M/S. ADARSH VIDYA KENDRA TRUST,BENGALURU vs. PRINCIPAL COMMISSIONER OF INCOME TAX (CENTRAL), , BANGALORE

PER CHANDRA POOJARI, ACCOUNTANT MEMBER:

1. The order of the learned Pr. Commissioner of Income Tax (Central), Bengaluru is opposed to the facts o he case and law applicable to it.

2. The learned Pr. Commissioner of Income Tax (Central), Bengaluru erred in passing an order U/s.12AB(4)(ii) of the act, for the A. Y.2021-22 cancelling the registration granted UIs. 12AA/ U/s.12AB of the act, ignoring the position of law that, the provisions of section 12AB(4)(ii) of the act was introduced by Finance Act 2022 w.e.f 01.04.2022 and therefore not applicable for the A.Y.2021-22.

3. The learned Pr.Commissioner of Income Tax (Central), Bengaluru erred in ignoring the position of law that, without prejudice to the contention of the appellant that, there was no case for cancellation of registration, such order should have been passed under the provisions of section 12AB(4) of the act and not under the provisions of section 12AB(4)(ii) of the act.

4. The learned Pr.Commissioner of Income Tax (Central), Bengaluru erred in ignoring the fact that, there has been no case that the activity of the trust/institution were not genuine and also it was not proved that, the activity was not being carried on in accordance with objects of the trust or institution and therefore the circumstances contemplated UIs. 12AB(4) of the act were not satisfied, eventually there was no case of cancellation of registration UIs. 12AB(4) of the act.

5. The learned Pr. Commissioner of Income Tax (Central), Bengaluru has erred in acting on a reference made under the third proviso to the provisions of section 143(2) of the act ignoring the fact that, the proviso invoked was introduced by Finance Act 2022 w.e.f. 01.04.2022 and therefore was not applicable for the A. Y .2021-22.

6. The learned Pr.Commissioner of Income Tax (Central), Bengaluru has erred in availing the extended the time limit for conclusion of assessment as provided for under explanation1 (xiii) below the provisions of section 153(9) of the act which was introduced by Finance Act, 2022 w.e.f 01.04.2022 and is in the context of the provisions of section 12AB(4)(ii) of the act which was also introduced by Finance Act, 2022 w.e.f 01.04.2022 and were not applicable for the A.Y.2021-22 and hence the order passed is beyond the time limit and deserves to be annulled.

7. The learned Pr. Commissioner of Income Tax (Central), Bengaluru erred in ignoring the position of law that, for the purposes of provisions of section 12AB(4) of the act, relevant for the A. Y 2021-22, there was no extended M/s. Amala Jyothi Vidya Kendra Trust, Bangalore M/s. Adarsh Vidya Kendra Trust, Bangalore Page 3 of 17 time limit provided for and therefore. the present order is barred by limitation.

8. The learned Pr. Commissioner of Income Tax (Central), Bengaluru erred in relying on the statements recorded UIs. 132(4) of the act, from the chairman of the trust Mr. Rajeev Kumar Rai, ignoring the fact that, the chairman had retracted the statement during the assessment proceedings and there were no evidences to prove the contrary and therefore no adverse inference could have been drawn on a retracted statement.

9. The learnéd Pr. Commissioner of Income Tax (Central), Bengaluru erred in not following the ratios laid down by the Hon'ble Supreme Court in the following cases wherein it is held that, an assessee can always retract on the statement UIs. 132(4) of the act and the revenue authorities are required to corroborate the admission in the statement with independent evidence for making additions to the income declared. i) Attar Singh Gurmukh Singh V. ITO (1991) 191 ITR 667 (SC) ii) Satinder Kumar (HUF) V. CIT (1977) 106 ITR 64 (SC) iii) Avadh Kishore Das V. Ram copal AIR 1979 SC 861 10. The learned Pr. Commissioner of Income Tax (Central), Bengaluru erred in relying on the statements recorded from the administrator and also the accountant of the Trust ignoring the fact that, the said administrator retracted on the statement during the course of cross examination and in the absence to any evidence to prove the contrary, conclusions could not have been drawn on a retracted statement. For AMALA OTHI VIDYA KENDRA TRUST

