Just a moment...
Press 'Enter' to add multiple search terms. Rules for Better Search
When case Id is present, search is done only for this
No Folders have been created
Are you sure you want to delete "My most important" ?
NOTE:
Don't have an account? Register Here
<h1>Section 80G(5) approval granted: rent-free trustee occupation not hit by section 13(2); incidental religious activity not predominant under section 2(15)</h1> <h3>Avadhana Saraswathi Peetham Versus Director of Income Tax (E) Hyderabad.</h3> ITAT held that approval under section 80G(5) must be granted. Rent-free occupation by a trustee did not attract section 13(2) absent evidence of excessive ... - 1. ISSUES PRESENTED AND CONSIDERED 1. Whether approval under section 80G(5) can be refused on the ground that the chairman/trustee is occupying trust premises rent-free, invoking section 13(2) (unreasonable personal benefit). 2. Whether the existence of a temple within trust premises and related expenditures renders the trust's objects or activities 'wholly or substantially' religious so as to disqualify it from approval under section 80G(5) (having regard to Explanation 3 to section 80G(v)). 3. Whether receipts from sale of CDs and booklets used in educational activity fall within the proviso to section 2(15) (i.e., whether such receipts convert the activity into a commercial or non-charitable purpose), and whether the level of such receipts precludes 80G(5) approval. 4. Whether prior grant of approval and absence of material change in circumstances or adverse assessments in subsequent assessment years preclude fresh refusal of approval under section 80G(5). 2. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Rent-free occupation of trustee: applicability of section 13(2) Legal framework: Section 13(2) operates where a manager/authorised person obtains an unreasonable or excessive benefit in relation to market conditions; such benefit can attract consequences affecting exemption. Precedent treatment: The Court considered authorities holding that the scope of enquiry for approval under section 80G(5) is limited and that contraventions under section 11(5)/section 13 may be relevant at assessment stage rather than as a ground for refusing recognition. Tribunal/High Court precedents cited in the record generally constrain refusal of approval on speculative or unresolved assessment issues. Interpretation and reasoning: The Court treated the rent-free occupancy as a benefit that must be judged against the services rendered by the occupant. The trustee was shown to be actively imparting education and not charging fees; if rent were charged, an equivalent fee for services would be payable which would offset any rent benefit. The Department did not show that accommodation was excessive or unreasonable relative to market standards or the services rendered. Ratio vs. Obiter: Ratio - where an occupant provides valuable, unpaid services to the trust, the mere provision of rent-free accommodation will not be automatically treated as an unreasonable benefit under section 13(2) absent evidence of excessiveness or unreasonableness. Obiter - suggestion that quantification should compare hypothetical rent and fee payable. Conclusion: Section 13(2) was not attracted on the record; rent-free occupation alone, without proof of excessiveness or unreasonableness, cannot justify refusal of 80G(5) approval. Issue 2 - Temple within premises and 'wholly or substantially' religious purpose (Explanation 3 to section 80G(v)) Legal framework: Explanation 3 to section 80G(v) excludes charitable purposes that are 'wholly or substantially' religious; clause (iii) of section 80G(5) bars institutions expressed to benefit a particular religious community or caste. The legal enquiry requires assessment whether religious objects predominate the trust's activities or whether a temple/acts of worship convert the trust's character into primarily religious. Precedent treatment: The Court relied on Tribunal authority holding that presence of worship or temple, maintenance of limited religious activity, or expenditure on rituals does not ipso facto render institution non-charitable for 80G purposes; burden shifts to revenue to prove that religious objects are whole or substantial. High Court authorities in the record were treated as instructive that the CIT's scope of enquiry is limited when prior recognition continues. Interpretation and reasoning: The Court accepted the factual position that the temple was dedicated to the goddess of learning, was constructed by students from their own collections, and served to support and encourage students. Many of the expenditures claimed by the Department as 'temple expenses' were in fact for student mess/food and other educational activities. There was no separate allocation in accounts showing substantial expenditure for religious purposes. The object of trust remained educational, not religious, and no material established that the trust was for the benefit of any particular religious community or that religious objects were whole or substantial. Ratio vs. Obiter: Ratio - mere incidental religious observances or a small temple serving the educational purpose do not make the trust 'wholly or substantially' religious for purposes of Explanation 3; revenue must prove predominance of religious purpose. Obiter - comments on the nature of certain faiths and on the non-identity of broad cultural practices with a discrete 'religious community' (as drawn from the Tribunal authority cited). Conclusion: The temple's presence and related expenditures do not disqualify the trust from 80G(5) approval where religious activity is incidental to educational objects and where expenditure is not shown to be substantial or primarily religious. Issue 3 - Receipts from sale of CDs/booklets and application of proviso to section 2(15) Legal framework: Proviso to section 2(15) treats activities carried out by a trust as not charitable in certain commercial circumstances; however there is an exemption where gross receipts from such activities do not exceed the statutory threshold. Precedent treatment: Authorities considered indicate that incidental commercial receipts, below statutory thresholds, do not negate charitable character for 80G purposes. Interpretation and reasoning: The Court noted that receipts from sale of CDs and booklets were connected to the educational process (memory development) and that in no year did such receipts exceed Rs.10 lakhs; therefore the proviso to section 2(15) did not apply to disqualify charitable character. Ratio vs. Obiter: Ratio - small-scale sales connected to educational objects, with receipts below the statutory threshold, do not destroy charitable character under section 2(15) for purposes of 80G(5). Obiter - none significant beyond application to the facts. Conclusion: Receipts from sale of CDs/booklets did not trigger disqualification under the proviso to section 2(15) and cannot justify refusal of 80G(5) approval. Issue 4 - Effect of prior approval and absence of material change in circumstances Legal framework: The administrative scope in considering renewal/approval under section 80G(5) is limited; where approval was previously granted and material circumstances have not changed, revenue must have demonstrable cause to refuse renewal. Precedent treatment: The Court reviewed multiple judicial and tribunal decisions (as relied upon in the record) establishing that once registration/approval is granted, refusal of renewal on speculative grounds or on matters pertinent to assessment (e.g., section 11/13 contraventions) is generally impermissible unless the revenue adduces clear material showing disqualifying circumstances. Interpretation and reasoning: The Court observed there was no change in circumstances after earlier approval up to the relevant period, returns were accepted, and no disallowances were made suggesting disqualifying conduct. The Department failed to bring evidence proving that the trust's objects or activities had become non-charitable or that benefits to the trustee were unreasonable. Given the limited scope of scrutiny and the onus on revenue to prove disqualification, refusal was not justified. Ratio vs. Obiter: Ratio - prior approval, continued acceptance of returns, and absence of evidential showing of disqualifying changes restrict revenue's power to refuse renewal of 80G(5) approval. Obiter - general observations on shifting of onus to revenue when trust furnishes evidence of charitable character. Conclusion: In absence of material change and without evidence of contravention amounting to disqualification, prior approval and accepted returns weigh in favor of granting the renewal/approval under section 80G(5). Overall Conclusion and Disposition The Court concluded that neither the provision of rent-free accommodation to the trustee, the presence of a temple constructed by students, nor limited receipts from educational publications justified refusal of approval under section 80G(5). The Department failed to prove unreasonableness, substantial religious predominance, or application of the proviso to section 2(15). The Court directed grant of approval under section 80G(5) based on the pending application.