M/S. SRINIVAS INSTITUTE OF MEDICAL SCIENCE AND RESEARCH CENTRE,MANGALROE vs. THE PRINCIPAL COMMISSIONER OF INCOME TAX (CENTRAL), BENGALURU

PER CHANDRA POOJARI, ACCOUNTANT MEMBER:

This appeal by the assessee is directed against order of Ld. Principal CIT passed u/s 10(23C) of the Income-tax Act,1961 ['the Act' for short] dated 13.6.2022, wherein Ld. Principal CIT cancelled the approval granted under sub-clause (vi) of Clause (23C) of section 10 of the Act for claiming exemption from assessment year 2018-19 onwards. Against this, assessee is in appeal before us. The assessee has raised following grounds of appeal:

ITA No.533/Bang/2022 M/s. Srinivas Institute of Medical Science and Research Centre, Mangalore

Page 2 of 50 “The orders of the authorities below in so far as they are 1. against the appellant, are opposed to law, equity, weight of evidence, probabilities, facts and circumstances of the case.

The order passed u/s 10(23C)(vi) of the Act13/06/2022, 2. withdrawing the exemption granted is bad in law and void ab-initio in as much as there is no violation of law or objects of the trust by the appellant and thus, the impugned order passed deserves to be quashed. The learned Pr.CIT, Bangalore ought to have appreciated 3. that none of the conditions mentioned in the un-numbered fifteenth proviso to section 10[23C] of the Act was attracted to the case of the appellant and that there were no specified violations to cancel / withdraw the approval granted earlier under the facts and in the circumstances of the appellant's case.

ITA No.533/Bang/2022 M/s. Srinivas Institute of Medical Science and Research Centre, Mangalore Page 3 of 50 making it unworthy of credence under the facts and in the circumstances of the appellant's case.

For the above and other grounds that may be urged at the 9. time of hearing of the appeal, your appellant humbly prays that the appeal may be allowed and Justice rendered and the appellant may be awarded costs in prosecuting the appeal and also order for the refund of the institution fees as part of the costs.”

2.1 The Ld. A.R. submitted that soon after formation of the trust, the assessee was granted registration u/s 12A of the Act vide No. S-385/12A/CIT/MNG/2010-11 dated 09/03/2011 with effect from the date of formation of the trust by the then Commissioner of Income Tax, Mangalore. This approval granted u/s. 12A of the Act continued to remain in force. In as much as the assessee trust was running educational institutions, which exist solely for educational purposes and not for the purposes of profit, the assessee trust made an application for recognition u/s 10(23C)(vi) of the Act before the then prescribed authority i.e., the CCIT, Panaji. The prescribed authority granted the approval, which has since been renewed vide order no. F. No. CCIT/PNJ/136(V/2012-13 dated 25/04/2013. The approval granted u/s 10(23C)(vi) of the Act was subject to the assessee abiding by the conditions set out below:

ITA No.533/Bang/2022 M/s. Srinivas Institute of Medical Science and Research Centre, Mangalore

Page 4 of 50 [1] the assessee applies its income, or accumulates its income for the application, wholly and exclusively, for the objects for which it is established and application of its income must be in accordance with Third Proviso to Section 10[23][vi];

[2] the assessee will not invest or deposit its funds [other than voluntary contributions received and maintained in the form of jewellery, furniture, etc] for any period during the previous years relevant to the assessment years mentioned above otherwise than in any one or more of the forms or modes specified in sub-section [5] of Section 11 of the I T Act, 1961;

/3] this approval will not apply in relation to any income being profits and gains of business, unless the business is incidental to the attainment of the objectives of the Society and separate books of accounts are maintained in respect of such business.

[4] the assessee will regularly file its return of income before the income-tax authority in accordance with the provisions of the Income-tax Act, 1961; [5] that in the event of its dissolution, its surplus and assets will be given to an organization which exists solely for charitable purposes and not for purposes of profit and no part of the same will go directly or indirectly to any of the beneficiaries of the society or anybody specified in section 13[3] of the Income-tax Act, 1961;

the approval granted shall be subject to the provision of [6] proviso to section 143[3];

[7] the approval shall be void if it is subsequently found that it has been obtained fraud or misappropriation of fact;

the above approval is given only for the purpose of [8] sec. 10[23][vi] of the Income-tax Act, 1961 and not for any other purpose/s.

2.2 The ld AR submitted that the aforesaid approval granted to the assessee trust by the order dated 25/04/2013 remained in force and thus, the assessee was entitled to claim exemption u/s. 10(23C)(vi) of the Act for the assessment years 2013-14 onwards.

ITA No.533/Bang/2022 M/s. Srinivas Institute of Medical Science and Research Centre, Mangalore Page 5 of 50 2.3 The ld AR submitted that while the position thus remained, there was a search conducted in the premises of the assessee at Jail Road, Mangalore (Residence), Admn. office at G. H. S. Road, Mangalore and College premises at Mukka on 17/02/2021. During the course of the said search, there was no incriminating material in the form of any undisclosed assets or undisclosed income was found and there existed none. However, during the course of search proceedings certain documents were seized which was stated to represent evidence of collection of capitation fees and misuse of Trust funds for purposes other than objects of the Trust. The President/Vice-President of the assessee trust and various employees were examined at the time of search and they had also explained that the inference sought to be drawn by the Department with regard to cash collections of capitation fees was erroneous and the documents found and seized did not show any cash collection at all.

2.4 The ld AR further submitted that it appears that assessment proceedings were taken up by the learned DCIT, Central Circle-1, Mangalore, u/s. 153A of the Act and in course of the said proceedings, a reference was made to the learned PCIT, Central Circle, Bangalore for withdrawal of the approval granted u/s. 10[23C] of the Act as per the proviso to section 143[3] of the Act.

2.5 The ld AR submitted that, the learned PCIT, Central Circle, Bangalore, on the ground that the assessee has violated the provisions of Karnataka Educational Institutions [Prohibition of Capitation Fee] Act, 1984, etc., issued a show cause notice dated 19/04/2022 calling upon the assessee to show cause as to why the approval granted by the Chief Commissioner of Income Tax

ITA No.533/Bang/2022 M/s. Srinivas Institute of Medical Science and Research Centre, Mangalore Page 6 of 50 vide order F No. CCIT/PNJ/10[23C]/136[1]/2012-13 dated 25/04/2013 should not be cancelled/ withdrawn.

2.6 In response to the aforesaid notice, the ld AR for the assessee appeared and filed detailed objections vide replies dated 04/05/2022 and 10/05/2022. The SCN as well as the replies filed by the assessee are reproduced in the impugned order.

2.7 The ld AR submitted that after considering the aforesaid objections, the learned PCIT, Central Circle, Bangalore has passed the impugned order dated 13/06/2022 withdrawing the exemption u/s 10[23C] of the Act. While passing the impugned order the learned PCIT has held as under: "10. I have carefully considered the submission made by the assessee and the retraction/explanations offered by the assessee for the alleged violation of law. These explanations are not satisfactory. For all the reasons mentioned in earlier paragraphs the approval granted under sub-clause (vi) of Clause (23C) of Section 10 for claiming exemption is hereby cancelled from Asst. Year 2018-19 onwards. Regarding assessee's contention to direct the Assessing Officer to consider the alternate grant of exemption u/s 11 of the Act if approval u/s 10(23C) is withdrawn, the same is not acceptable since the issue of exemption u/s 11 of Income tax Act is not under consideration in this order."

2.8 The learned PCIT, Central Circle, Bangalore held that the following violations were noticed by the Investigation Wing during the course of search. The relevant discussion in the impugned order is as under:

"9. Registration of a trust can be cancelled by the Commissioner when he is satisfied that activities of such trust or institution are not genuine or are not being carried out in accordance with the objects of the trust or institutions as the case may be. Thus, the conduct of the trust in performing its activities in accordance with the objects are material for considering the issue either for registration or for cancellation. In this case, the activities

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Page 7 of 50 of the trust are found to be not in accordance with the objects of the trust or institution and there is violation of the conditions on which, the registration was granted vide order dated 25-04-2013. The following violations are noticed during the course of search proceedings conducted by the investigation wing namely;

i) During the course of search operations carried out on 17- 02-2021 in the case of the trust and the Trustees, cash of Rs. 3,75,00,0001- was found and seized from the residential premises of Mr. Raghavendra Rao/Mr. Srinivas Rao, at `Srinivas' Jail Road, Mangalore. In the statement recorded U/s 132(4) from Mr. Srinivas Rao, it was admitted that the cash was the accumulation of collection of fee, capitation receipt etc over a period of time which was kept at home. This is clearly in violation of Section 11(5) of the Act.

The cash seized at the residential premises of the Trustee ii) confirms the diversion of Trust funds to the trustees.

Inspection of the seized documents in connection with the iii) case was carried out by me on 1st June 2022 in the office of the DC1T, Central circle -1, Mangalore. The following documents found and seized by the search party are reproduced below as a sample:

ITA No.533/Bang/2022 M/s. Srinivas Institute of Medical Science and Research Centre, Mangalore Page 8 of 50

The above documents clearly show that the cash was being collected by the Trust (as seen in the below document C.PD refers to the cash collected from students out of the total package referred in PK Column) which was not utilized or invested in accordance with the provisions specified in subsection (5) of section 11 of the income tax Act.

