Case Law Details
THE ITAT AGRA BENCH
Agra Development Authority
Versus
Commissioner of Income-tax-1
Bhavnesh Saini, JUDICIAL MEMBER
AND A.L. GEHLOT, ACCOUNTANT MEMBER
IT APPEAL NO. 166 (AGRA) OF 2012
JANUARY 11, 2013
ORDER
A.L. Gehlot, Accountant Member
This is an appeal filed by the assessee against the order dated 04.04.2012 passed by the ld. CIT-I, Agra under section 12AA(3) of the Income Tax Act, 1961 (‘the Act’ hereinafter).
2. The grounds raised by the assessee in it’s appeal are as under :-
“1. Because the impugned order cancelling registration u/s 12A passed by Ld Commissioner of Income Tax (hereinafter referred to as ‘CIT’) on the basis of notice issued ‘pursuant’ to order dt. 02.03.2012 of Hon’ble ITT, Agra Bench, Agra is wholly illegal and invalid in the eyes of law.
2. Because the Ld. CIT grossly erred, both in law and on facts while cancelling registration granted u/s. 12A w.e.f. A.Y. 2009-10. The Ld. CIT failed to appreciate that power to cancel registration u/s. 12AA(3) was brought on the statute w.e.f. 01.06.2010 prospectively. The cancellation made w.e.f. A.Y. 2009-10 is invalid and illegal in the eyes of law.
3. Because the Ld. CIT grossly erred, both in law and on facts while cancelling registration u/s 12AA(3). The Ld. CIT failed to bring an iota of fact leading to establish that the objects of the appellant existing prior to the amendment in sec.2(15) of the I.T. Act have changed that required review of its own order granting registration u/s. 12A. The appellant, not being involved in carrying on any activity in the nature of trade, commerce, business or any activity rendering any service in relation to any trade, commerce or business for a cess, fee or any other consideration, the amendment in section 2(15) has no legal application.
4. Because the impugned order u/s. 12AA(3) passed by the Ld. CIT in the case of appellant is patently invalid, contrary to provision of law, contrary to all canons of natural justice and is void ab-initio.
5. Because the Ld. CIT grossly erred in law and on facts in holding that receipts from various sources referred to in para 5.2 of his order are from activities in the nature of trade, business or commerce. The Ld. CIT failed to appreciate that the appellant was constituted by UP Urban Planning & Development Act, 1973 solely for the development of Agra City and not for any activity in the nature of trade, commerce or business. The receipts from all sources are utilised exclusively in achieving objects of the appellant.
6. Because the Ld. CIT grossly erred in law and on fats in holding that the appellant is doing the activities for a ‘cess’ or ‘fee’. The findings are patently wrong, expose the gross ignorance, deliberate legal malice and bias against the appellant.
7. Because the Ld. CIT grossly erred in law and on facts in holding that the facts stated by the appellant are inconsistent with the annual statement furnished. The Ld. CIT failed to appreciate that none of the receipts shown in the annual statement is profit or from any activity in the nature of trade or business.
8. Because the Ld. CIT grossly erred in law while applying facts and circumstances of other statutory bodies referred to in para 9 of his order. The Ld. CIT failed to appreciate that order of Hon’ble ITAT, Amritsar Bench, in Jalandhar Development Authority, relied upon by him, relates to grant of registration and not cancellation. The application of the order of Hon’ble ITAT by the Ld. CIT is wholly illegal.
9. Because the order is against law and facts.
10. Because the appellant craves leave to alter/modify grounds of appeal at the time of hearing.”
3. The brief facts of the case are that the assessee was granted Registration under section 12A w.e.f. 01.04.2003. In order to examine the case of the assessee in the light of change in definition of ‘charitable purpose’ under section 2(15) of the Act, notice for cancellation of registration w.e.f. A.Y. 2009-10 was issued to the assessee on 06.03.2012 under section 12AA(3) by the CIT.
4. The I.T.A.T. vide order dated 02.03.2012 in assessee’s own case in ITA No.447/Agr/2011, annulled earlier order of CIT vide order dated 25.11.2011 holding the same as without jurisdiction, as show cause notice was issued under section 293C of the Act. However, liberty was given to the CIT to take action in accordance with law. On being at liberty by the above order to initiate fresh proceedings, the CIT took liberty to issue fresh notice under section 12AA(3). Till 31.03.2003 the assessee had claimed exemption under section 10(20A) of the Act. The CIT noted that the assessee could not claim exemption under section 10(20A) of the Act as the section was deleted by Finance Act 2002. The assessee had been granted registration under section 12A of the Act w.e.f. 01.04.2003 by the then CIT, Agra vide order dated 24.09.2003. The CIT examined objects of the assessee in the light of amended section 2(15) of the Act. The CIT held as under :- (page no.4)
“On perusal of the object of the assessee society, it is noticed that the object of the Authority clearly falls in the fourth limb i.e. advancement of any other object of general public utility as I is neither relief to poor, nor education nor health.”
