2024 (6) TMI 1047 - AT - Income Tax

Rejection of application for approval of Trust u/s 80G(5) - assessee / applicant has mentioned in Form 10AB that it had incurred certain expenses which are religious in nature and such religious expenses incurred by the assessee amounted to Rs. 15.08% of it s total receipts - HELD THAT - In the instant facts, we observe that the Ld. CIT(E) has not asked for any specific details in the show-cause notice, while rejecting the application made by the assessee / applicant. Further, in the show-cause notice issued by Ld. CIT(E), he has also not asked for any specific details in connection with religious expenses incurred by the assessee. Accordingly, in the interest of justice, the matter is being restored to the file of Ld. CIT(E) for de-novo consideration after analyzing whether less than 5% of the total income has been incurred by the assessee trust towards religious activities. In case it is found that the less than 5% of the total income has been incurred as expenditure by the applicant trust towards religious purposes, then benefit of Section 80G(5) of the Act may be granted to the assessee if other conditions are satisfied, in accordance with law. Appeal of the assessee is allowed for statistical purposes.

Summary

Issues Involved:
Application for approval of Trust under Section 80G(5) of the Income Tax Act; Rejection of application by CIT(E) based on religious expenses exceeding 5% of total receipts; Appeal against CIT(E) order.

Analysis:
1. The appeal was filed against the order of the Ld. Commissioner of Income Tax (Exemption) rejecting the application for approval of Trust under Section 80G(5) of the Act due to religious expenses exceeding 5% of total receipts.

2. The CIT(E) dismissed the application citing that the trust's activities were religious in nature, contravening the provisions of Section 80G, which require funds to be applied only for charitable purposes. The rejection was based on the trust's own declaration of incurring religious expenses exceeding 5% of total receipts.

3. The Hon'ble Supreme Court precedent in Upper Ganges Sugar Mills Ltd vs CIT clarified that a charitable purpose does not include activities of substantially religious nature. The judgment emphasized that even if a trust has multiple charitable objects, if one is substantially religious, it falls outside Section 80G's scope.

4. Referring to the Nilackal St. Thomas Church case, the ITAT upheld rejection of approval under Section 80G where no charitable activities were conducted, and more than 5% of income was spent on religious purposes.

5. During the appeal, the assessee contended that no religious expenses were incurred, attributing the mention of such expenses in the application to inadvertence. The assessee argued that the trust's objects were not religious and challenged the summary rejection without a fair opportunity to explain.

6. The Tribunal observed that the CIT(E) did not seek specific details in the show-cause notice regarding religious expenses. The matter was remanded for fresh consideration to ascertain if less than 5% of total income was spent on religious activities, with the possibility of granting Section 80G(5) benefits if conditions were met.

7. Consequently, the appeal was allowed for statistical purposes, and the matter was remitted to the CIT(E) for a de novo examination based on the Tribunal's observations.

This summary provides a detailed analysis of the legal judgment involving the rejection of a trust's application under Section 80G(5) of the Income Tax Act due to religious expenses exceeding the permissible limit, leading to an appeal and subsequent remand for fresh consideration.