Income Tax Appellate Tribunal - Bangalore
Akash Education And Development Trust, ... vs The Principal Commissioner Of Income ... on 2 February, 2024
ITA No.922/Bang/2023
Akash Education & Development Trust, Bengaluru
IN THE INCOME TAX APPELLATE TRIBUNAL
"B'' BENCH: BANGALORE
BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER
AND
SMT. BEENA PILLAI, JUDICIAL MEMBER
ITA No.922/Bang/2023
Assessment Year: 2021-22
Akash Education & Development
Trust
No.22nd Ward, Prashanth Nagar
Devanahalli PCIT (Central)
Vs.
Bengaluru 562 110 Bangalore
Karnataka
PAN NO : AACTA7888E
APPELLANT RESPONDENT
Appellant by : Shri Rajeev C. Nulvi, A.R.
Respondent by : Shri G. Manoj Kumar, D.R.
Date of Hearing : 29.01.2024
Date of Pronouncement : 02.02.2024
ORDER
PER CHANDRA POOJARI, ACCOUNTANT MEMBER:
This appeal by assessee is directed against order of PCIT dated 23.3.2023, wherein he invoked the provisions of Section 12AB(4)(ii) of the Income Tax Act, 1961 (in short "The Act") whereby registration granted u/s 12AA/12AB of the Act and has been cancelled w.e.f. previous year 2020-21 relevant to assessment year 2021-22 and for all subsequent assessment years thereafter. 1.1 The assessee in its appeal raised the following main grounds:
1. The order of The Principal Commissioner of Income Tax, Central Range, Bangalore is against the fact of the case and against the provisions of law.
2. On the fact and circumstances of case, under the provisions of law, The Principal Commissioner of Income Tax, Central Range, Bangalore erred in cancelling the registration granted u/s 12AB of ITA No.922/Bang/2023 Akash Education & Development Trust, Bengaluru Page 2 of 65 the Income Tax Act, 1961 on flimsy grounds without scrutinizing the accounts of the Appellant Trust where there was no diversion of funds other than for the objective of the Trust.
3. On the fact and circumstances of case, under the provisions of law, The Principal Commissioner of Income Tax, Central Range, Bangalore erred in cancelling the registration granted u/s 12AB of the Income Tax Act, 1961 on suspicion and surmises that the payment made by the Appellant Trust for and on behalf of the Trustees are amounting to diversion of funds, but in fact, the said payments were made by debiting the trustees account towards the repayment of loan advanced by the trustee's during prior periods.
4. On the fact and circumstances of case, under the provisions of law, The Principal Commissioner of Income Tax, Central Range, Bangalore erred in cancelling the registration granted u/s 12AB of the Income Tax Act, 1961 by alleging that the Appellant Trust collected capitation fees in cash and not recorded in the books of the Trust as against the fact that the corpus donation was collected from the students towards building fund partly in cash and partly in cheque which have been duly accounted in the books of the Appellant Trust.
5. On the fact and circumstances of case, under the provisions of law, The Principal Commissioner of Income Tax, Central Range, Bangalore erred in cancelling the registration granted u/s 12AB of the Income Tax Act, 1961 by alleging that there is violation of Sec. 3 and 5 of the Karnataka Educational Institutions (Prohibition of Capitation Fee) Act, 1984 but such sections were not applicable to the linguistic and religious minority institution. Such reliance of The Principal Commissioner of Income Tax, Central Range, Bangalore on said sections of the Karnataka Educational Institutions (Prohibition of Capitation Fee) Act, 1984 is unjustified.
6. On the fact and circumstances of case, under the provisions of law, The Principal Commissioner of Income Tax, Central Range, Bangalore has categorically stated that there is specified violation as per clause ( a ) , (e) and (f) of the explanation to Sec. 12AB(4) of the Income Tax Act, 1961, but in the said order, there is no findings of The Principal Commissioner of Income Tax, Central Range, Bangalore for violation of said clauses.
7. On the facts and circumstances of case, under the provisions of law, The Principal Commissioner of Income Tax, Central Range, Bangalore erred in cancelling the registration granted u/s 12AB of the Income Tax Act, 1961 by alleging the mis-utilization of funds, involvement in merit seat blocking activity and violation of ITA No.922/Bang/2023 Akash Education & Development Trust, Bengaluru Page 3 of 65 clause (a), (e) and -{f) of the explanation to Sec. 12AB(4) of the Income Tax Act, 1961 without bring on record concrete evidences for such allegations. The Principal Commissioner of Income Tax, Central Range, Bangalore's allegations are make belief effort to justify his action for cancellation of registration as there was no violation of clause (a), (e) and (f) of the explanation to Sec.
12AB(4) of the Income Tax Act, 1961.
8. For these and other reasons which may be adduced at the time of the hearing, the Appellant Trust prays before this Hon'ble Bench to annul/quash the order passed u/s 12AB(4)(ii) of the Income Tax Act, 1961 dated 27/09/2023, or any other order which this Hon'ble Bench may deem fit.
9. The Appellant Trust craves leaves to add, to alter, to amend or to delete any other grounds at the time of the hearing, 1.2 Further, the assessee has raised following additions grounds along with petition for admission of additional grounds:
10. On the fact and circumstances of the case, under the provisions of law, The Principal Commissioner of Income Tax, Central Range, Bangalore erred in passing the order u/s 12AB(4)(ii) of the Income Tax Act, 1961 for the A.Y 2021-22 for cancelling the registration granted u/s 12AA/12AB of the Income Tax Act, 1961 by ignoring the position of law that the provisions of Sec.
12AB(4)(ii) of the Income Tax Act, 1961 was introduced by the Finance Act, 2022 w.e.f 01/04/2022. Therefore, not applicable for the A.Y 2021-22
11. On the fact and circumstances of the case, under the provisions of law, The Principal Commissioner of Income Tax, Central Range, Bangalore erred in ignoring the fact that there has been no case that the activity of the Trust/Institution were no genuine and also, it was not proved that the activity was not being carried on in accordance with the objects of the Trust/Institution and therefore the circumstances contemplated u/s 12AB(4) of the Income Tax Act, 1961 were not satisfied, eventually there was no case of cancellation of registration u/s 12AB(4) of the Income Tax Act, 1961.
12. On the fact and circumstances of the case, under the provisions of law, The Principal Commissioner of Income Tax, Central Range, Bangalore erred in acting on a reference made under the second proviso to the provisions of Section 143(3) of the Income Tax Act, 1961 ignoring the fact that, the said proviso was substituted by Finance Act 2022 w.e.f 01/04/2022 and therefore was not applicable for the A.Y 2021-22.
ITA No.922/Bang/2023Akash Education & Development Trust, Bengaluru Page 4 of 65
13. On the fact and circumstances of the case, under the provisions of law, The Principal Commissioner of Income Tax, Central Range, Bangalore erred in giving the findings on the basis of evidences, the statement of Trustees of the Appellant Trust and the statement of the Chief Financial Officer of the Appellant Trust that the funds of the Trust were not being fully utilized for the object of the Trust and part of the income of the Trust used for the personal benefit of the Trustee's ignoring the fact that all the transactions were recorded in the books of Appellant Trust which were audited by the Chartered Accountant and no portion of the revenue was diverted for the purpose other than the object of the Trust.
14. On the fact and circumstances of the case, under the provisions of law, The Principal Commissioner of Income Tax, Central Range, Bangalore erred in not following the ratio laid down by Hon'ble High Court of Gujarat in case of CIT, Gandhinagar Vs Gujarat Maritime Board (2021) 123 Taxmann.com 35 (Guj) confirmed by Hon'ble Supreme Court in (2022) 143 Taxmann.com 278 (SC) wherein it is held that, for the reasons not provided for in the provisions of Sec. 12AA(3) of the Income Tax Act, 1961, presently Sec. 12AB(4) of the Income Tax Act, 1961, the registration granted to the trust cannot be cancelled.
15. For these and other reasons which may be adduced at the time of hearing, this Honourable Bench is requested to quash the order passed u/s 12AB(4)(ii) of the Income Tax Act, 1961 dated 27/09/2023 for cancelling the Registration accorded u/s 12AA/12AB of the Income Tax Act, 1961 to the appellant Trust for the FY 2020-21 relevant to the AY 2021-22, which is beyond jurisdiction and against the facts of the case and the position of law.
1.2.1 The ld. A.R. submitted that the above additional grounds involve legal issues in passing the order by ld. PCIT u/s 12AB(4)(ii) of the Act and does not involve any investigation of facts otherwise on record and he submitted that these additional grounds may be admitted and adjudicated to render substantial justice. He also placed reliance on the judgement of Hon'ble Supreme Court in the case of NTPC Vs. CIT (229 ITR 383).
1.3 We have heard both the parties on admission of additional grounds. In our opinion, all the facts are already on record and there is no necessity of investigation of any fresh facts for the purpose of adjudication of above additional grounds. Accordingly, ITA No.922/Bang/2023 Akash Education & Development Trust, Bengaluru Page 5 of 65 by placing reliance on the judgement of Hon'ble Supreme Court in the case of NTPC Vs. CIT 229 ITR 383 (SC), we are inclined to admit these additional grounds for the purpose of adjudication as there was no investigation of any fresh facts otherwise on record and the action of the assessee is bona fide.
2. Facts of the issue are that the assessee is a Trust based in Bengaluru, with the stated objectives to open, establish, construct and maintain school, college and other educational institutions, to impart education in arts, crafts, science and vocational/professional and other technical subjects, software and computer courses for the benefit of the general public and related activities. An action under section 132 of the Act was conducted in the case of assessee on 17.02.2021. During the course of search evidences were collected which indicated inter alia:
(i) that the assessee was collecting fees in cash over and above the prescribed fee (in common parlance called capitation fees) and was not accounting for it in its books of accounts.
(ii) that the funds of the assessee were diverted for purposes other than that of the stated objectives of the assesses, such as personal expenses of trustees, purchase of land & jewellery in the name of Chairman, payment of foreign education fees of Chairman's son & Managing Trustee etc.
(iii) that the assessee was involved in orchestrated scheme of blocking the merit/ seats hereby allowing them to lapse so that the same can be filled by Management seat to collect capitation fees and also collect higher fees.