(iv) As per section 11(5) of the Income tax Act, the trust is expected to invest or deposits its money in the forms and modes prescribed therein. However, keeping the money collected by the Trust in the form of cash is not the one prescribed methods under the said section. As` per the assessee's own contention the cash found was the accumulated cash over a period of time and not the cash which was to be deposited into bank account. Among other things, acceptance of money in cash beyond prescribed limit is clear violation of section 269SS of the Income tax Act.

(v) The cash found in the premises of Mr. Srinivas Rao is the cash belonging to the trust as per his own statement. Subsequent retraction from the statement by the Trustee is only for self- serving purpose and clear after thought. The Modus Operandi of accumulation of cash in the hands of the trustees using the trust as an instrument for collecting money in cash is clearly

ITA No.533/Bang/2022 M/s. Srinivas Institute of Medical Science and Research Centre, Mangalore

Page 9 of 50 brought out by the Investigation Wing which is narrated in Show cause notice.

A trust which is registered U/s 10(23C) of the Income tax Act (vi) for the lofty purpose is not expected to violate provisions of law and still continue to enjoy the benefits of exemption under law.

2.9 Hence, holding that the explanation tendered by the assessee was not satisfactory, the learned PCIT has cancelled the claim of exemption u/s 10[23C] of the Act from the AY 2018-19 onwards.

2.10 The ld AR submitted that in the impugned order, the learned PCIT has held that the assessee has violated the law/objects of the trust and therefore the exemption u/s 10[23C] of the Act ought to be cancelled on account of the following:

[a] That cash of Rs. 3,75,00,000/- was found and seized from the residential premises of Mr. Raghavendra Rao/ Mr. Srinivas Rao during the course of search conducted on 17/02/2021; [b] That in the statement recorded u/s 132[4] from Mr. Srinivas Rao, it was admitted that the cash was the accumulation of collection of fee, capitation receipt etc., over a period of time which was kept at home;

[c] That the cash seized at the residential premises of the Trustee confirms the diversion of Trust funds to the trustees;

That the seized documents show that the cash was being [d] collected by the trust which was not utilized or invested in accordance with Section 11(5) of the Act and that the column C.PD refers to cash collected from students out of the total package received;

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Page 10 of 50 That the assessee's contention was that the cash found [e] was the cash accumulated over a period of time and not the cash which was to be deposited into the bank account, which is in violation of Section 11 [5] and Section 269SS of the Act;

That the cash found in the residence of Mr. Srinivas Rao [f] belongs to the trust as per his statement and that the subsequent retraction of the statement was an after- thought.

2.11 The ld AR submitted that the aforesaid allegations made by the learned PCIT are denied as completely erroneous and misconstrued. In fact, the search action did not reveal anything to conclude that there was any misuse of funds or violation of the Trust Deed in order to withdraw the approval granted. Each of the aforesaid allegations/ findings/ observations made by the learned PCIT are specifically rebutted hereinafter by the ld AR as follows:

[a]OBSERVATIONS 1 & 3: Coming to the first observation of the learned PCIT regarding cash of Rs.3,75,00,000/- seized during the course of search proceedings conducted at the residence of Mr. Raghavendra Rao/ Mr. Srinivas Rao on 17/02/2021, it is submitted that the cash belonged to the Medical college and A. Shama Rao Foundation, which was kept in the residence of Mr. Srinivas Rao for safe custody and to meet any contingent emergency considering the extent of the cash. It has to be borne in mind that the premises of the assessee's institution has several visitors and it was not

ITA No.533/Bang/2022 M/s. Srinivas Institute of Medical Science and Research Centre, Mangalore Page 11 of 50 considered prudent to hold huge cash balance at this very public place. It was regarded that the residence of the Trustees would be a far safer place considering the same as a private place and residence where many people don't visit. The ld AR submitted that this cash found is duly accounted in the assessee's books, which were also examined at the time of search and the same has also been initialed by the search party. Thus, merely because there was cash found in the premises of the trustees of the assessee trust, it cannot be considered as a violation of the conditions imposed for grant of approval u/s. 10[23C] of the Act. Furthermore, the same is also not a specified violation as envisaged under the un-numbered fifteenth proviso to withdraw / cancel the approval already granted.

[b] Further, a relevant and connected point mentioned by the learned Principal CIT vide observation 3 above may be addressed here. The mere fact that the cash was found in the residence of the trustees of the assessee trust cannot be a ground to hold that cash belonging to the assessee trust has been diverted to the trustees. This is because even at the time of search, the trustees had explained that the cash belongs to the assessee and to A. Shama Rao Foundation. It is not as though the Trustees claimed that the cash found at the time of search belonged to them and thereafter, it is discovered that the source of the said cash represents the funds of the assessee trust to infer any case of diversion of trust property. Even, the extent of cash found is supported by the balances as per books of accounts of the assessee. Evidence was also produced before the learned PCIT to substantiate the said position.

ITA No.533/Bang/2022 M/s. Srinivas Institute of Medical Science and Research Centre, Mangalore Page 12 of 50 Hence, the question of diversion of the funds of the trust does not arise at all as sought to be inferred. On this score, it cannot be considered as a violation of the conditions imposed for grant of approval u/s. 10[23C] of the Act. Furthermore, the same is also not a specified violation as envisaged' under the un-numbered fifteenth proviso to withdraw / cancel the approval already granted.

[c] OBSERVATION 2& 6: Coming to the 2nd observation of the learned PCIT with regard to the statement recorded u/s. 132[4] of the Act and the allegation that the cash found represented the collection of fees, capitation receipts ld. AR submitted that there is no cash collected by the assessee towards fees and the students directly deposit the fees in the Bank by cheque, draft or by account transfer. Even in the statements recorded u/s. 132[4] of the Act, there is no mention of any unaccounted cash at all. The seized material may contain notings regarding estimates and negotiations, but the same are necessary while running a large institution where students taking admissions is guaranteed only upon completion of all the admission processes. Now coming to the aspect of capitation fees, the ld AR submitted that the fees is fixed in accordance with the consensual agreement entered into with the Govt. of Karnataka and there is no question of collection of any capitation fees as such. Thus, ld. AR stated that no adverse conclusions can be drawn from the statements recorded. In as much as there is no question of collection of fees in cash, the provisions of Section

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Page 13 of 50 269SS of the Act are completely inapplicable to the assessee's case.

The ld AR submitted that with regard to the [d] validity of the retraction of the statements given at the time of search, the learned PCIT has held that the statements were recorded on the basis of documentary evidence found and seized during the course of search proceedings, and thus the retraction of the assessee without any corroborative evidence cannot be accepted. The Lady employees of the assessee were placed under extreme duress and no reliance can be placed upon the statements recorded from them during the course of search, which statements have been subsequently retracted in course of the search operations itself. In fact, the assessee has also pointed out that there are several contradictions in the statements recorded that makes it unworthy of credence. Be that as it may, there is no material brought on record to, show that the assessee was collecting any cash as capitation fees by examining the students and parents. Thus, nothing turns much on these observations made by the learned PCIT and the same cannot be considered as a violation of the conditions imposed for grant of approval u/s. 10[23C] of the Act. Furthermore, the same is also not a specified violation as envisaged under the un-numbered fifteenth proviso to withdraw / cancel the approval already granted.

OBSERVATION 4: Coming to the 4th observation [e] made by the learned PCIT with regard to the notings found in an excel sheet where the notation "C.PD" or "C.PAID" is

ITA No.533/Bang/2022 M/s. Srinivas Institute of Medical Science and Research Centre, Mangalore Page 14 of 50 present, the ld AR submitted that it was duly explained by Ms Rajalakshmi (Admission Officer) and Mr. A. Srinivas Rao that the excel sheet contained rough notings and estimates regarding the fees of students. In the impugned order it has been stated that "C.PD" represents cash paid. However, it has been repeatedly explained that the same is only "concession provided" and not cash paid. It was explained that after the initial fixation of the amount payable for the entire course, parents ask for concession and the same is provided on case to case basis. This extent of concession provided is recorded under "C.PD", which has been wrongly interpreted as cash paid.

[f] It was further submitted by the ld AR that Ms Rajalakshmi was summoned by the learned DCIT, Central Circle-1, Mangalore on 25/02/2022, who recorded her statement u/s 131 of the Act in which she explained that she had been forced to state that "C.PD" meant "Cash Paid" wherein she had actually tried to state that it was "Concession Provided". Thus, no reliance can be placed upon the statement of Ms Rajalakshmi in this regard since it is apparent that she was placed under a huge amount of duress and her answers contradict each other as can be seen Q15 of the statement recorded from her u/s 132[4] of the Act on 17/02/2021 and Q.10 of the statement recorded from her u/s 131 of the Act on 25/08/2021. In the statement recorded u/s 132[4] of the Act dated 18/02/2021 from Ms Rajalakshmi, she has initially stated with regard to seized material A/RO/02 in Q12 and Q13 that C.P stands for cash paid and in

ITA No.533/Bang/2022 M/s. Srinivas Institute of Medical Science and Research Centre, Mangalore Page 15 of 50 Q.14 she has stated that cash was handed over to Mr. Srinivas Rao, whereas later vide statement recorded u/s 131 of the Act dated 22/04/2021, she has clarified vide Q.9 that the cash receipts are duly accounted in the books and vide Q20 that the data in seized material A/RO/02 was not cash receipts but concession provided. When confronted in Q31 of her statement u/s 131 dated 27/08/2021 regarding her clarification in Q9 and Q20 of her statement dated 22/04/2021, she admitted that she was scared and did not understand what to say and hence had initially given a wrong statement.

