2004 (9) TMI 371 - AT - Income Tax

Tribunal directs recognition of trust as charitable, emphasizes genuine activities & proper inquiries

The Tribunal allowed the appeal, directing the CIT to recognize the assessee-trust as charitable under section 12A and grant a certificate under section ... Charitable or religious trust Issues Involved:1. Refusal to recognize the assessee-trust as charitable under section 12A of the IT Act, 1961.2. Refusal to grant a certificate under section 80G of the IT Act, 1961.3. Interpretation of the primary object of the trust and its compliance with sections 13(1)(b) and 80G(5)(iii) of the IT Act, 1961.4. Examination of the genuineness of the activities of the trust.Detailed Analysis:Issue 1: Refusal to Recognize the Assessee-Trust as Charitable Under Section 12AThe CIT-II, Pune, refused to recognize the assessee-trust as charitable under section 12A of the IT Act, 1961, on the grounds that the primary object of the trust was for the benefit of a particular religious community or caste, namely, Karhada Brahmin Community from Maharashtra or Aiyyangar Brahmin Community from Tamil Nadu. This decision was based on the interpretation of clause (4) of the trust deed, which stated that 'other things being equal,' preference would be given to students from these communities.The Tribunal considered the trust deed and noted that the primary object of the trust was education, which included offering educational assistance to needy deserving students from India. The Tribunal emphasized that the trust was not created or established exclusively for the benefit of Karhada Brahmins or Aiyyangar Brahmins, but merely provided a preference to these communities 'other things being equal.' The Tribunal cited several judgments, including the Supreme Court's decision in Trustees of the Charity Fund vs. CIT (1959) and the Bombay High Court's decision in CIT vs. Trustees of Seth Meghji Mathuradas Charity Trust (1959), to support the view that a preference clause does not disqualify a trust from being recognized as charitable.Issue 2: Refusal to Grant a Certificate Under Section 80GThe CIT-II also refused to grant a certificate under section 80G of the IT Act, 1961, for the same reasons cited in the refusal under section 12A. The Tribunal held that the primary object of the trust was charitable in nature, specifically education, and that the preference clause did not make the trust non-charitable. The Tribunal directed the CIT to grant the certificate under section 80G(5).Issue 3: Interpretation of the Primary Object and Compliance with Sections 13(1)(b) and 80G(5)(iii)The CIT-II's refusal was based on the interpretation that the trust's primary object was for the benefit of a particular religious community or caste, which would bring it under the mischief of sections 13(1)(b) and 80G(5)(iii) of the IT Act, 1961. However, the Tribunal disagreed, stating that the trust deed's clause (4) provided only a preference and not an exclusive benefit to those communities. The Tribunal cited the Supreme Court's interpretation in the case of Trustees of the Charity Fund vs. CIT (1959), which held that a preference clause does not affect the charitable nature of a trust.Issue 4: Examination of the Genuineness of the ActivitiesThe Tribunal noted that the CIT did not conduct any inquiries or call for details to verify the genuineness of the trust's activities. The assessee submitted a list of students and institutions that received scholarships, which included beneficiaries from various communities, including non-Hindus. The Tribunal emphasized that the CIT should have examined the genuineness of the activities before making a decision. The Tribunal directed the CIT to re-examine the issue, considering the list of beneficiaries and making necessary inquiries.Separate Judgment by the Judges:The learned Judicial Member (JM) disagreed with the proposed order by the learned Accountant Member (AM), emphasizing the need for a thorough examination of the trust's activities and the genuineness of the documents submitted by the assessee. The JM proposed setting aside the CIT's order and remitting the matter back for a fresh decision after proper inquiries.The Third Member, M.K. Chaturvedi, concurred with the JM's view, stating that the preference clause did not disqualify the trust from being recognized as charitable, but the genuineness of the activities needed to be verified. The Third Member directed the CIT to re-examine the issue and make a fresh decision based on proper inquiries.Conclusion:The Tribunal allowed the appeal for statistical purposes, directing the CIT to re-examine the issue of recognizing the assessee-trust as charitable under section 12A and granting a certificate under section 80G(5) after conducting necessary inquiries and verifying the genuineness of the trust's activities. The Tribunal emphasized that the preference clause in the trust deed did not disqualify the trust from being recognized as charitable, provided the preference was exercised fairly and other things were equal.