Income Tax Authorities Cannot Impose Conditions Beyond The Scheme Of Law While Granting Registration To Charitable Institutions: ITAT

The Bench, consisting of Pramod Kumar (Vice President) 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 laying down the conditions which are not a part of the scheme of registration visualized by law.

The Commissioner of Income Tax (CIT) passed an order granting registration to the assessee- Bai Navajbai Tata Zoroastrian Girls School, under Section 12A of the Income Tax Act, 1961, which provides for registration of a charitable institution/ trust. The CIT imposed conditions on the basis of which the registration was granted to the assessee. The CIT in its order ruled that the registration granted to the assessee, a charitable institution, would be liable to be withdrawn if the assessee violated any of the conditions mentioned in the said order.

Against this, the assessee filed an appeal before the ITAT.

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

The revenue department contended that grant of registration cannot be unconditional and that once the registration under Section 12A is granted, it is the obligation of the charitable institution to comply with the said conditions.

The ITAT observed that Section 12AB of the Income Tax Act deals with the procedure for registration of charitable institutions/trusts. The ITAT noted that as per the said provision, the specified Income Tax Authorities, after satisfying themselves about the objects of the trust/institution and the genuineness of their activities, as well as the compliance of the requirements as specified by law, have to pass an order- either registering the trust/ institution or rejecting the application for registration. The Tribunal added that the Income Tax Authorities can also pass an order cancelling the registration after affording a reasonable opportunity of being heard.

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

"However, so far as "compliance of the requirements under item (B), of sub-clause (i) (i.e. the compliance of such requirements of any other law for the time being in force by the trust or institution as are material for the purpose of achieving its objects)" is concerned, such a finding can be conditional inasmuch as if a particular registration, say under the Foreign Contribution Regulation Act 2010 (FCRA) is a condition precedent for the trust objects, and the process for that registration is still in process at the point of time when the registration application under section 12A comes up for consideration of the Commissioner, the grant of registration under section 12A can be subject to the FCRA registration being obtained by the applicant. There can also be many other examples as well. Therefore, to say that the law does not visualize conditional registration does not appear to be correct, and we must leave that issue open for adjudication in a fit case.", the ITAT said.

ITAT noted that the conditions subject to which the registration was granted to the assessee related to the conduct of the assessee and the circumstances in which the registration granted to it can be cancelled. The Tribunal added that the said matters are regulated by the specific provisions of law, and hence, the additional conditions imposed by the CIT cannot have the independent force of law.

The ITAT held that when the scheme of law does not visualize the additional conditions imposed by the CIT as being a part of the scheme of registration, the CIT cannot supplement the law by laying down the said additional conditions. The Tribunal ruled that the CIT plays a limited role under Section 12AB (1), when granting registration to the trust under Section 12A.

"As to when and how should cancellation of the registration be made, it is not for the learned Commissioner to decide at the point of time of granting the registration. There are specific provisions of law which govern the cancellation of registration, and these provisions can neither be diluted or supplemented by the learned Commissioner", the ITAT said.

The Tribunal held that no matter what conditions are attached to the registration granted under Section 12A, the said conditions are to be tested on the scheme of the law.

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

The Tribunal held that the observations made by the CIT relating to the conduct of the assessee cannot be construed as legally binding and their non-compliance will not have any consequences, including cancellation of registration, if the said conditions were beyond what is specifically envisaged by the statute, i.e., if they fell outside the grounds specified in Section 12AB (4) and (5) of the Income Tax Act for cancellation of registration.

"While the assessee will be well advised to bear in mind and carefully examine his conduct vis-à-vis the points made by the learned Commissioner, these observations cannot be construed as legally binding in the sense that non-compliance with such guidance will not have any consequence, unless and beyond what is specifically envisaged by the statute- such as in Section 12AB(4) and (5) as indeed elsewhere, nor the implications of not doing what is set out in the conditions will remain confined to the cancellation of registration when the law stipulates much harsher consequences."

Hence, the ITAT allowed the appeal of the assessee, subject to the observations made by it.

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

Dated: 29.07.2022 (Mumbai ITAT)

Representative for the Appellant/Assessee: Mr. Atul Suraiya

Representative for the Respondent/Revenue Department: Dr. Mahesh Akhade

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