2024 (12) TMI 1587 - AT - Income Tax

Trust wins Section 80G registration appeal despite religious object clause in trust deed

The Tribunal allowed the trust's appeal against rejection of Section 80G registration. The Commissioner had denied registration solely because one trust ... Rejection of application for approval u/s. 80G(5)(iii) - charitable porposes or not? - As per AO perusal of the objects of the trust demonstrate that Object No. 3 of the applicant was partly “religious” in nature, i.e. composite in nature i.e. both charitable and religious in nature - HELD THAT:- As from a combined reading of these provisions it is apparent that in case any trust applies or expends less than 5% of his income towards religious purposes, then it cannot be denied benefit of deduction u/s 80G of the Act on the ground that has been incorporated for religious purposes. Even in the definition of the term “charitable purposes” it has been stated that the purpose of Trust should not one which is wholly or substantially wholly which of a religious nature. Therefore, even as per Explanation 3 referred to above, in order to qualify as “charitable purpose” within the meaning of section 80G of the Act, the only qualification is that the activities should not be wholly or substantially wholly religious. Therefore, we are of the considered view that the application for grant of deduction u/s 80G cannot be denied to the assessee only on the ground that one of the objects content the term “religious”. We observe that the applicant / assessee trust had specifically submitted that the trust has not incurred any expenditure towards religious purposes. CIT(E), without carrying out any enquiry into this aspect, summarily rejected the application filed by the assessee / applicant trust. In fact, Ld. CIT(E), while rejecting the application for grant of registration under Section 80G of the Act has not dealt with any of the submissions / contentions of the assessee / applicant trust submitted during the course of hearing, which in our view is against the principles of natural justice. Thus, the matter is restored to the file of Ld. CIT(E) to consider the grant of registration u/s 80G of the Act afresh - Appeal of the assessee / applicant trust is allowed for statistical purposes. The core legal questions considered by the Tribunal in this appeal are:1. Whether the rejection of the application for registration under Section 80G(5)(iii) of the Income Tax Act, 1961, on the ground that one of the objects of the trust was partly religious in nature, was legally sustainable.2. Whether the presence of a religious element in one of the objects of the trust necessarily disqualifies the trust from being considered established solely for charitable purposes under Section 80G(5) of the Act.3. Whether the principles of natural justice were adhered to by the Commissioner of Income Tax (Exemption) while rejecting the application without addressing the submissions of the assessee regarding non-expenditure on religious purposes.Issue-wise Detailed AnalysisIssue 1: Legality of rejection of registration under Section 80G(5)(iii) on the ground of religious nature of one objectRelevant legal framework and precedents: Section 80G(5) of the Income Tax Act provides that donations to any institution or fund are eligible for deduction only if the institution or fund is established in India for charitable purposes. Explanation 3 to Section 80G clarifies that 'charitable purpose' does not include any purpose the whole or substantially the whole of which is of a religious nature. Section 80G(5B) further provides that if an institution incurs expenditure on religious purposes not exceeding 5% of its total income for the previous year, it shall still be deemed to be an institution eligible under Section 80G.Court's interpretation and reasoning: The Tribunal noted that the object in question (Object No. 3) of the trust's memorandum was a composite one, including social, cultural, moral, professional, religious, and Vedic support to caste members. The Tribunal emphasized that the presence of the word 'religious' in one object does not ipso facto disqualify the trust from registration under Section 80G, unless the purpose is wholly or substantially religious.The Tribunal undertook a combined reading of Section 80G(5), Explanation 3, and Section 80G(5B) and concluded that the statutory scheme permits some limited religious expenditure (up to 5% of total income) without losing eligibility. The Tribunal held that the trust's application cannot be rejected solely on the basis of the inclusion of the term 'religious' in one object, especially when the trust has not incurred any expenditure on religious purposes.Key evidence and findings: The assessee submitted that the trust had not spent any money towards religious purposes, did not manage any religious establishment, and had not received any income for religious purposes. The trust was formed for the benefit of members of a notified backward community, which falls within the ambit of charitable purposes as per Explanation 1 to Section 80G.Application of law to facts: The Tribunal applied the statutory provisions and the facts that the trust's religious activities were minimal or non-existent in terms of expenditure and income. It found that the trust's objects were not wholly or substantially religious and thus did not contravene the requirements of Section 80G.Treatment of competing arguments: The Commissioner's rejection was based on a literal reading of the object containing the term 'religious' without considering the extent of religious activity or expenditure. The Tribunal found this approach to be incorrect and contrary to the statutory provisions that allow limited religious expenditure.Conclusion: The rejection of the application on the sole ground of the presence of a religious object was held to be unsustainable.Issue 2: Adherence to principles of natural justice in rejecting the application without considering submissionsRelevant legal framework: The principles of natural justice require that an authority must consider and deal with the submissions and contentions of a party before passing an adverse order.Court's interpretation and reasoning: The Tribunal observed that the Commissioner did not deal with any of the submissions made by the assessee regarding the non-incurrence of expenditure on religious purposes and the nature of the trust's objects. This omission was held to be a violation of the principles of natural justice.Key evidence and findings: The assessee's submissions were on record, but the Commissioner's order was silent on these points, indicating a lack of proper consideration.Application of law to facts: The Tribunal found that the failure to consider relevant submissions rendered the order non-speaking and unfair.Treatment of competing arguments: No justification was provided by the Commissioner for ignoring the submissions, which was held to be improper.Conclusion: The order rejecting the application was set aside on grounds of violation of natural justice.Issue 3: Direction for reconsideration and verification of expenditure on religious purposesCourt's reasoning: The Tribunal directed the Commissioner to reconsider the application afresh, including carrying out necessary verification whether the trust had expended less than 5% of its total income towards religious purposes, as permitted by Section 80G(5B).Application of law to facts: This direction aligns with the statutory provisions allowing limited religious expenditure without affecting eligibility for registration.Conclusion: The matter was remanded for fresh consideration in accordance with law and after due verification.Significant Holdings'In view of the statutory provisions quoted above, we are of the considered view that the application for grant of deduction under Section 80G cannot be denied to the assessee only on the ground that one of the objects content the term 'religious'.''Ld. CIT(E), without carrying out any enquiry into this aspect, summarily rejected the application filed by the assessee / applicant trust. In fact, Ld. CIT(E), while rejecting the application for grant of registration under Section 80G of the Act has not dealt with any of the submissions / contentions of the assessee / applicant trust submitted during the course of hearing, which in our view is against the principles of natural justice.'Core principles established include:The presence of a religious element in the objects of a trust does not automatically disqualify it from registration under Section 80G, provided the purpose is not wholly or substantially religious.Limited expenditure on religious purposes (not exceeding 5% of total income) is permissible under Section 80G(5B) without affecting eligibility.Authorities must consider and address all submissions of the applicant before passing an order, adhering to principles of natural justice.Final determinations:The rejection of the application under Section 80G(5)(iii) solely on the basis of the presence of a religious object was set aside.The matter was remanded to the Commissioner for fresh consideration and verification of religious expenditure.The appeal was allowed for statistical purposes, indicating that the trust should be granted registration if it complies with the statutory conditions.