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M/s. Sadiya Educational & Charitable Trust Versus Commissioner of Income Tax, Davangere.

2015 (10) TMI 482 - ITAT BANGALORE

Registration under Section 12AA refused - Held that:- Objects of the assessee trust are charitable in nature, coming under the provisions of Section 2(15) of the Act. The only objection of the ld. CIT for grant of Registration was that the objects of the Trust contained in Deed dt.4.6.2005 showed that the trust was set up for the benefit of a particular community. Whatever may be the correctness or otherwise of the said findings of the learned CIT, it is only the amended objects that have to be .....

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complies with the requirements contained therein to claim exemption. - Decided in favour of assessee. - I.T. A. Nos.422 & 1632/Bang/2013 - Dated:- 4-9-2015 - SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI JASON P. BOAZ, ACCOUNTANT MEMBER For The Appellant Shri V. Srinivasan, C.A. For The Respondent Shri G.R. Reddy, CIT (D.R) ORDER Per Shri Jason P. Boaz, A.M. : These two appeals by the assessee are directed against two separate orders under Section 12AA of the Income Tax Act, 1961 (in short  .....

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see trust made an application for registration in Form No.10A on 30.3.2011. The said application was disposed off by the CIT, Davangere by order dt.28.9.2011, refusing it registration on the ground that the assessee had not fulfilled the conditions for grant of registration. In the said order it was mentioned that some of the objects mentioned in Chapter IV of the Trust Deed are for the benefit of a particular religious community and therefore the provisions of Section 13(1)(b) of the Act, was a .....

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and remanded the issue of grant of registration for fresh consideration vide its order in ITA No.1235/Bang/2011 dt.12.9.2012 granting the assessee liberty to put forth all its contentions in this regard. 2.3 Subsequent to the order of the ITAT, Bangalore in ITA No.1235/Bang/2011 dt.12.9.2012, the assessee appeared before the CIT, Davangere and made its submissions. It was contended by the assessee that the benefits of the trust were open to all persons and it was not restricted to a particular c .....

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uished the decision of the Hon'ble Apex Court in the case of Ahmedabad Rana Caste Association reported in 140 ITR 1 on the ground that the said judgment was rendered before the enactment of section 13(1)(b) of the Act w.e.f. 1989 and that therefore the assessee could not derive any support form that judgment. 2.4 Aggrieved by the aforesaid order of the CIT, Davangere dt.31.1.2013, the assessee preferred an appeal in ITA No.422/Bang/2013 raising the following grounds 1. The order of the learn .....

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the facts and in the circumstances of the appellant s case. The finding is on erroneous appreciation of the facts and requires to be vacated. 3. The learned CIT (Appeals) failed to appreciate all the objects mentioned in the trust deed are charitable in nature as contemplated under Section 2(15) of the Act and the objects of developing the Muslim community like object No.1, 2, 9, 11, 19, 20 & 21, which is a broad cross section of general public itself is an object of advancement of general p .....

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ular religious community in respect of certain objects in view of explanation (2) to section 13, the provisions of section 13(1)(b) of the Act would not apply as these objects of the trust is for the benefit of women and children and the trust is entitled to the benefits of section 11 of the Act and the provisions of section 13(1)(b) of the Act would not apply and the learned CIT ought to have granted the registration under Section 12AA of the Act. 5. The learned CIT is not justified in holding .....

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in the case of CIT V Ahmedabad Rana Caste Association reported in 140 ITR 1, is applicable and further the objects if they are considered for the benefit of a community, such objects are for the benefit of women and children of such community and they are excepted from the rigour of section 13(1)(b) of the Act. 6. For the above and other grounds that may be urged at the time of hearing of the appeal, your appellant humbly prays that the appeal may be allowed and justice rendered. 3.1 After the .....

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ucation and awareness of education amongst women and children irrespective of any caste, creed or religious affiliation and therefore the Author of the Trust decided to amend the aims and objectives in the original Trust Deed dt.4/6/2005/ It was stated in the Deed of Amendment that the aims and objects of the Trust shall be amended and replaced with the objects mentioned in the Amendment Deed, which will be adverted to w.r.e.f. 4.6.2005 itself. 3.2 Based on the Amendment Trust Deed dt.18.3.2013, .....

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ed Trust Deed evidences that the assessee had agreed with the findings in the earlier order dt.31.1.2013. In that view of the matter, the fresh application for registration also come to be rejected by the order of the learned CIT dt.27.9.2013. 3.3 Aggrieved by the order of the CIT, Davangere dt.27.9.2013 rejecting the application for Registration under Section 12AA of the Act dt.28.3.2013, the assessee has preferred this appeal raising the following grounds 1. The order of the learned CIT (in th .....