2.1 A detailed show cause notice by the ld. PCIT was issued to the assessee on 23.03.2023, narrating all the findings requesting the assessee to explain as to why the approval granted to it under section I2AA/12AB of the Act should not be cancelled by invoking sub section 4 of Section 12AB of Act for previous year 2020-21 relevant to AY 2021-22 and subsequent previous years. The said show cause is reproduced below:-
ITA No.922/Bang/2023Akash Education & Development Trust, Bengaluru Page 6 of 65 ITA No.922/Bang/2023 Akash Education & Development Trust, Bengaluru Page 7 of 65 ITA No.922/Bang/2023 Akash Education & Development Trust, Bengaluru Page 8 of 65 ITA No.922/Bang/2023 Akash Education & Development Trust, Bengaluru Page 9 of 65 ITA No.922/Bang/2023 Akash Education & Development Trust, Bengaluru Page 10 of 65 ITA No.922/Bang/2023 Akash Education & Development Trust, Bengaluru Page 11 of 65 ITA No.922/Bang/2023 Akash Education & Development Trust, Bengaluru Page 12 of 65 ITA No.922/Bang/2023 Akash Education & Development Trust, Bengaluru Page 13 of 65 2.2 In response to the show cause notice, the assessee initially requested for more time to file submissions and subsequently, furnished detailed submissions, vide letter dated 7.4.2023 before ld.
PCIT on 10.4.2023. The relevant portion of the submissions are reproduced below:
ITA No.922/Bang/2023Akash Education & Development Trust, Bengaluru Page 14 of 65 ITA No.922/Bang/2023 Akash Education & Development Trust, Bengaluru Page 15 of 65 ITA No.922/Bang/2023 Akash Education & Development Trust, Bengaluru Page 16 of 65 ITA No.922/Bang/2023 Akash Education & Development Trust, Bengaluru Page 17 of 65 ITA No.922/Bang/2023 Akash Education & Development Trust, Bengaluru Page 18 of 65 ITA No.922/Bang/2023 Akash Education & Development Trust, Bengaluru Page 19 of 65 2.3 The assessee has filed further submissions dated 7.8.2023 before ld. PCIT and the relevant portion of the same is reproduced below:ITA No.922/Bang/2023
Akash Education & Development Trust, Bengaluru Page 20 of 65 2.4 In response to the notice for fresh hearing dated 29.8.2023 due to change of incumbent, the assessee vide letter dated 8.9.2023 has stated before Ld. PCIT as under:
Examination of allegations vis a vis evidences, statements on oath of Trustees and CFO and the explanations submitted by the assessee before PCIT.
2.5 The ld. AO was requested by ld. PCIT to produce assessment records and seized evidences and statements on oath available on record, they were examined, copies of relevant records were obtained and placed on the file and the records were returned back ITA No.922/Bang/2023 Akash Education & Development Trust, Bengaluru Page 21 of 65 to the AO by the ld. PCIT. In light of the same, the explanations furnished by the assessee were carefully considered by ld. PCIT.
Exercise of blocking the merit seats and allowing to lapse;
2.6 Ld. PCIT observed that on detailed analysis of the students who surrendered their seats after Mop Up Round in NEFT, KEA counselling 2020 in Akash Institute of Medical Sciences and Research Centre that majority of these candidates belong to one state viz Rajasthan. These students with high AIR in NEET were allotted Merit seats in Akash Medical College in All India Quota and presumably in a Government Medical college in Rajasthan in state quota. Even after that they chose to block seat in Akash Medical colleges by paying money, only to surrender the seat later on: after the Mop Up round. The vacancies (referred as Stray vacancies), were then filled by the Management of college at a higher fees and capitation fees. (Management fees). Typically, the candidates admitted in management seats had low marks and their AIR were higher than 2 lacs (2,00,000) whereas, candidate who got the AIR of merit seats were below 20,000. The rank wise details of the students who surrendered their seats in Akash Institute of Medical Sciences and Research Centre after Mop Up Round and the students who got admitted in their place for FY 2020-21 and capitation fees collected from them as per seized evidences are tabulated hereunder:
ITA No.922/Bang/2023Akash Education & Development Trust, Bengaluru Page 22 of 65 ITA No.922/Bang/2023 Akash Education & Development Trust, Bengaluru Page 23 of 65 2.7 Cash received from the students as per seized material was confirmed by Chairman & Managing Trustee in Q. Nos 16 and 15 respectively, of their statements dated 17/02/2021.
2.8 The candidates who got merit seats (All India Quota) blocked the seats till Mop-up round by incurring significant monetary costs in lakhs of rupees in spite of getting government seats in home State. This defies logic, common sese and human probability. Hence it called for investigation and a sample case was taken up to do verification.
During the post search investigation, it was found that the Trustee was directly involved in a well-planned, orchestrated exercise to do seat blocking. The Managing Trustee transferred the funds from his account to the bank account of one Shri Rahul Kumar Singh, an agent involved in medical admissions. The agent on receiving these funds made to him DDs for paying the fees of one student Mr. Keshav Sain to block merit seat allotted to him in Akash Institute of Medical Sciences and Research Centre. The seat was thus blocked till the end of mop-up round and then surrendered, allowing the Akash Institute of Medical Science and Research Centre to fill the same with management quota seat.
2.9 Further investigation was done with the bank regarding the above transaction and it was found that Rs 20 Lacs was transferred from the Account of Shri Muni Raju (Managing Trustee) to shri Rahul Kumar in his bank account bearing no 317601503929 and this amount was utilized to purchase two DDs bearing nos. 511897 and 511898 in favour of Executive Director, Karnataka examination authority Bengaluru. He observed that this account is closed on 21.07.2023. This DD no.511898 was-paid to the ED KEA to block the seat in the name of Shri Kesav Saini who was allotted merit seat as per AIR. Thereafter, the seat was allowed to lapse and the same was allotted to another candidate by name Shri Ajith Natekar for payment of Rs. 74 lacs (Rs 5 lacs in cash and Rs 69 lacs through bank).
ITA No.922/Bang/2023Akash Education & Development Trust, Bengaluru Page 24 of 65 Reply of the Bank and copy of accounts are reproduced below;
ITA No.922/Bang/2023Akash Education & Development Trust, Bengaluru Page 25 of 65 2.10 In the face of the above irrefutable evidence, the assessee has not been able to deny the transactions, however it has just offered an unconvincing and feeble argument that the money was transferred from Shri K. Muniraju to account of Shri Rahul Kumar for purchase of property. The argument, its logic so flawed that, the assessee could not even substantiate it with a modicum of relevant details or verifiable evidences. Even otherwise this specious contention advanced by assesses doesn't explain why the said Rahul Kumar purchased Demand Drafts in favour of the ED of KEA to block the seat of Keshav Saini in the Medical College run by the Assessee. Hence, the ld. PCIT observed that the explanation of the Trustee deserves to be rejected.
2.11 The above contrived and dishonest manipulation to block seats is not only repugnant to charitable purposes for which the assessee is registered but it is also an affront to noble objective of ending the evil of capitation fees and providing opportunities to deserving meritorious students of poor and middle class. This lofty and humane intention was given effect to by the Hon'ble Supreme Court in-its Landmark decision dated 11th April 2016 and subsequent decisions. The above activities of assessee, Trustees and the agent constitute violation of relevant provisions of the National Medical Commission Act, 2019 and its predecessor the Indian Medical Council Act, 1956. The above activity carried out by the assessee is not genuine and certainly not being carried out in accordance with conditions subject to which it was registered. Accordingly, the ld. PCIT was satisfied that the specified violations defined in clauses (a), (e) and (f) in explanation to sec 12AB(4) have occurred.
ITA No.922/Bang/2023Akash Education & Development Trust, Bengaluru Page 26 of 65 Collection of excess fees in cash (capitation fees) and not accounting for the same.
2.12 During the search, evidences gathered indicated that from the candidates, part of the fees are collected in cheque and part of the fees are collected in cash. On examination of books of accounts, it was found that the cash portion has not been accounted. The cash portion of fees is euphemistically called Medical College Development fees by the management though in reality it is Capitation Fees as per definition in Section 2(b) of the KEI (PCF) Act, 1984. The capitation fee so collected is directly reported to the Chairman of the trust Smt. M Pushpa or Managing Trustee Shri K. Muniraju and handed over to them. The above findings from the examination of seized materials & evidences collected during search were confronted to the Chairman of assessee (trust) Smt. M Pushpa, Managing Trustee, Shri K Muniraju and Shri Prabhakar Ramdas, CFOs. They all have confirmed the findings, admitted to have received excess fees (capitation fees) in cash and also admitted to not accounting them in books of accounts. They have also explained the modus operandi followed.
2.13 Evidences seized marked A/AIMSRC/132/01 -page nos. 126, 128, 130 & 132 contain entries /noting, etc pertaining to cash fees collected from 52 students for the F.Y 2016-17. Similarly seized material marked A/AIMSRC/132-04 & A/AIMSRC/ 132-07-page nos.62,79,44,21,87,106,196,155,158 etc contain details of cash fees collected from students for F.Y 2019-20, seized material marked A/AIMSRC/132-03 -page nos. 68,69,70,71,72,73 contain details of cash fees collected for F.Y 2020-21. To aid comprehension, one of the seized documents is scanned and reproduced below:
ITA No.922/Bang/2023Akash Education & Development Trust, Bengaluru Page 27 of 65 2.14 The ld. PCIT observed that a plain reading of above shows the cash received from candidates on 15/02/2021, some payments made and balance has been handed over to 'Madam'. Perusal of top portion of page shows that on previous day the net cash balance has been handed over to 'Chairman'. The chairman and managing Trustees have explained the noting in Q. No. 16 and 15 of their statements dated 17/02/2021. All such pages of seized materials above indicating such receipts of capitation fees have been examined, collated and the total ITA No.922/Bang/2023 Akash Education & Development Trust, Bengaluru Page 28 of 65 cash fees collected for each financial year is compiled by the ld. PCIT as under: -ITA No.922/Bang/2023
Akash Education & Development Trust, Bengaluru Page 29 of 65 ITA No.922/Bang/2023 Akash Education & Development Trust, Bengaluru Page 30 of 65 ITA No.922/Bang/2023 Akash Education & Development Trust, Bengaluru Page 31 of 65 ITA No.922/Bang/2023 Akash Education & Development Trust, Bengaluru Page 32 of 65 Admissions & confirmations during examination on oath 2.15. During the search a statement on oath was recorded by the ld.
