INCOME TAX ACT, 1961

Section 11(2) Section 11(3)(d)

Charitable trust - Exemption under section 11 - Money transferred unregistered trust -

Assessee was a society working under the Government of Punjab, was running Museum by the name of Maharaja Ranjit Singh War Museum and was registered under section 12AA. Object of society was to create sense of patriotism and nationality among citizens; to preserve and display war history of Punjab. During the relevant year, rupees one crore was given to Punjab State War Heroes Memorial & Museum Society, Amritsar 'PSWHMMS on directions of Government of Punjab. Donee-society was not registered under section 12AA at the relevant time though subsequently registered. AO treated amount transferred to PSWHMMS as income of assessee holding that there was violation of sections 11(2) and 11(3)(d). Assessee contended that from Explanation of section 11(2) and clause (d) in sub-section (3) of section 11, it was evident that assessee was entitled to pay or credit accumulated amount to any, unregistered trust or institution not specified in the said provisions. Further, aims and objects of the donee-society and assessee were similar, hence, there was no violation of conditions prescribed under section 11 and amount could not be treated as income of assessee society during the relevant year, as same was applied through donee.Held: On account of insertion of Explanation to section 11(2) and clause (d) in sub-section (3) of section 11 by Finance Act, 2002, accumulated amount cannot be transferred to a registered trust or institution or to the trust or institution or funds as specified in sub-clauses (iv), (v), (vi) and (via) to section 10(23C). In case of such credit payment, same would not be treated as application for charitable and religious purpose and further, it would be treated as income of such person, i.e., the person who had made the payment. From sub-section (2) and sub-section (3), it is clear that accumulation has to be for a specified purpose and the same is to be utilized within the time frame. Aims and objects of trust cannot be reproduced as a specific purpose. The purpose must have some individuality, it is so because only from the purpose, AO would be able to monitor the amount so accumulated. In the instant case, it was not the claim of assessee that amount was being accumulated for payment to PSWHMMS. In such circumstances, there was clear violation of conditions referred in sub-section (2) and sub-section (3) of section 11. Amount spent for purpose other than for what it was accumulated, came within the mischief of section 11(3)(c). From changes made by Finance Act, 2002 in section 11, it is clear that restrictions have been imposed on transfer of accumulated or set apart amount but utilization of income received during the year has not been touched. It is settled that income received during the year can be transferred to other Trust or institution for charitable or religious purpose and same would be held to be application for such purpose. The argument raised that since there was a restriction only for payment or credit of accumulated amount to a registered trust or institution recognized under the Act and it would mean that payment can be made to unregistered trust, institution or to institutions or trusts not even recognized by the Act as charitable was far-fetched. This would lead to adding words to provisions of statute which is not permissible. Circular No. 8 of 2002 [(2002) 178 CTR (St) 9] nowhere supports argument raised by that aims and objects of donor and donee were similar. Rather, clause 21.1 clarifies that payment to other trust or institution out of the receipt of year would continue to be treated as application, however, no payment can be made from accumulated income and same would be taxed; clause 21.2 reproduces section 11(3)(d) stating that transfer would be deemed to be income of person making such payment or credit .In view of all this, addition of amount transferred to PSWHMMS was upheld.

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