Society wins appeal after tax authority wrongly cancels Section 80G(5) approval claiming religious activities exceeded limits

ITAT Raipur allowed the appeal of a society challenging refusal of approval under Section 80G(5). The CIT(E) had cancelled provisional approval claiming the society's objects were religious and expenses exceeded 5% of total income violating Section 80G(5B). The tribunal found the society had legitimate charitable objects including education, research, orphan support, and human welfare. Despite some religious activities, the CIT(E) failed to specify which expenses were religious or how they exceeded the 5% limit. The society held valid 12AA registration and its expenditure was not religious in nature per financial statements. The tribunal set aside the CIT(E) order and directed approval be granted.

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Issues Involved:
1. Delay in filing the appeal.
2. Rejection of the application for approval under Section 80G(5) of the Income-tax Act, 1961.
3. Cancellation of provisional approval granted under Section 80G(5).

Detailed Analysis:

1. Delay in Filing the Appeal:
The appeal filed by the assessee was delayed by three days. The assessee's representative explained that the delay was due to the immediate dispatch of relevant papers to the tax consultant and subsequent misplacement of these papers in the consultant's office. After deliberation, it was determined that the delay was unintentional and beyond the control of the assessee. Consequently, the delay was condoned.

2. Rejection of the Application for Approval under Section 80G(5):
The assessee, a society registered under Section 12A of the Income-tax Act, 1961, applied for approval under Section 80G(5)(vi), which was provisionally granted but later rejected by the Commissioner of Income Tax (Exemption) [CIT(E)]. The rejection was based on findings that:
- The objects of the assessee were religious in nature, as per certain clauses of the by-laws.
- The expenses incurred during the last three years exceeded 5% of the total income, violating Section 80G(5B).
- The objectives were deemed religious, violating Sections 80G(5)(ii), 80G(5)(iii), Explanation-3 of Section 80G, and Section 80G(5B).

The assessee argued that:
- It is a charitable cum religious institution, and its registration under Section 12AA is not disputed.
- Its charitable purposes do not include any purposes wholly or substantially of a religious nature.
- The charitable purpose benefits the public at large, not a particular religious community or caste.
- The referred objectives are general and charitable in nature.
- The CIT(E) did not specify how the provisions of Sections 80G(5)(ii), (iii), and Explanation-3 were violated.
- The CIT(E) wrongly interpreted the expenditure incurred for religious purposes, as the major part of the income was spent on building construction and charitable activities like financial assistance to students.

The assessee cited several case laws to support its eligibility for approval under Section 80G(5)(vi), arguing that the CIT(E) did not consider these case laws and relied on distinguishable ones.

3. Cancellation of Provisional Approval:
The CIT(E) canceled the provisional approval based on the same grounds for rejecting the regular approval. The assessee contended that the CIT(E) misinterpreted the facts and the law, as the society's expenditure on religious activities did not exceed 5% of its total income, and the society's activities were primarily charitable.

Case Laws Cited by the Assessee:
- CIT vs. M/s. Dawoodi Bohara Jamat: Trusts with composite objects of religious and charitable purposes are entitled to exemption under Section 11.
- CIT(E) vs. Seth Vinod Kumar Somani Charitable Trust: Purchase of land and building by a newly established society does not imply non-charitable activities.
- CIT vs. Lok Sewa Sansthan Samiti: A registered charitable institution under Section 12A is also eligible for approval under Section 80G(5).
- CIT(E) vs. O.P. Munjal Foundations: Conditions under Section 12AA are in pari materia with those under Section 80G.
- DIT(E) vs. International Society for Krishna Consciousness: Expenditure on religious activities less than 5% of total income qualifies for Section 80G benefits.
- CIT vs. Rajkot Jilla Gayatri Parivar Trust: Consistency in granting registration under Section 80G(5) should be maintained if there is no change in the trust's activities.
- Santshreshtha Gajanan Maharaj Sevabhavi Sanstha Borisavargao Kasij vs. CIT: Trusts with minimal religious expenditure and substantial charitable activities are entitled to Section 80G approval.

Tribunal's Findings:
The tribunal found that the assessee society's expenditure on religious activities did not exceed 5% of its total income, as evidenced by the financial statements. The CIT(E) did not provide specific instances of religious expenses exceeding the limit. The tribunal noted that the society's objectives were primarily charitable, and it was already registered under Section 12AA. The tribunal concluded that the assessee society fulfilled the conditions for approval under Section 80G(5) and directed the CIT(E) to grant the approval.

Conclusion:
The tribunal allowed the appeal, set aside the CIT(E)'s order, and directed the grant of approval under Section 80G(5) to the assessee society. The assessee's grounds of appeal were upheld, and the appeal was allowed in terms of the tribunal's observations.

Order Pronounced:
The order was pronounced in the open court on 22/01/2024.

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