BANK OF INDIA RETIRED EMPLOYESS MEDICAL ASSISTANCE SCHEME,MUMBAI vs. CIT (E), MUMBAI

सुनवाई क" तार"ख /Date of Hearing : 29-12-2016 घोषणा क" तार"ख /Date of Pronouncement : 30-01-2017 आदेश / O R D E R

PER RAMIT KOCHAR, Accountant Member

ITA 3249/Mum/2016 2

2. The grounds of appeal raised by the assessee in the memo of appeal filed with the Income-Tax Appellate Tribunal, Mumbai (hereinafter called “the tribunal”) read as under:-

“Being aggrieved against order of the Commissioner of Income Tax (E), Mumbai, this appeal petition is being filed to consider the following grounds of appeal, which are independent and without prejudice to each other:

1. On the facts and circumstances of the case, the Commissioner of Income Tax (Exemptions) erred in passing an order under section 263 of the act.

2. On the facts and circumstances of the case, the Commissioner of Income Tax (Exemptions) erred in passing an order under section 263 of the act though provisions of S.263 are not applicable to the facts of the case and in law ..

3. On the facts and circumstances of the case, the Commissioner of Income Tax (Exemptions) has wrongly held that order is erroneous and prejudice to the interest of the revenue though the Assessing Officer has applied his mind and passed order after considering the full facts available on records. The CIT(E) has no jurisdiction to pass an order on account of change of opinion.

4. On the facts and circumstances of the case, the Commissioner of Income Tax (Exemptions) erred in considering that the A O has held that the appellant was granted exemption S.11 of the act though the A O treated the receipt as Capital (Corpus) receipt and hence not taxable.

5. The CIT (E) failed to appreciate that:

ITA 3249/Mum/2016 3 c) That the appellant trust is not carrying any activity which is of a commercial nature. d) That expenditure is incurred on the objects of the trust and e) In various judgments quoted in the submission during the proceedings are fully covered in favour of the appellant.

6. On the facts and circumstances of the case, the Commissioner of Income Tax (Exemptions) erred in passing an order on wrong facts and without giving any cogent reason / order and without considering the submission made by the appellant.”

3. The brief facts of the case are that assessment in this case for assessment year 2011-12 was completed by the AO u/s 143(3) of the Act on 12th December, 2013 wherein the income assessed of the assessee-trust was at assessed at ‘Nil’. A proposal was received by learned CIT(E) from the learned Addl. DIT (Exemptions) Range 1, Mumbai vide letter No. Addl. DIT(Exem)/Rg.1/Reopening/2014-15 dated 24th April, 2015 regarding revision of orders prejudicial to revenue u/s 263 of the Act in the case of the assessee-trust i.e. M/s Bank of India Retired Employees Medical Assistance Trust. Based on the aforesaid proposal, a show-cause notice was issued to the assessee by learned CIT(E) vide letter No. CIT(E)/263/2015-16 dated 1st January, 2016 which is reproduced as under:-

“In your case, the assessment was completed u/s 143(3) dated 12.12.2013 determining a total income at Rs.NIL.

3. It is observed form the records that the Assessing Officer has stated that the Trust is not duly registered u/s.12A of the I.T. Act 1961 and subsequently not liable for exemption u/s. 11 of the I.T. Act 1961 and the assessment was completed accordingly. However, the Assessing Officer has erroneously allowed the corpus donation of Rs.1,90,00,000/- u/s 11(1)(d) of the I.T. Act 1961. In the case of U.P. Forest Corporation v/s Dy. CIT(2008) 297 ITR 1 (SC) the Hon'ble Supreme Court has held that ITA 3249/Mum/2016 4 registration u/s.12A is a condition precedent for availing the benefit of Sec 11 & 12 of the Act, unless or until the institution is registered u/s. 12A of the I.T. Act 1961.

4. Further, it is observed that the Trust has received interest income of Rs.1,46,32,985/-. As against the above income, the Assessing Officer has allowed the expenses to the extent of income available. However, the Assessing Officer has also allowed expenditures which has no direct nexus to earn the Interest Income of Rs.1,46,32,985/-.

5. I have examined the records as well as the order passed by the Assessing Officer as discussed above and I am of the opinion that the order passed by the Assessing Officer is erroneous in so far as it is prejudicial to the interest of the Revenue and therefore requires revision.

