ITO Vs Prakash Sewa Trust (ITAT Delhi)
Inter-Charity Donation Is Valid Application of Income: ITAT Upholds Section 11 Exemption on Sale of Trust Property
The Delhi Bench ‘F’ of the ITAT, in ITO (Exemptions) v. Prakash Sewa Trust (AY 2016-17), dismissed the Revenue’s appeal and upheld the order of the CIT(A) granting exemption under sections 11 and 12 to a charitable trust, despite the trust having sold its land for ₹2.60 crore and donated the entire sale proceeds to other charitable trusts.
The AO had denied exemption on multiple grounds—namely, that the assessee had not carried out charitable activities for several years, had sold land at circle rate, and had donated the entire consideration to other trusts allegedly linked to accommodation entry providers. Treating this as misuse of exemption provisions, the AO taxed the gross receipts as income of an AOP.
The Tribunal affirmed the CIT(A)’s detailed findings that:
- So long as registration under section 12A subsists, the AO cannot indirectly deny exemption by questioning the objects or charitable status of the trust;
- Break in charitable activities for a few years does not disentitle a registered trust from exemption;
- Donation by one charitable trust to another registered charitable trust constitutes valid “application of income” under section 11; and
- Mere allegations of accommodation entries, without any inquiry or evidence against the donee trusts, cannot render the donations non-genuine.
Relying heavily on the Karnataka High Court decision in PCIT v. St. Joseph’s Monastery and settled Supreme Court jurisprudence (Surat City Gymkhana), the ITAT held that there was no violation of sections 11 to 13, and the AO had exceeded his jurisdiction by effectively attempting to nullify a valid 12A registration during assessment proceedings.
Accordingly, the Tribunal upheld the CIT(A)’s order and dismissed the Revenue’s appeal, confirming that inter-charity donations out of sale proceeds of capital assets are a legitimate application of income and cannot be taxed merely because the trust itself did not directly carry out charitable activities during the year.
FULL TEXT OF THE ORDER OF ITAT DELHI
