1. These two appeals, one by the assessee and the other by the revenue against the order of the AAC, are disposed of together for the sake of convenience.
2. The assessee is a public charitable trust and is assessed in the status of an AOP. The assessment year is 1976-77 and the relevant previous year ended on 31-3-1976.
3. The assessee-trust came into existence sometime in 1966. The relevant portion of the constitution of the assessee-trust reads as under: The name of this institution shall be 'Shri Leuva Patel Nutan Kelwani Mandal'.
The field of activities shall be limited to Saurashtra and for the Leuva Patel community only.
To develop all-round upliftment of the community and of the children of the community, through education.
(1) With a view to achieve the above aim, to start, at an earliest opportunity, an institution in the name of Leuva Patel Nutan Kelwani Mandal at Rajkot, to admit the children of the Leuva Patel community and to construct a hostel and to manage it.
(2) In order to achieve the aim, to start schools and educational institutions and to manage them and to take on hand such other activities.
The funds for this institution shall be raised by the following means: A person of the Leuva Patel community, who is major, i.e., above the age of 18 years, shall be eligible for membership.
4. On 24-1-1977, the assessee filed its return, wherein it claimed that its income was exempt under Section 11 of the Income-tax Act, 1961 ('the Act'), on the ground that it was not created/established for the benefit of any particular religious community or caste. The ITO, however, did not accept the assessee's contention as he was of the view that the assessee's case was hit by the provisions of Section 13(1)(6) of the Act. In the assessment originally framed on 19-3-1979, the ITO rejected the assessee's claim for exemption in the following manner: The assessee has claimed exemption under Section 11. However, it is seen that the objects of the trust are charitable and the trust was created in 1966. The benefit is restricted to Leuva Patel community.
As the trust is created after 31-3-1962, and as the benefit is restricted for a particular religious community, the benefit of Section 11 is not admissible as it is hit by the provisions of Section 13(1)(b).
He, therefore, framed an assessment on a total income of Rs. 80,791 without allowing the assessee the deduction on account of rasoda expenses and other miscellaneous expenses.
5. In appeal before the AAC, the assessee once again contended that since the Leuva Patel community was not religious community at all and it consisted of agriculturists only, the provisions of Section 13(1)(b) were not applicable to it. Reliance was placed on the order of the Tribunal in the case of Shri Rajkot Viswakarma Kelwani Manclal. The AAC, in his order dated 17-9-1979, accepted the assessee's contention in the following manner: 4. I find that the contention of the representative to the effect that Leuva Patel community is not a religious community, is well placed. In this case, since the members belong to several religions, the community cannot be characterised as a religious community. The provisions of Section 13(1)(b) are, therefore, not attracted to the case.
As regards the assessee's claim for deduction on account of rasoda expenses and miscellaneous expenses, the AAC disposed of tbe same as under: 5. The second ground taken by the appellant is that the Income-tax Officer erred in computing the total income at Rs. 80,791 without considering the expenses. The Income-tax Officer, as per the assessment order, has computed the income of the assessee from the other sources at Rs. 1,50,715. According to the representative, Shri D.V. Lalchandani, the amounts of Rs. 62,020 being rasoda expenses and of Rs. 6,321.96 being miscellaneous expenses, have not been deducted by him.
6. The claim of deducibility of the expenses as above is to be accepted. The Income-tax Officer cannot leave out the expenses incidental to the earning of income assessed by him. The allowability of the individual items of expenses, however, may be considered on merits.
6. Being aggrieved by the order of the AAC, the revenue came up in appeal before the Tribunal and urged that since the provisions of Section 13(1)(b) were applicable in the assessee's case, the AAC was not justified in holding that the assessee was entitled to exemption under Section 11. Even though the AAC had accepted the assessee's claim for deduction of rasoda expenses and miscellaneous expenses, the revenue had not preferred any appeal against the said order of the AAC.The Tribunal, vide its order dated 18-10-1980, in IT Appeal No. 2180 (Ahd.) of 1979, remitted the matter back to the ITO in the following manner: 5. After hearing the parties, we find that without further enquiry and investigation into the history, traditions and affiliations of the group of people covered by the trust, it is not possible to say that the beneficiaries belonged to a particular religious community or caste. The assertion that different persons within the community follow different religions, has not been proved as a matter of fact.
