9911796707
TMI Blog2024 (9) TMI 261X X X X Extracts X X X X X X X X Extracts X X X X ..... d in the preservation and protection of environment but in fact the assessee is doing the commercial activity and thereby doing the activity with profit motive. AO also noted that the assessee trust has advanced a sum to the persons specified u/s. 13(3) of the Act and thus, there is diversion of fund. Assessee also made contract payment to various other parties / concerns referred to in section 13(3) of the Act. Thus, the rule of consistency should follow in favor of the assessee. Even the circular of board no. 21/2016 direct the revenue officer The cancellation of registration without justifiable reasons may, therefore, cause additional hardship to an assessee institution due to attraction of tax liability on accreted income. The field authorities are, therefore, advised not to cancel the registration of a charitable trust granted under section 12AA just because the provision of section 2(15) comes into play. The process of cancellation of registration is to be initiated strictly in accordance with the section 12AA(3) and 12AA(4) after carefully examining the applicability of these provisions. Thus, on the issue of the doing business by the assessee the finding is already recorded ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re was even no provision for making such reference under the 2nd proviso to section 143(3) of the Act for the trusts and institution referred under section 11 of the Act. Therefore, the reference itself is without the authority of any statutory provisions and there was no fresh reference by the ld. AO. Further the bench noted that the impugned reference upon which the addition was made and that order is pending for adjudication before ld. CIT(A) and there is no final finding on that aspect of the matter. The bench further noted that there was no intimation to the assessee that the ld. CIT(E) intend to proceeded with retrospective effect. Even nowhere in any of the communication to the assessee was allowed to defend their case and the importance of show cause notice has been emphasized by the Apex Court in case of Umanath Pandey v. State of UP [ 2009 (3) TMI 526 - SUPREME COURT ] that Notice is the first limb of this principle. It must be precise and unambiguous. It should appraise the party determinatively the case he has to meet. Time given for the purpose should be adequate so as to enable him to make his representation. In the absence of a notice of the kind and such reasonable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ipur dated 30/09/2023 [here in after ld. CIT(E)] cancelling the registration of the assessee under section 12AB(4)(b)(i) of the Act. 2. In this appeal, the assessee has raised following grounds: - "1. Under the facts and circumstances of the case and in law, the Impugned Order Passed u/s 12AB(4)(b)(i) of the Act dated 30.09.2023 passed by Ld. CIT Exemption, Jaipur under Section 12AB(4) of the Act and under erstwhile Section 12AA(3) of the Act canceling the registration of the Assessee granted u/s 12AB is arbitrary, perverse, bad in law and without jurisdiction. 2. Under the facts and circumstances of the case and in law, Ld. CIT Exemption, Jaipur has erred in passing an Impugned Order without providing an adequate and effective opportunity of being heard and has also erred in recording factually incorrect and inconsistent findings against the records. 3. Under the facts and circumstances of the case and in law, the Ld. CIT Exemption, Jaipur has gross erred in law and facts in invoking jurisdiction u/s 12AB (4) of the Act without any reference received as required u/s 12AB(4)(b) as inserted by Finance Act 2022. 4. Under the facts and circumstances of the case and in law, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2020, the provisions of section 12AA were made inoperative from 01.04.2021, and section 12AB was added. Thus, the notice issued to assessee become null and void after the change in the provision of the Act and no order could have been passed. 3.3 Substantial changes were made through the amendment in cancellation and registration proceedings. Thereafter the provisions of section 12AB(4) & (5) again got substituted w.e.f. from 01.04.2022, by finance act, 2022. The ld. CIT(E) noted that there was no time barring for 12AA(3) cancellation cases, as well as 12AB(4) in pre amendment in law i.e. 01.04.2022, however, new provisions under section 12AB, the cancellation proceedings were more streamlined, the definition of specified violation was brought in to Act, and cancellation proceedings were made time barred within 6 months from the end of the quarter in which first notice under section 12AB(4) is issued. Language of section 12AB (5), further specified that first notice would be counted only for notices issued after 01.04.2022, as the time barring was first brought in w.e.f. 01.04.2022 only. 3.4 As discussed in earlier para that the proceedings for cancellation of registration of as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed to submit all details on 25.09.2023, and also to produce the persons with whom related transactions have been made. However, the assessee again chosen not to appear on 25.09.2023 and sent reply. There after assessee was called by the ld. CIT(E) office on 25.09.2023 & again on 26.09.2023 to submit complete reply and produce the persons as called for. The assessee has refused to give any further submission and refused to produce the persons and details. Further the valuation officer appointed as also issued letters to assessee for submission of details and allow to inspection of premise for the purpose of valuation, however, assessee has denied submitting any details to valuation officer and denied him the entry in to the premise. Further, assessee has also filed a writ petition to Rajasthan High Court, copy of which was received by this office on 29.09.2023 at about 5 PM, where in it has asked the Hon'ble court to stay these proceedings under section 12AB, and restraining the DVO from valuation. This clearly shows that assessee is in no mood of co-operation and not willing to submit any further details and compliance, as the matter is time barred on 30.09.2023, and lots of o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... only and not out of the violation of the trust activities. The activities of the Trust are in the nature of trade and commerce and cater solely to the profit motive of trust. Further, it has been noted by A.O. that during the course of assessment proceedings that the assessee trust has advanced Rs. 2.25 crore to the persons covered u/s 13(3) of the I.T. Act. 3.9 During the course of assessment proceedings the assessee claimed that these advances are against the sale of property which is in the name of Shri Vivek Agarwal and his family members. As per copy of agreement filed the said property situated at 16, Shree Gopal Nagar Near Mahesh Nagar Police Station, Gopalpura Bye Pass, Jaipur in the name of Shri Vivek Agarwal and his family members. The AO has held that no evidence was filed to support that the property is in the names of above mentioned 5 persons including one company. In the agreement, any amount of advance given or not has not been mentioned. Further as per copy of ledger account of Shri Vivek Agarwal in the books of the Trust it had seen that it is a current account, and many transactions took place during the