Income Tax Appellate Tribunal - Indore
M/S Muslim Education & Career Promotion ... vs The Cit (Exemption), Bhopal on 11 July, 2018
Muslim Education
ITA 30 & 31/2017
IN THE INCOME TAX APPELLATE TRIBUNAL
INDORE BENCH, INDORE
Before Shri Kul Bharat, Hon'ble Judicial Member and
Shri Manish Borad, Hon'ble Accountant Member
ITA Nos. 30 & 31/Ind/2017
Muslim Education And
Career Promotion Society
Bhopal ::: Appellant
Vs
Commissioner of Income tax
(Exemption), Bhopal ::: Respondent
Appellant by Shri S.S. Deshpande
Respondent by Shri Lalchand
Date of hearing 15.6.2018
Date of pronouncement 11.7.2018
O R D E R
PER SHRI MANISH BORAD, AM
These two appeals of the assessee are directed against different orders dated 23.11.2016 and 6.1.2017 of the Commissioner of Income Tax (Exemption), Bhopal. 1 Muslim Education ITA 30 & 31/2017
2. ITA No. 31/Ind/2017 is time barred by 2 days. We being satisfied with the reasons leading to delay of two days, condone it and admit it for adjudication.
2. In ITA No. 30/Ind/2017 the assessee has taken the following ground :-
" That the ld. Commissioner of Income tax (Exemption) erred in cancelling the registration u/s 12AA(3) of Income Tax Act made by the appellant."
In ITA No. 31/Ind/2017 the assessee has taken the following ground :-
" That the ld. Commissioner of Income tax (Exemption) erred in rejecting the application u/s 80G of Income Tax Act made by the appellant."
3. Brief facts, as culled out from record, are that the assessee trust was formed on 5.9.1985 with the objective to provide education and other facilities to Muslim children. It was granted registration u/s 12AA of the Act vide order dated 19.9.2013 by the CIT (Exemption). Subsequently, 2 Muslim Education ITA 30 & 31/2017 from 10th June, 2014 the trust changed its objects and spread its activities to provide education and other facilities to general public. The object also includes providing assistance, in application of scholarship and education related facility to poor class. It is also engaged in counseling of students and holding seminars and workshops.
4. An application for getting exemption u/s 80G of the Act was filed in Form No. 10G before the CIT (Exemption) on 31.5.2016. During the course of hearing it was stated by the assessee that as per tenants and Muslim religion a certain portion of contribution is received by the assessee as "Zakat" from various donors from the same community which is to be strictly and exclusively utilised for the benefit of Muslim community. It was further stated that sometimes donors of "Zakat" also used to specify the donee to whom the scholarship is to be granted. The learned CIT 3 Muslim Education ITA 30 & 31/2017 (Exemption) also noticed that during F.Y. 2014-15 Zakat constituted 57% of the total receipts. Accordingly, show cause notice was issued to the assessee as to why the provisions of section 13(1)(b) of the Act not to be applied on it. Various details were filed. However, the fact remains that "Zakat" constitutes 57% of the total receipts. The CIT (Exemption) accordingly applied the provisions of section 80G(5B) of the Act and rejected the application u/s 80G of the Act. He also initiated proceedings for cancellation of registration u/s 12A of the Act.
5. Thereafter on 6.1.2017 the Commissioner of Income tax (Exemption) on the basis of his order passed on 23.11.2016 rejecting the assessee's application u/s80G of the Act took a view that as the assessee has violated the provisions of section 13(1)(b) of the Act and the activities are meant for a particular community and also referred to the receipt of Zakat being exclusively used for the members 4 Muslim Education ITA 30 & 31/2017 of a particular community cancelled the registration u/s 12AA(3) of the Act. Aggrieved the assessee is in appeal before the Tribunal against rejection of application u/s 80G as well as cancellation of registration u/s 12AA of the Act.
6. First of all, we will take up ITA No. 31/Ind/2017 in which the assessee is aggrieved with the order of the Commissioner of Income tax (Exemption) rejecting the application u/s 80G of the Act.
7. The learned counsel for the assessee referring to the synopsis placed in paper book pages 8 to 20 as well as submissions made before the lower authorities submitted that the assessee has changed its objects from Ist June, 2014 onwards and its activities are not confined only to Muslim community but the charitable activities are spread across the general public without making any distinction on the basis of caste.
