9911796707
TMI Blog2024 (9) TMI 261X X X X Extracts X X X X X X X X Extracts X X X X ..... ts 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, (i) impugned notice u/s 12AB(4)(i) of the Act dated 03.03.2023 is invalid, bad in law and without jurisdiction. (ii) the Ld. CIT Exemption, Jaipur has grossly erred in conducting the enquiry u/s 12AB (4)(b)(i) of the Act without jurisdiction. the Ld. CIT Exemption, Jaipur has grossly erred in referring the matter to departmental valuation officer without authority under the law 5. Under the facts and circumstances of the case and in law, the Ld. CIT Exemption, Jaipur has erred in cancelling the registration granted u/s 12AA/12A and 12AB retrospectively w.e.f. AY 2017-18. 6. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 assessee u/s 12AA(3) had already lapsed without passing any order, and in the light of new amendments in the Act, to give effect to the proposal of A.O., fresh notice was to be issued to assessee under the new provisions of the Act. 3.5 Accordingly, notice u/s 12AB(4)(i) was issued to assessee on 03.03.2023 vide which an opportunity was granted to the assessee and thereby the assessee was asked to show cause as to why registration u/s. 12AA should not be cancelled. The date of the compliance was fixed on 15th March 2023. As per Post office consignment, the status for service of the n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se 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 opportunities have been given to assessee, the matter decided based on material available on record. 3.6 On examination of proposal of the Assessing Officer as well as details available on record, it has been noticed that the trust is registered u/s 12AA of the I.T. Act. 1961 w. e. f. 06.08.2001 vide registration no. 12A(A)/2001- 02/34/7/1327 dated 08.03.2002, and with the change of registration proceedings w.e.f. 01.04.2021, where in all the NPO, which were already registered with department before 31.03.2021, were need to re-apply under 12A(1)(ac)(i) in form 10A. Assessee re-applied in 10A on 12.08.2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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/-. Apparently, this is diversion of funds for the benefits of trustees which comes under purview of provisions of section 13(2)(a) and 13(2)(g) of the I.T. Act, 1961. The ld. AO has further observed in its proposal, that assessee has also made some more payments to the persons referred u/s 13(3) of the Act. Thus, after recording these facts in the order the ld. CIT(E), he cancelled the registration of the trust by observing as under : 7.10 Now the question arises that whether the activities of assessee for taking money from government that too through contracts with specific conditions can be considered chari ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty. 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 fall in any of these. It is also important to mention here that having profits and gain from business or profession, is part of specified violation defined by clause (b) of explanation below section 12AB(4). Which makes assessee liable for cancellation of registration. 7.12 Now the more important question comes that whether assessee is doing this activity as per its objects, or this entire process is beyond the objects of assessee. For this purpose, lets go through the objects of its trust deeds and powers of trustees. In the para 4 of trust deed assessee has given as many as 21 objects, which include ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 under:- x x x x It is clear that the tribunal has held that the activities which have been performed by the applicant society wherein the payments have been received at the instance of fulfilment of the conditions as laid down in MOUS & Agreement are business activities only and cannot be stated as charitable activity. 7.14 Thus, it is clear that as assessee is doing business in garb of charitable activities by taking money from government on contract is clearly an act of business and not charity and is also beyond the objects of trusts, thus this act of assessee makes him liable for cancellation of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 of the trust. 8.6 During proceedings, on going through financial statements of the F.Y. 2016-17 it was also observed that the assessee has debited Management salary amounting to Rs 2.69,52,000/- in its Income & Expenditure Account. 8.7 The assessee trust was asked to submit details with regard to this expense vide Notice dated 17.08.2023. The assessee submitted part details vide letter dated 25.09.2023. On going through assessee's submission it was noticed that out of total amount, Rs 2,26,32,000/- was paid in cash and just Rs 43,20,000/- was paid through banking channel. In support, the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oks 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 should not be treated otherwise, as assessee cannot use the same for purpose other than objects of trusts. Though it has been proved that assessee is siphoning of income for benefit of trustees, by booking various bogus expenses and by using the money of trust by taking the various advances. However, it is further cleared that Hon'ble Apex Court in three recent decision namely Ahmedabad developmental authority 143 taxman 278, New Nobel Education 143 taxman 246, and Baba Banda Bahadur Civil Appeal No. 10511 of 2013, had made remarkable change, where the theory of dominant objects and if profits are ploughed back than charitable has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xation 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 as "specified income" and will be subjected to