Taxap/861/2013 Of Director Of Income Tax (Exemption) v. N H Kapadia Education Trust

C/TAXAP/860/2013 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/TAX APPEAL NO. 860 of 2013With R/TAX APPEAL NO. 861 of 2013With R/TAX APPEAL NO. 862 of 2013 FOR APPROVAL AND SIGNATURE: HONOURABLE MR.JUSTICE J.B.PARDIWALA andHONOURABLE MR. JUSTICE BHARGAV D. KARIA ==========================================================1Whether Reporters of Local Papers may be allowed toYESsee the judgment ?2To be referred to the Reporter or not ?YES3Whether their Lordships wish to see the fair copy ofNOthe judgment ?4Whether this case involves a substantial question ofNOlaw as to the interpretation of the Constitution of Indiaor any order made thereunder ?==========================================================DIRECTOR OF INCOME TAX (EXEMPTION) VersusN H KAPADIA EDUCATION TRUST ==========================================================Appearance:MRS MAUNA M BHATT(174) for the Appellant(s) No. 1MR SN SOPARKAR SENIOR ADVOCATE WITH MR.PARTHCONTRACTOR(7150) for the Opponent(s) No. 1========================================================== CORAM: HONOURABLE MR.JUSTICE J.B.PARDIWALA andHONOURABLE MR. JUSTICE BHARGAV D. KARIA Date : 03/03/2020 COMMON ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE J.B.PARDIWALA) 1Since the substantial questions of law formulated in all thecaptioned Tax Appeals are common, those were heard analogously andare being disposed of by this common judgement and order. 2For the sake of convenience, the Tax Appeal No.860 of 2013 istreated as the lead matter. 3This Tax Appeal under Section 260A of the Income Tax Act, 1961[for short, 'the Act, 1961'] is at the instance of the Revenue and isdirected against the order passed by the Income Tax Appellate Tribunal,Ahmedabad 'C' Bench dated 5[th] April 2013 in the ITA No.279/Ahd/2013for the A.Y. 2004-05. 4This Tax Appeal came to be admitted on the following substantialquestions of law as formulated vide order dated 8[th] October 2013: “(i) Whether the Appellate Tribunal has substantially erred in deleting theaddition of Rs.2,65,41,525/- ignoring that the receipts from the studentsat the time of seeking admission was not towards corpus of the Trust butwas for the service rendered by the School to the students and henceincome of the assessee? (ii)Whether the Appellate Tribunal has substantially erred in holding thatthe assessee is entitled to exemption u/s 11 of the Act despite utilization ofthe Trust funds for the purpose other than the charitable object of theTrust as also applicability of Section 13(1)(c) of the Act?” 5The aforenoted two substantial questions of law came to beformulated in the following factual background. 6The respondent assessee is a charitable Trust engaged in the charitable activity of imparting education. The objects of the Trust,according to the Trust Deed, are as under: “(i) To open Educational Institutes for the spread of physical, mental,moral, philosophical and industrial training. (ii) To grant free scholarship, loan, prize and assistance of books to thestudents studying in school and colleges. (iii) To establish or construct or to do activity for maintenance of publicinstitutes like school, colleges, hostels, dharamsalas, hospitals, gyms,library, etc. (iv) For the progress of the society to undertake scientific industrial andeducational research. To help for the maintenance of public institutes. (vi) To publish quality books for up-lift of moral, philosophical andeducational qualities of the society. (vii) To construct monuments for achieving above referred objects or togive donation to such institutes.” “(i) To open Educational Institutes for the spread of physical, mental,moral, philosophical and industrial training. (ii) To grant free scholarship, loan, prize and assistance of books to thestudents studying in school and colleges. (iii) To establish or construct or to do activity for maintenance of publicinstitutes like school, colleges, hostels, dharamsalas, hospitals, gyms,library, etc. (iv) For the progress of the society to undertake scientific industrial andeducational research. To help for the maintenance of public institutes. (vi) To publish quality books for up-lift of moral, philosophical andeducational qualities of the society. (vii) To construct monuments for achieving above referred objects or togive donation to such institutes.” 7It appears from the materials on record that the Assessing Officerpassed an order of scrutiny assessment under Section 143(3) read withSection 147 of the Act declining to grant the deduction as claimed by theassessee under Sections 11 and 12 of the Act, 1961. The claim towardsdeduction came to be declined on the ground that the registration of theTrust under Section 12A of the Act, 1961 had been cancelled by theDIT(E), Ahmedabad with effect from 21[st] March 1990. The respondentassessee, being dissatisfied with the order passed by the DIT(E),Ahmedabad, preferred an appeal before the Appellate Tribunal, Ahmedabad. The appeal came to be allowed by the Appellate Tribunal.The Revenue challenged the order passed by the Appellate Tribunalbefore this High Court. In view of the order passed by the AppellateTribunal, Ahmedabad, the assessee went in appeal for the relevantassessment year against assessment order for the year considerationbefore the CIT(A), who, in turn, partly allowed the same. The Revenue,being dissatisfied with the order of the CIT(A), preferred the appealbefore the Appellate Tribunal and the same came to be dismissed. 