TMI Blog2018 (2) TMI 756X X X X Extracts X X X X X X X X Extracts X X X X ..... ion order cannot be allowed to be cancelled with retrospective effect so as to affect past transactions that too in absence of any express legislative intent and without any adverse inference being first drawn against the assessee, in terms of Section 13(8) of the Act, during the relevant assessment year. In absence of any legislative intent expressed to suggest that the legislature had empowered the Commissioner to cancel the assessee's registration under Section 12-A of the Act with retrospective effect, such power could not be deemed to exist or arise or be exercised to unsettle closed/part transactions especially because in this case the ground for cancellation has not arisen out of allegation of fraud, collusion or misrepresentation. Cancellation of the assessee's registration under Section 12-A of the Act, if at all, could be done only prospectively and not retrospectively as had been done by the Commissioner in this case. Thus, question no. 1 is answered in the negative that is in favour of the assessee and against the revenue. Validity of notice issued - jurisdictional error - Held that:- The cancellation of registration would not be automatic or natural or the onl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng questions of law: (1) Whether provisions of Section 2(15) were amended by Finance Act, 2008 w.e.f. 01.04.2009 i.e. A.Y. 2009-10 because of which activities of Agra Development Authority, Agra falls outside the purview of Charitable purpose . CCIT (OSD)/CIT-1, Agra cancelled exemption u/s 12A w.e.f. A.Y. 2009-10. Is Hon'ble ITAT, Agra justified in holding that the CCIT (OSD)/CIT-1, Agra's order in cancelling exemption from A.Y. 2009-10 is illegal and whether CIT can only cancel exemption w.e.f. 2011-12 as per section 12AA(3) when law itself was amended from A.Y. 2009-10? (2) Whether the ITAT, Agra's order quashing the order of CIT-1, Agra is justified when the Hon'ble ITAT has failed to consider the express provisions of Section 13(8) Section 2(15) w.e.f. 1.4.2009 i.e. A.Y. 2009-10.? (3) Whether the ITAT, Agra's order is justified when the Hon'ble ITAT has not expressed any opinion or given any finding in respect of the written submissions filed before the Bench through the DR drawing attention to the amended provisions of section 2(15) and 13(8) of the Income Tax Act, 1961 w.e.f. 1.4.2009 i.e. A.Y. 2009-10.? (4) Whether Hon'b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l its registration. The Commissioner vide his order dated 04.04.2012 proceeded to cancel the registration of the assessee w.e.f. Assessment Year 2009-10. The Commissioner first relied on the judgment of the Bombay High Court in the case of Sinhagad Technical Education Society Vs. C.I.T. (Central) (2012) 343 ITR 23 to hold that by virtue of amendment made to Section 12-AA (3), w.e.f. 01.06.2010, the Commissioner had the power to cancel the assessee's registration with effect from an earlier year. Then, the Commissioner further held since the activity of the assessee did not fall within the meaning of the term charitable purpose as defined under Section 2(15) of the Act (as was in force during the Assessment Year 2009-10), he could cancel the assessee's registration with retrospective effect from Assessment Year 2009-10 onwards. The Commissioner further examined the claim of the assessee on merits and concluded that the activity conducted by the assessee was clearly in the nature of trade and business. Therefore, he reasoned that the assessee was not pursuing any charitable purpose as defined under the Act. Accordingly, vide his order dated 04.04.2012, the Commis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 1991, with effect from 01.10.1991, the proviso to Section 12A was substituted. Certain other and further amendments have also been made to the Act with which we are presently not concerned. Then, vide Finance (No. 2) Act, 1996, with effect from 01.04.1997, Section 12AA of the Act was enacted. It reads as under: Procedure for Registration 12AA. (1) The Chief Commissioner or Commissioner, on receipt of an application for registration of a trust or institution made under clause (a) of section 12A, shall - (a) call for such documents or information from the trust or institution as he thinks necessary in order to satisfy himself about the genuineness of activities of the trust or institution and may also make such inquiries as he may deem necessary in this behalf; and (b) after satisfying himself about the objects of the trust or institution and the genuineness of its activities, he - (i) shall pass an order in writing registering the trust or institution; (ii) shall, if he is not so satisfied, pass an order in writing refusing to register the trust or institution, and a copy of such order shall be sent to the applicant : Provide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed under Section 12A as it stood before amendment by Finance (No.2) Act, 1996. 