LAST HOUR MINISTRY,THIRUVALLA vs. ACIT(EXEMPTION), KOCHI

3 ITA No. 12-15/Coch/2021 Last Hour Ministry & Ors. 5. Brief facts of the case are that the assessee was registered u/s. 12A of the Income Tax Act, 1961 (for short, 'the Act') vide order dated 21/02/2004 duly registered under the Trust Act. The assessee trust was formed with the object of rendering relief to the poor in the form of housing project, education to poor children, community development etc. The assessee filed its returns of income after claiming exemption u/s. 11 of the Act and the same was allowed by the AO. The search and seizure operations u/s. 132 of the Act were conducted on 05/11/2020 in the premises of appellant-society. It was stated that when the search and seizure proceedings were on, learned CIT(E) had called upon assessee to explain as to why registration u/s. 12A of the Act should not be cancelled. In response to the show-cause notice, the assessee-trust submitted that information called for could not be furnished as the copies of the seized material could only be furnished after the search and seizure proceedings were completed. However, learned CIT(E) had proceeded with cancellation of registration granted earlier vide order dated 01/01/2021 passed u/s. 12AA(3) of the Act. The gist of reasons given by the learned CIT(E) for cancellation of registration are as under:-

“a) The Trusts/Entities constituting the Believers Church Group are found to be not independent of one another b) The Returns of Income filed by the Trusts/Entities are Incorrect and Incomplete

4 ITA No. 12-15/Coch/2021 Last Hour Ministry & Ors. c) Expenses out of corpus fund have been claimed towards application d) Amounts set apart for specific purposes are found to have been indiscriminately and improperly used e) Expenditures incurred have been determined to be not towards the objects of the trust f) Purchases of other Trusts possessing immovable properties g) Inflation of Expenses h) Misuse of Trust Properties i) Violations of the Foreign Contribution (Regulation) Act, 2010(FCRA) in obtaining Funds j) Claims of Advances as Expenses and application.”

5 ITA No. 12-15/Coch/2021 Last Hour Ministry & Ors. its order dated 03/03/2025 set aside the matter to the file of this Tribunal by holding as under:-

“6. On a consideration of the rival submissions and without going into the merits of the issue that was to be considered by the Appellate Tribunal, namely, the legality of the order passed by the Principal Commissioner cancelling the registration granted to the respondent-assessee under Section 12A of the Income Tax Act, we find that the Appellate Tribunal in the impugned order, proceeded on a mistaken assumption with regard to the order passed by the Principal Commissioner. The Appellate Tribunal erroneously found that the powers of the Principal Commissioner under Section 12AA of the Income Tax Act could not be exercised without a prior determination by the Assessing Authority as to whether or not the assessee had occasioned a breach of the statutory provisions or conducted themselves in violation of the objects of the Trust concerned. In our view, the provisions of Section 12AA independently empower the Principal Commissioner to consider whether or not the circumstances mentioned in Section 12AA(3) and 12AA(4) of the Income Tax Act exist as a pre-condition for directing a cancellation of the registration that was granted to the Trust under Section 12A of the Income Tax Act. The statutory provisions do not require the Principal Commissioner to await a decision of the Assessing Authority concerned before passing an order cancelling the registration granted to an assessee under Section 12A of the Income Tax Act. The assumption by the Appellate Tribunal that the determination of relevant facts by an Assessing Officer was a pre-condition to the Principal Commissioner exercising his powers under Section 12AA, or that the exercise of power by the Principal Commissioner under Section 12AA would preclude an independent assessment by the Assessing Officer, as he would be bound by the determination by the Principal Commissioner under Section 12AA, is in our view flawed since the statutory provisions do not admit of any such interpretation. In the result, we set aside the impugned order of the Appellate Tribunal and remand these appeals back to the

