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Facts
The assessee, an educational trust, was initially granted registration under Section 12AA, later updated to 12A(1)(ac)(iii). Past assessments (AY 2013-14 to 2015-16) by the AO raised issues regarding corpus donations and an imprest deposit held by the Chairman, leading to denial of Section 11/12 benefits. The ITAT, in prior appeals for these assessment years, largely ruled in favor of the assessee, allowing Section 11/12 benefits, but sustained a partial addition of Rs. 11,33,022/- (for AY 2013-14) for undue benefit from the imprest. Subsequently, the CIT(E) initiated proceedings under Section 12AB(4)(ii) to withdraw the assessee's registration based on these past issues.
Held
The Tribunal found the CIT(E)'s order to withdraw registration unsustainable, reasoning that the factual basis for the withdrawal (past assessment issues) had already been adjudicated by the ITAT in earlier appeals, with the ITAT largely upholding the assessee's entitlement to Section 11/12 benefits. The ITAT emphasized that applying Section 12AB(4) retrospectively for matters already settled by a higher appellate authority amounted to judicial indiscipline. The Tribunal quashed the CIT(E)'s order and directed the restoration of the assessee's registration granted under Section 12A(1)(ac)(iii) and Section 12AA, noting the new scheme of registration was introduced from 01.04.2021.
Key Issues
Whether the CIT(E) was justified in withdrawing the assessee's registration under Section 12AB(4)(ii) based on assessment issues already settled by the ITAT, and whether Section 12AB(4) can be applied retrospectively for events predating its introduction.
Sections Cited
12AB(4)(ii), 12AA, 12A(1)(ac)(iii), 13(1)(c), 13(1)(d), 13(3), 11, 12, 115BBC, 68, 143(3), 11(5), 2(15), 10(23C)
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Income Tax Appellate Tribunal, DIVISION BENCH, ‘A’ CHANDIGARH
Before: SHRI RAJPAL YADAV & SHRI KRINWANT SAHAY
PHYSICAL HEARING O R D E R PER RAJ PAL YADAV, VP The assessee is in appeal against the order of ld. Commissioner of Income Tax (Exemptions) [in short ‘the CIT (E)’] dated 08.11.2024 passed u/s 12AB(4)(ii) of the Income Tax Act, 1961. 2. The assessee has taken nine grounds of appeal, however its grievance revolves around a single issue, namely, ld. CIT A.Y.2025-26 2
(E) has committed an error by withdrawing the registration granted u/s 12AA by exercising the powers u/s 12AB(4)(ii) of the Income Tax Act.
3. The brief facts of the case are that assessee is a Society registered under the Societies Registration Act, 1860 vide Registration No. 1564 dated 09.03.2005. The assessee is running Educational Institution. It has applied for grant of registration u/s 12AA which was initially granted to it by the ld. CIT (E) vide his order dated 31.07.2006. The factum of this registration has been mentioned by the ld. CIT (E) while issuing a Show Cause Notice as to why registration be not withdrawn. There has been changes in the Scheme of registration admissible to Charitable Institution by way of Finance Act, 2021 and assessee has been granted registration u/s 12A(1)(ac)(iii) on 18.07.2023. The controversy started from the assessment of assessment year 2013-14 to 2015-16. The AO during the assessment proceedings of these assessment years noticed that there was an imprest deposit against the name of Shri Anshu Kataria, Chairman of the assessee Society. The AO also observed that there were A.Y.2025-26 3 donations which are alleged to be corpus donations received from the students in far flung areas of the country. The AO doubted this donation received by the Institution which was received at Rs.1,63,73,648/- in assessment year 2013-14 and this amount varies in su 5bsequent assessment years, namely 2014-15 and 2015-16. Armed with these facts on their cumulative setting, AO was of the view that assessee has violated Section 13(1)(c) and 13(1)(d) read with Section 13(3) of the Income Tax Act. He taxed the surplus over the expenditure and observed that assessee is not entitled to the benefit of Section 11 and 12 of the Act. The appeal to the CIT (Appeals) did not bring any relief to the assessee and ultimately dispute travelled to the second Appellate Authority (ITAT) vide 822, 880 and 823 of 2019 for assessment year 2013-14 to 2015-16. 3.1 It is pertinent to note that in assessment year 2014-15, cross appeals were filed before the ITAT bearing ITA No. 822 and 880/CHD/2019. All these appeals have been decided by the Tribunal vide its orders dated 25.07.2024. One of us is the Author of these orders i.e. (A.M.). The Tribunal has held that there was no fault committed by the assessee while A.Y.2025-26 4 accepting the donations. Hence, it is not hit by Section 13(1)(c) as well as 13(1)(d) of the Act. The Tribunal has directed the AO to grant benefit of Section 11 and 12 of the Act. In other words, if 85% of the income derived by the assessee Trust is being applied towards its objective of education, then no income is to be assessed in the hands of the assessee. Thus, the assessment of surplus over expenditure in different years made by the AO, stands deleted. However, the Tribunal has confirmed the partial addition on account of alleged undue benefit taken by the Chairman of keeping the money of the Society without payment of interest. For example, in assessment year 2013-14, a separate addition was being made amounting to Rs.11,32,022/- with the aid of Section 13(1)(ii) of the Act. This addition has been confirmed. 3.2 We take note of the finding of the Tribunal in one of the year i.e. assessment year 2013-14, which reads as under : “7. We have considered the facts narrated by the Assessing Officer in the assessment order and the findings given by the ld. CIT(A) on this issue in his appeal order and we have also considered the arguments put forward by the ld. Counsel of the Assessee during the proceedings and we have also considered the arguments of the ld. DR on this issue. In our considered view, it is always desirable to allow the Assessee to cross examine the witnesses whose statements are being used to make basis for any addition in the assessment order. Here, in this case, it has not been done. Similarly, when additional evidence was filed before the ld. CIT(A) in the form of affidavits filed by the students, which were sent to A.Y.2025-26 5 the A.O. for his comments, the Assessing Officer did not make any comment on such affidavits and as such the ld. CIT(A) has passed order without taking into consideration the affidavit filed by the Assessee during the appellate proceedings. From the facts of the case it has also emerged that statements of only seven students out of 1500 students were recorded by the Assessing Officer and such statements were made basis for disallowance of the entire amount of Rs. 1,73,73,648/- by applying the provisions of section 115BBC and section 68 of the Act treating corpus donations received from students to be anonymous donations.
8. We find that the not considering the evidence filed by the Assessee during the appellate proceedings before the ld. CIT(A) is not justified on the part of the ld. CIT(A). In fact, the case laws relied upon by the ld. CIT(A) on the decision of ‘CIT (E) vs. Jagannath Gupta Family Trust’, reported in 411 ITR 235 is also not appropriate. It is because in Jagannath Gupta Family Trust’s case (supra), the matter was relating to the money laundering in lieu of cash, such is not the factual position in this case. Further, even the statements of students recorded by the Assessing Officer for payment of donation to the institutions were not produced for cross examination by the Assessee. Therefore, without giving any opportunity to the Assessee to cross examine the students who had given statements against the Institutions, i.e., payment of donation and also not taking into consideration the affidavits filed by the Assessee, such act on the part of the CIT(A) is not justified. Therefore, the additions confirmed by the ld. CIT(A) on this ground cannot be sustained. Accordingly, appeal on ground Nos. 1 and 2 of the Assessee is allowed.
