2017 (7) TMI 1053 - HC - Income Tax

Invoke Section 12AA for cancellation of registration - Held that - The fact that the appellant had put land on sale is not disputed. However, an explanation has been given that assessee had undertaken construction of the hospital and constructed substantial part of the cancer hospital. However, could not complete construction because of the financial stringency, and to achieve the further object of the trust decided to sale the same. The sale has not materialised and the said property is not sold. It cannot be said that the Tribunal has erred in its conclusion. With regard to purchase of BMW car, it was stated that though the said car was purchased in the name of a Trustee, it was used for the purpose of trust only and the deduction of the same which was disallowed, has been allowed by the Commissioner and confirmed by the Tribunal. It shows that the trust has purchased the said car for its own use. As far as payment of scholarship is concerned, it has come on record that the amount of scholarship has been paid to the students directly through their educational institutions and not through PAAK foundation, though, initially it was decided to route the said payment through PAAK foundation, but the same has not been done and the amount which was deposited for scholarship with PAAK foundation has been taken back by the respondent. The Tribunal after appreciation of evidence has arrived at plausible conclusion in allowing the appeal in favour of assessee.

Summary

Issues:
1. Cancellation of registration of the respondent Trust by DIT (Exemptions).
2. Grounds for cancellation: sale of land for commercial purpose, purchase of luxury car, routing scholarship payments through PAAK foundation.
3. Dispute over fulfilling trust's object and engaging in activities against trust's object.
4. Tribunal's decision on the issues raised by both parties.

Analysis:
1. The DIT (Exemptions) cancelled the registration of the respondent Trust, which was challenged by the appellant. The Tribunal allowed the appeal filed by the assessee, leading to the present appeal.

2. The appellant's counsel argued that the trust's registration was cancelled due to selling land for commercial purposes, purchasing a luxury car, and routing scholarship payments through PAAK foundation. The counsel contended that these actions were against the trust's object, satisfying the conditions of Section 12AA(3). The Tribunal allegedly overlooked these facts, leading to the cancellation of registration. However, the respondent's counsel argued that the land was acquired for a cancer hospital, substantial construction was done, but lack of funds hindered further progress. The trust attempted to sell the land to raise funds for its objectives, although the sale did not materialize. The scholarship payments were made directly to students through educational institutions, not through PAAK foundation as initially planned.

3. The High Court acknowledged that if a trust fails to fulfill its object or engages in activities contrary to its purpose, the DIT (E) has the authority to cancel its registration under Section 12AA. While the trust did advertise the land for sale, it was explained that the sale was intended to fund the construction of a cancer hospital, which was not completed due to financial constraints. The Tribunal's decision was deemed reasonable in this regard.

4. Regarding the purchase of the BMW car, it was clarified that the car was used for trust purposes, and the deduction disallowed initially was later allowed by the Commissioner and confirmed by the Tribunal. Scholarship payments were confirmed to have been made directly to students, not through PAAK foundation as alleged. The Tribunal's decision was based on a thorough evaluation of the evidence presented, leading to the dismissal of the appeal as no substantial question of law arose.