Bhagwad Swarup Shri Shri Devraha Baba Memorial Shri Hari Parmarth Dham Trust vs CIT
2007 17 SOT 281, 111 TTJ 424
Applied DLF Universal Ltd. vs Appropriate Authority 243 ITR 730
Approved Karnataka Golf Association vs DIT (Exemption) 84 TTJ 855; 90 ITD 749
Sardari Lal Oberai Memorial Charitable Trust vs ITO 106 TTJ 468; 2005 3 SOT 229
People Education and Economic Development Society (PEEDS) vs ITO 100 ITD 87; 104 TTJ 467; 296 ITR 36
Registration of: Charitable trust - Limitation for: Passing order by CIT, Effect of: Non-passing of order within specified time
The assessee a charitable trust had applied for registration under s.12A to the CIT. The CIT did not pass any order within 6 months as mandatory required under s.12AA(2). Since no orders were passed within the specified time the registration was deemed to have been granted.
Bhagwad Swarup Shri Shri Devraha Baba Memorial Shri Hari Parmarth Dham Trust vs CIT
ITA No. 3631/Del/2003
R.V. Easwar, Vice President; P.M. Jagtap and R.C. Sharma, A.M
31 August 2007
Rakesh Gupta, Ashwani Taneja, Tarun Kumar and Poonam Ahuja for the Assessee
Durga Charan Das for the Revenue
ORDER—R.V. Easwar, Vice President:
The appeal has been referred to the Special Bench and the following question has been posed for decision :
"Whether in a case where the CIT does not pass the order granting or refusing registration of trust within the period laid down in s. 12AA(2) registration would be deemed to have been granted to the trust or institution automatically on expiry of the period specified in s. 12AA(2) of the Act ?"
2. A few basic facts may be stated now. The assessee is a charitable institution. It applied to the CIT for registration under s. 12A of the IT Act on 23rd Oct., 2001. Under s. 12AA(2) every order granting or refusing registration shall be passed by the CIT before- the expiry of six months from the end of the month in which the application was received by him. In the case before us the CIT ought to have passed an order granting or refusing registration on or before 30th April, 2002, He however passed the order refusing registration to the trust on 26th May, 2003 which was beyond the period laid down in s. 12AA(2). He had however initiated certain enquiries by letter dt. 3rd April, 2002, which was well within the period of six months, to which the assessee responded by furnishing the relevant details. The enquiry continued well beyond 30th April, 2002 and ultimately the CIT passed the order refusing to register the assessee institution.
3. When the appeal of the assessee against the order of the CIT was originally taken up for hearing, the argument of the assessee was that once the time-limit fixed by s. 12AA(2) expired without the CIT having passed any order, it must be deemed that the registration has been granted and in support of this . contention, two orders of the Tribunal, one of the Delhi Bench in Sambandh Organisation vs. CIT (ITA No. 5582/Del/2003) and another of the Bangalore Bench in Karnataka Golf Association vs. Director of IT (Exemption) (2004) 84 TTJ (Bang) 855 : (2005) 272 ITR 123 (Bang)(AT) were relied upon. In these orders, it was held in the event the application for registration is not decided one way or the other within the period of six months, then the registration sought for must be deemed to have been allowed. The Bench was of the view that this would result in certain serious consequences and cited as an example the case of a trust having objects which are not charitable. It further opined that there is no specific provision in the section to the effect that registration "would be deemed to have been allowed if no order is passed within the period of six months. However, since a contrary view had been expressed by two co-ordinate Benches of the Tribunal, the Bench thought it fit and proper to place the appeal before the Hon'ble President for being referred to a Special Bench and also proposed the question to be decided (extracted in the first para). The Hon'ble President has accordingly constituted the Special Bench.
