Gujarat High Court
Commissioner Of Income Tax-Ii, vs Lal Kamla Trust on 10 January, 2020
Author: Bhargav D. Karia
Bench: J.B.Pardiwala, Bhargav D. Karia
C/TAXAP/899/2008 ORDER
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/TAX APPEAL NO. 899 of 2008
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COMMISSIONER OF INCOME TAX-II,
Versus
LAL KAMLA TRUST
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Appearance:
MRS MAUNA M BHATT(174) for the Appellant(s) No. 1
MRS SWATI SOPARKAR(870) for the Opponent(s) No. 1
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CORAM: HONOURABLE MR.JUSTICE J.B.PARDIWALA
and
HONOURABLE MR. JUSTICE BHARGAV D. KARIA
Date : 10/01/2020
ORAL ORDER
(PER : HONOURABLE MR. JUSTICE BHARGAV D. KARIA)
1. This Tax Appeal filed under Section 260A of the Income Act, 1961 (for short the "Act") is at the instance of Revenue and it is directed against the order dated 16.10.2007 passed by the Income Tax Appellate Tribunal, Rajkot Bench, Rajkot in the ITA No.195/Rjt/2006, whereby the Tribunal has allowed the appeal preferred by the assessee.
2. By order dated 2nd April, 2009, this appeal is admitted on the following substantial question of law: "2(A) Whether the facts and in circumstances of the case in law, the Appellate Tribunal was correct in holding that for granting registration under Section 12AA only 'nature of its object' and 'genuineness of the activities' of the trust are to be considered, even when the very basis and very object of creation of the trust was hit by the prohibition provided under Section 13(1)
(b) of the I.T. Act.?
3. The brief facts of the case are as under: 3.1 The assesse trust has filed application for Page 1 of 11 Downloaded on : Sun Jun 14 09:34:29 IST 2020 C/TAXAP/899/2008 ORDER registration under Section 12A of the Act on 30.09.2005. The trust has been created by virtue of will date 12.10.1973 left by Shri Lalchand Hirachand Jhangiyani of Rajkot. As per provisions of Section 12A(a) of the Act, the assessee trust has to file application for registration within one year of its inception. But the assessee trust filed such application after 31 years. The assessee submitted that the trust has been created out of 'will' of Late Shri Lalchand Hirachand Khangiyani who wanted to establish a school and a maternity hospital. The funds for the said purpose was to be obtained by selling trust's land, property etc. On account of lack of fund, no construction of school premises or medical center could be taken up and no donation could also be obtained for this purpose. Thereafter, the assessee has filed application for condonation of delay praying that the assessee trust may be registered.
3.2 A public charitable trust has to satisfy certain preconditions viz (I) it should be a trust created under the Indian Trust Act setting apart certain property, the income of which should be utilised as per the wish of the Settler (ii) the objects must be charitable as per Section 2(15) of the Income Tax Act, 1961 (iii) the beneficiaries should be public at large, irrespective of caste, creed, religion community and (iv) the trust should be irrevocable. 3.3 The Commissioner of Income Tax (for short "CIT") rejected the application of registration holding Page 2 of 11 Downloaded on : Sun Jun 14 09:34:29 IST 2020 C/TAXAP/899/2008 ORDER that in this case, as per clause 22 of the 'will' creating the 'Trust', the institution (i.e. Lal Kamla High School or Lal Kamla Maternity Hospital) provided that trust would give help to Sindhis as far as possible with nominal charges and the balance, if any, after giving benefit to the Sindhi community should also be given to nonsindhi community. This means the primary purpose of the trust is to benefit the Sindhi Community after meeting their needs, if any, fund remains the same would be utilized for the benefit of nonsindhi community. Secondly, as per clause 20 of the 'will' out of the five trustees, four trustees should be from Sindhi community and one permanent trustee from nonsindhi community. If the trustee board is less than five trustees, then in any case, one trustee should be from nonsindhi community. Hence, the benefit primarily accrue to the members of the Sindhi Community.
3.4 It was further held that the Income of the trust would lose exemption in case the trust or institution is created or established for the benefit of any particular religious community or caste. Sindhi Community constitute a separate religious community. Sindhi Community is not covered within exception as per Explanation2 of Section 13 of the Act, hence, do not fall under the exemption provided under Section 13(1)(b) of the Act.