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ction of application for registration under Section 12AA of the Act, dated 31.1.2013, under the facts and in the circumstances of the appellant s case. 3. The learned CIT (Appeals) failed to appreciate that after rejection for grant of registration under Section 12AA of the Act dt.31.1.2013, the appellant had amended its trust deed to the clarify and remove any doubts that it exists to cater to a particular community and thereafter has applied fresh application for grant of registration under Se .....

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ose the two appeals hereunder. ITA No.422/Bang/2013. 5.1 Though as many as 6 grounds have been raised in this appeal in ITA No.422/Bang/2013, the only question that arises for our consideration is whether the assessee is entitled for registration under Section 12AA of the Act, especially in the light of the aims and objects contained in Chapter IV of the Trust Deed dt.4.6.2005. The case of the ld. CIT is that certain objects showed that the benefits of the Trust are restricted to members of the .....

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ity or sex. Reliance was placed by the learned Authorised Representative on the decision of the Hon'ble Apex Court in the case of CIT V Dawood Bohra Jamat reported in (2014) 102 DTR (SC) 361. It was contended that the upliftment of a community itself was an object of general public utility as held by the Hon'ble Apex Court in the case of Ahmedabad Rana Caste Association reported in 140 ITR 1. It was submitted that the provisions of section 13(1)(b) of the Act, is to the effect that a tru .....

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objects of the respondent-trust are not indicative of a wholly religious purpose but are collectively indicative of both charitable and religious purposes. It is expedient to comprehend the objects of the respondent-trust with reference to the construction of the expressions charitable purpose and religious purpose. 29.................................. 30.According to Section 2(15), the expression charitable purpose has been defined by way of an inclusive definition so as to include relief to th .....

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ublic or a section of the public as distinguished from benefit to an individual or a group of individuals would be a charitable purpose. (CIT v. Ahmedabad Rana Caste Assn.) The said expression would prima facie include all objects which promote the wellbeing of the general public. It cannot be said that a purpose would cease to be charitable even when public welfare is intended to be served. 31.The Constitution Bench of this Court in CIT v. Surat Art Silk Cloth Manufacturers Assn. has held that .....

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the aforesaid test of predominant purpose and held that the purposes which would yield to profit or not in general public interest could be separated and the trust would only be exigible to tax to the extent of the charitable purposes under its objects. In CIT v. Kamla Town Trust, (1996) 7 SCC 349, the object of the trust included construction of houses for workmen in general and in particular for the workmen, staff and other employees of the settler company. It was held that while the provisio .....

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n 4(b) of the Kerala Agricultural Income Tax Act, 1950. The 3/4th of the income of the bequest was primarily earmarked for the benefit of near relations of the testator only, it cannot be considered as a public charitable trust. While the rest one-fourth was concluded to form the valid charitable trust. (Trustees of Gordhandas Govindram Family Trust v. CIT). In CIT v. Andhra Chamber of Commerce; Ahmedabad Rana Caste Assn. v. CIT; Sole Trustee, Loka Shikshana Trust v. CIT and Yogiraj Charity Trus .....

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ilanthropy which could be manifested in various forms. It is held that gifts for religious purposes are prima facie gifts for charitable purposes. (Schoales v. Schoales [1930] 2 Ch. 75 (CA); White v. White (1893) 2 Ch. 41 (CA)) 35.Unlike the phrase charitable purpose , religious purpose is not defined under the Act. According to lexicographers, the term religious would mean of or relating to religion. (Merriam Webster Dictionary, Macmillan English Dictionary). The Shorter Oxford English Dictiona .....

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rvance of rituals and ceremonies, propagation of tenets of the religion and other allied activities of the religious community. An example of such would entail activities such as the dance performances (Garba) or distribution of food specifically for people on fast during the Hindu festivities of Navratri. 36.In certain cases, the activities of the trust may contain elements of both: religious and charitable and thus, both the purposes may be over lapping. More so when the religious activity car .....

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r to the thirsty would find mention as religious activity in sacred texts and at the same time would qualify as a charitable activity. 37................................. 38. Unquestionably, objects (c) and (f) which provide for the activities completely religious in nature and restricted to the specific community of the respondent-trust are objects with religious purpose only. However, in respect to the other objects, in our view the fact that the said objects trace their source to the Holy Qur .....

