Charitable-cum-religious assessee may qualify for benefit under section 80G(5B); matter remanded for expense verification and final approval

ITAT INDORE-AT accepted that the assessee is a charitable-cum-religious entity and held it may be eligible for the benefit of section 80G(5B). The tribunal remanded the matter to the file of CIT(E) for detailed examination of expenses and to decide final approval under section 80G(5B). The appeal was allowed for statistical purposes, with direction that CIT(E) grant final approval if the assessee satisfies the conditions of section 80G(5B).

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ISSUES PRESENTED AND CONSIDERED

1. Whether a trust carrying on both charitable and religious activities is eligible for final approval under section 80G(5) when initially granted provisional approval has been cancelled on ground of being a "religious entity" under section 80G(5)(ii) read with Explanation 3.

2. Whether the deeming provision of section 80G(5B) applies to an institution engaged in both charitable and religious activities where expenditure of a religious nature in a previous year does not exceed five per cent of total income.

3. Whether the matter should be remitted to the authority under section 80G(5B) for detailed verification of the nature and quantum of expenses to determine entitlement to final approval under section 80G(5).

ISSUE-WISE DETAILED ANALYSIS

Issue 1 - Characterisation of the trust as "charitable-cum-religious" and effect on eligibility under section 80G(5)(ii) and Explanation 3

Legal framework: Section 80G(5)(ii) read with Explanation 3 excludes institutions primarily engaged in religious activities from approval under section 80G(5). Registration under section 12AA/12AB recognises the nature of activities for income-tax purposes, including "Advancement of any other object of general public utility" and "Religious activities".

Precedent Treatment: No earlier judicial precedent was cited in the impugned order or the appeal; the Tribunal relied on documentary administrative determinations (Registrar of Public Trust; registration order under section 12AA) to ascertain nature of activities.

Interpretation and reasoning: The Tribunal examined primary documentary records - Order of the Registrar of Public Trust describing objects as national, cultural, religious and social activities including temple maintenance, and the section 12AA registration order recognising both "Advancement of any other object of general public utility" and "Religious activities". These documents indicate the trust carries out multiple objects, some charitable and some religious. The Tribunal held that such composite status (charitable-cum-religious) is established on the record.

Ratio vs. Obiter: Ratio - where documentary records show mixed charitable and religious objects, the trust should be characterised as charitable-cum-religious rather than as solely a religious entity for the purposes of section 80G(5) determination. Obiter - none additional on this point.

Conclusion: The trust is to be treated as charitable-cum-religious based on the Registrar's order and section 12AA registration.

Issue 2 - Application of section 80G(5B) deeming provision where religious expenditure does not exceed five per cent of total income

Legal framework: Section 80G(5B) provides that notwithstanding clause (ii) of sub-section (5) and Explanation 3, an institution which incurs expenditure of a religious nature not exceeding five per cent of its total income in a previous year shall be deemed to be an institution to which section 80G applies.

Precedent Treatment: No judicial precedents were invoked; the Tribunal applied the statutory text and the parties' factual material (certificate/annexure asserting quantum of religious expenses).

Interpretation and reasoning: The Tribunal recognised the statutory override in section 80G(5B) that permits qualifying mixed-purpose institutions to obtain approval under section 80G(5) if religious expenditure is within the five per cent cap. The assessee produced a certificate asserting that only a small portion (poojan expenses) constituted religious expenditure and that such expenses did not exceed the five per cent limit. The Revenue did not positively contest the mixed-character finding but requested detailed verification of the nature and magnitude of expenses to ensure they fall within the statutory five per cent threshold. The Tribunal accepted that if the religious expenses are within the five per cent limit, section 80G(5B) would render the institution eligible for section 80G(5) approval.

Ratio vs. Obiter: Ratio - section 80G(5B) operates as an overriding deeming provision that can cure disqualification under section 80G(5)(ii) where religious expenditure in a year does not exceed five per cent of total income; entitlement depends on factual verification of expense composition. Obiter - explanatory remarks concerning the characterization of particular expense categories (e.g., "poojan expenses") as religious in nature are fact-specific and illustrative rather than determinative.

Conclusion: The assessee may be entitled to final approval under section 80G(5) if, upon verification, religious expenditure in the relevant previous year(s) does not exceed five per cent of total income as per section 80G(5B).

Issue 3 - Appropriate remedy: remand for verification of accounts and expenses under section 80G(5B)

Legal framework: Administrative determination of eligibility under section 80G(5) and applicability of section 80G(5B) requires factual scrutiny of the institution's accounts, classification and quantum of expenses of religious nature.

Precedent Treatment: No authority cited; the Tribunal relied on principles of procedural fairness and the need for fact-specific scrutiny by the competent authority (CIT(E)).

Interpretation and reasoning: The Revenue accepted the mixed-character finding but sought deeper examination of the expense details to ascertain which expenditures are of religious nature and whether they exceed the statutory cap. The assessee agreed to remand. The Tribunal found it appropriate to remit the matter to the CIT(E) to examine the assessee's case in terms of section 80G(5B) and to grant final approval if the assessee is found eligible on that touchstone. The Tribunal thereby did not decide the factual question of whether the five per cent threshold was met; instead it directed administrative re-examination.

Ratio vs. Obiter: Ratio - where eligibility turns on factual matters (classification and quantum of expenses), the proper course is remand to the authority for detailed examination under the relevant statutory provision (section 80G(5B)); the appellate forum may remit rather than resolve complex account classification issues. Obiter - procedural observations regarding concurrence of parties to remand and the utility of the assessee's certificate are ancillary.

Conclusion: The appeal is allowed in principle by remanding the matter to the CIT(E) for verification of the nature and quantum of religious expenditures under section 80G(5B) and for grant of final approval under section 80G(5) if eligibility is established; the Tribunal did not order immediate grant of final approval absent such verification.

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