Director Of Income Tax ... vs M/S.Mool Chand Khairati Ram Trust
2011 Latest Caselaw 1923 Del

*                IN THE HIGH COURT OF DELHI AT NEW DELHI

+                            ITA No.54/2011

%
                       Date of Decision: 04.04.2011

Director of Income Tax (Exemptions)             .... APPELLANT
                Through: Mr.Abhishek Maratha, Advocate

                                Versus

M/s.Mool Chand Khairati Ram Trust            .... RESPONDENT
              Through: Mr.C.S. Aggarwal, Sr. Advocate with
                        Mr.Prakash Kumar, Advocate.

CORAM:
HON'BLE MR. JUSTICE A.K. SIKRI
HON'BLE MR. JUSTICE M.L. MEHTA


1.    Whether reporters of Local papers be                 Yes.
      allowed to see the judgment?
2.    To be referred to the reporter or not?               Yes.

3.    Whether the judgment         should    be            Yes.
      reported in the Digest?


M.L. MEHTA, J. (ORAL)

*

1. This is an appeal directed against the order dated 12.03.2010 of

the Income Tax Appellate Tribunal (hereinafter referred to as the

―Tribunal‖) whereby the order dated 30th June, 2009 of the

Director of Income Tax (Exemptions) passed under Section

12AA(1)(b) read with Section 12A of the Income Tax Act, 1961

(for short ―the Act‖) was set aside and the appeal of the

assessee was allowed. By the impugned order, the Tribunal also

restored the registration granted to the assessee under Section

12A of the Act.

2. The facts in brief are like this. The assessee Trust was created

on the basis of the will left behind by the Settler late Lala Ram

Khairati Ram. It got registration under Section 12A of the Act in

December 1974. Based on this, the assessee got exemption of

the income tax in the assessments under Section 143(3) for the

assessment years 1996-97 to 2005-2006. It was in the

assessment year 2006-2007, when the assessee filed return

seeking exemption under Sections 11 and 12 of the Act, that the

Additional Director of Income Tax (Exemptions), while proceeding

to make assessment under Section 143(3), denied the claim of

exemption. The assessee preferred appeal against the said

order before the Commissioner, Income Tax (Appeal) [for short

CIT(A)], which is stated to be pending. On 23rd March, 2008,

assessee was served with a show-cause notice under Section

12AA(3) of the Act as to why the registration granted under

Section 12A of the Act vide order dated 4th December, 1974

should not be cancelled. The assessee filed detailed reply

contending therein inter alia the action of cancellation to be

without jurisdiction. However, the Director of Income Tax

(Exemptions) (for short ―DIT‖) cancelled the registration under

Section 12AA(3) with effect from December 2002-2003 vide his

order dated 30th June, 2009. The Director while passing such an

order, reasoned as under:-

―10. In view of the facts mentioned above, I hold that the activities of the trust are not in accordance with the object of the trust and therefore, the registration granted vide Regn. No.DLI(IT68)/74-75 dated 4.12.1974 is cancelled. It has been observed that the activities of the assessee have definitely been in violation of the objects of the trust for the past several years (chart for assessment year 2002-03 to 2006-07 is mentioned in the order earlier). Accordingly, registration u/s 12A is cancelled w.e.f. AY 2002-03.‖

3. Against this order, the assessee preferred an appeal before the

Tribunal, which came to be allowed vide the impugned order

dated 12th March, 2010. It is against this order that the Revenue

has preferred this appeal. The order was also passed restoring

the registration. Since the question of law was raised by the

Revenue, the appeal is admitted on the following substantial

question of law:

―Whether the ITAT was right in holding that the

registration granted under Section 12A on

04.12.1974 to the assessee could not be

cancelled/withdrawn by the Authorities under Section

12AA(3) of the Act?‖

4. With the consent of the counsel of both the parties, we have

heard the matter finally. It is admitted case that the assessee

was granted registration under Section 12A (a) of the Act in

December 1974. Learned counsel for the assessee has drawn

our attention to the application for registration of the assessee

as charitable trust/institution under Section 12A(a) of the Act, as

made in Form 10A, and also registration granted under the said

provision, namely, Section 12A(a) of the Act. That being so, the

only question that calls for consideration is, as to whether

registration so granted under Section 12A(a) could not be

cancelled/withdrawn by the Revenue under Section 12AA(3) of

the Act as submitted by the learned counsel for the assessee?

