Case Law Details
Shree Bhandari Gnyati Mandal Vs CIT (Exemption)
Income Tax Appellate Tribunal (ITAT) Ahmedabad bench has set aside an order by the Commissioner of Income Tax (Exemption) (CIT(E)) that denied Section 80G registration to Shree Bhandari Gnyati Mandal. The case, involving an application for approval under Section 80G(5)(iii) of the Income Tax Act, 1961, has been sent back to the CIT(E) for fresh consideration and detailed verification of the trust’s financial activities.
The appeal, filed by Shree Bhandari Gnyati Mandal, contested the CIT(E)’s decision to reject their 80G application. The primary reason for the denial was that Object No. 3 of the trust’s stated objectives was considered “partly religious” in nature. The CIT(E) held that Section 80G(5) mandates a trust to be established solely for charitable purposes, a condition it deemed unfulfilled due to the composite nature of the object.
During the ITAT proceedings, the counsel for Shree Bhandari Gnyati Mandal argued that the trust had not incurred any expenditure on religious purposes, did not manage any religious establishment, and had not received income for such purposes. It was further submitted that the trust primarily serves members of the “Bhandari Community,” identified as a notified backward community, aligning with Explanation 1 of Section 80G of the Act. The assessee’s representative highlighted that the CIT(E) had failed to address these specific submissions during the initial review.
The ITAT, upon reviewing the case, observed that the term “religious” appeared only once within the trust’s objectives, specifically in Object No. 3: “To provide social, cultural, moral, professional, religious as well as Vedic support to caste members.”
Referencing Section 80G(5) of the Act, the ITAT reiterated that this section applies to donations to institutions established in India for “charitable purposes.” It further cited Explanation 3 to Section 80G, which clarifies that “charitable purpose” does not encompass any purpose that is “whole or substantially the whole of which is of a religious nature.”
Crucially, the ITAT drew attention to Section 80G(5B). This provision stipulates that an institution or fund incurring expenditure of a religious nature not exceeding 5% of its total income for that previous year shall still be deemed eligible for Section 80G benefits, notwithstanding Explanation 3.
The Tribunal’s combined reading of these provisions led to the conclusion that Section 80G registration cannot be denied merely because one of the trust’s objects contains the term “religious.” The ITAT emphasized that the key determinant is whether the trust’s activities are “wholly or substantially wholly religious.”
The ITAT noted that the CIT(E) had summarily rejected the application without conducting any inquiry into the assessee’s specific claim that no expenditure had been incurred towards religious purposes. This omission, the Tribunal stated, was contrary to the principles of natural justice, as the CIT(E) had not addressed the crucial submissions made by the trust during the initial hearing.
Consequently, the ITAT has restored the matter to the file of the CIT(E). The CIT(E) is now directed to conduct a fresh assessment for the grant of Section 80G registration and to specifically verify whether Shree Bhandari Gnyati Mandal has expended or utilized less than 5% of its total income for religious purposes. If this condition is met, the trust may be granted registration in accordance with the law.
The appeal of the assessee has been allowed for statistical purposes, indicating that the case requires further factual examination by the lower authority. The order was pronounced in open court on December 24, 2024.
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 26.06.2024.
2. The assessee has raised the following grounds of appeal:
“1. On the facts and in circumstances of the case as well as law on the subject, the learned CIT(E) has erred in rejecting the application of assessee for approval u/s. 80G(5)(iii) of the I.T. Act, 1961.
2. It is therefore prayed that order of CIT(E) passed u/s. 80G(5)(iii) of the I.T. Act, 1961 may please be cancelled and registration may be granted.
3. Appellant craves leave to add, alter or delete any ground(s) either before or in the course of hearing of the appeal.”
3. The brief facts of the case are that the assessee’s application for grant of registration under Section 80G of the Act was rejected by Ld. CIT(E) on the ground that a perusal of the objects of the trust demonstrate that Object No. 3 of the applicant was partly “religious” in nature. Therefore, since Object No. 3 of the applicant trust is composite in nature i.e. both charitable and religious in nature, it clearly contravened Section 80G(5) of the Act which requires that the trust is not established only for charitable purposes, which is a prerequisite for grant of registration under Section 80G(5) of the Act.
4. Before us, the Counsel for the assessee submitted that the assessee / applicant trust had submitted before Ld. CIT(E) that is has not spent any money towards religious purposes, it does not manage any religious establishment and has also not received any income for religious purposes. It was submitted before Ld. CIT(E) that the trust has been formed for the members of the “Bhandari Community”, which is a notified backward community, which is duly covered within the provision of Explanation 1 of Section 80G of the Act. However, Ld. CIT(E) has not dealt with any of the submissions of the assessee / applicant trust and rejected the application of the trust.
5. On going through the records of the case, we observe that the word “religious” is only coming at one place in the objects of the assessee / applicant trust i.e. at Object No. 3, which is reproduced for ready reference:
“3) To provide social, cultural, moral, professional, religious as well as Vedic support to caste members.”
6. Now on going through Section 80G(5) of the Act, it states that this section applies to donation to any institution or fund only if it is established in India for a “charitable purposes”. Further, 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 or expends less than 5% of his 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 which 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 submitted during the course of hearing, which in our view is against the principles of natural justice.
7. 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.
8. In the result, appeal of the assessee/applicant trust is allowed for statistical purposes.
This Order pronounced in Open Court on 24/12/2024
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