2006 (9) TMI 214 - AT - Income Tax

Denial of registration u/s 12A(a) - Charitable Or Religious Trust - benefit of people belonging to Vaish community - Object clause of the Trust conflicts with the provision of section 13(1)(b) - HELD THAT - Relying on this decision of Hon'ble Supreme Court in the case of Ahmedabad Rana Caste Association 1971 (9) TMI 8 - SUPREME COURT , Hon'ble Allahabad High Court in the case of Surji Devi Kunji Lal Jaipuria Charitable Trust 1990 (8) TMI 132 - ALLAHABAD HIGH COURT has held that trust created for giving medical aid, social welfare and upliftment of poor members of Vaish community is, therefore, for religious and charitable purposes. For instance, the objects; for which the assessee trust in the present case is established, as indicated in object clauses 3(1) and 3(2), no doubt are for the benefits of a particular community, viz., Vaish. Nevertheless, as per object clause 3(4), it was also established to run schools, colleges, hospitals etc. for the benefit of public at large. In this situation, if the registration applied for u/s 12A is not granted to it for violation of provisions of section 13(1)(b) and it is ultimately found that the assessee-trust actually accomplished the objects as indicated in clause 3(4) only for the benefit of public at large without there being any activity undertaken as per object clauses 3(1) and 3(2), it would be deprived of any benefits which otherwise were available to it under section 11 or section 12. This certainly is not the legislative intention as reflected in the scheme laid down in sections 11, 12, 12A, 12AA and 13. On the contrary, the phraseology of section 13, as already discussed, makes it explicitly clear that the said provisions become operative or relevant only at the stage of assessment when the Assessing Officer is required to examine the claim of the assessee for benefits u/s 11 or section 12 while computing the total income of the assessee of the relevant previous year. The application of section 13 thus falls within the exclusive domain of the Assessing Officer and the provisions contained therein can be invoked by him while framing the assessment and not by the CIT while considering the application for registration u/s 12AA. Thus, we are of the view that the action of the learned D.I. (Exemption) in refusing to grant registration to the assessee trust on the ground of violation of the provisions of section 13(1)(b) was not justified especially when he had not doubted either the genuineness of the activities of the assessee-trust or the nature of its object being charitable. In that view of the matter, we set aside his impugned order and direct that registration applied for by the assessee-trust u/s 12A be granted to it. In the result, the appeal of the assessee is allowed.

Summary

Issues Involved:

1. Refusal to grant registration under section 12A.
2. Applicability of section 13(1)(b) concerning benefits to a specific caste.
3. Powers of the Director of Income-tax (Exemption) under section 12AA.
4. Interpretation of charitable purposes under section 2(15).

Detailed Analysis:

1. Refusal to Grant Registration under Section 12A:

The appeal was filed by the assessee against the order of the Director of Income-tax (Exemption) dated 19-7-2002, which refused to grant registration under section 12A. The assessee, a society registered under the Societies Registration Act, 1860, applied for registration under section 12A(a) on 15-1-2002. The application was accompanied by necessary documents. The D.I. (Exemption) found that the object clauses 3(1) and 3(2) were for the benefit of the Vaish caste, conflicting with section 13(1)(b), and thus refused registration.

2. Applicability of Section 13(1)(b):

The D.I. (Exemption) argued that the object clauses benefited a specific caste, violating section 13(1)(b), which excludes income for the benefit of any religious community or caste from exemptions under sections 11 and 12. The assessee contended that the Vaish community is broad enough to constitute "public" and cited decisions from the Hon'ble Supreme Court and Allahabad High Court supporting that serving a section of the public is a charitable purpose.

3. Powers of the Director of Income-tax (Exemption) under Section 12AA:

The Tribunal noted that under section 12AA, the D.I. (Exemption) is empowered to satisfy himself about the object of the trust and the genuineness of its activities before granting registration. The D.I. (Exemption) should not refuse registration if the trust's activities are genuine and its objects are charitable. The Tribunal emphasized that the D.I. (Exemption) overstepped by considering the violation of section 13(1)(b), which falls under the domain of the Assessing Officer during assessment.

4. Interpretation of Charitable Purposes under Section 2(15):

The Tribunal referred to the Hon'ble Supreme Court's decision in Ahmedabad Rana Caste Association, which held that benefiting a section of the public is an object of general public utility. The Tribunal also cited the Allahabad High Court's decisions, which supported that trusts benefiting a specific community could still serve charitable purposes. The Tribunal concluded that the objects of the assessee-trust were charitable, and the D.I. (Exemption) should not have denied registration based on section 13(1)(b).

Conclusion:

The Tribunal set aside the D.I. (Exemption)'s order and directed that registration under section 12A be granted to the assessee-trust. The appeal was allowed, emphasizing that the D.I. (Exemption) should focus on the genuineness and charitable nature of the trust's activities rather than potential violations of section 13(1)(b), which are to be considered by the Assessing Officer during assessment.