4. Sec. 12AA was introduced by the Finance (No. 2) Act, 1996 w.e.f. 1st April, 1997. The object of introducing the section, as stated in the Circular No. 762 of the 18th Feb., 1998 [(1998) 145 CTR (St) 5], is as follows :
"Registration of charitable and religious trusts.—
19.1 Under the existing provisions of the IT Act, exemption from income-tax in respect of the income of a charitable or religious trust or institution is available only if the conditions specified in that section are satisfied. One of these conditions is that the person in receipt of the income shall make an application for registration of the trust or institution in the prescribed form and in the prescribed manner to the Chief CIT or the CIT for processing of such an application and granting or refusal of registration to the concerned trust or institution.
19.2 Hence the Finance (No. 2) Act, 1996, now provides for a procedure to be followed for grant of registration to a trust or institution. According to this procedure, the Chief CIT or CIT shall call for documents and information and conduct enquiries to satisfy about the genuineness of the trust or institution. After he is satisfied about the charitable or religious nature of the objects and genuineness of the activities of the trust or institution, he will pass an order granting registration. If he is not so satisfied, he will pass an order refusing registration. However, an opportunity of being heard shall have to be provided to the applicant before an order of refusal to grant registration is passed by the Chief CIT or the CIT. The reasons for refusal of registration shall also have to be mentioned in that order. The order granting or refusing registration has to be passed within six months from the end of the month in which the application for registration is received by the Chief CIT or the CIT and a copy of such order shall be sent to the applicant.
19.3 It has also been provided that the grant of registration shall be one of the conditions for grant of income-tax exemption.
19.4 These amendments shall take effect from the 1st day of April, 1997. (Secs. 5 and 6)."
The argument of the learned counsel for the assessee before us is that (a) the right to obtain registration is a valuable or substantive right conferred upon the assessee and is the entry point for obtaining exemption of income under s. 11 of the Act; (b) a right of appeal has been provided to the Tribunal against an order refusing registration w.e.f. 1st June, 1999; (c) having regard to the object for which the section was introduced and the mandatory language used in sub-s. (2)—"shall"—it is incumbent on the CIT to either refuse or grant registration within the time-limit of six months; (d) that if he does not pass any order within the said time-limit and passes the same after the time-limit, such an order is a nullity and can be ignored. According to the learned counsel for the assessee, any of the four consequences flow if no order is passed by the CIT within the six months period and they are : (i) registration is deemed to be granted; (ii) registration is deemed to be refused; (iii) the application for registration would abate and (iv) the application would be treated as pending. In the submission of the learned counsel, consequence Nos. (ii) to (iv) are ruled out. He says that registration cannot be deemed to be refused because a refusal of registration has to be supported by reasons in a written order which is appealable to the Tribunal under s. 253(1)(c) and no appeal can be filed if there is no written order. He further says that the application cannot be deemed to abate in the absence of a specific provision saying so. Further, the application cannot abate for the fault of the CIT in not passing the order within the time provided. As regards consequence No. (iv), the learned counsel says that if the application is deemed to be pending and is required to be disposed of on that footing, the period of limitation for passing the order gets extended for which there is no power vested in any authority. He therefore commends for acceptance of the consequence that the application must be deemed to be allowed. 5. Two reasons are given by Dr. Gupta, the learned counsel for the assessee, as to why the application for registration must be deemed to be accepted. The first is that there is no inconvenience caused to the Department, because it would still be open to the CIT to invoke sub-s. (3) of s. 12AA to cancel the registration deemed to have been allowed and the assessee would not be prejudiced because of the cancellation as it would get a right to appeal against the cancellation of registration to the Tribunal in terms of s. 253(1)(c). Secondly, even if no order is passed by the CIT cancelling the registration, it would be open to the AO to examine the charitable nature of the activities actually carried on by the assessee while examining the return in the course of the assessment proceedings and he is also empowered to verify the application of the monies of the trust for charitable object, investment of the funds, etc. and thus no prejudice would be caused ,to the Revenue because of the deemed registration. Dr. Gupta thus says that,if registration is deemed to be allowed no prejudice would be caused to the Revenue and at the same time the assessee's rights or interests are also protected.
