2 Remuneration to trustee cannot be ground to cancel registration of trust

Case Law Details

Case Name : Education Renaissance Trust Vs CIT (ITAT Hyderabad)
Appeal Number : ITA No. 89/H/2020
Date of Judgement/Order : 29/09/2021
Related Assessment Year :

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:

Particulars Relationship Amount in
Rs.
Ms. Nirmala Diaz Founder Trustee 16,24,350/-
Mr. Suresh Kuppu Founder Trustee 9,75,000/-
Ms. Manorama Kamineni Founder Trustee 6,93,635/-

Ms. Nirmala Diaz, Founder Trustee also accepted during the course of hearing that she has been drawing a salary of around Rs. 1,50,000/- per month. She is M.A. Literature. Further, Mr. Suresh Kuppu and Ms. Manorama Kamineni, the trustees are also drawing salary I remuneration from the trust. This is Violation of Sec. 13(1) of the Act.

v) CIT alleges: I The assessee trust has collected capitation fees from the students:

8.5 Thus, the assessee is collecting the said amount of “corpus fund” from all the parents who seek admission compulsorily. The amount is also uniform and fixed to all parents. However, it is the assessee which has made it mandatory to all the parents to compulsorily pay the said “corpus fund donation is voluntary. Thus, the fee collected at the time of admission over and above the term fees (regular fees) is nothing but a capitation fee.

iv) CIT alleges: The assessee’s books of accounts do not inspire genuineness:

8.9 Books of account do not inspire genuineness.

The Donation is a voluntary act. But in this case the Parents are paying it because they are helpless, they are forced indirectly to pay it. Thus the main component which is voluntariness is missing. The so called Corpus donations are nothing but compulsory collection of capitation fee. It is not a donation at all. Therefore, the assessee has consciously mislead the department by entry in the books of account as Corpus donation. Therefore, the books of account are not reliable and are not giving genuine picture. Therefore, for these reasons also assessee is not eligible for registration u/s 12AA and therefore the registration is cancelled hereby.

Here, it is to bring to your notice that the conclusions drawn and reasons attributed for cancelling the registration already granted are not as per the violations or conditions mentioned under the provisions of Sec.12AA(3) of the Act. Thus, the ld. CIT (E) has travelled beyond the show cause notice and cancelled the registration of trust, showing other reasons falling ii] s 12AA(3) of Act.

10. As per law, in order to cancel the registration of trust ul s 12AA(3), the assessee should have violated the conditions stipulated under the provisions of Sec. 12AA(3), but none of the grounds as discussed above depicts the violation of the provisions of Section 12AA(3).Here, for immediate reference, the relevant provisions of section 12AA of the Income Tax Act are re-capitulated which reads as under:

“12AA. Procedure for registration:

(1) The Commissioner, on receipt of an application for registration of a trust or institution made under clause (a) or clause (aa) of sub-section (1) of section 12A, shall-

(a) call for such documents or information from the trust or institution as he thinks necessary in order to satisfy himself about the genuineness of activities of the trust or institution and may also make such inquiries as he may deem necessary in this behalf; and (b) after satisfying himself about the objects of the trust or institution and the genuineness of its activities, he–

(i) shall pass an order in writing registering the trust or institution;

(ii)  shall, if he is not so satisfied, pass an order in writing refusing to register the trust or institution, and a copy of such order shall be sent to the applicant.

(3) Where a trust or an institution has been granted registration under clause(b) of subsection(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”

11. As stated supra, while granting registration to the trust ii] s 12Aof the Act., the then Commissioner of Income Tax had gone into the above objects and satisfied himself for grant of registration. However, while revoking the above order, the CIT(E) has not made cancellation on either of the grounds i.e. the activities of the trust were not genuine or the activities of the trust were not run in accordance with the objects of the trust. When the trust was registered with definite objects, carrying on such activities, the objects for which the registration was made, there is no plausible and correct reason for cancelling the order on the reason of violation of Sec.13 of the Act., and not ul s 12AA(3) of Act. As per the provisions under section 12AA(3), the Commissioner is empowered to grant or refuse the registration and after granting registration, would be empowered to cancel and that too, only on two conditions laid down under section 12AA(3) of the Act. The assessee assails the order on the plea that none of the conditions under section 12AA(3) were violated and therefore, the satisfaction which was arrived at by the Commissioner of Income Tax was not justified.

12. On facts, the reasons specified in the CIT order are objected to in detail as follows:

i) Show-cause notice issued to us mentions only about 13 (1)( violations but as per Income-tax act, 1961 registration of trust U/S 12AA(3) can be cancelled only if objects are not genuine or activities of trust are not carried in accordance with the trust deed:

As already submitted above, the Commissioner of Income tax had cancelled the registration of trust on the alleged reasons that ‘trust has collected capitation fees and also paid unreasonable salary to the founder trustees’. It is strongly contended that the order of the Commissioner is not justified as the power to cancel could be only traced out to section 12AA(3) and in the absence of any activity carried on by the trust contrary to the objects, the registration cannot be revoked.

vi) The Show cause notices issued to us has not contained specific reasons showing any sort of defects related to the non-gen uineity of activities of the trust:

As mentioned in foregoing para’s, the registration of trust can be cancelled only if the trust is either not genuine or the activities of the trust are not in accordance with the objects clause of the trust. In this connection, we would like to submit that show cause notices issued to us dated 30.11.2018 has not contained comment on any defects related to the non genuineness of activities of the trust. The show cause notice dated 3011-2018 issued to us has mentioned only about the payment of unreasonable expenditure to the trustee. Further, In the CIT order, commissioner specified that assessee is engaged in alleged collection of capitation fees from students.

It is clear that, the show cause notice issued to us is of on different kind of violations 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 u/ s 12A of Act. Thus, the notice is found to be defective and commissioner of income tax cannot cancel the registration of the trust on the basis of above show cause notice. Hence, the order of CIT is without strong base of satisfaction that the trust is either in genuine or it is not being run as per the aims of the trust and therefore the order is invalid.

iii) No change in the object clause of the trust deed:

The original trust deed of “The education Renaissance Trust was registered on 12- Sep 1996. Thereafter, certain clauses which are to be made in compliance with Income tax act, became necessary to make a new trust deed. Hence the original trust deed was amended on 18-July-1998 and on 20-Dec-2002. In this connection, we would like to bring to your notice that no changes have been made to the objects clause of trust deed executed on 20-Dec-2002. The objects clause of the original trust deed and amended trust deed dated 20-Dec-2002 are one and the same.

However, the commissioner of Income Tax, in his order had mentioned that the assessee which is registered u/s 12A is duty bound to take prior approval of commissioner of income tax for making amendments with regard to change in name / constitution of the trustees/ objects etc.

