High Court Of Allahabad
ACIT vs. Agra Development Authority
Bharati Sapru & Saumitra Dayal Singh, JJ. ITA No. – 134 of 2013
Section : 260-A
Shambhu Chopra, S.C.,Gaurav Mahajan,S.S.C. I.T. for the Appellant. : Rahul Agarwal for the Respondent.
7th December, 2017
S.D. SINGH, J:
1. Heard Sri Shubham Agrawal, learned counsel for the revenue and Sri Rahul Agrawal, Advocate and Ms. Archi Agrawal, learned counsel for the assessee.
This appeal under Section 260-A of the Income Tax Act, 1961 (hereinafter referred to as the Act) has been filed by the revenue against the order of the Income Tax Appellate Tribunal, Agra Bench, Agra dated 11.01.2013. By that order, the Tribunal has set aside the order of the Commissioner of Income Tax-I, Agra dated 04.04.2012 passed under Section 12-AA (3) of the Act. The present appeal had been filed and admitted on the following 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 purposeâ€. 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. 201112 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. 200910.?
(4) Whether Hon’ble ITAT, Agra’s order is not perverse wherein it has failed to consider all the facts of the case and express provisions of law?
Upon the matter being taken up for hearing, we found the real controversy involved in this appeal would be better expressed if the questions of law arising in this appeal are reframed thus:
Whether, in exercise of power vested under section 12AA(3) of the Income Tax Act, 1961, the CIT could cancel the registration granted to the assessee w.e.f. A.Y. 2009-10, though power to cancel such registration (granted at any time under section 12A of that Act) was first enacted w.e.f. 1.6.2010?
Whether, even otherwise the ITAT Agra could have set aside the order passed under Section 12-AA(3) of the Act in entirety though admittedly the provision of Section 12-AA (3) of the Act (as applicable) was incorporated w.e.f. 01.06.2010 and notice under Section 12-AA(3) of the Act was first issued to the assessee much later on 06.03.2012?
Learned counsel for the parties have addressed on the questions, thus reframed.
The assessee Agra Development Authority is an authority constituted under the U.P. Urban Planning Development Act, 1973.
Admittedly, earlier the assessee was availing exemption under section 10(20A) of the Act claiming itself to be an authority constituted under law for the purpose of and/or to deal with satisfying the need for housing.
Upon deletion of that provision by Finance Act, 2002, the assessee applied for grant of registration under section 12 A of the Act claiming it was involved in advancement of “any other object of general public utility†being a “charitable purpose” under Section 2(15) of the Act.
The assessee was granted registration under Section 12-A of the Act w.e.f. 01.04.2003, vide order dated 24.9.2003 passed by the Commissioner of Income Tax-1, Agra (hereinafter referred to as the Commissioner). Apparently, since then, for various assessment years, the assessee had claimed exemption under the Act. It’s income was treated to be exempt from tax from 01.04.2003 onwards.
Thereafter, on 06.03.2012, a notice under Section 12-AA (3) of the Act was first issued by the Commissioner to the assessee, proposing to cancel its registration under Section 12A of the Act, w.e.f. A.Y. 2009 -10. The assessee furnished its reply to the aforesaid notice and objected to the proposal to cancel 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 Commissioner cancelled the assessee’s registration (granted under section 12 A (1) of the Act) with effect from A.Y. 2009-10.
Section 2(15) of the Act was as substituted by Finance Act, 2008 with effect from 01.04.2009 read as under:
“2(15) “Charitable purpose’ includes relief of the poor, education, medical relief, [preservation of environment (including watersheds, forests and wildlife) and preservation of monuments or places or objects of artistic or historic interest,] and the advancement of any other object of general public utility.
