Sri Sri Sri Dattatreya Seva ... vs Assessee

Sri Sri Sri Dattatreya Seva Director of Income-tax Samsthanam (Exemptions), Hyderabad.

PAN - AAJAS 6062Q (Appellant) (Respondent)

Assessee by Shri K.K. Gupta Revenue by Smt. G. Aparna Rao

Date of hearing 05-01-2015 Date of pronouncement 14-01-2015

O RDE R

PER SAKTIJIT DEY, J.M.:

This appeal by the assessee is directed against order dated 26/02/14 passed by ld. DIT(E), Hyderabad, rejecting assessee's application for grant of registration u/s 12A of the Act.

2. Briefly the facts are, assessee claiming itself to be a charitable trust was created vide trust deed registered before the SRO, Karimnagar on 13/03/13. For availing exemption u/s 11 of the Act, assessee applied for registration u/s 12A of the Act by filing application in Form No. 10A on 26/08/2013 before ld. DIT(E), Hyderabad. After receiving application of assessee, ld. DIT(E) vide letter dated 19/11/2013 called upon assessee to produce the original trust deed and other documents as well as books of account for verification. He also issued a questionnaire seeking clarification on certain issues. After examining the reply of assessee and the 2 ITA No. 551/Hyd/201 4 Sri Sri Sri Dattatreya Seva Samsthan a m

informations submitted, ld. DIT(E) observed that though in Form No. 10A assessee has shown date of creation of trust as 13/03/2013, however, such date of creation is not mentioned in the trust deed. Further, trust deed does not contain amendment clause, audit clause and dissolution clause. He also observed that there is no clause in the trust deed making the trust irrevocable. Due to these deficiencies, ld. DIT(E) was of the view that the trust cannot be treated as a public charitable trust, hence, not eligible for registration u/s 12AA of the Act. On further verification of the objects mentioned in the trust deed, ld. DIT(E) observed that the trust has both religious and charitable objects. Ld. DIT(E) was of the view that as the trust is formed after 01/04/1962 and having mixed objects i.e. both charitable and religious, income of the trust will not be eligible for exemption u/s 11 of the Act. Ld. DIT(E) referring to certain judicial precedents held that as the trust is having mixed objects, it is not eligible for registration u/s 12AA of the Act. Accordingly, he rejected the application for grant of registration filed by assessee. Being aggrieved of the said order, assessee is before us.

3. Ld. AR submitted before us that refusal of registration on the ground of mixed objects is not tenable as assessee is essentially a charitable trust as it is engaged in providing services to all the beneficiaries irrespective of religion, caste and creed. Following the teachings of Lord Dattatreya, which is 'universal brotherhood-love all, serve all, help ever and hurt never'. Ld. AR submitted that even reading of the objects would make it clear that they are of charitable nature and not for the benefit of any particular religious community, hence, the objections of the ld. DIT(E) is not tenable. Ld. AR submitted that even a trust having mixed objects of both religious and charitable nature cannot be denied registration u/s 12AA as there is no such bar u/s 11 of the Act. In support of such contention, he relied upon the following decisions:

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1. M/s Shanthi Sadan Charitable Society Vs. DIT(E), ITA No. 1600/Hyd/12, dated 07/11/2013.

2. DIT (E) Vs. Seervi Samaj Tambaram Trust (Mad) [2014] 362 ITR 199 (Mad.)

3. Shree Swami Samarth Pariwar Vs. CIT, ITA No. 2506/Mum/11 dt. 22/08/12

4. CIT Vs. Dawoodi Bohara Jamat [2014] 364 ITR 31 (SC)

4. As far as the other allegations of ld. DIT(E) with regard to absence of certain clauses in trust deed and absence of date of creation of trust is concerned, ld. AR though admitted the fact that date of creation of trust is not mentioned in the trust deed, but, he submitted that date of registration of the trust deed can be considered as the date of creation of trust. With regard to absence of certain clauses in the trust deed, ld. AR submitted that by itself cannot be a reason to refuse grant of registration. Ld. AR submitted that there is nothing in law to support that these provisions are essentially required to be incorporated in a trust deed for getting itself registered u/s 12AA of the Act.