8It appears that the Trust received donation aggregating toRs.2,65,41,525/- under the various heads of activity relating todonation. The assessee claimed the same as a corpus donation. TheAssessing Officer rejected the claim of the assessee holding the same asrevenue receipts and made the addition. The assessee went in appealbefore the CIT(A). The CIT(A) deleted the addition holding thatalthough the donation was of revenue nature, yet it still retains thecharacter of donation to corpus funds and such donation is eligible forexemption under Section 11(1)(d) of the Act, 1961. 9The Revenue went in appeal before the Appellate Tribunal. TheAppellate Tribunal dismissed the appeal. The Appellate Tribunal whileaffirming the order of CIT(A) relied upon the decision of the assessee'sown case in the ITA No.1321/Ahd/2011 dated 3[rd] February 2012. 10It also appears that the assessee had claimed exemptionunder Sections 11 and 12 of the Act, 1961 respectively in its return ofincome. The Assessing Officer declined to grant such exemption underSections 11 and 12 of the Act, 1961 on the ground that theregistration of the Trust had been cancelled under Section 12 (A) of the Act, 1961. The CIT(A) took the view that the assessee was entitled toexemption under Sections 11 and 12 of the Act because the registration,ultimately, came to be restored by the Appellate Tribunal vide orderdated 3[rd] February 2012 with effect from 21[st] March 1990. 11In such circumstances referred to above, the Revenue is herebefore this Court with the present appeal. 10It also appears that the assessee had claimed exemptionunder Sections 11 and 12 of the Act, 1961 respectively in its return ofincome. The Assessing Officer declined to grant such exemption underSections 11 and 12 of the Act, 1961 on the ground that theregistration of the Trust had been cancelled under Section 12 (A) of the Act, 1961. The CIT(A) took the view that the assessee was entitled toexemption under Sections 11 and 12 of the Act because the registration,ultimately, came to be restored by the Appellate Tribunal vide orderdated 3[rd] February 2012 with effect from 21[st] March 1990. 11In such circumstances referred to above, the Revenue is herebefore this Court with the present appeal. 12Ms. Mauna Bhatt, the learned senior standing counsel appearingfor the Revenue vehemently submitted that the Appellate Tribunalcommitted a serious error in deleting the addition of Rs.2,65,41,525/-overlooking the effect that the receipts were in favour of the students atthe time of admission were not towards the corpus of the Trust, but werefor the services rendered by the school to the students, and therefore,would constitute an income of the assessee. Ms. Bhatt would submit thatthe Assessing Officer also noticed that the monthly remuneration ofRs.30,000/- was paid to the Managing Trustee and Rs.12,000/- to thewife of the Managing Trustee. According to Ms. Bhatt, such payment ofremuneration could be said to be in violation of Sections 13(1)(c)(ii),12(2)(c) and 13(2)(g) of the Act, 1961, and therefore, the assessee isnot entitled to deduction under Section 11 of the Act, 1961. 13In such circumstances referred to above, Ms. Bhatt prays thatthere being merits in this appeal and the same be allowed and theimpugned order passed by the Appellate Tribunal be quashed and setaside. 14On the other hand, this appeal has been opposed by Mr. Soparkar,the learned senior counsel assisted by Mr. Parth Contractor, the learnedcounsel appearing for the respondent assessee. The learned senior counsel would submit that no error, not to speak of any error of lawcould be said to have been committed by the Appellate Tribunal inpassing the impugned order. Mr. Soparkar would submit that there is noiota of material to indicate that the assessee Trust had indulged in anyillegal activity and is not existing for the educational purposes. 15Mr. Soparkar invited our attention to the judgement delivered bythis Court in the Tax Appeal No.356 of 2012 decided on 28[th] September2018. The Tax Appeal No.356 of 2012 was filed by the Revenue againstthe very same assessee who is here before us. The issue before the Courtin the Tax Appeal No.356 of 2012 was with regard to the restoration ofthe registration in favour of the Trust accorded under Section 12A of theAct, 1961. According to Mr. Soparkar, the observations made by theCoordinate Bench in the said judgement speak for itself. Mr. Soparkarinvited our attention to few relevant observations made by the CIT(A) aswell as by the Appellate Tribunal, more particularly, with regard to thecorpus donation. 16In such circumstances referred to above, the learned seniorcounsel prays that there being no merits in this appeal, the same bedismissed and the substantial questions of law may be answered infavour of the assessee and against the Revenue. ●ANALYSIS: 17Having heard the learned counsel appearing for the parties andhaving gone through the materials on record, the only question that fallsfor our consideration is whether the Appellate Tribunal committed anyerror in passing the impugned order. very same assessee rendered in the Tax Appeal No.356 of 2012. In thesaid Tax Appeal, three substantial questions of law were considered.Those are as under: “[A] Whether the Appellate Tribunal has substantially erred in settingaside the order of DIT(E) u/s 12AA(3) of the act and further restoring theregistration granted u/s12A of the I.T. Act? ●ANALYSIS: 17Having heard the learned counsel appearing for the parties andhaving gone through the materials on record, the only question that fallsfor our consideration is whether the Appellate Tribunal committed anyerror in passing the impugned order. very same assessee rendered in the Tax Appeal No.356 of 2012. In thesaid Tax Appeal, three substantial questions of law were considered.Those are as under: “[A] Whether the Appellate Tribunal has substantially erred in settingaside the order of DIT(E) u/s 12AA(3) of the act and further restoring theregistration granted u/s12A of the I.T. Act? [B] Whether the Appellate Tribunal has substantially erred in not takingcognizance the latest amendment in the nature of proviso to section 2(15)of the I.T. Act inserted with effect from 01/04/2009? [C] Whether the Appellate Tribunal has substantially erred in ignoring thefact that in view of the amended provisions of Section 2(15) of the Act, theobjects of the assessee association no more remain charitable?” 