Deemed Registration on Non-disposal of registration application u/s.12AA within 6 Months

M/s. Kanchipuram Vaniga Vaisya-Dharma Paripalana Sangam Vs CIT (E) (ITAT Chennai)

Admittedly, this application seeking registration u/s.12AA of the Act, was filed on 10.07.2014. The Sub-section 2 of Sec. 12AA stipulates that an order granting or refusing the registration under Clause-B of Sub-Sec.2 shall be passed before the expiry of the six months from the end of the month, in which, application was received by the Commissioner. In the instant case, admittedly, the application was received on 10.07.2014 and the limitation for passing an order under Clause-B of the Sub-Sec.1 of Sec.12AA expired on 31.01.2015, whereas the impugned order was passed on 17.06.2015. Then the issue comes up for consideration is whether non-disposal of application for registration u/s.12AA within the prescribed period would be considered as a deemed grant of registration. This issue had come up before the Hon’ble Supreme Court in the case of CIT Vs. Society for the Promotion of Education Adventure Sports & Conservation of Environment, wherein, the Hon’ble Supreme Court held that non-disposal of application for registration u/s.12AA amounts to be deemed grant of the registration.

Respectfully following the decision of the Hon’ble Supreme Court in the case of CIT Vs. Society for the Promotion of Education Adventure Sports & Conservation of Environment (supra), we hold that non-disposal of application within a period of six months amounts to deemed grant of registration on the expiry period of six months from the end of the month, in which, application for grant seeking registration was received by the Ld. CIT (Exemptions), Chennai. Therefore, we direct the Ld.CIT(Exemptions) to grant the registration u/s. 12AA from the date of expiry of period of said six months.

FULL TEXT OF THE ITAT JUDGEMENT

This is an appeal filed by the assessee Society directed against the Order of the Learned Commissioner of Income Tax (Exemptions), Chennai, dated 17.06.2015, denying grant of registration under the provisions of Sec.12AA of Income Tax Act, 1961.

2. The appellant raised the following grounds of appeal:

1. The order u/s.12AA of Income Tax Act, 1961 is incorrect, illegal and contrary to law as well as our facts and circumstances of the case.

2. The impugned order suffers from limitation prescribed u/s.I2AA (2) of the Income Tax Act, 1961 and sec.12AA (2) is reproduced as follows:

“(2) Every order granting or refusing registration under clause (b) of subsection (1) shall be passed before the expiry of six months from the end of the month in which application was received under clause (a) or clause (aa) of sub-section (1) of section 12A”.

3. In the explanatory memorandum explaining clause of the finance (no.2) bill 1996, the portion regarding the timeline of six month has been explained thus sec [1996] 220 ITR (St) 248,278.

4. “The order granting or refusing registration has to be passed within 6 months from the end of the month in which the application for registration in received by the chief commissioner or commissioner and a copy of such order shall be sent to the applicant”

5. Sub-section (2) of section 12AA does not spell out consequences that are to follow, if the order granting or refusing registration is not passed within six months. These have to be seen with the assistance of the words “shall” in section 12AA and use of the words “has to be passed” in the explanatory memorandum.

6. Before considering the impact of these words, some decisions on the issue need to be considered.

7. Decisions supporting our view that limitation of 6 months is mandatory:-

a) Sardarilal obrai Memorial charitable Trust Vs. ITO (2005) 3 SOT 229 (Delhi)

b) Karnataka Gold Association Vs. DIT (Exemptions) (2005) 272 ITR (AT) 123 Bangalore.

c) Sahitya sadarwart Sam ITI Vs. [IT (2008) 23 SOT 49 (Jaipur)]

d) Bhagwad Swarop shri, shri, Shri devraha Baba Memorial Shri Han Parmoth dham Trust Vs. CIT (2008) 299 ITR (AT) 161 (Delhi) (SB)

e) Society for the promotion of education adventure sport and conservation of environment Vs. CIT (2008) 5 DTR 3229 (ALL)

f) Harshit Foundation Vs. CIT (2013) 156 TTJ 422 (Lucknow)

g) Nosegay Public School Management Committee Vs. CIT (2013) 153 TTJ (VO) (Jodhpur)

8. Decisions supporting the case of Revenue that the limitation is only directory and not mandatory

a) CIT Vs. Karimangalam Annya Pangal Semipu Amaipu ltd (2013) 35A ITR 483 (MAD)

b) CIT Vs. Sheela Christian charitable trust (2013) 354 ITR 478 (MAD)

c) CIT Vs. Muzafar Nagar Development authority (2013) 38 Tax com21(ALL)

d) Sri Khetra A.C.Bhakh-Vedanta Swami Charitable Trust Vs. Asst CIT (2006) 20 LR 75

