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Income Tax Appellate Tribunal, INDORE BENCH, INDORE
Before: SHRI VIJAY PAL RAO & SHRI B.M. BIYANI
आदेश / O R D E R
Per B.M. Biyani, A.M.:
The captioned two (2) appeals, one relating to registration u/s 12AB and other relating to approval u/s 80G, are filed by assessee against two (2) separate orders both dated 13.02.2023 passed by learned Commissioner of Income-Tax (Exemption), Bhopal [“CIT(E)”] by which the assessee’s applications for grant of final registration u/s 12AB / final approval u/s 80G(5) of Income-tax Act, 1961 [“the act”] have been rejected and the provisional registration u/s 12AB / provisional approval u/s 80G(5) granted earlier have also been cancelled. Both of these appeals relate to the same assessee and one of the reason advanced by Ld. CIT(E) in rejecting assessee’s twin applications is identical, therefore these appeals were heard together and are being decided by this common order. Page 1 of 12
Divya Sadhana Charitable Trust, Indore. Vs. CIT(E), & 139/Ind/2023 2. Heard the learned Representatives of both sides at length and case- records perused. We would first take up appeal relating to registration u/s 12AB and thereafter appeal relating to approval u/s 80G.
– relating to registration u/s 12AB:
3. Ld. AR for assessee carried us to the impugned order and demonstrated that initially, Ld. CIT(E) raised multiple objections vide Para No. 2 to 5 of show-cause notice but ultimately while passing order, deleted his objections in Para No. 2, 4, and 5 by accepting assessee’s submission. Therefore, Ld. CIT(E) rejected assessee’s application only on the objection raised by him in Para No. 3 of the show-cause notice. The said objection, as detailed by PCIT, is such that in Para No. 4(p) of the trust-deed, the assessee has incorporated following object-clause:
“4. Without prejudice to the generality of the preceding clause IT IS HEREBY DECLARED that the trustees shall be entitled to pay, utilize or apply the Trust Fund or the income thereof for all or any one or more of the following purposes, that is to say:- XXXX (p). For giving loans, without interests, for any of the above charitable purposes without being responsible or accountable for any loss caused thereby”. [Emphasis supplied] 4. Ld. AR submitted that the CIT(E) has objected above clause with the reasoning that words “without being responsible or accountable for any loss caused thereby” occurring therein permits the trustees to divert the funds of assessee-trust in the names of loans to any related or favourable party without any accountability or responsibility. The CIT(E) has relying upon certain decisions concluded that if one of the object of trust is not charitable or religious in nature and the trust-deed confers full discretion on the trustees to spend the trust funds for an object other than of a religious or charitable nature, the exemption u/s 11 of the act would not be available.
Divya Sadhana Charitable Trust, Indore. Vs. CIT(E), & 139/Ind/2023 Ld. AR submitted that this objection of CIT(E) is the only basis for rejection of assessee’s application which needs to be addressed.
5. Then, Ld. AR opposed the viewpoint taken by CIT(E) on several counts as under:
(i) It is submitted that a careful reading of aforesaid Clause 4(p) of trust- deed clearly reveals that the trustees can give loans “for any of the above charitable purposes”. This means, the trustees can give loans strictly for the various charitable purposes specified in preceding clauses 4(a) to 4(o) and not beyond that.
(ii) Referring to Page 81, 87 and 95 of the Paper-Book where the audited financial statements of assessee for preceding three years are filed, it is submitted that the assessee has fatcually not given any loan to anybody. It is further demonstrated that the assessee only received donations from donors and spent moneys on giving donations as well as small revenue expenses for its activities.
(iii) Referring to Page 67 to 76 of the Paper-Book where certain photographs/newspaper cuttings are filed, it is shown that the assessee has undertaken welfare activities for needy children, senior citizens, etc. from time to time including Covid pandemic period and the assessee’s charitable activities have been widely appreciated.
(iv) It is further submitted that merely because the PCIT had objection one of the clauses, the registration u/s 12AB cannot be denied.
