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TMI Blog2014 (3) TMI 652X X X X Extracts X X X X X X X X Extracts X X X X ..... Act shelters such trust with composite objects to claim exemption from tax as a religious and charitable trust subject to provisions of Section 13 - The activities of the trust under such objects would therefore are entitled to exemption accordingly. Whether the respondent-trust is a charitable and religious trust only for the purposes of a particular community and therefore, not eligible for exemption under Section 11 of the Act in view of provisions of Section 13(1)(b) of the Act – Held that:- The Section requires it to be established that such charitable purpose is not for the benefit of a particular religious community or caste - it needs to be examined whether such religious-charitable activity carried on by the trust only benefits a certain particular religious community or class or serves across the communities and for society at large. Relying upon Sole Trustee, Loka Shikshana Trust v. CIT [1975 (8) TMI 1 - SUPREME Court] - The objects of the respondent-trust are based on religious tenets under Quran according to religious faith of Islam - the objects and purposes of the respondent-trust would clearly demonstrate that the activities of the trust though both charitabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ter affording an opportunity of hearing to the applicants, had come to the conclusion that the respondent is a charitable trust and since the object and purpose of the trust is confined only to a particular religious community the same would attract the provisions of Section 13(1)(b) of the Act and therefore, declined the prayer made for registration of the trust by his order dated 14.09.2007. 4. Aggrieved by the order so passed, the respondent had carried the matter by way of an appeal before the Tribunal. The Tribunal after going through the objects of the respondent-trust has come to the conclusion that the respondent is a public religious trust as the objects of the trust are wholly religious in nature and thus, the provisions of Section 13(1)(b) which are otherwise applicable in case of charitable trust would not be applicable and therefore, held that the respondent-trust is entitled to claim registration under Sections 12A and 12AA and accordingly, allowed the appeal and set aside the order passed by the Commissioner and further directed the Commissioner of Income Tax to grant registration under Section 12A read with Section 12AA of the Act to all the applicant- trusts. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 11, 12, 12A, 12AA and 13. Section 11 deals with income from trusts for charitable and religious purposes and sets out which income shall be exigible to taxation. Section 11(1) relates to application of income towards the objects of the trust and exempts income of trusts with objects wholly charitable or religious or parts of income which relate to such objects. Section 11(1A) provides for exemption of capital gains derived by trusts. Section 11(1B), speaks of failure to apply income as per option under Explanation (2) to section 11(1). Section 11(2) relates to setting apart or accumulation of income. Section 11(3) deals with consequences of misapplication of income or improper investment. While Section 11(3A) relates to modification of purposes specified in Form No. 10 under section 11(2), Sections 11(4) 11(4A) relate to business income of charitable trusts. Lastly, Section 11 (5) provides for the prescribed modes of investment in regard to the said trusts. 12. Section 12 provides that the income of trusts which are created wholly for charitable or religious purpose from voluntary contributions would be deemed as income from the property held under trust wholly for charita ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the benefit of any particular religious community or caste would not be entitled for the benefit of Section 11 or 12 of the Act. Thus, when read in conjunction, while under Section 11 a trust which is established for charitable purposes to benefit a particular religious community may be a valid charitable trust, under Section 13(1)(b) such trust would not be entitled to exemption and consequently, the said income would be exigible to tax under the Act. 16. Therefore, under the scheme of the Act, Sections 11 and 12 are substantive provisions which provide for exemptions available to a religious or charitable trust. Income derived from property held by such public trust as well as voluntary contributions received by the said trust are the subject-matter of exemptions from the taxation under the Act. Sections 12A and 12AA detail the procedural requirements for making an application to claim exemption under Sections 11 or 12 by the assessee and the grant or rejection of such application by the Commissioner. A conjoint reading of Sections 11, 12, 12A and 12AA makes it clear that registration under Sections 12A and 12AA is a condition precedent for availing benefit under Sections ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rise for consideration. 19. Normally a finding of fact as decided by the last fact finding authority is final and ought not to be lightly interfered by the High Court in an appeal. The exceptions to the said rule have been well delineated by this Court and for the present case do not require to be noticed. The appellate Courts however ought to be cautious while weeding out such questions and should the question in examination involve examination of finding of fact, ex cautela abundanti the appellate Courts would require to examine that whether the question involves merely the finding of fact or the legal effect of such proven facts or documents in appeal. While the former would be a question of fact which may or may not be interfered with, the latter is necessarily the question of law which would require consideration. 20. It is often that the questions of law and fact are intricately entwined, sometimes to the extent of blurring the domains in which they ought to be considered and therefore, require cautious consideration. The question where the legal effect of proven facts is intrinsically in appeal has to be differentiated from the question where a finding of fact is only ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... party on the ground that be had knowledge of it and had accepted it. In holding that the facts found did not establish any ground of liability, Sir Richard Couch observed: A finding that the bond shewed that the mortgage deed was accepted by the defendant, as binding obligation upon him, would be an inference of law, an inference which, in their Lordships' opinion, is not a just one from the facts which the Commissioner held to be proved. The knowledge of the mortgage and saying that the money due upon it was repayable, do not amount to an agreement by him to be bound by it. As the mortgage did not purport to be made in any way on behalf of Daud Rao it was not a case for ratification. A new agreement was necessary to bind him . 24. In Dhanna Mal (supra) the tenancy was an admitted fact and the question for consideration was whether it was permanent or not. Therein, the determination of the issue rested on the legal inference to be drawn from proved facts, or in other words, the legal effect of proved facts, i.e., the tenancy. 