SHREE PARISHRAM EDUCATION & MEDICAL CHARITABLE TRUST,,VADODARA vs. THE PR. CIT(CENTRAL),, SURAT

आदेश /O R D E R PER O. P. MEENA, ACCOUTANT MEMBER: 1. This appeal by the Assessee is directed against the order of learned Pr. Commissioner of Income tax (Central), Surat (in short “the Pr.CIT ) dated 19.02.2016 pertaining to Section u/s. 12AA(3) of the I.T.Act, 1961. 2. Grounds of appeal are as under :

Pr.CIT (Central) V. Shree Parishram Education & Medical Charitable Trust I.T.A. No.610/Ahd/2016 Page 2 of 15

1) The Ld. Pr.CIT (Central), Surat has erred in law and in facts in holding that the operation of the provisions of Section. 13 of the Income Tax Act would resultantly lead to the cancellation of the registration granted u/s. 12A by invocation of the provisions contained in Section.12AA(3) from the date when such registration is granted. 2) The Ld.Pr. CIT(Central), Surat has erred in law and in facts in considering that the operation of the provisions of Section.13 for authorizing the cancellation of the registration of Trust 12AA(3) is brought on statute effective from 01.10.2014 and as such the same could not have been applied for a prior period. 3) The action of the Ld. Pr. CIT (Central) , Surat in cancelling the registration of the Trust u/s. 12A vide his order dated 19.02.2016 since the date when it was granted i.e. 21.06.2010 being bad in law and in facts deserves to quashed. 4) The appellant craves liberty to add, alter, amend , revise or substitute any of the grounds of appeal contained hereinabove.

Pr.CIT (Central) V. Shree Parishram Education & Medical Charitable Trust I.T.A. No.610/Ahd/2016 Page 3 of 15

got approval under section 10 (23C)(6A) of the Act from Chief

Commissioner of Income-tax, Baroda dtd. 29.09.2011. The trust is

also registered u/s. 12A(a) vide order dtd.21.06.2010 by CCIT,

Baroda. A search u/s. 132 of the Income-tax Act was conducted in

the Sigma Group of Baroda on 13.11.2014 which covered the case

of the assessee viz. Parishram Education and Medical Charitable

Trust. It was reported by the A.O. to the Pr. Commissioner of

Income-tax that during the course of search operation, huge

volume of incriminating material in the form of loose paper,

diaries, notebooks, registers, hard disks, pen drives, etc. were

seized from various premises of Sigma Group. On verification of

the seized material, it was noticed that the trust has generated

unaccounted money through educational institutions and same is

invested in undisclosed assets of the trustees for their personal

benefit. The assessee has admitted unaccounted income of

Rs.40,70,92,172/- for A.Y. 2008-09 to 2015-16. It was further

Pr.CIT (Central) V. Shree Parishram Education & Medical Charitable Trust I.T.A. No.610/Ahd/2016 Page 4 of 15

revealed from the evidences found that the assessee has adopted

modus operandi of evasion of tax by generation of unaccounted

cash through inflating salary expenses, non recording of donation

receipts from students in books , undisclosed bank account of the

trust and various individual trustees and relatives. In view of the

facts, the Pr.CIT (Central) observed that the assessee trust

cannot be considered as charitable activity as it has stepped out

of the object of the trust and is engaged in profit making and

unlawful activities. Section 11 of the Income-tax Act, 1961

provides for exemption of Income of the trusts involved in

charitable activities. However, as per the above stated facts, it is

clear that the motive of the trust is making profit rather than the

object of charitable activity. Therefore, explanation was called

for from the trust vide letter dtd. 04.01.2016 as to why approval

of registration of trust u/s. 12A of the Act should not be cancelled.

The assessee vide his letter dtd. 15.02.2016 submitted that the

assessee trust is engaged in the activity of providing scholarship,

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books to run boarding homes and to establish schools and colleges

for the poor and medium class and needy to run hospitals and

provide medicines and to give cash rupees to poor and medium and

needy to help the needy persons at the time of natural calamities.

