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TMI Blog2016 (5) TMI 588X X X X Extracts X X X X X X X X Extracts X X X X ..... a dated 7.10.2009 with retrospective effect from 1.4.2009 for various public charitable purposes as enumerated in the Memorandum and By-Laws of the Society. The assessee society is running St.Joseph's Convent School, St. Anthony High School, St. Anthony Primary School, Nanette Nursery School, St.Mary's Social Service Centre and St.Joseph's Dispensary. The Learned AO during the course of assessment proceedings found that a sum of Rs. 6,76,132/- was received by the assessee society as donation from Society of St. Joseph of Cluny, Kolkata for building construction at Kanchrapara and the assessee society gave donation of Rs. 18,30,000/- to the said Society of St. Joseph of Cluny, Kolkata. The Learned AO observed that the assessee had contravened the provisions of section 13(1)(c ) of the Act and accordingly brought the Excess of Income over Expenditure amounting to Rs. 77,39,624/- to tax. He also disallowed the donation paid by the assessee society to another society (St.Joseph of Cluny, Kolkata) in the sum of Rs. 18,30,000/- and determined the total income at Rs. 95,69,620/- and taxed the same at maximum marginal rate. 4. On first appeal, the Learned CITA held that donations made by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee would lose exemption u/s 11 of the Act for the whole of its income or only to the extent of violation of section 13(1)(c ) of the Act. We proceed to answer the issues one by one. 5.1. First, the donation given by one trust to another trust is to be construed only as an application of income. The Charitable trust is constituted for charitable purposes with a philanthropic mind to give donation. The payment made for benevolent cause is always a charity. Inter-charity donation given will be treated as income applied for charitable or religious purposes and application within the meaning of section 11(1)(a) of the Act. In this regard, it would be relevant to get into the amendments in the provisions of section 11 of the Act by Finance Act 2002 and 2003 as below. The Finance Act 2002 has inserted an Explanation to sub-section (2) of section 11. This Explanation prohibits donations to other charitable organizations out of the accumulated funds. The new amendment puts restriction on donations to other charities only out of accumulated funds. In other words, funds once accumulated under section 11(2) of the Act can only be applied for charitable purposes directly by the concern ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itution referred to in subclause (iv) or (v) or (vi) or (via) of clause (23C) of section 10, such payment or credit shall be deemed to be the income of the person making such payment or credit, of the previous year in which such payment or credit is made. 21.3 A proviso in sub-section (3A) has also been inserted so as to provide that the Assessing Officer shall not allow application of accumulated income by way of payment or credit made for the purposes referred to in clause (d)of sub-section (3) of section 11. This takes away the discretion of the Assessing Officer provided in subsection (3A) to allow the trusts to apply the accumulated income for payment or credit to other charitable or religious trusts and institutions From the above, it could be safely concluded that the donation by one trust to another trust out of current year's income is very much permissible as per section 11 of the Act. The following decisions also support the proposition laid down herein:- (a) Decision of the Hon'ble Calcutta High Court in the case of CIT vs Hindustan Charity Trust reported in (1983) 139 ITR 913 (Cal) wherein it was held that :- Donation having been made to another trust under beli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntained in section 11 or section 12 shall operate so as to exclude from the total income of the previous year of the person in receipt thereof - (a) -- -- -- -- - (b) -- -- -- -- - (c) In the case of a trust for charitable or religious purposes or a charitable or religious institution, any income thereof- (i) -- -- -- - (ii) if any part of such income or any property of the trust or the institution (whenever created or established) is during the previous year used or applied, directly or indirectly for the benefit of any person referred to in sub-section (3)." For the sake of convenience, the provisions of section 13(3) are reproduced hereunder:- 13(3) - The persons referred to in clause (c ) of sub-section (1) and sub-section (2) are the following, namely :- (a) The author of the trust or the founder of the institution ; (b) Any person who has made a substantial contribution to the trust or (c) Where such author, founder or person is a Hindu Undivided family, a institution, that is to say, any person whose total contribution upto the end of the relevant previous year exceeds fifty thousand rupees; member of the family ; (cc) any trustee of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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