5. Ld. DR, on the other hand, relied on the decision of . ld. DIT(E).

6. We have considered the submissions of the parties and perused the materials on record as well as the impugned order of ld. DIT(E). As can be seen, ld. DIT(E) has refused to grant registration basically for the reason that the date of creation of the trust is not mentioned in the trust deed and certain clauses are not incorporated in the trust deed. Further, as the trust is having mixed objects i.e. both religious and charitable, it cannot be granted registration u/s 12AA of the Act. At the outset, we will deal with the issue as to whether a trust having mixed objects is ineligible for registration u/s 12AA. Before dwelling on this particular issue, it is necessary to mention that on perusal of the particular object clause referred to by ld. DIT(E), we are of the view that they cannot be considered to be of religious nature benefitting a particular religious community, caste or creed. Even 4 ITA No. 551/Hyd/201 4 Sri Sri Sri Dattatreya Seva Samsthan a m

assuming for the argument sake that assessee has mixed objects, but, still then that cannot by itself be a ground to deny registration to assessee u/s 12AA of the Act, for the following reasons:

6.1 Section 11(1)(a) of the Act makes no distinction between religious or charitable institution so far as grant of exemption is concerned, save and except the conditions imposed u/s 13 of the Act.

The word 'or' between charitable and religious as used in section 11(1)(a) is not disjunctive but conjunctive in nature, therefore, it is necessary to read that income derived from property held under trust wholly for charitable or religious purposes or both are exempt. The Hon'ble Supreme Court in case of CIT Vs. M/s Dawoodi Boharh Jamat, Civil Appeal No. 2492 of 2014 observed, in certain cases activities of the trust may contain elements of both religious and charitable and thus, both the purposes may be overlapping. More so, when the religious activity carried on by a particular section of people would be a charitable activity for or towards other members of the community or also public at large. Feeding animals or cow may be a religious activity for a particular community but may be charitable for others. Similarly, feeding poor people or giving water to thirsty may be religious for some but charitable for others. Analysing the objects of the trust by keeping the aforesaid principles in view, hon'ble Apex Court finally held as under:

"41.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.

42.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, 5 ITA No. 551/Hyd/201 4 Sri Sri Sri Dattatreya Seva Samsthan a m

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.

43.Thus, the second issue which arises for our consideration and decision is, whether the respondent-trust is a charitable and religious trust only for the purposes of a particular community and therefore, not eligible for exemption under Section 11 of the Act in view of provisions of Section 13(1)(b) of the Act.

44.In the instant case, the Tribunal has found on facts after analysing the objects of the trust that the respondent trust is a public religious trust and its objects are solely religious in nature and being of the opinion that Section 13(1)(b) is solely meant for charitable trust for particular community, negated the possibility of applicability of Section 13(1)(b) of the Act at the outset. The High Court has also confirmed the aforesaid view in appeal and observed that Section 13(1)(b) would only be applicable in case of income of the trust for charitable purpose established for benefit of a particular religious community. In our considered view, the said view may not be the correct interpretation of the provision.

45.From the phraseology in clause (b) of section 13(1), it could be inferred that the Legislature intended to include only the trusts established for charitable purposes. That however does not mean that if a trust is a 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 a trust for charitable purpose which is established for the benefit of any particular religious community or caste.

46.Such trusts with composite objects would not be expelled out of the purview of Section 13(1)(b) per se. The Section requires it to be established that such charitable purpose is not for the benefit of a particular religious community or caste. That is to say, it needs to be examined whether such religious-charitable activity carried on by the trust only benefits a certain particular religious community or class or serves across the communities and for society at large. (Sole Trustee, Loka Shikshana Trust v. CIT, (1975) 101 ITR 234 (SC)). The section of community sought to be benefited must be either sufficiently defined or 6 ITA No. 551/Hyd/201 4 Sri Sri Sri Dattatreya Seva Samsthan a m

identifiable by a common quality of a public or impersonal nature. (CIT v. Andhra Chamber of Commerce, 55 ITR 722).

