M/S.BELIEVERS EASTERN CHURCH,THIRUVALLA vs. THE CIT (EXEMPTION), KOCHI

Being aggrieved by the above order of cancellation, the assessee-trust filed appeal before this Tribunal. This Tribunal vide common order dated 17/03/2022 in to 15/Coch/2021 quashed the order passed by the learned CIT(E) by holding that cancellation of registration is permissible in respect of trust/institution, which had been granted registration, if the activities of the trust or the institution were being carried out in a manner that the provisions of section 11 & 12 do not apply to exclude either the whole or any part of the income of such trust or institution due to the operation of sub-section (1) of section 13 or the trust or the institution has not complied with the requirements of any other law.

Being aggrieved by the order of the Tribunal, the Revenue preferred appeals before the Hon'ble High Courtof Kerala, who vide “6. On a consideration of the rival submissions and without going into the merits of the issue that was to be considered by the Appellate Tribunal, namely, the legality of the order passed by the Principal Commissioner cancelling the registration granted to the respondent-assessee under Section 12A of the Income Tax Act, we find that the Appellate Tribunal in the impugned order, proceeded on a mistaken assumption with regard to the order passed by the Principal Commissioner. The Appellate Tribunal erroneously found that the powers of the Principal Commissioner under Section 12AA of the Income Tax Act could not be exercised without a prior determination by the Assessing Authority as to whether or not the assessee had occasioned a breach of the statutory provisions or conducted themselves in violation of the objects of the Trust concerned. In our view, the provisions of Section 12AA independently empower the Principal Commissioner to consider whether or not the circumstances mentioned in Section 12AA(3) and 12AA(4) of the Income Tax Act exist as a pre-condition for directing a cancellation of the registration that was granted to the Trust under Section 12A of the Income Tax Act. The statutory provisions do not require the Principal Commissioner to await a decision of the Assessing Authority concerned before passing an order cancelling the registration granted to an assessee under Section 12A of the Income Tax Act. The assumption by the Appellate Tribunal that the determination of relevant facts by an Assessing Officer was a pre-condition to the Principal Commissioner exercising his powers under Section 12AA, or that the exercise of power by the Principal Commissioner under Section 12AA would preclude an independent assessment by the Assessing Officer, as he would be bound by the determination by the Principal Commissioner under Section 12AA, is in our view flawed since the statutory provisions do not admit of any such interpretation. In the result, we set aside the impugned order of the Appellate Tribunal and remand these appeals back to the Last Hour Ministry & Ors. Appellate Tribunal for a fresh consideration on the merits of the appeals preferred by the assessee against the order of the Principal Commissioner. We make it clear that in the hearing of the appeals before the Appellate Tribunal, it would be open to the respondent-assessee to raise all contentions, and also bring to the notice of the Appellate Tribunal the subsequent developments in the case, such as the approach made by the assessee to settle the matter through the Settlement Commission. The Appellate Tribunal shall endeavour to pass fresh orders in the matter, consequent to the remand from this Court, within an outer time limit of six months from the date of receipt of a copy of this judgment. These I.T. Appeals are therefore allowed by way of remand by answering the questions of law raised in favour of the department and against the respondent-assessee.”

That is how the matters had arisen before us in the present proceedings.

The learned Authorized Representative submits that the learned CIT(E) passed the orders without referring to any material, simply recorded a finding that the activities of the trust are not genuine. The learned CIT(E) had not brought any material on record satisfying the conditions laid down in section 12AA(3) & (4) of the Act for cancellation of registration. The written submissions of the assessee are reproduced below:-