6. In view of the above facts, you are requested to explain as to why order u/ s 263 of the Act should not be passed enhancing or modifying the assessment or cancelling the assessment in your case. In this regard, you are requested to attend in person or through your Authorised Representative before the undersigned and file the written submissions and argue the matter on 19.01.2016 at 3.30 pm in my office."

In response to the above show cause notice, the assessee submitted before learned CIT(E) as under:-

“We are in receipt of show cause notice for revision of assessment u/s 263 of the act. 2. The assessment of the above case was completed u/s 143(3) on 12.12.2013 determining a total income of Rs. NIL.

1. During the assessment proceedings, the appellant had given full details regarding the Corpus Donation received of Rs.1,90,00,000/-. It was explained that the said amount is the ITA 3249/Mum/2016 5 The amount has been received with specific direction to treat as a Corpus of the fund. The said amount is to be kept in Corpus of Trust and only income out of the same is to be utilized for the benefit of the members of the Trust, which is of a charitable nature.

The recognisation or registration of a Trust u/s.12A does not change the character of the receipt. The character of the receipt is "Corpus" and hence is a Capital receipt.

We are Charitable Trust though we may not have been recognized u/ s.12A due to a technical defect. It may also be stated that the Assessing Officer was aware of the fact that registration u/s.12A of the act was rejected and the assessee is not entitled to exemption u/s.11 of the Act.

The Assessing Officer has stated in the last paragraph of the order as under:- the Trust is registered with the Charity Commissioner, Mumbai. Registration u/s.12A of the I.T. Act rejected to the assessee. Therefore assessee is not liable to exemption u/s.11 of the Act During the assessment, the Balance Sheet and Profit & Loss Account was available with the Assessing Officer. Details of the Corpus Fund received during the year was provided to the Assessing Officer. The amount of Rs.l,90,00,000/- was received from Bank of India towards Corpus of the fund which is to be kept by way of tied-up fund and only the interest earned out of After considering the above facts, the Assessing Officer has applied his mind and has clearly held and computed the income as per Computation of the income filed in the Return of Income. He has consciously not made any addition in respect of the amount received by way of the Corpus Fund during the year.

ITA 3249/Mum/2016 6 The Assessing Officer having formed an opinion and applied his mind to the facts of the case, no revision of the said order can be made u/s.263 of the Act. Section 263 of the Act applies to the case where "any order passed by the Assessing Officer is erroneous in so far as it is prejudicial to the interests of the revenue". There is no error in passing the order by the Assessing Officer. The Assessing Officer has correctly passed the order.

It may be stated that the similar case was before the Hon'ble Income Tax Appellate Tribunal Bangalore Bench in the. case of ITO v. Vokkalingera Sangha- to 285/Bang/2014. Copy enclosed. The said case was decided on 14th August, 2015. In the said case, it has been clearly held that though the registration u/ s.12A has not been granted, the accounting principle in respect of the Corpus of the fund is not to be disturbed.

In your notice you have cited the judgment of U.P. Forest Corporation v. DCIT-297 ITR 1 (SC)(2008). As per the said judgment, the registration u/s.12A is a condition precedent for availing the benefit of S. 11 & S.12 of the act unless and until the institution is registered u/ s.12A of the Act.

We would invite your attention to the above judgment viz. ITO v. Vokkalingera Sangha- to 285/Bang/2014 wherein at paragraph no.5.3.6 which is quoted as under.- "Before looking into the facts of the case, we notice that Revenue has relied upon a judgment of the Hon'ble Apex Court in the case of U.P. Forest Corporation & Another v. DCIT reported in 297 ITR 1 (SC). According to the aforesaid decision, registration under section 12AA of the Act is mandatory for availing the benefits under Section 11 & 12 of the Act. However, the question that arises for our consideration in the case on hand is not the benefit under Section 11 & 12 of the Act, but rather whether voluntary contributions are income at all. Thus, with due respect, the aforesaid decision, in our view, would not be of any help to Revenue in the case on hand".

