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Commissioner Can Cancel or Withdraw a Registration Granted U/S 12a Anytime

COMMISSIONER CAN CANCEL OR WITHDRAW A REGISTRATION GRANTED U/S 12A ANYTIME

Section 12AA(3) has since been amended by the Finance Act of 2010 with effect from 1 June 2010. As amended, the provisions reads as follows:

"(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 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." (emphasis supplied).

As a result of the amendment, which has been brought about by the Finance Act of 2010, Sub-section (3) of Section 12AA has been amended specifically to empower the Commissioner to cancel a registration obtained under Section 12A as it stood prior to its amendment by the Finance (No.2) Act, 1996. Sub-Section (3) was inserted into the provisions of Section 12AA by the Finance (No.2) Act, 2004 with effect from 1 October 2004. As it originally stood, under sub-section (3), a power to cancel registration was conferred upon the Commissioner where a trust or an institution had been granted registration under clause (b) of sub-section (1) of Section 12AA. The Commissioner, after satisfying himself that the objects of the trust or an 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, was vested with the power to pass an order in writing cancelling the registration of such trust or institution. By the Finance Act of 2010, sub-section (3) was amended so as to empower the Commissioner to cancel the registration of a trust or an institution which has obtained registration at any time under Section 12A (as it stood before its amendment by the Finance (No.2) Act, 1996). As a result of the amendment, a regulatory framework is now sought to be put in place so as to cover also a trust or an institution which has obtained registration under Section 12A as it stood prior to its amendment in 1996. Every statutory provision which operates in respect of a trust, which has already been registered in the past does not have a retrospective character. A law which operates with respect to an event which has occurred in the past is not necessarily retrospective. A provision is retrospective when it takes away a right which has vested or accrued in the past. The effect of the provision is to empower the Commissioner to cancel the registration of a trust where he is satisfied that the activities of the trust are not genuine or are not being carried out in accordance with the objects of the trust or institution. This cannot by any stretch of imagination, be regarded as a retrospective alteration of the law. In any event, Parliament has plenary powers as a legislative body to enact legislation either with retrospective or prospective effect subject only to the requirement that such legislation should not offend the provisions of Part III of the Constitution. Empowering the Commissioner to cancel the registration of a trust or institution on the ground that the activities of the trust or institution are not genuine or are not being carried out in accordance with the objects of the trust or institution cannot be construed as a conferment of arbitrary power. Where a benefit is granted by the legislature, whether by way of an exemption or otherwise, the legislature is entitled to ensure that the benefit conferred by the statute is utilized only for the purpose for which it is conferred. A provision enacted for the withdrawal of the benefit conferred for breach of the underlying purpose cannot be regarded as arbitrary. The power is carefully structured by the requirements which are specified by the legislature in sub-section (3) including observance of the principles of natural justice. A cancellation of registration under sub-section (3) of Section 12AA is subject to an appeal before the Tribunal under Section 253(1)(c). A judicial remedy is available against a cancellation of registration.

As a result of the amendment by the Finance Act of 2010, the Commissioner has been empowered to initiate steps for the cancellation of the registration of a trust or institution where the activities of the trust/institution are not genuine or are not being carried out in accordance with the objects thereof even in relation to a trust which was registered under Section 12A as it then stood. Such an amendment cannot be regarded as taking away a vested right retrospectively. Alternately, even if it is construed to be retrospective, it cannot be held to be violative of Article 14.

Case Study

A notice was issued to X Trust under Sub-section (3) of Section 12AA of the Income Tax Act, 1961, on 31 July 2007 for cancellation of the registration granted to the Petitioner, principally on the ground that the Petitioner, by charging capitation fees and donations in respect of admissions and by diverting them for personal gain to trustees, has ceased to carry on the activities of the Trust in accordance with the objects of the Trust. The registration was proposed to be withdrawn with effect from Assessment Year 1999-2000.

The proceedings which were initiated pursuant to the notice to show cause culminated in an order of the Commissioner of Income Tax dated 9 October 2007, cancelling the registration under Section 12AA(3). The order of cancellation was challenged in appeal before the Income Tax Appellate Tribunal. The Tribunal by its judgment dated 19 September 2008 came to the conclusion that under Section 12AA(3), as it then stood, where a trust or an institution had been granted registration under clause (b) of sub-section (1) thereof, the Commissioner was empowered to pass an order cancelling registration on certain specific grounds. The Tribunal held that the Section did not empower the Commissioner of Income Tax to cancel or withdraw a registration which was granted under Section 12A. In the present case, since the registration had been granted to the Petitioner under Section 12A, the Tribunal held that there was an absence of jurisdiction. The Tribunal held that the provisions of sub-Section (3) which were brought on the statute book with effect from 1 October 2004 by the Finance (No.2) Act, 2004 could not have retrospective effect. Consequently, the order of the Commissioner of Income Tax was set aside.

Following the amendment, the Commissioner of Income Tax has issued a fresh notice to show cause on 11 March 2011. The notice recites that in view of the amended provision of sub-Section (3) of Section 12AA, which were brought into force with effect from 1 June 2010, it is now provided that registration granted under Section 12A can also be cancelled by the Commissioner. The Commissioner has proposed to invoke his powers under the amended provisions of Section 12AA(3) and to cancel registration of the Petitioner for the reasons mentioned in his order dated 9 October 2007.

In so far as the merits of the present matter are concerned, the earlier notice to show cause that was issued to the Petitioner on 31 July 2007, culminated in an order cancelling the registration which was passed on 9 October 2007. The only ground on which the Tribunal interfered with the order was that under Sub-section (3) of Section 12AA, as it then stood, the Commissioner had no power to cancel the registration of a trust or institution granted under Section 12A. This decision of the Tribunal was rendered on 19 September 2008, which was prior to the amendment, which was brought in by the Finance Act of 2010. After the amendment by the Finance Act with effect from 1 June 2010, the Commissioner has issued a fresh notice dated 11 March 2011 proposing to invoke the powers under the amended provisions of Section 12AA(3) for cancellation of the registration for the reasons mentioned in the order dated 9 October 2007. The notice which has been issued by the Commissioner is a notice to show cause and it would be open to the Petitioner to submit a reply to the notice on all grounds, including those which are contained in the order dated 9 October 2007. In other words, the contents of the order dated 9 October 2007 shall be treated as a notice to show cause to the Petitioner to which the Petitioner shall be at liberty to file a reply before the Commissioner.