[g] The ld AR submitted that, be that as it may, the correct facts were clarified by Mr Srinivas Rao upon whose instructions the notings were made and the relevant Q7 and Q8 of his statement recorded u/s 131 of the Act on 09/09/2021 is extracted below:

"7. In your response to Q.5 and Q.6, you hove stated that Mrs. Rajalakshmi prepares and maintains the excel sheets seized material marked as `A/R0/02' pg No.117 to 119 and `A/R0/ 01' pg. No.29 and 30, In this regard, I am drawing your attention to the statement of Mrs. Rajalakshmi recorded u/s 132(4] of the IT Act on 17/02/2021. Q.No.15 and on 18/02/2021Q No.7. In this statement, Mrs. Rajalakshmi stated that CPD or C.PAID denotes the cash paid by the students. Please comment. Ans. No, this statement is not true in some aspects as C.PD/C.PA1D does not mean only cash payments made by students rather it means concession provided, post-dated cheque pending and also cash commission paid to the agents directly by students.

In continuation to previous question, I am drawing your attention to the statement of Mrs. Rajalakshmi recorded u/s 131 of the IT Act on 27/08/2021 Q.No.30. Please comment.

ITA No.533/Bang/2022 M/s. Srinivas Institute of Medical Science and Research Centre, Mangalore Page 16 of 50 "30. In continuation to previous question, S.No.3, you have stated that C.PAID means, "Concession provided to the students, it includes cash components also which was collected over and above the fees mentioned in FOX PRO software". Please confirm.

Ans Yes, I agree C.PAID includes cash components also. I also want to state that I am working under the instructions of Mr. Srinivas Rao. He decides the concession and cash part which is communicated to me and then 1 start the admission procedure."

Ans: 1 comment only on the total package to be collected. However, there will be negotiation and difference in the composition of payment to be done according to the convenience to the students/parents and sometimes as directed by the agents. i also want to state that, the cash part which is mentioned by the Rajalakshmi means the commission part of agents. The agent approaches the management and forced us to include their cash commission also in our package rate which is also recorded in C.PAID/C.PD Column.

Note: It has to be mentioned here that the answer to the Q7 has not been recorded verbatim as stated by Mr. Srinivas Rao. The ld AR submitted that the term "only" has been added in the answer. This is clear because the addition of "only" does not make any sense considering the nature of the question posed.

Thus, the ld AR stated that the aforesaid [h] documents found at the time of search cannot be considered as showing any violation of the conditions imposed for grant of approval u/s. 10[23C] of the Act. Furthermore, the same is also not a specified violation as envisaged under the un-numbered fifteenth proviso to withdraw / cancel the approval already granted.

ITA No.533/Bang/2022 M/s. Srinivas Institute of Medical Science and Research Centre, Mangalore Page 17 of 50 OBSERVATION 5: Now corning to the 5th [i] observation of the learned PCIT with regard to the deposit of cash in specified modes u/s 11 [5] of the Act, the ld AR submitted that the cash found in the residence of Mr. Srinivas Rao belongs to the assessee and to A Shama Rao Foundation. This cash found is in the nature of cash in hand which was accumulated over the time and kept with him for safekeeping and in case of emergencies, and the same is also duly recorded in the books of accounts and cannot be considered to be accumulation of capitation receipts. As per the unnumbered third proviso to Section 10[23C] of the Act, there is an embargo on investment or deposit of funds for any period otherwise than in any one or more of the forms or modes specified u/s 11 [5] of the Act. This only requires that investment or deposit of funds, if made, has to be made in the prescribed modes. However, holding the funds as cash without investing or depositing the same is not a violation having regard to the language of the unnumbered third proviso of Section 10[23C] of the Act which is couched negatively by use of the expression "does not invest or deposit its funds". In other words, there is a prescription of what should not be done and that cannot be regarded as a condition that something ought to be done. Hence, nothing much turns in this regard either and the same cannot be considered as a violation of the conditions imposed for grant of approval u/s. 10[23C] of the Act. Furthermore, the ld AR stated that the same is also not a specified violation as envisaged under the un-numbered fifteenth proviso to withdraw / cancel the approval already granted.

ITA No.533/Bang/2022 M/s. Srinivas Institute of Medical Science and Research Centre, Mangalore Page 18 of 50 Without prejudice to the above, the ld AR [j] submitted that there are no proceedings against the assessee under the Karnataka Educational Institutions [Prohibition of Capitation Fee] Act, 1984 and the learned PCIT has not established the receipt of any capitation fees by the assessee and thus the impugned order cancelling the exemption u/s 10[23C] of the Act deserves to be quashed. Reliance is placed by the assessee upon the parity of reasoning of the decision of the Bangalore Bench of Tribunal in the case of Kammavari Sangham for the AY 2012-13 to AY 2014-15 in ITA No. 1427 to 1429/Bang/2019 dated 29/03/2022 wherein it has been held as under: "We have carefully considered the rival submissions. We find that the AO on noticing that the assessee was in receipt of voluntary contributions came to the conclusion that the voluntary contributions were received only from students and were admitted in the assessee's educational institutions. According to the AO, the contributions were not given out of free will and was a quid-pro-quo for admission of students in the assessee's educational institutions. There is no material whatsoever for this conclusion drawn by the AO. On the other hand, the AO has proceeded purely on the basis that there was a suggestion and unwritten direction from the assessee for contributions to be made mandatorily for the purpose of securing admission in the assessee's educational institutions. The AO, thereafter, concluded that voluntary contributions are nothing but a capitation fee. It is seen that the assessee enjoys registration under section 12A of the Act and except for the compliant of the AO that the assessee received voluntary contribution, there has been no other charge in so far as allowing exemption under section 11 is concerned. The receipt of so called capitation fees has been interpreted by the AO as an act which will go against the definition of charitable purpose under section 2(15) of the Act. In this regard, the CIT(A) has rightly observed that the conclusions of the AO are without any material and that the receipt of capitation fees has not been established nor were there any proceedings against the assessee under the Karnataka Educational Institutions (Prohibition of Capitation Fees) Act, 1984. In the given circumstances of the case, we are of the view that the

ITA No.533/Bang/2022 M/s. Srinivas Institute of Medical Science and Research Centre, Mangalore Page 19 of 50 conclusions drawn by the CIT(A) that the assessee cannot be denied the benefit under section 11 of the Act cannot bb said to be erroneous and we concur with the said findings."

2.12 In light of the above, the ld AR submitted that there is no valid case made out for withdrawal of the exemption granted u/s 10(23C)(vi) of the Act, which the assessee is rightfully entitled. The order of withdrawal of exemption u/s 10(23C)(vi) of the Act is opposed to law and the ld AR prayed that the same be quashed and this appeal be allowed for the advancement of substantial cause of Justice.

3.1 The ld. DR further submitted that during the course of search proceedings, cash of Rs.3,75,00,000/-was found and seized from the residence of Mr Raghavendra Rao/Mr Srinivas Rao, trustees of the institution. In his statement recorded u/s 132(4) of the Act, Shri Srinivas Rao admitted that seized cash was on account of collection of fees and capitation fees. Similarly, statement of Ms Rajlakshmi (Admissions Officer) was recorded who

ITA No.533/Bang/2022 M/s. Srinivas Institute of Medical Science and Research Centre, Mangalore Page 20 of 50 admitted that trustees had taken cash for admission to MBBS and MD courses. Now the authorised representative of the assessee trust is claiming that statements were taken under extreme stress and duress, however no evidence is produced to substantiate the claim of the assessee. The Hon’ble Bombay High Court in the case of T. Lakhamshi Ladha 86 Co. (73 taxmann.com 117) held that Statement made by senior partner of assessee-firm at time of search could not be retracted by other partner in absence of any allegation of any pressure and coercion by revenue and there being no evidence to establish that original statement was incorrect. In this case, statement was recorded on the basis of documentary evidence found and seized during search proceedings, hence the claim of the assessee without any corroborative evidence cannot be accepted at this stage. The assessee's claim regarding documents seized during search proceedings being dumb document's is also not acceptable since the same were substantiated with statements u/s 132(4) of I T Act and cash of Rs.3.75 crores found and seized from trustee's home. The assessee's claim that the same are duly accounted is an afterthought since the assessee was not able to substantiate the same during search proceedings. The Hon'ble Madras High Court in the case of M Vivek 121 taxmann.com 366 has held that Loose sheets picked up during search under section 132, falls within definition of 'document', mentioned in section 132(4) and therefore, it has got evidentiary value.

