Income Tax Appellate Tribunal - Pune
Prabodhan Shikshan Prasarak Sanshtha, ... vs Assessee on 13 August, 2013
IN THE INCOME TAX APPELLATE TRIBUNAL
PUNE BENCH "A", PUNE
BEFORE SHRI SHAILENDRA KUMAR YADAV,
JUDICIAL MEMBER, AND
SHRI G.S. PANNU, ACCOUNTANT MEMBER
ITA No. 892/PN/2012
Prabodhan Shikshan Prasarak Sanstha
A/P Ambav, Devrukh,
Tal. Sangameshwar,
Dist. Ratnagiri Appellant
PAN AAATP 5904 E
Vs.
Dy. CIT Ratnagiri Circle, Ratnagiri Respondent
Appellant by :Shri M.K. Kulkarni
Respondent by : Ms. M.S. Verma
Date of Hearing : 13-8-2013
Date of Pronouncement : 30-09-2013
ORDER
PER SHAILENDRA KUMAR YADAV, JM:
This appeal by the assessee is directed against the order of the CIT -II, Kolhapur dated 30-3-2012 passed u/s 12AA(3) of the Act on the following grounds:-
"1. Whether in the facts and circumstances of the case and in law the ld. CIT-II Kolhapur was justified in cancelling/withdrawing the registration granted to the assessee u/s 12A of the Act on 11-2-1998 resorting to provisions of sec. 12AA(3) inserted in the Act w.e.f. 1-10-2004 being prospective in nature apply only to registration granted prior to 1-10-2004?
2. Whether in the facts and circumstances of the case and in law and in view of ground no. 1 above the registration cancelled/withdrawn by the ld. CIT-II Kolhapur when ld. CIT II 2 Kolhapur had jurisdiction vested in her to cancel registration in the absence of any provisions for cancellation the order of cancellation passed dt. 31-3-2012 is ab initio void, illegal and without jurisdiction?
3. Whether in the facts and circumstances of the case and in law the order of cancellation of registration granted u/s 2A tantamount to review of the order by ld. CIT-II Kolhapur which is impermissible in law?
4. Whether in the facts and circumstances of the case and in law the order cancelling registration which was granted u/s 12A on 11-2-1998 vide order dt. 31-3-2012 when the identical issues are pending in appeal before the CIT(A) Kolhapur for adjudication will amount to interference in the judicial powers vested in ld. CIT(A) Kolhapur since in such circumstances he may follow the decision of ld. CIT II Kolhapur being lower authority in hierarchy which will prejudice the appellant assessee in a serious manner causing injustice to it?
2. At the outset of hearing, the learned authorized representative did not press ground no. 4 and hence the same is dismissed as not pressed.
3. The assessee is engaged in educational activities and is running institutions from High School level to Junior college level. The assessee is also running institutions offering Engineering and Technological, Pharmacy, and Management courses. Centers for Educational Excellence, Human Resources Development and Pre- military Training was also run by the assessee. The assessee was granted registration u/s 12A of the Act by the CIT Kolhapur vide certificate No. KOP/HQ.III/217/P-110/78/168/97-98 on 11-2- 1998, as a Charitable Trust. On verification of records, it was noticed that the assessee was imparting knowledge at cost, with element of profit inherent therein. The activities so carried out were found to be commercial activities and not of charity. It was also noticed that the assessee had advanced funds to the members and other concerns wherein the members of the assessee or their family members were interested, in contravention to sec. 13 of the Act. It was further noticed that the assessee had deposited huge sums in Pat sansthas in contravention of the provisions of sec. 11(5) of the 3 Act. Moreover, it was noticed that the assessee had failed to apply the funds set apart for the objects of the trust in subsequent year in contravention to Rule 17 of the IT Rules 1962. It was noticed that with the amendment to the constitution of the assessee trust dated 11-9-2001, absolute control over management and conducting the activities of the assessee was congregated with the Chairman, i.e. Shri Ravindra Mane and the Mane family for all times to come, without any checks and balances. This has effectively barred the public at large of having any access to the properties/funds of the assessee and subsequent utilisation thereof. It was also noticed that the assessee had incurred expenditure of huge amount for personal benefits of interested persons, in contravention to the provisions of sec. 13 of the Act. Thus, it was noticed that there was apparent violation of the provisions of sec. 11(5) , 12A, 12AA and 13 of the Act.
4. In view of the above, as per provisions of sec. 12AA(I_)(b)(ii) of the Act, a detailed notice was issued on 19-12-2011 whereby the assessee was pointed out the discrepancies noticed, and was asked to explain the same.
