Cancellation of trust registration under Section 12AA(3) valid prospectively from order date for post-amendment violations by managing trustee.

JUDGMENT :

G. JAYACHANDRAN, J.

1. This Tax Case Appeal is filed by the Revenue, aggrieved by the order, dated 10.12.2009, passed in ITA No.647/Mds/2009, by the Tribunal, setting aside the order passed by the Commissioner of Income Tax, dated 30.03.2009, cancelling the Registration, granted to the Respondent Trust, under Section 12AA(3) of the Income Tax Act, 1961 (herein after referred to as the 'Act').

2. The Respondent Trust was granted Registration on 02.12.1998. The Respondent Trust is primarily running an Educational Institution, coupled with charitable activities. A search of the person concerned with the Respondent Trust was conducted under Section 132 of the Act on 05.10.2006 and later, a survey was also conducted. The evidence gathered disclosed the following violations of the Trust Deed:-

1. Trust funds are invested in the Proprietorship Concerns of the Managing Trustee.

2. Rent advance of Rs.3,05,24,800/- has been taken from the Trust, though the total value of assets of the Managing Trustee was less than that value.

3. The Managing Trustee was caught with Rs.1 crore at Chennai Airport and agreed that amount is taken from corpus fund of the rent.

4. By touching the corpus, the Trustees maligned the sacred concept of the Trust and breached the concept of Trust (Breach of Trust) invested by the donors in the Trust and therefore, the Trust is not entitled for approval under Section 80G of the Income Tax Act.

5. Sale of educational Institutions at Natham for a consideration of Rs.1,82,00,000/-.

6. Compulsory donations such as capitation fees is collected and not accounted for. There are evidences to show that in the form of letters from students asking for refund of capitation fees as they could not join the course. So the claim of corpus donation by the assessee is incorrect and it is actually the capitation fees.

7. As discussed in the assessment order by the AO the Trust has violated the provisions of almost all sub sections of Section 13 of the Income Tax Act, 1961.

8. The supplies and services are charged heavily and no books maintained to that effect.

9. Assets are acquired by Trustees out of the funds.

10. Bank accounts of the Trustees are flooded with the corpus fund of the Trust.

11. The intention of the donors of corpus fund has ignored and Trustees got enriched out of the trust funds.

3. Dual system of accounting of receipts in the form of fees collected from the students came to light. As a result, after causing a show cause notice on 27.02.2009, the Order in Original was passed, cancelling the Registration granted to the Respondent Trust, invoking Section 12AA (3) of the Act, Commissioner of Income Tax. The Assessee had preferred an appeal before the Income Tax Appellate Tribunal and raised the following grounds:-

1. The Commissioner is not justified in cancelling the Registration granted to the Assessee-Trust in the circumstances of the case.

2. The Commissioner is not correct in ignoring the fact that the Assessee-Trust has undisputedly been carrying on its prominent object of providing education genuinely.

3. A settlement reached between two independent trusts, both working for advancement of education, resulting in handling over Assessee's Institution at Natham for Rs.1.82 crores, cannot be held incorrect by the Department to disentitle its Registration under Section 12A.

4. The allegations made in the cancellation order have been contested against in an appeal pending before the Commissioner of Income Tax (Appeals).

5. Even otherwise, irregularity if any can only lead to assess the Trust on consequent taxable income.

6. Provisions of Section 12AA(3) introduced with effect from 01.10.2004 are not appl