5. The second aspect of the matter which has been examined by the CIT is whether the assessee carries on any activity in the nature of trade commerce of business. The CIT held as under :- (page nos.4, 5 & 6)
“5.2 The various sources of income of the assessee as given in its Income and Expenditure statement are as under :-
A. The assessee derives income from acquiring land from the farmers, converting the land use, plotting the land and selling it at a higher price, thereby making a profit, or colonizing itself and then selling the houses with profit. The assessee, from the above mentioned activities earned approximately Rs.10 crores (Schedule 8 of Annual Statement) during A.Y. 2009-10 by doing such activities.
B. The assessee makes profit by converting lease hold land to free hold land, thereby increasing its value and rendering it useful for further sale and development by builders, colonizers and common people. The assessee earned Rs.1,62,31,313/- (schedule 9 of Annual Statement) during the relevant Assessment Year from such activities.
C. The assessee owns and regularly gives such properties/public utilities like buildings, community centers, parks, conference halls, auditoria (like Sursadan) etc. on hire for rent, and earns profit.
D. The assessee sells its master plan book & tender forms and gives scooter & car stand operating licenses to contractors and earns profit. The assessee earns from additional 2% stamp duty imposed in development areas.
E. By approving building plans of builders and common men, the assessee earned income of Rs. 29,42,424/- (schedule 12 of Annual Statement).
F. The assessee allots plots/houses to allottees and fixes a schedule of installments for payment. These installments include principal plus interest. The assessee also charges penal interest for any default and earns income by such activity.
G. Section 2(ddd) of the UPUPD Act, 1973 defines ‘city development charge’ as the charge levied on a private developer u/s. 38A for the development of land. The assessee earned profits from such business. As per schedule – 12 of the Annual Statement, the assessee collected Rs. 3,71,99,997/- on account of said charge during A.Y. 2009-10.
H. Section 38A of UPUPD Act, 1973 provides for land use conversion charge for the change of land use in the master plan. This section empowers the authority to charge money when un-agricultural land is converted to residential or commercial land or residential land is converted to commercial land, thereby increasing its valuation. The assessee earned profits from such business during the period under consideration.
I. Section 39B of UPUPD Act, 1973 provides for imposition of license fee, on a private developer who has been authorized for assembly and development of land in the development area. The assessee earns profit from such activity.
J. Section 15 of UPUPD Act, 1973 provides for imposition of stacking fees from the general public who use the Authority’s land for keeping building material. The assessee earns profit from such activity.
K. The assessee invests the surplus money available with it in FDRs and other deposits like any regular businessman and earns income of Rs. 25,16,16,113/- (schedule 14 of Annual Statement).
From the above it is clear that all the above mentioned activities of the assessee are in the nature of commerce or business or they are rendering any service for trade or commerce and attract proviso to section 2(15) as such.
6. The assessee is carrying on the above activities for a “cess” or “fee” or any other consideration. It is clear from the discussion above and the annual statement of the assessee, where it has earned an income of Rs.42.24 crores. A brief comment on “cess” is also in order. Cess is defined as a tax or a levy. So, the word “cess” used in proviso to section 2(15) brings into ambit of taxation those body corporates which are established by some statute and which are authorized to collect ‘cess’ or tax or duty. The assessee is one such statutory body which collects cess, fee etc.”
6. The CIT cancelled registration under section 12A w.e.f. A.Y. 2009-10 as under :- (page nos.12 & 13)
“The above arguments of the AR are found to be inconsistent with the annual statement/accounts furnished by the assessee to the department, facts of the case & nature of activities performed by the assessee. The arguments have been advanced without adducing any supporting evidence. As observed above, the assessee is a body corporate (as defined in section 4(2) of UPUPD Act, 1973) which earned an income of Rs.44.24 crores, as per its books of accounts and it has shown a General Reserve of Rs.523 crores, accumulated over the yeas. The sources of income and their nature clearly show that the activity is in the nature of trade and business.
9. In addition to above, another noteworthy fact is that statutory bodies with similar objects and activities like Punjab Urban Development Authority, Haryana Urban Development Authority, Indore Development Authority, Jalandhar Development Authority etc. were not provided with exemption u/s. 12AA even when proviso to section 2(15) was not added by the Finance Act, 2008. Even at that time these authorities were held to be not for ‘charitable purpose’ as per the definition u/s 2(15). Hon’ble ITAT, Amritsar in the case of Jalandhar Development Authority vs. CIT (ITA No.562/Agr/2008) has discussed various case laws and upheld the order of CIT, Jalandhar who had rejected the registration of Jalandhar Development authority u/s. 12AA holding that the authority is not for ‘charitable purpose’ as mentioned in sec.2(15). This position of law has now changed considerably by insertion of proviso to Section 2(15) by Finance Act, 2008 which has considerably restricted and limited the exemption claimed by assessee who’s claimed activity for “charitable purpose” falls in the fourth limb i.e. any other object of general public utility.
