2008 (5) TMI 232 - HC - Income Tax

Trust spent a sum for repairing & colouring of Lord Vishnu s temple CIT hold that Trust had incurred expenditure exceeding 5% of its total income on a particular religion, hence Trust was not entitled to renewal of exemption u/s 80G held that Revenue is not allowed to take a narrow approach that character of charitable trust was lost if one particular expenditure was made for such/above purpose and that too by way of contribution to another trust - Order of Commissioner is set aside

Summary

Issues Involved:
1. Refusal to renew the registration of exemption under Section 80G of the Income Tax Act, 1961.
2. Interpretation and application of Section 80G(5)(vi) and Section 80G(5B) of the Income Tax Act.
3. Determination of whether the trust's expenditure was for charitable or religious purposes.
4. Consideration of past activities and dominant objectives of the trust.
5. Application of relevant case law and judicial precedents.

Detailed Analysis:

1. Refusal to Renew Registration of Exemption:
The petitioner, Umaid Charitable Trust, Pali, challenged the order dated 16.12.2004 by the Commissioner of Income Tax-I, Jodhpur, which refused to renew the trust's exemption certificate under Section 80G(5)(vi) of the Income Tax Act, 1961. The Commissioner found that the trust spent Rs. 20,000 on repairing and coloring Lord Vishnu's temple, which exceeded 5% of its total income for the year, thus violating Section 80G(5)(B).

2. Interpretation and Application of Section 80G:
Section 80G provides deductions for donations to certain funds and institutions established for charitable purposes. Sub-section (5) outlines conditions for eligibility, including that the institution should not be for the benefit of any particular religious community or caste. Sub-section (5B) allows for religious expenditure not exceeding 5% of total income. The Commissioner applied these provisions to deny renewal, citing a Supreme Court decision in Upper Ganges Sugar Mills, which emphasized that substantial religious expenditure disqualifies a trust from exemption.

3. Charitable vs. Religious Purposes:
The petitioner argued that the expenditure was a donation to another trust for temple repairs, not a direct religious activity. The trust's primary objective was charitable, not religious, as shown in its trust deed. The court noted that the distinction between charitable and religious purposes is thin and not always clear-cut. A single expenditure on temple repair does not necessarily mean the trust is for a particular religion, especially if the trust's overall activities are charitable.

4. Past Activities and Dominant Objectives:
The court examined the trust's past activities and objectives, noting that the trust had been recognized as charitable for many years. The court emphasized that the dominant objective of the trust should be considered, and incidental religious activities should not disqualify it from exemption. The trust deed did not indicate a primary religious purpose, and no evidence showed consistent spending on religious activities.

5. Relevant Case Law and Judicial Precedents:
The court reviewed several judgments:
- Addl. CIT v. Surat Art Silk Cloth Manufacturers Association: Emphasized that a trust's primary and dominant purpose must be charitable.
- CIT v. K.H. Kusumgar: Held that a trust with mixed charitable and religious objects could still qualify for exemption if the primary purpose was charitable.
- Tirumala Tirupati Devasthanam v. Chief CIT: Clarified that incidental religious activities do not disqualify a trust from exemption under Section 80G.
- Sri Ramakrishna Sewa Ashrama v. CIT: Highlighted the need for a reasoned decision by the Commissioner when granting or denying exemption.
- Upper Ganges Sugar Mills: Applied by the Commissioner but distinguished by the court as not directly applicable to the present case.
- Sri Marudhar Kesari Sthanakwasi Jain Yadgar Samiti Trust v. Union of India: Distinguished on facts, as the petitioner trust did not have a dominant religious purpose.

Conclusion:
The court concluded that the Commissioner erred in refusing the renewal of the exemption. The petitioner trust's dominant objective was charitable, and a single expenditure on temple repair did not change its charitable character. The court quashed the impugned order, deeming the petitioner trust registered under Section 80G throughout the period after 1.4.2004, with all consequential benefits. The writ petition was allowed with no order as to costs.