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Facts
The assessee, a trust, applied for registration under Section 80G(5)(iii) of the Income Tax Act. The Commissioner of Income Tax (Exemptions) rejected the application, concluding that the trust was substantially engaged in religious activities, which are not considered charitable for the purpose of Section 80G as per Explanation 3.
Held
The Tribunal found that the CIT(E) erred in its finding, noting that the trust also engaged in significant charitable activities such as education, medical aid, yoga, and organizing eye camps. It highlighted that the trust had previously been granted registration under Section 12A for its charitable objectives. Consequently, the Tribunal directed the CIT(E) to grant registration under Section 80G(5)(iii) to the assessee trust.
Key Issues
Whether a trust engaged in both religious and substantial charitable activities is eligible for registration under Section 80G(5)(iii) of the Income Tax Act.
Sections Cited
Section 80G, Section 80G(5), Section 80G(5)(iii), Section 12A
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Income Tax Appellate Tribunal, DIVISION BENCH, ‘B’ CHANDIGARH
Before: SHRI RAJPAL YADAV & SHRI MANOJ KUMAR AGGARWAL
O R D E R PER RAJ PAL YADAV, VP
The assessee is in appeal before the Tribunal against the order of the ld. Commissioner of Income Tax (Exemptions) [in short ‘the CIT (E)’] dated 29.11.2024.
The solitary grievance of the assessee is that ld. CIT (E) has erred in rejecting its application for grant of approval/registration u/s 80G(5)(iii) of the Income Tax Act.
ITA No.137/CHD/2025 A.Y.2025-26 2
The brief facts of the case are that assessee has applied for registration u/s 80G(5)(iii) vide application dated 20.06.2024 in prescribed proforma. The ld. CIT (E) has gone through the application as well as reproduced the objectives of the Trust on page 8 of the impugned order. On an analysis of its audited accounts, ld. CIT (E) has recorded a finding that this Trust is existing substantially for religious purpose, therefore, not entitled for registration. The finding recorded by the ld. CIT (E) in this connection reads as under :
On perusal of the above, it is clear that the society is engaged in performing activities which are religious in nature and these cannot be considered as charitable purpose as per the provisions of section 80G(5) of the Income-tax Act. 4.1 It is pertinent to refer to the relevant provisions of section 80G of the Income-tax, 1961 here. Section 80G reads as under: "(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 and if it fulfils the following conditions, namely :—- (iii) the institution or fund is not expressed to be for the benefit of any particular religious community or caste;" 4.2 An explanation to the above section has been inserted by the Finance Act, 1994, w. e. f. 1-4-1994 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." The above said Explanation 3 to Section 80G of the Act clearly states that for the purpose of Section 80G, "charitable purpose" does not include a purpose, the whole or substantially the whole of which is of religious nature. Hence, as per the above Explanation, for this section, a trust cannot be said to be established for charitable purposes if it includes any purpose/object, the whole or substantially the whole of which is of religious nature. It is not necessary A.Y.2025-26 3 that the trust be established only for religious purposes but even if one object of the trust is wholly or substantially of religious nature, then the trust cannot be said to be established for charitable purposes. The same has been upheld by the Hon'ble Apex Court in the case of Upper Ganges Sugar Mills Ltd. v. Commissioner of Income Tax [1997] 93 Taxman 645 (SC). The Hon'ble Supreme Court while clearly covering the above said argument held as under :
'The High Court rejected the assessee's argument that the trust was not set up wholly or substantially for a religious purpose; one of the purposes, it said, was 'to establish, maintain and grant aid to public places of worship and prayer halls', which was an entirely religious purpose.
Section 80G applies to donations to any institution or fund established in India 'for a charitable purpose'.' Charitable purpose, for the purposes of the section, does not include any purpose the whole or substantially the whole of which is of a religious nature'. [Emphasis supplied] Explanation 3, which uses this phraseology, takes note of the fact that an institution or fund established for a charitable purpose may have a number of objects. If any one of these objects is wholly, or substantially wholly, of a religious character, the institution or fund falls outside the scope of section 80G and a donation to it does not secure the advantage of the deduction that it gives."
To reiterate, 'Explanation 3 does not require the ascertainment of whether the whole or substantially the whole of the institution or fund's charitable purpose is of a religious nature. If it did, it would read differently. It requires the ascertainment of whether there is one purpose within the institution wholly, of a religious nature. 4.3 The Hon'ble Supreme Court rejected the assessee's plea in the above- mentioned case since one of the many objects of the institution was of religious nature. Hence, it is a well-established position that Explanation 3 does not point towards the trust being wholly or substantially of religious nature but even if one of the purposes of the trust is wholly or substantially of religious nature, section 80G(5) can't be granted.
5. In view of the above discussions, the present application of the applicant filed in Form 10AB u/s 80G(5)(iii) of the Act is rejected as the aims and objects of the society are religious in nature and also as per financials it is clear that the society is a religious entity which cannot be considered to be for charitable purposes as per the provisions of section 80G(5) of the Income-tax Act. Accordingly, the application filed by the applicant for approval u/s 80G of the Act is hereby disposed of as rejected, which rejection and consequent lack of approval shall supersede any approval granted u/s 80G of the Act by any authority at any earlier time”
ITA No.137/CHD/2025 A.Y.2025-26 4
With the assistance of ld. Representative, we have gone through the record carefully. The ld. counsel for the assessee drew our attention towards objectives of the Trust, particularly Objective No. 11 wherein one of the objectives has been provided towards Education, Medical, Yoga and other work of public importance by which welfare of the public at large can be achieved. Apart from the above, it has been demonstrated that this place is situated at an interior area of Himachal Pradesh where the medical facilities are not so sound. It has been organizing Eye Camps annually. The ld. counsel for the assessee placed on record bifurcation of expenses for Charitable Activities and Thakur Puja, Fair, Festival Celebrations. Such details are available on page No. 146. A perusal of these details would indicate that in assessment year 2021-22, Rs.10,69,180/- was spent on charitable activities whereas Rs.2.74 lacs on temple. Similarly, in assessment year 2023-24, Rs.19.75 lacs spent on charitable activities and temple expenditures are of Rs.3.51 lacs only. The assessee has spent expenditure on festival celebrations and organizing Melas which is very small amount of Rs.39,110/- in assessment year 2023-24. Similarly, A.Y.2025-26 5 substantive expenditures have been made on charitable activities in assessment year 2022-23 in comparison to other activities. Thus, it is factually incorrect that Trust is solely existing for religious purpose. Yes, it has been incurring expenditure for maintaining a Temple and organizing various functions therein, but ld. CIT (E) failed to appreciate the facts in right perspective. It has been granted registration u/s 12A after considering objectives as ‘Charitable’ in nature. Thus, we are of the view that ld.CIT (Appeals) has erred in rejecting the application. We allow the application of assessee and direct the ld. CIT (E) to grant registration u/s 80G(5)(iii) of the Income Tax Act to the assessee Trust.
In the result, appeal of the assessee is allowed.
Order pronounced on 02.02.2026.