Shreeji Education Trust, Baroda V. The CIT-I, Baroda

ITA 1560/AHD/2007

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 63245 (ITAT-AHMEDABAD)
• Duration Of Justice: 5 year(s) 7 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-12-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 18-10-2012
• Assessment Year: misc
• Appeal Filed On: 19-04-2007
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A TIRKEY
• Assessee Lawyers: U S BHATI
• Keywords: Search and seizure; Charitable institution; Earning of tax free income; Cancellation of registration
• Section: 12A; 12AA; 132

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AT AHMEDABAD D BENCH BEFORE: SHRI G.C. GUPTA, VICE PRESIDENT AND SHRI ANIL CHATURVEDI, ACCOUNTANT ME MBER I.T.A. NO.1560/AHD/2007 SHREEJI EDUCATION TRUST, CO. M.S. HOSPITAL, NR. SAMA JAKAT NAKA, SAMA SAVIL ROAD, BARODA APPELLANT VS. THE COMMISSIONER OF INCOME TAX-1, BARODA RESPONDENT DEPARTMENT BY : SHRI A. TIRKEY, SR. D.R. ASSESSEE BY : SHRI U.S. BHATI, A.R. DATE OF HEARING : 18.10.2012 DATE OF PRONOUNCEMENT 14.12.2012 / ORDER PER : ANIL CHATURVEDI, ACCOUNTANT MEMBER THE PRESENT APPEAL IS FILED BY THE ASSESSEE AGAINST THE ORDER OF CIT DATED 21.02.2007 PASSED U/S 12AA(3) OF THE ACT WHEREIN TH E REGISTRATION OF THE TRUST WAS CANCELLED. BEFORE US THUS THE EFFECTIVE GROUND IS WITH RESPECT TO CANCELLATION OF REGISTRATION U/S 12A. 2. THE FACTS OF THE PRESENT CASE, AS DETERMINED FRO M THE ORDER ARE AS UNDER:- THE ASSESSEE TRUST WAS CREATED BY AN INDENTURE DAT ED 14.12.1995 AND PURSUANT TO ORDER OF ITAT (ITA NO.1013/AHD/2005 ORD ER DATED 24.03.2006) THE REGISTRATION UNDER THE PROVISIONS OF SECTION 12A WA S GRANTED W.E.F. 01.04.1999. A SEARCH AND SEIZURE OPERATION U/S 132 WAS CARRIED OUT ON 29.02.2001 IN THE PREMISES OF THE ASSESSEE TRUST RESULTING INTO DISCO VERY OF CERTAIN MATERIAL ON THE I.T.A. NO.1560/AHD/2007 2 BASIS OF WHICH ORDER U/S 158BC WAS PASSED ON 30.09. 2003 AND THE ADDITION OF RS.6710100/- WAS MADE IN THE HANDS OF THE ASSESSEE. LD. CIT WAS OF THE VIEW THAT THE ASSESSEE HAS UTTERLY FAILED TO DISPROVE TH E CHARGE OF DEFALCATION OF FUNDS BY FABRICATION AND SUBTERFUGE. HE WAS OF THE VIEW THAT THE FUNDS OF RS.6710100/- WERE NOT USED TOWARDS THE OBJECTS OF T HE TRUST BUT WERE MISAPPROPRIATED BY THE TRUSTEES. THUS IN THE CONTE XT OF SECTION 12AA(3), HE CONCLUDED THAT THE ACTIVITIES OF THE TRUST ARE NOT GENUINE OR BEING CARRIED OUT IN ACCORDANCE WITH ITS OBJECTS. HE WAS FURTHER OF THE VIEW THAT MISAPPROPRIATION OF FUNDS IS A SERIOUS MALADY WHICH CANNOT BE IGNORED I N THE CONTEXT OF SECTION 12AA(3). HE ACCORDINGLY AB INITIO CANCELLED THE OR DER OF THE CIT U/S 12AA(1)(B)(I) READ WITH SECTION 12A(A) DATED 07.03. 