Trust's objects can be scrutinized for allowing sec. 11 relief and not for allowing sec. 12AA registration

IT: Question as to whether trust is created or established for benefit of any particular religious community or caste would be relevant only when income of trust is being assessed in terms of section 11, however, at time of disposing of application of a trust seeking registration, Commissioner has to merely decide whether said trust has fulfilled necessary requirements of registration as provided under section 12A

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[2014] 42 taxmann.com 181 (Gujarat)

HIGH COURT OF GUJARAT

Commissioner of Income-tax, Rajkot -II

v.

Leuva Patel Seva Samaj Trust*

AKIL KURESHI AND MS. HARSHA DEVANI, JJ.

TAX APPEAL NO. 59 OF 2012

NOVEMBER  6, 2012 

Section 12AA, read with sections 11 and 13, of the Income-tax Act, 1961 - Charitable or religious trust - Registration procedure [Scope of power] - Assessee, a public charitable trust, applied for registration under section 12AA - Commissioner rejected said application holding that trust was for benefit of Leuva Patel Community and, therefore, it would be covered under section 13(1)(b) - Tribunal, however, allowed assessee's application - Whether question as to whether trust is created or established for benefit of any particular religious community or caste would be relevant when income of trust is being assessed in terms of section 11 - Held, yes - Whether insofar as section 12AA is concerned, Commissioner has to merely decide if trust has fulfilled necessary requirements of registration as provided under section 12A - Held, yes - Whether in view of above, impugned order passed by Tribunal was to be upheld - Held, yes [Para 4][In favour of assessee]

CASES REFERRED TO

 

Ahmedabad Rana Caste Association v. CIT [1971] 82 ITR 704 (SC) (para 3) and Shantagauri Ramniklal Trust v. CIT [1999] 239 ITR 528 (para 4).

Pranav G. Desai for the Appellant.

ORDER

 

Akil Kureshi, J. - The appellant-revenue is in appeal against the judgment of the Income-tax Appellate Tribunal ("the Tribunal" for short), dated 8-7-2011. Following question has been framed for our consideration:

"Whether in the facts and circumstances of the case, the learned ITAT has erred in law in directing the Commissioner of Income-tax to grant the assessee registration under section 12AA of the Income-tax Act 1961?"

2. The question arises in following factual background. The respondent, a Public Charitable Trust had applied for registration under section 12AA of the Income-tax Act, 1961 ("the Act" for short). The Commissioner, however, under his order dated 21-3-2011, rejected such an application on the ground that under section 13(1)(b) of the Act, nothing contained in section 11 or 12 would operate to exclude from the total income of such trust in case the trust is created or established for the benefit of any particular religious community or caste. The Commissioner after examining the objects of the trust, came to the conclusion that the trust was for the benefit of Leuva Patel Community and therefore, would be covered under section 13(1)(b) of the Act.

3. In appeal before the Tribunal, the Tribunal reversed the decision of the Commissioner. The Tribunal referred to several decisions including the decision of the Supreme Court in the case of Ahmedabad Rana Caste Association v. CIT [1971] 82 ITR 704. The Tribunal also examined the objects of the trust and observed as under:

"7. From the above clauses of the Trust Deed, any adult person after paying prescribed fees can become a member of the said trust. This trust will perform without any discrimination in Leuva Patel caste and will follow non-political and secular objects of the trust. The first object of the trust is to carry out activities for the purpose of development and improvement of the education. The ITAT, Ahmedabad Bench in case of Leuva Patel Nutan Kelwani Mandal v. ITO, 12 ITD 276 (Ahd.) on identical set of facts held that the case of the assessee could not brought within the provisions of section 13(1)(b) in view of the Explanation 2 to the said section. Apart from this, it was also held that the Leuva Patel community consists mainly of agriculturists. Such community cannot be dubed as religious community or caste as had been held by the Income-tax Authorities.

I also found that in the case of dissolution of the trust the accumulated fund or capital will not be distributed for personal benefit but it will be handing over to the other institution having similar object. In the light of the above discussion, I find that the facts of the case are identical to the facts in the case of Leuva Patel Nutan Kelwani Mandal v. ITO, 12 ITD 276 (Ahd.). I follow the same and in the light of that, the CIT is directed to allow the registration u/s. 12AA of the Act."

4. Having thus heard the learned counsel for the revenue, we are of the opinion that the question whether the trust is created or established for the benefit of any particular religious community or caste would be relevant when the income of the trust is being assessed and the question whether such income should be excluded from the total income of the trust in terms of section 11 of the Act. Insofar as section 12AA of the Act is concerned, the Commissioner had to take a decision if the trust fulfilled necessary requirements of registration as provided under section 12A of the Act. A Division Bench of this Court in the case ofShantagauri Ramniklal Trust v. CIT [1999] 239 ITR 528, in this context, observed as under :

"While considering an application for registration of a trust, the Commissioner must also make a clear distinction between the requirement of registration and the requirement for claiming tax benefit. The latter question falls squarely to be considered by the Assessing Officer. Section 12A neither makes registration of trust as condition precedent for claiming benefit under sections 11 and 12 read with section 13, nor registration obviates enquiry into the conditions envisaged under section 13 by the Assessing Officer before the tax benefit can be allowed. Mere filing of application for registration of the trust is enough to claim benefit of its income under sections 11 and 12 and jurisdiction to the Assessing Officer to enquire into that claim, which also includes question as to who are the beneficiaries of trust. On other conditions being fulfilled, the exemption must follow whether registration is accorded or not."

5. In view of the above conclusive opinion of a Division Bench of this Court, we do not see any reason to interfere. Tax Appeal is, therefore, dismissed.