Vocational Education Foundation Vs CIT (ITAT Delhi)
Delhi ITAT: 12AB Registration Cannot Be Cancelled Merely Because Educational Trust Engaged Builder for Staff Housing Project
The Delhi ITAT quashed the order cancelling the registration of an educational trust under section 12AB(4), holding that engaging a private builder to develop a staff housing project did not amount to a specified violation warranting cancellation of registration, particularly when there was no evidence of commercial profiteering or deviation from the trust’s charitable objects.
The assessee, an educational society running IEC College of Engineering and Technology, had acquired land from the Greater Noida Industrial Development Authority (GNIDA) under a scheme meant for residential accommodation of employees and staff. Owing to financial constraints and lack of construction expertise, it entered into a turnkey development agreement with a private builder for construction of the housing project, while retaining only the right to recover its land cost and statutory charges without any share in the project’s profits.
The CIT (Exemption) cancelled the trust’s registration alleging that the housing project constituted a commercial activity, that flats had been sold beyond the trust’s objects, and that attachment of the project by the Enforcement Directorate in connection with the Bike Bot Scam indicated violation of other laws attracting section 12AB(4).
The Tribunal found that the trust’s primary activity of imparting education had never been questioned and that the housing project itself was authorised by the trust’s objects and by the GNIDA allotment conditions, which contemplated residential accommodation for members, employees and beneficiaries. It further noted that the trust did not undertake construction itself, earned no profit from the project, and merely acted as a facilitator, with the builder responsible for construction, marketing, collection of sale proceeds and project execution.
The ITAT also observed that the Revenue failed to conduct any enquiry with the allottees or GNIDA to establish that flats had been allotted to persons not entitled under the lease conditions or that the trust had received any amount beyond reimbursement of the land cost. Mere inferences that the builder earned profits or that the project was commercially exploited could not justify cancellation of registration.
As regards the Enforcement Directorate proceedings, the Tribunal held that they were directed against the builder and its promoters, not the assessee-trust, and there was no material to show that the trust had violated any law or participated in the alleged offences. Therefore, the conditions constituting a “specified violation” under section 12AB(4) were not satisfied.
Accordingly, the ITAT held that the cancellation of registration was based on presumptions rather than evidence, quashed the order passed under section 12AB(4), restored the trust’s registration, and allowed the appeal.
FULL TEXT OF THE ORDER OF ITAT DELHI
