Trust registration cannot be cancelled by applying provisions of section 12AB(4)(ii) retrospectively
Case Law Details
Amala Jyothi Vidya Kendra Trust Vs PCIT (ITAT Bangalore)
Amala Jyothi Vidya Kendra Trust and M/s. Adarsha Vidya Kendra Trust have jointly appealed against two orders issued by the Principal Commissioner of Income Tax (PCIT) on 29.12.2023 under section 12AB(4)(ii) of the Income-tax Act, 1961. Both trusts raised several grounds of appeal regarding the cancellation of their registration under sections 12AA and 12AB of the Act. These grounds primarily revolve around the retrospective application of the relevant provisions and the procedural aspects of the assessment.
The key contentions raised by the appellants include:
- Retrospective Application of Provisions: The trusts argue that the PCIT erred in applying the provisions introduced by the Finance Act, 2022, retrospectively to the assessment year 2018-19. They contend that the law applicable for penalizing should be the one in force during the year of the offense, citing legal precedents to support their argument.
- Violation of Specific Provisions: The PCIT invoked section 12AB(4)(ii) of the Act, alleging violations such as misuse of trust funds for personal benefit and non-compliance with statutory requirements. However, the appellants argue that these provisions were not applicable to the relevant assessment year, and thus, the cancellation of registration based on them is unjustified.
- Legal Precedents and Judicial Interpretation: The appellants cite various judicial decisions to support their contention that the cancellation should be based on the law prevailing during the assessment year in question. They argue that the retrospective application of provisions, as done by the PCIT, is invalid and not supported by legal principles.
- Lack of Evidence and Due Process: The appellants contest the reliance on statements obtained under section 132(4) of the Act, highlighting the absence of corroborating evidence and the subsequent retraction of statements by the administrative officer of the trust. They assert that the PCIT failed to follow due process and legal precedents regarding the assessment and cancellation of registration.
The Income Tax Appellate Tribunal (ITAT) analyzed the arguments presented by both parties and made the following observations:
- Retrospective Application: The ITAT concurred with the appellants’ argument that the provisions introduced by the Finance Act, 2022, cannot be applied retrospectively to the assessment year 2018-19. It emphasized the principle that tax laws should be applied as per the provisions in force during the relevant assessment year.
- Quashing of PCIT’s Order: Given the retrospective application issue, the ITAT quashed the PCIT’s order cancelling the registration of the trusts under section 12AB(4)(ii) of the Act. The ITAT’s decision aligned with previous judicial interpretations and legal principles regarding the retrospective application of tax laws.
- Infructuous Grounds: As a result of quashing the PCIT’s order, certain grounds of appeal related to procedural aspects and specific violations became infructuous and were not adjudicated upon by the ITAT.
In conclusion, the ITAT allowed the appeals of the trusts, emphasizing the importance of applying tax laws in accordance with the provisions in force during the relevant assessment year. The decision underscored the need for adherence to legal principles and due process in tax assessments and cancellations of registration.
FULL TEXT OF THE ORDER OF ITAT BANGALORE
These appeals are filed by the above assessees directed against two different orders of PCIT, both are dated 29.12.2023 passed u/s 12AB(4)(ii) of the Income-tax Act,1961 [‘the Act’ for short]. Since the issues involved in both appeals are common in nature, hence, these appeals are clubbed together, heard together and disposed of by this common order for the sake of convenience. The assessees herein raised following grounds of appeal:
1. The order of the learned Pr. Commissioner of Income Tax (Central), Bengaluru is opposed to the facts of the case and law applicable to it.
2. The learned Pr. Commissioner of Income Tax (Central), Bengaluru erred in passing an order UIs. 12AB(4) i) of the act, for the A. Y.2018-19 cancelling the registration granted U/s.12AA/ UIs. 12AB of the act, ignoring the position of law that, the provisions of section 12AB(4)(ii) of the act was introduced by Finance Act 2022 w.e.f 01.04.2022 and therefore not applicable for th+.Y.2018-19.
