2025 (4) TMI 134 - AT - Income Tax

Objects to establish halls, wadis and dharamshalas not per se religious; s.80G approval wrongly rejected; remit to examine s.80G(5B).

Gurukrupa Foundation Versus The Commissioner of Income Tax (Exemption), Ahmedabad

ITAT held that objects to establish halls, wadis and dharamshalas are not per se religious and the CIT(E) was incorrect to reject s.80G approval solely on ... Rejecting of application for approval u/s 80G(5) - some of the objects being religious - HELD THAT:- As per provisions of section 80G(5) of the Act, the institution or fund had to be established in India for a charitable purpose. The Explanation 3 to section 80G defines charitable purpose, as per which “charitable purpose” does not include any purpose the whole or substantially the whole of which is of a religious nature. Thus, as per the definition of charitable purpose as enshrined in section 80G, the charitable purpose should not include any purpose of substantial religious nature. The benefit for registration u/s. 80G can be denied only if any purpose of the trust, is wholly or substantially wholly, of religious nature. We have to, therefore, first examine as to whether this condition was fulfilled in this case. The basic activity as per these two objects is to establish halls, wadis and dharamshalas which cannot be held as religious in nature. The halls and wadis will be let out for social and religious functions. Merely because some-one is using the halls/wadis for religious programs after paying due rent, the activity of the assessee trust cannot be held as religious in nature. Similarly establishing and managing “dharamsalas” at religious places also cannot be held to be religious activity. As per the societal norms dharamshalas are established mostly at religious places so that the common people can avail the facilities by paying nominal rent. In the objects, it is nowhere mentioned that halls, wadis & dharamshalas will be hired or let out only to the persons of a particular religious community. As per the constitution of the trust any person aged 18 years or above can acquire membership and thus all the facilities being provided by the trust are available to general public. Therefore, the object no. 5 & 6 are not found to be of religious nature. CIT(E) was not correct in holding that the object of the trust was religious in nature. When the assessee is given the option as per statute to spend up to 5% of its total income for religious purposes, it is imperative that some of the objects will have tenets of religious nature, otherwise it might not be able to spend that 5% permissible expense for religious purposes. The provision of section 80G(5) can’t be applied to deny the benefit to such funds or institutions which are predominantly engaged in charitable activities but are either inspired to do charity by tenets of religion or spend negligible amounts on purposes other than charitable. The registration to the trust could have been denied, had it spent more than 5% of its total income on religious purposes as stipulated u/s. 80G(5B) of the Act. As no such specific finding has been given by the ld. CIT(E); we deem it necessary to set aside the matter to the file of ld. CIT(E) with a direction to carry out the necessary analysis in this respect and thereafter pass the order in accordance with law. Tribunal in the case of Shree Sattavis Kadva Patidar Pargati Mandal [2024 (5) TMI 495 - ITAT AHMEDABAD] has also taken an identical view in the matter. Therefore, the matter is restored to the file of the CIT(E), who should examine the matter and give a categorical finding on the applicability of provision of section 80G(5B) of the Act or otherwise. Appeal of the assessee is allowed for statistical purposes. ISSUES PRESENTED and CONSIDEREDThe core legal question considered in this judgment was whether the rejection of the application for final registration under section 80G(5) of the Income Tax Act by the Commissioner of Income Tax (Exemption) [CIT(E)] was justified. The specific issues included: Whether the objects of the assessee trust were of a religious nature, thereby violating the conditions of section 80G(5) of the Income Tax Act. Whether the assessee trust's activities were wholly or substantially of a religious nature, which would disqualify it from receiving registration under section 80G(5). Whether the trust's expenditure on religious activities exceeded the permissible limit under section 80G(5B) of the Income Tax Act.ISSUE-WISE DETAILED ANALYSIS1. Relevant Legal Framework and PrecedentsSection 80G(5) of the Income Tax Act stipulates that an institution or fund must be established for a charitable purpose to qualify for registration. Explanation 3 to section 80G clarifies that a 'charitable purpose' does not include purposes that are wholly or substantially of a religious nature. Section 80G(5B) allows a trust to spend up to 5% of its total income on religious activities.The assessee relied on precedents from the Gujarat High Court and co-ordinate benches of the Tribunal, which emphasized that registration could be denied only if the trust's activities were wholly or substantially of a religious nature.2. Court's Interpretation and ReasoningThe Tribunal interpreted the legal provisions to mean that the registration under section 80G(5) could be denied only if the trust's activities were predominantly religious. The Tribunal noted that the CIT(E) had identified six objects as religious but emphasized that the overall activities of the trust should be considered.3. Key Evidence and FindingsThe Tribunal examined the trust deed, which listed 26 objects, out of which six were deemed religious by the CIT(E). The Tribunal analyzed these objects individually: Object 5 and 6 involved establishing halls and dharamshalas, which were not inherently religious as they served social and religious functions. Object 9 and 12 involved educational activities related to Jain religion, which were not considered wholly religious. Object 17 involved associating with other trusts, which was not religious in nature. Object 18 involved some religious activities, but this was only one out of 26 objects.4. Application of Law to FactsThe Tribunal applied the legal framework to the facts and concluded that the trust's activities were not wholly or substantially religious. The Tribunal emphasized that the trust was allowed to spend up to 5% of its income on religious activities, and this provision should be considered when evaluating the nature of the trust's activities.5. Treatment of Competing ArgumentsThe Tribunal considered the arguments from both the assessee and the CIT-DR. The assessee argued that the objects were not religious and cited precedents supporting their position. The CIT-DR relied on the CIT(E)'s order. The Tribunal found the assessee's arguments more persuasive, particularly in light of the legal provisions and precedents.6. ConclusionsThe Tribunal concluded that the CIT(E) erred in holding that the trust's objects were religious. The Tribunal set aside the CIT(E)'s order and remanded the matter for further examination, particularly regarding the application of section 80G(5B).SIGNIFICANT HOLDINGSThe Tribunal held that: The registration under section 80G(5) cannot be denied unless the trust's activities are wholly or substantially religious. Objects that involve social and religious functions, educational activities related to religion, and association with other trusts are not inherently religious. The provision allowing up to 5% of income to be spent on religious activities must be considered when evaluating the nature of the trust's activities.Core Principles EstablishedThe judgment reinforced the principle that a trust's activities must be evaluated in their entirety to determine whether they are predominantly religious. It also highlighted the importance of considering statutory provisions that allow for limited religious activities.Final Determinations on Each IssueThe Tribunal remanded the matter to the CIT(E) to reassess the application for registration under section 80G(5), with specific instructions to evaluate the trust's expenditure on religious activities and ensure it complies with section 80G(5B). If the trust's religious expenditure is within the permissible limit, registration should be granted.