Chennai ITAT: Section 12AA Registration Cannot Be Cancelled Merely on Uncorroborated Allegation of Capitation Fee Collection

Srinivasan Charitable and Educational Trust Vs PCIT (ITAT Chennai)

Chennai ITAT: Section 12AA Registration Cannot Be Cancelled Merely on Uncorroborated Allegation of Capitation Fee Collection

The Chennai ITAT quashed the order cancelling the registration of Srinivasan Charitable and Educational Trust under section 12AA(3), holding that registration of a charitable trust cannot be withdrawn merely on the basis of uncorroborated loose sheets, third-party statements, and suspicion regarding alleged collection of capitation fees.

The Principal CIT had cancelled the Trust’s registration retrospectively after a search, alleging that the Trust had collected capitation fees based on loose sheets recovered from third-party premises, statements of certain employees, and electronic records. The Tribunal found that the Trust continued to run recognised educational institutions and a hospital, provided scholarships and free medical treatment, and had even expanded its charitable activities by establishing additional educational institutions in subsequent years. These undisputed facts demonstrated that the core charitable activities remained genuine and continued in accordance with the Trust’s objects.

The Tribunal observed that the alleged capitation fee collection rested primarily on uncorroborated loose sheets recovered from third parties, whose evidentiary value was doubtful. The Revenue had failed to independently verify the alleged transactions by examining parents or obtaining reliable corroborative evidence. The seized material did not conclusively establish that the Trust itself had collected capitation fees or that any such amounts had reached the Trust. The Tribunal also noted inconsistencies in the statements relied upon by the Department and found that the evidence was insufficient to conclude that the Trust’s activities had become non-genuine.

Emphasising the distinction between assessment proceedings and registration proceedings, the Tribunal held that cancellation under section 12AA(3) is justified only where the activities of the trust are not genuine or are not carried out in accordance with its charitable objects. Even if individual transactions are disputed, such issues may be examined in assessment proceedings or while determining exemption under sections 11 and 12, but they do not automatically justify cancellation of registration. Since the Revenue failed to establish any fundamental deviation from the Trust’s charitable objects, the Tribunal set aside the cancellation order and restored the Trust’s registration.

Cases Discussed

• Independent and Public Spirited Media Foundation (ITAT Bangalore), (2026) 182 taxmann.com 403
• Richmond Educational Society Vs DCIT, [2026] 184 com 281
• Smt. N. Saroja vs. ACIT (Madras High Court), TCA No.1395 to 1401 of 2019 dated 18.03.2026
• CMR Education Society Vs DCIT, [2025] 179 com 424
• Advantage India (Delhi Tribunal), (2025) 178 com 605
• Lala Sher Singh Memorial Jeevan Vigyan Trust Society Vs Pr. CIT (Delhi Trib), [2025] 175 com 671
• Hemkunt Foundations Vs Pr. CIT, Central (Delhi Trib), [2025] 175 com 918
• M. Patel Charitable Trust Vs PCIT (Pune Trib), [2025] 172 taxmann.com 316
• Padmashree Dr. D.Y. Patil University vs. DCIT, [2024] 159 taxmann.com 353
• Sinhgad Technical Education Society v. Principal Commissioner of Income-tax (Pune Trib.), [2023] 149 com 227
• DCIT(E) vs. Kalinga Institute of Industrial Technology (Supreme Court of India), 454 ITR 582
• CIT v. Saveetha Institute of Medical and Technical Sciences, 185 Taxmann.com 81
• Auro Lab vs. ITO (Madras High Court), [2019] 411 ITR 308
• Vignana Jyothi v. DIT (Hyderabad – Trib.), [2017] 81 com 204
• Sri Vidyaranya Seva Sangha v. CIT Hubli (Bangalore Tribunal), (2016) 71 com 152
• Islamic Academy of Education v. State of Karnataka (Supreme Court of India), (2003) 6 SCC 697
• TMA Pai Foundation and others v. State of Karnataka (Supreme Court of India), (2002) 8 SCC 481

FULL TEXT OF THE ORDER OF ITAT CHENNAI

This is an appeal preferred by the assessee-Trust (hereinafter called in short as assessee-Trust/Appellant Srinivasan Trust’) against the order of the Learned Principal Commissioner of Income Tax, Central-2, Chennai (hereinafter referred to as ‘Ld.PCIT’) dated 11.11.2025 passed u/s 12AA(3) of the Income Tax Act, 1961 (hereinafter ‘the Act’) cancelling the registration granted under section 12AA with effect from 01.04.2011 and onwards.

2. The facts in brief are that, the assessee-Trust is a Public Charitable Trust registered under the Indian Trusts Act, 1882 on 21.08.2006 vide document No.211/2006 with the aims and objects to inter alia establish, promote, set up, run, maintain, help charitable institutions, educational institutions and human resource development institutions, for the welfare of all, irrespective of cast, creed, colour, language, sex, status and nationality through education, training, and research of all kinds for the public who are living in villages and who suffer from social and economic backwardness. It is noted that, in pursuance of these objects the assessee-Trust had constructed and was operating four educational institutions viz., Dhanalakshmi Srinivasan Medical College, Dhanalakshmi Srinivasan Dental College, Dhanalakshmi Srinivasan Nursing College and Srinivasan College of Nursing. The assessee-Trust is also operating a medical institution namely Dhanalakshmi Srinivasan Hospital. All these colleges and hospital have been established at Perambalur.

3. A search action u/s 132 of the Act was conducted upon the assessee-Trust on 15.02.2018. According to the Revenue, the search action resulted in unearthing of several incriminating material comprising of note books, loose sheets etc., pursuant to which, the Ld.PCIT , Central-2, Chennai vide order u/s 12AA(3) of the Act dated 18.12.2019 cancelled the registration granted to the assessee-Trust. It is seen that, the aforesaid order was set aside on 08.11.2024 by this Tribunal with a direction to Ld. PCIT to pass de novo order after giving proper opportunity to the assessee-Trust. In pursuance of the directions of this Tribunal, the Ld. PCIT has passed the impugned order dated 11.11.2025, which is under challenge before us both on legal grounds as well as on merits.

4. The Ld. PCIT is found to have observed in his order that, several loose sheets were found and seized from the premises of Smt. Ezhilarasi which were ID marked Annexure/PV/RE/LS/S-1. According to him, Smt. Ezhilarasi was a Senior Assistant associated with the assessee-group for over 10 years and that she was the concerned person who was attending to the matters related to the admission of students, collection of fees etc. The Ld. PCIT extracted the relevant loose sheets at Pages 5-8 of the impugned order, and observed that, these loose sheets contained the details of capitation fee collected from the students who got admitted in the Medical College under the management quota. According to him, the names found noted in these loose sheets correlated with the details of students admitted in the medical college, as available in the website and therefore according to him, the contents of the loose sheets stood corroborated. The Ld. PCIT further observed that, Smt. Ezhilarasi had also admitted in her statement recorded u/s 132(4) of the Act that, they had collected capitation fees from students in FYs 2014-15 & 2015-16, but no capitation fees was collected in FYs 2016-17 & 2017-18. When confronted with her statement, it is observed that, Shri S Kathivaran, Vice Chairman of the medical college, had categorically denied any collection of capitation fees and instead stated that, the notings maintained by Smt. Ezhilarasi comprised of anonymous donations sourced by him from various sources. The Ld. PCIT didn’t give any evidence to it and discarded his statement by observing that it lacked any credibility. For this, he referred to certain letters addressed by parents to the medical college seeking refund of the fees paid by them as their wards had failed to secure admission.

5. The Ld. PCIT further referred to Page No. 43 of bunch of loose sheets ID marked ANN/VP/DSC/LS/S-1 seized from the office of M/s Dhanalakshmi Srinivasan Chit Funds Pvt Ltd, which according to him, contained details of capitation fees collected from eleven students for the academic year 2016. The Ld. PCIT observed that, Shri S Kumaragurubaran, General Manager of M/s Dhanalakshmi Srinivasan Chit Funds Pvt Ltd had also confirmed the notings on these loose sheets to represent capitation fees collected from students. This seized material and the statement was also rebutted by the Vice Chairman of the college in his statement dated 18.02.2018. The Ld. PCIT however was not convinced with the statement of the Vice Chairman. He remarked that Shri Kathiravan’s assertion that, the character of the payment is not capitation fee is not tenable. The Ld. PCIT proceeded to quantify the collection of capitation fees from these loose sheets for FYs 2014-15 to 2016-17 at Rs.78.51 crores, and to corroborate his assertion, he referred to evidences of cash payments found & seized in the course of search to the tune of Rs.3.66 crores. The Ld. PCIT observed that, the electronic devices ID marked ANN/GARS/DSMC/ED/S revealed payments of salaries & incentives to doctors and staff in cash to the extent of Rs.3.66 crores, which in his view demonstrated the application of the capitation fees collected by the medical college.

6. In view of the above observations, the question put forth by the Ld. PCIT was whether the above facts as discussed (supra) would justify the action u/s 12AA(3) of the Act to cancel the registration u/s 12A of the Act. The Ld. PCIT is found to have discussed several judicial precedents viz., TMA Pai Foundation and others Vs State of Karnataka (2002) 8SCC 481, Islamic Academy of Education Vs State of Karnataka (2003) 6SCC 697, Unnikrishnan J P Vs State of Andhra Pradesh (1993) 1 SCC 645, M/s. Prathyusha Educational Trust, Chennai Vs ACIT (ITA No.370/Chny/2017), and observed that such activities involving collection of capitation fees which entails the violation of law cannot be deemed as genuine activity of a charitable trust. According to him, the receipt of capitation fee goes on to establish that the assessee-Trust was not existing for the sake of the charitable activities but with the intent to derive unlawful gains and as such they are ineligible for the benefits accorded u/s 12A of the Act. The Ld. PCIT is noted to have taken specific note of the Tamil Nadu Educational Institutions (Prohibition of collection of capitation fee) Act 1992 which prohibits collection of capitation fee and notes the purpose for enactment of the same “Whereas these undesirable practices, besides contributing to a large-scale commercialization of eduction, has not been conducive to the maintenance of education standards”. The Ld. PCIT was of the view that, the evidences recovered in the course of search revealed that the assessee-Trust has violated the provision of the beneficial terms contained under the Act in many ways and such contumacious conduct in running of the trust goes against the basic contents of the trust and trustee. With these observations, the Ld. PCIT formed his view that, the assessee-Trust has been carrying on its activities not in accordance with the objectives of the trust and is in violation of the objectives of the trust and thus issued show case notice to the assessee-Trust dated 09.09.2025 calling upon the trustee(s) to justify as to why the registration accorded u/s 12AA of the Act should not be cancelled. After examining the contentions put forth by the assessee-Trust, the Ld. PCIT rejected the same, by observing as under:-

“This contention of the assessee-Trust is against the provisions of the Income Tax Act, 1961 and the presumptions governing the finding of evidence under the Act.

Sec. 153A of the Act states, Assessment in case of search or requisition.-[(1)] Notwithstanding anything contained in ssection139, section 147, section 148, section 149, section 151 and section 153, in the case of a person where a search is initiated under section 132 or books of account, other documents or any assets are requisitioned under section 132A after the 31st day of May, 2003, the Assessing Officer shall-

1. issue notice to such person requiring him to furnish within such period, as may be specified in the notice, the return of income in respect of each assessment year falling within six assessment years and for the relevant assessment year or years referred to in clause (b), in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed and the provisions of this Act shall, so far as may be, apply accordingly as if such return were a return required to be furnished under section 139;

2. assess or reassess the total income of six assessment years immediately preceding the assessment year relevant to the previous year in which such search is conducted or requisition is made and for the relevant assessment year or years]:

Provided that the Assessing Officer shall assess or reassess the total income in respect of each assessment year falling within such six assessment years and for the relevant assessment year or years:

Provided further that assessment or reassessment, if any, relating to any assessment year falling within the period of six assessment years and for the relevant assessment year or years referred to in this sub­section pending on the date of initiation of the search under section 132 or making of requisition under section 132A, as the case may be, shall abate:

[Provided also that the Central Government may by rules made by it and published in the Official Gazette (except in cases where any assessment or reassessment has abated under the second proviso), specify the class or classes of cases in which the Assessing Officer shall not be required to issue notice for assessing or reassessing the total income for six assessment years immediately preceding the assessment year relevant to the previous year in which search is conducted or requisition is made (and for the relevant assessment year or years]:

[Provided also that no notice for assessment or reassessment shall be issued by the Assessing Officer for the relevant assessment year or years unless-

(a) the Assessing Officer has in his possession books of account or other documents or evidence which reveal that the income, represented in the form of asset, which has escaped assessment amounts to or is likely to amount to fifty lakh rupees or more in the relevant assessment year or in aggregate in the relevant assessment years;

(b) the income referred to in clause (a) or part thereof has escaped assessment for such year or years; and

Second Presumption:

Sec. 132(4A) states, “Where any books of account, other documents, money, bullion, jewellery or other valuable article or thing are or is found in the possession or control of any person in the course of a search, it may be presumed- (i) that such books of account, other documents, money, bullion, jewellery or other valuable article or thing belong or belongs to such person;

(ii) that the contents of such books of account and other documents are true; and

(iii) that the signature and every other part of such books of account and other documents which purport to be in the handwriting of any particular person or which may reasonably be assumed to have been signed by, or to be in the handwriting of, any particular person, are in that person’s handwriting, and in the case of a document stamped, executed or attested, that it was duly stamped and executed or attested by the person by whom it purports to have been so executed or attested.]

Third Presumption:

Sec. 292C of the Act states, “Presumption as to assets, books of account, etc.-

[(1)] Where any books of account, other documents, money, bullion, jewellery or other valuable article or thing are or is found in the possession or control of any person in the course of a search under section 132 (or survey under section 133A), it may, in any proceeding under this Act, be presumed-

(i) that such books of account, other documents, money, bullion, jewellery or other valuable article or thing belong or belongs to such person;

(ii) that the contents of such books of account and other documents are true; and

(iii) that the signature and every other part of such books of account and other documents which purport to be in the handwriting of any particular person or which may reasonably be assumed to have been signed by, or to be in the handwriting of, any particular person, are in that person’s handwriting, and in the case of a document stamped, executed or attested, that it was duly stamped and executed or attested by the person by whom it purports to have been so executed or attested.]

From the above provisions of the Act it is abundantly clear that the Legislature intended that the findings of the search to be protected under law of evidences and therefore has stated in the provision that the books/documents etc. found in the possession of any person shall be relevant and includible for the purposes of the assessments pertaining to search and that the contents of the same are presumed to be right, legally. In view of the above clear provisions, the contention of the assessee-Trust that they were found in another premises and hence not relevant does not hold water and accordingly rejected.

