IN HIGH COURT OF JUDICATURE AT PATNA Miscellaneous Appeal No.438 of 2015 St. Michaels Educational Association St. Michaels High School, Society registered under Societies Act, 1860, having its office at Digha Ghat P.O. Digha Ghat, P.S. Digha, Dist. Patna through its Treasurer, brother Hilary goveas Appellant/s Versus Commissioner Of Income Tax I,Patna having its office Revenue Building, Beer Chand Patel Marg, Patna. Respondent/s Appearance : For Appellant/s : Mr.D.V.Pathy, Advocate Ms. Manju Jha, Advocate For Respondent/s : Ms. Archana Sinha, Sr. SC Mr. Alok Kumar, Jr. S.C Mr. Sanjeev Kumar, Advocate CORAM: HONOURABLE MR. JUSTICE JYOTI SARAN and HONOURABLE MR. JUSTICE PARTHA SARTHY ORAL JUDGMENT (Per: HONOURABLE MR. JUSTICE JYOTI SARAN) Date : 13-08-2019 This Miscellaneous Appeal filed under Section 260A of Income Tax Act, 1961 (hereinafter referred to as Act ) is directed against order dated 22.07.2015 passed by Income Tax Appellate Tribunal, Patna Bench, Patna in Appeal Case No. ITA No. 141/Pat/2012, whereby appeal of appellant has been dismissed and order passed by Commissioner of Income Tax I, Patna dated 28.06.2012 whereby registration of appellant under Section 12AA of Act has been cancelled, has been confirmed. Facts of case leading to impugned orders briefly stated is that appellant is educational institution registered Patna High Court MA No.438 of 2015 dt.13-08-2019 2/18 under Societies Registration Act 1860 running in name and style of St. Michael s High School. educational activities of appellant are regulated under memorandum of association as well as rules and regulations framed there under and it is bearing consideration of avowed object for which institution was set up that appellant was granted registration under Section 12AA of Act bearing registration no. 7/84-85 on 26.04.1985 by respondent Commissioner. copies of memorandum of association as well as rules and regulations framed by institution together with registration so granted under Section 12AA of Act are enclosed at Annexures 1 and 2 respectively to appeal. It is after lapse of more than 26 years that appellant institution was served with show cause notice issued from office of Commissioner of Income Tax I, Patna which is dated 09.08.2011 putting appellant on show cause as to why his registration under section 12AA be not cancelled. notice dated 09.08.2011 is issued by Commissioner of Income Tax I, Patna in purported exercise of powers vested under Section 12AA (3) of Act and is impugned at Annexure 3. appellant filed exhaustive reply to notice, copy of which is at Annexure 4 and which has been met by order impugned Patna High Court MA No.438 of 2015 dt.13-08-2019 3/18 dated 28.06.2012 of Commissioner of Income Tax I, Patna whereby registration of appellant under Section 12AA has been cancelled in purported exercise of powers vested in Commissioner of Income Tax under Section 12AA(3) of Act and which has been confirmed by Tribunal when appeal of appellant bearing ITA no. 141/Pat/2012 was dismissed on 22.04.2015. It is feeling aggrieved by said orders that appellant is before this Court. Mr. D.V. Pathy, learned counsel has appeared for appellant while department is represented by their Sr. Standing Counsel, Ms. Archana Sinha. Mr. Pathy after taking this Court through sequence of events which we have already taken note above has submitted that order of cancellation of registration granted to appellant under Section 12AA of Act is per se illegal and order passed by Commissioner of Income Tax as confirmed by Tribunal in purported exercise of powers vested under Section 12AA(3) lacks foundation as facts accompanying present case do not satisfy prerequisites for such exercise. According to Mr. Pathy registration to appellant was granted by Commissioner of Income Tax after recording satisfaction as to eligibility of appellant for Patna High Court MA No.438 of 2015 dt.13-08-2019 4/18 grant of such registration and there has been no change in circumstances in between date on which such registration was granted i.e., 26.04.1985 and date on which it had been cancelled i.e. 28.06.2012 inasmuch as petitioner continues to abide by prescription present in memorandum of association and rules and regulations governing school which was taken into consideration by Commissioner of Income Tax at stage of grant of such registration. He further submits that power vested in Commissioner of Income Tax to cancel such registration can be found in provisions of Section 12AA(3) but it is only where Principal Commissioner or Commissioner is satisfed that activities of such trust or institution are not genuine or are not being carried out in accordance with objects of trust or institution that such order can be passed and not in any other circumstance. In reference to orders put to challenge it is submitted by Mr. Pathy that no such instance has been laid down in orders impugned of appellant either of activities of institution being not genuine or not being carried out in accordance with objects for which it had been set up rather it is bearing note of certain decisions taken in board meeting and forming opinion as to eligibility of Patna High Court MA No.438 of 2015 dt.13-08-2019 5/18 appellant to exceptions present in Section 13 (1) (b) that registration itself has been canceled. According, to Mr. Pathy, foundation for exercise under Section 12AA (3) of Act is entirely distinct with scope and extent of