Sections 12AA, 147 and 148 – Charitable Trust – Cancellation of registration – Section 12AA amended in 2004 enabling cancellation of registration is not retrospective – Cancellation cannot be made with retrospective effect Reassessment – Notice u/s. 148 consequent to cancellation of registration – No allegation of fraud – Notice not valid

Sections 12AA, 147 and 148 – Charitable Trust –
Cancellation of registration –  Section
12AA amended in 2004 enabling cancellation of registration is not retrospective
– Cancellation cannot be made with retrospective effect

Reassessment – Notice u/s. 148 consequent to cancellation
of registration – No allegation of fraud – Notice not valid

The
assessee, a charitable trust, was granted registration by the Commissioner u/s.
12A of the Income-tax Act, 1961, as it stood prior to the year 1996 with
medical relief as the main object of the trust. The returns of income were
assessed periodically by the Department and assessment orders passed year after
year until the  amendment to section 12AA
was introduced to specifically to empower the proper officer to cancel the
registration granted under the erstwhile section 12A of the Act. Subsequent to
the amendment, by an order dated 30/12/2010, the registration granted to the
assessee was cancelled on the allegation that the assessee failed to fulfil the
conditions required for enjoying the exemption available to the assessee
registered u/s. 12A. The Tribunal upheld the cancellation. Assessee preferred
appeal to the High Court which was pending. In the meanwhile, the Assessing
officer issued notices u/s. 148 of the Act and reopened the assessments for the
A. Ys. 2004-05 to 2007-08. The assessee’s objections were rejected. The
assessee filed writ petitions and challenged the validity of reopening.

The Madras
High Court allowed the writ petition and held as under:

“i)   Until 2004, when section 12AA of the
Income-tax act 1961 was amended, there was no power under the Act to the
Commissioner or any other authority to revoke or cancel the registration once
granted to charitable trusts. Later, on June 1, 2010, by the Finance Act, 2010,
section 12AA(3) was further amended to include specifically registration
granted under the erstwhile section 12A of the Act also within the ambit of
revocation or cancellation as contemplated u/s. 2004 amendment.

ii)   The powers of the Commissioner u/s. 12AA are
neither legislative nor executive but are essentially quasi-judicial in nature
and, therefore, section 21 of the General Clauses Act is not applicable to
orders passed by the Commissioner u/s. 12AA. Section 12AA(3) is prospective and
not retrospective in character. The cancellation of registration will take
effect only from the date of the order or notice of cancellation of
registration.

iii)   The cancellation of the registration would
operate only from the date of the cancellation order, that is December 30,
2010. In other words, the exemption u/s. 11 could not be denied to the assessee
for and upto the A. Y. 2010-11 on the sole ground of cancellation of the
certificate of the registration.

iv)  Unless the assessee had obtained registration
by fraud, collusion or concealment of any material fact, the registration
granted could never be alleged to be a nullity. It was evident that fact of the
cancellation of the registration triggered the reassessment proceedings and
evidently formed the preamble of each of the orders. And clearly, there was no
allegation of fraud or misdeclaration on the part of the assessee and the
Department was candid in confessing that the certificate was granted
erroneously. Therefore, reopening the assessment for the past years on account
of  the cancellation order dated December
30, 2010, in the case of the assessee by the Assessing Officer  was not permissible under the law and the
proceedings relating to the A. Ys. 2004-05 to 2007-08 were liable to be
quashed. Also, the assessment order relating to the A. Y. 2010-11 disallowing
exemption on the basis of cancellation order dated December 30, 2010, was
liable to be quashed.”