6. In support of the .above arguments, Dr. Gupta relied on the view expressed n Chaturvedi and Pithisaria's Commentary on Income-tax, 5th Edn., Vol. 1, p. 1090, under the head "Time-limit prescribed for passing order granting or refusing registration". The authors have expressed the view that if no order is passed within the six months period, a presumption would arise that registration has been granted. The view expressed by Dr. Avadesh Oza in his Commentary on Income-tax Law, Vol. 1, 2nd Edn. (2003) at p. 1301 to the same effect is also relied upon.
7. In addition, Dr. Gupta drew our attention to analogous situations arising under s. 139, under which it has been held that if the application for extension of time to file the return has not been disposed of and no order refusing the time is intimated to the assessee it must be deemed that the extension of time ks applied for has been allowed : Lachman Chaturbhuj Java vs. R.G. Nitsuie and Ors. (1981) 132 ITR 631 (Bom), Harmanjit Trust vs. CIT (1985) 44 CTR (PandH) 223 : 1984) 148 ITR 214 (PandH), CIT vs. Surinder Kumar Parmod Kumar and Ors. (1991) 00 CTR (PandH) 279 : (1992) 193 ITR 71 (PandH), CIT vs. Rohit Organics (P) Ltd. 2006) 202 CTR (All) 512 and CIT vs. Ajanta Electricals (1995) 126 CTR (SC) 144 : 1995) 215 ITR 114 (SC). Reference was also made to s. 269UD(1) under Chapter XX-C which gives a time-frame of two months to the appropriate authority to tjass an order of pre-emptive purchase of the property and it was pointed out hat the Supreme Court in DLF Universal Ltd. vs. Appropriate Authority (2000) 60 CTR (SC) 401 : (2000) 243 ITR 730 (SC) has held that if no order is passed within two months it will be deemed that the Appropriate Authority is not intending to purchase the property and it is duty-bound to issue a "no objection" certificate.
8. Dr. Gupta contrasted the language employed in ss. 12AA, 153B and 158BE on the one hand, which is positive, with the negative language used in s. 153 rtc. and contended that in substance there is no difference in the consequence If the failure to pass the Order by the specified date. He would submit that the effect of the expressions such as "the order shall be passed within a period of......" and "no order shall be passed after a period of......" is the same. He also Contrasted the above sections with the language used in ss. 250(6A) and 254(2A), under which the CIT(A) and the Tribunal, respectively, have been directed to dispose of the appeals within a particular time frame "where it is possible". He submitted that whereas the language employed in the first set of sections is mandatory and has to be strictly adhered to, the language employed in the second set of sections is merely directory and merely because the CIT(A) or the Tribunal has not found it possible to dispose of an appeal within the set time limit it will not be deemed that the appeal is allowed. Where the language is mandatory, according to Dr. Gupta, the result would be that the failure to pass an order within the period provided would result in the position that the application or return would be deemed to have been accepted.
9. Our attention was drawn by Dr. Gupta to pp. 145 and 382 of G.P. Singh's "Interpretation of Statutes" (2006 Edition) as to the effect of a friction or uncertainty in the statute. It may be recalled that he had earlier submitted that s. 12AA did not provide for a situation where no order was passed by the CIT within 6 months from the end of the month in which the application for registration was filed. The consequence, according to him, was thus uncertain. In such a situation, he contends that the dictum of Lord Shaw in Shannon Realities Ltd. vs. St. Michel (Ville De) (1924) AC 185 (PC) should be Mowed, which is to the effect that "where alternative constructions are equally open that alternative is to be chosen which will be consistent with the smooth working of the system which the statute purports to be regulating; and that alternative is to be rejected which will introduce uncertainty, friction or confusion into the working of the system". Strong reliance was placed on the author's commentary under the head "Considerations of general inconvenience in statutes imposing public duty; provisions as to time; provisions for consultation" at p. 381 of the treatise particularly the following observations at p. 382 : "If performance of a public duty is required to be done within a specified time, which is also related to a right given to a person, the provision as to time will still be held as directory unless it is shown that the person on whom the related right is conferred is prejudiced because of the non-performance of the duty within the specified time" and the observations at p. 383 to the effect that "if the statutory provision as to time is a condition for exercise of a statutory power as distinguished from a duty, the prescription as to time will be construed as mandatory" [Supdt. of Taxes vs. Onkarmal National Trust AIR 1975 SC 2065, CCE vs. MM. Rubber and Co. AIR 1991 SC 2141]. Dr. Gupta also roped in the doctrine of legitimate expectation, under which a citizen has a right to expect that on compliance with the conditions of the statute his application would be accepted.
