Validity of Refusal to registration u/s 12A on ground that objects of Trust were for betterment of Jain Community and for benefit of the people of Jain Community

short overview : At the time of granting registration under section 12AA, CIT(E) should only look into the objects of trust and issue regarding satisfaction of genuineness of the activities of the Trust was not a matter to be looked into at the time of granting registration under section 12AA, therefore, CIT(E) was directed to grant registration under section 12AA to the assessee.

Assessee filed application for grant of registration under section 12AA. CIT(E) refused registration under section 12AA to assessee on the ground that since donations received were not properly accounted for and also because that objects of Trust were for betterment of Jain Community and for benefit of the people of Jain Community which, therefore, attracts section 13(1)(b). Thus, the registration under section 12AA was rejected. Assessee vehemently argued that at the time of granting registration under section 12AA, the objects of trust were only to be looked into and not the applicability of funds or the sources of funds.

it is held that Assessee-trust had objects which were both charitable and religious in nature. Therefore, it can safely be said that assessee Trust was a composite Trust and not purely for charitable purposes. It was the Trust for both charitable and religious purposes. The issue regarding satisfaction of genuineness of the activities of the Trust was not a matter to be looked into at the time of granting registration under section 12AA. Thus, order of CIT(E) was set aside and he was directed to grant registration under section 12AA to the assessee.

Decision: Matter remanded.

Followed: CIT v. Vijay Vargiya Vani Charitable Trust [ITA No. 17/2014] : 2014 TaxPub(DT) 4152 (Raj-HC), CIT v. Barkate Saifiyah Society [ITA No. 900 to 9-3/(Ahd.) of 1979] : 1995 TaxPub(DT) 0203 (Guj-HC).

IN THE ITAT, RAIPUR BENCH

ANIL CHATURVEDI, A.M. & PARTHA SARATHI CHAUDHURY, J.M.

Shree Vimalnath Jain Swetamber Mandir Trust v. CIT

ITA No. 50/RPR/2018

16 January, 2019

Assessee by: R.B Doshi

Revenue by: P.K. Mishra

Partha Sarathi Chaudhury, J.M.

This appeal preferred by the assessee emanates from the order of learned Commissioner (Exemption), Bhopal dated 28-3-2018. The only grievance of the assessee is rejection of application for granting registration under section 12AA of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) by the learned Commissioner (Exemption).

2. At the time of hearing, the learned AR of the assessee submitted that the learned Commissioner (Exemption) has rejected the application for granting registration under section 12AA of the Act in the case of the assessee primarily because of two reasons :–

(i) That the objects of the Trust are only for benefit of Jain community and therefore, section 13(1)(b) of the Act is attracted. The membership of the Trust is limited to the people who are Jain Swetamber. This also attracts section 13(1)(b) of the Act.

(ii) Donations, including corpus donations received in cash. However, no details of donors are mentioned in the receipt book.

2.1 The learned AR of the assessee vehemently argued that at the time of granting registration under section 12AA of the Act, the objects of the Trust are only to be looked into and not the applicability of funds or the sources of the funds. In this regard, the learned AR of the assessee has placed reliance on the decision of the Hon’ble Rajasthan High Court in the case of CIT v. Vijay Vargiya Vani Charitable Trust in [ITA No. 17/2014] : 2014 TaxPub(DT) 4152 (Raj-HC) wherein the Hon’ble High Court categorically held that at the time of granting registration, the objects of the Trust for which it was formed, is only to be looked into and the CIT’s satisfaction about genuineness of activities of the Trust was not criteria as the Trust was just commencing activities.

2.2 The learned AR of the assessee further contended that regarding whether the Trust is attracting section 13(1)(b) of the Act, is a matter to be looked into at the time of assessment by the assessing officer and it is not a matter of concern to be enquired at the time of granting registration under section 12AA of the Act. In this regard, the learned AR has placed reliance on the decision of the Co-ordinate Bench of the Tribunal, Jaipur in the case of Bhagwan Mahavir Purusharth Prerna Nidhi Nyas v. Commissioner of Income Tax, in [ITA Nos. 645 & 646/Jp/2011] : 2012 TaxPub(DT) 1556 (Jp-Trib) wherein it was held that conditions mentioned in section 13(1)(b) do not apply to registration under section 12AA of the Act. If the conditions of the section 13(1)(b) are violated, exemption under section11 of the Act is not to be allowed. However, such violation will not affect the registration. The conditions mentioned in section 13(1)(b) of the Act does not apply to registration under section12AA of the Act and therefore, registration could not be denied to the assessee, a charitable Trust, merely on the ground that it has given all scholarship to the students belonging to a particular community.