In its reply the assessee has discussed the provisions of section 12AA. The contentions of the assessee are irrelevant, when there has been amendment to section 2(15) brought by Finance Act, 2008, effective from A.Y. 2009-10. The case laws relied upon the assessee, in its reply dated 23.03.2012, are of no help to it because after amendment to section 2(15) brought by Finance Act, 2008, effective from A.Y. 2009-10, the legal position has changed.
10. From the facts discussed above, I am fully convinced that the activities under consideration of the assessee are covered by the proviso to section 2(15) inserted by Finance Act, 2008, and are not for “charitable purpose.”
7. During the hearing before us the Revenue requested for admission of additional evidence in the form of audit report under section 142(A) of the Act dated 18.06.2012 for A.Y. 2009-10. The application under rule 29 filed by the Revenue has been accepted by us as per reasons given in order sheet entry dated 12.09.2012. After hearing the case, the Revenue filed rejoinder dated 29.12.2012, therefore, the appeal was re-fixed for hearing to provide opportunity of hearing to both the sides.
8. The ld. Authorised Representative submitted that objects of assessee were same when registration under section 12A was granted to the assessee on 24.09.2003 w.e.f. 01.04.2003 at that time section 12AA(3) was not in statue. The ld. Authorised Representative submitted that therefore authority granting registration had no power to cancel the registration. Section 12AA(3) is inserted by Finance (No.2) Act 2004 w.e.f. 01.10.2004. The ld. Authorised Representative submitted that under this section 12AA(3) the registration granted under section 12(1)(b) could only be cancelled. The registration to the assessee was granted under section 12A of the Act and not under section 12AA of the Act. The ld. Authorised Representative further submitted that section 12AA(3) has been further amended by Finance Act 2010 w.e.f. 01.06.2010. Thus, it is clear that cancellation under section 12AA(3) of the Act can be done only w.e.f. 01.06.2010. He further submitted that registration cannot be cancelled prior to 01.06.2010 as the amendment has prospective operation not retrospective.
9. The ld. Authorised Representative without prejudice to the above, submitted that the power of cancellation of registration under section 12AA(3) is based on the satisfaction of CIT when the activities of such trust, or institution are not genuine or are not being carried out in accordance with the objects as were available at the time of grant of registration. He submitted that the assessee is doing the activities in accordance with the objects as were available at the time of constitution of the authority as well as at the time of grant of registration.
10. The ld. Authorised Representative submitted that the proviso to Section 2(15) can be applied by the CIT while granting fresh registration after 01.04.2009 but it does not allow the authority to review/withdraw/cancel the registration u/s 12AA(3) which was granted earlier unless the activities are not being carried out in accordance with its object, and that in the circumstances, the registration granted to the applicant cannot legally be reviewed/withdrawn/cancelled.
11. The ld. Authorised Representative in support of his contention relied upon following orders :-
(1) Kalinga Institute of Educational Technology v. CIT [2008] 23 SOT 74 (Cuttack) (URO)
(2) M.P. Madhyam v. Jt. CIT [2004] 89 TTJ 770 (Indore)
(3) Oxford Academy for Career Development v. Chief CIT [2009] 315 ITR 382 (All.).
(4) Kapoor Educational Society v. CIT [2011] 48 SOT 131 (Luck) (URO)
(5) Himachal Pradesh Environment Protection & Pollution Control Board v. CIT [2010] 42 SOT 343 (Chd).
(6) Kailashanand Mission Trust v. Asstt. CIT [2004] 88 ITD 125 (Delhi).
(7) Bharti Vidyapeeth v. ITO [2008] 14 DTR 454 (Pune) (ITAT).
(8) Guru Gobind Singh Educational Society v. CIT [2009] 118 ITD 207 (ASR)
(9) Bombay Presidency Golf Club Ltd. v. DIT (Exemptions) [2012] 52 SOT 149
(10) Ajit Education Trust v. CIT [2010] 42 SOT 415 (Ahd.)
(11) Gujarat Cricket Association v. DIT (Exemption) [ITA No.93/Ahd./2011), dated 31-1-2012].
(12) Rajasthan Housing Board v. CIT 51 SOT 383 (JP).
(13) CIT v. Sarvodaya Ilakkiya Pannai [2012] 206 Taxman 115
(14) Jhansi Development Authority v. CIT [ITA No.459/Agra/2007].
(15) Jodhpur Development Authority v. CIT [2012] 27 taxmann.com 183 (Jodh.)
(16) Gujarat Industrial Development Corpn. Udyog Bhavan v. CIT [ITA No.175/Ahd/2011 dated 13-1-2012].
(17) N.H. Kapadia v. DIT (Exemption) [2012] 136 ITD 111.
(18) Ahmedabad Development Authority v. DIT (Exemption) [ITA No.754/Ahd/2010, dated 21.05.2010].
(19) DIT (Exemption) v. Mool Chand Khairati Ram Trust [2011] 199 Taxman 1
(20) Hans Raj Smarak Society v. DIT(E) [ITA 104 (Delhi) of 2012 dated 20-07-2012].
