2025 (9) TMI 22 - AT - Income Tax

Matter remitted to CIT(E) to decide if trust's religious spending exceeds 5% under s.80G(5B); hearing required

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

Discover Joy Foundation Versus The Commissioner of Income Tax (Exemption), Ahmedabad - TMI ISSUES PRESENTED AND CONSIDERED 1. Whether reference to 'maintaining/running temples' in one object clause of a multi-object trust renders the trust's purpose 'wholly or substantially' religious so as to disqualify it from approval under section 80G(5) and Explanation 3 to section 80G. 2. Whether the instrument or rules contain any provision permitting transfer or application of income or assets for non-charitable purposes contrary to section 80G(5)(ii). 3. Whether the assessee's actual expenditure on religious activities exceeds the permissible limit (as relevant under section 80G(5B)), and if absence of findings on such expenditure requires remand for fresh examination and opportunity of hearing. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Whether a single object reference to running/maintaining temples makes the trust 'wholly or substantially' religious (Interpretation of Explanation 3 to section 80G). Legal framework: Explanation 3 to section 80G defines 'charitable purpose' as not including any purpose the whole or substantially the whole of which is of a religious nature. Eligibility under section 80G(5) requires the trust to be established for a charitable purpose. Precedent Treatment: The Tribunal applies statutory interpretation principles to distinguish between merely mentioning a religious activity among multiple objects and an object structure that makes the trust predominantly religious. No contrary precedent is invoked in the text. Interpretation and reasoning: The Tribunal examined the trust deed containing 36 objectives and identified that the clause referring to temples was one among many and was linked to 'advancement of education/knowledge.' The Tribunal held that mere inclusion of 'running/maintaining temples' for imparting cultural/value-based education does not make the entire trust object wholly or substantially religious. The presence of a single reference to a temple, especially when contextualised as part of educational/cultural objectives and when no religious expenditure has been shown, is insufficient to classify the trust as religious in nature. Ratio vs. Obiter: Ratio - where a multi-object trust contains a singular reference to religious activity, that reference alone does not render the trust's purposes 'wholly or substantially' religious under Explanation 3 so as to deny section 80G(5) approval, absent evidence that substantial activity or expenditure is religious in character. Conclusion: The Tribunal concluded that the CIT(E)'s rejection based solely on that single object clause was not correct; the trust cannot be deemed religious merely because of that reference. Issue 2 - Whether the trust instrument or rules permit transfer/application of income or assets for non-charitable purposes in contravention of section 80G(5)(ii). Legal framework: Section 80G(5)(ii) disqualifies approval where the constitutive instrument or rules permit transfer/application of income or assets for any purpose other than a charitable purpose. Precedent Treatment: The Tribunal looks to the explicit wording of the instrument to determine if any such permissive clause exists. Interpretation and reasoning: On perusal of the trust deed, the Tribunal did not find any clause stipulating transfer or application of income or assets for non-charitable purposes. Consequently, the specific statutory bar in section 80G(5)(ii) was not triggered by the deed's terms. Ratio vs. Obiter: Ratio - absence of an express provision in the instrument allowing application of income/assets to non-charitable purposes means section 80G(5)(ii) cannot be a ground to deny approval. Conclusion: The Tribunal held that section 80G(5)(ii) did not justify denying approval because the instrument contained no provision allowing diversion of income/assets to non-charitable purposes. Issue 3 - Whether the assessee incurred religious expenditure beyond permissible limits and whether absence of findings requires remand. Legal framework: Section 80G(5B) permits incurrence of up to a specified percentage (noted in the order as up to 5%) of expenditure on religious activities without affecting charitable character; assessment of compliance requires factual determination of actual expenditure on religious activities. Precedent Treatment: The Tribunal invokes the statutory allowance for limited religious expenditure and requires the tax authority to make a factual finding on whether that allowance was exceeded. No prior case law was cited; the approach follows statutory compliance and evidentiary assessment. Interpretation and reasoning: The Tribunal observed that no finding was made by the CIT(E) on whether the assessee had incurred religious expenses in excess of the permissible limit. The Tribunal recognised that inclusion of religious activities in objects may be necessary to incur permissible religious expenditure, but emphasised that factual proof of excess expenditure is decisive. Because the CIT(E)'s order lacked any such examination or finding, the Tribunal found it appropriate to remit the issue for fresh consideration. Ratio vs. Obiter: Ratio - where the tax authority denies approval on the basis of alleged religious activities but fails to make a finding on actual expenditure relative to statutory permissible limits, the matter must be remanded for determination and opportunity of hearing. Conclusion: The Tribunal set aside the CIT(E)'s order and remitted the matter to examine whether the assessee incurred religious expenditure beyond the permissible limit; if not, approval under section 80G(5) should be granted subject to compliance with other statutory conditions and after affording the assessee an opportunity of being heard. Cross-references and Procedural Direction The Tribunal cross-referenced Issues 1 and 3: while a solitary object referencing temples does not ipso facto render the trust religious (Issue 1), determining compliance with section 80G(5B)'s expenditure limit (Issue 3) is a distinct factual inquiry that must be undertaken before final denial of approval. The Tribunal directed the CIT(E) to examine actual expenditure on religious activities, ensure compliance with all conditions of section 80G(5), and afford the assessee an opportunity of being heard. Disposition The Tribunal allowed the appeal for statistical purposes and remitted the matter to the CIT(E) for fresh consideration consistent with the above analysis and directions.