GEMMOLOGICAL INISTITUTE OF INDIA,MUMBAI vs. ITO EXEM. WARD 1(3), MUMBAI

The Assessing officer noticed that the assessee has received donations of following amounts in these three years and did not offer them for taxation:- Assessment Year Amount 2015-16 2,70,00,000 2016-17 3,61,62,120 2017-18 3,20,00,000 When questioned about the same, the assessee contended that the donation amounts are not taxable for the following reasons:- (a) The donations are capital receipts and hence not taxable. It was stated that the donors have given these donations for a specific

The AO did not accept the above said contentions of the assessee. He observed that the assessee is a trust and it has received donations. Merely because the assessee claimed itself to be a business concern, it cannot change the nature of amount and receipts in the hands of trust (since such receipts are in the nature of income u/s 2(24)(iia) and sec. 12 of the Act). Accordingly, the AO held that the donation amounts cannot be treated as Capital receipts. Accordingly, the AO added the donation amounts received by the assessee to the total income of the assessee in all the three years.

The Ld CIT(A) noticed that the assessee has stopped claiming exemption u/s 11 of the Act from AY 2012-13 onwards. He also concurred with the view taken by the AO that mere treatment of donation as capital receipt in the tax audit report cannot change the character of the amount of receipts. Before Ld CIT(A), the assessee put up an alternative contention, viz., if the donation amount is held to be taxable, then the depreciation should be allowed on the full value of assets without reducing the donation amount. The Ld CIT(A) accepted the alternative contention of the assessee and accordingly directed the AO to allow depreciation on the full value of assets. The assessee is aggrieved by the decision of Ld CIT(A) in holding that the donation amounts are not capital receipts and hence they are liable to be taxed.

The Ld A.R contended that the assessee did not claim exemption u/s 11 of the Act and it has computed the total income by treating itself as a business organization. The donors have given the donations towards purchase of assets and hence the said donations constitute capital receipts in the hands of the assessee. Further, the assessee has not claimed exemption u/s 11 of the Act and hence, the provisions of sec.12 and 11(1)(d) will not be applicable to the assessee. Further, the assessee has reduced the donation amount from the cost of assets for computing depreciation. Accordingly, the Ld A.R contended that the donation amounts, being capital receipts, cannot be brought to tax. In support of her contentions, the Ld A.R placed her reliance on certain case laws.

The Ld D.R, on the contrary, submitted that the assessee has been registered u/s 12A of the Act as a charitable institution and hence the donations received by a charitable institution is taxable in the hands of charitable institutions. Merely because the assessee treats itself as a business organization will not change the taxability. The Ld D.R further submitted that the donations are in the nature of gifts and such kind of gifts have been made taxable u/s 56(2)(x) of the Act.

In the rejoinder, the Ld A.R submitted that the provisions of sec.56(2)(x) shall apply to the gifts received after 1.4.2017 and hence the said provision will not apply to the years under consideration.

We have heard rival contentions and perused the record. We notice that the assessee has received donations in all the three years under consideration and the Year wise break-up details of donations received by the assessee are detailed below:- Name of Donor AY 2015-16 AY 2016-17 AY 2017-18

The ld A.R relied upon various case laws in support of her contention that the donations given for a specific purpose are in the nature of capital receipts. We notice that all the decisions relied upon by the assessee are related to the cases of charitable trusts which were not registered u/s 12A of the Act. Even though the assessee herein is registered u/s 12A of the Act, yet it did not claim exemption u/s 11 of the Act, apparently on the reasoning that it is not entitled for exemption u/s 11 of the Act due to the operation of the proviso to sec.2(15) of the Act. However, the tax authorities have taken the view that the provisions of sec.11 to 12 of the Act relating to charitable trust shall be applicable to the assessee, even if it is not eligible to claim exemption u/s 11 of the Act.

Under sec. 2(24)(iia) and sec. 12 of the Act, the voluntary contributions are deemed to be income derived from property held under the trust and hence the donations received by the assessee was held to be taxable by the tax authorities. In our view, both the above said sections shall be applicable only if the assessee computes its income in accordance with the provisions of sec.11 to 13 of the Act. In the instant cases, the assessee is held to be not eligible to claim exemption u/s 11 in view of the proviso to sec. 2(15) holding it to be non-charitable in nature, then the question of applying the provisions of sec.11 to 13 of the Act should not arise. In the instant cases, the assessee has not claimed exemption u/s 11 of the Act. Further, the assessee has computed its total income treating itself as a business concern. Accordingly, we are of the view that the provisions applicable to a business concern for computing total income should be applied to the assessee. Hence, we are of the opinion, the view expressed by the tax authorities is not correct. Before us, the assessee placed reliance on various case laws, which dealt with the case of receipt of corpus donations by a charitable trust/institution not registered u/s 12A of the Act. The Pune bench of Tribunal has held in the case of ITO (Exemptions) vs. Serum Institute of India Research Foundation (2018)(90 taxmann.com 229) has held that the Corpus specific voluntary contributions are in the nature of capital receipts in the case of trust not registered u/s 12A of the Act. Identical view has been expressed by the co- ordinate bench of Mumbai Tribunal in the case of Versova Kokni Sunni Jamat Trust vs. CPC (ITA No.5905/Mum/2019 dated 05-04-2022) and also in the case of Chadraprabhu Jain Swetamber mandir (2017)(82 taxmann.com 245)(Mum-Trib). In our view, the ratio laid down in the above said cases can be conveniently applied in the present case also, since the assessee was not eligible to claim exemption u/s 11 of the Act.

Further, it is the submission of the assessee that the donations have been given to the assessee by the above cited associations for the specific purpose of purchasing assets. It is also the submission of the assessee that it has considered these donations as subsidy and accordingly claimed depreciation on the cost of assets as reduced by the donations. This action of the assessee reinforces the fact that these donations were given with a specific purpose of acquiring assets for the use of the assessee. Accordingly, we hold that the above said donations received by the assessee shall constitute capital receipts in the hands of the assessee. Further, the provisions of sec.56(2)(x) shall apply to the gifts/donations received after 1.4.2017 only and the above said donations have been received prior to that date. Hence the provisions of sec.56(2)(x) shall also be not applicable to these years.

Accordingly, we set aside the orders passed by Ld CIT(A) in all the three years under consideration and direct the AO to delete the addition towards donations. Since we have held that the donations are capital receipts and not taxable, the order passed by Ld CIT(A) accepting alternative contention of the assessee is also liable to be set aside, i.e., the donations given for the specific purpose of purchasing asset should be reduced from the cost of asset for the purpose of allowing depreciation as required by Explanation 10 to sec.43 of the Act.

In the result, all the three appeals of the assessee are allowed.