PCIT on 17/02/2021 of Smt. M Pushpa wherein she has confirmed that:
(i) She is Trustee and chairperson of assessee (trust) and she derives income from the schools & institutions run by assessee trust (Q.5)
(ii) That her husband Shri Muniraju Kempanna is Managing Trustee and Secretary. Elder son Shri Amar Gowda looks after day-to-day activities of the Akash Hospital & Medical College and younger son, Shri Akash Gowda works as construction supervisor for the assessee (Q.6)
(iii) Shri Prabhakar Ramdas is CFO of the assessee and he is aware of all the details (Q-10) 2.16 She was confronted with a page in note book maintained by employee Sri Anand Kumar SJ, wherein cash fees received from students are mentioned and Smt M Pushpa confirmed the note book contains capitation fees received from students and payments made to various persons in cash. She further confirmed that net of the receipt and payments in cash is received by her or her husband (Q. 16).
2.17 The ld. PCIT further observed that subsequently, during the post search proceedings, the financial year wise details of capitation fees received from students, were collated and compiled from the seized materials discussed in paragraph above were shown to or placed before her during his examination on oath, on 20/09/2021. Smt. M. Pushpa, Chairperson of the Trust, on being confronted with these incriminating evidences and details, admitted and confirmed that these are the capitation fees received from students and also that they are not ITA No.922/Bang/2023 Akash Education & Development Trust, Bengaluru Page 33 of 65 accounted for in books of accounts. The financial year wise details of the unaccounted capitation fees admitted to have been so received in cash totally up to Rs.29.65 crore for 3 years as under (ref Q 12 to 16) 2.18 He observed that Shri Prabhakar Ramdas CFO in statement on oath recorded on 19/02/7021 has admitted that no receipt is generated or provided to students for the amounts received in cash i.e., capitation fee or Medical College Development Fee and that they are not accounted in books of account as instructed by the management and the moneys are directly taken by main Trustees (Q. no. 20 to 24). At a later date, in his statement of oath dated 03/09/202, Shri Prabhakar Ramdas, CFO, has explained the true nature of transactions depicted therein by the entries in seized materials (Q. no. 6 to 9).
2.19 He observed that Shri Kempanna Muniraju in his statement dt. 17/02/2021 confirmed that:
(i) he is Managing Trustee and Secretary, his source of income is income derived from schools, institutions run by the assessee (Q. 25)
(ii) his wife Smt. Pushpa is Chairperson, his elder son Sri Amar Gowda looks after day-to-day activities of Akash Hospital & Medical College, younger son Sri Akash Gowda is working as construction supervisor (Q 6).
(iii) Shri Prabhakar Ramdas is CFO of assessee and he is aware of every detail (Q.10) ITA No.922/Bang/2023 Akash Education & Development Trust, Bengaluru Page 34 of 65 2.20 He was confronted by the ld. PCIT with a page in note book maintained by employee Sri Anand Kumar SJ, wherein cash fees received from students are mentioned and Shri K Muniraju confirmed the note book contains capitation fees received from students and payments made to various persons in cash. He further confirmed that net of the receipt and payments in cash is received by him (Q.15). Smt. M Pushpa has also stated the same independently in her statement dt.
17/02/2021.
2.21 Thereafter, during the post search proceedings by ld. PCIT, the financial year wise details of capitation fees received from students, were collated and compiled from the seized materials as discussed in above paragraph, were shown to Shri K Muniraju on 17.09.21 during his examination on oath. Shri K Muniraju on being confronted with these incriminating evidences and details, admitted and confirmed that these are the capitation fees received from students and that they are not accounted for in books of accounts. The financial year wise details of the unaccounted capitation fees admitted to have been so received in cash for 3 years total up to Rs.29.65 crores as under are as under: (ref Q 12 to 16 of statement dated 17.9.2021) Analysis of the assessee's explanation furnished in instant proceedings:
2.22 The ld. PCIT observed that in view of above irrefutable, credible and comprehensive evidences and the admission by the Chairperson, the managing Trustee and the CFO there is no dispute about receipt of unaccounted capitation fees in cash. In its explanations filed before ITA No.922/Bang/2023 Akash Education & Development Trust, Bengaluru Page 35 of 65 him during the instant proceedings, the assessee has not disputed it but has only tried to justify the collection of capitation fees. The assessee has claimed to be minority institution and hence it claims that it is not barred from collecting capitation fees in view of Art 30 of Constitution of India and Sec 10 of Karnataka Educational Institutions (Prohibition of Capitation Fees) Act 1984 (The KEIPCF Act). However, the assessee's contention was not acceptable to ld. PCIT due to the following reasons:
2.22.1 Section 2 of The KEIPCF Act 1984, defines of Capitation Fee as under:
"(b) "capitation fee" means any amount, by whatever name called, paid or collected directly or indirectly in excess of the fee prescribed under section 5, but does not include the deposit specified under the proviso to section 3 Sec 3 o/The KEIPCF Act prohibits collection of capitation fees as under
3.Collection of capitation fee prohibited Notwithstanding anything contained in any law for the time being in force, no capitation fee shall be collected by or on behalf of any educational institution or by any person who is in charge of or is responsible for the management of such institution.
Provided that subject to such rules as may be prescribed or such conditions as may be specified by general or special order, from time to time, (he Government may, notwithstanding anything contained in this Act permit any educational institution established before the date of commencement of this Act and maintained or developed solely or substantially out of amounts collected as capitation fee or any class or classes of such institutions, to continue to receive such capitation fee or cash deposits in such manner, to such extent and for such period as the Government may, by order, specify, so however that such period shall not in any case extend beyond five years from such date'."
2.23 He observed that it is clear that exemption given under section 3 is applicable only to institutions established before the date of commencement of this Act. Since the assessee Trust is established on 04.06.2009 i.e., after the commencement of the said Act, thus the exemption would not apply to the assessee. Further, the Section 5 of the KEIFCF Act regulates fees as follows:
ITA No.922/Bang/2023Akash Education & Development Trust, Bengaluru Page 36 of 65 "5. Regulation of fees, etc.-
(1) It shall be competent for the Government, by notification, to regulate the tuition fee or any other fee or deposit or other amount that may be received or collected by any educational institution or class of such institutions in respect of any or all class or classes of students.
(2) No educational institution shall collect any fees or amount or accept deposits in excess of the amounts notified under sub-section (I) or permitted under the proviso to section 3, (3) Every educational institution shall issue an official receipt for the fee or capitation fee or deposits or other amount collected by it. (4) All monies received by any educational institution by way of fee or capitation fee or deposits or other amount shall be deposited in the account of the institution, in any Scheduled Bank and shall be applied and expended for the improvement of the institution and the development of the educational facilities and for such other related purposes and to such extent and in such manner as may be specified, by order, by the Government.
(5) In order to carry out the purposes of sub-section (4), the Government may require any educational institution to submit their programmes or plans of improvement and development of the institution for the approval of the Government."
2.24 He observed that a plain reading of the above sections makes it clear that the law prohibits collection of Capitation fees which nothing but fees collected in excess of fees prescribed u/s 5 of The KEIPCF Act, 1984, by whatever name called. In the present case the assessee has been collecting fees in excess of fees prescribed u/s 5 of the KEIPCF Act, 1984 in the name of Medical College Development Fees, thus violating the sec 3 of The KEIPCF Act, 1984.
2.25 Further to understand the argument of assessee, ld. PCIT gone through the sec 10 of The KKIPCF Act, which says as under;
"Section 10 of the act is as under
10. Application of the Act to minority institutions.- Nothing in this Act or the rules or orders made thereunder shall apply to any minority educational institution to the extent to which they are inconsistent with the rights guaranteed under article 30 of the Constitution of India."
2.26 From the provisions of sec 10, ld. PCIT observed that the exemption from application of provisions of The Karnataka Educational Institutions (Prohibition of Capitation Fee) Act, 1984 to the Minority Institutions is only to the extent where the provisions are ITA No.922/Bang/2023 Akash Education & Development Trust, Bengaluru Page 37 of 65 inconsistent with the rights guaranteed under Article 30 of Constitution of India to minority educational institutions. The assessee has not made out any case that application of sec 3 of the KEIPCF Act is inconsistent with the rights guaranteed to it under Art 30 of the Constitution. He has gone through the Art 30 of the Constitution and considered the same in the light of facts and circumstances of the case but he did not find that sec 3 of the KEIPCF Act is in anyway repugnant to rights guaranteed under Art 30 of Indian Constitution in this case. Hence, he observed that assessee cannot claim to be exempted from application of the sec 3 of the KEIPCF Act, 1984.
2.27 Besides, the conduct of the assessee (including the Chair Person and Managing Trustee) belies its own stand. If the assessee believed it was exempt from application of Sec 3 of the KEIPCF Act, then it would have collected the said capitation fees through banking channels or at least accounted the same in books of account even when received in cash. The very intention and conduct of the assessee to keep these collections but of books of account shows that it knew that collecting capitation fees is violation of sec 3 of the KEIPCF Act 1984, Moreover, by receiving in cash and not accounting the same in books of accounts, the assessee has also violated sec 5 of the KEIPCF Act, 1984. He observed that the explanation and argument taken by the assessee/Trustees in the current proceedings before him was just a gratuitous, self-serving after thought.
2.28 Before ld. PCIT, the assessee has relied upon decisions of ITAT Chennai & Hyderabad Benches, however he observed that they would not be of use to assessee in view of the judgement of Hon'ble High Court of Madras in the case of CIT V/s M/s MAC Public Charitable Trust, where in the Hon'ble High Court held that the capitation fee received cannot be held as application as per provisions of section 11. The Hon'ble Court further directed as under:
ITA No.922/Bang/2023Akash Education & Development Trust, Bengaluru Page 38 of 65 "(ii) The Assessing Authority shall also proceed further for cancellation of registration certificate issued to the Assessees/trusts under Section 12A of the Act thereby not to treat the respondents as charitable"
2.29 In view of the above, the ld. PCIT observed that it is evident that the action of assessee in collecting unaccounted capitation fees in cash is violation of The Karnataka Educational Institutions (Prohibition of Capitation Fee) Act, 1984. Therefore, he was satisfied that the assessee Trust has committed specified violation as mentioned in clause (e) & (f) in the explanation to section 12AB(4) of the Act for the AY 2021-22.
