Income Tax Appellate Tribunal - Ahmedabad
N,H, Educationtrust, Ahmedabad vs Department Of Income Tax on 1 January, 2012
-1-
IN THE INCOME TAX APPELLATE TRIBUNAL
AHMEDABAD BENCH "C"
BEFORE SHRI BHAVNESH SAINI - JUDICIAL MEMBER
& SHRI A MOHAN ALANKAMONY - AM
ITA no.1321/Ahd/2011
(Assessment Year:- 2008-09)
The Director of Income- V/s Shri N H Kapadia
tax (Exemption) Education Trust, Opp.
Ahmedabad Tirthnagar Vibhag-I,
Memnagar, Ahmedabad
PAN:
[Appellant] [Respondent]
ITA no.1420/Ahd/2011
Shri N H Kapadia V/s The Director of Income-
Education Trust, Opp. tax (Exemption)
Tirthnagar Vibhag-I, Ahmedabad
Memnagar, Ahmedabad
PAN: AAATM 1417 G
[Appellant] [Respondent]
Assessee by :- Shri S N Divatia, AR
Revenue by:- Shri S K Gupta, CIT
- DR
Date of Hearing:- 01-01-2012
Date of Pronouncement:- 03-02-2012
ORDER
2 PER A MOHAN ALANKAMONY (AM):-
1. These two appeals - (i) one by the Revenue and (ii) another by the assessee trust - are directed against the impugned orders of (i) the Ld. CIT (A)-XXI, Ahmedabad in Appeal No.CIT(A)-
XXI/859/DDIT(Exemp)/10-11 dated 24.2.2011 for the assessment year 2008-09 and (ii) the Ld. DIT (Exemption)'s, Order u/s 12AA(3) of the Act dated 17.3.2011 in the case of N.H.Kapadia Education Trust, Ahmedabad, respectively.
I. I.T.A.No.1321/A/2011 - (By the Department):
2. The Revenue has raised twin issues in its grounds of appeal, namely:
(i) The Ld. CIT (A) has erred in deleting the addition of Rs.1,90,19,319/-; &
(ii) The CIT (A) also erred in directing to grant exemption u/s 11 of the Act.
II. I.T.A.No.1420/A/2011 - (By the assessee trust):
2.1. Though the assessee trust has raised five grounds in an illustrative and narrative manner, the substance of its grievance is confined to a solitary ground, namely, 'the order passed u/s 12AA(3) of the Act on 17.3.2011 by the DIT (Exemp) canceling the registration granted to the assessee trust w.e.f. 21.3.1990 was wholly illegal'.3
3. As the issues raised by the rival parties being inter-linked pertaining to the same assessee-trust, for the sake of convenience and clarity, both the appeals were heard, considered together and disposed off in this common order.
4. We shall now proceed to deal with the Revenue's appeal.
I. I.T.A.No.1321/A/2011 - (By the Department):
(i) Briefly stated, the assessee trust ['the assessee' henceforth] engaged in the field of education, had furnished its return of income on 10.9.2008 declaring a loss of Rs.75,18,264/-. During the course of assessment proceedings, the AO noticed that the assessee had collected the following amounts from the students at the time of admission during the year consideration:
(1) Building fund Rs.41,73,990
(2) Education Research Fund 41,73,990
(3) Education Infrastructure fund 50,88,019
(4) Library fund 13,91,330
(5) Sports Fund 13,91,330
(6) Staff Welfare fund 13,91,330
(7) Students Welfare fund 13,91,330
Total 1,90,01,319
(ii) According to the AO, as the above amount was not credited in the income and expenditure account, but, directly credited to the balance sheet, the assessee was required to explain the claim of exemption with documentary evidence in support of its claim.4
(iii) After due consideration of the assessee's explanation as recorded in his impugned order, the AO had observed thus:
"3.The explanation of the assessee is carefully considered. The assessee has contended that the Board of Trustees has power to appropriate the current income towards the corpus of the trust and such appropriation would not constitute to the current income liable to tax. This statement of the assessee clearly shows a failure on the part of the assessee trust to disclose its true and correct income and further the assessee has claimed, that even during the course of assessment proceedings the amount received from the students can be converted to corpus which in fact is not permissible as per law. It is seen that the trust has been collecting funds under various heads from their students. The fees contributed by the students and their parents were for services to be given by the school. The contribution by the students and parents are quid pro quo (for service rendered mutually). These are not fund contributions but payments for admission and services to be rendered by the school. These receipts cannot be treated as donation much less as corpus donation, but it should have been reflected in the income and the expenditure account. In fact in the statement of income filed along with the return of the income the amount of corpus donation is shown as NIL. It is because the entire donation of Rs.1,90,01,319/- has not been shown in the income and expenditure a/c, but directly credited to the balance sheet and no separate claim of deduction u/s 11(1)(d) in respect of corpus donation has been claimed in the return of income.
4. In view of the above facts the assessee's claim of deduction of Rs.1,90,01,319/- on the ground that these receipts received from students at the time of admission are appropriated towards the corpus cannot be accepted and the same is added to the total income of the assessee. (Addition: Rs.1,90,01,319/-)"
(iv) Aggrieved, the assessee took up the matter with the CIT (A) for relief. The contentions of the assessee in its written submission dated 23.2.2011 are extracted as under: 5
"5.4.(CIT's order)......................................................................................
..
2.1. As regards the ground of appeal relating to the addition of Rs.1,90,01,319/- in respect of corpus donations, the appellant begs to submit that the perusal of clause - 17 of the trust deed dated 16.11.1987 (filed at page 58 - 80 of paper book) shows that sub-clause (5) empowers the trustees to accept any money or property the corpus of the trust. The running translation of the said clause is as under:
'The trustees are empowered to accept any money or any kind of property that may be given by any person or institution or any charitable trust for the purposes of objects of this trust and such money or property shall be treated as property of this trust.' In view of the aforesaid powers vested in the trustees, the contributions towards different corpus funds received by the appellant trust from the parents/students was not current income but donation exempt u/s 12.
2.2. In any view of the matter, the AO has failed to appreciate that the appellant trust has not made any appropriations from the corpus donations after having received the same. It appears that AO has mixed up the facts of Educational Research Fund with the other funds such as building fund, library fund, staff welfare fund, student welfare fund etc. The distinctions between the same are that the former is mainly appropriation at 50% out of tuition fees whereas the later is specifically donated by the parents/students but the bifurcation of the aggregate amount is made as per the decision of board of trustees such as 30% towards building fund and educational Research Fund etc., as pointed out in reply dt. 15.11.2010 (see page 19 of paper book).
The copy of ledger account of the respective funds filed before AO clearly proves this contention of the appellant. Therefore, the conclusion reached by AO that such appropriation would constitute current income liable to tax is not justified.' 6
(v) After due consideration of the assessee's submissions, the CIT (A) had observed that:
"5.5. I have considered the submissions made and contentions raised by the Counsel for the appellant and I have also gone through the assessment order. The short point to be decided in this ground of appeal relates to the nature of contributions totaling to Rs.1,90,01,319/- made by parents/students at the time of admission in the educational institution. The contention of the AO is that the said contributions were in consideration of the services to be rendered by the school to the student is not acceptable because the evidence produced by the appellant trust shows that the amount is not fixed or identical in all cases and in as many as 381 number of students, the admission was given without receiving such contribution. It is also noticed that the students have paid separately towards tuition fees every year and had the contribution been towards education to be imparted by the school, it would not have charged separately the aforesaid quarterly/monthly tuition fees, term fees, computer fees etc., Yet another important aspect is that the contribution by way of corpus donation ranges between Rs.10,000/- to 15,000/- irrespective of medium of instruction and standard. In case, the said contributions were to be quid pro quo, the same should have been different depending upon the medium of instruction and standard. It is also noticed that the voluntary contribution were non-refundable and one time payment. The contributions have been towards different purposes such as library, building, sports development etc., whereas the tuition fees were towards the education imparted to the students and the fees by way of stationary, workshop, computer were towards use of such items. The AO has also not appreciated that the contributions made by the parents/students may not use the infrastructure intended to be so created and the actual beneficiary of such contribution may be students of the subsequent years. Therefore, the contributions building or library fund may be made by the students for this year but the actual users would be the students of the years after completion of such building. Thus, the element of quid pro quo claimed by the AO is not established. The contention of AO that the said contributions should have been reflected in the income and expenditure account is also not acceptable for two fold reasons 7 firstly, even if the same may be reflected in income and expenditure account, the same may be taken to different funds account and secondly, the passing of any entry or manner of accounting is not the conclusive of the nature of receipt or its taxability as held in the case of Kedarnath Jute Mfg. Ltd v. CIT (82 ITR 363) (SC). The copy of ledger account of different corpus funds produced by the appellant trust shows that amount has been credited to each fund account of each receipt from the parents/students. It appears that the AO has confused the educational infrastructural fund with the aforesaid different corpus funds. There is a distinction between the two in as much as the credit to different corpus funds is directly on the basis of the amount received from the parent/student whereas in case of educational infrastructural fund account, the credit is by way of appropriation at every month from tuition fees. This distinction is clearly evident from the receipts issued by the trust and copy of ledger account produced. The contention of AO relating to the appropriation of the said contribution to different funds as per the resolution made by the Board of Trustees deserves to be rejected because the resolution passed by the Board of Trustees merely provides for the quantum required for different purposes and they are the best judge to decide it considering the requirements or future needs of the school. The parents/students have made contribution with a clear understanding as it is noticed from the narration given in the receipt issued to them. The relevant portion from the sample of such receipt produced by the appellant trust at page 81 of the paper book contains the following:
"Received with thanks contribution towards trust corpus fund of Rs...........
