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2015 (2) TMI 571 - AT - Income TaxRegistration u/s 12AA cancelled - disallowance of exemption u/s 11 - Held that - No material has been brought on record to show that the assessee solely exists for profit motive. The department has not been able to discharge its onus of showing as to how the conditions for grant of registration have been breached by the assessee. The registration has been granted to the society for many years in the past under the same facts and there is no change in the facts or in the activities of the society in the present year. It has also not been demonstrated by the Department as to how the object of the assessee has turned into a commercial one. The predominant object of the assessee is and remains to carry out charitable purpose of advancement of education and not to earn profit. In fact no profit has been established to have been earned by the assessee. The DIT has failed to specify as to how profit earning is the predominant activity of the assessee and the society has been pursuing its object of imparting education to students. Therefore, the assessee society cannot be deprived off of the benefit of registration granted by the DIT(E) u/s 11 of the Act. Being so, in our opinion, registration granted u/s 12AA of the Act cannot be cancelled. However, the aforesaid findings given by us are nothing to do with the allowability of exemption u/s 11 of the Act. In case any discrepancy or irregularity with regard to the allowability of exemption u/s 11 is noticed by the AO, he can make an independent enquiry/examination at the time of assessment for each assessment year and decide in accordance with law. - Decided in favour of assessee.
Issues Involved:
1. Jurisdiction of CIT to cancel registration under section 12AA(3) for societies registered before the amendment. 2. Collection of capitation fees and its attribution to the society. 3. Impact of alleged violations of section 13 on the cancellation of registration. 4. Whether the collection of donations affects the charitable nature of the society. Analysis: Jurisdiction of CIT to Cancel Registration: The learned counsel for the assessee argued that the amendment to section 12AA(3) came into effect from 1st October 2004, while the society had been registered under section 12A before this date. Therefore, the CIT lacked jurisdiction to pass the order under section 12AA(3). The counsel cited case laws including "Oxford Academy for Career Development Vs. CIT & Ors." and "Ajit Education Trust Vs. CIT" to support the proposition that the amendment should not apply retrospectively. The Tribunal agreed with this argument, referencing the case of "Ajit Education Trust Vs. CIT" where it was held that the amendment to section 12AA(3) should not apply retrospectively and the CIT was not justified in canceling registration granted under section 12A. Collection of Capitation Fees: The learned counsel for the assessee contended that the amounts collected were owned by Shri K.T. Mahi in his personal capacity and not by the society. The CIT, however, held that the documents seized during the search indicated that the society collected capitation fees, which were not recorded in the books of account, thus violating sections 11 and 13 of the IT Act. The Tribunal found that Shri K.T. Mahi collected capitation fees without the society's authority, and thus the society was not involved in the collection. The Tribunal noted that acts done by an employee beyond the scope of their authority do not bind the principal/society. The cash deposited in the Head Office could not be treated as funds collected by the society, and the amounts were assessed in the personal hands of Shri K.T. Mahi. Impact of Alleged Violations of Section 13: The learned counsel argued that even if there was a violation of section 13, it should result in an addition in the year of violation but not in the cancellation of registration under section 12AA. The counsel cited cases like "CIT Vs. Karimia Trust" and "DIT Vs. Garden City Educational Trust" to support this argument. The Tribunal agreed, stating that the department failed to demonstrate how the conditions for granting registration had been breached. The society's predominant object remained the advancement of education, not profit-making. The Tribunal emphasized that the registration granted under section 12AA could not be canceled based on the alleged violations. Charitable Nature of the Society: The learned counsel argued that collecting donations for admissions does not change the society's charitable character. The Tribunal referenced cases like "CIT Vs. Geethanjali University," which held that even if admissions were not as per prescribed rules, it did not result in losing the character of being solely for educational purposes. The Tribunal concluded that the society did not lose its character as an educational institution despite the collection of excess fees by Shri K.T. Mahi. The department did not provide evidence that the society existed solely for profit. Conclusion: The Tribunal allowed the appeal, holding that the CIT did not have jurisdiction to cancel the registration under section 12AA(3) for societies registered before the amendment. The Tribunal also found that the society was not involved in collecting capitation fees and maintained its charitable nature. The registration under section 12AA could not be canceled based on the alleged violations, and the society's primary object remained the advancement of education. The Tribunal clarified that any discrepancies related to section 11 could be examined independently during assessments for each year.
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