Section 13 Applicability Deferred to Assessment Stage, Revenue Appeal Dismissed

Section 13 Applicability Deferred to Assessment Stage, Revenue Appeal Dismissed

A trust in Ahmedabad applied for formal registration under Section 12AB of the Income Tax Act in June 2022. However, the Commissioner of Income Tax (Exemption) blocked the application. The reason? The Commissioner pointed to Section 13(1)(b), arguing that the trust was designed to benefit only a specific religious community. Under that section, charitable trusts that limit their benefits to one religious group are generally barred from claiming tax exemptions.

The trust appealed this to the ITAT (Tribunal), which ruled in its favour. The Tribunal noted that whether a trust actually qualifies for exemptions is a separate question from whether it should be registered. Displeased, the Revenue took the matter to the High Court, arguing that recent tax amendments mean officials should look at these restrictions right at the start.

Central Issue: Can the tax department deny registration to a trust simply because its objects benefit a specific religious community, or should that restriction only apply during the actual tax assessment stage?

HC’s Ruling: The High Court dismissed the Revenue’s appeal, confirming that the Commissioner cannot use Section 13(1)(b) as a gatekeeper to deny registration. The Court clarified that Section 12AB (registration) and Section 13 (denial of exemption) operate at completely different stages of the law.

Registration is purely about verifying that a trust is genuine and has charitable objects. Whether that trust eventually loses its tax-free status because it only serves one community is something for the Assessing Officer to decide during the yearly tax return check. Relying on settled precedents, the Court held that a trust could be “charitable” even if it focuses on a specific group. In short, the trust gets its registration now, but it will still have to prove it deserves exemptions later when it files its taxes.

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