ITAT upholds Tata Trusts position on voluntary surrender of registration

The Mumbai Bench of the Income Tax Appellate Tribunal has allowed Tata Trusts to voluntarily surrender their registration, effective March 20, 2015.

“...we are of the considered view that the impugned order of cancellation of registration granted to the assessee under section 12A must be held to be effective from the date on which the hearing on first show-cause notice was concluded and the show-cause notice issued by the Commissioner was formally acquiesced by the assessee in the said hearing, that is, 20th March 2015, since, without disposing of the said matter, the Commissioner, or his successors, could not have started other parallel proceedings for cancellation of registration obtained under section 12A,” said the ITAT Mumbai Bench comprising President Justice PP Bhatt and Vice President Pramod Kumar.

The order in the case, which was an appeal by Navajbai Ratan Tata Trust versus Principal Commissioner of Income Tax, Mumbai, was pronounced on March 24.

Though the ITAT did not go into other peripheral issues raised in the arguments, it said, “It is difficult to understand on the first principles, much less approve, any legitimate justification for the income tax authorities to insist that the assessee must continue with the registration under section 12A when the assessee does not want it.”

The critical question in the Tata Trusts case is whether the cancellation should be effective from 2015, when the Trusts offered to surrender the registration, or from October 2019, when the order was passed by the Principal Commissioner of Income Tax.

The ITAT also noted that the actual trigger, and proximate reason for this “unwelcome generosity” of extending the benefit of registration under section 12 A, is the possible denial of exemption of dividends from domestic companies as also the fact that there may be certain adverse tax implications on account of the effect of cancellation being after April 1, 2016, which result in more tax revenues to the Exchequer.

Significantly, the ITAT also noted that in the case of Young Indian versus CIT, a coordinate bench of this Tribunal had observed, “The cancellation of registration, whether with retrospective effect or prospective, depends upon the facts and circumstances of the case and the Commissioner has the power to cancel the registration from the time when such breach has occurred.”

The ITAT observed that it cannot be, and is not, the law that formal order cancelling registration of a trust on account of disability or for any other legitimate reason, can only be with effect from the date of the order so cancelling the registration.

Also read: How the tax department cancelled Tata Trusts registration

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