INCOME-TAX OFFICER vs. SERUM INSTITUTE OF INDIA RESEARCH FOUNDATION,, PUNE

आदेश आदेश / ORDER आदेश आदेश

PER D. KARUNAKARA RAO, AM :

This appeal is filed by the Revenue against the order of CIT(A)-10, Pune dated 19-01-2016 for the Assessment Year 2005-06.

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the AO and filed the return of income declaring total income at NIL.

This is the second round of the proceedings before the Tribunal. In the

first round, the Tribunal vide ITA Nos. 1539/PUN/2008, order dated

12-09-2012 and the appeal of the assessee is allowed for statistical

purposes giving the following directions :

“11. . . . . . . . We find the AO brought to tax the corpus donation of Rs. 3 crores on the ground that approval u/s.35(1)(ii) has not been granted to the assessee foundation and that the assessee has also not been registered u/s.12A of the Income Tax Act. . . . . . . . The order of the AO has been upheld by the CIT(A). It is the submission of the learned counsel for the assessee that even if approval u/s.35(1)(ii) is not granted then also the amount cannot be brought to tax since it is in nature of a gift and since this aspect has not been considered by the lower authorities in the light of the various decisions cited therefore the Tribunal should decide the issue or restore the issue to the file of the AO for fresh adjudication. We find the alternate contention of the assessee is more acceptable since the lower authorities have not decided the issue from the angle of gift. Considering the totality of the facts of the case, we deem it proper to restore the issue to the file of the AO with a direction to examine the contention of the assessee that the amount of Rs.3 crores received as corpus donation is in the nature of gift and therefore the same is not taxable in view of the ratio of the decisions cited (Supra). The AO should also keep in mind the outcome of the writ petition filed by the assessee, if available at the time of passing the order. . . . . . . . .”

that assessee is not having requisite approval as required u/s.35(1)(ii) of

the Act and therefore, the exemption u/s.10(21) of the Act is not

available to the assessee. Further, the Tribunal observed that since the

assessee has not been registered u/s.12A of the Act, the exemption

available u/s.11 of the Act is also not available to the present assessee.

In response, assessee submitted before the Tribunal in the first round

of the proceedings held that the said donation of Rs.3 crores amount to

a gift to the corpus of the Research Foundation. In the light of these

facts, in the absence of specific finding, on the available of exemption to

the gift of Rs.3 crores of this kind, the Tribunal directed the AO to

examine the contention of the assessee that Rs.3 crores received by the

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assessee trust towards corpus donation whether it amounts to a gift

and not taxable in view of certain decisions relied upon by the assessee.

AO was also directed to consider the outcome of the Writ Petitions, if

any, at the time of passing the set aside assessment.

reiterated the position and held the same is not exempt from taxation.

The details of decision of the AO is given in order dated 20-02-2014

passed u/s.254 of the Act. AO extracted the findings of the Tribunal in

the first found in Part-A of his order. In Part-B relating to set-aside

assessment proceedings, the AO discussed the assessee’s submission

that the said amount is not a taxable income within the meaning of

section 2(24)(iia) of the Act. AO also discussed the following decisions

which are relied upon by the assessee :

These above decisions are relevant for the legal proposition that where

there is no approval, the “corpus donation” is not income of the trust as

the same constitute a “capital receipt”. Eventually, the AO elaborated

on the meaning of section 2(24)(iia) of the Act. These provisions enlists

the items of income and the voluntary contributions received by the

trust or an institution or an association etc. on such items constitute

income. Further, the AO also distinguished the judgment of Hon’ble

Supreme Court in the case of CIT Vs. Groz Beckert Saboo Ltd. 116 ITR

125 and reasoned that a gift with conditions attached constitutes

taxable gift. The socalled gift is not a voluntary contribution. Further,

the AO considered the fact that assessee is a registered body under the

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Bombay Public Trust, 1950 as a Charitable Trust and elaborated on the

provisions of section 2(24)(iia) of the Act. Eventually, as per the

discussion given in Para No.D9 of the order, the AO held that “corpus

donation” does not tantamount to exempt income as laid down

u/s.2(24)(iia) of the Act. AO drew our attention parallel to the

provisions of section 12A/11(1)(d) of the Act and reasoned that the

voluntary contribution to the corpus of the trust are taxable as the

income of the trust but for the provisions of clause (d) of section 11(1) of

the Act. In the absence of any such specific exclusions provided in the

provisions of section 10(21) of the Act, the said donation becomes

taxable in the hands of the assessee in the year under consideration.

