The order of the Bench was delivered by
Amit Shukla, Judicial Member - The present appeal has been preferred by the assessee, challenging the impugned order dated 28th February 2014, passed by the learned Director of Income Tax (Exemption) [for short "the learned DIT(E)"], Mumbai, cancelling the registration under section 12AA(3) of the Income Tax Act, 1961, on the following grounds:—
| "1. |
The ld. DIT(E) has erred in law and on facts in passing the impugned order which is illegal and bad in law and without following the principles of natural justice. |
2. |
The ld. DIT(E) has erred in law and on facts in cancelling the registration granted u/s 12A, by holding that activities of the Trust are not as per the objects of the Trust." |
2. Facts in brief:- The assessee is a public charitable trust registered with the Charity Commissioner, under the Bombay Public Trust Act, 1950, vide certificate dated 12th September 2001. The assessee was also granted registration under section 12A, by the learned DIT(E), vide certificate dated 23rd January 2002, looking to its charitable objects which were within the meaning of section 2(15). Later on, the assessee has changed its name to "Cancer Aid and Research Foundation" and in pursuance thereof, certificate was issued by the Charitable Commissioner on 29th December 2005, amending the name of the Trust. Similar certificate was issued for registration under section 12A, amending the new name of the trust vide certificate dated 9th January 2006. The trust was also recognised and granted certificate under section 80G, from time-to-time. The aims and objects of the trust for which it was granted registration under section 12A, were as under:—
"AIMS & OBJECTS OF THE TRUST:
1. |
To provide monetary, medical and other assistance and help to the needy, deserving and poor people who are suffering from the dreaded disease of Cancer in particular and other diseases in general and cannot afford the medical/surgical treatment recommended by the specialist and thereby help them, as far as possible, to lead a healthy and normal life. |
2. |
To work towards the total care of the cancer as a disease which includes: |
I. |
To spread awareness of the dangers inherent in prevailing social practices such as chewing of pan / tobacco / gutkha, smoking, early marriage, multiple pregnancies, etc. which are responsible for approximately 70% cancer cases in India. |
II. |
To initiate steps for the early detection of cancer since it is curable in a majority of cases with the treatment at that stage. |
III. |
To market / manufacture cancer drugs for the benefit of poor cancer patients. |
I. |
To promote research in cancer, its cause, detection and its effects on the human mind and physique in order to take protective and effective steps, precautions for prevention and the treatment of cancer. |
II. |
To establish, maintain and manage Research Institution/s, laboratories, libraries, diagnostic and other centres of learning and research in the field of cancer. |
III. |
To print and publish books, journals, leaflets brochures, bulletin, scientific and research papers, and other literatures for dissemination of the scientific knowledge about cancer. |
IV. |
To help the cause of scientific study and research by giving freeships, scholarships, fellowship and grant endowments for study and research in the field of cancer. |
V. |
To start, conduct and maintain curriculum or extra curriculum study and research etc. either alone or in co- operation with other institution/s or bodies on the subjects relating to dreaded disease of cancer as the Board of Trustees may decide in their absolute discretion. |
VI. |
To start, conduct, maintain manage and establish cancer hospital, diagnostic centre, cancer hostel, cancer hospice and any other centre/s or facilities for the treatment / convalescences or cancer patients at such places, as may be decided by the Board of Trustees in their absolute discretion. |
VII. |
To establish cancer screening and detection services and counseling centres. |
VIII. |
To carry periodical survey of cancer and its causes in the country independently or in association with government / private institution. |
IX. |
To provide financial assistance for travel to those who go to attend seminars, conferences, lectures, fund raising programmes, specialized training for treatment of cancer etc. in India or abroad. |
X. |
To join other NGOs in eradicating dreaded disease of cancer from the country. |
XI. |
To organize and arrange seminars, symposiums conferences, lectures, meeting, debates, discussions, retreat for providing useful scientific knowledge on the subject relating to dreaded disease of cancer. |
XII. |
To start, conduct, maintain, manage and establish sanatorium and / or temporary residential accommodation, shelter for poor, needy and deserving cancer patients and their relatives at such places as may be decided by the trustees in their absolute discretion. |
XIII. |
To establish, maintain, manage and control X-ray clinics, dispensaries for indoor and outdoor patients, hospitals, sanatorium, mobile dispensaries, medical college, nursing homes, ambulance in cancer care aspects as the trustees may decide in their absolute discretion. |
XIV. |
To establish, run, maintain, manage hospitals with necessary medical facilities in rural areas, exclusive for women and children upto 12 year of age." |
3. It appears that during the course of assessment proceedings of the assessee for the assessment year 2009-10, the Assessing Officer made certain observations on the basis of which the proposal was sent to the learned DIT(E) for cancelling the registration under section 12A. Accordingly, a proposal letter dated 12th June 2013, was sent by the Income Tax Officer (Exemp.)-I, for cancellation of the registration granted to the assessee trust. In pursuance thereof, the learned DIT(E) issued a show cause notice proposing cancellation of the registration mainly on the following grounds:—
"However, during the course of assessment proceedings for A.Y. 2009-10, it was seen that the trust had purchased a BMW 325i car in the personal name of the Trustee, Shri Kazi. The payment for the purchase of vehicle was made out of trust fund. The purchase of such vehicle in the name of the trustee is not in accordance with the objects of the trust and it also tantamount to non-charitable activities.
On the website of Cancer Aid & Research Foundation - www.cancerarfoundation.org there is reference of PAAK Foundation. Prof. A.A. Kazi Education Foundation is registered vide Registration no.E-26503 with the charity commissioner, Mumbai, and was established in the year 2009. The trust is having objects relating to education, etc. This trust has got nothing in common with Cancer Aid & research Foundation except for the fact that Prof. A.A. Kazi in whole name PAAK Foundation has been established is also a trustee with Cancer Aid & Research Foundation have been used for the benefit of another trust of Trustee which is not in accordance with the objects of Cancer Aid & Research Foundation Trust.
Cancer Aid & Research Foundation had sought to establish a hospital in Ratnagiri for which about 9.5 acres of land was taken. However, it is gathered from the website of Cancer Aid & Research Foundation that the said land has been treated as commercial land and put on sale. This is again not in accordance with the objects of your Trust."
4. The assessee trust, in response to the show cause notice, submitted that insofar as the first observation on the purchase of BMW 325i car worth Rs. 32.20 lakhs is concerned, similar observation was made by the Assessing Officer in the assessment order for the assessment year 2009-10 also, wherein he had observed that the car has been purchased in the name of one of the trustee namely, Mr. Abdul Qadir Kazi, whereas the payment was made by the trust from funds of the trust and, therefore, there was violation of the provisions of section 13 of the Act. Against the said assessment order, the assessee had preferred an appeal before the first appellate authority, wherein the learned Commissioner (Appeals), vide order dated 31st March 2013, after accepting the assessee's explanation, held that there is no contravention of provision of section 13. The relevant findings of the learned Commissioner (Appeals) were as under:—
"The appellant stated that the car was purchased for the purpose of the trust and not for the personal use of the trustee. The loan was applied in the name of the trust. The loan was also granted in the name of the trust. It is only by mistake that the car dealer mentioned the trustee as the purchaser. The AO had also not conducted any independent inquiries as regards the actual user of this vehicle. He merely depended on one fact, ie, the name mentioned in the invoice raised by M/s Navnit Motors. Further, the AD states that buying of such luxury car for the use of influential donor is against the basic concept of charity and nothing stopped the assessee trust from purchasing a decent car In the Rs. 10-12 lakhs range such as a Honda City or Toyota Corolla, for the use of the Trust and its guests/donors. The AO's advice may apparently appear to be very sound but In the context of exemption u/s 11 is not relevant for the reason that there Is no bar In buying such cars except that the user should be for the purposes Of the trust. The AO has not given any finding that the car was used for non-trust purposes. In view of the Hon. Bombay High Court decision in CIT v. Dilip Singh Sardarsingh Bagga[1993] 201 ITR 995 wherein it was held that registration under the Motor Vehicles Act is nor an essential pre-requisite for the acquisition of ownership of the motor vehicles and in view of the fact that the loan for purchasing the car was taken in the name of the trust and not in the name of the trustee, I am of the considered view that there is no contravention of provisions of Section 13."
Besides this, it was further submitted that the car was sold in the next year and the entire sale proceeds have been credited in the trust account and the car was shown as an asset of the trust in the Balance Sheet. Thus, this cannot be the ground of cancellation of registration under section 12A.
5. With regard to the second objection, it was submitted that PAAK Foundation was also a charitable trust, the aim and object of which were to impart and promote education and giving scholarships to the students in various streams of education. One of the objects of the assessee trust was also on similar lines to extend financial help for any educational institution welfare project or any other project for the benefit of the people as deemed fit by the Board of Trustees. The assessee trust has distributed the scholarships to the meritorious and needy students through the PAAK Foundation. The money was not given to the said foundation but was directly given to the institutions for sponsoring the students which were identified by the PAAK Foundation. Insofar as one of the trustees Prof. A.A. Kazi, being common to both the trusts, it was submitted that out of the 14 trustees of the assessee trust, only one trustee had a common link. Besides this, Prof. Kazi, was a learned Scholar and a big name in the social work and both the trust were dedicated to social work and upliftment and welfare of the weaker of the society. No benefit has been given to the other trust, because of Prof. A.A. Kazi and no direct amount was given to this trust. Hence, the registration under section 12AA, cannot be cancelled simply on this ground.
6. Lastly, as regards the advertisement on sale of land allotted to the assessee trust for the purpose of hospital as commercial land, it was stated that the said property was situated in Ratnagiri Industrial area which was allotted by MIDC for construction of a hospital for treatment of cancer patients. The assessee had invested huge sums in the construction of the hospital in various years the details of which are as under:—
| F.Y. |
Amount of Expenditure |
2007-08 |
Rs. 1,08,45,933.80 |
2008-09 |
Rs. 98,64,796.14 |
2009-10 |
Rs. 1,17,58,294.00 |
2010-11 |
Rs. 98,19,907.50 |
2011-12 |
Rs. 45,63,601.79 |
7. However, due to financial constraints and unavoidable circumstances, the construction of the hospital could not go ahead. In these circumstances, the trustees were of the opinion that it would be prudent to sell the property and recover the amount rather than block its funds. The proceeds of sale, if realized, would have been utilized for the objects of the trust. The decision to sell the property does not imply a commercial intention, but a prudent step for recovery of its funds. The advertisement for sale on the website was to attract genuine buyers and to get a good price. In fact, for the purpose of selling the property, the assessee has also sought permission from the Charity Commissioner, as envisaged in section 36(1) of the Bombay Public Trust Act, 1950. Thus, mere advertisement for sale of land does not mean that the assessee was doing any commercial activities.
8. The learned DIT(E) rejected the assessee's explanation on all the three grounds, which can be summarized as under:—
(i) |
The assessee trust was allotted land by MIDC on the basis of lease agreement dated 6th July 2007, and further amended on 20th May 2010. The assessee had incurred about Rs. 75,64,674, for the plots allotted by the MIDC on lease premium. Thereafter, the assessee had constructed substantial portion including diagnostic building and one residential bungalow. As per the lease agreement with the MIDC, the assessee cannot transfer, assign, sell, the said land or part thereof in any manner without the previous consent in writing of the Chief Executive Officer. The assessee, on the website, has put up an advertisement of sale of the said, wherein it was termed as "commercial land" and by doing so, the assessee was misusing the benefit it had received from the MIDC on a concessional rate. Thus, the object of acquiring the land and selling the same instead of using it for the purpose of the trust, is not in accordance with the objects of the trust and it is purely commercial in nature; |
(ii) |
The assessee has used the trust money for buying a very expensive luxury car (BMW 325i) in the name of the trustee and the assessee trust could not produce any evidence during the course of the assessment proceedings for the assessment year 2009-10 to show that the said car was used only for the purpose of the trust. The selling of the car in the next year has no meaning because the car has been used by the trust by using trust funds which is in violation of the provisions of section 13. The trust has not been able to justify the purpose of buying a luxury car and how does it serve the purpose of the trust; |
(iii) |
Regarding PAAK Foundation, he held that one of the Trustees is common with that of the assessee trust and the said foundation has been established in the name of Prof. A.A. Kazi, whose is also a trustee of the assessee trust. Therefore, the funds and resources of the assessee trust have been used for the benefit of the other trust where one of the trustees is common, which cannot be said to be in accordance with the objects of the assessee trust. He further observed that PAAK Foundation is neither an educational institution nor it is a welfare project. The assessee was unable to bring on record any evidence to show that why the scholarship was routed through PAAK Foundation and it has also not been brought on record as to how many scholarships have been given independently by the PAAK Foundation without the use of the funds given by the assessee trust; and |
(iv) |
Lastly, he noted that the assessee had given temporary advance of Rs. 20.50 lakhs to PAAK Foundation on 1st November 2011, which was recovered on 17th November 2011 and 27th December 2011. This advance does not serve the object of the assessee trust. |
On these grounds, he cancelled the registration granted to the assessee under section 12AA(3).
9. Before us, the learned Counsel, Mr. Vijay Mehta, on behalf of the assessee, submitted that none of the objections, as raised by the learned DIT(E), can be said to be maintainable so as to hold that either the activities of the assessee trust are not genuine or the activities are not being carried out in accordance with its object. Insofar as the income and expenditure account submitted before the Assessing Officer as well as before the learned DIT(E), nothing has been found that its funds have been diverted for any other purpose, other than the attainment of the objects. Regarding first objection that on the website, the assessee has treated the land allotted to it by MIDC as commercial land and has put up on sale, he submitted that the assessee had acquired this land for the purpose of construction of hospital for the cancer patients in of the area in and around Ratnagiri. Establishment of cancer hospital is one of the objects of the trust which is evident from the object no. XIV and XV. In pursuance thereof, the assessee had incurred a huge amount on the construction of the hospital the details of which has been given at Page-21 of the paper book. Since the assessee had to face financial problems and did not find any financial support from the donors, therefore, further construction of the hospital could not go ahead. In order to recover the funds which have been blocked on the land and the construction of the hospital, the assessee had put up an advertisement in the newspaper for selling the property for the purpose of hospital only. He drew our attention to the advertisement given in the Times of India as appeared on 19th September 2011, wherein the advertisement was for sale of land as Ratnagiri Hospital. The proposal for the potential buyers was mainly for those who were interested in hospital project. In the website also, the advertisement placed was mainly for the sale of land, wherein it has been clearly mentioned that the plot is partly developed and constructed as a hospital building. This plot can also be used for any commercial purpose. The advertisements were meant only to recover the substantial amount which has already been invested in the construction of hospital and not for any commercial venture. In fact, by selling the said plot along with the constructed property, the assessee would have generated funds for its charitable utilization only. The advertisement in the website does not lead to any inference that the assessee was involved in any kind of commercial activities. The selling of land is nothing to do with the objects but for recovering of the fund of the trust which was lying dead in the unfinished project. Lastly, he submitted and clarified that till date, the said plot and the partly constructed hospital has not been sold. Thus, the very inference drawn by the learned DIT(E) becomes redundant.
10. Regarding the second objection of the learned DIT(E) i.e., purchase of BMW car, he submitted that, first of all, this issue was raised by the Assessing Officer in the assessment year 2009-10, for denying the exemption under section 11, after invoking the provisions of section 13, which now stands reversed by the learned Commissioner (Appeals) in the first appeal. The learned Commissioner (Appeals) has held that there is no violation of provisions of section 13, as the car was used for the trust and it was only the car was bought in the name of the trustee. Otherwise also, the purpose for buying the car has duly been explained not only before the learned DIT(E) but also before the Assessing Officer and the learned Commissioner (Appeals) in the proceedings for the assessment year 2009-10. By way of an alternative argument, he submitted that assuming there is a violation of the provisions of section 13, though which have been negated by the learned Commissioner (Appeals), then also, only benefit of section 11 for that previous year can be denied. It cannot lead to rejection of registration under section 12AA(3).
11. Regarding 3rd objection, PAAK Foundation, he submitted that the objects of the PAAK Foundation was mainly to impart education, to give scholarship and monitory aid to the poor and needy students and to provide loans, scholarship and in other field of education. One of the assessee's objects was also same as enumerated in Item-XVI of the objects, which was to extend financial help for any educational institution, welfare project or any other project for the benefit of the people, as deemed fit by the board of trustees. In pursuance of this object, the assessee trust, through PAAK Foundation has sponsored educational help to various students. The payment was not made to the PAAK Foundation but was made directly to the various educational institutions on behalf of the students. No money was given to PAAK Foundation for distribution of scholarships. Thus, no adverse inference can be drawn on these facts. In support of his contention, he also drew our attention to the details of cheques issued to various institutions on behalf of the students for the educational help given in the financial year 2011-12 and 2012-13. These details were pointed out from the paper book given at Pages-12 to 17. On the allegation of the learned DIT(E) that one of the trustees i.e., Prof. A.A. Kazi, is common, is common in both the trusts, therefore, benefit has been to other trust, he submitted that this cannot be a ground for rejection / cancellation of registration under section 12AA(3), as no direct or indirect benefit has been given to PAAK Foundation or to the trustee Prof. A.A. Kazi. In any case and without prejudice, if the payment made to various educational institutions for scholarships of students routed through PAAK Foundation is treated as payment given to PAAK Foundation, then at best it is a violation of provisions of section 13, which can lead to denial of exemption for that previous year, but certainly could not be the ground for cancellation of registration nu/s 12AA(3).
12. On the last objection / observation that temporary advance of Rs. 20.50 lakhs was given to the PAAK Foundation, he submitted that the same was returned back within the same month which was earlier given for the purpose of distribution of scholarship but later on decided that the said amount should directly be given to the educational institutions.
13. Thus, he submitted that none of the objections raised by the learned DIT(E) can be sustained for coming to the conclusion that either the activities of the trust are not genuine or they are not being carried out in accordance with the objects. In support of his above contention, he strongly relied and referred to the decisions of the Tribunal, Delhi Bench, in Aggarwal Mitra Mandal Trust v. DIT (Exemption) [2007] 106 ITD 531, for the proposition that the scope of the enquiry under section 12AA(3), are limited with the view to satisfy about the genuineness of the activities and the objects of the trust. If there is a violation of the provisions of section 13, then the same should be examined by the Assessing Officer during the course of the assessment proceedings. On the scope of enquiry by the Commissioner or the DIT(E) under section 12AA, he also relied upon the decision of the Allahabad High Court in CIT v. Red Rose School[2007] 163 Taxman 19. Lastly, on the issue of purchase of BMW car for the purpose of utilisation by the trust even though it has been bought in the name of the trustee, cannot be the ground for cancellation under section 12AA(3), he referred and relied upon the decision of the Tribunal, Bangalore Bench, inKrupanidhi Educational Trust v. DIT(Exemption) [2012] 139 ITD 228/27 taxmann.com 11, wherein on similar ground, the Tribunal held that the same cannot be a ground for cancellation of registration.
14. Per contra, the learned Departmental Representative, strongly relying upon the observations and the findings of the learned DIT(E), submitted that if there is a slightest taint of commerciality while carrying out the activities of the trust, then the registration granted under section 12AA, or 12A, can be rejected as this tantamounts to engaged in non-genuine activities and also the activities are not in accordance with the objects for which the registration was granted. In support of his contention, he has strongly relied upon the decision of the M.P. High Court in Deo Radha Madhava Lalji Genda Trust v. Property Tax Officer [1980] 125 ITR 531, and the decision of the Hon'ble Supreme Court in CIT v. Indian Sugar Mills Association [1974] 97 ITR 486. The Hon'ble Supreme Court in Indian Sugar Mills Association's case (supra), held that the private gain was inconsistent with the object of the general public utility and, therefore, it cannot be held to be charitable. In this case also, the purchase of BMW car in the name of the trustee goes to show that the trustee was benefited by the funds which clearly violate the principle of charity under the Act. Regarding advertisement of sale of land at Ratnagiri, he submitted that the very fact that it was advertised as commercial land which was allotted to the assessee for the purpose of constructing the hospital, goes to show the intention of the assessee which was to sell the same for commercial reasons and not for the purpose of running the hospital. Thus, over all reasons and objections which has been highlighted by the learned DIT(E), if taken into consideration, then it can be very well held that the assessee's registration has rightly been cancelled by the learned DIT(E) under section 12AA(3).
15. We have heard the rival contentions, perused the impugned order and the material available on record. The assessee is a public charitable trust registered with the Charity Commissioner under Bombay Public Trust Act, 1950. Looking to the objects of the trust, which were within the ambit of "charitable purposes" as defined in sub-section (15) of section 2, registration under section 12A, was granted by the learned DIT(E). It has also been granted certificate under section 80G, from time to time. Once a registration under section 12A, or under section 12AA, has been granted, then it is axiomatic that the income of the trust has to be computed in accordance with the provisions laid down in section 11 to 12. Mere grant of registration under section 12A or 12AA, does not give blanket exemption to the trust, albeit lot of conditions and restrictions have been provided within the section 11 itself for availing the exemption. The income, which has been derived from the property held under the trust, has to be applied for the purpose of charitable or religious purpose only. Such a utilisation of income has to be upto 85% in the previous year and the balance 15% which is permitted to be accumulated and allowed to be carried forward for certain years has to be utilised ultimately for the charitable purpose only. All the deductions / exemptions are to be computed under section 11 and 12, which are subject to further checks and balances / restrictions, which are enumerated in section 13. If there is any violation of any of the clause of section 13, then the total income of the previous year becomes taxable i.e., the exemption granted is forfeited. In other words, there is no blanket exemption on the income derived by the trust merely by grant of registration under section 12A or 12AA. The law on envisages that the registration granted under section 12A, or 12AA, can be cancelled by the Commissioner or the DIT(E) only, if the said authority is satisfied with either of the twin conditions, firstly, the activities of the trust or institution is not genuine; or secondly, the activities of the trust or institution are not carried out in accordance with the objects of the trust.
16. Thus, the learned DIT(E), while considering to cancel the registration, has to examine whether the activities of the trust are genuine or not and whether the activities are being carried out in accordance with the objects. Within these parameters, we now have to examine the impugned order by which the assessee's registration has been cancelled.
17. As stated in the forgoing paragraphs, the registration has been cancelled mainly on four counts. The first ground is that on the website of the assessee trust the hospital plot at Ratnagiri has been termed as "commercial land" which has been put up for sale and, therefore, the trust is into commercial sale and purchase of the land. The facts which have been culled out from the material available on record is that the assessee was allotted a plot of land by the MIDC in Ratnagiri, for the purpose of hospital for which the assessee had given Rs. 75,64,674, as lease premium to the MIDC. On the said plot of land, the assessee started constructing the hospital for the purpose of cancer patients which was in accordance with its objects. Right from the financial year 2007-08 to 2012-13, the assessee has invested huge amount, the details of which have already been incorporated in the earlier part of the order. However, the assessee could not construct the entire hospital owing to the lack of financial support from the donors which was expected by the assessee and, therefore, the entire project of constructing the cancer hospital came to a stand still. Since the huge funds were already invested in the hospital which was towards attainment of the objects only, the trustees decided to sell the property to recover its funds. In pursuance thereof, it had put up an advertisement in the Times of India and Economic Times mentioning as sale of Ratnagiri hospital. The assessee has also displayed on its website the information about selling of the said plot, stating it to be a commercial land wherein it has partly developed / constructed hospital building. Such a display or advertisement for selling its property to recover funds already invested cannot be presumed to be for commercial purpose or to hold that the assessee's activities have become commercial. It is also an admitted fact that the said plot has not been sold till date. This fact itself negates the entire presumption of the learned DIT(E). He has drawn the adverse inference on the ground that it is not the object of the assessee to acquire the land and the sell the same instead of using it for its own charitable purpose. Such a finding is wholly vitiated, firstly, because the land was acquired for the purpose of constructing the hospital only, secondly, already substantial amount was invested towards the construction of the hospital for the cancer patient; and lastly, the proposal to sell the land was to recover the amount which has already been invested so that the funds can be utilized for its other objects. Neither there is any violation of any of the objects nor it can be said that mere intention to sell the land, the assessee has stopped carrying out any genuine activity. Thus, such an objection raised by the learned DIT(E) cannot be a ground for cancellation of registration within the sub-section (3) of section 12AA.
