Refusing registration on the ground of violation of provisions of section 13(1)(b) & 13(1)(c) is not justified especially when nature of its objects or genuineness of the activities of the trust is not doubted

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Refer Part -I : Scope of enquiry u/s 12AA for registration u/s 12A is limited to make enquiries about genuineness of activities and object of the trust

Refusing registration on the ground of violation of provisions of section 13(1)(b) & 13(1)(c) is not justified especially when nature of its objects or genuineness of the activities of the trust is not doubted

 

DAWOODI BOHRA JAMAT vs. COMMISSIONER OF INCOME TAX*

ITAT, INDORE BENCH

Bhavesh Saini, J.M. & M.L. Gusia, A.M.

ITA Nos. 615, 635 to 637, 639 to 671, 674 to 676 & 735/Ind/2007

28th March, 2008

(2008) 27 CCH 0239 Indore Tribe

(2010) 123 ITD 0452

Legislation Referred to

Section 12A, 12AA, 13(1)(b), 13(1)(c)

Case pertains to

Asst. Year -,

Decision in favour of:

Assessee

Religious trust—Registration under s. 12A/12AA—Scope and allowability—Religious purpose—‘Religious purpose’ under the IT Act will include objects relating to observance of rituals and ceremonies and propagation of the tents of religion as also its advancement—The objects of the assessee trust above clearly refer to the religion and are supported by reference made to different pages of Holy Quran—On going through several true pages of Holy Quran written by the authors the assessee was justified in contending that all the objects of the assessee trust are solely religious in nature because each of them refers either to religious occasions, religious education or to religious activities—Assessee has been able to demonstrate that all the objects of the assessee trust, came out from the writings in Quran and as such these are orders for them while observing islamic faith—Departmental Representative has failed to bring to notice as to how it was mandatory to create mosque or Roza for treating the trust to be religious trust in such an event—All the objects of the assessee were religious in nature because the same are supported by the writings in Holy Quran—The finding of the learned CIT in the impugned order that the objects of the assessee are charitable in nature is not justified—Above that the assessee is a religious trust, the provision of s. 13(1)(b) are not applicable—Refusal to grant registration to the trust on the ground of violation of s. 13(1)(b) or 13(1)(c) was not justified—No finding has been given as to whether salary given to A was reasonable as regards services rendered by him for the assessee institution—In the absence of any specific finding in the impugned order with regard to the amount spent by A for the assessee trust, there is no justification for invoking the provisions of s. 13(1)(c) the receipts of the trust will be used for the objects of the trust and on dissolution of the trust, what will happen to the properties of the trust—As regards the clause in the trust deed to the effect that in the absence of any specific finding in the impugned order with regard to the amount spent by A for the assessee trust, there is no justification for invoking the provisions of s. 13(1)(c) the receipts of the trust will be used for the objects of the trust and on dissolution of the trust, what will happen to the properties of the trust, as per s. 14 of the M.P. Public Trusts Act, the previous sanction of the registrar is required in case of sale etc. of property belonging to a public trust—As per s. 27(2)(d) of the same Act the Court can provide scheme of management of the trust property—Likewise, the safeguard is provided by empowering the AO in this regard in second proviso to s. 11 (3A)—Action of the CIT in refusing to grant registration to the assessee trust on the ground of violation of provisions, of ss. 13(1)(b) and 13(1)(c) is not justified especially when the learned CIT had not doubted either the nature of its objects or genuineness of the activities of the trust—Directions issued to CIT to grant registration to the assessee under s. 12A/12AA

Held:

Sec. 2(4) of the M.P. Public Trusts Act, 1951 provides the meaning of public trust means an express or constructive trust for a public, religious or charitable purpose and includes a temple, a Math a mosque, a Chruch, a Waqf or any other religious or charitable endowment and a society formed for a religious or charitable purpose.

 

The words ‘religious purpose’ or ‘public worship’ as found in enactments relating to public trust have not been defined under the IT Act. Therefore is a wide scope for interpretation of these words on the basis of definitions given elsewhere or precedents interpreting them.

Broadly speaking ‘religious purpose’ under the IT Act will include objects relating to observance of rituals and ceremonies and propagation of the tents of religion as also its advancement. Income derived from property held by public trust as well as voluntary contribution received by the public trust are subject-matter of exemptions from the taxation under the Act. The objects of the assessee trust above clearly refer to the religion and are supported by reference made to different pages of Holy Quran. The counsel for the assessee referred to true copies of several pages of Holy Quran written by two of the authors in which giving of food in days of hunger or orphan is considered as highly religious ceremony. Reference is also made that who will given to the people or poor then Allah will given them in return and i.e. who will give loan then Allah will given double to them. Likewise for helping the needy people for religious activities and to carry out religious activities or spend for good, spending wealth in way of Allah bestowing mercy, teaching were considered to be highly religious activities. On going through several true pages of Holy Quran written by the authors referred to above, we are satisfied that the counsel for the assessee was justified in contending that all the objects of the assessee trust are solely religious in nature because each of them refers either to religious occasions, religious education or to religious activities. The counsel for the assessee also explained that the words “Shariat-e-Mohammadia” means the path shown by Prophet Mohammed. Therefore, the objects of Shariat-e-Mohammadiyah are identical with those of ‘Dawat-e’Hadiyah. For Dawoodi Bohras, true path shown by the Prophet is the one indicated and shown by their living guide Dail-al-Mutlaq of the time who is the living and visible guide for Dawoodi Bohras. It is an undisputed fact that for the people believing in Islam, writings, in Quarn are words of Allah for them. The directory given in the Holy Quran are considered by the people of Islamic faith as orders from Allah and the people of Islamic faith obey such orders as holy and religious. The counsel for the assessee trust, as noted above, came out from the writings in Quran and as such these are orders for them while observing Islamic faith.

The objects of the assessee trust, as explained in the registration application under s. 12A/12AA, are derived from the objects of the trust, as have been mentioned briefly in the certificate of registration. Departmental Representative has failed to bring to notice as to how it was mandatory to create mosque or Roza for treating the trust to be religious trust in such an event. All the objects of the assessee were religious in nature because the same are supported by the writings in Holy Quran and as such the assessee trust following the directions from the Holy Quran on the religious occasions, religious education and religious activities for Dawoodi Bohra Community, had been organizing various activities in pursuance with the objects of the trust. The objects of the assessee trust are solely religious in nature and as such the finding of the learned CIT in the impugned order that the objects of the assessee are charitable in nature is not justified. Since the assessee is a religious trust, the provision of s. 13(1)(b) are not applicable because the same are applicable in case of trust being established for charitable purposes. The findings of the CIT that the provisions of s. 13(1)(b) apply to the assessee trust is therefore, set aside—Aggarwal Mitra Mandal Trust vs. Director of IT (Exemption) (2007) 109 TTJ (Del) 128, People Education & Economic Development Society (Peeds) vs. ITO (2006) 104 TTJ (Chennai)(TM) 467, Sarafa Association vs. CIT (2007) 207 CTR (MP) 539 : (2007) 294 ITR 262 (MP), CIT vs. Gujarat Maritime Board (2007) 208 CTR (Guj) 439 : (2007) 289 ITR 139 (Guj), CIT vs. Agricultural Produce & Market Committee, (2007) 210 CTR (Bom) 386 : (2007) 291 ITR 419 (Bom) and Pocket Testament League (India) vs. Dy. CIT (Exemption) (2008) 19 SOT 150 (Del) relied on; Yusuf Ali Ibrahimji & Others; AIR 1921 Bom 338, CIT vs. Shri Maheshwari Agrawal Marwari Panchayat (1982) 136 ITR 556 (MP), Shri Dhakad Samaj Dharamshala Bhawan Trust (2007) 212 CTR (MP) 148, CIT vs. Rattan Trust (1997) 141 CTR (SC) 304 : (1997) 227 ITR 356 (SC) and Aman Shiv Mandir Trust (Regd.) vs. CIT (2007) 213 CTR (P&H) 466 : (2008) 296 ITR 415 (P&H) distinguished.

