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Facts
The assessee filed an application for approval under section 80G(5) of the Income Tax Act. The CIT(Exemption) rejected the application, stating that the trust deed included religious objects, thus violating the conditions for charitable purposes. The assessee argued that the reference to religious festivals was in the context of cultural programs and that an amendment had been made to the trust deed.
Held
The Tribunal held that the rejection order was passed in violation of natural justice as the assessee was not given a reasonable opportunity to be heard. The CIT(Exemption) passed the order without considering the assessee's reply and amended trust deed. The matter was restored to the CIT(Exemption) for fresh adjudication.
Key Issues
Whether the rejection of the application for approval under Section 80G(5) was vitiated by a breach of natural justice, and whether the trust's objects were exclusively charitable.
Sections Cited
80G(5), 80G(5)(iii), 80G(5)(ii), 80G(5B), 12A
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Income Tax Appellate Tribunal, “C” BENCH, AHMEDABAD
Before: MS.SUCHITRA R. KAMBLE & SHRI MAKARAND V.MAHADEOKAR
This appeal by the assessee is directed against the order passed by the Commissioner of Income Tax (Exemption), Ahmedabad [hereinafter referred to as "CIT(Exemption)"] dated 31.12.2024, rejecting the assessee’s application for approval under section 80G(5) of the Income Tax Act, 1961 (hereinafter referred to as "the Act").
Brief facts of the case
The assessee filed an application in Form No.10AB on 27.06.2024 before the CIT(Exemption), seeking approval under 2 section 80G(5)(iii) of the Act. The provisional approval was granted by the CIT(Exemption) on 29.02.2024 under clause (iv) of first proviso to sub-section (5) of section 80G of the Act, which covered the assessment years from A.Y. 2024-25 to A.Y. 2026-27. Subsequently, in the course of processing of the application for regular approval, various notices were issued to the assessee by the CIT(Exemption) from time to time seeking clarifications and details. In response thereto, the assessee filed submissions on 18.11.2024. Thereafter, a further show cause notice was issued on 30.12.2024 calling upon the assessee to submit its reply or appear for hearing on or before 31.12.2024.
On examination of the submissions and the documents furnished by the assessee, the CIT(Exemption) observed that as per the objects of the trust deed, object No.3 of the trust reads as: “Celebrating national and religious festivals also celebrate cultural program.” The CIT(Exemption) noted that the inclusion of reference to religious festivals in the object clause indicates that the applicant trust is involved in religious activities and, therefore, falls under the category of a composite trust i.e. religious-cum-charitable trust. The CIT(Exemption), after examining the provisions of section 80G(5) of the Act, held that the existence of such religious object in the trust deed violates the conditions stipulated under clause (ii) of section 80G(5) and Explanation 3 to the said section, which require that the institution must be established wholly for charitable purposes without any religious or religious-cum-charitable objects. The CIT(Exemption) further analysed the provisions of sub-section (5B) of section 80G and held that the benefit of permissible religious expenditure up to 5% as provided therein applies only to institutions otherwise established solely for charitable purposes. Since the 3 assessee's trust deed itself contained religious objects, the assessee was not eligible even at the threshold for approval under section 80G(5). In support of the said conclusion, the CIT(Exemption) placed reliance on some judicial precedents. On the basis of the above legal and factual analysis, the CIT(Exemption) concluded that the assessee trust has violated the main condition of sub-section (5) of section 80G of the Act and specifically clause (ii) thereof, as well as Explanation 3 to section 80G(5). Consequently, the application for approval under section 80G(5) of the Act was rejected and the provisional approval earlier granted was also cancelled.
Aggrieved by the order of CIT(E) the assessee in appeal before us raising following grounds of appeal:
1. On the facts and in the circumstances of the case and in law, the Ld. CIT, EXEMPTION, AHMEDABAD has erred in not providing reasonable time and opportunity of being heard and whether he is justified in acting with a predetermined mind and issuing a premeditated order overlooking the reply in response to SCN submitted to him thereby declining application for the approval U/s.80G(5) of the Act.
2. On the facts and in the circumstances of the case and in law, the Ld. CIT, EXEMPTION, AHMEDABAD has erred in concluding that objects of the trust are of a religious nature thereby declining approval U/s.80G(5) of the Act.
3. The Appellant reserves the right to add, amend, replace or delete any grounds of Appeal
on or before conclusion of the appeal.
4. The Appellant prays to set aside the order of Ld CIT, EXEMPTION, AHMEDABAD declining approval U/s.80G(5) of the Act.
During the course of hearing before us, the learned Authorised Representative (AR) reiterated the grounds of appeal and submitted that the impugned order suffers from patent violation of principles of natural justice. The AR submitted that the show cause notice was 4 issued on 30.12.2024 granting only one day’s time to reply on or before 31.12.2024. Despite such limited time, the assessee promptly filed its reply both by speed post and by email on 31.12.2024 along with annexures including amended trust deed and resolutions. The AR submitted that the CIT(Exemption), without considering the said reply and documents placed on record, proceeded to pass the order on 31.12.2024 itself, which clearly shows that no effective opportunity was afforded, and the matter was decided in a pre-determined manner. On merits, the AR submitted that the incidental reference to celebration of religious festivals in one clause was in the context of conducting cultural programs and was not in nature of advancement of religion. Further, to remove any ambiguity, necessary amendment was already made to the trust deed deleting the reference to religious festivals, even prior to passing of the impugned order. The AR prayed that in the interest of justice, the matter be restored back to the CIT(Exemption) for fresh adjudication after taking into account the reply dated 31.12.2024 and the amended trust deed.
The learned Departmental Representative (DR) fairly submitted that he has no objection if the matter is restored back to the CIT(Exemption) for fresh adjudication in accordance with law after duly considering the submissions and documents filed by the assessee.
We have carefully considered the rival submissions and perused the record. It is an admitted position that the show cause notice was issued on 30.12.2024 allowing the assessee only one day’s time to respond, which cannot be regarded as reasonable opportunity in terms of principles of natural justice. Despite such limited time, the assessee submitted its reply on 31.12.2024 enclosing all relevant
5 documents, including the amended trust deed and resolution passed in the Extra Ordinary General Meeting dated 28.11.2024 deleting the reference to religious activities. The CIT(Exemption), however, proceeded to pass the order on 31.12.2024 itself without considering the reply and documents filed by the assessee. We are of the considered opinion that the non-consideration of reply and material submitted by the assessee constitutes clear violation of natural justice and renders the order unsustainable. It is settled law that where material submissions are filed before the competent authority, the same must be considered on merits and a reasoned order is required to be passed after proper application of mind. Further, we find that the assessee is already registered under section 12A of the Act, and its registration has not been withdrawn or cancelled by the CIT(Exemption). Thus, the assessee is recognized as a charitable institution under the Act.
In view of the above facts and in the interest of substantial justice, we are inclined to set aside the impugned order passed by the CIT(Exemption), Ahmedabad and restore the matter to his file for fresh adjudication. The CIT(Exemption) shall decide the application of the assessee afresh after duly considering the reply and documents submitted by the assessee on 31.12.2024, including the amended trust deed and the resolution passed by the assessee trust modifying the objects of the trust, as well as any further submissions or documents that may be filed by the assessee in support of its application. The CIT(Exemption) shall pass a speaking and reasoned order in accordance with law after affording reasonable and effective opportunity of hearing to the assessee. The assessee is also directed
6 to extend full cooperation before the CIT(Exemption) and furnish all necessary information as may be called for.
In the result, the appeal of the assessee is allowed for statistical purposes.
Order pronounced in the Court on 18th June, 2025 at Ahmedabad.