2025 (4) TMI 327 - AT - Income Tax

Tribunal restores trust's application, directs final registration under s.12AB; Section 13(1)(b) not for registration stage

Gohilwad Vankar Samaj Seva Trust Versus CIT (Exemption), Ahmedabad

ITAT allowed the trust's appeal and held that Section 13(1)(b) cannot be invoked at the registration stage; the question of misapplication of funds for ... Denying registration u/s 12AB - violation of provisions of Section 13(1)(b) and therefore the Trust is not entitled for exemption u/s 11 - whether a Trust created before 01-04-2021 can be denied registration u/s 12AB of the Act and by invoking the provisions of Section 13(1)(b) of the Act? HELD THAT:- This issue is no more res-integra since the Jurisdictional High Court Judgment in the case of CIT(E) vs. Jamiatul Banaat Tankaria [2024 (10) TMI 712 - GUJARAT HIGH COURT] held that the provisions of Section 13 of the Act would be attracted only at the time of assessment since the quantum of expenses made for religious and common purposes can be determined from Profit and Loss accounts only and not at the time of granting registration u/s. 12A of the Act following case of CIT v. Bayath Kutchhi Dasa Oswal Jain Mahajan Trust [2016 (9) TMI 8 - GUJARAT HIGH COURT] The above judgments will hold good to a Trust created before 01-04-2021. Since the assessee has to first cross the hurdle of being eligible to exemption under section 11 by obtaining a certificate of registration under section 12A of the Act. Having crossed this hurdle then after the provisions of Section 13(1)(b) will get attracted whether the trust spended for the benefit of particular community, when the trust having mixed objects in it. Therefore grounds raised by the assessee is hereby allowed. The matter is restored to the file of Ld. CIT (Exemption) with a direction to grant Final Registration u/s. 12AB of the Act, after giving due opportunity of hearing to the assessee and in accordance with law. Appeal filed by the assessee is allowed for statistical purposes. ISSUES PRESENTED and CONSIDEREDThe primary issue considered in this judgment is whether a trust created before 01-04-2021 can be denied registration under section 12AB of the Income Tax Act, 1961, by invoking the provisions of Section 13(1)(b) of the Act. Specifically, the question is whether the charitable activities of the Trust, which are restricted to the benefit of a particular community, disqualify it from obtaining such registration and subsequent exemption under section 11 of the Act.ISSUE-WISE DETAILED ANALYSISRelevant Legal Framework and PrecedentsThe legal framework involves Section 12AB of the Income Tax Act, which pertains to the registration of trusts for tax exemption purposes, and Section 13(1)(b), which restricts exemptions for trusts created for the benefit of a particular religious community or caste. The Tribunal considered precedents, including the jurisdictional High Court judgment in CIT(E) vs. Jamiatul Banaat Tankaria and CIT v. Bayath Kutchhi Dasa Oswal Jain Mahajan Trust, which clarified the application of Section 13(1)(b) at the time of assessment rather than registration.Court's Interpretation and ReasoningThe Tribunal interpreted that the provisions of Section 13(1)(b) are relevant only at the time of granting exemption under Section 11, not at the time of registration under Section 12A. The Tribunal relied on the precedent set by the Hon'ble Supreme Court in Dawoodi Bohara Jamaat, which held that the applicability of Section 13(1)(b) is determined during the assessment phase, based on the actual expenditure for religious and common purposes.Key Evidence and FindingsThe Tribunal reviewed the objects of the Trust, which included activities for the development of a specific community, Gohilwad Vankar Samaj, and other activities aimed at the public at large. The Tribunal found that the Trust had mixed objects, some of which were charitable in nature and not confined to a particular community.Application of Law to FactsThe Tribunal applied the legal principles established in previous judgments to the facts of the case, concluding that the Trust's objects were not wholly for the benefit of a particular religious community. Therefore, Section 13(1)(b) should not be invoked at the registration stage under Section 12A.Treatment of Competing ArgumentsThe Tribunal addressed the Revenue's argument that the Trust's activities were restricted to a particular community, which would invoke Section 13(1)(b). However, the Tribunal emphasized that the applicability of Section 13(1)(b) is a matter for the assessment phase, where the actual benefit to a particular community is evaluated.ConclusionsThe Tribunal concluded that the Trust's objects, while including some community-specific activities, were largely charitable and for the general public. Therefore, the Trust should be granted registration under Section 12AB, and the applicability of Section 13(1)(b) should be assessed later.SIGNIFICANT HOLDINGSThe Tribunal held that Section 13(1)(b) is applicable only during the assessment phase when determining eligibility for exemption under Section 11, not at the registration stage under Section 12A. The Tribunal directed the CIT (Exemption) to grant the Trust final registration under Section 12AB, allowing the appeal by the assessee.Core Principles EstablishedThe judgment reinforced the principle that the applicability of Section 13(1)(b) should be assessed during the assessment phase, based on actual expenditures and benefits, rather than at the registration stage. This principle aligns with the precedents set by higher courts, emphasizing the separation of registration and exemption considerations.Final Determinations on Each IssueThe Tribunal determined that the Trust should not be denied registration under Section 12AB based on the applicability of Section 13(1)(b) at this stage. The Tribunal allowed the appeal, directing the CIT (Exemption) to grant registration while providing an opportunity for the assessee to be heard.