TaxTMI 
TaxTMI 
1987 (1) TMI 167
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....ust had made certain donations to certain other trusts and while making those donations it was stated that they were also being made towards the corpus of those trusts. According to the ITO, the wish of the donors who donated to the assessee towards its corpus was defeated by further donating those amounts to other trusts. According to him, the trustees of the trust were not competent to use the corpus for giving such donations to other trusts. According to the ITO, the corpus should have been maintained as such by the assessee trust. It is only at the time of winding up of a trust that its corpus could have been handed over to similar other trust. The ITO further went behind the purpose of such donations out of corpus. He observed that the....
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....for giving donation to other charitable trust. It was found that the donations received had been invested in debentures of various companies and later on these debentures were donated to the corpus of other charitable trusts or institutions. Besides, the decision of the Allahabad High Court in the case of Dwarkadheesh Charitable Trust vs. ITO (1975) 98 ITR 557(All). Reliance was placed on certain orders of the Bombay Bench of the Tribunal. It was further contented that if the donations received were the income of the trust the donations given to other similar charitable trusts could be application of the assessee's income and would thus be excluded from the taxable income of the assessee. The CIT(A) found force in the submission of the asse....
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....nd as the intention was merely to avoid paying taxes on these amounts, these amounts, should not be treated as donations towards the corpus of the trust. Referring to the decision of the Supreme Court in the case of McDowel and Co. Ltd. vs. CTO (1985) 47 CTR (SC) 126 : (1985) 154 ITR 148 (SC) it was submitted that the whole scheme was to avoid tax and it was a fraud of revenue as well as the trust. A reference was also made to the decision of the Supreme Court in the case of Workmen of Associated Rubber Industry Ltd. vs. Associated Rubber Industry Ltd. and another (1985) 48 CTR (SC) 355: (1986) 157 ITR 77 (SC), where it was laid down that the Court is not to be satisfied with the form and leave alone and should go behind the substance of th....
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....es towards one or many of the objects of the trust. In cl. 6 of cl (a), one of the object is subscription or donation to any charitable trust or firms or institutions for promotion of any of the object of this trust. He, therefore, submitted that there was ample authority for the trustees to utilise the income as well as the corpus towards donation to similar trusts. He, therefore, submitted that there was no question of any breach of trust or any collusion or fraud as far as the trustees were concerned and atleast there was no suggestion to that effect in the order of the ITO. It was only a manner of utilisation of the trust funds for specific charitable purpose. 6. The ld. counsel further submitted that in case the Department was treat....
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....stees are permitted to make spending towards objects of the trust, from the trust fund or the corpus of the trust. If the legislature wanted to have certain constraints on spending from the corpus donations surely they could have had it making a provision in the Act, but in absence of such a provision, the scope of the Act cannot be enlarged further." It was pointed out in that case also that the trust deed had authorised the trustees to utilise the trust fund towards the objects of the trust and the stipulation that the donations were towards the corpus could not come in the way of the trustees in applying that fund or amount in meeting any of the objects of the Trust. Further reliance was placed on another case of the Bombay Bench in T....
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....nt's sake, they are included as the income of the trust, there is no justifiable reason to hold that the donations made by this trust to similar other charitable institutions or trust could not be treated as application of the income towards the objects of the trust. That is taxable under s. 11 is the income which remains unapplied provided it is an excess of a particular limit. When the donations received have been fully applied, the question of bringing to assessment in the hands of this trust any amount received by this trust would not arise. We see no justification for the argument that while the receipt of the donation should be included as the income of the trust, the further donation given to this trust should not be treated as appli....