(Paras 16 to 18 & 20)

CIT has to satisfy himself about the objects of the trust of consideration of registration application. Refusal to grant registration to the trust on the ground of violation of s. 13(1)(b) or 13(1)(c) was not justified. The grant of registration is a stepping stone. Though it is not necessary to enquire into the finding given with regard to applicability of provisions of s. 13(1)(c) yet it may be noted that the learned CIT has mentioned that amounts are given to A besides giving salary to him. No finding has been given as to whether salary given to A was reasonable as regards services rendered by him for the assessee institution. The CIT has also not given any finding as to for what purposes, the amount was given by the assessee trust to A and where the amount has been spent. As per the submission of the counsel for the assessee, the amounts in question were given to A for his salary as well as the amount was spent for achieving the objects of the assessee trust. The CIT has not given any such finding in the impugned order. In the absence of any specific finding in the impugned order with regard to the amount spent by A for the assessee trust, there is no justification for invoking the provisions of s. 13(1)(c) because the Revenue shall have to prove while invoking such provision against the assessee trust that the income was directly or indirectly incurred for the benefit of the person referred to in sub-s. (3) of s. 13. Never-this-less, this was not the requirement to be considered at the registration stage.

(Paras 25 & 29)

CIT called for the explanation of the assessee on the issue of non-mentioning of the clause that the receipts of the trust will be used for the objects of the trust and on dissolution of the trust, what will happen to the properties of the trust, yet did not give any finding on these issues. As per s. 11 the income of the trust would not form part of the total income when the same was applied to its objects and purpose. Similarly, as per s. 14 of the M.P. Public Trusts Act, the previous sanction of the registrar is required in case of sale etc. of property belonging to a public trust. As per s. 27(2)(d) of the same Act, the Court can provide scheme of management of the trust property. Likewise, the safeguard is provided by empowering the AO in this regard in second proviso to s. 11 (3A). These are the sufficient safeguards provided under the IT Act as well as under the M.P. Public Trusts Act therefore even though the CIT did not decide these issues but her apprehension in the show cause notice was misconceived. The assessee is a public religious trust and the action of the CIT in refusing to grant registration to the assessee trust on the ground of violation of provisions, of ss. 13(1)(b) and 13(1)(c) is not justified especially when the CIT had not doubted either the nature of its objects or genuineness of the activities of the trust. In this view of the matter, the impugned order is set aside and the CIT, to grant registration to the assessee trust under s. 12A/12AA.

(Paras 30 & 31)

Conclusion:

Assessee trust having been established as per tenets of Holy Quran, it was religious trust, hence s. 13(1)(b) did not apply and in the absence of any findings on visitation of s. 13(1)(c), CIT was not justified in removing believing registration under s. 12A/12AA : further applicability of s. 13(1)(b)/(c) could not be considered at the stage of grand of registration under s. 12A/12AA.

Counsel appeared:

Manubhai Patel, for the Appellant : R.K. Chaudhary, for the Respondent

ORDER

BY THE BENCH.: :

Also see Falz-E-Aligi Sahid Trust vs. CIT (ITA No. 672/Ind/2007) & Dawat Properties Trust vs. CIT (ITA No. 673/Ind/2007)

ORDER

This order shall dispose of all the above appeals of different assessees raising the common question of refusal to grant registration under s. 12A/12AA of the IT Act by the learned CIT, Ujjain. Since common issues are involved in all the appeals therefore, all the appeals were heard together and we dispose of the same through common consolidated order.

  1. Learned representatives of the parties mainly argued in ITA No. 615/Ind/2007 and submitted that the point in issue is the same in all the appeals except some variation in the amount of expenditure. Therefore, the decision in the case of ITA No. 615/Ind/2007 was requested to be followed in the remaining appeals.
  2. We have heard the learned representatives of the parties and have gone through the material available on record.
  3. Considering the submissions of the parties and the common issues involved in all the appeals and that the parties mainly argued in ITA No. 615/Ind/2007 we propose to decide this appeal as under.

ITA No. 615/Ind/2007

  1. The facts of the case are that the assessee trust filed an application for registration under s. 12A/12AA of the Act before the learned CIT, Ujjain. The objects of the trust (English translation by the assessee) as per the trust deed are as under :

“(a) To arrange for Nyaz and Majlis (lunch and dinner) on religious occasion of birth anniversary and Urs Mubarak of Awliya-e-Quiram (SA) and Saints of Dawoodi Bohra Community.

(b) To arrange for lunch and dinner on religious occasions and auspicious days of Dawoodi Bohra Community.

(c) For the betterment of Dawoodi Bohra Community to give and take Qardan Hasana according to Farma of Qurane Masjid.

(d) To arrange for religious education and to establish Madarsa and such organization.

(e) To assist/help to the needy people for religious activities.

(f) To carry out all religious activities according to Shariat and direction of Shariat-e-Mohammediyah for the prosperity of the Dawoodi Bohra community.”

  1. The CIT examining the unaudited books of accounts for Financial year 2006-07 noted that the total expenditure incurred during the year is to the amount of Rs. 1,28,824. The expenses incurred on the objects have been shown under the head religious expenses to the amount of Rs. 39,172. Besides this head of expenses, all the expenditure are in the nature of establishment expenses. On examining the religious expenses, it was seen that on various dates a sum of Rs. 34,000 has been paid as Nazarana/donation to Amil on various out of the total expenditure of Rs. 39,712 on this account. Besides the other major expenses are Rs. 43,718 paid as salary to Amil and in the consumable expenses also the expenses incurred on behalf or for behalf of Amil are there. The electricity expenses have also been paid in reference to the residence of Amil or Zamatkhana or Masjid which are not the properties of the trust. The learned CIT found that the expenditure has been basically incurred not for charitable objects as stated by the trust but for making payment to Amil under various heads as noted in contravention to provision of s. 13(1)(c), of the Act. From the objects noted above, the CIT observed that the objects are charitable in nature and are for a particular community. This was also supported from the decision of the Hon’ble High Court of Bombay in the case of Yusuf Ali Ebrahim AIR 1921 relied upon in the case of Shia Dawood Bohra Jamat, Ratlam, by the authorized attorney for the assessee trust in which case also he was an Authorized Representative.
  2. The learned CIT in view of the above facts directed the assessee trust to explain why the registration to the trust under s. 12A be not refused as the provisions of ss. 13(1)(b) and 13(1)(c) of the IT Act are both applicable. The assessee was also directed to explain why registration under s. 12A be not refused as there was no clause that the receipts of the trust will be used only for objects of the trust and on dissolution of the trust, what will happen to the properties of the trust.
  3. The assessee trust vide letters dt. 13th Aug., 2007 and 27th Aug., 2007 filed written submissions before the CIT which were summarized by the learned CIT as under :

(i) All the objects of the trust are religious in nature.

(ii) As per the decision of the Hon’ble High Court in the case of CIT vs. Barkate Saifiyah Society (1995) 213 ITR 492 (Guj), the provisions of s. 13(1)(b) is not applicable if the trust is both religious and charitable. The provisions of s. 13(1)(b) are only applicable in cases where the trust is purely charitable in nature.

(iii) Reliance has been placed on the decision in the case of Dawoodi Bohra Jamat Kawant by Hon’ble Tribunal, Ahmedabad in ITA No. 2610/Ahd/2005. It has been submitted that in this case the Hon’ble Tribunal has held that the registration is allowable to this trust.

(iv) Reliance has been placed on the decision in the case of CIT vs. Chandra Charitable Trust (2006) 206 CTR (Guj) 418. It has been submitted that in this case the objects of the trust was to promote Jainism or help and assist maintenance of temple, Sadhus, Sadhvis, and Shravikas and other goals were also set in the trust deed. It was held by the Hon’ble High Court as the trust is charitable as well as religious the provision of s. 13(i)(b) are not applicable.

