2010 (9) TMI 782 - AT - Income Tax

Cancellation of registration u/s 12A Charitable Institution - Assessee is a society registered under the Societies Registration Act, 1860 - registration under section 12A of the Act was granted - main object of the assessee society is to impart systematic education - runs a school for the students of Class 1st to Class 12th - AO contended that assessee has paid excessive lease rent to its founder-President and has also passed some resolution to benefit the founder President - denied the benefit of tax exemption to the assessee under s. 11 of the Act - CIT proposed to withdraw the registration granted to the society under s. 12A - Held that that there was no power with the CIT at the relevant time to cancel the registration after having once granted it. Now, the power has been given to the CIT by inserting s. 12AA(3) by Finance Act, 2004 w.e.f 1st Oct., 2004 - As in the case Oxford Academy for Career Development 2008 -TMI - 34673 - ALLAHABAD HIGH COURT held that 2AA(3) has no retrospective effect - Decided that CIT has no power to cancel the registration under s. 12AA(3) as it has no retrospective effect - Appeal allowed - nothing to hold the activities of the appellant are not genuine or its activities are not carried out in accordance with the objects of the appellant - Appeal is allowed.

Summary

Issues:
1. Jurisdiction of the CIT in cancelling registration under section 12AA(3) of the IT Act.
2. Legitimacy of the activities of the appellant society in accordance with its objects.

Issue 1: Jurisdiction of the CIT in cancelling registration under section 12AA(3) of the IT Act:

The appeal challenged the jurisdiction of the CIT in cancelling the registration granted to the appellant society under section 12A of the IT Act. The CIT withdrew the registration on the grounds that the society was diverting income and assets for personal benefit, thereby losing its charitable nature. The CIT issued a notice to the society to explain why the registration should not be withdrawn. The society argued that it was engaged in charitable activities as defined in section 2(15) and that the AO's reasons for denying tax exemption were related to lease rent payments and a resolution to transfer the school building. The CIT, however, disagreed with the society's submissions and cancelled the registration under section 12AA(3) of the Act.

The ITAT analyzed the legal provisions and the timing of the registration and cancellation. It noted that section 12AA(3) was inserted in the Act in 2004, granting the CIT the power to cancel registration if the activities were not genuine or aligned with the trust's objectives. Referring to the Oxford Academy case, the ITAT highlighted that the CIT's power to cancel registration was not retrospective and that the CIT could not rescind registration granted before 2004. The ITAT also considered the 2010 amendment to section 12AA(3), clarifying that if a trust was registered before 2004, the CIT had no authority to cancel the registration under section 12AA(3). As the society's registration was granted in 1999, prior to the relevant amendments, the ITAT held that the CIT had no jurisdiction to cancel the registration. Therefore, the ITAT quashed the CIT's order cancelling the registration.

Issue 2: Legitimacy of the activities of the appellant society in accordance with its objects:

The second ground of appeal raised by the appellant questioned the legitimacy of the CIT's claim that the society's activities were not genuine or aligned with its objectives. However, since the ITAT had already determined that the CIT's order under section 12AA(3) was without jurisdiction, the issue raised under this ground was considered of academic interest only. Consequently, the ITAT did not provide any specific findings on this issue, as the appeal had already been allowed based on the lack of jurisdiction in the CIT's order.

In conclusion, the ITAT allowed the appeal, holding that the CIT had no jurisdiction to cancel the registration granted to the appellant society under section 12A of the IT Act. The ITAT's decision was based on the legal provisions, precedents, and the timing of the registration and subsequent cancellation, emphasizing that the CIT's power to cancel registration was not retrospective and did not apply to trusts registered before the relevant amendments.