II) Sheets containing mere scribblings:

The contention of the assessee-Trust that the seized material based on which the present proceedings are initiated are mere scribblings is not as per the presumption of authenticity provided to books/documents etc discovered and seized during the course of the search under section 132 of the Act. At the cost of repetition it is reiterated that Sec.292C of the Act states, “Presumption as to assets, books of account, etc.-

[(1)] Where any books of account, other documents, money, bullion, jewellery or other valuable article or thing are or is found in the possession or control of any person in the course of a search under section 132 [or survey under section 133A), it may, in any proceeding under this Act, be presumed-

(i) that such books of account, other documents, money, bullion, jewellery or other valuable article or thing belong or belongs to such person;

(ii) that the contents of such books of account and other documents are true; and;

Moreover, it is to be regarded that the proceedings under section 132 of the Act are extra-ordinary proceedings to discover and plug pilferage of revenue when the assesses do not report their actual and correct incomes for the purposes of taxes. As the books reported towards tax purposes are kept ready and prepared, it would be but far fetched to presume that the unreported transactions would be maintained in the same methodical manner as reported/audited accounts for tax purposes. In order to circumvent such a scenario, the Parliament has provided a legal presumption in the Act in sec. 292C(1)(ii) which provides, “) that the contents of such books of account and other documents are true”. Therefore, the contention of the assessee-Trust that these are mere scribblings does not in any way dissipate the evidentiary value of these seized material found during the course of the search proceedings under section 132 of the Act. Accordingly, the objection of the assessee-Trust is rejected.

III) Discrepancies in statements recorded:

Sec. 132(4) clearly states that, “The authorized officer may, during the course of the search or seizure, examine on oath any person who is found to be in possession or control of any books of account, documents, money, bullion, jewellery or other valuable article or thing and any statement made by such person during such examination may thereafter be used in evidence in any proceeding under the Indian Income-tax Act, 1922 (11 of 1922), or under this Act.

[Explanation. For the removal of doubts, it is hereby declared that the examination of any person under this sub-section may be not merely in respect of any books of account, other documents or assets found as a result of the search, but also in respect of all matters relevant for the purposes of any Investigation connected with any proceeding under the Indian Income-tax Act, 1922 (11 of 1922), or under this Act.]

The contention of the assessee-Trust that there are discrepancies in the sworn statements is considered and it is clarified that the sworn statements recorded during the course of search proceedings u/s 132 of the Act have been cloaked with evidentiary value not only for the search proceedings but in respect of all matters relevant for the purposes of any investigation. So the assessee-Trust’s attempt to restrain and straitjacket the interpretation of the provision is ill advised and accordingly rejected.

IV) No examination of parents:

The assessee-Trust contends that there was no examination of the parents during the course of the search proceedings and that they have given undertaking post-search that no capitation fee was given by them. The contention of the assessee-Trust is perused and considered as under :

According to the Indian Evidence Act, 1872 the burden of proof is stated as under.

Sec.101. Burden of proof. Whoever desires any Court to give judgment as to any legal right or liability dependent on the existence of facts which he asserts, must prove that those facts exist. When a person is bound to prove the existence of any fact, it is said that the burden of proof lies on that person.

It would be trite justice to accept the contention of the assessee-Trust that the parents have given submissions post-search on certain transactions which are the bone of contention of these and other related proceedings when no documents undertaking making such huge donations were available at the relevant premises during the course of search u/s 132 of the Act to render the transactions impugned with any aorta of genuineness. Further, as mentioned above, under the Indian Evidence Act, 1872, the burden of proof was on the assessee-Trust to produce proof to the contrary of the search findings to support their claim. Accordingly, the contention of the assessee-Trust is rejected.

V) Doctor payments not referred for statements:

The contention of the assessee-Trust that all the payments to Doctors were reflected in the regular accounts of the assessee-Trust are against the evidences found during the course of the search proceedings u/s 132 of the Act. The assessee-Trust has also stated that they are not aware of the which seized material of the search is being relied on for these payments. On examination of the case records it emanates that during the course of search proceedings electronic devices were seized vide annexure ANN/GARS/DSMC/ED/S dated 15.02.2018 wherein cash payments to Doctors and Technicians were recorded. The said documents were shown to Sri.G.Raja, Accountant of Dhanalakshmi Srinivasan Medical College and Hospital and Sworn statement recorded from him on 17.02.2018 wherein he has stated that these are, “cash incentive given to doctors and workers and lab technicians”. These details have also been furnished to the assessee-Trust vide show cause issued by this office initially on 29/11/2019 in DIN ITBA/COM/F/17/2019-20/1021327860(1) and again vide show cause issued by this office on 09/09/2025 in DIN ITBA/COM/F/17/2025-26/1080497699(1), in view of the set aside of the original proceedings by the Hon’ble Tribunal.

In view of the above and the fact that the assessee-Trust has not made any submissions contrary to the findings of the search: the contention of the assessee-Trust on this ground is rejected.”

7. The Ld. PCIT thus concluded that activities of the assessee-Trust are not genuine as being a charitable institution, it is not expected to engage in activities that would amount to profiteering. Relying on the evidences recovered during search and statements recorded from the trustees and officer in-charge, he concluded at para 22 of the impugned order that, the assessee-Trust has not carried out its activities in accordance with the objective of the trust and thus found it to be a fit case for cancellation of the registration u/s 12AA(3) of the Act. The Ld. PCIT thus cancelled the registration by this impugned order dated 11.11.2025 retrospectively from AY 2012-13 onwards. Aggrieved by the aforesaid action of the Ld.PCIT, the assessee-Trust has preferred appeal before this Tribunal by raising the following grounds of appeal:-

“The order of the PCIT dated 11.11.2025 is erroneous and liable to be quashed as the same is opposed to law and the facts and circumstances of the case.

2. The PCIT lacks jurisdiction to pass the impugned order, the same is illegal and liable to be annulled.

3. The PCIT grossly erred in cancelling the appellant’s registration u/s. 12AA of the Act by way of the impugned order, passed in a summary manner.

4. The PCIT having comprehensively failed to even consider the various objections raised by the appellant regarding the admissibility and reliability of the statements recorded and evidences collected during the search, the arbitrary order cancelling the registration is to be quashed.

5. The registration having been cancelled on the basis of inadmissible documents found in third party’s premises, in the absence of any evidence to corroborate the same, the impugned order is illegal.

6. The loose sheets forming the basis for the allegations having not been linked to the appellant in any manner, cancellation of the registration by placing reliance on such documents is bad in law.

7. In any event, loose sheets found being mere dumb documents lacking any evidentiary value, cancellation of registration by placing reliance on the same is wholly illegal.

8. The PCIT has grossly erred in placing reliance on uncorroborated depositions of certain employees and staff of the appellant, which are by themselves inaccurate, inconsistent and riddled with falsities.

9. Moreover, the statements relied upon being completely unreliable and inadmissible due to the circumstances in which the same have been supposedly recorded, the PCIT’s finding as to receipt of capitation fees by placing reliance on such statements is wholly erroneous and illegal.

10. The charge of receipt of capitation fees having nowhere been proved by the Department via admissible and relevant evidence, the drastic action of the PCIT in cancelling the registration on such unfounded allegation is wholly illegal.

11. No independent evidence / examination having been carried out either by the PCIT or the AO to corroborate the supposed transactions recorded in the documents found during the search, the PCIT’s finding that capitation fees was collected by the appellant is incorrect.

12. The PCIT’s finding that the appellant had collected capitation fees having thus been rendered on the basis of inadmissible loose sheets and incorrect depositions, which remain uncorroborated, the cancellation of registration on such incorrect finding is bad in law.

13. The PCIT grossly erred in concluding that the appellant had made unaccounted cash payments to the doctors and staff, without recording the same in the books of accounts.

14. The very basis for this allegation having never been furnished / clarified by the PCIT, the finding is incorrect and erroneous.

15. The appellant having duly recorded all payments of salary and incentive to doctors and staff in its books, the PCIT’s finding is incorrect.

16. Any other ground raised at the time of hearing.”

8. Assailing the action of the Ld. PCIT, the Ld.Counsel/AR of the assessee-Trust Shri G. Bhaskar assisted by Shri P.M. Kathir first took us through the manner of formation of the assessee-Trust along with the details of the activities including the educational & medical institutions being operated by them and the students enrolled with them. According to Shri. G. Bhaskar, the PCIT had erred in observing that the assessee-Trust was conducting the activities with the intent of making profit, whereas the contemporaneous facts on record showed that, the hospital being operated by the assessee-Trust was consistently administering treatment and various surgical procedures free of cost to the needy and that the colleges have regularly given scholarships and fee concessions to students to encourage their education and augment their financial needs. The Ld. AR took us through the relevant financials of the assessee-Trust to corroborate his assertion. He thus submitted that the activities of the assessee-Trust were indeed genuine and therefore the Ld. PCIT was unjustified in cancelling the registration. The Ld. AR argued that, it was never in dispute that the aims and activities of the appellant was to provide education and healthcare facilities and to enable the same, the appellant has established medical colleges and hospital, which were being run and operated by them. Hence, according to him, it cannot be said that the assessee-Trust has failed to carry out its activities in accordance with its objects. Referring to the several judicial precedents, which we shall discuss later, the Ld. AR claimed that, as long as the activities of the trust was in accordance with the objects and its genuineness was not in doubt, the Ld. PCIT was unjustified in cancelling the registration u/s 12AA(3) of the Act.

9. The Ld. AR thereafter strongly assailed the allegation that, the assessee-Trust has collected capitation fees from the students admitted to the management quota claiming it to be false. The Ld. AR individually addressed each of the allegations levelled by the Ld. PCIT for inferring that the assessee-Trust was collecting capitation fees. Firstly, he submitted that the Loose Sheets (LS) in Annexure/PV/RE/LS/S-1 and electronic device ID marked Ann/VP/DSC/LS/S-1 was seized from the residential premises of Smt. R.Ezhilarasi & office premises of M/s Dhanalakshmi Srinivasan Chit funds Pvt Ltd respectively, and not from the premises of the appellant. He thus contended that, the contents of the seized material is to be presumed to belong to the person from whom it was seized and that the contents of the seized material can be presumed to be true as against the person from whom the materials were seized.

Since these material were seized from the premises of third party, he submitted that same cannot be presumed to be true and relating to the assessee-Trust, particularly when it did not contain any stamp, signature or acknowledgement from Trustees or management of the assessee-Trust. For this, he relied on the decision of the ITAT, Agra in the case of Sharda Educational Trust vs. CIT [2014] 147 ITD 271. The Ld. AR particularly emphasized reliance on the decision of ITAT Mumbai in the case of Padmashree Dr. D.Y. Patil University vs. DCIT [2024] 159 taxmann.com 353 wherein also the material purportedly containing details of collection of capitation fees was recovered from the residence of the employees and the assessee-Trust had not owned up the contents of the material seized but had refuted the same.

10. The Ld. AR further showed us that the entire case of the Ld. PCIT primarily rested on the loose sheets seized from the premises of Smt. R. Ezhilarasi and the statement recorded from her u/s 132(4) of the Act. The Ld. AR pointed out that, the contents of the loose sheets itself were incomprehensible in as much as unreliable and therefore the inference drawn by the Ld. PCIT was nothing but surmises. The Ld. AR submitted that Smt. R. Ezhilarasi had supposedly explained that the contents of the loose sheets contained the details of capitation fees collected from the students for admission in academic years 2014-15 and 2015-16. The Ld. AR submitted that the notings made in these loose sheets were mere scribblings, which were unreliable and no credence could have been assigned to it. He pointed out that, according to Smt. R. Ezhilarasi, the 3rd column of the sheet written in red ink against the candidate’s name represented capitation fees collected. However, beside the same, certain other values are written in blue ink. At the final four columns, certain other amounts are written with the remarks paid. By way of illustration, the Ld. AR took us through a specific portion of the tabulation in the loose sheet at page 243, which is reproduced hereunder:-

38	Deepika A	53.50	14	27	11	1			0.50	6.5	6.5	Paid
39	Dhivyaalakshmi S	57	25	10	16	6			Paid	6.5	4	2.5
40	Prasanth Velan JP	55	10	20	25				Paid	6.5	6.5	Paid
41	Vishnu Priya K (DIG)	42	20	22					Paid	6.5	3	3.5
42	Swesthikka R	50	16	30					4	6.5	6.5	Paid

11. Referring to the above, he reiterated that, according to Smt. R. Ezhilarasi, the entry in red ink in the 3^rd column represented the capitation fees collected. Taking us through her statement, he pointed out that, Smt. R. Ezhilarasi did not explain the nature of the entries following the third column, written in blue ink. According to him, by application of simple logic and maths, the columns 4 to 9 are break-ups of column 3 as the difference between the sum of columns 4 to 9 and column 3, if any has been recorded in column 10 at certain places. He further showed us that, columns 11 and 12 contained entries upto a maximum of Rs.6.5 lakhs each, which according to Ld. AR presumably represented the tuition and hostel fees, as they are in the same range which the assessee-Trust charges from its students. Assuming that, the break-ups at columns 4 to 9 are the year-wise alleged collection of capitation fees mentioned at column 3, the Ld. AR submitted that, such an inference defies common prudence and logic. He submitted that, ordinarily the capitation fees is the fees charged in exchange for admission and that the admission itself depends upon the payment of the same and in the absence of payment of such fees, admission is usually denied. If that be true, the Ld. AR submitted that, the allegation that the entries in the columns 3, 4 to 9 represent the capitation fees collected by the assessee-Trust across the duration of the course cannot be true for the reason that the purported capitation fees are being collected post admission, in each year and much later into the course of the degree. The Ld. AR submitted that capitation fees being in the nature of an informal consideration is a precondition to the grant of admission and is thus invariably collected upfront, in lump sum, at the very point of admission itself. It would thus defy commercial logic, prudence, and common understanding to suggest that an institution engaging in such a practice would agree to staggered or deferred collection of capitation fees over a period of the academic course. He thus claimed that, the notings on the recovered loose sheets, therefore, do not conform to the manner in which capitation fees are known to operate in practice, and thus the scribblings whose columns 4 and onwards were not explained by the author i.e. Smt. R. Ezhilarasi lacked credence. He thus claimed that these loose sheets, which formed the foundation of the allegations of the Ld. PCIT was unreliable evidence and insufficient to sustain the case of the Revenue. Thus, according to Ld. AR, these loose sheets cannot be treated as sacrosanct evidence for collection of alleged capitation fees. He further submitted that the entries made at columns 7 against each “student” also defied logic and it presumably denoted collection made in 4th year, whereas the students whose names featured in the loose sheet were in their third year of college. He also pointed out that, column 10, in some instances, contained outstanding amount(s) due, which according to him, was unfathomable, if the noting in column 3 denoted capitation fees. The Ld. AR submitted that, ordinarily, the capitation fees would have been collected in the year of admission i.e. FY 2015-16 and no portion would have remained outstanding on the date of search. He further referred to the statement of Smt. R. Ezhilarasi who had categorically asserted that the capitation fees were only collected in FYs 2015-16 & 2016-17 and if that be true, then, the notings at columns 6 & 7 contradicts her statement, making her assertions unreliable.

