2021 (2) TMI 739 - AT - Income Tax

Exemption u/s 11 - Registration u/s 12AA denied - donation to Roman Catholic Diocese Private Limited - during the year under consideration admittedly the said donee entity was never engaged in the activities of medical relief and running of hospitals - whether donation given by one charitable institution to another charitable institution is to be treated as application of income u/s 11 and is exempt from income-tax? - as per AO object of the donor and the donee society are not same, as can be seen from their Memorandum of Association, and hence said amount cannot be considered as application of income for charitable purposes - HELD THAT - we do not find that any clause in the object clause of Memorandum of Association of the assessee was wide enough to cover the activities in the field of education , as all the clauses are towards incidental and attainment of main object of the assessee to establish and run hospitals, nursing homes , welfare homes , rest houses for the good and benefit of the people. The entire object clauses of the assessee as well of the donee are reproduced by ld. CIT(A) in its appellate order. The Residuary clause M is also towards the attainment of main object of the assessee to establish and run hospitals, nursing homes , welfare homes , rest houses for the good and benefit of the people, - Thus, in our considered view the act of donating/contributing ₹ 72, 00, 000/- as donation by the assessee to donee viz. Roman Catholoc Diocose Private Limited , was ultra vires the object clause of the donor and does not comply with the mandate of Section 11(1)(a). It is true that the assessee can either itself carry out charitable activities or it can contribute to other trust or institution who is carrying on the activities which are also the same/similar as per assessee s object clause in Memorandum of Association. The assessee s Memorandum of Association permit carrying on activities to establish and run hospitals , nursing homes, welfare homes , rest houses for the good and benefit of the people and the assessee infact is engaged in running hospital and school of nursing at Allahabad, while the donee entity namely Roman Catholic Diocese Private Limited is engaged in the activities in the field of education.. Although , the object clause of Roman Catholic Diocese Private Limited refers to hospitals , but what transpires from enquiries conducted by lower authorities that during the year under consideration admittedly the said donee entity was never engaged in the activities of medical relief and running of hospitals , and in fact it utilized the donation of ₹ 72 lacs received from assessee for the purposes of education. The objects of the donor viz. assessee only permitted to engage in activities to establish and run hospitals, nursing homes, welfare homes, rest houses for the good and benefit of the people, and other objects which are incidental to the attainment of above main object . The objects as are approved by assessee no where stipulated engaging in educational activities and its act in donating ₹ 72 lacs to a charitable organization namely M/s Roman Catholic Diocese Private Limited who is engaged in educational activities, is an act ultra vires to the object clause of the assessee and also does not fulfill the condition as stipulated u/s 11(1)(a) to apply its income for such purposes in India . Thus, based on detailed discussions above, we hold that the assessee will not be entitled for exemption of ₹ 72 lacs paid by it as donation to M/s Roman Catholic Diocese Private Limited, under the provisions of Section 11(1)(a) of the 1961 Act and the appeal filed by assessee fails.

Summary

Issues Involved:
1. Whether the contribution of ?72,00,000 made by the assessee to another charitable institution qualifies as application of income for charitable purposes under Section 11(1)(a) of the Income-tax Act, 1961.

Issue-Wise Detailed Analysis:

1. Application of Income for Charitable Purposes:
The primary issue revolves around whether the donation of ?72,00,000 by the assessee, a charitable institution engaged in medical relief, to another charitable institution engaged in education, qualifies as an application of income for charitable purposes under Section 11(1)(a) of the Income-tax Act, 1961.

Facts of the Case:
- The assessee, a charitable society running hospitals and a school of nursing, was registered under Section 12AA of the Income-tax Act.
- The assessee claimed exemption under Section 11 for the assessment year 2012-13.
- The assessee contributed ?72,00,000 to Roman Catholic Diocese Private Limited (RCD), another charitable institution registered under Section 12AA but engaged in educational activities.
- The Assessing Officer (AO) disallowed the exemption, arguing that the objects of the donor (medical relief) and the donee (education) were not the same, thus the donation could not be considered as application of income for charitable purposes.

Arguments by Assessee:
- The assessee argued that the donation to another charitable institution should be treated as an application of income under Section 11(1)(a).
- The assessee relied on various judicial precedents and CBDT circulars to support their claim.

Findings by CIT(A):
- The CIT(A) upheld the AO’s decision, stating that the objects of the donor and donee were distinct.
- The CIT(A) emphasized that the application of income must align with the specific charitable purposes for which the donor trust was established.
- The CIT(A) cited the judgment in CIT vs. J.K. Charitable Trust (1992) 196 ITR 31 (All. HC), which held that donations made by one charitable trust to another are allowable as application of income only if the donee trust advances the cause of the donor trust.

Tribunal’s Analysis:
- The Tribunal examined the relevant provisions of the Income-tax Act, including Sections 2(15), 11(1)(a), 11(2), 11(3), and 11(3A).
- It was noted that the term "such purposes" in Section 11(1)(a) refers to the specific purposes for which the trust was established.
- The Tribunal referred to the decision of the Hon’ble Delhi High Court in the case of Mool Chand Khairati Ram Trust vs. Director of Income Tax (Exemptions), which held that income must be applied for the specific charitable purposes for which the property is held in trust.
- The Tribunal concluded that the donation of ?72,00,000 by the assessee to RCD, which was engaged in educational activities, was ultra vires to the object clause of the assessee (medical relief).
- The Tribunal held that the donation did not fulfill the condition of being applied for "such purposes" as required under Section 11(1)(a).

Conclusion:
- The Tribunal upheld the disallowance of the exemption claimed by the assessee for the donation of ?72,00,000 to RCD.
- The appeal filed by the assessee was dismissed, affirming that the donation to an institution with different charitable objects does not qualify as an application of income for the purposes of Section 11(1)(a).

Order Pronounced:
- The appeal filed by the assessee in ITA No. 165/Alld/2018 for the assessment year 2012-13 was dismissed.

Significance:
- This judgment underscores the importance of ensuring that donations made by a charitable institution align with its specific objects as defined in its trust deed or memorandum of association.
- It clarifies that the term "such purposes" in Section 11(1)(a) has a restrictive meaning, referring to the specific purposes for which the trust was established.