Religious Activity Struck Down in Trust Deed: ITAT Holds Charitable Nature for S. 80G Approval Citing Non Violation of 5% Threshold Limit [Read Order]

The Surat Bench of the Income Tax Appellate Tribunal (ITAT) held that the trust qualifies for approval under Section 80G ofthe Income Tax Act, 1961, as the religious clause in its deed was struck off and religious expenditure was nil, complying with the 5% threshold limit.

Jay Bhawani Mandhani Charitable Trust (assessee) filed an application for approval under clause (iii) of the first provision to sub-section (5) of Section 80G in Form No. 10AB. The Commissioner of Income Tax (Exemption) [CIT(E)] issued notices to examine the trust’s eligibility. The CIT(E) reviewed the trust’s objects, referencing Rule 11AA(1), 11AA(2), and Section 80G(5) of the Act.

The CIT(E) denied approval, citing clause 4(13) of the trust deed, which included religious activities such as "building temples, maintaining them, and performing all kinds of spiritual and religious activities."

The CIT(E) argued that this clause indicated a religious purpose, contravening the requirement under Section 80G(5) that the trust be established solely for charitable purposes. Despite the assessee’s submission that clause 4(13) had been deleted, the CIT(E) noted that no evidence of amendment was provided and that the activity of celebrating religious festivals remained, leading to the rejection of the application.

Aggrieved by the CIT(E)’s order, the assessee appealed to the ITAT. The assessee argued that the religious clause was struck off by the Charity Commissioner and that no religious expenditure was incurred, maintaining compliance with the 5% threshold for religious activities under Section 80G of the Income Tax Act.

The two-member bench, comprising Suchitra Raghunath Kamble (Judicial Member) and Bijayananda Pruseth (Accountant Member), observed that the CIT(E) failed to consider the struck-off portion of clause 4(13). The bench reviewed the trust deed and its English translation, confirming that the religious activities mentioned in the clause had been removed. \

The tribunal observed that the effective portion of clause 4(13) no longer included religious objectives, and the trust’s expenditure on religious activities was recorded as Rs. Nil, well within the 5% threshold limit permitted under Section 80G.

The bench held that the CIT(E) erred in classifying the trust as religious, as the deletion of the religious clause ensured its charitable nature. It further noted that the absence of religious expenditure reinforced compliance with Section 80G(5) requirements.

The Tribunal set aside the CIT(E)’s order and directed the approval of the assessee’s application under Section 80G of the Income Tax Act. The appeal of the assessee was allowed.

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