2022 (8) TMI 727 - AT - Income Tax

Exemption u/s 11 - Cancelling Registration 12AA(3) and section 80G - contentions of the assessee that the registration granted u/s 12A cannot be cancelled with retrospective effect - whether the registration already granted can be cancelled retrospectively? - order giving effect of third member - HELD THAT - The Judicial Member took a view that registration under section 12A and approval under section 80G(5) was rightly cancelled by the Pr. CIT(E) however, the cancellation of registration / approval would be treated only prospectively i.e. from the previous year in which the assessee sold the educational institutions and the activity of the assessee ceased to exist. Learned Accountant Member, however, took a view that the order cancelling the registration under section 12A and withdrawing approval under section 80G(5) has to be set aside and the matter be remanded to the record of the Pr. CIT(Exemption) for consideration de novo. The learned Accountant Member also took a view that the Pr. CIT(Exemption) has powers to cancel registration with retrospective effect i.e. from the date when the assessee infringes conditions subject to which registration under section 12A was granted and misused the status of the registered trust. Third Member HELD THAT - the main aspect which has to be taken note of is the principle that the grant of registration u/s12A of the Act, does not automatically enable an assessee to claim exemption u/s 11 12 of the Act. The AO even in a case, where a trust or charitable organization for which registration u/s 12A of the Act subsists has to go in to the question, as to whether the income has been applied for charitable purposes and to the extent contemplated by Sec.11 12 of the Act. Even in a case, where the trust or charitable organization applies its income for charitable purposes, but does not have registration u/s 12A of the Act, such trust or charitable organization cannot claim the benefit of Sec.11 12 of the Act. The apprehensions expressed by the learned AM have to be addressed or looked into in accordance with law and the parties should be left to explore remedies open to them in law. Therefore, I agree with the learned JM that the impugned order cancelling registration has to be upheld and there is no necessity to set aside the impugned order and remand the issue for de novo examination by the CIT(E). Now this appeal is listed before the Division Bench for passing the order in accordance with majority opinion. Hon'ble Third Member concurred with the view of the Judicial Member and thereby as per the majority view, the impugned order of the Pr. CIT(Exemption) cancelling the registration granted under section 12A as well as withdrawing approval under section 80G(5) is upheld but the cancellation would be with effect from the previous year in which the assessee sold the educational institutions i.e. the previous year 2017-18.

Issues Involved:
1. Validity of the impugned order due to issuance of two show cause notices.
2. Whether the assessee was subjected to search and seizure action within the meaning of section 132(1).
3. Whether the activities of the assessee trust were genuine and carried out as per the objects of the trust.
4. Whether the cancellation of registration under section 12A and approval under section 80G(5) should be with retrospective or prospective effect.

Issue-Wise Detailed Analysis:

1. Validity of the Impugned Order Due to Issuance of Two Show Cause Notices:
The assessee argued that the proceedings for cancellation of registration under Section 12AA(3) concluded with their submissions on 01.08.2017 and that the re-initiation by the successor Pr. CIT with a second notice dated 20.12.2018 was invalid. The Tribunal held that the issuance of the second show cause notice was necessary due to a change in the incumbent and did not vitiate the proceedings. The impugned order was based on the second show cause notice, and thus, the proceedings were valid.

2. Whether the Assessee Was Subjected to Search and Seizure Action Within the Meaning of Section 132(1):
The Tribunal noted that the validity of the search was not relevant to the present appeal. The assessee's objections to the validity of the proceedings initiated under section 153A were deemed irrelevant for the order passed under section 12AA(3) and 80G(5). The Tribunal concluded that the search and seizure action and the subsequent proceedings were valid.

3. Whether the Activities of the Assessee Trust Were Genuine and Carried Out as Per the Objects of the Trust:
The Tribunal examined several issues:
- Receipt of unaccounted donations: The assessee admitted to receiving anonymous donations not recorded in the books, which were offered to tax under section 115BBC. The Tribunal held that this incident alone did not render the trust's activities non-genuine.
- Advances to trustees: The Tribunal found that the advances to trustees were repayments of loans received from group concerns and did not violate sections 11(5) or 13.
- Sale of educational institutions: The Tribunal noted that the sale of all educational institutions in 2017 led to the cessation of charitable activities, justifying the cancellation of registration.

4. Whether the Cancellation of Registration Under Section 12A and Approval Under Section 80G(5) Should Be With Retrospective or Prospective Effect:
The Tribunal referred to the decisions of the Hon'ble Allahabad High Court and Hon'ble Rajasthan High Court, which held that cancellation of registration under section 12AA(3) cannot be retrospective. The Tribunal concurred with these decisions, holding that the cancellation would be prospective from the previous year in which the assessee sold the educational institutions (FY 2017-18).

Conclusion:
The Tribunal upheld the cancellation of registration under section 12A and approval under section 80G(5) but modified the effective date to be prospective, from the previous year in which the assessee sold its educational institutions. The appeal was partly allowed.

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