Doning The Delay And The Tribunal Hadgranted The Same. Aggrieved Over The Same, The Revenue Has Filedthe Above Appeal v. Kamla Town Trust] Held Thatthe Amendments To The Bye-Laws/Deed Will Have Only Prospectiveeffect And Cannot Have Retrospective Application For The Purpose

IN THE HIGH COURT OF JUDICATURE AT MADRAS CORAM: THE HON'BLE MR. JUSTICE M.DURAISWAMYAND THE HON'BLE MRS.JUSTICE T.V.THAMILSELVI T.C.A.No.784 of 2010 Commissioner of Income Tax,Salem... Appellant/RespondentVs. Young Women's Christian Association,No.76-A, Cherry Road,Hasthampatty,Salem – 636 007.... Respondent/Appellant Appeal preferred under Section 260A of the Income Tax Act,1961, against the order of the Income Tax Appellate Tribunal,Madras, "B" Bench, dated 11.02.2010 in I.T.A.No.1879/Mds/2009.And against the order of the Commissioner of Income- Tax,Salem dated 12/10/2009 made in C.No.9755(136)/SLM/2006-2007. For Appellant : Mr.J.Narayanasamy, Senior Standing Counsel For Respondent : Mr.G.Baskar JUDGMENT (Judgment was delivered by M.DURAISWAMY, J.) Challenging the order passed by the Income Tax AppellateTribunal, Madras "B" Bench in I.T.A.No.1879/Mds/2009, theRevenue has filed the above appeal. 2.The assessee - Society filed an application under Section10 on 19.01.2007 for registration under Section 12AA of theIncome Tax Act with a delay of 5 years and 10 months without anysupporting evidence and instrument of formation of the Societyand bye-laws. There was no response to the letters issued to theSociety for production of the instrument of creation for theSociety. The Society also did not file the instrument ofcreation of Society reflecting the bye-laws. A letter dated05.04.2007 was sent to the assessee seeking the above detailsand the activities of Trust, donations, donors, etc. Since therewas no response inspite of opportunity, the order dated https://hcservices.ecourts.gov.in/hcservices/ 24.07.2007 was passed rejecting the application for registrationbased on the materials available on record as the Deed/Bye-lawsdid not have the necessary Clauses as enumerated in Page – 1 ofthe CIT order, which are mandatory for granting registrationunder Section 12AA. The said Clauses need to be in writing andcannot be left open to assumptions for the purpose of complianceunder the Act governing the Trusts. On appeal by the assessee,the Tribunal by order dated 12.09.2012, remitted the case backto the CIT for re-consideration of the application ofregistration. On remittance, the CIT gave another opportunity tothe assessee and the assessee filed an instrument of amendmentcontaining amended bye-laws with effect from 14.06.2009. On theassessee's appeal, the assessee sought for registration withretrospective effect being the original date of creation of theassessee - Society by condoning the delay and the Tribunal hadgranted the same. Aggrieved over the same, the Revenue has filedthe above appeal. 3.At the time of admission, the following substantialquestions of law arose for consideration:“1.Whether on the facts and in the circumstancesof the case, the Income Tax Appellate Tribunal wasright in directing the Commissioner of Income Tax tocondone the delay in filing of the application and togrant registration to the assessee Society withretrospective effect from the date from which it wassought? 2.Whether on the facts and in the circumstancesof the case, the Income Tax Appellate Tribunal wasright in holding that rectification / amendments madeto the bye-laws for the Society would operateretrospectively while granting registration underSection 12AA of the Income Tax Act? 3.Whether on the facts and in the circumstancesof the case, the Income Tax Appellate Tribunal wasright in holding that the mode of application ofincome, and funds and the mode of investment for theSociety could be locked into only for assessmentpurposes and not at the time of considering theapplication for registration, overlooking the clearmandate provided in Section 12AA of the Income TaxAct?” 2.Whether on the facts and in the circumstancesof the case, the Income Tax Appellate Tribunal wasright in holding that rectification / amendments madeto the bye-laws for the Society would operateretrospectively while granting registration underSection 12AA of the Income Tax Act? 3.Whether on the facts and in the circumstancesof the case, the Income Tax Appellate Tribunal wasright in holding that the mode of application ofincome, and funds and the mode of investment for theSociety could be locked into only for assessmentpurposes and not at the time of considering theapplication for registration, overlooking the clearmandate provided in Section 12AA of the Income TaxAct?” 4.Mr.J.Narayanasamy, learned Senior Standing Counselappearing for the appellant – Revenue submitted that the Hon'bleSupreme Court in the judgment reported in (1996) 84 Taxman 248(SC) [Commissioner of Income-Tax Vs. Kamla Town Trust] held thatthe amendments to the Bye-laws/Deed will have only prospectiveeffect and cannot have retrospective application for the purpose of any proceedings, including granting registration. Further,the learned Senior Standing Counsel submitted that the Tribunalgrossly erred in holding that the said decision does not applyto the Society and the same is not right in law. The learnedStanding Counsel further submitted that granting registrationunder Section 12AA with effect from 12.09.2012 can only beprospective and shall not operate retrospectively as sought forby the assessee. 