3. The learned Pr. Commissioner of Income Tax (Central), Bengaluru erred in ignoring the position of law that, without prejudice to the contention of the appellant that, there was no case for cancellation of registration, such order should have been passed under the provisions of section 12AA(4) of the act which was relevant for the A. Y.2018-19 and not under the provisions of section 12AB(4)(ii) of the act.
4. The learned Pr. Commissioner of Income Tax (Central), Bengaluru erred in ignoring the position o law laid down by Hon’ble I TAT, in the appellant’s own case for the A. Y.2021-22 holding that, the provisions of section 12AB(4)(ii) of the act introduced from A. Y.2022-23 onwards cannot be invoked retrospectively and hence cannot be applied for the earlier years.
5. The learned Pr. Commissioner of Income Tax (Central), Bengaluru erred in ignoring the fact that, there has been no case that the activity of the trust/institution were not genuine and also it was not proved that, the activity was not being carried on in accordance with objects of the trust or institution and therefore the circumstances contemplated U/s.12AA(4) of the act were not satisfied, eventually there was no case of cancellation of registration UIs. 12AA(4) of the act.
6. The learned Pr. Commissioner of Income Tax (Central), Bengaluru has erred in acting on a reference made under the third proviso to the provisions of section 143(2) of the act Ignoring the fact that, the proviso invoked was introduced by Finance Act 2022 w.e.f. 01.04.2022 and therefore was not applicable for the A.Y.2018-19.
7. The learned Pr. Commissioner of Income Tax (Central), Bengaluru has erred in availing the extended the time limit for conclusion of assessment as provided for under explanation1 (xiii) below the provisions of section 153(9) of the act which was introduced by Finance Act, 2022 w.e.f 01.04.2022 and is in the context of the provisions of section 12AB(4)(ii) of the act which was also introduced by Finance Act, 2022 w.e.f 01.04.2022 and were not applicable for the A.Y.2018-19 and hence the order passed is beyond the time limit and deserves to be annulled.
8. The learned Pr. Commissioner of Income Tax (Central), Bengaluru erred in ignoring the position of law that, for the purposes of provisions of section 12AA(4Yof the act, relevant for the A.Y.2018-19, there was no extended time limit provided for and therefore the present order is barred by limitation.
9. The learned Pr. Commissioner of Income Tax (Central), Bengaluru erred in relying on the statements recorded UIs. 132(4) of the act, from Mr. Jagadeesh Kumar, administrative officer of the trust, ignoring the fact that, there were no confirming statements from any of the trustees and in the context of the assessment for the A. Y .2022-23, the administrative officer during the course of cross examination on 24.02.2023 retracted on the statement and hence could not have been relied upon.
10. Without prejudice to the fact that, the administrative officer has retracted the statement given UIs. 132(4) of the act, the learned Pr. Commissioner of Income Tax (Central), Bengaluru erred in not following the ratios laid down by the Hon’ble Supreme Court in the following cases wherein it is held that, an assessee can always retract on the statement UIs. 132(4) of the act and the revenue authorities are required to corroborate the admission in the statement with independent evidence for making additions to the income declared.
Attar Singh Gurmukh Singh V. ITO (1991) 191
ITR 667 (SC) ii) Satinder Kumar (HUF) V. CIT
(1977) 106 ITR 64 (SC) iii) Avadh Kishore Das
V. Ram copal AIR 1979 SC 861
11. The learned Pr. Commissioner of Income Tax (Central), Bengaluru erred in giving a finding on the basis of certain alleged evidences and also retracted statements that, the funds of the trust were not being fully utilized for the objectives of the trust but a part of the same was used for personal benefits of the trustees, ignoring the fact that, all the transactions were recorded in the books which were audited by a chartered Accountant and no portion of the revenue was diverted for purposes other than objectives of the trust and also the Assessing Officer had not brought on record any evidence to prove the contrary.
