TaxTMI 
TaxTMI 
2026 (3) TMI 705
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.... PCIT (Central), Kanpur passing the order cancelling the registration instead of PCIT (Exemptions). The Ground No.3 raised by the Assessee is challenging the action of the Learned PCIT's jurisdiction to cancel the registration of the Assessee Society retrospectively. The Ground No. 4 raised by the Assessee is challenging the action of the Learned PCIT in assuming jurisdiction based on reference made by the Learned Assessing Officer who had made such reference without recording any satisfaction note as prescribed under the second proviso to section 143(3) r.w.s. 12AB(4)(b) of the Act. The Ground No. 5 raised by the Assessee is challenging the retrospective application of second proviso to Section 143(3) of the Act wen the same was inserted by the Finance Act 2022 with effect from 1.4.2022 and hence the same could not have been initiated for Assessment Years 2017-18, 2019-20, 2020-21, 2021-22 and 2022-23. The Ground Nos. 6 to 9 raised by the Assessee are challenging the observations made by the Learned PCIT on merits to conclude that the Assessee had committed specified violation so as to warrant cancellation of registration. The Ground Nos. 10,11 and 13 raised by the ....
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....i b) Cash receipts in lieu of alleged bogus expenditure / bogus billing c) Advance of Rs. 20 crores paid to Shri Paramjit Gandhi for purchase of school building and d) Off the books cash transactions. 5. The main basis of the Learned PCIT to cancel the registration is on the premise that the aforesaid transactions directly or indirectly resulted in extension of benefit to certain trustees or related parties within the meaning of section 13(3) of the Act, thereby allegedly attracting the provisions of section 13(1)(c ) of the Act. On the basis of such alleged violation, the Learned PCIT has further sought to invoke clause (a) of the Explanation to section 12AB(4) of the Act. Additionally, the Learned PCIT has alleged that by entering into the said transaction, the Assessee committed violation of Clause (e ) of Explanation to section 12AB(4) of the Act on the premise that the activities of the trust were rendered non-genuine. The Learned AR before us vehemently argued that the show-cause notice or the subsequent notices issued by the Learned PCIT did not contain any specific reference to either Clause (a) or Clause (e ) of Explanation to Section 12AB(4) ....
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....rived from property held under trust, wholly or in part for charitable or religious purposes, has been applied, other than for the objects of the trust or institution; or (b) the trust or institution has income from profits and gains of business which is not incidental to the attainment of its objectives or separate books of account are not maintained by such trust or institution in respect of the business which is incidental to the attainment of its objectives; or (c) the trust or institution has applied any part of its income from the property held under a trust for private religious purposes, which does not enure for the benefit of the public; or (d) the trust or institution established for charitable purpose created or established after the commencement of this Act, has applied any part of its income for the benefit of any particular religious community or caste; or (e) any activity being carried out by the trust or institution,- (i) is not genuine; or (ii) is not being carried out in accordance with all or any of the conditions subject to which it was registered; or (f) the trust or institution has not complied wit....
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....uses (i) and (ii): Provided that in the case of a trust or institution created or established before the commencement of this Act, the provisions of sub-clause (ii) shall not apply to any use or application, whether directly or indirectly, of any part of such income or any property of the trust or institution for the benefit of any person referred to in sub-section (3), if such use or application is by way of compliance with a mandatory term of the trust or a mandatory rule governing the institution : Provided further that in the case of a trust for religious purposes or a religious institution (whenever created or established) or a trust for charitable purposes or a charitable institution created or established before the commencement of this Act, the provisions of sub-clause (ii) shall not apply to any use or application, whether directly or indirectly, of any part of such income or any property of the trust or institution for the benefit of any person referred to in sub-section (3) in so far as such use or application relates to any period before the 1st day of June, 1970; (d) in the case of a trust for charitable or religious purposes or a charitable ....
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....ervices rendered by that person to such trust or institution and the amount so paid is in excess of what may be reasonably paid for such services; (d) if the services of the trust or institution are made available to any person referred to in sub-section (3) during the previous year without adequate remuneration or other compensation; (e) if any share, security or other property is purchased by or on behalf of the trust or institution from any person referred to in sub-section (3) during the previous year for consideration which is more than adequate; (f) if any share, security or other property is sold by or on behalf of the trust or institution to any person referred to in sub-section (3) during the previous year for consideration which is less than adequate; (g) if any income or property of the trust or institution is diverted during the previous year in favour of any person referred to in sub-section (3): Provided that this clause shall not apply where the income, or the value of the property or, as the case may be, the aggregate of the income and the value of the property, so diverted does not exceed one thousand rupees; (h) if any ....
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.... such assets if such funds do not continue to remain so invested in such assets after the 31st day of March, 1992. (6) Notwithstanding anything contained in sub-section (1) or sub-section (2), but without prejudice to the provisions contained in sub-section (2) of section 12, in the case of a charitable or religious trust running an educational institution or a medical institution or a hospital, the exemption under section 11 or section 12 shall not be denied in relation to any income, other than the income referred to in sub-section (2) of section 12, by reason only that such trust has provided educational or medical facilities to persons referred to in clause (a) or clause (b) or clause (c) or clause (cc) or clause (d) of sub-section (3). (7) ................... (8) ................... (9) ................... (10) .................. (11) ................... Explanation 1.-For the purposes of sections 11, 12, 12A, 12AA, 12AB and this section, "trust" includes any other legal obligation and for the purposes of this section "relative", in relation to an individual, means- (i) spouse of the individual; (....
