2021 (2) TMI 815 - HC - Income Tax

Registration u/s 12AA - Rectification/amendments made to the bye-laws of the Society - Operate prospectively OR retorspectively while granting registration under Section 12AA - HELD THAT - CIT, after remand, after taking into consideration the case of both sides, rejected the case of the assessee following the judgment of the Hon'ble Supreme Court of India in the case of Commissioner of Income-Tax Vs. Kamla Town Trust 1995 (11) TMI 1 - SUPREME COURT and held that the rectification shall not have retrospective effect and would operate prospectively from the date when the rectification saw the light of the day - Tribunal erroneously allowed the appeal observing that the order passed by the Hon'ble Supreme Court pertains to a Trust and the same is not applicable to the assessee's case which is a Society. The finding of the Tribunal cannot be sustained for the reason that the Tribunal should have only followed the principle laid down by the Hon'ble Supreme Court to the effect that the rectification shall not have retrospective effect and would operate prospectively from the date on which such rectification saw the light of the day. The ratio laid down by the Hon'ble Supreme Court squarely applies to the facts and circumstances of the present case. The rectification/amendments made to the bye-laws of the Society would only operate prospectively while granting registration under Section 12AA of the Income Tax Act. Following the ratio laid down by the Hon'ble Supreme Court in the judgment reported in Commissioner of Income-Tax Vs. Kamla Town Trust , cited supra, the order passed by the Income Tax Appellate Tribunal is liable to be set aside and the questions of law 1 and 2 are decided in favour of the Revenue appellant.

Summary

Issues:
1. Delay in filing application for registration under Section 12AA of the Income Tax Act.
2. Granting registration with retrospective effect.
3. Validity of rectification/amendments to bye-laws for registration.
4. Interpretation of Section 12AA requirements for registration.

Issue 1: Delay in filing application for registration under Section 12AA:
The assessee Society filed for registration under Section 12AA with a delay of 5 years and 10 months without providing necessary evidence or bye-laws. Despite multiple requests, the Society failed to submit the required documents. The initial application was rejected due to missing mandatory clauses. The Tribunal later remitted the case back to the CIT for re-consideration after the Society submitted amended bye-laws.

Issue 2: Granting registration with retrospective effect:
The Tribunal granted registration with retrospective effect from the original date of creation of the Society, despite objections from the Revenue. The Revenue contended that registration under Section 12AA can only be prospective, citing a Supreme Court judgment that amendments to bye-laws have only prospective application.

Issue 3: Validity of rectification/amendments to bye-laws for registration:
The Tribunal's decision was based on the argument that the amendments made by the Society did not alter its core objectives, thus justifying the retrospective registration. The Revenue disagreed, citing a Supreme Court ruling that rectifications to bye-laws have only prospective effect.

Issue 4: Interpretation of Section 12AA requirements for registration:
The Tribunal's interpretation of Section 12AA requirements differed from the Revenue's understanding. The Revenue emphasized that rectifications/amendments to bye-laws should only have prospective application, in line with legal precedents.

In conclusion, the High Court set aside the Tribunal's decision, ruling in favor of the Revenue. The Court held that rectification/amendments to the bye-laws of the Society should only operate prospectively while granting registration under Section 12AA, aligning with the Supreme Court's precedent. The judgment emphasized the importance of following legal principles in granting registrations under the Income Tax Act.