In the interest of justice, therefore, we remit the matter back to the ITO to make enquiries into the customs, traditions, etc., of the group of people figuring as beneficiaries of the trust, in order to come to a correct conclusion as to the applicability of Section 13(1)(b). The ITO should find out whether the members of the beneficiary community can belong to different religious denominations and whether they constitute a caste as such.
7. Thereafter, the ITO examined the President of the assessee-mandal under Section 131 of the Act. It would be necessary to reproduce the entire statement of the President of the assessee-mandal, which reads as under: I, the undersigned, Dr. C.R. Beldha, the President of Shri Leuva Patel Nutan Kelwani Mandal of Rajkot, having appeared before the Income-tax Officer, Ward 1, Rajkot, in response to notice under Section 131 of the Income-tax Act, state on oath that I shall give true replies to the questions asked to me: 'Question No. 1: Has constitution of Leuva Patel Nutan Kelwani Mandal, Raikot, been framed When and what are its aims Answer: Its constitution has been framed that 'Mandal' has come into existence in 1966. Its public Trust Registration No. is R/1897, dated 1-3-1966. Its aim is the development of the children of the community through education and all-round development of community.
Question No. 2: Who are included in the children of the community: Answer: The children of the agriculturists are included.
Question No. 3: In the name of your Mandal, mention of Leuva Patel community (Gnyati) is made. Is this correct Answer: The name of Leuva Patel is there. It is correct. But it includes the persons engaged in agriculture.
Question No. 4: Is the Leuva Patel community, a community following a particular religion Answer: No. Sir. It is not a community following a particular religion. But in Leuva Patel community are included persons who follow different religions. For instance, Swami Narayan religion, Vaishnav religion, Jain religion, Shiv Puja religion, etc. Thus, the benefit of Kelwani Mandal is given to the children of the agriculturists, who follow different religions.
Question No. 5: Can you say about any special custom or usage in the Leuva Patel community Answer: In the said community about 90 per cent arc agriculturists.
Different customs are being followed differently, in different parts, according to the prevailing usage.
Question No. 6: Will you state the names of the present office bearers or workers of your Mandal ?Answer: Dr. C.R. Beldha PresidentShri Laljibhai Karamsibhai Vekaria Joint SecretaryShri Kantilal Jethabhai Dholaria TreasurerShri Shivlal Nagjibhai Vekaria SecretaryShri Raghavji Ramjibhai Patel Vice President Question No. 7: Can you say what religion is being followed by the present workers and office bearers, whose names are given Answer: I myself follow Vaishnav religion, Shri Laljibhai follows Hindu religion, Shri Kantilal Dholaria follows Vaishnav religion, Shri Raghavji follows Swami Narayan religion, Shri Shivlal follows Khijda Panthi 'Shivshakti' Panth.
Question No. 8: Which of the office bearers of your Mandal, own agricultural land and are they carrying agricultural operations Answer: There is a joint land in the name of my father. In Dhoraji town, there is agricultural land. The agricultural land is not being transferred in my individual name. Shri Laljibhai has agricultural land in Patidad of Gaondal Taluka. Shri Kantilal has in his name agricultural land in Jalida of Wankaner Taluka and agricultural operations are being carried out on this land.
The information that is given, regarding agricultural land and religions of Sarva Shri Laljibhai Karamsibhai and Kantilal Dholaria, is given after asking them because they are present with me today and they have also signed to bear that the information is correct.' 8. In his assessment order passed afresh, the ITO has traced the historical background, which reads as under: 2. So far as historical background of the Leuva Patel caste is concerned, on an extensive inquiry it is revealed that-- As per one legend, Lord Ramchandraji had two sons, namely, Lava and Kush. They took over the rule. Lava established a city, namely, Lavapur, now known as Lahore in Punjab district. Similarly, Kush established Kushavati, now known as Patna. They made a plan for the development of the city and the profession of class of farmers living in those cities. Such farmers residing in those cities were known as Leuva and Kadva.
As per another legend, the persons engaged in agriculture in those olden days were known as 'Kurmi' now popularly known as 'Kanabi'.
The Kanabis residing in Gujarat, are of two main divisions, known as Leuva Kanabi and Kadva Kanabi. In present days, these two types of Kanabis do not maintain themselves only on agriculture but are also engaged in other activities, i.e., industries, profession, vocation, etc. The 'Kurmis' had love and affection for the native place, i.e., several areas of Punjab district and in order to have remembrance for the native areas, the 'Kurmis' who have migrated from Leya section of Punjab are known as 'Leuva Kurmi' and from Kayad section of Punjab are known as 'Kadva Kurmi'.
