C/TAXAP/899/2008 ORDER IN HIGH COURT OF GUJARAT AT AHMEDABAD R/TAX APPEAL NO. 899 of 2008 COMMISSIONER OF INCOME TAX-II, Versus LAL KAMLA TRUST Appearance: MRS MAUNA M BHATT(174) for Appellant(s) No. 1 MRS SWATI SOPARKAR(870) for Opponent(s) No. 1 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 Income Act, 1961 (for short Act ) is at instance of Revenue and it is directed against order dated 16.10.2007 passed by Income Tax Appellate Tribunal, Rajkot Bench, Rajkot in ITA No.195/Rjt/2006, whereby Tribunal has allowed appeal preferred by assessee. 2. By order dated 2nd April, 2009, this appeal is admitted on following substantial question of law: 2(A) Whether facts and in circumstances of case in law, Appellate Tribunal was correct in holding that for granting registration under Section 12AA only 'nature of its object' and 'genuineness of activities' of trust are to be considered, even when very basis and very object of creation of trust was hit by prohibition provided under Section 13(1)(b) of I.T. Act.? 3. brief facts of case are as under: 3.1 assesse trust has filed application for Page 1 of 11 Downloaded on : Wed Apr 22 15:09:02 IST 2020 C/TAXAP/899/2008 ORDER registration under Section 12A of Act on 30.09.2005. 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 Act, assessee trust has to file application for registration within one year of its inception. But assessee trust filed such application after 31 years. assessee submitted that trust has been created out of 'will' of Late Shri Lalchand Hirachand Khangiyani who wanted to establish school and maternity hospital. funds for 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, assessee has filed application for condonation of delay praying that assessee trust may be registered. 3.2 public charitable trust has to satisfy certain preconditions viz (I) it should be trust created under Indian Trust Act setting apart certain property, income of which should be utilised as per wish of Settler (ii) objects must be charitable as per Section 2(15) of Income Tax Act, 1961 (iii) beneficiaries should be public at large, irrespective of caste, creed, religion community and (iv) trust should be irrevocable. 3.3 Commissioner of Income Tax (for short CIT) rejected application of registration holding Page 2 of 11 Downloaded on : Wed Apr 22 15:09:02 IST 2020 C/TAXAP/899/2008 ORDER that in this case, as per clause 22 of 'will' creating 'Trust', 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 balance, if any, after giving benefit to Sindhi community should also be given to non sindhi community. This means primary purpose of trust is to benefit Sindhi Community after meeting their needs, if any, fund remains same would be utilized for benefit of non sindhi community. Secondly, as per clause 20 of 'will' out of five trustees, four trustees should be from Sindhi community and one permanent trustee from non sindhi community. If trustee board is less than five trustees, then in any case, one trustee should be from non sindhi community. Hence, benefit primarily accrue to members of Sindhi Community. 3.4 It was further held that Income of trust would lose exemption in case trust or institution is created or established for benefit of any particular religious community or caste. Sindhi Community constitute separate religious community. Sindhi Community is not covered within exception as per Explanation 2 of Section 13 of Act, hence, do not fall under exemption provided under Section 13(1)(b) of Act. 3.5 assessee trust therefore being aggrieved by Page 3 of 11 Downloaded on : Wed Apr 22 15:09:02 IST 2020 C/TAXAP/899/2008 ORDER order of rejection passed by CIT preferred appeal before Income Tax Appellate Tribunal (for short Tribunal ). Tribunal vide its order NO.ITA No.195/Rjt/2006 dated 16.10.2007 held that trust cannot be denied registration under Section 12A of Act relying on Delhi Tribunal decision in case of Aggrawal Mitra Mandal Trust Vs. Director of Income Tax (Exemption)(2000) 293 (AT) 259 (Del). 4. Tribunal while allowing appeal preferred by assessee held as under: I have also gone through order of CIT wherein CIT has refused registration on ground that this Trust is created for benefit of Sindhi Community and if this Trust is registered then it would give benefits to Sindhi Community only. Trust is created only for Sindhi Community and beneficiaries are not public at large as per Section 2(15) of Act. I have also perused paragraph no.22 of Trust Deed wherein it has been specifically mentioned that aims and objects were to assist Sindhi Community in providing education and medical aids to Sindhi Community and if surplus fund/benefits are there it may be given to Non Sindhi Community also. From above, I am of view that this issue in controversy is squarely covered by decision of Delhi Bench of Tribunal in 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 appeal, that objection of assessee, as indicated in objects clause 3(1) and 3(2) of its trust deed, were of charitable nature and since powers of