On the other hand, it was submitted by the learned counsel for

the Revenue that if after the grant of registration under Section

12A(a), the Authority is satisfied that the conditions prescribed

under the said Section are not satisfied, registration could be

withdrawn under Section 12AA(3) which came to be inserted by

Finance (No.2) Act, 2004 with effect from 1st October, 2004. He

submitted that under the law, the Authority, which is entitled to

grant registration, is equally entitled to withdraw such a

registration, just as power of granting registration is available so

is the power of withdrawing.

5. There is also no dispute that the registration, which is sought to

be withdrawn by the Authority, is by virtue of power vested in

the Commissioner under Section 12AA(3) of the Act. The order

which was passed by the DIT was under Section 12AA(1)(b) read

with Section 12A of the Act. For proper appreciation of the rival

submissions based on the interpretation of Sections 12A and

12AA(1)(b) and 12AA(3), it would be useful to reproduce relevant

parts of these Sections, which are as under:

―12A. [Conditions for applicability of sections 11 and 12.]

- The provisions of section 11 and section 12 shall not apply in relation to the income of any trust or institution unless the following conditions are fulfilled, namely:

(a) the person in receipt of the income has made an application for registration of the trust or institution in the prescribed form and in the prescribed manner to the 8[***] Commissioner before the 1st day of July, 1973, or before the expiry of a period of one year from the date of the creation of the trust or the establishment of the institution, 9[whichever is later and such trust or institution is registered under section 12AA] :

―12AA. Procedure for registration. - (1) The 2[***] Commissioner, on receipt of an application for registration of a trust or institution made under clause (a) [or clause (aa) 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 the genuineness of activities of the trust or

institution and may also make such inquiries as he may deem necessary in this behalf; and

(b) after satisfying himself about the objects of the trust or institution and the genuineness of its activities, he--

(i) shall pass an order in writing registering the trust or institution;

(ii) shall, if he is not so satisfied, pass an order in writing refusing to register the trust or institution,

and a copy of such order shall be sent to the applicant :

Provided that no order under sub-clause (ii) shall be passed unless the applicant has been given a reasonable opportunity of being heard.

(2) .....

(3) Where a trust or an institution has been granted registration under clause (b) of sub-section (1) [or has obtained registration at any time under Section 12A [as it stood before its amendment by the Finance (No.2) Act, 1996 (33 of 1996)] and subsequently the 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:‖

6. At the outset, it may be pertinent to note that the title of Section

12A ―Conditions for applicability of Sections 11 and 12‖ was

substituted with effect from 1st June, 2007 in place of previous

title ―Conditions as to registration of the Trusts etc.‖. It means

that prior to 1st June, 2007, this Section itself provided conditions

regarding registration of trust etc. It is noted here because with

the substitution of the present title, this Section no longer

provides for registration of trust etc. A special provision has

been enacted in Section 12AA providing for procedure for

registration of trust etc. with effect from 1st April, 1997. It is

also noted that Section 12A was inserted in the statute book by

the Finance Act, 1972 with effect from 1st April, 1973. It was

omitted and was again restored with effect from 1st April, 1989.

Section 12A, as it stood at the time when it provided for

registration of trust, nowhere provided for cancellation of the

registration once granted. It is also pertinent to note that the

words ―such trust or institution is registered under Section 12AA‖

were also substituted in this Section with effect from 1st April,

1997. In fact, this Section even now nowhere stipulates about

the cancellation or withdrawal of the registration, once granted

under the said Section. It is only under Section 12AA, which

came in the statute book with effect from 1st April, 1997 that a

fresh procedure for registration of the trust or institution is

prescribed. Even under this Section 12AA, there was no

provision for cancellation of registration once granted till the

enactment of sub-Section (3) with effect from 1st October, 2004.

There is no dispute with regard to this fact that the provision

regarding cancellation of registration came to be introduced for

the first time by virtue of sub-Section (3) in Section 12AA with

effect from 1st October, 2004. This sub-Section (3) provides that

when a trust or an institution has been granted registration

under clause (b) of sub-Section 1 and subsequently the

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. A plain reading of this

provision would show that Section 12AA empowered the CIT to

grant the registration in those cases where the assessee applied

for such registration under sub-Section (1) thereof. Sub-Section

(1) provides that the CIT on receipt of an application for

registration of a trust or institution made in clause (a) or clause

(aa) of sub-Section (1) of Section 12A, shall -

       (a)       ....

       (b)       after satisfying himself about the objects of the trust or

institution and the genuineness of its activities, -

(i) shall pass an order in writing registering the trust or

institution,

(ii) shall, if he is not so satisfied, pass an order in writing

refusing to register the trust or institution.