12. In support of the above contentions, the Ld. AR invited our attention to the statement of Shri S. Kathiravan, Vice Chairman, wherein he had categorically denied the contents of the above material and the statement of Smt. R. Ezhilarasi and asserted that they had not received any capitation fees but anonymous donations were received by the Group. He submitted that, Shri S. Kathiravan was being questioned in quick succession about various entities in the Dhanalakshmi Srinivasan Group, as he was trustee in three different trusts and thus, he had mixed up certain answers. He pointed out that, Shri S. Kathiravan in his retraction affidavit dated 20.08.2018 had explained that anonymous donations were received by Srinivasan Health and Educational Trust and not the assessee-Trust, wherein they had surrendered and offered income of Rs.65.19 crores. The Ld. AR thus submitted that, when confronted with such allegations, the management of the assessee-Trust had denied collection of alleged capitation fees and therefore the Ld. PCIT was unjustified in conveniently ignoring the same.

13. The Ld. AR similarly countered the alleged material seized from the office premises of M/s Dhanalakshmi Srinivasan Chit funds Pvt Ltd, basis which it was being alleged that the assessee-Trust had collected capitation fees from eleven students in FY 2016-17. He reiterated that, the material was seized from the office premises of M/s Dhanalakshmi Srinivasan Chit funds Pvt Ltd and therefore the contents thereof could not be presumed to be true qua the assessee-Trust. In so far as the statement of Shri S Kumaragurubaran was concerned, the Ld. AR submitted that he was neither the employee or trustee of the assessee-Trust and thus his assertions alone were unreliable. He brought to our notice that, he was put a leading question No. 32 that, he had collected capitation fees from students in September & October 2016, to which he answered in affirmative. He rebutted his answer by showing us that the Revenue itself was of the view that, capitation fees could not have been collected from FY 2016-17 and onwards upon introduction of NEET and that the Department themselves had referred to several material wherein the parents who had paid fees in advance were refunded back due to their wards’ failure to qualify NEET. He further brought to our notice that, after introduction of NEET, the Department of Medical Education has fixed a cap on the fees that can be charged by medical colleges even for the students being admitted under the management quota and therefore it was practically impossible for the assessee-Trust to collect capitation fees from students after introduction of NEET. The Ld. AR thus submitted that, the loose sheets seized from the premises of M/s Dhanalakshmi Srinivasan Chit funds Pvt Ltd was unreliable as it lacked corroboration.

14. The Ld. AR then came back to the statement of the author of loose sheets, Smt. R. Ezhilarasi from whose possession they were found and which formed the basis of the impugned cancellation order. The Ld. AR submitted that Smt. R. Ezhilarasi was not employed with the assessee-Trust but another Dhanalakshmi Srinivasan Charitable and Educational Trust (DSCET) during this year. He thus submitted that, when she was not even employed with the assessee-Trust, it was imprudent to presume that she was instructed by the management to collect fees from the students on behalf of the medical college operated by the assessee-Trust. The Ld. AR then explained to us that, Smt. R. Ezhilarasi was the office assistant of DSCET, and in charge of the reception at DSCET’s trust office and that she had no role in any capacity in the medical college, and therefore her alleged involvement in alleged collection of capitation fees from the students was not possible. He further showed us that, at the time of search itself, when the Vice Chairman of the assessee-Trust was confronted with the statement of Smt. R. Ezhilarasi, he had categorically denied the allegations of collection of capitation fees. He further brought to our notice, the affidavit furnished by Shri Kathiravan wherein, he had categorically asserted that, the management of the trust is not responsible for whatever sheets were maintained by Smt. R. Ezhilarasi and others. According the Ld. AR, therefore the reliance placed by the Ld. PCIT on such loose sheets and the statement of Smt. R. Ezhilarasi was unjustified.

15. To further buttress his above contentions, the Ld. AR argued that, the statement of Smt. R. Ezhilarasi itself was unreliable, concocted and riddled with infirmities. He firstly showed us that, the impugned statement of Smt. R. Ezhilarasi was inter alia recorded throughout the day of 16.12.2018 at her residential premises @ No.255DA/25B, Rojanagar Vadakkumadhavi Road, Perambalur – 621 212. He particularly pointed out that, her statement re-commenced in the morning of 16.12.2018 at 10 AM and concluded at 9 PM with intermittent breaks. He then pointed out that, there was another statement of Smt. R. Ezhilarasi which was also recorded on 16.12.2018 at the college premises of M/s. Dhanalakshmi Srinivasan Medical College located at Dhanalakshmi Srinivasan Medical College and Hospital, Siruvachur, Perambalur – 621 113. The Ld. AR made us wonder as to how was she present at two different places on the same date and that her statements had been recorded at both these different places by different officers albeit on the same date i.e. 16.12.2018. He thus claimed that the impugned statement allegedly given by her was unreliable and ought to be discarded altogether. He further pointed out several inherent contradictions in the answers given by her to different questions, which according to him, rendered her statement to be untruthful. He particularly showed us that, at Q No. 21, she had stated that, the notings contain details of collection of tuition fees and donation and later on, at Q No. 23, she claimed that the notings denoted the amounts received and refunded back and thereafter at Q No. 31, she stated that loose sheets Pages 267 & 268 (which were identical to the impugned loose sheets Pages 245 & 246) were rough calculations of donations and then she states that the notings on Pages 245 & 246 were details of collection of capitation fees. Similarly, he showed us that, her answers regarding the modus of collection of capitation fees was also contradictory at several places in her statement.

16. The Ld. AR then showed us that, Smt. R. Ezhilarasi had named Shri G Raja, Shri S Selvakumar and Shri 3 Senthil Kumar, who were involved in collection of capitation fees and at whose instructions she would do so. She had also named Shri P Mani, at whose instructions, the purported quantum or any discount was to be decided regarding the alleged capitation fees. The Ld. AR then took us through the statement of Shri G Raja who had completely denied having any knowledge of capitation fees and rather stated that he was only involved in collecting tuition fees, hostel fees, updating batch registers and depositing the cash collected in bank account of the assessee-Trust.

17. Next, the Ld. AR took us through the statement of Shri S Selvakumar who had only named Shri 3 Senthil Kumar, the person in-charge of the admission cell, who was involved and knew about the modus of the collection of capitation fees.

18. The Ld. AR thereafter showed us that, similar to Smt. R. Ezhilarasi, two different statements were recorded from Mr. J. Senthil Kumar viz., one was recorded in English on 16.02.2018 and the other was recorded in Tamil from 15.02.2018 till 17.02.2018 at the same time by two different officers in two different languages, which according to him, was unfathomable. He thus urged us not to give any credence to his statement as well. Without prejudice to the foregoing, the Ld. AR showed us that, in the preceding questions, Shri 3 Sethi! Kumar was asked about several investments made by his proprietorship and partnership concerns in several other companies, whose source he was unable to explain. He further brought to our notice that, Shri P Mani had been removed from the trusteeship in 2016 due to internal strife in the trust, which had soured his relationship with the trust and its trustees and therefore his statement was expectedly biased and thus deserves to be rejected.

19. The Ld. AR submitted that, even for the sake of argument, if the statements of Smt. R. Ezhilarasi & Shri S. Selvakumar was assumed to be true and Shri P Mani and Shri 3 Senthil Kumar were involved in collection of capitation fees from students or their parents, such acts were committed by those individuals entirely in their personal and individual capacity, surreptitiously, and for their own private pecuniary benefit. Such collections, if made at all, were made wholly outside the knowledge, sanction, authorization, or participation of the assessee-Trust as an institution. He submitted that, it is a fundamental principle of law that a trust, as an entity, can only act through its duly authorized organs and through decisions taken collectively in accordance with its constitutional documents. Any act committed by any employee or erstwhile trustee, acting unilaterally and in concealment from the trust, for the furtherance of their own personal interest, cannot be attributed to the trust itself. The said individuals, if at all were allegedly collecting such fees, it presumably was for their own benefit, and they were not acting on behalf of the assessee-Trust, but were acting entirely dehors, in a private capacity, and thus he urged that the assessee-Trust cannot be made vicariously or constructively be liable for such surreptitious individual contumacious conduct. According to Ld. AR, the questions put to Shri 3 Senthil Kumar regarding his private investments whose source he was unable to explain, lent justification to the stance of the assessee-Trust that, if any capitation fees was allegedly collected, then it was for the individual enrichment of certain individuals rather than to any institutional accretion of income or assets at the level of the Trust. To further buttress his contention, the Ld. AR pointed out that it was nobody’s case that, any Unexplained assets, cash, or unaccounted expenditure was found at the premises of the assessee-Trust. The Ld. AR submitted that, according to Ld. PCIT, the alleged collection of capitation fees was to the tune of Rs.78.51 crores and thus if such a magnitude of amount had been collected by the assessee-Trust, then it would have been represented in the form of unaccounted assets or investments or incriminating material seized from the premises of the trust, which according to him, was evidently absent.

20. The Ld. AR countered the Ld. PCIT’s allegation regarding the alleged payment of unaccounted cash expenditure of Rs.3,66,40,123/- to doctors & staff by showing us that, these details were conspicuously incomplete and rather suggested that, they formed part of the regular books of accounts of the assessee-Trust. He took us through the detailed objections filed before the Ld. PCIT wherein it was shown that the manner of quantification as done by the Ld. PCIT lacked any rationale and that there was nothing contained in the seized material basis which, one could allege that the same were not recorded in the books of accounts.

21. The Ld. AR thus summed up that the seized material relied upon by the Department to support the allegation of capitation fees was primarily the statements of certain employees and staff members. However, these statements, according to him, were themselves riddled with inconsistencies and contradictions, and therefore carry little evidentiary value. Beyond these unreliable statements, the Ld. AR claimed that the Ld. PCIT has not pointed to any concrete finding or material to establish that the assessee-Trust actually charged or collected capitation fees from its students. He submitted that, the loose sheets and electronic evidence recovered during the search were vague and ambiguous, and did not meet the test of basic common logic. According to him, even if the contents of the seized material as being inferred by the Revenue was taken at face value, neither the search team nor the Ld. PCIT had brought on any evidence on record to indicate that the employees/staff had handed over such amounts to the trustees or management of the assessee-Trust and thus, there was no evidence to allege that the amounts had found their way to the trust and was ultimately used by the assessee-Trust. The Ld. AR claimed that, the Revenue did not even bother to entertain the possibility that the amounts could have been charged and retained by the people who had deposed that the same were collected. The Ld. AR thus claimed that, the allegations of such nature as levelled by the Ld. PCIT were insufficient to lead to such a grave action of cancelling the registration of the trust.

22. The Ld. AR submitted that the purported letters found in the course of search at the residence of Smt. R. Ezhilarasi, did not contain any stamp, signature or acknowledgment of the assessee-Trust or the trustees and therefore the same was unreliable. He otherwise submitted that, the letters only contained acknowledgments from the parents that they were receiving back the amounts paid by way of “advance” or “deposit amount” for the admission of their students. He pointed out that, there was no suggestion of involvement of capitation fees in these letters, as wrongly assumed by the Ld. PCIT. The Ld. AR explained that, the parents may have requested for refund of the advance amount paid due to cancellation of admission for one reason or another, student not clearing NEET, personal reasons, family reasons etc. He took us through the statement of Shri G. Raja wherein he had stated that certain students had paid the entire fees (tuition, hostel etc.) in advance in a lump sum as they were offered a discount if paid as such and therefore later on, upon deciding not go through with the admission, the parents had requested for cancellation of the admission and refund of the advance amount paid, which supported the language used in these letters viz., “advance”, or “deposit amount”. The Id. AR submitted that, if the Revenue was of the view that, the terms “advance”, or “deposit amount” suggested refund of capitation fees paid by them, then the only logical consequence was to examine the parents regarding the same, which was not done either in post search enquiries or during the assessment or by the Ld. PCIT.

23. The Ld. AR submitted that, ordinarily, if the Revenue was of the view that there was alleged collection of capitation fees, then such allegation could be corroborated if any of the students or parents, as named by the Ld. PCIT in the impugned order, had been examined. He submitted that, in spite of several requests to do so, the Revenue ignored the same and instead proceeded to infer alleged collection of capitation fees based on dumb documents without any independent corroboration. The Ld. AR submitted that, though the assessee-Trust was not expected to prove the negative, but it had still gone ahead and obtained affidavits from the parents that the trust had not charged any form of capitation fees from them, but both the Ld. PCIT and the AO did not cross-examine them. He thus submitted that, the action of Ld. PCIT was fraught with surmises and conjectures, and lacked any form of independent corroboration.

24. The Ld. AR pointed out that, though the Ld. PCIT had laid stress on the prohibition of collection of capitation fees as laid down in The Tamil Nadu Educational Institutions (Prohibition of Collection of Capitation Fee) Act, 1992, but he conveniently ignored the contemporaneous fact that there was never any action against the assessee-Trust and its colleges on allegations of collection of capitation fees. He submitted that, no complaints were filed by any of the students or their parents, who were enrolled in our colleges, and further, the recognition of the colleges and the approval of the hospital has not been revoked till date and they all continue to function today. The Ld. AR thus submitted that, on these given facts, the genuineness of the activities of the assessee-Trust cannot be doubted.