7.4. Applicability- This amendment has been made applicable with effect from 1st June, 2010 and shall accordingly apply for Assessment Year 2011-12 and subsequent years. In any case, even after the amendment so made, the legislature has not yet amended Section 12AA (3) of the Act to specifically empower the Commissioner to cancel the registration with retrospective effect, i.e. with effect from any date prior to the date of issuance of notice of cancellation. After taking note of the statutory provision and the Circular issued by the C.B.D.T. itself, the Tribunal found that the power to cancel the registration granted under Section 12-A(1) of the Act had been first conferred on the Commissioner w.e.f. 01.06.2010. Therefore, according to the Tribunal, the Commissioner could not have cancelled such registration w.e.f. A.Y. 2009-10 as that would refer to a date prior to the date when the power to cancel the registration (granted under Section 12-A(1) of the Act) was first conferred on the Commissioner. Upon such reasoning, the Tribunal set aside, in entirety, the order passed by the Commissio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tice and order did not suffer from any jurisdictional error on this count. It however, remains to be examined whether there existed any jurisdiction with the Commissioner to cancel a registration, with effect from A.Y. 2009-10, because that notice was first issued during the previous year relevant to A.Y. 2012-13. Then, in the case of Sinhagad Technical Education Society (supra) the registration had been granted to that assessee under section 12A of the Act. It was cancelled on 09.10.2007 under section 12AA(3) of the Act with effect from A.Y. 1999-2000 upon a prior notice issued for that purpose on 31.07.2007. Upon appeal, the Tribunal had by its order dated 19.09.2008 held that on 09.10.2007 (i.e. prior to amendment of sub-section 3 of section 12AA), the Commissioner did not have the power to cancel the registration granted under section 12A of the Act. Accordingly, it set aside the cancellation order. However, upon amendment made to section 12AA(3) of the Act, by Finance Act, 2010 (w.e.f 01.06.2010) the Commissioner issued a fresh show cause notice to that assessee again proposing to cancel its registration for the reasons mentioned in his earlier order dated 09.10.2007. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce with the objects of the trust or institution cannot be construed as a conferment of arbitrary power. Where a benefit is granted by the Legislature, whether by way of an exemption or otherwise, the Legislature is entitled to ensure that the benefit conferred by the statute is utilized only for the purpose for which it is conferred. A provision enacted for the withdrawal of the benefit conferred for breach of the underlying purpose cannot be regarded as arbitrary. The power is carefully structured by the requirements which are specified by the Legislature in sub-section (3) including observance of the principles of natural justice. A cancellation of registration under sub-section (3) of section 12AA is subject to an appeal before the Tribunal under section 253(1)(c). A judicial remedy is available against a cancellation of registration. (emphasis supplied) Then, distinguishing the judgement of the Supreme Court in the case of Sedco Forex International Drill Inc.(supra) it was held: 6. In our view, the decision in Sedco Forex [2005] 279 ITR 310 (SC) is inapplicable to the facts of the present case. The issue involved in Sedco Forex [2005] 279 ITR 310 (SC) was whet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n at any time under section 12A . Therefore, power under section 12AA(3) can be exercised by the Commissioner in respect of a trust registered prior to June 1, 2010. The mere fact that a part of the requisites for the action under section 12AA(3) is drawn from a time prior to its passing, namely, registration as a charitable trust under section 12A prior to 2010 would not make the amendment retrospective in operation. The amendment does not take away any vested right nor does it create new obligations in respect of past actions. Therefore, the decision in Sedco Forex [2005] 279 ITR 310 (SC) is inapplicable to the facts of the petitioner's case. (emphasis supplied) The Bombay High Court then held: 8. In the present case, by and as a result of the amendment by the Finance Act of 2010, the Commissioner has been empowered to initiate steps for the cancellation of the registration of a trust or institution where the activities of the trust/institution are not genuine or are not being carried out in accordance with the objects thereof even in relation to a trust which was registered under section 12A as it then stood. Such an amendment cannot be regarded as taking awa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Bombay High Court in the case of the Sinhagad Technical Education Society (supra) did not decide the issue whether the Commissioner could issue a notice under section 12AA(3) of the Act to cancel a registration (issued either under section 12AA or 12A of the Act), with retrospective effect. A perusal of the judgement of the Bombay High Court reveals that the challenge raised before it was confined to the validity of the amendment made to Section 12AA (3) on the ground, because sub Section 3 of Section 12AA(3) of the Act was first incorporated with effect from 01.10.2004, therefore, the amendment made to that sub-section could not be given