Director of Income tax (Exemption) conferred under Section 12AA were confined to satisfy himself about genuineness of Page 4 of 11 Downloaded on : Wed Apr 22 15:09:02 IST 2020 C/TAXAP/899/2008 ORDER activities of trust and nature of its objects being charitable, he was not justified in refusing to grant registration to assessee under Section 12A merely on ground that said objects were violative of provisions of Section 13(1)(b). I respectfully following same hold that benefits of activities of assessee Trust is of charitable nature and purpose and assessee cannot be denied registration under Section 12A of Income Tax Act. 4.1 Learned advocate Ms. Mauna Bhatt for appellant submitted that Tribunal's order is erroneous in view of clear provision of Section 13(1). Section 13 deals with cases wherein Section 11 and 12 are not applicable and since registration under Section 12A is applied for availing benefit under Section 11 & 12 therefore, registration under Section 12A was validly rejected as case of assessee trust was not fulfilling provision of Section 13(1) of Act. 5. substantial questions of law falling for our consideration is no longer res integra in view of decisions of Apex Court and of this Court. Even otherwise, we are convinced with reasons assigned by Tribunal while allowing appeal preferred by assessee. 6. Supreme Court in case of Commissioner of Income Tax, Ujjain vs. Dawoodi Bohara Jamat [2014 Page 5 of 11 Downloaded on : Wed Apr 22 15:09:02 IST 2020 C/TAXAP/899/2008 ORDER Lawsuit (SC) 450] has observed thus: 41. Thus, second issue which arises for our consideration and decision is: whether respondent Trust is charitable and religious trust only for purposes of particular community and therefore, not eligible for exemption under Section 11 of Act in view of provisions of Section 13(1)(b) of Act? 42. In instant case, Tribunal has found on facts after analysing objects of Trust that respondent Trust is public religious trust and its objects are solely religious in nature and being of opinion that Section 13(1)(b) is solely meant for charitable trust for particular community, negated possibility of applicability of Section 13(1)(b) of Act at outset. High Court has also confirmed aforesaid view in appeal and observed that Section 13(1) (b) would only be applicable in case of income of trust for charitable purpose established for benefit of particular religious community. In our considered view, said view may not be correct interpretation of provision. 43. From phraseology in clause (b) of Section 13(1), it could be inferred that legislature intended to include only trusts established for charitable purposes. That however does not mean that if trust is 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 trust for charitable purpose which is established for benefit of any particular religious community or caste. 44. Such trusts with composite objects would not be expelled out of purview of Section 13(1)(b) per se. section requires it to be established that such charitable purpose is not for benefit of particular religious community or caste. That is to say, it needs to be examined whether such religious charitable activity carried on by trust only benefits certain/particular religious Page 6 of 11 Downloaded on : Wed Apr 22 15:09:02 IST 2020 C/TAXAP/899/2008 ORDER community or class or serves across communities and society at large. (Sole Trustee, Lok Shikshana Trust v. Cit, Mysore) section of community sought to be benefited must be either sufficiently defined or identifiable by common quality of 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, Muslim residents of Kerala constituted trust for purpose of constructing and establishing at Palghat Shadi Mahal and other institutions for educational, social and economic advancement of Muslims and for religious and charitable objects recognised by Muslim law ( SCC p. 687, para 2) and later clarified that proceeds would be utilised for benefit for public at large and upon this basis, trust made claim for exemption from tax under Section 11. This Court held that resolution clarifying object would not validly amend object of trust deed and since object confined benefit to only Muslim community, it would be covered by restriction under Section 13(1)(b) of Act even though it functioned for public benefit. Thus, therein object sufficiently defined or expressly stated beneficiary class and restricted activities of trust to 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 said community would render trust as ineligible for claiming exemption under similar provisions of Kerala Agricultural Income Tax Act, 1950. Court observed as follows: (SCC p. 67, para 5) 5. deed of trust and rules run into more than thirty pages out of which six pages of trust deed narrate philosophy of Jain Dharma. objects of Trust clearly show that Trust is meant for propagation of Jain religion and rendering help to Page 7 of 11 Downloaded on : Wed Apr 22 15:09:02 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 medical