Provided that the advancement of any other object of general public utility shall not be a charitable purpose, if it involves the carrying on of any activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business, for a cess or fee or any other consideration, irrespective of the nature of use or applications, or retention, of the income from such activity:]â€
(emphasis supplied)
Later, by Finance Act, 2010 second proviso to Section 2(15) of the Act was inserted, with retrospective effect from 1.4.2009. It reads as below:
“Provided further that the first proviso shall not apply if the aggregate value of the receipts from the activities referred to therein is ten lakh rupees or less in the previous year;â€
(emphasis supplied)
Also, by Finance Act, 2012, sub-Section (8) was introduced to Section 13 of the Act with retrospective effect from
1.4.2009. It reads as below:
“Section 11 not to apply in certain cases.
13.(1)………………….
(2)……………………. (3)…………………….. (4)……………………. (5)……………………… (6)……………………….. (7)…………………….
(8). Nothing contained in section 11 or section 12 shall operate so as to exclude any income from the total income of the previous year of the person in receipt thereof if the provisions of the first proviso to clause 15 of section 2 become applicable in the case of such person in the said previous year.â€
Then, it is seen Section 12A was originally inserted in the Act, by Finance Act, 1972 with effect from 01.04.1973. It provided for “Conditions as to registration of trusts, etc.†It was omitted by Direct Tax Laws (Amendment) Act, 1987 with effect from 01.04.1989. It was reintroduced by Direct Tax Laws (Amendment) Act, 1989, with effect from 01.04.1989. Later, by Finance (No. 2) Act, 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:
Provided that no order under sub-clause (ii) shall be passed unless the applicant has been given a reasonable opportunity of being heard.
(2) Every order granting or refusing registration under clause (b) of sub-section (1) shall be passed before the expiry of six months from the end of the month in which the application was received under clause (a) of section 12A.”
(emphasis supplied)
Relevant to our purpose, sub-section (3) to section 12AA was inserted by Finance (No. 2) Act, 2004 with effect from 01.10.2004.
Later, by Finance Act, 2010 and w.e.f 01.06.2010, the words “or has obtained registration at any time under section 12A [as it stood before its amendment by the Finance (No. 2) Act, 1996 (33 of 1996)” were inserted in sub-section 3 of section 12AA of the Act.
Thus, after such amendment Section 12AA (3) reads as under: “12AA. (1) ……………………
(2)………………………..
(3) Where a trust or an institution has been granted registration under clause (b) of sub-section (1) or has obtained registration at any time under section 12A as it stood before its amendment by the Finance (No. 2) Act, 1996 (33 of 1996)] and subsequently the Commissioner is satisfied that the activities of such trust or institution are not genuine or are not being carried out in accordance with the objects of the trust or institution, as the case may be, he shall pass an order in writing cancelling the registration of such trust or institution:
Provided that no order under this sub-section shall be passed unless such trust or institution has been given a reasonable opportunity of being heard.â€
(emphasis supplied)
Then, with respect to the aforesaid amendment made to Section 12AA (3) of the Act, the Central Board of Direct Tax (in short CBDT) issued a circular letter No. 762 dated 18.2.1998. Paragraphs 7.2, 7.3 and 7.4 of the said circular letter read as under:
7.2 The power of cancellation of registration is inherent and flows from the authority of granting registration. However, judicial rulings in some cases have held that the Commissioner does not have the power to cancel the registration which was obtained earlier by any trust or institutions under provisions of Section 12-A as it is not specifically mentioned in Section 12AA.
7.3. Therefore, section 12AA has been amended to provide that the Commissioner can also cancel the registration obtained 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.â€
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 Commissioner Income Tax-I, Agra dated 04.04.2012 under Section 12-AA(3) of the Act.
The Tribunal did not examine the grounds of appeal raised by the assessee to attack/challenge the finding of the Commissioner on merits -that it had not engaged in any charitable activity. In this regard, we find that vide grounds of appeal nos. 5, 6, 7 and 8, the assessee had raised a specific challenge on this count. However, from a bare perusal of the
order of the Tribunal, it is also clear that the Tribunal proceeded to allow the assessee’s appeal on a purely legal ground of lack of jurisdiction and authority with the Commissioner to cancel the assessee’s registration granted under Section
12-A(1) of the Act.
