Section 13 is not applicable at the trust registration stage.

Issue

Can a charitable trust’s application for registration under Section 12AB of the Income-tax Act, 1961, be rejected by invoking the provisions of Section 13, which deals with the denial of tax exemption for benefiting a particular community?

Facts

An assessee-trust filed an application for registration under Section 12AB.
The Commissioner (Exemptions) rejected the application.
The sole reason for the rejection was that the Commissioner believed the objects of the trust were restricted to the benefit of a particular religious community or caste (the ‘Leuva Patel’ community), which would make its income non-exempt under the provisions of Section 13 of the Act.
The Income Tax Appellate Tribunal (ITAT), however, set aside this rejection. The ITAT’s reasoning was that the applicability of Section 13 is a matter to be examined by the Assessing Officer during the annual assessment proceedings for each year, not by the Commissioner at the initial registration stage. The Tribunal remanded the case back to the Commissioner.
The revenue department then challenged the Tribunal’s order in the High Court.

Decision

The High Court ruled in favour of the assessee, upholding the Tribunal’s order.

It held that the Tribunal had made no error in its legal reasoning.
The court confirmed that the role of the Commissioner at the registration stage is to examine the charitable nature of the trust’s objects and the genuineness of its activities.
The question of whether the trust’s income is ultimately exempt or is disqualified by the provisions of Section 13 is a determination to be made during the annual assessment of its income, not at the time of granting registration.

Key Takeways

Registration and Assessment are Distinct Stages: The process of granting registration to a trust (under Section 12AB) is separate from the process of assessing its income for a particular year and determining its eligibility for exemption (which involves Sections 11, 12, and 13).
Scope of Inquiry at Registration is Limited: At the time of granting registration, the Commissioner’s inquiry is primarily focused on the genuineness of the trust’s activities and the charitable nature of its objects as stated in its founding document.
Section 13 is an Assessment-Stage Provision: Section 13 acts as a disqualifier for the exemption that would otherwise be available under Section 11. Its application depends on the actual activities and application of income during a specific year, which is a matter for the Assessing Officer to examine on a year-to-year basis.
Registration Cannot be Denied Pre-emptively: A trust cannot be denied registration based on a pre-emptive assumption that it might violate the conditions of Section 13 in the future. If the objects are charitable, registration should be granted, and actual compliance can be checked later during the assessment.

HIGH COURT OF GUJARAT

Commissioner of Income-tax (Exemption)

Bhojaram Leuva Patel Seva Samaj Trust

BHARGAV D. KARIA and Pranav Trivedi, JJ.

R/TAX APPEAL NO. 1082 of 2024

SEPTEMBER 8, 2025

Ms. Maithili D Mehta, Adv. for the Appellant.

ORDER

Bhargav D. Karia, J.- Heard learned Senior Standing Counsel Ms. Maithili Mehta for the appellant.

2. This Appeal is filed under Section 260A of the Income Tax, 1961 (for short ‘the Act’)proposing the following substantial questions of law arising out of order dated 30.4.2024 passed by the Income Tax Appellate Tribunal, “C” Bench, Ahmedabad (For short ‘The Tribunal’) in Bhojalram Leuva Patel Seva Samaj Trust v. CIT (Exemptions) 270 (Ahmedabad – Trib.)/ITA No.667/Ahd/2023:

“(i)

Whether on the facts and in the circumstances of the case and law, Hon’ble Tribunal has erred while interpreting the decision of Hon’ble Supreme Court in the case of Dawoodi BoharaJamat CIT v. Dawoodi Bohara Jamat 228 (SC)(Mag.) in holding that section 13(1)(b) could not be applied for denying the grant of registration under section 12AB of Income Tax Act, 1961 despite the fact that the assessee trust is not created for the benefit of general public and many of its object clauses are for the benefit of a particular religious community?

(ii)

Whether on the fact and in the circumstances of the case and law, Hon’ble tribunal has erred in ignoring the recent amendments in Act wherein a new procedure for registration under section 12AB of Income Tax Act, 1961 has been inserted & whereby as per clause (d) of explanation to sub section (4) of section 12AB of Income Tax 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.

3. The brief facts of the case are as under:

3.1 The respondent assessee filed an application for grant of registration of the Trust under Section 12AB of the Act on 21.12.2022 in Form No. 10AB.

3.2 The CIT (Exemption), Ahmedabad rejected the application filed by the respondent assessee by order dated 28.6.2023 on the ground that the objects of the Trust are restricted to the benefit of a particular religious community or caste i.e. “Leuva Patel Community”.

3.3 Being aggrieved, the respondent assessee preferred an appeal before the Tribunal and contended that it is a settled law that as per Section 13(1)(b) of the Act, though benefit of provisions of Sections 11 and 12 of the Act are not available to the income of the Trust, if such Trust or institution is created or established for the benefit of any particular religious, community or caste, however, the provision of Section 13 would be applicable at the assessment stage and the CIT (Exemption) could not have rejected the application for registration of the Trust.

4. In support of the submission, reliance was placed on the decision of this Court in case of CIT v. Leuva Patel Seva Samaj Trust 75 (Gujarat)(Mag.), wherein it is held that the question as to whether trust is created or established for benefit of any particular religious community or caste would be relevant only when income of the trust is assessed in terms of Section 11, however, at the time of disposing of application of a trust seeking registration, Commissioner has to merely decide whether said trust has fulfilled necessary requirements of registration as provided under Section 12A of the Act or not. This Court further observed that “Leuva Patel Community” consists mainly of agriculturists and, therefore such community cannot be dubbed as a “religious community”.

