VISMRUTI SOCIAL AND CHARITABLE TRUST,AHMEDABAD vs. THE CIT(EXEMPTION), AHMEDABAD

This appeal has been filed by the Assessee against the order passed by the Ld. Commissioner of Income Tax(Exemption), (in short “Ld. CIT(E)”), Ahmedabad vide order dated 28.06.2024.

Ld. CIT(Exemption), Ahmedabad has erred in law and on facts in concluding that the object no. 7 & 8 as mentioned in the trust deed are of religious nature.

Ld. CIT(Exemption), Ahmedabad has erred in law and on facts in not properly appreciating the provisions contained under sub-section (5B) to Section 80G of the I.T. Act which resulted in rejection of application of registration of appellant trust u/s 80G(5)(iii) of the I.T. Act.

The brief facts of the case are that the assessee/applicant filed an application for approval of trust under section 80G(5)(iii) of the Act. In response to the same, Ld. CIT(E) called for certain details and on perusal of the objects of the applicant trust, he observed that objects at serial number 7 and 8 were “religious” in nature. Ld. CIT(E) was of the view that the objects of the trust were composite in nature i.e. were charitable and religious and hence, they clearly contravene the main conditions of section under section 80G(5) of the Act which is to the effect that none of the objects of the Trust should be “religious” in nature. Ld. CIT(E) was of the view that section 80G(5) of the Act applies to donations made to any institution or fund, but only if that institution or fund is established in India for charitable purposes. This means that the institution or fund must have “only” charitable objectives, and religious purposes cannot be included. Even if even a single object of the institution or fund is religious, it cannot avail the benefits of Section 80G(5) of the Act. The reason for this strict requirement is that there is no practical way to limit the institution’s expenditure on religious purposes to less than 5% and since the renewal of approval under Section 80G happens only every five years, any subsequent withdrawal of approval could harm the interests of donors who made donations in good faith, believing the institution was compliant with the provisions. Ld. CIT(E) was of the view that sub-section (5B) of Section 80G of the Act provides details on how much of the trust's expenditure can Vismruti Social And Charitable Trust vs. CIT(E) Asst.Year –N.A. - 3 – be of a religious nature while still fulfilling charitable activities. However, this does not allow for religious objects to be included in the institution’s goals. Therefore, for an institution to be approved under Section 80G(5), all of its objects must be charitable, and none can be religious in view of Explanation 3 to Section 80G. It would be incorrect to assume that Sub- section (5B) overrides Section 80G(5). Instead, Sub-section (5B) merely clarifies the limits on religious expenditure within charitable activities and does not change the fundamental requirement that an institution’s objectives must be exclusively charitable. This principle was confirmed by the Supreme Court of India in the case of Director of Secondary Education vs. Pushpendra Kumar (AIR 1998 SC 2230), where it was stated that a provision that is an exception cannot be interpreted in a way that nullifies the core provisions of the law. Based on the above facts, Ld. CIT(E) held that the applicant trust had violated the provisions of the Income Tax Act by including religious objectives, and therefore, it is not eligible for approval under Section 80G(5). As a result, Ld. CIT(E) rejected the application for approval filed in Form 10AB by the applicant trust and the provisional approval granted earlier was also cancelled.

The assessee is in appeal before us against the aforesaid order passed by Ld. CIT(E) denying the grant of registration under Section 80G(5) of the Act. The counsel for the assessee submitted that the activities outlined in object No. 7 and 8, though labeled as “religious”, actually serve societal progress and upliftment. These activities, such as publishing literature on Sanatan Dharma, conducting speeches, and performing rituals like havans and poojas, aim to teach moral values, self-discipline, and social Vismruti Social And Charitable Trust vs. CIT(E) Asst.Year –N.A. - 4 – responsibility. The counsel for the assessee submitted that these teachings are crucial for developing good character, wisdom, selfless action, and respect for others, particularly among children and youth, who are the future of society. Therefore, these activities should be viewed as charitable rather than religious. The assessee further submittedthat the rejection of registration based on these objects being religious is incorrect, as they do not exclusively serve religious purposes but promote general societal welfare. In support of this, the counsel for the assessee placed reliance on the decision in the case of Shirmoni Gurdwara Parbandhak Committee v. Commissioner of Income-tax, where the Tribunal held that activities promoting societal welfare, such as education and medical care, could qualify for Section 80G registration even if tied to religious traditions, as long as they serve the public at large without distinguishing between castes or communities. Further, the counsel for the assessee submitted that the trust's objects are towards public welfare and are not exclusive to any one community or religion. The counsel for the assessee submitted that the Ld. CIT(E) failed to consider the full scope of the trust’s activities, as the trust deed contains 22 objects, of which only two objects were considered religious in nature. The counsel for the assessee submitted that the trust is primarily engaged in charitable activities such as education, medical relief, aid for the poor, and environmental preservation. It was submitted that section 80G(5B) of the Act allows trusts which incur religious expenditures not exceeding 5% of their total income in a given year to qualify for the benefits of Section 80G of the Act, regardless of the provisions in Explanation 3 to Section 80G(5), which generally excludes religious purposes. This provision provides a concession for trusts that may have Vismruti Social And Charitable Trust vs. CIT(E) Asst.Year –N.A. - 5 – religious objects but do not spend a significant portion of their income on those religious activities. In the assessee’s case, it incurs minimal expenditure on religious activities (not exceeding 5% of total income), making it eligible for the benefits of Section 80G under the provisions of Section 80G(5B). Thus, it was submitted before us that the trust qualifies for Section 80G benefits, as it mainly focuses on charitable activities and expenditure on religious activities does not exceed the 5% threshold limit as envisaged in section 80G(5) of the Act.