9. Appeal on Ground Nos. 3 to 5 are against upholding of addition of Rs. 4,83,16,171/- treating the entire surplus over expenditure to be taxable invoking the provisions of section 13(1)(c) and 13(1)(d) r.w.s 13(3) of the Act. The ld. CIT(A) has given his finding bringing out on record the facts discussed by the Assessing Officer in the assessment order as under:- “7.1 Brief facts of the case are that on perusal of balance sheet of the assessee, A.O. noticed that the assessee had shown an amount of Rs. 11,33,022/- to Sh. Anshu Kataria (Chairman of assessee trust) as imprest. During the assessment proceedings, the nature of this account and purpose of the same were asked from the assessee. In response, the assessee filed a copy of account of imprest with Sh. Anshu Kataria and bank statement of the same. On perusal of the same, AO observed that there were some cash deposits and transfer entries in the bank account of assessee, regarding which the assessee stated that the deposits were on account of fees received from students and the assessee had shown A.Y.2025-26 6 closing balance of the same as imprest in the hands of Sh. Anshu Kataria. On perusal of copy of account of the same it was seen that there were total deposits of Rs. 18,78,722/- but assessee had transferred only Rs. 7,45,700/- and retained the remaining amount of Rs. 11,33,022/- as imprest without imprest without any purpose. All these facts led the Assessing Officer to conclude that Sh. Ansu Kataria, Chairman of the society was taking undue benefit of the property of the society as Sh. Anshu Kataria, Chairman had retained the amount of Rs. 11,33,022/- without any specific purpose. The assessee was confronted regarding the nature & genuineness of the transactions. In response, AR of the assessee submitted that the balance in the Anshu Kataria's imprest account represented fees deposited by students of states, where they were unable to deposit the same into Trust's account, in the personal account of Sh. Anshu Kataria. On perusal of the said reply, it was seen that assessee had failed to justify the reasonability of the said transaction and purpose of the same. The assessee had provided undue benefit to the chairman of the society. Since Sh. Anshu Kataria was Chairman of the society, he fell under the category of persons as defined in Sec. 13(3)(c) of the I.T. Act, 196. Assessee had shown payments to its chairman as imprest. This amount was fund of the assessee, which should have been part of the unutilized income of the entity and deposited in modes u/s 11(5) of the Act. As the assessee had made payments to its Chairman without any interest or security, which was not reasonable & amounted to undue benefit accorded to the chairman of the society. So assessee's claim of exemption was denied u/s 13(l)(c) and u/s 13(l)(d) of I.T. Act, 1961.”
10. The Counsel of the Assessee also argued on the line of his reply filed before the ld. CIT(A), which is as under:- "This imprest was mostly out of fee collection in cash of students on his tour to remote states like Orissa, Bihar & Jammu & Kashmir etc. Out of the total such fee collection of Rs. 18.78 lakhs; Rs.7.46 lakhs were remitted from his account to the college account. The balance amount of Rs. 11.33 lakhs; he kept in his account against his interest free loan of more than Rs. 50 lakhs given to college. As such adequate interest free security existed against the imprest account. Sh. Anshual Kataria has given a loan of Rs. 50 Lacs to the Society. In addition to this loan other bank loans were also raised by the society for building colleges. The banks have made a stipulation in the loan documents that during the tenure of their loans, No repayment of the unsecured loan to the member of the society shall be undertaken. The society was during the year looking for availment of more loans from the bank. The society could not afford to debunk the old loan conditions while asking for new loans. So they could not repay the loans A.Y.2025-26 7 taken from Sh. Anshu Kataria. So indirectly, when Sh. Anshu Kataria needed the funds out of the loan given by him, instead he was asked to use the college funds available in his account. So it was actually *his own funds which were kept by him in the imprest accounts not any college funds. As per above facts your Honour will realize that the amount of Rs. 11.33 lakhs was not imprest but adjustment of account against his interest free credit balance of Rs. 50 lakhs. No interest was paid or charged on the two balances. As such the imprest account was not application of college funds by the Chairman within the meaning of section 13(1)(c) or section 13(2)(d) of the Income Tax Act. The learned AO has erred in law and facts in treating the imprest account of Chairman of the society as diversion of funds of the society and consequently disallowing the exemption by invoking the provisions of section 13(1)(c) or section 13(1)(d) of the Income Tax Act. In fact there was no diversion of funds to give any advantage to Sh. Anshu Kataria. Without prejudice to above; even the addition as made by the learned AO is arbitrary and highly exorbitant. The maximum addition that could have been made u/s 13 is the amount that has been diverted for the benefit of the interested persons and for not the entire surplus as has been made by the learned Assessing officer. In case of (A) ACIT Indicula Trust Society [2012] 21 taxmann.com 144/52 SOT 1 (Delhi – Trib.) was held that where the Trust provides benefit directly or indirectly, to be specified persons mentioned u/s 13(3) the benefit of exemption u/s 11 will not be available to that extent. The issue was whether the trust will lose exemption on its entre income, if it is found that the specified person has been benefited directly or indirectly by the trust in respect of a part of income, or whether only that part of income which goes to the benefit of specified person will only lose the exemption. The IT AT felt that of section 13(1)(c) (ii) of the benefit of exemption should be denied only to the extent of the benefit provided.”
The ld. DR relied mostly on the authorities below.
The ld. CIT(A) in his order has given his findings on this issue as under:- “7.3.1 The submission of the assessee that imprest was out of fees collected in cash from students of remote states like Orissa, Bihar and J&K by the Chairman on his tour is not tenable in the light of fact that as per MOA of the assessee, it was not duty of the Chairman to travel across states collecting fees. Apart from this, in today's digital world where banking facilities are available everywhere and every body has A.Y.2025-26 8 hold on mobile internet facilities, the said plea of assessee is not acceptable. The plea that the money could not be deposited in the trust's account is also highly preposterous. Coming to the issue of retaining Rs. 11.33 lakhs out of total fees of Rs. 18.78 lakhs collected by Chairman of assessee institution, the counsel contentions, that it was method adopted by the assessee to pay back the Chairman, the unsecured loans received from him, goes against the condition laid by the banks before advancing loans. This clearly depicts that the assessee had given indirect benefit to Chairman of assessee trust who is covered u/s 13(3) of the Act. The Act contains very stringent provisions barring the use of either the property or the income of a charitable or religious trust or institution in any manner whatsoever for the benefit of the author, founder, trustee, manager, a substantial contributor, or even a relative, rigour of the provisions guiding forfeiture of exemption needs to be well understood by assessee seeking exemption.” 13. We have considered the findings of the Assessing Officer and the findings of the ld. CIT(A) on this issue. We have also considered the submissions filed by the ld. Counsel and ld. DR and the argument put during the proceedings before us. We find that there is no denying that as per the MOA, it was not necessary for the Chairman to go to remote states like Orrisa, Bihar and Jammu & Kashmir and collect fee from students in remote places of these States, as discussed by the ld. CIT(A). But at the same time, we find there is no bar for the Chairman to visit such remote places and collect fee from students in remote places for the Institutions. The ld. CIT(A)’s finding is that in today’s digital world where banking facilities are available everywhere and everybody has hold on mobile internet facility, the said plea of the assessee is not acceptable. 14. We find that ld. CIT(A) in such findings may be correct and true in big place and bigger cities but still in remote places where internet facilities even today are not available all the time, the action of the Chairman of collecting fee from students in such remote areas may not be treated as violation of any clause for the trust. Therefore, the action of collecting fee from the students and depositing in the Chairman’s personal account may not be treated as such a big crime so that section 13(1)(c ) and 13 (1)(d) read with section 13(3) could be invoked. However, as filed in the written submissions by the Counsel of the Assessee as per the findings of the Delhi Bench of the Tribunal in the case of ‘ACIT Indicula Trust Society’, (2012) 21 taxmann.com 144 / 52 SOT 1 (Delhi – Trib.) is as under:- The maximum addition that could have been made u/s 13 is the amount that has been diverted for the benefit of the interested persons and for not the entire surplus as has been made by the learned Assessing officer. A.Y.2025-26 9 In case of (A) ACIT Indicula Trust Society [2012] 21 taxmann.com 144/52 SOT 1 (Delhi - Trib.) it was held that where the Trust provides benefit directly or indirectly, to the specified persons mentioned u/s 13(3) the benefit of exemption u/s 11 will not be available to that extent. The issue was whether the trust will lose exemption on its entre income, if it is found that the specified person has been benefited directly or indirectly by the trust in respect of a part of income, or whether only that part of income which goes to the benefit of specified person will only lose the exemption. The ITAT held that of section 13 (l)(c) (ii) of the benefit of exemption should be denied only to the extent of the benefit provided.