12. The learned Pr. Commissioner of Income Tax (Central), Bengaluru erred in ignoring the position of law laid down in Welham Boys’ School Society V. Central Board of Direct Taxes (2007) 158 Taxman 199 (Uttaranchal), wherein it is held that, the law prevailing for the specific assessment year are to be invoked and powers vested in post amended provisions cannot be invoked, implying that, for the A.Y.2018-19 the provisions of 12AA(4) are to be invoked and not the provisions of 12AB(4)(ii) of the act.
13. The learned Pr. Commissioner of Income Tax (Central), Bengaluru erred in not following the ratio laid down by High Court of Gujarath in the case of Commissioner of Income Tax, Gandhinagar Vs. Gujarath Maritime Board (2021) 123 com 35 (Guj) confirmed by SC in (2022) 143 Taxmann.com 278 (SC) (and also Director of Income Tax (Exemption) V. North Indian Association (2017) 79 Taxmann.com 410 (Bombay) & Commissioner of Income Tax (Exemptions) V. Mumbai Metropolitan Region Development Authority (2020) 115 Taxmann.com 71 (Bombay)], wherein it is held that, for the reasons not provided for in the provisions of section 12AA(3) of the act which was in existence at that point of time and presently 12AB(4) of the act, the registration granted to the trust cannot be cancelled.
14. The learned Pr. Commissioner of Income Tax (Central), Bengaluru erred in not following the ratio laid down by the Mumbai Tribunal in the case of Lilavati Kirtilal Mehta Medical Trust V. Commissioner of Income Tax (central)-l, Mumbai (2019) 108 com 272 (Mum Trib), wherein it is held that, violation of provisions of section 13 of the act does not warrant cancellation of registration UIs. 12AA(3) of the act, the law which was in vogue as on that day and this ground is without prejudice to the fact that, there has been no violations of the provisions of section 13 of the act.
2. Both assessees are based in Bengaluru. M/s. Adarsha Vidya Kendra Trust has been registered by Deed of Trust Deed dated 5.1.2000 and Amala Jyoti Vidya Kendra Trust has been registered vide Trust Deed dated 1.4.2005. The main objects of these Trusts are as follows:
(i) To open, run, continue any educational and vocational school or Institution in healthy and salubrious surroundings.
(ii) To engage teachers, professors, instructors and experts of good moral character and conduct and to impart efficiently and economically up-to-date instruction to pupils and students in modern sciences, industrial avocations, research work, intellectual and other useful pursuits.
(iii) To develop a healthy as well as critical attitude towards the development of mental, physical and moral uplift of the students and all those connected with the institution so as to make them good citizens.
(iv) To establish, maintain and run Hostel or Boarding House and residential institution for the students and those connected with the institution.
(v) To invest, dispose or transfer and otherwise deal with the subject-matter of the Trust in such manner as the Trustees should deem fit so as to enable the Trust on the objects of the Trust effectively.
(vi) ‘To accept donation, grants, presents and other offerings and to deal with the same, for the purpose of the Trust.
(vii) To charge moderate tuition fees and otherwise recoup themselves for the out lay and expenses incurred in the upkeep and maintenance of Institutions established or about to be established under this deed.
(viii) To train and equip the pupils so as to be self-supporting in an honourable and decent way of life so as to develop them
(ix) To promote and inculcate the dignity of labour, the appreciation of intellectual gifts and talents of all kinds.
(x) To encourage sportsman and adventurous spirit in the pupils and those connected with the institution or coming in contact with them and to participate in games of skill and prowess.
(xi) To develop disciplinary conduct and a habit to observe the rule of law and self-restraint.
(xii) To bring out, encourage and develop the inventive and research faculties of the pupils and teachers and to afford opportunity for research work in art, science and industrial undertakings.
(xiii) To encourage, assist, support and facilitate students to continue their education by giving scholarships, financial aid, and any other kind or aid or facility.
(xiv) To establish, manage or administer professional schools and colleges and to take over any other educational institution or Trust or society or organisation absolutely or for the purpose of management and administration, to achieve its objects.
