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January 14, 2022

Amendment of Trust Deed, not contrary to charitable objects is not a reason to upholds registration of educational institution u/s 12A

Amendment of Trust Deed not contrary to charitable objects is not a reason to upholds registration of educational institution u/s 12A

Fact and Issue of the case

This is an appeal by the assessee against the order dated 23-11-2011 of DIT(E), Bangalore, passed u/s 12AA(3) of the IT Act, 1961, whereby the registration granted to the assessee u/s 12A of the Act was cancelled by the DIT(E), Bangalore, with effect from assessment year 2009-10. The assessee is a charitable Trust. It was granted registration u/s 12A of the Act on 02-06-1986. There was a survey conducted in the premises of the assessee on 16-09-2011. According to the DIT(E) the survey revealed that the assessee was running the educational institution on commercial basis and also violated provisions of sec. 13(1)(c) of the IT Act, 1961. Further, the DIT(E) noticed that the assessee had carried out amendment to the Trust Deed without prior approval of the department. For the above reasons, the DIT(E) wanted to cancel the registration already granted to the assessee u/s 12A of the Act. Accordingly, the DIT(E) issued a show cause notice.

The power to cancel registration already granted u/s. 12AA of the Act is contained in Sec. 12AA(3) of the Act and it reads as follows:

Where a trust or an institution has been granted registration under clause (b) of sub-section (1) 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.

Provided that no order under this sub-section shall be passed unless such trust or institution has been given a reasonable opportunity of being heard.

A perusal of the above provisions shows that the power to cancel registration already granted can be done in two situations;

(a) satisfaction of the Commissioner that the activities of the trust or institution are not genuine

(b) satisfaction of the Commissioner that the activities of the trust or institution are not being carried out in accordance with the objects of the trust or institution.

In the impugned order there is no finding on the satisfaction of any of the above two conditions. The objects of the appellant are charitable and on this aspect there is no dispute or doubt. There is no finding that the objects of the trust after the amendment of the trust deed are not charitable. We have perused the amendment to the trust deed and are of the view that the charitable nature of the trust remains intact. A mere finding that the objects of the appellant have been altered without the consent of the department would not be sufficient to exercise the power u/s. 12AA(3) of the Act without giving a finding that the appellants objects are no longer charitable. On this score the impugned order is liable to set aside.

Observation of the Court

Apart from the above, we also agree with the submission on behalf of the Appellant that the objects of the appellant even after the amendment of the trust deed continue to be charitable. The amendment is a mere power conferred on the Trust or other institution. It has to be shown on facts that any amendment to the objects clause has resulted in the trust or institution becoming non charitable in character. There is no such finding in the impugned order and even on this ground the impugned order is liable to be set aside. The decision of the Honble Allahabad High Court in our view is not applicable to the facts of the present case. As rightly contended on behalf of the Appellant in that case there was a drastic change of objects. The Honble High Court has specifically noted the failure of the assessee in that case to show that the altered objects and the original objects were the same and that they were charitable. The ratio laid down in the said case has to be read in the context of the above facts of the said case. In the case of the Appellant the objects continue to be the same even after amendment of the trust deed and therefore the very foundation on which the registration was granted to the appellant is not removed.