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....uld have been chargeable had the total income of the assessee been reduced by the aggregate of specified income referred to in clause (i). (2) Notwithstanding anything contained in this Act, no deduction in respect of any expenditure or allowance or set off of any loss shall be allowed to the assessee under any provision of this Act in computing the specified income referred to in clause (i) of sub-section (1). Explanation.-For the purposes of this section, "specified income" means,- (a) income accumulated or set apart in excess of fifteen per cent of the income where such accumulation is not allowed under any specific provision of this Act; or (b) deemed income referred to in Explanation 4 to the third proviso to clause (23C) of section 10, or sub-section (1B) or sub-section (3) of section 11; or (c) any income, which is not exempt under clause (23C) of section 10 on account of violation of the provisions of clause (b) of the third proviso of clause (23C) of section 10, or not to be excluded from the total income under the provisions of clause (d) of sub-section (1) of section 13; or (d) any income which is deemed to be income ....
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.... b) Where the activities were not being carried out in accordance with the objects of the trust or institution. 9.3. The provision did not contemplate cancellation of registration for alleged financial irregularities, disputed transactions, or purported violations of the Act unless such allegations went to the very root of the genuineness of activities or deviation from the stated objects. It would be relevant to reproduce the relevant extract of Section 12AA(3) of the Act for ready reference :- "Procedure for registration. 12AA. (1) The Principal Commissioner or Commissioner, on receipt of an application for registration of a trust or institution made under clause (a) or clause (aa) or clause (ab) of sub-section (1)] 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,- (i) the genuineness of activities of the trust or institution; and (ii) the compliance of such requirements of any other law for the time being in force by the trust or institution as are material for the purpose of achieving its objects, and may also....
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....at such non-compliance has occurred, has either not been disputed or has attained finality, then, the Principal Commissioner or the Commissioner may, by an order in writing, cancel the registration of such trust or institution: Provided that the registration shall not be cancelled under this sub-section, if the trust or institution proves that there was a reasonable cause for the activities to be carried out in the said manner. (5) Nothing contained in this section shall apply on or after the 1st day of April, 2021. (Emphasis supplied by us) 9.4. Accordingly, it was argued that the power to cancel registration on the ground that activities of the Society are not genuine is an exceptional power, which can be exercised only where the predominant and substantive activities of the Society are shown to be sham, fictitious, non-existent or a mere facade. It is settled position of law that so long as the core charitable activities for which the Society is established are real, ongoing and carried out in accordance with its objects, registration cannot be cancelled merely because certain transactions are questioned. 9.5. The Learned AR before us ve....
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....f the Society are non-genuine. He submitted that if the fundamental distinction between the activities and transactions are not understood in the above mentioned manner, then it would render the statutory distinction between assessment stage consequences and registration stage consequences wholly otiose. 9.6. Per Contra, the Learned DR vehemently relied on the order of the Learned PCIT and stated that both the expressions 'activities' and 'transactions' are to be given the same meaning and genuineness of the activities of the Assessee Society need to be viewed only from the transactions undertaken by it. Hence she argued that there is no difference between the two and both the words convey the same meaning for the purpose of determining the genuineness of activities of the Assessee Society. Hence she argued that the Learned PCIT was duly justified in invoking the provisions of Clause (e) of Explanation to Section 12AB(4) of the Act in the facts and circumstances of the instant case. 9.7. The Learned AR in his rebuttal submitted only the predominant activity carried out by the society is to be examined and if the said predominant activity is found to be genuine and in accordan....
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....on whether the said activities are genuine or a make believe one. It is in this background, the trust deed dated 21st December 1984 is to be looked into. .............................. ..................................................... 10. A perusal of the aforesaid object makes it very clear that all those objects are charitable in nature. In fact, the said fact is not disputed even by the revenue. But what is contended is that the activities of the trustees and the trust shows that it is not a genuine trust. It is in support of the said contention, the aforesaid activities of the trustees in treating the property as family property and dividing the same, executing a rectification deed, offering the property as a security for borrowing loan for businesses conducted by the trustees in their individual name and constructing buildings in the trust land and letting it out for rent and not collecting the rent from them are cited as instances to show the trust is not genuine. 11. It is in this context, it is necessary to know whether any of those activities in law has any value, Once the authors of the trust transferred the land, which belonged to ....
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....d complete dedication had taken place, there would be no power left in the founder to revoke and no assertion on his part or the subsequent conduct of himself or his descendants contrary to such dedication would have the effect of nullifying it. If the trust had been really and validly created, any deviation by the founder of the trust or the trustees from the declared purposes would amount only to a breach of trust and would not detract from the declaration of trust. Therefore, the subsequent-conduct of the founder in dealing with the funds of the trust long after the creation of the trust may not put an end to the trust itself." We are in full agreement with the principle stated in the aforesaid passage and we hold that the trustee had no authority or jurisdiction to execute a fresh Trust Deed and the document dated 1st July, 1944 is of no consequence and is no more than a scrap of paper. The Trust as originally established by the Deed dated 28^th November, 1941 remained unchanged or unaffected by the later document dated 1st July, 1944." 12. From the aforesaid statement of law, it is clear that once the authors of the trust transfers the title of the property t....