Reliance is placed on the following case-laws in support of the appellant's contentions (copies of the case-laws submitted as a paperbook): ➤ Hon'ble Calcutta High Court in the case of Commissioner of Income Tax (Exemption) vs. Sanskriti Sagar in [2022] 140 taxmann.com 233 (Calcutta) wherein it was held that where donation received by assessee-society, registered under section 12AA, from an organisation was applied for achievement of objects of assessee and Commissioner (Exemptions) had not brought on record any evidence showing that activities of assessee were not genuine or they were not carried out in accordance with objects of society, Commissioner (Exemption) could not cancel registration of Last Hour Ministry & Ors. assessee under section 12AA on mere ground that such donations was received from an organisation found to be involved in providing accommodation entries. ➤ Hon'ble Calcutta High Court in the case of Commissioner of Income Tax (Exemption) vs. Mayapur Dham Pilgrim and Visitors Trust in [2022] 138 taxmann.com 502 (Calcutta) wherein it was held that where CIT(E) had neither doubted genuineness of activities of assessee trust nor there was any allegations that activities were not in accordance with objects of trust, CIT(E) could not cancel registration of trust under section 12AA for reason that it had received donations from an organization who was found to be involved in providing accommodation entries. ➤ Hon'ble Karnataka High Court in the case of Director of Income Tax (Exemption) vs. Karnataka Badminton Association in [2017] 80 taxmann.com 138 (Karnataka) wherein it was held that a registration granted under section 12A can be cancelled only under two circumstances, i.e., (i) if activities of such trust or institution are not genuine, and (ii) activities of trust or institution are not being carried out in accordance with object of trust or institution; fact that receipts from commercial activities are more compared to overall receipts of charitable organisation cannot lead to conclusion that activities of charitable organisation are not genuine. ➤ Hon'ble Madras High Court in the case of Commissioner of Income Tax -1, Madurai vs. Sarvodaya Elakkia Pannai in [2012] 20 taxmann.com 546 (Mad.) wherein it was held that where Assessee-trust was formed with object of publishing and selling Sarvodaya Literature as also Gandhian and Sarvodaya ideologies and Commissioner granted registration to assessee-trust under section 12A. Subsequently, Commissioner passed an order under section 12AA(3) cancelling registration on ground that assessee was engaged in purchase and sale of books which was a commercial activity. On appeal, Tribunal set aside order of Last Hour Ministry & Ors. Commissioner holding that none of conditions under section 12AA(3) were violated and therefore, satisfaction which was arrived at by Commissioner was not justified. ➤ Hon'ble ITAT, Jodhpur Bench in the case of Jodhpur Medical Research Centre vs. Commissioner of Income Tax (Exemption) in [2024] 166 taxmann.com 165 (Jodhpur - Trib.) wherein it was held that where Commissioner cancelled registration of assessee-trust as granted under section 12A(a) on grounds that activities of trust were not genuine and property and income of trust had been used for personal benefits of trustees, since activities of trust were charitable in nature and benefit that trustees were getting could not be a sole reason to cancel registration of trust, cancellation of registration of assessee to be quashed. ➤ Hon'ble ITAT, Mumbai Bench A in the case of Lilavati Kirtilal Mehta Medical Trust vs. Commissioner of Income Tax (Central) 1, Mumbai in [2019] 108 taxmann.com 272 (Mumbai - Trib.) wherein it was held that violation of provisions of section 13 empowers an assessing authority to forfeit exemptions permissibleunder sections 11 and 12 but such a violation cannot form a ground to cancel registration by passing an order under section 12AA(3). ➤ Hon'ble ITAT, Hyderabad in the case of Assistant Commissioner of Income Tax vs. B. Srinivasa Rao in [2015] 53 taxmann.com 49 (Hyderabad - Trib.) wherein it was held that where assessee-society was imparting medical education in accordance with object clause, registration granted to it under section 12AA could not be cancelled on basis of unsubstantiated allegation that it was collecting fee over and above fee prescribed by Government.

Further, it is submitted that all the appellant Trusts had been granted registration u/s 12A(1)(ac) of the Act under the new regime and had obtained Unique Identification Number. Copies of the same had been submitted to Your Authority for Your Authority's kind consideration. The very fact that the appellant Last Hour Ministry & Ors. Trusts had been granted registration under the new regime fortifies their contention they are rightly eligible for the said registration u/s 12A of the Act.

