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PER N.K. SAINI, VICE PRESIDENT
This is an appeal filed by the Assessee against the order of the Ld. CIT(A)-4, Ludhiana dt. 30/03/2019.
Following grounds have been raised in this appeal:
That the Worthy Commissioner of Income Tax (Appeals), Ludhiana was not justified in upholding the corpus donation of Rs. 17,57,837/- and receipts of Rs. 2,61,838/- as revenue receipts, negating the contention of the assessee that these amounts were meant for to be utilized for specific purposes and , thus, could not be considered as revenue receipt. 2. That the Ld.CIT(A) having already allowed the registration u/s 12AA and, therefore, the assessee is entitled to corpus donation and exemption of income.
That the Ld. CIT(A) has erred in not allowing the amount spent on construction of the school building amounting to Rs. 18,29,342/- out of the capital funds of the society towards application of receipts.
That the appellant craves leave to add or amend the grounds of appeal before the appeal is finally heard or disposed off.
Vide Ground No. 1 & 2 the grievance of the assessee relates to the sustenance of addition of Rs. 17,57,837/- out of the Corpus Donation and of Rs.
2,61,838/- by considering that the same was not for specific purposes and was a revenue receipt.
Facts of the case in brief are that the assessee filed its return of income on 23/02/2017 declaring an income of Rs. 25,035/-. Subsequently the case was selected for scrutiny. During the course of assessment proceedings the A.O. noticed that the assessee had received an amount of Rs. 2,61,838/- from its students as “Funds” which was directly taken in the balance sheet without including / routing the same through the Income & Expenditure Account. The assessee submitted that the said Funds were not accounted for in the Income & Expenditure Account as the same were meant to be used for specified purpose only and furnished, the reply dt. 22/12/2017 furnished by the assessee reads as under:
"Sir, the school has received following amounts on account of different specified funds during the year under consideration: PARTICULARS AMOUNT Amalgamated Fund 230095.00 Red Cross Fund 19893.25 Child Welfare Fund 11670.00 Exam Fund 90.00 Sports Fund 90.00 TOTAL 261838.25
Sir, it is submitted that the above said funds are specified funds as per directions from the Managing Body i.e. Hindu Shiksha Samiti, Kurukshetra, these funds are to be separately maintained and expenses on account of these funds are to be debited to the specified fund accounts, bank accounts of these funds are separately maintained. Since these are specified funds to be spent on specified purposes only, therefore, neither the collection on account of such funds nor expenses from such funds are accounted for in the income & expenditure account".
4.1 However, the A.O. was of the view that the said funds were recurring in nature and were regularly received from the students every year so those were in the nature of the revenue receipt and the assessee was required to route them through Income & Expenditure Account instead of directly taking them to its balance sheet and that the nature of said funds was such that it could by no stretch of imagination be categorized under the head Corpus Donation. He also observed that even if for the sake of discussion it was assumed that the same was a Corpus
Donation still it had to be routed through the Income & Expenditure Account, accordingly the addition of Rs. 2,61,838/- was made by the A.O.
4.2 As regards to the another amount of Rs. 17,57,837/- received by the assessee as Corpus Donation, the assessee submitted that since the amount pertained to Corpus Donation so it should not be included while computing the total income as per the provisions of Section 11(1)(d) of the Income Tax Act, 1961 (hereinafter referred to as ‘Act’). However, the A.O. observed that the assessee society did not own any Land or Building, therefore, the claim of the assessee that it had collected Corpus Donation for the purpose of construction of building was not admissible. The A.O. disallowed the claim by observing as under:
> Moreover, the said amount of "Corpus Donation" was not specifically mentioned in its Balance Sheet by the assessee. It is only after the assessee's claim of exemption u/ s 10(23C)(iiiad) has been questioned that the assessee has now concocted/fabricated a story which is nothing but an afterthought to escape addition. > One of the necessary preconditions of a "Corpus Donation" is that it should be made by the Donor with a specific direction that it shall form a part of the corpus of the trust or institution. However, in the case under consideration, the assessee has only provided a list of the Donors without providing any evidence /proof that the same was given with a specific direction. However, since the claim of "Corpus Donation" has already been out rightly rejected owing to the absence of registration u/ s 12AA, such details were not specifically called for, examined and verified during the course of assessment proceedings.