effect from any date prior to the date of insertion of sub-section (3) i.e. 01.10.2004. No challenge was raised to the subsequent notice on the ground that the Commissioner could not seek to cancel a registration with retrospective effect. Thus, while it is true that the Bombay High Court specifically held:- after the amendment made with effect from 01.06.2010 the Commissioner could cancel a registration granted to an assessee before that date, however, it would be a completely different reasoning to offer that therefore the revenue becam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In absence of such allegation, the registration granted to the assessee could never be alleged to be a nullity. In the instant case, undisputedly the registration had been granted much prior to the introduction of the first proviso to Section 2(15) of the Act. Therefore, on the date of grant of registration to the assessee, it was fully eligible for the registration. The registration thus granted did not suffer from any inherent or fundamental defect. Then, the assessee continued to avail the benefit of the registration for all the assessment years subsequent to the grant of its registration. Such a registration order cannot be allowed to be cancelled with retrospective effect so as to affect past transactions that too in absence of any express legislative intent and without any adverse inference being first drawn against the assessee, in terms of Section 13(8) of the Act, during the relevant assessment year. In the case of M/s Shivalik Cellulose Ltd., Gajraula, Distt. Moradabad and Another Vs. State of U.P. And Others reported in 1992 U.P.T.C.-1, a division bench of this Court had the occasion to consider the question whether a recognition certificate granted under Secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ect from 1st April, 1956. Rule 12 (1)(d) of the Delhi Sales Tax Rules, 1951 was construed to mean either from the date of the order or date subsequent but not a date prior to the date of the order. In the case of M.C. Agarwal Vs. Sales Tax Officer, Kesinga and Another, 64 STC 398 the view taken is under: That the order cancelling the registration certificate of the dealer to the extent that it was to have retrospective effect was illegal, but the order would be deemed to be effective from the date of the service of the same on the dealer. The High Court while interpreting Rule 16(1) of the Orissa Sales Tax Rules, 1941, held that authorizing the Sales Tax Officer to specify the date in the order cancelling the registration certificate of a dealer would not permit him to fix a date retrospectively. In the present case, we find that the impugned order does refer it deemed operative retrospectively. However, the learned Standing Counsel fairly could not and did not dispute the proposition as aforesaid. In view of the decision of the various authorities and we are also satisfied that such an order should be made effective prospectively. Accordingly, the impugned ord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Income Tax Act, 1961 it is undisputed that the grant of registration is a one time affair. The assessee is required to apply for registration under Section 12-A of the Act. Once the assessee has been registered under Section 12-A of the Act, by a specific order passed by the Commissioner, it stands established for the purpose of the Act that the activity being pursued by that assessee is for a charitable purpose , under Section 2(15) of the Act. Then, there is nothing in the language of Section 12AA(3) of the Act that may suggest registration of the assessee may be cancelled with retrospective effect. The use of the words 'or have obtained registration at any time under Section 12-A of the Act' added by amendment w.e.f. 01.06.2010 only indicate that the Commissioner was vested with the power to cancel a registration that may have been granted to an assessee at any time prior to the aforesaid amendment itself. However, it does not indicate that thereby the Commissioner had been empowered to cancel the registration of the assessee with retrospective effect i.e. with effect from a date prior to the date of issuance of the order/notice to cancel the registration. Clearly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ect of the cancellation order passed by the Commissioner Income Tax-I, Agra to A.Y. 2011-12 onwards. Responding to the aforesaid submissions made by learned counsel for the revenue, Sri Rahul Agarwal, learned counsel for the assessee submits, since the notice and the order had been issued by the Commissioner to cancel the assessee's registration w.e.f. A.Y. 2009-10, the Tribunal has made no error in setting aside the same for the reason that there was no power with the Commissioner to cancel the registration w.e.f. A.Y. 2009-10. Alternatively, it has also been submitted, even if the argument of learned counsel for the revenue is accepted, to any extent, then it would not result in automatic cancellation of the assessee's registration w.e.f. A.Y. 2011-12 onwards, in as much as the Tribunal has not adjudicated the grounds of appeal (raised by the assessee), on merits of the matter - that the assessee is engaged in pursuing charitable purpose being