2025 (10) TMI 307 - HC - Income Tax

Registration application remitted to CIT(Exemption) for fresh hearing; religious-benefit assessment under section 11, not section 12A

HC upheld the Tribunal's order remitting the registration application to CIT (Exemption) for de novo consideration, directing a fresh hearing and ... Denying the grant of registration u/s 12AB - assessee trust is not created for the benefit of general public and many of its object clauses are for the benefit of a particular religious community - HELD THAT:- Leuva Patel Seva Samaj Trust, [2015 (9) TMI 109 - GUJARAT HIGH COURT] wherein it is held that the question as to whether trust is created or established for benefit of any particular religious community or caste would be relevant only when income of the trust is assessed in terms of Section 11, however, at the time of disposing of application of a trust seeking registration, Commissioner has to merely decide whether said trust has fulfilled necessary requirements of registration as provided under Section 12A of the Act or not. This Court further observed that “Leuva Patel Community” consists mainly of agriculturists and, therefore, such community cannot be dubbed as a “religious community”. Tribunal, following the decision of this Court in the aforesaid case as well as decision of Hon’ble Apex Court in case of CIT v. Dawoodi Bohara Jamat [2014 (3) TMI 652 - SUPREME COURT] remanded the matter back to CIT (Exemption) for de novo consideration after giving due opportunity of being heard and with the direction not to disentitle the assessee for grant of registration only on the grounds as mentioned in the order rejecting the application filed by the assessee Trust. We are of the opinion that the Tribunal has not committed any error in remanding the matter back to CIT (Exemption) for de novo consideration, with the direction not to disentitle the assessee for grant of registration only on the grounds as mentioned in the order challenged before the Tribunal. ISSUES PRESENTED AND CONSIDERED 1. Whether Section 13(1)(b) of the Income-tax Act can be invoked by the Commissioner (Exemptions) to refuse registration under Section 12AB/12A on the ground that a trust's objects confer benefit on a particular religious community or caste. 2. Whether recent statutory amendment (inserting, by explanation to Section 12AB(4), a specific clause listing application of income for the benefit of any particular religious community as a ground for cancellation) alters the scope or timing of enquiry such that refusal of registration under Section 12AB/12A can be based on Section 13(1)(b) considerations. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Whether Section 13(1)(b) may be applied at the registration stage to deny registration under Section 12AB/12A Legal framework: Registration under Section 12AB/12A requires the Commissioner to satisfy statutory requirements for registration of a trust/institution. Sections 11 and 12 govern exemption of income for charitable/religious purposes; Section 13 (and specifically Section 13(1)(b)) excludes exemption where a trust is created for the benefit of a particular religious community or caste. The statutory scheme separates entitlement to registration from entitlement to exemption at assessment. Precedent treatment: The Tribunal followed binding and persuasive authorities which hold that Section 13 operates as a limitation on exemption under Sections 11/12 at the assessment stage and is not a ground for denying registration. Relevant lines of authority include decisions of the High Court and the Supreme Court characterising Section 13 as an exemption-limiting provision to be tested when exemption is claimed, and multiple Tribunal decisions reaching the same conclusion. A Division Bench decision of the High Court has been cited for the proposition that registration and the question of tax benefit are distinct: registration does not obviate the Assessing Officer's enquiry under Section 13 when exemption is claimed. Interpretation and reasoning: The Court (following the Tribunal and prior rulings) reasons that Section 13 is 'in the nature of an exemption from applicability of Sections 11 or 12' and its applicability 'would only arise at the stage of claim under Sections 11 or 12.' When an applicant seeks registration, the Commissioner's task is to determine whether statutory requisites for registration are met; it is not to decide, in advance, whether income will ultimately be excluded under Section 13. Evaluating whether beneficiaries constitute 'a particular religious community or caste' and whether that would deprive the trust of exemption requires assessment level fact-finding and adjudication which falls within the Assessing Officer's domain at assessment proceedings. Ratio vs. Obiter: Ratio - the applicable legal principle established by the Court is that Section 13(1)(b) cannot be invoked by the Commissioner to deny registration under Section 12AB/12A; Section 13's operation is to be tested at assessment when exemption is claimed. Obiter - discussion indicating that objects exhibiting dual tenor (religious and charitable) may be entertained for exemption subject to Section 13 scrutiny, as drawn from higher authority, is supportive but the operative holding is the timing/separation principle. Conclusions: The Court affirms that the Commissioner must limit the registration enquiry to statutory requirements for registration and should not refuse registration solely on grounds that would invoke Section 13. The matter was accordingly remanded for de novo consideration of registration without disentitling the applicant on the Section 13 grounds relied upon in the rejection. Issue 2 - Effect of statutory amendment listing 'application of income for benefit of any particular religious community' as a ground for cancellation under Section 12AB(4) explanation (whether it permits denial of registration on Section 13 grounds) Legal framework: An amendment introduced a specific clause in the explanation to Section 12AB(4) enumerating application of income for benefit of a particular religious community as a ground for cancellation of registration. Cancellation provisions address post-registration supervision and forfeiture of registration for contraventions. Precedent treatment: The Court and Tribunal relied primarily on pre-existing authorities emphasizing the separation between registration and assessment; the adjudicatory materials cited do not record any binding authority holding that the listed explanation to Section 12AB(4) authorizes pre-registration denial of registration on those grounds. The Tribunal remanded for de novo consideration without relying on the amendment as a basis to refuse registration. Interpretation and reasoning: The Court's decision focuses on the established principle that Section 13 is to be tested at assessment. The amendment relating to cancellation is directed to grounds for post-registration cancellation and enforcement, not an express statutory reallocation of the investigative/decision-making competence to deny initial registration. The judgment treats the amendment as not altering the accepted legal position that issues falling squarely within Section 13's ambit are to be adjudicated when exemption is claimed at assessment and that registration proceedings should not be used to pre-empt that inquiry. Ratio vs. Obiter: Primarily obiter regarding the amendment - the Court did not base its outcome on a detailed statutory construction of the new clause but implicitly held that the amendment does not justify denial of registration on Section 13 grounds at the registration stage. The operative ratio remains the separation of functions between registration and assessment. Conclusions: The Court did not accept a contention that the amendment justified refusal of registration in the present facts; it directed re-examination of the registration application without denial on the Section 13 basis identified in the original rejection. No substantial question of law arises from the Tribunal's remand order, and the appeal is dismissed as devoid of merit. Related procedural and remedial direction The Tribunal's order remanding the matter to the Commissioner for de novo consideration after affording opportunity to be heard, with directions not to deny registration solely on the Section 13-type grounds relied upon earlier, was upheld. The Court found no error in remand and confirmed that denial of registration on the cited grounds would be inappropriate absent assessment-stage adjudication.