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Income Tax Appellate Tribunal, BENGULURU BENCH, BENGULURU
Before: SHRI CHANDRA POOJARI, AM & SMT. BEENA PILLAI, JM
Per CHANDRA POOJARI, AM
This appeal filed by the Revenue is directed against the order of the CIT(A), Mangaluru dated The relevant assessment year is 2015-16.
2. The assessee has raised the following grounds of appeal:
1. The order of the CIT(A) is opposed to facts and circumstances of the case.
2. The CIT(A) has erred in directing the Assessing Officer to treat the donation received from sister trusts as corpus donations u/s. 11(1)(d) of the Act, without any support of law, though the donations were received from sisters trusts out of their regular income, making the same immune from application during the year in the hands of the assessee trust.
3. The CIT(A) erred in directing the Assessing Officer to treat the donations of Rs.36.16 crores received from sister trusts as corpus donation stating that corpus donation of one charitable trust to another charitable trust is not prohibited until the amendment to sec. 11(1)(d) by inserting an Explanation in the Finance Act, 2017 w.e.f. 01.04.2018, without any basis of law. The CIT(A) has misunderstood the fact that the amendment brought in to sec. 11(1)(d) refers to the treatment of corpus donation in the hands of the donor and the amendment cannot be relied upon in the case of a donee.
4. The CIT(A) has erred in directing the Assessing Officer to treat the donations as corpus donations without substantiating the reasons for the same. 5. Any other grounds to be raised at the time of hearing of the appeal.
The facts of the case are that during the year under consideration, the Assessing Officer noticed that the assessee trust received corpus donation of Rs.41,92,32,911/- out of which Rs.36,16,88,341/- was from the assessee’s group Trusts. In the assessment order, the Assessing Officer disallowed the claim of corpus nature and treated Rs.36,16,88,341/- as regular income of the assessee trust. The Assessing Officer was of the view that all such donations from other trusts are to be treated as regular income of the assessee and cannot be claimed as corpus nature which will lead to large scale manipulation between trusts by transferring regular income as corpus donation to other trusts thus making the same immune from application during the year under consideration.
On appeal, before the CIT(A), the Ld. AR submitted that the corpus donation of a charitable trust to another charitable trust is not prohibited until the 2 amendment to section 11(1)(d) by inserting an Explanation in the Finance Act, 2017 which is with effect from 1.4.2018 and the said amendment is effective prospectively and not retrospectively. The CIT(A) referred to the explanation introduced by the Finance Act, 2017 w.e.f. 01.04.2018 which reads as follows: “Explanation 2. – 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.”
4.1 The CIT(A) directed the Assessing Officer to treat the sum of Rs.36,16,88,341/- as corpus donation u/s. 11(1)(d) of the I.T. Act.
Against this, the Revenue is in appeal before us. The Ld. DR submitted that on verification of corpus donation it was found that from the list provided out of Rs.41,42,32,911/-, Rs.36,16,88,341/- were donations from sisters trusts, transferred out of their regular income which is not allowable. It was submitted that all such donations from other trusts are to be treated as regular income of the assessee and cannot be claimed as corpus nature. According to the Ld. DR, this will lead to large scale manipulation between trusts by transferring regular income as corpus donation to other trusts thus making the same immune from application during the year. Hence, the Ld. DR submitted that Rs.36,16,88,341/- is deemed as current income of the trust. Thus, the Ld. DR justified the computation of revised income of the trust at Rs.66,37,23,247/- and corpus donation received will be only Rs.5,75,44,570/- .
