Tribunal upholds cancellation of Young Indian's registration due to fraudulent activities.

Young Indian Versus CIT (Exemption) New Delhi.

Young Indian Versus CIT (Exemption) New Delhi. - TMI Issues Involved:
1. Whether the activities of the assessee were genuine and in accordance with its objects.
2. Whether the registration granted to the assessee under Section 12A/12AA could be cancelled retrospectively.
3. Whether the principle of lifting the corporate veil was applicable to the transactions between Young Indian (YI) and Associated Journals Limited (AJL).
4. Whether the surrender of registration by the assessee was bona fide and permissible under the law.

Detailed Analysis:

1. Genuineness and Accordance with Objects:
The assessee, Young Indian, was granted registration under Section 12A/12AA based on its declared objects of inculcating democratic and secular values among India's youth. However, the tribunal found that the assessee did not disclose material facts at the time of seeking registration. Specifically, the assessee did not inform the authorities about the acquisition of AJL and the assignment of a Rs. 90 crore loan from the All India Congress Committee (AICC) to YI for a mere Rs. 50 lakhs. The tribunal noted that the primary activity of YI was to acquire AJL, which was not engaged in any charitable activities but had significant real estate holdings and rental income. The tribunal concluded that the activities of YI were neither genuine nor in accordance with its stated objects.

2. Retrospective Cancellation of Registration:
The tribunal upheld the retrospective cancellation of registration from the assessment year 2011-12. It noted that Section 12AA(3) allows for the cancellation of registration if the activities are not genuine or not in accordance with the objects of the trust. The tribunal emphasized that the statute does not restrict the Commissioner from canceling the registration retrospectively if the breach of conditions existed from the date of granting registration. The tribunal found that YI had not carried out any activities in line with its objects from the date of registration, justifying the retrospective cancellation.

3. Lifting the Corporate Veil:
The tribunal referred to the judgments of the Hon'ble Delhi High Court, which applied the principle of lifting the corporate veil to the transactions between YI and AJL. The High Court found that the transfer of shares and the assignment of the loan were a clandestine and surreptitious transfer of lucrative interests in AJL's properties to YI. The High Court held that the entire transaction was a device to transfer the property held on lease from the government to YI, which became the main shareholder of AJL. The tribunal concurred with this view, noting that the transaction indicated a dishonest and fraudulent design.

4. Surrender of Registration:
The tribunal rejected the assessee's contention that the surrender of registration was bona fide. It noted that the surrender was made in the wake of investigations by the Income Tax Department and the Land Development Office, which found that no genuine activities were carried out by YI in furtherance of its objects. The tribunal held that the surrender was not permissible under the law, as the registration was not a gratuitous award but a statutory order subject to compliance with specific conditions. The tribunal found that the surrender was an attempt to preempt the cancellation proceedings initiated by the authorities.

Conclusion:
The tribunal upheld the cancellation of registration granted to Young Indian under Section 12A/12AA from the assessment year 2011-12. It found that the activities of YI were not genuine and not in accordance with its stated objects. The tribunal also upheld the retrospective cancellation of registration, noting that the breach of conditions existed from the date of granting registration. The principle of lifting the corporate veil was applied to reveal the true nature of the transactions between YI and AJL, indicating a fraudulent design. The tribunal rejected the assessee's contention that the surrender of registration was bona fide and permissible under the law. Consequently, the appeal of the assessee was dismissed.