exercise under Section 13(1) (b) of act inasmuch as even if any part of income of institution enjoying registration under Section 12AA of act is not found eligible from exemption, such instance ipso facto is not sufficient to warrant cancellation of registration itself until there is satisfaction recorded by Commissioner or Principal Commissioner of Income Tax that activities of institution are not genuine or are not being carried out in accordance with objects for which it had been established, which is not case in hand. Learned counsel in support has relied upon judgment of Bombay High Court in Income Tax Appeal no. 43 of 2015 (Commissioner of Income Tax II vs. Mumbai Metropolitan Regional Iron and steel Market Committee). It is after hearing Mr. Pathy on issue raised that this Court by order dated 25.07.2019 has recorded substantial questions of law which arises in present appeal and which runs as follows : Patna High Court MA No.438 of 2015 dt.13-08-2019 6/18 (A) Whether registration granted to appellant under Section 12AA of Income Tax Act, 1961 (hereinafter referred to as Act ) could be cancelled by Commissioner in purported exercise of power vested in him under Section 12AA(3) of Act for alleged violation of provisions of Section 13(1)(b) of act? (B) Whether purported action satisfies conditions precedent for such cancellation as present in Section 12AA(3), in absence of satisfaction recorded by Commissioner on such violation. (C) Whether dis-allowance of any income from exemption for reasons present in Section 13(1) (b) of Act, can be circumstance to invite cancellation of registration under Section 12AA(3) of Act. Since respondent department was represented by their Sr. Standing Counsel that we posted matter for final hearing and disposal on 01.08.2019 and while Mr. Pathy reiterated submissions which we have already taken note above, issue was contested by Ms. Sinha to canvass in defence of impugned action by submitting that action impugned is in accordance with statutory provisions and that there is no infirmity attached to it. According to Ms. Sinha, sufficient power is vested in Commissioner of Income Tax to cancel Patna High Court MA No.438 of 2015 dt.13-08-2019 7/18 registration granted to any trust or any institution under Section 12AA of Act in case, activities are found not in accordance with objects for which it had been set up and since decision of governing body of institution which has been taken note of by Commissioner in his order reflected that appellant institution was in fact espousing cause of religion in particular and not open for benefit of other communities that Commissioner bearing note of resolutions so present, has canceled registration which order suffers no infirmity. Learned counsel has made reference to provision of Section 2(15) of Act to submit that it explains term charitable purpose and it is every activity which is to benefit of public in general which comes within its fold. In reference to show cause notice at Annexure 3 it is submitted by learned counsel for department that since it was noted that appellant was espousing cause of religion in particular and was using its income for benefit of particular religious community that in view of provisions so present in Section 13(1) (b) of Act appellant was put on notice and since reply present at Annexure 4 failed to satisfy Commissioner of Income Tax, impugned order was passed Patna High Court MA No.438 of 2015 dt.13-08-2019 8/18 which has been confirmed by Tribunal. According to Ms. Sinha even if appellant institution was set up with benevolent object, in case it deviates from its object, there is sufficient power vested in Commissioner of Income Tax under Section 12AA (3) to cancel such registration and it is bearing note of deviation in activities of appellant institution to espouse cause of religious community in particular which has pursueded Commissioner of Income Tax to pass order impugned. Learned counsel for Department has in support of her submission that where institution or trust would fail in its object for which it was set up or is found to be espousing cause of particular religious community, institution/trust would lose eligibility for exemption of its income and consequently invite cancellation of registration to derive such benefit, relied on following judgments: 1. (2001) 248 ITR 587 (Ghulam Mohidin Trust vs. Commissioner of Income Tax) (J& K) 2. (2002) 254 ITR 2012 (Commissioner of Income Tax v. Palghat Shadi Mahal Trust) (SC) 3. Civil Appeal No. 1381 of 2019 (Commissioner of Income Tax (Exemption) vs. Jagannath Gupta Family Trust) Mr. Pathy in his short reply has submitted that in Patna High Court MA No.438 of 2015 dt.13-08-2019 9/18 entire order passed by Commissioner of Income Tax as affirmed by Tribunal, there is no whisper regarding affairs of appellant institution not being genuine or that institution is failing on its object for which it was set up rather it is hiding behind provisions of section 13 (1) (b) of Act that registration is being canceled which is not one of prerequisites present in Section 12AA(3) of Act to invite such cancellation even if this objection may be matter for consideration at time of assessment. We have heard learned counsel for parties and we have perused record. Ms. Sinha is absolutely correct when she submits that registration under Section 12AA is not so sacrosanct that once granted it can never be