2019 (1) TMI 1478 - HC - Income Tax

Charitable activity - registration under Section 12A(a) cancelled - main object is to do medical relief to the needy people - power of cancellation conferred to the commissioner vide amendment to Sec 12 AA (3) - Whether the commissioner had the power to cancel the certificate of registration before he was specifically empowered to do so by the amendment dated 01.06.2010 to sec 12 AA (3)? - reopening of assessment on account of cancellation of the certificate of registration at a distant date. Held that - The questions raised in these Writ petitions have become a matter res judicata and no more res integra owing to the various Judicial decisions. Following the amendments to Section 12AA(3) and the subsequent actions of the Department on Section 12AA Companies, numerous cases came to be filed before various judicial forums. The vires of the amended section also came to be challenged and considered before the High Courts. The various questions raised in the litigations are settled by a series of pronouncements by various High Courts and later affirmed by the Hon ble Supreme Court. The pronouncements that answers the questions raised in these writ petitions are summarised in the succeeding paragraphs. Commissioner s inherent powers to cancel the certificate of registration flowing from his power to issue registration, it was held that without any express powers conferred under the statue, review or revocation is not permissible. On the question, the courts had further observed that the order passed by the Commissioner under Section 12AA is neither legislative and nor executive and essentially quasi judicial in nature and therefore went on to hold that Section 21 of the General Clauses Act is not applicable to the order passed by the commissioner under Sec 12 AA. Whether the cancellation will operate from a retrospective date? - As held that the amendment to Section 12AA(3) is prospective and not retrospective in character. The courts reasoned that even when the parliament had plenary powers to enact retrospective legislation in matters of taxation, the amended section is not seen to have explicitly provided to have a retrospective character or intend. Therefore, without a specific mention of the amended provisions to operate retrospectively, the cancellation can not operate from a past date. Effective date of operation of the cancellation order - the cancellation will take effect only from the date of the order/notice of cancellation of registration. Since the act of cancellation of registration has serious civil consequences and the ammended provision is held to have only a prospective effect the effect of cancellation, in the event the pending Tax Appeal is decided in favour of the Revenue,will operate only from the date of the cancellation order, that is 30.12.2010. In other words, the exemption cannot be denied to the petitioner for and up to the Assessment Year 2010-11 on the sole ground of cancellation of the certificate of registration. Whether the completed assessment can be reopened on the ground of cancellation of certificate of registration at a later/future date - what follows as a sequel to the decisions in the other three questions is an emphatic No . Courts have categorically held that unless the assessee obtained registration by fraud, collusion or concealment of any material fact, the registration granted can never be alleged to be a nullity. In the case on hand, it is evident that fact of the cancellation of the registration triggered the proceedings and evidently forms the preamble of each of the impugned orders. And clearly, there is no allegation of fraud or misdeclaration on the part of the petitioners and the respondents were candid in confessing that the certificate was granted erroneously. Therefore, reopening the assessment for the past years on account of the cancellation order dated 30.12.2010 in the case of the petitioner by the assessing officer is not permissible - Decided in favour of assessee.

Summary

Issues Involved:
1. Power of the Commissioner to cancel the certificate of registration before the amendment to Section 12AA(3).
2. Prospective or retrospective effect of the amendment to Section 12AA(3).
3. Effective date of the cancellation of registration.
4. Reopening of completed assessments based on the cancellation of the certificate of registration.

Issue-wise Detailed Analysis:

1. Power of the Commissioner to Cancel the Certificate of Registration Before the Amendment to Section 12AA(3):
The petitioner was granted registration under Section 12A of the Income Tax Act in 1992 for charitable activities, specifically 'medical relief'. The Department assessed the income periodically until the amendment to Section 12AA, which empowered the Commissioner to cancel such registrations. The Commissioner cancelled the registration on 30.12.2010, which was upheld by the Tribunal. The petitioner argued that the Commissioner lacked the power to cancel the registration before the amendment. The court observed that without express statutory powers, cancellation was not permissible, and the order by the Commissioner under Section 12AA is quasi-judicial, not subject to Section 21 of the General Clauses Act.

2. Prospective or Retrospective Effect of the Amendment to Section 12AA(3):
The petitioner contended that the amendment to Section 12AA(3) effective from 01.06.2010 is prospective and does not apply to earlier assessments. The court held that the amendment does not explicitly state it has retrospective effect. Therefore, the cancellation cannot operate from a past date, and the amendment is prospective in nature.

3. Effective Date of the Cancellation of Registration:
The court held that the cancellation of registration would take effect only from the date of the order, i.e., 30.12.2010. Since the act of cancellation has serious civil consequences and the amendment is prospective, the exemption cannot be denied for assessment years up to 2010-11 based solely on the cancellation order.

4. Reopening of Completed Assessments Based on the Cancellation of the Certificate of Registration:
The petitioner argued that reopening completed assessments based on the cancellation order dated 30.12.2010 is not permissible. The court agreed, stating that reopening can only occur if there was fraud, collusion, or concealment of material facts, which was not alleged in this case. The assessments were reopened merely due to the cancellation, which the court found impermissible. Consequently, the orders reopening assessments for 2004-2005 to 2007-2008 and the assessment order for 2010-11 were quashed.

Conclusion:
The court allowed all the writ petitions, quashing the reopening orders for the assessment years 2004-2005 to 2007-2008 and the assessment order for 2010-11. No costs were awarded, and connected miscellaneous petitions were closed.