M/s. Sinhagad Technical Education Society, Pune V. Pr. Commissioner of Income-tax, (Central), Pune

ITA 996/PUN/2018

AI Insights

The case involves M/s Sinhgad Technical Education Society, an educational trust, which appealed against the cancellation of its registration under section 12A of the Income Tax Act by the Principal Commissioner of Income Tax (Central), Pune. The cancellation was based on allegations that the trust was involved in collecting capitation fees and not using the funds for the trust's educational purposes. The Tribunal examined the evidence, including materials seized during search operations, and upheld the cancellation, noting that the trust's activities were not genuine and were not in accordance with its stated objectives. The Tribunal also addressed procedural issues regarding the retrospective application of the law and the delay in proceedings, ultimately finding no merit in the trust's arguments.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 124847 (ITAT-PUNE)
• Duration Of Justice: 4 year(s) 8 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-02-2023
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 23-01-2023
• Assessment Year: misc
• Appeal Filed On: 03-06-2018
• Other Referred Cases: Vodithala Education Society - 20 SOT 353, Karnataka Chamber of Commerce and Industry vs. CIT, U.P. Distillers Association vs. CIT, CIT (Exemption) vs. Batanagar Education and Research Trust, Vellore Institute of Technology vs. CIT, Auro Lab vs. ITO, All India Spinners' Association v. CIT, DIT v. Bharat Diamond Bourse
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Search and seizure; Opportunity of being heard; Retrospective amendment; Cancellation of registration
• Section: 11; 12A; 12AA; 195

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL “A” BENCH, PUNE BEFORE SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER AND SHRI S.S. VISWANETHRA RAVI, JUDICIAL MEMBER आयकर अपीऱ सं. / ITA No.996/PUN/2018 M/s Sinhgad Technical Education Society 19/15, Erandwane, Smt. Khilare Marg, Off Karve Road, Pune – 411004 PAN: AABTS9900Q .......अऩीऱाथी / Appellant बनाम / V/s. The Pr. Commissioner of Income Tax (Central), Pune ......प्रत्यथी / Respondent Assessee by : Shri Suhas P. Bora Revenue by : Shri Keyur Patel, CIT-DR स ु नवाई की तारीख / Date of Hearing : 24-01-2023 घोषणा की तारीख / Date of Pronouncement : 07-02-2023 आदेश / ORDER PER INTURI RAMA RAO, AM: This is an appeal filed by the assessee directed against the order of Ld. Principal Commissioner of Income Tax (Central), Pune, dated 09.05.2018 passed u/s 12AA(3) of the Income-tax Act, 1961 (hereinafter referred to as ‘the Act’). 2. The appellant raised the following grounds of appeal: 1. On the facts and in the circumstances of the case the PCIT has grossly erred in canceling the appellant trust's registration u/s 12A, overlooking the fact that the same could be cancelled as per the provisions of section 12AA(3), only if the activities of such trust are not genuine or are not being carried out in accordance with the objects of the trust. 2 ITA No.996/PUN/2018 M/s Sinhgad Technical Education Society 2. On the facts and in the circumstances of the case the PCIT erred in not bringing on record any evidence to prove that the activities of the trust are not genuine or those are not being carried out in accordance with the objects of the trust, in the backdrop of the fact that the appellant trust has been delivering education to thousands of students in various streams of learning and continues to have affiliations with Savitribai Phule University Pune, Medical Council of India, AICTE etc. 3. On the facts and in the circumstances of the case and without prejudice to the above grounds the PCIT erred in overlooking the fact that, even if for sake of argument it was admitted that the appellant trust accepted capitation fees, the same shall amount to violation of Maharashtra Education Institution (Prohibition of Acceptance of Capitation Fee) Act 1987, and that appropriate action might be taken under the relevant Act but the same in no way is a ground for cancellation of registration of the appellant trust u/s 12AA(3) of the Income Tax Act, 1961. 4. On the facts and in the circumstances of the case reliance of PCIT on the decision of Vodithala Education Society - 20 SOT 353 is misplaced in as much as the PCIT erroneously holds that collecting of donation cannot be regarded as charitable activity, overlooking the fact that the Hon'ble Tribunal while disposing of Miscellaneous Application clarified that the exemption u/s 11 is denied not because of acceptance of capitation fees but because there was violation of section 13(1)(c). 5. On the facts and in the circumstances of the case and without prejudice to the above grounds the PCIT has no jurisdiction to cancel the registration of the appellant trust u/s 12A retrospectively from F.Y. 2007-08, in the light of the facts that the amendment to section 12AA(3) empowering the PCIT/CIT to cancel the registration granted u/s 12A is brought into effect from 01/06/2010 and that vide CBDT circular No.1/2011 F.No. 142/1/2011-SO(TPL), registration can be cancelled on fulfillment of the conditions mentioned in section 12AA(3), from A.Y. 2011-12. 