The Apex Court explains “religious or charitable purpose” for claiming exemption under Section 11
The Apex Court in the case of CIT vs. Dawoodi Bohara Jamat, Civil Appeal No. 2492 of 2014, on 20.2.2014 has held that a charitable and religious trust which does not benefit any particular religious community does not attract Section 13(1) (b), as such, it would be eligible to claim exemption under Section 11 of the Income Tax Act.
Backgrounds of the case:
The appeals arose out of the common judgment and order passed by the Hon’ble High Court of Madhya Pradesh at Indore in ITA No.112 of 2008 and other appeals dated 22.06.2009.
The respondent was a registered Public Trust under the M.P. Public Trusts Act, 1951 and had filed an application for registration before the Commissioner of Income Tax as provided under Section 12A read with Section 12AA of the Income Tax Act for getting the exemption under Section 11 of the Act.
The Commissioner after giving an opportunity of hearing to the applicants concluded that the respondent was a charitable trust and as the object of the trust was confined only to a specific religious community, it would attract the provisions of Section 13(1) (b) of the Act and accordingly rejected the prayer for registration of the trust by an order dated 14.09.2007.
Aggrieved by the said order, the respondent filed an appeal before the Tribunal. The Tribunal after going through the objects of the trust concluded that the respondent was a public religious trust and as its objects were totally religious in nature, the provisions of Section 13(1)(b) which were otherwise applicable to charitable trusts would not be applicable.
It was held that the respondent was entitled to claim registration under Sections 12A and 12AA. The appeal was allowed and the order passed by the Commissioner was set aside and the Commissioner of Income Tax was directed to allow registration under Section 12A and Section 12AA of the Act to the applicant trust.
Aggrieved by the aforesaid order passed by the Tribunal, the Revenue moved the Hon’ble High Court under Section 260Aof the Act.
By the impugned judgment, the Hon’ble High Court held that since the Income Tax Appellate Tribunal has recorded a finding that the respondent was a public religious trust, having powers under Section 260A of the Income Tax Act, 1961, it would not interfere with such a finding that the respondent being a public religious trust, the provisions of Section 13(1)(b) would not apply to it and accordingly dismissed the appeal preferred by the Revenue by a judgment dated 22.06.2009 confirming the orders of the Tribunal dated 28.03.2008.
Being aggrieved by the aforesaid order, the Revenue filed the instant appeals.
Issue raised before the Apex court:
The main issue which arose before the Apex court was whether the respondent-trust was entitled for registration under Section 12A read with Section 12AA of the Act for claiming exemption under Section 11 and 12 read with Section 13 of the Act.
The contentions of the parties:
The Revenue submitted that the objects of the respondent-trust were not totally religious but were charitable and restricted to the benefit of a religious community, the Dawoodi Bohra community and the provisions of Section 13(1)(b) of the Act would apply to the respondent-trust from the scope of exemption granted under Section 11 and 12 of the Act and therefore, the conclusion of the Tribunal as confirmed by the High Court in the impugned judgment should be set aside.
The respondent-trust contended that as it was a Public Religious Trust having religious objects, Section 13(1) (b) would not be attracted. Therefore, the finding of the High Court in its judgment does not suffer from any defect and the appeals should be dismissed.
The judgment with reasons:
The Apex Court heard the parties to the appeals and carefully perused the judgment and order passed by the High Court. The objects and purposes of the trust were also referred which was the subject matter before the Commissioner and the Tribunal.
Reference was made to the relevant provisions of the Act. The income of a charitable or religious trust is exempt from income tax under the provisions of Sections 11, 12, 12A, 12AA and 13 of the Act.
Section 11 deals with income from trusts for charitable and religious purposes and states the nature of income which is eligible to exemption. Section 11(1) deals with application of income for the objects of the trust and exempts that kind of income which are fully charitable or religious. Section 11(1A) deals with exemption of capital gains of trusts. Section 11(1B) relates to failure to apply income as per section 11(1). Section 11(2) deals with setting apart of income. Section 11 does not apply when Section 13 is attracted.
Essential conditions which should be satisfied by a trust to claim exemption under the said sections are:
1. The person receiving the income has applied for registration of the trust on or after 01.06.2007 in the form and manner which have been prescribed and it is registered under Section 12AA; and
2. Where the total income of the trust is more than the maximum amount which is not chargeable to tax in any previous year, the accounts must be audited by a chartered accountant and the person should file such audit report along with the return.
In view of the above, it was held that the respondent-trust was a charitable and religious trust which does not benefit any particular religious community and therefore, Section 13(1) (b) of the Act would not apply to the respondent-trust and it can claim exemption under Section 11 of the Act.
As a result, the appeals were dismissed with no order of costs.