3.2 The ld DR submitted that registration of a trust can be cancelled by the Commissioner when he is satisfied that activities of such trust or institution are not genuine or are not being carried out in accordance with the objects of the

ITA No.533/Bang/2022 M/s. Srinivas Institute of Medical Science and Research Centre, Mangalore Page 21 of 50 trust or institution as the case may be. Thus, the conduct of the trust in performing its activities in accordance with the objects arc material for considering the issue either for registration or for cancellation. In this. case, the activities of the trust are found to be not in accordance with the objects of the trust or institution and there is violation of the conditions on which the registration was granted vide order dated 25-4-2013. The following violations are noticed during the course of search proceedings conducted by the investigation wing namely:

i) During the course of search operations carried out on 17-02-2021 in the case of the Trust and the Trustees, cash of Rs.3,75,00,000/- was found and seized from the residential premises of Mr. Raghavendra Rao/Mr Srinivas Rao, at ‘Srinivas’, Jail Road, Mangalore. In the statement recorded u/s 132(4) from Mr Srinivas Rao, it was admitted that the cash was the accumulation of collection of fee, capitation receipt etc. over a period of time, which was kept at home. This is clearly in violation of Section 11(5) of the Act. ii) The cash seized at the residential premises of the Trustee confirms the diversion of Trust funds to the trustees. iii) Inspection of the seized documents in connection with the case was carried out by AO on 1st June 2022 in the office of the DCIT, Central Circle-1, Mangalore. The following documents found and seized by the search party are reproduced below as a sample:

ITA No.533/Bang/2022 M/s. Srinivas Institute of Medical Science and Research Centre, Mangalore Page 22 of 50

The above documents clearly show that the cash was being collected by the Trust (as seen in the below document C.PD refers to the cash collected from students out of the total package referred in PK Column) which was not utilised or invested

ITA No.533/Bang/2022 M/s. Srinivas Institute of Medical Science and Research Centre, Mangalore Page 23 of 50 in accordance with the provisions specified in sub-section (5) of section 11 of the Income tax Act. iv) As per section 11(5) of the Income tax Act, the trust is expected to invest or deposit its money in the forms and modes prescribed therein. However, keeping the money collected by the Trust in the form of cash is not the one prescribed method under the said section. As per the assessee’s own contention the cash found was the accumulated cash over a period of time and not the cash which was to be deposited into bank account. Among other things, acceptance of money in cash beyond prescribed limit as per violation of section 269SS of the Income Tax Act. v) The cash found in the premises of Mr. Srinivas Rao is the cash belonging to the trust as per his own statement. Subsequent retraction from the statement by the Trustee is only for self-serving purpose and clear after thought. The Modus Operandi of accumulation of cash in the hands of the trustees using the trust as an instrument for collecting money in cash is clearly brought out by the Investigation Wing which is narrated in Show cause notice. vi) A trust which is registered U/s 10(23C) of the Income tax Act for the lofty purpose is not expected to violate provisions of law and still continue to enjoy the benefits of exemption under law.

ITA No.533/Bang/2022 M/s. Srinivas Institute of Medical Science and Research Centre, Mangalore Page 24 of 50

5.1 The registration and approval under the relevant provisions of the Act was granted looking into the fact that the assessee trust was carrying out educational activity by setting up college/institution for imparting medical education/para-medical/pharmacy/community health and running college hospital also. There was no dispute that assessee has been running institution relating to imparting medical education and running hospital under the name of Srinivasa Institute of Medical Sciences & Research Centre. The assessee trust has been imparting education in medical field and carrying on activities relating to health services. In course of search action on

ITA No.533/Bang/2022 M/s. Srinivas Institute of Medical Science and Research Centre, Mangalore Page 25 of 50 17.2.2021, the documents found and seized are reproduced in para 3.2(ii) supra.

5.2 According to the revenue, the above documents shows that cash was being collected by the trust, which was not utilised or invested in accordance with the provisions specified in sub-section 11(5) of the Act. Further, search team unearthed an amount of Rs.3.75 crores from the residence of Sri Raghavendra Rao/Mr. Srinivasa Rao, who are the trustees of the institution, which was also seized by the department. In the statement recorded u/s 132(4) of the Act from Sri Srinivasa Rao, it was confirmed that the seized cash was on account of collection of fees and capitation fees. Similarly, statement of Mrs. Raja Lakshmi, Admissions Officer was recorded who admitted that trustee had taken cash for admission to MBBS and MD courses. However, this statement has been denied by the parties concerned and stated that these statements were taken under the extreme stress and duress and also made it clear before the authorities that the word mentioned “C.Pd.” not refer to the ‘cash paid’ instead it refers to ‘Concession Provided’ to the students. This plea has been taken by the assessee before the PCIT. However, the ld. PCIT observed that there was no evidence to substantiate the claim of assessee that statements were recorded u/s 132 or 131 of the Act under extreme stress or duress and no credence could be given to such retraction and the retraction statement was only self- serving parties and afterthought. According to the CCIT, assessee violated provisions of section 10(23C)(vi) of the Act and as such he withdrawn the approval granted to the assessee u/s 10(23C) of the Act.

ITA No.533/Bang/2022 M/s. Srinivas Institute of Medical Science and Research Centre, Mangalore Page 26 of 50 5.3 Section 10(23C) of the Act reads as follows:

10(23C) Any income received by any person on behalf of – (i) The Prime Minister’s National Relief Fund (or the Prime Minister’s Citizen Assistance and Relief in Emergency Situations Fund (PM CARES FUND) or (ii) The Prime Minister’s Fund (Promotion of Folk Art); or (iii) The Prime Minister’s Aid to Students Fund; (or) (iiia) the National Foundation for Communal Harmony; or (iiiaa) the Swachh Bharat Kosh, set up by the Central Government; or (iiiaaa) the Clean Ganga Fund, set up by the Central Government; or [(iiiaaaa) the Chief Minister’s Relief Fund or the Lieutenant Governor’s Relief Fund in respect of any State or Union territory as referred to in sub-clause (iiihf) of clause (a) of sub-section (2) of section 80G; or] [(iiiab) any university or other educational institution exiting solely for educational purposes and not for purposes of profit, and which is wholly or substantially financed by the Government; or (iiiac) any hospital or other institution for the reception and treatment of persons suffering from illness or mental defectiveness or for the reception and treatment of persons during convalescence or of persons requiring medical attention or rehabilitation, existing solely for philanthropic purposes and not for purposes of profit, and which is wholly or substantially financed by the Government. [Explanation – For the purposes of sub-clauses (iiiab) and (iiiac), any university or other educational institution, hospital or other institution referred therein, shall be considered as being substantially financed by the Government for any previous year, if the Government grant to such university or other educational institution, hospital or other institution exceeds such percentage of the total receipts including any voluntary contributions, as may be prescribed, of such university or other educational institution, hospital or other institution, as the case may be, during the relevant previous year]; or (iiiad) any university or other educational institution existing solely for educational purposes and not for purposes of profit if the aggregate annual [receipts of such university or educational institution do not exceed the amount of annual receipts as may be prescribed]

5.4 From the above section, it is clear that educational institution exists solely for educational purpose and not for the purpose of profit is eligible for exemption u/s 10(23C) of the Act. In this case, the assessee’s trust is established for the benefit of public solely imparting education and there was no allegation by CCIT on the object of the applicant assessee or nature of activities carried on by it. The only reason for withdrawal of approval granted u/s 10(23C)

ITA No.533/Bang/2022 M/s. Srinivas Institute of Medical Science and Research Centre, Mangalore Page 27 of 50 of the Act that assessee has collected capitation fees for admission of students to medical college. We also observe that there was no allegation that how assessee has deviated from imparting of education or how it affected genuineness of trustees’ activities/objects of the assessee trust. The findings of the CCIT that the assessee’s trustees i.e. A. Raghavendra Rao/Srinivasa Rao were possessed with cash amount of Rs.3.75 crores, which was belonged to the assessee and the source of such cash was collection of capitation fees from the students for admission of MBBS or MD courses and there was a diversion of funds by trust for the benefit of trustees. However, it was made clear before us that the cash balance standing in the books of accounts of the assessee was at Rs.3,77,27,255/- and this amount of Rs.3.75 crores belonged to present assessee and also to A. Shyama Rao Foundation, which was kept in the residence of Mr. Srinivasa Rao for safe custody and to meet any contingent emergency and this amount of cash found at Mr. Srinivasa Rao’s residence was duly accounted in the assessee’s books and which was duly examined at the time of search action and also been initialed by the search party. These facts were never disputed by CCIT. In our opinion, merely because the cash was found in the premises of the trustees of the assessee trust cannot lead to conclusion that the assessee has collected unauthorized capitation fees by way of cash and further there was violation of approval u/s 10(23C) of the Act. The provisions of Section 11(5) of the Act, which stipulates the manner of investment to be made by the assessee trust and it won’t prohibit the assessee or impose any restriction on assessee to keep any quantum of the cash in hand, when it is duly recorded in the books of accounts of the assessee. Further, as per the third proviso to section 10(23C) of the Act, there is an embargo on investment or deposit of funds for any period otherwise than in any one or more of the forms or modes specified in

ITA No.533/Bang/2022 M/s. Srinivas Institute of Medical Science and Research Centre, Mangalore Page 28 of 50 section 11(5) of the Act. In other words, it requires that investment or deposits of funds, if made has to be made in the prescribed modes. There was no restriction in keeping the cash in physical form by assessee without making any investment and it cannot lead to conclusion that there was no violation of section 10(23C) of the Act. In our opinion, keeping the cash for safe custody with the trustees after duly accounting the same in the books of accounts of the assessee, cannot be reason to come to conclusion that there was a violation of section 10(23C) of the Act. It was explained by the assessee before us that the assessee’s place was very crowded and was not safe to keep such amount of cash at the premises of the assessee and assessee after duly accounting the same in its books of accounts, it has kept the cash with the trustees for safe custody and this act of assessee cannot lead to the conclusion that assessee has diverted the funds to the benefit of any trustees. In our opinion, in the present case, activities conducted by assessee trust are only imparting medical education within ambit of section 2(15) of the Act. The trust was not engaged in other activity other than promoting education. The allegation of revenue that the trust was collecting capitation fees and siphoning of the same by the trustees is not proved by the department. Even if it is siphoned by the trustees for which assessee cannot be liable and at the most it be taxed in the hands of the trust or in the hands of the trustees as the case may be and may even trigger penal action against the trustees in accordance with law. Moreover, no conclusive findings by cogent evidence are brought on record to establish and to prove that the assessee has collected capitation fees as the parties from whom the assessee are said to be collected capitation fees has not been enquired and that enquiry report also not put to assessee for comments or cross examination. More so, in the present case, the cash found at the residence of trustees of assessee was duly accounted in the books of

ITA No.533/Bang/2022 M/s. Srinivas Institute of Medical Science and Research Centre, Mangalore Page 29 of 50 accounts of the trust and there is no allegation that there was any unaccounted capitation fees in the hands of the assessee. It is also established by the assessee that trust kept the cash with the Trustees for safe keeping and that action of the trustees cannot be doubted. It is natural that the assessee’s place being public place, there are large number of visitors and it is natural that assessee used to keep the cash with the trustees for safety. This is the prudent decision taken by the assessee’s trustees for safe custody of such huge cash and revenue not established before us that trustees who have received the funds siphoned it for their personal benefit so as to withdraw the approval granted to the assessee u/s 10(23C) of the Act.

