KOSHAMBH CHARITABLE TRUST,VADODARA V. THE ITO, WARD-EXEMPTION, VADODARA

ITA 741/AHD/2025

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Koshambh Charitable Trust appealed against the order of the Commissioner of Income Tax (Appeals), which upheld the disallowance of \\u20b91,17,80,300/- claimed as application of income for the assessment year 2017-18. The trust had donated this amount to six other charitable trusts, which was initially disallowed by the Assessing Officer on the grounds that such donations were not in line with the trust's objects as specified in its amended deed. The tribunal, referencing judicial precedents and CBDT circulars, concluded that the donations constituted a valid application of income under Section 11(1)(a) of the Act, as they were made from the current year's income and the receiving trusts were also registered under Section 12AA.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 712727 (ITAT-AHMEDABAD)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-07-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Assessment Year: 2017-2018
• Other Referred Cases: DIT (Exemption) v. Bagri Foundation [(2012) 344 ITR 193 (Delhi)]
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MALARKODI R.
• Assessee Lawyers: SANJAY R SHAH
• Keywords: Revised return; Assessment record; Charitable institution
• Section: 11; 12AA

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL “D” BENCH, AHMEDABAD BEFORE SMT. ANNAPURNA GUPTA, ACCOUNTANT MEMBER & SHRI SIDDHARTHA NAUTIYAL, JUDICIAL MEMBER I.T.A. No.741/Ahd/2025 (Assessment Year: 2017-18) Koshambh Charitable Trust, 601, City Plaza Complex, Opp. Madhyavarti School, Dandia Bazar, Vadodara-390001 Vs. Income Tax Officer, Ward Exemption, Vadodara-390007 [PAN No.AABTK8442P] (Appellant) .. (Respondent) Appellant by : Shri Sanjay R Shah, AR Respondent by: Smt. Malarkodi R., Sr. DR Date of Hearing 07.07.2025 Date of Pronouncement 28.07.2025 O R D E R PER SIDDHARTHA NAUTIYAL - JUDICIAL MEMBER: This appeal has been filed by the Assessee against the order passed by the Ld. Commissioner of Income Tax (Appeals), (in short “Ld. CIT(A)”), National Faceless Appeal Centre (in short “NFAC”), Delhi vide order dated 20.03.2025 passed for A.Y. 2017-18. 2. The assessee has raised the following grounds of appeal: “1. The Learned Assessing Officer has erred in law as well as on the facts of the case of the Appellant by disallowing legitimate claim, rightly and validly allowable as application of income towards the object of the Appellant Trust for deduction of Rs.1,17,80,300/- being donation to other charitable Trusts having similar objects as claimed in the return of income filed by the Appellant. The learned CIT(Appeals) erred in confirming the same. 2. The Learned Assessing Officer has erred in law as well as on the facts of the case by holding that the deduction of Rs. 1,17,80,300/- is not allowable as the same has not been incurred in accordance with the objects of the Appellant Trust. The learned CIT(Appeals) erred in confirming the same. 3. The Appellant prays to allow the deduction of Rs.1,17,80,300/- as application on income towards the objects of the Appellant Trust. 4. Your Appellant reserves the right to add, alter, amend or withdraw any of the above grounds of appeal.” Printed from counselvise.com ITA No. 741/Ahd/2025 Koshambh Charitable Trust vs. ITO Asst.Year –2017-18 - 2– 3. The brief facts of the case are that the assessee, a Trust, registered under Section 12AA of the Income Tax Act, had filed a revised return declaring a gross income of ₹1,71,94,000/- and claimed deductions amounting to ₹1,60,21,263/- for expenses incurred towards charitable objects and ₹11,72,737/- as an amount set apart under Section 11(1)(a) of the Act. However, the AO disallowed the deduction of ₹1,17,80,300/- on the ground that this amount was donated to six other trusts and such donation was not in line with the objects of the Trust as specified in its trust deed. Upon examination, the Assessing Officer observed that the object clause allowing donations to other institutions with similar objects had been struck off from the trust deed and this amendment was duly signed by the trustees. Based on this, the AO held that since such donations were not authorized by the trust deed itself and, therefore, could not be considered as an application of income, for charitable purposes under Section 11 of the Act. 4. In appeal, the Commissioner (Appeals) agreed with this view, noting that the legal provisions under Section 11 of the Act clearly state that any income applied outside the approved objects or credited to another trust in the absence of such enabling object cannot be treated as having been applied for charitable purposes. The assessee submitted that despite the object being struck off, the donation served the broader charitable purposes of the trust and the assessee placed reliance on several judicial precedents to support its claim. However, the Commissioner (Appeals) was of the view that the case laws cited by the appellant were distinguishable and not applicable to the assessee’s set of facts, as none of them dealt with the issue of application of income outside the authorized objects of the trust. Moreover, CIT(Appeals) observed that the trust was contradicting its own trust deed by relying on a legal position that disregarded the assessee’s own trust deed which had been amended to strike off this object. Therefore, CIT(Appeals) held that the disallowance made by the AO was valid and justified, as the amount donated Printed from counselvise.com ITA No. 741/Ahd/2025 Koshambh Charitable Trust vs. ITO Asst.Year –2017-18 - 3– to other trusts was not spent by the Trust itself in furtherance of its authorized charitable objects. The appeal of the assessee was dismissed. 