religion under companies act, 2013 and income tax act, 1961 - t. n. pandey

Volume VII Part 5 June 10, 2014 3 Business Advisor

Religion: Why differently construed for

the purposes of Companies Act, 2013

and Income Tax Act, 1961?

T. N. Pandey

No definition of „religion‟, which may be all pervasive,

has been possible till now. However, attempts have been

made to define this in dictionaries and elucidate its

meanings in court decisions.

In Advanced Law Lexicon by P. Ramanatha Iyer, 3rd

edition, 2005 at pages 4043/44, its meaning has been

explained thus:-

Religion. (Religio). Virtue, as founded on reverence of God

and expectation of future rewards and punishments; a system of divine faith

and worship as opposed to other. (Johns) That habit of reverence towards the

Divine Nature, whereby we are enabled and inclined to serve and worship

him, after such a manner as we conceive most acceptable to him, is called

religion. (Tomlin). Specific system of belief, worship, conduct involving a code

of ethics and philosophy. Indian Constitution grants every person

fundamental right to freely profess, practice and propagate religion.

(Constitutional and Parliamentary Term).

2. Some other aspects of religion, as explained in this Law Lexicon, are:-

“What is Religion? Is it not what a man honestly believes in and

approves of and thinks, it is duty to inculcate on others, whether with

regard to this world or the next? A belief in any system of retribution

by an overruling power. It must, I think, include the principle of

gratitude to an active power, who can confer blessings” [per WILLES,

J., Baxter v. Langley, 38 LJMC 5].

The word „religion‟ in its primary sense imports, as applied to moral

questions, only a recognition of a conscious duty to obey restraining

principles of conduct. In such sense, we suppose there is no one, who

will admit that he is without religion.

The word „religion‟ has different shades and colours. Its important

shade is dharma (duty). That is to say, duty towards the society and

the soul. Aruna Roy v. UOI (2002) 7 SCC 368, 393, para 36.


The expression „religion‟ mentioned in cl. (b) of Art. 26, includes not

only the philosophical side of religion, but also religious practices as

laid down in the tenets of any religious sect. Ram Chandra Deb v.

State of Orissa, AIR 1959 Ori 5, 10 [Constitution of India, Art. 26(b)].

The word „religion‟ means the distinct religion and all recognised

practices thereof. Arya Samaj Educational Trust, Delhi v. The Director

of Education, Delhi Admn. Delhi, AIR 1976 Del 207, 211 [Constitution

of India, Art.30(1)].

The term „religion‟ whatever its best definition, clearly refers to certain

characteristic types of data (beliefs, practices, feelings, moods,

attitudes, etc.). It primarily involves some immediate consciousness of

transcendent realities of supreme personal worth vitally influencing

life and thought, expressing themselves in forms, which are

conditioned by the entire stage of development reached by the

individual and his environments and tending to become more explicit

and static in mythologies, theologies, philosophies and scientific

doctrines. Ramanasramam v. Commissioner for Hindu Religious and

Charitable Endowments, AIR 1961 Mad 265, 269 [Madras Hindu

Religious and Charitable Endowments Act (19 of 1951), S.6(17)].

Religion is that which binds a man with his customs, his Creator or

super force. Essentially, religion is a matter of personal faith and

belief of personal relations of an individual with what he regards as

Cosmos, his Maker or his Creator, which, he believes, regulates the

existence of insentient beings and the forces of the universe. Religion

is not necessarily theistic. A.S. Narayana Deekshitulu v. State of A.P.,

AIR 1996 SC 1765. See also Trivikram Narain Singh v. State of U.P.,

AIR 1987 All 362, 378-379.

3. No definition of word „religion‟ in Indian Constitution, companies and

income tax laws

Despite the fact that religion is of paramount importance in shaping the

character, personality and wellbeing of individuals and nation as a whole,

there is no concise definition of this term in the Constitution of India though

references to this term has been made in some Articles. These terms have

been used in two important economic legislations of the country also namely

the Companies Act, and Income Tax (IT) Act, conferring some benefits for

religious trusts/ institutions, etc., without defining the term „religion‟ or

„religious‟ in these enactments. What is more important is, as the later

discussion would show, the term „religion‟ has been used in different ways

in the two legislations. In later discussion, this aspect in these two laws is

being highlighted.


4. Religion under the Companies Act, 2013

Section 8 of the new Act, corresponding to section 25 of the Companies Act,

1956, relates to formation of companies with charitable objects, etc. The

basic sub-sections (1) & (2) of section 8 read thus:-

“8. Formation of companies with charitable objects, etc.

[1] Where it is proved to the satisfaction of the Central Govt. that a person or

an association of persons proposed to be registered under this Act as a

limited company –

[a] has in its objects the promotion of commerce, art, science, sports,

education, research, social welfare, religion, charity, protection of environment

or any such other object;

[b] intends to apply its profits, if any, or other income in promoting its objects;

and

[c] intends to prohibit the payment of any dividend to its members;

the Central Govt. may, by licence issued in such manner as may be

prescribed, and on such conditions as it deems fit, allow that person or

association of persons to be registered as a limited company under this

section without the addition to its name of the word “Limited”, or as the case

may be, the words “Private Limited”, and thereupon the Registrar shall, on

application, in the prescribed form, register such person or association of

persons as a company under this section.

