Registration u/s 80G does not make a trust purely charitable so as to tax anonymous donations u/s 115BBC(1) – High Court
In a recent judgment, Hon’ble Bombay High Court has held that merely by registration u/s 80G a trust can not be said to be a charitable trust only and not to be a religious trust, so as to tax anonymous donations u/s 115BBC(1).
ABCAUS Case Law Citation:
4309 (2024) (11) abcaus.in HC
Case laws relied upon by the Parties:
K. Ravindranathan Nair vs. Commissioner of Income Tax
In the instant case, the Revenue had challenged the order passed by the Income-tax Appellate Tribunal (Tribunal/ITAT) holding that the respondent assessee was a charitable and religious trust hence “anonymous donations” received in the “Hundi”, were not liable to be taxed under Section 115BBC(1) of the of the Income Tax Act, 1961 (the Act)..
The respondent/assessee was a public trust which was initially constituted in the year 1953 under the Bombay Public Trusts Act, 1950. The assessee was also registered under Section 12A and 80G of the Act, as approved in terms of Section 10(23C)(v) of the Act, by the Chief Commissioner of Income Tax.
For the relevant Assessment years the assessee had filed its return of income along with the Income Expenditure Account, Balance Sheet and Audit Report in Form 10B declaring “Nil” total taxable income.
During the course of the scrutiny proceedings u/s 143(2) the Assessing Officer (AO) noted that during the financial year, the assessee trust had received large amount of donations by way of “hundi collections”, which were ‘anonymous donations’.
The Assessing Officer, called upon the assessee to explain as to why the provisions of Section 115BBC of the Act should not be applied. The Assessing Officer was of the opinion that the assessee being a charitable trust, and as the anonymous donations exceeded 5% of the total donations, the same were taxable under section 115BBC(1) of the Act.
The Assessing Officer was also of the view that as the assessee was a charitable organisation, registered under section 80G of the Act, having no religious purpose, hence the assessee was not entitled to avail the benefit of exclusion as set out in Section 115BBC(2)(b) of the Act. Accordingly, the Assessing Officer taxed the anonymous donations under the provisions of Section 115BBC of the Act.
The CIT(A) deleted the addition as made by the Assessing Officer and held that the assessee was entitled to the benefit under Section 115BBC (2)(b) of the Act. The Tribunal also confirmed the findings of the CIT(A) that the assessee was a charitable and religious trust.
Before the Hon’ble High Court the primary contention of the Revenue was that the assessee’s case qua the anonymous donations, were required to be taxed, on the conjoint applicability of Section 115BBC(1) and Section 80G which shows that the assessee was only a charitable trust.
It was also submitted by the Revenue that the total expenses incurred by the assessee towards religious purposes were only 0.49% of the total receipts, itself was indicative of the fact that the assessee was not a religious trust and it was a charitable trust considering the ambit of Section 80G(5B) of the Act.
It was further submitted that for the reason that the assessee continued to hold a registration under Section 80G, as also, as the assessee asserted benefit under Section 10(23C)(v), necessarily the assessee was rightly held by the Assessing Officer to be a charitable trust and not a religious trust.
Thus, the question to be answered by the Hon’ble High Court was whether the assessee was a charitable and religious trust, so as to fall within the exceptions to Section 115BBC carved out under sub-section (2)(b) of the said provisions notwithstanding the assessee being registered under Section 80G of the Act?
The Hon’ble High Court observed that sub-section (5B) of Section 80G provides that 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 the previous year shall be deemed to be an institution or fund to which the provisions of Section 80G apply. This to the effect that insofar as the religious activities of such trust are concerned, if such trust incurs expenditure during any previous year, of an amount not exceeding five percent of its total income, such institution would be regarded as an institution to which the provisions of Section 80G apply.
The Hon’ble High Court opined that a reading of Section 80G that it would exclude religious and charitable entities, would not be the correct reading of the said provision. Morover, Revenue had fairly admitted that there is no bar for a charitable trust also to be a religious trust. There can be many examples of such combination. For such reason, a myopic reading of Section 80G would be wholly impermissible.
The Hon’ble High Court observed that sub- section (2) of Section 115BBC is an exception to sub-section (1) which provides that sub-section (1) shall not apply to any anonymous donation received by (a) any trust or institution created or established wholly for religious purposes and (b) by any trust or institution created or established wholly for religious and charitable purposes other than any anonymous donation made with a specific direction that such donation is for any university or other educational institution or any hospital or other medical institution run by such trust or institution.
The Hon’ble High Court further observed that whether a trust is charitable or religious can only be determined from the ingredients of the trust deed, bye-laws, etc., and by examining these documents and recording a findings on such documents, necessarily is an exercise to record a finding of fact.
The Hon’ble High Court noted that the Tribunal had examined the relevant documents. Further having regard to the enormous increase in the assets base and number of devotees visiting the assessee’s shrine and considering the magnitude of the religious and charitable activities so as to necessitate the channelization of funds and for betterment and upliftment of devotees and society, the High Court had vested the management of the trust in the board of management constituted by the Charity Commissioner of State Government. The scheme for management and administration of the assessee / trust was also framed which mentions that the trust shall be essentially a public religious institution, with charitable basis enabling the trust to set apart funds for different charitable purposes.
Further, the Tribunal had also observed that amongst the several objects of the assessee, one of the object has been associated with the activities of worship of Shri Sai Baba, spreading spirituality, teachings, offering prayers, celebrating religious festivals and ceremonies, taking care of devotee’s, etc. The Tribunal noted that section 21 of the Act also provided for maintenance of temple, conduct and performance of rituals and ceremonies therein and providing facilities for darshan of devotee, offering of prayers and performing the religious festivals.
The Hon’ble High Court opined that merely the assessee being registered under Section 80G of the Act, it cannot be a religious trust, so as to fall outside the purview of Section 115BBC (2)(b) of the Act. Such an approach would amount to an inappropriate reading of the provisions of Section 80G as also Section 115BBC(2)(b). Section 80G certainly lays down quantum test that is the amounts spent for its purposes to ascertain whether the charitable trust is eligible for registration or not, which is clear from the provisions of Section 80G (5B) of the Act.
The Hon’ble High Court also noted that the Hon’ble Supreme Court had held that the Tribunal is the final fact finding authority and a decision on facts which fell for consideration of the Tribunal, cannot be gone into by the High Court, except when a question has been referred to it that the finding of the Tribunal on facts is perverse.
Accordingly, it was held that assessee certainly was a religious and charitable trust, hence, the assessee rightly and legitimately claimed an entitlement under sub-section 2(b) of Section 115BBC of the Act.
Download Full Judgment Click Here >>
- Fraud & deception not trade and business and money accumulated is proceeds of crime
- ICAI extends last date to submit MEF for FY 2025-26 to 10th October, 2025
- ICAI defers Guidance Note on Financial Statements of Non-Corporate entities/LLPs
- Delhi Govt. to help persons with benchmark disabilities with high support need
- Placing Genset in steel container fitted with additional parts amounts to manufacture
){kind=link}