INCOME TAX ACT, 1961

Section 12AA(2) Section 11 Section 12A

Charitable trust - Cancellation of registration - Activities not genuine and not in accordance with objects - Surrender of registration by assessee subsequently, before retrospective cancellation of registration

The assessee, Young Indian (YI) was incorporated as a company on 23-11-2010 under section 25 of the Companies Act, 1956. It applied for registration under section 12A read with section 12AA on 31-3-2010. It was granted registration by then DIT (Exemption), vide order/certificate dated 9-5-2011 with effect from assessment year 2011-12. After the grant of registration under section 12AA assessee-company in the 5th year of registration, i.e., on 21-3-2016, wrote a letter to CIT(E), that it was suo moto surrendering the registration under section 12AA granted vide Order, dated 9-5-2011. Thus, the benefit of being a charitable institution and registration was given up. On perusal of financial details of AJL with reference to the claim of the assessee that the expenditure of Rs. 50 lakhs incurred on acquisition of AJL was in accordance with the objects, the CIT(E) held that the claim of the assessee was factually incorred and was not tenable. CIT(E) held that the activities carried out by the assessee were to manage, control and engaged in business of the AJL and thus, the activities were not in accordance with the stated objects of the assessee company. Consequently, he withdrew the registration granted under section 12A read with section 12AA with effect from the assessment year 2011-12 onwards. In other words, he cancelled the registration from the date of grant of granting registration itself.Held: Assessee company had not been able to point out any single activity carried out in furtherance of its stated objects, for which it was created during the said period, i.e., from assessment years 2011-12 to 2016-17; and the only activity of the assessee was borrowing of Rs. 1 crore from Kolkata based company and making the payment of Rs. 50 lakhs to AICC and applying for allotment of shares against cancellation of loan of Rs. 90 crores assigned by AICC to Young Indian. Admittedly printing activities and publication of newspapers was not carried out in the premises when the inspection took place initially on 26-9-2016 and not even when second inspection took place on 9-10-2018. All these transactions were completely hidden from the IT Department and DIT (E) while seeking the registration under section 12AA. The cancellation of registration, whether with retrospective effect or prospective, depends upon the facts and circumstances of the case and the CIT had power to cancel the registration from the time when such breach had occurred. In this case, the assessee at the time of seeking registration itself has concealed the material facts. CIT(E) was fully justified in law and on facts in cancelling the registration from the date of granting of registration itself, i.e., from the assessment year 2011-12. Clearly, AJL, which had been earning rental income, cannot be held that its activities were aligned with the objects of the assessee company or through AJL; it was carrying out activities in pursuance of its objects qua that period. Hence, in that sense, the assessee's activities cannot be held to be genuine. Thus, the cancellation of registration under section 12AA by the CIT(E) from assessment year 2011-12 was upheld.

Relied:Prathyusha Educational Trust v. Pr. CIT [Tax Case Appeal No. 366 to 368 of 2019 and CMP Nos. 12438, 12446, 12447, 12450 and 12452 of 2019 vide judgment dated 27-6-2019], Shree Chamundi Mopeds Ltd. v. Church of South India Trust Association CSI Cinod Secretariat, Madras (1992) 3 SCC 1. Followed:Delhi High Court in LPA 10/2019 and CM No. 566 & 649/2019.

REFERRED : CIT v. Vikram Cotton Mills Ltd. (1988) 169 ITR 597 (SC) : 1988 TaxPub(DT) 877 (SC), Govt. of AP v. Maharshi Publishers Pvt. Ltd. [Civil Appeal 7152-7157 of 2002], Bennett Coleman & Co. & Ors. v. UOI 1973 AIR 106 SC, Rustom Cawasjee Cooper and UOI 40 Company Cases 325, Cyanamid India Ltd. v. Collector of Central Excise, Baroda (1997) 1997 Taxmann.com 1518 (CEGAT-New Del), Gothi Plastic Industries v. Collector of Central Excise, Trichy (1996) 1996 Taxmann.com 486 (CEGAT-Chen) : 1996 TaxPub(EX) 313 (Chen-Trib), CIT v. Society for the promotion of Education, Adventure Sport & Conservation of Environment (2016) 67 taxmann.com 264 (SC) : 2016 TaxPub(DT) 1553 (SC), CIT v. TBI Education Trust (2018) 96 Taxmann.com 356 (Ker) : 2018 TaxPub(DT) 4939 (Ker-HC), State of Punjab v. Bhatinda District Coop. Mill 11 SCC 363 (SC), CIT v. NHK Japan Broadcasting Corp. (2008) 305 ITR 137 (Del) : 2008 TaxPub(DT) 1931 (Del-HC), Amalner Cooperative Bank Ltd. v. CCE (2012) 21 Taxmann.com 433 (Mum-CESTAT), Agra Development Authority (2018) 90 Taxmann.com 282 (All) : 2018 TaxPub(DT) 0739 (All-HC), Auro Lab v. ITO (2019) 102 Taxmann.com 225 (Madras) : 2019 TaxPub(DT) 1007 (Mad-HC), Associate Journals Ltd. v. Land & Development Office, Plastiblends India Ltd. v. Asstt. CIT (2017) 398 ITR 568 (SC) : 2017 TaxPub(DT) 4436 (SC), dated 21-12-2018 (i) Associated Journal Ltd. & Anr. v. Land & Development Office in WP. (C) 12133/2018 and CM 47131/2018; and (ii) order of Delhi High Court dated 28-2-2019 in the case of The Associated Journal Lt. & Anr. v. Land & Development Office in LPA 10/2019 and CM Nos. 566/2019 & 649/2019, CIT v. Bhushan Steels Pvt. Ltd., (2017) 398 ITR 216 (Del) : 2017 TaxPub(DT) 1870 (Del-HC), Mahindra & Mahindra Ltd. v. Dy. CIT (2009) 30 SOT 374 (Mum) : 2009 TaxPub(DT) 1638 (Mum-Trib), affirmed by the Hon'ble Bombay High Court (2014) 365 ITR 560 (Bom) : 2014 TaxPub(DT) 2966 (Bom-HC) and Asstt. CIT v. Prakash L. Shah (2008) 115 ITD 167 (Mum) : 2008 TaxPub(DT) 2237 (Mum-Trib).

FAVOUR : Against the assessee.

A.Y. :

SUBSCRIBE FOR FULL CONTENT