Income Tax Appellate Tribunal - Lucknow
M/S Rohilkhand Educational Charitable ... vs Pr. Cit(Central), Bareilly on 20 October, 2021
I.T.A. No.737/Lkw/2019
1
Assessment Year:2009-10
IN THE INCOME TAX APPELLATE TRIBUNAL
LUCKNOW BENCH 'A', LUCKNOW
(THROUGH VIRTUAL HEARING)
BEFORE SHRI A. D. JAIN, VICE PRESIDENT AND
SHRI T. S. KAPOOR, ACCOUNTANT MEMBER
ITA No.737/Lkw/2019
Assessment Year:2009-10
M/s Rohilkhand Educational Vs. Pr. CIT (Central),
Charitable Trust, Lucknow.
C/o Keshlata Cancer Hospital
Ltd., Stadium Road, Delapeer,
Bareilly.
PAN:AAATR6902J
(Appellant) (Respondent)
Appellant by Shri Rakesh Garg, Advocate
Shri Ravindra Kumar Agarwal, C.A.
Respondent by Smt. Sheela Chopra, CIT, D.R.
Date of hearing 06/10/2021
Date of pronouncement 20/10/2021
ORDER
PER T. S. KAPOOR, A.M.
This is an appeal filed by the assessee against the order of learned Pr. CIT (Central), Lucknow dated 20/03/2019 passed u/s 12AA(3) of the I.T. Act.
2. Learned counsel for the assessee, at the outset, invited our attention to the application for condonation of delay in filing the appeal along with the affidavit narrating the reasons for delay in filing the appeal and submitted that in fact the Pr. CIT (Central) has cancelled the registration of the assessee u/s 12A vide order dated 20/03/2019 which was served on the I.T.A. No.737/Lkw/2019 2 Assessment Year:2009-10 assessee on 25/03/2019 and therefore, the time limit available to the assessee for filing the appeal before the Tribunal was 23/05/2019. It was submitted that on some professional advice, the assessee, instead of filing appeal before the Tribunal, filed a Writ Petition in the Lucknow Bench of Hon'ble Allahabad High Court on 24/04/2019 wherein the order passed by Pr. CIT (Central) was challenged and a petition for interim relief in the form of stay and operation of the said order, was filed. Learned counsel for the assessee submitted that various dates were fixed by Hon'ble High Court but no decision was taken and the matter is still pending therein and in the meantime the assessee was advised to file appeal before the Tribunal and therefore, the appeal was filed before the Tribunal and in the process the appeal became time barred by 216 days. It was submitted that since the delay had occurred due to legal process adopted by the assessee on the advice of a professional and therefore, there is no fault on the part of the assessee and it was prayed that the delay in filing the appeal may be condoned and the appeal be heard on merits.
3. Learned CIT, D.R., did not have any objection to the condonation application filed by the assessee and finding the explanation by the assessee plausible, we condoned the delay in filing the appeal and Learned counsel for the assessee was directed to proceed with his arguments.
4. Learned counsel for the assessee, at the outset, invited our attention to a petition for admission of additional ground of appeal and submitted that he will not be pressing the same and will be resting his arguments only on ground No. 2 & 3 of the original grounds of appeal. Explaining the facts of the case, Learned counsel for the assessee submitted that the assessee is a public Charitable Trust, registered with Sub-registrar, Bareilly by a written Deed of trust in 1998 with the main object of imparting education. It was submitted that it is an irrevocable trust engaged in charitable activities I.T.A. No.737/Lkw/2019 3 Assessment Year:2009-10 without any distinction of caste, creed or color and its area being whole of India and it was also registered u/s 12A/80G of the I.T. Act by the order of CIT (Exemptions), Bareilly vide order dated 21/06/1999. Learned counsel for the assessee submitted that the assessee has been running a Dental College in the name of "Institute of Dental Sciences" from 2006-07, in the name of "Rohilkhand Medical College & Hospital" at Bareilly with a 500 bedded hospital which was increased to 750 beds and the assessee is also engaged in providing free medical facilities to about 1500 patients daily in OPD. Learned counsel for the assessee submitted that on 18/09/2014, a search u/s. 132 of the Income Tax Act was carried out at the premises of Rohilkhand Medical College, Bareilly and also on the premises of trustees. It was submitted that certain cash was found from the premises of assessee as well as trustees and which the assessee claimed to have been received from students as gifts. It was submitted that assessee preferred settlement with the Department and filed application for settlement with Settlement Commission on 05/01/2017 which was accepted by Settlement Commission on 17/01/2017. It was submitted that CIT (Exemptions) show caused the assessee first time on 20/03/2018 for cancellation of its registration u/s 12A of the Act and in the meantime the assessee as well as trustees of the trust were required to file their income tax returns u/s 153A of the Act. It was submitted that the assessee as well as the trustees of the trust filed their respective income tax returns u/s 153A of the Act. In the meantime learned CIT (Exemptions) cancelled the registration granted to the assessee vide his order dated 20/03/2019 and against the cancellation of registration, the assessee filed a Writ Petition before Lucknow Bench of Hon'ble Allahabad High Court for interim stay and operation of the said order and which is still pending before Hon'ble Court despite having listed for hearing on a numbers of occasions. Learned counsel for the assessee further submitted that side by side the assessee also challenged the issuance of notice u/s 153A I.T.A. No.737/Lkw/2019 4 Assessment Year:2009-10 through a writ before Hon'ble Allahabad High Court on the ground that the assessee should have been asked to file their returns u/s 153C of the Act instead of section 153A as the cases of the assessee were reopened in view of incriminating material found at the premises of another person which Hon'ble High Court dismissed by holding that since assessee was before Settlement Commission therefore, it should get its issues resolved from there only. The assessee filed appeal before Hon'ble Supreme Court against the findings of Hon'ble High Court and Hon'ble Supreme Court, vide order dated 03/04/2017, remitted back the issue to Hon'ble High Court with a direction to decide the issue of jurisdiction as challenged by the assessee. In this respect our attention was invited to the order passed by Hon'ble High Court placed at pages 164 & 165 and that of Hon'ble Supreme Court placed at pages 161 to 163 of the paper book. Learned counsel for the assessee submitted that the precise question to be decided by this Bench is as to when the assessee filed application before the Settlement Commission and which was accepted also, whether CIT (Exemptions) can pass order cancelling the registration of the assessee. Our attention was invited to the provisions of section 245F of the Act where it has been mentioned that where