It has been held in various cases that donation made by one Charitable Organisation to another shall be considered as application of income for the objectives of the organisation provided the donee organisation also have objects similar to the object of donor organisation.
1. DONATION OUT OF CURRENT INCOME: Wherever inter organisational donations are made out of current year’s income it is considered as application of funds under the provisions of the act. There is no apparent bar on payment or credit to such other organisations out of previous year’s income subject to the provisions of section 11(1).
2. DONATION OUT OF ACCUMMULATED INCOME: The new Explanation inserted long back by the Finance Act, 2002, to section 11(2) has debarred organisations from applying its accumulated or set-apart income by way of payment or credit to other such organisations. If an organisation makes donation from funds accumulated under section 11(2) than it would be considered as violation of the section, and the amount so donated shall be deemed the income of such person of the previous year in which it is or credited or paid.
As per proviso to sub-section (3A) of section 11, inter-charity donation out of accumulated funds will be permissible in case of dissolution of a Charitable Organisation.
3. DONATION TO CORPUS FUND: As per the explanation 2 added to section 11(1) by finance act 2017, any contribution by a charitable or religious trust or institution to any other trust or institution registered u/s 12AA, with a specific direction that it shall form part of corpus of recipient trust/institution shall not be treated as application of income u/s 11 for the donor trust/institution.
In the light of above provisions, we can conclude the following: