The Income Tax Act makes a distinction between
Trusts for charitable purposes and those for religious purposes, though both
are entitled to exemption under section 11 of the Act. The creation of
religious charitable trusts is governed by the personal laws of the religion.
The administration of these religious trusts can either be left to the trustees
as per the dictates of the religious names or it can be regulated to a greater
or lesser degree by statute such as the Bombay Public Trusts Act, 1950. In case
of Hindu, the personal provisions relating the religious trusts have not been
codified and are found dispersed in various religious books and epics.
A religious
endowment is one, which has as its object the establishment, maintenance or
worship of an idol or deity or any object or purpose subservient to religion.
Religious purpose
not defined in the Act
While unlike the words ‘charitable purpose’ have
been defined in section 2(15) of the Act, there is no definition of ‘religious
purpose’ under the Act, but it would normally include the advancement, support
or propagation of a religion and its tenets. A trust made for any of these
purposes is said to be a religious trust. However, sections 11, 12 & 13
make a distinction between Charitable and Religious Trust. The exemption under
section 11 is, however, available to a public religious trust only.
Religious purposes’ are
necessarily associated with religion. A religion is certainly a matter of faith
with individuals or communities and it is not necessarily theistic. “Religious
purpose” includes the advancement, support or propagation of a religion and its
tenets. The income of a Religious trust or institution is entitled to exemption
even though it may be for the benefit of a particular religious community or
caste. The exemption under section 11 is, however, confined to public religious
trusts only; any income from the property held under a trust for private
religious purposes which does not ensure for the benefit of the public is not
exemption.
All religions, in a sense, teach the philosophy of
life. It is generally accepted that a Trust created for imparting teachings on
moral and spiritual up liftment and for showing a way of life, would be a
charitable Trust even if the teachings are based on scriptures of a particular
religion.
‘
Religious
trust
Religious
Trust has not been defined under the Income Tax Act. The creation of religious trust
is governed by the personal laws of the religion. But in general connotation,
it can be deemed as the Trusts which are involved in the activities of
promotion or particular belief. The administration of these religious trusts
can either be left to the trustees as per the dictates of the religious names
or it can be regulated to a greater or lessee degree by statute such as the
Bombay Public Trusts Act, 1950.
Religious Activity
The term religious activity is not defined in the
Income Tax Act. The litmus test is however, that the religious purpose must be
public in nature. Therefore, a temple or a mosque may be established by a trust
and expenditure on construction, reconstruction or maintenance of such temple
or a mosque would be religious purpose, if the members of that faith or religion
have access as a matter of right to the religious place or place of worship.
Temple
management
Temples in course of time do get organized by
having a body to regulate their management either by way of society or a trust,
even where there is no formal trust at the time, when the temple was
constructed. Any income of such temple may be treated as having religious
character. Although, tax exemption is possible only if it is registered under
section 12A of the Act.
Essentials of religious and charitable trust
under Hindu law
There are four essential requirements for creating
a valid religious or charitable trust under Hindu Law:—
(i) Valid
religious and charitable purpose of the trust as per the norms of Hindu Law.
(ii) Capability
of the author of the trust to create such a trust.
(iii) The purpose and property of the trust must be
indicated with sufficient precision.
(iv) The trust must not violate any law of the
country.
A Charitable
Trust must always be public, but a Religious Trust may be private or public.
Section 13(1)(a) excludes from exemption a private religious Trust, which does
not ensure for the benefit of the public. Thus a Trust for a private family
deity to which the public or a particular class has no access, is taxable.
A religious
trust, as was held by the may be private or public, but a charitable trust must
always be public.
[CIT v. M.
Jamal Mohamad Sahib (1941) 9 ITR 375 (Mad) (FB)]
Private religious trust
If the temple or a religious deity
is in the private premises and access / worship is available only to a family
then the religious purpose would be private in nature. In other words, when
property is dedicated for the worship of a family idol, it is private and not a
public endowment.
Trust
created by members of family for upkeep of temples
Not public trust but only a private family trust –
the fact that members of the public are allowed to get entry into the temples
or the temple was declared as a public temple cannot lead to the conclusion
that trust is a public trust – Not entitled to exemption under section 11.
[Kizhakke Kovilakam Trust v. ACIT 256 ITR 238
(Ker)]
TEMPLE IN PRIVATE PREMISE – access available only
to a family – then the religious purpose would be private in nature.
However, section 10(23BBA) gives an exemption for
any statutory body created by the Centre or State to provide administration for
public temples, gurdwaras, wafts, churches, synagogues, agiaries or other
places of public religious worship as held in Jagannath Temple Managing
Committee v. CIT (2008) 299 ITR 56 (Ori). This decision, however, would not
be applicable in a normal case of temple, so that registration and compliance
with regulations in sections 11 to 13 cannot be avoided. In such a case,
registration under section 12A is required.
