Delhi High Court

Vishwa Hindu Parishad Sankat ... vs Deputy Director Of Income Tax on 14 December, 1999

Equivalent citations: 2001 75 ITD 455 Delhi

ORDER

Ravinder Singh, A.M.

These two appeals are based on identical facts and common grounds of appeal. Both these appeals are, therefore, being disposed of by a common consolidated order for the sake of convenience.

2. These appeals are preferred against the common order passed under section 263 by the Director of Income-Tax (Exemption), New Delhi on 31-3-1993 denying the benefit under section 11 to the assessee on the basis that no registration was granted under section 12A(a) of the Income Tax Act, 1961.

3. The facts of the case lie in the narrow compass. The returns of income of the assessee were scrutinised under section 143(3) of the Act for both the assessment years granting benefit under section 11 (1)(a) of the Act. The Director of Income Tax (Exemption), while exercising his power under section 263, held that the orders passed by the assessing officer were erroneous and prejudicial to the interests of the revenue insofar as the latter had granted the benefit of exemption to which the assessee was not entitled because no registration under section 12A granted by the Commissioner.

4. Learned counsel for the assessee contended before us that the assessee had submitted an application seeking registration within the prescribed time, as per the mandate of section 12A(a) and it was prerogative of the Commissioner to consider the application and decide the question of granting or refusing registration to the applicant. It was argued that no action was taken by the Commissioner for the reasons best known to him. It was submitted that the requirement on the part of the applicant at the relevant time was only to apply for registration with the Commissioner as envisaged by section 12A(a) and as the assessee had complied with the legal requirement, it could not be penalised due to inaction on the part of the authorities. The learned counsel for the assessee placed reliance on the judgment of the Bombay High Court in the case of All India Groundnut Syndicate Ltd. v. CIT ( 1954) 25 ITR 90 (Bom) for the proposition that no action against the assessee can be taken for the default committed by the department.

5. During the course of hearing of appeal, attention of the learned counsel was drawn to the judgment of the Hon'ble Supreme Court in the case of CIT v. U.P. Forest Corporation (1998) 2 DTC 419 (SC) : (1998) 230 ITR 945 (SC) wherein it has held as under:

"Coming to the question whether the income of the respondent is held for charitable purpose and, therefore, exempt from tax by virtue of section 11(1) of the Act, we find no such contention was raised by the respondent before the income-tax authorities. In order to take advantage of the provisions of section 11 of the Act, a trust or institution has to get itself registered. Whether the income of the institution can be regarded as being held for charitable purposes and whether the institution is entitled to registration under section 12A of the Income Tax Act requires investigation of facts.'

6. Learned counsel for the assessee then submitted that the issue in that case was confined to the grant of blanket exemption under section 10(20) of Income Tax Act and the High Court itself embarked upon examining the application of section 11(1) to the facts of the case without any contention in this regard having been raised before the revenue Authorities. He further contended that the Hon'ble Supreme Court has not given any decision on the issue of provisions of section 11 vis-a-vis section 12A of the Income Tax Act.

7. The learned counsel for the assessee took us through the order dated 24-2-1999 passed under section 12A, read with section 12AA(1)(b) of the Act granting registration w.e.f. 1-4-1996 acting on the application filed by the assessee on 23-6-1973. He contended that the department took almost 26 years in disposing of the assessee's application seeking registration. It was urged that the department should not be permitted to decide the fate of the applicant after a fairly long period granting registration effective only from 1-4-1996. He contended that the law is trite on the issue of taking action within a reasonable time in case where no period of limitation has been prescribed under the Act. For this proposition, he placed reliance on the following judgment :

- Income Tax Officer v. Bisheshwar Lal (1970) 76 ITR 653 (All),

- K.P. Naravanappa Shetty & Co. v. CIT(1975) 100 ITR 17 (AP),

- Krishna Bhatia v. Agrl. Income Tax Officer (1981) 132 ITR 21 (Ker),

- Dr. Thomas Varghese v. Slate of Kerala (1997) 226 ITR 365 (Ker) and

- Manikchand Burman v. ITO (1998) 229 ITR 90 (All)

8. The learned counsel for the assessee further challenged the order passed b the learned Director of Income Tax (Exemption) under section 263 on the ground that the action under, section 263 was unwarranted as also the order passed by him was non-speaking. It was contended that the proceedings under section 263 could be initiated only if the order passed by the assessing officer was erroneous as also prejudicial to the interests of the revenue . It was submitted that the order passed by the assessing officer under section 143(3) was not erroneous insofar as there was no violation of any legal provision and the assessee had rightly applied for registration complying with all the conditions enumerated in section 12A and it was thus entitled to exemption under section 11. It was then submitted that the learned Director of Income Tax (Exemption) had passed a non-speaking order. It was contended that the Director of Income Tax (Exemption) had recorded the objections of the assessee to the show-cause notice served on it, but passed the order in a mechanical way without dealing with such objections or giving any reasons in support of, his findings. It was, therefore, contended, placing reliance on the following judgments that the order passed under section 263 be quashed as it was non-speaking :

(i) CIT v. Sunderlal (1974) 96 ITR 310 (All.);

(ii) CIT v. R.K. Metal Works (1978) 112 ITR 445 (P&H),

(iii) CIT v. Shantilal Agarwalla (1983) 142 ITR 778 (Pat) and

(iv) CIT v. Kashi Nath & Co. (1988) 170 ITR 28 (All).