filed an appeal before the CIT(A). The CIT(A) passed order dated

19-01-2016 reversing the order of the AO. In his order, CIT(A) also

extracted the directions of the Tribunal and also heard the assessee in

the light of the provisions of section 35 and considered the written

submissions of the assessee. Eventually, the CIT(A) allowed the

assessee’s grounds on this issue of claim of exemption of sum of Rs. 3

crores donation to corpus as per the discussion given in Para No.6 of

his order and the same is extracted here as under :

“6. I have considered the submission of the assessee and given a careful thought. Corpus donation comprises two words viz. corpus and donation. Corpus is a Latin Expression, which means a body or structure. It also means a direction to constitute a body or substance. In common parlance this term is understood as capital sum. This also includes endowment. The expression endowment means bequest, gift. It is an act of endowing which is a capital sum provided and provides for a permanent income. Endowment also means property or money bestowed as permanent fund. In terms of charity, the corpus symbolizes funds to retain it's character as a Principal amount. It also denotes the funds earmarked for a specific purpose 'The intention of the corpus is that, the funds should not be depleted and it retains it's original character of the fund i.e. principal. Further, the expression corpus is often used from the point of the Donor Symbolizing his directions to use the money in a

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manner as per his wishes. This in other words means that donor gives direction to the donee for what purpose and how it is to be used.

The Direct Tax Laws (Amendment) Act 1989 w.e.f. 1.4.1989 had revamped corpus donation. The amendment carried out is that, the word voluntary contribution has been brought under section 2(24)(iia) of I.T. Act. The effect of amendment is that every voluntary contribution partakes the character of income. Corpus donation is a Voluntary contribution, therefore, constitutes income under section 2(24) (iia) of I.T. Another amendment was made in section 11(1)(d) by the same Act. The effect of the amendment is that deduction will be allowed under section 11(1)(d) in respect of voluntary contribution with specific direction that they shall form part of the corpus of the trust or institutions. Prior to this amendment, voluntary contribution with a specific direction, which is also known as corpus donation was never considered as an income and was totally excluded from the purview of income. 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 u/s.12AA of the I.T. Act because for those trusts which are registered u/s.12AA, exemption to corpus donation has been provided as per provisions of section 11(1)(d). For such trust to which registration u/s.12AA has not been provided, it’s tax liability is required to be decided with reference to the scheme of the I.T. Act as held in the case of M/s. Pentafour Software Employees Welfare Foundation and further in the case of Smt. Basantidevi and Shri Chakan Lala Garg Education Trust, by Delhi High Court in ITA No.5082/2010. In both the cases, it has been held that corpus donation being in the nature of capital receipt are not chargeable to income tax. 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 w.e.f. 01-04-1973 simultaneously with the present section 12. Section 12 makes it clear by the words appearing in parenthesis that contributions made with a specific direction that they should form a part of the corpus of the trust or institution shall not be considered as income of the trust. In the case of R.B. Shriram Religious and Charitable Trust 172 ITR 373 Hon’ble Bombay High Court held that even ignoring the amendments to section 12, which means that even before the words appearing to parenthesis in the present section 12, it cannot be held that voluntary contributions specifically received towards the corpus of the trust may be brought to tax. The aforesaid decision was followed by the Hon’ble Bombay High Court in the case of Trustees of Kasturbai Scindia Commission Trust 189 ITR 5. In the present case, the AO. on evidence has accepted the fact that the impugned donation has been received towards the corpus of the endowment. The same is supported by appellant by filing copy of direction issued by the donor company M/s. Serum Institute of India Ltd. vide it's letter dated 22nd & 25th March, 2005, containing specific directions regarding nature of donation being corpus of the Foundation. An identical findings have been given by Agra I.T.AT. also in the case of M/s Gaudiya Granth Anuved trust in I.T.A. No. 386 / 2012. Hence, after considering the position of Law as it is prevailing at present on the basis of several decisions cited (supra), the corpus donation is considered to be in the nature of capital receipt and is not taxable irrespective of fact whether the appellant is registered u/s. 12AA or not. Therefore, I agree with the view of appellant that the amount of Rs.3,00,00,000/- being in the nature of corpus donation is not taxable under the I.T. Act being in the nature of capital receipt and therefore addition of Rs. 3,00,00,000/- made by AO. towards the taxable income of the appellant is hereby deleted. Accordingly, Ground No. 1 is allowed.

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dictionary meaning of the expression “Corpus” and “Donation” and also

analysed the amended provisions of section 2(24) by the Direct Tax

Laws Amendment Act, 1989 w.e.f. 01-04-1989 qua the Corpus

Donations. He held that, prior to the amendment, the voluntary

contributions with specific direction was never considered as income

and totally excluded from the taxation. Such corpus donations are

exempt in principle only in view of the provisions of section 11(1)(d) of

the Act in cases registered u/s.12AA of the Act. In this regard, CIT(A)

discussed the case laws of Pentafour Software Employees Welfare

Foundation and judgment of Delhi High Court in the case of Smt.

