was that it was guardians who decide how to make the payment, either part as fees or part as the donations, however the trust was happy to get the entire payment as fees instead of compelled to be bifurcated into two. According to learned CIT it was a contradiction in the stand of the assessee. Referring earlier explanation of the assessee that the donations were voluntary thus having no connection with the fees received and so the donations have no connection with the admissions, learned CIT has emphasized that the trust has violated the law by not disclosing the donations as fees for the admissions.
3.6 The CIT has also pointed out that by issuing certificate under s. 80G the number of recipients might have got the undue advantage. Instead of issuing receipt for fees, but by issuing donations certificate the trust has acted illegally and such an act cannot be held as genuine act. Some defects in respect of not keeping the donation receipts were also pointed out but even at this juncture according to us those were not very relevant for the purpose of resolving the issue in hand. There was also a mention of a statement of a student about the payment of fees in cash for which allegedly no receipt was stated to be issued by the trust. On the basis of all that discussions and evidences it was concluded that the donations were not voluntary rather forcibly collected, he remarked. By referring s. 3(2) of Prohibition Act he has commented that the collection of donation and then reserving the seats against the donation was a prohibition imposed by the said Act. Contravention of the provisions of the said Act was punishable under s. 7 by imprisonment and fine or both, learned CIT had made a remark.
3.7 In all fifteen cases were highlighted where the correct addresses of the donors were not found. According to him the inspection of AICTE, Pune University and National Board Accreditation was of no consequence because the assessee has so camouflaged the donations by issuing number of donations receipts that it was difficult to trace the correct position even as it was faced by the IT Department.
3.8 The learned CIT has also referred one instance of purchase of property to establish that the unaccounted money of the trust so generated was utilized for acquisition of property. Finally vide para 16 it was held as under :
"16. There are several illegalities committed by the trust, i.e. issue of receipts under s. 80G of the IT Act against payment of tuition fees, taking donations in contravention of s. 3(2) of the Maharashtra Educational Institutions (Prohibition of Capitation Fee) Act, 1987, not issuing receipts against money paid for admission, possession of undisclosed money, evasion of stamp duty, which are all illegal acts. The conduct of the assessee in several aspects is clearly illegal. What is illegal cannot be genuine in view of the discussion in paras above. I have therefore no hesitation in cancelling the registration under s. 12AA(3) of the IT Act, 1961."
In that manner it was concluded that issuance of receipt under s. 80G; that collection of donation in contravention of s. 3(2) of Maharashtra Educational Institution (Prohibition of Capitation Fee) Act, 1987; that non-issuance of receipt of money paid for admission; that evasion of stamp duty were all illegal acts done by the assessee, therefore not entitled for registration. Against the cancellation this appellant is now in appeal before us. Within the parameters of the facts as narrated hereinabove; an intention was expressed by both the sides to proceed the hearing of this appeal within the narrow compass of the facts referred supra hence the issue left for our adjudication is whether or not the trust is a genuine trust, whether its activities as per the object and whether there was any infringement of the provision of s. 12AA of IT Act.
6. Initially there was a difference between the learned Authorised Representative and learned Departmental Representative, in respect of the question of applicability of s. 12AA(3) as to whether operative with retrospective effect, since there were divergent views expressed by the Co-ordinate Benches of the Tribunal, but after due deliberation it was decided by S/Shri Saurabh N. Soparkar/Shankar K. Jalgaar not to contest this legal issue, that is to say whether the learned CIT had any right to disturb the existing registration already granted under s. 12A and thus also in operation. Therefore the legal question, as initially raised from the side of the appellant, about the applicability of the provisions of s. 12AA for those trusts got registration prior to 1st April, 1997 is not to be answered by us and we have to decide the question of cancellation of registration only on the facts and merits of the case. With the result the legal argument of learned Departmental Representative that the amendment in a statute is to repress the mischief and advance the remedy hence full effect of such an amendment should be given in its letter and spirit has become redundant and not to be adjudicated upon by us as to whether the provisions are retrospectively effective, in view of the concession given by S/Shri Saurabh N. Soparkar/Shankar K. Jalgaar and expressed his willingness not to contest this legal issue. In view of this, our job has become simple to concentrate on the factual matrix of the case based upon the material evidence placed on record and supporting case laws relied upon by both the sides to see whether on those grounds the registration in question was rightly rejected or not. (II) Arguments of learned Authorised Representative :
7. From the side of the appellant learned Authorised Representative S/Shri Saurabh N. Soparkar/Shankar K. Jalgaar appeared and advanced erudite arguments. It is necessary to make it clear in the beginning itself while recording his submission, that though he had started his arguments about the question of retrospective effect and the application of the provision of s. 12AA (3); but later on in his wisdom he has decided not to contest this issue as we have already expressed ante, therefore, now we shall record only those arguments covering the merits of the case and the applicability of provisions of s. 12AA(1) of IT Act. Since this sub-section speaks about the object of the trust hence learned Authorised Representative has drawn our attention on the aims and objects of the trust which is a long list incorporated in the written submission furnished by him. Since it is a long list therefore we are not supposed to load this judgment by narrating all of them however the principal object of this trust is to impart education by running several educational institutions in different streams of education. Its objective is to promote and develop engineering education, science education, medical education, management education and finance education etc. There was also a general clause that the trust shall do all such other activity which will be in the interest of the development of the education and beneficial for the public welfare at large. Learned Authorised Representative has described the history of this institution that appellant is a public charitable trust running a number of educational institutions including medical, engineering, management and other professional colleges. It was registered as a public charitable trust under the Bombay Public Trust Act, 1950. It was also registered under the Societies Registration Act, 1860 in the year 1983. It was also granted registration under s. 12A(1) by the IT Department in the year 1983 which was also renewed and a fresh registration was granted in the year 1999. Photocopies of these registration certificates are placed on pp. 1 and 2 of the paper book. He has also narrated few of the clauses of the constitution of the trust placed in the paper book on pp. 4 to 16 to demonstrate that the activities of the trust are governed under strict discipline by the managing committees, trustees and the members. The managing committee is also formed by the democratic process of election for a specified number of years. He has also drawn our attention on the statutory exemption granted under s. 80G by the Revenue Department.
The trust has also been grated registration under s. 10(23C) by the CBDT, New Delhi, placed on record on p. 25 of the paper book regularly from 1983 to 2005. There is a long list of various institutions stated to be as many as 57 in number listed on pp. 26 to 27 of the paper book. We have noticed that these institutions covered various fields of education viz., engineering, medical, management, teacher’s training, primary schools, colleges etc. Total strength of the students in all these schools, colleges and institutions are said to be started from 12,700 to at present at 27,300 approximately in number. The activities of the trust are also governed, and controlled by All India Council for Technical Education (AICTE) and its approval is placed on record. The educational activities are also affiliated with Pune University, Maharashtra University of Health Sciences, Medical Council of India and Department of Technical Education, Government of Maharashtra. Connected approvals, affiliations and also permissions are placed on record. It cannot be out of place to mention that the appellant has filed its return of income in the regular course as prescribed. It has also been demonstrated that since the surplus disclosed in the income and expenditure account remained less than 15 per cent of the income hence it was always held by the Revenue authorities that the appellant is in fact a charitable trust by running several educational institutions. Now coming to the area of dispute learned Authorised Representative has mentioned that a survey was conducted however, no incriminating material was found. Nothing was detected which can be said to be objectionable so as to demonstrate that the functioning was not philanthropic in nature or the activities are not towards fulfilment of the objects of the trust. However, a show-cause notice was issued by learned CIT proposing cancellation of registration. He has read before us few of the replies and written submissions given to learned CIT and in brief explained that there was no infringement of Anti Capitation Fee Act. The donations, if any, received have also been duly recorded in the books of account as also duly affirmed by the donors by furnishing confirmation letters. The main allegation on the institution was that it had violated the provisions of the Capitation Fee Act and because of that violation trust was held as not genuine. In the case of the appellant, admittedly, the activities of the appellant are to establish educational institutions and to impart education in various fields. This fact was never disputed rather it was proved beyond doubt on the strength of various evidences placed on record. Further, it is nobody’s case that the appellant has not been carrying out its activities as per the aims and objects stated in its constitution; he has argued. However, the respondent has cancelled the registration under s. 12A(a) on the allegation that the appellant has violated the provisions of the Anti Capitation Fee Act. In the written submissions filed before this Hon’ble Tribunal it is now claimed by the respondent that the violation of the provisions of Anti Capitation Fee Act renders the activities of the appellant as not genuine. For the alleged conclusion the respondent had given the reasons and therefore according to the respondent the activities of the trust were not genuine. The appellant states and submits that the said allegation was incorrect, baseless and founded on surmises and conjectures.
