Allahabad H.C : Where dominant object underlying constitution of trust was for benefit of only Agrawal community, application for registration under section 12AA should be dismissed

High Court Of Allahabad

Agrawal Sabha vs. CIT –I

Section : 2(15), 12AA

Assessment Year : 2010-11

Dr. Dhananjaya Yeshwant Chandrachud, Cj. And Dilip Gupta, J.

IT Appeal No. 64 Of 2014

March 24, 2014

ORDER

1. The appeal by the assessee under Section 260A of the Income Tax Act, 1961, arises from a judgment of the Income Tax Appellate Tribunal, Agra, dated 31 October 2013. The assessee had filed an application for registration under Section 12AA of the Income Tax Act. The Commissioner of Income Tax-I, Agra, in an order dated 15 July 2013 rejected the application on the ground that (i) the dominant object underlying the constitution of the trust was for the benefit of only the Agrawal community; and (ii) during the financial year 2011-12, the assessee earned income of Rs.17.96 lacs and incurred an expenditure of Rs. 20.74 lacs in organizing ‘Shri Maharaja Agrasen Jayanti’ which indicates that the activity was specifically for the Agrawal community.

2. The other expenses of the trust were found to be as follows :

“Donation 18,200/-

Web Site Exp. 1,500/-

Stationery 1,650/-

Ugai (Bad Debts) 25,900/-

Bank Charges 556/-

Misc. Exp. 39,801/-

Salary A/c 6,000/-

Scooter Exp. 42,129/-

The Commissioner also found that no documentary evidence had been produced before him to support that the trust had carried out any activity of general public utility such as the establishment of hospitals, dharamshalas, libraries and schools. Since all the activities related to a particular community, namely the Agrawal community, the application was dismissed. The assessee carried the matter in appeal before the Income Tax Appellate Tribunal. The Tribunal has, during the course of its judgment dated 31 October 2013, specifically recorded the admission of the learned counsel appearing on behalf of the assessee made in the course of the submissions.

For convenience of reference, it would be necessary to extract the specific admission recorded in the order of the Tribunal in that regard: “(i) During the course of arguments, the ld. counsel for the assessee admitted that the assessee did not file any evidence or material before the ld. CIT to contradict the report submitted by the AO against interest of assessee at the enquiry stage of registration application; (ii) The ld. counsel for the assessee, however, admitted that no list of occupants in any Dharamashala was furnished before the ld. CIT and no such details have been furnished in the paper book.”

3. Besides this, the Tribunal has noticed that the learned counsel appearing on behalf of the assessee did not contradict the finding of fact recorded by the CIT in his order that during the financial year 2011-12, as against an income of Rs.17.96 lacs, the trust had incurred an expenditure of Rs.20.74 lacs in organizing ‘Shri Maharaja Agrasen Jayanti’ which was meant only for the Agrawal community. The Tribunal also recorded the admission that no documentary evidence was furnished either before the CIT or before the Tribunal in respect of any activity of a general public utility.

4. But, it has been urged on behalf of the assessee by the learned counsel that during the course of the hearing before the Tribunal a paper book was filed. A copy of the index has been extracted in paragraph 9 of the writ petition. The balance sheet of the assessee as at 31 March 2012, to which the attention of the Court has been drawn by the learned counsel, would indicate as the assets of the trust, a building valued at Rs. 2.53 crores. The income and expenditure account indicates that an amount of Rs. 80,900/- was realised towards booking of rooms. Even if this aspect is duly taken into account, it is evident that both the Tribunal and in the first instance the CIT held that the activity undertaken by the trust during the financial year in question related only to the Agrawal community and absolutely no documentary evidence was furnished to the effect that the dharamshala had been put to use of members other than those belonging to that particular community.

5. However, in all fairness, the Tribunal has granted liberty to the assessee to move a fresh application for registration before the CIT so as to establish that the objects of the society were charitable or religious in nature and that its activities were genuine.