*Non refundable *Receipt valid only after realization of cheque I affirm the donation to CORPUS FUND.
Signature of donor"
Thus, the copy of receipts issued by the school itself proves that the contributions were received towards different corpus funds. 5.6. There is yet another aspect of the matter which is evident from the rights and duties of the Board of Trustees enumerated in clause 17 of the Trust Deed dated 16.11.1987 which was filed 8 at page 58 to 80 of the paper book. The free English translation of sub-clause 5 of clause 17 of the Trust Deed is reproduced as under:
'In case, any person or institution or any charitable trust hands over any money or any kind of property to the trust or the trustees for the purposes of this trust, the trustees are empowered to accept such sum and such amount or property shall be treated as property of this trust.' 5.7. Thus, in view of the aforesaid clause empowering the Board of trustees to accept any money for the objects of the trust, the voluntary contribution given by the parents/students were the property of the appellant trust and required to be utilized for the objects of the trust. The appropriation of donation as canvassed by AO was not the appropriation towards different funds but the quantum of such donations which may change by the trustees from year to year depending upon various factors.
5.8. Considering all these facts of the case, I am of the view that AO was not justified in holding contributions towards different corpus funds totaling to Rs.1,90,01,319/- as current income liable to tax. I hold that the said contributions were in nature of corpus funds and as such exempt u/s 12 of the Act. The addition of Rs.1,90,01,319/- made by AO is hereby deleted."
(vi) Agitated with the treatment meted out at the findings of the CIT (A), the Revenue has come up with the present appeal. It was the case of the Revenue that the assessee had collected Rs.1,90,01,319/- from students at the time of admission. This amount was not CREDITED to the income and expenditure but directly credited to the balance sheet. During the course of scrutiny, the assessee had claimed this as a corpus donation. The assessee could not furnish any evidence in support of the claim that the fees 9 and funds collected from the students was a corpus donation. The fees contributed from students and their parents were for services to be rendered by the school. The contribution by the students and parents are quid pro quo (for service rendered mutually). It was, further, contended that these were not donations, but, payments for admission and services to be rendered by the school; that in the statement of income filed along with the return of income; the amount of corpus donation was shown as Nil. It was, further, argued that it was because the entire donation of Rs.1.90 crores has not been shown in the Income & Expenditure account, but, directly credited to the balance sheet and no separate claim of deduction u/s 11(1)(d) of the Act in respect of corpus donation has been claimed in the return.
(vii) We have duly considered the submissions of the either party, thoroughly perused the relevant case records and also the voluminous paper book containing, inter alia, copies of (i) audited annual account with tax audit report; (ii) trust deed; (iii) sample receipts towards corpus fund and tuition fees; (iv) banakath with Mrs. Sonasl J Jakasania etc., furnished by the Ld. AR during the course of hearing.
10
(a) The core contention of the Revenue, as rightly highlighted by the CIT (A), was that the contributions aggregating to Rs.1.90 crores made by the parents/students at the time of admission in the institution were in consideration of the services to be rendered by the school to the students. In contrast, the documentary evidences adduced by the assessee go to prove that the amounts were, in fact, neither fixed nor identical in all the cases and to illustrate the classical example that almost 381 students have been admitted to the Institution without receiving a penny for such a contribution. The assessee had, in fact, furnished a list running into staggering 29 pages showing the names of the students in standard-wise and also the contributions towards 'corpus fund' [ Pages 111 - 138 of PB furnished by the Ld. AR]. Copies of ledger accounts of different corpus funds produced by the assessee for verification exhibit that the amounts received have been credited to each fund account of each receipt from the parents/students. Apart from such contributions towards 'corpus funds', it was noticed that the students have also paid towards tuition fees every year. Had the contribution collected been towards education to be imparted by the school as alleged by the Revenue, the institution would not have resorted to charge separately the monthly/quarterly tuition, term and computer 11 fees? Another salient feature noticed from the evidences produced was that the contribution by way of 'corpus donation' ranges Rs.10000 - 15000 with no consequence of the medium of instruction and the standard in which the ward (student) was to be admitted. Assuming but not admitting, if the contributions were to be quid pro quo as canvassed by the Revenue, the same should have been quite different depending upon the medium of instruction-wise and standard-wise. Another significant feature observed was that the one time payment of voluntary contribution was - non-refundable - towards different purposes, viz., library, buildings, sports curriculum activities etc.; whereas the tuition fees so collected will be spent for academic field such as education to be imparted to the students by way of stationary, workshop, computer education etc., As rightly taken refuge by the CIT (A) in the ruling of the Hon'ble Apex Court in the case of Kedarnath Jute Mfg. Ltd v. CIT (82 ITR 363 SC) to outwit the AO's contention that the so called contribution should have been reflected in the I & E account. The AO had rather failed to distinguish the receipt of corpus funds from tuition fees, namely, to credit the different corpus fund is directly on the basis of the amount received from the parents/students; whereas under 'Educational infrastructure fund account' the credit is by way of appropriation at every month 12 from tuition fees. At a glimpse of the sample copy of Receipt produced by the assessee as part of evidence ( P 81 & 82 of paper book), it was noticed that:
Page 81: "Receipt towards trust's Corpus Fund Received with thanks contribution towards trust's corpus fund of Rs.......
*I affirm the donation to Corpus fund Sign of donor"
Page 82: Receipt No..... Form No....... Std:................
Name:..................................................
Fees received as under:
Quarterly/monthly tuition fee (quarter/per month)...................
Term fee (one term) Stationary & Workshop fee Computer fee .................................
Total .................."
The above illustration makes implicitly clear that there is distinction between the 'tuition fees' and 'corpus funds.'
(b) Further, the Board of Trustees were empowered (source:
sub-clause 5 of clause 17 - free English translation recorded supra) to accept any money for the objects of the trust and, thus, the voluntary contributions given by the parents/students were the 13 exclusive property of the trust which required to be utilized for the objects of the trust only.
(c) Taking into account all the facts as discussed in the fore-
going paragraphs, we are of the considered view that the stand of the AO was rather misconceived in holding that the contribution towards different corpus funds aggregating to Rs.1.9 crores as current income of the assessee liable to be taxed whereas the CIT (A) was justified in her finding that the said contributions were in the nature of corpus funds and as such exempt u/s 12 of the Act. Therefore the order of the Ld. CIT(A) is confirmed with respect to this issue.
(2) The other grievance of the Revenue being that the CIT (A) had erred in directing the AO to grant exemption u/s 11 of the Act.
The case of the Revenue was that the ultimate beneficiary from the student fees and contributions were the family of the Managing Trustee and the assessee was collecting huge fees and contributions from poor and needy students, but, it was enriching itself and its trustees. This conclusion of the AO was apparently based on the transaction relating to the banakath for purpose of agricultural lands and huge salary, free use of motor cars provided to the Managing Trustee etc., 14 After giving due weight-age to the lengthy submission of the assessee as recorded in her impugned order under challenge and also reasoning of the AO in denying exemption u/s 11 of the Act by invoking s.13(1)(c)(ii) of the Act in respect of the three items, the CIT(A) has observed thus:
(a) Funds of Rs.4.5 crores utilized through Managing trustees for purchase of agricultural lands:
"6.3. (on page 18)...............I find considerable force in the contention of the appellant that the decision of the trustees to start an educational institution at fast developing area of S.G. Highway wherein even various other educational institutions are located, it was a progressive and for cited decision of the trustees. Such a decision has to be taken by the board of trustees after taking into consideration of various factors and such a commercial decision cannot be questioned by the revenue authorities unless it smacks of any personal gain to the trustees. However, in the present case, the funds provided by the trust has been paid to the vendor, of course, through the trustees and their relatives, but, even that was made in view of the restrictions on transfer of agricultural lands. It is not the case of AO that the purchase of said land was intended by the trustees for their own benefit or gain on the contrary the evidence produced by the appellant clearly establish that it was a prudent decision taken by the trustees in the interest of trust and acted in a manner as any assessee of sound commonsense would have acted. The banakhat clearly shows that the purchase was made for and on behalf of the appellant trust and not for the personal benefit of the trustees. As regards, the contention of AO as to the completion of the transaction, it was contended by the appellant that the delay was caused for the reasons beyond its control in as much as the Government policies, finalization of TP Scheme, sanction from various authorities etc., take considerable time not only for conversion of land 15 but also for commencement of construction etc., it is also noticed that the payment made towards purchase of land has been shown by the appellant trust in its books under the head 'advance towards land' as per annexure-I to the audited annual accounts and the managing trustee has not claimed the said payment towards purchase of land in his personal books. The accounting made in the books of managing trustee - Shri M.N. Kapadia, as regards the aforesaid funds supplied by the appellant trust to him for the purpose of payment to the vendor clearly proves that the said funds were simply routed through him and no personal gain or title was set up by the trustee in this transaction. It is well settled position in law that the property of the trust can be held either in the name of trust or any one or more trustees. Even the Managing trustee and the relatives have not claimed that the said purchase was made by them for their own benefit. It appears that the AO has made this conclusion simply because the funds of the trust were paid to the vendor through the trustees, but, there was no other material except routing of funds to hold to this effect. Further, the utilization of trust fund is not for purchase of agricultural land but it is the first step towards the educational institutions to be commenced in the said locality. The trustees have not retained any part of the said funds of Rs.4.5 crores paid to the vendor. Under these facts and circumstances of the case, it cannot be said the funds of the appellant trust have been utilized for the personal benefits of the trustees of the trust in so far as it relates to the payment towards purchase of agricultural land is concerned.
