The Chennai bench of the Income Tax Appellate Tribunal (ITAT) held that Donation paid by the assessee to another charitable trust cannot be treated as income of the appellant trust.
The appellant is a charitable trust registered under Section 12A of the Income-tax Act, 1961.The appellant had filed its return of income for the assessment year 2018-19 on 12.09.2018, by declaring Nil total income, after claiming exemption under Section 11 of the Act. The case was selected for scrutiny and during the course of assessment proceedings, the Assessing Officer noticed that the assessee has paid donation of Rs. 24 lakhs to M/s. Sri Selvamuthu Kumar Trust.
According to the Assessing Officer, donation paid to M/s. Sri Selvamuthu Kumar Trust, is not application of income as per the provisions of Section 11 of the Income Tax Act, because the object of the appellant trust and objects of the donee trust are different. Therefore, the Assessing Officer has disallowed donation paid to M/s. Sri Selvamuthu Kumar Trust and treated as income of the assessee.
The assessee carried the matter in appeal before the first appellate authority, but cou not succeed. The CIT(A), vide their order dated 03.06.2022, for the reasons stated therein, rejected arguments of the assessee and sustained additions made towards denial of exemption under Section 11 of the Income Tax Act to donation paid to another trust. Aggrieved by the CIT(A)’s order, the assessee appealed before the tribunal.
After hearing both the parties, the tribunal held that As per Explanation (2) to section 11(1) of the Act, there is a restriction for application of income to corpus donation paid to other charitable trust registered under Section 12A of the Act. In other words, there is no restriction to give any kind of financial assistance including donations to other charitable trust having similar objects and registered under Section 12A of the Act, if said donations are non-corpus donations.
Donation paid by the assessee to another charitable trust cannot be treated as income of the appellant trust, because even after rejection of exemption under Section 11 of the Income Tax Act, to sum of Rs. 24 lakhs, the amount spent by the assessee for charitable purpose for the impugned assessment year is more than 85% of gross receipts and thus, the amount paid by the assessee out of remaining 15% income accumulated by the trust can be utilized for any purpose as per the objects of the trust. In the present case, the assessee has made out a case that its objects provides for giving financial assistance including donations to other trust registered under Section 12A of the Act.
The single member bench consisting of Manjunatha G. (Accountant member) held that the receiving trust is also registered under Section 12A of the Act and entitled for a benefit of Section 11 of the Income Tax Act. Therefore, it was held that the Assessing Officer and CIT(A) had erred in taxing donation paid to other charitable trust as income of the assessee. Thus, the Assessing Officer was directed to delete additions made towards donation paid to other charitable trust as income of the assessee.
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