10. The learned senior Departmental Representative on the other hand submitted that the word "shall" in sub-s. (2) of s. 12AA has to be read as "may", that despite the use of the word "shall" it was open to the CIT to pass orders even after the 6 months period as he was only exercising a power to allow or grant registration, that the time-limit prescribed by the statute is only directory, that in the present case the CIT has initiated the enquiry before the expiry of the time-limit and it was only because the enquiry continued for a long time that the order could not be passed before 30th April, 2002 and that so long as the assessee's rights are not prejudiced and a right of appeal against the refusal to register the trust or institution is available to it, no grievance can be made out of the fact that the refusal order was passed after the period of limitation prescribed in the sub-section.
11. We think that there is a good deal of force in the arguments of Dr. Gupta. The question whether the CIT should pass an order within 6 months from the end of the month in which the application for registration is filed does not present much difficulty. In our opinion, he has no option but to obey the mandate of the law, as we all must. Unless the statute provides for exceptions, the order must be passed by statutory authorities in accordance with the time-limit set by the law. The sub-s. (2) of s. 12AA does not admit of any exception to the rule. Wherever the time-limit for passing an order was meant only to be directory, the IT Act has taken care of the same by providing, for instance, in s. 250(6A) and s. 254(2A) that the CIT(A) and the Tribunal shall dispose of the appeals "where it is possible" within a particular time-frame. We therefore do not have any doubt that it is mandatory for the CIT to dispose of the application for registration within six months from the end of the month in which the application was filed.
12. The other question presents some difficulty. That question is about the consequence of the failure of the CIT, for whatever reason, to pass the order within the period prescribed. Dr. Gupta, it may be recalled, had argued that the only consequence would be that registration will be deemed to have been granted. After a good deal of deliberation upon the argument, we are inclined to think that it would be so. If the application for registration is to abate because the CIT did not pass an order thereon and the assessee is asked to file another application again that would be putting, the assessee to the grind all over again for no fault of his. That consequence should be avoided. If the application is to be treated as pending, then again the CIT would be getting an extended period of limitation which the section does not allow. Further, it would be uncertain as to how long the period can be extended. The assessee cannot be kept waiting to the end of time. If we hold that the application must be deemed to have been refused, obviously the assessee must be in a position to file an appeal against the refusal to the Tribunal but it will not be able to do so in the absence of a written order containing the reasons for refusal; the appeal remedy would be rendered iUusory. That consequence cannot be countenanced. Therefore by a process of exclusion, we are inclined to accept the conclusion that the CIT must be deemed to have allowed the registration if he has not passed any order within the time prescribed. That way, the rights of the Department are also protected in the sense that it would be open to the CIT to cancel the deemed registration by invoking sub-s. (3) to s. 12AA, if it is otherwise permitted and the procedure prescribed therefor is followed. The assessee, if aggrieved by the cancellation of registration, has a right to appeal to the Tribunal under s. 253(1)(c).