Being aggrieved the assessee carried the matter to the Ld. CIT(A) and submitted as under:
"In the remand report, the Ld. AO has rightly observed that registration granted to appellant u/s 12AA of TT Act shall also be applicable for the year under appeal before your good self as appellate proceedings are continuation of assessment proceedings. Your kind attention is further drawn to appellant ground no. 1 and ground no. 3 which are reproduced as below:-
The Ld. AO has erred in law and facts in denying exemption u/s 10(23C)(iiiad) of the IT Act on the ground that revenue receipts were more than Rs 1 Crore by treating Corpus receipts of Rs 1757737/- and specifiedfunds of Rs 261838/- as revenue receipts.
The Ld. AO was not justified in treating Corpus receipts ofRsl 757737/- as revenue receipts within the meaning of section 2(24)((iia) of IT Act and thus coming to conclusion that Gross Receipts are exceeding Rs 1 Crore and hence assessee is not entitled to exemption u/s 10(23C)(iiiad) of the ITAct, particularly when the same was received from Donors with specific recital that same forms part of Corpus and same shall be used for basic and enduring expenditure like construction etc.
The Ld. AO has not offered any comment on Appellant submissions in this regard.
During the course of assessment proceedings, it was brought on record that assessee has received Corpus donations of Rs 1757837/- which being capital receipts do not form part of the revenue receipts and hence the revenue receipts as determined by the AO at Rs 11672455/- if reduced by corpus receipts being capital in nature then the gross revenue receipts as determined by the AO comes out to Rs 9914618/- even without considering specified funds of Rs 261838/- comes below bench mark of Rs 1 Crore and as such the appellant was fully entitled for benefits of exemption u/s 10(23C)(iiiad) of the IT Act.
As regards he AO contention regarding disallowance u/s 10(23C)(iiiad) in the absence of registration u/s 12AA of the IT Act, your kind attention is drawn to judgment of ITAT, Delhi in the case of Income Tax Officer (Exemptions) V/s Smt. Basanti Devi & Sh. Chakhan Lai Garg Education trust in IT A No. 5082(Del)/2010, wherein the Ld. CIT(A) h allowed the exemption and department has filed the following grounds of appeal-
On the facts and in the circumstances of the case, the Ld. CIT(A) has failed to appreciate that voluntary contributions (whether corpus donations or general donations) received by a charitable trust is income as defined vide section 2(24)(iia) of the Act and Corpus donations are exempt from tax u/s 11(1)(d) only if assessee is registered u/s 12A/12AAoftheAct.
On the facts and in the circumstances of the case, Id. CIT(A) erroneously placed reliance upon appellate decision in the assessee's own case for assessment year 2003-O4, which in turn is now under challenge in the Hon 'ble Supreme Court. For A.Y. 2003-04, the CIT(A) has erroneously held that receipt of money by the assessee in the status of AOP has to be seen under normal provisions of the Act. Further, for A.Y. 2003-04, Id. CH(A) failed to appreciate provisions of section 164 of the Income tax act while erroneously holding that provisions of chapter IV would apply.
Hon'ble ITAT has dismissed departmental appeal and upheld the order of CIT(Appeal). This view was also upheld in the case of Divine Educational Institute and Social Development Society V/s ITO (Exemptions) of ITAT Delhi Bench in IT A No. 380/Del/2017, wherein the appellant has taken the following grounds of appeal:-
That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on the facts in confirming the action of Ld. AO in making addition of Rs 2276539/- on account of corpus donation and has further erred in treating the same as part of total receipts and that too by recording incorrect facts and findings and without observing the principles of natural justice.
That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law andfacts in not reversing the action ofLd.AO in holding that assessee society is not eligible for exemption u/s 10(23C)(iiiad) of the Act.
