Trust's Registration Restored: Commissioner Erred in Cancellation

The Tribunal held that the Commissioner of Income Tax (Exemptions) erred in canceling the trust's registration under section 12A based solely on voluntary donations within prescribed limits. The registration was restored, allowing the exemption under section 11. Both appeals by the assessee were allowed, with the order issued on 31.07.2019.

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Issues Involved:
1. Natural Justice
2. Cancellation of Registration under Section 12AA(3)
3. Retroactive Cancellation of Registration
4. Exemption under Section 11 of the Income Tax Act

Issue-wise Detailed Analysis:

1. Natural Justice:
The assessee argued that the Commissioner of Income Tax (Exemptions) ("Ld. CIT(E)") erred in passing the appellate order without giving sufficient, proper, and adequate opportunity of being heard, thus breaching the principles of natural justice. The appellate order should be held as bad in law due to this breach.

2. Cancellation of Registration under Section 12AA(3):
The assessee contended that the Ld. CIT(E) incorrectly invoked the provisions of section 12AA(3) to cancel the registration of the trust. The Ld. CIT(E) based his action on surmises, suspicion, and conjecture, took into account irrelevant and extraneous considerations, and ignored relevant material and considerations submitted by the assessee. The Ld. CIT(E) issued a show-cause notice under section 12AA(3) based on a proposal from the Assessing Officer, alleging that the trust's activities were not in accordance with its objects. The assessee argued that the donations collected were voluntary and within the limits prescribed by the State Government, and thus did not violate the Prohibition of Capitation Fee Act (Government of Maharashtra), 1987. The Ld. CIT(E) failed to provide evidence that the trust violated any provisions of sections 11 and 13 of the Income Tax Act, 1961, and wrongly canceled the registration solely on the basis of donation collection.

3. Retroactive Cancellation of Registration:
The assessee argued that even if the registration was liable to be canceled under section 12AA(3), the Ld. CIT(E) erred in canceling it with effect from 1986-1987. The Ld. CIT(E) did not provide sufficient grounds or evidence for such a retroactive cancellation.

4. Exemption under Section 11 of the Income Tax Act:
The assessee's appeal included the issue of whether the Assessing Officer (AO) was correct in denying the exemption under section 11 due to the cancellation of registration under section 12A. The AO assessed the surplus for the year under the head income from business or profession, citing the Ld. CIT(E)'s order that the trust violated the Prohibition of Capitation Fee Act by collecting building funds from parents/students. The Tribunal restored the registration granted under section 12A, instructing the AO to allow the benefit of exemption claimed under section 11, as the registration was available from the date of registration, including for the impugned assessment year.

Conclusion:
The Tribunal found that the Ld. CIT(E) erred in canceling the registration granted under section 12A by invoking section 12AA(3) solely due to the collection of donations, which were voluntary and within prescribed limits. The Tribunal restored the registration and directed the AO to allow the benefit of exemption under section 11, subject to other applicable provisions of the Income Tax Act. Both appeals filed by the assessee were allowed, and the order was pronounced in the open court on 31.07.2019.

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