year with the closing balance of Rs. 1,27,29,774/-. Appare ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntal activities under 1(4A) and held that only the activities which are necessary for carrying out assesses objects. Para 59, 72, 73, 74 of that order is reproduced as under:- x x x x The above logic and reasoning though given in context of education, clearly provide the light on case of assessee, that if assessee would have been selling the products produced during the garbage collection, same may be considered incidental, but is assessee is taking contract and doing work of an vendor for government or any other organisation, same can never be consider its incidental activity, it is its main activity. Further, as clear from the word incidental, it is clear that magnitude of resources devoted by assessee to incidental activity cant be even higher than devoted toward its main objects. It is important to mention here that Hon'ble supreme court in above case hasn't considered even selling books to other that's its students as incidental activity. Even otherwise for anything being incidental, there has to be some charitable activity. However, in case of assessee, there is no incidental activity but it is the main activity. Thus it is clear that assessee business do not f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cipation. I am afraid that if giving job to people is construed as community participation, would make every trust deed shattered. Thus, in light of above discussion it is clear that assessee is not only doing the business but also carrying out these activities beyond the objects of trusts, and authority of trustee. This make the trust as non-genuine too. 7.13 The similar issue as taking contract from government or taking subcontract from other person who have taken contract from government can be considered as charitable activities has been dealt in case CIT vs Annadan trust (2018) 258 Taxman 54 (kerala), the Hon'ble High Court of Kerala, where assessee was supplying mid day meal on contract. While dealing this case, Hon'ble Court has clearly held that such activities are purely business and cannot be considered charitable. Infact, Hon'ble Court has also stated that as assessee was getting the tender receipts, which was also the beyond objects of trusts.: x x x x Similar issue is also involved before Hon'ble ITAT, Jaipur in the case of M/s Eternal Foundation vs. CIT(Exemption), Jaipur in ITA No. 1504 & 1505/JP/2018 wherein the Hon'ble Tribunal has observed as un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... porting documents it is not established that these expenses were incurred in execution of contract work. Mere filing copy of payment sheet which has no authenticity does not discharge the assessee's onus of establishing the genuineness of these expenses. 8.4 Further the assessee was executing work in metropolitan cities having easy access to banking sector. There is no valid reason for making such huge payments in cash to these volunteers. Even if the argument is taken that these volunteers usually belong to lower economic strata of society having no access to banks, considering that the assessee trust is claiming to be involved in charitable activities it ought to have opened bank accounts of these staff members for their benefit in the long run. 8.5 However no such steps were taken by the assessee trust since its intention was to siphon off the funds under the garb of Pocket Expenses for volunteers. Thus, these cash expenses without documentary evidence remains unexplained and are non-genuine in nature. Further this infringement tantamount to income of the trust been applied by the assessee trust other than for the objects of the trust and thus is in violation of objects ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -genuineness of activities. And in most cases, it has been held by various courts, that doing any illegal activity and violating any law always, doing business, making use of money of trust for personal purpose, not maintain proper accounts comer under the purview of non-genuineness of activities. Hon'ble ITAT Jaipur bench in case of NIMS University in ITA no. 736/JP/2017 & ITA No. 545/JP/2018 has taken following activities as non-genuine:- • activities are not legal as it has caused some infringement of law. • accounts are not properly maintained or the receipts are not accounted for in the books of accounts. • the trust/society is not registered with competent authority. • it has caused some misrepresentation of facts before any authority. • it has given undue benefits to the trustees or office bearers. • it is selling education. Thus, all the above issues as discussed in earlier paras are also part of non- genuineness of activities. 10. Another general point raised by assessee in its various replies is that, assessee is a charitable institution, registered under Rajasthan public trust act, thus any income even coming from business ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the ld. CIT(Exemption), the assessee has preferred this appeal on the grounds as reiterated here in above. To support the various grounds so raised by the assessee the ld. AR appearing on behalf of the assessee has placed their written submission which is extracted in below; 1. With reference to the hearing held on 21.11.2023 where Hon'ble members asked to submit the written submission on the legal issue involved in the captioned case. In this regard, Appellant hereby submits as under: Key Prospective Amendments in the Law by Finance Act 2021 2. It is important to note that key changes were made in Finance Act, 2021 and Taxation and Other Law (Relaxation and Amendment of Certain Provision) Act, 2020. One of key changes was that every trust or institution registered under section 12AA of the Act required to re-register itself before the specified dates provided u/s 12A(1)(ac) of the Act and sunset clause has been inserted under section 12AA(5) w.e.f. 01.04.2021 and new section 12AB has been inserted. A. Key Prospective Amendments in the Law by Finance Act 2022 3. Finance Act, 2022 introduced new section for taxing the benefits provided to related persons will be treated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... more specified violations have taken place; (iii) pass an order in writing, refusing to cancel the registration of such trust or institution, if he is not satisfied about the occurrence of one or more specified violations; (iv) forward a copy of the order under clause (ii) or clause (iii), as the case may be, to the Assessing Officer and such trust or institution. Explanation.