7.1 From the side of the appellant an exhaustive written submission has also been filed wherein para-wise answer of all the allegations as raised by learned CIT have been answered and for the sake of completeness few of those paras are reproduced below stating the factual aspect of the day-to-day activities of the trust and also overall conduct of the functioning of the trust as follows : "
(a) The allegation of the respondent that the appellant has charged more than approved fees from students who are admitted in certain institutions of the appellant is factually wrong. This is so because after detailed and exhaustive investigation carried out over months through out the country the Department has been able to pick up only 15 cases of admission wherein there is alleged violation of the Anti Capitation Fees Act, possibly, because of some wrong interpretation and inference drawn by IT Department. Even here the appellant submits that there is no violation at all. The respondent has overlooked and ignored the fact that these students have been admitted under the NRI/management/ discretionary quota as per the rules and guidelines for charging five times higher tuition fees/donation etc. to such students. In respect of the students admitted under the management/discretionary quota, the appellant is entitled to charge five times the normal fees as per the guidelines of the Government of Maharashtra State based on the directives of Hon’ble Supreme Court of India. This fact is admitted by the respondent in the impugned order as also in the written submissions filed. The appellant trust has never charged more than five times of the normal fees to such students.
(b) It is the case of the appellant that the donations received by it are not connected with the receipt of fees by it and the same are required to be ignored. However assuming, while denying, that such donations are required to be counted as part of the fees, even the position would be that wherever the students have (allegedly) arranged for the donations that amounts is also counted as in lieu of fees the aggregate has never exceeded the permitted limit of five times the normal fees. This is in accordance with the provisions of the Anti Capitation Fee Act. The respondent has admitted the fact that the appellant trust is entitled to charge five times the normal fee in respect of the students admitted under management/discretionary quota. In this regard it is significant to note the observation of respondent in the impugned order at para 6.4 relevant portion of which is reproduced as under :
6.4 Therefore, the stand of the appellant on this score is accepted that it can charge five times the fee in cases of admission in the management quota. However, I do not agree with the contention of the appellant that donations and the fees charged should be clubbed together for the purposes of finding out violation of s. 2(a) of the Maharashtra Educational Institutions (Prohibition of Capitation Fee) Act, 1987, s. 2(a) has been reproduced in p. 2 above and this entitles the appellant to charge fees. Therefore, all that the appellant can charge is maximum of five times the fee which is chargeable.’
It may be seen from the chart at pp. 285-287 of assessee paper book that the aggregate of fees and voluntary donations paid by the students is lower than the permitted limit of the five times the fees. For the sake of convenience we draw attention to Column ‘F’ and Column ‘I’ of the said chart wherein it may be seen that the total amount collected as per Column ‘I’ is less than the permitted course fee as per Column ‘F’. Therefore, it is submitted that the allegation that the appellant has violated the provisions of s. 2(a) of the Anti Capitation Fee Act is based on surmises and hence not tenable in law.
(c) It is submitted that s. 3(1) of the Anti Capitation Fee Act prohibits the collection of ‘capitation fee’ in consideration of admission. As per s. 2(a) of the said Act ‘capitation fee’ means any amount by whatever name called whether in cash or in kind paid, or collected directly or indirectly in excess of the prescribed or as the case may be, approved rates of fees.
Therefore, for considering the violation under s. 3(1) ‘capitation fee’ will include the fees charged and any other amount collected in consideration of the admission by whatever name called. Therefore, to find out whether the appellant has charged capitation fee all sums collected by whatever name called (including donation) should be aggregated and then see whether any extra amount is charged over and above the prescribed limit of the five times fee allowed to be charged from the management/ discretionary quota students. The excess so collected is termed as ‘capitation fee’ if no excess amount is charged or collected it cannot be called ‘capitation fee’. In the instance cited it is clear that the appellant has not charged the students more than the permitted amount. It if further submitted that there are no other instances wherein the appellant has charged ‘capitation fee’ within the meaning of the Anti Capitation Fee Act.
(d) Without prejudice it is submitted that s. 3(2) of the said Act permits soliciting, donation from benevolent donors for development and expansion of the educational activities of the trusts. This is over and above the limits permitted under s. 3(1).
In the case of the appellant, though all the donations have been made voluntarily, even if they are clubbed with the fees the aggregate does not exceed the five times limit prescribed under s. 3(1) of the said Act. The donations received from the donors are voluntary and do not fall within the purview of the prohibited donations under proviso to s. 3(2), which prohibits reservation of seats against donations received other than those covered under s. 3(1) of the said Act. It is an admitted position that the amounts collected from the students referred by the respondent has not exceeded five times the normal fees and hence the case of the appellant does not fall with the mischief of ss. 3(1) and 3(2) r/w s. 29(a) of the Anti Capitation Fee Act.
It is humbly submitted that the appellant has always issued the receipts for all the fees/higher tuition fees or the donations received from the students, admitted under the category of management/discretionary quota and has accounted for all the money received exclusively for the ‘charitable purposes’ of the trust.
It is therefore submitted that the assumption of the respondent that the appellant has violated the provisions of the Anti Capitation Fee Act and hence the activity of the trust is not genuine is baseless for the reasons stated above. Consequently, assumption of jurisdiction under s. 12AA(3) is illegal and untenable.
(e) The appellant submits that the respondent has not disputed the fact that the activities of the trust are carried out in accordance with the objects of the trust. Therefore, the second/alternate condition prescribed in s. 12AA(3) is also not satisfied. Therefore, assumption of jurisdiction on this ground is also not permitted.
(f) In his written submissions the respondent has alleged that the activities of the appellant are not genuine because they are in violation of the Hon’ble Supreme Court in its judgment delivered on 14th Aug., 2003 in the case of Islamic Academy of Education vs. State of Karnataka. It is submitted that the appellant has not violated the guidelines laid down by the Hon’ble Supreme Court in its judgment delivered on 14th Aug., 2003 in the case of Islamic Academy of Education vs. State of Karnataka in relation to admission of the 15 students referred by the respondent or.
In support of the above submissions the appellant relies on the following judgments : otherwise. A detailed note in this regard is handed over. Therefore, the reliance placed by the respondent on the above judgment of Supreme Court in support of his allegations is wrong.
(g) The next allegation of the respondent is that the appellant has received donation from one person but has issued the receipt in the name of some other person and accordingly has allowed the benefit of s. 80G to persons who have not made the donations. This allegation is totally baseless and absurd. The receipt for the donation is given in the name of the person who gives the donation. The appellant is neither required nor concerned as to from where the donor brings the money. The donor is liable to explain the source of the donation in his assessment. In particular, he is bound to explain the source while claiming deduction under s. 80G. If the donation is given by one person and the certificate is issued to another person then both of them would lose the benefit of s. 80G of the Act. The allegation of the respondent that there would be reverse loss or that there would be prejudice to the Revenue Department is baseless.
(h) The next allegation is that the appellant has not made available the particulars of donations charged to students other then the 15 students identified by the Department. It is submitted that the Department conducted survey actions under s. 133A of the Act on two occasions i.e., one on 20th July, 2005 and 26th Aug., 2005 and have extensively searched the premises of the appellant trust and have verified the documents, records etc. maintained by the appellant. It is, therefore, submitted that the assumption of the respondent that the appellant was blocking the investigation is preposterous.