(b) Payment of Rs.1.5 crores paid to building contractors:
"9. (Page 20)...............It is not disputed by either party that the payment made to Shri V.K. Patel and Shri Nanalal V Patel was advanced towards the construction work to be carried out at the proposed site. Even , both these contractors in the confirmation letters dated 20.11.2010 filed with the AO have confirmed to have received the said advance for construction work to be done at the proposed site. Thus, when the appellant trust has resolved to set up an educational institution on S G Highway and in order to 16 implement the said decision, the execution of banakath for purchase of land, entrusting the construction contract and payment of advance to the contractors etc., are nothing but steps taken in this direction so that the same cannot be treated as improper utilization of trust funds. The aforesaid decisions were found to be as a man of prudence would have taken in such circumstances. Both these contractors are not related to the trustees of the appellant trust. It is also not the case that the trust has lost money by giving such advance to them. Under the circumstances, I find that the advance given by the appellant trust to both these contractors cannot be said to be improper utilization of trust funds.
(c) Excessive salary and motor cars provided to the Managing trustees:
"12. (page 24)..............I find considerable force in the contention of the appellant that the comparison of salary and other benefits by way motor car provided to the trustees with the principal and other staff of the school is totally misplaced. It is stated by the appellant that Shri M.N.Kapadia, is born-educationalist of third generation and, therefore, he has inherited education and school management in his blood. He has introduced various advanced and modern techniques in the schools run by the trust and the results of his efforts, foresightedness, vision and competence are seen in the number of students who have secured ranks year-after-year not in State Board Examination but other competitive exams which is evidence from the statistics given in the annual reports. He is not only managing approximately more than 14,000 students but carrying out other administrative work, government, co- ordination with Government authorities. On the other hand, the salary paid to Principal and other staff of the school is based on experience, number of working hours etc., and even the same differs from rank to rank, such as principal of pre-primary, primary and higher education as well as medium of instructions. The chart showing the aforesaid details furnished by the appellant clearly shows the 17 aforesaid distinction. Moreover, the use of motor cars provided to the trustees for the purpose of trust cannot be said to be any excessive amenities provided to them. Now- a-days, such amenities are being provided to most of the high-ranking officers of any organization. It is contended by the appellant that the trustees have to visit different places such as Government offices at Gandhinagar, banks, schools etc., which are located at a very far distant places and in case, such amenity was not provided to them, they would have claimed conveyance expenses for such purposes apart from it would have resulted into as loss of time, energy and money. The contentions of the AO that the ultimate beneficiary from the students fees and contribution is the family of managing trustee is also not supported by any evidence or material on record. On the contrary, the activities carried out by the appellant trust in this year by way of giving donation to various educational institutions and discharging the social obligations by admitting many students without contribution and providing free education, text books, school uniforms etc., clearly proves that the appellant trust is carrying on activities of public charitable cause. The perusal of annual account for this also show that a large sum of Rs.5,80,05,990/- was spent for the purpose of education as against which it had received the tuition fees of Rs.2,23,44,694/- and term fees of Rs.76,02,525/- and stationary work-sheet fees of Rs.36,10,300 and computer fees of Rs.36,23,725/-. The Schedule B-1 showing expenses for the object of the trust totaling to Rs.5,80,05,990 clearly shows that the funds have not been utilized for the benefit of family of managing trustee as alleged by AO. Even, the balance sheet as on 31.3.2008 shows that Shri M.N. Kapadia has advanced money to the appellant trust in as much as there is an outstanding credit balance of Rs.66,66,512/- even other family members have advanced money to the appellant trust. There is also force in the contention of the appellant that the schools run by the trust are under supervision and control of the Education Board and other Government authorities who have not found that the funds have been utilized for the personal benefit of the family of the trustees. Under the circumstances, the findings given by AO about the utilization of trust fund for the benefit of family of the 18 trustees is unfounded and liable to be rejected. The appellant is, therefore, entitled to exemption u/s 11 and 12 of the Act. The AO is, therefore, directed to allow the aforesaid exemption while computing the total income of the appellant trust.
During the course of hearing, the argument of the Revenue was that the assessee trust had transferred Rs.4.5 crores to Smt. Sonalben Jaksania. This amount was not directly transferred to Smt. Jaksania's account, but, has been transferred by the trust to the saving bank account of Shri Muktak Kapadia and his sons and they in turn have paid the same to Smt. Jaksania. In the banakhat i.e., agreement to sale with Smt.Jaksania dated 31.3.2008 for the proposed purchase of land the amount mentioned therein was Rs.3,50,00,000 and not Rs.4.5 crores. No sale deed had been executed till the date of assessment proceedings. It was, further, submitted that in Form No.10-B which ought to be filed along with the return of income, the assessee trust had to disclose whether the fund of the trust is/was lent at any point of time to the trustees and persons referred to s.13(3) of the Act i.e., the relatives of the trustees.
The assessee had not disclosed this fact in Form 10-B filed with the return of income. It was contended that the assessee had concealed the actual mode of transaction and transfer of such payments through trustees. It was contended by the Revenue that the assessee had, 19 therefore, violated the provisions of s.13(1)(c)(ii) of the Act and, hence, the assessee was not eligible for deduction u/s 11 and the provisions of s. 12 shall not operative. The Revenue has relied on the decision of Hon'ble Uttarkhand High Court in the case of National Institute of Aeronautical Engineering Education Society v. CIT (315 ITR 428) to support its view.
On the other hand, the Ld. AR submitted his side of the version which was more or less what was contended before the first appellate authority. In furtherance, it was contended that keeping the abnormal growth and vast development activities of the city in view, the Board of trustee took a decision to acquire agricultural lands for the purpose of construction of building and other infrastructural facilities. Accordingly, it had entered into a banakhat for purchase of agricultural lands and getting them into non-agricultural purposes and thus none of the trustees had derived any benefit by application of the said funds. It has also been clearly stated in the banakhat that it was executed by the assessee through its trustees Smt Rupali M Kapadia and Shri Mutlak N Kapadia; that even in its books of account, it has been shown under the head 'advance towards land'. It was, therefore, submitted that the said purchase was not made by the 20 trustees for their own purposes or diverted the funds for their benefits as alleged by the Revenue.
Refuting the Revenue's contention that neither the transaction should have been entered into through its trustees nor the funds be utilized for purchase of agricultural lands, it was countered by the assessee that the agricultural land could be purchased only by an agriculturist as provided in s.36G of the Bombay Land Revenue Code and Smt. Rupali N Kapadia being an agriculturist, the banakhat was entered into in her name only; that the assessee had not made any investment for acquiring land as alleged by the Revenue, but, in fact, it was a fund saving devise and that the trustees have never at any point of time claimed that the said transaction was carried out for their benefits.
With regard to the alleged difference in purchase consideration of Rs.3.5 crores and Rs.4.5 crores, it was explained that on perusal of banakhat, it is clear that the assessee had to bear various expenses, costs and fees such as permission for conversion of agricultural lands into non-agricultural and for conversion, the assessee were to borne such expense and other allied expenses such as registration fee, stamp duty, legal fees etc. Since the vendor who was in the business and well versed in the procedure and 21 formalities to be observed for such conversion of agricultural land to non-agricultural etc., a sum of Rs.1 crore was paid to meet such expenses on behalf of the assessee. In conclusion it was submitted that the assessee trust was in receipt of loans aggregating to Rs.90.88 lakhs from its trustees which would vindicate the non-
intention of the trustees to utilize the trust's property for their benefits.
We have conclusively considered the submissions of the assessee as well as the Revenue and also perused the various documentary evidences adduced by the assessee during the course of hearing.
As pointed out by the CIT (A), the fund provided by the assessee trust has been paid to the vendor through its trustees and their relatives, precisely, to outsmart the restrictions on transfer of agricultural lands to a non-agriculturist - the assessee trust.. Since the agricultural lands could be purchased only by an agriculturist as such restriction was prevailed at that relevant time, one of the trustees - Mrs. Rupali N Kapadia, being an agriculturist - was made as a conduit to get over the restriction.