Public religious trust
But where
the beneficiaries are not members of a family or a specified individual, then,
the endowment can only be regarded as public, intended to benefit the general
body of worshipers.
Temple/Mosque established by trust – would be
public in nature – if the members of that religion have access as a matter of
right to the religious place or place of worship.
“PUBLIC WORSHIP”
It was held that public worship by itself may be a
charitable object (public religious) but there are other objects like marriages
and dramas not connected with public worship, the trust will not be eligible
for exemption.
[Orchira Temple Administration v. State of
Kerala (1988) 171 ITR 429 (Ker)]
“PUBLIC TEMPLE”
A public temple is one where a considerable portion
of the public or a section thereof has a beneficial interest. A gift for the
purpose of such a temple must therefore benefit the public. The main
characteristics for a public temple is that it is intended for the use of the
public at large or a specified class who are entitled to the right of the worshipping
of the idol.
This
distinction between a private and a public endowment was best explained by the
Supreme Court in Deoki Nandan v. Murlidhar AIR 1957 SC 133. The Hon’ble Supreme
Court in Deoki Nandan v. Murlidhar (AIR 1957 SC 133), for the purpose of expatiating
.....arguments on the question of distinction between a public Trust and a
private Trust...... argued that the distinction between a private Trust and a
public Trust is that in the former, the beneficiaries are specific individuals,
whereas, in the latter, they are general public or a class thereof. In the
former, the beneficiaries are persons who are ascertained or capable of being
ascertained and in the latter, they constitute a body which is not capable of
ascertainment.
Whether a particular temple is a public
temple or not is always a question of fact
The question
whether a particular temple is a public temple or not is always a question of
fact to be decided on the basis of various circumstances. The circumstance that
the public or a section thereof have been regularly worshipping in the temple
as a matter of course and they can take part in the festivals and ceremonies
conducted in that temple apparently as a matter of right is a strong piece of
evidence to establish the public character of the temple. In general, the
origin of the temple, the manner in which its affairs are managed, the nature
and extent of gifts received by it, right exercised by the devotees in regard
to worship therein, the consciousness of the manager and the consciousness of
the devotees themselves as to the character of the temple are factors that go
to establish whether a temple is a public temple or private temple. These
principles were laid down by the Supreme Court in Goswami Shri Mahalaxmi
Valreji v. Ranchhoddas Kalidas AIR 1970 SC 2025, 2031.
Modes in which a voluntary transfer of
property in favour of a temple can be validly and effectively made
There are three modes in which a voluntary transfer
of property in favour of a temple can be validly and effectively made:—
(i) Dedication of
property directly to a deity, which would not need compliance with the
provisions of the Transfer of Property Act;
(ii) Transfer of property by way of gift to the
Trustees of a temple and complying with provisions of Section 123 of Transfer
of Property Act; and
(iii) Creation of a
Trust.
[Ramanathan Chettiar v. Palaniappa Chettiar ILR (1945)
Mad. 500], and
[Official Trustee of West Bengal v. CIT (1968) 67 ITR
218 (Cal.)]
Similar view
was also taken by the Calcutta High Court in Official Trustees of West Bengal
v. C.I.T (1968) 67 ITR 218 (Cal).
All that a dedication in
favour of a Hindu deity is not a gift within the meaning of section 122 of the
Transfer of Property Act, 1881, and, therefore, the provisions regarding
acceptance by donee etc., as contained in the said Act have no application to
such a dedication. However, the essentials of a Hindu religious endowment are
the following:
(i) property in respect of which the endowment
is made must be designated with precision.
(ii) the object or purpose of dedication should be
clearly indicated.
(iii) the founder must effectively divest himself of
all beneficial interest in the endowed property.
[Ram Kumar Ram Chandra & Co. v. CIT
AIR 1966 All 100 : (1965) 58 ITR
721 (All)]
It was held that the dedication of any property for
the worship of an idol or deity would be considered a public religious
endowment of the nature of a temple if there was evidence to show that the
members of the public were freely allowed/admitted to use the religious worship
as a matter of right.
[CIT v. Girdharram Hariram Bhagat (1985) 154 ITR
10 (Guj.)]
It was held that charitable gifts during the holy
month of Ramzan could not be construed as religious gifts unless given for
religious purposes.
[CGT v. Meco-Tronics Pvt. Ltd. (2000) 242 ITR
542 (Mad)]
Charitable institution established for both
charitable and religious purposes – when expenditure on religious activities
including salary to preachers engaged to spread the teachings of Lord Jesus exceeds
5% of the total income, it is hit by Section 80 G(5)(ii) read with section 80G
(5B) – CIT rightly rejected registration.
