2018 (5) TMI 1277 - HC - Income Tax

Charitable Trusts Can Transfer Donations Tax-Free Under Income Tax Act

Commissioner of Income Tax (Exemption), Kolkata Versus St. Joseph Convent Chandannagar Educational Society

The High Court of Calcutta upheld the Appellate Tribunal's decision allowing donations from one charitable trust to another under the Income Tax Act, ... Exemption u/s 11 - income of the assessee trust being diverted for non-charitable purposes - Held that:- Appellate Tribunal interpreted the relevant provisions to imply that it is only if a person contributes more than ₹ 50,000/- to the assessee charitable trust and the trust makes some payment to such person, would the transaction fall within the mischief of the relevant provisions. Appellate Tribunal found, as a matter of fact, that the Revenue had not questioned the propriety of the donation or even asserted that the funds of the trust had been diverted by such process. Appellate Tribunal appropriately held that the true intention of Section 13(1)(c) of the Act was to ensure that the funds of an entity granted a special exemption are not misapplied or diverted for use as income. Tribunal’s treatment of the facts, no real legal issue arises since the Tribunal interpreted the appropriate provisions and applied the same in the context of the facts. As to whether the Tribunal was right or wrong is not really a question of law. As to the interpretation of Section 13(1)(c), it does not appear that the view expressed by the Appellate Tribunal is inappropriate. For the reasons indicated above and, particularly, since there was no allegation of the income of the assessee trust being diverted for non-charitable purposes, the Appellate Tribunal’s order does not warrant any interference. No substantial question of law has arisen on the facts. Issues:Interpretation of Sections 11 to 13 of the Income Tax Act, 1961 regarding donations made by a charitable trust to another trust.Analysis:The High Court of Calcutta addressed the issue of whether a charitable trust can make donations to another charitable trust under Sections 11 to 13 of the Income Tax Act, 1961. The Revenue challenged an order by the Appellate Tribunal allowing such donations, arguing that the income generated by a trust cannot be transferred to another trust. The Court noted that while the assessee trust did transfer money to another trust and received donations in return, the Appellate Tribunal found that the Revenue did not question the propriety of the donations or allege any diversion of funds. The Tribunal interpreted the provisions to require a person to contribute over a certain amount for the transaction to be problematic, and emphasized that the purpose of Section 13(1)(c) is to prevent misapplication of funds granted special exemption. The Court concluded that the Tribunal's interpretation and application of the law to the facts were appropriate, and there was no real legal issue since the Tribunal's decision was based on factual analysis rather than a legal question.The Court further stated that there was no allegation of the income of the assessee trust being diverted for non-charitable purposes, and therefore, the Appellate Tribunal's decision did not require any intervention. The Court found that no substantial question of law arose from the facts presented in the case. Consequently, the Court dismissed ITAT No.399 of 2016 and GA No.3439 of 2016, with no order as to costs.