2017 (2) TMI 32 - HC - Income Tax

Trust's Religious Loans Eligible for Tax Exemption

The Commissioner of Income Tax, Coimbatore Versus Dawoodi Bohra Jamat Trust, M/s. Aban Offshore Ltd.

The High Court upheld the Tribunal's decision, ruling that the trust, engaged in granting interest-free loans as a religious activity, was entitled to ... Entitlement for registration u/s.12AA - whether giving of interest free loan to particular community is a religious activity within the meaning of Section 2(15)? - Held that:- The Supreme Court in the case of CIT, Ujjain Vs.Dawoodi Bohra Jamaat (2014 (3) TMI 652 - SUPREME COURT ) has considered an identical set of facts concluding that the activity of 'Qardan Hasana' constitutes religious activity. The Trust is thus entitled to grant of registration under section 12AA of the Act. We may also note that the specific object in the Trust Deed in the present case objected to by the Commissioner of Income Tax which reads as follows: To promote, propogate, foster and implement the concept of Qardan Hasana among the Dawoodi Bohras, in accordance with the tenets and principles of Dawat-e-Hadiyah.is identical to the object considered by the Supreme Court as below; For the betterment of the Dawoodi Bohra community to give and take Qardan Hasana according to Farma of Qurane Majid. - Decided against revenue Issues:1. Entitlement for registration u/s.12AA of the Act2. Classification of interest-free loan as a religious activity under Section 2(15) of the Income Tax ActEntitlement for registration u/s.12AA of the Act:The case involved an appeal filed by the Department against an order passed by the Income Tax Appellate Tribunal. The Tribunal had to consider whether the assessee, a religious trust, was entitled to registration under section 12AA of the Income Tax Act. The Commissioner of Income Tax had rejected the application for registration, stating that the trust's activity of granting interest-free loans to businessmen/women of a specific community was not a religious activity. However, the Tribunal, after examining the Trust deed, found that the activity of granting loans to the community constituted 'Qardan Hasana,' which was acceptable and encouraged as per the Islamic tenets practiced by the community. The Tribunal concluded that the trust was indeed entitled to registration under section 12AA based on the Supreme Court's decision in a similar case involving Dawoodi Bohra Jamaat.Classification of interest-free loan as a religious activity under Section 2(15) of the Income Tax Act:The second substantial question of law raised in the appeal was whether giving interest-free loans to a particular community could be considered a religious activity under Section 2(15) of the Income Tax Act. The Commissioner of Income Tax had initially rejected the registration application, arguing that the trust's activity did not fall within the ambit of religious activities. However, the Tribunal disagreed and allowed the appeal, stating that the specific object in the Trust Deed related to promoting the concept of 'Qardan Hasana' among the community, which was considered a religious activity. The Tribunal referenced the Supreme Court's decision in CIT, Ujjain Vs. Dawoodi Bohra Jamaat, where it was held that 'Qardan Hasana' constituted a religious activity. Consequently, the Tribunal dismissed the departmental appeal on this substantial question of law, noting that the issue did not arise from the orders of the lower authorities.In conclusion, the High Court upheld the Tribunal's decision, emphasizing that the trust's activities were in line with religious tenets and entitled to registration under section 12AA of the Income Tax Act. The Court dismissed the departmental appeal on both substantial questions of law, highlighting the compatibility of the trust's activities with religious principles and the precedent set by the Supreme Court in a similar case.