2014 (3) TMI 652 - SC - Income Tax

Claim of benefit of exemption u/s 11 and 12 r.w.s. 13 of the Act Public religious trust Whether the Courts were justified in coming to the conclusion that the respondent- trust is a public religious trust and is outside the purview of Section 13(1)(b) and eligible for exemption under Section 11 of the Act Held that - Determination of nature of trust as wholly religious or wholly charitable or both charitable and religious under the Act is not a question of fact - It is but a question which requires examination of legal effects of the proven facts and documents, that is, the legal implication of the objects of the respondent-trust as contained in the trust deed - It is only the objects of a trust as declared in the trust deed which would govern its right of exemption u/s 11 or 12 thus, the High Court has erred in refusing to interfere with the observations of the Tribunal in respect of the character of the trust. The objects of the trust exhibit the dual tenor of religious and charitable purposes and activities - Section 11 of the Act shelters such trust with composite objects to claim exemption from tax as a religious and charitable trust subject to provisions of Section 13 - The activities of the trust under such objects would therefore are entitled to exemption accordingly. Whether the respondent-trust is a charitable and religious trust only for the purposes of a particular community and therefore, not eligible for exemption under Section 11 of the Act in view of provisions of Section 13(1)(b) of the Act Held that - The Section requires it to be established that such charitable purpose is not for the benefit of a particular religious community or caste - it needs to be examined whether such religious-charitable activity carried on by the trust only benefits a certain particular religious community or class or serves across the communities and for society at large. Relying upon Sole Trustee, Loka Shikshana Trust v. CIT 1975 (8) TMI 1 - SUPREME Court - The objects of the respondent-trust are based on religious tenets under Quran according to religious faith of Islam - the objects and purposes of the respondent-trust would clearly demonstrate that the activities of the trust though both charitable and religious are not exclusively meant for a particular religious community - The objects do not channel the benefits to any community if not the Dawoodi Bohra Community and thus, would not fall under the provisions of Section 13(1)(b) of the Act thus, the respondent-trust is a charitable and religious trust which does not benefit any specific religious community - it cannot be held that Section 13(1)(b) of the Act would be attracted to the respondent-trusts and it would be eligible to claim exemption under Section 11 of the Act Decided against Revenue.

Summary

Issues Involved:
1. Determination of the nature of the respondent-trust as a public religious trust.
2. Applicability of Section 13(1)(b) of the Income Tax Act, 1961 to the respondent-trust.
3. Eligibility of the respondent-trust for exemption under Section 11 of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Determination of the Nature of the Respondent-Trust as a Public Religious Trust:
The Tribunal concluded that the respondent is a public religious trust based on its objects, which are wholly religious in nature. The High Court upheld this finding, stating that it is a question of fact and should not be interfered with in an appeal under Section 260-A of the Income Tax Act, 1961. The Supreme Court, however, noted that determining whether a trust is wholly religious or charitable involves examining the legal effect of proven facts and documents, which is a question of law. The Court emphasized that the objects of the trust, as declared in the trust deed, govern its right to exemption under Section 11 or 12. The Court found that the High Court erred in refusing to interfere with the Tribunal's observations regarding the character of the trust.

2. Applicability of Section 13(1)(b) of the Income Tax Act, 1961 to the Respondent-Trust:
Section 13(1)(b) states that a trust for charitable purposes created for the benefit of any particular religious community or caste is not entitled to exemption under Section 11 or 12. The Tribunal and the High Court concluded that Section 13(1)(b) applies only to charitable trusts, not to public religious trusts. The Supreme Court clarified that even if a trust has composite objects (both charitable and religious), it must be established that the charitable purpose is not for the benefit of a particular religious community or caste. The Court found that the objects of the respondent-trust, while religious, also serve charitable purposes and do not restrict benefits to a specific community.

3. Eligibility of the Respondent-Trust for Exemption under Section 11 of the Income Tax Act, 1961:
The Supreme Court examined whether the respondent-trust is eligible for exemption under Section 11, considering its objects and the applicability of Section 13(1)(b). The Court found that the objects of the trust include both religious and charitable purposes, such as providing food on religious occasions, establishing Madarsa for religious education, and assisting the needy for religious activities. These activities benefit the public at large and do not restrict benefits to a specific community. Consequently, the Court held that the respondent-trust is a charitable and religious trust that does not benefit any specific religious community, making it eligible for exemption under Section 11.

Conclusion:
The Supreme Court dismissed the appeals, concluding that the respondent-trust is a charitable and religious trust eligible for exemption under Section 11 of the Income Tax Act, 1961, and that Section 13(1)(b) does not apply to it. The Court emphasized that the trust's activities benefit the public at large and are not restricted to a particular religious community.