Madras High Court
M/S.Sri Vidya Mandir Trust vs The Commissioner Of Income Tax on 2 December, 2013
Author: Chitra Venkataraman
Bench: Chitra Venkataraman, T.S.Sivagnanam
IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED : 02.12.2013 CORAM THE HON'BLE MRS.JUSTICE CHITRA VENKATARAMAN AND THE HON'BLE MR.JUSTICE T.S.SIVAGNANAM Tax Case (Appeal).No.674 of 2013 --- M/s.Sri Vidya Mandir Trust Sivaji Nagar, Ammapet Salem-636 003 ..Appellant -vs- The Commissioner of Income Tax Salem ..Respondent Tax Case (Appeal) filed under Section 260A of the Income Tax Act, 1961 against the order of the Income Tax Appellate Tribunal, Chennai Bench 'D' dated 18.04.2013 in I.T.A.No.501/MDS/2010. For appellant : Mr.A.Satyaseelan For respondent : Mr.J.Narayanaswamy, Standing Counsel for Income Tax Department JUDGMENT
(Judgment of the Court was made by T.S.SIVAGNANAM, J.) This Tax Case (Appeal) by the assessee is directed against the order passed by the Income Tax Appellate Tribunal, Chennai Bench 'D' dated 18.04.2013 in I.T.A.No.501/MDS/2010. The assessee seeks admission of the Tax Case (Appeal) on the following questions of law:-
"1. Whether on the facts and circumstance of the case, the Appellate Tribunal is right in law in holding that the respondent Commissioner has the authority u/s.12 AA(3) of the Income Tax Act to cancel the registration granted to the appellant trust u/s.12A of the Income Tax Act during 1973.
2. Whether on the facts and circumstance of the case the order of the Appellate Tribunal confirming the order passed by the Commissioner cancelling the registration granted to the appellant trust is sustainable and justifiable in law."
2. The assessee association was originally in the name and style of "Sri Vidya Mandir". The facts which are necessary for the disposal of this appeal are that the association by name Sri Vidya Mandir Association was registered under the provisions of the Societies Registration Act-Act No.21/1860 in S.No.267/1971 dated 30.04.1971 on the file of the Registrar of Assurances, Salem District. The object of the said association was to promote and advance the educational, medical, social and moral welfare of the people in general; to establish, maintain and manage colleges, schools and other educational institutions and libraries for the advancement of knowledge in any subject or language and to establish, maintain and manage any institution for imparting technical knowledge in any handicrafts or industries etc. Subsequently, the assessee association was formed by a deed of trust dated 19.01.1972 registered as Document No.328/1972. The objects of the assessee trust as could be seen from the trust deed was that "donors" were desirous of setting up of a "trust" with the properties mentioned in Schedule A to D for the aim and purposes for which the Sri Vidya Mandir was registered under the Societies Registration Act 21/1860 as S.No.267/1971 and has been formed for the purpose of running educational institutions and other allied institutions mentioned in detail in the Memorandum and Articles of Association of Sri Vidya Mandir and also for the purpose of carrying out the object of Sri Vidya Mandir so as to enable the said Association to carry out its objects according to the direction and wishes of the trust.
3. The assessee trust viz., "Sri Vidya Mandir Trust", which was formed in 1972, applied for registration under Section 12A(a) of the Income Tax Act, 1961(hereinafter called as the "Act"). The Commissioner, on being satisfied that the assessee is entitled for such registration, granted registration under the said provision. The Society viz.,"Sri Vidya Mandir", which was registered under the provisions of the Societies Registration Act was converted into Trust called as "Sri Vidya Mandir Association" by a deed dated 07.09.1987. Certain members of the assessee trust were also the members of the newly formed association. In terms of the registered trust deed of Sri Vidya Mandir Association dated 07.09.1987, wherever, the words "Sri Vidya Mandir Association" have occurred in Sri Vidya Mandir Trust or in Sri Vidya Mandir Foundation or in Sri Vidya Mandir Association registered under the Societies Registration Act XXI of 1860 with S.No.267 of 1971 or in any other context shall be known and followed and recognised as Sri Vidya Mandir Association registered under the Trust Deed dated 07.09.1987. That apart all the properties movables and immovables assets and liabilities of the Association registered under the Societies Registration Act XII of 1860 with S.No.267 of 1860 shall vest in Sri Vidya Mandi Association, registered under the Trust deed dated 07.09.1987.