On the other hand, the Ld. AR submitted that the voluntary contributions received by the assessee-trust from another trust towards corpus donations is capital in nature and should be excluded from taxation considering the meaning provided in clause (d) of section 11(1) of the I.T. Act. According to the Ld. AR, the provisions of section 112(24)(iia) are not applicable since the donations received by the assessee were directed towards corpus donations. He drew our attention to the provisions of section 2(24)(iia) of the I.T. Act. The Ld. AR relied on the following judgments: 1) Trustees of Khilachand Devchand vs. CIT (172 ITR 382) (Bom.) 2) CIT vs. Trustees of Kasturbai Scindia Commission Trust (189 ITR 5) (Bom.) 3) M/s. Santhwanan, Trichur vs. ITO (357 ITR 731) (ITAT, Kochi)
We have heard the rival contentions and perused the material on record. We need to examine the non-taxability of the corpus donations in assessee’s case despite inapplicability of the provisions of section 12(1)/11(1)(d)/section 35/10(21) etc. The Mumbai Bench of the Tribunal in the case of Chandraprabhu Jain Swetamber Mandir Vs. ACIT (2017) 82 taxmann.com 245 wherein the Tribunal has exclusively dealt with this issue in detail. Of course, this decision has not considered the amended provisions of section 56(2) of the Act which governs the taxing of certain gifts despite its capital nature. In the said order, the Tribunal considered various decisions viz., the decision of Delhi Bench of the Tribunal in the case of ITO (Exemptions) Vs. Smt. Basantidevi & Shri Chakhan Lal Garg Education Trust – order dated 19-01-2011, ITO Vs. Gaudiya Granth Anuved Trust -ITA No. 386/Agra/2012 order dated 02-08-2013, M/s. Pentafour Software Employees Welfare Foundation Vs. ACIT - ITA Nos. 751 and 752 /Mads/2007 and others, Shri Shankar Bhagwan Estate Vs. ITO 61 ITD 196 (Cal.) and R.B. Shriram Religious and Charitable Trust Vs. CIT 172 ITR 373. Thus, it was held that Voluntary Contributions received by the assessee towards the Corpus cannot be brought to tax in view of their capital nature. The relevant portion of the above order in the case of Chandraprabhu Jain Swetamber Mandir Vs. ACIT (supra) reads as follows: “6. We have heard the learned representatives of the parties and records perused. The grievance of the Revenue is that the Commissioner of Income-tax (Appeals) has wrongly followed the judgment of the hon'ble Delhi High Court in I. T. A. No. 5082/Del./2010, whereas that order has been challenged before the hon'ble Supreme Court. The Revenue did not dispute the facts. We noticed that the Commissioner of Income-tax (Appeals) after considering the decision of three Tribunals, i.e., Income-tax Appellate Tribunal, Delhi in the case of ITO (Exemption) v. Smt. Basanti Devi & Shri Chakhan Lal Garg Education Trust [IT Appeal No. 5082 (Delhi) of 2010, dated 30-1-2009] the Revenue filed appeal before the hon'ble Delhi High Court. The hon'ble Delhi High Court confirmed the order of the Income-tax Appellate Tribunal, the Revenue filed appeal before the hon'ble Supreme Court, which has been dismissed for non-prosecution vide judgment Civil Appeal Nos. 7036 of 2011, judgment dated January 28, 2013, Income-tax Appellate Tribunal Chennai Bench in the case of Pentafour Software Employees Welfare Foundation v. Asstt. CIT [I.T. Appeal Nos. 751 & 752 (Mds.) of 2007] and others and Income-tax Appellate Tribunal, Kolkata Bench in the case of Shri Shankar Bhagwan Estate (supra) decided the issue in favour of the assessee. We find that the facts of the case under consideration are identical to the facts of the case decided by the 5 Income-tax Appellate Tribunal, Delhi Bench in the case of Smt. Basanti Devi and Shri Chakhan Lal Garg Education Trust and other orders of the Income- tax Appellate Tribunal. Since facts are identical, therefore, to maintain consistency, we follow the above orders of the Income-tax Appellate Tribunal and the light of facts we do not find any infirmity in the order of the Commissioner of Income-tax (Appeals). The order of the Commissioner of Income-tax (Appeals) is confirmed.
7. In the result, the appeal of the Revenue is dismissed.”
7.1 We shall deal with similar decisions of various Tribunals on this issue. In the case of ITO(E) v. Basanti Devi & Shri Chakhan Lal Garg Education Trust, the Tribunal in ITA No. 5082(Del.) 2010 dated 19-01-2011 held that the amount received by the tax-payer trust from its settler, towards infrastructure fund, was not taxable in the hands of the tax-payer trust, despite the fact that the tax-payer trust is not registered u/s 12A of the Act, and consequently the Tribunal dismissed the Revenue appeal. Similar view was taken by ITAT, Agra in the case of ITO v. Gaudiya Granth Anuved Trust reported in (2014) 48 taxmann.com 348 (Agra- Trib.) wherein Tribunal held as follows: “Now, the question arises whether such corpus donation is taxable as income or not even in the cases in which the trust is not registered under section 12AA because for those trusts which are registered under section 12AA, exemption to corpus donation has been provided as per provision of section 11(1)(d). For such trust to which registration under section 12AA has not been provided, its taxability is required to be decided with reference to the scheme of the Act as held in the decision of Pentafour Software Employees Welfare Foundation v. Asst. CIT (supra). In both the decisions referred by the learned authorised representative, in case of Pentafour Software Employees Welfare Foundation v. Asst. CIT, it has been held that corpus donation being in the nature of capital receipt are not chargeable to income-tax. The decision of the Income-tax Appellate Tribunal, Delhi in the case of Basanti Devi and Sri Chakhan Lal Garg Education Trust for both assessment years 2002-03 and 2003A-04 are 6 annexed with this order as annexure A-1 in which reference to the decision in the case of Pentafour Software Employees Welfare Foundation is also given.” 