Income from property held for charitable or religious purposes – A charitable and religious trust which does not benefit any specific religious community would not be covered by section 13(1)(b) of the Act and would be eligible to claim exemption u/s. 11 of the Act.

Aggrieved by the order so passed, the respondent carried the matter by way of an appeal before the Tribunal. The Tribunal after going through the objects of the respondent-trust came to the conclusion that the respondent was a public religious trust as the objects of the trust were wholly religious in nature and thus, the provisions of section 13(1)(b) which are otherwise applicable, in the case of the charitable trust would not be applicable and therefore, held that the respondent-trust was entitled to claim registration u/se. 12A and 12AA and accordingly, allowed the appeal and set aside the order passed by the Commissioner and further directed the Commissioner of Income-tax to grant registration u/s. 12A read with section 12AA of the Act to all the applicant-trust.

Aggrieved by the aforesaid decision passed by the Tribunal, the Revenue approached the High Court u/s. 260-A of the Act. The court primarily, was of the view that the decision of the Tribunal was rendered purely on the factual matrix of the case and therefore, it would be improper to disturb the finding of fact so arrived by the Tribunal. Secondly, the court observed that the provisions of section 13(1)(b) would not be applicable to the respondent-trust as the trust was not created or established for the benefit of any particular religious community or caste. Consequently, the court has dismissed the appeal filed by the Revenue by judgment and order dated 22-06-2009.

Disturbed by the aforesaid ruling, the Revenue approached the Supreme Court.

According to the Supreme Court, the determination of the nature of trust as wholly religious or wholly charitable or both charitable and religious under the Act was not a question of fact. It was a question which required examination of legal effects of the proven facts and documents, that is, the legal implication of the objects of the respondent-trust as contained in the trust deed. It is only the objects of a trust as declared in the trust deed which would govern its right of exemption u/s. 11 or 12. It is the analysis of these objects in the backdrop of fiscal jurisprudence which would illuminate the purpose behind the creation or establishment of the trust for either religious or charitable or both religious and charitable purpose. The Supreme Court therefore held that the High Court had erred in refusing to interfere with the observations of the Tribunal in respect of the character of the trust.

Having said so, the Supreme Court proceeded to examine the question, whether the Courts below were justified in coming to the conclusion that the respondent-trust was a public religious trust and therefore, outside the purview of section 13(1) (b) and eligible for exemption u/s. 11 of the Act.

The Supreme Court noted that the Tribunal had analysed the objects of the trust in the light of the holy scriptures and the Quran and recorded its satisfaction as follows: “16… The objects of the assessee-trust reproduced above clearly refer to the religion and are supported by reference made to different pages of Holy Quran. The learned Counsel for the assessee referred to the true copies of several pages of Holy Quran written by two of the authors referred to above in which giving of food in days of hunger or orphan is considered as highly religious ceremony. Reference is also made that who will give to the people or poor then Allah will give them in return and, i.e., who will give loan then Allah will give double to them. Likewise, for helping the needy people for religious activities and to carry out religious activities or spend for good, spending wealth in the way of Allah, bestowing mercy, teaching were considered to be highly religious activities. On going through several true pages of Holy Quran written by the authors referred to above, we are satisfied that the learned Counsel for the assessee was justified in contending that all the objects of the assesee-trust are solely religious in nature because each of them refers to religious occasions, religious education or to religious activities. The learned Counsel for the assessee also explained that the words ‘Shariat-e- Mohammadiyah’ means the path shown by prophet Mohammed. Therefore, the objects of Shariat-e- Mohammadiyah are identical with those of ‘Dawate- Hadiyah’. For Dawoodi Bohras, true path shown by the prophet is the one indicated and shown by their living guide Dai-al-Mutlaq of the time who is the living and visible guide for Dawoodi Bohras. It is an undisputed fact that for the people believing in Islam, writings in Quran are words of Allah for them. The directions given in the Holy Quran are considered by the people of Islamic faith as orders from Allah and the people of Islamic faith obey such orders as holy and religious. The learned Counsel for the assessee has been able to demonstrate that all the objects of the assessee-trust, as noted above, came out from the writings in Quran and as such these are the orders for them while observing Islamic faith.”

The Supreme Court observed that 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 Quran and resolve to abide by the path of godliness shown by Allah would not be sufficient to conclude that the entire purpose and activities of the trust would be purely religious in colour. The objects reflects the intent of the trust as observance of the tenets of Islam, but do not restrict the activities of the trust to religious obligations only and for the benefit of the members of the community. The Privy Council in Re The Tribune, 7 ITR 415 has held that in judging whether a certain purpose is 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.
The provision of food to the public on religious days of the community as per object (a) and (b), the establishment of Madrasa and organisations for dissemination  of  religious  education  under object
(d) and rendering assistance to the needy and poor for religious activities under object (e) would reflect the essence of charity. The objects (a) and
(b)    provide for arrangement for nyaz and majlis (lunch and dinner) on the religious occasion  of  the birth anniversary and Urs Mubarak of Awliya-e- Quiram (SA) and the Saints of the Dawoodji Bohra community and for arrangement of lunch and din- ner on religious occasions and auspicious days of the Dawoodi Bohra community, respectively. 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 only to the members of the specific community. Thus, the activity of Nyaz performed by the respondent-trust does not delineate a separate class but  extends the benefit of free service  of  food  to  the  public at large irrespective of their religious, caste or sect and thereby qualifies as a charitable purpose which would entail general public utility.

Further, the establishment of the Madrasa 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 vs.  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 Madrasa  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  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  altruistic  character.

Therefore, the objects of  the  trust,  according to the Supreme Court, exhibited 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 pro- visions of section 13. The activities of the trust under such object would therefore be entitled to exemption accordingly.

According to the Supreme Court, the second issue which arose for its consideration and decision was, whether the respondent-trust was a charitable and religious trust only for the purposes of a particular community and therefore, not eligible for exemption u/s. 11 of the Act in view of provisions of section 13(1)(b) of the Act.

The Supreme Court held that in the present case, the objects of the respondent-trust  were  based  on religious tenets under the Quran according to the religious faith of Islam. As already  noticed,  the perusal of the objects and purposes of the respondent-trust clearly demonstrated that the activities of the trust though both charitable and religious were not exclusively meant for a particular religious community. The objects, as explained in the preceding paragraphs, did 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.

In that view of the matter, the Supreme Court  held that the respondent-trust was a charitable and religious trust which did not benefit any specific religious community and therefore, it  could  not  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  u/s.  11  of  the Act.