(Civil Appeal No.3104 of 1985 was by certificate from the judgment and order dated December 13, 1984, of the Calcutta High Court in I.T.R. No.291 of 1980).

Income-tax---

----Donations---Special deduction---Scope of S.80G---Trust for charitable purposes---One of the purposes of trust which is religious---Donation to such a trust would not be entitled to special deduction under S.80-G---Clause in trust deed permitting trustee to support prayer halls and places of worship-- Trust fell outside the ambit of S.80-G---Indian Income Tax Act, 1961, S.80-G.

Section 80-G of the Income Tax Act, 1961, sets out the deductions to be made, in accordance with and subject to its provisions, in computing the total income of an assessee in respect of donations to certain funds, charitable institutions, etc. It applies, by reason of subsection (5) thereof, to any other fund or any institution to which the section applies (sub section (2)(a)(iv)) if it is established in India "for a charitable purpose" and fulfils the condition, inter alia, that it "is not expressed to be for the benefit of any particular religious community or caste". Explanation 3 states: ".., this section, 'charitable purpose' does not include any purpose the whole or substantially the whole of which is of a religious nature". Explanation 3 takes note of the fact that an institution or fund established for a charitable purpose may have a number of objects. If any one of these objects is wholly, or substantially wholly, of a religious character, the institution or fund falls outside the scope of section 80-G and a donation to it does not secure the advantage of the deduction that it gives. Explanation 3 does not require the ascertainment of whether the whole or substantially the whole of the institution or, fund's charitable purpose is of a religious nature. If it did, it would read differently. It requires the ascertainment of whether there is one purpose, within the institution or fund's overall charitable purpose which is wholly, or substantially wholly, of a religious nature.

Held accordingly, affirming the decision of the High Court, that clause 2(h) of the trust deed in question which permitted the trustees to support prayer halls and places of worship set out a purpose, the whole or substantially the whole of which was of a religious nature. Therefore, the trust and the donation by the assessee to it fell outside the scope of section 80-G.

CIT v. Upper Ganges Sugar Mills Ltd. (1985) 154 ITR 308 affirmed.

CIT (Addl.) v. Surat Art Silk Cloth Mfrs. Association (1980) 121 ITR 1 (SC) ref.

H.N. Salve, Senior Advocate (Narain, K.V. Viswanadhan, D. Singh and Suman J. Khaitan, Advocates with him) for Appellants.

Ranbir Chandra and B.K. Prasad, Advocates for Respondent.

JUDGMENT

S.P. BHARUCHA, J. ---A Division Bench of the Calcutta High Court (see (1985) 154 ITR 308), answered the following question in the negative and in favour of the Revenue (page 309):

"Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in holding that the assessee was entitled to the relief under section 80-G on the donations paid to Vishwa Mangal Trust?"

The assessee is in appeal by certificate.

We are concerned At the first appeal with the assessment year 1973-74, the relevant previous year having ended on June 30, 1972. The assessee had made a donation of Rs.25,000 to the Vishwa Mangal Trust (hereinafter called "the trust"). The assessee claimed a deduction under section 80-G in respect of that donation. The claim was allowed by the Income-tax Officer on December 27, 1976. The assessment was then reopened under section 147(b) of the Income Tax Act and on December 30, 1977, the Income-tax Officer disallowed the claim. The Appellate Assistant Commissioner dismissed the assessee's appeal. The Income-tax Appellate Tribunal allowed the appeal preferred by the assessee against the order of the Appellate Assistant Commissioner. Thereafter it referred the question set out above to the High Court. The High Court reversed the view of the Tribunal.

Much the same thing happened in a subsequent year and the High Court followed its said judgment.

Section 80-G sets out the deductions to be made, in accordance with and subject to its provisions, in computing the total income of an assessee in respect of donations to certain funds, charitable institutions, etc. It applies, by reason of subsection (5) thereof, to any other fund or any institution to which the section applies (subsection (2)(a)(iv) if it is established in India "for a charitable purpose" and fulfils the conditions, inter alia, that it "is not expressed to be for the benefit of any particular religious community. or caste". Explanation 3 states, "In this section, 'charitable purpose' does not include any purpose the whole or substantially the whole of which is of a religious nature".

