Section 13 of Income Tax Act applies only on the eligibility of exemption of income u/s 11 and not at the time of grant of registration u/s 12AB.
In a recent judgment, Hon’ble Supreme Court dismissed the appeal of the CIT(E) against the High Court judgment upholding that exclusions provided in section 13(1)(b) related to trust created for the benefit of a particular religious community/caste to be applied only when the eligibility of exemption of income u/s 11 and not at the time of grant of registration u/s 12A.
ABCAUS Case Law Citation:
4727 (2025) (08) abcaus.in SC
In the instant case, the Commissioner of Income Tax (Exemption) had challenged the order passed by the Hon’ble High Court dismissing its appeal and upholding decision of the Tribunal directing it to grant registration u/s 12AB of the Income Tax Act, 1961 (the Act).
The assessee in this case was a trust. The assessee-trust filed an application seeking registration under Section 12AB of the Act in Form No.10AB under Rule 17A of the Income Tax Rules, 1962.
Pursuant to an application, the CIT (E), issued notice to the assessee and called for certain details. Upon verification of details, it was found by CIT(E) that the objects of the assessee – trust were for the benefit of particular religious community or caste and accordingly, the CIT(E), held that the assessee was not entitled for exemption in terms of Section 13(1)(b) of the Act.
Accordingly, the CIT(E), denied assessee, grant of registration under Section 12A of the Act. Aggrieved by rejection of registration, the assessee filed appeal before ITAT/Tribunal.
The Tribunal observed that the CIT(Exemption) totally mis-appreciated the decision rendered by the Hon’ble Supreme Court which had categorically held that Trust with charitable objects, which existed for the benefit of a particular religious community qualified as charitable entity serving the public at large and this was sufficient for grant of registration under Section 12A of the Act, and the provisions of Section 13(1) (b) of the Act would be attracted only at the time of granting exemption to the assessee, wherein if it was found that the trust existed for the benefit of a particular religious community only, the exemption under section 11 was to be denied to the assessee. The Hon’ble Apex Court, therefore, categorically found that as per the provisions of law, section 13(1) (b) could not be applied for denying the grant of registration, but was to be applied only while granting/denying exemption to the assessee.
The Tribunal further observed that the Hon’ble Apex Court had categorically held that section 13(1)(b) comes into picture and is to be applied only when the eligibility of exemption of income in terms of provisions of section 11 is to be determined and not at the time of grant of registration. The assessee has to first cross the hurdle of being eligible to exemption under section 11 by obtaining a certificate of registration under section 12A in this regard. Having crossed this hurdle, only then the provisions of section 13(1)(b) would come into picture, and a trust which is for the benefit of particular community, but it objects are otherwise charitable, is a valid trust for the purpose of grant of registration.
The Tribunal noted that the CIT(Exemption), only picked a portion of the order of tire Hon’ble Apex Court, wherein it had been held that the provisions of section 13(1)(b) of the Act would be applicable to a trust with mixed objects i.e. both charitable and religious. But he failed to take note of the finding of the Hon’ble Apex Court that section 13(1)(b) would apply only at the time of grant of exemption under section 11, and not at the time of grant of registration under section 12A of the Act.
The Tribunal further observed that this view was supported by the decision of the Hon’ble jurisdictional High Court wherein on the issue of denial of grant of registration u/s 12A of the Act by invoking section 13(1)(b) of the Act, it was categorically held that the provisions of section 13 would be attracted only at the time of assessment and not at the time of grant of registration.
Even otherwise, the Tribunal observed that the trust had several objects for the benefit of general public and CIT(Exemption) had referred to only one of the object which was to grant scholarship to Muslim students for their studies and to make provision so can get religious education for arriving at his finding that the objects are for the benefit of a particular religious community- so as to invoke section 13(1) (b) of the Act.
The Tribunal opined that when majority of the objects were found to be not catering to a particular community and no finding of the assessee actually catering for the benefit of a particular community, there was no case for invoking section 13(1) (b) of the Act in the case.
The ITAT allowed the Appeal of the assessee and directed CIT(E) to grant the assessee registration under section 12A of the Act.
Aggrieved by the order of the ITAT, the CIT(E) challenged it before the jurisdictional High Court.
The CIT(E) raised the question on the interpretation by the ITAT of the decision of the Hon’ble Supreme Court. The CIT(E) also sought to support its decision in the light of insertion of new procedure of registration under Section 12A of the Act, whereby as per clause (d) below explanation to sub section (4) of Section 12AB of the Act, application of income for the benefit of any particular religious community has been listed as a specific violation for cancellation of registration of trust.
However, in view of the findings of the Tribunal and decision of the Co-ordinate Bench, the Hon’ble High Court held that hat the objects of the trust were not wholly for the benefit of a particular religious community, but were largely charitable in character for general public at large and for the purpose of granting registration under 12A of the Act, the provision of section 13(1)(b) cannot be referred to.
In view of the above the Hon’ble High Court dismissed the appeal.
Still not satisfied, the CIT(E) filed a Special Leave Petition (SLP) before the Hon’ble Supreme Court challenging the dismissal of its appeal by the High Court.
However, the Hon’ble Supreme Court dismissed the SLP on the ground of delay as well as merits.
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