NALWADI CHARITABLE TRUST,DELHI vs. ITO WARD EXEMP 2(4), NEW DELHI

Submissions made by rival sides heard, orders of the authorities below examined and the decisions on which the respective sides have placed reliance considered. It is an admitted position that the assessee has not filed Form 10B along with the return of income but the same has been filed belatedly. Two fold submissions are made on behalf of the assessee before us. (i) The ‘Corpus donations’ are in the nature of capital receipts, hence, do no partake the character of income of the assessee. Since, the income of the assessee during the period relevant to the assessment year under appeal was less than the threshold limit for getting the accounts audited, the assessee was not mandated to furnish Audit Report in Form 10B. (ii) Even, though the assessee was not required to get the accounts audited, still the assessee got the accounts audited and furnished Form 10B subsequent to filing of return of income and the assessee had also filed application for condonation of delay before the concerned jurisdictional CIT, the said application is still pending for adjudication before the CIT for final disposal. Hence, during pendency of said application the CIT(A) could not have denied the benefit of exemption u/s. 11(1) of the Act on corpus donations which are capital receipts.

The Division Bench in the case of DCIT vs. Shree Saraswati Education Sansthan (supra), in turn placing reliance on catena of decisions held ‘corpus donations’ being in the nature of capital receipts could not be added to the total income of assessee. The relevant extracts of findings of the Division Bench in the aforesaid case are as under:- 15. The issue to be considered, on the aspect of computation of income as per normal provision is, whether corpus donations are to be treated as capital or revenue and accordingly its treatment as income in the hands of the assessee. Corpus donations by their very nature are towards the corpus of the trust. They are not freely available for utilization by the trust. There is plethora of decisions of the ITAT, and even Hon'ble Delhi High Court holding corpus donations to be capital in nature; some of which decisions cited before us are as under: i) ITO Vs. Gaudiya Granth Anuved Trust, 48 taxmann.com 348 (Agra-Trib.) ii) ACIT Vs. Geetanjali Education Society, 22 SOT 15 (Jodh) (URO); iii) Pentafour Software Software Employees Welfare Foundation Vs. ACIT, IT Appeal Nos.751 & 752/Mad/2007; iv) ITO (Exemption) Vs. Smt. Basanti Devi & Shri Chakhan Lal Garg Education Trust, IT Appeal No.5082(Delhi) of 2010 dated 30.1.2009; v) Shri Shankar Bhagwan Estate Vs. ITO, 61 ITD 196 (Cal.); vi) Society for Integrated Development in Urban & Rural Areas (Sidur) Vs. DCIT, 90 ITD 493 (Hyd); vii) Sri Dwarkadheesh Charitable Trust Vs. IT, 98 ITR 557 (All.) viii) DCIT Vs. Nasik Gymkhana, 77 ITD 500 (Pune) 16. Further, we have noted that decision of Delhi Bench of the Tribunal in the case of Smt.Basanti Devi & Shri Chakhan Lal Garg Education Trust (supra) was confirmed by the Delhi High Court.

The ld.DR has solitarily referred to a contrary decision of the ITAT, Chennai Bench in the case of Veeraval Trust (supra). In view of overwhelming view of the ITAT in numerous decisions as above, uniform view on the issue is that corpus donations are capital in nature. We have even noted that decision relied upon by the ITAT, Chennai Bench while taking up contrary view of Hon'ble Supreme Court in the case of U.P. Forest Corporation (supra) has been considered by the ITAT, Delhi Bench in the case of R.D. Foundation (supra) and after considering the same, has still held that corpus donations to be capital in nature. In view of the same, therefore, we have no hesitation in confirming the finding of the ld.CIT(A) that corpus donations were capital in nature and could not be added, therefore, to the income of the assessee while computing the same as per normal provisions of the Act.

As for the argument of the ld.DR that since section 11(d) specifically exempts corpus donation , therefore corpus donations are to be treated as income in terms of section 2(24)(iia) of the Act need not to be dealt with by us, considering the uniform view taken by the ITAT on the issue as above treating it as capital in nature.

In conclusion, on the first aspect of the income of the assessee computed by the AO by including voluntary donations, we find, the same to be in accordance with law. Corpus donations however have been rightly held to be capital in nature by the Ld.CIT(A). The grounds raised by the Revenue in ground no.1 & 2 are partly allowed.

The second plank of argument is that even, though, the assessee was not required to furnish audit report in Form 10B, the assessee has still complied with the requirement and has furnished Form 10B, though after due date for filing return of income. Furnishing of Form 10B is procedural in requirement, hence, benefit of section 11(1) of the Act cannot be denied to the assessee on corpus donations. The CIT has denied the benefit of section 11(1) of the Act to the assessee, as the assessee failed to furnish Form 10B along with return of income within the due date alongwith return of income u/s. 139(1) of the Act.

In the case of Xavier Kelavani Mandal P Ltd. 41 taxmann.com 184, (Gujarat), the assessee failed to file Audit Report in Form 10B which was necessary to claim the benefit of section 11 of the Act. The CIT(A) permitted the assessee to file Audit Report at appellate stage and allowed exemption u/s. 11 of the Act. The Department assailed the action of First Appellate Authority before the Tribunal, but remained unsuccessful. The Department carried the issue to Hon’ble High Court. The Hon’ble High Court upholding the decision of Tribunal observed as under: “3. The question whether it is permissible to the assessee to produce the audit report at the appellate stage, has already been answered by this court in CIT v. Gujarat Oil and Allied Industries Ltd. [(1993) 201 ITR 325], wherein it is held that the provision regarding furnishing of audit report along with the return has to be treated as a procedural provision. It is directory in nature and its substantial compliance would suffice. In that case, the assessee had not produced the audit report along with the return of income, but produced before completion of the assessment. The Punjab and Haryana High Court in CIT v. Shahzadanand Charity Trust [228 ITR 292] has reiterated the same principle holding that the benefit of exemption should not be denied merely on account of delay in furnishing the same, and it is permissible for the assessee to produce the audit report at a later stage either before the Income Tax Officer or before the appellate authority by showing a sufficient cause. This decision of Punjab & Haryana High Court has been relied on by the Tribunal.”

In the instant case it is not in dispute that the assessee has furnished Form 10B, though belatedly. Thus, the mandatory condition of furnishing Audit Report in prescribed form is complied with. In light of the judgment rendered in the case of Xavier Kelavani Mandal P. Ltd. (supra), I am of considered view that the assessee has complied with the provisions of the section, hence, the benefit of section 11(1)(d) of the Act as was applicable in the impugned assessment year, is allowable the assessee. I hold and direct, accordingly.

The Revenue has placed reliance on the decision PCIT vs. Wipro Ltd. (supra). After examining the same, I am of considered view that the said decision does not support the cause of Revenue as the same is distinguishable on facts.