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9. The Ld. AR further submitted that the Ld. CIT cancelled registration granted u/s 12AA of the Act, without any change in material facts that stood prevailed at the time of granting registration. The CIT came to the conclusion Kunhitharuvai Memorial Charitable Trust that though the trust is registered as public charitable trust, in reality, it is running like a family trust only on the basis of composition of trustees who belongs to one family. The question whether the trust is charitable or not depends upon its objects and its activities. If objects of the trust are in the nature of charitable purpose as defined u/s 2(15) and its activities are carried out in accordance with its objects, it is irrelevant whether it is managed by family members or outsiders. In this case, all trustees are doctors by profession having common agenda of providing charity, established a trust, with the main object of education and such objects is carried out in accordance with its objects; therefore the CIT was incorrect in coming to the conclusion that the trust is family trust not existing for charitable purpose. As regards observations of the CIT with regard to non maintenance of books of accounts and non filing of regular returns of income it was submitted that it is true returns of income from A.Y. 2007-08 have not been filed regularly and such returns have been filed only after search but before the Commissioner issued her show cause notice on 6-9-2013 which is evident from the fact that returns of income up to A.Y. 2011-12 have been filed before 21-8-2013. The trust has filed regular returns for A.Y. 2012-13 and subsequent years. The AR further submitted that even assuming that there is delay in filing return of income, could it be said that it is fatal so as to withdraw registration u/s 12AA(3). Non filing of returns is purely a procedural laps which can be cured by filing return of income or some other penal provision is provided to deal with Kunhitharuvai Memorial Charitable Trust non filing return of income, but it cannot be a ground for cancellation of registration as long as the trust objects are charitable in nature and its activities are carried out in accordance with its objects.

(vi).Voditala Educational Society v. Asstt. DIT (Exemption) [2008] 20 SOT 353 (Hyd.)

(vii). Dawn Educational Charitable Trust v. CIT [2015] 370 ITR 724 (Ker.)

13.We have heard both the parties, perused the materials on record and gone through the order of the Commissioner of Income -Tax cancelling registration granted u/s 12AA, by using her powers conferred u/s 12AA(3) of the Income Tax Act, 1961. The CIT, Central cancelled registration u/s 12AA(3) from A.Y. 2011-12 on wards on the ground that the objects of the trust are not charitable in nature and its activities are not carried out in accordance with its objects. The Commissioner of Income Tax cancelled registration u/s 12AA(3) of the Act, on the basis of her observations which are narrated in para.11, on page 5 of her order. According to the CIT, the trust never carried out its activities in accordance with its objects, as there is violation of sections 11(5) and 13(1)(c) in so far as utilization of trust funds, failure to maintain books of account and filing of returns of income and running education with profit motive. The CIT has brought out various reasons for drawing adverse inference on the objects Kunhitharuvai Memorial Charitable Trust and its activities and the source of such information is search and seizure operation conducted u/s 132 of the Act, in the premises of trust and trustees on 31-10-2011. The information gathered during search has been discussed at paras 4 to 9 on pages 2 to 5 in her order dated 27-3-2014. The search revealed the following facts.

14. The CIT has discussed these issues in her order with certain documents and evidences collected during search. The documents and evidences relied upon by the CIT includes, copy of trust deed, computer generated statements and sworn statements recorded from trustees. The first and foremost observation of the CIT was that the trust is not a charitable trust as its trustees Kunhitharuvai Memorial Charitable Trust are family members and its affairs is controlled by them. The second observation with regard to non maintenance of books of account and non filing of regular returns of income as required under the Act. The CIT also observed that the trust has collected additional fees from students admitted under management quota and that fund has been used for payment of on-money payment for purchase of property in the name of trustees. These are four observations of the CIT which lead to drawing adverse inference on the objects and activities of the trust and cancellation of registration u/s 12AA(3) of the Act. The CIT never disputed the fact that the trust objects are charitable in nature as defied u/s 2(15) and it is pursuing its objects by imparting education through various educational institutions. The CIT has accepted the fact that the objects of the trust are predominantly providing education and such object iscarried out through number of educational institutions which is evident from the fact that the trust is running seventeen educational institutions offering various graduate and post graduate degrees in Medicine, Engineering, Pharmacy, Management studies and Nursing. There are more than 5000 students studying in all institutions. All colleges and institutions are approved by regulatory bodies like, Medical Council of India, All India Council for Technical Education and Boards and Universities regulating education in the state of Kerala. Therefore, under these facts and circumstances, one has to examine the case, in the light of provisions of section 2(15), 12AA and 12AA(3) and whether the objects of the trust are charitable in nature as Kunhitharuvai Memorial Charitable Trust defined u/s 2(15) and its activities are carried out in accordance with its objects.