application filed before the Settlement Commission is admitted and is pending for disposal, all income tax authorities will cease to have any jurisdiction over such assessee and entire jurisdiction will vest with the Settlement Commission till the time the application is disposed of. It was submitted that the application filed by the assessee before Settlement Commission is still pending. Learned counsel for the assessee submitted that in view of the specific provisions of section 245F of the Act, all powers of the income tax authorities were vested with Settlement Commission and therefore, the order passed by CIT (Exemptions) is nonest and is void ab initio. Reliance in this respect was placed on a judgment of Delhi High Court in the case of Tahiliani Design Pvt. Ltd. vs. JCIT [2021] 432 ITR 134 (Del) I.T.A. No.737/Lkw/2019 5 Assessment Year:2009-10 wherein vide order dated 19/01/2021, Hon'ble High Court has held that once the application is admitted by the Settlement Commission, all the powers of income tax authorities get vested with the Settlement Commission until the application is disposed of. It was submitted that CIT (Exemptions) was appraised of about this legal position but he did not agree with the submissions of the assessee and dismissed this argument vide para 7.2 and 7.3 of his order. It was submitted that in his findings, the learned CIT (Exemptions) has wrongly held that the issue before the Settlement Commission was not that of registration u/s 12A but the issue was entirely different and which related to the settlement in terms of quantification of the tax demand. Learned counsel for the assessee submitted that this finding is contrary to the existing provisions of section 245F of the Act which has been fortified by the decision of Hon'ble High Court in the case of Tahiliani Design Pvt. Ltd. (supra) and therefore, it was prayed that the order passed by learned CIT (Exemptions) be set aside as illegal being void ab initio.
5. Learned CIT, D.R., on the other hand, heavily placed reliance on the order of learned CIT (Exemptions) and also filed written submissions which, for the completeness, are reproduced below:
"In the above case, it is humbly submitted that the following decisions may kindly be considered with regard to Section 12AA of I.T.Act:
1. Dawn Educational Charitable Trust Vs CIT [2016] 73 taxmann.com 61 (SC)/r20161 242 Taxman 1 (SO Where Hon'ble Supreme Court dismissed SLP against High Court's ruling that where assessee-trust was running posh school for children of non-resident Indians on commercial lines under guise of charitable purpose, application made for registration under section 12A was to be rejected.
I.T.A. No.737/Lkw/2019 6 Assessment Year:2009-10
2. Navodava Education Trust Vs Union of India 2018-TIOL- 261-HC-KAR-IT where Hon'ble Karnataka High Court held an institution having the cloak of "educational trust", whose trustees appear to be the members of same family and who thoroughly abused the benefit u/s 10(23C) for purposes other than pure educational purposes, is disentitled to such exemption benefit. Huge Capitation Fees collected by Medical Institutions to provide seats to the intending students, cannot be treated as voluntary contribution for charitable purposes by the parents.
3. Rajah Sir Annamalai Chettiar Foundation Vs PIT [2011] 15 taxmann.com 313 (Chennai)/r20in 10 ITR(T) 424 (Chennai)/r20in 48 SOT 502 (Chennai) Where Hon'ble ITAT Chennai held as follows:
"The principle that the institutions run by the charitable societies may collect fees and service charges does not mean that the institutions can charge fees, etc., at commercial rates from all the people without giving any element of charity to needy people. The charitable purpose defined and manifested as including relief of the poor, education, medical relief, etc., is to protect the basic concept of charity. Presence of real charity cannot be diluted. Charity always means helping the needy supporting the poor, working with compassion and dedication for the society. Running of an institution without any of the above virtues cannot be considered as a charitable institution. The object of the assessee- trust is to establish a number of educational institutions in a brand name and run it on commercial lines. This cannot be a charitable activity."
4. CIT Vs National Institute of Aeronautical Engineering Educational Society [20091181 Taxman 205 (Uttaranchal) where Hon'ble Uttaranchal High Court held that in expression 'charitable purpose', charity is soul of expression and mere trade and commerce in education cannot be said to be a charitable purpose entitling a society to grant of registration under section 12AA. It was held as follows:
"Section 12AA provides procedure for registration clause
(a) of section 12AA(1)(a) empowers the Commissioner I.T.A. No.737/Lkw/2019 7 Assessment Year:2009-10 to call for such documents or information from the trust or an institution, as he thinks necessary in order to satisfy himself about the genuineness of the activities of the trust or an institute and may also make such inquiries, as he may deem necessary in this behalf. Said provision in section 12AA makes it clear that the Commissioner is not supposed to allow the registration with blind eyes. In the instant case, the order passed by the Commissioner showed that he had considered the income and expenditure account of the society for the financial years 2000-01 to 2002-03, and concluded that the assessee was not carrying on any charitable activity as its dominant object was to earn profits under the garb of 'education'. The Commissioner had further observed that the assessee was charging substantial fee from the students and was making huge profits. The order passed by the Commissioner further disclosed that the surplus had been transferred to the capital fund of the assessee. It had been further clarified in the finding of the Commissioner that no expenditure was made by the assessee for the charitable purpose. [Para 6] Mere imparting education for primary purpose of earning profit cannot be said to be a charitable activity as interpreted by the Apex Court in Municipal Corpn. of Delhi v. Children Book Trust [1992] 3 SCC 390. In the expression 'charitable purpose', charity is soul of the expression. Mere trade and commerce in education cannot be said to be a charitable purpose"
5. Self Employers Service Society Vs CIT [20001 113 Taxman 703 (Kerala)/r200n 247 ITR 18 (Kerala)/r20001164 CTR 449 (Kerala) Where Hon'ble Kerala High Court held that since petitioner- society had not done any charitable work during relevant period and its activities were only for purpose of generating income for its members, rejection of application could hardly be termed as illegal or arbitrary
6. UP Distillers Association Vs CIT (2018-TIOL-138-SC-IT) I.T.A. No.737/Lkw/2019 8 Assessment Year:2009-10 Where Hon'ble Supreme Court dismissed SLP of the assessee holding that registration granted to a trust can be cancelled u/s 12AA(3), by relying upon the statement of concerned person recorded u/s 132(4)
