The Delhi Bench of the Income Tax Appellate Tribunal (ITAT) has held that an institution cannot be denied approval under Section 80G of the Income-tax Act merely because its memorandum contains objects relating to the construction or maintenance of temples, gurudwaras or other places of worship.
The bench of Anubhav Sharma (Judicial Member) and Sanjay Awasthi (Accountant Member) emphasized that the tax authorities must examine the actual activities and financial expenditure of the institution, rather than drawing a conclusion solely from the objects stated in its memorandum.
The assessee was a Society which had filed an application in Form 10A seeking approval under Section 80G(5)(iv) of the Income-tax Act. The Society had earlier enjoyed approval under Section 80G and was also granted provisional registration in Form 10AC for the period beginning September 24, 2021, up to Assessment Year 2024-25.
However, while considering the Society’s application for renewal of approval, the CIT (Exemption) rejected the claim by relying upon the Supreme Court’s decision in Upper Ganges Sugar Mills Ltd. v. CIT. According to the prescribed authority, the Society’s memorandum contained objects relating to the construction, maintenance and management of temples, gurudwaras and religious places and therefore involved promotion and propagation of religious faith. The authority consequently treated the activities as predominantly religious in nature.
The Society challenged the rejection before the ITAT.
The assessee argued that the CIT (Exemption) had reached the conclusion regarding religious activities without examining the Society’s financial statements or actual expenditure.
The assessee also relied upon Section 80G(5B), which was inserted by the Finance Act, 1994 with effect from April 1, 1994. The provision contemplates a statutory threshold in respect of expenditure of a religious nature, with the assessee contending that where such expenditure does not exceed 5% of total income in the relevant previous year, the institution is deemed to satisfy the relevant requirement for Section 80G purposes.
The assessee placed reliance on several judicial decisions, including decisions of the Gujarat High Court and various coordinate benches of the ITAT, to contend that approval under Section 80G cannot be denied where religious expenditure remains within the statutory limit.
The Departmental Representative, on the other hand, supported the order passed by the CIT (Exemption).
The Delhi ITAT found a fundamental deficiency in the approach adopted by the prescribed authority.
The Tribunal observed that the CIT (Exemption) had not analysed the financial statements of the Society before concluding that its activities were religious in nature. Instead, the conclusion was drawn merely from certain objects contained in the memorandum of association.
The Tribunal noted that memoranda of association generally contain objects framed from a long-term perspective. Societies may include a broad range of potential charitable activities in their objects so as to avoid repeatedly amending their governing documents whenever they undertake additional charitable activities.
Accordingly, the Tribunal held that merely referring to religious objects in the governing documents, without identifying the actual religious activities undertaken by the institution, could not justify rejection of Section 80G approval. This was particularly relevant in the case before it because the application concerned renewal of approval, for which the financials of the immediately preceding years could be examined to determine whether expenditure had actually been incurred on religious activities.
The Tribunal then examined the financial records of the Society for the years ending March 31, 2021 to March 31, 2025.
According to the Tribunal, the financial statements did not show that the Society had actually incurred expenditure on the alleged religious activities. The Society maintained separate financials for Baba Banda Singh Bahadur Public Schooland its remaining activities, and the financials of the applicant Society did not demonstrate expenditure for religious purposes.
The Tribunal therefore found that the factual foundation for treating the Society as engaged in prohibited religious activities was absent.
The Tribunal also examined the Society’s bye-laws.
It found that the Society’s primary objects included enhancing cohesion between different communities, developing religious sentiment among Indian children, promoting allegiance towards Indian culture and running a hospital, while keeping itself away from political activities. The Tribunal held that these primary objectives were charitable in nature.
Importantly, the Tribunal held that merely because the bye-laws referred to construction or maintenance of temples, gurudwaras or other places of pilgrimage, it did not automatically follow that the Society was engaged in religious activity.
The Tribunal noted that there was no indication that beneficiaries were being discriminated against on the basis of their religion. It also took note of the fact that places of worship of different faiths were to be operated alongside educational institutions and medical facilities. In such circumstances, the Tribunal found no justification for characterising the Society as being engaged in religious activity merely on account of the references to places of worship.
The Tribunal made broader observations on how tax authorities should examine religious activities while considering applications for Section 80G approval.
It held that the authorities should remain circumspect about the predominant and actual intention of the applicant institution. According to the Tribunal, religious institutions and practices can also have wider objectives relating to societal integration, peace and character building. Therefore, every activity having some religious connection cannot automatically be treated as a prohibited religious activity for the purpose of Section 80G.
The Tribunal distinguished between an activity that is genuinely religious and one which may originate from a religious setting but is, in substance, secular.
It observed that an activity would assume a different character where there is an indication that the intention is to segregate or benefit persons on the basis of caste, creed, way of life or religious sentiment, or where the activity involves propagation of a particular religious belief to the exclusion of others or proselytisation.
Thus, the Tribunal held that a distinction has to be maintained between religious practices and activities concerning matters which are essentially secular in character.
In a significant observation, the Tribunal noted that the Income-tax Act does not define the expression “religious activity.”
Against this backdrop, the Tribunal observed that while determining whether an activity is religious for the purpose of Section 80G, the Essential Religious Practices (ERP) test, developed by the Supreme Court in the context of the Shirur Mutt case, could broadly serve as a parameter.
The Tribunal observed that where expenditure is incurred on essential religious practices, the authorities may examine whether such expenditure demonstrates that the institution’s predominant objective is religious.
At the same time, the Tribunal specifically referred to activities such as establishing and running hospitals and educational institutions, rehabilitation facilities for animals, dharamshalas and maintenance of amenities at religious places or pilgrimage sites. It held that where such public-utility activities are undertaken by an institution which also serves a place of worship, the relevant considerations are the predominant object and proportionality of expenditure.
After examining the facts, financial statements and bye-laws, the ITAT concluded that the CIT (Exemption) had adopted a narrow interpretation of Section 80G.
The Tribunal held that the Society’s application had been erroneously dismissed. It consequently allowed the appeal and directed the CIT (Exemption) to grant approval to the Society under Section 80G within four weeks from receipt of the Tribunal’s order.
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