HIGH COURT OF MADRAS
Commissioner of Income-tax
Karimangalam Onriya Pengal Semipu Amaipu Ltd.
T.C.(A) No. 1183 of 2010
Date of Pronouncement – 20.03.2013
R. Banumathi, J.
Being aggrieved by the order of the Tribunal in I.T.A. No. 2448 of 2008 dated 11.6.2010 holding that there was “assumed registration for the Assessee Company”, the Revenue has filed this appeal. The appeal was admitted on the following substantial question of law:-
“Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in setting aside the order of the Commissioner of Income Tax rejecting the assessee’s application for registration u/s 12AA on the grounds that the order was not passed within six months from the date of filing without appreciating the said time limit prescribed was only directory and not mandatory, considering the nature and design of the relevant statutory provisions?
2. Assessee- Karimanglaam Onriya Pengal Semipu Amaipu is a company registered under Companies Act and the objects of the Assessee Company is to carry on micro-finance activities in the form of grant or repayable financial assistance to cater to the needs of marginalized community and empower them into bankable community through formation of Sanghas in each areas, creating awareness on thrift and credit, formation of federations of Sanghas and crating access to credit facilities through micro-finance, linking with financial institutions, Micro Enterprises Development and other Micro Credit systems. Assessee Company had filed application in Form 10A for registration under Section 12AA of Income Tax Act on 17.3.2006. Since amendment of Memorandum of Association could not be submitted within the time allowed and as the matter was getting barred by limitation for registration under Section 12AA of the Act, by the order dated 01.11.2006 the application was treated as “lodged” and intimation to that effect was sent to the Assessee Company. Assessee Company filed an appeal in I.T.A. No. 2448 of 2006 against the order dated 01.11.2006 and the said appeal was pending before the Tribunal.
3. In the mean while, Assessee Company filed another application for registration under Section 12AA of the Act vide a application dated 29.05.2007. The Commissioner of Income Tax fixed dates for hearing and notice was sent to Assessee Company seeking certain details/clarifications and opportunity was afforded to them. By the order dated 28.11.2007, the Commissioner of Income Tax rejected the application filed under Section 12AA of the Act holding that Assessee Company was registered on 17.11.2000 and the Certificate of Commencement of Business was obtained from 12.12.2000 and there is no iota of evidence as to why application was filed by the Assessee Company in 2006 i.e. six years after obtaining the Certificate of Commencement of Business. The Commissioner of Income Tax also pointed out that the earlier order rejecting the application filed on 17.3.2006 is still in force and the matter being subjudiced before the Tribunal. On merits, the Commissioner of Income Tax held that the Assessee Company borrows from the banks and other financial institutions at the rate of 8% to 9% interest per annum and further lends at 12% interest per annum. Borrowing and lending activity of Assessee Company is on organized lines and there are around 2700 Self Help Groups. The Commissioner of Income Tax further held that there is no element of charity involved in the entire process of money lending and similarly, there is no element of charity involved in purchase and sale of securities, mutual funds units and held that in the absence of any activity which is of charitable nature, there is no justification in granting registration to Assessee Company under Section 12AA of the Act as charitable institution.
4. As against the said order (28.11.2007), Assessee Company filed appeal in I.T.A.No.19 of 2008. Tribunal took up and heard both the appeals [I.T.A. Nos. 2448 of 2006 and 19 of 2008]. Case of Assessee Company before the Tribunal was that application under Section 12AA of the Act for registration was filed on 17.3.2006 and the time limit for granting registration would expire on 30.09.2006 and by the order dated 01.11.2006, the Commissioner of Income Tax refused to grant Assessee’s registration under Section 12AA of Income Tax Act and the said order was passed beyond the period of six months and therefore, registration should deemed to have been granted under Section 12AA of the Act. Assessee Company relied upon the decision of the Special Bench of the Tribunal in the case of Bhagwad Swarup Shri Shri Devraha Baba Memorial Shri Hari Parmarth Dham Trust, v. CIT  17 SOT 281 (Delhi) (SB).
5. Referring to the decision of the Special Bench of the Tribunal in Bhagwad Swarup Shri Shri Devraha Baba Memorial Shri Hari Parmarth Dham Trust (supra) and after extensively extracting the said decision, Tribunal allowed the appeal filed by the Assessee Company in I.T.A. No. 2448 of 2006 and dismissed I.T.A. No. 19 of 2008 as infructuous. Tribunal held that Assessee Company had filed application on 17.3.2006 along with request for condonation of delay and the said application had not been disposed of within the limitation period of six months. Tribunal accepted the plea of the Assessee Company that registration ought to have been granted from the date of inception and Tribunal held that when the order was not passed within the stipulated period of six months, the Assessee Company is entitled to deemed registration under Section 12AA of the Act and directed the Commissioner of Income Tax to grant Assessee’s registration under Section 12AA of the Act from the date of inception as claimed in its application filed on 17.3.2006. Being aggrieved by the order of the Tribunal in I.T.A. No. 2448 of 2006, the Revenue has preferred this appeal.