In the said decision the detailed discussion has been carried out by the bench and has come to the conclusion that a specific purpose donation received does not fall within the ambit of the provision of S.2(24)(iia) of the Act. The principles of the capital v revenue have to be borne in mind and capital receipts cannot be ITA 3249/Mum/2016 7 treated as an income. Contribution received for specific purpose is a capital receipts and being a capital nature it cannot be considered as an income. The said judgment has relied on number of judgments which have been cited in the said case. It has been held that irrespective of the granting or non granting of registration u/ s.12A the character of the contribution received does not change. We also relied on the following judgments:-

1. ITO (Exem) v. Basanti Devi & Shri ChakhanLalGard Education Trust -ITA No.5082 (Del)/2010 & C.O. No.419 (Del)/2010.

2. ITO v. M/s. Gaudiya GranthAnurved Trust -ITA No.386/Agra/2012. 3. Pentafour Software Employees vs ACIT - and 752/Mds/2007 and 4. ITO vs Pentafour Software - I.T.A. No. l007/Mds/2007 and CO. No. 34/Mds/2008 It was held in these cases as under:-

6. As regards the nature of income there is no dispute. The assessee did receive donation towards corpus funds. Whether such receipts could be construed to be income? The term 'income' is a dark cat in the bag of the income-tax code. There is no exhaustive definition of the word 'income'. All receipts of an assessee cannot be deemed to be income of the assessee for the purpose of income-tax. Only those receipts which bear the nature of income can be made exigible to tax. The definition of the word 'income' as given under section 2(24) is inclusive. It is not exhaustive. Donations towards corpus are not falling within the ambit of the definition of income. This is a capital receipt and not exigible to tax. The department did not doubt the nature or veracity of the receipt.

10. CO. No. 34(Mds)/2008:- In this cross objection the assessee objected the inclusion of Rs.9,51,818/- received towards corpus fund. We for the reasons stated above decide this issue in favour of the assessee and against the Revenue. In view of this the other grounds raised in the cross objection have become infructuous.

ITA 3249/Mum/2016 8

5. In the Income Tax Appellate Tribunal Bench’C’ New Delhi Director Of Income Tax (E) Trust Circle II. New Delhi Vs Hologram Manufacturers Association

6. Hon'ble Delhi High Court has held in the appeal of Director Income Tax Vs. Basanti Devi &Shri ChakhanLalGarg Education Trust ITA 927/2009. From the above judgments, it is very clear that the contributions received with a specific direction that they shall form part of the Corpus of the Trust are capital receipts in the hands of the Trust. They are not income either under the general law or under section 2(24){iia) rightly construed.

In view of these facts, the assessing officer has after due consideration has not added the amount received by way of Corpus fund as income of the assessee. We, therefore, request you to drop the proceedings u/s.263 in respect of the Corpus Donation received since there is no error on the part of the Assessing Officer in treating the Corpus Fund as Capital Receipts and it is not prejudicial to the interest of the revenue. .

The change of an opinion is out of the purview of Section 263 of the Act.

The assessment is not an erroneous since all the facts were available and after due consideration the order has been passed allowing the claim and hence is not prejudice to the interest of the revenue.

ITA 3249/Mum/2016 10 We, therefore request you to drop the proceedings initiated u/s.263 of the Act."

The ld. CIT(E) rejected the afore-said contentions of the assessee and held vide orders dated 16.02.2016 passed u/s 263 of the Act , that the assessment order dated 12th December, 2013 passed by the A.O. u/s 143(3) of the Act is erroneous in so far it was prejudicial to the interests of the Revenue and set aside the assessment order dated 12-12-2014 passed by the A.O. u/s 143(3) of the Act, for framing fresh assessment after providing proper opportunity of being heard to the assessee . The assessee had argued before the learned CIT(E) that an amount of Rs. 1.9 crores was received by the assessee-trust towards Corpus Fund which cannot be used by the trust and only income derived from this corpus fund thereon can be used for the benefit of the members. The registration of the Trust u/s 12A of the Act does not change the character of the receipt, hence, the same is capital receipt. The assessee- trust also acknowledged that the registration u/s 12A of the Act was rejected by the Revenue and therefore the assessee is not liable to claim exemption u/s 11 of the Act. The assessee submitted before the learned CIT(E) that the A.O. formed an opinion and applied his mind to the facts of the assesse’s case and allowed exemption u/s 11 of the Act. It was submitted by the assessee that change of an opinion is out of the purview of section 263 of the Act. The ld. CIT (E) observed that the A.O. should have disallowed the claim of the assessee-trust for exemption of Rs. 1.90 crores while completing the assessment for the assessment year 2011-12 which the A.O. has not done even after observing that the trust is not enjoying registration u/s 12A of the Act. The ld. CIT (E) observed that the A.O. while framing the assessment order u/s 143(3) of the Act has not formed any opinion of the issue which is now dealt with in by the learned CIT(E) u/s 263 of the Act. Thus, it was observed by the ld. CIT (E) that the A.O. was silent about the eligibility of exemption to the assessee u/s 11 of the Act. Hence, the said order is ITA 3249/Mum/2016 11 erroneous in so far as prejudicial to the interest of the Revenue as the A.O. allowed the claim of exemption even when the Trust was doing activities which were commercial in nature. The ld. CIT (E) held that the Hon’ble Supreme Court in the case of U.P. Forest Corporation v. Dy. CIT (2008) 297 ITR 1 (SC) held that registration u/s 12A of the Act is a condition precedent for availing the benefit of section 11 and 12 of the Act. In nutshell, the ld. CIT(E) relying on the Explanation 2 to section 263 of the Act which has been inserted by Finance Act 2015 w.e.f. 1st June, 2015 held that the assessment order dated 12.12.2013 passed by the A.O. u/s 143(3) of the Act in this case is erroneous so far as it prejudicial to the interests of revenue and accordingly set aside the same to the file of A.O. for assessment to be framed afresh de- novo on merits after giving opportunity of being heard , vide orders dated 16.02.2016 passed by learned CIT(E) u/s 263 of the Act. It is pertinent to mention here that the learned CIT(E) dropped the second issue raised in the show cause notice dated 01-01-2016 w.r.t. interest income of Rs.1,46,32,985/- , wherein the AO allowed the expenditure having no nexus to earn interest income of Rs.1,46,32,985/-, while passing the impugned order dated 16.02.2016 u/s. 263 of the Act.

