2011 (4) TMI 563 - HC - Income Tax

Court upholds registration granted under section 12A, not cancellable under 12AA(3).

DIT (Exemptions) Versus Mool Chand Khairati Ram Trust

The court held that the registration granted to the assessee under section 12A in 1974 could not be cancelled under section 12AA(3) of the Income-tax Act. ... Power of cancellation of registration U/s 12AA(3) – As per the case of Bharati Vidyapeeth v. ITO [2008 -TMI - 71305 - ITAT PUNE-B ], held that 'section 12AA(3) empowers the CIT to cancel such registration if he is satisfied that activities of trust or institution are not genuine or are not being carried out in accordance with the objects of the trust or institution as the case may be - The combined reading of both the sections makes it clear that registration can be cancelled only in those cases where the registration has been granted under sub-section (1b) of section 12AA. This section nowhere empowers the CIT to cancel or withdraw the registration granted under section 12A - In the absence of such power the registration granted under section 12A cannot be withdrawn or cancelled.' Also as per the decision of the Tribunal in the cases of Guru Nanak Public School v. Director of Income-tax (Exemptions), Delhi, in ITA Nos. 3267/Delhi/2008 & 3268/Delhi/2008, held that that the Commissioner has no power under section 12AA(3) to cancel the registration granted earlier under section 12A(a) - The question in affirmative in favour of the assessee and against the Revenue. Issues Involved:1. Whether the ITAT was right in holding that the registration granted under section 12A on 4.12.1974 to the assessee could not be cancelled/withdrawn by the Authorities under section 12AA(3) of the ActRs.Detailed Analysis:Background:The assessee Trust, created based on the will of late Lala Ram Khairati Ram, was registered under section 12A of the Income-tax Act, 1961 in December 1974. This registration allowed the Trust to claim income tax exemptions for several assessment years. However, for the assessment year 2006-2007, the Additional Director of Income-tax (Exemptions) denied the exemption. Subsequently, the Director of Income-tax (Exemptions) issued a show-cause notice under section 12AA(3) and eventually cancelled the registration with effect from AY 2002-03, reasoning that the Trust's activities were not in accordance with its objects.Tribunal's Decision:The Tribunal set aside the Director's order, restored the registration, and allowed the assessee's appeal. The Revenue challenged this decision, leading to the present appeal.Legal Question:The primary legal question was whether the registration granted under section 12A could be cancelled/withdrawn under section 12AA(3).Arguments and Legal Provisions:- The assessee argued that the cancellation of registration under section 12AA(3) was without jurisdiction since the registration was granted under section 12A(a) in 1974.- The Revenue contended that the Authority had the power to cancel the registration under section 12AA(3), which was introduced by the Finance (No.2) Act, 2004 with effect from 1st October, 2004.Court's Analysis:- Section 12A and 12AA: The court noted that section 12A, as it stood, did not provide for the cancellation of registration once granted. The provision for cancellation was introduced in section 12AA(3) with effect from 1st October, 2004.- Interpretation of 12AA(3): The power to cancel registration under section 12AA(3) was confined to registrations granted under clause (b) of sub-section (1) of section 12AA. The amendment by the Finance Act, 2010, effective from 1st June, 2010, extended this power to include registrations granted under section 12A.- Precedents: The court referred to similar cases, including CIT v. Manav Vikas Avam Sewa Sansthan and Bharati Vidyapeeth v. ITO (Pune), which held that the Commissioner had no power to cancel registrations granted under section 12A before the amendment in 2010.Conclusion:The court concluded that there was no power vested with the Commissioner to cancel or withdraw the registration granted to the assessee under section 12A(a) in 1974, prior to the amendment effective from 1st June, 2010. Therefore, the Tribunal was correct in holding that the registration could not be cancelled under section 12AA(3).Judgment:The court answered the question in the affirmative, in favor of the assessee, and dismissed the Revenue's appeal.