5. In response to notice, the stand of the assessee has been that
(a) the advance for purchases of share of Marleshwar Fal Prakriya Kendra by staff members, were welfare measures for the staff, which was recovered from their salaries and therefore, the provisions of sec. 13 are not applicable;
(b) With reference to the advance with trustee for purchase of land, it was contended that the same was breach of trust and misappropriation of trust fund by the treasurer without the knowledge of the executive committee which was later on recovered in instalments.
(c) As regards to the advance to trustees for purchase of motor car, the assessee has contended that the trustees were 4 allowed to purchase vehicles on behalf of the trust, however, on finding it no feasible, the advance amount was recovered with interest;
(d) As regards to the deposits with Kosumb Group vividh kar sah. Society, the assessee has sought to explain that the same was later on repaid with interest;
(e) Regarding deposits with Madhyamik Adhyapak Pat Pedhi, the assessee has forwarded similar contention that the deposits were later on repaid along with interest and that no person of the society has any substantial interest in the pat pedhi;
(f) As regards to the unutilized accumulation of 15% the assessee has contended that there is no compulsion on it to be invested in charitable objects;
(g) The assessee has stated that payment to the Chairman's construction company, for purchase of ongoing construction, was made as the building was urgently required;
(h) As regards to the constitutional amendments of trust, the assessee has stated that this is for continuity of management of the institution for some time, and that there was no personal enjoyment of the property or funds of the trust. In this regards, the assessee has stated that who controls or who is in the management is not relevant and that it is immaterial who is at the helm of affairs. It was also claimed that the members of a particular family are in charge of the management for a long time or even in perpetuity in no bar for claiming registration.
(i) As regards to the expenditure on advertisement in newspaper, the assessee has contended that it is only a very small matter and has to be ignored when considered from the 5 point of view of the institution which generates almost 2.5 crores gross revenue.
(j) As regards to the expenditure incurred on the marriage of Principal's daughter, the assessee has put forth his contention that considering the services rendered by him in the capacity of principal, this was considered as proper and just payment towards the part pensionary benefits to the employee at the time of daughter's marriage.
(k) As regards to the observation that the activities carried out were found to be commercial activities and not charity, the assessee has stated that "the trust is genuine and that activities were also carried in a manner which is beneficial to the society and they are all for education. In this background, the assessee requested that the proceedings initiated u/s 12A(3) may be dropped;
(l) The assessee has relied upon the following decisions:
(1) Rastogi Foundation Vs ACIT (1993) 47 TTJ Delhi 307; (2) Smt. Manukshi Devi Bihani Jan Hitkari Trust Vs. CIT (277 ITR 140;
(3) CIT Vs. South Point Montessori School (294 ITR 149) (4) CIT Vs. Pramod Jain Trust (81 ITR 604 (5) Thanthi Trust Vs. ITO (91 ITR 261) In this legal background, the assessee requested to drop the proposed action.
6. The CIT having considered the submissions made on behalf of the assessee observed that the assessee came into existence vide trust deed dt. 25-4-1995, consisting of five trustees, with Shri Ravindra Murlidhar Mane, as Chairman. Subsequently, the trust deed was amended on 1-5-2001, admitting three more trustees, thereby bringing up the total number of trustees to eight. The Chairmanship of the assessee was retained by Shri Ravindra M. Mane. CIT further held as under:
6"8.1 In view of the above; I am of the considered view that the latest amendments to the trust deed goes against the very spirit of the term "Charitable Trust", as is envisaged for the purpose of the Income tax Act.
9. It is also seen that the assessee has purchased an on- going construction from. Marleshwar Construction Pvt. Ltd., a company where Shri Ravindra Mane, Chairman of present trust, is Managing Director, and his wife Sou. Neha R. Mane is director. As admitted by the assessee the total amount of construction was Rs.7835104/-. In this regards, the assessee has merely stated that ".this is a normal investment for the purpose of college", and also that "......at that time the chairman's company was constructing a building which the trust was decided to purchase .......which was getting ready to reduce time for construction.....which was urgently required".
