AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2018 (2) TMI 756
X X X X Extracts X X X X
X X X X Extracts X X X X
....ities of Agra Development Authority, Agra falls outside the purview of "Charitable purpose". CCIT (OSD)/CIT-1, Agra cancelled exemption u/s 12A w.e.f. A.Y. 2009-10. Is Hon'ble ITAT, Agra justified in holding that the CCIT (OSD)/CIT-1, Agra's order in cancelling exemption from A.Y. 2009-10 is illegal and whether CIT can only cancel exemption w.e.f. 2011-12 as per section 12AA(3) when law itself was amended from A.Y. 2009-10? (2) Whether the ITAT, Agra's order quashing the order of CIT-1, Agra is justified when the Hon'ble ITAT has failed to consider the express provisions of Section 13(8) & Section 2(15) w.e.f. 1.4.2009 i.e. A.Y. 2009-10.? (3) Whether the ITAT, Agra's order is justified when the Hon'ble ITAT has not expressed any opinion or given any finding in respect of the written submissions filed before the Bench through the DR drawing attention to the amended provisions of section 2(15) and 13(8) of the Income Tax Act, 1961 w.e.f. 1.4.2009 i.e. A.Y. 2009-10.? (4) Whether Hon'ble ITAT, Agra's order is not perverse wherein it has failed to consider all the facts of the case and express provisions of law? Upon the matter being taken up f....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the judgment of the Bombay High Court in the case of Sinhagad Technical Education Society Vs. C.I.T. (Central) (2012) 343 ITR 23 to hold that by virtue of amendment made to Section 12-AA (3), w.e.f. 01.06.2010, the Commissioner had the power to cancel the assessee's registration with effect from an earlier year. Then, the Commissioner further held since the activity of the assessee did not fall within the meaning of the term "charitable purpose" as defined under Section 2(15) of the Act (as was in force during the Assessment Year 2009-10), he could cancel the assessee's registration with retrospective effect from Assessment Year 2009-10 onwards. The Commissioner further examined the claim of the assessee on merits and concluded that the activity conducted by the assessee was clearly in the nature of trade and business. Therefore, he reasoned that the assessee was not pursuing any "charitable purpose" as defined under the Act. Accordingly, vide his order dated 04.04.2012, the Commissioner cancelled the assessee's registration (granted under section 12 A (1) of the Act) with effect from A.Y. 2009-10. Section 2(15) of the Act was as substituted by Finance Act, 2008 with....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rom 01.04.1997, Section 12AA of the Act was enacted. It reads as under: "Procedure for Registration 12AA. (1) The Chief Commissioner or Commissioner, on receipt of an application for registration of a trust or institution made under clause (a) of section 12A, shall - (a) call for such documents or information from the trust or institution as he thinks necessary in order to satisfy himself about the genuineness of activities of the trust or institution and may 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. (2) Every order granting or refusing registration under clause (b) of sub-section (1) shall be passed before the expiry of six months from....
X X X X Extracts X X X X
X X X X Extracts X X X X
....egislature has not yet amended Section 12AA (3) of the Act to specifically empower the Commissioner to cancel the registration with retrospective effect, i.e. with effect from any date prior to the date of issuance of notice of cancellation. After taking note of the statutory provision and the Circular issued by the C.B.D.T. itself, the Tribunal found that the power to cancel the registration granted under Section 12-A(1) of the Act had been first conferred on the Commissioner w.e.f. 01.06.2010. Therefore, according to the Tribunal, the Commissioner could not have cancelled such registration w.e.f. A.Y. 2009-10 as that would refer to a date prior to the date when the power to cancel the registration (granted under Section 12-A(1) of the Act) was first conferred on the Commissioner. Upon such reasoning, the Tribunal set aside, in entirety, the order passed by the Commissioner Income Tax-I, Agra dated 04.04.2012 under Section 12-AA(3) of the Act. The Tribunal did not examine the grounds of appeal raised by the assessee to attack/challenge the finding of the Commissioner on merits - that it had not engaged in any charitable activity. In this regard, we find that vide grounds of appe....
X X X X Extracts X X X X
X X X X Extracts X X X X
....in the case of Sinhagad Technical Education Society (supra) the registration had been granted to that assessee under section 12A of the Act. It was cancelled on 09.10.2007 under section 12AA(3) of the Act with effect from A.Y. 1999-2000 upon a prior notice issued for that purpose on 31.07.2007. Upon appeal, the Tribunal had by its order dated 19.09.2008 held that on 09.10.2007 (i.e. prior to amendment of sub-section 3 of section 12AA), the Commissioner did not have the power to cancel the registration granted under section 12A of the Act. Accordingly, it set aside the cancellation order. However, upon amendment made to section 12AA(3) of the Act, by Finance Act, 2010 (w.e.f 01.06.2010) the Commissioner issued a fresh show cause notice to that assessee again proposing to cancel its registration for the reasons mentioned in his earlier order dated 09.10.2007. In such factual context, the assessee approached the Bombay High Court under Article 226 of the Constitution of India and challenged the validity of that amendment made to the law. Reliance had been placed by that assessee on a judgement of the Supreme Court in the case of Sedco Forex International Drill Inc. Vs CIT (2005) 279....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed. A provision enacted for the withdrawal of the benefit conferred for breach of the underlying purpose cannot be regarded as arbitrary. The power is carefully structured by the requirements which are specified by the Legislature in sub-section (3) including observance of the principles of natural justice. A cancellation of registration under sub-section (3) of section 12AA is subject to an appeal before the Tribunal under section 253(1)(c). A judicial remedy is available against a cancellation of registration." (emphasis supplied) Then, distinguishing the judgement of the Supreme Court in the case of Sedco Forex International Drill Inc.(supra) it was held: "6. In our view, the decision in Sedco Forex [2005] 279 ITR 310 (SC) is inapplicable to the facts of the present case. The issue involved in Sedco Forex [2005] 279 ITR 310 (SC) was whether the substituted Explanation to section 9(1)(ii), brought in by the Finance Act, 1999, was retrospective in nature. The Finance Act, 1999, specifically provided that the substituted explanation would come into effect from April 1, 2000. In the above case, it was contended by the appellant that the Explanation would not apply while asses....
X X X X Extracts X X X X
X X X X Extracts X X X X
....on 12A prior to 2010 would not make the amendment retrospective in operation. The amendment does not take away any vested right nor does it create new obligations in respect of past actions. Therefore, the decision in Sedco Forex [2005] 279 ITR 310 (SC) is inapplicable to the facts of the petitioner's case. (emphasis supplied) The Bombay High Court then held: "8. In the present case, by and as a result of the amendment by the Finance Act of 2010, the Commissioner has been empowered to initiate steps for the cancellation of the registration of a trust or institution where the activities of the trust/institution are not genuine or are not being carried out in accordance with the objects thereof even in relation to a trust which was registered under section 12A as it then stood. Such an amendment cannot be regarded as taking away a vested right retrospectively. Alternately, even if it is construed to be retrospective, it cannot be held to be violative of article 14". (emphasis supplied) Ultimately, having upheld the validity of the amendment made to sub-section (3) of section 12 AA of the Act, the Bombay High Court then relegated that assessee to avail it's remedie....