(i) The next allegation is that the appellant had received heavy donations in cash year after year and in most of the cases the addresses are not given. Therefore, the respondent has assumed that these donations are also linked with admissions. At the outset, the appellant submits that it is not the case of the respondent that donations received, whether in cash or by cheque, are unaccounted. The appellant trust has issued receipts for all the donations received by it.
However, the appellant trust does not have control over the information supplied by the donors. Correctness or completeness of the information supplied by the donors cannot be vouched by the appellant trust. It is submitted that upto the asst. yr. 2006-07 there was no obligation on the appellant trust to maintain all such details. The Finance Act, 2006 has introduced s. 115BBC in the Act w.e.f 1st April, 2007 the obligation to maintain all the details of the donors and has made the anonymous donations taxable. The obligation does not apply to the preceding years. However, the appellant has furnished the available information to the CIT.
Therefore, the allegation of the respondent is far-fetched and does not go to show that the activities of the appellant trust are not genuine.
(j) The next allegation is that all the donations received by the appellant trust are not voluntary. It is submitted that this allegation is meaningless and irrelevant. It is also submitted that all the donations received by the appellant trust have been given by the donors voluntarily and there is no question of any compulsion to anyone for the charitable donations. It is further submitted that the Act does not divide the donations into voluntary donations and involuntary donations. All the donations received by the appellant trust are deemed to be income of the appellant trust under s. 2 (24)(iia) of the Act. Therefore, it is submitted that this cannot be a basis for concluding that the activities of the appellant trust are not genuine.
(k) The next allegation is that there is no transparency at all in the system of account followed by the appellant. It is submitted that the appellant trust has written the books of account in accordance with the principles of accountancy as applicable to the appellant trust whose activity is running of educational institutions. The accounts of the appellant trust have been audited by chartered accountants as required under the provisions of law. The returns of income have been filed on the basis of such audited accounts year after year and the same have been accepted by the AO. The appellant, therefore, submits that this allegation is based on surmises and conjectures. Further the receipt books maintained by the appellant trust are subject to internal controls by the management and no receipt book have been misused as wrongly presumed by the respondent. It is therefore, submitted that this cannot be a basis for concluding that the activities of the appellant trust are not genuine.
(l) The next allegation is that the appellant has generated unaccounted money and utilized the same for purchase of property at Kelgaon by making on-money payment of Rs. 69 lakhs. It is submitted that the appellant trust has issued proper receipts for all the amounts received by it either by way of fees, donations or otherwise. The income of the appellant trust has been exempted from income-tax under s. 10(23C) or under ss. 11 and 12 of the Act. There is no good reason for making or keeping unaccounted money with the appellant. Since the income of the appellant was exempted, it is unreasonable to believe that the appellant might have generated unaccounted money only to finance the acquisition of Kelgaon property. It is submitted that there is nothing in Annex. VII to the impugned order to indicate that cash was paid to one Shri Ramkumar Jatyan for purchase of Kelgaon property as alleged by the respondent. It is submitted that the statements of said person was not cross-examined. However, cross-examination of the said person was offered after passing of the impugned order. Therefore, the allegation that unaccounted money was paid for purchase of Kelgaon property is only an assumption based on surmises. Detailed notes and evidences in this regard are placed at pp. 281-282 and pp. 290-324 of assessee’s paper book. The scrap of paper found by the Department (Annex. VII to the impugned order) during the survey action, it is submitted, is nothing but a dumb document and has no evidentiary value for the proceedings under s. 12AA(3) of the Act. In this connection we rely on the Tribunal decisions in the following cases which are separately handed over :
Name of judgment Citation Asstt. CIT vs. L.J. ITA No. 1335/Ahd/1998 Mehta CIT vs. S.M. Aggarwal (2007) 211 CTR (Del) 180 : (2007) 162 Taxman 3 (Del) CIT vs. Girish (2007) 163 Taxman 608 (Del) Chaudhary.
It is further submitted that the statement of Shri Jatyan before the IT Department on 7th Sept., 2007 cannot be accepted as evidence as his integrity is questionable because he had got his name entered in the land records by using forged documents. The purchase of Kelgaon property has been made as per the Government rates from the joint owners/confirming parties viz.,
(1) Swami Rameshwaranand Giri,
(2) Shri Vijay Charanjit Chhada and
(3) Shri Ramkumar Jatyan. The appellant submits that no extra payments were made to any person for purchase of the above property. The allegations made by Shri Ramkumar Jatyan in his statement dt. 7th Sept., 2007 is mala fide and he was not subjected to cross-examination. Further, it is not clear why such statements were not recorded from the other two persons who were party to the sale of the said property.
It is submitted that, at any rate, this allegation does not go to show that the activity of the appellant is not genuine. The above allegations made by the respondent do not go to show that the activities of the appellant are not genuine within the meaning of s. 12AA(3) of the Act."
7.2 In addition to the above factual matrix, learned Authorised Representative S/Shri Saurabh N. Soparkar/ Shankar K. Jalgaar have also raised few legal aspects of this issue. His first plank of argument in this regard was that in the case of charitable institution it is irrelevant to examine the source of income and the only area in which the Revenue Department is to probe is the application of the income. In support case laws cited are :
(1) Trustees of Vanita Vishram vs. CIT (supra);
(2) CIT vs. A.M.M. Arunachalam Educational Society (2000) 243 ITR 229 (Mad);
(3) CIT vs. Sree Narayana Chandrika Trust (1995) 123 CTR (Ker) 233 : (1995) 212 ITR 456 (Ker);
(4) CIT vs. Kshatriya Girls Schools Managing Board (1999) 151 CTR (Mad) 87 : (2000) 245 ITR 170 (Mad).
7.3 Learned Authorised Representative S/Shri Saurabh N. Soparkar/Shankar K. Jalgaar have also argued that learned CIT should have confined his decision on the provision of IT Act and should not have passed his decision for cancellation of registration on breach of some other statute. In support of this contention case laws cited are :
(1) Dr. T.A. Quereshi vs. CIT (2006) 206 CTR (SC) 489 : (2006) 287 ITR 547 (SC);
(2) Rama Rao Adik Trust (ITA No. 5742/Mum/2007);
(3) CIT vs. Red Rose School (2007) 212 CTR (All) 394 : (2007) 163 Taxman 19 (All);
(4) Punjab Fruit Co. vs. CIT (1984) 40 CTR (Del) 310 : (1984) 149 ITR 42 (Del);
(5) Dy. CIT vs. Cosmopolitan Education Society (1999) 157 CTR (Raj) 209 : (2000) 244 ITR 494 (Raj);
(6) Lancer Army School Society vs. Asstt. CIT (2004) 90 TTJ (Ahd) 1024;
(7) Dr. Bhim Rao Ambedkar Educational Society vs. CIT (2008) 114 TTJ (Lucknow) 965 : (2008) 3 DTR (Lucknow)(Trib) 174;
(8) Arvind Bhartiya Vidhyalya Samiti vs. Asstt. CIT (2008) 115 TTJ (Jp) 351 : (2008) 5 DTR (Jp) (Trib) 436.
7.4 He has also argued that even in case the trust has received capitation fee the outcome should not be the cancellation of registration granted under s. 12A(a). Case laws cited are :
(1) IAC vs. Matrusri Educational Society (1994) 49 TTJ (Hyd) 146 : (1994) 48 ITD 583 (Hyd);
(2) Governing Body of Rangaraya Medical College vs. ITO (1979) 117 ITR 284 (AP);
(3) CIT vs. Khalsa Rural Hospital & Nursing Training Institute (2008) 219 CTR (P&H) 491 : (2008) 4 DTR (P&H) 71 : (2008) 304 ITR 20 (P&H).