6. On the facts and in the circumstances of the case the Id PCIT has erred in passing the impugned order despite being aware of the facts that appellant's appeal before the Supreme Court is pending, wherein the appellant has challenged whether the power of CIT conferred vide Finance Act 2010 w.e.f. 01/06/2010 has retrospective affect? 7. On the facts and in the circumstances of the case and without prejudice to the above, the impugned proceedings of cancellation of registration had started on 14/02/2014 and fully heard on 02/05/2014 has not been disposed off and still the PCIT on the same ground has initiated and continued this impugned proceedings by issuing the notice on 12/01/2018, proving that there is unreasonable delay in disposing of the proceedings initiated way back in 2014 and hence it vitiates its legality. 3. Briefly, the facts of the case are as under: The appellant is an educational society, registered under the provisions of Societies Registration Act, 1860 with an object of imparting 3 ITA No.996/PUN/2018 M/s Sinhgad Technical Education Society education and to provide medical care / facilities in rural and urban areas. The appellant trust was established in the year 1993. The appellant trust was granted registration u/s 12A of the Act on 17.01.1994. 4. Subsequently, the search and seizure operations were carried on in the premises of the appellant society on 20.07.2005. During the course of search and seizure action, according to the Ld. PCIT, Investigation Wing of the Department had seized certain incriminating material suggesting that the appellant society had indulged in collection of capitation fees outside the books of account and based on this information, the Ld. Commissioner drawn the opinion that the appellant trust had not carried on genuine activities for which the appellant society was formed, accordingly cancelled the registration on 09.10.2007. However, on appeal before the Tribunal vide order dated 19.09.2008, registration was restored on the ground that under the provisions of sub-section (3) of section 12AA, as it then stood, the Commissioner had no power to cancel the registration of trust or institution granted u/s 12A of the Act. As on today, we were told that the appeal preferred by the Department against this Tribunal’s order is pending disposal before the Hon’ble Bombay High Court. 5. While matter stood thus, by Finance Act, 2010, provisions of section 12AA(3) of the Act have been amended w.e.f. 01.06.2010 empowering the Principal Commissioner or Commissioner of Income Tax on being satisfied that the activities of the trust or institution are not genuine or are not being carried out in accordance with the object of the trust, to cancel the registration of such trust, which had obtained registration, at any time u/s 4 ITA No.996/PUN/2018 M/s Sinhgad Technical Education Society 12A of the Act. Based on amended provision of law, Ld. PCIT had issued fresh show cause notice on 11.03.2011 proposing the cancellation of registration of the trust. On receipt of show cause notice, the appellant society had challenged the show cause notice before the Hon’ble Bombay High Court challenging the constitutional validity of the provisions of sub- section (3) of section 12AA, as amended by the Finance Act, 2010 w.e.f. 01.06.2010 to the extent that provide for revocation of registration of trust granted u/s 12A of the Act. The Hon’ble Bombay High Court vide order dated 01.02.2012 reported in (2012) 343 ITR 23 (Bom) had dismissed the above Writ Petition with following observations: “9.....The notice which has been issued by the Commissioner is a notice to show cause and it would be open to the petitioner to submit a reply to the notice on all grounds, including those which are contained in the order dated October 9, 2007. In other words, the contents of the order dated October 9, 2007, shall be treated as a notice to show cause to the petitioner to which the petitioner shall be at liberty to file a reply before the Commissioner. We decline to exercise our jurisdiction under article 226 of the Constitution, at the present stage, to interdict the hearing of the notice to show cause. We clarify that we have not expressed any opinion on the allegation leveled against the petitioner, the correctness of which is left open to be determined by the Commissioner in the course of the proceedings.” 