Basantidevi and Shri Chakal Lal Garg Education Trust in ITA

No.5082/2010(supra). CIT(A) relied on both these case laws for the

proposition that the corpus donation being in the nature of capital

receipt is not chargeable to tax. CIT(A) further held that section

2(24)(iia) of the Act is required to be read in the context of introduction

of the present section 12 of the Act considering the simultaneous

amendments to both the provisions w.e.f. 01-04-1973. Eventually, the

CIT(A) held that the said amount of Rs. 3 crores of corpus donation is

not taxable under the I.T. Act being in the nature of capital receipt.

Bombay High Court judgments in the case of R.B. Shriram Religious

and Charitable Trust (supra) and the Trustees of Kasturbai Scindia

Commission Trust (supra) were relied too.

the grounds, it is argued that voluntary contributions of both corpus

and general donations received by a trust constitutes income as defined

u/s.2(24)(iia) of the Act and no such exemption is available to such

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contributions in the absence of any such expressly provided exemption

giving provisions like clause (d) of section 11(1) of the Act is available to

the registered trust u/s.12A/12AAof the Act. Revenue has objection,

the way the CIT(A) relied on the Delhi High Court judgment in the case

of Basantidevi and Chakan Lal Garg Education Trust (supra) and

others. Regarding the jurisdictional High Court judgment in the cases

of R.B. Shriram Religious and Charitable Trust (supra) the Trustees of

Kasturbai Scindia Commission Trust (supra), Ld. DR for the Revenue

submitted that these are the Trusts with registration u/s.12 of the Act.

The assessment years involves in these cases are prior to A.Y. 1972-

1973 and earlier.

CIT(A) is required to be reversed as the CIT(A) ignored the fact of

absence of any such exemption-providing-provisions like clause (d) of

section 11 of the Act in the definition of 2(24)(iia) of the Act for the cases

like the present assessee. Ld. DR for the Revenue reasoned that if

voluntary contributions to contributions of the trust are not to be taxed

as income, the definition of income would have been accordingly worded

on par with the section 11(1)(d) of the Act. He also filed the written

submissions in this regard explaining the provisions of section 2(24)(iia)

of the Act not providing for exclusion of the corpus donations or corpus

specific voluntary contributions from the definition of the scope of

“income”. In his written submissions, CIT(A) discussed various

decisions and the relevant written submissions from Para Nos. 7.1 to 8

are extracted as under :

“7.1. The reliance was placed on the judgment of the Bombay High Court In the case of CIT Vs. Trustees of Kasturbhai Sindhia reported in [1991] 189 ITR 5 in which it held that the donation specifically towards corpus of the donee trust would not constitute income in the hands of the donee

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trust based on the reading of sec. 12(2) and sec.11 of the IT.Act. This decision was based on its earlier judgment in the case of trustees of Khilachand Devchand Foundation Vs CIT reported in [1998] 172 ITR 382. It is seen from the judgment that the assessment years involved were 1969-70,71-72 and 72-73. These assessment years were prior to the introduction of clause 2(24)(iia). Further, the decision was based on the reading of the then section 12(2) r.w.s.11 of the IT.Act. The appellant case is not covered by sec.11 and 12 of the IT.Act as it is not a registered u/s s 12A of the IT.Act. Therefore, this decision is otherwise also not applicable to the facts of the appellant's case.

7.2. Reliance was also placed on the judgment of the Bombay High Court in the case of R. B.Shriram Religious and Charitable trust Vs. CIT reported in [1988] 172 ITR 373. It is seen that this case pertains to the A.Y. 1966-67. The issue involved in the case was whether sec.12(1) deals with voluntary contributions or the Income derived from the voluntary contributions. It was held that it is voluntary contributions which is to be treated as income by interpreting and referring to the subsequent amendment made in sec.2(24)(iia). This case is in no way relevant to the assessment year under consideration.

7.3. The next case relied upon is the Delhi High Court decision in the case of Director of Income Tax Vs. Smt Basanti Devi and Shri Chakhanlal Garg Education Trust for A.Y. 03-04 in ITA No.927/2009 dtd.23/9/2009 and the short judgment of this decision is reproduced below: "The respondent/assessee is admittedly a Charitable Organisation which is a trust registered under the Indian Trust Act which has also been granted registration under the I. T.Act w.e.f. 1/4/2003. The assessee received certain donations towards its corpus which had been deposited in the bank and the money was admittedly spent for acquiring land for construction of a college. In these circumstances, we are of the opinion that the CIT(A) as well as ITAT rightly concluded that the donations received towards corpus of the trust would be capital receipt and not revenue receipt chargeable to tax. No question of law arises. Dismissed".