9.1 It is pertinent to note that the assessee has entered into transaction, of a considerable investment to the tune of Rs.78 lakhs, wherein the Chairman of the trust, and the Managing Director of the Company, are one and the same person. It is also to be noted that the assessee has been claiming that it is a "Charitable Trust", working for the benefit of the public at large. Under such a circumstances, it is approved procedure that necessary sealed tenders should be called from the public, and then the work of construction/purchase of ongoing construction should be allotted to the deserving party. It is not the case of the assessee that such a procedure was followed before allotting the work to the Chairman's company. It is clear that the purchase of ongoing construction, and work of further construction was arbitrarily allotted to Marleshwar Const. Co., at the whim of Shri Ravindra Mane, Chairman of the assessee trust. The assessee's contention in this regards is of a general nature, and therefore not acceptable. This is noteworthy, when we consider the various investments/deposits/advances given to the Pat-sansthas, etc., where either the Chairman, or his relative, have substantial interest. The inuring use or application of the income or property may be for the direct or indirect benefit of the persons referred to in subsection 3 of sec. 13. A trust would fall in a mischief of claiming, if its income or property is applied or used for the benefit of any one or more of such persons, or concerns. The Hon'ble Supreme Court in the case of CIT Vs Rattan Trust 1991 (227 ITR 356) has held that any diversion of income other than those authorized by the trust deed would lead to attraction of section 13(l)(c) of the Act. In the present case, there is not only a clear infringement of the provisions of sec. 13(l)(c) of the Act, but more prominently a glaring example of exercising absolute control and command, 7 which is at the disposal of the Chairman, with almost negligible participation of the public at large, in the day to day affairs of the trust, or questioning the utilization of the property of the trust.
9.2 In view of the above, it is evident that the assessee has made the said deposits, and purchased building under construction, in contravention to sec.13(1)(c) of the Income tax Act, 1961.
10. It is seen that there are other instances of infringement of sec. 13(l)(c) of the Act, viz. Advances given to the trustees for purchase of Motor Car, Advances lying with the treasurer, who is a specified person in explanation to sec. 13(3), for on purchase of land and lying unutilized for the purpose, Expenditure incurred on principal's daughter's marriage, etc., 10.1 In all the above cases (except in respect of expenditure on principal's daughter's marriage), the assessee has forwarded similar contention that the said investments did not result in loss to the assessee, and that the same were returned to the assessee in due course of time.
10.2 The veracity of the above contention has already been discussed in preceding paras. Therefore, the stand of the assessee is rejected, for the same reasons mentioned therein.
11. It is also seen that, though the trust deed provides for a very lucrative objectives and purposes, the assessee has been charging the students fees as per their schedules/prospectus, etc. In this respect the available records have been verified. The details of gross receipts, receipts from various fees, and the surplus is as under :
AY Gross Receipts Net % of Income
Receipts From Surplus attributable to
Various (Profit) the fees etc,
fees, charged directly
Hostel, from students
mess, etc
2011-12 92630372 88364609 3130641 95.39
2010-11 63159129 60870006 96.37
2009-10 55397106 47766682 1908419 86.22
2007-08 39577182 36754850 9621843 92.86
2005-06 22540649 20965840 93.01
In addition to the above, the assessee has charged donation under the head "Development Fund" from the students. From the 8 details available on records, it is seen that such "development fund"
runs in Crores of Rupees, every year.
11.1 In this respect, it is seen that the assessee has merely stated that, "......the trust is genuine and that activities are also carried in a manner which is beneficial to the society and they are all for education.
11.2 From the details elaborated hereinabove, it is seen that almost 95 % of the income of the assessee, which incidentally is running in crores, has been charged from the students, that too who are claimed to be mostly from "a notified backward area-Kokan". It is also a point to be noted that they have not/ been spared even of the charges under the guise of "Donations towards Development Funds".
11.3 It is also seen from the above that, the students are enrolled with full fees/charges, and other expenses which they have to incur, like Hostel rent, mess, etc. Even the transportation of students in school bus, is not done on charitable basis, but fees are charged in this respect also. It is also to be noted that the assessee is charging additional fees under the guise of "Donation to Development fund". Thus, in reality, no charity of whatsoever nature is carried out, as is being brought out by the assessee. It is pertinent to note that, the assessee is taking fees in respect of Management Quota, which is much more than the fees for the students of government quota. As a matter of facts, as is seen from the above chart, almost 90% to 95% of the assessee's gross receipts are only from the fees so charged. It is also pertinent to note that the net result of the assessee's so-called "Charitable Activities" has resulted in profit (Surplus), running in lakhs of rupees.
11.4 The question is whether the education provided by the Institution by charging of fees, which is unaffordable to the common category of parents/lower class of the Society can be regarded as "Charitable" ? At the most of the education so provided can be said to be arrangement for a student belonging to higher class of Society, and for the students whose parents are above the poverty line. There is no arrangement for a place for the students below the poverty line in the Institution. Not only the education is at exorbitant cost, but all the services rendered in furtherance of education like conducting classes, supply of books, library, School bus, hostel, messing, etc., are at a due cost from the students. Moreover, most of the courses run by the assessee are specialized courses, for B.E., in various branches. Thus, I find that there is no distinction between the assessee, and any other private commercial education institution, which is run with profit making intentions. In fact, I find that there is no 9 work of charity done by the assessee, on the contrary, the trust imparts knowledge at cost, with profit element inherent therein.
