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Income Tax Appellate Tribunal, “B” BENCH, AHMEDABAD
Before: SHRI PRADIP KUMAR KEDIA & SHRI MAHAVIR PRASAD
आदेश/O R D E R
PER PRADIP KUMAR KEDIA - AM:
The captioned appeal has been filed at the instance of the Revenue against the order of the Commissioner of Income Tax (Appeals)-7, Ahmedabad (CIT(A)’ in short), dated 01.09.2017 arising in the assessment order dated 20.12.2016 passed by the Assessing Officer (AO) under s. 143(3) of the Income Tax Act, 1961 (the Act) concerning AY 2014-15.
[ITO(E) vs. Gujarat Insitute of Chemical Technology] A.Y. 2014-15 - 2 -
The substantive ground of appeal raised by the Revenue reads as under:-
“1) The Ld. CIT(A) has erred in the law and on facts in deleting the addition of Rs.8,95,00,000/- made on account of disallowance of donation given by the assessee and without appreciating that undue benefit to the manufacturer of product over a period of time and also all the parties involved in research will enjoy commercial benefits in future.”
When the matter was called for hearing, the learned AR for the assessee in the Revenue’s appeal referred to the decision of the Co- ordinate bench of Tribunal in AY 2013-14 where identical issue has been adjudicated in favour of the assessee.
The learned DR, on the other hand, relied upon the order of the AO.
The short question in controversy is whether the Trust is entitled to treat donation given by it to another trust as application of income in the light of the observation of the AO that such donation to the another trust would result in substantial commercial benefit in future to the donee trust. We find that the identical issue has cropped up in assessee’s own case in concerning AY 2013-14 order dated 10.07.2019. The relevant operative para of the order of the co-ordinate bench concerning AY 2013-14 is reproduced hereunder:
“6. We have heard the rival contentions of both the parties and perused the materials available on record. There is no dispute to the fact that the assessee has made the donation to the institution registered under section 12AA of the Act. Therefore in our considered view the assessee cannot be denied the treatment of such donation as application of income merely on the ground that the outcome of the research will result in commercial benefits in future. The relevant point that is to be seen in the given case whether the donation has been made by the assessee to another institution having valid registration under section 12AA of the Act. This fact has not been disputed by the AO.
[ITO(E) vs. Gujarat Insitute of Chemical Technology] A.Y. 2014-15 - 3 -
In this regard we find support and guidance from the judgement of Hon’ble Gujarat High Court in the case of CIT Vs. Sarladevi Sarabhai Trust reported in 172 ITR 698 wherein it was held as under:
“When a donor-trust which is itself a charitable and religious trust donates its income to another trust, provisions of section. 11(1 )(a) can be said to have been met out by such donor-trust and the donor-trust can be said to have applied its income for religious and charitable purposes, notwithstanding the fact that donation is subjected to any conditions that donee-trust will treat the donation as to its corpus and can only utilise the accrued income from the donated corpus for religious and charitable purposes, and that the question whether gifted income is to be utilised by donee-trust fully for its religious and charitable purposes or whether donee-trust has to keep intact the corpus of the donation and has to utilise only the income therefrom for its religious and charitable purposes would not make the slightest difference, so far as entitlement of the donor-trust for exemption under section 11(1) goes.”