7.3.1. It is clear that the High Court has not dealt the question of law holding that it does not arise. The High Court apparently was carried away by the fact that the trust was registered subsequently under the IT.Act and also the sum received was spent for the construction of college. In view of these specific circumstances of the case, the court has not dealt with the basic legal premise as to whether the charitable trust not registered under the IT.Act is entitled in not treating in the corpus donation as income in spite of the provisions of sec. 2 (24)(iia) which defines income to include voluntary contributions. This case has not enunciated any clear principle, as there is no discussion on the issue and therefore should not be taken as a binding precedent in view of the Supreme Court decision in the case of Padma Sunder Rao Vs. State of Tamilnadu 255 ITR 147 (SC).

7.4. Reliance was also placed on the judgment in the case of Pentafour Software Employees Welfare Foundation as seen in the appeal order but there is no citation to download the judgment. A close look at the name of the foundation itself reveals that it is not a charitable organisation and therefore, the provisions of sec. 2 (24)(iia) do not apply to such non charitable foundations. So the decision of this case is not relevant to the charitable organizations.

7.5. Reliance was also placed on the judgment of the ITAT Agra in the case of Gaudiya Granth Anuved Trust Vs. Department of Income Tax in

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ITA No.386/Agra/2012 (A.Y. 07-08) dtd.12/7/2013. It is seen that this decision is based basically on the cases discussed above. Therefore, there is no separate discussion is required on the merits of this case.

is the case of the assessee that when the assessee does not have

approval as required u/s.35(1)(ii) of the Act as well as u/s.12A/12AA of

the Act, the assessee should be treated as any other normal trust and

not the AOP as held by the AO in which case the provisions of section

2(24)(iia) of the Act qua the expression “Voluntary Contributions”,

should be considered at its general meaning. Referring to the

expression “voluntary contributions” used in the said provisions of

section 2(24)(ii) of the Act, Ld. AR submits that the voluntary

contributions which are of the capital nature should be excluded from

the taxation considering the meaning provided in the context of

provisions of clause (d) of section 11(1) of the Act. Relevant

submissions of the assessee provided before us are extracted as under:

“As stated in relevant para of our submissions the institute was never granted nor claimed exemption u/s 11 but exemption was always granted u/s 10(21). Copy of Assessment order for AY 2003-04 is attached herewith for your ready reference.

After analysing the definition of income u/s 2(24(iia) you may observe that the definition itself makes distinction between charitable trust & institution referred into Sec. 10(21) by using the word "or". (Emphasis supplied)

[(iia) voluntary contributions received by a trust created wholly or partly for charitable or religious purposes or by an institution established wholly or partly for such purposes or by an association or institution referred to in clause (21)

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or ------

We have been approved as a Scientific Research Organisation all along and also always received approval u/s. 35 (1)(ii) upto A.Y. 2004-05. Latest approval dated:- 10th April, 2002 is enclosed.

Even CBDT has not denied the fact that ours is a research organisation while rejection U/S 35(i)(ii) for weighted deduction in the hands of doner.

We were recognized as 'Scientific and Industrial Research Organization' (SIRO) by the Department of Scientific and Industrial Research, Ministry of Science and Technology, Government of India till 31.03.2013.

On the other hand we have never been assessed as "Charitable Organisation" You may kindly notice that for the purpose of Income Tax a separate distinction is made regarding the scheme of Taxation. The exemption in respect of research Association is provided u/s. 10(21) and the assessment of Charity Trusts are governed by Sec 11, 12, 12AA & 13.

submissions which are extracted as under :

“1 It is contended that the corpus donation will in any case be exempt from tax. If CBDT does not grant such approval, then also the amount cannot be taxed as it is not in the nature of income.

2 Provisions of Sec 2(24 )(iia) are not applicable and Donation with a direction to Corpus is not subject to tax

The relevant extracts of i.e. section 2(24) (iia) are reproduced below:

[(iia) voluntary contributions received by a trust created wholly or partly for charitable or religious purposes or by an institution established wholly or partly for such purposes or by an association or institution referred to in clause (21) or clause (23), or by a fund or trust or institution referred to in sub-clause (iv) or sub-clause (v) [or by any university or other educational institution referred to in sub-clause (iiiad) or sub-clause (vi) or by any hospital or other institution referred to in sub-clause (iiiae) or sub clause (via) of clause (23C) of section 10] [or by an electoral trust ].

Explanation - For the purposes of this sub-clause, "trust" includes any other legal obligation]

3 Section 10(21) of the Income tax Act, 1961 is reproduced below:

(21) any income of a research association for the time being approved for the purpose of clause (ii) [or clause (iii)] of sub-section (1) of section 35:

Provided that the research association-

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The Supreme Court, in the above case has held that a gift even of raw material subsequently used in the business of the assessee is not a revenue receipt, when it is received but it is only a capital receipt as it is a gift.

