In a significant ruling, the Bombay High Court has held that anonymous donations received through the Hundi by the Shree Sai Baba Sansthan Trust, Shirdi, are eligible for exemption from tax under Section 115BBC(2)(b) of the Income Tax Act, 1961.
The decision rendered by the Division Bench of Justice G S Kulkarni and Justice Somasekhar Sundaresan dismissed the appeal filed by the Commissioner of Income Tax (Exemptions), Mumbai, challenging the decision of the Income Tax Appellate Tribunal (ITAT) which had earlier ruled in favour of the Sai Baba Trust.
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The legal representatives involved in the case were Advocate Dinesh Gulabani, representing the Commissioner of Income Tax (Exemptions), Mumbai (the appellant) and S.Ganesh, Senior Advocate, along with Ashwin Shete, Srivastav, and Anvi Vasani, representing the Shree Sai Baba Sansthan Trust (the respondent).
The central issue in the case revolved around the taxability of anonymous donations made to the Trust via the Hundi system.
The Assessing Officer had initially taxed these donations under Section 115BBC(1) of the Income Tax Act, arguing that the Sai Baba Trust was a charitable organization registered under Section 80G of the Income Tax Act, and hence, the anonymous donations exceeded the permissible limit and should be taxed.
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However, the Trust argued that it was both a charitable and religious institution and therefore qualified for the exemption provided under Section 115BBC(2)(b) of the Income Tax Act. This provision exempts anonymous donations made to religious trusts from being taxed. The Trust contended that the activities it performed, including temple maintenance, rituals, and services for devotees, clearly established its status as a religious organisation as well.
The Assessing Officer had rejected this argument, maintaining that since the Trust was registered under Section 80G, it was a charitable trust and not entitled to the exemption under Section 115BBC(2)(b) of the Income Tax Act. The Officer also noted that the Trust’s religious activities amounted to only 0.49% of its total income, which in his view was insufficient to qualify the Trust as a religious organisation.
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The Commissioner of Income Tax (Appeals) and the ITAT had both ruled in favour of the Sai Baba Trust, stating that the Trust’s operations were of a mixed nature—both religious and charitable. The Tribunal emphasised that the presence of religious elements, including the daily rituals and worship ceremonies at the temple, clearly marked the Trust as a religious institution. This qualified it for the exemption under Section 115BBC(2)(b) of the Income Tax Act, which applies to trusts established for both charitable and religious purposes.
The Bombay High Court upheld the Tribunal’s findings, concluding that the anonymous donations received by the Trust were indeed eligible for tax exemption. The Court observed that the Trust’s religious activities, though intertwined with charitable purposes, were significant enough to bring the Trust within the scope of Section 115BBC(2)(b) of the Income Tax Act.
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The Court also took note of the Sai Baba Trust Act, 2004, which reconstituted the Trust as a religious and charitable organisation, thus further affirming its dual status.
It was observed that, “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.”
By confirming that religious trusts are eligible for tax exemption on anonymous donations, the judgement provides a major relief to institutions like the Shree Sai Baba Sansthan Trust, which rely heavily on such donations for their operations.
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