Similarly, the parameter of section 13(1)(b) of the Act has been analyzed in great details by the Co-ordinate Bench of the Tribunal, Pune in the case of Kul Foundation v. Commissioner of Income Tax, in [ITA No. 1692/PN/2013] : 2015 TaxPub(DT) 0580 (Pune-Trib). It has been observed by the Co-ordinate Bench at the time of granting of registration that the powers of the CIT enshrined under section 12AA of the Act, provided that the CIT is to look into the objects of the Trust and the genuineness of its activities. Merely because, one of the objects of the Trust was for the benefit of upliftment of the Jain Community as against the predominant object of providing education by the Trust or the Institution, the issue arises whether the grant of registration under section 12AA of the Act could be denied to the assessee. The allowability of the deduction under section 11 and 12 of the Act is to be looked into by the assessing officer while completing assessment in the hands of the assessee at the relevant time. Whether the said deduction under section 11 and 12 of the Act is allowable or not to the Trust or the Institution by way of non- fulfillment of the conditions laid down in section 13(1)(b) of the Act is to be considered by the Assessing Officer while completing assessment in the hands of the assessee Trust or Institution. But the said violation by the Trust or Institution on account of provisions of section 13(1)(b) of the Act, if any, are not to be considered by the CIT while granting registration under section 12A of the Act.

3. On the other hand, the learned DR has placed reliance on the order of the learned Commissioner (Exemption).

4. We have perused the case records and heard the rival contentions and considered the judicial pronouncements placed before us. We find that the learned Commissioner (Exemption) has refused registration under section 12AA of the Act to the assessee since donations received were not properly accounted for and also because that the objects of the Trust was for betterment of Jain Community and for benefit of the people of Jain Community which therefore, attracts section 13(1)(b) of the Act and so the registration under section 12AA of the Act was rejected.

5. In deciding the issue, we take guidance from the decision of the Rajasthan High Court in the case of CIT v. Vijay Vargiya Vani Charitable Trust (supra) wherein it has been held that at the time of granting registration under section 12AA of the Act, the learned Commissioner (Exemption) should only look into the objects of the Trust. The issue regarding satisfaction of genuineness of the activities of the Trust is not a matter to be looked into at the time of granting registration under section 12AA of the Act. That may be considered and decided accordingly at the time of assessment proceedings. Similarly, the Co-ordinate Bench of the Tribunal, Pune in the case of Kul Foundation v. CIT (supra) has specifically observed the intricacy with regard to section 13(1)(b) of the Act which provides certain parameter following which the assessee /Trust or Institution will not get benefit of exemption under section11 and 12 of the Act. The Co-ordinate Bench of the Tribunal Pune Bench has specifically held that where the conditions of section 13(1)(b) is attracted so to denying exemption under section11 and 12 of the Act is a matter to be looked into by the assessing officer at the time of assessment proceedings. However, at the time of granting registration under section 12AA of the Act, the main criteria which are to be looked into are :–

(i) Objects of the Trust;

(ii) Whether the Trust has applied for registration under section 12AA of the Act with proper details as enshrined in the Act.

(iii) Whether the entire prescribed format for application as in the Act has been complied with;

Where the Trust attracts section 13(1)(b) of the Act and therefore, not entitled to the claim of deduction under section 11 and 12 of the Act is a matter of concern only at the time of assessment proceedings.

6. We also observe the decision of the Hon’ble Gujarat High Court in the case of Commissioner of Income Tax v. Barkate Saifiyah Society in ITA No. 900 to 9-3/(Ahd.) of 1979 : 1995 TaxPub(DT) 0203 (Guj-HC) wherein it has been held that the provisions of section 13(1)(b) will apply only to the Trust which are purely for charitable purposes. If the assessee Trust has objects in both charitable and religious in nature, in such Trust, section 13(1)(b) is not applicable.

We have perused the objects of the Trust placed in the paper book. We find that the assessee Trust has objects which are both charitable and religious in nature. Therefore, it can safely be said that assessee Trust is a composite Trust and not purely for charitable purposes. It is the Trust for both charitable and religious purposes. In such circumstances by applying the decision of the Hon’ble Gujarat High Court in the case of Commissioner of Income Tax v. Barkate Saifiyah Society (supra), section 13(1)(b) is also not applicable in the case of the assessee Trust herein.

7. That in examination of facts on records, analyzing the judicial pronouncements placed before us, we, therefore, set aside the order of the learned Commissioner (Exemption) and direct the grant of registration under section 12AA of the Act to the assessee.

8. In the result, appeal of the assesse is allowed.