Trust wins 80G(5)(vi) approval appeal despite religious objectives in deed showing no religious expenditure

ITAT Ahmedabad allowed the appeal of a trust whose application for approval under section 80G(5)(vi) was rejected by CIT(E). The trust had provisional registration under section 80G and section 12A registration with identical objectives. CIT(E) rejected regular registration claiming some trust objects were religious in nature. ITAT held that despite trust deed containing religious objectives, audited financial statements showed no expenditure on religious activities. The tribunal found CIT(E)'s order legally flawed for failing to issue show cause notice before rejection, violating procedural fairness. Trust was deemed eligible for section 80G(5) approval having not spent money on religious purposes.

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Issues involved:
The appeal against the rejection of application for final registration u/s 80G(5) of the Income Tax Act, 1961.

Facts of the case:
The assessee, a trust registered under the Gujarat Public Trust Act, 1950, was granted registration u/s 12A of the Income Tax Act, 1961. The trust's objects include education, medical relief, and other general public utility. The trust applied for regular registration u/s 80G(5), which was rejected by the Ld. CIT(E) citing religious nature of some objects. The rejection was based on judicial pronouncements, including the case of Upper Gange Sugar Mills Ltd. Vs. CIT.

On Merits:
The counsel for the assessee argued that no expenditure of religious nature was incurred by the trust in the past three assessment years, supported by audited financial statements. It was contended that the judgement in the Upper Gange Sugar Mills case is not applicable post the insertion of section 80G(5B), which allows institutions engaged in charitable activities to benefit from section 80G. The counsel also highlighted the importance of a show cause notice, which was not issued in this case.

The Ld. DR supported the rejection order, but upon review, the tribunal found that the trust had not spent any money on religious purposes. The tribunal referred to section 80G(5B) and CBDT Circular No.779 to emphasize that trusts predominantly engaged in charitable activities can avail benefits under section 80G. It was noted that no show cause notice was issued, which is crucial in income tax proceedings for procedural fairness.

The tribunal concluded that the rejection order was legally flawed, as the trust was eligible for approval u/s 80G(5) due to no expenditure on religious purposes. The order of the Ld. CIT(E) was set aside, directing approval for the trust. The appeal was allowed based on this sole issue.

Conclusion:
The tribunal allowed the appeal of the assessee, setting aside the rejection order and directing the grant of approval to the trust u/s 80G(5) of the Income Tax Act, 1961.

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