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TMI Blog2011 (12) TMI 745X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT, Jodhpur as per its finding recorded in paras 15-16 of the order dated 27-7-2009 which is reproduced on pp. 2-3 of the order of CIT under section 12AA(3). In this ex-parte order, Chief CIT observed that assessee has violated the provisions of sections 11 to 13, audited accounts are defective, persons connected with the management have got the benefit from the society funds and it is having adequate surplus balances every year which are siphoned off by the office bearers or persons nearer to them. 1.2. After the Chief CIT, Jodhpur denied the exemption under section 10(23C)(vi), a show-cause notice dated 22-9-2009 was issued by CIT, Jodhpur to the assessee society for cancelling the registration granted under section 12AA. The show-cause notice is reproduced at pp. 3-6 of the order. This notice was replied vide letter dated 2-12-2009. Thereafter, various other enquiries were made in the months of October and November, 2010 which were replied by the assessee and the relevant books of accounts and vouchers were also produced on 28-10-2010 and on subsequent dates. The learned CIT, Jodhpur passed an order under section 12AA(3) on 27-12-2010 cancelling the registration granted unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of running educational institutions but for the benefits of the persons referred in section 13(3) and therefore the provisions of section 13(1)(c)/13(1)(d)/11(5) are violated. 1.3. In the meanwhile, assessee society again moved an application under section 10(23C)(iv) on 13-9-2010 for grant of exemption from assessment year 2007-08. The learned Chief CIT after taking into consideration the objections raised in the earlier order denying the exemption as well as the order of CIT withdrawing the registration under section 12A has granted the exemption for assessment year 2007-08 onwards. It may be noted that AO for assessment year 2005-06, vide order dated 29-8-2007 has assessed the income at nil under section 11 after examining the issue of surplus fund/diversion of fund/utilization of income. Further, AO in the order passed under section 148 for assessment year 2007-08 to assessment year 2009-10, has assessed the income of the assessee at nil under section 10(23C)(iv) vide order dated 30-11-2010. 1.4. Before proceeding further, it will be useful to reproduce the observations of the learned CIT and the submissions of the assessee: 1.5 The learned Authorised Representat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ives power to withdraw the registration granted under sub-clause (b) of sub-section (1) This sub-section is further amended whereby a power has been given w.e.f. 1-6-2010 to cancel the registration obtained under section 12A. (iii) There is no dispute as to the fact that assessee was granted registration under section 12A(1)(a). The power to withdraw such registration has been brought in the statutes books w.e.f. 1-6-2010. Further, section 12AA(3) itself has been brought in the statutes books w.e.f. 1-10-2004. The object of this provision is not clarificatory or explanatory and therefore CIT does not have inherent power to withdraw or revoke the registration already granted with retrospective effect. The section can be applied only prospectively. Therefore, cancellation of registration granted vide order dt. 8-1-2002 for assessment year 2001-02 onwards is bad in law. (iv) Reliance in this connection is placed on the following cases: Director of IT (Exemptions) v. Mool Chand Khairati Ram Trust (2011) 243 CTR Del. 245: (2011) 58 DTR (Del.) 254:2011) 199 Taxman 1 (Del.) The relevant paras 6 to 11 of the order are reproduced as under: 6. At the outset, it may be pertinent to n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itution and the genuineness of its activities,- (i) shall pass an order in writing registering the trust or institution, (ii) shall, if he is not so satisfied, pass an order in writing refusing to register the trust or the institution. 7. From the conjoint reading of sub-section (1) clause (b) and sub-section (3) of section 12AA, it would be seen that the cancellation of the registration was provided where the registration was granted under clause (b) of sub-section (1). Further cancellation under sub-section (3) was also provided where the registration was obtained at any time under section 12A (may be under clause (a) or clause (aa) of sub-section (1) of section 12A). But this power of cancellation of registration obtained under section 12A came to be incorporated by way of amendment introduced by the Finance Act, 2010 w.e.f. 1-6-2010, (sic--matter missing) the power vested with the CIT to cancel or withdraw the registration granted to the assessee under section 12A(a) in the year 1974. 