19We quote the observations made in the judgement: “3Respondent-assessee is a Trust registered under the Public TrustsAct and is engaged in educational activities. The Trust runs variousschools. The Trust was also granted registration under section 12A of theIncome Tax Act, 1961 (’the Act’ for short) by an order dated 21.03.1990by the Commissioner of Income Tax, Ahmedabad. 4The Director of Income Tax (Exemptions), Ahmedabad, issued ashow cause notice dated 10.02.2011 proposing cancellation of registrationof the Trust on three principal grounds which can be summarized asunder: I.During the assessment proceedings for assessment year 2008-09, itwas noticed that an amount of Rs.4.50 crores was transferred bythe Trust to one of its trustees and his sons who had in turn paid asum of Rs.3.50 crores to one Sonalben Jaksania towards agreementto purchase land from her. It was averred that no sale deed wasexecuted so far. The transaction with the trustee Muktak Kapadiyaand his son was not reflected in the Form-10B. According to theDirector of Income Tax, the Trust has thus concealed the actualmode of transaction and transferred the funds to the trustee byviolating the provisions of section 13(1)(c) of the Act.was noticed that an amount of Rs.4.50 crores was transferred bythe Trust to one of its trustees and his sons who had in turn paid asum of Rs.3.50 crores to one Sonalben Jaksania towards agreementto purchase land from her. It was averred that no sale deed wasexecuted so far. The transaction with the trustee Muktak Kapadiyaand his son was not reflected in the Form-10B. According to theDirector of Income Tax, the Trust has thus concealed the actualmode of transaction and transferred the funds to the trustee byviolating the provisions of section 13(1)(c) of the Act. II. It was seen from the record that the land proposed to be acquiredby the Trust is an agricultural land which was not yet controvertedinto non agricultural use. Objects of the Trust are educational andby the Trust is an agricultural land which was not yet controvertedinto non agricultural use. Objects of the Trust are educational and not for carrying out agricultural activities. The Trust thereforecannot divert its funds for the purpose of agriculture. III. The Trust had collected a sum of Rs.1.90 crores (rounded off) fromstudents at the time of their admission. This amount was directlycredited to the balance and claimed as corpus donation instead ofshowing it in the income and expenditure account. The Trust hadfailed to establish that such amount was by way of corpusdonations.students at the time of their admission. This amount was directlycredited to the balance and claimed as corpus donation instead ofshowing it in the income and expenditure account. The Trust hadfailed to establish that such amount was by way of corpusdonations. 5On the basis of these allegations, the Director of Income Tax wishedto come to following conclusions: III. The Trust had collected a sum of Rs.1.90 crores (rounded off) fromstudents at the time of their admission. This amount was directlycredited to the balance and claimed as corpus donation instead ofshowing it in the income and expenditure account. The Trust hadfailed to establish that such amount was by way of corpusdonations.students at the time of their admission. This amount was directlycredited to the balance and claimed as corpus donation instead ofshowing it in the income and expenditure account. The Trust hadfailed to establish that such amount was by way of corpusdonations. 5On the basis of these allegations, the Director of Income Tax wishedto come to following conclusions: “Thus, the trust has violated provisions of section 11(1)(d) and13(1)(C)(ii) of the I.T. Act, 1961 and is not eligible for registrationu/s 12A(I) of the I.T. Act, 1961. It clearly attracts the amendeddefinition of “charitable purpose” in section 2(15) of the I.T. Act,1961 by insertion of a proviso w.e.f. 1.4.2009 as the aforesaidactivities show their commercial nature.” 