CHANDRAPRABHU SWETAMBER JAIN MANDIR UPSHRAYA,DHANU vs. ASST CIT PALGHAR CIRCLE, PALGHAR, PALGHAR

आयकर अपील�य अ�धकरण “D” �यायपीठ मुंबई म�। IN THE INCOME TAX APPELLATE TRIBUNAL “D” BENCH, MUMBAI BEFORE SHRI SAKTIJIT DEY, JUDICIAL MEMBER AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER

आयकर अपील सं./I.T.A. No. 230/Mum/2016 (�नधा�रण वष� / Assessment Year : 2011-12) Chandraprabhu Jain Assistant Commissioner of बनाम/ Swetamber Mandir, Income Tax, Palghar v. 1, Jain Mandir, Circle, Main Road, Palghar. Dhanu – 401601. �थायी लेखा सं./PAN : AAATS8782R (अपीलाथ� /Appellant) .. (��यथ� / Respondent)

Assessee by Shri Rahul R. Hakani Revenue by : Shri Vishwas S. Jadhav,Sr. AR

सुनवाई क� तार�ख /Date of Hearing : 23-05-2016 घोषणा क� तार�ख /Date of Pronouncement : 12-08-2016 आदेश / O R D E R PER RAMIT KOCHAR, Accountant Member

This appeal, filed by the assessee-trust , being ITA No. 230/Mum/2016, is directed against appellate order dated 21st October, 2015 passed by learned Commissioner of Income Tax (Appeals)- 3, Thane (hereinafter called “the CIT(A)”), for the assessment year 2011-12 , the appellate proceedings before the learned CIT(A) arising from the assessment order dated 31st January, 2014 passed by the learned Assessing Officer (hereinafter called “the AO”) u/s 143(3) of the Income Tax Act,1961 (Hereinafter called “the Act”).

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“I. Treating corpus donation of Rs. 4,55,446/- as income 1. The learned CIT (A) failed to appreciate that the Appellant is a duly registered trust, and hence, corpus donation of Rs. 4,55,446/- was income derived from property held under trust, and hence, entitled to exemption. 2. Without prejudice to the above, the learned CIT (A) failed to appreciate that Rs. 4,55,466/- is capital receipt, and hence, not taxable. 3. Without prejudice to the above, even if Rs. 4,55,446/- is held liable to tax, the deficit of Rs. 2,00,897/- in receipt & expenditure account should have been deducted from the same, and only balance should have been-taxed. Ill. Invoking section 164(2) 4. The learned CIT (A) failed to appreciate that all surplus corpus donation of the Appellant was exempt u/s 11. Hence, the provisions of section 164(2) of the Act are not applicable.”

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application made to the CIT for granting of registration and made the claim without any supporting evidence, therefore, the trust was assessed as AOP and also taxed at marginal maximum rate u/s 167B(1) of the Act. On perusal of the Balance Sheet of the assessee, the A.O. noted that the assessee has received a corpus donations, the details of which are as under:-

The A.O. asked the assessee to explain why corpus fund donations received of Rs.4,55,446/- should not be added to the income of the assessee and taxed as deduction u/s 11 is not available to the trust. The assessee submitted that any receipt cannot be taxed unless it is an income within the meaning of section 2(24)(iia) r.w.s. 12 of the Act. It is submitted by the assessee that contribution made with a specific direction that they shall form part of the corpus of the trust would not be considered as income of the trust. The A.O. rejected the contentions of the assessee as the assessee is not having registration u/s 12A/12AA of the Act and the benefit given by section 2(24)(iia) r.w.s. 12 of the Act is not available to the assessee. The A.O. held that the provisions of section 11 & 12 are not applicable to the assessee as the assessee is not a registered trust u/s 12A/12AA of the Act. The AO observed that as per the provisions of section 11(1)(d) of the Act income in the

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form of voluntary contributions made with a specific direction that they shall form part of the corpus of the trust shall not be included in the total income of the previous year of the trust in receipt of the income. In the absence of registration u/s 12A or 12AA of the Act the immunity granted by section 11(1)(d) is not available to the assessee for corpus donation as section 11 of the Act is not applicable for AOP. Thus , the A.O. added an amount of Rs. 4,55,446/- to the total income of the assessee being corpus donation received by the assessee, vide assessment order dated 31.01.2014 passed u/s 143(3) of the Act.

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donations received towards corpus of the trust/various funds shall not be deemed to be income derived from property held under trust wholly for charitable or religious purposes. It was submitted that receipt cannot be taxed as income unless it is an income within meaning of Section 2(24)(iia) of the Act read with Section 12 of the Act. Section 12 of the Act makes it clear that contributions made with a specific directions that they shall form part of the corpus of the trust or institution shall not be considered as income of the trust. The assessee also submitted that being AOP, by virtue of provisions of Section 56(2)(vii) of the Act, such receipts are not taxable in the hands of the assesse as income from other sources. It was also submitted that the AO also erred in taxing the assessee’s income at maximum marginal rate in the status of AOP. It was submitted that no part of the assesse income is liable to be charged at maximum marginal rates since no part of the income of the assessee enures or is used or applied directly or indirectly for the benefit of specified category of persons referred to in Section 13(3) of the Act, that no part of the trust funds are invested in contravention of the investment pattern prescribed u/s 13(5) of the Act, the assessee trust is not engaged in the any business and the objects of trust is not to earn profit and to share among the members . The assessee relied upon the following case laws:-

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The assessee submitted that the A.O. has erred in bringing to tax the income of the assessee at maximum marginal rate in the status of AOP.