2005. HE THUS HELD THAT PURSUANT TO THE CANCELLATION OF REGISTRATION, IT IS TO BE HELD THAT THE ASSESSEE WAS NEVER GRANTED REGISTRATION U/S 12A(A). AGGRIEVED W ITH THE ORDER OF THE CIT, THE ASSESSEE IS NOW IN APPEAL BEFORE US. 3. BEFORE US, LD. A.R. SUBMITTED THAT ASSESSEE IS A TRUST RUNNING VARIOUS SCHOOLS. AS PER THE PROVISIONS OF SECTION 12AA(3), LD. CIT CAN CANCEL THE REGISTRATION OF THE TRUST WHEN HE IS SATISFIED THAT THE ACTIVITIES OF THE TRUST ARE NOT GENUINE OR ARE NOT BEING CARRIED OUT IN ACCORDANCE WITH THE OBJECTS OF THE TRUST. HE SUBMITTED THAT THE PROVISION OF SECTION 12AA(3) GRANTING POWER TO THE CIT TO CANCEL THE REGISTRATION GRANTED U/S 12AA(A) HAS BEE N INSERTED FROM 01.10.2004 AND THEREFORE THE REGISTRATION OF THE TRUST GRANTED W.E.F. 01.04.1999 CANNOT BE CANCELLED. LD. A.R. SUBMITTED THAT SECTION 12AA HA S ONLY LAID DOWN THE PROCEDURE OF REGISTRATION. LD. CIT CANNOT LOOK INT O THE PROCEDURE OF EARNING OF INCOME AND THE SOURCES FROM WHERE THE RECEIPTS WERE DERIVED. LD. CIT AT THE STAGE OF GRANTING REGISTRATION IS NOT EXPECTED TO B OTHER HIMSELF ABOUT THE OTHER I.T.A. NO.1560/AHD/2007 3 PROVISIONS OF THE ACT AND IS SUPPOSED TO CONFINE HI MSELF TO THE PROCEDURE OF REGISTRATION. HE FURTHER SUBMITTED THAT THE INQUIR Y OF THE UTILIZATION OF FUNDS AS PER THE OBJECT OF THE TRUST HAS TO BE DONE AT THE T IME OF ASSESSMENT AND IF AMOUNT HAVE NOT BEEN UTILIZED AT THE MANDATE OF THE ACT, NECESSARY ADDITIONS CAN BE MADE AT THE TIME OF ASSESSMENT. FOR THIS PR OPOSITION HE RELIED ON THE DECISION IN THE CASE OF CIT VS. RED ROSE SCHOOL (20 07) 212 CTR (ALL) AND PUNE TRIBUNAL IN THE CASE OF MAHARASHTRA ACADEMY OF ENGI NEERING & EDUCATIONAL RESEARCH VS. CIT (2010) 133 TTJ (PUNE) 706. HE THE REFORE, URGED THAT THE ORDER OF LD. CIT CANCELING REGISTRATION OF THE ASSESSEE B E REVOKED. 4. LD. D.R., ON THE OTHER HAND, SUPPORTED THE ORDER OF THE CIT AND RELIED ON THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CA SE OF SINHAGAD TECHNICAL EDUCATION SOCIETY VS. CIT & ANR. REPORTED IN 343 IT RA 23 (BOM). 