7. Kirti Chand Tarawati Ch. Trust Vs PIT M9991 105 Taxman 686 (Delhi)/M9981 232 ITR 11 (Delhi)/ri9991 152 CTR 322 (Delhi) where Hon'ble Delhi High Court held that authority conferred with power to grant approval under section 80G is not debarred from finding out real purpose of trust as distinguished from ostensible purpose and if it may find that purpose of trust was other than charitable, then nothing debars such authority from denying approval. Where petitioner-trust, though created for charitable purposes, was found to be engaged mainly in construction of religious temple wherein no charitable activity was being carried out, it was rightly denied renewal of recognition under section 80G(5)
8. Travancore Education Society Vs CIT [2016] 66 taxmann.com 362 (Kerala)/r2014l 369 ITR 534 (Kerala) where Hon'ble Kerala High Court held that where assessee- trust collected capitation fees in addition to prescribed fees, object of assessee-trust could no more be said to be charitable in nature and, hence, registration granted to it was to be rejected
9. CIT Vs A.Y. Broadcast Foundation [20121 21 taxmann.com 533 (Kerala)/[2012l 246 CTR 301 (Kerala) where Hon'ble Kerala High Court held that where assessee was formed for production of television and radio programmes for purpose of telecasting and broadcasting, such activities could not be held as charitable purpose covered by section 2(15)
10. Shri Agrawal Sabha Vs CIT [20131 40 taxmann.com 170 (Agra - Trib.)/r20141 61 SOT127(Agra-Trib.) where Hon'ble ITAT Agra held that where assessee in preceding year of making registration application had mainly organized Shree Maharaja Agrasen Jyanti meant for Agarwal community only, objects of assessee were meant for benefit of a particular community and, therefore, it was not eligible for registration.
I.T.A. No.737/Lkw/2019 9 Assessment Year:2009-10
11. G. D. Singla Charitable Trust vs. CIT (I.T.A. No.594/2013) where Hon'ble I.T.A.T. Amritsar held that benefit of registration u/s 12AA cannot be granted to a trust that is controlled by a single family."
6. We have heard the rival parties and have gone through the material placed on record. We find that it is undisputed fact that the assessee was a charitable institution, registered u/s 12A of the Act vide registration granted by the learned CIT (Exemptions) vide order dated 26/03/1999. A search & seizure operation happened on the premises of the assessee as well as on the trustees wherein from the premises of the trustees and assessee, certain incriminating documents including cash was found. The assessee claimed before the authorities that such cash was gifted to assessee by various students. In view of the search, the assessee as well as the trustees were required to file their income tax returns u/s 153A of the Act which the assessee as well as trustees duly complied. In the meantime, with a view to make settlement with the Department, the assessee filed application with Settlement Commission on 05/01/2017 and which was admitted by Settlement Commission on 17/01/2017. However, no order by Settlement Commission has been passed. In the meantime, the assessee also challenged the issuance of notice u/s 153A before Lucknow Bench of Hon'ble Allahabad High Court with a request that the notice u/s 153A was not in accordance with law as nothing incriminating was found from the premises of the assessee and the incriminating documents being used against the assessee were found at the premises of other person and therefore, the assessee should have been required to file their income tax returns u/s 153C of the Act. The Hon'ble High Court dismissed such writ of the assessee by holding that the matter was pending before Settlement Commission and therefore, the assessee should get all his grievances resolved at the Settlement Commission level. However, it did not answer I.T.A. No.737/Lkw/2019 10 Assessment Year:2009-10 the grievance of assessee that assessee should have been asked to file income tax returns u/s 153C of the Act. The assessee filed appeal before the Hon'ble Supreme Court against the order of Hon'ble High Court and Hon'ble Supreme Court vide order dated 03/04/2017 remanded back the issue to Hon'ble High Court with a direction to decide first the jurisdiction issue raised by the assessee. Such issue is still pending before Hon'ble High Court. The assessee side by side also challenged the order passed by Pr. CIT (Exemption) cancelling the registration by filing a Writ Petition before Hon'ble High Court which again is pending and has not been disposed of as yet. In view of the search conducted on assessee and its trustees, the learned CIT (Exemptions) show caused the assessee as to why its registration u/s 12A may not be cancelled and after hearing the assessee and after noting down the arguments of assessee, the learned CIT (Exemptions) rejected such arguments and cancelled the registration granted to assessee vide order dated 20/03/2019. By filing appeal before this Tribunal, the assessee has mainly challenged that when the issue was pending before the Settlement Commission, the CIT (Exemptions) was not empowered to pass any order cancelling the registration of the assessee. This argument was also taken before learned CIT (Exemptions) and learned CIT (Exemptions) has examined this issue and has rejected the contention of the assessee by recording his findings in para 7.2 and 7.3 of his order, which for the sake of completeness are reproduced below:
"7.2 The contention that no view can be formed regarding the eligibility of registration u/s 12AA pending final order passed by Income tax settlement Commission .(ITSC in short), it has to be noted trust that for the purpose of cancelling the registration u/s 12AA, only the material found during search and the admitted facts by trust before settlement commission have been relied whereas the ITSC would be only quantifying the undisclosed income which admittedly included the so- called cash gifts received by the trust from students. As may be seen from the facts narrated, the proceedings for I.T.A. No.737/Lkw/2019 11 Assessment Year:2009-10 cancellation of registration u/s 12AA are based on admitted facts only and not on the quantum of taxable income which were to be assessed or assessable by ITSC. The fact that the cash was out of cash gifts from students was prima facie accepted by ITSC when it passed the order u/s 245D(2) while admitting the application u/s 245C(1) based on SOF filed by "trust and hence the assessee cannot rescind the admitted facts for any reason whatsoever. Once the facts of receiving cash gifts from students have been admitted before ITSC, which has been verified by assessee to be correct, the same can be used for any other proceedings also, as there cannot be two different facts on same issue for two different