BHOJALRAM LEUVA PATEL SEVA SAMAJ TRUST,DEVKI GALOL vs. THE COMMISSIONER OF INCOME TAX (EXEMPTIONS), AHMEDABAD, AHMEDABAD

The assessee has raised the following grounds of appeal: (A.Y. 2023-24)

The brief facts of the case are that the assessee filed application for registration of Trust under Section 12AB of the Act on 21.12.2022 in Form No. 10AB. However, CIT(E) rejected the application filed by the assessee on the ground that the objects of the Trust are restricted to the benefit of a particular religious community or caste i.e. “Leuva Patel Community”. However, it is a settled law that as per Section 13(1)(b) of the Act, the benefit of provisions of Sections 11 & 12 of the Act are not available to the income of the Trust, if such Trust or institution is created or established for the benefit of any particular religious, community or caste. The CIT(E) relied on the decision of CIT vs. Palghat Shadi Mahal Trust 120 taxman 889 (SC), in which it was held that in the case of a public charitable trust, where the benefit is available to Muslims from all the world, none of whom except in Kerala are backward classes, the provisions of Section 13(1)(b) of the Act would be attracted and therefore, the Trust is not entitled for exemption under Section 11 of the Act. Accordingly, the CIT(E) held that since the objects of the assessee / applicant trust are restricted to benefit of only a particular religious community or caste i.e. “Leuva Patel Community”, therefore, as per law laid down by the Hon’ble Apex Court in the above referred case, the provisions of Section 13(1)(b) would be applicable and therefore, the &668/Ahd/2023 Bhojalram Leuva Patel Seva Samaj Trust vs. CIT(E) Asst. Year –2023-24 - 3 - applicant / assessee would not be eligible for exemption under Section 11 of the Act. Therefore, looking into the instant facts, the applicant / assessee cannot be granted registration under Section 12A of the Act.

The assessee / applicant is in appeal before us against the aforesaid order passed by Ld. CIT(E) rejecting the application for grant of the registration under Section 12AB of the Act.

Before us, the Counsel for the assessee argued / submitted that the case of the assessee is squarely covered by the case of CIT, Rajkot-II vs. Leuva Patel Seva Samaj Trust 42 taxmann.com 181 (Gujarat), wherein the Gujarat High Court has held that question as to whether trust is created or established for benefit of any particular religious community or caste would be relevant only when income of trust is being assessed in terms of Section 11, however, at time of disposing of application of a trust seeking registration, Commissioner has to merely decide whether said trust has fulfilled necessary requirements of registration as provided under Section 12A of the Act. Further, the Counsel for the assessee submitted that in the aforesaid decision, the Gujarat High Court observed that the “Leuva Patel Community” consists mainly of agriculturists and therefore, such community cannot be dubbed as a “religious community”. Accordingly, the arguments of the Counsel before us were two folds:

In response, Ld. D.R. placed reliance on the observations made by Ld. CIT(E) in the order rejecting grant of registration under Section 12AB of the Act.

We have heard the rival contentions and perused the material on record.

In the case of CIT, Rajkot-II vs. Leuva Patel Seva Samaj Trust 42 taxmann.com 181 (Gujarat), the assessee a public charitable trust, applied for registration under Section 12AA of the Act. The CIT(E) rejected the said application holding that the trust was for benefit of “Leuva Patel Community” and therefore, it would be covered under Section 13(1)(b) of the Act. The Tribunal, however, allowed the assessee’s application. In further, appeal, the High Court held that the question as to whether the Trust is question created or established for the benefit of any particular religious community or caste would be relevant when income of the Trust is being assessed in terms of Section 11 of the Act. However, in so far as Section 12AA is concerned, the Commissioner has to merely decide if the trust has fulfilled the necessary requirements of registration as provided under Section 12A of the Act. Accordingly, the Gujarat High Court upheld the order passed by the ITAT. While passing the order the Gujarat High Court made the following observations:-