12. The ld. Departmental Representative relied upon the order of CIT and submitted that decisions relied upon by the ld. Authorised Representative are distinguishable on facts. The ld. Departmental Representative submitted that section 2(15) of the Act is very clear on the issue. She submitted that source of income and their nature clearly shows that the activities are in the nature of trade and business. She further submitted that for examining whether activities of the trust/institution are genuine or not, that can only be examined by considering income and expenditures. The ld. Departmental Representative filed written submission which are as under :-
“In support of Id. CIT-I, Agra’s order the undersigned avers that the assessee does not qualify to be a charitable organization w.e.f. AY 2009-10 because of following reasons discussed in brief:
1. Finance Act, 2002 deleted section 10(20A) in which specific exemption was provided to the assessee. It also added definition of “local authority” in section 10(20) thereby excluding the assessee for claiming shelter u/s. 10(20) as well.
2. Finance Act, 2008 added proviso to section 2(15) in which it clearly stated that if the objects of the organization falls under the fourth limb i.e. advancement of any other object of general public utility and it carries on any activity in the nature of trade, business or commerce and receives any money in the form of cess, fees or tax or any other consideration, then it shall not be treated as charitable organization. The use of words like cess, fee or tax is unusual and it again shows the intent of the legislature of taxing such bodies which may be collecting money in the form of cess, fee or tax. The assessee is one such body corporate. From the explicit condition and restriction provided in the proviso to section 2(15), assessee does not remain charitable organization w.e.f. A Y 2009-10.
3. Even on dissolution, all the assets of the assessee will devolve to the State Government without any restriction to its use and there is no restriction that the funds should only be used for the development of the city. This is one of the core principles of irrevocable charitable trust which assessee is in violation of.
This view of the Id. CIT-1, Agra finds support from the following judgments:
– Hon’ble ITAT Amritsar Bench judgment in the case of Jammu Development Authority v. CIT.
– Hon’ble ITAT Amritsar Bench judgment in the case of Jalandhar Development Authority v. CIT.
– Hon’ble ITAT Indore Bench judgment in the case of Indore Development Authority v. CIT.
– Hon’ble ITAT Delhi Bench judgment in the case of Moradabad Development Authority v. ITO.
– ITO v. Moradabad Development Authority, 133 ITD 485 (Del).
– Malik Hasmullah Islamic Educational v. CIT (ITA No.735/Lkw/2011 dated 03.07.2012)
Another question to be considered is regarding the authority of the Commissioner of Income-tax as provided u/s.12AA(3). The order passed by the Id. CIT-I, Agra w.e.f. A.Y. 2009-10 is to be considered in the light of arguments below:
1. Finance Act, 2010 amended section 12AA(3) and explicitly empowered the CIT to withdraw exemption in the case of registration u/s.12A as well w.e.f. 01.06.2010.
In the case of DIT (E) v. Mool Chand Khairati Ram Trust, 243 CTR (Del) 245, the question before the Hon’ble High Court was whether the DIT (E) was justified in cancelling the registration under section 12M (3) w.e.f. 2002-03 vide his order dated 30th June, 2009 when the power to cancel the registration obtained under section 12A came to be incorporated by way of amendment introduced in section 12AA(3) by Finance Act, 2010 w.e.f. 1.6.2010. The ratio decidendi of the judgment of Hon’ble Delhi High Court in this case is that now w.e.f. 1.6.2010, the power vests with the CIT even to cancel registration granted under any of the clauses of Sub section (1) of section 12A.
As the show-cause and the order of cancelling registration in the case of Agra Development Authority have been passed after 01.06.2010, so the order is correct. This view also finds support from the judgment of Hon’ble Bombay High Court in the case of Sinhagad Technical Education Society wherein the Hon’ble High Court dismissed assessee’s writ petition against the fresh show-cause notice issued by the CIT dated 11 March 2011 proposing to invoke the powers under the amended provisions of Section 12AA(3) for cancellation of the registration w.e.f. A.Y. 1999-2000 for the reasons mentioned in the order dated 9 October 2007 and has held:
By the Finance Act of 2010, sub-section (3) was amended so as to empower the Commissioner to cancel the registration of a trust or an institution which has obtained registration at any time under Section 12A (as it stood before its amendment by the Finance (No.2) Act, 1996). As a result of the amendment, a regulatory framework is now sought to be put in place so as to cover also a trust or an institution which has obtained registration under Section 12A as it stood prior to its amendment in 1996. Every statutory provision which operates in respect of a trust, which has already been registered in the past does not have a retrospective character. A law which operates with respect to an event which has occurred in the past is not necessarily retrospective. A provision is retrospective when it takes away a right which has vested or accrued in the past. The effect of the provision is to empower the Commissioner to cancel the registration of a trust where he is satisfied that the activities of the trust are not genuine or are not being carried out in accordance with the objects of the trust or institution. This cannot by any stretch of imagination, be regarded as a retrospective alteration of the law.