5 Muslim Education ITA 30 & 31/2017
8. On the other hand, the learned DR vehemently argued supporting the order of the Commissioner of Income tax (Exemption).
9. We have heard both the parties and perused the material available on record. The assessee is aggrieved with the rejection of application u/s 80G of the Act filed by the Commissioner of Income tax (Exemption). We find that the Commissioner of Income tax (Exemption) rejected the application by observing that the assessee has violated the provisions of section 80G(5B) as the expenditure of religious nature exceeded 5% of its total income which in the case of the assessee was in the shape of Zakat utilised for particular religious community and the donation in the name of Zakat constituted 57% of total receipts. This fact goes uncontroverted that during F.Y. 2014-15 against the total receipts of Rs.16,85,790/- "Zakat" donation in the name of the Zakat was Rs.9,65,550/- which was 57% of 6 Muslim Education ITA 30 & 31/2017 the total receipts. Zakat is distributed exclusively to Muslim students under the head "higher Study Aid" and scholarship. This fact further gets support from the annual report of 2014-15 wherein at page 90 of the paper book we find that during this year scholarship of Rs. 4,14,000/- was given to 118 students of class 10th to 12th and all the students were of Muslim community and Zakat fund was utilised to give scholarship. There was no other donation received for scholarship fund. As regards higher study aid out of Rs. 4,71,500/-, Rs. 3,22,000/- was given from Zakat fund. We find it necessary to reproduce the extract from annual report 2014-15 of Muslim Education And Career Promotion Society :-
"MECAPS' SCHOLARSHIPS In view of the rising cost of education, especially in private schools and colleges, majority of children who belong to lower income groups are unable complete their education 7 Muslim Education ITA 30 & 31/2017 because of these expenses. Hence MECAPs try to minimize their distress and provide scholarships to the poor and needy students of class 9th to 12th throughZakat or Donation Funds, enabling them to continue their education and go ahead to fulfill their dreamed academic career.
During the year 2014-15 scholarship to the tune of Rs.414000 was provided to the students from these categories under scholarship head.The details are as under
Scholarship Abstract 2014-15 Class No. of Zakat Donation Total students Fund Fund Xth 58 174000 0 174000 XIth 33 132000 0 132000 XIIth 27 108000 0 108000 Grand 118 414000 0 414000 Total 8 Muslim Education ITA 30 & 31/2017 HIGHER STUDY AID Getting higher education depends on economic prosperity for many students and affording college education is became a concern for economically disadvantaged families. With the intention of encouraging and inspiring Muslim students to continue their studies, MECAPS provides financial aid for higher education that allows students to acquire technical or professional education. During the year 2014-15 Rs.471500 were paid under Higher Studies head for different courses of Graduation and Post Graduation such as Engineering, MBBS, BUMS, BHMS, Science and Commerce etc. The number of students benefitted under High Study support intervention from both Donation and Zakat funds during the period from April 2014 to March 2015 is 62 only. The details are as under :-
9
Muslim Education
ITA 30 & 31/2017
Higher Studies 2014-15
Courses No. of Zakat Donation Total
students
Girls Boys
Engineering 15 17 181500 113000 294500
(BE/M.Tech
Graduation (BA, 12 6 73500 6500 8000
B.Sc.,B.Com,etc.
Post Graduation 1 1 13000 0 13000
(M.A., M.Sc.,
M.Com, etc.
Medical (MBBS, 4 0 20000 30000 50000
BHMS, BUMS,
Paramedics)
Management 1 1 13000 0 13000
(MBA, BBA, etc.)
Computer 1 1 11500 0 11500
Application(BCA)
Accounts (Tally) 0 1 4500 0 4500
Law (LLB) 1 0 5000 0 5000
Total 35 27 322000 149500 471500
10. Even this fact is not disputed by the learned counsel for the assessee also that Zakat constitutes 57% of 10 Muslim Education ITA 30 & 31/2017 total Revenue and Zakat fund is utilised only for a particular religious community. In the back drop of this, we need to peruse the provisions of section 80G(5B) of the Act which reads as under :-
"(5B) Notwithstanding anything contained in clause (ii) of sub-section (5) and Explanation 3, an institution or fund which incurs expenditure, during any previous year, which is of a religious nature for an amount not exceeding five per cent of its total income in that previous year shall be deemed to be an institution or fund to which the provisions of this section apply.