following consequences: * Such income will be taxed at the rate of 30% without any deduction under the newly inserted section 115BBI. * Such specified income will be liable to penalty u/s. 271AAE. 4. As Finance Act 2021 and TOLA 2020 inserted section 12AB under the law and Finance Act 2022 substituted sub-section (4) of section 12AB w.e.f. 01.04.2022. As per newly amended Section 12AB(4) of the Act (which applies prospectively), where registration has been granted u/s 12AB (1) or 12AA(1)(b) of the Act, the said registration can be cancelled only if subsequent to the registration ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 institution established for charitable purpose created or established 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-com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r 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 are raised without prejudice to each other grounds, the said grounds are as follows: a. Assumption of jurisdiction on the basis of reference of the AO u/s 143(3) of the Act is bad in law. 9. In the present case, Ld. CIT(E), Jaipur has initiated the impugned proceedings of cancellation of registration based on the reference received from Ld. DCIT(E), Jaipur dated 06.02.2020 as evident from the Impugned Order itself i.e passed u/s 12AB(4)(b)(i) of the Act. 10. Admittedly, the said reference received is dated 06.02.2020 as evident from the first paragraph of the impugned Order. 11. As per Section 12AB(4) of the Act, reference has to be after granting of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 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 opportunity, the order passed becomes wholly vitiated. Thus, it is but essential that a party should be put on notice of the case before any adverse order is passed against him." 15. In the case of Biecco Lawrie Ltd v. State of West Bengal [2009] 10 SCC 32, the Supreme Court observed as under: "One of the essential ingredients of fair hearing is that a person should be served with a proper notice, i.e. a person has a right to notice. Notice should be clear and precise so as to meet and make an effective defence ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... led 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 which the assessment is concerned, and it is the eligibility of the assessee with reference to the law applicable in the year that is required to be looked into. 20. Reliance is also placed on judgment of Rajasthan High Court in the case of Indian Medical Trust v. PCIT [2019] 108 taxmann.com 93 (Rajasthan) where it has been held that: Indisputably, the order dated 16th Jan, 2018, made by the Commissioner of Income Tax thereby canceling the registration granted under section 12A and withdrawing the approval given under section 10 (23C) (v) & 10 (23A) (via) of the Act of 1961, to the petitioner Trust with retrospective effect from the date of 01st April, 2006, was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se (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 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 c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... istration 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 power to cancel the registration granted u/s 12A(a) of the Act, it is restricted to clause (a),(b) or (c) of Section 12AB(1) and clause (b) of Section 12AA(1) of the Act. 28. The Appellant was granted registration u/s 12A(a) of the Act and said registration intentionally have not been made part of section 12AB(4) of the Act by the law makers. Even otherwise, for the sake of argument, if it is considered to be an accidental omission in the law, then also, being the penal law, the said law requires to be interpreted strictly. 29. Even otherwise, new registration granted on 23.09.2021 as per new provisions applies for AY 2022-23 onwards and for the said AYs there is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 6. In addition to the above written submission, the ld. AR appearing on behalf of the assessee submitted a supplementary submission on legal issues: "SUPPLEMENTARY SUBMISSION ON LEGAL ISSUES INVOLVED IN THE APPEAL The humble Appellant prays for placing on records, it's further submission on legal issued involved in appeal in continuation of the submission filed earlier on 08.12.2023. It is prayed that the same may be read along with the written submission on legal issue involved in captioned case already submitted. i. Non-Applicability of provision of Section 292B and 292BB 1. The Ld. CIT(E) has contended the legal objections raised by the Appellant are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce 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 are relating to illegality of the Impugned Order as well as exercising power without authority of law and without jurisdiction. 6. In view of the above, the Ld. CIT(E) has wrongly contended that Appellant has participated in the proceedings therefore, it is precluded from raising objections as to the jurisdiction as well as power of the Ld. CIT(E). The Appellant has always raised its objection during the proceedings and even otherwise its participation through authorized representative was under protest only. Nonetheless it is to be noted that Ld. CIT(E) in its Impugned Order has alleged that Appellant has been non-cooperative and/or failed to produce the details/inf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 section 11(4) and section 11(4A), which prohibits any business for trust. The relevant extracts of the said para 4(F) of submission of Ld. CIT(E) is reproduced: 3. Appellant hereby submits that cancellation of registration is being penal provisions, then law has to specifically provide for the same. Cancellation being the harsh provision, specific provision is required, and Ld. CIT(E) could not have assumed the power not conferred by the law. 4. As already submitted in the earlier submission of Appellant that the activities of Appellant Trust are per se charitable and not involved in any kind of business activities. It is also submitted that the provisions of section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 on 25.08.2023 in response to notice dated 17.08.2023 137-153 26. Copy of notice issued u/s 12AB(4)(b)(i) of the Act dated 11.09.2023 issued in case of Shri Vivek Agarwal 154-158 27. Copy of reply submitted on 12.09.2023 and 18.09.2023 in response to notice dated 11.09.2023 by Shri Vivek Agarwal 159-165 28. Copy of order passed for appointment of officer for conducting enquiry dated 15.09.2023. 