ITAT Allows Section 80G Renewal: Actual Activities Prevail Over Religious Objects in MOA
The Income Tax Appellate Tribunal (ITAT), Delhi Bench, has delivered a significant ruling in Baba Banda Singh Bahadur v. CIT(Exemption), ITA No.1835/Del/2026, allowing the assessee society’s appeal against rejection of its renewal application for approval under Section 80G of the Income Tax Act, 1961. The order, pronounced on 19.08.2026 by the “A” Bench comprising Judicial Member Shri Anubhav Sharma and Accountant Member Shri Sanjay Awathi, clarifies that the mere presence of religious objectives in a memorandum of association cannot be the sole basis for denying Section 80G approval. The Tribunal emphasized that the tax authorities must examine the actual financials and predominant activities of the institution. This commentary provides a deep legal analysis of the ruling.
Introduction: The Dispute at a Glance
The assessee, a Society based in Rohtak, Haryana, had earlier enjoyed approval under Section 80G of the Act. It subsequently applied for renewal of approval in Form 10A under Section 80G(5). The Commissioner of Income-tax (Exemption), Chandigarh, acting as the Prescribed Authority, dismissed the application on 06.01.2026. Relying on the Supreme Court’s judgment in Upper Ganges Sugar Mills Ltd. v. CIT (1997) 93 Taxman 645 (SC), the CIT(E) held that if even one object of the society is wholly or substantially religious, the society cannot be considered as established for charitable purposes. The CIT(E) observed that the society’s memorandum of association contained objects relating to construction, maintenance, and management of temples, gurudwaras, and religious places, and concluded that the society was engaged in promotion and propagation of religious faith. Aggrieved, the society appealed to the ITAT.
Facts of the Case
The Society had filed an application in Form 10A for approval under Section 80G(5)(iv) of the Act. Provisional registration was granted in Form 10AC for the period 24.09.2021 to AY 2024-25 vide order dated 24.09.2021. The society had earlier been enjoying approval under Section 80G, and the copy of such approval was placed on record. When the society applied for renewal, the impugned order dated 06.01.2026 was passed by the CIT(Exemption) rejecting the claim under Section 80G(5)(ii). The assessee raised multiple grounds, including that the order was bad in law, that the society had fulfilled all conditions under Section 80G, and that the CIT(E) erred in holding that the society was engaged in religious activities while ignoring that the activities were meant for the society at large and not for the benefit of any particular religion.
Reasoning: The Core of the ITAT’s Analysis
The ITAT’s reasoning is the most significant part of the order, as it lays down a practical framework for examining Section 80G approval applications involving institutions with religious objects.
First, the Tribunal observed that the Prescribed Authority had not analyzed the financials of the assessee at all. The conclusion regarding religious activities was drawn solely from the objectives in the memorandum of association. The ITAT noted that a memorandum of association is generally framed with a long-term perspective, and institutions often include a wide range of objects to cover all spheres of charitable activities and to avoid frequent amendments. Therefore, merely referring to some objectives that may be religious cannot justify denial of approval, particularly when the case is one of renewal of approval. For renewal, the examining authority must scrutinize the financials of immediately previous years to see whether expenditure was actually incurred on religious activities.
The Tribunal perused the financial statements and reports for the years ending 31.03.2021 to 31.03.2025, which were available at pages 40 to 101 of the paper book. These financials showed that no expenditure had actually been incurred on the alleged religious activities. Notably, the Society maintained two sets of financials—one for Baba Banda Singh Bahadur Public School and another for the remaining activities of the Society—and neither set reflected any religious expenditure. This factual finding was crucial.
Second, the ITAT examined the Bye Laws of the society placed at pages 14 to 39. The Bye Laws reflected that the primary object was to enhance cohesion between different communities, to work for establishing religious sentiment in Indian children, and to promote allegiance towards Indian culture. The society also had the objective of running a hospital while keeping itself away from all political activities. Therefore, the primary objectives were charitable in nature. The mere reference to construction or maintenance of Mandir and Gurudwara did not make the activity religious, because there was no indication of discrimination among beneficiaries on the basis of personal religion. The Tribunal further held that when places of worship of different faiths are to be run along with educational institutions and medical facilities, there is no justification for alleging that the society is engaged in religious activity.
Third, the ITAT provided a broader jurisprudential perspective on religion and charity. It observed that religions, in their foundation, have a philosophy of larger benefit to all forms of life and character building of individuals. Every religious activity cannot be viewed with suspicion to deny approval. Religion is intrinsically linked to societal integration, peace, and dignity. However, if there is an indication that a religious activity intends to segregate people on the basis of caste, creed, or religious sentiment, or to propagate a particular belief to the exclusion of others, or to engage in proselytisation, then such an activity would be prohibited for the purpose of Section 80G approval. The Tribunal drew a clear distinction between a practice that is religious and a practice that is purely secular, even if it emanates from a religious order.
The ITAT also applied the Essential Religious Practices (ERP) test, derived from the Supreme Court’s landmark judgment in Shirur Mutt case (AIR 1954 SC 282). Since the Act does not define “religious activity,” the Tribunal held that the ERP test should broadly guide the examination of whether an activity is religious. Only if expenditure is incurred on essential religious practices should the authorities examine whether the predominant objective is religious activity. In contrast, activities like establishing and running hospitals, educational institutions, places of rehabilitation of animals, Dharamshala, maintaining amenities at places of worship or pilgrimages, and other public utility activities are secular in nature. The material question is the predominant object and the proportionality of expenditure.
Moreover, the ITAT noted that the legislature itself had inserted sub-section (5B) to Section 80G by the Finance Act, 1994 with effect from 01.04.1994. This provision states that where an institution makes expenditure of a religious nature for an amount not exceeding 5% of its total income in the previous year, the institution shall be deemed to be exempt under Section 80G. Thus, even if there is some religious expenditure, the statutory limit protects the approval. The CIT(E) failed to consider this statutory relaxation.
The ITAT also took note of several judicial precedents relied upon by the assessee, including CIT(Exemptions) v. Tulshishyam Mandir Society, Junagadh (Gujarat High Court) and decisions of coordinate benches in matters like Shri 108 Gupti Sagar Dham Jain Society, Shri Baba Balakpuri Ji Charitable Society, Anjuman-E-Himayath-E-Islam, and Sri Guru Nanak Devji Religious And Charitable Society. These cases consistently held that if religious expenditure is within the statutory limit, approval under Section 80G cannot be denied. The Tribunal found these decisions persuasive.
Conclusion: A Welcome Clarification for Charitable Institutions
The ITAT concluded that the CIT(E) had taken a very narrow interpretation of Section 80G and erroneously dismissed the application. The Prescribed Authority failed to examine the actual financials and instead relied on the memorandum of association. The appeal was allowed, and the CIT(Exemption) was directed to grant approval under Section 80G within four weeks. This ruling reinforces the principle that the true character of an institution must be determined by its actual predominant activities, not by the bare wording of its objects. For renewal matters, the tax authorities must look at the financials of the relevant previous years. The decision also harmonizes the position in Upper Ganges Sugar Mills with the subsequent statutory amendment under Section 80G(5B). The ITAT has rightly held that a religious colour does not automatically defeat a charitable object. So long as the actual activities are secular and charitable, and any religious expenditure is within the 5% threshold, Section 80G approval should not be denied. This is a progressive and pragmatic ruling for societies, trusts, and institutions operating educational and medical facilities alongside places of worship.