6. Being aggrieved by the order of the Hon’ble Bombay High Court, the assessee filed SLP before the Hon’ble Supreme Court vide SLP No.13944 of 2012 which is still pending disposal. During pendency of Writ Petition before the Hon’ble High Court as well as pendency of SLP before the Hon’ble Supreme Court, the appellant trust made submission that the proceedings be kept in abeyance in view of the pending Writ Petition, SLP, as the case may be. The request of assessee was acceded to by the Ld. PCIT as evident from the entries made in order sheet, copy of which is filed before us by the ld. CIR-DR. Again search and seizure operations were conducted in the premises of the appellant trust on 06.08.2013. During 5 ITA No.996/PUN/2018 M/s Sinhgad Technical Education Society the course of search and seizure operations, it is stated that certain incriminating material in the form of documents, loose papers have been found on the founder Mr. Maruti Nivruti Navale indicating that the appellant trust had collected capitation fees in cash for granting admissions to various courses under the Management quota in the educational institutions run by it. Further, such donation and capitation fee were not accounted as part of the income of appellant trust but was being siphoned off by the founders of the trust for their personal enrichment. Considering this evidence, an opportunity was given vide show cause notice dated 14.02.2014 dropping the cancellation of registration of trust. In response to the show cause notice, the appellant had submitted that the proceedings should be kept in abeyance or dropped till the disposal of SLP by the Hon'ble Supreme Court. Finally, another opportunity was given vide letter dated 12.01.2018 proposing to cancel the registration of the appellant trust w.e.f. financial year 2007-08. In response to the same, it was submitted that the assessee appeared and requested the ld. Pr. Commissioner to consider the written submissions filed vide letter dated 29.01.2018 and submissions dated 02.05.2014. The gist of submissions made before the Ld. Commissioner are as under: (i) Categorically denied the allegation that the appellant trust has been indulging in collection of capitation fees in the absence of any complaint under Maharashtra Education Institution (Prohibition of Acceptance of Capitation Fee) Act 1987; (ii) The activities of the institution are genuine and are carried on in accordance with objects of the institution; and (iii) The ld. Commissioner has no power to cancel the registration with retrospective effect. 7. Considering the above submissions of the appellant trust, the Ld. Pr. Commissioner considering the order of CIT(A)-12, Pune vide order dated 26.04.2017, wherein the ld. CIT(A) confirmed findings of AO that the 6 ITA No.996/PUN/2018 M/s Sinhgad Technical Education Society appellant trust had been indulging in collection of capitation fees and the capitation fees so collected was siphoned off by the trustees for their personal benefits, had proceeded to hold that there was ample material on record to establish that the appellant trust had been indulging in collection of capitation fees and therefore, cannot be said to be existing purely for educational purpose. The money so collected had never entered into the books of account of assessee but siphoned off by the trustees. The ld. PCIT further held that it was merely being used as skeleton for the purpose of claiming exemption and it is bogus and sham trust and therefore, not entitled to registration under the provisions of section 12A of the Act. Accordingly, in exercise of powers vested with him under sub-section (3) of section 12AA of the Act had withdrawn and cancelled the registration granted u/s 12A of the Act to the appellant trust w.e.f. financial year 2007- 08 vide order dated 09.05.2018. 8. Being aggrieved by the order, the appellant trust is in appeal in the present appeal. It is submitted that the findings of Ld. PCIT that the activities of the trust are not genuine or are not being carried out in accordance with the objects of the trust are not based on any evidence in the backdrop of the fact that the appellant trust had been imparting education to thousands of students in various streams of learning and continues to have affiliation to Savitribai Phule Pune University, Pune, Medical Council of India, AICTE and also in view of the fact that there was no complaint by any student for violating provisions of Maharashtra Education Institution (Prohibition of Acceptance of Capitation Fee) Act 1987. 7 ITA No.996/PUN/2018 M/s Sinhgad Technical Education Society 9. Without prejudice to the above, it is submitted that the ld. PCIT has no jurisdiction to cancel the registration of appellant trust u/s 12A retrospectively from financial year 2007-08 in view of the fact that the amendment to section 12AA(3) empowering the PCIT to cancel the registration granted u/s 12A is brought into effect only from 01.06.2010. Finally, it is submitted that on the doctrine of laches, order passed by PCIT is bad in law for the reason that though the proceedings for cancellation of registration were started in 2011 ultimately culminated into order during the year 2018. Finally, he submitted that the order passed u/s 12AA(3) cannot have retrospective effect, is effective only from date of such order which is in the present case is 09.05.2018, placing reliance on the judgment of Hon’ble Madras High Court in Auro Lab vs. ITO (2019) 411 ITR 308 (Mad). 