The ld. CIT(A) after considering the submissions of the assessee rejected the contention of the assessee. The ld. CIT(A) held that the assessee failed to submit the copy of registration u/s 12AA or u/s 10(23C) of the Act nor copy of application made to CIT for applying for registration was produced before the AO, hence, exemption claimed u/s 11 of the Act was rightly rejected by the A.O.. The ld. CIT(A) further held that the assessee is not entitled to exemption u/s 11 of the Act being unregistered trust, therefore, the assessee’s status had to be treated as AOP and the corpus fund donation receipt is liable to be taxed. However, in the absence of elaborate discussion by the A.O. as to whether the AOP has to be taxed u/s 167B(1) or u/s 164(2), and the objects of the setting up of the trust is for public trust, therefore the provisions of section 164(2) of the Act are applicable and the assessee income shall be taxed at normal rates instead of maximum marginal rates, vide appellate orders dated 21-10-2015.

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learned counsel submitted that the assessee is not registered u/s 12AA of the Act. The assessee has received corpus donations of Rs.4,55,466/- which cannot be charged to tax under the Act. The learned counsel submitted that the assessee could not trace the application made to the CIT for applying for copy of certificate of registration u/s 12A/ 12AA of the Act , which was not rejected by the CIT and the same shall be deemed to be granted. It was submitted that the A.O. denied the exemption to the assessee and brought to tax corpus donation at maximum marginal rate of tax. It is submitted that there is corpus donations of Rs. 4,55,446/- which is not taxable even if the Trust is not registered under 12A/12AA of the Act. It is submitted that the donors have donated the corpus donations with specific directions about its application towards specific purpose for which the respective funds were created and it cannot be used for any other purposes. The ld. Counsel relied upon the following decisions:-

The assessee contended that the corpus donations cannot be brought to tax and also the ld. CIT(A) directed the A.O. to bring these income to tax at the normal rate and not maximum marginal rate as held by the AO and in view of the relief granted by the learned CIT(A) to the extent of charging corpus donation at normal rates, ground no. III(4) has become infructuous.

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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

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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 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. 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

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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,

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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.

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

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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

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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.

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, the

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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." 4. The learned Departmental representative relied upon the order of the Assessing Officer, whereas the learned authorised representative relied upon the order of the Commissioner of Income-tax (Appeals) and submitted that the Commissioner of Income-tax (Appeals) has followed the orders of the Income-tax Appellate Tribunal, Delhi Bench, which has been confirmed by the hon'ble Delhi High Court, thus, the issue is covered in favour of the assessee. 5. The learned authorised representative has submitted that the issue is covered by various orders of the Income-tax Appellate Tribunal in the cases of Shri Shankar Bhagwan Estate v. ITO [1997] 61 ITD 196 (Cal), Society for Integrated Development in Urban & Rural Areas v. Dy. CIT [2004] 90 ITD 493 (Hyd), Sri Dwarkadheesh Charitable Trust v. ITO [1975] 98 ITR 557 (All) and Dy. CIT v. Nasik Gymkhana [2001] 77 ITD 500 (Pune). 6. We have heard the learned representatives of the parties and records perused. The grievance of the Revenue is that the Commissioner of Income-tax (Appeals) has wrongly followed the judgment of the hon'ble Delhi High Court in I. T. A. No. 5082/Del./2010, whereas that order has been challenged before the hon'ble Supreme Court. The Revenue did not dispute the facts. We noticed that the Commissioner of Income-tax (Appeals) after considering the decision of three Tribunals, i.e., Income-tax Appellate Tribunal, Delhi in the case of ITO (Exemption) v. Smt. Basanti Devi & Shri Chakhan Lal Garg Education Trust [IT Appeal No. 5082 (Delhi) of 2010, dated 30-1-2009] the Revenue filed appeal before the hon'ble Delhi High Court. The hon'ble Delhi High Court confirmed the order of the Income-tax Appellate Tribunal, the Revenue filed appeal before the hon'ble Supreme Court, which has been dismissed for non-prosecution vide judgment Civil Appeal Nos. 7036 of 2011, judgment dated January 28, 2013, Income-tax Appellate Tribunal Chennai Bench in the case of Pentafour Software

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Employees Welfare Foundation v. Asstt. CIT [I.T. Appeal Nos. 751 & 752 (Mds.) of 2007] and others and Income-tax Appellate Tribunal, Kolkata Bench in the case of Shri Shankar 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. 7. In the result, the appeal of the Revenue is dismissed.”

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 Sngha 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

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assessee-trust was not registered u/s 12A/12AA of the Act. We order accordingly.

Order pronounced in the open court on 12th August , 2016. आदेश क� घोषणा खुले �यायालय म� �दनांकः 12-08-2016 को क� गई ।

Sd/- sd/- (SAKTIJIT DEY) (RAMIT KOCHAR) JUDICIAL MEMBER ACCOUNTANT MEMBER मुंबई Mumbai; �दनांक Dated 12-08-2016 [

व.�न.स./ R.K. R.K. R.K., Ex. Sr. PS R.K. आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant 2. ��यथ� / The Respondent. 3. आयकर आयु�त(अपील) / The CIT(A)- concerned, Mumbai 4. आयकर आयु�त / CIT- Concerned, Mumbai 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, मुंबई / DR, ITAT, Mumbai “SMC” Bench 6. गाड� फाईल / Guard file. आदेशानुसार/ BY ORDER, स�या�पत ��त //True Copy// उप/सहायक पंजीकार (Dy./Asstt. Registrar) आयकर अपील�य अ�धकरण, मुंबई / ITAT, Mumbai