6 ITA No. 12-15/Coch/2021 Last Hour Ministry & Ors. Appellate Tribunal for a fresh consideration on the merits of the appeals preferred by the assessee against the order of the Principal Commissioner. We make it clear that in the hearing of the appeals before the Appellate Tribunal, it would be open to the respondent-assessee to raise all contentions, and also bring to the notice of the Appellate Tribunal the subsequent developments in the case, such as the approach made by the assessee to settle the matter through the Settlement Commission. The Appellate Tribunal shall endeavour to pass fresh orders in the matter, consequent to the remand from this Court, within an outer time limit of six months from the date of receipt of a copy of this judgment. These I.T. Appeals are therefore allowed by way of remand by answering the questions of law raised in favour of the department and against the respondent-assessee.” 8. That is how the matters had arisen before us in the present proceedings.

“a) Allegation: BEC is part of a non-independent group All entities under the Believers Church umbrella, including BEC, are independent charitable trusts registered under Section 12A of the Act. Mere sharing of trustees, premises, or administrative resources does not compromise their legal independence. The ITAT in Kunhitharuvai Memorial Charitable Trust vs CIT held that family ties among trustees or shared ideology does not imply loss

7 ITA No. 12-15/Coch/2021 Last Hour Ministry & Ors. of independence or violation of statutory provisions. Copy of the Order is enclosed at page 19 of the paperbook. b) Allegation: Income tax returns are incorrect/incomplete Returns for AYs 2013-14 to 2019-20 were accepted without making any adjustments u/s 143(1) of the Act. Scrutiny assessments under Section 143(3) for AYs 2014-15, 2015-16, and 2017-18 found no issues. Discrepancies in corpus/non-corpus classification stem from unclear form definitions and do not affect the genuineness or correctness of the income computation. Copy of the Assessment Orders are enclosed at pages 53 to 58 of the paperbook. c) Allegation: Expenses from corpus funds claimed as application Corpus donations were specifically excluded from income computation and no such expense has been treated as application. CIT(E) has failed to cite even one example. This allegation is factually baseless and legally irrelevant. The copy of the computation of income and audited accounts are enclosed at pages 75 to 193 of the paperbook. d) Allegation: Improper use of accumulated funds under Section 11(2) The appellant trusts had complied with all three conditions laid down under Section 11(2) of the Act: 1. Form 10 was filed timely specifying the purpose; 2. Funds were invested as per Section 11(5); 3. Accumulated amounts were utilized within five years strictly for declared purposes. Hence, the allegation is false and ought not be upheld. e) Allegation: Capital expenditure not aligned with objectives Capital expenditure on hospitals, schools, and churches directly furthers BEC's religious and charitable purposes. This has been verified in multiple scrutiny assessments where exemptions were

8 ITA No. 12-15/Coch/2021 Last Hour Ministry & Ors. duly allowed. Such investments are not only permitted but essential for effective functioning. f) Allegation: Donations to other trusts amount to indirect acquisitions Donations were made to other 12AA-registered entities with similar educational objectives, which is permissible under Section 11 of the Act. These donations were disclosed in returns and accepted during assessments. This cannot form a legal basis for cancellation. g) Allegation: Inflation of expenses No evidence of inflated expenses has been provided. The only reference is to contributions to Provident Fund, which are legitimate payroll expenses. Scrutiny assessments have accepted all expenses. Even assuming a discrepancy, this would be a matter for assessment-not for cancelling registration. h) Allegation: Misuse of trust properties by trustees No specific instance has been cited apart from a general observation. In this regard, it is submitted that the observation made by the CIT(A) that the 'most of the Trustees are using Believers Church group properties as their residences free of cost' had not considered the base factor that the Trustees, acting in a fiduciary capacity not drawing any salary, were allotted residential quarters therein to enable rendering of services to the appellant trusts that is an accepted practice in similar such institutions which does not violate any applicable legal provisions. It is reiterated that there has been no benefit extended to any related party under Section 13(3) of the Act. Multiple scrutiny assessments have confirmed no such violations. The statement by CIT(E) is general, unsupported and speculative. i) Allegation: FCRA violations

