Facts of the Case

The assessee, Nazareth Hospital Society, is a charitable organization engaged in providing medical relief by running a hospital and a school of nursing at Allahabad. The society was duly registered as a charitable institution under Section 12AA of the Income-tax Act, 1961.

For the relevant assessment year, the assessee claimed exemption under Section 11. During the year, the assessee donated ₹72,00,000 to another charitable entity, Roman Catholic Diocese Private Limited, which was also registered under Section 12AA but was engaged primarily in educational activities.

The Assessing Officer held that since the donee organization was pursuing different objects and utilized the donation for educational purposes rather than medical relief, the amount could not be treated as application of income for the assessee’s charitable purposes. The addition was confirmed by the Commissioner (Appeals), leading to the appeal before the Tribunal.

Issues Involved

Whether donation made by a charitable trust to another charitable institution having different objects can be regarded as application of income for charitable purposes under Section 11(1)(a).

Petitioner’s (Assessee’s) Arguments

  • The donee organization was also a registered charitable institution under Section 12AA.
  • Donation to another charitable institution should be treated as application of income.
  • Judicial precedents supported the view that inter-trust donations qualify for exemption.
  • There is no statutory prohibition against donating to another registered charitable entity.

Respondent’s (Department’s) Arguments

  • The assessee’s primary object was medical relief, whereas the donee institution was engaged in educational activities.
  • The donation was not utilized for activities aligned with the assessee’s objects.
  • Application of income must be for the purposes for which the donor trust is established.
  • Therefore, the amount could not be treated as valid application of income under Section 11(1)(a).

Court Order / Findings

  • The assessee trust was established for medical relief and was operating a hospital and nursing school.
  • The donee entity, though registered under Section 12AA, was engaged in educational activities during the relevant year.
  • The donation was utilized for education and not for medical relief.
  • For claiming exemption under Section 11(1)(a), the income must be applied toward the charitable objects of the donor trust.

Important Clarification

The ruling emphasizes that inter-trust donations are not automatically treated as application of income. To qualify for exemption under Section 11, the donation must advance the charitable objects of the donor trust, and mere registration of the donee under Section 12AA is not sufficient.

Link to download the order –https://itat.gov.in/public/files/upload/1613628848-ITA%20165%20Alld%202018%20Nazareth%20Hospital%20Society.pdf

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