13. It must be remembered that the object of introducing s. 12AA was to provide for the processing of the application for registration, registration being a condition for obtaining exemption of the income of the trust or charitable institution under s. 11 (see the circular cited supra). It would be incongruous to hold that while the condition that the trust or charitable institution must be registered with the CIT is mandatory or absolute, the provision that the CIT shall pass an order thereon within six months from the end of the month in which the application was filed is merely directory, leaving it to the convenience of the CIT to pass the order at any time he likes disregarding the time-limit prescribed. That would introduce an element of uncertainty and confusion in the administration of the Act and may even compel trusts or institutions claiming exemption under s. 11 to invoke Art. 226 of the Constitution. Such consequences have to be avoided. The assessments of the trust or charitable institution may in the meantime be completed rejecting the claim for exemption on the ground that it is not registered, even though the trust/charitable institution is found by the AO to satisfy the other conditions such as application of income, investment of the funds and so on. In other words, by not passing the order within the time-limit, the claim of the trust/charitable institution can be frustrated, albeit unintentionally. There is no good ground shown before us, nor does any appear to exist in the scheme of the Act, to hold that the time-limit within which the CIT has to pass an order on the application for registration of the trust or institution is merely directory.
14. It is not merely a question of prejudice being caused to the assessee, but it is something which in our opinion goes to the very root of good administration and obedience to the law. If you talk of prejudice to the assessee, may be in the present case it could be argued that there is none, as the assessee has the right to file an appeal to the Tribunal and in fact had done so and thus has an opportunity to correct the perceived injustice. But the more fundamental question, with respect, is whether the CIT should take the time-limit lightly and whether he could not have conducted and completed his enquiry and passed an order—whether granting or refusing registration—when a sufficiently large time-frame is given by the section (six months from the end of the month in which the application is filed) to facilitate whatever enquiry the CIT wants to conduct to verify the genuineness of the trust, its objects, its activities, etc. In the case on hand, he has started the enquiry as late as 3rd April, 2002 when the time-limit for passing the order would come to an end on 30th April, 2002. The assessee has not been found wanting in diligence or in promptly replying to the queries made. Its first reply was on 12th April, 2002. There was a further query only on 3rd May, 2002 which was also promptly replied. But by that time the last date for passing the order had expired. For 18 days in April (between 12th and 30th) there seems to have been no progress in the enquiry. Thereafter, a final show-cause notice was issued on 31st July, 2002 to which the assessee replied on 8th Aug., 2002. Another notice was issued on 9th Sept., 2002 asking for details of the donations received, which were filed on 23rd Sept., 2002. The order refusing registration was ultimately passed on 26th May 2003, more than a year after the expiry of the time-limit. The entire chronology shows that no action was taken on the application till the time-limit for passing the order was about to come to an end. When the enquiry was started at a very late stage, it was found that there were many things to be enquired into and so the enquiry could not be completed and an order passed on or before 30th April, 2002. The time-limit prescribed was given a go-by, the enquiry was continued and finally an order was passed refusing the registration.
15. We are highlighting the above facts only to show that it could not have been the intention of the law that the CIT could pass the order granting or refusing registration at any time. Any provision has to be so interpreted as to advance the cause and suppress the mischief. The interpretation suggested by Dr. Gupta, in our humble opinion, would conform to this rule. In Dalchand vs. Municipal Corporation AIR. 1983 SC 303 it was observed that "there are no ready or invariable formulae to determine whether a provision is mandatory or directory. The broad purpose of the statute is important. The object of the particular provision must be considered. The link between the two is most important. The weighing of the consequence of holding a provision,to be. mandatory or directory is vital and, more often than not, determinative of the very question whether the provision is mandatory or directory.......... the negligence of those to whom public duties are entrusted cannot by statutory interpretation be allowed to promote, public mischief and cause public inconvenience and defeat the main object of the .statute.....". Applying these observations to the question posed before us, it appears to us that the interpretation which Dr. Gupta wants us to place on sub-s. (2) of s. 12AA is the better one.
