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Income Tax Appellate Tribunal, “SMC” BENCH, MUMBAI
Before: SHRI SAKTIJIT DEY
Aforesaid appeal has been filed by the assessee challenging the order dated5thFebruary 2018, passed by the learned Commissioner (Appeals)–3, Mumbai, for the assessment year 2012–13.
The dispute in the present appeal is confined to theaddition of ` 5,11,438, to the total income.
Brief facts are, the assessee, a trust, is registered with the Charity Commissioner, Mumbai. For the assessment year under dispute, the assessee filed its return of income on 10th March 2014,
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declaring total income of ` 1,85,310. During the assessment proceedings, the Assessing Officer noticing that the assessee is not registered under section 12A / 12AA of the Income Tax Act, 1961 (for short “the Act”) called upon it to explain why the donation of ` 5,11,438, transferred to reserve account should not be disallowed. In response, it was submitted by the assessee that the said amount having been received as corpus donation is in the nature of capital receipt, hence, not taxable. Further, it was submitted that since the assessee is not registered under section 12AA of the Act, provisions of sections 11, 12 and 13 of the Act would not apply and receipts of capital nature cannot be brought to tax. Without prejudice to the aforesaid submissions, it was submitted that the receipts cannot also be taxed as income from other sources as it does not fall in the category of receipts as defined in section 56(2) of the Act. The Assessing Officer, however, did not find merit in the submissions of the assessee. Since, the assessee was not granted registration under section 12A of the Act, the Assessing Officer held that provisions of sections 11 and 12 of the Act would not be applicable to the assessee and the entire income of the assessee is to be computed under the normal provisions of the Act. Therefore, he held that the donation received of ` 5,11,438, has to be treated as normal receipt of the assessee and brought to tax. Of–course, he also observed that the donation received is not exempt under section 11(1)(d) of the Act.
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Being aggrieved with the aforesaid addition made by the Assessing Officer, the assessee preferred appeal before the learned Commissioner (Appeals).
During the pendency of the proceedings before the first appellate authority, the assessee was granted registration under section 12A of the Act vide order dated 29th September 2017. Thus, it was submitted by the assessee that since it has been granted registration under section 12A of the Act during the pendency of the proceedings, the benefit of provisions contained under sections 11 and 12 of the Act should be given to the assessee in terms of the proviso to section 12A(2) of the Act. The learned Commissioner (Appeals), however, upheld the addition made by the Assessing Officer on the reasoning that the assessee did not have the benefit of registration under section 12A of the Act for the impugned assessment year.
The learned Authorised Representative submitted, during the pendency of its appeal before the first appellate authority, the assessee was granted registration under section 12A of the Act on 29th September 2017. Therefore, as per the first proviso to section 12A(2) of the Act, the assessee would be eligible to avail the benefit of sections 11 and 12 of the Act, since, the proceedings before the first appellate authority is an extension of the assessment proceedings. Without prejudice to the aforesaid submission, the learned Authorised
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Representative submitted, the donation of ` 5,11,438, was specifically granted towards the corpus of the trust. Therefore, it is in the nature of capital receipt, hence, not taxable. For such proposition, the learned Authorised Representative relied upon the following decisions:–
i) Chandraprabhu Jain Swetamber Mandir v/s ACIT, [2017] 82 taxmann.com 245 (Mum.); and ii) Bank of India Retired Employees Medical Assistance Trust v/s ITO, [2018] 96 taxmann.com 277.
The learned Departmental Representative strongly relying upon the observations of learned Commissioner (Appeals) and the Assessing Officer submitted that since the assessee was not registered under section 12A or section 12AA of the Act for the impugned assessment year, no benefit under section 11 of the Act could have been granted to the assessee. He submitted, as per section 11(1)(d) of the Act, only those voluntary contributions which are made with a specific direction that they will form part of the corpus of the trust are to be excluded from the total income of the assessee. He submitted, the assessee has not brought any material on record to indicate that the condition of section 11(1)(d) of the Act is satisfied. He submitted, as per the definition of income under section 2(24)(iia) of the Act, voluntary contributions made to a trust are also included. Thus, he submitted,the Departmental authorities were justified in disallowing assessee’s claim.
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I have considered rival submissions and perused material on record. Undisputedly, at the time of filing of return of income for the impugned assessment year as well as completion of assessment, the assessee was not registered under section 12A or section 12AA of the Act. Therefore, the Assessing Officer refused to allow benefit of section 11 of the Act to the assessee. However, during the pendency of the appeal proceedings before the first appellate authority, the assessee was granted registration under section 12A of the Act vide order dated 29th September 2017. After receiving the registration certificate, the assessee had specifically pleaded before the first appellate authority that as per the first proviso to section 12A(2) of the Act, it is entitled to avail benefit of section 11 of the Act. However, it is apparent, learned Commissioner (Appeals) has completely ignored the aforesaid submissions of the assessee. In my view, the contention of the assessee that benefit of section 11 of the Act is available to the assessee in terms of the first proviso to section 12A(2) of the Act requires consideration, since, the disputed addition has been made primarily on the ground that the assessee is not registered under section 12A of the Act. As regards assessee’s claim that the donation received by the assessee is towards corpus, the onus is on the assessee to prove such fact through cogent evidence. The provision of section 11(1)(d) of the Act makes it clear that only those voluntary
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contributions which are specifically granted towards the corpus of the trust are not to be included in the income of the assessee. The decisions cited by the learned Authorised Representative also say that corpus donation received by a trust with specific directions by the donors to be applied towards specific purpose are to be treated as capital receipt. Therefore, the claim of the assessee that the donation received was towards corpus of the trust requires to be verified factually. In view of the aforesaid, I am inclined to restore the issue relating to the disputed addition to the Assessing Officer for denovo adjudication after considering all the submissions of the assessee and keeping in view the ratio laid down in the decisions to be cited by the assessee. Grounds raised are allowed for statistical purposes.
In the result, appeal is allowed for statistical purposes. Order pronounced in the open Court on 30.01.2019
SD/– SAKTIJIT DEY JUDICIAL MEMBER
MUMBAI, DATED: 30.01.2019
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Copy of the order forwarded to: (1) The Assessee; (2) The Revenue; (3) The CIT(A); (4) The CIT, Mumbai City concerned; (5) The DR, ITAT, Mumbai; (6) Guard file. True Copy By Order Pradeep J. Chowdhury Sr. Private Secretary
(Sr. Private Secretary) ITAT, Mumbai