Shri Kamdar Education Trust, RAJKOT-GUJARAT V. The Income Tax Officer Ward 2(2), RAJKOT-GUJARAT

ITA 185/RJT/2009

• Counselvise Citation: [2012] 120 COUNSELVISE.COM (IT) 0148 (ITAT-RAJKOT)
• Duration Of Justice: 3 year(s) 6 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-10-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 19-10-2012
• Assessment Year: misc
• Appeal Filed On: 16-04-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ANKUR GARG
• Keywords: Charitable institution; Cancellation of registration
• Section: 12A; 12AA

Judgement Text

: : IN THE INCOME TAX APPELLATE TRIBUNAL: RAJKOT BENCH: RAJKOT . .. . . . . . . .. . . . . . # # # # BEFORE SHRI T. K. SHARMA JM AND SHRI D. K. SRIVASTA VA AM ITA NO.185/RJT/2009 / ASSESSMENT YEAR - SHREE KAMDAR EDUCATION TRUST V. ITO VINOD, 2 KARANPARA WD-2(2), RAJKOT. RAJKOT PAN : AAATK4099H DATE OF HEARING: 19.10.2012 DATE OF PRONOUNCEMENT: 30.10.2012 FOR THE ASSESSEE: VIMAL DESAI, FCA FOR THE REVENUE: ANKUR GARG, DR / // / ORDER . .. . . . . . /D. K. SRIVASTAVA: THE APPEAL FILED BY THE APPELLANT-TRUST IS DIRECTED AGAINST THE ORDER PASSED BY THE COMMISSION ER OF INCOME-TAX U/S 12AA (3) OF THE INCOME-TAX ACT ON 30-03-2009, ON THE FOLLOWI NG GROUNDS: 1. THE ORDER U/S.12AA (3) IS BAD IN LAW. 2. THE LD. COMMISSIONER OF INCOME TAX HAS ERRED IN LAW AS WELL AS ON FACTS IN CHALLENGING REGISTRATION U/S.12A. 3. THE LD. COMMISSIONER OF INCOME TAX HAS ERRED IN LAW AS WELL AS ON FACTS IN CANCELING REGISTRATION U/S.12A WITH RETROS PECTIVE EFFECT FROM 16.01.2001. 2. THE APPELLANT-TRUST IS ENGAGED IN RUNNING PRIVAT E SCHOOLS AND EDUCATIONAL INSTITUTIONS. IT WAS GRANTED CERTIFICATE OF REGISTR ATION U/S.12A BY THE COMMISSIONER OF INCOME-TAX W.E.F. 16-01-2001, WHICH HAS NOW BEEN CA NCELLED BY THE LD. COMMISSIONER OF INCOME-TAX U/S.12AA(3) OF THE INCOM E-TAX ACT, WITH THE FOLLOWING OBSERVATIONS:- 4. I HAVE CAREFULLY CONSIDERED THE SUBMISSION OF T HE LD. A.R. DURING THE COURSE OF ASSESSMENT PROCEEDINGS FOR THE A.Y. 2003-04, THE A.O. HAS OBTAINED THE DETAILS OF FEE STRUCTURE OF THE SCHOOL RUN BY THE ASSESSEE TRUST, WHICH IS AS UNDER:- ADMISSION FEES RS. 6,250 DEVELOPMENT FUND RS. 7,500 TOTAL NON-REFUNDABLE RS.13,750 TUITION FEES: CLASS 1 ST QUARTER APRIL TO JUNE 2 ND QUARTER JULY TO SEPT 3 RD QUARTER OCT. TO DEC. 4 TH QUARTER JAN.TO MARCH TOTAL FEES (IN 1 YEAR) 2 ITA 185/RJT/2009 PRE-NUR 4,025 4,025 4,025 4,025 16,100 STD.1 TO IV 4,025 4,025 4,025 4,025 16,100 STD.V 4,250 4,250 4,250 4,250 17,000 TRANSPORT FEES (OPTIONAL) : CLASS 1 ST QUARTER APRIL TO JUNE 2 ND QUARTER JULY TO SEPT 3 RD QUARTER OCT. TO DEC. 4 TH QUARTER JAN. TO MARCH TOTAL FEES (IN 1 YEAR) PRE-NUR 