3.5 The assessee trust therefore being aggrieved by the Page 3 of 11 Downloaded on : Sun Jun 14 09:34:29 IST 2020 C/TAXAP/899/2008 ORDER order of rejection passed by CIT preferred an appeal before the Income Tax Appellate Tribunal (for short "Tribunal"). The Tribunal vide its order NO.ITA No.195/Rjt/2006 dated 16.10.2007 held that the trust cannot be denied registration under Section 12A of the Act relying on the Delhi Tribunal decision in the case of Aggrawal Mitra Mandal Trust Vs. Director of Income Tax (Exemption)(2000) 293 (AT) 259 (Del).
4. The Tribunal while allowing the appeal preferred by the assessee held as under: " I have also gone through the order of the CIT wherein the CIT has refused the registration on the ground that this Trust is created for the benefit of Sindhi Community and if this Trust is registered then it would give benefits to the Sindhi Community only. The Trust is created only for Sindhi Community and the beneficiaries are not public at large as per Section 2(15) of the Act. I have also perused paragraph no.22 of the Trust Deed wherein it has been specifically mentioned that aims and objects were to assist the Sindhi Community in providing education and medical aids to the Sindhi Community and if surplus fund/benefits are there it may be given to NonSindhi Community also. From the above, I am of the view that this issue in controversy is squarely covered by the decision of the Delhi Bench of the Tribunal in the case of Aggarwal Mitra Mandal Trust vs. Director of Income Tax (Exemption (2007) 293 (AT) 259 (Del) wherein it has been held as under: " allowing the appeal, that the objection of the assessee, as indicated in the objects clause 3(1) and 3(2) of its trust deed, were of charitable nature and since the powers of the Director of Incometax (Exemption) conferred under Section 12AA were confined to satisfy himself about the genuineness of the Page 4 of 11 Downloaded on : Sun Jun 14 09:34:29 IST 2020 C/TAXAP/899/2008 ORDER activities of the trust and the nature of its objects being charitable, he was not justified in refusing to grant registration to the assessee under Section 12A merely on the ground that the said objects were violative of the provisions of Section 13(1)(b)."
I respectfully following the same hold that the benefits of activities of the assessee Trust is of charitable nature and purpose and the assessee cannot be denied registration under Section 12A of the Income Tax Act."
4.1 Learned advocate Ms. Mauna Bhatt for the appellant submitted that the Tribunal's order is erroneous in view of the clear provision of Section 13(1). Section 13 deals with the cases wherein Section 11 and 12 are not applicable and since registration under Section 12A is applied for availing the benefit under Section 11 & 12 therefore, the registration under Section 12A was validly rejected as the case of the assessee trust was not fulfilling the provision of Section 13(1) of the Act.
5. The substantial questions of law falling for our consideration is no longer resintegra in view of the decisions of the Apex Court and of this Court. Even otherwise, we are convinced with the reasons assigned by the Tribunal while allowing the appeal preferred by the assessee.
6. The Supreme Court in the case of Commissioner of Income Tax, Ujjain vs. Dawoodi Bohara Jamat [2014 Page 5 of 11 Downloaded on : Sun Jun 14 09:34:29 IST 2020 C/TAXAP/899/2008 ORDER Lawsuit (SC) 450] has observed thus: "41. Thus, the second issue which arises for our consideration and decision is: whether the respondent Trust is a charitable and religious trust only for the purposes of a particular community and therefore, not eligible for exemption under Section 11 of the Act in view of the provisions of Section 13(1)(b) of the Act?
42. In the instant case, the Tribunal has found on facts after analysing the objects of the Trust that the respondent Trust is a public religious trust and its objects are solely religious in nature and being of the opinion that Section 13(1)(b) is solely meant for charitable trust for particular community, negated the possibility of applicability of Section 13(1)(b) of the Act at the outset. The High Court has also confirmed the aforesaid view in appeal and observed that Section 13(1)
(b) would only be applicable in case of income of the trust for charitable purpose established for the benefit of a particular religious community. In our considered view, the said view may not be the correct interpretation of the provision.