15. We hold that the amount of Rs. 11,33,022/- kept by the Chairman of the assessee Trust Shri Anshu Kataria in his own bank account is to be disallowed. Accordingly, from the confirmed addition of Rs. 4,83,16,171/- addition of Rs. 11,33,022/- only is sustained. Thus, Assessee’s appeal on this ground is partly allowed.
Ground No. 6 is general in nature.
In the result, appeal of the assessee is partly allowed. Order pronounced on 25. 07. 2024. ( A.D. JAIN ) Accountant Member 4. The ld. CIT DR who has argued this case before the Bench wrote a letter to the ld. CIT (E) pointing out these aspects and ld. CIT (E) issued notice inviting the comments of the assessee as to why registration granted to it u/s 12A(1)(ac)(iii) be not withdrawn. The copy of the Show Cause Notice has been reproduced by the ld. CIT (E) at page Nos. 3 to 7 of the impugned order. The assessee has filed a detailed reply, whose A.Y.2025-26 10 copies placed on Paper Book page Nos. 6 to 20. Though part of the reply is being noticed by the ld. CIT (E) also in the impugned order, but we take note of the reply of the assessee, which reads as under : 10th of September, 2024 The Commissioner of Income Tax (Exemptions), Chandigarh. Sub: Show Cause Notice under section 12 AB(4) for withdrawal of registration in the case of Aryan Educational and Charitable Trust, 2129 Phase 10, Mohali - PAN-AABTA7550L Respected Madam, The aforementioned assessee is in receipt of your SCN issued u/s 12AB(4) dated 12.08.2024 for withdrawal of registration u/s 12AA. Admittedly, the assessee trust was granted registration under Section 12 AA of the Act by the Commissioner of Income Tax Chandigarh-II on 31st of July 2006 and subsequently under section 12 A(l)(ac)(iii) the CIT (Exemptions) Chandigarh on 18.07.2023. Brief background: The assessments for AY 2013-14, AY 2014-15 and AY 2015-16 were framed by the Assessing Officer on 28.03.2016. 14.12.2016 and 17.11.2017 respectively. The assessee preferred appeals against the assessment orders before the Commissioner of Income Tax(Appeals) which were decided by the Commissioner of Income Tax(Appeals) vide separate orders of even date i.e. 05.03.2019. Appeals of the assessee trust for AYs 2013-14, 2014-15 and 2015-16 were filed before the Hon'ble 1 TAT in the year 2019 by the assessee against the orders of the Commissioner of Income Tax(Appeals) while an appeal for AY 2014-15 was filed by the Revenue against the order of the Commissioner of Income Tax(Appeals). The appeals were listed for hearing before the Hon'ble ITAT on 19.06.2024. It has been mentioned in your SCN that it rias been brought to notice by CIT(DR), ITAT vide letter F. No. CITDR)-2/ITAT/2024-25/257 dated 14.06.2024 that the society has violated the provisions of Section 2(15) read with Section 12A of the Income Tax Act 1961. It has further been mentioned in the notice that the trust funds were being misused to the advantage of trustees/chairman and on account of receipts being anonymous donations masqueraded as receipts from students. It is pertinent to mention here that the A.Y.2025-26 11 Hon'ble ITAT has already deleted the additions made on account of alleged anonymous donations vide order dated 25.07.2024. As far as the action &! the chairman of collecting fee from students from remote areas and depositing in chairman personal account, the Hon'ble Bench has observed that it may not be treated as such a big crime so that section 13 (l)(c) and 13(l)(d) read with section 13(3) could be invoked. The Hon'ble Chandigarh Bench of ITAT relying on the decision of the coordinate Delhi bench held that the benefit of' exemption could be denied only to the extent of the benefit provided to the specified person. Copies of the order of Hon'ble ITAT are annexed herewith. It is pertinent to mention here that the assessment for AY 2017-18 has also been framed u/s 143 A disallowance was made on account of salary paid to trustees relying upon the order for AY 2014-15. Hon’ble ITAT has already deleted the disallowance so made in AY 2014-15. Copies of the orders of the Hon'ble ITAT are placed at Pages 1-54 annexed with this reply. In this backdrop, the reply to your notice is replied to hereinunder: At the outset, it is submitted that the SCN now being issued for Cancellation of Registration/Approval [Ref: ITBA/EXM/F/EXM46/2024-25/1067525498(1) dated 12.08.2024 after the alleged violation of provisions of Section 2(15) read with Section 12Aof the Income Tax 1961 in respect of an event occurred way back in AY 2015-16. It may be mentioned the AY is not mentioned in the SCN. The first objection against the SCN is that it suffers from Doctrine of Laches. The doctrine of laches is a crucial legal principle known for its emphasis on "unreasonable delay?" This doctrine is an integral part of the broader concept of equity, which aims to uphold fairness and justice in legal proceedings. The issue being raised now on the basis of which Cancellation of Registration proceedings have been initiated pertains to a period going back almost 10 years. The proposed action is being taken only when it has been brought to your notice by CIT(DR), ITAT vide letter F. No. CITDR)- 2/ITAT/2024-25/257 dated 14.06.2024 that the society has allegedly violated the provisions of Section 2(15) read with Section 12 A of the Income Tax Act 196 Lit is submitted that much water has flown under the bridge thereafter. These issues were raised during the assessment proceedings, appellate proceedings before the Commissioner of Income Tax (Appeals) which events culminated into filing of appeals before the Hon'ble lTAT both by the assessee and the revenue in the year 2019.Thus, it was always in the knowledge of your office regarding the alleged violations as mentioned in the SCN. Thus, issuance of SCN as of today suffers from inordinate delay especially when the issues being raised in SCN have been settled by the Hon'ble ITAT vide orders dated 25.07.2024 i.e before the issuance of the impugned SCN.
