INSTITUTE OF MARKETING & MANAGEMENT,NEW DELHI vs. CIT(EXEMP), NEW DELHI

Assessee by : Shri Ved Jain, CA Shri Ashish Chadha, CA Department by : Smt. Meeta Singh, CIT-DR Date of hearing : 10-04-2018 Date of pronouncement : 30-05-2018 O R D E R

PER R. K. PANDA, AM :

Keeping in view of the above irregularities pointed out by the DGIT and by the Assessing Officer, he again issued a show-cause notice to the assessee to explain as to why the registration granted u/s 12A(a) of the I.T. Act be not withdrawn. Rejecting the various explanations given by the assessee and observing that the violations regarding norms of Registrar of Societies, violations with regard to AICTE norms and financial irregularities and further observing that the assessee misconducted itself by claiming that it is approved u/s 35(1)(iii) of the I.T. Act and donations made to it enjoy income tax exemption, the ld. CIT cancelled the registration granted u/s 12A(a) of the I.T.

Act. Since he cancelled the registration granted u/s 12A which is a primary requirement for granting approval u/s 80G(5), the approval granted u/s 80G(5) dated 20.05.2009 was also cancelled.

6. Aggrieved with such order of the ld. CIT, the assessee is in appeal before the Tribunal by raising the following grounds :-

“1. On the facts and circumstances of the case, the order passed by the learned Commissioner of Income Tax (Exemptions) cancelling the registration granted to the assessee under section 12A(a) of the Act is bad both in the eye of law and on facts.

2. On the facts and circumstances of the case, the learned CIT(Exemptions) has erred both on facts and in law in cancelling the registration granted under Section 12A(a), solely on the basis of observation made by the AO during the assessment proceedings.

3. On the facts and circumstances of the case, the learned CIT(Exemptions) has erred both on facts and in law in cancelling the registration on the basis of findings given by the AO in assessment proceeding despite the fact that the such findings of the AO stands reversed by the CIT(A) and Hon'ble ITAT has confirmed the order of CIT(A).

4. The act of the learned CIT(Exemption) in not following the order of Hon'ble ITAT is in disregard to the principle of judicial discipline whereby the lower authorities are bound to follow the order of the higher authorities.

5. On the facts and circumstances of the case, the learned CIT(Exemptions) has erred both on facts and in holding that the activities of the assessee is not as per law and are not genuine.

6. That the appellant craves leave to add, amend or alter any of the grounds of appeal.”

7. Ld. counsel for the assessee referring to the decision of the Hon’ble Karnataka High Court in the case of CIT vs. Islamic Academy of Education reported in 229 taxmann.com 274 submitted that the Hon'ble High Court in the said decision has held that where the assessee trust was fulfilling its main object of imparting education by establishing educational institution and taking admission of students every year registration of trust could not be cancelled only on basis that trustees were misappropriating funds of said trust.

8. Referring to the decision of the Kolkata Bench of the Tribunal in the case of Dr. B.G. Memorial Trust vs. CIT vide order dated 15.09.2017, he submitted that where the activities of the trust in relation to its educational activities have not been doubted and on the basis of same activities registration u/s 12AA was granted to the assessee, simply because the assessee has received donation from some parties which are involved in the bogus transactions cannot be the basis for denial of the registration certificates.

“Procedure for registration. 12AA. (1) xxxxx (2) xxxxx (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.”

(a) The Assessing Officer in the assessment proceedings for assessment years 2009-10 and 2010-11 had noted a large number of discrepancies in the accounts and affairs of the assessee society and rejected the claim of exemption and held its income to be taxable of AOP.

(b) The DGIT has withdrawn the approval u/s 10(23C)(vi) on account of various irregularities pointed out by him and holding that the activities of the institution are not run solely for education and run for profit. (c) There are violations regarding norms of Registrar of Societies and norms of AICTE. (d) The assessee misconducted itself by claiming that it is approved u/s 35(1)(iii) and donations made to it enjoy income tax exemption.

It has further upheld the observations of the ld. CIT(A) that exemption u/s 11 is available on compliance of the conditions as prescribed in section 11 and section 12 of the I.T. Act. Since the ld. DR could not point out any error or defect in the finding given by the ld. CIT(A), the Tribunal held that the objects of the assessee society being education in nature and fall within the meaning of charitable purpose u/s 2(15) of the I.T. Act and since the society was registered u/s 12A allowed the claim of exemption u/s 11 of the I.T. Act. Since the appeal filed by the Revenue has already been dismissed by the Tribunal and upheld by the Hon'ble High Court and the assessee society is imparting education which is not in dispute, therefore, ld. CIT, in our opinion, is not justified in cancelling the registration granted earlier by invoking provisions of section 12AA(3) of the I.T. Act. The addition, if any, can be made by the Assessing Officer in the regular assessment but registration cannot be cancelled only on the basis of certain violations by the trustees unless and until it is proved that the assessee trust is not fulfilling its main object of imparting education.

“4. The appeal was admitted to consider the following substantial questions of law: Whether the Tribunal was correct in holding that the registration granted u/s. 12A of the Act had been incorrectly cancelled u/s. 12AA(3) of the Act by the Commissioner despite being satisfied based on material detected in the course of search that the activity of the trust was not genuine and was not being carried out in accordance with the objects of the trust? 5. The learned counsel for the revenue assailing the impugned order contended that the material on record discloses that cash was found in the residential premises of the Chairman which was offered to tax by the Trust. A sum of `3.5 Crores is admitted to be a bogus entry and offered to tax. Advances are made to the family members of the Trust out of the Trust fund which are kept outside the accounts and reflected in the coded words. The activities of the Trust are not carried out in accordance with law and contrary to the provisions of the Income Tax Act. Therefore, he submits that a case for cancellation is made out and the Tribunal erroneously set- aside the CIT order.

litigation on this issue. Under what circumstances, the registration of a Trust or Institution granted under section 12A could be cancelled by the Commissioner of Income Tax was the subject matter of various interpretation by the various High Courts. In order to avoid such unnecessary litigations, the Parliament introduced sub-section (3) to section 12AA by Finance (No.2) Act of 2004 with effect from 1.10.2004 which reads as under:

“Section 12AA(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 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.]” As is clear from the circular No.5 of 2005 dated 15.7.2005 issued by the Central Board of Direct Taxes, the aforesaid section was amended so as to specifically provide that if the Commissioner of Income Tax is satisfied that the activities of any Trust or Institution are not genuine or are not being carried out in accordance with the objects of the Trust or Institution, he shall, after giving reasonable opportunity of being heard to the concerned Trust or Institution, pass an order in writing cancelling the registration granted under the said section. Therefore, in view of the aforesaid express provision, registration granted to a Trust could be cancelled under two circumstances namely, (1) When the activities of the Trust or Institution are not genuine; and (2) The activities of the Trust or Institution are not being carried out in accordance with the objects of the Trust or Institution. Only if the Commissioner is satisfied that any one of these conditions exists, then he shall pass an order in writing cancelling the registration of such Trust or Institution. Therefore what follows is, except the aforesaid two grounds and on no other ground, an order cancelling registration of the Trust could be passed.