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Facts
The assessee filed an application for approval under Section 80G(5) of the Income Tax Act, 1961. The CIT(E) rejected the application, citing that the trust's objects were religious and it had exceeded the 5% expenditure limit on religious activities.
Held
The Tribunal held that the mere existence of some religious objects in a trust does not disqualify it from being considered charitable. The key factor is whether the expenditure on religious purposes exceeds 5% of the total income. Since the CIT(E) had not properly considered the assessee's explanation regarding the nature of its expenses, the issue was restored to the CIT(E) for re-examination.
Key Issues
Whether the assessee trust, having some religious objects, is eligible for approval under Section 80G(5) if its expenditure on religious activities does not exceed 5% of its total income, and whether the CIT(E) properly considered the assessee's submissions on the nature of expenses.
Sections Cited
80G(5), 80G(5B), 12A
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Income Tax Appellate Tribunal, “B” BENCH, AHMEDABAD
Before: SMT. ANNAPURNA GUPTA & Ms. SUCHITRA KAMBLE
The present appeal has been filed by the assessee against the order of the Ld. Commissioner of Income Tax (Exemption), (hereinafter referred to as “CIT(E)”), Ahmedabad dated 14.12.2024, rejecting assessee’s application seeking approval under Section 80G(5) of the Income Tax Act, 1961 (hereinafter referred to as the “Act”).
[Shree Sthanakvasi Jain Sangh Jivrajpark vs. CIT(E)] - 2 –
The grounds raised by the assessee are as under:
“1. The learned Commissioner of Income tax (Exemption) Ahmedabad CIT(Exemp) has erred both in law and in fact in rejecting application of appellant in Form 10AB filed seeking approval under section 80G(5) of the income tax Act, 1961 and cancelling provisional approval granted on erroneous grounds that OBJECTS OF appellant Trust are religious and that main condition of section 80G(5) were contravened. The order so passed is against the facts and sanction of law. It be so held now.
2. The ld CIT (Exemp) further erred in law and on facts in not appreciating that the objects of appellant were charitable and not religious and Trust was not for benefit of any particular religious community or caste and hence was registered on the basis of such objects as per provisional registration u/s 12A and approved u/s 80G. The refusal to grant final approval u/s 80G(5) and cancelling provisional approval is patently wrong. It be so held now.
3. The ld CIT(Exemp) also erred in law and on facts in observing that expenditure incurred for religious purposes was in excess of 5% as provided in section 80G(5) of the Act since the funds received/ transferred to corpus funds are not income / expenditure for the purpose of section 80G(58) of the Act. It be so held now.
4. The ld CIT(Exemp) erred in law and on facts in not considering the entire deed of Trust and the objects, the Trust being not for benefit of any particular religious community or caste and objects were charitable only it be to held now and order passed be set aside by directing to grant approval as sought u/s 80G(5) of the Act.
5. The ld CIT(Exemp) further erred in law and on facts in not appreciating that the appellant had not applied any part of income for religious objects as provided in provisions of the Act nor was established for such purposes and as the conditions for grant of approval under section 80G(5) were fully satisfied, the appellant Trust ought to be granted approval as sought for. It be so directed to be granted now 6. The ld CIT(Exemp) also erred in law and on facts in relying on the decisions which are not applicable and not relevant to the facts of the appellants case and the prevailing position of law as applicable for the year under appeal.
[Shree Sthanakvasi Jain Sangh Jivrajpark vs. CIT(E)] - 3 –
7. The order passed by ld CIT(Exemp) being erroneous and against the provisions of law, deserves to be cancelled. It be cancelled now and approval under section 80G(5) of the IT Act be directed to be granted as claimed.
8. The appellant craves leave to add, alter, modify or delete any of the grounds at the time of hearing.”
The order passed by the Ld. CIT(E) reveals that the assessee’s application was rejected noting that its objects were religious in nature and it had expended more than 5% on religious activities, which were a clear violation of both of the provisions of Section 80G(5) and 80G(5B) of the Act.
