2013 (4) TMI 490 - HC - Income Tax

High Court clarifies time limit in Income Tax Act registration as directory, not mandatory.

The High Court held that the time limit in Section 12AA(2) of the Income Tax Act for registration is directory, not mandatory, with no specified ... Deemed registration u/s 12AA - Whether Tribunal was right in setting aside the order of the CIT as 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 - Held that:- In the matter of Commissioner of Income Tax I, Salem v. Sheela Christian Charitable Trust(2013 (3) TMI 268 - MADRAS HIGH COURT), wherein by following the decision of this Court reported in Director of Income Tax (Exemption) v. Anjuman-E-Khyrkhah-E-Aam)(2010 (12) TMI 957 - Madras High Court )- We held that there is no automatic or deemed registration if the application filed U/s 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. On merits - 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 order of the Tribunal is set aside and the matter is remitted back to Commissioner of Income Tax, Salem for consideration of the matter afresh - The appeal is allowed. The Commissioner of Income Tax, Salem shall consider the Assessee's application afresh and afford sufficient opportunity to the Assessee Company and pass orders - The question of law is answered accordingly. Issues:1. Interpretation of Section 12AA(2) of the Income Tax Act regarding the time limit for granting registration.2. Whether the Assessee Company was entitled to deemed registration under Section 12AA of the Act.3. Determination of charitable nature of the Assessee Company's activities for registration under Section 12AA.Analysis:Issue 1: Interpretation of Section 12AA(2) time limitThe High Court analyzed the provision of Section 12AA(2) of the Income Tax Act, which mandates the passing of an order for registration within six months from the receipt of the application. Referring to the Orissa High Court's decision, the court held that the time frame is directory, not mandatory. The court emphasized that the consequence of non-compliance was not specified in the statute, indicating a lack of mandatory intent.Issue 2: Deemed registration for the Assessee CompanyThe Assessee Company contended that as the registration application was not disposed of within the stipulated six months, they should be deemed to have been granted registration under Section 12AA. The Tribunal accepted this argument, citing a previous decision. However, the High Court disagreed, stating that there is no provision for automatic or deemed registration if the application is not processed within the specified time frame.Issue 3: Charitable nature of Assessee Company's activitiesThe Commissioner of Income Tax rejected the Assessee Company's registration application, citing lack of charity in their financial activities. The High Court noted that the Tribunal did not delve into the merits of this issue due to the decision on the registration time frame. The court emphasized that the determination of charitable nature is crucial for registration under Section 12AA and remitted the matter back to the Commissioner for reevaluation.In conclusion, the High Court set aside the Tribunal's order and remitted the case to the Commissioner of Income Tax for a fresh consideration of the Assessee Company's registration application. The court clarified that there is no automatic or deemed registration if the application is not processed within the specified time frame, emphasizing the importance of assessing the charitable nature of the Assessee Company's activities for registration under Section 12AA.