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. WE FIND THAT IN THE PRESENT CASE, LD. CIT CANCELLED THE REGISTRATION GRANTED U/S 12AA TO THE ASSESSEE W.E.F. 01.04.1999 INTERALIA FO R THE REASON THAT DURING THE SEARCH AND SEIZURE OPERATION THAT HAD TAKEN PLACE A T THE ASSESSEES PREMISES ON 29.02.2001 CERTAIN MATERIALS WERE SEIZED AND IT WAS NOTICED THAT ASSESSEE HAD CLAIMED NON-GENUINE EXPENSES ON PURCHASE OF MILK ET C. IN PURSUANCE OF ITS OBJECT OF RUNNING OF SCHOOL AND THE AGGREGATE ADDITION OF RS.67.10 LACS WAS MADE IN FOUR ASSESSMENT YEARS (1998-1999 TO 2001-2002). TH E ASSESSEES SUBMISSION IS THAT THE CIT IS NOT EMPOWERED TO LOOK INTO THE PROC EDURE OF EARNING OF INCOME AND SOURCES FROM WHICH RECEIPTS ARE DERIVED. THE M ATTER OF DISALLOWANCE OF EXPENSES OR NOT AS PER THE PROVISIONS OF THE ACT HA S TO BE CONSIDERED AT THE TIME OF ASSESSMENT. I.T.A. NO.1560/AHD/2007 4 6. IN THE CASE OF CIT VS. RED ROSE SCHOOL (2007) 21 2 CTR (ALL) 394 HONBLE ALLAHABAD HIGH COURT HAS HELD AS UNDER:- IT IS SIGNIFICANT TO MENTION THAT REGISTRATION UND ER S. 12AA, DOES NOT NECESSARILY ENTITLE THE ASSESSEE TO GET THE INCOME EXCLUDED FROM THE INCOME OF THE PREVIOUS YEAR FOR THE PURPOSE OF DETE RMINATION OF TAX LIABILITY BUT IT ONLY ENTITLES THE ASSESSEE TO CLAI M SUCH EXEMPTION, WHICH OTHERWISE COULD NOT BE CLAIMED IN THE ABSENCE OF REGISTRATION. THE ENQUIRY BY THE CIT SHALL REMAIN RESTRICTED TO T HE EXAMINATION AS TO WHETHER THE ASSESSEE, WHO HAS MOVED THE APPLICATION FOR REGISTRATION UNDER S. 12A, IS ACTUALLY IN THE ACTIVITIES WHICH A RE GENUINE. GENUINENESS OF THE ACTIVITIES OF THE TRUST OF THE I NSTITUTION HAS TO BE SEEN, KEEPING IN MIND THE OBJECTS THEREOF, WHICH NE CESSARILY MEANS THAT THE CIT SHALL SATISFY HIMSELF ABOUT THE FACT T HAT THE ACTIVITIES ARE GENUINE AND IN CONSONANCE WITH THE OBJECTS OF THE T RUST OF THE INSTITUTION. IN OTHER WORDS, IF ESTABLISHING THE R UNNING A SCHOOL IS THE OBJECT OF THE SOCIETY, AS GIVEN IN ITS BYE-LAWS, IT HAS TO BE SATISFIED THAT THE SOCIETY HAS ESTABLISHED THE SCHOOL, WHERE EDUCATION IS BEING IMPARTED AS PER RULES AND THE FACTUM OF ESTABLISHME NT AND RUNNING SCHOOL IS A GENUINE ACTIVITY. THE ENQUIRY REGARDIN G GENUINENESS OF THE ACTIVITIES CANNOT BE STRETCHED BEYOND THIS. 7. IN THE CASE OF MAHARASHTRA ACADEMY OF ENGINEERIN G & EDUCATIONAL RESEARCH VS. CIT (2010) 133 TTJ (PUNE) 706, THE TRIBUNAL HAS HELD AS UNDER:- CHARITABLE TRUST-REGISTRATION UNDER S. 12A-CANCELL ATION OF REGISTRATION UNDER S 12AA(3)-RELEVANT CONSIDERATIONS-INVESTIGATI ON WING OF IT DEPARTMENT IN SEARCH AND SURVEY FINDING THAT ASSESS EE TRUST WAS TAKING DONATION AND CAPITATION