3. Historically, Kanabi Patels, i.e., Leuva Patel and Kadva Patels, had thus origin in Punjab. For some political reasons, they migrated from North India to South India and also to Gujarat and Saurashtra.
Though Kadva Patel and Leuva Patel living in Gujarat have similar customs, they have no relations to each other in the matters of marriage and dinners. The Leuva Patel would not generally marry a person of Kadva Patel and vice versa. And, therefore, both are considered as different castes.
9. In the fresh proceedings, the assessee submitted before the ITO that since it was not a religious community or a caste, the provisions of Section 13(1)(b) cannot be invoked. It was also submitted that Leuva Patel community is a community of professionals, viz., agriculturists.
The ITO, "however, once again came to the conclusion that the provisions of Section 13(1)(b) would be attracted in the case of the assessee. In doing so, he also considered Clauses 2 and 3 of the constitution of the assessee-trust and rejected the assessee's claim for exemption under Section 11 as under: 9. Looking to the provisions of the trust deed and conduct of the asses-see-trust, I have come to a conclusion that none else than Leuva Patel are the beneficiaries of the trust. Therefore, the trust is for the benefit of a particular caste community performing Hindu religion in one or another mode. Therefore, the trust is squarely affected by the provisions of Section 13(1)(b) of the Act.
This time also, out of the assessee's claim for deduction of rasoda expenses and miscellaneous expenses, the ITO allowed Rs. 12,857 and computed the total income of the assessee at Rs. 67,897.
10. Being aggrieved by the order of the ITO, the assessee once again preferred an appeal before the AAC and urged that the provisions of Section 13(1)(b) were not applicable to it. It was further submitted that the ITO should have carried out the directions of the earlier order of the AAC, regarding the assessee's claim for deduction of rasoda expenses and miscellaneous expenses. In his order dated 29-11-1983, the AAC did not accept the assessee's contention that the provisions of Section 13(1)(6) were not applicable to it. However, as regards the deduction of the expenses, the AAC disposed off the appeal in the following manner: 7. The second ground in this appeal is that the ITO has not given effect to the direction of the AAC vide paras 5 and 6 of the AAC's order, dated 17-9-1979 [refer paras 3.2 of this order]. The AAC, in the said appeal order, had accepted the claim of deductibility of expenses of Rs. 62,020, being rasoda expenses and Rs. 6,322 being miscellaneous expenses. The admissibility of these items, by way of deduction from total income, was not challenged by the department in the appeal before the Hon'ble Tribunal [vide paras 4 and 6 of this order]. Shri Lalchandani, advocate for the appellant, however, has submitted that only a sum of Rs. 4,827 out of Rs. 6,372 has been allowed by the ITO in the fresh assessment made by him. I, therefore, direct the ITO to grant further deduction of Rs. 62,020, being the rasoda expenses, and Rs. 1,495 being the balance miscellaneous expenses. This ground of appeal is, therefore, allowed.
11. Being aggrieved by the order of the AAC, both the assessee as well as the revenue have come up in appeal before the Tribunal. The asses-see's grievance is that the income-tax authorities ought to have accepted its contention that the provisions of Section 13(1)(b) were not applicable in its case. The revenue, in its appeal, urges that the AAC should not have allowed the assessee's claim for deduction of rasoda expenses of Rs. 62,020.
