2018 (12) TMI 222 - HC - Income Tax

High Court affirms Tribunal's decision on donation disallowance for AY 2007-08

The High Court upheld the Income Tax Appellate Tribunal's decision regarding donation disallowance for Assessment Year 2007-08. The Tribunal's ruling, ... Exemption u/s 11 - donations being made out of its corpus by the Trust - diversion of income involving infringement of provisions of Section 13 of the Act was made out - Held that:- Gujarat High Court in CIT Vs. Sarladevi Sarabhia Trust No.2 (1988 (3) TMI 53 - GUJARAT HIGH COURT) where on almost identical facts, by relying upon the CBDT instruction No.1132 dated 5th January, 1978 issued by the CBDT that utilization of the funds by making donations to another Trust would amount to application of income within the meaning of Section 11 of the Act. No case of diversion of income involving infringement of provisions of Section 13 of the Act was made out. The grievance of the Revenue is that the donations are being made out of its corpus by the Trust. Thus, the allowance on account of donation should be restricted only to the income for the subject assessment year i.e. ₹ 52.70 lakhs. There is no dispute that the donation made to other Charitable Trust would be an application of income within the meaning of Section 11 of the Act. The only grievance of the Revenue is that the donation has come out of its corpus. CIT(A) found that the corpus itself was accumulation of 15% income from year to year. This view has been upheld by the Tribunal. No statutory provision is shown to us which prohibits the Trust from donating a part of its corpus to another Trust having similar objects for utilization to fulfill its charitable objects. Issues:Challenge to order of Income Tax Appellate Tribunal regarding donation disallowance based on corpus fund utilization for Assessment Year 2007-08.Analysis:1. The appeal challenges the Income Tax Appellate Tribunal's order dated 15th July, 2015, concerning the Assessment Year 2007-08 under Section 260A of the Income Tax Act, 1961.2. The main question raised by the Revenue is whether the Tribunal was correct in upholding the CIT(A)'s decision to allow donations made by the respondent to other Trusts as application of income, despite insufficient income and utilization of corpus funds, contrary to Sec.12(1) of the Income Tax Act, 1961.3. The respondent had donated &8377; 2.04 crores to another Trust with similar objectives during the assessment year, out of which &8377; 1.52 crores was disallowed by the Assessing Officer due to the Trust's income being only &8377; 52.70 lakhs. The Assessing Officer held that using accumulated income for donations does not qualify as application of income for charitable purposes.4. The CIT(A) overturned the Assessing Officer's decision, stating that donations to other Trusts with similar objectives constitute income application under Section 11 of the Act, as the so-called corpus was actually an accumulation of 15% of income over the years, not to be depleted by current donations.5. The Revenue appealed to the Tribunal, which upheld the CIT(A)'s decision, citing the Gujarat High Court case and CBDT instruction, concluding that making donations to another Trust qualifies as income application under Section 11, without infringing Section 13 of the Act.6. The Revenue contended that donations were made from the Trust's corpus, hence should be limited to the income for the assessment year, &8377; 52.70 lakhs.7. The Court acknowledged that donating to charitable Trusts constitutes income application under Section 11, and the issue raised by the Revenue was regarding the source of donations from the corpus. The CIT(A) and Tribunal found that the corpus was an accumulation of income, allowing donations without breaching any statutory provisions.8. Consequently, the Tribunal's decision was upheld as no prohibition was found against Trusts donating part of their corpus to similar Trusts for charitable purposes, leading to the dismissal of the appeal due to no substantial question of law arising.9. The appeal was dismissed with no costs awarded.