2000 (11) TMI 99 - HC - Income Tax

Court Denies Tax Exemption for Religious Trust Promoting Muslim Theology

The court upheld the Tribunal's decision that the trust was not entitled to tax exemption under section 11 of the Income-tax Act as its income did not ... Charitable Purpose, Charitable Trust Issues Involved:1. Whether the trust was entitled to claim exemption from tax u/s 11 of the Income-tax Act.2. Whether the objects of the trust were hit by the provisions contained in clauses (a) and (b) of sub-section (1) of section 13.Summary:Issue 1: Exemption from Tax u/s 11The assessee, a trust created on January 8, 1974, claimed exemption of its entire income u/s 11 of the Income-tax Act. The Income-tax Officer rejected the claim, stating the trust was not charitable and was hit by section 13(1)(b). The Appellate Assistant Commissioner found the trust partly charitable and partly religious, allowing partial exemption. However, the Tribunal held that due to the lack of income apportionment between charitable and religious purposes, the trust was not entitled to exemption u/s 11. The court upheld this view, concluding that the trust's income was not eligible for exemption as it did not enure for the benefit of the public and was for the benefit of a particular religious community.Issue 2: Applicability of Section 13(1)(a) and (b)The court examined whether the trust's objectives, promoting science and technology and Muslim theology among the Muslim intelligentsia, were hit by section 13(1)(a) and (b). Section 13(1)(a) denies exemption if the trust's income does not benefit the public, while section 13(1)(b) denies exemption if the trust benefits a particular religious community. The court found that the trust's primary objective was the promotion of Muslim theology among Muslims, and financial assistance was confined to Muslims, thus falling within the ambit of section 13(1)(b). The court also noted that the trust's income did not enure for the benefit of the public, attracting section 13(1)(a).The court cited the Supreme Court's decision in State of Kerala v. M. P. Shanti Verma Jain, which supported the conclusion that the trust's dominant purpose was religious and for a particular community, thus denying exemption. The court also referenced other decisions, emphasizing that if trustees have discretion to apply income to non-charitable objects, the trust fails to qualify for exemption.Conclusion:The court affirmed the Tribunal's decision, holding that the trust was not entitled to exemption u/s 11, and its objectives were hit by section 13(1)(a) and (b). Both questions were answered in favor of the Revenue and against the assessee. The reference was disposed of with no order as to costs.