Trust - object - education

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V.PUSHPA (Querist)
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28 November 2007 Is distribution of note-books to students studying in municipal school is charitable activity/donation if the object of trust is stated as education and other charitable activity
what to do if CIT denies registration stating that it is a donation and not charitable activity.

Late CA Sampat Jain

Late CA Sampat Jain (Expert)
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29 November 2007 Donation to another trust is also application of income - When a donor trust which is itself a charitable and religious trust donates its income to another trust, the provisions of section 11(1)(a) can be said to have been met with by such donor trust, notwithstanding the fact that the donation is subjected to any conditions that the donee trust will treat the donation as towards its corpus and can only utilise the accruing income from the donated corpus for charitable and religious purposes. What the donor trust does is the only relevant matter. Utilisation by the donee trust in any year will not be relevant for the purpose of deciding whether the donor trust can get exemption under section 11 or not - CIT v. Sarladevi Sarabhai Trust (No. 2) [1988] 172 ITR 698 (Guj.)/CIT v. Hindusthan Charity Trust [1983] 139 ITR 913 (Cal.).

Amount given by assessee-trust to educational institution by making credit entries in its books and withdrawn by educational institution would be entitled to exemption since it could not be said that despite credit entries assessee trust retained beneficial ownership of sums or retained any control over them - CIT v. Thanthi Trust [1999] 239 ITR 502 (SC).

Donation at commencement of year is eligible provided it formed part of that year’s profits - A donation made on the first day of the accounting year can be treated as application of income under section 11(1)(a), provided that the trust earned profits in that accounting year, and the accounts for that year disclosed that the donation was made, not out of capital account, but get of the profits for that year - Siddaramanna Charities Trust v. CIT [1974] 96 ITR 275 (Mys.).

Donation of shares purchased out of accumulated income is not covered - Section 11 does not permit accumulation of a larger amount that what is prescribed. If the assessee does not apply the income of a year for charitable purposes but spends a like amount for charitable purposes out of its accumulated profits, the conditions laid down in section 11(1)(a) are not fulfilled. The mere fact that the assessee had applied its accumulated income of the earlier years for the purpose of charity will not absolve the assessee of its duty to apply its income for the current year for the purpose of charity, nor will it enlarge the limit of the amount which is permitted to be accumulated under section 11(1)(a). Thus, donation of shares purchased out of accumulated income of earlier year will not amount to application of income for the year of donation - CIT v. Ramchandra Poddar Charitable Trust [1987] 164 ITR 666 (Cal.)