6.1 We also find support and guidance from the judgement of Hon’ble Bombay High Court in the case of CIT Vs. Trustees of Jadi trust reported in 133 ITR 494 wherein it was held as under:
“It had not been disputed throughout the proceedings that the donee trust was a trust for charitable purposes. The recitals of the trust deed of assessee-trust made it obligatory on the trustees to hand over the net income of the trust fund to the trustees of the donee trust. There was a further direction in the trust deed that the trustees of the donee trust would utilize the net income of the trust so gifted or donated to the trustees for all or any one or more of the charitable purposes mentioned in the deed of the donee trust. There is nothing in law to prevent a settlor from creating a trust wholly for charitable or religious purposes and directing that the income of the property settled upon the trust should be handed over to another trust or institution whose income is utilised wholly for charitable or religious purposes. There is a intrinsic evidence in the Act itself which indicates the permissibility of the trustees of the trust for a charitable or religious purpose passing on the income of the trust to another trust which is conducting a charitable or religious activity. There is a clear indication in section 12 that the trust to which section11 applies can make a voluntary contribution to another trust to which also section 11 is made applicable subject, of course, to the satisfaction of the conditions in section 11. It does not, therefore, appear that it was contemplated that the applicability of section 11 should be restricted only to a trust which itself carries on a charitable or religious activity in [ITO(E) vs. Gujarat Insitute of Chemical Technology] A.Y. 2014-15 - 4 - respect of the income derived from the property held under trust wholly for charitable or religious purposes. The provisions of section 11 can be equally availed of by a trust or the trustees who pass on the income of the trust to another trust or institution for charitable or religious purposes. It appears that the question whether the trust, which gives the voluntary donation to another trust for charitable purposes, can avail of the provisions of section 11, does not seem to depend on whether under the provisions contemplated by section 12(2) the donee-trust applies that income for charitable or religious purposes. This does not, however, mean that even if in a given case it is found that through the medium of donation to the charitable institution funds are being diverted to non-charitable purposes, the donee-trust will still be entitled to claim the benefit of section 11 of the Act. As regards the applicability of section 161(1)(c), it could not be disputed that the assessee-trust was receiving income for the benefit of the donee-trust and consequently, the provisions of section 161(1) would be attracted for the purposes of determining whether the assessee was liable to be assessed to any tax on the income by way of donation to the donee Trust.”
6.2 We also find that the CBDT in its circular bearing No. 1132 dated 5 January 1978 has also clarified as under:
“A question has been raised regarding the availability of exemption in the hands of charitable trusts of amounts paid as donation to other charitable trusts.
The issue has been considered by the Board and it has been decided that as the law stands at present, the payment of a sum by one charitable trust to another for utilisation by the donee trust towards its charitable objects is proper application of income for charitable purpose in the hands of the donee trust; and the donor trust will not lose exemption under section 11 of the Income-tax Act, 1961, merely because the donee trust did not spend the donation during the year of receipt itself.
The above position may kindly be brought to the notice of all officers working in your charge.
6.3 In the light of the above discussion, we are of the considered view that the assessee is eligible to claim the donation, as application of income, given to ILS being an institution registered under section 12AA of the Act. The Ld. DR has also not brought anything on record contrary to the finding of the Ld.CIT (A). Hence we do not find any reason to interefere with the finding of the Ld.CIT (A). Thus the ground of appeal of the Revenue is dismissed.”
[ITO(E) vs. Gujarat Insitute of Chemical Technology] A.Y. 2014-15 - 5 - No variation in facts per se was brought to our notice. In parity with the view taken in the preceding AY 2013-14, we do not see any error in the conclusion drawn by the CIT(A).
In the result, the appeal of the Revenue is dismissed.
This Order pronounced in Open Court on 04/10/2019
Sd/- Sd/- (MAHAVIR PRASAD) (PRADIP KUMAR KEDIA) JUDICIAL MEMBER ACCOUNTANT MEMBER Ahmedabad: Dated 04/10/2019 True Copy S. K. SINHA आदेश क� ��त�ल�प अ�े�षत / Copy of Order Forwarded to:- 1. राज�व / Revenue 2. आवेदक / Assessee 3. संबं�धत आयकर आयु�त / Concerned CIT 4. आयकर आयु�त- अपील / CIT (A) 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, अहमदाबाद / DR, ITAT, Ahmedabad 6. गाड� फाइल / Guard file. By order/आदेश से,
उप/सहायक पंजीकार आयकर अपील�य अ�धकरण, अहमदाबाद ।