12. The learned counsel for the assessee reiterated the submissions which were made in the first round of the proceedings as well as before the income-tax authorities in the second round and urged that since the Leuva Patel community is a community of professionals engaged in agriculture, the assessee-trust could not be held to be created/established for the benefit of any particular religious community or caste. He also invited our attention to the historical background traced by the ITO (reproduced above) and submitted that, on proper appreciation thereof, the Leuva Patel community should not be treated as a community of a particular religion or caste. He also urged that the expression 'Hindu' should not be construed as of a particular religion since it embraces the people who are atheists and did not believe in any religion. He also invited our attention to the statement of the President of the assessee-mandal made before the ITO, more particularly, answers to Question Nos. 1, 2, 3, 4, 7 and 8, and submitted that the income-tax authorities were not justified in holding that the assessee-trust is created/established for the benefit of a particular religious community or caste. Finally, he placed reliance on the aforesaid order of the Tribunal in the case of Shri Rajkot Viswakarma Kelwani Mandal (supra), and submitted that the conclusion arrived at by the Tribunal, in the said order, apply to the facts and circumstances obtaining in the instant case also. He, therefore, submitted that the assessee's claim for exemption under Section 11 should be accepted. In this connection, he made reference to the decisions of the Hon'ble Supreme Court and of the Hon'ble Gujarat High Court in the cases of Ahmedabad Rana Caste Association v. CIT  82 ITR 704, CIT v. Ahmedabad Ratio, Caste Association  140 ITR 1 and CIT v. Ahmedabad Rana Caste Association  88 ITR 354, respectively. The learned representative for the revenue, on the other hand, strongly relied on the order of the income-tax authorities and justified their action.
13. We have carefully considered the rival submissions of the parties and we find force in the submissions made on behalf of the assessee.
Section 13 contains provisions of disentitling an assessee to claim exemption under Section 11. The relevant portion, with which we are concerned in this appeal, reads as under: 13. (1) Nothing contained in Section 11 or Section 12 shall operate so as to exclude from the total income of the previous year of the person in respect thereof-- (b) 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 ; Explanation 2 to Section 13, which is also relevant for our purpose, reads as under: A trust or institution created or established for the benefit of Scheduled Castes, backward classes, Scheduled Tribes or women and children shall not be deemed to be a trust or institution created or established for the benefit of a religious community or caste within the meaning of Clause (b) of Sub-section (1).
14. Now, the constitution of the assessee-trust (the relevant portion of which is reproduced above) states that the assessee-trust is mainly created for the benefit of the children of the Leuva Patel community.
Under the said constitution, the assessee-trust is required to start institutions, hostels, etc., for the benefit of the children of the Leuva Patel community. Therefore, in our opinion, the assessee's case could not be brought within the provisions of Section 13(1)(b), in view of Explanation 2 to the said section. It appears that this aspect of the matter has escaped the attention of the lower authorities. Apart from this, on going through the historical background and the material already brought on record, we are of the view that the assessee's contention that the provisions of Section 13(1)(i) are not applicable in its case, is well founded and should be accepted. We have come to this conclusion, as it is quite apparent from the material already brought on record that the Leuva Patel community consists mainly of agriculturists. Such community cannot be dubbed as religious community or caste as has been held by the income-tax authorities. In this view of the matter, the order of the Tribunal in the case of Shri Rajkot Viswakarma Kelwani Mandal (supra) (to which one of us was a party) squarely supports the stand taken on behalf of the assessee. Even though the decision in the case of Ahmedabad Rana Caste Association (supra) considered the provisions of Section 11(1)(a), in our opinion in that case, the Hon'ble Supreme Court has clearly indicated as to how an association of a particular caste has to be considered while applying the provisions of Section 11. In other words, the reliance placed by the assessee on the said decision of the Hon'ble Supreme Court and Hon'ble Gujarat High Court is quite apt. For all these reasons, we hold that the provisions of Section 13(1)(b) arc not applicable to the assessee-trust and that the assessee-trust was entitled to exemption under Section 11. The ITO is, therefore, directed to modify the assessment, accordingly.
15. In view of our decision in the appeal filed by the assessee, the appeal filed by the revenue becomes infructuous. Apart from this, it is worthwhile noting that in the earlier proceedings, the AAC had accepted the assessee's claim for deduction of rasoda expenses and miscellaneous expenses and against the said order of the AAC, the revenue had not preferred any appeal before the Tribunal even though it had preferred an appeal against the said order of the AAC wherein he had held that the provisions of Section 13(1)(fc) were not applicable to the assessee-trust. In this view of the matter, we fail to appreciate how the revenue can come up in appeal against the order of the AAC on this point. In fact, in the fresh order passed by the ITO on 13-3-1982, the ITO had failed to carry out the directions of the first order of the AAC, dated 17-9-1979. In the impugned order dated 29-11-1983, the AAC has simply directed the ITO to allow deduction of rasoda expenses and miscellaneous expenses to the extent claimed by the assessee. In this view of the matter, in our opinion, the appeal filed by the revenue is not maintainable.
16. In the result, the appeal filed by the assessee is allowed and that filed by the revenue is dismissed.