47.This Court in CIT v. Palghat Shadi Mahal Trust, (2002) 9 SCC 685 the muslim residents of Kerala constituted a trust "for the purpose of constructing and establishing at Palghat-a-Shadi Mahal and other institutions for the educational, social and economic advancement of the Muslims and for religious and charitable objects recognised by Muslim law ..." and later clarified that the proceeds would be utilized for the benefit for public at large and upon this basis, the trust made a claim for exemption from tax under Section 11. This Court held that the resolution clarifying the object would not validly amend the object of the trust-deed and since the object confined the benefit to only muslim community, it would be covered by the restriction under Section 13(1)(b) of the Act even though it functioned for public benefit. Thus, therein the object sufficiently defined or expressly stated beneficiary class and restricted the activities of the trust to a specific community.

48.Further, in State of Kerala v. M.P. Shanti Verma Jain, (1998) 5 SCC 63 this Court has held that propagation of religion and restriction of benefits of activities of trust in its objects to the said community would render the trust as ineligible for claiming exemption under similar provisions of Kerala Agricultural Income Tax Act, 1950. The Court observed as follows:

"...The Deed of Trust and the rules run into more than thirty pages out of which six pages of the Trust Deed narrate the philosophy of Jain Dharma. The objects of the Trust clearly show that the Trust is meant for propagation of Jain religion and rendering help to the 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 the medical aid could be given to them only if any member of the families managing the Trust, shows sympathy and is interested in their treatment. The Tribunal, in our opinion, was right in its conclusion that the dominant purpose of the Trust in the present case was propagation of Jain religion and to serve its followers and any part of agricultural income of the Trust spent in the State of Kerala also could not be treated as allowable item of the expenses."

49.In the present case, the objects of the respondent-trust based on religious tenets under Quran according to religious faith of Islam. We have already noticed that the perusal of the objects and purposes of the respondent-trust would clearly demonstrate that the activities of the trust though both charitable and religious are not exclusively meant for a 7 ITA No. 551/Hyd/201 4 Sri Sri Sri Dattatreya Seva Samsthan a m

particular religious community. The objects, as explained in the preceding paragraphs, do not channel the benefits to any community if not the Dawoodi Bohra Community and thus, would not fall under the provisions of Section 13(1)(b) of the Act.

50.In that view of the matter, we are of the considered opinion that the respondent-trust is a charitable and religious trust which does not benefit any specific religious community and therefore, it cannot be held that Section 13(1)(b) of the Act would be attracted to the respondent-trust and thereby, it would be eligible to claim exemption under Section 11 of the Act."

6.2. In case of The Society of Presentation Sisters and others Vs. ITO, 318 ITR(AT)287, the Hon'ble Third Member while concurring with the view expressed by Hon'ble Accountant Member, held as under:

"It is clear from plethora of authorities where after considering the provisions of section 11(1)(a) that so far as the aforesaid provision is concerned, no distinction is made between charitable and religious purposes. A charitable institution can have religious purposes; whereas a religious institution may be partly charitable. Most of the decisions were given under the 1961 Act. Even where the decision was on consideration of 1922 Act, there is no material difference as is demonstrated in the above discussion. Their Lordships of the Supreme Court have held, as noted earlier, that charitable and religious purposes overlaps in India. Even otherwise relief and help to the poor, medical help to the needy, looking after of deity and temples (mosque, church included) are no doubt religious purposes but these are also considered as charitable in India. Therefore, the view taken in the two cases before me that exemption under section 11(1)(a) cannot be allowed to a charitable trust as it is also carrying some purposes which are termed as 'religious' is totally unwarranted. The above view is totally contrary to the well established an settled law in India, as laid down by their Lordships of the Supreme Court.

