2024 (3) TMI 1439 - AT - Income Tax

Rejection of application u/s 12A(1)(ac)(iii) - assessee-trust has been created for the benefit of particular religious community or cast BAUA BHAVIK. - HELD THAT - We find that most of the objects of the trust are for the benefit of general public. The objects at serial No. 5 to 15 are for benefits of general public therefore it can not be said that trust has been created for the benefit of particular religious community or cast BAUA BHAVIK. For that reliance is placed on the case of Bayath Kutchhi Dasha Oswal Jain Mahajan Trust 2016 (9) TMI 8 - GUJARAT HIGH COURT wherein it was held that where Trust had large number of other objects for benefit of general public apart from objects for benefit of a religious community Tribunal was correct in allowing registration to it. We set aside the order of CIT(E) and remand the various issues raised by the assessee in the grounds of appeal for fresh consideration by the CIT(E) with a liberty to the assessee-trust to prove his case by producing sufficient evidence/material to the satisfaction of the CIT(E). For statistical purposes the appeal of the assessee is allowed.

Summary

The primary legal questions considered in this appeal revolve around the eligibility of the assessee-trust for registration under section 12A of the Income Tax Act, 1961, specifically whether:

• The trust was created for the benefit of a particular religious community or caste, thereby invoking the prohibitions under section 13(1)(b) and/or section 13(1)(c) of the Income Tax Act;
• The trust qualifies for exemption under section 12A, considering the date of its creation relative to the commencement of the Income Tax Act, 1961;
• The objects of the trust are charitable in nature and benefit the general public rather than a restricted group;
• The trust's activities and objects, including those related to religious worship and social welfare, fall within the ambit of permissible charitable purposes under the Act;
• The rejection of the registration application by the Commissioner of Income Tax (Exemption) was justified in law and fact.

Issue-wise Detailed Analysis:

1. Applicability of Section 13(1)(b) and Section 13(1)(c) of the Income Tax Act, 1961

Legal Framework and Precedents: Section 13(1)(b) prohibits exemption for trusts created for the benefit of any particular religious community or caste, except where the trust was created before the commencement of the Income Tax Act, 1961, as clarified by the proviso to section 13(1). Section 13(1)(c) addresses trusts created for the benefit of specified persons or groups.

Court's Interpretation and Reasoning: The Commissioner of Income Tax (Exemption) found that the trust was created on 11.05.2017, as per the registration under the Gujarat Public Trust Act, and that the trust's objects were restricted to the "Baua Bhavik" family, a particular religious community or caste. Therefore, the Commissioner held that the trust did not qualify for exemption under section 12A, invoking section 13(1)(c) rather than section 13(1)(b), as the trust was not created before the commencement of the Act.

Key Evidence and Findings: The trust's own Form 10AB stated the date of incorporation as 11.05.2017. The objects of the trust included facilitating religious rituals specifically for the Baua Nukh family at the temple of Shri Sachchamata.

Application of Law to Facts: The Commissioner applied the statutory provisions strictly, concluding that the trust was created post-1961 and for a particular community, thus disqualifying it from exemption.

Treatment of Competing Arguments: The assessee contended that the trust's origins dated back to 1953, prior to the Act, supported by a certificate from the village Sarpanch and that the temple was open to all sections of society without discrimination. The Court examined these submissions carefully.

Conclusion: The Court observed that while the formal registration was in 2017, the trust's activities and religious worship had been ongoing since 1953, predating the Act, thus potentially exempting it from the restrictions of section 13(1)(b). Further, the temple was accessible to all, not restricted to the family, weakening the argument that the trust was exclusively for a particular community.

2. Nature of the Trust's Objects: Charitable or Restricted to Particular Community

Legal Framework and Precedents: The Income Tax Act requires that trusts seeking exemption under section 12A have charitable objectives benefiting the general public, not restricted to specific communities or castes. The Court relied on a precedent from the Gujarat High Court, which held that a trust with multiple objects benefiting the general public should not be denied registration merely because some objects relate to a particular community.

Court's Interpretation and Reasoning: The Court analyzed the trust deed's objects, noting that while some objects related to religious activities for the Baua Nukh family, a majority (objects 5 to 15) were directed towards general public welfare, including relief to the poor, medical aid, education, cultural promotion, environmental activities, and rural development.

