CIT Exemption Vs Jamiatul Banaat Tankaria (Gujarat High Court)
The Revenue filed an appeal under Section 260A of the Income-tax Act, 1961 against the order dated 06.03.2024 passed by the Income Tax Appellate Tribunal, Ahmedabad, in ITA No. 58/Ahd/2023. The appeal proposed substantial questions of law on whether the Tribunal had correctly interpreted the Supreme Court decision in Dawoodi Bohara Jamat in holding that Section 13(1)(b) could not be applied to deny registration under Section 12AB, and whether the Tribunal had failed to consider the amendments introducing the procedure for registration under Section 12A, including the Explanation below Section 12AB(4) treating application of income for the benefit of a particular religious community as a specified violation for cancellation of registration.
The assessee-trust had applied on 06.06.2022 for registration under Section 12AB in Form No. 10AB. During scrutiny of the application, the Commissioner of Income Tax (Exemptions), Ahmedabad, found that one of the trust’s objects was for the benefit of a particular religious community or caste and, on that basis, held that the assessee was not entitled to exemption under Section 13(1)(b). Consequently, the Commissioner denied registration under Section 12A. The assessee challenged the rejection before the Tribunal, which allowed the appeal and directed the Commissioner to grant registration under Section 12A. The Revenue then preferred the present appeal before the High Court.
Before the High Court, the Revenue submitted that the Tribunal had erroneously interpreted the Supreme Court judgment in Dawoodi Bohara Jamat by holding that Section 13(1)(b) applies only at the stage of granting exemption under Section 11 and not while granting registration under Section 12A. It was also argued that the Tribunal had overlooked that the Supreme Court decision concerned a trust having both charitable and religious objects and had ignored the amended registration framework under the Act.
The High Court examined the findings recorded by the Tribunal. The Tribunal had held that the Commissioner had misappreciated the decision in Dawoodi Bohara Jamat, observing that the Supreme Court had held that a trust with charitable objects benefiting a particular religious community could qualify as a charitable entity serving the public at large for the purpose of registration, and that Section 13(1)(b) becomes relevant only while determining eligibility for exemption under Section 11, after registration has been obtained. The Tribunal had further held that the Commissioner had relied only on a portion of the Supreme Court decision without considering its observations regarding the stage at which Section 13(1)(b) is applicable.
The Tribunal had also relied upon the Gujarat High Court decision in CIT Vs. Bayath Kutchhi Dasa Oswal Jain Mahajan Trust, wherein it was held that Section 13 becomes relevant during assessment while considering exemption and not while deciding an application for registration. After examining the objects of the assessee-trust, the Tribunal found that the Commissioner had relied upon one object relating to scholarships for Muslim students, whereas the remaining objects included welfare activities, educational institutions, hospitals, medical assistance irrespective of caste and creed, accommodation for poor persons, assistance to the blind, weak and economically poor, and promotion of cottage, rural and women industries. The Tribunal recorded that the Commissioner himself had observed that the remaining objects were charitable in nature. It therefore concluded that the trust’s objects were not wholly for the benefit of a particular religious community but were largely charitable in character for the general public and directed the Commissioner to grant registration under Section 12A.
The High Court held that the Tribunal’s findings were supported by the decision of the Gujarat High Court in CIT V/S Bhaya Kutchhi Dasa Oswal Jain Mahajan Trust, which held that where the objects of the trust are not wholly for the benefit of a particular religious community but are largely charitable in character for the general public, Section 13(1)(b) cannot be invoked at the stage of granting registration under Section 12A and is to be applied while granting exemption. The High Court concluded that no question of law, much less any substantial question of law, arose for consideration. Accordingly, the High Court dismissed the Revenue’s appeal.
Cases Discussed
- Dawoodi Bohara Jamat (SC), 43 Taxmann.com 243
- CIT Vs. Bayath Kutchhi Dasa Oswal Jain Mahajan Trust (Gujarat High Court), (2017) 8 ITR-OL 494 (Guj.)
- CIT V/S Bhaya Kutchhi Dasa Oswal Jain Mahajan Trust (Gujarat High Court), (2017) 8 IRT- OL 493 (GUJ)
FULL TEXT OF THE JUDGMENT/ORDER OF GUJARAT HIGH COURT
1. Heard learned advocate Ms.Maithili Mehta for the appellant.
2. This appeal under Section 260A of the Income-Tax Act, 1961 (“the Act” for short) is directed against the order dated 06.03.2024 passed by the Income Tax Appellate Tribunal, “A” Bench, Ahmedabad (ITAT) in ITA No.58/Ahd/2023, proposing the following substantial questions of law.