4. The contention of the Ld. Counsel for the assessee was that the Ld. CIT(E) had identified the objects of the assessee fund/institution being religious in nature, despite it being pointed out that not all the objects were religious in nature but only one of the object was so. Further, he pointed out that, it had been clarified to the Ld. CIT(E) also that the expenses noted by him to have been incurred of religious activities had not actually been incurred for any religious activity but were purely charitable in nature. He contended that the amount actually expended on religious purposes did not exceed 5% of the total income of the assessee and, therefore, in terms of the provisions of Section 80G(5B) of the Act, the assessee was eligible for grant of approval/s 80G(5) of the Act. The Ld. Counsel for the assessee contended that the Ld. CIT(E) completely ignored these contentions of the assessee and without controverting the facts [Shree Sthanakvasi Jain Sangh Jivrajpark vs. CIT(E)] - 4 – pointed out by the assessee to him, he went on to hold that the assessee had expended on religious activities in excess of the limit specified u/s.80G(5B) of the Act and, therefore, the assessee was not a fund/institution for charitable purposes and hence, not entitled to approval u/s.80G(5) of the Act. Ld. Counsel for the assessee pointed out that in identical facts and circumstances as in the case of the assessee wherein only one of the objects was for religious purposes and the expenses incurred on religious activity did not exceed the limit specified u/s.80G(5B) of the Act, the ITAT, Rajkot Bench had held the assessee entitled to grant of approval u/s.80G(5) of the Act in the case of Jay Mataji Charitable Trust vs. CIT(E) in dated 23.02.2024. Copy of the order was placed before us.
Ld. DR, on the other hand, supported the order of the Ld. CIT(E) contending that having religious objects and having expended on religious activity more than the limit specified u/s.80G(5B) of the Act, the Ld. CIT(E) had rightly denied grant of approval to the assessee u/s.80G(5) of the Act. He vehemently supported the order of the Ld. CIT(E) holding that the assessee had violated both the provisions of Section 80G(5) and 80G(5B) of the Act and was, therefore, rightly held ineligible to grant of approval u/s.80G(5) of the Act.
We have considered the contentions of both the parties and have gone through the order of the Ld. CIT(E) and also the [Shree Sthanakvasi Jain Sangh Jivrajpark vs. CIT(E)] - 5 – decisions relied upon by the Ld. Counsel for the assessee before us. Undeniably, the approval sought by the assessee u/s.80G(5) of the Act has been denied by the Ld. CIT(E) noting the assessee to be a fund/institution established for religious purpose and not for charitable purposes and also noting the assessee to have expended for religious activities more than the limits specified u/s.80G(5B) of the Act so as to treat it as religious fund/institution and not a charitable fund/institution. Thus, as per the Ld. CIT(E), approval u/s.80G(5) of the Act is to be granted only to the fund/institution established for charitable purposes and the assessee has been noted to have violated the said condition on two counts: i. Its objects have been found to be religious in nature; & ii. It has been found to have violated the conditions of 80G(5B) of the Act by expending more than the limit specified under the said Section for religious purposes.
It is relevant to consider the provisions of Section 80G(5) of the Act which are pertinent for adjudicating the issue before us.
Section 80G of the Act provides for deduction of donations made to certain Funds/Institutions while computing taxable incomes. Sub section (5) of the said section prescribes certain conditions to be fulfilled by funds/institutions for donations made to them being eligible for deduction under the section. The basic requirement is of the fund/ institution being established “for a charitable purpose” .
[Shree Sthanakvasi Jain Sangh Jivrajpark vs. CIT(E)] - 6 –
“Deduction in respect of donations to certain funds, charitable institutions, etc. 80G. …………. ……………….. (5) This section applies to donations to any institution or fund referred to in sub- clause (iv) of clause (a) of sub-section (2), only if it is established in India for a charitable purpose.”
Besides being established for a charitable purpose, the fund or institution is also required to fulfill certain other conditions one of which, pertinent to the issue of religious character of the trust, is specified in Sub-clause (ii) which says that the objects of the Trust should not provide for the application of any of its income for purpose other than a charitable purpose. The relevant sub- clause (ii) reads as under:
“(ii) the instrument under which the institution or fund is constituted does not, or the rules governing the institution or fund do not, contain any provision for the transfer or application at any time of the whole or any part of the income or assets of the institution or fund for any purpose other than a charitable purpose;”
10. The main Section 80G(5) and Sub-clause (ii) of the said Section repeatedly use the word “charitable purpose”. The same has been explained in Explanation (3) to the Section to not include any purpose the whole or substantially the whole of which is of a religious nature:
“Explanation 3.—In this section, "charitable purpose" does not include any purpose the whole or substantially the whole of which is of a religious nature.”
[Shree Sthanakvasi Jain Sangh Jivrajpark vs. CIT(E)] - 7 – 11. In effect, reading Section 80G(5) of the Act and Sub-clause (ii) thereof alongwith Explanation (3) to the Section, it is clear that institutions or funds with purposes which are religious in nature are excluded from availing the benefit of Section 80G of the Act.
