Citation Codes

Equivalent Citations

citation codes

Case Number

ITA No. 2666.Ahd/2008, Assessment Year:-

Advocates

Appellant by: Shri J.P Shah
Respondent by: Shri Sheley Jindal, CIT-DR

Judges

Mukul Kr. Shrawat, J.M
A.N Pahuja, A.M

Acts

section 12AA(3) of the I.T Act, 1961 for cancellation of Registration u/s. 12A(a) of the I.T Act, 1961.
Sec. 12AA(1)(b) and also Sec. 12A, now this sub-section (3) of section 12AA
clause (a) [or clause (aa) of sub-section (1)] of section 12A, shall(a)
clause (a) [or clause (aa) of sub-section (1)] of section 12A.][(3)
provisions of section 10(23C)(iiiad) of the I.T Act, 1961.
section 12AA w.e.f 1.4.1997 (Finance (No. 2) Act 1996).
sub-section (3) of section 12AA of the I.T Act, 1961
provisions of Section 12AA(3) of the I.T Act, 1961
provisions of section 139(4A) of the I.T Act, 1961
u/s. 12AA(1)(b) of the I.T Act, 1961. Because
01/09/2005 u/s. 133A of the I.T Act, 1961.
u/s. 10(23C)(iiiad) of the I.T Act, 1961.
sections 11 & 12 of the I.T Act, 1961.
INCOME TAX ACT
u/s. 12AA(1)(b) of the I.T Act, 1961
FINANCE NO 2 ACT 1996
u/s. 12AA(3) of the I.T Act, 1961
u/s. 12A(a) of the I.T Act, 1961.
u/s. 12A of the I.T Act, 1961,
clause(b) of sub-section (1)
31.5.2010 section 12AA(3)
section i.e 12AA (1)(b).8.2
Finance Act (No. 2) of 2004
FINANCE NO 2 ACT 2004
FINANCE ACT 1972
2) Act 1996)

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Smart Summary

Structured Summary of the Opinion

Factual and Procedural Background

This appeal is filed by the Assessee (Ajit Education Trust) against an order passed by the Commissioner of Income Tax-III, Baroda dated 19/06/2008, which revoked the Trust's registration under section 12A(a) of the Income-tax Act, 1961 by invoking section 12AA(3).

Key factual and procedural points as stated in the opinion:

The Trust is an educational trust running a school (pre-primary, primary, secondary and higher secondary) and had been registered under section 12A(a) on 22/02/1991.
A survey under section 133A was conducted on 01/09/2005. The survey findings, as set out in the impugned order, included: absence of books of account for the pre-primary unit; unaccounted receipts of Rs. 14.41 lakhs for FYs 2003-04, 2004-05 and 2005-06; unaccounted admission fees of Rs. 6.43 lakhs for those years; unaccounted cash expenditure of Rs. 8.77 lakhs on building construction for FYs 2002-03 to 2004-05; unaccounted cash of Rs. 14,512 found on the premises; and an admission by the managing trustee of unaccounted income of Rs. 9.81 lakhs for FYs 2002-03 to 2005-06.
The Commissioner issued a show-cause notice dated 24/02/2006 proposing cancellation of registration, and ultimately passed the cancellation order dated 19/06/2008 under section 12AA(3) as then invoked by the Commissioner.
The Trust's representatives pointed to prior assessment orders (Assessment Years 1999-2000 to 2006-2007 were discussed) in which exemptions under section 10(23C)(iiiad) were allowed in several years and to ITAT/assessment proceedings that had not recorded the Trust as being engaged in adverse activity.
The present appeal challenges the cancellation order on jurisdictional and substantive grounds.

Legal Issues Presented

Whether the Commissioner had jurisdiction to cancel a registration granted under section 12A when the specific phrase extending section 12AA(3) to registrations obtained under section 12A was introduced only w.e.f. 01/06/2010 — i.e., whether the Commissioner could validly cancel a pre-existing section 12A registration by invoking section 12AA(3) in 2008.
Whether the cancellation of registration was justified on merits based on the survey findings and other material (i.e., whether the Trust's activities were not genuine or not in accordance with its objects so as to justify cancellation under section 12AA(3)).
Whether the amendment to section 12AA(3) (the insertion extending cancellation to registrations obtained under section 12A) is retrospective/curative such that it validates cancellations made prior to 01/06/2010.
Whether a quasi‑judicial officer (the Commissioner) has inherent power to review/rescind an earlier registration order in the absence of an express statutory provision conferring such power.