5. On hearing the arguments of the Counsel for the assessee and the Ld. DR, we observe that the present appeal by the assessee arises from the order passed by the Ld. CIT(A) who upheld the disallowance made by the Assessing Officer in respect of a sum of ₹1,17,80,300/- claimed as application of income under Section 11 of the Act. The facts of the case are that the assessee, a trust registered under Section 12AA of the Act, engaged in charitable activities including education, healthcare, food distribution, and other welfare activities, filed its return of income for AY 2017-18 declaring NIL income after claiming application of income including donations made to other charitable trusts. The AO disallowed the donation of ₹1,17,80,300/- made to six other charitable trusts on the ground that such a donation was not authorized under the trust deed, since the “object clause” allowing donation to other similar charitable institutions was struck off. The Commissioner (Appeals) concurred with this view, holding that such expenditure was not in line with the objects of the trust and therefore could not qualify as application of income under Section 11 of the Act. Having considered the rival submissions and on examination of the assessment record, we are unable to sustain the view taken by the lower authorities. The crux of the dispute lies in whether the donation made by the appellant to other charitable institutions, which are also registered under Section 12AA, constitutes valid application of income under Section 11(1)(a) of the Act. We note that the Hon’ble Delhi High Court in DIT (Exemption) v. Bagri Foundation [(2012) 344 ITR 193 (Delhi)] has held that a donation made by a registered charitable trust to another registered charitable trust constitutes application of income for charitable purposes. The Hon’ble Court clarified that the restriction introduced by way of Explanation to Section 11(2) applies only to accumulated income governed by Section 11(2), and not to the 15% Printed from counselvise.com ITA No. 741/Ahd/2025 Koshambh Charitable Trust vs. ITO Asst.Year –2017-18 - 4– accumulation permitted under Section 11(1)(a) of the Act. Further, CBDT Instruction No. 1132 dated 05.01.1978 has clarified that a donation made by one charitable trust to another will amount to application of income and the exemption under Section 11 of the Act cannot be denied merely because the donee trust did not utilize the funds in the same year. This position is further clarified in CBDT Circular No. 8/2002 which, while introducing the Explanation to Section 11(2) of the Act, maintained the position that inter- charity donations out of income of the year would continue to be treated as application of income. We would like to mention that the restriction in Explanation to Section 11(2) of the Act only governs accumulated income under that specific provision and cannot override the broader application allowed under Section 11(1)(a) of the Act. A significant change was introduced by the Finance Act, 2002, through the insertion of an Explanation to section 11(2), which specifically prohibits charitable trusts from making donations out of accumulated income to other trusts or institutions. This Explanation makes it clear that any amount which is accumulated or set apart under section 11(2) of the Act cannot be paid or credited to another trust or institution registered under section 12AA (now 12AB) or to other specified entities under section 10(23C) of the Act. If such a payment is made, it will not be considered as application of income for charitable or religious purposes, whether during the period of accumulation or after it. However, there is no such prohibition on inter-charity donations made from the current year’s income or from accumulations up to 15% under section 11(1)(a) of the Act. It is also well settled that a charitable trust is entitled to apply its income by way of donation to other trusts carrying on similar charitable activities, so long as the receiving trust is duly registered under Section 12AA of the Act. Even assuming that the specific object of donation to other institutions was omitted from the trust deed, the law under Section 11(1)(a) of the Act does not require a specific clause enabling inter-trust donations, provided the Printed from counselvise.com ITA No. 741/Ahd/2025 Koshambh Charitable Trust vs. ITO Asst.Year –2017-18 - 5– overall application is for charitable purposes. The main test under the Act is whether the income has been applied towards charitable purposes, not whether a specific mode of application is explicitly mentioned in the trust deed. In this context, we are of the view that a technical reading of the trust deed cannot defeat the statutory allowance under Section 11(1)(a) of the Act. In view of the judicial precedents referred to above, and Departmental Circulars, we hold that the donation made by the assessee trust to other registered charitable institutions out of the current year's income qualifies as application of income under Section 11(1)(a) of the Act. The disallowance of ₹1,17,80,300/-, therefore, is hereby directed to be deleted. 6. In the result, the appeal filed by the assessee is allowed. This Order pronounced in Open Court on 28/07/2025 Sd/- Sd/- (ANNAPURNA GUPTA) (SIDDHARTHA NAUTIYAL) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad; Dated 28/07/2025 TANMAY, Sr. PS TRUE COPY आदेश की Ůितिलिप अŤेिषत/Copy of the Order forwarded to : 1. अपीलाथŎ / The Appellant 2. ŮȑथŎ / The Respondent. 3. संबंिधत आयकर आयुƅ / Concerned CIT 4. आयकर आयुƅ(अपील) / The CIT(A)- 5. िवभागीय Ůितिनिध, आयकर अपीलीय अिधकरण, अहमदाबाद / DR, ITAT, Ahmedabad 6. गाडŊ फाईल / Guard file. आदेशानुसार/ BY ORDER, उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपीलीय अिधकरण, अहमदाबाद / ITAT, Ahmedabad 1. Date of dictation 21.07.2025 (Dictated over dragon software) 2. Date on which the typed draft is placed before the Dictating Member 21.07.2025 3. Other Member………………… 4. Date on which the approved draft comes to the Sr.P.S./P.S 21.07.2025 5. Date on which the fair order is placed before the Dictating Member for pronouncement 28.07.2025 6. Date on which the fair order comes back to the Sr.P.S./P.S 28.07.2025 7. Date on which the file goes to the Bench Clerk 28.07.2025 8. Date on which the file goes to the Head Clerk…………………………………... 9. The date on which the file goes to the Assistant Registrar for signature on the order…………………….. 10. Date of Dispatch of the Order…………………………………… Printed from counselvise.com "