Trust registration cannot be cancelled by applying provisions of section 12AB(4)(ii) retrospectively

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:

1. 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.
2. 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.
3. 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.
4. 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:

1. 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.
2. 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.
3. 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.