In this regard the appellant is again reiterating that, we have not made any amendments to the object clause of trust deed. The aims clauses only speak of charitable purpose viz., imparting education and other allied services to the public at large and not for the sectorial benefit of any caste, religion and for exclusive benefit of any individual. There is no un-lawful activity carried on by the trust. When the trust is already existing and when there is no change in the aims and objects clause, we sincerely feel that the approval of commissioner again is not required. When there is no violation of the aims and objects of the trust there is no reason for revoking the already granted registration u/ s 12AA of the Act.

iv) On factual matrix, there is no capitation fee collected from the students:

The Ld. Commissioner from his order dated 5-12-2019 specified that the assessee is engaged in collection of capitation fee and cancelled the registration of trust .It is hereby submitted that we have not collected any capitation fees from students. The fee paid by parents towards corpus fund is completely voluntary. As per the Govt order (GO)- page no 54 of paper book -1, the school with the committee constituted with 2 members from the parent representatives, can fix the fees for each school. This is the practice followed by all the schools and Govt order (GO) is very clear on that. The fees will be fixed based on the amenities like bus, food etc. provided school to school basis. The fees fixed will be inspected by the education department every year. In our case also, we followed the same and collected from the students/ parents. Therefore, there is no case to hold that the institution collected over and above the fixed fee. As such the amount is not at all capitation fee.

Further, all that amount which has been collected from students is duly accounted for in the books of accounts. Entire amount of fee collected has duly been accounted for in the books of account. Therefore, it is submitted that the conclusion of the honourable CIT that there is an unlawful act and thus the institution indulged in unlawful act is not well founded and is without any basis by giving a colour to a particular receipt as capitation fee without any material and legal support.

v) Salary based on qualification I Reasonable compensation paid for the services rendered cannot result in violation of provisions of section 13 (1) (c):

One of grounds for cancelling the registration of our trust is /I payment of unreasonable remuneration to the member trustees. In this connection, we would like to bring to your notice that a very reasonable remuneration was paid to Nirmala Diaz which is based on qualification and based on the onerous responsibility being carried on by her and that is not a violation of provisions of section 13 (1) c of the act. In the reply to the show cause notice dated 30-11-2018, we had already mentioned the background and experience of Nirmaladiaz .. The relevant para from the reply is as under:

13. The only other reason for which the cancellation is proposed is on the alleged ground of payment of salary to Mrs.Nirm ala Diaz Founder Trustee, which according to the Hon’ble Commissioner is unreasonable. The Assessee in the proceeding paragraphs has given the back-ground facts relating to the substantial contributions made by Mrs. Nirmala Diaz in the day to day affairs of the Assessee. From the submissions so made, it is apparent that Mrs. Nirmala Diaz is the main person who has contributed her entire time and efforts to the assessee trust in different forms. While the initial contribution was in the form of finding ways and modes of setting up a Waldorf school in India, the later part of the contribution came in the form of teaching the teachers Anthroposophy, Mrs. Nirrnala Diaz, apart from management of school, is involved in each and every aspect of day to day operations of the school. She is the central pillar of the assessee around whom the entire activity of the school runs. The staff, parents and the students look out for her guidance on daily basis to achieve the desired results, Apart from the above activities which are already narrated in the facts, Mrs. Nirmala Diaz coordinates all international activities, Mentors visit to Sloka and teachers training etc. 1t is also a fact on record that in spite of rendering various services apart from being a founder trustee Mrs. Nirmala Diaz, she was not paid anything till 2004. It was only since 2004, she was paid salary which is very much comparable to the salaries of other staff though she renders services for the assessee in many ways.

It is respectfully submitted that given the above factual drop, the payment of salary of Rs.84,391 per month to Mrs.Nirm ala Diaz is quite justified and is not unreasonable. As submitted above; she renders services in many

Hence, the remuneration paid to the founder trustee’s is justifiable in law.

13. No Effective date of cancellation of registration U/S 12AA(3) is mentioned in the CIT Order:

In this connection, we would like to explain that the Commissioner in his order of revocation ul s 12AA(3) of the Act., has not mentioned the effective date of applicability of order. The relevant para from the CIT order is here under:

9. Therefore for all the reasons discussed in the order, the Registration is cancelled u/s12AA(3) rws12AA(4) of the Income Tax Act.

Hence, it is strongly contended that the Commissioner has grossly erred in passing the order without specifying the date of effect of this revocation order and thus the order is invalid. This view is supported by various legal precedents, as mentioned in the subsequent para’s.

Therefore for all the above grounds and reasons as discussed above, also in view of various legal precedents on this subject, the order passed by commissioner is invalid and not justifiable by law.

As already stated supra, we are reiterating our stand that the order of revocation of registration u/s 12AA(3) r.w.s 12AA(4) does not sustain to test of judicial scrutiny for the following reasons.

1) 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.

2) No change in the object clause of the trust deed:

As explained, it is very clear that trust is continuously operating with same objects, which will not affect the genuineness of the activities of the trust.

3) No capitation fees collected from students:

As per Government order, page no 54 of paper book -1, school fees will be collected according to the fees fixed by the committee constituted as per GO. The same is followed by the school. Hence, CIT allegation that capitation fees are collected from students will not survive.

4) Reasonable Salary paid to the one of the trustees is not violation of 13 (l)(c) :

As explained, Teacher with MA qualification and getting the salary of Rs. 84,390 is less than the salary that is payable in the market for similar qualifications. Hence, CIT allegation of 13(1) c violation cannot be survived.

5) Effective date of cancellation is not mentioned in the CIT order:

No Effective date of cancellation of registration of trust u/s 12AA(3) is mentioned in the CIT Order. Hence, CIT order is invalid.

6) The Order for cancellation of registration of trust U j s 12AA of the Act has travelled beyond the show cause notice issued.

In this connection, we have already submitted following case laws to you, vide our letter dated 21-06-2021.The case laws on relevant points as discussed above are as follows:

Restoration of registration which was cancelled on the alleged ground of collection of capitation fees or Charging Fees up to the limit declared by government cannot be considered as violation.

1.  Vignana Jyothi Vs Director of Income Tax having citation no ITA 1751jHj2014.

2. Kunhitharuvai Memorial Charitable Trust vs CIT having citation no ITA no 246jCochj2014

Registration of charitable trust u/s 12AA (3) cannot be cancelled retrospectively.

1. Indian Medical Trust having citation no [2019] 108 Taxmann 93.

2. Agra Development Authority having citation no [2018] 90 Taxmann 282.

3. Urmila Devi Charitable Trust Vs. CIT (Exemptions) having citation no ITA 4136/ Delhi/ 2017.

9. Devki Devi Foundation Vs. Director of Income Tax (Exemption) having citation no [2019] 110 taxmann.com 492 (Delhi- Trib.).

Salary based on qualification / Reasonable compensation paid for the services rendered cannot result in violation of provisions of section 13 (1)c).

