Case Law Details

Case Name : Aggarwal Mitra Mandal Trust Vs Director Of Income Tax 29 September, 20062007 106 ITD 531 Delhi, 2007 293 ITR 259 Delhi, (2007) 109 TTJ Delhi 128
Appeal Number :
Date of Judgement/Order :
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Courts : All ITAT (4430) ITAT Delhi (983)

Aggarwal Mitra Mandal Trust Vs. DIT (Exemption) (2007) 293 ITR (AT) 259 (Delhi)- while granting registration under section 12A of the Act, the CIT is to satisfy himself about the genuineness of activities and objects of the trust and as such, the scope of his powers was limited in this regard to make such enquiries as he deemed to, in respect of these two aspects. It was further held that if the Commissioner had not doubted the genuineness of the activities of the trust, he could not refuse the grant of registration under section 12A of the Act. The provisions of section 13(1) of the Act would be applied or invoked only at the time of computation of total income of the previous year of the person who was claiming deduction under section 11 or 12 of the Act, by the Assessing Officer and not by the CIT, while considering the application for registration under section 12A of the Act.

Income Tax Appellate Tribunal – Delhi
Aggarwal Mitra Mandal Trust
vs
Director Of Income Tax
Date-  29 September, 2006
Equivalent citations: 2007 106 ITD 531 Delhi, 2007 293 ITR 259 Delhi, (2007) 109 TTJ Delhi 128
Bench: R Easwar, Vice, P Jagtap

ORDER P.M. Jagtap, Accountant Member

1. This appeal is preferred by the assessee against the order of learned Director of (Income Tax (Exemption), New Delhi dated 19.7.2002 passed Under Section 12AA refusing to grant registration applied for by the assessee Under Section 12A.

2. The assessee in the present case is a society registered under the Societies Registration Act, 1860. It applied for its registration Under Section 12A(a) belatedly on 15.1.2002. Alongwith the said application, copies of certificates of registration, memorandum of understanding, rules and regulations and receipts and payments account for the year ending 31.3.1999, 31.3.2000 and 31.3.2001 were also filed by the assessee. After examination of the said application as well as the accompanying documents, the learned D.I.(Exemption) found that object Clause Nos. 3(1) and 3(2) were for the benefit of a specific caste, viz., Vaish and since these clauses were in conflict with the provisions of Section 13(1)(b), he required the assessee to offer its explanation in the matter. In reply, it was submitted on behalf of the assessee that Vaish community is fairly broad so as to constitute and represent “public” as envisaged in the relevant provisions. Reliance was placed on behalf of the assessee on the decision of Hon’ble Supreme Court in the case of Ahmedabad Rana Caste Association v. CIT 82 ITR 704 wherein it was held that for serving a charitable purpose, it is not necessary that the object should be for the benefit of the whole mankind or all persons in a country or a state and it is sufficient if the intention is to benefit a section of the public as distinguished from a specific individual or person. It was also held that the section of the community sought to be benefited must be sufficiently defined and identifiable by some common quality of a public or impersonal nature. Further reliance was also placed on behalf of the assessee on the decision of Hon’ble Allahabad High Court in the case of CIT v. SDKI Jaipuria Trust (No. 1) 186 ITR 728 wherein it was held, following the decision of Hon’ble Supreme Court in the case of Ahmedabad Rana Caste Association (supra), that Vaish community constituted public and objects of granting assistance on the occasion of marriage to the persons from Vaish community constituted charitable purposes. It was thus contended on behalf of the assessee before the learned D.I.(Exemption) that Vaish community is fairly well-defined and it also is fairly large to constitute public rather than an individual. As regards the provisions of Section 13(1)(b) pointed out by the D.I.(Exemption) whereby any income of the trust or institution created or established for the purpose of any religious community or caste was excluded from the benefits available Under Section 11 & 12, it was submitted on behalf of the assessee before the D.I.(Exemption) that the registration Under Section 12A(a) and denial of exemption Under Section 13(1)(b) are two different matters inasmuch as the former depends upon the nature of institution and genuineness of its activities whereas the latter is the matter regarding application of income of a charitable trust or institution. This submission made on behalf of the assessee company, however, was not found acceptable by the D.I.(Exemption) and he refused to grant registration applied for by the assessee Under Section 12A(a) for the following reasons given in paragraph No. 4 of his impugned order:

4. I have considered the facts of the case and the arguments of the ld.Counsel. It is admitted that Vaish community is fairly broad and identifiable to constitute public and, therefore, the society is a charitable institution. This was the ratio of the decision of Allahabad High Court. However, object Clauses 3(1), 3(2) of the MOA infringe provisions of Section 13(1)(b). This section does not deal with the application of income, as argued by the ld.counsel, but deals with the fact whether the institution is created for the benefit of any caste or religious community. Therefore, this section deals with scope and ambit of the activities of the society, which have to be considered Under Section 12Aa also. A number of object clauses namely 4(1), 4(2), 4(3) and 4(4) etc. are for the benefit of members of Vaish caste only. Therefore, it is manifestly clear from MOA that the society was created for the benefit of this caste. There is no dispute that Vaish is a well recognised and one of the four castes among Hindus. The case of SR Trust and Ors. , cited by the assessee, did not deal with the issue of caste. Rather it dealt with, religious community. Therefore, the effect of Section 13(1)(b) would be that assessee’s income will not be exempt Under Section 11 and 12. Consequently, the assessee will not be able to get benefit of Section 11 at any point of time even if it is registered Under Section 12A(a). Thus, its registration, even if granted, becomes infructuous for the purpose of assessments under the I.T.Act. This issue was not considered or debated in the case of Ahmedabad Rana Caste Association or the Jaipuria Trust case, and thus, the facts of the case are distinguishable in law from the facts of that case. As registration will not serve any purpose in so far as the assessee’s assessment is concerned, no useful purpose will be served by in registering it. Accordingly, I decline to register the case.

3. Aggrieved by the aforesaid order of the learned D.I.(Exemption), the assessee has preferred this appeal before the Tribunal on the following ground:

Ld.DIT is not justified in law and facts and circumstances of the case in rejecting the registration to the society Under Section 12A of the Income Tax Act on the ground that object clause of the Trust conflicts with the provision of Section 13(1)(b) under the circumstances when Hon’ble Allahabad High Court in case of CIT v. Surji Devi Kunji Lal Jaipura Trust (No. 1) has held that, Vaishya community is a section of public, following the decision of Hon’ble Supreme Court in the case of Ahmedabad Rana Caste Association v. CIT .

4. The learned Counsel for the assessee, at the outset, pointed out that even though the assessee trust was established in the year 1992, it applied for the registration Under Section 12A only in the year 2002. He submitted that the application made by the assessee for such registration, however, was rejected by the D.I.(Exemption) relying on object Clause Nos. 3(1) and 3(2) of the trust deed, according to which, the activities of the assessee trust were meant only for persons belonging to Vaish community which, according to the D.I.(Exemption), was violative of Section 13(1)(b). He contended that at the time of granting the registration as per Section 12AA, CIT was not authorised to go into the aspect of violation, if any, of Section 13(1) and he was required to satisfy himself only about the genuineness of the trust and its charitable objects. He contended that even if some of the objects are found to be charitable, D.I.(Exemption) has to grant registration Under Section 12A and since at least the object of the assessee trust as mentioned in Clause 3(4) of the trust deed relating to establishment of schools, colleges, hospitals etc. for the benefit of public at large was of charitable nature, there was no justification in the action of the D.I.(Exemption) to decline to grant registration applied for by the assessee Under Section 12A. Relying on the decision of Hon’ble Supreme Court in the case of Ahmedabad Rana Caste Association (supra) as well as that of Hon’ble Allahabad High Court in the case of CIT v. SDKI Jaipuria Trust (No. 1) (supra), he contended that even the benefit extended to one community representing section of the public, in any case, is a charitable purpose and the learned D.I.(Exemption) was not justified in rejecting the application of the assessee for registration Under Section 12A on this basis.

