2024 (5) TMI 1585 - AT - Income Tax

Rejection of application filed for registration u/s 80G(5) - application of the assessee contains nature of activity as Religious cum Charitable and further para/row 5 of the application in form (From-10AB) mentions object as religious - HELD THAT - The amended provisions of section 80G(5B) of the Act have overridden the provisions of sub-clause (ii) of section 80G(5) of the Act and the explanation 3 of section 80G of the Act but it has not overridden subclause (iii) of section 80G(5) of the Act which requires that the assessee should not have any object in the deed relating to the religious activity. In the present case admittedly one of the objects in the deed is of a religious nature as observed by the ld. CIT exemption discussed above and therefore we are of the view that the assessee is not eligible for registration under section 80G(5) of the Act. In holding so we draw support and guidance from the order of ITAT in the case of Yug Chetna Parmarth Trust 2014 (2) TMI 654 - ITAT AGRA Assessee is not eligible for registration under section 80G(5) of the Act. Decided against assessee.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in the appeal are:

- Whether the assessee trust is eligible for registration under section 80G(5) of the Income Tax Act, given that its trust deed contains objects of religious nature alongside charitable purposes.

- Whether the amended provisions of section 80G(5B), which allow certain expenses on religious activities up to 5% of gross receipts, override the prohibition under section 80G(5)(iii) against trusts having objects for the benefit of any religion or caste.

- Whether the presence of an object clause relating to religious activities in the trust deed disqualifies the assessee from claiming registration under section 80G(5), notwithstanding the limited expenditure on religious activities.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Eligibility for Registration under Section 80G(5) in Presence of Religious Objects in Trust Deed

Relevant Legal Framework and Precedents: Section 80G(5) of the Income Tax Act prescribes conditions for registration of trusts or institutions, including that the object of the institution should not be for the benefit of any religion or caste (clause (iii)). Section 80G(5B), an amendment, provides that if expenses incurred on religious activities are less than 5% of gross receipts, the trust shall be deemed not to contravene provisions of section 80G.

The Tribunal in Yug Chetna Parmarth Trust vs. CIT clarified that section 80G(5B) applies only if the trust is established solely for charitable purposes, and allows limited religious expenditure up to 5% of total income without losing eligibility.

Court's Interpretation and Reasoning: The Tribunal observed that while section 80G(5B) relaxes the restriction on expenditure for religious activities, it does not override the fundamental requirement under section 80G(5)(iii) that the trust's objects should not include religious purposes. The presence of a religious object clause in the trust deed is a disqualifying factor.

Key Evidence and Findings: The assessee trust's deed explicitly includes objects such as carrying out religious activities, maintaining temples, and celebrating religious festivals. The application for registration itself described the nature of activities as "Religious cum Charitable."

Application of Law to Facts: Since the trust deed contains religious objects, it fails the statutory condition under section 80G(5)(iii). The limited expenditure on religious activities allowed under section 80G(5B) cannot cure the fundamental disqualification arising from the trust deed's objects.

Treatment of Competing Arguments: The assessee argued that no expenses were incurred on religious activities and hence should be eligible under section 80G(5B). The Revenue contended that the objects in the trust deed themselves are determinative, and the amended provisions do not override clause (iii) of section 80G(5). The Tribunal sided with the Revenue, emphasizing the primacy of the trust deed's objects over incidental expenditure.

Conclusions: The Tribunal concluded that the assessee is ineligible for registration under section 80G(5) due to the presence of religious objects in its deed, notwithstanding limited or no expenditure on religious activities.

3. SIGNIFICANT HOLDINGS

The Tribunal held:

"Section 80G(5B) is also not in contravention of provisions of section 80G(5) because it clarifies the position that the assessee trust when incurred expenditure on religious activities, which is less than 5% of the total income would be deemed to be Institution or fund, to which the provisions of this section apply. The small percentage of amount not exceeding 5 per cent provided in this section clearly proves that the assessee shall have to establish on record that it existed and established for charitable purpose only and while incurring the expenditure during any previous year, which is of a religious nature for an amount not exceeding to 5 per cent of its total income for that previous year, shall be deemed to be an Institution or fund to which the provisions of section shall apply."

Core principles established include:

- The fundamental requirement for registration under section 80G(5) is that the trust's objects must be exclusively charitable and not religious.

- Section 80G(5B) permits limited expenditure on religious activities but does not permit trusts with religious objects in their deeds to claim registration.

- The nature of the trust's objects as recorded in the trust deed is decisive for eligibility, not merely the nature or quantum of expenditure.

Final determination: The assessee trust's application for registration under section 80G(5) was correctly rejected by the learned CIT(Exemption), and the appeal against this rejection was dismissed by the Tribunal.