2015 (9) TMI 1057 - HC - Income Tax

Registration under Section 12A denied - jurisdiction of the Respondent under Section 12AA(3) of the Act to withdraw the registration granted under Section 12AA - Held that - Ground (i) with regard to jurisdiction has been referred to the President of the Tribunal for considering the constituting of Larger Bench. In these facts, the legal maxim sublato fundaments credit opus would apply meaning thereby, in case the foundation is removed, the superstructure falls, so far as the Tribunal is concerned. It may be open to the Assessing Officer during the assessment proceedings to consider whether the activities of the Appellant are hit by the proviso to Section 2(15) of the Act and entitled to exemption. There is a difference between Registration and exemption; Respondent has no jurisdiction to withdraw / cancel registration granted under Section 12AA of the Act in exercise of its power under Section 12AA(3) of the Act. The order dated 10th April, 2015 has disposed of the Appellant s appeal under Section 254(1) of the Act finally on one issue and kept pending on the other issues. The Tribunal under the Act is the final fact finding authority and has to consider all question that are raised before it arising from orders of Authorities under the Act. Thus, this piecemeal disposal of an appeal under Section 254(1) of the Act is not normally resorted to for the reasons pointed out in question (b) above. Moreover, such approach on the part of the Tribunal would lead to confusion viz can an appeal be filed from such an order as the appeal is still pending with the Tribunal. Therefore, normally all Appellate Authorities dispose of the appeal before them at one stage and not at different stages. If during the pendency of the appeal there is an urgency to decide an issue, the same is decided by an interim order, pending the final disposal of the appeal.

Issues Involved:

1. Jurisdictional issue regarding the withdrawal of registration under Section 12A by the Director of Income Tax under Section 12AA(3) of the Income Tax Act.
2. Determination of whether the Appellant's activities qualify as charitable under Section 2(15) of the Income Tax Act.
3. Procedural propriety in the Tribunal's handling of the appeal and rectification application.

Detailed Analysis:

1. Jurisdictional Issue:

The core jurisdictional issue was whether the Director of Income Tax could withdraw the registration granted under Section 12A of the Income Tax Act under Section 12AA(3) for reasons other than those specified in the section. The Tribunal had referred this jurisdictional question to the President of the Tribunal for consideration of constituting a Larger Bench due to conflicting views.

The High Court found that this reference was unnecessary because there were already seven decisions of the Tribunal, including decisions authored by the same Tribunal member, which had concluded that the Director of Income Tax had no jurisdiction to withdraw the registration under Section 12AA(3). The Tribunal had overlooked these decisions and had not cited any conflicting High Court decisions to justify the reference. Therefore, the High Court concluded that the Tribunal's decision to refer the jurisdictional issue to the President for a Larger Bench was unwarranted and factually incorrect.

2. Charitable Purpose Determination:

The second issue was whether the Appellant's activities were charitable under Section 2(15) of the Income Tax Act, considering the proviso that excludes activities involving trade, commerce, or business. The Tribunal had decided this issue without hearing the Appellant, which was a significant procedural lapse.

The High Court noted that the Tribunal had decided ground (ii) concerning the charitable nature of the Appellant's activities without first resolving the jurisdictional issue (ground (i)). The High Court held that the Tribunal should have only examined ground (ii) if ground (i) was decided against the Appellant. The Tribunal's decision to address ground (ii) without resolving ground (i) was premature and procedurally incorrect.

3. Procedural Propriety:

The High Court addressed the procedural propriety in the Tribunal's handling of the appeal and the rectification application. The Tribunal had allowed the Appellant's application for rectification under Section 254(2) but had also partly disposed of the substantive appeal under Section 254(1) without hearing the Appellant on ground (ii).

The High Court found that the Tribunal's approach of piecemeal disposal of the appeal was inappropriate. The Tribunal should have resolved the jurisdictional issue first and then addressed the other grounds if necessary. The High Court emphasized that appellate authorities should dispose of appeals comprehensively rather than in parts to avoid confusion and ensure procedural fairness.

Conclusion:

The High Court quashed and set aside the Tribunal's order to the extent it dealt with the substantive appeal under Section 254(1) of the Income Tax Act. The matter was restored to the regular bench of the Tribunal for fresh disposal after hearing the parties and considering their submissions. The High Court expressly kept open all contentions of the parties and disposed of the appeal with no order as to costs.

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