7.2 The ITAT, Kolkata in the case of Shri Shankar Bhagwan Estate v. ITO [1997] 61 ITD 196 (Cal) in which, the taxability of corpus donation has been examined in the light of section 12 read section 2(24)(iia) of the Income-tax Act has held as under : “So far as section 2(24)(iia) is concerned, this section has to be read in the context of the introduction of the present section 12 it is significant that section 2(24)(iia) was inserted with effect from April 1, 1973 simultaneously with the present section 12, both of which were introduced from the said date by the Finance Act, 1972. Section 12 makes it clear by the words appearing in parenthesis that contributions made with a specific direction that they shall form part of the corpus of the trust or institution shall not be considered as income of the trust. The Board's Circular No. 108 dated March 20, 1973 is extracted at page 1277 of Volume I of Sampath Iyengar's Law of Income-tax, 9th edn. In which the inter-relation between section 12 and section 2(24) has been brought out. Gifts made with clear directions that they shall form part of the corpus of the religious endowment can never be considered as income. In the case of R. B. Shreeram Religious & Charitable Trust v. CIT [1988] 172 ITR 373 (SC) it was held by the Bombay High Court that even ignoring the amendment to section 12, which means that even before the words appearing to parenthesis in the present section 12, it cannot be held that voluntary contributors specifically received towards the corpus of the trust may be brought to tax. The aforesaid decision was followed by the Bombay High Court in the case of CIT v. Trustees of Kasturbai Scindia Commission Trust[1991] 189 ITR 5 (Bom). The position after the amendment is a fortiori. In the present cases the Assessing Officer on evidence has accepted the facts that all the donations have been received towards the corpus of the endowments. In view of this clear finding, it is not possible to hold that they are to be assessed as income of the assessees. We, therefore, hold that the assessment of the corpus donations cannot be supported.
For the above reasons, we hold as under : 1. The religious endowments are not invalid on the ground that neither the temple nor the image had been consecrated at the time of creating the endowments.
The assessees have to be assessed in the status of "individual" since they are artificial juridical entities and 3. The voluntary contributions received by the assessee towards the corpus cannot be brought to tax.”
7.3 Thus, even after considering the definition of section 2(24)(iia) read with section 12, the Kolkata Bench of the Tribunal concluded that the voluntary contribution in the nature of corpus donation raised by the appellant cannot be brought to tax. Thus, the corpus donation is in the nature of a capital receipt and are not taxable, irrespective of the fact whether the trust is registered under section 12AA or not.
7.4 The ITAT, Chennai in the case of Indian Society of Anesthesiologists v. ITO reported in (2014) 47 taxmann.com 183(Chennai-Trib.) wherein it was held that specific funds created for fulfilling specific objectives for which these separate funds are constituted remain as capital funds as the funds can be used for fulfilling specific objectives for which these funds are constituted and hence to be treated as corpus funds and to be excluded from computation of Income.
7.5 The ITAT, Bangalore in ITO v. Vokkaligara Sangha in a decision reported in (2015) 44 CCH 0509 (Bang. Trib.) wherein it was held that voluntary contributions received for a specific purposes cannot be regarded as income u/s 2(24)(iia) of the Act since they were capital receipts being corpus fund and tied up grants for specific purposes.
7.6 In view of the above decisions, the Corpus donations received by the Trusts, which is not registered u/s.12A/12AA of the Act, are not taxable as they assume the nature of ‘Capital receipt’ the moment the donations are given to the “Corpus of the Trust”. We find the provisions of section (24)(iia)/12(1)/11(1)(d)/35/56(2) are relevant for deciding the current issue. It is a settled legal proposition, in case of a registered Trust under the Income-Tax Act, the corpus specific Voluntary Contributions are outside the scope of income as defined in section 2(24)(iia) of the Act due to their “Capital nature”.
Further, in the case of Bharatiya Samskriti Vidyapith Trust in dated 13.11.2013, the jurisdictional High Court held that:
“8. The material on record discloses that assessee is a Charitable Trust running educational institution. It is registered under Section 12 AA of the Act and is also recognized under Section 80G of the Act. They have received donations from various persons. For the amounts received they have issued receipts and the amounts are duly credited in their accounts and remitted in the bank accounts. In the receipts issued, it shows that the donations are paid towards building fund. It is a voluntary contribution as the assessee is running educational institution. Probably these donations are received for the purpose of putting up buildings to carry out the purpose of the trust.
