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Facts
The assessee, a registered charitable organization, donated substantial amounts to other educational trusts. The Assessing Officer treated these donations as application of income, but the CIT(A) allowed the relief. The Revenue appealed against the CIT(A)'s order.
Held
The Tribunal held that donations given by the assessee trust to other registered educational trusts for charitable purposes were a proper application of income. The denial of exemption by the Assessing Officer was not upheld.
Key Issues
Whether donations made by a charitable trust to other similar trusts can be considered as application of income for charitable purposes, and whether such donations are in violation of Section 13(1)(c) of the Income Tax Act.
Sections Cited
11, 12, 12A, 13(1)(c), 13(3), 10(23C)(vf)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, CHANDIGARH BENCH, ‘A’, CHANDIGARH
Before: SHRI RAJPAL YADAV & SHRI KRINWANT SAHAY
( HYBRID MODE ) िनधा�रती क� ओरसे/Assessee by : Shri Sudhir Sehgal, Advocate राज�व क� ओरसे/ Revenue by : Shri Rohit Sharma, CIT DR सुनवाई क� तारीख/Date of Hearing : 07.01.2025 उदघोषणा क� तारीख/Date of Pronouncement : 01/04/2025 आदेश/Order Per Krinwant Sahay, AM : Appeal in this case has been filed by the Revenue against the order dated 09.10.2019of ld. CIT(A)-2, Chandigarh hereinafter referred to as ‘CIT(A)’], for the Assessment Year 2013-14.
In the present appeal Revenue has raised the following grounds: i. That on the facts and circumstances of the case, the d. CIT(A) has erred in law in holding that donation to other trusts was application of income when it was seen that more than a quarter of the receipts were given out as donation to other trusts year after year instead of being redeployed for the use of own educational institutes at the cost of the main object of running its educational institutes.
26-Chd-2020 M/s Indo Global Education Foundation, Tehsil Kharar
2 ii. That on the facts and circumstances of the case, the Ld. CIT(A) has erred in law in not appreciating that Chaman Educational & Charitable Trust had not utilized the donations given for my charitable activities but had simply kept them in FDRs and had earned interest income and even this interest income had not been utilised for any charitable activity, and accordingly, the donation could not be held as application of income. iii. That on the facts and circumstances of the case, the Ld. CIT(A) has erred in law in ignoring the observation of the AO that the assessee had regularly been giving donations to Chaman Educational & Charitable Trust which amounted to Rs. 11.7 crores in a span of just 4 years and that this money had not been used for education. iv. That on the facts and circumstances of the case, the Ld. CIT(A) has erredin law in holding that section 13(1)(c) shall not be applicable when both IndoGlobal Education Foundation and Chaman Educational & Charitable Trust areclosely held trusts with common members, hence, the real persons derivingbenefit from the transfer of funds/donations are specified persons u/s 13(3). v. That on the facts and circumstances of the case, the Ld. CIT(A) has erredin law in holding that no adverse inference has been drawn during scrutinyassessment in the case of Aryan Education & Charitable Trust for the A. Y.2013-14 when in the 3 order of Aryan Education & Charitable Trust for A.Y.2013-14, the AO has pointed out diversion of funds and accordingly, theexemption was disallowed. vi. That on the facts and circumstances of the case, the Ld. CIT(A) has erredin-law in ignoring that Corpus donation given by the assessee also formedpart of the pool of funds of the donee and that it was important to check theactivities of the donee in order to ensure that money. In its common kitty wasnot misused and that in the case of Aryan Education & Charitable Trust,instances of misuse of exemption provisions were pointed out which hits atthe genuineness of activities of the Donee. vii. That the appellant craves to leave, add or amend the grounds of appeal on or before the appeal heard and disposed-off.
3. In order to appreciate the issue involved, the facts, in brief, are that the assessee is a registered Charitable Organization and is 26-Chd-2020 M/s Indo Global Education Foundation, Tehsil Kharar 3 engaged in providing education and is also registered u/s 12AA. The return of income have been filed after claiming exemption u/s 11 & 12 of the Income Tax Act, 1961 and the return of income was filed along with the audit report in Form No. 10B and the Audited Balance Sheet and Income & Expenditure Account. The main object of the society is to provide education as per Memorandum of Association filed before us and also filed before the Lower Authorities.
