2011 (7) TMI 767 - AT - Income Tax

Trust granted tax exemption under Section 11 for charitable donations, despite minor discrepancies.

The appeal of the Revenue was dismissed, and the order of the ld. CIT(A) was upheld. The trust was found eligible for exemption under Section 11 of the ... Disallowance of exemption u/s 11 - on the ground that the assessee-trust had made certain donations which were not in conformity with its objects as contained in the Trust Deed - assessee's contention vide his additional written submissions before CIT(A)-XII dated 19-4-2010 that exemption u/s 11 can be denied only if the registration u/s Sec 12A or 12AA is not granted or when the trust has contravened Sec. 13 of the Act, is not correct because withdrawal of registration u/s 12AA is not a prerequisite for withdrawal of exemption u/s 11 - The major portion of the amount disallowed by the Assessing Officer pertains to the donations made to various Trusts having exempt u/s 80G of the Act and other donations are very small amounts related to expenses towards various welfare activities - It is a well settled proposition of law that minor discrepancies found in any Trust’s case have to be ignored - Decided in favor of the assessee Issues Involved:1. Denial of exemption under Section 11 of the Income Tax Act.2. Application of trust income for purposes outside the objects of the trust.3. Validity of donations made to other trusts and political parties.4. Compliance with trust deed and statutory provisions.5. Impact of minor discrepancies on the eligibility for exemption.Detailed Analysis:1. Denial of Exemption under Section 11:The primary issue is whether the assessee-trust is eligible for exemption under Section 11 of the Income Tax Act for the assessment year 2007-08. The Assessing Officer denied the exemption on the grounds that certain donations were not in line with the objects of the trust. The ld. CIT(A) reversed this decision, relying on the decision of the Hon'ble A.P. High Court in the case of Trustees of H.E.H. the Nizam's Pilgrimage Money Trust vs. CWT/IT, which was later approved by the Apex Court.2. Application of Trust Income:The Assessing Officer argued that the income of the trust must be applied as per the provisions of the Income Tax Act, 1961. The trust made donations amounting to Rs. 6,70,21,273/-, including donations to political parties and individuals, which were considered by the Assessing Officer as not in conformity with the trust's objects. The ld. CIT(A) found that the donations were for charitable activities recognized in law and within the objects of the trust.3. Donations to Other Trusts and Political Parties:The Assessing Officer highlighted that major donations were made to trusts where trustees in the assessee trust or their relatives were also trustees. Some donations were made to political parties and individuals, which were not aligned with the educational purposes of the trust. The ld. CIT(A) found that these donations were within the objects of the trust and were primarily for charitable activities.4. Compliance with Trust Deed and Statutory Provisions:The Assessing Officer contended that the trust had violated its objects by making donations outside its educational purposes. The ld. CIT(A) noted that the trust deed allowed donations for charitable purposes and that the trust had not violated Section 13 of the Act. The trust continued to be registered under Section 12A, and the exemption under Section 11 could not be denied without invoking Section 13 or withdrawing the registration.5. Impact of Minor Discrepancies:The ld. CIT(A) emphasized that minor discrepancies should not lead to the denial of exemption under Section 11. The donations made were within the permissible limits and primarily for charitable purposes. The Assessing Officer's remand report accepted most donations, and the ld. CIT(A) concluded that the trust had not carried out any non-charitable activities.Conclusion:The appeal of the Revenue was dismissed, and the order of the ld. CIT(A) was upheld. The trust was found eligible for exemption under Section 11 of the Income Tax Act, as the donations made were within the objects of the trust and primarily for charitable purposes. The minor discrepancies highlighted by the Assessing Officer were not sufficient to deny the exemption. The decision of the Hon'ble A.P. High Court in the case of Trustees of H.E.H. the Nizam's Pilgrimage Money Trust vs. CWT/IT, confirmed by the Apex Court, was a significant basis for this conclusion.