9. Our Submissions:

9.1. One view is that if the order is not passed in 6 months time, it would be deemed to have been allowed. Solid support for this view has been given by the Special Bench of the Income-tax Appellate Tribunal in the case of Devraha Baba Memorial Trust (see para 7(d) — suprá) where the view expressed stands confirmed by the High Court in the decision reported in [2008] 5 DTR (ALL) 329 and also support from the other non-Income-Tax cases. The view expressed in this decision seems to be the correct view for the reasons mentioned hereinafter.

a) If the time-limit was not to be mandatory, there was no need to mention the same. The reason prompting the prescription of time-limit was to bring down the mounting pendency of registration applications (though not specially recorded anywhere) and to counter the practice of keeping such application pending for long by the authorities who were to dispose of these.

b) If the Central Board of Direct Taxes wanted the time-limit only to be directory not mandatory-there was no need to mention it in section 12AA(2). Directions could have been given through departmental instructions or circular also. The fact that legislators preferred to put the time-limit in section 12AA itself indicates that the legislative intention has been to treat it as mandatory

c) The use of words “Shall” and “has to be passed within six months” in the Explanatory Memorandum to the Finance Bill stated earlier in para 3 (supra) also support the view that the legislative intent had been that the order refusing or granting registration had to be passed within 6 months from the end of the month in which the application is filed and if no order is passed, the assumption has to be in favour of the trust or institution claiming the exemption deeming the same to have been allowed – not against him that it has been rejected. The general rule of interpretation in tax matters is that when two views on a subject are possible, the view favourable to taxpayer has to be accepted.

d) And finally the word “shall” used in section I2AA(2) also gives support to the view expressed earlier. Thus with this word legislative intent of passing of the order in six months is mandatory. The word “shall” is a enabling word conferring power with the Commissioner for the purpose being used for the benefit of charitable/religious institutions. Lord Blackburn, in one of his decisions, has said that enabling words are construed as compulsory whenever the object of the power is to effectuate a legal right.

e) There has been considerable elucidation of the words “shall” and “may” in court decisions. It is true that mere use of the word “shall” does not always make the provision mandatory. The decision depends on the purpose for which the provision has been made, its nature and the intention of the Legislative in making the provision in cases of serious general inconvenience of injustice to persons resulting from whether the provision is read one way or the other. With these aspects in view, it could be examined as to why word “shall” was inserted in sub-section (2) of section 12AA of the Act, with effect from April 1, 1997. The Act was being without such a provision laying down time-limit, but the charitable trust/institution were being inconvenienced as their applications for registration remained pending for cosiderable time and they did not know for long whether the registration was going to be allowed. Without knowing this decision, there was no certainty whether their incomes would be exempt or not. Hence, time-limit of six months for passing the order on registration application was considered necessary. The decision whether such time-limit is mandatory or directory has to be taken keeping in view; in this background and hence there is no escape but to treat such a time-limit as “mandatory”.

f) The Supreme Court laid down the rule of interpretation in this regard, in State of U.P.v.Babu Ram Upadhya [1961] AIR 1961 SC 751:

“The relevant rules of interpretation may be briefly stated thus:

When a statute uses the word “shall”, prima facie, it is mandatory, but the court may ascertain the real intention of the legislative by carefully attending to the whole scope of the statute. For ascertaining the real intention of the legislative, the court may consider, inter alia, the nature and the design of the statute, and the consequences which would follow from construing it one way or the other, the impact of other provisions whereby the necessity of complying with the provisions in question is avoided, the circumstances, namely, that the statute provides for a contingency of the non-compliance with the provisions, the fact that the non-compliance with provision is or is not visited by some penalty, the serious or trivial consequence that flow there from, and above all, whether the object of the legislative will be defeated of furthered”.

g) In P.C. Pun v.CIT [1985] 151 ITR 584 (Delhi). It has been said that “may” imports discretion and “shall an obligation. In section 12AA(2), the word shall implies an obligation to be discharged on application of quasi-judicial mind – not a discretion, which has to be discharged within the time prescribed and hence “shall” has to be interpreted in the provision as “must” — not “may”. The power given to the Commissioner by the use of the word “shall” is coupled with a duty to pass the order and the time within which the duty is to be performed has been mentioned in section 12AA(2). If there is failure to perform the duty, benefit-not the adverse consequence, is to go to the applicant/ assessee.

