TaxTMI 
TaxTMI 
2010 (9) TMI 894
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....running a school. It was noted by the ld. CIT in the impugned order that the Trust, viz., Ajit, Education Trust was granted registration under section 12A(a) of the Income-tax Act, 1961 on 22-2-1991. According to the Commissioner, it was subsequently alleged that the activities of the Trust were not genuine. It was also found that the activities of the Trust have not been carried out in accordance with the objects of the Trust. Therefore, it was proposed to cancel the Registration and for that purpose, a show-cause notice dated 24-2-2006 was issued. As per the 'subject' of the said notice, the same was issued by invoking the proviso to section 12AA(3) of the Income-tax Act, 1961 for cancellation of Registration under section 12A(a) of the Income-tax Act, 1961. In the said notice, it was asked to the assessee-trust to explain as to why no books of account for pre-primary unit of "Shravan Vidhyadham" School were found at the time of survey conducted on 1-9-2005 under section133A of the Income-tax Act, 1961. Further, in the said show-cause notice, it was asked to explain as to why receipts of Rs. 14.41 lakhs for the financial years 2003-04, 2004-05 and 2005-06 were found unaccounted? ....
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....were not at all accounted for in the books. (iii)The trust was found to have incurred Rs. 8.77 lakhs in cash on construction of building in the financial years 2002-03, 2003-04 and 2004-05 which was not accounted for in the books. (iv)Unaccounted cash of Rs. 14,512 was found at the premises of the trust. (v )In his statement, Shri Kiran Biniwale, the managing trustee, admitted unaccounted income of Rs. 9.81 lakhs of the trust in the financial years 2002-03 to 2005-06. (vi)In contravention of provision of section 139(4A), the trust had not been filing returns of income except for the assessment year 2004-05 and the return of even this year did not contain complete accounts of different units and the consolidated account of the trust. No audit report in the prescribed Form No. 10B as mandated by section 12A(b) had been enclosed with the said return. The return for the assessment year 2005-06 has not been filed, till date." 2.1 On account of those reasons, it was held by the ld. Commissioner that the funds of the Trust were misused by not accounting for the receipts as well as the expenses. As per ld. Commissioner, the activities were also not in accordance with the objects of th....
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.... the reference of the said earlier decision of this Tribunal, i.e., ITAT "B" Bench for assessment years 1999-2000 to 2004-05 in assessee's own case order dated 23-4-2008, Mr. Shah has reiterated that vide this order after considering the facts of the case, it was unambiguously directed to allow the claim of exemption under section 10(23C)( iiiad) as per law. In addition to the basic contention that the Educational Institution should be granted exemption under section 10(23C)( iiiad) of the Income-tax Act, 1961, an interesting point has also been raised by Mr. J.P. Shah. As per his argument, the Commissioner got the power to cancel the registration granted under section 12A by virtue of the words of section 12AA(3) with effect from 1-6-2010, "or has obtained registration at any time under section 12A as it stood before its amendment by the Finance (No. 2) Act, 1996". He has informed that up till 31-5-2010 section 12AA(3) had no such phraseology in the section. So ld. counsel has clarified that the amendment to section 12AA(3) came in June 2010 but the show-cause notice was issued on 24-2-2006. Meaning thereby the ld. CIT has exceeded his jurisdiction by invoking the cancellation of ....
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....but this trust was also engaged in profit-earning. Mr. Jindal has, thus, pleaded that in such a situation, the ld. Commissioner was fully empowered for cancellation of registration. Even as per the section existed at that point of time, the statute had enshrined such an authority. It was wrong on the part of the assessee to argue that the power for cancellation did not available at that point of time. Therefore, Mr. Jindal has vehemently supported the action of the ld. Commissioner. 5. We have heard both the sides at length. Before we proceed to discuss the merits of the case, let us first discuss the sections involved. The existence of section 12A is very old in the statute introduced originally by the Finance Act, 1972 with effect from 1-4-1973. This section is the first step for availing the benefit of exemption prescribed in sections 11 and 12 of the Act. A person in receipt of income has to make an application for Registration of the Trust in the prescribed manner within the prescribed time. It is worth to mention that even the nomenclature of this section explicitly suggests the intention of the Legislature, which reads as, "Con-dition for applicability of sections 11 and 12....
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.... also make such inquiries as he may deem necessary in this behalf; and (b )after satisfying himself about the objects of the trust or institution and the genuineness of its activities, he- (i )shall pass an order in writing registering the trust or institution; (ii )shall, if he is not so satisfied, pass an order in writing refusing to register the trust or institution, and a copy of such order shall be sent to the applicant : Provided that no order under sub-clause (ii) shall be passed unless the applicant has been given a reasonable opportunity of being heard. [(1A) All applications, pending before the Chief Commissioner on which no order has been passed under clause (b) of sub-section (1) before the 1st day of June, 1999, shall stand transferred on that day to the Commissioner and the Commissioner may proceed with such applications under that sub-section from the stage at which they were on that day.] (2) Every order granting or refusing registration under clause (b) of sub-section (1) shall be passed before the expiry of six months from the end of the month in which the application was received under clause (a) [or clause (aa) of sub-section (1)] of section 12A.] [(3) W....