2.1 M/s. Adarsh Vidya Kendra Trust has been registered u/s 12AA of the Act by the Director of Income Tax (E), Bengaluru vide No.DIT(E) BLR/12AA/A1188/AABTA4093L/ITO(E)-1/Vol./2010-11 dated 27.10.2010 w.e.f assessment year 2011-12. Similarly, Amala Jyothi Vidya Kendra Trust has been registered by the Director of Income Tax (E), Bangalore vide No.DIT(E)/BLR/12A/A-1104/AANBTA9843Q/E-1/(2007-08) dated 28.11.2007.
2.2 Further, in the case of Adarsh Vidya Kendra Trust, due to amended provisions of the Act w.e.f. 1.4.2021 requiring registration to be restricted for 5 years, the assessee filed an application and registration granted to it by DIT(CPC) on 24.9.2021 from assessment year 2022-23 to assessment year 2026-27 so as to enable the earlier registration granted on 27.10.2010 to be continued. In the case of Amala Jyothi Vidya Kendra Trust, the assessee has filed an application and registration was granted to it by DIT(CPC) on 6.4.2022 from assessment year 2022-23 to assessment year 202627 so as to enable the earlier registration granted on 28.11.2007 to be continued.
2.3 In the case of Adarsh Vidya Kendra Trust search u/s 132 of the Act was conducted in the office premises of assessee’s trust situated at 8/9, 27th Cross, Banashankari 2nd Stage, Bengaluru 560 070 on 18.12.2021.
2.4 Similarly, in the case of Amala Jyothi Vidya Kendra Trust, search was carried out u/s 132 of the Act in the office premises of assessee trust situated at Survey No.69, Pipeline Road, BWSSB Colony, Magadi Main Road, Bengaluru on 18.12.2021. During the course of search, various incriminating materials were found which were confronted to Shri Rajeev Kumar Rai, the Trustee and the Chairman of the Trust and Nikita Rai, the Trustee and Secretary of the assessee trust and it is found that they are using the funds of the Trust for personal benefit.
2.5 Consequently, assessment proceedings for the assessment year 2018-19 were initiated by the ld. AO in these cases by issuing notice u/s 143(2) of the Act on 24.6.2022 in both cases. Notice u/s 142(1) of the Act was also issued by ld. AO on 10.1.2023 and 13.02.2023 in both cases and calling for various details and confronting the evidence collected during the search. Subsequently, vide letter dated 20.12.2022, the ld. AO sent a reference for assessment year 2018-19 communicating the satisfaction as per second proviso to section 143(3) of the Act in both cases. Accordingly, show cause notice was issued by the predecessor of the present PCIT on 15.05.2023, requiring the assessee to explain as to why the approval granted by the Director Income Tax (E) Bengaluru in both cases should not be cancelled. After considering the reply in both cases, the ld. PCIT cancelled the registration granted to these assessees u/s 12AA/12AB of the Act w.e.f. previous assessment year 2017-18 and that of subsequent years as per provisions u/s 12AB(4) of the Act.
2.6 Against this, both the assessees are in appeal before us.
3. The first ground is general in nature, which do not require any adjudication.
4. Next grounds for our consideration in ground Nos.2, 3, 5 & 12 are with regard to cancelling registration granted u/s 12AA/12AB of the Act by invoking the provisions of section 12AB(4)(ii) of the Act with retrospective effect though this section was introduced by Finance Act, 2022 w.e.f. 1.4.2022.
4.1 The ld. A.R. submitted that there has been various amendments to the provisions dealing with cancellation of registration granted U/s.12AA of the Act. The Pr. Commissioner of Income Tax (Central) has cancelled registration U/s.12AA of the Act invoking the provisions of section 12AB(4)(ii) of the Act alleging violations contemplated in Explanation (a) & Explanation (e) below the provisions of section 12AB(4) of the act. This provision of the Act which is extracted hereunder and invoked by the Pr. Commissioner of Income Tax (Central) for cancellation of registration granted U/s.12AA of the Act was introduced by Finance Act 2022 w.e.f 01.04.2022.
