Ved Prakash Mukand Lal Educational Society Vs DCIT (ITAT Chandigarh)
Investment in Bank FDR Is Not Application of Income for Charitable Purposes Merely Because Trust Deed Permits Such Investment: ITAT Special Bench
Summary: The Special Bench of the Chandigarh Income Tax Appellate Tribunal has held that investment of a charitable trust’s funds in bank fixed deposits under section 11(5) does not amount to application of income for charitable or religious purposes under section 11(1).
The position does not change merely because the trust’s memorandum includes investment of funds in the modes prescribed under section 11(5) as one of its objects. Investment in an FDR represents accumulation or setting apart of income for its future application and cannot be equated with actual application towards charitable objects.
The ruling was rendered in the case of The Ved Prakash Mukand Lal Educational Society v. DCIT, concerning Assessment Years 2005-06 and 2006-07.
Questions Before the Special Bench
The Special Bench was constituted to decide whether:
- an object in the memorandum authorising the society to invest its income in the modes prescribed under section 11(5) could itself be regarded as a charitable object; and
- where the society invested its income in bank FDRs pursuant to such an object, the investment could be treated as application of income for charitable or religious purposes.
The Special Bench answered both questions in the negative.