--For the purposes of this sub-section, the following shall mean "specified violation",-- (a) where any income derived from property held under trust, wholly or in part for charitable or religious purposes, has been applied, other than for the objects of the trust or institution; or (b) the trust or institution has income from profits and gains of business which is not incidental to the attainment of its objectives or separate books of account are not maintained by such trust or institution in respect of the business which is incidental to the attainment of its objectives; or (c) the trust or institution has applied any part of its income from the property held under a trust for private religious purposes, which does not enure for the benefit of the public; or (d) the trust or institut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tution referred to in sub-clause (vi) or any hospital or other medical institution referred to in sub-clause (via), of clause (23C) of section 10, or any trust or institution referred to in section 11, has committed any specified violation as defined in Explanation 2 to the fifteenth proviso to clause (23C) of section 10 or the Explanation to sub-section (4) of section 12AB, as the case may be, he shall-- (a) send a reference to the Principal Commissioner or Commissioner to withdraw the approval or registration, as the case may be; and (b) no order making an assessment of the total income or loss of such fund or institution or trust or any university or other educational institution or any hospital or other medical institution shall be made by him without giving effect to the order passed by the Principal Commissioner or Commissioner under clause (ii) or clause (iii) of the fifteenth proviso to clause (23C) of section 10 or clause (ii) or clause (iii) of sub-section (4) of section 12AB: B. Impugned order is invalid and bad in law. 8. It is humbly submitted that the impugned order of cancellation of registration is invalid and is bad in law on various grounds, which grounds ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on factually incorrect and misconceived notions, which issues is already in appeal before the Ld. CIT(A). Needless to say, if the Assessee succeeds in the appeal, the very basis of the reference and further making the impugned order would be vitiated. It is a wholesome principal of law that once the outcome of pending proceeding has a bearing on the other, one authority should wait for the other to avoid multiplicity of proceedings. The reliance in this context, is placed on judgment of Hon'ble Apex Court in case of in Commissioner of Income-tax v. Bhupen Champak Lal Dalal[2001] 116 Taxman 746 (SC). c. No show cause notice issued for the specified violations: 14. It is accepted principle that a person proceeded against is required to be informed about the exact nature of charges leveled against him. The medium to inform about the nature of charges is issuance of show cause notice. The importance of a show cause notice has been reiterated by Supreme Court in case of Umanath Pandey v. State of UP [2009] 12 SCC 40-43 as under: "Notice is the first limb of this principle. It must be precise and unambiguous. It should appraise the party determinatively the case he has to meet. Ti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t w.e.f. 01.04.2022 and would accordingly apply prospectively being penal provision and having very harsh consequences. However, the Ld. CIT(E) in the Impugned Order has cancelled the registration of the Assessee retrospectively w.e.f. AY 2017-18 without any basis and without authority of law. In AY 2017-18, there were no such conditions of specified violations in the law, therefore, Assessee cannot be penalized by reason of the amendment to the law effected subsequently. 19. To support the above contention, reliance placed on judgment by Hon'ble Madras High Court in the case of CIT v. Kumudam Endowments [2001] 117 Taxman 716 (Mad.) held that: It is well settled law that a person, who has complied with the law as it exists, cannot be penalized by reason of the amendment to the law effected subsequently, unless such intention is expressly stated and the imposition of such penalty is not contrary to any of the provisions of the Constitution. The argument that the assessee should be denied the exemption for the earlier AY when it had not contravened the law, because it had been found to have contravened the law in subsequent AY cannot be accepted. It is assessment year with whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oduced herein for ready reference: Finance Act, 2022 has inserted sub-section (4) in section 12AB of the Income-tax Act, 1961 (the Act) allowing the Principal Commissioner or Commissioner of Income-tax to examine if there is any "specified violation" by the trust or institution registered or provisionally registered under the relevant clauses of sub-section (1) of section 12AB or subsection (1) of section 12AA. Subsequent to examination by the Principal Commissioner or Commissioner of Income-tax, an order is required to be passed for either cancellation of the registration or refusal to cancel the registration. Similar provisions have also been introduced in clause (23C) of section 10 of the Act by substituting the fifteenth proviso of the said clause with respect to fund or institution trust or institution or any university or other educational institution or any hospital or other medical institution referred under sub-clauses (iv), (v), (vi), (via) of this clause and which have been approved or provisionally approved under the second proviso to the said clause. These amendments are effective from 1st April, 2022. In addition to the specified violations referred above, the power o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) of explanation to section 12AB(4). iii. Ld. CIT(E) has also invoked clause (e) of explanation to section 12AB(4). 26. However, none of the events or alleged violation of diversion of funds as alleged by Ld. CIT(E), Jaipur falls under specified violations as defined under explanation to section 12AB(4) of the Act, which is prospective in nature as explained herein above. Further, there is also no finding in the impugned order that the alleged violation is related to events occurring on or after 01.04.2022 without prejudice to fact that no show cause notice for alleged violation was given in the impugned proceedings. f. Law does not provide power to cancel the registration granted u/s 12A(a) of the Act. 27. As per section 12AB(4) of the Act, the registration granted under: i. clause (a), (b) or (c) of section 12AB(1), or ii. clause (b) of section 12AA(1) of the Act, can be cancelled by the PCIT or CIT by passing an order in writing when condition specified under section 12AB(4) are fulfilled. However, in the present case, Ld. CIT-I, Jaipur has granted registration u/s 12A(a) of the Act w.e.f. 06.08.2001 (refer page no. 1 of PB). It is submitted that law does not provide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1 (PB No. 190-199), the activities of the Assessee have been considered as charitable in nature considering the CBDT own circular NO. 11/2008 dated 19.12.2008, which has not been appreciated by the LD. AO while making impugned assessment for AY 2017-18. The decision of the LD. AO which is pending in appeal is per incuriam without considering the decision of Hon'ble ITAT itself and CBDT own circulars. h. No power of cancellation u/s 12AB(4)(b)(i) of the Act 34. Without prejudice to contentions raised herein above, it is humbly submitted that Ld. CIT(E), Jaipur has passed the Impugned Order u/s 12AB(4)(b)(i) of the Act, which power has not been given under the said clause (i) of the said Section. Thus, on this ground also, impugned Order is not tenable. 35. In view of the foregoing submission as explained herein above, it is humbly submitted that Impugned Order passed by Ld. CIT(E), Jaipur is without jurisdiction, arbitrary, perverse, without authority of law, bad in law and thus deserves to be quashed. 