Donations to other Charitable Institutions meets Test of Application of Income for Charitable Purposes: Delhi HC upholds Decision of ITAT [Read Order]

The Delhi High Court uphold the decision of the Income Tax Appellate Tribunal (ITAT), observed that the donations to other charitable institutions meets test of application of income for charitable purposes.

The respondent assessee is registered under Section 12-A of the Income Tax Act, 19613 and has also been extended benefit of Section 80G(5)(vi) of the Income Tax Act. It had claimed exemption under Sections 11 and 12 of the Act. Although a return for the Assessment Year4 in question, namely, AY 2009-10, had been originally filed on 30 September 2009, the respondent thereafter submitted a revised return of income on 24 March 2011. The reasons assigned for submission of the revised return were stated to be on account of a sum of INR 20 crore which had been set apart as accumulated income under Section 11(2) of the Income Tax Act during the financial year in question having been utilized to extend donations to other charitable institutions.

The concept of deemed income also stands attracted if the income accumulated or set apart in terms of Section 11(2) ceases to remain invested or deposited in the forms or modes specified in sub-section (5) or if it is not utilized for purposes for which it is so accumulated or set apart during the period referred to in clause (a) of Section 11(2).

Explanation 1 to Section 11(1), as is evident from a reading thereof applies to situations where the income applied to charitable causes falls short of 85% of the income derived. Section 11(2) on the other hand constitutes a gateway which enables the charity to stave off the spectre of the income which is not applied for a charitable purpose coming to be included in the total income of the assessee.

The principal dispute which is raised and canvassed in the instant appeal pertains to the deemed income which came into existence by virtue of the donations extended by the respondent assessee to other charitable institutions and whether the same would still fall within the ambit of Section 11(1)(a).

A Division Bench of Justices Purushaindra Kumar Kaurav and Yashwant Varma observed that “It has been repeatedly acknowledged that donations extended to other charitable institutions would meet the test of application of income for charitable purposes. Section 11(3)(c) and (d) essentially deal with situations where the income so accumulated is either not utilized or applied for a charitable purpose. It is only in such a situation that the deemed income would lose the sheen of protection of exemption which would otherwise be applicable by virtue of Section 11.”

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