2010 (9) TMI 894 - AT - Income Tax

Tribunal reinstates Trust registration, finding cancellation unjustified.

The Tribunal allowed the appeal, holding that the cancellation of the Trust's registration was not justified on both merits and legal jurisdiction. The ... Education Trust - registration u/s 12A(a) - invoking the proviso to section 12AA(3) - cancellation of the Registration - show cause notice issued - no books of account found at the time of survey conducted u/s133A - receipts found unaccounted - accepted admission-fees in cash - contravention of the provisions of section 139(4A) - it was held by the ld. Commissioner that the funds of the Trust were misused by not accounting for the receipts as well as the expenses. As per ld. Commissioner, the activities were also not in accordance with the objects of the Trust, hence, by invoking the provisions of cancellation of Registration he has decided to cancel the Registration granted even prior to 1-10-2004. It was concluded that the benefit of registration was revoked which was earlier granted by an order of registration dated 22-2-1991. Now this impugned order passed u/s 12AA(3), invalidating the existed registration, is challenged before us. HELD THAT:- That the ld. Commissioner has to comprehend the objects of the Trust whether they are meant for public utility [requirement of section 12AA(1)(b)] and secondly that the activities have actually as also genuinely been carried out to fulfil the aims of the Trust [requirement of section 12AA(1)(a)]. In the present case, the Trust being an educational institution and undisputedly imparting education, therefore, it was not justifiable on the part of the ld. Commissioner to deny the registration. Nevertheless, the application of income and the utilization of funds is always subject to scrutiny by the AO while assessing the income of the Trust, for this legal proposition. we can rely on Sanjeevamma Hanumathe Gowda Charitable Trust v. DIT (Exemptions) [2006 (3) TMI 91 - KARNATAKA HIGH COURT], CIT v. Red Rose School [2007 (2) TMI 575 - ALLAHABAD HIGH COURT] , and Acharya Sewa Niyas Uttaranchal v. CIT[2006 (11) TMI 249 - ITAT DELHI-G]. We may, therefore, clarify that merely by granting a registration u/s 12A/12AA, a trust ipso facto is not entitled for the exemptions prescribed u/s 11 and 12. Neither de jure nor de facto, i.e., neither in principle nor in practice, a trust can get exemption u/s 11 and 12 merely on getting a registration u/s 12AA/(in the past 12A). Therefore, we hereby hold that the cancellation of registration, on both the counts, i.e., on merits as also on the legality of jurisdiction, was not in accordance of law. As a result, ground raised by the assessee is allowed. Issues Involved:1. Whether the Commissioner of Income-tax (CIT) was justified in revoking the registration of the Trust under section 12AA(3) of the Income-tax Act, 1961.2. Whether the CIT had the jurisdiction to cancel the registration granted under section 12A prior to the amendment effective from 1-6-2010.3. Whether the activities of the Trust were genuine and in accordance with the objects of the Trust.4. Whether the procedural requirements and legal principles were adhered to in the cancellation of the Trust's registration.Issue-wise Detailed Analysis:1. Justification of Revoking Registration:The CIT revoked the Trust's registration on the grounds that the activities were not genuine and not carried out in accordance with the objects of the Trust. Specific discrepancies noted included unaccounted receipts, cash transactions, and non-filing of returns. The appellant argued that the Trust's activities were genuine and aligned with its educational objectives, emphasizing that any irregularities were corrected. The Tribunal found that the Trust was indeed running an educational institution and that the CIT's decision was primarily based on discrepancies noted during a survey, which were not sufficient to prove that the Trust's activities were not genuine.2. Jurisdiction to Cancel Registration Prior to 1-6-2010:The appellant contended that the CIT exceeded his jurisdiction by canceling the registration before the amendment to section 12AA(3) effective from 1-6-2010, which explicitly granted the power to cancel registrations granted under section 12A. The Tribunal agreed, noting that the power to cancel such registrations was only conferred by the amendment effective from 1-6-2010. Therefore, the CIT's action of canceling the registration on 19-6-2008 was beyond his jurisdiction and void ab initio.3. Genuineness and Accordance with Objects of the Trust:The Tribunal examined the objects of the Trust and found that it was established for educational purposes and was genuinely running an educational institution. The Tribunal noted that the Assessing Officer had allowed exemptions under section 10(23C)(iii)(ad) in past assessments, indicating that the Trust's activities were recognized as genuine. The Tribunal emphasized that the application of income and utilization of funds should be scrutinized during assessment proceedings, not at the stage of registration.4. Procedural Requirements and Legal Principles:The Tribunal discussed the procedural aspects of sections 12A and 12AA, highlighting that the power to cancel a registration must be explicitly conferred by statute. The Tribunal referenced judicial precedents, including the Welham Boys School Society v. CBDT and Sri Chaitanya Educational Committee v. CIT, which supported the view that the power of cancellation introduced by the Finance (No. 2) Act, 2004, was substantive and not retrospective. The Tribunal concluded that the CIT's action of canceling the registration was not in accordance with the law, as it lacked the necessary jurisdiction at the time of the order.Conclusion:The Tribunal allowed the appeal, holding that the cancellation of the Trust's registration was not justified on both merits and legal jurisdiction. The Tribunal emphasized that the CIT's action was beyond his jurisdiction and that the Trust's activities were genuine and aligned with its educational objectives. The order of cancellation was quashed, and the Trust's registration was restored.