6In response to such show cause notice, the assessee appeared beforethe Director and made written as well as oral submissions. The gist ofopposition of the Trust is as under: (I) The registration was granted to the Trust under section 12A of theAct which cannot be cancelled under section 12AA(3) of the Actunless the two grounds on which such cancellation is envisaged areestablished.Act which cannot be cancelled under section 12AA(3) of the Actunless the two grounds on which such cancellation is envisaged areestablished. (II)In the present case, there is no allegation of the activities of theTrust not being genuine or that the same not being carried out inaccordance with the object of the Trust. Powers under section12AA(3) of the Act therefore cannot be exercised.Trust not being genuine or that the same not being carried out inaccordance with the object of the Trust. Powers under section12AA(3) of the Act therefore cannot be exercised. (III)With respect to the acquisition of land, it was contendedthat the payments made to Sonalben Jaksania towards thepurchase of agricultural land which had correlation to the object ofthe Trust to impart education. The Trust wanted to expand anddiversify its educational activities on the S.G.Road area which wasa fast growing area in the outskirts of Ahmedabad city. It wasfurther contended that no money was retained by the trustees ortheir family members. The agreement to sell was executed in thecapacity as a trustee. The payment made was reflected in the booksof the assessee Trust as advance towards land purchase. In fact, thetrustees had advanced money to the Trust.that the payments made to Sonalben Jaksania towards thepurchase of agricultural land which had correlation to the object ofthe Trust to impart education. The Trust wanted to expand anddiversify its educational activities on the S.G.Road area which wasa fast growing area in the outskirts of Ahmedabad city. It wasfurther contended that no money was retained by the trustees ortheir family members. The agreement to sell was executed in thecapacity as a trustee. The payment made was reflected in the booksof the assessee Trust as advance towards land purchase. In fact, thetrustees had advanced money to the Trust. (IV)With respect to the donations received from the students orthe parents, it was conveyed that the contributions were made withspecific purpose; such as for construction of buildings, staff welfarefund, students’ welfare fund etc. It was contended that theaccounting treatment given by the Trust to such receipts wasthe parents, it was conveyed that the contributions were made withspecific purpose; such as for construction of buildings, staff welfarefund, students’ welfare fund etc. It was contended that theaccounting treatment given by the Trust to such receipts was (IV)With respect to the donations received from the students orthe parents, it was conveyed that the contributions were made withspecific purpose; such as for construction of buildings, staff welfarefund, students’ welfare fund etc. It was contended that theaccounting treatment given by the Trust to such receipts wasthe parents, it was conveyed that the contributions were made withspecific purpose; such as for construction of buildings, staff welfarefund, students’ welfare fund etc. It was contended that theaccounting treatment given by the Trust to such receipts was consistently followed by the Trust and was a recognized accountingmethod. In any case, this cannot be the ground for cancellation ofthe registration of the Trust. (V)It was also contended that the amended definition of the term“charitable purpose” contained in section 2(15) of the Act witheffect from 01.04.2009 would have no application in the presentcase. None of the activities of the Trust are in the nature ofcommercial activities. The educational institute in question run bythe Trust is a self-financed institution and does not depend onGovernment grant.“charitable purpose” contained in section 2(15) of the Act witheffect from 01.04.2009 would have no application in the presentcase. None of the activities of the Trust are in the nature ofcommercial activities. The educational institute in question run bythe Trust is a self-financed institution and does not depend onGovernment grant. 7The Director of Income Tax however was unmoved. He passed anorder dated 17.03.2011 canceling registration of the Trust from inception.He referred to the objects of the Trust contained in Trust deed which wereall in the nature of carrying out and promoting educational activities andobserved that these objects do not envisage involvement of the Trust intransactions of commercial nature permitting the Trust to transfer itsfunds to the trustees or his sons who could in turn pay part of it towardsagreement to sell of the land to the land owner. He observed that the saledeed had still not been executed. He therefore concluded that the Trust wasengaged in activities of commercial nature. He then referred to section2(15) of the Act defining the term ‘charitable purpose’ which was amendedwith effect from 01.04.2009. 01.10.2018 8In the context of amended section 2(15) of the Act, he observedthat the activities of the Trust were not genuine and were not beingconducted in accordance with the objects of the Trust and therefore, theTrust had lost the status of a charitable organization. Its activities werebeing carried on along commercial lines. 9The assessee challenged this decision of the Commissioner beforethe Tribunal. The Tribunal took note of the documents on record and therival contentions. Tribunal allowed the assessee’s appeal by the impugnedjudgement. The summary of the Tribunal’s consideration and conclusionsis as under: (I) The Tribunal recorded that the assessee-Trust is runningeducational institution since decades. The activities of the Trustcannot be stated to be non-genuine.educational institution since decades. The activities of the Trustcannot be stated to be non-genuine. (ii)It was noted that purpose of acquiring land was for expandingeducational activities of the Trust. The payment was made to theland holder. It was accounted in the Trust account under the head“advance towards land”. Such payment was not reflected in theaccounts of the Managing trustee or his family members. The landeducational activities of the Trust. The payment was made to theland holder. It was accounted in the