Arguments of the Parties

Appellant's Arguments (Mr. J.P. Shah, Learned AR)

Relied on the ITAT Pune decision in Maharashtra Academy of Engineering and Educational Research (Maeer) v. CIT (36 DTR (Pune) 321) to argue that while registering a trust the Commissioner confines himself to genuineness of activities and objects and should not delve into utilisation of income at the registration stage.
Pointed out that the trust had earlier been registered under section 12A(a) on 22/02/1991 and had successive assessment orders in which exemption under section 10(23C)(iiiad) was allowed for several assessment years; some assessment proceedings did not find adverse activity.
Contended that the specific phrase in section 12AA(3) extending cancellation power to registrations obtained under section 12A was inserted only w.e.f. 01/06/2010, and therefore at the time the show-cause (24/02/2006) was issued and when the cancellation order was passed (19/06/2008), the Commissioner did not possess statutory power to cancel a registration obtained under section 12A; consequently the cancellation is void ab initio.
Argued that section 12AA(3) is procedural and its amendment cannot be applied retrospectively to validate actions taken before 01/06/2010.
Emphasized that the Trust meets objects of education and is eligible under section 10(23C)(iiiad).

Revenue's Arguments (Mr. Shelley Jindal, Learned CIT-DR)

Relied on the survey material and asserted that absence of books and undisputed charging of education fees meant the Trust was engaged in profit‑earning or misusing funds, justifying cancellation.
Contended that the Commissioner had the power to cancel the registration even at that time and that the amendment was merely curative; therefore the Commissioner did not exceed jurisdiction.
Maintained support for the cancellation on substantive grounds based on the survey findings and confessions.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Maharashtra Academy of Engineering and Educational Research (Maeer) v. CIT [36 DTR (Pune) 321] (ITAT Pune)	Section 12AA confines the Commissioner, at the registration stage, to examine genuineness of activities and objects; the Commissioner is not expected to examine sources of receipts or application/utilisation of income at that stage.	The court applied this principle to hold that cancellation cannot be premised on detailed scrutiny of income application which is ordinarily for assessment proceedings; registration-stage inquiry is limited to genuineness of activities and conformity with objects.
Welham Boys School Society, 285 ITR 74 (Uttaranchal High Court)	Held that Sec. 12AA(3) was incorporated with effect from a future date (1.10.2004) and was not clarificatory or explanatory (i.e., not retrospective in effect).	The court relied on this decision to support the view that amendments inserting cancellation powers are not retrospective/clarificatory, and the later insertion w.e.f. 01/06/2010 should not be applied to validate earlier acts.
Sri Chaitanya Educational Committee, 106 ITD 256 (Hyd.)	The amendment of Sec. 12AA by Finance Act (No.2) 2004 inserting sub-sec.(3) was substantive and conferred judicial power of cancellation on the Commissioner (i.e., not merely procedural).	The court used this precedent to reason that the relevant amendment has substantive effect, and therefore could not be treated as merely procedural or curative to be applied retrospectively.
Sanjeevamma Hanumathe Gowda Charitable Trust (285 ITR 327 (Karnataka)); Red Rose School (212 CTR 394 (All)); Acharya Sewa Niyas (105 TTJ 761 (Uttaranchal))	Principle that application/utilisation of income is to be scrutinised under sections 11 & 12 during assessment proceedings and not necessarily at the registration stage.	The court reiterated this principle to hold that mere grant of registration under section 12A/12AA does not ipso facto entitle a trust to exemptions under sections 11 & 12, and that scrutiny of application of income belongs to assessment proceedings.

Court's Reasoning and Analysis

The court undertook a structured analysis that first traced the statutory background and then applied legal principles to the facts. The main strands of the court's reasoning are set out below.

Statutory and historical context

The court reviewed the evolution of section 12A (originally introduced w.e.f. 1.4.1973) and the later insertion of section 12AA (Procedure for registration) w.e.f. 01/04/1997 and subsequent amendments. Section 12AA(1) prescribes the procedure for registration, requiring the Commissioner to call for information to satisfy himself about genuineness of activities and objects before registering or refusing registration.
Section 12AA(3) (inserted by Finance (No.2) Act, 2004 w.e.f. 1.10.2004) granted the Commissioner power to cancel a registration granted under clause (b) of sub-section (1) of section 12AA, after giving a reasonable opportunity of being heard.
A later amendment to section 12AA(3) added the phrase extending cancellation power to trusts that "have obtained registration at any time under section 12A ...", and that insertion is expressly effective w.e.f. 01/06/2010.

Jurisdictional analysis

The court confronted the appellant's contention that the Commissioner lacked power in 2008 to cancel a registration originally granted under section 12A because the clear statutory extension to 12A registrations was introduced only w.e.f. 01/06/2010.
Relying on precedents (Welham Boys School and Sri Chaitanya Educational Committee), the court found that the 2010 insertion is not retrospective or merely clarificatory; it has substantive effect and therefore cannot be applied to validate cancellations made before its effective date.
The court also applied the general legal principle that a judicial or quasi‑judicial officer does not possess an inherent power to review or rescind his earlier order unless such power is expressly or by necessary implication conferred by statute. In the absence of statutory authority to rescind a registration granted under section 12A prior to the 2010 insertion, the cancellation order of 19/06/2008 was beyond the Commissioner's jurisdiction.

