2019 (6) TMI 781 - AT - Income Tax

Registration u/s 12AA - jurisdiction of the CIT vested in section 12AA(3) in cancelling registration - CIT cancelling the registration w.e.f A.Y. 2001-02, originally granted to the assessee u/s. 12A of the Act dated 22.01.1979 - HELD THAT - In the present case, the case sought to be made out by the Commissioner is that the violation carried out by the assessee would lead to denial of exemption u/s. 11 13 and, therefore, the pre-requisite of section 12AA(3) is satisfied. Commissioner records that the violation of section 11 13 would result in forfeiture of exemption not only for the year in which such transactions occur but also for the years when such arrangement continues to be in force. In our considered opinion, such an approach of the CIT is quiet misdirected and is inconsistent with the legal position on the subject contemplated u/s. 12AA(3) so as to cancel registration already granted. On the preliminary point itself, we find that the impugned order of the CIT cancelling the registration u/s. 12AA(3) is bereft of a valid jurisdiction. Violation of section 13 - The situation sought to be covered by section 12AA(4) revolves around the manner in which activities are carried out, including a case where the income or property of the trust is applied for specific persons like author of trust, trustees, etc; or investment of funds in prohibited modes, etc. The aforesaid are areas, which are contained in section 13 which disentitles an assessee from the exemptions contained in section 11 and 12. Violation of section 13 is also sought to be covered by the Legislature by insertion of sub-section (4) to section 12AA as a ground for cancellation of registration. So however, the said provision is effective from 01.10.2014. Pertinently, we are dealing with the impugned order of the CIT dated 28th March 2014 and, therefore, the provisions of section 12AA(4) inserted w.e.f. 01.10.2014 would have no application. In fact, the insertion of section 12AA(4) of the Act on a subsequent date reinforces the legal position noted by us in earlier paras that in the impugned case what the Commissioner was required to satisfy the then existing conditions contained in section 12AA(3) in order to cancel the registration. Thus, the impugned reasons advanced by the CIT do not give him jurisdiction to invoke section 12AA(3) at the relevant point of time. Therefore, we conclude by holding that having regard to the facts and circumstances of the case the CIT has wrongly invoked section 12AA(3) in as much as the requisite conditions contained therein are not fulfilled - we set-aside the order of the CIT and restore the registration originally granted to the assessee u/s. 12AA on 22.01.1979 - Decided in favour of assessee.

Summary

Issues Involved:
1. Cancellation of registration granted under section 12A of the Income Tax Act, 1961.
2. Applicability of section 12AA(3) for the cancellation of registration.
3. Evaluation of activities carried out by the Trust.
4. Alleged violation of sections 11 and 13 of the Act.
5. Jurisdiction of the Commissioner to cancel registration based on violations of sections 11 and 13.

Detailed Analysis:

1. Cancellation of Registration Granted Under Section 12A:
The appellant, a Public Charitable Trust registered under section 12A of the Income Tax Act since 22.01.1979, faced cancellation of this registration by the Commissioner of Income Tax (Central) - 1 through an order dated 28.03.2018, effective from A.Y. 2001-02. The cancellation was based on alleged violations of sections 11 and 13 of the Act.

2. Applicability of Section 12AA(3) for Cancellation:
Section 12AA(3) empowers the Commissioner to cancel registration if the activities of the Trust are not genuine or are not being carried out in accordance with its objects. The Tribunal emphasized that the Commissioner’s power is circumscribed by these specific conditions. The Tribunal referenced case laws, including CIT vs. Sarvodaya Ilakkiya Pannai and Director of Income-tax (Exemptions) vs. Khar Gymkhana, to underline that the Commissioner can cancel registration only upon satisfying these conditions.

3. Evaluation of Activities Carried Out by the Trust:
The Trust, established in 1978, carries out activities such as running Lilavati Hospital & Research Centre. It employs numerous medical professionals and staff, serving around 17,500 patients annually. The Tribunal noted that the Trust’s activities align with its stated objects of providing medical relief and supporting medical research and education.

4. Alleged Violation of Sections 11 and 13 of the Act:
The Commissioner’s order primarily cited violations of sections 11 and 13, which pertain to the mode of investment and transactions with interested parties. However, the Tribunal clarified that these sections deal with the eligibility for exemptions during assessment proceedings and do not directly relate to the cancellation of registration under section 12AA(3).

5. Jurisdiction of the Commissioner to Cancel Registration:
The Tribunal found that the Commissioner’s reasons for cancellation were beyond the scope of section 12AA(3). The alleged violations of sections 11 and 13 should be addressed during assessment proceedings, not as grounds for cancelling registration. The Tribunal also discussed section 12AA(4), effective from 01.10.2014, which covers violations of section 13 as grounds for cancellation, but this provision was not applicable to the impugned order dated 28.03.2014.

Conclusion:
The Tribunal concluded that the Commissioner wrongly invoked section 12AA(3) as the requisite conditions were not met. The Tribunal set aside the Commissioner’s order and restored the Trust’s registration under section 12AA, emphasizing that the merits of the Commissioner’s reasoning could be examined during relevant assessment proceedings.

Order:
The appeal was allowed, and the registration originally granted to the Trust under section 12AA on 22.01.1979 was restored. The order was pronounced on 12th June 2019.