2024 (8) TMI 808 - AT - Income Tax

Exemption u/s 11 - assessee trust has created for a particular community, that is, Soni Nyat - Charitable activity u/s 2(15) - assessee has failed to file documentary evidences to satisfy about the genuineness of its activities to verify these activities that the same are in consonance with its objects - HELD THAT - As provisions of section 13(1)(b) is applicable to the trusts created or established after the commencement of Income Tax Act, 1961. We note that assessee-trust, under consideration was in existence prior to commencement of the Income Tax Act, 1961. As per the plain language of section 13(1)(b) of the Income Tax Act 1961, which, states that in the case of a trust for charitable purpose or a charitable institution created or established after the commencement of this Act, any income thereof if the trust or institution is created or established for the benefit of any particular religious community or caste therefore, it is vivid that trust created prior to commencement of the Income Tax Act, 1961, the provisions of section 13(1)(b) would not be applicable to such trust, even if, such trust was established or created for the benefit of any particular religious community or caste. We find that assessee-trust, under consideration, was in existence since in 1937, that is, prior to the Income-Tax Act, 1961, came into being. That is, the trust under consideration was created in 1937, however, the Indian Income Tax Act 1961, was come into force in the year 1961. Therefore, the assessee-trust was in existence prior to the Indian Income Tax Act 1961, hence the provisions of section 13(1)(b) of the Income Tax Act, 1961, would not be applicable to the assessee-trust under consideration. Therefore, CIT (E) should not have denied the registration on this issue. Registration of the trust should not be denied on account of provisions of section 13(1) (b) as these provisions are not applicable to the assessee-trust, under consideration, as explained above. Therefore, we direct the CIT(E ) to grant the registration to the assessee-trust provided, the assessee-trust fulfilled other conditions, as mentioned in section 12AB and Rule 17A of the Income Tax Rules, 1962. For statistical purposes, the appeal of the assessee is treated to be allowed.

Issues Involved:

1. Applicability of Section 13(1)(b) of the Income Tax Act, 1961.
2. Genuineness of the activities of the trust.
3. Whether the trust was created for the benefit of a particular community/caste.

Issue-wise Detailed Analysis:

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

The primary issue was whether the provisions of Section 13(1)(b) of the Income Tax Act, 1961, applied to the trust. The Commissioner of Income Tax (Exemption) [CIT(E)] rejected the trust's application for registration under Section 12AA, citing that the trust was created for the benefit of a particular community, "Soni Nyat," and thus fell under the purview of Section 13(1)(b). The CIT(E) referenced the Supreme Court judgment in Commissioner of Income-tax, Ujjain Vs Dawoodi Bohara Jamat, emphasizing that the Commissioner must be satisfied with the genuineness of the trust's activities and their alignment with its objectives.

However, the tribunal noted that the trust was registered with the Charity Commissioner in 1937, before the commencement of the Income Tax Act, 1961. Citing various judgments, including Rajkot Visha Shrimali Jain Samaj vs. ITO and CIT vs. Arya Vysya Kalyana Nilaya Sangam, it was established that Section 13(1)(b) does not apply to trusts created before the 1961 Act. Therefore, the tribunal concluded that the CIT(E) should not have denied the registration based on Section 13(1)(b).

2. Genuineness of the Activities of the Trust:

The CIT(E) also rejected the application on the grounds that the trust failed to demonstrate the genuineness of its activities. The trust did not initially respond to the CIT(E)'s show cause notices, and when it did, it failed to provide sufficient documentary evidence to support its claims.

The tribunal, upon reviewing the trust's objectives, found them to be for the welfare of the general public, not limited to a specific community. The objectives included providing financial assistance, medical aid, educational support, and other social improvement activities. The tribunal found merit in the trust's submissions and concluded that the trust's activities were genuine and aligned with its stated objectives.

3. Whether the Trust was Created for the Benefit of a Particular Community/Caste:

The CIT(E) held that the trust was created for the benefit of the "Soni Nyat" community, which would disqualify it under Section 13(1)(b). However, the tribunal found that the trust's objectives were broader and included benefits for the general public. The tribunal noted that the trust's activities were not restricted solely to the "Soni Nyat" community but extended to other communities and the public at large.

The tribunal referenced multiple judgments, including CIT vs. Maheshwari Agarwal Marwari Panchayat, to support its conclusion that trusts created before the 1961 Act are not subject to Section 13(1)(b) even if they benefit a particular community.

Conclusion:

The tribunal concluded that the CIT(E) erred in denying the registration of the trust under Section 12AA based on the provisions of Section 13(1)(b). The tribunal directed the CIT(E) to grant registration to the trust, provided it fulfills other conditions under Section 12AB of the Income Tax Act, 1961, and Rule 17A of the Income Tax Rules, 1962. The appeal was allowed for statistical purposes.

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