An assessee who has voluntarily surrendered the registration granted to it u/s 12A cannot be compelled, by action of or by inaction of Revenue authorities, to continue with the said registration

FACTS
The assessee, a charitable trust, was granted registration u/s 12A. The trust vide letter dated 11th March, 2015 addressed to the CIT indicated that it did not desire to continue to avail the benefits of the registration made by the trustees in 1975. The trust was called for a hearing on 20th March, 2015 on which date the trust confirmed its agreement to the cancellation / withdrawal of the registration. Returns of income filed subsequent thereto were filed without claiming exemption under sections 11 and 12.

The CIT cancelled the registration of the assessee trust, as granted u/s 12A, with effect from the date of his order, i.e., 31st October, 2019.

The assessee filed an appeal with the ITAT.

HELD
The ITAT tried to ascertain the objective behind the Income-tax Department’s keenness to extend registration u/s 12A for the extended period from March, 2015 to October, 2019, when the assessee did not want it.

It then considered the relevant legislative amendments to ascertain the objective. First, it considered the amendment in section 11. By insertion of sub-section (7) in section 11 with effect from 1st April, 2015, tax exemption u/s 10(34) for ‘dividends from Indian companies’, on which dividend distribution tax was already paid by the company distributing dividends which was available to every other taxpayer, was denied to charitable trusts registered u/s 12A.

It also observed that the continuance of registration u/s 12A, even when the assessee does not want exemption u/s 11, may result in higher tax liability for a trust which has earned dividends from domestic companies otherwise eligible for exemption u/s 10(34), as in the given case. However, the ITAT also took into consideration the rationale behind the said amendment which was to ensure that the assessee does not have the benefit of choice between special provisions and general provisions. The ITAT also noted the Circular No. 1/2015 dated 21st January, 2015 explaining the above amendment. As against this, the ITAT observed the way this provision was interpreted by the tax authorities. The Revenue authorities opined that once an assessee is a registered charitable institution, irrespective of admissibility or even claim for exemption u/s 11, the exemption u/s 10(34) was inadmissible. This put the assessee at a disadvantage since the scheme of sections 11 to 13 which were intended to be an optional benefit to the charitable institutions, in the present case, became a source of an additional tax burden for the trusts in question because of the interpretation given by the Revenue.

The ITAT also noted that introduction of section 115TD would also have a bearing on the tax liability of the trust which would depend on the date of cancellation of registration.

From the above-mentioned Circular the ITAT inferred that the assessee has an inherent right to withdraw from the special dispensation of the scheme of sections 11, 12 and 13, unless such a withdrawal is found to be mala fide. It also observed that the disadvantageous tax implications on the assessee [non-application of section 10(34) and section 115TD] are only as a result of a much later legislative amendment which was not in effect even when the assessee informed the CIT of his disinclination to continue with the registration; an assessee unwilling to avail the ‘benefit’ of registration ‘obtained’ u/s 12A could not be compelled, by action of or by inaction of the Revenue authorities, to continue with the said registration.

The ITAT observed that registration u/s 12A was obtained by the assessee in 1976 and registration u/s 12A simply being a foundational requirement for exemption u/s 11 and not putting the assessee under any obligations, is in the nature of a benefit to the assessee. Referring to the decision of the Supreme Court in the case of CIT vs. Mahendra Mills (2000) 109 taxmann 225 / 243 ITR 56, it held that ‘a privilege cannot be a disadvantage and an option cannot become an obligation’. Thus, in the instant case, registration u/s 12A cannot be thrust upon the unwilling assessee.

It also held that wherever a public authority has a power, that public authority also has a corresponding duty to exercise that power when circumstances so warrant or justify it. Accordingly, in the instant case when the assessee communicated to the CIT of inapplicability of exemptions under sections 11 to 13, the CIT was duty-bound to pass an order in writing withdrawing the registration. In the instant case, not only was the procedure of cancellation of registration kept pending but also the proceedings conducted earlier were ignored and fresh proceedings were started after a long gap, on a standalone basis de hors the pending proceedings. This is more so considering the fact that delay in cancellation of registration has tax implications to the disadvantage of the assessee.

The ITAT thus concluded by holding that the CIT was under a duty to hold that the cancellation of registration is to take effect from the date on which the violation of the statutory requirements for grant of exemption occurred, the date on which such a violation or breach was noticed, or at least the date on which hearing in this regard was concluded. That is, the cancellation of registration was required to be effective, at the most, from 20th March, 2015, i.e., the date fixed for hearing. The inordinate delay in cancellation of registration, which is wholly attributed to the Revenue authorities, cannot be placed to the disadvantage of the assessee. Finally, it was held that the cancellation was effective from 20th March, 2015 and the appeal of the assessee was allowed.