Ld. DR for revenue strongly opposed the submission of assessee. He submitted that the PCIT has correctly noted, on reading of Clause 4(p) of trust-deed, that the trustees have full freedom to give loans to any person without any accountability or responsibility. Ld. DR strongly contended that the order of CIT(E) is very much correct and must be upheld.
Divya Sadhana Charitable Trust, Indore. Vs. CIT(E), & 139/Ind/2023 7. In rejoinder, Ld. AR submitted that even otherwise, under the provisions of Indian Trust Act or MP Trust Act, the Trustees of a Trust are having a safeguard against responsibility and accountability as long as they work within their authority for charitable purposes and hence mentioning same thing in the trust-deed, should not be viewed otherwise.
We have considered rival submissions of both sides. We find that the sole reason of rejecting assessee’s application by CIT(E) is the last part of Clause 4(p) in the trust-deed which prescribes “without being responsible or accountable for any loss caused thereby”. Based on this, Ld. CIT(E) has inferred that the trustees have unlimited authority to divert funds of trust by giving loans to any ‘related or favourable party’. So is the inference being taken by Ld. DR for revenue who feels that the trustees have authority to give loans to ‘any person’. But if we carefully look into the said Clause 4(p) in entirety, it reads thus:
“(p). For giving loans, without interests, for any of the above charitable purposes without being responsible or accountable for any loss caused thereby”.
The words “for any of the above charitable purposes” coming before the underlined words being relied upon by revenue, cannot be ignored. One cannot take out a part of the sentence and interpret, one has to read entire verdict of a sentence. Otherwise, it becomes mis-reading. We find that in the said clause 4(p), it is clearly mentioned that the trustees can give loans “for any of the above charitable purposes” only. Therefore, the apprehension of revenue that the loans would be given to a related or favourable party is a heighted apprehension. In any case, Ld. AR has shown, with the help of audited financial statements, that till now the trust has not made any such loan to a related or favourable party. If the trust makes any such loan in future, the law provides for forfeiture of exemption u/s 13 which in case of necessity, can be invoked by authorities. Looking into these aspects, we do not find any merit in the objection raised by Ld. CIT(E). Since the sole
Divya Sadhana Charitable Trust, Indore. Vs. CIT(E), & 139/Ind/2023 objection raised by Ld. CIT(E) is dissolved, we order the Ld. CIT(E) to consider the application of assessee and pass a needful order granting registration u/s 12AB as applied for.
– relating to registration u/s 80GB:
Ld. AR for assessee carried us to the impugned order and demonstrated that initially, Ld. CIT(E) raised multiple objections vide Para No. 2 to 6 of show-cause notice but ultimately while passing order, deleted his objections in Para No. 2, 4, and 5 by accepting assessee’s submission. Therefore, Ld. CIT(E) rejected assessee’s application only on two objections raised by him in Para No. 3 and 6 of the show-cause notice.
The objection raised by CIT(E) in Para No. 3 of show-cause notice is same as discussed at length in foregoing paras while adjudicating appeal for registration u/s 12AB. Since that objection, as noted by us in Para No. 8 of this order, stands dissolved, it stands dissolved for section 80G also.
Now, we take up another objection raised by CIT(E) in Para No. 6 of show-cause notice which is qua the following objects specified in Clause No. 4(r) & 4(s) of the trust-deed:
(r). To establish, run and aid prayer halls to which all sections of the public will have access. (s). To aid and assist by way of donations for the renovations or repairs of temples, mosques, and churches, gurudwaras or other places as notified by the Central Government in the Official Gazette for the purpose of Section 80-G of the Income-tax Act, 1961, to be historic, archaeological or artistic importance or to be a place of public worship of renown through out any State or States in India.