(b) The ITAT, Pune bench in the case of Maharashtra Academy of Engineering Education Research vs. CIT (2010)133 TTJ 706(Pune) held that if CIT had an information of wrongful means of earning fees in the form of donation or about excess charging of fees, the CIT can pass on the information to the concerned authority, but when there is no evidence of misutilisation of funds and the prescribed activity if continued to carried on by the assessee, then the CIT had no jurisdiction to cancel registration u/s 12AA(3). The relevant portion of order is extracted below. In the recent past sub-section (3) was inserted in section 12AA with effect from 1-10-2004 which gives power of cancellation of registration to the CIT, if he finds that the activities are not genuine or not being carried out in accordance with the object of the trust. The need for the enactment had arisen due to belief of some quarter that in the absence of explicit law the CIT cannot exercise the power of cancellation of registration. To overcome this hurdle this sub-section is incorporated and now in operation. Naturally these powers are conferred with a view to ensure that if once a registration has been granted under section 12AA, a trust or institution may not take any such liberty of misuse of the registration or the provisions by going haywire rather furthering the objects of the trust or genuinely not pursuing the activities for which it was established. [Para 11.4] The most important feature of section 12AA is that this section has only laid down the procedure of registration and this section nowhere speaks that while considering the application of registration, the CIT shall also look into the procedure of earning of income and sources from where receipts are derived. The argument was, it also does not speak anywhere that while considering the registration the CIT shall also see the manner in which the receipts Kunhitharuvai Memorial Charitable Trust or the income is being spent by the trust. Various related provisions, the power of enquiry, in respect of sources of receipts and the utilization of income is entrusted in separate sections as already discussed ante. The language thus used in section 12AA only confines to enquire about the activities of the trust and its genuineness, which means, in consonance with the objects for which created and those objects as also activities should not be a camouflage but pure, sincere, charitable and for public utility at large. What is implicit is that the CIT has to sincerely examine that the objects as also the activities should not be prima facie against the basic structure for which beneficial law is made and also be not in conflict with the general public utility. Naturally an institution if established to carry out an illegal activity or activities are causing any type of nuisance not in the interest of the public at large should definitely lead to cancellation of registration. Therefore, this is the first requisite of the statute to mandate for the registration and in the absence of such registration disentitlement of exemption. So what is explicit is that though an institution may be doing charitable activities as prescribed but in the absence of registration cannot be entitled for the exemptions or benefits of sections 11 and 12. It is also explicit that registration ipso facto does not necessarily entitle an institution to get the receipts excluded from the income or exemption be granted automatically by just showing the registration certificate to the revenue authorities. [Para 11.5] Procedure of registration is a first step and a preliminary stage where the CIT shall restrict the enquiries as to whether the trust is actually and whole heartedly performing all the duties and activities for which it was created. On careful reading of this section it was gathered that at this initial stage there is no scope of any apprehension of misutilization of funds or to judge the taxability income. The scheme of the Act otherwise does not subscribe and allow a trust to take the benefit of the provisions of section 11 and 12 unless it establishes the prescribed utilization of the income even if at all he trust holds the registration in its hands. Therefore at the stage of granting registration the CIT is not expected to bother himself about the other provisions of the Act and supposed to confine himself to the procedure of registration as laid down therein. [Para 11.6] Another feature of the impugned order of the CIT is in fact bothering that nowhere he has taken any objection to the charitable and educational nature of the institution. In fact, the objects of the institution, as declared in the trust deed does reflect that all are philanthropic or benevolent in nature, precisely for the purpose of imparting education. Strange enough there is no finding recorded by the CIT contrary to this fact. Be that as it may, the real and the only substantial objection for refusal of registration was that the institution has collected donations thus adopted some wrong Kunhitharuvai Memorial Charitable Trust means of collection of fees. But whether at this preliminary stage he had the right to draw an adverse inference so as to refuse registration or alternatively confine himself to the enquiry about the objects and the activities of the trust as per the limits of the jurisdiction of section 12AA. Rather this is also not the case of the CIT that the institution is doing some other activity of earning profit other than the activity of running educational institutions. The established factual position is that the institution is not doing in any other activity except running educational institutions. In such circumstances, can one uphold the action of cancellation of registration? Answer is obvious no. [Para 11.7] As far as the objective of the appellant is concerned this is not the case of the revenue that the assessee was not imparting education. The term education means to teach subjects to students for the development of his mind and also to equip students to deal with reality. The training process is either theoretical or practical but student has to be taught the essentials of the selected