2016 (7) TMI 846 - AT - Income Tax

Addition u/s 13(1)(b) - nature of donation - disallowance made on the contribution made by the assessee to Little Flower Monastery - Held that - The assessee registered as charitable trust and its objective should be solely concentrated to the charitable activities only. The charitable Trust carry on those objects which are enlisted in its object clause could spend its income for that purpose only. Though ld.A.R agreed that the assessee is a charitable trust, he made a plea that religious activities is also permitted to be carried on. However, charitable Trust cannot carry on religious activities. As such in our opinion the donation given to activities carried on by the assessee to another Trust, which in turn related to the religious activities, then the assessee is hit by provisions of the section 13(1)(b) of the Act. Being so, the assessee cannot be granted the exemption u/s.11 of the Act, though the assessee donated to religious trust out of income of assessee trust. It needless to say herein that any charity donation out of accumulated funds is not possible after 01.04.2002 as it is hit by sec.11(3) (d) of the Act. However, this is not the case herein before us. We are concerned herein about donation out of current income to another institution with religious objects cannot be considered as application of income for charitable purpose. In other words, the charitable trust cannot donate to the trust which is formed for religious purpose. - Decided against assessee

Summary

Issues Involved:
1. Disallowance of contributions made to a religious trust under Section 13(1)(b) of the Income Tax Act.
2. Applicability of Section 11(3) and Section 11(5)(d) regarding the donation of income by a charitable trust.
3. Admissibility of additional grounds raised by the assessee.
4. Impact of excess application of income on the exemption under Section 11.
5. Revenue's appeal against the CIT(A)'s decision to grant exemption despite the violation of Section 13(1)(b).

Issue-wise Detailed Analysis:

1. Disallowance of Contributions Made to a Religious Trust under Section 13(1)(b):
The primary issue in ITA Nos. 2270/Mds./14 and 1222/Mds./14 (Assessee's Appeals) and ITA No. 2714/Mds./14 (Revenue's Appeal) revolves around the disallowance of contributions made by the assessee to M/s. Little Flower Monastery, Coimbatore. The Assessing Officer (AO) disallowed these contributions on the grounds that the recipient, M/s. Little Flower Monastery, is a religious trust, and contributions to such a trust are hit by Section 13(1)(b) of the Income Tax Act, which debars charitable institutions from existing for a particular religious community. The CIT(A) upheld this disallowance, stating that the Monastery did not carry out any charitable activities and was advancing money to various provinces of the Christian Missionary, thus classifying it as a religious institution.

2. Applicability of Section 11(3) and Section 11(5)(d):
The assessee argued that the contributions were made out of its income for the relevant assessment year and not from accumulated income, hence Section 11(3) and not Section 11(5)(d) should apply. The Tribunal noted that as per the provisions of Section 11(1), a charitable trust must apply 85% of its income for charitable or religious purposes. However, if income is paid or credited to another trust or institution, it is deemed to be the income of the assessee as per Section 11(3) and Section 11(5)(d). The Tribunal concluded that donations to a trust with religious objects cannot be considered as an application of income for charitable purposes, thus upholding the disallowance.

3. Admissibility of Additional Grounds Raised by the Assessee:
In ITA No. 1222/Mds./14, the assessee raised additional grounds regarding the excess application of income. The Tribunal admitted these additional grounds, citing the Supreme Court's judgment in National Thermal Power Co. Ltd. Vs. CIT, which allows new grounds to be raised if they involve questions of law arising from the facts on record.

4. Impact of Excess Application of Income on the Exemption under Section 11:
The assessee contended that even after disallowing the contribution, there was an excess application of income, which should entitle it to exemption under Section 11. However, the Tribunal rejected this argument, stating that any violation under Section 13(1)(b) results in the loss of exemption under Section 11, regardless of the excess application of income.

5. Revenue's Appeal Against the CIT(A)'s Decision:
In ITA No. 2714/Mds./14, the Revenue challenged the CIT(A)'s decision to grant the assessee the benefit of set off against excess application of income despite the violation of Section 13(1)(b). The Tribunal agreed with the Revenue, reiterating that contributions to a religious trust result in the loss of exemption under Section 11, and thus, the appeal of the Revenue was allowed.

Conclusion:
The Tribunal dismissed the assessee's appeals for the assessment years 2009-10 and 2010-11, upholding the disallowance of contributions made to M/s. Little Flower Monastery under Section 13(1)(b). The Revenue's appeal for the assessment year 2011-12 was allowed, reinforcing that contributions to a religious trust result in the loss of exemption under Section 11. The Tribunal emphasized that a charitable trust cannot donate to a trust formed for religious purposes, and any violation of Section 13(1)(b) leads to the loss of exemption under Section 11.