ITAT Ahmedabad Ruling: Composite Trusts Eligible for Section 80G Approval Subject to 5% Religious Expenditure Cap

The eligibility of "Composite Trusts"—institutions that harbor both charitable and religious objectives—for approval under Section 80G of the Income Tax Act 1961 has long been a subject of litigation. Revenue authorities often adopt a strict interpretation, denying approval to any entity that lists religious activities in its trust deed. However, a recent and significant ruling by the ITAT Ahmedabad in the case of Rajesh Ravindran Charity Trust Vs CIT(Exemption) has clarified the legal position, reinforcing the applicability of Section 80G(5B).

The Tribunal held that the mere presence of a religious object does not automatically disqualify an institution from Section 80G benefits, provided the actual expenditure on religious activities does not exceed the statutory limit of 5% of total income.

The Core Controversy: Pure Charity vs. Composite Objectives

The primary dispute in this case arose when the assessee, a trust, applied for approval under Section 80G of the Income Tax Act 1961. The Commissioner of Income Tax (Exemption) [CIT(E)] rejected the application. The rejection was premised on the scrutiny of the trust's deed, specifically Object No. (Y), which stated the trust's intent:

“(Y) To arrange and organize religious, social and cultural program from time to time”

The CIT(E) interpreted this clause to mean that the assessee was not a "purely charitable" trust but rather a composite one (charitable-cum-religious). According to the Revenue's interpretation, Section 80G(5)(ii) mandates that a trust must be established solely for charitable purposes. Consequently, the CIT(E) concluded that the provisions of Section 80G(5B)—which allow for a small margin of religious spending—could not be used to grant initial approval to a trust with mixed objectives.

Arguments Presented by the Assessee

The assessee challenged the denial, presenting a two-fold argument before the Tribunal: