Education Renaissance Trust Vs CIT (ITAT Hyderabad)
ITAT Hyderabad held that payment of remuneration to the trustees could result into disallowance of excess expenditure and the same cannot be a ground to cancel the registration of trust.
Facts- The CIT(E) observed that the assessee had cancelled the trust deed on 20.12.2002 and reconstituted the trust. The assessee had received 12A registration in 1998 based on Original Trust deed. However, as can be seen the assessee had cancelled the Original Trust deed and reconstituted the trust, the 12A certificate issued in 1998 is not valid for the reconstituted trust. He noted that the assessee had not bothered to inform the department regarding the reconstitution of the trust and cancellation of the earlier original trust deed.
The CIT(E) further noted violation of section 13(1) of the IT Act; activities of the assessee in violation of the trust deed; running Posh School; source of income is from the activity lawfully carried on, but, the assessee failed in fulfillment of the basic requirement of income derived from the property held under trust wholly/solely for charitable purposes; books of account do not inspire genuineness.
The CIT(E) cancelled the registration u/s 12AA(3) r.w.s. 12AA(4) of the Act. Aggrieved by the order of the CIT(E), the assessee is in appeal before the ITAT.
Conclusion- The CIT(E) has referred to clause 21 amended deed dated 20/12/2002 to cancel the registration that “the trustees shall not be entitled to any remuneration for their service put in by them in connection with the management of the trust”, which is not having much weightage and not a ground to cancel the registration. Ms. Nirmala Diaz, founder trustee is coordinating for smooth running of day to day activities of educational institution. Even if the CIT(E) was not satisfied with her services rendered in consonance with the remuneration paid by the trust, he could have disallowed the excess expenditure as per his opinion, but the same should not be taken a ground to cancel the registration of trust.
The CIT(E) can cancel the registration only in situations, namely, i) if the activities of the such trust or institution are not genuine or ii) not being carried out in accordance with the objects of the trust or institution as the case may be. Both the situations are mutually exclusive. The trust is carrying educational activities which are within the purview of the object clause of the trust deed.
FULL TEXT OF THE ORDER OF ITAT HYDERABAD
This appeal filed by the Assessee is directed against CIT(E), Hyderabad’s order dated 05/12/2019 involving proceedings u/s 12AA(3) r.w.s. 12AA(4) of the Income- Tax Act, 1961; in short “the Act”, on the following grounds of appeal:
“1. The Ld. CIT (Exemptions), Hyderabad, passed u/s 12AA(3) and 12AA(4) cancelling registration dt. 05-12-2019 is contrary to law and facts and prejudicial to the extent of the appellant.
2. The Ld. CIT (Exemptions) erred in refusing registration ul s 12AA(3) r.w.s 12AA(4) of the IT Act, wherein the registration ul s 12AA was originally granted on 30-07-1998 vide order No. I/12A & 80G/102/96-97 by the Commissioner of Income Tax, AP-I, Hyderabad basing on the application filed on 31-03-1997 as per trust deed dt:27-09-1996, which thus the cancellation of the trust deed dt:18-07-1998 as pointed out, has nothing to do with the registration ul s 12A of the Trust.
3. The Ld. CIT (Exemptions) erred in observing and refusing the registration ix] s 12AA(3) r.w.s 12AA(4) is not correct and is bad-in-law since the allegation that the original trust deed was cancelled is not correct, since the original deed was executed on 12-09-1996 and the approval for registration ul s 12A was correctly accorded from 27-09-1996 by the erst-while Commissioner of Income Tax, AP-I, Hyderabad basing on the trust deed dt:12-09-1996.
4. The Ld. CIT (Exemptions) ought to have considered that the trust deed executed on 20-12-2002 is only a deed of amendment in continuation of the original deed dt:12-09-1996 and was noting to for cancellation of amendment trust deed dt:18-0 7-1998 for deciding the registration ul s 12A and thus there is no violation or default on the part of the appellant trust and the Ld. CIT (Exemptions) could not have passed order ul s 12AA(3) r.w.s 12AA(4) of the Act, which is against to the provisions of the Act and is against to the Principles of Natural Justice.
