2021 (4) TMI 1224 - HC - Income Tax

Cancellation of registration u/s 12AA(3) - Principal Commissioner or Commissioner power to cancel registration - HELD THAT - As scope of Sections 11, 12, 12A and 12AA of sub-clause (3) in the aforementioned paragraphs, the Principal Commissioner or Commissioner was vested with the power even prior to 01.06.2010 to cancel the registration made u/s 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, as the case may be, and he shall pass an order in writing cancelling the registration of such Trust or Institution. In the present case, the Commissioner of Income Tax in impugned proceedings considered the merits and demerits of the case and assigned reason for cancellation of registration, which reads as under - 3. Coming to the merits, search and seizure operations on 06.06.2007 at your premises, inter alia, have brought to light the following violations a) Capitation Fee was collected by the assessee Trust. b) The funds of the Trust at least to the tune of ₹ 22 crores have been misused by the Trustees. c) The provisions of Tamil Nadu Educational Institutions Prohibition of Capitation Fee Act, 1992 have been grossly violated. d) The provisions of Section 11(2) of the I.T. Act, 1961, have not been adhered to. The reasons assigned for the purpose of cancellation are undoubtedly in consonance with the powers conferred on the Commissioner under sub-clause (3) to Section 12AA of the Act and therefore, the order of cancellation can at any stretch of time be stated as infirm or perverse.

Summary

Issues Involved:
1. Jurisdiction and applicability of Section 12AA(3) of the Income Tax Act, 1961.
2. Retrospective application of the Finance Act 2010 amendment.
3. Validity of the cancellation of registration under Section 12A of the Act.

Issue-wise Detailed Analysis:

1. Jurisdiction and Applicability of Section 12AA(3):
The core issue revolves around whether the Commissioner had the jurisdiction to cancel the registration of the petitioner-Institution under Section 12AA(3) of the Income Tax Act, 1961, before the amendment by the Finance Act 2010. The petitioner argued that the cancellation of registration on 13.03.2008 was without jurisdiction as the amendment conferring such power came into effect only on 01.06.2010. The court noted that Section 12AA(3) was inserted by the Finance (No.2) Act, 2004, effective from 01.10.2004, which provided the Commissioner with the power to cancel the registration of a Trust if its activities were not genuine or not carried out in accordance with its objects. The court concluded that the Commissioner had the power to cancel the registration even before the 2010 amendment, as the power was already vested by the 2004 amendment.

2. Retrospective Application of the Finance Act 2010 Amendment:
The petitioner contended that the amendment to Section 12AA(3) by the Finance Act 2010, effective from 01.06.2010, could not be applied retrospectively to cancel the registration granted before this date. The court examined the legislative intent and the explanatory notes issued by the Central Board of Direct Taxes (CBDT), which clarified that the amendment was applicable from the assessment year 2011-2012 onwards. The court referred to the Supreme Court's judgment in K.P. Varghese vs. Income Tax Officer, emphasizing that administrative circulars are binding and provide legitimate aid in statutory interpretation. The court concluded that the 2010 amendment was clarificatory in nature and did not confer new powers but clarified the existing powers of the Commissioner to cancel registrations granted under Section 12A.

3. Validity of the Cancellation of Registration under Section 12A:
The petitioner argued that the cancellation of registration was invalid as it was done under Section 12AA(3), which was not applicable to registrations granted under Section 12A before 01.04.1997. The court noted that the registration of the petitioner-Institution was granted on 09.07.1984 under Section 12A(a). The court analyzed the provisions of Sections 11, 12, 12A, and 12AA, concluding that these sections must be read together to understand the powers of the Commissioner. The court stated that even before the 2010 amendment, the Commissioner had the power to cancel registrations if the activities of the Trust were not genuine or not in accordance with its objects. The court found that the reasons for cancellation, such as the collection of capitation fees and misuse of funds, were in consonance with the powers conferred on the Commissioner under Section 12AA(3).

Conclusion:
The court dismissed the writ petition, upholding the cancellation of the registration by the Commissioner. The court concluded that the Commissioner had the jurisdiction and power to cancel the registration even before the 2010 amendment, and the reasons for cancellation were valid and in accordance with the law. The court emphasized that the 2010 amendment was clarificatory and did not retrospectively confer new powers on the Commissioner.