2020 (9) TMI 196 - AT - Income Tax

Exemption u/s 11 - Providing education through Medical College - inadequate infrastructure - Pr. CIT has withdrawn the registration granted to the assessee u/s 12AA of the Act by invoking section 12AA(3) with retrospective effect - HELD THAT - PCIT did not have record of activities which are not in accordance with the objects of the trust. The entire order of the PCIT is based on the appraisal report of DDIT( Inv.) only. We do not find mention of any material being referred by the ld. PCIT and its applicability to any of the provisions of Section 2(15 ) and/or Section 12AA(3 ) while revoking the registration. The Act envisages where a trust or an institution has been granted registration u/ s 12AA(1 )(b) or has been obtained registration at any time u/ s 12A. PCIT can cancel the registration if the conditions mentioned therein are not satisfied or the activities of the trust are not genuine or the activities are not carried out in accordance with the objects of the trust. We do not find that the ld. PCIT has brought out any of the conditions laid down as above. There have been deficiencies in the infrastructure as found by the first report which were found to have been rectified by the second committee comprising of Addl. Secretary, Go I Dean AIIMS, Addl. DG, DGHS, and keeping in view the fact that MCI has granted due permission for the academic session 2010-11, keeping in view the fact of non- sanction of prosecution of Sh. Ketan Desai, keeping in view the order of the Hon ble High Court of Delhi, dropping the proceedings till sanction is received, keeping in view the submission of the revenue that no prosecution is pending against the assessee as on now, keeping in view the aims objects of the trust are in consonance with the provisions of Section 2 (15 ) there has been no violation of clause (ii) para 4 of the trust deed as alleged by the ld. PCIT, we hereby hold that the order of the ld. PCIT dated 27 .10 .2017 cancelling the registration since inception, u/s 12AA(3) of the Act is legally not valid. 1) The order of the ld. PCIT cancelling the registration since inception is hereby revoked. 2) The order has been passed in accordance with the provisions of the Income Tax Act, 1961 and shall not impact the outcome of any proceeding under any other Acts promulgated under Constitution of India. 3) The revenue shall be at liberty to approach the Tribunal for re-institution of the appeal on re-commencement of trial against Sh. Ketan Desai which has been since dropped. - Appeal in favour of assessee.

Summary

Issues Involved:
1. Withdrawal of registration under Section 12AA(3) r/w Section 12 of the Income Tax Act, 1961.
2. Allegations of nefarious activities and non-compliance with the trust deed.
3. Violation of Section 2(15) of the Income Tax Act, 1961.
4. Legal validity of retrospective cancellation of registration.
5. Examination of the genuineness of the trust's activities and adherence to its objectives.

Detailed Analysis:

1. Withdrawal of Registration under Section 12AA(3) r/w Section 12 of the Income Tax Act, 1961
The appeal was filed against the order dated 27.10.2017, where the Principal Commissioner of Income Tax (Pr. CIT) withdrew the registration granted to the assessee trust under Section 12AA of the Income Tax Act, 1961, since inception. The trust argued that it has been carrying out charitable activities, specifically providing education through a medical college, which aligns with the provisions of Section 2(15) of the Act. The Pr. CIT's decision was based on allegations of non-compliance with the trust's objectives and involvement in nefarious activities.

2. Allegations of Nefarious Activities and Non-Compliance with the Trust Deed
The Pr. CIT alleged that the trust was involved in nefarious activities, specifically the induction of students without requisite infrastructure, violating clause (ii) para 4 of the trust deed and Section 2(15) of the Act. The trust countered these allegations by presenting evidence of compliance with infrastructure requirements and argued that the allegations were based on an FIR and chargesheet, which were merely allegations without substantial proof.

3. Violation of Section 2(15) of the Income Tax Act, 1961
The Pr. CIT's order stated that the trust's activities were not in accordance with the objects of the trust, thus violating Section 2(15) of the Act. The trust argued that it has been engaged in educational activities, which fall under the definition of "charitable purpose" as per Section 2(15). The Tribunal noted that the trust's activities, including running a medical college and hospital, aligned with its charitable objectives.

4. Legal Validity of Retrospective Cancellation of Registration
The Tribunal examined whether the Pr. CIT had the authority to cancel the registration retrospectively. It referred to the Allahabad High Court's judgment in ACIT vs. Agra Development Authority, which held that cancellation of registration under Section 12AA(3) could only be prospective and not retrospective. The Tribunal concluded that the Pr. CIT's action of cancelling the registration since inception was legally unsustainable.

5. Examination of the Genuineness of the Trust's Activities and Adherence to Its Objectives
The Tribunal reviewed the evidence presented, including compliance reports and inspections by various committees, which confirmed that the trust had rectified initial deficiencies and had the requisite infrastructure. The Tribunal also noted that the allegations of bribery were not substantiated with concrete evidence. It highlighted that the trust's activities were genuine and in line with its stated objectives, thus warranting the continuation of its registration under Section 12AA.

Conclusion:
The Tribunal held that the order of the Pr. CIT dated 27.10.2017, cancelling the registration since inception under Section 12AA(3) of the Income Tax Act, 1961, was legally invalid. The Tribunal restored the registration of the trust, emphasizing that the cancellation could only be prospective and not based on unsubstantiated allegations. The appeal of the assessee was allowed, revoking the cancellation of registration and confirming the trust's compliance with its charitable objectives.