7.5 Finally he has also argued that after the survey action the AO was in the process of finalisation of assessment proceedings and the assessment for the asst. yr. 1999-2000 onwards were pending. He has thus pleaded that during the pendency of the assessment proceedings the question of cancellation of registration should not have been done. Reliance was also placed on Kalinga Institute of Industrial Technology vs. CIT (2008) 113 TTJ (Ctk) 906 : (2008) 1 DTR (Ctk) 273. (III) Arguments of the respondent :
8. From the side of the Revenue, learned CIT–Departmental Representative, Shri R. Kaushal appeared and argued at length extensively narrating all those facts connected with the issue and thereupon also cited few case laws. He has opened his argument with the definition of "capitation fees" as prescribed in the Maharashtra Educational Institutions (Prohibition of Capitation Fee) Act, 1987 in short Prohibition of Capitation Fee Act. As per s. 2(a) of this Act "capitation fee" means any amount by whatever name called whether in cash or kind collected or paid in excess of the prescribed rate from fee regulated under s. 4 of this Act shall be treated as "capitation fees". He has also described the restriction imposed in this section which provides that in consideration of accepting a donation if any seat is reserved for admission to any student in such an institutions; then such acceptance of donation shall be deemed to be the collection of "capitation fees". Further, learned CIT–Departmental Representative, Shri R. Kaushal has also drawn our attention that at first the stand of the assessee was that the donations were received at the call of one of the prominent directors and those donations were claimed to be from the general public, but later on the assessee had altered that stand by saying that even if donation was for the purpose of grating admission to a particular student, even then total of the admission fee and the donation in no case had exceeded five times of the normal fees as approved by the Prohibition of Capitation Fee Act. Learned CIT–Departmental Representative has placed vehement reliance on the notices issued by learned CIT and few letters followed thereafter. He has drawn our attention on some of the instances wherein the guardians have taken loan to make the donations to this institute, which according to learned Departmental Representative was against the normal human behaviour.
Further he has also drawn our attention on some of the factual findings about the non-availability of the donors. Therefore, he has argued that receiving of the donations for granting admission was against the intent of Prohibition of Capitation Fee Act and such an activity of the trust cannot be said to be a genuine activity.
He has also mentioned that the assessee has made all attempts to hide the identity of the donors. He has advanced the arguments by mentioning that if the nature of those donations was claimed to be nothing but "admission fees" then the assessee should not have given a certificate under s. 80G of IT Act and if it was a donation then assessee was not entitled to accept the same because of the proviso to s. 2 of Prohibition of Capitation Fee Act. An another argument has also been placed on the basis of a decision in the case of Islamic Academy of Education vs. State of Karnataka 6 SCC 697 wherein the issue was the charging of the fees for the entire course at one go. Answer to that problem was, as per the verdict, that educational institutions can only charge prescribed fees for one semester in a year. Once the appellant has violated the Prohibition of Capitation Fees Act, then that activity cannot said to be a genuine activity of the assessee. Through Dictionary and Law Lexicon learned Departmental Representative has also cited meaning of the word "genuineness".
Finally he has elaborated that as per the provisions of s. 12AA(3) if the CIT is satisfied that the activities are not genuine or activities are not being carried out in accordance with the object of the trust then in case of either of the condition a cancellation of registration can be done by the CIT. Since the section prescribes "activities" hence the word being plural in its expression hence any activity or any part of the activity or group of activities all shall affect the genuineness of a trust. Even the collection of donation and its application both has to effect the registration. The assessee has no escape from it, Shri Kaushal commented. In respect of the object of an institution whether falls in line within the meaning of charitable activity, a decision of respected Co-ordinate Bench in the case of the Jammu & Kashmir Bank Priority Sector Asset Risk Fund vs. CIT (ITA No. 61/Asr/2006 order dt. 1st Sept., 2006) (Amritsar) has been cited for the proposition that if the activities of the assessee do not come within the meaning of charitable activity as per the provisions of s. 2(15) of the Act then registration can be cancelled. However, he has argued that the Prohibition of Capitation Fee Act is thus enacted to regulate the conduct of an institution therefore the object; the activity and also the conduct all should be genuine and in public interest. He has also made an emotional remark that if a trust resorts to an illegal means such as robbery, for raising the funds to utilize those funds for charitable purpose then in such a situation such an end-use shall not justify the means. With those remarks he has also mentioned that few statements of the donors thus given an impression that unless a donation is not paid or the monetary demands are not met the admission was not to be granted. In support few instances as noted in the impugned cancellation order were referred.
8.1 Few legal aspects have also been pressed upon by learned CIT–Departmental Representative in his arguments that if an authority has jurisdiction and power to grant a registration then the cancellation of the same is inherent in those powers. Powers of cancellation so vested to the CIT by the legislature were with the intention to examine whether a trust carries its activities in accordance with its object for which established. In case if not found genuine the result ought to be cancellation of registration. He has also clarified at this juncture that since the issue of retrospective effect and legality of the provisions of s. 12AA(3) has not been contested therefore, there was no necessity left of any deliberation on the issue retrospective applicability of s. 12AA(3) as far as this appeal is concerned. He has elaborated that this section was introduced to curb the mischief and also to advance the remedy. It is impossible to believe that Hon’ble Parliament had an intention to allow a trust to conduct its affairs in any manner they like to conduct once a registration is granted under s. 12A(a) of IT Act. At the cost of public good if managing the affairs for furtherance of the personal gains by the trustees then to curb such malpractice this section has not been introduced.
8.2 From the side of the Revenue the learned CIT–Departmental Representative, Shri R. Kaushal has further earnestly pleaded that prior to the introduction of s. 12AA there was no procedure laid down for grant of registration to a trust. By the introduction of this section under the heading "Procedure for registration" the respected Parliament has intended to provide a clear mechanism to regularize the procedure of registration.
His argument was that sub-s. (3) of s. 12AA was added with a view to streamline the activities of the trust and therefore the section has given the authority to CIT for cancellation of registration if the activities are not found genuine. Learned Departmental Representative, Shri R. Kaushal has emphasized that the activities should always be according to the object defined in the trust deed, and the object has to be for the benefit of masses at large; philanthropic, charitable or general public utility but ought not to be for gain or profits.
8.3 Lastly, from, the side of the Revenue the main legal contention was about the powers of the CIT to consider and decide the continuity of the registration already granted under s. 12A(a) of the Act. The argument was that it was difficult to believe that the amended provisions were intended to be applied only with regard to the trust applying for registration under s. 12AA after it’s introduction and not to those trusts having registration under s. 12A(a) prior to 1st April, 1997 so as to conduct their affairs in whatever manner those trusts like to conduct. With the support of few judgments it was argued that the introduction of s. 12AA was to suppress the mischief and thereupon to advance the remedy. The precedent mainly relied upon was National Insurance Co. Ltd. vs. Baljit Kaur AIR 2004 SC 1340.
8.4 There was a reference of an order of respected Co-ordinate Bench, Allahabad in the case of Institute of Psychological & Educational Measurement (IPEM) vide order in ITA No. 431/All/2006, dt. 3rd Sept., 2007 wherein a registration was already granted under s. 12A of the Act by the CIT. Later on it was noticed that the activities were not ‘charitable purpose’ as per s. 2(15) of the Act. It was found that for some of the courses fee was charged on commercial lines. The CIT made a reliance on Sole Trustee, Loke Shikshana Trust vs. CIT 1975 CTR (SC) 281 : (1975) 101 ITR 234 (SC) to say that the assessee’s activities had no nexus with education. Thereupon the registration already granted under s. 12A(a) was withdrawn. On appeal to Tribunal the assessee’s appeal was dismissed holding that the objects of the assessee were not charitable and the registration could be withdrawn retrospectively. (IV) Case laws cited :
9. (i) Sanjeevamma Hanumanthe Gowda Charitable Trust vs. Director of IT (Exemption) (2006) 203 CTR (Kar) 533 : (2006) 285 ITR 327 (Kar) :
This decision of the Hon’ble Karanataka High Court speaks about the scope of s. 12AA and held that the Revenue authorities have to decide the question of registration within the scope of the mandatory provisions of IT Act. The Hon’ble Court has categorically commented that sufficient safeguard is provided under the Act for cancellation of registration obtained by the assessee in the event of misusing the provisions. The authorities have to satisfy themselves about the genuineness of the activities and to examine how the income derived from the trust property is applied to charitable purposes. The Hon’ble Court is abundantly clear in its landmark verdict that the authorities have not to examine the nature of the activity by which the income was derived by the trust. Sec. 11 of the Act deals with the exemption available to income from property held for charitable purposes. Exemption from tax has to be allowed in respect of income actually applied to the purpose of the trust. Therefore, it was concluded that for the purpose of registration under s. 12AA what the authorities have to satisfy is the genuineness of the activities and the nature of the activities in conformity with the object of the trust and not the nature of the activity by which the income was derived. If at any time the CIT is of the opinion subsequent to grant of registration that either the objects were infringed or activities are not in coherence with the object then he shall pass an order in writing for cancelling the registration.