10. On the other hand, ld. CIT-DR submits that the basis of impugned order i.ee. CIT(A)’s order has been upheld by this Tribunal vide order dated 01.04.2022 in ITA Nos.44 to 50, 54 to 59 & 1654/PUN/2017 for A.Ys. 2008-09 to 2014-15. Therefore, he submits that in view of the decision of Hon’ble Madras High Court in the case of Vellore Institute of Technology vs. CIT (2021) 127 taxmann.com 106, the reasons assigned for the purpose of cancellation, undoubtedly goes to demonstrate that the activities of the trust are not genuine or are not being carried on in accordance with the objects of the trust and therefore, the Commissioner had rightly recorded satisfaction that it is a fit case for cancellation of registration of the trust. He also placed reliance on the decision of Hon'ble Supreme Court in the case of Karnataka Chamber of Commerce and Industry vs. CIT (2021) 126 taxmann.com 21 (SC) in support of the contention that where the documents seized during the course of search and seizure operations 8 ITA No.996/PUN/2018 M/s Sinhgad Technical Education Society discloses receipt of capitation fees by educational institution for admission of students, the Hon'ble Supreme Court had upheld the action of Commissioner rejecting the application for grant of registration u/s 12A of the Act. Similarly, he also placed reliance on the decision of Hon’ble Delhi High Court in the case of U.P. Distillers Association vs. CIT (2017) 399 ITR 143 (Del). He further submitted that on the date of decision of Hon'ble Supreme Court in the case of CIT (Exemption) vs. Batanagar Education and Research Trust (2021) 129 taxmann.com 30 in support of proposition that when it is found that the trust was engaged in bogus activities, cancellation of registration was justified. 11. We have heard the rival contentions and perused the materials available on record. The issue in the present appal is whether or not the Ld. PCIT (Central), Pune is justified in cancelling the registration u/s 12A w.e.f. financial year 2007-08. Admittedly, the appellant trust was registered under the provisions of section 12A of the Act. The provisions of section 12A originally were enacted by the Finance Act, 1972 w.e.f. 01.04.1973. Then, vide the Finance (No.2) Act, 1996 w.e.f. 01.04.1997, section 12AA was enacted which reads as under: “Procedure for registration 12AA. (1) The Chief Commissioner or Commissioner, on receipt of an application for registration of a trust or institution made under clause (a) of section 12A, shall— (a) call for such documents or information from the trust or institution as he thinks necessary in order to satisfy himself about the genuineness of activities of the trust or institution and may also make such inquiries as he may deem necessary in this behalf; and (b) after satisfying himself about the objects of the trust or institution and the genuineness of its activities, he— (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 institution, and a copy of such order shall be sent to the applicant : 9 ITA No.996/PUN/2018 M/s Sinhgad Technical Education Society Provided that no order under sub-clause (ii) shall be passed unless the applicant has been given a reasonable opportunity of being heard. (2) Every order granting or refusing registration under clause (b) of sub-section (1) shall be passed before the expiry of six months from the end of the month in which the application was received under clause (a) of section 12A. 12. It is relevant to our purpose, sub-section (3) to section 12AA was inserted by Finance (No.2) Act, 2004 with effect from 01.10.2004. Later, by Finance Act, 2010 and w.e.f. 01.06.2010, the words “or has obtained registration at any time under section 12A [as it stood before its amendment by the Finance (No.2) Act, 1996 (33 of 1996)” were inserted in sub-section 3 of section 12AA of the Act. Thus, after such amendment, section 12AA(3) reads as under: “12AA. (1) ..... (2) ..... (3) Where a trust or an institution has been granted registration under clause (b) of sub- section (1) or has obtained registration at any time under section 12A as it stood before its amendment by the Finance (No. 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 cancelling 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.” 13. At the first place, we shall proceed to examine whether the Commissioner was justified having regard to the facts of the present case in reaching satisfaction that the activities of the trust are not genuine or are not being carried on for the purpose for which the trust was formed. The reasons assigned for cancellation of registration are as under: (i) The appellant society has been indulging in collection of capitation fees; (ii) The capitation fees so collected was siphoned off by the trustees for their personal benefits. 