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....s in a way a duplicity of an existing clause of refusal of registration as per section 12AA(1)(b)( ii)? The answer can be that vide section 12AA(1)( b)(ii), the CIT can refuse the registration application under section 12A; but vide section 12AA(3) the CIT is given powers to deal with a registration granted within this very section, i.e., under section 12AA(1)(b)(i ). So as per our understanding, the said power of refusal of registration under section 12AA(1)(b)( ii) is restricted to the application moved under section 12A seeking the grant of registration. What we have noticed is that the necessity of the said introduction was that as per the already existed section 12A there was no specific provision for the refusal of a registration. On account of this reason, there was a doubt in the past and litigation had also cropped up that in the absence of any specific power not being provided in the said section 12A whether a registration once granted could ever be revoked by the ld. Commissioner. In the past quite often a question has been raked up by the revenue that whether a registration once granted, is it granted forever even if irregularities are noticed? Then, it had been argued ....
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....1 and simulta-neously a registration under section 12AA(1)(b) of the Income-tax Act, 1961. Because of the reference of two sections, namely, section 12AA(1)(b) and also section 12A, now this sub-section (3) of section 12AA has, henceforth raised this controversy. As per our humble understanding of law if a provision for the refusal of registration application under section 12A was already in existence vide section 12AA(1)(b)( ii) then still there was lawful requirement to again mention the same in the same statute by introducing the afore quoted phraseology, "(or has obtained registration at any time under section 12A [as it stood before its amendment by the Finance (No. 2) Act, 1996 (33 of 1996)]". Now the anomaly is that whether for the purpose of refusal of a registration granted by section 12A is it to be dealt within two sub-sections i.e., 12AA(1)(b)(ii ) and 12AA(3)? Because of this variance, the ld. AR has challenged that the refusal of a registration granted under section 12A can now be cancelled only by the latest amendment in section 12AA(3) that too with effect from 1-6-2010. Since the ld. CIT has passed the order prior to the amendment the same is void ab initio, it was....
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....otes on clauses on the Finance Bill have made it clear as vide [321 ITR 83 (St.), clause 7] as follows :- "Clause 7 of the Bill seeks to amend section 12AA of the Income-tax Act relating to procedure for registration of a trust or institution. Under the existing provision contained in sub-section (3) of the aforesaid sections, if the activities of the trust or institution referred to in sub-section (1), which has been granted registration under sub-section (1), are not genuine or are not being carried out in accordance with the objects of the trust or institution, the Commissioner shall, after giving a reasonable opportunity of being heard to the said trust or institution, pass an order in writing cancelling the registration granted under clause (b) of sub-section (1). It is proposed to amend the said sub-section (3) so as to also provide for cancellation of registration where any trust or institution has obtained registration at any time under section 12A before its amendment." 12. In this context and in support of this view, we deem it proper to place reliance on a landmark decision of Hon'ble Uttaranchal High Court, viz., Welham Boys School Society v. CBDT [2006] 285 ITR 74 ....
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.... of the registration in terms of the language of section 12AA of the Act as prescribed in sub-section (1) and particularly in clauses (a) and (b ) of the section already reproduced hereinabove in paragraph No. 6 of this order. 16. A Commissioner has to call for an information so as to satisfy himself (i) whether the objects of the trust have been fulfilled by running an institution and (ii) whether those activities are genuinely carried out by the Trust. So after satisfying himself an order in writing registering the trust can be passed. So far as the running of the educational institution is concerned, even the Assessing Officer while passing assessment orders for several years, as referred supra, has held that the Trust is entitled for deduction under section 10(23C)( iiiad) of the Income-tax Act, 1961. If the Revenue Officer himself is qualifying this Trust as an educational institution and then granting the said deduction, then as a result it was not justifiable on the part of the ld. Commissioner to hold such a conflicting view, which can said to be an altogether contrary to the facts of the case. The allegation was that the books of account were not found in a proper manner.....
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....basic structure for which beneficial law is made and also be not in conflict with the general public utility. Naturally an institution if established to carry out an illegal activity or activities are causing any type of nuisance not in the interest of the public at large should definitely lead to cancellation of registration. The scheme of the Act otherwise do not subscribe and allow a trust to take the benefit of the provisions of sections 11 and 12 unless establish the prescribed utilization of the income, even if, at all the trust holds the registration in its hands. Therefore, at the stage of granting registration, the CIT is not expected to bother himself about the other provisions of the Act and supposed to confine himself to the procedure of registration as laid down therein." 17. The proposition laid down therein has to be applied in the present appeal. That the ld. Commissioner has to comprehend the objects of the Trust whether they are meant for public utility [requirement of section 12AA(1)(b)] and secondly that the activities have actually as also genuinely been carried out to fulfil the aims of the Trust [requirement of section 12AA(1)(a)]. In the present case, the T....