aid could be given to them only if any member of families managing Trust, shows sympathy and is interested in their treatment. Tribunal, in our opinion, was right in its conclusion that dominant purpose of Trust in present case was propagation of Jain religion and to serve its followers and any part of agricultural income of Trust spent in State of Kerala also could not be treated as allowable item of expenses. (emphasis supplied) 47. In present case, objects of respondent Trust are based on religious tenets under Quran according to religious faith of Islam. We have already noticed that perusal of objects and purposes of respondent Trust would clearly demonstrate that activities of Trust though both charitable and religious are not exclusively meant for particular religious community. objects, as explained in preceding paragraphs, do not channel benefits to any community if not Dawoodi Bohra community and thus, would not fall under provisions of Section 13(1)(b) of Act. 48. In that view of matter, we are of considered opinion that respondent Trust is charitable and religious trust which does not benefit any specific religious community and therefore, it cannot be held that Section 13(1)(b) of Act would be attracted to respondent Trust and thereby, it would be eligible to claim exemption under Section 11 of Act. 49. In result, appeals are dismissed with no order as to costs. Ordered accordingly. 7. We also take notice of decision delivered by this Court in 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 : Wed Apr 22 15:09:02 IST 2020 C/TAXAP/899/2008 ORDER relevant paragraphs are quoted herein below: 7. It can thus be seen that Commissioner focused his attention to clause 4.2 of objects of trust to come to conclusion that same were for benefit of certain religious communities only, in process ignoring various other objects, for e.g. as per clause 4.1, 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 common people and to make education available for public. It would also engage in imparting training in computers. As per clause 4.3, trust would engage in doing all activities for medical help and to establish and administer dispensaries, hospitals and laboratories etc. It would also help patients by supplying medicines and financial assistance. Likewise in clause 4.4 trust could engage in rural development schemes. As per clause 4.5, trust would engage in literary and cultural activities by making efforts for 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 Commissioner to come to conclusion that objects of trust were confined for benefit of religious community, is incorrect. Thereafter to suggest that activities were carried out only for such purposes would be entering in realm of granting exemptions in terms of Section 13 of Act, which would be task of Assessing Officer to be undertaken at time of assessment on basis of material that may be brought on record. Page 9 of 11 Downloaded on : Wed Apr 22 15:09:02 IST 2020 C/TAXAP/899/2008 ORDER 8. In view of aforesaid position of law, which is applied by Tribunal to facts of case, relevant objects of trust deed read as under: Cl.20. Out of above trustee is not willing to work as trustee in 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 non sindhi community. If trust board is less than 5 trustees, then in any case, one trustee should be from non sindhi community (other community). Cl.22 object of trust is to give help to Sindhi Community for education and medical. income of my property vested to trust should be utilized for above object. It is my wish that 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 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 nominal charges, banalce, if any, after giving benefit to Sindhi Community should also be given to non sindhi community (other community). 9. On perusal of above clauses of trust deed, it cannot be said trust is only religious trust. Thus, finding arrived at by CIT that objects of trust were only for benefit of Page 10 of 11 Downloaded on : Wed Apr 22 15:09:02 IST 2020 C/TAXAP/899/2008 ORDER Sindhi community, is not correct. CIT was therefore not justified in rejecting registration of Trust holding that activities were carried out only for religious purposes as it would be task of Assessing Officer to be undertaken at time of assessment on basis of material that may be brought on record. At time of registration of trust under section 12AA of Act, CIT is required to consider only 'nature of its object' and 'genuineness of activities' of trust. 10. In that view of matter, we are of considered opinion that respondent trust 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 Act could be attracted to respondent trust, and thereby, it would be entitled to get registration under Section 12A of Act. 11. In view of foregoing reasons question of law is answered in favour of assessee and against revenue. 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 : Wed Apr 22 15:09:02 IST 2020 Commissioner of Income-tax-II v. Lal Kamla Trust