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TMI Blog2015 (5) TMI 680X X X X Extracts X X X X X X X X Extracts X X X X ..... d seizure operation was carried out in the case of the Trust on 20.11.2009 wherein it was revealed that the assessee trust was collecting huge capitation fees from students at the time of admission. It was also revealed that the income of the Trust was not correctly accounted in its books of accounts. Therefore, a show cause notices was issued to the assessee pointing out as to why Section 12AA (3) of the Act should not be invoked? The assessee in its reply made the following submissions:- "1. Vide the impugned show-cause notice dated 2.3.2010, the Ld. CIT does not acquire any jurisdiction to cancel the registration of the assessee trust, as the same was granted U/s. 12A(a) of the Act, dated 13.2.1998, cannot be cancelled. 2. The conditions laid down U/s. 12A (a) of the Act, are not satisfied in the case of the assessee trust and therefore, the registration already granted U/s. 12A(a) of the Act, dated 13.2.1998, cannot be cancelled. (i) The activities of the Trust are not genuine and (ii) Such activities are not being carried on in accordance with the objects of the Trust. Besides, in view of the number of students perusing the various Graduate and Post Graduate Courses and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cational Trust. In the light of the aforesaid legal precedents, the cancellation of registration by the Ld. CIT U/s. 12AA (3) on the ground of accepting capitation fees is not sustainable in law. In view of the aforesaid reasons, the impugned notice U/s. 12AA(3) of the Act dated 2.3.2010 and the letter dated 26.3.2014, containing additional allegations in this context, are totally erroneous and misconceived and therefore, the same are required to be withdrawn." 4. Thereafter, the Ld. CIT made the following observations:- (i) The trust has violated clause-viii (6) of the Trust Deed wherein it was stated that the trust shall not carry out any activity with the intention of earning profit. (ii) Section 12AA of the Act has been amended to provide that the Commissioner can also cancel the Registration obtained U/s. 12A as it stood before amendment by Finance (No.2) Act, 1996. (iii) The Trust has been collecting huge capitation fees from students for granting admissions. (iv) The assessee trust has not reflected the entire portion of the cash received in its return of income for the assessment year 2009-10 & 2010-11. (v) The assessee trust has received anonymous donation to the t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the term 'anonymous donation' as 'such other particulars' as contemplated U/s.115BBC (3) have not been prescribed by CBDT. e) The Assessing Officer had accepted the condition laid down (by the assessee trust) in its letter dated 15.12.2011 addressed to the Assessing Officer stating that the disclosure of the aforesaid income should not lead to any adverse conclusions in the case of the trust. f) Lastly, while in their reason for accepting the condition is to buy peace with the Department. g) Therefore the impugned donations were not anonymous donations and the trustees were persuaded to disclose the donations as anonymous donations. h) Therefore, the said disclosure was not the result of the aforesaid survey conducted on 20.11.2009". (vii) The assessee trust also stated that there was no evidence in the record to show that it had accepted capitation fees against allotment of seats. 6. However the Ld. CIT after examining the issues withdrew the registration granted to the assessee U/s.12A (a) of the Act with retrospective effect from 01.04.2006 by observing under:- "In fact, as discussed earlier, the case of the assessee trust is one of the diversion of profits for the ben ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Ld. CIT dated 13.02.1998, there has been no change/alteration in the objects of the Trust. Therefore, the objects of the Trust have remained the same as they were at the time of grant of registration U/s.12A (a) of the Act by the Ld. Ld. CIT. v) In all the assessment orders U/s. 143(3) of the Act for the assessment years 2002-03 to 2011-12, the Assessing Officer have categorically stated the Trust is mainly engaged in running educational institution for conducting various professional course such as engineering, MBBS, Nursing and other Para Medical Courses, etc. The aforesaid statements of the AOs in the assessment orders right from A.Y 2002-03 to A.Y 2011-12 clearly establish that the activities of the Trust is to run educational institutions which is genuine and further, such activities are being carried out in accordance with the objects of the Trust which is nothing but running of educational institutions. vi) It is quite clear from the aforesaid facts that the Trust was established for promoting education. Nowhere in the order of the Ld. CIT U/s. 12AA (3) of the Act there is an allegation that the Trust was not running educational institutions. In any case, such an all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... carrying on genuine educational activities to be treated as charitable activity and there is no evidence on record to show that the assessee had accepted capitation fee against allotment of seats". 