4. Aggrieved by the order of the ld. CIT (E) dated 16.02.2016 passed u/s 263 of the Act, the assessee is in appeal before the tribunal.

5. The ld. Counsel for the assessee submitted that the assessee is Bank of India Retired Employees Medical Assistance Trust, and corpus fund of Rs. 1.9 crores was received from Bank of India with the condition that the same cannot be utilized by the assessee and only the income earned thereon can be utilized for the benefit of the members of the trust, which is of charitable nature. The ld. Counsel submitted that application u/s 12A of the Act was rejected by the Revenue . It is submitted that while framing the assessment order dated 12.12.2013 u/s 143(3) of the Act the corpus fund was not taxed ITA 3249/Mum/2016 12 by the AO keeping in view that the same is capital receipt . It was submitted by learned counsel for the assessee that it is the contention of the ld. CIT(E) that corpus funds received by the assessee is chargeable to tax as revenue receipt. It is submitted that show cause notice dated 01.01.2016 was issued by learned CIT(E) on two grounds , of which one ground was with respect to the interest income of Rs. 1.46 crores as against which expenditure has been incurred and allowed by the AO while the learned CIT(E) challenged the allowability of expenditure having no nexus with interest income in the afore- stated SCN, but said second issue was finally dropped by the ld. CIT(E) while framing order dated 16.02.2016 passed u/s 263 of the Act, and the assessment order dated 12.12.2013 passed by the AO u/s 143(3) of the Act was finally set aside by learned CIT(E) vide orders dated 16.02.2016 passed u/s 263 of the Act only on one ground of taxability of corpus fund to the tune of Rs.1.90 crores received by the assessee from Bank of India. It is submitted that fund of Rs. 1.90 crores was received from Bank of India with a specific direction to the trust that the same shall form part of the corpus funds and the same cannot be utilized by the assessee and only income derived thereon can be utilized for the benefit of the members of the assessee-trust. The ld. Counsel invited our attention to paper book page 29 whereby letter dated 19th September, 2011 was issued by AGM(IR) of Bank of India which is placed on record whereby Rs 1.9 crores was given by Bank of India to the assessee towards corpus fund of the scheme . The assessee relied on the decision of the Mumbai-tribunal in the case of Chandraprabhu Jain Swetamber Mandir v. ACIT in for the assessment year 2011-12 dated 12th August, 2016 in which one of us being Accountant Member is one of the signatory to the said order , and also the learned counsel for the assessee relied upon the decision of Bangalore Bench of the Tribunal in the case of ITO v. Vokkaligara Sangha in ITA No. 281 to 285/Bang/2014 vide orders dated 14th August, 2015. ITA 3249/Mum/2016 13

6. The ld. D.R., on the other hand relied on the decision of Hon’ble Supreme Court in the case of U.P. Forest Corporation v. Dy. CIT (2008) 297 ITR 1 (SC) and submitted that no registration u/s 12A of the Act was obtained by the assessee and hence the corpus fund is also taxable being voluntary donation chargeable to tax u/s 2(24(iia) of the Act.

