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TMI Blog2012 (11) TMI 217X X X X Extracts X X X X X X X X Extracts X X X X ..... well as on order of DGIT (Inv.), Patna dated 29.12.2010 withdrawing the approval u/s 10(23C) granted vide notification dated 29.04.2009 by the then CCIT, Ranchi. 4. For that the learned CIT, Central, Patna has violated the principles of equity, natural justice and fair play by not confronting the appellant with the findings and material used for the purposes of canceling the registration in the order impugned. 5. For that the learned CIT, Central, Patna has erred in holding that vide notice dated 15.02.2011 (wrongly noted as 03.03.2011 in the order impugned) the appellant was required to prove the genuineness of work carried out by the institution. 6. For that the notice dated 15.02.2011 bearing no.4742 (copy enclosed) merely requires the presence of the appellant on captioned subject and was signed by the headquarters of the commissioner and not by the Commissioner himself that too without assigning any reason whatsoever and/or without confronting the appellant on the material/evidences/findings used while passing the order impugned. 7. For that the order passed is violative of principles of equity natural justice and fair play. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l. 2. The relevant facts are that assessee is a society registered under the Societies Registration Act and formed on 30.9.1986. A copy of Memorandum of Association alongwith certificate of registration is placed at pages 73 to 91 of the Paper Book. On perusal of copy of Memorandum of Association, it is observed that there are various objects mentioned but dominant object of the assessee society is to impart education by running an institute namely "Institute of Science and Management (ISM). It is observed that assessee society was granted registration u/s. 12A/12AA of I.T. Act on 27th September, 2001 with effect from 1.4.2000. A copy of the said certificate is placed at page 23 of Paper Book. 3. Ld. CIT has stated in the impugned order dt. 29.6.2011 vide which he has cancelled the registration of assessee society that there was a search and seizure operation u/s. 132(1) of the I.T. Act in the residential premises of R.A.K. Verma group of cases on 20.3.2009 and subsequent dates. Along with said search and seizure operation, a survey operation u/s. 133A of the I.T. Act on 20.3.2009 was also carried out in the case of the assessee. He has stated that order u/s. 143(3) was passed on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (5) of the I.T. Act 1961 as apparent from assessment orders for 2003-04 to 2009-10. Compliance to the provisions of Sec. 11(1) and 11(5) are essential conditions for availing exemption u/s. 11 of the I.T. Act, 1961. 7. That the surplus of income of the assessee generated over the period is as under: Year 2004-05 2005-06 2006-07 2007-08 2008-09 Excess of income over expenditure Rs.34,66,026/- Rs.8,06,354/- Rs.68,16,587 Rs.1,41,01,153/- Rs.1,18,91,451/- Percentage 22.13% 25% 28.825 41.48% 35.98% From the above, it is quite apparent that the Institute had been earning huge income over the period of time. The main source of such surplus income is to be attributed to the fees taken from the students for their participation in different courses." 5. In view of above reasons, Ld. CIT cancelled the registration of the assessee-society granted u/s. 254(1)/12A/12AA of I.T. Act dt. 27th September, 2001. Hence assessee is in appeal before Tribunal disputing the said order of Ld. CIT. 6. On behalf of the assessee submissions were made firstly disputing the validity of the notice issued u/s 12AA(3) of the Inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Patna Bench in the case of Satish Kumar Keshri v. ITO (Technical) [2007] 104 ITD 382. 8. Ld. A.R. further submitted that the impugned order has been passed by Ld. CIT canceling the registration without confronting the assessee with the material used against it. Hence, there is violation of principle of natural justice and relying on the decision of the Hon'ble Patna High Court in the case of Ramanand Prasad v. State of Bihar 1983 BR&LJ 84 submitted that the order is liable to be annulled. 9. Thus Ld. A.R. has disputed validity of notice on 3 grounds i.e. (i) letter dated 15.2.2011 was not issued under seal and signature of the Commissioner of Income-Tax, (ii) Assumption of jurisdiction without a detailed show cause notice is invalid from its inception and (iii) non confrontation of materials/evidences relied upon for passing the impugned order. 