The Court is of the of the view that none of the reasons given by the DIT(E) in the order u/s 12AA(3) can be the basis to cancel the registration already granted to the assessee. In this regard, we are of the view that the assessee was already granted registration u/s 12A of the Act, 1961. It only goes to show that the revenue was satisfied that the objects of the assessee trust were charitable. The question is whether the amendment of the trust deed in any way makes the assessee non-charitable. We have perused the deed of amendment of the trust dated 07-03-2005. The amendment talks about substitution of sub-clause-a of clause-3 of original deed. The substituted clause refers to imparting education including technical and medical among the masses in all the fields, subjects, culture and literature, irrespective of religion, caste or creed. Similarly, sub-clause (d), of Clause 3 was substituted whereby scholarship to the poor and needy and meritorious students have to be awarded. Similarly, sub-clause (e) of clause-3 of original deed was amended to make the benefits of the trust open to all caste, creed and religion. We fail to see how the above amendment will make the assessee not existing for the purpose of education or not existing for charitable purposes. As already mentioned in the decision of the Honble Allahabad High Court in the case of Allahabad Agricultural Institute (supra) there was a total change of the objectives of the charitable institutions, it was in those circumstances, that the Honble Allahabad High Court held that it was not in a position to interfere in exercise of discretionary jurisdiction under article 226 of the Constitution of India for quashing the order u/s 12AA(3) of the IT Act, 1961. In the present case, as we have already observed that there was no wholesome change in the objective of the assessee. We are also of the view that the decision of the Chennai Bench of the Tribunal and the Honble Uttarakhand High Court are the cases where the challenge was to refusal to grant registration u/s 12A of the Act. In the present case, as we have already seen, the revenue was fully satisfied with the objects of the assessee was charitable and registration u/s 12A of the Act was already granted. In proceedings u/s 12AA(3) it was not open to the revenue to review its earlier registration granted u/s 12A of the Act. We are also of the view that the complaint with regard to violation of sec. 13(1)(c) of the Act are not relevant for the purpose of the proceedings u/s 12AA(3) of the Act and as rightly submitted by the learned counsel for the Assessee before us, it was open to the AO to examine any such violation in the assessment proceedings for the relevant assessment year of the assessee.

We are also of the view that the other reasons given by the DIT(E) in the order u/s 12AA(3) of the Act, do not make out any case, which can show the activities of the assessee are not genuine or that the activities of the assessee are not being carried out in accordance with the objects of the trust or institution. The fact that the Assessee was paying commission to persons who solicit students for studying in the Assessees institution cannot lead to the conclusion that the Assessee is not imparting education. Similarly purchase of a BMW car, borrowing of loans from Sindhi Financiers, non maintenance of regular books of account, violations of provisions of Sec. 13(1)(c) of the Act in as much as the trustees were paid enormous salary are all by way of passing reference having no relevance to whether or not the Assessee was pursuing education as its main object. There are no facts brought out in the impugned order regarding the genuineness of the activities of the trust or as to whether the object of education was not pursued by the Assessee as its main and predominant activity. In fact, the order of the DIT(E) does not anywhere show that the assessee is not imparting education. The complaint of the revenue seems to be that education is being imparted but on commercial lines. The definition of Charitable Purpose is given in Sec. 2(15) of the Act. The same refers to “relief to poor, medical relief, education and the advancement of any other object of general public utility”. The proviso to Sec. 2(15) of the Act introduced by the Finance Act, 2008 w.e.f. 1.4.2008 regarding excluding organizations where there is profit motive from the definition of charitable purpose applies only to the category of trusts which has as its object, the object of “advancement of any other object of general public utility”. It does not apply to the other categories of charitable purpose viz., “relief to poor, education and medical relief”. As rightly pointed out by the learned counsel for the assessee, eleemosynary element is not essential element of charity. It is also not a necessary element in a charitable purpose that it should provide something for nothing or for less than it costs or for less than the ordinary price. The surplus generated, if it is held for charitable purpose and applied for charitable purpose of the assesse, and then the Assessee has to be considered as existing for a charitable purpose. There are enough safeguards provided in Sec. 12 and 13 of the Act to ensure that personal benefits of the persons in control of the trusts are not treated as having applied for charitable purpose and for being brought to tax like provisions of Sec. 13(1)(c) of the Act which restricts unreasonable and excessive payments to certain category of persons connected with a trust or other institution. In such circumstances, we are of the view, that the order u/s 12AA(3) of the Act, cannot be sustained.

Conclusion

In view of our above discussion, the court has allowed the petition and ruled in favour of the assessee.

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