Category: Inter Trust Charity

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Inter Trust Charity between sister societies where both societies exchanged donation

Comments:

  1. 13(3)(b) covers a person whose total contribution up to end of financial year is more than 50,000/-. Since both trusts exchanged more than Rs. 50,000/-, both stood covered by 13(3)(b). Further as per S.13(1)(c), if any part of income or property of the trust is used or applied for the benefit of person covered by 13(3), exemption u/s 11 is not available . Further as per 12AA(4) introduced by Finance Act 2014, registration may be cancelled and as per S.115TD introduced by Finance Act 2016, tax on MMR is payable on aggregate market value of assets less liabilities.

Held by ITAT that:

  1. Explanation below Section 11(2) only prohibits inter trust charity out of income accumulated u/s 11(2) and not out of current income
  2. As per 2nd proviso to S.11(3A), payment or credit of money to trust registered u/s 12AA or Institution u/s 10(23C)(iv),(v),(vi),(via) is permitted in case of dissolution of the trust in the year in which trust or institution is dissolved.
  3. There is no apparent bar on payment or credit to such other organizations out of previous year’s income subject to the provisions of section
  4. When the donation given by one trust to another trust out of current year’s income is permitted in section 11 of the Act as an application of income, the same cannot be curtailed by another provision of the Act (i.e section 13(1)(c ) (ii) read with section 13(3) of the Act) as it would defeat the very purpose of such provision.
  5. It is not the case of the revenue that the funds of the trust have been applied /diverted for the private benefit of the trustees, settlors or any individuals /relatives. This is what is the true intention of section 13(1)(c ) of the Act.
  6. In the instant case, it is a case of simple donation by one public charitable trust to another public charitable trust, wherein no individual could hold any substantial interest.
  7. In view of the above findings, we hold that the payment of donation by assessee trust to another registered public charitable trust is not in violation of section 13(1)(c) of the Act as the said payment is not made for the benefit of any person either directly or indirectly referred to in section 13(3) of the Act.

[St. Joseph’s Convent Chandannagar Educational Society [2016] 70 taxmann.com 21 (Kolkata – Trib.)