In response, Ld. Departmental Representative placed reliance on the observations made by Ld. CIT(E) in the order rejecting grant of registration under section 80G(5) of the Act.

We have heard the rival contentions and perused the material on record.

It would be useful to reproduce the relevant extracts of the Section 80G(5) which states that this section applies to donation to any institution or fund only if it is established in India for a “charitable purposes”. Explanation 3 to Section 80G states that the term “charitable purpose” does not include any purpose the whole or substantially the whole of which is of a religious nature. Further, Section 80G(5B) states that notwithstanding Explanation 3 any institution or fund which incurs expenditure which is of a religious nature for an amount not exceeding 5% of it’s total income for that previous year shall be deemed to be an institution or fund to which the provisions of Section 80G shall apply. Now from a combined reading of these provisions, it is apparent that in case any trust applies expends less Vismruti Social And Charitable Trust vs. CIT(E) Asst.Year –N.A. - 6 – than 5% of it’s income towards religious purposes, then it cannot be denied benefit of deduction under Section 80G of the Act on this basis alone. Further, even the definition of the term “charitable purposes” has been explained to mean the purpose “the whole and substantially the whole” of which is of a religious nature. Therefore, even as per Explanation 3, referred to above, in which to qualify as “charitable purpose”, the only qualification is that the activities should not be wholly or substantially religious. Therefore, in view of the statutory provisions quoted above, we are of the considered view that the application for grant of deduction under Section 80G cannot be denied to the assessee only on the ground that one of the objects content the term “religious”.

Further, we observe that the applicant/assessee trust had specifically submitted that the trust has not incurred expenditure in excess of 5% of it’s total income on religious activities. However, Ld. CIT(E), without carrying out any enquiry into this aspect, summarily rejected the application filed by the assessee/applicant trust. In fact, Ld. CIT(E), while rejecting the application for grant of registration under Section 80G of the Act has not dealt with any of the submissions / contentions of the assessee / applicant trust submitted during the course of hearing, which in our view is against the principles of natural justice.

In the case of Shree Sahajanand Gaushala Trust vs. Commissioner of Income-tax (Exemption) [2024] 161 taxmann.com 591 (Rajkot - Trib.)[28-02-2024], ITAT held that where Commissioner (Exemption) rejected assessee's application for registration under section 80G(5) on ground that assessee had incurred certain expenses which Vismruti Social And Charitable Trust vs. CIT(E) Asst.Year –N.A. - 7 – were religious in nature, however, Commissioner (Exemption) had not asked for any specific details in connection with religious expenses incurred by assessee, matter was to be restored back to Commissioner (Exemption) for de novo consideration.

In the case of Jay Mataji Charitable Trust vs. Commissioner of Income-tax (Exemption) [2024] 160 taxmann.com 276 (Rajkot - Trib.)/[2024] 205 ITD 503 (Rajkot - Trib.)[23-02-2024], the assessee, a charitable trust, filed application for approval under section 80G(5) of the Act. The Commissioner (Exemption) rejected application on ground that two objects of assessee were religious in nature. ITAT noted that Commissioner (Exemption) had relied upon only two out of ten objects to show that the assessee was a religious trust and he had not made any specific observations as to whether less than 5 per cent of total income had been spent by assessee towards religious purposes. Accordingly, ITAT held that on these facts, matter was to be restored to file of Commissioner (Exemption) for analyzing whether less than 5 per cent of total income had been incurred by assessee towards religious activity.

Looking into the instant facts, it is observed that Ld. CIT(E) had only cited two of the objects out of various objects of the assessee/applicant trust come to conclusion that the applicant trust could not be granted registration since two of its objects were of a religious in nature. However, we observe that there were several other objects of the trust, which were not taken into consideration by Ld. CIT(E) while dismissing the application of for grant of registration under section 80G(5) of the Act. Further, the assessee had also specifically submitted that it’s expenditure on religious activities was within Vismruti Social And Charitable Trust vs. CIT(E) Asst.Year –N.A. - 8 – the threshold limit of 5% as specified under section 80G(5) of the Act, however Ld. CIT(E) did not call for the necessary details with regards to expenditure incurred by the assessee on religious purposes to ascertain whether the expenditure incurred by the assessee was falling within the 5% exemption limit provided under section 80G(5) of the Act. In light of the above observations, the matter is restored to the file of Ld. CIT(E) to consider the grant of registration under Section 80G of the Act afresh and to carry out necessary verification whether the assessee/applicant trust has expended / utilized less than 5% of it’s total income towards “religious purposes”. If that be the case, the assessee/applicant trust may be granted registration, in accordance with law.

In the result, appeal of the assessee / applicant trust is allowed for statistical purposes. This Order pronounced in Open Court on 22/01/2025