The assessee had also submitted copies of audited Balance Sheet and Profit and Loss Account before the AO during the course of assessment proceedings ITA 3249/Mum/2016 14 u/s. 143(3) of the Act read with Section 143(2) of the Act. The details of the corpus fund was duly furnished to the AO by the assessee during assessment proceedings u/s 143(3) of the Act read with Section 143(2) of the Act. The AO was aware that registration u/s 12A of the Act of the assessee-trust was rejected by the Revenue. The AO accepted the contentions of the assessee without analyzing the provisions of Section 11(1)(d) r.w.s. 2(24(iia) and Section12 A of the Act and his order is erroneous as no exemption can be granted to voluntary contributions received by the assessee-trust unless the assessee-trust holds registration u/s 12A of the Act. The corpus donation of Rs. 1.90 crores received by the assessee are voluntary donations . The assessment order of the AO is clearly erroneous as is against the provisions of Section 11(1)(d) r.w.s. 2(24(iia) of the Act as the assessee-trust does not hold registration u/s 12A of the Act and there is no estoppel against law. The perusal of the letter dated 19-09-2011 issued by AGM(IR) of the Bank of India stipulates merely that Rs.1.90 crores are ‘corpus donations’ which are voluntary in nature without specifying the specific purposes for which these corpus donations are to be applied as these are not specific pass through donations which are to be applied for the specific purposes, rather as stated by the assessee these corpus donations are to be kept in-tact and income accrued thereon is to be utilized for meeting medical expenses of the employees and dependent spouses of Bank of India who are beneficiaries of these medical scheme. Thus , the assessment order dated 12-12-2013 passed by the AO u/s 143(3) of the Act is clearly erroneous so far as is prejudicial to the interest of Revenue. The AO has not made the required enquiries as he should have made to see whether these corpus donation are entitled for exemption u/s 11(1)(d) of the Act if read in conjunction with Section 2(24)(iia) and 12A of the Act. There is no estoppel against law and the assessment order of the AO dated 12-12-2013 passed u/s 143(3) of the Act not bringing to tax as income corpus donation of Rs.1.90 crores u/s 2(24)(iia) of the Act is against the provisions of the law and more so these corpus donations are not ITA 3249/Mum/2016 15 for specific purposes being not pass through corpus donations and the assessee-trust does not hold registration u/s 12A of the Act. The perusal of the assessment order of the AO u/s 143(3) of the Act will clearly reveal the same as under, wherein the AO has noted that the assessee is not entitled for exemption u/s 11 of the Act:-

On perusal of the assessment record, it is observed that the objects of the trust is to provide financial assistance to the Retired Employees of the Bank, who have become the member of the scheme to meet the medical expenses incurred by them and his/her dependant spouse. The Trust is governed by and administered under the Bank of India Retired Employees Medical Assistance Scheme Rules formulated by the Bank. The trust is registered with the Charity Commissioner, Mumbai, registration u/s 12A of the I.T. Act rejected to the assessee. Therefore assessee is not liable to exemption u/s 11 of the I.T. Act.

We have observed that the Mumbai Bench of this Tribunal in the case of Chandraprabhu Jain Swetamber Mandir v. ACIT in vide orders dated 12-08-2016 wherein it has been held that the corpus donations received by the assessee trust for utilization for specific purposes cannot be brought to tax despite the fact that the tax-payer trust in that case was not registered u/s 12AA of the Act. The afore-stated order of the tribunal is reproduced below in which one of us (Accountant Member) is signatory of the said order of the tribunal:-

“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/s 12A/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 ITA 3249/Mum/2016 16 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 :

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 ITA 3249/Mum/2016 17 High Court dismissed the appeal of the Revenue against the Tribunals order for assessment year 2003-04 in 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. 2. The Revenue has raised the following grounds of appeal :

"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.

2. The learned Commissioner of Income-tax (Appeals) has erred in placing reliance upon the appellate decision of the hon'ble Delhi High Court in in the case of ITO (Exemption) v Smt. Basanti Devi and Shri Chakhan Lal Garg Education Trust for the assessment year 2003-04, which in turn is now under challenge in the hon'ble Supreme Court.

3. The order of the Commissioner of Income-tax (Appeals)-1, Agra being erroneous in law and on facts be set aside and the order of the Assessing Officer be restored.