2.30 As regards the application of these cash sums collected from students, he observed that Shri K Muniraju furnished a casuistic and specious reply that they are used for purposes of Assessee (Trust), without furnishing any details of these applications, breakup, accounts, evidences to substantiate his claim. He observed clearly that Shri K Muniraju was indulging in sophistry and stonewalling tactics by not furnishing details which can be cross verified and thus stopped further enquiries there on. He observed that the very reason for not accounting the capitation fees received in cash is to have liberty to divert the same or apply for purposes other than the Trust objectives. The unaccounted capitation receipts can thus be reasonably be presumed as being diverted for purposes other than of the Trust, unless the assessee proves to the contrary by leading irrefutable evidences and provides a valid and coherent explanation by not accounting the said receipts. In this case the assessee or the Trustees have not been forthcoming with details or evidences.
2.31 He observed that the rules of Law regarding onus of proof is clear in this regard, it is for the assessee to lead evidences, furnish relevant details and accounts to establish the application of funds for purposes of Trust. However, here the assessee has not only failed to do so but also stonewalled further enquiries and verification to arrive at the true facts. In view of this, he observed that it is clear that the ITA No.922/Bang/2023 Akash Education & Development Trust, Bengaluru Page 39 of 65 unaccounted capitation fees received in cash by the assessee have been diverted and applied other than for the objects of the assessee (Trust). This presumption gets more strong in the light of evidences to prove that even the accounted funds of the assessee (Trust) had been applied towards personal benefits of the Trustees as discussed above.
Under the facts and circumstances, the ld. PCIT observed that, it is evident that specified violations defined in clause (a), (e) and (f) in Explanation to Sec 12AB (4) of the Act have occurred.
Application of accounted funds other than for purposes of Trust:
2.32 The ld. PCIT further observed that the examination of seized evidences and books of accounts indicate the following application of accounted funds of assessee for purposes other than objects the assessee (Trust). (Diversion of funds).
2.32.1 Examination of accounts of assessee and seized evidences A/AIMSC/132-13 revealed that payments have been made towards various personal expenses of family members like EMI payments of car owned by Sri K. Muniraju, Chit fund contribution on behalf of Sri Muniraju & family members, College fees of Sri Amar Gowda for higher education in Singapore, transfer of funds to bank account of Sri Muniraju, repayment of personal car loan, purchase of jewellery, purchase of property in name of Chairperson Smt. M Pushpa etc. All such payments appearing in TALLY ledger accounts A/AIMSRC/132/13 & in books of accounts of assessee have been compiled along with nature of expenses and confronted to Sri Prabhakar Ramdas in his examination on oath dt. 3/9/2021. After perusing the same and examining the records, he has confirmed the nature of payments and that they have been made from funds of assessee (Q, 17 & 18). The financial year wise details are as under: -
ITA No.922/Bang/2023Akash Education & Development Trust, Bengaluru Page 40 of 65 FY Payments made Payments made Total to K. Muniraju & for Pushpa Amar Gowda purpose 2014-15 14,68,356 75,000 15,43,356 2015-16 17,79,766 17,98,533 35,78,299 2016-17 20,16,670 25,12,244 45,28,914 2017-18 30,59,760 17,80,014 48,39,774 2018-19 31,13,355 6,13,876 37,27,231 2019-20 37,97,956 21,15,279 59,13,237 2020-21 8,12,285 69,51,652 77,63,937 Total 1,60,48,148 1,58,46,598 3,18,94,748 2.33 He observed that on being confronted with this, the Trustees confirmed the nature of payments, however justified the same by saying that the Trustees have invested their own funds and there is credit balance in the account as unsecured loans. However, account copies, relevant verifiable details, verifiable evidences have not been advanced either during post search proceedings or before the ld. PCIT to substantiate this explanation. From the above, he observed that it is clear that as listed above the accounted funds of the assessee in excess Rs. 3.18 Crs have been diverted for personal benefits of the Chairperson and their Family Members.
Payments made for purchase of property and jewellery in the name of Smt. M Pushpa 2.34 The ld. PCIT observed that as evident from the Tally ledger accounts A/AIMSRC/132-13 there have been payments made for purchase of jewellery in the name of Smt. Pushpa. These issues were confronted to her in examination on oath and she has confirmed the nature of transaction and admitted that the payments are for her personal benefit (Q 13 of statement dt 17/2/2021). Similarly, there are two payments made of Rs. 40 lakhs and Rs. 10 lakhs to one Shri Mohankumar for purchase of land in name of Smt. Pushpa. These two payments are also covered in reply to Q. 18 by Shri Prabhakar Ramdas, ITA No.922/Bang/2023 Akash Education & Development Trust, Bengaluru Page 41 of 65 CFO in statement dt. 03/09/2021 and same was accepted by the Trustees.
Diversion of funds to business entities of Trustees 2.35 The ld. PCIT observed that evidences gathered in search show that funds of assessee have been diverted to commercial entities with profit motive belonging to Trustees and family members namely (1) Nibha Projects P. Ltd (2) Aakash Enterprises owned by Shri K Muniraju & Srnt. M Pushpa. From examination of books of account of assessee, it was observed that funds have been diverted as under:
(1) Nibha Projects P. Ltd ITA No.922/Bang/2023 Akash Education & Development Trust, Bengaluru Page 42 of 65 2.36 From the above, he observed that Rs. 40.76 lacs have been transferred to Nibha Projects Ltd and Rs 31.42 lacs to Akash Enterprises. Neither during the post search proceedings nor during the current proceedings has the assessee provided any explanation or justifiable reason for these transfers of funds to the extent of Rs.
72.18 lacs to the commercial entities owned by Trustees or their family members. Accordingly, the ld. PCIT has cancelled the registration granted to the assessee u/s 12AA/12AB of the Act w.e.f previous year 2020-21 relevant to assessment year 2021-22 and for all subsequent assessment years. Against this assessee is in appeal before us.
ITA No.922/Bang/2023Akash Education & Development Trust, Bengaluru Page 43 of 65
3. The ld. A.R. submitted that in response to the said show cause notice, the Assessee Trust filed its reply on 10/04/2023 vide its letter dated 07/04/2023 filed on 10/04/2023. On furtherance to the reply filed on 10/04/2023, the Principal Commissioner of Income Tax, Central Range, Bangalore has provided an opportunity of being heard on 07/08/2023. During the course of personal hearing, the Assessee Trust made its submission vide letter dated 07/08/2023 by reiterating the submission made in the reply to show cause notice dated 07/04/2023. In consequence of change in the incumbent in the office of The Principal Commissioner of Income Tax, Central Range, Bangalore, one more opportunity of personal hearing was provided on 08/09/2023. The Assessee Trust vide its letter dated 08/09/2023 made the submission that the reply to the show cause notice shall be considered before deciding the issue thereon. Ultimately, The Principal Commissioner of Income Tax, Central Range, Bangalore passed the order u/s 12AB(4)(ii) of the Act dated 27/09/2023 for cancelling the Registration accorded u/s 12AA/12AB of the Act to the Assessee Trust for the F.Y 2020-21 relevant the A.Y 2021-22. Aggrieved by the order passed by the Principal Commissioner of Income Tax, Central Range, Bangalore, the Assessee Trust is before us to address its grievances and also negate the findings of the Principal Commissioner of Income Tax, Central Range, Bangalore on the basis of which registration has been cancelled.
3.1 On Additional Grounds of Appeal with regard to cancelling registration granted u/s 12AA/12AB of the Act by invoking the provisions of section 12AB(4)(ii) of the Act with retrospective effect though this section was introduced by Finance Act, 2022 w.e.f. 1.4.2022 the Ld. AR submitted that there have been various amendments to the provisions dealing with cancellation of registration granted U/s.12AA of the Act. The Pr. Commissioner of ITA No.922/Bang/2023 Akash Education & Development Trust, Bengaluru Page 44 of 65 Income Tax (Central) has cancelled registration U/s.12AA of the Act invoking the provisions of section 12AB(4)(ii) of the Act alleging violations contemplated in Explanation (a) & Explanation (e) below the provisions of section 12AB(4) of the act. This provision of the Act which is extracted hereunder and invoked by the Pr. Commissioner of Income Tax (Central) for cancellation of registration granted U/s.12AA of the Act was introduced by Finance Act 2022 w.e.f 01.04.2022.
3.2 He submitted that prior to introduction of this provision, the following provision was in existence which was introduced by Finance Act 2021 w.e.f 01.04.2021.
"12AB(4) Where a registration of a trust or an institution has been granted under clause (a) or clause (b) of sub-section (1) and subsequently, the Principal Commissioner or 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 after affording a reasonable opportunity of being heard."
3.3 He submitted that the assessment involved in appeal is A.Y.2021-22. The law relating to cancellation of registration has under gone changes in as much as the said provisions were different for the A.Y.2020-21, 2021-22 and again for A.Y.2022-23. The Pr. Commissioner of Income Tax (Central) has invoked the provisions which were applicable from A.Y.2022-23 for a default alleged to have been occurred in A.Y.2021-22. He submitted that prima-facie invoking the provisions which are applicable for the A.Y.2022-23 and cancel registration for the A.Y.2021-22 is bad in law. Cancellation of registration is penal in nature. The consequences are that, the exemptions enjoyed by the assessee are withdrawn. The capital expenditure which otherwise is not an allowable expenditure would be considered as application in the event of an assessee trust enjoying the benefits of the registration.
ITA No.922/Bang/2023Akash Education & Development Trust, Bengaluru Page 45 of 65 Under the circumstances, the law that should apply is with reference to the year of default. He submitted that the Pr. Commissioner of Income Tax (Central) should have acted as per the law prevailing for the A.Y.2021-22. The alleged infringement by the assessee occurred during the A.Y.2021-22 and therefore the penalization should also be with reference to the corresponding provisions as they existed for the A.Y.2021-22.