[Church of Christ Social Society v. ICT (ITAT,
Visakh) 67 DT 330]
KEY NOTE:—
The conditions for exemption of Public Religious
Trusts under sections 11, 12 & 13 are the same as those for Public
Charitable Trusts. A trust solely for religious purposes is exempt in its own rights
under section 11 through donation to such trust would not qualify for deduction
under section 80G.
Anonymous Donations
Anonymous donations are basically the
donations where the person receiving the donations does not maintain any record
of the person giving the donation.
“ANONYMOUS
DONATION” means any voluntary contribution referred to in section 2(24)(iia)
where the recipient does not maintain a record of the identity indicating the
name and address of the person making such contribution and such other
particulars as may be prescribed. So far, particulars or details required to be
maintained by the trust/fund/institution have not been prescribed.
Trust established “Wholly for Religious
purpose” (no charitable purpose) - Anonymous donations shall not be taxable
under section 115BBC [Section 115BBC(2)(a)]
Where
donations are received by trust established “Wholly for Religious” purpose (no
charitable purpose),
the provisions of Section 115BBC will not apply to
Trusts or Institutions established wholly for religious purposes.
For
Example - donations given by devotees to trust owning a temple.
If a temple does not registered under section 12A
As
per Section 115 BBC(2)(a) of the Income Tax, 1961, if all receipts are Temple
Box collection, such anonymous donations shall
not be taxable under section 115BBC.
However in case such
religious/charitable trust also runs a school/medical institution/educational
institution, etc. and the donations are received with specific direction that
they are for such school/institution then such donations shall be taxable under
section 115BBC.
It was held
that where the assessee trust formed with objects of wholly and exclusively for
religious purpose, provisions of Section 115BBC could not be invoked.
[Bhagwan
Shree Laxmi Narain v. ITO (2014) 50 taxmann.com 23 (ITAT Delhi)]
Donations made to the Temple, Mosque, Gurdwara,
Church, etc.
Notified under section 80G(2)(b) shall only qualify
for deductions under section 80G of the Act. Donation made to ordinary
religious entities are not eligible for any deduction under section 80G of the
Act.
Income derived from property held under trust wholly for charitable or
religious purposes
The word ‘wholly’ referred
in the section refers to the object and not to the property held under trust,
further the word wholly cannot be treated equivalent to the word mainly,
further it would not be sufficient if some of the objects are charitable or
religious in nature.
[Dwarkadas Bhimji v CIT (1948) 16
ITR 160 (Bom)]
Some
of the objects of the trust are not of a public charitable nature
Once
it is found that some of the objects of the trust are not of a public
charitable nature and the trustees have a discretion in spending the amount
over those objects, it cannot be said that the property held under trust is
held wholly for religious and charitable purposes and the assessee would not be
entitled to claim any benefit under Section
4(3)(i) of the Indian Income-tax
Act, 1922.
[East
India Industries (Madras) Private Ltd. v. CIT (1967) 65 ITR 611 (SC)]
No writing is necessary to create an
endowment
No writing
is necessary to create an endowment nor a trust is required for that purpose.
No ‘religious ceremony’ such as Sankalp, Samarpan, Pranapratishta or
Kumbhabhishekam etc., is necessary to establish a religious endowment. A clear
and unequivocal manifestation of the intention to create a trust and vesting of
property with the trustee is enough to constitute dedication. Reference in this
connection may be made to the decision of the Supreme Court in Ramachandra
Shukla v. Shree Mahadeoji AIR 1970 SC
458
Complete or Partial dedication
A property
may be dedicated entirely to a religious or charitable institution or to a
deity. This is an instance of complete dedication. As was observed by the
Supreme Court in Dasarathrama Reddi v. Subba Rao (1957) 12 MLJ (SC) 175 where a dedication is complete, trust in
favour of a public religious or charitable purpose is created.
The decision
of the Supreme Court in CIT v. P. Krishna Warriar (1964) 53 ITR 176, 184 (SC)
is the leading authority on the question of partial dedication. There are four
cases of property being held in part only for charitable or religious purposes:
(i) The whole property may be dedicated to an
idol or settled upon charitable trusts, subject to a portion of the income
being given to the Shebait or to the grantor’s heirs or other persons.
(ii) The heirs may take the property beneficially
but subject to a charge in favour of charity or an idol.
(iii) The owner of
the property may retain the property for himself but grant the community or
section of the community a beneficial interest therein by way of easement or
otherwise.
(iv) The property
may be held upon trust to apply a specified part of the income to charitable
purposes and the balance of income to non-charitable purposes.
Trust whose objects are partly charitable
and partly religious [Mixture of Charitable and Religious Objects]
Although section
2(15) of the Act defines only “charitable purpose” and “religious purpose” has
not been defined under the Act, still the exemption from tax contained in
sections 11 and 12 of the Act would be applicable to the trusts established for
religious purposes.