Ld. AR submitted that the CIT(E) has stated that these objects are in the nature of religious purposes and hence they are violating following provisions of section 80G(5)(ii) and Explanation 3 to section 80G:
Divya Sadhana Charitable Trust, Indore. Vs. CIT(E), & 139/Ind/2023 “Section 80G:
(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 :— (i) XXX (ii) the instrument under which the institution or fund is constituted does not, or the rules governing the institution or fund do not, contain any provision for the transfer or application at any time of the whole or any part of the income or assets of the institution or fund for any purpose other than a charitable purpose; (5B) Notwithstanding anything contained in clause (ii) of sub-section (5) and Explanation 3, an institution or fund which incurs expenditure, during any previous year, which is of a religious nature for an amount not exceeding five per cent of its total income in that previous year shall be deemed to be an institution or fund to which the provisions of this section apply. 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.”
Ld. AR submitted that the CIT(E) has observed that there are three categories of trusts according to purposes, namely (i) charitable purposes, (ii) religious purposes, and (iii) religious-cum-charitable purposes. Out of these categories, only (i) category is eligible for approval u/s 80G, although all three categories are eligible for registration u/s 12AB. Ld. CIT(E) has further observed that the determination of religious expenditure upto 5% as prescribed in section 80G(5B) is also applicable only to category (i) i.e. purely charitable trusts. Therefore, according to CIT(E), the categories falling under (ii) and (iii) are not eligible for approval u/s 80G(5). Ultimately, Ld. CIT(E), taking note of Object Clauses 4(r) and 4(s) of assessee as re- produced above, concluded that the assessee is not merely charitable in nature, its objects as specified in clauses 4(r) and 4(s) are by nature
Divya Sadhana Charitable Trust, Indore. Vs. CIT(E), & 139/Ind/2023 religious in nature; therefore the assessee is not eligible for grant of approval u/s 80G(5). Ld. CIT(E) also relied upon certain decisions including the Upper Ganges Sugar Mills Ltd. Vs. CIT (1997) 93 Taxman 645 (SC) to support his stand that even if one of the objects is wholly or substantially of a religious nature, the assessee would not be entitled to approval u/s 80G(5).
Then, Ld. AR opposed the stand taken by CIT(E) with following contentions:
(i) That the impugned clause 4(r) provides for establishing, running and aiding prayer halls for all sections of society. This object does not convey any association with any sort of religion. Further, the clause
4(s) authorizes assessee to make donations for renovations or repairs of temples, mosques, churches, gurudwaras etc. The object of making donations for repair/renovations does not mean that the Trust is engaged in any religious activity.
(ii) It is submitted that since incorporation, the assessee-trust has not spent a single penny for the objects mentioned in impugned clause
4(r) and 4(s).
(iii) It is further submitted that section 80G(5B) overrides section 80G(5)(ii) as well as Explanation 3 to section 80G and provides that if the expenditure of religious nature does not exceed 5%, the trust shall be deemed to be covered u/s 80G(5). Therefore, the assessee could
Divya Sadhana Charitable Trust, Indore. Vs. CIT(E), & 139/Ind/2023 very well incur expenditure on religious nature upto 5% and still remain entitled for approval u/s 80G(5). It is also pointed out that the decision in Upper Ganges Sugar Mills Ltd. (supra) was pronounced on 04.08.1997 and subsequent thereto, the section 80G(5B) giving over-riding effect was introduced in law through Finance Act, 1999 w.e.f. 01.04.2000.
Reliance is placed on the decision of ITAT, Chennai in KVC Trust Vs.