166-167 29. Copy of replies submitted on 25.09.2023 in response to notice dated 17.08.2023 168-182 30. Copy of ITAT orders for AY 2010-11 and 2014-15 183-189 31. Copy of assessment order dated 12.09.2022 for AY 2020-21. 190-199 32. Copy of sale agreement of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 initiated strictly in accordangs with section 12AA(3) and 12AA(4) after carefully examining the applicability of these provisions. [Para 5] 10-11 GROUNDS FOR CANCELLATION OF REGISTRATION 3. CIT, CC v. A.S. Kupparaju Brothers Charitable Foundation Trust [2012] 17 taxmann.com 242 (Kar.) In deciding the genuineness of the trust what is to be seen is whether in terms of the objects set out in the trust deed whether the trust is carrying on its activities or not. If in the process of carrying on the trust activities, there is any misapplication of the property, misappropriation of funds that would not render the trust itself as no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see 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 scheme of provisions with regard to registration of trust under section 12AA, meaning of charitable object and power of withdrawal of registration under section 12AA(3) have some merit. The conclusion of order of the Commissioner in withdrawing the registration did not appear to conform to the specific conditions laid down in section 12AA(3). An order withdrawing the registration of trust is a drastic action and the law provides a statutory mechanism of assessment, verification of trust activities, and apportionment of income and expenditure of various activities of the trust. Benef ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 11. Make the Future of Country Educational Society v. Ld. CIT, Rohtak [2012] 20 taxmann.com 586 (Delhi) From perusal of the order passed by the Commissioner, it nowhere reveals that which object is not charitable and how it is not charitable. Similarly, it is not ascertainable as to how the activities of the assessee are not genuine. The Assistant Commissioner has recommended for grant of registration to the assessee. The only reason assigned by the Joint Commissioner is that in assessment year 2008-09, society has shown surplus at 21 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 may be. [Para 32] The revenue placed heavy reliance on the proviso to section 12AA(3) and submitted that when the assessee has received income from conduct of the matches, which are commercial in nature, the objects of the trust ceased to be charitable. It submitted that going by the definition of 'charitable purpose' under section 2(15) the Commissioner had rightly assumed jurisdiction under section 12AA(3) to cancel the registration. It further pointed out that for the finding to be recorded that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 misappropriating the funds of the trust the registration of the trust cannot be cancelled. If the trustees are misappropriating the funds, if they are maintaining false accounts, it is open to the authorities to deny the benefit under section 11, but that is not a ground for cancellation of registration itself. That is precisely what the Tribunal has held. Therefore, the substantial question of law is answered in favour of the assessee and against the revenue. [Para 8] 174-178 CONDITI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rdinate 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 notice was that the assessee has advanced a sum of Rs. 2,25,68,932/- to the person covered u/s. 13(3) of the Act and the same was considered as diversion of funds for the benefit of the trustees. Thus, the notice no where suggested that the action of the PCIT is proposed to cancel the registration of the trust in a new law and that too retrospectively. He also pointed out that the preamble of the notice mentioned the section 12AB(4)(b)(i) of the Act but the same does not dea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eferred 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, making the basis to invoke the cancellation for which the action has already favored to the assessee vide ITAT order in ITA no. 163/JP/2012. As regards the impugned and alleged show cause notice deals the provision of section 12AA of the Act and not 12AB of the Act in the first part of the show cause notice and in the second part for violation of section 13(2)/13(3) there is no reference to invoke the provision of section 12AB and when this defaults already deal with the hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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 investigation the same cannot be considered to deny the registration to the assessee trust. There is no finding in the order that the activities of the trust are not as per the trust deed which warrants rejection of the registration. The apex court has allowed that the if the activities are done