2003 (10) TMI 7 - HC - Income Tax

Petitioner is aggrieved by the order of CIT holding that some of the clauses of the trust reveal that these clauses pertain to wholly religious purposes and, therefore, in view of Explanation 3 to section 80G, the trust does not fall within the ambit of section 80G(2)(a)(iv) read with section 80G(5) so as to permit special deduction to donors to the said trust. - Since, this petition relates to the assessment years 1994-95 to 1997-98 before the insertion of sub-section (5B) in section 80G with effect from April 1, 2000 and it does not have retrospective effect, the petitioner is not entitled to any relief for the assessment years in question.

Summary

Issues:
Interpretation of section 80G(5) of the Income-tax Act, 1961 regarding deduction eligibility for donors to a trust with religious purposes.
Application of Explanation 3 to section 80G in determining charitable purposes.
Impact of the judgment in Upper Ganges Sugar Mills Ltd. v. CIT [1997] 227 ITR 578 on the current case.
Analysis of the insertion of sub-section (5B) in section 80G with effect from April 1, 2000, on the trust's eligibility for deduction.

Interpretation of section 80G(5):
The petitioner challenged the order by the Commissioner of Income-tax, Jodhpur, regarding the trust's eligibility for special deduction under section 80G(5) of the Income-tax Act, 1961. The Commissioner held that certain clauses of the trust were primarily religious, thus disqualifying it from the deduction. The petitioner argued that despite some religious clauses, the trust should still qualify for the deduction based on a minimal amount spent on religious purposes compared to charitable activities. Reference was made to the decision in Addl. CIT v. Surat Art Silk Cloth Manufacturers Association [1980] 121 ITR 1 emphasizing that ancillary religious purposes do not negate charitable status.

Application of Explanation 3 to section 80G:
Explanation 3 to section 80G excludes purposes of wholly religious nature from charitable purposes. The Supreme Court's interpretation in Upper Ganges Sugar Mills Ltd. v. CIT [1997] 227 ITR 578 clarified that even if a trust has multiple charitable objects, if any object is substantially religious, the trust falls outside section 80G. The court emphasized the need to analyze each object individually rather than the trust deed as a whole in determining eligibility for deduction.

Impact of Upper Ganges Sugar Mills Ltd. v. CIT [1997] 227 ITR 578:
The judgment in Upper Ganges Sugar Mills Ltd. v. CIT [1997] 227 ITR 578 highlighted that a trust with religious objects, even if ancillary, may not qualify for section 80G deduction. The court reiterated that if any object of the trust is substantially religious, the trust is ineligible for the deduction, regardless of other charitable activities.

Insertion of sub-section (5B) in section 80G:
Sub-section (5B) was inserted in section 80G with effect from April 1, 2000, allowing institutions or funds spending up to five percent of total income on religious activities to qualify for the deduction. This provision overrides Explanation 3, providing relief to trusts with some religious expenditure. However, the amendment does not apply retrospectively, affecting the petitioner's claim for the assessment years 1994-95 to 1997-98.

In conclusion, the court dismissed the petition, upholding the Commissioner's decision based on the trust's religious clauses. The judgment underscored the importance of individual object analysis for deduction eligibility under section 80G and highlighted the impact of subsequent legislative amendments on trust deductions.