2007 (8) TMI 380 - AT - Income Tax

Tribunal Confirms Trust's Deemed Registration Due to CIT's Inaction Beyond Six-Month Limit Under IT Act.

BHAGWAD SWARUP SHRI SHRI DEVRAHA BABA MEMORIAL SHRI HARI PARMARTH DHAM TRUST Versus COMMISSIONER OF INCOME TAX

BHAGWAD SWARUP SHRI SHRI DEVRAHA BABA MEMORIAL SHRI HARI PARMARTH DHAM TRUST Versus COMMISSIONER OF INCOME TAX - ITD 111, 175, TTJ 111, 424, [2008] 111 ... Issues Involved:1. Whether the CIT must pass an order granting or refusing registration of a trust within the period laid down in Section 12AA(2) of the IT Act.2. The consequence of the CIT failing to pass such an order within the prescribed period.Issue-wise Detailed Analysis:1. Mandatory Nature of the Time-Limit in Section 12AA(2):The key issue is whether the CIT is mandated to pass an order within six months from the end of the month in which the application for registration is received, as per Section 12AA(2) of the IT Act. The Tribunal concluded that the CIT has no option but to adhere to the time-limit set by the law, stating, 'The Sub-section (2) of Section 12AA does not admit of any exception to the rule.' The Tribunal emphasized that the language of the statute is mandatory and must be strictly followed, noting 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.'2. Consequence of Failure to Pass an Order Within the Prescribed Period:The Tribunal examined the consequences of the CIT's failure to pass an order within the prescribed period. The Tribunal considered several potential outcomes, including:- Registration is deemed to be granted.- Registration is deemed to be refused.- The application for registration would abate.- The application would be treated as pending.After thorough deliberation, the Tribunal concluded that the only viable consequence is that registration must be deemed to have been granted. The Tribunal reasoned that deeming the application as refused would render the appeal remedy illusory, as there would be no written order to appeal against. Similarly, treating the application as pending would unjustly extend the period of limitation, which the section does not allow. Therefore, the Tribunal stated, '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.'3. Protection of Revenue's Rights:The Tribunal addressed concerns about potential misuse of deemed registration by trusts with non-charitable objects. It noted that the CIT retains the power to cancel the registration under Sub-section (3) of Section 12AA if subsequent enquiries reveal that the trust is not entitled to registration. This provides a safeguard for the Revenue, ensuring that deemed registration does not grant undue benefits to ineligible entities. The Tribunal stated, '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-section (3).'4. Precedents and Analogous Situations:The Tribunal referred to various precedents and analogous situations to support its conclusion. It cited cases under Section 139, where courts have held that if an application for extension of time to file a return is not disposed of within the prescribed period, it must be deemed to have been allowed. The Tribunal also referred to the Supreme Court's decision in DLF Universal Ltd. v. Appropriate Authority, where it was held that if the appropriate authority does not pass an order within the prescribed period, it is duty-bound to issue a 'no objection' certificate. The Tribunal concluded that the same principle applies to Section 12AA(2), stating, '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.'5. Interpretation of Statutes:The Tribunal emphasized the importance of interpreting statutes in a manner that avoids uncertainty, friction, or confusion in the administration of the law. It cited G.P. Singh's 'Interpretation of Statutes' to support its view that provisions as to time should be construed as mandatory when they are related to a right conferred upon a person. The Tribunal concluded that 'the interpretation suggested by Dr. Gupta, in our humble opinion, would conform to this rule.'Conclusion:The Tribunal answered the question referred to it in the affirmative, holding that if the CIT does not pass an order within the period laid down in Section 12AA(2), registration is deemed to have been granted. The order of the CIT refusing registration was declared a nullity and quashed. The Tribunal allowed the appeal, stating, 'Registration is deemed to have been granted as applied for by the assessee.'