2021 (10) TMI 447 - AT - Income Tax

Cancellation of registration u/s. 12AA(3) - amendment in trust deed - Proof of change of object charitable - trust deed executed earlier was cancelled by resolving the trustees and reconstituted - HELD THAT - The revenue has to consider whether the trust is carrying its activities as per the objectives/clauses or not. The only source of income is not the sole reason for cancellation of the registration unless its activities are beyond the object clause on the basis of which the registration was granted u/s. 12A. On examination of trust deed, we find that there is amendment in trust deed on the basis of the registration was granted. The society/trust is collecting fee from students and expending for the educational purpose and the surplus is not misappropriating other than its objects clause While cancelling the registration of the trust, which was granted earlier, the CIT(E) alleged that the remuneration paid to the trustees were very high, which is not a ground to cancel the registration. The assessee had submitted details for justifying the remuneration paid to Ms. Nirmala Diaz, founder trustee - CIT(E) has referred to clause 21 amended deed dated 20/12/2002 to cancel the registration that the trustees shall not be entitled to any remuneration for their service put in by them in connection with the management of the trust , which is not having much weightage and not a ground to cancel the registration. Ms. Nirmala Diaz, founder trustee is coordinating for smooth running of day to day activities of educational institution. Even if the CIT(E) was not satisfied with her services rendered in consonance with the remuneration paid by the trust, he could have disallowed the excess expenditure as per his opinion, but the same should not be taken a ground to cancel the registration of trust. CIT(E) can cancel the registration only in situations, namely, i) if the activities of the such trust or institution are not genuine or ii) not being carried out in accordance with the objects of the trust or institution as the case may be. Both the situations are mutually exclusive. The trust is carrying educational activities which are within the purview of the object clause of the trust deed - cancellation of the registration is not in accordance with law and therefore, we direct the CIT(E) to restore the registration granted u/s. 12AA(1)(b)(i) - Decided in favour of assessee.

Issues Involved:
1. Cancellation of Registration under Section 12AA(3) and 12AA(4) of the Income-Tax Act, 1961.
2. Alleged Violation of Section 13(1) of the Income-Tax Act.
3. Alleged Non-Compliance with Trust Deed and Objects.
4. Alleged Collection of Capitation Fees.
5. Alleged Payment of Unreasonable Remuneration to Trustees.
6. Alleged Non-Genuineness of Books of Account.
7. Alleged Non-Communication of Amendments to the Trust Deed.

Detailed Analysis:

1. Cancellation of Registration under Section 12AA(3) and 12AA(4) of the Income-Tax Act, 1961:
The CIT(E) cancelled the registration of the trust under Section 12AA(3) r.w.s. 12AA(4) of the Act, citing various grounds. The tribunal observed that the activities undertaken by the trust were genuine as it was collecting fees from students and providing education. The revenue's contention was that the trust's activities were not in accordance with its object clause. The tribunal found that the core object of the trust, which was charitable in nature to run the educational institution, remained unchanged despite amendments to the trust deed.

2. Alleged Violation of Section 13(1) of the Income-Tax Act:
The CIT(E) alleged that the trust violated Section 13(1) by paying unreasonable remuneration to trustees. The tribunal noted that the payment of reasonable salary based on qualification and experience does not result in a violation of Section 13. The tribunal cited the case of Maharashtra Academy of Engineering & Educational Research Vs. DCIT, where it was held that exemption cannot be withdrawn for the entire income and only the income which is the subject matter of violation can be brought to tax.

3. Alleged Non-Compliance with Trust Deed and Objects:
The CIT(E) argued that the trust had reconstituted its trust deed without obtaining prior approval from the Commissioner of Income Tax, which was a violation. The tribunal found that the core object of the trust remained unchanged and that the trust was carrying out its activities in accordance with its object clause. The tribunal cited the case of Vignana Jyothi vs. DIT (Exemptions), where it was held that the collection of donations, if accounted for and utilized for charitable purposes, cannot be a ground for cancellation of registration.

4. Alleged Collection of Capitation Fees:
The CIT(E) alleged that the trust collected capitation fees from students. The tribunal found that the fees collected were voluntary donations and were accounted for in the books of account. The tribunal cited the case of Vignana Jyothi vs. DIT (Exemptions), where it was held that the collection of voluntary donations cannot be a ground for cancellation of registration.

5. Alleged Payment of Unreasonable Remuneration to Trustees:
The CIT(E) alleged that the remuneration paid to trustees was unreasonable. The tribunal found that the remuneration was justified based on the qualification and experience of the trustees. The tribunal cited the case of Maharashtra Academy of Engineering & Educational Research Vs. DCIT, where it was held that reasonable compensation paid for services rendered cannot result in a violation of Section 13(1)(c).

6. Alleged Non-Genuineness of Books of Account:
The CIT(E) alleged that the books of account did not inspire genuineness. The tribunal found that the books of account were maintained properly and that the fees collected were accounted for. The tribunal cited the case of Vignana Jyothi vs. DIT (Exemptions), where it was held that the collection of voluntary donations, if accounted for, cannot be a ground for cancellation of registration.

7. Alleged Non-Communication of Amendments to the Trust Deed:
The CIT(E) alleged that the trust did not inform the department about the amendments to the trust deed. The tribunal found that the core object of the trust remained unchanged and that the trust was carrying out its activities in accordance with its object clause. The tribunal cited the case of Rajasthan Cricket Association, where it was held that non-communication of changes in the trust deed does not automatically cancel the registration.

Conclusion:
The tribunal concluded that the cancellation of the registration was not in accordance with law and directed the CIT(E) to restore the registration granted under Section 12AA(1)(b)(i) of the Act. The appeal of the assessee was allowed.

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