2015 (7) TMI 1327 - AT - Income Tax

Tax Tribunal Confirms Withdrawal of Society's 12AA Registration Due to Religious Favoritism; Appeal Dismissed.

St. Michael’s Educational Association Versus CIT­, Patna

The Tribunal upheld the CIT's decision to withdraw the society's registration under section 12AA of the Income Tax Act, 1961. It determined that the ... Charitable institution registration u/s.12AA withdrawn - assessee­-society to be formed for the benefit of the Christian community - HELD THAT:- What is meant by or the scope of the words ‘primarily for Catholics’, to which he admitted is to imply a clear preference to the practitioners of the said faith in regard to the conduct and affairs of the institution, including the admission thereto and its management, even as sought to be clarified per its Charter. Referring to words ‘secular and scientific’ as appearing in clause 3(b)(supra) of the object clause. That, to our mind, would be of little relevance in­as­much as the same concerns the nature or the qualitative aspect of the education, while the issue or the aspect being considered by us is the identity of the recipient of the education, i.e., who stand to benefit there­from and to whom the same is targeted, i.e., its beneficiary. In this context, the expression ‘in particular’ came for the consideration by the Apex Court in CIT vs. Kamla Town Trust [1995 (11) TMI 1 - SUPREME COURT]. In the facts of that case the object of the trust included construction of houses for workmen in general and, in particular, for the workmen, staff and other employees of the settler company - the provision relating to workmen in general did constitute a charitable object, the words ‘in particular for the workmen of the company’, negatived its public character, so that the trust could not be considered to have been established wholly for charitable purposes. As consider the issue as to if the assessee could be denied registration in view of attraction of section 13(1)(b) of the Act, i.e., considering that the same is expressed to preclude sections 11 and 12 of the Act. We consider it as so in­as­much as the same forms an abiding or defining feature of the applicant, in which case, to what effect or purpose, one may ask, is the registration, i.e., if not toward grant of exemption u/ss. 11 and 12 of the Act. In the case of CIT vs. Dawoodi Bohra Jamat [2014 (3) TMI 652 - SUPREME COURT] wherein the Hon’ble Court approved the applicability of s. 13(1)(b) as a valid ground while considering the issue of registration u/s. 12AA of the Act in­as­much as registration is a pre­requisite for availing the benefit of ss. 11 & 12 (pg. 41), approving of registration on a finding of non­-applicability of s. 13(1)(b). In the facts of the present case, we have found the assessee-­society to be formed for the benefit of the Christian community, and which therefore could definitely form a ground for withdrawal of its registration in­as­much as its income is liable to be excluded for consideration u/ss. 11 and 12 - Decided against assessee. Issues Involved:1. Maintainability of the withdrawal of registration under section 12AA of the Income Tax Act, 1961.2. Applicability of section 13(1)(b) of the Income Tax Act, 1961.3. Interpretation of the term 'primarily for Catholics' in the context of section 13(1)(b).4. Relevance of the decision in the case of Dawoodi Bohra Jamat.Detailed Analysis:1. Maintainability of the Withdrawal of Registration under Section 12AA:The appeal concerns the withdrawal of registration of the assessee's society as a charitable institution under section 12AA of the Income Tax Act, 1961. The Commissioner of Income Tax (CIT) withdrew the registration on the grounds that the society, declared as a Minority Educational Institution (MEI), primarily benefits a particular religious community, which violates section 13(1)(b) of the Act.2. Applicability of Section 13(1)(b) of the Income Tax Act:Section 13(1)(b) states that income from a trust or institution established for the benefit of any particular religious community or caste is not exempt under sections 11 and 12. The assessee's society, running St. Michael's High School, was found to be established primarily for the benefit of the Christian community. This was evident from the clauses in its Memorandum and Rules and Regulations, which indicated a preference for Catholics. The Tribunal held that section 13(1)(b) was clearly applicable, as the society's constitution authorized it to accord preference to a particular religious community.3. Interpretation of 'Primarily for Catholics':The Tribunal examined the object clauses and the Rules and Regulations of the society, which included terms like 'primarily for Catholics.' The assessee's representative admitted that this implied a preference for Catholics in admissions and management. The Tribunal referenced the Supreme Court's decision in CIT vs. Kamla Town Trust, which held that even a partial preference negates the public character of a trust. Thus, the society's explicit preference for Christians was sufficient to attract section 13(1)(b).4. Relevance of the Decision in Dawoodi Bohra Jamat:The assessee argued that the decision in Dawoodi Bohra Jamat supported their case. However, the Tribunal found this to be a misreading. The Supreme Court in Dawoodi Bohra Jamat did not interpret section 13(1)(b) to mean 'only or exclusively' for a particular community. Instead, it held that the trust's charitable objects were not restricted to the Bohra community alone. In contrast, the assessee's society was found to be explicitly for the benefit of Christians, thus falling under section 13(1)(b).Conclusion:The Tribunal concluded that the withdrawal of the assessee's registration was justified under section 12AA, as the society was established for the benefit of a particular religious community, violating section 13(1)(b). The appeal was dismissed, affirming the CIT's order. The decision was pronounced by listing the result on the Notice Board of the Bench under Rule 34(4) of the Appellate Tribunal Rules, 1963.