Key Evidence and Findings: The trust's objects included running an Atithigruh and Bhojanalay for pilgrims, providing food and shelter to the needy, medical relief, educational and cultural activities, and environmental conservation, all of which benefit the broader public.

Application of Law to Facts: The Court applied the principle that the presence of some restricted objects does not invalidate the charitable nature of the trust if the predominant objects serve the general public. It relied on the cited High Court judgment where similar facts led to registration being allowed.

Treatment of Competing Arguments: The Revenue emphasized the trust's name and certain objects as indicative of benefit to a particular family, while the assessee argued the trust's activities were inclusive and for all sections of society. The Court favored the latter view based on the trust deed and supporting evidence.

Conclusion: The Court concluded that the trust's objects are largely charitable and for the public benefit, and therefore, it cannot be said that the trust was created solely for the benefit of a particular religious community or caste.

3. Validity of the Registration Date and Historical Existence of the Trust

Legal Framework and Precedents: The date of creation of the trust is critical in determining applicability of section 13(1)(b). A trust created before the commencement of the Income Tax Act, 1961, enjoys certain protections under the proviso to section 13(1).

Court's Interpretation and Reasoning: The Court noted the discrepancy between the formal registration date (2017) and the asserted creation date (1953). The assessee submitted documentary evidence including a certificate from the village Sarpanch and historical facts regarding the temple and religious activities.

Key Evidence and Findings: The certificate dated 27.08.2023 confirmed the temple's existence and religious activities since the early 1950s. The Court acknowledged that the trust's activities predated the Act, despite formal registration occurring later.

Application of Law to Facts: The Court held that the trust's creation date should be considered from the inception of its activities and purpose, not merely the date of formal registration, especially in light of the statutory proviso.

Treatment of Competing Arguments: The Revenue relied on the registration date, while the assessee provided historical evidence. The Court found the assessee's evidence credible and persuasive.

Conclusion: The Court accepted that the trust was created before the commencement of the Income Tax Act, 1961, thus the restrictions under section 13(1)(b) are not applicable.

4. Whether the Rejection of Registration Application Was Justified

Legal Framework and Precedents: The power to grant or reject registration under section 12A(1)(ac)(iii) must be exercised considering the trust's objects, activities, and compliance with statutory provisions.

Court's Interpretation and Reasoning: The Court found that the Commissioner erred in focusing narrowly on certain objects and the registration date without considering the broader charitable activities and historical existence of the trust.

Key Evidence and Findings: The Court noted the trust's inclusive activities and the certificate supporting its pre-1961 origin.

Application of Law to Facts: The Court held that the rejection was premature and not justified without a comprehensive examination of the entire trust deed and evidence.

Treatment of Competing Arguments: The Revenue's reliance on the registration date and certain restrictive objects was outweighed by the assessee's evidence of public benefit and historical continuity.

Conclusion: The Court set aside the Commissioner's order and remanded the matter for fresh consideration, allowing the assessee to produce further evidence.

Significant Holdings:

"It can thus be seen that the Commissioner focused his attention to clause 4.2 of the objects of the trust to come to the conclusion that the same were for the benefit of a certain religious communities only, in the process ignoring various other objects... very premise for the Commissioner to come to the conclusion that the objects of the trust were confined for the benefit of a religious community, is incorrect."

"The temple of Sachchamata offers food to the poor and weaker sections of society, without any discrimination of caste or creed etc. Having examined these features, we find that temple of Sachchamata is not only for Bauva family, but it is for every sections of the society."

"The trust was created in the year 1953, that is, before the commencement of Income Tax Act, 1961, and for that assessee is ready to furnish the relevant information before the ld. CIT (E )."

"Therefore, we set aside the order of CIT(E) and remand the various issues raised by the assessee in the grounds of appeal, for fresh consideration by the ld. CIT(E), with a liberty to the assessee-trust to prove his case by producing sufficient evidence/material to the satisfaction of the ld CIT(E)."

Core principles established include that the existence and activities of a trust prior to the Income Tax Act's commencement can exempt it from certain prohibitions under section 13(1)(b), that the presence of some objects benefiting a particular community does not preclude registration if the trust's predominant objects benefit the general public, and that formal registration date alone is not determinative of the trust's creation date for exemption purposes.

Final determinations on each issue are that the trust is not barred from registration under section 12A due to its charitable objects benefiting the general public, the trust's creation predates the Income Tax Act, and the rejection of registration by the Commissioner was set aside with directions for fresh consideration.