Without prejudice to the above, it is submitted that Your Notice for Cancellation of Registration/Approval [Ref: ITBA/EXM/F/EXM46/2024- A.Y.2025-26 12 25/1067525498(1) dated 12.08.2024 invokes Clause No. (4) of Section 12AB of the Income-tax Act and certain other facts and situations involving this assessee to impute that the registration u/s 12A r.w.s 12AA r.w.s 12AB of the Income-tax Act granted to this assessee vide Orders CIT- II/CHD/TECH/179/1522 dated 31.07.2006 and 12A(l)(ac)(iii) dated 18.07.2023 deserve to be withdrawn or cancelled. Towards the above, the following submissions are being relied upon which clearly demonstrate that the imputation made as above is misplaced and does not stand the tests of merit and the applicable extant legal positions. Section 12AB(4) of the Act is the substituted version(following the amendments made vide Finance Act, 2021 of the erstwhile Section 12AA(3) of the Act which was inserted by the Finance (No. 2) Act, 2004 with effect from 1-10-2004 and reads as follows (emphases in bold-italics supplied): “Where a trust or an institution has been granted registration under clause (b) of sub section (1) and subsequently the Commissioner is satisfied that the activities of such trust or institution are not genuine or are not being carried out in accordant t with the objects of the trust or institution, as the case may be, he shall pass an ordain writing cancelling the registration of such trust or institution Provided that no order under this sub-section shall be passed unless such trust or institution has been given a reasonable opportunity of being heard. " It is additionally and importantly notable that an amendment was brought into the aforesaid Section 12AA(3) of the Act with effect from 01.06.2010 which changed its text to the following (emphases in bold-italics supplied): "Where a trust or an institution has been granted registration under clause (b) of subsection (1) or has obtained registration at any time under section 12A [as it stood before its amendment by the Finance (No. 2) Act, 1996 (33 of 1996)] and subsequently the Commissioner is 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 institution, as the case may be, he shall pass an order in writing/cancelling the registration of such trust or institution Provided that no order under this sub-section shall be passed unless such trust or institution has been given a reasonable opportunity of being heard. " The clear positions, therefore, in the above that can be readily and automatically inferred from the text of the amended Section 12AA(3) above are the following: Section 12AA(3) was brought on the statute book with effect only from 01.10.2004 by the Finance (No. 2) Act, 2004. Therefore, the provisions of this Section are substantive in nature since the same affect the valuable right of the assessee. The A.Y.2025-26 13 impact of these provisions is therefore prospective and cannot be given retrospective effect, also in view of the decision of the Supreme Court in the case of Sedco Forex International Drill Inc. v. CIT [2005] 279 ITR 310 wherein it has been held that even the provisions of an Explanation cannot be given retrospective effect unless specifically provided by the statute. A cardinal principle of the tax law is that the law to be applied is that which is in force in the relevant assessment year unless otherwise provided expressly or by necessary implication. An Explanation to a statutory provision may fulfil the purpose of clearing up an ambiguity in the main provision or an Explanation can add to and widen the scope of the main section. If it is in its nature clarificatory then the Explanation must be read into the main provision with effect from the time that the main provision came into force. But if it changes the law, it is not presumed to be retrospective irrespective of the fact that the phrase used are 'it is declared' or 'for the removal of doubts'. Casus omissus (the principle that a matter which has not been provided in the statute but should have been there, cannot be supplied by a Court of Law or a judicial authority) is important here. A retrospective applicability of the authority to cancel u/s 12AA(3) is clearly beyond the call and scope of the duty of the Courts which is only to interpret the law as it exists. The decision of the Hon'ble Supreme Court, in the case of Smt. Tarulata Shyam v.CL [1977] 108 ITR 345 (SC) is also being relied upon in this context. A registration under section 12AA(l)(b) is to be granted where CIT is satisfied about the objects and the genuineness of the activities carried on by the applicant. Section 12.-V empowers the CIT to cancel such registration if he is satisfied that activities of trust or institution are not genuine or are not being carried out in accordance with the objects of die trust or institution as the case may be. The combined reading of both the Sections above, which is in keeping with the universally applicable legal canons of, inter alia, harmonious construction, expressiouniusest exclusion alterius (the express mention of one thing excludes all others) and noscitur a sociis (a word or phrase is to be understood and interpreted by the company it keeps), makes it clear that registration can be cancelled u/s 12AA(3) only in those cases where the registration has been granted under Sub-Section (l)(b) of Section 12AA. The following judicial citations are invoked in support of this position: • Bharati Vidyapeeth v. ITO [2009] 28 SOT 32 (PUNE)(URO) • Kailashanand Mission Trust v. Asstt. CIT (ITAT, Delhi)[2004] 88 ITD 125 (Delhi)[08-10-2003] • Amala Jyothi Vidya Kendra Trust vs. Principal Commissioner of Income-tax (Central) [2023] 157 taxmann.com 235 (Bangalore - Trib.) "Section 12AB of the Income-tax Act, 1961 - Charitable or religious trust - Procedure for registration (Cancellation of registration) - Assessment year 202J-22 - Assessee-trusts were registered under section 12AA/12A - During A.Y.2025-26 14 course of search proceedings, Principal Commissioner cancelled registration granted to assessees under section 12AA/12AB with effect from previous assessment year 2020-21 and that of subsequent years as per provisions of section 12AB(4)(ii) -Whether in income-tax matters, law to be applied is law in force in assessment year unless otherwise stated or implied - Held, yes - Whether without a specific mention of amended provisions to operate retrospectively, no cancellation for earlier years could be made - Held, yes - Whether therefore, invoking provisions of section 12AB(4)(ii), which had been introduced by Finance Act, 2022 with effect from 1-4-2022 for cancellation of registration with retrospective effect from relevant assessment year 2021-22, was bad in law as it was not explicitly provided in amended provisions to operate retrospectively - Held, yes - Whether thus, cancellation of registration granted to assessee-trusts was to be quashed - Held, yes "
• 162 taxmann.com 806 (Punjab & Haryana) Commissioner of Income-tax, Patiala v. Young Scholar's Educational Society • Welham Boys' School Society [2006] 285 ITR 74 (Uttaranchal) • 160 taxmann.com 217 (Bangalore - Trib.) Islamic Academy of Education v. Principal Commissioner of Income-tax (Central) -Violation committed by assessee trust in assessment year 2021-22 could not be basis of cancelling section 12AB registration for assessment year 2022-23 to assessment year 2026-27, as each year was to be considered independently. As such, any adversarial position or consequent action can therefore be taken against ar. assessee trust or institution u/s 12AA(3) IF and ONLY IF the first registration of such trust or institution as a tax-exempt charitable entity u/s 12A r.w.s 12AA r.w.s 2(15) of the Act has been obtained u/s 12AA(l)(b) of the Act and NOT u/s 12A of the Act as it stood worded prior to its amendment in 1996; IMP: It may be noted that similar is the situation in the case of this assessee since it has obtained its registration u/s 12A on 31.07.2006 following the procedure u/s 12AA(l)(b) of the Act. Further, a question has generally been raised in the past on several occasions that while deciding under Section 12AA an application of registration filed under Section 12A of the Income-tax Act, 1961, whether the assessee is subject to investigation about the application of its income. Several Courts have pronounced that the application of income or the utilization of the funds can be subject to scrutiny at the assessment proceedings as prescribed under Sections 11 and 12 of the Income-tax Act, 1961. Examples of such decisions are: • Hanumathe Gowda Charitable Trust v. DIT (Exemptions)[2006] 285 ITR 327 (Kar.) • CIT v. Red Rose School [2007] 