Application of income by one charitable trust to another trust with similar objects preserves section 11 exemption

Payment by one charitable trust to another trust with identical charitable objects was treated as application of income for charitable purposes under the governing statutory framework. The expenditure was made for development and expansion of the university, and the statute expressly contemplated funding support between the entities. Relying on the jurisdictional High Court view, the analysis states that a donor trust does not lose section 11 exemption merely because the recipient trust retains or applies the amount according to its own charitable needs. The Revenue's challenge therefore failed, and the addition was deleted.

---

---

Issues: Whether capital expenditure incurred by a charitable trust on assets of another trust having identical charitable objects, in terms of the governing statute, could be treated as application of income for charitable purposes so as to preserve exemption under section 11 of the Income-tax Act, 1961.

Analysis: The expenditure was incurred for the development and expansion of the university pursuant to the governing statute, and both entities pursued the same charitable object of education, training and research in the energy sector. The payment was made to a separate charitable institution with similar objects, and the governing statute expressly contemplated such funding support. Reliance was also placed on the jurisdictional High Court decision holding that payment by one charitable trust to another charitable trust for its objects amounts to application of income by the donor trust, and that the donor does not lose exemption merely because the donee trust retains or applies the amount according to its own needs. The CBDT instruction referred to in that decision equally supported the same position.

Conclusion: The expenditure was valid application of income for charitable purposes and exemption under section 11 could not be denied. The Revenue's challenge failed.

Final Conclusion: The addition was rightly deleted and the Revenue's appeal was liable to be dismissed.

Ratio Decidendi: Payment by a charitable trust to another charitable trust having similar objects, when made in accordance with the governing statutory framework, constitutes application of income for charitable purposes under section 11, and the donor trust does not lose exemption merely because the recipient trust utilises or retains the amount as corpus or otherwise in accordance with its own charitable objects.

---