2006 (10) TMI 256 - AT - Income Tax

Summary

Issues Involved:
1. Refusal of registration under section 12AA of the Income-tax Act, 1961.
2. Condonation of delay in filing the application for registration.

Issue-wise Detailed Analysis:

1. Refusal of Registration under Section 12AA:

The Commissioner of Income-tax (CIT) refused registration under section 12AA on the grounds that the assessee was neither a trust nor a society. The CIT referred to section 3 of the Indian Trusts Act, 1882, which defines a trust as an obligation annexed to ownership of property for the benefit of another. The CIT concluded that the assessee did not meet this definition as it was not established out of any such obligation. Additionally, the assessee was not registered under the Societies Registration Act, 1860. The CIT also noted that the assessee's primary activities included acquisition and sale of land, which he did not consider charitable purposes under section 2(15) of the Income-tax Act. He argued that the provision of amenities like roads, light, water, and sewerage were incidental to the main purpose of land transactions.

The assessee argued that it was established under the Punjab Town Improvement Act, 1982, for the development of towns, which should be considered a charitable purpose under section 2(15). The assessee cited various sections of the Punjab Town Improvement Act that outlined its development schemes, including street schemes, housing accommodation schemes, and re-housing of displaced residents, among others. The assessee further argued that similar entities, like the Gujarat Industrial Development Corporation, had been granted registration under section 12A despite being involved in industrial development, which was considered an object of general public utility.

The Tribunal agreed with the assessee, noting that the term "institution" is not defined in the Income-tax Act but can be interpreted broadly. The Tribunal referred to the Oxford English Dictionary, which defines an institution as an organization founded for a social purpose. The Tribunal concluded that the assessee, being created for the social purpose of town improvement, qualified as an institution. The Tribunal also noted that the assessee's objects, as outlined in the Punjab Town Improvement Act, constituted charitable purposes under section 2(15) of the Income-tax Act. Therefore, the Tribunal held that the assessee was entitled to registration under section 12AA.

2. Condonation of Delay in Filing the Application for Registration:

The CIT also refused to condone the delay in filing the application for registration, arguing that the assessee had sufficient legal advice and should have been aware of the deletion of section 10(20A) of the Income-tax Act, which previously exempted its income. The assessee argued that it was unaware of the tax liability arising from the deletion of section 10(20A) until it received a letter from the Secretary to the Government of Haryana. Upon receiving this information, the assessee sought legal advice and promptly filed the application on 1-10-2003, requesting registration with effect from 1-4-2002.

The Tribunal found the assessee's explanation for the delay to be reasonable and bona fide. The Tribunal noted that similar cases, such as the Market Committee case, had been granted retrospective registration despite delays due to lack of knowledge of fiscal laws. The Tribunal concluded that the delay was due to a bona fide reason beyond the assessee's control and should not prevent the granting of registration. Therefore, the Tribunal allowed the condonation of delay and granted registration with effect from 1-4-2002.

Conclusion:

The Tribunal allowed the appeal, granting the assessee registration under section 12AA and condoning the delay in filing the application. The Tribunal concluded that the assessee's activities constituted charitable purposes and that the delay in filing was due to a bona fide reason.