4.1 The Tribunal, following the decision of this Court in the aforesaid case as well as decision of Hon’ble Apex Court in case of CIT v. Dawoodi Bohara Jamat 228 (SC)(Mag.), remanded the matter back to CIT (Exemption) for de novo consideration after giving due opportunity of being heard and with the direction not to disentitle the assessee for grant of registration only on the grounds as mentioned in the order rejecting the application filed by the assessee Trust.

5. This Court in case of Leuva Patel Seva Samaj Trust (supra) has held as under:

“4. Having thus heard the learned counsel for the revenue, we are of the opinion that the question whether the trust is created or established for the benefit of any particular religious community or caste would be relevant when the income of the trust is being assessed and the question whether such income should be excluded from the total income of the trust in terms of section 11 of the Act. Insofar as section 12AA of the Act is concerned, the Commissioner had to take a decision if the trust fulfilled necessary requirements of registration as provided under section 12A of the Act. A Division Bench of this Court in the case of Shantagauri Ramniklal Trust v. CIT [1999] 239 ITR 528, in this context, observed as under:

“While considering an application for registration of a trust, the Commissioner must also make a clear distinction between the requirement of registration and the requirement for claiming tax benefit. The latter question falls squarely to be considered by the Assessing Officer. Section 12A neither makes registration of trust as condition precedent for claiming benefit under sections 11 and 12 read with section 13, nor registration obviates enquiry into the conditions envisaged under section 13 by the Assessing Officer before the tax benefit can be allowed. Mere filing of application for registration of the trust is enough to claim benefit of its income under sections 11 and 12 and jurisdiction to the Assessing Officer to enquire into that claim, which also includes question as to who are the beneficiaries of trust. On other conditions being fulfilled, the exemption must follow whether registration is accorded or not.”

5. In view of the above conclusive opinion of a Division Bench of this Court, we donot see any reason to interfere. Tax Appeal is, therefore, dismissed.”

5.1 The Tribunal thereafter in the order dated 30.4.2024 has held as under:

“9. We observe that in the case of Jamiatul Banaat Tankaria 358 (Ahmedabad-Trib.), the ITAT held that where objects of assessee-trust were primarily charitable rather than favouring any specific religious community, CIT(E) was not justified in denying registration under Section 12A, by invoking Section 13(1)(b) as said provisions would be attracted only at time of assessment and not at time of grant of registration. In the case of Malik Hasmullah Islamic Educational and Welfare Society 93 (Luck.), the ITAT held that since provisions of Sections 11, 12 and 13 are intended for exercise of jurisdiction by an Assessing Officer in an assessment proceedings, Commissioner is not competent to invoke such provisions for purpose of declining registration under Section 12AA. In the case of St. Joseph Academy 216 (Hyderabad -Trib.), the ITAT held that provisions of Section 13 can be invoked by Assessing Officer while framing assessment and not by Commissioner while considering application for registration under Section 12AA. In the case of Dawoodi Bohara Jamat CIT v. Dawoodi Bohara Jamat 228 (SC)(Mag.) (SC), the Hon’ble Supreme Court made the following observations:

“40. Further, establishment of Madarsa or institutions to impart religious education to the masses would qualify as a charitable purpose qualifying under the head 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 Mohommedan institution of teaching does not confine instruction to only dissipation of religious teachings but also contributes to the holistic education of an individual.

Therefore, it cannot be said that the object (d) would embody a restrictive purpose of religious activities only. Similarly, assistance by the respondent-trust to the needy and poor for religious activities would not divest the trust of its altruist character.

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, 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.

10. In view of the above judicial precedents, looking into the facts of the instant case, we are of the considered view that the provisions of Section 13 of the Act can be invoked only at the time of assessment and not at the time of grant of registration under Section 12A of the Act. Our view is further supported by the decision of the Hon’ble jurisdictional High Court in the case of CIT (Exemptions) v. Bayath Kutchhi Dasha Oswal Jain Mahajan Trust 60 (Guj.)/[2017] 8 ITR-OL 494 (Guj.) 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. The relevant finding of the Hon’ble High Court at para 8 of his order is as under:

“8. Thus, very premise for the Commissioner to come to the conclusion that the objects of the trust were confined for the benefit of a religious community, is incorrect. Thereafter to suggest that the activities were carried out only for such purposes would be entering in the realm of granting exemptions in terms of Section 13 of the Act, which would be the task of the Assessing Officer to be undertaken at the time of assessment on the basis of material that may be brought on record.”

11. In the result, in view of the above observations, the matter is restored to the file of CIT (exemptions), for de novo consideration, after giving due opportunity of being heard and with the direction not to disentitle the assessee for grant of registration only on the grounds as mentioned in its order for rejecting the application filed by the assessee trust.”

6. Considering the decisions of this Court as well as decision of the Hon’ble Apex Court in case of Dawoodi Bohara Jamat (supra), we are of the opinion that the Tribunal has not committed any error in remanding the matter back to CIT (Exemption) for de novo consideration, with the direction not to disentitle the assessee for grant of registration only on the grounds as mentioned in the order challenged before the Tribunal.

7. We are, therefore, of the opinion that no question of law much less any substantial question of law arises from the impugned order of the Tribunal. The Appeal, therefore, being devoid of merits is accordingly dismissed.