Shirdi Sai Baba Trust's Hundi Donations Exempt Under S.115BBC(2)(b) Despite S.80G Registration: High Court Upholds ITAT Order - 2025-05-08

Shirdi Trust's Anonymous Hundi Donations Not Taxable Under S.115BBC, High Court Confirms

Registration under Section 80G does not negate dual religious and charitable character for S.115BBC(2)(b) exemption, rules Court.

In a significant ruling, the High Court has dismissed appeals filed by the Income Tax Department (Revenue), upholding the Income Tax Appellate Tribunal's (ITAT) decision that anonymous donations received in the 'Hundi' by the Shri Sai Baba Sansthan Trust (Shirdi) are not taxable under Section 115BBC(1) of the Income-tax Act, 1961. The Court, through Justice G. S. Kulkarni , clarified that a trust's registration under Section 80G does not preclude it from being considered a religious and charitable institution eligible for exemption under Section 115BBC(2)(b).

Case Background: A Test of Religious and Charitable Identity

The core issue revolved around the taxability of substantial anonymous donations received by the Shri Sai Baba Sansthan Trust (Shirdi) for the assessment years 2015-16, 2017-18, and 2018-19. The Trust, a public entity reconstituted by the Shri Sai Baba Sansthan Trust (Shirdi) Act, 2004, and registered under Sections 12A, 80G, and approved under Section 10(23C)(v) of the Income-tax Act, had declared 'Nil' taxable income.

The Assessing Officer (AO) sought to tax these 'Hundi collections' (e.g., Rs. 159.12 crores for AY 2015-16) under Section 115BBC(1), which pertains to the taxation of anonymous donations. The AO's primary contention was that the Trust, by virtue of its Section 80G registration, was solely a charitable institution and thus not entitled to the exemption under Section 115BBC(2)(b), which applies to trusts established wholly for religious and charitable purposes.

However, both the Commissioner of Income-tax (Appeals) (CIT(A)) and the ITAT ruled in favor of the Trust, holding that it possessed a dual character – both religious and charitable – making its anonymous donations exempt under Section 115BBC(2)(b). The Revenue challenged these concurrent findings before the High Court.

Arguments Before the High Court

Revenue's Contentions: * The assessee trust is primarily a charitable organization, as evidenced by its Section 80G registration, which is typically granted to institutions with solely charitable purposes. * The minimal expenditure on religious activities (0.49% of total income) further indicated its non-religious nature for tax purposes. * The provisions of Section 115BBC(1) should apply, and the trust cannot claim the exclusion under Section 115BBC(2)(b). * The certificate under Section 10(23C)(v) did not explicitly state the trust existed for both charitable and religious purposes.

Assessee's (Shri Sai Baba Sansthan Trust) Contentions : * The nature of the trust (being both religious and charitable) is a question of fact, concurrently upheld by two appellate forums based on the Trust Deed and the Sai Baba Trust Act. * The Trust's objects clearly include religious activities like worship, maintaining the temple, and conducting festivals, alongside charitable activities. * Registration under Section 80G is not mutually exclusive with being a religious and charitable trust; Section 80G(5B) itself permits religious expenditure up to 5% for eligible trusts. * Section 115BBC(2)(b) provides a clear exception for trusts established for religious and charitable purposes, and this provision operates independently of Section 80G. * The Sai Baba Trust Act and the Bombay Public Trusts Act, 1950, support the religious character of the Sansthan.

High Court's Analysis and Decision

The High Court meticulously examined the statutory provisions, the Trust's foundational documents, and the arguments presented. Justice G. S. Kulkarni , delivering the judgment, made several key observations:

1. Nature of Trust – A Factual Determination: The Court reiterated that whether a trust is charitable, religious, or both is a factual determination based on its trust deed, objects, and governing statutes.

"A trust whether is charitable or religious can only be determined from the ingredients of the trust deed, bye-laws, etc., and by examining these documents and recording a findings on such documents, necessarily is an exercise to record a finding of fact." (Para 28)

2. Section 80G and Religious Character Not Mutually Exclusive: The Court rejected the Revenue's argument that Section 80G registration implies an exclusively charitable nature. It highlighted Section 80G(5B), which acknowledges that institutions with religious activities (spending up to 5% of total income on them) can still be eligible under Section 80G.

"implicit in Section 80G is the recognition of a trust which has religious activities... it would not be acceptable that Revenue takes a position that Section 80G would exclude religious trust and/or Section 80G applies only to charitable institutions. In any event, in our opinion, such reading of Section 80G that it would exclude religious and charitable entities, would not be the correct reading of the said provision." (Para 25)

3. Independence of Section 115BBC(2)(b) and Section 80G: The Court emphasized that Section 115BBC(2)(b) and Section 80G are distinct provisions that operate independently.

"We are afraid to accept such contentions in as much as, the provisions of Section 80G cannot be intermixed, from what is provided by Section 115BBC(2)(b) of the Act. Both the provisions stand compartmentalized and are independent of each other. It would be too far-fetch to reach to a conclusion that merely the assessee being registered under Section 80G of the Act, it cannot be a religious trust, so as to fall outside the purview of Section 115BBC (2)(b) of the Act." (Para 33)

4. Objects of the Shirdi Trust: An examination of the assessee's Trust Deed and the Shri Sai Baba Sansthan Trust (Shirdi) Act, 2004, clearly demonstrated that the Trust was established for both religious purposes (perpetuation of worship, celebration of festivals, dissemination of Sai Baba 's teachings) and charitable purposes (wider welfare activities).

5. Concurrent Findings of Fact Upheld: The Court noted that the CIT(A) and ITAT had concurrently found the Trust to be both religious and charitable. Citing the Supreme Court in K. Ravindranathan Nair vs. Commissioner Of Income Tax, Ernakulam , the High Court reiterated that it should not interfere with such factual findings unless they are perverse, which was not the case here.

Pivotal Judicial Observation by the ITAT, Endorsed by High Court: The High Court agreed with the ITAT's finding (quoted in para 31 of the HC judgment):

“In view of the above, the position which emerges it that, there may be instances where a trust which is existing both for charitable and religious purpose, has incurred religious expenditure which is less thatn 5% of the total expenses of the Trust. In such a case, the trust may be eligible for certificate u/s 80G of the Act and at the same time would not be liable to be taxed for the anonymous donations received by virtue of Section 115BBC(2)(b) of the Act. We thus find merit in the submission of the Ld.Sr.Counsel for assessee that, the exclusion set out in Section 115BBC(2)(b) of the Act can co-exist with Section 80G of the Act. Hence, the proposition put forth by the Revenue placing reliance on 80G registration to ipso facto deny the exclusion set out in Section 115BBC(2)(b) of the Act is held to be untenable.”

Final Verdict and Implications

The High Court concluded that the Shri Sai Baba Sansthan Trust (Shirdi) is indeed a religious and charitable trust, thereby qualifying for the exemption under Section 115BBC(2)(b) for anonymous donations received in its Hundis.

"From a cumulative reading of the objects of the assessee, read with the provisions of the Sai Baba Trust Act... as also, considering the provisions of the Bombay Public Trusts Act, we are of the clear opinion that the assessee certainly is a religious and charitable trust, hence, the assessee rightly and legitimately claimed an entitlement under sub-section 2(b) of Section 115BBC of the Act." (Para 35)

The Court found no merit in the Revenue's appeals and held that no substantial question of law arose for consideration. The appeals were accordingly rejected, affirming the relief granted to the Shirdi Trust by the CIT(A) and the ITAT. This judgment provides significant clarity on the interplay between Section 80G and Section 115BBC, particularly for institutions with dual religious and charitable objectives.