The Delhi bench of the Income Tax Appellate Tribunal (ITAT) held that the donations given out of accumulated funds under Section 11(2) of the Income Tax Act, 1961 shall be deemed as income of the trust.
The assessee trust was formed on 28.04.2009. The main activities of the trust are to help poor children by providing education, and medical treatment to help the community and nation at large and to undertake activities relating to the organization of welfare, art, cultural and social activities, and involvement in other programs of local/national and international significance, etc and many other similar charitable objects.
Return for the year under consideration was filed electronically declaring NIL income after claiming of application of income under Section 11 of the Income Tax Act. Return was selected for scrutiny assessment and assessment was completed accepting the returned income of the assessee.
During the course of the assessment proceedings itself, the assessee was asked to provide details of expenditure out of the corpus fund of Rs.41 lakhs. The Assessing Officer found that the assessee has donated Rs.3.50 lakhs to Life Trust of India. Rs. 9 lakhs to ISKCON Food Relief Foundation, Rs.3 lakhs to Population First, and Rs. 25 lakhs to ApneAap Women’s Collective – Victoria.
The counsel for the assessee stated that what the Commissioner of Income Tax (Exemption) [CIT(E)] is considering as donation, is not donation, but a contribution in tandem with the deserving NGOs whose aims and objects match with the objects of the trust and in collaboration with them, the said contribution was made, which the CIT(E) is considering as donation, hit by the provisions of Section 11(2) of the Income Tax Act.
It was further submitted that the assessment order is neither erroneous nor prejudicial to the interest of the revenue and, therefore, the assumption of jurisdiction under Section 263 of the Income Tax Act by the CIT(E) is bad in law.
The Departmental Representative strongly supported the findings of the CIT(E). It was submitted that any contribution to deserving NGOs, even if working in collaboration with the assessee is nothing but a donation and therefore, there was an error in law in the assessment order framed under Section 143(3) of the Income Tax Act, making it erroneous and prejudicial to the interest of the revenue.
The Two-member bench comprising of N.K. Billaiya (Accountant member) and Yogesh Kumar U.S (Judicial member) held that the assessee has accepted that the amounts given to the above persons are donations out of the accumulated funds of the assessee. Therefore, there should not be any dispute in so far as the applicability of provisions of Section 11(2) of the Income Tax Act are concerned.
The provisions of Section 11(3) of the Income Tax Act are very clear wherein it has been mentioned that donations given out of accumulated funds under Section 11(2) of the Income Tax Act of earlier previous years are not allowable as application of income for charitable or religious purposes and the same shall be deemed to be income of the assessee.
Therefore, an error has crept in the assessment order, framed under Section 143(3) of the Income Tax Act which has made the assessment order erroneous in law. Since there is a revenue leakage in so far as the utilization of a corpus fund of Rs. 41 lakhs, the assessment order is also prejudicial to the interest of the revenue. Thus, there was no error or infirmity in the assumption of jurisdiction by the CIT(E) under Section 263 of the Income Tax Act. The appeal of the assessee was dismissed.
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