1,200 1,200 1,200 1,200 4,800 STD./ONWARD 1,350 1,350 1,350 1,350 5,400 4.1 IN THE ASSESSMENT ORDER, THE A.O. HAS ALSO QUOT ED THE FEE STRUCTURE OF TWO OTHER PROMINENT SCHOOLS OF RAJKOT, ST. MARYS S CHOOL AND NEW ERA SCHOOL. (NON OF THESE SCHOOLS ARE GRANT-IN-AID SCHO OL AND ARE RUN BY TRUST FUNDS, FEES AND OTHER CHARGES COLLECTED FROM STUDEN TS). THESE ARE ALSO REPRODUCED BELOW:- ST. MARYS SCHOOL DESCRIPTION PRE-NUR. TO STD. II STD. III ONWARDS ADMISSION 210 210 DEVELOPMENT TOTAL (ONE TIME ONE) 210 210 TUITION FEES (PER MONTH) 210 21 0 COMPUTER FEE 50 TRANSPORTATION FEE (OPTIONAL) 630 780 NEW ERA SCHOOL DESCRIPTION PRIMARY STD. V STD. V ONWARDS PROSPECTUS FEE 10 10 ADMISSION FEE 500 500 DEVELOPMENT FUND 440 440 TOTAL (ONE TIME FEE) 2,640 2,640 TUITION FEE (PER MONTH) 210 21 0 EXTRA CURRICULAR ACTIVITIES 200 200 COMPUTER FEE (ANNUAL) 400 500 TOTAL FEES 4,190 4,290 TRANSPORTATION FEE (OPTIONAL). (NO VEHICLE OF INSTITUTION) FROM THE COMPARISON OF FEE STRUCTURE, IT IS CRYSTAL CLEAR THAT THE TUITION FEES AND OTHER AMOUNT CHARGED BY THE ASSESSEE TRUST UNDE R VARIOUS HEADS ARE SUBSTANTIALLY HIGHER AND IN SOME CASES ALMOST 8 TO 10 TIMES THAT OF ST. MARYS SCHOOL AND NEW ERA SCHOOL WHICH ARE ALSO REPUTED SC HOOLS OF RAJKOT. THE FEES CHARGED BY THE ASSESSEE TRUST CAN ONLY BE AFFO RDED BY THE PARENTS OF VERY HIGH INCOME GROUP. IN THE CIRCUMSTANCES, I FI ND ITSELF IN RESPECTFUL AGREEMENT WITH THE FINDING OF THE LD. ITAT THAT THE SCHOOL FEES AND DEVELOPMENT CHARGES ARE EXORBITANT BEYOND THE REACH OF NEEDY STUDENTS TO AFFORD. THE A.R. HAS, HOWEVER, CONTENDED THAT THE SCHEME OF COMPARISON OF CHARITABLE TRUST AS LAID DOWN U/S.12 TO 13 NOWHERE WARRANT THAT THE FEE STRUCTURE IN CASE OF AN EDUCATIONAL INSTITUTION HAS TO BE LOW. THE SCHEME ONLY ENVISAGES APPLICATION OF INCOME FOR THE PURPOS E OF EDUCATION. IN THIS REGARD, IT WILL BE USEFUL TO QUOTE THE FOLLOWING EX CERPT FROM THE RECENT DECISION 3 ITA 185/RJT/2009 IN CASE OF VODITHALA EDUCATIONAL SOCIETY VS. ADIT, EXEMPTION, (2008) 20 SOT 353 (HYD): DESPITE VARIOUS CULTURAL AND LINGUISTIC DIFFERENCE S, INDIA IS UNITED BECAUSE OF TOLERANCE AND PIOUSNESS OF THE PEOPLE. EDUCATION IS CONSIDERED TO BE PIOUS IN THIS COUNTRY. ANCIENT DA YS GURUKILAMS WERE ESTABLISHED TO IMPART KNOWLEDGE TO PEOPLE. DU E TO EFFLUX OF TIME AND CIVILIZATION, THE EARLIER GURUKULAMS ARE NOW CALLED AS SCHOOLS, COLLEGES. IN OTHER WORDS, IT IS KNOWN AS EDUCATION AL INSTITUTIONS. HOWEVER, THE INDIAN CIVILIZATION CONTINUE TO RECOGN IZE EDUCATION AS ONE OF THE PIOUS OBLIGATION OF THE HUMAN SOCIETY. WHEN THE PEOPLE OF THIS COUNTRY CONSIDERED EDUCATION AS A PIOUS ONE, I T CANNOT BE MADE AS A SALEABLE COMMODITY