2020 (3) TMI 1080 - HC - Income Tax

Exemption u/s 11 - denial of exemption as assessee trust is for benefit of a Sindhi community - Tribunal held that for granting registration u/s 12AA only 'nature of its object' and 'genuineness of the activities' of the trust are to be considered, even when the very basis and very object of creation of the trust was hit by the prohibition provided under Section 13(1) (b) - HELD THAT - Referring to clauses of the trust deed, it cannot be said the trust is only religious trust. Thus, finding arrived at by the CIT that the objects of the trust were only for the benefit of a Sindhi community, is not correct. CIT was therefore not justified in rejecting registration of the Trust holding that the activities were carried out only for religious purposes as it would be the task of the Assessing Officer to be undertaken at the time of assessment on the basis of material that may be brought on record. At the time of registration of the trust under section 12AA of the Act, CIT is required to consider only 'nature of its object' and 'genuineness of the activities' of the trust. We are of the considered opinion that the respondent- trust is charitable and religious trust which does not give benefit to any specific religious community only, and therefore, it cannot be held that Section 13(1)(b) of the Act could be attracted to the respondent- trust, and thereby, it would be entitled to get registration under Section 12A of the Act. - Decided in favour of the assessee

Issues Involved:
1. Whether the Tribunal was correct in holding that for granting registration under Section 12AA, only the 'nature of its object' and 'genuineness of the activities' of the trust are to be considered, even when the trust's creation was allegedly hit by the prohibition under Section 13(1)(b) of the Income Tax Act.

Detailed Analysis:

Issue 1: Registration Under Section 12AA and Prohibition Under Section 13(1)(b):

The primary issue revolves around the interpretation of the conditions for granting registration under Section 12AA of the Income Tax Act, 1961, and whether the prohibition under Section 13(1)(b) affects such registration.

Facts of the Case:
- The assessee trust applied for registration under Section 12A on 30.09.2005, despite being created by a will dated 12.10.1973.
- The Commissioner of Income Tax (CIT) rejected the application, citing that the trust primarily benefits the Sindhi Community, which constitutes a separate religious community, thus violating Section 13(1)(b).
- The Income Tax Appellate Tribunal (Tribunal) allowed the appeal, holding that the trust's registration under Section 12A should not be denied based on the nature of its objects and activities being charitable.

Tribunal's Findings:
- The Tribunal relied on the decision in Aggarwal Mitra Mandal Trust vs. Director of Income Tax (Exemption), where it was held that the powers of the Director of Income Tax (Exemption) under Section 12AA are confined to satisfying himself about the genuineness of the activities of the trust and the nature of its objects being charitable.
- The Tribunal concluded that the trust's activities are of charitable nature and purpose, and thus, the trust cannot be denied registration under Section 12A.

Revenue's Argument:
- The appellant argued that the Tribunal's order was erroneous, as Section 13(1) deals with cases where Sections 11 and 12 are not applicable. Since registration under Section 12A is for availing benefits under Sections 11 and 12, the registration was validly rejected as the trust did not fulfill the provisions of Section 13(1).

Court's Analysis:
- The court referred to the Supreme Court's decision in Commissioner of Income Tax, Ujjain vs. Dawoodi Bohara Jamat, which clarified that Section 13(1)(b) applies to trusts established for charitable purposes benefiting a particular religious community or caste.
- The court emphasized that a trust with composite objects (both religious and charitable) would not be excluded from exemption under Section 11 unless it is established that the charitable purpose is exclusively for a particular religious community or caste.

Relevant Precedents:
- The court cited the case of Commissioner Of Income Tax, Cochin v. Palghat Shadi Mahal Trust, where it was held that a trust confined to benefiting a specific community would fall under the restriction of Section 13(1)(b).
- In State Of Kerala v. M.P Shanti Verma Jain, it was held that propagation of religion and restriction of trust benefits to a specific community would render the trust ineligible for exemption.

Conclusion:
- The court concluded that the respondent trust's objects and activities are not confined to benefiting only the Sindhi Community. The trust is both charitable and religious, serving a broader public interest.
- The CIT's rejection of registration was incorrect, as the trust's objects and activities should be evaluated based on their charitable nature and genuineness, not merely on the community it serves.
- The court affirmed that the trust is entitled to registration under Section 12A, as it does not exclusively benefit a specific religious community.

Final Judgment:
- The appeal was dismissed, and the question of law was answered in favor of the assessee and against the revenue. The respondent trust is entitled to registration under Section 12A of the Income Tax Act.

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