163 Taxman 19 (All.) • Acharya Sewa Niyas Uttaranchal v. CIT [2007] 13 SOT 54 (Delhi) • Ajit Education Trust vs. CIT (2010) 42 SOT 415 (Ahd.) A.Y.2025-26 15 IMP: The above would mean that even if there has been, hypothetically and assuming but not accepting in the case of this assessee, a deviation(s) in the objects or activities of this assessee from the objects as stated in its Deed of Registration from those that are ideally mandated as defined u/s 2(15) of the Act, the right course of action for Revenue would be to examine such matters and its quantified manifestations through the instrument of assessment proceedings and not by resorting to summary and wholesale cancellation of its registration u/s 12AA of the Act. We now proceed to Section 12AB(4) of the Act which was brought into effect from 01.04.2022 and which begins as under (emphases in bold-italics supplied): ''Where registration or provisional registration of a trust or an institution has been granted under clause (a) or clause (b) or clause (c) of sub-section (1) or clause (b) of sub-section (1) of section 12AA, as the case may be, and subsequently, (a) the Principal Commissioner or Commissioner has noticed occurrence of one or more specified violations during any previous year; or b) the Principal Commissioner or Commissioner has received a reference from the Assessing Officer under the second proviso to sub-section (3) of section 143 for an: previous year; or (c) such case has been selected in accordance with the risk management strategy: formulated by the Board from time to time, for any previous year, the Principal Commissioner or Commissioner shall " IMP: It is clear from the contents of your Notice referenced above that NONE of the preconditions prescribed to initiate any proceedings or actions towards attempted cancellation of registration duly granted u/s 12AA to this assessee exist or have been stated in such Notice. The alleged "one or more specified violations" that you have sought to identify are not of the nature of "specified violations" as defined in the said Section 12AA and can be readily explained (as done below) as bona fide actions in keeping with the substance, intent, purpose and spirit of Section 2(15) of the Act as well as of the stated objects of the assessee. There is no information as to any reference "from the Assessing Officer under the second proviso to sub-section (3) of section 143 for any previous year"; There is no information as to any "selection in accordance with the risk management strategy, formulated by the Board" A.Y.2025-26 16 All that has been identified as being in your possession is a purported reference or letter containing information received from the CIT (DR) in the ITAT, Chandigarh Bench of the Department, which is sought to be presented by you as falling within the purview of the condition specified in Section 12AB(4)(a). This means that any adversarial action u/s 12AA(3) of the Act against this assessee is a non-starter, ultra vires the self same Section 12AA(3) itself and void ab initio. In respect of the purported "one or more specified violations" that you have sought to identify as violative of Section 2(15) of the Act as well as of the stated objects of the assessee, the following factual positions and substantiating arguments are offered in counter: Your Notice identifies and states the following actions (reproduced verbatim) of the assessee to be purportedly making a case of a "specified violation": "It has been noticed that the Trust funds were being misused to the advantage of Trustees/Chairman and on account of receipts being anonymous donations masqueraded as receipts from students. Thus the activities are not genuine and are not being carried out in accordance with the objects of the society"; Our Comments: This is a generic opening statement and rejected so as also on account of the reason that the details of the stated receipts are analysed and elaborated later below against the particularized allegations made in the notice. Further, the leap from your statement that the receipts being anonymous donations masqueraded as receipts from students amounted to the unfounded position that Trust funds were being misused to the advantage of Trustees/Chairman and further on to another statement that “Thus the activities are not genuine and are not being carried out in accordance with the objects of the society is a leap that is sweeping and made without foundation. It is further mentioned in the notice at Page 2 that "During assessment proceedings, it was observed by the AO that the assessee had shown an amount of Rs. 13, 46,927/- to Sh. Anshu Kataria (Chairman of the assessee trust) as imprest. During the assessment proceedings, the nature of this account and purpose of the same was asked from the assessee. The assessee had given contradictory explanations i.e. on one occasion, it had stated that the amount was advance and on the other occasion, it had stated that it was repayment of loan. The AO held that the assessee had not given a reasonable explanation of the reason for giving money to a specified person without any Interest or security and had rather given different explanation vide Different replies. Therefore, the AO held that Sh. Anshu Kataria, Chairman of the A.Y.2025-26 17 society, had taken undue benefit of the property of the society and had retained an amount of Rs. 13,46,927/- without any specific purpose. Accordingly, section 13(l)(c)/l 3(l)(d) were invoked and surplus was brought to tax and the assessee was treated as an AOP" Our Comments: It may be kindly noted that all of the above arguments and findings of the Assessing Officer (AO) are extracted in his order of assessment for the AY 2015-16. although this Assessment Year is not mentioned in the notice. It is not clear why the figures for this Assessment Year alone are chosen and not for the AYs 2013-14 and 2014-15 in which years too, such imprest payments have been made to the same individual being the Chairman, Sh. Anshu Kataria. Perhaps this discrimination is only on account of the fact that the ITAT's Order ends as follows: "No matter, Mr. Anshu Kataria, Chairman has given interest free loan to the Assessee to the tune of Rs. 81,03,813/-Therefore, we are of the considered view that the amount retained by the Chairman of the Trust in his personal account to the tune of Rs. 13,46,927/- without any specific purpose cannot be allowed.
Accordingly, we restrict the addition confirmed by the Id. CIT(A) to the tune of Rs. 13,46,927/- only. Thus, the appeal of the Assessee on this Ground is partly allowed'' It may be noted that although similar imprest payments of Rs. 11,33,022/- and Rs. 11,32,302/- were respectively made in the preceding AYrs 2013-14 and 2014-15 to the same Chairman Sh. Anshu Kataria, these payments do not find place in your notice because the ITAT, Chandigarh Bench has since: fully allowed the appeal of this assessee for the AY 2014-15 vide its Orders in ITA 822/CHD/2019 and 880/Chd/2019 dated 25.07.2024 and partially allowed the appeal of this assessee made on identical grounds and similar facts for the AYrs 2013-14 and 2015-16 vide its respective Orders in ITA 821/Chd/2019 and ITA 823/Chd/2019 dated 25.07.2024. In its latter orders , the ITAT has retained the respective additions made by the Assessing Officer of Rs. 11,33,022 and Rs. 13,46,927/- for the AYrs 2013- 14 and 2015-16 while in the order for AY 2014-15, the matter has not been mentioned and the imprest payments have not been disallowed by the ITAT. From the above, it is clear that: The payments of amounts as imprest to the Chairman Sh Anshu Kataria although argued and reiterated by us as a genuine part of the activities of the assessee but disallowed exemption by the ITAT, is a miniscule portion of the overall amounts received and spent by the Trust in its activities and is A.Y.2025-26 18 therefore not of vital importance in the efforts taken and progress made by the assessee. in furthering its stated charitable objectives.
The dichotomous approach of the ITAT in allowing all expenses including imprest payments for one AY 2014-15 and disallowing the analogous ones for the AYrs 2013-14 and 2015-16 is a demonstrated evidence and testimony of the above position; Thus, there is differential and inconsistent approach taken by stating only the imprest payments for the AY 2015-16 while not stating the respective amounts for the AYrs 2013-14 and 2014-15 which is yet another example and demonstrated evidence and testimony of the insignificance of these payments, particularly in any manner suggestive of wholesale deviations by the assessee from the need of furthering its stated charitable objectives.