1.  PNR society for relief & Rehabilitation of disabled trust Vs Deputy Director of Income Tax having citation no 52. Taxmann.com 362.

14. CIT Vs CMR Jnanadhara Trust having citation no 55.taxmann.com 516.

Registration of an institution under section 12AA (3) cannot be cancelled without mandatory recording of satisfaction, either on issue that activities of the trust are not genuine or it is not being carried out in accordance with objects for which it was setup.

1. St. Michaels educational association vs CIT having citation no 111 taxmann.com 242.

13 (1) d violation should be restricted to the amount violated but trust registration U/S 12AA cannot be cancelled.

1. Maharashtra Academy of Engineering & Educational Research Vs Deputy CIT having citation no [2017] 88 taxmann.com 864.

2. Lilavati Kirtilal Mehta Medical Trust having citation no ITA 282 7/Mum/2014.

Change/ Amendments to Trust Deed doesn’t result in cancellation of registration of the trust V/s 12AA.

1.  Krupanidhi Educational Trust Vs Director of Income Tax having citation no ITA 86(BNG) /2012.

2.   Paramount Charity Trust Vs CIT (1) having citation no ITA 3119/ Ahd/2014.

Cancellation of registration of trust effective date is not mentioned in the order passed, as a result order is invalid

1. Auro Lab having citation no [2019] Taxmann 225.

Registration U/S 12AA (3) can be cancelled only registration if trust activities are not genuine and not in accordance with objects of trust.

1.  Lilavati Kirtilal Mehta Medical Trust having citation no ITA 282 7/Mum/2014.

2. Sarvodaya Ilakkiya Pannai Vs CIT having citation no [2012] 20 taxmann.com (mad) ITA 594/Mad/2011.

3. Tejas Education Society Vs Commissioner of Income Tax having citation no ITA 761/PN/2011.

The Order for cancellation of registration of trust Vis 12AA of the Act has travelled beyond the show cause notice issued.

1. CIT Vs Con timeters Electricals Pvt.Ltd. having citation no 317 ITR 249.

2.  Commissioner of customs Vs Mis Toyo Engineering India Limited having citation no (2006) 7 SCC 592.

3. M/s Saci Allied Products Ltd V s. Commissioner of central excise having citation no [2005]taxmann.com 1410.

4. Commissioner of central excise V s Steel stripes Ltd having citation no [2003]taxmann.com 1205.

Trust is eligible for registration ufs 12A/l2AA despite no formal deed

1. Tsurphu Labrang having citation no TS-417-SC-2017,ITA 484/2016(Delhi HC),ITA 4941/De1/2011 & 30611 Delf2013.

ITAT can itself direct registration grant u/s 12AA, where it disagrees with CIT’s satisfaction

1. Reham Foundation having citation no TS-589-HC-2019(ALL). Prayer:

Considering all the facts and circumstances of the case as also the legal precedents on the subject matter, it is humbly and in all humility prayed to quash the cancellation of registration of trust ul s 12AA of the act.”

5. The ld. DR, on the other hand, also filed written submissions, which are as under:

“In this case, the CIT (E), Hyderabad, suo-mota initiated the proceedings for cancellation of registration on multiple grounds and, accordingly, cancelled the registration, vide impugned order u/s.12AA(3) rws 12AA(4) of the Income-tax Act, 1961 (“the Act” for short), dated 5.12.2019, after affording adequate number of opportunity of hearing to the assessee by scrupulously following the relevant provisions of the Act and in accordance with the principles of natural justice. One of the main grounds for cancellation of registration is that the assessee amended and re-constituted the trust deed itself after having granted registration u1s.12AA of the Act, but without informing or taking approval of the CIT.

2. In this regard, the Appellate has raised an objection/ground that the CIT cancelled the registration without fulfilling any of the conditions stipulated under sub-section (3) of section 12AA of the Act. In view of this, before analysing the facts of the case at hand, it is worthwhile to understand the provisions of sub-section (3) of section 12AA of the Act, as discussed below.

3. As per the scheme of the Act, relating to taxation of charitable trust /institution, in order to claim exemption of income under section 11 and 12 of the Act, it is mandatory to obtain registration of the trust/institution u/s.12AA of the Act from the CIT(E)/DIT(E). Further, in the event of violation of the specified conditions, the CIT is empowered to cancel the registration by invoking the provisions of section 12AA(3) of the Act. This particular provision authorizing CIT to cancel the registration was inserted in the Act with effect from 01.10.2004 by Finance Act, 2004 and, there-after, with effect from 01.06.2010, such power has been extended old registrations also, wherein the CIT can cancel registration of a trust/institution which has been obtained at any time u/s.12A of the Act.

4. Further, the CIT’s power of cancellation has been enhanced by Finance Act, 2014, w.e.f. 01.10.2014, as per which the CIT has the power to cancel the registration u/s.12AA(4) of the Act, even for violation of any conditions stipulated u/s.13(1) of the Act. As such, as per the existing provisions of the Act, the CIT can cancel the registration under two independent provisions

i.e., sub-section (3) and sub-section (4) of section 12AA of the Act, for two different kinds of reasons or violations of the Act, as the case may be.

5. Coming to the power of cancellation of CIT u/s. 12AA(3) of the Act, the CIT can cancel the registration provided he is satisfied that:

1)  Activities of trust or institution are not genuine; or

2)  Activities of trust or institution are not being carried out in accordance with the objects of the trust/institution.

6. In this regard, the group of words “the objects of the trust/institution” as appearing in sub-section (3) means- the objects of the trust as recorded in the trust deed produced by the assessee before the CIT at the time of filing an application seeking registration, and on the basis of which, the CIT earlier granted registration u/s.12AA/12A of the Act, by issuing an order in writing, inter-alia, after recording his satisfaction that such objects are genuine.

7. As such, in case, if the CIT comes to know that subsequent to granting registration u/s.12AA/12A of the Act, on the basis of a particular trust deed containing certain specified objects of the trust, the assessee has changed or modified or amended, as the case may be, such specified objects of the trust deed either cancelling the original trust deed and constituting a new trust deed or amending the clauses of the original trust deed, including the object clauses, then, the CIT has every right to invoke the second limb of sub-section (3) i.e., “activities are not being carried out in accordance with the objects of the trust or institution”, implying that the activities are not being carried out in accordance with the objectives/object clauses as enshrined in the original trust deed on the basis of which the assessee was granted registration u/s. 12 AA/12A of the Act. As such, there is a direct nexus between the objects of the trust and granting of registration u/s.12AA/12A of the Act. If the registration has been granted on the basis of particular set of objects enshrined in the trust deed, then the said registration is valid in the eyes of the law till such time the said set of objects are in-tact, without any tinkering or modification.

8.  Thus, in accordance with the statutory provisions, not only thy genuineness of the activities but also, the consistency as well as stability of the object clauses assumes vital importance in order to avail the benefit of exemption of income u/s. 11 and 12 rws 12 AA/12A of the Act.

