Jamia Osman Bin Affan Education Society Vs ITO (ITAT Hyderabad)
Conlcusion: When an educational society was found to be substantially engaged in genuine charitable activities, its exemption could not be denied under Section 13(1)(b) simply because a few specific expenditures happened to benefit individuals from a particular religious community. AO’s additions were ordered to be deleted. Since, the primary assessment order alleging religious fund diversion was overturned, the fundamental basis for cancelling the trust’s registration no longer survived. The Commissioner’s retrospective cancellation order under Section 12AB(4) was set aside.
Held: Assessee was an educational society holding a valid charitable registration under Sections 12A/12AB. For Assessment Year 2017-18, the society claimed a tax exemption under Section 11(1)(a) for its charitable expenditures, which included constructing a school building and distributing auto-rickshaws. AO disallowed the construction and auto distribution expenses, alleging they were meant for the benefit of a specific religious community and therefore violated Section 13(1)(b). For Assessment Year 2024-25, the Commissioner (Exemptions) relied heavily on the AO’s findings of religious fund diversion and passed an order under Section 12AB(4) cancelling the society’s charitable registration with retrospective effect. The issue arose for consideration was whether an educational society’s tax exemption under Section 11 could be denied under Section 13(1)(b), and its charitable registration retrospectively cancelled under Section 12AB(4), solely because certain specific expenditures like school construction and auto distribution allegedly benefited a particular religious community. It was held that Section 13(1)(b) applies only where a trust or institution is created or established exclusively for the benefit of a particular religious community or caste. Since the AO himself had accepted substantial charitable activities and expenditure of the assessee, the society could not be regarded as an institution established solely for a particular religious community. Relying upon Dawoodi Bohra Jamat, Tribunal held that composite charitable and religious activities would not automatically attract Section 13(1)(b) unless the institution itself was exclusively meant for a specified community. Accordingly, the additions relating to construction expenditure and auto distribution expenses were deleted. On the connected issue of cancellation of registration under Section 12AB(4), the Tribunal held that the cancellation order passed by the CIT(E) could not survive once the very foundation based on alleged violation of Section 13(1)(b) had been set aside. Tribunal further held that retrospective cancellation of registration from 29.07.2016 was legally unsustainable, since Section 12AB(4), inserted by the Finance Act, 2022, could not be applied retrospectively in the absence of express legislative intent. Consequently, the order cancelling registration under Sections 12A/12AB was quashed and both appeals of the assessee were allowed.