5.Mr.G.Baskar, learned counsel appearing for the respondent– assessee submitted that the amendment made by the Societyshall not alternate the objects of the Society, therefore, theorder passed by the Tribunal is proper. In support of hiscontention, the learned counsel relied upon an un-reportedjudgment dated 24.02.2020 made in T.C.A.No.957 of 2010[Commissioner of Income Tax, Salem Vs. M/s.Vasavi ManikandanHospital Trust, No.48, Iyappa Hospital, Andal Street, Shevapet,Salem 636 002] wherein the Division Bench of this Court held asfollows: “... 6.We have heard the learned counsels and we areof the opinion that the learned Tribunal, in thesecircumstances, ought to have remanded the case back tothe learned Commissioner of Income Tax, so that therequisite informations/documents furnished by theAssessee Trust could be examined and verified by thelearned Commissioner of Income Tax, who was to considerthe said application on merits. However, the factremains that the Trust stands registered for the lastten years in pursuance of the impugned order of thelearned Income Tax Appellate Tribunal. It was also openfor the Revenue Authorities to take steps forcancellation of the registration, if there was anymaterial against the Assessee Trust or they haveviolated the conditions of registration or theprovisions of the Act in any manner. That course iseven now open to the Revenue Authorities. We do notfind any useful purpose to be served by now remandingthe case back to the learned Commissioner of Income Taxto consider the said application under Section 12A ofthe Act afresh at this stage, as the said registrationalready stands granted about ten years back andtherefore, we dispose of the present appeal filed bythe Revenue only by making an observation that if anybreach or violation on the part of theRespondent/Assessee Trust is found, they will be freeto proceed against the Assessee/Trust in accordancewith law.” 6.On a careful consideration of the materials available onrecord and the submissions made by the learned counsel on eitherside, it could be seen that the Tribunal, while allowing theappeal filed by the assessee, held that the ratio laid down bythe Hon'ble Supreme Court of India in the judgment reported in(1996) 84 Taxman 248 (SC) [Commissioner of Income-Tax Vs. KamlaTown Trust] is not applicable to the case on hand for the reasonthat the said case pertains to a Trust and the present casepertains to a Society. The Hon'ble Supreme Court in the judgmentreported in(1996) 84 Taxman 248 (SC) [Commissioner of Income-TaxVs. Kamla Town Trust] held as follows: “... The order of rectification of an instrument oftrust by a civil court would not be a judgment in rem.it would be a judgment in personam binding on theparties to the rectified instrument, namely, thesettlor on the one hand and the trustees on the other,as well as on the ultimate beneficiaries. But a trustdeed rectified pursuant to the order of the court wouldmake the rectification order relevant under theprovisions of section 11 of the Indian Evidence Act, asthe fact in issue in an enquiry before the Income-taxOfficer would be whether on the basis of the rectifiedtrust instrument the assessee-trust is entitled to getits income exempted from tax under the relevantprovisions of the Income-tax Act. In such proceedings,therefore, the order granting rectification of suchinstrument of trust would remain relevant. The Income-tax Officer will have to take the instrument as itexists in its amended form when it is pressed inservice for framing the assessment concerning therelevant assessment year in which such rectifiedinstrument holds the field.The assessee was a trust created by a trust deeddated October 27, 1941, executed by a company which hadits registered office at Kanpur. The objects of thetrust deed were to construct a settlement or colony fortheir workmen together with amenities in the shape ofhospitals, schools, temples, mosques, recreation placesand for such other works directly concerning theamenities of workmen. On application by the company tothe Town Improvement Trust two plots had been demisedto the company at concessional rates for the welfare ofits workmen by two deeds of indenture in 1936 and 1938.The company transferred both the plots by the trustdeed of October 27, 1941, to the trustees foreffectuating its object of settling these plots uponthe charitable trust thereinafter mentioned in thedeed. In 1945, the company filed a suit forrectification of the trust deed, and the deed was rectified. Clause 2(b)(i) of the deed as rectified laiddown that the object of the trust was to construct“residential quarters, chawls or buildings for theworkmen in general and in particular for the workmen,staff and other employees of the company or otherallied concerns under the management of or in which thedirectors of the company may for the time being beinterested”. The High Court while interpreting the deedin another case [(1971) 81 ITR 557] held that