2026 (2) TMI 353 - AT - Income Tax

Registration cancellation of charitable trust for nongenuine activities and specified violations upheld; jurisdiction transfer validated.

Principal Commissioner's transfer of the assessee's PAN to Central jurisdiction under the transfer provision conveys all powers and proceedings, including ... PCIT (Central) jurisdiction to cancel the registration of assessee trust - Cancellation of registration granted to the assessee u/s 12AA/12AB with effect from previous year 2016-17 and for all subsequent previous years as per provisions of section 12AB(4) - Principal CIT Jurisdiction to pass the impugned order - as alleged activities of the trust had been run in violation of the stated objectives for which it was incorporated. Main contention of the assessee before the ld. CIT was that new digital media entities do not have the backing of big businesses and they cater to both broad spectrum readers as well as those interested in specific or niche areas. Assessee argued 'specified violation' in some instances cannot be used to cancel registration as it would be disproportionate act. HELD THAT:- The basic and minimal requirement of the petitioner being given a personal hearing and the opportunity to respond to the proposed transfer is to enable the authority to consider whether in the facts and circumstances of the case, the transfer of the case from Mumbai to Aurangabad is warranted. Particularly, bearing in mind that the petitioner has otherwise no connection with Aurangabad except for having sold 3 out of 78 flats in the building being constructed to the persons who are being assessed at Aurangabad. Thus, no similarity in those cases where the case of the assessee is in the same city i.e., Bangalore. Thus, there is no inconvenience faced by the assessee shown to us. It is also not the case that case of the assessee is tagged with another assessee. Case of the assessee is transferred independently and not connected with any other assessee and also transferred in the same city. Thus, reliance on the decision of Honourable Bombay High Court [2016 (11) TMI 717 - BOMBAY HIGH COURT] does not help the case of the assessee. Second issue raised by the ld AR is that transfer of case u/s 127 of the Act is only with regard to assessment and not for the purposes of cancellation of registration - On careful reading of section 127 of the Act and explanation there to that the word ' case' does not restrict it to any 'Assessment year' but uses the phrase ' Year'. Had it been the intention of the legislature to restrict it to any ' assessment Year' it would not have used the word 'year'. Principles of Interpretation provides that an unambiguous and plain statute must be given its full interpretation. Even otherwise the order of the PCIT is cancellation of the registration of the assessee for Ay 2017-18 to 2022-23. So, it also relates to respective assessment years. Therefore, we reject this contention of the AR that the PCIT Central lacks Jurisdiction as powers of cancellation are not transferred to him and further the ' case' does not include power of cancellation as it does not refer to any assessment year. With respect to the argument that only the assessment rights are transferred but not the power of cancellation has also been dealt with the decision of Advantage India [2025 (9) TMI 1442 - ITAT DELHI] held any jurisdiction over a 'case' cannot be segregated between two different PCIT/CIT that is to say that PCIT(C) will conduct 'assessment' proceedings and the PCIT(E) will conduct registration/cancellation. Such an interpretation will make the exercise of transfer of jurisdiction over a 'case' unworkable. Under the income tax system, jurisdiction over a 'case' is recognized by the PAN assigned to each person/ assessee as defined in section 2(7) of the Act. The jurisdiction of each PAN is assigned to a particular CIT/Assessing Officer according to alphabetical or territorial basis. The CIT/AO exercises all the powers and functions under the Act over a PAN. Once a PAN is transferred from one AO/CIT to another AO/CIT u/s 127 of the Act, the entire proceedings under the Act related to that assessee/PAN is transferred to that other AO/CIT. When the PAN is transferred from CIT(Exemptions) charge to the Pr.CIT(Central) charge, the entire 'case' and the associated 'proceedings' will be transferred to the PrCIT(Central). In such a situation, the CIT(Exemptions) can not 'see' the case/assessee in his jurisdiction to take action for registration/cancellation u/s 12AA. The CIT(Exemptions) will be incapacitated to issues any communications to the assessee nor will he be able to generate any DIN in respect to the said assessee. We are therefore of the considered view that once the PAN of the assessee was transferred from the ACIT(E), Cir 1(1), Delhi to Central Cir-16, Delhi, all the functionality and proceedings, pending or completed or to be taken in future, is also transferred from CIT(E) and his AO to PCIT(C) and his Assessing Officer. Thus, we reject this contention of the LD AR that the PCIT Central lacks Jurisdiction as powers of cancellation are not transferred to him and further the ' case' does not include power of cancellation as it does not refer to any assessment year. Power of cancellation was available with the ld PCIT since 1st October 2004. Later on there is some amendment in the provisions of cancellation by THE FINANCE ACT 2022 wherein over and above genuineness of the trust criteria of ' Specified Violations' were also enacted. If for a moment, we agree with the arguments of the ld AR that the power could be exercised only from 1/4/2022 i.e. from A Y 2022-23 only, it would lead to anomalous situation. Suppose, if the Income tax Department comes to know about the non genuineness of the trust activities after 1/4/2022 prior to that date, it would be helpless prior to this period as those trust despite engaging in non genuine activities would be enjoying benefit of section 11 to 13 of the act and avoiding taxes u/s 115 TD of The Act up to Ay 2022-23. This is neither the intention of the law nor the law can be interpreted in such manner. Powers are available from 1 April 2022 and are not at all restricted to any assessment year. Therefore it is clear that after 1 April 2022, the learned principal Commissioner of income tax is empowered to cancel the registration if specified violations or non-genuineness of the trust is found for any assessment year which can be reopened/reassessed and after 1/4/2004 it is empowered to cancel the registration for that period if the activities of trust are found to be non-genuine. Powers were given to the PCIT for cancellation of registration with effect