2008 (11) TMI 348 - HC - Income Tax

Deduction to Charitable Trust under section 80G(5B) Special Deduction The Petitioner-trust s application for renewal of approval under section 80G was rejected by the Commissioner on the ground that the trust had not fulfilled the requisite conditions in terms of section 80G(5B). In this case Rajasthan High Court held that mere contribution for the purpose of construction of one room in a hostel managed by a particular community might not itself be treated to be an act violating the requirements of section 80G(5B). The other aspects particularly those relating to utilization of funds of the trust with reference to its aims and objects required consideration and the application for renewal of exemption could not be rejected with an abstract reference to the quantum of one particular donation in relation to a particular hostel, even if such a hostel was managed by a particular community. Thus, the order refusing renewal of exemption was liable to be set-aside and the matter remanded for reconsideration with reference to its trust deed.

Summary

Issues:
Renewal of exemption under section 80G of the Income-tax Act, 1961 based on a donation made to a religious institution and the interpretation of section 80G(5B) regarding expenditure for charitable purposes.

Analysis:
The judgment involves a writ petition against the rejection of an application for renewal of exemption under section 80G of the Income-tax Act, 1961. The Commissioner of Income-tax rejected the application as the petitioner-trust made a donation to a religious institution, which was deemed to be an expenditure for religious purposes. The Commissioner relied on the decision of the Supreme Court in Upper Ganges Sugar Mills Ltd. v. CIT [1997] 227 ITR 578 to conclude that the petitioner did not fulfill the conditions under section 80G(5B) for further exemption under section 80G of the Act.

The petitioner challenged the order, arguing that the Commissioner's decision was cursory and misplaced. The petitioner contended that the donation made for the construction of a room in a hostel should not be considered as diverting funds for religious purposes. Reference was made to the decision of the court in Umaid Charitable Trust v. Union of India [2008] 307 ITR 226 to support this argument.

The court noted that the dominant object of the trust is crucial, and contributions or expenditure should align with that object. A single instance of donation exceeding 5% of income for temple renovation should not automatically disqualify a trust from exemption renewal under section 80G(5B). The court emphasized that the trust deed should not indicate that the income is solely for a particular religion to disentitle the trust from claiming exemption.

The court found that the Commissioner's order was unsustainable and required reconsideration. It highlighted that a mere contribution for a specific purpose in a hostel managed by a particular community may not violate section 80G(5B). The court emphasized that the application for renewal should not be rejected solely based on one donation or by abstract references to legal precedents without considering the trust's aims and objects.

Consequently, the writ petition was allowed, setting aside the impugned order and restoring the application for renewal of exemption for reconsideration by the Commissioner of Income-tax. The petitioner was directed to appear before the Commissioner for further proceedings. No costs were awarded in this case.