10 (i) Without prejudice to above, Ld. AR submitted that grounds taken by Ld. CIT for cancellation of registration are not valid. He submitted that with regard to violation of Sec. 13(3) of I.T. Act considered by Ld. CIT owing to payment of salary to RAK Verma and his wife Smt. Jyoti Verma, Ld. CIT has misunderstood the intent and pu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed against the aims and objects and/or spent for the benefit/personal use of the office bearers/employees. Ld. AR further submitted that Revenue relied on one impounded document bearing Identification mark S-5 at page 17 & 18 dt. 30.6.2007 which is of Rs. 3,734/- on private tour of Shri Verma and Mrs. Verma. He submitted that Shri Verma undertook travelling to various cities including Kolkata for admission and placement of students. That in one such trip, Mrs. Verma who was involved in the affairs of the institute as Counselor for admission accompanied him and while returning, one of his daughter also jointed from Kolkata to Ranchi. He submitted that since Mrs. Verma was involved in the affairs of the Institute since long and no remuneration/salary was paid to her prior to financial year 2008-09 and as a good gesture, it was thought fit and proper not to take reimbursement of expense incurred on travelling of Mrs. Verma and her daughter. Ld. AR submitted that disallowance under this head has been made by AO while making the assessment on adhoc basis @ 25% and thus the incurring of expense for achieving aims and objects of assessee society has not been denied. 10(iii). Ld. AR furth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see society decided to construct girl's hostel in the building of Mrs. Verma and in this respect an agreement was executed on 10.1.2005 under which Mrs. Verma agreed to give upper open space of the building for construction of girl's hostel. Ld. AR referred pages 53 to 57 of Paper book which is the copy of said agreement and submitted that ground floor and first floor of the said building had already been given to assessee society for hostel purposes. Therefore, the said advance was towards constructing girl's hostel and the adverse inference drawn by Ld. CIT that substantial amount was advanced by assessee society to Mrs. Jyoti Verma for personal purposes is contrary to the facts. He submitted that there is no contravention of Sec. 13(3) of I.T. Act. 10(v). Ld. AR further submitted that objection of Ld. CIT that there is contravention of Sec. 11(3) of I.T. Act on the ground that surplus fund beyond reasonable proportion is not factually correct. He submitted that clause (a) of sub-section (1) of Sec. 11 permits accumulation upto 15% and explanation below sub clause (d) permits accumulation even beyond 15% in certain circumstances. Ld. AR submitted that details given b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cerned. He submitted that only the surplus covered u/s. 11(2) are required to be invested in terms of Sec. 11(5) and the accumulation within permissible limit of 15% entails no pre-requisite condition for investment and placed reliance on the decision of Hon'ble Apex Court in the case of Addl. CIT v. A.L.N. Rao Charitable Trust [1995] 216 ITR 697/83 Taxman 252. Ld. AR also referred CBDT Circular No. 8/2002 dt. 27.8.2002 to substantiate his above submission. He submitted that there is no violation of Sec. 11(5) owing to cash in hand and demand draft are duly recorded in the books of account and the audited set of accounts. 10 (vi) Ld. AR further submitted that assessee is running an institute and till date it is recognized by AICTE. He submitted that about 450 students are studying in the institute run by assessee society. Ld. AR further submitted that assessee filed returns for assessment years 2010-11 and 2011-12 on due date claiming exemption u/s. 11 and AO has not disturbed the assessment till date. Ld. AR further submitted that it is nowhere provided under the I.T. Act that to avail exemption u/s. 11/12 of I.T. Act, education must be provided to the poor person only and/or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubmissions of Ld. D.R., Ld. A.R. referred CBDT circular no. 11/2008 dated 19.12.2008 and submitted that as per said circular it has been clarified that newly inserted proviso to section 2(15), on which Ld. D.R. has placed reliance, will not apply in respect of first 3 limbs of section 2(15)of the Act i.e. (i) relief of the poor, (ii) education or (iii) medical relief. He submitted that it was clarified that it will constitute charitable purpose even if it incidentally involves the carrying on of commercial activities. Ld. A.R. further submitted that if there is any utilization of fund which is not in accordance with aims and objects and/or in accordance with the provisions of the Act, the benefit could be denied in not giving exemption u/s 11 of the Act at the time of assessment but registration cannot be cancelled. Ld. A.R. submitted that the order of the Ld. CIT is not valid and the same should be quashed. 