2013 (5) TMI 832 - AT - Income Tax

Canceling the registration u/s. 12AA(3) - Held that - CIT was not justified in cancelling the registration u/s. 12AA(3) of the IT Act. Section 12AA(3) of the Act empowers the ld. CIT to cancel such registration if he was satisfied that the activities of the 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. It is not in dispute that the objects of the assessee trust are to carry out the educational activities which are charitable in nature and that the assessee trust solely exists for educational purpose. Thus, the ld. CIT was satisfied that the activities of the assessee trust are genuine and that the same educational activities have been carried out as per the objects of the assessee trust. The ld. CIT admitted the same facts in para 9 of the impugned order reproduced above also. Furthermore, it is also not in dispute that in this case registration was granted u/s. 12A on 01.09.1997 w.e.f. 16.12.1995. Before 01.06.2010, section 12AA(3) nowhere empowers the ld. CIT to cancel or withdraw the registration u/s. 12A of the IT Act. In the absence of such power, registration granted u/s. 12A cannot be withdrawn or cancelled before 01.06.2010. In the present case, the ld. CIT in para 13 of the impugned order has cancelled the registration without giving the date from which date the cancellation of registration would be effective. Therefore, in the absence of any date from when the registration would be cancelled, the order of the ld. CIT cannot be sustained in law.

Issues Involved:
1. Cancellation of registration under section 12AA(3) of the IT Act.
2. Alleged receipt of unaccounted donations/capitation fees.
3. Compliance with the objects of the trust.
4. Application of section 292C of the IT Act.
5. Validity of evidence obtained during the search.
6. Legal precedents and interpretation of section 12AA(3).

Detailed Analysis:

1. Cancellation of Registration under Section 12AA(3):
The appeals challenge the orders canceling the registration of two educational trusts under section 12AA(3) of the IT Act. The Commissioner of Income Tax (CIT) canceled the registrations on the grounds that the trusts were not being run in accordance with their charitable objects due to the alleged receipt of unaccounted donations and capitation fees.

2. Alleged Receipt of Unaccounted Donations/Capitation Fees:
The CIT's decision was based on documents seized during a search operation, which allegedly indicated unaccounted cash and capitation fees received from students. The documents included lists of students with amounts labeled as "B," which were not recorded in the trusts' books of account. The trusts argued that these documents were not admissible as evidence and that no actual unaccounted money was found or proven.

3. Compliance with the Objects of the Trust:
The trusts maintained that they existed solely for educational purposes and had been functioning in accordance with their charitable objectives. They provided evidence, including student admission records and financial statements, to support their claim. The CIT's assertion that the trusts were using their property for personal enrichment was not substantiated with concrete evidence.

4. Application of Section 292C of the IT Act:
The CIT relied on section 292C, which presumes the correctness of documents found during a search. However, the tribunal noted that this presumption is rebuttable and that the trusts had provided sufficient explanations to counter the presumption. The documents were found at the residence of a trustee, not at the trust's premises, and no direct evidence linked the documents to the trusts' activities.

5. Validity of Evidence Obtained During the Search:
The tribunal found that the documents seized were not corroborated by any other evidence. No students or parents were examined to confirm the payment of unaccounted donations. The documents lacked signatures and were not authenticated. The tribunal concluded that the documents alone were insufficient to justify the cancellation of registration.

6. Legal Precedents and Interpretation of Section 12AA(3):
The tribunal referred to several legal precedents, including decisions from the Orissa High Court, ITAT Ahmedabad, and the Supreme Court, which emphasized that the cancellation of registration requires concrete evidence that the trust's activities are not genuine or not in accordance with its objects. The tribunal highlighted that the power to cancel registration under section 12AA(3) was introduced only from 01.06.2010 and could not be applied retrospectively.

Conclusion:
The tribunal set aside the CIT's orders canceling the registrations of both trusts. It held that the evidence presented was insufficient to prove that the trusts were not functioning in accordance with their charitable objects. The tribunal restored the registrations under section 12A of the IT Act, emphasizing the need for concrete evidence and proper investigation before taking such drastic measures. Both appeals were allowed in favor of the trusts.

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