The Director Of Income-Tax (Exemption), Chennai v. The Anjuman-E-Khyrkhah-E-Aam

IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 13.12.2010 CORAM: THE HONOURABLE MR. JUSTICE F.M. IBRAHIM KALIFULLAandTHE HONOURABLE MR.JUSTICE N.KIRUBAKARAN The Director of Income-tax (Exemption), Chennai... Appellant/Respondentvs. The Anjuman-e-Khyrkhah-e-AamNo.610-A, Jamath RoadMuslimpur, Vaniampadi. .. Respondent/Appellant Tax Case Appeal filed under Section 260A of the Income TaxAct, 1961, against the order of the Income Tax Appellate Tribunal,Madras 'B' Bench, Chennai dated 26.05.2010 passed inI.T.A.No.51/Chny/2010. against the order of the Director of IncomeTax (exemptions) Ayakar Bhavan, Annexe III Floor, No.121, M.G.Road,Nungambakkam, Chennai 34, dated 31.7.2009 and made in DIT (E)No.2/1132)/08-09. For Appellant : Mr.Patty B.Jeganathan Standing Counsel for Income-taxFor Respondent : Mr.J.Balachander for Mr.S.Sridhar --- Judgment (Judgment of the Court was delivered by F.M.IBRAHIM KALIFULLA,J.) The Revenue has come forward with this appeal. Though twoquestions of law sought to be raised, we do not find any scope toentertain the second question of law, which, according to theappellant, was based on the earlier orders of the Tribunal passedin ITA.Nos.1939 and 1940 of 2009 dated 25.02.2010 and I.T.A.No.308of 2009 dated 08.01.2010. We perused the above referred toearlier orders of the Tribunal and as we find that there were verymany distinguishing features on facts involved in those cases,there is no scope to compare the above referred to orders of theTribunal to decide the issue raised herein. As far as the first https://hcservices.ecourts.gov.in/hcservices/ question of law is concerned, the said question of law reads asunder: "Whether on the facts and circumstances of thecase, the Tribunal was right in deciding that theassessee should be deemed to have been granted theregistration under Section 12AA of the Act anddirected to grant registration contrary to the saidprovision?" 2. The brief facts, which are required to be stated, are thatthe respondent filed an application in Form 10A before theappellant on 28.01.2009, seeking registration under Section 12AA ofthe Income-tax Act and in Form 10G for grant of approval underSection 80G of the Act. The application in Form 10A was processedby the appellant and based on the accounts, the appellant felt thatthe respondent derived rental income from properties situated atChennai and Vaniambadi, by hiring utensils and sale of books. Ittherefore called upon the respondent by a letter dated 06.07.2009to explain why the application for registration under Section 12AAof the Act, should not be rejected and to furnish additionalinformation called for in the said letter. 3. The respondent filed their reply on 15.07.2009 furnishingthe explanation. The respondent contended that the utensils areused in the students' hostel, which are being let on hire atconcessional charges to the poor at the time of marriages, thatsuch charges are very meagre, that the hiring charges are not ondaily basis and that the charges were to ensure that the hiredutensils to the poor are returned back in time after the marriagefunction is over. According to the respondent, they wanted toensure the return of the utensils in time, so that it could begiven to other poor people for their use. 4. As far as the income derived from the sale of books areconcerned, the respondent contended that it has got a reading roomand a library, that every year old books and periodicals used to besold and whatever money secured from such sale used to be reflectedin the accounts under the heading 'sale of books'. The respondent,therefore, claimed that such selling activity is not their regularcommercial activity, but was only incidental to its main activityof running its orphanage. 4. As far as the income derived from the sale of books areconcerned, the respondent contended that it has got a reading roomand a library, that every year old books and periodicals used to besold and whatever money secured from such sale used to be reflectedin the accounts under the heading 'sale of books'. The respondent,therefore, claimed that such selling activity is not their regularcommercial activity, but was only incidental to its main activityof running its orphanage. 5. The appellant, by one line order, rejected the stand of therespondent as regards the hiring of utensils as well as sale ofbooks and held that both the activities were purely commercial innature and that the respondent derived huge rental income from itsproperties on a regular basis and therefore, its activities cannotbe called as charitable one. Even after holding so, the appellantmerely lodged the application of the respondent. 