It was stated that the assessee trust has not altered its deed and

it continues to carry the same activity and that the activities being

carried out are in consonance with the objects of the trust. It was

argued that as per provision of Sec. 12A(3) and 12A(4) when

registration granted to trust can be cancelled if the activities of

such trust or institution are not genuine or are not being carried

out in accordance with the object of the trust or institution. The

assessee trust has argued that its activities are genuine and

continues to be engaged in imparting education in the field of

Engineering by systematic teaching and instructions and thus,

there is nothing to show that the trust has undertaken any illegal

activity or infringed any law to doubt the genuineness of the

activities. The assessee has also cited the decision of Mumbai

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Tribunal in the case of Mumbai Cricket Association 24

Taxmann.com, 96 wherein it has been held that the provisions of

Section 12AA(3) have been brought on statute only from

01.06.2010 and is not retrospective and hence even if the

cancellation is sought to be justified by invoking these provisions,

the same can only be from 01.06.2010 and not for the period prior

to earlier. However, Pr. CIT observed that:

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every signatory to the Memorandum of Association has to be treated as founder, so that money lent to such a person without adequate security constitutes a benefit, which would lose the exemption for the company . The Hon’ble Andhra Pradesh High Court in the case of Action for Welfare and Awakening in rural Environment (AWARE) vs. Dy.CIT (2003) 263 ITR 13 has observed that where fixed deposits in name of assessee trust worth Rs.16 lacs was pledged as security with bank for enabling one of the members of the assessee to avail loan without adequate security and consideration and certain transaction of purchase of land was routed through an AOP in which all members were directors and employees of the assessee, the misutilisation was glaring and it could not escape the clutches of law, nor any sympathy or equities could be extended. In view of the fact that the entire transaction was within the personal knowledge of the trustees, it could be said that the funds of the assesse were diverted and misutilised. On facts, the assesse has violated the provisions of section 13 (1) (c)(ii) with section 13(2)(g) and thus was not entitled for exemption. 7.It is pertinent to mention here that the assesse has cited the case law of Hon’ble Mumbai Tribunal in the case of Mumbai Cricket Association 24 taxmann.com 96 wherein it has been held that the provisions of section 12AA(3) have been brought on statute only from 01.06.2010 and is not retrospective and hence even if the cancellation is sought to be justified by invoking these provisions, the same can only be from 01.06.2010 and not for the period earlier., This contention of the assessee is not found acceptable for the reason that the assessee itself indicates that the fund of the assessee is diverted and misutilized. It means that the assessee has not carried out its activity according to the objects of the trust. The facts as confirmed by the assessee in its submission by stating that if the cancellation is sought to be justified by invoking these provisions, the same can only be from 01.06.2010 and not for the period earlier. The ratio of decision of Hon’ble Mumbai Tribunal in the case of Mumbai Cricket Association is not applicable to the assessee trust’s case as the assessee trust has obtained the certificate u/s.12A

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of the I.T. Act from 21.06.2010 i.e. after 01.06.2010. Hence, the facts are clearly distinguishable. 8. In the light of the facts and discussion made, it is crystal clear that the assessee trust has deviated from its object of trust i.e. not imparting education for charitable purpose but for purpose of making profit only. The assessee trust does not fulfill the conditions laid down in section 13 of the Income-tax Act, 1961. The provisions of section 11 and 12 are also not applied to the assessee. 9. In view of the above position, I am satisfied that the activities of the assessee trust or institution are not genuine and are not being carried out in accordance with the objects of the trust. Hence, the assessee trust is not eligible for grant of registration u/s. 12A of the I.T.Act, 1961. I hereby cancel the registration u/s.12AA(3) granted to the assessee trust u/s. 12A(a) since inception i.e. from the date 21.06.2010.” 4. Being aggrieved with the above order, the assessee is in

appeal before this Tribunal. The learned counsel of the assessee

has submitted that the trust is carried out activities in the field of

education by running and maintaining the institutions in imparting

education in the field of engineering by providing courses leading

to diploma in engineering. The trust has not altered its deed and

it continues to carry the same activity and that the activities being

carried out are in consonance with the objects of the trust. The

Pr. CIT (Central) has cancelled the registration of the trust on the

ground that there was a search wherein it was found that the

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unaccounted income utilized for the benefit of fees. The learned

counsel further contended that as per provision of Sec.12AA(1),

the registration granted would be exempt if he satisfy activity of

the trust are not genuine or / and is carried out with the object of

the trust. Since, the activities of the trust are genuine and the

trust continues to be engaged and imparting education in the field

of Engineering by systematic teaching and instructions and thus,

there is nothing to show that the Trust has undertaken any illegal

activity or infringed any law to doubt the genuineness of the

activities. The earning of unaccounted income and /or its

application for the benefit of the Trustees in violation of section

13, at best can be invoked to deny the benefit of sec.11 and 12 of

the I.T. Act, there is simple power provided to that extent. The

learned counsel further submitted that the provision of Sec.

