2025 (7) TMI 1427 - AT - Income Tax

Rejecting the application of the Trust for approval u/s 80G(5) -CIT(E) held that the objects of the trust are religious in nature and not only charitable in nature as per section 80G(5) - CIT(E) observed that Object No. 13 was religious in nature involving in celebration of religious festivals which clearly contravenes main conditions u/s 80G(5) HELD THAT - CIT(E) has treated the assessee-trust as a religious trust in view of the clause 4(13) of the trust deed. For the appreciation of fact the same is reproduced below To build temples maintaining them and performing all kinds of spiritual and religious activities CIT(E) seems to have ignored the struck off portion of the clause and has wrongly held that it was for religious purpose but not for charitable purpose. However it has clear from the trust deed submitted by the assessee-trust and its English translation that the said portion of the clause 4(13) have been struck off by the Charity Commissioner. Therefore it cannot be said that the appellant is a religious trust and was not engaged for charitable purposes. Appellant had spent Rs. 5, 40, 000/- for medical relief Rs. 22, 000/- for Goushala donation expenses in the FY.2022-23. The appellant had incurred Rs. 18, 00, 000/- towards medical relief in FY.2023-24 and Rs. 81, 000/- for educational expenses Rs. 12, 78, 000/- for medical relief and Rs. 31, 00, 000/- for Goushala donation expenses in the FY.2024-25. It is therefore clear that the assessee-trust has not incurred any expenses on religious activities. Therefore the threshold limit of 5% as specified in section 80G(5B) of the Act has not been violated. In view of the above the order of CIT(E) is set aside. Appeal of the assessee is allowed.

Summary

ISSUES:

Whether a trust with objects containing religious activities can be granted approval under section 80G(5)(iii) of the Income-tax Act if the religious objects have been deleted or struck off from the trust deed.Whether the trust is established "only for charitable purposes" within the meaning of section 80G(5) of the Act, when some objects previously described as religious have been removed.Whether the trust has violated the threshold limit of 5% expenditure on religious activities as prescribed under section 80G(5B) of the Act.Whether the application for approval under section 80G(5)(iii) can be rejected where the trust's activities and accounts show predominant charitable expenditure and no religious expenditure.

RULINGS / HOLDINGS:

The Court held that the CIT(E) erred in rejecting the application on the ground that the trust was religious in nature because the relevant religious object clause had been struck off by the Charity Commissioner, and the effective trust deed no longer contained religious objects.The trust was found to be established "only for charitable purposes" as per section 80G(5) of the Act, since the struck-off religious clause was no longer operative and the trust's objects focused on social, moral, and spiritual upliftment.The Court observed that the trust had not incurred any expenditure on religious activities and had spent substantial amounts on charitable activities such as medical relief and educational expenses, thereby not violating the 5% threshold limit under section 80G(5B).Accordingly, the order rejecting approval under section 80G(5)(iii) was set aside, and the appeal was allowed.

RATIONALE:

The Court applied the statutory framework under sections 2(15), 80G(5), 80G(5B), and 80G(5)(ii) of the Income-tax Act, along with Rules 11AA(1) and 11AA(2), which govern approval of trusts for charitable purposes and the permissible extent of religious activities.The Court relied on the principle that for approval under section 80G(5), a trust must be established "only for charitable purposes" and must not transfer or apply funds for non-charitable purposes.The Court gave weight to the amendment effected by the Charity Commissioner striking off the religious object clause, and to the audited financial statements showing no religious expenditure, interpreting these facts as compliance with the statutory conditions.The Court distinguished the prior decisions relied upon by the CIT(E) by emphasizing the factual difference that the religious object had been removed and the trust's activities were charitable in nature.