ITAT allows inter-charity donations from income up to 15%: surplus not taxable

The ITAT upheld the CIT(A)'s decision to delete the addition of surplus income in a case concerning inter-charity donations made out of accumulation of income exceeding 15% of total income. The ITAT clarified that the Explanation to sec. 11(2) did not apply to accumulation up to 15% under sec. 11(1)(a), as per a Delhi High Court decision. Consequently, the ITAT dismissed the Revenue's appeal, affirming that inter-charity donations from accumulation up to 15% of income were not restricted by the Explanation.

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Issues:
Inter-charity donations out of accumulation of income in excess of 15% of income.

Analysis:
The case involved the interpretation of the provisions of Explanation to sec. 11(2) of the Income Tax Act regarding inter-charity donations made out of accumulation of income exceeding 15% of the total income. The appellant, a hospital running for philanthropic purposes, had debited a substantial amount as donations to a trust. The Assessing Officer (AO) questioned the application of income, considering the donation was from accumulated income, and taxed the surplus amount. The appellant argued that the Explanation to sec. 11(2) did not cover accumulation out of 15% or 25% of surplus income, citing a CBDT Circular and the absence of accumulation exceeding 15% in any year. The AO rejected the argument, deeming it absurd.

Before the CIT(A), the appellant reiterated that the Explanation to sec. 11(2) only explained sec. 11(2) and not sec. 11(1), supported by a Delhi High Court decision. The CIT(A) ruled in favor of the appellant, relying on the same High Court decision, stating that the Explanation did not apply to accumulation up to 15% as per sec. 11(1)(a). The Revenue appealed, supported by the AO's order, while the appellant cited the High Court decision again.

The ITAT, Delhi analyzed the provisions of sec. 11(1)(a) and sec. 11(2) along with the Explanation, emphasizing the distinction between accumulation exceeding 15% and up to 15% of income. Referring to the High Court decision, the ITAT concurred that the Explanation was an additional condition for accumulation over 15%, not applicable to accumulation up to 15% under sec. 11(1)(a). Consequently, the ITAT upheld the CIT(A)'s decision to delete the addition of the surplus income, dismissing the Revenue's appeal.

In conclusion, the ITAT affirmed that the Explanation to sec. 11(2) did not restrict inter-charity donations from accumulation up to 15% of income, as clarified by the Delhi High Court decision. Therefore, the ITAT upheld the CIT(A)'s decision to delete the addition, dismissing the Revenue's appeal.

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