13. We have carefully considered the order of the Ld. CIT, submissions of Ld. Representative of the parties, the cases cited before us and have also perused relevant pages of the paper book placed before us. 14. We observe that the assessee is a society registered under the S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .2) Act, 1996 (33 of 1996)]] and subsequently the Commissioner is satisfied that the activities of such trust or institution are not genuine or are not being carried out in accordance with the objects of the trust or institution, as the case may be, he shall pass an order in writing canceling the registration of such trust or institution: Provided that no order under this sub-section shall be passed unless such trust or institution has been given a reasonable opportunity of being heard.]" 17. It is observed that power of cancellation of registration can be exercised by the Commissioner if he is satisfied that activities of such trust or institution are not genuine or not being carried out in accordance with the object of the trust or institution, as the case may be. The Ld. CIT before passing an order in writing canceling the registration of such trust or institution shall give a reasonable opportunity of being heard to such trust or institution. Now the question arises as to whether Ld. CIT has given reasonable opportunity to the assessee before exercising his power to cancel registration u/s 12AA(3) of the Income-Tax Act. 18. It is observed that in the notice issued dated 15. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... udicial to the interest of the revenue. Similarly, Ld. CIT before passing an order u/s 12AA(3) of the Act has to satisfy himself that activities of such trust or institution are not genuine or are not being carried out in accordance with the objects of the trust or institution and to proceed to cancel the registration of such trust or institution has to give a reasonable opportunity of being heard to such trust or institution and for which he has to give a notice to such trust or institution. Therefore, such notice to be issued, should contain specific reasons and/or material to be used against the assessee, so that the assessee could reply and be given a fair and reasonable opportunity before any order is passed. The Hon'ble Patna High Court has also held in the case of Ramanand Prasad (supra) that adherence to the principle of natural justice is a fundamental obligation more particularly where people are affected by the acts of authority. It was stated by their Lordships of Patna High Court that right to be heard before an adverse order is passed, which entails civil consequences, is, by implication, a duty to act fairly. It was stated that even where the order is administrat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 13 of the Act. We observe that department has not , as mentioned hereinabove, disputed that Mr.Verma and Mrs. Jyoti Verma are looking after day today affairs of institute. Therefore, even if there is any excess payment of salary, same is to be disallowed and the benefit of Sec. 11/12 will not be allowed to that extent. However, it is not mentioned in the impugned order of CIT and/or any material is placed on record by department to state as to whether the salary paid by assessee society to Shri Verma or Mrs. Verma are unreasonable. Therefore, ground taken by Ld. CIT in the impugned order that there is violation of Sec. 13(3) of the Act is devoid of any merit. 24. Further we observe that another ground taken by CIT in the impugned order is that huge amount had been withdrawn by Shri Verma and other office bearers/employees in the name of administrative expenses. However, Ld. AR has made his submission that various amounts under the head administrative expenses are petty expenses incurred in achieving aims and objects of assessee society. Ld. AR submitted that in the seized documents which is marked S-5, there is only one amount of Rs. 3,734/- for incurring of expenses on private t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s for selection of students and the food served was normal courtesy and customary in nature. We agree with Ld. AR that when the outside guests visit the campus for selection of students, food etc. have to be served and the said amount cannot be said to have been spent not for the purpose of assessee society. At the most, the amount which was spent for serving wine/ hard liquor can be said not to have been spent for the purpose of activities of institute i.e. running an educational institution and benefit to that extent could be denied while considering exemption u/s. 11/12 of I.T. Act but we are of the considered view that it could not be a ground for cancellation of registration. 