5. The learned DR, on the other hand, submitted that as per the newly inserted Section 12AA in the statute w.e.f. 1.4.1997, more powers have been conferred on the D.I.(Exemption) giving him an authority to make such enquiries as he may deem necessary before granting registration to a trust or institution Under Section 12A. Relying on the decision of Hon’ble Kerala High Court in the case of Self Employers Service Society v. CIT 247 ITR 18, he submitted that genuineness of the trust or institution can also be gone into by him before granting registration to a trust or institution as per the procedure laid down in Section 12AA. He pointed out that Section 13 deals with the cases wherein Sections 11 & 12 are not applicable and since registration Under Section 12A is applied for availing the benefit available Under Section 11 and 12, it is all the more necessary for the D.I.(Exemption) to look into the violation of Section 13(1), if any, before granting the registration to a trust or institution Under Section 12A. He contended that if certain objects of a trust or institution are violative of Section 13(1)(b) like in the present case, the D.I.(Exemption) can refuse to grant registration Under Section 12A and no fault, therefore, can be found in his action refusing to grant registration. He submitted that the main object of the assessee trust as per the object clause contained in the trust deed is to work for the benefit of the people belonging to one caste i.e. Vaish which is clearly violative of the provisions of Section 13(1)(b). He contended that even the learned Counsel for the assessee has not been able to show that there was no such violation of the provisions of Section 13(1)(b) and this being so, the impugned order of the D.I.(Exemption) refusing to grant registration to the assessee trust deserves to be upheld.

6. We have considered the rival submissions and also perused the relevant material on record. It is observed that any trust or institution seeking to avail the benefit of the provisions of Sections 11 & 12 is required to apply for registration Under Section 12A. The procedure for registration is prescribed in Section 12AA and as per the provisions of Sub-section (1) of that Section, the CIT [D.I.(Exemption) in the present case] is empowered to satisfy himself about the object of the trust and about the genuineness of the activities of the trust or institution before granting the registration Under Section 12A. Once the CIT has not doubted the genuineness of the activities of the assessee nor doubted its charitable object, he cannot refuse to grant registration Under Section 12A. In the present case, the registration, however, was refused by the D.I.(Exemption) on the ground that as per the object Clause Nos. 3(1) and 3(2), the assessee trust was established for the benefit of people belonging to Vaish community only which was clearly in violation of Section 13(1)(b). However, as held by Hon’ble Supreme Court in the case of Ahmedabad Rana Caste Association (supra), an object beneficial to the Section of the public is an object of general public utility and to serve a charitable purpose, it is not necessary that the object should be to benefit the whole of mankind or all persons in a particular country or state. Explaining further, it was observed by the Hon’ble Apex Court that it is sufficient if the intention is to benefit a Section of the public as distinguished from a specified individual. Relying on this decision of Hon’ble Supreme Court in the case of Ahmedabad Rana Caste Association (supra), Hon’ble Allahabad High Court in the case of SDKI Jaipuria Trust (No. 1) (supra) has held that trust created for giving medical aid, social welfare and upliftment of poor members of Vaish community is, therefore, for religious and charitable purposes. To the similar effect is another decision of Hon’ble Allahabad High Court in the case of CIT v. Pt. Ram Shankar Misra Trust 222 ITR 252 wherein it was held that expenditure incurred by a trust for the benefit of one community is an expenditure incurred on a public charitable object. The proposition propounded by Hon’ble Supreme Court as well as by Hon’ble Allahabad High Court in the aforesaid judgments clearly shows that, the objects of the assessee trust as indicated in object Clauses 3(1) and 3(2) of its trust deed-were of charitable nature and since the powers of the CIT/D.I.(Exemption) conferred Under Section 12AA were confined to satisfy himself about the genuineness of the activities of the trust as well as nature of its object being charitable, we are of the view that he was not justified in refusing to grant registration to the assessee trust Under Section 12A merely on the ground that the said objects were violative of the provisions of Section 13(1)(b). As held by Lucknow Bench of ITAT in the case of St. Don Bosco Educational Society v. CIT 90 ITD 477, the CIT Under Section 12AA is empowered to satisfy himself only about the object of the trust and about the genuineness of the activities of the trust and such power does not extend to eligibility of the trust/institution for exemption Under Section 11 read with Section 13 which falls within the domain of the Assessing Officer. To the similar effect is the decision of Delhi Bench of ITAT in the case of Aryan Educational Society v. CIT 93 ITD 546 wherein it was held that so long as the provisions of Sections 11, 12 and 12 A are complied with, the exemption cannot be denied merely because there is any violation of the provisions of Section 13.

