Trust registration cannot be denied under Section 13(1)(b) at application stage, only during assessment proceedings

ITAT Ahmedabad allowed appeal against denial of registration under Section 12A by CIT(E) who invoked Section 13(1)(b) claiming trust was established for benefit of particular religious community. Trust's objects included Muslim welfare activities, medical relief, Islamic library, and Madarsa scholarships. ITAT held that Section 13 provisions can only be invoked during assessment proceedings, not at registration stage. Relying on precedents including Gujarat HC decision, tribunal ruled that charitable nature of activities takes precedence over religious community benefit at registration stage. Matter remanded to CIT(E) for fresh consideration with direction not to deny registration solely on Section 13(1)(b) grounds.

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Issues Involved:

1. Timeliness of the CIT(E)'s order.
2. Interpretation of the trust's objects and its charitable nature.
3. Consistency in the application of the law regarding the trust's registration.
4. Applicability of Section 13(1)(b) of the Income Tax Act at the time of registration.

Issue-wise Detailed Analysis:

1. Timeliness of the CIT(E)'s Order:

The Assessee argued that the CIT(E)'s order dated 29-12-2022 rejecting the approval of Registration u/s.12AB is "bad in Law and Void" as it was not passed within 15 days of the last hearing on 12-11-2022. The Assessee cited a binding Circular of the Central Board of Direct Taxes and Instruction which mandated the CIT(E) to pass the order within 15 days. The CIT(E) failed to adhere to this timeline, thus the Assessee requested the cancellation of the order and the granting of approval u/s.12AB as per Form No.10B.

2. Interpretation of the Trust's Objects and Its Charitable Nature:

The Assessee contested the CIT(E)'s interpretation of the trust's objects, particularly the clause related to Medical Relief. The CIT(E) interpreted the trust's activities as benefiting a specific religious community (i.e., Muslims). The Assessee argued that the clause should be interpreted generally, providing relief to all without regard to caste or creed. The Assessee referenced the judgment of the Lucknow ITAT in Malik Hasmullam Islamic Education & Welfare Society vs. CIT, asserting that the CIT(E)'s interpretation was erroneous.

3. Consistency in the Application of the Law Regarding the Trust's Registration:

The Assessee highlighted that the trust had previously been granted registration u/s.12A and u/s.80G and had not changed its activities or objects. The Assessee argued that the same activities, which were deemed genuine in past years, had continued, and there was no reason for a different view based on presumption and assumption. The Assessee relied on the judgments in CIT (Exemption) vs. Swami Omkaramdas Charitable Trust and CIT vs. Excel Industries Ltd., emphasizing the principle of "consistency" which should apply to their case.

4. Applicability of Section 13(1)(b) of the Income Tax Act at the Time of Registration:

The CIT(E) observed that the trust's objects were charitable but primarily benefited a particular religious community (Muslims), invoking Section 13(1)(b) to deny registration. The CIT(E) referenced the Supreme Court cases of CIT vs. Palghat Shadi Mahal Trust and CIT vs. Dawoodi Bohara Jamat, concluding that the trust was not entitled to exemption u/s 11 of the Act. However, the Assessee argued that Section 13(1)(b) should only be invoked at the time of assessment, not during the registration process. The Assessee cited the ITAT judgment in Jamiatul Banaat Tankaria and other cases, asserting that the CIT(E) was not justified in denying registration based on Section 13(1)(b).

Conclusion:

The Tribunal observed that the provisions of Section 13 of the Act should be invoked only at the time of assessment, not during the grant of registration under Section 12A. This view was supported by various judicial precedents, including decisions from the jurisdictional High Court. Consequently, the matter was restored to the file of CIT (Exemptions) for de novo consideration, with directions to not deny the assessee registration based on the grounds mentioned in the previous order.

Result:

The appeal of the assessee was allowed for statistical purposes, and the order was pronounced in Open Court on 24/04/2024.

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