Merits analysis

The court examined the Trust's objects (which explicitly stated educational purposes) and noted there was no allegation in the Commissioner's order that the Trust was not running an educational institution.
The court observed that several assessment orders (for multiple years) had, in fact, allowed exemptions under section 10(23C)(iiiad) and that some Assessing Officers had not found adverse activity depriving the Trust of exemption — a factual inference inconsistent with the Commissioner's contrary conclusion.
Relying on authority (including the Maeer decision and the cases cited above), the court reiterated that inquiries about application and utilisation of income and sources of receipts are matters for assessment proceedings under sections 11 & 12, and not to be the primary basis for refusal or cancellation at the registration stage governed by section 12AA(1).
Given that the Trust undisputedly imparted education and that revenue officers in assessments had treated it as entitled to exemptions in multiple years, the court found the Commissioner's conclusion (that activities were not genuine or not in accordance with objects) to be unjustified on the material before it.

Conclusion of analysis

On jurisdictional grounds (absence of statutory power prior to 01/06/2010) and on merits (insufficient basis to conclude activities were not genuine or contrary to objects), the court concluded that the cancellation order was not in accordance with law.

Holding and Implications

Core Holding: The appeal is allowed and the impugned cancellation order dated 19/06/2008 passed by the Commissioner under section 12AA(3) is quashed.

Implications and Consequences

Direct effect on the parties: The cancellation of the Trust's registration (order dated 19/06/2008) was set aside and the ground raised by the assessee was allowed. The court held that the Commissioner had acted beyond his jurisdiction in cancelling a section 12A registration before the statutory extension of cancellation power to section 12A registrations came into force (w.e.f. 01/06/2010).
Jurisdictional clarification: The court affirmed that the insertion extending section 12AA(3) to registrations obtained under section 12A is substantive (not retrospective) and therefore cannot validate cancellations made prior to its effective date. The court also reiterated that an adjudicatory officer lacks inherent power to review or rescind an earlier order unless such power is conferred by statute.
Procedural clarification: The court emphasized that inquiries into sources and application of income (utilisation) are primarily matters for assessment under sections 11 & 12 and not the central focus of the registration-stage scrutiny under section 12AA(1).
Precedential note: The decision applies the authorities cited in the opinion to the facts of this case. The opinion resolves the dispute between the parties on both jurisdictional and substantive grounds as set out above. The opinion does not claim to create a novel legislative interpretation beyond the application of the cited authorities and statutory chronology.

This summary is prepared exclusively from the content of the provided opinion and does not add or infer information beyond the text.

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Ajit Education Trust Shravan Vidhyadham Dahej Bypass Link Road Bharuch () v. Commissioner Of Income Tax-Iii Baroda ().

Shri Mukul Kr. Shrawat, J.M:— This is an appeal at the behest of the Assessee which has emanated from the order of Learned Commissioner of Income Tax-III, Baroda passed u/s. 12AA(3) of the I.T Act, 1961 dated 19/06/2008. The appellant has raised the following ground:

The Learned Commissioner of Income Tax-Ill, Baroda, has erred in passing the order under section 12AA(3) of the Act and revoking the registration granted to the appellant (Trust) earlier vide Order No. BRD/SIB/110-13-A/90-91 dated 22.2.1991 On the facts and circumstances of the case and in law the Learned Commissioner of Income Tax - III, Baroda, ought not to have revoked the registration. The order of the Learned Commissioner of Income Tax - III, is prayed to be quashed.

2. The appellant is stated to be a Trust imparting education by running a school. It was noted by the Ld. CIT in the impugned order that the Trust, viz. Ajit Education Trust was granted registration u/s. 12A(a) of the I.T Act, 1961 on 22/02/1991. According to the Commissioner, it was subsequently alleged that the activities of the Trust were not genuine. It was also found that the activities of the Trust have not been carried out in accordance with the Objects of the Trust. Therefore, it was proposed to cancel the Registration and for that purpose a show-cause notice dated 24/02/2006 was issued. As per the ‘subject’ of the said notice, the same was issued by invoking the proviso to section 12AA(3) of the I.T Act, 1961 for cancellation of Registration u/s. 12A(a) of the I.T Act, 1961. In the said notice, it was asked to the assessee-trust to explain as to why no books of account for pre-primary unit of “Shravan Vidhyadham” School were found at the time of survey conducted on 01/09/2005 u/s. 133A of the I.T Act, 1961. Further, in the said show-cause notice it was asked to explain as to why receipts of Rs. 14.41 lacs for the Financial Years 2003-2004, 2004-2005 & 2005-2006 were found unaccounted? It was also found that the assessee had accepted admission-fees to the tune of Rs. 6.43 lacs in cash for the Financial Years 2003-2004, 2004-2005 & 2005-2006 which was also not accounted for in the books. It was also mentioned that the Trust was not filing the returns of income, hence acted in contravention of the provisions of section 139(4A) of the I.T Act, 1961 for Assessment Year 2004-2005. The appellant has furnished the submissions at length and primarily objected that the allegations made were not correct because the activities of the Education Trust were carried out as per the Objects of the Trust. It was informed that the Trust was created for imparting education to the students of lower and middle class sections of the Society. The Trust was created without having any distinction as to Caste, Colour and Creed. The trust was stated to be running for almost last 15 years having strength of about 1500 students. The education was being provided for pre-primary, primary, secondary and higher secondary sections of students. It was also explained that whatever irregularities were pointed out at that time, the same were properly corrected by the assessee. In respect of the question of non-filing of the returns, it was pleaded that the management was under the impression that an Educational Institution is not required to file the return of income. Before the Ld. CIT, it was emphasized that during the course of assessment proceedings, it was never pointed out by the Assessing Authority that either the objects of the Trust have ever been defeated or the activities of the trust were not genuine being not carried out in accordance with the Object of the Trust. It was also explained that the trust being an Educational Trust was, therefore, eligible for exemption under the provisions of section 10(23C)(iiiad) of the I.T Act, 1961. However, Ld. CIT was not convinced primarily on account of certain discrepancies as noted during the course of survey; reproduced for ready reference:—

