2025 (4) TMI 1043 - AT - Income Tax

Trust registration denied under section 12AB for serving only specific society members, not general public

Dwarika Greens Foundation C/o. Sarda and Sarda, Sakar Versus Commissioner of Income Tax (Exemption), Ahmedabad

Dwarika Greens Foundation C/o. Sarda and Sarda, Sakar Versus Commissioner of Income Tax (Exemption), Ahmedabad - TMI 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered by the Tribunal were:(a) Whether the Trust qualifies for registration under section 12AB of the Income Tax Act, 1961, given that its objects primarily benefit the residents and members of a specific society rather than the public at large;(b) Whether the objects of the Trust can be considered charitable in nature and for public benefit as required under section 12AB;(c) Whether the Trust's objects violate the provisions of section 13(1)(b) and Explanation to section 12AB(4) of the Act, which prohibit registration if the income is applied for the benefit of any particular religious community, caste, or identifiable section of the public;(d) The applicability of judicial precedents concerning the eligibility of trusts with objects benefiting a specific community or members, and the interpretation of 'public at large' in the context of charitable registration;(e) Whether the order of the Commissioner of Income Tax (Exemption) rejecting the Trust's registration application under section 12AB was legally sustainable.2. ISSUE-WISE DETAILED ANALYSISIssue (a) and (b): Eligibility for Registration under Section 12AB and Nature of ObjectsThe relevant legal framework includes section 12AB of the Income Tax Act, which governs registration of charitable trusts and institutions. Registration under this section is a prerequisite for claiming exemption under sections 11 and 12. The objects of the Trust must be charitable and for the benefit of the public at large.The Commissioner of Income Tax (Exemption) analyzed the objects of the Trust and found that the majority of them were intended for the benefit of the residents of the Dwarika Green Society and its members, rather than the general public. The CIT(E) emphasized that 'the litmus test of a charitable institution is that it should primarily carry on charitable activities' and that charity is 'a divine reflection of human civilization' aimed at helping the needy and bettering society.The CIT(E) further observed that the Trust functioned as a welfare association or union, collecting fees such as Club House Rent Income and Membership Fees, and providing services typical of welfare organizations for its members. These activities were held not to qualify as charitable for public benefit. The Tribunal noted that the welfare activities were akin to staff welfare in business organizations and thus not for general public utility.In support, the CIT(E) relied on the Punjab & Haryana High Court's decision in a case involving a Truck Operators Association, which held that an association formed to facilitate members' trade and charging mandatory fees is not charitable for public utility. The Tribunal concurred with this reasoning, holding that the objects of the Trust did not satisfy the requirement of benefiting an unidentifiable section of the public.The Tribunal also considered the affidavit and resolution filed by the Trust asserting that the objects would be without discrimination and for public benefit but found that the actual objects and activities were confined to a specific residential society and its members, thus failing the test of public benefit.Issue (c): Applicability of Section 13(1)(b) and Explanation to Section 12AB(4)Section 13(1)(b) excludes exemption under sections 11 and 12 to any charitable institution created after the commencement of the Act if its income is applied for the benefit of any particular religious community or caste. Similarly, Explanation to section 12AB(4) prohibits registration if the trust benefits a particular religious community or caste.The Trust was registered under the Bombay Public Trust Act in 2020 and commenced activities after 2021, thus falling within the scope of the amended provisions. The Tribunal noted that the objects clearly benefited the residents of the Dwarika Green Society, a specific identifiable group, violating clauses (c) and (d) of Explanation to section 12AB(4).The Tribunal relied on the Supreme Court's ruling in a case involving a composite trust with religious and charitable objects, which held that section 13(1)(b) applies even to composite trusts if the benefit is limited to a particular religious community or caste. The Court observed: 'What is intended to be excluded from being eligible for exemption under Section 11 is a trust for charitable purpose which is established for the benefit of any particular religious community or caste.'Thus, the Tribunal held that the denial of registration was consistent with the statutory provisions and the intention of the legislature to exclude trusts benefiting identifiable sections from exemption.Issue (d): Treatment of Competing Judicial PrecedentsThe assessee relied on a jurisdictional High Court decision where registration was granted to a trust having some objects benefiting a religious community but also other objects benefiting the general public. The High Court held that the Commissioner erred in focusing solely on objects benefiting a religious community while ignoring other objects of general public benefit, such as education, medical help, rural development, and relief to economically weaker sections.The Tribunal distinguished this precedent on facts, noting that unlike the cited case, the present Trust's objects were confined to the residents and members of a specific society and did not include broader public welfare activities. Therefore, the ratio of the cited judgment was held inapplicable.Issue (e): Sustainability of the CIT(E) Order Rejecting RegistrationConsidering the above analysis, the Tribunal found no infirmity in the CIT(E)'s order rejecting registration under section 12AB. The Tribunal emphasized that registration is a condition precedent to claiming exemption and that the Trust's objects and activities did not meet the statutory requirements of charitable purpose and public benefit.The Tribunal held that the denial of registration was justified, as the Trust's objects violated the provisions excluding trusts benefiting particular identifiable groups from exemption, and the activities were more in the nature of welfare for members rather than charity for the public at large.3. SIGNIFICANT HOLDINGS'The litmus test of a charitable institution is that it should primarily carry on charitable activities. Charity is the noble cause meant for the benefit and upliftment of the down trodden poor and the needy. Charity is not a technical concept safeguarded by legal jargons Charity is not an edifice built on logical deliberations Charity is a divine reflection of human civilization which finds ways and means to help the needy, to protect the helpless, to support the poor and to work for the betterment of the society and mankind. So what is necessary is actual work of charity, howsoever humble it might be.''From perusal of above referred objects of the applicant/assessee, it is evident that it is formed as association to protect the business interest and welfare of its members and their families and that hardly can be considered as charitable in nature, particularly when the essence of altruism is absent from the same.''If the intention is to benefit a section of the public as distinguished from specified individuals/class/members then the section of the public sought to be benefited must not be identifiable. However, in present case it is clearly identifiable in terms of place of investment/residence and membership.''... the Legislature intended to include only the trusts established for charitable purposes. That however does not mean that if a trust is a composite one, that is one for both religious and charitable purposes, then it would not be covered by clause (b). What is intended to be excluded from being eligible for exemption under Section 11 is a trust for charitable purpose which is established for the benefit of any particular religious community or caste.'Core principles established include:- Registration under section 12AB requires that the Trust's objects be charitable and for the benefit of the public at large, not confined to identifiable groups or members.- Section 13(1)(b) and Explanation to section 12AB(4) exclude trusts benefiting particular religious communities, castes, or identifiable sections from exemption and registration.- The nature of activities and actual objects must be examined to determine if the Trust genuinely carries out charitable activities for public benefit, beyond welfare of members.- Judicial precedents recognizing composite trusts with both religious and charitable objects must be carefully distinguished on facts.Final determinations:The Tribunal upheld the denial of registration under section 12AB, holding that the Trust's objects were not charitable in nature for public benefit but were confined to members of a specific society, thereby violating statutory provisions and judicial standards, and thus not eligible for registration or exemption under the Income Tax Act.