LILAVATI KIRTILAL MEHTA MEDICAL TRUST,MUMBAI vs. CIT -CEN (I), MUMBAI

per the CIT-DR, the Commissioner has noted in the opening para itself that the

proceedings of cancellation are as a consequence of a Search and Seizure action

carried out in the case of the assessee on 11.04.2011. It is pointed out that the

manner of investment of Trust funds was in violation of the objects of the Trust,

which lead to the same being treated as violation of section 13 of the Act. The

entire discussion by the Commissioner in paras 4 to 8 brings out various types of

violations on the part of the assessee but all the same are in relation to the

provisions of section 13 of the Act. In the course of hearing, the learned DR

addressed the fact that even the activities which constitute violation of section 13

can be understood as fulfilling the requirements specified u/s 12AA(3) of the Act, viz.

non-genuineness of the activities of the Trust or that such activities can be said to

ITA No.2827/Mum/2014 Lilavati Kirtilal Mehta Medical Trust

be activities which are not in accordance with the objects of the Trust. Therefore,

according to the learned CIT-DR, the reasons advanced by the Commissioner satisfy

the conditions prescribed u/s. 12AA(3) of the Act.

have already adverted to the legal position in so far as the jurisdiction of the

Commissioner vested in section 12AA(3) is concerned. Pertinently, a Statutory

Authority is required to operate within the confines of the applicable statutory rule,

and in this case we are dealing with section 12AA(3) of the Act; thus, the

Commissioner is required to act within the scope and ambit of section 12AA(3) of

the Act while invoking his power to cancel the registration. Notably, the

Commissioner has to arrive at a satisfaction that the activities of the Trust are not

genuine or that the same are not being carried out in accordance with the objects of

the Trust. Thus, the efficacy of the impugned order passed by the Commissioner is

required to be tested on the basis of the ingredients prescribed in section 12AA(3).

A perusal of the impugned order as well as a commonality of plea from both the

sides shows that the basis for cancellation of the registration in the instant case is

the purported violation by the assessee of the provisions contained in section 13 of

the Act. Broadly speaking, section 13 of the Act contains provisions which seek to

disentitle an assessee from exemptions contained in sections 11 and 12 of the Act in

given situations. Notably, section 13 of the Act deals with prescriptions for mode of

investment, transactions with interested parties, etc. Section 13 of the Act

empowers an assessing authority to forfeit the exemption permissible under sections

ITA No.2827/Mum/2014 Lilavati Kirtilal Mehta Medical Trust

11 & 12 of the Act. Ostensibly, the eligibility or otherwise of an assessee for the

exemptions contained under sections 11 & 12 of the Act is indeed a subject matter

of assessment proceedings carried out at the level of the assessing authority. The

grant of registration under section 12A of the Act by Commissioner is only a starting

point on the basis of which an assessee stakes his claim for exemptions under

sections 11 and 12 of the Act, subject to fulfilments of conditions prescribed therein.

Therefore, if in a given situation, section 13 of the Act is triggered the result would

be that sections 11 and 12 of the Act would not operate so as to allow exemption to

the assessee contained in section 11 and 12 of the Act. Now, we may go back to

section 12AA(3) of the Act, which prescribes only two conditions under which the

Commissioner is empowered to cancel the registration earlier granted u/s. 12A of

the Act. In our view, the points brought out by the Commissioner in the impugned

order are not in the context of the conditions prescribed u/s. 12AA(3) of the Act, but

are relevant for the purposes of making an assessment of income.

that the violation carried out by the assessee would lead to denial of exemption u/s.

11 & 13 of the Act and, therefore, the pre-requisite of section 12AA(3) of the Act is

satisfied. In para 9 of the impugned order, the Commissioner records that the

violation of section 11 & 13 of the Act would result in forfeiture of exemption not

only for the year in which such transactions occur but also for the years when such

arrangement continues to be in force. In our considered opinion, such an approach

of the Commissioner is quiet misdirected and is inconsistent with the legal position

ITA No.2827/Mum/2014 Lilavati Kirtilal Mehta Medical Trust

on the subject contemplated u/s. 12AA(3) of the Act so as to cancel registration

already granted. We may add here that we are not shutting out the case of the

Revenue to examine whether or not there has been a violation of section 13 of the

