Case Law Details
Jito Bhavnagar Chapter Foundation Vs CIT (Exemption) (ITAT Ahmedabad)
ITAT Ahmedabad held that the applicability of Section 13 of the Income Tax Act should only be examined during assessment and not at the registration stage under Section 12A of the Income Tax Act. Accordingly, CIT(E) directed to evaluate the application afresh.
Facts- The assessee, a company registered u/s. 8 of the Companies Act, 2013, was provisionally registered u/s. 12(1)(ac)(vi) w.e.f. 02-10-2021according to which the provisional registration was approved from A.Y. 2022-23 to A.Y. 2024-25. The assessee filed an application for registration u/s 12A(1)(ac)(iii) of the Act on 27-06-2023.
Upon examining the assessee’s objectives and activities as described in its Memorandum of Association (MOA), the CIT(E) noted that many activities were focused on the welfare of the members of the association rather than the public at large. Therefore the CIT(E) concluded that the assessee was not functioning as a public charity but as a service provider for its members. Thus, the CIT(E) rejected the application for registration u/s. 12A of the Act and also cancelled the provisional registration that had been previously granted. Being aggrieved, the present appeal is filed.
Conclusion- In the present case, the CIT(E) prematurely invoked the provisions of Section 13(1)(c) of the Act without giving due consideration to the charitable objects of the assessee. The Hon’ble Gujarat High Court in CIT(E) vs. Bayath Kutchhi Dasha Oswal Jain Mahajan Trust [2016] 74 taxmann.com 199 (Guj), further confirmed this principle, holding that Section 13 would only be applicable at the time of assessment, not during the registration stage.
Held that the CIT(E)’s order is flawed both in its interpretation of the assessee’s objects and in the premature invocation of Section 13(1)(c) and 13(3) of the Act. Judicial precedents clearly establish that the applicability of Section 13 should only be examined during assessment and not at the registration stage under Section 12A of the Act.
FULL TEXT OF THE ORDER OF ITAT AHMEDABAD
This appeal by the assessee arises from the order of the Commissioner of Income Tax (Exemption), Ahmedabad [hereinafter referred to as “CIT(E)”], dated 07.12.2023, rejecting the application for registration under Section 12A(1)(ac)(iii) of the Income Tax Act, 1961 [hereinafter referred to as “the Act”], and cancelling the provisional registration under Section 12AB of the Act.
Facts of the case:
2. The assessee, a company registered under section 8 of the Companies Act, 2013, was provisionally registered under sub-clause (vi) of clause (ac) of sub-section 1 of section 12A of the Act with effect from 02-10-2021according to which the provisional registration was approved from A.Y. 2022-23 to A.Y. 2024-25. The assessee filed an application for registration u/s 12A(1)(ac)(iii) of the Act on 27-06-2023.
2.1. Upon examining the assessee’s objectives and activities as described in its Memorandum of Association (MOA), the CIT(E) noted that many activities were focused on the welfare of the members of the association rather than the public at large. The CIT (E) found that the assessee’s activities appeared to be commercial and business-like in nature, rather than charitable. Objects 37, 38, and 43 of the MOA were particularly scrutinized by the CIT(E), revealing that the activities were geared towards the welfare and empowerment of the members, and thus not fully aligned with the broader public purpose required under Section 12A of the Act. The CIT (Exemption) referred to Section 13(3) of the Act, which prevents organizations serving the interests of particular persons, including members, from being granted charitable registration. The CIT(E) placed reliance on the judgement of the Hon’ble Punjab & Haryana High Court in the case of CIT vs. Truck Operators Association (9 taxmann.com 267), where the registration was denied to a truck operators’ association, which primarily served its members’ business interests. The assessee’s audited financials for FY 2021-22 were examined by the CIT(E) and found that the assessee was operating as a welfare association for its members, collecting fees from members under various wings, such as, the JITO Ladies Wing and the JITO Youth Wing therefore the CIT(E) concluded that the assessee was not functioning as a public charity but as a service provider for its members. Based on the above findings, the CIT (E) rejected the application for registration under Section 12A of the Act and also cancelled the provisional registration that had been previously granted.
3. Aggrieved by the order of CIT(E) filed an appeal before us with following grounds of appeal:
1. The order passed by the Ld. CIT (E) rejecting the Application filed in Form No.10AB u/s 12(1)(ac)(iii) of the Act is against law, equity & justice.
2. The Ld. CIT(E) has erred in law and facts in rejecting the application filed U/S 12A(1)(ac)(iii) of the Act stating that the objects of the Trust are only for the benefit/welfare/interest of the members.