25. In Dnyaneshwar Ranganath Bhandare v. Sadhu Dadu Shettigar, (2011) 10 SCC 433, the second appeals challenging the judgment and decree of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s under the Act is not a question of fact. It is but a question which requires examination of legal effects of the proven facts and documents, that is, the legal implication of the objects of the respondent-trust as contained in the trust deed. It is only the objects of a trust as declared in the trust deed which would govern its right of exemption under Section 11 or 12. It is the analysis of these objects in the backdrop of fiscal jurisprudence which would illuminate the purpose behind creation or establishment of the trust for either religious or charitable or both religious and charitable purpose. Therefore, the High Court has erred in refusing to interfere with the observations of the Tribunal in respect of the character of the trust. 27. Having said so, we would now examine the question, whether the Courts below were justified in coming to the conclusion that the respondent- trust is a public religious trust and therefore, outside the purview of Section 13(1)(b) and eligible for exemption under Section 11 of the Act. 28. The objects of the respondent-trust are not indicative of a wholly religious purpose but are collectively indicative of both charitable and religious p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in CIT v. Surat Art Silk Cloth Manufacturers' Assn. has held that if the primary purpose and the predominant object of a trust are to promote the welfare of the general public the purpose would be charitable purpose. If the primary or predominant object of an institution is charitable, any other object which might not be charitable but which is ancillary or incidental to the dominant purpose, would not prevent the institution from being a valid charitable trust. (Thiagarajar Charities v. CIT, (1997) 4 SCC 724). 32. This Court in several decisions has reiterated the aforesaid test of predominant purpose and held that the purposes which would yield to profit or not in general public interest could be separated and the trust would only be exigible to tax to the extent of the charitable purposes under its objects. In CIT v. Kamla Town Trust, (1996) 7 SCC 349, the object of the trust included construction of houses for workmen in general and in particular for the workmen, staff and other employees of the settler company. It was held that while the provisions relating to workmen in general did constitute a charitable object, the words in particular for workmen of the company ne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elating to observance of rituals and ceremonies, propagation of tenets of the religion and other allied activities of the religious community. An example of such would entail activities such as the dance performances (Garba) or distribution of food specifically for people on fast during the Hindu festivities of Navratri. 36. In certain cases, the activities of the trust may contain elements of both: religious and charitable and thus, both the purposes may be over lapping. More so when the religious activity carried on by a particular section of people would be a charitable activity for or towards other members of the community and also public at large. For example, the practice of optional charity in the form of Khairat or Sadaquah under Mohammadan Law would be covered under both charitable as well as religious purpose. Further, while providing food and fodder to animals especially cow is religious activity for Hindus, it would be charitable in respect to non-Hindus as well. Similarly, service of water to the thirsty would find mention as religious activity in sacred texts and at the same time would qualify as a charitable activity. 37. The Tribunal has analysed the objects o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the respondent-trust are objects with religious purpose only. However, in respect to the other objects, in our view the fact that the said objects trace their source to the Holy Quran and resolve to abide by the path of godliness shown by Allah would not be sufficient to conclude that the entire purpose and activities of the trust would be purely religious in color. The objects reflect the intent of the trust as observance of the tenets of Islam, but do not restrict the activities of the trust to religious obligations only and for the benefit of the members of the community. The Privy Council in Re The Tribune, 7 ITR 415 has held that in judging whether a certain purpose is of public benefit or not, the Courts must in general apply the standards of customary law and common opinion amongst the community to which the parties interested belong to. Therefore, it is pertinent to analyse whether the customary law would restrict the charitable disposition of the intended activities in the objects. 39. The provision of food to the public on religious days of the community as per object (a) and (b), the establishment of Madarsa and organizations for dissemination of religious education ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... altruist character. 41. Therefore, the objects of the trust exhibit the dual tenor of religious and charitable purposes and activities. Section 11 of the Act shelters such trust with composite objects to claim exemption from tax as a religious and charitable trust subject to provisions of Section 13. The activities of the trust under such objects would therefore be entitled to exemption accordingly. 42. We would now proceed to examine the objects under the provisions of Section 13(1)(b) of the Act. It becomes amply clear from the language employed in the provisions that Section 13 is in the nature of an exemption from applicability of Sections 11 or 12 and the examination of its applicability would only arise at the stage of claim under Sections 11 or 12. Thus, where the income of a trust is eligible for exemption under section 11, the eligibility for claiming exemption ought to be tested on the touchstone of the provisions of section 13. In the instant case, it being established that the respondent-trust is a public charitable and religious trust eligible for claiming exemption under Section 11, it becomes relevant to test it on the anvil of Section 13. 43. Thus, the sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the muslim residents of Kerala constituted a trust for the purpose of constructing and establishing at Palghat-a-Shadi Mahal and other institutions for the educational, social and economic advancement of the Muslims and for religious and charitable objects recognised by Muslim law ... and later clarified that the proceeds would be utilized for the benefit for public at large and upon this basis, the trust made a claim for exemption from tax under Section 11. This Court held that the resolution clarifying the object would not validly amend the object of the trust-deed and since the object confined the benefit to only muslim community, it would be covered by the restriction under Section 13(1)(b) of the Act even though it functioned for public benefit. Thus, therein the object sufficiently defined or expressly stated beneficiary class and restricted the activities of the trust to a specific community. 48. Further, in State of Kerala v. M.P. Shanti Verma Jain, (1998) 5 SCC 63 this Court has held that propagation of religion and restriction of benefits of activities of trust in its objects to the said community would render the trust as ineligible for claiming exemption under si ..... X X X X Extracts X X X X X X X X Extracts X X X X
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