2025 (6) TMI 231 - AT - Income Tax

Rejection of approval u/s. 80G(5) - assessee had claimed expenses on a Bhagwat Katha event which constituted 36.87% of total receipts - CIT(E) was of the view that this expenditure clearly exceeded the permissible limit and appeared to be of a religious nature thereby violating Section 80G(5B) - HELD THAT - Assessee placed reliance on various judicial precedents on the proposition that expenditure incurred on supporting prayer halls at places of worship which are open to the public at large are not expenses of a religious nature . Accordingly in the interest of justice the matter is restored to the file of Ld. CIT(E) for de-novo consideration and the assessee / applicant trust would be at liberty to place judicial precedents on the subject in support of it s case. Appeal of the assessee / applicant trust is allowed for statistical purposes.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Tribunal were:

• Whether the expenditure incurred by the assessee on organizing a "Bhagwat Katha" event constitutes expenditure of a "religious nature" within the meaning of Section 80G(5B) of the Income Tax Act, 1961.
• Whether the assessee's application for approval under Section 80G(5) can be rejected on the ground that religious expenditure exceeded the prescribed limit of 5% of total income.
• Whether the findings of fact by the Commissioner of Income Tax (Exemptions) regarding the quantum and nature of expenditure were correct and justified.
• The applicability and interpretation of judicial precedents concerning what constitutes "religious expenditure" for the purpose of Section 80G(5B).

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Nature of Expenditure on Bhagwat Katha - Religious or Charitable?

Relevant legal framework and precedents: Section 80G(5B) of the Income Tax Act restricts the allowance of religious expenditure by an institution or fund to a maximum of 5% of its total income for the purpose of charitable activities. Expenditure beyond this limit on religious activities disqualifies the institution from approval under Section 80G(5). The Tribunal referred to the decision of the ITAT Jaipur Bench in Shiv Ratan Rathi Foundation vs. CIT, which held that organizing "Bhagwat Katha" is inherently a religious activity.

Court's interpretation and reasoning: The Commissioner of Income Tax (Exemptions) found that the Bhagwat Katha, based on the Shreemad Bhagwat scripture, is inherently religious. The CIT(E) held that the expenses claimed for the event-amounting to 36.87% of total receipts-far exceeded the 5% permissible limit, thus violating Section 80G(5B). The assessee's explanation that the event was philosophical and spiritual, rather than religious, was rejected as unsatisfactory.

Key evidence and findings: The audit report for the financial year 2023-24 showed expenses of Rs. 5,56,745 on the Bhagwat Katha event against total receipts of Rs. 15,09,785. The CIT(E) noted a consistent pattern of such religious expenditure exceeding the 5% limit in prior years as well.

Application of law to facts: The Tribunal recognized the CIT(E)'s reliance on the statutory provision limiting religious expenditure and the precedent that Bhagwat Katha is a religious activity. However, the Tribunal also acknowledged the assessee's contention that the event included philosophical and cultural elements and was open to all sections of society.

Treatment of competing arguments: The Tribunal noted the assessee's argument supported by judicial precedents that expenditure on activities such as supporting prayer halls open to the public may not be "religious expenditure" for this purpose. The Tribunal found merit in the assessee's contention that the nature of the event and the expenses should be examined afresh.

Conclusions: The Tribunal did not uphold the CIT(E)'s finding outright but restored the matter for de-novo consideration to allow the assessee to place supporting judicial precedents and clarify the nature of the expenditure.

Issue 2: Correctness of the CIT(E)'s Finding on Quantum of Religious Expenditure

Relevant legal framework: Section 80G(5B) prescribes a quantitative limit of 5% on religious expenditure for approval under Section 80G(5). The determination of whether expenditure is religious and whether it exceeds this limit is a question of fact.

Court's interpretation and reasoning: The CIT(E) found that the assessee's expenditure on Bhagwat Katha exceeded the 5% limit. The assessee disputed this finding for the impugned year, though admitted excess in prior years.

Key evidence and findings: The audit report and financial statements showed the expenditure and total receipts. The CIT(E) relied on these figures to conclude non-compliance.

Application of law to facts: The Tribunal noted the factual dispute regarding the nature and classification of the expenditure. It held that the correctness of the CIT(E)'s finding on quantum and nature of expenditure should be reconsidered in light of relevant precedents and detailed scrutiny.

Treatment of competing arguments: The assessee argued that the expenditure was not religious and thus not subject to the 5% restriction. The Revenue relied on the audit and CIT(E)'s findings.

Conclusions: The Tribunal did not decide the factual dispute but remanded the matter for fresh examination.

Issue 3: Applicability of Judicial Precedents on Religious Expenditure

Relevant legal framework and precedents: The Tribunal considered precedents where courts have distinguished between religious expenditure and charitable expenditure, especially where facilities or events are open to the public without religious discrimination.

Court's interpretation and reasoning: The Tribunal accepted the assessee's submission that judicial precedents exist supporting the proposition that certain expenditures, even if connected with religious places or events, may not be "religious expenditure" for the purposes of Section 80G(5B).

Application of law to facts: The Tribunal directed the CIT(E) to reconsider the application in light of these precedents and allow the assessee to place such precedents on record.

Treatment of competing arguments: The Revenue relied on the ITAT Jaipur decision strictly interpreting Bhagwat Katha as religious. The Tribunal balanced this against the assessee's broader submissions and precedents.

Conclusions: The Tribunal concluded that the matter requires fresh consideration incorporating judicial precedents and detailed factual analysis.

3. SIGNIFICANT HOLDINGS

The Tribunal held:

"The Bhagwat Katha, centered around the Shreemad Bhagwat scripture, is inherently religious in nature."

"Section 80G(5B) of the Income Tax Act restricts religious expenditure to 5% of total income for charitable institutions seeking approval under Section 80G(5)."

"Where expenditure incurred on religious activities exceeds the prescribed limit, approval under Section 80G(5) cannot be granted."

"Expenditure incurred on supporting prayer halls at places of worship, which are open to the public at large, are not expenses of a 'religious nature'."

"In the interest of justice, the matter is restored to the file of Ld. CIT(E) for de-novo consideration and the assessee/applicant trust would be at liberty to place judicial precedents on the subject in support of its case."

Core principles established include the strict application of Section 80G(5B) limits on religious expenditure, the necessity of correct classification of expenditure as religious or charitable, and the importance of judicial precedents in interpreting these classifications. The Tribunal emphasized that factual findings on the nature and quantum of expenditure must be carefully examined and cannot be conclusively determined without considering all relevant evidence and precedents.

The final determination was to allow the appeal for statistical purposes and remit the matter for fresh consideration by the Commissioner of Income Tax (Exemptions), thereby not affirming or reversing the rejection outright but ensuring a fair and comprehensive re-examination.