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....he registration is granted, the exemption from the provisions of the Income Tax Act in particular sections 11 and 12 is not automatic. It is only when the assessee satisfies the requirement of section 13, he would be eligible for exemption. That is a matter to be gone into by the Assessing Authority in respect of the returns filed every year and if according to them there is misappropriation of funds and it is hit by section 13 of the Act, certainly, they can deny the benefit of exemption. But that is not a ground to deny the registration in the instant case under Section 12AA, when admittedly the trust has been established to run schools and colleges for imparting education, which is a charitable purpose. In that view of the matter, we do not see any merit in this appeal. The substantial question of law framed in this appeal is answered in favour of the assessee and against the revenue. Accordingly, the appeal is dismissed. (emphasis supplied by us) 9.8. Similar view was expressed by the Hon'ble Karnataka High Court in yet another case of CIT vs Islamic Academy of Education reported in 229 Taxman 274 (Kar), wherein it was held that once the object of the trust is impar....
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....s under section 13(3) of the Act which amounts to diversion of income of the Assessee Society, still the registration of the Assessee Society under section 12AB of the Act would not get disturbed as that was not the condition imposed for withdrawal of registration by the competent authority granting registration. On perusal of the order of the Learned PCIT, we find that the Assessee Society is not doubted about the activities carried on by it, rather the order is confined to certain alleged irregularities in specific financial transactions. Hence these alleged financial irregularities would not contribute to the conclusion that activities of the Assessee Society are not genuine or are not being carried out in accordance with its objects. 9.11. Hence we hold that invocation of Clause (e ) of Explanation to Section 12AB(4) of the Act without any adverse finding on the genuineness or nature of the Assessee Society's activities is wholly misconceived and action of the Learned PCIT in this regard is rejected. 10. The Learned PCIT had invoked Clause (a) of Explanation to Section 12AB(4) of the Act by stating that the Assessee had committed specified violation thereon. The provision....
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....tuted and registration was granted. In fact even after the extraordinary measure of a search conducted on the Assessee Society under section 132 of the Act, there is not a single finding or material to suggest that the Assessee Society has abandoned, diluted or diverted from its principal and predominant object of imparting education, or that its funds were applied towards any object other than education. Hence in the absence of any such allegation or evidence demonstrating the deviation from the predominant charitable object, the very jurisdictional foundation for invoking Clause (a) of Explanation to Section 12AB(4) of the Act fails. The only allegation stated by the Learned PCIT in his order is that the Assessee Society had carried out certain financial transactions which would fall in the category of an 'irregularity' as it extends benefit to certain related parties referred to Section 13(3) of the Act. 11. Let us now examine what according to the Learned PCIT is the benefit extended to the related parties referred to in section 13(3) of the Act, which according to Learned PCIT is a financial irregularity. The various financial irregularities classified by the Learned PCIT a....
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.... Uttara Singh. In fact, in the relied upon statement, Mrs. Uttara Singh confirmed meeting with Ms. Jasmine Gandhi on two to three occasions. The Learned AR submitted that later on a clarification / affidavit was also filed which is enclosed in pages 190 to 192 of the paper book in this regard. Hence, the revenue's reliance on the statement of Mrs. Uttara Singh gets vitiated based on the clarification / affidavit given at later stage. Mr S.K. Gupta, President had also filed the affidavit wherein he confirmed that no financial benefits were granted to Ms. Jasmine Gandhi unwarrantedly. This affidavit is enclosed in pages 204 to 206 of the paper book. The Learned AR submitted that all these facts clearly go to prove that Ms. Jasmine Gandhi was paid remuneration only for the actual services rendered by her and the Assessee Society had been immensely benefited out of her rendition of services. He submitted that there is no diversion of funds as alleged by the Learned PCIT. The Learned AR submitted that Ms. Jasmine Gandhi was not even a related party or a person referred to in section 13(3) of the Act. Hence, there cannot be any allegation that could be leveled on the Assessee society wit....
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....ion Applicant for Educomp Infrastructure & Schools Management Ltd (later renamed as Jasrati Education Solutions Ltd). On 15-1-2023, the Assessee Society entered into a Memorandum of Understanding (MOU) with Mr Paramjit Gandhi for purchase of ownership, use and occupation rights in the building of school located at Noida Sector -41 and Noida Sector-135. The total agreed consideration for transfer of the buildings was fixed at Rs 60 crores and Society had to pay earnest money / advance of Rs 20 crores. MOU also stipulates that upon completion of conveyance and receipt of requisite statutory and regulatory approvals, the earnest money of Rs 20 crores would either be adjusted against the final consideration payable to the asset owning entity or in the alternative, be refunded. Later the Assessee Society received back Rs 10 crores from Mr Paramjit Gandhi, being part of the earnest money earlier advanced and balance Rs 10 crores was adjusted against the purchase consideration. The sale consideration for building of Noida Sector-135 was fixed at Rs 38,63,50,000 and for Noida Sector-41 was fixed at Rs 21,36,50,000 totalling to Rs 60 crores for which payments were made by the Assessee Socie....
