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2014 (4) TMI 928 - AT - Income TaxWithdrawal of registration u/s 12A of the Act Acceptance of capitation fee - Whether the acceptance of capitation fee can be a ground for cancellation of registration granted u/s 12A by invoking Section 12AA(3) of the Act Held that - When the assessee is carrying on a number of educational institutions approved by the Central and State Government Board and University then it cannot be said that the activity of promotion and imparting education is not genuine Relying upon Vidyavardhini Vs CIT 2012 (4) TMI 306 - ITAT MUMBAI - the cancellation on the ground of receipt of capitation fee itself is not sustainable - mere accepting the capitation fee cannot be brought into the scope of Section 12AA(3) if the prominent activity of the assessee are not doubted being imparting of education and promotion of education. The Commissioner has also accepted the fact of the activity of the assessee that the assessee is engaged in the educational activity but he has opined that the educational activity has been converted into commercial venture - When nothing has been brought on record to say that the assessee has carried out the activities other than imparting and promoting the education then the cancellation of registration on the ground of accepting the capitation fee which has been used for the purpose of achieving the objects of the assessee is not sustainable thus, the order of the Commissioner is set aside and the registration u/s 12A is restored Decided in favour of Assessee.
Issues Involved:
1. Legitimacy of withdrawal of registration under Section 12A of the Income Tax Act. 2. Assessment of the activities of the assessee trust as genuine or non-genuine. 3. Legality of accepting capitation fees and its implications on charitable status. 4. Retrospective effect of the withdrawal of registration. Detailed Analysis: 1. Legitimacy of Withdrawal of Registration under Section 12A of the Income Tax Act: The appeal concerns the withdrawal of registration u/s 12A of the Income Tax Act, initially granted to the assessee, a Charitable Educational Trust. The Commissioner of Income Tax withdrew the registration based on findings from a search and survey operation that revealed the collection of donations/capitation fees for admissions, which was deemed contrary to charity or public policy. The Commissioner issued a show-cause notice and, dissatisfied with the assessee's explanations, canceled the registration. 2. Assessment of the Activities of the Assessee Trust as Genuine or Non-Genuine: The assessee argued that the capitation fees collected were used for advancing the trust's objectives, asserting that the activities of promoting and imparting education are genuine and charitable. The Tribunal noted that the primary activity of the assessee is in the field of education, which is recognized as charitable under Section 2(15) of the Income Tax Act. The Tribunal emphasized that the acceptance of capitation fees, while a source of income, does not alter the genuine nature of the educational activities carried out by the trust. The Tribunal cited several precedents, including CIT Vs Sarvodaya Ilakkiya Pannai, which reinforced that the activities of the trust must be assessed based on their adherence to the declared charitable objectives and not merely on the sources of income. 3. Legality of Accepting Capitation Fees and Its Implications on Charitable Status: The Tribunal considered whether accepting capitation fees could justify the cancellation of registration. It was found that the capitation fees were accounted for and used for the trust's objectives. The Tribunal referenced multiple cases, such as Maharashtra Academy of Engineering & Education Research Vs CIT and Rama Rao Adik Education Society Vs CIT, which established that accepting capitation fees does not inherently negate the charitable nature of the trust's activities. The Tribunal concluded that the collection of capitation fees, if used for the trust's objectives, does not warrant the cancellation of registration under Section 12AA(3). 4. Retrospective Effect of the Withdrawal of Registration: The Tribunal addressed the issue of the retrospective effect of the withdrawal of registration. Although the assessee raised concerns about the retrospective application, the Tribunal found that this issue became moot given their decision to restore the registration. However, they noted that the retrospective withdrawal is covered against the assessee by the decision of the Hon'ble Jurisdiction High Court in Sinhagad Technical Education Society Vs CIT. Conclusion: The Tribunal concluded that the cancellation of registration by the Commissioner was not justified. The activities of the assessee trust were found to be genuine and in accordance with its charitable objectives. The acceptance of capitation fees, while a contentious issue, did not alter the charitable nature of the trust's activities. Consequently, the Tribunal set aside the Commissioner's order and restored the registration u/s 12A. The appeal was partly allowed, with the issue of retrospective withdrawal deemed infructuous.
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