2. Second question is that whether the Id. CIT-I, Agra is correct in withdrawing exemption w.e.f. AY 2009-10 and is the order retrospective in character? The amendment by Finance Act, 2008 amended section 2(15) in such a way that the assessee did not qualify as charitable organization w.e.f. AY 2009-10. So, the assessee lost the right of exemption w.e.f. 01.04.2009 itself. What the order of CIT-I, Agra has done is manifest this situation and make it explicit. This order has not taken away any right which the assessee possessed but has only stated and implemented what the legislature has already said through Finance Act 2008. So, order of CIT-I, Agra in not retrospective in character. This view also finds support from the judgement of Mumbai High Court in the case of Sinhagad Technical Education Society.
3. Third question to be considered is that section 12AA (3) only empowers the CIT to withdraw exemption when the activities of the trust are not genuine or that they are not carried on as per the objects of the trust. Now, the question begets a further question: What is ‘genuine’ as per section 12A/12AA/11/12/13? All these sections deal with exemption for ‘charitable purpose’ only. So, word ‘genuine’ can only be understood in the background or in connection in which it is used, i.e. the objects, then only we can arrive at correct understanding. Otherwise a profit making private company which may also be involved in ‘genuine’ activities and which also may be true to its ‘objects’ will qualify to be ‘charitable organization’!
This view also finds support from the order of ITAT, Agra in the case of Samarpan Samiti v. CIT-II, Agra (ITA No. 427/2011 and 36/2012) dated 22.6.2012. Vide paragraph 21 of the said order it is noted that, “As regards genuineness of the activities of the trust or institution whose objects do not run contrary to the public policy and are, in fact, related to charitable purposes, the CIT is empowered to make enquiry as he thinks fit.”
In the case of Agra Development Authority Id. CIT-I, Agra, made enquiries to consider the genuineness of activities and if the objects are, in fact, related to charitable purposes, with reference to the amendment brought out in section 2(15) by Finance Act 2008 w.e.f. 1.4.2009 and found that the activities of the assessee are not genuine in so far as they are not for charitable purpose as defined in section 2(15) w.e.f. AY 2009-10.”
13. The ld. Departmental Representative filed rejoinder in continuation to the above written submission as under :-
“Kindly refer to the written submission filed before the Hon’ble Bench dated 21.9.2012, in continuation of the earlier written submission, it is further submitted for your kind consideration that :
Finance Act 2012 has inserted clause (8) to section 13 of the Income Tax Act, 1961, with retrospective effect from 1.4.2009.
Section 13(8) states as under :
(8) Nothing contained in section 11 or section 12 shall operate so as to exclude any income from the total income of the previous year of the person in receipt thereof if the provisions of the first proviso to clause (15) of section 2 become applicable in the case of such person in the said previous year.
Section 2(15) after it was amended by Finance Act 2008, w.e.f. 1.4.2009, defines charitable purpose as :
(15) “Charitable purpose” includes relief of the poor, education, medical relief, [preservation of environment (including watersheds, forests and wildlife) and preservation of monuments or places or objects of artistic or historic interest,] and the advancement of any other object of general public utility:
Provided that the advancement of any other object of general public utility shall not be a charitable purpose, if it involves the carrying on of any activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business, for a cess or fee or any other consideration, irrespective of the nature of use or application, or retention, of the income from such activity.
Therefore, in view of section 13(8), as soon as the proviso to section 2(15) becomes applicable, as in the case of Agra Development Authority, which falls under the fourth limb of the definition of charitable purpose i.e. advancement of any other object of general public utility, and it involves the carrying on of activities and rendering services in the nature of trade, commerce or business, for a cess or fee or any other consideration, irrespective of the nature of use or application, as discussed in detail in the order of the Ld. CIT-I, Agra, cancelling the registration granted under section 12A of the Income Tax Act, nothing contained in section 11 or 12 of the Act shall operate. Therefore, as soon as Agra Development Authority is hit by the proviso to section 2(15), sections 11 and 12 become inoperative.
Keeping in view the earlier written submission and the provisions of section 13(8), it is humbly prayed that the order of Ld. CIT-I, Agra may kindly be upheld.”
14. We have heard the ld. Representatives of the parties, records perused and gone through the decisions cited. Some admitted and other important facts of the case are that the assessee, Agra Development Authority was granted registration under section 12A of the Act w.e.f. 01.04.2003 vide order dated 24.09.2003. The said registration under section 12A of the Act has been cancelled by the CIT by the impugned order dated 04.04.2012 w.e.f. 2009-10. Before that, i.e. till 31.03.2003 the assessee was claiming exemption under section 10(20A) of the Act which has been omitted by the Finance Act, 2002 w.e.f. 01.04.2003.
15. Under the facts and circumstances, the issue is to be examined in the case under consideration that the CIT was correct in cancellation of registration already granted under section 12A of the Act. To examine the relevant scheme of the Act, we would like to refer relevant sections of the Act, relevant C.B.D.T. Circulars and relevant judgements which are as under :-
“12A. Conditions for applicability of sections 11 and 12.
12A (1) 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 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, whichever is later and such trust or institution is registered under section 12AA.
** ** **”
Procedure for registration.
12AA.(1) The [***] 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.
