Yes a trust can donate to another trust. Provided:
i) Donation to another charity with similar objects is considered as an application of income for charitable or religious purposes.
ii) CBDT Instruction No.1132 (1978), has clarified that if the donee organisation does not utilise in the year of receipt, then the exemption to donor will not be affected.
iii) The Assessing Officer should be satisfied that the donation is a bonafide initiative and would be used by the donee for charitable purposes only. In other words, unqualified benefit to the donor is not available.
iv) High Courts have held that even inter-charity donations towards corpus is a valid application. But this contention may require re-consideration.
v) After 01.04.2002, inter-charity donation out of accumulated funds is not possible except in the case of dissolution of the donor organisation.
vi) Organisations receiving funds towards the end of the year can still make inter-charity donations by applying the option under Explanation to section 11.