2022 (9) TMI 330 - AT - Income Tax

Trust's Appeal Dismissed, Denial of Exemption Upheld Under Income Tax Act Section 11

The Tribunal dismissed the appeal, upholding the denial of exemption under Section 11 of the Income Tax Act due to the applicability of Section 13(1)(b) ... Deduction u/s 11 - benefit of particular religious community or caste - Kedva Patel Community - denial of exemption was for the reason that the assessee trust was found to be created for the benefit of a particular religious community or caste, i.e Kadva Patidar, trigerring Section 13(1)(b) which denies exemption u/s. 11 to such Trusts - HELD THAT:- A bare perusal of the objects reveals that the first two objects clearly are solely for the benefit of Kadva Patels only, arranging accommodation facilities for them and helping the community members during marriages. The rest appear to be for the benefit of all members of society and thus not restricted to a particular community. Going further whether Kedva Patels could be termed as a religious community, we find that the answer is in the negative. The aspect, relating to the origin to Kadva Patel community and the Leuva Patel community was examined in detail by the ITAT, Ahmedabad B Bench in the case of Leuva Patel Nutan Kelwani Mandal [1984 (11) TMI 80 - ITAT AHMEDABAD-B] and it was categorically held that these communities owe their origin to the fact that they were agriculturist and not to any particular religion and therefore cannot be treated as a religious community for invoking section 13(1)(b) of the Act. In the said case the ITO had examined the President of the Leuva Patel Nutan Kelwani Mandal to determine whether they belonged to a particular religious community or caste. Whether it constitutes a caste, in our view, the answer is in the affirmative. There can be no doubt that the Kedva Patels are a caste. Owing their origins to agriculturists, this community clearly represents social stratification with defined occupation, lifestyle and customs, though the same over period of time may have faded. But their cultural characteristics are still defined and have an inherited social lifestyle. AO, in the case of Leuva Patel Nutan (supra), while tracing the historical background of Leuvas, stated that Leuvas and Kedva Patels were agriculturists originating from different sections of Punjab who had migrated to Gujarat and are closed communities having no relations with each other in marriage and dinner. It is but obvious that Kedva Patel is undoubtedly a caste. Even the AO in the case of Leuva Patel Nutan (supra) states so in para 8 of his order, reproduced above mentioning that both Leuva and Kedva Patels are different castes. What emerges from the above deliberation is that two objects of the assessee trust are for the benefit of a particular caste, i.e Kedva Patel, providing boarding and lodging facility and enabling marriages of the members of this caste only. The rest of the objects are clearly for the benefit of public at large, providing medical benefit, assistance to the needy and those in distress during natural calamities, to the public at large without any discrimination in caste or creed. Question whether section 13(1)(b) would apply only to charitable trusts established solely for communal purposes or to those for mixed purposes also, has been considered by the apex court in the case of CIT vs Dawoodi Bohra Jammat [2014 (3) TMI 652 - SUPREME COURT] in which case the Hon’ble apex court found that the trust had both religious and charitable flavor and on the question of applicability of section 13(1)(b) to such trusts went on to hold that it would apply to such mixed trusts also. Thus in the present case also the provisions of section 13(1)(b) will apply, the trust being of charitable character with two of its objects exclusively for the benefit of the Kedva Patel Caste. The assessee trust we hold therefore is not entitled to exemption u/s 11 of the Act on incomes applied for the benefit of the Kedva Patel community ,as per section 13(1)(b) of the Act.The AO is directed to determine the incomes so applied,after verifying all facts giving the assessee a due opportunity of hearing, and deny application of the same for charitable purposes. The AO is directed accordingly to compute the taxable income of the assessee in accordance with law. All decisions relied upon by the Ld.Counsel for the assessee are either distinguishable for the reason that they were rendered on the issue of grant of registration u/s 12A of the Act, which is a totally different proposition, where the provisions of section 13(1)(b) in any case do not get invoked at all. We have also dealt with the issue of nature of the Kedva Patels and found them to be a caste. The decision of the ITAT in the case of Leuva Patel Nutan Kelwani Mandal (supra) which the assessee has relied upon stating that it was established in the said case that both the Leuva and Kedva Patel Community were neither religious communities nor caste, we have noted examined the issue only from the aspect of the community having any connection with a particular religion. Therefore it cannot be said that there was any finding relating to the group of people representing a caste. - Decided against assessee. Issues Involved:1. Denial of exemption under Section 11 of the Income Tax Act, 1961.2. Applicability of Section 13(1)(b) of the Income Tax Act, 1961.3. Classification of Kadva Patidar as a religious community or caste.4. Treatment of corpus donations as capital receipts.5. Computation of income on denial of exemption under Section 11.Detailed Analysis:1. Denial of Exemption under Section 11:The solitary issue in the present appeal relates to the denial of exemption under Section 11 of the Income Tax Act, 1961, to the assessee, a charitable trust. The ground raised by the assessee was that the Commissioner of Income Tax (Appeals) [CIT(A)] erred in upholding the action of the Assessing Officer (AO) in denying the claim for deduction under Section 11 and in disallowing the deduction of Rs. 15,51,780/- claimed as application of income on objects of the Trust.2. Applicability of Section 13(1)(b):The denial of exemption was based on the finding that the assessee trust was created for the benefit of a particular religious community or caste, specifically the Kadva Patidar, triggering Section 13(1)(b) of the Act. This section denies exemption under Section 11 to trusts created for the benefit of any particular religious community or caste. The AO and CIT(A) both upheld the denial of exemption on this ground.3. Classification of Kadva Patidar as a Religious Community or Caste:The assessee argued that the trust was created for all people of society and not for any particular religious community or caste. They contended that the Kadva Patidars could not be termed a religious community or caste. However, the Tribunal examined the objects of the trust and found that two objects were solely for the benefit of the Kadva Patels, providing boarding and lodging facilities and assistance during marriages. The Tribunal concluded that the Kadva Patels are a caste, characterized by social stratification, defined occupation, lifestyle, and customs. The Tribunal referred to the case of Leuva Patel Nutan Kelwani Mandal vs. ITO, where it was held that Leuva Patels, and by extension Kadva Patels, are not a religious community but a caste.4. Treatment of Corpus Donations as Capital Receipts:The assessee argued that corpus donations received towards the Building Construction Fund, being capital in nature, should be excluded for computing income assessable to tax. The Tribunal acknowledged that corpus donations are capital receipts and not income under the Act, irrespective of whether a trust enjoys the benefit of Section 11 and 12 or not.5. Computation of Income on Denial of Exemption:The assessee contended that if the benefit of Section 11 is denied, income should be computed on a net basis after deducting payments from receipts, not on gross receipts. The Tribunal directed the AO to determine the incomes applied for the benefit of the Kadva Patel community, verify all facts, give the assessee a due opportunity of hearing, and compute the taxable income accordingly.Conclusion:The Tribunal dismissed the appeal of the assessee, upholding the denial of exemption under Section 11 due to the applicability of Section 13(1)(b). The Tribunal directed the AO to compute the taxable income of the assessee in accordance with the law, considering the nature of corpus donations and the net basis of income computation. The Tribunal's decision emphasized that the trust's objects for the benefit of the Kadva Patel community led to the denial of exemption under Section 11.