DIT(E), Chennai (2011) 11 taxamann.com 91 where an identical controversy has been decided in favour of assessee:
“5. We have perused the orders and heard the rival submissions. Ld. DIT(E) had denied registration sought under section 12AA as well as approval under section 80G of the Act for a reason that one of the object clause of the assessee authorized it to spend money for religious activity. According to him, the restrictive clause of 5% appearing in sub-section (5B) of section 80G would apply only if all the objects were of charitable nature. It is, therefore, necessary for us to look into the objects of the trust. Objects appearing in clause 5 of the trust deed 22-3-2010 run as under: XXX 6. There cannot be any doubt regarding the charitable nature of the various objects mentioned above, except for clause (xi). Clause (xi) does authorize the trustees to apply income of the trust for religious activities as they might mutually agree from time to time. A limit is specified, obviously to come within the ambit of sub-section (5B) of section 80G of the Act, which allowed religious spending not exceeding 5 per cent of the total income. The procedure for seeking approval specified in sub-clause (vi) of sub-section (5) of section 80G, is set out in Rule 11AA. Sub-Rule (4) of Rule 11AA clearly states that once the Commissioner is satisfied that all the conditions laid down in clauses (i) to (v) of sub-section (5) of section 80G are fulfilled, he shall grant the approval, and if otherwise, he shall reject application for approval, after recording the reasons for such rejection in writing. So what is required to be seen is whether assessee-trust had satisfied the conditions laid down in clauses (i) to (v) of sub-section (5) to section 80G of the Act. Obviously assessee had satisfied all other requirements of Rule 11AA, since there is no whisper in this regard in the order of the DIT(E). This calls us to have a look at clauses (i) to (v) of sub- section (5) of section 80G of the Act, which runs as under:
Divya Sadhana Charitable Trust, Indore. Vs. CIT(E), & 139/Ind/2023 XXX (not re-produced being the provision of section only) "(5B) Notwithstanding anything contained in clause (ii) of sub-section (5) and Explanation 3, an institution or fund which incurs expenditure, during any previous year, which is of a religious nature for an amount nor exceeding five per cent of its total income in that previous year shall be deemed to be an institution or fund to which the provisions of this section apply."
A harmonious construction is required of sub-clause (ii) of sub-section (5) and sub-section (5B) of the Act. Here the assessee has not mentioned any particular community or caste as mentioned in clause (iii) of sub- section (5) of section 80G. None of the prior clauses of clauses (i) to (x) of the objects mention anything regarding any benefit accruing to any particular religious community. In our opinion, a mere mentioning of application of a limited part of the income for religious activity per se, will not render the trust a non-charitable one, when the clause is one among many and all other clauses are purely charitable in nature. As mentioned by us, there is nothing in the trust deed which would show that the trust was established for the benefit of any particular religious community or caste. When the activities are not pertaining to any particular religion, a mere mentioning of a religious activity without specifying any religion would not by itself make the trust a non-charitable one. Especially so, since sub-section (5B) opens with a non obstante clause. If we look at Explanation 3 to sub-section (5C) of section 80G of the Act, it clearly says the charitable purpose does not include any purpose the whole or substantially the whole of which is of a religious nature. A reading of the object clause of the assessee-trust reproduced above, would not in any way show that its purpose was in whole or substantially in whole, of religious nature. Assessee had by itself put a limitation for spending on religious activity, if at all it was spent for that purpose in future. In any case sub-rule (4) of Rule 11B mentions that the approval given under section 80G would be only for specific years mentioned and the approving authority had the discretion to grant or not to grant a renewal periodically based on applications were put up for this by the assessee. Similarly if we look at sub-section (3) of section 12AA of the Act, it gives power to the Commissioner to withdraw registration given under section 12AA of the Act if the activities of the institution or trust were not as per its' objects. Thus authorities who are vested with the powers to grant registration and approval, are also vested with the power to withdraw such registration or not to grant extension of approval given earlier. In these circumstances, we are of the opinion that the assessee was eligible for registration under section 12AA as well as approval under section 80G of the Act, and these were unjustly denied without taking the totality of the circumstances and objects of the assessee. We, therefore, quash the order of the DIT(E) and direct him to grant registration under section 12AA of the Act and approval sought by the assessee under section 80G of the Act.
