Religious Objects Don't Block 80G Approval If Expenditure Is Under 5% and Benefits Are Universal.

Religious Objects Don’t Block 80G Approval If Expenditure Is Under 5% and Benefits Are Universal.

I. The “Religious vs. Charitable” Conflict

The Crux: Secular charitable activities (education, health, relief) take precedence over incidental religious rituals in the eyes of tax law.

The Dispute

The assessee, a society running schools and welfare programs, was already registered as a “religious-cum-charitable” body under Section 12AB. When it applied for Section 80G approval (which allows donors to claim tax deductions):

The CIT(Exemption): Rejected the application, arguing that the presence of “religious elements” in the trust’s objects automatically disqualified it from the secular 80G benefit.
The Assessee’s Stance: Their primary work was educational and social. Minor religious activities were incidental and did not restrict the benefit of their work to any specific community.

II. The Judicial Verdict: The 5% Safety Valve

The Court ruled in favour of the Assessee, citing specific statutory protections that the tax authorities had ignored:

1. Section 80G(5B): The De minimis Rule

The law explicitly provides that an institution shall not be denied 80G approval merely because it incurs religious expenditure, as long as that spending is:

Incidental: Not the primary purpose.
Capped: Does not exceed 5% of the total income of the institution in that year.

2. Prohibition vs. Incidental Presence

The Court clarified that Section 80G(5)(iii) only prohibits institutions that are:

Expressed to be for the benefit of a particular religious community or caste.
Wholly or substantially religious in nature.
Because the assessee’s schools and orphanages were open to everyone regardless of religion, the “community benefit” bar did not apply.

III. Transition to the 2025 Act

Under the Income-tax Act, 2025:

Section 133 (Approval for Donations): Replaces Section 80G. It maintains the core distinction between “Charitable Purposes” and “Wholly Religious Purposes.”
Procedural Continuity: Registration under Section 12AB (now Section 349) as a “religious-cum-charitable” entity does not act as a bar to Section 133 approval, provided the 5% expenditure limit is respected.
Verification: The 2025 Act introduces more rigorous digital reporting (Statement of Donations), meaning the 5% religious spending will be monitored through annual filings.

Strategic Takeaways for NGOs in 2026

Audit Your “Religious” Spends: Ensure that any expenditure on rituals, festivals, or place of worship maintenance is clearly labeled and stays below the 5% threshold of your total annual receipts.
Memorandum Check: If your trust deed contains religious objects, ensure your Main Objects emphasize education, medical relief, or poverty alleviation. The “Dominant Object” test is what saved the assessee in this case.
Open Access Documentation: Maintain proof (admission registers, beneficiary lists) showing that your services are provided to the general public and are not restricted to one religion or caste.
Incidental Objects are OK: Don’t be pressured into deleting religious objects from your deed just for an 80G approval, as long as you can prove they are incidental to your primary charitable mission.

IN THE ITAT CHENNAI BENCH ‘B’

Anjuman-E-Himayath-E-Islam

Commissioner of Income-tax, Exemption^*

ABY T. VARKEY, Judicial Member
and S.R. Raghunatha, Accountant Member

IT APPEAL No. 3951 (Chny) OF 2025

APRIL 10, 2026

D. Anand, Adv. for the Appellant. Ms. V. Supraja, Addl. CIT for the Respondent.

ORDER

S.R. Raghunatha, Accountant Member.- The present appeal is filed by the assessee against the order dated 26.11.2025 passed by the learned Commissioner of Income Tax (Exemptions), Chennai (hereinafter referred to as “ld.CIT(E)”), rejecting the approval sought u/s.80G(5) of the Income-tax Act, 1961 (hereinafter referred to as the “Act”).