interfered. In fact parliament has been conscious to vest jurisdiction in Commissioner of Income Tax under Section 12AA (3) to exercise such jurisdiction as canvassed by Ms. Sinha provided prerequisites to such exercise is present. We would straight away advert our attention to show cause served on appellant which lies at foundation of exercise and copy of which is at Annexure 3 to appeal. Commissioner of Income Tax I, Patna after taking note of Patna High Court MA No.438 of 2015 dt.13-08-2019 10/18 registration granted to appellant more than 26 years ago back has after taking notice of certain decisions taken in governing body meeting which in opinion of Commissioner of Income Tax was taken was for benefit of particular religious community, and which in turn made appellant institution ineligible for exclusion of his total income under sections 11 and 12 of Act in view of provisions present in Section 13(1) (b) of Act . It is drawing such premise that notice was served on appellant on proposed action for cancellation of registration granted under Section 12AA of Act . Although exhaustive arguments have been advanced by Mr. Pathy, for petitioner as well as Ms. Sinha, learned counsel appearing for Income Tax Department but in our opinion entire issue revolves around question, whether or not, power has been exercised by Commissioner, Income Tax in accordance with provisions of Section 12AA(3) of Act or he has overstepped his jurisdiction in process and which illegality, if any, has been perpetuated in confirmation order passed by tribunal. show cause notice issued under Section 12AA(3) of Act as noted above, takes notice of resolutions passed Patna High Court MA No.438 of 2015 dt.13-08-2019 11/18 by governing body in its meeting held from time to time and there is nothing left for speculating that some of resolutions do canvass interest of community in particular. It is finding infirmity in resolutions so passed by general body which according to Commissioner professed cause of particular religious community i.e. Christians that he put petitioner on notice as according to him petitioner was not eligible for exclusion of total income under Sections 11 and 12 of Act in view of provisions of Section 13(1)(b) of Act thus sufficient to invite cancellation of registration of petitioner granted under Section 12AA of Act . exhaustive explanation given by petitioner to show cause at Annexure 4 series is met with order impugned dated 28.06. 2012 Annexure 5, which in fact is reiteration of observations present in show cause notice to conclude at paragraph 4 that since activities of petitioner-institution is for furthering interest of religious community in particular i.e. Christians, it was not entitiled to registration under Section 12AA of Act . Surprisingly, even when Commissioner has noted that more than 95 % of students admitted in school are non Christians yet, according to him it does not change situation. In fact simply because in Patna High Court MA No.438 of 2015 dt.13-08-2019 12/18 Board s meeting association reiterated its emphasis on undisputed fact that being catholic school run by assessee association, members of which are Christians, it has concern towards Christians of Patna, according to Commissioner these aspects were sufficient to make school ineligible for benefit under Sections 11 & 12 of Act in view of provisions of Section 13(1) (b) of Act and resultantly has led to cancellation of registration which order has been affirmed by Tribunal vide its order dated 22.07.2015. While Section 11 deals with income from property held for charitable or religious purpose which would not be included in total income of previous year of person in receipt of such income, Section 12 deals with voluntarily contributions received by trust created wholly for charitable or religious purpose to be dealt in like manner. Section 12A of Act lays down condition for applicability of Sections 11 and 12. Annexure 2 to appeal is confirmation of fact that Commissioner of Income Tax on being satisfied that petitioner was entitled to registration for exemption under Sections 11 and 12 of Act was granted registration under existing provisions of Section 12A(a) of Act on Patna High Court MA No.438 of 2015 dt.13-08-2019 13/18 26.04.1985 as charitable institution thus, eligible for exemptions so provided under Act . Section 12AA was incorporated in Act by Finance (2) Act, 1996 laying down procedure for registration and Section 12AA (3) inter- alia laid down procedure for cancellation of such registration granted to any charitable institution under Section 12A of Act as it stood before amendment, under certain conditions which are eloquent from provisions itself and is reproduced herein below for ready reference : (3) Where trust or institution has been granted registration under Clause (b) of Sub- Section 1 or has obtained registration at any time under Section 12A as it stood before its amendment by Finance (No. 2) Act, (33 of 1996) and subsequently Principal Commissioner or Commissioner is satisfied that activities of such trust or institution are not genuine or are not being carried out in accordance with objects of trust or institution, as case may be, he shall pass order in writing canceling registration of such trust or institution; Provided that no order under this sub- section shall be passed unless such trust or institution has been given reasonable opportunity of being