(ii) Rama Rao Adik Education Society vs. CIT (ITA No. 7087/Mum/2005) (Tribunal, Mumbai ‘D’ Bench) : This is one of the detailed order of the Tribunal and the issue decided therein on merits can be said to have matched with the facts of the present appeal. In this judgment there was also the allegation of receiving the donation from the students and it was also alleged that the donation was not voluntary in nature. We may also like to mention at this juncture that the respected Coordinate Bench has also considered the decision of the Tribunal, Amritsar Bench passed in the case of J&K Bank Sector Fund Ltd. ITA No. 61/Asr/2006 the decision heavily relied upon by the learned CIT–Departmental Representative.
While dealing the issue the observation was that in the absence of any findings against the assessee about non-genuine activity, the learned CIT was not justified in cancellation of registration. He has to examine that the activities carried out should be in consonance with the objects as enshrined in its memorandum of association. Number of case laws have been cited. Para 51 is worth reproduction :
"51. But we find that all these issues of public policy and morality are matters of logical arguments in the present case under the IT Act and especially in the matters of cancellation of registration. First of all there is nothing on record in the order of the CIT to show that the funds received by the assessee from willing students were in fact capitation fees or involuntary donations. The CIT has not carried out any investigations in this matter. If he has relied on the reports of any other authorities, the CIT has not referred to those reports or materials in his order to show what was the inquiries made by them to come to a conclusion that what has been collected by the assessee trust from the students were in fact capitation fees/involuntary donations."
The respected Co-ordinate Bench has summarized the scope of s. 12AA(3) to held that this section deals with the cancellation of registration only on two grounds i.e., the activities of the trust are genuine activities and not being carried out with the object of earning profit. In that manner, the appeal was allowed in favour of the assessee.
(iii) CIT vs. Red Rose School (supra):
The question before the Hon’ble Court was that if trust or institution is not registered under s. 12AA, the trust would not be able to claim any exemption or exclusion of its income from total income of the previous year even if such income is otherwise liable to exclude under any of clauses of s. 11 or s. 12 of IT Act. The observation was that mere registration under s. 12AA would not in itself be a ground much less a conclusive proof for excluding such income from the total income of the trust from income of the previous year. But the provision of s. 12A, which is under the heading "Conditions as to registration of trust etc." disentitles any trust or institution from claiming any benefit of the provisions of ss. 11 and 12, unless such person in receipt of the income has made an application for registration of the trust.
Further it was observed that s. 12AA which lays down the procedure for registration, does not speak anywhere that the CIT, while considering the application for registration shall also see that the income derived by the trust is either not being spent for charitable purpose or requires that the activities of the trust must be genuine. The profit earning or misuse of the income derived by the trust from its charitable activities may be a ground for refusing an exemption only with respect to that part of the income but cannot be taken to be a synonym to the genuineness of the activities. A worth noting observation was made by the Hon’ble Courts that if establishing and running a school is the object of the society, as given in its bye-laws it has to satisfy that the society has established a school, where education is being imparted as per rule and the factum of establishment and running school is a genuine activity. The enquiry regarding genuineness of the activities cannot be stretched beyond this.
(iv) Aggarwal Mitra Mandal Trust vs. Director of IT (Exemption) (2007) 109 TTJ (Del) 128 : (2007) 293 ITR 259 (Del)(AT) :
The Hon’ble Bench has remarked, quote "an object beneficial to the section of the public is an object of general public utility and to serve a charitable purpose, it is sufficient if the intention is to benefit a section of the public as distinguished from a specified individual. Thus, the provisions of s. 13(1) are not directly relevant in this regard. The provisions can be applied or invoked only at the time of computation of total income of the previous year of the person who is claiming exemption under ss. 11 or 12 by the AO and not by the CIT while considering the application for registration under s. 12AA" unquote.
The respected Co-ordinate Bench was also aware of a situation that if registration applied for under s. 12A is not granted to it for a violation of an another s. 13(1)(b) however it is ultimately found that the assessee trust actually accomplished the objects meant for the benefit of a public at large, the trust would be deprived of any benefit which otherwise were available to it under ss. 11 and
12. It was emphatically said that certainly it is not the legislative intention as reflected in the scheme laid down in ss. 11, 12, 12A, 12AA and 13 of IT Act. Once the genuineness of the activity and the nature of its object being charitable are not in doubt then there was no occasion for refusal of registration.
(v) Acharya Sewa Niyas Uttaranchal vs. CIT (2006) 105 TTJ (Del) 761 : (2007) 13 SOT 54 (Del) (URO) : The observation of the respected Delhi Bench is that under s. 12AA the jurisdiction of the CIT is confined to satisfy himself about the objects of the trust and genuineness of the activities and for this purpose, he is authorized to make such enquiries, as he may deem fit. If the CIT had not taken any objection about the nature of charitable object or activity then in the absence of any contrary findings CIT cannot proceed to cancel the registration in respect of some other ground. So the Bench has held that the objection of small amount of initial contribution was insufficient for cancellation of registration.
(vi) Trustees of Vanita Vishram vs. CIT (supra) :
This is a decision of the Hon’ble jurisdictional High Court hence directly applicable on this appeal. Though this decision pertains to s. 10(22) of IT Act however, the ratio laid down by the Hon’ble jurisdictional High Court is important and relevant for this appeal. In this decision and several other decisions viz. CIT vs. A.M.M. Arunachalam Educational Society (supra); Addl. CIT vs. Aditanar Educational Institution (1979) 118 ITR 235 (Mad); CIT vs. Sindhu Vidya Mandal Trust (1983) 32 CTR (Guj) 263 : (1983) 142 ITR 633 (Guj); Katra Education Society vs. ITO 1977 CTR (All) 221 : (1978) 111 ITR 420 (All); Agarwal Shiksha Samiti Trust vs. CIT (1987) 66 CTR (Raj) 95 : (1987) 168 ITR 751 (Raj); Governing Body of Rangaraya Medical College vs. ITO (supra); Aditanar Educational Institution vs. Addl. CIT (1997) 139 CTR (SC) 7 : (1997) 224 ITR 310 (SC) etc. have been discussed and cited and thereafter an observation was made, quote "What is relevant is that the income should reach the school to be utilized by it for educational purposes and not for the purposes of profit. Granting exemption to the income of the educational institution is to enable such institution to utilize the moneys available with it for the purpose of running educational institutions. The source from which the moneys are received is of no consequence, what is relevant is the application of income. So long as the income of the institution, which solely exists for educational purpose and not for earning profft is applied for educational purpose, such income of the institution is exempted under s. 10(22)," unquote.
Therefore, this logic has to be applied in the present appeal that the learned CIT is not supposed to bother about the sources from which the moneys are received as long its application is for performing the objects of the trust.
