Case Law Details
Smasta Gurjar Kshatriya Kadiya Samaj Navsari Vs CIT (ITAT Ahmedabad)
Income Tax Appellate Tribunal (ITAT) Ahmedabad bench has set aside an order by the Commissioner of Income Tax (Exemption) (CIT(E)) that rejected the application for 80G(5) approval submitted by Smasta Gurjar Kshatriya Kadiya Samaj Navsari. The Tribunal remanded the matter back to the CIT(E) for fresh consideration, emphasizing that the presence of a religious object in a trust’s deed does not automatically disqualify it from 80G exemption if its expenditure on religious purposes remains below 5% of its total income.
The assessee’s appeal contested the CIT(E)’s ex-parte rejection of their Form 10AB application for 80G(5) approval. The CIT(E) had denied the approval primarily on the ground that one of the trust’s specific objects indicated activities aimed at “religious purposes,” which was deemed a violation of Clause (ii) of Section 80G(5) of the Income Tax Act. The CIT(E) concluded that the trust was not established “wholly for charitable purposes,” a prerequisite for 80G registration.
During the ITAT proceedings, the counsel for Smasta Gurjar Kshatriya Kadiya Samaj Navsari argued that the trust had mixed objects, with the majority being charitable. They highlighted that the trust already held Section 12A registration. It was submitted that the CIT(E) had relied solely on Object No. 9 out of eleven objects to classify the trust as religious. The assessee contended that when read in conjunction with other charitable objectives, the mere inclusion of the word “religious” in one clause should not define the entire trust as having “religious objects.”
Crucially, the assessee asserted that it had not incurred any expenditure of a religious nature in the preceding three financial years (F.Y. 2019-20, 2020-21, and 2021-22), providing audited profit and loss accounts as evidence. The counsel for the assessee emphasized that Section 80G(5) of the Act specifically allows for 80G benefits even if a trust incurs expenditure towards religious purposes, provided it is below 5% of its total income.
The ITAT, after considering the arguments and reviewing the statutory provisions, concurred with the assessee’s interpretation. The Tribunal referred to Section 80G(5), which states that the section applies to donations to institutions established for “charitable purposes.” It also cited Explanation 3 to Section 80G, which clarifies that “charitable purpose” does not include purposes that are “whole or substantially the whole” of a religious nature.
The key point of the ITAT’s ruling centered on Section 80G(5B). This provision explicitly states that an institution or fund that incurs religious expenditure not exceeding 5% of its total income for a previous year shall still be eligible for Section 80G benefits, overriding Explanation 3. The ITAT’s combined reading of these provisions led it to conclude that 80G approval cannot be denied solely because one of the trust’s objects contains the term “religious.” The Tribunal underscored that the determining factor is whether the trust’s activities are “wholly” or “substantially wholly” religious.
The ITAT criticized the CIT(E) for summarily rejecting the application without conducting any inquiry into the assessee’s specific claim of not incurring religious expenditure. This omission, the Tribunal noted, was against the principles of natural justice, as the CIT(E) failed to address the contentions raised by the trust during the hearing.
Consequently, the ITAT restored the matter to the CIT(E), directing a fresh consideration of the 80G registration application. The CIT(E) is now mandated to verify whether Smasta Gurjar Kshatriya Kadiya Samaj Navsari has expended or utilized less than 5% of its total income for religious purposes. If this condition is met, the trust is to be granted registration in accordance with the law. The assessee’s appeal was allowed for statistical purposes, signifying that the case requires further factual examination by the lower authority.
FULL TEXT OF THE ORDER OF ITAT 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 27.11.2024.
2. The Assessee has taken the following grounds of appeal:-
“(1) The learned CIT(E) was not justified in rejecting application u/s. 80G(5) by passing ex-parte order without hearing the appellant.
(2) The appellant deserves a chance in view of the natural justice.
(3) On the facts and circumstances of the case, the learned CIT(E) was not justified in rejecting the application particularly when the appellant demonstrated that no religious activities were undertaken in the last 3 years as also the objects that meekly pointed to the spiritual and religious side was on the financial assistance to the needy.
