Donation Exemption Under Section 80G: Trust with Religious Object Not Denied if Expenditure on Religious Purposes is Below 5%

Issue:

Whether a charitable trust can be denied approval under Section 80G(5) of the Income-tax Act, 1961, solely because its trust deed contains a specific object related to “religious purposes,” even if the trust submits that it has not incurred expenditure towards religious purposes (or if such expenditure is less than 5% of its income), and the Commissioner (Exemption) rejects the application without further inquiry.

Facts:

The assessee-trust applied for approval under Section 80G(5) of the Income-tax Act, 1961 (which allows donors to claim a deduction for donations made to approved institutions). Upon perusing the objects of the assessee-trust, the Commissioner (Exemption) noted a specific object in the trust deed that indicated the trust’s activities were aimed towards “religious purposes.” Consequently, the Commissioner rejected the application for approval, citing a violation of clause (ii) of Section 80G(5).

However, the assessee-trust had specifically submitted that it had not incurred any expenditure towards religious purposes.

Decision:

Yes, the court held that in case any trust applies or expends less than 5% of its income towards religious purposes, then it could not be denied the benefit of deduction under Section 80G on the ground that it has been incorporated for religious purposes. Since the Commissioner (Exemption) summarily rejected the application of the assessee trust for grant of registration under Section 80G without carrying out any inquiry into this aspect, the matter was restored to the file of the Commissioner (Exemption) for reconsideration.

Key Takeaways:

Section 80G(5) Condition: Clause (ii) of Section 80G(5) states that the institution or fund must not be expressed to be for the benefit of any particular religious community or caste. However, the proviso to this clause (inserted later) provides an important exception.
The 5% Rule (Proviso to Section 80G(5)(ii)): This is the core principle of this case. The proviso to Section 80G(5)(ii) clarifies that a trust or institution will not be denied approval merely because its objects are religious, provided that it expends less than 5% of its total income for religious purposes. The primary purpose of Section 80G is to encourage donations for charitable purposes that benefit the public generally, even if the trust has a religious origin or flavor.
Focus on Application of Income: The law shifted focus from merely the “objects” as stated in the trust deed to the actual application of income. If the actual expenditure on religious purposes is minimal (below 5%), the trust can still qualify for 80G approval.
Duty of Inquiry by Commissioner (Exemption): The Commissioner (Exemption) cannot summarily reject an application based on a religious object in the trust deed without conducting a proper inquiry into the actual application of income and expenditure. The burden is on the Commissioner to verify if the 5% threshold has been breached.
Remand for Reconsideration: The court’s decision to remand the matter underscores the need for a proper and detailed inquiry by the tax authorities into the actual activities and expenditures of the trust, rather than relying solely on the wording of the trust deed’s objects.
Facilitating Charitable Giving: This judgment encourages genuine charitable trusts, even those with some religious affiliation, to obtain 80G approval, thereby facilitating donations to them for public charitable purposes.

IN THE ITAT AHMEDABAD BENCH ‘B’

Shree Smasta Gurjar Kshatriya Kadiya Samaj Navsari

Commissioner of Income-tax (Exemption)

Dr. B.R.R. Kumar, Vice President
and Siddhartha Nautiyal, Judicial Member

IT Appeal No. 09 (Ahd.) OF 2025
[Assessment year 2023-24]

MAY 26, 2025

Hiren Vepari, A.R. for the Appellant. V. Nandakumar, CIT DR for the Respondent.

ORDER

Siddhartha Nautiyal, Judicial Member. – This appeal has been filed by the Assessee against the order passed by the Ld. Commissioner of Income Tax (Exemption), (in short “Ld. CIT(E)”), Ahmedabad vide order dated 27.11.2024.

2. The Assessee has taken the following grounds of appeal:-

“(1) The learned CIT(E) was not justified in rejecting application u/s. 80G(5) by passing ex-parte order without hearing the appellant.

(2) The appellant deserves a chance in view of the natural justice.

(3) On the facts and circumstances of the case, the learned CIT(E) was not justified in rejecting the application particularly when the appellant demonstrated that no religious activities were undertaken in the last 3 years as also the objects that meekly pointed to the spiritual and religious side was on the financial assistance to the needy.

(4) All of the above grounds are prejudiced to one another.