“12AB(4) Where a registration of a trust or an institution has been granted under clause (a) or clause (b) of sub-section (1) and subsequently, the Principal Commissioner or Commissioner is satisfied that the activities of such trust or institution are not genuine or are not being carried out in accordance with the objects of the trust or institution, as the case may be, he shall pass an order in writing cancelling the registration of such trust or institution after affording a reasonable opportunity of being heard.” 4.3 He submitted that the assessment involved in appeal is A.Y.2021-22. The law relating to cancellation of registration has under gone changes in as much as the said provisions were M/s. Amala Jyothi Vidya Kendra Trust, Bangalore M/s. Adarsh Vidya Kendra Trust, Bangalore Page 9 of 17 different for the A.Y.2020-21, 2021-22 and again for A.Y.2022-23. The Pr. Commissioner of Income Tax (Central) has invoked the provisions which were applicable from A.Y.2022-23 for a default alleged to have been occurred in A.Y.2021-22. He submitted that prima-facie invoking the provisions which are applicable for the A.Y.2022-23 and cancel registration for the A.Y.2021-22 is bad in law. Cancellation of registration is penal in nature. The consequences are that, the exemptions enjoyed by the assessee are withdrawn. The capital expenditure which otherwise is not an allowable expenditure would be considered as application in the event of an assessee trust enjoying the benefits of the registration. Under the circumstances, the law that should apply is with reference to the year of default. He submitted that the Pr. Commissioner of Income Tax (Central) should have acted as per the law prevailing for the A.Y.2021-22. The alleged infringement by the assessee occurred during the A.Y.2021-22 and therefore the penalization should also be with reference to the corresponding provisions as they existed for the A.Y.2021-22.

4.4 The ld. A.R. relied on the ratio laid down by the Hon’ble Supreme Court in the case of Commissioner of Income Tax V. Omkar Saran & Sons (1992) 62 Taxman 440 (SC). The Hon’ble Supreme Court has held that, the law applicable for penalizing should be the law for the year of committing the offence. This decision is in the context of penalty leviable under the provisions of section 271(1)(c) of the Act. However, the principle is applicable with reference to the other provisions also which are penal in nature. Cancellation of registration deprives the assessee of the various benefits which otherwise accrue and hence the provisions are to be considered as in the nature of punishment. M/s. Amala Jyothi Vidya Kendra Trust, Bangalore M/s. Adarsh Vidya Kendra Trust, Bangalore Page 10 of 17 4.5 The ld. A.R. submitted that, the order passed by the Pr. Commissioner of Income Tax, invoking provisions of section 12AB(4)(ii) of the Act dated 12.05.2023 is bad in law and deserves to be annulled.

6.1 Thus, the contention of the ld. A.R. is that these provisions have been inserted by Finance Act, 2022 w.e.f. 1.4.2022 and if there is a violation in previous year 2020-21 relevant to assessment year 2021-22, these provisions cannot be applied to the assessee’s case. For clarity, we will go through the relevant provisions applicable to previous year 2020-21 relevant to assessment year 2021-22 as follows: “12AB(4): Where registration of a trust or an institution has been granted under clause (a) or clause (b) of sub-section (1) and subsequently, the Principal Commissioner or Commissioner is satisfied that the activities of such trust or institution are not genuine or are not being carried out in accordance with the objects of the trust or institution, as the case may be, he shall pass an order in writing cancelling the registration of such trust or institution after affording a reasonable opportunity of being heard.”

6.2 This section has been amended by Finance Act, 2022 w.e.f. 1.4.2022 as follows: 12AB(4): Where registration or provisional registration of a trust or an institution has been granted under clause (a) or clause (b) or clause (c) of sub- section (1) 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; or 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 any previous year; M/s. Amala Jyothi Vidya Kendra Trust, Bangalore M/s. Adarsh Vidya Kendra Trust, Bangalore Page 12 of 17 The Principal Commissioner or Commissioner shall— i. call for such documents or information from the trust or institution, or make such inquiry as he thinks necessary in order to satisfy himself about the occurrence or otherwise of any specified violation; ii. pass an order in writing, cancelling the registration of such trust or institution, after affording a reasonable opportunity of being heard, for such previous year and all subsequent previous years, if he is satisfied that one or more specified violations have taken place; iii. pass an order in writing, refusing to cancel the registration of such trust or institution, if he is not satisfied about the occurrence of one or more specified violations; iv. forward a copy of the order under clause (ii) or clause (iii), as the case may be, to the Assessing Officer and such trsut or institution.

