Donation to Trust by a Trust

[Anand Barpute]

Dear Friends Can a Charitable trust donate its assets and liabilities to other trust with similar objects or Can a trust merge with other trust with similar object If yes what are the Income tax implications of Donations and merger Which is convenient

CA Barpute

cell no 09822426111

[CAGOPALJI AGRAWAL]

Donations can be made by a trust to another trust but the assets and liabilities may be made only with the prior permission of the Income Tax Department.It is presumed that trust is registered u/s 12A or 12AA.

[Darshan Jain]

One charitable trust can very well make donation to another for utilization by the donee trust towards its charitable objects. This is treated as proper application of income and as such the donor trust shall not loose its exemption. Ref. CBDT inst No. 1132, dt 05.01.1978 and 172 ITR 698 (Guj.). However,the benefit of the inst. would not be available for accumulation done by filling Form-10, for future specified use. In case if you have made accumulation in excess of 15% apply to the AO, as he has powers u/s. 11(3A) to allow variation. Merger of trust is a Grey area as far as IT Act is concerned but if done in accordance with the order of the Charity Commission, should not pose any problem. Position as to donations to other charity is well settled and therefore think donation is more convenient. Prior to making donations you may also check with the provisions of your state laws in this respect.

AI Summary

Charitable trust donations preserve exemption when applied to like objects; transfers may require prior tax authority permission. A charitable trust may donate assets to another trust for application to similar charitable objects without losing exemption, but transfers of assets and liabilities may need prior permission of the income tax authorities and must comply with state law. Accumulations under formal provisions (Form 10) do not receive the same treatment, and excess accumulation may be dealt with by applying to the assessing officer exercising variation powers. Merger remains legally uncertain but aligned Charity Commission orders reduce difficulty; donations are generally the more convenient route.