9.  With this back ground, I would like to analyse the facts of the instant case and legal issues emanating thereof. Coming to the facts of the case, it is an admitted fact that the Appellant trust i.e., The Education Renaissance Trust, was originally came into existence on 12.09.1996 by virtue of executing a trust deed which was later registered with sub-registrar office, Banjara hills on 27.09.1996. In this regard, please refer to the Appellant’s paper book page no.81 to 92. However, it is quite interesting to note that in the said trust deed, the heart and soul of a trust i.e., the name of the Settler/Author of the trust is missing conspicuously. At this juncture, it may be noted that subject to the provisions of section 5 of the Indian Trust,1882, a trust is created when the settler/ author of the trust declares the creation of the trust expressing his/her intention to create the trust, espousing the purposes /objects of the trust, the details of beneficiaries, trusties and the trust properties, etc. As such, in the instant case, creation of trust itself appears to be not in accordance with provisions of trust law in force.

10. Be that as it may, after the creation of the trust on 12.09.1996, on the basis of the said trust deed, the assessee applied for registration u/s.12AA of the Act before the CIT. However, it appears that after verifying the trust deed, the CIT raised objections with regard to non-inclusion of the following essential clauses of a charitable trust:

i. Amendment clause, stating that the amendment or modification of trust deed, more specifically the object clauses, if any, shall be made after obtained prior approval of the CIT.

ii. Maintenance of books of account clause.

iii.  Investment clause i.e., investment shall be made in the specified modes as provided u/s. 11(5) of the Act.

iv. Dissolution clause i.e., after dissolution of the trust, the properties of the trust shall be transferred to a trust/institution having similar objects and registered u/s. 12AA/12A of the Act.

11. Accordingly, the assessee amended the trust deed incorporating the above clauses, and such amended trust deed was executed on 18.07.1998 and got it registered with a different sub-registrar i.e., sub-registrar, SR Nagar, Hyderabad on 23.07.1998. This fact that in compliance with the provisions of the Act, the assessee had amended the trust deed is categorically stated in the said amended trust deed at internal page no.I and paper book page no.93, and the same is extracted below for ready reference and better understanding of the factual-matrix of the case:

“WHEREAS certain clauses which are to be made in compliance with Income Tax Act, it became necessary to make new Trust deed”

12. Please refer to the Appellant’s paper book page nos. 93 to 114 which contain the said amended trust deed wherein necessary clauses required by the CIT / Act, are incorporated. On the basis of the said amended trust deed, dated 18.07.1998 (“original trust deed” for short), the CIT granted registration u/s.12AA of the Act on 30.07.1998. As per the said original trust deed, on the basis of which the registration was granted by the CIT, the objects of the trust are given at internal page no. 3 to 7 of trust deed, which are appearing at page nos. 97 to 103 of the Appellant’s paper book. As per which, there are 4 main/broad objects as given below:

1. Education.

2. Medical relief.

3. Relief of the poor; and

4. Other objects of general public utility.

13. Subsequently, vide one more trust deed executed on 19.12.2002 which was registered with one more different sub-registrar i.e., sub-registrar, Sanjeeva Reddy Nagar on  20.12.2002, the assessee has completely changed the objects of the trust, which were finding place in the original trust deed  dated 18.07 .1998 (supra), on the basis of which the assessee  was granted registration u/s. 12AA of the Act, by the CIT on  30.07.1998.

14. At this juncture, it is also important to note that the entire  recitals of the trust deed had been modified let alone the object clauses. Also, it is stated in the new trust deed i.e., at page  no.117 of the paper book, that;

“the trust is therefore resolved to cancel the trust deed dated  18.07.1998, being document no. 70/98 and reconstitute the  trust.”

As such, in essence, the assessee has cancelled the original trust deed dated 18.07.1998 and reconstituted the trust on 19.12.2002. As mentioned earlier, apart from completely changing the objects of the trust, one more important and notable change observed is that in the newly reconstituted trust deed on 19.12.2002, as appearing at page no.1l7 of the paper book, it is stated that the main objective of the assessee is running an educational institution in the name and style of “Sloka the Hyderabad Waldorf School”, whereas in the original trust deed dated 18.07.1998, there is no whisper about the objective of the trust being running an educational institutions in the above mentioned name.

15. Thus, it is clearly evident that the contents of the trust deed including object clauses, on the basis of which the CIT granted registration u/s.12 AA of the Act, dated 30.07.1998, have been changed/modified and, therefore, they are no longer finding place in the reconstituted trust deed dated 19.12.2002. Further, it is interesting to note that as per the original trust deed dated 18.07.19198 on the basis of which the registration was granted, it is clearly stated in clause 44 of the trust deed (please refer to internal page 11 of the trust deed and page no.113 of the paper book), that;

“The aims and the objects of the trust as set forth in object clause may be amended, extended or on a proposal and approval from the trust board. However, that any such alterations, modification or amendments shall not have the effect of violating provisions of trust Act or section 80G of the income tax Act or any other statutory modifications there off for the time being in force, and prior approval of the commissioner of the income tax shall be obtained”. (Emphasis supplied)

16. However, it is an admitted fact that prior to cancellation and reconstitution of the trust deed along with modified objects of the trust, the assessee has not obtained the approval of the Commissioner of Income-tax. Similarly, it is an admitted fact that even after cancelling the trust deed and reconstituting the same with amended/modified objects, the assesseee trust has not bothered to inform the same to the Commissioner of Income-tax till the date of initiation of cancellation of registration proceedings, vide first show cause notice/ letter dated 30.11.2018.

17. Under the circumstances, the second limb of section 12AA(3) of the Act i.e., “activities are not being carried out in accordance with the objects of the trust/institution” is squarely attracted, warranting cancellation of registration by the CIT. In view of this, the CIT cancelled the registration after providing adequate number of opportunities of hearing to the assessee, vide show cause notices/ letters dated 30.11.2018,19.02.2019,12.06.2019 and 02.07.2019. Further, the CIT passed the cancellation order after having conducted hearings on various dates wherein the Authorized Representative and the Settler! Author of the trust were also appeared before the CIT personally and represented the case, along with written submissions.

