2019 (8) TMI 854 - HC - Income Tax

Cancellation of Registration u/s 12AA - charitable activity us 2(15) - cancellation on the ground that in the Board s meeting the association reiterated its emphasis on the undisputed fact that being a catholic school run by the assessee association, the members of which are Christians, it has concern towards the Christians of Patna - HELD THAT - Commissioner has got mixed up in between the stipulations warranting exercise under Section 12AA(3) and Section 13(1) (b) in so far as it dis-entitles a trust or a charitable institution to the exclusion from the total income of the previous year, any income, if the same is used for benefit of any particular religious community or caste. It is correctly canvassed by Mr. Pathy that any such issue can be a subject matter of assessment proceeding but certainly cannot lay a foundation for cancellation of registration of the institution altogether unless the two prerequisites as present in sub-Section 3 of Section 12AA are satisfied. Having considered the matter in its entirety we are in no doubt to hold that the order dated 22.07.2015 of the Tribunal in confirming the order dated 28.06.2012 of the CIT to cancel the registration of the petitioner granted u/s 12AA is an order passed de-hors, the statutory provisions of Section 12AA(3) and since there is no satisfaction recorded by the CIT either that the activities of the petitioner was not genuine or that it was not being carried in accordance with the objects for which it was set up, the conclusion drawn by the authorities in the order impugned in reference to the provision of Section 13(1) (b), is a confirmation of perversity. - Order to cancel the registration of the petitioner u/s 12 AA is quashed and set aside. - Decided in favour of assessee.

Summary

Issues Involved:
1. Whether the registration granted under Section 12AA of the Income Tax Act, 1961 could be canceled for alleged violation of Section 13(1)(b) of the Act.
2. Whether the conditions for cancellation under Section 12AA(3) were satisfied.
3. Whether disallowance of income under Section 13(1)(b) can lead to cancellation of registration under Section 12AA(3).

Detailed Analysis:

1. Cancellation of Registration under Section 12AA for Violation of Section 13(1)(b):
The appellant, an educational institution registered under Section 12AA of the Income Tax Act, 1961, had its registration canceled by the Commissioner of Income Tax on grounds of violating Section 13(1)(b), which disallows exemption if the income is used for the benefit of a particular religious community. The High Court examined whether such a violation could justify the cancellation of registration under Section 12AA(3). The Court noted that the Commissioner’s decision was based on certain resolutions passed by the governing body, which allegedly favored a particular religious community, thus making the institution ineligible for exemption under Sections 11 and 12.

2. Conditions for Cancellation under Section 12AA(3):
The Court emphasized that Section 12AA(3) allows cancellation of registration only if the activities of the institution are not genuine or not carried out in accordance with its objects. The Court found that the Commissioner’s order lacked any finding or satisfaction on these mandatory prerequisites. The order was based solely on the resolutions favoring a particular community, without establishing that the institution’s activities were not genuine or deviated from its objectives.

3. Disallowance of Income under Section 13(1)(b) and Cancellation of Registration:
The Court clarified that disallowance of income under Section 13(1)(b) pertains to assessment proceedings and does not automatically warrant cancellation of registration under Section 12AA(3). The legislative intent of Section 12AA(3) is to ensure that only institutions whose activities are not genuine or not aligned with their objects lose their registration. The Court found that the Commissioner conflated the provisions of Section 13(1)(b) with the grounds for cancellation under Section 12AA(3), leading to an erroneous decision.

Conclusion:
The High Court concluded that the Commissioner overstepped his jurisdiction by canceling the registration without satisfying the conditions under Section 12AA(3). The Court quashed the orders of the Commissioner and the Tribunal, reinstating the appellant’s registration under Section 12AA. The substantial questions of law were answered in favor of the appellant, and the Miscellaneous Appeal was allowed with no order as to costs.