Sub-section (5B) to Section 80G further provides that notwithstanding anything contained in Clause (ii) of sub-section (5) and Explanation (3) to the Section if expenditure incurred of religious nature does not exceed 5% of the total income of the trust or fund, the Institution or fund shall not be deemed to be of a religious character but it will be deemed to be of a charitable character, entitled to claim benefit u/s.80G of the Act. Sub- Section (5B) reads as under:
(5B) Notwithstanding anything contained in clause (ii) of sub-section (5) and Explanation 3, an institution or fund which incurs expenditure, during any previous year, which is of a religious nature for an amount not exceeding five per cent of its total income in that previous year shall be deemed to be an institution or fund to which the provisions of this section apply.
Reading Section 80G(5)(ii) with Explanation (3) thereto and 80G(5B) of the Act, it is clear that even composite trusts with objects having religious character are eligible to benefits of Section 80G of the Act subject to the expenses incurred on the religious purposes being minimal, i.e. not exceeding 5% of their total income. Meaning thereby that whether the activities of fund or trust are primarily found to be undertaken for charitable purpose and only a very small / minimal component of the [Shree Sthanakvasi Jain Sangh Jivrajpark vs. CIT(E)] - 8 – activities being carried out is for religious purposes, then such funds or trust are to be treated as of charitable nature eligible for benefits provided u/s.80G of the Act. This is exactly how the ITAT, Rajkot Bench in the case of Jay Mataji Charitable Trust vs. CIT(E) in dated 23.02.2024 interpreted the provisions of the Section holding at para 7 to 10.1 of its order as under:
“7. We have heard the rival contentions and perused the material on record.
8. It would be useful to reproduce Explanation 3 to Section 80G(5) for reference which reads as under:- “Explanation 3.—In this section, "charitable purpose" does not include any purpose the whole or substantially the whole of which is of a religious nature.”
9. A plain reading of Explanation 3 suggests that the termed “charitable purpose” does not include any purpose, the “whole or substantially the whole” of which is of a religious nature. This implies that some part of the activities of a trust are permitted to be of a religious nature.
It would be further useful to reproduce sub-Section (5B) to Section 80G of the Act for ready reference:- “(5B) Notwithstanding anything contained in clause (ii) of sub-section (5) and Explanation 3, an institution or fund which incurs expenditure, during any previous year, which is of a religious nature for an amount not exceeding five per cent of its total income in that previous year shall be deemed to be an institution or fund to which the provisions of this section apply.” 10.1 Sub-Section (5B) provides that an institution or fund which incurs expenditure, during any previous year, which is of a religious nature for an amount not exceeding 5% of it’s total income in that previous year, shall be deemed to be a institution or fund to which the provisions of this section apply. Further, notably sub-Section 5B starts with the words “Notwithstanding anything contained in Clause (ii) of sub-Section (5) and Explanation 3…”. Therefore, on plain reading of sub-Section (5B) to Section 80G, it is evident that if any institution or fund incurs any expenditure which is of a religious nature for an amount not exceeding 5% of it’s total income, in that previous year shall be deemed to be an institution or fund to which the provisions of this section apply. In the instant facts, we observe that Ld. CIT(E) has relied upon only two out of ten objects to show that the assessee is a religious trust. Further, Ld. CIT(E) has not made any specific observations as to whether less than 5% of the total income has been spent by the assessee towards religious purposes.”
[Shree Sthanakvasi Jain Sangh Jivrajpark vs. CIT(E)] - 9 –
The Ld. CIT(E), however, has relied on the order of the ITAT in the case of Om Tapovan Charitable Trust vs. CIT(Exemption), Ahmedabad in dated 17.05.2024 to hold that even if one of the objects of the trust is religious in nature, the character of the assessee trust would be religious and not charitable and the assessee would not be entitled to the benefits of Section 80G of the Act de hors the fact that it has not expended more than 5% of its income on religious activities as provided for 80G(5B) of the Act.
We have gone through the said decision and we find that the ITAT in the said decision had held that Section 80G(5B) of the Act does not override the provisions of sub-clause (iii) of the Section. The ITAT in the said case has not held Section 80G(5B) of the Act to override the provisions of Section 80G(5)(ii) of the Act, which has been interpreted above by us. The ITAT has referred Clause (iii) to Section 80G(5) of the Act reads as under:
“(iii) the institution or fund is not expressed to be for the benefit of any particular religious community or caste;” The said sub-clause states that a fund institution established for charitable purposes should not be expressed to be for the benefit of any particular religious community or caste to be eligible for benefits provided u/s.80G of the Act. Sub-clause (iii) does not refer to the religious nature of the activity carried out by the trust or institution but it deals with trust or institution catering to the [Shree Sthanakvasi Jain Sangh Jivrajpark vs. CIT(E)] - 10 – benefit of a particular religious caste or community. The two are totally distinct things. Therefore, in the case of Om Tapovan Charitable Trust (supra), the issue under consideration was completely different from that in the case before us and that adjudicated by the ITAT in the case of Jay Mataji Charitable Trust (supra). The said decision therefore has no applicability to the facts of the case before us.
