Trust established before 1961 Income Tax Act exempt from section 13(1)(b) restrictions, registration under section 12AB allowed

ITAT Rajkot allowed the appeal of a trust seeking registration under section 12AB. The CIT(E) had rejected the application, holding that the trust's activities were restricted to a particular religious community (Leva Patel) and therefore section 13(1)(b) provisions would apply. The ITAT held that since the trust existed since 1946, prior to the Income Tax Act 1961 coming into force, section 13(1)(b) provisions were not applicable. The tribunal directed the CIT(E) to grant registration provided the trust fulfilled other conditions under section 12AB and Rule 17A.

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Issues Involved:
1. Applicability of section 13(1)(b) of the Income Tax Act, 1961.
2. Eligibility for registration under section 12AB of the Income Tax Act, 1961.
3. Genuineness of the trust's activities.
4. Trust's establishment date and its implications on the applicability of the Income Tax Act, 1961.

Detailed Analysis:

Issue 1: Applicability of section 13(1)(b) of the Income Tax Act, 1961
The Learned Commissioner of Income Tax (Exemption) [CIT(E)] rejected the application for registration under section 12AB, citing that the trust's activities were restricted to a particular religious community or caste ("Leva Patel"), invoking section 13(1)(b) of the Act. Section 13(1)(b) stipulates that provisions of sections 11 and 12 would not apply to a charitable trust created for the benefit of any particular religious community or caste. The CIT(E) referenced the Supreme Court case of CIT vs. Palghat Shadi Mahal Trust, which held that section 13(1)(b) applies to trusts benefiting a specific community. However, the assessee argued that the trust was established before the Income Tax Act, 1961, and thus section 13(1)(b) should not apply.

Issue 2: Eligibility for registration under section 12AB of the Income Tax Act, 1961
The assessee contended that the trust was in existence since 1946, predating the Income Tax Act, 1961. The trust's counsel argued that section 13(1)(b) pertains to the assessment of trusts, not their registration. The counsel cited several judicial precedents to support the claim that "Leva Patel" is not a specific caste/community and that section 13(1)(b) should not bar the trust from registration under section 12AB.

Issue 3: Genuineness of the trust's activities
The CIT(E) questioned the genuineness of the trust's activities, noting that the trust had not provided sufficient evidence of its charitable activities. The Revenue argued that the trust had not demonstrated genuine charitable activities since its establishment. The assessee countered by stating that the trust had been operational since 1946 and had acquired property through registered deeds in 1946 and 1959, indicating its longstanding existence and activities.

Issue 4: Trust's establishment date and its implications on the applicability of the Income Tax Act, 1961
The tribunal noted that the trust was established in 1946, before the commencement of the Income Tax Act, 1961. According to section 13(1)(b), the provisions apply to trusts established after the Act's commencement. Therefore, the tribunal concluded that section 13(1)(b) does not apply to the assessee-trust, as it was created before 1961. The tribunal found that the CIT(E)'s reliance on the cases of Palghat Shadi Mahal Trust and Dawoodi Bohara Jamat was misplaced, as these cases involved trusts established after the Act's commencement.

Conclusion:
The tribunal directed the CIT(E) to grant registration under section 12AB, provided the trust fulfills other conditions mentioned in section 12AB and Rule 17A of the Income Tax Rules, 1962. The appeal was allowed for statistical purposes, and the order was pronounced in the open court on 05-07-2024.

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