36. The Humble Appellant is available for further information/clarifications, if any required for adjudication of appeal on the very issue of maintainability of Impugned Order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovision cures the defect of non-service or improper service of the notice/summon during the proceedings of assessment or reassessment, if the assessee has appeared in the proceeding or cooperated in any inquiry relating to assessment or reassessment. The relevant portion of the said Section is reproduced herein for ready reference: Notice deemed to be valid in certain circumstances. 292BB. Where an assessee has appeared in any proceeding or co-operated in any inquiry relating to an assessment or reassessment, it shall be deemed that any notice under any provision of this Act, which is required to be served upon him, has been duly served upon him in time in accordance with the provisions of this Act and such assessee shall be precluded from taking any objection in any proceeding or inquiry under this Act that the notice was-- (a) not served upon him; or (b) not served upon him in time; or (c) served upon him in an improper manner: Provided that nothing contained in this section shall apply where the assessee has raised such objection before the completion of such assessment or reassessment. 5. The said section is not applicable in the present as the contentions raised ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... above, it is evident that the order passed without authority of law and beyond the power conferred under the law is no rescued by the provisions of Section 292B/292BB of the Act. Accordingly, the legal objections raised by the Appellant are valid and justified." 5. The ld. AR appearing on behalf of the assessee has also placed their another written submission which is extracted in below; 1. With reference to the hearing held on 06.03.2024 and our submission dated 11.12.2023, Appellant hereby further submits that, Ld. CIT(E) has argued in the open court on 06.03.2024 that Appellant Trust is engaged in business activities would cover under the clause (b) of specified violations as defined under explanation to Section 12AB(4) of the Act. 2. In this regard, it is humbly submitted that if any trust or institution has earned income from profit and gains of business, there is no such condition to invoke the proceeding of cancellation of registration in earlier regime. The said contention is also admitted by the Ld. CIT(E) in his submission dated 29.01.2024 in para 4(F) that this power was expressly not available but was built in by definition of charitable objects under 2(15) and sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of reply submitted on 30.09.2019 in response to notice issued u/s 142(1) of the Act. 49-50 12. Copy of notice issued u/s 142(1) dated 08.11.2019 51-56 13. Copy of reply submitted on 15.11.2019 in response to notice issued u/s 142(1) of the Act. 57-63 14. Copy of assessment order dated 29.11.2019 for AY 2017-18 64-76 15. Copy of appeal memo against the order dated 29.11.2019 77-79 16. Copy of notice issued u/s 12AA(3) of the Act dated 12.10.2020 80-83 17. Copy of form no. 10A submitted on 12.08.2021 84-87 18. Copy of registration certificate in form no. 10AC dated 23.09.2021 u/s 12A(1)(ac)(i) of the Act 88-90 19. Copy of registration certificate in form no. 10AC dated 28.02.2023 u/s 80G(5) of the Act 91-92 20. Copy of notice issued u/s 12AB(4)(b)(i) of the Act dated 03.03.2023 93-98 21. Copy of reply submitted on 08.03.2023 in response to notice dated 03.03.2023 99-112 22. Copy of notice issued u/s 12AB(4)(b)(i) of the Act dated 21.03.2023 113-114 23. Copy of reply submitted on 28.03.2023 in response to notice dated 21.03.2023 115-132 24. Copy of notice issued u/s 12AB(4)(b)(i) of the Act dated 17.08.2023 133-136 25. Copy of reply submitted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the power of cancellation has also been granted under sub-rule (5) of rule 17A and sub-rule (5) of rule 2C of the Income-tax Rules, 1962 ( the Rules) to the Principal Commissioner or Commissioner authorised by the Board. This Circular only relates to cancellation of registration/approval or provisional registration/approval in the case of "specified violation" [Para 1] 1-9 2. Circular no. 21 of 2016 issued by CBDT With the introduction of Chapter XII-EB in the Act vide Finance Act, 2016 prescribing special provisions relating to tax on accreted income of certain trusts and institutions, cancellation of registration granted us 12AA may lead to a charitable institution getting hit by sub-section (3) of section 115TD and becoming liable to tax on accreted income. The cancellation of registration without justifiable reasons may, therefore, cause additional hardship to an assessee institution due to attraction of tax-liability on accreted income. The field authorities are, therefore, advised not to cancel the registration of a charitable institution granted u/s 12AA just because the proviso to section 2(15) comes into play. The process for cancellation of registration is to be ini ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erefore, the same cannot be held to be the commercial activities. Even otherwise, through Circular No. 21 of CBDT dated 27-11-2016, it has directed the field authorities not to cancel the registration of charitable institution already granted under section 12AA just because the provision to section 2(15) comes into play. The process for cancellation of registration to be initiated strictly in accordance with the provisions of section 12AA(3) and 12AA(4) after carefully examining the provisions.[Para 10] From the above it is found that there is no material placed to establish that the assessee is not carrying on the activities in accordance with the objects or the activities of the assessee are not genuine. The Chief Commissioner has cancelled the registration on presumptions and assumptions without having proper material. Therefore, the order of the Chief Commissioner passed under section 12AA(3) is cancelled and the registration granted to the assessee is restored. Accordingly, appeal of the assessee is allowed. [Para 10.1] 27-46 6. Rajasthan Gau Sewa Sangh v. ITO, Ward 6(2), Jaipur [2015] 55 taxmann.com 465 (Jaipur-Trib.) The arguments of the assessee about the legislative ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the PCIT retrospectively from AY 2016-17 is not tenable. [Para 9] 59-73 9. Auro Lab. V. ITO, Ward-II(4), Range-II, Madurai [2019] 102 taxmann.com 225 (Madras) On the second question as to whether the cancellation will operate from a retrospective date, it was held that the amendment to section 12AA(3) is prospective and not retrospective in character. The courts reasoned that even when the parliament had plenary powers to enact retrospective legislation in matters of taxation, the amended section is not seen to have explicitly provided to have a retrospective character or intend. Therefore, without a specific mention of the amended provisions to operate retrospectively, the cancellation can not operate from a past date. [Para 20] 74-84 10. Indian Medical Trust v. PCIT, Jaipur [2019] 108 taxmann.com 93 (Rajasthan) Thus, it is more than clear that section 12AA(3), doesn't suggest or in any way contemplate that the registration of the assessee may be cancelled with retrospective effect. And therefore, this Court is of the view that the cancellation of registration can only be prospective. [Para 29] 85-114 SURPLUS IS NOT GROUND TO CHALLENGE GENUINENESS OF ACTIVITIES 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... set aside and he is