11.5 Though there is no bar in having profit element, but its application in charitable activities is the deciding factor as to whether the funds or profit are being applied for charitable purpose. In this connection, as can be seen from the discussion taken place in paras 7 to 10.2 (supra), that the substantial part of the income of the assessee trust has been utilized for the personal benefits, and also for the purpose other than the benefit of the public, not being of "Charitable Nature"
11.6 I have also considered the assessee's submission in light of the State Government's permission, allowing the assessee to collect/charge fees at prescribed rates. It is pertinent to note that the State Govt has a constitutional liability to provide education to all and sundry. For this purpose, the State Govt. has been running schools of its own for a long period. However, with increase in the number of students, and on finding that it was falling short to discharge its liability, the State Govt. has delegated this task to NGOs, who are engaged in imparting education. Even in such cases, where it is considered necessary that the education has to be provided as a charity, and that it was short of discharging its constitutional duties, the State Govt. has not unshackled itself completely, but has provided necessary financial aid in form of grants to such NGOs. Thus, by proxy, the State Govt. has shouldered the financial responsibility of providing education, to the needy, by providing grants to the deserving NGOs engaged in the educational field. This impliedly means mat, in case the state govt. is not providing educational grants to any NGO, engaged in the field of imparting education, then the State Govt. finds that the so-called "charitable educational"
work of such NGO is not an absolute necessity to discharge its constitutional liability. Thus, in my view, granting permission to such NGO to engage in educational activity, is merely akin to granting permission to any other business house to conduct its business. Even in such cases, the Govt. has ensured that the students are not made to suffer unduly at the hands of such NGOs, by ensuring an upper ceiling to charging of fees.
11.7 It is pertinent to note in the case that, the assessee is not in receipt of any educational grants, from the State Govt. As already brought out above, this impliedly means that the State Govt. finds that the so-called "charitable work" of the assessee is not an absolute necessity to discharge its constitutional liability. Further, by permitting the assessee to charge fees at a pre-determined rates, the Govt has merely made available a 10 means to meet the assessee's expenditure, at the same time has ensured that the students are not unduly suffered by providing a ceiling for collection of fees. Therefore, the assessee's stand that it is charging fees as permitted by the state Govt., does not necessarily means that the assessee is engaged in charitable activity within the preview of sec. 2(15) of the-IT Act, 1961. Moreover, as already stated earlier, the assessee has been providing nothing free of cost, and there is a cost-tag to each and every item, i.e. conducting classes, supply of books, library, School bus, hostel, messing, etc., which are by no means less than that the upper limit prescribed by the State Govt. This strengthens the stand of the Department that the Institute is run purely on commercial lines.
11.8 In view of the above, I hold that the assessee is not engaged in charitable activity within the purview of sec. 2(15), but is on the contrary, imparting knowledge at cost, with profit making intention inherent therein. More glaring is that the funds are being utilized for the benefit of the trustees, other than for the object of charitable purposes.
12. I have also carefully considered various citations quoted by the assessee. However, due to the difference in the facts of those case and the facts prevailing in the instant case, the same are differentiated on facts, and are not of any help to the assessee.
13. In view of the elaborate discussion in the preceding paragraphs, I find the assessee trust is engaged in the business of imparting knowledge with cost and profit, inherent therein. I also find that the funds have been applied for the personal benefits of the trustees and relatives, i.e. other than for the object of the trust. Therefore, the activities carried out are commercial activities, and not for charity, within the meaning of provisions of sec. 2(15) of the IT Act, 1961. There is an infringement of the provisions of sec. 11(5) & 13(l)(c) of the Income tax Act, 1961.
14. To continue to be registered u/s 12A of the Act, and to avail benefit of section 11 and 12 of the Act, the trust has to comply with the provisions of Rule 17, 17B, 17C of the IT Rules,' 1962, and also provisions of sec. 12A, 12AA, and 13 of the IT Act, 1961. Section 13 is over and above the conditions and provisions provided for exemption u/s 11 & 12 of the Act. The Hon. Madras High Court in the case of MA Namazie Endowment Vs CIT (1988) (174 ITR 58) has held that section 13 is only an exception to section 11 of the Act. Section 13 begins with the words "Nothing contained in section 11 [or sec. 12] shall operate so as to exclude from the total income of the previous year.....". It is clear from the language of Sec. 13 that 11 the income of a charitable or religious organization will be fortified if any of the provisions of section 13 are violated, even if other conditions of section 11 and 12 of the Act are complied with.
