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Income Tax Appellate Tribunal, ‘’ B’’ BENCH, AHMEDABAD
Before: SHRI WASEEM AHMED
PER WASEEM AHMED, ACCOUNTANT MEMBER:
The captioned appeal has been filed at the instance of the Revnue against the order of the Learned Commissioner of Income Tax (Appeals)-9, Ahemdabad dated 20/11/2017( in short “Ld.CIT(A)”) arising in the matter of assessment order passed under s.143(3) of the Income Tax Act, 1961 (here-in- after referred to as "the Act") dt. 29/03/2016 relevant to the Assessment Year 2013-2014.
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The Revenue has raised the following grounds of appeal;
The Ld.CIT(A) has erred in law and on facts in deleting the addition of Rs.4,75,00,000/- made on account of disallowance of donation given by the assessee and without appreciating that undue benefit to the manufactuter of product over a period of time and also all the parties involved in research will enjoy commercial benefits in future. 2. The Revenue craves over leave to add, alter, modify, substitute, delete and/or rescing all or any grounds of appeal on or before the final hearing in necessity so arises. The only issue raised by the Revenue is that the Ld.CIT (A) erred in deleting the addition made by the AO for Rs. 4,75,00,000 on account of the disallowance of the donation made by the assessee.
The facts in brief are that the assessee in the present case is an AOP (trust) and registered with the Charity Commissioner vide registration number F/349/Ahmedabad dated 23/05/1968 as well as under section 12A/80G of the Act. The main activity of the assessee is to provide donation to other institution carrying out the research work.
3.1 The assessee in the year under consideration has given the donation of Rs. 4.75 Crores to the Institute of life sciences (ILS), a part of Ahmedabad University which is an approved charitable situation under section 12AA of the Act. The assessee also claimed that it has given donation to ILS to carry out research and development in Nano technology.
3.2 However, the AO found that the research is carried out on the public and private partnership model (PPP model) and all the parties involved in such project will enjoy the commercial benefits in future. Accordingly, the AO treated the donations made by the assessee as non-application of income
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for non-charitable purposes. Thus the AO disallowed the same and added to the total income of the assessee.
Aggrieved assessee preferred an appeal to the Ld.CIT (A).
The assessee before the Ld.CIT (A) submitted that it has given donation to another institution registered under section 12AA of the Act, therefore the same should be treated as application of income.
4.1 The Ld.CIT (A) after considering the submission of the assessee deleted the addition made by the AO by observing as under:
4.2 I have carefully considered the rival contention, observation of the A.O as well as the case law relied upon by the appellant. It is observed that the A.O has made an addition of Rs.4,75,00,000/- on account of disallowing the amount of donation given by the appellant trust to another trust. It is seen from the order of I assessment that the appellant had given donation of Rs.4,75,00,000/- to Ahmedabad University. The A.O has mentioned that the recipient i.e. Ahmedabad University is registered u/s.12AA of the Act and the donation is given for Research and Development of low cost device as an early warning system for prevention of Diabetes and Nano Technology Research Project. The A.O is not disputing the donation given by the appellant to Ahmedabad University. According to A.O as the outcome of research by the trust culminates in manufacturing of the product being Techno commercial transaction will benefit the manufacturer of the product over a period of time. Therefore, the A.O has denied the donation given for Rs. 4,75,00,000/- as application of income. During the appellate proceedings the appellant has submitted that the appellant is a registered charitable institution and it has given a donation to another registered charitable institution. Such donation to another charitable institution in an application of income. It has relied on various judgment such as CIT vs Sarladevi Sarabhai Trust 172 ITR 698 (Guj.), CIT vs Trustees of Jadi Trust 1331 IR 494 (Bom) etc. It has also further relied upon the CBDT Circular No.1132 of 5/1/1978 which has considered the donation given to another trust towards its charitable object is an application of income. 4.3 I have gone through the contention of the appellant as well as the CBDT circular and the judgments relied upon by the appellant. It is clear that a trust registered with the Income-tax Department has given donation to another trust which also has registration with the income tax department u/s.12 of the Act. Therefore, in my opinion the A.O was not justified in denying the contention of tho Page 3 of 6
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appellant that the donation of Rs.4,75,00,000/- to Ahmedabad University would be an application of income. The A.O is directed to delete the said addition. Thus ground of appeal Nos.1 to 3 are hereby allowed.
Being aggrieved by the order of the Ld.CIT (A), the Revenue is in appeal before us.
Both the parties, the Ld. DR and the Ld. AR relied before us on the order of the concerned AO and CIT(A) respectively, being favourable to them.
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. 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.” Page 4 of 6
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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 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
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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.
In the result, the appeal of the Revenue is dismissed.
Order pronounced in the Court on 10/07/2019 at Ahmedabad.
-Sd- -Sd- (Ms. MADHUMITA ROY) (WASEEM AHMED) JUDICIAL MEMBER ACCOUNTANT MEMBER (True Copy) Ahmedabad; Dated 10/07/2019 Manish
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