8. Similar question also arose before the Allahabad High Court in CIT v. Manov Vikas Avam Sewa Sansthan, IT Appeal No. 161 of 2007 decided on 24-2-2010, wherein the reliance was placed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t or institution as the case may be. The combined reading of both the sections makes it clear that the registration can be cancelled only in those cases where the registration has been granted under subs. (1)(b) of section 12AA. This section nowhere empowers the CIT to cancel or withdraw the registration granted under section 12A. In the absence of such power, in our opinion, the registration granted under section 12A cannot be withdrawn or cancelled. 10. In addition to this, learned counsel also relied upon the decisions of the Tribunal in the cases of Guru Nanak Public School v. Director of IT (Exemptions), in ITA Nos. 3267 and 3268 of 2008 and the case of Kapoor Educational Society v. CIT (2010) 134 TTJ (Luck.) 250 : (2010) 44 DTR (Luck.) (Trib) 97. There is no need to reproduce what has been held in these cases as the sum and substance of these cases is also that the CIT has no power under section 12AA(3) to cancel the registration granted earlier under section 12A(a). Oxford Academy for Career Development v. Chief CIT (2009) 315 ITR 382 (All)--Section 12AA(3) was incorporated in the Act w.e.f. 1-10-2004 and not applicable retrospectively. Registration granted to the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tained are irrelevant issues in examining as to the genuineness of the activities for the purpose of cancellation of registration under section 12AA(3). The manner in which the funds are utilized or benefit is provided to the office bearers is left to the AO for assessment stage in computing the income of the trust. For this reliance is placed on the following cases: Maharashtra Academy of Engineering Educational Research (MAEER) v. CIT (2010) 133 TTJ (Pane) 706 : (2010) 36 DTR (Pune)(Trib) 321--Investigation Wing of IT Department in search and survey found that assessee trust was taking donation and capitation fees for admission though prohibited under Maharashtra Educational Institutions (Prohibition of Capitation Fees) Act, 1987. Cancellation of registration under section 12AA(3) on that basis is not justified. Language used in section 12AA(3) only confines to enquire about the activities of the trust and its genuineness, which means, in consonance with the objects for which created and those objects as also activities should not be a camouflage but pure, sincere, charitable and for public utility at large. CIT not to enter into the area of investigation of source of income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion at Surajgarh, District Jhunjhunu, where it imparts education upto 12th standard and is affiliated with Rajasthan Board of Senior Secondary Education. In these circumstances the observation of CIT that the activities of the institution are not genuine is without basis and the cancellation of registration on that ground is misconceived. 5. We also concur with the submissions of the learned Authorised Representative that the CIT has not properly appreciated provisions of section 13. Section 13 is not meant for allowing registration under section 12A. Even section 13(1) provides that provision of sections 11 and 12 shall not operate to exclude from the total income, any part of the income which is used or applied directly or indirectly for the benefit of specified persons without adequate security or without adequate interest or both as provided under sections 13(1)(c) and 13(2)(a). Thus application of this section is for assessment and not for registration. 6. We further find substance in the submissions of the learned Authorised Representative that in the present case even there is no violation of section 13(1)(c) or 13(2)(a) and (b). The loan to Smt. Akhalawat and Shri Su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cordance with law. (ii) So far as the various observations of CIT to allege that assessee has profit motive and there is violation of sections 11 and 13 of the Act we are to submit as under: (a) At the outset we may submit that after the order of CIT withdrawing registration under section 12AA, the assessees application for exemption under section 10(23C)(vi) was considered and decided by learned Chief CIT, Jodhpur. The assessee, before the learned Chief CIT, brought the fact of the cancellation of registration under section 12AA(3) by the learned CIT and also explained how the activities of the trust are genuine and as per its object. (Paper book 31-35). Considering the same the learned Chief CIT granted exemption under section 10(23C)(vi) vide notification dt. 6-9-2011 (paper book 30) from assessment year 2007-08. In view of these factual developments, the order of learned CIT cancelling the registration granted under section 12A(1)(a) deserves to be quashed. (b) The learned CIT at p.2 para 1 of the order has mentioned that entire affairs of the society are controlled by Shri Manish Vyas and his family members. It is submitted that apart from the four family members of S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has