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St. Joseph’s Convent Chandannagar Educational Society Versus J.C.I.T.(O.S.D.) , Circle-2, Hooghly

2016 (5) TMI 588 - ITAT KOLKATA

Exemption u/s 11 - violation of section 13(1)( c) - a sum of ₹ 6,76,132/- was received by the assessee society as donation from Society of St. Joseph of Cluny, Kolkata for building construction at Kanchrapara and the assessee society gave donation of ₹ 18,30,000/- to the said Society of St. Joseph of Cluny, Kolkata. - Held that:- 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 sa .....

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another public charitable trust, wherein no individual could hold any substantial interest. 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. - Decided in favour of assessee - ITA. 1695/Kol/2012 - Dated:- 11-5-2016 - Shri N. V. Vasud .....

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is as to whether the assessee is entitled for claiming exemption u/s 11 of the Act in the facts and circumstances of the case. 3. The brief facts of this issue are that the assessee is a society registered under the West Bengal Societies Act and is also registered u/s 12A of the Act with effect from 1.4.2003. Registration u/s 12AA of the Act was also granted on the application of the assessee vide order of the DIT (Exemptions ) Kolkata dated 7.10.2009 with retrospective effect from 1.4.2009 for .....

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struction at Kanchrapara and the assessee society gave donation of ₹ 18,30,000/- to the said Society of St. Joseph of Cluny, Kolkata. The Learned AO observed that the assessee had contravened the provisions of section 13(1)(c ) of the Act and accordingly brought the Excess of Income over Expenditure amounting to ₹ 77,39,624/- to tax. He also disallowed the donation paid by the assessee society to another society (St.Joseph of Cluny, Kolkata) in the sum of ₹ 18,30,000/- and dete .....

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Accordingly he also held that the assessee had violated the provisions of section 13(1)(c ) (ii) of the Act and upheld the order of the Learned AO in denying exemption u/s 11 of the Act on the entire surplus of the assessee and disallowing the donation paid of ₹ 18,30,000/- to another trust. Aggrieved, the assessee is in appeal before us on the following grounds :- 1. For that in the facts and circumstances of the case the appellate order passed was in violation of principals of natural ju .....

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se the CIT (A) and Assessing officer erred in not allowing the sum of ₹ 3,94,40,936 being application u/s section 11 of the IT Act 1961. 5. The appellant craves leave to press new, additional grounds of appeal or modify, withdraw any of the above grounds at the time of hearing of the appeal. 5. We have heard the rival submissions and perused the materials available on record. We find that the assessee trust is a registered charitable trust enjoying registration u/s 12AA of the Act. It is n .....

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(3)(b) of the Act ; and (iii) In any event, whether the assessee would lose exemption u/s 11 of the Act for the whole of its income or only to the extent of violation of section 13(1)(c ) of the Act. We proceed to answer the issues one by one. 5.1. First, the donation given by one trust to another trust is to be construed only as an application of income. The Charitable trust is constituted for charitable purposes with a philanthropic mind to give donation. The payment made for benevolent cause .....

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ccumulated funds. The new amendment puts restriction on donations to other charities only out of accumulated funds. In other words, funds once accumulated under section 11(2) of the Act can only be applied for charitable purposes directly by the concerned organization and any inter- organisational transfer would not be possible. 5.1.1. The Finance Act 2003 has inserted another proviso to sub-section (3A) of section 11 which provides that inter-charity donation out of accumulated funds will be pe .....

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circular is reproduced hereinbelow:- 21. Restriction on the application of accumulated income of the charitable or religious trusts. 21.1 Through Finance Act, 2002, an Explanation has been inserted below sub-section (2) of section 11 so as to provide that any amount paid or credited out of income from property held under trust referred to in clause (a) or clause (b) of sub-section (1), read with the Explanation to that sub-section, which is not applied, but is accumulated or set apart, to any t .....

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come from property held under trust in the year of receipt will continue to be treated as application of income. However, any such payment out of the accumulated income shall not be treated as application of income and will be taxed accordingly. 21.2 Through Finance Act, 2002, a new clause (d) has also been inserted in subsection (3) of section 11 so as to provide that if any income referred to in sub-section (2) of the said section, is paid or credited to any trust or institution registered und .....

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shall not allow application of accumulated income by way of payment or credit made for the purposes referred to in clause (d)of sub-section (3) of section 11. This takes away the discretion of the Assessing Officer provided in subsection (3A) to allow the trusts to apply the accumulated income for payment or credit to other charitable or religious trusts and institutions From the above, it could be safely concluded that the donation by one trust to another trust out of current year s income is .....

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Tax Act, 1922. (b) Decision of the Hon ble Bombay High Court in the case of CIT vs Trustees of the Jadi Trust reported in (1982) 133 ITR 494 (Bom) The Bombay High Court in this case made the following pertinent observations on the scope of s 11 of the Act with regard to inter-charity Donations: So far as the provisions of s. 11 of the Act which was in force at the material time is concerned, we do not think that the legal positions is in any way different. As already pointed out when a trust whi .....

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., or the same funds or income could be utilised through the medium of another charitable institution which applies its funds or income to charitable purposes. The Tribunal is, in our view, right in holding that the assessee was entitled to relief under s. 11 (1) (a) of the 1. T. Act, but the propriety of the direction given by the Tribunal need not be dealt with in this reference. (c) Decision of the Hon ble Gujarat High Court in the case of CIT vs Sarladevi Sarabhai Trust No. 2 reported in (19 .....

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us is an application of income. 5.2. Now we proceed to answer the second question raised hereinabove by us. For the sake of convenience, the provisions of section 13(1)(c ) (ii) are reproduced hereunder:- 13(1) - Nothing contained in section 11 or section 12 shall operate so as to exclude from the total income of the previous year of the person in receipt thereof - (a) - (b) - (c) In the case of a trust for charitable or religious purposes or a charitable or religious institution, any income the .....

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r of the institution ; (b) Any person who has made a substantial contribution to the trust or (c) Where such author, founder or person is a Hindu Undivided family, a institution, that is to say, any person whose total contribution upto the end of the relevant previous year exceeds fifty thousand rupees; member of the family ; (cc) any trustee of the trust or manager (by whatever name called) of the institution ; (d) any relative of any such author, founder , person, member, trustee or (e) any co .....

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ust as donation does not fall in any of the categories mentioned in section 13(3) supra. We find that it only refers to payment made to any individuals or their relatives or to any concern in which they have substantial interest. Admittedly, the donee trust is a registered public charitable trust and there is no question of any individual holding substantial interest in the said trust. Hence the case does not fall in clause (e) of section 13(3) of the Act also. We hold that when the donation giv .....

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