Dismissed

Sinhgad Technical Educatior Society, v. Commissioner of Income Tax (Central) and Ors.

Bombay HC1 Feb 2012WP/2545/2011

Case brief

AI extract

What is this about?

A Division Bench examined the constitutional validity of the 2010 amendment to Section 12AA(3) of the Income Tax Act allowing cancellation of registration granted under Section 12A. The Court distinguished the Sedco Forex precedent, held the amendment operates prospectively from June 2010 without violating Article 14, and declined to interfere with the Revenue's notice to show cause.

What did the court decide?

Petition rejected; Court declined to exercise jurisdiction under Article 226 to interdict the hearing of the notice to show cause.

Sinhgad Technical Educatior Society, Vs Commissioner of Income Tax… — Income Tax | Bombay HC (2012)

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VBC 1 wp2545.11-1.2

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IN THE HIGH COURT OF JUDICATURE AT BOMBAY O. O.C. J.

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WRIT PETITION NO2545 OF 2011

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Sinhagad Technical Education Society. Versus Commissioner of Income Tax (Central), Pune & Anr.

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...Petitioner.

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...Respondents.

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Mr.Jehangir D.Mistri, Senior Advocate with Mr.Niraj Sheth and Mr.Nitin Dhumal for the Petitioner. Mr.Vimal Gupta for the Respondents.

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CORAM : DR. D.Y. CHANDRACHUD & M.S.SANKLECHA, JJ.

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February 1, 2012.

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ORAL JUDGMENT (PER DR.D.Y.CHANDRACHUD, J.) :

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A notice was issued to the Petitioner under Sub-section (3)

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of Section 12AA of the Income Tax Act, 1961, on 31 July 2007 for cancellation of the registration granted to the Petitioner, principally

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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 The registration was proposed to be withdrawn with effect from Assessment Year

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1999-2000.

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The proceedings which were initiated pursuant to the notice

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to show cause culminated in an order of the Commissioner of Income Tax (Central), Pune 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 subsection (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

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with effect from 1 October 2004 by the Finance (No.2) Act, 2004

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could not have retrospective effect. Consequently, the order of the

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Commissioner of Income Tax was set aside. The Revenue has filed an appeal against the decision of the Tribunal, which has been admitted by a Division Bench of this Court on 10 June 2009.

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Section 12AA(3) has since been amended by the Finance

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Act of 2010 with effect from 1 June 2010. As amended, the provisions reads as follows:

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“(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:

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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).

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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.

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In these proceedings under Article 226 of the Constitution, there is a challenge to the constitutional validity of the provisions of sub-section (3) of Section 12AA as amended by the Finance Act of 2010 with effect from 1 June 2010 to the extent that they provide for revocation of a registration granted under Section 12A. The submission of the Petitioner is that the power to cancel a registration was first brought on the statute book by inserting sub-Section (3) into Section 12AA by the Finance (No.2) Act of 2004 with effect from 1

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October 2004. Hence, it is submitted that the amendment which has been inserted by the Finance Act of 2010 cannot go behind the insertion of sub-section (3) with effect from 1 October 2004. Reliance is sought to be placed on the judgment of the Supreme Court in Sedco Forex International Drill Inc.vs. Commissioner of Income

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Tax .¹

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There is no merit in the challenge to the constitutional validity of the provision. As a result of the amendment, which has

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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. SubSection (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

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was conferred upon the Commissioner where a trust or an institution

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1 (2005) 279 ITR 310 (SC)

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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

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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

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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.

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In our view, the decision in Sedco Forex (supra) is inapplicable to the facts of the present case. The issue involved in Sedco Forex was whether the substituted explanation to Section 9(1) (ii), brought in by the Finance Act, 1999 was retrospective in nature. The Finance Act, 1999 specifically provided that the substituted explanation would come into effect from 1 April 2000. In the above case, it was contended by the appellant that the explanation would not apply while assessing income for the years 1992-93 and 1993-94. The Supreme Court observed that the High Court had while

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dealing with the appeal from the decision of the Tribunal purported to give retrospective effect to the explanation introduced in 1999. This according to the Supreme court was not permissible as the explanation had not come into effect during the assessment years in question. The Supreme Court further held that a cardinal principle of tax Law is that the law to be applied is that which is in force during the relevant assessment years unless otherwise provided expressly or by necessary implication. In that view it was held that the explanation was not retrospective.

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In the present case, the issue is not with regard to the assessment of income of the petitioners as in the case of Sedco Forex (supra). The issue in this case is with regard to the power to cancel registration of the trust under Section 12AA in view of the amendment to sub section (3) to Section 12AA brought about with effect from 1 June 2010. The amendment to Sub Section 3 of Section 12AA empowers the Commissioner to cancel the registration of a trust which has been obtained at any time under Section 12A . The

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amendment to sub section(3) of Section 12AA gives wide powers to cancel a registration obtained at any time. In Sedco Forex (supra) the explanation to Section 9(1)(ii) was effective from 1 April 2000. Therefore, it was to be applicable post 1 April 2000 and was not to apply to assessment of income for earlier years. In this case the amendment to sub section 3 of Section 12AA is with effect from 1 June 2010. Therefore the amended section 12AA becomes effective from 1 June 2010. Consequently from 1 June 2010 the Commissioner can exercise the power under Section 12AA(3) and cancel the registration of a Trust registered under Section 12A. Parliament while empowering the Commissioner to cancel registration of a Trust registered under Section 12A has deliberately used the words “obtained registration at any time under Section 12A”. Therefore,

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power under Section 12AA(3) can be exercised by the Commissioner in respect of a trust registered prior to 1 June 2010. The mere fact that a part of the requisites for the action under Section 12AA (3) is drawn from a time prior to its passing namely registration as a charitable trust under Section 12A prior to 2010 would not make the

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amendment retrospective in operation. The amendment does not take away any vested right nor does it create new obligations in respect of past actions. Therefore, the decision in Sedco Forex (supra) is inapplicable to the facts of the petitioner’s case.

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In the present case, by and 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.

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In so far as the merits of the present matter are concerned,

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the earlier notice to show cause that was issued to the Petitioner on 31 July 2007, culminated in an order cancelling the registration

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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. We decline to

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exercise our jurisdiction under Article 226 of the Constitution, at the present stage, to interdict the hearing of the notice to show case. We

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clarify that we have not expressed any opinion on the allegation levelled against the Petitioner, the correctness of which is left open to

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be determined by the Commissioner in the course of the proceedings.

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The Petition is accordingly rejected. No order as to costs.

Sinhgad Technical Educatior Society, v. Commissioner of Income Tax (Central) and Ors.

Case brief

What is this about?

What did the court decide?

Sinhgad Technical Educatior Society, v. Commissioner of Income Tax (Central) and Ors.

Case brief

What is this about?

What did the court decide?

What the court decided

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