The
expression “charitable purpose” also includes “religious purpose”. Such was the
view expressed by the Bombay High Court in C.G.T. v. H.H. Sir Shahaji and the
Chhatrapati Maharajasaheb of Kolhapur (1965) 58 ITR 140 (Bom)
The Madras
High Court in the case of S.M.N. Thangaswamy Chettiar and Anr. v. CIT (1965) 57
ITR 546 (Mad) had observed that the use of the phrase “religious or charitable
purposes” in section 4(3) of the 1922 Act corresponding to section 11 of the
Act is due more or less to historical reasons and not because of any intention
on the part of the Legislature to have a dichotomy between religious and
charitable purposes, the latter meaning only secular charitable purposes.
In the case
of Social Service Centre, the Assessing Officer found that the trust was mainly
engaged in religious activities and he refused exemption because the
expenditure was incurred by way of donation to a Diocese and for construction
of a church. Their lordships of the Andhra Pradesh High Court held that since
religious and charitable activities went together under section 11 of the Act,
which uses the words “charitable or religious”, expenditure on religious
activities could not be denied exemption.
[CIT v.
Social Service Centre (2001) 250 ITR 39 (AP)]
Held religious activity
Maintaining
gaushalas and attending to other animals and birds
Held that the assessee’s Trust fulfills the
characteristics of a charitable and religious trust.
[Director of Income Tax (Exemption) v. Bombay
Pangrapole Trust (2015) 126 DTR 149 (Bom)]
Feeding of Brahmins
on specified religious occasions
Feeding of Brahmins on specified religious
occasions was held to be religious activity in CIT v. Ahmedabad Rana Caste
Association 140 ITR 1 (SC). However, one needs to distinguish between a
religious activity and an act of charity on a particular religious day. If the
act in itself is a charitable one, then it would not become religious merely
because it was performed on a particular religious occasion, as held in the
decisions.
[CIT v. Girdharram Hariram Bhagat (1985) 154 ITR
10 (Guj)]
Supply of
fodder to animals and cattle
Supply of fodder to animals and cattle would amount
to charitable or religious purpose.
[Vallabhdas Karsondas Natha v. CIT (1947) 15 ITR
32 (Bom)]
[CIT v. Swastik Textile Trading Co. (P) Ltd. (1977)
CTR 618 (1978) 113 ITR 852 (Guj)]
Provision of dinner to Brahmins on specified
occasions is religious purpose.
[CIT v. Ahmedabad Rana Caste Association [1973]
88 ITR 354 (Guj.)]
[CIT v. Ahmedabad Rana Caste Association [1983]
140 ITR 1 (SC)]
The Gujarat High Court in CIT v. Barkate Safiyah
Society (1995) 213 ITR 492 observed that in some cases religious activity
could also be charitable. For example, donation or Khairat on religious
occasions or even supply of fodder to animal and cattle may have both elements
of charity and religion.
Held not religious activity
Supporting prayer halls places of worship is not
for religious purpose.
[CIT v. Shree Public Charitable Trust,
TS-182-HC-2015-Kar]
Preaching and propagating the philosophy of
meditation as a means of attainment of physical, mental and spiritual health is
not religious activity.
[CIT v. Shree Public Charitable Trust,
TS-182-HC-2015-Kar]
Charities undertaken during religious occasions
like Ramzan do not become religious solely on this account.
[CGT v. Mecotronics Pvt. Ltd. (2000) 242 ITR 542
(Mad.)]
Acts to promote unity and brotherhood and bring
complete development on all aspects of life of members of a particular
community were considered as charitable object. The Courts also held that
economic, physical, intellectual as well as spiritual well-being would be a
charitable purpose.
[CIT v. Ahmedabad Rana Caste Association (1983)
140 ITR 1 (SC)]
It was held that the object to impart education and
promotion of study and practice Jain religion amongst students of ashrams,
gurukuls, etc. and also amongst all persons without distinction of sex, caste,
creed, place or religion was not a religious object but a charitable one.
[CIT v. Kusumgar, (K.H.) (1988) 169 ITR 370 (Bom)]
Reciting prayers is a religious object but
renovation of public hall for purposes of settlor will lose benefit.
[Court Receiver v. CIT (1964) 54 ITR 189 (Bom.)]
No trust can sell assets without permission of Court
No
religious trust – Church, Temple and Waqf Board – has the right to dispose off
any immovable property without seeking permission of the court.
It was held that no trust, has prima facie any right to
sell, mortgage and exchange property without the prior permission of the court.
It was held that no religious trust – Church, Temple and Wakf Board has the
right to dispose off any immovable property without seeking permission of the
Court.
[Delhi High Court Order dated 04.01.2006]
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recommendation. While due care has been taken in preparing this document, the
existence of mistakes and omissions herein is not ruled out. Neither the author
nor its affiliates accepts any liabilities for any loss or damage of any kind
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