(vii) CIT vs. Sree Narayana Chandrika Trust (supra) : The Hon’ble Court has observed as under : Quote "What appears to be relevant is that the income should reach the hospital to be utilized by it for philanthropic purposes and not for purposes of profit. The stress is on the recipient of the income. If that is the hospital, that is the trust running it, s. 10(22A) must apply. The emphasis is not on whether the income was derived from the educational institution, or hospital itself, but on the purpose for which the institution, trust or society was existing and utilizing the income". unquote.
The purpose of citing this decision was to stress upon the point that the institution can have several resources of income but the purpose behind the earning of income must be for the utilization towards object of the institution.
(viii) CIT vs. Kshatriya Girls Schools Managing Board (supra) :
In this judgment the ratio laid down was that the object of the trust ought not to be earning the profit however income from properties should be towards fulfillment of the objects and also to be utilized to implement the activities for which the trust is established. (ix) Dr. T.A. Quereshi vs. CIT (supra) : This is one of the extreme case of immoral activity carried out by a doctor. Facts have revealed that doctor though the medical practitioner was in the business of drugs. He has claimed a deduction of the drugs seized as a business loss.
The Hon’ble Court has made a stringent remark that it was disgraceful for a doctor to indulge in activities against humanity. On appeal the Hon’ble Supreme Court has held that even though the assessee was committing a highly immoral act in illegal manufacturing and selling of heroin, the case had to be decided on legal principles and not on one’s own moral views. The Hon’ble Supreme Court has commented that by rejecting the claim the High Court has adopted an emotional and moral approach rather than a legal approach.
It was observed that the assessee though had committed a highly immoral act in illegally manufacturing and selling heroin however cases are to be decided by Court on legal principles and not on one’s own moral views. It may not be out of place to make an observation by us at this juncture that on careful perusal of the impugned order of learned CIT we have also noticed that he was swayed away by his own moral views perceived in respect of charging of capitation fee in the form of donation from the kith and kin of a student.
But the answer to this view is that in case of a immoral act the law does not subscribe and has to be punished but only under a specific statute in an enact for the specific purpose to punish such specific crime or illegal act. It is not that while implementing the provisions of tax statute the Revenue authorities be also governed like a feudal lords to take the responsibility as a moral police to check all evils of the society. To check those evils other enforcing bodies are in existence so the right course is to handover the matter to the concerned authorities to deal with those evils as prescribed under particular law. (x) Dy. CIT vs. Cosmopolitan Education Society (supra) :
In this case the allegation of the AO was that amount of funds of the society were not used for the educational purposes and that the funds were misutilised by the members of the society. Having considered the facts of the case it was observed that if there was any misutilisation or mismanagement, action can be taken against the members of the society, but from the records and facts, it was not possible to say that any amount of fund of the society was not utilized for educational purposes. The Tribunal concurred with this finding of fact therefore, Court held that there was no substantial question of law that arose from its order. (xi) IAC vs. Matrusri Educational Society (supra) :
In this case few irregularities were noticed but the Tribunal has held that, quote "It was true that some mistakes or irregularities were committed by MVSR or the society in maintaining its accounts but these discrepancies did not lead to any evasion of tax. The money misappropriated by MVSR had been recompensed. Had the institution not existed for educational purposes, it would not have been granted exemption under s. 10(22) in subsequent years when MVSR had little or no role to play. It could at worst be a case of misappropriation by one of its functionaries, to which the society was never a party or sanctioning authority and, therefore, for this misappropriation which, as aforesaid, was later recovered too, the society should not be deprived of the benefit of s. 10 (22). It was running the college for a noble cause imparting technical education to about 1,200 students and enriching the nation by adding about 300 engineers every year. Therefore, the benefit available under s. 10(22) was not to be denied to the assessee" unquote. (xii) Kalinga Institute of Industrial Technology vs. CIT (supra) :
The CIT has proposed the cancellation of registration on the basis of findings of the search and seizure operation. It was observed that it is pertinent to note that cancellation of a registration means a great stumbling block on the society to continue its activities held, quote "Therefore, in the present case despite the facts that the assessee has disclosed a sizeable amount for reasons best known to them, simply should not be a basis for immediate cancellation of registration without final determination/assessment in the search and seizure proceedings. The same is premature and in clear-cut judicial terms it is like hanging a person before pronouncement of a judgment. Rather in all fairness the CIT should have taken precaution to complete the assessment expeditiously and then should have arrived at the conclusion of proposed cancellation of registration. The present act of the CIT amounts to interruption in the assessment proceeding. The power under s. 12AA(3) has been enunciated under the Act is an unbridled power in the hands of CIT to safeguard the interest of Revenue as and when he is satisfied to do so. It does not mean that this unbridled power given by the Act after much deliberation in the Parliament should be utilized without clear-cut satisfaction. Accordingly the assessee succeeds in its appeal regarding continuance of registration" unquote. (V) Incometax provisions in question :
10. Sec. 12AA(1)-The CIT, on receipt of an application for registration of a trust or institution made under cl. (a) [or cl. (ad) of sub-s. (1)] of s. 12A shall- (a) call for such documents or information from the trust of institution as he thinks necessary in order to satisfy himself about the genuineness of activities of the trust or institution and may also make such inquiries as he may deem necessary in this behalf; and (b) after satisfying himself about the objects of the trust or institution and the genuineness of the activities, he- (i) shall pass an order in writing registering the trust or institution (ii) shall, if he is not so satisfied, pass an order in writing refusing to register the trust or institution. and a copy of such order shall be sent to the applicant. Provided that no order under sub-cl. (ii) shall be passed unless the applicant has been given a reasonable opportunity of being heard. (1A) ...................... (2) ........................ (3) Where a trust or institution has been granted registration under cl. (b) of sub-s. (1) and subsequently the CIT is satisfied that the activities of such trust or institution are not genuine or are not being carried out in accordance with the objects of the trust or institution, as the case may be, he shall pass an order in writing cancelling the registration of such trust or institution. (VI)
Conclusion :
11. In the recent past the question of interpretation of newly inserted s. 12AA (w.e.f. 1st April, 1997) has always been perennial teaser not only to the trust or institutions but also to the Revenue Department as also faced by the judiciary. To get the answer we have heard both the sides at length, carefully perused the impugned order and also several correspondences filed in the compilation in the light of the case laws cited.
11.1 The law now introduced is to streamline the "Procedure for registration" and by saying so we do not want to enter into the controversy whether the applicability of s. 12AA(3) was retrospective or prospective in nature. Rather we can make an observation that this issue stood answered by Coordinate Benches. We want to express that earlier to this section there was no guidelines in the statute for refusal of registration, therefore it was considered eminent to introduce in the statute the said procedure. What bothered the Tribunals and High Courts in the recent past is the scope and the purpose of introduction of s. 12AA in the statute. All those judgments as listed above, in agreement have said that the activities ought to be in fulfilment of the objects for which a trust is created. Sentiments should be in line with the purpose for which the trust is created. The purpose should be philanthropic, charitable, or for public general utility. Service without profit has to be the motive. As in the present case the objects are to undertake, to run and to improve the educational institution for imparting education in divergent fields; deliberated upon ante.
11.2 In any case we have to examine the purpose of enactment of ss. 12A, 12AA and 12AA(3), viz-a-viz ss. 11 and 12. While reading several case laws as cited supra an important point of view of the Hon’ble Courts have come to our notice that mere registration under s. 12AA would not by itself be a ground for exclusion of such an income from the total income of a trust. To our understanding, also acknowledged in the precedents; the provisions of s. 12AA prescribes conditions for registration of a trust and therefore in the absence of registration disentitles any trust from claiming any benefit of the provisions of s. 11 and s. 12 of the Act in relation to its income. Therefore the conclusion is that s. 12AA prescribes certain conditions for the registration of a trust and thereupon obligates a trust or an institution to seek, rather obtain, a registration under s. 12AA if such trust intends to have the benefits of the exemption as prescribed under ss. 11 and 12 of the Act. It is not the otherway round that the benefit of ss. 11 and 12 shall be automatic once the registration is granted. Thus the outcome is that these provisions make it clear that if the trust is not registered under s. 12AA it would not be able to claim any exemption or exclusion of its income from the total income of the previous year, even if such income is otherwise liable for exclusion under any of the clauses of s. 11 and s. 12 of the Act.
