2024 (11) TMI 226 - AT - Income Tax

Rejection of application for registration u/s 12AB - Invocation of Section 13(1)(b) regarding the trust's objectives - HELD THAT - In the case of Shah Gulabchandmulchand Shree Parshwanath Trust, Vapi 2024 (9) TMI 197 - ITAT SURAT ITAT held that where CIT(E) denied registration under Section 12A to assessee-trust due to one objective benefiting only Jain community, invoking Section 13(1)(b), but overlooked broader charitable objectives since provisions of section 13 can be invoked only at time of assessment and not at time of grant of registration under section 12A, matter would be remanded back to CIT(E) for reconsideration As provisions of Section 13(1)(b) of the Act can be invoked at the time of assessment, on the basis of material that may be brought on record. However, grant of registration under Section 12A of the Act cannot be denied to the assessee by invoking the provisions of Section 13(1)(b) of the Act at the time of grant of registration. In the result, in view of the above observations, 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 as mentioned in its order for rejecting the application filed by the assessee trust. Appeal filed by the assessee is allowed for statistical purposes.

Issues Involved:

1. Rejection of application for registration under Section 12AB.
2. Cancellation of provisional registration of the assessee-trust.
3. Invocation of Section 13(1)(b) regarding the trust's objectives.
4. Incorrect categorization of the trust's activities in Form 10AB.
5. Alleged "specified violations" under Section 12AB(4).

Issue-wise Detailed Analysis:

1. Rejection of Application for Registration under Section 12AB:
The primary issue revolves around the rejection of the assessee's application for registration under Section 12AB of the Income Tax Act. The Ld. Commissioner of Income Tax (Exemption) observed that the trust's objectives, as per the Trust Deed, were primarily aimed at benefiting the Jain community, specifically during natural disasters. This was perceived as restrictive and not serving the public at large, leading to the rejection of the application. The Tribunal emphasized that the provisions of Section 13(1)(b), which exclude tax exemptions for trusts serving specific religious communities, should not be invoked at the time of registration but rather during assessment proceedings. This position is supported by multiple judicial precedents, including decisions by the Hon'ble Supreme Court and various ITAT benches.

2. Cancellation of Provisional Registration:
The provisional registration granted to the assessee-trust was canceled based on the same reasoning applied for rejecting the application for final registration. The Tribunal, however, reiterated that the invocation of Section 13(1)(b) at the registration stage was premature. The Tribunal directed that the matter be reconsidered by the CIT (Exemptions) without relying solely on the grounds mentioned in the rejection order.

3. Invocation of Section 13(1)(b):
The invocation of Section 13(1)(b) was a contentious point, as the Ld. CIT(E) applied this provision to deny registration, arguing that the trust's activities were confined to a specific religious community. The Tribunal, referencing several cases, clarified that Section 13(1)(b) should be considered during assessment, not at the registration stage. The Tribunal cited cases such as Bhojalram Leuva Patel Seva Samaj Trust and Bayath Kutchhi Dasha Oswal Jain Mahajan Trust to support its stance that the CIT (Exemptions) overstepped by applying this provision prematurely.

4. Incorrect Categorization in Form 10AB:
The assessee contended that the categorization of activities as 'charitable' instead of 'religious-cum-charitable' in Form 10AB was inadvertent. The Tribunal did not specifically address this issue in detail but implied that such procedural errors should not be the sole basis for denying registration, especially when the broader objectives of the trust are charitable.

5. Alleged "Specified Violations" under Section 12AB(4):
The CIT (Exemptions) cited "specified violations" under Section 12AB(4) as another reason for rejection. The Tribunal, however, found that these allegations were not adequately substantiated and should be reconsidered in light of the broader charitable objectives of the trust. The Tribunal directed the CIT (Exemptions) to reassess the application without being constrained by the initial findings.

In conclusion, the Tribunal restored the matter to the file of the CIT (Exemptions) for de-novo consideration, ensuring that the assessee is given a fair opportunity to present its case. The appeal filed by the assessee was allowed for statistical purposes, with the Tribunal emphasizing that registration should not be denied based on the grounds initially cited by the CIT (Exemptions).

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