“(i) There were no books of account for pre-primary unit of Shravan Vidhyadham School run by the trust and the total receipts of Rs. 14.41 lacs of this unit for the financial years 2003-2004, 2004-2005 and 2005-2006 were found unaccounted.

(ii) The trust was found to have accepted admission fee of Rs. 6.43 lacs in cash for the financial years 2003-2004, 2004-2005 and 2005-2006 which were not at all accounted for in the books.

(iii)The trust was found to have incurred Rs. 8.77 lacs in cash on construction of building in the financial years 2002-2003, 2003-2004 and 2004-2005 which was not accounted for in the books.

(iv) Unaccounted cash of Rs. 14,512/- was found at the premises of the trust.

(v) In his statement, Shri Kiran Biniwale, the managing trustee, admitted unaccounted income of Rs. 9.81 lacs of the trust in the financial years 2002-2003 to 2005-2006.

(vi) In contravention of provision of section 139(4A), the trust had not been filing returns of income except for the assessment year 2004-2005 and the return of even this year did not contain complete accounts of different units and the consolidated account of the trust, No audit report in the prescribed form No. 10-B as mandated by section 12A(b) had been enclosed with the said return. The return for the assessment year 2005-2006 has not been filed, till date.

2.1 On account of those reasons, it was held by the Ld. Commissioner that the funds of the Trust were misused by not accounting for the receipts as well as the expenses. As per Ld. Commissioner, the activities were also not in accordance with the Objects of the Trust, hence, by invoking the provisions of cancellation of Registration he has decided to cancel the Registration granted even prior to 01/10/2004. It was concluded that the benefit of registration was revoked which was earlier granted by an order of registration dated 22/02/1991. Now this impugned order passed u/s. 12AA(3), invalidating the existed registration, is challenged before us.