15. In view of the above facts and circumstances of the case, I am of the considered view that the registration granted u/s 12A of the IT Act, 1961, vide No. KOP/HQ.III/217/P-l 10/78/168/97-98 on 11-02-1998, needs to be drawn, for the reasons as discussed above, as the assessee has failed to establish its claim with sufficient documentary evidence as Charitable Society and charitable activities therein, within the meaning of section 2(15) of the Act, and also for the reason of infringement of Sec. 11(5) and 13(l)(c) of the Act. The registration granted u/s 12 AA under certificate No.KOP/HQ.III/217/P-110/78/168/97-98 on 11-02-1998, is hereby cancelled.
7. Before us, the learned authorized representative submitted that the CIT Kolhapur was not justified in cancelling/withdrawing registration granted to the assessee u/s 12A of the Act on 11-2- 1998 resorting to the provisions of sec. 12AA(3) inserted in the Act w.e.f. 1-10-2004 being prospective in nature apply only to registrations granted prior to 1-10-2004. The order of cancellation of registration is void abinitio, illegal and without jurisdiction. The order of cancellation of registration granted u/s 12A tantamounts to review the order of CIT Kolhapur which is not permissible in law. On the other hand, the learned DR supported the order of the CIT whereby registration of the assessee-trust was cancelled as detailed in preceding paragraphs of this order.
8. After going through the rival submissions of the parties and perusing the material on record, we find that undisputedly the assessee was granted registration in the year 1998. The CIT Kolhapur issued show-cause notice under S. 12AA(3) to cancel the registration of the appellant-Trust retrospectively from the date the Trust was granted registration. As per provisions of S. 2(15) of the Act the "Charitable Purpose" includes relief of the poor, education, medical, medical relief and the advancement of any 12 other object of "general public utility." The proviso to sec. 2(15) of the Act reads as under:
"Provided that 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 for a cess or fee or nay other consideration, irrespective of the nature of use or application, or retention, of the income from such activity".
The proviso was inserted by Finance (No. 2) Act, 2008, w.e.f. 01-04- 2009. Now the question is whether the proviso inserted with effect from 1-4-2009 is applicable to the activity of the trust before us. S. 11(1) of the Act lays down that subject to the provisions of Ss. 60 to 63, the income derived from property held under Trust wholly for charitable or religious purpose, to the extent to which such income is applied to such purposes in India; and where such income is accumulated or set apart for application for such purpose in India, to the extent to which the income so accumulated or set apart is not in excess of 15% (25% upto 31-03-2003) of the income from such property. The Sub-section (2) cl. (b) of S. 11 provides that here eighty-five percent of the income referred to in cl. (a) or cl. (b) of Sub-section (1) read with Explanation to that Sub-section is not applied, or is not deemed to have been applied, to charitable or religious purposes in India during the previous year but is accumulated or set apart, either in whole or in part, for application to such purposes in India, such income so accumulated or set apart shall not be included in the total income of the previous year of the person in receipt of the income, provided that ... (b) the money so accumulated or set apart is invested or deposited in the forms or modes specified in Sub-section (5).
8.1 Section 11(5) lists the modes of investing or depositing the money referred to in cl. (b) of Sub-section (2) which includes, in a nutshell,
(a) Savings certificates;
(b) Post office savings a/c;
13(c) scheduled bank or a co-operative society engaged in the carrying on of the business of banking;
(d) Unit Trust of India;
(e) any security of money created and issued by the Central government or a Sate Government;
(f) Investment in Company or Corporation Dividends and wherein the principal and interest are fully and unconditionally guaranteed by the Central Govt. or by a State Govt;
(g) deposits in any Public Sector Company
(h) deposits in Bonds issued by any Financial Corporation engaged in providing long term finance for Industrial development in India which is eligible for deduction under cl. (viii) of the sub-section (1) of section 36, and other modes specifically mentioned in that Sub-section (5) of Section 11 of the Act.
8.2 The concerned CIT invoked provisions of S. 12AA(3) for cancellation of the registration granted to the trust u/s 12A from 11-02-1998. S. 12AA(3) was inserted in the Act by Finance (No. 2) Act, 2004, effective from 01-10-2004, providing subsequently that if the Commissioner is satisfied that the activities of such Trust or Institution are not genuine or are not being carried out in accordance with the objects of the Trust or Institution, as the case may be, he shall pass an order in writing canceling the registration of such trust or institution.
