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2022 (11) TMI 320 - HC - Income TaxAssessment of trust - cancelling registration of the Appellant u/s 12AA - Whether the registration once granted under Section 12AA of the Income Tax Act, 1961 could be cancelled on the basis of same set of provision of the Trust which were examined earlier? - HELD THAT - In the instant case, it is an admitted fact that registration under section 12AA of the I.T. Act was granted to Appellant-Trust on the basis of Trust Deed dated 20.09.2005. As further an admitted fact that in the Trust Deed dated 20.09.2005, it was specifically recorded, inter alia, that the lands of the Trust were under threat of encroachment by local inhabitants, and, in order to save the land in question, it was felt necessary to utilize the said land by giving it for development for construction of buildings/flats and the proceeds received from consideration amount were to be utilized for the purposes of the Trust. On the basis of the same set Trust Deed, benefit of exemption under Section 12A of the I.T. Act was granted by granting registration to the Trust u/s 12AA. Despite the aforesaid facts, notice was issued to the Trust dated 18th December, 2017 directing the Trust to show cause, inter alia, as to why its registration be not cancelled for violation of the aims and objectives mentioned in the Trust Deed/Memorandum of Association. CIT (Exemptions) passed order cancelling the registration granted in favour of the Appellant-Trust by recording, inter alia, that the Trust created in the year 2005 was created with intent of changing the original Trust Deeds of 1948 and 1987, which was against the wishes of founder of the Trust. As examined the Supplementary Affidavit filed on behalf of the Appellant-Trust including the order passed by ITAT, Ranchi itself in an earlier proceeding pertaining to the year 2013-14, wherein ITAT has clearly held that, earlier, Trust Deeds were not relevant for allowing the benefit of exemption and the income derived from transfer of property was as per the objects of the Trust. We have also considered the instructions issued by CBDT bearing Instruction No. 883-CBDT F.N. 180/54/72-IT (AI) dated 24.09.1975. Said Instructions clearly state that the investment of net consideration received on the transfer of a capital asset in fixed deposit with a Bank for a period of six months or above would be regarded as utilization of the net consideration for acquiring another capital asset within the meaning of Section 11(1A) - Admittedly, Appellant-Trust has deposited the sale proceeds in fixed deposit with the Bank for a period of more than six months and, thus, it cannot be said that Appellant-Trust has utilized the sale proceeds contrary to the objects of the Trust. Thus, the finding of ITAT in impugned order that Appellant failed to utilize the sale proceeds for the objectives of the Trust is perverse. It goes without saying that we have not gone on the issue of utilization of sale proceeds as it is the Assessing Officer to take note of all facts while considering the same under Section 11 of Income Tax Act, 1961. Under the cumulative facts and circumstances mentioned hereinabove, we allow the instant Appeal and set aside the order dated 30.10.2019 passed by ITAT, Ranchi Bench, Ranchi, and, thus, consequently, we further quash and set aside the order dated 04.09.2018 passed by CIT (Exemptions) under section 12AA(3) of the I.T. Act cancelling registration of the Appellant-Trust under section 12A/12AA of the I.T. Act. Decided in favour of the Appellant.
Issues Involved:
1. Cancellation of registration under Section 12AA of the Income Tax Act, 1961. 2. Jurisdiction of Income Tax Authorities under Section 12AA(3) of the Income Tax Act, 1961. 3. Findings of the ITAT regarding the utilization of sale proceeds for charitable objects. Detailed Analysis: Issue 1: Cancellation of Registration under Section 12AA of the Income Tax Act, 1961 The Appellant challenged the order dated 30.10.2019 by the ITAT, which upheld the cancellation of its registration under Section 12AA by CIT (Exemptions). The registration was initially granted based on the Trust Deed dated 20.09.2005, which aimed to protect the Trust's land from encroachment by developing it. The CIT (Exemptions) cancelled the registration on the grounds that the Trust Deed of 2005 was contrary to the founder's wishes as expressed in the Trust Deeds of 1948 and 1987. However, the Supreme Court, in its judgment dated 01.05.2019, held that the deity could transfer its land, thus nullifying the foundational basis of the CIT's order. The High Court found that the CIT (Exemptions) had overstepped its jurisdiction by questioning the legality of the Trust Deed, which was beyond the scope of Section 12AA(3). Issue 2: Jurisdiction of Income Tax Authorities under Section 12AA(3) of the Income Tax Act, 1961 Section 12AA(3) allows for the cancellation of registration if the activities of the Trust are not genuine or are not being carried out in accordance with its objects. The High Court noted that the CIT (Exemptions) had exceeded its jurisdiction by delving into the legality of the Trust Deed rather than focusing on whether the activities were genuine or aligned with the Trust's objects. The Court emphasized that the Income Tax Department is not authorized to comment on the execution of the Trust Deed, as held in the case of Commissioner of Income Tax, Kanpur Vs. Kamla Town Trust. The High Court concluded that the CIT (Exemptions) had wrongly cancelled the registration based on the same set of provisions that were previously examined and found satisfactory. Issue 3: Findings of the ITAT regarding the utilization of sale proceeds for charitable objects The ITAT upheld the cancellation of registration by adding a new finding that the Appellant failed to prove that the sale proceeds from the land were used for charitable objects. The High Court found this additional finding to be beyond the scope of the show cause notice and the CIT (Exemptions)'s order. The Appellant provided evidence that the sale proceeds were deposited in fixed deposits, which, according to CBDT Instruction No. 883, qualifies as utilization of the net consideration for acquiring another capital asset. The High Court deemed the ITAT's finding as perverse and beyond its jurisdiction. Conclusion: The High Court allowed the Appeal, setting aside the ITAT's order dated 30.10.2019 and the CIT (Exemptions)'s order dated 04.09.2018. The Court emphasized that once registration under Section 12AA is granted after verifying the genuineness of the Trust's activities, it cannot be cancelled based on the same set of provisions. The questions of law were answered in favor of the Appellant, and the Appeal was allowed without any order as to cost.
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