The Commissioner of Income Tax-IV vs. Moschip Semiconductor Technology Ltd.,

HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH AT JAIPUR D.B. Income Tax Appeal No. 163 / 2012 COMMISSIONER OF INCOME TAX, JAIPUR-II ,JAIPUR ----Appellant Versus BHAGWAN MAHAVEER PURSHARTH PRENA NIDHI NYAS, SHRI DIGAMBER JAIN MANDIR PASRAVNATH MARG, SECTOR-7, JAWAHAR NAGAR, JAIPUR ----Respondent _____________________________________________________ For Appellant(s) : Mr. K.D. Mathur for Mr. R.B. Mathur For Respondent(s) : Mr. Siddharth Ranka _____________________________________________________ HON'BLE MR. JUSTICE K.S. JHAVERI HON'BLE MR. JUSTICE INDERJEET SINGH Order 11/09/2017

(2 of 11) [ITA-163/2012] was sought under 12AA. The CIT (A) has rejected the same. However, the Tribunal has allowed the appeal. 4. Counsel for the appellant contended that the view taken by the Tribunal is contrary to law and while rejecting the registration, the CIT(A) has given reasons which reads as under:- “All these students belong to one particular community i.e. Jain. This is against the provisions of law. As per intention of the legislature charitable institutions should not work only for a particular religious community or caste. Provisions of section 13(1)(b) are as under:- 13(1). Nothing contained in section 11 [or section 12] shall operate so as to exclude from the total income of the previous year of the person in receipt thereof. (a) Any part of the income from the property held under a trust for private religious purposes which does not ensure for the benefit of the public. b) In the case of a trust for charitable purpose 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.” Explanation 2-A trust or institution created or established for the benefit of Scheduled Castes, backward classes, Scheduled Tribes or women and children shall not be deemed to be trust or institution created or established for the benefit or a religious community or caste within the meaning of clause (b) or sub-section (1). In view of the above discussion it is apparent that the trust has started charitable activities but these are for the benefit of a particular religious community i.e. ‘Jain’ which is in violation of provisions of section 13(1)(b). The case is not covered in Explanation-2 of section 13(1)(b) also. Therefore, it is not eligible for registration u/s 12AA of the Act, hence its application is hereby rejected.”

(3 of 11) [ITA-163/2012] 5. However, counsel for the respondent contended that the Commissioner itself in the order which came to be passed subsequently observed as stated hereinabove. 6. He has also relied upon the decision in case of CIT vs. Vijay Vargiya Vani Charitable Trust reported in (2014) 369 ITR 360 (Raj.) wherein it has been held as under:- “9. In our view, the Trust can move the application immediately at the time of formation then there is no prohibition under the Act seeking registration. In our view as observed earlier the only thing to be looked into at the time of granting of registration is that the object of the Trust for which it was formed have to be seen and examined, the CIT's satisfaction about genuineness of the activities of the Trust is not a criteria as the trust is yet to commence activities. Asking about charitable activities at the nascent stage would amount' to putting a cart before the horse.” 6.1. He has also relied upon the decision in case of Commissioner of Income Tax (Exemptions) vs. Bayath Kutchhi Dasha Oswal Jain Mahajan Trust reported in [2016] 74 taxmann. Com 199 (Gujarat) wherein it has been held as under:- “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

(4 of 11) [ITA-163/2012] 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.” 6.2. He has also relied upon another decision of Kerala High Court in case of Sree Anjaneya Medical Trust v. Commissioner of Income Tax, Kozhikode reported in [2016] 382 ITR 399 (Kerala) wherein it has been held as under:- “13. Going by the provisions of Sections 12A and 12AA of the Income Tax Act, we hold that the grounds raised by the registering authority and upheld by the appellate authority for rejection of registration to the appellant Trust cannot be sustained. The authorities could have examined only the genuineness of the Trust and its activities. They did not have material to hold that the Trust was either not genuine or its activities were not what was professed in the deed of Trust.” 6.3. He has also relied upon the decision of Punjab & Haryana High Court in case of Commissioner of Income Tax-II, Chandigarh vs. Surya Educational & Charitable Trust reported in [2013] 355 ITR 280 wherein it has been held as under:-

