SRIMATHI LAXMI CHARITIES,CHENNAI vs. ACIT(E), CHENNAI

आदेश /O R D E R

This appeal filed by the assessee is directed against the order passed by the Commissioner of Income-tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi dated 03.06.2022 and pertains to assessment year 2018-19.

:-2-: ITA. No:587/Chny/2022 2. The NFAC erred in confirming the rejection of the claim of application of donation of Rs.24 Lakhs to Selvamuthukumar Trust within the scope of section 11 of the Act and consequently erred in confirming the computation in para 5 of the assessment order dated 25.02.2021 without assigning proper reasons and justification. 3. The NFAC failed to appreciate that the sustenance of the rejection of the claim of application of the disputed donation to another recognized charitable entity was wrong, incorrect, invalid, unjustified, erroneous and not sustainable both on facts and in law. 4. The NFAC failed to appreciate that the misreading of the approved objects of the other charitable entity by the original authority would vitiate the computation made in para 5 of the order dated 25.02.2021 and ought to have appreciated that the principles of substance over form was completely overlooked and brushed aside while preferring erroneously for adopting the interpretation of the understanding of the transaction on the face of it. 5. The NFAC failed to appreciate that the findings in para 5.2 of the impugned order were wrong, incorrect, invalid, unjustified, erroneous and not sustainable both on facts and in law. 6. The NFAC failed to appreciate that there was no proper opportunity given before passing of the impugned order as well as before passing the DRP's order and any order passed in violation of the principles of natural justice would be nullity in law. 7. The Appellant craves leave to file additional grounds/arguments at the time of hearing.”

:-3-: ITA. No:587/Chny/2022 exemption u/s. 11 of the Act. The case was selected for scrutiny and during the course of assessment proceedings, the Assessing Officer noticed that the assessee has paid donation of Rs. 24 lakhs to M/s. Sri Selvamuthu Kumar Trust. According to the Assessing Officer, donation paid to M/s. Sri Selvamuthu Kumar Trust, is not application of income as per the provisions of section 11 of the Act, because the object of the appellant trust and objects of the donee trust are different. Therefore, the Assessing Officer has disallowed donation paid to M/s. Sri Selvamuthu Kumar Trust and treated as income of the assessee. The assessee carried the matter in appeal before the first appellate authority, but could not succeed. The ld. CIT(A), vide their order dated 03.06.2022, for the reasons stated therein, rejected arguments of the assessee and sustained additions made towards denial of exemption u/s. 11 of the Act to donation paid to another trust. Aggrieved by the CIT(A) order, the assessee is in appeal before us.

:-4-: ITA. No:587/Chny/2022 objects similar to the appellant trust. The ld. Counsel for the assessee further submits that, the Assessing Officer has imposed artificial condition of receiving entity had to similar objects, thereby rejecting the claim of the application of income, even though there is no such restriction/condition in section 11 of the Act. He further submits that, in any event the objects of the receiving trust has similar objects to that of the objects of the appellant trust. Therefore, the assessee can claim application of income towards donation paid to other charitable trust. He, further referring to provisions of section 80G(5) of the Act, submitted that as per the provisions of section 80G(5), donor entity is entitled to make 5% of total income as donation to religious trust. He further submits that, even assuming for a moment donation paid to other trust is not application of income, but the same cannot be taxed because even after rejection of exemption for a sum of Rs. 24 lakhs, donation paid to other trust, still the assessee had applied 85% of gross receipts for charitable purpose and the remaining amount cannot be taxed, even if same is utilized for giving donation to other trust.

:-5-: ITA. No:587/Chny/2022 5. The ld. DR, on the other hand supporting the order of the CIT(A) submits that there is no dispute in the claim of the Ld. Counsel for the assessee that, even after rejection of application of income to donation paid to other trust, still the amount spent by the assessee for charitable purpose is more than 85% of gross receipts. But facts remains that, donation paid to other trust which is having different objects cannot be in any stretch of imagination to be considered as application of income for charitable purpose. Since, the assessee donated amount meant for charitable purpose contrary to its objects, the Assessing Officer has rightly taxed the same as income of the trust and same needs to be upheld.

:-6-: ITA. No:587/Chny/2022 Therefore, we are of the considered view, that when the assessee has paid non-corpus donation to other charitable trust, having similar objects that of the objects of the appellant trust and also registered u/s. 12A of the Act, then in our considered view, the Assessing Officer ought to have allowed donation paid to other charitable trust as application of income. Be that as it may, assuming for moment but not conceding that the objects of the appellant trust and objects of the receiving trust are altogether different and donations paid to other charitable trust is not application of income, but still donation paid by the assessee to another charitable trust cannot be treated as income of the appellant trust, because even after rejection of exemption under section 11 of the Act, to sum of Rs. 24 lakhs, the amount spent by the assessee for charitable purpose for the impugned assessment year is more than 85% of gross receipts and thus, the amount paid by the assessee out of remaining 15% income accumulated by the trust can be utilized for any purpose as per the objects of the trust. In the present case, the assessee has made out a case that its objects provides for giving financial assistance including donations to other trust registered u/s. 12A of the Act. In the present case, the receiving trust is also registered

:-7-: ITA. No:587/Chny/2022 u/s. 12A of the Act and entitled for a benefit of section 11 of the Act. Therefore, we are of the considered view that the Assessing Officer and CIT(A) are erred in taxing donation paid to other charitable trust as income of the assessee. Thus, we direct the Assessing Officer to delete additions made towards donation paid to other charitable trust as income of the assessee.

:-8-: ITA. No:587/Chny/2022