Trust account under the head“advance towards land”. Such payment was not reflected in theaccounts of the Managing trustee or his family members. The land was purchased not for investment but to set-up educationalinstitution. There was thus no case of altering the objects of theTrust. (ii)It was noted that purpose of acquiring land was for expandingeducational activities of the Trust. The payment was made to theland holder. It was accounted in the Trust account under the head“advance towards land”. Such payment was not reflected in theaccounts of the Managing trustee or his family members. The landeducational activities of the Trust. The payment was made to theland holder. It was accounted in the Trust account under the head“advance towards land”. Such payment was not reflected in theaccounts of the Managing trustee or his family members. The land was purchased not for investment but to set-up educationalinstitution. There was thus no case of altering the objects of theTrust. (iii)In relation to the amended section 2(15) of the Act, theTribunal was of the opinion that the amended proviso would applyonly in case of advancement of any other object of general publicutility and in such a case it shall not be a charitable purpose. Caseof the assessee therefore would not fall within the amended section2(15) of the Act. It was also noticed that the accounts of theassessee-Trust reveal deficit of Rs. 75.18 lacs and expenditure of Rs.5.80 crores was made towards the educational activities. (iv)Commenting on section 12AA inserted in the Act w.e.f.01.04.1997, the Tribunal was of the opinion that for the allegedviolations of section 11(1)(d) or section 13(1)(c) of the Act,registration of the Trust cannot be cancelled in exercise of powersunder section 12AA(3) of the Act. 10Appearing for the Revenue, learned counsel Mrs. Bhatt vehementlycontended that the Tribunal has committed an error in disturbing order ofthe Commissioner. Sizeable funds from the corpus of the Trust weretransferred to the Managing trustee and his sons ostensibly to purchaseagriculture land. Sale was not completed for years later on. The objects ofthe Trust did not permit the Trust to engage in agriculture activities.Donations were received from students in the nature of capitation fees. Itwas thus clear that the Trust was engaged in profiteering. TheCommissioner was therefore perfectly justified in cancelling theregistration. 11On the other hand, learned counsel Mr Soparkar opposed theappeal contending that the Tribunal has correctly examined the relevantaspects emerging from the record. The Trust desired to purchase land innewly developing area in the outskirts of the city of Ahmedabad whereeducational institution could be set up. The decision to purchaseagriculture land and then to apply for conversion arose out of commercialexpediency. The Trust probably hoped to acquire agriculture land in thename of the trustee who enjoyed agriculture status at a cost lesser than thenon-agriculture land would be available. The expenditure was debited inthe accounts of the Trust. The trustee has never claimed any title orinterest in the land. Merely because of some legal complications, the saledeed could not be completed would not imply that the funds of the Trustwere diverted for unauthorized use. 12Counsel further submitted that there is no prohibition againstcollecting funds from the students particularly, in self-finance institutions.Even educational institutions enjoying registration under the Act areallowed to retain a portion of the profit out of such activity as long as thesame is utilized for the purpose of its educational activities. 13Counsel lastly contended that, in any case, section 12AA(3) of the Act did not permit cancellation of registration on the ground of violationof section 11(1)(d) or 13(1)(c) of the Act. 12Counsel further submitted that there is no prohibition againstcollecting funds from the students particularly, in self-finance institutions.Even educational institutions enjoying registration under the Act areallowed to retain a portion of the profit out of such activity as long as thesame is utilized for the purpose of its educational activities. 13Counsel lastly contended that, in any case, section 12AA(3) of the Act did not permit cancellation of registration on the ground of violationof section 11(1)(d) or 13(1)(c) of the Act. 14Before adverting to the rival contentions, we may take brief note ofthis statutory provisions. Section 11 of the Act pertains to income fromproperty held for charitable or religious purposes. Sub-section (1) ofsection 11 provides that subject to the provisions of sections 60 to 63, theincome referred to in clauses (a) to (d) shall not be included in the totalincome of the previous year of the person in receipt of the income.Clause-(d) of sub-section (1) of section 11 pertains to income in the formof voluntary contributions made with a specific direction that they shallform part of the corpus of the trust or institution. Section 12 of the Actpertains to income of trusts or institutions from contributions. Sub-section(1) of section 12 provides that any voluntary contributions received by atrust created wholly for charitable or religious purposes or by aninstitution established wholly for such purposes (not being contributionsmade with a specific direction that it shall form part of the corpus of thetrust or institution) shall for the purposes of section 11 be deemed to beincome derived from property holding under Trust wholly for charitable orreligious purpose and the provisions of that section and section 