26. In respect of the ground taken by Ld. CIT for giving advance of Rs. 11,32,000/- and Rs. 38,240/- to Shri B.K. Singh, we observe that Ld. CIT himself has mentioned in the said order that the said amount was given to Shri B.K. Singh for construction of girl's hostel. We observe that already there is a girl's hostel in the premises belonging to Mrs. Verma, wife of Mr Verma, Chairman of the Institute of assessee society and she has by way of agreement dt. 10.1.2005, copy placed at page 55 to 57 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding 15%(25% under pre-substituted clause(a) of its income shall, in no case, exceed 5 years (10 years under pre-substituted Clause (a). Thus, only 15% of the income can now be accumulated for an unlimited period and without any condition." 28. In view of above, Sec. 11(2) will operate qua the balance 85% of total income. Hence, we are of the considered view that there is no violation of Sec. 11(5) of the Act owing to cash in hand and demand draft which have not been disputed to be duly recorded in the books of account. 29. Now coming to the question as to whether surplus fund could be a ground for coming to the conclusion that assessee is not running an institute for educational purposes and the registration could be cancelled u/s. 12AA(3) of the I.T. Act. Before we consider the cases cited before us, we consider it necessary to refer CBDT Circular No. 1112 dt29th October, 1977 wherein CBDT has stated that even if there is a surplus at the end of the year and the said surplus is utilized for educational institutions and is not diverted for personal use of the proprietor thereof, then the income of educational institution will not be subject to tax. In this context, it is also re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (i) Relief of the poor (ii) Education (iii) Medical relief, and (iv) The advancement of any other object of general public utility. An entity with a charitable object of the above nature was eligible for exemption from tax under section 11 or alternatively under section 10(23C)of the Act, However, it was seen that a number of entities who were engaged in commercial activities were also claiming exemption on the ground that such activities were for the advancement of objects of general public utility in terms of the fourth limb of the definition of 'charitable purpose'. Therefore, section 2(15) was amended vide Finance Act, 2008 by adding a proviso which states that the 'advancement of any other object of general public utility' shall not be a charitable purpose if it involves the carrying on of - (a) any activity in the nature of trade, commerce or business; or (b) any activity of rendering any service in relation to any trade, commerce or business; for a cess or fee or any other consideration, irrespective of the nature of use or application, or retention of the income from such activity. 2. The following implicatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for educational purpose, i.e. for infrastructure development, it cannot be said that the institution was having the object to make profit. It was observed that the surplus is used for management and betterment of the institution could not be termed as profit. Not only this ITAT Ahmedabad Bench in the case of Ajit Education Trust v. CIT [2010] 42 SOT 415 has held that merely by granting a registration u/s 12A/12AA to a trust ipso-facto is not entitled for the exemptions prescribed u/s 11 & 12. A Trust can get exemption u/s 11 & 12 only if it fulfils the requisite conditions laid down therein. There is no materials before us that the assessee is not carrying on its activities as per its objects nor there is any material on record that it is not a genuine society. 32. During the course of hearing, Ld. AR submitted that assessee filed returns on due date for assessment year 2010-11 and 2011-12 claiming exemption u/s. 11 and till date the assessment(s) has not been disturbed. Ld. DR during the course of hearing has not disputed and/or controverted the said contention of Ld. AR. Moreover, Ld. DR has not disputed the fact that about 450 students are studying in the institute and the cou ..... X X X X Extracts X X X X X X X X Extracts X X X X
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