This write up summarizes the decision of the Mumbai ITAT in the matter of R.D Tata Trust (Assessee) wherein Tribunal held that cancellation of Registration granted to the assessee will have effect from the date on which the hearing of First show cause notice was concluded.
Facts of the case
- The assessee trust was constituted by the trust deed dated 23.12.1974 and obtained registration as public charitable trust in August 1975 under section 12A(a) of Income Tax Act (ITA).
- In March 2015, referring to section 12AA(4) of the ITA the Trust submitted to the CIT(E) that some of its activities are not in conformity with the provisions of section 13(1) of the ITA which would be construed as an activity of the Trust which is being carried out in a manner that provisions of section 11 and 12 of the ITA do not apply to exclude either whole or any part of the income of the Trust, resulting in withdrawal of the registration under section 12A of the ITA. By the letter the Trust had surrendered its registration.
- Acknowledging Trusts letter dated 11.03.2015, a show cause notice dated 13.03.2015 was issued by the CIT(E) proposing to cancel/withdraw the Trusts registration under section 12A of the ITA. The Trust was called for a hearing on 20.03.2015 on which date the Trust confirmed its agreement to the cancellation/withdrawal of the registration. Thus, the Trust submits that it has already surrendered the registration in 2015.
- Pursuant to the surrender in 2015, the Trust filed its income tax return without claiming exemption under section 11 and 12 of the ITA.
- In May 2016 the assessee once again sent a communication to Commissioner of Income Tax concerned placing on record his understanding that with his surrender of registration, he is not required to follow the scheme of Section 11 to 13.
- There was no response to this letter received. However, on 8th March 2018 without any reference to any earlier proceedings as set out above, the respondent Principal Commissioner issued a notice requiring the assessee to show cause as to why the registration under section 12A granted to the assessee not be cancelled.
Taxpayer’s contention before the Tribunal
- Section 12A is a registration which is the nature of benefit as it is a foundational requirement for the exemption under section 11. It is thus meant to be a beneficial scheme for the taxation of trusts. A benefit cannot be thrust upon an unwilling person, particularly when what is perceived and claimed to be a benefit turns out to be a liability.
- It is submitted that u/s 12AA(4), an assessee can surrender a registration under section 12A and there will be no necessity to pass a formal order to that Further, section 12AA(3) requires the Commissioner to be satisfied of a ‘violation’, under sub section 12AA(4) a violation has to be only ‘noticed’. Once the assessee has informed the Commissioner of the violation, that satisfies the requirement of Section 12AA(4) inasmuch as the Commissioner cannot say that he has not noticed the violation, and no further satisfaction by the Commissioner is necessary.
- It is thus contended that the requirements of Section 12AA(4) were clearly satisfied in the present case. It is then pointed out that while under section passing of an order is mandatory under section 12AA(3) inasmuch as it provides that the Commissioner “shall” pass the order, the word used in section 12AA(4) is “may”, and, by implication therefore, passing of the order is not mandatory at all.
- Learned Counsel further submitted that under the scheme of Section12A as it then existed and quite in contrast with the scheme of Section 12AA introduced by Finance Act 1996 there was no requirement for the Commissioner being satisfied about genuineness of the activities of the trust and the requirement of registration was satisfied as soon as the assessee filed the application for registration in the prescribed manner. It was obtained by a unilateral act, though confirmed by a communication by the Commissioner, and, therefore, its cancellation cannot entail a different process.
Tax Authority’s contention before the Tribunal
- It is submitted that question of a unilateral surrender cannot and would not arise. In fact, there is no power or provision under the Act whereby a party can unilaterally effect a surrender of the registration. Section 12AA(3) and (4) expressly provide for an Order in Writing for cancelling the registration. Registration under section 12A of the Act continues till the Commissioner of Income tax/Principal Commissioner of Income Tax cancels the registration by an order in writing.
- It is then contended that while the assessee has an option to claim or not to claim the benefit of Section 11, as it is optional, but then, once a registration is granted, it is not at the option of the assessee to have or not to have the registration. Once the registration is granted, and unless it is lawfully cancelled, the assessee is bound by the same.
- It is incorrect to urge that the cancellation of registration took place by way of surrender or acquiescence to the show cause notice in March, 2015. Such an interpretation would render otiose the requirement of an order in writing as mandated under Section 12AA(3) and (4).
- The trustees of the assessee Trust have blatantly and consistently violated the provisions of section 13(1)(d) and has made investments which are not in accordance with the objects of the Trust Deed. Therefore, it is submitted that this act on the part of the Trust was not a voluntary act but was a fait accompli.
Analysis by ITAT
- The question arises before ITAT why would an assessee trust decline such a generousity of the income tax department, or, to put it conversely, why is the income tax department is so keen to extend registration under section 12A, for this extended period from March 2015 to October 2019, when the assessee does not want it.
- To understand the possible reasons, one has to factor in certain rather recent legislative amendments-
- First such amendment in Section 11 w.e.f 1st April 2015 tax exemption for ‘dividends from Indian companies’, on which dividend distribution tax is already paid by the company distributing dividends anyway, under section 10(34)- as is available to every other taxpayer, is no longer admissible to charitable trusts registered under section 12A.
- And the next one is introduction of Section 115TD brought by the Finance Act 2016 with effect from 1st April 2016, an additional tax burden is put on the deregistration of a charitable institution in respect of its accreted income.
- The additional tax burden would not come into play in case the deregistration is with effect from the date on which the registration is claimed to have been surrendered i.e. 19th February 2015, the date on which the hearing in this respect is concluded by the Principal Commissioner of Income Tax, i.e. 20th March 2015, or even when it is taken as within a reasonable period from the date of conclusion of this hearing, say within 365 days from the date of closing the hearing i.e. 20th March 2016. Therefore, the date of cancellation of registration has an important bearing on this tax liability as well.
- Tribunal noted that they could not find any “obligations” imposed on the assessee on account of registration under section 12A, at least in terms of the registration obtained in the pre-section 12AA era. And also, In view of the observations of Hon’ble Supreme Court in the case of Mahendra Mills (supra) to the effect that “If it does not wish to avail that benefit for some reason, benefit cannot be forced upon him” and that “It is rightly said that privilege cannot be a disadvantage and an option cannot become an obligation” which will apply, with equal vigour, in the present context.
- We have also noted that, on 11th March 2015, the assessee on his own had informed the assessee that on account of its investment pattern becoming incompatible with the amended provisions Section 13(1) and in view of the provisions of Section 12AA(4), the assessee is no longer eligible for the continuance of registration under Section 12A. Once the learned Commissioner “noticed” this position admitted by the assessee, it was his duty to pass an order in writing withdrawing the registration.
- In view of the above discussions, it has been held that the impugned order of cancellation of registration must be held to be effective from the date on which the hearing on first show-cause notice was concluded and the show cause notice issued by the Commissioner was formally acquiesced by the assessee in the said hearing, i.e., 20th March 2015, since, without disposing of the said matter, the Commissioner, or his successors, could not have started other parallel proceedings for cancellation of registration obtained under section 12A.
The present cancellation of registration under section 12A must, therefore, be held to be effective from 20th March 2015.
Source: R.D Tata Trust Vs PCIT (ITAT Mumbai), Appeal Number : ITA No. 7242/Mum/2019, Date of Judgement/Order : 24/03/2021, Related Assessment Year : 2019-20