8.3 The concerned CIT-II-Kolhapur held that the deposits made with Madhyamik Adhyapak Sahakari Pat Pedhi, Ravindra Nagari Pat-Sanstha, Jijai Manila Bigger Sheti Co-op society, were in contravention of S. 11(5) and S.13(l)(c) of the Income-tax Act, 1961 and also in contravention of Bombay Public Trust Act, 1950. In this regard, the stand of the assessee has been that
1) The ITAT Pune Bench, Pune in the case of Maharashtra Arogya Mandal v. ITO, (2008) 117 TTJ (Pune) 631 has held as under;
14"investment in credit co-op society (Pat Sanstha) by assessee-trust is eligible investment under S. ll(5)(iii), hence there was no violation of S. 13(l)(d) so as to deny relief under S. 11 of the Act. In the above said case, the Tribunal relied upon decision in the case of SBI Staff credit Co-op Society v. ITO (1998) 234 ITR 104 (Mad), and Tata Tea Ltd. v. CIT (2003) 78 TTJ (Kol) 646.
2) In the case of Gurdayal Berlia Charitable Trust v. ITO, (1990) 34 ITD (Bom) 489, the ITAT held as under:-
"According to us, the line of argument/reasoning advanced by the Ld. Counsel for the assessee is fully fortified by the aforesaid Circular No. 387 issued by the CBDT. There is nothing in S. 11(5) which can be interpreted to mean that if a portion of the accumulated income of the Trust is not invested in specified securities, the exemption under S. 11 of the Act which has already been granted to the trust in earlier year would be withdrawn."
8.4 It was founded by concerned CIT that the Society has purchased a plot of land at Sadavli for which a sum of ₹. 10,55,000/- was withdrawn by the Treasurer whereas the actual cost of this land is only Rs. 2,31,000/-. The balance amount of Rs. 8,24,000/- lying with the treasurer is being shown as advance to Member pending recovery of the same. While scrutinizing the accounts for F.Y. 2006-07 relevant to A.Y. 2007-08, it was observed that the Society has advanced amount of Rs. 34,52,492/- to Trust/Companies in which members are Directors for construction of New College Building at Ratnagiri in contravention of provisions of Section 13. The Society has deposited a sum of Rs. 55,00,000/- with the Madhyamik Adhyapak Pat Pedhi and Rs. 1,03,820/- to Ravindra Nagari Par Sanstha, Lanja in contravention of the provisions of Section 11(5) and contrary to the provisions of Act. It is also observed that the amendments made in the Constitutions on 11-09-2001 resulted into all powers acquired by the Chairman and his family members. As the control over the society was in the hands of family of Mane and merely running the Society as a Private Family Society. In this background, the stand of the 15 assessee has been that the assessee-Society has received back all the amounts so referred to in the show-cause notice with interest. The arrangement was absolutely a temporary phenomena and it could not be said that trust fund was misappropriated by any of the trustees. The Society cannot be punished by canceling its registration granted u/s 12AA of the Act for any mis-deeds of the trustee. The said trustee should be punished for his own conduct. Accordingly, Shri Ashok Sapra, the trustee was sacked from the trusteeship by accepting the resignation tendered by him. The advance paid to him for purchase of land was fully recovered. In this background, the stand of the assessee has been that the exemption under S. 11 could not be denied to the assessee if there were no documentary evidences to attribute that the transaction took place only to benefit the managing trustee or his relatives.
8.5 It is application or use of income or property alone that attracts the provisions of section 13(l)(c)(ii) and where net income has not been used for any purpose, let alone benefit of members, this section cannot be applied. In the case of Dy. Director of Income-tax (Exemption) vs. Dharam Partisthanam (2003) 173 Taxman 52 (Del-Trib) the ITAT held that in case it transpires that the debt in the assessee's bank account is a refund of identical amount paid by the vice president on its behalf for purchase of machinery then apparently provisions of S. 13(l)(c)(ii) would not be attracted. In this case the advance granted to one of the trustees for purchase of land at Sadvili of Rs. 10,55,000/- on behalf of the appellant Trust has been recovered from the said trustee and he is sacked. The provisions of S. 13(l)(c) therefore, will not be attracted. In this case the advance granted to one of the trustees for purchase of land at Sadvili of Rs. 10,55,000/- on behalf of the appellant trust has been recovered from the said trustee the provisions of sec. 13(1)(c) therefore, will not be attracted. In the case of CIT v. Baldeoji Maharaj (1996) 84 Taxman 448 (All) the Hon'ble High 16 Court, wherein the Tribunal held that there was no evidence to show that the loan was not adequately secured and interest charged was also adequate in the facts and circumstances of the case, the Tribunal concluded that there was no violation of the provisions of law i.e. S. 13 of the Act and the trust was entitled to exemption under S. 11 of the Act. It was therefore, concluded that there was no violation of the provisions of S. 13 of the Act. On these findings the Tribunal was right in holding that the provisions of S. 13 of the Act are not applicable in this case and the assessee-trust is entitled to exemption under Ss. 11 and 12.
