2021 (3) TMI 1191 - 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) - Whether power of cancellation of registration vests in the authority who has the jurisdiction to grant registration? - Principal Commissioner of Income-Tax-17 cancelling the registration of the Appellant - HELD THAT - 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). We see no reasons to take any other view of the matter than the view so taken by the coordinate bench in the case of Navajbai Ratan Tata Trust vs PCIT 2021 (3) TMI 1146 - ITAT MUMBAI . These observations will apply mutatis mutandis in the present case as well. Respectfully following the same, we hold that the impugned order cancelling registration granted to the assessee trust will have effect from the date on which hearing, on the first show cause notice requiring the assessee to show cause as to why registration under section 12A not be cancelled, and the assessee formally acquiesced to the said notice 10.03.2015, i.e on 20th March 2015.

Issues involved:
1. Jurisdiction and authority of PCIT to cancel registration under section 12AA.
2. Validity and effect of the appellant's surrender of registration.
3. Application of section 115TD and the date of cancellation of registration.
4. Principles of natural justice and factual correctness of PCIT's observations.
5. Applicability of section 13(2)(h) and adherence to the trust deed's object clause.
6. Barred by limitation for the order under section 12AA(3)/(4).

Issue-wise Detailed Analysis:

1. Jurisdiction and Authority of PCIT:
The appellant challenged the correctness of the PCIT's order dated 31st October 2019, arguing that the power to cancel registration vests only in the CIT(E) who granted the registration. The Tribunal observed that the registration under section 12A was obtained by the appellant in 1975 and the PCIT's jurisdiction to cancel it was questioned. The Tribunal noted that the PCIT’s order was without proper jurisdiction as the authority to cancel the registration lies with the authority who granted it.

2. Validity and Effect of the Appellant's Surrender of Registration:
The appellant contended that their surrender of registration via a letter dated 19th February 2015 should be considered valid, and the PCIT's refusal to accept this surrender was erroneous. The Tribunal held that the registration under section 12A is a benefit that cannot be thrust upon an unwilling person. It was noted that the appellant had informed the Commissioner of their non-compliance with section 13(1) and requested deregistration. The Tribunal concluded that the PCIT should have acted upon the appellant's request promptly and the delay in cancellation should not disadvantage the appellant.

3. Application of Section 115TD and Date of Cancellation:
The appellant argued that the PCIT's cancellation of registration with effect from 31st October 2019 was aimed at applying section 115TD, which imposes tax on accreted income upon deregistration. The Tribunal noted that the cancellation should relate back to the date when the appellant first informed the Commissioner of their non-compliance (11th March 2015) or at the latest, the date of the hearing on the show cause notice (20th March 2015). The Tribunal held that the cancellation should be effective from 20th March 2015 to avoid unfair tax implications under section 115TD.

4. Principles of Natural Justice and Factual Correctness:
The appellant claimed that the PCIT violated principles of natural justice by not providing an opportunity to make submissions and by drawing factually incorrect conclusions. The Tribunal found merit in the appellant's contention, noting that the PCIT's observations about the appellant controlling a large business group were erroneous and beyond jurisdiction. The Tribunal emphasized the need for a fair hearing and accurate factual findings.

5. Applicability of Section 13(2)(h) and Adherence to Trust Deed's Object Clause:
The appellant argued that the PCIT incorrectly applied section 13(2)(h) and misinterpreted the trust deed. The Tribunal noted that the appellant had applied its entire income for charitable purposes and that the trust deed did not mandate registration under section 12A. The Tribunal found that the PCIT's conclusions were based on incorrect interpretations and that the appellant's activities were in line with the trust deed's objects.

6. Barred by Limitation:
The appellant raised an additional ground that the PCIT's order was barred by limitation. The Tribunal acknowledged that the PCIT's delay in passing the order was unreasonable and that the cancellation should have been effective from the date of the first show cause notice or the date of the hearing. The Tribunal held that the delay should not prejudice the appellant and that the cancellation should be effective from 20th March 2015.

Conclusion:
The Tribunal allowed the appeal, holding that the cancellation of registration should be effective from 20th March 2015, the date on which the hearing on the first show cause notice was concluded. The Tribunal emphasized that the registration under section 12A is a benefit that cannot be forced upon an unwilling appellant and that the delay in cancellation should not disadvantage the appellant. The Tribunal also left open other peripheral issues for adjudication at the appropriate stage.

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