Income Tax Appellate Tribunal - Hyderabad
Sri Chaitanya Educational Committee vs Commissioner Of Income Tax on 28 November, 2005
Equivalent citations: [2007]106ITD256(HYD), (2007)109TTJ(HYD)359
ORDER
N.D. Raghavan, Vice President
1. This is an appeal of the assessee challenging as erroneous the order dated July 26, 2004, of the Commissioner of Income-tax(Central), Hyderabad, cancelling the registration granted to the assessee under Section 12AA of the Income Tax Act, 1961.
2.1 Facts of the case, as gathered from the record, are briefly THESE:
2.2 The Appellant-assessee, Sri Chaitanya Educational Committee(SCEC), is a Society registered (No. 26/87) with the Registrar of Societies, Machilipatnam, Krishna district, Andhra Pradesh, under the Societies Registration Act, 1860. It is engaged in academic: field. It was formed with Shri Boppana Satyanarayana Rao as the President and his wife Smt. Boppana Jhansi Lakshmi Bai, as the Secretary. Other members of the Society consist of their close relatives like daughters Ms. Sushmasree and Ms. Seema and brother Shri B. Rajendra Prasad. It was formed with various objects, more specifically set out in the trust deed dated 26,1.1987, and noted in para 1.2 of the impugned order dated 26.7.2004 of the Commissioner. The assessee Society had applied for registration under Section 12A of the Income Tax Act, 1961 on 9.1.1992 and it was granted Registration by letter H.qrs.No. III/69/91-92 dated 14.8.1992 by the Commissioner of Income-tax, Visakhapatnam. The assessee-Society has been filing returns 'of incomes showing details of fees and collections and expenditure of all the colleges run by it. The assessee has claimed exemption under Section 10(22) of the Act till the assessment years 1998-99, and from 1999-2000 onwards it has been claiming the benefit of exemption under Section 11 and 12 of the Act. Assessments were completed under Section 143(3) of the Act for the assessment years 1993-94 to 1996-97. The Department seems to have accepted the claim of the assessee that its income is exempt under Section 10(22) of the Act.
2.3. Income tax authorities seem to have carried out search and seizure operations under Section 132 of the Act on 2.7.2002 on the assessee and seized cash, FDRs and other material. On going through the materials gathered during the course of search, the Commissioner(Central) found that there have been several instances of violation of the provisions of Section 11 to 13 of the Income-tax Act, 1961. He accordingly issued a show-cause notice on 15.11.2003 to the assessee, calling for its explanation within ten days from the receipt thereof, in the face of various instances of violation and also proposing to cancel the registration granted under Section 12A of the Act.
2.4. By its letter dated 4.2.2004, the assessee-society, besides referring to the explanations offered to the Assessing Officer in quantum proceedings with reference to various violations pointed out, reiterated that it is undisputedly running educational institutions and imparting education to students. Besides thus defending itself against the proposed action of cancellation of the registration granted to it, the assessee also questioned the legality of the action proposed and the authority of the Commissioner to cancel the registration, once granted to it. Relyjng on the decision of the Delhi Bench of the Tribunal in Kailash Anand Mission Trust v. ACIT 88 ITD 125, it was further contended before the Commissioner that the power to cancel the registration was conferred on the Commissioner by the insertion of Section 12AA of the Act, only with effect from 1.10.2004.
2.5. On careful consideration of the matter, the Commissioner for the reasons detailed at great length in his order impugned before this Tribunal, did not accept the explanations offered or objections raised by the assessee, and consequently cancelled the registration granted under Section 12A of the Act. Hence, the instant appeal by the assessee before us.
3.1 The learned Counsel for the assessee submitted in brief THAT:
3.2 The learned Commissioner of Income Tax(Central) erred in cancelling the registration granted to the assessee-Society under Section 12A of the Income Tax Act. He has assumed power which is not vested in him by the Income Tax Act in cancelling the registration granted under Section 12A of the Act. He has erred in concluding that the assessee is not pursuing the objects for which it was established, as in fact the assessee-society has established colleges and has been imparting Intermediate education to students, and the colleges run by the assessee are recognised by the Government of Andhra Pradesh. The findings of the Commissioner that the assessee is not pursuing the objects for which it was established, and that it is running only coaching centers for courses like EAMCET, IIT-JEE entrance, etc., are incorrect. The provisions of General Clauses Act are applicable only to the orders issued in terms of delegated/subordinate legislation and not to judicial or quasi-judicial orders, and as such those provisions have no application to an order in the nature of quasi-judicial ones, passed under the Income-tax Act. Under the provisions of Section 12AA of the Income Tax Act, as amended by the Finance(No. 2)Act, 2004, the Commissioner has power to cancel the registration granted under Section 12A of the Act, with effect from only 1.10.2004. The Commissioner has not referred to the full text of the notes on clauses forming part of the Finance Bill(No. 2) 2004, but has referred to only a selective potion thereof in a pick and choose manner. A perusal of the totality thereof clearly indicates that prior to the above amendment to the provisions of Section 12AA, there was no power vested in the Commissioner to cancel the registration once granted.
3.3 In the instant case, since the Commissioner has cancelled the registration under Section 12AA of the Act by his impugned order dated 26.7.2004, i.e. much prior to the amendment noted above, it is bad in law and illegal, and, therefore, liable to be cancelled. The observations of the Commissioner that prior to insertion of Section 12AA with effect from 1.4.1997 the CIT was not in a position to examine the activities of the trust, is not correct, as on the application of the assessee to the Commissioner of Income-tax, Visakhapatnam, the then Commissioner passed under Section 12A the order dated 14.8.1992 granting registration, only after following due procedure and only after calling for necessary records, documents and information and after carrying on necessary enquiries as well as on satisfying himself about the genuineness of the activities of the assessee. The reliance of the learned Commissioner on Section 21 of the General Clauses Act is also misplaced, as if applies only to such orders which are issued by way of delegated/subordinate legislation and which can be equated with notifications, rules or bye-laws, which are procedural in nature and the applicability of those provisions do not extend to judicial or quasi judicial orders, as the one impugned in the instant case. Cancellation of registration granted under Section 12A of the Act by the impugned order amounts to review of the earlier order, which is not permissible in law.
3.4 In support of the above contentions reliance is placed on a number of decisions, and a paper-book containing copies of copious decisions together with index-cum-digest of the propositions laid down therein, running into 204 pages has been filed by the assessee before us. Some of the decisions relied on by the learned Counsel for the assessee are the following-
(1) Kailashanand Mission Trust v. ACIT (2004) 88 ITD 125-Del.
(2) Namra Mahila Avam Bal Kalyan Samiti v. CIT (2004) 89 TTJ(Jab)780 (3) M.P. Madhyam v. JCIT (2004)89 TTJ(Ind)770 (4) Aditanar Educational Institution etc. v. Addl. CIT (5) Victoria Technical Institute v. Addl. CIT (6) Bachchu Lal and Anr. v. The State (7) The Bulion and Agricultural Produce Exchange (Pvt) Ltd., Agra v. Forward Markets Commission, Bombay (8) Jagdish Prasad Pradhan v. District Board, Farrukhabad (9) Institution of Civil Engineers v. Inland Revenue Commissioner 1931 All England Report 454 (10) Inland Revenue Commissioners v. Yorkshire Agricultural Society 1927 All England Report 536 (11) Patel Narshi Thakershi and Ors. v. Pradyumansinghji Arjunsinghji (12) State of Madhya Pradesh (Now Maharashtra) v. Haji Hasan Dada (13) S.J.S. Fernandes v. V. Ranganayakulu Chetty (14) Mahalaxmi Motors Limited v. Dy. CIT 2004 (2) ALD(NOC) 115 (15) CIT v. Hyderabad Race Club Charitable Trust 2003 (6) ALD(NOC) 177 (16) CIT v. Bhawani Prasad Girdhari Lal and Co.
(17) Kanrmarlapudi lakshiminarayana Chetty and Ors. v. First Addl. Income Tax Officer, Nellore AIR 1957 AP 159 (18) CIT v. Jagabandhu Roul .
(19) East India Hotels Ltd. and Anr. v. C.R. Shekhar Reddy and Anr.
(20) Uppala Peda Venkataramanaiah v. First Addl. ITO, Visakhapatnam (1964) III (Short Notes of Current Cases)2 (21) Harlal v. Lala Prasad AIR 1931 Nagpur 138 (22) R. Kapilanath (dead) through L/Rs v. Krishna (23) Munnalal Lachhiram v. Manakchand AIR 1950 Madhya Bharat 119 (24) Madhya Pradesh State Road Transport Corporation v. The State Transport Appellate Tribunal (25) J.P. Jani, ITO v. Induprasad Devshanker Bhatt (26) In re: Lingareddy Venkatareddy and Ors. AIR 1956 Andhra 24 (27) Y. Arul Nadar v. The Authorised Officer, Land Reforms, Thanjavur (28) Maharaja Chintamani Saran Nath Shahdeo v. State of Bihar and Ors.
(29) Director of Income Tax v. Bharat Diamond Bourse (30) Garikapati Veeraya v. N. Subbiah Coudhry (31) The Sales Tax Officer v. Oriental Coal Corporation, Moradabad (32) Baburam v. C.C. Jacob and Ors.
(33) Mst. Fazi v. Mohammad Bhat AIR 1979 J&K 69 (34) Govinddas v. ITO (35) Agastyar Trust v. Commissioner & Secretary to Government Revenue Department and Anr.
(36) St. Don Bosco Educational Society v. CIT (2004) 84 TTJ (Lucknow) 805: 90 ITD 477 (37) CIT v. Mohan Meakin Breweries Ltd. 192 ITR 134-HP (38) Vijayalakshmamma and Anr. v. B.T. Shankar (2004) 4 SCC 558) (39) S. Sundaram Pillai v. V.R. Pattabiraman (40) Mahabir Prasad v. District Magistrate, Kanpur (41) Board of High School and Intermediate Education, UP, Allahabad v. Ghanshuyam Das Gupta (42) Gadde Venkateshwara Rao v. Government of Andhra Pradesh (43) Land Acquisition Officer-cum-DSWO, AP v. B.V. Reddy and Sons (44) State of Andhra Pradesh v. S.M.K. Parasurama Gurukul (45) CIT Lucknow v. U.P. Forest Corporation (46) Shyam Sunder and Ors. v. Ram Kumar and Anr.
(47) Province of Bombay v. Khushaldas S. Advani (48) Board of Revenue, U.P., Allahabad v. Sardarni Vidyawati (49) State of Bihar v. D.N. Ganguly and Ors.
