2019 (7) TMI 1868 - AT - Income Tax

Exemption u/s 11 - withdrawing registration granted u/s 12A - CIT-E cancelling registration granted u/s 12A by invoking his powers u/s 12AA(3) - sole reason given by the Ld. CIT(E) for cancellation of registration is that the assessee has collected Building fund from parents/students thereby violated provisions of Prohibition of Capitation Fee Act (Government of Maharashtra) 1987 - HELD THAT - As gone through provisions of the Maharashtra Educational Institution Prohibition of Capitation Fee Act (Government of Maharashtra) 1987 and rules and regulation. As per section 5 of the Principle Act any trust or institution is authorised to collect voluntary donations from any benevolent persons for the purpose of development of trust/institution but such donations shall not be collected in pursuance of admission to a course in a college/schools run by the trust or institution. In this case on perusal of details available on record it is abundantly clear that the donations collected from the parents/students in the form of building funds is voluntary and such funds have been applied for the purpose of development of buildings and other infrastructures. It is also not in dispute that the donations including fees collected from students is not in excess of prescribed fees fixed by the statement government - CIT(E) erred in cancelling registration granted under section 12A by invoking his powers under section 12AA(3) of the IT Act 1961 only for the reason of receipt of donations from students/parents without appreciating the fact that such donations are voluntary and also within the limit prescribed limit fixed by the competent authority. DIT(E) in his order except stating that the trust is collecting donations being Building Fund from students/parents has not made any observations with regard to activities of the trust if any as referred to in section 11 or 13 of the IT Act 1961. Unless the Ld. DIT(E) brings on record any evidences to prove that the objects of the trust are not charitable in nature and its activities are not carried out in accordance with objects then merely for the reason of collection of donations from students that too when such donations are within the limit at prescribed fees fixed by the competent authority registration granted under section 12A cannot be cancelled by invoking his powers under section 12AA(3) - Decided in favour of assessee. Exemption u/s 11 - Once registration granted under section 12A is available to the assessee from the date of registration including for the impugned assessment year then the AO was incorrect in denying the exemption under section 11 of the Income Tax Act 1961. Therefore we direct the AO to allow the benefit of exemption claimed under section 11 in respect of income derived from property held under trust subject to other provisions of the IT Act which is applicable to the assessee.

Summary

Issues Involved:
1. Natural Justice
2. Cancellation of Registration under Section 12AA(3)
3. Retroactive Cancellation of Registration
4. Exemption under Section 11 of the Income Tax Act

Issue-wise Detailed Analysis:

1. Natural Justice:
The assessee argued that the Commissioner of Income Tax (Exemptions) ("Ld. CIT(E)") erred in passing the appellate order without giving sufficient, proper, and adequate opportunity of being heard, thus breaching the principles of natural justice. The appellate order should be held as bad in law due to this breach.

2. Cancellation of Registration under Section 12AA(3):
The assessee contended that the Ld. CIT(E) incorrectly invoked the provisions of section 12AA(3) to cancel the registration of the trust. The Ld. CIT(E) based his action on surmises, suspicion, and conjecture, took into account irrelevant and extraneous considerations, and ignored relevant material and considerations submitted by the assessee. The Ld. CIT(E) issued a show-cause notice under section 12AA(3) based on a proposal from the Assessing Officer, alleging that the trust's activities were not in accordance with its objects. The assessee argued that the donations collected were voluntary and within the limits prescribed by the State Government, and thus did not violate the Prohibition of Capitation Fee Act (Government of Maharashtra), 1987. The Ld. CIT(E) failed to provide evidence that the trust violated any provisions of sections 11 and 13 of the Income Tax Act, 1961, and wrongly canceled the registration solely on the basis of donation collection.

3. Retroactive Cancellation of Registration:
The assessee argued that even if the registration was liable to be canceled under section 12AA(3), the Ld. CIT(E) erred in canceling it with effect from 1986-1987. The Ld. CIT(E) did not provide sufficient grounds or evidence for such a retroactive cancellation.

4. Exemption under Section 11 of the Income Tax Act:
The assessee's appeal included the issue of whether the Assessing Officer (AO) was correct in denying the exemption under section 11 due to the cancellation of registration under section 12A. The AO assessed the surplus for the year under the head income from business or profession, citing the Ld. CIT(E)'s order that the trust violated the Prohibition of Capitation Fee Act by collecting building funds from parents/students. The Tribunal restored the registration granted under section 12A, instructing the AO to allow the benefit of exemption claimed under section 11, as the registration was available from the date of registration, including for the impugned assessment year.

Conclusion:
The Tribunal found that the Ld. CIT(E) erred in canceling the registration granted under section 12A by invoking section 12AA(3) solely due to the collection of donations, which were voluntary and within prescribed limits. The Tribunal restored the registration and directed the AO to allow the benefit of exemption under section 11, subject to other applicable provisions of the Income Tax Act. Both appeals filed by the assessee were allowed, and the order was pronounced in the open court on 31.07.2019.