And the Hon'ble ITAT has held as under:-
I have considered rival submission? and material on record. It is not in dispute that assessee is an educational institution existing solely for education purposes. The assessee has revenue receipts of Rs. 96,36,555/- from running of educational institution. Assessee explained the Rs. 22 lacs have been received as corpus fund
for meeting out capital expenditure from founder member. This fact is not disputed by the authorities below. Therefore the question is whether the corpus fund would be part of aggregate annual receipt of educational institution. In the case of HO (E) vs. Smt. Basanti Devi & Shri Chakhan Lai Garg Education Trust (Supra), It was held that the amount received by the assessee trust from its settler towards infrastructure fund was not liable to be taxed in the hands of the assessee, despite assessee trust is not registered u/s 12AA of J.T. Act. The order of Tribunal is confirmed by the High court. The same order is followed by IT ATAgra Bench in the case oflTO vs. Gaudiya Granth Anuved Trust (supra). The same is the view of Calcutta Bench of the Tribunal in the case ofShri Shankar Bhagwan Estate vs. ITO (supra). The assessee therefore has been able to prove that corpus fund was received for meeting out capital expenditure which accordingly to explanation of assessee have been used actually to meet the capital expenditure. Further assessee society is different from education institution whose aggregate annual receipts are less than Rs. 1 crore. Therefore following the above orders of various benches of the Tribunal, I am of the view that corpus fund which is meant for specific purpose to meet out capital expenditure could not be part of annual receipts of educational institution, even if no registration u/s 12AA have been granted. If the corpus fund is excluded, the balance aggregate annual receipt of the ITA No. 380/Del/2017 Divine Educational Institute and Social Development Society vs. ITO assessee's educational institution would be less than Rs. 1 crore. Therefore assessee would be entitled for exemption u/s 10(23C)(iiid). In this view of the matter I set aside the orders of authorities below and direct the Assessing Officer to grant exemption to assessee u/s 10(23C)(iiiad) of IT. Act.
In the result appeal of assessee is allowed.
It has been held that the Corpus donations do not form part of the Revenue receipts and hence if the other receipts are less than Rs 1 Crore, the deduction u/s 10(23C)(iiiad) is to be allowed even if the trust/society is not registered u/s 12AA of IT Act, whereas in our case, the society has obtained registration u/s 12AA of IT Act and same is applicable for the year under consideration as reported by the AO in its remand report. There is no such proviso in IT Act regarding exemption u/s 10(23C)(iiiad) of IT Act.
Your kind attention is also drawn to AO enquiry available at Page-5 para 8.7 of assessment order, which is reproduced as below:-
He was asked to Show cause that in the absence of valid Registration u/s 12AA, as to why the amounts claimed as "Funds" and "Corpus donations" be not considered as a part of its Revenue receipt and passed/routed through its income and expenditure account, thereby denying exemption u/s 10(23C)(iiiad).
This objection/query stands meted in view of aforementioned judgments and AO remand report. The list of corpus donations was placed on the file during the course of assessment proceedings and confirmation and identity of Donors was produced which was not accepted by the AO on the ground that the society is not registered u/s 12AA of the IT Act. Even otherwise, as per calculations already placed on your file, the appellant has utilized more than 85% of receipts and thus the appellant is fully entitled for benefit of section 11/12 of IT Act. The Ld. AO has try to distinguish case of Divine Education Institution and Social development society and that of Smt. Basanti Devi and Sh. Chakhan Lai Garg (supra) merely on the ground that in that case the corpus fund was received from Settler of trust. This is no condition for not allowing exemption u/s 10(2SC)(iiiad) and 12AA of IT Act.
In this regard, your kind attention is drawn to the judgment of IT AT, Hyderabad B Bench in the case of Vaishnavi Educational Society V/s DCIT cited as 114 DTR 224, wherein Corpus donations of Rs 3622500/- was received as per details given below:-
a) Donations of Rs 2130000/- by 85 persons. b) Corpus/building fund of Rs 1482500/- paid by 228 students (specified funds).