The AO's allegation that the purchase of the said land was intended by the trustees for their own benefits/gain etc., doesn't hold 22 water as no documentary evidence was brought on record to thwart the assessee's claim.
With regard to the payment made by the trustees to the vendor, it was explained that the funds provided by the trust has been paid through its trustees for the reasons recorded supra and that the banakhat clearly indicates that the transaction was made for and on behalf of the assessee trust only and not for the personal benefit of any of the trustees. As highlighted by the CIT (A) in the impugned order, the payment made towards purchase of land was shown by the assessee in its books of account under the head 'advance towards land' (Annexure L to the audited annual a/c) and the Managing Trustee had not claimed anywhere in his books of account that the said payments towards purchase of land. To towering all, neither the managing trustee nor any of his relatives for that matter have claimed that the said purchase was made on behalf of them or for their own benefits. We have also perused the confirmation of accounts furnished by Sonalben J Jakasania placed at P 89 of paper book. There were also no documentary evidences to attribute that the said transaction took place only to benefit the managing trustee or his relatives except that the funds of the trust were routed through the trustees to the vendor which merely exhibits 23 the expediency which prevailed at that relevant time. Moreover, the utilization of the trust fund was not for purchase of agricultural land as investment, but was a stepping stone to set up an educational institution in that land. We, therefore, do not find any infirmity in the conclusion of the CIT (A) on this point.
With regard to the observation of the AO that the funds of the trust cannot be said to be properly utilized for objects of the trust as no sale-deed had been executed or any construction work was carried out, we find that both the contractors - whom the money was advanced towards the construction work to be carried on at the proposed site -in their letters dt. 20.11.2010 confirmed before the AO that they were in receipt of advances for the proposed construction work. This goes to prove the genuineness and dedication of the assessee trust to set up an educational institution for which, it had executed a banakhat for purchase of land; and for accomplishing the construction of the building by advancing monies to the contractors cannot be castigated as improper utilization of trust funds. In these circumstances, we do not find any infirmity in the finding of CIT (A) that 'the advance given by the appellant trust to both these contractors cannot be said to be improper utilization of trust funds."24
Moving on to the other allegation of the Revenue that the excessive salaries paid to Shri M.N. Kapadia and Smt. Rupali Kapadia, we would like to reiterate that due to unstinted efforts and farsightedness, Shri Kapadia has been managing a chunk of student community, also carrying on other administrative work, besides co- ordinate with various Government agencies. His experience, administrative skill and managing a flagship of institution cannot be equated with that of the Principal of a school/college and other staff of the institution whose activities were confined to their ranks, experience and limited role to their assignments. Therefore, the salaries of Shri M.N. Kapadia and Mrs. Rupali Kapadia cannot be equated with that of other persons working in the institution at the behest of the assessee trust.
With regard to the use of motor cars provided to the trustees cannot also be considered to be excessive amenities provided to them. As they were expected to commute on day-to-day basis to various Government agencies, and other allied places which were scattered all over the vast city of Ahmedabad, the assessee trust was expected to extend such minimum facilities to its trustees. This cannot be branded at any stretch of imagination that the trustees have been provided with excessive amenities. The AO's other 25 allegation that the ultimate beneficiary from the student fees and contribution being the family of managing trustees was also without any basis or supported by any valid documentary evidence. On the other hand, the assessee trust has been magnanimous in its endeavour in contributing liberally by way of donations to various educational institutions, besides discharging its social obligations by admitting many needy students without collecting any contributions, providing free education, supplying of text books, uniforms etc; The services rendered by the assessee trust has been acknowledged by:
(i) Visamokids (pages 98 - 104 of
P.B);
(ii) Gujarat Research Organization Unity (pages 107 & 108 of
P.B)
Planning (Group)
(iii) Manav Sadhna Gandhi Ashram (page 109 of P.B)
(iv) Proch.org (page 110 of P.B.)
In view of the facts and circumstances as deliberated upon in the foregoing paragraphs and also the reasons recorded exhaustively and elaborately in the impugned by the CIT (A), we are of the considered view that the assessee trust was entitled to exemption u/s 11 and 12 of the Act. The department appeal is dismissed.
We shall now take up the assessee's appeal for adjudication.
26II. I.T.A.No.1420/A/2011 - (By the assessee trust):
5. The issue, in brief, was that the assessee was granted registration No. HQ I/32(N.4)89-90, u/s 12A(a) of the Act by the CIT, G-I, Ahmedabad way back on 21.3.1990, . However, the Ld. DIT (E) had slapped a show-cause notice on 10.2.2011 u/s 12 AA(3) of the Act on the assessee to show cause as to why the registration granted earlier should not be cancelled for the following reasons:
"During the course of assessment proceedings for AY 2008- 09 it is noticed by the assessing officer from the records that an amount of Rs.4,50,00,000/- was transferred to savings account of Shri Muktak Kapadia and his sons and they, in turn had paid Rs.3,50,00,000/-to Smt.Sonben Jaksania towards agreement to sale of land with her. No sale deed has been executed so far. The said transaction with Sri Muktak Kapadia and his sons was to be reflected in Form No;10-B u/s 13(3) of the I.T. Act, 1961, have not been mentioned anywhere in Form No.l10B filed with the return of income. Thus, the trust has concealed actual mode of transaction and transferred the fund through trustee by violating provisions of section 13(1)(c)(ii) of the I.T. Act, 1961, as a result of which it is not eligible for deduction 11 of the I.T. Act, 1961.
Further, it is also seen from the records by the assessing officer that land proposed to be acquired by the trust is an agricultural land which has not been converted into non- agricultural land. Objects of the trust are educational in nature and not agricultural ones. The trust cannot divert and utilize fund for purpose of agriculture.
2. Trust has collected Rs.1,90,01,319/- from students at the time of admission. This amount was directly credited to Balance and clamed as corpus donations instead of reflecting in Income and Expenditure account. The Trust has failed to establish aforesaid amount as Corpus 27 donations and also no separate claim of deduction u/s 11(1)(d) of the I.T. Act, 1961 in respect of corpus donation has been made in the return of income.
3. Thus, the trust has violated provisions of section 11(1)(d) and 13(1)(c)(ii) of the I.T. Act, 1961 and is not eligible for registration u/s 12A(i) of the I.T. Act, 1961. It clearly attracts the amended definition of 'charitable purpose' in section 2(15) of the I.T. Act, 1961 by insertion of a proviso w.e.f. 1.4.2009 as the aforesaid activities show their commercial nature........"
5.1. After considering the lengthy and exhaustive submission of the assessee as recorded in his impugned order under challenge, the DIT(E) has cancelled the registration earlier granted, w.e.f. 21.3.1990 for the following reasons:
"(III).......................................................................................
..............(i) At the outset, it is seen that the ld. Counsel has been reiterating time and again in his submissions that the assessment order passed u/s 143(3) for AY 2008-09 on 27.12.10 has not disputed this fact i.e., the activities carried on by the assessee trust are not genuine furthermore, there is no indication in the show-cause notice dated 10.2.11 (supra) that the activities carried on by the assessee trust are not genuine on the contrary, it is seen that the affairs of the assessee trust would clearly indicate that the undersigned has taken judicial notice of a notorious fact which has been given judicial benediction by the Hon'ble Supreme Court in Attar Singh Gurmukh Singh v. ITO (1991) 191 ITR 667 (SC) and the Hon'ble Calcutta High Court in the case of Mehmudabad Properties Pvt. Ltd v. CIT (1972) 85 ITR 500 (Cal). In this case, the main notorious facts are that the trust has been indulging in taking donations from the students, indulging in transactions of commercial nature within the family group itself, clearly violating the provisions of section 11(1)(d) and 13(1)© of the I.T. Act, 1961. These notorious facts would further stare in the face of the so- called genuineness of this trust. The foregoing paras would 28 amply demonstrate that the activities of this trust are not only non-genuine in nature but also some of its activities would fall outside the objects of the trust.
(ii) it would be worthwhile to refer to the object clauses of the trust deed dt. 29.8.1988 on pages 4 and 5 given in clauses 1 to 6 (in Gujarati). The English translation of aforesaid 6 objects are reproduced below:
(1) to run institution for physical, mental moral, spiritual and industrial education;
(2) to help students by way of providing books, fees, scholarship for study in school and colleges;
(3) to do activities to establish school, colleges, hotels, dharmshala, dispensaries, hospitals, physical training school and library and maintenance thereof;
(4) to provide interest-free loan, scholarship to the students who want to go abroad for education;
(5) to carryout research for up-liftment of society on science, industries and education;
(6) to publish books for unliftment of society on morality, spirituality and education.