5.5 In our opinion, the assessee’s case is supported by following precedents: A) Tamilnadu Cricket Association reported in 98 DTR 299 (Mad) held that: There being no dispute raised by the Revenue as to the genuineness of the trust, or as to the activities of the trust not being in accordance with the objects of the trust, the question of cancellation under Section 12AA of the Act does not arise. We further hold that at the time of grant of registration on 28.3.2003, the same was made taking into consideration the objects of the institution fitting in with the definition of 'charitable purpose' defined under Section 2(15) of the Act and the substitution of the Section itself came only 2008, with effect from 01.04.2009. As rightly pointed out by the learned senior counsel appearing for the assessee, the circular clearly brings out the object of the amendment and the amended provision has no relevance to the case. The power regarding cancellation, hence has to be seen with reference to the registration and the object satisfying the definition on 'charitable purpose', as it stood at the time of

ITA No.533/Bang/2022 M/s. Srinivas Institute of Medical Science and Research Centre, Mangalore Page 30 of 50 registration and not by the subsequent amendment to Section 2(15) of the Income Tax Act.

(Para 43)

The Revenue granted registration under Section 12AA of the Act satisfying itself as to the objects of the association befitting the status as charitable purpose as defined under Section 2(15), as it stood in 2003 and after granting the registration, if the registration is to be cancelled, it must be only on the grounds stated under Section 12AA(3) of the Act with reference to the objects accepted and registered under Section 12AA, as per the law then stood under the definition of Section 2(15) of the Income Tax Act. Even therein, Courts have defined as to when an institution could be held as one for advancement of any other object of general public utility. Thus, if a particular activity of the institution appeared to be commercial in character, and it is not dominant, then it is for the Assessing Officer to consider the effect of Section 11 of the Act in the matter of granting exemption on particular head of receipt. The mere fact that the said income does not fit in with Section 11 of the Act would not, by itself, herein lead to the conclusion that the registration granted under Section 12AA is bad and hence, to be cancelled.

It may be of relevance to note the language used in the definition "charitable purpose" in Section 2(15) of the Act, which states that charitable purpose includes relief of the poor, education, medical relief and advancement of any other object of general public utility. The assessee's case falls within the phrase of the definition ‘general public utility’.

(Paras 45, 46)

ITA No.533/Bang/2022 M/s. Srinivas Institute of Medical Science and Research Centre, Mangalore Page 31 of 50 The assessee is a member of Board of Control for Cricket in India (BCCI), which in turn is a member of ICC (International Cricket Council). BCCI allots test matches with visiting foreign team and one day international matches to various member cricket associations, which organise the matches in their stadia. The franchisees conduct matches in the Stadia belonging to the State Cricket Association. The State Association is entitled to all in-stadia sponsorship advertisement and beverage revenue and it incurs expenses for the conduct of the matches. BCCI earns revenue by way of sponsorship and media rights as well as franchisee revenue for IPL and it distributes 70% of the revenue to the member cricket association. Thus, the assessee is also the recipient of the revenue. Thus, for invoking Section 12AA read with Section 2(15) of the Act, Revenue has to show that the activities are not fitting with the objects of the Association and that the dominant activities are in the nature of trade, commerce and business. We do not think that by the volume of receipt one can draw the inference that the activity is commercial. The Income Tax Appellate Tribunal's view that it is an entertainment and hence offended Section 2(15) of the Act does not appear to be correct and the same is based on its own impression on free ticket, payment of entertainment tax and presence of cheer group and given the irrelevant consideration. These considerations are not germane in considering the question as to whether the activities are genuine or carried on in accordance with the objects of the Association. We can only say that the Income Tax Appellate Tribunal rested its decision on consideration which are not relevant for considering the test specified under Section 12AA(3) to impose commercial character to the activity of the Association. In the circumstances, we agree with the assessee that the Revenue has not made out any ground to cancel the registration under Section 12AA(3) of the Act. As regards the observation of the Income Tax Appellate Tribunal that IPL Matches and Celebrity Cricket Matches

ITA No.533/Bang/2022 M/s. Srinivas Institute of Medical Science and Research Centre, Mangalore Page 32 of 50 are also being held by the Association and hence it is an entertainment industry, we need not go into these aspects, for, the order of the Director of Income Tax (Exemptions) casts no doubt on the genuineness of the objects of the trust. Hence, it is for the Assessing Officer to take note of all facts, while considering the same under Section 11 of the Income Tax Act, 1961. We disapprove the approach of the Tribunal in this regard. In the above said circumstances, we set aside the order of the Income Tax Appellate Tribunal.

B) CIT Vs.Sarvodaya Illakkiya Pannai 343 ITR 300 (Mad.) held that: Under section 12AA, the Commissioner is empowered to grant or refuse the registration and after granting registration, would be empowered to cancel it, but only on the two conditions laid down under section 12AA(3). Whether the income derived from such transaction would be assessed to tax and whether the trust would be entitled to exemption under section 11 are entirely the matters left to the Assessing Officer to decide. The Tribunal had allowed the case of the assessee with the finding that none of the conditions under section 12AA(3) were violated and, therefore, the satisfaction which was arrived at by the Commissioner was not justified. Therefore, there was no reason to interfere with the order of the Tribunal.

C) Padanilam Welfare Trust Vs. Cy. CIT 10 ITR(Trib) 479(Chen.) held that: Allowing the appeal, that the violation of the Prohibition of Capitation Fees Act could not be a ground to take away the registration of a charitable organization. The cancellation of registration by the Commissioner under section 12A on the ground of accepting capitation fees was not sustainable in law. As far as the assessee-

ITA No.533/Bang/2022 M/s. Srinivas Institute of Medical Science and Research Centre, Mangalore Page 33 of 50 trust was concerned, the violation was that of the Anti Capitation Fees Act which was not a violation under the provisions of the Income-tax Act. There was no apparent distinction between legal and illegal income under the provisions of the Income-tax Act. If the income was taxable, it should be taxed. If the assessee had not applied the capitation fees collected even in violation of the Prohibition Act for the purposes for which the trust was established, there was a case for the Department. If the assessee had applied its entire income including capitation fees exclusively for the purposes for which it was established, the Department had no case. As far as application of funds was concerned, there was no case made out by the Department against the assessee. According to the details furnished by the assessee-trust, the assessee had spent its entire receipts for the purposes of creating infrastructure facilities to run its educational institutions. The registered office of the trust was the residence of the trustees. Therefore, it was very premature to hold that the cash found in the registered office/residential houses amounted to diversion of funds. It was only a holding of funds and not application or diversion of funds. All the balance cash remained with different educational institutions. Therefore, the cash found and seized in the course of search was not a ground to make an allegation that the trustees had diverted the funds of the assessee-trust for activities other than charitable activities. The assessee had furnished the details of payments made by one of the trustees towards capitation fee for obtaining a medical seat for his daughter as reflected in the account maintained with bank. All these transactions were reflected in the books of account. Therefore the action of the Commissioner in withdrawing the registration granted to the assessee under section 12AA was not sustainable in law. Accordingly, the registration granted under section 12AA was to be restored.

ITA No.533/Bang/2022 M/s. Srinivas Institute of Medical Science and Research Centre, Mangalore Page 34 of 50 D. Krupanidhi Eductional Trust Vs. Ld. CIT (E) [2013] 21 DTR (Trib) 373(Banglore) held that:

As per the provisions of section 12AA(3) the Commissioner can cancel the registration granted earlier if he /she was 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 the institution. In the instant case, there was no such finding given by the Ld.CIT that the activities of the trust was not genuine or are not being carried out in accordance with the objects of the trust. While granting registration u/s.12A on 03-12-2002, the then CIT, Kolhapur had gone through the objects of the trust and the genuineness of the activities. There was no change in the objects of the trust in the meantime. The Ld.CIT had not brought on record any material to show that the activities of the Trust were not being carried out in accordance with the objects of the Trust or the institution. Therefore, ITAT did not found any reason as to how the CIT can cancel the registration granted earlier in contravention of the provisions of section 12AA(3) of the I.T. Act. Once registration is granted to the trust/institution and if subsequently the AO finds during the assessment proceedings that the income of the charitable trust is applied directly or indirectly for the benefit of the persons referred to in section 13(3), then he has ample power to deny exemption to that extent u/s.13 (1)(c) of the I.T. Act

E. Ld. CIT (E) [2013] 21 DTR (Trib) 373(Bangalore) held that:

In impugned order there is no finding on satisfaction that the activities of the trust or institution are not genuine or that the activities of the trust or institution are not being carried out in accordance with the objects of the trust or institution. There is no finding that the objects of trust after the amendment of the trust

ITA No.533/Bang/2022 M/s. Srinivas Institute of Medical Science and Research Centre, Mangalore Page 35 of 50 deed are not charitable. Even after amendment to trust deed charitable nature of the trust remains intact. Mere finding that the objects of appellant have been altered without the consent of department would not be sufficient to exercise power u/s.12AA (3) without giving a finding that the appellant’s objects are no longer charitable.