18. In view of the foregoing, the impugned cancellation order uls. 12AA(3) & (4) of the Act was passed strictly in accordance with the provisions of the Act, that too, after providing a fair and adequate number of opportunities of hearing to the assessee and, therefore, there is no merit in any of the assessee’s contentions or grounds of appeals raised thereof that the cancellation of registration is contrary to law and facts of the case. Also, the case-laws relied upon by the Appellant are not all relevant to the instant case due to distinguishable facts and legal issues emanating thereof. In support of the arguments of the Revenue, reliance is placed on the following judicial precedents:

(1) Allahabad Agricultural Institute vs Union of India (2007) 163 taxmann.com 67J (ALL. HC):-

In this case, the Hon’ble Allahabad High Court has held that where the objectives of the trust on the basis of which the registration was originally granted u/s.12AA of the Act, have been altered/amended after such grant of registration where by the very nature of institution changes its character, the revocation of registration granted by invoking section 12AA(3) of the Act was valid. While doing so the Hon’ble He observed that by virtue of altering the objects of the trust after granting of registration u/s.12AA of the Act, the very foundation of the registration having been removed by the voluntary act of the assessee, the registration would not survive. The relevant and operative portion of the decision vide para no. 10 is extracted below for ready reference

“However, where the objects of the trust or institution, which are the basis of grant of registration, are altered after such grant of registration, the very foundation of the registration having been removed by a voluntary act of the assessee, the registration would not survive. The immediate intimation required to be given by the assessee to the Commissioner is perhaps merely to enable him to keep his (Commissioner’s) records updated. If it was assumed that the intimation was required to be given to enable the Commissioner to exercise the power of cancellation, even then where the assessee had failed to give such intimation it could not be permitted in the discretionary jurisdiction under article 226 of the Constitution of India, to plead the defense that the Commissioner had not cancelled the registration. Further, in a situation where the objects of the trust or institution have been altered wholesome after the grant of registration and intimation of the alteration has not been given to the Commissioner, the order of the assessing authority on the assumption that the registration, which was granted on the basis of a particular representation, held out by the assessee no longer survives or holds good, would not call (or interference by the Court in exercise of its equitable and discretionary jurisdiction. The Court is unable to exercise the discretion to enable the assessee to continue to utilize and enjoy the registration despite the wholesome change in the objects without giving its immediate intimation to the Commissioner. ” (Emphasis supplied)

(2) Board of Control for Cricket in India vs ITO (2012) 22 taxmann.com 29 (Mumbai- ITAT):-

In this case, the Hon’ble ITAT, Mumbai has held that whenever there are changes in object clauses of the trust/institution on the basis of which registration u/s. 12AA of the Act was granted to the assessee, no automatic benefits u/s. 11 to 12 of the Act would accrue to the assessee for such altered objects unless said changes are vetted by the Revenue Authorities. The relevant and operative portion of the decision vide para no.22, is extracted below for ready reference:

“The benefits that flow (rom registration of an assessee under section 12A, cannot be extended to the amended clauses of the memorandum and rules and regulations, otherwise an absurd situation will arise. If an institution obtains registration under section 12A, on a certain objects and bye-laws, examined by the Director of Income-tax and thereafter, that institution amends its objects and regulations substantially, then to hold that the registration under section 12A would hold good (or the amended objects and bye-laws would be against law and the scheme of the Act. Whether the amendment is substantial or otherwise, is also to be examined by the revenue authorities and it is not for the assessee to unilaterally declare that the amendments are not drastic or substantive. If the assessee does not intimate the Revenue of the amendments on the ground that there is no statutory requirement, the assessee, as a consequence, cannot claim the benefit that flows under section 12A, for these changed objects; otherwise it would amount to a situation where the assessee shifts the goalpost midway and continues to claim benefit. There might be no statutory requirement for intimating the Director of Income-tax of the changes in the memorandum and rules and regulations but if the assessee does not fulfil its undertaking to furnish the changes then he cannot claim automatic bene Its under sections 11 to 13 for those altered objects, rules and regulations. Benefits under the Act cannot be claimed unless the changes are vetted by the authorities”. (Emphasis supplied)

(3)  Moolchand Khariati Ram Trust vs DIT(E) (2015) 59 taxmann.com 398 (Delhi HC):-

In this case, the Hon’ble Delhi He has held that if the assessee’s activities are outside the scope of its objects on the basis of which registration u/s.12A of the Act was granted, it would not be entitled to claim exemption u/s. 11 and 12 of the Act, even if such activities are charitable in nature.

(4)  The same view point has been once again reiterated by the Hon’ble ITAT, Bangalore, in the case of Kripanidhi Educational Trust vs DIT(E) (ITA No.86IBng/2012,datedI4.09.2012), wherein it is observed by the ITAT that in the case of Allaha bad Agricultural Institute (supra), there was a total change of the objectives of the charitable institution and. therefore. the Hon’ble He did not interfere with the cancellation of registration u/s.12AA of the Act., whereas in the case of the assessee there was no wholesome change in the objectives of the institution. However, in the instant case, there is wholesome change of the trust deed itself, let alone the object clauses. Thus, the decision of ITAT in Kripanidhi case is not applicable to the facts of the instant case.

VIOLATION OF PROVISIONS OF SEC-13(1) OF THE ACT:

19. Without prejudice to the above, the cancellation of registration is requested to be sustained u/s.12AA(4) of the Act, on the ground of violation of provisions of section 13(1) of the Act. To be precise, as per the provisions of section 12AA(4) of the Act, which came into effect from 01.10.2014, the CIT can initiate cancellation proceedings if any violation under sub-section (1) of section 13 of the Act, is found during the assessment proceedings and brought the same to the notice of the CIT by the Assessing Officer (AO) concerned. Accordingly, this amendment brought in a fundamental shift in the regulatory and registration mechanism of the charitable trust/institutions. In this regard, it may be noted that till the said amendment came into effect, the assesses were subjected to tax only for a particular AY, if they were found to be violating the provisions of section 13(1) of the Act. Further, as per section 13(1) of the Act, the exemption shall be forfeited if it is found to be engaged in any of the following activities.

1. Any private religious purposes.

2. Providing benefit to any particular community or cast.

3. Providing benefit to interested person u/s.13(3) of the Act.

4. Making investment in violation of section 11(5) of the Act.

20. In the instant case, during the course of assessment proceedings for the AY 2016-17, the AO found that the assessee paid towards remuneration to the Settler/Author of the trust i.e., Ms. Nirmala Diaz, violating the provisions of section 13(1)(c) of the Act. In view of this, the same was brought to the notice of the CIT and, on the basis of the same, the CIT initiated cancellation proceedings. While doing so, the CIT issued several show cause notices/letters (supra) giving adequate opportunities of hearing to the assessee before the cancellation of the registration wherein it was clearly stated that the assessee has violated the provisions of section 13(1)(c) of the Act, by virtue of payment of salary /remuneration to the Settler/Author and also founding trustee i.e., Ms. Nirmala Diaz, which was found to be in excess of what may be reasonably paid for the services rendered by her. Further, after considering the explanation offered by the assessee, the CIT proceeded to cancel the registration on the ground that the assessee had not only violated the provisions of section 13(1)(c) of the Act, but also contravened the objects of the trust deed. To be precise, as per clause 21 of the re-constituted trust deed dated 20. 12.2002(supra), it is categorically stated 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”. Kindly refer to page no. 127 of the paper book of the Appellant.

