Whether corpus donation to other trust can be treated as application of income?

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Whether corpus donation to other trust can be treated as application of income?

The Finance Act, 2017 has inserted Explanation 2 to section 11(1), w.e.f. assessment year 2018-19, so as to provide that any amount credited or paid, out of income referred to in clause (a) or clause (b) read with Explanation 1, to any other trust or institution registered under section 12AA, being contribution with a specific direction that they shall form part of the corpus of the trust or institution, shall not be treated as application of income for charitable or religious purposes.

                Prior to insertion of this Explanation 2 any donation by a trust or institution to any other trust or institution registered under section 12AA was treated as application of income in hands of the donor trust.

                When such donation was made with a specified direction that they shall form part of corpus of the donee trust or institution the such receipts got exempt in hands of donee trust by virtue of section 11(1)(d).

                Therefore, while the donor trust got exemption for donation made to another trust with a specific direction that they shall form part of corpus of the donee trust or institution, on the other hand such receipts got exempt in the hands of done trust by virtue of section 11(1)(d) and the donee trust was under no obligation to expend this sum for charitable purposes.

                In consequence of above, the Finance Act, 2017 has inserted Explanation 2 to section 11(1) effective from assessment year 2018-19.

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