Section 13(1)(b) prohibition doesn't apply to charitable trusts established before Income-tax Act 1961 commencement

ITAT held that Section 13(1)(b) prohibition does not apply to charitable trusts established before Income-tax Act 1961 commencement. The trust, existing prior to 1961, remains entitled to Section 11 exemption despite serving particular community rather than general public. CIT(E) failed to examine trust activities before rejecting Section 12A/12AB registration. Matter remanded to CIT(E) for fresh consideration on merits with proper opportunity for hearing and evidence submission.

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Issues:
1. Delay in filing appeal before Tribunal.
2. Rejection of application for registration under section 12A/12AB of Income Tax Act, 1961.
3. Applicability of provisions under Section 13(1)(b) to the assessee-trust.

Analysis:

Issue 1: Delay in filing appeal before Tribunal
The appeal by the assessee in ITA No.443/SRT/2023 was delayed by 146 days. The delay was attributed to the previous Chartered Accountant (CA) firm, "M/s Thacker Butala Desai, CA," who failed to inform the trustee of the rejection of the registration application in a timely manner. The trustee only became aware of the rejection in May 2023 and promptly engaged a new Authorized Representative to file the appeal. The Tribunal considered the circumstances and found no gross negligence or malafide intention in the delay. Citing legal precedents, the Tribunal concluded that the delay should be condoned in the interest of justice.

Issue 2: Rejection of application for registration
The Ld. Commissioner of Income-Tax (Exemption) rejected the application for registration under section 12A/12AB based on the trust's object being restricted to a particular community, Parsi Zoroastrian. The Ld. CIT(E) held that provisions under Section 13(1)(b) were applicable as the trust was deemed to be established for the benefit of a specific community, impacting its eligibility for exemption under Sections 11 and 12. The Tribunal noted that the rejection was based on the trust deed's contents and directed the Ld.CIT(E) to reconsider the application on merit, ensuring a fair opportunity for the assessee to present evidence and submissions.

Issue 3: Applicability of provisions under Section 13(1)(b)
The assessee argued that being established prior to the Income-tax Act, 1961, the provisions of Section 13(1)(b) should not apply to them, and they should qualify for exemption as a charitable trust. Citing legal precedents from the Andhra Pradesh High Court and Madhya Pradesh High Court, the Tribunal agreed that the trust's establishment before the Act's commencement exempts it from the restrictions of Section 13(1)(b). However, the Tribunal noted that the Ld.CIT(E) had not thoroughly examined the activities of the trust before rejecting the application. Therefore, the matter was remanded back to the Ld.CIT(E) for a reevaluation on merit, with directions to afford the assessee a fair hearing and consideration of all evidence.

In conclusion, the Tribunal allowed the appeal for statistical purposes, highlighting the need for a comprehensive review of the trust's application for registration under section 12A/12AB and the applicability of Section 13(1)(b) in light of the trust's establishment before the Income-tax Act, 1961.

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