3. From the side of the appellant, Mr. J.P Shah Learned Authorised Representative of the assessee appeared. At the out-set he has placed strong reliance on a reported decision of ITAT Pune Bench pronounced in the case of Maharashtra Academy of Engineering and Educational Research (Maeer) v. CIT [36 DTR (Pune) (Trib) 321]. He has also emphasized that the Trust was earlier granted a registration u/s. 12A(a) on 22/02/1991. It was also mentioned that for Assessment Years 1999-2000 to 2005-2006, the assessments have been made u/s. 143(3) r.w.s 254 of the I.T Act, 1961 and the Educational Institution was granted exemption as prescribed u/s. 10(23C)(iiiad) of the I.T Act, 1961. Thereafter referring the current controversy arosen vide an assessment order for AY 1999-2000, the Learned Authorised Representative of the assessee has pointed out that the Assessing Officer has recorded the past history of the case that earlier the Trust was registered, however, the registration was revoked, hence, the exemptions were denied under the Act. The matter had gone upto the level of Tribunal and vide order dated 23/04/2008, the matter was restored to the file of Assessing Officer with the direction to examine the allowability of deduction claimed u/s. 10(23C)(iiiad) of the I.T Act, 1961. While passing the consequential assessment order, the Assessing Officer has concluded that at no stage it was found that the Trust had ever earned profit or the Trust had ever crossed the prescribed limit of Rs. 1 crore. Rather, it was mentioned by the Assessing Officer that he had not found out any adverse activity which would have deprived the benefit of exemption. Likewise for Assessment Year 2000-2001 vide order dated 11/12/2009, the exemption as prescribed u/s. 10(23C)(iiiad) of the I.T Act, 1961 was allowed. The same recourse was adopted for Assessment Years 2001-2002, 2002-2003, 2003-2004, 2004-2005 & 2006-2007. Repeating the reference of the said earlier decision of this Tribunal, i.e ITAT “B” Bench for Assessment Years 1999-2000 to 2004-2005 in assessee's own case order dated 23/04/2008 Mr. Shah has reiterated that vide this order after considering the facts of the case it was unambiguously directed to allow the claim of exemption u/s. 10(23C)(iiiad) as per law. In addition to the basic contention that the Educational Institution should be granted exemption u/s. 10(23C)(iiiad) of the I.T Act, 1961, an interesting point has also been raised by Mr. J.P Shah. As per his argument, the Commissioner got the power to cancel the registration granted u/s. 12 A by virtue of the words of section 12AA(3) w.e.f 1.6.2010, “or has obtained registration at any time under section 12A as it stood before its amendment by the Finance (No. 2) Act, 1996”. He has informed that up till 31.5.2010 section 12AA(3) had no such phraseology in the section. So Ld. Counsel has clarified that the amendment to sec. 12AA(3) came in June 2010 but the show cause notice was issued on 24.2.2006 Meaning thereby the Ld. CIT has exceeded his jurisdiction by invoking the cancellation of registration though at that point of time he had no such powers as per the statute. Those powers in respect of cancellation of a registration, already granted u/s. 12A, had come only w.e.f First June 2010. Even the impugned order is dated 19.6.2008 i.e much prior to the date of commencement of the said amendment. So Mr. Shah Ld. AR, has pleaded that the invocation of provisions of Section 12AA(3) of the I.T Act, 1961 were ab initio wrong. Earlier a registration was to be granted u/s. 12A(a) of the I.T Act, 1961. However, by the introduction of section 12AA(3) a procedure has been laid down for cancellation of the registration of a trust. In this section, i.e section 12AA(3), it is prescribed that where the Trust or Institution has been granted registration under clause(b) of sub-section (1) and subsequently found the activities of the trust are not genuine or not in accordance with the Objects, then he can pass an order canceling the registration. There is an another amendment w.e.f 0-1/06/2010 according to which either the registration has been granted u/s. 12AA(1)(b) of the I.T Act, 1961 or the said Trust had obtained registration at any time u/s. 12A(a) of the I.T Act, 1961 but if subsequently the Commissioner is satisfied that the activities are not genuine or not being carried out in accordance with the objects then the Commissioner shall have to pass an order in writing canceling the registration. Therefore, it was vehemently argued that vide said insertion w.e.f 01/06/2010, the procedure of cancellation is laid down as per sub-section (3) of section 12AA and the same is effective from that very date as it is clarified by the notes on the clauses of amendment reported in 321 ITR (st) pg 83. He has concluded that the power of cancellation was wrongly applied by the Ld. Commissioner, hence the order of cancellation needs to be revoked.

4. On the other hand, from the side of the Revenue, Mr. Shelley Jindal, Learned CIT DR appeared and supported the order of the Ld. CIT. The Learned Departmental Representative's main reliance was on the survey material. Once books of account were not found and the assessee was undisputedly charging education-fees from the students, therefore, according to him, it is not a case of a Trust purely for educational purposes but this trust was also engaged in profit earning. Mr. Jindal has thus pleaded that in such a situation the Ld. Commissioner was fully empowered for cancellation of registration. Even as per the section existed at that point of time the statute had enshrined such an authority. It was wrong on the part of the assessee to argue that the power for cancellation did not available at that point of time. Therefore Mr. Jindal has vehemently supported the action of the Ld. Commissioner.

5. We have heard both the sides at length. Before we proceed to discuss the merits of the case, let us first discuss the sections involved. The existence of Section 12A is very old in the statute introduced originally by the Finance Act, 1972 w.e.f 1.4.73 This section is the first step for availing the benefit of exemption prescribed in sections 11 & 12 of the Act. A person in receipt of income has to make an application for Registration of the Trust in the prescribed manner within the prescribed time. It is worth to mention that even the nomenclature of this section explicitly suggests the intention of the legislature, which reads as, “Condition for applicability of sections 11 and 12”. This section has few salient features which are necessary to ponder upon to resolve the issue in hand. Section 12A(1)(a) prescribes that a person in receipt of income has to move an application for registration of the Trust or Institution on Form No. 10A as per Rule 17A. This was the only section in the I.T Act in the past before the insertion of section 12AA w.e.f 1.4.1997 (Finance (No. 2) Act 1996). As per section 12A a person in receipt of income has to make an application for registration of the trust before the expiry of a period of one year from the date of creation of the trust. It may not be out of place to mention that since the original section 12A was inserted by the Finance Act, 1972 w.e.f 1.4.1973 therefore a cut-off date 1/7/1973 for filing of applications has also been prescribed. All the old Trusts already in existence were expected to file the requisite application by that date i.e 1/7/1973. The purpose of this reference shall be made clear in a while in this judgement.

