2017 (6) TMI 556 - HC - Income Tax

Cancellation of registration of the assessee trust under section 12AA - bogus earthquake relief donation to sister concerns - Held that - Director had discussed in detail the evidence before me to come to the conclusion about the financial improprieties of the Trust in a particular year. If the Tribunal was of the opinion that these findings are factually incorrect, the Tribunal ought to have recorded such opinion and it was thereafter certainly open for the Tribunal to interfere with the order of the Director. However, having not disapproved the findings of the Director, in facts of the present case, it is simply not open for the Tribunal to require re-consideration of the issue merely on the basis that the withdrawal of registration was based on the financial improprieties of one particular financial year whereas by the time the Director passes his order, one more order had passed by. The Tribunal in fact suggested that the Director ought to have looked into the affairs of the Trust for the subsequent year and without doing so, could not have withdrawn the registration. It is not the case where by the time the Director passed the order, many years had rolled by and the Tribunal thought that the initial misdeeds themselves were not very serious and therefore required the Director to take a fresh look considering the record of the Trust for the long period that may have passed in between. - Decided in favour of the Revenue

Summary

Issues:
Challenge to the judgement of the Income Tax Appellate Tribunal regarding the cancellation of registration of the assessee trust under section 12AA.

Analysis:
1. The appeal filed by the Revenue challenges the Tribunal's decision regarding the cancellation of registration of the assessee trust under section 12AA. The substantial question of law considered is whether the Tribunal was right in restoring the issue to the DIT(E) for reexamination of the activities carried out by the trust during the financial year 2003-04, especially when the DIT(E) had found the trust not engaged in charitable activities and involved in misutilization of funds.

2. The Trust, registered under the Income Tax Act, faced scrutiny for financial irregularities related to earthquake relief donations. The Director of Income Tax concluded that the trust was not engaged in charitable activities and colluded with sister concerns to misuse funds. Consequently, the registration of the trust was withdrawn. The Tribunal allowed the appeal partially and remanded the case for fresh consideration, emphasizing the need to evaluate the trust's activities during the financial year 2003-04.

3. The Tribunal's decision to remand the case was based on the premise that the registration withdrawal solely relied on activities from a previous year and did not consider the subsequent year's activities. However, the High Court found this reasoning flawed as the Director's findings were not disputed, and the Tribunal failed to provide valid grounds for reevaluation based on activities from a different financial year. The High Court emphasized that past misdeeds could not be overlooked based on subsequent uneventful years.

4. The High Court criticized the Tribunal's direction for fresh examination, as it did not challenge the Director's findings and failed to provide substantial reasons for revisiting the registration withdrawal decision. The Court held that the Tribunal's approach was legally erroneous, and the trust's disqualification leading to registration withdrawal had to be upheld, irrespective of subsequent years' activities. Therefore, the High Court set aside the Tribunal's decision and restored the Director's order, allowing the Revenue's appeal and disposing of the case.