ITAT Chandigarh Rules on Section 80G Approval: Predominant Charitable Object Trumps Incidental Religious Activities

The demarcation between "charitable purposes" and "religious purposes" has long been a subject of intense litigation under the Income Tax Act 1961. While both categories enjoy exemptions under Section 11 and Section 12, the distinction becomes critical when an institution seeks approval under Section 80G. This approval is vital as it allows donors to claim deductions on their contributions, thereby incentivizing philanthropy.

A recent significant ruling by the Income Tax Appellate Tribunal (ITAT), Chandigarh, in the case of Thakur Satyanarayan Kapuria Vs CIT (Exemptions), has provided much-needed clarity on this issue. The Tribunal held that the mere existence of incidental religious activities does not disqualify a trust from obtaining approval under Section 80G(5)(iii), provided the predominant objective and actual expenditure of the trust are directed towards charitable activities.

This article provides an in-depth analysis of the judgment, the legal framework surrounding Explanation 3 to Section 80G, and the implications for trusts operating with a mix of charitable and religious objectives.

To understand the gravity of the Tribunal's decision, one must first navigate the statutory provisions governing tax exemptions for donations.

Section 80G(5)(iii) and the Restriction

Section 80G of the Income Tax Act 1961 encourages donations to certain funds and charitable institutions by offering tax deductions to donors. However, Section 80G(5)(iii) explicitly states that the institution or fund must not be expressed to be for the benefit of any particular religious community or caste.

Explanation 3 to Section 80G

The most contentious aspect of this section is Explanation 3, which clarifies the definition of "charitable purpose" specifically for Section 80G. It states:

"In this section, 'charitable purpose' does not include any purpose the whole or substantially the whole of which is of a religious nature."

This explanation often leads to the rejection of applications where the Revenue Department perceives that the assessee is engaged in religious activities, even if those activities are minor compared to their social welfare work. The interpretation of "substantially the whole" is the pivot upon which the Thakur Satyanarayan Kapuria case turned.

Case Background: Thakur Satyanarayan Kapuria Vs CIT (Exemptions)

The dispute arose when the assessee, a Trust, applied for registration under Section 80G(5)(iii) via an application dated 20.06.2024. The Trust was already in possession of a registration under Section 12A, which acknowledged its status as a charitable entity.