From the aforesaid object clauses, it is nowhere stated that it would indulge itself in transaction of commercial nature i.e., by transferring amount of Rs.4,50,00,000/-from bank account to Shri Muktak Kapadia and his sons and they, in turn, had paid Rs.3,50,00,000/- to Smt.Sonalben Jaksania towards agreement to sell of land with her. It is seen that no sale deed has so far been executed for the reasons best known to the trust. The said transaction with Shri Muktak Kapadia was to be reflected in Form No.10B filed with the return of income. This shows that the trust has concealed actual mode of transactions and violated the provisions of section 13(1)(c)(ii) of the I.T. Act, 1961, which would not make it eligible for deduction u/s 11 of the I.T. Act, 1961. in thi regard, there is no merit in the argument of the ld. Counsel that the payments made to Smt. Sonsalben Jakasaina towards the purchase of agricultural land are also in accordance with the objects of the trust because the assessee-trust had resolvedmto expand and diversity its educational activities to S.G.Road, Ahmedabad. In fact, Shri N.H.Kapadia Education Trust has been engaging itself in transactions of commercial 29 nature. It has also failed to give intimation about the change/alteration in its objects to the office of the undersigned in accordance with rule 17B and Form No:10A. it is seen that Form No.l0A which is to be used in applying for registration u/s 12AA of the I.T. Act, 1961 itself contain an undertaking in the following words:
.......................................................................................... .................."
Placing reliance on the decision of Hon'ble High Court of Allahadbad in the case of Allahadbad Agricultural Institute v. UOI (2007) 291 ITR 116 (All), the DIT (E) justified the cancellation of registration of the assessee trust. Further, the DIT (A) had observed thus:
"(On page 11) (iii) the aforesaid purchase of land transaction of the trust clearly indicates that in addition to education, the trust is also having activities of commercial nature. However, the legislature in its wisdom in order to remedy this mischief, inserted proviso to section 2(15) of the Act, 1961 in the nature of amendment by the Finance Act, 2008 w.e.f. 1.4.2009 i.e., AY 2009-
10. The provisions of section 2(15) of the Act, after the aforesaid amendment w.e.f. 1.4.09 is reproduced here below:
.......................................................................................... .................
The Ld. Counsel has vehemently argued that the activities carried on by the assessee-trust cannot be said to commercial in nature, when the audited annual accounts for this year are scanned through. There is a huge deficit of Rs.75,18,264/- and it has also incurred expenses totaling to Rs.5,80,05,990/- for the purpose of education. Had the activities of the trust been commercial, there would have been huge surplus and the trustees would have been the sole beneficiary? In this regard, there is no merit in the aforesaid contention of the Ld. Counsel 30 as it cannot bring out the case of this trust out of the mischief of aforesaid proviso to section 2(15) of the I.T. Act, 1961.
The legislature in its wisdom has introduced section 12AA of the I.T. Act 1961 by the Finance Act No.2 1996 w.e.f 1.4.1997 i.e., AY 1997-98 onwards which requires the Commissioner to be satisfied with the objects of the trust and the genuineness of its activities. As a logical corollary of the provisions of section 12AA of the Act, the Commissioner has to examine the objects of the trust by their reference to the definition of 'charitable purpose' along with the new inserted proviso to charitable purpose in section 2(15) of the Act w.e.f. 1.4.2009. in fact, there is a mutual, symbiotic relationship between the two provisions, namely, section 2(15) and section 12AA of the I.T. Act, 1961. the definition of 'charitable purpose' in section 2(15) of the Act is the engine which drives the machinery of the provisions of section 12AA of the Act.
(iv) the Ld. Counsel has relied upon the following judicial decisions to support his case for reconsideration of registration granted to the trust u/s 12A(a) of the I.T. Act, 1961:
.......................................................................................... .......................................................................................... ....................................
I have given my thoughtful reflections to the judicial decisions cited by the counsel in response to the aforesaid show-cause notice and I am constrained to point out that the questions in issue are distinguishable from the facts of the cited judicial decisions. The Ld. Counsel has simply culled the ratio of the decisions from different judicial pronouncements. In the fitness of things, I am tempted to analyze the concept of ratio decidendi in a judicial decision. It would be worthwhile to refer to one of the locus classius on the subject, Learning the law (Eleventh Edition, Stevens and Sons, London, 1982) by Prof. Glanville William at page 67 'that part of a case that is said to possess authority is the ratio decidendi, that is to say, the rule of law upon which the decision is founded...." The ratio decidendi of a case can be defined as the material facts of the case plus decision. This view has been approved by the Constitution Bench of the Hon. Supreme Court in Krishnakumar v. Union of 31 India (1990) 4 SCC 207 (SC) and also in CIT v. Sun Engineering Co. Pvt. Ltd (1992) 198 ITR 272 (SC) (per J.S.Anand j).
(v) Viewed from another angle also, the registration granted to this trust vide order dated 21.3.1990 did not confer any right or entitlement regarding operations of section 11,12 and 13 of the I.T. Act, 1961 or any other provisions of I.T. Act, 1961 which are to be decided by the AO on merits. It is further seen from the aforesaid facts and the judicial decision of the Allahabad High Court (supra) that registration granted u/s 12AA of this trust can be cancelled even with regard to the legal position of pre-
amended period to section 2(15) of the I.T. Act, 1961 which would take effect from AY 1990-01 onwards. This position is further buttressed by the decision of Hon. Supreme Court in the case of Hemalatha Gargya v. Commissioner of Income-tax and another (2003) 259 ITR 1 (SC) wherein their Lordships had held that the question or rule of consistency does not preclude the Department from initiating appropriate action under the Doctrine of Just Cause. Accordingly, it would fall within the ambit and scope of Doctrine of Just Cause to cancel the registration allowed u/s 12AA of the I.T. Act, 1961 from AY 1990-01 onwards.
(vi) Lastly, the Ld. Counsel has vehemently argued that the assessee trust had preferred appeal against the order of DDIT (E), Ahmedabad passed in this case u/s 143(3) for AY 2008-09. he had also attached a copy of the said appellate order and has also stressed on the Doctrine of Merger of the AO's order with the order of the CIT (A)-XXI, Ahmedabad. He has placed reliance upon the judicial pronouncements of Hon'ble Supreme Court in the case of CIT v. Kanpur Coal Syndicate reported in 53 ITR 225 (SC) and the Bombay High Court decision in the case of CIT v. Sakseria Cotton Mills Ltd reported in 124 ITR 570 (Bom). There is no merit in the aforesaid submissions of the Ld. Counsel by invoking the Doctrine of merger of the AO's order with the order of the CIT (A) for the purpose of not withdrawing the registration by the undersigned in this issue. It goes without saying that the nature of proceedings before the undersigned u/s 12AA(3) of the I.T. Act, 1961 and the appellate proceedings before the CIT(A)-XXI, Ahmedabad u/s 246 or Chapter XX of the I.T. Act, 1961 are totally distinct, separate and independent in nature. The jurisdiction of both these authorities does not 32 overlap with each other. The aforesaid two judicial pronouncements relied upon by the Ld. Counsel are totally distinguishable and independent from the facts of this case in question. Furthermore, the jurisdiction of CIT (A) u/s 246 of the I.T. Act, 1961 does not extend to any of the proceedings u/s 12AA of the I.T. Act, 1961. Registration under the provisions of section 12AA of I.T. Act, 1961, its cancellation thereof is conferred only on the Commissioner/Director of Income-tax (Exemption). The Doctrine of merger is not a doctrine of rigid and universal application. This has been pointed out by the Hon. Supreme Court in the case of State of Madras v. Madurai Mills Co. Ltd. (1967) n19 STC 144 (SC) and Hindustan Aeronautics Ltd v. CIT (2000) 243 ITR 808 (SC).
From the aforesaid facts and circumstances, it is palpably manifest that the activities of this trust are not genuine in nature and also not being conducted with its objects thereof. Furthermore, a fortiori, with the amendment u/s 2(15) of the I.T. Act, 1961 by the Finance Act, 2008 w.e.f. AY 2009-10, Shri N.H. Kapadia Education Trust has lost the status of charitable organization. Its activities, proprio vigore, are being carried on commercial lines. Shri N.H. Kapadia Education Trust, though, was granted registration in principle by CIT, Gujarat-I, Ahmedabad vide order dated 21.3.1990 did not carry out any activity which has charitable object and also by invoking Doctrine of Just cause in the light of the observations of Hon. Supreme Court in 259 ITR 1 (SC) (supra), I strongly conclude that the activities of Shri N.H.Kapadia Education Trust are not genuine charities and are being carried out not in consonance with its objects, bereft of any element of charity. Accordingly, the registration granted earlier by the then CIT, Gujarat-I, Ahmedabad vide order dated 21.3.1990 is cancelled w.e.f. 21.3.1990 i.e., AY 1990-91 onwards."
6. Aggrieved, the assessee has come up with the present appeal before this Bench. It was submitted during the course of hearing that it is now well-settled position in law that the sub-section (3) inserted in s.12AA of the Act w.e.f. 1.11.2004 empowers the CIT 33 to cancel registration, if he finds that the activities are not genuine or not being carried out in accordance with the object of the trust; that it is evident that in terms of s.12AA(3) of the Act, the CIT has power to cancel registration granted u/s 12(a) or 12AA(1)(b) of the Act on being satisfied of either of the two conditions, namely, that the activities of the trust or the institution are not genuine or that the activities are not being carried out in accordance with the objects of the trust or institution, as the case may be.
