JUDGMENT Sushil Harkauli and Sudhir Agarwal, JJ.
1. Counter and rejoinder affidavits have been exchanged. We have heard both sides.
2. The petitioner is a Society running a school. The petitioner claims that because up to the assessment year 1998-99, it was exempted under Section 10(22) of the Income Tax Act, 1961, (hereinafter referred to as the Act for short), therefore it did not seek separate registration under Section 12A of the Act, so as to claim exemption under Section 11.
3. Section 10(22) being omitted by the Finance Act, 1998, the petitioner applied for registration under Section 12A of the Act, with retrospective effect, that is since the inception of the petitioner-society i.e. 11.1.1993. An application for the purpose was duly made on 24.6.2003. Inasmuch as, under Section 12A(a) (as it stood at the time of making the application), the application was required to be made within one year from the date of creation of establishment of the Trust or Institution, therefore, condonation of delay was sought in terms of Section 12A(a) proviso (i).
4. Section 12 AA(2) reads as follows:
12AA(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.]
5. 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 Assessing Officer has continued to make block assessment of the Petitioner under Section 158BD, raising huge tax demands in excess of rupees two crores.
6. What has to be examined in this writ petition is the consequence of such a long delay on part of Income Tax Authorities in not deciding the petitioner's application dated 24.2.2003. 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 apllication cannot be allowed to be treated as perpetually undecided. Therefore the key question arises whether upon lapse of the six month period without any decision, the application for registration should be treated as rejected or it should be treated as allowed.
7. The petitioner contends, relying upon a decision of the ITAT Bangalore Bench in the case of Karnataka Golf Association v. Director of Income Tax 91 ITD 1, that the registration should be deemed to have been granted after the expiry of the period prescribed under Section 12AA(2), if no decision had been taken on the application for registration under Section 12A/12AA. Reliance has also been placed by the petitioner in the cases of Jan Daood and Co v. ITO and C.I.T. v. Rohit Organics (P) Ltd. (2000) 281 ITR 194, both of which lay down that when an application for extension of time is moved, and is not decided, it will be deemed to have been allowed. In continuation of the above, reliance has been placed upon the decision of the Allahabad High Court in the case of K.N. Agarwal v. C.I.T. (1991) 189 ITR 769, which lays down that discipline of quasi judicial functioning demands that the decision of the Tribunal or the High Court must be followed by all departmental authorities, because not following the same could lead to a chaotic situation. Similar view has been expressed by the Bombay High Court in the case of Bank of Baroda v. H.C. Srivastava .
8. It is not in dispute that the Commissioner is required to give opportunity to the applicant before refusing registration and that reasons have to be given by the Commissioner in his order (see CBDT Circular No. 762 dated 18-02-1998). Based on that hypothesis, it has been argued that absence of any such order of the Commissioner should be taken to mean that he has not found any reason for refusing registration, notice of which could have been given to the assessee by way of opportunity of hearing. For showing the Legislative intent, reliance has also been placed by the Petitioner on the fact that against an order of the Commissioner granting registration the Income Tax Department has not been given any right of appeal. It has been argued that laches and lapse on part of Department cannot be to its own advantage by treating the application for registration as rejected.
9. On the other hand, the standing counsel for the Income Tax Department relies upon a decision of the Supreme Court in the case of Chet Ram Vashist v. Municipal Corporation at Delhi . In the said decision, the Supreme Court was examining the effect of the failure on part of Delhi Municipal Corporation to decide an application under Section 313(3) of Delhi Municipal Corporation Act, 1957, for sanction to a lay-out plan within the period specified in that sub-section. The Supreme Court held in that decision that non-consideration would not amount to deemed sanction. Apart from the fact that the said Supreme Court decision was dealing with a different statute, but one of the important aspects pointed out by the Supreme Court for taking that view is the purpose of the provision requiring sanction to lay-out plans. There was an element of public interest involved namely to prevent un-planned and haphazard development or construction to the detriment of the public. Besides sanction or deemed sanction to a lay-out plan would entail constructions being carried out, thereby creating an irreversible situation.
10. 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.
11. 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.
12. Besides, the above view does not create any irreversible situtation, 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.
13. Moreover, the view we are inclined to take as above furthers the object and purpose of the aforesaid statutory provision. 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 on the subject. Explaining as to what 'purposive construction' is, Lord Smith in R. (Haw) v. Secretary of State of State for the Home Department (2006) 3 All ER 428 at page 438, in paragraph 42, observed "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)."
14. Again in paragraph 44 quoting the passage from Bennion, it said:
...I am not reluctant to adopt a purposive construction where to apply the literal meaning of the legislative language used would lead to results which would clearly defeat the purposes of the Act. But in doing so the task on which a court of justice is engaged remains one of construction, even where this involves reading into the Act words which are not expressly included in it. [Kammins Ballroom Co. Ltd. v. Zenith Investments (Torquay) Ltd. 1971 AC 850] provides an instance of this; but in that case the three conditions that must be fulfilled in order to justify this course were satisfied. First, it was possible to determine from a consideration of the provisions of the Act read as a whole precisely what the mischief was that it was the purpose of the Act to remedy; secondly, it was apparent that the draftsman and Parliament had by inadvertence overlooked, and so omitted to deal with, an eventuality that required to be dealt with if the purpose of the Act was to be achieved; and thirdly, it was possible to state with certainty what were the additional words that would have been inserted by the draftsman and approved by Parliament had their attention been drawn to the omission before the Bill passed into law. Unless this third condition is fulfilled any attempt by a court of justice to repair the omission in the Act cannot be justified as an exercise of its jurisdiction to determine what is the meaning of a written law which Parliament has passed.
15. The aforesaid principle has been followed and applied by the Apex Court in India in K.L. Gupte v. Municipal Corporation of Greater Bombay ; Reserve Bank of India v. Peerless General Finance and Investment Co. Ltd. (1987) 1 SCC 5424; Punjab Land Development and Reclamataion Corporation Ltd. v. Presiding Officer ; Balram Kumawat v. Union of India ; Maruti Udyog Ltd. v. Ram Lal ; Pratap Singh v. State of Jharkhand ; Dilip S. Dahanukar v. Kotak Mahindra Co. Ltd. .
16. Recently in New India Assurance Company Ltd. v. Nusli Neville Wadia and Anr. , in paragraph 51 of the judgment, the Apex Court referred to Aharon Barak, Purposive Interpretation in Law (2007) at page 87) and quoted the following passage:
Hart and Sachs also appear to treat "purpose" as a subjective concept. I say "appear" because, although Hart and Sachs claim that the interpreter should imagine himself or herself in the legislator's shoes, they introduce two elements of objectivity: First, the interpreter should assume that the legislature is composed of reasonable people seeking to achieve reasonable goals in a reasonable manner; and second, the interpreter should accept the non-rebuttable presumption that members of the legislative body sought to fulfill their constitutional duties in good faith. This formulation allows the interpreter to inquire not into the subjective intent of the author, but rather the intent the author would have had, had he or she acted reasonably.
17. The Apex Court also referred to and followed its earlier decisions in Bharat Petroleum Corporation Ltd. v. Maddula Ratnawalli JT 2007 (6) SC 564 and Oriental Insurance Company Ltd. v. Brij Mohan and Ors. JT 2007 (7) SC 472, for taking recourse to the doctrine of 'purposive interpretation'.
18. 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 and Ors. .
19. 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.
20. 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.
21. The writ petition is allowed to the above extent.