11.3 On due consideration of the rival arguments we can summarise the section of the Act governing the issue in hand. The purpose of framing the "Conditions for applicability of ss. 11 and 12" i.e., s. 12A and framing the rules of "Procedure for registration" i.e., s. 12AA is basically meant to open the door to a trust to enter into the framework of the provisions of the statute, in a way; an entitlement to enter into a room where the eligibility of exemptions is kept for adjudication. Thus in a case of refusal of registration, the trust would even not be allowed to enter the room to seek a claim of such exclusion of a receipt from the total income. In simple words; in case of no registration a trust is debarred by law to claim exemption. This is the first step to climb to the level where the exemptions are placed. At this first step the CIT is conferred with the powers to call for such documents and information in order to satisfy himself about the genuineness of the activities and also to enquire that those genuine activities are as per the objects of the trust for which it is seeking registration. The objects and activities should be philanthropic and not against the public interest must be for the benefit at large instead for the benefit of particular individual or group of individuals.
11.4 In the recent past sub-s. (3) was inserted in s. 12AA w.e.f. 1st Oct., 2004 which gives power of cancellation of registration to the CIT, if he finds that the activities are not genuine or not being carried out in accordance with the object of the trust. The need for the enactment had arisen due to belief of some quarter that in the absence of explicit law the CIT cannot exercise the power of cancellation of registration. To overcome this hurdle this sub-section is incorporated and now in operation. Naturally these powers are conferred with a view to ensure that if once a registration has been granted under s. 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.
11.5 Considering the arguments and the facts of this case we have noted that the most important feature of s. 12AA is, as also referred to us in this appeal for our adjudication, 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. To our humble understanding of 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 this section 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 should not be a camouflage but pure, sincere, charitable and for public utility at large. What is implicit is that the CIT has to sincerely examine that the objects as also the activities should not be prima facie against the basic structure for which beneficial law is made and also be not in conflict with the general public utility. Naturally an institution if established to carry out an illegal activity or activities are causing any type of nuisance not in the interest of the public at large should definitely lead to cancellation of registration. Therefore, this is the first requisite of the statute to mandate for the registration and in the absence of such registration disentitlement of exemption. So what is explicit is that though an institution may be doing charitable activities as prescribed but in the absence of registration cannot be entitled for the exemptions or benefits of ss. 11 and 12 of the Act. It is also explicit that registration ipso facto does not necessarily entitle an institution to get the receipts excluded from the income or exemption be granted automatically by just showing the registration certificate to the Revenue authorities. In no way the registration certificate is a license to do any type of activity and to get away from the ambits of the tax. An institution has to follow the norms as laid down in other related sections for availing prescribed benefits.
11.6 Procedure of registration is a first step and a preliminary stage where the CIT shall restrict the enquiries as to whether the trust is actually and whole heartedly performing all the duties and activities for which it was created. On careful reading of this section it was gathered that at this initial stage there is no scope of any apprehension of misutilization of funds or to judge the taxability income. The scheme of the Act otherwise does not subscribe and allow a trust to take the benefit of the provisions of ss. 11 and 12 unless it establishes the prescribed utilization of the income, even if, at all the trust holds the registration in its hands. Therefore at the stage of granting registration the CIT is not expected to bother himself about the other provisions of the Act and supposed to confine himself to the procedure of registration as laid down therein. For this view, we draw support from the order of the respected Co-ordinate Bench Tribunal, New Delhi pronounced in the case of Aggarwal Mitra Mandal Trust vs. Director of IT (Exemption) (supra), a portion reproduced below (p. 186 of paper book) :
"............In this situation, if the registration applied for under s. 12A is not granted to it for violation of the provisions of s. 13(1)(b) and it is ultimately found that the assessee-trust actually accomplished the objects as indicated in clause No. 3(4) only for the benefit of public at large without there being any activity undertaken as per object clause Nos. 3(1) and 3(2), it would be deprived of any benefits which otherwise were available to it under s. 11 or s. 12. This certainly is not the legislative intention as reflected in the scheme laid down in ss. 11, 12, 12A, 12AA and 13. On the contrary, the phraseology of s. 13, as already discussed, makes it explicitly clear that the said provisions become operative or relevant only at the stage of assessment when the AO is required to examine the claim of the assessee for benefits under s. 11 or s. 12 while computing the total income of the assessee of the relevant previous year. The application of s. 13 thus falls within the exclusive domain of the AO and the provisions contained therein can be invoked by him while framing the assessment and not by the CIT while considering the application for registration under s. 12AA."
11.7 An another feature of the impugned order of the learned CIT is in fact bothering us that nowhere he has taken any objection to the charitable and educational nature of the institution. In fact, the objects of the institution as declared in the trust deed, which are extracted earlier, does reflect that all are philanthropic or benevolent in nature, precisely for the purpose of imparting education. Strange enough there is no finding recorded by the learned 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 s. 12AA of the Act. Rather this is also not the case of the learned 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 we uphold the action of cancellation of registration ? Answer is obvious no.
11.8 While reading the precedents cited from the side of the appellant we come across a decision of a respected Co-ordinate Bench Tribunal, Kolkata pronounced in the case of Kalinga Institute of Industrial Technology (supra) and have found that almost on identical situation, as in the present appeal, it was held that consequence upon a search while the assessment proceedings are pending a cancellation of registration by invoking s. 12AA(3) is a premature action on the part of CIT, because it is expected from him to take precaution to let the assessment get completed, if possible expeditiously, instead of rushing to cancel the registration which shall effect and interrupt the other proceedings under the Act and so prematurely punish a person without judicious hearing as prescribed by the statute. Held portion is worth reproduction as did in para (xii) p. 35 ante.
11.9 We have also gone through a decision referred from the side of the Revenue namely the Jammu & Kashmir Bank Priority Sector Asset Risk Fund vs. CIT (ITA No. 61/Asr/2006 order dt. 1st Sept., 2006) (supra); cited in support of the argument that firstly the CIT has been vested with the powers vide s. 12AA(3), inserted w.e.f. 1st Oct., 2004, to enquire about the genuineness of the activities of a trust and to satisfy himself that such activities are being carried out in accordance with the objects of the trust. Secondly in case of dissatisfaction he is empowered to cancel the already granted registration. Thirdly in case it is found that the activities are not in conformity with the object that too is the good reason for cancellation of registration.
Fourthly the sweep of the section is wide enough to empower the CIT to examine the nature of the object whether for general public utility and philanthropic in nature. In our conscientious view there is no disagreement about the above-mentioned four legal proposition as eruditely laid down by the respected Amritsar Bench. Undisputedly we have also to decide this appeal more or less within these parameters. But the basic question is that before stepping towards the cancellation of registration the heavy burden is on the learned CIT to conclusively demonstrate that all had gone haywire i.e., objects are meant for personal benefits; that engaged in immoral activities or that there is no element of public benefit. In the present appeal none of the above criteria for rejection of registration was in existence, however mainly confined to the finding that by charging donation the trust has infringed the rules of Prohibition of Capitation Fee Act.