2. The brief facts emanating from the records are that the assessee is a society/institution established in the year 1894-95 and has, for more than a century, been engaged in educational, social and welfare activities. It runs educational institutions and allied charitable initiatives. It is not in dispute that the assessee has been granted registration u/s.12AB(1)(b) of the Act as a religious-cum-charitable institution for the period relevant to Assessment Years (A.Y.) 2027-28 to 2031-32. It is also the claim of the assessee that approval u/s.80G of the Act had earlier been granted for A.Ys. 2022-23 to 2026-27 and that there is no change in its objects, activities or pattern of expenditure.

3. The case of the ld. CIT(E) is that the assessee contains religious objects and, therefore, is not eligible for approval u/s.80G of the Act. The ld.CIT(E) further referred to certain material gathered from Google search / public domain sources to conclude that the assessee is engaged in religious activities and hence falls outside the scope of section 80G of the Act.

4. Aggrieved by the order of the ld.CIT(E), the assessee is in appeal before us.

5. The ld.AR submitted that the dominant objects of the assessee are educational and charitable. Our attention was invited to clause 15(C) of the Memorandum of Association, which, inter alia, refers to establishing and maintaining educational institutions, promoting cultural, social and economic upliftment, and supporting orphans and destitute children. The ld.AR contended that the Act recognizes institutions which may be charitable-cum-religious and that the grant of registration u/s.12AB of the Act itself demonstrates that the assessee’s objects and activities are genuine. It was further submitted that the reliance placed on unverified Google search material, without confronting the same to the assessee, is contrary to the principles of natural justice.

6. The ld. AR further submitted that, even assuming certain expenditure may be of a religious nature, section 80G(5B) specifically protects an otherwise eligible institution if such expenditure does not exceed 5 percent of the total income. A chart was filed showing religious expenditure at 2.375% for A.Y. 202324, 1.703% for A.Y. 2024-25 and 2.133% for A.Y. 2025-26, all of which are below the statutory threshold. The ld.AR placed a reliance on the decision in the case CIT v. Shree Sai Baba Sansthan Trust (Hon’ble Bombay High Court), Chennai Tribunal decision in the case of St. George Trust v. CIT (Exemption) [IT Appeal No.1795 (Chny) of 2024 , dated 1-10-2024] and Ahmedabad Tribunal in the case of Sthanakvasi Jain Sangh Jivrajpark v. CIT (Exemption) (Ahmedabad – Trib.)/ITA No.372/Ahd/2025. Further, the ld.AR filed a detailed written submission along with the copies of the decisions.

7. Per contra, the ld. DR supported the order of the ld. CIT(E) and submitted that the presence of religious objects disentitles the assessee from approval under section 80G and that the rejection order does not call for interference.

8. We have heard the rival submissions and perused the materials available on record. The short issue for our consideration is whether the assessee is ineligible for approval u/s.80G of the Act merely because some of its objects or expenditure are stated to be of a religious nature.

9. On a harmonious reading of clause (iii) of section 80G(5), Explanation 3 and section 80G(5B) of the Act, it is clear that what is prohibited is a case where the institution is expressed to be for the benefit of any particular religious community or caste, or where the purpose is wholly or substantially of a religious nature. At the same time, the Legislature has consciously provided in section 80G(5B) that an institution shall not be denied the benefit of section 80G merely because it incurs expenditure of a religious nature, so long as such expenditure does not exceed 5 per cent of its total income. Therefore, the mere presence of some religious elements or incidental religious expenditure does not ipso facto lead to denial of approval.

10. In the present case, the dominant objects of the assessee, as borne out from the Memorandum, are establishment and maintenance of educational institutions, social and economic upliftment, and welfare of orphans and destitute children. Nothing has been brought on record to show that the benefits of the assessee are confined or restricted to any particular religious community or caste. On the contrary, the long-standing history of the assessee, prior registration u/s.12A / 12AB of the Act, earlier approval u/s.80G of the Act, and the absence of any change in objects or activities, support the case of the assessee that it is predominantly a charitable institution. The exercise undertaken by the ld. CIT(E) in placing reliance upon unverified Google search material, without confronting the assessee with the specific material proposed to be used against it, cannot be approved and is in clear breach of natural justice.

11. We also find force in the submission of the assessee that the alleged religious expenditure, even as per the chart furnished, is only 2.375%, 1.703% and 2.133% of the total income for the A.Ys.2023-24 to 2025-26 resepctively, which is well within the ceiling prescribed u/s.80G(5B) of the Act. Once the statutory threshold is satisfied and the dominant objects remain charitable, the assessee cannot be denied approval u/s.80G of the Act only on account of incidental religious objects or expenditure. The decisions relied on by the assessee also support the proposition that incidental religious elements, by themselves, do not disentitle a genuine charitable institution from approval u/s.80G of the Act. The relevant extract of the decision in the case of St. George Trust in St. George Trust(supra) is given below:

9. We have heard the rival contentions and gone through the facts and orders. It is admitted fact that the assesse trust has been granted provisional registration U/s.12A and also approval U/s.80G(5) of the Act, during the A.Y.2024-25,since, the trust deed was registered on 13/04/2023. We note that the ld.CIT(E) has rejected the application of the assesse for the reason that the assessee trust mentioned as “Religious and Charitable” and in column 5 objects of the applicants as “Religious”. We note that, as per the ld.AR arguments in respect of Section 80G(5B), wherein the provision provides for upper limit of 5% of the total income of the institution or fund can be spent towards Religious activities and still hold the status of Charitable institution/fund.

10. This view has been supported by the decision of the Hon’ble High court of Rajastan in the case Mishrimal Gordhanlal Batra Charitable Trust v. UOI(Rajastan) considering the provisions of Section 80G(5B) of the Act, by holding as under:

“3. Learned counsel for the petitioner has invited our attention to a number of decisions to urge that it is the substance of the objects of the trust in locality and the principal activity of the trust only should be taken into consideration and merely because one of many activities have been stated to be construction of the trust which in fact is not the basic purpose of formation of the trust, that should not be the sole criteria of rejection of the application. He also relied on the amendment brought in section 80G by inserting sub-section (5B) of section 80G by the Finance Act, 1999, with effect from 1-4-2000, which was in consonance with the submissions made by learned counsel for the petitioner which, inter alia, provided an overriding provision that where an institution or fund which incurs expenditure in the relevant year which is of religious nature for an amount not exceeding 5 per cent of its total income in that previous year then for that previous year, the institution or fund shall be deemed exempted under section 80G by deeming it to be so.

4. On this premise learned counsel for the petitioner further urges that in view of this provision, every year the Commissioner has to consider the ratio between the total income of the trust and the expenditure actually incurred for religious purposes and only if the substantive part of the income, that is to say more than 5 per cent of total income is incurred for religious purposes the registration of trust/fund under section 80G can be refused on that ground.

5. With this premise, it is further submitted by the learned counsel for the petitioner that the petitioner shall be satisfied if the writ petition is disposed of with the direction to the Commissioner to consider the case of the petitioner-trust for renewal of its registration with effect from the insertion of subsection (5B) uninfluenced by the impugned order of rejecting the renewal for the assessment years 1995-2000. In other words, the petitioner’s application for renewal with effect from 1-4-2000, should be considered keeping in view of subsection (5B) of section 80G.

6. These submissions appear to be justified in the light of the aforesaid provision.

7. Accordingly, the writ petition is disposed of with the direction that the petitioner’s applications for renewal of registration with effect from 1-42000, under section 80G may be considered by the Commissioner independent of the impugned order dated 25-9-1998, keeping in view the provision of sub-section (5B) of section 80G.