(50) Gharurul Hasan and Ors. v. State of Rajasthan
4.1 On the other hand, the learned Standing Counsel of the Revenue, for and on behalf of the DR-CIT, to say in brief, by defending the order impugned, countered THAT:
4.2 In spite of several specified objects, the assessee was merely content with running certain colleges and hostels on commercial lines. The only activity of the assessee was to train/coach students to appear for competitive entrance examinations such as IIT-JEE, as also entrance examination for medical and engineering courses in the State of Andhra Pradesh. Except running certain coaching centres and hostels for the intermediate colleges, the assessee, as noted by the Commissioner, did not devote its attention for fulfillment of any other stated objects and it did never open or run orphanages, care homes, balwadis and night schools for adult education to remove illiteracy, as per the objects specified in the trust deed. Running of a private coaching institute for the purpose of training the students to appear at some specified examinations upon taking specified sum from the trainees, would not enable the assessee to claim its activities to be of charitable nature. The availability of the exemption should be evaluated each year to find out whether the institutions existed during the relevant year solely for the educational purposes and not for purposes of profit, and the decisive or acid test is as to whether the object of the society is not to make profit. In the instant case, as noted at length by the Commissioner in the impugned order, several instances have come to light in the course of search indicating the following-
(a) There was diversion of the committee's funds for non-charitable objects;
(b) The trustees have used the trust funds for the personal benefits of the trustees;
(c) Several payments were made from undisclosed sources outside the books of accounts of the trust which proves handling of monetary transactions outside the books of accounts;
(d) There were unaccounted fee collections which were not recorded in the books of accounts;
(e) There were unaccounted investments which were not recorded in the books of accounts and as such were acquired from undisclosed sources.
4.3 Examination of the papers and documents seized during the course of search operations conducted under Section 132 of the Act has brought to light plethora of instances where the funds of the assessee were diverted for personal use and benefit of trustees and their relatives as defined in Explanation -1 to Section 13. These violations of the provisions of Section 10(22) and Section 13, as noted by the CIT, in a nut shell in para -6 of the impugned order at pages .4 and 5 thereof, are as follows-
(i) Income and funds of the trust(SCEC) were diverted, used and applied for personal expenses ranging from petty items like cinema tickets, train tickets, cold drinks, rice consumption in house etc. to major items like foreign education and marriage expenses of the daughters of Dr.B.S. Rao, and Dr. Jhansi Lakshmi Bai.
(ii) Floating numerous bank accounts in the names of daughters, employees, relatives, benamies, in which huge amounts of funds of SCEC were diverted and subsequently withdrawn for personal use of Dr. B.S. Rao/Dr. Jhansi Lakshmi. Bai and their family members.
(iii) Dr. B.S. Rao and Dr. Jhansi Lakshmi Bai floated a company Sri Chaitanya Infosystem Co. Ltd. (SCIL) for doing business in software and call centre. They have got substantial interest in the company within the meaning of Explanation 3 to Section 13 inasmuch as they hold almost 100% equity shares in the company. Huge amount of funds of SCEC were diverted to the aforesaid company' for meeting various day-to-day and other expenses of SCIL. In fact, the company SCIL was set up and run on a day to day basis with the money of SCEC. The diversion of the funds was without adequate security or compensation.
(iv) The income and funds of SCEC were diverted for acquisition of assets like land etc. in the names of Dr. B.S. Rao, Dr. Jhansi Lakshmi Bai, their two daughters and also in benami names.
(v) A Mercedes Benz car was purchased with the funds of SCEC and made available for personal use of Shri Ch. Srinivas, husband of Smt. Seema and son-in-law of Dr. B.S. Rao and Dr. Jhansi Lakshmi Bai.
(vi) Mr. B. Rajendra Prasad, brother of Dr. B.S. Rao, is proprietor of Classic Financial Services. Funds of SCEC were diverted to the aforesaid concern. Dr. B. Rajendra Prasad is a trustee in SCEC.
4.4 The Commissioner by way of illustration, noted at length certain instances of violations of the above nature financial year-wise, in para-8 of the impugned order at pages 5 to 9. In para-9 of the impugned order, at pages 9 to 15 thereof, he extracted relevant portions of the statements of Smt. B. Jhansi Laxmi Bai, one of the Directors of the Committee, recorded on 1.11.2002 and 2.11.2002, at the time of search and of Shri B.S. Rao, President of the appellant-society recorded on 19.11.2002. Those statements of Smt. B. Jhansi Laxmi Bai and Shri B.S. Rao amply testified the willful, continuous and conspicuous gross violation of the provisions of Section 13 of the Income-tax Act, by blatantly misusing the fund of the trust for personal benefits of the trustees and their near and dear. While even a single instance of misutilization of the trust fund would be sufficient to deny the benefit provided under Section 11 and 12 of the Income Tax Act, the personal profit motive in running the educational institutions is unerringly visible in the instant case.
4.5. In so far as the legal objections of the assessee are concerned, registration under Section 12A is always granted with a specific condition that the said registration does not ipso facto exempt the income under Section 11 and that it is for the assessing officer to satisfy that the conditions stipulated under Section 11 and 13 are not violated. The registration granted should not override the powers of the assessing officer in deciding the exemption under Section 11 and that may become the starting point for examining the activities of the assessee, leading to the detection of violations which make the assessee ineligible for the benefit. Even otherwise, as observed by the CIT in the impugned order, well prior to the amendment of the provisions of Section 12AA too, the CIT enjoyed the powers of cancellation of registration, in terms of the provisions of Section 21 of the General Clauses Act, 1897. This position is also clear from the notes on clauses forming part of Finance (No. 2) Bill, 2004, which specifically noted that although the power of cancellation of registration flows from the power to register, the same has not been specifically provided in the Income -tax Act thereby leading to unnecessary litigation. Accordingly, the Commissioner was justified in passing the impugned order to cancel the registration in exercise of the powers that were always available with him.
4.6. Besides distinguishing the case-laws relied upon by the assesses, the learned Standing Counsel for the Revenue, In support of the above contentions, placed reliance on the decisions following-
(a) Bihar Institute of Mining & Mining Surveying v. CIT 208 ITR 608-Patna
(b) Agappa Child Centre v. CIT 226 ITR 211-Ker.
(c)Action for Welfare and Awakening in Rural Environment(AWARE) v. DCIT 263 ITR 13-AP
(d) NTR Estate v. CIT 157 ITR 285-AP
(e) S. Gopal Reddy v. CIT 181 ITR 378-AP
(f) Fifth Generation Education Society v. CIT 185 ITR 634-AII
(g)
(h) Aligarh Muslim University and Ors. v. Mansoor Ali Khan 2000 7 SCC 529
(i) Madhya Pradesh Madhyam v. CIT 256 ITR 277-MP
(j) Motichand Jain v. S.M. Jaikumar and Ors. (2004) 1 ALD 250(FB))-AP
(k) Rajendra Kumar v. Kalyan (Dead) by LRs @ 107 paras 14 to 16 and @ 109 paras 18 to 19.
5. The learned Counsel for the assessee, in his rejoinder, distinguished the case-laws relied upon by the Revenue and submitted that the impugned order of the CIT is illegal and invalid as well as liable to be cancelled, without even going into the merits of the matter, besides also distinguishing that the ratio laid down by the Hon'ble A.P. High Court in the case of Motichand Jain v. M. Jaikumar 2004 1 ALD 250 AP rendered by Full Bench of three judges, relied upon by the Revenue, has been overruled by a Larger Bench of five judges in the case of Vallabhaneni Lakshmana Swamy and Anr. v. Valluru Basavaiah and Ors. 2004(5) ALD 807(LB)-AP, copy of which is also filed before us.
6. Further, both the parties before us, to strengthen their stand respectively for and against, have also referred to the following provisions of law, including under different enactments, which are detailed below-
Provision of law Marginal Note Section 2(7A) of the Income Tax Act Definitions - 'Assessing Officer' Section 12AA of the Income Tax Act Procedure for registration Section 12AA(3) w.e.f. 1.10.2004 inserted by Finance (No. 2) Act, 2004 for cancelling registration Section 120 of the Income Tax Act Jurisdiction of income-tax authorities Section 136 of the Income Tax Act Proceedings, before Income Tax Authorities to be judicial proceedings Section 254(2A) of the Income Tax Act Orders of Appellate Tribunal Section 21 of General Clauses Act Power to issue, to include to add to, amend, vary or rescind notifications, orders, rules or bye-laws Section 11 of Civil Procedure Code Res judicata Order 47 Rule 1 Application for review of judgment Civil Procedure Code
7.1 Rival submissions heard and relevant records perused, including the order impugned and the provisions of law and case-laws relied upon by both sides. After doing so, we are of the considered opinion that the stand of the assessee has substantial force than the defence of the Revenue particularly on the preliminary point for the reasons following:
7.1.A At the out set, we may note that this appeal against the order of the CIT dated 26.7.2004 has been instituted by the assessee on 24.9.2004, as per the order sheet entry of the Registry of the Tribunal dated 14.3.2005. No stay petition has been filed by the assessee before the Tribunal. Soon after the filing of the appeal before the Tribunal, assessee filed with the Registry of the Tribunal a petition to have early hearing of the appeal but before the Tribunal could get the comment of the Department that was asked for in this regard, prematurely a Writ Petition was parallelly filed by the assessee unnecessarily burdening the Constitutional Authority of Hon'ble High Court of Andhra Pradesh, against the CIT(Central) and the ACIT(Circle-V) both respondents at Hyderabad, though the Tribunal has not rejected the early hearing prayed for. The Hon'ble High Court by its Oral Order dated 30th March, 2005 in the said W.P. No. 6753 of 2005, has directed as follows-
The only grievance made in this Writ Petition is that the petitioner tiled an appeal before the Income Tax Appellate Tribunal against the order passed by the 1st respondent-Commissioner of Income Tax, Hyderabad, dated 26.07.2004, and the same is pending. In the meanwhile, he is resorted to coercive steps, and therefore, he seeks appropriate direction.
2. After hearing the learned Counsel for the petitioner and the learned standing counsel, we find it appropriate to direct the Income Tax Appellate Tribunal to dispose of the appeal filed by the petitioner within three weeks from the date of receipt of a copy of this order. Till such time, the respondents shall not resort to any coercive steps.
3. With the direction indicated above, the Writ Petition is disposed of. No costs.
7.1.B The above order of the Hon'ble A.P. High Court giving directions to this Tribunal, which is not a party to the Writ proceedings, was received by the Registry of this Tribunal on 8.4.2005 alongwith the letter of the assessee dated 6.4.2005. Thereupon, in compliance with the order of the Hon'ble High Court, the case was posted for hearing immediately on 13.4.2005, in spite of finalization of cause list and framing of constitution of that week already. On that date, peculiarly at the request of the assessee's counsel, filing his vakalat on that date, the case was adjourned to 20.4.2005, which was not objected to by the Revenue, to be heard as the first case of that date, as announced in the open court itself, which has been duly noted by the learned Counsel for the assessee and for the Revenue as well! On 20.4.2005 the Department strangely requested this time for adjournment on the ground that the Senior Standing Counsel would appear on behalf of the Department(!), but the Bench refused adjournment in view of the Hon'ble High Court's order. However, a petition for adjournment was offered to be filed by the assessee too which was filed bearing the same date of 20.4.2005 which will be relevant to extract hereinbelow-
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Before the Hon'ble Income Tax Appellate Tribunal
'B' Bench, HYDERABAD
I.T.A. No. 887/H/04
Sri Chaltanya Educational Committee .... Appellant
v.
The Commissioner of Income Tax .... Respondent
Petition Filed Seeking Adjournment:
It is submitted the above matter was posted for hearing to-day I.e. 20-04-2005. The counsel appearing for the appellant is engaged before the Hon'ble High Court and due to the work pressure, the appellant Is requesting to adjourn the matter to some other date. The Summer Vacation holidays to the Hon'ble High Court is from 30-04-2005. In view of the Summer Vacation there is heavy work pressure on the counsel and therefore we are requesting the Hon'ble Tribunal to adjourn the matter either to 25-04-2005 or In the 1st week of May, 2005.
