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TMI Blog2010 (9) TMI 894X X X X Extracts X X X X X X X X Extracts X X X X ..... LD THAT:- That the ld. Commissioner has to comprehend the objects of the Trust whether they are meant for public utility [requirement of section 12AA(1)( b )] and secondly that the activities have actually as also genuinely been carried out to fulfil the aims of the Trust [requirement of section 12AA(1)( a )]. In the present case, the Trust being an educational institution and undisputedly imparting education, therefore, it was not justifiable on the part of the ld. Commissioner to deny the registration. Nevertheless, the application of income and the utilization of funds is always subject to scrutiny by the AO while assessing the income of the Trust, for this legal proposition. we can rely on Sanjeevamma Hanumathe Gowda Charitable Trust v. DIT (Exemptions) [ 2006 (3) TMI 91 - KARNATAKA HIGH COURT] , CIT v. Red Rose School [ 2007 (2) TMI 575 - ALLAHABAD HIGH COURT] , and Acharya Sewa Niyas Uttaranchal v. CIT[ 2006 (11) TMI 249 - ITAT DELHI-G] . We may, therefore, clarify that merely by granting a registration u/s 12A/12AA, a trust ipso facto is not entitled for the exemptions prescribed u/s 11 and 12. Neither de jure nor de facto, i.e., neither in principle nor in practice, a trus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to why receipts of Rs. 14.41 lakhs for the financial years 2003-04, 2004-05 and 2005-06 were found unaccounted? It was also found that the assessee had accepted admission-fees to the tune of Rs. 6.43 lakhs in cash for the financial years 2003-04, 2004-05 and 2005-06 which was also not accounted for in the books. It was also mentioned that the Trust was not filing the returns of income, hence, acted in contravention of the provisions of section 139(4A) of the Income-tax Act, 1961 for assessment year 2004-05. The appellant has furnished the submissions at length and primarily objected that the allegations made were not correct because the activities of the Education Trust were carried out as per the objects of the Trust. It was informed that the Trust was created for imparting education to the students of lower and middle class sections of the Society. The Trust was created without having any distinction as to caste, colour and creed. The trust was stated to be running for almost last 15 years having strength of about 1500 students. The education was being provided for pre-primary, primary, secondary and higher secondary sections of students. It was also explained that whatever irreg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unting for the receipts as well as the expenses. As per ld. Commissioner, the activities were also not in accordance with the objects of the Trust, hence, by invoking the provisions of cancellation of Registration he has decided to cancel the Registration granted even prior to 1-10-2004. It was concluded that the benefit of registration was revoked which was earlier granted by an order of registration dated 22-2-1991. Now this impugned order passed under section 12AA(3), invalidating the existed registration, is challenged before us. 3. From the side of the appellant, Mr. J.P. Shah, learned Authorised Representative of the assessee appeared. At the out set, he has placed strong reliance on a reported decision of ITAT Pune Bench pronounced in the case of Maharashtra Academy of Engineering Educational Research (Maeer) v. CIT 36 DTR 321. He has also emphasized that the Trust was earlier granted a registration under section 12A( a ) on 22-2-1991. It was also mentioned that for assessment years 1999-2000 to 2005-06, the assessments have been made under section 143(3), read with section 254, of the Income-tax Act, 1961 and the Educational Institution was granted exemption as pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to section 12AA(3) came in June 2010 but the show-cause notice was issued on 24-2-2006. Meaning thereby the ld. CIT has exceeded his jurisdiction by invoking the cancellation of registration though at that point of time, he had no such powers as per the statute. Those powers in respect of cancellation of a registration, already granted under section 12A, had come only with effect from 1st June, 2010. Even the impugned order is dated 19-6-2008, i.e. , much prior to the date of commencement of the said amendment. So Mr. Shah, ld. AR, has pleaded that the invocation of provisions of section 12AA(3) of the Income-tax Act, 1961 were ab initio wrong. Earlier a registration was to be granted under section 12A( a ) of the Income-tax Act, 1961. However, by the introduction of section 12AA(3), a procedure has been laid down for cancellation of the registration of a trust. In this section, i.e. , section 12AA(3), it is prescribed that where the Trust or Institution has been granted registration under clause ( b ) of sub-section (1) and subsequently found the activities of the trust are not genuine or not in accordance with the Objects, then he can pass an order cancelling the registration ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cribed time. It is worth to mention that even the nomenclature of this section explicitly suggests the intention of the Legislature, which reads as, "Con-dition for applicability of sections 11 and 12". This section has few salient features which are necessary to ponder upon to resolve the issue in hand. Section 12A(1)( a ) prescribes that a person in receipt of income has to move an application for registration of the Trust or Institution on Form No. 10A as per rule 17A. This was the only section in the Income-tax Act in the past before the insertion of section 12AA with effect from 1-4-1997 [Finance (No. 2) Act, 1996]. As per section 12A, a person in receipt of income has to make an application for registration of the trust before the expiry of a period of one year from the date of creation of the trust. It may not be out of place to mention that since the original section 12A was inserted by the Finance Act, 1972 with effect from 1-4-1973, therefore, a cut-off date 1-7-1973 for filing of applications has also been prescribed. All the old Trusts already in existence were expected to file the requisite application by that date, i.e. , 1-7-1973. The purpose of this reference shall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... refusing registration under clause ( b ) of sub-section (1) shall be passed before the expiry of six months from the end of the month in which the application was received under clause ( a ) [or clause ( aa ) of sub-section (1)] of section 12A.] [(3) Where a trust or an institution has been granted registration under clause ( b ) of sub-section (1) and subsequently 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, he shall pass an order in writing cancelling the registration of