X X X X Extracts X X X X
X X X X Extracts X X X X
....hallenge raised before it was confined to the validity of the amendment made to Section 12AA (3) on the ground, because sub Section 3 of Section 12AA(3) of the Act was first incorporated with effect from 01.10.2004, therefore, the amendment made to that sub-section could not be given effect from any date prior to the date of insertion of sub-section (3) i.e. 01.10.2004. No challenge was raised to the subsequent notice on the ground that the Commissioner could not seek to cancel a registration with retrospective effect. Thus, while it is true that the Bombay High Court specifically held:- after the amendment made with effect from 01.06.2010 the Commissioner could cancel a registration granted to an assessee before that date, however, it would be a completely different reasoning to offer that therefore the revenue became entitled to cancel such registration with effect from a date prior to the date of issue of such notice. Then, the Bombay High Court, itself left the merits of the matter open, to be adjudicated by statutory authorities. It declined to express any opinion as to the same. According to us the validity of the cancellation notice arises, independent of the issue of vir....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ration thus granted did not suffer from any inherent or fundamental defect. Then, the assessee continued to avail the benefit of the registration for all the assessment years subsequent to the grant of its registration. Such a registration order cannot be allowed to be cancelled with retrospective effect so as to affect past transactions that too in absence of any express legislative intent and without any adverse inference being first drawn against the assessee, in terms of Section 13(8) of the Act, during the relevant assessment year. In the case of M/s Shivalik Cellulose Ltd., Gajraula, Distt. Moradabad and Another Vs. State of U.P. And Others reported in 1992 U.P.T.C.-1, a division bench of this Court had the occasion to consider the question whether a recognition certificate granted under Section 4-B of the U.P. Sales Tax Act, 1948 could be cancelled retrospectively. Under Section 4B of that Act, a manufacturer could seek registration/recognition certification with respect to the goods manufactured by it if those goods had been notified by the State Government for the purpose of Section 4-B of the Act. Upon an order passed granting such recognition certificate, the assessee ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... it was to have retrospective effect was illegal, but the order would be deemed to be effective from the date of the service of the same on the dealer." The High Court while interpreting Rule 16(1) of the Orissa Sales Tax Rules, 1941, held that authorizing the Sales Tax Officer to specify the date in the order cancelling the registration certificate of a dealer would not permit him to fix a date retrospectively. In the present case, we find that the impugned order does refer it deemed operative retrospectively. However, the learned Standing Counsel fairly could not and did not dispute the proposition as aforesaid. In view of the decision of the various authorities and we are also satisfied that such an order should be made effective prospectively. Accordingly, the impugned order to the extent it is made effective retrospectively is quashed and it is held that the impugned order would be operative from the date it has been passed." (emphasis supplied) The aforesaid division bench judgment of this Court was followed by another division bench, again in a matter arising under Section 4-B of the U.P. Sales Tax Act, 1948 in the case of M/s Jitendra Oil Mills, Farrukhabad Vs. Stat....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ection 2(15) of the Act. Then, there is nothing in the language of Section 12AA(3) of the Act that may suggest registration of the assessee may be cancelled with retrospective effect. The use of the words 'or have obtained registration at any time under Section 12-A of the Act' added by amendment w.e.f. 01.06.2010 only indicate that the Commissioner was vested with the power to cancel a registration that may have been granted to an assessee at any time prior to the aforesaid amendment itself. However, it does not indicate that thereby the Commissioner had been empowered to cancel the registration of the assessee with retrospective effect i.e. with effect from a date prior to the date of issuance of the order/notice to cancel the registration. Clearly, the act of cancellation of registration has serious civil consequences. In absence of any legislative intent expressed to suggest that the legislature had empowered the Commissioner to cancel the assessee's registration under Section 12-A of the Act with retrospective effect, such power could not be deemed to exist or arise or be exercised to unsettle closed/part transactions especially because in this case the ground fo....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... reason that there was no power with the Commissioner to cancel the registration w.e.f. A.Y. 2009-10. Alternatively, it has also been submitted, even if the argument of learned counsel for the revenue is accepted, to any extent, then it would not result in automatic cancellation of the assessee's registration w.e.f. A.Y. 2011-12 onwards, in as much as the Tribunal has not adjudicated the grounds of appeal (raised by the assessee), on merits of the matter - that the assessee is engaged in pursuing charitable purpose being advancement of object of general public utility not involving any activity in the nature of trade, commerce or business. In this regard, Sri Rahul Agarwal has further relied on a decision of a co-ordinate bench in the case of CIT(Exemption) Vs. Yamuna Expressway Industrial Development Authority reported in (2017) 395 ITR 18 (Alld.). According to him, that was a case of similar development authorities being Yamuna Expressway Industrial Development Authority; Greater Noida Industrial Development Authority; and New Okhla Industrial Development Authority. This Court had, after taking note on similar constitutional documents of those development authorities and si....
