Scope of Sec.11 in case of donation by one charitable to another. - Income Tax - 1582/CBDT

INSTRUCTION NO. 1582/CBDT Dated: October 19, 1984 The Board have by Instruction No.1132 dated 5-1-81 (F.No.176/89/77-IT(AI) stated that the donation by one charitable trust to another for utilisation by the donee trust towards its charitable objects is application of income for charitable purposes in the hands of the donor trust, and the donor will not lose exemption u/s.11 of the I.T.Act, 1961 merely because the donee trust did not apply the donations towards the charitable purposes during the year of receipt itself. 2. The Receipt Audit have expressed doubts about the validity of these instructions and they were of the view this could be a means to avoid the restrictions placed on accumulation of income of charitable and religious trusts as they could be applied by transferring the income to other institutions. They have pointed out that the donation of income of one charitable religious institution to another specially when such income is not utilised by the donee institution in the year of receipt would not constitute application of income for charitable and religious purposes. Keeping in view the audit objection and the judgements of Bombay High Court in CIT Vs Trustees of the Jadi Trust(1982) 133 ITR 494 and Madras High Court judgement in CIT Vs Thanthi trust(1982) 137 ITR 735, Board referred the matter to Ministry of law for their opinion. Ministry of Law opined that these decisions are not valid for giving unqualified benefit to the donor trust u/s.11 where the application of income for charitable purposes is made through the medium of the donee trust. Before giving the benefit u/s. 11 if the facts and circumstances of the case require, the ITO has to be satisfied that the funds which have been donated to the donee trust will be utilised only for charitable purposes. 3. Board's Instruction No.1132 referred to above stands modified to this extent. 4. These instructions may be brought to the notice of all officers working in your charge.