No Illegality in ITAT Order allowing Donations made by Charitable Trust to another Charitable Trust: Calcutta HC [Read Judgment]

The Calcutta High Court in Commissioner of Income Tax (Exemption) vs. St. Joseph Convent Chandannagar Educational Society upheld the decision of the Income Tax Appellate Tribunal (ITAT) in holding that there was is no illegality in allowing the Donations made by one Charitable Trust to another Charitable Trust.

The assessee is a charitable trust and certain amount of money was made over by the assessee to another charitable trust. The assessee also received donations from another charity trust. According to the Revenue, Sections 11 to 13 of the Income Tax Act, 1961 do not permit the income generated by a trust to be made over to another trust irrespective of the nature of the activity of the donee trust since the charitable activity for which exemption is granted by the certificate issued under Section 12A of the Income Tax Act, 1961 is the charitable activity of the assessee trust.

The ITAT interpreted the said provision more liberally and made it clear that the said provision would only apply when a person contributes more than Rs. 50,000 to the assessee charitable trust and the trust makes some payment to such person. It noted that the Revenue had not questioned the propriety of the donation or even asserted that the funds of the trust had been diverted by such process. The Tribunal had held that the true intention of Section 13(1)(c) of the Income Tax Act, 1961 was to ensure that the funds of an entity granted a special exemption are not misapplied or diverted for use as income.

The Bench comprising of Justice Sanjib Banerjee and Justice Abhijit Gangopadhyay found that the Tribunal had rightly decided the case. “In the light of the Tribunal’s treatment of the facts, no real legal issue arises since the Tribunal interpreted the appropriate provisions and applied the same in the context of the facts. As to whether the Tribunal was right or wrong is not really a question of law. As to the interpretation of Section 13(1)(c), it does not appear that the view expressed by the Appellate Tribunal is inappropriate. For the reasons indicated above and, particularly, since there was no allegation of the income of the assessee trust being diverted for non-charitable purposes, the Appellate Tribunal’s order does not warrant any interference.” said the Bench.