4.2 He submitted that prior to introduction of this provision, the following provision was in existence which was introduced by Finance Act 2021 w.e.f 01.04.2021.
“12AB(4) Where a registration of a trust or an institution has been granted under clause (a) or clause (b) of sub-section (1) and subsequently, the Principal Commissioner or 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 after affording a reasonable opportunity of being heard.”
4.3 He submitted that the assessment involved in appeal is A.Y.2018-19. The law relating to cancellation of registration has under gone changes in as much as the said provisions were different for the A.Y.2018-19 and for A.Y.2022-23. It is submitted that the Pr. Commissioner of Income Tax (Central) invoked the provisions which were applicable from A.Y.2022-23 for a default alleged to have been occurred in A.Y.2018-19. He submitted that prima-facie invoking the provisions which are applicable for the A.Y.2022-23 and cancel registration for the A.Y.2018-19 is bad in law. Cancellation of registration is penal in nature. The consequences are that, the exemptions enjoyed by the assessee are withdrawn. The capital expenditure which otherwise is not an allowable expenditure would be considered as application in the event of an assessee trust enjoying the benefits of the registration. Under the circumstances, the law that should apply is with reference to the year of default. He submitted that the Pr. Commissioner of Income Tax (Central) should have acted as per the law prevailing for the A.Y.2018-19. The alleged infringement by the assessee occurred during the A.Y.2018-19 and therefore the penalization should also be with reference to the corresponding provisions as they existed for the A.Y.2018-19.
4.4 The ld. A.R. relied on the ratio laid down by the Hon’ble Supreme Court in the case of Commissioner of Income Tax V. Omkar Saran & Sons (1992) 62 Taxman 440. The Hon’ble Supreme Court has held that, the law applicable for penalizing should be the law for the year of committing the offence. This decision is in the context of penalty leviable under the provisions of section 271(1)(c) of the Act. However, the principle is applicable with reference to the other provisions also which are penal in nature. Cancellation of registration deprives the assessee of the various benefits which otherwise accrue and hence the provisions are to be considered as in the nature of punishment.
4.5 The ld. A.R. submitted that, the order passed by the Pr. Commissioner of Income Tax, invoking provisions of section 12AB(4)(ii) of the Act dated 29.12.2023 is bad in law and deserves to be annulled.
5. On the other hand, the ld. D.R. submitted that the ld. PCIT cancelled the registration granted to the assessee u/s 12AA/12AB of the Act vide order dated 29.12.2023. As such, provisions of section 12AB(4) of the Act as stood on this date has been applied and there is no error in applying the provisions of section 12AB as substituted by Finance Act, 2022 w.e.f. 1.4.2022. He supported the order of ld. PCIT (Central).
6. We have heard the rival submissions and perused the materials available on record. The main contention of the ld. A.R. is that the ld. PCIT cancelled the registration granted to the assessee w.e.f. the previous year i.e. 2017-18 relevant to assessment year 2018-19 by applying the provisions as stood on 29.12.2023, which cannot be applied for the violations of the provisions of section 12AA or 12AB of the Act. According to the ld. A.R., the ld. PCIT has cancelled the registration granted to the assessee since the ld. PCIT was satisfied that one or more specified violations have taken place. The specified violations are mentioned in explanation to section 12AB(4) of the Act as follows:
Explanation: For the purposes of this sub-section, the following shall mean “specified violation”,–
a) Where any income derived from property held under trust, wholly or in part for charitable or religious purposes, has been applied, other than for the objects of the trust or institution; or
b) The trust or institution has income from profits and gains of business which is not incidental to the attainment of its objectives or separate books of account are not maintained by such trust or institution in respect of the business which is incidental to the attainment of its objectives; or
c) The trust or institution has applied any part of its income from the property held under a trust for private religious purposes, which does not ensure for the benefit of the public; or
d) The trust or institution established for charitable purpose created or established after the commencement of this Act, has applied any part of its income for the benefit of any particular religious community or caste; or
e) Any activity being carried out by the trust or institution—
(i) vis not genuine, or
(ii) is not being carried out in accordance with all or any of the conditions subject to which it was registered; or
f) The trust or institution has not complied with the requirement of any other law, as referred to in item (B) of sub-clause (i) of clause (b) of sub-section (1), and the order, direction or decree, by whatever name called, holding that such non-compliance has occurred, has either not been disputed or has attained finality.