purposes/proceedings. From the SOF as well as order of ITSC u/s 245D(2B), the issue of validity of registration u/s 12AA was neither raised by trust nor considered by ITSC. The ITSC can only settle the income and has no jurisdiction to grant or withdraw the registration u/s 12AA. The scope of proceeding before settlement commission is only to settle the income based on seized material and therefore, they are independent of proceedings initiated to cancel the registration based on violation of conditions of section 11 r/w 12AA. The settlement commission would be giving the finding on the taxable income and not on the issue whether there was any violation of 12AA or not and hence the issue of 12A registration is no manner linked to determination of income by ITSC. Any material seized in a search can be used in multiple proceedings and there is no bar is use of such material which has been admitted before the ITSC, in any other proceedings, unless the use of such material itself is restricted by a specific order of any competent court. Moreover, the stay of hearing of the settlement application filed by assessee before the ITSC cannot put any restriction for use of seized material and the facts admitted by assessee in any other proceedings. The court has not stayed the operation of evidentiary value of the seized material. Further, looking to nature of ground raised before High court, the dispute of powers of AO to use the seized material from the premises of Krishan Kumar Agarwal (Father of main trustee) for purposes of assessment u/s 153A cannot have any implication on deciding the question whether the trust was carrying its activities as per the objects for which it was granted registration. Hence the fact that the writ petition challenging power of AO to use seized material from premises of Krishan Kumar Agarwal ID make assessment u/s I.T.A. No.737/Lkw/2019 12 Assessment Year:2009-10 153A in case of trust is pending, it will have no implication as the outcome thereof even in favour of trust, will not dilute the test which are required to decide whether the trust is eligible for registration u/s 12AA in view of the seized papers evidencing charging of capitation fees from students. 7.3 As the stay of proceedings before ITSC filed by trust on validity of proceeding before ITSC, which again is independent of proceeding for registration under 12AA, which were never the subject matter of adjudication before ITSC or for that matter before the SC also. Hence, the pendency of writ petition on entirely different grounds will have no bearing to the continuation of 12AA cancellation proceedings. As Hon'ble SC has not granted stay on 12AA proceedings other than the proceedings by ITSC on the application filed by assessee, nor the assessee has filed any document showing that the 12AA notice has been made subject matter of challenge before any court, the plea of the assessee is therefore unacceptable. Moreover, the assessee's stand appears to be contradictory because on one hand the assessee is claiming that the matter is before settlement commission and nothing can be presumed at this stage, whereas on the other hand the assessee itself challenged the validity of proceedings before Settlement Commission before High Court and on being unsuccessful has filed an SLP. Therefore, once the assessee itself is contesting the validity of the proceedings before settlement commission, how can it then take immunity on grounds that proceedings are pending before settlement commission to seek the abeyance of the independent proceedings for cancellation of registration u/s 12AA?"
6.1(a) As such, the CIT (Exemptions) held that the contention raised by assessee was meaning less and cancelled the registration. 6.1(b) The above findings of learned CIT (Exemptions) are based on his assumption that the Settlement Commission was empowered only to decide on the quantification of tax demand and the issue of cancellation of registration was not before the Settlement Commission and therefore, he was entitled to pass the order cancelling the registration granted to the assessee. Before us the limited issue is as to whether when an application is pending before Settlement Commission for disposal, whether all powers of I.T.A. No.737/Lkw/2019 13 Assessment Year:2009-10 income tax authorities get exclusively vested with the Settlement Commission or only those powers are vested with the Settlement Commission for which the assessee is before the Settlement Commission. In this respect it is important to visit the provisions of section 245F of the Act, which for the sake of completeness are reproduced below:
"Section 245F Powers and procedure of Settlement Commission.
(1) In addition to the powers conferred on the Settlement Commission under this Chapter, it shall have all the powers which are vested in an income-tax authority under this Act. (2) Where an application made under section 245C has been allowed to be proceeded with under section 245D, the Settlement Commission shall, until an order is passed under sub-section (4) of section 245D, have, subject to the provisions of sub-section (3) of that section, exclusive jurisdiction to exercise the powers and perform the functions of an income-tax authority under this Act in relation to the case:
[Provided that where an application has been made under section 245C on or after the 1st day of June, 2007, the Settlement Commission shall have such exclusive jurisdiction from the date on which the application was made:
Provided further that where--
(i) an application made on or after the 1st day of June, 2007, is rejected under sub-section (1) of section 245D; or
(ii) an application is not allowed to be proceeded with under sub-section (2A) of section 245D, or, as the case may be, is declared invalid under sub- section (2C) of that section; or
(iii) an application is not allowed to be further proceeded with under sub-section (2D) of section 245D, I.T.A. No.737/Lkw/2019 14 Assessment Year:2009-10 the Settlement Commission, in respect of such application shall have such exclusive jurisdiction upto the date on which the application is rejected, or, not allowed to be proceeded with, or, declared invalid, or, not allowed to be further proceeded with, as the case may be.] (3) Notwithstanding anything contained in sub-section (2) and in the absence of any express direction to the contrary by the Settlement Commission, nothing contained in this section shall affect the operation of any other provision of this Act requiring the applicant to pay tax on the basis of self-assessment in relation to the matters before the Settlement Commission. (4) For the removal of doubt, it is hereby declared that, in the absence of any express direction by the Settlement Commission to the contrary, nothing in this Chapter shall affect the operation of the provisions of this Act in so far as they relate to any matters other than those before the Settlement Commission."