Date. 20/4/2005 Sd/-
Counsel for Appellant
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Thus, at the request of both the parties(!), the Bench was forced to adjourn the case to 21.4.2005 as first case, at the same time making it clear that no further adjournment would be granted to either or both the parties in view of the directions of the Hon'ble High Court. On 21.4.2005, surprisingly, the learned Departmental Representative(CIT) again requested in writing for adjournment(!) on the ground that the Standing Counsel could not come and would be ready only on 25.4.2005. The DR(CIT)'s letter in that respect is extracted below-
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Office of the Departmental Representative(CIT) Income Tax Appellate Tribunal, Hyderabad.
ITA No. 887/H/04/DR ITAT/03-04 Dated: 21 -04-2005To The Assistant Registrar, Income Tax Appellate tribunal, Hyderabad.
Sir, Sub:-Appeals before ITAT B-Bench, Hyderabad-
ITA No. 887/H/04 in the case of Sri ChaitanyaEducational Committee, Poranki, Voijayawada-
Regarding.
******* The appeal in the above case is posted for hearing before the Hon'ble B-Bench ITAT, Hyderabad on 20-04-2005.
2. The Sr. Standing Counsel Sri S.R. ASHOK who is to argue the case on behalf of the department was prepared to argue the case on *25-04-2005. However, the counsel for the assessee preferred the case to be heard on **26th April. Therefore it is requested that the case may be posted for hearing either on 25th or 26th April, 2005.
3. This letter of request may kindly put up before Hon'ble Members for their kind consideration.
Yours faithfully, Sd/-
(Y.R. RAO) Departmental Representative(CIT) Income Tax Appellate Tribunal Hyderabad.
1. Copy to the assessee.
* Wrongly mentioned in the letter as 21.04.2005.
**Wrongly mentioned in the letter as 25th April
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Thus, the learned Counsel for the assesses submitted that his case before the Hon'ble High Court posted for that day would come up on 25.4.2005. Ultimately, both the parties agreed to argue the matter on 26.4.2005, to which date the case finally got adjourned, the Tribunal making it again clear that no more adjournment would be granted in the matter in view of the Hon'ble High Court's directions. On 26.4.2005, the matter was heard upto some length and was adjourned to 3.5.2005, under the circumstances following-
For continuance of this case, AR prayed not to have this week and desired to have in next week. Standing Counsel expressed his busy-ness in the HC on the eve of summer vacation and in spite of difficulty he could manage to appear this week. AR-field petition to have the case continued in first week of May due to his heavy pressure of work on the summer vacation eve before HC. He also undertook to file a memo before HC as the case was directed to be disposed off within three weeks i.e. before this week end, as pointed out by the Bench in the open court. Departmental Representative raised no objection to this. To this effect Assessee's petition with endorsement of no objection by the Depf. has also been field by the AR. Under these circumstances and with the condition imposed above to file memo before HC this part heard case is adjourned as such to 03.05.05 as a first case in the cause list. Pronounced in the open Court.
(Emphasis supplied) On 3.5.2005, the learned Departmental Representative-CIT again requested in writing for adjournment(!) to the next day for the Standing Counsel to come and argue submitting that he was engaged in the Vacation Bench of the High Court in a very important matter on 3.5.2005. However, the learned Counsel for the assesses was heard in completion and the case was again adjourned as requested by the Department(!) to 4.5.2005 for the Department to counter. While so countering on 4.5.2005, certain written arguments were sought to be filed on behalf of the Department very shortly thereafter and leave was granted, but it proved to be only an endless wait even until this day, since 5.5.2005 when the case was finally concluded in hearing both the parties.
7.1.C To inform that, as advised by the Tribunal, the assessee could not on account of summer vacation file an application before the Hon'ble High Court seeking enlargement of time prescribed by it having got already expired at the request of adjournments by both parties simultaneously and also alternatively, the above sequence of events in the matter of hearing before the Tribunal has been summarized by the learned Counsel in his petition dated 4.5.2005, in the following words-
It is submitted that the Honourable High Court in W.P. No. 6753/05 vide orders dated 04.04,2005 directed to dispose off the appeal within three weeks and the said order was submitted to this Honourable Tribunal on 08.04,.2005 and this Honourable Tribunal posted the matter to 13.04.22005 for hearing. On that day the arguments were not completed and due to the preoccupation and pressure of the work, the appellant's counsel requested this Honourable Tribunal for adjournment and this Honourable Tribunal adjourned the matter to 20.04.2005. On 20.04,.2005 the appellant's counsel again sought adjourned either to 25-04.2005 or in the 1st week of May 2005 due to the pressure of work on the last working days before summer vacation, but this Honourable Tribunal posted the matter to 21.04.2005 and later to 24-04-2005. On 26-04-2005, the matter was heard in part and the Honourable Tribunal adjourned the matter to 03.05-2005 on the request made by the respondent's counsel. On 03-05-2005, the respondent filed a memo seeking adjournment to 04-05-2005 and this Honourable Tribunal after hearing the arguments of the appellant's counsel, adjourned the matter to 04-05-2005, for which the appellant counsel represented that he has no objection to adjourn the matter 04-05-2005. The delay is due to the requests made by the counsels of the parties and not this Honourabele Tribunal.
The Honourable Tribunal advised the counsel of the appellant to file an application before the Honourable High Court for enhancement of the time fixed by the Honourable High Court but the appellant could not file the application In view of the summer vacation. Hence this memo.
7.1.D These sequence of events are narrated at length only to point out the inconsistencies in the stand of the assessee as to the so called urgent need for the disposal of appeal(!), on the one hand approaching the Hon'ble High Court for appropriate directions for early disposal of the appeal by the Tribunal, and on the other hand contributing handsomely to the delay in the disposal of the appeal by praying for adjournment EVEN BEYOND the dead-line date prescribed by the Hon'ble High Court 7.1.E Not to lag behind, the Department too adopted conflicting stands with regard to the so called urgency in the matter of disposal of appeal, on the one hand for the delay in the disposal of this appeal, not only by seeking adjournments during the course of hearing, but also thereafter, on the one hand, putting the Tribunal on wait for its written submissions promised to be filed at the time of conclusion of arguments on 5.5.2005 which are alluding even todate and on the other hand seeking early disposal of the appeal on the ground that high stakes are involved! A letter dated 19.10.2005 addressed to the Assistant Registrar of this Tribunal written by one Shri K. Hariprasada Rao, Addl. CIT, Central Range-2, Hyderabad, is worthwhile, for showing more the indifference of the parties, to be extracted below-
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No. CR-2/Chaitanya/05-06 Office of the Additional Commissioner of Income-Tax Central Range-2, Hyderabad.
Dated 19/10/2005 To The Assistant Registrar, Income Tax Appellate Tribunal, Shapoorwadl, Adarshnagar, HYDERABAD Sir, Sub:- Request to release the order in the case of Sri Chaitanya Educational Committee (ITA No. 887/H/2004)-Reg.
As directed by the Hon'ble High Court of Andhra Pradesh, the case was heard on 20-4-2005; 26-4-2005; 3-5-2005 & 5-5-2005 by the Hon'ble ITAT 'B' Bench, Hyderabad in the above mentioned case. Till now the orders are not received by this office. As heavy demand of Rs. 54.46-crores is locked up and the Department is not able to pursue collection because of the Hon'ble Court's order, it is requested that the Hon'ble Tribunal may release the order sin the above case at the earliest.
Yours faithfully, Sd/-
(K. HARIPRASADA RAO) Addl. Commissioner of Income-tax, Central Range-2, Hyderabad.
Copy submitted to director General of Income-tax(lnv), Hyderabad for kind information.
Copy submitted to the Commissioner of Income-tax(Central), Hyderabad, for kind information.
Copy to the Departmental Representative, ITAT, Hyderabad, for information.
We deprecate the above said letter, for its tone and tenor by observing that Shri K. Hariprasada Rao has no locus standi to intervene, as he is neither a party to this proceedings nor a Departmental Representative who appeared, assisted or/and presented this case before this Tribunal. Neither could the said Addl. CIT or any body interfere as this, when the case is sub judice, nor is the Tribunal subordinate to him or the Department which is only a litigant as one of the parties before this Tribunal. Such letter and endorsement of its copies to various authorities high sounding to him mentioned above therein, gives impression to us that an attempt is made either to threaten this Tribunal treating it like an assessee before the Department, or belittle the image of the Tribunal in the minds of those authorities. That apart, neither any stay has been granted by this Tribunal, much less any Stay Petition has been filed before this Tribunal, nor any stay could arise in this appeal as no demand could be made by the Department since the subject matter of appeal is only validity of cancellation of registration. If at all, the concerned Departmental Representative(CIT) or the assessee's representative or either or both the concerned parties to this proceedings could have moved an application directly before this Tribunal or for being mentioned, if still there could be any valid urgency to expedite. While so, not even a whisper in this regard has been made until this day by anybody including the concerned Departmental Representative(CIT), who is yet to file his promised papers containing salient features of Departmental stand] We, however, take a lenient view over the Addl. CIT in the matter, duly acknowledging his innocence exhibited by him having got ourselves experienced also in his earlier representations when he was a Departmental Representative before us in his erstwhile posting in this Tribunal, and further advising him in his interest that the said letter writer of the, Department realizes his folly at least now so as not to interfere and wrongly commit floccinaucinihilipilification as this at least hitherafter in any judicial proceeding including before any forum higher than him.
7.1 .F Assessee claims the coercive steps taken by the Department for recovery of huge stakes as the reason for the urgency of the disposal of this appeal which appears to have prompted it to approach the Hon'ble High Court within months of institution of the appeal without even awaiting the response of the Tribunal to the request of the assessee for early hearing. The Department also points out the very same high stakes involved and heavy demand of Rs. 54.46-crores locked up as the reason for the urgency of the disposal of the appeal.
7.1.G We are constrained to observe at this juncture that though high stakes involved is queerly the reason for the early disposal of this appeal as emphasised by the parties, actually no demand arises out of the CIT's order dated 26.7.2004 impugned in the instant case, which is merely an order cancelling the registration of the assessee, and the alleged orders involving stakes as high as 'heavy demand of Rs. 54.46-crores' as put by the Revenue, are not impugned in this appeal. This is also self-evident from the very fact that this appeal stated to be involving heavy stakes has been instituted on payment of appeal fee of Rs. 500 only, which is the barest minimum against the maximum of Rs. 10,000 payable on assessed income of Rs. 10,00,000 and above. From the pleadings of the parties from the stage of institution of this appeal to its conclusion in different stages not only before the Tribunal but also even before the Hon'ble High Court, it is clear that the parties have been in the guise of such so called high stakes and coercive steps, indulging in acts of misleading not only each other by alleged coercive steps of the Department and consequent directions against the Department appearing to have been erroneously obtained by the assessee from the Hon'ble High Court, but also the Hon'ble High Court and this Tribunal, pressing for urgent disposal of appeal, against the order of the CIT that has not given rise to any demand of even a single paise (!) filed barely an year back, while many appeals filed years back are awaiting their turn even to be posted for hearing (!!) 7.1.H We are prompted to dwell at this length and make the above observations in this order on a 'no issue' on account of pressure sought to be brought upon us , as if this Tribunal has refused their requests, for early hearing and disposal of the appeal, in the guise of high stakes and coercive steps of the Department, initially by the assessee, and subsequently by the Department consequent upon the Hon'ble High Court's directions against the Department, though both sides have contributed to the delay in their own handsome measure! But, both the parties tend to ignore their own contributions to the delay in the disposal of the appeal, narrated above, to the height of even daring to make the Hon'ble High Court's order itself as infructuous, by their prayers of adjournment before the Tribunal exceeding the time limit prescribed by the Hon'ble High Court for disposal itself! 7.2.A Now let us turn to the merits of the appeal before us. As already noted above, considering the violations of the provisions of Section 10(22) and Section 13 stated to have been committed by the assessee and come to light on account of search and seizure operations under Section 132 conducted on the premises of the assessee, the Commissioner of Income Tax passed the impugned order dated 26.7.2004 cancelling the registration of the assessee by turning down the legal objection of the assessee and observing that though the provisions of Sub-section (3) of Section 12AA was inserted by the Finance (No. 2) Act, 2004, with effect from 1.10.2004 only, even prior to such insertion the power to withdraw or cancel the registration was always enjoyed by the Revenue authorities, or at least by retrospective operation of the same amendment and in terms of Section 21 of the General Clauses Act, 1897, the power to issue order for registration under Section 12AA of the Income Tax Act, includes the power to rescind the order. For this purpose, reliance was also placed on a portion of the "notes on clauses" forming part of Finance (No. 2) Bill, 2004, which we have already mentioned hereinabove and extracted in para 7.3.B herein.
