2016 (1) TMI 978 - AT - Income Tax

Registration under section 12A cancelled - Held that - On perusal of the order of the learned Commissioner of Income Tax for cancelling the registration, we see that at the beginning of the order as well as at every place while concluding his finding, the learned Commissioner of Income Tax has referred to cancellation of registration w.e.f. assessment year 2009-10 onwards. However, since the amendment to section 12AA(3) of the Act has been specifically provided to be applicable to assessment year 2011-12 and onwards, the learned Commissioner of Income Tax cannot assume jurisdiction to cancel the registration from assessment year 2009-10 onwards. In view of this, the order of the learned Commissioner of Income Tax in cancelling the registration under section 12A of the Act is held to be not as per law. We hold that the amendment to section 2(15) of the Act cannot be the basis for cancellation of registration granted earlier under section 12A of the Act. Two basic requirements for cancellation of registration as provided under section 12AA(3) viz, the findings of the CIT to the effect that the activities of the assessee are not genuine or the activities are not being carried out in accordance with the objects on the basis of which registration under section 12A of the Act was granted to it, have also not been fulfilled in this case. CIT(A) has nowhere given a finding in this regard. It is not the case of the Commissioner of Income Tax that the activities of the assessee are not genuine or not being carried out in consonance with the objects of the assessee. The action of the CIT(A) in cancelling the registration is not as per law. - Decided in favour of assessee.

Issues Involved:
1. Cancellation of registration under section 12A of the Income Tax Act, 1961.
2. Applicability of amendments to section 12AA(3) and section 2(15) of the Income Tax Act, 1961.
3. Retrospective application of amendments.
4. Validity of the Commissioner's order based on the amendments.

Issue-wise Detailed Analysis:

1. Cancellation of registration under section 12A of the Income Tax Act, 1961:
The assessee's registration under section 12A was initially granted on 27.3.1998. The Assessing Officer denied the exemption under section 11 for the assessment year 2009-10, claiming that the assessee was involved in commercial activities, thus not charitable as per the amended section 2(15). The matter was referred to the Commissioner of Income Tax (CIT), who issued a show cause notice and subsequently cancelled the registration under section 12A from the assessment year 2009-10 onwards.

2. Applicability of amendments to section 12AA(3) and section 2(15) of the Income Tax Act, 1961:
The CIT based the cancellation on the amendment to section 12AA(3) effective from 1.6.2010, which allowed the cancellation of registrations granted under section 12A. The CIT's decision was influenced by the amendment to section 2(15) of the Act, which redefined charitable activities, excluding those with commercial intent.

3. Retrospective application of amendments:
The assessee contended that the amendment to section 12AA(3) should not be applied retrospectively. The explanatory notes to the Finance Act, 2010, and Circular No.1/2011 clarified that the power to cancel registration under section 12A was effective from 1.6.2010, applicable from the assessment year 2011-12 onwards. The CIT's order to cancel the registration from the assessment year 2009-10 was thus not in accordance with the law.

4. Validity of the Commissioner's order based on the amendments:
The CIT's order was challenged on the grounds that the amendment to section 2(15) should not affect the registration under section 12A. The ITAT, Amritsar Bench, in the case of Kapurthala Improvement Trust v. CIT, held that the first proviso to section 2(15) should not influence the registration process under sections 12A or 12AA. The ITAT emphasized that the scope of the CIT's power under section 12AA(3) is limited to cases where the activities are not genuine or not in accordance with the objects of the trust. The CIT did not provide findings that the assessee's activities were not genuine or deviated from its objectives.

Conclusion:
The ITAT held that the CIT's order cancelling the registration from the assessment year 2009-10 was not as per law, given the amendment's applicability from the assessment year 2011-12 onwards. The amendment to section 2(15) could not be the basis for cancellation under section 12A. The CIT did not demonstrate that the assessee's activities were not genuine or not aligned with its objectives. Consequently, the appeal of the assessee was allowed, and the cancellation of registration was overturned.

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