The Hon'ble IT AT allowed the deduction as Corpus donation and further also allowed benefit of section 10(23C)(iiiad) of IT Act, thus not following the judgment relied upon by the assessee simply distinguishing it on the fact that in case referred to by the assessee, the donation was received from the Settler and in the appellant case, the corpus donation was received from others. The list of Donors with full name and address was placed on the file and the Ld. AO did not call for any other evidence rather the confirmation and identity produced before him were not accepted on the plea that trust is not registered u/s 12AA of IT Act.
The Ld. AO has not offered any comments as to claim of the assessee regarding specified funds of Rs 261838/- (these were also in the nature of corpus fund taken from students to be spent towards specific purpose under supervision of Government over which the school had no control) not forming part of the revenue receipts and similarly Corpus donations of Rs 175783 7/- not forming part of revenue receipts and if out of these 2 items or only corpus donation of Rs 1757837/- is considered capital receipts, the gross receipts are certainly below the bench mark of Rs 1 Crore for allowing deduction u/s 10(23C)(iiiad) and even otherwise as per calculations placed on your file along with certain confirmation and having made the donations towards corpus fund with their ID's, the more than 85% of receipts have been utilized and thus making appellant fully eligible for grant of benefit of exemption u/s 11 to the assessee for the year under consideration as the powers of CIT(A) under the act are coterminous with that of AO and CIT(A) can do what the AO has fail to do and can undo what the AO has wrongly done.
It is also brought on record that land for the institution over which building is being constructed has been provided by parent body and which will become property of society, necessary evidence was placed on the file of CIT(Exemptions) during registration proceedings and also enclosed herewith. Your kind attention is drawn to judgment of IT AT, Agra Bench in the case of ITO V/s Gaudiya Granth Anuved Trust cited as [2013] 28ITR 161, wherein the ITAT has held as under:-
Held, dismissing the appeal, that the Commissioner (Appeals), after considering the position of law, prevailing on the basis of three decisions of the tribunal and the High court, held that the corpus donations was in the nature of a capital receipt and not taxable, irrespective of whether trust was registered under section 12AA or not. Since the facts of the case were identical to the facts of those cases, the orders were to be followed. The order of the Commissioner (Appeals) was confirmed.
The voluntary donations towards corpus of trust only supported by the confirmation1 of the Donors with specific recital that these donations are towards the corpus of the trust straightway deposited in bank and not routed through
profit & loss a/c and to be utilized for the construction or pending for utilization and hence allegation of AO that it is an afterthought to escape the addition is totally incorrect and uncalled for as any plea taken during the course of assessment proceedings cannot be branded as afterthought liable to be rejected. The duly certified list of voluntary donations of Rs 1757837/- received towards corpus of the trust with full name and address and supported by ID of the Donor's which was placed on the file of AO during assessment proceedings is also enclosed herewith. Even otherwise, out of gross total receipts as determined by the AO at Rs 11672455/-, the society has expanded/appropriated a sum of Rs 10116983/- which is equivalent to 87% and as such squarely qualifies for the benefit of exemption u/s 11 of IT Act, such details have already been placed on your file in appellant's reply dated 20.03.2019.
In the above circumstances, the Ld. AO was not justified in disallowing claim of assessee u/s 10 as well as 12AA of IT Act. "
5.1 The Ld. CIT(A) however did not find merit in the submission of the assessee and confirmed the action of the A.O. by observing in Para 3.5 of the impugned order as under:
3.5 I have carefully considered the facts of the case and submissions of the appellant. As far as receipt from specified funds is concerned the same is part of the 'receipts' and has to be accounted for in the Income and Expenditure Account. As and when deposits with the Govt, or specified authorities are made the same will qualify for application fund. Therefore, specified fund of Rs. 2,61,838/- is a part of funds received during the year, the observation of the assessing officer in this regard are upheld.
Further the assessee has claimed Corpus Donation of Rs. 17,57,837/-. The receipts "Corpus Donation" was not declared in the return of income or in the Balance Sheet. Before the assessing officer only list of the donors was filed. No confirmation of the donors regarding donation made for the specific purpose were filed. No such details have been filed during the appeal proceedings as additional evidence.