21. In view of the above, it is an admitted fact that the assessee had violated the provisions of section 13(1)(c) of the Act and the object clause of the trust deed, since by way of making payment towards salary/remuneration to the Settler/Author and founding trustee, in excess of what may be reasonably paid for the services rendered by her, a part of the income of the institution inured directly for the benefit of the persons referred to in clause (a) of sub-section (3) of section 13 of the Act. Accordingly, the assessee has violated the provisions of section 13 (1)( c)( 1) of the Act and, therefore, the CIT has rightly invoked the provisions of section 12AA( 4) of the Act. Also, it is an admitted fact that the assessee has contravened one of the object clauses i.e., clause no.21 of the trust deed (supra).

22. In this regard, reliance is placed on the following judicial precedents.

1. CIT vs Rattan Trust 0997) 227 ITR 356 (SC).

2. CIT vs Nagarathu Vaisiyargal Sangam (200]) 246 ITR 164, (Madras HC):-

In this case, the Hon ‘ble Madras He has held that since the objects of the assessee-society did not contain any mandatory provisions with regard to payments to the President of the society and other interested persons, any payments made to the President of the society, and other payments and advances to interested persons would fall under the first proviso to section 13(l)(c) of the Income-tax Act, and, therefore, the assessee-society is not entitled to claim exemption of its income. The relevant portion of the decision is extracted below for ready reference:

“Following the principles laid down by the Apex Court in Rattan Trust’s case (supra), we hold that the ITO was correct in invoking the provisions of section l30)(c) of the Act, in regard to the payment of Rs. 10,001 to Sri Th a th a Ch e ttia r. President of the society. and other payments and advances to interested persons as the same falls under the provisions of section l3(n(c ) of the Act. and denying the exemption to the assessee under section 11. So the Tribunal was not justified in holding that the assessee is entitled to exemption under section 11 and the ITO was not correct in invoking section l30)(c)”.

(Emphasis supplied)

3. Deputy Director of Income-tax (Exemptions) vs India Cements Educational Society [2016/67 taxmann.com 236 (Chennai – Trib.):

The relevant portion of the decision is reproduced below (para no.S of the order), for ready reference:

“As per section 13, the benefit of exemption from income-tax is not available if any part of their income or property enures or is, during the previous year, applied, directly or indirectly, for the benefit of the author, founder, substantial contributor or relative aforesaid or for the benefit of any concern in which any such author, founder, substantial contributor or relative has substantial interest. The exemption from tax will be denied only if their income is applied for the benefit of the author, founder, etc., otherwise than in compliance with a mandatory term of the trust or a mandatory rule governing the institution. The requirements of section 13(l) (c) (ii) is that the trust should apply the funds in a concern in which they themselves are interested, if there was a mandatory provision in the trust deed for such a purpose. Such a mandate in the trust deed should have existed and could not have been brought in by amending the trust deed at a later stage after that crucial date. even if the trust deed authorized the trustees to amend the trust deed to bring in the mandatory condition or requirement (or them to invest funds of the trust in a concern in which they might be interested. It is an admitted fact in this case that there is a violation of section BO)(c) as the assessee invested funds in a limited company where the trustee is the managing director and his wife is a director. Being so, in view of the judgment of Supreme Court in the case of CIT v. Rattan Trust [1997/227 ITR 356/93 Taxman 344 and the judgment of jurisdictional High Court in the case of CIT v. Nagarathu Vaisiyargal Sangam (2000/246 ITR 164/[20011115 Taxman 62 (Mad.) the Assessing Officer was correct in invoking the provisions of section B(n(c) and denying exemption to the assessee under section 11”. (Emphasis supplied)

23. In view of the ratio laid down by various judicial authorities, including Hon ‘ble Supreme Court, the assessee is not entitled to enjoy the benefit of registration u/s.12 AA of the Act and consequential exemption of income u/s.l l and 12 of the Act, if it contravenes the provisions of section 13(1) of the Act. In the instant case, it is clearly established that the Settler/Author of the trust being the person referred to section 13(3)(a) of the Act, has received huge amount of remuneration in excess of what may be reasonably paid for the services rendered by her, contravening the provisions of the Act as well as object clause no.21 of the trust deed. Thus, the assessee is not eligible to enjoy the registration u/s.12AA of the Act in view of sub-section (4).

19. To summarise;

1)  In view of re-constitution of trust deed with modified and amended objects, but without obtaining prior approval of CIT, the assessee is not entitled to enj oy the registration granted earlier u/s. 12AA of the Act, on the basis of original trust deed containing a different set of objects.

2)  Alternatively, in view of violation of the provisions of section 13(1) of the Act, and the also object clause clause 00.21 of the trust deed relating to payment made to Settler/Author, the provisions of section 12AA(4) of the Act are attracted, and, accordingly, the assessee is not entitled to continue the registration u/s.12AA of the Act.

Encl. Case Record in One Volume & Case laws mentioned above.”

6. We have considered the rival submissions and perused the material on record as well as gone through the orders of revenue authorities. We have also perused the written submissions filed by the both the counsels quoted supra. It is observed that the activities undertaken by the assessee trust are genuine as it is collecting fee from students and providing education. This has not been disputed while cancelling registration of the trust. The revenue has to consider whether the trust is carrying its activities as per the objectives/clauses or not. The only source of income is not the sole reason for cancellation of the registration unless its activities are beyond the object clause on the basis of which the registration was granted u/s 12A. On examination of trust deed, we find that there is amendment in trust deed on the basis of the registration was granted. The society/trust is collecting fee from students and expending for the educational purpose and the surplus is not misappropriating other than its objects clause. The case law relied upon by the ld. DR are on the basis of denial of exemption u/s 11 of the Act, therefore, the same are distinguishable on facts to the present case of the assessee. On the other hand, the case law relied upon by the ld. AR of the assessee are squarely applicable to the facts of the case of the assessee.

6.1 In the case of Maharashtra Academy of Engineering & Educational Research Vs. DCIT, [2017] 88 Taxmann.com 864 (Pune – Trib.), the coordinate bench has held as under:

“151. We find some merit in the above arguments of the Ld. Counsel for the assessee. So far as denial of exemption u/s.11 and 12 for violation of provisions of section 13(1)(c) are concerned the Pune Bench ITA Nos.915 to 920/PUN/2012 of the Tribunal in the case of Sinhgad Technical Education Society Vs. ACIT vide ITA No.320/PUN/2010 order dated 14-12-2016 has held that whenever there is violation of provisions of section 13(1)(c) or 13(1)(d) of the Act, exemption cannot be withdrawn for the entire income and income which is the subject matter of violation only can be brought to tax. The relevant observation of the Tribunal from Para 68 onwards read as under :

“68. We have considered the rival arguments made by both the sides, perused the orders of the AO and Ld. CIT(A) and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. The only question to be decided in this additional ground is as to whether for violation of provisions of section  13(1)(c) and 13(1)(d), exemption u/s.11 be denied to the whole of the income or will be confined to the extent of income which is in violation of provisions of section 13(1)(c) and 13(1)(d).