Sri Shubham Agarwal, learned counsel for the revenue has first relied on the plain language of Section 12-AA(3) of the Act to submit that once the power had been vested by the Parliament to cancel the registration granted under Section 12-A (1) of the Act, that may have been granted “at any timeâ€, then such a power necessarily included in it a power to cancel the registration with retrospective effect. In support of his submission he also relied on a judgement of the Bombay High Court in the case of Sinhagad Technical Education Society Vs CIT (2012) 343 ITR 23 (Bom).
Opposing the appeal, Sri Rahul Agarwal, learned counsel for the assessee submits, the benefit of exemption was granted to the assessee for various assessment years on the strength of the registration granted to the assessee by the Commissioner. That right got vested in the assessee upon close of such assessment years during which the assessee’s registration was valid and during which period proceedings had not been initiated by the Commissioner to cancel the assessee’s registration. Therefore, according to him such registration could not be cancelled with effect from any date prior to the date of the order to cancel such registration.
Having considered the arguments so made, we note, in the instant case, the notice dated 06.03.2012 proposing to cancel the registration granted to the assessee under section 12A of the Act and the order dated 4.4.2012 cancelling that registration were both issued much after the date 1.6.2010 when the power and jurisdiction to cancel such registration was vested in the Commissioner, by amendment made to section 12AA(3) of the Act. Thus, the aforesaid notice 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 such factual context, the assessee approached the Bombay High Court under Article 226 of the Constitution of India and challenged the validity of that amendment made to the law.
Reliance had been placed by that assessee on a judgement of the Supreme Court in the case of Sedco Forex International Drill Inc. Vs CIT (2005) 279 ITR 310 (SC) to submit that the amendment vesting the power to cancel a registration could not relate back or be exercised with effect from a date prior to the date when such a power was first granted to the Commissioner.
The Bombay High Court repelled that challenge made to the vires of the amendment made to section 12AA(3) of the Act. It was held, by that amendment a specific power had been given to the Commissioner to cancel a registration obtained under section 12A of the Act if the activities of the trust or an institution were not genuine or had not been carried out in accordance with the objects of the trust or institution. It then held:
“5…………….. As a result of the amendment, a regulatory framework is now sought to be put in place so as to cover also a trust or an institution which has obtained registration under section 12A as it stood prior to its amendment in 1996. Every statutory provision which operates in respect of a trust, which has already been registered in the past does not have a retrospective character. A law which operates with respect to an event which has occurred in the past is not necessarily retrospective. A provision is retrospective when it takes away a right which has vested or accrued in the past. The effect of the provision is to empower the Commissioner to cancel the registration of a trust where he is satisfied that the activities of the trust are not genuine or are not being carried out in accordance with the objects of the trust or institution. This cannot by any stretch of imagination, be regarded as a retrospective alteration of the law. In any event, Parliament has plenary powers as a legislative body to enact legislation either with retrospective or prospective effect subject only to the requirement that such legislation should not offend the provisions of Part III of the Constitution. Empowering the Commissioner to cancel the registration of a trust or institution on the ground that the activities of the trust or institution are not genuine or are not being carried out in accordance 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 subsection (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.â€
(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 whether the substituted Explanation to section 9(1)(ii), brought in by the Finance Act, 1999, was retrospective in nature. The Finance Act, 1999, specifically provided that the substituted explanation would come into effect from April 1, 2000. In the above case, it was contended by the appellant that the
Explanation would not apply while assessing income for the years 1992-93 and 1993-94. The Supreme Court observed that the High Court had while dealing with the appeal from the decision of the Tribunal purported to give retrospective effect to the Explanation introduced in 1999. This, according to the Supreme Court, was not permissible as the Explanation had not come into effect during the assessment years in question. The Supreme Court further held that a cardinal principle of tax law is that the law to be applied is that which is in force during the relevant assessment years unless otherwise provided expressly or by necessary implication. In that view it was held that the Explanation was not retrospective.