(v) Certain portion form the decision in ITA Nos. 219 to 222/Ind/2007 and ITA Nos. 155/Ind/2007 and 156/Ind/2007 has been reproduced. It has been further stated the paras quoted from the order in the case of Advocate General of Bombay vs. Ali Ibhrahimji & Ors. in the order refusing registration are not applicable to the case of the applicant as :

(a) The judgment is prior to commencement of IT Act and was in respect of civil litigation relating to the issues whether certain properties were held as belonging to the public trust or as belonging to private trust.

(b) The expenses incurred for religious purposes have been described as for charitable in general meaning of the word ‘charity’. Para 230 of the said judgment says “I regard these ceremonies and feasts as religious celebrations to the advancement of religion in their community. In my opinion, they are quite distinct from Fatiyah Ceremonies in honour of private individuals. But even these have been held to be valid charities when accompanies by the giving of alms.”

(c) The provisions of ss. 11 and 12 as well as restrictive provisions of s. 13 came into effect for the first time after coming into force of IT Act, 1961.

(d) In the decision given by Hon’ble High Court, in the case of Barkate Saifiyah Society (supra), it has been held that the phrase ‘charitable purpose’ is inclusive and it covers a wider field than the field covered by the word ‘religious purpose’. Further in some cases even a religious activity by a particular sect would be a charitable activity for some, supply of fodder to animal and cattle is a religious object while to others its may be a charitable purpose according to Hindu Religion activity. Similarly Khairat under the Mohammadan Law would be considered to be a religious activity. The said activities may be for a charitable purposes to some. Hence, in many cases both the purposes may be overlapping. The purposes may have both the elements charity as well as religious.”

(e) Therefore, the reliance placed on the judgment in the case of Advocate General of Bombay vs. Yusuf Ali Ibrahimji & Others is not correct.

(f) In the case of Kalika Mata Seva Mandal Trust while rejecting the application under s. 80G(5), it has been held that the expenses for celebrating navratri and dance performance given for celebrating it is religious in nature.

(iv) The Najwa paid to representative of his holiness Dai-Multaq, donation to Shia Dawoodi Bohra Jamat, Jobat and travelling expenses are as per the objects of the trustdeed which are religious in nature. The Najwa (offerings) given to representative of his holiness Di-al-multaq is in accordance with the direction of Quran. This is according to the age old traditional religious practice and custom and, therefore, cannot be covered under the provision of s. 13(1)(c) of the IT Act. The donation made to Shia Dawoodi Bohra Jamat, Jobat is a donation to another wakf which has objects as of the applicant trust. Request application for change in the name is enclosed. Travelling expenditure of Dal-al-multaq on different occasion on various religious activities is covered under the object.”

  1. The assessee relied upon following decisions before the learned CIT :
  2. Kalikamata Seva Mandal Trust
  3. Dawoodi Bohra Jamat, Kawant
  4. CIT vs. Chandra Charitable Trust and CIT vs. Barkate Safiyah Society
  5. Yusuf Ali Ibrahimji & Others (supra)

The learned CIT however found that these decisions are not applicable to the case of the assessee. The learned CIT rejected the contention of the assessee that the objects of the trust are as per religious tenets of their particular sect i.e., Dawoodi Bohra Community, therefore, religious in nature. The learned CIT further observed that under Islam Religion also the objects can be religious, pious or charitable. The learned CIT considering the objects of the assessee trust noted above, held that the trust has not been created for conducting worship or reading Quran or for construction of mosque. According to her, the trust has been created with the object to provide religious education and to establish Madrasa to help the needy people for religious activities or to celebrate birth anniversaries of saints and to organize lunch or dinner on religious occasion therefore the same cannot be said to de religious occasions therefore the same cannot be said to be religious trust. The learned CIT noted in the case of the assessee trust also the object noted above all for such kind of activities and are in the nature of advancement of religion falling under the head ‘charity’. The learned CIT therefore held that assessee trust has not field any case law in support of its claim.

  1. The learned CIT in support of her finding to reject the application of the assessee trust under s. 12A/12AA of the Act relied upon the following decisions :

(i) Ghulam Mohidin Trust vs. CIT (2001) 168 CTR (J&K) 367 : (2001) 248 ITR 587 (J&K);

(ii) CIT vs. Palghat Shadi Mahal Trust (2002) 172 CTR (SC) 453 : (2002) 254 ITR 212 (SC);

(iii) State of Kerala vs. M.P. Shantiverma Jain (1998) 149 CTR (SC) 279 : (1998) 231 ITR 787 (SC).