7. As already noted, the procedure for registration laid down in Section 12AA requires the CIT to satisfy himself about the genuineness of activities and object of the trust or institution and as such, the scope of his powers is limited in this regard to make such enquiries, as he may deem fit, to satisfy himself in respect of these two aspects. As held by Hon’ble Supreme Court in the case of Ahmedabad Rana Caste Association (supra), an object beneficial to the Section of the public is an object of general public utility and to serve a charitable purpose, it is sufficient if the intention is to benefit a Section of the public as distinguished from a specified individual. This decision of Hon’ble Apex Court followed subsequently by Hon’ble Allahabad High Court in the case of SDKI Jaipuria Trust (No. 1) (supra) and in the case of CIT v. Ram Shankar Misra Trust (supra) to hold that the expenditure incurred by a trust for the benefit of one community is an expenditure incurred on a public charitable object, still holds the field notwithstanding provisions contained in Section 13(1)(b) since the definition of the term “charitable purpose” given in Section 2(15) continues to remain the same. The provisions of Section 13(1) are thus not directly relevant in this regard. On the other hand, the said Section begins with the words “Nothing contained in Section 11 or Section 12 shall operate so as to exclude from the total income of the previous year of the person… “which clearly envisages operation of Section 11 or Section 12 before the provisions of Section 13 can be applied or invoked in a given case. It also shows that the said provisions can be applied or invoked only at the time of computation of total income of the previous year of the person who is claiming exemption Under Section 11 or Section 12. Both these situations contemplated in Section 13 can arise only and only if registration Under Section 12A is granted to the said person. If the same is not granted and the person is refused the registration Under Section 12A, he would not be entitled to claim any benefit available Under Section 11 or 12 and there will be no occasion to the Assessing Officer to invoke or apply Section 13 in his case. This position would not only be contrary to the scheme of the Act as laid down in Sections 11, 12, 12A, 12AA and 13 but the same may also cause prejudice/hardship to the persons in certain cases. For instance, the objects for which the assessee trust in the present case is established, as indicated in object Clauses 3(1) & 3(2), no doubt are for the benefits of a particular community, viz., Vaish. Nevertheless, as per object Clause 3(4), it was also established to run schools, colleges, hospitals etc. for the benefit of public at large. In this situation, if the registration applied for Under Section 12A is not granted to it for violation of provisions of Section 13(1)(b) and it is ultimately found that the assessee trust actually accomplished the objects as indicated in Clause 3(4) only for the benefit of public at large without there being any activity undertaken as per object Clauses 3(1) and 3(2), it would be deprived of any benefits which otherwise were available to it Under Section 11 or Section 12. This certainly is not the legislative intention as reflected in the scheme laid down in Sections 11, 12, 12A, 12AA and 13. On the contrary, the phraseology of Section 13, as already discussed, makes it explicitly clear that the said provisions become operative or relevant only at the stage of assessment when the AO is required to examine the claim of the assessee for benefits Under Section 11 or Section 12 while computing the total income of the assessee of the relevant previous year. The application of Section 13 thus falls within the exclusive domain of the AO and the provisions contained therein can be invoked by him while framing the assessment and not by the CIT while considering the application for registration Under Section 12AA.

8. Keeping in view the reasons given above, we are of the view that the action of the learned D.I.(Exemption) in refusing to grant registration to the assessee trust on the ground of violation of the provisions of Section 13(1)(b) was not justified especially when he had not doubted either the genuineness of the activities of the assessee trust or the nature of its object being charitable. In that view of the matter, we set aside his impugned order and direct that registration applied for by the assessee trust Under Section 12A be granted to it.

9. In the result, the appeal of the assessee is allowed.

Decision pronounced in the open Court on 29th September, 2006.

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Category : Income Tax (25503)
Type : Judiciary (10254)
Tags : ITAT Judgments (4610) section 12a (71) Section 12AA (87)

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