ITAT Chennai Clarifies 5% Religious Expenditure Safe Harbour For Section 80G Approval

Background Of The Dispute

The case of Anjuman-E-Himayath-E-Islam Vs CIT came before the ITAT Chennai arising out of an order passed by the Commissioner of Income Tax (Exemptions), Chennai [CIT(E)], refusing approval under Section 80G(5) of the Income Tax Act 1961.

The assessee is an old and reputed society, established in the year 1894–95, running educational institutions and undertaking various welfare and social service activities for more than a century. For the relevant period:

• The assessee already held registration under Section 12AB(1)(b) as a religious-cum-charitable institution for A.Y. 2027-28 to 2031-32.
• It had earlier been granted approval under Section 80G for A.Ys. 2022-23 to 2026-27.
• It was specifically asserted that there had been no change in the assessee’s aims, activities, or general pattern of expenditure.

Despite this background, the CIT(E) rejected the fresh application under Section 80G(5), mainly on the ground that the assessee had religious objects and was allegedly engaged in religious activities.

Basis Of Rejection By CIT(E)

Reliance On Religious Objects And Online Material

The CIT(E) took the view that:

• The assessee’s objects included religious elements.
• It was, therefore, not eligible for Section 80G approval.
• Certain information was collected from Google search and other public domain sources, which was used to conclude that the assessee was engaged in religious activities and fell outside the permissible scope of Section 80G.

This material was not placed before the assessee for rebuttal during the proceedings.

Grounds Of Appeal By The Assessee

Dominant Objective Is Charitable And Educational

The authorised representative (AR) of the assessee argued that:

• The primary purpose of the society is educational and charitable in nature.
• Attention was invited to clause 15(C) of the Memorandum of Association, which deals with:
  • Setting up and running educational institutions
  • Furthering cultural, social, and economic upliftment
  • Providing support to orphans and destitute children

The assessee emphasised that it is not formed to serve any particular religious community or caste exclusively.

Effect Of Section 12AB Registration

The assessee pointed out that:

• It has already been granted registration under Section 12AB as a religious-cum-charitable institution.
• Grant of such registration necessarily implies satisfaction of the tax authorities that:
  • The assessee’s objects are genuine.
  • The activities are actually carried out in line with those objects.

Hence, re-characterising the assessee as ineligible for Section 80G purely because certain objects are described as religious-cum-charitable was contrary to this earlier statutory satisfaction.

Violation Of Principles Of Natural Justice

The assessee contended that:

• The CIT(E) relied on material gathered through Google searches and other online content.
• This material was never shared with the assessee, nor was any opportunity provided to rebut or explain it.
• This approach amounted to a breach of natural justice, as adverse material cannot be used against any assessee without granting an opportunity of being heard.

Applicability Of Section 80G(5B) – 5% Cap On Religious Expenditure