(para16)

The DIT(E) in the order u/s 12AA(3) of the Act, do not make out any case, which can show the activities of the assessee are not genuine or that the activities of the assessee are not being carried out in accordance with the objects of the trust or institution. The fact that the Assessee was paying commission to persons who solicit students for studying in the Assessee’s institution cannot lead to the conclusion that the Assessee is not imparting education. Similarly purchase of a BMW car, borrowing of loans from Sindhi Financiers, non-maintenance of regular books of accounts, violations of provisions of Sec.13(1)( c) of the Act in as much as the trustees were paid enormous salary are all by way of passing reference having no relevance to whether or not the Assessee was pursuing education as its main object. There are no facts brought out in the impugned order regarding the genuineness of the activities of the trust or as to whether the object of education was not pursued by the Assessee as its main and predominant activity. In fact, the order of the DIT(E) does not anywhere show that the assessee is not imparting education. The complaint of the revenue seems to be that education is being imparted but on commercial lines. The definition of Charitable Purpose is given in Sec.2(15) of the Act. The same refers to "relief to poor, medical relief, education and the advancement of any other object of general public utility". The proviso to Sec.2(15) of the Act introduced by the Finance Act,

ITA No.533/Bang/2022 M/s. Srinivas Institute of Medical Science and Research Centre, Mangalore Page 36 of 50 2008 w.e.f. 1.4.2008 regarding excluding organizations where there is profit motive from the definition of charitable purpose applies only to the category of trusts which has as its object, the object of "advancement of any other object of general public utility". It does not apply to the other categories of charitable purpose viz., "relief to poor, education and medical relief". As rightly pointed out by the learned counsel for the assessee, eleemosynary element is not essential element of charity. It is also not a necessary element in a charitable purpose that it should provide something for nothing or for less than it costs or for less than the ordinary price. The surplus generated, if it is held for charitable purpose and applied for charitable purpose of the assessee, and then the Assessee has to be considered as existing for a charitable purpose. There are enough safeguards provided in Sec.12 and 13 of the Act to ensure that personal benefits of the persons in control of the trusts are not treated as having applied for charitable purpose and for being brought to tax like provisions of Sec.13(1)(c) of the Act which restricts unreasonable and excessive payments to certain category of persons connected with a trust or other institution. In such circumstances, the order u/s 12AA(3) of the Act, cannot be sustained.

F. DIT(E) Vs. N.H.Kapadia Education Trust [2012] 74 DTR(Trib) 233(Ahd.) held that:

Tribunal in its order had observed that the core contention of the Revenue was that the contributions aggregating made by the parents/students at the time of admission in the institution were in consideration of the services to be rendered by the school to the students. In contrast, the documentary evidences, adduced by the assessee proved that the amounts were, in fact neither fixed nor identical in all the cases and to illustrate the classical example that

ITA No.533/Bang/2022 M/s. Srinivas Institute of Medical Science and Research Centre, Mangalore Page 37 of 50 almost 331 students had been admitted to the Institution without receiving a penny for such a contribution. The assessee had, in fact, furnished a list running into staggering 29 pages showing the names of the students in standard-wise and also the contributions towards 'corpus fund'. Copies of ledger accounts of different corpus funds produced by the assessee for verification exhibited that the amounts received had been credited to each fund account of each receipt from the parents/students. Apart from such contributions towards 'corpus funds', it was noticed that the students had also paid towards tuition fees every year. It was held by tribunal that had the contribution collected been towards education to be imparted by the school as alleged by the Revenue, the institution would not have resorted to charge separately the monthly/quarterly tuition, term and computer fees. Another salient feature noticed from the evidences produced was that the contribution by way of 'corpus donation' ranges Rs.10000 - 15000 with no consequence of the medium of instruction and the standard in which the student was to be aed by the Revenue, the same would have been quite different depending upon the medium of instruction-wise and standard-wise. Another significant feature observed was that the one-time payment of voluntary contribution was non-refundable - towards different purposes, viz,, library, buildings, sports curriculum activities etc. whereas the tuition fees so collected would be spent for academic field such as education to be imparted to the students by way of stationery, workshop, computer education etc. It was further observed that the Board of Trustees were empowered to accept any money for the objects of the trust and, thus, the voluntary contributions given by the parents/students were the exclusive property of the trust which required to be utilized for the objects of the trust only. Following the decision of the tribunal the revenue’s contention was discarded.

ITA No.533/Bang/2022 M/s. Srinivas Institute of Medical Science and Research Centre, Mangalore Page 38 of 50 (Para 6)

G. Parkar Medical Foundation Vs. Dy. Ld. CIT [2014] 34 ITR (Trib) 286 (Pune) held that:

As per the provisions of section 12AA(3) the Commissioner can cancel the registration granted earlier if he /she was 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 the institution. In the instant case, there was no such finding given by the Ld. CIT that the activities of the trust was not genuine or are not being carried out in accordance with the objects of the trust. While granting registration u/s.12A on 03-12-2002, the then CIT, Kolhapur had gone through the objects of the trust and the genuineness of the activities. There was no change in the objects of the trust in the meantime. The Ld. CIT had not brought on record any material to show that the activities of the Trust were not being carried out in accordance with the objects of the Trust or the institution. Therefore, ITAT did not found any reason as to how the CIT can cancel the registration granted earlier in contravention of the provisions of section 12AA(3) of the I.T. Act. Once registration is granted to the trust/institution and if subsequently the AO finds during the assessment proceedings that the income of the charitable trust is applied directly or indirectly for the benefit of the persons referred to in section 13(3), then he has ample power to deny exemption to that extent u/s.13 (1)(c) of the I.T. Act.

5.6 From the above decisions, it is apparent that the Hon’ble high court in the case of Tamilnadu Cricket Association has categorically held that:- (A) The power regarding cancellation has to be seen with reference to the registration and the object satisfying the definition of

ITA No.533/Bang/2022 M/s. Srinivas Institute of Medical Science and Research Centre, Mangalore Page 39 of 50 'charitable purpose', as it stood at the time of registration and not by the subsequent amendment to Section 2(15) of the Income Tax Act.

(B) If a particular activity of the institution appeared to be commercial in character, and it is not dominant, then it is for the Assessing Officer to consider the effect of Section 11 of the Act in the matter of granting exemption on particular head of receipt. The mere fact that the said income does not fit in with Section 11 of the Act would not, by itself, herein lead to the conclusion that the registration granted under Section 12AA is bad and hence, to be cancelled.

(C) For invoking Section 12AA read with Section 2(15) of the Act, Revenue has to show that the activities are not fitting with the objects of the Association and that the dominant activities are in the nature of trade, commerce and business. We do not think that by the volume of receipt one can draw the inference that the activity is commercial.”

(D) Further in the case CIT Vs. Sarvodaya Illakkiya Pannai 343 ITR 300 the jurisdictional High Court held as follows:- “(a) The Commissioner is empowered to grant or refuse the registration and after granting registration, would be empowered to cancel it, but only on the two conditions laid down under section 12AA(3). Whether the income derived from such transaction would be assessed to tax and whether the trust would be entitled to exemption under section 11 are entirely the matters left to the Assessing Officer to decide. (E). The Chennai Bench of the Tribunal in the case Padanilam Welfare Trust Vs. Dy.CIT 10 ITR (Trib) 479 also held as follows:-

ITA No.533/Bang/2022 M/s. Srinivas Institute of Medical Science and Research Centre, Mangalore Page 40 of 50 “(a) That the violation of the Prohibition of Capitation Fees Act could not be a ground to take away the registration of a charitable organization. The cancellation of registration by the Commissioner under section 12A on the ground of accepting capitation fees was not sustainable in law.” (F). The Pune Bench of the Tribunal in the case Parkar Medical Foundation Vs. CIT [2014] 34 ITR (Trib) 286 as follows:-

‘(a) Once registration is granted to the trust/institution and if subsequently the AO finds during the assessment proceedings that the income of the charitable trust is applied directly or indirectly for the benefit of the persons referred to in section 13(3), then he has ample power to deny exemption to that extent u/s.13 (1)(c) of the I.T. Act”

(G). Further, the Bangalore Bench of this Tribunal in the case of Krupanidhi Educational Trust Vs. DIT(E) [2013] 21 DTR (Trib) 373 held as follows:- “(a) Payment of commission to solicit to students, purchase of BMW Car, borrowings from private financial institutions, non- maintenance of regular books of accounts, payment of enormous salary, are not sufficient cause to invoke section 12AA of the Act for cancelling the registration granted under Section 12A(a) of the Act. (b) The surplus generated, if it is held for charitable purpose and applied for charitable purpose by the assessee then, the Assessee has to be considered as existing for a charitable purpose. There are enough safeguards provided in Sec.12 and 13 of the Act to ensure that personal benefits of the persons in control of the trusts are not treated as having applied for charitable purpose and will be brought to tax like, provisions of Sec.13(1) (c) of the Act which restricts unreasonable and

ITA No.533/Bang/2022 M/s. Srinivas Institute of Medical Science and Research Centre, Mangalore Page 41 of 50 excessive payments to certain category of persons connected with a trust or other institution. In such circumstances, the order U/s.12AA (3) of the Act cannot be sustained.”

