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TMI Blog2013 (10) TMI 875X X X X Extracts X X X X X X X X Extracts X X X X ..... t from 01.04.1962. - Decided against the assessee. Exemption u/s 11(1)(a) of the Income Tax Act – Donation made to TEF, a charitable institution under the same management - Held that:- The law in the matter is by now well settled, so that donation by one charitable trust to another would entitle the donor fund to claim exemption qua application of income u/s. 11(1). As pointed out by the hon'ble court in Sarladevi Sarabhai Trust (No. 2) (1988 (3) TMI 53 - GUJARAT High Court), it would make no difference if the donation is toward the corpus of the donee-fund, so that it is only the income therefrom, and not the donation sum itself, that is liable to be spent for or utilized for the charitable purposes of the recipient. The word 'application' has a wider connotation than the word 'spent', so that an application of income of the donor trust could not be denied. Again, the corpus fund may not necessarily be invested in specified securities but could also be toward capital expenditure, which again qualifies as an application of income. The amount of Rs. 20.80 lacs is paid to TEF for the scholarship to students of Tolani Maritime Institute, being run by it, i.e., the payee-trust. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 01558/-), arrived at the annual value of Rs.68.49 lacs, on which the statutory deduction u/s. 24(a) was claimed to arrive at the property income. The same did not find acceptance by the Assessing Officer (AO), in whose view the income of a charitable institution or trust from any source is to be computed not under any head of income but as per its regular accounts. The same found confirmation by the ld. CIT(A). With reference to the decisions in the case CIT vs. Programme for Community Organization [2001] 248 ITR 1 (SC) and CIT vs. Rao Bahadur Calavala Cunnan Chetty Charities [1982] 135 ITR 485 (Mad.), it was explained by him that the income which is to be applied for charitable purposes and, consequently, is subject to exemption u/s. 11, is that which is available, so that the same is to be considered and arrived at in the commercial sense. Accordingly, the entire receipt less the actual expenditure, viz. municipal taxes, expenses toward repair and maintenance of building, etc., i.e., the net income so arrived, is to be considered for exemption u/s. 11. No separate deduction u/s. 24, as claimed, would be exigible. Aggrieved, the assesse is in second appeal before us, and which for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to exemption u/s. 11(1). Also, the position would not alter when the donation, as in the instant case, is towards the donee's corpus, so that it can utilize only the income from the said corpus donation (which is to be invested in specified securities) for charitable purposes. In view thereof, the ld. CIT(A) deleted the addition of Rs.24 lakhs, so that, aggrieved, the Revenue is in appeal. Subsequent to the assessment on 15.12.2006, it was found by the Revenue that the assessee had in fact given donation for Rs.60 lakhs, and not Rs.24 lakhs only to TEF during the relevant previous year, as under (refer pg. 22/ PB 2): Receipt No. Date Cheque No. Amount 414 21.11.2003 030771 30,00,000 410 15.09.2003 030765 15,00,000 409 12.09.2003 030764 15,00,000 As the donation of Rs.24 lakhs to TEF had been already added to income, the balance Rs. 36 lakhs was similarly proposed for addition. While conceding to the factual position, it was explained by the assessee in the reassessment proceedings that it had properly accounted the entire donation in its books, i.e., Rs.24 lak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , claimed exempt u/s.11(1)(a). That is, the sums debited by the assessee to the income and expenditure account include donations for Rs.47.06 lacs, including corpus donation of Rs.24 lacs disallowed, which are admittedly an application of income. Even otherwise, it is nobody's case that the trust is required to spend on its objects for charitable purposes more than its income, being, rather, unfeasible. 3.2 The first issue arising in the instant appeals is the validity in law of the assessee's claim toward repairs and maintenance u/s. 24 of the Act in computing the income from house property let out by the assesse, and toward which it has (subsequently) raised a single, precise ground. The claim is, by all counts, without merit. This is for the simple reason that the income of a charitable trust or institution, subject to its application for charitable purposes, for which it has been in fact formed (per its constituting charter) is exempt from tax under Chapter III (ss.10 to 13B) of the Act. The said income does not form part of the total income of the entity to which it arises or accrues or is received by. It is only the income forming part of the total income u/s.2(45) of the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decision in the case of Harprasad Co. (P.) Ltd. (supra). The reliance by the ld. CIT(A) on the Circular issued by the Board (No.5P(LXX6) dated 19.06.1968), explaining the position in the matter, is also apposite. It stands explained that only the income as reflected in the accounts of the trust/institution that is to be applied or deemed to have been applied for charitable purposes, and which, therefore, has to be computed in the commercial sense. The said Circular has been found by the hon'ble courts of law as representing the correct interpretation of the relevant provisions and the requirement of the law, as in the case of CIT vs. Programme for Community Organisation [1997] 228 ITR 620 (Ker), since approved by the apex court (reported at [2001] 248 ITR 1 (SC)), to which (latter) decision reference stands also made by the ld. CIT(A). This aspect of the matter, i.e., the manner of computation of income of a charitable or religious trust/institution which has to be applied for the said purposes, has been a subject matter of a number of decisions, as by the hon'ble jurisdictional High Court in the case of CIT vs. Institute of Banking Personnel Selection (IBPS) [2003] 264 ITR 110 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... therwise decided the matter following the binding precedents in the matter, so that the decision in the case of Bank of Baroda v. H.C. Shrivastava [2002] 256 ITR 385 (Bom), advocating judicial discipline with reference to the decision by the apex court in CCE v. Dunlop India Ltd. AIR 1985 SC 330, only supports the same. The decision in the case of Al Ameen Educational Society v. DIT (Exemption) (in ITA No. 575/Bang./2011 dated 28/9/2012, also at [2012] 26 taxmann.com 250 (Bang.)) is again only in respect of the specific provision of sec. 11(1A) of the Act, i.e., qua capital gain, and, thus, not applicable. We have already clarified that our decision is based on and represents the general position of law, so that it would be subject to the specific provisions of the Act, giving example of ss. 11(4) and 11(4A). It may be relevant to state that the decision by the apex court in Harprasad Co. (P.) Ltd. (supra), referred to earlier, is also in respect of capital gains. 3.3 We may next consider the add-back of the donations for Rs. 24 lacs and Rs. 36 lacs, forming part of the total sum of Rs. 60 lacs paid by the assesse to TEF, a charitable institution under the same management, duri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ately. The sum of Rs. 24 lacs is admittedly a corpus donation (also refer ledger accounts in the books of the donor and the donee - pages 24, 26 / PB 2). The law in the matter is by now well settled, so that donation by one charitable trust to another would entitle the donor fund to claim exemption qua application of income u/s. 11(1). As pointed out by the hon'ble court in Sarladevi Sarabhai Trust (No. 2) (supra), it would make no difference if the donation is toward the corpus of the donee-fund, so that it is only the income therefrom, and not the donation sum itself, that is liable to be spent for or utilized for the charitable purposes of the recipient. The word 'application' has a wider connotation than the word 'spent', so that an application of income of the donor trust could not be denied. Again, the corpus fund may not necessarily be invested in specified securities but could also be toward capital expenditure, which again qualifies as an application of income. The objection, thus, raised by the Revenue is not maintainable. Coming to the donations for Rs. 36 lacs; the same have been explained as: - Rs. 20.80 lacs toward scholarship to students Marine Engg. of TEF - R ..... X X X X Extracts X X X X X X X X Extracts X X X X
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