4. The Commissioner of Income Tax (Salem) issued a notice dated 09.09.2009 under Section 12AA(3) of the Act stating that there are no object clauses seen from the trust deed dated 19.01.1972 and there cannot be a valid trust in the absence of the objects; in terms of Section 6 of Indian Trusts Act, 1882, the Author of the Trust must indicate with reasonable certainty the purpose of the trust. In view of the above, the Commissioner of Income Tax proposed to cancel the registration granted to the assessee trust under Section 12A of the Act and called upon the assessee to file its objections. Further it was stated in the notice dated 09.09.2009 that the said notice may be read as notice under Section 12AA(3) of the Act and an opportunity was given to the assessee to state their objections in writing or in person on 05.11.2009. After affording an opportunity of personal hearing to the assessee, the Commissioner of Income-Tax, Salem, by order dated 25.02.2010, cancelled the registration granted earlier under Section 12A of the Act. Aggrieved by such order, the assessee preferred appeal before the Income Tax Appellate Tribunal.
5. The Income Tax Appellate Tribunal, after considering the contentions raised by the assessee agreed with the findings recorded by the Commissioner of Income Tax and dismissed the appeal by order dated 18.04.2013. Aggrieved by the said order of the Tribunal, the assessee is on Tax Case (Appeal) raising the above mentioned questions of law.
6. Learned counsel appearing for the assessee referred to the trust deed dated 19.01.1972 and the objects of the association, which was formed on 30.04.1971 as well as the terms and conditions mentioned in the trust deed dated 07.09.1987. Learned counsel submitted that the Income Tax Appellate Tribunal ought to have seen that the creation and functioning of Sri Vidya Mandir Association on and from 07.09.1987, with such objective is neither an unrecognised one in law nor is prohibited or unlawful. It is further submitted that the association formed on 30.04.1971 was registered under the Societies Registration Act and is exclusively to aid and benefit the named beneficiary in the trust. The Memorandum and articles of association of the 1971 association also provided that on dissolution, the assets and liabilities has to be transferred to any institution with similar objective. Therefore, it is contended that the Tribunal erred in law in not recognising the transmission of the beneficiary status of the 1971 association into the 1987 association in law and erred in accepting and confirming the view of the Commissioner that there is no link between the 1972 trust and the 1987 trust. Further, the learned counsel contended that the Tribunal rendered an erroneous finding that there is no specific object for the 1972 trust. Learned counsel, by placing reliance on the decision in the case of Director of Income-Tax (Exemptions) Vs. Mool Chand Khairati Ram Trust reported in (2011) 339 ITR 0622 submitted that the Commissioner had no power to cancel the registration prior to the insertion of Sub-Section 3 to Section 12AA of the Act, which was inserted by Finance (No.2) Act, 2004 with effect from 01.10.2004.
7. Per contra, learned Standing counsel appearing for the Revenue, while supporting the order of the Income Tax Appellate Tribunal as well as Commissioner of Income Tax submitted that the objects of 1972 trust no longer survive and the Commissioner after going through the entire facts rendered the finding. As regards the power of the Commissioner of Income Tax to cancel the registration, which was granted to the 1972 Trust, it is submitted that before the Bombay High Court, validity of Section 12AA(3) came to be questioned in the decision reported in (2012) 343 ITR (St) 23 (Bom.) (SINHAGAD TECHNICAL EDUCATION SOCIETY VS. COMMISSIONER OF INCOME-TAX AND ANOTHER), wherein, the Bombay High Court held that "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.
8. We have carefully considered the submissions of the parties and perused the materials placed on record.
9. The short question that falls for consideration in this Tax Case (Appeal) is whether the Commissioner is justified in cancelling the registration granted to the appellant trust, which was executed on 19.01.1972 and if the cancellation was justified, on facts, whether the Commissioner could have invoked the power under Sub Section 3 of Section 12AA of the Act, which came to be inserted on 01.10.2004.