5. The Ld. CIT (Exemptions) has failed to treat the registration accorded uls 12A dt:30-07-1998 is genuine one and it cannot be disturbed as the amendment made to the original deed dt:12-09-1996, and for mere failure to communicate amendment in the trust deed to the CIT (Exemptions) cannot tantamount to cancellation of registration ix] s 12AA of the Act, which view is supported by the Decision of the Hon’ble ITAT, Hyderabad in the case of Vignana Jyothi vs. DIT(Exemptions) vide ITA No. 1751/H/2014, dt:26-04-2017.
6. The Ld. CIT (Exemptions) erred in taking the ground that the address appearing in the registration certificate u/s 12A and the address as appearing in the returns of income is the ground for refusal of registration uls 12AA(3) on 06-12-2019, which is not at all a ground for refusal of registration ix] s 12AA of the Act, which view is supported by the Decision of the Hon’ble ITAT, Hyderabad in the case of Vignana Jyothi vs. DIT(Exemptions) vide ITA No.1 751/Hyd/2014, dt:26-04-201 7.
7. The Ld. CIT (Exemptions) ought to have considered the clause No. 21 of the trust deed dt:20-12-2002 is to be read in continuation of the clause No. 11 of the said trust deed and thus there is no reason to refuse registration ul s 12AA with regard to the salaries received by the trustees towards discharging their duties for improving and betterment of the” Aims & Objects” of the Trust.
8. The Ld. CIT (Exemptions) ought to have considered that the fee collected at the time of admission over and above the term fees is only a voluntary donation and the statements stated to be obtained/taken at the time of survey ss] s 133A was not supplied to the appellant trust and was not allowed the appellant to cross examine them, which is against to the Principles of Natural Justice, which view is supported by the Decision of Hon’ble Supreme Court of India in the case of s Andaman Timber Industries vs. Commissioner Of Central Excise Kolkata-II Civil Appeal No. 4228 of 2006; (ii) Decision of Hon’ble Supreme Court of India in the case of Sunita Dhadda vs. Commissioner of income tax Central SPECIAL LEAVE PETITION CIVIL Diary No(s) 9432/2018.
9. The Ld. CIT (Exemptions) ought to have considered that the sources of income is from the activity lawfully carried on in accordance with the” Aims & Objections” of the trust deed and is accordingly the appellant trust is eligible for exemption u] s 11 of the Act.
10. The Ld. CIT (Exemptions) ought to have considered that the genuineness of the appellant trust has not in doubt keeping in view of the books of account maintained and the appellant has received the amounts towards corpus donation and not as “Capitation Fee” as pointed out by the Ld. CIT (Exemptions), which thus the refusal of registration ul s 12AA(3) r.w.s 12AA(4) of the Act is bad-in-law.
11. The Ld. CIT (Exemptions) ought to have appreciated the fact that the appellant trust is also sponsoring the students from weaker sections and provide them the admissions in the school without collecting any fees whatsoever.
12. The Ld. CIT (Exemptions) ought to have appreciated that the trust is utilizing the funds towards the objects of the trust and not violating any Aims & Objects of the trust. And thus the refusal of registration is not correct and is bad-in-law.
13. The assessee may add, alter or modify any other points to the grounds of appeal at any time before or at the time of the hearing.”
2. Briefly the facts of the case are that the assessee trust was granted registration u/s 12AA(1)(b)(i) of the Act, by the CIT, AP-1, Hyderabad vide proceedings No. F.No. Hq-I/12A and 80G/102/96-97 dated 30/07/1998 and also approved u/s 80G of the Act vide DIT(Exemptions), Hyderabad in F. No. DIT(E)/Hyd/80G/17(10)07-08, dated 05/03/2008.
2.1 The CIT(E) observed that the assessee had cancelled the trust deed on 20.12.2002 and reconstituted the trust. The assessee had received 12A registration in 1998 based on Original Trust deed. However, as can be seen the assessee had cancelled the Original Trust deed and reconstituted the trust, the 12A certificate issued in 1998 is not valid for the reconstituted trust. He noted that the assessee had not bothered to inform the department regarding the reconstitution of the trust and cancellation of the earlier original trust deed. The CIT(E) further noted as under:
a) Violation of section 13(1) of the IT Act
b) Activities of the assessee in violation of the trust deed.
c) Running Posh School
d) Source of income is from the activity lawfully carried on, but, the assessee failed in fulfillment of the basic requirement of income derived from the property held under trust wholly/solely for charitable purposes.
e) Books of account do not inspire genuineness.
