Pawansut Dadrawa Sarkar Nyas Vs Exemption Ward (ITAT Agra)
Section 80G Renewal Cannot Be Denied Merely for Religious Activities Without Examining the 5% Expenditure Limit
Issue involved
Whether renewal of approval under section 80G could be rejected merely because a trust carried on religious activities, without examining whether its expenditure of a religious nature exceeded 5% of its total income, having regard to the exception provided under section 80G(5B).
Background of the case
The assessee was a public trust which applied for renewal of its approval under section 80G. During examination of the application, the CIT(Exemptions), Bhopal, observed that its activities primarily involved running and maintaining a temple and conducting religious ceremonies and rituals.
A show cause notice dated 9 March 2026 proposed rejection on the ground that these activities were religious and did not qualify for approval under section 80G. The assessee submitted its reply on 21 March 2026.
The CIT(E), however, rejected the application by order dated 26 March 2026, holding that the trust’s objects and activities did not satisfy section 80G(5)(ii) and Explanation 3 to section 80G.
According to the CIT(E), public trusts could be categorised as charitable, religious, or religious-cum-charitable, and only the first category qualified for approval. He further held that examination of the 5% religious expenditure limit was unnecessary for purely religious or religious-cum-charitable trusts.
Assessee’s submissions
The assessee submitted that it carried on activities for the welfare of the public without discrimination based on caste or religion. These included providing food to poor persons, organising bhandaras, maintaining a gaushala and providing accommodation to the public and tourists.
It stated that approval under section 80G had originally been granted on 26 June 2008 and subsequently renewed by order dated 8 February 2022, covering Assessment Years 2022-23 to 2026-27. It also relied on registration under section 12AB for Assessment Years 2027-28 to 2036-37.
The trust emphasised that there had been no change in its objects or activities. Its activities continued in the same manner as when approval had previously been granted.
More particularly, the assessee contended that the CIT(E) had not identified religious expenditure exceeding 5% of total income. Although the income and expenditure details were available, the rejection did not contain any specific computation establishing a breach of section 80G(5B).
The Revenue supported the rejection order.
Tribunal’s observations
The Tribunal examined section 80G(5)(ii), Explanation 3 and section 80G(5B).
Section 80G(5)(ii) addresses provisions in the institution’s governing instrument permitting income or assets to be applied for purposes other than charitable purposes. Explanation 3 excludes from “charitable purpose” a purpose which is wholly or substantially wholly religious.
However, section 80G(5B) expressly overrides section 80G(5)(ii) and Explanation 3. It provides that an institution or fund incurring expenditure of a religious nature not exceeding 5% of its total income in the relevant previous year shall be deemed to be an institution or fund to which section 80G applies.
The Tribunal held that this provision creates a deeming fiction which must be considered while examining eligibility. Consequently, it rejected the CIT(E)’s view that the religious expenditure limit need not be examined where the trust was categorised as religious or religious-cum-charitable.
The decisive deficiency was that, while alleging a violation of section 80G(5B), the CIT(E) had furnished no working showing that religious expenditure exceeded the statutory limit.
The assessee’s submission that all relevant income and expenditure details were already available required factual verification.
Decision
The Tribunal set aside the rejection order and restored the matter to the CIT(E) for fresh adjudication.
It specifically directed that renewal of approval under section 80G should be granted if religious expenditure did not exceed 5% of total income, subject to satisfaction of the other statutory conditions and in accordance with law.
The appeal was accordingly allowed for statistical purposes. Approval was not granted outright by the Tribunal; verification was left to the CIT(E).
Author’s comments
The significant aspect of this ruling is that the description of a trust as religious-cum-charitable cannot substitute for examination of the statutory exception. Where section 80G(5B) is applicable, the authority must examine the expenditure figures rather than reject the application merely by referring to religious objects or activities.
Equally, the 5% limit is linked to total income, not total expenditure. Proper identification of expenditure of a religious nature and its comparison with the statutory denominator therefore assume significance.
The decision should also be read with its express qualification that the other conditions for approval must be satisfied. It does not hold that meeting the expenditure limit cures every possible disqualification under section 80G.
Finally, although the assessee relied on earlier approvals and continuing registration under section 12AB, the Tribunal’s operative reasoning rested on section 80G(5B) and the absence of a supporting computation. The ruling therefore supports a reasoned examination of eligibility; it does not establish an automatic entitlement to renewal merely because approval existed in earlier years.
