2021 (3) TMI 1146 - AT - Income Tax

Exemption u/s 11 - cancellation of registration under section 12AA(3)/(4) - effective date of cancellation of registration - Authority to cancel the registration under section 12AA(3)/(4) - Principal Commissioner of Income-Tax-17 cancelling the registration of the Appellant - Whether power of cancellation of registration vests in the authority who has the jurisdiction to grant registration? - HELD THAT - There is no dispute that certain investments made by this Trust donot qualify the benefit of exemption under section 11, and that precisely was the reason that the assessee had requested the Commissioner for cancellation of registration under section 12A. The question of whether the assessee had the powers, under the trust deed, to seek cancellation or withdrawal of registration under section 12A or not is wholly irrelevant because once the assessee informs the Commissioner of the assessee becoming ineligible for exemption under section 11, it is power, as indeed duty, of the Commissioner to cancel the said registration and that power of the Commissioner is not dependent on the assessee having powers, under the trust deed, to seek cancellation of registration. On this aspect of the matter also, we are unable to find ourselves in agreement with the learned ASG. It is difficult to understand on the first principles, much less approve, any legitimate justification for the income tax authorities to insist that the assessee must have continue with the registration under section 12A when the assessee does not want it. It is nobody s case that there were certain specific obligations on the part of the assessee which the assessee must perform as a quid pro quo for the registration per se. Whatever obligations a charitable institution has towards the income tax authorities, these obligations are a quid pro quo for exemption and not a foundational requirement for the exemption. All these things are, however, academic in the light of our findings that the Commissioner had the duty, much more than the power, to cancel the registration under section 12A upon the fact of admitted violation of section 13(1) coming to his notice, and that such cancellation had to effective from the date on which the disability for exemption under section 11 is attracted (which is not ascertained on the facts of this case), the date of this fact coming to the notice of the Commissioner (i.e.11th March 2015), from the date on which the first show-cause notice was issued (i.e. 13th March 2015), or,at the minimum, from the date on which hearing in this regard was concluded and the order thereon was reserved (i.e. 20th March 2015). Conclusions The impugned order of cancellation of registration granted to the assessee under section 12A must be held to be effective from the date on which the hearing on first show-cause notice was concluded and the show cause notice issued by the Commissioner was formally acquiesced by the assessee in the said hearing, i.e., 20th March 2015, since, without disposing of the said matter, the Commissioner, or his successors, could not have started other parallel proceedings for cancellation of registration obtained under section 12A. The registration having been obtained under section 12A was in the nature of a benefit to the assessee, and it was, therefore, entirely at the option of the assessee. In our considered view, an assessee unwilling to avail the benefit of registration obtained under section 12A cannot be, directly or indirectly and by actions or by inactions, compelled by the revenue authorities, to continue with the said registration obtained by the assessee, particularly when it pertained to the registration obtained in a period prior to the insertion of section 12AA. The present cancellation of registration under section 12A must, therefore, be held to be effective from 20th March 2015. To this limited extent, we uphold the plea of the assessee.

Issues Involved:
1. Jurisdiction and authority of the Principal Commissioner of Income Tax (PCIT) to cancel the registration under section 12A.
2. Validity and effect of the surrender of registration by the appellant.
3. Application of provisions of section 115TD of the Income Tax Act.
4. Principles of natural justice and factual correctness of PCIT’s findings.
5. Interpretation of provisions under section 13(2)(h) and compliance with the trust deed.

Issue-wise Detailed Analysis:

1. Jurisdiction and Authority of PCIT:
The appellant challenged the jurisdiction of the PCIT to cancel the registration under section 12A, arguing that only the Commissioner of Income Tax (Exemption) [CIT(E)] had the authority to grant and cancel such registration. The Tribunal examined the statutory provisions and concluded that the PCIT had the authority to cancel the registration, as the power to cancel was vested in the authority who has jurisdiction over the trust.

2. Validity and Effect of Surrender of Registration:
The appellant argued that the surrender of registration was valid and should have been accepted by the PCIT, as there was no estoppel against such surrender. The PCIT, however, held that there was no provision under law for acceptance of such surrender. The Tribunal noted that the registration under section 12A was a benefit that could not be thrust upon an unwilling person. It was observed that the appellant had informed the CIT(E) of its desire to surrender the registration due to non-compliance with section 13(1), and the CIT(E) had issued a show cause notice accordingly. The Tribunal held that the cancellation of registration should be effective from the date of the show cause notice or the date of hearing, i.e., 20th March 2015, and not from the date of the PCIT’s order.

3. Application of Provisions of Section 115TD:
The appellant contended that the PCIT’s order was motivated by the intention to apply the provisions of section 115TD, which imposes tax on accreted income of trusts whose registration is cancelled after 1st June 2016. The Tribunal found that the delay in passing the cancellation order by the PCIT should not disadvantage the appellant. The cancellation should relate back to the date of the show cause notice or the hearing date, thereby avoiding the implications of section 115TD.

4. Principles of Natural Justice and Factual Correctness:
The appellant argued that the PCIT violated principles of natural justice by not providing an opportunity to make submissions and by drawing factually incorrect conclusions. The Tribunal noted that the PCIT’s findings regarding the control of Tata group of companies by the trust were erroneous. It was also observed that the PCIT failed to dispose of the earlier show cause notices and expanded the scope of the proceedings without proper disposal of the previous ones.

5. Interpretation of Provisions under Section 13(2)(h) and Compliance with Trust Deed:
The appellant argued that the PCIT erred in interpreting section 13(2)(h) and the trust deed. The Tribunal observed that the PCIT ignored the definition of "substantial interest" and incorrectly concluded that the trustees violated the trust deed by reinvesting the sale proceeds of shares. It was noted that the trust deed did not mandate registration or surrender under section 12A and provided for the application of income for charitable purposes as per the ITA.

Conclusion:
The Tribunal held that the cancellation of registration should be effective from 20th March 2015, the date of the hearing on the show cause notice, and not from the date of the PCIT’s order. The registration under section 12A was a benefit that could not be imposed on an unwilling appellant, and the delay in passing the cancellation order should not disadvantage the appellant. The appeal was allowed in these limited terms.

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