2010 (9) TMI 1108 - AT - Income Tax

Tax Tribunal restores registration and overturns delay rejection under Income Tax Act sections 12AA(3) and 12A.

Baba Gandha Singh Education Trust Versus CIT

The Tribunal set aside the cancellation of registration under Section 12AA(3) of the Income Tax Act, restoring the registration to the assessee. ... CIT (A), Wrongly cancelled the registration granted u/s. 12AA - The facts and objects of the society are totally same both at the time of cancellation of registration and at the time of granting the registration - CIT has not brought anything on record to reflect that any one of the conditions u/s 12AA(3) is not satisfied by the society. HELD THAT:- According to the CIT, assessee was not carrying out education as charity, but was doing trade and commerce in the name of education. The decision in case of Pinegrove International Charitable Trust and Ors.[2010 (1) TMI 49 - HIGH COURT OF PUNJAB AND HARYANA AT] opined that merely because profits have resulted from the activity of imparting education, it would not result in change of character of institution that it exists solely for educational purposes. Evidently, identical facet has been considered by the CIT to conclude that generating of surplus from educational activity year after year, changes the character of activity as a trade and commence. The proposition laid down by the High Court belies the argument of the CIT, and it is fully applicable in present case also. Notably, there is no allegation by the CIT that any activity other than education has been carried out by the assessee. Another reason is that the activity of education being carried out by the assessee, cannot be regarded as a 'charitable purpose'. the action of the CIT on this aspect is beyond the jurisdiction envisaged u/s 012AA(3) and is accordingly liable to be ignored. In the final analysis, we are unable to uphold the conclusion drawn by the CIT that the activities of the assessee are not being carried out in accordance with its objects merely because it was generating profits from such activity. Therefore, invocation of s. 12AA(3) by the CIT on this aspect has to fail. we set aside the impugned order and the registration granted to the assessee vide order dt. 29th Aug., 2007 is hereby restored. Condonation of delay - CIT did not allow any opportunity to the assessee of being heard although the same was specifically directed by the Tribunal in his order. HELD THAT:- The opportunity allowed by the CIT to the assessee to appear before the AO does not tantamount to affording an opportunity by the CIT himself. In our opinion, the CIT was duty-bound to allow an opportunity of hearing to the assessee himself and it was open for him to call for a report from the AO and after considering the rebuttal of the assessee with respect to such report, he ought to have disposed of the appeal of the assessee. In this case, neither an opportunity of hearing has been provided by the CIT and nor has the report of the AO been confronted to the assessee before adjudicating the matter. In our considered opinion, the aforesaid approach is not in conformity with the directions of the Tribunal contained in its order dt. 27th Dec., 2007. Therefore, the impugned order is unsustainable on the preliminary aspect of it being in violation of the principles of natural justice. Accordingly, the impugned order is set aside and the CIT is directed to carry out the directions contained in the order of the Tribunal dt. 27th Dec., 2007 after allowing the assessee a reasonable opportunity of being heard in accordance with law. Issues Involved:1. Cancellation of registration under Section 12AA(3) of the Income Tax Act, 1961.2. Violation of principles of natural justice in the rejection of the application for condonation of delay in filing the application under Section 12A of the Income Tax Act, 1961.Detailed Analysis:1. Cancellation of Registration under Section 12AA(3):The primary issue in this appeal was whether the Commissioner of Income Tax (CIT) was justified in canceling the registration granted to the assessee under Section 12AA(1)(b) of the Income Tax Act, 1961. The CIT canceled the registration on the grounds that the assessee was generating systematic profits year after year, suggesting that it was running a commercial venture under the guise of an educational institution. The CIT relied on the judgment of the Uttarakhand High Court in the case of CIT vs. Queens' Educational Society.The Tribunal noted that the CIT did not dispute that the assessee was carrying out educational activities, which were its dominant objective. The Tribunal referred to the judgment of the Punjab and Haryana High Court in the case of Pinegrove International Charitable Trust, which held that merely earning profits from educational activities does not change the character of the institution from a charitable one to a commercial one. The Tribunal emphasized that the CIT's reasoning was contrary to this judgment and that the CIT had no allegations of the assessee carrying out any activity other than education.The Tribunal also addressed the CIT's reliance on the Supreme Court's decision in the case of Municipal Corporation of Delhi vs. Children Book Trust, stating that this judgment was not applicable to the provisions of Sections 11 and 12 of the Income Tax Act. The Tribunal concluded that the CIT's action of canceling the registration was beyond the jurisdiction envisaged under Section 12AA(3) of the Act and was unsustainable. Consequently, the Tribunal set aside the impugned order and restored the registration granted to the assessee.2. Violation of Principles of Natural Justice:The second issue involved the rejection of the application for condonation of delay in filing the application under Section 12A of the Act. The assessee contended that the CIT did not afford an opportunity of being heard, as directed by the Tribunal in its earlier order. The CIT had disposed of the matter based on the report of the Assessing Officer (AO) without making the report available to the assessee for rebuttal.The Tribunal examined the facts and found that the CIT had indeed not provided an opportunity of hearing to the assessee. The CIT had allowed the assessee to furnish explanations before the ITO, Barnala, but did not personally hear the assessee or confront it with the AO's report. The Tribunal held that the CIT's approach was not in conformity with the directions of the Tribunal and violated the principles of natural justice.The Tribunal set aside the impugned order and directed the CIT to carry out the directions contained in the Tribunal's earlier order, allowing the assessee a reasonable opportunity of being heard in accordance with law.Conclusion:In conclusion, the Tribunal allowed both appeals of the assessee. The cancellation of registration under Section 12AA(3) was set aside, and the registration was restored. Additionally, the rejection of the application for condonation of delay was set aside, and the CIT was directed to provide the assessee a reasonable opportunity of being heard.