8. The Ld. D.R argued in support of the orders of the Revenue and further relied in the following decisions:- (i) Hon'ble ITAT, Cochin Bench, Cochin in the case of M/s.Travancore Education Society Vs. CIT in ITA No.134/Coch/2014 vide order dated 27.06.2014. (ii) Hon'ble High Court of Kerala at Ernakulam in ITA No.194 of 2014 vide order dated 27.10.2014. (iii) In the case of Rajah Sir Annamalai Chettiar Foundation Vs. DIT(E) reported in (2011) 15 Taxmann.Com 313 (Chennai) (iv) In the case of CIT Vs. National Institute of Aeronautical Engg. Educational Society reported in (2009) 184 Taxman 264(Uttarkhand) (v) In the case of Vodithala Education Society Vs. ADIT(E) reported in (2008) 20 SOT 353 (Hyd.) (vi) In the case of P.S.Govindasamy Naidu & Sons Vs. ACIT reported in (2010) 324 ITR 44 (Mad.) 9. We have heard the rival submissions and carefully perused the materials available on record and also the two voluminous paper books submitted by the assessee containing 1 to 291 pages and 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e MS(Ophthalmology) & DG courses at Mahatma Gandhi Medical College & Research Institute, Pondicherry (annual intake of 1 student) from academic year 2007-08 11. 16.04.2007 (PB-page 17) -do- Permission of Central Govt. for starting of the MD(TB & Chest Diseases) & DTCD courses at Mahatma Gandhi Medical College & Research Institute, Pondicherry (annual intake of 1 student) from academic year 2007-08 12. 23.03.2007 (PB-page 18) -do- Permission of Central Govt. for starting of the MD(DVL) & DDVL courses at Mahatma Gandhi Medical College & Research Institute, Pondicherry (annual intake of 1 student) from academic year 2007-08 13. 23.03.2007 (PB-page 19) -do- Permission of Central Govt. for starting of the MD(Psychiatry) course at Mahatma Gandhi Medical College & Research Institute, Pondicherry (annual intake of 1 students) from academic year 2007-08 14. 11.04.2008 (PB-page 21) -do Increase of seats in MD (General Medicine) course from 3(three) to 4(four) at Mahatma Gandhi Medical College & Research Institute, Pondicherry. from academic year 2008-09 15. 11.04.2008 (PB-page 22) -do Increase of seats in MD(Pediatrics) course from 32two) to 3(three) at Mahatma Gandhi Med ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Gandhi Medical College & Research Institute, Pondicherry. from academic year 2011-12 28. Nil (PB-page 47) -do- Increase of seats in MS (ENT course) [1 to 2] course at Mahatma Gandhi Medical College & Research Institute, Pondicherry. from academic year 2011-12 29. Nil (PB-page 48) -do- Increase of seats in MD (Respiratory Medicine) [1 to 2] course at Mahatma Gandhi Medical College & Research Institute, Pondicherry. from academic year 2011-12 30. 31.5.2011 (PB-page 49) -do- Increase of seats in MD (Anaesthesiology) [2 to 3] course at Mahatma Gandhi Medical College & Research Institute, Pondicherry. from academic year 2011-12 31. 22.12.2011 (PB-page 50) -do- Increase of seats in MD (DVL) courses [2 to 3] course at Mahatma Gandhi Medical College & Research Institute, Pondicherry. from academic year 2011-12 32. 06.2.2011 (PB-page 51) -do- Increase of seats in MD (Psychiatry) [1 to 2] course at Mahatma Gandhi Medical College & Research Institute, Pondicherry. from academic year 2011-12 33. 31.5.2011 (PB-page 52) -do- Increase of seats in MD (Pharmacology) [3 to 4] course at Mahatma Gandhi Medical College & Research Institute, Pondicherry. from academic year 2011- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een receiving anonymous donations. Further, the Revenue has made allegations that the trustees are diverting the unaccounted funds of the Trust for their own benefit. Citing all these reasons, the Revenue has withdrawn the registration granted U/s. 12A(a) of the Act invoking the provisions of section 12AA(3) of the Act. At this juncture, it is pertinent to note that the Revenue has arrived at this conclusion based on certain materials on which they have relied upon. The finding of the Revenue is yet to be adjudicated by various higher authorities and it has not reached finality. At the present stage it is only the allegation made by the Revenue and yet to withstand the testimony of the law. Further there is no finding by the Revenue that the assessee Trust was indulging in any other activity other than promoting education. Moreover it is obvious that any educational institutions cannot exist without inflow of funds. To run these institutions, enormous funds are required which has to be either generated by the institution itself or obtained by receipt of grants/donations/capitation fees etc. The provisions of section-11 also mandates the trust to expend 85% of the total income of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dent