Relies on the case laws:
(i) Ajit Education Trust v. CIT - 134 TTJ 483 (Ahd);
(ii) Baba Gandha Singh Education Trust v. CIT - 138 TTJ 1 (Chd);
6.1. It was, further, argued that the DIT (E) having not doubted the genuineness of the activities of the trust and the activities not found beyond its objects, the cancellation of registration was unwarranted [Refer: St. Don Bosco Education Socieity v. CIT - 90 ITD 477 (Luck)]. It was, further, submitted that on perusal of the reasoning given by the DIT (E) in his impugned order that the activities of the assessee trust by way of taking donations from students, indulging in transactions of commercial nature within the family group were treated as violation of s.13(1)(c) of the Act. The 34 reasoning given by the DIT (E) in para III of the impugned order has been dealt with by the assessee as under:
"3.3.1 (submission) it is observed by DIT (E) in para (i) of the order that 'The main notorious facts are that the trust has been indulging in taking donations from the students, indulging in transactions of commercial nature within the family group itself, clearly violating the provisions of sec.11(1)(d) and 13(1)(c)...' 3.3.2. The appellant submits that as stated above, the DIT (E) has cancelled/withdrawn registration of the trust basically for alleged violation of sect.11(1)(d) and 13(1)© which in view of the settled legal position ass stated above, is beyond the purview of his powers u/s. 12AA(3). In other words, the alleged violation of the said provisions as per DIT (E) could not be a ground for cancellation of registration of the trust u/s 12AA(3), though it could be enquired into by AO while examining the claim of exemption u/s 11/12 of the Act. therefore, on this preliminary ground itself, the impugned order is liable to be quashed and set aside.
3.3.3. Without prejudice to the above and in the alternative, the appellant submits that the reasoning given by DIT (E) is not justified both on facts and in law as under:
(a) As regards taking donations from the students, the appellant has dealt with this issue at length in the quantum proceedings so that the same is not repeated here for the sake of brevity but the same may be referred to for the purpose of this appeal also (Refer to P 116 to 136 of PB).
Reliance is placed on the decision of Maharastra Academy of Engg. & Educ. Research (Maeer) v. CIT 133 TTJ 706 (Pune) wherein in registration was cancelled mainly on the ground that the institution had collected donations, thus adopted some wrong means of collection of fees, the CIT could not enter into the area of investigation of source and application of income and so long as it was not the case that the trust was not imparting of education doubted or challenged by CIT.
(b)As regards the allegedly indulging into the transactions of commercial nature within the family group, the DIT (E) has 35 discussed in para (ii) of the order also and, hence, both are dealt with together as under:
The appellant had explained in its reply dt. 17.3.2011 that the payments made towards the agricultural land was for the purpose of pursuing the object of education by establishing school on S.G. Highway and neither any trustee nor any of the family member had derived any benefit or gain whatsoever there from. This is evident from the following material produced before them:
(i) banakhat was executed in the capacity as a trustee and expressly stated as representing the appellant trust (Page 60);
(ii) payments shown in the books of appellant under the head 'advance towards the land' as per Annexure I to the audited balance sheet as on 31.3.2008 (Page 20);
(iii) the trustees had also not treated the said funds as loan or advance from the trust but, on the contrary given funds to the trust to carry out the activities of the trust (p 19);
(iv) the board of trustees had passed resolutions in this regard;
(v) the funds were routed through the trustees account in view of the land being agricultural and one of the trustees was an agriculturist. The trustees had not retained any part of the said fund. In view of the above facts, it cannot be said that the afore said activity was non-genuine or outside the objects of the trust.
In view of the above, the DIT (E) having not doubted the genuineness of the activities of the appellant trust and the activities not found beyond its objects, the cancellation of registration is unwarranted. 3.4.1. It is contended by DIT (E) in para (ii) of the impugned order that the transaction of commercial nature by transferring the amount of Rs.4.50 crores to the account of trustees etc., was outside the 36 objects of the trust and it had failed to intimate change/alteration of its objectsl 3.4.2. The appellant begs to submit that the transaction of transferring such amount was not commercial in nature because:
(i) it was neither treated as loan or advance nor any interest was paid by the trustees and others on the said amount.
It was merely a case of funds routed through them so as to achieve the object of the trust i.e., acquiring land for school building with a lower cost;
(ii) the said funds were not retained by the trustees and other but paid for purchase of land etc. Thus, no gain or benefit was derived by them under such arrangement. 3.4.3. it is also contended by DIT (E) that there was failure to report this transaction in Form No.10B. The appellant submits that there was no such failure because part -II of Annexure in this form requires reporting of application or use of income or property for the benefit of trustee etc., but in the present case, since income or property was neither used nor applied for the benefit of trustee etc., there was no question of reporting the same.
3.4.4. It is contended by the DIT (E) in view of undertaking in form 10A, the appellant should have communicated the alteration in the term of the trust. However, DIT (E) has failed to appreciate that there was no alteration in the object clause of the trust deed when there is expansion of the educational activity of running school at a new place. The DIT (E) has failed to appreciate that there is distinction between the objects of the trust and the powers of the trustees to implement the said objects. The steps taken to acquire the land for constructing the school at S.G Highway was the exercise of powers to carry out the object of education. It was held in the case of CIT v. Kshatriya Girls Schools Managing Board [245 ITR 170 (Mad)] that when the object of trust was to utilize income for imparting education through school and trustees were given powers to construct buildings and to lease them out, these powers could not be regarded as objects of the trust. Similarly, in the case of Sunbeam English School Soc., v. CIT (129 ITD 299)(All) it was 37 held that when the assessee was engaged in the activities of providing the education since its inception, the payments for construction of building which was not utilized for the purpose other than the education purposes, the payments cannot be the ground to cancel the registration granted u/s 12A(a). In view of the above, it is submitted that neither there was a commercial transaction of transferring money to the trustee and others nor the activity of acquiring land for the purpose of expansion of education activity was an alteration in he object clause of the trust.
3.5.1. it is observed by DIT (E) in para (iii) of the order that the proviso to section 2(15) inserted w.e.f. 1.4.2009 treat the carrying on of any activity in the nature of trade, commerce or business was not with the object of general public utility. 3.5.2. the appellant submits that the reliance placed on this amended definition of 'charitable purpose' is wholly unjustified because -
(i) the said proviso as even stated by DIT(E) is applicable from AY 2009-10 and onwards.
(ii) Moreover, it is applicable only in case where the object of the trust is advancement of any other object of general public utility and not in the cases of like relief of the poor, education, medical relief etc., The appellant trust is admittedly established with the object of imparting education and undisputedly carrying on the activities as an educational institution so that the amendment will not apply;
(iii) In any view of the matter, the audited annual accounts for AY 2008-09 clearly establish that the activities of the trust were not commercial in nature. There was a huge deficit of Rs.75,18,264/- in this year as per income and expenditure account and it had also incurred expenses totaling to Rs.5,80,05,990/- towards the object of the education as per the audited annual account (Page 23). The appellant submits that it is an insult to the educational institution which has received various awards for excellence and the prominent personalities from the filed of education and otherwise have graced 38 its different occasions such as Silver Jubilee function by the then His Excellency, Hon. President of India, Dr. S.Radhakrishnan.
(iv) It has been held in the case of M.P.Madhyam v. Jt. CIT (89 TTJ 770) (Ind) that where the predominant object is to carry out the charitable purpose and not to earn profit it would not lose its charitable character merely because some profit arises from the activity - CIT having failed to specify as to how profit-making was predominant activity of assessee instead of carrying out charitable purpose, was not justified in canceling registration under s.12A. similarly, it was held in the case of Jyoti Prabha Soc. (87 ITD 126) (Del) that having utilized the whole income for educational purposes as per its objects without having any profit motive, is entitled to hold registration.
3.6.1. Lastly, the DIT (E) has cancelled registration w.e.f. 21.3.1990 which is wholly illegal, unlawful and unjust. It is surprising that DIT (E) by relying upon the assessment for AY 2008-09 made by AO, cancelled the registration from the date of grant, though there was no evidence on record to show that the activities carried out in the past were non-genuine or in accordance with the objects of the trust. The DIT (E) has not brought on record even a single instance relating to the past years so as to cancel registration from that date. It is surprising that the appellant trust carrying on education activities for past many years and for three generations has been treated as non- genuine by DIT (E) from its inception. This action on part of DIT (E) clearly demonstrates non-application of mind and bias. 6.2. On the other hand, the Ld. D R had vehemently argued that as the activities of the assessee were not only non-genuine in nature but also outside the objects of the trust and for the detailed reasons recorded in his findings, the DIT (E) cancelled the registration earlier granted to the assessee trust. It was, therefore, pleaded that the stand of the DIT(E) requires to be sustained. 39
7. We have carefully considered the submissions of the Ld. AR as well as the Revenue. We have also perused the relevant records, case laws relied on by rival parties and also the voluminous paper book furnished by the Ld. A R during the course of hearing. 7.1. The origin of the issue being that the assessment in the case of the assessee trust was concluded by the AO for the AY 2008- 09 in rejecting the exemption allowed u/s 11 and 12 of the Act for the reasons detailed by the AO in his impugned order. On being approached the CIT(A) with an appeal, the assessee trust's plea for restoration of the exemption under the said sections of the Act was ultimately acceded to by the CIT (A)'s order dt.24.1.2011. In the meanwhile, the DIT (E) slapped a show-cause notice dt.10.2.2011 on the assessee trust to show-cause as to why its registration granted earlier should not be cancelled and so on and so forth. As already narrated supra, the DIT (E), for the detailed reasons recorded in his impugned order under challenge, cancelled the registration earlier granted to the assessee w.e.f. 21.3.1990.