9 ITA No. 12-15/Coch/2021 Last Hour Ministry & Ors. The appellant trusts had neither received foreign contributions from newly floated trusts nor violated FCRA provisions. It is reiterated that, as a matter of fact, the Appellant Trusts had not floated any of the trusts mentioned by the CIT(E), had not had any transactions with them and had never received any donations from them out of FCRA receipts. M/s Ayana Charitable Trust, a registered 12AA entity, made lawful donations which were applied for charitable capital expenditure. The High Court of Karnataka and the Supreme Court in Maria Social Service Society ruled that inter-trust transfers of FCRA donations are not grounds for cancellation. Copy of the judgment is enclosed at pages 317 to 321 of the Paperbook.

j) Allegation: Advances wrongly treated as application All advances were made in furtherance of trust objectives. The issue raised by CIT(E) regarding large advances at year-end is not uncommon and has been accepted in earlier scrutiny assessments. Moreover, the trust also utilized Section 11(2) for accumulation. Disclosures made and later retracted were related to assessment issues, not registration. This issue is irrelevant to Section 12AA(3)/(4) proceedings. Copy of the letters are enclosed at page 322 to 326 of the Paperbook. 7. Reliance is placed on the following case-laws in support of the appellant's contentions (copies of the case-laws submitted as a paperbook): ➤ Hon'ble Calcutta High Court in the case of Commissioner of Income Tax (Exemption) vs. Sanskriti Sagar in [2022] 140 taxmann.com 233 (Calcutta) wherein it was held that where donation received by assessee-society, registered under section 12AA, from an organisation was applied for achievement of objects of assessee and Commissioner (Exemptions) had not brought on record any evidence showing that activities of assessee were not genuine or they were not carried out in accordance with objects of society, Commissioner (Exemption) could not cancel registration of

10 ITA No. 12-15/Coch/2021 Last Hour Ministry & Ors. assessee under section 12AA on mere ground that such donations was received from an organisation found to be involved in providing accommodation entries. ➤ Hon'ble Calcutta High Court in the case of Commissioner of Income Tax (Exemption) vs. Mayapur Dham Pilgrim and Visitors Trust in [2022] 138 taxmann.com 502 (Calcutta) wherein it was held that where CIT(E) had neither doubted genuineness of activities of assessee trust nor there was any allegations that activities were not in accordance with objects of trust, CIT(E) could not cancel registration of trust under section 12AA for reason that it had received donations from an organization who was found to be involved in providing accommodation entries. ➤ Hon'ble Karnataka High Court in the case of Director of Income Tax (Exemption) vs. Karnataka Badminton Association in [2017] 80 taxmann.com 138 (Karnataka) wherein it was held that a registration granted under section 12A can be cancelled only under two circumstances, i.e., (i) if activities of such trust or institution are not genuine, and (ii) activities of trust or institution are not being carried out in accordance with object of trust or institution; fact that receipts from commercial activities are more compared to overall receipts of charitable organisation cannot lead to conclusion that activities of charitable organisation are not genuine. ➤ Hon'ble Madras High Court in the case of Commissioner of Income Tax -1, Madurai vs. Sarvodaya Elakkia Pannai in [2012] 20 taxmann.com 546 (Mad.) wherein it was held that where Assessee-trust was formed with object of publishing and selling Sarvodaya Literature as also Gandhian and Sarvodaya ideologies and Commissioner granted registration to assessee-trust under section 12A. Subsequently, Commissioner passed an order under section 12AA(3) cancelling registration on ground that assessee was engaged in purchase and sale of books which was a commercial activity. On appeal, Tribunal set aside order of