FEES FOR ADMISSION T HOUGH PROHIBITED UNDER MAHARASHTRA EDUCATIONAL INSTITUTIONS (PROHIBI TION OF CAPITATION FEES) ACT, 1987-CANCELLATION OF REGISTRATION UNDER S. 12AA(3) ON THAT BASIS NOT JUSTIFIED-LANGUAGE USED IN S. 12AA(3) ONL Y CONFINES TO ENQUIRE ABOUT THE ACTIVITIES OF THE TRUST AND ITS G ENUINENESS, WHICH MEANS, IN CONSONANCE WITH THE OBJECTS FOR WHICH CRE ATED AND THOSE OBJECTS AS ALSO ACTIVITIES SHOULD NOT BE A CAMOUFLA GE BUT PURE, SINCERE, CHARITABLE AND FOR PUBLIC UTILITY AT LARGE-CIT NOT TO ENTER INTO THE AREA OF INVESTIGATION OF SOURCE OF INCOME AND ALSO APPLI CATION OF INCOME, SO THAT THE AMOUNT OF CORRECT EXEMPT INCOME BE NOT PRE JUDGED-IF THE CIT HAD AN INFORMATION OF SOME WRONGFUL MEANS OF EARNIN G FEES IN THE FORM OF A DONATION OR THE INFORMATION TELLS ABOUT E XCESSIVE CHARGING OF FEES, THEN THE CIT IN HIS RIGHTS CAN PASS ON THE IN FORMATION TO THE CONCERNED PERSONS WORKING UNDER THE MAHARASHTRA CAP ITATION FEES (PROHIBITION) ACT-PRIMA FACIE NO CASE WAS MADE OUT BY CIT SO AS TO EVEN VAGUELY DEMONSTRATE THAT THE ACTIVITIES OF THE APPELLANT WERE NOT GENUINE OR ACTIVITY OF IMPARTING OF EDUCATION WAS N OT CARRIED OUT-CIT HAS FAILED TO ESTABLISH THAT ANY PART OF THE INCOME /RECEIPT OF THE TRUST I.T.A. NO.1560/AHD/2007 5 WAS IN ANY MANNER MISUTILIZED BY THE TRUSTEES FOR T HEIR PERSONAL BENEFIT I.E., NOT IN FULFILLMENT OF THE OBJECT OF T HE TRUST. 8. IN THE PRESENT CASE THE UNDISPUTED FACT IS THAT THE ASSESSEE HAS BEEN GRANTED REGISTRATION W.E.F. 01.04.1999, THE ASSESSE E HAS BEEN RUNNING SCHOOLS. SEEN IN THE LIGHT OF THE FACTS AND THE AFORESAID DE CISIONS, WE ARE OF THE CONSIDERED VIEW THAT TILL THE TIME THE OBJECTS OF T HE TRUST ARE CHARITABLE, EXPENSES AS BOGUS OR OTHERWISE CANNOT BE CONSIDERED FOR THE PURPOSE OF REGISTRATION U/S 12A. THE SAME CAN BE CONSIDERED AT THE TIME OF ASS ESSMENT FOR THE REASON THAT THE SCOPE OF REGISTRATION AND ASSESSMENT ARE SEPARA TE. IN VIEW OF THESE FACTS WE ARE OF THE VIEW THAT THE ORDER OF CIT NEEDS TO BE R EVOKED. WE ACCORDINGLY REVOKE THE ORDER OF LD. CIT CANCELING THE REGISTRAT ION. 9. THUS, THE APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON 14.12.20 12 SD/- SD/- (G.C. GUPTA) (ANIL CHATURVEDI) VICE PRESIDENT ACCOUNTANT MEMBER TRUE COPY N.K. CHAUDHARY, SR. P.S. / COPY OF ORDER FORWARDED TO:- 1. / APPELLANT 2. / RESPONDENT 3. / CONCERNED CIT 4. - / CIT (A) 5. , ! , '# / DR, ITAT, AHMEDABAD 6. $% &' / GUARD FILE. BY ORDER/ , ( / ' ) ! , '# *