(H). In Sunrise Tooling Systems Pvt. Ltd v. ITO 2012 (11) TMI 1081 - ITAT Delhi, the Tribunal held as under:-

“The opportunity of cross-examining, Sh. Nitin Aggarwal, a partner of Shree Laxmi Industrial Corporation has also been denied to the assessee on wrong basis by the authorities below that an opportunity of cross examines needs to be given only when third party is involved or a party not known to the assessee or a hostile witness is involved and further that the onus for cross examination does not lie with the department but lies with the assessee who allegedly made purchases in his books of accounts from the said concerns.” (I). The Delhi Tribunal in Vijay Kumar Aggarwal v. ACIT 2017 (5) TMI 1354 held that:

It is clear that the presumption of facts u/s 292C of the Act is not a mandatory or compulsory presumption but a discretionary presumption. Since, the word used in the said Section is may be" and not "shall". Secondly, such a presumption is rebuttable presumption and not a conclusive presumption because it is a presumption of fact not a presumption of law. In the present case, the assessee -from the very beginning stated that the documents found during the course of search did not belong to him. Therefore, the addition made by the AO is only on the basis of surmises and conjecture without bringing any cogent material on record to substantiate that the assessee was engaged in the business of gold and jewellery and the AO had not brought any material on record to substantiate that the denial of the assessee was false. (J). The Delhi Tribunal in the case of Veena Gupta v. ACIT in ITA No.5662/Del/2018 dated 27.11.2018 relying on the judgment of Hon’ble Supreme Court in the case of Andaman Timber Industries (supra) quashed the assessment order on the reason of not providing cross-examination of witnesses whose statements were recorded.

ITA No.533/Bang/2022 M/s. Srinivas Institute of Medical Science and Research Centre, Mangalore Page 42 of 50 (K). The Hon’ble Supreme Court in the case of Mehta Parikh & Co. v. CIT, 30 ITR 181 held as under:- “In the instant case a mere calculation of the nature indulged in by the ITO or the AAC was not enough, without any further scrutiny, to dislodge the position taken up by the assessee, supported as it was, by the entries in the cash book and the affidavits put in by the assessee before the AAC. The Tribunal also fell into the same error. It could not negative the possibility of the assessee being in possession of a substantial number of these high denomination currency notes. It, however, considered that it was impossible for the assessee to have had 61 such notes in the cash balance in their hands on 12-1-1946, and then it applied a rule of the thumb treating 31 out of such 61 notes as within the bounds of possibility, excluding 30 such notes as not covered by the explanation of the assessee. This was pure surmise and had no basis in the evidence, which was on the record of the proceedings. Facts proved or admitted may provide to support further conclusions to be deduced from them, which conclusions may themselves be conclusions of fact and such inferences from facts proved or admitted could be matters of law. The court would be entitled to intervene if it appears that the fact finding authority has acted without any evidence or upon a view of the facts, which could not reasonably be entertained or the facts found are such that no person acting judicially and properly instructed as to the relevant law would have come to the determination in question. The High Court treated this finding of the Tribunal as a mere finding of fact and recognised this position in effect but went wrong in applying the true principles of interference with such findings of fact to the present case. Really speaking the Tribunal had not indicated upon what material it held that Rs. 30,000 should be treated as secret profit or profits from undisclosed sources and the order passed by it was bad. The assessee had furnished a reasonable explanation for the possession of the high denomination notes of the face value of Rs. 61,000 and there was no justification for having accepted it in part and discarded it in relation to a sum of Rs. 30,000. The High Court ought to have held that there were no materials to justify the assessment of Rs. 30,000 from out of the sum of Rs. 61,000, for income-tax and excess profits tax and business profits tax purposes, representing the value of the high denomination notes which were encashed.”

ITA No.533/Bang/2022 M/s. Srinivas Institute of Medical Science and Research Centre, Mangalore Page 43 of 50 (L). Further the Hon’ble Supreme Court in the case of CIT v. Odeon Builders (P.) Ltd., 418 ITR 315 (SC) head-note is as follows:- “Section 37(1) of the Income-tax Act, 1961 - Business expenditure - Allowability of (Bogus purchase) - Certain portion of purchases made by assessee was disallowed - Commissioner (Appeals) found that entire disallowance was based on third party information gathered by Investigation Wing of Department, which had not been independently subjected to further verification by Assessing Officer and he had not provided copy of such statements to appellant, thus, denying opportunity of cross examination to appellant, who on other hand, had prima facie discharged initial burden of substantiating purchases through various documentation including purchase bills, transportation bills, confirmed copy of accounts and fact of payment through cheques, VAT Registration of sellers and their Income-tax Return - He held that purchases made by assesseewas acceptable and disallowance was to be deleted - Tribunal dismissed revenue's appeal - High Court affirmed judgments of Commissioner (Appeals) and Tribunal being concurrent factual findings - Whether no substantial question of law arose from impugned order of Tribunal - Held, yes [Para 4] [In favour of assessee]” (M). The Hon’ble High Court of Karnataka in Kothari Metals v. ITO, 377 ITR 581 (Karn) held as under:- “Held, allowing the appeal, that the non-furnishing the reasons for re- opening an already concluded assessment goes to the very root of the matter. Since such reasons had not been furnished to the appellant, even though a request for them had been made, proceedings for the re- assessment could not have been taken further on this ground alone. Besides this, the statement of some other person which was recorded was the basis of reassessment and the assessee was asked to explain it but the statement was itself not furnished to the assessee. As such, besides non-furnishing of the reasons for re-opening there was also a gross violation of the principles of natural justice. The reassessment was not valid.” (N). The Hon’ble Calcutta High Court in the case of CIT v. Eastern Commercial Enterprises, 210 ITR 103 (Cal) held as follows:- “8. We have considered the contesting contentions of the parties. It is true that Shri Sukla has proved to be a shifty person as a witness. At the earlier stages, he claimed all his sales to be genuine but before the Assessing Officer in the case of the assessee, he disowned the sales specifically made to the assessee. This statement can at the worst show that Shri Sukla is not a trustworthy witness and little value can be

ITA No.533/Bang/2022 M/s. Srinivas Institute of Medical Science and Research Centre, Mangalore Page 44 of 50 attached to what he stated either in his affidavits or in his examination by the Assessing Officer. His conduct neutralises his value as a witness. A man indulging in double-speaking cannot be said by any means a truthful man at any stage and no court can decide on which occasion he was truthful. If Shri Sukla is neutralised as a witness what remains is the accounts, vouchers, challans, bank accounts, etc. But, we would observe here that which way lies the truth in Shri Sukla's depositions, could have been revealed only if he was subjected to a cross- examination by the assessee. As a matter of fact, the right to cross-examine a witness adverse to the assessee is an indispensable right and the opportunity of such cross- examination is one of the corner-stones of natural justice. Here Shri Sukla is the witness of the Department. Therefore, the Department cannot cut short the process of taking oral evidence by merely having the examination-in-chief. It is the necessary requirement of the process of taking evidence that the examination-in-chief is followed by cross-examination and re-examination, if necessary. 9. It is not just a question of form or a question of giving an adverse party its privilege but a necessity of the process of testing the truth of oral evidence of a witness. Without the truth being tested no oral evidence can be admissible evidence and could not form the basis of any inference against the adverse parties. We have also examined the records and we find that this Shri Sukla was examined by a number of officers. The Assistant Director of Investigation examined him on August 4, 1987, and in reply to question No. 2 in that deposition he confirmed that he was a dealer in lubricating oil since 1977. In reply to question No. 3, he confirmed having been assessed to income-tax. Again, in reply to question No. 4, he explained that he used to purchase lubricating oil from different garages as well as through various brokers. Such lubricating oil was processed by him in his factory for sale. All payments were received by him through account payee cheques. In reply to question No. 5, he stated that he had seven full-time employees whose names are mentioned by him. He also claimed to have maintained books of account like sales books, purchase books, cash books and sale bills. In reply to question No. 18, he, on his own, stated that his big customers were the Reliance Oil Mills and Eastern Commercial Enterprises, the assessee, in the present reference. As for his cash withdrawals, he explained that his business required ready cash for purchase of raw materials which explained his large drawings of cash from the bank. Learned counsel then cited a host of decisions to bring home the point that no evidence or document can be relied upon unless it is shown to the assessee. Kishanchand Chellaram v. CIT. Similarly, the requirement of cross-examination as the requirement of the rules of natural justice has been underlined by the Bombay High Court in Vasanji Ghela and Co. v. CST [1977] 40 STC 544. It is trite law that cross- examination is the sine qua non of due process of taking evidence and no adverse inference can be drawn against a party unless the party is put on notice of the case made out against him. He must be supplied the contents of all such evidence, both oral and documentary, so that he can prepare to meet the case against him. This necessarily also postulates that he should cross-examine the witness hostile to him. 10. In any case, we have nothing to rely upon to come to a decision this way or the other. The first thing is that which of the statements of Shri Sukla is correct, is anybody's guess. Therefore, it is necessary to delve out the truth from him and for

