Supreme Court explains the law on cancellation of certificate u/s 12AA

Supreme Court explains the law on cancellation of certificate u/s 12AA. Grant of Registration u/s 12A is quasi judicial function and Section 21 of General Clauses Act not applicable-

ABCAUS Case Law Citation:
ABCAUS 2203 (2018) (02) SC

Brief Facts of the Case:
The appellant was a State Government Undertaking established with a view to develop and assist the State in the development of industrial growth centers/areas, to promote, encourage and assist the establishment growth and development of industries.

The appellant filed an application u/s 12-A of the Act to the Commissioner of Income Tax (the CIT) for grant of registration. According to the appellant, they were engaged in public utility activity which, according to them, was for a charitable purpose under Section 2(15) of the Act, they were entitled to claim registration. CIT granted the registration certificate.

However next year the appellant received a show cause notice as to why the registration granted u/s 12A be not cancelled/withdrawn. The appellant filed reply but CIT cancelled/withdrawn the registration issued to the appellant.

Supreme Court explains the law on cancellation of certificate u/s 12AA

The appellant filed a rectification application under Section 154 before the CIT. It was contended that once the CIT grants the registration certificate under Section 12A, he has no power to cancel/recall the certificate granted to the assessee. CIT rejected the application filed by the appellant for rectification holding that there was no error in his order cancelling the registration certificate granted to the appellant. In other words, the CIT held that he had the power to cancel the certificate once granted by him and, therefore, the order for cancelling the registration certificate was legal and proper.

The ITAT allowed the appellant’s appeal and set aside the order passed by the CIT. However, the High Court, by impugned order, allowed the appeal filed by the Revenue and set aside the order passed by the ITAT and restored the order of the CIT. The Hon’ble High Court observed that the High Court placed reliance on Section 21 of the General Clauses Act and held that since there is no express power in the Act for cancelling the registration certificate under Section 12A of the Act and hence power to cancel can be traced from Section 21 of the General Clauses Act to support such order. In other words, in the opinion of the High Court, Section 21 is the source of power to pass cancellation of the certification granted by the CIT when there is no express power available under Section 12A of the Act.

The question of Law framed/urged:
The Hon’ble Supreme Court framed the following questions for consideration

(i) Whether the CIT has express power to cancel/withdraw/recall the registration certificate once granted by him under Section 12A of the Act and, if so, under which provision of the Act?

(ii) When the CIT grants registration certificate under Section 12A of the Act to the assessee, whether grant of certificate is his quasi judicial function and, if so, its effect on exercise of his power of cancellation of such grant of registration certificate?

(iii) Whether Section 21 of the General Clauses Act can be applied to support the order of cancellation of the registration certificate granted by the CIT under Section 12A of the Act, in case, if it is held that there is no express power of cancellation of registration certificate available to the CIT under Section 12A of the Act? and

(iv) What is the effect of the amendment made in Section 12AA introducing sub-clause(3) therein by Finance (No-2) Act 2004 w.e.f. 01.10.2004 conferring express power on the CIT to cancel the registration certificate granted to the assessee under Section 12A of the Act?

Observations made by the Supreme Court:

Whether the CIT has express power to cancel/withdraw/recall the registration certificate u/s 12A?

The Hon’ble Supreme Court opined that the CIT had no express power of cancellation of the registration certificate once granted by him to the assessee under Section 12A till 01.10.2004. It is for the reasons that, first, there was no express provision in the Act vesting the CIT with the power to cancel the registration certificate granted under Section 12A of the Act. Second, the order passed under Section 12A by the CIT is a quasi judicial order and being quasi judicial in nature, it could be withdrawn/recalled by the CIT only when there was express power vested in him under the Act to do so. However in the instant case, there was no such express power.

Whether grant of certificate u/s 12A is quasi judicial function?

The Hon’ble Supreme Court opined that the functions exercisable by the CIT under Section 12A are neither legislative and nor executive but they are essentially quasi judicial in nature.

Whether Section 21 of the General Clauses Act can be applied to cancellation of the registration certificate u/s 12A?

The Hon’ble Supreme Court opined that an order of the CIT passed under Section 12A does not fall in the category of “orders” mentioned in Section 21 of the General Clauses Act. Moreover, Section 21 has no application to vary or amend or review a quasi judicial order. A quasi judicial order can be generally varied or reviewed when obtained by fraud or when such power is conferred by the Act or Rules under which it is made.

Effect of the amendment in Section 12AA conferring express power on the CIT to cancel the registration certificate granted?

The Hon’ble Supreme Court observed that an express power was conferred on the CIT to cancel the registration for the first time by enacting sub-Section (3) in Section 12AA only with effect from 01.10.2004 by the Finance (No.2) Act 2004 (23 of 2004) and hence such power could be exercised by the CIT only on and after 01.10.2004, i.e., (assessment year 2004-2005) because the amendment in question was not retrospective but was prospective in nature.

The Hon’ble Supreme Court observed that the issue involved had also come up for consideration before three High Courts who after examining the issue, in the light of the object of Section 12A of the Act and Section 21 of the General Clauses Act held that the order of the CIT passed under Section 12A is quasi judicial in nature.

The Hon’ble Supreme Court expressed its agreement with the view taken by the High Courts and approved the said view taken by the High Courts.

Decision/ Conclusion/Held:
The appeal was allowed. Impugned order was set aside and the order of ITAT was restored.

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