13 shallapply accordingly. Section 12A prescribes the conditions for applicabilityof section 11 and 12. Under sub-section (1) of section 12A, one of theconditions is requirement of such trust or the educational institution beingregistered under section 12AA of the Act. Section 12AA of the Act in turn,prescribes the procedure for registration. Sub-section (3) which was addedto section 12AA w.e.f. 01.10.2004 reads as under: “(3) Where a trust or an institution has been granted registrationunder clause (b) of sub-section (1) [or has obtained registration atany time under section 12A [as it stood before its amendment bythe Finance (No.2) Act, 1996 (33 of 1996)] and subsequently the[Principal Commissioner or] Commissioner is satisfied that theactivities of such trust or institution are not genuine or are notbeing carried out in accordance with the objects of the trust orinstitution, as the case may be, he shall pass an order in writingcancelling the registration of such trust or institution: Provided that no order under this sub-section shall be passed unlesssuch trust or institution has been given a reasonable opportunity ofbeing heard.] 15In terms of sub-section (3) of section 12AA thus, the registrationcan be cancelled in case of a trust or institution if the Commissioner issatisfied that the activities of such trust or institution are not genuine orare not being carried out in accordance with the object of the Trust orinstitution, thereupon, he would pass an order in writing canceling theregistration of trust or new. 16Section 13 carries a title “Section 11 not to apply in certain cases”.Sub-section (1) of section 13 inter alia provides that nothing contained insection 11 or 12 shall operate so as to to exclude from the total income ofthe previous year of the person in receipt thereof in case of a trust forcharitable or religious purposes or a charitable or religious institution, anyincome thereof if any part of such income or property of the trust orinstitution is during the previous year unused or applied directly orindirectly for the benefit of any person referred to in sub-section (3). 16Section 13 carries a title “Section 11 not to apply in certain cases”.Sub-section (1) of section 13 inter alia provides that nothing contained insection 11 or 12 shall operate so as to to exclude from the total income ofthe previous year of the person in receipt thereof in case of a trust forcharitable or religious purposes or a charitable or religious institution, anyincome thereof if any part of such income or property of the trust orinstitution is during the previous year unused or applied directly orindirectly for the benefit of any person referred to in sub-section (3). 17From the above provisions, it can be immediately seen that theevent of cancellation of registration of a Trust in exercise of powers undersub-section (3) of section 12AA of the Act would arise when theCommissioner is satisfied that the activities of such Trust or institution arenot genuine or are not being carried out in accordance with the objects ofthe Trust or institution. Mere breach of the provisions contained in section11(1)(d) or 13(1)(c) per se would not fall within the either of the twogrounds available to the Commissioner to cancel the registration viz. Theactivity of the Trust not being genuine or not being carried out inaccordance with the objects of the Trust. The Tribunal was thus perfectlyjustified in coming to such a conclusion. Our view that we expressed getsforce from the decision of Uttranchal High Court in case of Welham Boy’sSchool. Society vs. Central Board of Direct Taxes and anr reported in285 ITR 74 19The Commissioner in order to bring his conclusions within the thefold of sub-section (3) of section 12AA of the Act extrapolated his findingsthat the Trust had diverted its funds for the objects other than for whichthe Trust was created and the Trust had received donations from thestudents and the activities of the Trust thus carried on along commerciallines. Both the conclusions, in our opinion, are completely incorrect. TheTribunal had examined the materials on record, agreed with the Trust’scontentions that desire on part of the Trust was to acquire land whichcould be used for setting up educational institution. Agreement to purchaseagriculture land was executed in name of the Managing trustee sinceobviously the Trust should not have even entered into an agreement topurchase agriculture land. Equally, merely because donations are receivedwould not per say imply that the Trust was operating along commerciallines. The Tribunal noted that the Trust was running several self financeeducational institutions. Collecting fees for such purpose would be part ofthe normal activities. Even for an educational institution, to retain areasonable surplus out of its activities has never been frowned upon byjudicial decisions. If at all this is getting more liberal. Prime requirement isthat such surplus should not be diverted for any other purpose. It must beutilized for the objects of the Trust. Reference in this respect can be madeto decision of Supreme Court in case of Queen’s Educational Society vs.Commissioner of Income Tax reported in 372 ITR 699. In the saiddecision, the Supreme Court considered the parameters for judgingwhether an institution exist solely for educational purpose and not for profit. It was observed that the fact, that the institution makes profit, doesnot necessarily mean it exists for profit. Similar view was expressed by theSupreme Court in case of Visvesvaraya Technological University vs.Assistant Commissioner of Income Tax reported in 384 ITR 37. profit. It was observed that the fact, that the institution makes profit, doesnot necessarily mean it exists for profit. Similar view was expressed by theSupreme Court in case of Visvesvaraya Technological University vs.Assistant Commissioner of Income Tax reported in 384 ITR 37. 