directed to grant registration under section 12AA and approval under section 80G(5) to the assessee-society. [Para 17] 120-132 BENEFITS TO TRUSTEES IS NOT GROUND FOR CANCELLATION 13. Tamil Nadu Cricket Association v. DIT(Exemptions) [2013] 40 taxmann.com 250 (Madras) Thus in contract to section 12AA(1)(b), where the grant of registration requires satisfaction about the objects of the trust as well as genuineness of the activities, for the cancellation of the registration under section 12AA(3), all that is insisted upon is the satisfaction as to whether the activities of the trust or institution are genuine or not and whether the activities are being carried on in accordance with the objects of the trust. Thus even if the trust is genuine one, i.e., the objects are genuine, if the activities are not genuine and the same not being carried on in accordance with the objects of the trust, this will offer a good ground for cancellation of registration. Thus in every case grant of registration as well as cancellation of registration rests on the satisfaction of the Commissioner on findings given on the parameters given in section 12AA(1) and 12AA(3), as the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pugned order of the Commissioner passed under section 12AA(3) is nothing but a review of its earlier order which is impermissible in law.[Para 8.10] 157-173 15. CIT, Karnataka (Central) v. Islamic Academy of Education [2015] 54 taxmann.com 255 (Karnataka) In the instant case, the material on record shows that the trust has established educational institution and imparting medical education. Every year, students are admitted. Hugeinvestment is made for construction of buildings for housing the college, hostel and to provide other facilities to the students who are studying in the college. The college is recognized by the Medical Council of India, State of Karnataka and all other statutory authorities. Therefore, it cannot be said that the trust is not genuine. Admittedly, the students are being admitted every year. Students are studying in all courses. Thus the object of the constitution of the trust namely imparting of education is going on uninterruptedly. Therefore, it cannot be said that the activities of the trust are not being carried out in accordance with the objects of the trust. When the aforesaid two conditions are fully satisfied, on the ground that the trustees are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion to the voluminous submissions and decisions so filed has also argued that the present cancellation proceeding is based on the earlier reference made by the ld. AO. The same has been not operational the consequential process undertaken on that basis and the law being not retrospective the action of the ld. CIT(E) lacs jurisdiction and therefore, the order passed is required to be quashed. To support this view the ld. AR of the assessee relied on the decision of the co-ordinate bench of ITAT Bangalore bench in the case of Amala Jyothi Vidya Kendra Trust Vs. PCIT(Central). In that case it has been held that the action of the PCIT cancelling the registration with retrospective effect is invalid as the change in the law came in the statue by the Finance Act, 2022 only. The ld. AR of the assessee also submitted that the present order is based on the notice issued dated 03.03.2023 (APB-93-98) wherein the allegation was in two part first is that the assessee is in receipt of the money on which TDS u/s. 194C of the act were received as contract receipts for removal of solid waste and the same was considered as violative of provision of section 2(15) of the Act. The second part of the no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the co-ordinate bench held that there is no justification in the cancellation of registration by the ld. CIT and that was set aside by the bench vide order dated 22.08.2013. Even after the judgment of the apex court in the case of AUDA if the trust is carrying out the commercial activity and the margin are below 20 % the same cannot be considered as commercial activity as held by the court. As regards the alleged benefit given to the trustees, the ld. AR of the assessee referred the provision of section 115BBI and provision of section 271AAE of the Act which deal this situation of specified income as alleged by the ld. CIT(E). Thus, on the aspect of the matter the reasons advanced for cancellation of the registration is not favoring to the revenue. But in fact, favors to the assessee that in such situation the registration of the trust does not warrant the cancellation of the same, but may warrant the penalty or higher rate of tax on such income. The ld. AR of the assessee also vehemently and repeatedly argued that the reference was made by the ld. AO which is based on the old law, this fact is undisputed by recorded in the order of the ld. CIT(E). Again making those objections, m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted. This itself suggests that the allegation made by the ld. CIT(E) has already been accepted in a faceless regime having conducted a detailed enquiry and investigation and then the claim of the assessee was completed. The law subsequent to the reference has changed and the ld. CIT(E) already accepted this facts and presently no reference from the ld.AO on any of the issue assuming jurisdiction is under question and the reasoning advanced for passing the order is under old provision and even subsequently on both the issue after reference order is passed accepting the issues raised in the subsequent assessment proceeding in A. Y. 2020-21 (APB-190-199). The issue of advances given to the related parties are given earlier. The question of charging interest can be looked into at this stage based on the provision of section 115BBI & 271AAE, in fact same has already been considered in the subsequent assessment year for A. Y. 2020-21. In that assessment year the benefit of the registration was given even though the case was selected under CASS for those two aspect which the ld. CIT(E) had undertaken. The transaction with the related parties has thus been given again a detailed investigat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g but the business of the assessee and therefore, the assessee is not covered as charitable organization. The assessee has given a substantial amount of fund as an advance to the specified persons / related parties which are lying as interest free and the alleged transaction of the land is yet not executed. Thus, there is clear violation of the provision of section 13(3) of the Act. The assessee has not rendered any charitable activity but by way participation in tender they are doing the business activity. Referring to the Municipal Solid Wastes (Management and Handling) Rules, 2000 submitted by the ld. AR of the assessee, the ld. DR invited attention to page 16 of that rules which provide the standard for doing the waste management thus, this process is nothing but the commercial activity and not the business activity undertaken by the assessee. The activity is thus a business activity and not a charitable activity of the trust as the same is done with a motive of earning profit and there is no element of the charitable activity. The assessee as participated in the tender has to qualify for technical bidding and financial bidding. Not only that they are participating with the oth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ender