The Finance Act, 2022 substituted subsection (4) and (5) of section 12AB with a new subsection (4) which provides a list of ‘Specified Violation‘ if undertaken by the assessee registered or provisionally registered under section 12AB, the Principal Commissioner or Commissioner may cancel the registration so taken by the assessee. Similar amendment has also been made in section 80G and 10(23C).
As per the amended subsection (4) of section 12AB, “Specified Violation” mean,
→ Any income of the trust or institute has been applied, other than for the purpose of religeous or charitable
→ The trust or institution has income from profits and gains of business which is not related to its objectives
→ The trust or institute is carrying out business activities which are related to its objectives but separate books of account are not maintained in respect of such business
→ The trust or institution has applied any part of its income for private religious purposes, which is not for the benefit of the public
→ The trust or institution has applied any part of its income for the benefit of any particular religious community or caste
→ Any activity carried out by the trust or institution which are not genuine or not in accordance with all or any conditions subject to which it was registered
→ The trust or institution has not complied with the requirement of any law which are material for achieving its objectives
It is pertinent to note that the list of violations mentioned above is exhaustive one and Income Tax Department needs to take care while passing the order for cancellation of registration for it may lead to litigation as the amended subsection is limiting the scope of the Authority.
Now, CBDT has issued a clarification to give effect to the said amendments and thereby made certain changes in the conditions as mentioned in Form-10AC subject to which the registration or provisional registration has been granted for the purpose of aligning the same with the amendments.
Therefore, the conditions mentioned in Form 10AC issued between 01.04.2021 till date shall be substituted with the conditions mentioned in the Table-1 of the circular which more or less are the same as mentioned in new subsection (4) of Section 12AB.
It is to be noted that the notice under subsection 4 of section 12AB, the Principal Commissioner or Commissioner may send the notice any time but only in below mentioned situations,
If he has noticed occurrence of one or more specified violations during any previous year
If he has received a reference from the AO during Assessment proceeding under section 143(3)
If such case has been selected in accordance with the risk management strategy, formulated by the Board from time to time, for any previous year
Once the notice has been issued, the Principal Commissioner or Commissioner has to pass an order in writing either to cancel the registration or refusing to cancel the order. Needless to say that this order shall be a speaking one and an opportunity of being heard shall be given to assessee.
It is also to be noted that the notice under this subsection i.e. 12AB(4) is a different notice from the notice that may be sent by the Principal Commissioner or Commissioner at the time of granting registration. That means after granting registration, the Principal Commissioner or Commissioner may review their own approval of granting registration if they noticed any “Specified Violation” being occurred during any year by the assessee.
The order as mentioned above shall be passed before the expiry of six months from the end of the quarter in which the first notice is issued by the Principal Commissioner or Commissioner.
This amendment is applicable from 1st of April, 2022.
About the Author
Author is CA Amit Jindal Legal Head in Neeraj Bhagat & Co. Chartered Accountants, a Chartered Accountancy firm helping foreign companies in setting up business in India and complying with various tax laws applicable to foreign companies while establishing their business in India. Neeraj Bhagat & Co. Chartered Accountants, is a well-established Chartered Accountancy firm founded in the year 1997 with its head office at New Delhi.
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