FULL TEXT OF THE ORDER OF ITAT AGRA
This appeal is directed against the impugned order dated 26.03.2026 passed in application No. CIT exemption Bhopal/2025-26/12AA/15531 by the NFAC (hereinafter referred to as the Commissioner of Income Tax), u/s. 250 of the Income Tax Act, 1961 (hereinafter referred to as the “Act”) for the A.Y. 2026-27, wherein ld. CIT (A) has dismissed assessee’s appeal.
2. Brief facts of the case: The assessee filed an application seeking renewal of approval u/s 80G of the Act. A show cause notice dated 09.03.2026 was issued by the Ld. CIT (E) to the assessee seeking clarification on the following points.
“1. The application and documents submitted by the assessee have been examined. On perusal of the trust deed, activity reports, financial statements and other materials placed on record, it is observed that the assessee is primarily engaged in activities related to running and maintenance of a temple and conducting religious ceremonies and rituals.
2. As per the provisions of Section 80G(5) of the Income-tax Act, 1961, read with the applicable rules, approval under Section 80G cannot be granted to institutions or funds if they are expressed to be for the benefit of any particular religious community or caste, or where the activities are predominantly religious in nature.
3. In the present case, the activities carried out by the assessee appear to be religious in nature, including but not limited to the management of temple premises, organization of religious events, and performance of rituals associated with the said temple. Accordingly, it appears that the assessee is engaged in religious activities which may not qualify for approval/renewal under Section 80G of the Income-tax Act, 1961
4. In view of the above facts, it is proposed to reject the application for renewal of approval under Section 80G filed by the assessee.
5. You are hereby requested to show cause as to why the application for renewal of approval under Section 80G should not be rejected on the above-mentioned grounds. You may file your written submissions along with supporting documentary evidence, if any, to substantiate your claim that the activities of the institution are charitable in nature and are eligible for approval under Section 80G.”
2.1 The assessee filed its reply on 21.03.2026. The Ld. CIT (E) on perusal of reply noted that the objects and the activities of the assessee being in the nature of religious purposes do not qualify the eligibility criteria of section 80G (5) of the Act and they were in violation of section 80G (5) (ii) and Explanation 3 to section 80G of the Act. Thereafter, the Ld. CIT (E) quoted the relevant provisions of section 80 G and noted that section 11 of the Act allows exemption for income derived from property held under trust wholly for charitable or religious purposes whereas in section 80G (5) of the Act the deduction is allowable only for charitable purposes and the trust which is also established for religious purposes is out of scope of section 80G (5) of the Act. The Ld. CIT (E) further noted that section 80G (5) of the Act starts with the wordings only if it is established in India for a charitable purpose and also section 80G(5B) of the Act allows the benefit of religious expenditure up to 5% which is established for purely charitable in nature.
2.2 The Ld. CIT (E) also noted that it is an undisputed fact that public charitable trusts have 3 categories i.e. “charitable purposes”, “religious purposes” and “religious cum charitable purposes.” The Ld. CIT (E) further observed that out of the 3 categories, only the first category was eligible for registration u/s 80G (5) of the Act. It was further held that determination of religious expenditure up to 5% was not required in cases which are either purely religious in nature or religious cum charitable. The Ld. CIT (E) further noted that in this case, the assessee was also found in violation of section 80G (5) of the Act. The Ld. CIT (E) finally held that the objects and activities of the trust being in the nature of religious purposes do not qualify the eligibility criteria of 80(5) of the Act and they were in violation of section 80G (5)(ii) and Explanation 3 to section 80G of the Act and section 80G (5B) of the Act. Accordingly, the application of the assessee filed for renewal of approval u/s 80G (5)(ii) of the Act was rejected by the Ld. CIT (E).
3. Aggrieved with the said order, the assessee in appeal before us on the following grounds of appeal:
“1. That the Ld. CIT (Exemption) has erred in holding that the appellant trust is engaged predominantly in religious activities, without properly appreciating the charitable activities carried out by the trust.
2. That the Ld. CIT (Exemption) has failed to appreciate that the appellant trust is not established for the benefit of any particular religious community 0R caste and is open to the general public at large.
3. That the Ld. CIT (Exemption) has erred in invoking section 80G(5)(ii) and Explanation 3 without appreciating that the trust is engaged in substantial charitable activities such as free food distribution, gaushala operations and public utility services.
4. That the Ld. CIT (Exemption) has ignored the documentary evidences and submissions furnished by the appellant demonstrating genuine charitable activities.
5. That the Ld. CIT (Exemption) has failed to follow binding judicial precedents wherein it has been held that trusts carrying on activities for the benefit of the public at large cannot be denied approval merely because of incidental religious activities.
6. That the rejection of application is arbitrary, unjustified and based on incorrect appreciation of facts and law.
7. That the order passed by the Ld. CIT (Exemption), Bhopal is bad in law and on facts and is liable to be quashed.”
4. At the time of hearing, the Ld. AR filed a written submission. The relevant extracts of the same are reproduced as under:
“Written Submission
Respectfully submitted,
Above appeal has been preferred by the appellant against the order dated 26.03.2026 passed by the CIT Exemption, Bhopal, rejecting the approval for registration u/s 80G of Income tax Act. The appellant most respectfully begs to submit as under: –
FACTS OF THE CASE
1. The appellant is legally constituted public charitable trust engaged in the activities for the welfare of general society, without discrimination of any caste, religion engaged in the activities, providing the food to poor or weaker section of society, arranging Bhandara, maintaining and running Goushala, providing accommodation facility to general public, tourist etc. coming to near by place. The trust is registered with Registrar of Firms vide registration dt. 03.08.1985 duly granted the registration u/s 12AAB(1)(b) of Income tax Act vide order dt. 26.03.2026 for the A.Y. 2027-28 to 2036-37. Trust has already been granted the registration u/s 80G of Income tax Act vide order dt. 26.06.2008 with its renewal order dt. 08.02.22 approval for A.Y. 2022-23 to 2026-27.
2. That there is no change in any object and activities of the trust all the activities of the trust are as per objects of the trust, having similar manner as in past. That this charitable trust has applied for renewal of the registration, already granted u/s 80G of Income tax Act, which the CIT Exemption has rejected vide their order dt. 26.03.2026 on the reasons given therein that the trust is engaged in the activities of religious nature. Against the rejection of renewal vide order dated 26.03.2026 for exemption already granted U/s 80G to the appellant, the appeal under consideration is filed.
Submission of grounds
3. That as per the grounds taken, the appellant has challenged the order passed by CIT Exemption, not allowing of the approval for renewal of exemption granted u/s 80G to the trust, which the CIT Exemption has rejected without appreciating the facts and the legal position that the appellant is charitable trust, has already granted the registration u/s 12AB(1)(b) of Income tax Act for A.Y. 2027-28 to 2036-37 and also has granted the registration u/s 80G of Income tax Act vide registration dt. 26.06.2008, further renewed vide order dt. 08.02.2022.
4. That CIT Exemption while not allowing of the renewal of registration has not appreciated that the above charitable trust is doing same activities as per their objects, right from the date of its registration u/s 80G and its renewal, now during the year, the trust is also engaged in providing of the same charitable activities to the general public as in past, the CIT Exemption, without pointing out the specific defect, without going into the accounts, statement of income and expenditure, ignoring the fact the trust has already allowed the exemption u/s 12AB(1b) of Income tax act with allowing the registration U/s 80G with its renewal, has dismissed the application, filed for renewal of registration of the trust u/s 80G of Income Tax Act. The order passed, rejecting the application for renewal of 80G to the charitable trust is bad in law, liable to be set aside. Application filed for renewable of approval U/s 80G(5)(ii) to the charitable trust under consideration is liable to be allowed.
5. It is also submitted, that the CIT exemption while rejecting the applications for renewed of sec 80G(5)(ii) has not pointed out that, the appellant has made expenses more then 5% of the total income violating the provisions of sec 80G(5), all the details income and expenditure were before the CIT exemption, without pointing out specific violation ignoring the statement of income and expenditure an objects of the trust rejecting the application filed for renewed of registration U/s 80G is highly unjustified and against the provision of income tax act, order passed rejecting the application for renewal of of sec 80G is liable to be allowed. Order passed by CIT exemption is liable to be set-a-side”
5. On the other hand, the Ld. CIT DR supported the order of the ld. CIT (E).
6. We have heard both the parties and perused the material on record. In this regard, we notice that the Ld. CIT (E) while discussing the various provisions relating to grant of registration u/s 80G (5) of the Act rejected the application of the assessee on the ground that the objects and activities being in the nature of religious purposes do not qualify the eligibility criteria of section 80G (5) of the Act and they were in violation of section 80G (5) (ii) and Explanation 3 to section 80G of the Act. The ld. CIT (E) further held that only public charitable trusts having “charitable purposes” was eligible for registration u/s 80G (5) of the Act and that determination of religious expenditure up to 5% was not required in cases which are either purely religious in nature or religious cum charitable as in the case of the assessee. The Ld. CIT (E) further noted that in this case, the assessee was also found to be in violation of section 80G (5B) of the Act.
