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The Holiness Dr. Syedna Taher Saifuddin Memorial Foundation

5. Learned Sr. Counsel appearing for the assessee submitted that both the Assessing Officer and the learned Commissioner (Appeals) have rejected assessee's claim on the reasoning that interest free loan advanced to another trust was not for educational purpose, hence, as per CBDT Circular no.100 of 1973, it will not amount to application of income. He submitted, CBDT Circular no.100 of 1973, cannot be read in a narrow / restrictive manner. He submitted, the reference to the expression "educational purpose" in the said circular is only illustrative since, under general law one charitable object cannot get preference over another. Further, the learned Sr. Counsel submitted, the CBDT Circular no.100 of 1973 speaks of interest bearing loan, whereas, the loan advanced by the assessee is interest free. He submitted, as per Muslim Personal Law, the assessee neither can charge nor accept interest. For that reason, only the assessee has advanced interest free loan. He submitted, after the loan was re-paid, the assessee has offered it as income in assessment year 2012-13. Therefore, bringing the said amount to tax in the impugned assessment year would amount to double taxation. Finally, learned Sr. Counsel submitted, advancement of interest free loan to another charitable trust having similar object amounts to application of income and is not an The Holiness Dr. Syedna Taher Saifuddin Memorial Foundation investment / deposit of funds. Therefore, the assessee is entitled to claim exemption under section 11 of the Act. In support of his contention, the learned Sr. Counsel relied upon the following decisions:-

31. The Constitution Bench of this Court in CIT v. Surat Art Silk Cloth Manufacturers‟ Assn. has held that if the primary purpose and the predominant object of a trust are to promote the welfare of the general public the purpose would be charitable purpose. If the primary or predominant object of an institution is charitable, any other object which might not be charitable but which is ancillary or incidental to the dominant purpose, would not prevent the institution from being a valid charitable trust. (Thiagarajar Charities v. CIT, (1997) 4 SCC 724). in general did constitute a charitable object, the words "in particular for workmen of the company" negative the charitable purpose and therefore, the entire trust could not be considered to have been established wholly for charitable purpose.

41. Therefore, the objects of the trust exhibit the dual tenor of religious and charitable purposes and activities. Section 11 of the Act shelters such trust with composite objects to claim exemption from tax as a religious and charitable trust subject to provisions of Section 13. The activities of the trust under such objects would therefore be entitled to exemption accordingly.

42.We would now proceed to examine the objects under the provisions of Section 13(1)(b) of the Act. It becomes amply clear from the language employed in the provisions that Section 13 is in the nature of an exemption from applicability of Sections 11 or 12 and the examination of its applicability would only arise at the stage of claim under Sections 11 or 12. Thus, where the income of a trust is eligible for exemption under section 11, the eligibility for claiming exemption ought to be tested on the touchstone of the provisions of section 13. In the instant case, it being established that the respondent-trust is a public charitable and religious trust eligible for claiming exemption under Section 11, it becomes relevant to test it on the anvil of Section 13.

8. After examining the objects of that particular trust Hon'ble Apex Court found that while some of the objects provide for activities completely religious in nature and restricted to specific community, however, some other objects like providing food to the public on religious days of the community, establishment of Madarsas and organization for dissemination of religious education and rendering assistance to the needy and poor for religious activity reflect the essence of charity. The Hon'ble Court observed, Niyaz on religious occasions and auspicious days of Dawoodi Bohra Community qualifies as a charitable purpose which would entail general public utility. Thus, as could be seen from the aforesaid observations of the Hon'ble Supreme Court, though, a particular trust may appear to be of religious nature, however, the objects of the trust may exhibit the dual tenor of religious and charitable purposes and activities. Thus, the trust can be considered to be having both religious and charitable objects. Thus, keeping in view the ratio laid down by the Hon'ble Supreme Court in the aforesaid decision, it has to be examined whether the objects of the assessee and recipient trust are similar in nature or not. It is evident, the objects of the recipient trust speaks of providing certain benefits / services to Dawoodi Bohra Community in particular and mankind at large. However, some other object clauses do not expressly provide restricting the benefit to a particular The Holiness Dr. Syedna Taher Saifuddin Memorial Foundation community. Further, it needs to be factually verified from the activities of the assessee whether even the charitable objects are for the benefit of a particular community or people at large. These facts have not been verified by the Departmental Authorities. One more vital aspect which requires consideration is, in the course of hearing, it was submitted before us by the learned Counsel for the assessee that the interest free loan of ` 2 crore advanced to the other trust in the impugned year was received back by the assessee in the assessment year 2012-13 and the assessee has offered it as income in the said assessment year. In this context, the learned Counsel for the assessee had referred to the computation of income filed with the return of income for the assessment year 2012-13. Notably, though, the aforesaid issue was raised before the learned Commissioner (Appeals), however, he has not recorded any finding on this aspect of the issue. If the assessee, as claimed, has offered the interest free loan of ` 2 crore after receiving back in assessment year 2012-13, then it will amount to double taxation of the same income if it is again assessed in the impugned assessment year. Thus, if ultimately it is held that advancement of interest free loan to another trust cannot be treated as application of fund and, therefore, has to be taxed in the impugned assessment year, then, it cannot again be taxed in assessment year 2012-13. Therefore, the Assessing Officer is directed to verify the The Holiness Dr. Syedna Taher Saifuddin Memorial Foundation claim of the assessee and if it is found to be correct then the said amount has to be excluded from the income offered in assessment year 2012-13. With the aforesaid observations, issues are remitted back to the Assessing Officer for de novo adjudication/assessment after reasonable opportunity of being heard to the assessee. The Assessing Officer must properly examine the objects of both the trusts and make necessary enquiry to find out whether the objects of both the trusts are similar in nature. Further, while deciding the issue the Assessing Officer must keep in view the ratio laid down in the decisions referred to in this order and any other decision which may be cited before him.