43. From the phraseology in clause (b) of Section 13(1), it could be inferred that the legislature intended to include only the trusts established for charitable purposes. That however does not mean that if a trust is a composite one, that is, one for both religious and charitable purposes, then it would not be covered by clause (b). What is intended to be excluded from being eligible for exemption under Section 11 is a trust for charitable purpose which is established for the benefit of any particular religious community or caste.
44. Such trusts with composite objects would not be expelled out of the purview of Section 13(1)(b) per se. The section requires it to be established that such charitable purpose is not for the benefit of a particular religious community or caste. That is to say, it needs to be examined whether such religious charitable activity carried on by the trust only benefits a certain/particular religious Page 6 of 11 Downloaded on : Sun Jun 14 09:34:29 IST 2020 C/TAXAP/899/2008 ORDER community or class or serves across the communities and society at large. (Sole Trustee, Lok Shikshana Trust v. Cit, Mysore) The section of community sought to be benefited must be either sufficiently defined or identifiable by a common quality of a public or impersonal nature. (CIT v. Andhra Chamber of Commerce.)
45. This Court in Commissioner Of Income Tax, Cochin v. Palghat Shadi Mahal Trust. 2002 9 SCC 685, the Muslim residents of Kerala constituted a trust "for the purpose of constructing and establishing at Palghata Shadi Mahal and other institutions for the educational, social and economic advancement of the Muslims and for religious and charitable objects recognised by Muslim law..." ( SCC p. 687, para 2) and later clarified that the proceeds would be utilised for the benefit for the public at large and upon this basis, the trust made a claim for exemption from tax under Section 11. This Court held that the resolution clarifying the object would not validly amend the object of the trust deed and since the object confined the benefit to only the Muslim community, it would be covered by the restriction under Section 13(1)(b) of the Act even though it functioned for public benefit. Thus, therein the object sufficiently defined or expressly stated beneficiary class and restricted the activities of the trust to a specific community.
46. Further, in State Of Kerala v. M.P Shanti Verma Jain State Of Kerala v. M.P Shanti Verma Jain, this Court has held that propagation of religion and restriction of benefits of activities of trust in its objects to the said community would render the trust as ineligible for claiming exemption under similar provisions of the Kerala Agricultural Income Tax Act, 1950. The Court observed as follows:
(SCC p. 67, para 5) "5. ... The deed of trust and the rules run into more than thirty pages out of which six pages of the trust deed narrate the philosophy of Jain Dharma. The objects of the Trust clearly show that the Trust is meant for propagation of Jain religion and rendering help to the Page 7 of 11 Downloaded on : Sun Jun 14 09:34:29 IST 2020 C/TAXAP/899/2008 ORDER followers of Jain religion. Even medical aid and similar facilities are to be rendered to persons devoted to Jain religion and to non Jains if suffering from ailments but the medical aid could be given to them only if any member of the families managing the Trust, shows sympathy and is interested in their treatment. The Tribunal, in our opinion, was right in its conclusion that the dominant purpose of the Trust in the present case was propagation of Jain religion and to serve its followers and any part of agricultural income of the Trust spent in the State of Kerala also could not be treated as allowable item of the expenses." (emphasis supplied)
47. In the present case, the objects of the respondent Trust are based on religious tenets under the Quran according to religious faith of Islam. We have already noticed that the perusal of the objects and purposes of the respondent Trust would clearly demonstrate that the activities of the Trust though both charitable and religious are not exclusively meant for a particular religious community. The objects, as explained in the preceding paragraphs, do not channel the benefits to any community if not the Dawoodi Bohra community and thus, would not fall under the provisions of Section 13(1)(b) of the Act.
48. In that view of the matter, we are of the considered opinion that the respondent Trust is a charitable and religious trust which does not benefit any specific religious community and therefore, it cannot be held that Section 13(1)(b) of the Act would be attracted to the respondent Trust and thereby, it would be eligible to claim exemption under Section 11 of the Act.
49. In the result, the appeals are dismissed with no order as to costs. Ordered accordingly."
7. We also take notice of decision delivered by this Court in the case of Commissioner of Income Tax (Exemption) Vs. Bayath Kutchhi Dasha Oswal Jain Mahajan Trust [(2016) 74 taxmann.com199 (Gujarat).