at reasonable profit rate the same cannot violate the provision of section 11 & 12 of the Act. The registration of the trust was again granted to the trust under new regime vide registration ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ey 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 other parties enjoying the benefit of business and thereby not paying taxes under the guys of the trust activity. The ld. CIT(E) has categorically pointed out that the assessee is doing the business activity. The ld. CIT(E) also finds that there is irregularity in the cash payment to not identified person. The assessee failed to give the name of the person to whom the payment is made by the assessee. This analysis of the fact is detailed done and recorded in the order of canc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. The assessee while doing the business activity has made the transaction of capital expenditure and that of the revenue with the specified persons itself are in volume suggest the assessee is doing business under the guise of the charitable activities. In the written submission vide para F the revenue has also argued as to the specified violation post 2022 whether there was an authority in the earlier regime or not. Based on that ld. DR supported the order of the ld. CIT(E). ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... jects 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 12AB has been introduced in 1. T. Act w.e.f. 01.04.2021, and cancellation section namely 12AB(4) in present form has been introduced w.e.f from 01.4.2022, power of cancellation of 12A once granted was available with department atleast from 2004, though the scope of same and applicability of section has varied over the period of time. I am roughly covering the evolution of cancellation provisions over the period of time for better understanding of the issue, A. In pre 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 institution, any part of such income enures, or (ii) if any part of such income or any property of the trust or the institution (whenever created or established) is during the previous year used or applied, directly or indirectly for the benefit of any person referred to in sub-section (3) 72[, such part of income as referred to in sub-clauses (i) and (ii)] : Provided that in the case of a trust or institution created or established before the commencement of this Act, the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 day of April, 1984 or any subsequent assessment year. Explanation.-Where the trust or institution has any other income in addition to profits and gains of business, the provisions of clause (iii) of this proviso shall not apply unless the trust or institution maintains separate books of account in respect of such business. Explanation.-For the purposes of sub-clause (ii) of clause (c), in determining whether any part of the income or any property of any trust or institution is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ious 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(4). So in this period also the conditions of cancellation remain same, except the change of section. F. By finance Act, 2022, w.e.f 01.04.2022, 12AB(4) & (5) were again amended and section comes in present form and procedure for cancellation was streamlined. It is the first time that time barring date is brings in statute for cancellation cases, and procedure for reference from AO was also brought in statue during the assessment stage, and specified violation were defined. However, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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 different types of violation as given in para 4.(D) above. 6. Content in para 7 are partly correct regarding the insertion proviso below 143(3) we.f from, 01.04. 2022, which require A.O to make reference to CIT regarding specified violation during the pendency of assessment. However, if we analyse this insertion, along with new 12AB(4) proviso wef 01.04.2022 vis-a-vis position of cancellation and assessment procedure prior to 01.04.2022 either in 12AB(4) or under 12AA, it becomes clear tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bove 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 has been granted under clause (a) or clause (b) or clause (c) of sub-section (1) or clause (b) of sub-section (1) of section 12AA, as the case may be, and subsequently,- (a) the Principal Commissioner or Commissioner has noticed occurrence of one or more specified violations during any previous year; or (b) the Principal Commissioner or Commissioner has received a reference from the Assessing Officer under the second proviso to sub-section (3) of section 143 for any previous year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 for making any inquiry, under clause (i) of sub-section (4).] If we see in the opening line, it clearly states that provisions of section 12AB(4) can be invoked subsequent to :- * Granting of registration under clause (a) or clause (b) or clause (c) of sub- section (1) of 12AB...........Or..... * clause (b) of sub-section (1) of section 12AA as the case may be, So, Assessee argument that 12AB(4) can be invoked only after granting registration under 12AB is wrong, as it also state that same ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onduct 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 ii. Assessee is transferring money to related parties as advance, thus applying the income and properties of trust for personal benefits of trustees and its related persons. iii. Assessee is transferring money to related parties in garb of salary, rent and subcontracts. Though specific clause have not been mentioned in these