11 ITA No. 12-15/Coch/2021 Last Hour Ministry & Ors. Commissioner holding that none of conditions under section 12AA(3) were violated and therefore, satisfaction which was arrived at by Commissioner was not justified. ➤ Hon'ble ITAT, Jodhpur Bench in the case of Jodhpur Medical Research Centre vs. Commissioner of Income Tax (Exemption) in [2024] 166 taxmann.com 165 (Jodhpur - Trib.) wherein it was held that where Commissioner cancelled registration of assessee-trust as granted under section 12A(a) on grounds that activities of trust were not genuine and property and income of trust had been used for personal benefits of trustees, since activities of trust were charitable in nature and benefit that trustees were getting could not be a sole reason to cancel registration of trust, cancellation of registration of assessee to be quashed. ➤ Hon'ble ITAT, Mumbai Bench A in the case of Lilavati Kirtilal Mehta Medical Trust vs. Commissioner of Income Tax (Central) 1, Mumbai in [2019] 108 taxmann.com 272 (Mumbai - Trib.) wherein it was held that violation of provisions of section 13 empowers an assessing authority to forfeit exemptions permissibleunder sections 11 and 12 but such a violation cannot form a ground to cancel registration by passing an order under section 12AA(3). ➤ Hon'ble ITAT, Hyderabad in the case of Assistant Commissioner of Income Tax vs. B. Srinivasa Rao in [2015] 53 taxmann.com 49 (Hyderabad - Trib.) wherein it was held that where assessee-society was imparting medical education in accordance with object clause, registration granted to it under section 12AA could not be cancelled on basis of unsubstantiated allegation that it was collecting fee over and above fee prescribed by Government. 8. Further, it is submitted that all the appellant Trusts had been granted registration u/s 12A(1)(ac) of the Act under the new regime and had obtained Unique Identification Number. Copies of the same had been submitted to Your Authority for Your Authority's kind consideration. The very fact that the appellant

12 ITA No. 12-15/Coch/2021 Last Hour Ministry & Ors. Trusts had been granted registration under the new regime fortifies their contention they are rightly eligible for the said registration u/s 12A of the Act. 9. The kind attention of Your Authority is also drawn to the haste with which the impugned proceedings were completed in violation of principles of natural justice, without providing the appellant Trusts with sufficient opportunity of being heard as clearly brought out by the 'Dates & events' chart filed before Your Authority - ➤ the search and seizure action u/s 132 of the Act having been conducted on 05.11.2020 wherein records were seized and Prohibitory Orders were placed; ➤ show-cause notices for cancellation of registration u/s 12A of the Act was issued on 03.12.2020 / 04.12.2020 calling for responses by 21.12.2020 for the various discrepancies cited therein and ➤ reply to show-cause notice was filed on 15.12.2020, seeking time, in the absence of access to relevant records that were seized pursuant to search proceedings, due to Prohibitory Orders placed thereon that was in force at that point in time: ➤ while the impugned Orders were passed by the Learned CIT(E) on 31.12.2020/01.01.2021 cancelling the registration granted u/s 12A of the Act -all within a short span of about two months following the search proceedings, without appreciating the fact that the due explanation to the discrepancies pointed out could have been appropriately furnished with the relevant supporting documents, provided the appellant trusts were provided the sufficient time and access to the requisite documents held by the department post search.” 10. On the other hand, learned CIT-DR vehemently opposed the above submissions of the learned Authorized Representative and

13 ITA No. 12-15/Coch/2021 Last Hour Ministry & Ors. submits that the order passed by the ld. CIT(E) is a speaking and reasoned one and requires no interference by this Tribunal.

“12AA. [Procedure for registration.] (1) x x x x x (2) x x x x x (3) Where a trust or an institution has been granted registration under clause (b) of sub-section (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 Principal Commissioner or 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. (4) Without prejudice to the provisions of sub-section (3), where a trust or an institution has been granted registration under clause (b) of sub-section (1) or has obtained registration at any time under section

