Trust Ineligible for Section 12AB Registration if Objects are for Benefit of a Particular Religious Community/Caste

Issue:

Whether a trust whose objects, while appearing charitable, are restricted solely for the benefit of a particular religious community or caste, is eligible for registration under Section 12AB of the Income-tax Act, 1961.

Facts:

The assessee-trust filed an application for registration under Section 12AB of the Income-tax Act, 1961. The Commissioner (Exemptions) issued a show cause notice after finding that the objects of the Trust, although seemingly charitable, were restricted to the benefit of a particular religious community or caste. The assessee admitted that the original objects indeed referred to a specific caste. However, the assessee stated that an application to amend the trust deed to broaden its objects was pending before the Joint Charity Commissioner. Crucially, the assessee did not produce the amended Trust Deed, even though it was allegedly pending.

Decision:

Yes, the court ruled in favor of the revenue. Since the objects of the assessee-trust were charitable but restricted to the benefit of a particular religious community or caste, the assessee-trust would not be eligible for registration under Section 12AB.

Key Takeaways:

Public Character of Charitable Trusts: For a trust to qualify as “charitable” under the Income-tax Act and be eligible for registration under Section 12AB (and thus exemptions under Sections 11 and 12), its objects must be for the benefit of the public or a section of the public, and not restricted to a specific religious community, caste, or identifiable group.
“Public” vs. “Private” Trust: The Income-tax Act makes a clear distinction. Trusts for the benefit of a specific religious community or caste, unless falling within very narrow exceptions, are generally considered private trusts for tax purposes and are not eligible for the exemptions available to public charitable trusts.
Actual Trust Deed is Determinative: The eligibility for registration is determined based on the existing trust deed and its objects at the time of application. A mere claim that an amendment application is pending without producing the amended deed or proof of its finalization is not sufficient to change the character of the trust’s objects for tax purposes.
Burden on Assessee: The onus is on the assessee to demonstrate that their trust’s objects meet the statutory criteria for charitable purposes, i.e., they are for the benefit of the public.
Importance of Dissolution Clause (Implicit): While not the direct issue here, the “public” nature also extends to the dissolution clause, ensuring assets are utilized for similar public charitable purposes upon dissolution.
Consequence of Denial: Denial of registration under Section 12AB means the trust will not be able to claim exemptions under Sections 11 and 12, leading to its income being taxed at normal rates, often at the maximum marginal rate.

IN THE ITAT AHMEDABAD BENCH ‘D’

Vaishnav Sadhu

Commissioner of Income-tax (Exemption)

T.R. Senthil Kumar, Judicial Member
and DR. BRR KUMAR, Vice President

IT Appeal No.806 (Ahd.) of 2023

APRIL 16, 2025

Mohit Balani, A.R. for the Appellant. Prathvi Raj Meena, CIT-DR for the Respondent.

ORDER

T.R. Senthil Kumar, Judicial Member.- This appeal is filed by the Assessee as against the order dated 29.08.2023 passed by the Commissioner of Income Tax (Exemption), Ahmedabad denying registration under section 12AB of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’).

2. Brief facts of the case is that the assessee filed Form 10AB for registration of the Trust u/s. 12AB of the Act. From the perusal of the objects of the Trust, the Ld. CIT(E) found that many objects are for the benefit of a particular religious community or caste “Vaishnav Sadhu (Bava Vairagi)”. Hence a show cause notice dated 24-08-2023 was issued as follows:

“Please refer to your application filed in Form 10AB for registration u/s. 12A(1)(ac)(iii) of the Act. For further seeking required details for granting registration u/s. 12AB, notice was issued on 11.07.2023 and 11.08.2023. In response to the same, you have filed/submitted certain details/documents on 16.08.2023

2. In this respect, your attention is drawn toward the Objects/Motives of the Trust stipulated in the copy of Trust deed as under:

“4 Objects/Motives of the Trust

1. To carry out all the means of educational spread, promotion to make the members of the caste to take interest in the cause of educational and social upliftment

2. To make physically and financially weaker brothers and sister of the caste self-sufficient through financial help

3. To start and run cultural picnic, tourism and sport programs to appreciate the work of student and members of caste and to develop inner talent.

7. To promote and to administer objective of the caste land, house, vadi, shop etc. can be taken on rent can be purchase and similarly can be given for rent and can be sold.

8…….

9. To give medical assistance to needy members of the caste, similarly to give medical assistance or Financial assistance to widow and needy members of the caste during illness or natural calamities.

3. Further, it is observed that as per row no 3 of Form 10AB, the trust/institution is a Charitable and above referred object, which is charitable in nature, appears to be restricted to benefit of a particular religious community or caste i.e. Vaishnav Sadhu (Bava Vairagi) Gnati. Therefore, please clarify that as to how there is no specified violation as defined in the Explanation to section 12AB(4).

4. You are also requested to show cause as to why your application filed in Form 10AB u/s. 12A(1)(ac)(iii) should not be rejected and also your provisional registration should not be cancelled for the reasons discussed in the notice.”