11. Sub-section (5B) of section 80G of the Act provides a cap of 5% for the expenditure incurred for religious nature as per which such expenditure should not exceed 5% whereas in the present case the expenditure incurred has exceeded the limit of 5%. Therefore, on these facts we find no inconsistency in the findings of the learned CIT(Exemption) rejecting the assessee's application u/s 80G of the Act.
12. In the result, the appeal of the assessee is dismissed. 11 Muslim Education ITA 30 & 31/2017
13. Now we take up ITA No. 30/Ind/2017 in which the assessee's sole grievance is against cancellation of registration u/s 12AA(3) of the Act by the CIT(Exemption). The CIT(Exemption) after rejecting the application u/s 80-G of the Act and giving specific finding that since the society is for the benefit of a particular religious community, section 13(1)(b) of the Act would be attracted and no exemption can be granted u/s 11 of the Act. Further registration u/s 12AA of the Act needs to be cancelled and he accordingly cancelled the registration.
14. The learned counsel for the assessee submitted that after the amendment in the objects of the society from 10.6.2014 the society is working for the benefit of general public and is not confined to a particular religious community. Reference was made to annual reports for various years so as to demonstrate that benefits of the society fund are being given to public at large without 12 Muslim Education ITA 30 & 31/2017 making any distinction on the basis of caste and religion. The objects are very much for promoting education among the poor and needy students which fall under the category of charitable activities. The learned counsel for the assessee referred to and relied upon the judgment of the Hon'ble Delhi High Court in the case of CIT Exemption vs. Indian Society of the Church of Jesus Christ of Latter Day Saints (2017) 86 taxmann. 44 (Delhi) wherein Hon'ble High Court deciding in favour of the assessee held that as the activities of the assessee are both religious and charitable and were not exclusively meant for one particular community, the Tribunal has rightly held that the assessee should not be denied exemption u/s 11 of the Act. On the other hand, the learned DR supported the order of the CIT (Exemption).
15. We have heard both the parties and perused the material available on record. The assessee is aggrieved with 13 Muslim Education ITA 30 & 31/2017 the rejection of registration u/s 12A of the Act. The bone of contention relates to application of provisions of section 13(1)(b) of the Act which says that section 11 which provides exemption of income from property held for charitable and religious purposes shall not be applied 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 or established for the benefit of any particular religious community or caste. Upto 10th June, 2014 the assessee society was running with the objective of providing main education and other facilities only to Muslim children. After 10th June, 2014 it made amendments in its objects which were changed to provide education and other facilities to general public. The contention of the learned counsel for the assessee is that the objective of the trust is to provide assistance and 14 Muslim Education ITA 30 & 31/2017 application of scholarship and education related facility to poor class of people among the general public. Counselling is also provided to students and seminars and workshops are organised with no bar of caste or religion to provide information to the students to select their career and to go for higher studies in various fields. During the course of hearing before the CIT Exemption the fact was revealed that 57% of the total receipts were given to Muslim community under the name of Zakat fund with a specific direction to be used for providing education and fund for higher studies to the Muslim students and in most of the cases, even the donees were identified by the donors. The CIT(Exemption) also observed that majority of the activities are confined to Muslim community and provisions of section 13(1)(b) are squarely applicable and, therefore, cancelled the registration.
15 Muslim Education ITA 30 & 31/2017
16. Before us, the learned counsel for the assessee referred to the judgment of the Hon'ble High Court of Delhi in the case of Indian Society of the Church of Jesus Christ of Later Day Saints (supra). In this judgment Hon'ble Court adjudicating the issue as to "whether the provisions of section 13(1)(b) of the Act would be applicable in case the society or trust is engaged in both religious and charitable", referred to the judgment of the Hon'ble Apex Court in the case of Dawoodi Bohra Jamat (2014) 364 ITR 31 and observed as under :-
"12. At this stage, the Court would like to refer to the decision in Dawoodi Bohra Jamat (supra) where the Supreme Court observed as under:
"In our considered view, determination of nature of trust as wholly religious or wholly charitable or both charitable and religious under the Act is not a question of fact. It is but a question which requires examination of legal effects of the proven facts and documents, that is, the legal implication of the objects of the respondenttrust as contained in the trust deed. It is only the objects of a trust as declared in the trust deed which would govern its right of exemption under section 11 or section 12. It is the analysis of these objects in the backdrop of fiscal jurisprudence which would illuminate 16 Muslim Education ITA 30 & 31/2017 the purpose behind creation or establishment of the trust for either religious or charitable or both religious and charitable purpose. Therefore, the High Court has erred in refusing to interfere with the observations of the Tribunal in respect of the character of the trust. "
13. After analysing the connotations of the terms 'charity', 'charitable purpose' and 'religious purpose', the Supreme Court analysed the facts and found that "the objects of the trust exhibit the dual tenor of religious and charitable purposes and activities". Thereafter, the Supreme Court went on to analyse Section 13 (1) (b) of the Act and observed as under:
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 purpose. 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.