25. Emphasizing that the assessee-Trust was not involved in collection of capitation fees, the Ld. AR without prejudice submitted that, the allegation of the collection of capitation fees would not be a ground for cancellation of registration of a charitable institution. He pointed out that, the impugned allegation of such collection only related to FYs 2015-16 & 2016-17 and therefore necessary action, if any, warranted, or denial of benefit of exemption u/s 11 & 12 could be taken in the income-tax assessments of those respective assessment years and that such addition(s) by itself would not justify the cancellation of registration, as the fact remains that the assessee-Trust is carrying out the activities as per the objects laid down in the trust deed. In support of the same, the Ld. AR relied on the following decisions:-

• CIT-I, Madurai v. Sarvodaya Ilakkiya Pannai [2012] 343 ITR 300 (Madras)
• CIT, Karnataka (Central) v. Islamic Academy of Education [2015] 229 Taxman 274 (Karnataka)
• DIT v. Garden City Educational Trust [2011] 330 ITR 480 (Karnataka)
• CIT v. Fr. Mullers Charitable Institutions [2014] 363 ITR 230 (Karnataka)
• CIT-1 v. Shri Advait Ashram Society [2012] 211 Taxman 311 (Allahabad)
• Maharashta Academy of Engineering & Educational Research (Maeer) v. CIT [2010] 3 com 800 (Pune – Trib.)
• CIT v. B. Srinivasa Rao [2015] 53 taxmann.com 49 (Hyderabad – Trib.)
• Vignana Jyothi v. DIT [2017] 81 com 204 (Hyderabad – Trib.)
• CMR Education Society Vs DCIT [2025] 179 com 424
• Richmond Educational Society Vs DCIT [2026] 184 com 281
• M. Patel Charitable Trust Vs PCIT [2025] 172 taxmann.com 316 (Pune Trib)
• Shri Jairam Education Society v. Pr. CIT [ITA Nos.90 & 548 (Ind) of 2019) (Indore Trib)

26. It was contended that the power to cancel registration on the ground that activities of the trust was not genuine is an exceptional power, which can be exercised only where the predominant and substantive activities are shown to be sham or non-existent. According to him, so long as the core charitable activities for which the assessee-Trust was established are real, ongoing and carried out in accordance with its objects, registration cannot be cancelled merely because certain transactions are being questioned. He sought to make a distinction between an ‘activity’ and ‘transaction’ by stating that what is relevant to be seen at the time of registration of a charitable trust or sustenance of its registration is the activities carried out by them and that the Revenue should not be influenced to withdraw the registration due to alleged few transactions carried out thereon. He submitted that, the disputes relating to individual transactions, in this case, alleged collection of capitation fees by staff/trustee in FYs 2015-16 & 2016-17, does not by itself lead to an inference that the activities are not genuine unless such transactions are shown to fundamentally undermine or negate the charitable character of the functioning of the assessee-Trust. He thus submitted that the impugned order passed by the Ld. PCIT proceeded on a fundamental legal fallacy by confusing isolated transactions with the activities of the assessee-Trust. The Ld. AR explained that the legislative intent behind Section 12AA(3) was to target those cases where the activities themselves are not genuine and not situations where the revenue disputes the commercial prudence, necessity or propriety of particular transactions undertaken in the course of carrying out otherwise genuine activities. The Ld. AR wants us to test the genuineness of activities at a macro level i.e. whether the assessee-Trust is actually carrying out its stated charitable objects. According to him, allegations relating to alleged collection of capitation fees may invite examination under sections 11 or 115BBI or 115BBC of the Act but cannot be elevated to a finding that the activities of the assessee-Trust was non-genuine.

27. The Ld. AR submitted that, in order to cancel the registration, it was incumbent for the Ld. PCIT to show that, the activities are not carried out as per the objects, and the Ld. PCIT was bound to render a finding that the assessee-Trust has failed to establish schools, colleges and hospitals for the welfare of the public. The Ld. AR argued that, the assessee-Trust has undisputedly still carried out its charitable objects of setting up and running colleges and hospitals till date. He submitted that, it was harsh and unjustified for the Ld. PCIT to cancel the registration for alleged singular violation which occurred allegedly in FYs 2015-16 & 2016-17. The Ld. AR submitted that, to take care of such violations, the provisions of the Act enable the AO to disallow the exemption u/s.11 of the Act and tax the income. He thus urged that the activities of the assessee-Trust ought to have been considered holistically by the Ld. PCIT, qua the various colleges and hospitals being run and that, apart from FYs 2015-16 to 2016-17, there is no allegation of such alleged activity of collection of capitation fees being carried out. On these given facts, according to him, the cancellation of registration was completely unwarranted and uncalled for.

28. Next, the Ld. AR assailed the impugned order on legal grounds as well. Firstly, he submitted that, in the first round, this Tribunal in their order dated 08.11.2024 had directed the Ld. PCIT to await the orders of assessment, ascertain the concrete facts and then decide upon the cancellation u/s 12AA(3) of the Act. The Ld. AR submitted that, the Ld. PCIT had violated the directions of this Tribunal by passing the impugned order prior to the orders of assessment being framed and thus, according to him, the impugned order is liable to be quashed as the same is in direct violation of the directions of this Tribunal.

29. Secondly, the Ld. AR submitted that, the impugned order which was passed by the PCIT (Central) – 2, Chennai was without jurisdiction as the order for cancellation of registration could be passed only by the authority who had granted it, which in the instant case would be CIT(Exemptions). He placed reliance on the CBDT Notification No. 52of 2014 dated 22­10-2014 wherein, it has been categorically clarified that cases of assessee-Trusts claiming exemptions under Sections 11 and 12 of the Act fall within the exclusive administrative jurisdiction of the CIT(Exemptions), Chennai. He explained that, subsequent to the search, the order passed under Section 127 of the Act only transferred the jurisdiction of framing income-tax assessments of the assessee-Trust to the Central Circle Charge. According to him, the CIT(Exemptions), Chennai continued to hold valid and exclusive jurisdiction over the assessee-Trust for purposes of registration under Section 12AB of the Act and that there existed no statutory provision under the Act enabling transfer of registration jurisdiction from the CIT (Exemptions) to a central charge authority. He thus submitted that the order passed under Section 127 of the Act only provides for transfer of assessment jurisdiction from one assessing officer to another assessing officer. He explained that, Section 127 fell under Chapter XIII of the Act, dealing exclusively with assessment machinery and does not extend to or govern statutory provisions relating to grant or cancellation of registration under Sections 12A /12AA/12AB of the Act, which operate in a different and distinct statutory field. He thus urged us to quash the the impugned order passed by the Ld. PCIT(Central)-2, Chennai for lack of valid jurisdiction. The Ld. AR placed reliance on the following decisions in support of this legal ground:

• Wholesale Cloth Merchant Association v. Pr. CIT (Central) (ITA No.688/JP/2019) (Jaipur Trib)
• Aggarwal Vidya Pracharni 1308/Del/2023) (Delhi Trib) Sabha Vs PCIT (ITA No.
• Lala Sher Singh Memorial Jeevan Vigyan Trust Society Vs Pr. CIT (Central) [2025] 175 com 671 (Delhi Trib)
• Hemkunt Foundations Vs Pr. CIT, Central [2025] 175 com 918 (Delhi Trib)
• CMR Education Society Vs DCIT [2025] 179 com 424
• M. Patel Charitable Trust Vs PCIT [2025] 172 taxmann.com 316 (Pune Trib)

30. The Ld. AR alternatively contended that, if at all the registration is to be cancelled, then the same can only be cancelled prospectively i.e., on and from the date of the order cancelling the registration and not for any period prior to the date of the impugned order. For this, he relied on the decision of the jurisdictional Madras High Court in the case of Auro Lab vs. ITO [2019] 411 ITR 308.

31. Per contra, the Ld. Senior Standing Counsel appearing for the Revenue Shri. Prabhu Mukunth Arun kumar ( herein after referred in short also as ‘Ld DR’) firstly sought to address the legal challenge raised by the assessee-Trust to the validity of jurisdiction exercised by the Ld. PCIT to cancel the registration u/s 12AA(3) of the Act. He submitted that, in the first round of appeals when the case travelled upto this Tribunal and in the second cycle of appeals until the case came before this Tribunal, the assessee-Trust did not question the validity of notification under section 127 of the Act earlier and therefore, according to him, the assessee-Trust is now precluded from raising this legal issue at this stage. The Ld. DR relied on the decision of the Hon’ble Supreme Court in DCIT(E) vs. Kalinga Institute of Industrial Technology (454 ITR 582), wherein the Hon’ble Court had held that, if an assessee-Trust participates in proceedings without objecting to the same, he forfeits the right to challenge the jurisdiction. He further contended that, even otherwise, Section 253 of the Act does not empower this Tribunal to entertain the legal challenge raised by the assessee-Trust to the validity of the jurisdiction exercise by the Ld. PCIT. The Ld. DR further argued that, assuming without admitting the fact that the Tribunal has power to deal with this legal issue, it was submitted that, the transfer of jurisdiction was made in accordance with the provisions of section 127 of the Act and that such transfer is implicit and apparent in the subsequent act of the transferee charge viz. PCIT Central-2, Chennai in processing the case and taking all subsequent steps necessary in the case including cancellation of registration earlier granted by the transferor charge i.e. CIT(E).

32. The next submission of the Ld. DR was that, the Ld. PCIT was equally empowered to cancel the registration retrospectively i.e. from AY 2012-13 and onwards. He referred to the following decisions in support of his contention;

• Independent and Public Spirited Media Foundation case (2026) 182 taxmann.com 403 (ITAT Bangalore)
• Young Indian (2022) 137 com 12 (ITAT Delhi)
• Sinhgad Technical Education Society v. Principal Commissioner of Income-tax [2023] 149 com 227 (Pune – Trib.)
• Advantage India (Delhi Tribunal) reported in (2025) 178 com 605 (Delhi Tribunal)
• Vellore Institute of Technology v. CIT Central-1 Chennai (2025) 127 com 106
• Sri Vidyaranya Seva Sangha v. CIT Hubli (2016) 71 com 152 (Bangalore Tribunal)

33. On merits, the Ld. DR supported the findings recorded by the Ld. PCIT at Paras 7 to 16 of his impugned order. He submitted that, the loose sheets seized from the residence of Smt. R. Ezhilarasi revealed details of collection of capitation fees, whose modus had been clearly explained by Smt. R. Ezhilarasi as well. He submitted that, the evidence collected from Smt. R. Ezhilarasi was corroborated by Shri S. Selvakumar, General Manager of Dhanalakshmi Srinivasan Medical College and Hospital and the erstwhile trustee of the trust, Shri. P. Mani. He contended that, the loose sheets found from the premises of Smt. R. Ezhilarasi was also corroborated by the letters of parents found from her premises. On the merits of the evidence gathered from head office of M/S. Dhanalakshmi Srinivasan Chit funds Pvt. Ltd., he submitted that the material clearly detailed the capitation fees collected from eleven students, which was also admitted by Shri. S. Kumaragurubaran, General Manager of the company. He further submitted that, the statement of Shri. S. Kathiravan, Vice Chairman of the college was rightly discarded by the Ld. PCIT as though he mentions that the donation is anonymous but he did not provide any evidence or document to substantiate the same and therefore the presumption under section 132(4), 132(4A) and 292C was against the assessee-Trust. The Ld.DR heavily relied on the decision of the Hon’ble Madras High Court in the case of Smt. N. Saroja vs. ACIT (TCA No.1395 to 1401 of 2019 dated 18.03.2026) and especially drew our attention to Para No.27 to 31 and submitted that presumption u/s.132(4), 132(4A) and 292 has arisen against the assessee and also relied on the decision of the Hon’ble Jurisdictional High Court in the case of B. Kishore Kumar vs. CIT 52 Taxmann.com 449 affirmed by the Hon’ble Supreme Court which ratio, according to him, squarely apply to the facts of this case. With regard to seized material revealing incurrence of unaccounted expenses by way of cash payments to doctor, technician etc., he relied on the findings rendered by the Ld. PCIT in para 9 of his order.

34. The Ld. Senior Standing Counsel argued that, the impugned order in para 10 has made a detailed analysis as to whether the facts mentioned in para 7 to 9 of the order would invite the wrath of section 12AA(3) and that the said analysis was in line with the prevailing jurisprudence. He thus submitted that, it was a fit case for cancellation as there is a violation of the objects of the trust, and the conduct in running the affairs of the trust goes against the basic tenets of the trust and trusteeship. He submitted that the decision of CIT vs Saveetha Institute of Medical and Technical Sciences (185 Taxmann.com 81) relied upon by the Ld. AR was distinguishable. To sum up, he does not want us to interfere with the action of the Ld. PCIT cancelling the registration of the assessee-Trust u/s 12AA(3) of the Act.

35. Both the parties have filed written submissions in support of their arguments put forth at the time of hearing, which has been taken on record.

36. We have heard both the parties and perused the material placed before us. We have also carefully considered the relevant show cause notices issued by the Ld. PCIT and the findings rendered in the impugned order cancelling the registration of the appellant, assessee-Trust in exercise of powers u/s 12AA(3) of the Act. Before adverting to the facts, it is necessary to appreciate the precise legal framework within which the power of cancellation of registration is to be exercised. Section 12AA(3) of the Act, provides as under:

“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 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.”

37. A careful reading of this provision makes it abundantly clear that the power to cancel registration under Section 12AA(3) can be exercised only upon satisfaction of one or both of the following conditions:

(a) That the activities of the Trust are not genuine; or

(b) That the activities of the Trust are not being carried out in accordance with the objects of the Trust.

38. Hence, in the present case, we are required to ascertain as to whether the assessee has violated any of the above two conditions prescribed by the Parliament which, we find are predominantly with reference to the activities of the trust. We, therefore, revert back to the facts before us. There is no dispute with regard to the fact that the assessee-Trust is a registered charitable trust established on 21.08.2006 with the primary and predominant object of imparting education and providing medical relief. The relevant objects as enumerated in the trust deed reads as follows:-

i. To establish, promote, set up, run, maintain, help charitable institutions, educational Institutions, and Human resources development institutions, for the welfare of all irrespective of Caste, Creed, Colour, Language, Sex, Status and nationality through education, training and research of all kinds.

ii. To, open, establish, run, maintaining, set up promote, finance and support Schools, Colleges. Training Schools, Training Colleges, Technical Schools, Engineering Colleges, Polytechnics, Industrial Centres, Computer Centres, Electronic Centres, Medical Colleges, Dental colleges, Nursing Colleges and Physical Education Colleges, Pharmacy Institutions, Training Institution for Nursing course, Colleges of Arts & Science, and other such institutions preparing candidates for examinations such as IAS, IPS, IFS, MBBS, B.Ed., M.Ed, D.Pharm., B.E., AMIE., etc. and other suitable courses as time and place demand, to establish grant/grants in aid for maintaining and running schools, colleges, technical institutions and training centres for normal handicapped and abnormal children.

iii. To open, establish, promote, set up, run, maintain, assist, finance, support and help in the setting up, maintaining and or running Homes for children, Hospitals, Charitable Dispensaries, Boarding, Hostels, Homes for aged, I Orphanages for Boys and Girls, Home for Physically and mentally handicapped, Maternity Homes, Child Welfare centres, Sanatoriums, Asylums, Destitute homes, Rescue Homes for women, Rural development Centres, etc., for the masses, to promote, organize, administer, support or grant-in- aid to any person, institution, society or organization having similar objects.

iv. To foster and encourage human resource development and set up institutions for research and training to bring out human resources and talents endowed by nature and environment and to develop the inventive and research faculties for the scholars and to effect opportunity for research work through fully equipped laboratory and library.

v. To grant scholarships, stipends, prizes, rewards, allowances, aids and other financial assistance to students or scholars to promote, assist, support, encourage or help welfare centre especially for women and children.