"the very fact even under the Income Tax Act a contribution with specific direction that it shall form part of the corpus of the trust does not come within the purview of the definition of income is clearly demonstrative of the fact that such donation cannot come within the purview of the definition of income

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We would like to draw your kind attention on page No. 424 of the commentary of the learned author Chaturvedi & Pithisaria in their Book Income Tax Laws under the heading observed as under:

"Income, when falls into the tax net". - Although section 14 of the 1961 Act classifies income under six heads, the main charging provision is section 4(1) which levies income-tax, as only one tax, on the "total income" of the assessee as defined in section 2(45) of that Act. An income in order to come within the purview of that definition must satisfy two conditions. Firstly, it must comprise the "total amount of income referred to in section 5". Secondly, it must be "computed in the manner laid down in this Act". If either of these conditions fails, the income will not be a part of the total income that can be brought to charge [CIT v. Harprasad & Co. Pvt. Ltd., (1975) 991TR 118,125 (SC)]

In Short first the receipt should be Income. Then only it will be taxed.

as well as various decisions cited by both the parties. We have also

gone through the written submissions furnished by both the sides.

to the corpus of the Trust constitutes “taxable income” of the Trust.

Reading from the provisions relating to the definition of income in

section 2(24(iia) of the Act and section 12(1) of the Act, the Revenue

holds that such income needs to be first included in the total income of

the assessee before any exclusion is made as in case of clause (d) of

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section 11(1) of the Act. In the instant case, the assessee is not only an

unregistered firm u/s.12A/12AA of the Act but also an unapproved

institution for the provisions of section 35(1)(ii) and 10(21) of the Act.

Since the provisions of section 12(1) does not apply to this case, the

provisions of section 2(24)(iia) of the Act applies and therefore, all the

Voluntary Contributions including those specified for the corpus of the

Trust, constitutes “income” in the absence of any provisions providing

for exclusions on par with section 11(1)(d) of the Act, The amendment

by the Direct Tax Laws Act, 1989 as well as other amendments and

subsequent Finance Acts ( with reference to section 56 relating to gifts

were amended to tax certain gifts in certain circumstances) were relied

upon by the Ld. DR. The voluntary contributions, in principle, even

though made to the Corpus of the Trust constitute “income, in a case

like the present assessee although it is registered as a Research

Foundation, i.e. Trust under the Bombay Public Trust Act. Further, it

is the case of the Revenue that the case laws cited by the Ld. AR for the

assessee either belong to the period prior to the above said amendments

or distinguishable on facts.

of R.B. Shriram Religious and Charitable Trust (supra), it is a case

where Voluntary Contributions are made to the Trust without any

specific direction by the donor that it should become part of the Corpus

of the Trust. In this case, the Hon’ble High Court held that in the

absence of any such specific direction, the Contribution becomes

taxable for the A.Y. 1966-67. Referring to the other jurisdictional High

Court judgment in the case of Trustees of Kasturbai Scindia

Commission Trust (supra), it is a case relating to A.Y. 1969-70 to 1972-

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to the case of the present assessee where donation received by Group

concern of the assessee towards the Corpus of the trust which is not

registered u/s.12A/12AA or u/s.35(1)(ii) of the Act.

DR submitted that the basic facts are not available for comments, if

any. Assessee failed to file the copies of said decisions. However, he

submitted that these are the cases where 12A registration do exist and

that makes difference to the case of the assessee. Thus, Ld. DR for the

Revenue summarises that the above comments stating that the case

laws cited by the assessee has no relevance. Therefore, Ld. DR prayed

for reversing the order of CIT(A) as he ignored the fact that subsequent

amendments made to the “Voluntary Contributions” to be included in

the total income of the assessee vide section 12(1) of the Act, and on the

gifts in principle, should also be taxable by virtue of the provisions like

the one u/s.56(2) of the Act.

16 (a) Further, Ld. DR submitted that the Income Tax Act, 1961

provides for definition of income u/s.2(24)(iia) of the Act and the same

reads as under :

“(iia) voluntary contributions received by a trust created wholly or partly for charitable or religious purposes or by an institution established wholly or partly for such purposes [or by an association or institution referred to in clause (21) or clause (23), or by a fund or trust or institution referred to in sub-clause (iv) or sub-clause (v) [or by any university or other educational institution referred to in sub-clause (iiiad) or sub-clause (vi) or by any hospital or other institution referred to in sub-clause (iiiae) or sub- clause (via) of clause (23C) of section 10 [ or by an electoral trust]].”

