1990 (2) TMI 136 - AT - Income Tax

Issues Involved
1. Whether the corpus donation by the donor trust to the donee trust amounts to proper utilization of the accumulated income under section 11(3) of the Income-tax Act, 1961.
2. Whether the donation towards the corpus of another trust with similar objectives amounts to application of income for charitable purposes.
3. Whether the Commissioner of Income-tax was correct in treating the corpus donation as non-utilization for purposes of section 11(3) of the Income-tax Act, 1961.
4. Whether the entire amount of Rs. 17.5 lakhs should be deemed as the income of the donor trust for the assessment year 1982-83.
5. Whether the donor trust violated the undertakings given in Form No. 10 for accumulation of income.
6. Whether the amount of Rs. 3,58,887, representing 25% of the income derived by the donor trust, can be considered as deemed income under section 11(3).

Detailed Analysis

1. Whether the corpus donation by the donor trust to the donee trust amounts to proper utilization of the accumulated income under section 11(3) of the Income-tax Act, 1961.
The Tribunal held that the corpus donation amounts to proper utilization of the accumulated income. The Gujarat High Court decision in Sarladevi Sarabhai Trust's case was cited, which held that keeping the corpus in the hands of another charitable trust with similar objects amounts to utilization. The Tribunal agreed that utilization does not mean spending forthwith, and once the donor trust makes the payment to the donee trust for charitable purposes, it is a proper application of income.

2. Whether the donation towards the corpus of another trust with similar objectives amounts to application of income for charitable purposes.
The Tribunal followed the Gujarat High Court's ruling that donation towards the corpus of another trust with similar objectives amounts to application of income for charitable purposes. The Tribunal also referred to the Madras High Court decision in Thanthi Trust's case, which supported the view that handing over a gift amount to another trust amounts to application of the trust money within the meaning of section 11.

3. Whether the Commissioner of Income-tax was correct in treating the corpus donation as non-utilization for purposes of section 11(3) of the Income-tax Act, 1961.
The Tribunal disagreed with the Commissioner of Income-tax's view that the corpus donation was non-utilization. The Tribunal emphasized that the donation towards the corpus of another trust with similar objectives is a proper application of income for charitable purposes. The Tribunal found that the Commissioner's interpretation was incorrect and set aside his order.

4. Whether the entire amount of Rs. 17.5 lakhs should be deemed as the income of the donor trust for the assessment year 1982-83.
The Tribunal concluded that the entire amount of Rs. 17.5 lakhs should not be deemed as the income of the donor trust. It held that the donation towards the corpus of the donee trust was a proper application of income and did not violate the provisions of section 11(3)(c). Therefore, the amount should not be included as deemed income of the donor trust for the assessment year 1982-83.

5. Whether the donor trust violated the undertakings given in Form No. 10 for accumulation of income.
The Tribunal held that the donor trust did not violate the undertakings given in Form No. 10. The Tribunal found that the corpus donation to the donee trust with similar objectives was in line with the specified charitable purposes mentioned in Form No. 10. Therefore, there was no contravention of the provisions of section 11(3)(c).

6. Whether the amount of Rs. 3,58,887, representing 25% of the income derived by the donor trust, can be considered as deemed income under section 11(3).
The Tribunal held that the amount of Rs. 3,58,887, representing 25% of the income derived by the donor trust, cannot be considered as deemed income under section 11(3). The Tribunal clarified that section 11(3) applies only to the accumulated income permitted under section 11(2) and not to the 25% of income that can be accumulated under section 11(1)(a). Therefore, the amount of Rs. 3,58,887 should not be treated as deemed income.

Conclusion
The Tribunal allowed the appeal, set aside the order of the Commissioner of Income-tax, and restored the order of the Income-tax Officer. The Tribunal concluded that the corpus donation by the donor trust to the donee trust was a proper application of income for charitable purposes and did not violate the provisions of section 11(3)(c).

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