(5) The appellant craves leave to add, alter or vary any of the grounds of appeal. “

3. The brief facts of the case are that the assessee / applicant trust applied for grant of approval under Section 80G(5) of the Act in Form 10AB. On perusal of the objects of the applicant trust, the CIT(E) observed that there is a specific object, in the trust deed, which shows that the trust activities are aimed towards “religious purposes”. CIT(E) was of the view that since one of the objects of the assessee’s trust is “religious” in nature, then there is a clear violation of Clause (ii) of Section 80G(5) of the Act which puts a bar on grant of approval under Section 80G(5) of the Act to an institution or fund, whose objects provide for application of the trusts income towards religious purposes. Ld. CIT(E) of the view that from perusal of the objects of the trust, it is clear that the assessee trust was not established wholly for charitable purposes, whereas, Section 80G of the Act makes it amply clear that for grant of registration under Section 80G of the Act, the assessee / applicant trust has to be established only for charitable purposes and that there is no transfer or application of funds for any purposes other than charitable purposes. Accordingly, Ld. CIT(E) rejected the grant of approval under Section 80G(5) of the Act, with the following observations:

“9. In view of the above, the applicant has violated existing main condition of subsection (5) of section 80G i.e. it is not a purely charitable trust. Also it has violated the provision of clause (ii) of sub-section (5) of section 80G of the act and hence the applicant is not entitled to get approval u/s. 80G(5) of the Income Tax Act therefore the present application filed in Form 10AB is liable to be rejected.

10. Looking to the above facts, the present application filed in Form No.10AB for approval under clause (iii) of first proviso to section 80G(5) of the Act is rejected and your provisional approval also stands cancelled.”

4. Before us, the Counsel for the assessee submitted that assessee is a trust with mixed objects, where majority of the objects are charitable in nature. The trust holds regular registration under Section 12A of the Act. The Counsel for the assessee submitted that out of eleven objects, CIT(E) relied only on one object i.e. object No. 9 to classify the trust as one having been established for “religious” purposes. It was submitted that once the aforesaid object is read along with all other charitable objects of the trust, then it would be seen that mere inclusion of the word “religious” in one of the clauses would not categorize the trust as one with “religious objects”. Further, the Counsel for the assessee submitted that the assessee has not incurred any expenditure of a “religious nature” in the past three years. The Counsel for the assessee submitted before us the audited profit and loss account of the assessee / applicant trust for F.Y. 2019-20, 2020-21 and 2021-22 as part of the Paper Book in support of the above contention. The Counsel for the assessee submitted that Section80G(5) of the Act specifically provides that if the trust incurs expenditure towards religious purposes below 5% of it’s total income, then the benefit of Section 80G(5) of the Act cannot be denied to the such trust.

5. In response, Ld. D.R. placed reliance on the observations made by Ld. CIT(E) in the order rejecting grant of registration under Section 80G of the Act.

6. We have heard the rival contentions and perused the material on record.

7. Section 80G(5) of the Act states that this section applies to donation to any institution or fund only if it is established in India for “charitable purposes”. Explanation 3 to Section 80G states that the term “charitable purpose” does not include any purpose the “whole” or “substantially the whole” of which is of a religious nature. Further, Section 80G(5B) of the Act states that notwithstanding Explanation 3, any institution or fund which incurs expenditure which is of a religious nature for an amount not exceeding 5% of it’s total income for that previous year shall be deemed to be an institution or fund to which the provisions of Section 80G shall apply. From a combined reading of these provisions, it is apparent that in case any trust applies or expends less than 5% of it’s income towards “religious” purposes, then it cannot be denied benefit of deduction under Section 80G of the Act on the ground that has been incorporated for “religious purposes”. Further, even in the definition of the term “charitable purposes” it has been stated that the purpose of Trust should not one which is “wholly” or “substantially wholly” of a religious nature. Therefore, even as per Explanation 3 referred to above, in order to qualify as “charitable purpose” within the meaning of section 80G of the Act, the only qualification is that the activities should not be “wholly” or “substantially wholly” religious. Therefore, in view of the statutory provisions quoted above, we are of the considered view that the application for grant of deduction under Section 80G cannot be denied to the assessee only on the ground that one of the objects content the term “religious”. Further, we observe that the applicant / assessee trust had specifically submitted that the trust has not incurred any expenditure towards religious purposes. However, Ld. CIT(E), without carrying out any enquiry into this aspect, summarily rejected the application filed by the assessee / applicant trust. In fact, Ld. CIT(E), while rejecting the application for grant of registration under Section 80G of the Act has not dealt with any of the submissions / contentions of the assessee / applicant trust.

8. In the result, the matter is restored to the file of Ld. CIT(E) to consider the grant of registration under Section 80G of the Act afresh and to carry out necessary verification whether the assessee / applicant trust has expended / utilized less than 5% of it’s total income towards religious purposes. If that be the case, the assessee / applicant trust may be granted registration, in accordance with law.

9. In the result, the appeal of the assessee / applicant trust is allowed for statistical purposes.