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Facts
The assessee trust declared nil income for AY 2016-17. The Assessing Officer (AO) disallowed Rs. 25,65,000, treating donations made to other charitable organizations as contravention of Section 11(2) and thus deemed income under Section 11(3)(d). The CIT(A) upheld the AO's order.
Held
The Tribunal held that the distinction between 'grant' and 'donation' is significant. A grant is for a specified purpose with stipulations, while a donation has no such restrictions. The payments made by the assessee were for specific charitable activities confirmed by the recipient organizations. Therefore, the disallowance was not sustainable.
Key Issues
Whether donations made by a trust to other organizations registered under Section 12AA for specific charitable purposes are to be treated as 'grants' or 'donations' and if the disallowance under Section 11(3)(d) is justified.
Sections Cited
143, 11(2), 10(23C), 11(3)(d), 12AA, 12A
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DELHI BENCH “SMC”: NEW DELHI
O R D E R
PER Ms. MADHUMITA ROY, JM:
The instant appeal, filed by the assessee, is directed against the order dated 22.07.2025 (DIN & Order No.: ITBA/APL/S/250/2025-26/1078745236(1) passed by the Commissioner of Income Tax, Appeal Addl/JCIT(A)-1, Noida, arising out of the order dated 16.12.2018 passed by the Income Tax Officer, Ward Exemp.
2(4), Delhi, under Section 143 of the Income Tax Act, 1961 (hereinafter referred to as “the Act”), for assessment year 2016-17.
2. The assessee has raised following grounds of appeal:
“1. The Order of the Ld. Joint Commissioner of Income Tax (A) is bad in law and on facts.
2. That on the facts and circumstances of the case and in law, the L.d. JCIT (A) has erred in upholding the addition of Rs. 25,65,000 ignoring the fact that the payment was made to specified organisation for specific activities to be undertaken rather than general donation.
3. The Explanation to section 11(2) withdraws exemption to income accumulated u/s 11(2) if the donation is given to any trust institution registered u/s 12AA or to any fund institution/trust/university/other educational institution/hospital/ any other medical institution referred to in clauses (iv), (v), (vi), and (via) of Section 10(23C), whereas the expenditure of Rs. 25,65,000 was incurred on providing scholarships, rehabilitation of handicapped children and construction of hostel block for poor children, which was not covered under the explanation. The addition of Rs. 25,65,000/-should therefore be deleted.
4. The Appellant craves leave to add, alter or modify the aforesaid grounds of appeal either at or before the hearing of appeal.”
3. Facts of the case, in brief, are that for A.Y. 2016-17 the assessee trust filed its Return of Income on 05.10.2016 declaring nil income. The case was selected for complete scrutiny under CASS. From the computation of income filed during the course of scrutiny assessment proceedings the Ld. AO noticed that out of accumulated fund the assessee had given Rs.25,65,004/- as donation to various charitable organization registered under section 12AA. According to AO the donation made by the assessee was in contravention of explanation to Section 11(2). Treating the same as deemed income of the trust under Section 11(3)(d) the AO added Rs. 25,65,000/- to the income of the assessee. In appeal, the Learned First Appellate Authority affirmed the action of the Assessing Officer. Aggrieved, the assessee is in appeal before this Tribunal. donation of Rs. 25,65,000/- to different organizations was given for specific purpose which was also confirmed by the said organizations and therefore the authorities below were not justified in disallowing the same. The assessee has also filed written submissions, which for the sake of clarity are reproduced as under: “1. The Appellant is a Trust registered u/s 12A and 80 G and is engaged in the services of providing education, medical relief to the poor & needy.
During the previous year relevant to A.Y 2016-17, the Trust gave specific grants to the following Organizations for the purpose indicated therein: Name Grant given Purpose Delhi Chinmaya Sewa Trust 50,000 Scholarship to Students Aaroh 5,00,000 Grant for rehabilitation of handicapped Children Air force Station Association 15,000 Scholarship to Children of Air force Personnel Servants of People Society 20,00,000 Hostel Block for Gil Students at Balventeri Mehta Vidya Anguriddevi Shersingh memorial Academy Specific confirmation given by the organizations, which have been filed before the Department are enclosed for ready reference.
The Appellant does not have any employees on their staff to render charitable activities planned by them and give grants to various reputed charitable organizations. To ensure that the specific activity for which the grant is given is duly carried out- Utilization certificates or school fee receipts (for scholarships given) are asked for by the organization for each donee organization to ensure that the funds are spent for the purpose given.
The Appellant thus treated the amounts spent as utilization and claimed the same in the Income Tax return filed by them.
The Ld. Assessing Officer vide his Order dt. 16.12.2018 treated the same as "donations" to organizations instead of "grants" and hence taxed the sum of Rs 25.65 Lakhs spent as deemed income of the Trust in view of sec. 11(3)(d) of the Income Tax Act, 1961. Copy of order attached. Page No 5 to 7 enclosed.
The Addl/JCIT(A)-1, Noida affirmed the order of the Ld. Assessing Officer Copy of order attached. Page No 8 to 12 enclosed. 7. It is humbly submitted that there is a distinction between "grant" and "donation"
A grant is given for a specified, defined purpose, The grant is required to be spent according to the stipulations laid down in the grant proposal and no deviation is permitted. A grant requires the donee organization to submit a detailed report of how the money was spent with proof of such expenditure. Typically, if the Donee Organisation cannot utilize the grant for the specific purpose, then the amount is required to be refunded to the Donor Organisation. There are no such restrictions on donations given. The money given as a donation can be spent by the Donee organization for any purpose including administrative expenses etc. There is no reporting requirement for how such funds were spent.
A grant given by the Donor organization is in the nature of advance given to any organization with a view to instruct them to carry out the specific activity laid down by the Donor. Non compliance is not permitted and in case the activity is not carried out, the amounts given are expected to be refunded. In the instant case of the Appellant, if the Appellant had given the sum to any other organization with the request to carry out the specific activity instructed by it, there would be no question of any disallowance u/s 11(3)(d) of the Income Tax Act, 1961.
To deny the benefit of such expenditure only because the payment was made to an organization registered u/s 12 AA of the Act is incorrect and contrary to the intention behind the legislation.
The disallowance u/s sec.11(3)(d) was intended to ensure that funds accumulated for specific charitable purposes were used for those objects and not rerouted in a way that defeats the purpose of the initial tax exemption through transfer to other tax exempt entities. The provision ultimately guarantees that the benefit of the tax exemption is tied to the actual application of funds of public welfare and not merely for accumulation and transfer of wealth.
In the instant cases, the accumulation has been spent on genuine charitable activities like specific scholarships, hostel building for girls, rehabilitation of handicapped children and should be allowed as a deduction to the Trust.”
6. I have heard the submissions made on behalf of the parties and perused the material available on record. Having regard to the donations made to the organizations which has also been confirmed by them towards specific head/ corpus appearing (filed along with written submissions), the rejection of the claim by the authorities below on the ground that such donations have not been given for specific purpose by the assessee to the organizations which will cover under Section 12A of the Act is found to be not sustainable in the eyes of law and thus the addition is deleted. Ordered accordingly.
In the result, assessee’s appeal is allowed.
Order pronounced in open court on 13.11.2025.