3.4 Finally he relied on the following orders of the coordinate bench:
1. M/s. Amalajyothi Vidya Kendra Trust Vs. PCIT (Central), Bangalore & Ors. In ITA No.458/Bang/2023 & ITA No.459/Bang/2023 dated 1.12.2023.
2. Heart Foundation in ITA No.1524/Mum/2023 dated 27.7.2023
3. M/s. Wholesale Cloth Merchant Association in ITA No.688/JP/2019 dated 6.1.2021.
4. Judgement of Hon'ble Madras High Court in the case of S.R. Trust Vs. PCIT (438 ITR 511) (Madras) 3.5 On main grounds of appeal, the ld. A.R. submitted that the Principal Commissioner of Income Tax, Central Range, Bangalore has adduced the following reasons for cancellation of the registration which are enumerated at Para No. 3, 3.1 and 3.2 of his order u/s u/s 12AB(4)(ii) of the Act:-
1. At Para No. 3.1, the Principal Commissioner of Income Tax, Central Range, Bangalore has alleged that the Assessee Trust is involved in blocking of the MBBS merit seats allowing it to lapse. For such allegation, he has provided the data of students who have blocked the merit seats and subsequently surrender the merit seats. Ans also alleged that trust fund was used for payment to the agent Mr. Rahul Kumar.ITA No.922/Bang/2023
Akash Education & Development Trust, Bengaluru Page 46 of 65 3.6 Such allegation of the Principal Commissioner of Income Tax, Central Range, Bangalore were based on suspicion and surmises as the cancellation of merit seats for MBBS and further allotment of seats under management quota is all done by Director of Medical Education (DME) and Karnataka Examinations Authority (KEA), the Assessee Trust has no role in those proceedings.
3.7 He submitted that the Assessee Trust vide its reply dated 07/04/2023 at Page No. 5 has in detail explained the procedure and mandate of the Karnataka Examinations Authority (KEA) in respect of conduct of centralized counselling in MBBS admission. 3.8 He submitted that the Principal Commissioner of Income Tax, Central Range, Bangalore at Para 3.1.2 alleged that the management have used the Trust money for payment to the agent who orchestrated the blocking of merit seats, but in fact, the Trust money was not used for the payment to the agent and also not claimed as application of income for object of the Trust. The payment made to Mr. Rahul Kumar was on behalf of the Trustee for the Trustee's personal liability. In the books of the Assessee Trust, the payment is debited to the Trustee's account. Hence, he submitted that the Principal Commissioner of Income Tax, Central Range, Bangalore allegation that Trust fund was utilized for payment to the students and agent who are blocking the merit seat and releasing the said merit seat after the mop-up round is against the fact and based on suspicion and surmises.
3.9 He submitted that at Para 3.2 of the order, the Principal Commissioner of Income Tax alleged that the Assessee Trust collected excess fee in cash and not accounted the same. Such allegation of the Principal Commissioner of Income Tax is false. The Trust has collected the donation for building fund partly in cash and partly through cheque. Such receipts were accounted in the books of the Assessee Trust as corpus donation and same is utilized for object of the ITA No.922/Bang/2023 Akash Education & Development Trust, Bengaluru Page 47 of 65 Trust. Further, he submitted that the Principal Commissioner of Income Tax, at Para 3.3 of Page No. 34 made the allegation that application of funds accounted were made, other than for the purpose of the Trust and also provided in the form of tabulation year wise payments made to Mr. K Muniraju, Mr. Amar Gowda and Smt. M Pushpa. He submitted that the allegation of The Principal Commissioner of Income Tax is false as the said payments were made for and on behalf of Mr. K Muniraju, Mr. Amar Gowda and Smt. M Pushpa and not for the purpose of the Trust. The said payments were debited to the Loan A/c of Mr. K Muniraju and Smt. M Pushpa who had invested/advanced their own money in the initial stage of the formation of the Trust, for the purpose of the Trust. The said advancement of loan was re-paid by meeting their personal expenses debiting their Loan A/c. Hence, it does not mean that the fund of the Trust is applied for the purpose other than the object of the Trust. In the Return of Income filed for the Trust for the A.Y's 2015-16 to 2021-22, no such payments were made as alleged by the ld. PCIT in the tabulation claimed as application of income for the object of the Trust. Hence, the allegations of the ld. PCIT purely a make belief effort with the intention best known to them for the cancellation of registration of the Trust. He submitted that the ld. PCIT at Para 3.3.2 alleged that the Trust made the payment for the purchase of jewellery and property in the name of Smt. M Pushpa. Such allegation of the ld. PCIT is false as the Trust fund was not utilized for the purchase of the property and jewellery. For the purchase of the said property and jewellery in the books of the Assessee Trust, Smt. M Pushpa's loan a/c is debited for treating it as re-payment of loan from Smt. M Pushpa. Hence, it does not mean that the fund of the Trust was used for purchase of property and jewellery in the name of Smt. M Pushpa. He further submitted that at Para 3.3.3, ld. PCIT alleged that the funds of the Trust have been diverted to commercial entities of Mr. K Muniraju and Smt. M Pushpa which are a. Nibha ITA No.922/Bang/2023 Akash Education & Development Trust, Bengaluru Page 48 of 65 Projects Pvt Ltd. b. Akash Enterprises. Here also, the Assessing Officer as well as the ld. PCIT fails to appreciate and verify the accounting treatment made in the books of the Assessee Trust. The fund invested in the above-mentioned entities were made or done on behalf of Mr. K Muniraju and Smt. M Pushpa by debiting their personal a/c as re-payment of loan. Hence, he submitted that the allegations of the ld. PCIT and the Assessing Officer, the ld. DCIT, Central Circle - 2(1), Bangalore is purely based on suspicion and surmises.
3.10 He submitted that the ld. PCIT at Para 4 of Page No. 38 has given his finding that in view of the detailed discussion at Para 3.1, 3.2 and 3.3 [The Assessee Trust vehemently denied the discussion and findings of The Principal Commissioner of Income Tax, Central Range, Bangalore], he is satisfied that specified violations in (a), (e) and (f) of the explanation to Sec. 12AB(4) of the Act have occurred in the last few years including F.Y 2020-21 relevant to the A.Y 2021-22. Accordingly, registration granted u/s 12AB to the Assessee Trust is cancelled with effect from previous year (F.Y 2020-
21) relevant to the A.Y 2021-22. and for subsequent years as per proviso to Sec. 12AB(4) of the Act. Regarding- the above said findings and decision of the ld. PCIT, the ld. A.R. reproduced the Sec. 12AB(4) of the Act along with explanation as follows:
"(4) Where registration or provisional registration of a trust or an institution has been granted under clause (a) or clause (b) or clause (c) of sub-section (1) or clause (b) of sub-section (1) of section 12AA, as the case may be, and subsequently, -
(a) the Principal Commissioner or Commissioner has noticed occurrence of one or more specified violations during any previous year; or
(b) the Principal Commissioner or Commissioner has received a reference from the Assessing Officer under the second proviso to sub-section (3) of section 143 for any previous year; or
(c) such case has been selected in accordance with the risk management strategy, formulated by the Board from time to time, for any previous year, the Principal Commissioner or Commissioner shall, -
(i) call for such documents or information from the trust or institution, or make ITA No.922/Bang/2023 Akash Education & Development Trust, Bengaluru Page 49 of 65 such inquiry as he thinks necessary in order to satisfy himself about the occurrence or otherwise of any specified violation;
(ii) pass an order in writing, cancelling the registration of such tr us t or institution, after affording a reasonable opportunity of being heard, for such previous year and all subsequent previous years, if he is satisfied that one or more specified violations have taken place;
(iii) pass an order in writing, refusing to cancel the registration of such trust or institution, if he is not satisfied about the occurrence of one or more specified violations;
(iv) forward a copy of the order under clause (ii) or clause (iii), as the case may be, to the Assessing Officer and such trust or institution.
Explanation. - For the purposes of this sub-section, the following shall mean "specified violation",-
(a) where any income derived from property held under trust, wholly or in part for charitable or religious purposes, has been applied, other than for the objects of the trust or institution; or
(b) the trust or institution has income from profits and gains of business which is not incidental to the attainment of its objectives or separate books of account are not maintained by such trust or institution in respect of the business which is incidental to the attainment of its objectives; or
(c) the trust or institution has applied any part of its income from the property held under a trust for private religious purposes, which does not ensure for the benefit of the public; or
(d) the trust or institution established for charitable purpose created or established after the commencement of this Act, has applied any part of its income for the benefit of any particular religious community or caste; or
(e) any activity being carried out by the trust or institution,-
(i) is not genuine; or (ii') is not being carried out in accordance with all or any of the conditions subject to which it was registered; or
(f) the trust or institution has not complied with the requirement of any other law, as referred to in item (B) of sub-clause (/) of clause (b) of sub-section (1), and the order, direction or decree, by whatever name called, holding that such non- compliance has occurred, has either not been disputed or has attained finality [; or]
(g) the application referred to in clause fac) of sub-section (1) of section 12A is not complete or it contains false or incorrect information.}"
3.10.1. Further, he submitted that Sec. 12AB(4) and 12AB(5) of the Income Tax Act, 1961 has been substituted by the Finance Act, 2022 w.e.f 01/04/2022 i.e., A.Y 2022-23 and he drew our attention ITA No.922/Bang/2023 Akash Education & Development Trust, Bengaluru Page 50 of 65 to the 2nd proviso to Sec. 143(3) of the Income Tax Act, 1961 which is reproduced here under:
"Provided further that where the Assessing Officer is satisfied that any fund or Institution referred to in sub-clause (iv) or trust or institution referred to in sub-clause (v) or any university or other educational institution referred to in sub-clause (vi) or any hospital or other medical institution referred to in sub- clause (via), of clause (23C) of section 10, or any trust or institution referred to in section 11, has committed any specific violation as defined in Explanation 2 of the fifteenth proviso to clause (23C) of section 10 or the Explanation to sub section (4) of the section 12AB, as the case may be, he shall-
a) send a reference to the Principal Commissioner or Commissioner to withdraw the approval or registration, as the case may be; and
b) no order making an assessment of the total income or loss of such fund or institution or trust or any university or other educational institution or any hospital or any other medical institution shall be made by him without giving-
effect to the order passed by the Principal Commissioner or Commissioner under clause (ii) or clause (Hi) of the fifteenth proviso to clause (23C) of section 10 or clause (ii) or clause (Hi) of subsection (4) of section 12AB."