Page 8 of 11 Downloaded on : Sun Jun 14 09:34:29 IST 2020C/TAXAP/899/2008 ORDER The relevant paragraphs are quoted herein below: "7. It can thus be seen that the Commissioner focused his attention to clause 4.2 of the objects of the trust to come to the conclusion that the same were for the benefit of a certain religious communities only, in the process ignoring various other objects, for e.g. as per clause 4.1, the trust would engage itself in activities relating to education by maintaining and running education centers, infant schools, primary secondary and high schools, colleges etc., to run hostels, training centers for creating awareness in the common people and to make the education available for the public. It would also engage in imparting training in computers. As per clause 4.3, the trust would engage in doing all activities for medical help and to establish and administer dispensaries, hospitals and laboratories etc. It would also help the patients by supplying medicines and financial assistance. Likewise in clause 4.4 the trust could engage in rural development schemes. As per clause 4.5, the trust would engage in literary and cultural activities by making efforts for the development and protection of Indian culture. Clause 4.6 which pertains to other included activities such as running cow shelters, to provide food, cloth and financial help for economically weaker persons, to help during natural or other calamities, to serve humans and animals etc.
8. Thus, very premise for the Commissioner to come to the conclusion that the objects of the trust were confined for the benefit of a religious community, is incorrect. Thereafter to suggest that the activities were carried out only for such purposes would be entering in the realm of granting exemptions in terms of Section 13 of the Act, which would be the task of the Assessing Officer to be undertaken at the time of assessment on the basis of material that may be brought on record."
Page 9 of 11 Downloaded on : Sun Jun 14 09:34:29 IST 2020C/TAXAP/899/2008 ORDER
8. In view of the aforesaid position of law, which is applied by the Tribunal to the facts of the case, the relevant objects of the trust deed read as under: "Cl.20. Out of above trustee is not willing to work as trustee in the course any post of trustees become vacant, then any gentlemen should be appointed as trustee. Out of above trustees, four trustee should be from Sindhi community and one permanently from the nonsindhi community. If the trust board is less than 5 trustees, then in any case, one trustee should be from nonsindhi community (other community).
Cl.22 The object of trust is to give help to Sindhi Community for education and medical. The income of my property vested to the trust should be utilized for the above object. It is my wish that a maternity hospital or school should be built in my property admeasuring 600 Sq.Yards. in New Jagnath Plot, Rajkot. For this purpose, I give right to the trust board for any change in property, renovation, seeking loan etc. to run above institution. I also wish that name of institution should be "Lal Kamla High School" or"Lal Kamla Maternity Hospital". This institution should give help to Sindhi; as far as possible with a nominal charges, the banalce, if any, after giving benefit to Sindhi Community should also be given to nonsindhi community (other community).
9. On perusal of the above clauses of the trust deed, it cannot be said the trust is only religious trust. Thus, finding arrived at by the CIT that the objects of the trust were only for the benefit of a Page 10 of 11 Downloaded on : Sun Jun 14 09:34:29 IST 2020 C/TAXAP/899/2008 ORDER Sindhi community, is not correct. The CIT was therefore not justified in rejecting registration of the Trust holding that the activities were carried out only for religious purposes as it would be the task of the Assessing Officer to be undertaken at the time of assessment on the basis of material that may be brought on record. At the time of registration of the trust under section 12AA of the Act, CIT is required to consider only 'nature of its object' and 'genuineness of the activities' of the trust.
10. In that view of the matter, we are of the considered opinion that the respondenttrust is charitable and religious trust which does not give benefit to any specific religious community only, and therefore, it cannot be held that Section 13(1)(b) of the Act could be attracted to the respondenttrust, and thereby, it would be entitled to get registration under Section 12A of the Act.
11. In view of the foregoing reasons question of law is answered in favour of the assessee and against the revenue. The appeal fails and accordingly, stands dismissed. No order as to costs.
(J. B. PARDIWALA, J) (BHARGAV D. KARIA, J) GIRISH Page 11 of 11 Downloaded on : Sun Jun 14 09:34:29 IST 2020