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2025 (5) TMI 972 - AT - Income TaxRejection of application filed in Form No.10AB u/s 80G(5)(iii) and cancelled the provisional registrations - CIT(E) observed that the appellant has not furnished complete details regarding the expenditure incurred for religious purpose - HELD THAT - AR submitted that the use of the words religious or religion in a few objects of the trust deed does not mean that the trust was not for charitable purpose but was for religious purpose. This is clear from the fact that the trust has not incurred any expenditure which was of religious nature. We find that the appellant has not given any details of actual religious expenditure to the CIT(E). Therefore the matter is restored to the file of CIT(E) to carry out verification as to whether 5% of the total income of the assessee-trust was spent for religious purpose and thereafter to consider the grant of registration in accordance with law. The appellant should be granted adequate opportunity of hearing before deciding the issue. The appellant is directed to furnish all details needed by the CIT(E) during the fresh proceedings. For statistical purposes the appeal of the assessee is allowed.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered by the Tribunal in these appeals are: (a) Whether the Commissioner of Income-tax (Exemption) was justified in rejecting the applications filed by the assessee-trusts in Form No.10AB for grant of approval under clause (iii) of the first proviso to section 80G(5) of the Income-tax Act. (b) Whether the presence of religious objects in the trust deeds precludes the trusts from qualifying as institutions established solely for charitable purposes under section 80G(5). (c) Whether the assessee-trusts incurred or expended any amount towards religious purposes in contravention of the provisions of section 80G(5B) and Explanation 3 to section 80G. (d) Whether the CIT(E) complied with the principles of natural justice and conducted adequate inquiry before rejecting the applications and cancelling the provisional registrations. 2. ISSUE-WISE DETAILED ANALYSIS Issue (a): Validity of rejection of applications under section 80G(5)(iii) Relevant legal framework and precedents: Section 80G(5) of the Income-tax Act provides that donations to institutions or funds established in India for charitable purposes are eligible for deduction if the institution is approved under the section. The first proviso to section 80G(5) and Explanation 3 clarify that the term "charitable purpose" excludes any purpose that is wholly or substantially of a religious nature. Section 80G(5B) allows an institution to incur religious expenditure up to 5% of its total income without losing eligibility. Rule 11AA(1) and (2) prescribe the procedure for grant and cancellation of approval under section 80G. The judicial approach demands that the CIT(E) should verify the objects and activities of the trust and the actual expenditure incurred to ascertain compliance. Court's interpretation and reasoning: The CIT(E) rejected the applications on the ground that some objects of the trusts were religious in nature, which allegedly contravened the main condition of section 80G(5). The CIT(E) noted the absence of clarification or details regarding religious expenditure from the trusts and concluded that the trusts were not established solely for charitable purposes. The Tribunal noted that the CIT(E) did not conduct any substantive inquiry or verification of the trusts' submissions, nor did he consider the contention that no expenditure was incurred on religious purposes. The Tribunal referred to a precedent where a similar issue arose and the matter was restored for fresh verification of whether the trusts had expended less than 5% of their income on religious purposes. Key evidence and findings: The trusts submitted that the main objects related to education, medical, and social welfare, and that no expenditure was incurred for religious purposes despite the presence of religious terminology in the trust deeds. The CIT(E) did not receive or consider detailed evidence of actual expenditure on religious purposes. Application of law to facts: The Tribunal held that the mere presence of religious objects in the trust deed does not automatically disqualify the trust from approval under section 80G(5) if the trust's activities are not substantially religious and if expenditure on religious purposes is within the permissible limit under section 80G(5B). The Tribunal emphasized the need for proper verification of actual religious expenditure before arriving at a conclusion. Treatment of competing arguments: The assessee argued for approval based on the dominant charitable nature of activities and nil religious expenditure. The revenue relied on the presence of religious objects and lack of clarification. The Tribunal found the revenue's approach premature and lacking in procedural fairness. Conclusions: The Tribunal concluded that the CIT(E)'s rejection was not sustainable without