IN THE GUISE OF ENCOURAGING PRIVATE INSTITUTION TO SUPPORT THE STATE IN THE PROCESS OF ESTABLISHING EDUCATIONAL INSTITUTIONS. TO ESTABLISH AND ADMINISTER EDUCATIO NAL INSTITUTIONS, ARE CONSIDERED TO BE A CHARITABLE OBJECT. THE WAY IN W HICH THE EXORBITANT AMOUNTS ARE COLLECTED BY THE ASSESSEE SOCIETY FOR A DMISSION UNDER THE MANAGEMENT QUOTA, SHOWS THAT THEY ARE NOT ADMIN ISTERING THE EDUCATIONAL INSTITUTIONS FOR PIOUS AND CHARITABLE P URPOSES, BUT, WITH A PROFIT MOTIVE. WHEN THE ASSESSEE SELLS THE SEAT OF THE PROFESSIONAL COURSE IN THE COLLEGE AND COLLECTS MONEY, CAN WE SA Y THERE IS NO PROFIT MOTIVE. IN OTHER WORDS, WHEN THE ASSESSEE ADMITS S TUDENTS UNDER MANAGEMENT QUOTA IN CONSIDERATION OF AN AMOUNT, WHI CH IS OVER AND ABOVE THE FEES PRESCRIBED BY THE GOVERNMENT, CAN WE SAY THERE IS NO PROFIT MOTIVE? THE OBVIOUS ANSWER TO THIS QUESTION IS IN NEGATIVE.' NO DOUBT, THE FACTS OF THE PRESENT CASE ARE SOMEWHA T DIFFERENT BUT THE RATIO OF THIS DECISION IS EQUALLY APPLICABLE TO THE ASSES SEES CASE. IN VODITHALAS CASE THE SOCIETY WAS CHARGING EXORBITANT AMOUNT ONL Y IN THE CASE OF MANAGEMENT QUOTA SEAT. HOWEVER, IN THE PRESENT CAS E, THE ASSESSEE TRUST IS CHARGING EXORBITANT AMOUNT FOR EACH AND EVERY SE AT. THE FEES AND OTHER AMOUNT CHARGED FROM THE STUDENT BY THE ASSESSEE TRU ST LEADS NO DOUBT IN MIND THAT THE TRUST IS NOT ADMINISTERING THE EDUCAT IONAL INSTITUTION FOR PIOUS AND CHARITABLE PURPOSES, BUT, WITH A PROFIT MOTIVE. THE LD. A.R. HAS ALSO STATED IN HIS REPLY THAT THE FEES CHARGED BY RAJKUM AR COLLEGE ARE COMPARABLE. IT IS CLARIFIED THAT THE ASSESSEE DOES NOT BECOME A CHARITABLE INSTITUTION BY CHARGING FEES WHICH CAN BE COMPARED WITH ONE OR TWO INSTITUTIONS OF THE CITY WHICH FALLS IN THE HIGHEST FEES CHARGING CATEGORY. IN ANY CASE, IT IS NOT THE CASE OF THE ASSESSEE THAT T HE MANAGEMENT AND FINANCIAL CONTROL OF RAJKUMAR COLLEGE ALSO VESTS IN THE AUTHOR AND HIS CLOSE RELATIVES. IN MY OPINION, THE ACTIVITIES OF RUNNIN G OF A SCHOOL CAN BE CALLED AS CHARITABLE ONLY IF A COMMON MAN OF NORMAL MEANS CAN AFFORD TO PAY THE FEES 4 ITA 185/RJT/2009 AND OTHER AMOUNT CHARGED BY THE SCHOOL. THIS IS NO T SO IN THE CASE OF THE ASSESSEE. IN HIS SUBMISSION, THE LD. A.R. HAS ALSO CONTENDED THAT THE CIT IS AN INDEPENDENT QUASI JUDICIAL AUTHORITY AND HENCE WHIL E ACTING IN A PROCEEDING FOR CANCELLATION OF REGISTRATION U/S.12A, IT IS ESS ENTIAL THAT HE SHOULD APPLY HIS MIND TO THE FACTS OF THE CASE AND LEGAL POSITION WI THOUT BEING INFLUENCED BY OBSERVATIONS/FINDINGS OF THE TRIBUNAL. AT THE SAME TIME, THE A.R. COULD NOT BRING ANYTHING ON RECORD WHICH WOULD WARRANT ANY AU THORITY TO HOLD ANY VIEW DIFFERENT FROM