Indian Students, etc. The Revenue has not made any findings as to from which category of students the Trust had received capitation fees/Donations and to what extend it is impermissible. Another allegation of the Revenue is that, the trustees of the assessee trust have siphoned out the undisclosed income of the trust for their personal benefits. It is pertinent to mention here that all the income of the charitable trust belongs to the trust only for meeting out its objects. Squandering away the wealth of the trust for personal benefits of the trustees gives arise to criminal action against them by the competent authorities. The State/Central Government can also intervene when such occasions arise and take appropriate action to bar the trustees from the Management of the Trust or appoint Government administrators to manage the Trust and also remove corrupt Trustees from the management of the Trust. In the case of the assessee, we do not find any such actions taken against the trustees of the Trust or the same is not brought to our knowledge by the Revenue. It is pertinent to mention here that the charitable trust is an entity by itself having certain charitable objects to compl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... if a particular activity of the institution appeared to be commercial in character, and it is not dominant, then it is for the Assessing Officer to consider the effect of Section 11 of the Act in the matter of granting exemption on particular head of receipt. The mere fact that the said income does not fit in with Section 11 of the Act would not, by itself, herein lead to the conclusion that the registration granted under Section 12AA is bad and hence, to be cancelled. It may be of relevance to note the language used in the definition "charitable purpose" in Section 2(15) of the Act, which states that charitable purpose includes relief of the poor, education, medical relief and advancement of any other object of general public utility. The assessee's case falls within the phrase of the definition 'general public utility'. (Paras 45, 46) The assessee is a member of Board of Control for Cricket in India (BCCI), which in turn is a member of ICC (International Cricket Council). BCCI allots test matches with visiting foreign team and one day international matches to various member cricket association which organise the matches in their stadia. The franchisees conduct matches in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s empowered to grant or refuse the registration and after granting registration, would be empowered to cancel it, but only on the two conditions laid down under section 12AA(3) . Whether the income derived from such transaction would be assessed to tax and whether the trust would be entitled to exemption under section 11 are entirely the matters left to the Assessing Officer to decide. The Tribunal had allowed the case of the assessee with the finding that none of the conditions under section 12AA(3) were violated and, therefore, the satisfaction which was arrived at by the Commissioner was not justified. Therefore, there was no reason to interfere with the order of the Tribunal. 3) Padanilam Welfare Trust Vs. Cy. CIT 10 ITR(Trib) 479(Chen.) Held, allowing the appeal, that the violation of the Prohibition of Capitation Fees Act could not be a ground to take away the registration of a charitable organization. The cancellation of registration by the Commissioner under section 12A on the ground of accepting capitation fees was not sustainable in law. As far as the assessee-trust was concerned, the violation was that of the Anti Capitation Fees Act which was not a violation under the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the trust remains intact. Mere finding that the objects of appellant have been altered without the consent of department would not be sufficient to exercise power u/s.12AA (3) without giving a finding that the appellant's objects are no longer charitable. (para16) The DIT(E) in the order u/s 12AA(3) of the Act, do not make out any case, which can show the activities of the assessee are not genuine or that the activities of the assessee are not being carried out in accordance with the objects of the trust or institution. The fact that the Assessee was paying commission to persons who solicit students for studying in the Assessee's institution cannot lead to the conclusion that the Assessee is not imparting education. Similarly purchase of a BMW car, borrowing of loans from Sindhi Financiers, non maintenance of regular books of accounts, violations of provisions of Sec.13(1)( c) of the Act in as much as the trustees were paid enormous salary are all by way of passing reference having no relevance to whether or not the Assessee was pursuing education as its main object. There are no facts brought out in the impugned order regarding the genuineness of the activities of the trust ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the