6.1 The contention of the ld. A.R. is that, these provisions have been inserted by Finance Act, 2022 w.e.f. 1.4.2022 and if there is a violation in previous year 2017-18 relevant to assessment year 201819, these provisions cannot be applied to the assessee’s case. For clarity, we will go through the relevant provisions applicable to previous year 2017-18 relevant to assessment year 2018-19 as follows:
“12AA(4) Without prejudice to the provisions of sub-section (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 it is noticed that, the activities of the trust or the institution are being carried out in a manner that the provisions of section 11 and 12 do not apply to exclude either whole or any part of the income of such trust or institution due to operation of sub-section (1) of section 13, then the Pr. Commissioner or the Commissioner may by an order in writing cancel the registration of such trust or institutions.
Provided, that the registration shall not be cancelled under this subsection if the trust or institution proves that, there was reasonable cause for the activity to be carried out in the said manner.”
6.2 This section has been amended by Finance Act, 2022 w.e.f. 1.4.2022 as follows:
12AB(4): Where registration or provisional registration of a trust or an institution has been granted under clause (a) or clause (b) or clause (c) of subsection (1) or clause (b) of sub-section (1) of section 12AA, as the case may be, and subsequently,–
a) The Principal Commissioner or Commissioner has noticed occurrence of one or more specified violations during any previous year; or
b) The Principal Commissioner or Commissioner has received a reference from the Assessing Officer under the second proviso to sub-section (3) of section 143 for any previous year; or
c) Such case has been selected in accordance with the risk management strategy, formulated by the Board from time to time, for any previous year;
The Principal Commissioner or Commissioner shall—
i. call for such documents or information from the trust or institution, or make such inquiry as he thinks necessary in order to satisfy himself about the occurrence or otherwise of any specified violation;
ii. pass an order in writing, cancelling the registration of such trust or institution, after affording a reasonable opportunity of being heard, for such previous year and all subsequent previous years, if he is satisfied that one or more specified violations have taken place;
iii. pass an order in writing, refusing to cancel the registration of such trust or institution, if he is not satisfied about the occurrence of one or more specified violations;
iv. forward a copy of the order under clause (ii) or clause (iii), as the case may be, to the Assessing Officer and such trsut or institution.
Explanation: For the purposes of this sub-section, the following shall mean “specified violation”,–
a) Where any income derived from property held under trust, wholly or in part for charitable or religious purposes, has been applied, other than for the objects of the trust or institution; or
b) The trust or institution has income from profits and gains of business which is not incidental to the attainment of its objectives or separate books of account are not maintained by such trust or institution in respect of the business which is incidental to the attainment of its objectives; or
c) The trust or institution has applied any part of its income from the property held under a trust for private religious purposes, which does not ensure for the benefit of the public; or
d) The trust or institution established for charitable purpose created or established after the commencement of this Act, has applied any part of its income for the benefit of any particular religious community or caste; or
e) Any activity being carried out by the trust or institution—
(i) is not genuine, or
(ii) is not being carried out in accordance with all or any of the conditions subject to which it was registered; or
f) The trust or institution has not complied with the requirement of any other law, as referred to in item (B) of sub-clause (i) of clause (b) of sub-section (1), and the order, direction or decree, by whatever name called, holding that such non-compliance has occurred, has either not been disputed or has attained finality.
