2005 (11) TMI 208 - AT - Income Tax

Tribunal Overturns 2004 Order Canceling Assessee's Tax Registration Due to Lack of Statutory Authority Pre-Amendment.

The ITAT quashed the CIT's order dated 26-7-2004, which cancelled the assessee's registration under section 12AA of the Income-tax Act, 1961. The Tribunal ... Charitable And Religious Trust - Validity of cancellation of registration - Assessee claims the coercive steps taken by the Department for recovery of huge stakes - Whether the violations of the provisions of section 10(22) and section 13 stated to have come to light as a result of search operations conducted u/s 132 of the Act, warrant cancellation of registration of the assessee? - retrospective nature of the amendment to the provisions of section 12AA - HELD THAT:- We do not find any support to the contentions of the Revenue with regard to the power of the CIT to cancel the registration existing even prior to amendment to the provisions of section 12AA with effect from 1-10-2004. The above explanatory note specifically notes that there was no specific provision in the Income-tax Act, and exercise of power of cancellation of registration flowing from the power to register has led to litigation. Whether the litigation was unnecessary or otherwise, as stated in the aforesaid note, it appears that a specific provision in the Income-tax Act has become necessary to overcome such litigation. The amendment brought about by insertion of sub-section (3) to section 12AA has contemplated a statutory procedure to be followed and a quasi-judicial proceeding to be conducted for cancelling the registration once granted. Such procedure even if followed, and the quasi judicial proceeding even if conducted, as in the instant case, by the statutory authority constituted under the Income-tax Act, there can be no legal sanctity for the order that ensues such proceeding, in the absence of a statutory power under that Act to do what is contemplated under that order. What is sought to be exercised by the impugned order is a substantive power to cancel the registration granted earlier, and it was sought to be exercised by a quasi-judicial authority. In the absence of specific provision in the statute under which that quasi-judicial authority is constituted, i.e. the Income- tax Act, such a substantive power cannot be exercised. The principles of natural justice followed and the nature of proceedings conducted cannot lend legal sanctity to the action of the authority exercising such power, in the absence of specific provision in the statute conferring such power in that authority. it may be noted here, even this power of cancellation, was only with regard to registration granted under clause (b) of sub-section (1) of section 12AA. In the instant case, it is an undisputed fact, the registration to the assessee was granted u/s 12A by the CIT Visakhapatnam on 14-8-1992, based on the application of the assessee dated 9-1-1992 after calling for necessary records, documents and information and after carrying out necessary enquiries and satisfying himself about the genuineness of the activities of the assessee. Thus, there is equally no merit in the contention of the Revenue that the power to grant also vests in the authority competent to grant, with such power to withdraw or cancel. Therefore, we find that the Commissibner has no power to cancel the registration, prior to insertion of sub-section (3) of section 12AA by the Finance Act, 2004 with effect from 1-10-2004 nor does the said amendment have any retrospective operation and as such the impugned order dated 26-7-2004 has no legal sanctity. In view of the discussion and reasons, after duly and case fully considering the rival submissions of both the parties, we have no other alternative than to hold that the amended provisions of law have no retrospective operation and under the pre-amended provisions of law there is no power vested in the CIT to review or rescind the registration once granted, as a result of which the CIT does not or cannot have any power to cancel the registration granted by him as well as that section 21 of the General Clauses Act is not applicable to the instant proceedings u/s 12AA being judicial/quasi-judicial in nature. In that view of the matter, on this legal ground itself, the order of the CIT impugned herein is liable to be cancelled. We therefore, quash it accordingly. In view of our finding on the legality and validity of the impugned order of the CIT on the first issue going in favour of the assessee, it has become redundant for us to go into the merits of the second issue relating to the justification for passing the impugned order in the light of the violations of the provisions of section 10(22) and section 13 stated to havebeen committed and come to light on account of the Department's search proceedings on the assessee. Thus, our hands are tied up by the legal hurdle for attempting to rescue the Department which we express with restraint. In the result, the appeal of the assessee is allowed hereby. Issues Involved:1. Legality and validity of the Commissioner of Income-tax's power to cancel registration under section 12AA of the Income-tax Act, 1961 prior to the amendment effective from 1-10-2004.2. Justification for the cancellation of registration based on alleged violations of sections 10(22) and 13 of the Income-tax Act, 1961.Issue-wise Detailed Analysis:1. Legality and Validity of Cancellation Power:The primary issue in this case was whether the Commissioner of Income-tax (CIT) had the power to cancel the registration of the assessee under section 12AA of the Income-tax Act, 1961 before the amendment effective from 1-10-2004.Arguments by Assessee:- The CIT did not have the power to cancel the registration granted under section 12A of the Act prior to the amendment effective from 1-10-2004.- The amendment to section 12AA(3) by the Finance (No.2) Act, 2004 was not retrospective and thus did not apply to the cancellation order dated 26-7-2004.- The General Clauses Act, which allows the rescinding of orders, does not apply to judicial or quasi-judicial orders such as the one in question.- Citing various case laws, the assessee argued that the power to cancel registration was not inherent and had to be explicitly provided by the statute.Arguments by Revenue:- The CIT had inherent power to cancel the registration as the power to grant includes the power to rescind.- The amendment to section 12AA(3) was merely procedural and should be applied retrospectively.- The General Clauses Act supports the power to rescind orders, including the cancellation of registration.Tribunal's Findings:- The Tribunal held that the power to cancel registration is a substantive power and cannot be exercised in the absence of explicit statutory provision.- The Tribunal cited various case laws to support the view that the amendment to section 12AA(3) effective from 1-10-2004 was not retrospective.- The Tribunal rejected the application of section 21 of the General Clauses Act, stating that it applies to procedural orders and not to judicial or quasi-judicial orders.- The Tribunal concluded that the CIT did not have the power to cancel the registration under section 12AA prior to the amendment effective from 1-10-2004.2. Justification for Cancellation Based on Alleged Violations:Given the Tribunal's findings on the first issue, it was unnecessary to delve into the second issue regarding the justification for the cancellation based on alleged violations.Conclusion:- The Tribunal quashed the CIT's order dated 26-7-2004, cancelling the registration of the assessee under section 12AA, on the grounds that the CIT did not have the power to cancel the registration prior to the amendment effective from 1-10-2004.- The Tribunal did not address the merits of the alleged violations of sections 10(22) and 13 due to the legal hurdle regarding the CIT's power to cancel the registration.Final Judgment:The appeal of the assessee was allowed, and the CIT's order dated 26-7-2004 was quashed.