18. The second objection of the learned DIT(E) is that the assessee had purchased BMW 325i car in personal name of the trustee Mr. A.A. Kazi, vide bill dated 20th March 2009. The car was purchased out of the funds of the trust. The learned DIT(E) held that nothing has been brought on record to show the need of buying such a luxury car. As brought on record, this issue was subject matter of scrutiny in the assessment year 2009-10, wherein the Assessing Officer has invoked the provisions of section 13 to deny the exemption to the assessee trust. The matter had travelled up to the stage of first appellate proceedings, wherein the learned Commissioner (Appeals) has reversed the findings and the conclusion of the Assessing Officer by holding that the car was used for the purpose of the trust only and after recording detail reasons, he decided the issue in favour of the assessee trust by holding that there is no violation of section 13. It has also been brought on record that the said car was sold in the next year. Such an objection of the learned DIT(E) in the present case, cannot be the subject matter of cancellation of registration under section 12AA(3), firstly, it is still a dabatable matter which is subjudice, whether there is any violation of section 13 or any misuse of trust fund; secondly, even if the car has been purchased in the name of the trustee, then at the most, it needs to be examined within the scope of section 13, and if at all there is any violation, then the income of the previous year in which such a violation took place, gets excluded from the exemption provided under section 11 i.e., surplus income becomes taxable for that year. If there is any kind of misuse of trust funds by the trustee or a related person of the trustee, then the statute provides enough power to the Assessing Officer to forfeit the exemption and tax the surplus. However, in such a situation, it cannot be held that the entire activities of the trust have been rendered non-genuine or its activities are not carried out in accordance with the objects of the trust. Similar issue had also come up for consideration before the Bangalore Bench of the Tribunal in Krupanidhi Educational Trust's case (supra), (as relied upon by the learned Counsel for the assessee), wherein on similar purchase of the BMW car purchased in the name of the trustee, the Tribunal held that it cannot be the basis for cancellation of registration under section 12AA(3), at the most, it can be a violation of provisions of section 13. Thus, this objection of the learned DIT(E) cannot be held to be sufficient ground for cancellation of the registration.
19. Now, coming to the third objection that the assessee had routed the payment of scholarship to the students through PAAK Foundation, wherein, the trustee of both the trusts were common and, secondly, the PAAK Foundation is neither an educational institution nor it is a welfare project. Besides this, it has also been observed by the learned DIT(E) that it was not been brought on record as to how much scholarship was given independently by the PAAK Foundation without the use of funds given by the assessee. On a perusal of the records, it is seen that PAAK Foundation is also a public and charitable trust registered with the charity commissioner, to impart education and provide scholarship in various stream, to establish school, colleges, etc. and lastly, to give scholarships and monitory aid to various poor and needy students. It is not denied that Prof. A.A. Kazi, is the common trustee for the assessee trust and also the PAAK Foundation, however, there is nothing in the record to suggest that the fund of the assessee trust has been diverted to PAAK Foundation for non-charitable purpose or for the benefit of the trustee. The assessee has brought on record that it has not paid funds for scholarship to the PAAK Foundation directly but to various students identified by the PAAK Foundation. The payment of scholarship has been given directly to educational institution where the students were studying, the details of such scholarship for the financial year 2011-12 and 2012-13, has already been referred by the learned counsel from the paper book Page-12 to 17. Thus, neither the funds have been given to the PAAK Foundation nor there is any violation of provisions of section 13. Extending the financial help and scholarship is one of the objects of the trust for which the assessee has utilized its funds and, therefore, it is basically application of income for attainment of its objects only. Simply because the scholarships have been routed through PAAK Foundation to the students identified by the PAAK Foundation, it cannot be held that either the assessee's activities are not genuine or there is any violation of objects of the trust. Lastly, the learned DIT(E) has also noted that the assessee has given temporary advance of Rs. 20.50 lakhs to PAAK Foundation, which has been returned back within a month. It has been explained that the said amount was given for the purpose of distribution of scholarship, however, later on, it was decided that the scholarship should be given directly to the educational institution and should not be routed through PAAK Foundation and, therefore, no adverse inference should be drawn. On these facts, we agree that there cannot be any adverse inference for the purpose of cancellation of registration under section 12AA.
20. In view of the aforesaid discussion, we find that none of the objections and the grounds which have been taken by the learned DIT(E) in the impugned order for cancelling the registration can be held to be sustainable either on facts or in law, so as to hold that the activities of the trust are either not genuine or they are not being carried out in accordance with the objects within the scope of section 12AA(3). Moreover, nothing has been brought on record to show that the application of the income of the trust from year-to-year has not been made towards attainment of the objects i.e., for the charitable purposes. If no discrepancy has been found in the income and expenditure account and there is a proper application of income towards the objects in accordance with the provisions of section 11, then neither the charitable nature of the trust should be doubted nor it can be held that its activities are not genuine or are not in accordance with the objects for which registration was granted. Accordingly, we reverse the findings of the learned DIT(E) and hold that the registration granted to the assessee cannot be cancelled under section 12AA(3) on the ground stated by the learned DIT(E) in the impugned order. The grounds thus raised by the assessee are allowed.
21. In the result, assessee's appeal is allowed.
The order pronounced in the open court on july 16, 2014.