The provision of section 10(23C)(iiiad) are as under: "(iiiad) any university or other educational institution existing solely for educational purposes and not for purposes of profit if the aggregate annual receipts of such university or educational institution do not exceed the amount of annual receipts as may be prescribed;"
As per provisions of this section, the aggregate annual receipts should not exceed the specified limit of Rs. 1 Crore. There is no reference to capital fund or revenue receipts. Since the total receipts of the assessee exceeded Rs. 1 Crore, therefore the assessee is not eligible for exemption u/s 10(23C)(iiiad) of the Income Tax Act, 1961. These grounds of appeal are thus dismissed.
Now the assessee is in appeal.
The Ld. Counsel for the assessee reiterated the submissions made before the authorities below and further submitted that the A.O. disallowed the claim of the assessee since the registration under section 12A was not available at the time of assessment proceedings. However, the Ld. CIT(A) accepted that the assessee got the registration under section 12AA of the Act. The reference was made to page no. 19 of the impugned order wherein the Ld. CIT(A) mentioned that the ground of appeal No. 5 regarding registration under section 12A is allowed.
In her rival submissions the Ld. DR strongly supported the orders of the authorities below and reiterated the observations made therein. She further submitted that the assessee did not file the details either before the A.O. or before the Ld. CIT(A) and that the assessee was not having any land so it was not clear how the Corpus Donation were received for the construction of building.
I have considered the submissions of both the parties and perused the material available on the record. In the present case it is an admitted fact that the A.O. disallowed the claim of the assessee for the reasons that the assessee did not furnish the evidence relating to the registration under section 12AA of the Act. He also mentioned that he had not examined the details and also did not call for specifically the same, in the absence of registration under section 12AA of the Act. In the present case, the Ld. CIT(A) pointed out that the assessee had not furnished the confirmation of donors regarding donation for specific purpose. On the contrary the claim of the Ld. Counsel for the Assessee was that the details were furnished before the A.O. and the assessee was having the registration under section 12AA of the Act. I, therefore by considering the totality of the facts, deem it appropriate to remand this issue back to the file of the A.O. to be adjudicated afresh in accordance with law after providing due and reasonable of being heard to the assessee.
Vide Ground No. 3 the grievance of the assessee relates to the amount spent on construction amounting to Rs. 18,29,342/- out of the capital funds claimed to be application of receipts which was not allowed.
Facts relating to this issue in brief are that the assessee claimed before the Ld. CIT(A) that the A.O. should have allowed the adjustment for expenditure of Rs. 18,29,342/-made towards construction of building. The Ld. CIT(A) observed that the assessee had filed a copy of certificate mentioning therein that the land being used
by the school, belonged to the society, Hindu Shiksha Samiti, Haryana and land and building thereon will devolved to the Hindu Siksha Samiti without any payment on closure of the School. The Ld. CIT(A) reproduced the Chart filed by the assessee showing the application of funds at page 11 of the impugned order which read as under:
Grass Revenue receipts as determined by the AO 11672455.00 vide order dated 25.12.17 Less: Specified funds not forming part of revenue 230095.00 261838.00 receipts as they are directly deposited in respective 19893.00 bank a/c to be spent for respective fund directly in 11670.00 supervision of Distt. Education and subject to Audit:- 90.00 90.00 AMG+CCWF** Red Cross C.W. Exam Sports **Kindly see Annexure 'A' and Page 8 of Audit report given by Deputy Director, Local Audit Haryana. Balance 11410617.00 Less: 15% set apart for future u/s ll(l)(a) 1711592.00 85% of balance Balance 9699025.00 Less: Expenses debited to profit & loss a/c as 7475672.00 6939593.00 mentioned by AO 536079.00 Less: Depreciation debited to P&L A/c Balance 2759432.00 Less: Amount appropriated towards construction as 1829342.00 mention in balance sheet Balance 930090.00 Less: Amt. spent for acquisition o f fixed assets:- 376244.00 455836.00 Furniture 79592.00 Computer Balance 474254.00 Less: Repayment o f Bus Loan:- 993718.00 ICICIBus Loan as on 31.03.14 (443764+549954) ICICIBus Loan as on 31.03.15 (235413+388458) 623871.00 369829.00 Balance 104425.00 Less: Element of interest not received in cash during 39776.00 the year (Acc. Intt on FDR). Balance 64649.00 Less: Amount sent to Hindu Siksha Samiti (Parent Body) 31907.00 Balance 32742.00 Income already 25035.00 declared Residuary addition liable to tax which is the amount 7707.00 spent by the society remains short/unapplied from 85% of total income as per provisions of section ll(l)(d) explanation 2.
