80G approval and religious expenditure limits must be tested against the five per cent threshold before rejection.

Approval under section 80G cannot be refused solely because a trust deed or stated objects refer to religious activity. The controlling question is whether religious expenditure exceeded the five per cent limit in section 80G(5B), because institutions remain eligible if that threshold is not crossed. Here, the rejection rested only on the religious character of the objects and activities, without a categorical finding on compliance with the statutory limit. That omission made the order unsustainable, so the rejection was set aside and the matter remanded for fresh adjudication after verifying the five per cent condition and giving due opportunity.

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Issues: Whether approval under section 80G could be denied merely because the trust deed and stated objects referred to religious activity, without a categorical finding that the assessee had incurred expenditure exceeding the five per cent limit prescribed for religious expenditure.

Analysis: Section 80G, read with Explanation 3, excludes institutions whose charitable purpose is wholly or substantially of a religious nature. However, section 80G(5B) deems an institution eligible where its religious expenditure during the previous year does not exceed five per cent of its total income. The impugned order rejected the application only on the premise that the objects and activities were religious, but it did not record any finding on whether the assessee had crossed the statutory five per cent threshold. In the absence of such verification, the rejection was held unsustainable and the matter was required to be re-examined after affording due opportunity.

Conclusion: The rejection of approval was set aside and the matter was remanded to the Commissioner for fresh adjudication after determining compliance with the five per cent limit under section 80G(5B); the assessee succeeded to that extent.

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