2012 (4) TMI 307 - AT - Income Tax

Withdrawal of exemption u/s. 80G(5) Charitable Trust - CIT(A) withdrew approval u/s 80G(5) on finding that Trust has spend about 78% of its total receipt for organizing Bhagwat Katha i.e. activities of religious nature, which is in violation of Section 80G(5B) in FY 07-08 AY 08-08, 09-10 - Held that - Expenditure of religious nature exceeds the qualifying limit of 5%, in AY 2008-09. The withdrawal of the approval once for all on the basis of an activity restricted to a particular year would be unjust, amount as it would to castigating a person acting bona fide, particularly considering that its objects are purely charitable in nature. The charge of un-genuineness in our view would imply that the institution is not undertaking any charitable work or engaged in impermissible activity/s in the guise of charitable objects, which would be, a very un-charitable and unwarranted view to take. Therefore, withdrawal of approval u/s. 80G would be sustainable in law only in respect of the first year, i.e., AY 2008-09, while the matter would require a review for the subsequent years. In other words, the section would continue to apply, and the approval valid, for the years for which the said limit is not exceeded Decided partly in favor of assessee for statistical purposes.

Issues Involved:
1. Withdrawal of exemption under Section 80G(5) of the Income-tax Act, 1961.
2. Classification of 'Bhagwat Katha' as a religious activity.
3. Applicability of Section 13(1)(b) and Section 80G(5B) of the Income-tax Act.
4. Validity of the trust's activities and the genuineness of the trust.
5. The impact of the decision in CIT v. Upper Ganges Sugar Mills Ltd. on the case.
6. The procedural correctness of the withdrawal of approval by the CIT.

Detailed Analysis:

1. Withdrawal of Exemption under Section 80G(5):
The assessee, a charitable trust, had its exemption under Section 80G(5) withdrawn by the Commissioner of Income-tax (CIT) on the grounds that it incurred 78% of its total receipts on organizing 'Bhagwat Katha', which was deemed a religious activity. The CIT's decision was based on Explanation 3 to Section 80G, which excludes purposes of a religious nature from being considered charitable. The tribunal partially upheld this withdrawal for the financial year 2007-08 but remanded the matter back to the CIT for reconsideration for subsequent years.

2. Classification of 'Bhagwat Katha' as a Religious Activity:
The assessee argued that 'Bhagwat Katha' was not a religious activity as it was open to all castes and religions and aimed at educating people about Indian culture. However, the tribunal, relying on the Supreme Court's decision in CIT v. Upper Ganges Sugar Mills Ltd., held that organizing 'Bhagwat Katha' is inherently a religious activity, irrespective of its public character. The tribunal emphasized that the common understanding of 'religion' or 'religious' should be applied in the absence of specific definitions under the Act.

3. Applicability of Section 13(1)(b) and Section 80G(5B):
The assessee contended that Section 13(1)(b), which excludes trusts benefiting a particular religious community from exemptions under Sections 11 and 12, did not apply. The tribunal clarified that the issue was not about Section 13(1)(b) but about Section 80G(5)(vi) read with Explanation 3, which excludes trusts with purposes substantially of a religious nature. The tribunal also noted that Section 80G(5B) allows for a limited expenditure on religious activities (up to 5% of income), which the assessee had exceeded.

4. Validity of the Trust's Activities and Genuineness:
The tribunal considered whether the trust's activities were genuine. It concluded that the trust's significant expenditure on religious activities in one year did not necessarily imply that the trust's overall activities were not genuine. The tribunal held that the withdrawal of approval should be limited to the year in which the expenditure exceeded the statutory limit, and the CIT should review subsequent years to ensure compliance with the 5% limit.

5. Impact of CIT v. Upper Ganges Sugar Mills Ltd.:
The tribunal heavily relied on the Supreme Court's decision in CIT v. Upper Ganges Sugar Mills Ltd., which held that establishing places of worship is a religious activity, even if open to all religions. This precedent was used to reject the assessee's argument that 'Bhagwat Katha' was not a religious activity. The tribunal noted that the decision was binding and directly applicable to the assessee's case.

6. Procedural Correctness of the Withdrawal of Approval:
The tribunal found that the CIT's withdrawal of approval for the financial year 2007-08 was procedurally correct but required a review for subsequent years. The CIT was directed to examine the assessee's expenditure on religious activities for the years following 2007-08 and ensure that it did not exceed the 5% limit. The CIT was also instructed to consider any amendments to the trust's constitution aimed at compliance and to grant approval for years where the limit was not breached.

Conclusion:
The tribunal's order confirmed the withdrawal of approval for the financial year 2007-08 and remanded the matter for subsequent years back to the CIT for further examination. The tribunal emphasized the need for the CIT to ensure compliance with the statutory limit on religious expenditure and to consider the genuineness of the trust's activities on a year-to-year basis. The decision in CIT v. Upper Ganges Sugar Mills Ltd. was pivotal in classifying 'Bhagwat Katha' as a religious activity, impacting the trust's eligibility for exemption under Section 80G.

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