such trust or institution : Provided that no order under this sub-section shall be passed unless such trust or institution has been given a reasonable opportunity of being heard.]" [Inserted by the Finance (No. 2) Act, 2004 with effect from 1-10-2004] 7. The purpose of the foregoing discussion as so far have been made and the reference of the old provisions of section 12A vis-a-vis section 12AA is that an interesting analysis has emerged. That as per section 12AA(1), the procedure for either to grant or for the refusal of the registration is on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng provided in the said section 12A whether a registration once granted could ever be revoked by the ld. Commissioner. In the past quite often a question has been raked up by the revenue that whether a registration once granted, is it granted forever even if irregularities are noticed? Then, it had been argued in defence by the revenue that if the statute gives authority for grant of registration then the power of refusal of the said registration is always in-built. An authority to allow a facility to a person co-exists with the authority to withdraw that facility. Therefore, to remove this controversy or ambiguity it was thought by the Hon ble Law makers to specifically prescribe the procedure of registration as also, if need be, it s refusal. It is now stream lined that an application for seeking registration is to be moved as prescribed in section 12A and thereafter the procedure of registration is to be followed as recommended in section 12AA. Due to this enactment at present, no ambiguity exists that if a registration is granted the same can be cancelled as well if necessitated. Thus, the scope of both the section 12AA(1) and 12AA(3) are wide enough to cover all those registra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 12AA(1)( b )( ii ) and 12AA(3)? Because of this variance, the ld. AR has challenged that the refusal of a registration granted under section 12A can now be cancelled only by the latest amendment in section 12AA(3) that too with effect from 1-6-2010. Since the ld. CIT has passed the order prior to the amendment the same is void ab initio, it was argued and rightly so. The admitted factual position is that the impugned order was passed on 19-6-2008, when no such specific jurisdiction was granted to CIT, and the powers of cancellation of registration had come into the effect from 1-6-2010 only. Benefit of this ambiguity or because of an abnormal situation or it can be said to a glitch of overlapping; the advantage should go in favour of the taxpayer. The law is now clear from 1-6-2010, that a registration granted under section 12A can be cancelled by invoking section 12AA(3) of the Act. The law is also clear that a registration granted under section 12AA(1)( b ) can also be revoked by invoking this very section, i.e. , 12AA(3) of the Act; because the connotation "refusing to register" and "cancelling the registration" have distinct application. 11. Next we have to deal with t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so as to also provide for cancellation of registration where any trust or institution has obtained registration at any time under section 12A before its amendment." 12. In this context and in support of this view, we deem it proper to place reliance on a landmark decision of Hon ble Uttaranchal High Court, viz., Welham Boys School Society v. CBDT [2006] 285 ITR 74 wherein it was held that the section 12AA(3) was incorporated with effect from a future date, i.e. , 1-10-2004 vide an amendment in Finance (No. 2) Bill, 2004, dated 8-7-2004, therefore, not a clarificatory or explanatory. 13. Likewise in the case of Sri Chaitanya Educational Committee v. CIT [2007] 106 ITD 256 (Hyd.), it was decided that the amendment of section 12AA by the then Finance Act (No. 2) of 2004 by the insertion of sub-section (3) therein with effect from 1-10-2004 was not procedural but was substantive law thereby conferring a judicial power of cancellation on the Commissioner. 14. Since the amendment in question is absolutely at parity with the earlier amendment as discussed by the Hon ble High Court supra , therefore, we hereby hold that the insertion of the new clause with effect fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) of the Income-tax Act, 1961. If the Revenue Officer himself is qualifying this Trust as an educational institution and then granting the said deduction, then as a result it was not justifiable on the part of the ld. Commissioner to hold such a conflicting view, which can said to be an altogether contrary to the facts of the case. The allegation was that the books of account were not found in a proper manner. Because of the absence of the books of account, it was also doubted whether the educational fees received from the students was ever applied for the purpose of education. A question has generally been raised in the past on several occasions, that while deciding under section 12AA, an application of registration filed under section 12A of the Income-tax Act, 1961, whether the assessee is subject to investigation about the application of its income. Several Courts have pronounced that the application of income or the utilization of the funds can be subject to scrutiny at the assessment proceedings as prescribed under sections 11 and 12 of the Income-tax Act, 1961. This is the view taken by the ITAT Pune Bench in the case of Maharashtra Academy of Engineering Educational Rese ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... down therein." 17. The proposition laid down therein has to be applied in the present appeal. That the ld. Commissioner has to comprehend the objects of the Trust whether they are meant for public utility [requirement of section 12AA(1)( b )] and secondly that the activities have actually as also genuinely been carried out to fulfil the aims of the Trust [requirement of section 12AA(1)( a )]. In the present case, the Trust being an educational institution and undisputedly imparting education, therefore, it was not justifiable on the part of the ld. Commissioner to deny the registration. Nevertheless, the application of income and the utilization of funds is always subject to scrutiny by the Assessing Officer while assessing the income of the Trust, for this legal proposition we can rely on Sanjeevamma Hanumathe Gowda Charitable Trust v. DIT (Exemptions) [2006] 285 ITR 327 (Kar.), CIT v. Red Rose School [2007] 163 Taxman 19 (All.), and Acharya Sewa Niyas Uttaranchal v. CIT [2007] 13 SOT 54 (Delhi). We may, therefore, clarify that merely by granting a registration under section 12A/12AA of the Income-tax Act, 1961, a trust ipso facto is not entitled for the exempti ..... X X X X Extracts X X X X X X X X Extracts X X X X
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