It was noticed by the Ld. Assessing Officer during the course of assessment proceedings that the assessee trust had given donations to the tune of Rs. 4,68,00,000/- to various other 'educational trust,' who were also registered u/s 12AA and having the same objects of providing education as under: Sr. No. Name of the Trust Amount given as donation 1 Aryan Educational & Charitable Trust Rs. 68,00,000/- 2. Swami Vivekananda Educational & Rs. 60,00,000/- Charitable Trust 3. Chaman Educational & Charitable Trust Rs. 3,40,000/-
The undisputed facts are that the voluntary contribution have been given and accepted as corpus by the Donor as well as Donee trust and necessary confirmations, both from the Donor and Donees have been submitted. It is also borne out from the record that in the earlier year also, the donations of substantial amount have been given in the assessment year 2012-13 and which have been accepted by the 26-Chd-2020 M/s Indo Global Education Foundation, Tehsil Kharar 4 department, both in the hands of Donor and Donee and the assessment order for AY 2012-13 have been passed in the case of the assessee u/s 143(3) similarly, for the Assessment Year 2014-15, donation have been given to 'Chaman Educational & Charitable Trust' and which have been accepted in the case of the assessee vide order dated 14.12.2016 and also in the case of the 'Civman Educational & Charitable Trust' for AY 2014-15, the assessment have been fr med u/s 143(3) vide order dated 04.08.2016 and also accepted in the AY 2013-14 and no adverse have been drawn by the Ld. AO.
Before us, it was argued by the Ld.CIT(DR) that 'Chaman Educational & Charitable Trust' is a related trust covered u/s 13(3) and the donation given to it, cannot be treated as application of income and for the other two trusts, it was argued that the 'corpus donation' given to these trusts is without any specific purposes and it was further argued that there was no proper object related to give donation to the other trusts. The main object of the assessee was to provide education and this act of giving donation to the other trusts is a secondary object. Even during the AY 2012-13 & 2013-14, percentage of donation to the total receipts was 26.66% and for AY 2013-14 it is 25.79% and, thus, it is a trend to donate more than 25% as corpus donation and claim the same as application of income.
26-Chd-2020 M/s Indo Global Education Foundation, Tehsil Kharar 5 Further, it was argued by the Revenue that M/s. Chaman Educational & Charitable Trust has invested in only land and the said act cannot be considered as charitable activity. Certain funds have been invested by the Chaman Educational & Charitable Trust into the FDRs in AY 2014-15 and that, the Assessing Officer has rightly made an addition of Rs. 4.68 crores, which have been given as donation to other trusts as corpus donation and the funds of the trust have been diverted to the sister concern trusts. It was concluded that the AO has rightly made the addition.
It was argued by the Ld. Counsel of the Assessee that the corpus donation have been given to the three educational trusts and which is one of the object of the assessee as per the Memorandum of Association and the other three trusts are also engaged in the providing education and they all are registered u/s 12A.The AO has not doubted the charitable objects of the assessee trust as well as the Donee Trust. There was no findings of the AO about the direct or indirect benefits being given to the persons covered u/s 13(3) and the main reason for donation was to contribute money to the another charitable organization. It was further brought to our notice about the CBDT Instruction No. 1132 dated 05.01.1978 wherein, it has been said that payment of a sum by one Charitable trust to another, for 26-Chd-2020 M/s Indo Global Education Foundation, Tehsil Kharar 6 utilization by the Donee Trust towards its charitable Objects is proper application of income for charitable purposes in the hands of the Donor Trust and the Donor trust will not lose exemption. Further, it was also brought to our notice another Instruction No. 1582 dated 19.10.1984, where the CBDT has modified its directions that it is not necessary for Donee trust to utilize the donation in the same year. It was further argued by Ld. Counsel that there was no provision in the act about the related sister trust no adverse view has been taken by the Assessing Officer and further, registration u/s 12AA have not been withdrawn. Such donations have been accepted in the hands of the Donee for the AY 2012-13 & 2014-15.Donations was made to the some of the same trusts, as in the year under consideration and no adverse view have been taken in either of the cases by the Assessing Officer.
