Cancellation of trust registration with retrospective effect is invalid under Section 12A of the Income Tax Act, 1961
Fact of the case
In the instant case, the petitioner is a registered society, which was earlier granted registration under Section 12A on 1-4-1999. A survey was conducted at the business premises on 20-9-2002, from where documents were impounded. The registration was cancelled for the assessment years 2000-01 and 2001-02 for the reasons that the surplus was quite heavy. In the impugned order, it was mentioned by the CIT that there was an unusual huge margin and the petitioner was engaged in the commercial activities rather than charitable. As per the balance-sheet, huge amount from the student was charged. The profit margins embodied in the charges taken from the students are so huge and it proves the profit motive of the petitioner. The funds were misused by the president and his family members of the petitioner.
Issue of the case
The present appeal has been filed by the assessee against the order of the ld. Pr.CIT(Central), Rajasthan, Jaipur dated 22/03/2019 passed U/s 12AA(3) and 12AA(4) of the Income Tax Act, 1961 (in short, the Act). Following grounds have been taken by the assessee:
1. That in the facts and in the circumstances of the case and in law, the ld Pr. CIT(Central), Rajasthan, Jaipur has grossly erred in cancelling the registration of the assessee appellant trust under Section 12A of the Act by invoking Section 12AA(4) of the Act w.e.f. 01/04/2013.
2. The appellant craves leave to add, alter, modify or amend any ground on or before the date of hearing.
3. In the facts and in the circumstances of the case and in law the penalty proceedings initiated u/s 271F, 271(1)(b), 271(1)(c) may kindly be deleted.
4. The petitioner craves the right to add, alter or in any way amend the grounds of appeal at or before the hearing.
Observation of the court
The court is of the opinion that in the present case the ld. Pr. CIT(C) has found or made allegation or objection of diversion or mis appropriations of funds and not filling the Audit report and ITR, if any only in A.Y. 2014-15 to 2016-17 & not in other years either prior years or later years, then the cancellation of Registration u/s 12A cannot be made for other years. Even otherwise we are also of the view that no retrospective cancellation could be made as neither in the Sec. 12AA(3) nor in Sec. 12AA(4) it has been provided or is seen to have explicitly provided to have a retrospective character or intend. Therefore, without a specific mention of the amended provisions to operate retrospectively no cancellation for the past years could be ordered. In this regard, the Hon’ble Madras High Court on the question as to whether the cancellation will operate from a retrospective date has dealt in the case of Auro Lab vs. ITO (2019) 411 ITR 0308 (Mad) 20 wherein it was held as under:
The amendment to Section 12AA(3) is prospective and not retrospective in character. The courts reasoned that even when the 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.
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 30.12.2010. 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. Also refer Indian Medical Trust v/s Pr. CIT & ors 182 DTR 252(Raj.) is held that cancellation of registration with retrospective effect is invalid.
Thus the tribunal is of the view that cancellation of registration with retrospective effect is invalid in the present case.
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