2023 (1) TMI 1502 - AT - Income Tax

PCIT cannot cancel charitable trust registration under section 12A; tribunal quashes retrospective withdrawal for lack of reasoning

ITAT Jodhpur held that PCIT (Central) has no power to cancel registration granted to the assessee trust under s.12A, including with retrospective effect. ... Denial of registration u/s 12A - PCIT (Central) authority to cancel the registration - registration cancelled with retrospective effect - As alleged services of the employees of the assessee trust are being used for the personal purposes of trustees and his family members, which is in violations of provisions of sec. 13 of the Act - HELD THAT:- We notice that an identical legal issue has been considered by this bench in a group case, viz., Pacific Academy of Higher Education and Research Society (ITA No. 04/Jodh/2020) and this issue has been decided in favour of the assessee in line with the decision taken in the case of Wholesale Cloth Merchant Association (supra). we hold that the PCIT (Central) does not have power to cancel the registration granted u/s 12A of the Act. Accordingly, the order passed by him is nullity in the eyes of law and accordingly, we quash the same. We noticed earlier that the Ld PCIT (Central) has held that the provisions of sec.12AA(3) and 12AA(4) have been violated and for arriving at this conclusion, he has entirely relied upon the view expressed by the assessing officer in the assessment order. Thus there was no independent application of mind on the part of Ld PCIT (Central). In any case, the assessment order has been challenged by the assessee and the Ld A.R stated that the same is pending before Ld CIT(A) and hence it would not be proper for us to express any view on the same at this stage. Appeal filed by the assessee is allowed. 1. ISSUES PRESENTED AND CONSIDERED (1) Whether the delay of 35 days in filing the appeal against the order cancelling registration under section 12A was liable to be condoned. (2) Whether the Principal Commissioner of Income Tax (Central) had jurisdiction and authority to cancel registration granted under section 12A/12AA in view of CBDT Notifications vesting such power in the Commissioner of Income Tax (Exemption). (3) Whether cancellation of registration under section 12AA(3) and 12AA(4) can validly operate with retrospective effect. 2. ISSUE-WISE DETAILED ANALYSIS Issue (1): Condonation of delay in filing the appeal Interpretation and reasoning The Tribunal noted that the appeal was delayed by 35 days. The assessee explained that the order cancelling registration was served at its old address, and therefore came to its knowledge belatedly. The Tribunal examined the explanation and heard both parties on the preliminary issue. On the basis of the explanation and surrounding circumstances, the Tribunal held that there existed 'reasonable cause' for the delay in filing the appeal. Conclusions The delay of 35 days in filing the appeal was condoned and the appeal was admitted for hearing on merits. Issue (2): Jurisdiction of the Principal CIT (Central) to cancel registration under section 12A/12AA Legal framework (as discussed) The Tribunal referred to section 120(3), section 120(4)-(6) and section 127 of the Act, and to CBDT Notifications No. 52/2014 and 53/2014 dated 22.10.2014, issued under section 120. Under section 120(3), the Board may allocate jurisdiction having regard to: (a) territorial area, (b) persons or classes of persons, (c) incomes or classes of income, and (d) cases or classes of cases. Under section 120(4)-(6), the Board may assign functions and powers to income-tax authorities and authorize superior authorities to issue orders allocating powers to subordinate officers. Section 127 authorizes transfer of 'cases' only between Assessing Officers. The CBDT Notifications vested jurisdiction in the Commissioner of Income Tax (Exemption), Jaipur, for the State of Rajasthan, in respect of all persons claiming exemption under specified clauses of section 10, sections 11, 12, 13A and 13B, and assessed/assessable by certain Income Tax Authorities. The notifications authorized the CIT(Exemption) to allocate powers to officers subordinate to him but did not provide for transfer of his powers to other Commissioners or Principal Commissioners. Interpretation and reasoning The Tribunal, following its own earlier decision in a group case and the Jaipur Bench decision in the case cited before it, held that: - After 22.10.2014, a separate Commissioner of Income Tax (Exemption) was constituted for the class of exemption/charitable cases covered by the notifications, including the assessee's case. - The power to grant or withdraw registration under section 12A/12AA is with the 'prescribed authority' specifically empowered by the CBDT notifications, namely the CIT(Exemption), Jaipur, for Rajasthan. - The notifications do not authorize the CIT(Exemption) to transfer his jurisdiction or powers to any other Commissioner or Principal Commissioner; they only allow delegation to subordinate officers (Addl. CIT/JCIT/TRO) and further to Assessing Officers. - Section 124 governs jurisdiction of Assessing Officers and not Commissioners; section 127 permits transfer of cases only between Assessing Officers, not between Commissioners. Passing an order of grant/cancellation of registration under section 12A/12AA is not within the domain of an Assessing Officer but of the prescribed higher authority. - Transfer of the assessee's case to the Central Circle under section 127 for the limited purpose of assessment consequent to search does not imply transfer of jurisdiction relating to registration/exemption matters under section 12A/12AA to the Principal CIT (Central). Both sets of proceedings are independent and lie with different ranks of authorities. - There was no order from any higher authority or from CBDT authorizing transfer of the power to cancel registration from CIT(Exemption) to the Principal CIT (Central), nor any opportunity of hearing to the assessee in this regard. On these premises, the Tribunal held that only the CIT(Exemption) could lawfully cancel the registration, and the Principal CIT (Central) was not vested with such jurisdiction. Conclusions The Principal CIT (Central) did not have jurisdiction or authority to cancel the assessee's registration under section 12A/12AA. The impugned order cancelling registration under sections 12AA(3) and 12AA(4) was held to be a nullity in law and was quashed on this jurisdictional ground. Issue (3): Legality of retrospective cancellation of registration under sections 12AA(3) and 12AA(4) Legal framework (as discussed) The Tribunal referred to judicial precedents discussing the nature and temporal operation of cancellation powers under section 12AA(3) and 12AA(4), and analogous provisions relating to approvals under section 10(23C), including: - The principle that only the legislature can enact retrospective law and that delegated legislation (including administrative cancellation/withdrawal orders) can operate retrospectively only if the parent statute expressly confers such power. - Decisions holding that, in the absence of express statutory authorization, cancellation/withdrawal of registration or approval cannot be made with retrospective effect, and that section 12AA(3) is prospective in nature. It was noted that neither section 12AA(3) nor section 12AA(4) contains language explicitly conferring retrospective operation to cancellation orders. Interpretation and reasoning The Tribunal observed that though, in the present appeal, the issue of retrospective operation became academic in view of the quashing of the order for want of jurisdiction, the question had been examined and decided in its earlier decision in a connected group case. Relying on that reasoning, it reiterated that: - In the absence of any statutory provision authorizing retrospective cancellation, a delegated authority cannot make cancellation of registration effective from a past date. - Judicial authority has consistently held that cancellation of registration under section 12AA(3) is prospective; the cancellation can at best operate from the date of the order/notice of cancellation, and not for prior years during which registration stood and assessments had already been completed. - Similar reasoning applies to section 12AA(4); without express provision, retrospective character cannot be inferred or implied. Conclusions Cancellation of registration under sections 12AA(3) and 12AA(4) with retrospective effect, as attempted from 1.4.2014, is legally unsustainable. Cancellation, if otherwise valid and within jurisdiction, can operate only prospectively from the date of the cancellation order and not for past assessment years.