2025 (4) TMI 788 - AT - Income Tax

Cancelling registration u/s. 12A by referring and relying upon powers u/s. 12AB(4) - No charitable activity - whether PCIT-Central Circle Pune erred in treating Appellant Trust as a facilitator/conduit in tax evasion pursuit deployed by EMCURE group of companies? - Mechanism provided u/s. 12AB of the Act to cancel the registration granted u/s.12A under the old regime - Power of cancellation is vested with ld. CIT(Exemption) and not with ld. PCIT and secondly no powers are bestowed in section 12AB of the Act for cancellation of registration granted u/s.12A (old regime) - HELD THAT - We find that firstly in section 12AB of the Act powers are only there to cancel the registration u/s. 12AA and 12AB of the Act but there is no express power to cancel the registration granted u/s. 12A under the old regime. The situation is similar to the one which came before the Hon ble Apex Court in the case of Industrial Infrastructure Development Corporation 2018 (2) TMI 1220 - SUPREME COURT where the issue was regarding cancellation of registration u/s. 12A under the provisions of section 12AA of the Act and since there was no express power granted u/s. 12AA of the Act to cancel the registration u/s. 12A of the Act such cancellation order was quashed. Subsequently there was an amendment brought in by the Finance Act 2010 thereof giving power u/s. 12AA of the Act to cancel the registration u/s.12A of the Act. However under the current provisions of section 12AB of the Act there is no express powers provided under the Act to cancel the registration u/s.12A of the Act granted under the old regime. In the impugned orders in the case of all the assessees in appeal before us ld. PCIT has referred to the specified violation mentioned in section 12AB(4) of the Act which the assessee(s) trusts have been alleged to have been committed based on which the registrations granted u/s.12A/12AA/12AB have been cancelled. However the word specified violation has been brought into the Act in section 12AB of the Act from 01.04.2022 onwards and is therefore applicable for A.Y. 2022-23 and onwards and therefore in absence of word specified violation prior to 01.04.2022 ld.PCIT erred in invoking section 12AB(4) of the Act in the cases of assessee(s) appeals before us. Cancellation of registration should be only for such years for which specified violation exists. In the case of POGs alleged irregularity relates to A.Y. 2017-18 to 2020-21. As such no reason exists for disturbance of other years. Similar is the situation for other assessees also wherein also no specified violation committed by the assessee(s) as referred in section 12AB(4) of the Act post 01.04.2022. Admittedly in case of POGS and MOGS registrations were granted under the old regime u/s. 12A of the Act whereas in case of AOGS registration was granted u/s.12AA of the Act. PCIT grossly erred in cancelling the registration u/s. 12A of the Act from A.Y. 2014-15 onwards till A.Y. 2021-22. Accordingly the legal issues raised in the additional grounds of appeal in case of POGS and MOGS are allowed and the impugned orders dated 06.03.2023 passed u/s. 12AB(4) of the Act in case of POGS and MOGS are hereby quashed to the extent of cancelling the registration granted to the POGS and MOGS u/s. 12A of the Act. So far as the assessee namely AOGS is concerned since registration has been granted u/s.12AA of the Act there are powers u/s. 12AB(4) of the Act to cancel the registration u/s. 12AA of the Act also and therefore our finding that registration u/s. 12A of the Act in the old regime cannot be cancelled u/s. 12AB(4) of the Act in absence of express powers will not be of any help in the case of assessee AOGS. Therefore the legal issue raised by way of additional ground in the case of AOGS is hereby dismissed. Charitable activity or not? - The purpose of referring the programme details and the messages received by various dignitaries is to appreciate the fact that genuine activities of imparting the education is being carried out by these trusts consistently for past many years. It is only for the reason that one of the Pharmaceutical Company has been searched based on which the impugned proceedings have been carried out but at no point of time it has been proved that funds received by the assessee(s) trusts have been specifically given to the doctors by way of freebies. What actually is the activity is that for the purpose of imparting education programmes are devised and conferences are organised. Eminent speakers from across the globe/country are invited to give the deliberations and various research activities are also undertaken. Such platform of research activities provided by the conferences/seminars give rise to fostering critical thinking enhancing learning promoting innovation and contributing to societal advancement by providing solutions to problems and improving lives and for carrying out this expenditure has to be incurred for booking the hotels food travel expenses and also the expenses relating to staff who are engaged in organizing such activity. The assessee(s) trusts in the instant case are Professional Association of Persons which have been formed to facilitate for imparting of education to the doctors and for providing CPD hours and there is no evidence on record to demonstrate that any funds have been retained by the assessee(s) trusts for its own use. Whatever funds they have received are through banking channels from the Pharmaceutical Companies or the payments have been made directly to the bank of vendors by the Pharmaceutical Company for the expenditure incurred by the assessee(s) trusts. We find that the assessee(s) trusts are genuinely and consistently carrying on the work for the charitable objects for which they have been granted registration u/s.12A(old regime)/12AA/12AB of the Act and the funds they have received from the pharmaceutical companies have been applied for the objects of the trusts. Further it has been consistently held that denial of exemptions can only be to the extent of violation made by the assessee(s) trusts. In the case of Audyogik Shikshan Mandal 2018 (12) TMI 1344 - BOMBAY HIGH COURT has held that exemption u/s.11 ought to be denied only to the extent of violative portion. Further since the assessee(s) trusts are genuinely carrying out the charitable activities registration granted u/s.12A/12AA/12AB of the Act cannot be cancelled. Only a professional association of persons who have formed the trusts duly approved by Maharashtra Medical Council and duly registered u/s.12A/12AA/12AB and working for the charitable objects and advancement of education and therefore ld.PCIT erred in applying the ratio laid down by the Hon ble Apex Court in the case of M/s. Apex Laboratories Put. Ltd. 2022 (2) TMI 1114 - SUPREME COURT on the facts of the instant case alleging the assessee(s) trust of committing the specified violation . In view the above we are of the considered view that on merits of the case assessee(s) trusts deserve to succeed and accordingly finding of ld.PCIT cancelling the registration of the assessee(s) trusts for the alleged violation provided in section 12AB(4) of the Act is hereby reversed - Assessee appeal allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal issues considered in this judgment include:

• Whether the Principal Commissioner of Income Tax (PCIT) had the authority under section 12AB(4) of the Income Tax Act, 1961, to cancel registrations granted under section 12A of the Act.
• Whether the activities of the assessee trusts were genuine and in accordance with their stated objectives, or if they were acting as conduits for pharmaceutical companies to provide freebies to medical practitioners in violation of Indian Medical Council regulations.
• Whether the cancellation of registration was justified based on alleged violations of the Indian Medical Council regulations and the provisions of the Income Tax Act.

2. ISSUE-WISE DETAILED ANALYSIS

Authority to Cancel Registration under Section 12AB(4)

• Legal Framework: Section 12AB(4) provides the procedure for cancellation of registration for trusts, but it specifically refers to registrations granted under sections 12AA and 12AB, not section 12A.
• Court's Interpretation: The Tribunal found that there is no express power conferred under section 12AB(4) to cancel registrations granted under section 12A. The Tribunal relied on the Supreme Court's decision in the case of Industrial Infrastructure Development Corporation (Gwalior) M.P. Ltd., which emphasized that quasi-judicial orders require express statutory authority for cancellation.
• Conclusion: The Tribunal concluded that the cancellation of registration under section 12A using the powers under section 12AB(4) was beyond the PCIT's jurisdiction and thus invalid.

Genuineness of Activities and Alleged Violations

• Relevant Legal Framework: The Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations, 2002, and the Income Tax Act provisions regarding charitable activities and exemptions.
• Court's Interpretation: The Tribunal examined whether the activities of the trusts were genuine and aligned with their objectives. It considered whether the trusts acted as conduits for pharmaceutical companies to provide freebies to doctors, which would violate the regulations.
• Key Evidence and Findings: The Tribunal noted that the trusts organized conferences and seminars for educational purposes, which were approved by the Maharashtra Medical Council and other regulatory bodies. The Tribunal found no evidence that the trusts provided impermissible freebies to doctors.
• Application of Law to Facts: The Tribunal applied the law by examining the nature of the activities conducted by the trusts and the regulatory framework governing them. It found that the activities were consistent with the trusts' objectives and did not constitute violations.
• Treatment of Competing Arguments: The Tribunal considered the Department's argument that the trusts facilitated the provision of freebies but found insufficient evidence to support this claim.
• Conclusion: The Tribunal concluded that the activities of the trusts were genuine and aligned with their charitable objectives, and there was no violation of the Indian Medical Council regulations.

3. SIGNIFICANT HOLDINGS

• Core Principles Established: The Tribunal reiterated the principle that express statutory authority is required for the cancellation of quasi-judicial orders, such as the registration of charitable trusts. It also emphasized the need for concrete evidence to substantiate claims of regulatory violations.
• Final Determinations: The Tribunal quashed the cancellation orders issued by the PCIT under section 12AB(4) for registrations granted under section 12A, as there was no express authority for such cancellations. It reinstated the registrations for the trusts and held that their activities were genuine and in compliance with their stated objectives.
• Verbatim Quotes: "The Tribunal concluded that the cancellation of registration under section 12A using the powers under section 12AB(4) was beyond the PCIT's jurisdiction and thus invalid."