C.I.T. II, JODHPUR vs. RAJASTHAN VIKAS SANSTHAN, JODHPUR

The present appeal has been preferred by the Revenue, being aggrieved by the order dated 16.12.2011 passed by the Income Tax Appellate Tribunal, Jodhpur Bench, Jodhpur, whereby the Tribunal set aside the order dated 27.12.2010 passed under Section 12AA(3) of the Income Tax Act, 1961 and restored the registration of the assessee- Trust under Section 12A(a) of the Act.

The brief facts of the case are that the assessee-Trust, Rajasthan Vikas Sansthan, registered under the Rajasthan Societies Registration Act, 1959, had been granted registration under Section 12A(a) of the Act on 08.01.2002. The Trust runs various educational institutions and is managed by Shri Manish Vyas as Chairman, his wife Smt. Asha Vyas as Vice-President and his brother Shri Raj Kumar Vyas as Treasurer.

1 The assessee had applied for approval under Section 10(23C)(vi) of the Act for the assessment year 2005-06 onwards, which was declined, inter alia, on the ground that the audited accounts were defective, persons connected with the management had derived benefit (Uploaded on 14/10/2026 at 01:19:53 PM) (Downloaded on 28/10/2026 at 12:42:29 AM) [2026:RJ-JD:48441-DB] (2 of 6) [ITA-36/2012] from the society funds and substantial surplus was being generated and siphoned off. Consequently, the issue regarding registration under Section 12A(a) was re-examined and a show-cause notice under Section 12AA was issued. On examination of the record, the assessee produced computerized books of account but failed to produce supporting bills and vouchers. Upon noticing substantial defects in the books of account and finding that the activities of the Trust were not charitable in nature and were influenced by profit motive, the registration granted to the Trust was cancelled vide order dated 27.12.2010 under Section 12AA(3) of the Act.

2 Aggrieved thereby, the assessee preferred an appeal before the Tribunal, which, vide order dated 16.12.2011, held that the registration could not be cancelled merely because the Trust was managed by members of one family, ran several institutions or generated surplus, so long as the surplus was utilized towards the objects of the Trust. The Tribunal further held that violations of Sections 11 and 13 could be considered by the Assessing Officer while making assessment and could not, by themselves, warrant cancellation of registration.

3 Hence, the present appeal by the Revenue.

While admitting the appeal, the Co-ordinate Bench of this Court, vide order dated 07.11.2012, framed the following question of law: “Whether on the facts and in the circumstances of the case, the ITAT was justified in setting aside the order of CIT (Annexure-1) passed under Section 12AA(3) canceling the registration of the respondent-assessee under Section 12A(a)?”

Learned counsel for the appellant argues that the learned Tribunal failed to examine the matter in its entirety and in the correct factual and legal perspective. He submits that the CIT, upon detailed examination of the receipts, expenditure and application of funds, had found that the Trust had been generating substantial surplus from the (Uploaded on 14/10/2026 at 01:19:53 PM) (Downloaded on 28/10/2026 at 12:42:29 AM) [2026:RJ-JD:48441-DB] (3 of 6) [ITA-36/2012] very inception and that its activities were being carried out with a profit motive. The Tribunal, however, failed to deal with these findings and set aside the order of the CIT without properly considering the material on record.

1 He further contends that the Tribunal failed to consider the findings regarding misutilisation of Trust funds, including expenditure on liquor, hotel bills, telephone bills, electricity expenses of residential premises and other personal expenses of persons specified under Section 13(3) of the Act. He submits that the advances made to various entities and payment of salary and rent to the Chairman, Vice-President and Treasurer were also found by the CIT to be excessive and unreasonable. The control of the Trust by members of one family, substantial fees charged from students and generation of considerable surplus were also relied upon as circumstances attracting Section 13(1) (c)(ii) read with Section 13(3) of the Act.

Per contra, learned counsel for the respondent opposes the submissions advanced by the appellant and submits that the Tribunal rightly considered the findings of the CIT and held that the alleged violations under Section 13 could be examined at the stage of assessment.

Having gone through the impugned order passed by learned ITAT, at the outset we may observe that the aforesaid question which was framed while admitting the appeal deserves to be answered in favor of the revenue. The reasons are not far to seek. Let us see how.

