2024 (6) TMI 725 - AT - Income Tax

Denial of registration u/s 12A by invoking Section 13(1)(b) - trust institution created or established for the benefit of any particular religious community or caste - Applicants/assessee has stated the nature of activities as charitable and objects of the applicant has been stated therein as medical relief - Main clause of the objects states that the trusts will work for the Muslim Dini and Dundavi welfare and for the same various works would be carried out like arranging library for circulation and expansion of Islamic teachings in the village arranging medical help arranging scholarship for persons studying in Madarsa etc HELD THAT - We observe that in the case of Jamiatul Banaat Tankaria 2024 (3) TMI 376 - ITAT AHMEDABAD ITAT held that where objects of assessee-trust were primarily charitable rather than favouring any specific religious community CIT(E) was not justified in denying registration under Section 12A by invoking Section 13(1)(b) as said provisions would be attracted only at time of assessment and not at time of grant of registration. In the case of Malik Hasmullah Islamic Educational and Welfare Society 2012 (8) TMI 680 - ITAT LUCKNOW ITAT held that since provisions of Sections 11 12 and 13 are intended for exercise of jurisdiction by an AO in an assessment proceedings Commissioner is not competent to invoke such provisions for purpose of declining registration under Section 12AA. In the case of St. Joseph Academy 2015 (2) TMI 495 - ITAT HYDERABAD ITAT held that provisions of Section 13 can be invoked by Assessing Officer while framing assessment and not by Commissioner while considering application for registration under Section 12AA. We are of the considered view that the provisions of Section 13 of the Act can be invoked only at the time of assessment and not at the time of grant of registration under Section 12A of the Act. Our view is further supported by the decision of the Hon ble jurisdictional High Court in the case of CIT (Exemptions) v. Bayath Kutchhi Dasha 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. The matter is restored to the file of CIT (exemptions) for de novo consideration after giving due opportunity of being heard and with the direction not to disentitle the assessee for grant of registration only on the grounds.Appeal of the assessee is allowed for statistical purposes.

Summary

Issues Involved:

1. Timeliness of the CIT(E)'s order.
2. Interpretation of the trust's objects and its charitable nature.
3. Consistency in the application of the law regarding the trust's registration.
4. Applicability of Section 13(1)(b) of the Income Tax Act at the time of registration.

Issue-wise Detailed Analysis:

1. Timeliness of the CIT(E)'s Order:

The Assessee argued that the CIT(E)'s order dated 29-12-2022 rejecting the approval of Registration u/s.12AB is "bad in Law and Void" as it was not passed within 15 days of the last hearing on 12-11-2022. The Assessee cited a binding Circular of the Central Board of Direct Taxes and Instruction which mandated the CIT(E) to pass the order within 15 days. The CIT(E) failed to adhere to this timeline, thus the Assessee requested the cancellation of the order and the granting of approval u/s.12AB as per Form No.10B.

2. Interpretation of the Trust's Objects and Its Charitable Nature:

The Assessee contested the CIT(E)'s interpretation of the trust's objects, particularly the clause related to Medical Relief. The CIT(E) interpreted the trust's activities as benefiting a specific religious community (i.e., Muslims). The Assessee argued that the clause should be interpreted generally, providing relief to all without regard to caste or creed. The Assessee referenced the judgment of the Lucknow ITAT in Malik Hasmullam Islamic Education & Welfare Society vs. CIT, asserting that the CIT(E)'s interpretation was erroneous.

3. Consistency in the Application of the Law Regarding the Trust's Registration:

The Assessee highlighted that the trust had previously been granted registration u/s.12A and u/s.80G and had not changed its activities or objects. The Assessee argued that the same activities, which were deemed genuine in past years, had continued, and there was no reason for a different view based on presumption and assumption. The Assessee relied on the judgments in CIT (Exemption) vs. Swami Omkaramdas Charitable Trust and CIT vs. Excel Industries Ltd., emphasizing the principle of "consistency" which should apply to their case.

4. Applicability of Section 13(1)(b) of the Income Tax Act at the Time of Registration:

The CIT(E) observed that the trust's objects were charitable but primarily benefited a particular religious community (Muslims), invoking Section 13(1)(b) to deny registration. The CIT(E) referenced the Supreme Court cases of CIT vs. Palghat Shadi Mahal Trust and CIT vs. Dawoodi Bohara Jamat, concluding that the trust was not entitled to exemption u/s 11 of the Act. However, the Assessee argued that Section 13(1)(b) should only be invoked at the time of assessment, not during the registration process. The Assessee cited the ITAT judgment in Jamiatul Banaat Tankaria and other cases, asserting that the CIT(E) was not justified in denying registration based on Section 13(1)(b).

Conclusion:

The Tribunal observed that the provisions of Section 13 of the Act should be invoked only at the time of assessment, not during the grant of registration under Section 12A. This view was supported by various judicial precedents, including decisions from the jurisdictional High Court. Consequently, the matter was restored to the file of CIT (Exemptions) for de novo consideration, with directions to not deny the assessee registration based on the grounds mentioned in the previous order.

Result:

The appeal of the assessee was allowed for statistical purposes, and the order was pronounced in Open Court on 24/04/2024.