2009 (6) TMI 77 - HC - Income Tax

Religious trust - Charitable Purpose Exemption - applicability of the provisions of section 13(1)(b) can or cannot be looked into at the time of examining the registration application under section 12A held that - all the objects of the assessee were religious in nature because the same are supported by the writings in Holy Quran and as such the assessee-trust following the directions from the Holy Quran on the religious occasions, religious education and religious activities for Dawoodi Bohra community, had been organizing various activities in pursuance with the objects of the trust - the finding of the CIT in the impugned order that the objects of the assessee are charitable in nature is not justified ITAT hold that respondent is a public religious trust the provisions of section 13 (1)(b) of the Act will not be applicable because the same are applicable in the case of the trust established for charitable purposes. - Section 13(1)(b) is attracted in the case of income of the trust for charitable purpose of a community or caste, which is not the case here.

Issues Involved:
1. Whether the Income-tax Appellate Tribunal (ITAT) is justified in holding that all the objects of the trust are religious in nature.
2. Whether the ITAT's decision contradicts its own decision in the case of Dhakad Samaj Trust and the jurisdictional High Court's decision in the same case.

Issue-wise Detailed Analysis:

Issue 1: Whether the Income-tax Appellate Tribunal (ITAT) is justified in holding that all the objects of the trust are religious in nature.

The Department filed an appeal under section 260A of the Income-tax Act, 1961, challenging the ITAT's order which granted registration under section 12A/12AA to the respondent trust, claiming that the trust's objects were solely religious in nature. The Department argued that the trust's objects were charitable and confined to a particular community, thus attracting the provisions of section 13(1)(b) of the Act, which excludes the income of a trust created for the benefit of a particular religious community or caste from exemption.

The ITAT examined the trust's objects, which included arranging for religious events, providing religious education, and assisting in religious activities. The Tribunal concluded that these objects were religious in nature, supported by references to the Holy Quran. The Tribunal noted that the term "religious purpose" under the Income-tax Act includes observance of rituals and propagation of religious tenets. The Tribunal found that the trust's activities were in line with religious teachings and practices, thus qualifying as a public religious trust.

The High Court upheld the Tribunal's findings, stating that the determination of the nature of the trust's activities is a question of fact. The Court emphasized that it cannot interfere with the Tribunal's factual findings unless they are perverse. The Court found no perversity in the Tribunal's findings and thus concluded that the ITAT was justified in holding that all the objects of the trust are religious in nature.

Issue 2: Whether the ITAT's decision contradicts its own decision in the case of Dhakad Samaj Trust and the jurisdictional High Court's decision in the same case.

The Department contended that the ITAT's decision in the present case was contrary to its decision in the Dhakad Samaj Trust case, where the Tribunal had denied registration under section 12A/12AA. The High Court examined the Dhakad Samaj Trust case, where the trust's purpose was to provide a dharmashala with different charges for members and non-members of the community, which was deemed not to be for religious purposes.

The High Court distinguished the present case from the Dhakad Samaj Trust case, noting that the ITAT had found the respondent trust to be a public religious trust with solely religious objects. The Court observed that the Dhakad Samaj Trust case involved charitable activities with differential treatment based on community membership, whereas the present case involved purely religious activities.

The High Court concluded that the ITAT's decision in the present case did not contradict its earlier decision in the Dhakad Samaj Trust case, as the facts and circumstances were different. The Court upheld the ITAT's decision, affirming that the respondent trust is entitled to registration under section 12A/12AA as a public religious trust.

Conclusion:

The High Court dismissed the Department's appeals, holding that the ITAT was justified in its findings that the trust's objects are religious in nature and that the provisions of section 13(1)(b) of the Act do not apply. The Court distinguished the present case from the Dhakad Samaj Trust case, affirming the ITAT's decision to grant registration to the respondent trust.

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