and does the business. Charitable and business activity needs to be seen based on the overall perspective. Here in this case the assessee do not undertake any charitable activity. The object clause of the trust do not provide to participate in tender by paying fees. Even the payment of fees for tender is not the expenditure for the object of the trust. The ld. CIT(E) has while arriving at the conclusion has also relied on the decision of the Jaipur bench in the case of Eternal Foundation Vs. CIT(E) wherein that decision of Annadan Trust (Supra) followed. The assessee has mispresented the facts and there is no property held under trust and the condition precedent prescribed u/s. 11(1) are not complied. Section 11(1)(a) say that there income derived from the property held under trust, (b) says coming from the accumulated part of the property held in trust & (c) says income from the property held expended for the welfare of the society. Thus, in the activity done by the assessee none of the condition is prescribed being satisfied the benefit cannot be given to the trust as all the activities of the trust are coming under the heard of profit and gains of business or profession. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... "1. With Reference to hearing held on 21.11.2023, and the submission of assessee dated Nil and dated 11.12.2023, defendant hereby submitting rebuttal of assessee's arguments as under:- 2. No comments on para 2 to 5, as they are matter of fact. 3. In para 6, assessee has tried to argue that in pre 2022, cancellation of registration can be invoked only in case where activities of such trust or institution are not genuine or not being carried in accordance with the objects of trusts or institution, is misinterpretation of provisions of statue and is not correct position of law. As being discussed in para 4 (below), power of cancellation of registration was also available with CIT for forfeiture of income under section 13(1) by virtue of 12AA(4) w.e. f from 01.10.2014, and additionally on account non-compliance of any other law by virtue of section 12AA(4)(b) w.e.f 01.09.2019. Thus if we see, for the period of A.Y 2017-18, Act was having 6 cases for cancellation of registration under section 12A, two by virtue of 12AA(3) and 4 by virtue of 12AA(4) r.ws 13(1). And these 6 become 7 w.e.f 01.09.2019. 4. For the sake of brevity and clarity, it is being cleared that though section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tand its impact correctly, it is also important to read section 13(1) of Income Tax act as stood in 2014 (though there is no change in this section till 01.04.23, where in some extra words were added, which have not been used as the period in this case precedes that part). Same is reproduced as under: "13. (1) Nothing contained in section 11 or section 12 shall operate so as to exclude from the total income of the previous year of the person in receipt thereof-- (a) any part of the income from the property held under a trust for private religious purposes which does not enure for the benefit of the public; (b) in the case of a trust for charitable purposes or a charitable institution created or established after the commencement of this Act, any income thereof if the trust or institution is created or established for the benefit of any particular religious community or caste; (bb) [***] (c) in the case of a trust for charitable or religious purposes or a charitable or religious institution, any income thereof-- (i) if such trust or institution has been created or established after the commencement of this Act and under the terms of the trust or the rules governing the i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of such deposits or investments referred to in sub-clauses (i), (ii) and (iii)]: Provided that nothing in this clause shall apply in relation to-- (i) any assets held by the trust or institution where such assets form part of the corpus of the trust or institution as on the 1st day of June, 1973; (ia) any accretion to the shares, forming part of the corpus mentioned in clause (i), by way of bonus shares allotted to the trust or institution; (ii) any assets (being debentures issued by, or on behalf of, any company or corporation) acquired by the trust or institution before the 1st day of March, 1983; (iia) any asset, not being an investment or deposit in any of the forms or modes specified in sub-section (5) of section 11, where such asset is not held by the trust or institution, otherwise than in any of the forms or modes specified in sub-section (5) of section 11, after the expiry of one year from the end of the previous year in which such asset is acquired or the 31st day of March, 1993, whichever is later; (iii) any funds representing the profits and gains of business, being profits and gains of any previous year relevant to the assessment year commencing on the 1st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cree by whatever name called holding such non-compliance has occurred and has either not been disputed or attained finality. So from 01.04.2019 onward, CIT can cancel/withdraw the registration on any of the 7 grounds:- So from 01.10.2019 CIT was empowered to carry out cancellation if I. The activities of such trust/institution are not genuine. II. Activities are not in accordance with the objects of trust or institution. III. Any part of income or property held for private religious purpose. IV Any income of property is applied for benefit of religious caste or community. V. Any part of trust or property is misused or applied for direct or indirect benefit of management or their relatives as specified in section 13(3) VI. If funds of trusts or income were invested for modes other than 11(5). VII. Non-compliance of any other law attained finality. E. Than by Finance Act, 2020, w.e.f from 01.04.2021, 12AA(5) was added by which provisions of 12AA including 12AA(3) & (4) were made inoperative and new provisions were enacted in name of 12AB. Where in 12AB(4) 12AB(5) has dealt with cancellation. 12AB(4), was analogous to section 12AA(3), and 12AB(5) was analogous to 12AA( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w.s 13(1)(b) (e) any activity being carried out by the trust or institution,- (i) is not genuine; or (ii) is not being carried out in accordance with all or any of the conditions subject to which it was registered; or Verbatim Language of 12AA(3) (f) the trust or institution has not complied with the requirement of any other law, as referred to in item (B) of sub-clause (1) of clause (b) of sub- section (1), and the order, direction or decree, by whatever name called. holding that such non-compliance has occurred, has either not been disputed or has attained finality Verbatim Language of 12AA(4)(b) Thus if we see, that vide finance act 2022, though there are substantial changes in language of act, and the procedure, the conditions and powers of CIT regarding cancellation remain same. This fact that these changes are procedural and mainly for rationalisation of provisions also clear from the circular number 23 of 2022, explaining the changes made by finance act 2022. 