The Ld. CIT(A) did not allow the claim of the assessee by observing as under:
“As per this chart, the assessee has claimed an amount of Rs. 18,29,342/- was spent as Building. From the copy of Balance Sheet and schedules filed by the assessee, it is seen that Building is not part of the fixed assets of the assessee. The amount spent on Building construction has been reduced directly from the Capital Fund. As per the certificate of the society, the land and building do not belong to the school rather they belong to the Hindu Siksha Samiti, Haryana. So any amount of expenditure on building is not application of funds for the school, therefore, application of Rs. 18,29,342/- as building construction has been excessively claimed by the assessee. However, principal repayment of Bus Loan at Rs. 3,69,829/- will qualify for application of funds.”
Now the assessee is in appeal.
The Ld. Counsel for the assessee submitted that the assessee utilized the amount in question for construction purposes, however instead of showing it on the asset side of the balance sheet, it was reduced from the reserve and surplus and that had it not been reduced and shown separately, it could have been mentioned in the fixed assets. It was further submitted that the land was given to the assessee by Hindu Shiksha Samiti for construction of the school building and it was to be handed over back only after closure of the school, so the assessee was entitled to make the construction of building for running the school, as such, it was utilization of the funds. However neither the A.O. nor the Ld. CIT(A) appreciated the facts in right perspective.
In her rival submissions the Ld. DR supported the impugned order passed by the Ld. CIT(A) and reiterated the observations made therein, she further submitted that the assessee was not having any land, so it was not clear how the building was constructed on the land when the assesse was not the owner of the said land.
We have considered the submissions of both the parties and carefully gone through the material available on the record. In the present case it is an admitted fact that the assessee reduced the amount of Rs. 18,29,342/- out of the capital funds which is evident from the balance sheet placed at page no. 49 of the assessee’s paper book and if the assessee had not reduced the said amount then it could have been shown separately on the asset side and the capital funds was to be increased by the same amount.
16.1 As regards to the objection of the Department that the assessee was not having any land, the Ld. CIT(A) mentioned in para 4.1 of the impugned order that the assessee has filed a copy of certificate mentioning therein that the land being used by school belonged to the society Hindu Shiksha Samiti, Haryana and the land
and building thereon will devolve to the Hindu Shiksha Samiti without any payment on closure of the school which clearly shows that the assessee was the owner of the building till the closure of the school and the said building would be handed over to Hindu Shiksha Samiti without any payment only on closure of school. This fact was not appreciated either by the A.O. or by the Ld. CIT(A). I, therefore, deem it appropriate to set aside this issue back to the file of the A.O. for proper verification and to adjudicate the same afresh in accordance with law after providing due and reasonable opportunity of being heard to the assessee.
In the result, appeal of the assessee is allowed for statistical purposes.
(Order pronounced in the open Court on 31/08/2021)
Sd/- एन.के.सैनी, ( N.K. SAINI) उपा�य� / VICE PRESIDENT AG Date: 31/08/2021 आदेश क� ��त�ल�प अ�े�षत/ Copy of the order forwarded to : 1. अपीलाथ�/ The Appellant 2. ��यथ�/ The Respondent 3. आयकर आयु�त/ CIT 4. आयकर आयु�त (अपील)/ The CIT(A) 5. �वभागीय ��त�न�ध, आयकर अपील�य आ�धकरण, च�डीगढ़/ DR, ITAT, CHANDIGARH 6. गाड� फाईल/ Guard File