The above provision specifies that the “Voluntary Contributions”

received by a Trust or Institution constitutes “income”. In the case of a

Trust, the provisions of section 12(1) provides for deeming the

Voluntary Contributions received by the Trust or Institution, as the

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income of the Trust for the purpose of section 11 of the Act. This sub-

section (1) of section 12 of the Act also provide for non-inclusion of such

Voluntary Contributions in the total income, if they are made to form

part of the Corpus of the Trust of Institution. Thus, the provisions of

section 2(24)(iia) and section 12(1) are in tune with the taxation of

Voluntary Contributions and non-taxation of such Contributions in

total income if made to the Corpus of the Trust.

(b). Relevant sub-section of section 12(1) is extracted here as under :

12 (1) “Any Voluntary contributions received by a trust created wholly for charitable or religious purposes or by an institution established wholly for such purposes (not being contributions made with a specific direction that they shall form part of the corpus of the trust or institution) shall for the purposes of section 11 be deemed to be income derived from property held under trust wholly for charitable or religious purposes and the provisions of that section and section 13 shall apply accordingly.”

(c). Further, bringing our attention to the provisions of section

11(1)(d) of the Act, Ld. DR argued that it provides for exemption from

including the Corpus specific Voluntary Contributions from the purview

of total income of the assessee. The said clause (d) reads as under :

“(d) income in the form of voluntary contributions made with a specific direction that they shall form part of the corpus of the trust or institution.”

From the above, Ld. DR summed up by stating that it is easy to

infer that the “Voluntary Contributions” forms part of the “total

income”; whereas “Voluntary Contributions made with specific

directions to become part of the “Corpus of the Trust” are outside the

scope of total income of the Trust or Institution. As per Ld. DR, this

legal position applies to the Trusts covered u/s.12A and section 11 of

the Act. The position with respect to the Trusts unregistered u/s.12A

r.w.s. 11 of the Act has to be understood in a different context, like the

present assessee. The exclusions provided in section 12(1) of 11(1)(d) of

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the Act are not available to the assessee. In the absence of supporting

provisions like that of section 12(1) and 11(1)(d) of the Act, the

provisions left for applying to the case of the present assessee is only

the one of section 2(24)(iia) of the Act, which mandates that the

“Voluntary Contributions” constitutes “income”. Unlike the provisions

of section 12(1) of the Act, it does not distinguish Voluntary

Contributions or Corpus specific Voluntary Contributions. In other

words, this section 2(24)(iia) does not provide any exclusion like the way

the “Corpus donations” were excluded by virtue of the provisions of

section 12(1) of the Act. Therefore, the Corpus specific Voluntary

Contributions become taxable in a case of unregistered Trust under the

income-tax provisions.

(d). Regarding the Capital nature of such gifts/Voluntary

Contributions and therefore, they are not to be included in the total

income of the assessee, Ld. DR argued stating that the said decisions

belong to the period prior to the amendment to the provisions of section

56(2)(vi) to (viii) by the Taxation Laws Amendment Act, 2006 providing

for taxation of gifts in cash or kind subjected to fulfilment of certain

conditions specified in these amended provisions. In other words, many

gifts-capital receipts are now taxable as income of the assessee after the

amendments to section 56 of the Act. These aspects were not

considered in the said decisions cited by the assessee which are

relevant for the proposition that the “Voluntary Contributions” made to

the “Corpus of the Trust” constitutes “Capital receipt” and therefore, the

same does not constitute taxable income. The circular of the CBDT of

1974 is inapplicable as the same relates to the period prior to the

amendment to section 56 of the Act.

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does not require any amendment. The gifts in principle are the capital

receipts and are not to be included in the total income of the assessee.

Further, assessee is of the view that the Voluntary Contributions made

to the Corpus of the Trust assumes Capital nature and therefore they

are not required to be included in the total income of the assessee.

Referring to the provisions of section 12(1), assessee submits that the

Corpus donations were deemed as income includible in the total income

of the assessee and such deemed provisions cannot be extended to

understand the provisions of section 2(24)(iia) of the Act relating to the

definition of income. He also relied on the written submissions made by

the assessee before us.

submissions and case laws furnished by the Assessee and the Revenue.

There is no dispute on the basic facts that the assessee is registered

Trust under the Bombay Public Trust Act, 1950 and however, it is

unapproved by the CBDT as required u/s.35(1)(ii) of the Act. Further, it

is also not registered u/s.12A/12AA of the Act and therefore, the

immunity provided under section 11(1)(d) of the Act or the exemption

and 10(21) of the Act is not available to the assessee Trust. The fact

relating to Corpus-specific- donations of Rs.3 crores is also undisputed.

the corpus donations in assessee’s case despite inapplicability of the

provisions of section 12(1)/11(1)(d)/section 35/10(21) etc. On the face

of it, we find the provisions of section 2(24)(iia) of the Act apply to the

case of the assessee as demonstrated by the Ld. DR before us.