  1. The learned CIT considering the above facts and the decision quoted above that a trust having objects of establishing institution for educational, social, economic advancement of Muslims and for religious and charitable objects recognized by Muslims attracts provisions of s. 13(1)(b) of the IT Act. Since trust is created for a particular religious community hence s. 13(1)(b) is applicable. Learned CIT also observed that even if the trust is created whose objects are both charitable and religious in nature for a particular religious community, the provisions of s. 13(1)(b) of the Act are applicable and also if it is established for a particular religious community, it cannot be said that the trust has been created for public at large. The contention of the assessee was rejected that even if the objects of the trust are both religious and charitable, the provisions of s. 13(1)(b) are not applicable. The contention of the assessee that the trust is created for public at large was rejected.
  2. The learned CIT also noted that the assessee trust has given gifts and incurred various types of expenditure for Amil on various occasions who is manager of the trust besides giving salary to him therefore, the provisions of s. 13(1)(c) are clearly applicable and did not allow registration to the assessee trust on that count also. The CIT further noted that out of the total expenditure incurred to the amount of Rs. 1,28,824 under the various heads is mainly expenditure incurred on account of payments made to Amil on various accounts and only negligible amount has been incurred for the objects of the trust. The learned CIT also observed that the assessee trust has not been able ,to justify that they are not in excess of what is reasonably paid for such services. The learned CIT also found that nothing much has been done by Amil during the year while the expenditure has been mainly incurred for him only. The learned CIT considering the above discussion held that as the objects of the trust are charitable in nature for a particular community therefore, the provisions of s. 13(1)(c) therefore, the application for registration was rejected vide impugned order.
  3. The assessee trust is in appeal challenging the impugned order of the CIT.
  4. The first contention raised by the learned counsel for the assessee is that the assessee trust is registered public religious trust under the M.P. Public Trust Act, 1951. Therefore the finding of the learned CIT are incorrect that the objects are charitable in nature. The learned counsel for the assessee in support of his contention submitted that all the objects of the assessee trust are religious as each of them refers either to religious occasions or Dawoodi Bohra Community. It is submitted that as regards object (f) mentioned above, the words ‘Sheriat-e-Mohammadiyah’ literally means the path shown by Prophet Mohammed. The words ‘Sheriat-e-Mohammadiyah’ is interchangeable with ‘Dawat-e-Hadiyah’ hence the objects of Sheriat-e-Mohammadiyah’ are identical to those of ‘Dawat-e-Hadiyah’. For Dawoodi Bohras, true path shown by the Prophet is the one indicated and shown by their living guide Dai-ul Mutlaq of time. Dai-ul-Mutlaq is the living and visible guide for Dawoodi Bohras. The learned counsel for the assessee in his written submissions referred to p. 11 onwards and submitted that all objects of the assessee trust are taken from holy Quran and as such the same are. religious in nature. He submitted that the words used in the objects are clearly religious. The learned counsel for the assessee also demonstrated that to arrange for Nyaz and Majlis (lunch and dinner) on the religious occasion of birth anniversary and Urs Mubarak of Awliya-e-Qiram (SA) and Saints of Dawoodi Bohra Community are referred in pages of holy Quran written by A. Yusuf Ali and M.M. Pickthall and referred to the pages of holy Quran in support of his contention. Similarly, for other objects of the assessee society, the learned counsel for the assessee referred to pages of Quran written by the aforesaid author and submitted that all the objects of the assessee are taken from holy Quran and as such the same are solely religious in nature with regard to Dawoodi Bohra Community. Therefore, the findings of the CIT that the objects are charitable in nature and are for a particular community is incorrect. The learned counsel for the assessee submitted that all the objects of the trust specifically refer to the religion or Quran and as such it is clear that all the are based on religious faith and the Quran. For the people believing in Islamic faith writings in Quran are words of Allah which came out of mouth of the Prophet Hazrat Mohd. Piagambar. The direction given in Quran are considered as orders from Allah and the people of Islamic faith obey such orders as holy and the religious and as such all the objects of the assessee are based on religious rites and the orders of Allah as per Quran-e-Majid. He submitted that all the objects of the assessee as mentioned above are therefore, religious in nature. The learned counsel for the assessee submitted that the phrase charitable purpose is much more wider than the phrase charitable purpose id much more wider field than the field covered by the words religious purpose. He demonstrated that in some cases even a religious activity by a particular sect would be charitable activity for some. As for instance, supply of fodder to animals and cattles is a religious object according to Hindu religion however to others it may a charitable purpose. He submitted that Khairat under Mohamedan Law would be considered to be a religious activity and it may be a charitable purpose to some other community. The learned counsel for the assessee submitted that in this context, ‘religion’ means the outward act or form by which men indicate their recognition of the existence of a god or the gods or the gods having power over their destiny to whom obedience, service and honour are due and in this accepted sense is a system of divine faith and worship. Religion is a social system in the name of god laying down the code of conduct for the people in society. According to him, religion is a way of life in India and it is an unending discovery into unknown world. People living in society have to follow some sort of religion because the society accepts religion in a form which it can easily practice. Religion includes worship, faith and extends to even rituals. Belief in religion is belief of practice a particular faith, to preach and profess it. The mode of worship is an integral part of religion. Forms and observances of religion may extend to matters of food and dress. Religion means a system of belief or doctrine which are regarded by those who profess that religion as conducive to their spiritual well being. The learned counsel for the assessee submitted that public religious trusts are created for particular religion only and as such the learned CIT was not justified in rejecting the registration application of the trust on that reason. The learned counsel for the assessee submitted that since all the objects of the assessee trust referred to religion or coming from the holy Quran therefore, the assessee is a public religious trust and as such the findings of the learned CIT are incorrect treating it to be charitable in nature for a particular community.
  5. On the other hand; the learned Departmental Representative relied upon the order of the CIT and submitted that the objects of the assessee trust are charitable in nature and as such created for the direct or indirect of a particular religious community i.e., Dawoodi Bohra Community. Therefore, the CIT was justified in rejecting the application of the assessee.
  6. Considering the submission of the parties, we do find force in the submission of the learned counsel for the assessee in contending that the assessee is public religious trust. Sec. 2(4) of the M.P. Public Trusts Act, 1951 provides the meaning of public trust means an express or constructive trust for a public, religious or charitable purpose and includes a temple, a Math a mosque, a Chruch, a Waqf or any other religious or charitable endowment and a society formed for a religious or charitable purpose. The words ‘religious purpose’ or ‘public worship’ as found in enactments relating to public trust have not been defined under the IT Act. Therefore is a wide scope for interpretation of these words on the basis of definitions given elsewhere or precedents interpreting them. Broadly speaking ‘religious purpose’ under the IT Act will include objects relating to observance of rituals and ceremonies and propagation of the tents of religion as also its advancement. Income derived from property held by public trust as well as voluntary contribution received by the public trust are subject-matter of exemptions from the taxation under the Act. The objects of the assessee trust reproduced above clearly refer to the religion and are supported by reference made to different pages of Holy Quran. The learned counsel for the assessee referred to true copies of several pages of Holy Quran written by two of the authors referred to above in which giving of food in days of hunger or orphan is considered as highly religious ceremony. Reference is also made that who will given to the people or poor then Allah will given them in return and i.e. who will give loan then Allah will given double to them. Likewise for helping the needy people for religious activities and to carry out religious activities or spend for good, spending wealth in way of Allah bestowing mercy, teaching were considered to be highly religious activities. On going through several true pages of Holy Quran written by the authors referred to above, we are satisfied that the learned counsel for the assessee was justified in contending that all the objects of the assessee trust are solely religious in nature because each of them refers either to religious occasions, religious education or to religious activities. The learned counsel for the assessee also explained that the words “Shariat-e-Mohammadia” means the path shown by Prophet Mohammed. Therefore, the objects of Shariat-e-Mohammadiyah are identical with those of ‘Dawat-e’Hadiyah. For Dawoodi Bohras, true path shown by the Prophet is the one indicated and shown by their living guide Dail-al-Mutlaq of the time who is the living and visible guide for Dawoodi Bohras. It is an undisputed fact that for the people believing in Islam, writings, in Quarn are words of Allah for them. The directory given in the Holy Quran are considered by the people of Islamic faith as orders from Allah and the people of Islamic faith obey such orders as holy and religious. The learned counsel for the assessee trust, as noted above, came out from the writings in Quran and as such these are orders for them while observing Islamic faith. The learned Departmental Representative referred to the registration granted to the assessee trust under M.P. Public Trusts Act and referred to the objects of the trust mentioned therein which are not from the objects of the trust as mentioned in the application for registration. The learned counsel for the assessee however objected to the submission of the learned Departmental Representative because in registration certificate the objects of the trust were briefly mentioned to follow directions of ‘Dawat-e-Hadiyah’ and for Dawoodi bohras the path shown by Prohpet is one indicated and shown by prophet is one indicated and shown by their living guide Dai-ul-Multaq. The learned counsel for the assessee submitted that the objects given in the registration under M.P. public Trust Act were briefly the same as above elaborated in the application for registration which are in the interest of Bohra Samaj with regard to observe and solamnising the religious activities and education for Bohra Samaj and as such there is no difference in them. We agree with the learned counsel for the assessee that the objects of the assessee trust, as explained in the registration application under s. 12A/12AA of the Act, are derived from the objects of the trust, as have been mentioned briefly in the certificate of registration as noted above. The contention of the learned Departmental Representative is therefor, rejected.
  7. The learned Departmental Representative submitted that no mosque or Roza is created by the assessee trust therefore, it cannot be treated as religious trust. The learned counsel for the assessee however submitted that there is no requirement under the law. The learned Departmental Representative thus has failed to bring to our notice as to how it was mandatory to create mosque or Roza for treating the trust to be religious trust in such an event. The learned counsel for the assessee in support of his contention that assessee is Public Religious Trust referred to the decision of the Hon’ble Supreme Court in the case of Hazarat Pirmahomed Shah Saheb Roza Committee vs. CIT (1967) 63 ITR 490 (SC) in which the facts observed by the Hon’ble Supreme Court and the findings are reproduced as under :

“At the death of a Muslim saint in 1942, there were about 400 of his disciples, known as Murids, whose descendants also became Murids. His discplies and devotees built a Roza (mausoleum) in his memory and a for offering fatiahs and prayer. All Muslims, whether Murids or no Murids, had unrestricted access to the Roza and the mosque. Several gifts of properties were made by the Murids and certain properties were also purchased by persons in management out of the offering made. All these properties were treated as properties of the Roza and the income thereof was utilized for the maintenance of the Roza and the mosque and observance of festive occasions. The surplus income was not utilized for the personal benefit of the mudrids, but for the years 1942-43 to 1956-57 a part of the surplus was utilised for running madrassas and a library and giving food to pilgrims attending the Roza and the mosque on festive occasions. Some of the Murids who had contributed to the cost of the construction of certain rooms in the Roza were entitled to reside in those rooms when they came there. The Murids were also entitled to the dates from certain date trees in the premises of the Roza. The Roza and the mosque were recognized as a wakf in the Revenue records. The minutes of meeting of the Murids held on 15th Oct., 1888 indicated that until then the general body of the Murids managed the properties. Resolutions were passed at that meeting appointing a managing committee and laying down certain rules for the management and administration of the properties. The committee had been claiming that the wakf was not public but ultimately, upon the application of the committee, the wakf was registered on 29th April, 1955, as a public trust under the Bombay Public Trusts Act, 1950.