6. While dealing with the said order, the Tribunal held thatsince the application was filed by the respondent on 28.01.2009 andthe order came to be passed on 31.07.2009, by virtue of Section12AA(2) of the Act, six months period expired and therefore, theapplication should be deemed to have been granted, recognising thestatus of the respondent as 'Charitable Trust'. It also went intothe merits of the order and held that the reasoning of theappellant as regards sale of books, hiring of utensils and rentalincome would not make the activities of the respondent-trust as acommercial venture. 7. Having heard Mr.Patty B.Jaganathan, learned standingcounsel for the appellant and Mr.J.Balachander, learned counsel forthe respondent and having perused the order of the appellant aswell as that of the Tribunal, in the foremost, we find that theconstruction placed by the Tribunal, based on Section 12AA(2) ofthe Act, cannot be accepted. Section 12AA(2) of the Act, reads asunder:"Every order granting or refusing registrationunder clause (b) of sub-section (1) shall be passedbefore the expiry of six months from the end of themonth in which the application was received underclause (a) of Section 12A." 8. Going by the said provision, the appellant is expected topass the order in an application for registration either bygranting or by refusing it before the expiry of six months from theend of the month, in which the application was received. 9. The application was dated 28.01.2009, which has been statedso in the very opening paragraph of the order of the appellantdated 31.07.2009. If we calculate the six months' period from theend of the said month, it can be safely held that the six months'period would expire by 31.07.2009. Therefore, the order passed bythe appellant on 31.07.2009 cannot be held to have been passed inviolation of Section 12AA of the Act. When such a conclution isinevitable by virtue of the relevant dates, which are not indispute, the conclusion of the Tribunal in holding that theregistration was deemed to have been granted, cannot be sustained,inasmuch as we have found that the order of the appellant waspassed within a period of six months stipulated in Section 12AA(2)of the Act,. We are not examining the issue as to whether anyorder passed beyond the six months' period, should be taken as theregistration is deemed to have been granted. We, therefore, leaveit open to be decided in any other appropriate case. We, however,set aside the order of the Tribunal, inasmuch as we have found thatthe appellant has passed the order within the stipulated time limitof six months. 10. As far as the merits of the claim of the respondent isconcerned, it is a matter to be properly examined by the appellantby giving proper reasons while rejecting any stand of therespondent with reference to sale of books and periodicals, incomederived from the hiring of utensils as well as the rental income.That apart, the order of the appellant was rightly set aside by theTribunal, as the appellant should have either granted or rejectedthe application and is not expected to merely lodge theapplication, which will only leave the respondent who sought forregistration as a 'Charitable Trust' in a suspended animation.Such a situation cannot be created by the appellant by lodgingassessee's application. Moreover, the specific provision containedin Section 12AA of the Act, in particular, Section 12AA(1)(b)(i)and (ii) makes it clear that there is a statutory mandate imposedon the appellant to pass an order in writing either registering thetrust/institution or refusing to register the trust/institution.There cannot be any order in between like lodging the application.Though we hold that there was no deemed registration under Section12AA(2) of the Act, the orders of the Tribunal as well as that ofthe appellant dated 26.5.2010 and 31.7.2009 are set aside and thematter is remitted back to the appellant for fresh disposal onmerits. The appellant is directed to take up the application forregistration of the respondent, give an opportunity of hearing tothe respondent and pass orders, one way or the other, within twomonths from the date of receipt of a copy of this order. Thequestion of law is answered in favour of the appellant. No costs.ATRSd/- Sd/-Asst. Registrar //True Copy// To Sub Asst. Registrar 1. The Secretary Central Board of Direct Taxes New Delhi. 2. The Income Tax Appellate Tribunal Madras 'B' Bench Chennai. 3. The Director of Income-tax (Exemptions) Chennai. Chennai. 4.The Assistant Registrar, Income Tax Appellate Tribunal,III Floor, Rajaji Bhavan,Besant Nagar, Chennai. + 1 cc to Mr. J. Balachander, Advocate SR No.89140+ 1 cc to Mr. Patty B. Jeganathan, Advocate SR No.88843GV(CO)SR/7.1.2011T.C.(A) No.1056 of 2010