The objects of the trust are set out in clause (2) of the trust deed. They are:

"2.(a) To establish, support and maintain schools, colleges, libraries, reading rooms, lecture halls, public museums and to grant aid to, support and maintain persons and institutions for the promotion of science or literature or fine arts or diffusion of useful knowledge or galleries of paintings and other works of art or collection of natural history, economic and scientific inventions and designs.

(b)To establish and maintain or grant aid to hospitals, medical schools or colleges, nursing institutions and such other institutions.

(c)To grant relief on the occasion of earthquakes and floods and other occasions of calamities of similar nature or to give donations to other institutions or persons doing such relief works.

(d)To establish and maintain studentships, give prizes and to grant aid to poor students.

(e)To establish boarding houses and hostels for students

(f)To promote physical culture and education and to assist and promote sports and games and generally to do all acts for the improvement of general health and physical development.

(g)To establish, and maintain and to grant aid to centres for diffusion of Indian art and culture.

(h)To establish, maintain and to grant and/or aid to public places of worship and prayer halls.

(i)To establish, support and maintain and/or to grant aid to alms houses and/or to give relief to the poor and needy persons.

(j)To establish, support and maintain and/or to grant aid to institutions for uplift of backward and depressed classes irrespective of caste, creed or nationality." (Emphasis supplied).

Clause (3) of the trust deed reads thus:

"The trustees shall from time to time collect funds which and/or the income thereof will be utilised for the objects aforesaid. All investments and properties of the trust for the time being held by the trustees are hereinafter referred to as the trust fund. "

The High Court did not accept the assessee's argument that the establishment or maintenance of prayer halls was not a religious object. The High Court also did not accept the assessee's argument that the object of clause 2 (h) of the trust deed should not be considered to be a religious object, because the trustees were not empowered to set up places of worship and prayer halls of a particular community or religion; it took the view that even if a trust was set up for the advancement of all the religions in the world, it would be a trust of a religious nature. The High Court rejected the assessee's argument that the trust was not set up wholly or substantially for a religious purpose; one of the purposes, it said, was "to establish, maintain and grant aid to public places of worship and prayer halls", which was an entirely religious purpose.

Section 80-G applies to donations to any institution or fund established in India "for a charitable purpose". "Charitable purpose, for the purposes of the section, does not include any purpose the whole or substantially the whole of which is of a religious nature". (Emphasis supplied). Explanation 3, which uses this phraseology, takes note of the fact that an institution or fund established for a charitable purpose may have a number of objects. If any one of these objects is wholly, or substantially wholly, of a religious character, the institution or fund falls outside the scope of section 80-G and a donation to it does not secure the advantage of the deduction that it gives.

The judgment of this Court in Addl. CIT v. Surat Art Silk Cloth Manufacturers Association (1980) 121 ITR 1, cited by learned counsel for the assessee, was delivered with reference to the true meaning of the words "not involving the carrying on of any activity for profit" occurring at the end of the definition of "charitable purposes" in section 2(15) of the Income Tax Act. This Court said that if the primary or dominant purpose of the trust was charitable, another object which by itself may not be charitable but which was merely ancillary or incidental to the primary or dominant purpose would not prevent the trust or the institution from being a valid charity. The judgment is of no assistance in construing Explanation 3 of section 80-G.

To reiterate, Explanation 3 does not require the ascertainment of whether the 'whole or substantially the whole of the institution or fund's charitable purpose is of .a religious nature. If it did, it would read differently. It requires the ascertainment of whether there is

one purpose within the institution or fund's overall charitable purpose which is wholly, or substantially wholly, of a religious nature. There is little doubt that clause 2(h) of the trust deed which permits the trustees to support prayer halls and places of worship sets out a purpose the whole or substantially the whole of which is of a religious nature, and this has not been seriously disputed. Therefore, in our view, the trust and the donation by the assessee to it fall outside the scope of section 80-G.

The appeals are dismissed. There shall be no order as to costs.

M.B.A./1501/FCAppeals dismissed.