Explanation: For the purposes of this sub-section, the following shall mean “specified violation”,-- a) Where any income derived 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 ensure 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 with the requirement of any other law, as referred to in item (B) of sub-clause (i) of clause (b) of sub-section (1), 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.

6.3 As per section 12AB(4) of the Act as applicable to assessment year 2021-22, the ld. PCIT if he is satisfied that activities of the Trust or institution are not genuine or not being carried out in accordance with the objects of the trust or institution, as the case M/s. Amala Jyothi Vidya Kendra Trust, Bangalore M/s. Adarsh Vidya Kendra Trust, Bangalore Page 13 of 17 may be, he shall pass an order in writing cancelling the registration of such trust or institution after affording reasonable opportunity of being heard. As per section 12AB(5) of the Act, when trust or institution complied wholly or in part of the income of such trust or institution in violation of section 13(1) of the Act or if they complied with any other law, for the time being in force by the trust or institution as are material for the purpose of achieving its objectives as mentioned in section 12AB(1)(b)(ii)(B) of the Act. However, in the present case, the ld. PCIT invoked the provisions of section 12AB(4)(a)(ii) of the Act as stood in the assessment year 2022-23. The objection of the ld. A.R. is that for the cancellation of registration for the assessment year 2021-22, he could not invoke the provisions of section 12AB(4)(ii) of the Act which is introduced by Finance Act, 2022 w.e.f. 1.4.2022 and applicable for the assessment year 2022-23 onwards. 6.4 In the case of Isthmian Steamship Lines reported in 20 ITR 572 (SC) wherein the Hon’ble Supreme Court held that “it is a cardinal principle of the tax law that law to be applied is that in force in the assessment year unless otherwise provided expressly or by necessary implication”. 6.5 In the case of Karimtharuvi Tea Estate Ltd. Vs. State of Kerala reported in 51 ITR 129 (SC) the same view was taken by the Hon’ble Supreme Court. 6.6 Further, the Hon’ble Supreme Court in the case of Shree Chowdhary Transport Company Vs. ITO reported in 426 ITR 289 (SC) wherein held as under: 17.4 It needs hardly any detailed discussion that in income-tax matters, the law to be applied is that in force in the assessment year in question, unless stated otherwise by express intendment or by necessary implication. As per section 4 of the Act of 1961, the charge of income-tax is with reference to any assessment year, at such rate or rates as provided in any central enactment for the purpose, in respect of the total income of the previous year of any person. The expression “previous year” is defined in section 3 of the Act to mean “the M/s. Amala Jyothi Vidya Kendra Trust, Bangalore M/s. Adarsh Vidya Kendra Trust, Bangalore Page 14 of 17 financial year immediately preceding the assessment year”; and the expression “assessment year” is defined in clause (9) of section 2 of the Act to mean “the period of twelve months commencing on the 1st day of April every year”. 17.5 In the case of CIT v. Isthmian Steamship Lines (1951) 20 ITR 572 (SC), a 3-judge Bench of this court exposited on the fundamental principle that “in income-tax matters the law to be applied is the law in force in the assessment year unless otherwise stated or implied.” This decision and various other decisions were considered by the Constitution Bench of this court in the case of Karimtharuvi Tea Estate Ltd. v. State of Kerala (1966) 60 ITR 262 (SC) and the principle were laid down in the following terms (at pages 264-266 of 60 ITR): “Now, it is well-settled that the Income-tax, as it stands amended on the first day of April of any financial year must apply to the assessments of that year. Any amendments in the Act which come into force after the first day of April of a financial year, would not apply to the assessment for that year, even if the assessment is actually made after the amendments come into force…… The High Court has, however, relied upon a decision of this court in CIT v. Isthmian Steamship Lines, where it was held as follows: ‘It will be observed that we are here concerned with two datum lines: (1) the 1st of April, 1940, when the Act came into force, and (2) the 1st of April, 1939, which is the date mentioned in the amended proviso. The first question to be answered is whether these dates are to apply to the accounting year or the year of assessment. They must be held to apply to the assessment year, because in income- tax matters the law to be applied is the law in force in the assessment year unless otherwise stated or implied. The first datum line therefore, affected only the assessment year of 1940-41, because the amendment did not come into force till the 1st of April, 1940. That means that the old law applied to every assessment year up to and including the assessment year 1939-40.’ This decision is authority for the proposition that though the subject of the charge is the income of the previous year, the law to be applied is that in force in the assessment year, unless otherwise stated or implied. The facts of the said decision are different and distinguishable and the High Court was clearly in error in applying that M/s. Amala Jyothi Vidya Kendra Trust, Bangalore M/s. Adarsh Vidya Kendra Trust, Bangalore Page 15 of 17 decision to the facts of the present case.” (emphasis supplied)