cases and to illustrate the classical example that almost 331 students had been admitted to the Institution without receiving a penny for such a contribution. The assessee had, in fact, furnished a list running into staggering 29 pages showing the names of the students in standard-wise and also the contributions towards 'corpus fund'. Copies of ledger accounts of different corpus funds produced by the assessee for verification exhibited that the amounts received had been credited to each fund account of each receipt from the parents/students. Apart from such contributions towards 'corpus funds', it was noticed that the students had also paid towards tuition fees every year. It was held by tribunal that had the contribution collected been towards education to be imparted by the school as alleged by the Revenue, the institution would not have resorted to charge separately the monthly/quarterly tuition, term and computer fees. Another salient feature noticed from the evidences produced was that the contribution by way of 'corpus donation' ranges Rs. 10000 - 15000 with no consequence of the medium of instruction and the standard in which the student was to b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt u/s.13 (1)(c) of the I.T. Act 11. From the above decisions, it is apparent that the jurisdictional high court in the case of Tamilnadu Cricket Association has categorically held that:- "(a) The power regarding cancellation has to be seen with reference to the registration and the object satisfying the definition of 'charitable purpose', as it stood at the time of registration and not by the subsequent amendment to Section 2(15) of the Income Tax Act. (b) If a particular activity of the institution appeared to be commercial in character, and it is not dominant, then it is for the Assessing Officer to consider the effect of Section 11 of the Act in the matter of granting exemption on particular head of receipt. The mere fact that the said income does not fit in with Section 11 of the Act would not, by itself, herein lead to the conclusion that the registration granted under Section 12AA is bad and hence, to be cancelled. (c) For invoking Section 12AA read with Section 2(15) of the Act, Revenue has to show that the activities are not fitting with the objects of the Association and that the dominant activities are in the nature of trade, commerce and business. We do not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... like, provisions of Sec.13(1) (c ) of the Act which restricts unreasonable and excessive payments to certain category of persons connected with a trust or other institution. In such circumstances, the order U/s.12AA (3) of the Act cannot be sustained." 12. The Revenue has also relied on various decisions. i) Kochin Bench of the Tribunal in the case M/s.Travancore Educational Society Vs. CIT (Central) Cochin ITA No.134/Coch./2014:- In this decision the Tribunal held that when the capitation fees collected for admission of students over and above the prescribed fees which was shared amongst trustees, then the recognisation U/s. 12A(a) of the Act can be withdrawn by invoking the provisions of section 12AA of the Act. However, as rightly pointed out by the Ld. A.R in the case before us, there is no such finding by the Revenue that the trustees were sharing capitation fees received on admission of students. Therefore this decision will not be applicable to the case of the assessee. (ii) Chennai Bench of this Tribunal in the case Rajah Sir Annamalai Chettiar Foundation Vs. DIT(E) reported in [2011] 48 SOT 502 (Chennai) In this judgment it was held by the Tribunal that when the obje ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case is a clear case of sale of education by the assessee and therefore, it cannot be considered as charitable institution U/s. 2(15) of the Act. As against this, we find from the order of the Tribunal in ITA No.1476 to 1482/Mds./2010 dated 05.04.2011 for the assessment years 2002-03 to 2008-09 in para 40 page 48 (page 198 of the Paper book) that the Tribunal has held that there is no evidence on record to show that the assessee had accepted the capitation fees against allotment of seats. Therefore, this order of the Hyderabad Bench of this Tribunal is irrelevant. (v) The Hon'ble High Court of Madras in the case of P.S.Govindasamy Naidu & Sons Vs. ACIT reported in [2010] 324 ITR 44(Madras), it was held that where it was found that the amount paid by the parents of the students admitted to the assessee-educational institution was not to the corpus donation account, but it was collected only by way of capitation fee, such amount of capitation fee was not exempt in hands of the assessee-institution. In this case, the Hon'ble jurisdictional Madras High Court has only held that the capitation fees received by the assessee would not be exempt from tax. Therefore, the facts in this cas ..... X X X X Extracts X X X X X X X X Extracts X X X X
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