10. The assessee, in their reply to the notice issued by the Commissioner of Income Tax under Section 12AA(3) of the Act pointed out that the main object of the trust viz., the assessee trust was to assist the association which was registered in 1971. It was further contended that the association, which was registered as a society in 1971 was formed for the purpose of running educational institution and as per the terms of the trust deed dated 19.01.1972, the trust is to utilise the properties and income earned, for carrying out the education and other allied objects stated in Memorandum and Article of Association of Sri Vidya Mandir trust. Further, it was contended that it is no doubt that the association, which was formed in 1971 has been running schools and colleges etc., and the sole purpose of the 1972 trust was to aid and help the association and therefore, there is no vagueness in the trust deed.
11. The Commissioner, after considering the contentions raised by the assessee pointed out that three documents have to be looked into viz., (i) the trust deed dated 19.01.1972, (ii)Memorandum & Articles of Association of the 1971 association/Society and (iii) the instrument creating the new trust by trust deed dated 07.09.1987. After going through the documents and the objects for which the three entities were established, it was rightly held by the Commissioner that all the educational institutions, which were run by the 1971 Society are being run by the 1987 Trust, after its registration; both the entities are referred to as "The Association" in their respective documents; all educational institutions came to be run by the 1987 Trust and there is no mention of the object clauses of the 1987 trust in the instrument of 1972. In the light of the said fact, the Commissioner took note that the assessee trust does not have any objects and even the reference to objects of 1971 association/society, which came into existence much prior to the assessee's association/trust.
12. The Commissioner further pointed our that after Sri Vidya Mandir Association/trust was registered under the Trust Deed dated 07.09.1987, the objects of the new trust was no different from the objects of the 1971 Society; thus, the objects of the assessee trust underwent change perforce with the intention of the Authors to do so. Thus, the Commissioner pointed out that each time, 1971 Society or the 1987 Society alters the objects, the association created under Section 12A of the Act would automatically undergo a change. The assessee was called upon by the Commissioner to state as to what control it exercises over the association, which has now became a trust on or after 09.09.1987. The assessee was not in a position to explain as to whether the entire society was a newly formed trust under 09.09.1987 and there was only a working relation between the assessee trust and the new association.
13. The Income Tax Appellate Tribunal took note of the findings rendered by the Commissioner that working relation that existed between the assessee trust and the 1971 association is no longer available due to the formation of the 1987 trust on 09.09.1987; the deed of the assessee trust was executed in 1971 and therefore, there cannot be any reference of the new trust created on 09.09.1987; there is no link between the 1971 association and the newly formed trust, which was formed in 1987 and if at all there is any link between the 1972 trust and the association formed on or after 09.09.1987, when the newly formed trust started administering the educational institutions and other activities of 1971 Society/Association, the working relation ceased to exist. Therefore, the findings of the Income Tax Appellate Tribunal was that the 1971 society has become functionally defunct and all its activities were taken over by the new trust; therefore, the Tribunal pointed out that there is no link between the assessee's 1971 trust and the newly formed trust and no link vice versa.
14. We have perused the documents viz., the Articles of Association of 1971 Association/Society, the trust deed dated 1972 and the trust deed dated 07.09.1987 and the findings recorded by the Commissioner and Tribunal on the factual aspects.