(5 of 11) [ITA-163/2012] “8. We have heard learned counsel for the appellant, but find no merit in the present appeals. As per Section 12AA of the Act, an application for registration of the Trust and Institution is required to be made within one year from the date of creation of the Trust or the Establishment of such Institution. The procedure for registration of the Trust or Institution is prescribed under Section 12AA of the Act. In terms of Clause (a) of Section 12AA of the Act, the Commissioner is to satisfy himself about the genuineness of the activities of the Trust on such inquiries as he may deem necessary. Sub-section (1A) and (2) of Section 12AA of the Act, are procedural in nature, whereas Sub-section (3) of Section 12AA of the Act, empowers the Commissioner to cancel the registration of the Trust or Institution, if he is satisfied that the activities of such Trust or Institution are not genuine or are not carried out in accordance with the objects of the Trust or Institution. 11. Therefore, the object of Section 12AA of the Act, is to examine the genuineness of the objects of the Trust, but not the income of the Trust for charitable or religious purposes. The stage for application of income is yet to arrive i.e. when such Trust or Institution files its return. Therefore, we find that the judgments referred to by the learned counsel for the appellant are not applicable to the facts of the present case arising out of the question of registration of the Trust and not of assessment. 6.4. He has relied upon the decision of Madras High Court in case of Commissioner of Income Tax, Copimbatore vs. R.K. Deivendra Nadar Trust reported in [2014] 52 taxmann.com 168 (Madras) wherein it has been held as under:- “8.The apprehension of the CIT whether the objects are genuine and the intentions of the trust are doubtful, cannot be decided at the threshold. The answer to the same lies in s. 12AA(3) of the Act, which is extracted hereunder: "12AA.

.............. (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

(6 of 11) [ITA-163/2012] 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 canceling the registration of such trust

institution: Provided that no order under this sub-section shall be passed unless such trust or institution has been given a reasonable opportunity of being heard." 11. In the present case, we find no reason as to why the CIT had rejected the registration of the trust when there is ample power under law to rectify any error to cancel the registration of the trust or institution if there is breach of the objects of the trust in the discharge of its charitable objects as propounded in the trust deed. The reasons given by the original authority, we find, to reject the registration, cannot be held against the respondent at this stage and the Tribunal has rightly exercised its discretion in setting aside the said order.” 6.5. He has also relied upon the decision of the Rajasthan High Court in case of Commissioner of Income Tax vs. Bigabass Maheshwari Sewa Samiti [2008] 220 CTR 369 (Raj.) wherein it has been held as under:- “11. Coming to question No. 1, a look at the judgment of the Tribunal shows that the learned Tribunal has proceeded on two judgments of Hon'ble the Supreme Court, being in ITO and Ors. v. Lakhmani Mewal Das MANU/SC/0241/1976 : [1976]103ITR437(SC) , and Ganga Saran & Sons (P) Ltd. v. ITO and Ors. MANU/SC/0297/1981 : [1981]130ITR1(SC) . In Lakhmani Mewaldas's case (supra), it has been held, that the reasons, which led to the formation of the belief, contemplated by Section 147(a), must have a material belief on the question of escapement of income of the assessee from assessment and does not mean a purely subjective satisfaction on the part of the ITO. Where livelink between the material before the ITO, and the belief he was to form regarding escapement of income, is missing, such material was stated to be not sufficient for forming belief, and same view was taken in Ganga Saran's

case

(supra). Then, applying these judgments, it has been

(7 of 11) [ITA-163/2012] found by the learned Tribunal that one of the conditions necessary for issuance of notice under Section 148, being under statement of income of the assessee, is not fulfilled. It has been held, that in order to bring an item within the purview of Section 147, it is of utmost importance, that the AO should have reason to believe, based on relevant and cogent material, that such income has escaped assessment. It has been found, that there was no material direct or indirect, available with the AO, which could show that the receipt of donations, amounting to Rs. 30,16,598, was without any specific direction of corpus fund. The assessee has shown the receipts, as having been received in the corpus fund, coupled with the report of the auditor. The AO had not inquired into the nature of the receipts, before issuing notice under Section 148, and in earlier years also, the amount was held to be received in the corpus fund. 12. In our view, the learned Tribunal has rightly examined the controversy. It is significant to note that the learned Tribunal has further found that AO cannot initiate reassessment proceedings, simply to verify the contents of the return, unlike before it was vested in him in making regular assessment. It was found that the time-limit available for issuance of notice and making assessment under Section 143(3) had expired, but then, on that count, he cannot assume the jurisdiction by venturing to make assessment under Section 148. Even after hearing learned Counsel for the parties at length, we are satisfied that the reasons given by the learned Tribunal are in accordance with law.” 6.6. He has also relied upon the decision of this Court in case of Commissioner of Income Tax vs. Shri Digambar Jain Mandir in Tax Appeal No. 21/2017 decided on 14th February, 2017 wherein it has been held as under:- “2. The brief facts of this case are that application in Form No. 10A seeing registration u/s 12AA of the Income Tax Act. 1961 was filed by the applicant on 25.02.2015. Thereafter a letter/notice No. 1371 dated 26.02.2015 was issued at the address provided in the application requiring the applicant to submit certain