39. We find that the above objects fall within the definition of ‘charitable purpose’ under section 2(15) of the Act. The assessee-Trust is found to be holding registration under section 12AA of the Act since FY 2007-08 which was issued by the Commissioner of Income Tax (Exemptions), Chennai. In pursuance of its objectives, the assessee-Trust has running colleges in the names of `Dhanalakshmi Srinivasan Medical College’, `Dhanalakshmi Srinivasan Dental College’, `Dhanalakshmi Srinivasan Nursing College’, `Srinivasan College of Nursing’ for providing education to students. The institutions run by the assessee-Trust have been recognized by the Government of Tamil Nadu and the All India Council for Technical Education and these institutions hold valid approvals granted by various authorities as well. Further, the assessee-Trust also manages and operates ‘Dhanalakshmi Srinivasan Hospital’ for providing medical relief and the said medical institution also hold necessary approvals from the concerned regulatory authorities. As pointed out by the Ld. AR, about 3068 students are studying in various institutions run by assessee-Trust and hundreds of doctors and staff are employed at the hospital which operates 1350 beds for patients. There is no finding from the Ld. PCIT on the activities carried out by the assessee-Trust insofar as running colleges are concerned and admission of students to said institutions, including any violations in the admission process conducted by the assessee-Trust for the year under consideration. Therefore, it is necessary for us to examine the reasons given by the Ld. PCIT for cancellation of registration of the assessee-Trust, in light of the objects of the trust, activities carried out by them, and the provisions of Section 12AA(3) of the Act.

40. The Ld. PCIT in his order has observed that, a search and seizure operation under section 132 of the Act was conducted on 15.02.2018 in the case of Dhanalakshmi Srinivasan Group to which the assessee-Trust belongs. The Ld. PCIT was of the view that, the material seized from residential premises of one staff, Smt. R. Ezhilarasi and office premises of one company, M/s Dhanalakshmi Srinivasan Chit funds Pvt Ltd containing notings of collection of capitation fees collected in FYs 2014-15, 2015-16 & 2016-17, which were backed by statements of several key persons recorded at the time of search. The Ld. PCIT was therefore of the view that, since the assessee-Trust had indulged in collection of capitation fees from students in FYs 2014-15, 2015-16 & 2016-17, their activities of the trust was not in accordance with the charitable objects for which it was formed and therefore he cancelled the registration granted to the assessee-Trust, in exercise of provisions of Section 12AA(3) of the Act.

41. Before adverting to the merits of the allegation, it is necessary to bear in mind that, the jurisdictional role of the Ld. PCIT in determining the eligibility for registration of a trust is fundamentally distinct from the role of an Assessing Officer who examines the taxability of income. These two functions operate in entirely different spheres and must not be conflated. When the Ld. PCIT is donning the hat for deciding the registration of the charitable trust, he is required to ascertain whether the objects of the trust remains charitable and whether the public welfare is being served. Cancellation of registration is warranted in cases of fraud, clear commercial activities, or where the activities completely deviate from the trust’s objects. Where there are violations on account of nature and sources of specific items of receipts or spendings by the trust in any specific year, then it is wholly inappropriate to cancel the registration itself. Instead, the Ld. PCIT should resort to the statutory framework contained in Sections 11, 12, 115BBC, 115BBI of the Act which lays down robust mechanism to address any deviation from the prescribed receipt & application of income or funds. These provisions, along with certain allied sections, are well-equipped to deal firmly with any breach of the conditions governing the philanthropic utilization of trust’s resources. On the other hand, the consequences of cancellation, however, are far more severe and disproportionate than the Revenue appears to appreciate. Once registration is refused or cancelled, not only the entire corpus of receipts but the fair market value of all the assets held in trust becomes liable to assessment as income, and the benefit of exemption under Sections 11 and 12 automatically stands extinguished. The practical consequence is thus deeply inequitable, as because even if a substantial portion of the receipts had genuinely been applied towards the stated charitable objects viz., imparting of education and providing medical relief, as is the case here, the AO would be statutorily precluded from acknowledging or granting the benefit of such application. Hence, income that otherwise would not form part of total income by virtue of exemption set out in Section 11 & 12 of the Act, would nevertheless be brought to tax, solely as a consequence of the cancellation. Should the Ld. PCIT be of the view that fees are being collected under the guise of donations, or that excessive fees are being charged in violation of applicable norms, then appropriate course of action would be to instruct the AO to bring the same to tax without allowing exemption available u/s 11 of the Act and/or pass on the information to competent authorities operating under the relevant Regulatory Bodies who are specifically empowered and equipped to deal with the menace of capitation fees. In so far as the provisions of Section 12AA(3) is concerned, the jurisdiction of the Ld. PCIT, by contrast, must remain confined and directed to the singular question as to whether the objects of the trust are charitable in nature, and whether those objects are being pursued in the manner prescribed by law.

42. It is also necessary to keep in mind the other adverse consequences that would follow from a cancellation of the Trust’s registration. Undeniably, the assessee-Trust is not a paper entity. Rather, it is a living, functioning institution upon which thousands of students, patients, teachers, doctors, and staff members depend every single day. A cancellation of registration would jeopardise the academic careers and futures of thousands of students currently enrolled in the Trust’s schools and colleges, many of whom belong to middle class and economically weaker sections of society and who chose these institutions in good faith. It would disrupt the critical healthcare services being provided to patients, including the poor and underprivileged, through the Trust’s hospitals. It would also threaten the livelihoods of hundreds, of teachers, doctors, nurses, administrative staff, and support personnel employed by the Trust’s institutions and destroy decades of institution-building and charitable work that has served and continues to serve the community at large. It would also render meaningless the scholarship programs and free medical treatment that the Trust has been providing to its beneficiaries. In these given facts and circumstances, the question is whether it would be just and fair for us to uphold the cancellation of registration, for alleged violations in two or three specific years. The answer, according to us, in an obvious No.

43. Coming back to the facts of the present case, the Ld. PCIT has not demonstrated that the activities of the assessee-Trust were not genuine, or that the activity of imparting education and providing medical relief, for which the assessee-Trust was constituted, is not actually being carried out. No finding has been returned to the effect that any part of the regular income or receipts of the trust was diverted or misappropriated by the trustees for their personal benefit, or that the funds were applied otherwise than in furtherance of the trust’s stated objects. Viewed from a broader perspective, there are essentially three distinct scenarios through which this issue may be examined. First, where donations are received but not applied towards the charitable objects, in this case, the imparting of education & medical relief, then the institution must face the consequence of cancellation of registration, since such a situation would constitute an ipso facto infringement of the conditions stipulated under Sections 12AA of the Act. Secondly, where donations received are intended to advance the charitable objects but, when taken together with fees charged, fall foul of the Anti-Capitation Prohibition Act, then the breach in question falls squarely within the domain of that enactment and not within the purview of Sections 12AA(3) of the Act.

44. As noted earlier, the assessee-Trust was established with the charitable objects of imparting education and providing healthcare to the public at large. It is seen that, the assessee-Trust has been and continues to be carrying out these activities in letter and spirit. The Ld. AR has summarized the following undisputed details of scholarship and fees concession given by the assessee-Trust, which bears testimony to the genuine character of the activities of the Trust.

F.Y.	Scholarship & Fee concession
2013-14	27,82,000
2014-15	1,40,41,984
2015-16	17,44,516
2016-17	8,72,25,124
2017-18	11,96,92,103
2018-19	9,41,43,136
2019-20	5,90,28,524
2020-21	5,02,66,660
2021-22	2,08,00,730
2022-23	1,15,54,120
2023-24	8,46,24,213
2024-25	11,68,92,844

45. It is observed that the assessee-Trust is presently running and operating multiple colleges, and hospitals, serving several thousands of students, patients, teachers, doctors, administrative staff, and other personnel. These institutions are functioning actively, continuously, and in accordance with the charitable objects of the assessee-Trust. Not a single institution has been shut down, diverted, or converted to a commercial purpose. The fact that these institutions are operational till date is itself is testimony to the fact that the assessee-Trust is genuinely and actively pursuing its charitable mission. Most significantly, we find that, in the years subsequent to the two alleged years of capitation fee collection, the trust has continued to expand its charitable footprint by setting up two (2) new educational institutions namely `Dhanalakshmi Srinivasan Dental College’ and Thanalakshmi Srinivasan Nursing College’ in the years 2021 & 2024. This expansion of charitable activities in subsequent years contradicts the allegation of the Ld. PCIT that the assessee-Trust had abandoned its charitable character or was engaged in profiteering. As noted above, it is seen that the assessee-Trust has been regularly providing scholarships to deserving and economically weaker students, enabling them to pursue education that would otherwise be beyond their means. Similarly, free medical treatment is found to have been provided to patients, including the poor and the underprivileged, through the Trust’s hospitals. These contemporaneous details have not been refuted by the Ld. PCIT which otherwise contradicts his allegation of commercial profiteering by the assessee-Trust. The existence and continuance of these benevolent activities, according to us, affirms the genuine charitable character of the Trust.

46. Having carefully gone through the contentions advanced by the assessee-Trust, we find that even the case built by the Ld. PCIT against the assessee-Trust rests on a fragile foundation. As pointed out by the Ld. AR, the seized material basis which such allegation of collection of capitation fees has been levelled are only three loose sheets viz., Annexure/PV/RE/LS/S-1 & ANN/VP/DSC/LS/S-1, two of which were found from the premises of Smt. R. Ezhilarasi and one sheet found from the premises of M/s Dhanalakshmi Srinivasan Chit Funds Pvt. Ltd. Admittedly these loose sheets were not recovered from the premises of the appellant-trust, but from those of third parties, (Smt. R. Ezilarasi was not employed with the assessee-Trust, but another trust named DSLET) and therefore the presumption sought to be drawn by the Ld. PCIT u/s 132(4A) / 292C of the Act is required to be carefully/evaluated tested. Moreover, on a standalone examination of the contents of these loose sheets, the inferences drawn by the Ld. PCIT may not survive scrutiny, in light of the factual consistencies and commercial impossibilities pointed out by the Ld. AR, which has been discussed at Paras 10 & 11 above. The Ld. AR had also shown us that, the statements of the key deponents i.e., Smt. R. Ezhilarasi and Shri S. Kumaragurubaran were riddled with internal contradictions and procedural infirmities, including the inexplicable recording of simultaneous statements at two different locations on the same date, which raises serious doubt on its credibility and evidentiary reliability. It is further observed that, when the Vice Chairman of the assessee-Trust, Shri S. Kathiravan, was directly confronted with these statements at the time of search itself, he had categorically denied the allegations. He subsequently reinforced this denial through a retraction affidavit dated 20.08.2018, wherein he clarified that the anonymous donations referred to during questioning related to Srinivasan Health and Educational Trust, and not to the assessee-Trust, and that the assessee-Trust’s management bore no responsibility for the scribblings maintained by Smt. R. Ezhilarasi and others. It is also seen that, at several places the Ld. PCIT had acknowledged that with the introduction of NEET, the collection of capitation fees from FY 2016-17 onwards may not have been possible, given that the Department of Medical Education had also fixed a cap on fees chargeable even for students admitted under the management quota, and the seized material showed that several parents had in fact been refunded amounts paid in advance upon their wards’ failure to qualify NEET. We thus find that the Ld. AR has made out a plausible case that the inference drawn by the Id. PCIT is not completely accurate and suffers from infirmities.

47. The case made out by the assessee-Trust is found to be supported by the decision of Hon’ble Madras High Court in the case of CIT Vs Saveetha Institute of Medical, Technical Sciences (supra) wherein it was held as under:-

“8. The statutory presumption as found in the above Sections is not a conclusive presumption, but a rebuttable presumption. Even to draw the presumption, at the first instance, the Department is bound to place material facts to lay a foundation for drawing such presumption. In this case, the material placed, even after the enquiry before the first Appellate Authority as well the Tribunal are the slips containing details of seats of the students, which according to the learned counsel, fall within the meaning of books of account. The other piece of evidence is the statement of one Dr.B.Muthukumaran, who is the Managing Trustee and who at the time of search of the premises, had given a statement that the management used to collect Rs.1,00,000/- as capitation fees from the students joining under the Management quota.

9. “Books of account” as defined under Section 2(12A) of the Income Tax Act, 1961 is an inclusive definition. It includes day books and other account books maintained in the regular course of administration. Whereas, the exhibits relied upon by the Department have nothing to do with the accounts. It is only information about the students and the category under which they got admitted. They do not fall within the definition of books of accounts.

10. Secondly, to draw the statutory presumption, a sworn statement of one of the Managing Trustees, who remains uncorroborated, will not lead to a presumption that the assessee-Trust has collected a sum of Rs.1,27,00,000/- from the students who joined under the Management quota for Engineering. As pointed out by the first Appellate Authority, the Department ought to have examined the students admitted to the college or produced other corroborative material to support the statement of Dr.B.Muthukumaran. Without corroboration, the statement on oath, which has subsequently been retracted and contradicted by the other Managing Trustees, will not form the foundation for drawing such presumption. The further contention of the learned counsel is that the money collected as capitation fees is not utilised for the purpose of trust and thus, there is a subsequent violation.

11. We are of the view that the second contention of the learned counsel regarding non-utilisation of the funds for the trust will not arise in the case in hand, since the collection of funds for the purpose of the trust has not been proved by the Department even by the preponderance of probabilities.

12. We find, in these appeals, the following Substantial Questions of Law as framed by the Court as below:-

1. Whether on the facts and circumstances of the case, the Tribunal was right in holding that the assessee-Trust is eligible for exemption under Section 11 of the Income Tax Act, without noting that the assessee-Trust society has used part of the income for the personal benefit of the trustee as per Section 13(3)(c) of the Income Tax Act? and

2. Whether on the facts and circumstances of the case, the Tribunal was right in deleting the unaccounted cash found during the course of search when the assessee-Trust was unable to explain the source of income?

