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Facts
The assessee, a very old trust incorporated in 1953, filed an appeal against the order of the CIT(E) rejecting its application for registration under section 80G(5). The rejection was based on the ground that the trust was not purely charitable due to some religious objectives and incurred religious expenses exceeding the 5% limit in FY 2021-22.
Held
The Tribunal held that the CIT(E) erred in rejecting the application based on religious expenses without proper verification, especially when the assessee had a limited time to respond to the show cause notice. The Tribunal found that the religious expenses exceeded the limit only in one year, and not in FY 2023-24 as observed by the CIT(E).
Key Issues
Whether the rejection of the application for registration under section 80G(5) by the CIT(E) was justified, considering the trust's overall objects and the actual expenditure on religious purposes.
Sections Cited
80G(5), 12A, 80G(5)(ii)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “ A” BENCH, AHMEDABAD
Before: SHRI TR SENTHIL KUMAR & SHRI NARENDRA PRASAD SINHA
आदेश/O R D E R
PER NARENDRA PRASAD SINHA, AM:
This appeal is filed by the assessee against the order passed by the Commissioner of Income Tax (Exemption) Ahmedabad, (in short “the CIT(E)”) dated 25.12.2024, in the proceedings u/s. 80G(5) of the Act.
The assessee has taken the following grounds of appeal:
“[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
ITA No.472/Ahd/2025 Asst. Year NA
2 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. [2] In law and on the facts and in the circumstances of the case of appellant, the Id. CIT (Exemption), Ahmedabad has erred in rejecting application for registration of the trust u/s. 80G(5) & u/s. 12A of the Income Tax Act, 1961 on the basis of incorrect reasons/observations. [2.1] In law and on the facts and in the circumstances of the case of appellant, the Id. CIT (Exemption), Ahmedabad has erred in not granting registration u/s 80G(5) of the Act to the appellant on the basis some of the object are partly religious / Composite in nature which is wrong and incorrect. [3] The Ld. CIT(E) was grievously wrong in not considering the registration of the appellant trust which is in the year 1953 before the operation of the present Income Tax Act, 1961 and therefore the rejection u/s. 80G(5) & u/s. 12A was illegal. The appellant submits that place of the trust is Historic and Government has given the status of Heritage Place and therefore the Trust is doing the charitable activities for General Public Utility. [4] The appellant craves leave to add, alter or amend and/or withdraw any ground or grounds of appeal either before or during the course of hearing of the appeal.”
3. Shri Kunal Sanghavi, Ld. AR appearing for the assessee submitted that the Ld. CIT(E) had rejected the application of the assessee on the ground that the assessee-trust was not purely charitable trust. He explained that the Ld. CIT(E) had picked up one of the objectives wherein reference to constructing temple, doing Pooja, appointment of Poojari etc. was mentioned and on that basis he had held that provision of section 80G(5)(ii) and Explanation 3 to section 80G was contravened. The Ld. AR further submitted that no compliance could be made before the Ld. CIT(E) in respect of queries raised by him in this regard due to paucity of time. On the finding of the religious expenses, Ld. AR admitted that the expense was in excess of the prescribed limit of 5% in one year i.e. in A.Y. 2021-22 only but on that basis the Ld. CIT(E) was not correct in cancelling the provisional registration for the entire period Asst. Year NA 3 from 04.04.2022 to AY 2024-25. The Ld. AR requested that the assessee may be allowed another opportunity to produce the documents and the clarifications by setting aside the matter to the file of Ld. CIT(E).
Per Contra Shri Alpesh Parmar, Ld. CIT. DR supported the order of the Ld. CIT(E).
We have considered the submissions of the assessee and also gone through the documents brought on record in the paper book. The assessee is a very old trust incorporated on 15/09/1953. As per Form 10AB the objects of the trust included religious, preservation of monuments/places/artistic or historic interest, advancement of any other object of general public utility etc. It was explained that trust is a religious cum charitable in nature, as it is running Dharamshalas, Gaushala, home shelters etc. and Gujarat Government has accorded it a status of heritage place. Merely because one of the objects of the trust was religious in nature, the approval can’t be denied. One had to consider the overall objects of the trust. As per statute the trust is entitled to spend up to 5% of the expense for religious purpose. In order to incur such expense, it is imperative that a tenet of religious nature would appear in the objects. What was relevant to examine was whether the assessee had exceeded the limit of 5% on the religious expenses as stipulated under the provisions of the Act.
Asst. Year NA 4 6. The Ld. CIT(E) had issued a show cause notice dated 09/12/2024 to the assessee requiring it to explain the violation of section 80G(5)(ii) of the Act considering the fact that it had incurred religious expense of more than 5% in the F.Y. 2021-22 and 2023-24. It is found from Form 10AB filed by the assessee that the religious expense in FY 2021-22 was 9.33% whereas religious expense for FY 2023-24 was not reported therein. However, as per letter dated 14/11/2024 filed before the Ld. CIT(E), the religious expense in FY 2021-22 and 2023-24 was reported at 5.85% and 4.80% respectively. In view of these facts, it is not clear as to how the Ld. CIT(E) has arrived at the conclusion that the religious expense for F.Y. 2023-24 exceeded the limit of 5%. The assessee was allowed time of only three days to respond to the show cause notice dated 09/12/2024. The assessee had sought time to comply to the show cause notice and a copy of the online acknowledgement in this regard has been brought on record. However, it appears that no further compliance was made by the assessee and the application of the assessee was rejected by the Ld. CIT(E). It appears prima facie that the assessee had incurred religious expenses in excess of prescribed limit of 5% in FY 2021-22 only and not in FY 2023-24, as observed by the Ld. CIT(E) in his notice. If so, the rejection of the application and cancellation of the provisional registration for the entire period from 04.04.2022 to AY 2024-25 does not appear to be correct. In the interest of justice, we deem it proper the set aside the matter to the file of Ld. CIT(E) with a direction to allow one more opportunity to the assessee to explain the religious expenses incurred in different years. The Ld.
ITA No.472/Ahd/2025 Asst. Year NA
5 CIT(E) may re-adjudicate the issue of approval u/s 80G(5) of the Act after correctly ascertaining the religious expenses incurred by the assessee in years involved in the application / provisional approval. The assessee is also directed to comply before the Ld. CIT(E) in the course of set aside proceeding and produce the details and clarifications, as required. In case the assessee fails to comply, the Ld. CIT(E) will be free to decide the issue in accordance with the provisions of law.
In the result, the appeal filed by the assessee is allowed for statistical purposes.
Order pronounced in the Open Court on 21st July, 2025 at Ahmedabad.