advancement of object of general public utility not involving any activity in the nature of trade, commerce or business. In this regard, Sri Rahul Agarwal has further relied on a decision of a co-ordinate bench in the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ered by charitable purpose as defined under Section 2(15) of the Act, the finding of the Tribunal setting aside the entire order of the Commissioner on the reasoning that such registration could not be cancelled w.e.f. A.Y. 2009-10, cannot be sustained. In our view, the Tribunal should have considered whether the registration could have been cancelled because the assessee was not pursuing a charitable purpose . If the Tribunal found that the registration granted to the assessee was liable to be cancelled because it had not engaged in any activity in pursuance of charitable purpose , then, the date from which such registration could be cancelled, would become relevant and be given effect to. At present, there is no finding of the Tribunal as to the merits of the matter. The cancellation notice appears to have been issued only in light of amendment made to Section 2(15) of the Act. By that amendment, the first proviso had been added to that section. The first proviso applies to an assessee who may claim to be engaged in the 'advancement of any other object of general public utility'. In respect of such an assessee it had been provided (by amendment), if the activity ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t has to be denied to the assessee in question if his receipts arising from activities falling under the first proviso to Section 2(15) exceed ₹ 10 lacs, but not otherwise. Determination or quantification of receipts is therefore a sine qua non for application of the first proviso to Section 2 (15) of the Act. Such determination or quantification, by very nature, is an intrinsic part of the assessment procedure. That exercise is to be done by the assessing authority of the assessee (and not by the Commissioner), in accordance with Chapter XIV of the Act, within limitation prescribed thereunder. Those powers and procedure are clearly inapplicable to proceedings conducted by the Commissioner under Chapter III of the Act. Thus Section 13(8) of the Act creates an exception to the scheme for exemption contained in sections 11 and 12 of the Act. It applies on a year to year basis depending on quantification of the receipts from the activity falling under the first proviso to Section 2 (15) of the Act. On the other hand Section 12 AA(3) of the Act if invoked in the case of an assessee would disentitle an assessee to claim the exemption irrespective of the quantum of his receip ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rant cancellation of the registration under section 12AA(3) of the Act. A similar issue had arisen before us in DIT (Exemptions) v. Khar Gymkhana [2016] 385 ITR 162(Bom) where we had rejected the Revenue's appeal. In the above decision, we relied upon the Central Board of Direct Taxes' Circular No. 21 of 2016, dated May 27, 2016* to conclude that the amendment to the definition of charitable purpose by addition of the proviso with effect from April 12, 2009 would not ipso facto give jurisdiction to the Commissioner of Income- tax to cancel the registration. Circular No. 21 of 2016 in terms directed the authorities not to cancel the registration of the charitable institution only because the proviso to section 2(15) of the Act comes into play as the receipts are in excess of the specified limits therein. It also refers to section 13(8) of the Act to support the view of the non cancellation. In fact, we may usefully reproduce the relevant extract of Circular No. 21 of 2016, dated May 27, 2016, which reads as under (see [2016] 384 ITR (St.) 180 ) : (3) Temporary excess of receipts beyond the specified cut off in one year may not necessarily be the outcome of alteratio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or commerce are in excess of the limit specified in the proviso to section 2(15) of the Act. This is so held by us in Khar Gymkhana (supra). However, if this happens on continuous/regular basis, it could justify further probe/inquiry before concluding that the trust is not genuine. 10. In fact, the Karnataka High Court in DIT (Exemptions) v. Karnataka Badminton Association [2015] 378 ITR 700 (Karn) had on similar facts, viz., cancellation of registration under section 12AA(3) of the Act in view of amendment to section 2(15) of the Act, had not accepted an identical submission on behalf of the Revenue. In appeal, the High Court while upholding the view of the Tribunal that registration cannot be cancelled, observed as under (page 705) : The fact that the receipts from commercial activities are more compared to the overall receipts of the charitable organisation can neither lead to the conclusion that the activities of the trust or Institution are not genuine nor can it be said that the activities of the trust or institution are not being carried out in accordance with objects of the Trust or Institution and, therefore, the two conditions stipulated under the provisions ..... X X X X Extracts X X X X X X X X Extracts X X X X
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