(8 of 11) [ITA-163/2012] documents/explanations by 12.03.2015. In compliance to which Shri Rajesh Agarwal, CA&AR of the trust attended from time to time and filed written submission on 25.03.2015 and copy of vidhan and details of activities carried out by the trust. The details filed by the applicant alongwith application are examined Provisions of section 12AA stipulate the following conditions for Registration u/s 12AA of the IT Act (I) The Object of the Trust should be for charitable purpose. (ii) The activities of the Trust should be genuine. 3. The Tribunal in its order has observed as under: “4.2 We have heard rival contentions and perused the material available on record. The id. CIT has rejected the application by observing as under:- 6. From the objects of the society, it can be seen that the Society has been created for the benefit of persons belonging to the Jain Samaj only. As the Society is working for the benefit of a particular religious community or caste i.e. Jain Samaj, it violates the provisions of section 13(1)(b) of the IT Act, 1961. Under section 13(1)(b) r.w. explanation 2, a charitable organization will lose the exemption u/s11 if the income is utilized for the benefit of any particular religious community. 7. Similar issue came up before various judicial authorities. The findings are summarized below: Agrawal Sabha – (2014) 45 taxman.com 273 (Allahabad)/(2014)223 Taxman 353 (Allahabad)-Section2(15) read with section 12AA of the Income-tax Act, 1961 – Charitable/religious purpose (Registration application) – Assessment year 2010-11 – Assessee had filed an application for registration under section 12AA – Dominant object underlying constitution of trust was for benefit of only Agrawal community – No documentary evidence had been produced to support that trust had carried out any activity of general public utility such as establishment of hospitals, dharamshalas, libraries and schools – Whether, its application under section 12AA should be

(9 of 11) [ITA-163/2012] dismissed – held, yes (Para 9) (in favour of revenue) IT. Where dominant object underlying constitution of trust was for benefit of only Agrawal community, application for registration under section 12AA should be dismissed. Gowri Ashram – (2013) 36 taxman.com (Madras)/2013) 217 taxman 97 (Madras)/ (2013) 356 ITR 328 (Madras) – Section 2(15) read with section 12AA of the Income Tax Act, 1961 – Charitable purpose(Objects of general public utility)- Whether where assessee society was formed with an object to provide accommodation and facilities for performance of marriages and other auspicious functions to members of a particular community, viz. Telegu BeriVysia Community, it could not be regarded as society formed with a charitable purpose within meaning of section 2(15) and, therefore,

its

application

seeking registration under section 12AA was to be rejected – Held, yes (Para 12)(in favour of revenue) IT: Where assessee-society was formed with an object to provide accommodation

and

facilities

for performance of marriages and other auspicious functions to members of a particular community, viz. Telugu BeriVysia Community, it could not be regarded as society formed with a charitable purpose within meaning of section 2(15). 8. In all the above judgments Hon’ble Court/Tribunal have held that if the objects of the society/association are for the benefit of a particular religious community then it is not a charitable organization. In the case of present applicant the membership is limited to persons belonging to particular community only and all the objects are for the benefit of Jain Community. This consist of a very limited and small group and not the public at large. In section 2(15) the legislature has used language of great amplitude charitable purpose which not only include the specific purpose of education medical etc. but also advancement of other objects of general public utility. The clause is intended to serve public at charitable falling under the head advancement of any other general public utility. This is totally missing in the case of applicant. 9. From the discussion made above, it is

(10 of 11) [ITA-163/2012] clear that the objects of the Trust/Society are not charitable in nature as they are for the benefit of the particular religious community. Therefore, the provisions of section 13(1)(b) are attracted and society cannot be held as charitable within the meaning of sec.2(15) of the I.T. Act. Based on the material available on record, I am satisfied that the objects of the Society are not charitable and therefore registration to the society is refused.” There is no dispute with regard to the fact that as per definition of ‘Charitable purpose’ under section 2(15) includes relief of the poor, education, medical relief (preservation of

environment(including

watersheds, forests and wildlife) and reservation of monuments or places or objects or artistic or historic interest) and the advancement of any other object of General Public Utility. During the course of hearing, the id. Counsel for the assessee submitted that ‘Jainism’ is the philosophy and preservation of symbol of such philosophy would definitely come into the embrace of the word ‘Charitable’. During the course of hearing, the Id. D/R could not refute the fact that clauses 16 of the objects which provides that without any descrimination of the caste or creed to help economically poor, old, ailing, handicap, poor students and clause 17 provides for hel0p for hospitalization of ailing persons, medicines, cold water, night shelter and Dharamshala etc. In our considered view, both these objects definitely fall under the category of Charitable purpose and cannot be construed as solely for the benefit of a particular religious community. Keeping these objects in view and respectfully following the judgment of the Hon’ble Supreme Court in the case of CIT vs. Dawoodi Bohara Jamat, 364 ITR 31 (SC), the order of id. CIT (Exemption) is set aside and we hereby direct the Id. CIT (Exemption) to grant registration to the assessee trust. 4. We are in complete agreement with the view taken by the Tribunal. Though Mr. Jain has tried to justify the order of the Assessing Officer and CIT(A), but in our view, in view of the binding decision of the Supreme Court in the case of CIT Vs. Dawoodi

Bohara

(2014)

(11 of 11) [ITA-163/2012] Taxmann.com 242, the Tribunal has not committed any error in allowing the appeal of the assessee. 7. Taking into consideration the above factual position and the law, the issue is required to be answered in favour of the assessee against the department. 8. The appeal stands dismissed. (INDERJEET SINGH),J. (K.S. JHAVERI),J. A.Sharma/52