(4) All of the above grounds are prejudiced to one another.
(5) The appellant craves leave to add, alter or vary any of the grounds of appeal.”
3. The brief facts of the case are that the assessee / applicant trust applied for grant of approval under Section 80G(5) of the Act in Form 10AB. On perusal of the objects of the applicant trust, the CIT(E) observed that there is a specific object, in the trust deed, which shows that the trust activities are aimed towards “religious purposes”. CIT(E) was of the view that since one of the objects of the assessee’s trust is “religious” in nature, then there is a clear violation of Clause (ii) of Section 80G(5) of the Act which puts a bar on grant of approval under Section 80G(5) of the Act to an institution or fund, whose objects provide for application of the trusts income towards religious purposes. Ld. CIT(E) of the view that from perusal of the objects of the trust, it is clear that the assessee trust was not established wholly for charitable purposes, whereas, Section 80G of the Act makes it amply clear that for grant of registration under Section 80G of the Act, the assessee / applicant trust has to be established only for charitable purposes and that there is no transfer or application of funds for any purposes other than charitable purposes. Accordingly, Ld. CIT(E) rejected the grant of approval under Section 80G(5) of the Act, with the following observations:
“9. In view of the above, the applicant has violated existing main condition of sub-section (5) of section 80G i.e. it is not a purely charitable trust. Also it has violated the provision of clause (ii) of sub-section (5) of section 80G of the act and hence the applicant is not entitled to get approval u/s. 80G(5) of the Income Tax Act therefore the present application filed in Form 10AB is liable to be rejected.
10. Looking to the above facts, the present application filed in Form No.10AB for approval under clause (iii) of first proviso to section 80G(5) of the Act is rejected and your provisional approval also stands cancelled.”
4. Before us, the Counsel for the assessee submitted that assessee is a trust with mixed objects, where majority of the objects are charitable in nature. The trust holds regular registration under Section 12A of the Act. The Counsel for the assessee submitted that out of eleven objects, CIT(E) relied only on one object i.e. object No. 9 to classify the trust as one having been established for “religious” purposes. It was submitted that once the aforesaid object is read along with all other charitable objects of the trust, then it would be seen that mere inclusion of the word “religious” in one of the clauses would not categorize the trust as one with “religious objects”. Further, the Counsel for the assessee submitted that the assessee has not incurred any expenditure of a “religious nature” in the past three years. The Counsel for the assessee submitted before us the audited profit and loss account of the assessee / applicant trust for F.Y. 2019-20, 2020-21 and 2021-22 as part of the Paper Book in support of the above contention. The Counsel for the assessee submitted that Section80G(5) of the Act specifically provides that if the trust incurs expenditure towards religious purposes below 5% of it’s total income, then the benefit of Section 80G(5) of the Act cannot be denied to the such trust.
5. In response, Ld. D.R. placed reliance on the observations made by Ld. CIT(E) in the order rejecting grant of registration under Section 80G of the Act.
6. We have heard the rival contentions and perused the material on record.
7. Section 80G(5) of the Act states that this section applies to donation to any institution or fund only if it is established in India for “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) of the Act 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. From a combined reading of these provisions, it is apparent that in case any trust applies or expends less than 5% of it’s income towards “religious” purposes, then it cannot be denied benefit of deduction under Section 80G of the Act on the ground that has been incorporated for “religious purposes”. Further, even in the definition of the term “charitable purposes” it has been stated that the purpose of Trust should not one which is “wholly” or “substantially wholly” of a religious nature. Therefore, even as per Explanation 3 referred to above, in order to qualify as “charitable purpose” within the meaning of section 80G of the Act, the only qualification is that the activities should not be “wholly” or “substantially wholly” 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 any expenditure towards religious purposes. 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.
8. In the result, 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.
9. In the result, the appeal of the assessee / applicant trust is allowed for statistical purposes.
This Order pronounced in Open Court on 26/05/2025
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