2025 (4) TMI 278 - AT - Income Tax

Trust corpus donations to registered educational trusts qualify as valid income application under section 11 exemption

The DCIT, Circle-1 (Exemptions) Versus M/s Indo Global Education Foundation, Kharar

ITAT Chandigarh dismissed Revenue's appeal regarding trust exemption under section 11. The assessee trust made corpus donations to three other registered ... Assessment of trust - Exemption u/s 11 - Donations made by the assessee trust to other educational trusts - application of income - HELD THAT:- Corpus donation, as given by the assessee trust to the other three registered trusts, has rightly been held as an utilization of income in the case of the assessee trust. CIT(A) has rightly held that the sum, so donated, has to be considered for the purpose of utilization out of the current year's income and the denial of the exemption by the AO cannot be upheld. Appeal of the Revenue is dismissed. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered in this judgment were:1. Whether the donations made by the assessee trust to other educational trusts can be considered as an application of income under the Income Tax Act, 1961.2. Whether the donations to related trusts, specifically Chaman Educational & Charitable Trust, fall under the provisions of Section 13(1)(c) and Section 13(3) of the Income Tax Act, thus affecting the exemption status of the assessee trust.3. Whether the corpus donations made by the assessee trust, which form part of the donee trust's pool of funds, require scrutiny of the donee's activities to ensure compliance with charitable purposes.4. Whether the Assessing Officer's decision to disallow the exemption based on the alleged misuse of funds by the donee trusts was justified.ISSUE-WISE DETAILED ANALYSIS1. Application of Income through Donations- Relevant Legal Framework: Sections 11 and 12 of the Income Tax Act, 1961, provide for the exemption of income from property held under trust for charitable purposes. The Central Board of Direct Taxes (CBDT) Instructions No. 1132 and 1582 clarify the treatment of donations made by one charitable trust to another.- Court's Interpretation and Reasoning: The Tribunal upheld that donations made by the assessee trust to other registered educational trusts constitute a proper application of income for charitable purposes. The Tribunal relied on CBDT instructions and case law to support its interpretation.- Key Evidence and Findings: The assessee trust's donations were made to trusts registered under Section 12AA, with similar charitable objectives. The Tribunal noted that these donations were accepted in previous assessment years without adverse findings.- Application of Law to Facts: The Tribunal applied the legal framework to conclude that the donations were a legitimate application of income, fulfilling the trust's objective of providing education.- Treatment of Competing Arguments: The Revenue argued that the donations were not utilized for charitable purposes by the donee trusts. However, the Tribunal found no evidence of misuse or deviation from charitable objectives.- Conclusions: The donations were deemed an application of income, maintaining the assessee trust's exemption under Sections 11 and 12.2. Donations to Related Trusts and Section 13(1)(c) and 13(3)- Relevant Legal Framework: Section 13(1)(c) and Section 13(3) of the Income Tax Act address the denial of exemption if income or property is used for the benefit of specified persons.- Court's Interpretation and Reasoning: The Tribunal found no evidence of direct or indirect benefits to persons covered under Section 13(3) from the donations made to related trusts.- Key Evidence and Findings: The Tribunal noted that the donations were made to trusts with similar charitable purposes and that no adverse findings were recorded in the donee trusts' assessments.- Application of Law to Facts: The Tribunal concluded that the donations did not violate Section 13 provisions, as there was no evidence of benefits to specified persons.- Treatment of Competing Arguments: The Revenue's argument that the donations were a means to benefit related parties was not supported by evidence.- Conclusions: The Tribunal upheld the exemption status, finding no violation of Section 13 provisions.3. Scrutiny of Donee Trusts' Activities- Relevant Legal Framework: The requirement to ensure that donations are used for charitable purposes is implicit in the application of Sections 11 and 12.- Court's Interpretation and Reasoning: The Tribunal emphasized that the donations were accepted in previous assessments without adverse findings and that the donee trusts were registered under Section 12AA.- Key Evidence and Findings: The Tribunal found no evidence that the donee trusts misused the donations or deviated from their charitable objectives.- Application of Law to Facts: The Tribunal concluded that the donations were properly utilized for charitable purposes, aligning with the legal framework.- Treatment of Competing Arguments: The Revenue's concerns about the donee trusts' activities were not substantiated by evidence.- Conclusions: The Tribunal found no basis to question the genuineness of the donee trusts' activities.4. Justification of the Assessing Officer's Decision- Relevant Legal Framework: The Assessing Officer's role is to ensure compliance with the Income Tax Act, particularly Sections 11, 12, and 13.- Court's Interpretation and Reasoning: The Tribunal found that the Assessing Officer's disallowance of the exemption was not justified, as there was no evidence of misuse or deviation from charitable purposes.- Key Evidence and Findings: The Tribunal noted that similar donations were accepted in previous years without adverse findings.- Application of Law to Facts: The Tribunal concluded that the Assessing Officer's decision was not supported by evidence or legal precedent.- Treatment of Competing Arguments: The Tribunal dismissed the Revenue's arguments, emphasizing the lack of evidence for misuse.- Conclusions: The Tribunal upheld the CIT(A)'s decision to allow the exemption, dismissing the Revenue's appeal.SIGNIFICANT HOLDINGS- The Tribunal confirmed that donations made by a charitable trust to another registered charitable trust for similar purposes constitute a proper application of income under Sections 11 and 12.- The Tribunal held that there was no violation of Section 13 provisions, as there was no evidence of direct or indirect benefits to specified persons.- The Tribunal emphasized the importance of consistent treatment across assessment years, noting that similar donations were accepted in previous years without adverse findings.- The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decision to allow the exemption for the assessee trust.