3. In response, the assessee filed its reply dated 28-08-2023 as follows:

“Our Trust is registered under Gujarat public trust act on 02/02/1995 we have agreed with you our object of the trust deed as for the cast Shri Vaishnav Sadhu (Bava Vairagi) Gyati. But To Our Activities is Purely Religious for all Gyati As You see in our Audited Balance-Sheet For Such Situation Of Trust Deed We have Clarified that our Trust is Constituted in 1995 on that time No Any Income tax section violate the benefit of section 11 and Sec 12 and Sec 13. Than sec 13(1)(b) and the sec 13(1)(c) enforce and the violate the sec 11 and sec 12, Immediately we have to apply joint charity commissioner for Amendment of deed under the sec 50(A) of Bombay Public Trust Act. At Now our application for Amendment Of deed is pending with Joint charity Commissioner Office Bhavnagar.

In Application Form of 10AB we have mentioned Only Charitable in Row No-3 By Mistake We Have Much Apologies For That

So we have request you to consider our reply and sanction our application.”

4. The above reply was considered by the Ld. CIT(E) and denied the registration by observing as follows:

“8. I have gone through the reply of assessee. The application has stated that it has applied for the amendment of deed and the same is pending with Joint Charity Commissioner Office Bhavnagar. Hence, the present application of the applicant is suppose to be decided on the basis of the trust dated 25.01.1995. The second issue raised by the applicant is that all its activities are purely religious. In this regard, it is observed that applicant has applied for charitable trust in form 10AB filed by him for granting regular registration to the trust. The objects discussed in Para 6.1 above also does not appear to be objects of religious nature. Therefore no benefit can be granted to the applicant in this regard also.

8. Provision of sec 13(1)(b) of the Act is applicable to the applicant/assessee. Section 13(1)(b) of the Act stipulates that provisions of sec 11 and 12 would not apply in the case of a trust for charitable purposes or a charitable institution created or established after the commencement of this Act, any income thereof if the trust or institution is created or established for the benefit of any particular religious community or caste. Therefore, the provision of sec 13(1)(b) of the Act is applicable only in a case of charitable trust/institution created or established after commencement of this Act, if the trust/institution is created or established for the benefit of any particular religious community or caste

Various courts have held that the provisions of sec 13(1)(b) of the Act is not applicable in the case of a religious trust. The provision of sec 13(1)(b) of the Act is applicable to a charitable trust, has been settled by the Hon’ble Supreme Court in the case of CIT v. Palghat Shadi Mahal Trust, reported inwherein in the case of a public charitable trust, the Hon’ble Apex court held that where the benefit is available to Muslims from all over the world, none of whom except in Kerala are backward classes, the provision of sec 13(1)(b) would be attracted and therefore the trust is not entitled for exemption u/s 11 of the Act.

Even some courts had held that in case of composite trust/institution, i.e., charitable cum religious, the provision of sec 13(1)(b) of the Act is not applicable. However, the said controversy was resolved by the Hon’ble Supreme Court in the case of CIT v. Dawoodi Bohara Jamat, reported in 43 laxmann.com 243, wherein the Hon’ble Apex Court held that the provision of sec 13(1)(b) of the Act is applicable even to a composite trust/institution and held as under.

“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.”

9. Further, the Hon’ble Supreme Court in the said case of CIT v. Dawoodi Bohara Jamal (supra) which was composite in nature, after analyzing the various objects of the trust, held that two of its objects provide for the activities completely religious in nature and restricted to the specific community of the assessee trust are objects with religious purpose only. However, the Hon’ble Apex Court held that other four objects of the assessee trust was charitable in nature and finally held that the trust is a charitable and religious trust which does not benefit any specific religious community and therefore, it cannot be held that sec 13(1)(b) of the Act would be attracted and hence the trust would be eligible to claim exemption u/s 11 of the Act. In concluding para the Hon’ble Apex Court held has under:

“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”

10. From the above referred discussion and objects of the applicant/assessee it is evident that it is not a religious trust, but it is a charitable trust and above referred objects, which are in the nature of charitable is restricted to benefit of a particular religious community or caste “Vaishnav Sadhu (Bava Vairagi)” and therefore as per law laid down by the Hon’ble Apex court in the above referred cases, the provision of sec 13(1)(b) would be applicable and therefore the applicant/assessee would not be eligible for exemption u/s 11 of the Act. Therefore in the facts and circumstances of the case, the applicant/assessee cannot be granted registration u/s 12A of the Act.

11. In view of the above, the present application filed in Form No.10AB u/s 12A(1)(ac)(ii) of the Act is rejected and provisional registration is also cancelled.”

5. Aggrieved against the same, assessee is in appeal before us raising the following Grounds of Appeal:

Ld. CIT(E) has erred in law and on the facts of the case in rejection the provisional registration of the Appellate u/s. 12AB of the Act.

Your appellant reserves the right to add, delete modify or revise any ground of appeal.

6. Ld. Counsel appearing for the assessee filed a Paper Book but does not contain the translated copy of the Trust Deed as well as the amended Trust Deed pending with the Joint Charity Commissioner, Bhavnagar. In the absence of the above relevant objects and revised objects of the Trust, Ld. Counsel’s reliance on the decision rendered by this Tribunal in Gohilwad Vankar Samaj Seva Trust v. Commissioner of Income-tax (Exemption) ITA No. 796/Ahd/2023 will not be applicable to the facts of the present case and clearly distinguishable with the facts of the present case. Hence we have no hesitation in confirming the order passed by the Ld. CIT(E).

7. In the result, the appeal filed by the Assessee is hereby dismissed.