2024 (3) TMI 376 - AT - Income Tax

Exemption u/s 11 - application filed by the assessee in Form No.10AB for registration u/s 12AB rejected finding that the objects of the assessee were for the benefit of a particular religious community or caste i.e. Muslims - HELD THAT - CIT(Exemption), in the present case, we find, has only picked a portion of the order of the Hon ble Apex Court, wherein it has been held that the provisions of section 13(1)(b) of the Act would be applicable to a trust with mixed objects i.e. both charitable and religious. But he has failed to take note of the finding of the Hon ble Apex Court that section 13(1)(b) would apply only at the time of grant of exemption under section 11, and not at the time of grant of registration u/s 12A of the Act. Our view is further supported by the decision of CIT Vs. Bayath Kutchhi Dasa Oswal Jain Mahajan Trust 2016 (9) TMI 8 - GUJARAT HIGH COURT wherein on the issue of denial of grant of registration u/s 12A of the Act by invoking section 13(1)(b) of the Act, it was categorically held that the provisions of section 13 would be attracted only at the time of assessment and not at the time of grant of registration. We find that the CIT(Exemption) notes that otherwise the objects are charitable in nature except for the aforestated object. As per section 13(1)(b) exemption u/s 11 is denied if the trust is created or established for the benefit of a particular religious community. With majority of the objects found to be not catering to a particular community and no finding of the assessee actually catering for the benefit of a particular community, there is no case for invoking section 13(1) (b) of the Act in the present case. Therefore, we hold that even on merits the CIT(Exemption) was wrong in holding that section 13(1)(b) was applicable in the facts of the present case. We hold that the objects of the trust are not wholly for the benefit of a particular religious community, but are largely charitable in character for general public at large, and for the purpose of granting registration under section 12A, the provision of section 13(1)(b) cannot be referred to, which is to be applied only when granting the exemption to the trust. The order of the CIT(Exemption) denying grant of registration is accordingly set aside, and the Ld. CIT (Exemption) is directed to grant the assessee-trust registration u/s 12A of the Act. Appeal of the assessee is allowed.

Summary

Issues:
The appeal against the order of the Commissioner of Income-tax (Exemption), Ahmedabad, rejecting registration under section 12AB of the Income-tax Act, 1961.

Issue 1: Timeliness of Order

The appellant contended that the rejection of registration under section 12AB was invalid as it was not passed within 15 days of the last hearing, citing relevant Circulars and Instructions. The appellant argued that the delay in passing the order rendered it void.

Issue 2: Interpretation of Trust Deed

The appellant challenged the interpretation of the trust deed by the Commissioner (Exemption), claiming that the clause providing scholarships to Muslim students was misconstrued. The appellant relied on a judgment from Lucknow ITAT and argued that the Commissioner's interpretation was erroneous.

Issue 3: Continuity of Activities

The appellant asserted that there were no changes in the activities or objects of the trust, which had previously been granted registration under sections 12A and 80G. The appellant argued for consistency in applying the law and cited relevant judgments to support their position.

Details:

The Commissioner (Exemption) rejected the application for registration under section 12AB, citing that the trust's objects were deemed to benefit a specific religious community, thus not qualifying for exemption under section 13(1)(b) of the Act. The Commissioner's decision was based on the belief that the trust was not solely charitable but religious cum charitable, primarily for Muslims.

Upon review, the Appellate Tribunal found that the Commissioner had misinterpreted the law, particularly in applying section 13(1)(b) at the registration stage. The Tribunal referenced a Supreme Court case and emphasized that eligibility for exemption under section 11 should precede consideration of section 13(1)(b), which applies only during the grant or denial of exemption.

Additionally, the Tribunal highlighted a High Court decision that affirmed section 13(1)(b) relevance at the assessment stage, not during registration. Analyzing the trust's objects, the Tribunal concluded that the scholarship provision for Muslim students did not render the trust exclusively for a particular community, thus rejecting the Commissioner's application of section 13(1)(b).

Ultimately, the Tribunal overturned the Commissioner's decision, directing the grant of registration under Section 12A to the appellant-trust. The appeal was allowed, emphasizing the trust's charitable nature for the general public.

*Order pronounced in the Court on 6th March, 2024 at Ahmedabad.*