Loading judgment…
Facts
The appellant, a Section 12A registered charitable society, filed a Nil income return for AY 2016-17 claiming Section 11 exemption. The Assessing Officer added Rs. 1.50 crore, disallowing a donation made by the appellant to another Section 12A registered charitable institution, Sri Vidya Samithy, on the grounds that the donee trust was not engaged in educational activities and thus the donation was not an application of income. The CIT(A) confirmed the AO's order, leading to the appeal before the Tribunal.
Held
The Tribunal held that a donation made by one charitable institution to another charitable institution with similar objects, both registered under Section 12A of the Income-tax Act, 1961, constitutes an application of income for charitable purposes. Citing several High Court and Supreme Court precedents, the Tribunal noted that the Finance Act, 2002, only imposed an embargo on donations from accumulated income for subsequent use under Section 11(2), but not from current income. As the donation was made out of current income, the Tribunal directed the AO to treat it as an application of income and delete the addition.
Key Issues
Whether a donation made by a charitable institution registered under Section 12A to another charitable trust with similar objects, also registered under Section 12A, qualifies as an application of income for charitable purposes under the Income-tax Act, 1961, when made from current income.
Sections Cited
250, 12A, 11, 143(3), 11(2)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, COCHIN BENCH, COCHIN
Before: Shri George George K, Vice- & Shri Inturi Rama Rao
:Asst.Year 2016-2017 Alliance Educational Foundation The Income Tax Officer Aranmula, Edayaranmula SO v. Alappuzha. Alapuzha – 689 532. PAN : AAATA3723E. (Appellant) (Respondent) Appellant by : Sri.M.S.Venkitachalam, CA Respondent by :Smt.Leena Lal, Sr.AR Date of Date of Hearing :02.04.2025 Pronouncement : 08.04.2025 O R D E R
Per Inturi Rama Rao, AM :
This appeal at the instance of the assessee is directed against National Faceless Assessment Centre / Commissioner of Income-tax (Appeals) [“CIT(A)”] order dated 04.09.2024 passed u/s.250 of the Income-tax Act, 1961 [“the Act”] for the assessment year 2016-2017.
Briefly the facts of the case are that the appellant is a society duly formed under the Societies Registration Act, and also registered u/s.12A of the Income-tax Act, 1961 (“the Act”). The return of income for the assessment year 2016-2017 was filed on 2nd October, 2016 declaring Nil income after claiming exemption u/s.11 of the Act. Against the said return of income, the assessment was completed by the Assessing Officer (“the AO”) vide order dated 30.12.2018 passed u/s.143(3) of the . Alliance Educational Foundation. Act at a total income of Rs.1,50,64,637. While doing so, the AO made an addition of Rs.1.50 crore being the amount of donation made by the appellant society to another charitable institution, viz., Sri Vidya Samithy, Malakkara, which was enjoying registration u/s.12A of the Act. According to the AO, the donee trust is found to be engaged in religious and charitable activities with the emphasis on development and furtherance of spirituality and philosophy. Therefore, the AO was of the opinion that since the donation was made for the trust which has no object of educational activities, the donation cannot be treated as application of income and assessed the same to tax.
Being aggrieved by the above assessment order, an appeal was filed before the CIT(A), who vide the impugned order had confirmed the action of the AO by holding that the material on record does not indicate that the donee trust has applied the impugned amount of donation towards charitable purposes.
Being aggrieved by the above, the appellant is in appeal before the Tribunal in the present appeal. It is submitted that the lower authorities grossly erred in holding that the donation of Rs.1.50 crore made by the appellant trust, viz., Sri Vidya Samithy, the another charitable trust registered u/s.12A of the Act was not an application of income. It is further submitted that the lower authorities have failed to appreciate that the donee-trust, Sri Vidya Samithy, have similar object as that of the appellant trust. The AO as well as the NFAC cannot treat the donation amount to another charitable trust as non-application of
On the other hand, the learned Senior Departmental Representative by placing reliance on the orders of the lower authorities submits that the orders passed by the AO as well as the NFAC are speaking orders and no interference is called for therein.
We heard the rival submissions and perused the material available on record. The issue in the present case is whether the donation made by a charitable institution to another charitable trust amounts to application of income for charitable purposes or not. In the present case, the appellant trust made donation of Rs.1.50 crore to another charitable trust, viz., Sri Vidya Samithy, having the similar object. The donation made by a charitable institution to another charitable institution amounts to application of income for charitable purpose, as held by the Hon’ble Madras High Court in the case of CIT v. Aurobindo Memorial Fund Society (2001) 247 ITR 93 (Mad) following its earlier decision in the case of CIT v. Thanthi Trust (1982) 137 ITR 375 (Mad). It must be noted that the decision of the Madras High Court in Thanthi Trust was ratified by the Hon’ble Supreme Court in (1999) 239 ITR 502 (SC). Similarly, the issue also stands settled by the decision of the Hon’ble Supreme Court in the case of Aditanar Educational Institution v. Addl.CIT (1997) 224 ITR 310 (SC). The same view taken by the Hon’ble Delhi High Court in the case of CIT v. Shri Ram Memorial Foundation (2004) 269 ITR 35 (Delhi). It is also to be noted that the Parliament has imposed only embargo with effect from 01.04.2003 by . Alliance Educational Foundation. the Finance Act, 2002 by inserting explanation that the donation by a charitable institution to another charitable institution can be treated as application of income, out of the current income but not out of its accumulated income for subsequent use u/s.11(2) of the Act. Undisputedly, in the present case the donation was made only out of current income. Therefore, there is no statutory embargo to treat the subject donation as application of income. Accordingly, we direct the AO to treat the donation of Rs.1.50 crore as application of income and delete the addition.
In the result, the appeal filed by the assessee is allowed.
Order pronounced on this 08th day of April, 2025.