1982 (1) TMI 85 - AT - Income Tax

Issues Involved
1. Whether the Commissioner erred in disallowing the relief allowed to the company in respect of the donation to Vishwamangal Trust under section 80G of the Income Tax Act, 1961.

Issue-Wise Detailed Analysis

1. Background and Procedural History
The assessee, a company, donated Rs. 1,00,000 to Vishwamangal Trust and claimed a deduction under section 80G of the Income Tax Act, 1961. The Income Tax Officer (ITO) allowed this deduction. However, the Commissioner later directed the ITO to withdraw this deduction under section 263 of the Act, stating that the relief under section 80G was erroneously granted.

2. Grounds of Appeal
The primary ground for appeal was that the Commissioner erred in disallowing the relief allowed to the company for the donation to Vishwamangal Trust.

3. Tribunal's Prior Decisions
The Tribunal had previously decided similar cases in favor of the assessee, but the Division Bench felt that the Tribunal's decisions required reconsideration, leading to the constitution of a Special Bench.

4. Commissioner's Reasons for Disallowance
The Commissioner disallowed the deduction for the following reasons:
- The ITO granted the deduction based on an exemption certificate issued under the 1922 Act without examining the deed of the trust or noting differences in the language of the relevant sections of the 1922 and 1961 Acts.
- Clause 3 of the trust deed allowed trustees to apply the income or assets to any object of the trust, including establishing public places of worship, which did not fulfill the conditions of section 80G(5)(ii) read with Explanation 3.

5. Assessee's Arguments
The assessee's counsel argued that:
- The objects of the trust should be read as a whole, making the object in clause 2(h) ancillary and not independent.
- The object in clause 2(h) was not of a religious nature as understood in common parlance or strict legal sense.
- Explanation 3 to section 80G diluted the effect of the qualification by stating "any purpose the whole or substantially the whole of which is of a religious nature."

6. Legal Precedents and Interpretations
The counsel for the assessee relied on several Supreme Court and High Court decisions to argue that:
- The dominant purpose of the trust should be considered.
- Objects should not be viewed in isolation but in the context of the entire charitable purpose.
- Public places of worship and prayer halls available to all do not constitute a religious purpose.

7. Departmental Representative's Arguments
The departmental representative argued that:
- The ITO erred in allowing the deduction based on an outdated exemption certificate.
- Each object of the trust must be charitable, and clause 2(h) was an independent object that did not meet the "charitable purpose" requirement.
- Public places of worship and prayer halls inherently have a religious connotation.

8. Tribunal's Analysis and Conclusion
The Tribunal analyzed the deed of the trust and relevant sections of the Income Tax Act, concluding that:
- The various sub-clauses of the trust deed, including clause 2(h), were independent objects.
- The trust's public places of worship and prayer halls were available to all, making the object secular rather than religious.
- The term "religious nature" in Explanation 3 should be understood in a broad sense, and the trust's purpose did not fall within this definition.

9. Final Decision
The Tribunal held that the object in clause 2(h) was not of a religious nature in the legal sense and that the conditions of section 80G(5)(ii) read with Explanation 3 were satisfied. Therefore, the assessee was entitled to the deduction under section 80G.

Conclusion
The appeal was allowed, and the assessee was granted the deduction under section 80G for the donation to Vishwamangal Trust.

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