8. No Costs.”

11. The identical facts have been dealt in another case Santshrestha Gajanan Maharaj l/s. CIT(E) – ITAT, Pune – ITA No.2004/2019 dated 06/12/2022 and decided the issue in favour of the assessee and held as below:

“5. We have perused case records, heard the rival contentions, analysed the facts and circumstances in this case. The relevant provision of the Act for which the assessee-trust has applied for exemption is sec. 80G(5)(vi) of the Act. Now, for approval as per provision of section 80G(5)(vi) the first and foremost requirement which the institution or fund has to satisfy is “if it is established in India for a charitable purpose”. The conditions contemplated by clauses (i) to (iv) to section 80G(5) are the conditions which the institution was formed must additionally fulfil so as to be entitled to the approval by the Commissioner. In this case the assesse trust is established in India and is for a charitable purpose, greatest evidence is that it has got registration u/s 12AA of the Act. It is settled legal position that once registration has been granted to a charitable trust u/s 12AA of the Act, the question whether the assessee-trust is for charitable purpose or not itself does not arise. This is so since the Id. CIT Exemption gets satisfied regarding the charitable objects of the trust and genuineness of the activities conducted for the charitable purposes and only then registration u/s 12A is accorded to a particular institution or trust. Once this is there, the question should not arise again for ascertaining the charitable purpose of the trust. The objection that has been raised by the Id. CIT (Exemption) as per para 4.2 of his order that one of the main objects of the donations received by the assessee-trust from Shri Ganapati Devasthan Trust during F.Y. 2015-16 is to construct Gajanan Maharaj Temple. In this regard, the assessee has also submitted to the Id. CIT (Exemption) the details of proposed accumulation or setting apart of amounts regarding construction of temple, gaushala, old age home, school for poor children and upkeep and maintenance of temple, etc. Thereafter at para 4.3 of his order, the Id. CIT (Exemption) holds that as per the funds received as donation during F.Y. 2015-16 from the said Ganapati Devasthan Trust a substantial amount of fund the assesse intends to use for the purpose of construction of temple of Gajanan Maharaj and also intends to administrate and maintain the said temple which is the work of a pure religious activity. The Id. CIT (Exemption) opined that the object of the assessee- trust does not have any object regarding the construction and maintenance of the temple. In this regard, we would refer to the submissions made by the Id. Counsel for the assessee that as on date, the assessee has not constructed any temple. The assesse only intends to construct the temple and in such situation they would even approach the Charity Commissioner, Pune, for necessary amendments in the object clauses of the trust deed. Therefore, as on date, the assessee-trust has only performed activities of a charitable nature and the department is satisfied about the charitable nature of the assessee-trust because of which the Id. CIT (Exemption) has already granted registration u/s 12AA of the Act to the assessee. Even before us, Id. D.R did not raise any objection regarding noncharitable activities of the assessee-trust nor he could bring any evidence on record to demonstrate that the assessee trust is not doing any charitable activity. Regarding the objection raised by the Id. CIT (Exemption) that the assessee intends to utilise a substantial amount of funds received as donations during F.Y. 2015-16, for construction of temple of Gajanan Maharaj and for its maintenance, we have perused the entire order of the Jt. Charity Commissioner, Pune and therein at para 3 he has assigned an amount of Rs. 3,50,00,000/- out of total donations received by the assessee and this has to be spent for purchase of land, construction of temple, goshala, old age home and school for the poor students. Therefore, it cannot be said that a substantial amount the assessee proposes to spend on construction of the temple since all the aforestated expenses is to be incurred within the said amount. Furthermore, as on date, there has been no construction of the said temple. Therefore, the objection of the department that the assessee-trust intends to spend substantial amount of the said donation received for religious purpose is unsubstantiated and unfounded. The decision of Hon’ble Delhi High Court (supra) relied on by the Id. D.R is substantially different on facts as compared to the present case since therein the trust had mainly used the funds for construction of religious temple and no charitable activity was carried out. However, in the instant case of the assessee, the department has not disputed the charitable activities conducted by the assessee and as per the directions of the Jt. Charity Commissioner, Pune, the construction of the temple, if at all it would be constructed, would involve only part of the total expenditure within the designated amount which has been directed by the Jt. Charity Commissioner Pune being the appropriate authority. The Id. D.R had also referred to the provision of section 80G(5)(ii) along with Explanation 3 and in this regard it is worthwhile to refer to the provisions of section 80G (58) which is as follows:

“Notwithstanding anything contained in clause (ii) of subsection (5) and Explanation 3, an institution or fund which incurs expenditure, during any previous year, which is of a religious nature for an amount not exceeding five per cent of its total income in that previous year shall be deemed to be an institution or fund to which the provisions of this section apply.”