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....nancial irregularities would not stand in way of continuation of the registration granted to the Assessee Society. 12. We find a lot of force in the alternative arguments advanced by the Learned AR on without prejudice basis that any benefit, even if assumed to be extended to related parties, such an alleged violation does not fall within the scope of Clause (a) of Explanation to Section 12AB(4) of the Act. In this regard, the Learned AR rightly placed reliance on the provisions of section 13(1)(c) of the Act, which is a self-contained code by itself to deal with situations involving alleged benefit to specified persons. He submitted that the provisions of section 13(1)(c) of the Act prior to amendment by the Finance Act 2014 was confined only to denial of exemption to the extent prescribed for the relevant assessment year and does not extend to cancellation of registration. He referred to the provisions of section 13(1)(c) of the Act as it stood prior to amendment by the Finance Act 2014 and impressed upon us to drive home the point that the legislature has consciously provided a distinct mechanism and consequence under section 13 for alleged benefits to related parties, which ....
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....lied on the following decisions to say that section 12AA(3) cannot be invoked by Commissioner for cancellation of registration merely for violation of provisions of section 11 and 13 of the Act by the assessee :- ♦ CIT v. Apeejay Education Society [2015] 59 taxmann.com 102 (Punj. & Har.) ♦ Cancer Aid & Research Foundation v. DIT (Exemption) [2014] 66 SOT 86/49 taxmann.com 537 (Mum. - Trib.) ♦ CIT (Exemptions) v. Cancer Aid & Research Foundation Income Tax Appeal No.505 of 2015 ♦ Prabodhan Shikshan Prasarak Sanstha v. Dy. CIT [2014] 44 taxmann.com 33/[2015] 152 ITD 473 (Pune - Trib.) ♦ Tamil Nadu Cricket Association v. DIT (Exemption) [2014] 360 ITR 633/221 Taxman 275/[2013] 40 taxmann.com 250 (Mad.) 12. Therefore, in view of our aforesaid discussion, on the preliminary point itself, we find that the impugned order of the Commissioner cancelling the registration u/s. 12AA(3) of the Act is bereft of a valid jurisdiction. 13. Now, we may come to the argument set up by the learned CIT-DR. According to him, the activities, which has resulted in violation of section 13 of the Act can be construed....
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....cancel the registration. Thus, the impugned reasons advanced by the Commissioner do not give him jurisdiction to invoke section 12AA(3) of the Act at the relevant point of time. 14. Therefore, we conclude by holding that having regard to the facts and circumstances of the case the Commissioner has wrongly invoked section 12AA(3) of the Act in as much as the requisite conditions contained therein are not fulfilled. Before parting, we may clarify that we have not examined the merits of the reasoning advanced by the Commissioner, which in any case, in our considered opinion, the Revenue is free to examine in the course of the relevant assessment proceedings carried out by the Assessing Officer, as advised in law. 15. In conclusion, we set-aside the order of the Commissioner and restore the registration originally granted to the assessee u/s. 12AA of the Act on 22.01.1979 (supra). 16. In the result, the appeal is allowed, as above. 12.1. Similar views were expressed by the Hon'ble Jurisdictional Delhi High Court in the case of DIT(E ) vs Agrim Charam Foundation reported in 253 ITR 593 (Del) ; Hon'ble Karnataka High Court in the case of CIT vs Fr. Mullers C....
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....ligious trust which forfeits exemption by virtue of the provisions of the Income-tax Act in regard to investment pattern or use of the trust property for the benefit of the settlor, etc., contained in section 13(1)(c) and (d) of that Act, the said rate will not apply to the business profits of such trusts which are otherwise chargeable to tax. In other words, where such a trust contravenes the provisions of section 13(1)(c) or (d) of the Act, the maximum marginal rate of income-tax will apply only to that part of the income which has forfeited exemption under the said provisions. (Emphasis supplied by us) 12.2. In view of the plain statutory scheme of provisions of Section 13(1)(c) of the Act as it stood prior to the amendment by the Finance Act 2014, read with the consistent and binding judicial interpretations thereof mentioned herein above, we hold that the legislature never intended violation of Section 13 to operate as a ground for cancellation or withdrawal of registration. The consequence contemplated under Section 13 of the Act is consciously limited to denial of exemption only to the extent of income alleged to have been diverted for the benefit of the specifie....
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....rein violations of section 13(1) of the Act are consciously excluded from the list of specified violations under the Explanation to Section 12AB(4) of the Act. We find that post Finance Act, 2022, the provisions of section 13(1)(c) of the Act very clearly mention that if there is a benefit extended to specified persons referred to section 13(3) of the Act either directly or indirectly, then only such part of the income so diverted would be subjected to tax in the hands of the trust and to that extent, the exemption under section 11 of the Act would be denied, while the charitable character and registration of the trust would remain intact. For this, a specific section 115BBI of the Act has been introduced by the statute that the diverted amounts in terms of section 13(1)(c) of the Act shall get taxed at a maximum marginal rate of 30% on gross basis. Accordingly, once the statute itself limits the consequence of Section 13(1) of the Act violation, to taxation of the income so diverted, any attempt to invoke cancellation of registration on the same set of allegations amounts to imposing a consequence which the legislature has consciously chosen to exclude under the Post Finance Act 2....
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....fter referred to as trust or institution under first regime); and ii. Regime for the trusts registered under section 12AA/12AB (hereinafter referred to as trust or institution under the second regime). In the Finance Bill, it is proposed to rationalise the provisions of both the exemption regimes by- I. ensuring their effective monitoring and implementation; II. bringing consistency in the provisions of the two exemption regimes; and III. providing clarity on taxation in certain circumstances. 2. Some consequential amendments are also proposed following the amendments of past few years. All the proposals are discussed below:- 3. Ensuring effective monitoring and Implementation of two exemption regimes 3.1. Books of account to be maintained by the trusts or institutions under both the regimes a) Where the total income of any trust or institution under the second regime, as computed under this Act without giving effect to the provisions of section 11 and section 12 of the Act, exceeds the maximum amount which is not chargeable to income-tax in any previous year, it is required to get its accounts audited....
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....inserted by the Finance Bill and discussed in subsequent paragraphs) or clause (c) of sub-section (1) of section 13, as the case may be, the Assessing Officer may direct that such person shall pay by way of penalty, (i) a sum equal to the aggregate amount of income applied, directly or indirectly, by such person, for the benefit of any person referred to in sub-section (3) of section 13 where the violation is noticed for the first time during any previous year; and (ii) a sum equal to two hundred percent of the aggregate amount of income of such person applied, directly or indirectly, by such person, for the benefit of any person referred to in sub-section (3) of section 13, where violation is noticed again in any subsequent previous year. c) These amendments will take effect from 1st April, 2023 and will accordingly apply in relation to the assessment year 2023-24 and subsequent assessment years. [Clause 76] 3.3 Reference to the Principal Commissioner or Commissioner (PCIT/CIT) for the cancellation of registration/approval: a) The following issues related to the process of approval or registration, or cancellation or withdrawal there....
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....ns of clause (iii) of Explanation 1 to section 153. Presently, there is no time limit for such Principal Commissioner or Commissioner to decide on such reference. b) In order to address the above issues, it is proposed to amend the provisions of section 12AB and fifteenth proviso to clause (23C) of section 10 of the Act as follows: (i) Sub-section (4) of section 12AB of the Act is proposed to be substituted with a new sub-section (4) to provide that where registration or provisional registration of a trust or an institution has been granted under clause (a) or clause (b) or clause of sub-section (1) of section 12AB or clause (b) of sub-section (1) of section 12AA, as the case may be, and subsequently, (a) the Principal Commissioner or Commissioner has noticed occurrence of one or more specified violations during any previous year; (b) the Principal Commissioner or Commissioner has received a reference from the Assessing Officer under the second proviso to sub-section (3) of section 143 for any previous year, or (c) such case has been selected in accordance with the risk management strategy, formulated by the Board from time to time, for ....
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.... as referred to in item (B) of sub-clause (i) of clause (b) of sub-section (1) of section 12AB, and the order, direction or decree, by whatever name called, holding that such non-compliance has occurred, has either not been disputed or has attained finality. III) Sub-section (5) of section 12AB of the Act is proposed to be substituted with a new sub-section (5) to provide that that the order under clause (ii) or (iii) of sub-section (4) shall be passed before expiry of the period of six months, calculated from the end of the quarter in which the first notice is issued by the Principal Commissioner or Commissioner, on or after the 1st day of April, 2022, calling for any document or information, or for making any inquiry, under clause (i) of subsection (4); IV) Similarly, the fifteenth proviso to clause (23C) of section 10 of the Act is proposed to be substituted to provide that where the fund or institution referred to in sub-clause (iv) or trust or institution referred to in sub-clause (v) or any university or other educational institution referred to in sub-clause (vi) or any hospital or other medical institution referred to in sub-clause (via) of clause (23C) of....
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....se (i) expires. VI) The term "specified violation" is also proposed to be defined by inserting an Explanation (Explanation 2) to the fifteenth proviso to clause (23C) of section 10 of the Act to mean the following: - a) where any income of trust or institution under the first regime has been applied other than for the objects for which it is established; or b) the trust or institution under the first regime has income from profits and gains of business is not incidental to the attainment of its objectives or separate books of account are not maintained by it in respect of the business which is incidental to the attainment of its objectives; or c) any activity being carried out by the trust or institution under the first regime- A. is not genuine; or B. is not being carried out in accordance with all or any of the conditions subject to which it was notified or approved; or (d) the trust or institution under the first regime has not complied with the requirement of any other law for the time being in force, and the order, direction or decree, by whatever name called, holding that such non-compliance has occurred, has eith....
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....proviso to clause (23C) of section 10 or clause (ii) or (iii) of sub-section (4) of section 12AB, as the case may be, is received by the Assessing Officer shall be excluded in computing the period of limitation. These amendments will take effect from 1st April, 2022. [Clauses 4, 7, 40 and 48] 4. Bringing consistency in the provisions of two exemption the regimes As mentioned earlier, there is a requirement for alignment of certain provisions of the two regimes as they both intend to grant similar benefit. 4.1 Accumulation provisions i) Under the existing provisions of the Act, a trust or institution is required to apply 85% of its income during any previous year. However, if it is not able to apply 85% of its income during the previous year, it is allowed to accumulate such income for a period not exceeding 5 years as per the following provisions, namely: I. sub-section (2) of section 11 of the Act for the trusts or institution under the second regime; and II. third proviso to clause (23C) of section 10 of the Act for trusts or institution under the first regime. ii) However, the accumulation of income, as p....
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....is to be accumulated or set apart, which shall in no case exceed five years; b. the money so accumulated or set apart is invested or deposited in the forms or modes specified in sub-section (5) of section 11; and c. the statement referred to in clause (a) of Explanation 3 is furnished on or before the due date specified under sub-section (1) of section 139 for furnishing the return of income for the previous year; (C) It is proposed to insert a proviso to the proposed Explanation 3 to the third proviso to clause (23C) of section 10 of the Act to provide that in computing the period of five years referred to in sub-clause (a), the period during which the income could not be applied for the purpose for which it is so accumulated or set apart, due to an order or injunction of any court, shall be excluded. (D) It is also proposed to insert an Explanation (Explanation 4) to third proviso to clause (23C) of section 10 to provide that any income referred to in the proposed Explanation 3 shall be deemed to be the income of the previous year in which the following takes place- a) the income is applied for purposes other than wholly and exclusivel....
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....April, 2023 and will accordingly apply in relation to the assessment year 2023-24 and subsequent assessment years. [Clauses 4 and 5 ] 4.2 Bringing consistency in the provisions relating to payment to specified person i) Under section 13 of the Act, trusts or institutions under the second regime are required not to pass on any unreasonable benefit to the trustee or any other specified person. It is proposed to insert twenty first proviso in clause (23C) of section 10 of the Act to provide that where the income or part of income or property of any trust or institution under the first regime, has been applied directly or indirectly for the benefit of any person referred to in sub-section (3) of section 13, such income or part of income or property shall be deemed to be the income of such person of the previous year in which it is so applied. The provisions of sub-section (2), (4) and (6) of section 13 of the Act shall also apply to trust or institution under the first regime. ii) This amendment will take effect from 1 st April, 2023 and will accordingly apply in relation to the assessment year 2023-24 and subsequent assessment years. [Claus....
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....the first regime is required to furnish the return of income for the previous year in accordance with the provisions of sub-section (4C) of section 139 of the Act, within the time allowed under that section. This amendment will take effect from the 1st April, 2023, and will accordingly apply in relation to the assessment year 2023-24 and subsequent assessment years. [Clause 4] 5. Providing clarity on taxation in certain circumstances There are various conditions prescribed for availing exemption under the two regimes. There is a need for clear provisions in the Act listing out how income is to be computed in case of non-compliance. Hence, it is proposed to provide for the same so that there is no dispute and the law is applied consistently. 5.1 Allowing certain expenditure in case of denial of exemption i) Different provisions mandate denial of exemption to the trusts or institutions under both the regimes. Some of the provisions under which exemption is not available for its violation are as follows: a) Having commercial receipts in excess of 20% of the annual receipts in violation of the provisions of proviso to section 2(1....
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....oses of computing income chargeable to tax, under sub-section, no deduction in respect of any expenditure or allowance or set-off of any loss shall be allowed to the assessee under any other provision of the Act. (d) Similarly, it is proposed to insert twenty second proviso to clause (23C) of section 10 of the Act to provide that where any trust or institution under the first regime violates the provisions of the eighteenth proviso or violates the conditions prescribed under tenth or twentieth proviso, its income chargeable to tax shall be computed after allowing deduction for the expenditure (other than capital expenditure) incurred in India, for the objects of such trust or institution, subject to fulfilment of the following conditions: (i) such expenditure is not from the corpus standing to the credit of such trust or institution as on the last day of the financial year immediately preceding the previous year relevant to the assessment year for which the income is being computed ; (ii) such expenditure is not from any loan or borrowing; (iii) claim of depreciation is not in respect of an asset, acquisition of which has been claimed as applicat....
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....e denied to the trust irrespective of the amount of investment in non-specified modes. (c) Further, the trusts or institutions under both the regimes are required to apply at least 85% of their income during the year. Where the trust is not able to apply 85% of the income, it may accumulate such income for maximum 5 years. Sub-section (3) of section 11 of the Act specifically provides for the trusts or institutions under the second regime that such accumulated income, which could not be applied within the period of accumulation (maximum 5 years), shall be deemed to be the income of the trust. Similarly, for the trusts or institutions under the second regime, there is a specific provision under clause (2) of Explanation 1 to sub-section (1) of section 11 of the Act providing for the accumulation of income for a period of one year. Subsection (1B) of section 11 of the Act provides that if the income accumulated under clause (2) of Explanation 1 to sub-section (1) of section 11 of the Act could not be applied within the time allowed; it shall be deemed to be the income of the trust. (d) The trusts or institutions under thefirst regime are also required to apply at le....
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....come is accumulated or set apart. (e) All the above income are also required to be taxed at special rate. Hence, it is proposed to insert new section 115BBI in the Act providing that where the total income of any assessee being a trust under the first or second regime, includes any income by way of any specified income, the income-tax payable shall be the aggregate of- (i) the amount of income-tax calculated at the rate of thirty per cent on the aggregate of specified income; and (ii) the amount of income-tax with which the assessee would have been chargeable had the total income of the assessee been reduced by the aggregate of specified income referred to in clause (i). (f) The sub-section (2) of this new section seeks to provide that no deduction in respect of any expenditure or allowance or set off of any loss shall be allowed to the assessee under any provision of the Act in computing specified income. (g) Explanation to the proposed section defines "specified income" to mean:- (i) income accumulated or set apart in excess of fifteen percent of the income where such accumulation is not allowed under any specific provisions o....