The question was whether the income of the Roza properties for the asst. yrs. 1944-45 to1948-49 were assessable to tax under the IT Act, 1922. The Tribunal held that the original purpose, of the wakf was confined to the maintenance of the Roza and the mosque and celebration of festive occasions that all Muslims had unrestricted access to the Roza and the mosque, and that therefore the wakf was established for a wholly religious purpose. On a reference, the High Court considered that the maintenance of madrass as and the library must be taken to be one of the original purposes of the wakf and rejected the finding of the Tribunal that the wakf was wholly for a religious purpose. On appeal to the Supreme Court.

Held (i) that the question as to what was the object of the wakf was essentially a question of fact and the High Court could not interfere with the finding of the Tribunal that the wakf was wholly religious;

(ii) that, upon the facts found by the Tribunal, the Roza properties were held for a wholly religious purpose of a public character and therefore the income of the Roja properties was exempt form assessment to tax under s. 4(3)(i) of the Act.”

The CIT in support of the finding that the objects assessee are charitable relied upon the decision of the Hon’ble High Court of Bombay in the case of Yusuf Ali Ibrahimji & Others; AIR 1921 Bom 338. However the learned counsel for the assessee explained that the said judgment was prononunced on 19th march,1921 which was prior to the commencement of the IT Act, 1922 and the said judgment was in respect of civil litigation relating to issues whether certain properties were held as belonging to public trust or as to belonging to private trust and it was not in respect of applicability of any of the provision of the IT Act as in force at that time. The learned counsel for the assessee further submitted that in the aforesaid decision, the expenses incurred for religious purposes have been described for charitable in general meaning of the word ‘charity’. The learned counsel for the assessee therefore, tried to distinguish this case from the facts of the present case because the objects of the assessee trust were purely religious in nature. We have already observed above that all the objects of the assessee were religious in nature because the same are supported by the writings in Holy Quran and as such the assessee trust following the directions from the Holy Quran on the religious occasions, religious education and religious activities for Dawoodi Bohra Community, had been organizing various activities in pursuance with the objects of the trust and as such the decision cited by the CIT is clearly distinguishable on facts.

  1. On consideration of the rival submissions and the material on record, we are of the view that the objects of the assessee trust are solely religious in nature and as such the finding of the learned CIT in the impugned order that the objects of the assessee are charitable in nature is not justified. The findings of the learned CIT to this extent are set aside.
  2. The learned counsel for the assessee further submitted that since the assessee trust is a Public Religious Trust, rovisions of s. 13(1)(b) of the Act are not attracted. The learned counsel for the assessee in support of his contention relied upon the decision of Hon’ble High Court of Gujarat in the case of CIT vs. Barkate Saifiyah Society (1995) 213 ITR 492 (Guj) in which it was held that s. 13(1)(b) applies only to the trusts which are purely for charitable purposes and in that case the assessee trust was charitable as well as religious in nature. Therefore the question was answered in favour of the assessee and against the revenue. The learned counsel for the assessee also religious the decision of the Hon’ble High Court of Gujarat in the case of CIT vs. Chandra Charitable Trust (2006) 206 CTR (Guj) 418 in which it was held if the objects of the assessee are not only to propogagte Jainism or to help and assist maintenance of temple, Sadhus, Sadhvies, Shraviks and Shravaks and other goals are also set out in the trust and s. 13(1)(b) would not apply. The learned Departmental Representative relied upon the order of the learned CIT.
  3. In view of four finding above that the assessee is a religious trust, the provision of s. 13(1)(b) are not applicable because the same are applicable in case of trust being established for charitable purposes. The decision referred to by the learned counsel for the assessee squarely apply to this case. The findings of the CIT that the provisions of s. 13(1)(b) apply to the assessee trust is therefore, set aside.
  4. The next point is with regard to applicability of s. 13(1)(c) of the IT Act.
  5. The learned counsel for the assessee submitted that at the stage of grant of registration under s. 12A/12AA of the Act, the learned CIT shall have to satisfy himself about the objects and genuineness of the activities of the trust and as such the applicability of s. 13(1)(b) and 13(1)(c) cannot be considered. In support of his contention he relied upon the order of the ITAT, Delhi Bench, in the case of Aggarwal Mitra Mandal Trust vs. Director of IT (Exemption) (2007) 109 TTJ (Del) 128 : (2007) 293 ITR 259 (Del)(AT). He relied upon the order of the ITAT, Delhi Bench in the case of Pocket Testament League (India) vs. Dy. CIT (Exemption) (2008) 19 SOT 150 (Del). The learned counsel for the assessee on merits submitted that the trial balance as on 31st March, 2007 was filled because inquiry with regard to registration was in on progress at that time of passing the impugned order on 7th Nov., 2007. However prior to it, audit report for the earlier year was field. The learned counsel for the assessee further submitted that the case laws relied upon by the CIT in rejecting the application of the assessee are clearly distinguishable because the same are not applicable to the registration matter under s. 12A/12AA of the Act. The learned counsel for the assessee further submitted that Amil is a priest and salary is given to him who did all the religious activities and rites of the assessee and the CIT has not pointed out if any unreasonable payment is made to him. The learned counsel for the assessee further submitted that all the payments are made for religious purposes and have been properly accounted for and as per section 13(2)(c) the trust or the institution could pay the reasonable amount for the services offered by the persons referred to in sub-cl. (3) of s. 13 of the Act and in this case the learned CIT has not made out any swell case of making unreasonable payment to Amil.
  6. On the other hand, the learned Departmental Representative relied upon the order of the learned CIT and submitted that section 13(1)(c) applies to manager or any other person whatever name may be called and since Amil is a manager, payments made to him axe covered by s. 13(1)(c) of the Act. The learned Departmental Representative submitted that as per trial balance, the receipts of the assessee were more than Rs. 50,000 therefore, the accounts should have been audited. He submitted that all the payments are made to Amil which have to be subjected to accountability of the expenses which the assessee has failed to explain. The learned Departmental Representative relied upon the decision of the Hon’ble High Court of Madhya Pradesh in the case of CIT vs. Shri Maheshwari Agrawal Marwari Panchayat (1982) 136 ITR 556 (MP) decision of the Hon’ble High Court of Madhya Pradesh in the case of CIT vs. Shri Dhakad Samaj Dharamshala Bhawan Trust (2007) 212 CTR (MP) 148, decision of the Hon’ble Supreme Court in the case of CIT vs. Rattan Trust (1997) 141 CTR (SC) 304 : (1997) 227 ITR 356 (SC) and the decision of Hon’ble High Court of Punjab and Haryana in the case of Aman Shiv Mandir Trust (Regd.) vs. CIT (2007) 213 CTR (P&H) 466 : (2008) 296 ITR 415 (P&H). The learned Departmental Representative submitted that since the audit report is not filed and the assessee field on trial balance therefore, the application for registration was correctly rejected and relied upon CIT vs. Shri Devradhan Madhavlal Genda Trust (1998) 147 CTR (MP) 461 : (1998) 230 ITR 714 (MP).
  7. We have considered the rival submission and the material available ss. 12A and 12AA of the IT Act provides as under :

“12A(1) the provision of s. 11 and s. 12 shall not apply in relation to the income to the income of any trust or institution unless the following conditions are fulfilled, namely :

(a) the person in receipt of the income has made an application for registration of the trust or institution in the prescribed from and in the prescribed manner to the [ ] CIT before the 1st day of July, 1973, or before the expiry of a period of one year from the date of the creation of trust or the establishment if the institution, whichever is later and such trust or institution is registered under s.12AA :

[Provided that where an application for registration of the trust or institution is made after the expiry of the period aforesaid, the provisions of ss. 11 and 12 apply in relation to the income of such trust or institution,—

(i) from the date of the creation of the trust or the establishment of the institution if the [……] CIT is, for reasons in writing, satisfied that the person in receipt of the income was prevented from making the application before the expiry of the period aforesaid for sufficient reasons;

(ii) from the 1st day of the financial year in which the application is made, if the […..] CIT is not so satisfied;]

[provided further that the provision of this clause shall not apply in relation to any application made on or after the 1st day of June, 2007;

(aa) the person in receipt of the income has made an application for registration of the trust or institution on or after 1st day of June, 2007 in the prescribed form and manner to the CIT and such trust or institution is registered under s. 12AA;]

(b) where the total income of the trust or institution as computed under this Act without giving effect to [the provision of s.11 and s. 12 exceeds the maximum amount which is not chargeable to income-tax in any previous year], the account of the trust or institution for that year have been audited by an accountant as defined in the explanation below sub-s. (2) of s. 288 and the person in receipt of the income furnishes along with the return of income for the relevant assessment year the report of such audit in the prescribed form duly signed and verified by such accountant and setting forth such particulars as may be prescribed.]