13. We find that the Substantial Questions of Law and the arguments placed by the learned counsel before us are entirely different. It is understandable that the learned counsel found that the questions framed are either Questions of Law or Substantial Questions of Law. Therefore, he has raised, during the course of arguments, a pertinent question regarding presumption in these cases under Sections 132(4) and 132(4A) of the Income Tax Act, 1961. We have answered that the material placed by the Department is not sufficient to draw the statutory presumption under Sections 132(4) and 132(4A) of the Income Tax Act, 1961. So far as the Substantial Questions of Law framed are concerned, we find that they have been formulated under the presumption that there was collection of capitation fees from the students. When the very foundation for the case itself remains unproved, the question whether the trust is entitled to exemption under Section 11 of the Income Tax Act, 1961, does not arise. For the sake of repetition, we are enforced that the Department at the first instance, should have established collection of capitation fees by the trust. Merely on the statutory presumption, without corroboration, the collection of capitation fee as found in the assessment order, remains unproved and unsustainable. Hence, the order of the first Appellate Authority as well as the Tribunal need to be upheld.”

48. Also, the Ld. DR was unable to show us that, any of the parent or student, allegedly charged capitation fees, was ever examined to independently corroborate the case of the Ld. PCIT. On the other hand, the assessee-Trust, though not obliged to prove a negative, is found to have went so far as to obtain affidavits from parents categorically asserting that no capitation fees were charged by the trust, but the Revenue did not find it appropriate to cross-examine them. It is significantly noted that, Shri J. Senthil Kumar was named by Smt. R. Ezhilarasi and Shri S. Selvakumar as the person in-charge of the admission cell who was allegedly involved in the collection of capitation fees and his statement, copy of which was placed before us, reveals that several questions were posed to him about investments made by his proprietary and partnership concerns in several companies, the source of which he, at that material time, was unable to explain. If the Revenue finds the presence of unexplained investments in his personal concerns, such circumstance is of considerable significance as it lends strong credence to the assessee-Trust’s plea that if any capitation fees were collected, it found their way into the pockets of individuals for their personal enrichment, and not into the coffers of the assessee-Trust as an institution. Similarly, it is observed by us that, Shri P. Mani, who was allegedly instrumental in deciding the quantum of such collections, had been removed from the trusteeship as far back as 2016 on account of internal disputes, lending credence to the view that his alleged conduct was motivated by personal considerations entirely de hors the trust. Crucially, no incriminating material, unaccounted assets, or unexplained cash was found at the premises of the assessee-Trust itself, a circumstance wholly incongruous with the Revenue’s allegation of institutionalised collection of capitation fees running into crores of rupees. In light of these observations and given the fact that at the time of passing of the impugned order income-tax assessments were pending completion, the concrete factual foundation necessary to sustain a cancellation of registration is conspicuously absent. In these circumstances, the action of the Ld. PCIT in cancelling the registration of the assessee-Trust is found to be on surmises and conjectures and cannot be sustained.

49. It is also noteworthy that, despite the gravity of the allegation of capitation fee collection, no complaint, prosecution, or proceeding has been initiated against the Trust under any other law, whether under the relevant state legislation governing capitation fees, the educational regulatory framework, or any other applicable statute. The absence of any such action further corroborates the case that no such institutional collection took place, rather it supports the plea of the assessee-Trust that it could presumably have been contumacious acts of certain individuals. Even otherwise, accepting the Department’s case at its highest, the allegation of capitation fee collection is confined to two or maximum three specific years alone. There is no allegation, finding, or material to suggest any such collection in any other year, past or present. It is also not disputed that, the assessee-Trust has otherwise conducted itself in accordance with its charitable objects throughout its entire existence. An isolated and time-bound allegation, confined to two years, cannot be allowed to eclipse the genuine charitable character of the Trust’s activities across its entire lifespan. The test under Section 12AA(3) is whether the activities of the Trust are genuine and in accordance with its objects, must be assessed holistically and not by isolating a single alleged episode spanning two / three years.

50. The Revenue has emphasized that the alleged collection of capitation fees constitutes an activity of profiteering, which raises a doubt on the genuineness of the charitable objects of the Trust. Such a contention of Ld CIT is noted for the purpose of holding it as misconceived. First of all, the concrete facts are neither established nor crystallized, as the income-tax assessments of the respective years are pending adjudication before the Appellate Forums, its fate are yet to be decided. The assessee-Trust has been able to point out gaping holes in the case of the Revenue regarding the allegation of collection of capitation fees. It is also in doubt as to whether the alleged collections were capitation fees or anonymous donations. It is also not clear whether the alleged capitation fees were surreptitious actions of certain individuals/ex-trustees acting entirely for their personal pecuniary gain, outside the knowledge and sanction of the assessee-Trust or whether it was being undertaken institutionally. If these allegations relate to personal enrichment of individuals, committed in betrayal of his fiduciary duty, it cannot be characterised as an “activity of the Trust” for the purposes of Section 12AA(3) of the Act. The implication and invocation of the provisions of section 12AA(3) of the Act, in our humble view is required to be examined with reference to the activities of the institution and not with reference to isolated transactions of charitable trust or any personal act of employees. According to us, the provisions of section 12AA(3) are directed at the institutional character and overall conduct of the trust and not intended for any individual or isolated transactions undertaken in the course of carrying the activities by the trust or any misconduct of persons who happen to hold key positions in the assessee-Trust. This may be looked at from another perspective as well. According to us, where it is established that the assessee-Trust is carrying out genuine activities as per the objects for which they have been established, then the issue arising out of any loose paper/documents/ incriminating material alleging that capitation fees was collected from some students, the same can be taken care of at the time of assessing the income and the additions involving such issues can be made. In the present case therefore, we are of the view that, the provisions of the Act provide for appropriate and proportionate remedies to address the specific allegations of collection of capitation fees in FYs 2014-15, 2015-16 & 2016-17, as made in the present case. If it is ultimately found that, there were alleged capitation fees collected by the assessee-Trust, or that income has escaped assessment, then the appropriate course is to make suitable additions in the income tax assessments pertaining to those specific years under the relevant provisions of the Act. Such action would adequately address the Revenue’s grievance for those specific years. These allegations, if found true, could also justify denial of exemption under Section 11 for the years in question and such action would address the alleged violation without causing any harm to the assessee-Trust’s ongoing charitable activities or to the thousands of beneficiaries who depend upon it.

51. We usefully refer to the decision of the Hon’ble Karnataka High Court in the case of CIT(C) v. Islamic Academy of Education (supra), where it was held that where assessee-Trust was fulfilling its main object of imparting education, registration of trust could not be cancelled on the basis that trustees were misappropriating trust funds. The relevant portion of order is extracted below.

“In the instant case, the material on record shows that the trust has established educational institution and imparting medical education. Every year, students are admitted. Huge investment is made for construction of buildings for housing the college, hostel and to provide other facilities to the students who are studying in the college. 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 is not genuine. Admittedly, the students are being admitted every 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 the trust the registration of the trust cannot be cancelled. If the trustees are misappropriating the funds, if they are maintaining false accounts, it is open to the authorities to deny the benefit under section 11, but that is not a ground for cancellation of registration itself. That is precisely what the Tribunal has held. Therefore, the substantial question of law is answered in favour of the assessee-Trust and against the revenue.”

52. Gainful reference is also made to another judgment of the Hon’ble Karnataka High Court in the case of CIT v. A.S. Kupparaju Brothers Charitable Foundation Trust (supra) wherein the Court reiterated that, it is only the predominant activity carried out by the charitable society which is to be examined and if the said predominant activity is found to be genuine and in accordance with the objects, registration cannot be cancelled at all merely on allegations of misapplication of funds or benefit to the related parties which are the subject matter of assessment proceedings. The relevant extract of the findings rendered by the Hon’ble High Court are as follows:-

“8 . The necessity of a registration certificate under the Act has to be kept in mind while interpreting the Section 12AA. The necessity for such registration certificate is provided in Section 12A. if an assessee-Trust wants to claim the benefit under Sections 11 and 12 of the Income Tax Act, unless he has made an application for registration of the trust in the prescribed manner to the Commissioner and unless the said trust or institution is registered under Section 12AA, the assessee-Trust would not be entitled to the benefit of exemption from payment of tax under the Act in respect of the income of the trust. Therefore, the certification of registration is a sine qua non for an assessee-Trust to claim the benefit under Sections 11 and 12 of the Act in respect of the income of the trust. It is in this background, the Commissioner to whom an application is made under Section 12AA has to satisfy himself about the objects of the trust or institution end the genuineness of its activities before passing an order either granting registration or refusing to grant registration. In order to satisfy himself, it is open to him to call for such documents or information from the trust or institution and on production of such documents to satisfy himself about the genuiness of the activities of the trust or institution. He also has the power to make an enquiry in this behalf before passing of an order.

9. As is clear from the language employed in Section 12AA, first he should be satisfied about the object of the trust or institution and then the genuineness of its activities. In order to satisfy himself about the abject of the trust what is required to be seen is the object as set out in a deed of trust. After satisfying himself about the object of the trust, it is open to him to see whether the activities of the trust is in conformity with the object as set out in the trust deed and on that basis he can come to the conclusion whether the said activities are genuine or a make believe one. It is in this background, the trust deed dated 21st December 1984 is to be looked into.

………………………..
…………………………………

10. A perusal of the aforesaid object makes it very clear that all those objects are charitable in nature. In fact, the said fact is not disputed even by the revenue. But what is contended is that the activities of the trustees and the trust shows that it is not a genuine trust. It is in support of the said contention, the aforesaid activities of the trustees in treating the property as family property and dividing the same, executing a rectification deed, offering the property as a security for borrowing loan for businesses conducted by the trustees in their individual name and constructing buildings in the trust land and letting it out for rent and not collecting the rent from them are cited as instances to show the trust is not genuine.

11. It is in this context, it is necessary to know whether any of those activities in law has any value, Once the authors of the trust transferred the land, which belonged to them, to the trust and got it duly registered, the title of the property vests in the trust and the trustees and the original owners do not have any right over the title of the property. Even though the original owners were also appointed as trustees under the trust deed, the trustees hold the property for the benefit of the beneficiaries and the original owners have no manner of right, title or interest over the property after execution of the trust deed. After converting the property into trust property where the trustees or the original owners meddled with the property in any manner it would no way affect the title of the trust to the said property. In this regard, it is useful to refer to the law on the point as set out in the judgment of the Apex Court in the case of Sri Agasthyar Trust v. CIT [1999] 236 ITR 23/ 103 Taxman 363 , the relevant portion reads as under:-

“It will be useful at this juncture to refer to the following passage from Tudor on Charities (6th Edn.). At page 131, it is stated as follows:

“When a charity has been founded and trusts have been declared the founder has no power to revoke, vary or add to the trusts. This is so irrespective of whether the trusts have been declared by an individual, or by a body of subscribers, or by the trustees.”

When the founders of the trust have no power to alter or vary the terms of the Trust a trustee appointed to manage the properties of the Trust for securing its object can under no circumstances be regarded as having such a power specially when the original deed dated 28th November, 1941 does not bestow such power on him. Such a question also came up for consideration before the Madras High Court in Thanthi Trust v. ITO [91 ITR 261 ] Dealing with the question whether the founder of a trust had power to revoke the same, this Court observed as follows (pages 284-85):

“It is well established that the subsequent acts and conduct of the founder of the trust cannot affect the trust if there has been already a complete dedication, (vide Krishnaswamy Pillai v. Kothandarama Naicken [1914] 27 MU 582: Sunder Singh Mallah Singh Sanathan Dharam High School Trust v. Managing Committee, Sunder Singh Mallah Singh Rajput High School [1938] 1 MU 359 : AIR 1938 PC 73, and Gokuldoss Jamnadoss and Co. v. Lakshminarasimhalu Chetti [1940] 2 MU 409 : AIR 1940 Mad. 920), If a valid and complete dedication had taken place, there would be no power left in the founder to revoke and no assertion on his part or the subsequent conduct of himself or his descendants contrary to such dedication would have the effect of nullifying it. If the trust had been really and validly created, any deviation by the founder of the trust or the trustees from the declared purposes would amount only to a breach of trust and would not detract from the declaration of trust. Therefore, the subsequent-conduct of the founder in dealing with the funds of the trust long after the creation of the trust may not put an end to the trust itself.

We are in full agreement with the principle stated in the aforesaid passage and we hold that the trustee had no authority or jurisdiction to execute a fresh Trust Deed and the document dated 1st July, 1944 is of no consequence and is no more than a scrap of paper. The Trust as originally established by the Deed dated 28th November, 1941 remained unchanged or unaffected by the later document dated 1st July, 1944.”

12. From the aforesaid statement of law, it is clear that once the authors of the trust transfers the title of the property to the trustees and creat a trust, they have no right to meddle with the property even if they have created partition deed, rectification deed and offered the property as security to the bank to raise funds. As pointed out by the Apex Court in the aforesaid judgment, they are of no consequence and is no more than a scrap of paper. All those transactions are void ab initio and in no way affects the right of the trust. In all this, the trust is showing it as a trust property. It is treated as a trust property and it is not the case of any one of the trustees, that any one of the trustees has sold the property to any one. On the contrary, it is not in dispute that a school is being run. Now it is also not in dispute that after obtaining the requisite permission, an engineering college is being run with 3500 students imparting education, Apart from that they have started several other courses and imparting education. In deciding the genuineness of the trust what is to be seen is whether in terms of the objects set out in the trust deed whether the trust is carrying on its activities or not. If in the process of carrying on the trust activities if there is any misapplication of the property, misappropriation of funds that would not render the trust itself as non est. If the funds of the trust are misused, income of the trust is misutilised notwithstanding the fact that the certification of registration is granted under Section 12AA, the assessee-Trust will not be entitled to the benefit of exemption on that income from the provisions of the Act. The certificate of registration is only an enabling provision to claim exemption. By merely granting a certificate income is not exempted. That is only a first stage to claim exemption. The Commissioner of Appeals should not have confused these two aspects and seems to think as the trustees and his family members are treating the property as their own and misutilising the property it is not a genuine trust. When once it is admitted that in pursuance of the trust deed and in terms of the objects set out therein, schools and colleges are being run and educational institutions are being run as rightly held by the Tribunal, nothing more requires to be established to show that the trust in question is a genuine trust and therefore, the assessee-Trust is entitled to the registration under Section 12AA of the Act. As set out above, even if the registration is granted, the exemption from the provisions of the Income Tax Act in particular sections 11 and 12 is not automatic. It is only when the assessee-Trust satisfies the requirement of section 13, he would be eligible for exemption. That is a matter to be gone into by the Assessing Authority in respect of the returns filed every year and if according to them there is misappropriation of funds and it is hit by section 13 of the Act, certainly, they can deny the benefit of exemption. But that is not a ground to deny the registration in the instant case under Section 12AA, when admittedly the trust has been established to run schools and colleges for imparting education, which is a charitable purpose. In that view of the matter, we do not see any merit in this appeal. The substantial question of law framed in this appeal is answered in favour of the assessee-Trust and against the revenue. Accordingly, the appeal is dismissed.”