6.2 The bare reading of the provision of section 245F leads us to hold that once an application is filed before the Settlement Commission and is accepted by the Settlement Commission, all the powers vested in income tax authorities under this Act get vested exclusively in the Settlement Commission unless the application filed by the assessee is disposed of. Sub Section (4) of the above section says that nothing in this chapter shall affect the provisions of this Act so far as they relate to any matters other than those before the Settlement Commission. It is this provision which has been taken recourse to by the learned CIT (Exemptions) while rejecting the contention of assessee. However, the Hon'ble Delhi High Court in the case of Tahilini Design (P) Ltd. has clearly held that though assessee had brought the issue of section 153A before the Settlement Commission but the notice issued u/s 271DA for violation of provisions of sections 269 SS has its origin in the search conducted on the assessee. In this respect para C & D of such order is quite clear where the I.T.A. No.737/Lkw/2019 15 Assessment Year:2009-10 Hon'ble court has held that both issues of section 153A and 271DA are inter connected and are coming out from the same search.
6.3 Now let us examine this proposition with respect to the facts of the present case. In the present case, the assessee filed application before Settlement Commission on 05/01/2017 and Settlement Commission admitted the application on 17/01/2017. The assessee filed application with the Settlement Commission to settle the dispute with the Department which occurred due to a search conducted on the assessee on 18/09/2014 and CIT (Exemptions) initiated action for cancellation of registration of assessee u/s 12A of the Act on the basis of such search only, which is apparent from the findings of learned CIT (Exemptions) as contained in para 1 to 3 of his order. The above facts noted by learned CIT (Exemptions) in his order clearly demonstrate that due to search on the assessee, cash was found at the premises of the Trust as well as with the trustees and which the assessee claimed to have received as cash gifts from students, and the assessee for the purpose of bringing these donations to tax, filed application before Settlement Commission and learned CIT (Exemptions) proceeded to cancel the registration u/s 12A on the basis of these facts. The findings of learned CIT (Exemptions), as contained in para 1 to 3, are reproduced below:
"The assessee, M/s Rohilkhand Educational Charitable Trust (hereinafter referred as the "Trust") was granted registration u/s 12A of the I T Act vide Commissioner of Income Tax, Bareilly order no. F.No.12A/110(2)/99-00 dated 26.06.1999 w.e.f. 26.05.1998. The trust, as part of its educational activity, runs various medical institutions and its associate institutions inter-alia provide medical treatment to patients. Dr. Keshav Kumar Agarwal is the main trustee and Chairman of the Trust while his spouse Dr. Lata Agarwal is a trustee and gives professional services to the trust. There are two other trustees I.T.A. No.737/Lkw/2019 16 Assessment Year:2009-10 Dr. Ashok Agarwal and Dr. Kiran Agarwal of the trust. Dr. Ashok Agarwal is the President of the Trust and Dr. Kiran Agarwal also gives professional services to the trust and all the four trustees are taking professional fees or salary from the trust. The assessee trust has been running various paramedical courses and it also started MD/PG course in addition to paramedical courses.
2. From the perusal of records it is noted that a search and seizure operation u/s 132 of the Income-tax Act, 1961, (hereinafter referred to as the 'Act') was carried out in this case on 18.09.2014 in this case along with other cases of Rohilkhand group at Administrative Block of Rohilkhand Medical College Campus, Pilibhit Bypass Road, Navada, Bareilly. The rohiikhand group is being managed and controlled by Shri Keshav Kumar Agarwal. The applicant trust is registered in u/s 12A of the I.T. Act and had been claiming exemption of income on the strength of its registration u/s 12A of the I.T. Act in its regular returns. After the search, in response to notices issued u/s 153A and for the search year the assessee has again filed its returns of income for the assessment year 2009-10 to 2015-16 claiming exemption u/s 11 and 12 of the I.T. Act.
2.1 The trust runs Rohilkhand Medical College and Hospital (Medical College). During the course of search proceedings in the Rohilkhand group, total cash of Rs. 20,47,91,660/- was found from different searched premises put of which seizure of Rs.20.18 Crore was made in respect of this group. The major portion of the unexplained cash was found from the premises of the trust and the residence of the main trustee. In the search proceedings, Dr. Keshav Kumar Agarwal who is the key person of the group, made a voluntary disclosure of Rs.20.18 crores in his hands in respect of cash of Rs. 20.18 Crores found and sized from the difference premises, which also included cash of Rs. 11.56 Crore seized from the personal chamber of Dr. Keshav Kumar Agarwal in the premises of the Rohilkhand Medical College run by the trust. Further, incriminating documents in the form of loose papers/note books and diaries pertaining to the activities of the trust were found at the residence of Shri Krishna Kumar Agarwal (Father of the Dr Keshav Kumar Agarwal) whose residence was also covered by warrant of search. The loose papers (handwritten I.T.A. No.737/Lkw/2019 17 Assessment Year:2009-10 paper slips) are related to capitation Sees accepted for admission of the students in the course of MBBS/MD/BDS ar.ci other medical courses run by the Rohilkhand Educational Charitable Trust through its associate institutions for past several years. The seized documents mentioned the student wise receipt of capitation fee for all the years. The seized documents clearly suggested that the capitation fee was accepted from students admitted to the various courses in colleges run by the trust in cash and part of it routed through banks introducing the same cash back into its books in the garb of receiving donations in cheques from various entities all over the country through the operators who gives accommodation entries in various forms, after taking cash as the assessee trust is also entitled to take donations which are exempted u/s 80G. The assessment orders of the assessee for A.Y. 2009-10 to 2015-16 were about to completed, before which the assessee trust filed application before the Settlement Commission on 5/1/2017, as a result of which the final assessment orders in the case of the trust could not be passed. Though initially, Dr Keshav Aggarwal had admitted the cash found in search to be his undisclosed income but subsequently in the application filed by the trust before Settlement application, the assessee trust claimed the same to be its own receipts and disclosed assessment year wise additional income to the tune of Rs.34,14,30,274/- for A.Y. 2009-10 to 2015-16 before the settlement commission, which inter alia also included the income on account of cash of 20.80 Cr found during the search.