17.6 We need not multiply on the case law on the subject as the principles aforesaid remain settled and unquestionable. Applying these principles to the case at hand, we are clearly of the view that the provision in question, having come into effect from April 1, 2005, would apply from and for the assessment year 2005-06 and would be applicable for the assessment in question. Putting it differently, the Legislature consciously made the said sub-clause (ia) of section 40(a) of the Act effective from April 1, 20056, meaning thereby that the same was to be applicable from and for the assessment year 2005-06; and neither there had been express intendment nor any implication that it would apply only from the financial year 2005-06.”

6.7 Being so, we find force in the argument of ld. A.R. that in income-tax matters, law to be applied is the law in force in the assessment year unless otherwise stated or implied. In the present case, ld. PCIT is cancelling the registration granted u/s 12AA/12AB of the Act w.e.f. previous year 2020-21 relevant to assessment year 2021-22. In our opinion, the law as stated in the assessment year 2021-22 is to be applied and not the law as stood in the assessment year 2022-23.

6.8 Thus, we are of the view that no retrospective cancellation could be made u/s 12AB(4)(ii) of the Act as it has been provided or is seen to have explicitly provided to have a retrospective character or intended. Therefore, without a specific mention of the amended provisions to operate retrospectively, no cancellation for the earlier years could be made. In this regard, it is appropriate to place reliance on the judgement of Hon’ble Madras High Court on the question as to whether the cancellation will operate from a retrospective date in the case of Auro Lab Ltd. Vs. ITO (2019)411 ITR 308 (Mad) wherein held as under: “20. On the second question as to whether the cancellation will operate from a retrospective date, it was held that the amendment to section 12AA(3) is prospective and not retrospective in character. M/s. Amala Jyothi Vidya Kendra Trust, Bangalore M/s. Adarsh Vidya Kendra Trust, Bangalore Page 16 of 17 The courts reasoned that even when Parliament had plenary powers to enact retrospective legislation in matters of taxation, the amended section is not seen to have explicitly provided to have a retrospective character or intend. Therefore, without a specific mention of the amended provisions to operate retrospectively, the cancellation cannot operate from a past date. 21 On the third question of the effective date of operation of the cancellation order, it was held that the cancellation will take effect only from the date of the order/notice of cancellation of registration. Since the act of cancellation of registration has serious civil consequences and the amended provision is held to have only a prospective effect the effect of cancellation, in' the event the pending tax appeal is decided in favour of the Revenue, will operate only from the date of the cancellation order, that is December 30, 2010. In other words, the exemption cannot be denied to the petitioner for and up to the assessment year 2010-11 on the sole ground of cancel- lation of the certificate of registration.”

6.9 In this case, the ld. PCIT has cancelled the registration under the new provisions of the Act i.e. 12AB(4)(ii) of the Act, which specifically provides that cancellation can be done for such previous year and all subsequent previous years, which makes it clear that the cancellation cannot be retrospective, therefore, in view of the above discussion, we are of the opinion that cancellation of registration with retrospective effect is invalid in these cases. Since the ld. PCIT invoked the provisions of section 12AB(4)(ii) of the Act, which has been introduced by the Finance Act, 2022 w.e.f. 1.4.2022 so as to cancel the registration with retrospective effect from assessment year 2021-22, which is bad in law. We also note that same view has been taken by Coordinate bench of Mumbai in the case of Heard Foundation of India in vide order dated 27.7.2023, wherein held that registration granted u/s 12A of the Act dated 21.7.1989 cannot be cancelled by ld. PCIT (Central) vide order dated 6.3.2023 w.e.f. assessment year 2016-17, by invoking the provisions of section 12AB(4)(ii) of the Act. Accordingly, we allow the primary ground nos.2, 3, 5 & 12 and order of ld. PCIT passed u/s 12AB(4)(ii) of the Act is quashed. M/s. Amala Jyothi Vidya Kendra Trust, Bangalore M/s. Adarsh Vidya Kendra Trust, Bangalore Page 17 of 17

in Ground Nos.4,6,7,8,9,10,11,13 & 14 have become infructuous as the order of ld. PCIT itself has been quashed.