ITAT Holds Composite Trust Eligible For Section 80G Approval If Religious Expenditure Stays Within 5% Limit
Pranav B Prem
The Ahmedabad Bench of the Income Tax Appellate Tribunal (ITAT) has held that a charitable trust having incidental religious objects cannot be denied approval under Section 80G of the Income Tax Act, 1961, so long as its expenditure on religious activities does not exceed the statutory limit of 5% of its total income. Setting aside the order passed by the Commissioner of Income Tax (Exemptions), Ahmedabad, the Tribunal directed grant of approval under Section 80G(5) to the assessee trust.
The Bench comprising Suchitra Kamble, Judicial Member, and Annapurna Gupta, Accountant Member, strongly disagreed with the approach of the tax authority that treated a composite (religious-cum-charitable) trust as automatically ineligible for Section 80G benefits.
The dispute arose from an order dated 27 December 2024 passed by the Commissioner of Income Tax (Exemptions), Ahmedabad, rejecting the application of Shri Rajesh Ravindran Charity Trust for approval under Section 80G(5). The rejection was based on one of the objects of the trust, which stated, “To arrange and organize religious, social and cultural programs from time to time.” According to the CIT (Exemptions), the presence of this object rendered the trust religious in nature and therefore hit by Section 80G(5)(ii) read with Explanation 3 to Section 80G, which excludes institutions established wholly or substantially for religious purposes from availing donor-related tax benefits.
Before the Tribunal, the trust contended that all its objects were aimed at public welfare and charitable activities without discrimination on the basis of religion, caste, or community. It was further submitted that no expenditure had in fact been incurred on religious activities during the relevant period. Even otherwise, the trust argued, Section 80G(5B) expressly permits religious expenditure up to 5% of total income without disqualifying a trust from Section 80G approval.
The Tribunal noted that the CIT (Exemptions) had rejected these submissions by holding that Section 80G(5B) does not dilute the primary requirement of a trust being “purely charitable” and that composite trusts are not eligible for approval. The ITAT found this interpretation to be legally unsustainable.
Undertaking a detailed statutory analysis, the Tribunal held that a harmonious reading of Section 80G(5)(ii), Explanation 3 to Section 80G, and Section 80G(5B) makes it clear that Parliament consciously allowed limited religious activity within charitable institutions. The Bench emphasised that Section 80G(5B), which begins with a non-obstante clause, overrides both Section 80G(5)(ii) and Explanation 3 where expenditure on religious activities does not exceed 5% of total income.
Relying heavily on its earlier decision in Shree Sthanakvasi Jain Sangh Jivrajpark v. CIT(E) and other coordinate bench rulings, the Tribunal reiterated that the mere presence of a religious object is not decisive. What is material is the actual application of income. A trust can be of a composite character and still qualify for Section 80G benefits if religious expenditure remains within the permissible statutory limit.
The Tribunal also dealt with the Revenue’s reliance on the decision in Om Tapovan Charitable Trust. It clarified that the said case pertained to Section 80G(5)(iii), which bars trusts formed for the benefit of a particular religious community or caste, a provision distinct from incidental religious expenditure governed by Section 80G(5B). The Bench held that reliance on Om Tapovan Charitable Trust was misplaced and had no application to the facts of the present case.
Importantly, the Tribunal noted that there was no finding by the CIT (Exemptions) that the trust had incurred religious expenditure exceeding the 5% threshold. On the contrary, the trust’s assertion that it had incurred no religious expenditure at all during the relevant period remained uncontroverted.
Holding that denial of approval solely on the ground that the trust was composite was contrary to law, the ITAT concluded that the assessee trust was entitled to approval under Section 80G(5). Accordingly, the order of the CIT (Exemptions) was set aside, and the authority was directed to grant Section 80G approval to the trust. In the result, the appeal filed by the assessee trust was allowed, reaffirming that composite trusts are not per se barred from Section 80G benefits if religious spending remains within the statutory limit prescribed under the Act.
Cause Title: Shri Rajesh Ravindran Charity Trust Versus CIT (Exemption)
Case No: I.T.A. No. 34/Ahd/2025
Coram: Suchitra Kamble, Judicial Member, and Annapurna Gupta, Accountant Member