X X X X Extracts X X X X
X X X X Extracts X X X X
....gistration granted to the assessee was liable to be cancelled because it had not engaged in any activity in pursuance of "charitable purpose", then, the date from which such registration could be cancelled, would become relevant and be given effect to. At present, there is no finding of the Tribunal as to the merits of the matter. The cancellation notice appears to have been issued only in light of amendment made to Section 2(15) of the Act. By that amendment, the first proviso had been added to that section. The first proviso applies to an assessee who may claim to be engaged in the 'advancement of any other object of general public utility'. In respect of such an assessee it had been provided (by amendment), if the activity in respect of which it claimed exemption, be in the nature of trade, commerce or business or any other activity rendering any service in relation of any trade, commerce or business for consideration, such activity shall not constitute an activity of charitable purpose. However, the second proviso to Section 2(15) of the Act (introduced by Finance Act, 2010 with effect from 1.4.2009), created an exception to the first proviso. Thus, the first proviso t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....essee (and not by the Commissioner), in accordance with Chapter XIV of the Act, within limitation prescribed thereunder. Those powers and procedure are clearly inapplicable to proceedings conducted by the Commissioner under Chapter III of the Act. Thus Section 13(8) of the Act creates an exception to the scheme for exemption contained in sections 11 and 12 of the Act. It applies on a year to year basis depending on quantification of the receipts from the activity falling under the first proviso to Section 2 (15) of the Act. On the other hand Section 12 AA(3) of the Act if invoked in the case of an assessee would disentitle an assessee to claim the exemption irrespective of the quantum of his receipts from any activity. The Act therefore neither contemplates an inviolable right to claim exemption solely on the strength of a registration certificate nor does the Act appear to contemplate that in case of an opinion being formed by the Commissioner that an assessee is engaged in an activity specified in the first proviso to section 2(15) of the Act, he must necessarily seek to cancel the registration granted by him earlier. In fact, the Act carves out a middle path by allowing the re....
X X X X Extracts X X X X
X X X X Extracts X X X X
....on to the Commissioner of Income- tax to cancel the registration. Circular No. 21 of 2016 in terms directed the authorities not to cancel the registration of the charitable institution only because the proviso to section 2(15) of the Act comes into play as the receipts are in excess of the specified limits therein. It also refers to section 13(8) of the Act to support the view of the non cancellation. In fact, we may usefully reproduce the relevant extract of Circular No. 21 of 2016, dated May 27, 2016, which reads as under (see [2016] 384 ITR (St.) 180 ) : "(3) Temporary excess of receipts beyond the specified cut off in one year may not necessarily be the outcome of alteration in the very nature of the activities of the trust or institution requiring cancellation of registration already granted to the trust or institution. Hence, section 13 of the Act has been amended vide Finance Act, 2012 by insert ing a new sub-section (8) therein to provide that such organisation would not get benefit of tax exemption in the particular year in which its receipts from commercial activities exceed the threshold whether or not the registration granted is cancelled. This amendment has taken ef....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ection 2(15) of the Act, had not accepted an identical submission on behalf of the Revenue. In appeal, the High Court while upholding the view of the Tribunal that registration cannot be cancelled, observed as under (page 705) : "The fact that the receipts from commercial activities are more compared to the overall receipts of the charitable organisation can neither lead to the conclusion that the activities of the trust or Institution are not genuine nor can it be said that the activities of the trust or institution are not being carried out in accordance with objects of the Trust or Institution and, therefore, the two conditions stipulated under the provisions of sub-section (3) of section 12AA of the Act which empowers the authority to cancel the registration, do not exist in the present case." Further, we note that the Madras High Court in Tamil Nadu Cricket Association v. DIT (Exemptions) [2014] 360 ITR 633 (Mad) has also taken a similar view." (emphasis supplied) We are in respectful agreement with the view taken by the Bombay High Court in the case of D.I.T. (Exemption) Vs. North Indian Association (supra). The cancellation of registration would not be automatic o....