Bombay High Court rules Sai Baba Sansthan Trust eligible for Income Tax exemption on anonymous donations

The Bombay High Court on Tuesday upheld an order by the Income Tax Appellate Tribunal (ITAT), affirming that the Shri Sai Baba Sansthan Trust in Shirdi is eligible for exemption from income tax on anonymous donations since it is both a charitable and a religious organization [Commissioner of Income Tax v. Shree Sai Baba Sansthan Trust].

A Bench comprising Justices GS Kulkarni and Somsekhar Sundaresan rejected the appeal by the Commissioner of Income Tax (Exemptions) in Mumbai, which contested the ITAT's decision of October 25, 2023.

The High Court ruled that anonymous donations totaling ₹159.12 crores collected through the trust's "hundi" (cash collection box) during the assessment years 2015-16, 2017-18, and 2018-19 are not liable to be taxed under Section 115BBC(1) of the Income Tax Act (IT Act).

Pertinently, Section 115BBC(1) of the IT Act says that anonymous donations to trusts may be taxed in certain cases. However, according to Section 115BBC(2)(b), such tax is not applicable if the trust is set up for wholly for religious and charitable purposes.

The trust, which was established in 1953, filed its income tax return declaring no taxable income.

However, the Deputy Commissioner of Income Tax sought to tax the ₹159.12 crores received by the trust as anonymous donations, arguing that the trust’s registration under Section 80G (to claim tax deductions for charitable donations) indicated it existed solely for charitable purposes. Therefore, it was argued that the trust could not claim the exemption under Section 115BBC (2)(b).

In its defence, the trust maintained that it serves both charitable and religious objectives, noting that only 0.49 per cent of its total income was spent on religious activities.

It asserted that the provisions of Section 80G(5B) allow for a mixed-purpose trust, permitting some religious expenditure without negating its charitable status.

The trust emphasized that its primary activities involve temple maintenance and providing facilities for devotees, which are inherently charitable.

The Commissioner of Income Tax (Appeals) [CIT(A)] ruled in favor of the trust, broadly interpreting "religious purposes" and confirming that the trust operates for public, religious and charitable aims.

The CIT(A) subsequently deleted the tax on the trust's anonymous donations, affirming the trust's eligibility to claim exemption from income tax under Section 115BBC(2)(b), which allows exemptions for organizations that fulfill both charitable and religious purposes.

Following this, the revenue appealed to the ITAT, which upheld the CIT(A)'s decision, agreeing that the trust's activities align with both charitable and religious goals. The appellate tribunal noted that the trust’s registration under Section 10(23C)(v) remained valid, supporting its claim of mixed purposes.

By an October 8 order, the High Court agreed with these findings and rejected the revenue's claim that the trust's registration under Section 80G indicated it could not claim exemptions under Section 115BBC(2)(b).

"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," the Court said.

The Court also emphasized that a trust can embody both charitable and religious characteristics.

“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,” the Court said.

Subsequently, the Bench held that the ITAT’s decision was “correct in law and facts” and affirmed that the Sai Baba Trust, formed under the special legislation of the State legislature, is “certainly a religious and charitable trust.” 

“From a cumulative reading of the objects of the assessee, read with the provisions of the Sai Baba Trust Act which is a special legislation promulgated by the State Legislature reflecting the objects and activities of the assessee, 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. Such entitlement of the assessee is rightly recognized by the CIT (A) and the Tribunal,” the Court noted.

Advocate Dinesh Gulabani appeared for the IT Department.

Senior Advocate S Ganesh along with advocates Ashwin Shete, Srivastav, Anvi Vasani on behalf of Jayakar & Partners appeared for Shree Sai Baba Sansthan Trust.

[Read Order]