The other reason given by the learned Judicial Member is that two trusts in question are partly charitable or religious trusts established after April 1, 1962. Therefore, on account of language of the statute in section 11, there is prohibition from income derived from property held for charitable or religious purposes. According to him, income under both charitable and religious purposes cannot be combined together and the assessee has to choose either of the charitable activities or religious activities, but not both. I had to state that in my humble opinion, there is no statutory provision to support 8 ITA No. 551/Hyd/201 4 Sri Sri Sri Dattatreya Seva Samsthan a m

proposition of law, stated by the learned Judicial Member. The learned Judicial Member, like the revenue authorities, misconstrued the legal implication of the word 'or' in section 11(1)(a).

6.3. The principle of law emerging from the aforesaid decisions are a trust/institution having charitable and religious objects will be eligible for exemption u/s 11 unless hit by restrictions imposed u/s 13(1)(a) or 13(1)(b) of the Act. As in the present case, ld. DIT(E) has not brought any material on record to show that provisions of section 13(1)(a) or 13(1)(b) applies to the assessee, denial of registration u/s 12AA for alleged violation of section 11(1)(a), in our view, is not justified. Moreover, applicability of section 13 of the Act can be looked into by the AO at the time of assessment proceedings and not by ld. DIT(E) while exercising power u/s 12AA of the Act.

6.4 In view of the aforesaid, we hold that ld. DIT(E) was not justified in refusing grant of registration u/s 12AA of the Act on the ground that assessee is having mixed objects. We expect that in future ld. DIT(E) while considering such issue shall bear in mind the ratio laid down by Hon'ble Supreme Court in case of CIT Vs. M/s Dawoodi Bohara Jamat (supra).

7. As far as the other objections of ld. DIT(E) relating to non mentioning of date of creation of trust and absence of certain clauses in the trust deed, we have to observe that even though it is a fact that date of creation of trust is not specifically mentioned in the trust deed, however, the date of registration of the trust deed before the SRO i.e. 13/03/13 can be considered as the date of creation of trust. In so far as the absence of certain clauses, as mentioned in para 2 of ld. DIT(E)'s order is concerned, we are of the view that before refusing registration on the ground of absence of these clauses, ld. DIT(E) could have called upon assessee to explain on the issue and if necessary, asked assessee to make necessary amendments to the 9 ITA No. 551/Hyd/201 4 Sri Sri Sri Dattatreya Seva Samsthan a m

trust deed considering the fact that these clauses form part of a standard trust deed. However, without giving any opportunity to assessee to explain on the issue or make necessary amendment to trust deed, ld. DIT(E) was not justified in rejecting assessee's application for grant of registration u/s 12AA of the Act. In the aforesaid facts and circumstances, we consider it appropriate to set aside the impugned order of ld. DIT(E) and remit the matter back to his file to consider the issue afresh. Ld. DIT(E) if thinks it appropriate may suggest the assessee to make necessary amendment to trust deed incorporating the clauses as mentioned in para 2 of his order. Once, such amendment to the trust deed is carried out by assessee, ld. DIT(E) may grant registration to assessee u/s 12AA of the Act.

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

Pronounced in the open court on 14/01/2015.

Sd/- Sd/- (B. RAMAKOTAIAH) (SAKTIJIT DEY) ACCOUNTANT MEMBER JUDICIAL MEMBER

Hyderabad, Dated: 14 th January, 2015 Kv

Copy to:-

1) Sri Sri Sri Dattatreya Seva Samsthanam, C/o Shri KK Gupta, FCA Katrapalli & Co., CAs., 3464, Dundoo Vihar, RP Road, Secunderabad - 500 003.

2) DIT(E), Aayakar Bhavan, Basheerbagh, Hyderabad - 500 004.

3) DDIT(E) - I, Hyderabad

4)The Departmental Representative, I.T.A.T., Hyderabad.