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2025 Supreme(Online)(ITAT) 5823
INCOME TAX APPELLATE TRIBUNAL (CHANDIGARH BENCH)
Krinwant Sahay, AM
Revenue – Appellant
Versus
Chaman Educational & Charitable Trust – Respondent
Income Tax Appeal | ITA No. 26/CHD/2020
For the Appellant: Shri Rohit Sharma, CIT DR
For the Respondent:Shri Sudhir Sehgal, Advocate
Donations to registered charitable trusts qualify as applications of income under sections 11 and 12AA, even if not used in the same financial year.
Headnote:(A) Income Tax Act, 1961 - Sections 11, 12AA, 13(1)(c), and 13(3) - Appeal against the order of CIT(A) - Denial of exemption for donations claimed as application of income - Revenue's assertions were based on the distribution of corpus donations to other trusts lacking charitable activity - The court determined these donations as proper applications given the registered charitable status of donees and precedent case law. (Paras 3-9)
(B) Legal principles clarified include conditions under which donations to related charitable trusts can qualify as application of income, as well as the necessity for annual use of funds raised. (Para 8)
Facts of the case:
The assessee trust is registered and claims exemption under section 11 & 12 and had made substantial donations to other charitable trusts; the Revenue contested the nature and application of these donations.
Findings of Court:
The income tax authorities accepted that donations made were towards legitimate educational objectives, supporting the rationale of the CIT(A) which upheld that such donations qualify as applications of income.
Issues: Primarily, whether donations made to other registered educational trusts were legitimately treated as applications of income under the Income Tax Act?
Ratio Decidendi: The court confirmed the validity of donations to other registered charity trusts, asserting that no negative inference could be drawn where past conduct was acceptable; further legal precedents reinforced the assessment of proper applications of funds.
Result: Appeal dismissed.
| Table of Content |
|---|
| 1. contested donations were claimed as corpus and alleged usage questioned. (Para 2 , 6) |
| 2. donations made by a trust must meet charitable objectives. (Para 3 , 4) |
| 3. no adverse view is taken in prior assessments; previous acceptance of donations supports current claim. (Para 5 , 9) |
| 4. exemptions under the income tax act uphold donations to related charitable trusts. (Para 8) |
आदेश/Order
Per Krinwant Sahay, AM :
Appeal in this case has been filed by the Revenue against the order dated 09.10.2019of ld. CIT(A)-2, Chandigarh hereinafter referred to as ‘CIT(A)’], for the Assessment Year 2013-14.
2. In the present appeal Revenue has raised the following grounds:
i. That on the facts and circumstances of the case, the d. CIT(A) has erred in law in holding that donation to other trusts was application of income when it was seen that more than a quarter of the receipts were given out as donation to other trusts year after year instead of being redeployed for the use of own educational institutes at the cost of the main object of running its educational institutes.
ii. That on the facts and circumstances of the case, the Ld. CIT(A) has erred in law in not appreciating that Chaman Educational & Charitable Trust had not utilized the donations given for my charitable activities but had simply kept them in FDRs and had earned interest income and even this interest income had not been utilised for any charitable activity, and accordingly, the donation could not be held as application of income.
iii. That on the facts and circumstances of the case, the Ld. CIT(A) has erred in law in ignoring the observation of the AO that the assessee had regularly been giving donations to Chaman Educational & Charitable Trust which amounted to Rs. 11.7 crores in a span of just 4 years and that this money had not been used for education.
iv. That on the facts and circumstances of the case, the Ld. CIT(A) has erredin law in holding that section 13(1)(c) shall not be applicable when both IndoGlobal Education Foundation and Chaman Educational & Charitable Trust areclosely held trusts with common members, hence, the real persons derivingbenefit from the transfer of funds/donations are specified persons u/s 13(3).
v. That on the facts and circumstances of the case, the Ld. CIT(A) has erredin law in holding that no adverse inference has been drawn during scrutinyassessment in the case of Aryan Education & Charitable Trust for the A. Y.2013-14 when in the 3 order of Aryan Education & Charitable Trust for A.Y.2013-14, the AO has pointed out diversion of funds and accordingly, theexemption was disallowed.
vi. That on the facts and circumstances of the case, the Ld. CIT(A) has erredin-law in ignoring that Corpus donation given by the assessee also formedpart of the pool of funds of the donee and that it was important to check theactivities of the donee in order to ensure that money. In its common kitty wasnot misused and that in the case of Aryan Education & Charitable Trust,instances of misuse of exemption provisions were pointed out which hits atthe genuineness of activities of the Donee.
vii. That the appellant craves to leave, add or amend the grounds of appeal on or before the appeal heard and disposed-off.
3. In order to appreciate the issue involved, the facts, in brief, are that the assessee is a registered Charitable Organization and is engaged in providing education and is also registered u/s 12AA. The return of income have been filed after claiming exemption u/s 11 & 12 of the Income Tax Act, 1961 and the return of income was filed along with the audit report in Form No. 10B and the Audited Balance Sheet and Income & Expenditure Account. The main object of the society is to provide education as per Memorandum of Association filed before us and also filed before the Lower Authorities.
4. It was noticed by the Ld. Assessing Officer during the course of assessment proceedings that the assessee trust had given donations to the tune of Rs. 4,68,00,000/- to vari