ONE TAKEN BY THE LD. APPELLATE TRIBU NAL. THE TOTALITY OF THE CIRCUMSTANCES ONLY CONFIRMS THE FINDINGS OF THE TRI BUNAL THAT THE ASSESSEE TRUST WAS IMPARTING EDUCATION WITH SOLE MOTIVE OF E ARNING PROFIT. THE MANAGEMENT AND CONTROL OVER THE TRUST FUND ARE TOTA LLY IN THE HANDS OF THE AUTHOR OF THE TRUST AND HIS FAMILY MEMBERS. THE FA CT THAT THE SCHOOL RUN BY THE TRUST IS LOCATED IN A BUILDING TAKEN ON LEASE F ROM THE TRUSTEES FOR WHICH A SUBSTANTIAL LEASE RENT IS PAID TO THEM AND THE FACT THAT SUBSTANTIAL LOAN HAVE BEEN OBTAINED FROM THE TRUSTEES AND THEIR FAMILY ON WHICH HUGE INTEREST IS BEING PAID ONLY PROVES THAT THE TRUST IS A FAMILY A FFAIR OF THE AUTHOR, WHOSE MANAGEMENT AND FINANCES ARE TOTALLY IN THE HANDS OF THE AUTHOR AND HIS FAMILY MEMBERS. THE TRUST IS RUNNING THE SCHOOL ON LY WITH THE MOTIVE OF MAKING PROFIT. AT THE SAME TIME, THE FUND REMAINS WITH THE CONTROL OF THE TRUSTEES WHO ARE CLOSED RELATIVES OF THE AUTHOR. 4.2 IN THE CIRCUMSTANCES, I AM CONSTRAINED TO HOLD THAT THE ACTIVITIES CARRIED OUT BY THE TRUST ARE NOT GENUINE. FURTHER, SUCH ACTIVITIES ARE NOT BEING CARRIED OUT IN ACCORDANCE WITH THE OBJECT OF THE TR UST. THEREFORE, THE REGISTRATION GRANTED TO THE ASSESSEE TRUST U/S.12A VIDE ORDER NO.CIT.R- II/HQ/65-K-135 /2000-01 DATED 16.1.2001 IS HELD AS AB INITIO VOID. ACCORDINGLY, THE REGISTRATION IS CANCELLED WITH EFF ECT FROM THE DATE IT WAS GRANTED I. E WITH EFFECT FROM 16.1.2001. 3. AT THE TIME OF HEARING, THE LD. AUTHORIZED REPRE SENTATIVE FOR THE ASSESSEE RAISED A PRELIMINARY OBJECTION STATING THAT THE IMP UGNED ORDER PASSED BY THE COMMISSIONER WAS OUTSIDE HIS JURISDICTION U/S.12AA( 3) OF THE INCOME-TAX ACT AND THEREFORE IT WAS REQUIRED TO BE QUASHED ON THAT GRO UND ALONE. HE SUBMITTED THAT THE IMPUGNED ORDER HAS BEEN PASSED BY THE COMMISSIONER U/S.12AA (3) OF THE INCOME- TAX ACT ON 30-03-2009 TO CANCEL REGISTRATION EARLIE R GRANTED U/S 12A. HE REFERRED TO THE PROVISIONS OF SUB-SECTION (3) OF SEC.12AA AS TH EY STOOD ON THE DATE ON WHICH THE IMPUGNED ORDER WAS PASSED BY THE COMMISSIONER, I.E., 30-03-2009 AND SUBMITTED THAT THE AFORESAID PROVISIONS DID NOT AUT HORIZE THE COMMISSIONER TO CANCEL ANY REGISTRATION GRANTED U/S.12A OF THE INCO ME-TAX ACT. HE SUBMITTED THAT THE APPELLANT-TRUST WAS GRANTED REGISTRATION U/S.12A ON 16-01-2001 AND THEREFORE THE PROVISIONS OF SEC.12AA AS THEY STOOD ON 30-03-2009 DID NOT AUTHORIZE THE 5 ITA 185/RJT/2009 COMMISSIONER TO CANCEL THE REGISTRATION ALREADY GRA NTED TO THE TRUST U/S 12A. ELABORATING HIS ARGUMENTS FURTHER, HE SUBMITTED THA T THE PROVISIONS OF SUB-SECTION (3) OF SEC.12AA WERE AMENDED BY THE FINANCE ACT, 20 10 W.E.F.01-06-2010 TO