6.3 As per section 12AB(4) of the Act as applicable to assessment year 2017-18, the ld. PCIT if he is satisfied that activities of the Trust or institution are not genuine or 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 after affording reasonable opportunity of being heard. As per section 12AB(5) of the Act, when trust or institution complied wholly or in part of the income of such trust or institution in violation of section 13(1) of the Act or if they complied with any other law, for the time being in force by the trust or institution as are material for the purpose of achieving its objectives as mentioned in section 12AB(1)(b)(ii)(B) of the Act. However, in the present case, the ld. PCIT invoked the provisions of section 12AB(4)(a)(ii) of the Act as stood in the assessment year 2022-23. The objection of the ld. A.R. is that for the cancellation of registration for the assessment year 2021-22, he could not invoke the provisions of section 12AB(4)(ii) of the Act which is introduced by Finance Act, 2022 w.e.f. 1.4.2022 and applicable for the assessment year 2022-23 onwards.
6.4 In the case of Isthmian Steamship Lines reported in 20 ITR 572 (SC) wherein the Hon’ble Supreme Court held that “it is a cardinal principle of the tax law that law to be applied is that in force in the assessment year unless otherwise provided expressly or by necessary implication”.
6.5 In the case of Karimtharuvi Tea Estate Ltd. Vs. State of Kerala reported in 51 ITR 129 (SC) the same view was taken by the Hon’ble Supreme Court.
6.6 Further, the Hon’ble Supreme Court in the case of Shree Chowdhary Transport Company Vs. ITO reported in 426 ITR 289 (SC) wherein held as under:
17.4 It needs hardly any detailed discussion that in income-tax matters, the law to be applied is that in force in the assessment year in question, unless stated otherwise by express intendment or by necessary implication. As per section 4 of the Act of 1961, the charge of income-tax is with reference to any assessment year, at such rate or rates as provided in any central enactment for the purpose, in respect of the total income of the previous year of any person. The expression “previous year” is defined in section 3 of the Act to mean “the financial year immediately preceding the assessment year”; and the expression “assessment year” is defined in clause (9) of section 2 of the Act to mean “the period of twelve months commencing on the 1st day of April every year”.
17.5 In the case of CIT v. Isthmian Steamship Lines (1951) 20 ITR 572 (SC), a 3-judge Bench of this court exposited on the fundamental principle that “in income-tax matters the law to be applied is the law in force in the assessment year unless otherwise stated or implied.” This decision and various other decisions were considered by the Constitution Bench of this court in the case of Karimtharuvi Tea Estate Ltd. v. State of Kerala (1966) 60 ITR 262 (SC) and the principle were laid down in the following terms (at pages 264-266 of 60 ITR):
“Now, it is well-settled that the Income-tax, as it stands amended on the first day of April of any financial year must apply to the assessments of that year. Any amendments in the Act which come into force after the first day of April of a financial year, would not apply to the assessment for that year, even if the assessment is actually made after the amendments come into force……
The High Court has, however, relied upon a decision of this court in CIT v. Isthmian Steamship Lines, where it was held as follows:
‘It will be observed that we are here concerned with two datum lines: (1) the 1st of April, 1940, when the Act came into force, and (2) the 1st of April, 1939, which is the date mentioned in the amended proviso. The first question to be answered is whether these dates are to apply to the accounting year or the year of assessment. They must be held to apply to the assessment year, because in income-tax matters the law to be applied is the law in force in the assessment year unless otherwise stated or implied. The first datum line therefore, affected only the assessment year of 1940-41, because the amendment did not come into force till the 1st of April, 1940. That means that the old law applied to every assessment year up to and including the assessment year 1939-40.’
This decision is authority for the proposition that though the subject of the charge is the income of the previous year, the law to be applied is that in force in the assessment year, unless otherwise stated or implied. The facts of the said decision are different and distinguishable and the High Court was clearly in error in applying that decision to the facts of the present case.” (emphasis supplied)
17.6 We need not multiply on the case law on the subject as the principles aforesaid remain settled and unquestionable. Applying these principles to the case at hand, we are clearly of the view that the provision in question, having come into effect from April 1, 2005, would apply from and for the assessment year 2005-06 and would be applicable for the assessment in question. Putting it differently, the Legislature consciously made the said sub-clause (ia) of section 40(a) of the Act effective from April 1, 20056, meaning thereby that the same was to be applicable from and for the assessment year 2005-06; and neither there had been express intendment nor any implication that it would apply only from the financial year 2005-06.”
