By TIOL News Service

ALLAHABAD, FEB 15, 2018: THE ISSUE BEFORE THE DIVISION BENCH IS - Whether registration u/s 12A can be cancelled with retrospective effect, so as to affect past transactions, in absence of any express legislative intent and without any adverse inference being drawn against the trust in terms of section 13(8). NO IS THE VERDICT.

Facts of the case:

The Assessee, a State development authority constituted to satisfy the need for housing, had filed its return for the relevant AY. During assessment proceeding, it was noted that earlier, the Assessee was availing exemption u/s 10(20A). However, upon deletion of the said provision, the Assessee applied for fresh grant of registration u/s 12A and claimed that it was involved in advancement of "any other object of general public utility" being a "charitable purpose" u/s 2(15). Accepting the same, the fresh registration was granted and the Assessee continued to enjoy exemption on its income. Suddenly, after nine years, a notice u/s 12AA(3) was issued, proposing to cancel the registration granted to assessee. When it was objected, the Commissioner stated that since the Assessee's activity did not fall within the ambit of "charitable purpose" as defined u/s 2(15), he had to cancel the registration with retrospective effect from AY 2009-10 onwards.

When the matter was taken up on appeal, the Tribunal took note of the statutory provision and the CBDT circular and found that the Commissioner could not have cancelled such registration as the same would refer to a date prior to the date when such power was first conferred on him. Hence, the order passed u/s 12AA(3) was set aside by the Tribunal.

High Court held that,

++ it is seen that in the instant case, the notice proposing to cancel the registration granted to Assessee u/s 12A and the order cancelling that registration, were both issued much after the date when the power and jurisdiction to cancel such registration was vested in the Commissioner, by amendment made to sec 12AA(3). Thus, the said notice and order did not suffer from any jurisdictional error on this count. It however, remains to be examined whether there existed any jurisdiction with the Commissioner to cancel a registration, w.e.f. AY 2009-10, because that notice was first issued during the previous year relevant to AY 2012-13. The Tribunal has noted that the Bombay High Court in the case of the Sinhagad Technical Education Society did not decide the issue whether the Commissioner could issue a notice u/s 12AA(3) to cancel a registration with retrospective effect. A perusal of the judgement of Bombay High Court reveals that the challenge raised before it was confined to the validity of the amendment made to sec 12AA(3), because sec 12AA(3) was first incorporated w.e.f Oct 01, 2004, and therefore, the amendment made to that sub-section could not be given effect from any date prior to the date of insertion of sub-section (3). No challenge was raised to the subsequent notice on the ground that the Commissioner could not seek to cancel a registration with retrospective effect. Therefore, the validity of the cancellation notice arises, independent of the issue of vires of sub-section (3) of sec 12AA;

++ it is to be noted that the Assessee could not have claimed exemption merely because it was engaged in an activity of "charitable purpose". Engagement in such an activity was only a pre-condition to claim eligibility for registration u/s 12A. However, only upon the Assessee making an application for registration and upon an order being passed thereon, the registration can be granted to the Assessee. Thereafter, it has to be said that the Assessee's AO has given effect to that registration in accordance with law for all AYs inasmuch as the Revenue has not set up a contrary case. Then, it is also not the case of Revenue that the Assessee had obtained registration by practicing fraud or collusion or concealment of any material fact. In absence of such allegation, the registration granted to the Assessee could never be alleged to be a nullity. In the instant case, undisputedly the registration had been granted much prior to the introduction of the first proviso to sec 2(15). Therefore, on the date of grant of registration to Assessee, it was fully eligible for the same. The registration thus granted did not suffer from any inherent or fundamental defect. Then, the Assessee continued to avail the benefit of the registration for all the AYs subsequent to the grant of its registration. Such a registration order cannot be allowed to be cancelled with retrospective effect so as to affect past transactions that too in absence of any express legislative intent and without any adverse inference being first drawn against the Assessee, in terms of sec 13(8), during the relevant AY;

++ it is clear that the act of cancellation of registration has serious civil consequences. In absence of any legislative intent expressed to suggest that the legislature had empowered the Commissioner to cancel the Assessee's registration u/s 12A with retrospective effect, such power could not be deemed to exist or arise or be exercised to unsettle closed/part transactions especially because in this case the ground for cancellation has not arisen out of allegation of fraud, collusion or misrepresentation. Therefore, the cancellation of the Assessee's registration u/s 12A, if at all, could be done only prospectively and not retrospectively as had been done by the Commissioner in this case. It is seen that the notice proposing to cancel the registration granted to the Assessee was issued on a solitary ground that the Assessee's activity did not fall within the meaning of the term charitable purpose, as defined u/s 2(15). It is also not the case of Revenue that Assessee had engaged in any new or other activity other than that for which it had been granted registration. In fact, it is an admitted case between the parties that the activities of Assessee had remained one and the same for all years since the registration had been granted;

++ it is noticed that the Bombay High Court, in the case of North Indian Association had the occasion to consider a similar issue wherein it was held that it shall not be mandatory to cancel the registration already granted u/s 12AA of a charitable institution merely on the ground that the cut off specified in the provision to section 2(15) is exercised in a particular year without there being any change in the nature of activities of the institution. This Court in respectful agreement with the view of the Bombay High Court that the cancellation of registration would not be automatic or natural or the only consequence of the receipts exceeding Rs. 10,00,000/- in any previous year. In case of the Assessee to whom registration u/s 12A had been granted before incorporation of the provisos to sec 2(15), in the event of its receipts from activities specified in the first proviso to sec 2(15) exceeding Rs. 10,00,000/- in a subsequent year, cancellation of the registration u/s 12-A would not be the natural or the only consequence of such an event, if established. Hence, the cancellation notice having been issued did not suffer from any jurisdictional error. On that date the Commissioner had vested the power to cancel a registration granted to the Assessee u/s 12A. Therefore, merely because the Commissioner had wrongly given effect to such cancellation w.e.f. AY 2009-10, it did not vitiate the entire order. However, since the Tribunal has not recorded any finding either on the merits of the contention raised by the Assessee, that it was pursuing a charitable purpose and as to the date from which the registration could have been cancelled in pursuance of the notice, it is necessary to remit the matter to the Tribunal to decide this issue afresh.

(See 2018-TIOL-287-HC-ALL-IT)