6.1 In this regard, to appreciate the legal position regarding the requirement of charitable activities as per this section as noted by the Ld. CIT (E) and the exception carved out by way of section 80 G(5B) of the Act regarding the requirement of charitable activities in the case of an institution or fund which incurs expenditure during any previous year, which is of a religious nature for an amount not exceeding 5% of its total income in that previous year so as to become eligible for deduction u/s 80G of the Act, the relevant provisions of section 80G (1), clause (i) and (ii) of 80G (1), sub section 5 of 80G and sub clause (iv) of clause (a) of sub section 2 of 80G of the Act, 80G(5B) of the Act and the Explanation 3 to section 80G are reproduced as under:
“Deduction in respect of donations to certain funds, charitable institutions, etc.
80G. (1) In computing the total income of an assessee, there shall be deducted, in accordance with and subject to the provisions of this section,—
(i) In a case where the aggregate of the sums specified in sub section (2) includes any sum or sums of the nature specified in ………; and
(ii) in any other case, an amount equal to fifty per cent of the aggregate of the sums specified in sub-section (2).
(2) The sums referred to in sub-section (1) shall be the following, namely :—
(a) any sums paid by the assessee in the previous year as donations to—
………
(iv) any other fund or any institution to which this section applies; or
(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 :—
(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;
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.”
(emphasis supplied by us)
6.2 As per Explanation 3 to section 80G of the Act, “charitable purpose” does not include any purpose the whole or substantially the whole of which is religious in nature. However, section 80G(5B) referring to clause (ii) of sub section 5 and Explanation 3 to section 80G states that notwithstanding anything contained in clause (ii) of sub section 5 and Explanation 3 to section 80G wherein an institution or fund which incurred expenditure during any previous year, which is of a religious nature for an amount not exceeding 5% of its total income in that previous year shall be deemed to be in institution or fund to which the provision of the section apply i.e. it will be eligible for deduction u/s 80G of the Act. Thus, section 80G(5B) creates a deeming fiction that even in a case of an institution or fund which is engaged in activities of a religious nature but incurs expenditure for an amount not exceeding 5% of its total income in that previous year shall be deemed to be an institution or fund which will be eligible for deduction u/s 80G of the Act. Thus, the assessee will also be eligible for deduction u/s 80G of the Act provided it does not violate the provision of section 80G(5B) of the Act.
6.3 Therefore, in view of the above discussion we are of the considered view that the observation of the Ld. CIT (E) that only an institution or fund will be eligible for registration u/s 80G (5) of the Act if it was only for “charitable purposes” and that determination of religious expenditure up to 5% was not required in cases which are either purely religious in nature or religious cum charitable is not acceptable. At the cost of the repetition, we make it clear that an institution or fund will be eligible for registration u/s 80G (5) of the Act if its expenditure does not exceed 5% of the total income which is of a religious nature as provided in section 80G(5B) of the Act. However, as noted above, the Ld. CIT (E) has not given the working regarding his finding that the assessee in the present case is also found in violation of section 80G(5B) of the Act i.e. it has incurred expenditure during the previous year which is of a religious nature for an amount exceeding 5% of its total income. In this regard, the Ld. AR in his submission states that all the details of income and expenditure were before the CIT exemption. This factual position requires verification.
6.4 In view of the above factual position, we set aside the impugned order of the Ld. CIT (E) and restore the matter back to his file for fresh adjudication keeping in view the above observations with a direction that the Ld. CIT (E) will grant renewal of approval u/s 80G of the Act to the assessee, if he comes to a finding that the assessee has not incurred expenditure during the previous year which is of a religious nature for an amount exceeding 5% of its total income subject to satisfaction of other condition(s) and in accordance with law. Grounds nos. 1 to 7 of the appeal are allowed for statistical purposes.
7. In the result, the appeal of the assessee is allowed for statistical purposes.
Order pronounced in the Open Court on- 23.07.2026