(c)[ ]

[(2) Where an application has been made on or after the 1st day of June, 2007 the provision of ss. 11 and 12 shall apply in relation to the income of such trust or institution from the assessment year immediately following the financial year in which such application is made.]

12AA (1) The […….] CIT, on receipt of an application for registration of a trust or institution made under cl. (a) cl. (aa) of sub-s. (1)] of s. 12A, shall—

(a) call for such documents or information from the trust of institution as he thinks necessary in order to satisfy himself about the genuineness of activities of the trust or institution and may also make such inquiries as he may deem necessary in this behalf; and

(b) after satisfying himself about the objects of the trust or institution and the genuineness of its activities, he—

(i) shall pass an order in writing registering the trust or institution;

(ii) shall, if he is not so satisfied, pass an order in writing refusing to register the trust or institution, and a copy of such order shall be sent to the applicant :

provided that no order under sub-cl. (ii) shall be passed unless the applicant has been given a reasonable opportunity of being heard.

[(1A) All application, pending before the Chief CIT on which no order has been passed under cl. (b) of sub-s. (1) before the 1st day of June, 1999 shall stand transferred on that day to the CIT and the CIT may proceed with such applications under that sub-section from the stage at which they were on that day.]

(2) Every order granting or refusing registration under cl. (b) of sub-s. (1) shall be passed before the expiry of six months from the end of the month in which the application was received under cl. (a) or cl. (aa) of sub-s. (1) of s. 12A.]

[(3) Where a trust or an institution has been granted registration under cl. (b) of sub-s. (1) and subsequently the CIT is satisfied that the activities of such trust or institution are not genuine or are not being carried out in accordance with the objects of the trust or institution, as the case may be he shall pass an order in writing cancelling the registration of such trust or institution :

Provided that no order under this sub-s. shall be passed unless such trust or institution has been given a reasonable opportunity of being heard.]”

Sec. 13(1)(b) and (c) of the IT Act provides—

“13.(1) Nothing contained in s. 11 [or s. 12] shall operate so as to exclude from the total income of the previous year of the person in receipt thereof—

(a) …… ……… ……..

(b) in the case of a trust for charitable purposes or a charitable institution created or established after the commencement of this Act, any income thereof if the trust or institution is created for the benefit of any particular religious community or case;

(c) in the case of a trust for charitable or religious purposes or a charitable or religious institution, any income thereof—

(i) if such trust or institution has been created or established after the commencement of this Act and under the terms of the trust or the rules governing the institution, any part of such income enures, or

(ii) if any part of such income or any property of the trust or the institution (whenever created or established) during the previous year used or applied, directly or indirectly for the benefit of any person referred to in sub-s. (3)”

The Tribunal, Delhi Bench in the case of Aggarwal Mitra Mandal Trust vs. Director of IT (Exemption) (supra) considering the identical question held—

“We have considered the rival submission and also perused the relevant on record. It is observed that any trust or institution seeking to avail of the provision of ss. 11 and 12 is required to apply for registration under s. 12A. The procedure for registration is prescribed in s. 12AA and as per the provisions of sub-s. (1) of that section, the CIT{Director IT (Exemption) in the present case}is empowered to satisfy himself about the object of the trust and about the genuineness of the activities of the trust or institution before granting the registration under s. 12A. Once the CIT has not doubled the genuineness of the activities of the assessee nor doubled its charitable object, he cannot refuse to grant registration under s. 12A. In the present case, the registration, however, was refused by the DIT(Exemption) on the ground that as per the object cl. Nos. 3(1) and 3(2), the assessee trust was established for the benefit of people belonging to Vaish Community only which was clearly in violation of s. 13(1)(b). However, as held by the Hon’ble Supreme Court in the case of Ahmedabad Rana Caste Association vs. CIT (1971) 82 ITR 704 (SC), an object of beneficial to the section of the public is an object of general public utility and to serve a charitable purpose, it is not necessary that the object should be to benefit the whole of mankind or all persons in a particular country or state. Explaining further, it was observed by the Hon’ble apex Court that it is sufficient in the intention is to benefit a section of the public as distinguished from a specified individual. Relying on this decision of the Hon’ble Supreme Court in the case of Ahmedabad Rana Caste Association (supra), the Hon’ble Allahabad High Court in the case of CIT vs. Surji Devi Kunji Lal Jaipuria Charitable Trust (1990) 87 CTR (All) 213 : (1990) 186 ITR 728 (All) has held that trust created for giving medical aid, social welfare and upliftment of poor members of the Vaish Community is, therefore for religious and charitable purposes. To the similar effect is another decision of the Hon’ble Allahabad High court in the case of CIT vs. Pt. Ram Shanker Misra Trust (1996) 222 ITR 252 (All) wherein it was held that expenditure incurred by a trust for the benefit of one community is an expenditure incurred on a public charitable object. The proposition propounded by the Hon’ble Supreme Court as well as by the Hon’ble Allahabad High Court in the aforesaid judgments clearly shows that that the objects of the assessee trust as indicated in object cl. Nos. 3(1) and 3(2) of its trust deed were of charitable nature and since the powers of the CIT/Director of IT (Exemption) conferred under s. 12AA were confined to satisfy himself about the genuineness of the activities of the trust as well as nature of its object being charitable, we are of the view that he was under s. 12A merely on the ground that the said objects were violative of the provision of s. 13(1)(b). As held by the Lucknow Bench of the Tribunal in the of St. Don Bosco Educational Society vs. CIT (2004) 84 TTJ (Lucknow) 805 : (2004) 90 ITD 477 (Lucknow), the CIT under s. 12AA is empowered to satisfy himself only about the object of the trust and about the genuineness of the activities of the trust and such power does not extend to eligibility of the trust/institution for exemption under s. 11 read with s. 13 which falls within the domain of the AO. To the similar effect is the decision of the Delhi Bench of the Tribunal in the case of Aryan Educational Society vs. CIT (2005) 94 TTJ (Del) 462 : (2006) 281 ITR 72 (Del)(AT), wherein it was held that so long as the provision of ss. 11, 12 and 12A are complied with, the exemption cannot be denied merely because there is any violation of the provisions of s. 13.