[(1A) All applications, pending before the Chief Commissioner on which no order has been passed under clause (b) of sub-section (1) before the 1st day of June, 1999, shall stand transferred on that day to the Commissioner and the Commissioner may proceed with such applications under that sub-section from the stage at which they were on that day.]
(2) Every order granting or refusing registration under clause (b) of sub-section (1) shall be passed before the expiry of six months from the end of the month in which the application was received under clause (a) [or clause (aa) of sub-section (1)] of section 12A.]
[(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:
Provided that no order under this sub-section shall be passed unless such trust or institution has been given a reasonable opportunity of being heard.]
16. Section 2(15) has been substituted by the Finance Act, 2008, w.e.f. 01.04.2009 as under :-
“2(15) “Charitable purpose” includes relief of the poor, education, medical relief, [preservation of environment (including watersheds, forests and wildlife) and preservation of monuments or places or objects of artistic or historic interest,] and the advancement of any other object of general public utility:
Provided that the advancement of any other object of general public utility shall not be a charitable purpose, if it involves the carrying on of any activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business, for a cess or fee or any other consideration, irrespective of the nature of use or application, or retention, of the income from such activity:]
[Provided further that the first proviso shall not apply if the aggregate value of the receipts from the activities referred to therein is [twenty-five lakh rupees] or less in the previous year;]”
(In old section 2(15) the proviso was not there in statute.)
17. The C.B.D.T. has issued some circulars explaining amendments in the relevant sections which are as under:-
“Finance (No. 2) Act, 1996 – Circular No.762, Dated 18.2.1998-
Registration of charitable and religious trusts-
19.1 Under the existing provisions of the Income-tax Act, exemption from income-tax in respect of the income of a charitable or religious trust or institution is available only if the conditions specified in that section are satisfied. One of these conditions if that the person in receipt of the income shall make an application for registration of the trust or institution in the prescribed form and in the prescribed manner to the Chief Commissioner or Commissioner of Income-tax within the specified time. However, there was no provision in the Income-tax for processing of such an application and granting or refusal of registration to the concerned trust or institution.
Finance (No. 2), Act, 1996
19.2 Hence the Act now provides for a procedure to be followed for grant of registration to a trust or institution. According to this procedure, the Chief Commissioner or Commissioner shall call for documents and information and conduct enquiries to satisfy about the genuineness of the trust or institution. After he is satisfied about the charitable or religious nature of the objects and genuineness of the activities of the trust or institution, he will pass an order granting registration. If he is not so satisfied, he will pass an order refusing registration. However, an opportunity of being heard shall have to be provided to the applicant before an order of refusal to grant registration is passed by the Chief Commissioner or Commissioner. The reason for refusal of registration shall also have to be mentioned in that order. The order granting or refusing registration has to be passed within six months from the end of the month in which the application for registration is received by the Chief Commissioner or Commissioner and a copy of such order shall be sent to the applicant.”
“Income-tax : Explanatory Notes to the provisions of the Finance Act, 2010
Circular No. 1/2011 [F. No. 142/1/2011-SO(TPL)], dated 6-4-2011
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7. Cancellation of registration obtained under section 12A
7.1 Section 12AA provides the procedure relating to registration of a trust or institution engaged in charitable activities. Section 12AA(3) previously provided that if the activities of the trust or institution are found to be non-genuine or its activities are not in accordance with the objects for which such trust or institution was established, the registration granted under section 12AA can be cancelled by the Commissioner after providing the trust or institution an opportunity of being heard.
7.2 The power of cancellation of registration is inherent and flows from the authority of granting registration. However, judicial rulings in some cases have held that the Commissioner does not have the power to cancel the registration which was obtained earlier by any trust or institution under provisions of section 12A as it is not specifically mentioned in section 12AA.
7.3 Therefore, section 12AA has been amended to provide that the Commissioner can also cancel the registration obtained under section 12A as it stood before amendment by Finance (No.2) Act, 1996.
7.4 Applicability – This amendment has been made applicable with effect from 1st June, 2010 and shall accordingly apply for assessment year 2011-12 and subsequent assessment years.”
18. The Allahabad High Court in CIT v. Manav Vikas Avam Sewa Sansthan [2011] 336 ITR 250, wherein reliance was placed in the case of Lucknow Bench in Oxford Academy for Career Development (supra), wherein it was held as under :-(Page No. 390)
“Regarding cancellation of registration which was granted on April 1, 1999, under section 12A of the Act, it is true that there was no express pro vision 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 Uttaranchal High Court in the case of Welham Boy’s School Society [2006] 285 ITR 74 (Uttaranchal), 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, AIR 1967 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 with effect from October 1, 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 clarificatory 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 empowers 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.”
