Income tax authorities cannot impose conditions beyond the regime of the law while granting registration to charities: ITAT

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The Mumbai Bench of the Income Tax Appeal Tribunal (ITAT) ruled that the income tax authorities cannot impose additional conditions beyond the scheme of the law while granting registration to charities and trusts under section 12A of the Act of 1961 income tax.

The bench, consisting of Pramod Kumar (Vice Chairman) and Aby T Varkey (Judicial Member), held that the Commissioner of Income Tax (CIT) plays a limited role under Section 12AB(1) , while granting registration to the trust/institution under Section 12A, and the CIT cannot supplement the law by setting terms that are not part of the registration scheme provided by law.

The Commissioner of Income Tax (CIT) has passed an order authorizing the registration of Assessed Person – Bai Navajbai Tata Zoroastrian Girls School, under Section 12A of the Income Tax Act 1961 income, which provides for the registration of a charitable institution / trust. The CIT imposed conditions on the basis of which registration was granted to the assessee. The CIT, in its order, determined that the registration granted to the assessee, a charitable institution, would be subject to withdrawal if the assessee violated any of the conditions mentioned in said order.

Against this, the person evaluated filed an appeal with the ITA.

Assessed Bai Navajbai Tata Zoroastrian Girls School argued before the ITAT that there is no provision in the Income Tax Act that authorizes the CIT to grant conditional enrollment under Section 12A. The assessee added that the CIT does not have the authority to impose such additional conditions.

The Revenue Department argued that the grant of registration cannot be unconditional and that once registration under Section 12A has been granted, it is the obligation of the charity to comply with said terms.

The ITA noted that Section 12AB of the Income Tax Act deals with the registration procedure for charitable institutions/trusts. ITA noted that according to the said provision, the specified tax authorities, after ascertaining the objects of the trust/institution and the genuineness of their activities, as well as compliance with the requirements specified by law, shall make an order – either the registration of the trust/institution or the rejection of the application for registration. The Court added that the income tax authorities can also make an order canceling the registration after giving a reasonable opportunity to be heard.

The ITA has ruled that the authorities can be satisfied with the objects of the trust/institution and the authenticity of its activities or not, and the conclusion on this aspect cannot be conditional. However, the Tribunal held that the conclusion as to whether or not the institution has complied with the requirements of the law can be conditional.

“However, to the extent that” compliance with the requirements of item (B) of sub-paragraph (i) (i.e. compliance with the requirements of any other law currently in force by the trust or institution that are material to the purpose of achieving its objects)” is concerned, such conclusion may be conditional to the extent that whether a particular registration, for example under the Foreign Contribution Regulation Act of 2010 (FCRA) is a condition precedent to the objects of the trust, and the process for such registration is still in progress at the time the application for registration under Section 12A is submitted for consideration by the Commissioner, the grant of the Registration under Section 12A may be subject to the applicant obtaining registration with the FCRA. Therefore, to say that the law does not provide for conditional registration does not appear to be correct, and we must leave this matter open to arbitration in an appropriate case,” ITAT said.

The ITA noted that the conditions under which registration was granted to the assessee concerned the conduct of the assessee and the circumstances under which the registration granted to him or her may be revoked. The Court added that such matters are governed by the specific provisions of the law and that, therefore, the additional conditions imposed by the CIT cannot have the force of independent law.

The ITAT held that where the legal regime does not consider the additional terms imposed by the CIT to be part of the registration regime, the CIT cannot supplement the law by setting such additional terms. The Court held that the CIT played a limited role under Section 12AB(1), when registering the trust under Section 12A.

“As to when and how to cancel registration, it is not for the learned commissioner to decide at the time of granting registration. There are specific statutory provisions which govern the cancellation of registration, and these provisions can neither be diluted nor supplemented by the learned commissioner,” the ITAT said.

The Court held that whatever conditions are attached to the registration granted under Section 12A, such conditions must be tested on the basis of the law.

Noting that the additional conditions set by the CIT, while granting registration to the assessee, were in substance guidance from the CIT with respect to the conduct of the assessee, the ITAT ruled that said conditions cannot be treated as a condition attached to the registration granted to the assessee.

The Court held that the observations made by the CIT relating to the conduct of the assessee cannot be interpreted as legally binding and that failure to comply with them will have no consequences, including the cancellation of the registration, if the said conditions went beyond what is specifically provided by law, i.e. they did not fall within the grounds specified in Section 12AB (4) and (5) of the Tax Act on income for cancellation of registration.

“While the assessee is well advised to bear in mind and carefully consider his or her conduct vis-a-vis the points raised by the learned commissioner, such observations cannot be construed as legally binding in the sense that the no – compliance with these guidelines will not have any consequences, unless and beyond what is specifically provided by law – as in Section 12AB (4) and (5) as elsewhere, nor the implications of failure to do what is set out in the terms will remain confined to cancellation of registration while the law provides for much harsher consequences.”

Accordingly, the ITAT allowed the appraiser’s appeal, subject to his submissions.

Case Title: Bai Navajbai Tata Zoroastrian Girls School v Commissioner of Income Tax (Exemptions), Mumbai

Dated: 29.07.2022 (Mumbai ITAT)

Representative of the Appellant/Assessed: Mr. Atul Suraiya

Representative of the Respondent/Revenue Department: Dr Mahesh Akhade

Click here to read/download the order


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