from 1st October 2004. Further such powers were amended from 1/4/2022. It is not the case that the authority has assumed powers to exercise such jurisdiction prior to the date on which they are authorised to do so. Therefore, it cannot at all be considered a retrospective application of law. Accordingly, we dismiss Ground no 8 of the appeal. Registration of trust u/s 12AB - We find that the assessee has carried out the activities which are listed in the order of the learned PCIT which are not in consonance with the object of the assessee. We find that the object of the assessee are promoting excellence in education in the field of journalism but the facts recorded by the learned PCIT shows that it is 'exerting influence for promotion of political articles by paying the content provider more money', it is also 'promoting biased and select articles', 'polarised contents ' and 'grants funds to the profit making entities in the form of professional fees without any evidence of receiving services' from them. =Charitable purpose specifically deals with the benefit to the public or a section of public. In this case when the assessee is providing funds to the profitable entities without any stated rendition of services by them in the garb of either professional fees or grant, does not satisfy the provisions of the law that it is an application of the income for the purposes of the object of the trust which are charitable in nature. =Further the trust being an entity which is receiving the donations from the most illustrious companies, entities, persons from the country as well as the most decorated board of Trustees, does not make the case of the assessee stronger that despite collecting donations from them, the assessee can carry out objects which are not the objects of the trust. Further the various certificates of the personalities that 'those are not influenced' is also of no use. There is no evidence produced before us by the assessee except the reports etc. which are merely documents without substance, to show that the assessee is carrying on the activities of the trust in consonance with the objects and deserves registration u/s 12AB. Disproportionate action of the learned PCIT in cancelling the registration of the trust - Provisions of section 12AA(4) (a) are clear that if whole or any part of the income of the trust is utilised for other than the object of the trust, the trust loses the exemption entity as a whole and therefore there is nothing like disproportionate action. Reliance by the assessee on the decision of Manekji Mota charitable trust [2020 (6) TMI 437 - SC ORDER] is not correct as that was the case for granting of the registration to the trust where the trust has spent 29% of its income to the religious objects but 71% of its income to the objects of the trust, wherein held that at the time of registration of the trust it may not be seen. Here in the case before us there is evidence found that the fund have been used for altogether different purposes and therefore the registration granted to the trust after a survey under section 133A of the act, was cancelled. Appeal of the assessee is dismissed. Issues: (i) Whether the Principal Commissioner of Income Tax (Central) had jurisdiction to cancel the assessee's registration under sections 12AA/12AB following transfer under section 127; (ii) Whether specified violations and non-genuine activities (including exerting influence to promote political articles, biased promotion/targeted coverage, support of polarised content, and payments to forprofit entities as professional fees) were established such that cancellation under section 12AB(4) was justified; (iii) Whether cancellation of registration could be given retrospective effect from previous year 2016-17.Issue (i): Whether the Principal Commissioner of Income Tax (Central) had jurisdiction to cancel registration after transfer under section 127.Analysis: The Tribunal examined section 127 and its Explanation, relevant CBDT notifications and authorities interpreting transfer of a 'case' and concluded that transfer within same city and notification framework vest jurisdiction over all proceedings pertaining to the PAN with the transferee authority; prior decisions distinguishing limited transfer were considered and distinguished.Conclusion: The Principal Commissioner of Income Tax (Central) had jurisdiction to cancel the registration after transfer under section 127.Issue (ii): Whether specified violations/nongenuine activities were proved (influence to promote political articles by differential payments; biased promotion/targeted coverage via communications; publication/support of polarised content; payments to forprofit entities lacking services).Analysis: The Tribunal reviewed the impounded agreements, rate schedules, WhatsApp chats, grant/payment records and sampled published content relied upon by the Principal Commissioner. It found evidence of a rate schedule paying higher sums for specified topics (including politics), communications from the trust's CEO suggesting particular stories to grantees, instances of funding to entities publishing polarised content, and substantial payments to forprofit entities where service delivery or ownership of content in furtherance of the trust's objects was not shown. The assessee's explanations and affidavits were treated as insufficient to rebut the documentary material.Conclusion: Specified violations and nongenuine activities were established; the findings support cancellation of registration under section 12AB(4) (against the assessee).Issue (iii): Whether cancellation could be made effective retrospectively from previous year 2016-17.Analysis: The Tribunal considered statutory history (power to cancel since 2004), case law on retrospective effect of cancellation, and CBDT guidance; it held that cancellation may take effect from the period when the breach occurred and that the statutory scheme and authorities permit cancellation effective from earlier previous years where violations are shown.Conclusion: Cancellation with effect from previous year 2016-17 was permissible under the facts (against the assessee).Final Conclusion: The Tribunal upheld the Principal Commissioner's order cancelling the assessee's registration under section 12AA/12AB effective from previous year 2016-17 to subsequent years, dismissing the assessee's appeal.Ratio Decidendi: Where documentary evidence and contemporaneous communications demonstrate specified violations or nongenuine activities falling outside a trust's stated objects, the competent authority (having jurisdiction) may cancel registration under section 12AB(4) effective from the period when such breaches occurred.