3.10.2 This is substituted by Finance Act 2022 with effect from 01-04-2022, means the said proviso to section 143(3) of the Income Tax Act, 1961 was effective from A.Y 2022-23. Prior to the substitution by the Finance Act 2022, the said proviso was as under:
"Provided further that where the Assessing Officer is satisfied that the activities of the university, college or other institution referred to in clause (ii) and clause (Hi) of sub-section (1) of section 35 are not being carried out in accordance with all or any of the conditions subject to which such university, college or other institution was approved, he may, after giving a reasonable opportunity of showing cause against the proposed withdrawal to the concerned university, college or other institution, recommend to the Central Government to withdraw the approval and that Government may by order, withdraw the approval and forward a copy of the order to the concerned university, college or other institution and * the Assessing Officer."
3.10.3 By conjoint reading of the said provisos prior to 01-04- 2022 and after 01-04-2022, he submitted that it is clearly evident that the Deputy Commissioner of Income Tax under proviso 2 to ITA No.922/Bang/2023 Akash Education & Development Trust, Bengaluru Page 51 of 65 section 143(3) of the Act has no authority or jurisdiction to refer to the Principal Commissioner of Income Tax, Central Range, Bangalore for any specific violation as defined in Explanation 2 of the fifteenth proviso to clause (23C) of the section 10 or Explanation to the sub- section (4) of the section 12AB of the Act as the case may be.
3.11 In view of the above, the ld. A.R. submitted that the Deputy Commissioner of Income Tax has got authority/jurisdiction to refer to the Principal Commissioner of Income Tax to withdraw the approval or registration granted to the Institution/Trust referred to in section 11- of the Act, such authority has been granted by the Finance Act 2022 which is applicable from the A.Y 2022-23. Prior to the A.Y 2022-23, the Deputy Commissioner of Income Tax has no jurisdiction to refer to the Principal Commissioner of Income Tax, Central Range, Bangalore for cancellation of registration or approval granted u/s 12A/12AB of the Income Tax Act, 1961.
3.12 He submitted that prior to the substitution by the Finance Act 2022, the proviso was applicable only in the case of activities of the university, college or other institution referred to in clause (ii) and clause (iii) of sub-section (1) of section 35 of the Act for any violation or not been carried out in accordance with all or any of the conditions subject to which such university, college or other institution was approved, he may, the Deputy Commissioner of Income Tax, after giving reasonable opportunity for showing cause against the proposed withdrawal of approval/registration of the concerned university, college or other institution, recommend to the Central Government.
3.13 He submitted that in view of the above proviso to Sec. 143(3) of the Act, the Deputy Commissioner of Income Tax has no jurisdiction to refer to the Principal Commissioner of Income Tax for withdrawal/cancellation of the registration/approval granted to the Assessee Trust u/s 12AA/12AB of the Act. Hence, he submitted that ITA No.922/Bang/2023 Akash Education & Development Trust, Bengaluru Page 52 of 65 the order passed by the Principal Commissioner of Income Tax, Central Range, Bangalore for cancellation of registration u/s 12AB(4)(ii) of the Income Tax Act, 1961 for AY 2021-22 based on the recommendation of the Deputy Commissioner of Income Tax, Central Circle - 2(1), Bangalore on the premises of 2nd proviso to Sec. 143(3) of the Income Tax Act, 1961 which was not in operation for the A.Y 2021-22.
3.14 Further, he submitted that the Assessee Trust makes its submission on the validity of the order passed by the Principal Commissioner of Income Tax u/s 12AB(4)(ii) of the Act for AY 2021- 22 for cancellation of registration which was granted u/s 12AA/12AB of the Income Tax Act, 1961.
3.15 Further, the ld. A.R. for the assessee submitted that section 12AB(4)(ii) of the Act was introduced by the Finance Act, 2022 with effect from 01-04-2022, therefore the said Section 12AB(4)(ii) of the Act is not applicable for the A.Y 2021-22 and also, the specified violation as the explanation to Section 12AB(4)(ii) of the Act, wherein the Principal Commissioner of Income Tax, Central Range, Bangalore relied on the Clause (a), (e) and (f) of the explanation for cancelling the registration. Clause (a), (e) and (f) were brought under the Act by the Finance Act, 2022 with effect from 01-04-2022, applicable to the A.Y 2022-23.
3.16 He submitted that in view of the narrated facts in the Statement of Facts the Assessment involved in the Appeal is A.Y 2021-22. The law related to the cancellation of registration has undergone changes as much as the said provision as changed over the difference Assessment Years 2020-21, 2021-22 and again for the A.Y 2022-23. The Principal Commissioner of Income Tax, Central Range, Bangalore has invoked the provisions of Section 12AB(4)(ii) of the Income Tax Act, 1961 which were applicable from A.Y 2022-23 ITA No.922/Bang/2023 Akash Education & Development Trust, Bengaluru Page 53 of 65 for a default alleged to have been occurred in the last few years including F.Y 2020-21 relevant to the A.Y 2021-22. Hence prima facie invoking the provisions of the said Section 12AB(4)(ii) of the Income Tax Act, 1961 which are applicable for the AY 2022-23 and cancelling the registration for the A.Y 2021-22 is bad in law." The cancellation of a registration is penal in nature. The consequences thereof are that, the exemption enjoyed by the Assessee Trust is withdrawn. The capital expenditure which otherwise not an allowable expenditure would be considered as application in the event of the Assessee Trust enjoying the benefits of registration. He submitted that The law always should be applied with reference to the year default. The Hon'ble Supreme Court in the case of CIT Vs. Omkar Saran & Sons Taxman 440 held that the law applicable for penalizing should be the law for the year of committing the offence. The said decision of the Hon'ble Supreme Court was rendered in the context of penalty leviable under the section 271(l)(c) of the Income Tax Act, 1961. However, the principle is applicable with respect to the other provisions of the law which are penal in nature. The cancellation of the registration deprives the Assessee Trust of the various benefits which otherwise would have been accrued or allowed, hence the cancellation of registration is considered as a nature of punishment. Hence, the ld. A.R. respectfully submitted before us that the Order passed by the Principal Commissioner of Income Tax, Central Range, Bangalore on 27-09-2023 u/s 12AB(4)(ii) of the Act is bad in law.
3.17 The ld. A.R. submitted that recently, the co-ordinate bench of this ITAT, Bangalore in case of M/s. Amala Jyothi Vidya Kendra Trust Vs PCIT (Central), Bangalore in ITA No. 458/BANG/2023 and in case of M/s. Adarsh Vidya Kendra Trust Vs PCIT (Central), Bangalore in ITA No. 459/BANG/2023 dated 01/12/2023 held that "The Id. PCIT has cancelled the registration under ITA No.922/Bang/2023 Akash Education & Development Trust, Bengaluru Page 54 of 65 the new provisions of the Act i.e. 12AB(4)(ii) of the Act, which specifically provides that cancellation can be done for such previous year and all subsequent previous years, which makes it clear that the cancellation cannot be retrospective, therefore, in view of the above discussion, we are of the opinion that cancellation of registration with retrospective effect is invalid in these cases. Since the Id. PCIT invoked the provisions of section 12AB(4)(ii) of the Act, which has been introduced by the Finance Act, 2022 w.e.f. 1.4.2022 so as to cancel the registration with retrospective effect from assessment year 2021-22, which is bad in law. We also note that same view has been taken by Coordinate bench of Mumbai in the case of Heard Foundation of India in ITA No.l524/Mum/2023 vide order dated 27.7.2023, wherein held that registration granted u/s 12A of the Act dated 21.7.1989 cannot be cancelled by Id. PCIT (Central) vide order dated 6.3.2023 w.e.f. assessment year 2016-17, by invoking the provisions of section 12AB(4)(ii) of the Act. Accordingly, we allow the primary ground nos.2, 3, 5 & 12 and order of Id. PCIT passed u/s 12AB(4)(ii) of the Act is quashed". This judgment is squarely applicable to the Assessee Trust's case.
3.18 In view of the above submission, the ld. A.R. for the assessee requested this Bench to annul the Order dated 27-09-2023 of the Principal Commissioner of Income Tax, Central Range, Bangalore as the said Order was against the law prevailing for the F.Y 2020-21 relevant to the A.Y 2021-22, but applying provisions which are effective from A.Y 2022-23.
.4. The ld. D.R. relied on the provisions of section 12AB(4)(ii) of the Act and submitted that ld. PCIT has power to cancel the registration granted u/s 12AA/12AB of the Act in these assessment years.
5. We have heard the rival submissions and perused the materials available on record. In this case, registration has been granted u/s 12AA of the Act vide registration No.DIT(E)BLR/12AA/A-1202/AACTA7888E/ITO(E)-1/Vol 2010-11 dated 7.3.2011. Subsequently, post insertion of section 12AB of ITA No.922/Bang/2023 Akash Education & Development Trust, Bengaluru Page 55 of 65 the Act w.e.f. 1.4.2021, the assessee was granted registration u/s 12AB of the Act vide registration No.AACTA7888EF20211 dated 30.11.2022. Now the issue before us is that registration for the previous 2020-21 relevant to assessment year 2021-22 was granted u/s 12AA of the Act could be cancelled u/s 12AB(4)(ii) of the Act vide order dated 27.9.2023 of the Act.
5.1 The main contention of the ld. A.R. is that the ld. PCIT has cancelled the registration granted u/s section 12AA or 12AB of the Act to the assessee w.e.f. the previous year i.e. 2020-21 relevant to assessment year 2021-22 and for subsequent assessment years by applying the provisions u/s 12AB(4)(ii) of the Act as stood on 27.9.2023, which cannot be applied by noticing the specified violations of the provisions in assessment year 2021-2022. According to the ld. A.R., the ld. PCIT has cancelled the registration granted to the assessee since the ld. PCIT was satisfied that one or more specified violations mentioned in section 12AB(4)(ii) of the Act have taken place during the previous year 2020-21 relevant to assessment year 2021-22.