69. We find the Hon’ble Bombay High Court in the case of DIT (Exemption) Vs. Sheth Mafatlal Gagalbhai Foundation Trust. [2001] 249 ITR 533 (Bom) has observed as under :

“7. . . . . . . . . . . . . . . However, the Legislature inserted a proviso by the Finance Act, 1984, with effect from April ,1985. By the said proviso, it is, inter alia, laid down that where the whole or part of the relevant income is not exempt by virtue of Section 13(1)(d), tax shall be charged on the relevant income or part of the relevant income at the maximum marginal rate, The phrase “relevant income or part of the relevant income” is required to be read in contradistinction to the phrase “whole income” under Section 161 (1A). This is only by way of comparison. Under Section 161 ( A), which begins with a non obstante clause, it is provided that where any income in respect of which a person is liable as a representative assessee consists of profits of business, then tax shall be charged on the whole of the income in respect of which such person is so liable at the maximum marginal rate. Therefore, reading the above two phrases show that the Legislature has clearly indicated its mind in the proviso to Section 164(2) when it Categorically refers to forfeiture of exemption for breach of Section 13(1)(d), resulting in levy of maximum marginal rate of tax only to that part of the income which has forfeited exemption. It does not refer to the entire income being subjected to maximum marginal rate of tax. This interpretation of ours is also supported by Circular No. 387, dated July 6, 1984 (see [1985] 152 ITR (St.) 1). Vide the said circular, it has been laid down in para. 28.6 that, where a trust” contravenes Section 13(1)(d) of the Act, the maximum marginal rate of income-tax will apply only to that part of the income which has forfeited exemption under the said provision and not to the entire income. We may also add that in law, there is a vital difference between eligibility for ITA Nos.915 to 920/PUN/2012 exemption and withdrawal of exemption/forfeiture of exemption for contravention of the provisions of law. These two concepts are different. They have different consequences. It is interesting to note that although the Legislature withdrew Section 164(2) by the Direct Tax Laws (Amendment) Act, 1987, which provision was reintroduced by the Direct Tax Laws (Amendment) Act, 1989, the Legislature did not touch the proviso to Section 164(2) which has been on the statute book right from April 1, 1985. The said proviso was inserted by the Finance  Act, 1984, The proviso specifically refers to violation of Section 13 (1)( d) and its consequences. In the circumstances, we find merit in the contention of the assessee that in the present case, the maximum marginal rate of tax will apply only to the dividend income from shares in Mafatlal Industries Limited and not to the entire income. Therefore, income other than dividend income shall be taxed at the normal rate of taxation under the Act.

70. We find the Hon’ble Karnataka High Court has followed the above decision of Hon’ble Bombay High Court in the case of CIT Vs. Fr. Mullers Charitable Institutions reported in 363 ITR 230. Subsequently, the Hon’ble Karnataka High Court in the case of CIT Vs. Karnataka Industrial Area Development Board has decided the issue in favour of the assessee by observing as under :

“2. These two appeals were admitted on 2004.2010 and 16.7.2009 respectively. In ITA NO.557/2008, the following substantial question of law is framed for consideration:

“Whether the Tribunal was correct in upholding the finding of the Appellate Commissioner thereafter directing a re-look in respect of the relief claimed u/s.11 of the Act and Section 13(1)(d) of the Act without considering the controversy before it’?”

3. In short, the question for consideration is when there is violation u/s.11 (5) and 13(1)(d) of the Act, whether the exemption is to be withdrawn for the entire income or the portion of the income. This issue is covered by the judgment of the Bombay High Court in the case reported in (2001) 249 ITR 533 (Born). Following the aforesaid judgment, this court in the case of Commissioner of Income Tax, Mangalore Vs. Fr. Mullers Charitable Institutions, Kankanady, Mangalore, in ITA Nos.588 and 589 of 2007 decided on 10.2.2014 has held the entire income of the assessee cannot be assessed for the tax, for violating under Section 11(5) read with Sec.31(1)(d) of the Act and what would become the subject matter of assessment is only that income which is the subject matter of violation.

In that view of the matter, as the substantial question of law has already answered in favour of the assessee and against the Revenue, we also answer it accordingly and dismiss these appeals.”

71. We find the Hon’ble Supreme Court in the case of CIT Vs. Karnatak Industrial Area Development Board vide SLP (C) No.19422/2015 order dated 11-11-2016 has dismissed the SLP filed by the revenue.

72. In view of the above, we are of the considered opinion that whenever there is violation of section 11(5) and 13(1)(d) of the I.T. Act, exemption cannot be withdrawn for the entire income and income which is the subject matter of violation only can be brought to tax. Accordingly, additional ground No.3 by the assessee is allowed.”

152. Following the above decision of Pune Bench of the Tribunal in the case of Sinhgad Technical Education Society (supra) (to which both of us are parties) we hold that there cannot be wholesale denial of exemption u/s.11 for violations of provisions of section 13(1)(c) and income which is subject matter of violation only can be brought to tax.

6.2 In the case of Vignana Jyothi vs. DIT(Exemptions) vide ITA No.1751/Hyd/2014, dt:26-04-2017, on which reliance placed by the ld. AR of the assessee, the coordinate bench of this Tribunal has held as under:

“10. As already submitted, the Assessing Officer made additions of Rs.1,55,81,000/- in the assessment for Asst.Year 2005-06 and Rs.1,84,85,000/- for Asst.Year 2006-07. When the matter reached the Hon’ble ITAT, it has been held by the Hon’ble ITAT in its order dated 19- 10-2012 in the quantum appeals for Asst.Years 2005-06 and 2006-07 in ITA Nos.378/Hyd/2009 and 66/Hyd/2010 dated 19-10-2012 “we are of the opinion that adequate enquiry should have been conducted by the lower authorities before coming to the conclusion that the assessee has charged capitation fee” (please see paragraph 12 of the said ITAT’s order- at pages 50 to 56 of paper book filed by assessee). Accordingly, the matter was remitted back to the file of the Assessing Officer for deciding the issue afresh and the appeals on the A.O’s order are still pending before C.I.T(Appeals).