9. Learned counsel for the assessee also placed before us a copy of the order passed by the Tribunal in ITA No. 6650 (Del.)/93 in the case of assessee itself relevant to assessment year 1990-91 wherein under the similar. circumstances, the claim of the appellant was accepted and registration was allowed. It was also submitted that not only the Tribunal rejected the reference application moved by the revenue under section 256(1) but also the Hon'ble Delhi High Court had rejected the department's reference application under section 256(2) against the order passed by the Tribunal.

10. A decision to the similar effect rendered by Tribunal Nagpur Bench in the case of Bhartiya Prakash Mandal v. Inspecting Assistant Commissioner (1983) 12 Taxman 95 (Nag-Trib)(Mag) was brought to our notice wherein also the assessee had submitted the application for registration in April 1970 which was well within time as required by section 12A. It was held in this case that the fact that registration had not been granted at the time of the assessment was not relevant and the assessee was granted the benefit of exemption under section 11.

11. On the other hand, the learned Department Representative contended before us that the action of Director of Income Tax (Exemption) was justified in refusing registration to the assessee. It was contended that the benefit of section 11 could not be availed unless registration was granted under section 12A(a). It was further submitted that mere filing an application was not conclusive and the benefit of exemption could not be availed until the registration was specifically granted to the assessee.

12. We have carefully considered the rival contentions in the light of the precedents relied upon and material placed before us. The core of controversy is to the grant of registration under section 11 for which conditions as prescribed under section 12A are to be complied with. It may be necessary to reproduce the provisions of section 12A(a) (as it was at the relevant time) so as to understand the issue on hand :

"12A. The provisions of section 11 and section 12 shall not apply in relation to the income of any trust or institution unless the following conditions are fulfillled, namely :-

(a) the person in receipt of the income has made an application for registration of the trust or institution in the prescribed form and in the prescribed manner to the Commissioner before the 1st day of July, 1973, or before the expiry of a period of one year from the date of the creation of the trust or the establishment of the institution "whichever is later"."

13. A bare perusal of the section shows that the requisite condition as to registration is that of making an application in the prescribed form within the relevant time.

14. One of the well- established rules of construction of statute is Heydon's rule also known as Mischief rule which deals with ascertaining the correct intention of the Legislature by looking into the mischief that was sought to be remedied by the legislation. This rule basically comprises four things to be considered.

(a) what was the common law before the making of the Act.

(b) what was the mischief and defect for which the common law did not provide.

(d) the true reasons of the remedy.

The Mischief rule was reap proved by, the Hon'ble Supreme Court in the case of CIT v. Shahzada Nand & Sons (1966) 60 ITR 392 (SC).

15. It may be necessary to test the provisions of section 12A relevant to the issue under consideration on the touch-stone of Heydon's Mischief Rule. The Finance (No. 2) Act, 1996 substituted the words "whichever is later and such trust or institution is registered under section 12AA" for the words "whichever is later" in section 12A of the Income Tax Act. The Memorandum explaining the provisions of Finance (No. 2) Bill, 1996 in (1996) 220 ITR 277 (St) states as follows :

"Under the existing provisions of the Income Tax Act, exemption from income-tax in respect of income of a charitable or religious trust or institution is available only if certain conditions are satisfied. One of these conditions is that the person in receipt of the income shall make an application for registration of the trust or institution in the prescribed form and in the prescribed manner to the Chief Commissioner or Commissioner within the specified time. However, there is no provision in the Income Tax Act for processing of such all application and granting or refusal of registration to the concerned trust or institution.

Hence, it is proposed to provide for a procedure to be followed for grant of registration to a trust or institution, according to which, the Chief Commissioner or Commissioner shall call for documents and information and hold enquiries regarding the genuineness of the trust or institution. ...

It is also proposed to provide that the grant of registration shall be one of the conditions for grant of income-tax exemption."

16. On consideration of the above extracted portion, it becomes patent that the Finance (No. 2) Act, 1996 introduced the provisions in regard to the grant of registration as sine qua non for the grant of income-tax exemption with effect from 1-4-1997. Prior to it, there was no such condition and merely making an application for registration of the trust or institution in the prescribed form and the prescribed manner to the Commissioner within the specified time was the necessary, condition for the grant of registration. With the view to remedy this situation, section 12A was amended and section 12AA was introduced to prescribe a procedure for registration and grant of registration was thus made a condition necessary to avail exemption under section 11.

17.The application in the present case seeking registration under section 12A(a) was made on 23-6-1973. It is not the case of revenue that the application was submitted beyond the stipulated time. Subsequent to the filing of application of registration, certain information was demanded by the Commissioner, which was duly furnished to him. Copies of the letters, exchanged between the assessee and the Commissioner in this regard were placed before us.

18. It is obvious that there is no default on the part of the assessee in making application for registration with the Commissioner in time. It is only due to inaction on the part of the Commissioner that the registration was granted after about 26 years of making application and that too effective only from 1 4-1996. By no stretch of imagination this fairly long period can be termed as "reasonable time". After making the necessary application within the stipulated time, the assessee could not have done anything more. It is beyond the control of the assessee to compel the Commissioner to grant necessary registration. It is axiomatic that the law does not require the impossible to be complied with. As the assessee filed application for registration within the stipulated time and the learned Commissioner failed to deal with it within reasonable time, we hold that the registration granted effective from 1-4-1996 should be deemed to have been granted from the date of its filing.

19. In the final analysis, we quash the order passed by, Director of Income Tax (Exemption) under section 263 and allow the benefit of section 11 to the assessee in both the assessment years.

20. In the result, the appeals are allowed.