2025 (7) TMI 1438 - AT - Income Tax

ITAT Restores 80G(5) Registration for Charitable Trust with Religious Activities, Orders Reconsideration

Shree Loheshwar Mahadev Trust Loheshwar Mahadev Mandir, Loteshwar Sami Versus The Commissioner of Income Tax (Exemption), Ahmedabad

The ITAT Ahmedabad set aside the rejection of registration under section 80G(5) granted to a charitable trust with religious objects, noting that the ... Rejection of registration u/s.80G(5) - one of the objects of the trust was religious in nature - HELD THAT:- As assessee is a very old trust incorporated on 15/09/1953. As per Form 10AB the objects of the trust included religious, preservation of monuments/places/artistic or historic interest, advancement of any other object of general public utility etc. It was explained that trust is a religious cum charitable in nature, as it is running Dharamshalas, Gaushala, home shelters etc. and Gujarat Government has accorded it a status of heritage place. Merely because one of the objects of the trust was religious in nature, the approval can’t be denied. One had to consider the overall objects of the trust. As per statute the trust is entitled to spend up to 5% of the expense for religious purpose. In order to incur such expense, it is imperative that a tenet of religious nature would appear in the objects. What was relevant to examine was whether the assessee had exceeded the limit of 5% on the religious expenses as stipulated under the provisions of the Act. CIT(E) had issued a show cause notice to the assessee requiring it to explain the violation of section 80G(5)(ii) of the Act considering the fact that it had incurred religious expense of more than 5% in the F.Y. 2021-22 and 2023-24. It is found from Form 10AB filed by the assessee that the religious expense in FY 2021-22 was 9.33% whereas religious expense for FY 2023-24 was not reported therein. However, as per letter dated 14/11/2024 filed before the Ld. CIT(E), the religious expense in FY 2021-22 and 2023-24 was reported at 5.85% and 4.80% respectively. In view of these facts, it is not clear as to how the Ld. CIT(E) has arrived at the conclusion that the religious expense for F.Y. 2023-24 exceeded the limit of 5%. The assessee was allowed time of only three days to respond to the show cause notice dated 09/12/2024. The assessee had sought time to comply to the show cause notice and a copy of the online acknowledgement in this regard has been brought on record. However, it appears that no further compliance was made by the assessee and the application of the assessee was rejected by the Ld. CIT(E). It appears prima facie that the assessee had incurred religious expenses in excess of prescribed limit of 5% in FY 2021-22 only and not in FY 2023-24, as observed by the Ld. CIT(E) in his notice. If so, the rejection of the application and cancellation of the provisional registration for the entire period from 04.04.2022 to AY 2024-25 does not appear to be correct. We deem it proper the set aside the matter to the file of Ld. CIT(E) with a direction to allow one more opportunity to the assessee to explain the religious expenses incurred in different years. Appeal filed by the assessee is allowed for statistical purposes. 1. ISSUES PRESENTED and CONSIDERED Whether the rejection of the application for registration of the trust under section 80G(5) of the Income Tax Act, 1961 was legally valid or void ab initio and violative of principles of natural justice. Whether the Commissioner of Income Tax (Exemption) erred in rejecting the application based on incorrect reasons, particularly regarding the composite nature of the trust's objects (religious and charitable) and the consequent applicability of section 80G(5) and section 12A. Whether the existence of prior registration of the trust before the enactment of the Income Tax Act, 1961, and the heritage status accorded by the Government, entitles the trust to registration under sections 80G(5) and 12A. Whether the trust's expenditure on religious activities exceeded the statutory limit of 5%, thereby disqualifying it from registration under section 80G(5). Whether the rejection of provisional registration for the entire period based on excess religious expenditure in a single year was justified. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Validity of rejection of application under section 80G(5) and principles of natural justice Relevant legal framework and precedents: Section 80G(5) of the Income Tax Act mandates conditions for registration of trusts to enable donors to claim deductions. Principles of natural justice require that an opportunity be given to the applicant before adverse orders are passed. Court's interpretation and reasoning: The Tribunal noted that the rejection order was passed after issuing a show cause notice with only three days allowed for compliance. The assessee sought additional time and acknowledged the notice but did not make further submissions. Key evidence and findings: The short opportunity and lack of further compliance indicated a procedural lapse. The Tribunal found that the rejection without adequate opportunity was contrary to natural justice. Application of law to facts: The Tribunal held that the rejection was premature and did not comply with principles of natural justice, rendering the order vulnerable. Treatment of competing arguments: The Revenue defended the rejection based on excess religious expenditure; however, the Tribunal emphasized procedural fairness over the substantive issue at this stage. Conclusion: The rejection order was found to be void ab initio due to violation of natural justice principles. Issue 2: Composite nature of the trust's objects and eligibility for registration under section 80G(5) and section 12A Relevant legal framework and precedents: Section 80G(5)(ii) and Explanation 