2013 (9) TMI 402 - AT - Income Tax

Cancellation of registration u/s 12A of the Income Tax act The ground of cancellation is that the school had violated the conditions imposed at the time of allotment of land by the Ministry of Urban Development, Government of India, according to which the assessee should have admitted students belonging to the weaker sections to the extent of 25% and granted free-ship to them - Held that - No evidence available for non-compliance of admitting 25% of the students of EWS - The reasons consistently advanced for the shortfall of requisite percentage of admission of EWS is regard to locational aspect in the face of the evidence to the contrary as have to be accepted as where there is no alleged violation of any of the requirements either of the Urban Ministry or of the Directorate of Education the authorities under the Income tax Act cannot be said to presume to sit over in judgment for the implementation of the public policy on the judgement of the authorities empowered to implement them. No doubt to have a social conscience is a laudable human desire and the desire to ensure compliance in letter and spirit to the stated government policy necessarily ought to throb in the heart of each and every citizen. However, while adjudicating on the issues which arise for determination under the Income-tax Act which is a Central Act enshrined in List I of the Constitution of India the tax adjudicator/judge empowered by a Central Act cannot usurp the power and role of an authority which as per the Constitutional scheme has been entrusted upon the state Administration and in this case on the Department of Education, Government of National Capital Territory of Delhi. An authority constituted under the Central Act herein the Indian Income Tax Act cannot act on the basis of its own personal beliefs and philosophy however laudable, they may be as they have no role to play as the issues are to be decided and concluded on the basis of rules and provisions of the Income-tax Act, herein - section 2(15) of the Act. The decisions are not to be coloured or stained by personal whims and biases and are to be illuminated by the Income Tax Act. The DIT(E) in the facts of the peculiar case cannot cancel Registration in the facts of the present case for the reasons set out in the impugned order as the same amounts to usurping the Role of an authority constituted to implement the government policy. Only when there is any instance of violation of terms and conditions pointed out by the Directorate of Education and/or the Urban Ministry on the information of de-recognition of the school by the Directorate of Education. The tax authorities can take notice. The gravity of the consequences of holding a certain school as de-recognised is not to be trifled with or taken lightly and it is a powerful tool in the hands of the Directorate of Education and if it is taken away, serious consequences are visited on the school which is not a fact in the present case Decided in favor of Assessee.

Issues Involved:
1. Cancellation of registration under section 12A of the Income-tax Act.
2. Compliance with the conditions of land allotment regarding admission of students from economically weaker sections (EWS).
3. Utilization of surplus funds and their impact on the charitable status of the institution.
4. Violation of public policy and its implications on the charitable activities of the institution.

Detailed Analysis:

1. Cancellation of Registration under Section 12A:
The appeal was filed by the assessee against the order dated 6th February 2012, where the Director of Income Tax (Exemptions), Delhi canceled the registration of the appellant society under section 12A of the Income-tax Act, 1961, effective from the assessment year 2008-09 onwards. The primary contention was that the cancellation was arbitrary, unjust, and illegal as the society had been registered since 1998 and had consistently been recognized as a charitable institution.

2. Compliance with Conditions of Land Allotment:
The cancellation was based on the allegation that the school violated the conditions imposed at the time of land allotment by the Ministry of Urban Development, which required admitting 25% of students from the weaker sections and granting freeships. The appellant argued that the school had endeavored to adhere to these conditions and provided details of the student strength, showing a lower percentage of students from weaker sections due to the school's location in a diplomatic area with fewer weaker section residents. The school also communicated regularly with the Department of Education regarding the status of admissions in the weaker sections category.

3. Utilization of Surplus Funds:
The Director of Income Tax (Exemptions) observed that the school accumulated significant reserve funds year after year, which were primarily invested in building an elitist educational institution rather than supporting education among weaker sections. The appellant contested this by highlighting that the funds were used for genuine educational purposes, including running an afternoon school for underprivileged children under the "Umang" project, providing free education, and adhering to the charitable objectives.

4. Violation of Public Policy:
The Director held that the activities of the society, despite having charitable objectives, were not charitable due to the promotion of high-cost education and exclusion of students from the EWS category. The appellant countered that there was no evidence of denial of admission to any EWS student and that the Directorate of Education had not taken any adverse action against the school for non-compliance with the government policy. The Tribunal noted that the monitoring authority had not found any shortcomings in the school's compliance with the rules and regulations regarding EWS admissions.

Conclusion:
The Tribunal concluded that the objects of the society were charitable and that there was no evidence of denial of admission to EWS students. The Directorate of Education had not taken any action against the school for non-compliance, and the school's efforts to admit EWS students were in line with the applicable rules. The Tribunal found that the Director of Income Tax (Exemptions) had overstepped by canceling the registration based on assumptions without concrete evidence of non-compliance. Consequently, the Tribunal set aside the cancellation of registration and restored the registration under section 12A of the Income-tax Act.

Order:
The appeal of the assessee was allowed, and the action of canceling the registration was set aside, restoring the registration under section 12A. The order was pronounced in the court on 8th February 2013.

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