11. Much later to the order of the Hon’ble ITAT, the D.I.T(Exem) issued a show cause notice dated don 13-03-2014, taking support from the fact that the original assessments made by the A.O were confirmed by the C.I.T(Appeals). In this show cause he recorded that “the assessee was not running its activities as per the charitable objects in the case of the society” and thus it needs withdrawal of registration granted to the society earlier u/s.12A. The facts on record show that the D.I.T(E) himself did not conduct any enquiry or cause any enquiry to be conducted. Even the A.O did not conduct any investigation as directed by the Hon’ble ITAT. The A.O completed the fresh assessment on 31-03-2014 in a summary manner and without examining a single person. He completed fresh assessments without bringing any fresh material on record or examining any person, stating that donors who gave donations of more than Rs.3 lakhs were not produced as required and hence the entire donations were being treated as capitation fee. Not only that, he brought to tax an amount of Rs.2,29,99,999/- as against Rs.1,55,81,000/- in the original assessment for Asst.Year 200506, without bringing any further material on record. Similarly and in the same manner, an amount of Rs.l,84,85,000/- being the same amount taxed in the original assessment was brought to tax in the fresh assessment for Asst.Year 2006-07. (please see pages 1 to 4 and 5 to 8 of paper book filed by assessee). The assessee’s appeal before the C.I.T(Appeals) is still pending.

12. Thus the contention of the learned DR that the finding of the D.I.T(Exem) that the assessee has collected capitation fee is a not finding of fact, and is not based on material on record. This is without prejudice to the submission made by the assessee that the issue of collection of capitation fee cannot by itself be a reason for cancellation of registration in support of which the assessee has relied on several decided cases submitted in its paper book.

13. It is submitted on behalf of the appellant that even as per the learned DR’s submissions, the DIT(Exem) has not found the objects of the assessee to be not genuine. The contentions raised by the learned DR fail to take into account the fact that the order of the D.I.T (Exemptions) does not show that the assessee is carrying out any activity which is not in accordance with its objects or that there has been misappropriation of funds or utilisation for purposes other than the objects of the society.

14. The asseesse has placed evidence in the paper book filed to show that several donors have given voluntary donations the nature of which has not been disproved by the Assessing Officer even during the course of fresh assessment proceedings. In this connection a note on background of the assessee society (available at page 151 of the paper book filed by assessee) is reproduced herewith: “It is also submitted that the assessee- society was set up in the year 1991 by some prominent industrialists, professionals and service minded people in Hyderabad for providing good educational facilities with the best possible standards to students to enable them to stand on their own. The assessee has also set apart a substantial sum of RS.2 crores to provide scholarships to deserving merit students. For all these activities substantial donations were given by the members of the society and public. In this connection it may not be out of place to mention that assessee’s institutions are having the best possible infrastructure facilities and dignitaries from universities, AICTE, UGC and other organisations have been praising the assessee society for the efforts put in by the society in developing and providing the best possible facilities in its institutions. A visit to the institutions will prove the service rendered by it in various fields in which the assessee is providing services. In this process various persons including parents of the students having satisfied with the facilities, infrastructure, and ambience etc., provided by the society have been giving donations. It would not be out of place to mention that the management of the assessee society is putting its best efforts in providing best possible facilities to all concerned and not wasting even a single rupee of donation received and using it only for improving infrastructure of the educational institutions and rural development activities set up by it. Thus the society is doing its best to utilise the funds provided by philanthropists to the best possible use.” A list of such donations amounting to more than Rs.8 crores has already been submitted by the assessee. (available at page 42 of the paper book filed by it).

15. The assessee has also placed reliance on several decided cases (kindly refer to the paper books filed by the assessee) in support of its contention that the D.I.T(Exem) was not correct in cancelling registration solely on the count that the assessee has received donations which are accounted for and utilised for charitable purposes.”

6.3 In the case of Commissioner of Income Tax (Exemption) vs. Rajsthan Cricket Association reported in [2018] 98 taxmann.com 425 (Rajasthan) the Hon,ble HIGH COURT OF RAJASTHAN has held as under :

“11. If there is any breach of any condition/s then they may cancel the registration, however, they have to follow the procedure. The contention that non communication of changes of purpose will automatically cancel the registration, in our considered opinion, is not a valid argument. However, in view of the specific clause which has been there under Form 10A, we are of the considered opinion that it will be open for the department while making assessment to follow provision of Section 11(5) and Section 13 to disallow the expenses of the income as the case may be, if the same is not income in expenses as per the approved bye-laws but nonetheless cancellation of registration is uncalled for.”

6.4 However, the SLP filed by the revenue has been accepted by the Hon’ble Supreme Court of India against the above judgement reported in (2018) Taxmann.com 426 . Merely admitting the SLP by the Hon’ble Supreme Court is not binding upon us. However, in the case on hand, the object clauses are remain unchanged.

6.5 Now coming to the case on hand, we observe that the trust was executed on 12th September, 1996 and later on it was amended/re-executed on 10th July, 1998, on the basis of this amended trust deed, the society got registration u/s 12AA(1)(b)(i) of the Act. On going through the object clause, we observe that the core object was charitable in nature to run the educational institution. Further, on 20th December, 2002 the trust deed executed earlier was cancelled by resolving the trustees and reconstituted. While going through all three trust deeds, which are placed in paper book at pages 81-92, 93-114 and 115-132, we observe that as per the trust executed on 20th December, 2002, the core object of the trust deed has not been changed. On further going through the order of CIT(A) at page No. 1, the trust has also obtained approval u/s 80G of the Act vide DIT(Exemption), Hyderabad in F.No. DIT(E)/Hyd/80G/17(10)07-08, dated 05/03/2008, which is much later than the amendment made in the trust deed dated 20th December, 2002. While granting approval u/s 80G, the department must have seen the changes taken place in the trust deed. During the course of arguments, the AR of the assessee submitted that the assessee is filing income tax returns and enjoying the benefits of the registration granted by the department u/s 12AA(1)(b)(i) of the Act. We further observe that while cancelling the registration of the trust, which was granted earlier, the CIT(E) alleged that the remuneration paid to the trustees were very high, which is not a ground to cancel the registration. The assessee had submitted details for justifying the remuneration paid to Ms. Nirmala Diaz, founder trustee, the proof of which is placed in paper book at page Nos. 136-141. 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.

6.6 Considering the totality of the facts and circumstances of the case and considering the case laws cited supra, we are of the opinion that cancellation of the registration is not in accordance with law and therefore, we direct the CIT(E) to restore the registration granted u/s 12AA(1)(b)(i) of the Act. Accordingly, the grounds raised by the assessee on this issue are allowed.

7. In the result, appeal of the assessee is allowed in above terms.

8. We lastly acknowledge that although the instant appeals, except for the AY 2014-15, are being decided after a period of 90 days from the date of hearing as per Rule 34(5) of the IT(AT) Rules 1963, the same however, does not apply in the covid lockdown situation as per hon’ble apex court’s recent directions dated 27-04-2021 in M.A.No.665/2021 in SM(W)C No.3/2020 ‘In Re Cognizance for extension of limitation’ making it clear that in such cases where the limitation period (including that prescribed for institution as well as termination) shall stand excluded from 14th of March, 2021 till further orders.

Pronounced in the open court on 29th September, 2021.

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