ENABLE THE COMMISSIONER TO CANCEL REGISTRATION AT A NYTIME U/S 12A OF THE INCOME- TAX ACT. HE HOWEVER CONTENDED THAT THE AFORESAID AM ENDMENT WAS EFFECTIVE FROM 01-06-2010 AND THEREFORE COULD NOT BE CONSTRUED AS AUTHORIZING THE COMMISSIONER TO CANCEL REGISTRATION ALREADY GRANTED U/S.12A BEFO RE 01-06-2010. IN SUPPORT OF HIS SUBMISSION, THE LD. AUTHORIZED REPRESENTATIVE RELIE D UPON THE FOLLOWING DECISIONS OF THIS TRIBUNAL:- 1. AHMEDABAD ITAT IN CASE OF AJIT EDUCATION TRUST 134 TTJ 483 2. LUCKNOW ITAT IN THE CASE OF KAPOOR EDUCATION SO CIETY-134 TTJ 250 3. AMRITSAR ITAT IN THE CASE OF GURU GOVINDSINGH E DUCATION SOCIETY 121 TTJ 685 4. IN REPLY, THE LD. DEPARTMENTAL REPRESENTATIVE SU BMITTED THAT THE AMENDMENT IN SECTION 12AA(3) BY THE FINANCE ACT, 2010 WAS CLA RIFICATORY IN NATURE AND THEREFORE WOULD COVER THE CASE OF THE APPELLANT-ASS ESSEE ALSO. 5. WE HAVE HEARD BOTH THE PARTIES. THE SHORT ISSUE IS WHETHER THE COMMISSIONER HAD REQUISITE POWER U/S 12AA(3) ON THE DATE ON WHICH HE PASSED THE IMPUGNED ORDER TO CANCEL REGISTRATION GRANTED U/S.1 2A OF THE INCOME-TAX ACT. THERE IS NO DISPUTE THAT SUB-SECTION (3) OF SEC.12AA WAS AMENDED BY THE FINANCE ACT, 2010 W.E.F. 01-06-2010 AUTHORIZING THE COMMISSIONER TO CANCEL THE REGISTRATION ALREADY GRANTED U/S.12AA(1) AS ALSO THAT GRANTED U/ S12A. PRIOR TO 01-06-2010, THE COMMISSIONER HAD THE POWER TO CANCEL THE REGISTRATI ON GRANTED U/S 12AA(1) AND NOT U/S 12A. IN AJIT EDUCATION TRUST; KAPOOR EDUCATIONA L SOCIETY AND GURU GOBIND SINGH EDUCATIONAL TRUST, CITED SUPRA, THIS TRIBUNAL HAS TAKEN THE VIEW THAT THE COMMISSIONER DID NOT HAVE THE POWER TILL 01-06-2010 TO CANCEL REGISTRATION GRANTED U/S.12A. FOLLOWING THE AFORESAID ORDERS, WE HOLD TH AT THE COMMISSIONER HAD NO JURISDICTION ON THE DATE ON WHICH HE PASSED THE IMP UGNED ORDER TO CANCEL REGISTRATION GRANTED U/S.12A. IN THE CASE BEFORE US , REGISTRATION WAS GRANTED U/S.12A BEFORE 01-06-2010. IN THIS VIEW OF THE MATTER, THE ORDER PASSED BY THE COMMISSIONER IS QUASHED. THE COMMISSIONER HOWEVER SHALL BE AT LIBERTY TO PASS A FRESH ORDER IN CONFORMITY WITH LAW. APPEAL FILED BY THE ASSESSEE IS ALLOWED. ( * 30.10.2012 ( ORDER PRONOUNCED ON 30.10-2012 SD/- SD/- ( . . / T. K. SHARMA) ( .. / D. K. SRIVASTAVA) /JUDICIAL MEMBER / ACCOUNTANT MEMBER /RAJKOT: 30-10-2012 NVA/- 6 ITA 185/RJT/2009 ( (( ( -. -. -. -. /. /. /. /. / COPY OF ORDER FORWARDED TO:- 1.2 / APPELLANT-SHREE KAMDAR EDUCATION TRUST, RAJKOT 2 -42 / RESPONDENT- THE INCOME-TAX OFFICER, WD.-2(2), RA JKOT 3. 8 / CONCERNED CIT-, RAJKOT 4. 8- / CIT (A)-II, RAJKOT 5. . -, , / DR, ITAT, RAJKOT 6. / GUARD FILE / BY ORDER TRUE COPY. SENIOR PRIVATE SECRETARY, ITAT , RAJKOT