5.2 Thus, the contention of the ld. A.R. is that the provisions of section 12AB(4)(ii) of the Act have been inserted by Finance Act, 2022 w.e.f. 1.4.2022 and if there is a specified violation in previous year 2020-21 relevant to assessment year 2021-22, these provisions cannot be applied to the assessee's case for AY 2021-22 and also the specified violation as stated in section 12AB(4)(ii) of the Act cannot be reason to cancel the registration u/s 12AA/12AB of the Act granted to the assessee in AY 2021-22 and onwards as this section 12AB(4)(ii) of the Act have no retrospective application. For clarity, we will go through the relevant provisions applicable to previous year 2020-21 relevant to assessment year 2021-22 as follows:
ITA No.922/Bang/2023Akash Education & Development Trust, Bengaluru Page 56 of 65 "12AB(4): Where registration of a trust or an institution has been granted under clause (a) or clause (b) of sub-section (1) and subsequently, the Principal Commissioner or 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 after affording a reasonable opportunity of being heard."
5.3 This section has been amended by Finance Act, 2022 w.e.f. 1.4.2022 as follows:
12AB(4): Where registration or provisional registration of a trust or an institution has been granted under clause (a) or clause (b) or clause (c) of sub- section (1) or clause (b) of sub-section (1) of section 12AA, as the case may be, and subsequently,--
a) The Principal Commissioner or Commissioner has noticed occurrence of one or more specified violations during any previous year; or
b) The Principal Commissioner or Commissioner has received a reference from the Assessing Officer under the second proviso to sub-section (3) of section 143 for any previous year; or
c) Such case has been selected in accordance with the risk management strategy, formulated by the Board from time to time, for any previous year;
The Principal Commissioner or Commissioner shall-- i. call for such documents or information from the trust or institution, or make such inquiry as he thinks necessary in order to satisfy himself about the occurrence or otherwise of any specified violation;
ii. pass an order in writing, cancelling the registration of such trust or institution, after affording a reasonable opportunity of being heard, for such previous year and all subsequent previous years, if he is satisfied that one or more specified violations have taken place; iii. pass an order in writing, refusing to cancel the registration of such trust or institution, if he is not satisfied about the occurrence of one or more specified violations;
iv. forward a copy of the order under clause (ii) or clause (iii), as the case may be, to the Assessing Officer and such trsut or institution.
Explanation: For the purposes of this sub-section, the following shall mean "specified violation",--
a) Where any income derived from property held under trust, wholly or in part for charitable or religious purposes, has been applied, other than for the objects of the trust or institution; or
b) The trust or institution has income from profits and gains of business which is not incidental to the attainment of its objectives or separate books of account are not maintained by such trust or institution in respect of the business which is incidental to the attainment of its objectives; or ITA No.922/Bang/2023 Akash Education & Development Trust, Bengaluru Page 57 of 65
c) The trust or institution has applied any part of its income from the property held under a trust for private religious purposes, which does not ensure for the benefit of the public; or
d) The trust or institution established for charitable purpose created or established after the commencement of this Act, has applied any part of its income for the benefit of any particular religious community or caste; or
e) Any activity being carried out by the trust or institution--
(i) is not genuine, or
(ii) is not being carried out in accordance with all or any of the conditions subject to which it was registered; or
f) The trust or institution has not complied with the requirement of any other law, as referred to in item (B) of sub-clause (i) of clause (b) of sub-section (1), and the order, direction or decree, by whatever name called, holding that such non-compliance has occurred, has either not been disputed or has attained finality.
5.4 As per section 12AB(4) of the Act as applicable to assessment year 2021-22, the ld. PCIT if he is satisfied that activities of the Trust or institution are not genuine or 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 after affording reasonable opportunity of being heard. As per section 12AB(5) of the Act, when Trust or institution complied wholly or in part of the income of such Trust or institution in violation of section 13(1) of the Act or if they complied with any other law, for the time being in force by the Trust or institution as are material for the purpose of achieving its objectives as mentioned in section 12AB(1)(b)(ii)(B) of the Act. However, in the present case, the ld. PCIT invoked the provisions of section 12AB(4)(a)(ii) of the Act as stood in the assessment year 2022-23. The objection of the ld. A.R. is that for the cancellation of registration for the assessment year 2021-22, he could not invoke the provisions of section 12AB(4)(ii) of the Act which is introduced by Finance Act, 2022 w.e.f. 1.4.2022 and this provisions of section 12AB(4)(ii) of the Act is applicable for the assessment year 2022-23 and onwards and have no retrospective application.
ITA No.922/Bang/2023Akash Education & Development Trust, Bengaluru Page 58 of 65 5.5 At this point of time, it is relevant to place reliance on the judgement of Hon'ble Supreme Court in the case of Isthmian Steamship Lines reported in 20 ITR 572 (SC) wherein the Hon'ble Supreme Court held that "it is a cardinal principle of the tax law that law to be applied is that in force in the assessment year unless otherwise provided expressly or by necessary implication".
5.6 Further, in the case of Karimtharuvi Tea Estate Ltd. Vs. State of Kerala reported in 51 ITR 129 (SC) the same view was taken by the Hon'ble Supreme Court.
5.7 Further, the Hon'ble Supreme Court in the case of Shree Chowdhary Transport Company Vs. ITO reported in 426 ITR 289 (SC) wherein held as under:
17.4 It needs hardly any detailed discussion that in income-tax matters, the law to be applied is that in force in the assessment year in question, unless stated otherwise by express intendment or by necessary implication. As per section 4 of the Act of 1961, the charge of income-tax is with reference to any assessment year, at such rate or rates as provided in any central enactment for the purpose, in respect of the total income of the previous year of any person. The expression "previous year" is defined in section 3 of the Act to mean "the financial year immediately preceding the assessment year"; and the expression "assessment year" is defined in clause (9) of section 2 of the Act to mean "the period of twelve months commencing on the 1st day of April every year".
17.5 In the case of CIT v. Isthmian Steamship Lines (1951) 20 ITR 572 (SC), a 3-judge Bench of this court exposited on the fundamental principle that "in income-tax matters the law to be applied is the law in force in the assessment year unless otherwise stated or implied."
This decision and various other decisions were considered by the Constitution Bench of this court in the case of Karimtharuvi Tea Estate Ltd. v. State of Kerala (1966) 60 ITR 262 (SC) and the principle were laid down in the following terms (at pages 264-266 of 60 ITR):
"Now, it is well-settled that the Income-tax, as it stands amended on the first day of April of any financial year must apply to the assessments of that year. Any amendments in the Act which come into force after the first day of April of a financial year, would not apply to ITA No.922/Bang/2023 Akash Education & Development Trust, Bengaluru Page 59 of 65 the assessment for that year, even if the assessment is actually made after the amendments come into force......
The High Court has, however, relied upon a decision of this court in CIT v. Isthmian Steamship Lines, where it was held as follows:
'It will be observed that we are here concerned with two datum lines: (1) the 1st of April, 1940, when the Act came into force, and (2) the 1st of April, 1939, which is the date mentioned in the amended proviso. The first question to be answered is whether these dates are to apply to the accounting year or the year of assessment. They must be held to apply to the assessment year, because in income- tax matters the law to be applied is the law in force in the assessment year unless otherwise stated or implied. The first datum line therefore, affected only the assessment year of 1940-41, because the amendment did not come into force till the 1st of April, 1940. That means that the old law applied to every assessment year up to and including the assessment year 1939-40.' This decision is authority for the proposition that though the subject of the charge is the income of the previous year, the law to be applied is that in force in the assessment year, unless otherwise stated or implied. The facts of the said decision are different and distinguishable and the High Court was clearly in error in applying that decision to the facts of the present case." (emphasis supplied) 17.6 We need not multiply on the case law on the subject as the principles aforesaid remain settled and unquestionable. Applying these principles to the case at hand, we are clearly of the view that the provision in question, having come into effect from April 1, 2005, would apply from and for the assessment year 2005-06 and would be applicable for the assessment in question. Putting it differently, the Legislature consciously made the said sub-clause (ia) of section 40(a) of the Act effective from April 1, 20056, meaning thereby that the same was to be applicable from and for the assessment year 2005-06;
and neither there had been express intendment nor any implication that it would apply only from the financial year 2005-06."
5.8 Being so, we find force in the additional grounds raised by assessee that in income-tax matters, law to be applied is the law in force in the assessment year unless otherwise stated or implied. In the present case, ld. PCIT is cancelling the registration granted u/s ITA No.922/Bang/2023 Akash Education & Development Trust, Bengaluru Page 60 of 65 12AA/12AB of the Act w.e.f. previous year 2020-21 relevant to assessment year 2021-22. In our opinion, the law as stated in the assessment year 2021-22 is to be applied and not the law as stood in the assessment year 2022-23.
5.9 Thus, we are of the view that no retrospective cancellation could be made u/s 12AB(4)(ii) of the Act as it has been provided or is seen to have explicitly provided to have a retrospective character or intended. Therefore, without a specific mention of the amended provisions to operate retrospectively, no cancellation for the earlier years could be made. In this regard, it is appropriate to place reliance on the judgement of Hon'ble Madras High Court on the question as to whether the cancellation will operate from a retrospective date in the case of Auro Lab Ltd. Vs. ITO (2019)411 ITR 308 (Mad) wherein held as under:
"20. On the second question as to whether the cancellation will operate from a retrospective date, it was held that the amendment to section 12AA(3) is prospective and not retrospective in character. The courts reasoned that even when Parliament had plenary powers to enact retrospective legislation in matters of taxation, the amended section is not seen to have explicitly provided to have a retrospective character or intend. Therefore, without a specific mention of the amended provisions to operate retrospectively, the cancellation cannot operate from a past date.
21 On the third question of the effective date of operation of the cancellation order, it was held that the cancellation will take effect only from the date of the order/notice of cancellation of registration. Since the act of cancellation of registration has serious civil consequences and the amended provision is held to have only a prospective effect the effect of cancellation, in' the event the pending tax appeal is decided in favour of the Revenue, will operate only from the date of the cancellation order, that is December 30, 2010. In other words, the exemption cannot be denied to the petitioner for and up to the assessment year 2010-11 on the sole ground of cancel- lation of the certificate of registration."