7. In the present case, the issue is not with regard to the assessment of income of the petitioners as in the case of Sedco Forex [2005] 279 ITR 310 (SC). The issue in this case is with regard to the power to cancel registration of the trust under section 12AA in view of the amendment to sub-section (3) of section 12AA brought about with effect from June 1, 2010. The amendment to sub-section (3) of section 12AA empowers the Commissioner to cancel the registration of a trust which has been obtained at any time under section 12A. The amendment to sub-section (3) of section 12AA gives wide powers to cancel a registration obtained at any time. In Sedco Forex [2005] 279 ITR 310 (SC), the Explanation to section
9(1)(ii) was effective from April 1, 2000. Therefore, it was to be applicable post April 1, 2000, and was not to apply to assessment of income for earlier years. In this case, the amendment to sub-section (3) of section 12AA is with effect from June 1, 2010. Therefore, the amended section 12AA becomes effective from June 1, 2010. Consequently, from June 1, 2010, the Commissioner can exercise the power under section 12AA(3) and cancel the registration of a trust registered under section 12A. Parliament, while empowering the Commissioner to cancel registration of a trust registered under section 12A, has deliberately used the words “obtained registration 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 away a vested right retrospectively. Alternately, even if it is construed to be retrospective, it cannot be held to be violative of article 14”.
(emphasis supplied)
Ultimately, having upheld the validity of the amendment made to sub-section (3) of section 12 AA of the Act, the Bombay High Court then relegated that assessee to avail it’s remedies before the statutory authorities. It did not express any opinion on the merits of the allegation made against that assessee or as to the date from when the registration may be cancelled. It thus concluded:
“9. In so far as the merits of the present matter are concerned, the earlier notice to show cause that was issued to the petitioner on July 31, 2007, culminated in an order cancelling the registration which was passed on October 9, 2007. The only ground on which the Tribunal interfered with the order was that under sub-section (3) of section 12AA, as it then stood, the Commissioner had no power to cancel the registration of a trust or institution granted under section 12A. This decision of the Tribunal was rendered on September 19, 2008, which was prior to the amendment, which was brought in by the Finance Act of 2010. After the amendment by the Finance Act with effect from June 1, 2010, the Commissioner has issued a fresh notice dated March 11, 2011, proposing to invoke the powers under the amended provisions of section 12AA(3) for cancellation of the registration for the reasons mentioned in the order dated October 9, 2007. The notice which has been issued by the Commissioner is a notice to show cause and it would be open to the petitioner to submit a reply to the notice on all grounds, including those which are contained in the order dated October 9, 2007. In other words, the contents of the order dated October 9, 2007, shall be treated as a notice to show cause to the petitioner to which the petitioner shall be at liberty to file a reply before the Commissioner. We decline to exercise our jurisdiction under article 226 of the Constitution, at the present stage, to interdict the hearing of the notice to show cause. We clarify that we have not expressed any opinion on the allegation levelled against the petitioner, the correctness of which is left open to be determined by the Commissioner in the course of the proceedings.
(emphasis supplied)
Therefore, in the first place, we find that the 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 became entitled to cancel such registration with effect from a date prior to the date of issue of such notice.
Then, the Bombay High Court, itself left the merits of the matter open, to be adjudicated by statutory authorities. It declined to express any opinion as to the same.
According to us the validity of the cancellation notice arises, independent of the issue of vires of sub-section (3) of section 12AA of the Act. It has to be examined independently. The reasoning given by the Bombay High Court in the case of Sinhagad Technical Society (supra), as noted above, is therefore inapposite to the facts of this case.
In so far as the facts of the present case are concerned, it is not disputed that the assessee had applied for registration under Section 12A of the Act. The said registration was granted to the assessee w.e.f. 1.4.2003 by an order in writing issued by the Commissioner of Income Tax-I Agra dated 24.9.2003. In view of such registration having been granted to the assessee, it appears to have claimed and also been allowed exemption from tax on its receipt, in accordance with the scheme of the Act, year after year. Again, it is undisputed that the notice under Section 12AA(3) of the Act was issued to the assessee on 6.3.2012 whereby it was first proposed to cancel the assessee’s registration.