6. Section 12AA(1) of the Income Tax Act, 1961, lays down a procedure which has to be followed for the registration of a trust under clause (a) or clause (aa) of sub-section (1) of Section 12A by the Commissioner. Section 12AA mandates that the Commissioner has to satisfy himself, after calling for documents or information from the trust, about the genuineness of the activities of the trust or institution and the objects of the trust.

7. In a recent judgment of the Supreme Court in CIT v. Dawoodi Bohara Jamat [2014] 43 taxmann.com 243, it has been held that Sections 11 and 12 are substantive provisions which provide for exemptions to religious or charitable trusts. Sections 12A and 12AA lay down the procedural requirements. Section 13 sets out the circumstances in which the exemption would not be available to a religious or charitable trust. One restriction is where the trust or institution is created or established for the benefit of any particular religious community or caste [Section 13(1)(b)]. In this context, while interpreting the scheme of these provisions, the Supreme Court has held that Section 13 has to be read in conjunction with the provisions of Sections 11 and 12 for determining the eligibility of a trust to claim exemption under the aforesaid provisions:

“16. Therefore, under the scheme of the Act, Sections 11 and 12 are substantive provisions which provide for exemptions available to a religious or charitable trust. Income derived from property held by such public trust as well as voluntary contributions received by the said trust are the subject-matter of exemptions from the taxation under the Act. Sections 12A and 12AA detail the procedural requirements for making an application to claim exemption under Sections 11 or 12 by the assessee and the grant or rejection of such application by the Commissioner. A conjoint reading of Sections 11, 12, 12A and 12AA makes it clear that registration under Sections 12A and 12AA is a condition precedent for availing benefit under Sections 11 and 12. Unless an institution is registered under the aforesaid provisions, it cannot claim the benefit of Sections 11 and 12. Section 13 enlists the circumstances wherein the exemption would not be available to a religious or charitable trust otherwise falling under Section 11 or 12 and therefore, requires to be read in conjunction with the provisions of Sections 11 and 12 towards determination of eligibility of a trust to claim exemption under the aforesaid provisions.”

8. In the case before the Supreme Court, it has further been held as follows:

“45…. 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.”

9. In the present case, the CIT has held that the dominant nature underlying the setting up of a trust was to benefit only the Agrawal community. The CIT relied upon such material as was produced by the assessee. If according to the assessee, the trust exists not merely for the benefit of the Agrawal community or for a particular religious group but for the benefit of the general public for a charitable or religious purpose, it would be necessary for the assessee to satisfy the Commissioner about the activities of the trust or the genuineness of its objects. Such a requirement is expressly incorporated in clauses (a) and (b) of sub section (1) of Section 12AA.

10. The assessee having failed to discharge the burden, the Tribunal in our view was justified in confirming the decision of the Commissioner. At the same time, it has been left open to the assessee to move a fresh application for registration before the Commissioner. We need only to clarify that if this is done, it shall be duly considered in accordance with law on the basis of the materials that will be produced by the assessee.

11. Learned counsel appearing on behalf of the assessee relied upon an earlier judgment of the Supreme Court in Ahmedabad Rana Caste Association v. CIT [1971] 82 ITR 704. The judgment of the Supreme Court may not be of much assistance to the appellant since the position under the 1922 Act was materially different from the Act of 1961, as would be apparent from the following extract of the judgment:

“4…

Under the Act 1922 a trust for the benefit of any particular religious community or caste was entitled to exemption but under the Act of 1961, a charitable trust which is created for such benefit on or after the first day of April, 1962, would be disentitled to the exemption. In the present case the trust was created prior to 1st April, 1962, and, therefore, no question arises of its not being entitled to the exemption if other conditions were satisfied even though it was created for the benefit of the Rana caste of Ahmedabad.”

12. In the circumstances, on the basis of the material which was produced by the assessee on the record of the Commissioner and before the Tribunal, we are of the view that no substantial question of law would arise in this appeal so as to warrant the interference of this Court. However, while dismissing the appeal, we clarify that this would not affect the liberty which has been granted to the society to file a fresh application for registration.

13. The appeal is, accordingly, dismissed. There shall be no order as to costs.

 

[Citation : 365 ITR 244]