It was also argued before us by the Counsel of the Assessee that the confirmations by the three recipients of the donation had also been provided and there was no finding in the said case that the said donations had not been utilized by the other Donee Trust. It was also pointed out that the corpus donation to another trust registered u/s 12AA would not be application w.e.f. AY 2018-19 as per Explanation 2 to Section 11 and the said donation had been made out from the 26-Chd-2020 M/s Indo Global Education Foundation, Tehsil Kharar
7 current's year income. The AO has not mentioned anywhere that the said donation had been made out of the accumulated funds. Even, it was stressed before us that there is no findings about any direct or indirect benefit given to the person covered under the definition of Section 13(3). Reliance was also placed by the Ld. Counsel on a number of case laws wherein, it was held that the exemption u/s 11 could not be denied merely on the ground that the amount had been donated by the assessee trust, following case laws were brought on record: a) CIT v. Thanthi Trust (1999) 239 ITR 502 (SC) in 1999 TaxPub (DT) 0051 (SC) b) All Saints School vs Ito Exemption (Del ITAT) 105 taxmann.com 149 dated 29.03.2019 c) CIT v. Trustees of Jadi Trust (1982) 133 ITR 494 (Bom.) in 1982 Tax Pub (DT) 0491 (Bom-HC) d) CIT v. Nirmala Baku Bhai Foundation (1997) 226 ITR 394 (Guj.) in 1997 Tax Pub (DT) 0574 (Guj-HC) e) CIT v. Shri Ram Memorial Foundation (2004) 269 ITR 35 (Del.) in 2004 Tax Pub(DT) 1639 (Del-HC) f) DCIT v. Divya Yog Mandir Trust in order dated 30.04.2019 26-Chd-2020 M/s Indo Global Education Foundation, Tehsil Kharar
8 g) AVM Charities vs ITO(Exemption) (Chennai Bench) 103 taxmann.com 345 dated 02.01.2019 h) St. Jude's Convent School vs ACIT (Amritsar Bench) 77 taxmann.com 173 dated 26.09.2016 i) St. Joseph's Convent Chandannagar Educational Society vs JCIT (KOL Bench) 70 taxmann.com 21 9. We have considered the arguments of both the sides and we have carefully gone through the assessment order, order of the Ld. CIT(A) allowing the relief to the assessee. It is a fact that the registration u/s 12A is available to the assessee trust and all the other 'three trusts' to whom the donations have been given for educational purposes. In the cases of all the three trusts, on account of the donation given by the assessee trust, no adverse view have been taken in their cases. In these cases assessments were done u/s 143(3) and even in the earlier years, i.e. AY 2012-13 & 2014-15, the department has accepted the donations given by the assessee trust and no adverse view have been taken in the order passed u/s 143(3) in the cases of the DoneeTrust, under similar facts & circumstances. Thus, while the facts are the same,no contrary view can be taken in the year under consideration the Assessing Officer has simply stated that the donation have not been utilized for charitable purposes by these 26-Chd-2020 M/s Indo Global Education Foundation, Tehsil Kharar
9 trusts. Further, there is no finding of Direct or Indirect benefits given to the person covered under the definition of Section 13(3). It is only from AY 2018-19, where the restrictions have been imposed on corpus donation being taken as an application. Further, we have also gone through the Memorandum of Association and documents furnished in the 'paper book' and the case laws, relied upon by the Ld. Counsel. He has brought out that by way of donation to the other trusts, the object of providing education is fulfilled and even the case laws quoted before us support the case of the assessee: a) CIT v. Thanthi Trust (1999) 239 ITR 502 (SC) i 1999 Tax Pub (DT) 0051 (SC) Section 11 of the Income-tax Act, 1961 - Charitable or religious trust -Exemption of income from property held under - Assessment years 1968-69 and 1969-70 - Whether benefit of exemption under section 11 could not be denied merely on ground that amount donated by assessee trust was not spent by Donee educational institutional within same financial year - Held, yes(Pg 2) b) All Saints School vs ITO Exemption (Del ITAT) 105 taxmann.com 149dated 29.03.2019 26-Chd-2020 M/s Indo Global Education Foundation, Tehsil Kharar
10 Exemption was available to donor charitable trust in respect of payment of sum to another charitable trust for utilisation towards charitable purpose of Donee trust, such payment could be considered as proper application of income even if not spent in year of receipt itself. (Pg 4) c) CIT v. Trustees of Jadi Trust (1982) 133 ITR 494 (Bom.) in 1982 TaxPub (DT) 0491 (Bom-HC) Section 11 read with section 12 of the Income-tax Act, 1961 - Charitable or religious trust - Exemption of income from property held under -Assessment year 1969-70 and 1970-71 - Whether there is nothing in law to prevent a settlor from creating a trust wholly for charitable or religious purposes and directing that income of property settled upon trust should be handed over to another trust or institution whose income is wholly utilized for charitable or religious purposes - Held. Yes - Whether therefore, provisions of section 11 can be availed of bysuch trust or trustees who pass on income of trust to another trust or institution for charitable or religious purposes - Held, yes d) CIT v. Nirmala Baku Bhai Foundation (1997) 226 ITR 394 (Guj.) in 1997Tax Pub (DT) 0574 (Guj-HC)
