2006 (12) TMI 123 - HC - Income Tax

Claim of appellant-trust for registration u/s 12A denied on ground that object of trust is to establish a dharamshala only for the members of Dhakad Samaj which is not a backward class - Merely because the accommodation created is in a religious place, it cannot be said that providing dharamshala is for religious purposes - Tribunal was justified in holding that the appellant-trust is not entitled to claim the registration u/s 12A, thereby not entering into claim for exemption u/s 11

Summary

Issues:
1. Appeal against refusal of registration under section 12A of the Income-tax Act.
2. Interpretation of provisions under section 11 and 13 of the Income-tax Act.
3. Consideration of charitable or religious purposes for granting registration to a trust.
4. Nexus between the purpose of providing accommodation and religious or charitable activities.

Analysis:

1. The appellant, a trust seeking registration under section 12A of the Income-tax Act, was denied registration by the Commissioner of Income-tax, which was affirmed by the Tribunal. The substantial question of law was whether the appellant-trust was entitled to claim registration under section 12A and exemption under section 11 of the Act. The trust deed aimed to establish a "dharamshala" for the Dhakad Samaj, but the Commissioner refused registration citing reasons that the trust's purpose was not purely religious or charitable.

2. Section 11 of the Income-tax Act excludes income from property held for charitable or religious purposes. The Tribunal observed that providing accommodation to pilgrims in a dharamshala may not necessarily qualify as a religious purpose, especially when the dharamshala was not solely for the backward class in specific states. The appellant argued that being a recognized backward class, the trust should be exempt from the restrictions under section 13(1)(b) of the Act.

3. The court emphasized that the dominant purpose for granting exemption under section 11 should be income from property held for charitable or religious purposes. The trust's objective of providing accommodation, even in a religious place like Ujjain, was not deemed sufficient to establish a connection with religious or charitable activities. The court highlighted that registration could only be granted when the property is consecrated for charitable or religious purposes.

4. The appellant's application mentioned providing dharamshala for both the Samaj and outsiders, with higher charges for non-Samaj individuals. The court noted that the provision of accommodation, even in a religious place, lacked a clear nexus with religious or charitable purposes as required by section 11. The registration denial by the Commissioner and the Tribunal was upheld, emphasizing the importance of demonstrating a direct link between the trust's activities and charitable or religious objectives for registration eligibility.