Receipt of corpus donation in shares and its subsequent sale doesn't violate Sec. 11; benefit can't be denied

SERA FOUNDATION 
v. 
ITO

In the instant case, the assessee was a charitable institution. It had received equity shares as corpus donation, which were sold subsequently and the proceeding therefrom were used for giving donation to other charitable institutions. The revenue contended that by selling the aforesaid shares and by making further donations out of it, the assessee had misused the same and had violated section 11(1)(d) and adopted a colorable device to avoid tax. On appeal, the Tribunal held in favour of assessee as under: There is a restriction in section 13(1)(d) as per which the assessee-charitable trust is required to hold its investments in the modes prescribed under Sec. 11(5). However, there is no restriction on accepting corpus donation in the form of shares. The proviso (iia) to section 13(1)(d)(iii) entitles an assessee-trust to hold the shares for a maximum period of one year before which it has to be converted into the modes of investment as prescribed in section 11(5); The assessee only realized the market value of shares and, therefore, there was no violation of section 11(1)(d), particularly when the donor, while gifting the shares as corpus donation, never imposed any condition that the shares could not be sold. Only the form of asset was changed from shares to cash but the original corpus donation remained as it was in the hands of trust; and The conditions contemplated under sec. 11(1)(d) stand satisfied when a voluntary donation is received with a specific direction that they shall form part of the corpus of the trust. No further condition is prescribed in the Act on utilization of corpus fund. Therefore, the assessee was well within its right to utilize the corpus fund for giving donation towards corpus fund of other charitable institutions. Therefore, the assessee's appeal was allowed. [2012] (Delhi - Trib.)