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Income Tax Appellate Tribunal, MUMBAI BENCHES “A”, MUMBAI
Before: Shri G S Pannu, Vice- & Shri Sandeep Gosain
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 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.
We have carefully considered the rival submissions. In the earlier paras, we 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 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.
In the present case, the case sought to be made out by the Commissioner is 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 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 dated 30th Sept. 2013. • Tamil Nadu Cricket Association vs. Director of Income-tax (Exemption), 360 ITR 633
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.
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 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 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.
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.
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).
In the result, the appeal is allowed, as above.
Order pronounced in the open court on this day of 12th June, 2019.