5. Thus, the argument of assessee in para 6 is invalid and based on wrong interpretation, and prior to 12A8 too, by virtue of section 12AA(3) and 12AA(4) CIT was empower to cancel registration on seven differe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) Assessee generating huge surplus from its activities and no charitable expenses beyond the fulfilment of contracts are done. (para 7.10 & para 10) Detail discussion on each of these issues has been made in order, some of the important paras have been highlighted also. These issues comes under specified violation namely clause (a), (b), (e) of explanation to section 12AB(4), as well as violation of 12AA(3) & 12AA(4) (the earlier clause, mainly clause 1, II, V & VI as discussed in above para 30. Thus on these violation, assessee's registration is liable to cancel under the provisions of cancellation as stood in F.Y. 2016-17, and even now under the new provisions. 8. Contents in 9 to 12 are partly correct. The Assessee in its argument has stated that in this case assessee's registration has been granted under 12AB only on 23.09.2021, and there is no subsequent reference, this registration and registration earlier granted in 12AA cannot be withdrawn, is misrepresentation of law by assessee. In this regard, it is important to reproduced the 12AB(4) (which has also been produced by assessee.:- 12AB(4) Where registration or provisional registration of a trust or an institution ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ished after the commencement of this Act, has applied any part of its income for the benefit of any particular religious community or caste; or (e) any activity being carried out by the trust or institution,-- (i) is not genuine; or (ii) is not being carried out in accordance with all or any of the conditions subject to which it was registered; or (f) the trust or institution has not complied with the requirement of any other law, as referred to in item (B) of sub-clause (i) of clause (b) of sub-section (1), and the order, direction or decree, by whatever name called, holding that such non-compliance has occurred, has either not been disputed or has attained finality 70[; or] 71 [(g) the application referred to in clause (ac) of sub-section (1) of section 12A is not complete or it contains false or incorrect information.] (5) The order under clause (ii) or clause (iii) of sub-section (4), as the case may be, shall be passed before the expiry of a period of six months, calculated from the end of the quarter in which the first notice is issued by the Principal Commissioner or Commissioner, on or after the 1st day of April, 2022, calling for any document or information, or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat CIT is neither supposed to wait for finality of an issue, nor even he is bound by enquiries made A.O., Infact it is prescribed that he shall call for information from assessee or make such enquiry as deemed fit, so to satisfy himself about occurrence of specified violation. Thus when 12AB empower CIT to suo motto assume jurisdiction, and even assume jurisdiction based on RMS, where no specified violation would be available at that time, or based on A.O. report, and once jurisdiction is assumed, he shall conduct independent enquiry as deemed fit and finally has to satisfy himself about occurrences of violation or non-occurrence of violation, and than pass order according either cancelling registration or denying the cancellation. 10. In para 14 to 17. Assessee has pleaded that no show cause notice was issued for specified violations. This argument of assessee is invalid on fact as well as law. First of all we will go on facts, in this case, detail notice was issued to assessee on date 03.03 2023, 21.03 2023 and 17.08.2023, copies enclosed as Annexure-B-1. B-2 and B-3, in which it was clarified to assessee What i. Assessee is doing business in garb of charitable activities ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 13(3). If funds of trusts or income were invested for modes other than 11(5). • Thus in case of assessee, cancellation is valid, prospectively effected from the date of violation only, and is based on the conditions available in statue in that concerned year. This fact has also been noticed in para 11 & 12 of assessment order. 12. In para 24 to 26, assessee has stated that it hasn't made any specified violation from 01.04 2022 onward is not to be commented, as same has not been examined 13. n para 27 to 30, AR has submitted that it was granted registration under 12A(a) w.e.f from 06.08.2001 thus can't be cancelled. This fact is factually incorrect, as section 12A(1)(a) only only about the applications to be made, and in year 2001 also, registration were granted in 12AA only, which is in statue from 01.04.1997 itself. It seems like that 12AA has been typed as 12A(a). 14. In para 31 to 33, AR has stated that in assessee's own case, Id CIT(E) withdrew the registration w.e.f. 2009-10 onward, which was restored tribunal vide order dated 22.08.2013, thus his case if covered by that order. In this regard, it being clarified that earlier withdrawal was made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made or issued or taken or purported to have been furnished or made or issued or taken in pursuance of any of the provisions of this Act shall be invalid or shall be deemed to be invalid merely by reason of any mistake, defect or omission in such return of income, assessment, notice, summons or other proceeding if such return of income, assessment, notice, summons or other proceeding is in substance and effect in conformity with or according to the intent and purpose of this Act.] This section which has been visited by various Hon'ble High Courts and Hon'ble Apex court has held that is any notice of order in substance is justified in the spirit of act, same cannot be quashed on ground of technicalities. Reliance is placed on decision of Hon'ble Apex Court in case of Sky Light Hospitality LLP vs ACIT 405 ITR 12 (SC). In instant case, the contents of notice as well as order are amply clear that assessee has violation the basic conditions, which makes its case liable for cancellation under section 12AB, once this is clear, the addition of two extra parts (b)(i) are immaterial. It is also to be understood that in instant case, if conditions of cancellation remain valid a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ration and therefore, the same again cannot be cancelled by the ld. CIT(E). 11. We have heard the rival contentions and perused the material placed on record. The grounds / issues raised by the assessee in this case relates to the question as to whether the ld.CIT(E) is under mandatory obligation to cancel the registration u/s 12AA to the Trust which was already granted earlier, consequent upon amendment to the Act or not.The bench noted that the apple of discord for the proceeding under question arose as the ld. AO made proposal based on the assessment proceeding conducted in A. Y. 2017-18 that the assessee trust is not involved in charitable activity but involved in carrying out contract work for various municipal corporations and major part of the receipt comes from those activities. In execution of these contract the assessee also execute sub-contract. The assessee claimed in that proceeding that they are engaged in the preservation and protection of environment but in fact the assessee is doing the commercial activity and thereby doing the activity with profit motive. Further the ld. AO also noted that the assessee trust has advanced a sum of Rs. 2.25 cr., to the persons spec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the purpose of assessment whereby the assessing Officer