been utilized for the objects of the trust. The assessee society utilized the surplus for incurring the capital expenditure and after considering the same there is hardly any surplus as can be noted from the following Table: In case of Baba Gandha Singh Education Trust vs. CIT (2011) 138 TTJ (Chd)(UO) 1 it was held that CIT was not justified in cancelling registration under section 12AAJB for the reason that assessee generated surplus year after year and was engaged in profit making as a dominant objective under the garb of education. It is held that merely because the assessee has generated surplus income after meeting expenditure in its educational activities such activity cannot be regarded as doing trade and commerce in the name of education, so as to invite cancellation of registration under section 12AA(3). Further reliance is placed in case of Pinegrove International Charitable Trust Ors. v. Union of India Ors. (2010) 37 DTR (P H) 105. (f) The CIT at para 8 of his order has observed that assessee has made payment of rent and salary made to the office bearers of the society which is a clear violation of section 13(1)(c). It is submitted that section 13(1) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the factum of establishment and running school is a genuine activity. The enquiry regarding genuineness of the activity cannot be stretched beyond this. Dy. CIT vs. Cosmopolitan Education Society (1999) 157 CTR (Raj) 209: (2000) 244 ITR 494 (Raj)--It was held that if there was any misutilisation or mismanagement, action could be taken against the management of the society but it is not possible to say that any amount of the funds of the society was not utilized for educational purpose and for that reason exemption under section 10(22) cannot be denied. Guru Gobind Singh Educational Society v. CIT (2009) 121 TTJ (Asr) 685 : (2009) 19 DTR (Asr)(Trib) 472 : (2009) 118 ITD 207 (Asr)--It was held that for any irregularity or illegality committed by its members, a society, which is a judicial entity having independent existence, cannot be held liable. Further when there is no finding recorded that the income of the society has float to its members, irregularities committed by the members in their individual capacity cannot be held against the society for the purpose of cancellation of registration. The observations of the CIT that the activities of the assessee society were not g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mply with the requirements as mentioned in sections 11 and 13 of the Act then exemption can be denied. In respect of failure mentioned in sections 11 and 13 in a particular year, it cannot be said that registration is to be cancelled. Surplus in educational activities is not relevant for cancelling the registration. The education itself is charitable object and if the surplus is utilized for the purpose of charitable activities then it cannot be said that registration is to be disallowed. The ground on which the registration cannot be refused cannot be considered as a ground for cancelling the registration. The Tribunal, Pune Bench in the case of Maharashtra Academy of Engineering Educational Research (MAEER) vs. CIT (2010) 133 TTJ (Pune) 706: (2010) 36 DTR (Pune)(Trib) 321 had an occasion to consider the issue of cancellation of registration where it was alleged that the society was receiving donations and capitation fees for admission. It was held in that case that learned CIT has to consider the genuineness of the activities of the Trust and not to consider the source of income. The profit earning and misuse of the income derived by the trust from its charitable activities may ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efuse the order of his predecessor once the registration has been granted. It means that the objects of the trust are charitable. The Tribunal, Lucknow Bench has gone to the extent to say that learned CIT becomes functus officio and therefore, the order under section 12AA(3) is illegal and unsustainable. 1.9. We have also noticed that learned Chief CIT, Jodhpur has allowed exemption under section 10(23C) of the Act. Before the learned Chief CIT, it was pointed out that registration was cancelled under section 12AA(3) by the learned CIT. The learned Chief CIT has allowed the registration which means that the activities of the trust are genuine and as per its object. The advertisement expenses if genuine and have been paid to son of the settlor of the society then this cannot be made a ground for disallowing exemption. Reference is made to the order of the Tribunal, Chandigarh Bench in the case of Young Scholars Educational Society v. ITO (2011) 12 ITR (Trib) 640 (Chd). In respect of the payments made to the persons covered under section 13(3), the assessee has already explained the reasonableness. The reasonableness is actually to be seen by the AO and not by the learned CIT whil ..... X X X X Extracts X X X X X X X X Extracts X X X X
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