Whether if CIT fails to either accept or refuse approval u.s 12AA within six months, registration would be deemed as granted - NO: HC Larger Bench

THE issue before the Bench is - Whether if CIT fails to either accept or refuse approval u.s 12AA within six months, registration would be deemed as granted. NO is the answer.

Facts of the case

The assessee was created by an enactment of UP urban planning and development Act for the objects of planning, Development and Improvement of cities, towns and villages for general public utility. Assessee applied for registration u/s 12A but the same was not disposed of within the time prescribed u/s 12AA(2). Assessee claimed exemption u/s 11 & 12 and exercised the option under clause (2) of Explanation to section 22(1) for the receipts / income remained unutilized during the previous year. Return was filed under the status of Local authority declaring nil income. Assessment was completed in the status of "Artificial Juridical Person". AO denied benefits of registration. CIT (A) confirmed the order of AO. Assessee contended before ITAT that when CIT had not passed an order granting or refusing the registration u/s 12AA(2) within six months from the end of the month in which the application for registration u/s 12A was filed, the registration would be deemed to have been granted to the trust or institution automatically on the expiry of period specified in Section 12AA(2). ITAT allowed the appeal and directed AO to assess the assessee as having been registered u/s 12A in the light of the Special Bench judgment in the case of Bhagwad Swarup Shri Shri Devraha Baba Memoral Shri Parmarth Dham Trust Vs. CIT Dehradun and allowed the claims / benefits of Sections 11, 12 and 13, subject to satisfaction of other conditions laid down in these section.The Division Bench had prima facie doubted the correctness of an earlier judgment of a Division Bench in Society for the Promotion of Education Adventure Sport & Conservation of Environment vs. CIT & Ors.

Before the High Court larger bunch, assessee's counsel had submitted that whereas Sections 11 and 12 provide for certain incomes of religious and charitable trusts not being included in the total income of the assessee, the pre condition was registration u/s 12AA, which provides for the procedure for recognition; the procedure for recognition was introduced by Finance Act (No.2) 1996 and the memorandum explaining its provisions indicates that an order granting or refusing permission has to be passed within six months from the end of the month in which the application for registration was received; the intention of the legislature was that the period of six months is mandatory and must be strictly observed; the legislature has used the expression 'may' as well as 'shall' in Section 12AA(1) which is an indicative of the fact that the expression 'shall' was regarded as mandatory wherever it has been used; in other provisions of the Act, such as Sections 250 (6A) and 254 (2A), the legislature, by using the expression 'may' has indicated that the period within which an appeal has to be decided by the Commissioner (Appeals) or by the Tribunal is directory. In contrast, the period which is prescribed in Section 12AA(2) must be regarded as mandatory; and the period of six months in Section 12AA(2) should be treated as mandatory, otherwise the assessee would be subject to grave prejudice by an inordinate delay on the part of the Commissioner in disposing of such applications. Otherwise, the period which had been prescribed would be rendered redundant. On the other hand, counsel appearing on behalf of the revenue submitted that the period of six months was clearly directory and the legislature had not provided any consequence, such as a deeming fiction to the effect that the application would be treated as being granted, if it was not disposed of within six months. The counsel submitted even if this was regarded as a casus omissus, the Court in pursuance of well settled principles of law had no jurisdiction to supplant it and it must adopt a plain and literal meaning of the statute.

Held that,

++ section 12AA(1) requires the Commissioner to whom an application is made for the registration of a trust or institution to satisfy himself about the genuineness of the activities of the trust or institution as well as about the objects of the trust or institution. For that purpose, the Commissioner has been vested with a power to call for documents or information and is empowered to make such inquiries as he may deem necessary in that behalf. The Commissioner is thereupon empowered to pass an order in writing either registering an institution or, if he is not satisfied about the objects of the trust or institution and of the genuineness of its activities, to pass an order in writing refusing to register the trust or institution. An order of refusal has to be preceded by a reasonable opportunity of being heard and is subject to an appellate remedy u/s 253(1)(c). Sub-section (2) of Section 12AA requires that every such order granting or refusing permission 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. The use of the expression 'shall' in sub-section (2) is, by itself, not dispositive of whether the period of six months is mandatory. The legislature has not imposed a stipulation to the effect that after the expiry of a period of six months, the Commissioner would be rendered functus officio or that he would be disabled from exercising his powers. Similarly, the legislature has not made any provision to the effect that the application for registration should be deemed to have been granted, if it is not disposed of within a period of six months with an order in writing either allowing registration or refusing to grant it. The submission of the assessee essentially requires the Court to read into sub-section (2) a fiction by which an application for registration should be regarded as deemed to be granted, if it is not disposed of within six months. Providing that an application should be disposed of within a period of six months is distinct from stipulating the consequence of a failure to do so. Laying down a consequence that an application would be deemed to be granted upon the expiry of six months can only be by way of a legislative fiction or a deeming definition which the Court, in its interpretative capacity, cannot create. That would be to rewrite the law and to introduce a provision which advisedly the legislature has not adopted;

