2022 (8) TMI 441 - AT - Income Tax

Exemption u/s 11 - registration under section 12A - whether CIT-A erred in issuing order granting registration which imposed conditions on the basis of which the registration was granted, even though there is no provision under the Income Tax Act which permits the Commissioner of Income Tax to grant the conditional registration - HELD THAT - There are specific provisions of law which govern the cancellation of registration, and these provisions can neither be diluted or supplemented by the learned Commissioner. The consequences of any lapses by the assessee, even with respect to the points covered by these conditions, cannot simply be, or confined to be, cancellation of the registration, as is stated in the impugned, unless the law specifically so provides. No matter what the conditions attached to the registration granted under section 12A state, these conditions are to be tested on the scheme of the law, and, if that be so- as indeed is the case, these conditions serve no purpose in law. We are therefore unable to see any legally sustainable merits in the approach adopted by the learned Commissioner. Learned Commissioner's guidance about the conduct of the assessee- which is what in substance, the conditions attached to the registration, signify, cannot be treated, no matter how well intended is it, as a condition attached to the registration, nor this fact per se will govern, or limit, the consequences of lapses in this regard. While the assessee will be well advised to bear in mind and carefully examine his conduct vis- -vis the points made by the learned Commissioner, these observations cannot be construed as legally binding in the sense that non-compliance with such guidance will not have any consequence, unless and beyond what is specifically envisaged by the statute- such as in Section 12AB(4) and (5) as indeed elsewhere, nor the implications of not doing what is set out in the conditions will remain confined to the cancellation of registration when the law stipulates much harsher consequences. To this extent, and in these terms, the legal effect of these conditions, as visualized in the conditional grant of registration dated 24th September 1991, stands vacated. Appeal is allowed in the limited terms indicated above, and subject to the observations as above.

Issues Involved:
1. Legality of conditional registration under section 12A of the Income Tax Act, 1961.
2. Authority of the Commissioner of Income Tax to impose conditions on the registration of a charitable institution.
3. Validity and enforceability of conditions attached to the registration.

Detailed Analysis:

1. Legality of Conditional Registration under Section 12A:
The appellant challenged the correctness of the order dated 24th September 2021, which granted registration under section 12A but imposed several conditions. The appellant argued that "there is no provision under the Income Tax Act which permits the Commissioner of Income Tax to grant the conditional registration." The Tribunal examined Section 12AB, which outlines the procedure for registration of charitable institutions, and highlighted that the Commissioner can call for documents or information to satisfy himself about the genuineness of activities and compliance with other laws. However, the Tribunal noted that while the law does not explicitly visualize conditional registration, it does not entirely rule out conditions related to compliance with other legal requirements.

2. Authority of the Commissioner of Income Tax to Impose Conditions:
The Tribunal observed that the Commissioner's role is limited to ensuring the genuineness of the trust's activities and compliance with other laws. The Tribunal stated, "the Commissioner cannot supplement the law by laying down these conditions either." It emphasized that the Commissioner should "realize the limitation of the role he plays when the registration of trust, under section 12A, comes up for his consideration." The Tribunal found that the Commissioner had overstepped by attaching conditions related to the conduct of the trust, which are already regulated by specific provisions of law.

3. Validity and Enforceability of Conditions Attached to the Registration:
The Tribunal scrutinized the conditions imposed by the Commissioner, which included requirements such as seeking prior approval for amendments to the trust deed, maintaining separate accounts, and quoting the PAN in communications. The Tribunal noted that these conditions are "matters which are regulated by the specific provisions of law" and that the Commissioner's observations "cannot have the independent force of law." The Tribunal concluded that these conditions, while well-intended, cannot be treated as legally binding conditions for registration. It stated that "these conditions serve no purpose in law" if they do not align with the statutory provisions governing the cancellation of registration.

Conclusion:
The Tribunal allowed the appeal in limited terms, vacating the legal effect of the conditions attached to the registration. It emphasized that while the appellant should consider the Commissioner's guidance, non-compliance with such guidance will not result in consequences unless specifically provided by the statute. The Tribunal pronounced the judgment on 29th July 2022, effectively nullifying the conditions imposed by the Commissioner on the registration under section 12A.

Pronouncement:
In the result, the appeal is allowed in the limited terms indicated above, and subject to the observations as above. Pronounced in the open court today on the 29th day of July 2022.

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