(i) Whether on the facts and in the circumstances of the case and law, Hon’ble Tribunal has correctly interpreted the decision of Hon’ble Supreme Court in the case of Dawoodi Bohara Jamat 43 Taxmann.com 243 in holding that section 13(1)(b) could not be applied for denying the grant of registration under section 12AB of Income Tax Act, 1961 despite the fact that the assessee trust is not created for the benefit of general public but one of its object clause is for the benefit of a particular religious community?
(ii) Whether on the fact and in the circumstances of the case and law, Hon’ble Tribunal has erred in ignoring the recent amendments in Act and insertion of new procedure of registration under Section 12A of Income Tax Act, 1961, whereby as per clause 9d) below explanation to sub section (4) of Section 12AB of Income Tax Act, application of income for the benefit of any particular religious community has been listed as a specific violation for cancellation of registration of trust.
3. The assessee in this case is a trust. The assessee-trust filed an application on 06.06.2022, seeking registration under Section 12AB of the Act in form No.10AB under Rule 17A of the Income Tax Rules, 1962. Pursuant to an application, the CIT (E), Ahmedabad issued notice to the assessee and called for certain details. Upon verification of details, it was found by CIT(E) that the objects of the assessee – trust were for the benefit of particular religious community or caste and accordingly, the CIT(E), held that the assessee is not entitled for exemption in terms of Section 13(1)(b) of the Act. The CIT(E), denied assessee, grant of registration under Section 12A of the Act.
4. Aggrieved by rejection of registration, the assessee filed appeal before ITAT. The ITAT vide order dated 06.03.2024, allowed the Appeal of the assessee and directed CIT (E) to grant the assessee registration under section 12A of the Act, against which present appeal is filed.
5. Learned Senior Standing Counsel Ms. Maithili Mehta for the Appellant revenue submitted that the order of ITAT is erroneous because the ITAT has erred by misinterpreting the decision of Hon’ble Supreme Court in Dawoodi Bohara Jamaat [2014]43 Taxman.com243 and has wrongly noted that the Hon’ble Supreme Court has held that Section 13(1) (b) would apply only at the time of grant of exemption u/s 11 and not at the time of grant of registration u/s 12A of the Act. Further, the ITAT has not considered the fact that decision of Hon’ble Supreme Court in Dawoodi Bohara Jammat (supra) was rendered in case of a composite trust/institution i.e. a trust which was both charitable as well as religious trust.
6. We have noticed that the ITAT has decided the issue as under:
“5.We have gone through the decision of Hon’ble Apex Court in the case of Dawoodi Bohara Jamat (supra) and we find that the ld. Cit (Exemption) has totally mis-appreciated the decision rendered by the Hon’ble Apex Court in the said case. The Hon’ble Apex Court, we find, in the said case had categorically held that Trust with charitable objects, which existed for the benefit of a particular religious community qualified as charitable entity serving the public at large and this was sufficient for grant of registration under Section 12A of the Act, and the provisions of Section 13(1) (b) of the Act would be attracted only at the time of granting exemption to the assessee, wherein if it was found that the trust existed for the benefit of a particular religious community only, the exemption under section 11 was to be denied to the assessee. The Hon’ble Apex Court, therefore, categorically found that as per the provisions of law, section 13(1) (b) could not be applied for denying the grant of registration, but was to be applied only while granting/denying exemption to the assessee.
6. It is pertinent to note that the Hon’ble Apex Court has categorically held in the said decision that section 13(1) (b) comes into picture and is to be applied only when the eligibility of exemption of income in terms of provisions of section 11 is to be determined and not at the time of grant of registration. The Hon’ble Apex Court has categorically stated that the assessee has to first cross the hurdle of being eligible to exemption under section 11 by obtaining a certificate of registration under section 12A in this regard. Having crossed this hurdle, only then the provisions of section 13(1)(b) would come into picture, and a trust which is for the benefit of particular community, but it objects are otherwise charitable, is a valid trust for the purpose of grant of registration.