There are several judicial precedents that hold for the impugned assessment years that hold that the entire exemption will NOT be forfeited and exemption will be denied only to the extent of the violation committed [Gurudayal Berila Charitable Trust v/s ITO, Fifth (1990) 34 ITD 489 (Mum), Director of IT (Exemptions) v/s Sheth Mafatlal Gagalbhai Foundation Trust (2001) 249 ITR 533 (Bom.), Asst. CIT v/s Sri Ramchandra Educational & Health Trust (2010)128 TTJ 408. Reliance is also placed on the following decisions for the above proposition :
Name of the Decision Citation Sr. No. 1. CIT vs. Fr. Mullers Charitable Institutions 363 ITR 230 (Karnataka) 2. CIT vs. Fr. Mullers Charitable Institutions 227 taxmann.com 369 (SC) 3. 249 ITR 533 (Bombay) DIT vs. Sheth Mafatlal Gagalbhai Foundation Trust 4. Jaya Educational Trust vs. DCIT 130 tamann.com 225 (Chennai-Trib) 5. St. Francis Education Society vs. ACIT 161 tamann.com 394(Raipur -Trib) 6. DCIT vs. Central Academy Jodhpur Education 119 taxmann.com 355 (Jaipur-Trib.) Society The above denial of partial exemption has already been carried out in the case of this assessee to the extent of the imprest payments up to the level of the ITAT and no case can therefore be made out for total denial of exemption. A.Y.2025-26 19 There are several judicial precedents that hold for the impugned assessment years that even the existence of a subsidiary or ancillary object that may be or may appear to be non-charitable does not impact the overall charitable nature of the tax-exempted trust and no disallowance of registration is called for. These include: If primary objects are charitable, exemption cannot be denied if a subsidiary object is found to be non-charitable but which is intended to subserve the religious and charitable objects. [Yograj Charity Trust v CIT (1976) 103 ITR 777 (SC)]. The above can be called the predominance principle. To determine the predominant object, what is required to be examined is the objects of the society and not the quantum of surplus though such quantum may become relevant in certain circumstances. [Supreme Court in the cases of Victoria Technical Institute 188 ITR 57) Thiagarajar Charities 225 ITR 1010, Aditanar Educational Institution 224 ITR 310, Bar Council of Maharashtra 130 ITR 28, American Hotel Lodging Association Education Institute 301 ITR 86, Delhi Kannada Education Society 246 ITR 731 (Delhi), Samaj Kalyan Parishad 105 ITD 29 (Delhi) (SB)and Addl. CIT v. Surat Art Silk Cloth Mfrs. Association [1980] 121 ITR 1 (SC)] Therefore, and particularly in view of the aforesaid judicial decisions, a mere fact that a disproportionately small amount (as compared to the scale and order of the incomes and expenses of the overall activities of the assessee) has been spent on imprest payments to the Chairman of the assessee society and that the disallowance and assessability of the said payment have been upheld by the ITAT for non-applicability of tax-exemption u/s 13 of the Act cannot be construed to arrive at the sweeping, unfounded and reasonless view and finding that the entire activities of the society are unworthy of tax-exemption through the instrument of cancellation of registration granted to the society u/s 12A r.w.s 12AB of the Act. In the above incomplete statement of facts and position extracted verbatim in the notice from the order of assessment, reference has been made to the disallowance of exemption u/s 11 and 12 -an assessment related matter - on account of the application of Sections 13(1 )(c) and 13(l)(d), which position was upheld by the CIT (A) in Appeal No. 10255/2/17-18 dated 05.03.2019. The relevant portions from the said order were reproduced thereafter in your notice (which are discussed below). Although the upholding of this assessee's appeal on the matter of disallowance of exemption, as mentioned disingenuously in your said notice by the CIT (A), it is pointed out again and relevantly that the said appeals of the assessee against the additions made in the orders of assessments including the disallowance of exemptions have later been allowed (preponderantly in favour of this assessee A.Y.2025-26 20 except for the referenced miniscule imprest payments for AYrs 2013-14 and 2015-16) by the ITAT Chandigarh Bench.This means that in line with the letter and intent and spirit of the applicable statutory provisions, the established legal principles and the binding judicial precedents, the ITAT has clearly stated its position that other than these small disallowances, nothing larger or significantly adversarial was called for. The text and tenor of the Notice in reference goes against the grain of this position taken by the ITAT and is therefore in violation of judicial discipline and the principle of per incuriam, which are discussed in detail again below. Therefore, the allegation and imputation in the notice dated 12.08.2024 based on the matter of cancellation of registration driven by a mere miniscule disallowance of exemption is well after the ITAT has already pronounced its decision in 25.07.2024 in the matter of assessment in this case (including on the afore-mentioned impugned matter of imprest payments to the Chairman Shri Anshu Kataria) for the multiple relevant Assessment Years in favour of the assessee. Consequently and once again the present position and approach in this case in the matter of cancellation of registration is in violation of the principle of per incuriam and judicial discipline since the present adversarial position and allegations vis-a-vis this assessee on matters of fact as. presented and reported in the Statements of Accounts of this assessee that have already been decided against the Department by a Higher Judicial Forum, viz. the ITAT The fact that the extant decision of the ITAT is in favour of the assessee relates to the matters of assessment while that of the CIT (A) in the matter of disallowance of exemption favourable to the revenue does not impact our above submission that there is violation of legal canons and judicial discipline.
The imputations in the Notice in reference appear to have been heavily influenced by the contents of the Order dated 05.03.2019 of the CIT (A) which has been reproduced verbatim in the impugned Notice, the relevant last few lines of which are again reproduced verbatim below for ready reference: "It needs to be remembered that trusts wearing the badge of altruism deal in public money and such public bodies are not meant to be bled in order to favour Us functionaries/office bearers. In that light and also infractions pointed earlier including the issue of anonymous donations (unsubstantiated donations) the AO is right in denying the exemption claimed by the assessee and taxing the surplus amount. The assessee has clearly deviated not only from its objects by opening up its conduits for bogus, unsubstantiated and anonymous donations but also acted to benefit its Chairman directly. The plea that during the year only 2 lakhs had been added to the imprest account does A.Y.2025-26 21 not take away anything from the severe visitation of denial of exemption account of benefitting any person covered u/s 13 of the Act" Our Position: Firstly, the aforesaid Order of the CIT (A) no longer exists being subsumed by the later Orders of the ITAT referred earlier which has nullified every contentious issue and aspect of the said Order of the CIT (A) including the sweeping, pompous, moralizing, sanctimonious and verbose generic statements of the CIT (A) and limited the matter to the small one of disallowing the imprest payment for exemption and ordering the assessment and taxation of the same. Therefore, any reference to the said Order flies in the face of and is in direct violation of the ITAT's present position in the matter and therefore not in harmony with judicial discipline and the binding principle of per incuriam. No information contained in an Order of the CIT (A) can therefore be employed to influence the position in the matter including the stated intent to cancel the registration of this assessee u/s 12AB(4) as mentioned in your Notice. The "specified violations" defined in the body of Section 12AB(4) under the header "Explanation" contain only one type [viz. Explanation (a) which states "where any income derived from property held under trust, wholly or in part for charitable or religious purposes, has been applied, other than for the objects of the trust or institution" that can be held to be invokable on the applicable facts in the present case, and which is the type that is being tried to be invoked since the paragraphs that follow in your Notice not specify which type of "specified violation" is attracted in this case. All the other kinds from Explanation (b) to (g) have no relevance to the facts of this case. On the above kind of specific violation which has been invoked , the facts of the case clearly show that although the moneys were imprest payments made to the Chairman, Sh. Anshu Kataria, he had done so and had subsequently used the said amounts for the purposes of the assessee Society, also because there is nothing on record to show that the said amount was used for any purpose unaligned with the stated charitable objects of the assessee. Rather, the Chairman has given large interest free loan to the trust. The apparent violation is of a technical nature (whether a loan repayment or an advance or an imprest payment being recycled) and should have been accepted by the Department from a substantive viewpoint in the face of the explanation offered. The ITAT was constrained to disallow the imprest payment only on account of the ambiguity in the explanation of the assessee in showing the truthful position that the final destination was the accounts of the assessee itself and not because there was any determination by the AO or anyone else that the said money had been spent on some purpose unrelated to the A.Y.2025-26 22 charitable objects of the assessee. It is a matter of record that the imprest account of the Chairman stands squared off in the immediately succeeding year i.e AY 2016-17. Copy of the ledger account is attached herewith. The imprest expense argument is what has been accepted by the ITAT and the earlier positions taken by the assessee on the impugned amount being of the nature of an advance and later, the repayments of loans are therefore not of any material consequence. It is improper and unfair and outside of and antithetical to judicial discipline that your Notice in reference makes these irrelevant observations. Further, the statement in the Notice that the "Trust funds were being misused to the advantage of Trustees /Chairman and on account of receipts being anonymous donations masqueraded as receipts from students" is once again likely derived from the Assessment Order that now stands subsumed and obliterated by the later Orders of the ITAT. We are therefore only concerned about the grey and recondite zone of inadequately explained imprest payments forming the basis of the disallowance ordered by the ITAT. This matter can be clearly understood to have ended there with the findings of the ITAT and cannot be held against this assessee in manners that seek to impute that wholesale transgressions of the ted charitable objects of the assessee have taken place in manners warranting cancellation of registration. The Notice in reference seeks to end as under: "In the present case, the assessee society had given undue benefit to specified person u/s 13(3) of the Act which resulted in disallowance of exemption u/s 11 due to operation of section 13(l)(c) of the 1. T. Act and had also violated the provisions of section 13(l)(d) of the I. T. Act, 1961 by giving advance to the Chairman and not investing the said funds in modes specified it's 11(5) of the IT. Act, 1961. Further, the assessee has also not be able to explain the source of anonymous donation received"
Our Position: On the undue benefit given to the specified person u/s 13(3) warranting actions u/s 13(l)(c) and 13(l)(d) of the Act, the arguments already made that the findings of the AO in the Assessment Order have no locus standi at this time since the Assessment Order itself stands subsumed and rendered non-existent by the Order of the ITAT. Therefore, these findings of alleged undue benefit have already been decided upon by the ITAT and cannot be invoked at this stage in manners adversarial to the assessee and particularly with the intent of cancelling the registration of the assessee u/s 12AB of the Act. A.Y.2025-26 23 The statement above that and 13(l)(d) of the Act was violated because the funds were not invested in modes sanctioned u/s 11(5) of the Act is objected to as a driver of any intent or attempt to cancel registration u/s 12AB for the same reasons as above.