6. Later on, w.e.f 01/04/1997 (Finance (No. 2) Act 1996) a process for registration had come in the statute by inclusion of section 12AA of the Act with the nomenclature “Procedure for registration”. As a measure of rationalization a procedure has been prescribed for grant of registration to a Trust. On receipt of application u/s. 12A of the I.T Act, 1961, as referred above, the Commissioner can call for such information from the Trust as he thinks necessary in order to satisfy himself first, about the genuineness of the activities and the second, about the Objects of the Trust; (refer Sec. 12AA(1)(a)&(b)). Thereafter, if satisfied, he can pass an order in writing registering the trust, (refer Sec. 12AA(1)(b)(i)). But if not satisfied, pass an order in writing refusing to register the said trust, (refer Sec. 12AA(1)(b)(ii)). For the sake of ready reference the relevant portions of section 12AA is reproduced below:—

“SECTION 12AA:— 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) 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.]” [Inserted by the Finance (No. 2) Act, 2004 w.e.f 1.10.2004]

7. The purpose of the foregoing discussion as so far have been made and the reference of the old provisions of sec. 12A vis-a-vis sec. 12AA is that an interesting analysis has emerged. That as per Sec. 12AA(1) the procedure for either to grant or for the refusal of the registration is only in respect of the application for registration moved u/s. 12A(1)(a). Therefore up to this stage the statute had made the provision in sec. 12AA to deal with an application of registration as per sec. 12A of the Act. Meaning thereby vide Sec. 12AA(1) the old but already existed procedure was duly taken care of by the Hon'ble Law makers.

8. Next, we have to examine the impact of the introduction in the statute of Sec. 12AA(3) of the Act. This was inserted by the Finance (No. 2) Act 2004 w.e.f 1.10.2004 and reads as follows:—

“Section 12AA(3)

Where 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:

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.]”

81.1 Therefore, on reading it is apparent that this sub-section talks about the registration granted within this section i.e 12AA (1)(b).

8.2 Through this sections thus the Commissioner has categorically been granted power to cancel registration. A question has bothered us that whether Sec. 12AA(3) is in a way a duplicity of an existing clause of refusal of registration as per sec. 12AA(1)(b)(ii)?. The answer can be that vide Sec. 12AA(1)(b)(ii) the CIT can refuse the registration application u/s. 12A; but vide Sec. 12AA(3) the CIT is given powers to deal with a registration granted with in this very section i.e u/s. 12AA(1)(b)(i). So as per our understanding the said power of refusal of registration u/s. 12AA(1)(b)(ii) is restricted to the application moved u/s. 12A seeking the grant of registration. What we have noticed is that the necessity of the said introduction was that as per the already existed section 12A there was no specific provision for the refusal of a registration. On account of this reason there was a doubt in the past and litigation had also cropped up that in the absence of any specific power not being provided in the said Sec. 12A whether a registration once granted could ever be revoked by the Ld. Commissioner. In the past quite often a question has been raked up by the Revenue that whether a registration once granted, is it granted for ever even if irregularities are noticed? Then, it had been argued in defense by the Revenue that if the statue gives authority for grant of registration then the power of refusal of the said registration is always in-built. An authority to allow a facility to a person co-exists with the authority to withdraw that facility. Therefore to remove this controversy or ambiguity it was thought by the Hon'ble Law makers to specifically prescribe the procedure of registration as also, if need be, it's refusal. It is now stream lined that an application for seeking registration is to be moved as prescribed in section 12A and thereafter the procedure of registration is to be followed as recommended in Sec. 12AA. Due to this enactment at present no ambiguity exists that if a registration is granted the same can be cancelled as well if necessitated. Thus the scope of both the section 12AA(1) and 12AA(3) are wide enough to cover all those registration so far been granted either u/s. 12A or u/s. 12AA(1)(b) i.e by this very section. But the present controversy do not rest here and the legal question as addressed to us needs further discussion but within the ambits of the foregoing background.

9. The present controversy is because of an interesting turn took place vide an amendment in sub-section (3) of section 12AA of the I.T Act, 1961 and for ready reference; reproduced below:—

sub-section (3) of section 12AA of the I.T Act, 1961

“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.]”

10. As pointed out by the Learned Authorised Representative of the assessee, the aforesaid insertion as typed in italics is w.e.f 01/06/2010. Mr. Shah has thus questioned that whether a Trust can have a registration u/s. 12A of the I.T Act, 1961 and simultaneously a registration u/s. 12AA(1)(b) of the I.T Act, 1961. Because of the reference of two sections, namely Sec. 12AA(1)(b) and also Sec. 12A, now this sub-section (3) of section 12AA has, henceforth raised this controversy. As per our humble understanding of law if a provision for the refusal of registration application U/s. 12A was already in existence vide sec. 12AA(1)(b)(ii) then still there was lawful requirement to again mention the same in the same statute by introducing the afore quoted phraseology, “(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)”. Now the anomaly is that whether for the purpose of refusal of a registration granted by Sec. 12A is it to be dealt with in two sub-section i.e 12AA(1)(b)(ii) and 12AA(3)?. Because of this variance the Ld. AR has challenged that the refusal of a registration granted u/s. Sec. 12A can now be cancelled only by the latest amendment in Sec. 12AA(3) that too w.e.f 1.6.2010 Since the Ld. CIT has passed the order prior to the amendment the same is void ab intio, it was argued and rightly so. The admitted factual position is that the impugned order was passed on 19.6.2008, when no such specific jurisdiction was granted to CIT and the powers of cancellation of registration had come in to the effect from 1.6.2010 only. Benefit of this ambiguity or because of an abnormal situation or it can be said to a glitch of overlapping; the advantage should go in favour of the taxpayer. The law is now clear from 1.6.2010, that a registration granted u/s. 12A can be cancelled by invoking Sec. 12AA(3) of the Act. The law is also clear that a registration granted u/s. 12AA(1)(b) can also be revoked by invoking this very section i.e 12AA(3) of the Act; because the connotation “refusing to register” and “cancelling the registration” have distinct application.