19. The heading of section 12A ‘Conditions for applicability of sections 11 and 12’ was substituted with effect from 01.06-2007 in place of previous title ‘Conditions as to registration of the Trusts etc. It means that prior to 01.06.2007, 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 01.04.1997. It is also noted that section 12A was inserted in the statute book by the Finance Act, 1972 with effect from 01.04.1973. It was omitted and was again restored with effect from 01.04.1989. 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 01.04.1997. 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 01.04.1997 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 01.10-2004. 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 1-10-2004. 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. 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 01.06.2010. 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 01.06.2010. Of course, now with effect from 01.06.2010, the power vests with the Commissioner even to cancel the registration granted under any of the clauses of sub-section (1) of section 12A. Thus, for exercising power of cancellation of registration under section 12A/12AA and under section 12AA(3) of the Act by the CIT only on the following conditions:-
(i) That the trust or society has already been granted registration under section 12AA(1)(b) of the Act. Or
(ii) W.e .f. 01.06.2010 – registration has been granted at any time under section 12A as stood before its amendment by the (Finance No.2) Act 1996
(iii) The CIT subsequently found and satisfied that :-
(a) activities of such trust or institution are not genuine, or
(b) are not being carried out in accordance with the objects of the trust or institution.
20. In the light of above discussion, if we consider the facts of the case under consideration as discussed above, we find that the CIT is not correct in cancelling the registration under section 12AA(3) of the Act which has been granted under section 12A of the Act on the following grounds and reasons :-
(i) Section 12AA(3) of the Act empowers the CIT to cancel such registration if he satisfy that activities of the trust or institutions are not genuine or are not being carried out in accordance with objects of the trust or institution as the case may be. The combined reading of both the sections makes it clear that before 01.06.2010 registration can be cancelled only on those cases where the registration has been granted under section 12AA(1)(b) of the Act. Before 01.06.2010 this section 12AA(3) nowhere empowers the CIT to cancel or withdraw registration under section 12A of the Act. In absence of such power, the registration granted under section 12A cannot be withdrawn or cancelled before 1.6.2010. The power of cancellation of registration under section 12A of the Act came to be incorporated by way of amendment introduced by Finance Act 2010 w.e.f. 01.06.2010. The C.B.D.T. Circular No.1/2011 dated 06.04.2011 explains that this amendment will apply for A.Y. 2011-12 and subsequent years. Whereas, in the case under consideration, the CIT cancelled registration under section 12A of the Act for A.Y. 2009-10 which is not in accordance with the law. This view is fortified by the judgment of Hon’ble Delhi High Court in the case of DIT(E) v. Mool Chand Khairati Ram Trust (supra) and order of I.T.A.T. in the case of N.H. Kapadia Education Trust (supra) wherein the I.T.A.T., Ahmedabad has followed the judgment of Hon’ble Delhi High Court.
(ii) Even otherwise also, as we notice that registration under section 12A/12AA can be cancelled in the circumstances provided in section 12AA(3) of the Act of which detail has been discussed above in Para no 19 of this order. If we apply the said condition stipulated in section 12AA(3), we find that there is no finding of the CIT that activities of the assessee, Agra Development Authority are non-genuine or not being carried out in accordance with the object of the assessee, Agra Development Authority. Even for the sake of argument if we accept the view of CIT, there may be a case of activities which are not charitable but it cannot be said that those activities of the assessee, Agra Development Authority, are non-genuine or not being carried out in accordance with the object of the assessee. The activities and objects of the assessee, Agra Development Authority are the same which were there at the time of granting registration under section 12A of the Act and at the time when CIT cancelled the registration granted under section 12A w.e.f from 2009-2010. Thus, we find that this condition of cancellation of registration already granted under section12A has not been satisfied. Where the condition stipulated under section 12AA (3) is not satisfied, the CIT cannot cancel or withdraw registration granted under section 12A of the Act. In the case under consideration, the condition stipulated in section 12AA(3), that activities of the assessee, Agra Development Authority are non-genuine or not being carried out in accordance with the object of the assessee, Agra Development Author is not satisfied. The CIT by his own motion added one more condition in section 12AA (3) that the object of the assessee, Agra Development Authority is not charitable as per amended provisions of section 2(15) of the Act for which the CIT is not empowered to add such own condition in the statute. Similar view has been taken by the I.T.A.T., Ahmedabad in the case of Ahmadabad Urban Development Authority v. DIT, ITA No.754/Ahd/ 2010, order dated 21.5.2010.
21. Now we come to the judgements relied upon by the Revenue. The CIT & ld. Departmental Representative relied upon a judgement of Hon’ble Bombay High Court in the case of Sinhagad Technical Education Society v. CIT [2012] 206 Taxman 314. The CIT was of the view that as per the said judgement, the CIT can cancel registration under section 12A/12AA of the Act even for earlier years. The CIT is not fully correct in reading the said judgement, firstly the facts and issue before the court was whether powers granted by CIT under section 12AA(3) of the Act was valid as per the constitution. The Court held that power under section 12AA(3) can be exercised by the Commissioner in respect of Trusts registered prior to 01.06.2010. Nowhere has it been held by the Court that said power is applicable to earlier years/assessment years. The Court has also held that amendment does not take away any vested aright nor does it create new obligation in respect of past actions. The Court did not express their opinion on merit of the case. Thus, we find that the CIT wrongly applied the said judgement to the facts of the case under consideration.