6. Mr. J. Narayanasamy, learned counsel for Revenue submitted that Certificate of Commencement of Business was dated 12.12.2000 and thus application for registration was filed after the delay of six years and the Commissioner of Income Tax rejected the plea for condonation of delay by the order dated 28.11.2007 by holding that no sufficient cause had been established for justifying the delay in filing the application. Learned counsel for Revenue further submitted that registration was also not allowed, since the activity of micro-finance was considered a commercial activity and not an activity of charitable nature within the meaning of Section 2(15) of the Act.
7. We have heard Mr. N. Vijayaraghavan, learned counsel appearing for the Assessee Company.
8. Section 12AA(2) of Income Tax Act reads as under:-
“Every order granting or refusing registration under clause (b) of sub-section (1) shall be passed before the expiry of six months from the end of the month in which the application was received under clause (a) [or clause (aa) of sub-section (1)] of Section 12A.”
As per the above provision, the Authority is expected to pass an order in the application for registration either by granting or by refusing before the expiry of six months from the end of the month in which application was received.
9. In Srikhetra, A.C. Bhakti-Vedanta Swami Charitable Trust v. Asst. CIT 2006 (II) OLR 75, the Orissa High Court took the view that period of six months as provided under sub-section (2) of Section 12AA of Income Tax Act is not mandatory and held as follows:-
5. We are unable to uphold such contention. In our view the period of six months as provided in Sub-section (2) of Section 12AA is not mandatory. Though the word ‘shall’ has been used but it is well known that to ascertain whether a provision is mandatory or not, the expression ‘shall’ is not always decisive. It is also well known that whether a statutory provision is mandatory or directory has to be ascertained not only from the wording of the statute but also from nature and design of the Statute and the purpose which it seeks to achieve. Herein the time frame under Sub-section (2) of Section 12AA of the Act has been so provided to exclude any delay or lethargic approach in the matter of dealing with such application. Since the consequence for non-compliance with the said time frame has not been spelt out in the statute, this Court cannot hold that the said time limit is mandatory in nature nor the period of six months has been couched in negative words. Most of the time negative words indicate a mandatory intent. This Court is also of the opinion that when public duty is to be performed by the public authorities, the time-limit which is granted by the Statue is normally not mandatory but is directory in the absence of any clear statutory intent to the contrary. See Montreal Street Railway Company v. Normandin AIR 1917 PC 142. Here there is no such express statutory intent, nor does it follow from necessary implication.
10. We are also of the view that the time frame under sub-section (2) of Section 12AA of Income Tax Act is only directory. Tribunal was not right in holding that since the application for registration has not been disposed off within the limitation of six months, the Assessee Company was deemed to have been granted registration under Section 12AA of the Act.
11. While considering the case of lodging assessee’s application for registration of Trust, in [DIT (Exemption) v. Anjuman-E-Khyrkhah-E-Aam  11 taxmann.com 354, this Court held that Section 12AA (1)(b)(i) and (ii) of Income Tax Act makes it clear that there is a statutory mandate imposed on the Department to pass an order in writing either registering the Trust/ Institution or refusing to register the Trust/Institution. This Court further held that the conclusion of the Tribunal in holding that registration was deemed to have been granted cannot be sustained and remitted the matter back to the Director of Income Tax (Exemption) to afford an opportunity of hearing to the assessee- Trust and hearing the matter afresh.
12. Learned counsel for Assessee Company fairly submitted that there is no question of “deemed registration” and that the matter be remitted back to the Commissioner of Income Tax, Salem for consideration of the matter afresh. Non-consideration of the registration application would not amount to “deemed registration” and therefore, the order of the Tribunal directing the Commissioner of Income Tax to grant Assessee’s registration under Section 12AA of the Act from the date of inception as claimed in its application dated 17.3.2006 cannot be sustained and the matter is to be remitted back to the Commissioner of Income Tax, Salem for consideration of the matter afresh.
13. The very same issue was considered by this Bench in T.C.(A) No.315 of 2010 dated 27.2.2013 in the matter of Commissioner of Income Tax I, Salem v. Sheela Christian Charitable Trust, wherein by following the decision of this Court reported in Anjuman-E-Khyrkhah-E-Aam (supra) we held that there is no automatic or deemed registration if the application filed under Section 12AA was not disposed of within the stipulated period of six months. We further held therein that the time frame fixed under the said provision is only directory.
14. On merits, by the order dated 28.11.2007, the Commissioner of Income Tax held that there is no element of charity involved in the process of money lending by the Assessee Company and the activity of Assessee Company is not of charitable nature. The said order was challenged before the Tribunal in I.T.A. No. 19 of 2008. Since I.T.A. No. 2448 of 2006 was allowed, Tribunal dismissed I.T.A. No. 19 of 2008, without going into merits of the matter. Since the matter is now remitted to the Commissioner of Income Tax, the Commissioner of Income Tax, Salem is to consider the matter afresh.
15. In the result, the order of the Tribunal in I.T.A. No. 2448/Mds/06 dated 11.06.2010 is set aside and the matter is remitted back to Commissioner of Income Tax, Salem for consideration of the matter afresh and the appeal is allowed. The Commissioner of Income Tax, Salem shall consider the Assessee’s application dated 17.3.2006 afresh and afford sufficient opportunity to the Assessee Company and pass orders. The question of law is answered accordingly. No costs.