The statement about the assessee not being able to "explain the source of anonymous donation received" is irrelevant for the same reasons as above since only the matter of ambiguously spent imprest amounts has been considered by the ITAT as worthy of examination and disallowance (consequent to which the impugned matter ends) and any additional matter including that of alleged anonymous donations and their lack of explanation have been long buried alongside the assessment order.
Therefore and consequent to all the above, in our considered view, none of the 3 preconditions in Section 12AB(4) of the Act warranting any action towards cancellation of registration apply in this case. Neither has any "specified violation" shown to have been taken place nor has any reference received from the Risk Management System (RMS). In respect of the question of a reference received from the Assessing Officer being a matter of consideration, it can be readily and conclusively seen that there has been no such reference cited anywhere in the Notice. A "reference" in context would take the form of a direct readily and properly identified letter from an Assessing Officer citing and/or highlighting violations of the statute that would warrant a cancellation of registration. You in the Notice make and identify no such reference which (in) action is in any much less serious violation of the relevant per-condition stated in Section 12AB(4). There has just been extracts cited and quoted selectively from the Assessment Order and order od CIT(A), certain pre-existent facts that do not have legal existence now, since the Assessment Order and order of CIT(A) in question has itself ceased to exist as having been superseded and nullified by the ITAT's Orders.
In our view therefore, there is no case that has been made out at this time for any adversarial action against the assessee under Section 12AB(4) of the Act. Since registration u/s 12AB(l)(b) has been granted by a competent authority being a CIT, this would mean that all of the objects of the said assessee have been accepted by the said CIT on the grant of such registration to be charitable within the meaning of Section 2(15) of the Act. Without due reason as well as an unshakeable factual matrix - or at least one that is predominantly and demonstratively determined as evidencing the violating of the duly applicable and established law - , no adverse action including the cancellation A.Y.2025-26 24 of registration u/s 12AB(4) of the Act can be taken. The same also applies for any action u/s 12AB(5) of the Act. The only reference that this assessee is able to infer is the alert received from a certain CIT (DR) of the Department. This cannot be termed in any manner as a reference of a specified violation within the meaning the Explanation to Section 12AB of the Act. The inference that can be readily made therefore, in the absence of any satisfactorily stated meeting of the 3 pre-conditions prescribed in Section 12AB(4) in your Notice, is that CIT DR has passed on this small nugget of fact of the disallowance of certain imprest payments made by the society to the Chairman, Shri Anshu Kataria to your office for necessary adversarial action. There can be no other reference or explanation for the action being sought to be taken. The full set of facts, arguments and legal positions concerning the above matter and the nature and documented manifestations and approach towards a law- abiding assessee being a society that is carrying out activities wholly and solely towards charitable purposes, towards cancellations of registration u/s 12AA(4) of the Act including the procedure to be adopted towards such cancellation and towards initiating adversarial action against the assessee for purposes is unwarranted. One may also take que from the Memorandum to Finance Act, 2022 which specifically provides that denying the entire exemption to the trust, for a small amount of income applied in violation creates difficulties to the trusts and institutions. Therefore, even though the beneficial amendment to Section 13(l)(c)/(d) is to come into effect only from 1 April 2023, there is a view that denial of the entire exemption for one violation may be too harsh on the trusts which are run for charitable/religious purposes for AYs prior to AY 2023-24. 4.2 Bringing consistency in the provisions relating to payment to specified person i) Under section 13 of the Act, trusts or institutions under the second regime are required not to pass on any unreasonable benefit to the trustee or any other specified person. It is proposed to insert twenty first proviso in clause (23C) of section 10 of the Act to provide that where the income or part of income or property of any trust or institution under the first regime, has been applied directly or indirectly for the benefit of any person referred to in sub-section (3) of section 13, such income or part of income or property shall be deemed to be the income of such person of the previous year in which it is so applied. The provisions of sub-section (2), (4) and (6) of section 13 of the Act shall also apply to trust or institution under the first regime, ii) This amendment will take effect from 1st April, 2023 and will accordingly apply in relation to the assessment year 2023-24 and subsequent assessment years. A.Y.2025-26 25 [Clause 4] Summary: The following summarizing reason-headers are therefore made challenging the validity of the said Notice issued u/s 12AB(4): Matters such as disallowances that need to be dealt with through assessments can not be directly imported to the separate matter of cancellation of registration u/s 12AB. This is supported by several case laws cited supra. The predominance principle enshrined by the Hon'ble Courts demonstrate that: The larger cause and canvas of charity must be captured in the form of what the Statement of Objects principally says. If the overwhelming majority of the Objects showcase charitable purposes, then the inadvertent or incidental action like in the instant case of imprest account of the Chairman which ultimately was squared off years back does not militate against the registration today after a gap of almost ten years. The presences of small (disproportionate) sundry expenses that may be for purposes other than charity or of receipts that are left unexplained (which is not so in the instant casedo not amount to automatic questions and negative conclusions regarding the overall charitable purpose and activities of the tax exempt entity. If anything, these can be handled through the instrument of assessment. In this case, the amount disallowed is of an ambiguous nature owing to the explanation offered alleged to being hazy but is not conclusively held as being for any activity contravening or outside of charity. No proper facts have been determined and placed on record that shows that the 3 preconditions of Explanation 12AB(4) have been met. Due to the hazy grey-area nature of the amount of imprest payments being recycled by the Chairman Sh. Anshu Kataria into the revenues for the purposes of the trust, no conclusion can be drawn that these amounts have been siphoned off to purposes and realms outside the assessee's accounts and ecosystem. The so called "payments" to the Chairman made in a manner as alleged purportedly contravenes the conditions imposed by Section 13 affords only a means to point out a technical lapse on the part of the assessee. No substantive sense that funds were employed for non- charitable purposes outside of the Statement of Objects can be inferred or concluded. lt is a matter of record that the imprest account of the Chairman stands squared off in the immediately succeeding year i.e AY 2016-17. Copy of the ledger account is attached at Page. A.Y.2025-26 26 All of the Orders of the AO and the CIT(A) on the matter of assessment that have been referenced do not exist today as well as on the date of issue of the Notice as these stand obliterated by the orders of the ITAT. In consequence, any references to them in the Notice are invalid and do not come within the definitional ambit and construct of Section 12AB(4). In the light of the above submissions, it is humbly prayed that the SCN so issued be withdrawn and the proceedings initiated be dropped. (Tejmohan Singh) Advocate Encl: Pages 1-55.