The question, therefore, arises whether the revenue having granted registration to the assessee way back, on 24.9.2003, could now cancel that registration with effect from a date prior to the date of issuance of the notice seeking to cancel the assessee’s registration.
In the first place the assessee could not have claimed exemption merely because it was engaged in an activity of charitable purpose. Engagement in such an activity was only a precondition to claim eligibility for registration under Section 12A of the Act. However, only upon the assessee making an application for registration and upon an order being passed thereon, the registration was granted to the assessee. Thereafter, it has to be said that the assessee’s assessing authority has given effect to that registration in accordance with law for all assessment years inasmuch as the revenue has not set up a contrary case.
Then, it is also not the case of the revenue that the assessee had obtained registration by practicing fraud or collusion or concealment of any material fact. 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 Section 4-B of the U.P. Sales Tax Act, 1948 could be cancelled retrospectively. Under Section 4B of that Act, a manufacturer could seek registration/recognition certification with respect to the goods manufactured by it if those goods had been notified by the State Government for the purpose of Section 4-B of the Act.
Upon an order passed granting such recognition certificate, the assessee was made entitled to purchase raw materials required to manufacture notified goods against payment of concessional rate of tax etc. A dispute arose whether the
registration/recognition had been rightly cancelled by the Commissioner of Sales Tax and also whether such registration could be cancelled retrospectively.
A co-ordinate bench of this Court, though upheld the cancellation of the registration. However, it categorically struck down the retrospective cancellation of the recognition certificate. In this regard, it was held as below:
“9. Lastly, learned counsel for the petitioners urged that in no case the impugned order cancelling the registration pertaining to certain goods should be given retrospective operation but be held operative from the date the impugned order was passed. Further in the case of Orient Papers Mills Ltd. Vs. Commissioner of Sales Tax, Madhya Pradesh, Indore and another, 23 STC 308, it was held:
“As regards the date of effectiveness of an amendment in the registration certificate the Central Sales Tax Act, 1956 for the Central Sales Tax (Registration and Turnover) Rules, 1957 does not contain any provision indicating the date from which any amendment in the certificate would be effective.
The amendment can be effective either from the date on which it is made or from the date on which the purchasing dealer applies for amendment of the registration certificateâ€
Similarly, in the case of Chhabra Electric Stores Vs. The Chief Commissioner, Delhi, 30 STC 86, the Delhi High Court interpreted the scheme of Bengal Finance (Sales Tax) Act, 1941 and it held:
“The dealer who sold the goods to a purchasing dealer during the period 1st April to 30th June, 1956, could not be deprived of the benefit of the deduction contemplated by Section 5 (2) of the Act in respect of the sales, on the ground that the certificate of registration of the purchasing dealer was cancelled in November, 1956 subsequent to the dates of sale, with retrospective effect from 1st April, 1956.â€
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.â€
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 order to the extent it is made effective retrospectively is quashed and it is held that the impugned order would be operative from the date it has been passed.â€
(emphasis supplied)
The aforesaid division bench judgment of this Court was followed by another division bench, again in a matter arising under Section 4-B of the U.P. Sales Tax Act, 1948 in the case of M/s Jitendra Oil Mills, Farrukhabad Vs. State of U.P and Others 1994 UPTC 950. The division bench again confined the cancellation of recognition certificate to prospective operation only.
