A P E A AND O E W FUND TRUST,HYDERABAD vs. DCIT., EXEMPTION CIRCLE-1(1), HYDERABAD

AO.

The assessee is only eligible to utilise the interest income earned on the deposit of such contributions. As the assessee has no power / liberty to utilise the amount of contributions towards it’s objectives, the same is in the nature of capital receipt and is not in the nature of income. The Ld. AR also submitted that the Ld. AO for A.Y. 2016-17 in the rectification order passed u/s.154 r.w.s. 143(3) of the Act dated 30.01.2019 and for A.Y. 2023-24 in the order passed u/s.143(3) r.w.s. 144B of the Act on 06.03.2025 has accepted the contributions received by the assessee as corpus fund. Accordingly, the Ld. AR submitted that, the Ld. AO for A.Y. 2018-19 cannot be allowed to take a different view what he has adopted for A.Y. 2016-17 and 2023-24. In alternate submission, the Ld. AR submitted that, the main reason for not treating the contributions as corpus fund by the Ld. AO is that the contributions are not voluntary and accordingly, the Ld. AO treated the same as income of the assessee. In this regard, the Ld. AR invited our attention to section 11(1)(a) of the Act and section 12(1) of the Act and submitted that, the income which is derived from the property held under trust or any voluntary contribution received by trust is liable to be considered as income in the hands of the assessee. The contributions received by the assessee from various religious institutions are not in the nature of income from property held under trust. However, the same are in the nature of contribution received by the trust, which in the opinion of the revenue authority is not voluntary. As per the mandate of section 12(1), any contribution which is voluntary, can only be treated as income in the hands of the assessee. As the Ld. AO contended that the contributions received by the assessee is not voluntary, then it cannot be treated as income in the hands of the assessee u/s.12(1) of the Act also.

Finally, the Ld. AR submitted that, the contributions received by the assessee is not taxable in the hands of the assessee.

In our considered view, corpus donations need not arise from voluntary contributions in a narrow sense, particularly where the receipt is tied to a specific purpose, hence, the donor’s intention is clear that the contribution will form part of the capital of the trust. In the case before us, it is crucial to note that the statute itself create a compulsory frame work of corpus accumulation, with express stipulation that only the interest income can be spent for welfare purposes. Therefore, in our view the fact that the statute itself characterised the fund to be accumulated and not spent (except interest), clearly shows that it is of capital nature. The contributions received by the trust are earmarked for the corpus by the force of law itself and the absence of individual voluntary intent of donor is over-riden by the statutory character and objective of the fund. Therefore, the condition of a specific direction is deemed to be fulfilled under the statutory mandate.

6.1 Even otherwise, assuming for the sake of argument that the contributions received are not voluntary, as contended by the Ld. AO, such contributions in our opinion would fall outside the scope of section 12(1) of the Act. It is crucial to reproduce provisions of section 11(1)(a) and section 12(1) of the Act, which is to the following effect :

“Income from property held for charitable or religious purposes. 11. (1) Subject to the provisions of sections 60 to 63, the following income shall not be included in the total income of the previous year of the person in receipt of the income—

(a) income derived from property held under trust wholly for charitable or religious purposes, to the extent to which such income is applied to such purposes in India; and, where any such income is accumulated or set apart for application to such purposes in India, to the extent to which the income so accumulated or set apart is not in excess of fifteen per cent of the income from such property; Income of trusts or institutions from contributions. 12. (1) Any voluntary contributions received by a trust created wholly for charitable or religious purposes or by an institution established wholly for such purposes (not being contributions made with a specific direction that they shall form part of the corpus of the trust or institution) shall for the purposes of section 11 be deemed to be income derived from property held under trust wholly for charitable or religious purposes and the provisions of that section and section 13 shall apply accordingly.”

6.2 On perusal of above, we found that as per combined reading of section 11(1)(a) and section 12(1) of the Act, the income which is derived from the property held under trust or any voluntary contribution received by trust is liable to be considered as income in the hands of the assessee. The contributions, which the assessee has received from various religious institutions are not in the nature of income from property held under trust.

However, the same are in the nature of contributions received by the trust, which in the opinion of the revenue authority is not voluntary. As per the mandate of section 12(1), any contribution which is voluntary, can only be treated as income in the hands of the assessee. As the Ld. AO contended that the contribution received by the assessee is not voluntary, then it cannot be treated as income in the hands of the assessee u/s.12(1) of the Act also.

Hence the contributions received by the assessee is not taxable in the hands of the assessee. Therefore, in our considered opinion, if a contribution is not voluntary, it cannot be taxed as income u/s.11 r.w.s. 12(1) of the Act.

Therefore, on this count also, the contribution of Rs.14,34,99,307/- received by the assessee cannot be treated as income in the hands of the assessee.

6.3 In view of the above findings, we hold that, the contribution of Rs.14,34,99,307/- received by the assessee constitutes corpus within the meaning of the statutory frame work and cannot be treated as income. Even if the receipts are held to be non-voluntary, the same would fall outside the ambit of section 12(1) of the Act and therefore, cannot be treated as income u/s.11 of the Act. Accordingly, the addition made by the Ld. AO is directed to be deleted.

Order pronounced in the open Court on 22nd April, 2025.