7.2. The cruxes of the issues which prompted the DIT (E) to resort to cancel the registration can, at best, be narrowed down to the following reasons:
40
(1) the activities of the trust were not only non-genuine in nature, but also some of the activities were outside the objects of the trust;
(2) the transaction of commercial nature by way of transferring Rs.4.50 crores to Shri Muktak Kapadia and his sons who in turn paid to Smt. Sonalben Jakasania towards agreement to sell of the agricultural land;
(3) the trust was having the activities of commercial nature which was hit by the proviso to s.2(15) inserted by Finance Act 2008 w.e.f. 1.4.2009 - AY 2009-10; and lastly (4) s. 12AA inserted by Finance Act (No.2) of 1996 w.e.f.
1.4.1997 empowers the Commissioner to examine the objects of the trust w. r. to the definition of 'charitable purpose ' along with newly inserted proviso to s. 2 (15). The issues are dealt with chronologically in the following manner:
(1). The activities of the trust were not genuine in nature:
It is a well known fact that the assessee trust is one of the pioneers in the City in imparting education to the needy (public) by running a chunk of educational institutions for decades. It was the allegation of the DIT (E) that the activities of the assessee by way of taking donations from the students, indulging in transaction of commercial nature within the family group which, according to the DIT (E), were the violation of s.13(1)(c) of the Act.
Incidentally, a similar issue in the assessee's own case has already been exhaustively deliberated upon by this Bench in the Revenue's appeal (supra) wherein it has been observed that the 41 activities of the assessee trust were within the parameters of the objects of the trust and, thus, we are of the firm view that the allegation of the DIT (E) was without any basis which deserves to the rejected. The findings handed down in the Revenue's appeal referred above holds good for this issue also. Therefore the activities of the Trust are genuine.
(2) Transaction of commercial nature by way of transferring of Rs.4.5 crores to Shri Mutak Kapadia etc.,:
Incidentally, this issue also drew our attention while dealing with the Revenue's appeal (supra). For appreciation of facts, of course, at the cost of repetition, we observe that in respect of the payment made by the trustees to the vendor, it was explained that the funds provided by the trust has been paid through its trustees for the reasons recorded supra and that the banakhat clearly indicates that the transaction was made for and on behalf of the assessee trust only and not for the personal benefit of any of the trustees. The payment made towards purchase of land was shown by the assessee in its books of account under the head 'advance towards land' (Annexure L to the audited annual a/c) and the Managing Trustee had not claimed anywhere in his books of account that the said payments were towards purchase of land. To towering all, neither the managing trustee nor any of his relatives for that matter have claimed that the 42 said purchase was made on behalf of them or for their own benefits.
We have also perused the confirmation of accounts furnished by Smt. Sonalben J Jakasania place [P 66 of paper book]. There were also no documentary evidences to attribute that the said transaction took place only to benefit the managing trustee or his relatives except that the funds of the trust were routed through the trustees to the vendor which merely exhibits the expediency prevailed at that relevant time. Moreover, the utilization of the trust fund was not for the purchase of agricultural land as an investment, but it was a gate-
way to set up an educational institution in that land. In this connection, we would like to recall the ruling of the Hon'ble Madras High Court in the case of CIT v. Kshatriya Girls Schools Managing Board 245 ITR 170 (Mad) wherein it has been observed:
"The objects of the assessee-trust make it clear that the assessee-trust was established to undertake, to run and improve the Kshatriya Schools and to upgrade the schools belonging to the Board, the trustees have been given power to construct buildings and to lease out the properties. Though the powers given to the trustees are found in the object clauses, a fair reading of the objects clause would show that they are mere powers conferred on the trustees and they cannot be regarded as objects of the trust. The apex court in Aditanar Educational Institution's case [1997] 224 ITR 310, held that a distinction/difference should be made between the corpus, objects and powers of the trustees. When the distinction between the objects and powers are kept in mind, clauses (c) to
(e) are only powers of the trustees which is made explicit by clause (f). That apart, clause 3(g) of the trust deed also makes it clear that the income from the properties should be utilized to 43 implement the objects mentioned in clauses 3(a) and 3(b).
Therefore, we are of the view, the object of the trust is education and it is not to make profit. As held by the Supreme Court the acid test is whether the object is to make profit. But, in construing the objects, one has to weed out the powers of the trustees and when the objects of the assessee are seen, we are of the opinion; the assessee-trust has been founded solely for educational purposes and not for earning profit."
With regard to the DIT (E)'s allegation that there was failure on the part of the assessee trust to report the transaction in Form No.10B, we would like to draw the attention of the Revenue that there was no such failure since Part II of Annexure in the said Form requires reporting of application or use of income or property for the benefits of its trustees. However, in the case under consideration, neither the income nor the property of the assessee trust was utilized for the benefits of the trustees; there was no occasion for the assessee trust to furnish such a transaction in Form No.10B. Further, there was no case of any alteration of object of the trust, as the purchase of agricultural land and routing through of the payments to the vendor was due to expediency. The object of the trust has not anyway been derailed as alleged by the DIT (E) while making expansion of its educational activities to run its schools at a new place. We therefore, do not find any infirmity in the transaction as alleged by the DIT (E).
44(3) The trust was having activities of commercial nature which is hit by theProviso to s.2(15) of the Act:
Brushing aside the assessee's genuine claim that the inserted proviso has come into effect only from 1.4.2009 i.e., from the AY 2009-10 and onwards, we would like to recall the amended provisions of s.2 (15) of the Act which reads as under:
"Charitable purpose' includes relief of the poor, education, medical relief [preservation of environment (including watersheds, forests and wildlife) and preservation of monuments or places or objects of a artistic or historic interest]and the advancement of any other object of general public utility:
'provided that the advancement of any other object of general public utility shall not be a charitable purpose, if it involves the carrying on of any activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business, for a cess or fees or any other consideration, irrespective of the nature of use of application, or retention of the income from such activity."
On a careful reading, it makes it crystal clear that the amended provision of s.2(15) of the Act will come into fore only that the advancement of any other object of general public utility shall not be a charitable purpose, 'if it involves the carrying on of any activity in the nature of trade, commerce or business...'. In the case under consideration, the assessee trust did not in anyway involve itself in indulging in carrying on of any activity in the nature to any trade, commerce or business. Therefore, the question of bringing 45 the assessee trust's case under the ambit of the amended provisions of s. 2(15) of the Act doesn't arise. At this juncture, it would be more appropriate to quote the ruling of the Hon'ble Madras High Court cited supra - of course at the cost of repetition, - wherein it has been held that "...... Therefore, we are of the view, the object of the trust is education and it is not to make profit. As held by the Supreme Court the acid test is whether the object is to make profit. But, in construing the objects, one has to weed out the powers of the trustees and when the objects of the assessee are seen, we are of the opinion; the assessee-trust has been founded solely for educational purposes and not for earning profit." As already made it clear that the assessee trust had, in fact, indulged in purchase of agricultural land with a sole object of constructing an educational institution to commensurate with its educational activity. The audited annual accounts for the AY 2008-09 have clearly established that the activities of the trust were not commercial in nature. As could be seen from its accounts that there was a deficit of Rs.75.18 lakhs in that year as per I & E account and that it had incurred expenses aggregating to Rs.5.80 crores towards the object of the educational activities.
46In view of the above facts, we are of the considered view that the assessee trust's registration could not have been canceled on a flimsy ground.
(4) s. 12AA inserted by Finance Act (No.2) of 1996 w.e.f. 1.4.1997 empowers the Commissioner to examine the objects of the trust w. r. to the definition of 'charitable purpose 'along with newly inserted proviso to s. 2 (15).
We have duly considered the submission of the assessee trust that the DIT(E) had cancelled the registration of the trust basically for alleged violation of s.11(1)(d) and s.13(1)(c) of the Act which, in view of the settled legal position, was beyond the purview of the powers of DIT (E) u/s. 12AA(3) of the Act. It was, further, advanced that in other words, the alleged violation of the said provisions as per DIT (E) could not be a ground for cancellation or registration of the trust u/s. 12AA(3) of the Act. As rightly argued by the assessee trust, the alleged violation of the said provisions could be enquired into by the AO while examining the claim of exemption u/s 11 and 12 of the Act.