3 exclude trusts whose objects are wholly or partly religious from registration, unless religious expenditure is within prescribed limits. The trust's objects must be examined in totality. Court's interpretation and reasoning: The Tribunal observed that the trust's objects included both religious and charitable purposes, including preservation of heritage and public utility activities such as running Dharamshalas and Gaushalas. Key evidence and findings: The trust was established in 1953 and recognized as a heritage place by the Government. The objects as per Form 10AB reflected a combination of religious and charitable activities. Application of law to facts: The Tribunal held that the presence of some religious objects did not automatically disqualify the trust from registration. The overall charitable nature and compliance with expenditure limits on religious activities were relevant. Treatment of competing arguments: The Revenue relied on the presence of religious objects and activities to deny registration. The Tribunal rejected a narrow approach and emphasized holistic consideration. Conclusion: The trust's composite nature did not preclude registration under section 80G(5), subject to compliance with statutory limits on religious expenditure. Issue 3: Effect of prior registration before the Income Tax Act, 1961 and heritage status on eligibility for registration Relevant legal framework and precedents: Registration under sections 80G and 12A is governed by the current Income Tax Act provisions, irrespective of prior registrations under earlier laws. Court's interpretation and reasoning: The Tribunal acknowledged the trust's prior registration in 1953 and heritage status but clarified that these factors alone do not confer automatic entitlement to registration under the current Act. Key evidence and findings: The trust's heritage status was noted as supporting its public utility object but did not override statutory requirements. Application of law to facts: The Tribunal held that the trust must satisfy the conditions under the present law, including expenditure limits and object criteria, notwithstanding historical registration or heritage recognition. Treatment of competing arguments: The assessee argued for recognition based on historical and heritage status; the Tribunal balanced this against statutory compliance. Conclusion: Prior registration and heritage status are relevant but not determinative; compliance with current law is mandatory for registration. Issue 4: Compliance with the 5% limit on religious expenditure under section 80G(5)(ii) Relevant legal framework and precedents: Section 80G(5)(ii) permits trusts with religious objects to qualify for registration only if religious expenditure does not exceed 5% of total expenditure in any financial year. Court's interpretation and reasoning: The Tribunal examined the data submitted by the assessee, including Form 10AB and a letter filed before the CIT(E), showing religious expenditure as 9.33% in FY 2021-22 (per Form 10AB) and 5.85% (per letter), and 4.80% in FY 2023-24. Key evidence and findings: The CIT(E) relied on the 9.33% figure and also alleged excess in FY 2023-24, which was not supported by the assessee's submissions. The Tribunal found discrepancies and lack of clarity in the CIT(E)'s conclusion. Application of law to facts: The Tribunal concluded that only in FY 2021-22 did the religious expenditure exceed 5%, and the excess was not established for other years. The rejection of registration for the entire period based on one year's excess was disproportionate. Treatment of competing arguments: The Revenue emphasized non-compliance with the 5% limit; the Tribunal underscored need for accurate determination and opportunity to clarify. Conclusion: The trust's religious expenditure exceeded 5% only in one year, and therefore, the blanket rejection of registration for multiple years was incorrect. Issue 5: Appropriateness of cancellation of provisional registration for the entire period Relevant legal framework and precedents: Provisional registration under section 80G is subject to conditions, and cancellation must be based on valid grounds and proper procedure. Court's interpretation and reasoning: The Tribunal found that the CIT(E) cancelled the provisional registration from 04.04.2022 to AY 2024-25 based on the alleged excess religious expenditure in multiple years without giving adequate opportunity to the assessee to respond. Key evidence and findings: The assessee sought additional time to respond to the show cause notice but was not granted sufficient opportunity. The cancellation was based on incomplete or unclear data. Application of law to facts: The Tribunal held that cancellation for the entire period was not justified given the limited excess expenditure and procedural deficiencies. Treatment of competing arguments: The Revenue supported cancellation; the Tribunal prioritized procedural fairness and proportionality. Conclusion: Cancellation of provisional registration for the entire period was improper and required reconsideration. Overall Disposition and Directions The appeal was allowed for statistical purposes, and the matter was set aside to the file of the CIT(E) with directions to: Provide the assessee a fair opportunity to explain and produce evidence regarding religious expenditure for the relevant years. Re-adjudicate the application for registration under section 80G(5) after correctly ascertaining the religious expenditure and compliance with statutory limits. Decide the matter in accordance with law, considering the trust's composite objects, heritage status, and statutory provisions. Permit the assessee to comply and produce clarifications during the set aside proceedings; failure to comply would entitle the CIT(E) to decide the issue on available records.