Ita/805/2008 Of The Commissioner Of Income Tax v. M/S Islamic Academy Of Education

IN THE HIGH COURT OF KARNATAKA AT BANGALOREDATED THIS THE 9[TH|]DAY OF SEPTEMBER 2014. PRESENT THE HON’BLE MR.JUSTICE N. KUMAR AND| THE HON’ BLE MRS.JUSTICE RATHNAKALA I.T.A.No.805/2008 BETWEEN: 1.|Tne Commissioner of Income Tax, Karnataka (Central), C.R.Building, Quens Road, Bangalore. ..APPELLANT (By Sri.K.V.Aravind, Adv.,) AND: M/s.Isiamic Academy of Education, © Nithyananda Nagar, —P.O.Devalakatta, Mangalore — 575 018. ..RESPONDENT (By Sri.S.Paratnasaratni, Adv.,) KKKKKX| This appeal is filed under Section 260-A of I.T.Act,.1961 arising out of order dated 28.03.2008 passed in ITA| No.1129/BNG/2007, praying that this Court may be pleasedto formulate the substantial questions of law stated therein.and allow the appeal and set aside the order passed by theITAT Bangalore in ITA No.1129/BNG/2007 dated 28.3.2008|confirm the orders passed by the Commissioner of Income.Tax, Karnataka (Central), Bangalore in the interest ofjustice and equity. TnNIsappealcoming|Of)forHearingtnis|day,N.KUMAR. J.,delivered the following: JUDGMENT The revenue has preferred this appeal against theorder passed by the Commissioner of Income Tax cancellingregistration. | 2 |The assessee was registered under section 12A.of the Income Tax Act, 1961 by the CIT, Karnataka-III,|Bangalore, vide certificate dated 4.6.1992. Recognition|under section 80G was also granted to the assessee vide|certificate dated 3.11.1992 by the CIT, Karnataka-III,.Bangalore. The recognition granted under section 80G was|Valid from 19.10.1992 to 31.3.1994 and renewal of.recognition under section 80G was granted vide certificate| dated 1.3.2005. The renewal of recognition was valid from.15.6.2004 to 31.3.2006. Registration under section 12A'| and recognition under section 80G were withdrawn with.effect from 1.4.1996. The reasons for such withdrawal are: 1)The institution has not mejintalineproper books of account. It)Donations received have been Kept|outside the books of account. — fil) Tne assessee has accounted only|the fees fixed by the University. The|assessee is collecting fees over and|above the fees fixed by the Universityand this amount has not Deen recordecdin the cash book and it has [introducedthis cash to the bank as and when the|need arises. The assessee has [issuedreceipts for the sums received over anaabove the fees fixed by the University. (iv) ThreeoftheTrusteesoftheaSSCSSCECarealsothe Directors/ChairmanIn|Yenepoya[Institute of Medical Science ReseerchPvt. Ltd., (YIMSRPL), a private limitedcompany. The assessee has investeda20 lakns in ordinary snares of YIMSRPLduring the previous year relevant to|assessment year 1995-96 and continuedto remain so invested up to 31.3.2005.The assessee is paying huge rent toYIMSRPL and also given huge deposit ofa225 lakhs which wes claimed as rent|deposit. Vv)Searcn Uu/s.132 was conducted on21.9.2005 in tne office premises of theinstitute as well as the’ residentialpremises of the three of the trustees.Cash of.Vv74 lakhs was found In the'residential premises of Shri.Y.Abdullan—Kunhi and the same wes offered to tex. Fees for admission reported to havebeen collected much higher than what|was recorded in the books and that the|actual amount of fees collected nas peen| Suppressed. The assessee has admittedthat the contract payment ofVv350 lakhs.paid to M/s.Horizon Construction Co.,.shown as creditor in the balance sheet,was only bogus and tne same was)offered for taxation. (vi) Tne assessee has filed returnsU/S.1535A(a) declaring additional incomeofV15,25,52,850/-. Vv)Searcn Uu/s.132 was conducted on21.9.2005 in tne office premises of theinstitute as well as the’ residentialpremises of the three of the trustees.Cash of.Vv74 lakhs was found In the'residential premises of Shri.Y.Abdullan—Kunhi and the same wes offered to tex. Fees for admission reported to havebeen collected much higher than what|was recorded in the books and that the|actual amount of fees collected nas peen| Suppressed. The assessee has admittedthat the contract payment ofVv350 lakhs.paid to M/s.Horizon Construction Co.,.shown as creditor in the balance sheet,was only bogus and tne same was)offered for taxation. (vi) Tne assessee has filed returnsU/S.1535A(a) declaring additional incomeofV15,25,52,850/-. 3.A show cause notice dated 27.11.2006 was4issued to the assessee calling for reasons as to why.registration granted under section 12A and recognition.granted under section 80G of the Act should not bewithdrawn. A detailed reply was filed. Not being satisfiedwith the reply, the registration granted under section 12Aand the recognition under section 80G of the Act waswithdrawn. Aggrieved by the said order, the assesseepreferred an appeal before the Tribunal. The Tribunal held|that at the time of considering cancellation of registration of Trust already granted, what is mainly to be seen is,.whether the activities of the Trust or Institution are not.genuine or are not being carried out in accordance with theobjects of the Trust or Institution. There is nothing on.record to show that the activities are not being carried out)in accordance with the objects of the Trust i.e., imparting|education. Admittedly, the Trust is carrying on the object.of the Trust namely imparting of education. The Trust is.not sham or bogus. It is nobody's case that Trust is not in|existence at all or that there is no activity of imparting.education and therefore, the Tribunal has set aside the|order passed by the Commissioner of Income Tax andrestored the registration. Aggrieved by the said order, the|revenue is before this Court. 4The appeal was admitted to consider thefollowing substantial questions of law: Whether the Tribunal was correct inholding that the registration granted Uu/S. 12A of the Act had been incorrectly|cancelled u/s. 12AA(3) of the Act by the|CommissionerdespitebeingSatisfiedbased on material detected in the course|of search that the activity of the trust wasnot 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 inthe residential premises of the Chairman which was.offered to tax by the Trust. A sum of|43.5 Crores Is)admitted to be a bogus entry and offered to tax. |Advances are made to the family members of theTrust out of the Trust fund which are kept outside theaccountsand|reflectedIn|thecoded|The activities of the Trust are not carried out Inaccordance with law and contrary to the provisions ofthe Income Tax Act. Therefore, he submits that a words. | case for cancellation is made out and the Tribunal|erroneously set-aside the CIT order. 