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2019 (11) TMI 996 - AT - Income TaxExemption u/s 11 - cancelling the registration u/s. 12AA(3) - Acquisition of Associated Journals Limited (AJL) by the Young Indian - CIT (E) withdrawing the registration granted u/s. 12A retrospectively from A.Y. 2011-12 on the alleged grounds that the activities carried on by the Appellant are not genuine and are not in accordance with the objects of the assessee - Assessee had suo moto surrendered its registration u/s. 12A in March 2016 HELD THAT - Had the intention of the assessee company being clear and bona fide from the date of its inception, that it wanted to acquire AJL only to carry out its charitable activities, then it should have been stated so and brought on record not only at the time of seeking registration u/s. 12AA, but also at the time of cancellation. The events clearly pointed out that even before incorporation of Young Indian, the registered office was shifted to Delhi and the Directors managing the affairs of the assessee company were taken on Board of AJL. Not only that, Young Indian was permitted to use the property of AJL as its registered office. there was a clear-cut breach on part of the assessee company. If there was concealment and suppression of material facts, then such a registration granted is always open for cancellation or revocation at any time by the ld. DIT (E)/CIT (E) when it comes to his notice. The assessee nowhere had clarified or sated that the purpose of acquiring AJL and its activities, except for reiterating that as a shareholder, Young Indian does not have any ownership interest, whatsoever, in the properties owned by AJL as it is a separate legal entity. CIT(E) was fully justified in law and on facts in cancelling the registration from the date of granting of registration itself, i.e., from the assessment year 2011-12. Even after grant of registration u/s. 12AA, no genuine activities have been carried out by the assessee either in furtherance of its objects or otherwise, which can be held to be for charitable purpose because one of the so called purpose of acquiring AJL was not carried out at all. Otherwise, also, we have already discussed and given our categorical findings that till the grant of registration and surrender made by the assessee, no worthwhile activities were carried out by AJL. In fact, what it turns out to be is that, the assessee has acquired AJL, a company that owns property worth hundreds of crores from which the AJL had been enjoying only rental income. Clearly, AJL, which had been earning rental income, cannot be held that its activities were aligned with the objects of the assessee company or through AJL; it was carrying out activities in pursuance of its objects qua that period. Hence, in that sense, the assessee s activities cannot be held to be genuine. Thus, the cancellation of registration u/s 12AA by the Ld. CIT (E) from A.Y. 2011-12 is upheld. Though we have tried to note down various arguments placed by the parties and the judgments relied upon and have also dealt with all the core arguments, but some of the contentions and submissions made are not being dealt with, as we do not find them to be relevant on the facts and circumstances and also in view of our detail discussion and findings given above. Accordingly we hold that the ld. CIT (E) was justified in cancelling the registration from the assessment year 2011-12, because none of the activities of the assessee was carried out in accordance with its objects nor its activities can be held to be genuine. Consequently, the appeal of the assessee is dismissed.
Issues Involved:
1. Whether the activities of the assessee were genuine and in accordance with its objects. 2. Whether the registration granted to the assessee under Section 12A/12AA could be cancelled retrospectively. 3. Whether the principle of lifting the corporate veil was applicable to the transactions between Young Indian (YI) and Associated Journals Limited (AJL). 4. Whether the surrender of registration by the assessee was bona fide and permissible under the law. Detailed Analysis: 1. Genuineness and Accordance with Objects: The assessee, Young Indian, was granted registration under Section 12A/12AA based on its declared objects of inculcating democratic and secular values among India's youth. However, the tribunal found that the assessee did not disclose material facts at the time of seeking registration. Specifically, the assessee did not inform the authorities about the acquisition of AJL and the assignment of a ?90 crore loan from the All India Congress Committee (AICC) to YI for a mere ?50 lakhs. The tribunal noted that the primary activity of YI was to acquire AJL, which was not engaged in any charitable activities but had significant real estate holdings and rental income. The tribunal concluded that the activities of YI were neither genuine nor in accordance with its stated objects. 2. Retrospective Cancellation of Registration: The tribunal upheld the retrospective cancellation of registration from the assessment year 2011-12. It noted that Section 12AA(3) allows for the cancellation of registration if the activities are not genuine or not in accordance with the objects of the trust. The tribunal emphasized that the statute does not restrict the Commissioner from canceling the registration retrospectively if the breach of conditions existed from the date of granting registration. The tribunal found that YI had not carried out any activities in line with its objects from the date of registration, justifying the retrospective cancellation. 3. Lifting the Corporate Veil: The tribunal referred to the judgments of the Hon'ble Delhi High Court, which applied the principle of lifting the corporate veil to the transactions between YI and AJL. The High Court found that the transfer of shares and the assignment of the loan were a clandestine and surreptitious transfer of lucrative interests in AJL's properties to YI. The High Court held that the entire transaction was a device to transfer the property held on lease from the government to YI, which became the main shareholder of AJL. The tribunal concurred with this view, noting that the transaction indicated a dishonest and fraudulent design. 4. Surrender of Registration: The tribunal rejected the assessee's contention that the surrender of registration was bona fide. It noted that the surrender was made in the wake of investigations by the Income Tax Department and the Land Development Office, which found that no genuine activities were carried out by YI in furtherance of its objects. The tribunal held that the surrender was not permissible under the law, as the registration was not a gratuitous award but a statutory order subject to compliance with specific conditions. The tribunal found that the surrender was an attempt to preempt the cancellation proceedings initiated by the authorities. Conclusion: The tribunal upheld the cancellation of registration granted to Young Indian under Section 12A/12AA from the assessment year 2011-12. It found that the activities of YI were not genuine and not in accordance with its stated objects. The tribunal also upheld the retrospective cancellation of registration, noting that the breach of conditions existed from the date of granting registration. The principle of lifting the corporate veil was applied to reveal the true nature of the transactions between YI and AJL, indicating a fraudulent design. The tribunal rejected the assessee's contention that the surrender of registration was bona fide and permissible under the law. Consequently, the appeal of the assessee was dismissed.
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