2024 (6) TMI 727 - AT - Income Tax

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

Bhojalram Leuva Patel Seva Samaj Trust Versus Commissioner of Income Tax, (Exemptions), Ahmedabad

ITAT Ahmedabad allowed the appeal where CIT(E) denied registration under Section 12AA by invoking Section 13(1)(b), rejecting the trust's application on ... Denial of registration u/s 12AA by invoking Section 13(1)(b) - CIT(E) rejected the application filed by the assessee on the ground that the objects of the Trust are restricted to the benefit of a particular religious community or caste i.e. “Leuva Patel Community” - HELD THAT:- We are of the considered view that the provisions of Section 13 of the Act can be invoked only at the time of assessment and not at the time of grant of registration u/s 12A of the Act. Our view is further supported by the decision of the Hon'ble jurisdictional High Court in the case of CIT (Exemptions) v. Bayath Kutchhi Dasha Oswal Jain Mahajan Trust [2016 (9) TMI 8 - GUJARAT HIGH COURT] wherein on the issue of denial of grant of registration u/s 12A of the Act by invoking Section 13(1)(b) of the Act, it was categorically held that the provisions of Section 13 would be attracted only at the time of assessment and not at the time of grant of registration. Thus the matter is restored to the file of CIT (E), for de novo consideration, after giving due opportunity of being heard and with the direction not to disentitle the assessee for grant of registration only on the grounds as mentioned in its order for rejecting the application filed by the assessee trust Appeal of the assessee is allowed for statistical purposes. Issues Involved:1. Rejection of registration under Section 12A of the Income Tax Act, 1961.2. Rejection of approval under Section 80G of the Income Tax Act, 1961.Issue-wise Detailed Analysis:1. Rejection of Registration under Section 12A:The assessee filed an application for registration of the Trust under Section 12AB of the Income Tax Act on 21.12.2022 in Form No. 10AB. The Commissioner of Income Tax (Exemption) [CIT(E)] rejected the application on the grounds that the Trust's objectives were restricted to the benefit of a particular religious community or caste, specifically the 'Leuva Patel Community.' According to Section 13(1)(b) of the Act, the benefits of Sections 11 and 12 are not available to the income of a Trust if it is created for the benefit of a specific religious community or caste. The CIT(E) relied on the Supreme Court decision in CIT vs. Palghat Shadi Mahal Trust, which held that a public charitable trust benefiting only Muslims would not be entitled to exemption under Section 11.The assessee appealed against the CIT(E)'s decision, arguing that the case was covered by the Gujarat High Court decision in CIT, Rajkot-II vs. Leuva Patel Seva Samaj Trust. The High Court had held that whether a trust is created for the benefit of a particular religious community or caste is relevant only when the income of the trust is assessed under Section 11, not at the time of registration under Section 12A. The High Court also noted that the 'Leuva Patel Community' mainly consists of agriculturists and cannot be considered a 'religious community.'The Tribunal reviewed several judicial precedents, including decisions in Jamiatul Banaat Tankaria, Malik Hasmullah Islamic Educational and Welfare Society, and Dawoodi Bohara Jamat, which supported the view that the provisions of Section 13(1)(b) should be invoked at the time of assessment, not during the registration process under Section 12A.Consequently, the Tribunal restored the matter to the file of CIT(E) for de novo consideration, directing that the assessee should not be denied registration under Section 12A based on the grounds cited in the rejection order.2. Rejection of Approval under Section 80G:The application for approval under Section 80G was rejected because the assessee's application for registration under Section 12A(1)(ac)(iii) had been denied. The Gujarat High Court decision in CIT(E) vs. Shree Tapeshwar Hanumaji Bajrang Charity Trust held that registration under Section 12A is a prerequisite for approval under Section 80G. Since the assessee did not have a valid registration under Section 12A, the approval under Section 80G could not be granted.Given that the Tribunal restored the matter of registration under Section 12A to the file of CIT(E) for reconsideration, the issue of approval under Section 80G was also restored to the file of CIT(E) for de novo consideration, ensuring that appropriate orders are passed in accordance with the law.Conclusion:Both appeals by the assessee were allowed for statistical purposes. The Tribunal directed the CIT(E) to reconsider the applications for registration under Section 12A and approval under Section 80G, providing the assessee with an opportunity to be heard and ensuring compliance with legal requirements.