7.2.B. In this appeal, therefore, two issues arise for consideration before us. They are-
(a) Whether the CIT as on 26.7.2004 has the power to cancel the registration?
(b) If so, whether the violations of the provisions of Section 10(22) and Section 13 stated to have come to light as a result of search operations conducted under Section 132 of the Act, warrant cancellation of registration of the assessee?
7.2.C As for the first issue, with regard to the legality and validity of the order dated 26.7.2004, the contentions of the Revenue with reference to the legal objections of the assessee on the competence of the Commissioner to cancel the registration by the impugned order, are two pronged i.e.
a) The provisions of Sub-section (3) of Section 12AA inserted by the Finance Act, 2004 with effect from 1.10.2004 are merely procedural and come to the rescue of the Department in validating the impugned order dated 26.7.2004 by retrospective operation of the amendment;
and
(b)Secondly, even prior to insertion of Sub-section (3) of Section 12AA, whether the power to cancel the registration always existed, though it was specifically so provided by amendment with effect from 1.10.2004 only;
7.3.A Interpretation of statutes postulates the search for the true meaning of words used in the statute. If the language in the statute is plain, obvious meaning is to be applied. Rules of interpretation are applied only to resolve ambiguities. When two interpretations are possible, the interpretation which favours the aggrieved should be preferred. The approach and purpose of interpretation is to ascertain mens legis, i.e. intention of the law as evidenced in the statute. The key to the opening of every law is the reason and spirit of law. While interpreting a statutory provision, a judge must first search the relevant facts, then arrive at the correct law and ultimately reach its core-soul. Justice Bernard Botin has said that law will never be entirely clear to any judge just as a beautiful woman is always a bit of mystery to her lover! Were it otherwise, each would lose part of her charm. But the wise judge, like the wise lover, will be the master of his true love, although he may not understand her completely and though she is at times too difficult for him! There is no possibility of mistaking noon for midnight, but at what precise moment twilight becomes darkness is difficult to determine. Words in any language are not scientific symbols conveying any precise or definite meaning. Language has an imperfect meaning to convey one's thought. That is why in England, people preferred unwritten law (lex non-scripfa) to written law (lex scripta). The fundamental rule of law is that no statute shall be construed to have a retrospective operation unless such construction appears very clearly in the terms of the Act. Words are used in the statute as a medium of expression. A particular thought is communicated through words. When language is misunderstood even in ordinary conversation, the person who has spoken the words can only and shall alone be approached for. clarification. Legislature cannot be approached because it becomes functus officio after the enactment of an Act. It is, therefore, left to the judiciary to make proper interpolation of the language used in the statute. The famous Jurist Rt. Hon'ble Lord Denning, Master of the Rolls, said, "we do not sit here to pull the language of the Parliament to pieces and make non-sense of it. That is an easy thing to do. We sit here to find out the intention of Parliament and carry it out. We do better by filling in the gaps and making sense of the enactment than by opening to destructive analysis." Viscount Simonds called it "a naked usurpation of the legislative function under the thin guise of interpretation'. We wish therefore to follow the aforesaid principles in their true sense, letter and spirit. When the language in a statute is transparent and plain, it is wrong to give it colour according to the temper and time. When the language employed by the enactment is clear, there is no question of interpreting the provisions in any manner, except by giving them their plain and obvious meaning. Nebulous concept of the legislative intent cannot be used to curtail the explicit provisions in a statute. When the meaning of the word is plain, it is not the duty of the Court to busy itself with supposed intention. There is no scope for importing into the statute the words which are not there Casys Omissus cannot be supplied by the court except in the case of absolute necessity and when reason for it, is found in the four corners of the statute itself, since the function of the court is only to expound and not to expand i.e. legislate. On the other hand, it is the duty of the court to construe a provision of law in such a way as to carry out and effectuate to the fullest extent, the intention of law (sentetia Legis) legislated by Parliament or legislature irrespective of consequences. The language of a statute must be understood in the sense it was understood when it was enacted, and that is what we are following and doing in the instant case in the succeeding paragraphs, so as to maintain fiat justitia i.e. let justice be done.
7.3.B Now, the first contention of the Revenue based on the ground that the amendment is only procedural, we do not find merit in the same, for the reason that cancellation of registration is a substantive power to be exercised by the competent authority in furtherance of a statutory power following due process of law. At this juncture, we may extract below the explanatory notes on clauses forming part of Finance (No. 2) Bill, 2002, to the extent relevant for the purpose as below:
Power to the Commissioner for cancelling registration under Sections 12AA Under the existing provisions of Section 12AA the procedure for registration of a trust or institution by the Commissioner of Income-tax is provided. Although the power of cancellation of registration flows from the power to register, the same has not been specifically provided in the IT Act thereby leading to unnecessary litigation.
It is proposed to provide that if the Commissioner of Income tax is satisfied that the activities of any trust or institution are not genuine or are not being carried out in accordance with the objects of the trust or institution, he shall, after giving reasonable opportunity of being heard to the concerned trust or institution, pass an order in writing cancelling the registration granted under the said section.
The proposed amendment will take effect from 1st October 2004.
(Emphasis supplied) The amendment in question has vested in the Commissioner a new judicial/quasi-judicial power of cancelling the registration. So, what is aimed at by the amendment is not a change in procedure envisaged in Section 12AA dealing with the grant of registration but conferment of an additional power under that section for cancellation of registration granted earlier duly following the provisions set out in the amendment itself. Such an amendment cannot be termed as a mere procedural one, so as to be retrospective and applicable to all pending matters, but has to be deemed to be a substantive one effective only from the date specified in the Act itself.
7.3.C In this context, we may refer to the decision of Hon'ble Kerala High Court in the case of N.T. John v. CIT 228 ITR 314 (Ker) wherein considering the question whether Section 158BA contained in Chapter XIVB is retrospective or prospective in operation, Hon'ble Kerala High Court held as per relevant portion of the head note (at pp 314-315) as under-
Normally, a change in the law of procedure operates retrospectively. In the case of Chapter XIVB, there was no change of procedure, but a special procedure was provided. Section 158BA would not apply in a case where a search was initiated under Section 132 before June 30, 1995. In that view, it cannot be said that Chapter XIVB has retrospective operation.
7.3.D Similarly, in the case of Jayalakshmi Leasing Co. In re (228 ITR 1(AT)) the Special Bench of the IT Settlement Commission, examining the jurisdiction to admit and deal with applications in respect of cases of block periods arising under Chapter XIVB of the Income-tax Act, on the interpretation of statutory provisions observed, vide relevant portion of the head note on pages 2 and 3, as follows-
...The failure to specifically bar the application of Chapter XIX-A to proceedings under Chapter XIVB could be taken to indicate a legislative intent not to exclude the provisions of Chapter XIX-A to block assessment proceedings. Section 158BH would also support this view. The conclusion that a later enactment repeals an earlier enactment Is to be resorted to only If the two enactments are so inconsistent with or repugnant to each other that they cannot stand together. The Act must be construed as it stands today and a harmonious construction of all the provisions In the Act is called for in this context. Any construction which renders any provision of the Act nugatory and defeats the object of that provision must, if it is possible, be avoided. Even if two views were possible it would be preferable to adopt the view which will allow the applicability of the "simplified procedure laid down in Chapter XIX-A to all assessees including assessees falling within the ambit of Chapter XIV-B, than the truncated view denying the benefits of this procedure, when in fact there is no express specific provision in this regard and express permission can be read from Section 158BH.
7.3.E Similarly, the Apex Court in K.M. Sharma v. ITO 254 ITR 772-SC examining the retrospective or otherwise nature of the amendment to the provisions of 5.150(1) with effect from 1st April, 1989, held as per head note(773-774) as under-
Held, reversing the decision of the High Court, that the provisions of Section 150(1) as amended with effect from April 1, 1989, did not enable the authorities to reopen assessments which had become final due to the bar of limitation prior to April 1, 1989, and this position was equally applicable to limitation proposed on the basis of order passed under the Income Tax Act or under any other law.
The provision of a fiscal statute, more particularly, one regulating the period of limitation, must receive a strict construction. The law of limitation is intended to give certainty and finality to legal proceedings and to avoid exposure to risk of litigation of litigants for an indefinite period on future unforeseen events. Proceedings which had attained finality under existing law due to bar of limitation cannot be held to be open for revival unless the amended provision is clearly given retrospective operation so as to allow upsetting of proceedings which had already concluded and attained finality.
A taxing provision Imposing liability is governed by the normal presumption that It Is not retrospective and the settled principle of law Is that the law to be applied Is that which Is In force in the assessment year unless otherwise provided expressly or by necessary Implication. Even a procedural provision cannot, In the absence of clear contrary intendment expressed therein be given greater retrospectivity than Is expressly mentioned so as to enable the authorities to affect finality of tax assessments or to reopen liabilities which have become barred by lapse of time.
(Emphasis supplied) In the light of the observations of the Apex Court underlined above, the law that applies to the impugned proceeding's taken up by the Commissioner for withdrawing the registration benefit to the assessee, is the one in force at the relevant point of time, i.e. from the period immediately prior to initiation of those proceedings to the date of passing of the impugned order, i.e. 26.7.2004, and not the amended provisions of Section 12AA which came into effect only from 1.10.2004 in the absence of any express or implied indication in the amended provisions imputing retrospective operation to the same.
7.3.F We may also refer to the decision of Apex Court in CIT v. Dhadi Sahu 199 ITR 610-SC, wherein considering the effect of amendment to the provisions of Section 274(2) by the Taxation Laws(Amendment)Act, 1970 with effect from April 1, 1971, the Apex Court vide relevant portion of the head-note on pages 611-612 of the Report (199 ITR) held as follows-
The general principle is that a law which brings about a change In the forum does not affect pending actions unless an Intention to the contrary is clearly shown. One of the modes by which such an intention Is shown is by making a provision for change over of proceedings from the court or the Tribunal where they are pending to the court or tribunal which under the new law gets jurisdiction to try them.
It Is also true that no litigant has any vested right in the matter of procedural law; but where the question Is of change of forum, it ceases to be a question of procedure only. The forum of appeal or proceedings is a vested right as opposed to pure procedure to be followed before a particular forum. The right becomes vested when the proceedings are initiated in the tribunal or court of first Instance and unless the Legislature has, by express words or by necessary implication, clearly so indicated, that vested right will continue In spite of the change of jurisdiction of the different tribunals or forums.
7.3.G We may now refer to the decision of the Apex Court in National Agricultural Co-operative Marketing Federation of India Ltd. and Another(260 ITR 548)-SC, wherein the court was concerned with the nature of amendment made to the provisions of Section 80P(2)(a)(iii). Facts before the Apex Court in that case are that Section 80P(2)(a)(iii)'of the Income Tax Act, 1961 as originally inserted provided that in the case of a Co-operative Society engaged in (iii) the marketing of the agricultural produce of its members" the whole of the amount of profits and gains of business attributable to such activity would be deducted from the gross total income. The Supreme Court in Assam Co-operative Apex Marketing Society Ltd. v. CIT 201 ITR 338 rendered under the corresponding earlier proviso, Section 81, held that the phrase "produce of its members" must refer to agricultural produce actually "produced by its members." In a later decision, Kerala State Co-operative Marketing Federation Ltd. (231 ITR 814), a larger Bench of the Supreme Court overruled the decision in the case of Assam Cooperative Apex Marketing Society Ltd. (supra) and held that the exemption under Section 80P(2)(a)(iii) was not restricted only to primary societies and that "produce of its members" in that provision had to be construed as including the "produce belonging to" a member-society. Immediately thereafter, in 1999 the provisions of Section 80P(2)(a)(iii) were amended by the Income-tax (Second Amendment) Act, 1998 (No. 11 of 1999) with retrospective effect from April 1, 1968, by substituting Sub-clause (iii) to read "the marketing of agricultural produce grown by its members". When the validity of the retrospective amendment to Section 80P(2)(a)(iii) is challenged, the Apex Court affirming the view taken by the High Court upholding the validity, held, vide relevant portion of head-note on page 550 of the Reports(260 ITR), as follows-
The legislative power either to Introduce enactments having retrospective effect for the first time or to amend an enacted law with retrospective effect is not only subject to the question of competence but Is also subject to several judicially recognized limitations. The first Is the requirement that the words used must expressly provide for or clearly imply retrospective operation. The second Is that the retrospectively must be reasonable and not excessive or harsh, otherwise It runs the risk of being struck down as unconstitutional. The third is where the legislation is introduced to overcome a judicial decision, here the power cannot be used to subvert the decision without removing the statutory basis of the decision.
(Emphasis supplied) In the instant case, the very first condition, i.e. 'the words must expressly provide for or clearly imply retrospective operation', is not fulfilled, inasmuch as the provisions of Section 12AA confer the power on the CIT to withdraw the registration already granted, only from 1.10.2004 by the Finance (No. 2)Bill, 2004, those powers having not been either expressly or impliedly conferred with retrospective operation.
7.3.H We may now refer to the decision of the Madras High Court in CIT v. Pooshya Exports P. Ltd. 262 ITR 417-Mad. wherein examining the issue with regard to retrospective or otherwise nature of the . amendment in Section 80HHC by Finance (No. 2)Act, 1991, Hon'ble Madras High Court held, as per relevant portion of the head-note on p.417, as follows-
If a provision is Introduced with a view to confer a benefit, which had not been conferred before such introduction, even though the provision to which the amendment was incorporated is a beneficial provision, that does not necessarily imply that the amendment is to be given retrospective effect even without a declaration to that effect from the legislature. Where the Intention of the Legislature is clearly conveyed and wherever the language is clear the intention of the legislature is to be gathered from the language used. A construction' which requires for Its support, addition of substitution of words or which results In rejection of words has to be avoided. The court is to pronounce the judgment and not to make law.
(Emphasis supplied) In the instant case there is a pronouncement by the legislature itself that the amendment is effective from 1.10.2004. Therefore, in view of the ratio of the Madras High Court noted above, there cannot be retrospectivity against the intention of the legislature.
7.3:1 Similarly, in the case of M.G. Pictures(Madras)Ltd. v. ACIT 263 ITRT 83-Mad, examining the issue with regard to retrospective or otherwise nature of the amendment to Section 40A(3) restricting disallowance with effect from 1.4.1996, Hon'ble Madras High Court held, as per relevant portion of the head-note on p.83, as follows-
An amendment must have in its language something pointing towards its retrospectivity. In order to hold a statute retrospective, it should be specifically so provided. In order to hold the provision to be having retrospective operation, it would have to be shown that it is of a procedural nature.
(Emphasis supplied) On the procedural or substantive nature of the provision under consideration in that case, the High Court held as per relevant portion of head note as follows-
Held:
(ii)That It was clear from the language of Section 40A(3) that the language did not in any manner suggest retrospecitivity. Considering the tense used in the section, the amendment was prospective. The amendment limiting the discretion of the assessing authorities and creating a right on the assessee to plead for the remaining eighty per cent, expenditure as allowable expenditure could not be viewed as a mere procedural provision. It would have to be held as a provision dealing with substantive right of the assessee. Thus, the amended provision was not of retrospective nature. The Tribunal was right In holding that the amended provision was only prospective.
In the instant case, the provisions of Section 12AA conferring the Commissioner with the power to withdraw the registration granted earlier, and laying down a specific procedure for that purpose is clearly a substantive provision, and cannot be said to be a mere procedural one, and in the absence of specific provision in the statute providing for retrospective operation, the provision of Section 12AA cannot have retrospective effect.
7.3.J Now we may refer to the decision of Hon'ble Karnataka High Court in Kardicoppal Estate v. State of Karnataka and Anr. 266 ITR 20-Kar., wherein interpreting retrospective amendment made to Section 15 of the Karnataka Agricultural Income-tax Act, 1957, brought about subsequent to the decision of that Court in Ashok Plantation v. Asstt. Commissioner of Commercial Taxes, the High Court held that the retrospective amendment is invalid. In that case, the Court noted that in Ashok Plantation, the High Court did not point out any lacuna and, on the other hand, the court only noticed both the provisions and interpreted the law as it stood then, in the light of the judgment of the Apex court in CIT v. Kulu Valley Transport Co. P. Ltd. 77 ITR 518 and held that retrospective amendment of a provision must not be only for the purpose of nullifying a judgment where there was no lacuna or defect pointed out in the parent Act. It was also observed that the retrospective amendment takes away the right given to the petitioner and that cannot be done in the guise of curing a non-existing lacuna by the respondents.
7.3.K Similarly, in the case of Gem Granites v. CIT 271 ITR 322 SC, the Apex Court, examining the retrospective or otherwise nature of the amendment to the provisions of Section 80HHC by the Finance Act, 1991, whereby the benefit of Section 80HHC has been extended to a specific kind of mineral, Apex Court held that every statute is prima facie prospective unless it is expressly or by necessary implication made to have retrospective operation. It was also held therein that subsequent legislation may be looked into to fix the proper interpretation to be put on the statutory provision as it stood earlier. In this case, the Hon'ble Apex Court has also approved the view taken by the Hon'ble Madras High Court in CIT v. Pooshya Exports P. Ltd. 262 ITR 417-Mad.
7.3.L Further in the case of CIT v. New Rajasthan Trading Co. 271 ITR 51 l-Raj., on the retrospectivity of proviso inserted in Section 272A(2) by Finance (No. 2)Act, 1991 with effect from 1.10:1991, the Hon'ble Rajasthan High Court held that The proviso Inserted by the Finance (No. 2)Act, 1991 with effect from October 1, 1991, to Section 272A(2) of the Income-tax Act, 1961, has not been given retrospective effect. In the absence of any retrospective effect to such provisions, this proviso cannot have any impact with regard to any default relating to the assessment year 1989-90 requiring the assessee to file the return on or before April 30, 1989, for the period ending on March 31, 1989. No law can have retrospective effect unless It Is so provided specifically by the law Itself.
(Emphasis supplied) 7.3.M In CWT v. B.R. Theatres and Industrial Concerns P. Ltd. 272 ITR 177-Mad. examining the retrospective or otherwise nature of Amendment of Section 40 of Finance Act, 1983 by Finance Act, 1988, for purposes of Wealth Tax Act, the Hon'ble Madras High Court held-
The test to be applied for deciding as to whether a later amendment should be given retrospective effect, despite a legislative declaration specifying a prospective date as the date from which the amendment is to come into force, Is as to whether without the aid of the subsequent amendment, he unamended provision is capable of being so construed as to take within its ambit the subsequent amendment. The exclusion of stock in trade from the ambit of levy of wealth-tax on assets of closely held companies in Section 40(3) of the Finance Act, 1983 could not per se be regarded as an "obvious omission" nor is giving It Immunity from the levy of wealth-tax necessary for reasonably interpreting the unamended provision. The amendment effected to Section 40 of the Finance Act, 1983, by the Finance Act, 1988, exempting stock-in-trade is only prospective and not retrospective.
(Emphasis supplied) 7.3.N Further, in Gujarat Ambuja Cements Ltd. and Anr. v. Union of India and Anr. 274 ITR 194-SC legislative powers to remove infirmities in earlier legislation and to make retrospective amendment were examined. As per the relevant portion of the head note, the court observed that the decision of the Hon'ble Supreme Court in Laghu Udyog Bharati v. Union of India was solely on the basis that there was conflict between each of Sections 65, 66, 68(1A) and 71 of the Finance Act, 1994, as amended in 1997 on the one had and Clauses (xii) and (xviii) of Rule 2(1)(d) of the Service Tax Rules, 1994, on the other. There was no question of Parliament overruling the decision of the Supreme Court by passing Finance Act, 2000, and the Finance Act, 2003, to amend the provisions retrospectively. It was held in that context that a Legislature is competent to remove infirmities retrospectively and make any imposition of tax declared invalid, valid.
7.3.O In the case of Kanmarlapudi Lakshminarayand Chetty (AIR 1957 AP 159) relied upon by the assessee before us, Hon'ble A.P. High Court examining the retrospective or otherwise nature of the amendment to the income Tax Act, by way of insertion of Sub-section (5), to Section 35 by the Income Tax (Amendment) Act, 1953, observed that the said Sub-section (5) is not declaratory of a pre-existing law but it clearly affects vested rights which have accrued to the assessee, and as such the well-settled rule of construction precludes the Court from construing the section as retrospective. It was held in that case that a statute affecting vested rights is prima facie prospective unless the statute expressly or by necessary Implication-indicates to the contrary. Even where it is retrospective in operation, the Courts should confine its operation only to the extent the language renders it necessary.
7.3.P Further, in the case of Uppala Peda Venkataramanaiah (1964 Lll ITR -Short Notes of Current Cases- 2) relied upon by the assessee, examining the retrospective or otherwise nature of the provisions of Section 155 of the Income Tax Act, 1961, Hon'ble Andhra Pradesh High Court held as follows-
(ii) that In the absence of express words or necessary Implication to the contrary a statute which was not purely procedural had only prospective and not retrospective operation: Section 155 of the Income tax Act, 1961 had only prospective operation.
