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2018 (2) TMI 756 - HC - Income TaxPower of CIT to cancel registration u/s 12A - registration order cancelled with retrospective effect - scope of amendment to section 12A - Commissioner concluded that the activity conducted by the assessee was clearly in the nature of trade and business - according to the Tribunal, the Commissioner could not have cancelled such registration w.e.f. A.Y. 2009-10 as that would refer to a date prior to the date when the power to cancel the registration (granted under Section 12-A(1) of the Act) was first conferred on the Commissioner. Held that - In the instant case, undisputedly the registration had been granted much prior to the introduction of the first proviso to Section 2(15) of the Act. Therefore, on the date of grant of registration to the assessee, it was fully eligible for the registration. The registration thus granted did not suffer from any inherent or fundamental defect. Then, the assessee continued to avail the benefit of the registration for all the assessment years subsequent to the grant of its registration. Such a registration order cannot be allowed to be cancelled with retrospective effect so as to affect past transactions that too in absence of any express legislative intent and without any adverse inference being first drawn against the assessee, in terms of Section 13(8) of the Act, during the relevant assessment year. In absence of any legislative intent expressed to suggest that the legislature had empowered the Commissioner to cancel the assessee s registration under Section 12-A of the Act with retrospective effect, such power could not be deemed to exist or arise or be exercised to unsettle closed/part transactions especially because in this case the ground for cancellation has not arisen out of allegation of fraud, collusion or misrepresentation. Cancellation of the assessee s registration under Section 12-A of the Act, if at all, could be done only prospectively and not retrospectively as had been done by the Commissioner in this case. Thus, question no. 1 is answered in the negative that is in favour of the assessee and against the revenue. Validity of notice issued - jurisdictional error - Held that - The cancellation of registration would not be automatic or natural or the only consequence of the receipts (arising from an activity specified in the first proviso to Section 2(15) of the Act), exceeding ₹ 10,00,000/- in any previous year. In case of the assessee before us to whom registration under Section 12A of the Act had been granted before incorporation of the provisos to Section 2(15) of the Act, in the event of its receipts from activities specified in the first proviso to Section 2(15) of the Act exceeding ₹ 10,00,000/- in a subsequent year, cancellation of the registration under Section 12-A of the Act would not be the natural or the only consequence of such an event, if established. We answer the question no.2 in favour of the revenue and against the assessee. According to us the cancellation notice having been issued on 06.03.2012, it did not suffer from any jurisdictional error. On that date the Commissioner had vested (in him) the power to cancel a registration granted to the assessee under Section 12A of the Act (on 24.09.2003). Therefore, merely because the Commissioner had wrongly given effect to such cancellation w.e.f. A.Y. 2009-10, it did not vitiate the entire order. Since the Tribunal has not recorded any finding either on the merits of the contention raised by the assessee, that it was pursuing a charitable purpose and as to the date from which the registration could have been cancelled in pursuance of the notice dated 06.03.2012, we consider it necessary to remit the matter to the Tribunal to decide this issue afresh in accordance with law.
Issues Involved:
1. Whether the CIT could cancel the registration granted to the assessee w.e.f. A.Y. 2009-10 under Section 12AA(3) of the Income Tax Act, 1961. 2. Whether the ITAT Agra could set aside the order passed under Section 12-AA(3) of the Act in entirety. 3. Whether the ITAT Agra's order failed to consider the express provisions of Section 13(8) and Section 2(15) of the Act. 4. Whether the ITAT Agra's order is perverse for failing to consider all the facts of the case and express provisions of law. Detailed Analysis: Issue 1: Retrospective Cancellation of Registration The primary issue was whether the Commissioner of Income Tax (CIT) could cancel the registration granted to the assessee w.e.f. A.Y. 2009-10, although the power to cancel such registration was first enacted w.e.f. 1.6.2010. The court noted that Section 12AA(3) of the Act was amended to allow the CIT to cancel registration granted under Section 12A. However, the court emphasized that the amendment did not specifically empower the CIT to cancel registration retrospectively. The court held that the cancellation of registration could only be prospective, not retrospective, as it would unsettle closed transactions and affect past assessment years without any express legislative intent. Thus, the question was answered in favor of the assessee and against the revenue. Issue 2: Entirety of ITAT's Order The court examined whether the ITAT Agra could set aside the entire order of the CIT. The court found that the ITAT had allowed the appeal on a purely legal ground, stating that the CIT lacked jurisdiction to cancel the registration retrospectively. However, the court noted that the ITAT did not examine the merits of the case, i.e., whether the assessee was engaged in charitable activities. The court held that the ITAT should have considered whether the registration could have been canceled because the assessee was not pursuing a "charitable purpose." The court remitted the matter to the ITAT to decide the issue afresh in accordance with the law and to consider the merits of the case. Issue 3: Consideration of Sections 13(8) and 2(15) The revenue contended that the ITAT failed to consider the express provisions of Section 13(8) and Section 2(15) of the Act. The court noted that the amendment to Section 2(15) introduced a proviso that excluded activities in the nature of trade, commerce, or business from being considered as "charitable purpose" if the receipts exceeded ?10,00,000 in a previous year. Section 13(8) provided that the benefits under Sections 11 and 12 would not apply if the first proviso to Section 2(15) was applicable. The court held that the ITAT should have considered these provisions while deciding the case and remitted the matter to the ITAT for fresh consideration. Issue 4: Perverse Order by ITAT The revenue argued that the ITAT's order was perverse as it failed to consider all the facts and express provisions of law. The court agreed that the ITAT did not address the merits of the case and only focused on the legal ground of jurisdiction. The court emphasized that the ITAT should have examined whether the assessee was engaged in charitable activities and whether the registration could be canceled based on the nature of the activities. The court remitted the matter to the ITAT to decide the issue afresh and to consider all relevant facts and provisions of law. Conclusion: The court partly allowed the appeal, holding that the CIT could not cancel the registration retrospectively and remitted the matter to the ITAT to decide the issue afresh on merits. The ITAT was directed to complete the exercise within six months, considering all relevant laws and observations made by the court.
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