53. We also gainfully rely on the decision of the coordinate Bench of this Tribunal at Pune in the case of Maharashtra Academy of Engineering Education Research v. CIT (supra) involving similar facts and situation, as in the present case before us. The Tribunal held that, if CIT had an information of wrongful means of earning fees in the form of donation or about excess charging of fees, the CIT can pass on the information to the concerned authority, but when there is no evidence of misutilisation of funds and the prescribed activity if continued to carried on by the assessee-Trust, then the CIT had no jurisdiction to cancel registration u/s 12AA(3) of the Act. The relevant portion of order is extracted below.

“In the recent past sub-section (3) was inserted in section 12AA with effect from 1-10-2004 which gives power of cancellation of registration to the CIT, if he finds that the activities are not genuine or not being carried out in accordance with the object of the trust. The need for the enactment had arisen due to belief of some quarter that in the absence of explicit law the CIT cannot exercise the power of cancellation of registration. To overcome this hurdle this sub-section is incorporated and now in operation. Naturally these powers are conferred with a view to ensure that if once a registration has been granted under section 12AA, a trust or institution may not take any such liberty of misuse of the registration or the provisions by going haywire rather furthering the objects of the trust or genuinely not pursuing the activities for which it was established. [Para 11.4]

The most important feature of section 12AA is that this section has only laid down the procedure of registration and this section nowhere speaks that while considering the application of registration, the CIT shall also look into the procedure of earning of income and sources from where receipts are derived. The argument was, it also does not speak anywhere that while considering the registration the CIT shall also see the manner in which the receipts or the income is being spent by the trust. Various related provisions, the power of enquiry, in respect of sources of receipts and the utilization of income is entrusted in separate sections as already discussed ante. The language thus used in section 12AA only confines to enquire about the activities of the trust and its genuineness, which means, in consonance with the objects for which created and those objects as also activities should not be a camouflage but pure, sincere, charitable and for public utility at large. What is implicit is that the CIT has to sincerely examine that the objects as also the activities should not be prima facie against the basic structure for which beneficial law is made and also be not in conflict with the general public utility. Naturally an institution if established to carry out an illegal activity or activities are causing any type of nuisance not in the interest of the public at large should definitely lead to cancellation of registration. Therefore, this is the first requisite of the statute to mandate for the registration and in the absence of such registration disentitlement of exemption. So what is explicit is that though an institution may be doing charitable activities as prescribed but in the absence of registration cannot be entitled for the exemptions or benefits of sections 11 and 12. It is also explicit that registration ipso facto does not necessarily entitle an institution to get the receipts excluded from the income or exemption be granted automatically by just showing the registration certificate to the revenue authorities. [Para 11.5]

Procedure of registration is a first step and a preliminary stage where the CIT shall restrict the enquiries as to whether the trust is actually and whole heartedly performing all the duties and activities for which it was created. On careful reading of this section it was gathered that at this initial stage there is no scope of any apprehension of misutilization of funds or to judge the taxability income. The scheme of the Act otherwise does not subscribe and allow a trust to take the benefit of the provisions of section 11 and 12 unless it establishes the prescribed utilization of the income even if at all he trust holds the registration in its hands. Therefore at the stage of granting registration the CIT is not expected to bother himself about the other provisions of the Act and supposed to confine himself to the procedure of registration as laid down therein. [Para 11.6]

Another feature of the impugned order of the CIT is in fact bothering that nowhere he has taken any objection to the charitable and educational nature of the institution. In fact, the objects of the institution, as declared in the trust deed does reflect that all are philanthropic or benevolent in nature, precisely for the purpose of imparting education. Strange enough there is no finding recorded by the CIT contrary to this fact. Be that as it may, the real and the only substantial objection for refusal of registration was that the institution has collected donations thus adopted some wrong means of collection of fees. But whether at this preliminary stage he had the right to draw an adverse inference so as to refuse registration or alternatively confine himself to the enquiry about the objects and the activities of the trust as per the limits of the jurisdiction of section 12AA. Rather this is also not the case of the CIT that the institution is doing some other activity of earning profit other than the activity of running educational institutions. The established factual position is that the institution is not doing in any other activity except running educational institutions. In such circumstances, can one uphold the action of cancellation of registration? Answer is obvious no. [Para 11.7]

As far as the objective of the appellant is concerned this is not the case of the revenue that the assessee-Trust was not imparting education. The term education means to teach subjects to students for the development of his mind and also to equip students to deal with reality. The training process is either theoretical or practical but student has to be taught the essentials of the selected subjects so as to develop his skill and knowledge for the subjects studied by him. The appellant institute, admittedly, fulfils the requirements of imparting formal education by a systematic teaching and instructions. Since the question-about the imparting of education has not been doubted or challenged by the revenue therefore, the impugned order passed by the respondent is unsustainable in law. Strange enough there is nothing on record to prove sightlessly that the purpose of imparting of education was not fulfilled by this institute thus the revenue department has hopelessly failed to establish that there was any illegal activity or infringement of any law so that to doubt the genuineness of the activities. [Para 11.11] The sine qua non for cancellation of registration are two conditions prescribed in section 12AA(3) needs to be satisfied are: (a) That activities of the trust/institution are not genuine. (b) That activities of the trust are not carried out in accordance with the objects of the trust/institution. Thus the findings of the CIT has not to be only conceptual or contextual but should be within the four corners of law so that not surpassing the power, as listed above, granted in sub-section (3) of section 12AA. But unfortunately the fallacy is writ large as gathered on perusing the impugned order. The CIT’s approach for deciding the eligibility of registration of a trust should be different from the angle by which an assessment of an income is made by the AO. About the ramification if one approve the action of CIT because in that case it may adversely affect the imparting of education especially when the revenue has not made out a case that the very purpose for creation of the trust was defeated. Rather one wonders that what purpose does it serve to revenue by cancelling a registration if the activities are in public interest because in case of any breach of the laws the same is subject to tax under sections 11 and 12. These two provisions and few other provisions are competent enough to tackle firmly a defaulter of philanthropic application of income or funds of the trust. The other adverse side of cancellation is that on refusal of registration the entire receipts shall be subject to assessment without granting benefit of section 11 and section 12 to assess income which do not form part of total income though the factual position could be that major part might have been devoted towards achieving the objects, i.e., imparting education, as in this case, but the AO shall be automatically forbidden to grant advantage of exemption consequent upon the cancellation as is mandatory in statute; relevant section already reproduced ante. The outcome of the deliberation made in detail hereinabove is that percurian opinion is to debar the CIT to enter into the area of investigation of source of income and also application of income, so that the amount of correct exempt income be not prejudged. [Para 11.12] The aspect of morality as touched by the CIT is appreciable. Every vigilant and law abiding citizen has to be fair in his conduct and should refrain from immoral activities. But existing blue laws are derived from the numerous extremely rigorous laws designed to regulate morals and conduct. These laws are enacted in such a fashion that if implemented correctly and efficiently then there is no scapegoat for an offender. One is tempted to write an idiomatic language due to the sensitivity of the issue, that a CIT cannot be allowed to hold a baton of morality in his hand to hit an immoral; but the statute has given him a flexible stick for inflicting tax on defaulter; that includes a trust or educational institution. The gist is that if the CIT had an information of some wrongful means of earning fees in the form of a donation or the information tells about excessive charging of fees; then the CIT in his rights can pass on the information to the concerned office bearers working under the Maharashtra Capitation Fees (Prohibition) Act. These authorities have enough power to deal with such nature of default, side by side the CIT is to limit his jurisdiction within the ambits of provisions of the Act and expected to give a finding on facts that either the objects are not for general public utility or not achieved as prescribed under law. However presently the situation is that the revenue has not said about any immoral activity of the appellant or the collection of fees was by wrongful means; hence deregistration sans the Tribunal’s approval. [Para 11.13]

Prima facie no case was made out by the CIT so as to even vaguely demonstrate that the activities of the appellant were not genuine or activity of imparting of education, for which the trust was created, were not carried out. Even the CIT has failed to establish that any part of the income/receipt of the trust was in any manner misutilized by the trustees for their personal benefit i.e., not in fulfillment of the object of the trust. Otherwise also there are three ways to look at this problem. One is, that the donations are raised but not utilized for achieving the objects, Le., towards imparting education; then such an institution must bear the consequence of cancellation of registration since ipso facto infringed section 12AA(3) condition. Second aspect is, that though the donations received are meant to fulfill the objects but together with fees have infringed Anti Capitation Prohibition Act; then comes within the clutches of that Act but definitely not under section 12AA(3) provisions. The third aspect is, that the donation plus fees do not exceed the prescribed limit of Anti Capitation Fee Act i.e., five times the normal fees; further that no evidence of misutilization other than the prescribed activity then no action can be suggested under section 12AA(3). The Assessee-Trust’s case falls under the third category. With the result, totality of the circumstances thus warrants, in the light of the foregoing discussion, not to endorse the view of the CIT; consequence there upon reverse those findings. The order of cancellation of registration is hereby revoked”.

54. We also refer to the decision of ITAT, Hyderabad bench in the case of Asstt. CIT v. B. Srinivasa Rao [2015] 53 taxmann.com 49 wherein it was held that department cannot cancel registration granted to a society u/s 12AA when activities of trust are otherwise genuine and are carried on in accordance with objects of trust. The relevant portion of order is extracted below:

“The provisions of section 12AA states that, the Department can cancel registration granted to a society under section 12AA if the activities of the trust are not genuine and the activities of the trust are not carried on in accordance with the object of the trust. [Para 32]

In the present case, the Commissioner is not alleging that the assessee-Trust is not pursuing object of imparting of education. It is an admitted fact that the assessee-Trust had been carrying on educational institution imparting medical education and it fulfilled requirement of imparting education and the question of imparting education by the assessee-Trust has not been doubted or challenged by the Department. Being so, on this reason, registration cannot be cancelled. [Para 33]

The Commissioner has relied on the certain materials to demonstrate that the activities of the trust are not being carried out in accordance with the object of the trust. He expressly referred to the seized material to hold that the assessee-Trust’s activities cannot be said to be for charitable purpose. These materials are independently not corroborated. Collection of capitation fee by the assessee-Trust was made out on the basis of Excel sheets found during the course of search. The Department is not conclusively sure whether the assessee-Trust has collected capitation fee or not so that it made assessment in the hands of the chairman, as well as the assessee-Trust. The cash found during the search action tallied with the books of account. The document relating to a parent cannot be relied as this was not subject-matter of cross-examination. Similarly, the evidence relating to another parent cannot be relied upon since he denied payment of any fees more than what was prescribed. He said that his son got admission in normal course. Similarly, in the case of another parent, the evidence is demolished by the assessee-Trust, that the details cannot be used against the assessee-Trust as the papers submitted to the assessee-Trust by the parents trust were for the purpose of facilitating the financial assistance from bank. Being so, the activities of the trust cannot be held as non-genuine or it can be said that the activities of the assessee-Trust are not being carried out in accordance with the object of the trust or institution. There cannot be any other legally sustainable reasons for cancelling or withdrawing the registration granted to the assessee-Trust.”

55. Similarly, we find that the coordinate Bench of the ITAT, Hyderabad in the case of Vignana nothi v. DIT(E), [2017] 81 taxmann.com 204 again held that, where assessee-Trust society was carrying on activity of imparting education, mere fact that, it had collected donation from students at the time of admission would not result in invoking provisions of section 12AA(3) so as to cancel its registration. The relevant portion of order is extracted below.

“As can be seen from the order, the DIT(E) based his conclusion on the basis of enquiry from four parents/relations in assessment proceedings concluded in the year 2007 for assessment year 2005 06 and in year 2008 for assessment year 2006-07. Even though those findings in assessments were not conclusive and matters were restored to Assessing Officer for further enquiry, no such enquiry was made as can be seen from the orders passed again on 31-03 2014 for the above years. These orders at present are pending adjudication before Commissioner (Appeals). Thus, the order of DIT(E) is based on premature conclusions and the contention of revenue stating that the department has ‘conclusively proved’ the collection of capitation fee is devoid of any merit. [Para 10]

As can be seen from the facts, only four cases were examined and on the basis of that, all the donations received including from Members of Society were considered as capitation fees and were brought to tax. Assessee-Trust filed the letters from the above four persons that the donations are voluntary and no capitation fee was collected. No further enquiry was conducted in spite of remitting matter for examination of the same. Even though the matter is pending adjudication before the Commissioner (Appeals) in assessment proceedings, these four isolated instances which were relied on by Assessing Officer do not conclusively establish that the society has violated the objects for which it was established and registration framed so as to invoke provisions of section 12AA(3) to cancel registration. [Para 10.1]

The provision envisages that 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. Even though DIT(E) has used the above words in the order before cancelling the registration, there is no such finding that the activities are not genuine or are not being carried out in accordance with the objects. Assessee-Trust no doubt is running an educational institution and i.e., of charitable nature. Even though donations are collected, they are permitted by the Memorandum and as discussed above, permitted by the Statute also [Andhra Pradesh Educational Institutions (Regulation of Admission and Prohibition of Capitation Fee) Act, 1983]. There are no complaint or proceedings that assessee-Trust was collecting any fees more than what was prescribed. There are no allegation that any of the society funds were being misused/diverted for any purpose other than for the objects of society. In view of the above, the provisions of section 12AA(3) were not satisfied so as to cancel the registration. [Para 13]

As stated earlier, there is no allegation that funds are being misused or diverted or assessee-Trust is not imparting education. The activities of the trust cannot be considered as not genuine. Further, the trust is spending the funds for fulfilling the objects of the trust for which it is formed. Therefore, twin conditions prescribed for cancellation of trust registration have not been fulfilled. It is open to the authorities to deny the benefit under section 11 but this cannot be a ground for cancellation of registration.”