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s of public benefit or not, the Courts must in general apply the standards of customary law and common opinion amongst the community to which the parties interested belong to. Therefore, it is pertinent to analyse whether the customary law would restrict the charitable disposition of the intended activities in the objects. 39.The provision of food to the public on religious days of the community as per object (a) and (b), the establishment of Madarsa and organizations for dissemination of religi .....

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spectively. Nyaz refers to the food a person makes and offers to others on any particular occasion on the occasion of the death of a saint and Majhlis implies a place of gathering or meeting. The activity of providing for food on certain specific occasions and other religious and auspicious events of the Dawoodi Bohra community do not restrict the benefit to the members of the community. Neither the religious tenets nor the objects as expressed limit the service of food on the said occasions onl .....

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ead of education under the provisions of Section 2(15) of the Act. The institutions established to spread religious awareness by means of education though established to promote and further religious thought could not be restricted to religious purposes. The House of Lords in Barralet v. IR, 54 TC 446, has observed that the study and dissemination of ethical principles and the cultivation of rational religious sentiment would fall in the category of educational purposes. The Madarsa as a Mohomme .....

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h 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........................ 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 .....

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t 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 identifiable by a .....

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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. 5.4. The general principles that can be culled out from the above decision, in our view, appears to be that the test of predominant purpose of the objects of the trust have to be considered and if the predominant purpose does not show any channeling of b .....

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dt.27.9.2013 of the learned CIT will automatically dispose off this appeal and no separate adjudication is required as these objects are no longer relevant for the purpose of grant of Registration under Section 12AA of the Act. ITA No.1632/Bang/2013 6.1 Although several grounds have been raised in this appeal, the sole issue that arises for our consideration is whether the assessee is entitled to Registration under Section 12AA of the Act in the light of the amended objects contained in the Ame .....

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; have been inserted. As a result of the aforesaid amendment, cl. 2(vi) reads as under "To render aid to any persons in distress and to grant monthly and other periodical aids to them." The supplementary deed dt. 21st May, 1958, was executed by the settlor, Shri Lakshminarain Lath, and who is party of the one part and the trustees of the assessee who are parties of the other part in the said deed. The trustees who were parties to the supplementary deed were Shri Lakshminarain Lath, the .....

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e meanwhile, Shri Bissessurlal Lath had died and in his place, Shri Mahabir Prasad Poddar had been appointed as a trustee and he was a party to the settlement deed dt. 21st May, 1958. 10. The Bombay Bench of the Tribunal, in its order dt. 30th Sept., 1975, has held that amendments introduced in the settlement deed by the supplementary deed were invalid for the reason that the objects of the trust as set out in the original trust deed could be modified only with the consent of the beneficiaries a .....

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ec. 58 relates to the right of the beneficiary to transfer his beneficial interest. Sec. 61 provides for the right of the beneficiary to compel the trustee to perform any particular act or his duty. Sec. 78 provides for revocation of the trust. On a closer reading of the order of the Bombay Bench of the Tribunal, we find that the Tribunal has relied upon s. 11 of the Indian Trusts Act. Shri Surolia, learned counsel for the Revenue, has also laid stress on the provisions of the said section which .....

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quire a trustee to obey any direction when to do so would be impracticable, illegal or manifestly injurious to the beneficiaries. Explanation.-Unless a contrary intention be expressed, the purpose of a trust for the payment of debts shall be deemed to be (a) to pay only the debts of the author of the trust existing and recoverable at the date of the instrument of trust, or, when such instrument is a will, at the date of his death, and (b) in the case of debts not bearing interest, to make such p .....

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English Law, are applied by the Courts to public trusts also (See Phulchand Lakhmichand Jain vs. Hukamchand Gulabchand Jain, AIR 1960 Bom 438 and Kishore Joo vs. Guman Behari Joo Deo, AIR 1978 All 1. In State of Uttar Pradesh vs. Bansi Dhar, AIR 1974 SC 1084, the Supreme Court has observed as under "The next question is whether the Indian Trusts Act, 1882, applies to the present case. The Courts below have argued themselves into an application of s. 83 of the Trusts Act. Shri Dixit rightly .....

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e to the general law of trusts, but we need have no inhibitions in administering the law by invoking the universal rules of equity and good conscience upheld by the English Judges, though also sanctified by the statute relating to private trusts. The Courts below have drawn inspiration from s. 83 of the Trusts Act and we are not inclined to find fault with them on that score because the provision merely reflects a rule of good conscience and of general application." 13. The question which n .....

