2015 (9) TMI 186 - AT - Income Tax

Registration application u/s 12AA(1)(b)(ii) r.w.s. 12A(a) denied - CIT observes the assessee trust to have been set up to serve a particular caste only and not to the whole society - Held that - the question whether the trust is created or established for the benefit of any particular religious community or caste would be relevant when the income of the trust is being assessed and the question whether such income should be excluded from the total income of the trust in terms of section 11 of the Act. Insofar as section 12AA of the Act is concerned, the Commissioner had to take a decision if the trust fulfilled necessary requirements of registration as provided under section 12A of the Act. See CIT vs. Leuva Patel Seva Samaj Trust 2015 (9) TMI 109 - GUJARAT HIGH COURT CIT s objection quoting caste issue would qua some of assessee s objects would be relevant only during sec. 11 proceedings and not at the impugned registration stage. The assessee s sole substantive ground succeeds. - Decided in favour of assessee.

Summary

Issues:
1. Rejection of registration application under section 12AA(1)(b)(ii) r.w.s. 12A(a) of the Income Tax Act, 1961.
2. Trust's objects limited to serving a particular caste.
3. Interpretation of the law regarding registration of trusts.

Issue 1: Rejection of Registration Application:
The appeal arose from the rejection of the assessee's registration application by the CIT-III, Baroda, under section 12AA(1)(b)(ii) r.w.s. 12A(a) of the Income Tax Act, 1961. The CIT rejected the application on the grounds that the trust's objects were limited to specific activities benefiting a particular caste, rather than the general public or society as a whole. The CIT found the trust's activities insufficient to qualify for registration under section 12A. The trust had applied for registration on 15-11-2010, but the CIT rejected it on 27-05-2011, citing the trust's focus on a specific community and lack of engagement in activities for the broader public.

Issue 2: Trust's Objects Limited to Serving a Particular Caste:
The CIT contended that the trust was established solely to benefit a particular caste and not the entire society. The CIT's decision was based on the interpretation of section 13(1)(b) of the Act, which prohibits trusts created for the exclusive benefit of a specific religious community or caste. The CIT's rejection was challenged by the assessee, who cited a relevant case law (2014) 221 Taxman 75 (Guj) CIT vs. Leuva Patel Seva Samaj Trust. In this case, the Tribunal reversed the Commissioner's decision, emphasizing that the focus on a specific community did not disqualify the trust from registration under section 12AA. The Tribunal highlighted that the trust's activities were not discriminatory and served non-political and secular objectives, thus meeting the registration requirements.

Issue 3: Interpretation of the Law Regarding Registration of Trusts:
The Tribunal's decision underscored the distinction between the registration requirements under section 12A and the tax benefits under sections 11 and 12 of the Act. The Tribunal clarified that fulfilling the conditions for registration did not automatically entail tax benefits and that the Assessing Officer would determine the beneficiaries of the trust during tax assessment. The Tribunal relied on the Division Bench's opinion in Shantagauri Ramniklal Trust v. CIT to support the view that registration and tax benefits were separate considerations. The Tribunal dismissed the Revenue's failure to differentiate on facts, affirming that the caste issue raised by the CIT was relevant for tax assessment under section 11, not for registration under section 12AA.

In conclusion, the Tribunal allowed the assessee's appeal, emphasizing that the trust's registration should not be denied based on serving a particular caste, as long as the trust's activities were non-discriminatory and served broader societal objectives. The judgment highlighted the importance of distinguishing between registration requirements and tax benefits under the Income Tax Act, ensuring a fair and accurate assessment of trust activities and beneficiaries.