> **Order:** ITA No. 4305/Del/2024 (ITAT Delhi), Assessment Year 2016-17, Revenue appeal against the CIT(A) NFAC order dated 25.07.2024, pronounced 07.01.2026.

## Facts

The assessee, a charitable trust registered under section 12A, filed its return on 13.10.2018 declaring nil income; the Assessing Officer held it ineligible for sections 11 and 12 exemption and taxed the gross receipts from sale of land as an association of persons.
The Commissioner (Appeals) allowed the assessee's appeal and held it eligible for exemption under sections 11 and 12.
The Revenue's ground was that the assessee had donated the entire sale proceeds to other trusts not entitled to receive donation, and had carried out no charitable activity for years — the land sold for Rs.2,60,00,000 with the whole consideration passed on as donation, which the Revenue called misuse of the exemption.
The Revenue's own written submission recorded that the section 12A/12AA registration continues in force and has not been cancelled.

## Issue

Whether sections 11 and 12 exemption can be denied for the year on assessment findings — break in activities and onward donation of sale proceeds — while the section 12A registration stands uncancelled.

## Holding

The Tribunal upheld the Commissioner (Appeals)'s conclusions: with no violation of section 11 or 13, exemption under section 11 cannot be denied; a break in charitable activities for a few years is no ground; the Assessing Officer cannot dictate the conduct of the assessee's affairs; and donations by one charitable trust to another charitable trust constitute application of income — so the denial of exemption and the Rs.2,60,00,000 addition were unsustainable and directed to be deleted.
It followed the Karnataka High Court, which held transfer of funds to another charitable society cannot ground cancellation or rejection under section 12A and such donation counts as application for charitable purposes.
The Commissioner (Appeals)'s findings being uncontroverted, the Tribunal upheld his order, dismissed all Revenue grounds, and dismissed the appeal on 07.01.2026.

## Why a client would care

An Assessing Officer's exemption denial for the year — donation of sale proceeds onwards, lean activity years — does not substitute for cancellation of the 12A registration, and trust-to-trust donations remain application of income on this reasoning.

## Questions clients ask

**Q1. Can section 11 exemption be denied for a break in activities while registration stands?**

No — with no violation of section 11 or section 13, exemption cannot be denied, and a break of a few years is no ground.

**Q2. Is an onward donation of land-sale proceeds to another trust application of income?**

The Tribunal upheld that donations by one charitable trust to another constitute application of income.

**Q3. Can the Assessing Officer direct how the trust conducts its affairs?**

It held the Assessing Officer cannot dictate the conduct of the assessee’s affairs.

## Disclaimer

*This note summarises a Tribunal order for general information. It is not professional advice and does not predict the outcome of any other case. Tax and company-law positions depend on facts and dates; take a written opinion before you act. Harun Raaj & Associates is a Chartered Accountants firm in Visakhapatnam.*

Canonical: https://www.harunraaj.com/blog/itat-trust-to-trust-donation-is-application-of-income-s-11-4305-del-2024