21.1 The CIT and ld. Departmental Representative relied upon certain orders of I.T.A.T. where in the issue was different. The issue in those cases were pertaining to grant fresh registration under section 12AA of the Act and not cancellation of registration under section 12A of the Act under section 12AA (3) of the Act. Some of the decisions of I.T.A.T. are contrary to the judgement of Hon’ble Delhi High Court in the case of Mool Chand Khairati Ram Trust (supra). Therefore, those decisions are distinguishable on facts and did not help to revenue.
21.2 The ld. Departmental Representative relied upon the Orders of I.T.A.T. in the cases of Jammu Development Authority v. CIT [2012] 52 SOT 153 (ASR)(URO), Jalandhar Development Authority v. CIT [2010] 35 SOT 15 (ASR) (URO), Indore Development Authority v. CIT [2010] 6 taxmann.com 132 (Indore) & Moradabad Development Authority v. ITO [2011] 133 ITD 485 after amendment in section 2(15), as per proviso to section 2(15) assessee does not remain charitable w.e.f. 2009-10 does not help to the assessee as we have not expressed any opinion on the issue.
21.3 One of the contention of the ld. Departmental Representative that Section 12AA(3) has been amended w.e.f. 01.06.2010 wherein power has been given to cancel registration under section 12A(1) of the Act. In that case the CIT cancelled registration under section 12A of the Act after 01.06.2010, therefore, the fact is different than case under consideration. This contention of the ld. Departmental Representative is not acceptable in the light of above discussions that the CIT cancelled registration under section 12A w.e.f. 2009-10 which is the period prior to 01.06.2010. The C.B.D.T. has also clarified that the amendment in section 12AA(3) is applicable from A.Y. 2011-12.
22. In the light of above discussion, the order of CIT is not in accordance with law. We, therefore, set aside the order of CIT and restore the registration under section 12A of the Act which has been cancelled w.e.f. 2009-10. Since the issue raised in grounds number 1, 2 & 4 have been decided in favour of the assessee on the basis and reasons discussed above, so under the facts and circumstances, the grounds on merit raised in grounds number 3, 5, 6, 7 & 8 wherein the CIT held that the activities of the assessee, Agra Development Authority, is not charitable, we are not expressing any opinion on these grounds of appeal. Grounds number 9 & 10 are general in nature, require no independent finding.
23. Before parting from the matter it is stated that the order of cancellation of registration has been signed as Chief Commissioner of Income Tax (OSD), it was clarified that he has been promoted from CIT to CCIT and charge of CIT was with him.
24. The another aspect of the matter is that the CIT while cancelling the registration under section 12A of the Act of the assessee observed regarding earlier order of the I.T.A.T. in ITA No.447/Agr/2011, order dated 02.03.2012 at page no.11 of his order, “Accordingly, even earlier notice under section 293C was valid in the eyes of law” whereas this order of the CIT has been set aside by the Tribunal in above order dated 02.03.2012. The CIT and CCIT in hierarchy are subordinate authorities to the I.T.A.T. and certain judicial disciplines are applicable to them, that the orders of higher appellate authorities should be religiously followed by the subordinate authorities otherwise; entire judicial system would lead to chaos. In this regard, we would like to refer following observations of Hon’ble Delhi High Court in the case of Nokai Corp. v. DIT (IT) [2007] 162 Taxman 369 (Delhi).
“12. The Supreme Court stated, many years ago, in Union of India v. Kamlakshi Finance Corpn. Ltd. [1991] (55) ELT 433 as follows :
“…The principles of judicial discipline require that the orders of the higher appellate authorities should be followed unreservedly by the subordinate authorities….” (p. 436)
It was further observed by the Supreme Court that if the order of an appellate authority is the subject-matter of further appeal, that cannot furnish any ground for not following it, unless its operation has been suspended by a competent Court. The Supreme Court went on to say that if this healthy rule is not followed; the result will not only be undue harassment to assessees but chaos in the administration of tax laws.
13. In CIT v. Ralson Industries Ltd. [2007] 2 SCC 326, the Supreme Court held :-
“9. When an order is passed by a higher authority, the lower authority is bound thereby keeping in view the principles of judicial discipline….” (p. 330)
The Supreme Court drew support from Bhopal Sugar Industries Ltd. v. ITO [1960] 40 ITR 618 wherein it was held :
“If a subordinate Tribunal refuses to carry out directions given to it by a Superior Tribunal in the exercise of its appellate powers the result will be chaos in the administration of justice….” (p. 622)
It was further observed in Bhopal Sugar Industries Ltd.’s case (supra) :
“…The Judicial Commissioner was not sitting in appeal over the Tribunal and we do not think that, in the circumstances of this case, it was open to him to say that the order of the Tribunal was wrong and, therefore, there was no injustice in disregarding that order. As we have said earlier, such a view is destructive of one of the basic principles of the administration of justice.” (p. 623)
14. Similarly, in Triveni Chemicals Ltd. v. Union of India [2007] 2 SCC 503, the Supreme Court reiterated the principle that adjudicating authorities are bound by the doctrine of judicial discipline.”
25. In the result, appeal filed by the assessee is allowed.
