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Facts
The assessee, a charitable trust, received contributions totaling Rs. 1.25 Crores from the Government of India and SIDBI as corpus contributions, which the AO/CIT(A) treated as taxable voluntary contributions under section 2(24)(iia). The authorities also denied exemption under section 11, citing a previous revocation of its 12A registration. However, the assessee's 12A registration was subsequently restored by the ITAT and upheld by the Hon'ble Bombay High Court.
Held
The Tribunal held that since the assessee's 12A registration was restored by the High Court, it is eligible for benefits under Section 11 of the Act. It clarified that the contributions received from GOI and SIDBI were explicitly directed towards the corpus of the trust as capital receipts, thus not falling under taxable voluntary contributions under section 2(24)(iia). Consequently, the impugned addition made by the AO was directed to be deleted, and the assessee was allowed the benefit of deduction under section 11(1)(a).
Key Issues
Whether corpus contributions received by a charitable trust from government bodies are taxable as voluntary contributions under section 2(24)(iia) and whether the trust is eligible for exemption under Section 11 when its 12A registration has been restored by higher judicial authorities.
Sections Cited
2(15), 2(24), 2(24)(iia), 11, 11(1)(a), 11(1)(d), 12A, 12AA(3), 234C
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Income Tax Appellate Tribunal, “C” BENCH, MUMBAI
Before: SHRI NARENDRA KUMAR BILLAIYA, HONBLE & SMT. KAVITHA RAJAGOPAL, HONBLE
PER NARENDRA KUMAR BILLAIYA, AM: This appeal by the assessee is preferred against the order dt. 13/03/2024 by the National Faceless Appeal Centre, Delhi, pertaining to AY 2012-13. 2. The grievance of the assessee reads as under:- “The grounds of appeal set out below are independent and are without prejudice to one another: 1(a) On the facts and circumstances of the case and in law, the Learned Commissioner of Income Tax (Appeals) [Ld. CIT(A)] erred in confirming the action of learned Assessing Officer [ld. AO] of making addition of Rs. 2,22,50,000/- u/s 2(24)(iia) of the Income Tax Act, 1961 being contribution received from Settlors namely, Government of India (GOI) and Small Industries Development Bank of India (SIDBI) towards Corpus Fund in terms of the trust deed and the reasons assigned for doing so are wrong and contrary to facts of the case, provisions of Income Tax Act, 1961 (Act) and Income Tax Rules, 1962 (Rules) made thereunder. 1(b) On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in confirming the action of ld. AO of making addition of Rs. 2,22,50,000/- u/s 2(24)(iia) of the Act being voluntary contribution without appreciating the fact that agreed contribution towards corpus fund received by the appellant trust from GOI and SIDBI (i.e., the Settlors) is an obligation of Settlors as per the trust deed and hence, cannot be treated or added as voluntary contribution u/s 2(24)(iia) to the total income of appellant trust. 1(c) On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in confirming the action of ld. AO of not granting exemption u/s 11(1)(d) of the Act to corpus contribution received from settlors on the reasoning that DIT(E) has withdrawn the registration u/s 12AA(3) without appreciating the fact that order of cancellation of registration u/s 12A has been set aside by the Hon'ble Income Tax Appellate Tribunal (ITAT) and Departmental appeal against the said ITAT order has been dismissed by the Hon'ble Bombay High Court. 1(d) On the facts and circumstances of the case and in law, the Ld. CIT(A) and Id. AO failed to appreciate that (i) The contribution received from the Settlors in terms of the trust deed are with a specific direction that they shall form part of the Corpus of the Trust and hence, the same cannot be included in the total income in view of the provisions of section 11(1)(d) of the Act; (ii) receipt of capital nature cannot be deemed to be income covered u/s 2(24) of the Act; (iii) the corpus contribution received by the appellant trust from settlors in terms of trust deed cannot be said to be voluntary contribution u/s 2(24)(iia) of the Act. 2(a) On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in confirming the action of ld. AO of not granting deduction u/s 11(1)(a) of the Act of Rs. 75,57,20,895/-, being 15% of the income derived by the trust which is wrong and contrary to facts of the case, provisions of the Act and Rules made thereunder. 2(b) On the facts and circumstances of the case and in law, the Ld. CIT(A) and ld. AO has failed to appreciate that (i) the objects of the trust are covered within the meaning of charitable purpose and the trust was granted registration u/s 12A of the Act. The order of cancellation of registration u/s 12A has been set aside by the Hon'ble ITAT and Departmental appeal against the said ITAT order has been dismissed by the Hon'ble Bombay High Court. (ii) the appellant trust has no profit motive and to fall within proviso to section 2(15) of the Act, rendering of service to trade, commerce or business must be such that it is in the course of carrying on of business and /or has a profit motive. (iii) the services rendered by the appellant trust are purely incidental or subservient to main object of the trust which is "charitable purpose". (iv) fees received by the appellant trust is only to recover the administrative operational cost and not to carry on any business activity and earn income thereon.
On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in confirming the action of ld. AO of charging surcharge of Rs. 7,59,05,840/- being 5% of amount of Tax holding it to be consequential in nature without appreciating the fact that surcharge was not applicable to appellant trust from AY 2010-11 to AY 2013- 14 and as such doing so is wrong and contrary to facts of the case, provisions of the Act and Rules made thereunder.
On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in confirming the action of ld. AO of charging interest of Rs. 1,90,19,870/- u/s 234C as against Rs. 42,869/- as computed by the appellant trust as per return of income and holding it to be consequential in nature which is wrong and contrary to facts and circumstances of the case, provisions of the Act and Rules made thereunder. The appellant trust craves leave to add, amend, alter, modify and/or delete any of the above grounds of appeal, on or before the date of hearing." Representatives were heard at length. Case records carefully perused and relevant documentary evidence duly considered in the light of Rule 18(6) of the ITAT Rules, 1963. 4. Briefly stated the facts of the case are that the assessee is a trust registered as a charitable organization with DIT(E), Mumbai u/s 12A of the Act vide order dt. 18/10/2001. The Registration u/s 12A was revoked by DIT(E) vide order dt. 07/12/2011. The ITAT vide order dt. 28/05/2014 in ITA No. 1074/Mum/2012, has restored the registration u/s 12A. the said order of the Tribunal was upheld by the Hon'ble High Court of Bombay vide order dt. 02/08/2017 in Income Tax Appeal No. 511 of 2015. 5. Now, since the registration u/s 12A has been restored by the order of the Hon'ble High Court of Bombay, the assessee is eligible for the benefits of Section 11 of the Act.
The bone of contention is the contribution from Government of India and SIDBI amounting to Rs.1.25 Crores received as corpus contributions and Rs.97,50,000/- received from SIDBI received as advance towards corpus fund. The assessee claimed it to be a corpus contribution by the settlers in terms of the trust deed, hence a capital receipt not allowable to tax.
This claim of the assessee is well-founded by the following letter from the Office of the Development Commissioner (Micro, Small & Medium Enterprises), Government of India:- OFFICE OF THE DEVELOPMENT COMMISSONER (MICRO, SMALL & MEDIUM ENTERPRISES) MINISTRY OF MICRO, SMALL & MEDIUM ENTERPRISES GOVERNMENT OF INDIA Nirman Bhawan, 7