Then, the Supreme Court in the case of Commercial Taxation Officer, Udaipur Vs. Rajasthan Taxchem Ltd. (2007) 3 SCC
124, while dealing with the cancellation of a registration certificate held that the registration certificate granted to an assessee is an order. Then, dealing with the powers of the rectification and revision under the Rajasthan Sales Tax Act,
1994 it was held, those powers could be exercised prospectively only. In this regard, in paragraph 23 of that judgment, it was held as below:
“23. The respondent purchased diesel as raw material pursuant to the specific entry in its Registration Certificate by making the payment of tax at concessional rate of 3% in accordance with the provisions of section 10(1) of the Rajasthan Sales Tax Act, 1994. The appellant even on change of opinion cannot revoke/cancel or amend the Registration Certificate with retrospective effect on account of the principle of promissory estoppel. It was submitted that the registration certificate granted to the assessee is an order. Section 37 which deals with the rectification of a mistake provides that any officer appointed under this Act can rectify any mistake apparent from the record either suo moto or otherwise. Any order passed by him within a period of four years from the date of the order can be sought to be rectified. Similarly, the Commissioner under the provisions of section 87 of the Rajasthan Sales Tax Act, 1994 is provided with the power to revise any order passed by officer subordinate to him if he considers it to be prejudicial to the interest of the revenue within a period of five years from the date on which the order sought to be revised was passed. Thus the power is given by the Act to rectify or revise the registration certificate prospectively.â€
(emphasis supplied)
In the context of the 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 purposeâ€, 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, the act of cancellation of registration has serious civil consequences. 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.
Therefore, we are of the view that the 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.
Next, coming to reframed question no. 2, Sri Shubham Agarwal, learned counsel for the revenue further submits in the alternative, even if the finding of the Tribunal is upheld to the extent the Tribunal had found that the registration of the assessee could not have been cancelled with retrospective effect from the A.Y. 2009-10, still, on that reasoning alone, the order of the Tribunal cannot be sustained in entirety.
In this regard, Sri Shubham Agarwal, learned counsel for the revenue submits that notice under Section 12-AA(3) of the Act had been issued to the assessee on 06.03.2012 i.e. well after the enforcement of the amendment to Section 12- AA (3) of the Act by the Finance Act, 2010. Therefore, the power to cancel the petitioner’s registration granted under section
12A(1) of the Act clearly existed on 06.03.2012, (the date of issuance of notice under section 12AA(3) of the Act). According to him, that notice was issued within jurisdiction.
Then, he further submits that the ground or reason for issuance of notice dated 06.03.2012 was not specific or particular to A.Y. 2009-10. In fact, according to him the ground referred to was general and common to all assessment years – hitting at the nature of activity of the assessee being not charitable. Therefore, according to him the entire proceedings initiated by notice dated 06.03.2012 could not have been held to be bad for the reasoning given by the Tribunal. In such a case, according to him, the Tribunal could have, at most, restricted the effect 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 of CIT(Exemption) Vs. Yamuna Expressway Industrial Development Authority reported in (2017) 395 ITR 18 (Alld.). According to him, that was a case of similar development authorities being Yamuna Expressway Industrial Development Authority; Greater Noida Industrial Development Authority; and New Okhla Industrial Development Authority. This Court had, after taking note on similar constitutional documents of those development authorities and similar nature of their activities, held that they were engaged in advancement of an object of general public utility.
Therefore, according to him, in sum and substance, even if the technical plea raised by the revenue were to be accepted, it would result in no gain to it inasmuch as, in view of the division bench judgment of this Court in the case of CIT (Exemption) Vs. Yamuna Expressway Industrial Development Authority (supra) the issue would still have to be necessarily decided in favour of the assessee on merits.
Having considered the arguments so made by learned counsel for the parties on question no.2, we find, in the instant case, the notice proposing to cancel the registration granted to the assessee w.e.f. 01.04.2003 was issued on a solitary ground that 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. It is also not the case of the revenue that the assessee had engaged in any new or other activity other than that for which it had been granted registration. In fact, it is an admitted case between the parties that the activities of the assessee had remained one and the same for all years since the registration had been granted, on 01.04.2003.
Then, upon receipt of the notice under Section 12-AA(3) of the Act dated 06.03.2012, it was first required to be examined whether the assessee was engaged in an activity covered under section 2(15) of the Act. If the assessee was found to be pursuing such an activity, then the registration granted would not be liable to be cancelled. However, if it were to be found that the assessee was not engaged in such an activity, it would then necessarily require examination as to the date from which such registration could be cancelled.