14 ITA No. 12-15/Coch/2021 Last Hour Ministry & Ors. 12A [as it stood before its amendment by the Finance (No. 2) Act, 1996 (33 of 1996)] and subsequently it is noticed that (a) [the activities of the trust or the institution are being carried out in a manner that the provisions of sections 11 and 12 do not apply to exclude either whole or any part of the income of such trust or institution due to operation of sub-section (1) of section 13; or (b) the trust or institution has not complied with the requirement of any other law, as referred to in sub-clause (ii) of clause (a) of sub- section (1), and the order, direction or decree, by whatever name called, holding that such non-compliance has occurred, has either not been disputed or has attained finality, then, the Principal Commissioner or the Commissioner may, by an order in writing, cancel the registration of such trust or institution:] Provided that the registration shall not be cancelled under this sub- section, if the trust or institution proves that there was a reasonable cause for the activities to be carried out in the said manner. (5) Nothing contained in this section shall apply on or after the 01stday of April, 2021.]” 12. The provisions of section 12AA(3) were inserted by Finance Act, 2004 w.e.f. 01/10/2004 enabling the Commissioner of Income Tax to cancel the registration granted earlier to the trust or institution. The said provisions were further amended by Finance Act, 2010 to enable the Commissioner of Income Tax to cancel the registration granted earlier u/s 12A of the Act and the provisions of section 12AA(4) were inserted by Finance (No.2) Act, 2014 w.e.f. 01/10/2014 expanding the scope of cancellation of registration.

15 ITA No. 12-15/Coch/2021 Last Hour Ministry & Ors. genuine; (ii) activities of trust or institution are not being carried out in accordance with object of trust or institution; and (iii) the trust or institution has not complied with the requirements of any other law, as referred to in section 12(1)(a)(ii), and the order, direction or decree, by whatever name, called, holding that such non-compliance has occurred, has either not been disputed or has attained finality. In order to invoke the power u/s 12AA(3) of the Act, it is incumbent on the part of the learned CIT(E)to record a finding of fact as to how the above three conditions stand satisfied. 14. On careful perusal of the impugned order, it would primarily reveal that the learned CIT(E) merely recorded the findings/conclusions without referring to any material/evidence and discussions on the material so found during the course of search and seizure proceedings. Therefore, we have no hesitation to hold that the conclusions reached by the learned CIT(E) are on ipse dixit findings. Moreover, when the appellant-trust was called upon to explain as to why the registration granted earlier cannot be cancelled, the appellant trust was on record to say that reply could not be furnished for the reason that the search proceedings were on. Copies of the seized material could be furnished unless and until the search proceedings were concluded. Without waiting for the reply of the assessee, the learned CIT(E) had proceeded with cancellation of registration based on the conclusions reached by him. Thus, the

16 ITA No. 12-15/Coch/2021 Last Hour Ministry & Ors. appellant-trust had no reasonable opportunity of meeting the case made against it. 15. However, we proceed to examine the validity of the reasoning of the learned CIT(E) for cancellation of registration vide impugned order. The reasons of the learned CIT(E) that:

(i) The Trusts/Entities constituting the Believers Church Group are found to be not independent of one another

We find merit in the submission made on behalf of the appellant-trust that mere fact that there are common trustees, premises or administrative resources does not compromise their legal independence as held by the Cochin Bench of the Tribunal and affirmed by Hon’ble High Court of Kerala in ITA No. 18 of 2020 in the case of PCIT vs. Kunhitharuvai Memorial Charitable Trust, dt. 09/07/2024.

(ii) The Returns of Income filed by the Trusts/Entities are incorrect and incomplete.

These are the issues to be examined by the Assessing Authority during the course of assessment proceedings. The issue of registration and assessment are distinct and separate. The issue of assessment cannot be gone into at the time of grant of registration or for rejecting the registration. On that ground alone, registration cannot be cancelled as had been held by the Hon'ble Karnataka High

17 ITA No. 12-15/Coch/2021 Last Hour Ministry & Ors. Court in DIT (Exemption) v. Karnataka Badminton Association [2015] 378 ITR 700 (Kar.); DIT vs. Meenakshi Amma Endowment Trust (2013) 354 ITR 219 (Kar.); DIT vs. Foundation of Ophthalmic Research Education Centre (2013) 355 ITR 361 (Del.); CIT vs. Institute Management Committee of Industrial Training Institute (2017) 393 ITR 161, 163 (Bom.) and PCIT vs. Shri Nathji Goverdhan Nathji Charitable Trust (2020) 423 ITR 69, 74 (Cal.)