2.2 As regards, source of additional income, it was stated by the applicant trust in para 3.3 of page no. 27 of the Settlement Application that the additional income offered by it in Settlement Application has arisen to it out of cash Gifts received from students which are found recorded in the seized documents: -
i. Loose papers as per Annexure A-7 to A-51 seized from the residence of Shri Krishan Kumar Agarwal ii. Detailed Note Books marked A-61 and A-63 seized from the residence of Shri Krishan Kumar Agarwal I.T.A. No.737/Lkw/2019 18 Assessment Year:2009-10 iii. Small Note Books marked Annexure A-52, A-55, A-68 seized from the residence of Shri Krishan Kumar Agarwal It is stated by the applicant trust in para 4 page 29 of the Settlement Application that amount of entire seized cash of Rs. 20.18 Crore belongs to the trust. Before ITSC, it was also stated that after considering the cash payments made to certain persons out of amounts of cash gift received from the students, the net-amount received by way of cash gift is being offered as additional income, which works out to Rs. 34.14 Grore as per methodology adopted by the applicant for working out the additional income: In the details filed, the trust has itself admitted the gross amount of cash gifts received of more than 170.42 Cr and after applying the net income rate of 20% (after reducing expenses on estimate basis only) the net taxable income of Rs 34.14 Cr has been offered before the settlement commission. While, working out the additional income as above, the applicant has admittedly also extrapolated the net profit rate of 20% derived for the period 01.04.2008 to 7.1.2009 for the purpose of applying the same for the rest of the assessment years also up to assessment year 2015-16. Year wise income disclosed by trust before ITSC is as under:
F.Y. Cash gifts recd from Income offered @20% students 2008-09 92200500 1,90,13,403 2009-10 67219200 1,34,43,843 2010-11 69998400 1,39,99,680 2011-12 194313600 3,88,62,724 2012-13 361077120 7,22,15,425 2013-14 711051120 14,22,10,222 2014-15 208424880 4,16,84,979 Total 1,70,42,84,820 34,14,30,274 I.T.A. No.737/Lkw/2019 19 Assessment Year:2009-10 As regards, manner of earning of additional income, it is stated in para 6 of page no. 29 of the Settlement Application that the applicant trust has been receiving such cash gifts regularly. No further details are divulged in this regard in this Settlement Application.
2.3 It is also claimed that Shri Keshav Kumar Agarwal has no nexus with these seized documents which are recovered from the residence of his father Shri Krishna Kumar Agarwal.
The additional income so worked out on the basis of the seized documents was therefore, offered in the hands of the applicant trust after setting off the amounts applied towards object of the applicant trust.
2.4 During the post search enquiries, the investigations were made into the genuineness of the corpus donations received by M/s Rohilkhand Educational & Charitable Trust as mentioned in report submitted to settlement commission under rule 9. In some of the cases the donor was not found on the address while in certain cases no such concern was found existing on the address. During the assessment proceedings as well, the verification of corpus donation was undertaken by issuing statutory notices to the donors, most of which are Delhi based but all the notices have been returned unserved "by the postal authorities with remarks "Left", "Refused" and "No such person on the address" and "insufficient address". Apparently, the alleged donors were apparently non- genuine in nature. This leads to my conclusion that the trust accepted capitation fee from its students in cash and part of it was routed it through banks introducing the same cash into its books by receiving donations in cheques from various entities all over the country through the operators who gives accommodation entries in various forms after taking cash from the assessee trust. Thus the trust accepted capitation fees from students as per the list found during the search and then attempted to plough it back into books from, year to year in the garb of donations from third parties which were also turned oat to be bogus/nonexistent. This conclusion is supported by the very fact that the trust admitted such receipts as income before the ITSC and after claiming expenses on estimate basis, a sum of 34.14 Cr was offered for taxation also for various AYs from -2009-10 to 2015-16.
I.T.A. No.737/Lkw/2019 20 Assessment Year:2009-10 2.5 Since the assessee trust had claimed expenses on mere estimate basis, hence as against the working provided by the assessee trust in its Settlement Application in relation to income from so called cash gifts from students, the Assessing Officer, during the assessment proceedings, had worked out the additional income on account of receipts of cash gifts from tire same set of seized documents at Rs. 234 Crore as under:-
S.No. Particulars Total Receipts
1. On account of receipts of unaccounted 91505000
cash gifts recorded in annexure A-61 and
A-63
2. On account of receipts of unaccounted 2253131000
cash gifts recorded in annexure A-7 and A-
51
Total 2,34,46,36,000
It is relevant to mention here that in the questionnaire dated 17.05.2016 issued by the Assessing Officer the applicant trust has been duly confronted with details of cash gifts received from each student. However, the applicant trust did not make the required compliance and furnished an evasive reply t.: the queries raised in this regard.
3. By claiming that the substantial portion of cash belonged to trust in the SOF filed by applicant, the applicant has also claimed that the cash earned by the trust was out of cash gifts from students. This cash gift were nothing but capitation fee in lieu of admission granted to students. The practice of accepting capitation fees (by whatever name called viz, voluntary donation /gifts /sinking fund/building fund etc.) by professional college from students in lieu of admission, is a well-known menace in Indian Education system. Most of such donations are not only accepted in cash in lieu of admissions to students but at the same time they are unrecorded in accounts or recorded by routing the same as corpus donation. In either situation such capitation fee /gifts /donations do not form the part of receipts for purposes of computation of income under section 11 also. In the case of the present trust also the so-called cash gifts were not fully recorded (other than those which were recorded in the garb of bogus corpus donations from the parties). In absence of such amounts I.T.A. No.737/Lkw/2019 21 Assessment Year:2009-10 being completely recorded in books of accounts, such amounts could not be said to be utilised for the purposes and objects of the trust or that the activities of the trust genuine and being carried as per objects of the trust deed."
