G.D. Education Society Vs DCIT/ACIT (ITAT Delhi)
Delhi ITAT Reinstates Charitable Trust Registration – Alleged Financial Irregularities Cannot Override Genuine Educational Activities
In a landmark 83-page ruling, the Delhi ITAT quashed the cancellation of registration of G.D. Education Society, holding that alleged financial irregularities, disputed salary payments, property transactions or possible violations of section 13 cannot automatically lead to cancellation of registration u/s 12AB when the trust’s predominant activity of imparting education remains genuine and undisputed.
The Society, running educational institutions including Billabong High International School and Kangaroo Kids School, had faced search proceedings pursuant to action in the PPC Group. Based on search material, the PCIT invoked section 12AB(4) and cancelled registration from AY 2018-19 onwards alleging bogus salary payments, diversion of funds to trustees/related parties, cash receipts from ancillary activities and bogus construction expenses.
The Tribunal made an important distinction between “activities” of a trust and isolated “transactions” carried out during administration of such activities. It held that cancellation of registration is permissible only where the very activities of the trust are found to be non-genuine or contrary to objects. Mere allegations relating to financial transactions, salary disputes, benefit to specified persons or possible section 13 violations may at best impact exemption during assessment proceedings, but cannot by themselves justify cancellation of registration.
Relying heavily on the Karnataka High Court rulings in A.S. Kupparaju Brothers Charitable Foundation Trust and Islamic Academy of Education, the ITAT reiterated that where schools and colleges are genuinely functioning and educational activities are actually carried out, registration cannot be cancelled merely because there are allegations of fund diversion or misuse by trustees. Such matters are to be examined separately while granting exemption u/ss 11 and 13.
The Tribunal further held that the PCIT fundamentally erred in invoking clauses (a) and (e) of Explanation to section 12AB(4). According to the ITAT, there was not even a whisper in the cancellation order that the Society had abandoned or deviated from its core object of imparting education. Even after search proceedings, no material was found showing that educational activities were sham, fictitious or not genuine.
A particularly significant observation of the Tribunal was that section 13 violations and cancellation of registration operate in different fields. The Bench held that even assuming certain payments benefited specified persons, the consequence contemplated by law is denial of exemption or taxation under provisions like section 115BBI — not automatic cancellation of registration itself.
Accordingly, the Delhi ITAT held that the PCIT had wrongly mixed up assessment-stage consequences with registration-stage consequences and quashed the cancellation order passed u/s 12AB(4), thereby restoring the Society’s charitable registration.
FULL TEXT OF THE ORDER OF ITAT DELHI