15. The next question that arises herein is as to whether the Commissioner had power to cancel the registration, which was granted in 1972 by invoking power under Section 12AA(3) of the Act. In the case of SINHAGAD TECHNICAL EDUCATION SOCIETY VS. COMMISSIONER OF INCOME-TAX AND ANOTHER reported in (2012) 343 ITR(St.) 23(Bom.), a notice was issued to the appellant therein under Sub Section 3 of Section 12AA of the Act on the ground that they have been charging capitation fee and donation to the admissions in the educational institution and therefore, the trustees personally gained from those donations and they ceased to carry on the activity in accordance with the objects of the trust. The said show cause notice ultimately culminated in an order cancelling the registration under Section 12AA(3) of the Act and the order of the Commissioner was challenged before the Tribunal. The Tribunal came to the conclusion that the Commissioner was empowered to cancel the registration on specific grounds. Further the Tribunal held that the section did not empower the Commissioner to cancel or withdraw the registration, which has been granted under Section 12A of the Act. Further, the Tribunal held that provisions of Sub Section (3) of Section 12AA of the Act which are brought on the statute book with effect from October 1, 2004, by the Finance (No.2) Act, 2004, could not have retrospective effect, consequently, the order passed by the Commissioner was set aside. The Revenue filed appeal before the Division Bench of the High Court. Following the amendment by the Finance Act of 2010 with effect from June 1, 2010, the Commissioner of Income-tax issued fresh notice during March 2011 proposing to invoke his powers under the amended provisions of Section 12AA(3) of the Act and to cancel registration of the petitioner therein for the reasons mentioned in his order dated 09.10.2007. The assessee filed a writ petition challenging the constitutional validity of Sub-Section (3) of Section 12AA of the Act, as amended by the Finance Act of 2010 with effect from June 1, 2010. The Division Bench of the Bombay High Court while rejecting the challenge to the newly introduced provision held as under:-
" There is no merit in the challenge to the constitutional validity of the provision. 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 October 1, 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 anytime 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."
16. As pointed out by the Division Bench of the Bombay High Court, 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. Therefore, the Bombay High Court pointed out that the effect of the provision is to cancel the registration of the trust when the activities of the trust are not genuine or are not being carried out in accordance with the objects of the institution and such law cannot be regarded as a retrospective alteration of the law. It was further held that cancellation of registration of a trust 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 to the Commissioner.
17. We fully agree with the view taken by the Bombay High Court. In the light of the same, the said amendment cannot be regarded as retrospective alteration of the law and the same cannot be considered as giving arbitrary power to the Commissioner.
18. Learned counsel for the assessee placed reliance on the decision of the Delhi High Court in the case of Director of Income-tax (Exemptions) Vs. Mool Chand Khairati Ram Trust reported in (2011) 339 ITR 622. The Delhi High Court agreed with the view of the Allahabad High Court reported in (2011) 336 ITR 250 (All) in the case of Commissioner of Income-tax Vs. Manav Vikas Avam Sewa Sansthan, which in turn placed reliance on the decision in the case of Oxford Academy for Career Development Vs. Chief CIT reported in (2009) 315 ITR 382 (All), where the Allahabad High Court relied on General Clauses Act, 1897, which held that the Commissioner's power under Section 12AA being a quasi-judicial power or not being one falling under the category of the 'orders' mentioned in Section 21 of the General Clauses Act, 1897, the provisions of Section 12AA of the Act cancelling the registration could not have the effect of rescinding the order originally granted to the trust under Section 12AA of the Act. Thus, the Delhi High Court agreed with the view taken by the Allahabad High Court reported in (2011) 336 ITR 250 (All) in the case of Commissioner of Income-tax Vs. Manav Vikas Avam Sewa Sansthan, that the order cancelling the registration granted under Section 12A being quasi-judicial power does not fall under the category of "orders" mentioned under Section 21 of General Clauses Act, 1897, which provides that the power conferred on an authority empowered to issue orders including the power to rescind such orders however, would not confer jurisdiction of the Commissioner to rescind the order thus passed granting registration.
19. We respectfully express our disagreement with the view taken by the Delhi High Court in the case of Director of Income-tax (Exemptions) Vs. Mool Chand Khairati Ram Trust reported in (2011) 339 ITR 622 as well as Allahabad High Court reported in (2011) 336 ITR 250 (All) in the case of Commissioner of Income-tax Vs. Manav Vikas Avam Sewa Sansthan. A reading of Section 12AA(3) of the Act reveals that where the trust has been granted registration under Clause (b) of Sub Section (1) or has obtained registration at any time under Section 12A of the Act as it stood prior to its amendment by the Finance (No.2) Act, 1996, and subsequently, the Commissioner is satisfied 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 as the case may be, he may pass an order in writing cancelling the registration of such trust or institution.
20. As far as the present case is concerned, as is evident from the reading of the trust deed dated 19.01.1972, Shri Vidya Mandir Trust was constituted for the aim and purpose for which Sri Vidya Mandir registered under the Societies Registration Act was formed viz., for the purpose of running educational institution and other allied educational institutions mentioned in articles and memorandum of association.
