2008 (3) TMI 367 - AT - Income Tax

Tribunal Orders Registration of Religious Trust, Overturns Commissioner's Decision on Income Tax Act Compliance.

The Tribunal overturned the Commissioner's decision and directed the Commissioner to grant registration to the assessee-trust under Section 12A/12AA of ... Religious trust - Charitable Purpose - Refusal to Grant registration u/s 12A/12AA - objects and genuineness of the activities - Applicability of the provisions of section 13(1)(b) can or cannot be looked into at the time of examining the registration application under section 12A - payments to Amil (manager) covered by section 13(1)(c) - HELD THAT:- We have observed that all the objects of the assessee were religious in nature because the same are supported by the writings in Holy Quran and as such the assessee-trust following the directions from the Holy Quran on the religious occasions, religious education and religious activities for Dawoodi Bohra community, had been, organising various activities in pursuance with the objects of the trust and as such the finding of the ld CIT in the impugned order that the objects of the assessee are charitable in nature is not justified. The findings of the ld CIT to this extent are set aside. In view of our finding above that the assessee is a religious trust, the provisions of section 13(1)(b) are not applicable because the same are applicable in the case of trust being established for charitable purposes. The decisions in CIT v. Barkate Saifiyah Society [1993 (11) TMI 13 - GUJARAT HIGH COURT] and CIT v. Chandra Charitable Trust [2006 (7) TMI 96 - HIGH COURT , GUJARAT] by learned counsel for the assessee squarely apply to this case. The findings of the CIT that the provisions of section 13(1)(b) apply to the assessee-trust is therefore, set side. Applicability of section 13(1)(c) - HELD THAT:- In the case of Sarafa Association v. CIT [2006 (11) TMI 93 - HIGH COURT, MADHYA PRADESH] held that the CIT was required to examine the deed as a whole and consider the effect of various balance-sheets on record. The CIT should satisfy himself about the genuineness of the activities of the trust. In the absence of any specific finding in the impugned order with regard to the amount spent by Amil for the assessee-trust, we do not find any justification for invoking the provisions of section 13(1)(c) of the Act because the Revenue shall have to prove while invoking such provision against the assessee-trust that the income was directly or indirectly incurred for the benefit of the person referred to in sub-section (3) of section 13 of the Act. Never the less, this was not the requirement to be considered at the assessment stage as is held in several authorities referred to above. We are of the view that the assessee is a public religious trust and that the action of the CIT in refusing to grant registration to the assessee-trust on the ground of violation of the provisions, of section 13(1)(b) and 13(1)(c) of the Act is not justified especially when the ld CIT had not doubted either the nature of its objects or genuineness of the activities of the trust. In this view of the matter, we set aside the impugned order and direct the ld CIT to grant registration to the assessee-trust under section 12A/12AA of the Income-tax Act. As a result, the appeal of the assessee-trust is allowed. Issues Involved:Refusal to grant registration under Section 12A/12AA of the Income-tax Act, 1961.Issue-wise Detailed Analysis:1. Refusal to Grant Registration under Section 12A/12AA:The primary issue in all the appeals was the refusal to grant registration under Section 12A/12AA of the Income-tax Act, 1961, by the Commissioner of Income-tax, Ujjain. The Commissioner examined the unaudited books of account for the financial year 2006-07 and noted that the expenditure incurred was primarily for the benefit of Amil, which contravened Section 13(1)(c). The Commissioner also observed that the trust's objects were charitable in nature and for a particular community, thus attracting the provisions of Section 13(1)(b).2. Nature of the Trust's Objects:The assessee-trust argued that all its objects were religious in nature, referring to religious occasions, education, and activities for the Dawoodi Bohra community. The Commissioner, however, found that the trust's objects were not solely religious but also charitable, and thus, the trust was not eligible for registration. The Tribunal noted that the objects of the trust, as per the trust deed, were derived from the Holy Quran and were religious in nature.3. Applicability of Section 13(1)(b) and 13(1)(c):The Commissioner applied Section 13(1)(b) and 13(1)(c) to refuse registration, arguing that the trust was for the benefit of a particular religious community and that payments to Amil were in contravention of the Act. The assessee-trust contended that these provisions were not applicable at the stage of registration. The Tribunal agreed with the assessee, citing various judicial precedents, and held that the applicability of these sections should be considered at the assessment stage, not at the stage of granting registration.4. Genuineness of the Trust's Activities:The Tribunal emphasized that the Commissioner should only satisfy himself about the objects of the trust and the genuineness of its activities at the time of registration. The Tribunal found that the Commissioner had not doubted the genuineness of the trust's activities or the nature of its objects being religious.5. Precedents and Judicial Interpretations:The Tribunal referred to several judicial decisions, including those from the Supreme Court and various High Courts, to support its conclusion that the trust's objects were religious and that the provisions of Section 13(1)(b) and 13(1)(c) were not applicable at the registration stage. The Tribunal also noted that similar trusts had been granted registration in other cases.6. Final Decision:The Tribunal set aside the Commissioner's order and directed the Commissioner to grant registration to the assessee-trust under Section 12A/12AA. The Tribunal concluded that the trust was a public religious trust and that the Commissioner's refusal to grant registration was not justified. The Tribunal's decision was based on the finding that the trust's objects were solely religious and that the applicability of Section 13(1)(b) and 13(1)(c) should be considered at the assessment stage.Conclusion:The Tribunal allowed the appeals of the assessee-trust, setting aside the Commissioner's order and directing the Commissioner to grant registration under Section 12A/12AA. The Tribunal held that the trust's objects were religious and that the provisions of Section 13(1)(b) and 13(1)(c) were not applicable at the stage of registration.