++ the mere fact that in sub-section (1) of Section 12AA, the legislature has used the expression 'may' while providing that the Commissioner may make such inquiry as he may deem necessary to satisfy himself about the genuineness of the activities of the trust or institution, is not by itself reason enough to hold that the use of the expression 'shall' in sub-section(2) must, as a necessary consequence or corollary, be regarded as mandatory in nature. In Ganesh Prasad Sah Kesari and another vs. Lakshmi Narayan Gupta AR 1985 SC 964, the SC observed that the expression 'shall' must be construed as being directory and not mandatory having due regard to the legislative intent. We are unable to accept the line of reasoning which weighed with the Division Bench of this Court in Society for the Promotion of Education Adventure Sport & Conservation of Environment. The Division Bench, in holding that the consequence of the non-consideration of an application for registration within the time fixed by Section 12AA(2), would be a deemed grant of registration, placed reliance on the consideration that unlike the decision of the Supreme Court in Chet Ram Vashist (supra) which dealt with the sanctioning of a lay-out plan where an element of public interest is involved, no such public element or public interest is involved and reading a breach of Section 12AA(2) as leading to a deemed grant of registration may, "at the worst", cause some loss of revenue to the department. On the other hand, taking a contrary view and, if a deemed grant of registration is not read into the statute, the assessee would be left at the mercy of the income tax authorities since no remedy has been provided in the Act against a failure to decide. An irreversible situation is not created by the grant of a deemed registration because it is always open to the revenue to cancel the registration under sub-section (3) of Section 12AA prospectively. The only adverse consequence is a loss of revenue if the deemed registration is cancelled subsequently with prospective effect; and a purposive interpretation of the statute should be adopted;

++ we are not inclined to accept this line of reasoning which has found favour with the Division Bench. For one thing, it would be inappropriate for the Court to accept, as a first principle of law, a proposition that there is no public element involved in the collection of revenue as legislated upon by Parliament or by the State Legislature. Proper collection of the revenues of the State is a matter of public interest since public revenues are utilized for public purposes. But such general considerations cannot override the duty of the Court to give plain meaning and effect to the language used in a taxing statute. The duty of the Court first and foremost is to construe the words of the taxing statute in question as they stand and the intention of the legislature has to be construed with reference to the language of the words used. While interpreting the provision, the Court cannot legislate a new provision or introduce a deeming fiction where none has been provided. Similarly, even as a matter of first principle, a casus omissus cannot be supplied by the Court unless there is a case of clear necessity and when reason is found within the statute itself (Padmasundara Rao (Dead) and others vs. State of T.N. and others AIR 2002 SC 1334, paragraphs 8A and 14, Union of India vs. Rajiv Kumar AIR 2003 SC 2917, paragraph 23 and Unique Butyle Tube Industries (P) Ltd. vs. U.P. Financial Corporation and others (2003) 2 SCC 455, paragraph 14). A similar view to that of the Division Bench was adopted in a judgement of the Delhi Bench of the ITAT in Bhgwad Swarup Shri Shri Devraha Baba Memorial Shri Hari Parmarth Dham Trust vs. Commissioner of Income-tax, Dehradun 2007-TIOL-468-ITAT-DEL-SB . The Tribunal, as indeed the Division Bench of this Court, in the earlier decision, observed that on the balance and though the questions presented some difficulty, it was inclined to take the view supporting the plea of deemed registration, otherwise the assessee would be left without a remedy. The assessee, in our view, is not without a remedy since a delay on the part of the Commissioner to consider an application can be remedied by recourse to the jurisdiction under Article 226 of the Constitution. If the Commissioner has delayed in passing an order on an application for registration under Section 12AA, recourse to the remedy under Article 226 is always available to order an expeditious decision thereon;

++ we may also note at this stage, that the provisions of sub-section (2) of Section 12AA of the Act have been construed in a judgment of a Division Bench of the Madras High Court in Commissioner of Income-tax-I Salem vs. Sheela Christian Charitable Trust 2002-TIOL-1142-SC-IT. The Division Bench in that case has held that the Tribunal was not right in holding that the failure to pass an order in an application u/s 12AA within the stipulated period of six months would automatically result in granting registration to the trust. The same view has been reiterated by a Division Bench of the Madras High Court in Commissioner of Income-tax vs. Karimangalam Onriya Pengal Semipu Amaipu Ltd. 2013-TIOL-282-HC-MAD-IT . There can be no dispute about the basic principle of law that where a legal fiction has been created, it must be given full force and effect. As Lord Asquith,J observed in East End Dwellings Co. Ltd. vs. Finsbury Borough Council (1951) 2 All ER 587 p. 599 B-D : 1952 AC 109 (HL), "where the statute says that you must imagine a certain state of affairs; it does not say that having done so, you must cause or permit your imagination to boggle when it comes to the inevitable corollaries of that state of affairs". The point, however, in this matter is that Section 12AA(2) does not provide for a legal fiction at all. Parliament has carefully and advisedly not provided for a deeming fiction to the effect that an application for registration would be deemed to have been granted, if it is not disposed of within six months. Legislative fictions are what they purport to be : acts of the legislating body. The Court cannot create one, where the legislature has not provided a deeming fiction. In Bhavnagar University vs. Palitana Sugar Mill (P) Ltd. and others (2003) 2 SCC 111, the Apex Court held that when when a public functionary is required to do a certain thing within a specified time, the same is ordinarily directory but it is equally when settled that when consequence for inaction on the part of the statutory authorities within such specified time is expressly provided, it must be held to be imperative;

++ in the present case, Parliament has not legislated a consequence of a failure to decide an application within a period of six months. In the circumstances, we answer the questions referred to the Full Bench for reference in the terms that non disposal of an application for registration, by granting or refusing registration, before the expiry of six months as provided under Section 12AA (2) of the Income Tax Act 1961 would not result in a deemed grant of registration; and the judgment of the Division Bench of this Court in Society for the Promotion of Education Adventure Sport & Conservation of Environment does not lay down the correct position of law. The reference is, accordingly, answered. The appeal shall now be placed before the regular bench in accordance with the roster for final disposal in terms of the questions so answered.