80G renewal dispute over trust using tax-benefit donations to build temple and fund religious activities; denial upheld

Renewal of recognition under s. 80G was denied where, despite charitable objects in the trust deed, the competent authority found on enquiry that the trust's dominant activity was construction of a religious temple and that donations enjoying s. 80G benefit were invested, with the resultant income applied to religious purposes rather than charity. The HC held that, under s. 80G(5)(vi), the authority must examine the real purpose reflected in actual activities and utilisation of funds, not merely the instrument creating the trust; otherwise donors may be misled into subsidising religious expenditure contrary to Parliament's charitable-religious distinction. Denial of renewal from 1 April 1996 onwards was upheld and the writ petition was dismissed.

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Issues Involved:
1. Whether the trust is entitled to renewal of recognition u/s 80G of the Income-tax Act, 1961.
2. Whether the actual activities of the trust can be considered in determining its eligibility for recognition u/s 80G.
3. Whether the donations received by the trust and enjoying exemption u/s 80G can be utilized for religious purposes.

Summary:

Issue 1: Entitlement to Renewal of Recognition u/s 80G
The petitioner sought renewal of recognition u/s 80G of the Income-tax Act, 1961, which was refused by the Director of Income-tax (Exemption) on February 20, 1997. The trust had previously been recognized u/s 80G for the period April 1, 1993, to March 31, 1996. The petitioner admitted to constructing a temple with an investment of Rs. 30.34 lakhs during the assessment year 1996-97 and argued that recognition u/s 80G is not banned for religious trusts.

Issue 2: Consideration of Actual Activities
The court held that the enquiry into whether a trust is established for a charitable purpose is not confined to the contents of the trust deed but includes the actual activities carried out by the trust. The court emphasized that the real purpose of the trust must be determined, and if it is found to be engaged in non-charitable activities, the authority can deny approval. The court cited the Supreme Court's observations in McDowell and Co. Ltd. v. CTO, emphasizing that tax avoidance schemes should not be given judicial approval.

Issue 3: Utilization of Donations for Religious Purposes
The court noted that the trust had invested donations received under the recognition u/s 80G in government securities and other financial instruments, and the income derived from these investments was used for constructing a temple. The court held that this indirect utilization of donations for religious purposes disqualifies the trust from renewal of recognition u/s 80G. The court rejected the petitioner's argument that the Commissioner should only consider the trust deed's objects and not the actual activities.

Conclusion:
The court dismissed the petition, upholding the denial of renewal of recognition u/s 80G of the Income-tax Act, 1961, to the petitioner-trust for the period April 1, 1996, onwards, without any order as to costs.

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