2.2 In view of the above observations, the CIT(E) cancelled the registration u/s 12AA(3) r.w.s. 12AA(4) of the Act.
3. Aggrieved by the order of the CIT(E), the assessee is in appeal before the ITAT.
4. Before us, the ld. AR of the assessee filed written submissions, which are as under:
“1. Kind reference is solicited to the appeal filed in the impugned case against the cancellation order passed by the Commissioner of Income-Tax [ Exemptions] in terms of Section-12AA(3) r.w.s 12AA (4) of the Act., dated 5-2-2019.
2. Adverting to the above subject matter, it is humbly submitted the following written submissions, clarifications and contentions with legal support for favourable consideration of the Hon’ble Income-Tax Appellate Tribunal.
2.1 Succinctly, the facts of the case are that the assessee’ The Education Renaissance Trust’ is an educational Society registered under 12AA(3) and the main objective of the trust is to bring the waldorf movement to India by establishing institutions of learning at the primary and secondary school levels, conduct seminars, training programmes relating to the education, publish or cause to be published magazines and such other related material relevant to the education, conduct public awareness programmes on matters and issues relevant to the education. Thus, the aims and objects of the trust are for the overall benefit of the public at large in the field of education and other allied services. Therefore, upon application, the trust had been granted registration by the Commissioner of Income Tax, Ap-1, Hyderabad vide his order dated 30.07.1998 under section 12A of the Income Tax Act as a charitable organization within the meaning of section 2(15) of the Act. The Trust/Society has also been granted approval u/s 80G of the act, authorizing it to raise donations from public, vide DIT ( Exemptions), Hyderabad in F.No DIT (E)/Hyd/890G/17 (10)/07-08 dated 05.03.2008. Thus, the society has been enjoying the benefit of exemption of its income from tax in terms of section(s) 11/12 of the Income-Tax Act ever since 1998.
2.2 This being so, the Commissioner of Income tax had cancelled the registration that was already granted u/ s 12A of the Act to the trust by way of his order dated 512-2019 on the premise of violation of section 13 of the act.
3. In this regard, it may be submitted clarifying the issues that the order of cancellation of registration of trust passed by the Commissioner of income tax, in terms of section 12AA(3) of the Act., is fraught with inherent factual mistakes, legal defects/ procedural violations and the decision to withdraw the registration is un-sustainable to the test of judicial scrutiny. The order passed by the CIT [E] u/ s 12AA (3) r.w.s 12AA (4) is not sustainable and liable to be cancelled for the following reasons.
i) The Show cause notices issued to us has not contained specific reasons showing any sort of defects related to the non-genuineity of activities of the trust or activities of trust are not carried in accordance with the trust deed.
ii) No change in the object clause of the trust deed.
iii) On factual matrix, there is no capitation fee collected from the students.
iv) Payment of Reasonable Salary, based on qualification, experience and expertise, cannot result in violation of provisions of section 13
v) No Effective date of cancellation of registration of trust u/ s 12 AA(3) is mentioned in the CIT Order.
A detailed point wise clarification is explained in the subsequent paragraph’s of the submission.
4. First of all, the show cause notice only contains the reason as unreasonable salary paid to the member trustees and there is no whisper in the SCN about the reason of either the in-genuineness of the trust or the trust being run against the aims and objects of the trust’. Nowhere in the show cause notices found a mention of the question of genuineness or the question of the trust being run against the aims and objects clause of the trust deed. As per law, a registration granted to a trust can be revoked on the satisfaction of existence of the twin conditions viz., ingenuinity of the trust; and running of the society against the aims and objects of the trust. Thus, the genuinity was never questioned by the CIT through show cause notice, in order to revoke the registration already granted.
5. It may be recalled here the relevant provisions of the Act that as per the provisions of Sec.12AA(3) of the Act., the registration already granted ul s 12A/12AAcan be cancelled only if objects of trust are either not genuine or the activities of the trust are not in accordance with the object clause of the trust as per sec 12AA of the act”. For the sake of clarity it may have to be submitted that show cause notices issued to us do not contain any mention about any defect related to the non-genuineness of activities of the trust. The reasons mentioned in the show cause notices themselves do not lead to a violation falling ul s 12AA(3) of the Act. The reasons mentioned in the show cause notice do not fall within the ambit of the parameters enshrined in the Section-12AA(3)of the Act. It only speaks of violations uls 13(1) c and called for clarifications, which the appellant had already submitted. The question of salary being paid high or low depends of the job card, the responsibilities accepted; the experience and expertise in a specific field of activity. Salary paid to a particular manager in an organization is based on the theory of demand and supply. It may not be out of place to make a mention here that, the similar designated employees of major companies are being paid differently in high paid packets, though all of them possess similar degree and similar length of service. Thus the salary paid to a person cannot be said to be high and it cannot lead to cancellation of registration, denying the assessee the benevolent provisions of the Act.
