The Income Tax Appellate Tribunal has held that registration under Section 80G(5) of the Income Tax Act cannot be denied merely because a trust has religious objects, provided its religious expenditure does not exceed five percent of its total income. The Tribunal emphasized that the statutory framework permits incidental religious activities so long as the primary purpose remains charitable and the expenditure threshold is respected.
The Verdict
The Assessee won. The Income Tax Appellate Tribunal held that registration under Section 80G(5) cannot be denied solely on the ground that a trust has religious objects, if its religious expenditure does not exceed five percent of total income as permitted under Section 80G(5B). The Tribunal set aside the rejection order and directed the Commissioner of Income Tax (Exemption) to reconsider the application after giving the trust a fresh opportunity to demonstrate compliance with the 5% expenditure cap.
Background & Facts
The appellant, Shri Jain Swetamber Terapanthi Sabha Trust, is a trust registered under Section 12AB of the Income Tax Act, 1961, for religious and charitable purposes. On 27 August 2024, it applied for registration under Section 80G(5), which allows donors to claim tax deductions for contributions to eligible charitable institutions. The Commissioner of Income Tax (Exemption) issued a show cause notice on 28 January 2025, proposing to reject the application on the ground that the trust’s primary objects were religious in nature.
The trust responded with detailed audit reports and financial statements showing zero expenditure on religious activities in prior years. It argued that its objects were not confined to any caste, creed, or community, and that its activities were broadly charitable. The trust cited multiple precedents from the Ahmedabad Bench of the Tribunal supporting the principle that religious objects alone do not disqualify a trust from Section 80G(5) registration, provided religious expenditure remains within the 5% limit under Section 80G(5B).
Despite this, the Commissioner rejected the application, relying solely on the word "Jain" in the trust’s name and its religious objects, without examining actual expenditure patterns. The trust appealed to the Income Tax Appellate Tribunal, challenging the legal basis of the rejection and highlighting the inconsistency of having already received registration under Section 12AB for both religious and charitable purposes.
The Legal Issue
The central question was whether registration under Section 80G(5) can be denied to a trust with religious objects, when its actual religious expenditure is below the 5% threshold prescribed under Section 80G(5B), and its primary purpose is charitable.
Arguments Presented
For the Petitioner
The petitioner argued that Section 80G(5) does not prohibit religious objects outright, but only excludes institutions where the whole or substantially the whole purpose is religious, as per Explanation 3. It emphasized that the trust’s financial statements showed no religious expenditure in prior years, and that the 5% cap under Section 80G(5B) is a clear statutory exception permitting incidental religious activity. The petitioner relied on five recent Tribunal decisions from Ahmedabad, all holding that registration cannot be denied merely on the basis of religious objects if the expenditure threshold is not breached.
For the Respondent
The Revenue contended that the trust’s name and objects, being inherently religious, disqualified it from Section 80G(5) registration. It argued that the term "charitable purpose" under Explanation 3 excludes any religious purpose, and that the trust’s registration under Section 12AB for religious purposes was sufficient grounds to deny Section 80G(5) approval. No evidence was presented to show that the trust met the 5% expenditure limit, and the Revenue maintained that the mere presence of religious objects was disqualifying.
The Court's Analysis
The Tribunal undertook a careful textual analysis of Section 80G(5) and its accompanying provisions. It noted that Explanation 3 to Section 80G(5) excludes from the definition of "charitable purpose" any purpose "the whole or substantially the whole of which is of a religious nature." This language, the Tribunal held, implies that some degree of religious activity is permissible, so long as it is not predominant.
"This implies that some part of the activities of a trust are permitted to be of a religious nature."
The Tribunal then turned to Section 80G(5B), which explicitly states that an institution incurring religious expenditure not exceeding five percent of its total income shall be deemed eligible for Section 80G benefits, "notwithstanding anything contained in Clause (ii) of sub-section (5) and Explanation 3." The Tribunal emphasized that this is a clear legislative override, designed to accommodate institutions with mixed objectives.
"Sub-Section (5B) of Section 80G provides that an institution or fund which incurs expenditure... of a religious nature for an amount not exceeding 5% of its total income... shall be deemed to be an institution... to which the provisions of this section apply."
The Tribunal found that the Commissioner had committed a legal error by focusing exclusively on the trust’s objects without examining whether its actual religious expenditure exceeded the 5% limit. The absence of any quantitative analysis rendered the rejection arbitrary. Furthermore, the fact that the Commissioner had already granted registration under Section 12AB for both religious and charitable purposes undermined the consistency of the rejection under Section 80G(5).
The Tribunal concluded that the proper course was not to grant or deny registration outright, but to remand the matter for a fresh determination based on actual financial data and compliance with Section 80G(5B).
What This Means For Similar Cases
This decision provides critical clarity for charitable trusts with mixed religious and charitable objectives. Practitioners can now confidently argue that Section 80G(5) registration is not barred by the mere existence of religious objects, provided the trust can demonstrate that religious expenditure remains under 5% of total income. The ruling reinforces that compliance must be assessed on actual financial data, not on the wording of trust deeds or names.
Future applications under Section 80G(5) should include detailed audit reports clearly segregating religious and charitable expenditures. Tax authorities must now conduct a quantitative assessment under Section 80G(5B) before rejecting applications. This judgment also sets a precedent for consistency: if a trust is registered under Section 12AB for both religious and charitable purposes, denial under Section 80G(5) without financial analysis is legally untenable.
The decision does not extend to trusts where religious expenditure exceeds 5%, or where religious activity constitutes the primary purpose. It applies only to institutions with predominantly charitable aims and incidental religious activity.