subjects so as to develop his skill and knowledge for the subjects studied by him. The appellant institute, admittedly, fulfils the requirements of imparting formal education by a systematic teaching and instructions. Since the question-about the imparting of education has not been doubted or challenged by the revenue therefore, the impugned order passed by the respondent is unsustainable in law. Strange enough there is nothing on record to prove sightlessly that the purpose of imparting of education was not fulfilled by this institute thus the revenue department has hopelessly failed to establish that there was any illegal activity or infringement of any law so that to doubt the genuineness of the activities. [Para 11.11] The sine qua non for cancellation of registration are two conditions prescribed in section 12AA(3) needs to be satisfied are: (a) That activities of the trust/institution are not genuine. (b) That activities of the trust are not carried out in accordance with the objects of the trust/institution. Thus the findings of the CIT has not to be only conceptual or contextual but should be within the four corners of law so that not surpassing the power, as listed above, granted in sub-section (3) of section 12AA. But unfortunately the fallacy is writ large as gathered on perusing the impugned order. The CIT's approach for deciding the eligibility of registration of a trust should be different from the angle by which an assessment of an income is made by the AO. About the ramification if one approve the action of CIT because in that case it may adversely affect the imparting of education especially when the revenue has not made out a case that the very purpose for creation of the trust was defeated. Rather one wonders that what purpose does it serve to revenue by cancelling a registration if the activities are in public interest because in case of any breach of the laws the same is Kunhitharuvai Memorial Charitable Trust subject to tax under sections 11 and 12. These two provisions and few other provisions are competent enough to tackle firmly a defaulter of philanthropic application of income or funds of the trust. The other adverse side of cancellation is that on refusal of registration the entire receipts shall be subject to assessment without granting benefit of section 11 and section 12 to assess income which do not form part of total income though the factual position could be that major part might have been devoted towards achieving the objects, i.e., imparting education, as in this case, but the AO shall be automatically forbidden to grant advantage of exemption consequent upon the cancellation as is mandatory in statute; relevant section already reproduced ante. The outcome of the deliberation made in detail hereinabove is that percurian opinion is to debar the CIT to enter into the area of investigation of source of income and also application of income, so that the amount of correct exempt income be not prejudged. [Para 11.12] The aspect of morality as touched by the CIT is appreciable. Every vigilant and law abiding citizen has to be fair in his conduct and should refrain from immoral activities. But existing blue laws are derived from the numerous extremely rigorous laws designed to regulate morals and conduct. These laws are enacted in such a fashion that if implemented correctly and efficiently then there is no scapegoat for an offender. One is tempted to write an idiomatic language due to the sensitivity of the issue, that a CIT cannot be allowed to hold a baton of morality in his hand to hit an immoral; but the statute has given him a flexible stick for inflicting tax on defaulter; that includes a trust or educational institution. The gist is that if the CIT had an information of some wrongful means of earning fees in the form of a donation or the information tells about excessive charging of fees; then the CIT in his rights can pass on the information to the concerned office bearers working under the Maharashtra Capitation Fees (Prohibition) Act. These authorities have enough power to deal with such nature of default, side by side the CIT is to limit his jurisdiction within the ambits of provisions of the Act and expected to give a finding on facts that either the objects are not for general public utility or not achieved as prescribed under law. However presently the situation is that the revenue has not said about any immoral activity of the appellant or the collection of fees was by wrongful means; hence deregistration sans the Tribunal's approval. [Para 11.13] Prima facie no case was made out by the CIT so as to even vaguely demonstrate that the activities of the appellant were not genuine or activity of imparting of education, for which the trust was created, were not carried out. Even the CIT has failed to establish that any part of the income/receipt of the trust was in any manner misutilized by the trustees for their personal benefit i.e., not in fulfillment of the Kunhitharuvai Memorial Charitable Trust object of the trust. Otherwise also there are three ways to look at this problem. One is, that the donations are raised but not utilized for achieving the objects, Le., towards imparting education; then such an institution must bear the consequence of cancellation of registration since ipso facto infringed section 12AA(3) condition. Second aspect is, that though the donations received are meant to fulfill the objects but together with fees have infringed Anti Capitation Prohibition Act; then comes within the clutches of that Act but definitely not under section 12AA(3) provisions. The third aspect is, that the donation plus fees do not exceed the prescribed limit of Anti Capitation Fee Act i.e., five times the normal fees; further that no evidence of misutilization other than the prescribed activity then no action can be suggested under section 12AA(3). The Assessee's case falls under the third category. With the result, totality of the circumstances thus warrants, in the light of the foregoing discussion, not to endorse the view of the CIT; consequence there upon reverse those findings. The order of cancellation of registration is hereby revoked".