The kind attention of Your Authority is also drawn to the haste with which the impugned proceedings were completed in violation of principles of natural justice, without providing the appellant Trusts with sufficient opportunity of being heard as clearly brought out by the 'Dates & events' chart filed before Your Authority - ➤ the search and seizure action u/s 132 of the Act having been conducted on 05.11.2020 wherein records were seized and Prohibitory Orders were placed; ➤ show-cause notices for cancellation of registration u/s 12A of the Act was issued on 03.12.2020 / 04.12.2020 calling for responses by 21.12.2020 for the various discrepancies cited therein and ➤ reply to show-cause notice was filed on 15.12.2020, seeking time, in the absence of access to relevant records that were seized pursuant to search proceedings, due to Prohibitory Orders placed thereon that was in force at that point in time: ➤ while the impugned Orders were passed by the Learned CIT(E) on 31.12.2020/01.01.2021 cancelling the registration granted u/s 12A of the Act -all within a short span of about two months following the search proceedings, without appreciating the fact that the due explanation to the discrepancies pointed out could have been appropriately furnished with the relevant supporting documents, provided the appellant trusts were provided the sufficient time and access to the requisite documents held by the department post search.”

On the other hand, learned CIT-DR vehemently opposed the above submissions of the learned Authorized Representative and

We have heard rival submissions and perused the material on record. The solitary issue that arises for our consideration is whether the learned CIT(E) is justified in cancelling the registration earlier granted u/s. 12A of the Act by invoking the powers conferred on him u/s. 12AA(3) &(4) of the Act. For better appreciation of the legal position, it is necessary to extract the relevant provisions of the Act, the said provisions of section 12AA(3) &(4) of the Act reads as under at relevant point of time.

The provisions of section 12AA(3) were inserted by Finance Act, 2004 w.e.f. 01/10/2004 enabling the Commissioner of Income Tax to cancel the registration granted earlier to the trust or institution. The said provisions were further amended by Finance Act, 2010 to enable the Commissioner of Income Tax to cancel the registration granted earlier u/s 12A of the Act and the provisions of section 12AA(4) were inserted by Finance (No.2) Act, 2014 w.e.f. 01/10/2014 expanding the scope of cancellation of registration.

On mere perusal of the above provisions, it would suggest that the registration granted u/s. 12A can be cancelled under two circumstances(i) if activities of such trust or institution are not Last Hour Ministry & Ors. genuine; (ii) activities of trust or institution are not being carried out in accordance with object of trust or institution; and (iii) the trust or institution has not complied with the requirements of any other law, as referred to in section 12(1)(a)(ii), 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. In order to invoke the power u/s 12AA(3) of the Act, it is incumbent on the part of the learned CIT(E)to record a finding of fact as to how the above three conditions stand satisfied.

On careful perusal of the impugned order, it would primarily reveal that the learned CIT(E) merely recorded the findings/conclusions without referring to any material/evidence and discussions on the material so found during the course of search and seizure proceedings. Therefore, we have no hesitation to hold that the conclusions reached by the learned CIT(E) are on ipse dixit findings. Moreover, when the appellant-trust was called upon to explain as to why the registration granted earlier cannot be cancelled, the appellant trust was on record to say that reply could not be furnished for the reason that the search proceedings were on. Copies of the seized material could be furnished unless and until the search proceedings were concluded. Without waiting for the reply of the assessee, the learned CIT(E) had proceeded with cancellation of registration based on the conclusions reached by him. Thus, the Last Hour Ministry & Ors. appellant-trust had no reasonable opportunity of meeting the case made against it. 15. However, we proceed to examine the validity of the reasoning of the learned CIT(E) for cancellation of registration vide impugned order. The reasons of the learned CIT(E) that:

What follows from the above discussions that the reasons assigned by the learned CIT(E) for cancellation of registration have no legs to standin the eyes of law.

In normal course, we would have remitted the matter back to the file of learned CIT(E) for fresh consideration. However, since the reasons assigned by the learned CIT(E) for cancellation of registration are held to be illegal, an order of remand cannot be made to improve the reasoning or to patch up the weak points in the impugned order, therefore, we refrain from doing so.

There is yet another reason for not making an order of remand, we are told at the bar the appellant-trust was granted the regulation registration under the new regime.

Therefore, in view of the above, the order passed by the learned CIT(E) is hereby quashed and the appeal of the assessee stands allowed.