RAJVEE FOUNDATION,PATAN vs. THE CIT(EXEMPTION), AHMEDABAD

1. In law and in the facts and circumstances of the appellant's case, the order passed by the Ld. CIT (Exemption), Ahmedabad rejecting application for registration of the trust u/s. 80G(5) of the Income Tax Act, 1961 is void ab initio and in violation of principles of natural justice hence being bad in law.

During the course of hearing before us, the learned Authorised Representative (AR) of the assessee submitted that the order passed by the learned CIT (Exemption), Ahmedabad is contrary to law and facts on record. he AR contended that the learned CIT(E) has selectively and incorrectly interpreted one of the objects of the trust as being religious in nature, while in fact the predominant and substantive objects of the assessee are charitable in nature. Rajvee Foundation Vs. CIT(E) Assessment Year N.A 4 6. It was submitted that merely providing certain facilities for pilgrims cannot, by itself, be regarded as a religious activity so as to disentitle the assessee from the benefit of approval under section 80G(5) of the Act. The AR further pointed out that the assessee has not incurred any expenditure whatsoever towards the alleged religious object. In support of this submission, reference was drawn to the ledger extracts placed in the paper book at page 26, which demonstrate that all expenses incurred are towards charitable purposes only. In reply to a specific query raised by the Bench, the AR categorically stated that no expenditure has been incurred on any religious activity and reiterated that the assessee’s activities are purely charitable in nature.

The AR also highlighted that the assessee trust has already been granted registration under section 12AB(1)(b) of the Act vide order dated 26.12.2024 by the learned CIT(E) itself, on the basis of the same set of objects and facts. It was thus argued that once the assessee has been accepted as a charitable institution under section 12AB, the learned CIT(E) should not have denied approval under section 80G(5) by treating one of the ancillary objects as religious.

On the other hand, the learned Departmental Representative (DR) supported the impugned order of the learned CIT (Exemption).

We have considered the rival submissions and perused the orders of the lower authority. The issue before us is whether the assessee trust is eligible for approval under section 80G(5) of the Act. Rajvee Foundation Vs. CIT(E) Assessment Year N.A 5 10. Section 80G(5)(ii) requires that the institution or fund should be established in India for “charitable purpose only” and not for any purpose other than charitable purpose. Explanation 3 clarifies that “charitable purpose” does not include any purpose the whole or substantially the whole of which is religious in nature.

At the same time, section 80G(5B) provides that where a trust, otherwise established for charitable purposes, incurs expenditure not exceeding 5% of its total income in a year on religious activities, such institution shall still be deemed eligible for approval. This provision indicates that the law does not completely exclude trusts which may have an incidental or ancillary religious object, so long as the predominant purpose is charitable and the actual expenditure on religious activities does not exceed the threshold.

The learned CIT(E) rejected the application solely on the basis of the presence of one object in the trust deed, i.e., providing Dharmashala and allied facilities to pilgrims, which he regarded as religious. He concluded that even a single religious object renders the trust ineligible under section 80G(5). In arriving at this conclusion, the CIT(E) relied on certain judicial precedents, including Om Tapovan Charitable Trust v. CIT(E), Ahmedabad (ITA No. 175/Ahd/2023), Yug Chetna Parmarth Trust (44 taxmann.com 446, ITAT Agra), Director of Secondary Education v. Pushpendra Kumar (AIR 1998 SC 2230).

Before us, the learned AR has demonstrated, with reference to ledger extracts (paper book page 26), that no expenditure has ever been incurred Rajvee Foundation Vs. CIT(E) Assessment Year N.A 6 on the object which the CIT(E) has treated as religious. The AR also highlighted that the assessee has already been granted registration under section 12AB(1)(b) by the same CIT(E) on 26.12.2024 on the basis of identical facts and objects. This clearly shows that the trust has been accepted as a charitable institution under section 12AB, which is a more fundamental registration than approval under section 80G.