[2] The company registered under this section shall enjoy all the privileges

and be subject to all the obligations of limited companies”.

4.1 Thus, section 8 empowers the Central Govt. to register an association as

limited company having charitable objects to promote commerce, art,

science, sports, education, research, social welfare, religion, charity,

protection of environment, etc., without adding to its name the words

„Limited‟, „Private Limited‟. The profit or any income of the company shall be

used for promoting the objects of the company. Payment of dividend to

members is prohibited. As per sub-section (2) of section 8, the organisation/

association/ institution on registration under this provision shall enjoy all

the privileges of limited company.

4.2 From the earlier discussion, it could be seen that a company, having its

object the promotion of „religion‟ with no fetters attached to this activity, can

get itself registered as section 8 company and carry out activity relating to


religion of any kind in an un-abstracted or unregulated manner with no

interference by the Govt. namely the Ministry of Corporate Affairs.

5. Concept of religion/ religious activities under the Income Tax Act, 1961

Under the IT Act, religious aspects/ activities are being regulated in different

settings unlike under the Companies Act, where no distinctions or

classifications of the nature under the IT Act have been made. These are

being examined in later discussion.

5.1 Under the IT Act, gifts for public religious purposes are gifts for

charitable purposes. Sections 11, 12 and 13 of the IT Act make a distinction

between trusts for charitable purposes and those for religious purposes.

Charitable purpose has been defined in s.2(15) but the words „religious

purpose‟ have not been defined in the Act. Its common parlance meaning

would therefore be relevant. As such, it would include the advancement,

support or propaganda of a religion and is tenets. All trusts, which are

meant for the establishment and worship of idols and performance of

religious festivals would therefore be exempt u/s 11.

5.2 A religious trust may be public or private. A trust for a private family

deity to which the public or a particular class has no access, is not exempt

u/s 11. A charitable trust will not however lose exemption merely because

discretion is given to the trustees to give preference to the members of a

particular religious community or caste. This was so laid down by SC in

Trustees of Charity Fund v. CIT (1959) 36 ITR 513 (SC). As to exemption, the

conditions for public religious trusts u/s 11, 12 & 13 are the same as those

for public charitable trusts.

5.3 A public religious trust may also be notified u/s 10(23C)(v) by the

Central Govt. [w.e.f. 1-6-2007 approved by the prescribed authority].

6. Meaning of phrase „wholly for religious purposes‟ as used in section 11(a)

According to Bai Hirbai Rahim Aloo Paroo & Kesarbai Dharmsey Kakoo

Charitable & Religious Trust v. CIT (1968) 68 ITR 821 (Bom), the expression

„wholly for religious purposes‟ means a religious purpose within the meaning

of personal law applicable to assessee. The dominant purpose of the trust

created in this case by a Khoja lady was religious. But one of the clauses

provided for holding an annual majlis (religious meeting) of all relations and

acquaintances of the lady in remembrance of the anniversary of Imam

Hussain Sahib, the very founder of their sect, in the name of her deceased

husband, and on that occasion feast those relations and acquaintances. The

question was whether the trust was wholly for religious purposes. It was

held that among the Khojas, Imam Hussain Sahib is the object of very


special veneration. Even though the commemoration may be the death

anniversary of a near relation or may be of the Imam himself, feasting does

take place and sweets are distributed and the sweets or the food are not

necessarily distributed only among the poor. The feature that there is to be

a feast or that the feast is to be at a private house cannot detract from the

beneficiation, nor would it show that it was for that reason not a public

religious endowment. The holding of a meeting of the relations and

acquaintances and feasting them in the name of her late husband, would

still be a valid religious purpose and not a private purpose.

7. Trusts for the benefit of particular religious community

Section 13 of the IT Act prescribes restrictions concerning tax benefits to

religious trusts. The relevant part of this section reads as under:-

“13. (1) Nothing contained in section 11 or section 12 shall operate so as to

exclude from the total income of the previous year of the person in receipt

thereof –

[a] any part of the income from the property held under a trust for private

religious purposes, which does not enure for the benefit of the public;

[b] in the case of a trust for charitable purposes or a charitable institution

created or established after the commencement of this Act, any income thereof

if the trust or institution is created or established for the benefit of any

particular religious community or caste;..”

7.1 To sum up, a charitable trust wholly for religious purposes can claim

exemption in respect of its income by complying with sections 11, 12 and

12A. Only section 13(1)(a) provides for taxability for religious trust, which

does not enure for public. Also, charitable trusts and institutions for any

particular religious community or caste are also denied exemption from tax.

8. Concluding comments

The foregoing discussion raises the issue as to why activities concerning

religion are being treated so differently under the two economic legislations.

No doubt, it is true that the word „religion‟ has been used in the same

manner. There is urgent need to bring the two provisions at par. It can be

done by imposing some of the restrictions of the nature imposed under the

IT Act for religious activities for those who wish to avail of the benefit of

„limited liability‟ under the Companies Act, 1956. In the alternative, the

conditions under the IT Act can be relaxed.

(T. N. Pandey is Former Chairman, Central Board of Direct Taxes)