However, there exists no favourable decision to the assessee. Further,

18 ITA No.621/PUN/2016 Serum Institute of India Research Foundation

we find these decisions relate to the period of post-amendments to

section 12(1)/11(1)(d) or section 56(2) of the Act etc. One of such

decision of the Tribunal of Mumbai Benches, i.e. Chandraprabhu Jain

Swetamber Mandir Vs. ACIT (2017) 82 taxmann.com 245 (Mumbai-

Trib.), is relevant and it has exclusively dealt with this issue in detail.

Of course, this decision has not considered the amended the provisions

of section 56(2) of the Act which governs the taxing of certain gifts

despite its capital nature.

Tribunal in the case of Chandraprabhu Jain Swetamber Mandir Vs.

ACIT (2017) 82 taxmann.com 245 (Mumbai-Trib.). It is also a case of

unregistered trust u/s.12A/12AA of the Act. The question before the

Tribunal in this case is allowability of exemption to the Corpus Trust

when the Trust is not registered under the income-tax provisions. The

Tribunal elaborated on various decisions and concluded by stating that

the Corpus Donations are not to be taxed even if the Trust is not

registered u/s.12A/12AA of the Act. The Corpus donation with specific

direction is a significant factor in granting relief by the Tribunal.

Contents from Para 9 onwards of the order of the Tribunal are relevant.

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 – ITA

No.5082/Delhi/2010 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.). The ratio of R.B. Shriram Religious and

Charitable Trust Vs. CIT 172 ITR 373 is relevant and the same was also

19 ITA No.621/PUN/2016 Serum Institute of India Research Foundation

discussed in the said order. At the end of the discussion, the Tribunal

held that Voluntary Contributions received by the assessee towards the

Corpus cannot be brought to tax in view of their capital nature.

the operational paragraphs of the order of the Tribunal here as under :

“9. We have considered the rival contentions and also perused the material available on record including the case laws relied on. We have observed that the assessee is a religious charitable trust duly registered under the Bombay Public Trust Act,1950. The assessee could not produce registration u/s12A/12AA of the Act and hence it could be presumed that the assessee is not registered u/s 12A/12AA of the Act as the onus was on the assessee to bring on record the evidences to prove its contentions which it want court to believe and consequently to seek immunities and protections granted to a registered trust. The assessee has received corpus donations to the tune of Rs.4,55,446/- during previous year relevant to the assessment year which are being given with specific directions by the donors to be applied towards specific purpose for which the respective funds were created . This is an admitted position between the parties and there is no dispute with respect to this proposition. The details of the corpus donations are as under :

These above stated specific donations given by the donors to be utilized for specific purposes cannot be diverted for any other purposes by the assessee and are credited to the respective funds in the Balance Sheet , and utilization thereof is also reflected from these specific funds. We have gone through the case laws relied upon by the assesse as set out above and have observed that the Courts/Tribunals have taken a consistent view that these corpus donations are held to be capital receipts being capital in nature and are not taxable despite the fact that trust is not registered u/s 12A/12AA of the Act.

In ITO(E) v. Basanti Devi & Shri Chakhan Lal Garg Education Trust in ITA no. 5082(Del.) 2010 for assessment year 2002-03 vide orders dated 19- 01-2011, ITAT, Delhi relying on ITAT, Delhi decision in the taxpayers own case for assessment year 2003-04 whereby the Tribunal 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. The revenue went in appeal and the Hon’ble Delhi High Court dismissed the appeal of the Revenue against the Tribunals order for assessment year

20 ITA No.621/PUN/2016 Serum Institute of India Research Foundation

2003-04 in ITA no. 927/2009 vide orders dated 23-09-2009 in Basanti Devi & Shri Chakhan Lal Garg Education Trust. 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) whereby Tribunal held as under:

“This is an appeal filed by the Revenue against the order dated February 24, 2012 passed by the learned Commissioner of Income-tax (Appeals)-I, Agra for the assessment year 2007-08.

‘"1. The learned Commissioner of Income-tax (Appeals) has erred in law and on facts in failing to appreciate that voluntary contributions (whether corpus donations or general donations) received by a charitable trust are income as defined vide section 2(24)(iia) of the Act and corpus donations are exempt from tax under section 11(1)(d) only if assessee is registered under section 12A/12AA of the Act.