11. Next we have to deal with the argument of Mr. Jindal Ld. CIT DR that whether or not the introduction of, ‘or has obtained registration any time under section 12A as it stood before its amendment by Finance (No. 2) Act’ w.e.f 1.6.2010 is retrospective in nature? His main stress was that the said amendment is simply curative in nature and the procedure of cancellation was already in existence in the statute, therefore, it is wrong on the part of the Ld. AR to argue that the powers of cancellation of registration had come later on when the registration was actually cancelled hence at that point of time Commissioner had acted beyond his jurisdiction. We have given our considerable thought over both the arguments and have found that the present controversy has to be decided in the light of few verdicts pronounced in the past. It is a matter of substance that the original sec. 12A had neither provided a specific clause prescribing registration nor it has prescribed refusal of registration. Now by prescribing both in sec. 12AA, it has the substantive effect over the rights of a taxpayer. Such an introduction can not be termed merely a procedural introduction in the statute but this introduction has substantially made an impact on the sizeable rights of a Trust or Institution. Even otherwise if it is to be termed as a procedural amendment then also a procedural amendment can not be held as retrospective in nature so as to be effective from an earlier date. There is no doubt that the said introduction in Sec. 12AA(3) was procedural, because the Notes on clauses on the Finance Bill have made it clear as vide [321 ITR 83 (St.), clause 7] as follows:—

“Clause 7 of the Bill seeks to amend section 12AA of the Income-tax Act relating to procedure for registration of a trust or institution.

Under the existing provision contained in sub-section (3) of the aforesaid sections, if the activities of the trust or institution referred to in sub-section (1), which has been granted registration under sub-section (1), are not genuine or are not being carried out in accordance with the objects of the trust or institution, the Commissioner shall, after giving a reasonable opportunity of being heard to the said trust or institution, pass an order in writing canceling the registration granted under clause (b) of sub-section 1

It is proposed to amend the said sub-section (3) so as to also provide for cancellation of registration where any trust or institution has obtained registration at any time under section 12 A before its amendment.

12. In this context and in support of this view we deem it proper to place reliance on a landmark decision of Honble Uttaranchal High Court viz. Welham Boys School Society 285 ITR 74 wherein it was held that the Sec. 12AA(3) was incorporated with effect from a future date i.e 1.10.2004 vide an amendment in Finance (No. 2) Bill, 2004 dated 8.7.2004, therefore not a clarificatory or explanatory.

13. Likewise in the case of Sri Chaitanya Educational Committee 106 ITD 256 (Hyd.) it was decided that the amendment of Sec. 12AA by the then Finance Act (No. 2) of 2004 by the insertion of sub-sec.(3) therein w.e.f 1.10.2004 was not procedural but was substantive law thereby conferring a Judicial power of cancellation on the Commissioner.

14. Since the amendment in question is absolutely at parity with the earlier amendment as discussed by the Hon'ble H.C supra, therefore, we hereby hold that the insertion of the new clause w.e.f 1.6.2010 should not be applicable retrospectively and its operation has to be effective from the date it was introduced and on wards. This is the one aspect for quashing the order of Ld. Commissioner however there is one more legal aspect of this issue. It is an undisputed fact that an order u/s. 12A was passed by a Commissioner and that order was under consideration before the Ld. Commissioner. Now the question is that whether an officer has power of review of his order unless and until it is specifically provided in the statute on a particular date. It is a well settled law that the power to review is not an inherent power of a Judicial or quasi Judicial officer, unless specifically conferred on him by the statute. It must be delegated by law either specifically or by necessary implication. In the absence of such an authority the action of the Ld. Commissioner prior to the date of insertion of the said clause can be said be beyond jurisdiction. Applying the principle of noscitur a sociis we hold that in the absence of a delegated authority to rescind or withdraw or review of a registration already granted u/s. 12A the order challenged before us is liable to be quashed.

