BRUHAD MUMBAI GUJARATI SAMAJ,MUMBAI vs. INCOME TAX OFFICER (EXEMP.) - 1(4), MUMBAI

This appeal filed by the assessee is directed against the order dated 11.03.2026 passed by the learned Additional/Joint Commissioner of Income Tax (Appeals)-1, Bengaluru [hereinafter referred to as ‘ld. JCIT(A)’], under section 250 of the Income-tax Act, 1961 (‘the Act’), for the assessment year 2013-14, arising from the assessment order dated 21.03.2016 passed by the Income Tax Officer (Exemptions)-1(4), Mumbai, under section 143(3) of the Act.

The assessee has raised the following grounds of appeal:

Brief facts of the case are that the assessee is a charitable trust registered under section 12A of the Act and is also registered with the Charity Commissioner, Mumbai. The assessee undertook construction of a building known as ‘Gujarat Bhavan’ for carrying out its objects. It filed its return of income declaring total income at Nil after claiming exemption under section 11 of the Act. During the scrutiny assessment proceedings, the Assessing Officer noticed that the assessee had credited Rs. 21,50,000/- received from Shri Praful Satra and Rs. 50,00,000/- relating to Shri Harshad Mehta to the Building Fund Account without routing these amounts through the Income and Expenditure Account. The amount received from Shri Harshad Mehta was originally a loan obtained in an earlier year, which the assessee had treated as converted into donation during the relevant previous year. The assessee had also received Rs. 88,29,000/- from Satra Properties Ltd. towards the proposed sub-lease of shops on the ground floor of the building and had shown the same as a liability in the balance sheet.

The Assessing Officer treated the donations of Rs. 21,50,000/- and Rs. 50,00,000/- as general donations on the ground that no specific direction from 2 the respective donors to treat the amounts as corpus had been established. He also treated the sum of Rs. 88,29,000/- as income arising from the sub-lease arrangement. In computing the total income, the Assessing Officer considered interest income of Rs. 76,947/-, allowed expenditure of Rs. 91,92,402/- incurred on construction and accumulation of Rs. 24,08,393/- under section 11(1)(a), and determined the total income at Rs. 44,55,150/- after rounding off. The claim of expenditure of Rs. 2,27,839/- towards other charitable objects was rejected for want of details and supporting evidence. The ld. JCIT(A) confirmed the action of the Assessing Officer. Aggrieved, the assessee is in appeal before us.

Ground Nos. 1 and 2 relate to the treatment of the amounts of Rs. 21,50,000/- and Rs. 50,00,000/- as general donations. The learned Authorised Representative (‘ld. AR’) submitted that the amount received from Shri Praful Satra was towards the building fund and was connected with naming the building in the name suggested by the donor. He submitted that the amount of Rs. 50,00,000/- received from Shri Harshad Mehta as a loan in an earlier year was subsequently converted into donation towards the building fund, subject to naming the fifth and sixth floors in the name of the lender or in a name suggested by him. According to the ld. AR, both amounts were corpus donations and were, therefore, not liable to be included in the income of the trust.

The learned Departmental Representative (‘ld. DR’) relied on the findings of the Assessing Officer and the ld. JCIT(A). She submitted that the amounts were general donations and that the assessee had not established any specific direction from the donors that the contributions should form part of the corpus. Referring to the receipt issued by the assessee, she submitted that it referred to naming the building and did not contain a direction to treat the donation as corpus. She accordingly supported the inclusion of the amounts in the income of the assessee.

We have heard the rival submissions and perused the material available on record. Under section 11(1)(d) of the Act, as applicable to the year under consideration, voluntary contributions made with a specific direction that they shall form part of the corpus of the trust are excluded from the total income. Section 12(1) provides for treating voluntary contributions, other than contributions made with such a specific direction, as income derived from property held under trust for the purposes of section 11. Thus, the claim that a donation is a corpus donation has to be supported by material establishing the requisite direction of the donor. The treatment given by the assessee in its own books cannot, by itself, establish such a direction.

In respect of the donation of Rs. 21,50,000/- received from Shri Praful Satra, the receipt reproduced in the assessment order records that the donation was received against naming on Gujarati Samaj Bhavan. This establishes the condition relating to naming, but does not establish a direction that the amount shall form part of the corpus of the trust. No confirmation or other material establishing such a direction has been brought to our notice. The submission that the amount was intended to be used for construction of the building, and was accordingly credited to the Building Fund Account, does not establish the specific direction required under section 11(1)(d) on the material before us. We, therefore, find no infirmity in the conclusion of the ld. JCIT(A) treating the sum of Rs. 21,50,000/- as a general donation. Ground No. 1 is dismissed.