"I have also examined the term corpus fund and corpus donation as it is being generally used with respect to a trust. A corpus fund denotes a permanent fund kept for the basic expenditures needed for the administration and survival of the organisation. The corpus fund is generally not allowed to be utilised for the attainment of the purposes but the interest/dividend accused on such fund can be utilised as well as accumulated. Such fund can also be used for creation of capital asset or property of the trust from which income can be generated. Corpus fund are generally created out of corpus donation. A donation will be treated as corpus donation only if it is accompanied by a specific written direction of the donor. In the absence of any written direction of the donor, a contribution of grant cannot be transferred to corpus fund. In the present case, the donor, the Bhaktivedanta Book Trust has very categorically in his letter, while providing money to the appellant trust, has mentioned the amount of Rs. 68,50,000 as corpus donation and such amount has been used by the trust for purchasing the land and giving money on interest as loan. Therefore, the amount of Rs. 68,50,000 shown by the appellant trust has been found to be in the nature of corpus donation.

21 ITA No.621/PUN/2016 Serum Institute of India Research Foundation

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 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.

I have also come across another decision of the hon'ble Income-tax Appellate Tribunal, 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 and in this decision, it has been 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.

22 ITA No.621/PUN/2016 Serum Institute of India Research Foundation

6.5 Even after considering the definition of section 2(24)(iia) read with section 12, the hon'ble Income-tax Appellate Tribunal, Kolkata arrived to the conclusion that the voluntary contribution in the nature of corpus donation raised by the appellant cannot be brought to tax. In this case also, the trust under appeal was a private religious trust not registered under section 12AA and hence, corpus donation received by it should not be taxable as its income.

6.6 After considering the position of law as it is prevailing at present on the basis of the decision of three Tribunals, i.e., Income-tax Appellate Tribunal, Chennai, Income-tax Appellate Tribunal, Delhi and Income-tax Appellate Tribunal, Kolkata and further confirmed by the Delhi High Court, 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. Therefore, I agree with the learned authorised representative that the amount of Rs. 68,50,000 being in the nature of corpus donation is not taxable under the Income-tax Act being in the nature of capital receipt and therefore, addition of Rs. 68,50,000 made by the Assessing Officer towards the taxable income of the assessee is hereby deleted and accordingly, Ground No. 2 is allowed."

23 ITA No.621/PUN/2016 Serum Institute of India Research Foundation

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 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.

The ITAT, Chennai in Indian Society of Anaesthesiologists v. ITO in decision reported in (2014) 47 taxmann.com 183(Chennai-Trib.) 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.

The ITAT , Bangalore in ITO v. Vokkaligara Sangha in a decision reported in (2015) 44 CCH 0509 (Bang. Trib.) whereby the Tribunal 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.

In our considered view keeping in view our detailed discussions above and the case laws cited before us, these corpus donations of Rs.4,55,446/- received by the assessee trust cannot be brought to tax despite the fact that the assessee-trust was not registered u/s 12A/12AA of the Act. We order accordingly.”

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”.

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”.

But it is a case of un-registered Trust. Despite the detailed

24 ITA No.621/PUN/2016 Serum Institute of India Research Foundation

deliberations made by the Ld. DR, we find the principles relating to

judicial discipline assume significance and the priority. It is also

decided issue that there is need for upholding the favourable view if

there exists divergent views on the issue. As discussed in the

preceding paragraphs above, there are multiple decisions in favour of

the assessee.

outside the taxations in case of an unregistered Trust

u/s.12/12A/12AAA of the Act too. From this point of view, and for this

reason, the decision of the CIT(A) in granting relief to assessee does not

call for any interferences. Accordingly, grounds of appeal raised by the

Revenue are dismissed.

Order pronounced in the open court on this 29th day of January, 2018.

Sd/- Sd/- (VIKAS AWASTHY) (D. KARUNAKARA RAO) �याियक �याियक सद�य �याियक �याियक सद�य सद�य /JUDICIAL MEMBER लेखा सद�य लेखा लेखा सद�य लेखा सद�य सद�य / ACCOUNTANT MEMBER सद�य

पुणे Pune; �दनांक Dated : 29th January, 2018 सतीश आदेश आदेश क� आदेश आदेश क� क� �ितिलिप क� �ितिलिप �ितिलिप अ�ेिषत �ितिलिप अ�ेिषत अ�ेिषत/Copy of the Order forwarded to : अ�ेिषत

अपीलाथ� / The Appellant 1. ��यथ� / The Respondent 2. 3. The CIT(A)-10, Pune 4. CIT-10, Pune िवभागीय �ितिनिध, आयकर अपीलीय अिधकरण, “B Bench” 5. Pune; गाड� फाईल / Guard file. 6.

आदेशानुसार आदेशानुसार/ BY ORDER,स आदेशानुसार आदेशानुसार

स�यािपत �ित //True Copy// //True Copy// Senior Private Secretary आयकर अपीलीय अिधकरण ,पुणे / ITAT, Pune