2024 (10) TMI 546 - HC - Income Tax

Tax liability u/s 115BBC (1) for Anonymous donations received in the Hundi - Such donations were sought to be taxed primarily on the ground that the respondent is a charitable institution falling within the purview of Section 80G -assessee is a public trust which was initially constituted in the year 1953 when it was registered as the Shirdi Sansthan of Shri Sai Baba trust under the Bombay Public Trusts Act, 1950 - ITAT considering the trust deed as also the Act of the State Legislature, the Sai Baba Trust Act , confirmed the findings of the CIT(A) that the assessee was a charitable and religious trust Whether the assessee is a charitable and religious trust, so as to fall within the exceptions to Section 115BBC carved out under sub-section (2) (b) of the said provisions notwithstanding the assessee being registered under Section 80G? - HELD THAT - The entire thrust of the submissions on behalf of the Revenue is referring to the provisions of Section 80G, as applied by the Assessing Officer to contend that once the respondent / assesssee is registered under Section 80G, it would only be a charitable institution and would fall outside the provision of sub-section 2 (b) of Section 115BBC. We are afraid to accept such contentions in as much as, the provisions of Section 80G cannot be intermixed, from what is provided by Section 115BBC (2) (b). Both the provisions stand compartmentalized and are independent of each other. The very foundation of the operation and effect of Section 115BBC (2) (b) is a conclusive ascertainment, and a factual determination of a trust being religious and charitable as ascertained from the contents of the trust deed. Once such requirement is satisfied, any anonymous donation received by such trust would be eligible / entitled to the benefit of an exemption from tax, by the applicability of sub-section 2(b) of Section 115BBC. On the other hand, Section 80G certainly lays down quantum test that is the amounts spent for its purposes to ascertain whether the charitable trust is eligible for registration or not, which is clear from the provisions of Section 80G (5B) of the Act as noted hereinabove. From a cumulative reading of the objects of the assessee, read with the provisions of the Sai Baba Trust Act which is a special legislation promulgated by the State Legislature reflecting the objects and activities of the assessee, as also, considering the provisions of the Bombay Public Trusts Act, we are of the clear opinion that the assessee certainly is a religious and charitable trust, hence, the assessee rightly and legitimately claimed an entitlement under sub-section 2 (b) of Section 115BBC of the Act. Such entitlement of the assessee is rightly recognized by the CIT (A) and the Tribunal. In the light of the above discussion, we find that the view taken by the CIT (A) and as confirmed by the Tribunal, is correct in law and facts - Decided against revenue.

Summary

Issues Involved:

1. Applicability of Section 115BBC(1) of the Income-tax Act, 1961 to anonymous donations received by the assessee.
2. Determination of the nature of the assessee trust as either charitable, religious, or both.
3. Interpretation of Section 80G and its impact on the taxability of anonymous donations.
4. Consideration of the certificate under Section 10(23C)(v) and its relevance.
5. Examination of expenditure limits on religious activities under Section 80G(5B).

Issue-wise Detailed Analysis:

1. Applicability of Section 115BBC(1) to Anonymous Donations:

The primary issue in the appeals was whether the anonymous donations received by the assessee trust in the form of "Hundi collections" were taxable under Section 115BBC(1) of the Income-tax Act, 1961. The Assessing Officer had taxed these donations, arguing that the assessee, being a charitable trust registered under Section 80G, was liable to tax these donations. However, the CIT(A) and the Tribunal found that the assessee was both a charitable and religious trust, thereby falling within the exceptions provided under Section 115BBC(2)(b), which exempts trusts established for religious and charitable purposes from the tax on anonymous donations.

2. Determination of the Nature of the Assessee Trust:

The nature of the assessee trust was a crucial factor in determining the applicability of tax provisions. The trust, known as the "Shri Sai Baba Sansthan Trust (Shirdi)," was initially registered under the Bombay Public Trusts Act, 1950, and later reconstituted under the Shri Sai Baba Sansthan Trust (Shirdi) Act, 2004. The Tribunal and CIT(A) examined the trust deed and the statutory provisions, concluding that the trust was established for both religious and charitable purposes. The Tribunal noted that the trust's activities included traditional worship, religious festivals, and charitable activities, supporting its dual nature.

3. Interpretation of Section 80G and Its Impact:

The Revenue argued that the trust's registration under Section 80G indicated its status as solely a charitable institution, thus subjecting it to the provisions of Section 115BBC(1). However, the Tribunal rejected this argument, clarifying that Section 80G does not preclude a trust from being both charitable and religious. The Tribunal emphasized that Section 80G(5B) allows for a trust with mixed purposes to be eligible for registration, provided religious expenditure does not exceed 5% of total income. The Tribunal found that the trust's religious expenditure was within this limit, affirming its eligibility under Section 80G while still qualifying for the exemption under Section 115BBC(2)(b).

4. Consideration of the Certificate under Section 10(23C)(v):

The Tribunal considered the certificate under Section 10(23C)(v) issued by the Chief Commissioner of Income Tax, which recognized the trust's charitable and religious nature. The Revenue's contention that the certificate did not explicitly state the dual nature of the trust was dismissed, as the Tribunal found sufficient evidence of the trust's activities aligning with both religious and charitable purposes.

5. Examination of Expenditure Limits on Religious Activities:

The Tribunal examined the trust's expenditure on religious activities, which was reported to be 0.49% of total income, well below the 5% threshold stipulated in Section 80G(5B). This compliance further supported the trust's claim of being both religious and charitable, allowing it to maintain its registration under Section 80G while benefiting from the exemption under Section 115BBC(2)(b).

Conclusion:

The Tribunal upheld the CIT(A)'s decision, rejecting the Revenue's appeals. It concluded that the assessee trust was both a religious and charitable institution, thereby exempt from tax on anonymous donations under Section 115BBC(2)(b). The Tribunal emphasized the independent and compartmentalized nature of Sections 80G and 115BBC, affirming that the trust's registration under Section 80G did not negate its religious character. The appeals were dismissed, with no substantial question of law arising for consideration.