As regards the sum of Rs. 50,00,000/- relating to Shri Harshad Mehta, the assessee itself explained before the lower authorities that the earlier loan was converted into donation during the financial year 2012-13 and was transferred to the Building Fund Account. The arrangement recorded the condition regarding naming the fifth and sixth floors of the building. However, the material referred to does not establish any specific direction from Shri Harshad Mehta that the amount so converted into donation shall form part of the corpus of the trust. The fact that the amount was originally received as a loan in an earlier year does not establish the corpus character claimed on its conversion into donation. Nor does the entry transferring it to the Building Fund 4 Account establish the requisite direction. On these facts, we uphold the treatment of Rs. 50,00,000/- as a general donation. Ground No. 2 is dismissed.

Ground No. 3 relates to the sum of Rs. 88,29,000/- received from Satra Properties Ltd. The ld. AR submitted that the assessee had entered into an arrangement for sub-leasing certain shops on the ground floor for a total consideration of Rs. 2,17,35,000/-. He submitted that the amount received during the year was only an advance, as the building was incomplete and possession had not been handed over. He further submitted that the transaction has since been cancelled and, therefore, the amount cannot be taxed as income of the assessee.

The ld. DR relied on the orders of the lower authorities. She supported their finding that the amount was received pursuant to the sub-lease arrangement and represented consideration for granting rights in the property. She submitted that showing the receipt as a liability in the balance sheet did not establish that it was outside the income of the trust.

We have considered the rival submissions. The Assessing Officer referred to the arrangement dated 27.10.2006, the permissions granted by the Charity Commissioner and the confirmation obtained from Satra Properties Ltd. while treating the amount as sub-lease consideration. The assessee, however, has now specifically contended that the transaction has been cancelled. Whether the arrangement was cancelled and whether the money received thereunder has been returned require verification. These facts have a direct bearing on the assessee’s claim that the amount was only an advance under a transaction which did not materialise. We, therefore, set aside the order of the ld. JCIT(A) on this issue and restore the matter to the file of the Assessing Officer for verification.

The Assessing Officer shall examine the original arrangement, the cancellation documents, the accounts of the parties and the bank statements evidencing repayment, and verify that the refund relates to the advance in question. If it is found that the proposed sub-lease transaction has been 5 cancelled and the money received has been returned to Satra Properties Ltd., the amount of Rs. 88,29,000/- received as advance under that transaction shall not be included in the taxable income of the assessee for the year under consideration. The assessee shall furnish the necessary details and supporting evidence. The Assessing Officer shall decide the issue in accordance with the above directions after providing a reasonable opportunity of hearing to the assessee. Ground No. 3 is allowed for statistical purposes.

Ground No. 4 relates to the expenditure incurred towards the objects of the trust. The ld. AR submitted that expenditure of Rs. 2,27,839/- incurred for charitable purposes and debited to the Income and Expenditure Account had not been allowed while computing the total income. He requested that the Assessing Officer be directed to verify the expenditure and allow the claim.

The ld. DR relied on the orders of the lower authorities. The Assessing Officer had rejected the claim on the ground that the assessee had not produced the details and supporting evidence, and the ld. JCIT(A) had confirmed its rejection.

We have considered the submissions. The claim for expenditure actually incurred towards the charitable objects of the trust has to be examined while determining its income under section 11. The treatment of the donations as general donations does not, by itself, justify rejection of expenditure otherwise eligible to be considered as application of income. At the same time, the assessee is required to substantiate the expenditure. We, therefore, restore this issue to the file of the Assessing Officer with a direction to verify the expenditure of Rs. 2,27,839/- with reference to the books of account, vouchers and other supporting evidence. On verification that the expenditure was incurred during the relevant year for the charitable objects of the trust, the Assessing Officer shall allow the claim as application of income while recomputing the total income, ensuring that the same amount is not allowed twice. The assessee shall furnish the requisite details and shall be afforded a reasonable opportunity of hearing. Ground No. 4 is allowed for statistical purposes.

Ground Nos. 5 and 6 are general in nature and do not require any separate finding.

In the result, the appeal filed by the assessee is partly allowed for statistical purposes.