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....notices merely contain general and omnibus allegations without identifying whether the case of the assessee is sought to be covered under Clause (a), (b), (c ), (d), (e ), (f) or (g) of the Explanation to Section 12AB(4) of the Act. In the absence of such specification, the assessee was left completely in the dark as to precise statutory charge it was required to meet, thereby vitiating the very assumption of jurisdiction under Section 12AB(4) of the Act. He submitted that the requirement of expressly invoking a specific limb of the statutory provision is not an empty formality, but a mandatory jurisdictional precondition. The Explanation to Section 12AB(4) of the Act exhaustively enumerates distinct and mutually exclusive 'specified violations', each carrying different factual and legal connotations. Unless the Learned PCIT forms a prima facie satisfaction as to which exact Clause is attracted and communicates the same to the assessee in the show-cause notice, the initiation of proceedings is rendered arbitrary, vague and unsustainable in law. A notice which does not disclose the precise statutory charge is no notice in the eyes of law. In this regard, we find that the learned AR ....
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....ellation of registration. We find that this legislative position is not only evident from the plain language of the statute, but also stands expressly clarified in the Memorandum explaining the provisions of the Finance Bill 2022, which forms a legitimate and authoritative aid to construction of taxing statutes. In the present case, the Learned PCIT (Central) Kanpur has wrongly invoked the provisions of Section 12AB(4) of the Act to treat the alleged acts of the Assessee Society during financial years 2018-19, 2019-20, 2020-21 and 2021-22, relevant to assessment years 2019-20, 2020-21, 2021-22 and 2022-23, as 'specified violations', despite the fact that the said provision was not on the statute book during those years. It is a settled principle that fiscal statutes creating new liabilities or disabilities must be construed strictly and prospectively, unless the legislature expressly provides otherwise. We find that there is no express or implied legislative intent to apply the concept of 'specified violation' to periods prior to 1-4-2022. Accordingly, the cancellation of registration of the Assessee Society for assessment years 2019-20, 2020-21, 2021-22 and 2022-23 on the basis of....
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.... transferring the assessment proceedings of the Assessee from the Assessing Officer, Exemption Circle, Ghaziabad to DCIT / ACIT, Central Circle, Ghaziabad. Thereafter, the impugned order dated 26-6-2025 was passed by the PCIT (Central), Kanpur under Section 12AB(4) of the Act, whereby the registration of the Assessee Society was cancelled for assessment years 2019-20 to 2023-24 and for all subsequent assessment years. The Learned AR has submitted that the impugned order is void ab initio for lack of jurisdiction in as much as the authority competent to grant, cancel or withdraw registration under Section 12A/ 12AA / 12AB of the Act is the Commissioner of Income Tax (Exemptions), Lucknow and not PCIT (Central), Kanpur. He submitted that the order passed under Section 127 of the Act nearly provides for transfer of assessment jurisdiction from one assessing officer to another assessing officer. Section 127 falls under Chapter XIII of the Act, dealing exclusively with assessment machinery and does not extend to or govern statutory provisions relating to grant or cancellation of registration under Sections 12A / 12AA / 12AB of the Act, which operate in a different and distinct statutory....
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....ssessing Officers (whether with or without concurrent jurisdiction) also subordinate to him. (2) Where the Assessing Officer or Assessing Officers from whom the case is to be transferred and the Assessing Officer or Assessing Officers to whom the case is to be transferred are not subordinate to the same Principal Director General or Director General or Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner,- (a) where the Principal Directors General or Directors General or Principal Chief Commissioners or Chief Commissioners or Principal Commissioners or Commissioners to whom such Assessing Officers are subordinate are in agreement, then the Principal Director General or Director General or Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner from whose jurisdiction the case is to be transferred may, after giving the assessee a reasonable opportunity of being heard in the matter, wherever it is possible to do so, and after recording his reasons for doing so, pass the order; (b) where the Principal Directors General or Directors General or Principal Chief Commissioners or Chief Commissioners or Principal C....
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....ivities of the trust or institution; and (B) the compliance of such requirements of any other law for the time being in force by the trust or institution as are material for the purpose of achieving its objects; and (ii) after satisfying himself about the objects of the trust or institution and the genuineness of its activities under item (A), and compliance of the requirements under item (B), of sub-clause (i),- (A) pass an order in writing registering the trust or institution for a period of five years; (B) if he is not so satisfied, pass an order in writing rejecting such application and also cancelling its registration after affording a reasonable opportunity of being heard; (c) where the application is made under sub-clause (vi) of the said clause, pass an order in writing provisionally registering the trust or institution for a period of three years from the assessment year from which the registration is sought, and send a copy of such order to the trust or institution. (2) All applications, pending before the Principal Commissioner or Commissioner on which no order has been passed under clause (b) of sub-section ....