9.2 Hence, in the case under question,

a. Application u/s 12AA filed 10/07/2014

b. Due date for passing order 31/01/2015

c. Date on which order u/s 12AA was passed 17/06/2015

Hence, order u/s 12AA was not passed within the time fixed under 12AA (2), the Act and the order is non-est in law and result in deemed registration u/s.12AA to the applicant.

10. The only ground taken by the department to deny the registration u/s.12AA of the Act is that the appellant trust is meant for development of is kanchipuram traders community and hence, registration is denied based on the decision in Agarwal Sabha (Regd.) vs CIT (2014) 365 ITR 244 (Allahabad), wherein it was held benefit of the trust was to be given only to the people belonging to Agarwal Community following Supreme Court decision in CIT vs. Dawoodi Behara Jamat (2014) 364 ITR 31 (SC) ignoring the basic fact that kanchipuram traders’ community is neither caste nor community forming part of any religion and hence, both these decisions do not apply to the facts of the case. “Vaniga vaisya” means trading community and not any particular community.

11. It has already been held in the Supreme Court case of CIT Vs. Dawoodi Bohra Jamat [2014] 364 ITR 31 (SC) has clarified that section of, the public’ is also public where it was held as follows:- “the phrase “charitable purpose” is expansive and inclusive. The expression “charitable purpose” is defined in the dictionary clause of the Act under section 2(15) by way of an inclusive definition so as to include relief to the poor, education, medical relief and advancement of any other object of general public utility. The expression “any other object of general public utility” is of the widest connotation. The word “general” in the expression means pertaining to a whole class. Therefore, advancement of any object of benefit to the public or a section of the public as distinguished from benefit to an individual or a group of individual would be a charitable purpose. The expression would prima facie include all objects which promote the well-being of the general public. It cannot be said that a purpose would cease to be charitable even when public welfare is intended to be served. If the primary purpose and the predominant object of a trust one to promote the welfare of the general public the purpose would be a charitable purpose. If the primary predominant object of an institution an institution is charitable, any other object which might not be charitable but which is ancillary or incidental to the dominant purpose, would not prevent the institution from being a valid charitable trust”. Hence, trust for the development of Kanchipuram area traders who is also a section of the public” and hence they should be treated as public.

12. Further, clauses required in para 2 (iii) and (iv) are incorporated in object clause F (i) of the bye-laws of the sangam as the objects are restricted to welfare of Chennai based traders community irrespective of caste, creed, religion or sex and hence, the activities would be confined to its objects and bye-laws and its benefits would be available to public Chennai based traders community irrespective of caste, creed, religion or sex. We do further clarify that Section of the Public, as distinct from specified individuals, is also “the public”, “C.AG.IT V.Abdul Sattar Hajee Moosa Sait (1971) 81 ITR 230 (Ker) at 239 and 240 wherein it was held and confirmed also in the case of “Abdul Sathar Haji Moosa Sait Dharmastapanam Vs. CAG IT(1973) 91 ITR 5 (SC)”. Hence, trading community in Chennai is also public.

13. The appellant reserves the right to add, alter, amend or delete any of the grounds before or during the course of hearing. Clause 13(1)(b) does not apply to composite trusts. The assesse’s objects are both religious and charitable and hence, composite trust.

14. Hence, under these facts and circumstances of the case, the appellant prays for directions to set aside the order u/s.12AA of the Act dated 17/06/2015 and to confirm the deemed registration u/s.12AA of the Act or to give directions to grant registration u/s.12A.

3. Briefly, the facts of the case are under:

The assessee is a Society constituted under the Tamilnadu Societies Registration Act, 1975, with the object of rendering services for the development of Kancheepuram area traders’ community residing at Chennai. The assessee society filed an application before the Ld. CIT(Exemptions), Chennai, in Form-10A, seeking registration u/s.12AA of the Act, on 10.07.2014. After receipt of the said application, Ld. CIT(Exemptions), Chennai, issued a letter dated 19.12.2014, requesting the society to file certain information. The said application was rejected by the Ld. CIT (Exemptions), Chennai, vide order dated 17.06.2015, on the ground that the objects of the society are only to cater the needs of a particular community.

4. Being aggrieved, the assessee is before us in the present appeal. At the outset, Ld.Counsel appearing on behalf of the assessee society had raised a preliminary issue that the impugned order was passed by the Ld.CIT(Exemptions), Chennai, after expiry of the prescribed period of six months from the end of month in which the application has been received by him. According to the Ld.Counsel, non-disposal of the application for registration u/s.12AA within a period of six months from the end of month in which application should be considered as deemed grant of registration, in the light of the decision of the Hon’ble Supreme Court in the case of CIT Vs. Society for the Promotion of Education Adventure Sports & Conservation of Environment.

