SIGMA INSTITUTE OF TECHNOLOGY AND ENGINEERING,,VADODARA vs. THE PR.CIT, CENTRAL,, SURAT

आदेश /O R D E R

PER O. P. MEENA, ACCOUTANT MEMBER:

Pr.CIT (Central) V. Sigma Institute of Technology and Engineering/ I.T.A. No.67/Ahd/2016 Page 2 of 14

“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:

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. Para. 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 u/s. 12AA(3) is brought on statute effective from 01.10.2014 and as such the same could not have been applied. 3) The action of the Ld. Pr. CIT (Central), Surat in cancelling the registration of the Trust u/s. 12A vide his order dtd.5.11.2015 since the date when it was granted i.e. 04.03.2005 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.

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

Pr.CIT (Central) V. Sigma Institute of Technology and Engineering/ I.T.A. No.67/Ahd/2016 Page 3 of 14

Commissioner of Income-tax, Baroda letter No. BRD/CC/Tech/

10(23C)(vi)/SIT/10-11/15 dtd. 29.09.2011. The trust is also

registered u/s. 12A(a) vide order dtd.04.03.2005 by CCIT, Baroda

File [BRD/CIT-F/HQ/42(3)(67)/2004-05]. 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. Sigma

Institute of Technology and Engineering. 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 institutes

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

reveal from the evidences found that the assessee has adopted

Pr.CIT (Central) V. Sigma Institute of Technology and Engineering/ I.T.A. No.67/Ahd/2016 Page 4 of 14

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. 09.10.2015 as to why approval

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

The assessee vide his letter dtd. 28.10.2015 submitted that the

assessee trust is engaged in the activity of providing scholarship,

books to run boarding homes and to establish school and colleges

Pr.CIT (Central) V. Sigma Institute of Technology and Engineering/ I.T.A. No.67/Ahd/2016 Page 5 of 14

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

Tribunal in the case of Mumbai Cricket Association 24

Pr.CIT (Central) V. Sigma Institute of Technology and Engineering/ I.T.A. No.67/Ahd/2016 Page 6 of 14

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 :

“7.The contention of the assessee are not acceptable on the following reasons : i) The assessee has indulged in generation of unaccounted cash through inflating salary expenses, donation receipts from students not recorded in books of accounts and undisclosed bank account of the trust and various individuals, ii) The unaccounted funds generated through the trust have been clearly diverted for the benefit of the trustees and relatives, thereby attracting the provisions of section 13(1)( c) of the Income-tax Act, 1961. The income of the trusts have been applied and used directly and indirectly for the benefit of the trustees. iii) The trust cannot be separated from the acts of the trustees, as it is trustees who control the activity of the trusts. Thus, the provisions of section 13 are attracted in the case of this trust. Section 12 (3) 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. It was held by Hon’ble Apex Court in the case of Director of Income tax vs. Bharat Diamond Bourse (2003) 259 ITR 280 that in the case of a 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 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

Pr.CIT (Central) V. Sigma Institute of Technology and Engineering/ I.T.A. No.67/Ahd/2016 Page 7 of 14

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 assessee were diverted and misutilised. On facts, the assessee has violated the provisions of section 13 (1) (c)(ii) with section 13(2)(g) and thus was not entitled for exemption. 8. It is pertinent to mention here that the assessee 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 submissions 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 entity period earlier 9. 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. 10. 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.

appeal before this Tribunal. The learned counsel of the assessee

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

Pr.CIT (Central) V. Sigma Institute of Technology and Engineering/ I.T.A. No.67/Ahd/2016 Page 8 of 14

education by running and maintaining the institutions 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

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

Pr.CIT (Central) V. Sigma Institute of Technology and Engineering/ I.T.A. No.67/Ahd/2016 Page 9 of 14

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 ex tent. 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 be invoking these provisions the same can only from

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

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

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

Pr.CIT (Central) V. Sigma Institute of Technology and Engineering/ I.T.A. No.67/Ahd/2016 Page 10 of 14

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.

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 devoted

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

Pr.CIT (Central) V. Sigma Institute of Technology and Engineering/ I.T.A. No.67/Ahd/2016 Page 11 of 14

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

of search, huge volume 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 assessee

trust generating unaccounted money through educational

institutes and the same is invested in undisclosed assets of the

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

that the assessee 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 assessee 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 find and held that the

assessee trust cannot be considered as charitable activity as it has

Pr.CIT (Central) V. Sigma Institute of Technology and Engineering/ I.T.A. No.67/Ahd/2016 Page 12 of 14

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 assessee 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, 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 lose the

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

by the learned counsel Mumbai Cricket Association 24

Pr.CIT (Central) V. Sigma Institute of Technology and Engineering/ I.T.A. No.67/Ahd/2016 Page 13 of 14

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 assessee 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

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

04.03.2015. Therefore, the assessee has diverted from its objects

of trust not imparting education for charitable purpose but for the

purpose of making profit only. The assessee itself has made

disclosure of undisclosed income of Rs.40.70 Crore from A.Y. 2008-

09 to 2015-16, which means the assessee has violated the objects

of the Trust from the very beginning.

passed by the CIT (Central) and does not call for any interference

from our side, therefore, same is upheld.

Pr.CIT (Central) V. Sigma Institute of Technology and Engineering/ I.T.A. No.67/Ahd/2016 Page 14 of 14

dismissed.

Sd/- Sd/- (सी.एम.गग� /C.M. GARG) (ओ.पी.मीना/O.P.MEENA) �याियकसद�यतथा/JUDICIAL MEMBER लेखासद�यकेसम� /ACCOUNTANT MEMBER Surat, Dated.19.06.2018 आदेश क� �ितिलिप अ�ेिषत/Copy of the Order is forwarded to : 1. अपीलाथ�/ The Appellant; 2. ��थ�/ The Respondent; 3. आयकरआयु� )अपील (/ The CIT(A), 4. Pr. CIT 5.िवभागीय�ितिनिध, आयकरअपीलीयअिधकरण, सूरत/ DR, ITAT, Surat; 6. गाड�फाईल / Guard file. By order / / TRUE COPY / / Assistant Registrar, Surat BVC