7. The ld.CIT(Exemption), in the present case, we find, has only picked a portion of the order of tire Hon’ble Apex Court, wherein it has been held that the provisions of section 13(1)(b) of the Act would be applicable to a trust with mixed objects i.e. both charitable and religious. But he has failed to take note of the finding of the Hon’ble Apex Court that section 13(1)(b) would apply only at the time of grant of exemption under section 11, and not at the time of grant of registration under section 12A of the Act.
8. Our view is further supported by the decision of the Hon’ble jurisdictional High Court in the case of CIT Vs. Bayath Kutchhi Dasa Oswal Jain Mahajan Trust, (2017) 8 ITR-OL 494 (Guj) wherein on the issue of denial of grant of registration u/s 12A of the Act by invoking section 13(1)(b) of the Act, it was categorically held that the provisions of section 13 would be attracted only at the time of assessment and not at the time of grant of registration. The relevant finding of the Hon’ble High Court at para 8 of his order is as under:
“8. Thus, very premise for the Commissioner to come to the conclusion that the objects of the trust were confined for the benefit of a religious community, is incorrect. Thereafter to suggest that the activities were earned out only for such purposes would be entering in the realm of granting exemptions in terms of section 13 of the Act, which 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.”
9. Even otherwise, we have gone through the objects of the trust, which were placed before us in the “statement of facts” which are as under:
“1. Propagation and campaign of any sort of Religious and worldly cultivated activities, Gaining and education, to maintain and administer Urdu English & Arabic Language cultivation and training, Cultivation of craft and industrial training.
2. To do welfare activities for upbringing and development of each section of the society.
3. To establish Children Nurseries, Primary schools, High schools, Colleges, Madressa, Masjid boarding houses, Hospitals, Dispensaries etc. And for that accommodating fixed assets and to manage the same thereby. And to do every land of charitable activities.
4. To make necessary arrangements for accommodation of poor people.
5. To help the Blind, Weak, Feverish people and those poor people who cannot run their lives.
6. To give Scholarships to Muslims Students for their studies and do make provisions so as they can get the religious education,
7. To give medical assistance in the events of requirement irrespective of caste and creed and to organise medical camps.
8. To help the poor, unhappy, orphan and economical poor classes and to help in burial and funerals
9. Cottage Industi’ies, Rural Industries, Women Industries and to run each such activities to remove unemployment with the help of the government.”
10. The Ld.CIT(Exemption) has referred to object at S.no 6 which is scholarship to Muslim students for their studies and to make provision so can get religious education for arriving at his finding that the objects are for the benefit of a particular religious community- so as to invoke section 13(1) (b) of the Act. Further we find that the Ld.CIT(Exemption) notes that otherwise the objects are charitable in nature except for the aforestated object. As per section 13(1)(b) exemption u/s 11 is denied if the trust is created or established for the benefit of a particular religious community. With majority of the objects found to be not catering to a particular community and no finding of the assessee actually catering for the benefit of a particular community, there is no case for invoking section 13(1) (b) of the Act in the present case. Therefore, we hold that even on merits the Ld.CIT(Exemption) was wrong in holding that section 13(1)(b) was applicable in the facts of the present case.
11. In view of the above, we hold that the objects of the trust are not wholly for the benefit of a particular religious community, but are largely charitable in character for general public at large, and for the purpose of granting registration under section 12A, the provision of section 13(1) (b) cannot be referred to, which is to be applied only when granting the exemption to the trust.
12. The order of the ld.CIT(Exemption) denying grant of registration is accordingly set aside, and the Ld. CIT (Exemption) is directed to grant the assessee-trust registration under Section 12A of the Act.
13. In the result, the appeal of the assessee is allowed.”
7. In view of the findings recorded by the Tribunal, supported by decision of this Court in case of CIT V/S Bhaya Kutchhi Dasa Oswal Jain Mahajan Trust (2017) 8 IRT- OL 493 (GUJ) that the objects of the trust are not wholly for the benefit of a particular religious community, but are largely charitable in character for general public at large and for the purpose of granting registration under 12A of the Act, the provision of section 13 (1) (b) cannot be referred to. Section 13(1) (b) is to be applied while granting exemption to the trust. In view of above finding, we do not find any question of law much less any substantial question of law arises for consideration.
8. The appeal is accordingly dismissed.