56. As far as the decisions relied on by the Ld. DR is concerned, we have gone through all those decisions carefully and find that the sole substantive aspect in all those decisions is about the genuineness of the activities carried out by the trust and only in case it is find that the activities are not carried out as per the objects then the registrations have been cancelled. However, in the instant case as we have elaborately discussed above that the activities of the assessee-Trust are fully satisfying that it is running for the objects of the trust for which it has been registered and therefore even if at the end of the assessment proceedings certain additions are made with respect to the alleged allegation about collection of capitation fees in specific years from specified students, then the AO can deny the benefit u/s.11 in relation to such discrepancies in those respective years.

57. In light of the above discussed facts and circumstances and the decisions (supra) which we find are squarely applicable on the facts of the instant case, we hold that Ld. PCIT erred in cancelling the registration granted to the assessee-Trust u/s. 12A of the Act solely on the allegation of alleged collection of capitation fees during a specified period from few students on the basis of loose sheets (as discussed earlier), even when overall and holistically the activities of the assessee-Trust are found to be genuine and are in accordance with the objects of the trust. As observed earlier, addition, if any, emanating out of the seized record can be taken care by the AO in the assessment proceedings. We thus quash the order passed by the Ld. PCIT cancelling registration of the assessee-Trust under Section 12AA(3) of the Act and restore the registration of the assessee-Trust u/s 12A/12AB of the Act.

58. The next legal ground taken by the assessee-Trust is against the action of the Ld. PCIT cancelling the registration of the trust under Section 12AA(3) of the Act with retrospective effect. Both the parties had argued this issue at length, but since we have quashed the impugned order on merits, this legal plea is dismissed as having become infructuous.

59. The assessee-Trust has also challenged the validity of the order passed by the Ld. PCIT (Central) u/s 12AA(3) of the Act, cancelling registration of the assessee-Trust in light of Section 119 of the Act and has contended that, it is only the Ld. CIT (Exemptions), who is authorized to grant registration and also cancel registration of any trust or institution, or society and thus, the order passed by the Ld. PCIT (Central) without such authority is invalid and void ab initio. The Ld. AR has also cited various judicial precedents in support of this plea, which we have already taken note of earlier. The Ld. DR has principally opposed the admission of this plea on the ground that the assessee-Trust did not raise this in the first round of proceedings and is therefore precluded to raise the same now.

60. According to us, the impugned legal issue goes to the very root of the question of assumption of jurisdiction by the Ld. PCIT (Central) and where the question of jurisdiction can be raised by the aggrieved party at any stage of the pending proceedings and in such case the appellate authority is required to oblige and adjudicate the question of jurisdiction. The conferment of jurisdiction is a legislative function and the same can neither be conferred or waived with the consent of parties or by superior court and therefore where any authority passes an order / decree having no jurisdiction over the matter, it would amount to nullity as the same goes to the root of the issue. In that view of the matter, we are of the view that the challenge to jurisdiction can be raised at any stage by the aggrieved party, the assessee-Trust, in this case. For this, we gainfully refer to the decision of the Hon’ble Supreme Court in the case of Kiran Singh & Ors. V. Chaman Paswan & Ors. [1955] 1 SCR 117 wherein the Hon’ble Supreme Court observed as follows (relevant portion):-

” It is a fundamental principle well-established that a decree passed by a Court without jurisdiction is a nullity, and that its invalidity could be set up whenever and wherever it is sought to be enforced or relied upon, even at the stage of execution and even in collateral proceedings. A defect of jurisdiction, whether it is pecuniary or territorial, or whether it is in respect of the subject-matter of the action, strikes at the very authority of the Court to pass any decree and such a defect cannot be cured even by consent of parties.”

61. We also rely on the following findings of the Hon’ble Gujarat High Court in the case of P.V. Doshi Vs CIT (113 ITR 22) wherein it was held as under:-

“The legal position about waiver of such a mandatory provision created in the wider public interest to operate as fetter on the jurisdiction of the authority is well settled that there could never be waiver, for the simple reason that in such cases jurisdiction could not be conferred on the authority by mere consent, but only on conditions precedent for the exercise of jurisdiction being fulfilled. If the jurisdiction cannot be conferred by consent, there would be no question of waiver, acquiescence or estoppel or the bar of res judicata being attracted because the order in such cases would lack inherent jurisdiction unless the conditions precedent are fulfilled and it would be a void order or a nullity. The settled distinction between invalidity and nullity is now well brought out in the decision in Dhirendra Nath Gurai v. Sudhir Chandra Ghosh, AIR 1964 SC 1300, 1304, where their Lordships had gone into this material question as to whether the act in breach of the mandatory provision is per force a nullity. The passage in Macnamara on Nullities and Irregularities, referred to in Ashutosh Sikdar v. Bihari Lal Kirtania [1907] ILR 35 Cal 61 [FB], at page 72, was in terms relied upon as under:

…..

Thereafter, their Lordships pointed out that whether a provision fell under one category or the other was not easy of discernment, as in the ultimate analysis, it depended upon the nature, scope and object of the particular provision. Their Lordships in terms approved a workable test laid down by Justice Coleridge in Holmes v. Russel [1841] 9 Dowl 487 as under:

“It is difficult sometimes to distinguish between an irregularity and a nullity; but the safest rule to determine what is an irregularity and what is a nullity is to see whether the party can waive the objection; if he can waive it, it amounts to an irregularity; if he cannot, it is a nullity.” Thereafter it was pointed out that a waiver is an intentional relinquishment of a known right, but obviously an objection to jurisdiction could not be waived, for consent could not give a court jurisdiction where there was none. Even if there was inherent jurisdiction, certain provisions could not be waived. What can be waived would be only those provisions which are for the private benefit and protection of an individual in private capacity, which might be dispensed with without infringing any public right or public policy.”

This settled legal position was again reiterated in Superintendent of Taxes v. Onkarmal Nathmal Trust, AIR 1975 SC 2065, where the question had arisen in the context of the Assam Taxation (on Goods Carried by Road and on Inland Waterways) Act, 1961. The assessee-Trust had obtained an injunction order against the State in a writ petition challenging the validity of the Act. The assessee-Trust had not submitted the return under section 7(1) and under section 7(2) a notice had to be issued only within two years from the end of the return period. The procedure of best judgment assessment was laid down in section 9(4) and the question arose whether, in view of the injunction order obtained by the assessee-Trust, ignoring the two years’ limit laid down as a fetter for issuance of the notice under section 7(2), the best judgment assessment procedure was permissible. At page 2070, the learned Chief Justice first held that if a return under section 7(1) was not made, the service of a notice under section 7(2) of the Act was the only method for initiation of a valid assessment proceeding under the Act. The period of two years under section 7(2) was a fetter on the power of the authority and was not just a bar of time. It was the scheme of the Act that the service of notice within two years from the end of the return period was an imperative requirement for initiation of assessment proceeding as also reassessment proceeding under the Act. Further proceeding, at page 2071, their Lordships pointed out the settled legal distinction between the provisions which conferred jurisdiction and provisions which regulated procedure, because jurisdiction could neither be waived nor created by consent, while a procedural provision could be waived by conduct or agreement. Their Lordships pointed out that in that case the assessee-Trust could not be said to have waived the provisions of the statute because there could not be any waiver of a statutory requirement or provision which went to the jurisdiction of assessment. The origin of assessment was either an assessee-Trust filing a return as contemplated in the Act or an assessee-Trust being called upon to file a return as contemplated in the Act. The respondents challenged the Act. The order of injunction did not amount to a waiver of the statutory provisions. The issue of a notice under the provisions of the Act related to the exercise of jurisdiction under the Act in all cases. The learned Chief Justice in terms pointed out that the revenue statutes are based on public policy. The revenue statutes protect the public on the one hand and confer power on the State on the other. Therefore, even in the context of such a revenue statute like a taxation measure such fetter on the jurisdiction being a fetter laid to protect public, on wider ground of public policy, it was held that such provisions which confer jurisdiction on assessment and reassessment could never be waived for the simple reason that jurisdiction could neither be waived nor created by consent. In the concurring judgment his Lordship, Beg. J., at page 2077, also pointed out that if the notice under section 7(2) was a condition precedent to the exercise of jurisdiction to make the best judgment assessment, the doctrine of waiver could never confer jurisdiction so as to enable the parties to avoid the effect of violating a mandatory provision on a jurisdictional matter even by agreement. This decision completely settles the legal position. It makes a distinction between the provisions which confer jurisdiction and provisions which merely regulate the procedure by holding that such provisions which confer jurisdiction or such mandatory provisions which are enacted in public interest on ground of public policy even in such revenue statutes could not be waived, because of the underlying principle that jurisdiction could neither be waived nor created by consent.

…..

Besides, the question of waiver could never be raised if the person had no knowledge of his legal rights so that he could make any such conscious waiver. In the present case, the Appellate Assistant Commissioner in his order had pointed out that it was when he perused the order sheet that he found that there were no reasons recorded by the Income-tax Officer for issuing notice under section 148. The entry on the order sheet dated September 3, 1963, simply contained the direction: “Issue notice under section 148”, and no reasons were recorded by the Income-tax Officer before reopening the assessment. Even the relevant sub-section of section 147 under which the assessment was sought to be reopened was not mentioned. These facts, prima facie, disclosed that the reasons came to the notice of the assessee-Trust for the first time when the Appellate Assistant Commissioner perused this order sheet and brought this fact to the notice of the assessee-Trust. Even on that ground, therefore, there can be no question of any waiver on the facts of the present case.

Even the alternative ground of finality of this order of the Tribunal suffers from the same infirmity, as the Tribunal has failed to notice this material distinction between a mere procedural provision which could be waived and such jurisdictional provision or a mandatory provision enacted in public interest which could not be waived, because by consent no jurisdiction could be conferred on the authority unless the conditions precedent were first fulfilled. In Dasa Muni Reddy v. Appa Rao, AIR 1974 SC 2089, 2092, such a question of waiver was examined also in the context of the bar of estoppel or of res judicata. At page 2091, it was pointed out that want of jurisdiction must be distinguished from irregular or erroneous exercise of jurisdiction. If there is want of jurisdiction the whole proceeding is coram non judice. The absence of a condition necessary to found the jurisdiction to make an order or give a decision deprives the order or decision of any conclusive effect. (See Halsbury’s Laws of England, 3rd edition, volume 15, paragraph 384). Further proceeding at page 2092, it was pointed out that just as the courts normally did not permit contracting out of the Acts so there could be no contracting in. A status of control of premises under the Rent Control Acts could not be acquired either by estoppel or by res judicata. Their Lordships in terms held that the principle was that neither estoppel nor res judicata could give the court jurisdiction under the Acts which those Acts said it was not to have. Therefore, bar of res judicata or estoppel or waiver were negatived in such a case where the plea was outside the ambit of the Rent Control Act, for the simple reason that as one could not confer jurisdiction by consent, similarly one could not by agreement waive exclusive jurisdiction of the rent courts over the buildings in question. It is true that section 254(4) in terms provides that save as provided in section 256 (which provides for the reference to the High Court), orders passed by the Appellate Tribunal on appeal shall be final. That finality or conclusiveness could only arise in respect of orders which are competent orders with jurisdiction and if the proceedings of reassessment are not validly initiated at all, the order would be a void order as per the settled legal position which could never have any finality or conclusiveness. If the original order is without jurisdiction it would be only a nullity confirmed in further appeals. If the essential distinction is borne in mind in such cases when there is such defect of jurisdiction because the conditions to found jurisdiction are absent, the Tribunal also would be suffering from the same defect and it could not confer any jurisdiction on the Income-tax Officer by making the remand order, because of the settled legal principle that consent could not confer jurisdiction when jurisdiction could be created only by fulfilment of the condition precedent as in the present case. Therefore, no question of finality of the remand order could ever arise in the present context, if the mandatory conditions for founding jurisdiction for initiating reassessment proceeding were absent. This is the view in Commissioner of Income-tax v. Nanalal Tribhovandas [1975] 100 ITR 734 (Guj), agreeing with the Madras view that there would be no such finality by remand because consent could not confer jurisdiction, and so, such objection in regard to the validity of the notice under section 34 could be raised before the Appellate Assistant Commissioner.

…..

Therefore, if this settled position was borne in mind, the Tribunal’s view was clearly erroneous that the matter became final when the Tribunal passed the earlier remand order so that this point of jurisdiction got finally settled, which could not be agitated unless the assessee-Trust had come in the reference to this court at that stage. The Tribunal’s view was also incorrect that in restoring the case to the file of the Income-tax Officer by the earlier order, the only point left open was in respect of addition of Rs. 19,421 on merits and that the legal or jurisdictional aspect whether the reassessment proceedings were legally initiated was not kept open. Even on the third question the Tribunal’s view was erroneous that even though this point went to the root of the jurisdiction and was a. pure question of law, merely because the point was initially raised and not pressed when the matter was taken up before the Appellate Assistant Commissioner, it could be waived and it could not be reagitated. Therefore, in view of the settled legal position our answers on questions Nos. 1 and 2 are in the negative, while our answer on question No. 3 is in the affirmative, that is to say, all the questions are answered against the revenue and in favour of the assessee-Trust. The reference is accordingly disposed of and the Commissioner shall pay the costs of the assessee-Trust.”

62. The reliance placed by the Ld. DR on the decision of Hon’ble Apex Court in the case of the Kalinga Institute of Industrial Technology (supra) has been rightly distinguished by the Ld. AR for the assessee-Trust as the impugned issue before us pertains to the challenge raised to the jurisdiction of the Ld. PCIT and it has nothing to do with the limitation prescribed under the Act for issuance of jurisdictional notice u/s 143(2) of the Act. The said decision we hold therefore, is of no assistance to the Revenue.

63. For the above reasons, we are of the view that the assessee-Trust was well within its right to challenge the assumption of jurisdiction by the Ld. PCIT (Central) albeit in the second round of proceedings and it cannot be prevented from doing so, only because it did not raise this legal issue before the Ld. PCIT(Central) in the first round of proceedings. Having held so, we refrain from deciding this legal issue, as we have allowed the issue on merits and have reversed the finding of Ld. PCIT (Central) cancelling the registration granted to the assessee-Trust u/s.12AA of the Act, and thus this legal ground is not being separately adjudicated and is left open.

64. Before parting, we explicitly clarify that the lower authorities shall adjudicate income tax assessments of the respective years fairly and objectively. Such, determination must be made in accordance with law, based strictly on the relevant facts and materials gathered, and completely uninfluenced by any observations or statements contained in this order. The authorities shall decide the matter strictly on its merits, unhindered by any observation made hereinabove.

65. In the result, appeal filed by the assessee-Trust is allowed. In light of the aforesaid action in the main appeal, the Stay Petition is infructuous and hence dismissed.

Order pronounced on the 15th day of July, 2026, in Chennai.