8. In the result, assessee's appeals are allowed.”
Divya Sadhana Charitable Trust, Indore. Vs. CIT(E), & 139/Ind/2023 Further reliance is placed on Mishri Lal Gordhan Lal Batra
Charitable Trust Vs. UOI (2008) 307 ITR 221 (Raj HC) order dated
06.12.2007 where, the Hon’ble Court, ordered the department to consider assessee’s application for grant of approval in the light of amendment made through section 80G(5B). The relevant paras of order are re-produced below:
“2. The petitioner has challenged the order dated 25-9-1998, passed by the Commissioner of Income-tax, Udaipur (Annexure-9) thereby the application of the petitioner-trust for renewal of exemption under section 80G was refused, inter alia, on the ground that in one of the objects of the trust deed the construction of temples etc. was included though notwithstanding such inclusion in objects clause, no temples in fact have been constructed by it so far nor any expenditure of religious activities has been incurred by the petitioner-trust but because of the said object the trust was held to be having partly religious purposes.
Learned counsel for the petitioner has invited our attention to a number of decisions to urge that it is the substance of the objects of the trust in locality and the principal activity of the trust only should be taken into consideration and merely because one of many activities have been stated to be construction of the trust which in fact is not the basic purpose of formation of the trust, that should not be the sole criteria of rejection of the application. He also relied on the amendment brought in section 80G by inserting sub-section (5B) of section 80G by the Finance Act, 1999, with effect from 1-4-2000, which was in consonance with the submissions made by learned counsel for the petitioner which, inter alia, provided an overriding provision that where an institution or fund which incurs expenditure in the relevant year which is of religious nature for an amount not exceeding 5 per cent of its total income in that previous year then for that previous year, the institution or fund shall be deemed exempted under section 80G by deeming it to be so.
On this premise learned counsel for the petitioner further urges that in view of this provision, every year the Commissioner has to consider the ratio between the total income of the trust and the expenditure actually incurred for religious purposes and only if the substantive part of the income, that is to say more than 5 per cent of total income is incurred for religious purposes the registration of trust/fund under section 80G can be refused on that ground.
With this premise, it is further submitted by the learned counsel for the petitioner that the petitioner shall be satisfied if the writ petition is Divya Sadhana Charitable Trust, Indore. Vs. CIT(E), & 139/Ind/2023 disposed of with the direction to the Commissioner to consider the case of the petitioner-trust for renewal of its registration with effect from the insertion of sub-section (5B) uninfluenced by the impugned order of rejecting the renewal for the assessment years 1995-2000. In other words, the petitioner's application for renewal with effect from 1-4-2000, should be considered keeping in view of sub-section (5B) of section 80G.
6. These submissions appear to be justified in the light of the aforesaid provision.
7. Accordingly, the writ petition is disposed of with the direction that the petitioner's applications for renewal of registration with effect from 1-4- 2000, under section 80G may be considered by the Commissioner independent of the impugned order dated 25-9-1998, keeping in view the provision of sub-section (5B) of section 80G.” 15. With these submissions, Ld. AR prayed that the assessee deserves registration u/s 80G(5) which the CIT(E) ought to have granted.
Per contra, Ld. DR for revenue strongly supported the order of CIT(E).
He argued that the objects 4(r) and 4(s) specified in the trust-deed are certainly religious in nature and therefore the CIT(E) has correctly denied the approval required by assessee. He prayed to uphold the order of CIT(E).
We have considered rival submissions of both sides and perused the facts of case in the light of various decisions relied by both sides. After a careful consideration, we find that the assessee’s case is directly covered by two decisions relied upon by Ld. AR, namely (i) KVC Trust (ITAT, Chennai) and (ii) Mishri Lal Gordhan Lal Batra Charitable Trust (Rajasthan HC).
Ld. DR for revenue is not able to show any reason for non-applicability of these decisions or to show any contrary decision holding the field. Therefore, following the same view, we are inclined to direct the CIT(E) to consider the Divya Sadhana Charitable Trust, Indore. Vs. CIT(E), & 139/Ind/2023 application of assessee and grant registration after limited verification that the assessee’s case fits in section 80G(5B).
Resultantly, these appeals are allowed in terms indicated above.
Order pronounced in the open court on 19.12.2023.