26-Chd-2020 M/s Indo Global Education Foundation, Tehsil Kharar
11 Section 11 of the Income-tax Act, 1961 - Charitable or religious trust -Exemption of income from property held under - Assessment year 1987-88 - Assessee, a charitable trust, passed resolution that out of total amount advanced to BMI, a charitable entity, amount of Rs. 2,12,970 which it earned in previous year, be treated as contribution from it to BMI and passed book entries also and claimed deduction thereof under section 11 - Assessing Officer disallowed its claim - Whether, there being a finding of Tribunal that assessee earned income of Rs. 2,16,304 in previous year, it was entitled to claim exemption under section 11 in respect of its contribution ofRs. 2,12,970 made to BMI - Held, yes e) CIT v. Shri Ram Memorial Foundation (2004) 269 ITR 35 (Del.) in 2004Tax Pub (DT) 1539 (Del-HC) Section 11 of the Income-tax Act, 1961 - Charitable or religious trust -Exemption of income from property held under - Assessment year 1977-78 - Assessee-charitable institution made donation of some amounts to two trusts with condition that part of donated amount would form part of corpus of their trusts - Whether assessee-institution could be said to have applied within meaning of section 11(1) (a), to its specified charitable 26-Chd-2020 M/s Indo Global Education Foundation, Tehsil Kharar
12 purposes, entire amount donated by assessee with specific direction that a part of donated amount was to form part of corpus of respective donee-trusts - Held, yes (Pg 13) f) DCIT v. Divya Yog Mandir Trust in order dated30.04.2019 We are of the considered view that inter-trust donation by one charitable trust to another for utilization by the Donee trust towards charitable objects is proper application of income for charitable purpose in the hands of donee trust and it will not affect the exemption claimed by the assessee u/s 11 of the Act in any manner whatsoever nor inter-trust donation can be termed as deviation from its objects as it is nowhere the case of the Department that the donee trust has not applied such sums for charitable purpose by deviating its funds, hence relief granted by Id. CIT (A) needs no interference at the ends of the Tribunal being based upon the findings of the Tribunal pertaining to AY 2009-10. (Pg 22) g) AVM Charities vs ITO(Exemption) (Chennai Bench) 103 t axmann.com345 dated 02.01.2019 Further, assessee had given donations to a trust having section 12A registration which was pursuing an object of medial relief, 26-Chd-2020 M/s Indo Global Education Foundation, Tehsil Kharar
13 education or relief to poor - Whether this would be equivalent to using money for charitable purposes - Held, yes (Pg 48) h) St. Jude's Convent School vs ACIT (Amritsar Bench) 77 taxmann.com 173 dated 26.09.2016 Where assessee, an educational society, made payment of education extension services out of its current income to Diocese of Jalandhar, notified under section 10(23C)(vf), as well as registered under section 12A and pursuing object of promoting education through running various schools, said payment was to be allowed as application of income as it duly satisfied provisions of sections 11(1)(a) and 11(3)(d)(Pg 62) i) St. Joseph's Convent Chandannagar Educational Society vs JCIT (KOL Bench) 70 taxmann.com 21 Donation given by one public charitable trust to another public charitable trust is permissible in section 11 as application of income and said payment is not in violation of section 13(1)(c) because payment is not made for benefit of any person either directly or indirectly referred to in section 13(3). (Pg 70-71)
Thus, both on facts and on the legal position as enumerated above, we have no hesitation in confirming the order of the Ld. CIT(A). We find that the Ld. CIT(A) has rightly allowed the appeal of the assessee trust, 26-Chd-2020 M/s Indo Global Education Foundation, Tehsil Kharar 14 by holding that the corpus donation, as given by the assessee trust to the other three registered trusts, has rightly been held as an utilization of income in the case of the assessee trust.The CIT(A) has rightly held that the sum, so donated, has to be considered for the purpose of utilization out of the current year's income and the denial of the exemption by the Assessing Officer cannot be upheld. 9.1 Accordingly, in our considered view, there is no need to interfere in the findings given by the Ld. CIT(A). Thus, the appeal filed by the Revenue is dismissed.
In the result, appeal of the Revenue is dismissed.
Order pronounced on 01/04/2025.