Trusts deemed to be registered, if application not disposed of within 6 months : SC

1. Section 12AA(2) of Income-tax Act : The relevant provisions are —

(2) Every order granting or refusing registration 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 under clause (a) or clause (aa) of sub-section (1) of section 12A.

2. Allahabad HC judgment [Deemed registration] : The Allahabad High Court held in Society for the Promotion of Education, Adventure Sport & Conservation of Environment v. Commissioner of Income-tax, Central, Kanpur [2008] 171 Taxman 113 (Allahabad) that effect of non-consideration of application for registration under section 12A within time fixed by section 12AA(2) would be a deemed grant of registration. The relevant extracts are :

Admittedly, after the statutory limitation, the Commissioner would become functus officio, and he could not 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. [Para 6]

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. [Para 10]

On the other hand, taking the contrary view and holding that not taking a decision within the time fixed by section 12AA(2) was of no consequence would leave the assessee totally at the mercy of the income-tax authorities, inasmuch as the assessee had not been provided with any remedy under the Act against non-decision. [Para 11]

Besides, the said view would not create any irreversible situation, because under section 12AA(3), the registration can always be cancelled by the Commissioner, if he is satisfied that the objects of such trust or institution are not genuine or the activities are not being carried out in accordance with the objects of the trust or institution. The only drawback is that such cancellation would operate only prospectively. Therefore, if a view is taken that non-consideration of the registration application within the time fixed by section 12AA(2) would amount to deemed grant of registration, the only adverse consequence likely to flow from such a view, in respect of any case of that assessee arising in future would, at best, be some loss of revenue from that individual assessee from the date of expiry of the limitation under section 12AA(3) till the date of cancellation of that registration, if such cancellation is called for. [Para 12]

Considering the pros and cons of the two views, 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 deemed grant of registration. There is no 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 months period provided by section 12AA(2). ‘[Para 18]

3. Madras HC judgment [Application will remain pending even after 6 months] : The Madras HC, in CIT v. Karimangalam Onriya Pengal Semipu Amaipu Ltd. (2013) 354 ITR 483 (Mad), opined that the time frame mentioned in section 12AA(2) is not mandatory and is only directory in nature and non-consideration of registration application within 6 months would not amount to “deemed registration”. Application shall remain pending even after 6 months. –

4. SC judgment affirming judgment of Allahabad High Court : The Supreme Court, in Commissioner of Income-tax, Kanpur v. Society for Promn. of Edn., Allahabad [2016] 67 taxmann.com 264 (SC), upheld judgment of the Allahabad High Court and clarified that deemed registration would be effective from expiry of 6 months. The judgment is as follows :

Kurian, Joseph, J. – Leave granted.

2. There is no appearance on behalf of the sole respondent despite service of notice and adjournment sought for on a couple of occasions earlier.

3. The short issue is with regard to the deemed registration of an application under Section 12AA of the Income Tax Act. The High Court has taken the view that once an application is made under the said provision and in case the same is not responded to within six months, it would be taken that the application is registered under the provision.

4. The learned Additional Solicitor General appearing for the appellants, has raised an apprehension that in the case of the respondent, since the date of application was of 24.02.2003, at the worst, the same would operate only after six months from the date of the application.

5. We see no basis for such an apprehension since that is the only logical sense in which the Judgment could be understood. Therefore, in order to disabuse any apprehension, we make it clear that the registration of the application under Section 12AA of the Income Tax Act in the case of the respondent shall take effect from 24.08.2003.

6. Subject to the above clarification and leaving all other questions of law open, the appeal is disposed of with no order as to costs.

5. Editor’s Note : Since the time-limit for application dated 24-2-2003 would expire on 31-8-2003, hence, it appears that the judgment of the Supreme Court should be read down in present context to mean that registration would be effective from 31-8-2003.

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