5. Since the issue goes to root of the matter, we shall deal with the same now. Admittedly, this application seeking registration u/s.12AA of the Act, was filed on 10.07.2014. The Sub-section 2 of Sec.12AA stipulates that an order granting or refusing the registration under Clause-B of Sub-Sec.2 shall be passed before the expiry of the six months from the end of the month, in which, application was received by the Commissioner. In the instant case, admittedly, the application was received on 10.07.2014 and the limitation for passing an order under Clause-B of the Sub-Sec.1 of Sec.12AA expired on 31.01.2015, whereas the impugned order was passed on 17.06.2015. Then the issue comes up for consideration is whether non-disposal of application for registration u/s.12AA within the prescribed period would be considered as a deemed grant of registration. This issue had come up before the Hon’ble Supreme Court in the case of CIT Vs. Society for the Promotion of Education Adventure Sports & Conservation of Environment, wherein, the Hon’ble Supreme Court held that non-disposal of application for registration u/s.12AA amounts to be deemed grant of the registration. The decision of the Hon’ble Supreme Court in the case of CIT Vs. Society for the Promotion of Education Adventure Sports & Conservation of Environment, was considered by the Hon’ble Kerala High Court in the case of CIT, Cochin, Vs. TBI Education Trust, reported in [2018] 96 taxmann.com 356 (Kerala), wherein it was held as under:

9. On a reading of the order passed in Society for the Promotion of Education case (supra) we are not convinced that there was any concession made by the learned Additional Solicitor General who appeared in the matter for the Income-Tax Department. As we discern from the order, the Commissioner of Income-Tax, Kanpur had filed an appeal from the deemed registration granted under Section 12A for reason solely of an application under Section 12AA of the Act having not been acted upon for six months. The appeal arose from the judgment dated 03.04.2008 of the High Court of Judicature, Allahabad. When the matter was considered by the Hon’ble Supreme Court, the Full Bench decision of the Allahabad High Court cited, herein above, by the Revenue was passed and we do not see the said decision having been placed before the Hon’ble Supreme Court. Rather than a concession, the learned Additional Solicitor General specifically informed the Hon’ble Supreme Court that the only apprehension of the Department was regarding the date on which the said deemed registration, would be effected; whether it is on the date of application or on the expiry of six months. The Civil Appeal before the Hon’ble Supreme Court was disposed of expressing the apprehension to be unfounded, but all the same clarifying that the registration of the application under Section 12AA would only take effect from the date of expiry of six months from the date of application. The effect of disposal of a Civil Appeal as has been laid down in Kunhayammed v. State of Kerala[2000]  113 Taxman 470/245 ITR 360 (SC)hence assumes significance. The Hon’ble Supreme Court in Society for the Promotion of Education case (supra) in a Civil Appeal, approved the judgment of the Allahabad High Court allowing deemed registration under Section 12AA; but applicable only from the date of expiry of the six month period as mandated in sub-section(2) of Section 12AA. The judgment of the High Court merges in the judgment of the Hon’ble Supreme Court. The opinion as expressed by the Allahabad High Court, regarding deemed registration under Section 12A for reason only of non consideration of an application under Section 12AA within a period of six months from the date of filing, having not been differed from by the Hon’ble Supreme Court in the Civil Appeal; the declaration by the High Court assumes the authority of a precedent by the Hon’ble Supreme Court on the principles of doctrine of merger. Despite the compelling persuasion of the learned Senior Counsel to interpret the provision as has been interpreted by the Full Bench of the High Court of Allahabad we find ourselves, incapacitated so to do and obliged to respectfully follow Society for the Promotion of Education case (supra).

In such circumstance, respectfully following the decision of the Hon’ble Supreme Court we answer the question in favour of the assessee and against the revenue and reject the appeal. The registration however is applicable only from the date of expiry of the six months from the date of application. There shall be no order as to costs.

6. Respectfully following the decision of the Hon’ble Supreme Court in the case of CIT Vs. Society for the Promotion of Education Adventure Sports & Conservation of Environment (supra), we hold that non-disposal of application within a period of six months amounts to deemed grant of registration on the expiry period of six months from the end of the month, in which, application for grant seeking registration was received by the Ld.CIT (Exemptions), Chennai. Therefore, we direct the Ld.CIT(Exemptions) to grant the registration u/s.12AA from the date of expiry of period of said six months.

7. In the result, the appeal filed by the assessee is allowed.

Order pronounced on the 24^th January, 2019 in Chennai.