11.10 Before we part with it is worth to cite an another latest decision pronounced by respected Co-ordinate Bench of Chandigarh in the case of Himachal Pradesh Environment Protection and Pollution Control Board vs. CIT (ITA No. 74/Chd/2009) [reported at (2009) 125 TTJ (Chd) 98 : (2009) 28 DTR (Chd)(Trib) 289- Ed.] wherein the worth noting observations were as follows : "17. On a perusal of these objectives, as sanctioned by the statute, it is obvious that the activities performed by the assessee trust are regulatory functions for the public good, and any collection for fees or charges, in the course of discharging these regulatory functions, cannot be viewed as a consideration of rendering these services of pollution control measures. We are unable to see any substance in learned CIT’s stand that the income earned by assessee as licence fees, consent fees and testing charges are receipts in consideration of rendering the services to trade, commerce or business. What is termed as consent fees is in fact fees accompanying the application for obtaining consent (i.e., permission) of the assessee Board to set up a new unit. It cannot be anybody’s case that the processing of applications by itself has a commercial motive, or that fees for processing of applications is a fees collected for rendering of service of pollution control which is undisputed sole object of the assessee trust. Similarly, fees for testing charges and licence fees are not also towards rendering of any services of pollution control either. These are not the services with a profit motive but essentially only to recoup the cost of getting the samples tested or processing of licences. In any event, these activities, if these can be at all be construed as rendering of services, these are wholly subservient to the public utility objective of pollution control, and, it cannot be anyone’s case that even though the State Pollution Boards like the assessee before us are set up under an Act of the Parliament, but, to use the words employed in the CBDT circular (supra) ‘the object of ‘general public utility’ will only be a mask or a device to hide the true purpose which is trade, commerce, or business or rendering of any service in relation to trade, commerce or business’.
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19. In any event, as a plain reading of s. 12AA(3) would indicate that a registration granted under s. 12AA can only be withdrawn when the CIT is satisfied that (a) the activities of the trust or the institution are not ‘genuine’; or (b) the activities of the assessee are not being carried out in accordance with the objects of the trust or the institution. There cannot be any other legally sustainable reason for cancelling or withdrawing the registration granted under s. 12AA. By no stretch of logic, the activities of the assessee can be said to be not genuine and the assessee is admittedly pursuing the objects for which it was established. When the assessee is engaged in bona fide activities, with the framework of law, to pursue its objectives, it cannot be said that the activities of the assessee are not genuine. Learned CIT has also not brought on record any material to demonstrate activities of the assessee are not being carried out in accordance with the objects of the trust or the institution. Under these circumstances, the withdrawal of registration granted under s. 12AA cannot be sustained in law. Learned CIT has extensively referred to as to why the assessee is not eligible for exemption under s. 11 as the activities of the assessee cannot be said to be for ‘charitable purposes’ defined under s. 2(15), but then this aspect of the matter is relevant for the assessment proceedings and not in the context of exercise of CIT’s powers under s. 12AA (3). The impugned order passed by the learned CIT is thus vitiated in law on this count as well.
20. For the detailed reasons set out above, we quash the order of the learned CIT and hold that the learned CIT did not have any good reasons, sustainable in law, to withdraw the registration. The impugned order is accordingly set aside." On reading the above verdict it is gathered that if the objects as permissible in the eyes of law are carried out legally and the object of advancement of education as also the object of general public utility are carried out with due sincerity then the claim of registration is within the ambiguity of s. 12A of the Act.
11.11 As far as the objective of the appellant is concerned this is not the case of the Revenue that the assessee was not imparting education. As we know the term education means to teach subjects to students for the development of his mind and also to equip students to deal with reality. The training process is either theoretical or practical but student has to be taught the essentials of the selected subjects so as to develop his skill and knowledge for the subjects studied by him. The appellant institute, admittedly, fulfils the requirements of imparting formal education by a systematic teaching and instructions. Since the question about the imparting of education has not been doubted or challenged by the Revenue therefore. In our considered opinion the impugned order passed by the respondent is unsustainable in law. Strange enough there is nothing on record to prove sightlessly that the purpose of imparting of education was not fulfilled by this institute thus the Revenue Department has hopelessly failed to establish that there was any illegal activity or infringement of any law so that to doubt the genuineness of the activities. If it was so then it can be held that the allegations of the Revenue as discussed above, remained unsupported thus deserves our dismissal.
11.12 Based upon the facts of this case, we now sum up above discussion; the sine qua non for cancellation of registration are two conditions prescribed in s. 12AA(3) needs to be satisfied are :
(a) That activities of the trust/institution are not genuine.
(b) That activities of the trust are not carried out in accordance with the objects of the trust/institution. Thus the findings of the learned CIT has not to be only conceptual or contextual but should be within the four corners of law so that not surpassing the power, as listed above, granted in sub-s. (3) of s. 12AA. But unfortunately the fallacy is writ large as gathered on perusing the impugned order. We can hold that the CIT’s approach for deciding the eligibility of registration of a trust should be different from the angle by which an assessment of an income is made by the AO. We are afraid about the ramification if we approve the action of learned CIT because in that case it may adversely affect the imparting of education especially when the Revenue has not made out a case that the very purpose for creation of the trust was defeated. Rather we wonder that what purpose does it serve to Revenue by cancelling a registration if the activities are in public interest because in case of any breach of the laws the same is subject to tax under ss. 11 and 12 of IT Act. These two provisions and few other provisions are competent enough to tackle firmly a defaulter of philanthropic application of income or funds of the trust. The other adverse side of cancellation is that on refusal of registration the entire receipts shall be subject to assessment without granting benefit of s. 11 and s. 12 of IT Act 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.
11.13 The aspect of morality as touched by the learned 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. We are tempted to write an idiomatic language due to the sensitivity of the issue, that a CIT cannot be allowed to hold a baton of morality in his hand to hit an immoral; but the statute has given him a flexible stick for inflicting tax on defaulter; that includes a trust or educational institution. The gist is that if the CIT had an information of some wrongful means of earning fees in the form of a donation or the information tells about excessive charging of fees; then the CIT in his rights can pass on the information to the concerned office bearers working under the Maharashtra Capitation Fees (Prohibition) Act. These authorities have enough power to deal with such nature of default, side by side the CIT is to limit his jurisdiction within the ambits of provisions of the Act and expected to give a finding on facts that either the objects are not for general public utility or not achieved as prescribed under law. However presently the situation is that the Revenue has not said about any immoral activity of the appellant or the collection of fees was by wrongful means; hence deregistration sans our approval. Nevertheless the list of fifteen cases, as highlighted by learned CIT, lack desired positive finding as it was left blank on the excuse that even the other authorities could not lay their hands on alleged defaults so it was also difficult for the Revenue authorities to trace the correct position. While dealing with the facts ante, it was found that after exhaustive enquiry few instances; fifteen in numbers; were noticed by the Revenue authorities wherein it was alleged to be the infringement of Capitation Fee Act. But the irony is that in the same breath the learned CIT has accepted the stand of the assessee that it can charge five times the normal fees in case of admission in the defined management quota. Thereupon there was a circumvent in the approach of the learned CIT that the amount of donation be considered together with the fees to find out the violation of prohibition of Capitation Fee Act. But on facts that too did not stand the test of those provisions since admittedly did not exceed the prescribed limit.
11.14 Facts of this appeal are peculiar, as already discussed in above paras in detail and thereupon can comment that prima facie no case was made out by the learned CIT so as to even vaguely demonstrate that the activities of the appellant were not genuine or activity of imparting of education, for which the trust was created, were not carried out. Even the learned CIT has failed to establish that any part of the income/receipt of the trust was in any manner misutilized by the trustees for their personal benefit i.e., not in fulfillment of the object of the trust. Otherwise also there are three ways to look at this problem. One is, that the donations are raised but not utilized for achieving the objects i.e., towards imparting education; then such an institution must bear the consequence of cancellation of registration since ipso facto infringed s. 12AA(3) condition.
Second aspect is, that though the donations received are meant to fulfill the objects but together with fees have infringed Anti Capitation Prohibition Act; then comes within the clutches of that Act but definitely not under s. 12AA(3) provisions. The third aspect is, that the donation plus fees do not exceed the prescribed limit of Anti Capitation Fee Act i.e., five times the normal fees; further that no evidence of misutilization other than the prescribed activity then no action can be suggested under s. 12AA(3). The assessee’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 learned CIT; consequence there upon reverse those findings. The order of cancellation of registration is hereby revoked. Grounds allowed.
12. Appeal allowed.
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