2015 (9) TMI 1550 - AT - Income Tax

Cancelling registration granted U/s 12A - effect of amendment U/s 12AA(3) made by the Finance Act - 2010 - Held that - CIT-II Jalandhar passed order U/s 12AA of the Act on 24/10/2013 w.e.f. A.Y. 2004-05 but in Section 12AA(3) the amendment was made by the Finance Act 2010 which was effective prospectively as clarified by the CBDT as well as various ITATs. The case laws relied by the AR of the assessee also support the case of the assessee therefore from A.Y. 2004-05 the cancellation is out of jurisdiction. The Hon ble Delhi High Court in the case of Director of Income Tax (Exemption) Vs. Mool Chand Khairati Ram Trust (2011 (4) TMI 563 - DELHI HIGH COURT )339 ITR 622 (Delhi) has held that power of cancellation of registration obtained U/s 12A came to be incorporated by way of amendment introduced in Section 12AA(3) by the Finance Act 2010 w.e.f. 1st June 2010. The Director of the Income Tax was therefore no justified in cancelling the registration U/s 12AA(3) w.e.f. December 2002-03 vide his order dated 30th June 2009. - Decided in favour of assessee.

Issues Involved:
1. Cancellation of registration granted under Section 12A of the Income Tax Act.
2. Retrospective application of the power to cancel registration under Section 12AA(3).
3. Reliance on rejection of application under Section 10(23C)(vi).
4. Vagueness of the show cause notice.
5. Objective behind the cancellation of registration.
6. Validity of the tripartite concession agreement.
7. Undertaking of charitable projects.
8. Compliance with Section 11(2) provisions.
9. Previous assessments under Section 143(3) recognizing the society as genuine.
10. Validity and legality of the impugned order under Section 12AA(3).

Detailed Analysis:

1. Cancellation of Registration Granted Under Section 12A:
The Commissioner of Income Tax (CIT), Jalandhar, canceled the registration of the assessee society under Section 12A, citing that the society had leased out its project to a third party and was not directly involved in running the hospital. The CIT argued that the society's income was primarily from interest on fixed deposits rather than from charitable activities.

2. Retrospective Application of Section 12AA(3):
The assessee contended that the power to cancel registration under Section 12AA(3) was introduced prospectively from 01/06/2010. Therefore, the cancellation made effective from the assessment year 2004-05 was invalid and illegal. The tribunal agreed with this argument, citing various case laws and a CBDT circular clarifying the prospective application of the amendment.

3. Reliance on Rejection of Application Under Section 10(23C)(vi):
The CIT relied on the rejection of the assessee's application under Section 10(23C)(vi) by the Chief Commissioner of Income Tax, Ludhiana. The assessee argued that this rejection should not affect the registration under Section 12A as the two provisions operate in different spheres. The tribunal found merit in this argument and noted that the CIT should not have based the cancellation on this ground.

4. Vagueness of the Show Cause Notice:
The assessee argued that the show cause notice issued by the CIT was vague as it did not specify the years in which the trust's activities were allegedly not genuine. The tribunal acknowledged this point, noting that the CIT's notice lacked clarity and specificity.

5. Objective Behind the Cancellation of Registration:
The assessee claimed that the CIT's order was passed with the sole objective of supporting the department's appeal for the assessment year 2006-07. The tribunal did not find sufficient evidence to support this claim but noted that the CIT's reasoning was flawed.

6. Validity of the Tripartite Concession Agreement:
The assessee argued that the tripartite concession agreement with the Government of Punjab and a charitable society was in furtherance of its objectives and was executed transparently. The tribunal recognized that the agreement was a legitimate part of the society's activities and should not have been a basis for cancellation.

7. Undertaking of Charitable Projects:
The assessee highlighted its involvement in various charitable projects, including upgrading medical colleges and setting up treatment centers. The tribunal found that these activities were in line with the society's objectives and supported its claim for registration.

8. Compliance with Section 11(2) Provisions:
The assessee contended that it had complied with the provisions of Section 11(2) by applying set-apart funds in furtherance of its objectives within the stipulated time. The tribunal noted that the CIT had not pointed out any specific defects in the assessee's compliance with these provisions.

9. Previous Assessments Under Section 143(3):
The assessee argued that assessments for previous years had recognized the society as genuine and carrying out its activities in furtherance of its objectives. The tribunal agreed that these assessments supported the society's claim for continued registration.

10. Validity and Legality of the Impugned Order Under Section 12AA(3):
The tribunal concluded that the CIT's order canceling the registration was patently invalid and contrary to the provisions of law. It set aside the order, allowing the assessee's appeal.

Conclusion:
The tribunal allowed the appeal of the assessee, setting aside the order of the CIT, Jalandhar, and restoring the registration under Section 12A. The tribunal emphasized the prospective application of the amendment to Section 12AA(3) and the lack of clear and specific grounds for the cancellation of registration.

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