Section 80G Registration Denial: ITAT remands Utilization of Total Income towards Religious Purposes for Reverification [Read Order]

The trust established to support members of the Bhandari community—a recognized backward class in Gujarat—applied for approval under Section 80G(5)(iii) of the Income Tax Act, 1961. This section allows donors to claim deductions for contributions to institutions dedicated to charitable purposes.

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The Commissioner (Exemption) rejected the application on June 26, 2024, on the ground that one of the trust’s stated objects—“to provide social, cultural, moral, professional, religious as well as Vedic support to caste members”—was “composite in nature” and, in part, religious, thus disqualifying it under Section 80G(5) .

Appellant’s counsel, Shri Rasesh Shah, argued before the ITAT that the mere inclusion of the word “religious” in the trust’s objects did not render it ineligible for Section 80G registration. He emphasized that the Mandal had never expended any funds on religious activities nor managed any religious institution. Moreover, he pointed to Explanation 3 to Section 80G, which excludes an institution from charitable purposes only if its activities are “wholly or substantially” of a religious nature. Under Section 80G(5B), even institutions that incur up to five percent of their total income on religious activities remain eligible for deductions .

The tribunal bench agreed with these submissions, noting that the word “religious” appeared only once in the trust’s charter and that there was no evidence of actual religious expenditure. It found that the Commissioner (Exemption) erred by rejecting the application without any inquiry into the trust’s financial records or expenditure pattern. “The learned CIT(E) has not dealt with any of the submissions of the assessee/applicant trust… which in our view is against the principles of natural justice,” the Bench remarked .

While allowing the appeal “for statistical purposes,” the Tribunal directed the Commissioner (Exemption) to reconsider the application afresh. The case is to be remitted to ascertain whether the Mandal has indeed expended or utilized less than five percent of its total income for religious purposes. If this threshold is not breached, the trust is to be granted Section 80G registration in accordance with the law .

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Charitable trusts with mixed objects are reminded that incidental religious purposes, when kept within the statutory limit, will not automatically attract disqualification under Section 80G. The ruling reaffirms that tax authorities must conduct thorough verifications rather than summarily dismiss applications on technical grounds.

The Commissioner (Exemption) in Ahmedabad is now tasked with examining the Mandal’s financial statements and verifying religious‐purpose expenses. A fresh order is expected in due course, which will clarify the trust’s entitlement to issue tax‐deductible receipts under Section 80G—a development closely watched by nonprofit organizations nationwide.

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