2017 (9) TMI 1621 - HC - Income Tax

Eligibility for grant of registration u/s 12AA - whether there was violation of section 13(1)(b) - Public religious trust - Held that - We are in complete agreement with the view taken by the Tribunal. Though Mr. Jain has tried to justify the order of the Assessing Officer and CIT(A), but in our view, in view of the binding decision of the Supreme Court in the case of CIT Vs. Dawoodi Bohara (2014 (3) TMI 652 - SUPREME COURT), the Tribunal has not committed any error in allowing the appeal of the assessee. Without any descrimination of the caste or creed to help economically poor, old, ailing, handicap, poor students and clause 17 provides for hel0p for hospitalization of ailing persons, medicines, cold water, night shelter and Dharamshala etc. In our considered view, both these objects definitely fall under the category of Charitable purpose and cannot be construed as solely for the benefit of a particular religious community - Decided against revenue

Summary

Issues Involved:
1. Whether the ITAT was justified in directing to grant registration to the respondent assessee under section 12AA despite the alleged violation of section 13(1)(b) of the Income Tax Act.

Detailed Analysis:

Issue 1: Justification of ITAT in Granting Registration under Section 12AA:

The appellant challenged the Tribunal's decision to grant registration under section 12AA to the respondent-assessee, a charitable trust, despite the alleged violation of section 13(1)(b) of the Income Tax Act. The CIT (A) had rejected the registration on the grounds that the trust's activities were solely for the benefit of the Jain community, which is against the provisions of section 13(1)(b). This section states that any income of a trust established for the benefit of a particular religious community or caste is not eligible for exemption.

The Tribunal, however, allowed the appeal, leading to the appellant's contention that the Tribunal's view was contrary to law. The appellant's counsel argued that the trust's activities were exclusively for the Jain community, thus violating section 13(1)(b).

Respondent's Arguments and Judicial Precedents:

The respondent's counsel argued that the Commissioner’s subsequent order observed that the trust's activities were not solely for a particular community. The counsel cited several judicial precedents to support their case:

1. CIT vs. Vijay Vargiya Vani Charitable Trust (2014) 369 ITR 360 (Raj.): It was held that at the time of granting registration, the primary focus should be on the objects of the trust rather than the activities, as the trust might not have commenced its activities yet.

2. Commissioner of Income Tax (Exemptions) vs. Bayath Kutchhi Dasha Oswal Jain Mahajan Trust [2016] 74 taxmann.com 199 (Gujarat): The court held that the Commissioner erred in focusing on a single clause while ignoring other charitable activities of the trust. The assessment of whether the trust's activities were confined to a particular community should be done at the time of assessment, not at the stage of registration.

3. Sree Anjaneya Medical Trust v. Commissioner of Income Tax, Kozhikode [2016] 382 ITR 399 (Kerala): The court held that the authorities should only examine the genuineness of the trust and its activities at the time of registration, without having material evidence to suggest the trust was not genuine.

4. Commissioner of Income Tax-II, Chandigarh vs. Surya Educational & Charitable Trust [2013] 355 ITR 280: The court emphasized that the object of Section 12AA is to examine the genuineness of the objects of the trust, not the income. The stage for application of income is when the trust files its return.

5. Commissioner of Income Tax, Coimbatore vs. R.K. Deivendra Nadar Trust [2014] 52 taxmann.com 168 (Madras): The court held that the CIT's apprehensions about the genuineness of the trust's objects could be addressed under section 12AA(3) if there is a breach of the trust's objects.

6. Commissioner of Income Tax vs. Bigabass Maheshwari Sewa Samiti [2008] 220 CTR 369 (Raj.): The court found that the AO must have relevant and cogent material to form a belief about income escapement. The Tribunal rightly examined the controversy and found no material to suggest that the trust's receipts were not genuine.

7. Commissioner of Income Tax vs. Shri Digambar Jain Mandir (Tax Appeal No. 21/2017): The court held that the objects of the trust, which included helping economically poor, old, ailing, and handicapped persons, and providing medical aid, fell under the category of charitable purposes and were not solely for the benefit of a particular religious community.

Conclusion:

The court, after considering the factual position and the law, concluded that the issue should be answered in favor of the assessee and against the department. The Tribunal's decision to grant registration under section 12AA was upheld, and the appeal was dismissed. The court agreed with the Tribunal's view that the trust's objects were charitable and not solely for the benefit of a particular religious community, thus not violating section 13(1)(b).