5.10 In this case, the ld. PCIT has cancelled the registration under the new provisions of the Act i.e. 12AB(4)(ii) of the Act, which specifically provides that cancellation can be done for such previous ITA No.922/Bang/2023 Akash Education & Development Trust, Bengaluru Page 61 of 65 year and all subsequent previous years, which makes it clear that the cancellation cannot be retrospective, therefore, in view of the above discussion, we are of the opinion that cancellation of registration with retrospective effect is invalid in these cases. Since the ld. PCIT invoked the provisions of section 12AB(4)(ii) of the Act, which has been introduced by the Finance Act, 2022 w.e.f. 1.4.2022 so as to cancel the registration with retrospective effect from assessment year 2021-22, which is bad in law. 5.11 We also note that same view has been taken by Coordinate bench of Mumbai in the case of Heart Foundation of India in ITA No.1524/Mum/2023 vide order dated 27.7.2023, wherein held that registration granted u/s 12A of the Act dated 21.7.1989 cannot be cancelled by ld. PCIT (Central) vide order dated 6.3.2023 w.e.f. assessment year 2016-17, by invoking the provisions of section 12AB(4)(ii) of the Act.
5.12 We also place reliance on the earlier order of the coordinate bench in the case of M/s. Amala Jyothi Vidya Kendra Trust and Others in ITA No.458/Bang/2023 and in case of M/s. Adarsh Vidya Kendra Trust in ITA No.459/Bang/2023 dated 1.12.2023 wherein, in similar circumstances, the Tribunal has quashed the order passed by ld. PCIT for the AY 2021-22 by invoking the provisions of section 12AB(4)(ii) of the Act holding that this provision is not retrospective in nature as the provision has been introduced by Finance Act, 2022 w.e.f. 1.4.2022.
.
5.13 Further, same view was taken in the case of Pacific Academy of Higher Education & Research Society in ITA Nos.4&5/Jodh/2020 dated 25.1.2023 wherein held as under:
6.9 We further observe that the ld. Pr.CIT (Central) cancelled such approval from A. Y. 2014-15, though the assessee has already assessed from A.Y. 2014-15 under section 143(3)/148 of the Act. It is also settled legal position of law that Registration cannot be cancelled from retrospective effects. In this regard, the ld AR has relied on the decision of the Hon'ble Supreme Court in case of State of ITA No.922/Bang/2023 Akash Education & Development Trust, Bengaluru Page 62 of 65 Rajasthan and others vs Basant Agrotech India Ltd. and other 388 ITR 81(SC) wherein it has been decided that "only a legislation can make a low retrospective and prospectively subject justifiability and acceptability within the constitutional para- meters. The subordinate legislation can be given with retrospective effect if a power in this behalf is contained in the principle Act. In the absence of such conferment of power the Government the delegated authority has no power to issue a notification with retrospective effect. Therefore, in the absence of any provision contained in legislative Act the delegatee cannot make a delegated legislation with retrospective effect. When no power has been conferred by the act on the competent authority to withdraw the approval retrospectively, then the withdraw of the approval u/s 10(23C)(vi) of the Act can only be prospective. Hence such of approval gentled under section 12A from back date are also not according to the law and facts of the case and at the worst after the year of notice it can be done if any."
In the case of Indian Medical Trust V/s PCIT (Central) 2019 (6) TMI 996 (Rajasthan) it has been held that:
28. Indisputably, the order dated 16th Jan, 2018, made by the Commissioner of Income Tax thereby canceling the registration granted under section 12A and withdrawing the approval given under section 10 (23C) (v) & 10 (23A) (via) of the Act of 1961, to the petitioner Trust with retrospective effect from the date of 01st April, 2006, was arbitrary in the face of the provisions of the Act of 1961;
and therefore, cannot be deemed to be in consonance with any possible interpretation to be valid or legal. This court is of the opinion that the provisions of section 12AA (3) of the Act of 1961, empowers the Commissioner of Income Tax to initiate steps for cancellation of the registration of a Trust, but, the legislation had no intention of giving the said provision, a retrospective effect. For in such a situation, the same would have been clearly specified in the said provision. Interpretation of the said provision has to be harmonious rather than being prejudicial to the institutions as it would instigate and create a fear of the Income Tax Department. I find support in my opinion from the following cases with reference to the issue of cancellation or withdrawal of registration with retrospective effect:
In the case of Oxford Academy for Career Development Vs. Commissioner of Income Tax: (2009) 315 ITR 382, it was thus observed that:
16. In the instant case, the petitioner is a registered society, which was earlier granted registration under Section 12A on 1-4-1999. A ITA No.922/Bang/2023 Akash Education & Development Trust, Bengaluru Page 63 of 65 survey was conducted at the business premises on 20-9-2002, from where documents were impounded. The registration was cancelled for the assessment years 2000-01 and 2001-02 for the reasons that the surplus was quite heavy. In the impugned order, it was mentioned by the CIT that there was an unusual huge margin and the petitioner was engaged in the commercial activities rather than charitable. As per the balance-sheet, huge amount from the student was charged. The profit margin embodied in the charges taken from the students are so huge and it proves the profit motive of the petitioner.
The funds were misused by the president and his family members of the petitioner.
20. The expression "charitable purpose" is defined in Section 2(15) of the IT Act, 1961. It is of inclusive nature as revealed in the language. Earlier the words "the advancement of any other object of general public utility" in this definition were succeeded by the words "not involving the carrying on of any activity for profit". These words were omitted by the Finance Act, 1983, w.e.f. 1st April, 1984.
26. In the light of the above discussion and by considering the totality of the facts and circumstances of the case, we hold that the order dt. 9th March, 2004, passed by the CIT (Annex. No. 15 to the writ petition) as per the then law is without power and jurisdiction and therefore, it is liable to be set quashed.
27. Accordingly, the impugned order dt. 9th March, 2004, passed by opposite party No. 2 withdrawing/rescinding the order granting registration on 1st April, 1999, to the petitioner's society under Section 12A of the Act, is quashed. Consequently, the registration granted to the petitioner's society on 1st April, 1999, stands restored for the assessment years under consideration."
Thus, keeping in view the above discussion, we are of the opinion that in the present case the ld. Pr.CIT(Central) has no jurisdiction to pass the impugned order. Accordingly, we quash the same. Even otherwise we are also of the view that no retrospective cancellation could be made as neither in the Sec. 12AA(3) nor in Sec. 12AA(4) it has been provided or is seen to have explicitly provided to have a retrospective character or intend. Therefore, without a specific mention of the amended provisions to operate retrospectively no cancellation for the past years could be ordered. In this regard, the Hon'ble Madras High Court on the question as to whether the cancellation will operate from a retrospective date has dealt in the case of Auro Lab vs. ITO (2019) 411 ITR 0308 (Mad) 20 wherein it was held as under:
ITA No.922/Bang/2023Akash Education & Development Trust, Bengaluru Page 64 of 65 The amendment to Section 12AA(3) is prospective and not retrospective in character. The courts reasoned that even when the parliament had plenary powers to enact retrospective legislation in matters of taxation, the amended section is not seen to have explicitly provided to have a retrospective character or intend. Therefore, without a specific mention of the amended provisions to operate retrospectively, the cancellation cannot operate from a past date.
21. On the third question of the effective date of operation of the cancellation order, it was held that the cancellation will take effect only from the date of the order/notice of cancellation of registration.
Since the act of cancellation of registration has serious civil consequences and the amended provision is held to have only a prospective effect the effect of cancellation, in the event the pending Tax Appeal is decided in favour of the Revenue, will operate only from the date of the cancellation order, that is 30.12.2010. In other words, the exemption cannot be denied to the petitioner for and up to the Assessment Year 2010-11 on the sole ground of cancellation of the certificate of registration. Also refer Indian Medical Trust v/s Pr. CIT & ors 182 DTR 252(Raj.) is held that cancellation of registration with retrospective effect is invalid."
Therefore, in view of the decision of Hon'ble High Court, we are also of the view that cancellation of registration with retrospective effect is invalid in the present case.
6.10 We also noticed that the ld. Pr. CIT (Central) has stated that the assessee trustees involved in earning of illegal/unaccounted income in the garb of capitation fees which is against public policy and income of the trust has been applied for the benefit of the persons referred to in section 13(3) of the IT Act which cannot be covered within the meaning of charitable activities. Since we have quashed the order of the Ld. PCIT (Central), there is no necessity to adjudicate these issues."
5.14. Further, in the present case, ld. PCIT has invoked the provisions of section 12AB(4)(ii) of the Act, which has been introduced by the Finance Act, 2022 w.e.f. 1.4.2022 so as to cancel the registration with retrospective effect from AY 2021-22 and onwards, which is bad in law. As such, assumption of jurisdiction for cancelling the registration of subsequent to AYs 2021-22 is also bad in law. If there is any specified violation in subsequent assessment years from AY 2021-22 and onwards, which could be cancelled by the ld. PCIT on pointing out the specified violation noticed in the subsequent assessment years only and not on the ITA No.922/Bang/2023 Akash Education & Development Trust, Bengaluru Page 65 of 65 basis of violation in assessment year 2021-22. As such, we make it clear that ld. PCIT is at liberty to pass fresh order of cancellation independently u/s 12AB(4)(ii) of the Act for the subsequent assessment year 2021-22 onwards, if so advised and not on the basis of violation noticed in the assessment year 2021-22. Accordingly, we allow the additional grounds raised by the assessee, order of ld. PCIT dated 27.9.2023 passed u/s 12AB(4)(ii) of the Act is quashed.
5.15 Since we have quashed the impugned order itself, the main grounds of appeal raised by assessee on merits herein above have become infructuous and we are refraining from going into adjudication of these ground on merit.
6. In the result, appeal of the assessee is allowed. Order pronounced in the open court on 2nd Feb, 2024 Sd/- Sd/-
(Beena Pillai) (Chandra Poojari)
Judicial Member Accountant Member
Bangalore,
Dated 2nd Feb, 2024.
VG/SPS
Copy to:
1. The Applicant
2. The Respondent
3. The CIT
4. The DR, ITAT, Bangalore.
5 Guard file
By order
Asst. Registrar,
ITAT, Bangalore.