2018 (5) TMI 2054 - AT - Income Tax

Exemption u/s 11 - cancelling the registration granted u/s 12A(a) - CIT(Exemptions) cancelling the registration granted under Section 12A(a), solely on the basis of observation made by the AO during the assessment proceedings as noted a large number of discrepancies in the accounts and affairs of the assessee society and rejected the claim of exemption and held its income to be taxable of AOP - DGIT has withdrawn the approval u/s 10(23C)(vi) on account of various irregularities pointed out by him and holding that the activities of the institution are not run solely for education and run for profit - there are violations regarding norms of Registrar of Societies and norms of AICTE and assessee misconducted itself by claiming that it is approved u/s 35(1)(iii) and donations made to it enjoy income tax exemption - HELD THAT - As objects of the assessee society being education in nature and fall within the meaning of charitable purpose u/s 2(15) of the I.T. Act and since the society was registered u/s 12A allowed the claim of exemption u/s 11 of the I.T. Act. Since the appeal filed by the Revenue has already been dismissed by the Tribunal and upheld by the Hon'ble High Court and the assessee society is imparting education which is not in dispute, therefore, ld. CIT, in our opinion, is not justified in cancelling the registration granted earlier by invoking provisions of section 12AA(3) of the I.T. Act. The addition, if any, can be made by the Assessing Officer in the regular assessment but registration cannot be cancelled only on the basis of certain violations by the trustees unless and until it is proved that the assessee trust is not fulfilling its main object of imparting education. As relying on M/S. ISLAMIC ACADEMY OF EDUCATION 2015 (9) TMI 450 - KARNATAKA HIGH COURT and considering the fact that the assessee trust is imparting education as per its main objects, we are of the opinion that the ld. CIT is not justified in cancelling the registration u/s 12AA(3) of the I.T. Act. We accordingly set-aside the order of the ld. CIT and restore the registration granted earlier. Decided in favour of assessee.

Summary

Issues Involved:
1. Cancellation of registration under section 12A(a) of the Income Tax Act, 1961.
2. Validity of the order passed by the Commissioner of Income Tax (Exemptions) based on discrepancies noted by the Assessing Officer.
3. Impact of Tribunal and High Court decisions on the cancellation of registration.
4. Compliance with the main object of imparting education by the assessee society.
5. Allegations of financial irregularities and mismanagement.

Issue-wise Detailed Analysis:

1. Cancellation of registration under section 12A(a) of the Income Tax Act, 1961:
The appeal was directed against the order dated 14.01.2015 by the Commissioner of Income Tax (Exemptions), New Delhi, which cancelled the registration granted under section 12A(a) of the Income Tax Act, 1961. The assessee, a society registered under section 12A(a) since 04.04.1975, had its registration cancelled due to discrepancies noted by the Assessing Officer and the withdrawal of exemption under section 10(23C)(iv).

2. Validity of the order passed by the Commissioner of Income Tax (Exemptions) based on discrepancies noted by the Assessing Officer:
The Commissioner observed several discrepancies in the accounts and affairs of the assessee society during the assessment proceedings for the years 2009-10 and 2010-11. These discrepancies led to the rejection of the exemption claim under section 11 and the taxation of its income as an Association of Persons (AOP). The discrepancies included lavish expenditures not related to educational purposes, mismanagement of funds, and violations of norms set by the Registrar of Societies and AICTE.

3. Impact of Tribunal and High Court decisions on the cancellation of registration:
The assessee argued that the Tribunal had already decided in its favor regarding the discrepancies noted by the Assessing Officer, and the Tribunal's order was upheld by the High Court. The Tribunal had verified and examined the issues and found no grounds for revoking the exemption under section 11. Despite this, the Commissioner did not accept the Tribunal's order and proceeded with the cancellation, which was challenged by the assessee.

4. Compliance with the main object of imparting education by the assessee society:
The Commissioner noted that the Director General of Income Tax (Exemptions) had withdrawn the exemption under section 10(23C)(iv) due to the institution's activities not being solely for education and being run for profit. However, the Tribunal found that the assessee society was indeed imparting education, which is a charitable purpose under section 2(15) of the Income Tax Act. The Tribunal emphasized that registration cannot be canceled solely based on certain violations by the trustees if the main object of imparting education is being fulfilled.

5. Allegations of financial irregularities and mismanagement:
The Commissioner cited financial irregularities, such as lavish expenditures on the Executive President's residence and dubious transactions, as reasons for cancellation. However, the Tribunal referenced the decision of the Hon'ble Karnataka High Court in the case of CIT vs. Islamic Academy of Education, which held that registration could not be canceled solely based on trustees misappropriating funds if the main object of imparting education was being met. The Tribunal concluded that the assessee trust was imparting education and set aside the order of the Commissioner, restoring the registration granted earlier.

Conclusion:
The Tribunal found that the Commissioner was not justified in canceling the registration granted under section 12A(a) of the Income Tax Act, 1961, as the assessee society was fulfilling its main object of imparting education. The appeal filed by the assessee was allowed, and the registration was restored.