proper inquiry and directed restoration of the matter for fresh adjudication after verification of religious expenditure and hearing the assessee. Issue (b): Effect of religious objects in trust deeds on eligibility under section 80G(5) Relevant legal framework and precedents: Explanation 3 to section 80G excludes purposes wholly or substantially religious from "charitable purposes." However, section 80G(5B) permits expenditure on religious purposes up to 5% of total income without disqualification. The courts have held that the presence of religious objects in a trust deed is not determinative if the trust's activities are predominantly charitable. Court's interpretation and reasoning: The Tribunal analyzed the statutory provisions and held that the term "charitable purpose" excludes only those purposes which are wholly or substantially religious. The Tribunal reiterated that if religious expenditure is within the 5% threshold, the trust remains eligible. The Tribunal emphasized that the statutory scheme contemplates some religious activities within charitable trusts without disqualification. Key evidence and findings: The trust deeds contained some religious terminology but the trusts asserted no religious expenditure was incurred. The CIT(E) did not verify this assertion. Application of law to facts: The Tribunal applied the combined reading of section 80G(5), Explanation 3, and section 80G(5B) to hold that the trusts' eligibility cannot be denied solely on the basis of religious objects in the deed if actual expenditure is within permissible limits. Treatment of competing arguments: The revenue argued that inclusion of religious objects violated the condition. The Tribunal rejected this as an absolute bar and required factual verification of expenditure. Conclusions: The Tribunal concluded that the presence of religious objects is not fatal and the trusts' eligibility depends on actual expenditure and predominant charitable nature. Issue (c): Verification of actual religious expenditure under section 80G(5B) Relevant legal framework and precedents: Section 80G(5B) permits religious expenditure up to 5% of total income without affecting eligibility. The CIT(E) is required to verify actual expenditure to determine compliance. Court's interpretation and reasoning: The Tribunal found that the CIT(E) failed to seek or consider details of religious expenditure from the trusts before rejecting the applications. The Tribunal referred to a precedent where the matter was remanded for verification of expenditure and fresh adjudication. Key evidence and findings: The trusts claimed nil religious expenditure but did not furnish detailed accounts to the CIT(E). The CIT(E) rejected the applications without inquiry. Application of law to facts: The Tribunal directed the CIT(E) to conduct a thorough verification of religious expenditure and allow the trusts opportunity to furnish details and be heard. Treatment of competing arguments: The revenue's reliance on absence of details was rejected as the CIT(E) did not provide opportunity to the trusts to clarify or submit evidence. Conclusions: Verification of religious expenditure is mandatory and the trusts should be given a fair opportunity before final decision. Issue (d): Compliance with principles of natural justice Relevant legal framework and precedents: Principles of natural justice require that an applicant be given a fair hearing and that the authority consider all submissions before passing an adverse order. Court's interpretation and reasoning: The Tribunal observed that the CIT(E) rejected the applications without dealing with the trusts' submissions or providing opportunity for clarification on religious expenditure. This was held to be contrary to natural justice. Key evidence and findings: The trusts had submitted contentions and claimed no religious expenditure, which were not addressed in the orders. Application of law to facts: The Tribunal held that the CIT(E) must provide opportunity to the trusts to furnish details and be heard before deciding on approval under section 80G. Treatment of competing arguments: The revenue did not dispute the procedural lapse but supported the substantive rejection. Conclusions: The Tribunal directed fresh adjudication after compliance with natural justice. 3. SIGNIFICANT HOLDINGS "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 contain 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." "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 its total income towards religious purposes. If that be the case, the assessee / applicant trust may be granted registration, in accordance with law." Core principles established include:
Final determinations on each issue were that the CIT(E)'s orders rejecting the applications and cancelling provisional registrations were set aside and the matters remanded for fresh adjudication after verification of religious expenditure and compliance with natural justice. The appeals were allowed for statistical purposes.
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