(iii) that as the appellate orders were passed before the coming Into force of the Income tax Act, 1961. the statutory provisions which were In force at the time when the appellate orders were passed governed those rectification proceedings and the Act of 1961 did not in any manner destroy the rights and privileges acquired under these statutory provisions or the liabilities Incurred thereunder;;
(Emphasis supplied) 7.3.Q Similarly, in the case of Harlal v. Lala Prasad AIR 1931 Nagpur 138 relied upon by the assessee, the then Hon'ble Nagpur High Court examining the retrospective or otherwise nature of the amendment made to the Transfer of Property Act, observed as under-
Unless an Intention to the contrary Is clear, an Act Is to be construed as operating only on coses or facts which come into existence offer the Act, and not retrospectively on cases or facts which had come Into existence before the Act.
(Emphasis supplied) 7.3.R Further in the case of Madhya Pradesh State Road Transport Corporation (AIR 1993 MP 95), relied upon by the assessee, considering retrospective or otherwise nature of amendment made to Motor Vehicles Act, .1988, Hon'ble Madhya Pradesh High Court held as follows-
Vested or substantive rights cannot be taken away by an enactment which is ex facie or by Implication not retrospective. Before giving a construction of retrospectivity to an Act of Parliament one would require that It should either appear very clearly in the terms of the Act or arise by necessary and distinct Interpretation, and perhaps no rule of construction Is more firmly established than this -that a retrospective operation is not to be given to a statute so as to impair an existing right or obligation otherwise than as regards matter of procedure, unless that effect cannot be avoided without doing violence to the language of the enactment. if the enactment is expressed In language which Is fairly capable of either Interpretation it ought to be construed as prospective only.
(Emphasis supplied) 7.3.S Further, in the case of J.P Jani v. Induprasad Devshankar Bhatt relied upon by the assessee Hon'ble Supreme Court, examining the scope of Section 297(2)(d)(ii) of the new Act, i.e. Income-tax Act, 1961, held as follows-
On a proper construction of Section 297(2)(d)(ii) of the New Act, the Income Tax Officer cannot issue a notice under Section 148 in order to reopen the assessment of an assessee in a case where the right to reopen the assessment was barred under the old Act at the date when the new Act came Into force.
The principle is based on the well-known rule of interpretation that unless the terms of the statute expressly so provide or unless there Is a necessary Implication, retrospective operations should not be given to the statute so as to affect, alter or destroy any right already acquired or to revive any remedy already lost by elflux of time.
(Emphasis supplied) 7.3.T Further, in the case of Y. Arul Nadar (AIR 1990 Madras 33), relied upon by the assessee, considering retrospective of otherwise nature of an amendment made to the statute, Hon'ble Madras High Court held as follows-
The general rule Is when an amendment is introduced in the statute governing the case already pending, the rights and obligations of parties should be decided only according to the law, which existed when the action was begun, unless a clear contrary Intention Is evident In the Amending Act. There could not be Imputation of retrospective operation to an Amending Act and that could be done only by the Amending Act either expressly or by necessary implication. In the Instant case the Amending Act has Indicated that the amendments introduced shall have only prospective operation and pending proceedings should continue as If the Amending Act had not been passed.
(Emphasis supplied) 7.3.U Similarly in the case of Maharaja Chintamani Saran Nath Sahdeo(), relied upon by the assessee, considering retrospective or otherwise nature of amendment made to Bihar Land Reforms Act, Hon'ble Apex Court held that the amending provision restricting compensation to three times of net income has no retrospective application as amendment affects substantive right. It was also held that substituted legislation cannot be said to have retrospective operation as Golden Rule of construction applies even to a substituted legislation and a substituted legislation cannot be held to be retrospective in the absence of any thing in the enactment to show that it is to have retrospective operation. It is apt to extract hereunder the comments of the Apex Court with regard to the power of the Board of Revenue-
But in the Act, authorities and their powers have been specified and we do not find any provision which vests power on the Board of Revenue, so we have to proceed on the assumption that the Board of Revenue has no power.
In the instant case too, the provisions of Section 12AA, as they stood at the relevant point of time merely conferred with the power to grant or refuse to grant registration and did not vest the Commissioner with the power to cancel the registration. That being so, in view of the ratio decidendi of the above decision, one has to assume that the CIT at the relevant point of time did not have power to cancel the registration.
7.3.V Similarly in the case of Sales Tax Officer v. Oriental Coal Corporation , relied upon by the assessee, considering retrospective or otherwise nature of a provision in the amending Act, the Hon'ble Supreme Court observed that where the statute thus, on its face, clearly indicates retrospective effect where intended, there can be no justification to read retrospectivity into the amendment made by Clause (a) of Section 6 of the amending Act which does not contain any word to that effect.
7.3.W Further, in the case of Govinddas and Ors. , relied upon by the assessee, the Hon'ble Summit Court examining retrospective or otherwise nature of the provisions of Section 171(6), held that unless the terms of a statute expressly so provide or necessarily require it, retrospective operation should not be given to a statute so as to take away or imply an existing right or create a new obligation or impose a new liability otherwise than as regards matters of procedure.
7.3.X In the case of Agastyar Trust , relied upon by the assessee, Hon'ble Supreme Court, considering the assessee's claim for exemption under T.N. Urban Land Tax Act, 1966 on the basis of recognition by a subsequent order of the ITAT of the assessee as a public Charitable Trust under Section 12A(a) of the Income Tax Act, 1961, it was held as follows-
Since the order recognizing the appellant Trust as a charitable trust under Section 12-A(a) of the Income Tax Act was passed on 29.4.1977 by ITAT, the appellant could not claim the benefit of that order as the exemption of the land from payment of urban land tax was claimed only for the period 1965 to 1976. The said order could not be given retrospective effect.
(Emphasis supplied) 7.3.Y This Hyderabad Bench of the Tribunal in the case of A.P. State Civil Supplies Corporation Ltd. v. DCIT 83 ITD 398 had occasion to consider the applicability of the amended provisions of Section 254(2A) inserted by the Finance Act, 2001 with effect from 1.6.2001, to the matters where stay had already been granted prior to that date. After discussing at length the case-law on the point in the light of KJ. Aiyer's Judicial Dictionary (8th Edition 1980 at page 836); commentaries by Sampath lyengar on Law of Income-tax, Eighth Edition (revised by Hon'ble Supreme Court Justice Mr. S. Ranganathan) Vol.1 at page 57 under Section 138 with the head note 'Retroactive Legislation' and Chatuvedi & Pithisaria's 'Income-tax Law' Fourth Edition, 1990 Vol. 1 at page 239, the Tribunal concluded that no retrospectivity could be read into those amended provisions. Relevant portion of the head-note of the said decision reads as under-
Sub-sections (2A) and (2B1 have been Inserted by the Finance Act, 1999 with effect from 1.6.1999 and the provisos to the aforesaid section were Inserted by the Finance Act, 2001 with effect from 1.6.2001. Nowhere In the language employed In the aforesaid section, particularly in the said Sub-section (2A) and especially In the footnote provided whereunder, the word 'retrospectively' has been couched by the Parliament. It simply states "provisos Inserted by the Finance Act, 2001 with effect from 1.6.2001". One cannot appreciate the stand of the department that the said provisos are Inserted by the Finance Act, 2001 with effect from 1.6.2001 retrospectively. One cannot read the language as it the word retrospectively has been introduced Into it as Interpreted by the department when It had not been done so by the Parliament.
In the Instant case, where stay had been granted by the Tribunal already. i.e. prior to 1.6.2001, I.e. the date of coming Into force of the aforesaid amendment by Inserting the poviso to Section 254(2A). right had accrued In favour of the assessee and against the department by virtue of the Tribunal's order staving recovery proceedings on the assessee for collection of the demand in dispute. Such a right accrued to the assessee by virtue of the Tribunal's order coming Into effect, could get Impaired If the proviso to Section 254(2A1 is read as retrospective when It has been actually not effectuated so but only with effect from 1.6.2001 by the Finance Act. 2001. If at all, the said Insertion of the proviso might be applicable only to stay petition which had been filed prior to the said date of 1.6.2001 but which has not Come up for hearing until the said date of 1.6.2001, but In the Instant stay petitions except for the assessment year 1997-98, orders had been passed by the Tribunal very much prior to the date of 1.6.2001. As the concerned proviso Inserted by the Amendment Act was not retrospective but only prospective with effect from 1.6.2001 as spelt out by the Amendment Act Itself, the stay already granted by the Tribunal on various dates prior to 1.6.2001 would hold good and continue to be in force pending disposal of the relevant appeals out of which the stay petitions had arisen....
(Emphasis supplied) The ratio decidendi of the above decision squarely applies to the facts of the present case wherein the Revenue seeks to press into service the provisions of Sub-section (3) of Section 12AA brought on to the statute book with effect from 1.10.2004, to give life to the order of the CIT dated 26.7.2004 impugned in this appeal.
7.3.Z In view of the foregoing discussion and considering the ratio decidendi laid down in the case-laws not only cited before us, but also others being fortifying our view taken in the light of the judicial precedents cited before us, the first contention of the Revenue based on the retrospective nature of the amendment to the provisions of Section 12AA, though came into statute book with effect from 1.10.2004, is liable to be rejected.
7.4.A As for the existence of power in the Commissioner to cancel the registration once granted, even prior to amendment of the provisions of Section 12AA with effect from 1.10.2004, the contentions in brief are that the grant of registration is subject to fulfillment of specific conditions year after year, whenever there is breach in the fulfillment. of those conditions, the registration so granted can always be withdrawn/cancelled; the power to grant conferred by the statute also includes the power to withdraw and even the provisions of General Clauses Act come to the rescue of the Department in that behalf. We do not find merit even in these contentions of the Revenue for the reasons discussed hereunder;
7.4.B As on the date when the impugned order dated 26.7.2004 has been passed, there is no provision in the Income-tax Act, enabling the CIT to cancel the registration once granted. Such provision now is Sub-section (3) of Section 12AA, inserted by the Finance (No. 2) Act, 2004 with effect from 1.10.2004. As such, there is no legal sanctity for the impugned order dated 26.7.2004. We do not find merit in the contentions of the learned Standing Counsel for the Revenue, based on the provisions of Section 21 of the General Clauses Act, 1897, that even prior to insertion of Sub-section (3) of Section 12AA the CIT enjoyed the power of cancellation of registration in deserving cases. The question here is as to whether a quasi judicial order passed by a statutory authority can be said to be covered by the provisions of Section 21 of the General Clauses Act, which reads as follows-
21: Where by any Central Act or Regulation, a power to Issue notifications, orders, rules or bye-laws is conferred, then that power includes a power, exercisable In the like manner and subject to the like sanctions and conditions (if any) to add to, amend, vary or rescind any notifications, orders, rules or bye-laws so issued.
Just as a man is known by the company he keeps, so is a word known in the company of its words. In other words, a word is expected to be interpreted with reference to its accompanying words. This is the principle enshrined in the doctrine of ejusdem generis, the broader version of which is noscifur a sociius, i.e. the meaning of a doubtful word may be ascertained by reference to the meaning of words associated with it. Applying the said principle, as pointed out by the learned Counsel for the assessee, therefore, we have to hold that the said provision of General Clauses Act apply to such orders which can be equated with notifications, rules or bye-laws, which are procedural in nature, and not to orders which are passed in quasi-judicial or judicial proceedings.