Act, but we are only trying to say that the same is not relevant for the purpose of

cancellation of registration u/s. 12AA(3) of the Act. Of course, such matters can be

dealt with in the course of assessment proceedings and, in our view, the same ought

to be dealt with, if the situation so warrants. Presently, we are confining ourselves

with examining the efficacy or otherwise of the action of the Commissioner in

invoking section 12AA(3) of the Act and we find that the reasons advanced by the

Commissioner are not germane. On this point, the learned representative for the

assessee has relied 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 vs. Apeejay Education Society 59 taxmann.com 102 • Cancer Aid & Research Foundation vs. Director of Income-tax (Exemption), Mumbai (IT Appeal No. 1782/Mum/2014 dated 16th July 2014. • CIT (Exemptions) vs. The Cancer Aid & Research Foundation Income Tax Appeal No.505 of 2015 • Prabodhan Shikshan Prasarak Sanstha vs. DCIT ITA No. 892/Pune/2012, dated 30th Sept. 2013. • Tamil Nadu Cricket Association vs. Director of Income-tax (Exemption), 360 ITR 633

ITA No.2827/Mum/2014 Lilavati Kirtilal Mehta Medical Trust

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.

According to him, the activities, which has resulted in violation of section 13 of the

Act can be construed as activities carried out by the Trust, which are not in

accordance with the objects of the Trust. In our considered opinion the argument

set up by the CIT-DR is quite misconceived in as much as the activities that are

required to be considered for the present purpose are the activities which are being

carried out towards objects of the Trust. In the present case, as we have seen

initially, the objects of the Trust are formation of hospital and Institutions for

medical relief, etc. In fact, there is no finding by the Commissioner much less any

material on record, which would show that the activities of the Trust are dehors its

stated objects. The transactions, which are being understood by the CIT-DR as

activities, cannot be considered to be the activities that are contemplated for the

purposes of section 12AA(3) of the Act. At this stage, we may observe that the

insertion of section 12AA(4) of the Act by the Finance Act, 2014 w.e.f. 01.10.2014

also cannot be lost sight of as our subsequent discussion would show. As noted

earlier, sub-section (4) of section 12AA has expanded the situation for cancellation

of registration by the Commissioner. In fact, the situation sought to be covered by

section 12AA(4) of the Act revolves around the manner in which activities are carried

out, including a case where the income or property of the trust is applied for specific

ITA No.2827/Mum/2014 Lilavati Kirtilal Mehta Medical Trust

persons like author of trust, trustees, etc; or investment of funds in prohibited

modes, etc. The aforesaid are areas, which are contained in section 13 of the Act,

which disentitles an assessee from the exemptions contained in section 11 and 12 of

the Act. In other words, violation of section 13 of the Act is also sought to be

covered by the Legislature by insertion of sub-section (4) to section 12AA of the Act

as a ground for cancellation of registration. So however, the said provision is

effective from 01.10.2014. Pertinently, we are dealing with the impugned order of the Commissioner dated 28th March 2014 and, therefore, the provisions of section

12AA(4) of the Act inserted w.e.f. 01.10.2014 would have no application. In fact,

the insertion of section 12AA(4) of the Act on a subsequent date reinforces the legal

position noted by us in earlier paras that in the impugned case what the

Commissioner was required to satisfy the then existing conditions contained in

section 12AA(3) of the Act in order to 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.

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.

ITA No.2827/Mum/2014 Lilavati Kirtilal Mehta Medical Trust

registration originally granted to the assessee u/s. 12AA of the Act on 22.01.1979

(supra).

Order pronounced in the open court on this day of 12th June, 2019.

Sd/- Sd/- (Sandeep Gosain) (G S Pannu) JUDICIAL MEMBER VICE PRESIDENT Mumbai, Dated : 12th June, 2019. SA

Copy of the Order forwarded to : 1. The Appellant. 2. The Respondent. 3. The CIT(A), Mumbai. 4. The CIT , Mumbai. 5. The DR, ‘A’ Bench, ITAT, Mumbai BY ORDER

//True Copy// (Assistant Registrar/ Sr. PS) Income Tax Appellate Tribunal, Mumbai