8.6 There is nothing in section 11(5) which could be interpreted to mean that if a portion of the accumulated income of the Trust is not invested in specified securities, the exemption under section 11 of the Act which has already been granted to the trust in earlier years would be withdrawn. In this view of the matter, the trust could not be denied exemption under section 11 and only its income from dividend on 12,000 shares should be brought to tax at prescribed rate because such income is not from specified securities. The ITAT Ahmedabad Bench in the case of Director of Income-tax v. Shri N. H. Kapadia Education Trust (2008) 148 TTJ (AMD) 37 wherein the issue of purchase of land was raised and it was held that the purchase of the land was intended by the trustees for their own benefits/gains, etc. does not hold water as no documentary evidence was brought on record towards the assessee's claim.
8.7 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 above. The Banakhat clearly indicated that transaction was made for and on behalf o 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 his relatives for that matter have claimed that the said purchase was made on behalf of 17 them or for their own benefits, On perusal of this, it was found that no documentary evidences to substantiate that 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 exhibited the expediency which prevailed at that relevant time. Moreover, the utilizations 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 said land.
8.8 Vide para 8 of the cancellation order of the CIT-II, Kolhapur it was one of the reasons for invoking S. 12AA(3) that the original Trust-Deed has been amended on 11-09-2001 and as per amended Deed according to CIT, benefits are intended to be enjoyed by the Chairman, his relatives and his successors in future. Thus by concentrating all the powers of running the trust in the hands of the Chairman and his family members, arrangements have been done for enjoyment of benefits by Manes (Family of Mane) not only for the present but for the future as well. According to CIT such amendment goes against the very spirit of the term 'Charitable Trust'. In this regard, we find that the co-ordinate Bench of ITAT Jodhpur Bench in Mansukhi Bihani Jan Hitkari Trust v. CIT (2005) 277 ITR (AT) 140 (Jodhpur) held:
"The mere fact that the trustee are closely related to each other and belong to one family with vacancy also bound to be filled up only by members of the family cannot be treated as benefit to such members. "
Whether the trust is a public trust or not depends upon its objects. In case the settler himself decides to be the sole trustee or nominates trustees from his family or those in his personal confidence. This does not vitiate either the validity of such trust or its public character. It is natural that settler would like to ensure that the objects of the trust created by him are best carried out by persons in whom he has the required confidence. It was in this 18 view, that the refusal of registration was found by the Tribunal to be unjustified. The burden is on the Revenue to establish an allegation besides proving that such a person derived some benefit. In similar circumstances, the Hon'ble Allahabad High Court in the case of CIT Vs. Kamla Town Trust (2005) 279 ITR 89 (All) held that the burden to prove that section 13 is violated which was on the Revenue, was not discharged.
8.9 In the case of DCU v. Cosmopolitan Education Society (2000) 244 ITR 494 (Raj) it was pointed out that, if there was any misapplication of funds, action would lie against person responsible, but the Institution cannot be denied exemption, which depends upon the objects of the Trust. This view was upheld by the High Court and SLP filed by the Deptt. against Judgment was also dismissed. (2000) 241 ITR (St) 132. An advance for purchase of property by itself need not be treated as violation of S. 11(5) but such advance should be bonafide as held in the case of CIT Vs. Shree P. Subramaniam Religious Trust (2010) 326 ITR 393 (Ker). So the CIT was not justified in cancelling the registration. S. 12AA(3) was inserted by the Finance Act (No. 2) Act, 2004, effective from 01- 10-2004. It is settled legal position that the judicial /quasi-judicial authority cannot review its own order. The cancellation/withdrawal of registration granted under S. 12A prior to 1-10-2004 invoking S. 12AA(3) tantamounts to Review of the order. The power granted under S. 12AA(3) is not retrospective. We find that the Hon'ble Allahabad High Court in CIT v. Manav Vikas Avam Sewa Sanstha (2011) 336 ITR 250 (All) held as under:-
"It is well settled, proposition of law that the judicial/quasi- judicial authority cannot review its own order, unless the power of review is expressly conferred on it by the statute under which it derives its jurisdiction as held in the case of Dr. Smt. Kuntesh Gupta v. Management of Hindu Kanya Mahavidyalaya AIR 1987 SC 2186) and the Full Bench decision of this court in the case of Smt. Anarkali v. Deputy Director of Consolidation reported in 1997 (15). So the order passed by the Commissioner of Income-tax-II, Lucknow dated 19 March 13, 2009 is without jurisdiction and void ab initio and the appeal in LT.A. No. 304/LKO/2009 filed by the assessee before the ITAT Lucknow Bench, Lucknow was correctly and rightly allowed by the said authority by order dated July 10, 2009. The Hon'ble High Court of Allahabad in Oxford Academy for Career Development v. Cf. CIT (2009) 315 ITR 382 (All) held that since S. 12AA(3) was incorporated in the Act, w.e.f. 1st Oct. 2004, and not applicable retrospectively, Registration granted to assessee on 1st April, 1999 could not ,therefore, be cancelled by the CIT by invoking powers u/s 12AA(3) of the Act. Even assuming that CIT has power to rescind the order of registration on the ground that registration has been obtained by practicing fraud or forgery there was nothing in the show- cause notice or in the impugned order dt. 9th March 2004 alleging that the petitioner had obtained the registration by practicing fraud or forgery."