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 community or class or serves across the communities and for society at large [Sole Trustee, Loka Shikshana Trust c. CIT (1975) 101 ITR 234 (SC)]. 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 (1965) 55 ITR 722]" 17
Muslim Education ITA 30 & 31/2017
14. After noticing the decision in CIT v. Palghat Shadi Mahal Trust [2002] 254 ITR 212 (SC), the Supreme Court in Dawoodi Bohra Jamat (supra) concluded as under: "In the present case, the objects of the respondent-trust are based on religious tenets under Quran according to religious faith of Islam. We have already noticed that the perusal of the objects and purposes of the respondenttrust 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 paragraph, 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. 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."
15. In the present case, the factual determination by the ITAT that (i) the programmes conducted by the Society "are open for public at large without any distinction of caste, creed or religion and the benefits of these programmes held at the meeting house are available to the general public at large and (ii) priests are not managing the affairs of the society, have not been shown by the Revenue to be perverse. It is not the percentage of expenditure on persons not belonging to the religious community that mattered. What was significant was that there were donations made by the Society for the general public utility. This showed that it was not exclusively for the benefit of one particular religious community.
16. The CIT (A) had proceeded on the basis that although the Assessee Society was for both religious and charitable purposes, since it was for the benefit of only one religious community 18 Muslim Education ITA 30 & 31/2017 the provision of Section 13 (1) (b) would apply to deny it exemption under Section 11 of the Act. The above conclusion was legally flawed. It was contrary to the decision of the Supreme Court in Dawoodi Bohra Jamat (supra) which held that even where the trust or society has both religious and charitable objects, "it needs to be examined whether such religious-charitable activity carried on by the trust only benefits a certain particular religious community or class or serves across the communities and for society at large". In that case it was factually found that "the activities of the trust though both charitable and religious are not exclusively meant for a particular religious community" and, therefore Section 13 (1) (b) was not attracted. In the present case too, the factual finding of the ITAT is likewise. It has been found that the activities of the Assessee Society, though both religious and charitable, were not exclusively meant for one particular religious community. It was, therefore, rightly not denied exemption under Section 11 of the Act. 17. No substantial question of law arises from the impugned order of the ITAT. The appeal is dismissed."
17. From the perusal of the above judgment of Hon'ble High Court of Delhi as well as the judgment of the Hon'ble Apex Court in the case of Dawoodi Bohra Jamat (supra) it is established that in case an assessee trust or society carries on the activities both charitable and religious and all the activities are not exclusively meant for a particular community then in such a situation section 13(1)(b) would not apply. In the instant case, it is pleaded by the learned 19 Muslim Education ITA 30 & 31/2017 counsel for the assessee that the society carries on both religious and charitable activities and just for the sake of carrying on religious activity, the benefit available to a society for doing charitable activity meant for general public benefit should not be denied. We, therefore, in the given facts and circumstances of the case and respectfully following the judgment of the Hon'ble Apex Court, as discussed above, set aside the issue of registration u/s 12AA of the Act to the file of the CIT (Exemption) for de novo adjudication so as to examine as to whether the assessee has also provided charitable activities to general public at large and if the assessee is able to demonstrate with documentary evidence of doing such charitable activities for general public along with providing religious activities then its case may be considered for registration u/s 12AA of the Act. Needless to mention that proper 20 Muslim Education ITA 30 & 31/2017 opportunity of being heard be provided to the assessee before deciding the issue.
18. In the result, ITA No. 30/Ind/2017 is dismissed and ITA No. 31/Ind/2017 is allowed for statistical purposes. Pronounced in open Court on 11 July, 2018.
Sd/- sd/-
(KUL BHARAT) (MANISH BORAD)
JUDICIAL MEMBER ACCOUNTANT MEMBER
11 July, 2018
Dn/-
21