The Delhi bench of the Income Tax Appellate Tribunal ( ITAT ) has cancelled Young India ’s Registration under Section 12AA of the Income Tax Act, 1961.
The appellant, Young Indian was incorporated as a company applied for registration u/s. 12A r/w section 12AA on 31.03.2010. It was granted registration by then DIT (Exemption), New Delhi vide order/certificate dated 09.05.2011 w.e.f. the assessment year 2011-12. As a prelude, certain vital events precursor to grant of registration u/s. 12AA and antecedent to the application for registration us 12AA need to be elaborated which are germane to the issue involved.
The assessee had filed an application for incorporation of a company u/s. 25 of the Companies Act, 1956 on 14.10.2010. Memorandum of Association was subscribed by two Directors, namely, Mr. Suman Dubey, having 550 equity shares, and Mr. Satyan Gangaram Pitroda (Sam Pitroda) with 550 equity shares. License u/s. 25 of the Companies Act, 1956 was granted to YI on 23.11.2010.
Later on, both the Directors transferred their shares to Mr. Oscar Fernandes and Mrs. Sonia Gandhi; and Mr. Sam Pitroda and Suman Dubey were appointed as Directors of a company, M/s Associated Journals Limited ( AJL ) on 21.12.2010. On 13.12.2010, Mr. Rahul Gandhi was appointed as Director of YI, who acquired 1900 shares resulting in 36% stake in YI; and later on, Mrs. Sonia Gandhi became the director on 22.01.2011 having 36% of stakes with 1900 shares.
Another relevant fact to this chain of events is that various loans were advanced by All India Congress Committee [‘The AICC”] to AJL from time to time and as on 31.03.2010, there was outstanding of Rs. 88,86,68,976/- . Further loan of Rs. 1,35,000/- was received during the period 01.04.2010 to 16.12.2010. On 16.12.2010, AICC, who had given loan to AJL over the period of around Rs. 90 crores, transferred the entire loan of Rs. 90 crores due from AJL in favour of YI for a consideration of Rs. 50 lakhs. Thus, AICC assigned loan of Rs. 90 crores outstanding as payable in books of AJL to YI at Rs. 50 lakhs. Since YI did not have funds to pay consideration of Rs. 50 lakhs, it took loan of Rs. 1,00,00,000/- (one crore) from M/s. Dotex Merchandise Pvt. Ltd., Kolkata. Out of said loan, Rs. 50 lakhs were paid to AICC on 01.03.2011. However, before the payment of Rs. 50 lakhs to AICC, AJL had allotted 9,02,16,898 shares (almost 99.99% of the holding) to YI in lieu of loan of Rs. 90 crores by increasing the share capital from Rs. 1 crore to Rs. 10 crores. Thus, almost the entire shareholding of AJL went to YI. Certain additional shares of AJL were also purchased by Mrs. Sonia Gandhi, Mr. Rahul Gandhi and Mrs. Priyanka Gandhi to gain full control of AJL. At the time of making an application for registration u/s. 12AA, the assessee company disclosed the list of shareholders and directors of Young Indian during the assessment year 2011-12.
The Tribunal bench comprising of Judicial Member Amit Shukla and Accountant Member Prashant Maharishi observed that, “none of these documents proves that acquisition of AJL by the assessee company was for carrying out any charitable activities in pursuance of its objects nor any such activity was carried during the relevant period. Accordingly, this additional evidence, as filed by the assessee, though are taken on record, we do not deem fit to adjudicate on each and every document for the reasons given in the foregoing paragraphs”.
The ITAT rejected the contention of the appellant that, CIT(E) does not have the power to cancel the registration from the retrospective date and any such cancellation can only be prospective, i.e., from the date of passing of the order and in support of which certain decisions have also been relied upon.
The Tribunal said that, “From a bare reading of Section 12AA (3) it is seen that, section provides that where a trust or an institution has been granted registration and if subsequently, Pr. CIT or CIT is satisfied that the activities of the trust are not genuine or are not carried out in accordance with the objects of the trust, he may cancel the registration by way of an order in writing. Consequently, if there is a violation of any such conditions, then the registration so granted can be cancelled by the CIT”.
“The statute also provides that the Commissioner has statutory powers to cancel the registration u/s. 12A/12AA if he finds a reason to believe that the activities of the assessee are not in line with its objects or the activities carried out by the assessee is not genuine in nature. If from the date when registration has been granted, the assessee has not carried out any activity in line with its objects or the activities carried out are not genuine, then from that date itself, the registration can be cancelled because it is only when the knowledge of such breach comes to the notice of the Commissioner, then he has the power to cancel the registration from the date the notices the infringement. 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 Tribunal also said.
While upholding the decision CIT, the Tribunal also observed that, “even after granting of registration u/s. 12AA, no genuine activities have been carried out by the assessee either in furtherance of its objects or otherwise, which can be held to be for charitable purpose because one of the so-called purpose of acquiring AJL was not carried out at all”.
Dismissing the appeal filed by Young India, the Tribunal also added that, “CIT (E) was justified in cancelling the registration from the assessment year 2011-12, because none of the activities of the assessee was carried out in accordance with its objects nor its activities can be held to be genuine”.
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