Delhi H.C : the registration granted under section 12A on 4-12-1974 to the assessee could not be cancelled/withdrawn by the Authorities under section 12AA(3)

High Court Of Delhi

Director of Income-tax (Exemptions) vs. Mool Chand Khairati Ram Trust

Assessment Year : 2002-03 To 2006-07

Section : 12AA

A.K. Sikri And M.L. Mehta, JJ.

IT Appeal No. 54 Of 2011

April 4, 2011

JUDGMENT

M.L. Mehta, J. – This is an appeal directed against the order dated 12-3-2010 of the Income-tax Appellate Tribunal (hereinafter referred to as the ‘Tribunal’) whereby the order dated 30-6-2009 of the Director of Income-tax (Exemptions) passed under section 12AA(1)(b) read with section 12A of the Income-tax Act, 1961 (for short ‘the Act’) was set aside and the appeal of the assessee was allowed. By the impugned order, the Tribunal also restored the registration granted to the assessee under section 12A of the Act.

2. The facts in brief are like this. The assessee Trust was created on the basis of the will left behind by the Settler late Lala Ram Khairati Ram. It got registration under section 12A of the Act in December 1974. Based on this, the assessee got exemption of the Income-tax in the assessments under section 143(3) for the assessment years 1996-97 to 2005-06. It was in the assessment year 2006-07, when the assessee filed return seeking exemption under sections 11 and 12 of the Act, that the Additional Director of Income-tax (Exemptions), while proceeding to make assessment under section 143(3), denied the claim of exemption. The assessee preferred appeal against the said order before the Commissioner, Income-tax (Appeal) [for short CIT(A)], which is stated to be pending. On 23-3-2008, assessee was served with a show-cause notice under section 12AA(3) of the Act as to why the registration granted under section 12A of the Act vide order dated 4-12-1974 should not be cancelled. The assessee filed detailed reply contending therein inter alia the action of cancellation to be without jurisdiction. However, the Director of Income-tax (Exemptions) (for short ‘DIT’) cancelled the registration under section 12AA(3) with effect from December 2002-03 vide his order dated 30-6-2009. The Director while passing such an order, reasoned as under :—

“10. In view of the facts mentioned above, I hold that the activities of the trust are not in accordance with the object of the trust and therefore, the registration granted vide Regn. No. DLI/(IT68)/74-75, dated 4-12-1974 is cancelled. It has been observed that the activities of the assessee have definitely been in violation of the objects of the trust for the past several years (chart for assessment years 2002-03 to 2006-07 is mentioned in the order earlier). Accordingly, registration under section 12A is cancelled with effect from assessment year 2002-03.”

3. Against this order, the assessee preferred an appeal before the Tribunal, which came to be allowed vide the impugned order dated 12-3-2010. It is against this order that the revenue has preferred this appeal. The order was also passed restoring the registration. Since the question of law was raised by the revenue, the appeal is admitted on the following substantial question of law :

“Whether the ITAT was right in holding that the registration granted under section 12A on 4-12-1974 to the assessee could not be cancelled/withdrawn by the Authorities under section 12AA(3) of the Act?”

4. With the consent of the counsel of both the parties, we have heard the matter finally. It is admitted case that the assessee was granted registration under section 12A(a) of the Act in December 1974. Learned counsel for the assessee has drawn our attention to the application for registration of the assessee as charitable trust/institution under section 12A(a) of the Act, as made in Form 10A, and also registration granted under the said provision, namely, section 12A(a) of the Act. That being so, the only question that calls for consideration is, as to whether registration so granted under section 12A(a) could not be cancelled/withdrawn by the revenue under section 12AA(3) of the Act as submitted by the learned counsel for the assessee? On the other hand, it was submitted by the learned counsel for the Revenue that if after the grant of registration under section 12A(a), the Authority is satisfied that the conditions prescribed under the said section are not satisfied, registration could be withdrawn under section 12AA(3) which came to be inserted by Finance (No. 2) Act, 2004 with effect from 1-10-2004. He submitted that under the law, the Authority, which is entitled to grant registration, is equally entitled to withdraw such a registration, just as power of granting registration is available so is the power of withdrawing.

5. There is also no dispute that the registration, which is sought to be withdrawn by the Authority, is by virtue of power vested in the Commissioner under section 12AA(3) of the Act. The order which was passed by the DIT was under section 12AA(1)(b) read with section 12A of the Act. For proper appreciation of the rival submissions based on the interpretation of sections 12A and 12AA(1)(b) and 12AA(3), it would be useful to reproduce relevant parts of these sections, which are as under :

“12A. Conditions for applicability of sections 11 and 12.—The provisions of section 11 and section 12 shall not apply in relation to the income of any trust or institution unless the following conditions are fulfilled, namely :

(a) the person in receipt of the income has made an application for registration of the trust or institution in the prescribed form and in the prescribed manner to the Commissioner before the 1st day of July, 1973, or before the expiry of a period of one year from the date of the creation of the trust or the establishment of the institution, whichever is later and such trust or institution is registered under section 12AA :