We observe that in the case of Jamiatul Banaat Tankaria 160 taxmann.com 358 (Ahmedabad - Trib.), the ITAT held that where objects of assessee-trust were primarily charitable rather than favouring any specific religious community, CIT(E) was not justified in denying registration under Section 12A, by invoking Section 13(1)(b) as said provisions would be attracted only at time of assessment and not at time of grant of registration. In the case of Malik Hasmullah Islamic Educational and Welfare Society 24 taxmann.com 93 (Luck.), the ITAT held that since provisions of Sections 11, 12 and 13 are intended for exercise of jurisdiction by an Assessing Officer in an assessment proceedings, Commissioner is not competent to invoke such provisions for purpose of declining registration under Section 12AA. In the case of St. Joseph Academy 50 taxmann.com 216 (Hyderabad - Trib.), the ITAT held that provisions of Section 13 can be invoked by Assessing Officer while framing assessment and not by Commissioner while considering application for registration under Section 12AA. In the case of Dawoodi Bohara Jamat 43 taxmann.com 243 (SC), the Hon'ble Supreme Court made the following observations: &668/Ahd/2023 Bhojalram Leuva Patel Seva Samaj Trust vs. CIT(E) Asst. Year –2023-24 - 6 - “40. Further, establishment of Madarsa or institutions to impart religious education to the masses would qualify as a charitable purpose qualifying under the head of education under the provisions of Section 2(15) of the Act. The institutions established to spread religious awareness by means of education though established to promote and further religious thought could not be restricted to religious purposes. The House of Lords in Barralet v. IR 54 TC 446, has observed that "the study and dissemination of ethical principles and the cultivation of rational religious sentiment" would fall in the category of educational purposes. The Madarsa as a Mohommedan institution of teaching does not confine instruction to only dissipation of religious teachings but also contributes to the holistic education of an individual. Therefore, it cannot be said that the object (d) would embody a restrictive purpose of religious activities only. Similarly, assistance by the respondent-trust to the needy and poor for religious activities would not divest the trust of its altruist character.

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.

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.

In view of the above judicial precedents, looking into the facts of the instant case, we are of the considered view that the provisions of Section 13 of the Act can be invoked only at the time of assessment and not at the time of grant of registration under Section 12A of the Act. Our view is further supported by the decision of the Hon'ble jurisdictional High Court in the case of CIT (Exemptions) v. Bayath Kutchhi Dasha Oswal Jain Mahajan Trust [2016] 74 taxmann.com 199/243 Taxman 60 (Guj.)/[2017] 8 ITR-OL 494 (Guj.) wherein on the issue of denial of grant of registration u/s 12A of the Act by invoking Section 13(1)(b) of the Act, it was categorically held that the provisions of Section 13 would be attracted only at the time of assessment and not at the time of grant of registration. The relevant finding of the Hon'ble High Court at para 8 of his order is as under: &668/Ahd/2023 Bhojalram Leuva Patel Seva Samaj Trust vs. CIT(E) Asst. Year –2023-24 - 7 - "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."

In the result, in view of the above observations, the matter is restored to the file of CIT (exemptions), for de novo consideration, after giving due opportunity of being heard and with the direction not to disentitle the assessee for grant of registration only on the grounds as mentioned in its order for rejecting the application filed by the assessee trust.

In the result, the appeal of the assessee is allowed for statistical purposes.

In the instant case, the application for grant of registration under Section 80G in Form No. 10AB was rejected for the reason that since the application of the assessee filed on 21.12.2022 under Section 12A(1)(ac)(iii) of the Act was rejected vide order dated 28.06.2023 and therefore, the applicant did not have any valid order for registration under Section 12A(1)(ac)(iii) of the Act, in view of the Gujarat High Court decision in the case of CIT(E) vs. Shree Tapeshwar Hanumaji Bajrang Charity Trust 122 taxmann.com 98 (Gujarat), which has held that registration under Section 12A is a pre-requisite for approval under Section 80G of the Act, therefore, in absence of valid registration certificate under Section 12A of the Act, approval under Section 80G cannot be granted to the assessee / Applicant Trust.

We observe that since in we have restored the matter in relation to grant of registration under Section 12A &668/Ahd/2023 Bhojalram Leuva Patel Seva Samaj Trust vs. CIT(E) Asst. Year –2023-24 - 8 - of the Act to the file of Ld. CIT(E), for de-novo consideration, accordingly, the present matter is also restored to the file of Ld. CIT(E) for de-novo consideration, and thereafter, pass appropriate orders in accordance with law.

In the result, the appeal of the assessee is allowed for statistical purposes.

In the combined result, both the appeals of the assessee are allowed for statistical purposes. This Order pronounced in Open Court on 30/04/2024