8.10 Even the ITAT Ranchi Bench in the case of Institute of Science & Management v. CIT (Central) Patna (2012) 25 Taxmann.com 186 (Ranchi) has held that the Commissioner before passing an order under S. 12AA(3) to satisfy, himself that activities of such trust or institution are not genuine or are not being carried out in accordance with objects of trust or institution and before proceeding to cancel registration of such trust or institution a reasonable opportunity of being heard has to be given". The Co- ordinate Bench of ITAT Ahemdabad Bench in Director of Income-tax v. N. H. Kapaida Education Trust (2008) 148 TTJ (Ahd) 37 held that registration under S. 12A having been granted to assessee w.e.f. 21st March, 1990, amended provisions of S. 12 AA (3) could not be applied against assessee retrospectively prior to amendment w.e.f. 1st June, 2010. Prior to that registrations were granted under Cl.
(b) of subsection (1) of S. 12AA. Sec. 12 AA (3) has been amended by Finance Act, 2010 w.e.f. 1st June, 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 amended provision in S. 12AA (3) cannot be applied against the assessee retrospectively particularly prior to amendment dt 1st June, 2010. The Director of IT (Exemption) was not justified in resorting to cancel the 20 registration granted to the assessee trust earlier by CIT, vide his order dt. 21st March, 1990 w.e.f. 21st March, 1990. Therefore, impugned order was set aside and quashed. The above legal proposition laid down that the provisions of Sec. 12AA(3) are not retrospective and therefore, resultantly the registration granted prior to insertion of S. 12AA(3) of the Act could not be cancelled or withdrawn which would amount to review. The Hon'ble Bombay High Court in the case of Sinhagad Technical Education Society v. CIT (Central) 2012) 343 ITR 23 (Bom) has held that "Every statutory provision which operates in respect of a trust, which has already been registered in the past is not necessarily retrospective. A provision is retrospective when it takes away a right which has vested or accrued in the past. The effect of the provision is to empower the commissioner to cancel the registration of the trust where he is satisfied that the activities of the trust are not genuine or are not being carried out in accordance with the objects of the trust or Institution. This could not by any stretch of imagination be regarded as retrospective alternation of the law. In the case before us, as per the amendment by the Finance Act, 2010, the Commissioner has claimed to be empowered to initiate steps for the cancellation of the registration of a trust or Institution where the activities of the trust or institution are not genuine or are not being carried out in accordance with the objects thereof even in relation to a trust which was registered under S. 12A as it then stood." So basic requirement for invoking S. 12AA(3) is that the activities of the trust are not genuine and are not being carried out in accordance with the objects of the trust. The CIT has recorded her findings in the order u/s 12AA(3) that the trust is imparting knowledge at cost and therefore, not a charitable Trust within the purview of S. 2(15) of the Act, secondly, the appellant trust has contravened the provisions of Ss. 11(5) and 13(1) (c) of the Act. Thirdly, the trust is treated by the Chairman and family members/relatives as their private property and enjoyed by them 21 for their benefits only. There is nothing on record to suggest that the Trust is not 'genuine'. In fact, the trust is carrying on Educational activities they are charitable in nature. The activities are carried out as per its objects. There is no infringement of any of the provisions contained in Ss.11(5) and 13 of the Act. The provisions of S.12AA(3) for cancellation/withdrawal of registration granted to it w.e.f. 11-2-1998 u/s 12A of the Act are not retrospective and therefore, the impugned order of the CIT passed u/s 12AA(3) is nothing but a review of its earlier order which is impermissible in law. We hold so.
9. As a result, the appeal of assessee is allowed as indicated above.
Pronounced in the open Court on this the day 30th September 2013.
Sd/- Sd/-
(G.S. PANNU) (SHAILENDRA KUMAR YADAV)
Accountant Member Judicial Member
Pune, Dated: 30th September 2013
Ankam/GCVSR
Copy to:-
1) Assessee
2) Department
3) The CIT-II, Kolhapur
4) The DR, "A" Bench, I.T.A.T., Pune.
5) Guard File
By Order
//True Copy//
Senior Private Secretary,
I.T.A.T., Pune