As already noted, the procedure for registration laid down in s. 12AA requires the CIT to satisfy himself about the genuineness of activities and object of the trust or institution and as such, the scope of his powers is limited in this regard to make such enquiries, as he may deem fit to satisfy himself in respect of these two aspects. As held by the Hon’ble Supreme Court in the case of Ahmedabad Rana Caste Association vs. CIT (supra), an object beneficial to the section of the public is an object of general public utility and to serve a charitable purpose, it is sufficient if the intention is to benefit a section of the public as distinguished from a specified individual. This decision of the Hon’ble apex Court followed subsequently by the Hon’ble Allahabad High Court in the case of CIT vs. Surji Devi Kunji Lal Jaipuria Charitable Trust (supra) and in the case of CIT vs. Pt. Ram Shanker Misra Trust (supra) to hold that the expenditure incurred by a trust for the benefit of one community is an expenditure incurred on a public charitable object, still holds the field notwithstanding the provisions contained in s. 13(1)(b) since the definition of the term ‘charitable purpose’ given in s. 2(15) continues to remain the same. The provisions of s. 13(1) are thus not directly relevant in this regard. On the other hand, the said section begins with the words ‘Nothing contained in s. 11 or s. 12 shall operate so as to exclude from the total income of the previous year of the person……’ which clearly envisages operation of s. 11 or s. 12 before the provisions of s. 13 can be applied or invoked in a given case. It also shows that the said provisions can be applied or invoked only at the time of computation of total income of the previous year of the person who is claiming exemption under s. 11 and s. 12. Both these situations contemplated in s. 13 can arise only and only if registration under s. 12A is granted to the said person. If the same is not granted and the person is refused the registration under s. 12A he would not be entitled to claim any benefit available under s. 11 or 12 and there will be no occasion to the AO to invoke or apply s. 13 in his case. The position would not only be contrary to the scheme of the Act as laid down in ss. 11, 12, 12A, 12AA and 13 but the same may also cause prejudice/hardship to the persons in certain cases. For instance, the objects for which the assessee trust in the present case is established, as indicated in object clause Nos. 3(1) and 3(2), no doubt are for the benefits of a particular community, viz., Vaish. Nevertheless, as per object cl. 3(4), it was also established to run schools, colleges, hospitals etc. for the benefit of public at large. In this situation, if the registration applied for under s. 12A is not granted to it for violation of provisions of s. 13(1)(b) and it is ultimately found that the assessee trust actually accomplished the objects as indicated in clause No. 3(4) only for the benefit of public at large without there being any activity undertaken as per object clause Nos. 3(1) and 3(2), it would be deprived of any benefits which otherwise were available to it under s. 11 and s. 12. This certainly in not the legislative intention as reflected in the scheme laid down in ss. 11, 12, 12A, 12AA and 13. On the contrary, the phraseology of s. 13, as already discussed, makes it explicitly clear that the said provisions become operative or relevant only at the stage of assessment when the AO is required to examine the claim of the assessee for benefits under s. 11 or s. 12 while computing the total income of the assessee of the relevant previous year. The application of s. 13 thus falls within the exclusive domain of the AO and the provisions contained therein can be invoked by him while framing the assessment and not by the CIT while considering the application for registration under s. 12AA.

Keeping in view the reasons given above, we are of the view that the action of the learned Director IT (Exemption) in refusing to grant registration to the assessee-trust on the ground of violation of the provisions of s. 13(1)(b) was not justified specially when he had no doubted either the genuineness of the activities of the assessee-trust or the nature of its object being charitable. In that view of the matter, we set aside his impugned order and direct that registration applied for by the assessee-trust under s. 12A be granted to it.

In the result, the appeal of the assessee is allowed.”

Tribunal, Chennai Bench ‘C’ Third Member in the case of People Education & Economic Development Society (Peeds) vs. ITO (2006) 104 TTJ (Chennai)(TM) 467 held—

“Enquiry into the objects of institution cannot be made under s. 12A. At the stage of filing an application for registration under s. 12A. CIT is not supposed to examine the application of income aspect. All that he may examine is whether the application is made in accordance with the requirements of s. 12A r/w r.17 and whether Form No. 10A has been properly filled up. He may also see whether the objects of the trust are charitable or not. At this stage, it is not a sine qou non to examine the application aspect of income. New Life In Christ Evangelistic Association (NLC) vs. CIT (2001) 165 CTR (Mad) 446 : (2000) 246 ITR 532 (Mad) and Asstt. CIT vs. Peare Lal Sharma Memorial Trust Society (2001) 70 TTJ (Del) 197 : (2001) 77 ITD 50 (Del) relied on.”

Hon’ble High Court of Madhya Pradesh High Court in the case of Shri Sarafa Association vs. CIT (2007) 207 CTR (MP) 539 : (2007) 294 ITR 262 (MP) held that the CIT was required to examine the deed as a whole and consider the effect of various balance sheets on record. The CIT should satisfy himself about genuineness of the activities of the trust.

Hon’ble High Court of Gujarat in the case of CIT vs. Gujarat Maritime Board (2007) 208 CTR (Guj) 439 : (2007) 289 ITR 139 (Guj) held—

“The assessee, a statutory body created by the Gujarat Maritime Board Act, 1981, was engaged in the activities of development and maintenance of ports in the State, of Gujarat. The CIT refused registration of the assessee under s. 12A of the IT Act, 1961,on the ground that the assessee could not be considered a lawful trust within the meaning of the term “trust” used under ss. 11, 12 and 13 as it was created as a local authority within the meaning of “person” for the purpose of the Act. The Tribunal held that there was no mention of either trust or institution in the definition of “person” in s. 2(31) and merely because within the definition of “person” it was termed a local authority, it would not be a. bar to its registration and that the assessee was an institution within the meaning of s. 12AA(1). The Tribunal held that the assessee had made the application on 13th Nov., 2002, and since the CIT was not satisfied with the reasons for the delay in filing the application, the assessee would be entitled to registration from 1st April, 2002 and not for the earlier period. Although the CIT had refused registration on the ground that the assessee had not given any technical details, viz., name and address of the original founder/author/settler of the trust property, the Tribunal held that it was not a case of creation of trust by some individual and thus there was no specific name of any founder or settler of the trust. The Tribunal held that s. 12A did not make any distinction between trusts and institutions created by private individuals or by the Government . The Tribunal was of the view that if an assessee was an institution whose object is charitable as defined under s. 2(15), the trust/institution would be entitled to regulation under s.12A. Although the assessee earned income from its activity of providing infrastructural facilities and also from other ancillary activities such as rental income from letting out of the property, sale of goods, etc., which may not be exempted, the Tribunal held that whether part of the Income was exempt or not was irrelevant for registration of the institution for which the CIT has to satisfy himself about the object of the institution and genuineness of the activities of the institution and not about the nature of the income. The Tribunal concluded that the object of the assessee was to maintain and develop ports in the State of Gujarat which was an object of general public utility and directed the CIT to register the assessee under s. 12A w.e.f. 1 April, 2002. on appeal.

Held, dismissing the appeal, that the Tribunal after detailed discussion held that under the requirement of s. 12A the assessee was a charitable institution and was entitled to the benefit of s. 12A w.e.f. 1 April, 2002. There was no infirmity in the order of the Tribunal.”

Hon’ble High Court of Bombay in the case of CIT vs. Agricultural Produce And Market Committee, (2007) 210 CTR (Bom) 386 : (2007) 291 ITR 419 (Bom) held—

“The dominant object of market committees is to regulate procurement and supply of agricultural and other produce and to meet the expenses required to be met in achieving the said object, the legislature has empowered then to levy cess/fess. Moreover, the surplus remaining in the market fund is ploughed back for carrying out the objects of the 1963 Act. Thus, the surplus remaining in the market fund is neither distributed nor accumulated as profits. In these circumstances, it cannot be said that the market committees are established with profit motive so as to deny registration under s. 12A/12AA of the IT Act, 1961.

Prior to 1st April, 1984, the words used in s. 2(15) of the Act were ‘advancement of any other object of general public utility not involving the carrying on of any activity for profit’. By the Finance Act, 1963, with effect from 1st April, 1984, the legislature has omitted the words ‘not involving the carrying on of any activity for profit’ from s. 2(15) of the Act. Thus, after 1st April, 1984, even if there is some profit in the activity carried on by the trust/institution, so long as the dominant object is of general public utility, it cannot be said that the said trust/institution is not established for charitable purposes. The expression ‘property’ in s. 11 includes immovable and movable property like money, shares, securities etc. Therefore, where a trust/institutions fulfils all the conditions set out in s. 12A/12AA, registration cannot be denied on the ground that some conditions of ss. 11 and 12 are not fulfilled. There is no requirement under the Act that an institution constituted for advancement of any object of general public utility must be registered as a trust. The market committees are entitled to registration under s. 12A/12AA.”