16. On merits, we have examined the objects of the Trust which were placed in the compilation. The objects have explicitly stated that the trust was established for educational purposes. No where in the order of the Commissioner there was an allegation that the Trust was not running an educational institution. Therefore we have to examine the correctness of the cancellation of the registration in terms of the language of sec. 12AA of the Act as prescribed in sub-sec.(1) and particularly in clause (a) & (b) of the section already reproduced hereinabove in paragraph No. 6 of this order.

17. A Commissioner has to call for an information so as to satisfy himself i) whether the objects of the trust have been fulfilled by running an institution and ii) whether those activities are genuinely carried out by the Trust. So after satisfying himself an order in writing registering the trust can be passed. So far as the running of the educational institution is concerned, even the Assessing Officer while passing assessment orders for several years, as referred supra, has held that the Trust is entitled for deduction u/s. 10(23C)(iiiad) of the I.T Act, 1961. If the Revenue Officer himself is qualifying this Trust as an educational institution and then granting the said deduction, then as a result it was not justifiable on the part of the Ld. Commissioner to hold such a conflicting view, which can said to be an altogether contrary to the facts of the case. The allegation was that the books of account were not found in a proper manner. Because of the absence of the books of account, it was also doubted whether the educational fees received from the students was ever applied for the purpose of education. A question has generally been raised in the past on several occasions, that while deciding u/s. 12AA an application of registration filed u/s. 12A of the I.T Act, 1961, whether the assessee is subject to investigation about the application of its income. Several Courts have pronounced that the application of income or the utilization of the funds can be subject to scrutiny at the assessment proceedings as prescribed under sections 11 & 12 of the I.T Act, 1961. This is the view taken by the ITAT Pune Bench in the case of Maharashtra Academy of Engineering and Educational Research (Maeer) v. CIT [36 DTR (Pune) (Trib) 321] (supra), wherein the Tribunal held as under:—

“In the recent past sub-s. (3) was inserted in s. 12AA w.e.f 1st Nov., 2004 which gives power of cancellation of registration to the CIT, if he finds that the activities are not genuine or not being carried out in accordance with the object of the trust. These powers are conferred with a view to ensure that if once a registration has been granted under s. 12AA, a trust or institution may not take any such liberty of misuse of the registration or the provisions by going haywire rather furthering the objects of the trust or genuinely not pursuing the activities for which it was established. The most important feature of s. 12AA is as also referred in this appeal for adjudication, that this section has only laid down the procedure of registration and this section nowhere speaks that while considering the application of registration, the CIT shall also look into the procedure of earning of income and sources from where receipts are derived. The power of enquiry, in respect of sources of receipts and the utilization of income is entrusted in separate sections. The language thus used in this section only confines to enquire about the activities of the trust and its genuineness, which means, in consonance with the objects for which created and those objects as also activities should not be a camouflage but pure, sincere, charitable and for public utility at large. What is implicit is that the CIT has to sincerely examine that the objects as also the activities should not be prima facie against the basic structure for which beneficial law is made and also be not in conflict with the general public utility. Naturally an institution if established to carry out an illegal activity or activities are causing any type of nuisance not in the interest of the public at large should definitely lead to cancellation of registration. The scheme of the Act otherwise do not subscribe and allow a trust to take the benefit of the provisions of ss. 11 and 12 unless establish the prescribed utilization of the income, even if, at all the trust holds the registration in its hands. Therefore at the stage of granting registration the CIT is not expected to bother himself about the other provisions of the Act and supposed to confine himself to the procedure of registration as laid down therein.”

18. The proposition laid down therein has to be applied in the present appeal. That the Ld. Commissioner has to comprehend the Objects of the Trust whether they are meant for public utility (requirement of sec. 12AA(1)(b)) and secondly that the activities have actually as also genuinely been carried out to fulfill the aims of the Trust (requirement of sec. 12AA(1)(a)). In the present case, the Trust being an educational institution and undisputedly imparting education, therefore, it was not justifiable on the part of the Ld. Commissioner to deny the registration. Nevertheless, the application of income and the utilization of funds is always subject to scrutiny by the Assessing Officer while assessing the income of the Trust, for this legal proposition we can rely on Sanjeevamma Hanumathe Gowda Charitable Trust 285 ITR 327 (Kart.) Red Rose School 212 CTR 394 (All) Acharya Sewa Niyas Uttaranchal 105 TTJ 761. We may, therefore, clarify that merely by granting a registration u/s. 12A/12AA of the I.T Act, 1961 a trust ipso facto is not entitled for the exemptions prescribed under sections 11 & 12 of the I.T Act, 1961. Neither de jure nor de facto, i.e neither in principle nor in practice, a trust can get exemption under sections 11 & 12 merely on getting a registration u/s. 12AA/(in the past 12A) of the I.T Act, 1961.

19. In the light of above discussion, we hereby hold that the cancellation of registration, on both the counts i.e on merits as also on the legality of jurisdiction, was not in accordance of law. As a result, ground raised by the assessee is allowed.

20. In the result, the appeal of the Assessee is allowed.

Ajit Education Trust... v. Commissioner Of Inco...