In the light of the above, we hold that for denying assessee’s approval u/s.80G(5) of the Act for being religious in character, the mere existence of some objects being religious in nature is not crucial. A trust or a fund can be of a composite character having both charitable and religious purposes. It is only if the application of income of such fund or trust of religious purposes exceeds 5% of total income, that such trust or fund would be treated as religious in nature and not eligible to benefit u/s.80G of the Act. In the facts of the present case, the Ld.CIT(E) has categorically noted at para 8 of his order that the objects of the trust are composite in character and at the same time, he has found the expenses incurred on religious activities by the trust to have exceeded 5% of its income. Ld. Counsel for the assessee has, however, pointed out that by holding so the Ld. CIT(E) has not considered the explanation furnished by the assessee pointing out that the expenses identified by the Ld. CIT(E) as having been incurred for religious purposes were in fact charitable in character. Our attention was drawn to the submissions made by [Shree Sthanakvasi Jain Sangh Jivrajpark vs. CIT(E)] - 11 – the assessee in this regard vide letter dated 29.11.2024, are reproduced hereunder:
“3. Your goodself has stated that as per the Audit report of FY 2022-23, the trust has made prabhavna expenses of Rs. 87,777/- and Rs. 91,525/- and transfer to swamivatsalya vahivati fund of Rs.1,01,115/- towards religious purpose out of total receipts of Rs. 19,54,171-/. In this regard we have to clarify that prabhavna expeses is done without difference of community and distributed to all people irrespective of their caste. Similar is the case of expenses of Swami vatsalaya. The exact nature of this expenses is get to gether and lunch expenses irrespective of caste and religion. The modus operandi is that at first passes are distributed through wide publication. The passes are taken by people from sangh for some token charges say Rs. 10 or Rs.20 and they may distribute among their friends and neighbours irrespective of their caste and religion. All people get to gether on fixed day and venue and they meet each other and do networking and social activities. On this, the sangh has to incur majority expenses and this expenses are debited to Swamivatsalaya vahivati and therefore it is proved beyond doubt that all these expenses are not of religious in nature. The break up of Rs.91525 is as under. Though this are stated under the head RELIGIOUS but they are not of religious in nature. This can be reflected from the break up as under: Chaitra Mas Oli expense 28,258 Paryushan parv expense 3,050 Aasomas oli parna vahivati expense 2,410 Aasomas oli vahivati expense 22,878 Aayambil General expense 210 Manavrahat expense 28,219 Upashray Vahivati expense 6500 TOTAL 91,525 It can be seen from the above that all the above expenses are of manav rahat and lunch expenses on particular dates and that date and tithi are co related and thus expenses are named according to particular tithi but all these expenses are of lunch expenses or vahivati expenses in nature and therefore not of religious in any way.
We have properly explained in the above paras that the trust has not incurred any expenses towards religious purposes. Thus, there is no violation of the main provision of section 80G(5) and provisions of section 80G(5)(0) of the act. Therefore our application should not be rejected. 4.1 As desired by your goodself, expenses ledger account was already attached alongwith our application for registration as well as alongwith [Shree Sthanakvasi Jain Sangh Jivrajpark vs. CIT(E)] - 12 –
our reply dated 15-10-2024. However, for ready reference the said expenses ledger is attached herewith as Annexure I.” Since, admittedly, the Ld. CIT(E) has not considered the explanation of the assessee pointing out that the inapplicability of Section 80G(5B) of the Act to the facts in the present case, we consider it fit to restore the issue back to the file of the Ld. CIT(E) for the limited purpose of examining and verifying the submissions made by the assessee in the light of the provisions of Section 80G(5B) of the Act and granting the assessee approval, if the expenses incurred by it are found to be not in excess of the limit specified u/s.80G(5B) of the Act.
In the result, appeal filed by the assessee stands allowed for statistical purposes.
This Order pronounced on 08/10/2025
Sd/- Sd/- (SUCHITRA KAMBLE) (ANNAPURNA GUPTA) JUDICIAL MEMBER ACCOUNTANT MEMBER Ahmedabad; Dated 08/10/2025 S. K. SINHA True Copy आदेश क� �ितिल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant ��यथ� / The Respondent. 2. संबंिधत आयकर आयु� / Concerned CIT 3. आयकर आयु�(अपील) / The CIT(A)- 4. �वभागीय �ितिनिध, आयकर अपीलीय अिधकरण, अहमदाबाद / DR, ITAT, Ahmedabad 5. 6. गाड� फाईल / Guard file. आदेशानुसार/ BY ORDER,