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ompetent to contract and in cases where the beneficiary is incompetent to contract, his consent may be given by the civil Court. The situation in the case of a public trust is, however, different because in a public trust, the beneficiaries are generally indeterminate and the provisions of s. 11 requiring the consent of the beneficiaries cannot, therefore, be applied to a public trust. 6.3 The Hon'ble Apex Court in the case of Kamala Town Trust reported in 217 ITR 699 had quoted with approva .....

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efore the IT authorities for claiming exemption under s. 11 of the IT Act, 1961 by the assessee-trust. In that case the original trust deed executed in August, 1948 did not bring out the real intention of the settlor to create a public charitable trust on account of certain sub-clauses of object cl. No. 2. It was, therefore, felt necessary to rectify the mistake in the original settlement deed so as to put on record the true intention of the settlor and of the trust created by him. It was held b .....

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ied for that object. It could not be said that the beneficiaries under cl. 2(vi), namely, persons belonging to the family of L, had an enforceable right to the application of the income of the assessee for the object mentioned in cl. 2(vi), and in these circumstances their consent was not necessary before altering the terms of the trust deed. In any case although the supplementary deed was executed in May, 1958, none of the persons belonging to the family of L had challenged the validity of the .....

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doctrine of cy pres which envisages that if a clear charitable intention is expressed, it will not be permitted to fail because the mode, if specified, cannot be executed and the law will substitute another mode cy pres, i.e., as nearly as possible to the mode specified by the donor. The said doctrine is applied on the principle that the Court would lean in favour of charity and where a general charitable goal is projected and particular objects and modes are indicated, the Court, acting to ful .....

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on the same on the facts of that case. However, the fact remains that after due rectification of the original trust deed either by the settlor himself by executing a supplementary deed or by getting it rectified through competent Civil Court under the relevant provisions of the Specific Relief Act, the trustees would be bound to carry out the amended and rectified objects of the trust and if they fail to do so they would be guilty of breach of trust for which even proper proceedings can be initi .....

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rectified objects and should stick to the instrument as it existed prior to its rectification. The ITO will have to take the instrument as it exists in its actual amended form when it is pressed in service for framing the assessment concerning the relevant assessment year in which such rectified instrument holds the field. The second contention, therefore, fails and is rejected. 6.4 In the light of the aforesaid judgments relied on by the assessee, the ld. CIT ought not to have refused to consi .....

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hi High Court in the case of Jagdamba Charity Trust and Another V. CIT reported in 125 ITR 377 has dealt with the retrospective operations of the deed of Trust. The Hon'ble Delhi High Court observed that However, we think, that for the purposes of the present case, what concerns us is not whether the provisions of s. 26 of the Specific Relief Act could have been properly invoked but the effect, vis-a-vis the IT Department, of the order which has been passed by the sub-Court under that sectio .....

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mended. After the document has been amended by the Court in the terms mentioned above, it will not be open to the trustees to ignore the amended document and to proceed to invest the trust funds in commercial concerns or to carry out business transactions. In this context, it appears to us that the failure to give notice to the Department in the suit for rectification, as was done in Van Der Linde's case (supra) is also not quite relevant. It is not as if the IT Department is a party to or b .....

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o the order of the Court by which the trustees are bound, that they can administer the trust only in terms of the amendment directed by the Court. The trustees are and must be deemed from the beginning, to have under a legal obligation to hold the properties only for the objects and with the powers set out in the trust deed as amended. It, therefore, appears to us that, whatever may be the correctness or otherwise of the order passed under s. 26, it is not open to the ITO to say that the trustee .....

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of law as emanate from the judgments referred to and extracted (supra), we hold that the following objects in the Amended Trust Deed dt.18.3.2013 will have to be examined in order for grant of registration under Section 12AA of the Act 1. The aims and objects of the trust as contained in the Deed of Trust dt.4.6.2005 in Chapter Four shall stand amended and replaced with the following objects with effect from 4.6.2005 and shall be deemed tohave been amended and inserted from that day A. MEDICAL .....

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g rooms, libraries, study classes, etc. (4) Providing facilities for education and developing and fostering the interest in education in men, women and children; (5) Teaching children extra-curricular activities; (6) Starting part time schools in villages. C. RELIEF TO POOR To provide relief to the poor, needy, destitute especially women & children irrespective of any caste, creed or religion and belonging to all communities by providing the following (1) Running and maintenance of Orphanage .....

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