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2014 (1) TMI 1536 - HC - Income TaxWhether respondent CIT has right to cancel the registration granted to the appellant trust u/s 12AA - Held that - Even after grant of registration under Section 12A of the Act, if the Commissioner is satisfied that the activities of such trust or institution are not genuine or are not being carried out in accordance with the objects of the trust or institution, he is entitled to pass orders cancelling the registration after granting opportunity. Bombay High Court in the case of Sinhagad Technical Education Society 2012 (3) TMI 262 - BOMBAY HIGH COURT pointed out that the effect of the provision is to cancel the registration of the trust when the activities of the trust are not genuine or are not being carried out in accordance with the objects of the institution and such law cannot be regarded as a retrospective alteration of the law. It was further held that cancellation of registration of a trust on the ground that the activities of the trust or institution are not genuine or are not being carried out in accordance with the objects of the trust or institution cannot be construed as a conferment of arbitrary power to the Commissioner. In the assessee s case, the Commissioner of Income-tax found that 1971 society had not filed return of income which suggests that there were no activities undertaken by the said 1971 Society/Association - After the new trust was formed in 1987 viz., Sri Vidya Mandir Trust , the 1971 Society does not have any objects and even if the Society has any other objects, those objects ceased to exist after registration of the 1987 Trust, when all its assets and liabilities were transferred and all activities ceased - Sub Section (3) of Section 12AA of the Act has to be strictly followed and the authority has to deal with even those cases having registration granted to the trust under the erstwhile provision The CIT was justified in cancelling registration granted to trust Decided against assessee.
Issues Involved:
1. Authority of the Commissioner under Section 12AA(3) of the Income Tax Act to cancel the registration granted to the appellant trust under Section 12A. 2. Sustainability and justifiability of the Appellate Tribunal's order confirming the cancellation of the registration. Detailed Analysis: Issue 1: Authority of the Commissioner under Section 12AA(3) of the Income Tax Act The primary question was whether the Commissioner of Income Tax had the authority to cancel the registration granted to the appellant trust under Section 12A of the Income Tax Act, 1961. The appellant argued that the Commissioner lacked such authority, especially for registrations granted before the insertion of Sub-Section 3 to Section 12AA by the Finance (No.2) Act, 2004, effective from 01.10.2004. The appellant cited the Delhi High Court decision in Director of Income-Tax (Exemptions) Vs. Mool Chand Khairati Ram Trust, which held that the Commissioner had no power to cancel the registration prior to this amendment. The court, however, referred to the Bombay High Court decision in SINHAGAD TECHNICAL EDUCATION SOCIETY VS. COMMISSIONER OF INCOME-TAX AND ANOTHER, which upheld the validity of Section 12AA(3) and empowered the Commissioner to cancel registrations granted under Section 12A, even retroactively. The court agreed with the Bombay High Court's reasoning that the legislative amendment aimed to ensure that the benefits conferred by the statute were utilized for the intended purpose. It was held that the provision was not retrospective merely because it affected past registrations but rather ensured compliance with the trust's genuine activities and objectives. The court concluded that the Commissioner had the authority to cancel the registration if the trust's activities were not genuine or not carried out according to its objects, aligning with the legislative intent to regulate the utilization of tax exemptions. Issue 2: Sustainability and Justifiability of the Appellate Tribunal's Order The court examined the factual matrix and the sequence of events leading to the cancellation of the registration. The appellant trust, originally registered in 1972, was linked to the Sri Vidya Mandir Association, which was subsequently converted into a trust in 1987. The Commissioner issued a notice under Section 12AA(3) stating that the trust deed lacked object clauses, rendering the trust invalid under Section 6 of the Indian Trusts Act, 1882. The Commissioner, after considering the trust deed of 1972, the Memorandum and Articles of Association of the 1971 association, and the 1987 trust deed, concluded that the objects of the 1972 trust no longer survived and cancelled the registration. The Appellate Tribunal upheld the Commissioner's findings, noting that the 1971 association had become functionally defunct and its activities were taken over by the 1987 trust. The Tribunal found no link between the 1972 trust and the newly formed 1987 trust, thus justifying the cancellation. The court agreed with the Tribunal's findings, emphasizing that the 1972 trust's sole object was to assist the 1971 association, which ceased to exist after the formation of the 1987 trust. The court noted that there was no evidence of the 1972 trust undergoing any change to include the 1987 trust's objectives, rendering the 1972 trust defunct. The court dismissed the appellant's argument that the trust continued to exist, holding that the Commissioner was justified in cancelling the registration under Section 12AA(3) of the Act. The court reiterated that the legislative intent was to empower the Commissioner to regulate and ensure that the trust's activities aligned with its stated objectives, even for registrations granted before the amendment. Conclusion: The court dismissed the Tax Case (Appeal), affirming the Commissioner's authority to cancel the registration under Section 12AA(3) and upholding the Appellate Tribunal's order confirming the cancellation. The court emphasized that the legislative amendment aimed to ensure compliance with the trust's genuine activities and objectives, thereby justifying the cancellation of the registration.
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