2007 (3) TMI 208 - HC - Income Tax

Grant for registration u/s 12A - show-cause notice - amendment in the objects of the society - Order u/s 220(6) - necessity of passing speaking order - HELD THAT - Where the objects of the trust or institution have been altered wholesale after the grant of registration and intimation of the alteration has not been given to the Commissioner the order of the assessing authority on the assumption that the registration which was granted on the basis of a particular representation held out by the assessee no longer survives or holds good would not call for interference by this court in exercise of its equitable and discretionary jurisdiction. To sum up we are unable to exercise our discretion to enable the assessee to continue to utilise and enjoy the registration despite the wholesale change in the objects without giving its immediate intimation to the Commissioner. Prima facie when a person deliberately makes an alteration in the objects or in the memorandum of association it will be presumed that the alteration has been made because some change is required. Alterations are not made for the fun of it. Thus the petitioners will therefore be under a heavy burden to demonstrate similarity if they wish to press such a plea. We have no reason to doubt that if pressed this aspect whether the alteration of the objects does or does not take the activities of the petitioners now permissible under the new objects outside the scope of the original objects will be considered by the appellate authority on the next date while considering whether the petitioners have a prima facie case for grant of an interim order. This order indicates that mind has been applied to the assertions which have been found contained in the application dated February 15 2007. Secondly even if adequate reasons have not been given by the Assessing Officer in the order dated February 20 2007 as required by the decision in the case of Shivangi Steels 2004 266 ITR 62 (All) that is merely a technical ground on the part of the petitioners. In order to persuade this court to grant an interim stay during pendency of the appeal as desired by the petitioners in this writ petition the petitioners were required to show in addition to the lack of reasons in the order dated February 20 2007 that the assertions contained in their application dated February 15 2007 constituted a substantial prima facie case in favour of the petitioners i.e. the petitioner ought to have demonstrated prima facie that the assessment order which is under challenge in the appeal contained at least prima facie an error sufficient to justify stalling the demand. No such thing was shown to us. Thus we find ourselves unable to grant any relief in this writ petition. It is accordingly dismissed.

Summary

Issues:
1. Change in objects of the society and impact on registration under section 12A of the Income-tax Act, 1961.
2. Authority of the Income-tax Officer to determine the survival of registration.
3. Power of the Commissioner to cancel registration under section 12AA(3).
4. Prima facie case for grant of an interim order in appeal.
5. Guidelines for granting or denying interim stay of recovery during appeal.
6. Requirement of reasons for rejecting stay application under section 220(6) of the Act.

Analysis:

1. The petitioners altered the objects in the memorandum of association after obtaining registration under section 12A of the Income-tax Act. The Income-tax Officer held that the altered objects were not intimated to the Commissioner, leading to the conclusion that the registration granted to the petitioners would not survive after the change in objects. The petitioners argued that only the Commissioner could cancel registration under section 12AA(3), but the court held that a wholesale change in objects without intimation would render the registration invalid.

2. The court clarified that the power to cancel registration lies with the Commissioner under section 12AA(3) when the actual activities of the trust or institution deviate from the registered objects. In this case, the alteration in objects by the petitioners without immediate intimation to the Commissioner invalidated the registration, as the very foundation for registration was removed voluntarily by the petitioners.

3. The court emphasized that the immediate intimation required by the assessee to the Commissioner is crucial to keep records updated. Failure to provide such intimation after altering objects prevents the petitioners from continuing to utilize the registration. The court declined to interfere in the assessing authority's decision regarding the survival of registration due to the significant change in objects without intimation.

4. Regarding the grant of an interim order in appeal, the court noted that the appellate authority had not yet granted an interim order. The petitioners needed to demonstrate the similarity between the original and altered objects to establish a prima facie case for the grant of an interim order. The court highlighted that alterations in objects are presumed to be necessary, and the burden lies on the petitioners to prove the similarity between the old and new objects.

5. The court discussed the guidelines for granting or denying interim stay of recovery during an appeal. It stated that recovery should remain in abeyance if there is a prima facie case and the assessed income substantially exceeds the returned income. The court clarified that recovery should not be stayed solely based on a higher assessed income without a prima facie case.

6. Lastly, the court addressed the requirement of reasons for rejecting a stay application under section 220(6) of the Act. It emphasized that the lack of detailed reasons in the order rejecting the stay application was a technicality and not sufficient to grant an interim stay. The petitioners were required to demonstrate a substantial prima facie case in their favor to justify stalling the demand during the appeal, which they failed to do.

In conclusion, the court dismissed the writ petition as the petitioners did not establish a prima facie case for relief, and the alterations in objects without intimation invalidated the registration under section 12A of the Income-tax Act.