notices, however, all the specified violations were enumerated with facts and figures. Now coming to the law, law do not prescribe issuing of show cause notice in this regard, 12AB( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 by CIT-2, Jaipur for violation of proviso to section 2(15), and Hon'ble tribunal has rightly held that proviso to section 2(15) is applicable for assessment on year to year basis, and not a valid ground for cancellation of registration. It is further being emphasised, that this cancellation is not for proviso of 2(15), but for assessee doing business in garb of charity, assessee is having business income which is neither from property held under trust nor incidental to its objects, assessee not doing its activities as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arious 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 and case is quashed only on technical ground of addition of clause (b)(i), would unnecessary create scope of another proceedings, and just to deter such duplicate proceedings where action is true and lawful in the light of provisions of act, the substance has to prevail over the form, and to this effect only 2928 has been taken in statue and has been applied by various Hon'ble Court. Encl: 1. Annexure 'A-Proposal received from A.O. 2. B-1,B-2 & B-3-Letter Notices sent to assessee." 10. In the rejoinder the ld. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roposal 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 specified u/s. 13(3) of the Act and thus, there is diversion of fund. The assessee also made contract payment to various other parties / concerns referred to in section 13(3) of the Act. Thus, three issues were pointed out by the ld. AO: a) the assessee is doing business in the grab of charitable activities. b) the assessee is transferring money to related parties as advance, thus applying the income and properties of trust for personal benefits of trustees and its related persons. c) Assessee is transferring money to rel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /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 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 by the bench in the case of the assessee and the same reached finality. The apex court on such repeated issue noted in the case of Parashuram Pottery Works Co. Ltd Vs ITO [ 1977] 106 ITR 1 at page 10 "At the same time, we have to bear in mind that the policy of law i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... scussed 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 its activities as per its objects, and doing business and profession at par with other entities, and also applying the properties and income of trust for the benefit of trustees and its related parties, and also siphoning off money by booking non genuine expenditure, it is clear that assessee has done specified violation namely clause (a), (b) (e), of explanation to section 12AB(4), as well as violation of 12AA(3) (the earlier clause), thus ils registration is liable to be cancelled. 12. Though assessee is doing the activities bey ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 established after commencement of the Act); (iii) any income or property of the trust is applied for benefit of specified persons like author of trust, trustees etc.; or (iv) its funds are invested in prohibited modes, then the Principal Commissioner or the Commissioner may cancel the registration if such trust or institution does not prove that there was a reasonable cause for the activities to be carried out in the above manner. This amendment will take effect from 1st October 2014. 12.2 The ld. CIT(E) has already noted that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its 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 the law to make any reference to PCIT or CIT for withdrawal of registration for the trusts or institution referred u/s 11 of the Act. As it is clear from the facts recorded that the ld.CIT(E), Jaipur has initiated the impugned proceedings of cancellation of registration based on the reference received from ld. DCIT(E), Jaipur dated 06.02.2020 as evident from the Impugned Order itself i.e passed u/s 12AB(4)(b)(i) of the Act. As per the amended provision of section 12AB(4) of the Act, reference has to be after granting of the registra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncelling 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 violations in the law, therefore, Assessee cannot be penalized by reason of the amendment to the law effected subsequently. We derive support to reach to this conclusion from the decision of the Hon'ble Rajasthan High Court in the case of Indian Medical Trust v. PCIT [2019] 108 taxmann.com 93 (Rajasthan) where it has been held that: Indisputably, the order dated 16th Jan, 2018, made by the Commissioner of Income Tax thereby canceling the registration granted under section 12A and withdrawing the approval given under section 10 (23C) (v) & ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nted 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) or clause (c) of sub-section (1) of section 12AB or clause (b) of sub-section (1) of section 12AA, as the case may be, and subsequently, ****** (II) The term "specified violation" is proposed to be defined by inserting an Explanation to sub-section (4) of section 12AB of the Act to mean the following violation :- (a) ************ (********. These amendments will take effect from 1st April, 2022. 12.4 In view of the above, provision of law, binding precedent of the jurisdictional high court and the CBDT circular the l ..... X X X X Extracts X X X X X X X X Extracts X X X X
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