2025 (5) TMI 343 - AT - Income Tax

Rejecting the application of assessee for approval u/s 80G(5) - spent more than 5% for religious purposes from its total income - CIT(E) observed that the objectives/objects of the assessee-trust are also religious in nature which put the assessee under the category of composite trust i.e. religious-cum-charitable trust - HELD THAT - As decided in Upper Ganges Sugar Mills Ltd. 1997 (8) TMI 4 - SUPREME COURT if one purpose within the institution s overall charitable purposes is wholly or substantially wholly of a religious nature then it falls outside the scope of section 80G of the Act. In the present case we have found that one of the purposes was of religious in nature. The expenditure for such object was more than 5% of the total income. In view of the facts discussed above and respectfully following the decisions cited supra the ground of the assessee are dismissed.

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Tribunal are:

(a) Whether the assessee-trust qualifies for approval under section 80G(5) of the Income-tax Act, 1961, given that it is a composite trust with both religious and charitable objects?

(b) Whether expenditure incurred by the trust on religious activities exceeding five percent of its total income disqualifies it from approval under section 80G(5) and sub-section (5B) of the Act?

(c) Whether the presence of religious objects in the Memorandum of Association (MoA) and the nature of activities undertaken by the trust preclude it from being recognized as a charitable institution eligible for exemption under section 80G(5)?

(d) Whether the trust's activities, including running a Gaushala and cultural programs, can be considered primarily charitable to override the disqualification arising from religious expenditure?

2. ISSUE-WISE DETAILED ANALYSIS

Issue (a) and (c): Qualification for approval under section 80G(5) given composite nature of trust

The legal framework governing approval under section 80G(5) requires that the trust be established in India for a charitable purpose. Section 2(15) defines "charitable purpose" to include relief of the poor, education, medical relief, preservation of environment, and advancement of any other object of general public utility, explicitly excluding religious objects or activities. Explanation 3 to section 80G clarifies that "charitable purpose" excludes any purpose the whole or substantially the whole of which is of a religious nature.

The Court examined the Memorandum of Association of the trust, which explicitly included religious objects such as educating youth about Indian culture with religious cultural programs, organizing Ras Garba, and celebrating religious festivals. The trust itself acknowledged in its submissions that it incurred religious expenses, notably Rs. 40,500/- towards Ram Navami festival, constituting 7.95% of its total income in the relevant year.

The Tribunal noted that the trust described itself as a "religious-cum-charitable" or composite trust in Form 10AB. The CIT(E) held that the presence of religious objects and activities, particularly when the religious expenditure exceeds the prescribed threshold, disqualifies the trust from approval under section 80G(5). The Tribunal concurred, relying on precedents including the Supreme Court's decision in Upper Ganges Sugar Mills Ltd. vs. CIT, which held that if one purpose within the institution's overall charitable purposes is wholly or substantially wholly of a religious nature, the institution falls outside the scope of section 80G.

The Tribunal rejected the assessee's contention that the religious expenditure exceeding 5% in one year should be averaged over multiple years. The statutory language of sub-section (5B) is clear that the religious expenditure in any previous year must not exceed 5% of total income for that year. No averaging exception exists.

Issue (b): Effect of religious expenditure exceeding 5% of total income

Section 80G(5B) provides that an institution which incurs religious expenditure not exceeding 5% of its total income in any previous year shall be deemed to be an institution to which section 80G applies. The trust's religious expenditure of 7.95% in the relevant year exceeded this limit.

The Tribunal found that this violation of the statutory threshold is decisive. Reliance was placed on the Pune Tribunal's decision in Kalaram Sansthan vs. CIT(E), where denial of exemption was upheld when religious expenditure exceeded 5% of total income. The Tribunal held that the assessee failed to satisfy the conditions of section 80G(5B) and thus was not entitled to approval under section 80G(5).

Issue (d): Whether charitable activities like running Gaushala can override disqualification

The assessee argued that its main objects were charitable, citing activities such as running a Gaushala for sick and disabled cows and organizing cultural programs. However, the Tribunal observed that the MoA did not include Gaushala activities explicitly, and the religious nature of other objects was predominant. The Tribunal held that the presence of religious purposes and expenditure exceeding the statutory limit cannot be overridden by other charitable activities.

The Tribunal also distinguished the various decisions cited by the assessee, finding them factually different and not applicable to the present case.

3. SIGNIFICANT HOLDINGS

"In order to qualify for approval u/s 80G(5) of the Act, the trust should be established in India for a charitable purpose. Therefore, the trusts which are religious or are composite trust, i.e., both religious or charitable are not liable for benefit u/s 80G(5) of the Act."

"As per Explanation - 3 of section 80G of the Act 'charitable purpose' does not include any purpose the whole or substantially the whole of which is of a religious nature."

"Sub-section (5B) of section 80G states that an institution or fund which incurs expenditures, during any previous years which is of a religious nature for an amount not exceeding five percent 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."

"The words used in sub-section (5B) of section 80G of the Act are very clear. It talks about amount not exceeding 5% of its total income in that previous year. It does not mention average of 3 years. Since no exception has been provided as contended by the ld. AR, the plea of the ld. AR cannot be accepted."

"The Hon'ble Supreme Court in Upper Ganges Sugar Mills Ltd. vs. CIT has held: 'Explanation 3 does not require the ascertainment of whether the whole or substantially the whole of the institution or fund's charitable purpose is of a religious nature. If it did, it would read differently. It requires the ascertainment of whether there is one purpose within the institution or fund's overall charitable purpose which is wholly, or substantially wholly, of a religious nature.'"

"Therefore, in our view, the Trust and the donation by the assessee to it fall outside the scope of section 80G."

Final determination: The appeal filed by the assessee against the rejection of approval under section 80G(5) was dismissed. The Tribunal upheld the CIT(E)'s order rejecting the application on the ground that the trust is a composite trust with religious objects and that religious expenditure exceeded the statutory threshold of 5%, thus disqualifying it from approval under section 80G(5) and sub-section (5B) of the Act.

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