theobjects of the trust deed as rectified in 1945 did notcreate a public charitable trust. There was a furtherrectification of the trust deed in 1955, Clause (b)(i)of the deed rectified in 1955 provided for constructionof residential quarters, chawls or buildings for theworkmen in the town of Kanpur and the surrounding areasand extensions, and for their respective families anddependents. Clause 2(b)(iv) empowered the trustees toerect such other works, building and installations asthe trustees may in their discretion think fit toprovide for the advancement of any other similar objectof general public utility. The Income-tax Officerissued notices to the assessee under section 34 of theIndian Income-tax Act, 1922, and section 148 of theIncome-tax Act, 1961, for the assessment years 1949-50to 1965-66. The assessments were completed. On appeal,the Tribunal dismissed the assessee's appeals for theassessment years 1949-50 to 1955-56 but allowed thosefor the assessment years 1956-57 to 1965-66 subject tothe rider that the income derived from the trustproperty by the assessee would be exempt only withinthe limit permissible under Section 11(1)(a) of theIncome-tax Act, 1961. On a reference of the questions,inter alia, whether the assessee was not a publiccharitable trust and its income was not exempt undersection 4(3)(i) of the Indian Income-tax Act, 1922, forthe assessment years 1949-50 to 1955-56; whether thesecond rectification decree dated May 10, 1955,operated prospectively from the assessment years 1956-57 and did not have effect of rectifying the deed oftrust dated October 27, 1942, as from the date of itsexecution and whether the objects and activities of thetrust fell within the first limb of the definition ofcharitable purpose in section 2(15) of the 1961 Act and the residuary clause thereof was notattracted for the assessment years 1962-63 to 1965-66and whether the Income-tax Officer was entitled toadjudge the validity of the rectification, the HighCourt answered all the referred questions in favour ofthe assessee and against the Revenue. On appeal to the Supreme Court: Held, (i) upon a concession by the assessee, thatthe rectification brought about by the order of thecivil court in 1955, namely, the second rectification,had no retrospective effect and would operateprospectively from the date on which such rectificationwas effected and would cover assessment years 1956-57onwards up to the assessment years 1965-66 and wouldnot have effect for the assessment years 1949-50 to1955-56.” 1961 Act and the residuary clause thereof was notattracted for the assessment years 1962-63 to 1965-66and whether the Income-tax Officer was entitled toadjudge the validity of the rectification, the HighCourt answered all the referred questions in favour ofthe assessee and against the Revenue. On appeal to the Supreme Court: Held, (i) upon a concession by the assessee, thatthe rectification brought about by the order of thecivil court in 1955, namely, the second rectification,had no retrospective effect and would operateprospectively from the date on which such rectificationwas effected and would cover assessment years 1956-57onwards up to the assessment years 1965-66 and wouldnot have effect for the assessment years 1949-50 to1955-56.” 7.The CIT, after remand, after taking into consideration thecase of both sides, rejected the case of the assessee followingthe judgment of the Hon'ble Supreme Court of India in the caseof Commissioner of Income-Tax Vs. Kamla Town Trust reported in(1996) 84 Taxman 248 (SC) and held that the rectification shallnot have retrospective effect and would operate prospectivelyfrom the date when the rectification saw the light of the day.However, the Tribunal erroneously allowed the appeal observingthat the order passed by the Hon'ble Supreme Court pertains to aTrust and the same is not applicable to the assessee's casewhich is a Society. The finding of the Tribunal cannot besustained for the reason that the Tribunal should have onlyfollowed the principle laid down by the Hon'ble Supreme Court tothe effect that the rectification shall not have retrospectiveeffect and would operate prospectively from the date on whichsuch rectification saw the light of the day. 8.The ratio laid down by the Hon'ble Supreme Court squarelyapplies to the facts and circumstances of the present case. Therectification/amendments made to the bye-laws of the Societywould only operate prospectively while granting registrationunder Section 12AA of the Income Tax Act. 9.Following the ratio laid down by the Hon'ble Supreme Courtin the judgment reported in (1996) 84 Taxman 248 (SC)[Commissioner of Income-Tax Vs. Kamla Town Trust], cited supra,the order passed by the Income Tax Appellate Tribunal is liableto be set aside and the questions of law 1 and 2 are decided infavour of the Revenue – appellant. The appeal is allowed. Nocosts. Sd/- Assistant Registrar //True Copy// Sub Assistant Registrar va To 1.The Income Tax Appellate Tribunal, Chennai, "B" Bench 2.The Commissioner of Income Tax,3, Gandhi Road, Salem-7.3, Gandhi Road, Salem-7. 3.The Income Tax Officer, Ward IIB(4), Salem. +1 cc to M/s.G.Baskar, Advocate Sr.No.9468 VGII(CO)RMP(25/03/2021) T.C.A.No.784 of 2010