6. For the sake of brevity, the contents of the show cause notices dated: 30-11-2018 is reproduced hereunder:
2 Remuneration to Ms. Nirmala Diaz:
The initial salary fixed to Smt. Diaz at Rs, 18150/-pm(yearly Rs.225000/-) w.e.f. 30-04-2004, Whereas within span of 11 years the increase of salary is nearly 450% which is unreasonable, Therefore, it is cleared that the assessee trust provides benefit directly to the founder trustee and also specified person and hence, the benefit of section 11 of the act will not be available in this case, On verification of educational qualifications of Ms NirmaJa Diaz with other staff the following details are noticed.
7. The commissioner of income tax has travelled beyond the show cause notice to cancel the registration of trust:
It is clear from the above that the show cause notice issued to us, requires clarifications and objections against the proposed revocation of registration ul s 12AA of Acton different kind of reasons which cannot be considered as violations falling within the ambit of the provisions of sec.12AA(3) of the Act entailing the trust to be cancelled the registration already granted ul s 12A of Act. Thus, the Contention of show cause notices is wrong and are found to be defective and commissioner of income tax cannot cancel the registration of the trust on the basis of such defective show cause notices.
8. Further, it is felt appropriate to bring on to the record that, in the impugned case the show cause notice, calling for explanation as to why the registration granted ul s 12A(a) of the Act should not be revoked, was issued to the assessee on 30-11-2018, by the CIT (E). Ostensibly, the above said notice was issued on the prima facie satisfaction and reference made by the Assessing Officer and not on the bonafide satisfaction of the CIT (E) himself. Even the SCN was issued for the proposed cancellation of registration ul s 12AA on the prima facie reasons of excess salary paid to the founder trustees. However, subsequently, there was survey operation carried out ul s 133A in the premises of the assessee trust on 7-02-2019. Presumably, this survey action was carried out as a sequel to the issue of notice, to substantiate/ establish the AO’s prima facie belief that there was violation leading to cancellation of the registration. Subsequent to issue of SCN by CIT the survey operation was carried out, which is to ratify the issue of show cause notice. The notices subsequently given were issued on the reasons of difference of opinion, presumption, conceptual difference and un-sustainable reasons. Thus, the issue of SCN has no strong basis, no bona -fide reason but only issued on ad-hoc manner. This action by AO reflects the AO’s intention that just to prove that activities of trust as non- genuine or to establish a violation in the activities of trust in order to cancel the registration. Therefore, the cancellation of registration order of the CIT [E] is un-sustainable.
9. The commissioner of income tax [exemptions] had mentioned the following reasons in his order to cancel the registration of trust.
i) CIT alleges: ‘Assessee Trust has not obtained any approval to reconstitute the trust deed:
3.1 The assessee, which has been registered u/s. 12A of the Act is duty bound to take prior approval of the Commissioner of Income Tax for making any amendments with regard to change in name J constitution of the trustees J objects etc. However, the assessee has ‘failed to do so. Hence, the assessee has violated the Income Tax Act. Since the trust deed dated 18.07.1998 based on which 12A registration was granted doesn’t exist, the assessee reconstituted vide trust deed dated 20,12.2002 is a trust without having 12A registration since the approval of the Commissioner of Income Tax has not been obtained for making such amendments.
Therefore, assessee’s 12A certificate issued earlier is hereby cancelled.
ii) CIT alleges: ‘The assessee trust has violated the provisions of Sec 13(1)c by way of receiving unreasonable remuneration rom the trust b the members 0 trustees:
5. Violation of Sec. 13(1) of the Income Tax Act: On perusal of the trust deed dated 20.12.2002, at Clause-21 the following is observed:
“21. The trustees shall not be entitled to any remuneration for their service put in by them in connection with the management of the trust. “
However, on perusal of the financial statements for the period ending 31.03.2018, the following trustees have been paid remuneration as follows:
