The Bombay high court recently upheld the constitutional validity of a recent provision made in the Income Tax Act that empowers I-T commissioners to cancel registration of educational trusts if their activities violate the aims and objectives of a trust.
"A provision enacted for the withdrawal of the benefit conferred for breach of the underlying purpose cannot be regarded as arbitrary," the division bench of justices DY Chandrachud and MS Sankalecha observed while dismissing a petition filed by Pune-based Sinhgad Technical Education Society.
The institute had approached the court after the I-T commissioner issued them a notice in March last year asking them to show cause why their tax benefits under the Income Tax Act should not be cancelled.
The notice had been issued following the commissioner's finding that the trust had allegedly charged capitation fees, received donations for admissions and had diverted the funds for the personal gain of trustees.
The trust contended that the proviso - subsection (3) of section 12 AA, brought into effect from June 2010 - amounted to retrospective amendment of the law, which the court discarded. It noted that the legislature is entitled to ensure that the benefit conferred by a statute is utilised only for the purpose for which it is conferred.
The court also held that empowering I-T commissioners to cancel registration if a trust's activities are not genuine cannot be construed as conferment of arbitrary power.