Religious and charitable society/trust can not be denied exemption u/s 11 if not exclusively meant for one particular religious community- High Court
ABCAUS Case Law Citation:
ABCAUS 2065 (2017) (09) HC
The Substantial Question of Law urged/framed for determination:
The Revenue urged the following question:
Whether it could be said that the Assessee-Society is a charitable society established ‘for the benefit of any particular religious community or caste’ thereby in violation of Section 13 (1) (b) of the Income Tax Act?
Important Case Laws Cited/relied upon by the parties:
Commissioner of Income Tax v. Dawoodi Bohra Jamat [2014] 364 ITR 31 (SC)
CIT v. Palghat Shadi Mahal Trust [2002] 254 ITR 212 (SC),
Grounds raised by the appellant Assessee:
The case of the Revenue was that the Society was carrying out activities ‘directed towards the benefit of a particular community’ and therefore, in terms of Section 13 (1) (b) of the Act, it was not entitled to exemption under Section 11 of the Act.
Brief Facts of the Case:
The assessee -Society was registered under Section 12A (a) of the Act. The certificate issued in this respect stated that the application made by the Assessee-Society had been entered in the register maintained in the office of Commissioner of Income Tax u/s 12A(a) of the Act.
The main object of the Assessee-Society was to undertake the dissemination of useful religious knowledge in conformity with the purposes of the Church of Jesus Christ of Latter-Day Saints, to assist in promulgation of worship in the Indian Union, to establish places of worship in the Indian Union, to promote, sustain and carry out programmes and activities of the Church, which are, among others, educational, charitable, religious, social and cultural etc.
An amendment to the Memorandum of Articles of Association was adopted by the Assessee-Society. The amended clause read as under:
“In order to serve the charitable purposes of The Church of Jesus Christ of Latter day Saints (“the Church”) in providing educational opportunities to its young members who cannot afford to finance their educations, (i) to act as disburse, collect, and service loans to students who qualify for low interest loans under the Perpetual Education Fund (“PEF”) or International Education Fund (“IEF”) programs of the Church, or (ii) if necessary to administer such programs and conduct all such activities in the name of the Society, subject in all cases to compliance with applicable laws”
In the assessment order for the AY 2012-13, the Assessing Officer (AO) held that the Assessee was incurring expenditure for upkeep of the priests who belonged to a particular community. The AO observed that “their upkeep is no charity.” He then concluded that “the assessee society had not pursued any activity in the true nature of charity for the general public directly itself.”
The assessee society pointed out that only after being satisfied that its activities were of religious and charitable nature it was granted registration under Section 12A (a) of the Act and that the said registration continues.
However, the AO was of the view that said registration “does not give blanket exemption to any entity.” The AO noted that the expense incurred by the Assessee included donations for general public utility. However, on the ground that it constituted “a very small part of the total expenditure” the AO held that the Assessee was not using its funds for public benefit but rather for the benefit of specified persons under Section 13(3) of the Act.
The CIT (A), observed that no logical explanation had been provided to explain that the society was not for one religious community alone. In other words what weighed with the CIT (A) too was that even if the Society’s activities were for both charitable and religious purposes, since it was for the benefit of one religious community alone, Section 13(1)(b) of the Act would be attracted and it could not be granted exemption under Section 11 of the Act.
The ITAT noted that the assessee was actually carrying out the following activities:
(i) Daily Meetings on essentials of life.
(ii) Conference and Seminars.
(iii) Health Camps.
(iv) Adult Education Programmes.
(v) Programmes on values of life for Young Adults.
(vi) Programmes on Good Citizenship.
(vii) Programmes on family values and Self Reliance.
(viii) Conduct District and Branch Affairs.
(ix) Teach Community Welfare.
(x) Develop Talent for Cultural Arts.
(xi) Hold Programmes for Vocation Training.
(xii) Developing Leadership Skills.”
The ITAT pointed out that neither the AO nor the CIT(A) undertook any factual examination in arriving at conclusions.
The ITAT noted that the documents filed before the ITAT by the Assessee provided the names and designations of the persons managing and carrying on the activities of the Society. It showed that priests were not managing the affairs of the society. Further, the Assessee had in its letter addressed to the AO listed the activities carried out by it. In particular it stated that the programmes conducted by the Assessee Society were open for public at large without any distinction of caste from a creed or religion and the benefits of these programmes held at the meeting house were available to the general public at large.
Observations made by the High Court:
The High Court noted that no question of law has been urged by the Revenue that the factual findings of the ITAT were perverse and unsupported by the documents placed on record by the Assessee.
Referring to the decision of the Supreme Court, the High Court noted that the Apex Court analyse Section 13(1)(b) and observed as under:
“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 purpose. 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.
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 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…”
The High Court noted that in the instant case, the factual determination by the ITAT had not been shown by the Revenue to be perverse.
The High Court opined that It is not the percentage of expenditure on persons not belonging to the religious community that mattered. What was significant was that there were donations made by the Society for the general public utility. This showed that it was not exclusively for the benefit of one particular religious community.
The High Court observed that the CIT (A) had proceeded on the basis that although the Assessee Society was for both religious and charitable purposes, since it was for the benefit of only one religious community the provision of Section 13(1)(b) would apply to deny it exemption under Section 11 of the Act.
The High Court opined that such conclusion drawn by CIT(A) was legally flawed. It was contrary to the decision of the Supreme Court which held that even where the trust or society has both religious and charitable objects, “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”. In that case it was factually found that “the activities of the trust though both charitable and religious are not exclusively meant for a particular religious community” and, therefore Section 13(1)(b) was not attracted.
The High Court found that the in instant case too, the factual finding of the ITAT was likewise. It had been found that the activities of the Assessee Society, though both religious and charitable, were not exclusively meant for one particular religious community. It was, therefore, rightly not denied exemption under Section 11 of the Act.
Held:
No substantial question of law arises from the impugned order of the ITAT. The appeal is dismissed
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