(iii) Expenses out of corpus fund have been claimed towards application

(iv) Amounts set apart for specific purposes are found to have been indiscriminately and improperly used.

(v) Expenditures incurred have been determined to be not towards the objects of the trust.

(vi) Inflation of expenses; and,

(vii) Claims of advances as expenses and application.

It is settled position of law that the corpus donation does not form part of income of the trust. The allegation made by learned CIT(E) that the expenses out of corpus funds are shown as application of income, is not proved by bringing on record the material evidence. In any event, these are the issues to be examined during the course of assessment proceedings. As stated by us supra,

18 ITA No. 12-15/Coch/2021 Last Hour Ministry & Ors. an issue of assessment cannot form the basis for rejection or cancellation of registration granted earlier.

(viii) Purchases of other Trusts possessing immovable properties.

The learned CIT(E) reached conclusion based on the fact that the assessee trust made investment in immovable properties which yielded the income. There is no prohibition under law on investment in immovable property by the charitable trust, so long as the immovable properties are held under the trusts, the income earned from such immovable property were utilized for the purpose of achieving the objects of the trust for which it was found.

(ix) Misuse of trust property.

It is alleged that the management trustees are staying in the trust property. Admittedly, managing trustees in-charge of all the affairs of the trust are residing in the premises of the appellant-trust and therefore, use of properties by the such persons cannot be treated as personal use and there is no violation of provisions of section 13(1)(c) of the Act.

(x) Violation of foreign contribution (Regulation) Act, 2010 (FCRA) in obtaining funds.

The contention of the appellant trust that it never violated the provisions of FCRA Act remains uncontroverted nor the learned

19 ITA No. 12-15/Coch/2021 Last Hour Ministry & Ors. CIT(E) referred to any order/material/decree which attained finality holding the appellant guilty of violating the provisions of FCRA Act. In any event, the Hon’ble Karnataka High Court in the case of CIT(E) vs. Maria Social Service Society 408 ITR 462 held that mere fact that a charitable trust received funds from abroad in accordance with FCRA Act and transferring money to other charitable trust does not warrant cancellation. 16. What follows from the above discussions that the reasons assigned by the learned CIT(E) for cancellation of registration have no legs to standin the eyes of law. 17. In normal course, we would have remitted the matter back to the file of learned CIT(E) for fresh consideration. However, since the reasons assigned by the learned CIT(E) for cancellation of registration are held to be illegal, an order of remand cannot be made to improve the reasoning or to patch up the weak points in the impugned order, therefore, we refrain from doing so. 18. There is yet another reason for not making an order of remand, we are told at the bar the appellant-trust was granted the regulation registration under the new regime. 19. Therefore, in view of the above, the order passed by the learned CIT(E) is hereby quashed and the appeal of the assessee stands allowed.

20 ITA No. 12-15/Coch/2021 Last Hour Ministry & Ors. 20. Our findings in the above appeal in ITA No. 12/Coch/2021 shall apply mutatis mutandis to the other appeals also i.e. ITA Nos. 13, 14 & 15/Coch/2021 since identical facts are involved. 21. In the result, all the appeals filed by the assessees stand allowed. Order pronounced in the open court on 04th August, 2025.

Sd/- Sd/- (SONJOY SARMA) (INTURI RAMA RAO) JUDICIAL MEMBER ACCOUNTANT MEMBER Cochin, Dated: 04th August, 2025 vr/- Copy to: 1. The Appellant 2. The Respondent 3. The Pr. CIT concerned 4. The Sr. DR, ITAT, Cochin 5. Guard File By Order

Assistant Registrar ITAT, Cochin