6.4 Therefore, in view of the above findings, we hold that issue of cancellation of registration u/s 12A arose from the search conducted on the assessee and there was no other reason to initiation of proceedings for cancellation of registration therefore, as per the provisions of section 245D read with order of Hon'ble Delhi High Court in the case of Tahiliani Design Pvt. Ltd. (supra), all the powers of income tax authorities including power to cancel the registration u/s 12A got vested exclusively with Settlement Commission. The assessee filed the application before Settlement Commission on 05/01/2017 which had been accepted by the Settlement Commission on 17/01/2017. The learned CIT (Exemptions) has passed the order on 26/03/2019 which is after the date on which the Settlement Commission had admitted the application filed by the assessee. Hon'ble Delhi High Court, in a recent decision in the case of 'Tahiliani Design Pvt. Ltd. vs. JCIT', [2021] 432 ITR 134 (Del) vide order dated 19/01/2021 has held as under:
"11. We have considered the rival contentions.
12. Though undoubtedly (a) the application under Section 245C is to have a case pending assessment settled and the Settlement Commission in exercise of powers under Section 245D(4) is to pass orders as it thinks fit on the matters "covered by the application" before it and which application of the petitioner in the present case admittedly does not cover the notice dated 30th September, 2019 and in pursuance to which penalty under Section 269ST has been levied on the petitioner; and, (b) the argument of the counsel for the respondent that in pursuance to such an application the Settlement Commission in exercise of powers under Section 245F and 245H has no case of violation of Section 269ST before it and thus does not have exclusive jurisdiction in the matter of levy of penalty under Section 269ST and / or to grant immunity with respect thereto, is attractive but on I.T.A. No.737/Lkw/2019 22 Assessment Year:2009-10 further consideration we find ourselves unable to accept the same for the reasons:
A. Though the petitioner in the present case, in its application to the Settlement Commission has brought only the case pursuant to notices under Section 153A admittedly issued to it, but the powers of the Settlement Commission under Section 245D(4) to pass such order as it thinks fit are not confined to matters covered by the application but also extend to "any other matter relating to the case not covered by the application, but referred to in the report of the Principal Commissioner or Commissioner" presented to the Settlement Commission under Section 245D(3) of the Act.
B. We have thus enquired from the counsels, whether the Principal Commissioner / Commissioner, in the present case, in response to the application of the petitioner to the Settlement Commission, has submitted any report and if so, whether in the said report the aforesaid aspect of violation of Section 269ST of the Act has been reported; if it is so, the Settlement Commission would have jurisdiction to pass orders with respect to violation alleged of Section 269ST also. However neither counsel has instructions on the said aspect.
C. It is not deemed necessary to adjourn the hearing to enable counsels to take instructions on the aforesaid aspect, because the powers of the Settlement Commission under Section 245D(4) also extend to "examining such further evidence as may be placed before it or obtained by it" and the Settlement Commission in the present case is still seized of the matter and would be within its rights to, if so deems apposite, also deal with the aspect of violation of Section 269ST of the Act and either to grant exemption from penalty therefore or to pass such other order as it thinks fit in relation thereto as well and it is felt that the said power and jurisdiction of the Settlement Commission should not be permitted to be interdicted by the impugned order.
I.T.A. No.737/Lkw/2019
23
Assessment Year:2009-10
D. In this context we may also notice that the
notices under Section 153 A as well as under Section 271DA of violation of Section 269ST, both have their origin in the search, seizure and survey conducted qua the petitioner, as evident from a bare reading of the notice under Section 27IDA referred to hereinabove by us for this reason. Merit is thus found in the contention of the counsel for the petitioner that both are part of the same case.
E. The counsel for the respondent, on enquiry fairly states that if the violation of 269ST of the Act is detected as a result of a search and seizure operation, as it is in the present case, then it is open to a applicant before the Settlement Commission to also include in the application, the violation of Section 269ST of the Act and to seek settlement qua that also.
F. A Coordinate Bench of this Court in Agson Global Pvt. Ltd. Vs. Income Tax Settlement Commission (2016) 380 ITR 343 held that the powers and functions of an Income Tax Authority which are to be exclusively exercised by the Settlement Commission must be in the context of and have a nexus with the settlement proceedings. We respectfully concur. The penalty proceedings initiated against the petitioner, as evident from the notice dated 30th September, 2019, were in the context of and had a nexus with the search, seizure and survey carried out qua the petitioner and pursuant whereto notices under Section 153A were also issued to the petitioner and in which context the petitioner had approached the Settlement Commission.
G. Though undoubtedly Section 245A(b) while defining "case" refers to a proceeding for assessment pending before an Assessing Officer only and therefrom it can follow that penalties and prosecutions referred to in Section 245F and Section 245H are with respect to assessment of undisclosed income only.,: but (i) Section 245F vests exclusive jurisdiction in the Settlement Commission, to exercise the powers and perform the functions "of an Income Tax Authority under this Act in relation to the case"; and, (ii) Section 245H vests the I.T.A. No.737/Lkw/2019 24 Assessment Year:2009-10 Settlement Commission with the power to grant immunity from "imposition of any penalty under this Act with respect to the case covered by the settlement".
The words "of an Income Tax Authority under this Act in relation to the case" and "immunity from; imposition of any penalty under this Act with respect to the case covered by the settlement" are without any limitation of imposition of penalty and immunity with respect thereto only in the matter of undisclosed income and in our view would cover also penalties under other provisions of the Act, detection whereof has the same origin as the origin of undisclosed income.
H. Not only so, the words "in relation to the case"
and "with respect to the case" used in the aforesaid provisions, are words of wide amplitude and which, in our opinion, in the facts of the present case may allow the Settlement Commission to, notwithstanding the petitioner having not expressly referred to the notice dated 30th September, 2019 and proceedings for violation of Section 269ST pending against it in its application, pass such orders as it may thinks fit in relation / with respect thereto and the said powers of the Settlement Commission cannot be permitted to be interdicted by the impugned order. We reiterate that the proceedings of violation of Section 269ST, as per the notice dated 30th September, 2019, are a result of what was found in the search and survey qua the petitioner and are capable of being treated as part and parcel of the case taken by the petitioner by way of application to the Settlement Commission.
