2025 (9) TMI 520 - AT - Income Tax

Trust's s.80G(5) Form 10AB approval rejected for promoting a religion and failing to prove public charitable spending

ITAT upheld rejection of the applicant trust's application under s. 80G(5) for approval in Form 10AB, finding the trust promoted activities for a ... Rejecting the application u/s 80G(5) - approval in Form No. 10AB under clause (iii) of first proviso rejected as trust is for the benefit of any particular religious community or caste - HELD THAT:- Applicant is accepting that the Trust is promoting certain religious activities without giving any supporting evidences to the activities such as education expenditure, health expenditure, as mentioned in the clause of the trust deed. Therefore, the applicant trust failed to establish that it is incurring 5% expenditure only for the religious activities. The applicant trust has also not given any details related to the expenditure incurred on the actual charitable purposes. The plea of the assessee that the object clause 1 is related to seven foundational principles but the assessee/applicant has not given any details as to how the assessee trust is implementing these seven foundational principles and has not given any details about educational or health or environmental institutions which are run by the trust for charitable purposes and which is beneficial to the society at large without any distinction of religion, caste, creed or gender. Section 80G approval/application has to be granted after taking a holistic view and in the present case, the CIT(E) has taken a justified view and rejected the application. Decided against assessee. ISSUES PRESENTED AND CONSIDERED 1. Whether the Commissioner was justified in rejecting an application for approval under clause (iii) of the first proviso to section 80G(5) on the ground that the trust carries on religious activities in excess of the permissible limit. 2. Whether the presence of objects referring to a spiritual movement or guidance by a named religious organization in the trust deed precludes approval under section 80G(5)(iii) where the trust otherwise claims charitable objects (education, medical, social welfare, environment). 3. Whether cancellation of provisional approval under section 80G(5) was warranted on the basis of audited accounts showing substantial expenditure categorized as religious. 4. Whether the rejection/cancellation decision violated principles of natural justice or was otherwise unjust in absence of adequate factual/material support from the applicant. ISSUE-WISE DETAILED ANALYSIS Issue 1: Validity of rejection of application under clause (iii) of first proviso to section 80G(5) on ground of excess religious expenditure Legal framework: Section 80G(5)(iii) permits approval subject to the condition that expenditure for religious purposes does not exceed 5% of total receipts; approval must be denied if the trust is for benefit of any particular religious community or if religious expenditure exceeds the statutory ceiling. Precedent treatment: No prior judicial precedents were cited or applied by the Tribunal in the reasoning; the Tribunal relied on statutory threshold and documentary evidence (audited accounts). Interpretation and reasoning: The Tribunal examined the audited accounts for the relevant year which recorded religious expenditure of Rs. 17,85,466 against total income of Rs. 46,33,403 (˜38.53%). The Tribunal accepted the accounts as material evidence that religious expenditure materially exceeded the 5% statutory ceiling and observed the applicant did not furnish supporting breakdowns or contrary evidence to rebut the accounts. Ratio vs. Obiter: Ratio - Approval under section 80G(5)(iii) can be refused where audited financials show religious expenditure materially in excess of the statutory 5% limit and the applicant fails to rebut or explain the entries with supporting evidence. Conclusion: The Commissioner's rejection on the ground of excess religious expenditure was upheld; the Tribunal concluded the statutory limit was breached and approval could be refused on that basis. Issue 2: Effect of trust-deed references to a spiritual movement / religious organization on eligibility for section 80G(5)(iii) approval Legal framework: Eligibility for section 80G(5) turns on objects actually pursued and expenditures made; mere reference in objects does not automatically determine status but may be relevant if it evidences predominance of religious activity or promotion of a particular religion/community. Precedent treatment: The Tribunal did not rely on or distinguish any authority; analysis was fact-driven based on the trust deed language and the absence of corroborative evidence showing charitable implementation. Interpretation and reasoning: The Tribunal noted object clause references to a document and to guidance by a named religious body. The applicant asserted these references denote foundational principles and that activities are charitable. The Tribunal found the applicant failed to show how those principles were implemented in concrete charitable institutions or programmes and failed to provide expenditure details for educational, health, or environmental activities that would demonstrate predominance of non-religious charitable work. Ratio vs. Obiter: Ratio - Where a trust-deed references religious guidance or movements, eligibility under section 80G(5)(iii) requires the applicant to substantiate that implemented activities and expenditures are predominantly charitable and not religious; absent such evidence, the reference in the deed combined with financials indicating substantial religious spending supports rejection. Conclusion: The presence of religious references in the trust deed, coupled with lack of documentary evidence of charitable implementation and financials showing large religious expenditure, supported the denial of approval. Issue 3: Justification for cancellation of provisional approval based on audited accounts showing substantial religious expenditure Legal framework: Provisional approvals under section 80G may be reviewed and cancelled if subsequent material (including audited accounts) indicates non-compliance with statutory conditions; authorities may take a holistic view of objects, activities and finances. Precedent treatment: No authorities were cited; the Tribunal applied statutory criteria and record evidence. Interpretation and reasoning: The Tribunal accepted the CIT(E)'s consideration of audited accounts and replies. It held that the audited accounts constitute relevant material showing religion-related payments (e.g., 108 Kundi Yagna) amounting to a substantial percentage of total income. The applicant did not provide adequate itemized details to show that such payments were incidental or properly classified; nor did it demonstrate compensating charitable expenditure sufficient to outweigh the religious payments. Ratio vs. Obiter: Ratio - Provisional approval may be cancelled where contemporaneous audited accounts disclose substantial religion-related expenditures inconsistent with the statutory conditions for 80G(5)(iii), and where the applicant fails to rebut or clarify such entries. Conclusion: Cancellation of provisional approval was justified by the recorded financials and insufficient explanatory material from the applicant; the Tribunal found no reason to interfere with the CIT(E)'s decision. Issue 4: Alleged violation of natural justice and good conscience in the rejection/cancellation process Legal framework: Principles of natural justice require that an applicant be given an opportunity to be heard and that decisions be based on relevant material; administrative decisions must be justifiable on the record. Precedent treatment: No separate precedent analysis undertaken; Tribunal assessed procedural steps taken and materials on record. Interpretation and reasoning: The record shows the CIT(E) issued notices, the applicant filed a written reply, and the decision was taken after considering the reply and audited accounts. The applicant alleged inability to respond timely at appeal stage on medical grounds; the Tribunal condoned delay after considering those facts. Substance of the Tribunal's review focused on adequacy of applicant's explanations regarding expenditures - which were found lacking. The Tribunal therefore concluded procedural fairness had been observed in issuing notices and considering replies and that the outcome was supported by material evidence. Ratio vs. Obiter: Ratio - A decision rejecting or cancelling section 80G(5)(iii) approval is not vitiated for want of natural justice where the applicant received notice, had opportunity to reply, and the decision is based on salient documentary evidence which the applicant failed to satisfactorily rebut. Conclusion: No breach of natural justice or good conscience was found; the Tribunal dismissed the contention and upheld the impugned order. Aggregate Conclusion The Tribunal upheld the Commissioner's rejection/cancellation of approval under clause (iii) of the first proviso to section 80G(5) on the combined grounds that audited accounts demonstrated religious expenditure far exceeding the statutory 5% threshold, the trust failed to substantiate that its activities and expenditures were predominantly charitable and non-religious, and procedural fairness was respected; appeal dismissed.