6. So therefore, it is a non-obstante clause taking care of section 80G(5)(ii) and the Explanation 3 and stating that the expenditure for a religious nature if it does not exceed five per cent of the total income then the said trust or institution shall be deemed to be an institution to which the provision of section 80G would apply. In this context, the assessee has given an undertaking that whenever the construction of temple would take place and the maintenance fund for the said temple it shall be in accordance with section 80G (58) of the Act. That, the assessee would even take necessary approval from the Charity Commissioner, Pune, before undertaking such activity. However, in the present context given the facts when the assessee is registered u/s 12AA of the Act and when the provision of section 80G(5)(vi) of the Act has been complied with, we do not see any reason for refusing the assessee the grant of exemption u/s 80G of the Act. The Department has also not brought out a case where they can prove through evidences that the assessee-trust has violated the stipulations contained in sec. 80G(58) of the Act. In fact, the revenue authorities have not demonstrated, anything showing substantial expenditures of the fund received in donation by the assessee for religious purposes and whether it is exceeding the permissible limit of 5%. It has also been mentioned by the Id. CIT (Exemption) that the assessee has not provided headwise details of various expenditure as per para 4.3 of his order but all these details have been submitted before him and as annexed before us in the paper book. The Id. D.R did not refute these facts. In this scenario it will be also worth mentioning that while exercising the power to reject or accord approval u/s 80G(5) the Commissioner acts as a quasi-judicial authority. Therefore, the conclusion arrived at by him is expected to be supported by valid and cogent reasons. It is also expected that he should apply his mind to the facts of each case and give reasons either to grant or refuse recognition/approval. This requirement is very much imperative on the part of the Commissioner particularly having regard to the statutory provision under which he functions. This proposition has been observed and upheld by the Hon’ble Andhra Pradesh High Court in the case of Tirumala Tirupati Devasthanam v. Chief C.I.T. (2001) 251 ITR 849 (AP). In the case of CIT v. Christian Medical College (2015) 274 ITR 17, it was observed and held by the Hon’ble Punjab & Haryana High Court that in a case where the assessee has been running and maintaining the Christian Medical college, Christian College of Nursing, where medical care and training the professionals were provided by the assessee society to everyone irrespective of their caste, creed, race, religion etc. the assessee was held to be entitled for grant of exemption/approval u/s 80G(5) of the Act. So therefore, if Trust/Institution incurs expenses for religious purposes which is inclusive and is only a small part of the income, and if the substantial work done by the trust is charitable in nature benefitting the public at large then the institution or trust has to be granted exemption u/s 80G of the Act. In the present case of the assessee, the department has not been able to make out a case through facts that the assessee is substantially a religious trust. That on examination of the facts and circumstances we set aside the order of the Id. CIT (Exemption) and direct him to grant exemption/approval u/s 80G of the Act to the assessee-trust. Grounds of appeal are allowed.

7. In the result, appeal of the assessee is allowed.”

12. In the facts and circumstances of the case since the assessee had committed a technical error in filling the form, we deem it appropriate to give one more opportunity to the assessee to rectify the form 10AB. We are of the opinion that pure technical errors should not come in the way of dispensing of justice.

12. In view of the aforesaid discussion and respectfully relying on the judicial precedents (supra), we set aside the order of the ld. CIT(E) and direct the ld.CIT(E) to grant approval to the assessee u/s.80G(5) of the Act, in accordance with law by allowing the grounds raised by the assessee.

13. In the result, the appeal of the assessee is allowed.