The Tribunal, Delhi Bench, in the case of Pocket Testament League (India) vs. Dy. CIT (Exemption) (supra) had held :

“The exemption under s. 11(1)(a) is available on the income derived from property held under trust for charitable or religious purposes to the extent to which such income is applied for such purposes in India. Thus, even if the income is earned by trust, which is charitable as well as religious and part of the income is applied for religious purposed, exemption under s. 11(1)(a) is still available.”

  1. Considering the above provisions and the decisions referred to above, it is clear that the learned CIT has to satisfy himself about the objects of the trust of consideration of registration application. Refusal to grant registration to the trust on the ground of violation of s. 13(1)(b) or 13(1)(c) was not justified. In this view of the matter, the grant of registration is a stepping stone.
  2. The learned Departmental Representative however relied upon the following decisions :
  3. Shri Shri Maheshwari Agrawal Marwari Panchayat (supra) in which the assessee was registered under s. 12A of the IT Act and the ITO at the assessment stage held that the assessee could not claim exemption in view of s. 13(1)(b) of the Act. In this case ultimately it was held that the Tribunal was correct in law in holding that the assessee is entitled to the benefit of exemption under s. 11 of the IT Act for its entire income.
  4. Decision of the Hon’ble High Court of Madhya Pradesh in the case of Shri Dhakad Samaj Dharamshala Bhawan Trust (supra) in which it was held “in the absence of any nexus with the religious of charitable purpose being shown, the assessee trust is not eligible for registration under s. 12A in respect of Dharmshala at religious place for stay of members of a particular Samaj and also for non-members. In this case the learned CIT refused registration to the trust under s. 12A mainly on the reasons that the object of the trust is the establish Dharmshala only for members of Dhakad Samaj. Dhakad Samaj is not a backward class as it is not limited to Dhakad community, but includes persons from Brahmin, Jain, Maheshwari and Kiran communities and it is not a religious trust. It was held that s. 11 provides for this exemption only if the property held is for charitable or religious purpose. It is only when such a purpose is shown that registration can be granted.
  5. Decision of the Hon’ble Supreme Court in the case of CIT vs. Ratan Trust (supra) in which the dispute relates to income received in each assessment year by the assessee from Gokulchand Ratanchand Woolen Mills (P) Ltd. The assessee claimed exemption in respect of interest income under s. 11. The ITO did not agree with the contention of the assessee being income exempt. The issue was decided in favour of the Revenue and against the assessee.
  6. Decision of Hon’ble High Court of Punjab & Haryana in the case of Aman Shiv Mandir Trust Regd (supra). In this case it was held that nothing was spent during last 5 years on any charitable purpose. Therefore, the assessee was not granted registration under s. 12A.
  7. All the above decisions are clearly distinguishable on facts because most of the decisions did not pertain to registration matter and one of the decision though pertain to registration matter, but either the issue is different in case of Shri Dhakad Samaj Dharamshala Bhawan Trust (supra) is not a religious trust. There is no reference to provisions of s. 13(1)(b) or s. 13(1)(c) for refusing to grant registration to assessee trust. These decisions are therefore; clearly distinguishable on facts and are not applicable to the case of the assessee. The learned CIT also referred to the decision in the case of Ghulam Mohidin Trust vs. CIT (supra) in which the assessee claimed exemption of income under s. 11 which was rejected by the ITO oil the ground that it was not charitable trust and was hit by s. 13(1)(b) of the Act la the case of State of Kerala vs. M.P. Shantiverma Jain (supra), the AO assessed the income of the trust and denied exemption to the assessee at the assessment stage. In the case of CIT vs. Palghat Shadi Mahal Trust (supra) in which the assessee claimed exemption under s. 11 of the IT Act which was denied by the AO and the Tribunal came to the conclusion that the trust was entitled to exemption by virtue of provisions of second explanation to s. 13 of the IT Act. The High Court upheld the finding Hon’ble Supreme Court held that the trust attracts the provisions of s. 13(1)(b) and as such not entitled to exemption under s. 11 of the IT Act. The learned counsel for . the assessee is therefore, justified in contending that the issue of registration under s. 12A/12AA was, not in issue in these cases. Therefore, the same cannot be applied at this stage in rejecting the claim of the assessee for grant of registration.
  8. We may also mention that the assessee in the paper book at p. 36 has filed copy of order of the CIT-III, Baroda, in the case of Dawoodi Bohra Jamat, Kawant, in which registration was refused by the CIT having the same objects of the trust as are of the assessee. However the CIT vide order dt. 4th Sept., 2006 granted registration to the assessee trust by following the order of Tribunal, Ahmedabad Bench, dt. 10th March, 2006 holding that the assessee trust is entitled to registration under s. 12A of the Act copy of the same is filed at p. 39 of the paper book.
  9. In view of the above finding, though it is not necessary to enquire into the finding given with regard to applicability of provisions of s. 13(1)(c) of the IT Act, yet we may note that the learned CIT has mentioned that amounts are given to Amil besides giving salary to him. No finding has been given as to whether salary given to Amil was reasonable as regards services rendered by him for the assessee institution. The CIT has also not given any finding as to for what purposes, the amount was given by the assessee trust to Amil and where the amount has been spent. As per the submission of the learned counsel for the assessee, the amounts in question were given to Amil for his salary as well as the amount was spent for achieving the objects of the assessee trust. The CIT has not given any such finding in the impugned order. The learned counsel for the assessee has referred to p. 9 of his written submissions in which explanation is given with regard to the amount spent for achieving the objects of the assessee trust. In the absence of any specific finding in the impugned order with regard to the amount spent by Amil for the assessee trust, we do not find any justification for invoking the provisions of s. 13(1)(c) of the Act because the Revenue shall nave to prove while invoking such provision against the assessee trust that the income was directly or indirectly incurred for the benefit of the person referred to in sub-s. (3) of s. 13 of the Act never-this-less, this was not the requirement to be considered at the assessment stage as is held in several authorities referred to above.
  10. We may also note that though the learned CIT called for the explanation of the assessee on the issue of non-mentioning of the clause that the receipts of the trust will be used for the objects of the trust and on dissolution of the trust, what will happen to the properties of the trust, yet did not give any finding on these issues. We may note that as per s. 11 of the IT Act, 1961, the income of the trust would not form part of the total income when the same was applied to its objects and purpose. Similarly, as per s. 14 of the M.P. Public Trusts Act, the previous sanction of the registrar is required in case of sale etc. of property belonging to a public trust. As per s. 27(2)(d) of the same Act, the Court can provide scheme of management of the trust property. Likewise, the safeguard is provided by empowering the AO in this regard in second proviso to s. 11 (3A) of the IT Act. These are the sufficient safeguards provided under the IT Act as well as under the M.P. Public Trusts Act therefore even though the learned CIT did not decide these issues but her apprehension in the show cause notice was misconceived.
  11. In view of the above findings, we are of the view that the assessee is a public religious trust and that the action of the CIT in refusing to grant registration to the assessee trust on the ground of violation of provisions, of ss. 13(1)(b) and 13(1)(c) of the Act is not justified especially when the learned CIT had not doubted either the nature of its objects or genuineness of the activities of the trust. In this view of the matter, we set aside the impugned order and direct the learned CIT, Ujjain, to grant registration to the assessee trust under s. 12A/12AA of the IT Act.
  12. As a result, the appeal of the assessee trust is allowed.
  13. For the remaining appeals learned representatives of both the parties submitted that the issues are common except some variation in figures of the amount spent towards achieving the objects of the assessee trust or that in some cases only the issue of applicability of provisions of s. 13(1)(b) is made applicable. The learned representatives of both the parties submitted that the findings given in the case of ITA No. 615/Ind/2003 may be followed. Considering the above and the fact that the issues are common in the remaining appeals, by following the same reasons for decision as given ITA No. 615/Ind/2007 we set aside the orders of the learned CIT, Ujjain and direct bar to grant registration to all the assessees under s. 12A/12AA of the Act.
  14. As a result, all the appeals of the assessee are allowed.

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