2017 (5) TMI 8 - AT - Income Tax

Eligibility to registration u/s.12A - withdrawl of registration - proof of charitable activities - Held that - There is no allegation that funds are being misused or diverted or assessee is not imparting education. The activities of the trust cannot be considered as not genuine. Further, the trust is spending the funds for fulfilling the objects of the trust for which it is formed. Therefore, twin conditions prescribed for cancellation of trust registration have not been fulfilled. It is open to the authorities to deny the benefit u/s.11 but this cannot be a ground for cancellation of registration. Respectfully following the principles laid down by the Hon ble Karnataka High Court in the aforesaid cases i.e., CIT Vs. Islamic Academy of Education 2015 (9) TMI 450 - KARNATAKA HIGH COURT and Maharashtra Academy of Engineering & Educational Research Vs. CIT 2009 (9) TMI 952 - ITAT PUNE we have no hesitation to hold that Ld.DIT(E) erred in cancellation of the registration already granted to the assessee. Therefore, we hereby set aside the impugned order of the DIT(E) and restore the registration already granted to the assessee by the then Commissioner of Income Tax, Andhra Pradesh-II, Hyderabad - Decided in favour of assessee

Issues Involved:
1. Legality of the cancellation of registration under Section 12A of the Income Tax Act.
2. Allegations of collecting capitation fees by the assessee society.
3. Compliance with the charitable objects of the society.
4. Application of donations received by the society.
5. Examination of whether the activities of the trust were genuine and in accordance with its objects.

Detailed Analysis:

1. Legality of the Cancellation of Registration under Section 12A:
The primary issue is the cancellation of the registration granted to the assessee society under Section 12A of the Income Tax Act. The Director of Income Tax (Exemptions) [DIT(E)] invoked Section 12AA(3) to cancel the registration, alleging that the society was not carrying out activities in accordance with its charitable objects. The Tribunal noted that the DIT(E) based his conclusion on premature conclusions from assessment proceedings and isolated instances without conclusive evidence. The Tribunal emphasized that the provisions of Section 12AA(3) require a finding that the activities are not genuine or not being carried out in accordance with the objects, which was not established in this case.

2. Allegations of Collecting Capitation Fees:
The Assessing Officer (AO) alleged that the assessee society collected capitation fees from students, linking donations to admissions. However, the Tribunal found that this conclusion was based on limited and inconclusive evidence from a few cases. The Tribunal noted that the AO did not conduct adequate inquiries as directed by the ITAT in previous orders. The Tribunal also highlighted that collecting donations, even if linked to admissions, does not necessarily destroy the charitable nature of the institution, as long as the funds are used for the institution's charitable purposes.

3. Compliance with Charitable Objects:
The Tribunal examined whether the activities of the assessee society were in accordance with its charitable objects. The Tribunal found that the society was engaged in running educational institutions, which is a charitable activity under Section 2(15) of the Income Tax Act. The Tribunal noted that there was no evidence of misuse or diversion of funds for purposes other than the charitable objects of the society. The Tribunal concluded that the assessee society was fulfilling its charitable objects and that the activities were genuine.

4. Application of Donations Received:
The Tribunal analyzed whether the donations received by the assessee society were applied for its charitable purposes. The Tribunal noted that the donations were accounted for and used for the development and improvement of the educational institutions run by the society. The Tribunal also referred to the Andhra Pradesh Educational Institutions (Regulation of Admission and Prohibition of Capitation Fee) Act, 1983, which permits the receipt of voluntary donations for the improvement and development of educational institutions. The Tribunal found that the society complied with this provision and that the donations were used for the intended charitable purposes.

5. Examination of Whether the Activities of the Trust Were Genuine and in Accordance with its Objects:
The Tribunal emphasized that for the cancellation of registration under Section 12AA(3), it must be established that the activities of the trust are not genuine or not being carried out in accordance with its objects. The Tribunal found that the DIT(E) did not provide any evidence to show that the activities of the assessee society were not genuine or not in accordance with its objects. The Tribunal concluded that the assessee society was genuinely engaged in charitable activities and that the cancellation of registration was not justified.

Conclusion:
The Tribunal set aside the order of the DIT(E) canceling the registration of the assessee society under Section 12A of the Income Tax Act. The Tribunal restored the registration, finding that the assessee society was genuinely engaged in charitable activities in accordance with its objects and that the cancellation of registration was based on premature and inconclusive evidence. The Tribunal emphasized that collecting donations, even if linked to admissions, does not necessarily destroy the charitable nature of the institution as long as the funds are used for charitable purposes.

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