7.4.C It is worthwhile to refer to the decision of the Tribunal in the case of Kailashanand Mission Trust (88 ITD 125), relied upon by the assessee, wherein the Delhi Bench had occasion to examine the. power of CIT to review or rescind/withdraw the registration granted under Section 12A. Examining similar arguments advanced on the basis of the provisions of General Clauses Act, the Tribunal, observed, as per head-note below-
The perusal of Section 21 of General Clauses Act shows that the word 'orders' is coupled with other words "notifications, rules and bye laws". The word 'order' is of widest amplitude and would include all kinds of orders including administrative order, judicial orders and legislative orders. It is not clear whether the word 'order' was used by the legislature in widest sense or in restricted sense. Therefore, to resolve such issue, the Courts/Tribunals have resorted to the rules of interpretation. In such cases, rule of noscifur a sociis is applied. If the aforesaid principle Is applied to the provision of Section 21 of GCA, the word 'orders' would not Include judicial or quasi-judicial orders. This word is associated with the words 'notification, rules and bye-laws'. So. the word 'order' should be construed In the context in which the associated words are used. Associated words are In the nature of subordinate legislation. Therefore, the word 'order' contemplated in this section would be restricted to such orders which are issued by way of delegated/subordinate legislation. In view of the above discussion. It Is held that Section 21 of G.C. Act would include only those orders which are In the nature of subordinate legislation and would not Include other orders particularly judicial or quasi judicial orders. Consequently, the order of CIT passed under Section 12A in 1974 could not be rescinded/withdrawn by the Impugned order by virtue of Section 21 of GCA....
(Emphasis supplied) 7.4.D In the case of Bachchu Lal and Anr. v. The State , considering the scope of the provisions of Section 21 of the General Clauses Act and its applicability to judicial orders, the Hon'ble Allahabad High Court held as follows-
The words 'notifications, orders, rules or bye-laws' have no reference to judicial orders the passing and cancellation whereof is subject to and regulated by the procedural law of the land. Obviously, the words, 'notifications, orders, rules and bye laws' with which the expression 'orders' is associated must be deemed to limit the scope of the word 'orders' to non-judicial orders.
(Emphasis supplied) 7.4.E Similarly, considering the applicability of provisions of Section 21 of the General Clauses Act to Forward Contract (Regulation) Act, 1952, the Hon'ble Allahabad High Court in the case Bullion and Agricultural Produce Exchange (Pvt.) Ltd. (AIR 1979 All 332) held as follows-
...In our opinion. Section 21 of the General Clauses Act may not apply in as much as that section does not obviously confer a power of review on an authority exercising judicial or quasi-judicial power. Judicial or quasi-judicial authorities can review their order only if such power is specifically provided for.
(Emphasis supplied) 7.4.F Similarly, interpreting the provisions of Section 21 of the U.P. General Clauses Act in the context of an order passed under U.P. District Boards Act, the Hon'ble Allahabad High Court in the case of Jagdish Prasad Pradhan (AIR 1966 All 26) as per the relevant portion of the head note, held as follows-
The State Government acts as a tribunal with quasi judicial powers and it will have no power to rescind, modify or review its decision once taken, unless it Is provided by the statute.
A power of review Is not Inherent In a Court or tribunal but has to be conferred by statute AIR 1964 All 148(151) Ref.-(Para-12) The word 'order' In Section 21 of the U.P. General Clauses Act, refers to executive orders or subordinate judicial orders, the passing and cancellation whereof is subject to and regulated by procedural laws. The word Is not capable of being Interpreted as Including judicial or quasi judicial orders since the word is associated with notifications, rules and bye-laws.... (Para-13) (Emphasis supplied) 7.4.G In the case of Kailashanand Trust(85 ITD 125), the Delhi Bench of the Tribunal concluded that the Commissioner had no power to rescind/withdraw the registration granted in the absence of specific power conferred in that behalf, with the following observations-
...Hence, the Impugned order was without jurisdiction. If the legislature had Intended so. It could have easily conferred powers of cancellation to the CIT under Section 12A. In the absence of such enactment, by Implication, the CIT has no power to cancel registration granted earlier. The reason Is obvious as the legislature has specifically granted power to den V exemption under Section 11 on year to year basis If there Is any contravention of the provision of Section 11 or 13. If under given facts of the case, the funds of the trust are being misused, the Assessing Officer is fully equipped with the power to deny exemption to such trust. But registration, once granted cannot be cancelled by the CIT in the absence of any specific power.
(Emphasis supplied) The above decision of the Delhi Bench of the Tribunal, which followed several decisions including the decisions of Allahabad High Court in CIT v. Bhawani Prasad Girdhari Lal & Co., of the Madras High Court in Fernandes v. Ranganayakule and of the Apex Court in P.N. Thakershi v. Pradyumansinghji, also cited before us and noted above, squarely applies to the facts of the present case and from the ratio of that decision, it is very much clear that prior to insertion of Sub-section (3) to Section 12AA with effect from 1.10.1004, there was no power conferred on the Commissioner to review/rescind the registration. The above decision brings forth the fact that a different mechanism was in operation prior to insertion Sub-section (3) to Section 12AA, to check contravention of the provisions of Section 11 or 13 or misuse of funds as the Assessing Officer was fully equipped with the power to deny exemption to such trust on year to year basis. That being so, the amendment to the provisions of Section 12AA by insertion of Sub-section (3) has brought a change in the mechanism to. check misuse of funds or contraventions to the provisions of Section 11 or 13, with effect from 1.10.2004.
7.4.H Reiterating the ratio laid down in the above decision, it was also held by the Jabalpur Bench of the Tribunal in Namra Mahila Avam Bal Kalyan Samiti ((2004) 89 TTJ (Jab) 780), relied upon by the assessee that CIT is not empowered to withdraw registration already granted under Section 12A.
7.4.1 Similarly, in the case of M.P. Madhyam (2004) 89 TTJ (Ind) 770)), Indore Bench of the Tribunal made a comparison between the provisions of Section 12A and 12AA and concluded that those provisions are not meant for withdrawal or cancellation of registration already granted. The observations of the Tribunal as per relevant portion of the head-note are as follows-
A careful perusal of the provisions of Sections 12A and 12AA shows that these provisions are meant for conditions and procedure for registration and not for withdrawal or cancellation of registration already granted on earlier occasion. Admittedly, no application for registration was pending before the CIT to allow or deny the same as per Initial requirement of the provisions laid down In these two sections. At the same time, granting of registration was earlier a prima facie act of the authority under Section 12A. The benefit of the principle of promissory estoppel, however, cannot be denied to the assessee who had been enjoying the registration for the last so many years under the same facts and circumstances unless there is a breach of condition laid down for granting registration in specific term.
(Emphasis supplied) 7.4.J Similarly, examining the scope of the powers of the Commissioner, while granting registration, to verify as to whether assessee-trust or institution is carrying on such activities, which may prima facie indicate that he is entitled to get benefit under Section 11/13, the Lucknow Bench . of the Tribunal in the case of St. Don Bosco Educational Society v. CIT 90 ITD 477 held as follows-
...Here the scope of the powers of the CIT is confined toe examine the genuineness of the activities of the trust or institution and to examine the object of the trust or institution. Once the CIT has not doubted the genuineness of the activities of the assessee society nor doubted the object. his powers end and he cannot be allowed to travel beyond it and to enter into the scope to find out as to whether assessee Is a charitable Institution or not or whether assessee is carrying on any activity which is covered under the definition of Section 2(15). It Is Assessing Officer who will be having exclusive Jurisdiction to examine this aspect of the matter when assessee will claim any tax benefit and then the observation of the CIT In the Impugned order may be relevant, but not at this stage.
(Emphasis supplied) 7.4.K The fact that the Commissioner does not have power to cancel the registration once granted is evident also from the subsequent amendment to the provisions of Section 12AA made by the Finance (No. 2) Act, 2004 with effect from 1.10.2004, whereby through insertion of Sub-section (3) specific power has been conferred on CIT to cancel the registration granted under Clause (b) of Sub-section (1). Both sides have relied on the explanatory notes on clauses forming part of Finance (No. 2) Bill, 2004 in support of their respective contentions in this behalf. We have already extracted the relevant portion of the said explanatory note at para 7.3.B of this order hereinabove. While the assessee relied on it to emphasise that it should be read in totality, such total reading evidences that the amendment in question was effective only from 1.10.2004. The relevant . portion of the explanatory note relied upon by the Revenue, though already extracted above, may be noted once again hereunder, as it is pressed into service to give life to the impugned order of the CIT-
Although, the power of cancellation of registration flows from the power to register, the same has not been specifically provided In the Income Tax Act thereby reading to unnecessary litigation.
(Emphasis supplied) 7.4.L In the above extract, we do not find any support to the contentions of the Revenue with regard to the power of the CIT to cancel the registration existing even prior to amendment to the provisions of Section 12AA with effect from 1.10.2004. The above explanatory note specifically notes that there was no specific provision in the Income Tax Act, and exercise of power of cancellation of registration flowing from the power to register has led to litigation. Whether the litigation was unnecessary or otherwise, as stated in the aforesaid note, it appears that a specific provision in the Income Tax Act has become necessary to overcome such litigation. The amendment brought about by insertion of Sub-section (3) to Section 12AA has contemplated a statutory procedure to be followed and a quasi judicial proceeding to be conducted for cancelling the registration once granted. Such procedure even if followed, and the quasi judicial proceeding even if conducted, as in the instant case, by the statutory authority constituted under the Income Tax Act, there can be no legal Sanctity for the order that ensues such proceeding, in the absence of a statutory power under that Act to do what is contemplated under that order. What is sought to be exercised by the impugned order is a substantive power to cancel the registration granted earlier, and it was sought to be exercised by a quasi-judicial authority. In the absence of specific provision in the statute under which that quasi judicial authority is constituted, i.e. the Income Tax Act, such a substantive power cannot be exercised. The principles of natural justice followed and the nature of proceedings conducted cannot lend legal sanctity to the action of the authority exercising such power, in the absence of specific provision in the statute conferring such power in that authority.
7.4.M As it may be noted here, even this power of cancellation, was only with regard to registration granted under Clause (b) of Sub-section (1) of Section 12AA. In the instant case, it is an undisputed fact, the registration to the assessee was grated under Section 12A by the CIT Visakahaptnam on 14.8.1992, based on the application of the assessee dated 9.1.1992 after calling for necessary records, documents and information and after carrying out necessary enquiries and satisfying himself about the genuineness of the activities of the assessee.
7.4.N In the light of the case-laws and the reasons already discussed above, there is equally no merit in the contention of the Revenue that the power to grant also vests in the authority competent to grant, with such power to withdraw or cancel. What is contemplated in the instant case is exercise of a substantive power by a statutory authority. Unless the statute itself confers such power duly specifying the procedure for the exercise of such power, the same cannot be exercised. The statute in this case has conferred such power with effect from 1.10.2004 only by insertion of Sub-section (3) to Section 12AA.