The notice for cancellation of registration being occasioned and being based on the allegations that the assessee had not engaged in any activity that was covered 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 purposeâ€. 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 purposeâ€, 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 in respect of which it claimed exemption, be in the nature of trade, commerce or business or any other activity rendering any service in relation of any trade, commerce or business for consideration, such activity shall not constitute an activity of charitable purpose. However, the second proviso to Section 2(15) of the Act (introduced by Finance Act, 2010 with effect from 1.4.2009), created an exception to the first proviso. Thus, the first proviso to Section 2(15) of the Act would not apply in the event, the receipt from activities referred to in the first proviso did not exceed Rs. 10,00,000/-, in a previous year.
Upon a co-joint reading of both the provisos to Section 2(15) of the Act, the legislative intent appears not to allow exemption to an assessee who may engage in an activity mentioned in the first proviso to Section 2(15) of the Act, if his receipts for a previous year exceed Rs. 10,00,000/-. At the same time that benefit is not to be denied to such an assessee it his receipts in the previous year do not exceed Rs. 10,00,000/-.
The activities of any assessee are conducted on a day- to-day basis and accounts are made up at the year end. Therefore, at the relevant time i.e. during the previous year relevant to an assessment year, it may not always be predicted or determined or be known whether the receipts (from activities have been specified in the first proviso to Section 2(15) of the Act) exceed the statutory limit of Rs. 10,00,000/- set in the second proviso to Section 2(15) of the Act.
Then Section 13(8) of the Act had also been incorporated with retrospective effect from 1.4.2009 i.e. the date of introduction of the first proviso to Section 2(15) of the Act. Thus notwithstanding a pre-existing registration certificate under Section 12A of the Act, if as a fact, it were found during the assessment proceedings of an assessee (holding registration under Section 12A or Section 12AA of the Act), that it’s receipts arising from the activity (falling under the first proviso to Section 2(15) of the Act), exceeded the limit of Rs. 10 lacs in the relevant previous year, such receipts would not be eligible for exclusion from the total income of that assessee under Section 11 or 12 of the Act.
The scheme of the Act has to be understood that the benefit of exemption otherwise available under sections 11 and 12 of the Act 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 Rs. 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 receipts from any activity.
The Act therefore neither contemplates an inviolable right to claim exemption solely on the strength of a registration certificate nor does the Act appear to contemplate that in case of an opinion being formed by the Commissioner that an assessee is engaged in an activity specified in the first proviso to section 2(15) of the Act, he must necessarily seek to cancel the registration granted by him earlier. In fact, the Act carves out a middle path by allowing the registration to stand but it’s benefit to be deprived in assessment proceedings in certain specified circumstances.
In this regard we also notice, the Bombay High Court, in the case of DIT (Exemption) Vs. North Indian Association (2017) 393 ITR 206 (Bom.) had the occasion to consider a similar issue. In that case, the registration granted under Section 12A of the Act was sought to be cancelled in view of amendment made to Section 2(15) of the Act. It was the revenue’s case that in view of receipts of that assessee, arising from trading, commercial and/or business activities being in excess of Rs. 10,00,000/- the registration be cancelled. The Tribunal set aside the order of cancellation of registration as it had been granted prior to 01.06.2010. The revenue appealed against that order and claimed it to be contrary to law laid down by the Bombay High Court in Sinhagad Technical Education Society (supra).
The Bombay High Court has dismissed that appeal of the revenue and held:
8. We must not lose sight of the fact that there is a difference between registration and exemption. This understanding of ours is fortified by virtue of section 13(8) of the Act. In fact, section 13(8) of the Act was introduced into the Act, with effect from April 1, 2009 by the Finance Act, 2012. It provides that where the receipts are hit by the proviso to section 2(15) of the Act, the benefit of exemption to its income for the previous year relevant to the subject assessment year will not be available. Thus, income is brought to tax to secure the Revenue’s interest but it does not necessarily result in automatic cancellation of registration. Therefore, the mere fact that in one particular year, the respondent assessee may have income receipts in excess of Rs. 10 lakhs or such other limit as provided in the proviso to section 2(15) of the Act, that by itself would not warrant 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 alteration in the very nature of the activities of the trust or institution requiring cancellation of registration already granted to the trust or institution. Hence, section 13 of the Act has been amended vide Finance Act, 2012 by insert ing a new sub-section (8) therein to provide that such organisation would not get benefit of tax exemption in the particular year in which its receipts from commercial activities exceed the threshold whether or not the registration granted is cancelled. This amendment has taken effect retrospectively from April 1, 2009 and accordingly, applies in relation to the assessment year 2009-10 onwards.
