2013 (9) TMI 1120 - AT - Income Tax

Cancellation/withdrawal of registration granted u/s 12A - Trust activities Genuine or Commercial - Imparting knowledge at cost with profit making intention - Charitable Educational work - Cancellation of registration with Retrospective effect u/s-12AA - Question of Contravention of Section-13 - HELD THAT - the assessee is not receiving any educational grants from the State Govt. which means that State Govt. does not find the so-called charitable work of the assessee an absolute necessity to discharge its constitutional liability to give grant. Further, by permitting the assessee to charge fees at a pre-determined rates, the Govt has merely made available a means to meet the assessee's expenditure, at the same time has ensured that the students are not unduly suffered by providing a ceiling for collection of fees. Therefore, the assessee's stand that it is charging fees as permitted by the state Govt., does not necessarily means that the assessee is engaged in charitable activity under sec. 2(15). Moreover, it was allegated the assessee has been providing nothing free of cost, and there is a cost-tag to each and every item which is not less than the upper limit prescribed by the State Govt. Thus IT Department states that Institute is run purely on commercial lines but to initiate steps for the cancellation of the registration of a trust or Institution where the activities of the trust or institution are not genuine or are not being carried out according to the objects for which trust was registered under S. 12A. So basic requirement for invoking S. 12AA(3) is that the activities of the trust are not genuine and are not being carried out in accordance with the objects of the trust. The question raised was that trust is imparting knowledge at cost and therefore, not a charitable Trust u/s 2(15) of the Act and the appellant trust has contravened the provisions of Ss. 11(5) and 13(1) (c) of the Act. Thus, there is nothing found out that the Trust is not 'genuine', the trust is carrying on Educational activities that are charitable in nature. The activities are carried out as per its objects and thus, no infringement of any of the provisions contained in Ss.11(5) and 13 of the Act. The provisions of S.12AA(3) for cancellation/withdrawal of registration granted to it u/s 12A of the Act are not retrospective and order of the CIT passed u/s 12AA(3) is nothing but a review. Payment made by trustees to vendor - HELD THAT - there is no documentary evidences found to substantiate that payment was made to vendor with the sole purpose of benefiting the managing trustee or his relatives except that the funds of the trust were routed through the trustees to the vendor. Moreover, the utilizations of the trust fund was not for purchase of agricultural land as investment, but a ladder to set up an educational institution in said land Relatives/friends being trustees claiming benefits of the trust - Utilization of Substantial part of trust's income for personal benefits - Huge expenditure incurred for personal benefits of interested persons - HELD THAT - Whether the trust is a public trust or not depends upon its objects. If the settler himself decides to be the sole trustee or nominates trustees from his family or those in his personal confidence. This does not vitiate either the validity of such trust or its public character. It is natural that settler would like to ensure that the objects of the trust created by him are best carried out by persons in whom he has the required confidence. Accumulated income of the Trust - No investment in specified securities - Already granted exemption u/s-11 in earlier years withdrawn - Non-denial of exemption already granted u/s-11 - HELD THAT - If there was any misapplication of funds, action would lie against person responsible, but the Institution cannot be denied exemption, which depends upon the objects of the Trust. Advances given to the trustees - Advances lying with the treasurer - HELD THAT - An advance for purchase of property by itself need not be treated as violation of S. 11(5) but such advance should be treated as bonafide. Decision in the case DEPUTY COMMISSIONER OF INCOME-TAX VERSUS COSMOPOLITAN EDUCATION SOCIETY 1999 (8) TMI 13 - RAJASTHAN HIGH COURT followed. In the result, there is nothing found out that the Trust is not 'genuine'. In fact, the trust is carrying on Educational activities they are charitable in nature. The activities are carried out as per its objects. There is no infringement of any of the provisions contained in Ss.11(5) and 13 of the Act. The provisions of S.12AA(3) for cancellation/withdrawal of registration granted to it w.e.f. 11-2-1998 u/s 12A of the Act are not retrospective and therefore, the impugned order of the CIT passed u/s 12AA(3) is nothing but a review of its earlier order which is impermissible in law. We hold so. The decision in the case DIRECTOR OF INCOME-TAX (EXEMPTION) , AHMEDABAD VERSUS NH. KAPADIA EDUCATION TRUST 2012 (5) TMI 236 - ITAT AHMEDABAD and SINHAGAD TECHNICAL EDUCATION SOCIETY VERSUS COMMISSIONER OF INCOME TAX 2012 (3) TMI 262 - BOMBAY HIGH COURT followed. As a result, the appeal of assessee was allowed

Issues Involved:

1. Whether the CIT-II Kolhapur was justified in cancelling/withdrawing the registration granted to the assessee u/s 12A of the Act.
2. Whether the cancellation/withdrawal of registration by the CIT-II Kolhapur was within jurisdiction and legally valid.
3. Whether the cancellation of registration amounted to a review of the order by the CIT-II Kolhapur.
4. Whether the activities carried out by the assessee were commercial or charitable in nature.

Detailed Analysis:

1. Justification of Cancellation/Withdrawal of Registration:

The CIT-II Kolhapur cancelled the registration granted to the assessee under section 12A of the Act on the grounds that the activities carried out by the assessee were commercial and not charitable. The CIT observed that the assessee was imparting knowledge at a cost with an inherent profit element. Additionally, the assessee had advanced funds to members and other concerns where members or their family members had interests, violating section 13 of the Act. The assessee also deposited significant sums in contravention of section 11(5) and failed to apply funds set apart for the trust's objects as required by Rule 17 of the IT Rules 1962.

2. Jurisdiction and Legal Validity:

The CIT invoked section 12AA(3) for the cancellation of the registration. The assessee argued that section 12AA(3), inserted w.e.f. 1-10-2004, is prospective and cannot apply to registrations granted prior to this date. The tribunal noted that the CIT's action to cancel the registration retrospectively was not permissible as section 12AA(3) does not have retrospective effect. The tribunal cited various case laws, including the Hon'ble Allahabad High Court's decision in CIT v. Manav Vikas Avam Sewa Sanstha, which held that section 12AA(3) is not retrospective and cannot be applied to registrations granted before its insertion.

3. Review of the Order:

The tribunal held that the cancellation of registration by the CIT-II Kolhapur amounted to a review of the earlier order, which is not permissible in law. It was emphasized that judicial/quasi-judicial authorities cannot review their own orders unless expressly conferred by the statute. The tribunal referred to the Hon'ble Allahabad High Court's decision in Oxford Academy for Career Development v. CIT, which stated that section 12AA(3) cannot be applied retrospectively to cancel registrations granted before its insertion.

4. Nature of Activities:

The CIT observed that the assessee was charging fees for educational services, including hostel, mess, and transportation, which amounted to commercial activities. The tribunal, however, noted that the assessee was engaged in educational activities, which are charitable in nature. The tribunal found no evidence to suggest that the trust's activities were not genuine or were not being carried out in accordance with its objects. The tribunal also noted that the trust had recovered advances made to trustees and had taken corrective actions, such as sacking a trustee who misappropriated funds.

Conclusion:

The tribunal concluded that the CIT-II Kolhapur was not justified in cancelling the registration granted to the assessee under section 12A. The cancellation was deemed void ab initio, illegal, and without jurisdiction. The tribunal allowed the appeal of the assessee, holding that the provisions of section 12AA(3) are not retrospective and cannot be applied to registrations granted before its insertion. The tribunal emphasized that the assessee's activities were charitable in nature and there was no infringement of the provisions of sections 11(5) and 13 of the Act.

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