upon finding that the assessee's activities are in the nature of business or trade, could deny application of such income under section 11(1)(a)/12 of the Act, from year to year basis. We, therefore, do not find any justification in the cancelation of registration by the Ld. CIT which we hereby set aside and allow the ground raised in appeal." We further note that the appeal filed by the revenue against the order of the tribunal in respect of cancellation of registration u/s. 12AA has been dismissed by the Hon'ble Jurisdictional High Court and the copy of the order is placed in the paper book filed by the assessee. Thus, the rule of consistency should follow in favor of the assessee. Even the circular of board no. 21/2016 direct the revenue officer "The cancellation of registration without justifiable reasons may, therefore, cause additional hardship to an assessee institution due to attraction of tax liability on accreted income. The field authorities are, therefore, advised not to cancel the registration of a charitable trust granted under section 12AA just because the provision of section 2(15) comes into play. The pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Thus, whatever observation or reasons discussed in the order of the ld. CIT(E) has no validity as the said issue is already becomes final. 12. As regards the other two violation whether the violation observed by the ld. CIT(E) is sufficient to cancel the registration of the trust which has already been granted and the issue raised were also part of the proceeding in past based on the reference made by the ld.AO. As the arguments raised by both parties are duly recorded the same are considered and may not be repeated but will be discussed to the extent same is relevant to deal. We note that the grounds raised by the assessee are related to the cancellation of registration to the assessee trust and finding recorded in the order of ld. CIT(E) is challenged on all the facets by the assessee. As all the grounds are interconnected and related challenging the order of the ld. CIT(E) for cancellation of registration the same are dealt with in common. Before we proceed to deal with the dispute it would be necessary to reproduce the reasons advanced for cancellation of registration by the ld. CIT(E) here in below: 11. In view of the above facts, it is evident that the trust is not doing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rictive interpretation of the powers of the Commissioner under section 12AA, registration of such trusts or institutions continues to be in force and these institutions continue to enjoy the beneficial regime of exemption. Whereas under section 10(23C), which also allows similar benefits of exemption to a fund, Institution, University etc, the power of withdrawal of approval is vested with the prescribed authority if such authority is satisfied that such entity has not applied income or made investment in accordance with provisions of section 10(23C) or the activities of such entity are not genuine or are not being carried out in accordance with all or any of the conditions subject to which it was approved. Therefore, in order to rationalize the provisions relating to cancellation of registration of a trust, it was proposed to amend section 12AA of the Act to provide that where a trust or an institution has been granted registration, and subsequently it is noticed that its activities are being carried out in such a manner that, (i) its income does not ensure for the benefit of general public; (ii) it is for benefit of any particular religious community or caste (in case it is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cancellation of registration of the assessee trust or not. The Finance Act, 2021 and Taxation and Other Law (Relaxation and Amendment of Certain Provision) Act, 2020, one of key changes was that every trust or institution registered under section 12AA of the Act required to re-register itself before the specified dates provided u/s 12A(1)(ac) of the Act and sunset clause has been inserted under section 12AA(5) w.e.f. 01.04.2021 and new section 12AB has been inserted. Thereafter vide Finance Act, 2022 new section for taxing the benefits provided to related persons treated as "specified income" and will be subjected to be taxed at the rate of 30% without any deduction under the newly inserted section 115BBI and will also be liable for penalty u/s. 271AAE. Further, the provision of making reference by Assessing Officer to the Principal Commissioner or Commissioner to withdraw the registration of trust or institution referred u/s 11 of the Act, if any specified violation has been done by these trusts or institutions, were inserted recently. The said power has been inserted by substituting the 2nd proviso to section 143(3) of the Act w.e.f. 01.04.2022. Earlier, there was no power under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it has been show cause registration u/s 12AA/12AB should be withdrawn due to violation of section 2(15) of the Act (para 5 on page no. 94 of PB) and due to trust money being allegedly mis utilized by specified person as mentioned u/s 13(3) of the Act (Para 6 on page no. 96 of PB). However, in the impugned order, Ld. CIT(E), Jaipur has invoked clauses (a), (b) and (e) of specified violation as defined under explanation to section 12AB(4) of the Act (which applies prospectively). Therefore, we note that the action of the ld. CIT(E) cancelling the registration of the trust w.e.f. A. Y. 2017-18 is beyond the scope of the show cause notice as the conditions for cancellation of registration on account of specified violation, which were not specified earlier in the law, have been inserted under section 12AB(4) of the Act w.e.f. 01.04.2022 and would accordingly apply prospectively being penal provision and having very harsh consequences. Thus, the action of the ld. CIT(E) in the Impugned Order cancelling the registration of the Assessee retrospectively w.e.f. AY 2017-18 without any basis and without authority of the law as in AY 2017-18, there were no such conditions of specified violatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act by substituting the fifteenth proviso of the said clause with respect to fund or institution trust or institution or any university or other educational institution or any hospital or other medical institution referred under sub-clauses (iv), (v), (vi), (via) of this clause and which have been approved or provisionally approved under the second proviso to the said clause. These amendments are effective from 1st April, 2022. In addition to the specified violations referred above, the power of cancellation has also been granted under subrule (5) of rule 17A and sub-rule (5) of rule 2C of the Income-tax Rules, 1962 ( the Rules) to the Principal Commissioner or Commissioner authorised by the Board. This Circular only relates to cancellation of registration/approval or provisional registration/approval in the case of "specified violation". The relevant extracts of memorandum explaining the budget proposal are reproduced hereinunder: (I) Sub-section (4) of section 12AB of the Act is proposed to be substituted with a new sub-section (4) to provide that where registration or provisional registration of a trust or an institution has been granted under clause (a) or clause (b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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