21. A reading of those documents further reveal that Schedule A to D mentioned properties have been vested for the purpose of carrying out the object of Sri Vidya Mandir association, so as to enable the said Association to carry out its objects according to the direction and wishes of the trust.
22. Admittedly, the said association has become a trust as early as 1987. A copy of the trust deed enclosed in the typed set of papers before us reveal that the constitution of the trust/society cease to exist and wherever the word Vidya Mandir Association occurred in Sri Vidya Mandir trust, it shall be known and followed and recognised as Sri Vidya Mandir Association registered as a trust. In other words, the association ceased to exist for all practical purposes and in which place, there is only a trust existing. The assets and liabilities of the erstwhile association stood transferred to the newly constituted trust and the activities of the trust formed in 1987 are detailed therein. It is an admitted fact that after the constitution of the trust in consonance with its terms, the 1972 trust did not undergo any change to include the newly constituted trust as one of its objectives, thus, one and only object, which was referred to 1972 trust viz., administering the Vidya Mandir Association and that having come to an end, it is difficult for this Court to accept the plea of the assessee that the trust continues even today. It is no doubt true under Clause V of the trust deed dated 19.01.1972, if at any time, the object of the trust should become impossible of fulfillment, the properties and funds belonging to the trust shall be utilised for such other allied charitable or educational purposes as the Board for the time being may determine. As of today, there are no materials to show that there were any such necessity and possession was taken as regards the constitution of newly formed trust. In any event, as observed by the Commissioner of Income Tax and the Income Tax Appellate Tribunal in their orders, we do not find any specific objects manifested in the trust deed. In the circumstances, when the one and only object was, it had to run educational institutions, to that end, the new trust was formed in 1987, hence, we do not find any justifiable ground to hold that the Commissioner would be powerless even to cancel the registration of the trust granted to 1972 association under Section 12AA(3) of the Act.
23. The second emphasis in this regard is that the institution or trust, who has obtained registration, at any time on or after the insertion of Sub Section 3 of Section 12AA of the Act by the Finance (No.2) Act, 2004 also would come under the scanner of the Commissioner, that subsequently, if the Commissioner is satisfied 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, as the case may be, he shall pass an order cancelling the registration of such trust or institution.
24. As already pointed out in the preceding paragraph, when the trust itself has worked out that the existence of the association came to an end after registration of the 1987 trust, when all its assets and liabilities were transferred and all activities ceased and no other object explained in the trust deed even the reference to object of another society, the Commissioner has however, authority to do away with the grant of registration as it stood prior to the amendment by the Finance (No.2) Act, 1996 as per newly inserted provision in the Finance (No.2) Act, 2004 effective on 01.10.2004. To deny such power would be contrary to the object of grant of registration under Section 12A of the Act. Since Sub Section (3) of Section 12AA of the Act has to be strictly viewed and the authority has to deal with even those cases having registration granted to the trust under the erstwhile provision, we have no hesitation in rejecting the assessee's case.
25. If we are to accept the contention of the assessee, it would amount to stating "once a trust always a trust". The intention of the Legislators being that even after grant of registration under Section 12A of the Act, if 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 is entitled to pass orders cancelling the registration after granting opportunity. In the present case, the Commissioner of Income-tax found that 1971 society had not filed return of income which suggests that there were no activities undertaken by the said 1971 Society/Association; further after the new trust was formed in 1987 viz., "Sri Vidya Mandir Trust", the 1971 Society does not have any objects and even if the Society has any other objects, those objects ceased to exist after registration of the 1987 Trust, when all its assets and liabilities were transferred and all activities ceased.
26. For all the above reasons, the Tax Case (Appeal) stands dismissed. No costs.
Index:Yes (C.V.,J.) (T.S.S.,J.) Internet:Yes 02.12.2013 nvsri To 1.The Commissioner of Income Tax, Salem. 2.The Income Tax Appellate Tribunal, 'D' Bench, Chennai. CHITRA VENKATARAMAN, J. AND T.S.SIVAGNANAM, J. nvsri Tax Case (Appeal).No.674 of 2013 02.12.2013