Before we proceed further, it would be apposite to notice the impugned order dated 16.12.2011 passed by the Income Tax Appellate Tribunal. Relevant part thereof is reproduced below: “2.7 We have heard both the parties. It is nowhere provided that the trust cannot be constituted by a family and it is also not provided under the Act (Uploaded on 14/10/2026 at 01:19:53 PM) (Downloaded on 28/10/2026 at 12:42:29 AM) [2026:RJ-JD:48441-DB] (4 of 6) [ITA-36/2012] that trust will not have number of institutions. The surplus being generated is utilized for the purpose of objects of the trust. In the case of the trust, one has to ascertain the receipt and payment account. In case the assessee trust raises loan then repayment of loan is also an application of income. It is nowhere provided in the trust deed that at the time of dissolution of the trust, the funds will vests in Vyas family. The registration can be canceled on the ground that the activity of the trust are not genuine or are not being carried out in accordance with the object of the trust. In case there are violations as mentioned in Section 11 and 13 of the Act. Thus the AO while making assessment can deny the exemption to the trust. For getting the exemption u/s 11, registration is pre-requisite. However, registration is not a guarantee for exemption. In case the Trust fails to comply with the requirements as mentioned in Section 11 and 13 of the Act then exemption can be denied. In respect of failure mentioned in Section 11 and 13 in a particular year, it cannot be said that registration is to be cancelled. Surplus in educational activities is not relevant for cancelling the registration. The education itself is charitable object and if the surplus is utilized for the purpose of charitable activities then it cannot be said that registration is to be disallowed. The ground on which the registration cannot be refused, cannot be considered as a ground for cancelling the registration. The ITAT Pune Bench in the case of Maharashtra Academy of Engineering & Educational Research vs CIT 133 TTJ 706 had an occasion to consider the issue of cancellation of registration where it was alleged that the society was receiving donations and capitation fees for admission. It was held in that case that Id. CIT has to consider the genuineness of the activities of the Trust and not to consider the source of income. The profit eaming and misuse of the income derived by the Trust from its charitable activities may be ground for refusing the exemption only with respect to that part of income but cannot be taken to be synonymous to the genuineness of the activities. A worth-noting observation was made by the Hon'ble Courts that if establishing and running of school is the object of the society as given in its bye-laws then it has satisfied that the society has established the school where education is imparted, as per rule of factum of establishing and running of school is genuine activit The enquiry regarding genuineness of the activities can be stretched beyond this. The provisions of Section 130 can be invoked only at the time of computation of total income in the case of a person who is claiming exemption u/s 11 or 12 by the AO and not by the Id.CIT. While considering the application for registration u/s 12AA. refusing the registration. The Hon'ble High Court held that if there is any whether the cancellation of registration u/s 12AA(3). It has been observed by the ITAT Lucknow Bench that CIT cannot refuse the order of his predecessor once the registration has been granted. It means that the objects of the Trust are charitable. The ITAT Lucknow bench has gone to (Uploaded on 14/10/2026 at 01:19:53 PM) (Downloaded on 28/10/2026 at 12:42:29 AM) [2026:RJ-JD:48441-DB] (5 of 6) [ITA-36/2012] the extent to say that Id. CIT becomes fructuous officio and therefore, the order u/s 12AA(3) is illegal and unsustainable.

9 We have also noticed that Id. CCIT, Jodhpur has allowed exemption w/s 10(23) of the Act. Before the Id. CCIT, it was pointed out that registration was cancelled u/s 12AA(3) by the Id. CIT. The Id. CCIT has allowed the registration which means tht the activity of the Trust are genuine and as per its object. The advertisement expenses if --genuine and the persons covered u/s 13(3), the assessee has already explained the reasonableness. The reasonableness is actually to be seen by the AO and not be the Id. CIT while allowing registration or canceling the registration. Thus looking to the above discussions, we hold that the Id. CIT was not justified in cancelling the registration. The order passed by the Id. CIT u/s 12AA(3) is cancelled and appeal is allowed.

0 In the result, the appeal of the assessee is allowed. The order is pronounced in the open Court on 16/12/2011”

On perusal of the facts and the material on record, it clearly emerges that findings of the learned CIT were recorded without even referring to, let alone appreciation of the material evidence on record and the activities which were carried out by the trust as noted above (Para Nos. 4, 4.1 and 4.2). The same, in our opinion would fall foul of Section 13(1)(c)(ii) read with Section 13 of the Act of 1961. 9. Material on record reflects that the Trust was not only paying salary but also rent to Shri Manish Vyas, Smt. Asha Vyas and Shri Raj Kumar Vyas, who are members of the same family controlling the Trust. The same also goes on to show that the control of the Trust/Society was completely in the hands of just one family.

That apart, what leaves us nonplussed is the fact that the learned ITAT gave a complete short shrift to the factual position by ignoring the same while recording its reasoning, particularly the fact/evidence of misutilisation of the Trust funds on liquor, hotel payments, along with personal telephone bills of Smt. Meenu, apart therefrom payment of electricity expenses of the residence of Mr. Manish Vyas and other personal expenses made for the persons who are specified under (Uploaded on 14/10/2026 at 01:19:53 PM) (Downloaded on 28/10/2026 at 12:42:29 AM) [2026:RJ-JD:48441-DB] (6 of 6) [ITA-36/2012] Section 13(3) of the Act of 1961. How did these expenses constitute any charity, we are unable to comprehend the same.

Clearly, the order passed by the CIT did not warrant any interference by the ITAT, which committed material irregularity both in law while misappreciating the material on record as well as by ignoring the facts of the case.

Accordingly, the appeal is allowed. The question framed by this Court is answered in favour of the appellant-Revenue with consequences to follow.

However, in the parting, we may like to make it clear that the respondent shall not be precluded in future from applying for registration afresh in case any such case is made out, which shall be dealt with independently dehors the previous cancellation of its registration, provided all the statutory parameters are satisfied by the respondent.

All pending applications also stand disposed of. (YOGENDRA KUMAR PUROHIT),J (ARUN MONGA),J 77/Raksha Rakhecha Powered by TCPDF (www.tcpdf.org) (Uploaded on 14/10/2026 at 01:19:53 PM) (Downloaded on 28/10/2026 at 12:42:29 AM)