R. K. Panda, Accountant Member - I. T. A. No. 861/PN/2012 filed by the assessee is directed against the order dated March 29, 2012 passed by the Commissioner of Income-tax-II, Kolhapur under section 12AA(3) of the Income-tax Act, 1961, cancelling the registration granted to the assessee trust under section 12A of the Income-tax Act. I. T. A. No. 1423/PN/ 2012 filed by the assessee is directed against the order dated May 9, 2012 passed by the Commissioner of Income-tax-II, Kolhapur withdrawing approval accorded under section 80G(5)(vi) of the Income-tax Act, 1961. For the sake of convenience both appeals were heard together and are being disposed of by this common order.

I. T. A. No. 861/PN/2012

2. Facts of the case, in brief, are that the assessee is a trust, engaged in providing medical facility/aid. It was created by Dr. Almiya Dawood Parkar, and his wife Dr. (Mrs.) Mumtaj Alimiya Parkar, who were engaged in medical profession in their personal capacity, prior to creation of the trust. Later on they created the assessee trust vide trust deed dated March 28, 2002, appointing themselves as the only trustees, in the capacity of managing trustees, and secretary and treasurer, respectively. Subsequently, vide resolution dated September 10, 2007, three new trustees were appointed.

3. The trust was granted registration under section 12A of the Income-tax Act, 1961 by the Commissioner of Income-tax, Kolhapur, vide Certificate No. KOP/HQ.III/217-P-123/62/247/2002-03, on December 3, 2002 as a charitable trust. Subsequently, the learned Commissioner of Income-tax verified the records available and noted that the assessee trust was engaged in carrying on medical profession, i.e., multi-speciality hospital, on commercial basis wherein fixed amount of fees was charged, on the basis of treatment given and facilities provided, from all the patients. She noted that the discount given to the patients were claimed as charity, and the surplus was actually diverted towards the trustees under the guise of salary, rent, professional fees, utilisation fees, etc., and was subsequently utilised for personal benefits, including education of son and daughter-in-law of the trustees. She, therefore, issued a show-cause notice to the assessee on December 19, 2011 under provisions of section 12AA(1)(b)(ii) of the Income-tax Act pointing out the above discrepancies and asked the assessee to explain as to why the registration granted earlier should not be withdrawn.

4. The assessee objected to the above show-cause notice on the ground that the same was based on observations of the Assessing Officer in the assessment orders for the assessment years 2004-05, 2005-06 and 2008-09. It was explained that the assessee trust had advantage of well established hospital of the trustees, along with flourishing business. The founder trustees, being motivated by philanthropic consideration are taking only nominal portion of fees collected by the trust for their services rendered. It was argued that the surplus of the trust is not distributed amongst the trustees but is retained for the charity and expansion of the hospital. Relying on a number of decisions including the decision of the hon'ble Kerala High Court in the case of CIT v. Pulikkal Medical Foundation (P.) Ltd. [1994] 210 ITR 299/73 Taxman 402 and the decision of the hon'ble Bombay High Court in the case of Vanita Vishram Trust v. Chief CIT [2010] 327 ITR 121/192 Taxman 389, the assessee requested to drop the proceedings.

5. However, the learned Commissioner of Income-tax was not convinced with the submission made before her. She noted that the show-cause notice was issued on the basis of examination of records by herself and not on the basis of observation of the Assessing Officer in the assessment order. She also rejected the submission of the assessee that the Charity Commissioner has not objected to the reasonableness of certain expenditure which were pertaining to the trustees and held that the same is not