2025 (7) TMI 1499 - AT - Income Tax

Registration u/s 80G - objectives of the instrument are religious in nature which put the applicant under the category of composite trust i, e. Religious-cum-Charitable Trust - Assessee submitted that most of the objects of the trust are charitable in nature. However few objects of the assessee -trust are religious in nature but the expenditure incurred by the assessee- trust on the religious activities is below 5% of the total income/ receipts of the trust. HELD THAT - We find that the main activities of the trust are to run Annakshetra and provide food at very nominal cost to run and maintain Atithigruh Gaushala and provide medical relief to the needy. Additionally the assessee-trust also arranges Mass Marriage functions for needy families. The activity of the trust is not intended for the benefit of any particular religious community or caste. The expenses on religious activity is less than 5% therefore assessee-trust deserve registration under section 80G of the Act. We note that the fund received by the assessee -trust is exclusively utilized for Annakshetra and Gaushala expenses. The assessee-trust has not incurred any expenditure on religious activities during the financial year 2023-24. The above facts are duly stated during the course of proceedings u/s 80G(5)(iii) of the Act and assessee-trust has duly submitted the required documents to established the genuineness of the activity of the trust. As per Section 80G (5B) of the Act notwithstanding anything contained in clause(ii) of sub-section(5) and Explanation 3 an institution or fund that incurs expenditure of a religious nature during any previous year provided such expenditure has not exceeded 5% of its total income for that year shall be deemed to be an institution or fund to which the provisions of section 80G apply. It can be observed from the above that the assessee-trust has not incurred expenditure for religious purpose exceeding 5% of the income in any of the years. Therefore the prerequisite for availing the benefit of Section 80G(5) has been complied with by the assessee-trust. Therefore even though the assessee-trust has objects that are religious in nature but since the expenditure incurred for such activities is less than 5% of the income therefore the assessee is eligible to avail the benefit of section 80G(5). As evident that if an institution or fund incurs expenditure of a religious nature amounting to not more than 5% of its total income for the previous year then it is deemed to be an institution or fund to which the provisions of Section 80G apply. Therefore in the assessee s case the assessee- trust has incurred expenditure on religious activities within the permissible limit. Assessee appeal allowed.

Summary

ISSUES:

Whether an institution or fund with objects that are partly religious and partly charitable can obtain approval under clause (iii) of the first proviso to Section 80G(5) of the Income-tax Act, 1961.Whether expenditure on religious activities exceeding or within 5% of total income affects eligibility for approval under Section 80G(5)(iii).Interpretation and applicability of sub-section (5B) of Section 80G in relation to Section 80G(5) and Explanation 3 regarding religious versus charitable objects.Whether the presence of religious objects in the trust deed automatically disqualifies the trust from approval under Section 80G(5)(iii).Whether the matter should be remitted for fresh consideration on the question of religious expenditure threshold.

RULINGS / HOLDINGS:

The Court held that Section 80G(5) applies only to institutions or funds established in India for a "Charitable purpose only" and "even not a single object can be religious in nature" as per Explanation 3 to Section 80G.Sub-section (5B) of Section 80G clarifies that an institution or fund incurring religious expenditure not exceeding 5% of its total income shall be deemed to be an institution or fund to which Section 80G applies; however, it does not permit religious objects in the trust deed.The Court rejected the argument that sub-section (5B) overrides or negates the main provisions of Section 80G(5) and Explanation 3, emphasizing that the exception cannot nullify the main enactment.The Court found that the assessee-trust's religious expenditure was below 5% of total income for the relevant years, thus meeting the threshold prescribed under Section 80G(5B).The Court directed the tax authority to examine whether the religious expenditure is within the 5% limit and if so, to grant approval under Section 80G(5)(iii), notwithstanding the presence of some religious objects in the trust deed.The appeal was allowed for statistical purposes with directions for fresh consideration of approval under Section 80G(5)(iii) based on expenditure limits.

RATIONALE:

The Court applied the statutory framework of Section 80G(5), its Explanation 3, and sub-section (5B) of Section 80G of the Income-tax Act, 1961.Explanation 3 to Section 80G(5) excludes trusts whose objects are "wholly or substantially of a religious nature" from approval under Section 80G(5).Sub-section (5B) was interpreted as a clarificatory provision allowing trusts to incur religious expenditure up to 5% of total income without losing eligibility, but it does not permit religious objects in the trust deed.The Court relied on precedent decisions holding that trusts with some religious objects but religious expenditure within 5% are eligible for Section 80G approval.The Court referred to the principle that an exception (Section 80G(5B)) cannot be interpreted to nullify the main enactment (Section 80G(5)) as upheld by the Supreme Court in Director of Secondary Education v. Pushpendra Kumar.The Court emphasized the need to balance the statutory prohibition on religious objects with the practical allowance for incidental religious expenditure within prescribed limits.The Court noted that the assessee-trust's main activities were charitable and that religious expenditure was incidental and within the statutory threshold, justifying approval under Section 80G(5)(iii).