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....ection in Form No. 10AC and issue a sixteen digit alphanumeric Unique Registration Number (URN) to the applicants making application as per clause (i) of the sub-rule (1). (6) If, at any point of time, it is noticed that Form No. 10A has not been duly filled in by not providing, fully or partly, or by providing false or incorrect information or documents required to be provided under sub-rule (1) or (2) or by not complying with the requirements of sub-rule (3) or (4), the Principal Commissioner or Commissioner, as referred to in sub-rule (5), after giving an opportunity of being heard, may cancel the registration in Form No. 10AC and Unique Registration Number (URN), issued under sub-rule (5), and such registration or such Unique Registration Number (URN) shall be deemed to have never been granted or issued. (7) In case of an application made under sub-clause (vi) of clause (ac) of sub-section (1) of 4 [section 12A as it stood immediately before its amendment vide the Finance Act, 2023,] during previous year beginning on 1st day of April, 2021, the provisional registration shall be effective from the assessment year beginning on 1st day of April, 2022. (8....
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....al College, Ballabhgarh) AABTA3409Q Circle-2(E), Chandigarh DCIT, Central Circle-2, Faridabad DLC-CC-136- 4 This order shall take effect from 26.10.2020." 12. We also consider it appropriate to reproduce the relevant part of the Notification dated 22.10.2014 providing for the territorial jurisdiction of CIT(E) in furtherance of powers given to the Board u/s 120 (1) and (2) of the Act, made available at pages 2 to 5 of the paper book:- "NOTIFICATION New Delhi, the 22nd October, 2014 (Income-Tax) S.O. 2754 (E).-In exercise of the powers conferred by sub-section (1) and (2) of section 120 of the Income-Tax Act, 1961 (43 of 1961) and in supersession of the notification of the Government of India, Central Board of Direct Taxes number S.O.880(E), dated the 14th September, 2001, published in the Gazette of India, Extraordinary, Part II, Section 3, Sub section (ii), dated the 14th September, 2001, except as respects things done or omitted to be done before such supersession, the Central Board of Direct Taxes hereby - SCHEDULE S. No. Designation Headquarters Territorial area Cases or classes of cases (1) (2) (3) (4) ....
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....ssioner or Commissioner of Income-tax to examine if there is any "specified violation" by the trust or institution registered or provisionally registered under the relevant clauses of sub-section (1) of section 12AB or subsection (1) of section 12AA. Subsequent to examination by the Principal Commissioner or Commissioner of Incometax, an order is required to be passed for either cancellation of the registration or refusal to cancel the registration. Similar provisions have also been introduced in clause (23C) of section 10 of the Act by substituting the fifteenth proviso of the said clause with respect to fund or institution trust or institution or any university or other educational institution or any hospital or other medical institution referred under sub-clauses (iv), (v), (vi), (via) of this clause and which have been approved or provisionally approved under the second proviso to the said clause. These amendments are effective from 1st April, 2022. In addition to the specified violations referred above, the power of cancellation has also been granted under sub-rule (5) of rule 17A and subrule (5) of rule 2C of the Income-tax Rules, 1962 ( the Rules) to the Principal Commission....
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....ated 22/10/2014. 14.1 Further, what is material is that by the Notification dated 22.10.2014 the Board, exercising powers under sub-section (1) and sub-section (2) of section 120 vested powers to perform all the functions in respect of class of cases referred in the column No.5 of the Schedule of this Notification and had created a specific jurisdiction on territorial basis in regard to the provisions generally dealing with claim of exemptions u/ss 10,11,12, 13A and section 13B of the Act. 14.2 Thus as we refer to the Notification dated 22.10.2014, the clause (a) vested powers with Commissioners of Income-tax (Exemptions), for class or class of cases pertaining to section 10, section 11, section 12, section 13A and section 13B of the Act and clause (b), to issue orders in writing for the exercise of 'their' powers and perform all 'their' functions by Additional Commissioners of Income tax or Joint Commissioners of Income-tax and Tax Recovery Officers who are subordinate to them and that signifies that again this delegation of powers by CIT(E), Chandigarh could have been qua officers subordinate to CIT(E), Chandigarh only and not, in any way, gave powers to CIT(E),....
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....rom 01.04.2021. Accordingly, under no circumstance while passing order u/s 127 of the Act on 26.10.2020, CIT(E), Chandigarh could have transferred his powers u/s 12AB of the Act to any other authority. 15.1 On the other hand, ld. PCIT, Gurgaon by virtue of the Explanation defining the scope of 'case' for the purpose of section 127, did not have power vested in him to cancel registration u/s 12AB(4). The 'case' refers to assessment initiated as a consequence of search or consequential proceedings to such assessments only and cannot be extended to special powers of ld. CIT(E), Chandigarh. Thus, the assumption of jurisdiction on the basis of the order dated 26.10.2020 of CIT(E), Chandigarh is completely illegal and that makes the whole exercise of ld. PCIT passing the impugned order liable to be quashed. 16. Furthermore, if examine the legality of the procedure followed by ld. PCIT, Gurgaon to pass order u/s 12AB(4), by recourse to exercise of powers by virtue of clause (a) of sub-section (4) of section 12AB, it comes up that ld. PCIT, Gurgaon admits that a 'proposal' for cancellation of the registration of the assessee trust granted u/s 12AA of the Act was forwarded....