We have considered the judicial precedents relied on by the CIT(E). In case of Om Tapovan Charitable Trust v. CIT(E), Ahmedabad (ITA No. 175/Ahd/2023), the Co-ordinate Bench found that the trust deed itself contained dominant and substantial religious objects, and the assessee had failed to show that its activities were wholly charitable. The ratio turned on the facts that the trust was in fact engaged in religious propagation. In the present case, the assessee has not incurred any expenditure on the alleged religious object, and all activities are charitable. Hence, the ratio is distinguishable. In case of Yug Chetna Parmarth Trust (44 taxmann.com 446, ITAT Agra), the Co-ordinate Bench held that where the dominant purpose of the trust was religious and therefore approval under section 80G was not available. However, it was also emphasized that the “dominant purpose” test must be applied. In the assessee’s case, the dominant and actual activities are charitable, and the so-called religious object is neither acted upon nor financed. Thus, applying the same principle, the assessee remains eligible for approval. The reliance placed by CIT(E) on the case of Director of Secondary Education v. Pushpendra Kumar (AIR 1998 SC 2230) is misplaced as the main issue was a service matter dealing with interpretation of statutory rules. Rajvee Foundation Vs. CIT(E) Assessment Year N.A 15. At the same time we also note the Hon’ble Supreme Court in case of Upper Ganges Sugar Mills Ltd. v. CIT [(1997) 93 Taxman 645 (SC)], [TS- 5080-SC-1997-O] held that where the dominant purpose of an institution is charitable, the presence of some incidental non-charitable objects does not vitiate the charitable character. The CIT(E) overlooked this binding ratio. Applying this principle, the assessee cannot be denied 80G approval when its dominant purpose and actual activities are charitable.

From the above analysis, it is evident that the reliance placed by the CIT(E) on precedents is either factually distinguishable or, in the case of Upper Ganges, actually supports the assessee.

We also note the contention of the learned CIT(E) that section 80G(5B) is merely a clarificatory provision and does not override the main condition prescribed in section 80G(5). While it is correct that section 80G(5B) does not dilute the basic requirement that the institution must be established for charitable purposes, the said provision was consciously enacted by the Legislature to recognize the practical reality that certain institutions may, in the course of their charitable existence, incur a very small portion of expenditure towards religious activities. By enacting section 80G(5B), Parliament has in fact carved out a statutory tolerance limit of up to five per cent expenditure on religious activities, without disentitling the institution from 80G approval. Therefore, section 80G(5B) cannot be brushed aside as a mere clarificatory note; it has to be applied in harmony with section 80G(5). In effect, an institution cannot be denied approval merely because of the presence of a religious object, unless it is shown that the institution is either Rajvee Foundation Vs. CIT(E) Assessment Year N.A 8 substantially religious in purpose or that its expenditure on religious activities exceeds the threshold prescribed in section 80G(5B).

We further note that the assessee has already been granted registration under section 12AB(1)(b) of the Act vide order dated 26.12.2024 by the very same CIT(E) on the basis of the same trust deed and the same set of facts. Registration under section 12AB is a foundational recognition that the institution exists for charitable purposes within the meaning of section 2(15) of the Act. Once such registration is granted, it is inconsistent and contradictory to deny approval under section 80G on the sole ground that one of the ancillary objects may be capable of a religious interpretation, particularly when no expenditure has been incurred on it. The statutory scheme contemplates that registration under section 12AB and approval under section 80G go hand in hand, subject of course to verification under section 80G(5B) of actual expenditure.

In our considered view, the rejection of the application merely because one ancillary object refers to pilgrims, without verifying the actual conduct of activities, is contrary to the scheme of the Act and judicial precedents.

In view of the foregoing discussion, we hold that the order of the learned CIT(E) rejecting the assessee’s application under section 80G(5) is unsustainable. We accordingly set aside the impugned order and restore the matter to the file of the learned CIT(E) with a direction to re-examine the assessee’s application afresh, specifically verifying whether any expenditure has been incurred on the so-called religious object, in light of section Rajvee Foundation Vs. CIT(E) Assessment Year N.A 9 80G(5B), and thereafter pass a reasoned order in accordance with law after giving due opportunity of hearing.

In the result, the appeal of the assessee is allowed for statistical purposes.