2019 (5) TMI 1064 - HC - Income Tax

Exemption u/s 11 - interest-free loan advanced to other charitable trusts RKSCT - violation of Section 13(3) - CIT (A) who held that RKSCT was itself registered u/s 12A and that the advancing of a loan by one charitable trust to another should be treated as application of income towards the objects of the trust - ITAT held that this advancing of loan to another trust did not violate either Section 13(1)(c) or 13(2)(g) - HELD THAT - The issue appears to be no longer res integra. In CIT v. Shri Ram Memorial Foundation 2004 (5) TMI 44 - DELHI HIGH COURT the donation of income to another charitable trust was held to be in consonance with the objects of the trust. Subsequently, in Director of Income-Tax v. ACME Educational Society 2010 (7) TMI 159 - DELHI HIGH COURT this Court again upheld the advancing of a loan by one charitable trust to the other. The Court referred to an earlier decision of Director of Income-Tax v. Pariwar Sewa Sansthan 2001 (5) TMI 13 - DELHI HIGH COURT in this regard. In view of the decision in Director of Income Tax (Exemption) v. Bagri Foundation 2010 (7) TMI 85 - DELHI HIGH COURT which has considered the above explanation to Section 11(2) of the Act the Court, the Court finds that no substantial question of law arises in this appeal.

Summary

Issues:
1. Whether the interest-free loan advanced by the Assessee to a charitable trust violated Section 13(3) of the Income Tax Act, 1951?
2. Whether advancing a loan to another charitable trust constituted a violation of Section 13(1)(c)(ii) of the Act?
3. Whether the explanation under Section 11(2) of the Act prohibits one charitable trust from donating or advancing a loan to another charitable trust registered under Section 12A?

Analysis:
1. The appeal by the Revenue was against an order passed by the ITAT concerning an interest-free loan advanced by the Assessee to a charitable trust. The AO initially held that this violated Section 13(1)(c)(ii) of the Act. However, the CIT (A) disagreed, stating that the loan should be treated as an application of income towards the trust's objects.
2. The ITAT accepted the Assessee's plea that the loan was actually for the Assessee's own land acquisition, not the other trust. Another issue arose regarding the interest-free loan to the charitable trust, which the ITAT ruled did not violate Section 13(1)(c) or 13(2)(g) of the Act.
3. The Revenue contended that the ITAT's observation allowing one charitable trust to donate or advance a loan to another trust contradicted the Act's explanation under Section 11(2). The Court examined past judgments, including CIT v. Shri Ram Memorial Foundation and Director of Income-Tax v. Bagri Foundation, which upheld donations between trusts. The Court clarified that the Act did not prohibit donations between trusts, especially when the entire income for a year is donated. The Court dismissed the appeal, citing no substantial question of law based on previous decisions supporting inter-trust donations.