20The Revenue’s reliance on the amended section 2(15) is also of noavail. Section 2(15) of the Act defines charitable purpose as to include anyrelief for the poor, education, yoga, medical relief, preservation ofenvironment including water sheds, forests and wildlife and preservationof monuments or places or objects of artistic or historic interest and theadvancement of any other object of general public utility. Provisio tosub-section (15) to section 2 of the Act was added by the Finance Act,2010 providing that the advancement of any other object of general publicutility shall not be a charitable purpose, if it involves the carrying on ofany activity in the nature of trade, commerce or business or any activity ofrendering any service in relation to any trade, commerce or business forcess or fee or any other consideration irrespective of the nature of use orapplication, or retention of the income from such activity. This provisotherefore applies to activity for the advancement of any other object ofgeneral public utility. Such activity would be excluded from the definitionof charitable purpose if it involves carrying on any activity in the nature oftrade, commerce or business or for cess or fee or any other consideration.Clearly, the legislature did not desire this condition or restriction to beattached to the remaining activities which were defined or categorized ascharitable purpose under sub-section (15) which includes the education. 21In the result, the questions are answered against the Revenue. TaxAppeal is dismissed.” 20We shall now look into the findings recorded by the CIT(A). Itreads thus: “18. The next ground relates to addition to the donations received towardsvarious funds. The appellant received various donations to various fundsestablished by it for respected activities relating to education as mention intable in para 4 above. During assessment proceeding the appellant claimedthe same as corpus donation. The appellant med few confirmations alongwith PA number, complete address with proof thereof, I have pursued thesaid confirmation. The said confirmations confirms as under: “Dear Sir, I, confirm that my son / daughter Hetvi Nikhil Patel is a proud student ofyour prestigious institute The H.B. Kapadía New High School, Memnagar,Ahmedabad. We had his/her admission in the year 2004 and had made a corpusdonation towards Trust's under mentioned funds NoFundsAmount1Education Research FundRs.3000/-2Sports Development FundRs.1000/-3Library FundRs.1000/-4Building FundRs.3000/-5Staff Welfare FundRs.1000/-6Student's Welfare fundRs.1000/-Ten Thousand onlyRs. Name: Dr. Nikhil M. Patel My address is: C/421, Pranav Appt. B/h. Sai Mandir Opp. Satadhar Bus Stand, Ghatlodia, Contact No. PAN Card No. Signature: _____________ Documents attached. Pan Card, Voter ID” 18.2Similar confirmations were filed in respect of various other persons.Though the confirmation reveals that they are in the nature of corpusdonation, the claim was rejected by the AO for the reasons stated in pare4’.3.1 and 432 on page 7 of the order. I Find that without doing anyexercise before rejecting the claim is unsustainable in law. Even though thenature maybe revenue receipt but can still retain the character of donationto corpus funds. When a donation is to a corpus. Such corpus can beestablished for the various objects of the Trust. The different fundsestablished as noted above will still retain the character of Corpus Opp. Satadhar Bus Stand, Ghatlodia, Contact No. PAN Card No. Signature: _____________ Documents attached. Pan Card, Voter ID” 18.2Similar confirmations were filed in respect of various other persons.Though the confirmation reveals that they are in the nature of corpusdonation, the claim was rejected by the AO for the reasons stated in pare4’.3.1 and 432 on page 7 of the order. I Find that without doing anyexercise before rejecting the claim is unsustainable in law. Even though thenature maybe revenue receipt but can still retain the character of donationto corpus funds. When a donation is to a corpus. Such corpus can beestablished for the various objects of the Trust. The different fundsestablished as noted above will still retain the character of Corpus donation. The law does not require that when the donation is to a Corpusthe same cannot be in the nature of use for which such Corpus donation isto be put. Therefore such donation to Corpus fund as confirmed by thedonor is eligible for exemption under section 11(1)(d) of the Act. Thereasons given for denying deduction U/s 11(1)(d) is that - (i) The Trust is not registered U/s 12A. (ii) The Trust has violated condition stated in section 13(1)(c](ii); 13(2)(b) & 13(2)(g) of the Act. 18.3 However, it is found that the order of revocation of registration U/s12A has been restored by the Hon. ITAT. I have also held that there is noviolation of the provision of section 13(1)(c)(ii); 13(2)(b) & 13(2)(g) ofthe Act. The appellant is therefore entitled is exemption U/s 11(I)(a) asalso section 11(I)(d) of the Act. The addition made in regard to variouscorpus donation received is therefore deleted for both the years. Grounds ofappeal Nos. 2.1, 2.2 & 2.3 are allowed. 