(4) In view of the aforesaid position, it is clarified that it shall not be mandatory to cancel the registration already granted under section 12AA of a charitable institution merely on the ground that the cut off specified in the provision to section 2(15) of the Act is exercised in a particular year without there being any change in the nature of activities of the institution. If in any particular year, the specified cut off is exceeded, the tax exemption would be denied to the institution in that year and cancellation of registration would not be mandatory unless such cancellation becomes necessary on the ground(s) prescribed under the Act.
(5) With the introduction of Chapter XII-EB in the Act vide Finance Act, 2016, prescribing special provisions relating to tax on accreted income of certain trusts and institutions, cancellation of registration granted under section 12AA may lead to a charitable institution getting hit by sub-section (3) of section 115TD and becoming liable to tax on accredited income. The cancellation of registration without justifiable reasons may, therefore, cause additional hardship to an asses see institution due to attraction of tax liability on accredited income. The field authorities are, therefore, advised not to cancel the registration of a charitable institution granted under section 12AA just because the proviso to section 2(15) comes into play. The process for cancellation of registration is to be initiated strictly in accordance with section 12AA (3) and 12AA(4) alter carefully examining the applicability of these provisions.â€
However, the issue of the trust not being genuine cannot be concluded by merely giving a finding in one year that income earned from activities of trade, business 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.
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 of sub-section (3) of section 12AA of the Act which empowers the authority to cancel the registration, do not exist in the present case.”
Further, we note that the Madras High Court in Tamil Nadu Cricket Association v. DIT (Exemptions) [2014] 360 ITR 633 (Mad) has also taken a similar view.â€
(emphasis supplied)
We are in respectful agreement with the view taken by the Bombay High Court in the case of D.I.T. (Exemption) Vs. North Indian Association (supra). The cancellation of registration would not be automatic or natural or the only consequence of the receipts (arising from an activity specified in the first proviso to Section 2(15) of the Act), exceeding Rs. 10,00,000/-in any previous year. In case of the assessee before us to whom registration under Section 12A of the Act had been granted before incorporation of the provisos to Section 2(15) of the Act, in the event of its receipts from activities specified in the first proviso to Section 2(15) of the Act exceeding Rs. 10,00,000/-in a subsequent year, cancellation of the registration under Section 12-A of the Act would not be the natural or the only consequence of such an event, if established.
Therefore, in the entirety of the facts and circumstances of the case, we answer the question no.2 in favour of the revenue and against the assessee. According to us the cancellation notice having been issued on 06.03.2012, it did not suffer from any jurisdictional error. On that date the Commissioner had vested (in him) the power to cancel a registration granted to the assessee under Section 12A of the Act (on 24.09.2003). Therefore, merely because the Commissioner had wrongly given effect to such cancellation w.e.f. A.Y. 2009-10, it did not vitiate the entire order.
However, since the Tribunal has not recorded any finding either on the merits of the contention raised by the assessee, that it was pursuing a charitable purpose and as to the date from which the registration could have been cancelled in pursuance of the notice dated 06.03.2012, we consider it necessary to remit the matter to the Tribunal to decide this issue afresh in accordance with law. Needless to add while making such decision the Tribunal would abide by the observations made above and consider all relevant law including the division bench judgment of this Court in the case CIT (Exemption) Vs. Yamuna Expressway Industrial Development Authority (supra). Such exercise may be completed within six months from today.
Accordingly, the appeal is partly allowed as above. No order as to costs.
[Citation :Â 407 ITR 562]
