2022 (8) TMI 953 - AT - Income Tax

Exemption u/s 11 - grant of registration u/s 12A - Whether CIT erred in issuing order granting registration which imposed conditions on the basis of which the registration was granted, even though there is no provision under the Income Tax Act which permits the Commissioner of Income Tax to grant the conditional registration - HELD THAT - There are specific provisions of law which govern the cancellation of registration, and these provisions can neither be diluted or supplemented by the learned Commissioner. The consequences of any lapses by the assessee, even with respect to the points covered by these conditions, cannot simply be, or confined to be, cancellation of the registration, as is stated in the impugned, unless the law specifically so provides. To give a simple example, learned Departmental Representative cannot even seriously argue that if the appellant fails to quote PAN in its communication with the income tax department, this lapse per se can be reason enough for the cancellation of registration under section 12A, but then, going by the words of the impugned order, that is what the impugned order states. That brings home the short point that no matter what the conditions attached to the registration granted under section 12A state, these conditions are to be tested on the scheme of the law, and, if that be so- as indeed is the case, these conditions serve no purpose in law. We are therefore unable to see any legally sustainable merits in the approach adopted by the learned Commissioner. Ld.Commissioner s guidance about the conduct of the assessee- which is what in substance, the conditions attached to the registration, signify, cannot be treated, no matter how well intended is it, as a condition attached to the registration, nor this fact per se will govern, or limit, the consequences of lapses in this regard. While the assessee will be well advised to bear in mind and carefully examine his conduct vis- -vis the points made by the Commissioner, these observations cannot be construed as legally binding in the sense that non-compliance with such guidance will not have any consequence, unless and beyond what is specifically envisaged by the statute- such as in Section 12AB(4) and (5) as indeed elsewhere, nor the implications of not doing what is set out in the conditions will remain confined to the cancellation of registration when the law stipulates much harsher consequences. To this extent, and in these terms, the legal effect of these conditions, as visualized in the conditional grant of registration dated 24th September 1991, stands vacated. Appeal is allowed in the limited terms indicated above, and subject to the observations as above.

Summary

Issues Involved:
1. Legality of conditional registration under section 12A of the Income Tax Act, 1961.
2. Authority of the Commissioner of Income Tax to impose conditions on registration.
3. Compliance with statutory provisions for registration and cancellation of charitable institutions.

Detailed Analysis:

Issue 1: Legality of Conditional Registration under Section 12A of the Income Tax Act, 1961

The appellant challenged the correctness of the order dated 24th September 2021 passed by the Commissioner of Income Tax, which granted registration under section 12A for the assessment years 2022-23 to 2026-27 with conditions. The appellant argued that the Income Tax Act does not visualize the scheme of conditional registration under section 12A. The learned Commissioner listed several conditions for the registration, such as prior approval for amendments to the trust deed, maintaining separate accounts, and quoting PAN in communications with the department.

Issue 2: Authority of the Commissioner of Income Tax to Impose Conditions on Registration

The learned counsel for the appellant argued that the Commissioner does not have the authority to impose conditions on the registration of a charitable institution, as the law does not visualize any conditions being attached to such registration. The Departmental Representative, however, supported the conditions, stating that form no. 10AC under the Income Tax Rules, 1962, specifically provides for conditions subject to which registration is granted. The Tribunal noted that while the Commissioner can call for documents or information to satisfy himself about the genuineness of activities and compliance with other laws, the findings on these aspects cannot be conditional. The Tribunal held that the Commissioner cannot supplement the law by laying down conditions that are not visualized by the statutory provisions.

Issue 3: Compliance with Statutory Provisions for Registration and Cancellation of Charitable Institutions

The Tribunal examined Section 12AB, which deals with the procedure for registration of charitable institutions. It noted that the Commissioner can call for documents or information to satisfy himself about the genuineness of activities and compliance with other laws. However, the Tribunal emphasized that the Commissioner's role is limited to granting or rejecting the registration based on these inquiries. The Commissioner cannot decide on the cancellation of registration at the point of granting it, as specific provisions of law govern cancellation. The Tribunal found that the conditions imposed by the Commissioner were related to the conduct of the trust and the circumstances for cancellation, which are regulated by specific legal provisions. The Tribunal concluded that the Commissioner's conditions, no matter how well-intended, cannot have the independent force of law and must be tested against the scheme of the law.

Conclusion:

The Tribunal vacated the conditions attached to the registration granted under section 12A, stating that these conditions serve no purpose in law. The Tribunal noted that while the assessee should consider the Commissioner's guidance, non-compliance with such guidance will not have any consequence beyond what is specifically envisaged by the statute. The appeal was allowed in limited terms, subject to the observations made by the Tribunal.

Judgment Pronouncement:

The judgment was pronounced in the open court on the 29th day of July 2022.