ITA No.533/Bang/2022 M/s. Srinivas Institute of Medical Science and Research Centre, Mangalore Page 45 of 50 that matter a cross-examination is necessary. Secondly, if the statement of Shri Sukla as a witness against the adverse party, the assessee, is relied upon as truthful, still remains the question of estimation of the profit. The assessee no doubt has given a comparative instance of gross profit rate but it is also necessary for the Department to come to a finding as to the norm of the gross profit on the basis of comparative cases. Therefore, it is the duty of the Assessing Officer to counter the comparative statement cited by the assessee before he can have the option to estimate the gross profit. Again, it is the comparative instance that alone can be the foundation of such estimate in case the accounts are really found to be unreliable and requiring to be rejected. Therefore, in the interest of justice for both the parties, the assessee and the Revenue, it is necessary for us to direct the Tribunal to remand the case to the Assessing Officer for reconsidering the whole matter in the light of the observations made by us in the foregoing and redo the assessment accordingly. All opportunities should be given to the assessee in order to lead any evidence that the assessee may feel necessary to rebut the case against him. As a result we decline to answer the question.” (O). The Hon’ble Supreme Court in the case of Kishinchand Chellaram v. CIT, 125 ITR 713 (SC) held as follows:-

“Held, reversing the decision of the High Court, (i) on the facts, that the two letters dated February 18, 1955 , and March 9, 1957 did not constitute any material evidence which the Tribunal could take into account for the purpose of arriving at the finding that the sum of Rs.1,07,350 was remitted by the assessee from Madras, and if these two letters were eliminated, there was no material evidence at all which could support its finding. The statements of managers in those two letters were based on hearsay, as in the absence of evidence, it could not be taken that he must have been in charge of the Madras office on October 16, 1946, so as to have personal knowledge. The department ought to have called upon the manager to produce the documents and papers on the basis of which he made the statement and confronted the assessee with those documents and papers. It was true that proceedings under the income-tax law were not governed by the strict rules of evidence, and, therefore, it might be said that even without calling the manager of the bank in evidence to prove the letter dated February 18, 1955, it could be taken into account as evidence. But before the income-tax authorities could rely upon it, they were bound to produce it before the assessee so that the assessee could controvert the statements contained in it by asking for an opportunity to cross-examine the manager of the bank with reference to the statements made by him. Nor was there any explanation regarding what happened when the manager appeared in obedience to the summons referred to in the letter dated March 9, 1957, and what statement he had made.” 5.7 Further, third party statement cannot be relied upon without proper enquiry and providing proper cross-examination to the assessee. In CIT v. P.V. Kalyana Sundaram, 294 ITR 49 (SC), the Hon’ble Supreme Court observed that no reliance could be placed on

ITA No.533/Bang/2022 M/s. Srinivas Institute of Medical Science and Research Centre, Mangalore Page 46 of 50 loose sheets seized during the course of search and third party statements unless provided cross-examination. Collection of capitation fee is governed by Karnataka Institutions (Prohibition of Capitation Fees) Act, 1984 and there was no violation noticed by the State authorities and also Medical Council of India. In such circumstances, it is not possible to conclude on the basis of various loose sheets and jottings found during the search action u/s. 132 that assessee has collected unaccounted capitation fees.

5.8 Further, the Bangalore Bench in the case of Anand Social & Education Trust in ITA Nos. 2542-2548(B)/2017 dated 29.05.2020 by placing reliance on the judgment of Hon’ble Madras High Court in the case of Balaji Educational & Charitable Public Trust, 56 taxmann.com 182 in similar circumstances observed that the AO had not conducted any enquiry with the students or parents or others. The cash seized during the search was accepted as not belonging to the assessee. There was no complaint received from any student or parent regarding capitation fee charged by the institution. In the above case also, the AO had estimated the capitation fee received from the students under the management quota for various years. The Hon’ble Madras High Court held it to be a perverse inference. Further, the Tribunal observed that the AO had only drawn certain inference on surmises and conjectures. He did not conduct any independent enquiry with the related party to find out the truth. He has also not brought any material on record to show that the explanation given by the assessee was not correct. In any case, the assessee was not given opportunity to cross-examine the parties whoever managed the diary. Accordingly, the Tribunal deleted the addition by placing reliance on the judgment of Balaji Educational & Charitable Public Trust (supra).

ITA No.533/Bang/2022 M/s. Srinivas Institute of Medical Science and Research Centre, Mangalore Page 47 of 50 5.9 Further it is to be noted that the Supreme Court judgment in Andaman Timber Industries v. Commissioner of Central Excise, 281 CTR 241 (SC) wherein it was held that opportunity of cross- examination not given leads to nullity and assessment order to be quashed. It is also pertinent to mention herein the decision of Special Bench of the Tribunal in ACIT v. Vireet Investments (P) Ltd. 165 ITD 27 (Delhi – Trib.) (SB) wherein it was held that when two reasonable constructions of a taxing provision are possible, that construction which favours the assessee must be adopted, which is in line with the Supreme Court judgment in the case of CIT v. Vegetable Products, 88 ITR 192 (SC). This is a well-accepted construction recognized by various courts. 5.10. Being so, in our opinion the seized material relied by the CCIT for cancelling the approval granted u/s 10(23C) of the Act is not speaking one on its own or itself and also not speaking in conjunction with some other evidence with authorities found during the course of search or post search investigation. Thus, the well settled legal position is that a non-speaking document without any corroborative material or evidence on record and it cannot be said that such document has been materialised into transactions giving rise to income of the assessee which had not been disclosed in the regular books of accounts of the assessee and that has to be disregarded for the purpose of proceedings to be framed pursuant to search and seizure action. In these cases, moreover these documents are relied upon by the CCIT without confronting them for cross examination. In our opinion, these documents cannot bring assessee into tax net or cancellation of approval granted u/s 10(23C) of the Act by merely pressing into service the provision of Sec 132(4A) r.w.s Sec 292C of the IT act, which creates deeming fiction on the assessee subject to search wherein it may be presumed that any such document found during the course of search from the possession and control of such

ITA No.533/Bang/2022 M/s. Srinivas Institute of Medical Science and Research Centre, Mangalore Page 48 of 50 document are true. What has to be noted here is that deemed presumption cannot bring such a document into adverse action against the assessee or tax net and the presumption is rebuttable one and the deemed provisions have no help to the department. In our opinion, in this case, cancellation of approval granted u/s 10(23C) of the Act is made by AO on arbitrary basis relying on the loose papers, containing notings in the absence of any corroborative materials and these materials cannot be considered as transacted into collection of capitation fees by assessee giving rise to unaccounted income which are not disclosed in the regular books of accounts by assessee. We place reliance on the following judgements in support of our above findings: (i) CIT vs D.K.Gupta 174 Taxman 476 (Delhi) (ii) Ashwini Kumar vs ITO 39 ITD 183 (Delhi) (iii) S.P.Goyal vs DCIT (Mum) (TM) 82 ITD 85 (MUM) (iv) D.A.Patel vs DCIT 72 ITD 340 (Mum) (v) Amarjeet Singh Bakshi (HUF) vs ACIT 86 ITD 13 (Delhi) (TM) (vi) Nagarjuna Construction Co Ltd vs DCIT 23 Taxman.com 239 (vii) CIT vs C.L.Khatri 174 Taxman 652 (viii) T.S.Venkatesan vs ACIT 74 ITD 298 (ix) CIT vs Atam Valves Pvt Ltd 184 Taxman 6 (P&H) 5.11. Thus, we are agreeing with the contention of ld. AR that placing reliance on the seized material is not proper and the cancellation of approval granted u/s 10(23C) of the Act is not justified on the basis of unsubstantiated seized materials on the below mentioned reasons: i) no opportunity to cross-examine the persons whose statements have been relied upon is afforded; ii) some of the statements have been recorded under section 132 has been retracted; iii) there is no documentary evidence either to support or disprove the statements of A. Srinivasa Rao and Smt. Rajalakshmi recorded on various dates; and iv) the seized material are in the form of various unsubstantiated Excel sheets/loose sheets taken from the computer having no

ITA No.533/Bang/2022 M/s. Srinivas Institute of Medical Science and Research Centre, Mangalore Page 49 of 50 signature or authorization from the assessee’s side. These are unsubstantiated documents and there is nothing to suggest any undisclosed assets of assessee found during the course of search. More so, search action not resulted in recovery of any undisclosed assets in the form of landed property, building, investments, money, bullion, jewellery or any kind of movable or immovable assets. v) The cash found at the residence of trustees at Rs.3.75 crores has been duly accounted in the books of accounts of the assessee and M/S. A. Shyama Rao Foundation; vi) The assessee has been solely engaged in imparting of medical education along with pharmacy and community health and it has been found to be genuine.

5.12 In view of the above discussion, we are of the considered view that CCIT is not justified in withdrawing the approval granted u/s 10(23C) of the Act. Therefore, we hereby annul the order of CCIT dated 13.6.2022 withdrawing the approval granted u/s 10(23C) of the Act and the approval granted vide order in F. No.CCIT/PNJ/10(23C)/136(1)/12-13 dated 25.4.2013 is restored back. Ordered accordingly. 6. In the result, the appeal filed by the assessee is allowed.

Order pronounced in the open court on 30th Dec, 2022.

Sd/- Sd/- (N.V. Vasudevan) (Chandra Poojari) Vice President Accountant Member

Bangalore, Dated 30th Dec, 2022. VG/SPS

ITA No.533/Bang/2022 M/s. Srinivas Institute of Medical Science and Research Centre, Mangalore Page 50 of 50 Copy to:

Asst. Registrar, ITAT, Bangalore.