Supreme Court, in Doypack Systems Pvt. Ltd. Vs. Union of India (1988) 2 SCC 299 held that the expression "in relation to" has been interpreted to be the words of widest amplitude and is in the nature of a deeming provision and is intended to enlarge the meaning of a particular word or to include matters which otherwise may or may not fall within the main provisions. Again, in Thyssen Stahlunion Gmbh Vs. Steel Authority of India Ltd. (1999) 9 SCC 334 it was held that the phrase "in relation to arbitral proceedings" cannot be given a narrow meaning to I.T.A. No.737/Lkw/2019 25 Assessment Year:2009-10 mean only pendency of the arbitration proceedings before the Arbitrator; it would cover not only proceedings pending before the Arbitrator but also proceedings before the Court and any proceedings which are required to be taken under the old Act for award becoming decree and also appeal arising thereunder; if narrow meaning of the phrase "in relation to arbitral proceedings" is to be accepted, it is likely to create great deal of confusion with regard to the matters where the award is made under the old Act. Applying the said law and reasoning, we hold that if we were to interpret the words "in relation to" and "with respect to" narrowly, the same also would not only cause confusion as to prosecution and penalty under which provisions of the Act is the subject matter of settlement proceedings and which provisions not and the same is also likely to negate the objective and purpose for introduction of Chapter XIX-A in the Act and of settlement of cases. The said view has been followed in Tamil Nadu Kalyana Mandapam Association Vs. Union of India (2004) 5 SCC 632, National Textile Corporation (MN) Ltd. Vs. Durga Trading Company (2015) 12 SCC 558 and Maxopp Investment Ltd. Vs. Commissioner of Income Tax (2018) 15 SCC 523.
13. The stand of the respondent in its e-mail dated 7th November, 2019 that the Settlement Commission, assumes jurisdiction from the day when an order under Section 245D(1) is made when the application under Section 245C(l) is ordered to be proceeded with further, and which in the present case was on 8th November, 2019 and before the said date the Settlement Commission did not have exclusive jurisdiction and the respondent remained entitled to impose penalty, was / is not only contrary to the provisions of the proviso to Section 245F(2) but also contrary to the law laid down by this Court in Commissioner of Income Tax Vs. Income Tax Settlement Commission (2014) 360 ITR 407 (Delhi).
14. Once it is so, the Settlement Commission, under the proviso to Section 245F(2), with effect from 1st November, 2019 when the petitioner admittedly made the application I.T.A. No.737/Lkw/2019 26 Assessment Year:2009-10 under Section 245C before it, had the exclusive jurisdiction to deal with the matter relating to violation of Section 269ST of the Act also and the respondent, on 4th November, 2019 did not have the jurisdiction to impose penalty for violation of Section 269ST on the petitioner and the impugned order is without jurisdiction and liable to be set aside and is hereby quashed.
15. We are of the view that it should be left to the Settlement Commission to, in exercise of its powers under Section 245D(4), Section 245F and Section 245H, consider whether the matter of penalty for violation of Section 269ST of the Act is to be looked into by the Settlement Commission while deciding the application of the petitioner, or not.
16. We accordingly direct, that without prejudice to the right of the Income Tax Authorities to contend before the Settlement Commission that the petitioner having not disclosed the aforesaid facts before the Settlement Commission, has not made a full and true disclosure within the meaning of Section 245C(1), the proceedings initiated by the respondent against the petitioner for violation of Section 269ST of the Act should await the decision of the Settlement Commission on the application of the petitioner and to abide by the same. If the Settlement Commission grants immunity from penalty within the meaning of Section 245H, for violation of Section 269ST, needless to state, the notices issued by the respondent to the petitioner shall automatically lapse and/or would not remain actionable. However if no immunity with respect thereto is granted, the respondent shall be entitled to take further proceedings in pursuance to the said notices.
17. The petition is allowed in above terms."
7. The important findings in this case law are contained in para C & D wherein their Lordships have held that powers of Settlement Commission under section 245D(4) also extend to examining such further evidence as may be placed before it or may be obtained by it and then the Hon'ble court held that since Settlement Commission was still seized of the matter, it would be within its rights to deal with the aspect of violation of Section 269ST of the Act. The Hon'ble court further held in para D that the issue of I.T.A. No.737/Lkw/2019 27 Assessment Year:2009-10 section271DA and that of section 153A both had their origin in the search and therefore, held that both are part of the same. In the case before us also we have observed that the instance of going to Settlement Commission regarding settlement of dues as well as cancellation of registration by learned CIT (Exemptions) occurred due to a search on the assessee and therefore, both incidents are part of the same search.
8. In view of the above facts and circumstances and in view of the judicial precedents relied on by the assessee, we are in agreement with the arguments of learned A.R. and hold that learned CIT (Exemptions) was not empowered to pass the order u/s 12A cancelling the registration granted to the assessee when the issue was still pending with Settlement Commission. The written arguments filed by the Revenue relate to the merits of cancellation of the registration and do not relate to arguments raised by learned A.R. therefore, these submissions are of no help to Revenue.
9. Ground nos. 2 & 3 of the appeal are allowed and order of CIT (Exemptions), cancelling the registration, is cancelled. Since we have cancelled the order of learned CIT (Exemptions) cancelling the exemption, all other grounds taken by the assessee have become academic only and do not require adjudication, nor was any other argument raised.
10. In the result, the appeal filed by assessee is allowed.
(Order pronounced in the open court on 20/10/2021) Sd/. Sd/.
( A. D. JAIN ) ( T. S. KAPOOR )
Vice President Accountant Member
Dated:20/10/2021
*Singh
Copy of the order forwarded to :
1. The Appellant
2. The Respondent.
3. Concerned CIT
4. The CIT(A)
5. D.R., I.T.A.T., Lucknow
Assistant Registrar