The order of the Tribunal discloses that, earlier the assessee was issuing receipts for the donations received in excess of Rs.1,000/- and subsequently, they are issuing receipts for the amounts received above Rs.5,000/-. This procedure has been accepted by the department. Now in the order of the assessment, the assessing officer has denied exemption on the ground that there is no specific direction from the donor to the donee to utilize the amounts given for the building purpose, i.e., it was given towards the corpus of the trust. The reasons given are that the particulars of the donors are not 9 mentioned and hence, the assessee is not able to give the full particulars of the donors. There is nothing to show that these donors have given any specific directions to utilize the fund as a part of the corpus of the trust. The amount involved is few lakhs for each year. The assessee is running an educational institution and if philanthropic persons voluntarily donate funds for educational purpose and they have paid it by way of cash, the assessee has received the same and issued a receipt acknowledging the said amount. After receipt of the said amount, an entry is made in the account book of the trust. Thereafter, the amount is deposited in the Bank. Therefore, it is not a case where the amounts received are not accounted for or there is any attempt not to disclose the income. The receipts issued clearly demonstrates that it is received for the purpose of building fund. Clause (d) of Sub- section (1) of Section 11 of the Act provides that income in the form of voluntary contribution made with a specific direction that they shall form part of the corpus of the trust or institution, shall not be included in the total income for the previous year of the person. Therefore, to be eligible for that exemption, the said contribution should be towards a part of the corpus. Though the words 'specific direction' is used in the said provision, the legislature consciously has not used the word 'in writing'. In the absence of any writing, only means to find out as to what is the specific direction can be gathered by considering how the recipient of the amount has accounted for it. The recipient has accounted the receipt as the amount received towards building funds and thereafter, a separate account is maintained for the said amount. From this, it could be inferred that there is a 'specific direction by the donor'. The said amount is used as part of the corpus. It may be possible that, in a given case, the provision may be abused and unaccounted monies could be converted into corpus fund without furnishing the particulars of the persons who are contributing and to avoid tax liability to have benefit of exemption, but that is a question of fact. The Court has to decide on the material available on record, whether the said provision is abused in the aforesaid manner or not. In the absence of any material to show that the said provision is abused and if it is demonstrated that the educational institution has collected money in the form of voluntary contributions from public and may be from the parents of the students who are studying in the institution and when they have issued receipts acknowledging the said amount towards building fund and made requisite entries in the books and deposited the same in the bank, if the court is satisfied with the genuineness of the transaction, it is well within the power of judicial authority to hold that the requirement of Section 11(1)(d) of the Act is fulfilled and the asseseee is entitled to be exempted.
10. Thus, the two appellate authorities have taken this view in the present case. No hard and fast rule can be laid down. The legal position cannot be 10 expressed in a straight jacket form. In the facts of the case, we are satisfied from the material on record that these voluntary contribution made by the public to the assessee was with a specific direction to use the same for building purpose and therefore, the said donations shall form part of the corpus of the trust and assessee is entitled to the benefit under Section 11 of the Act. That is, precisely what both the appellate authorities have concurrently held and it being a pure question of fact, we do not see any justification to interfere in the said question of fact. In the light of the aforesaid discussions, we do not find any error committed by the authorities. Thus, the substantial question of law is answered in favour of the assessee and against the revenue. Accordingly, the appeals are dismissed.”
9. In the present case, the assessee received amount said to be corpus fund of Rs.41,92,32,911/- out of which Rs.36,16,88,341/- was from the assessee’s group trust and this amount was treated as regular income of the assessee. The assessee produced the receipt issued by itself to various parties wherein it is mentioned that it has been received as a corpus donation. However, there is no evidence regarding specific direction given by the donor treating that the said amount was given towards corpus fund of present assessee. In such circumstances, we have go through the judgment of jurisdictional High Court wherein it was observed that in the absence of any material to show that the provisions is abused and if it is demonstrated that the educational institution has collected money in the form of voluntary contributions from public and may be from the parents or the students who are studying in the institution and when they have issued receipts acknowledging the said amount towards building fund and made requisite entries in the books and deposited the same in the bank, if the court is satisfied with the genuineness of the transaction, it is well within the power of judicial authority to hold that the requirement of section 11(1)(d) of the Act fulfilled and assessee is 11 entitled to be exempted. In the present case, it is nobody’s case that donors herein have collected any donation on behalf of the present assessee from the students or from parents for giving the admission in the institutions run by the present assessee. The AO in this case without looking into this issue, straightaway treated as the donation income of assessee. The AO has failed to carryout necessary enquiry with regard to sources from which such donors have donated the amount to the present assessee and are unable to comment on this aspect. In the absence of such findings by the lower authorities, we are not in a position to reverse the order of CIT(A). Accordingly, we uphold the same.
In the result, appeal of the Revenue is dismissed.
Pronounced in the open court on the date mentioned on the caption page.