16. It is well to remember that the CIT is exercising a power vested in him under the Act which will decide, subject to appeal, the fate of the claim of the trust or institution for exemption under s. 11. It is an important power. Sufficient time has been given to him to conduct, all enquiries into the claim for registration. The section itself was introduced to provide for the procedure for registration which had not been provided earlier. The only condition before the introduction of the section was that an application for registration should be made to the CIT (s. 12A). Sec. 12AA was introduced to provide for the procedure for registration, enquiry into the claim and a time-limit for passing the order. All these form a compendious whole and we do not see why, while exercising such an important power the CIT should also not pass an order within the time-limit provided. It will be incongruous to hold that conducting an enquiry into the claim for registration is an important exercise of the power whereas passing of the order within the time-limit provided is not and it can be done at any. time. Further, the principle that an authority (the CIT) cannot be allowed to take advantage of a breach of duty (not passing the order within the time-limit) on his part and claim that grant of registration is no longer possible as the prescribed period of six months from the end of the month in which the application for registration was filed is over, would apply to the interpretation of the sub-section.
17. The consequence of a decision that if the CIT has not passed the order within the period of six'months from the end of the month in which the application for registration was filed then registration would be deemed to have been granted may now be seen. We have already referred to sub-s. (3) of s. 12AA which gives power to the CIT to cancel the registration and he can invoke the same if enquiries completed by him beyond the time-limit reveal that the trust/charitable institution is not entitled to registration. The assessee would get a right of appeal to the Tribunal against the same. The matter would be thrashed out before the Tribunal. Apprehensions were expressed before us on behalf of the Department that even a trust whose objects were not, charitable would get registration by such deeming. The apprehension is not fully justified, because there is nothing in law to prevent the CIT from making his own enquiries even after the expiry of the time-limit and making use of the results thereof to cancel the registration under sub-s. (3). The consequence would outweigh the uncertainty or confusion which the non-passing of the order within the time-limit would introduce into the working of the system. Lord Shaw's dictum which we have quoted earlier would cover the case.
18. Among the several authorities cited on behalf of the assessee, we find that DLF Universal Ltd. vs. Appropriate Authority (supra) helps the assessee the most. In that case the provisions of s. 269UD of the Act, appearing in Chapter XX-C of the Act, providing for pre-emptive purchase of a property by the Government came up for consideration. A statement in Form No. 37-I was filed before the appropriate authority. It was found to be in order, It was filed within the time prescribed. Under the section the appropriate authority had to pass an order within three months from the receipt of the statement purchasing the property or to give a "no objection" certificate. The petitioner before the Court had complied with all the conditions imposed on it. But the appropriate authority did not pass any order within the period of three months mentioned above for purchase of the property by the Central Government. The Supreme Court held that in these circumstances "the appropriate authority is duty-bound to issue no objection certificate to the transfer of the property". The only difference, without any substantial distinction, is that while the time-limit of three months was prescribed in the first and second provisos to s. 269UD, the time-limit of 6 months from the month in which the application for registration was filed is prescribed in the sub-s. (2) itself of s. 12AA. Another difference, again without any distinction, is that the provisos to s. 269UD are couched in negative language ("no such order shall be passed.....after the expiration of.....") while sub-s. (2) of s. 12AA is couched in positive language ["every order granting or refusing registration under cl. (b) of sub-s. (1) shall be passed before the expiry of...."]. The effect or the result is in our opinion the same, viz., the orders have to be passed within the time-limit prescribed and if not the application should be deemed to have been granted.
19. In the ultimate analysis, it seems to us that we must agree with the conclusion which the Bangalore Bench reached in Karnataka Golf Association vs. Director of IT (supra), the Delhi Bench in Sardari Lal Oberoi Memorial Charitable Trust vs. ITO (2007) 106 TTJ (Del) 468 and Chennai Bench in People Education and Economic Development Society (Peeds) vs. ITO (2006) 104 TTJ 467 (Chennai)(TM) : (2006) 100 ITD 87 (Chennai)(TM). We accordingly answer the question referred to us in the affirmative. The order of the CIT refusing registration is a nullity and is quashed. Registration is deemed to have been granted as applied for by the assessee. The appeal is allowed. In the light of this, we do not propose to examine the merits of the claim for registration.