7. From the conjoint reading of sub-Section (1) clause (b) and sub-

Section (3) of Section 12AA, it would be seen that the

cancellation of the registration was provided where the

registration was granted under clause (b) of sub-Section (1).

Further cancellation under sub-Section (3) was also provided

where the registration was obtained at any time under Section

12A (may be under clause (a) or clause (aa) of sub-Section (1) of

Section 12A). But this power of cancellation of registration

obtained under Section 12A came to be incorporated by way of

amendment introduced by the Finance Act, 2010 with effect from

1st June, 2010. That being the interpretation of sub-Section (3), it

is amply clear that the power to cancel the registration once

granted was only confined to the registration granted under

clause (b) of sub-Section 1 of Section 12AA till before 1st June,

2010. Of course, now with effect from 1st June, 2010, the power

vests with the Commissioner even to cancel the registration

granted under any of the clauses of sub-section (1) of Section

12A. In that view of interpretation, we are of the considered

view that there was no power vested with the Commissioner to

cancel or withdraw the registration granted to the assessee

under Section 12A(a) in the year 1974.

8. Similar question also arose before the Allahabad High Court in

CIT v. Manav Vikas Avam Sewa Sansthan, ITA No.161/2007

decided on 24th February, 2010, wherein the reliance was placed

in the case of Lucknow Bench in Oxford Academy for Career

Development v. Chief Commissioner of Income Tax,

Lucknow, (2009) 315 ITR 382 (All), wherein it was held as

under:-

―Regarding cancellation of registration which was granted on 01.04.1999 under Section 12A of the Act, it is true that there was no express provision in Section 12A of the Act for cancellation of the Registration. The applicability of Section 21 of the General Clauses Act, 1897 was discussed by the Uttranchal High Court in the case of Welham Boy's School Society (supra), where it was observed that any order passed by the Commissioner of Income Tax under Section 12A is a quasi-judicial order, which does not fall in the category of ―orders‖ mentioned in section 21 of the General Clauses Act, 1897 by relying the ratio laid down in the case of Ghaurul Hasan V. State of Rajasthan reported in AIR 1987 SC 107. The High Court observed that by virtue of Section 21 of the General Clauses Act, the Commissioner of Income Tax had no power to rescind the order passed earlier by the Commissioner granting registration to the petitioner's society. It may be mentioned that section 12AA(3) was incorporated w.e.f. 01.10.2004 to empower the Commissioner to cancel the registration granted to a trust or institution. The same is not applicable retrospectively and in the assessee's case for the assessment years under consideration. The object of this provision is not clarification or explanatory, so prior to that date, the authorities granting registration had no inherent power to withdraw or revoke the registration already granted. The order cancelling the registration granted to a trust or institution under Section 12AA of the Act being a quasi- judicial order does not fall within the category of orders mentioned under Section 21 of the General Clauses Act, 1897, which provides that the power conferred on an authority empower to issue orders including the power to rescind such orders and the Commissioner would not have power to rescind the order passed by the Commissioner earlier granting the registration to a trust or institution.‖

9. Learned counsel appearing for the assessee also relied upon the

case of Bharati Vidyapeeth v. ITO (Pune), (2008) 119 TTJ

(Pune) 261, where in was held as under:

―Sec.12AA(3) empowers the CIT to cancel such registration if he is satisfied that activities of 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. The combined reading of both the sections makes it clear that registration can be cancelled only in those cases where the registration has been granted under sub-s. (1b) of s. 12AA. This section nowhere empowers the CIT to cancel or withdraw the registration granted under s.12A. In the absence of such power, in our opinion, the registration granted under s. 12A cannot be withdrawn or cancelled.‖

10. In addition to this, learned counsel also relied upon the decision

of the Tribunal in the cases of Guru Nanak Public School v.

Director of Income Tax (Exemptions), Delhi, in ITA

Nos.3267/Del/2008 & 3268/Del/2008 and the case of Kapoor

Educational Society v. Commissioner of Income Tax,

(2010) 134 TTJ (Lucknow) 250. There is no need to reproduce

what has been held in these cases as the sum and substance of

these cases is also that the Commissioner has no power under

Section 12AA(3) to cancel the registration granted earlier under

Section 12A(a).

11. In view of our above discussion, we answer the question in

affirmative in favour of the assessee and against the Revenue.

The appeal is accordingly dismissed.

                                                  M.L.MEHTA
                                                   (JUDGE)



                                                   A.K. SIKRI
APRIL 04, 2011                                      (JUDGE)
‗Dev'