10 ITA No.996/PUN/2018 M/s Sinhgad Technical Education Society 14. The above reasons are based on the material found during the course of search and seizure operations conducted in the appellant society’s premises and its promoters. The assessment order framed based on the above material was sustained by the Commissioner of Income Tax (Appeals) as well as by this Tribunal on 01.04.2022 in Sinhgad Technical Education Society vs. DCIT, 195 ITD 683. It is relevant to extract the findings of this Tribunal on this issue, which reads as under vide para 33: “33.......In the foregoing paragraphs, we held that the appellant society had been indulging in the practice of collection of capitationfees from the students for admission in various courses under the management quota. This capitationfees was collected in cash, admittedly, not being used for the purpose of objects of the society for which it was formed, but allowed to be siphoned off by the President of the appellant society for his personal enrichment. The President of the appellant society had adopted a modus operandi by which by forming non-juridical organization with object of collection of capitationfees for the admissions under the management quota for the benefit of persons managing the appellant society and, therefore, it can be safely concluded that the appellant society was formed for the purpose of personal gain, it cannot be said to be an association formed with the object of charitable purpose as held by the PRIVY COUNCIL in the case of All India Spinners' Association v. CIT [1944] 12 ITR 482 reiterated by the Hon'ble Supreme Court in the case of DIT v. Bharat Diamond Bourse [2003] 126 Taxman 365/259 ITR 280 wherein, the Hon'ble Apex Court held that when specified person in the present case, President of the appellant society because of the position as a trustee, misuses his powers by lending himself or taking away the income or the funds of the trust, then it tantamount to breach of the trust indicating that the trust was formed for a personal gain and, therefore, it cannot be said that the objects of the appellant society are charitable and, therefore, the income of the appellant trust does not qualify for exemption u/s 11 of the Act.” 15. The findings of ld. CIT(A) have been upheld by this Tribunal in assessment proceedings. In view of concurrent findings of Tribunal and CIT(A), the Ld. PCIT was justified in reaching a conclusion that the activities of the appellant trust are not genuine and are not being carried on in accordance with the objects for which it was established. Therefore, we are of the considered opinion that the Ld. PCIT had rightly cancelled the registration of appellant trust. 11 ITA No.996/PUN/2018 M/s Sinhgad Technical Education Society 16. Then, the next question that comes up for our consideration is that whether or not Ld. PCIT was justified in cancelling the registration of trust with retrospective effect from financial year 2007-08. Without delving into the issue whether the Commissioner had been empowered to cancel registration with retrospective effect, it is suffice to hold that in the present case, Hon’ble Bombay High Court in Writ Petition filed by the appellant challenging the show cause notice for cancellation of registration held that the contents of order dated 09.10.2007 passed by the Commissioner cancelling registration shall be treated as show cause notice to the appellant as extracted supra and this finding had not been reversed till date. In the interest of judicial discipline, the ld. PCIT is bound to obey the directions of Hon’ble High Court and rightly cancelled the registration w.e.f. financial year 2007-08. 17. There is yet another reason as to why we are upholding the validity of order with retrospective effect, the appellant right from the initial date of show cause notice issued on 11.03.2011 had been representing before the learned Commissioner that the proceedings be kept in abeyance till the disposal of Writ Petition by the Hon’ble Bombay High Court and SLP by the Hon'ble Supreme Court. Thus, the appellant by his acts and conduct had acquiesced to the delay in completion of proceedings. Moreover, on perusal of order sheet of file of learned PCIT, it would be apparent that proceedings are continuous, merely because on change of incumbent, fresh show cause notice was issued, it cannot be construed to mean that it is fresh show cause notice especially in view of the fact that there is no evidence on record to show that earlier show cause notice was dropped. Thus, the appellant himself is responsible for delay in culminating the proceedings into the final order. 12 ITA No.996/PUN/2018 M/s Sinhgad Technical Education Society 18. Similarly, the doctrine of laches also cannot be invoked by the appellant as the appellant himself is responsible for delay in finalizing the proceedings. Thus, we do not find any merit in the grounds of appeal filed by the appellant society and accordingly, dismissed. 19. In the result, the appeal filed by the assessee is dismissed. Order pronounced in the open court on 07 th February, 2023. Sd/- Sd/- S.S.VISWANETHRA RAVI INTURI RAMA RAO JUDICIAL MEMBER ACCOUNTANT MEMBER ऩ ु णे / Pune; ददनाांक / Dated : 07 th February, 2023 GCVSR आदेश की प्रतिलऱपप अग्रेपिि/Copy of the Order is forwarded to : 1. अऩीऱाथी / The Appellant; 2. प्रत्यथी / The Respondent; 3. ववभागीय प्रतततनधध, आयकर अऩीऱीय अधधकरण, ऩ ु णे “A” / DR ‘A’, ITAT, Pune; 4. गार्ड पाईऱ / Guard file. आदेशान ु सार / BY ORDER, //सत्यावऩत प्रतत// True Copy// वररष्ठ तनजी सधिव / Sr. Private Secretary आयकर अऩीऱीय अधधकरण, ऩ ु णे / ITAT, Pune