We shall now analyze the legal views on this particular issue as under:
(i) M/s.Vidarbha Cricket Association, Nagpur v. CIT - ITA No.3/Nag/10 dt.30.5.2011:47
Briefly, the issue before the Hon'ble Bench was the invoking of section 12AA(3) by the Commissioner to withdraw registration granted to the assessee u/s 12AA of the Act. After analyzing the issue in depth, taking into account the rival submissions and also extensively quoting the findings of (i) the Chandigarh Bench of the Tribunal in the case of H.P.Government Energy Development Agency v. CIT [46 DTR (Chd)(Trib) 126] and (ii) Chaturvedi Har Prasad Educational Society v. CIT [46 DTR (Luck) (Trib)121], it was observed by the Bench that:
"8. On as perusal of the aforesaid, it is clearly established that as per the Commissioner, the activities of the assessee do not fall within the meaning of 'charitable purpose' as per proviso to section 2(15) inserted with effect from 1.4.2009.
Quite clearly, as we have observed earlier, such an objection cannot be the basis to invoke section 12AA(3) so as to cancel the registration already granted to the assessee under section 12A of the Act. In our considered opinion, registration already granted to the assessee could not have been re-visited by the Commissioner on the basis of the reasoning aforesaid since his power to cancel registration under section 12AA(3) was confined to the examination as to whether the activities of the assessee society/association are genuine or that the same are not being carried out in accordance with the stated objects. In the light of the discussion emerging from the order of the Commissioner, in our considered opinion, action taken by the Commissioner does not fall within the parameters of section 12AA(3) of the Act and, therefore, the impugned order is bad in law.
9. At this stage, we may hasten to add that we are not commenting on the merits of the issue as to whether the activities of the assessee fall within the meaning of expression 'charitable purpose' per section 2(15) as 48 amended with effect from 1.4.2009. the only point decided in the appeal is to the effect that it was not within the scope and ambit of section 12AA(3) for the Commissioner to have examined the applicability of the amended section 2(15) for the purposes of invoking his powers of cancellation provided in section 12AA(3) of the Act. At this stage, we may also state that the issues raised by the Commissioner in the impugned order are not beyond the powers of the Revenue to examine so, however, the same can only be examined in the appropriate proceedings, such as assessment proceedings in the present case. Our decision is resting only on the foundation that the impugned order passed by the Commissioner is not permissible in view of the limited powers available to him under section 12AA(3) of the Act........."
(2) Ahmedabad Urban Development Authority v. DIT (E) - ITA No. 754/Ahd/2010 dt; 21.5.2010 (for the AY 2009-10):
An identical issue to that of the present one came up for consideration of the earlier Bench. The issue before the Bench, in brief, was that the assessee was an autonomous body set up and governed by the provisions of The Gujarat Town Planning and Urban Development Act 1976 (GTP Act); that the assessee was registered u/s 12AA of the Act w.e.f 1.4.2002 vide order dated 23.10.2003 of the DIT (E). The DIT (E) vide his order u/s 12AA(3) of the Act dated 15.2.2010 cancelled the registration u/s 12AA w.e.f. 1.4.2002. After consideration of the submissions of either party, analyzing the provisions of s.12AA(3) of the Act and also the provisions of s.79 of the GTP Act, the Bench had recorded its findings thus:49
"7. In view of the above, we are satisfied that none of the conditions as prescribed under section 12AA(3) is satisfied in the case of the assessee so as to cancel the registration granted under section 12AA. We, therefore, quash the order of the DIT (Exemption) passed under section 12AA(3) and restore the order of the registration passed by the DIT (Exemption) under section 12AA(1) dated 23.10.2003."
(3) Yet another finding in the case of Ajit Education Trust v. CIT reported in (2010) 46 DTR (Ahd)(Trib) 482, the earlier Bench has observed thus:
"(Paras 11 & 14) The objects have explicitly stated that the trust was established for educational purposes. Nowhere in the order of the CIT there was an allegation that the trust was not running an educational institution. Therefore, one has to examine the correctness of the cancellation of the registration in terms of the language of s. 12AA as prescribed in sub.s. (1) and particularly in cls. (a) and (b) of the section. So far as the running of the educational institution is concerned, even the AO while passing assessment orders for several years, has held that the trust is entitled for exemption under s.10(23C)(iiiad). If the Revenue Officer himself is qualifying this trust as an educational institution and then granting the said exemption, then as a result it was not justifiable on the part of the CIT to hold such a conflicting view which can be said to be altogether contrary to the facts of the case. The allegation was that the books of account were not found in a proper manner. Because of the absence of the books of account, it was also doubted whether the educational fees received from the students was ever applied for the purpose of education. In the present case, the trust being an educational institution and undisputedly imparting education, therefore, it was not justifiable on the part of the CIT to deny the registration. Nevertheless, the application of income and the utilization of funds is always subject to scrutiny by the AO while assessing the income of the trust. It is, therefore, clarified that merely by granting a 50 registration under s.12A/12AA a trust ipso facto is not entitled for the exemptions prescribed under ss.11 and 12. Neither de jure nor de facto i.e., neither in principle nor in practice, a trust can get exemption under s. 12AA (in the past s.12A). In the light of above discussion, the cancellation of registration, on both the counts, i.e., on merits as also on the legality of jurisdiction, was not in accordance with law-Maharashtra Academy of Engineering & Educational Research (Maeer) v. CIT (2010) 36 dtr (Pune)(Tri) 321 relied on."
7.3. It is pertinent to note that the whole finding of the Ld. DIT(E) are based on the findings given in the assessment order for the assessment year 2008-09, but subsequently the assessment order has been set aside and the additions made therein were deleted by the Ld.CIT(A) vide order dt. 24/02/2011, which is now confirmed by the Tribunal in ITA No.1321/A/2011 herein above. However, the Ld.DIT(E) had cancelled the registration vide order dt. 17/03/2011. Since on the day of passing the order on 17/03/2011 nothing survived in favour of the Revenue because the Ld. CIT(A) had deleted all the additions on merits by his order on 24/02/2011, there was no basis left for the Ld.DIT(E) to cancel the Registration granted to the assessee.
7.4. Further Sec. 12AA has been inserted into the Income Tax Act w.e.f 01/04/1997. Prior to that registration were granted U/s. 51 12A(a) of the Act. Section 12AA(3) provides for cancelation of registration granted under clause (b) of sub-section (1) of section 12AA. Section 12AA(3) has been amended by Finance Act 2010 w.e.f 01/06/2010 and following have been added in this provision:- " [ or has obtained registration at any time under section 12A [ as it stood before its amendment by the Finance(No.2) Act, 1996 (33 of 1996)]]". The assessee has been granted registration w.e.f 21/03/1990 and as such the amended provision in section 12AA(3) cannot be applied against the assessee retrospectively particularly prior to amendment dated 01/06/2010. Hon. Delhi Court in the case of DIT(E) V/s mool Chand Khairati Ram Trust 339 ITR 622 held as under:-
"In sub-section (1) clause (b) and sub-section (3) of section 12AA of the Income-tax Act,1961, cancellation of registration was provided where the registration was granted under clause (b) of sub-section (1). Further, cancelation under sub-section (3) was also provided where the registration was obtained at any time under section 12A (whether under clause (a) or clause (aa) of sub-section (1) of section 12A). But this power of cancellation of registration under section 12A came to be incorporated by way of amendment introduced by the Finance Act, 2010, with effect from June 1, 2010. Now with effect from June 1, 2010, the power vests with the Commissioner to cancel the registration granted under any of the clauses of sub-
section(1) of section 12A.52
The assessee-trust obtained registration in December, 1974. Based on this, the assessee got exemption of Income-Tax in the assessments under section 143(3) for the assessment years 1996-97 to 2005-06. The Director of Income-Tax cancelled the registration under section 12AA(3) with effect from assessment year 2002-03 by his order dated June 30, 2009. The Tribunal set aside the order of cancellation. On appeal to the High Court :
Held, dismissing the appeal, that the cancellation of registration was not valid."
7.5. In overall consideration of all the facts and circumstances of the issue and also in conformity with the judicial pronouncements (supra), and from the above discussions, we are of the considered view that the DIT (E) was not justified in resorting to cancel the registration granted to the assessee trust earlier by the CIT, Gujarat-I, Ahmedabad vide his order dated 21.3.1990 w.e.f. 21/3/1990. Therefore the Impugned order is set aside and quashed. The Order granting registration in favour of the assessee is restored thereby allowing the appeal of the assessee in its favour. 53
8. In the result: (i) the Revenue's appeal is dismissed; &
(ii) the assessee trust's appeal is allowed.
Order pronounced in the court today on 03-02-2012 Sd/- Sd/-
(BHAVNESH S AINI) (A MOHAN ALANKAMONY)
JUDICI AL MEMBER ACCOUNTANT MEMBER
Date : 03-02-2012
Copy of the order forwarded to:
1. Shri N H Kapadia Education Trust, Opp. Tirthnagar Vibhag-I, Memnagar, Ahmedabad
2. The Director of Income-tax (Exemption) Ahmedabad
3. CIT concerned
4. CIT(A),
5. DR, ITAT, Ahmedabad Bench, Ahmedabad
6. Guard File BY ORDER Deputy Registrar Assistant Registrar ITAT, AHMEDABAD