4. The appellant craves to amend the grounds of the appeal stated above and when need for doing so may arise."

ITA 3249/Mum/2016 18

3. The brief facts of the case are that the assessee-trust has shown donation of Rs. 68,50,000 from BBT, Mumbai. The Assessing Officer computed the assessment on total income of Rs. 68,70,000 rejecting the assessee's contention that donation received towards the corpus of the trust. The Commissioner of Income-tax (Appeals) deleted the addition of Rs. 68,50,000 out of the addition of Rs. 68,70,000 made by the Assessing Officer as under:

"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 accrued 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.

ITA 3249/Mum/2016 19 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 ITA 3249/Mum/2016 20 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.

1. The religious endowments are not invalid on the ground that neither the temple nor the image had been consecrated at the time of creating the endowments.

2. The assessees have to be assessed in the status of "individual" since they are artificial juridical entities and ITA 3249/Mum/2016 21

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, the 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."

ITA 3249/Mum/2016 22

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) 44CCH 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.

In the aforesaid order of the tribunal in Chandraprabhu Jain Swetambar Mandir(supra) and other judgment(s) relied upon by the assessee, the donations were pass-through donations with specific purposes for which the said voluntary donations can be utilized and the tax-payer has no choice but to spend these donations for specific purposes for which they were granted to the tax-payer trusts. We are of the considered view that the assessment ITA 3249/Mum/2016 24 order of the A.O. dated 12-12-2013 passed u/s 143(3) of the Act in the instant appeal is erroneous so far as it is prejudicial to the interest of Revenue which cannot be sustained in law as it is against the provisions of law as discussed above . The Revenue has rightly relied upon the judgment of the Hon’ble Supreme Court in the case of UP Forest Corporation (supra) which has clearly held that for availing exemption under the provisions of Section 11 and 12 of the Act, the Registration u/s 12A of the Act is essential. The order of the Hon’ble Supreme Court is reproduced hereunder:

“11. We are of the considered view that for claiming benefit under section 11(1)(a), registration under section 12A is a condition precedent. Section 11 provides for exemption of income which is applied for charitable purposes. Section 12 is in the nature of an Explanation of section 11. Section 12A provides that provisions of sections 11 and 12 shall not apply in relation to income of any trust or institution unless certain conditions are satisfied, one of which is clause (a), the same is reproduced as under: "12A. Conditions as to registration of trusts, etc.—The provisions of section 11 and section 12 shall not apply in relation to the income of any trust or institution unless the following conditions are fulfilled, namely :— (a)the person in respect of the income has made an application for registration of the trust or institution in the prescribed form and in the prescribed manner to the Chief Commissioner or Commissioner before 1st day of July, 1973, or before the expiry of a period of one year from the date of the creation of the trust or the establishment of the institution, whichever is later : Provided that the Chief Commissioner or Commissioner may, in his discretion, admit an application for the registration of any trust or institution after the expiry of the period aforesaid;"

12. Application for registration under section 12A has to be made in Form 10A prescribed by Rule 17-A of the Income-tax Rules, 1962 before the expiry of one year from the date of the creation of the trust or the establishment of the institution, whichever is later. The same has to be made by the person in receipt of the income of the trust. Chief Commissioner or Commissioner under proviso to clause (a) of section 12A has been vested with the discretion to admit an application for registration after the expiry of the prescribed period. A conjoint reading of sections 11, 12 and 12A makes it clear that registration under section 12A is a condition precedent for availing benefit under sections 11 and ITA 3249/Mum/2016 25 12 of the Act. Unless and until an institution is registered under section 12A of the Act, it cannot claim the benefit of section 11(1)(a) of the Act. Keeping in view the fact that the appellant-Corporation has not been granted registration under section 12A of the Act, we hold that the appellant is not entitled to claim exemption from payment of tax under sections 11(1)(a) and 12 of the Act.

Thus, we do not find any merit in contention of learned counsel for the assessee and hold that the assessment order dated 12-12-2013 passed by the A.O. u/s 143(3) of the Act is erroneous so far as is prejudicial to the interest of Revenue, hence, we have no hesitation in up-holding the said order dated 16-02-2016 passed by the learned CIT(E) u/s 263 of the Act as the assessment order dated 12-12-2013 passed by the AO u/s 143(3) of the Act is erroneous as far as being prejudicial to the interest of Revenue, and accordingly we uphold the order dated 16.02.2016 passed by the ld. CIT(E) u/s 263 of the Act. We order accordingly.