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3. When the appeal of the assessee against the order of the CIT was originally taken up for hearing, the argument of the assessee was that once the time-limit fixed by Section 12AA(2) expired without the CIT having passed any order, it must be deemed that the registration has been granted and in support of this contention, two orders of the Tribunal, one of the Delhi Bench in Sambandh Organisation v. CIT (ITA No. 5582/Del/2003) and another of the Bangalore Bench in Karnataka Golf Association v. Director of IT (Exemption) were relied upon. In these orders, it was held in the event the application for registration is not decided one way or the other within the period of six months, then the registration sought for must be deemed to have been allowed. The Bench was of the view that this would result in certain serious consequences and cited as an example the case of a trust having objects which are not charitable. It further opined that there is no specific provision in the section to the effect that registration would be deemed to have been allowed if no order is passed within the period of six months. However, since a contrary view had been expressed by two co-ordinate Benches of the Tribunal, the Bench thought it fit and proper to place the appeal before the Hon'ble President for being referred to a Special Bench and also proposed the question to be decided (extracted in the first para). The Hon'ble President has accordingly constituted the Special Bench.

19.2 Hence the Finance (No. 2) Act, 1996, now provides for a procedure to be followed for grant of registration to a trust or institution. According to this procedure, the Chief CIT or CIT shall call for documents and information and conduct enquiries to satisfy about the genuineness of the trust or institution. After he is satisfied about the charitable or religious nature of the objects and genuineness of the activities of the trust or institution, he will pass an order granting registration. If he is not so satisfied, he will pass an order refusing registration. However, an opportunity of being heard shall have to be provided to the applicant before an order of refusal to grant registration is passed by the Chief CIT or the CIT. The reasons for refusal of registration shall also have to be mentioned in that order. The order granting or refusing registration has to be passed within six months from the end of the month in which the application for registration is received by the Chief CIT or the CIT and a copy of such order shall be sent to the applicant.

5. Two reasons are given by Dr. Gupta, the learned Counsel for the assessee, as to why the application for registration must be deemed to be accepted. The first is that there is no inconvenience caused to the Department, because it would still be open to the CIT to invoke Sub-section (3) of Section 12AA to cancel the registration deemed to have been allowed and the assessee would not be prejudiced because of the cancellation as it would get a right to appeal against the cancellation of registration to the Tribunal in terms of Section 253(1)(c). Secondly, even if no order is passed by the CIT cancelling the registration, it would be open to the AO to examine the charitable nature of the activities actually carried on by the assessee while examining the return in the course of the assessment proceedings and he is also empowered to verify the application of the monies of the trust for charitable object, investment of the funds, etc. and thus no prejudice would be caused to the Revenue because of the deemed registration. Dr. Gupta thus says that if registration is deemed to be allowed no prejudice would be caused to the Revenue and at the same time the assessee's rights or interests are also protected.

17. The consequence of a decision that if the CIT has not passed the order within the period of six months from the end of the month in which the application for registration was filed then registration would be deemed to have been granted may now be seen. We have already referred to Sub-section (3) of Section 12AA which gives power to the CIT to cancel the registration and he can invoke the same if enquiries completed by him beyond the time-limit reveal that the trust/charitable institution is not entitled to registration. The assessee would get a right of appeal to the Tribunal against the same. The matter would be thrashed out before the Tribunal. Apprehensions were expressed before us on behalf of the Department that even a trust whose objects were not charitable would get registration by such deeming. The apprehension is not fully justified, because there is nothing in law to prevent the CIT from making his own enquiries even after the expiry of the time-limit and making use of the results thereof to cancel the registration under Sub-section (3). The consequence would outweigh the uncertainty or confusion which the non-passing of the order within the time-limit would introduce into the working of the system. Lord Shaw's dictum which we have quoted earlier would cover the case.