7.5.A The case-laws relied upon by the learned Standing Counsel for the Revenue are clearly distinguishable for the simple reason that the issue before us is confined to the question as to whether the CIT as on the date of the impugned order, i.e. 26.7.2004, was having power to cancel the registration granted to the assessee. For the detailed discussion made hereinabove, in the absence of specific power conferred under the provisions of Section 12AA as it stood on the relevant date, we have to hold that the Commissioner does not have such a power to cancel the registration under Section 12AA of the Income Tax Act or by virtue of the General Clauses Act, and the subsequent amendment made to the provisions of Section 12AA by insertion of Sub-section (3) thereunder specifically with effect from 1.10.2004 equally cannot come to the rescue of the Revenue. That being so, the case-laws relied upon by the Revenue are clearly distinguishable from the facts of the case on hand and accordingly cannot come to its aid.
7.5.B For instance, in the case of Madhya Pradesh Madhyam v. CIT 256 ITR 277, relied upon by the Revenue, the Hon'ble Madhya Pradesh High Court noted that it was simply a case of issuance of show-cause notice, against which it was open to the petitioner to file reply to the show cause against the proposed action before the Commissioner of Income-tax, Bhopal, As such, the High Court observed that it was not inclined to interfere at that stage of the proceedings. The ratio of that decision cannot hold good in the context of the facts and circumstances of the instant case, where the registration has in fact and indeed been cancelled by the Commissioner by the impugned order. It was also observed therein that the right to conduct the proceedings of cancellation in accordance with law cannot be denied to the respondent/Department. What is important in these observations of the High Court is 'the right to conduct the proceedings of cancellation in accordance with law'. When the statute has not conferred on the Commissioner prior to 1.10.2004 the power to cancel, the same cannot be exercised 'in accordance with law' even as per the said decision held by the Hon'ble Madhya Pradesh High Court. Even in this case of M.P. Madhyam, it appears, when the registration was ultimately cancelled by the Commissioner, the assessee carried the matter before the Tribunal. By its decision, extracted in para-7.4. hereinabove, the Tribunal quashed such order of cancellation passed by the Commissioner.
7.5.C Similarly, the Full Bench decision of the Hon'ble Andhra Pradesh High Court relied upon by the Revenue in the case of Motichand Jain v. M. Jaykumar holding that the amendment raising the pecuniary jurisdiction of the District Court to entertain the appeals from Rs. 30,000 to Rs. l-lakh is retrospective in nature and that therefore an appeal filed after the amendment Act came into force is maintainable only in District Court and not in the High Court, has been over-ruled, as submitted and relied upon by the assessee, in the case of Vallabhaneni Lakshmana Swamy v. Valluru Basavaiah , wherein the Larger Bench consisting of five learned judges, presided over by The Hon'ble The Chief Justice of the jurisdictional Andhra Pradesh High Court, specifically held that any appeal having been presented before the amended Act could come into force and appeals pending as on the said date are required to be disposed of, by the Courts wherever they were pending and that the amendment would not have any effect on pending appeals either presented or pending.
7.5.D Further one more instance is that the Revenue placed reliance on the decision of the Hon'ble Supreme Court in the case of Aligarh Muslim University v. Mansoor Ali Khan to bring in the theory of useless/idle formalities, and contended that even if the Department's stand is not accepted and the order impugned herein dated 26.7.2004 is quashed on the ground that as on that date the CIT does not have power under Section 12AA to cancel the registration once granted, considering the specific power conferred on the Commissioner by the amendment to that section with effect from 1.10.2004, registration of the assessee could be cancelled now again with retrospective effect invoking the amended provisions. As such, quashing of the order impugned, by the Tribunal in these proceedings, would give way to mere academic exercise by the Tribunal and. also useless/idle formalities of initiation of fresh proceedings to cancel the same again which, in the light of the ratio decidendi of the Hon'ble Supreme Court in the case of Aligarh Muslim University noted above, should be avoided, the Department highlighted. In our considered view, even such contentions of the Revenue do not hold water. As propounded by the Hon'ble Supreme Court in that case itself, the applicability of the aforesaid theory of useless formality may depend upon the facts of any particular case. That being so, that theory cannot have universal application, since it depends on facts and circumstances of each and every case. As for the facts and circumstances of the instant case, we have already expressed our view based on several case-laws that insertion of Sub-section (3) of Section 12AA does not have retrospective operation, and if we look at the position existing prior to the amendment made, especially when the substantive right of the party would be affected, and more so when it is not merely a matter of procedure as submitted by the Revenue, besides the fact that granting of exemption is done by the Assessing Officer on year to year basis being himself also fully equipped to reject such claim for exemption if the circumstances of any case so warrants, the theory of useless formality, propounded by the Hon'ble Supreme Court in the aforesaid case, has no field to play in the instant case. It may be that, even if we cancel the order impugned herein, the CIT might again be invoking the amended provisions of Section 12AA to cancel the registration of the assessee even for earlier periods. But, that cannot deter us from correctly judging the legality and validity of the order impugned herein. It is more so, because every time the CIT invokes a provision to exercise a power conferred on him under the statute, he is instituting a new quasi-judicial proceeding, which may give rise to further appellate proceedings, and the validity of his order passed in each proceeding has to be judged independently and judicially. That being so, even if the CIT again cancels the registration of the assessee retrospectively, legality, validity and the reasonableness of his order, including the permissibility of the retrospectivity, would have to be examined in the appellate proceedings, if instituted by the assessee.
7.6 In the light of the foregoing discussion, we find that the Commissioner has no power to cancel the registration, prior to insertion of Sub-section (3) of Section 12AA by the Finance Act, 2004 with effect from 1.10.2004 nor does the said amendment have any retrospective operation and as such the impugned order dated 26.7.2004 has no legal sanctity. We are fortified in this behalf by the following corroborative features that indicate the legal deficiencies in this case-
(a)The impugned order of the CIT dated 26.7.2004 bears the title 'Order of cancellation of Registration granted Under Section 12AA of the Income-tax Act, 1961'. Neither the registration in this case was granted earlier under Section 12AA as it was granted under Section 12A, nor is there any power conferred on the CIT by the statute under Section 12A to cancel the registration granted earlier, prior to 1.10.2004.
(b)The impugned proceedings have been initiated by the CIT(Central) and have been concluded by that very authority. The same does not arise out of any other proceedings, viz. assessment or other wise. Thus, the moot order, that has given rise to a cause of action for the assessee, is the impugned order of the CIT dated 26.7.2004. As such, in the impugned order, strangely, there is no endorsement of copies of such order to any one else than the assessee, though normally orders of the CIT or CIT(A) are marked to various authorities including the Assessing Officer. In the absence of these details in the endorsement, the Assessing Officer is not identifiable, resulting strangely in the CIT Central Hyderabad, himself being made Respondent in this appeal and the concerned Assessing Officer is not even impleaded as a party to this appeal even by the Revenue. Similarly, strange is the fact that there is no assessment year involved in these proceedings initiated by the CIT Central Hyderabad, as the matter apparently relates to cancellation of benefit of registration to the assessee in so far as concurrent or other proceedings that may be taken up for determining tax or penalty.
(c) In view of the above, though the impugned order of the CIT dated 26.7.2004 has been passed under Section 12AA after following due procedure and complying with the principles of natural justice to be observed in all quasi-judicial/judicial proceedings, the same has been passed to exercise a power that has not been conferred by Section 12AA viz. at the relevant point of time, i.e. to cancel the registration granted earlier, because such power was conferred under Section 12AA only by insertion of Sub-section (3) thereunder with effect from 1.10.2004, and prior to that date orders under Section 12AA could be either granting or refusing to grant registration, and it is only against the latter type of orders passed under Section 12AA, a first appeal before the Tribunal was provided by the statute by the Finance Act, 1999 with effect from 1.6.1999. That being so, questions do arise to contemplate even as to the maintainability of this appeal itself firstly because of appealability of the order cancelling registration and secondly because of misjoinder of parties. However, we are not inclined to make an excursion in those areas having not been identified by the Revenue before us in its arguments, more so, the Revenue itself having been at fault on its side on the first count for having exercised the power of cancellation of registration not vested with it by the statute as held supra and on the next count the CIT's order impugned itself having not left any clue as to the Assessing Officer by marking copies of the same to him or to any other authorities.
7.7 In view of the foregoing discussion and reasons, after duly and carefully considering the rival submissions of both the parties, and in the light of the ratio decidendi of the case-law relied upon and thrashed out hereinabove, we have no other alternative than to hold that the amended provisions of law have no retrospective operation and under the pre-amended provisions of law there is no power vested in the CIT to review or rescind the registration once granted, as a result of which the CIT does not or cannot have any power to cancel the registration granted by him as well as that Section 21 of the General Clauses Act is not applicable to the instant proceedings under Section 12AA being judicial/quasi-judicial in nature. In that view of the matter, on this legal ground itself, the order of the CIT impugned herein is liable to be cancelled. We therefore quash it accordingly.
7.8 In view of our finding on the legality and validity of the impugned order of the CIT on the first issue going in favour of the assessee, it has become redundant for us to go into the merits of the second issue relating to the justification for passing the impugned order in the light of the violations of the provisions of Section 10(22) and Section 13 stated to have been committed and come to light on account of the Department's search proceedings on the assessee. Thus, our hands are tied up by the legal hurdle for attempting to rescue the Department which we express with restraint.
8.1 Before parting with this case, wherein the assessee, in the guise of coercive steps by the Department, and the Department in the guise of high stakes involved, have pressed into service various measures some of which amount to not only misleading each other but also the Hon'ble High Court and this Tribunal, and exerting undue pressure on this Tribunal for securing release of the order with undue sense of urgency, which we have critically noted at length in the foregoing paras, for early hearing and speedy disposal of this appeal filed barely an year back, while several other much older matters are awaiting their turn in the record rooms of this Tribunal and High Court, we feel that it is the fittest case where costs should be awarded on either or both the parties, for their own individual contributions to the delay in the disposal of this appeal. However, taking a lenient view of the matter and considering the fact that latches prevailed on both the parties as revealed supra, and the Hon'ble High Court of Andhra Pradesh seems to be seized of connected matters, we would like to leave the question of awarding costs untouched as such.
8.2. At the same time, in this case, where the Department appears to have a stronger case on merits as made out at elaborate length by the CIT in the order impugned, while on the preliminary point of the presence or absence of a statutory power in the Commissioner to cancel the registration granted the assessee appears to have a stronger case, resulting in both sides strenuously arguing at length in their respective fields of strength to get the appeal clinched in their favour on the basis of their respective stronger points, we wish to place on record without hesitation that both the parties, before us have well exercised their talents to highlight their respective stand and also exhibited their zeal and efforts torrentially referring to copious case-laws and relevant provisions of different legislations too, apart from tax enactments, particularly the learned Standing Counsel on behalf of the Departmental Representative-CIT for the Revenue evincing his pleasant manners, good court-craft, while presenting the case of the Department in his own inimitable style with gift of the. gab, particularly withstanding our interruptions by arrows of relevant questions from the Bench whenever warranted and answered by him on his legs efficiently. Indeed it is the duty of the Bench to appreciate them when they deserve, while the Bench has also equally chosen to depreciate them for their own contributions to delay by their prayers of adjournment simultaneously or alternatively in spite of the High Court directions, non-filing until this day of relevant papers sought to be filed by the Department during or at least after hearing, and even more papers loosely filed during hearing without compilation or indexing or page numbering in such a heavy matter, consequently compounding our exercise, while care and attention have to be taken in our lengthy deliberations over each point and every case-law argued at length by both the parties.
9. In the result, the appeal of the assessee is allowed hereby.