2025 (9) TMI 608 - AT - Income Tax

Trust exclusively for a particular community barred from s.12AB registration under explanation to s.12AB(4) and s.13(1)(b)

Shree Sanand Jamaliya Patidar Panch Versus The CIT (Exemption), Ahmedabad

ITAT Ahmedabad denied registration under s.12AB, holding a trust whose object is exclusively for a particular community is barred by the explanation to ... Denying registration u/s 12AB - object of the Trust exclusively for Sanand Jamaliya Patidar Samaj/Community which is violation of clause (d) to explanation to section 12AB(4) of the Act r.w.s. 13(1)(b) - HELD THAT:- No merits in the grounds raised by the assessee and the case laws relied by the assessee are dealing with old provisions of Section 12A of the Act and the above ratio are not applicable to the amended provisions of section 12AB of the Act which is effective from 01-04-2021. Thus the assessee Trust meant for a particular community is not entitled for registration as per specified violation under explanation (e) of section 12AB(4) of the Act. Decided against assessee. ISSUES PRESENTED AND CONSIDERED 1. Whether registration under section 12AB can be denied where the objects of a trust are expressed to benefit a particular community, specifically whether such objects amount to a 'specified violation' under the Explanation to section 12AB(4) read with section 13(1)(b) of the Income Tax Act. 2. Whether the provisions of section 13(1)(b) can be invoked at the stage of granting registration under section 12AB for trusts created after 01-04-2021, and how earlier decisions on section 12A (pre-01-04-2021) bear on the present amended scheme. 3. Whether judicial precedents dealing with trusts created before 01-04-2021 (pre-amendment) are binding or distinguishable when applied to trusts created after 01-04-2021 under the amended section 12AB regime. ISSUE-WISE DETAILED ANALYSIS Issue 1: Denial of registration under section 12AB where objects benefit a particular community Legal framework: Section 12AB prescribes registration for trusts/institutions to claim exemption; Explanation to section 12AB(4) identifies 'specified violations' including application of income for the benefit of any particular religious community or caste (clauses (c)/(d)/(e) as relevant). Section 13(1)(b) disqualifies exemption under sections 11/12 where a charitable institution established after commencement of the Act applies income for benefit of a particular religious community or caste. Precedent treatment: Coordinate Bench decisions have applied the Explanation to section 12AB(4) to deny registration where objects expressly confine benefit to a particular community created after 01-04-2021; Supreme Court authority has held section 13(1)(b) applicable to composite trusts but requires contextual reading with sections 11/12. Interpretation and reasoning: The Tribunal examined the trust objects: several objects explicitly confine benefit to 'Jamaliya Patidar Community' (objects 1 & 2), while other objects are broadly charitable. For a trust created after the operative date of the amended law, an object expressly limited to a particular community falls squarely within the Explanation to section 12AB(4) and hence is a specified violation justifying denial of registration absent remedial evidence that objects benefit public at large. Ratio vs. Obiter: Ratio - For trusts created post-amendment, where principal objects explicitly limit benefits to a particular religious community/caste, registration under section 12AB can be denied as a specified violation under the Explanation to section 12AB(4), read with section 13(1)(b). Obiter - Observations comparing mixed-object trusts and factual distinctions from pre-amendment cases. Conclusions: The Court upheld denial where core objects are confined to a specific community for trusts created after 01-04-2021; such confinement constitutes a specified violation permitting refusal of registration under section 12AB. Issue 2: Invocation of section 13(1)(b) at the registration stage under the amended section 12AB (post-01-04-2021 trusts) Legal framework: The amended statutory scheme (effective 01-04-2021) introduced explicit grounds for cancellation/denial of registration in section 12AB(4) and its Explanation; section 13(1)(b) excludes exemption where income benefits a particular religious community or caste and applies to trusts created after commencement of the Act. Precedent treatment: The Tribunal distinguished earlier authorities (construing pre-amendment section 12A) which held that section 13 could be addressed at assessment rather than at registration. However, for trusts created after 01-04-2021, coordinate Bench decisions have applied section 13(1)(b) via the Explanation to section 12AB(4) at the registration stage where objects show benefit to a particular community. Interpretation and reasoning: The Court reasoned that the legislative amendment alters the registration-stage inquiry for trusts established after the amendment's commencement. The Explanation to section 12AB(4) itself identifies application of income for the benefit of a particular religious community as a specified violation. Thus for trusts established post-amendment, the regulatory framework contemplates denial/cancellation of registration on that ground without deferring the issue entirely to assessment proceedings. Ratio vs. Obiter: Ratio - For post-amendment trusts, section 13(1)(b)-type considerations (as captured by Explanation to section 12AB(4)) can be invoked at registration to deny registration when objects demonstrate benefit to a particular community. Obiter - Discussion of limits and evidentiary nuances for mixed-object trusts. Conclusions: The Tribunal concluded that for trusts created after 01-04-2021 the Commissioner (CIT Exemption) may refuse registration under section 12AB where the Explanation to section 12AB(4) is attracted by the trust's objects indicating benefit to a particular community. Issue 3: Applicability and distinction of pre-amendment precedents (section 12A) to post-amendment section 12AB cases Legal framework: Earlier jurisprudence under section 12A (pre-01-04-2021) held that issues under section 13 are to be examined at assessment and not typically at registration, especially where trusts have mixed objects; amended scheme post-01-04-2021 expressly adds specified violations to section 12AB(4) Explanation. Precedent treatment: The Tribunal distinguished decisions that favored registration despite some community-specific objects where trusts were created before 01-04-2021; those authorities remain applicable to pre-amendment trusts but are not controlling for trusts created after the amendment. The Court applied more recent coordinate-bench decisions holding that the amended statute permits registration-stage scrutiny for post-amendment trusts. Interpretation and reasoning: The Tribunal treated pre-amendment rulings as limited to their statutory context. Where trusts predate 01-04-2021, earlier precedents restraining invocation of section 13 at registration continue to apply; where trusts postdate the amendment, the statutory text authorizes denial based on specified violations, so prior holdings are distinguishable. Ratio vs. Obiter: Ratio - Pre-amendment case law remains applicable to trusts created before 01-04-2021; it is distinguishable and not binding for trusts created after 01-04-2021 under the amended section 12AB. Obiter - Observations on the factual matrix that may preserve registration where mixed objects predominantly serve public at large. Conclusions: Pre-amendment authorities cannot be mechanically applied to post-amendment cases; the amended statutory language governs registration decisions for trusts established after 01-04-2021, and earlier case law is distinguishable where the Explanation to section 12AB(4) is engaged. Overall Conclusion and Disposition Where a trust created after 01-04-2021 has principal objects explicitly confining benefit to a particular religious community/caste, the Explanation to section 12AB(4) (read with section 13(1)(b)) permits denial of registration under section 12AB; precedents under the pre-amendment regime are distinguishable and do not control the registration-stage inquiry for post-amendment trusts. The Tribunal dismissed the appeal of the trust whose objects were found to be community-specific under the amended statutory scheme.