12AA. Procedure for registration.—(1) The Commissioner, on receipt of an application for registration of a trust or institution made under clause (a) [or clause (aa) of sub-section (1)] 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) ** ** **

(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 :”

6. At the outset, it may be pertinent to note that the title of section 12A ‘Conditions for applicability of sections 11 and 12’ was substituted with effect from 1-6-2007 in place of previous title ‘Conditions as to registration of the Trusts etc.’. It means that prior to 1-6-2007, this section itself provided conditions regarding registration of trust etc. It is noted here because with the substitution of the present title, this section no longer provides for registration of trust etc. A special provision has been enacted in section 12AA providing for procedure for registration of trust etc., with effect from 1-4-1997. It is also noted that section 12A was inserted in the statute book by the Finance Act, 1972 with effect from 1-4-1973. It was omitted and was again restored with effect from 1-4-1989. Section 12A, as it stood at the time when it provided for registration of trust, nowhere provided for cancellation of the registration once granted. It is also pertinent to note that the words ‘such trust or institution is registered under section 12AA’ were also substituted in this section with effect from 1-4-1997. In fact, this section even now nowhere stipulates about the cancellation or withdrawal of the registration, once granted under the said section. It is only under section 12AA, which came in the statute book with effect from 1-4-1997 that a fresh procedure for registration of the trust or institution is prescribed. Even under this section 12AA, there was no provision for cancellation of registration once granted till the enactment of sub-section (3) with effect from 1-10-2004. There is no dispute with regard to this fact that the provision regarding cancellation of registration came to be introduced for the first time by virtue of sub-section (3) in section 12AA with effect from 1-10-2004. This sub-section (3) provides that when a trust or an institution has been granted registration under clause (b) of sub-section (1) 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. A plain reading of this provision would show that section 12AA empowered the CIT to grant the registration in those cases where the assessee applied for such registration under sub-section (1) thereof. Sub-section (1) provides that the CIT on receipt of an applica- tion for registration of a trust or institution made in clause (a) or clause (aa) of sub-section (1) of section 12A, shall :—

(a) ** ** **

(b) after satisfying himself about the objects of the trust or institution and the genuineness of its activities :—

(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.

7. From the conjoint reading of sub-section (1) clause (b) and sub-section (3) of section 12AA, it would be seen that the cancellation of the registration was provided where the registration was granted under clause (b) of sub-section (1). Further cancellation under sub-section (3) was also provided where the registration was obtained at any time under section 12A [may be under clause (a) or clause (aa) of sub-section (1) of section 12A]. But this power of cancellation of registration obtained under section 12A came to be incorporated by way of amendment introduced by the Finance Act, 2010 with effect from 1-6-2010. That being the interpretation of sub-section (3), it is amply clear that the power to cancel the registration once granted was only confined to the registration granted under clause (b) of sub-section (1) of section 12AA till before 1-6-2010. Of course, now with effect from 1-6-2010, the power vests with the Commissioner even to cancel the registration granted under any of the clauses of sub-section (1) of section 12A. In that view of interpretation, we are of the considered view that there was no power vested with the Commissioner to cancel or withdraw the registration granted to the assessee under section 12A(a) in the year 1974.

8. Similar question also arose before the Allahabad High Court in CIT v. Manav Vikas Avam Sewa Sansthan [IT Appeal No. 161 of 2007, dated 24-2-2010], wherein the reliance was placed in the case of Lucknow Bench in Oxford Academy for Career Development v. Chief CIT[2009] 315 ITR 382 (All.), wherein it was held as under :—

9. Learned counsel appearing for the assessee also relied upon the case of Bharati Vidyapeeth v. ITO [2009] 28 SOT 32 (Pune) (URO), wherein it was held as under :

“Section 12AA(3) empowers the CIT to cancel such registration if he is satisfied that activities of 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. The combined reading of both the sections makes it clear that registration can be cancelled only in those cases where the registration has been granted under sub-section (1b) of section 12AA. This section nowhere empowers the CIT to cancel or withdraw the registration granted under section 12A. In the absence of such power, in our opinion, the registration granted under section 12A cannot be withdrawn or cancelled.”

10. In addition to this, learned counsel also relied upon the decision of the Tribunal in the cases of Guru Nanak Public School v. Director of Income-tax (Exemptions), Delhi [IT Appeal Nos. 3267 and 3268 (Delhi) of 2008] and the case of Kapoor Educational Society v. CIT [2010] 134 TTJ (Luck.) 250. There is no need to reproduce what has been held in these cases as the sum and substance of these cases is also that the Commissioner has no power under section 12AA(3) to cancel the registration granted earlier under section 12A(a).

11. In view of our above discussion, we answer the question in affirmative in favour of the assessee and against the revenue. The appeal is accordingly dismissed.

[Citation : 339 ITR 622]

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