With the assistance of the ld. Representative, we have gone through the record carefully. In our opinion, the impugned order is not sustainable because the very foundation of facts considered by the ld. CIT (E) arise from the impugned assessment order in assessment year 2013-14 to 2015-16. The view point of the AO travelled to the second Appellate Authority for consideration and his reasoning did not meet the approval of the second Appellate Authority. In other words, ITAT did not accepted the version of the AO and held that assessee is entitled for the benefit of Section 11 and 12. Same aspect has been recorded by the ld. CIT (E). It amounts to gross judicial indiscipline at the end of an administrative authority who was exercising the quasi judicial powers for a particular way of considering the facts and A.Y.2025-26 27 circumstances of receipt of alleged donations which was not upheld judiciously by the higher appellate authority. How that can be weighed in the mind of quasi judicial authority to re-appreciate all those facts and circumstances and then to held that assessee is violating its objectives. If this type of reasonings are being allowed to stand, then there will not be any finality of the litigation.
5.1 The other aspect is that ld. CIT (E) has failed to construe the meaning and scope of Section 13(1)(c) and 13(1)(d) read with Section 13(3) of the Income Tax Act. For the facility of reference, we take note of the relevant clauses of these provisions, which read as under : Section 11 not to apply in certain cases. 13. (1) Nothing contained in section 11 or section 12] shall operate so as to exclude from the total income of the previous year of the person in receipt thereof- x x x (c) in the case of a trust for charitable or religious purposes or a charitable or religious institution, any income thereof- (i) if such trust or institution has been created or established after the commencement of this Act and under the terms of the trust or the rules governing the institution, any part of such income enures, or (ii) if any part of such income or any property of the trust or the institution (whenever created or established) is during the previous year used or applied, directly or indirectly for the benefit of any person referred to in sub-section (3): [such part of income as referred to in sub-clauses (i) and (ii)] Provided that in the case of a trust or institution created or established before the commencement of this Act, the provisions of sub-clause (ii) shall not apply to any use or application, whether directly or indirectly, of any part of such income or A.Y.2025-26 28 any property of the trust or institution for the benefit of any person referred to in sub-section (3), if such use or application is by way of compliance with a mandatory term of the trust or a mandatory rule governing the institution: Provided further that in the case of a trust for religious purposes or a religious institution (whenever created or established) or a trust for charitable purposes or a charitable institution created or established before the commencement of this Act, the provisions of sub-clause (ii) shall not apply to any use or application, whether directly or indirectly, of any part of such income or any property of the trust or institution for the benefit of any person referred to in sub-section (3) in so far as such use or application relates to any period before the 1st day of June, 1970; x x x (2)Without prejudice to the generality of the provisions of clause (c)[ and clause (d)] of sub-section (1), the income or the property of the trust or institution or any part of such income or property shall, for the purposes of that clause, be deemed to have been used or applied for the benefit of a person referred to in sub-section (3),- x x x (c) if any amount is paid by way of salary, allowance or otherwise during the previous year to any person referred to in sub-section (3) out of the resources of the trust or institution for services rendered by that person to such trust or institution and the amount so paid is in excess of what may be reasonably paid for such services; x x (3) The persons referred to in clause (c) of sub-section (1) and sub-section (2) are the following, namely:- (a) the author of the trust or the founder of the institution; (b)[ any person who has made a substantial contribution to the trust or institution, [that is to say, any person whose total contribution up to the end of the relevant previous year exceeds [fifty ]thousand rupees]; (c) where such author, founder or person is a Hindu undivided family, a member of the family; (cc) any trustee of the trust or manager (by whatever name called) of the institution;] (d) any relative of any such author, founder, person, [member, trustee or manager] as aforesaid; (e) any concern in which any of the persons referred to in clauses (a), (b), (c), [(cc)] and (d) has a substantial interest. x x x A.Y.2025-26 29
A perusal of these provisions would indicate that if any undue benefit is being extended to a person who falls within the ambit of sub-clause (3) of Section 13 i.e. the Author of the Trust and any relative of such author and other concerned person under clauses (a) to (e) of Section 13(3), then that amount would not qualify for availing the exemption u/s 11/11(1) of the Income Tax Act. In other words, that would be excluded from that benefit and brought to taxation. The ITAT has also recorded this finding while dealing with the alleged imprest deposit retained by Shri Anshu Kataria, Chairman of the assessee society. A reference can be made to the finding of the Tribunal recorded in paragraph No.14 of its order in assessment year 2013-14 (extracted supra). These clauses deal with a situation where services of related persons are being availed by the assessee and consideration was paid over and above the market rate, then that extra benefit granted to the persons because of his association with the Management or the Trustee would be excluded from the benefit of Section 11. The ITAT has upheld that addition of Rs.11,33,000/- and brought to taxation in assessment year 2013-14 and similar amount, if any, happened in subsequent A.Y.2025-26 30 years. It would not be construed as if assessee will not be entitled to the benefit of Section 11 at all and its registration deserves to be cancelled. This is totally erroneous approach at the end of ld. CIT (E) while considering the facts and circumstances of this case. We also find that ld.CIT (Appeals) has been taking the benefit of Section 12AB sub-clause (4) alongwith its Explanation but the circumstances enumerated in this clause for authorizing the Competent Authority to withdraw the registration has been brought on the Statute Book by Finance Act 2022, how it can be applied for cancelling the registration in assessment year from 2013-14. It cannot be applied with retrospective effect. The law applicable on that point of time ought to have been looked into. All these factors which are being discussed by the ld. CIT (E) are very old. These facts were available even when registration was granted to the assessee u/s 12A(1)(ac)(iii) on 18.07.2023. even the appeals were pending before the Tribunal, then how the facts and circumstances have been changed all of a sudden, we fail to appreciate. If some new facts have come into the possession of the Revenue, namely, ld. CIT (E) after grant of registration u/s 12A(1)(ac)(iii) on 18.07.2023, one A.Y.2025-26 31 could appreciate, but the facts which were already available and ought to be construed as considered, cannot be re- appreciated in this manner. The facts which are being considered by the ld. AO while determining the taxable income have not been approved by the ITAT in its orders and therefore, after the decision of the ITAT, ld. CIT (E) cannot use those very facts for branding the assessee as non- charitable institution. Therefore, we allow this appeal and quash the impugned order. We direct the Revenue to restore the registration u/s 12A(1)(ac)(iii) of the Act in the same terms and conditions as had been granted on 18.07.2023 and also dated 31.07.2006 which has been cancelled from A.Y. 2013- 14 to 2015-16. In other words, registration granted u/s 12AA on 31.07.2006 stands restored upto the date of 01.04.2021 when new scheme of registration has been introduced.
In the result, appeal is allowed.