2014 (3) TMI 652 - SC - Income Tax

Claim for benefit of exemption u/s 11 and 12 r.w.s. 13 of the Act determination of nature of trust - religious or charitable trust Object and purpose of the trust - legal effects of the proven facts and documents - Income derived from property held by such public trust as well as voluntary contributions received by the said trust are the subject-matter of exemptions from the taxation under the Act HELD THAT - The objects reflect the intent of the trust as observance of the tenets of Islam but do not restrict the activities of the trust to religious obligations only and for the benefit of the members of the community. The Privy Council in Re The Tribune 7 ITR 415 has held that in judging whether a certain purpose is of public benefit or not the Courts must in general apply the standards of customary law and common opinion amongst the community to which the parties interested belong to. Therefore it is pertinent to analyse whether the customary law would restrict the charitable disposition of the intended activities in the objects. The provision of food to the public on religious days of the community as per object (a) and (b) the establishment of Madarsa and organizations for dissemination of religious education under object (d) and rendering assistance to the needy and poor for religious activities under object (e) would reflect the essence of charity. The objects (a) and (b) provide for arrangement for nyaz and majlis (lunch and dinner) on the religious occasion of the birth anniversary and Urs Mubarak of Awliya-e-Quiram (SA) and the Saints of the Dawoodji Bohra community and for arrangement of lunch and dinner on religious occasions and auspicious days of the Dawoodi Bohra community respectively. Nyaz refers to the food a person makes and offers to others on any particular occasion on the occasion of the death of a saint and Majhlis implies a place of gathering or meeting. The activity of providing for food on certain specific occasions and other religious and auspicious events of the Dawoodi Bohra community do not restrict the benefit to the members of the community. Neither the religious tenets nor the objects as expressed limit the service of food on the said occasions only to the members of the specific community. Thus the activity of Nyaz performed by the respondent- trust does not delineate a separate class but extends the benefit of free service of food to public at large irrespective of their religion caste or sect and thereby qualifies as a charitable purpose which would entail general public utility. Further establishment of Madarsa or institutions to impart religious education to the masses would qualify as a charitable purpose qualifying under the head of education under the provisions of Section 2(15) of the Act. The institutions established to spread religious awareness by means of education though established to promote and further religious thought could not be restricted to religious purposes. The House of Lords in Barralet v. IR 54 TC 446 has observed that the study and dissemination of ethical principles and the cultivation of rational religious sentiment would fall in the category of educational purposes. The Madarsa as a Mohommedan institution of teaching does not confine instruction to only dissipation of religious teachings but also contributes to the holistic education of an individual. Therefore it cannot be said that the object (d) would embody a restrictive purpose of religious activities only. Similarly assistance by the respondent-trust to the needy and poor for religious activities would not divest the trust of its altruist character. Therefore 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 be entitled to exemption accordingly. It becomes amply clear from the language employed in the provisions that Section 13 is in the nature of an exemption from applicability of Sections 11 or 12 and the examination of its applicability would only arise at the stage of claim under Sections 11 or 12. Thus where the income of a trust is eligible for exemption under section 11 the eligibility for claiming exemption ought to be tested on the touchstone of the provisions of section 13. In the instant case it being established that the respondent-trust is a public charitable and religious trust eligible for claiming exemption under Section 11 it becomes relevant to test it on the anvil of Section 13. Thus the objects of the respondent-trust are based on religious tenets under Quran according to religious faith of Islam. We have already noticed that the perusal of 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 as explained in the preceding paragraphs 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. 50. In that view of the matter we are of the considered opinion that the respondent-trust is a charitable and religious trust which does not benefit any specific religious community and therefore it cannot be held that Section 13(1)(b) of the Act would be attracted to the respondent-trust and thereby it would be eligible to claim exemption under Section 11 of the Act. In the result the appeals are dismissed with no order as to costs.

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.