2025 (7) TMI 1438 - AT - Income Tax

Rejection of registration u/s.80G(5) - one of the objects of the trust was religious in nature - HELD THAT - As assessee is a very old trust incorporated on 15/09/1953. As per Form 10AB the objects of the trust included religious preservation of monuments/places/artistic or historic interest advancement of any other object of general public utility etc. It was explained that trust is a religious cum charitable in nature as it is running Dharamshalas Gaushala home shelters etc. and Gujarat Government has accorded it a status of heritage place. Merely because one of the objects of the trust was religious in nature the approval can t be denied . One had to consider the overall objects of the trust. As per statute the trust is entitled to spend up to 5% of the expense for religious purpose. In order to incur such expense it is imperative that a tenet of religious nature would appear in the objects. What was relevant to examine was whether the assessee had exceeded the limit of 5% on the religious expenses as stipulated under the provisions of the Act. CIT(E) had issued a show cause notice to the assessee requiring it to explain the violation of section 80G(5)(ii) of the Act considering the fact that it had incurred religious expense of more than 5% in the F.Y. 2021-22 and 2023-24. It is found from Form 10AB filed by the assessee that the religious expense in FY 2021-22 was 9.33% whereas religious expense for FY 2023-24 was not reported therein. However as per letter dated 14/11/2024 filed before the Ld. CIT(E) the religious expense in FY 2021-22 and 2023-24 was reported at 5.85% and 4.80% respectively. In view of these facts it is not clear as to how the Ld. CIT(E) has arrived at the conclusion that the religious expense for F.Y. 2023-24 exceeded the limit of 5%. The assessee was allowed time of only three days to respond to the show cause notice dated 09/12/2024. The assessee had sought time to comply to the show cause notice and a copy of the online acknowledgement in this regard has been brought on record. However it appears that no further compliance was made by the assessee and the application of the assessee was rejected by the Ld. CIT(E). It appears prima facie that the assessee had incurred religious expenses in excess of prescribed limit of 5% in FY 2021-22 only and not in FY 2023-24 as observed by the Ld. CIT(E) in his notice. If so the rejection of the application and cancellation of the provisional registration for the entire period from 04.04.2022 to AY 2024-25 does not appear to be correct. We deem it proper the set aside the matter to the file of Ld. CIT(E) with a direction to allow one more opportunity to the assessee to explain the religious expenses incurred in different years. Appeal filed by the assessee is allowed for statistical purposes.

Summary

ISSUES:

Whether rejection of registration of a trust under section 80G(5) of the Income Tax Act, 1961, on the ground that the trust is not purely charitable due to partly religious objects, is legally valid.Whether the presence of religious objects in the trust's objectives precludes registration under section 80G(5) when the trust also carries out charitable activities.Whether exceeding the prescribed limit of 5% expenditure on religious activities in any financial year justifies cancellation of provisional registration under section 80G(5) for the entire period applied for.Whether the principles of natural justice were violated by denying adequate opportunity to respond to show cause notices before rejecting registration under section 80G(5).Whether prior registration of the trust before the Income Tax Act, 1961, affects the validity of rejection of registration under sections 80G(5) and 12A.

RULINGS / HOLDINGS:

The Court held that "merely because one of the objects of the trust was religious in nature, the approval can't be denied" and that "one had to consider the overall objects of the trust" to determine eligibility under section 80G(5).The Court affirmed that "as per statute the trust is entitled to spend up to 5% of the expense for religious purpose" and the relevant inquiry is whether the trust has exceeded this limit in the years under consideration.The Court found that rejection of registration and cancellation of provisional registration for the entire period on the basis of excess religious expenses in one year was incorrect, especially since the excess was only in Financial Year 2021-22 and not in subsequent years as alleged.The Court concluded that "the order passed by the Ld. CIT(Exemption) rejecting application for registration of the trust u/s. 80G(5) … is void ab initio and in violation of principles of natural justice" due to insufficient opportunity to respond to the show cause notice.The Court observed that prior registration of the trust in 1953 before the Income Tax Act, 1961, does not preclude consideration for registration under sections 80G(5) and 12A under the current statute.The Court set aside the matter to the file of the CIT(E) with directions to allow the trust "one more opportunity to explain the religious expenses incurred in different years" and to re-adjudicate the issue after proper compliance and verification.

RATIONALE:

The Court applied the statutory framework under section 80G(5) of the Income Tax Act, 1961, which allows registration of trusts engaged in charitable activities but limits religious expenditure to 5% of total expenses.The Court relied on the statutory provision that permits trusts with composite objects (religious and charitable) to obtain registration, provided the religious expenditure does not exceed the prescribed limit.The Court emphasized adherence to the principles of natural justice, requiring adequate opportunity to respond to show cause notices before adverse orders are passed.The Court noted the absence of clear evidence that religious expenses exceeded the 5% limit in all years under provisional registration, warranting reconsideration rather than outright rejection.No dissent or doctrinal shift was recorded; the Court's approach reaffirmed established legal principles concerning charitable trust registration and procedural fairness.