3. The appellant Craves liberty to add, amend, alter or modify all or any grounds of appeal before final appeal.
4. The Authorised Representative (AR) of the assessee referred the Memorandum of Association and stated that there are four main objects of the assessee which are of general public interest and there are 43 matters which are necessary for the furtherance of the main objects. The AR further submitted that the CIT(E) selectively pointed out three matters out of 43 matters and rejected the registration. The AR placed reliance on the following judicial precedents:
1. Bargahe Husaini Trusr-Monpar Vs. CIT(E) – [2024] 165 com 141 (Ahmedabad Trib.).
2. Anjuman E Nusratul Muslimin Tankaria Vs. CIT(E) – [2024] 162 com 42 (Ahmedabad Trib.).
5. The Departmental Representative (DR) relied on the order of the CIT(E).
6. We have heard the rival contentions and perused the material on record. We note that the CIT(E)’s interpretation of the MOA and the invocation of Section 13(1)(c) and 13(3) of the Act raise two key issues i.e. charitable nature of the objects and application of section 13 at the stage of registration. The CIT(E) focused heavily on the wording of Clauses 37, 38, and 43 of the MOA to conclude that the activities were confined to member welfare. However, these objects must be read in conjunction with the broader objectives of the assessee Foundation, which include the JITO Awas Yojna Project and other projects aimed at benefiting society at large. The CIT(E) failed to recognize the dual nature of the trust’s activities, some of which may benefit members, but do not exclude the possibility of broader charitable objectives. Additionally, it is well-established that organisations can have composite objects—those that serve both members and the public—without being disqualified from registration. In such cases, the overall focus on public charity should prevail. The CIT(E)’s interpretation ignored the public welfare elements embedded in the trust’s larger mission, such as promoting charitable giving, health, and self-sufficiency in society. The provisions of Section 13(1)(c) and 13(3) of the Act, which deny exemptions to trusts that provide benefits to specified persons, are intended to be invoked during the assessment proceedings, when the actual application of income is scrutinized. At the stage of registration under Section 12A of the Act, the focus should solely be on whether the objects and activities of the trust are charitable in nature.
6.1. Multiple judicial precedents, including the cases of Anjuman E Nusratul Muslimin Tankaria vs. CIT(E) [2024] 162 taxmann.com 42 (Ahd-Trib) and Bargahe Husaini Trust vs. CIT(E) [2024] 165 taxmann.com 141 (Ahd-Trib), have clarified that the provisions of Section 13 should not be invoked at the stage of registration. These rulings emphasize that the CIT(E) should confine his examination to the charitable objects and not speculate about potential benefits to members unless and until actual instances of such benefits arise, which can only be verified during assessment. In Anjuman E Nusratul Muslimin Tankaria, the Co-ordinate Bench held that while the trust’s objects may have benefitted a specific community, this does not automatically disqualify it from registration under Section 12A of the Act. The Tribunal observed that such provisions of the Act are relevant only during assessment when the actual use of funds is evaluated, not at the registration stage. Similarly, in Bargahe Husaini Trust, the co-ordinate bench found that the CIT(E)’s rejection of registration on the grounds of benefitting a particular religious community was premature. The provisions of Section 13(1)(b) of the Act were deemed applicable only at the assessment stage, not during registration. Both cases emphasize that registration under Section 12A of the Act is primarily concerned with whether the objects of the trust are charitable and whether it genuinely intends to carry out charitable activities. The issue of whether any benefits to specified persons occur is to be examined when the income is applied, not when the trust seeks registration. In the present case, the CIT(E) prematurely invoked the provisions of Section 13(1)(c) of the Act without giving due consideration to the charitable objects of the assessee. This mirrors the errors in the decisions seen in the aforementioned cases. The Hon’ble Gujarat High Court in CIT(E) vs. Bayath Kutchhi Dasha Oswal Jain Mahajan Trust [2016] 74 taxmann.com 199 (Guj), further confirmed this principle, holding that Section 13 would only be applicable at the time of assessment, not during the registration stage.
6.2. The CIT(E)’s order is flawed both in its interpretation of the assessee’s objects and in the premature invocation of Section 13(1)(c) and 13(3) of the Act. Judicial precedents clearly establish that the applicability of Section 13 should only be examined during assessment and not at the registration stage under Section 12A of the Act.
6.3. In light of these judicial precedents and the factual matrix of the case, we set aside the order of the CIT(E) and restore the matter to his file for de novo consideration. The CIT(E) is directed to evaluate the application for registration afresh, focusing solely on the charitable nature of the assessee’s objects, without invoking the provisions of Section 13(1)(c) or Section 13(3) of the Act at this stage. The CIT(E) shall provide the assessee with a reasonable opportunity of being heard before passing the order.
7. In the result, the appeal of the assessee is treated as allowed for statistical purposes.
Order pronounced in the Open Court on 03rd October, 2024 at Ahmedabad.
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