heard. (Emphasis is supplied) Patna High Court MA No.438 of 2015 dt.13-08-2019 14/18 It is in purported exercise under this provision that show cause notice was issued to petitioner and order of cancellation of registration has been passed. plain reading of enabling power vested in Commissioner as present in sub-section 3 of Section 12AA would confirm that it is only in two circumstances that such power can be exercised by Principal Commissioner or Commissioner and i.e (a) if activities of such trust or institution are not found genuine ; or (b) activities of such trust or institution are not being carried out in accordance with objects of trust or institution. legislative intent of provision of sub-section 3 of Section 12AA is loud and clear and it is if and only if, institution in question is found violating either of two conditions that Principal Commissioner or Commissioner can exercise such power to cancel registration and in no other circumstance. In so far as case in hand is concerned, it is bearing note of aims and objects as present in memorandum of association which also contains rules and regulations to regulate activities of institution that then Commissioner, on being satisfied, had granted registration to petitioner institution under then existing provisions of Patna High Court MA No.438 of 2015 dt.13-08-2019 15/18 Section 12 (a) of Act on 26.04.1985, which entitled institution to benefits of such registration including those present in Section 11 and 12 of Act . What we find from show cause notice and order of cancellation impugned in this appeal is that it is very same memorandum of association and objects present therein which has laid foundation for cancellation proceedings and since in some of subsequent governing body meetings some resolutions were passed in benefit of Christian community, which has been found sufficient for cancellation of registration itself, without even whisper on mandatory recording of satisfaction on two essential prerequisites for such order of cancellation i.e. whether or not resolution so passed demonstrated that activities of institution was not genuine ; or whether institution had violated its object. show cause notice as well as order is absolutely silent on this score for there is no finding of any such violation by petitioner institution. Law in this regard is too well settled and where statute provides act to be done in particular manner it has to be done in that manner alone and every other mode of discharge is clearly forbidden. It is unfortunate that statutory authorities, Patna High Court MA No.438 of 2015 dt.13-08-2019 16/18 performing quasi judicial functions have kept themselves oblivious of such settled legal position. Applying doctrine to case in hand, it is seen that it is on being swayed by resolution of governing body that order of cancellation has been passed by Commissioner without recording any satisfaction, either on issue that, activities of school are not genuine and /or that it is not being carried out in accordance with objects for which institution had been set up. In such eloquent circumstances we are in no confusion to hold that it is only on fulfillment of such condition and on recording of satisfaction that order of cancellation could have been passed but which discharge is completely missing either in show cause notice or in final order passed which has also got confirmation by tribunal. plain reading of order impugned would confirm that Commissioner has got mixed up in between stipulations warranting exercise under Section 12AA(3) and Section 13(1) (b) in so far as it dis-entitles trust or charitable institution to exclusion from total income of previous year, any income, if same is used for benefit of any particular religious community or caste. It is correctly canvassed by Mr. Pathy that any such issue can be subject matter of assessment Patna High Court MA No.438 of 2015 dt.13-08-2019 17/18 proceeding but certainly cannot lay foundation for cancellation of registration of institution altogether unless two prerequisites as present in sub-Section 3 of Section 12AA are satisfied. Having considered matter in its entirety we are in no doubt to hold that order dated 22.07.2015 of Tribunal in confirming order dated 28.06.2012 of Commissioner, Income Tax to cancel registration of petitioner granted under Section 12AA of Act is order passed de-hors, statutory provisions of Section 12AA(3) and since there is no satisfaction recorded by Commissioner Income Tax either that activities of petitioner was not genuine or that it was not being carried in accordance with objects for which it was set up, conclusion drawn by authorities in order impugned in reference to provision of Section 13(1) (b), is confirmation of perversity. substantial questions of law so framed, are answerred accordingly. In result, order dated 22.07.2015 of Income Tax Appellate Tribunal in ITA No. 141/Pat/ 2012 together with order dated 28.06.2012 of Commissioner, Income Tax in so far as it purports to cancel registration of petitioner under Patna High Court MA No.438 of 2015 dt.13-08-2019 18/18 Section 12 AA of Act is quashed and set aside. Miscellaneous Appeal is allowed but with no order as to costs. (Jyoti Saran, J) ( Partha Sarthy, J) Prakash/- AFR/NAFR AFR CAV DATE NA Uploading Date 16.08.2019 Transmission Date NA St. Michaels Educational Association St. Michaels High School v. Commissioner of Income-tax I, Patna