2008 (4) TMI 700 - HC - Income Tax

Petitioner Society Deemed Registered u/s 12AA Despite Delays by Tax Authorities, Ensuring Fair Treatment.

Society for the Promotion of Education, Adventure Sport & Conservation of Environment Versus Commissioner of Income-tax, Central, Kanpur

The Allahabad HC ruled that the petitioner society should be deemed registered under Section 12AA of the Income Tax Act, despite the delay by the Income ... Deemed registration of an application u/s 12AA - Non-consideration of the application for registration within the time fixed by section 12AA(2) - Block assessment u/s 158BD - huge tax demands - Petitioner is a Society running a school - Doctrine of ‘purposive construction’ - HELD THAT:- Admittedly, no decision was taken on the petitioner’s application within the time of six months fixed by the aforesaid provision and in fact, even after a lapse of almost 5 years, no decision had been taken as per the counter affidavit. And for want of a decision by the Commissioner, the AO has continued to make block assessment of the Petitioner under section 158BD, raising huge tax demands in excess of rupees two crores. Admittedly after the statutory limitation the Commissioner would become functus officio, and he cannot thereafter pass any order either allowing or rejecting the registration. It is obvious that the application cannot be allowed to be treated as perpetually undecided. In the present case, we find that there is no such public element or public interest. Taking the view that non-consideration of the registration application within the time fixed by section 12AA(2) would result in deemed registration, may at the worst cause loss of some revenue or income-tax payable by that individual assessee. This would be similar to a situation where the Assessing Authority fails to make the assessment or reassessment within the limitation prescribed for the same. That also leads occasionally to loss of revenue from that individual assessee. On the other hand, taking the contrary view and holding that not taking a decision within the time fixed by section 12AA(2) is of no consequence would leave the assessee totally at the mercy of the Income-tax Authorities, inasmuch as the assessee has not been provided any remedy under the Act against non-decision. In our view for the interpretation of a statute ‘purposive construction’ of the enactment which gives effect to the legislative purpose/intendment, if necessary must be followed and applied. The doctrine of purposive interpretation is well-accepted and has been applied in India by the Apex Court following the English Law. ‘Purposive construction’ is, Lord Smith in R. (Haw) v. Secretary of State for the Home Department - 'A purposive construction of an enactment is one which gives effect to the legislative purpose by (a) following the literal meaning of the enactment where that meaning is in accordance with the legislative purpose (in this Code called a purposive-and-literal construction), or (b) applying a strained meaning where the literal meaning is not in accordance with the legislative purpose (in the Code called a purposive-and-strained construction). The Apex Court also referred to and followed its earlier decisions in Bharat Petroleum Corpn. Ltd. v. Maddula Ratnawalli [2007 (4) TMI 666 - SUPREME COURT] and Oriental Insurance Co. Ltd. v. Brij Mohan [2007 (5) TMI 592 - SUPREME COURT], for taking recourse to the doctrine of ‘purposive interpretation’. The Apex Court has also applied doctrine of purposive interpretation in fiscal statutes that would be evident from its decision in CIT v. Anjum M.H. Ghaswala [2001 (10) TMI 4 - SUPREME COURT]. Considering the pros and cons of the two views, we are of the opinion that by far the better interpretation would be to hold that the effect of non-consideration of the application for registration within the time fixed by section 12AA(2) would be a deemed grant of registration. We do not find any good reason to make the assessee suffer merely because the Income-tax Department is not able to keep its officers under check and control, so as to take timely decisions in such simple matters such as consideration of applications for registration even within the large six month period provided by section 12AA(2) of the Act. We accordingly direct the respondents, subject to any order which may be passed under section 12AA(3), to treat the Petitioner Society as an Institution duly approved and registered under section 12AA and to recompute its income by applying the provision of section 11 of the Act. Accordingly, a formal certificate of approval will be issued forthwith to the petitioner by the respondent No. 2. The writ petition is allowed to the above extent. Issues:1. Delay in deciding the application for registration under Section 12A of the Income Tax Act.2. Consequence of delay on the petitioner's tax assessment.3. Interpretation of Section 12AA(2) regarding the time limit for deciding on registration applications.4. Legal implications of non-consideration of the registration application within the specified time frame.5. Application of the doctrine of purposive interpretation in statutory provisions.Issue 1: Delay in deciding the application for registration under Section 12A of the Income Tax ActThe petitioner, a society running a school, applied for registration under Section 12A of the Income Tax Act after Section 10(22) was omitted. The application was not decided within the stipulated six-month period as per Section 12AA(2), leading to block assessments by the Assessing Officer. The court had to determine the consequences of such a delay by the Income Tax Authorities.Issue 2: Consequence of delay on the petitioner's tax assessmentThe delay in deciding the registration application resulted in the Assessing Officer making block assessments, raising substantial tax demands. The petitioner argued that the delay should not be to the advantage of the Income Tax Department and that the application should be deemed granted due to the inaction of the authorities.Issue 3: Interpretation of Section 12AA(2) regarding the time limit for deciding on registration applicationsSection 12AA(2) mandates that a decision on registration should be made within six months from the date of application. The court examined whether the failure to decide within this period should result in the application being treated as rejected or allowed, considering the statutory provisions and judicial precedents.Issue 4: Legal implications of non-consideration of the registration application within the specified time frameThe court analyzed various decisions, including those of the ITAT and High Courts, to determine the legal consequences of the Income Tax Authorities not deciding on the registration application within the prescribed time frame. The petitioner argued for a deemed grant of registration, citing precedents and legislative intent.Issue 5: Application of the doctrine of purposive interpretation in statutory provisionsThe court applied the doctrine of purposive interpretation to ascertain the legislative intent behind the statutory provisions. By considering the purpose and object of the law, the court concluded that the delay in deciding the registration application should result in a deemed grant of registration to prevent undue hardship to the assessee.The judgment by the Allahabad High Court directed the Income Tax Authorities to treat the petitioner society as duly approved and registered under Section 12AA, despite the delay in deciding the registration application. The court emphasized the need to protect the assessee's interests and prevent arbitrary actions by the authorities. The decision highlighted the importance of timely decision-making by tax authorities and the application of purposive interpretation to uphold the legislative intent behind statutory provisions.