6.|Per contra, learned counsel appearing for theassessee submitted that when once the genuineness of theTrust is not disputed and when the object of the Trust.namely.Impartingeducationhas.beencarriedonuninterruptedly, a case for cancellation of the Trust is not)made out. If there are violations, such as not accounting|the money received which was found in the possession ofthe Trustees, bogus entries in the accounts and payments.made to the members of the family which are recorded in|code numbers, the benefit under section 11 of the Income|Tax Act need not be extended and such amounts should be.taxed. But that is not a justification for cancellation of.registration of the Trust. J |Section1JAAprovidesfor.procedure for.cancellation of registration of the Trust or Institution by the 6.|Per contra, learned counsel appearing for theassessee submitted that when once the genuineness of theTrust is not disputed and when the object of the Trust.namely.Impartingeducationhas.beencarriedonuninterruptedly, a case for cancellation of the Trust is not)made out. If there are violations, such as not accounting|the money received which was found in the possession ofthe Trustees, bogus entries in the accounts and payments.made to the members of the family which are recorded in|code numbers, the benefit under section 11 of the Income|Tax Act need not be extended and such amounts should be.taxed. But that is not a justification for cancellation of.registration of the Trust. J |Section1JAAprovidesfor.procedure for.cancellation of registration of the Trust or Institution by the Commissioner of Income Tax. The power of cancellation of.registration flows from the power to register. However,|there has been unnecessary litigation on this issue. Underwhat circumstances, the registration of a Trust orInstitution granted under section 12A could be cancelled by.the Commissioner of Income Tax was the subject matter ofvarious interpretation by the various High Courts. In orderto avoid such unnecessary litigations, the Parliament.introduced sub-section (3) to section 12AADYFinance (No.2)Act of 2004 with effect from 1.10.2004 which reads as under: “Section 12AA(3): Where a trust or aninstitution has been granted registration|under clause (b) of sub-section (1) for has|obtained registration at any time under|sectionLDA|las|It.stoodbeforeItSamendment by tne)Finance (No.2) Act, 1996(33|of.1996)and|subsequentlytheCommissioner Is satisfied that the activitiesof sucn trust or institution are not genuine orare not being carried out in accordance withthe objects of the trust or institution, as the case may be, ne Shall pass an order inwriting cancelling the registration of suchtrust or institution: — Provided that no order under this sub-sectionShal|beDaSSedUun/lesSUCN|trustOr>institution nas been given aeé_e reasonaopportunity of being heard. |” As is clear from the circular No.5 of 2005 dated 15./7.2005issued by the Central Board of Direct Taxes, the aforesaid|section was amended so as to specifically provide that if theCommissioner 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 orInstitution, 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 becancelled under two circumstances namely, (1)When the activities of the Trust or Institution are notgenuine; and. (2)The activities of the Trust or Institution are not being.carried out in accordance with the objects of the Trust orInstitution. Only if the Commissioner is satisfied that any one of theseconditions 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 ofthe Trust could be passed. 8.)In the instant case, the material on record.Shows that the Trust has established educational institutionand imparting medical education. Every year, students are.admitted. Huge investment is made for construction ofbuildings for housing the college, hostel and to provideother facilities to the students who are studying in theCollege. The College is recognized by the Medical Council Only if the Commissioner is satisfied that any one of theseconditions 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 ofthe Trust could be passed. 8.)In the instant case, the material on record.Shows that the Trust has established educational institutionand imparting medical education. Every year, students are.admitted. Huge investment is made for construction ofbuildings for housing the college, hostel and to provideother facilities to the students who are studying in theCollege. The College is recognized by the Medical Council of India, State of Karnataka and all other statutory.authorities. Therefore, it cannot be said that the Trust isnot genuine. Admittedly, the students are being admittedevery year. Students are studying in all courses. Thus the.object of the constitution of the Trust namely imparting of|education is going on uninterruptedly. Therefore, it cannot.be said that the activities of the Trust are not being carried out in accordance with the objects of the Trust. When the.aforesaid two conditions are fully satisfied, on the ground.that the trustees are misappropriating the funds of theTrust the registration of the Trust cannot be cancelled. If.the trustees are misappropriating the funds, if they aremaintaining false accounts, it is open to the authorities todeny the benefit under section 11 of the Income Tax Act,|but that is not a ground for cancelation of registrationitself. That is precisely what the Tribunal has _ held.Therefore, the substantial question of law is answered in )+:�3(��)�."#�+&&#&&##�+'4�+5+%'&.�."#�(#:#'3#����"#(#�%&� '��$#(%.�%'�."%&�+==#+1�� �**�(4%'518-�."#�+==#+1�%&�4%&$%&&#4������������������������������������������������������� ����