6.7 Being so, we find force in the argument of ld. A.R. that in income-tax matters, law to be applied is the law in force in the assessment year unless otherwise stated or implied. In the present case, ld. PCIT is cancelling the registration granted u/s 12AA/12AB of the Act w.e.f. previous year 2020-21 relevant to assessment year 2021-22. In our opinion, the law as stated in the assessment year 2021-22 is to be applied and not the law as stood in the assessment year 2022-23.
6.8 Thus, we are of the view that no retrospective cancellation could be made u/s 12AB(4)(ii) of the Act as it has been provided or is seen to have explicitly provided to have a retrospective character or intended. Therefore, without a specific mention of the amended provisions to operate retrospectively, no cancellation for the earlier years could be made. In this regard, it is appropriate to place reliance on the judgement of Hon’ble Madras High Court on the question as to whether the cancellation will operate from a retrospective date in the case of Auro Lab Ltd. Vs. ITO (2019)411 ITR 308 (Mad) wherein held as under:
“20. On the second question as to whether the cancellation will operate from a retrospective date, it was held that the amendment to section 12AA(3) is prospective and not retrospective in character. The courts reasoned that even when Parliament had plenary powers to enact retrospective legislation in matters of taxation, the amended section is not seen to have explicitly provided to have a retrospective character or intend. Therefore, without a specific mention of the amended provisions to operate retrospectively, the cancellation cannot operate from a past date.
21 On the third question of the effective date of operation of the cancellation order, it was held that the cancellation will take effect only from the date of the order/notice of cancellation of registration. Since the act of cancellation of registration has serious civil consequences and the amended provision is held to have only a prospective effect the effect of cancellation, in’ the event the pending tax appeal is decided in favour of the Revenue, will operate only from the date of the cancellation order, that is December 30, 2010. In other words, the exemption cannot be denied to the petitioner for and up to the assessment year 2010-11 on the sole ground of cancellation of the certificate of registration.”
6.9 In this case, the ld. PCIT has cancelled the registration under the new provisions of the Act i.e. 12AB(4)(ii) of the Act, which specifically provides that cancellation can be done for such previous year and all subsequent previous years, which makes it clear that the cancellation cannot be retrospective, therefore, in view of the above discussion, we are of the opinion that cancellation of registration with retrospective effect is invalid in these cases. Since the ld. PCIT invoked the provisions of section 12AB(4)(ii) of the Act, which has been introduced by the Finance Act, 2022 w.e.f. 1.4.2022 so as to cancel the registration with retrospective effect from assessment year 2018-19, which is bad in law.
6.10 It is noted that coordinate bench of this Tribunal in both assessee’s case for AY 2021-22 has taken similar view and as quashed the retrospective applicability of the new amended provision u/s 12AB(4)(ii) of the Act. We also note that same view has been taken by Coordinate bench of Mumbai in the case of Heart Foundation of India in ITA No.1524/Mum/2023 vide order dated 27.7.2023, wherein held that registration granted u/s 12A of the Act dated 21.7.1989 cannot be cancelled by ld. PCIT (Central) vide order dated 6.3.2023 w.e.f. assessment year 2016-17, by invoking the provisions of section 12AB(4)(ii) of the Act. Accordingly, we allow the primary ground nos.2, 3, 5 & 12 and order of ld. PCIT passed u/s 12AB(4)(ii) of the Act is quashed.
7. In view of our findings in ground Nos.2, 3, 5 & 12, the grounds of appeal in Ground Nos.4,6,7,8,9,10,11,13 & 14 have become infructuous as the order of ld. PCIT itself has been quashed.
8. In the result, appeals of the assessee are allowed.
Order pronounced in the open court on 16th Apr, 2024
Author Bio
VERY US FUL TO ME CAN YOU PROVIDE YOUR CONTECT NO MY CONTECT NO IS 91 06 79 67 41.
NATWARLAL TILARA