19. As regards disallowance ofclaim of depreciation for the reason that the capital expenditure incurredon Fixed Asset has been allowed as expenditure in earlier years asapplication of funds. On the other hand, it is contended that depreciationis claimed from year to year but the capital expenditure itself was neverclaimed as application of fund & depreciation fund is created from year toyear which is reflected in the Balance Sheet. ! Have pursued the accountsfor the years under appeal. I find that only the expenditure incurred onobject of Trust including depreciation is claimed as application of incometowards object of Trust. On perusal of statement of computation ofincome, the same does not reveal any claim for capital expenditure asapplication of income. The depreciation fund is reflected in the BalanceSheet from year to year. Therefore the reasoning given by the AO is notsustainable so as to deny deduction of depreciation as application ofincome. The issue is also covered in favor of appellant by the decision ofHon. Gujarat High Court in case of CIT Vs Sheth Manilal RanchhodasVíshram Bhavan Trust (198 ITR 598 ) where in it was held that whilecomputing income U/s 11(1)(a) of the Act, depreciation has to be allowed.] therefore delete the disallowance of claim of depreciation for both theyears. Grounds of appeal Nos. 3.3 & 3.4 are allowed.” 21The findings recorded by the Appellate Tribunal are as under: “5After hearing both the parties and perusing the record, we find thatthere is no dispute about the fact that all the issues involved in theseappeals are covered by the decision of this Tribunal in assessee’s own casein ITA No. 1321 / Ahd/ 2011 for A.Y. 2008-09. Relevant portion of theTribunal in respect of ground No. 1 reads as under: 21The findings recorded by the Appellate Tribunal are as under: “5After hearing both the parties and perusing the record, we find thatthere is no dispute about the fact that all the issues involved in theseappeals are covered by the decision of this Tribunal in assessee’s own casein ITA No. 1321 / Ahd/ 2011 for A.Y. 2008-09. Relevant portion of theTribunal in respect of ground No. 1 reads as under: “(vi) Agitated with the treatment meted out at the findings of theCIT(A), the Revenue has come up with the present appeal. It wasthe case of the Revenue that the assessee had collected Rs.1,90,01,319/- from students at the time of admission. This amountwas not CREDITED to the income and expenditure but directlycredited to the balance sheet. During the course of scrutiny, theassessee had claimed this as a corpus donation. The assessee couldnot furnish any evidence in support of the claim that the fees andfunds collected from the students was a corpus donation. The feescontributed from students and their parents were for services to berendered by the school. The contribution by the students andparents are quid pro quo (for service rendered mutually). It was,further, contended that these were not donations, but, payments foradmission and services to be rendered by the school; that in thestatement of income filed along with the return of income; theamount of corpus donation was shown as Nil. It was, further,argued that it was because the entire donation of Rs.1.90 croreshas not been shown in the Income & Expenditure account, but,directly credited to balance sheet and no separate claim ofdeduction u/s 11(1)(d) of respect of the Act in respect of corpusdonation has been claimed in the return. (vii) We have duly considered the submissions of the either party,thoroughly perused the relevant case records and also thevoluminous paper book containing inter alia, copies (i) auditedannual account with tax audit report, (ii) trust deed. (m) samplereceipts towards corpus fund and tuition fees, (iv) banakath withMrs Sonusl J Jacasania etc furnished by the Ld. AR during thecourse of hearing. (a) The core contention of the Revenue, as rightly highlighted bythe CIT (A), was that the contributions aggregating to Rs.190crores made by the parents/students at the tame of admission inthe institution were in consideration of the services to be renderedby the school to the students. In contrast, the documentaryevidences, adduced by the assessee go to prove that the amountswere, in fact neither fixed nor identical in all the cases and toillustrate the classical example that almost 331 students have beenadmitted to the Institution without receiving a penny for such acontribution. The assessee had, in fact, furnished a list running intostaggering 29 pages showing the names of the students mstandard-wise and also the contributions towards ‘corpus fund’(Pages 111 138 of PB furnished by the Ld. AR. Copies of ledgeraccounts of different corpus funds produced by the assessee for verification exhibit that the amounts received have been credited toeach fund account of each receipt from the parents/students. Apartfrom such contributions towards ‘corpus funds’, it was noticed thatthe students have also paid towards tuition fess every year. Had thecontribution collected been towards education to be imparted bythe school as alleged by the Revenue, the institution would not haveresorted to charge separately the monthly/quarterly tuition, termand computer fees? Another salient feature noticed from theevidences produced was that the contribution by way of ‘corpusdonation’ ranges Rs.10000 - 15000 with no consequence of themedium of instruction and the standard in which the ward(student) was to be admitted. But not admitting, if thecontributions were to be quid pro quo as canvassed by the Revenue,the same should have been quite different depending upon themedium of instruction-wife and standard-wise. Another significantfea