12AA(3) have been brought on statute only from 01.06.2010 and it

not retrospective and hence even if the cancellation is sought to

be justified by invoking these provisions the same can only from

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01.06.2010 and not for the period earlier. The learned counsel has

relied in the case of Mumbai Cricket Association v. Director of

Income tax ( Exemption), Mumbai 24 taxmann.com 96. Merely

because a search has been conducted would not lead to a

satisfaction that the provisions of Sec. 13(1) are applicable as

there could be various reasons leading the assessee trust to make

a disclosure. Such disclosure itself cannot lead to any satisfaction

unless the assessment is completed. Reliance is placed by the

assesse on the order in the case of Kalinga Institute of Industrial

Technology v CIT 23 SOT 74 (Cuttack). The learned counsel further

submitted that the provision of Sec. 12AA(4) have been brought on

statute only from 01.10.2014 and following the judgement of

Mumbai Tribunal in the case of Mumbai Cricket Association as

referred above it is submitted that the provisions can be applied

prospectively only and that registration under no circumstance be

cancelled for period prior to such date.

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on the order of Pr.CIT (Central) and submitted that the search and

seizure operation conducted in the case of assessee trust has

revealed that the assessee trust was indulging in earning

unaccounted income therefore, the assessee trust has diverted

from the objects as per activity carrying, therefore, the PCIT

(Central)was right in cancelling registration granted to the trust.

on record . The perusal of the order u/s. 12AA(3) of the Act passed

by the Pr.CIT on 19.02.2016 shows that there was search u/s. 132

of the Act conducted in the Sigma Group, Baroda on 13.11.2014

which covers the case of the assesse trust also. During the course

of search, huge volumes of incriminating material in the form of

loose paper, diaries, note books, registers, hard disks, pen drives,

etc. were seized from the premises of Sigma Group. On

verification of seized material, it was noticed that the assesse

trust generating unaccounted money through educational

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institutions and the same is invested in undisclosed assets of the

trustees for their personal benefit. It is also relevant to mention

that the assesse has admitted unaccounted income of

Rs.40,70,92,172/- for A.Y. 2008-09 to 2015.16. on the basis of

seized material found during the course of search. It is also noted

that the assesse trust admitted modus operading for willful evasion

of tax by invoking expenses, not recording donation receipt in the

books of account and making investment of the bank and various

individual and making investment to trustees and their relatives .

Therefore, Pr.CIT has clearly found and held that the assesse trust

cannot be considered as charitable activity as it has stepped out

of the object of the trust and is engaged in profit making and

unlawful activities. We have also gone through the findings of

learned Pr. CIT (Central) which make out the case that the assesse

trust has been clearly for the benefit of the trustee and relatives

provision of Sec. 13(1)(c ) of the Act. Income of the trust have

been applied and use and any poor benefit for the fees. Therefore,

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provision of Sec. 13 of the Act bars exemption , where the founder

trustees or their relatives personally benefited from the trust

because the trust in that case loses its public character. The

learned Pr.CIT placed reliance in the case of Director of Income

tax Vs. Bharat Diamond Bourse (2003) 259 ITR 280 wherein it was

held that in the case of charitable institution formed as a company

every signatory to the Memorandum of Association has to be

treated as founder, so that money lent to such person without

adequate security constitutes a benefit, which would loose the

exemption for the company. We also find that the decision relied

by the learned counsel Mumbai Cricket Association 24

taxmann.com 96, wherein it was held that the provisions of Sec.

12AA(3) have been brought on statute only from 01.06.2010 and is

not applicable for the reasons that the assesse itself indicates that

the fund of the assessee diverted and misutilised. It means that

the assessee has not carried out its activities according to the

objects of the trust rather not applicable to the assessee trust

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because trust has obtained the certificate u/s.12A of the Act from

21.06.2010 i.e. after 01.06.2010. Hence, the facts are clearly

distinguishable. In light of the facts and contention of the assessee

that provision of Sec. 12AA(3) only from 01.06.2010 and not

retrospective and hence cancellation is justified by invoking

provision , the same can only be 01.06.2010 and not for the period

earlier. On going through para-9 of the order of Pr.CIT, we find

that registration was cancelled by the Pr. CIT (Central)

u/s.12AA(3) granted to the assessee u/s.12AA with effect from the

date 21.06.2010 only. Therefore, the PCIT (Central) has provision

after 01.06.2010 , hence, grounds of appeal taken by the assessee

more particularly ground No.2 is devoid of any merit, hence,

dismissed on any merit.

with the order passed by the CIT (Central) and does not call for

any interference from our side, therefore, same is upheld.

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dismissed.